Last week, the Court of Appeal handed down judgment in the MSC Eugenia case MSC Mediterranean Shipping Co SA v Glencore International AG  EWCA Civ 36. In doing so, the Court warned carriers about the use of technological shortcuts without reflecting this in their agreements, reminding parties of the need to comply with their particular contractual requirements.
Glencore shipped a number of cargoes with MSC to be delivered to Antwerp. The bill of lading contract provided that "one original bill of lading must be surrendered by the Merchant [ie. Glencore] to the Carrier [ie. MSC]...in exchange for the goods or Delivery Order." The port at Antwerp operates an Electronic Release System. Traditionally, a cargo interest presents bills of lading to the carrier at the discharge port; the carrier exchanges those bills for delivery orders which are then presented by the cargo interest to the terminal, which finally permits the cargo interest to take possession of their goods. ERS is a digital system that is designed to simplify this process. Under ERS, cargo interests exchange their bills of lading for `release notes' (digital documents that contain a PIN). The PIN can be used (by cargo interests, their agents, or indeed anyone else) to secure the release of the goods from the terminal. ERS is more efficient and minimises the need to deal with paper.
At Antwerp, Glencore's agent provided the bill of lading to MSC's agent and was issued with a PIN. On attending the terminal and entering the PIN to retrieve the cargo, Glencore's agent discovered that some of the cargo had already been removed by unauthorised persons.
Glencore was successful at first instance (in front of Andrew Smith J) in its claim for damages for misdelivery. MSC appealed to the Court of Appeal and argued that (i) provision of the PIN was symbolic delivery of the goods, (ii) alternatively provision of the PIN was provision of a `delivery order' under the contract, and (iii) Glencore was in any event estopped from denying that the provision of a PIN was sufficient to discharge MSC's delivery obligation.
(i) Symbolic delivery
MSC argued that the delivery of a PIN was a symbolic act of delivery of the cargo and that possession of the PIN entitled the possessor to delivery of the goods.
The Court of Appeal did not consider this argument to be helpful in determining liability. The question, the Court made clear, was what the parties intended by their contract. In circumstances where the contract required that MSC either actually deliver the goods against a bill of lading or otherwise deliver those goods in accordance with a delivery order, it was irrelevant whether symbolic delivery was possible.
As a result of this focus on the contractual requirements, the Court did not need to determine whether provision of a PIN could be a symbolic delivery of the goods. Nevertheless, the provision of a PIN was compared with the archetype of symbolic delivery the delivery of a key to the warehouse wherein the relevant goods are stored. The Court did not accept that the provision of a PIN was equivalent to this, referring to the fact that MSC had not divested itself of all powers to control any physical dealing with the goods, referring to the fact that the terminal was operated for MSC and that MSC retained the ability to cancel the PIN provided to Glencore.
"In circumstances where the contract required that MSC either actually deliver the goods against a bill of lading or otherwise deliver those goods in accordance with a delivery order, it was irrelevant whether symbolic delivery was possible."
(ii) Delivery order under the contract
MSC argued that the release note (ie. the email containing the PIN) was a delivery order under the contract, such that it had done what was required of it under the bill of lading contract.
The Court held that the meaning of `delivery order' in an English shipping law contract must (presumably in the absence of some other aspect of the contract permitting a different construction) be understood to mean a `ship's delivery order' as defined in s.1(4) COGSA 1992. A delivery order must therefore include (even only implicitly) a contractual undertaking by the carrier to deliver goods to the person identified in the order.
The release note provided by MSC contained either no undertaking at all or, on MSC's case, an undertaking to deliver to the first presenter of the correct PIN. The Court held that this was insufficient since there was no undertaking to deliver to Glencore or its agents.
Further, delivery against a delivery note is a delivery against a document. In the case of a PIN, the delivery is against information (ie. the numbers themselves) it is irrelevant to ERS users whether or not a PIN when entered at the terminal is contained in a document. This explains the difference between a delivery note marked `to order' and a PIN, which would otherwise seem to be similar in that neither exhaustively set out on their face the authorised recipients of the goods.
"A delivery order must therefore include (even only implicitly) a contractual undertaking by the carrier to deliver goods to the person identified in the order."
Finally, MSC argued that there was an estoppel (or, as MSC argued at first instance, a variation to the contract) as a result of a previous pattern of behaviour pursuant to which MSC provided Glencore with a PIN for goods delivered to Antwerp and Glencore obtained the goods directly from the terminal.
This argument was dismissed by the Court. Glencore's complaint was not that delivery was made against a PIN, but rather that delivery had not been made to Glencore or its agents. In previous instances where a PIN was used, Glencore had received the goods and had therefore suffered no loss to complain about. The Court held that Glencore's previous acquiescence in the face of PIN provision could not constitute a representation that Glencore would not object to such `delivery' if the goods were not actually delivered to Glencore.
"it is incumbent on the carrier to ensure that the delivery procedure (such as ERS) that they are using meets their contractual requirement."
Where now for ERS?
MSC Eugenia is a strong message to carriers that the use of ERS does not relieve them of their delivery obligations as set out in their (bill of lading) contracts. The basic obligation is that carriers must surrender possession of goods only to those persons who are entitled to take delivery of them. The parties are free to agree in their contract what specific delivery obligation is to be placed on a carrier in any given instance, but it is incumbent on the carrier to ensure that the delivery procedure (such as ERS) that they are using meets their contractual requirement.
Some have criticised the MSC Eugenia decision as being uncommercial, explaining that the refusal to recognise the use of ERS sets back the adoption of technological advances by the shipping industry. However, it is incumbent on the industry to take steps to ensure that their contracts reflect developing practices the outcome in MSC Eugenia is simply a consequence of what MSC was required to do under their contract to effect delivery.
Parties should consider whether to include in their contracts express terms addressing the use of release notes and PINs, including whether provision of a PIN should be an alternative to or deemed as provision of a delivery note. Parties should also turn their minds to what they want the consequences to be if a third party appropriates the PIN, including whether and how the manner and timing of the PIN's appropriation ought to affect the distribution of risk. The Court of Appeal expressly commented on the need for either contractual or statutory change if the shipping industry wants to make the use of PINs (such as in the way intended by MSC) acceptable.
The question of whether the symbolic delivery of a cargo can be effected by the provision of a PIN is still open for determination. Although the Court of Appeal held that there was no such delivery in MSC Eugenia, symbolic delivery might be possible by the provision of a PIN if the carrier in so providing actually surrenders possession. It is open for a carrier to argue that symbolic delivery of goods has been effected where, for example, (a) the goods are stored with a third party who has no connection to the carrier, and (b) the provision of a PIN to the cargo interest prevents the carrier from using a PIN to access the goods (this might be so where the carrier causes the third party to send a replacement PIN to the cargo interest and the third party in doing so invalidates the carrier's PIN).
"The question of whether the symbolic delivery of a cargo can be effected by the provision of a PIN is still open for determination."
Postscript on IT security
The Court of Appeal judgment refers to an attempt by MSC to open new issues of causation and contributory negligence. The basis for these new issues is instructive reading for the industry.
It was initially assumed that Glencore's PIN had been misappropriated following a cyberattack against MSC. After the trial, it became apparent that Glencore's agent at Antwerp had itself been the subject of a number of cyber-attacks at the relevant time. It was unclear exactly how or from whom the PIN had been misappropriated.
Ultimately, the Court rejected MSC's attempt to raise this issue because (a) they were raised too late, and (b) they would not have affected the outcome of the case (given that delivery against a PIN was not equivalent to delivery against a delivery order, MSC were at risk when delivering solely against a PIN irrespective of how that PIN came to be in the wrong party's hands).
Notwithstanding the irrelevance of this point in this instance, this is a salutary reminder to the shipping industry that proper investment in cyber-security (both in terms of the technology used and in the training given to personnel) is critical. Losses due to breaches in IT security are increasingly leading to litigation between two otherwise innocent parties. Further, if shipping law or contracts develop in the future to recognise the provision of a PIN as good `delivery' (either symbolic or under a delivery order), the potential breach in one party's IT security could be determinative of where the loss falls.