© Springer-Verlag Berlin Heidelberg 2015Jürgen Basedow, Ulrich Magnus and Rüdiger Wolfrum (eds.)The Hamburg Lectures on Maritime Affairs 2011-2013Hamburg Studies on Maritime AffairsInternational Max Planck Research School for Maritime Affairs at the University of Hamburg2810.1007/978-3-642-55104-8_8
Article 47(2) of the Rotterdam Rules: The Solution of Old Problems or a New Confusion?
Faculty of Law, Kyushu University, Higashi-ku, Fukuoka, Japan
This article was first published in the Journal of International Maritime Law (JIML) (2012) 18, issue 5, published by Lawtext Publishing Limited www.lawtext.com. It is based on a presentation given at the Max Planck Institute in Hamburg on 15 October 2012 as part of the Hamburg Lectures in Maritime Affairs. The author is grateful to Jan Ramberg and Erik Rosag for their constructive comments and suggestions which helped to refine this article. The author remains responsible for any errors that may remain.
The Rotterdam Rules, adopted by UNCITRAL in 2008, address a number of issues that have not been regulated by previous international conventions, such as the delivery of goods and the right of control. The ambitious and innovative approach of the Rotterdam Rules has attracted much international debate. This article aims at contributing to this debate by discussing the provisions related to the delivery of goods. The main focus is on Article 47(2), one of the most controversial provisions of the Rules, and the article analyses in detail this legislative provision, its rationale and possible impact on the law governing the carriage of goods and international sales law.
On 3 July 2008, UNCITRAL approved the United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea (the Rotterdam Rules) which was finally adopted by the UN General Assembly on 11 December 2008.1 This new UNCITRAL legislation has the ambitious goal of restoring the uniformity of the law governing the international carriage of goods by sea. Presently, there are three international regimes governing the carriage of goods by sea: the Hague Rules,2 the Hague-Visby Rules3 and the Hamburg Rules.4 If widely adopted, the Rotterdam Rules may be able to replace these three conventions and restore uniformity to the law.
The Rotterdam Rules address a number of issues that have not been regulated by previous international conventions. There are completely new sections which cover the delivery of the goods and the right of control. The growing use of non-negotiable documents and documents in electronic form has drawn the attention of legislators to these areas that previously had been ignored by all of the international conventions governing the carriage of goods by sea. This innovative approach was probably motivated by the need to adjust the international regime governing the carriage of goods by sea in such a way as to cope with various modern developments, such as the increased importance of container transport, logistics and electronic commerce.
The ambitious and innovative approach of the Rotterdam Rules, which in some sections departs from certain well-established principles, has attracted lively international debate. This text aims at contributing to this debate by discussing provisions related to the delivery of the goods. The main focus is on article 47(2), which is one of the most controversial provisions of the Rotterdam Rules. Here it is analyzed in detail including its possible impact on international sales law.
A number of complex questions can be raised with respect to article 47(2). In maritime law, there is a well-established rule that the carrier must not deliver the goods in any way other than against the presentation of an original bill of lading. It may therefore be asked why Article 47(2) has departed from this fundamental principle? Can a document that does not require presentation against delivery of the goods be considered a negotiable document, or have the Rotterdam Rules created a new type of negotiable document which does not have to be presented to the carrier? Was it really necessary to invent a new transport document that would be called negotiable while, in fact, it would not be negotiable in the usual meaning of the term as it would lack an essential feature of negotiable documents, namely surrender in exchange for the goods? How would this affect the role of transport documents in international trade? Would a bank be willing to pay under a letter of credit against a negotiable document which provides that delivery can be made without its presentation? Is Article 47(2) the best solution to the existing problem of the delivery of goods without the surrender of a negotiable document? Was this Article necessary at all? These questions will form the focus of the discussion.
II. General Principles Relating to Delivery of Goods
All previous international conventions governing the carriage of goods by sea have failed to regulate the issue of the delivery of goods. Differences among national laws and different practices may have been the reasons why this issue was left aside by the drafters of those conventions. At present, the rules on the delivery of goods are still based on domestic laws.
In maritime law, there is a well-established rule that the carrier can deliver the goods at the destination only against the surrender of a bill of lading by the consignee. Once the master has issued the bill, the carrier has an independent, contractual obligation towards the bill of lading holder which is derived from the nature of the bill of lading. Since the bill of lading is a negotiable document, its holder is entitled to require that the goods are delivered to him.
As long as the consignee can obtain a bill of lading before the goods arrive, there should be no problem for him to present it before delivery. However, in practice, for various reasons, it is often the case that the ship arrives at the port of destination before the consignee has obtained the bill of lading. In such situations, waiting for the bill of lading may cause numerous problems for all parties involved. In order to solve this problem, the practice of delivering the goods without the production of a bill of lading has been developed. This practice, however, may also cause a number of problems particularly for the consignee and the carrier.5
The consignee may find himself in a difficult position, because he may not be able to receive the goods at the port of destination even though he performed all his obligations properly. In order to receive the goods the consignee may have to provide a letter of indemnity to the carrier, often supported by a bank guarantee, which can expose the consignee to considerable expenses.
If the carrier delivers the goods without the surrender of a bill of lading, he does so at his own risk. If the goods are delivered to a person who was not entitled to receive them, the carrier will be liable for breach of contract and for conversion of the goods.6 In such cases the carrier may be deprived of the benefit of limitation of liability and may not be able to get indemnification from the P&I clubs.
There are some exceptions to the rule that the consignee must present the bill of lading before delivery. The carrier might deliver the goods without the production of a bill of lading if it is proven to his reasonable satisfaction both that the person demanding delivery was entitled to possession of the goods and that there was some reasonable explanation for what had happened to the bill of lading.7 Carriers should, however, be very cautious with respect to this exception.8
III. Background to the Rules on the Delivery of Goods
The first issue that needs explanation relates to the rationale for the rule that the carrier must deliver the goods against the bill of lading. It seems that the reasons for such an obligation on the part of the carrier are sometimes not properly understood. Hence, in order to examine the issues related to the delivery of the goods against the surrender of the bill of lading, the reasons for this rule should be examined.
The nature of the bill of lading as a document of title is directly related to the issue of the delivery of the goods.9 At common law, the bill of lading is characterized as a document of title, which means that the person in possession of it is entitled to receive, hold and dispose of the bill of lading and the goods it represents.10 In civil law systems, there are documents corresponding to documents of title, but the approach is different. While under common law there are several types of documents, such as negotiable documents, negotiable instruments and securities, in civil law all these documents are covered by a single type of document.11 The ‘Wertpapiere’ in German law, ‘titres’ in French law, ‘titoli di credito’ in Italian law, ‘yuka shoken’ in Japanese law and so on can be defined as ‘documents of value’ which contain certain rights embodied in the documents themselves (such as the right to obtain delivery of the goods specified in the document, or the right to payment of a certain sum of money). They confer upon the holder the right to transfer these rights to third parties by transferring the documents. By means of a legal fiction, the bill of lading is deemed to represent the goods, so that possession of a bill of lading is equivalent to possession of the goods. Strictly speaking, the right to obtain the goods from the carrier is not based on the contract of carriage, but on the lawful possession of the bill of lading. The bill of lading enables its lawful holder to use it to obtain physical delivery of the goods at the port of destination, as well as to dispose of them during transit by transferring the bill of lading.
The effect of the transfer of a bill of lading is a result of the special character of the object of sale – goods carried by sea – such that it is impossible to make a physical delivery of the goods while they are in transit to the buyer. The delivery has to be carried out through the carrier as an intermediary, who receives the goods from the shipper (typically the seller) and is bound to deliver them to the consignee (typically the buyer) in exchange for the bill of lading. In fact, the seller performs the goods delivery by transferring the bill of lading to the buyer, thereby transferring to the buyer the right to demand the delivery of the goods from the carrier at the port of destination. Through the contract of carriage, evidenced by the bill of lading, the carrier undertakes to deliver the goods as described in the bill of lading to the consignee to whom the shipper transfers the bill. After the bill of lading has been transferred to the consignee, it represents the contract between the carrier and the consignee who has an independent right against the carrier to demand delivery of the goods as described in the bill of lading.
The shipper can retain control over the goods after he has delivered them to the carrier, if the bill of lading is issued on his order, until the buyer (the consignee) pays the price or accepts the bill of exchange. The consignee cannot receive the goods from the carrier without the bill of lading, and he will not obtain the bill of lading before he pays the price or accepts the bill of exchange. The shipper will lose control over the goods and the right to dispose of them at the moment he transfers the bill to a transferee. By acquiring the bill, the consignee acquires control over the goods and constructive possession. Hence, the rule that the goods must be delivered only against the bill of lading serves to protect against the risk that the goods are delivered to someone who is not entitled to receive them. This rule protects both the carrier and the persons entitled to receive the goods.
IV. Delivery of Goods Under the Rotterdam Rules
In contrast to all previous conventions, the Rotterdam Rules expressly regulate the delivery of goods. Article 11 first provides for the carrier’s obligation to deliver the goods to the consignee. This obligation is also mentioned in Article 13(1). Most importantly, chapter 9 is dedicated to the delivery of goods, where this issue is regulated in detail. With respect to the delivery of goods, the Rotterdam Rules make a distinction between a non-negotiable transport document (Article 45), a non-negotiable transport document that requires surrender (Article 46), and a negotiable transport document (Article 47). This corresponds to the practice that has developed in which, parallel to bills of lading, sea waybills are increasingly being used. In addition, the Rotterdam Rules envisage the use of non-negotiable transport documents that require surrender (Article 46), by which the use of straight bills of lading has been expressly recognized for the first time by an international convention. Adding to this complexity is Article 47(2), which entitles the carrier (under certain conditions) to deliver the goods without the surrender of a negotiable transport document.
The Rotterdam Rules do not give a precise definition of negotiable documents, focusing more on appearance and whether a document contains words such as ‘to order’ or ‘negotiable’, but failing to define the concept of negotiability.12 Since there is no universally adopted meaning of the term negotiable documents, obviously the Rotterdam Rules have left this issue to be determined by the governing law.
Article 47(2) contains several rules that apply “if the negotiable transport document expressly states that the goods may be delivered without the surrender of the transport document or the electronic transport record […]” This provision applies in cases where the holder of the document fails to claim the goods at the place of destination, or to identify himself in an appropriate way. In such cases, the carrier may ask for instructions from the shipper, or from the documentary shipper.
Subparagraph (b) provides that when the carrier delivers the goods upon instruction of the shipper or the documentary shipper in accordance with subparagraph 2(a) he will be “discharged from [his] obligation to deliver the goods under the contract of carriage to the holder, irrespective of whether the negotiable transport document has been surrendered to it […]”.
Under subparagraph (c) the person giving instructions under subparagraph 2(a) “shall indemnify the carrier against loss arising from its being held liable to the holder”. Under the same paragraph, the carrier may also refuse to follow those instructions if the person fails to provide adequate security as the carrier may reasonably request.
Under subparagraph (d) “a person that becomes a holder of the negotiable transport document or the negotiable electronic transport record after the carrier has delivered the goods pursuant to subparagraph 2(b) of this article, but pursuant to contractual or other arrangements made before such delivery, acquires rights against the carrier under the contract of carriage, other than the right to claim delivery of the goods”.
Finally, subparagraph (e) provides that “a holder that becomes a holder after such delivery, and that did not have and could not reasonably have had knowledge of such delivery at the time it became a holder, acquires the rights incorporated in the negotiable transport document or negotiable electronic transport record”.
V. Reactions to Article 47(2)
There is an ongoing debate about Article 47(2).
The opinion of the International Federation of Freight Forwarders (FIATA) Working Group was very negative. The solution that a carrier can deliver the goods without the surrender of the negotiable document was termed “absolutely unacceptable”.13 This opinion also contains a warning about the potential risk of maritime fraud.
The position of the European Voice of Freight Logistics and Customs Representatives (CLECAT) was equally negative regarding Article 47(2). The article was qualified as “the most contradicting provision” which is “bound to create conflict and complicated international litigation”.14
The view of the European Shippers’ Council (ESC) was also negative. It expressed concern that Article 47(2) “could cause problems in relation to letters of credit”.15
The opinion of the International Chamber of Shipping (ICS) was positive. It stated that Article 47(2) permits the carrier “to deliver the goods without presentation of the negotiable transport document while at the same time protecting the interests of all the parties involved”.16
In academic debate, a negative attitude prevails. The text ‘Particular Concerns with Regard to the Rotterdam Rules’ published by a group of world-renown scholars argues that when the goods are intended to be sold in transit “it would be wholly inappropriate to ask a shipper having sold the goods to a first buyer, for instructions with respect to delivery”.17 The text also warns about the risk of maritime fraud. In another influential text, Anthony Diamond QC expresses a doubt that Article 47(2) can provide a solution to the problem of delivery without surrender of an original bill of lading.18
There are also some favorable opinions. A group of authors which took active part in drafting the Rotterdam Rules tried to explain and justify the text of Article 47(2).19 Charles Debattista also takes a positive attitude stating that “Article 47(2) acknowledges the market reality that these hybrid documents are with us – and with us to stay”.20
Since the initial criticism of the Rotterdam Rules, a group of scholars promoting the Rules has attempted to clarify the alleged misunderstanding of some provisions in a text entitled ‘The Rotterdam Rules – An attempt to clarify certain concerns that have emerged’.21 Here are the main points from this text that relate to Article 47(2).
“[…] [I]f the goods are not deliverable the carrier may request instructions from the shipper in respect of delivery and, irrespective of the shipper still being the holder of the transport document or not, is discharged from any liability if it complies with such instructions.
The complaint that, pursuant to article 47(2), the carrier may issue a negotiable document that actually is not negotiable is not justified and is probably due to the failure to understand the purpose of this provision.
[The Rotterdam Rules] offer to the parties that know from the outset that the bill of lading will not be used in its intended ways, to relieve the carrier from the obligation of requesting surrender of the bill of lading.
[…] [I]t is the shipper itself that requests such statement precisely in order to ensure the possibility of delivery without presentation of the negotiable transport document […] article 47(2) just addresses the issue of non-presentation and tries to provide an alternative for the letter of indemnity system […]. It is a false accusation that article 47(2) devaluates the value of the bill of lading system and that, therefore, the article 47(2) bill of lading is not a genuine bill of lading […] Article 47(2) just tries to provide a solution therefore, which is both practically and legally sound.”
These arguments will be addressed below.
VI. Deviation from Fundamental Principles
The drafters of the Rotterdam Rules obviously aimed at solving the problem of the delivery of goods when a negotiable document is not or cannot be surrendered. Under the existing rules, delivery should be made only against the surrender of a bill of lading. In practice, delivery is often made in exchange for a letter of indemnity.
The solution proposed under subparagraph (b) represents a substantial deviation from well-established rules and practice. There is no problem with requesting instructions from the shipper if he is still the holder of the document. The problem arises if the shipper is not the holder of the document. If the shipper is not the holder, this means that he is not the controlling party. This also means that such instructions have no binding character and the carrier is free to ignore them, for example if it is obvious that the instructions are wrong. What is not clear is how under subparagraph (b), the carrier can be discharged of delivery obligations against a lawful holder of the bill of lading on the basis of non-binding instructions of the shipper? This is quite puzzling. First, why would a carrier agree to follow the shipper’s instruction and risk his liability under subparagraphs (d) and (e)? Second, why would the shipper bother to give instructions at all after he transferred the bill of lading to a transferee? Why would he risk potential liability under subparagraph (c) if the instructions were wrong? And why would he provide a security to the carrier for giving instructions that are not even binding?
Subparagraph (d) contains another enigma. According to this provision, a person that becomes the holder of the bill of lading after the carrier has delivered the goods “pursuant to contractual or other arrangements made before such delivery acquires rights against the carrier under the contract of carriage, other than the right to claim delivery of the goods”. It is not clear what rights the holder of the document acquires against the carrier.22 One possible interpretation is that a person who has no right to delivery may sue the carrier for damages.23 This would mean that the carrier is discharged from an obligation to deliver the goods, but may not be discharged from liability for damages. Another question is whether the carrier can be discharged of liability for wrongful delivery? On the basis of subparagraph (c), which states that the person giving instructions under subparagraph (a) shall indemnify the carrier against the loss caused by being held liable under subparagraph 2, it can be concluded that the carrier might be held liable for wrongful delivery. So, under subparagraph (b) the carrier is discharged from his obligation to deliver the goods, even without surrender of the bill of lading, while under subparagraph (e) the carrier might be held liable for wrongful delivery. This sounds rather confusing: how can the carrier be discharged from an obligation to deliver the goods to the holder, and then be held liable for wrongful delivery against the holder? Does this text mean that under subparagraph (b), the carrier is not necessarily discharged of the obligation to deliver the goods, but can be so discharged? In order to avoid misunderstanding and confusion, these provisions should have been drafted in a clearer way.