The Transfer of Contractual Rights
8.1 As discussed in the previous chapter, one of the prime functions of a bill of lading is as a contract or evidence of a contract, and most claims under bills of lading are contractual ones. This chapter considers how claims in contract may be brought by or against parties other than an original party to the contract.1 This usually occurs as a result of a transfer of contractual rights.2 Almost without exception the party seeking to transfer rights is the party interested in the cargo, which could be the shipper or any subsequent buyer, rather than the carrier. The transferability of rights of suit against the carrier has been one of the fundamental attributes of a bill of lading for 150 years.
8.2 Such transfer is regulated now by the Carriage of Goods by Sea Act 1992 (COGSA 1992) and the bulk of this chapter consists of a discussion of the effect of this statute. Even after a century or so of common law, a century and a half of the rule of the 1855 Act and two decades since COGSA 1992, there remain unresolved difficulties.
8.3 At common law the indorsement and delivery of a bill of lading was, by the custom of merchants, capable of transferring the property in the goods if that was the intention of the parties.3 However, it had no effect on the contractual right, which remained vested in the original contracting party (usually the shipper or consignor).
8.4 Indorsement is only required to effect transfer at common law in the case of order bills, and not for bearer or straight bills. However the “attestation clause” commonly found in bills of lading requires surrender of the bill “duly endorsed” in exchange for the goods, so making indorsement a contractual requirement.4
8.5 Until the first quarter of the nineteenth century no distinction appears to have been drawn between the right to sue, on the contract, for substantial damages and the right to sue for only nominal damages.5 Thereafter the doctrine of privity of contract, coupled with the general principle that a plaintiff may only recover damages for a loss that he has himself suffered, gave rise to a potential difficulty that frequently occurred. This was where the contract of carriage was made by the shipper or seller of goods who suffered no damage in the event of their loss, or was uninterested in bringing suit, whereas the party who suffered loss and damage and wished to sue on it was the consignee who was, or became, the owner of the goods. Whilst “property” in the goods was transferred on indorsement and delivery, rights of suit under the contract of carriage were not.
8.6 Some solutions to the problem caused by this discontinuity in rights under the bill were evolved within the basic doctrines of the common law. For example:
- (1) the owner of the goods might have an independent right against the carrier in tort,6 or possibly bailment if he was the bailor or attornee7 but this was often less satisfactory than a contractual right;
- (2) use could be made of the normal inference8 to been drawn, at least in past centuries, that a consignor contracting with a carrier does so as agent for the consignee;
- (3) the rights under the contract of carriage could be assigned by the shipper to the consignees, but a legal assignment, even when possible,9 required giving notice to the carrier,10 which was often impractical in cases of carriage of goods by sea, particularly in days before instantaneous long-distance communication;
- (4) the consignor who entered into a “special contract” with a carrier was entitled to recover substantial damages by virtue of the contract, whether the goods remained his or he had suffered substantial damages or not. The evolution of this “rule” in carriage cases is generally traced to the case of Dunlop v Lambert,11 although doubt has been cast on whether the case does in fact lay down the “rule” that is attributed to it.12 In that case the consignor shipped goods aboard a vessel for delivery to the consignee. The freight was paid by the consignor and the goods were jettisoned during a violent storm encountered on the voyage. The consignor was held entitled to sue for substantial damages notwithstanding that, at the time of the loss, the goods were at the risk of and owned by the consignee. Lord Cottenham L.C. said:13
These authorities, therefore, establish in my mind the propositions which are necessary to be adopted, in order to overrule this direction of the Lord President. I am of opinion, that although, generally speaking, where there is a delivery to a carrier to deliver to a consignee, he is the proper person to bring the action against the carrier should the goods be lost, yet that if the consignor made a special contract14 with the carrier, and the carrier agreed to take the goods from him, and to deliver them to any particular person at any particular place, the special contract superseded the necessity of showing the ownership in the goods, and that by the authority of the cases of Davis v James (5 Burr. 2680), and Joseph v Knox (3 Camp. 320), the consignor, the person making the contract with the carrier, may maintain the action, though the goods may be the goods of the consignee.
8.7 The meaning of this passage is not straightforward,15 but the “rule” said to arise16 is that where A enters into a contract with B when it is in the contemplation of both parties that property in the goods the subject of the contract will pass to another at some time during the performance of the contract and before breach, then, provided it is shown to be the contractual intention at the time, A will be treated as having concluded the contract with B for the benefit of all persons who have or may acquire an interest in the goods before they are lost or damaged, or, possibly, delayed.
8.8 Although this “rule” alleviated in part the difficulties caused by the separation of property and right to sue under the contract, its scope was uncertain and there remained the difficulty that a consignor who had suffered no loss would have no interest in suing under the contract of carriage for the benefit of the consignee.
8.9 A statutory solution to this problem was sought in the Bills of Lading Act 1855. The relevant part of the recital stated:
Whereas by the custom of merchants a bill of lading of goods being transferable by endorsement the property in the goods may thereby pass to the endorsee, but nevertheless all rights in respect of the contract contained in the bill of lading continue in the original shipper or owner…
8.10 Section 1 provided:
Every consignee named in a bill of lading, and every endorsee of a bill of lading to whom the property in the goods therein mentioned shall pass, upon or by reason of such consignment or endorsement, shall have transferred to and vested in him all rights of suit, and be subject to the same liabilities in respect of such goods as if the contract contained in the bill of lading had been with himself.
8.11 This provided a solution to the problem by means of a statutory transfer of rights of suit in contract to accompany the transfer of the property, but at the same time limited the operation of the transfer to when passing of property was “upon or by reason of consignment or endorsement”. Where the property in the goods passed to the consignee but not in this manner, the problem of separation of property and rights of suit remained. Other aspects of the effect of the Act, as subsequently interpreted, which are relevant to an understanding of the present law, include the following points.
General and special property
8.12 The passing of “property” was held to be limited to general property, in the sense of ownership, as opposed to the “special” property generally held by the pledgee of a bill of lading (typically a bank).17
The position in relation to liabilities
8.13 The shipper remained liable for his obligations under the bill of lading, even if an indorsee also became under such liabilities, but when an intermediate indorsee transferred the bill of lading he divested himself of both rights and liabilities.18
“Straight bills” of lading
8.14 It was, until after its abolition, unclear how the 1855 Act was intended to apply to “straight” bills of lading, made out to a named consignee. These were not in general use at the time of its passing and they would not have been regarded at that time as bills of lading at all in the common law sense of documents of title. The preamble to the Act also appears to indicate that it is directed to documents that can pass “property” by endorsement and delivery. The Law Commission Report that led to COGSA 1992 took the view that the 1855 Act did not apply to straight bills at all.19 However, in The Rafaela S20 Lord Steyn, with whom Lords Brown and Nicholls agreed, was of the view that it was “impossible to give a restrictive construction to section 1 so as to exclude straight bills of lading”.21
Contractual content in the hands of the indorsee
8.15 What was transferred was the right under the contract as contained in or evidenced by the bill of lading, as opposed to any orally agreed or supplemental terms.22
Bill endorsed to or by charterer
8.16 Despite the language of section 1, it applied to vest or at least create rights in the endorsee even if the indorsement was by a charterer, in whose hands the bill of lading had no contractual force.23
8.17 The Act remained a workable solution for more than a century but by the end of the 1980s a number of developments had in combination magnified the potential importance of the “gap” between the manner by which property had passed from shipper to consignee/indorsee and the transfer of contractual rights of suit contained in the bill of lading contract. This led to a manifestly unsatisfactory situation where consignees were unable to sue in respect of loss or damage to goods.24 These developments included:
- (1) the ascendance of a relatively narrow interpretation of the requirement that property passed “upon or by reason of…consignment or endorsement” at a time when property often passed other than in this manner.25 The effect of this interpretation could not readily be mitigated by reliance on the “rule” in Dunlop v Lambert because, as confirmed in The Albazero,26 it was unnecessary and indeed impermissible to apply the “rule” to cases where either (a) the only contract of carriage was that contained in the bill of lading and property would pass by reason of consignment or endorsement, or (b) where it was contemplated under a contact of carriage (such a charterparty) that a separate contract of carriage contained in the bill of lading would come into existence on the issue of a bill of lading;
- (2) the increasing number of cases where goods arrived and were discharged at their destination before the bills of lading had worked their way through the banking chain and into the hands of the receiver, combined with the limitation of the operation of the Act to exclude its effect on bills that were “spent” or “accomplished” by delivery of the goods;27
- (3) the difficulties caused by undivided parts of bulk cargoes, when property could under section 16 of the Sale of Goods Act 1979 only pass on ascertainment, i.e., on discharge at the earliest;28
- (4) the problem caused where property never passes although the buyer was on risk;29 and
- (5) the willingness of carriers or their insurers to exploit these developments and take technically valid but otherwise unmeritorious “title to sue” points.
8.18 The Law Commission examined the position in their report, and this led to the passing of COGSA 1992.
8.19 Before turning to the provisions of that Act, it is appropriate to consider one particular means by which the common law sought to alleviate the difficulties alluded to above, known as the “implied” or Brandt v Liverpool type of contract. Although this case has given its name to this implied contract doctrine, its origins are to be found in earlier cases31 where presentation of a bill of lading by the consignee to the carrier in exchange for delivery of the goods was held to give rise to an implied contractual obligation on the consignee to pay freight or demurrage due under the bill of lading contract.
8.20 In Brandt v Liverpool it was held on the facts that the presentation of the bill of lading in exchange for delivery could give rise to a contract that effectively mirrored all the terms of the bill of lading contract. This enabled not only the carrier to sue the consignee for freight or demurrage, but the consignee to sue for damage to the goods.
8.21 The need for this type of contract has diminished with the passing of COGSA 1992. Even before this occurred the courts had emphasised that a contract was to be inferred only if the conduct of the parties was consistent only with an intention to make such a contract. In The Aramis Bingham L.J. said:32
…it would, in my view, be contrary to principle to countenance the implication of a contract from conduct if the conduct relied upon is no more consistent with an intention to contract than with an intention not to contract. It must, surely, be necessary to identify conduct referable to the contract contended for or, at the very least, conduct inconsistent with there being no contract made between the parties to the effect contended for. Put another way, I think it must be fatal to the implication of a contract if the parties would or might have acted exactly as they did in the absence of a contract.
8.22 On the facts of the case the court held that the presentation of the bill of lading in exchange for delivery did not without more support the implication of a separate contract, as opposed to the parties acting under rights conferred by pre-existing relationships.33
8.23 As stressed in a number of the cases, a contract is more likely to be inferred where the receiver did something (such as paying freight or agreeing to pay freight) in consideration for obtaining delivery.34 In The Captain Gregos (No. 2)35 the Court of Appeal distinguished The Aramis and held that two vital features that permitted the inference of a contract between the carrier and BP, despite the latter not paying or undertaking to pay freight, were that BP were cargo owners prior to discharge and that they had consented, in the contract under which they purchased the cargo, to carriage on normal commercial terms. With respect it is difficult to see how these factors in themselves justify the inference of an intention to conclude a contract. In The Agia Skepi36 Saville J. opined that “the law on what is required to create a Brandt v Liverpool type contract is far from clear”, and whilst the legal principles have been expounded in some detail,37 the application of the principles to the facts has lacked consistency. An interesting recent example of the application of the doctrine is in the Australian case of Mitsui OSK Lines (Thailand) Co Ltd v Jack Fair Pty Ltd38 where the notify party obtained delivery of the cargo by presenting a non-negotiable bill, with an indorsement and seal added by that party to deceive the carrier into thinking that it was an original bill. The carrier sought to recover its liability to the actual original bill holder from the notify party, and succeeded on the basis that presentation of the copy bill gave rise to an implied contract on bill of lading terms, but at the same time and in the circumstances constituted a breach of that contract.
8.24 It is, of course, theoretically possible that what is to be inferred from the conduct of the parties was a contract, but not one necessarily on bill of lading terms. In The Elli 2,39 the Court of Appeal recognised that the proper law of the contract to be implied might be different from the proper law of the “actual” bill of lading contract. There is no reason why other terms should not be different from the underlying contract, particularly as the circumstances under which the contract were made and the identity of at least one of the parties will almost by definition be different.
8.25 A further difference between the “original” contract and an implied contract of this type is that the consignee’s rights and liabilities are less extensive than those of the shipper. According to Mustill J. in The Athanasia Comninos40 the consignee “assumes only those rights and liabilities created by the contract of carriage which concern the carriage and delivery of the goods, and the payment therefor” so that for example the consignee would not be liable for the consequences of the shipment of dangerous cargo.
8.26 COGSA 1992 enacted the recommendations of the Law Commission report and, to a large extent, the terms of the 1992 Act reflect the terms of the draft Bill appended to that report. The key themes that underlay the new Act were:
- (1) a facilitation of the right of a bill of lading holder to sue on the bill of lading contract, with the link between the passing of property and right of suit broken;
- (2) a basic scheme whereby transfer of a bill to a lawful holder transferred rights of suit;
- (3) a limitation on rights of suit being transferred, to prevent unnecessary and potentially undesirable transfer of rights after the bill had become spent;
- (4) a regime where liabilities under the contract essentially (but not entirely) mirrored rights under a principle of mutuality; and
- (5) a recognition of the differences between bills of lading and sea waybills and other documents.
8.27 In the following paragraphs the provisions of the Act are examined in order, except where convenience dictates otherwise.
Shipping documents etc to which Act applies
(1) This Act applies to the following documents, that is to say –
(a) any bill of lading;
(b) any sea waybill; and
(c) any ship’s delivery order.
8.28 From the outset the wording adopts a tripartite scheme to recognise the commercial differences between three basic types of documentation: the bill of lading, the sea waybill and the ship’s delivery order.
(2) References in this Act to a bill of lading –
(a) do not include references to a document which is incapable of transfer either by indorsement or, as a bearer bill, by delivery without indorsement; but
(b) subject to that, do include references to a received for shipment bill of lading.
8.29 A bill of lading is not defined except negatively to exclude “non-negotiable” bills of lading incapable of transfer by indorsement. “Transfer” in section 1(2)(a) must refer to a “transfer” that transfers the right to possession of the goods referred to in the bill by virtue of indorsement or delivery,41 as obviously any document is capable of “transfer” in the literal sense of passing from the possession of one party to that of another. Mere indorsement without delivery is ineffective to pass symbolic possession of the goods to another, but “indorsement” must be read as including delivery,42 or virtually no document would qualify as a bill of lading.43 What is important is that sea waybills and straight consigned bills of lading44 are excluded from the definition, although “received for shipment” bills of lading are included. As discussed under section 5(2) below a document that starts life as a bill of lading may cease to become one within the meaning of the Act when “spent”.
(3) References in this Act to a sea waybill are references to any document which is not a bill of lading but –
(a) is such a receipt for goods as contains or evidences a contract for the carriage of goods by sea; and
(b) identifies the person to whom delivery of the goods is to be made by the carrier in accordance with that contract.
8.30 A sea waybill is defined by one negative characteristic (a bill of lading cannot be a sea waybill) and three positive characteristics. These are that:
- (1) the document is a receipt;
- (2) the document contains a contract for the carriage of goods by sea (the fact that the contract also provides for other carriage by land will not generally exclude the document from the definition45); and
- (3) the document identifies the person to whom delivery is to be made. Thus a document that simply provided for carriage to a particular place would not qualify. Section 1(3)(b) must be read in conjunction with section 5(3), which provides that references to being identified “include references to his being identified by a description which allows for the identity of the person in question to be varied, in accordance with the terms of the document, after its issue”.
As a matter of legal analysis the shipper under a sea waybill may generally vary the identity of such a person,46 but does this bring that person within the reference of being identified “by a description”? The logical meaning of the wording might be said to embrace examples such as “the Mayor of Hamburg” but what may have been intended by this sub-section, which is not in the original draft Bill, is that it covers the situation where the person is described as “to X or as specified by Y”.47 The problems with this interpretation are: first, that this is not an identification “by a description”; and, secondly, such wording is barely distinguishable from that of “to X or his order or assigns”, the language of an order bill of lading.
(4) References in this Act to a ship’s delivery order are references to any document which is neither a bill of lading nor a sea waybill but contains an undertaking which –
(a) is given under or for the purposes of a contract for the carriage by sea of the goods to which the document relates, or of goods which include those goods; and
(b) is an undertaking by the carrier to a person identified in the document to deliver the goods to which the document relates to that person.
8.31 Again this definition contains negative (not a bill of lading or a sea waybill) elements and positive elements. The requirement of an undertaking is straightforward and it would not appear necessary that the undertaking be of contractual force (for example, no consideration may have been given). The comments in relation to section 5(3) made above apply equally to ship’s delivery orders.
(5) The Secretary of State may by regulations make provision for the application of this Act to cases where an electronic communications network or any other information technology is used for effecting transactions corresponding to –
(a) the issue of a document to which this Act applies;
(b) the indorsement, delivery or other transfer of such a document; or
(c) the doing of anything else in relation to such a document.
8.32 By the Communications Act 2003, section 406(1) and Schedule 17, paragraph 119, the words “an electronic communications network” replaced the original words of “a telecommunication system”.
(6) Regulations under sub-section (5) above may –
(a) make such modifications of the following provisions of this Act as the Secretary of State considers appropriate in connection with the application of this Act to any case mentioned in that subsection; and
(b) contain supplemental, incidental, consequential and transitional provision;
and the power to make regulations under that subsection shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament.
8.33 No regulations have been made to date under this section.
(1) Subject to the following provisions of this section, a person who becomes –
(a) the lawful holder of a bill of lading;
(b) the person who (without being an original party to the contract of carriage) is the person to whom delivery of the goods to which a sea waybill relates is to be made by the carrier in accordance with that contract; or
(c) the person to whom delivery of the goods to which a ship’s delivery order relates is to be made in accordance with the undertaking contained in the order,
shall (by virtue of becoming the holder of the bill or, as the case may be, the person to whom delivery is to be made) have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract.
8.34 Section 2(1) contains the key provision of the Act, providing for suit by the lawful holder of a bill of lading, and adopting the old language of the Bills of Lading Act 1855: he “shall have transferred to and vested in him” all rights of suit under the contract of carriage. The trigger for such transfer is “becoming the holder” of the bill.
8.35 In deciding whether the section applies at all, the putative proper or applicable law of the contract that would result from its application will be applied.48 The phrase “as if he had been a party” is, however, new. It might be said by a pedant not to be strictly grammatical, but the meaning, that the transferee is to have the same rights as though he had been a party, is clear in principle. What is less clear is whether it means he has the rights as if he had been a party instead of or jointly with the actual original party (in most cases this will make no difference) and, further, whether he is to be fixed with the same knowledge or state of mind as the original party. The possible consequences of these distinctions are discussed below. The transferee is subject to the effect of any jurisdiction or arbitration clause in the contract (see The Ythan, above).
8.36 The use of the words “transferred to” connote that the rights of original party are extinguished, and this is confirmed by section 2(5)(a), at least in relation to a bill of lading. However, a shipper under a sea waybill retains his rights.
8.37 Subject to the limitations discussed below and in particular those imposed by section 2(2), the section permits any number of transfers of the rights, and for the transfer to occur at any time. The separation between rights of suit and property that underlies the scheme of section 2 not only simplifies the ascertainment of who can sue on the bill but renders largely redundant the difficult and somewhat speculative exercise of ascertaining when the parties intended property in the goods to pass.49
8.38 The concept of becoming a lawful holder must be considered with reference to section 5(2), which defines “holder” and restricts the ambit of “lawful” to a person who has become the holder in good faith.
8.39 A holder of a bill of lading is under section 5(2) “a person with possession of the bill”50 in certain specified circumstances. “Possession” in the strict sense is narrower than the right to possession. “Holder” will thus, on the natural meaning of the wording of the section, be limited to a person with actual custody of the bill himself, or through an agent who holds as such and has no independent right.51 Where a bill is indorsed and posted to the transferee, the latter will not have possession of it until he receives it.52 However, in The Giovanna53 Rix J. was inclined to the view that the indorsee was in possession of the bills from the time the indorser had handed them to couriers for despatch. The time at which a person becomes holder is unlikely to affect the basic question of entitlement to sue, although it may be relevant to the question as to whether the holder is a lawful holder.
8.40 It is often the case that bills of lading are possessed by party A as agent for party B.54 A fundamental question is whether it is A or B who is the holder for the purposes of bringing suit. This point was considered in the case of East West,55 below), where bills of lading named as the consignees certain banks who were charged with collecting the price of the goods sold on behalf of the claimant sellers. The bills of lading were indorsed and delivered to the banks and it was common ground that the banks held them as agents for the claimants. The Court of Appeal held that, notwithstanding the status of the banks as agents, the provisions of section 2(1) of COGSA operated to transfer contractual rights of suit under the bills of lading to the banks and precluded the claimants from suing the shipowners on the bill of lading contract. This conclusion is not surprising in the light of the definition of “holder” in section 5(2), the intention of the draftsmen as foreshadowed in paragraphs 2.24–2.27 of the Law Commission report and the fact that the bills of lading were indorsed to the banks. The answer is less clear where, pursuant to an indorsement to X, the bills of lading are delivered to Y as X’s agent. In such a situation, where as a matter of commercial common sense it is most unlikely that rights of suit are intended to be vested in handling agents who may at some stage possess the bill of lading but have a very minor and fleeting role to play in effecting delivery; it is suggested that Carver is right to conclude56 that the principal may obtain or retain the right to sue, instead of or as well as the agent.57 The question is perhaps whether in truth the possession is to be regarded in law as that by the principal even if the agent has physical custody of the document.58 In The Ythan59 the buyers had possession of the bills because of their entitlement to possession although they were in the physical custody of the brokers as their agents.60
8.41 Under section 5(2)(b) although the holder has to have possession of the bill as a result of the completion, by delivery of the bill, of an indorsement, there is no requirement for the delivery to be to the indorsee. The standard means of X becoming a holder is by way of endorsement of the bill of lading to X and delivery of it to X. However, endorsement of a bill of lading to X and delivery to X will not necessarily be sufficient to constitute X the “holder” of the bill of lading for the purposes of section 5(2)(b). Thus, in The Aegean Sea61 a bill of lading was endorsed and delivered to a party in error, when the intention was to endorse it to the party’s subsidiary who had bought the cargo from the endorser. Thomas J. held that mere physical receipt was not enough: the recipient has to receive it into his possession and “accept” the delivery before he becomes the holder. Thus, it would appear that both the transferor and transferee need to have the requisite intention that the person to whom indorsement of the bill of lading is made and delivery given is to be the “holder” of the bill. If there is acceptance, but on the basis of a mistake of fact or law induced by fraud or misrepresentation (other than on the part of the transferee who would otherwise not be a “lawful” holder: see the provision at the end of section 5(2)) this would, it is suggested, vitiate any such acceptance. In our view it is clear that possession of the bill is a necessary but not a sufficient condition for being a “holder” of the bill.
8.42 The question of what is sufficient to constitute “acceptance” has given rise to some difficulty as illustrated in The Erin Schulte.62 In that case the issue was whether C (a bank) had title to sue D, a shipowner for delivery of the cargo other than against the bill of lading. The facts were of some complexity but for present purposes may be summarised as follows: (1) S indorsed the bill and presented it to C for payment under a letter of credit on 4 June (2) C wrongly considered the documents to be discrepant, refused to pay, and on 9 June told C that it held the bill to C’s order (3) the cargo was discharged by 19 June against a letter of indemnity (4) S continued to press C for payment, including by issuing proceedings and on 7 July C agreed to and did pay S under the letter of credit. On these facts C contended that rights of suit passed under section 2 on 4 June, alternatively 7 July. D contended that they did not on either occasion.
8.43 At first instance Teare J. held that C did indeed obtain rights of suit on 4 June as C received and accepted delivery then, notwithstanding that such acceptance was conditional in the sense that until the documents are “taken up” by the bank after checking they are held to the order of, and remain the property of, the presenting party. He held in the alternative that C obtained rights on 7 July notwithstanding that on that date C did not do or say anything material in relation to the bill but simply paid up (the further issue arising under section 2(2) is addressed below).63
8.44 The Court of Appeal overturned the judge’s conclusion in relation to 4 June, holding that unconditional acceptance of the indorsee was required. However the appeal was dismissed because the court accepted64 that on 7 July there was an “unconditional transfer” of the documents. Critics of the decision might suggest that it introduces unnecessary uncertainty into operation of section 2, and conflates possession (C had unconditional possession of the bill from 4 June even though its right to retain possession was then conditional) with acceptance in terms of acceptance as a conforming document.
8.45 In the case of a bearer bill no indorsement is necessary, and a bill indorsed in blank (as opposed to “to X or order”) is a bearer bill for this purpose.
8.46 Although a party relying on section 2(1)(a) must be a lawful holder of the bill of lading, he does not need to be the holder at the time of suit, unless the circumstances in which he ceases to become holder result in a transfer of rights of suit to another. Thus, if the relevant original is lost (for example, in the post) the party with title to sue prior to the loss will remain entitled to sue.
8.47 Possession must be in one of the three circumstances enumerated in section 5(2). (1) First, under section 5(2)(a) a person is a holder if he is the consignee “by virtue of being the person identified in the bill”. A document naming a consignee without further qualification may under section 1(2)(a) be a sea waybill not a bill of lading for the purposes of the Act. So section 5(2)(a) is presumably aimed at the case of X being identified as consignee in a bill where goods are consigned “to X or Order”. Identification of X as the “notify party” would not suffice. If a person is the consignee and in possession of the bill, he falls within (a) without any need for indorsement of the bill and regardless of whether he has received it directly from the original party to the contract of carriage or through intermediaries.65 The scope of both paragraphs (a) and (b) are also apparently restricted in scope by the wording of paragraph (c).66 In Finmoon v Baltic Reefers,67 the (straight) bills issued at the loadport were never delivered to the consignee, but as part of the parties’ commercial arrangements were cancelled and reissued at the discharge port. The arrangement for cancellation and reissue did not prevent the consignees being holders, although Eder J. appeared to be of the view that this was dependent in the circumstances upon them becoming holders of the bills on reissue rather than on automatic operation of section 2(1)(b) on initial issue of the bills.68
(2) Secondly, under section 5(2)(b) a holder is a person “with possession of the bill as a result of the completion, by delivery of the bill, of any indorsement of the bill, or in the case of a bearer bill, or any other transfer of the bill”. This wording would suggest that the indorsement must be to the putative holder or endorsed generally, or “in blank” as it is usually called.69 This appears to show that there has to be an intention that the person who has possession should be the “holder” of the bill for the purposes of the Act.70 The section covers not only routine indorsement and delivery to buyers of goods, but deposit with banks as pledgees.71 The scope for yet further uncertainty, in relation to what was apparently intended as a broad and simple approach to obtaining title to sue, arises from the approach to section 5(2)(b) in The Dolphina.72 In that case the High Court of Singapore held that section 5(2)(b) was not satisfied where the indorsement, although regular on its face and as far as the party to whom the bill was delivered was concerned, was fraudulent. This was in the sense of the party endorsing and delivering the bill being aware that it was not entitled, as against a third party from whom it had received the bill, to deal with it in that manner. It is respectfully suggested that such an approach does not reflect, and should not be followed in English law. It is commercially undesirable as it renders it very difficult to know whether an indorsement is effective without knowing the underlying circumstances. It is also difficult to see why an otherwise valid indorsement by a party with possession of a bill is vitiated because indorsing the bill constitutes a fraud on third parties.
(3) Thirdly, under section 5(2)(c) a holder is a person “with possession of the bill as a result of any transaction by virtue of which he would have become a holder falling within paragraph (a) or (b) above had not the transaction been effected when the possession of the bill no longer gave a right (as against the carrier) to possession of the goods to which the bill relates”.
8.48 Section 5(2)(c) raises a number of problems. It is intended to deal with a situation where a person becomes the holder of a bill of lading as a result of a transaction at a time when possession of the bill of lading no longer gives a right (as against the carrier) to possession of the goods to which the bill of lading relates.
8.49 The wording of the section necessarily implies that a person otherwise falling within the wording of paragraph (a) or (b) who becomes the holder after the bill ceases to give a right to possession against the carrier, is not a holder within the meaning of (a) or (b). Whilst this may reflect the common law rules as to validity of spent bills, the drafting technique is perhaps less than ideal.73 The existence of the section appears to arise from the Law Commission’s recognition that, after accomplishment by delivery of the goods, the bill ceases to become a transferable document of title,74 and the desire to avoid a possible argument that an indorsement or transfer of the bill after delivery of the goods was ineffective as a consequence. However the phrase “right (as against the carrier) to possession” did not appear in the Law Commission report and its appearances in this section and in section 2(2) have caused difficult problems. For example it might be thought that once the goods had been discharged and delivered to the possession of another, there could no longer be any right of possession as against the carrier. That is not however the case, and so in the classic case of misdelivery of the goods to a party other than the bill of lading holder, such right to possession against the carrier remains.75
8.50 The wording also gives rise to difficulties in cases where the goods are lost, destroyed or stolen, although this was not apparently the problem at which it was directed.76
8.51 The effect of section 5(2)(b) and its relationship with section 5(2)(c) have been considered by Aikens J. in The Ythan.77