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Web alert: is delivery of cargo under an Electronic Release System (ERS) a breach of contract?

13 August 2015

Recently the English High Court had to consider whether a carrier had complied with its obligations for delivery of cargo under a bill of lading, by adopting an Electronic Release System (ERS) - in supplying an ‘import pin code’ permitting the recipient to take delivery of the cargo. [1]

The case concerned a shipment of three containers under a ‘to order’ bill of lading. Only one container was delivered and the other two were misappropriated. Most likely the two containers were delivered to an unauthorised person. The shipper subsequently claimed damages against the carrier for breach of contract and/or bailment.

The negotiable bill of lading issued contained the following express clause:

“If this is a negotiable (To order/of) Bill of Lading, one original Bill of Lading, duly endorsed must be surrendered by the Merchant to the Carrier … in exchange for the Goods or a Delivery Order”.

In Antwerp an ERS was in place and used by the carrier. Accordingly, the practice was that the carrier did not issue paper delivery orders, or release cargo against the return of bills, but instead provided for computer generated electronic numbers (or ‘import pin codes’), which holders of bills presented to the terminal and so took delivery of their goods.

The shipper’s local agent were accustomed to operating this system. The carrier therefore contended that it had handled the cargo in accordance with the express terms of the bill of lading, or with an implied term that permitted use of the ERS, and/or in accordance with an agreement varying the bill of lading’s original terms (given past practice).

The shipper conversely argued that as a matter of construction of the bill of ladings express terms, or by implication, the carrier should have delivered the cargo only on presentation of the bill, or a delivery order given in exchange for it.

The High Court judge found in favour of the shipper, reinforcing the fundamental principle that a carrier is under a strict obligation to deliver cargo shipped under a negotiable bill of lading in return for presentation of the original at the port of destination. It was found that the clear words on the bill of lading (as cited above) could not be interpreted any differently because of a prior pattern of dealing between the parties. Essentially, the carrier here failed to show that when it supplied an import pin code it had fulfilled its responsibilities with regard to the said cargo and its proper delivery.

Comment
This case is a reminder as to the fundamental obligation of a carrier when issuing a negotiable bill. Essentially, in exchange for the presentation of an original bill of lading at the port of discharge, the carrier must either deliver the said cargo to the holder of the bill or provide a valid delivery order containing an undertaking as to delivery.
The essential feature of a delivery order is that of an undertaking by the carrier, to deliver the goods to the person identified to take delivery under such a document. Import pin codes are not delivery orders. Cargo must be delivered by carriers in accordance with the terms of the contracts of carriage, unless it can clearly be shown that there is a valid agreement in place with cargo interests to the contrary. Where cargo interests are outside third parties (as distinct from, say, charterers) then this will be difficult absent an express, clear, clause within the bill of lading.

This article intends to provide general guidance on the issues arising. It is not intended to provide legal advice in relation to any specific query. The law is also not static. If in doubt, The Standard Club is always on hand to assist.

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[1][2015]EWHC 1989 (Comm), Queen’s Bench Division