Carlos Soto Sau & anor v AP Moller-Maersk AS

This is the trial of what were originally five preliminary issues arising out of the carriage of a cargo of frozen swordfish by the defendant carrier (“Maersk”) from Jakarta, Indonesia to Vigo, Spain in late 2012. On its arrival at Vigo on 18 December 2012, the Vigo Port Health Authority rejected the cargo as unfit for human consumption. It was then sold for salvage by the receivers of the cargo i.e. the first claimant (“Carlos Soto”) who (together with the insurers, the second claimant, “AXA”) now seek to recover their alleged losses in these proceedings. In summary, the claim is for the difference between the market value of the cargo in sound condition (i.e. €118,532.38) less salvage value (i.e. €11,853.24) plus handling fees at Vigo (i.e. €1166.16).

Following the rejection of the cargo, the original shipper, PT Awindo International (“PT Awindo”) brought a claim against Maersk in respect of the cargo damage. There is no evidence or correspondence relating to the circumstances in which this claim was notified to Maersk. In any event, on 10 May 2013, Maersk entered into a settlement agreement with PT Awindo. This stipulated that in entering into such settlement agreement, PT Awindo acted “… as or on behalf of the Shipper and/or Receiver and/or subrogated Cargo Underwriter and/or any other parties interested in the cargo (Cargo Interests) …”; that in that capacity, PT Awindo confirmed acceptance of the sum of US$15,000 in full and final settlement of all claims on behalf of such “Cargo Interests”; and that PT Awindo warranted that it was the lawful holder of the bill of lading, that no other party had title to sue and that it was authorised to act on behalf of all other cargo interests. It is the claimants’ case that none of these warranties was true; that Carlos Soto was, in truth, the lawful holder of the bill of lading; that it paid for the cargo and (together with AXA) suffered the loss stated above; and that the claimants were and are entitled to sue to recover such loss.

For present purposes, I proceed on the assumption that the cargo suffered damage as a result of one or more breaches by Maersk of its obligations as carrier.

In essence, the five preliminary issues as originally ordered by the Court concern the claimants’ title to sue in respect of these alleged losses viz.

In the event, it is now common ground that the answer to each of the first three issues is “Yes”. Thus, this short trial focussed on the fourth and fifth issues. In summary, Mr Bird on behalf of the claimants submitted that they should both be answered “Yes”. Ms Paruk on behalf of Maersk submitted that they should be answered “No”.

As to the evidence, there was served (i) on behalf of the claimants, 2 witness statements by Ms Francisca Lopez (who has worked in the import/export department of Carlos Soto for 27 years and whose primary responsibility is to import/export frozen fish and shellfish); and (ii) on behalf of Maersk, 2 witness statements of Mr Madong Nadeak (who is an export manager employed by PT Awindo). Ms Lopez gave evidence by video-link. Mr Nadeak did not give live evidence; his evidence was put in under a hearsay notice. I should also mention that at the beginning of the trial, Ms Paruk made an application to rely on a further witness statement of Mr Nadeak which I rejected for reasons which I gave in a separate Judgment and which I do not repeat.

The main events were not controversial and can be summarised as follows.

On 24 October 2012, PT Awindo agreed to sell the intended cargo to Fishco BVBA (“Fishco”). As appears from the proforma invoice issued by PT Awindo, the contract was CFR Vigo, Spain; and the agreed price was US$112,250.00 with payment by LC (i.e. letter of credit) 45 days after BL (i.e. bill of lading) date. In addition, the invoice contained reference to the following clause:

“REJECTION CLAUSE: IN EVEN[T] OF REJECTION BY VET, SELLER TO REFUND BUYER WITH 100% OF THE INVOICE AMOUNT …”

Pursuant to the contract, Fishco procured the opening of an irrevocable letter of credit by Bank Central Asia on 30October 2012. The letter of credit provided for payment to be made 45 days after the date of shipment. It also included a rejection clause in the following terms:

“IF BEFORE MATURITY DATE APPLICANT PRESENTS COPY OF REJECTION CERTIFICATE, THEN PAYMENT WILL BE CANCELLED AND APPLICANT WILL RELEASE THE CARGO TO BENEFICIARY.”

It was common ground that the stipulated “maturity date” was, in effect, the payment date i.e. 45 days after the date of shipment.

On the same day as the original sale contract between PT Awindo and Fishco i.e. 24 October 2012, Fishco entered into an on-sale contract with Carlos Soto. The terms of this contract were similar (but not identical) to the original contract i.e. delivery was on the same basis i.e. “CFR Vigo” but the price was slightly higher i.e. US$118,500 with payment 60 days (rather than 45 days) after the bill of lading date by way of an irrevocable letter of credit. However, importantly this contract did not include a rejection clause.

On 31 October 2012, Carlos Soto duly opened a letter of credit with Banco Santander in favour of Fishco.

Thereafter, the cargo was duly shipped on board the carrying vessel, the m.v. “SFL Hawk”, and a bill of lading in standard form was issued dated 14 November 2012. On this basis and as a matter of calculation, the payment date under the Fishco letter of credit was 27 December 2013; the payment date under the Carlos Soto letter of credit was on or about 12 January 2015. The cargo was carried in a refrigerated container numbered MMAU 115549-1. The bill of lading named PT Awindo as the shipper and stated that the consignee was “TO ORDER”. Carlos Soto was the stated notify party.

On or about 14 November 2012, the bill of lading was endorsed and signed in blank by PT Awindo and was then presented together with the other shipping documents by PT Awindo under the letter of credit in its favour. Thereafter, Fishco delivered the bill of lading and the other shipping documents down the chain to Banco Santander. By a letter dated 11 December 2012, Banco Santander notified Carlos Soto of certain discrepancies in the documents including the fact that the quality certificate was missing and “Health Cert. not as per L/C (Not showing date of freezing”). Notwithstanding, Carlos Soto in effect waived these discrepancies and took collection of the bill of lading and the other shipping documents from Banco Santander on or about 13 December 2012. It is common ground that these documents received by Carlos Soto included the original packing list which stipulated in the box headed “Terms of Delivery & Payment”:

“CFR VIGO, SPAIN & LC 45 DAYS AFTER SHIPMENT WITH REJECTION CLAUSE”

On 18 December 2012, the Port Health Authority at Vigo rejected the cargo on the ground that its temperature was too high. The effect of this rejection was that the cargo could not be sold in the European Union. This was, of course, still well within the period allowed for payment under either letter of credit; so, at this stage, no payments had yet been made under either letter of credit.

Very shortly thereafter, it appears that Fishco presented to the Bank Central Asia the rejection certificate and on 19 December 2012, the Bank cancelled the letter of credit in favour of PT Awindo pursuant to the rejection clause.

Carlos Soto did not reject the cargo. According to Ms Lopez, the view taken by Carlos Soto was that the goods were at Carlos Soto’s risk; that the letter of credit which it had issued in favour of Fishco was irrevocable (at least once it had waived the discrepancies in the shipping documents); and that accordingly, Carlos Soto still had to pay Fishco the full purchase price because the damage occurred during carriage when the goods were at its risk. Therefore, Carlos Soto decided to mitigate its loss which it did by selling the goods as salvage back to Fishco for the sum of US$11,853.24 (a 90% discount) as evidenced by an invoice dated 4 January 2013. Thereafter, payment in the sum of US$118,532.38 was made by Banco Santander under its letter of credit and debited to Carlos Soto’s account.

Against that background, I turn to consider the preliminary issues. As already noted, it was agreed that the first three issues should be answered “yes”. I should mention that Mr Bird on behalf of the claimants submitted that this was sufficient to give Carlos Soto title to sue and that therefore the answer to the fourth preliminary issue was irrelevant. Mr Bird may well be right in that submission but he did not develop it and Ms Paruk did not address me on it. I say nothing more about it.

The argument under this head fell into two main parts. First, Ms Paruk submitted that as a matter of objective contractual intention between PT Awindo and Fishco, property in the cargo remained throughout with PT Awindo. This was disputed by Mr Bird. However, he submitted, in the alternative, that Carlos Soto took delivery of the bill of lading in good faith and with no actual knowledge of PT Awindo’s alleged interest in the cargo and that therefore Carlos Soto obtained good title to the cargo as a bona fide purchase for value pursuant to s25(1) of the Sale of Goods Act 1979 (the “1979 Act”). This was disputed by Mr Paruk. I deal with each of these points in turn.

As to the first point, it is often assumed that property will pass under a CFR (or CIF) contract at the latest when the bill of lading is endorsed and delivered to the buyer (or to the buyer’s bank under a letter of credit). There is, at first blush, good reason for such assumption. After all, a bill of lading is generally regarded as a document of title; and if a seller gives up possession of the bill of lading and puts it into circulation, it is perhaps not unnatural to suppose that the seller is intending to transfer property in the goods to the recipient. However, it is plain that although the transfer of a bill of lading is prima facie evidence of intention to pass property, this is not necessarily so: see E Clemens Horst & Co v Biddell Bros [1911] 1 K.B. 934 at 957, per Kennedy LJ, citing Sanders v Maclean (1883) 11 Q.B.D. 327; and more generally, Benjamin’s Sale of Goods, (9^th Edition) paras 19-103 and 19-104.

As to the applicable principles, there was broad agreement between Mr Bird and Ms Paruk that the correct approach is as summarised in Benjamin’s Sale of Goods, para 19-099:

“The courts look to those dealings in order to determine whether the seller intended, on the one hand, unconditionally to appropriate the goods to the contract, or, on the other hand, to reserve the right of disposal. As the question of passing of property is one of “actual intention” it is “impossible to lay down a general rule applicable to all c.i.f. contracts”.”

It was also common ground that the same principles apply to CFR contracts. See Benjamin’s Sale of Goods at para 21-013; and also The Kronprinsessan Margareta [1921] 1 AC 486 at 511-518. Thus, the question as to when property passed is one of “actual intention”.

In accordance with these principles, Mr Bird submitted that property in the cargo passed when PT Awindo endorsed and tendered the bill of lading to Fishco’s bank on 14 November 2012. In support of such submission, Mr Bird made the following further points:

Ms Paruk submitted that this analysis was flawed for a number of reasons. In particular, she relied on the evidence of Mr Nadeak that ownership never passed to Fishco. It is true that that is what Mr Nadeak says in his witness statement. But such statement is only part of the entirety of the evidence which I have to consider; and given that PT Awindo told what appears to be a number of untruths in the settlement agreement, I do not consider that Mr Nadeak’s evidence can be safely relied upon in this context still less be determinative of the issue. Notwithstanding, it is my conclusion that (subject to the further argument in relation to s25(1) of the 1979 Act) Ms Paruk is right in her submission that property remained with PT Awindo in particular because (i) payment was delayed under the PT Awindo/Fishco contract and letter of credit until 45 days after the date of shipment; (ii) the rejection clause, in effect, entitled Fishco to reject the cargo in the stipulated circumstances and, on presentation of the rejection certificate, in effect to cancel the letter of credit within that same period i.e. 45 days after shipment; and (iii) that is what Fishco did with the result that the price was never paid.

These matters taken together persuade me that it was never the intention for property in the cargo to pass to Fishco until, at least, Fishco paid and PT Awindo received the contract price under their contract. I reach this conclusion for the following reasons:

In fairness to Mr Bird, he rightly acknowledged these features. However, he submitted that they were not inconsistent with his primary submission that property was intended to and did pass as stated above; and that the effect was simply that if and when the rejection clause was operated, property in the cargo would simply revert back to PT Awindo – although this was subject to his further qualification that the rejection clause could not be operated by Fishco in circumstances where, as here, the cargo had been sold on to a third party i.e. Carlos Soto, under terms which did not include a similar rejection clause. I do not accept that submission in particular because (i) it is unnecessarily complicated; and (ii) the analysis stated above is one which seems to me to accord better with the intention of the parties.

I turn then to consider Mr Bird’s alternative argument based on s25(1) of the 1979 Act which provides as follows:

“Where a person having bought or agreed to buy goods obtains, with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title, under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods, has the same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods or documents of title with the consent of the owner.”

It was common ground that if Carlos Soto can rely upon this provision, the effect is that, for the purposes of these proceedings, Carlos Soto is properly to be regarded as being the “owner” of the cargo. It was also common ground that the opening part of this section is satisfied. In particular, a “document of title” is defined in s61 of the 1979 Act as including “any bill of lading”; and there was no dispute that the bill of lading was delivered/transferred to Carlos Soto with the consent of the seller.

In this context, the main focus of the argument between Mr Bird and Ms Paruk was whether Carlos Soto received the bill of lading “in good faith and without notice” of the right of the seller in the goods. As to that dispute, there was a large measure of agreement as to the applicable principles. In particular, it was common ground that the burden of proof fell on Carlos Soto to persuade the Court, on a balance of probability, that the bill of lading was indeed received by it in good faith and without the requisite notice. It was also common ground that by virtue of s61(3) of the 1979 Act, a thing is deemed to be done in good faith “when it is in fact done honestly, whether it is done negligently or not”. Both Counsel also relied upon the principles as stated in Forsythe International (U.K.) Ltd. v Silver Shipping Co. Ltd. and Others [1994] 1 W.L.R. 1334 at 1349, citing Feuer Leather Corporation v. Frank Johnstone & Sons [1981] Com.L.R. 251, per Neill J at 253 viz:

“(2)

For this purpose the court is concerned with actual notice and not with constructive notice.

(3)

In deciding whether a person in the position of the defendants had actual notice: (a) the court will apply an objective test and look at all the circumstances; (b) if by an objective test clear notice was given liability cannot be avoided by proof merely of the absence of actual knowledge; (c) a person will be deemed to have had notice of any fact to which it can be shown that he deliberately turned a ‘blind eye’ … (d) on the other hand the court will not expect the recipient of goods to scrutinise commercial documents such as delivery notes with great care; (e) there is no general duty on a buyer of goods in an ordinary commercial transaction to make inquiries as to the right of the seller to dispose of the goods; (f) ‘the question becomes: looking objectively at the circumstances which are alleged to constitute notice, do those circumstances constitute notice? This must be a matter of fact and degree to be determined in the particular circumstances of the case:’ see Scarman L.J. in [ By Appointment (Sales) Ltd. v. Harrods Ltd. (trading as Rackhams) (unreported), 1 December 1977; Court of Appeal (Civil Division) Transcript No. 465 of 1977) ].

(4)

The burden of proving a bona fide purchase for value without notice rests on the person who asserts it. Such a rule seems to me to be logical and is in accordance with the judgment of Danckwerts J. in G.L. Baker Ltd. v. Medway Building and Supplies Ltd. [1958] 1 W.L.R. 1216 , 1220.”

Here, Ms Paruk relied heavily on what is stated above in paragraph (3)(a), (b) and (c). As to the facts, Ms Paruk submitted that Ms Lopez accepts that Carlos Soto received the Packing List which made express reference to the rejection clause; that the discrepancies in the documents presented to Banco Santander indicated that something was amiss; that in order for Ms Lopez to maintain that Carlos Soto had no notice of PT Awindo’s interest in the cargo, Carlos Soto will have had to have turned a blind eye to the documents presented to them; and that, at the very least, Carlos Soto fails to satisfy the burden on it to bring itself within s25(1).

I do not accept that submission. It is right that Carlos Soto did receive the Packing List (together with the other shipping documents) and that this particular document did contain a reference to a “rejection clause”. However, Ms Lopez’s evidence (which I accept) was that she did not see or read those words; that, from Carlos Soto’s perspective, the only purpose of a packing list is to confirm the number of cartons and weight of the goods; and that, in any event, such words did not and would not have alerted Carlos Soto to the possibility that PT Awindo retained ownership of the goods. Equally, I do not consider that there is anything in the point concerning the discrepancies in the documents which would have alerted Ms Lopez to such possibility. In such circumstances, Mr Bird relied on what is stated in paragraph 3(d) and (e) in the passage cited from Feuer. Plainly, there is a tension between what is there stated and the earlier subparagraphs. However, here, I am satisfied that the bill of lading was received in good faith and without notice. Insofar as may be relevant, that also seems to me confirmed by the subsequent conduct of Carlos Soto as referred to above.

For these reasons, it is my conclusion that Carlos Soto is entitled to rely upon s25(1) of the 1979 Act; that, on that basis, it is properly to be regarded in these proceedings as the owner of the goods from the date of receipt of the bill of lading i.e. 12/13 December 2012; and that the answer to the fourth preliminary issue is: “Yes”.

This preliminary issue goes to the question of causation. It was common ground that in order to succeed in their claim, the claimants must show that their loss has been caused by Maersk’s breach of duty. (For the sake of clarity, I should say that no distinction was drawn between Carlos Soto and AXA; and, for present purposes, I also draw no distinction.) Here, Ms Paruk submitted that even on the assumption that Maersk was in breach of duty, such breach did not “cause” the claimants’ loss. In particular, as summarised in her skeleton argument, she submitted (at least originally) as follows:

As to these submissions, I accept that the burden lies on the claimants to prove that their loss was caused by Maersk’s breach. However, contrary to Ms Paruk’s submission and as, I think, she accepted, it is not necessary for a claimant to prove that the particular breach is the “effective” or “dominant” cause of the loss. Although the language in Chitty at paragraph 26-057 might suggest otherwise, it seems to me that the position is clear from the authorities. Thus, Chitty summarises the position clearly at paragraph 26-067:

“If a breach of contract is one of two causes, both co-operating and both of equal efficacy in causing loss to the claimant, the party responsible for the breach is liable to the claimant for that loss. The contract-breaker is liable so long as his breach was “an” effective cause of his loss: the court need not chose which cause was the more effective.” (emphasis added)

I accept that the claimants’ loss might be said to be caused or contributed to by Fishco in the sense that although it relied upon the rejection clause as against PT Awindo, it nevertheless obtained the price from Carlos Soto under the letter of credit from Carlos Soto’s bank, Banco Santander. However, here, it seems to me that applying “common sense”, “the” or at least “an” effective cause of the claimants’ loss was indeed Maersk’s breach of duty (if such be proved). Nor do I accept that Ms Paruk’s argument that the chain of causation was broken by the intervening and wrongful acts of Fishco. In that regard, she accepted, I think, that her original submission as formulated in paragraph 31(v) above was not entirely correct. In any event, in my view, this part of Ms Paruk’s argument fails for at least two reasons. First, as a matter of timing, the claimants’ loss crystallised (at the latest) when the cargo arrived in damaged condition in Vigo on or about 18 December; and, in such circumstances, it does not seem to me that any act of Fishco after that date can cause the chain of causation to be broken. Second, the test as to what constitutes an intervening act sufficient to break the chain of causation is a high one. As submitted by Mr Bird, there must be an event of such impact that it “obliterates” the wrongdoing of the defendant: see per Gross LJ in Borealis v Geogas Trading [2011] 1 Lloyd’s Rep 482 at [44]. Here, whatever attraction there may be in Ms Paruk’s argument, I do not consider that the facts are such as to “obliterate” Maersk’s breach of duty (if it be proved).

For these reasons, I would answer the fifth preliminary issue: “Yes”.

In conclusion, the first three preliminary issues should, by consent, be answered: “Yes”; and I would also answer the fourth and fifth preliminary issues: “Yes”. Accordingly, I would request Counsel to seek to agree an order for my approval including all consequential matters. Failing agreement, I will deal with any outstanding issues.