Factual and Procedural Background
This case concerns an appeal under section 69 of the Arbitration Act 1996 against a final arbitration award dated 7 August 2017, with leave to appeal granted by Judge Bryan on 31 October 2017. The arbitration involved bills of lading dated 4 January 2014, under which the master of the Plaintiff's refrigerated cargo ship acknowledged shipment of 249,250 boxes of fresh bananas from Guayaquil, Ecuador, to Tripoli, Libya. The cargo was discharged in damaged condition. The first Defendant, Altfadul, named as consignee in the bills of lading, received the damaged cargo. The arbitrators found the Plaintiff liable for the damage and valued the loss at US$4,567,351.13. Altfadul was held to be the lawful holder of the bills of lading with rights of suit under section 2(1) of the Carriage of Goods by Sea Act 1992 (COGSA 1992).
Altfadul purported to reject the cargo on 30 January 2014 and claimed a refund from its seller, Company A, who was also the voyage charterer of the vessel under a voyage charter dated 14 December 2013. The bills of lading incorporated the terms of that charter, including its arbitration clause. Company A agreed a credit of approximately US$2,586,105.09 in favour of Altfadul as settlement of the dispute over the rejection, spread over subsequent shipments. The second Defendant, Company B, an Italian insurer, joined the arbitration as assignee of rights from Company A, including rights assigned from Altfadul.
The arbitration award granted full damages to Company B as assignee of Altfadul's rights, rejecting the Plaintiff's contention that credit should be given for the settlement amount promised by Company A. The appeal concerns the legal nature and extent of those rights, particularly the operation of section 2(4) of COGSA 1992 in this context.
Legal Issues Presented
- Whether section 2(4) of COGSA 1992 operates only where rights of suit under the bill of lading contract were previously vested in the party suffering loss but lost by operation of section 2(1), or whether it also operates where such rights have never been vested in that party.
- Whether the lawful holder of the bill of lading can claim under section 2(4) loss suffered by the charterer of the vessel whose charterparty is with the bill of lading carrier, particularly where the charterer no longer pursues a claim against the carrier under the charterparty.
- Whether, on the facts found in the arbitration award, Altfadul (and thus Company B as assignee) was entitled to damages equal to the full value of the cargo damage irrespective of any recovery or entitlement to recover from its seller, Company A.
Arguments of the Parties
Appellant's Arguments
- Section 2(4) of COGSA 1992 should only operate where the party suffering loss previously had rights of suit but lost them by operation of section 2(1).
- The settlement credit from Company A to Altfadul represented an insurance recovery or should be treated as res inter alios acta, thus not affecting damages.
- The lawful holder of the bill of lading should not be entitled to claim losses suffered by the charterer under section 2(4) where the charterer’s claim is governed by the charterparty (mere receipt rule).
- The common law position is that Altfadul was not entitled to full damages without giving credit for the settlement amount from Company A.
- R&W Paul Ltd v National Steamship Co Ltd (1937) is doubtful authority under COGSA 1992 and may not survive post-Swynson Ltd v Lowick Rose LLP (in liquidation) (2017).
- If the common law argument (Question iii) fails, the award should be remitted to the arbitrators for reconsideration of the insurance proceeds argument or the nature of the settlement credit.
Respondents' Arguments
- The arbitrators correctly held that Altfadul was entitled to full damages for the cargo damage irrespective of any settlement with Company A.
- Section 2(4) of COGSA 1992 allows the lawful holder of the bill of lading to recover loss suffered by others, including Company A, without the requirement that Company A previously had rights of suit.
- The mere receipt rule applies such that a charterer who is the lawful holder of the bill of lading cannot recover losses suffered by it under the bill but only under the charterparty.
- The common law supports the proposition that the bill of lading holder who receives damaged goods may recover full damages from the carrier, irrespective of earlier recoveries from intermediaries, as established in R&W Paul Ltd v National Steamship Co Ltd (1937) and confirmed in subsequent cases.
- The arbitrators’ award was correct in law and should be upheld despite any errors regarding section 2(4) of COGSA 1992.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| R&W Paul Ltd v National Steamship Co Ltd (1937) 59 Ll L Rep 28 |
Holder of bill of lading entitled to full damages irrespective of earlier recovery from intermediate seller. |
Confirmed as good law supporting entitlement of lawful bill holder to full damages despite earlier recoveries; decisive for Question (iii). |
| The Aramis [1989] 1 Lloyd's Rep 213 |
Endorsement of R&W Paul and principles on rights of suit under bills of lading. |
Used to support continued validity of R&W Paul and statutory interpretation of COGSA 1992. |
| The Athenian Harmony [1998] 2 Lloyd's Rep 410 |
Application of principles relating to rights of suit and damages under bills of lading. |
Supported the understanding of rights and losses under COGSA 1992. |
| The Sanix Ace [1987] 1 Lloyd's Rep 465 |
Clarification that damages entitlement relates to ownership or possession of goods when damaged. |
Confirmed that full damages awarded where claimant owned or entitled to possession at damage time; did not limit R&W Paul. |
| Swynson Ltd v Lowick Rose LLP (in liquidation) [2017] UKSC 32 |
Developments in law of res inter alios acta. |
Cited but not found to undermine R&W Paul or affect relevant legal principles here. |
| Calcutta S.S. Co Ltd v Andrew Weir & Co [1910] 1 KB 759; The Dunelmia [1970] 1 QB 289 |
Mere receipt rule limiting charterers' rights under bills of lading. |
Applied to interpret statutory vesting of rights under COGSA 1992 and limits on charterers’ claims under bills of lading. |
| Dunlop v Lambert (1839) 6 Cl & F 600; The Albazero [1977] AC 774 |
Common law on consignor’s right to sue for loss suffered by ultimate consignee. |
Referenced to explain limits on rights of suit and statutory interpretation of s.2(4) COGSA 1992. |
| Lowsley v Forbes [1999] 1 AC 329 |
Principle of statutory interpretation that legislative terms bear judicially determined meanings. |
Supported consistency presumption in interpreting COGSA 1992 provisions. |
| Brandt v Liverpool, Brazil & River Plate Steam Navigation Co Ltd [1924] 1 KB 575 |
Implied contract arising from taking delivery against presentation of bill of lading. |
Referenced in R&W Paul as basis for right to sue under bills of lading. |
| The Charlotte [1908] P 206; The Aliakmon [1986] AC 785 |
Development of tort law principles relevant to damage to goods and loss. |
Used to support reasoning on damages entitlement relating to property interests at time of damage. |
| The Vigour, Icon Navigation Corp v Sinochem International Petroleum (Bahamas) Co Ltd [2003] 2 CLC 325 |
Principles on extent to which respondents may rely on points not dealt with by arbitrators on appeal. |
Applied to reject respondents’ attempt to rely on points not addressed by arbitrators. |
| The Mary Nour, CTI Group Inc v Transclear SA [2008] 1 Lloyd's Rep 250 |
Similar appellate principles on arbitration appeals. |
Supported procedural reasoning on points open to parties on appeal. |
| The Mahakam, Parbulk II A/S v Heritage Maritime Ltd SA [2012] 1 Lloyd's Rep 87 |
Further authority on appeal rights and limitations under Arbitration Act 1996. |
Reinforced approach to points raised on appeal. |
| The Dimitris L, Navios International Inc v Sangamon Transportation Group [2012] 1 Lloyd's Rep 493 |
Appeal procedure and scope of review in arbitration appeals. |
Considered in relation to procedural fairness and scope of appeal arguments. |
| Ramburs Inc v Agrifert SA [2016] Bus LR 135 |
Recent authority on appeal rights under Arbitration Act. |
Confirmed limits on points that can be raised on appeal. |
Court's Reasoning and Analysis
The court first addressed Question (iii), concerning whether Altfadul was entitled to full damages irrespective of any recovery from Company A. It accepted the defendants' submission, founded on R&W Paul Ltd v National Steamship Co Ltd (1937), that a lawful holder of a bill of lading who receives damaged goods may recover full damages from the carrier despite any prior settlement with an intermediate seller. The court rejected the claimant's contention that full damages entitlement was limited to cases where the claimant owned or had possession of the goods at the time of damage, finding that the principle applied here since Altfadul, as lawful holder, received the damaged cargo and either owned it at discharge or acquired ownership upon settlement of the sale dispute.
The court observed that the arbitrators' award of full damages was therefore correct in law even if their reasoning on section 2(4) of COGSA 1992 was flawed.
Turning to Questions (i) and (ii), concerning the proper construction of section 2(4), the court applied established principles of statutory interpretation, including the presumption of consistency with prior judicial meanings and the legislative purpose identified in the Law Commission Report. It rejected the claimant's argument that section 2(4) only applies where the party suffering loss previously had rights of suit but lost them by operation of section 2(1). Instead, the court held that section 2(4) applies more broadly to cases where rights of suit are vested in another party, irrespective of whether the loss sufferer ever had such rights.
Regarding the charterer Company A, the court applied the "mere receipt rule" derived from The Dunelmia and related cases, holding that although Company A was the lawful holder of the bills of lading, it was not entitled to recover losses from the carrier under the bill of lading contract but only under the charterparty. Consequently, section 2(4) could not operate to allow Altfadul (and its assignee Company B) to recover Company A's losses under the bill of lading contract.
In sum, the court concluded that while the arbitrators were correct to reject the claimant's narrow construction of section 2(4), they erred in holding that Altfadul could recover losses suffered by Company A, the charterer, under that provision.
Holding and Implications
The court's final decision was to DISMISS the claimant's appeal.
The holding confirms that a lawful holder of a bill of lading who receives damaged goods is entitled to recover full damages from the carrier irrespective of any settlement with an intermediate seller, consistent with longstanding authority. However, the court clarified that section 2(4) of COGSA 1992 does not permit recovery on behalf of a charterer to whom the mere receipt rule applies, preserving the charterparty as the sole basis for such claims. The decision upholds the arbitration award in full, resolving the legal questions surrounding the operation of section 2(4) and the rights of suit under bills of lading in the context of charterparties.
No new precedent was established beyond the application and clarification of existing principles, and the direct effect is to affirm the arbitrators' award in favour of the assignee of the lawful bill holder.