Electronic bills: user beware

The advance of modern technology is often seen as relentless and inevitable, with supporters of the most up-to-date practices citing advantages such as improved speed, reduced expense or superior ease of use for those involved. Processes within the shipping industry are, of course, no exception.

A recent case examines the use of the Electronic Release System (ERS) at discharge ports and perhaps challenges the increasingly popular mantra that “newer equals better”.

Glencore International, the shipper and the claimant, brought its claim against MSC Mediterranean Shipping Company, the carrier and the defendant, in relation to two containers of cobalt that were “misappropriated” at Antwerp Port.

The cargo was to be delivered via the ERS, which Antwerp Port had introduced at the start of 2011. MSC began using the scheme to deliver shipments to C Steinweg (Glencore’s agents) soon after the system was operational and, before the dispute arose, 69 shipments were successfully made.

The ERS was designed to replace the need for the carrier to issue paper delivery orders or to release cargo in return for bills. Instead, on receipt of a bill of lading, MSC would email Glencore’s agents a ‘release note’ containing a computer-generated four digit PIN. Glencore’s agents would then be able to use the PIN to take delivery of the cargo from MSC during a set timeframe.

In May 2012, as usual, Glencore sent their agents the relevant bills of lading. The bills expressly stated that they were to be exchanged “for the Goods or a Delivery Order”. In June 2012, Glencore’s agents lodged one of the bills of lading with MSC and, later that month, MSC emailed Glencore’s agents a release note for three containers. When attempting to collect the cargo, however, it was discovered that two containers had already been collected by a third party.

The claim

Glencore’s claim was straightforward: they argued that, as per the express terms of the bills of lading, MSC should only have delivered the cargo on the presentation of either a bill of lading or a delivery order. Glencore submitted that MSC had not done so (as MSC had delivered the goods against the PIN contained within the release note) and hence MSC were liable for Glencore’s loss.

MSC contended that they had complied with the provisions in the bills of lading. MSC asserted that:

• the electronic PIN constituted a ‘Delivery Order’; and/or
• a term giving effect to point 1. had been implied into the bills of lading due to the previous course of dealings between the parties; and/or
• the terms of the bills of lading had been varied to give effect to point 1. by mutual agreement.

The Court found in favour of Glencore. Firstly, the Court disagreed with MSC that the electronic PIN constituted a ‘Delivery Order’. The Judge held that a ‘Delivery Order’ had to be considered in the correct context, which was that of a bill of lading contract. Within that context, the Judge held that it must be assumed that the parties had been referring to the document commonly called a ‘ship’s delivery order’ as defined by s.1(4) Carriage of Goods by Sea Act 1994 (“COGSA”); that being a document which contains an undertaking to deliver the goods by the carrier to the person identified as the receiver of the goods. A PIN could thus not constitute a ‘Delivery Order’.

Secondly, the assertion that MSC had handled the cargo in accordance with a term implied into the bill of lading was rejected. Not only was it held that the implied term would sit awkwardly with (if not completely contradict) the express terms of the bills of lading, but the Judge also made the point that “carriers were not obliged to use the ERS and it was not used by all: this in itself shows that business requirements never dictated its use”.

Thirdly, it was held that the bills of lading contracts had not been varied by mutual agreement. The Judge found no evidence to suggest that Glencore’s agents had ever evinced an intention to accept an offer varying the terms of the bills of lading, or that Glencore’s agents even, in fact, had authority to agree to vary the bills of lading in such a way.

Surprising outcome

This judgment may, in some respects, be regarded as a surprising result. While the Judge’s conclusion is the result of logical legal analysis, the finding that ‘delivery’ can only be made against the precise documents specified within the bills of lading’s terms does seem somewhat uncommercial in light of the fact that MSC were invited to use the ERS at Antwerp Port by the port authorities themselves (and, in fact, did use the ERS in their dealings with Glencore and others for around a year and a half with success).

This case illustrates that a carrier has a fundamental obligation to deliver cargo to the holder of the bill of lading or to the party with a valid delivery order containing an undertaking as to delivery.

If a carrier does wish to make use of the ERS, as opposed to the traditional paper-based system, it would be advisable to ensure that sufficient provision is made for the use of release notes and electronic PINs within the terms of the bills of lading.

This decision is currently subject to appeal.

Ted Graham is a partner at Ince & Co with over 20 years of experience dealing with shipping and trade disputes as well as general commercial litigation. He can be contacted on +44 (0) 20 7481 0010 or ted.graham@incelaw.com.