Carewins Development (China) Ltd (the plaintiff), a Hong Kong exporter, entered into a contract for the sale of footwear with Artist Fashion Inc (AFI). Bright Fortune Shipping Ltd and Hecny Shipping Ltd (the defendants) were freight forwarders who acted as contractual carriers. In each case, the plaintiff was named as the shipper and AFI was named as the consignee. All the bills of lading that had been issued by the defendants were straight bills of lading. On arrival, the goods were transferred to the premises of AFI. AFI obtained the goods without having presented any bill of lading. The plaintiff was never paid by AFI. The plaintiff filed a claim against the defendants on the ground that their delivery of the goods to AFI without requiring presentation of the bills of lading constituted a breach of contract resulting in loss to the plaintiff in the total amount of USD 873,028.

The Court of First Instance held that the delivery of the goods by the defendants to AFI without presentation of the straight bills of lading amounted to a breach of the carriage contract. However, cl 2(b) of the bills of lading which purported to exempt liability for 'misdelivery ... however caused whether or not through negligence' exempted the defendants from liability: see CMI1136. The plaintiff appealed.

Two main issues had been considered by the Court of Appeal. First, should the defendants be responsible for delivering the cargo to AFI without presentation of the bills of lading? Second, if the answer is 'yes', should the defendants be exempted from liability by the relevant exclusion clause in the bills of lading?

Regarding the first issue, the defendants argued that: first, a consignee under a straight bill of lading did not need to present a bill of lading to obtain delivery; secondly, even if a consignee had to present a straight bill of lading to obtain delivery, the carrier was not obliged to insist on presentation of the bill of lading before delivering to the consignee.

Regarding the second issue, the defendants contended that art 3.8 of the Hague-Visby Rules nullified any clause in a bill of lading which provided for a lesser liability than that imposed by the Hague-Visby Rules. However, art 3.8 was subject to art 7 of the Hague-Visby Rules. Article 7 provided that a carrier could agree with a shipper on a lower limit of liability or to exclude liability altogether for the period 'prior to the loading on' and 'subsequent to the discharge from' the shipment of goods. Any misdelivery without presentation of bills of lading could only take place subsequent to the discharge of the goods from a vessel. Therefore, cl 2(b) of the bills of lading was wide and clear enough to exclude the defendants' liability for misdelivery of goods without presentation of bills of lading.

Held: Appeal allowed.

According to s 3(2) of the Carriage of Goods by Sea Ordinance Cap 462 (the Ordinance), the Hague-Visby Rules were applicable in this case.

It was held in J I MacWilliam Co Inc v Mediterranean Shipping Co SA (The Rafaela S) [2005] UKHL 11 (CMI632) that a straight bill of lading was a 'bill of lading or any similar document of title' within the meaning of art 1.b of the Hague-Visby Rules. Therefore, a straight bill of lading must be presented by the named consignee to obtain the delivery of the goods. In addition, a carrier must require presentation of the straight bill of lading before delivery. The attestation clause in the bills of lading also clearly indicated that a straight bill of lading was a document of title which needed to be presented to obtain the underlying goods. Therefore, since the defendants delivered the goods to AFI without requiring presentation of the bills of lading, they were in breach of the carriage contract.

The defendants' second argument was also ill-founded. Clause 2(b) purported to exempt liability for 'misdelivery ... however caused whether or not through negligence'. Nevertheless, the words 'however caused' were subject to the words 'whether or not through negligence'. In this case, the defendants deliberately ignored the plaintiff's instruction and delivered the goods without presentation of the bills of lading. This was an intentional disregard of the contractual term and not a matter of negligence. Clause 2(b) was not clear enough to exclude the defendants' liability.

In addition, on a true construction of the bills of lading, the parties agreed to treat 'discharge' as including 'delivery'. The operation of 'discharge' referred to in the Hague-Visby Rules must be regarded as covering 'delivery' in this particular case. Therefore, cl 2(b) was nullified by art 3.8 of the Hague-Visby Rules.

[For the unsuccessful appeal to the Hong Kong Court of Final Appeal, see CMI554].