Carewins Development (China) Ltd (the respondent), 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 appellants) were freight forwarders who acted as the contractual carriers. In each case, the respondent was named as the shipper and AFI was named as the consignee. All the bills of lading which had been issued by the appellants 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 respondent was never paid by AFI. The respondent filed a claim against the appellants 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 respondent in the total amount of USD 873,028.00.

The Court of First Instance held that the delivery of the goods by the appellants to AFI without presentation of the straight bills of lading amounted to a breach of the carriage contract. However, the exemption clause contained in cl 2(b) of the bills of lading exempted the appellants from liability: see CMI1136. The respondent appealed.

The Court of Appeal confirmed the Court of First Instance's finding that the delivery without presentation of the straight bills of lading was a breach of contract. In addition, the Court of Appeal held that the exclusion clause in the bills of lading did not exempt the appellants from liability: see CMI553. The appellants appealed. Two main issues arose in the Court of Final Appeal. First, should the appellants be responsible for delivering the cargo to AFI without presentation of the bills of lading. Second, if the answer is 'yes', should the appellants be exempted from liability by the relevant exclusion clause in the bills of lading?

Held: Appeal dismissed.

Straight bills of lading share all the characteristics of order bills, save only that they are not negotiable. However, as a matter of principle and in the light of persuasive authorities, it is the law of Hong Kong that a carrier of goods shipped under a straight bill of lading is potentially liable for breach of contract if it releases those goods without presentation of the original bill of lading.

At the trial, it was disputed as to whether the alleged misdelivery took place before or after the completion of discharge of the goods. If before discharge, then art 3.8 of the Hague-Visby Rules which had been given force of law by s 3(2) of the Carriage of Goods by Sea Ordinance Cap 462 (the Ordinance) would prevent the carriers from relying on the exclusion clause. This was no longer a live issue, however, since the respondent did not seek to support the Court of Appeal's conclusion and conceded that delivery occurred after the discharge. The appellants were therefore not prevented by art 3.8 of the Hague-Visby Rules from relying on the exclusion clause.

However, the language of cl 2(b) must be construed according to the nature and purpose of the contract. An essential purpose of the contract is that the goods should be delivered by the appellants only against the presentation of an original bill of lading. Therefore, if the appellants can rely on cl 2(b) and exclude their liability, the primary purpose of the carriage contract would be undermined. This would be a construction which the court inclines against, as it would deprive the shipper of an essential protective obligation and seriously undermine the purpose of bills of lading.