Starboard: When does a “Bill of Lading” go too far?: The Luna

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Introduction

In the recent landmark decision of The “Luna” and another appeal [2021] SGCA 84, the Singapore Court of Appeal analysed the usage of documents which were described as bills of lading in relation to sales contracts for bunkers. Despite being termed as bills of lading, the Court of Appeal ultimately found that these documents were not intended to function as contracts of carriage and/or documents of title and thus were not true bills of lading.

Facts

In The Luna, the Seller had sold several parcels of bunkers to Buyers on an FOB basis. The bunkers were loaded onto several bunker barges at Vopak Terminal Pte Ltd. Upon loading, Vopak Terminal issued among other documents, a document issued in triplicate titled “Bill of Lading” (the Vopak BLs). Thereafter, the bunker barges delivered the bunkers to various ocean-going vessels shortly after loading. This was done without production of the original Vopak BLs, which was still held by the Seller at the material time.

Subsequently, as the Buyers defaulted on payment, the Seller arrested the barges on the basis that the Seller were entitled to delivery of the bunkers as holders of the Vopak BLs. The Seller commenced a claim against the barges in the Singapore Court, and the main issue was whether the Vopak BLs were intended to function as actual bills of lading. At first instance, the Singapore High Court found that the Vopak BLs did function as actual bills of lading and that therefore the Seller was entitled to possession of the bunkers. However, the Court of Appeal overturned the decision on appeal.

The Court of Appeal’s decision

In its determination of the true nature of the Vopak BLs, the Court held that it was appropriate to analyse the wider background circumstances of how the Vopak BLs were used and the perspectives of the Buyers, Seller and barge owners. The Court highlighted the following features of the sale arrangements (amongst others): (1) the Buyers were given a 30 day credit period to make payment, which allowed them to sell the bunkers on and use the proceeds to pay the Sellers within this period; (2) presentation of the Vopak BLs was not required for payment; and (3) the sales contracts did not make reference to bills of lading. Accordingly, the Court of Appeal found that the Vopak BLs were non-essential documents as between the Buyers and Seller - there was no requirement for the Buyers to present the original Vopak BL before being able to lawfully deal with the bunkers, and the Buyers were able to deal with and sell on the bunkers as soon as they were loaded onto the bunker barges. Likewise, as between the Sellers and the barge owners, the Vopak BLs were not intended to provide security against risk of non-payment - the Seller knew that the bunkers were to be delivered to ocean-going vessels shortly after loading, so presenting the Vopak BLs to the barge owners would not have helped the Seller to regain possession of the bunkers. Therefore, the Vopak BLs did not serve the traditional functions of a bill of lading.

The Court also noted that the Vopak BLs did not specify a port of discharge and contemplated that delivery could be made to multiple ocean-going vessels without the need for presentation of the original Vopak BLs. This deviation from the usual bills of lading further indicated that the Vopak BLs were not intended to function as typical bills of lading. Crucially, the Court found that the Seller had accepted the risk of non-payment from the Buyers, and this risk was not borne by the barge owners.

Starboard’s observations

The decision is an important reminder on the limitations of designing and using a bill of lading. Ultimately, the bill of lading is constrained by the functions it must fulfil, namely to operate as a (i) a receipt of the goods carried; (ii) evidence of the terms of the contract of carriage; and (iii) a document of title to the goods. The label or description of a document as a bill of lading is no guarantee that it would operate as such, and the Court will look towards the underlying sales arrangements, conduct of parties and usage of the document to ascertain whether parties had intended for a particular document to function as a true bill of lading.

In light of the Court of Appeal’s decision, commercial parties should also consider if a bill of lading is in fact the appropriate document to govern parties’ rights and obligations. In The Luna, the Court noted that the features of the specific sales arrangements in this particular case such as the quick turnaround times and onward deliveries to multiple parties, were not uncommon in the bunker trade. Therefore, the function of a bill of lading may not be suited to the specific demands of the bunker trade, and the decision in The Luna exposed how parties in bunker contracts may be unprotected against the risk of default by other parties. Therefore, industry players (whether in the bunker trade or any other trade with similar features) should carefully evaluate the terms of their sales contracts and documents used, especially with regards to passing of title, and the need for presentation of documents for delivery, and consider whether they are adequately protected against risks of non-payment.

In this regard, it would be interesting to consider if such documents having failed as a bill of lading could still succeed as evidence of a contract of bailment. On the specific facts of this case, the Court of Appeal held that no relationship of bailment arose between parties as title and possession of the bunker had passed to the Buyers. However, it also observed that there was no “special agreement” or “special contract” between parties such that a relationship of bailment nevertheless arose despite title and possession of goods being passed to the Buyers.

This suggests that depending on the specific facts of the case and subject to any “special agreement” or “special contract” between parties such documents can give rise to a case in bailment. Unfortunately, the Court of Appeal did not elaborate further on what would constitute such a “special agreement” or “special contract” and it remains to be seen if further guidance will be provided in future cases.

Dentons Rodyk thanks and acknowledges Associates Leong Hern Wei and Kavitha Ganesan for their contributions to this article.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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