When there is an invisible elephant in the room, from time to time, one is bound to trip over a trunk.
On 13 July 2018, the New South Wales Court of Appeal handed down the anticipated decision in Cro Travel Pty Ltd v Australia Capital Financial Management [2018] NSWCA 153, an appeal from the decision of the NSW District Court in Australian Capital Financial Management v Freight Solutions (Vic) Pty Ltd [2017] NSWDC 279. The Court considered whether negotiable house bills, issued alongside negotiable ocean bills, were “misleading and deceptive” under the Australian Consumer Law.
In his decision below, Judge Russell, with healthy irony, referred to Aikens, Lord and Bools’ remark at [2.1] in Bills of Lading: “Like an elephant, a bill of lading is generally easier to recognise than to define.” Based on these decisions, it may be necessary to brush up on this ancient animal’s taxonomy.
The facts
In 2014, the Respondent (a lender) had advanced money to the Appellant (an exporter) with security being “all original shipping documents” that “relate to” each drawdown, specifically the bills of lading for the shipments.
The exporter engaged the freight forwarder to arrange carriage of the goods to China. The freight forwarder engaged the carrier, who issued a set of negotiable ocean bills. The freight forwarder then issued in triplicate its own house bills which it signed as agent for the carrier, consigned to order, and stamped “original”, it then issued further copies in triplicate, stamped “non-negotiable” and not endorsed by the shipper. The house bills were provided to the exporter, who provided them to lender. Monies were advanced in reliance upon these bills. When lender sought to obtain delivery of the goods, in reliance upon the house bills in its possession, it discovered that the cargo had already been delivered to third parties in China, on production of the original ocean bills issued by the carrier.
The damages claim
The lender claimed damages from the freight forwarder on two grounds. First, the freight forwarder had engaged in misleading and deceptive conduct under the Australian Consumer Law. The lender argued that the house bills were apparently negotiable instruments, entitling the holder to take delivery. It was also argued that because they were marked “To Order” the freight forwarder should have been aware that the bills may be provided to a third party as security. Secondly, the freight forwarder had breached a warranty of authority, by signing each of the bills on the carriers’ behalf.
The Court of Appeal affirmed the decision of Judge Russell, below, and held that that the freight forwarder had engaged in misleading and deceptive conduct for falsely representing that the bills were negotiable instruments or bearer bills that were capable of being used to obtain delivery. Further, it held that the freight forwarder issuing the house bills as agent for the carriers, while also circulating bills of lading that had been authorised by the carrier, constituted misleading and deceptive conduct. It also confirmed that the freight forwarder’s issuing of the bills as agents of the carrier was without sufficient authority.
Issues for the not so distant future
Advocates for E-bills may cite this decision an example of why international trade will benefit from the wider introduction of paperless transactions and the increased uptake of the blockchain ledger technology. True it is that when an e-bill of lading is used, no original documents need to be transferred between parties involved and problems such as confronted the lender in this case would become an historical oddity. But to my mind there are some problems with e-bills as they currently stand and we are not ready for Blockchain yet.
An e-bill of lading can fulfil the first two functions of paper bills: a receipt for the goods shipped and evidence of the contract of carriage. However, is it is questionable whether it can be a document of title. Transferability of the negotiable e-bill of lading presents another challenge, as transfer of such a bill of lading is effected by the delivery. Another challenge is title to sue. In most jurisdictions possession of the original paper bill gives title to sue. What of the holder of an e-bill’s title? Lastly, the Hague-Visby Rules were not drafted with the development of an e-bill of lading in mind. On one view, carriage under an e-bill could be considered carriage without documents.
The Rotterdam Rules do provide the possibility of using an electronic equivalent for the bill of lading; the Electronic Transport Record (ETR). These Rules provide general definitions and ground rules for the ETR, which allow for further technological developments. However, an e-bill as a document of title is not regulated by the Rules; this is left to the discretion of member states to provide for in their national law. At this stage, the Rotterdam Rules have not reached the number of ratifications necessary to enter into force.
Several attempts have been made to regulate ETRs by “soft law”. The first was made by the Comité Maritime International on 29 June 1990, when it adopted its “Rules for Electronic Bills of Lading”. The Rules’ application is to be agreed upon by the contracting parties, which is rare, meaning that these Rules have not gained the popularity hoped for.
In September 2017, UNCITRAL published the Model law on Electronic Transferable Records which contains some guidelines for the use of negotiable ETR, which national legislators may choose to apply in their national law.
Is Blockchain technology the answer?
The Blockchain ledger technology is so acclaimed because it makes digital transactions broadly accessible, safe and reliable. Blockchain could be used to further the use of e-bills making them unique and secure. Its global accessibility makes it compatible with the issue of e-bills. A blockchain e-bill could also potentially meet the requirements of the ETR as provided by the Rotterdam Rules. However, extensive new legal frameworks are necessary to regulate Blockchain, and at present the International Group of P&I Clubs limits cover for carriage under e-bills to those used with approved systems such as ess-DOCS, Bolero and e-title™. Nonetheless, it is very likely that the technology will be implemented in these systems in the near future and with it hopefully, there will be fewer accidents occasioned by the elephant’s trunk.
Bridie regularly advises and appears for freight forwarders, carriers, P&I clubs and lenders as part of her maritime and international law practice. She also has an avid interest in the legalities of the Blockchain technology.
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