312. Pace Shipping Co Ltd v Churchgate Nigeria Ltd (The “Pace”) (No.2) [2010] EWHC 2828 (Comm)

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Bills of Lading – section 2(4) of the Carriage of Goods by Sea Act, 1992 which enables a holder of a bill to sue on behalf of the real owner of cargo does not create a separate cause of action.

 The facts

Bagged rice was carried from Thailand to Nigeria under Bills of Lading. The Bills were lawfully endorsed to the holders but after the cargo had been delivered to a third party which obtained title to such cargo.  Section 2 of the Carriage of Goods by Sea Act, 1992 provides as follows:

Rights under shipping document

(1)  Subject to the following provisions of the section a person who becomes:

(a)  the lawful holder of a bill of lading shall

(by virtue of becoming the holder of the bill or, as the case may be, the person to whom delivery is to be made) have transferred to and vested in him all rights of suit under the contract of carriage as if he had been party to the contract.

(2)  Where, when a person becomes the lawful holder of a bill of lading, possession of the bill no longer gives a right (as against the carrier) to possession of the goods to which the bill relates, that person shall not have any rights transferred to him by virtue of sub-section (1) above unless he becomes the holder of the bill:

(a)  by virtue of a transaction effected in pursuance of any contractual or any other arrangements made before the time when such a right to possession ceased to attach to possession of the bill.

(4)  Where in case of any document to which this act applies:

(a)  a person with any interest or right in or in relation to goods to which the document relates sustains loss or damage in consequence of a breach of the contract of carriage, but

(b)  sub-section (1) above operates in relation to that document so that rights suit in respect of that breach are vested in another person,

the other person shall be entitled to exercise those rights for the benefit of the person who sustained the loss or damage to the same extent as they could have been exercised if they had been vested in the person for whose benefit they are exercised.”

In an earlier arbitration (the second) between the same parties (holders and ship owners), holders were held entitled to sue by virtue of section 2(2) of the Carriage of Goods by Sea Act, 1992 i.e. they were entitled to possession of the cargo by virtue of a transaction which pre-dated the endorsement of the bill (this award survived a challenge under section 68 of the Arbitration Act 1996 – the Pace (no 1)

In a third award, the arbitrators found that although not part of the pleaded case, holders could rely on section 2(4) which effectively allows holders of bills to sue holders could rely on section 2(4) which effectively allows holders of bills to sue where ownership of the cargo vests in the third party.

Ship owners obtained leave to appeal on a question of law, namely, whether section 2(4) created a cause of action separate from section 2(1).

The significance of the point was that if reliance on section 2(4) did constitute a new cause of action, the claim would be time-barred.

 Findings

Burton J, distinguishing the World Era, held that section 2(4) did not have the effect of creating a new cause of action. In circumstances where section 2 (4) was relied on, the right continued to reside in the fact of holding the bills of lading for which a cause of action was provided in section 2(1). Burton J was of the view that while reliance on section 2(4) ought to have been pleaded by the holders, ship owners suffered no prejudice by the failure to do so.

Commentary

In the World Era, Hobhouse J refused an amendment seeking to allege that the claimant, undisclosed principal, could claim on behalf of its principal and itself. Not only was the principal not a party to the arbitration but allegation was unsound in law – a contract entered into by such an agent does not afford both the agent and the principal a cause of action – an election must be made.

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