QCR Autumn 2018: Carriage of Goods by Sea

Fehn Schiffahrts Gmbh & Co Kg v Romani spa (The "Fehn Heaven") - [2018] EWHC 1606 (Comm)

Facts

The Owners of the vessel, Fehn (“Owners”) voyaged chartered the vessel to Romani (“Charterers”) for the shipment of 1,300mt of organic sunflower seeds and 1,800mt of organic wheat from Reni (Ukraine) to Rotterdam (Netherlands) under two straight bills of lading.

SC Justorganic Srl was the named consignee and the holder of the bills of lading (“the Consignee”). At some point after completion of the loading at Reni, and prior to discharge at Rotterdam, the cargo was fumigated, which meant it could no longer be sold as organic.

The Consignee assigned its right under the Bills of lading to the charterers who then on-sold the cargo to two buyers at discounted prices. The Charterers then sought to recover the amount of the negotiated discounts from the Owners. They commenced arbitration for their claim relating to the fumigation (i) under the charterparty; and (ii) as assignees under the bills of lading (to avoid arguments about title to sue). The majority of the Tribunal found that Charterers did have title to sue, and that the assignment letter supported the Charterers’ submissions.

The Tribunal concluded that the Owners were liable for damages found to have been caused by the unauthorised fumigation of the cargo whilst it was in their care and custody. The tribunal awarded damages to the Charterers relating to the downgrading of the cargoes from organic to conventional cargoes.

Owners appealed under s. 69 of the Arbitration Act 1996 and sought clarification of the evidence relied upon by the Tribunal which led to the implicit finding that the Charterers had title to sue. The grounds of the appeal are that the tribunal erred in law when answering the following question in the affirmative and finding that the Charterer had title to sue:

"Can a party (A) assigned rights (the "assignee") claim substantial damages in circumstances where the assignor (B) has suffered no loss and would be entitled (at most) to nominal damages (when the situation is not within any known exception to the principle that an assignee cannot acquire rights more valuable than those of the assignor)?"

Judgement

The Owners’ case is that, applying the general principle that an assignee could not recover more from the debtor than the assignor could have done had there been no assignment, the Charterers were not entitled to substantial damages because the assignor (Justorganic) would not have been able to claim damages itself. A consignee under a straight bill of lading who suffers no loss cannot bring a claim in respect of damage to the cargo. The assignment purported to transfer proprietary interests after the breach causing loss or damage to the goods.

The Owners claim that, contrary to the general principle, the Tribunal implicitly found that the Charterers could claim substantial damages in circumstances where Justorganic was not entitled to do so. As such, they say that the Tribunal misdirected itself as to the question of law and its answer is therefore obviously wrong.

The Charterers' primary case was that the damages awarded by the Tribunal were the loss that Justorganic was entitled to recover as the consignee under the straight bills of lading which it assigned to the Charterers, and therefore the question of law did not arise at all. In support of this, the Charterers pointed to the fact that there was no finding in the Award that Justorganic did not suffer loss.

Moulder J held that the court could not determine whether the Tribunal answered the question of law correctly on the face of the Award. If in fact there was no substantial damage suffered by the consignee, then the Tribunal had incorrectly applied the law, and assumed that the Charterers could recover the losses even though no loss had been suffered by the Consignee as assignor.

Moulder J also held that the court could not uphold the Award on the basis that Charterers had title to sue under the Charterparty.

Comments

Goods while onboard the vessel may be on-sold many times before they reach the final buyer. Bills of lading may be drawn as “to order” or may name banks as consignees. As a result, substantial losses may land anywhere, and so a decision about who can sue and recover losses in relation to the damaged goods is very important.

The facts of this case are very similar to those of another case, The Baltic Strait.

In the Baltic Strait, the consignee who was the lawful holder of the straight bill of lading assigned its rights under the bill to the seller of the cargo who was also the charterer of the vessel. The latter in turn assigned those rights to its insurer, who brought the claim against the ship owner under COGSA 1992.

The Judge in the Baltic Strait case re-affirmed the well accepted principle under English Law that a consignee cannot recover more than it lost. COGSA 1992 however provides an exception to this principle in that it enables the consignee to recover its own loss as well as the loss of the person(s) for whose benefit it exercises its right to claim.

Section 2(4) COGSA 1992 allows the lawful holders of a bill of lading or other documents relating to cargo, “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 the Fehn Heaven, there was no mention of the assignment having taken place under COGSA 1992 and so the assignee could not recover what the consignee himself would have been unable to recover.