Think Recoveries: Title to sue in cargo recovery claims

In this short article we consider title to sue under English law in relation to contractual claims. 

Introduction

We have discussed in another article in this series the importance of correctly identifying the party against whom a claim must be brought. In this article we consider the importance of bringing a claim in the name of the correct party or parties.  This is often a point raised by an opponent particularly where they have exhausted any other defences to a claim.

Considering this aspect at an early stage will provide sufficient time to ensure time extensions protect the correct claimants, and to allow a claim to be commenced in the name of the correct party or parties, which will avoid prejudice to the claim at a later stage.

Identifying which party has title to sue will depend on whether the claim is being brought in contract, under a bill of lading or charterparty, or in negligence, tort or bailment. However, once title to sue has been established, it is also necessary to consider whether that party has suffered any loss and, if not, whether they can still bring a claim for loss suffered by other parties interested in the cargo.

The rules relating to which party has title to sue can vary considerably between jurisdictions. Some jurisdictions attribute greater weight to which party has suffered a loss or was the original party to the contract of carriage.

We have extensive experience in handling cargo recovery claims and we work closely with our colleagues in different jurisdictions to ensure that the party or parties with title to sue under the applicable law are identified at an early stage. This places our clients in the strongest negotiating position when pursuing their claim.

Common Law

The starting point under English common law is the doctrine of 'privity of contract', which provides that only a party to a contract may sue to enforce the terms of a contract and/or to claim damages.

A good example of the operation of this doctrine is a claim brought pursuant to the terms of a charterparty. Regardless of the identity of the party who takes delivery of the cargo or who suffers loss, only a party to the charterparty (i.e. owner or charterer) can bring a claim for damages for breach of contract.  

Where a cargo recovery claim is pursued under the terms of a charterparty, a charterer is not always the party that has suffered the loss. This can be because the risk of loss and/or damage to the cargo and/or title in the cargo may already have passed to a third party on shipment (for example to the buyer under a CIF sale). In that case, it is important to also consider the Incoterm applicable to the sale of goods and the terms of the sale contract itself in relation to transfer of title in the cargo.

In Sevylor Shipping and Trading Corp v Altfadul Company for Foods, Fruits & Livestock & Another [2018] EWHC 629 (Comm) (“The BALTIC STRAIT") (see our article here), it was held that, under English common law (and assuming title to sue), a carrier is liable to pay full damages if sued by:

(i) A receiver who, by reason of the carrier's breach, receives damaged cargo; or

(ii) A claimant who did not receive the damaged goods but who owned the goods when they were damaged by the carrier's breach.

Therefore, if a charterer can bring themselves within one of these two categories, they can sue under the terms of the charterparty for loss and/or damage regardless of whether they are the party that has suffered the loss.

Where bills of lading are used, it is often the receiver of the cargo who wishes to recover because they often bear the risk of loss. However, this party is often not, for example under a CIF sale, an original party to the contract of carriage. In respect of cargo that has been sold multiple times during carriage, the receiver may not have any direct contact with the original contracting party to secure their cooperation to bring a claim. This could lead to the unfair situation where a receiver who has suffered loss could have difficulty in recovering losses even though the carrier was in breach of the contract of carriage. To address this situation and to circumvent the doctrine of privity of contract, the Carriage of Goods by Sea Act 1992 ("COGSA 1992") was enacted.

COGSA 1992

COGSA 1992 provides a statutory framework for the transfer of contractual rights of suit under contracts of carriage contained in and/or evidenced by bills of lading and sea waybills. It provides parties who would have no contractual rights (following the doctrine of privity of contract), with the same rights as if they were an original contracting party.

Pursuant to section 2(1) of COGSA 1992, a party who becomes the lawful holder of a bill of lading shall have transferred to and vested in them all rights of suit.

A "lawful holder" is defined in section 5(2) of COGSA 1992 as the person identified as the consignee or the person with possession of the bill of lading as a result of indorsement and transfer of the bill of lading or, in the case of a 'bearer bill', any other transfer of the bill.

Sea waybills and 'straight consigned' bills of lading (i.e. where a consignee is named without the words "to order" or "to bearer") are only capable of a single transfer to the named consignee. However, bills of lading (i.e. those consigned "to order" or "to bearer") can be transferred multiple times. In those cases, it is often easier to obtain information as to the lawful holder of the bill of lading at an early stage.

In the event that a lawful holder of a bill of lading is not the party that suffers loss, and cannot bring itself within one of the two "BALTIC STRAIT" categories (see above), section 2(4) of COGSA 1992 permits a lawful holder to bring a claim in respect of loss suffered by any party interested in the cargo, so long as there has been a section 2(1) transfer.

Two exceptions to the above should be noted:

1. A bill of lading in the hands of a charterer (party to a charterparty with the bill of lading issuer), is a mere receipt and will not bestow title to sue until it is endorsed onwards; and
2. A claim brought under section 2(4) will not succeed where the party who has suffered the loss is a party to another contract of carriage with the bill of lading carrier (e.g. a charterparty).

Subrogated Insurers

Insurers should be careful to check that they are the subrogee of the rights of a party with title to sue. If the party receiving insurance proceeds (and issuing a subrogation receipt) does not have title to sue under the contract of carriage, steps can be taken to identify the correct party with title to sue and to either obtain that party's authority to bring a claim in their name or alternatively to find another basis for the insured party to establish title to sue, for example in negligence, tort or bailment.

Conclusion

Establishing title to sue is an important consideration in every recovery claim and is fact specific. Title to sue can be a complex and the position is not always as straightforward as many believe.

We always recommend giving early consideration to the issue of title to sue on a case by case basis. In our experience, it is often easier to obtain the cooperation of the relevant parties if a request is made at the outset of a claim arising.

In any event, a careful legal analysis should be undertaken prior to obtaining security (in the form of an LOU issued to named parties), time extensions and before commencing court or arbitration proceedings.

If you have any questions about the issues raised in this article, we are happy to discuss these with you.