UniCredit Bank AG v Euronav NV – Court of Appeal, 4 May 2023

[Editor’s note:  A novation is a legal term that describes the process of replacing one party with another in a contract. The original contract is completely replaced by a new one and the rights and responsibilities of the contract are transferred to the new parties.  All parties must be in agreement for a novation to occur.]

Background Facts and First Judgment

BP chartered the vessel SIENNA from Euronav to transport low-sulphur fuel oil for sale to Gulf. UniCredit Bank AG provided financing to Gulf, secured by a pledge and deed of assignment under a bill of lading.   The bill of lading was issued in Rotterdam on 19 February 2020 and made out to BP or its assigns.  Euronav, acknowledged the shipment and confirmed delivery of the cargo to Fujairah, UAE, however the cargo was delivered without requiring the bill. 

A novation had been done on 6 April 2020 transferring chartering from BP to Gulf.  When Euronav delivered the financed cargo in late April 2020 without requiring the bill of lading, the Bank suspected Gulf had liquidity issues and possible fraudulent behavior.  On 7 August 2020, BP endorsed the bill of lading to the Bank.

UniCredit then brought a claim against Euronav for breach of contract.  The central issue in the case was whether the bill of lading continued to govern the contract of carriage after the novation of the charterparty from BP to Gulf.

In the first decision, the judge ruled that the bill of lading did not contain the contract of carriage following the novation. The judge based this decision on the principle that when the shipper was also the charterer, the bill of lading served as a mere receipt rather than a contract. The court also referenced Tate & Lyle Ltd v Hain Steamship Co Ltd (1936) 55 Ll L Rep 159, which outlined that when a bill of lading was endorsed to a third-party consignee, the new contract was created between the vessel and the new party.  Furthermore, the position of Rodocanachi v Milburn (1886) 18 QBD 67 that a bill of lading was a document which temporarily lost its contractual force when in the hands of the charterer was rejected.  

There was also evidence that had the Bank been consulted, it would have allowed the discharge and delivery of the cargo without the bill of lading.  Thus, the Bank did not demonstrate that the bill of lading breach had resulted in any loss.

The Appeal

The Bank’s appeal focused on two issues: 1) The judge failed to recognize that the bill of lading indeed served as a contract of carriage after the novation, and 2) Had there been no breach, the cargo would have remained secure on the vessel, and the Bank would have retained their security interest, thus it was wrongly concluded that the breach did not cause the loss.

The Court of Appeal disagreed with the judge’s ruling and held that the bill of lading did constitute a contract of carriage between Euronav and the Bank. It was established that a bill of lading is a document containing the terms of a contract of carriage between the carrier and the holder of the bill. (Glyn Mills Currie & Co v East and West India Dock Co (1882) 7 App Cas 591) The court recognized that a bill of lading in the hands of a charterer is usually considered a mere receipt, but this principle is subject to the intentions of the parties.

The court also found precedence that a carrier who issued a bill of lading was under a contractual duty not to deliver the cargo without production of the bill. (Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] 2 Lloyd’s Rep 114, Kuwait Petroleum Corporation v I & D Oil Carriers Ltd (The Houda) [1994] 2 Lloyd’s Rep 541 and Motis Exports Ltd v Dampskibsselskabet AF 1912 A/S [2000] 1 Lloyd’s Rep 211) Therefore, if the carrier delivered the cargo without the presentation of the bill of lading, it would be considered a breach, even if the delivery was made to the rightful recipient of the goods. In such a situation, the carrier could seek protection by obtaining indemnity from the delivery recipient.

In the present case, where the bill of lading was still held by BP after the novation, the Court held that it was wrong to presume that the carrier and charterer intended to operate in a legal vacuum. Therefore, the bill of lading continued to operate as a contractual document between Euronav and BP after the novation. The Court reasoned that, based on the parties’ intentions, and since BP retained an interest in part of the cargo, the bill of lading had not become a mere receipt in BP’s hands at the time of discharge, but rather continued to be a document evidencing a contract with BP.

The Carriage of Goods by Sea Act 1992

The court then considered the impact of the Carriage of Goods by Sea Act 1992.  Section 2(1) of the 1992 Act stated:

“The lawful holder of a bill of lading … shall, (by virtue of becoming the holder of the bill …) have transferred to him and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract”. 

The court concluded that this section of the act operated retrospectively, putting the Bank in the same position as if it had been a party to the contract from the date of issue of the bill. Since there were no instructions from BP to Euronav to deliver without the bill of lading, the delivery of the cargo without the bill constituted a breach of contract.

Causation and Decision

The court ruled the Bank had not provided sufficient evidence to show that losses from this cargo were a direct result of the breach and upheld the first judge’s findings, since the Bank conceded earlier that, if consulted, it would have approved the discharge of the cargo without the bill of lading.

The Court dismissed the appeal.  Although Euronav’s delivery of the cargo without the bill of lading was a breach of contract, the Bank could not establish that this breach caused its loss. The court’s decision clarified the legal status of a bill of lading and highlighted the importance of considering the intentions of the parties in determining its contractual nature.