Thomas Miller Law’s Shipping and Logistics team discuss the implications of a recent Court of Appeal decision in MSC MEDITERRANEAN SHIPPING CO SA v GLENCORE INTERNATIONAL AG[1]. This concerned the impact of new technology on cargo handling procedures and the associated risks of susceptibility to cyber-crime.
The Facts
Pursuant to bills of lading issued by ocean carriers, MSC, a cargo of cobalt briquettes was shipped in three containers from Freemantle to Antwerp where the bills of lading were to be “surrendered by the Merchant to the Carrier . . . in exchange for the Goods or a Delivery Order”.
In practice, and following a course of dealing which had been adopted between the carriers and the shippers, Glencore, on numerous previous occasions, when the cargo arrived at Antwerp it was handled under an electronic release system (ERS) used for containerised cargo. Under the ERS the carriers did not issue paper delivery orders against bills of lading, but instead provided computer-generated electronic numbers (pin codes) which the consignees or agents presented to the terminal before taking delivery of their goods.
So, in this case the carriers emailed a Release Note for the three containers to the shipper’s agents, giving an ERS pin code for each container, but when the agents’ hauliers went to collect the containers they found that two of them had already been collected.
It remains unclear how exactly the two containers in question were appropriated, but the carriers intimated in the Appeal hearing that the relevant pin codes may have been leaked as a result of the shipper’s agents’ email accounts having been hacked.
Claims Made and the Approach of the Courts
The shippers brought claims in the High Court for breach of contract, bailment and conversion against the carriers, and they succeeded before Andrew Smith J at First Instance[2]. His decision was upheld by the Court of Appeal which addressed the carriers’ defences as follows:
- They rejected the carriers’ contention that delivery of the Release Note containing the pin codes effectively constituted delivery such that the carriers should not be liable. At best the Release Note constituted some form of Delivery Order;
- In considering whether the Release Note did indeed constitute a Delivery Order, they held that to do so it would need to fall within the definition a “ship’s delivery order” contained in the Carriage of Goods by Sea Act 1992, s.1(4) as “an undertaking by the carrier to a person identified in the document to deliver the goods to which the document relates to that person”.
- The provision of the pin codes in the Release Note did not constitute such an undertaking and, as such, their delivery could not constitute an exchange of “a Delivery Order” for the bills of lading as required by the bills.
- They rejected a submission by the carriers that the shippers were estopped from contending that delivery of the cargo upon presentation of a pin code was a breach of contract and/or duty on the part of the carriers because they had been content for the ERS to be used on 69 previous shipments. Just because the shippers consented to the use of the ERS system this did not amount to a representation that they were or would be content for the goods to be delivered to just anyone who presented the correct pin code.
- On the question of the possible hacking of email accounts and whether this afforded the carriers with a defence on causation, whilst accepting that the chain of causation could be regarded as broken by sufficiently egregious action or inaction on the part of the shippers or their agents in supervising their operating systems, the evidence adduced was insufficient to establish any such failure on the part of the shippers or their agents.
Conclusions
This case highlights that the use of electronic systems for the release of containerised cargo is susceptible to data breach and losses being incurred as a result. If such systems are to be utilized and the parties intend the terms governing what will constitute delivery to be amended accordingly this must be clearly stated in the relevant contract.
[1] [2017] EWCA Civ 365
[2] [2015] 2 Lloyd’s Rep. 508
