The discharging of 35,000 tonnes of iron ore cargo into a warehouse without the bill of lading has raised claims of unlawful conversion
In Sang Stone Hamoon Jonoub Co Ltd v Baoyue Shipping Co Ltd, also known as the Bao Yue, the English High Court found that the bill of lading holder was liable to reimburse the shipowner for three-and-a-half years of storage charges, a cost that exceeded the value of the cargo.
The claim was brought by both the shipper and the bill of lading holder to whom delivery was to be made, Sang Stone, for conversion in relation to 35,000 tonne of iron ore, carried from Bandar Abbas, Iran to Tianjin, China, on board the defendant shipowner’s vessel, the Bao Yue.
Following a dispute between Sang Stone and its buyer, the former withheld the original bill of lading. While this had no named consignee, it did incorporate the terms of the voyage charter, which provided discharge into a custom bonded warehouse against a letter of indemnity in the event that the original bill of lading was not presented. The charterparty also stipulated that the cost of warehousing the cargo would be for the charterers’ account.
Without the original bill of lading, the cargo was discharged into custom bonded warehouses via an agent upon its arrival in Tianjin, to be released against receipt. The cargo was never collected however, and the warehouse owner exercised a lien and refused to release the cargo before payment.
“While conversion could occur when a lien was created over the goods without authority of the cargo owner, the creation of the lien in this instance was a reasonable and foreseeable incident of the storage.”
Despite accepting that the shipowner had been entitled to place the cargo in storage, Sang Stone claimed that the defendant shipowner had converted the cargo on the basis that the defendant was not entitled to arrange for storage of the cargo in a way which gave rise to a lien in favour of the warehouse owner, and that the conduct of the warehouse and agent amounted to denying the holder of the bill of lading access to the cargo.
Denying Sang Stone’s claims, the shipowner counterclaimed for storage charges by arguing that any shipowner is entitled to discharge and store the goods at the cargo owners’ cost when a cargo owner fails to claim delivery of a cargo within a reasonable time.
While the Court acknowledged that conversion could occur when a lien was created over the goods without authority of the cargo owner, the creation of the lien in this instance was a “reasonable and foreseeable incident of the storage, which the defendant was authorised to conclude”.
The Court therefore found that Sang Stone’s claim fell short of any deliberate encroachment of rights by the shipowner, in a conclusion that can be summarised as follows:
Sang Stone had never presented the bill of lading, and therefore statements of the agent and warehouse had never been tested.
Sang Stone had not been deprived of the use and possession of the goods; the cargo was available on presentation of the original bills of lading and payment of the charges. As such, the Court ordered Sang Stone to deliver the original bills of lading to the shipowner so that the cargo could be sold.