Carriers using the electronic release system (ERS) may be exposed to liability if cargo in their possession is misappropriated by the unauthorised use of a PIN code that they have issued
The Court of Appeal has upheld the first instance decision that a release enote containing a PIN code and issued via an electronic release system (“ERS”) did not constitute a “delivery order” either as required by the bill of lading or within the definition of a “ship’s delivery order” under the Carriage of Goods by Sea Act 1992. The stand-alone release note containing the PIN code served as no more than an instruction to the terminal to permit delivery rather than constituting delivery as required.
The decision is of interest because ERS is being increasingly used in ports, especially large container ports. This case, therefore, serves as a warning to carriers using the ERS system that they may be exposed to liability if cargo in their possession is misappropriated by the unauthorised use of a PIN code that they have issued.
In this case, the shipper claimed against the carrier in relation to two containers of cobalt briquettes that were effectively stolen at Antwerp Port. The cargo was to be delivered via the ERS that Antwerp Port had introduced at the start of 2011. Prior to this dispute, the carrier had used the ERS in respect of 69 shipments for the same shipper, via the shipper’s local agents, and no problem was encountered. The shipper itself was, however, unaware that the ERS was being used.
The ERS was designed to replace the need for a carrier to issue paper delivery orders or to release cargo in return for bills. Instead, on receipt of a bill of lading from the shipper, the carrier would email the shipper’s agents a release note containing a computer-generated four digit PIN. The agents would then be able to use the PIN to take delivery of the cargo from the carrier at the port terminal during a set timeframe.
The decision is of interest because ERS is being increasingly used in ports, especially large container ports.
In respect of this, the 70th, shipment, the shipper sent its agents the relevant bills of lading in the normal way. The bills expressly stated that they were to be exchanged “for the Goods or a Delivery Order”. The agents lodged one of the bills of lading with the carrier and the carrier subsequently emailed the agents a release note for three containers. When the agents attempted to collect the containers, however, two of the containers had already been collected by an unidentified third party and had effectively been stolen.
The Commercial Court found in favour of the shipper that the carrier had mis-delivered the goods. The carrier appealed.
The Court of Appeal decision
The Court of Appeal upheld the first instance decision. It agreed with the Commercial Court’s finding that neither the release note, nor the release note and electronic PIN together, constituted a “delivery order” as required by the bill of lading. They also did not amount to a “ship’s delivery order” as defined by section 1(4) Carriage of Goods by Sea Act (COGSA) 1992, namely as an undertaking that:
(a) is given under or for the purposes of a contract for the carriage by sea of the goods to which the document relates, or of goods which include those goods; and
(b) is 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 release note in this case did not amount to a delivery order because it did not contain an undertaking by the carrier to deliver the goods to the party identified in the order, which should have been the shipper or its agents. At best, the carrier had undertaken to deliver to the first person who presented the correct PIN, which was insufficient.
The Court of Appeal also rejected the argument that, in this case, providing the shipper with the PIN code was a symbolic delivery of the goods and amounted to delivering the keys to the warehouse where the containers were stored. Rather, the carrier retained the right to physically deal with the goods that remained at its own terminal within the port and could, if it so chose, cancel the PIN code provided to the shipper before the goods were collected. In the context of bills of lading, delivery must amount to physical delivery, not delivery of a means of access.
Finally, the Court of Appeal rejected the argument that the shipper was estopped from questioning the use of the ERS system because their agents had consented to its use numerous times before. The shipper was not itself aware that the ERS system was being used and its agents did not have the authority to waive the delivery requirements under the bill of lading. Furthermore, the fact that the shipper had not previously objected to the use of PIN codes did not prevent it from objecting when its goods were not delivered to it or its agents and it suffered loss as a result.
The Court of Appeal’s decision has been described by some as uncommercial and out of step with 21st century technological advances in the shipping industry. Those using the ERS system going forward may consider incorporating into their contracts specific provisions dealing with the status of release notes and PINs and whether they should be treated as the equivalent of a delivery order by the parties. The allocation of risk for the misuse of PINs should also be considered.