UK: Copper, Crooks, Conversion and Hedging - A Cautionary Tale

Last Updated: 19 July 2007

By Electra Panayotopoulos and Alex Moulsdale

In Trafi gura Beheer BV & Anor -v- Mediterranean Shipping Company ([2007] EWHC 944 (Comm)) Aikens J considered several undecided issues of law as well as decided cases such as the Happy Ranger ([2002] 2 LLR 357) and Motis Exports Ltd -v- Dampskibsellskabet AF and AKTS Svendborg ([1991] 1 LLR 837).

Judgment was handed down on 26 April 2007, and though the case involved a rather special set of facts it is nevertheless of great potential significance for carriers and traders alike.

The facts

The Claimant trading company shipped a cargo of copper from South Africa to China, to be delivered to its wholly owned subsidiary for onward trade. The containerised goods were shipped on board a vessel operated by the Defendant carrier, and the cargo was discharged in Shanghai without incident. The dispute arose when someone else presented a fraudulent B/L to the carrier’s agent in Shanghai and obtained a delivery order for the cargo: the fraudulent nature of the B/L was discovered quickly and the holder of it was prevented from taking physical possession of the goods. Thus the cargo remained in the customs compound in Shanghai, pending local determination of a dispute with the holder of the fraudulent B/L.

The holder of the genuine B/L started proceedings in England against the carrier, claiming breach of contract and conversion. The issues before the Judge included (a) whether the limitation provisions of the Hague/Hague-Visby Rules afforded the carrier any protection and (b) whether the Claimant was entitled to recover "hedging losses" incurred as a result of hedging the cargo.


The B/L sought to limit the period of responsibility of the carrier (in the graphic phrase) "tackle-to-tackle", with risk thereafter passing to the "merchant". It also limited liability "in any event" to the Hague or Hague-Visby Rules limit, whichever applied.

Though these provisions may not have been effective to exclude liability completely for events after discharge (it was common ground that the goods were discharged to the carrier’s container terminal and were therefore still in its custody), the Court held that the clause was effective in limiting the temporal scope of the Rules. As a result, it was ineffective to cover events arising post discharge.

However, by reference to the decisions in the Happy Ranger and the Kapitan Petko Voivoda, ([2003] 2 LLR 1), the Judge commented obiter that, had the temporal scope of the Rules extended beyond discharge from the vessel, the carrier could have limited liability for misdelivery, as the words "in any event" in Art IV, r. 5 were suffi ciently wide. Thus the position would be distinguishable from the principle in Motis (where it was held that a carrier cannot exclude liability for misdelivery against forged B/Ls).


With the value of copper increasing and the goods still in the container terminal in Shanghai, the traders claimed they had been holding open hedging positions on the cargo: thus, if it was now to be considered lost to them, they would have to pay the difference between the original purchase price and the market value to close their hedging positions. So, the traders claimed, they should be awarded damages as at the date of conversion (when the holder of the fraudulent B/L obtained the delivery order) plus their hedging losses.

This was the first ever case where the English Court had to rule on the recoverability of a trader’s hedging losses against a carrier. Previous cases (Gebruder Metelmann -v- NBR (London) Ltd [1984] 1 Lloyd’s Rep. 614 and Addax -v- Arcadia Petroleum [2000] 1 Lloyd’s Rep 493) involved such claims advanced by one trader against another and were held to have been foreseeable.

But this argument failed in this case. The Judge held that in order for these costs to be recoverable, they had to be foreseeable at the time of conversion. On the basis of the parties’ expert evidence, the Judge held that a containership operator would not have foreseen the existence of such arrangements, given the wide variety of cargoes carried on container vessels (query: whether the position would be the same in relation to bulk carrier or tanker operators).

However, using the Court’s discretion under the Torts (Interference with Goods) Act 1977, the Judge awarded damages equal to the value of the goods on the date of judgment i.e. he awarded the amount which would have enabled the traders to go into the market and buy replacement cargo. He held that, in view of the uncertainty about whether the cargo would be released in Shanghai, it was reasonable for the traders to wait before seeking replacement cargo. As a result, the traders would have no "hedging losses", other than the modest cost of keeping open their hedging positions (which was held to be unrecoverable).

The cautionary tale

The decision may well have wider implications.

Many container line operators’ standard B/L terms contain provisions to the effect that custody of the goods after discharge is solely at the merchant’s risk. Although the wording of Art. IV r. 5 is wide enough to extend package limits to misdelivery, the limitation may not apply post discharge if the carrier has specifi cally sought to exclude all liability post discharge under the B/L.

The hedging point may be of concern to traders. If, in this case, the price of copper had dropped, the Judge would presumably have awarded the price at the time of judgment or, if higher, the value as at the date of conversion. If the traders had closed their hedging positions between those dates, when the price was higher, the difference in value would have bee

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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