Worldwide: Digitalisation Creating Uncertainty And An Opportunity For Cyber Criminals

Last Updated: 7 July 2017
Article by Chris Metcalf

Most Read Contributor in UK, December 2017

is a pin code a delivery order?

Rapid advances in technology have resulted in increased digitalisation in the shipping industry, but problems can arise if technology is able to respond and to develop at a speed which cannot be matched by the law and if changes are not also made to underlying contracts. Technology is developing faster than legislators can react, which means that careful consideration of contract terms is essential, but all too often parties are slow to update their existing contract terms.

The point is illustrated by the recent English Court of Appeal case, MSC Mediterranean Shipping Company S.A. v. Glencore International AG [2017], which involved the loss of cobalt briquettes which were carried in containers by MSC. Glencore was the holder of the bill of lading ( "B/L") and the owner of the cargo. Following discharge at Antwerp, two of three containers went missing.

In Antwerp the container terminal operated what was referred to as an Electronic Release System ("ERS"). Against provision of the original B/L, instead of a delivery order the carriers of cargo would provide cargo receivers, or their agents, with a computer generated electronic import pin code, (an "IPC"). The IPC would then, in theory, be presented to the terminal in order to take delivery of the goods, but in practice it would be entered manually by the collecting driver in order to gain access to the terminal to allow him to collect the containers. This system was not mandatory and although it had not been adopted by all the carriers using the port, it had been employed for all 69 previous shipments of cobalt by MSC and Glencore's port agents, Steinweg.

In this case, when the receivers went to collect the containers, they found that two of the three had already been collected. Exactly what happened is unknown but it was common ground that the missing containers were delivered to "unauthorised persons"; and that the most likely cause of the loss was that someone had learnt of the codes and used them to gain access to the terminal and to remove the containers. It was not known whether that was due to the computers of any party having been hacked, but it was identified as a realistic possibility and so whilst this is not a proven case of cyber-crime, it serves to illustrate how computer hackers, potentially, could use their skills to steal cargo.

The case is also of interest in that it shows how digitalisation and the benefits of using modern technology can be undone if technological advances are not accompanied by changes in the contractual terms entered into by parties. It is natural for corporations to focus their resources on advances in technology and how best to employ these advances to cut costs and to increase profits, but it is important give consideration to the legal implications and how the new technology fits within the existing contractual and legal framework. This was certainly an issue in the case at hand.

The B/L required that, "one original Bill of Lading, duly endorsed must be surrendered by the Merchant to the exchange for the Goods or a Delivery Order".

MSC sought to argue that the provision of the IPC itself amounted, in law, to delivery of the cargo on the basis that possession of the IPC entitled the possessor to delivery of the goods, in the same way as possession of an original B/L would do so and that the carrier's obligation was to deliver to the party who first enters the IPC. MSC argued that it made no sense in the 21st Century to make a distinction between a paper B/L and an electronic code, which should be at least as secure if not more so.

The trial judge at first instance did not accept that discharge at the terminal in exchange for an IPC constituted delivery, and consequently held MSC liable for misdelivery. In his view the release note, whether coupled with the pin code or not, could not amount to a delivery order as required by the B/L; nor in any event would it have amounted to a ship's delivery order within the meaning of section 1(4) of the Carriage of Goods by Sea Act 1992 ("COGSA 1992").

MSC had also advanced the argument that Glencore was estopped from contending that delivery of the cargo upon presentation of a pin code was a breach of contract because Glencore gave the appearance that it was content for the ERS to be used for the 69 previous shipments. The trial judge held that Glencore were not so estopped by the conduct of their agents in insisting on strict performance on the seventieth shipment, as no representation had been made that delivery otherwise than to Glencore would be acceptable, provided that it was made to the first presenter of the codes.

MSC advanced four grounds of appeal, which the judge addressed on behalf of the English Court of Appeal:

  1. The provision of the pin codes to Steinweg itself amounted in law to delivery of possession of the goods, as "equivalent to giving the receiver the key to the warehouse". This ground was rejected on the facts.
  2. That the release notes coupled with the pin codes itself amounted to a delivery order, the term 'delivery order' not having been defined in the B/L and as such, MSC sought to argue, providing the codes to Steinweg was a means of instructing the terminal to deliver to whoever entered the correct codes at the port. The Court of Appeal disagreed with MSC, holding that that the term delivery order might have several meanings, but in the context of this B/L meant a ship's delivery order as defined in Section 1(4) of COGSA 1992.
  3. The release note containing the pin codes was a ship's delivery order within section 1 (4) of the COGSA 1992 representing an undertaking by MSC to deliver to whoever first entered the pin. The court, although rejecting Glencore's submission that the electronic release note was not a document, upheld their submission that it was not a delivery order within section 1(4).
  4. That the conduct of Glencore's agents gave rise to an estoppel. Sir Christopher Clarke agreed with the reasoning of the first instance judge in concluding that there was no estoppel, further highlighting the fact that Glencore was not even aware that the ERS system was in operation at Antwerp.

At the point of contracting, had the receiver considered that the effect of the ERS system would be to transfer the risk of theft to it from the carrier, it would have reconsidered the wording of the contracts it entered into. Had the parties considered the effect of electronic systems that are being used increasingly in ports, they may have renegotiated their terms. Instead, both parties found themselves embroiled in a lengthy and expensive court battle due to the uncertainty caused by the use of this technology – uncertainty which perhaps could have been avoided had proper provision been made for it in the bills or surrounding contracts.

Bearing in mind the wider concerns mentioned above, this case illustrates that the law, and particularly the language used in contracts of all varieties, must keep pace with technological development. It is vital that, with the advent of new technology, those who employ that technology keep an eye on the relevant statutory provisions and the applicable contract terms under which it is used, to ensure that their legal frameworks correctly reflect their objectives.

Digitalisation Creating Uncertainty And An Opportunity For Cyber Criminals

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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