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Bill of Lading – Effective Security?

Jagan - August 14, 2023 - 0 comments

  1. We recently came across this article, Does the Bill of Lading truly afford securityi, and which highlights the issues related to mis-delivery of cargo. Since then, there have been other cases decided both at the UK and Singapore courts and which have dealt with the release of cargo without Bills of Lading, such as The “STI Orchard”ii, Maersk Tankersiii, Euronaviv and The Lunav&vi.
  2. The majority of the mis-delivery claims reported are on Bulk cargoes where the issues, in our opinion are much simpler, given that delivery is generally effected on FO basisvii.
  3. In the case of container shipments, the issue is generally more complex because delivery is generally effected at CYviii and which means that the cargo must be first discharged from the vessel and with the container/cargo transferred to the possession of an independent terminal/party pending delivery.
  4. Most of the jurisdictions have instituted filing requirements (“import manifest”) for inward cargoes such that Carriers are required to file details of the Consignee/Importer (“consignee”) prior to arrival of the vessel failing which either the cargo will not be permitted to be discharged and/or imposition of penalties.
    1. The practice is for Carriers to seek details of the intended consignee from the Shipper/Exporter (“shipper”) and file the import manifest on this basis.
    2. At the time of filing the import manifest, the consignee may not have possession of the BL i.e., Title to the cargo. Even if the consignee has possession of the BL, they may not have surrendered the BL to the Carrier such that the “Title” is yet to be perfected/ascribed to them.
    3. The problem which arises is that once the cargo is discharged, the local authorities tend to recognize the name filed in the import manifest. If there is any competing claim from another party, the authorities would often require confirmation from the first listed consignee that they are agreeable to transfer the cargo (commonly known as a “no objection certificate”, “NOC”).
    4. If the relationship between the shipper and consignee has soured, the consignee may simply avoid providing any NOC and which would result in the holder of the BL being unable to take delivery. In such cases, cargo would remain uncollected and uncleared, and which would result in charges being incurred for both container detentionix and port storagex.
    5. Some jurisdictions allow for the cargo to be auctioned off if the cargo is not cleared within a specific period. The value realized from such auction sales would often be for a pittance compared to the initial value such that they may not even cover the charges incurred (container detention and port storage charges). This may then result in the Carriers pursuing the shipper for recovery for the charges incurred as the original party to the contract of carriage.
    6. With respect to financial institutions, while they may continue to hold the Bills of Lading as security, the fact is that the cargo is no longer available (as it may have been auctioned) or of limited value (as there would be substantial costs incurred for both container detention and port storage and which would have to be paid prior to delivery to realize value).
  5. Hence, at least for container shipments, the BL only provides security till such time the import manifest is filed at the destination port. This being the case, shippers (if they remain unpaid) and/or financial institutions (who provide funding to the interested parties) should not simply rely on the security function of the BL but instead take active risk management measures to deal with their exposures including: 
    1. conducting a regular background search of their counterparty to ascertain their financial health and whether they are good for the funding provided.
    2. keeping a tab on the status of the shipments and requiring payments to be made prior to the filing of the import manifest.
    3. seek some other counter security to secure their exposures.
  6. In conclusion, while one of the functions of the BL is to act as a document of “Title”, it is not perfect security. This being the case, parties should be aware of the risks rather than simply rely on the BL for recovery should something go wrong with their counterparty. 

i. See [2019] SAL Prac 22 and which can be viewed here.
ii. Winson Oil Trading Pte Ltd, intervener [2022] SGHCR 6 (affirmed on appeal)
Standard Chartered Bank (Singapore) Ltd v Maersk Tankers Singapore Pte Ltd (Winson Oil Trading Pte Ltd, intervener) [2022] SGHC 242
Unicredit Bank AG v Euronav NV [2023]EWCA Civ 471
[2021] SGCA 84
See an article by Shook Lin & Bok, Bills of Lading as Title and Security for Financing Banks – the certainty of uncertainty, which can be viewed here.
FO stands for Free out which means that the discharge of the cargo will be under the responsibility of the cargo interests and prior to which the BL’s issued would have to be surrendered for delivery.
CY stands for Container Yard which means that delivery of the container will be effected at the Container Yard of the named port of discharge.
Container carriers generally provide a free time within which the containers must be returned after discharge failing which they charge a container detention and which may be on an escalating basis.
The port/terminal also provide a free time within which the container needs to be picked up failing which they charge a port storage charge and which may be on an escalating basis.

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