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Bills of Lading – Issues


Jagan - October 31, 2019 - 0 comments

We had written earlier both on release of cargo without Original Bills of Lading1 and on Switch Bills of Lading2. However, given that this is an “evergreen” topic in which issues  regularly arise, we are re-looking at some issues on these topics.

  1. Release of cargo without Original Bills of Lading:
    1. It is the common law duty of Carriers to release cargo to the holders of the Original Bills of Lading (“OBL”). If a Carrier chooses instead to release the cargo without insisting on the presentation of OBL, he does so at the peril of becoming liable to the holder of the OBL for at least the value of the cargo. In order to protect against such eventualities, Carriers may agree to release cargoes subject to the consignee providing a Letter of Indemnity (with or without a bank joining in the Indemnity3).
    2. It remains entirely a commercial call on the Carrier as to whether they wish to release the cargo without OBL and if so, on what type of Indemnity / Shipping Guarantee wordings (“LOI”). Having said that, some charter parties may provide for an express right for the cargo to be released against a LOI provided by the Charterers. If a Carrier is unhappy with the wordings of the LOI proposed by the Consignee/Charterers4, the Carrier can refuse to release the cargo and insist either for wordings / security which they (Carrier) are comfortable with or insist for the presentation of the OBL’s.
    3. While the P&I Clubs / Liability Insurers may recommend5 wordings of LOI, any claims of such release of cargo / mis-delivery6 is not covered (except perhaps on the basis of the Omnibus7Clause for Mutuals) and instead would have to be dealt by the Carriers themselves.
    4. While it may be commercially sensible for Carriers to accept LOI’s from consignee’s/counterparties in the absence of the OBL’s, the Carrier must conduct a “due diligence” to ascertain the details of the parties signing the LOI’s together with a credit search to ensure that the signatories are at least good for the value of the cargo released together with an uplift to cater for the potential legal costs should this matter be litigated. Additionally, the LOI’s should be valid at least till any potential claim becomes time barred8. Failure to conduct such “due diligence” may result in the Carrier dealing with mis-delivery claims by themselves without any potential for recovery either on the basis of the LOI or under their P&I/Liability cover.
  2. Switch Bills of Lading:
    1. Switch Bills of Lading (“SBL”) are used to commercially mask the identities of the parties named in a Bills of Lading i.e. the name of the Shipper/Consignee may be changed to protect the commercial interests of the Trader. Any other changes such as changes in the load port, date of shipment should be avoided by the Carrier as this would be considered fraud.
    2. We recently chanced on the detailed paper “Managing the Risks of Switch Bills of Lading” published by Dr Miriam Goldby from the National University of Singapore and we would recommend this as an essential reading to parties interested in ameliorating the risks associated with the issue of SBL’s.
    3. 2nd Sector B/L:While a 2nd Sector B/L is not exactly a SBL, given the similarities we have considered it under this topic.
      1. With respect to containerized cargo, containers may be shipped on single / multiple vessels (containers are transshipped and loaded onto other vessels). Where transshipment is involved, the following Carrier/Feeder would issue a B/L for the containers loaded onto their vessel by the NVOCC’s/ Container Lines (“NVO”). This B/L is generally known as a 2nd Sector B/L. Basically, the 2nd Sector B/L would act as a receipt and evidence of a contract of carriage between the Operators of the second vessel and the NVO (in the absence of any slot charter party or any other agreed terms for carriage).
      2. We have often seen requests made by the cargo interests seeking the issue of a “2nd Sector BL” when cargo is transshipped to mask the origin of the goods. While issue of such 2nd sector BL’s is perfectly valid in the case of NVO’s (given that the Vessel Operators are only responsible for their portion of the carriage and have no knowledge of where the shipment emanated), it would be incorrect for such BL’s to be issued to cargo interests, particularly when the NVO’s are aware of where the cargo has been initially loaded from.
      3. While cargo interests may wish to mask the origin of the cargoes to benefit of price advantages or custom duties, the fact is that such deceptions may lead to the NVO being exposed to pursuit both by the consignee and government authorities. Additionally, sanctions/penalties may be imposed by government authorities if such masking of origin had led to incorrect collection of custom duties and / or allowed cargoes to avoid sanctions in place.
      4. With respect to Liability Cover10 available to NVO’s, it is submitted that they do not extend to issue of 2nd sector BL’s to cargo interests and therefore any claim arising from the issue of a 2nd sector BL would have to be dealt by the NVO themselves.
    4. Date of Issue of SBL:
      1. The normal convention is that the BL’s are issued after the cargo is loaded and with the date of issue generally being the loading date11. If the BL’s are issued prior to the cargo being loaded, then the BL should be claused as being a “Received for shipment BL”.
      2. With respect to SBL’s, they are invariably issued in a location different from the Port of Loading and Port of Discharge after the shipment has been effected. This being the case, should the SBL mention actual date of issue of the SBL as the date of issue? The issue which may arise is absent any notation in the B/L providing for the Shipped on Board date, the date of issue may be construed as the Shipped on Board date. Hence, the SBL’s should state the date of issue as at the port of loading i.e. if the BL is issued at Bangkok on 21st July 2019 and later surrendered for a SBL in Singapore, the Place and Date of Issue column in the SBL should be filled as: Singapore, 21 July 2019 as at Bangkok.
  3. To conclude,
    1. a Carrier should always be in caution whenever he is asked to release cargo without presentation of OBL as this may result in them being liable for the value of the cargo. 
    2. a NVO should never issue a 2nd Sector BL to cargo interests as it does not represent the actual state of facts.
    3. the date of issue of SBL should be the same as the BL earlier issued and switched for.

 

  1. http://nau.com.sg/release-of-cargo-against-a-letter-of-indemnity-bank-guarantee/
  2. https://nau.com.sg/switch-bills-of-lading-revisited/
  3. Commonly known as a Shipping Guarantee – see http://www.boc.cn/en/cbservice/cb3/cb35/200806/t20080627_1324123.html
  4. Unless the charterparty expressly provides for the wordings of the LOI to be used and in which case, Owners would be bound by the terms of the charterparty.
  5. https://www.ukpandi.com/knowledge-publications/industry-issues/international-group-of-pi-clubs/international-group-standard-letters-of-indemnity/ – wordings as recommended by the IG of P&I Clubs
  6. See Section 17 Rule 2 Cii of the UK P&I Club Rules 2019 and which states “Delivery of cargo carried under a non-negotiable bill of lading, waybill or similar document without production of such document by the person to whom delivery is made, where such production is required by the express terms of that document or the law to which that document, or the contract of carriage contained in or evidenced by it, is subject, except where the Owner is required by any other law to which the carrier is subject to deliver, or relinquish custody or control of, the cargo, without production of such document;”
  7. An Omnibus Clause is generally found in a P&I Club Rules and which gives the Club the discretion to cover risks that do not fall expressly within the cover the expressed in the Rules but which in the opinion of the Club , are incidental to the operation of an insured ship and which falls broadly within the scope of club cover. This discretion is exercised by the board of directors of the club, who themselves being members of the club and have the knowledge and experience to evaluate and decide as to whether the cover should be granted in the particular circumstances.
  8. Please see our earlier article Mis-Delivery of Cargo – Time Bar. It appears to us that the time bar provision provided under the Hague and the Hague Visby Rules will not apply for mis-delivery of cargo after discharge from the vessel. Instead, the time bar would be basis what is provided under the law of the contract.
  9. If the masking of the port of loading has resulted in reduced collection of import duties or allowed sanctioned cargo entry, government authorities may impose penalties and initiate action as may be provided in law.
  10. See G1 General Exclusions Clause 1.7 of TT Club Transport and Logistics Operators 2018 policy wordings and which states “We do not insure you for risks arising from, or to the extent that the risk is increased by your intentional / reckless conduct(words in underline for emphasis by us).
  11. See article on Shipping and Freight Resource “Should the Shipped on Board Date and Bill of Lading date be the same..??”. This may not however hold good for Combined / Multimodal Transport Bills of Lading. 

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