In Shipping Law News 21/09/2016
The vast majority of trade continues to take place by way of ocean transport and in this context one of the more vital documents will often be a bill of lading. Bills of lading have been used for the carriage of goods by sea for centuries and have come to be regarded as mystical documents symbolic of the goods themselves, in that title (or rather a right to claim title) to the goods may in some cases be transferred to another person by way of a simple endorsement on the bill together with delivery of the bill, before the goods have even reached their destination.
The bill of lading is drawn up by the shipping line tasked with transporting the goods and will be issued to the shipper (i.e. the person who contracts with and pays the line to transport the goods) after the goods have been received and loaded on board the vessel. The bill will name the consignee (buyer) to whom the goods must be released. The buyer will not always be the consignee and will often be a freight forwarder or transportation company which the consignee contracts with to arrange transportation of its goods.
The most important function of a bill of lading is that it gives the holder of the bill the right to claim possession of the cargo at the port of destination upon presentation to the shipping line – provided it is also named as the consignee on the bill. In practice, once the shipper has received the original bills of lading from the line it must then arrange for these to be sent to the consignee – usually only once the consignee has paid the shipper. Unless specific arrangements have been made by the shipper, the shipping line will not release the goods unless the consignee can present one or more of the original bills of lading. While this may seem unreasonable from the consignee’s perspective, it is important to remember that when agreeing to transport the goods the shipping line contracts with the shipper and not with the consignee. Three original bills are usually issued, each one of which can be presented (or surrendered) in return for delivery of the cargo. Once one has been surrendered to the shipping line, the other two originals are considered void. The line could expose itself to liability were it to release cargo without the production of one of the original bills which were issued – if it delivers the cargo to A (without an original bill being surrendered) and B then arrives and presents an original bill, B is entitled legally to the goods and the shipping line, having now given the goods to A, will be liable to B for their full value. While this can be incredibly frustrating for a bone fide consignee who simply has not yet received his original bill, it is legally justifiable for a line to refuse to release cargo in these circumstances. It is further acceptable for the line to insist on the consignee providing a letter of indemnity and / or security for the value of the cargo as cover in the event that the line is exposed to any claims by the shipper.
This is an issue which is fairly common in practice. Unfortunately, the importance of possession of original bills in the hands of the consignee is something which can be taken advantage of by unscrupulous shippers (especially where they are based overseas out of the reach of our courts) and can place them in a strong bargaining (or blackmailing!) position. (An unscrupulous shipper could, for example, give the three originals to three different parties, getting paid by all three, whereas only one will be legally entitled to delivery of the goods – the one who is first to present his original to the line).
In one example, an individual relocating back to South Africa from overseas had booked and paid for the complete shipment of his household goods “door to door” with a moving company. The owner of the goods became concerned when the original bills of lading had not been sent to his clearing agent notwithstanding the imminent arrival of the goods in South Africa. It transpired that the moving company had in fact sub-contracted the ocean carriage of the goods to a freight forwarder without the owner’s knowledge. The moving company went bust shortly thereafter and shut down operations. The freight forwarder refused to release the original bills of lading to the owner due to outstanding monies owed by the moving company. The forwarder in this case effectively held the owner to ransom as it was only prepared to release the original bills of lading upon payment of all of the outstanding sums due by the moving company (as its immediate contractual party or “shipper”) in respect of all its other shipments!
The usual way of dealing with issues such as these is to bring an urgent court application for an order directing the various shipping lines involved to release the cargo in the absence of the original bills of lading. Shipping lines will often be more comfortable with releasing cargo on the strength of a court order, as a refusal to comply would place them in contempt and likely absolve them of any potential liability to other parties for such release. While such applications will usually be granted provided evidence of entitlement to the goods is put up (with a plausible reason as to why the applicant does not have the original bill of lading), this type of resolution is not without the stress (and price tag) of demurrage, storage and legal costs which escalate on a day to day basis.
In order to avoid finding yourself in a similar predicament, South African buyers should take special care in conducting a detailed due diligence in respect of chosen suppliers and freight forwarders and also make prudent contractual decisions to ensure that original bills are handed over as soon as possible. If in doubt, they should take specialist legal advice to avoid potentially costly mistakes.
Source: Bowmans Durban, South Africa
