Web Alert: Delivery of cargo against one original bill of lading retained on board - A reminder

Background

Members will be aware that traditionally bills of lading are signed and issued in sets of three and presentation of any one original to the master at the discharge port is sufficient for the bill of lading to be 'accomplished'.

On occasion the charterer or shipper, or their agents, may take only two originals and leave one original bill of lading on board with the master[1] for on-carriage to the discharge port and with the instruction to hand it to the end consignee on arrival, to avoid the possibility of there being no original bill of lading for presentation at the discharge port. The consignee then presents the original bill of lading back to the master and claims delivery of the subject goods.

The bill of lading carried on board can contain the consignee's name or be a ‘to order’ bill of lading. If the bill of lading is ‘to order’, so does not contain the name of the consignee, then such a person can obtain legal title to the goods by way of endorsement.

This practice, of keeping an original bill of lading in the ship’s bag and onboard the ship to the discharge port, is a commercial attempt to find a workaround to the problem which can arise when there is no bill of lading available at the discharge port (say, because it is stuck in the banking chain) and the master is asked to deliver cargo without the production of an original bill of lading.

A shipper / charterer may argue that this commercial practice enables the master to safely deliver the cargo having sighted an original bill of lading at the discharge port. In reality, however, the position is much more complicated especially where the subject bill is made ‘to order’. Here the master is presented at the discharge port with a dilemma as to whether the party claiming delivery of the cargo is, in fact, so entitled (for example, the other bills of lading left in circulation may have been endorsed to another party whilst the ship was en-route). Even if the bill of lading is ‘straight’ (i.e. the consignee is specifically named on the bill) where the bill of lading is carried in the ‘ship’s bag’ to discharge the master is under increased pressure (which doesn’t ordinarily exist) to ensure the person to whom he is delivering the bill of lading, and the cargo, is the so named consignee.

Consequences

It should be stressed that when an original bill of lading is carried on board the utmost care remains with the master to correctly identify the party to whom the bill of lading should be handed over at the discharge port. As members may appreciate, there are considerable risks involved with cargo mis-delivery in such circumstances.

Members can face claims by lawful holders of bills if the bill of lading carried on board is delivered to the wrong person and, therefore, so is the cargo. If the other negotiable bills of lading remain with the shipper, they can be stolen or lost or even transacted/endorsed (sometimes several times) while the goods are still in transit. In such cases, the carrier is likely to be held fully liable for wrongful delivery of the cargo with the inevitable aftermath of compensating the rightful cargo owner for the full value of the subject cargo.

Club’s advice

The club therefore advises its members to resist such requests to carry one of a set of original bills of lading on board, for surrender at the discharge port. If, notwithstanding this recommendation, the member feels under pressure to accommodate such a request, or they have previously contractually agreed to the same in the relevant charterparty provisions[2], then the club recommends that the following wording be endorsed on all of the (three) original bills of lading:

"One original bill of lading retained on board against which delivery of cargo may properly be made on instructions received from shippers/charterers."

It is believed that the above-mentioned mis-delivery risks are minimised, if not altogether avoided, by the insertion of this subject notation as it gives notice to any party purchasing the cargo against an incomplete set of bills of lading that delivery may be made in exchange for one original bill of lading retained on board the ship. Nonetheless, by no means is it guaranteed that this will offer full protection to the carrier against claims brought in contract or in tort from the rightful cargo receivers.

Additional protection may be secured for the member should they reach agreement with the charterer and the shipper that any carriage of a bill of lading on board constitutes simply transportation of the document itself and the master will not be responsible for confirming the identity of the person to whom that document is handed to at the discharge port.

Conclusion

The pivotal role of a bill of lading, as a document of title, in international trade cannot be ignored. It is hoped the above provides some useful information on the problems arising out of delivering cargo against one original bill of lading carried on board and the options available to a member if they take the commercial decision to comply with such a request. A member’s legal defences against a wrongful delivery claim will be less viable if delivery is made against an original carried on board.

Members are encouraged to contact their usual contact at the club and seek specific guidance whenever such a request is made, either in the context of negotiating charterparty terms and/or at the time of completion of loading operations and/or prior to the discharge of cargo.

This article intends to provide general guidance on the issues arising. It is not intended to provide legal advice in relation to any specific query. The law is also not static. If in doubt, The Standard Club is always on hand to assist.

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[1] In the ‘ship's bag’ as this is sometimes referred to.
[2] In The Mobile Courage (1987) 2 Lloyds Rep 655 it was recognized that such a practice (bills of lading carried in the ship’s bag) was common in the oil trade. Although the court didn’t thoroughly analyse the issue, it appears that where it has been contractually agreed between the parties, the courts may oblige the carrier to deliver the subject cargo against a bill of lading carried onboard, which the master hands over to the receiver who then hands it back for delivery of the cargo.