Delivering cargo without presentation of original Bills of Lading – Minimising Risk for Carriers

Original bills of lading (“OBL”) act as proof of title over cargo. To minimise delays in delivering cargo, it has become common for traders to instruct carriers to deliver cargo without first being presented with OBLs. In doing so, there is a risk that carriers will deliver cargo to a party not entitled to delivery.

Under English law, carriers have been held liable for cargo that was delivered without presentation of OBLs. The English courts are also unlikely to allow a carrier to rely on standard exception clauses found in bills of lading, since the cargo is deemed to have been misdelivered due to the carrier’s actions.

Letter of Indemnity

To protect themselves against the risk of being subject to a misdelivery claim by cargo owners, carriers often accept an indemnity from traders in the form of a Letter of Indemnity (“LOI”).

Carriers need to be sure that the LOI is issued by a party of strong financial standing. Given the substantial delay that occurs before an OBL may emerge in the hands of the cargo owner, a LOI will provide little comfort if the party issuing the LOI subsequently experiences financial difficulties.

Scrutinise the terms of the charterparty

If a carrier is also the shipowner of the nominated vessel, the charterparty usually includes an express indemnity in favour of the shipowner, not unlike that found in a LOI. Even if there is no express indemnity, the shipowner is likely to be entitled to an implied indemnity subject to certain conditions.

However, the right to an indemnity does not necessarily oblige a shipowner to deliver cargo without production of OBLs; the terms of a charterparty must express a positive obligation on the shipowner to do so.

Unreasonable delay in discharging cargo

In light of the risks carriers take in delivering cargo without presentation of OBLs, it would not come as a surprise that carriers often insist on a surrender of OBLs before releasing cargo. However, carriers should not cause unreasonable delay in discharging cargo and should utilise other remedies available to discharge cargo without giving delivery whenever possible. By way of an example, the English Merchant Shipping Act 1894 allows for imports into the United Kingdom to be warehoused.

Forged OBL

Carriers may also be held liable for delivery against forged OBLs. As such, where carriers notice suspicious circumstances relating to delivery of cargo (e.g. when cargo is diverted en route), it is recommended that carriers make enquiries as to the location of the other OBLs. Finally, when one OBL is surrendered, the master should mark it clearly as “Accomplished” and notify the bank or other parties holding the remaining two OBLs that this has been done.

You can read the longer version of this article here.

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