TT Talk - Legal eagle: when should a freight forwarder issue a house bill of lading?


TT Talk - Legal eagle: when should a freight forwarder issue a house bill of lading?

Recent case law from the NSW Court of Appeal in Australia acts as a reminder to freight forwarders to consider carefully the question of ‘whether to issue a house bill of lading?’ for a consignment. When doing so, there are clear steps to take to protect the rights of all stakeholders and avoid unforeseen exposures.

Facts

A freight forwarder contracted with a shipper in the business of exporting animal skins and hides. Separately, the shipper entered into a loan agreement with Australia Capital Financial Management Pty Ltd (ACFM) whereby the shipper would provide ACFM with original bills of lading as collateral security in exchange for drawdowns on the loan. It was intended that ACFM would return the original bills of lading after the shipper had repaid the drawdowns.

In the course of applying for a drawdown, the shipper provided ACFM with 11 house bills of lading issued by the forwarder. When the shipper failed to make the repayments, ACFM attempted to take possession of the cargo, only to discover that it had already been released to a third party by the ocean carrier.

ACFM was successful in their action against the forwarder for the full recovery of the drawdowns on the grounds of misleading and deceptive conduct.

This recent NSW Court of Appeal decision upheld the previous judgment in an action[1] brought by ACFM against the pre-decessor company of the freight forwarder, which was found to have acted in misleading and deceptive conduct when issuing house bills of lading, whilst simultaneously releasing ocean bills of lading, both of which purported to be original negotiable documents.

What went wrong?

In this case, the ocean carrier issued a set of ocean bills of lading that were “original” and “negotiable” and named the consignee as “to Order” (Ocean Bills).

The forwarder issued a set of house bills of lading that were a close replica of the Ocean Bills, also being “original” and “negotiable” and named the consignee as “to Order” (House Bills).  The House Bills were signed by the forwarder “as agent for the ocean carrier”.

Furthermore, the forwarder released both the House Bills and the Ocean Bills to the shipper, but the latter provided ACFM only with the House Bills. The Ocean Bills were apparently used by a third party to take delivery of the cargo from the ocean carrier.

The court held the House Bills themselves to be misleading and deceptive for the following reasons:

  • the forwarder did not have authority or consent from the ocean carrier to sign off as their agents
  • the forwarder allowed the issuance of two sets of bills of ladings (House Bills and Ocean Bills) both purporting to be original documents with title to the goods
  • the House Bills did not in fact give the lawful holder a right to delivery of the goods

Consequently, the freight forwarder was held to be liable for the loss suffered by ACFM.

The lessons to be learnt

Whilst the issuing of house bills of lading as a business practice should not be discarded, freight forwarders should never issue a house bill of lading when they do not have control over the release of the cargo at destination; especially when the ocean bill of lading issued by the ocean carrier is negotiable.

A defining feature of a bill of lading is that it constitutes a document of title for the related goods. Thus it must be capable of obtaining delivery of the cargo it relates to when they are presented to the issuer or their authorised agent.

Furthermore, freight forwarders must not sign house bills of lading “as agents of the ocean carrier” unless the ocean carrier has expressly granted authority to do so. Such representation implies the lawful holder of the house bill of lading has accrued remedies against the ocean carrier. If the ocean carrier has not granted authority to the freight forwarder, the ocean carrier will have no liability, and the freight forwarder will be liable for any losses associated with the reliance on the representation.

Should a freight forwarder find themselves in need of issuing a house bill of lading, it is important to ensure the ocean bill of lading is non-negotiable and remains in possession of the freight forwarder (or their receiving agent), thus ensuring the freight forwarder has control over the release of the cargo by the ocean carrier.

CRO Travel Pty Ltd v Australia Capital Financial Management Pty Ltd [2018] NSWCA 153


[1] Australia Capital Financial Management Pty Ltd v Freight Solutions (Vic) Pty Limited [2017] NSWDC 279


­­We hope that you have found the above interesting. If you would like further information, or have any comments, please email us, or take this opportunity to forward to any colleagues who you may feel would be interested.
 
We look forward to hearing from you.


Peregrine Storrs-Fox
Risk Management Director, TT Club

Through Transport Mutual Insurance Association Limited and TT Club Mutual Insurance Limited, trading as the TT Club. TT Club Mutual Insurance Limited, registered in the UK (Company number: 02657093) is authorised by the Prudential Regulation Authority and regulated in the UK by the Financial Conduct Authority and Prudential Regulation Authority. In Hong Kong, TT Club Mutual Insurance Limited is authorised and regulated by the Hong Kong Insurance Authority, in Singapore by the Monetary Authority of Singapore and in Australia by the Australian Prudential Regulation Authority. In the United States, TT Club Mutual Insurance Limited is approved as a surplus lines insurer in all states and is accessible through properly licensed surplus lines brokers. The registered offices are: 90 Fenchurch Street, London, EC3M 4ST.

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