TT Talk - Loss of original bills of lading and requests for issuance of replacement bills
This is the third part of Harry Lee's trilogy on bill of lading issues.
In the previous two editions, we have talked about situations where there has been a request to change bills of lading. Now we turn to the third and final one: where a negotiable bill of lading is said to have been lost before the shipment is ready for delivery. The shippers or alleged transferees of the original bill may urge the carriers to issue a duplicate set of bills of lading for the purpose of taking delivery. Since a negotiable bill of lading is a document of title, such requests must be handled with great care.
In the previous edition, in the item on "switching bills of lading", we highlighted the danger of having two sets of bills of lading in circulation for the same shipment: anybody who is holding a bill of lading acquired in good faith can claim delivery so if there are two bills you can have two people with apparently equally valid claims, demanding that you give them the cargo. Apart from that, if the shipper has not been paid for the cargo he retains the right to dispose of the cargo. As the carrier, you can never be 100% sure what has happened to the original set of bill(s) of lading: are they indeed lost, or has someone just overlooked the business of paying the seller? If you release cargo without firm evidence of the consignee's right to take delivery, you do so entirely at your peril.
It is sometimes said that an advertisement in the local press about the "loss" or "nullification" of the original bill is an adequate and simple remedy and once that has been done the carriers should be able to issue a replacement set without hesitation (or even release the goods without production of the "lost" bill of lading). It is dangerous in the extreme to rely on this belief. Firstly, as a matter of fact, such an advertisement can never protect an innocent buyer who never had the chance to read the advertisement, neither will it protect you against a claim from an unpaid sender. Secondly, as a matter of law, there is no exception to the simple working rule that delivery without production of bill of lading is at the carrier's own risk.
In The Sormovskiy 3068  2 Lloyd's Rep. 266, Mr Justice Clark understood the dilemma of carriers and indicated some support (seemingly!) for those who in certain circumstances have to consider delivery of goods without production of the original bill (such as when the original document is proved lost). It was said that an implied term to deliver without bills existed "in circumstances where it is proved to [the carrier's] reasonable satisfaction that the person seeking delivery...is entitled to possession and what has become of the bills of lading". However, in the famous English Court of Appeal case Motis Exports v Dampskibsselskabet AF 1912  1 Lloyd's Rep. 211, Mr Justice Rix highlighted that there is no such exception or excuse based on a reasonable explanation and that production of a bill is still a must in the absence of a contrary contractual agreement.
It has been set in stone at law that you are not bound to deliver to any person other than the lawful holders of the bill, or unless the court so orders. If it comes to the difficult position that the bill is absent and the importer is getting desperate, the recommended solution is to require a bank guarantee (or a company letter of undertaking countersigned by a bank, who thus agrees to "join in") in your favour. In 1984 and 1998 the International Group of P&I Clubs recommended certain forms of Letter of Indemnity (LOIs) to deal with various situations when bills of lading are unavailable for presentation.
You should consult your legal or insurance advisors and obtain the right indemnity before entertaining any request for delivery without presentation of bills of lading. A sound indemnity must include backing by a first class bank, insurance company or mutual association; adequate undertaking value (usually not less than 200% of the CIF value of goods); coverage of all claims and costs in association with issuing a duplicate bill; is valid at least as long as the minimum period for legal actions under contract in the country of jurisdiction (not just the time-bar period stated in the conditions of carriage), and a reliable law and jurisdiction clause to enforce the indemnity. It is also a sensible additional precaution to check with the shipper to make sure he has been paid and has no objection to the cargo being released.
Alternatively, cargo interests may apply for a court order. But this takes more time and cost (including the warehousing); and they will still have to demonstrate their entitlement to take delivery. Finally, the old advice is still valid advice: if there is a request for delivery but the original bill of lading is unavailable for whatever reason, never release the shipment without the most rigorous checks. Make sure all your staff are aware of this rule, and appoint someone senior as the only person in your organisation entitled to approve requests for irregular releases. Do not listen to threats from the consignee: the law (and the Club) will support you if you refuse to deliver until a valid bill of lading has been surrendered.
Source TT Club
You may also be interested in:
There may be many circumstances where a bill of lading issuer is asked to deliver cargo without original documents being produced; take extreme care.
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.
TT Talk - Legal eagle: the power of choice
The importance and impact of careful drafting of contracts is exemplified in this UK Supreme Court decision. While the ruling brings clarity to English law, it represents congruence with other jurisdictions. It is most prudent to be deliberate in documenting law and jurisdiction choices in contracts.