TT Talk - Bills of lading: stay switched on!
This is the second part of Harry Lee's trilogy on the problems that can arise with bills of lading. In TT Talk No. 40 we covered the first situation in which amendments to the first set of transport document is requested by the cargo interests. In this item, the Club offers its recommendation on another common situation - "switch" bills of lading.
"Switching" bills of lading is a procedure for transport operators to handle with great care. Here is just one story, which replicates itself from time to time in the transport field, aided by careless operators! A forwarding company in Hong Kong was handling the movement of a consignment from Shanghai to Los Angeles. The cargo had been sold by manufacturers in China to a trader - the forwarder's customer - in Hong Kong, who had sold it on to his clients in the United States.
The trader asked for the original bill to be replaced with another one showing himself as the shipper and the ultimate buyers in the US as the consignees. Due to miscommunication between two of the forwarder's departments, the second ("switch") bill was issued without first collecting the original bill of lading -which was still in the hands of the suppliers in the PRC. The shipment duly arrived in the US where the buyers, having paid the trader, had obtained the switch bill, which they presented in exchange for the cargo. Unfortunately although the traders had been paid they somehow did not get round to paying their suppliers in China. The consequence was that the unpaid Chinese seller, still in possession of the first set of originals, could successfully make a claim against the forwarder. The forwarder could not limit his liability and had to pay the Chinese shipper the full amount of his loss.
Occasions on which Switching Takes Place:
Switching bills of lading is usually requested by traders who wish to conceal the identity of the suppliers and the end-users from each other. The reasons are normally quite legitimate, but Members must be on their guard when dealing with such requests. The main feature of switching is that it is done without the cargo being handed over at the same time: as the example above shows, switching bills often takes place well away from the route the cargo is taking.
As a Priority - Perfect Switch!
It is of utmost importance that all the originals of the first bill of lading are collected and cancelled before the replacement set is produced and issued. That is the carrier's only guarantee that the middleman is truly the owner of the goods and has rights to their further disposal. The forwarder-carrier must ensure that only ONE set of his bills of lading for the same consignment is circulation at any one time: otherwise he may face competing claims from two consignees, each holding an apparently valid bill of lading. Depending on the circumstances, if you allow two sets of bills of lading to be circulating for the same shipment you may be in breach of your insurance cover with the Club.
The master bill of lading
The actual carrier's (master) bill of lading MUST be addressed to your agent at destination, who must also be kept informed of the changes to the underlying bills. Otherwise there is a risk that the cargo falls into the wrong hands. There must also be a link between the company on whose behalf the second bill was issued (the NVOC) and the shipper or consignee shown in the master bill.
Bills of Lading: Take care with amendments:
Almost invariably, switching bills of lading involves issuing a second document with information that differs from the first. Although the process could be regarded as a bilateral alteration of the terms and conditions of the contract of carriage, various difficulties may arise, according to the types of information changed. It is advisable that members always secure a letter of indemnity from the company making the request, holding them harmless for any adverse consequence(s). Certain information should NEVER be changed.
Firstly, the date and place of shipment as stated in the original bill of lading. Changing this information may work to the detriment of an endorsee who has relied on it in his contract of sale. For instance, if time is the essence of the contract for the buyers of the goods, they may suffer a big loss by being misled about the original date of shipment.
Secondly, customers should not under any circumstances be allowed to change the number of packages or the weight shown in the original bill of lading.
Thirdly, if the original bill of lading is claused, the switch bill must carry identically worded clauses.
Finally, any special instructions of the shippers such as temperature requirements cannot be changed or omitted.
Other information may be changed without too great a problem provided the new information is true and correct. This includes: the names of the shipper, consignee or notify party; the shipper's description of the goods; the name of the ship (if necessary); the place and date of issue (if not the same as those of shipment); the freight and the port of discharge. You should obtain written confirmation from your client, setting out in detail his requirements for the new bill of lading. If significant changes are requested to the cargo details, you should consider getting both evidence to support the changes and an indemnity from the client to protect you in the event of a dispute with the consignee.
Difficulties may arise when the switch bill is issued in a jurisdiction different from the original one: as a result the Hague or Hague-Visby regime may apply to one bill but not to the other. Would the Hague/Hague Visby rules be displaced by the switching? Up to now this point has not been decided by any authoritative judgment. Nevertheless, it is submitted that in the least, the Hague-Visby regime should still govern because under Article 1 of the Rules, they would apply from the time of loading, drawing an analogy with the case of a transshipment; alternatively the Rules, once being applicable by force of law, may not be readily discarded by a private agreement between two or more of the parties in the contract.
Therefore, if your standard form of transport document does not contain an international convention "clause paramount", or it does not contain certain important liability exemptions, you must be careful in accepting instructions to switch bills of lading, and should consult your Club office or liability insurers. If you do not, you may find yourself subject to unexpectedly onerous liability regime or you may prejudice your insurance cover.
Source TT Club
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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.