TT Talk - Lost documents - best practice

The bill of lading has three primary functions, evidencing the contract of carriage, acting as a receipt for the cargo and facilitating transfer of title to the carried cargo. There are occasions where documents are lost and, given the functions of the bill of lading, this has the potential to give rise to some significant exposures if not handled correctly.

The contractual nexus surrounding any given bill of lading can be complex. Care must be taken, therefore, when handling situations involving lost bills of lading to understand this nexus.

The bill is value

In maritime trade, the original bill of lading effectively represents the cargo itself. At its simplest, the shipper receives the bill from the carrier, and transfers it to the consignee in return for payment for the goods. 'Negotiable' bills may be transferred between entities for payment, together with the right to receive the goods, while the goods are in transit.  The consignee or transferee hands the bill of lading to the carrier as evidence of the right to collect the goods and for cancellation.

Equally, a bank may also have an interest in the cargo, under a letter of credit, holding the original bill of lading until the debt is satisfied. In this context, the bill of lading represents the bank's security for that debt.

This also serves to illustrate the care required; release of goods without an original bill of lading can lead to financial liabilities to entities other than the direct contracting parties.

"Release of goods without an original bill of lading can lead to financial liabilities to entities other than the direct contracting parties"

Shippers or alleged transferees of the original bill may seek to press the NVOCC to issue a duplicate for the purpose of taking delivery; such requests must be handled with great care. Anybody who is holding an original bill of lading acquired in good faith can claim delivery; where two sets of bills exist there is risk of two entities with apparently equally valid claims, demanding delivery of the cargo. Additionally, if the shipper has not been paid he retains the right to dispose of the cargo.

As the NVOCC, you can never be 100% certain what has happened to the original set of bills: have they genuinely been lost or has someone overlooked paying the seller? In releasing cargo without firm evidence of the right to take delivery, you act entirely at your peril.

Deliver at peril

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 NVOCC's own risk. You are not bound to deliver cargo to any person other than the lawful holder of the original bill, unless a court so orders. Where a bill is absent and the importer is demanding delivery, a recommended solution is to require a bank guarantee (or a company letter of indemnity countersigned by a bank) in your favour. See related article on delivery of cargo without production of the original bill of lading for comments on the appropriate form of indemnity.

It is always a sensible practical precaution to check with the exporter/shipper to make sure he has been paid and has no objection to the cargo being released.

One vital step - often overlooked - is to communicate to the delivery agent any new arrangement for the release of the cargo, precluding the risk that the agent meanwhile delivers the cargo to a party in possession of the void/cancelled bill of lading.

In the alternative, cargo interests may apply for a court order, often known as 'interpleader'. However, this course of action inevitably takes more time and increases costs, including potential storage costs; ultimately a claimant will still be required to demonstrate their entitlement to take delivery.

If there is a request for delivery but the original bill of lading is unavailable for whatever reason, take utmost care. Implement appropriate training and escalation procedures to ensure the approval for irregular releases is authorised by a senior manager.

"If there is a request for delivery but the original bill of lading is unavailable for whatever reason, take utmost care"

The whole question of the delivery of cargo without production of the corresponding original bill of lading, whether lost or otherwise, is fraught with potential exposures for the NVOCC or other issuer. No matter how strong or important your commercial relationship may be, simply do not accept promises or bow to pressure. The law (and TT Club) will support you if you refuse to deliver until a valid bill of lading has been surrendered.

Legal eagle:

In spite of earlier judgments which may have been more encouraging, the present state of English law1 presents a very serious warning to a forwarder - or shipowner or other issuer - called upon to deliver goods without production of a bill of lading. Albeit a forged bill of lading was produced, which the shipowner could not reasonably have known, in delivering the goods the shipowner was held strictly liable (in 'conversion'). This suggests that not even the most rigorous checks will assist a forwarder or other party in this position, and emphasises the importance of obtaining a letter of indemnity (or instructions from a court).

1Motis Exports Ltd v Dampskibsselskabet AF 1912 & another [2000] Lloyds Rep 211 (CA)

We hope that you will 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

Staff Author

TT Club