Thursday, June 21, 2018

Freight Forwarding Agents Need to Ensure Operational Staff Understand Their Bills of Lading

Issuing House Bs/L Can be a Very Dangerous Practice
Shipping News Feature
AUSTRALIA – CHINA – WORLDWIDE – The rules covering the use of Bills of Lading (Bs/L) are universal and have served the international shipping community well for centuries. Every so often however shippers and freight forwarding agents lose sight of the importance of these negotiable documents and a recent case illustrates how, ignorance, indolence or perfidiousness can lead to serious repercussions for those involved.

When last October a case was heard in the Court of New South Wales the Court observed ‘Like an elephant, a bill of lading is generally easier to recognise than to define’, an observation which, in the case in question, is not strictly accurate. In its traditional sense a Bill of Lading serves three basic functions, it outlines the contract for carriage of the goods it contains, it is evidence that the goods have been loaded aboard ship, with details of the vessel and voyage shown and, perhaps most importantly, it serves as a document proving entitlement to the goods it contains.

This last point is where confusion often enters the equation, goods shown are subject to the rule of Nemo dat quod non habet which means literally you can’t buy something from someone who doesn’t actually own it, if you think you did you are mistaken and forfeit all rights to the goods.

As each generation of shippers, freight forwarders and purchasers passes we see historically the same mistakes made and the same softening of the rules of title which ultimately end, as with the recent case, in tears before bedtime. This case however was never going to be accepted by a Court as a simple mistake as it contained, certainly what would appear in hindsight as at best incompetence, and worst as a fraudulent element.

The goods in this case were several shipment of sheepskins and cowhides exporting from Australia to China, and the total finance paid to the exporter by the third party finance company, Australian Capital Financial Management Pty Ltd.(ACFM) in exchange for what appeared to be documents giving title to the goods, ran to hundreds of thousands of Australian dollars.

When the ocean carriers issued their sets of original Bs/L, four from China Ocean Shipping, two from Mitsui OSK Lines, and one each from PIL and OOCL, these should have been the only documents controlling title of the goods. The forwarding agent concerned however, Freight Solutions (Vic) Pty Ltd., issued its own ‘house’ Bs/L the eight sets of these were marked ‘To Order’ and ‘Original’ with no endorsement to any third party.

Freight Solutions passed their house Bs/L to their client who in turn used them to extract payment under the terms of contract from ACFM. In producing and issuing these house Bs/L the agent broke two paramount rules. Firstly it had no permission from the shipping companies involved to sign such documents, thus breaking its warranty of authority with the lines. Secondly, as the Court pointed out, it had, to all intents and purposes, put into circulation two documents of title for the same goods.

Whilst the shipper in Australia used the house Bs/L as evidence it held title to the goods, and obtained finance for payment on that basis, the importer in China had received the original shipping line Bs/L for all eight shipments and duly collected the goods using these as evidence of ownership. The money advanced by ACFM to the exporter could not therefore be claimed from the Chinese importer who had, surprise, surprise, failed to pay for the skins.

The charge of breaching the warranty of authority is an interesting one. Under the law as applied, despite the contract effectively being just between the financier, ACFM, and the exporter, the actions of the freight forwarder rendered it liable. The Court found for ACFM in the case listed above and this resulted in a bill for the agent of A$ 845,456.93 plus costs for damages for misleading and deceptive conduct and breaches of warranty of authority. An appeal decision was reserved at the New South Wales Court once again just last week. The website of the agent now appears permanently closed and the web address given by the finance house is also a dead end.

So what should we take from this? Clearly freight forwarding agents need to ensure all operational staff with the authority to handle consignments should be well acquainted with the law covering Bs/L. Agents should never represent themselves as agents for a carrier, by doing so they are misrepresenting their authority. It should be made clear on documents such as house Bs/L that this is exactly what they are. And obviously, anyone with an interest in the cargo concerned should never be provided with both house and shipping company Bs/L.

Photo: The good old days! Pre digitisation (and ball point pens, Roneo and Xerox machines and the like) a Bill of Lading was seen by many as an object of beauty.