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 Many
people believe that ocean bills of lading (hereafter, “B/L”) is a document
of title i.e. holding the B/L is as having goods in hand. However, how does
it work in reality, for instance, in banking settlement of export
transaction? Lawsuits and disputes involved in B/L from time to time
contradict our notion of what a B/L is. Therefore we are urged to take a new
look at the B/L as to its function, especially its pitfalls other than its
merits in export sales.
B/L Covering Consolidated Cargo under L/C
In export practice, in order to save shipping
charges and container space, the beneficiary of the L/C (usually as exporter)
sometimes arranges his cargo under the L/C to be consolidated together with
other consignments in one container – if the L/C cargo is not enough to fill
the whole container. Therefore it is a usual phenomenon that the carrier
would issue several sets of Bs/L for one container. However, such issuance
of B/L should be processed with caution when the B/L is to be presented
under an LC. Otherwise something not so desirable for the beneficiary could
turn out afterwards … …
Here is a lively case taken from banks: Company A in
China received an L/C in his favor in January 2007 issued by a bank in
Tunisia, LC amount USD37000 covering goods of CD. In March 2007 Company A
shipped the cargo and presented documents through its bank to the confirming
bank in Hong Kong, with presenting bank’s statement certifying that all
terms and conditions of the credit had been complied with. Later, documents
were refused by the confirming bank due to the following reason:
B/L showing ‘All bills of lading involved must be
surrendered for delivery of the container.’
After a brief investigation, the beneficiary
confessed that there were totally 3 sets of Bs/L related to the container.
The one presented was only part of the series. They did so just for saving
container cost, since the container is big enough for the LC cargo and goods
of other sales.
Then any consequence arising? Any reason to
justify the confirming bank’s rejection? Obviously, this is a typical
case of B/L covering consolidated cargo; the exclusive part is its
relationship with LC. In truth, it meets the credit terms as well as the
requirement of UCP500 Art.23 which by no means prohibit consolidated
shipments. However, the devil lies in the clause above. It implied in B/L
with simplicity: the LC cargo was represented not only by this B/L but also
by other more; and further, delivery of the cargo should not be determined
only by this B/L. In other words, release of such cargo should depend on the
surrender of all issued Bs/L. Then we had to face the reality: how many
other more B/L involved in the container? How to take the delivery of cargo
if other B/L not surrendered? How long to wait for it? … … Things were so
uncertain that it had to be concluded that this B/L actually didn’t
definitely render its holder to obtain the goods, even if it had been paid
by the applicant (usually the importer) under the LC. Imagine the applicant,
having paid for the B/L, and still has to wait for other holders involved to
come forward just for the delivery of his cargo, is there any assurance for
him to possess the goods? In consequence, due to its severe damage to the
function of B/L (as a title document), the statement shown above justified
the confirming bank’s refusal. This is also in line with ISBP 645 Paragraph
99: If a bill of lading states that the goods in a container are covered by
that bill of lading plus one or more other bills of lading and the bill of
lading states that all bills of lading must be surrendered, or words of
similar effect, this means that all bills of lading related to that
container must be presented in order for the container to be released. Such
a bill of lading is not acceptable.
Similar case was also addressed in ICC Banking
Commission Unpublished Opinions 1994-2004 (ICC PUBLICATION NO.660) Query
TA99 (Note
1). The issue: delivery of the goods under the LC was
conditional or the production of another B/L and whether this restricted the
ability of the receiver to take control of goods on arrival of the vessel?
Analysis and conclusion: the bill of lading presented, whilst conforming
to the credit terms and the requirement of Art.23 UCP500, including clause
“part load with bill of lading MLA02, no separate delivery”. This clause
potentially restricts the ability of the receiver to take control of the
goods on arrival of the vessel. If the holder of B/L MLA02 does not come
forward, the issue of release of the goods could become a long and
protracted one. The clause or similar would constitute grounds for rejection.’’
As mentioned above, the pitfall of such B/L is
hidden in its notation clause. This, however, should be prudently detected,
especially when it is of consolidated shipment under LC. In this regard,
exporters need to be cautious enough if they have to present B/L with
consolidation shipment under credit. To assure the control of cargo after
the surrender of B/L, there are some tips to consider:
- The shipped cargo to the applicant should be
covered by one B/L; otherwise all B/L should be singly surrendered in
order for the container to be released if the cargo is involved in more
than one B/L.
- Pay special attention to notation of the B/L. In
case the B/L includes clause like “all bills of lading involved should be
surrendered for the container” or “1/2 part of container, no separate
delivery allowed”or of similar wording/effect, just contact the carrier to
delete it. Those wording, if still remaining there, would inevitably
damage the issuing bank’s potential security interests in the cargo and
hence constitute the ground for refusal.
Pitfalls in Straight B/L
 B/L
has played an important role in the international transactions. It is
essential to get familiar with its forms and function. In general, according
to the consignee, B/L can be classified into 3 types:
- Order B/L (being consigned to order or order of a
designated party),
- Bearer B/L (being consigned to a bearer) and
- Named B/L (usually as Straight B/L, being
consigned to a named party).
As the most essential part of its function, B/L may
serve as evidence of title (Note
2). This is true if the B/L
is negotiable, i.e., an Order B/L or a Bearer B/L in which the title to
goods can be transferred to another party by mere endorsement and delivery.
Acknowledgement of such characteristic is vital for the exporter, who may
use such B/L as a security for payment in export sales.
However, things are not the same with a Straight
B/L. Since a Straight B/L is made out to a designated consignee, the
consignment (merchandize) must be, only released to the named party when the
cargo arrives at the destination, therefore absent of the main feature of
negotiability as a document of title. Moreover, Straight B/L, in most
countries, is not for further transfer according to provisions. In some
jurisdictions, it even doesn’t have to present an original Straight B/L for
delivery of cargos. Such “practice” was supported in the Brij Case (July
2000, Hong Kong) (Note
3), the judge said that there was no breach in contract
and tort if cargo is delivered to the named consignee in Straight B/L
without production of original B/L. In this case, the deficiency arising
from a Straight B/L will lead to a potential risk for an exporter, who may
fail to distinguish the difference between a Straight B/L and an Order B/L
and intend to use a Straight bill as a lever or security for payment. In
essence, however, a sensible exporter should be aware that retaining a B/L
in hand as a security for payment is actually not fully enforceable when the
B/L is made out as a Straight B/L. Sometimes it may become a desperate
illusion if he has such a naive intention.
Proof of such deficiency in Straight B/L can be
found in banking cases. In 2006, Company B in China signed a contract of
sales for slippers with Company C in Israel, with an arrangement of
documentary collection for payment. After shipping the cargo, Company B
presented documents (including a Straight B/L with Company C as the
Consignee) to its bank for collection. Consequently, the documents reached
the collecting bank in Israel with instructions "deliver
the documents against payment".
However, Company B didn’t get the payment long after
the cargo arrived at destination. They also found it in vain to keep in
touch with Company C: e-mails, cell phones and faxes were all without any
reply. To avoid a total loss, they tried to find a new buyer and intended to
amend the collection instructions. However, when they traced the cargo on
the network, they were shocked to find that the container had been released
to whomever they didn’t know while the original documents still remained at
the counter of the bank! After a long stretching contact, they got the reply
from the shipping agent: the cargo was released to the consignee as stated
in the B/L (i.e. to Company C). According to the overleaf clauses, in case
of non-negotiable B/L (i.e. Straight B/L), the carrier shall release the
cargo to the designated consignee against the evidence of identity without
production of original bill…….. What a dreadful nightmare! It was obvious
that even the full set of documents returned back to Company B, they would
be still unable to obtain the goods against the original B/L. This was the
fault of Straight B/L; this was also the fault of their innocent ignorance!
Lawsuits related to Straight B/L are surprisingly
numerous, one of which has been published in China Daily dated Mar.02,2002,
the case of Jiangsu Light Industrial Products Imp & Exp Group Corp V.
Jiangsu Globe Foreign Trade Transportation Co., Brilliant International
Corp. USA(2002, China) (Note
4). This was also a case of disputes over release of
cargoes without production of original Straight B/L. The plaintiff Jiangsu
Light Industrial in China contracted to sell cargoes of suitcases to China (U.S.A.)
INC. in U.S.A.. The defendant Jiangsu Globe, on behalf of Brilliant USA,
issued Straight B/L for the relative cargo, which showed Jiangsu Light
Industrial as shipper and China (U.S.A.) INC. as consignee. Upon arrival at
destination in Miami, the cargo was released to China (U.S.A.) INC without
surrender of original B/L. As the plaintiff had not been paid for the cargo,
they brought an action against the defendant for mis-delivery. The main
issue of this case was: what law shall be applied to the dispute resulted
from delivery of goods without production of original B/L? The court
held: In accordance with the overleaf clauses of the B/L, the validity of
B/L should be subject to COGSA 1936. Since it was not expressly stipulated
in COGSA 1936, as to how to deliver goods under the Straight B/L, this case
should be subject to the common law of USA, such as the Bill of Lading Act
1916, or the Uniform Commercial Code of America. In according to UCCA Art.7,
such B/L (Straight B/L) should be non-negotiable. Under a non-negotiable
bill, the carrier may deliver the cargo to the named consignee after the
arrival at destination if the shipper had made no contrary instructions
before such delivery. As the plaintiff had neither included in the Straight
B/L the term of “delivery against the original B/L”, nor made a prompt
request for stopping delivery before Brilliant USA delivered the cargo to
the named consignee, it should be deemed due and lawful for Brilliant USA to
deliver the cargo to the designated consignee.
Once again, the conclusion of this case underlines
the brilliant view of Benjamin’s Sale of Goods (5th Edition) P990: under
a Straight bill (of lading) the Carrier is entitled and bound to deliver the
goods to the originally named consignee without production of bill of (lading)
(Note
5).
Given that Straight B/L is of no legal effect of a
document of title, the exporter should adopt a prudent approach if he has to
use such bill in his export sales. Careful consideration should be applied
in the relevant export banking:
- When the L/C calls for Straight B/L
LC is the most widely used finance instrument in export sales, through
which the issuing bank furnishes its credit in place of that of the
applicant (the importer). However, the bank’s payment undertaking is
conditional, depending on complying presentation of export documents.
Therefore, when the exporter agrees to use the Straight B/L for a LC
payment, he should be sensibly aware that it is not likely to place
reliance on such transportation documents, when he is eventually not paid
because of his document defects. Moreover, it would allow the applicant to
obtain possession of the goods without taking up documents in banks----in
this sense; Straight B/L is actually not desirable in LC transactions.
In case the LC requires Straight B/L, what the exporter has to do
is to ensure his documents strictly satisfying the credit.
- Under D/P (Documents against Payment)
Collection
In this arrangement, the shipping documents are
released only upon importer’s payment for goods. However, compared with a
LC transaction, such arrangement, due to lack of bank’s guarantee,
represents a higher level of risk imposed on the exporter. His expects for
payment totally relies on the importer’s credit worth. In this regard, it
had better not allow Straight B/L if there is no long-term relationship or
mutual trust between each other. The great concern is that : it may allow
the importer to obtain the goods without having to taking up documents in
banks.
In case the Straight B/L has to be allowed in
collection, the exporter should have better knowledge of the terms and
clauses of the bill. Bills such as that of Maersk Line has got some small
prints on its front: where the bill of lading is non-negotiable, the
carrier may give delivery of the goods to the named consignee upon
reasonable proof of identity and without requiring surrender of an
original bill of lading. Definitely, such clause is an apparent threat
to the exporter’s control of his goods if he does not prepare to do so.
For a prudent consideration, he should include a specific clause as to
confine the delivery of cargo only upon surrender of original B/L in the
transportation documents. Accordingly, he can at least remain his title to
goods if he is ultimately unpaid.
- Straight B/L in Open Account
In practice, the exporter initially faxes the
original B/L to the importer and sends the documents after receiving the
payment. However, since the cargo would be already loaded and shipped en
route, the exporter has little recourse against the importer if he remains
unpaid. Furthermore, even without original B/L, the importer would be also
capable of possessing the cargo against the identity of consignee.
Therefore, under the unsecured open account, an “Order B/L” is the first
option for the exporter to minimize his risk of non-payment.
If, however, a Straight B/L has to be granted in
such arrangement, he should similarly comprise a specific clause in the
bill, which needs to confine the delivery of goods only upon production of
original B/L. Besides, special care should be taken to trace the shipped
cargo for his security concern. Don’t forget to keep close contact with
shipping company in case of any unexpected alarm.
Reference:
1. ICC Banking Commission
Unpublised Opinions 1994-2004 (ICC PUBLICATION NO.660)
2.International Sale of Goods
(1991, published by Croner Publications Ltd.)
3.Bills of Lading Disputes by
Vincent Xu( 2007, Hong Kong)
4.
www.ccmt.org.cn
5. Benjamin’s Sale of Goods (5th
Edition)
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