Further Guidelines for the Release of Cargo - straight bills of lading re-visited

In the September 2003 edition of The Intermediary, the Club provided the answers to questions which had been posed by ITIC Members in respect of the ITIC GUIDELINES FOR THE RELEASE OF CARGOES 2003. One of those questions concerned the right of carriers (or their agents) to release cargo without taking in exchange a non-negotiable or “straight” bill of lading.

In the September 2003 article, the Club warned that releasing cargoes to named consignees under “straight” bills of lading without first obtaining the original bill of lading was an extremely dangerous practice and that agents should never do so without the principal’s written instructions.

A recent claim has highlighted this point and the dilemma facing any agent. Even though his local law (or “custom of the trade” in his port) may allow release of the cargo covered by a “straight” bill of lading to the named consignee without first collecting the original bill of lading, it is not likely to be the local consignee (who, after all, has taken possession of the cargo) who has a claim against the carrier. It is more likely to be the shipper in the far away load port who will be the loser. The law or the “custom of the trade” at the discharge port is therefore likely to be irrelevant.

In 2002, a container of T-shirts was carried by a Japanese shipping line from Yantian Port, China to Haifa, Israel. The carrier had, at the request of the shipper, issued a straight bill of lading. The named consignee in Israel was unable to produce the original bill of lading, but did produce evidence that he had paid US$7,200, the invoice value of the cargo, to a bank in China. He also produced the shipper’s invoice for US$7,200 and offered a letter of indemnity in that amount. The Israeli agent, as it was “custom of the trade” at that time in Israel to release to named consignees without taking the original straight bill of lading in exchange, accordingly released the cargo against the consignee’s personal letter of indemnity for the invoice value of US$ 7,200. The agent did not obtain authority from his principal, the Japanese shipping line, to release in this way.

Several months later, the Chinese shipper of the T-shirts approached the Japanese shipping line to find out where his cargo was. The shipper still had all three original bills of lading in his possession. The carrier informed the shipper that the cargo had been delivered to the named consignee without collecting the original straight bill of lading, in accordance with custom of the trade in Israel and in accordance with Chinese law. Up to that time, there had been various decisions of the Chinese courts that straight bills of lading were not documents of title and that the responsibility of the carrier under the contract of carriage to deliver the cargo should be regarded as accomplished once the cargo had been delivered to the named consignee.

Although, the bill of lading was subject to Japanese law, the shipper lodged a claim for US$ 23,000 (which he alleged was the true invoice value of the cargo) at the Guangzhou Maritime Court. This court followed previous decisions and adjudged that the carrier had properly fulfilled his obligations under the contract of carriage by delivering to the named consignee. The shipper appealed to the Guangdong Higher People’s Court, which reversed this decision, and found the carrier liable to pay the consignee US$ 23,000 plus interest and costs. Although, the Israeli consignee had paid US$ 7,200 to someone in China, there was no evidence that this amount had been paid to the shipper, nor did the court deem that it represented the full value of the cargo. The carrier then claimed reimbursement of US$ 59,000 from his agent in Israel, which represented the shipper’s claim plus interest and costs, and the carrier’s own legal costs.

This case is interesting in that it highlights the dangers for agents of looking only to their own law or custom when releasing cargo (or indeed in taking any other action which might affect the ocean carrier). The agent made two further mistakes. The first was to release the cargo without first obtaining his principal’s written authority. The second was to accept a letter of indemnity which was not in the principal’s recommended wording and was for an inadequate amount. Even if the invoice value had been US$ 7,200, as claimed by the consignee, rather than the US$ 23,000 claimed by the shipper, the amount of the letter of indemnity was insufficient to cover legal and other costs.

The laws of three countries governed the release of the container of T-shirts.

Israeli Law

There is no law in Israel that allows the release of cargo covered by straight bills of lading without taking in exchange the original bill of lading. We are informed that, at the time of this incident, it was “custom of the trade”, we are further informed that, following the decision of the English House of Lords on the “RAFAELA S” (see the article in September 2003 edition of The Intermediary), Israeli courts no longer recognise this custom.

Chinese Law

Chinese courts have, in the past, taken the view that, under the provisions of Article 79 (I) of the Chinese Maritime Code, a straight bill of lading is not a document of title. Therefore, unless the shipper has instructed otherwise prior to the delivery of the cargo, the carrier fulfils his responsibilities under the contact of carriage once he has delivered to the named consignee and it is not necessary to take in exchange the original bill of lading. This has been reflected in decisions taken by Chinese courts over a number of years. However, it is understood that senior judges representing the Chinese Supreme Court and maritime and higher courts (such as appeal courts) at the Thirteenth National Seminar on Maritime Adjudication, which took place in Quingdao in September 2004, came to the conclusion that, where the Maritime Code of People’s Republic of China is applicable, delivery of cargo covered by straight bills of lading should only be against surrender of original bills of lading. This is reflected in the decision of the Guangdong Higher People’s Court mentioned above.

Japanese Law

The third law involved in this matter is Japanese Law. Although the Guangzhou Maritime Court seized itself of this matter, the shipper could equally have sued in Japan as the bill of lading provided for Japanese law. Article 573 of the Japanese Commercial Code states that, even in cases where a bill of lading has been made out in the name of a specified person, it can be transferred by endorsement, unless the bill of lading itself contains a provision forbidding endorsement. Therefore, and unlike other jurisdictions, a straight bill of lading is not necessarily non negotiable under Japanese law. The cargo must therefore be delivered against the production of a straight bill of lading, unless it is clearly stamped “non negotiable” on its face.

Conclusion

It can be seen from the above that delivery against straight bills of lading, whether stamped “non negotiable” or not, is a minefield. It is, however, the carrier’s minefield and agents should keep out of danger by not taking such decisions themselves but by asking for the principal’s instructions and authority (in writing).