Delivery of Cargo without Bills of Lading (Circular 01/03/94)

Our Ref: 94/06

March 1994

To: Members

In November 1992 the club issued its circular 92/11/2 under this same heading, and attached a set of guidelines for agency staff concerned with the issuance of delivery orders.

The incidence of claims arising from this cause has continued to give rise to concern, and at their last meeting the Directors of the Club considered the actual circumstances leading up to a number of these claims. The Directors were requested to lay down guidelines which would be of assistance to both the Members and to the Club's Managers in their consideration of claims. Every claim will continue to be considered on its individual merits and circumstances but set against the following guidelines endorsed by the Directors:

1. An agent who obtains his principal's authority to deliver cargo without Bills of Lading against acceptable security, e.g. a bank guarantee, enjoys a large measure of protection against claims from that principal arising from delivery of that cargo.
   A principal may provide a blanket authority, or he may require the agent to refer each case separately or again he may refuse authority altogether. Many Members will have already obtained the necessary authority, but for those who have not a suggested text for a fax or letter to their principals is attached (Schedule A). In the event that no reply is received the agent should continue to send reminders to his principal until such time as one is received.
2. Several claims have arisen from the failure of a party (other than a Bank) issuing a letter of indemnity or guarantee to honour its undertaking when required to do so. An agent who has his principal's authority to accept such guarantees should face no liability in these circumstances, whilst an agent who has no relevant authority should simply decline to accept them.
   Even where authority has been obtained the agent should ensure that the terms of the indemnity are observed within a reasonable period and that the original bill(s) are submitted by the guarantor.
3. No faxed indemnity should be accepted by an agent, unless he has his principal's specific authority to do so.
4. Claims have arisen both from deliberate decisions by Members e.g. acceptance of a letter of indemnity and from the Member's negligence e.g. failure to note that a bill of lading is stamped "copy". The Club's cover in these circumstances is intended to indemnify the Member only in respect of liabilities arising from his negligence.
5. Rule 3 (6) (a) states that:-
   "Unless the Directors otherwise decide, insurance under this Rule is subject to the Member satisfying the Directors that the liability did not arise from a failure by the Member to take reasonable steps to establish proper systems and controls and to exercise appropriate supervision."
6. The Directors consider that observation of the guidelines previously circulated and referred to in this circular, and the advice contained herein, would enable a Member to satisfy the requirements of this Rule. Failure to do so may prejudice the Member's cover under the Rules.

Schedule A

Suggested text of a letter or fax to be sent to a principal:-

"Dear Sirs,
The recognised procedures for delivery of cargo carried on your ships require that, in the majority of cases, we obtain a signed, original Bill of Lading before releasing the cargo covered by that document.

Cargo receivers will on occasions request us to release their cargo without the submission of an original Bill, in exchange for their own indemnity or one counter-signed or issued by a bank.

We are not, of course, a party to the contract of carriage and therefore consider that we should not exercise our own judgement on these occasions, but rather request your detailed instruction in advance as to how we should respond to cargo receivers. Alternatively, we should be pleased to refer all such requests to you for instruction as and when they are received.

We are anxious to ensure that we are acting only in accordance with your requirements and in your best interests, and would therefore be grateful for your response as soon as possible.

Yours faithfully,"

The Managers will always be pleased to provide additional copies of the guidelines and circulars.

A reduction in the exposure of Members to this type of claim must be in the best interests of both Club and Member. The value of these claims is often very considerable and in some cases had exceeded the Member's limit of liability under his insurance with ITIC; thereby threatening the ability of the Member concerned to continue to trade. The majority of claims could have been avoided by the introduction and enforcement of appropriate systems and controls, and the Managers will always be pleased to advise any Member seeking to limit his exposure to such claims.

ITIM Co. Limited, Managers
International Transport Intermediaries Club Limited