Issuance of Bills of Lading

Having become concerned at the increase in the number of claims that it had received as a result of the incorrect issuance of bills of lading, the Club issued two circulars in 1996; one relating to the problems that may arise when issuing “received for shipment” bills of lading and the other on different types of bill of lading fraud. In the light of continuing claims being presented these are repeated below:-

Issuance of “Received for Shipment” Bills of Lading

In many countries, ship agents are asked to release “received for shipment” bills of lading to shippers. These bills of lading are used both as a receipt for the goods and for financing purposes. This practice can give rise to problems for the agent and his principal and the purpose of this circular is to identify some of them.

Assuming the carrier’s responsibility for the goods commences at ship’s tackle, the issuance of a “received for shipment” bill of lading by the carrier’s agent could mean that the carrier becomes involved in claims for pre-shipment loss or damage, or for delay in shipment, which he would have otherwise avoided. In some countries, problems arise where the shipper fraudulently puts his own “shipped on board” stamp on a “received for shipment” bill of lading previously issued by the agent. Although, once it is proved that the shipper has indeed fraudulently affixed the stamp, any claims can be defended, this will not prevent aggrieved consignees from suing the carrier.

The practice is also the custom of the trade in many countries and a refusal to comply with a request for “received for shipment” bills of lading could mean that the carrier would lose business. However, the agent should always obtain his principal’s authority before issuing such bills of lading; otherwise when the principal becomes embroiled in disputes with shippers or consignees he may look to his agent for reimbursement.

By far the most potentially dangerous practice is the issuance of a second set of “shipped on board” bills of lading, before the “received for shipment” bills of lading have been retrieved. The banks, having provided finance on the strength of the “received for shipment” bills of lading, are not willing to hand them back to the shipper until they have received negotiable “shipped on board” bills of lading in exchange. The ship agent may therefore find himself in the position of having two sets of original bills of lading in circulation for the same cargo. This practice gave rise to a case where shippers, who were in financial difficulties, used both sets of bills of lading to obtain credit from banks. When the shippers absconded, the banks looked to the agent for recovery and threatened to arrest his principal’s ships unless the agent reimbursed them.

In an even worse case an agent had got into the habit of issuing “received for shipment” bills of lading before the cargo was received. The bills of lading were used for “pre-financing”, but again there came a time when the shipper encountered severe financial difficulty, used the bills of lading to obtain “pre-financing” and declared bankruptcy without ever purchasing the goods. Again the ship agent was obliged to pay the bank.

In both these situations the shippers involved were substantial companies who had been shipping with the lines in question for many years. In both it had also become “custom of the port” for a ship agent to issue two sets of bills of lading for the same cargo. The majority of ship agents will already have systems and controls in place designed to avoid the problems described. However, observance of the following rules will further assist:-

Do not issue “received for shipment” bills of lading:

• without the carrier’s authority;
• before the cargo is received.

Do not issue “shipped on board” bills of lading:

• without first retrieving any “received for shipment” bills of lading.

Bill of Lading Fraud

Some years ago the Club included an article on the dangers attached to “pre-dating and clausing” of bills of lading in its newsletter, “The Intermediary”. Recent events have suggested that a further warning to Members on the perils of issuing bills of lading which contain incorrect information is timely.

Why does a shipper ask for a bill of lading containing incorrect information?

In most cases he will be paid by means of a letter of credit, and unless the bill of lading complies with its terms exactly, he will not be paid. The shipper, the carrier and the agent all know, or would be assumed to know, that in the vast majority of cases the bill of lading will be used to negotiate payment.

The most frequent requests from shippers are for the issuance of a bill of lading:

mis-dating confirming loading on a date prior to, or subsequent to, the date on which the cargo was loaded. Pre-dating a bill of lading only two or three days earlier than the cargo was actually loaded on the ship is fraudulent;

incorrect description of cargo

bearing an incorrect description of the quality, quantity or condition of the cargo. The most frequent misdescription of cargo is “clean on board” in respect of cargo which is known to have been damaged in some way;

“shipped on board” claused “shipped on board” before the cargo is loaded. In some cases before the ship arrives at the port or even in the knowledge that the cargo has been shut out from the voyage in question;

under deck bills of lading for breakbulk cargo shipped on deck claused “shipped under deck” (or bearing no reference to shipment on deck) for cargo which is known to have been loaded on deck;

incorrect port of shipment

showing an incorrect port of shipment, in order to defeat boycotts by concealing the port of origin. Bills of lading are often “switched” at intermediate ports to disguise the origin of cargo to take advantage of the intermediate country’s import quotas into, for example, the EU.

The Club has seen many other types of bill of lading fraud and has listed only the most common forms. An agent may feel that he is not personally guilty of fraud because he is simply following his principal’s instructions. This has little effect on the legal position; if an agent knowingly misrepresents the status of cargo he is equally guilty with his principal of fraudulently inducing an innocent third party to pay for goods which are not in accordance with the bill of lading.

A case heard in England in 1995 (Standard Chartered Bank -v-Pakistan National Shipping Corporation) illustrates the problems which may arise where an agent signs a false bill of lading knowing it to be false. Here the defendants knew that the date of loading was incorrect and were held liable for deceit. However, the condition of the goods and port of shipment were equally important items which must not be misrepresented. The agent may feel that he has secured his position by obtaining a letter of indemnity either from his principal or from the shipper. Such an indemnity is a worthless document in that it has been issued to support a fraud; it is therefore illegal and void and cannot be enforced in a court of law.

The agent should be aware of the fact that his principal is probably uninsured for the consequences of the issuance of a fraudulent bill of lading by his agent and, that the fraud will possibly have deprived his principal of the limitations incorporated in the bill of lading.

Although fraud by employees is covered by the Club under Rule 2 (b), fraud which is intended to confer benefit on the Member is excluded. A deliberate risk taken by the agent as a favour to his principal, or to a regular shipper, would almost certainly be regarded as being “for the benefit of the Member”. The Club has seen claims totalling millions of dollars resulting from the issuance of fraudulent bills of lading. Agents come under considerable pressure from principals and shippers, but must always realise that their duty does not include an obligation to knowingly participate in a fraud.

If any further information is required, please contact the Club. The contents of this article should be brought to the attention of all members of staff who are involved in the issuance of bills of lading.