CLAIMS REVIEW
SHIP AGENTS' EDITION
Issue No.6 August 1997
© 1997 International Transport Intermediaries Club
Ten Golden Rules
for the delivery of cargo
A recent analysis of claims has revealed that delivery of cargo without bills of lading
remains the largest single cause of claims against both liner and port agents. The Club's
brief guidelines are set out below followed by examples of common errors:
ALWAYS OBTAIN:
1. the original bill of lading;
2. the correct bill of lading;
OR,
3. a letter of indemnity, in which case:Delivery against an indemnity
4. has your principal given written authority to release and agreed the wording and
security?
5. has the cargo owner authorised release in writing?
6. is it counter-signed by a first class bank?
7. is it addressed to both you and your principal?
8. does it contain adequate financial and time limits?
9. do the goods itemised correspond exactly to those in the delivery order?
10. is it an original document? NOT A FAX OR A PHOTOCOPY.
RULE 1 - Bills of Lading
Always obtain the original b/l
An Irish liner agent delivered a container of woodpulp against an original bill of lading
which had been mailed to him. The bill of lading was consigned "to order" of the
shipper who had apparently endorsed and dated it on the reverse. The cargo was
released and it was only when the unpaid shipper in the United States enquired about its
whereabouts that the words "copy not negotiable" were found in identical typeface
amongst the typed description of the goods on the face of the bill of lading. The
consignee who had forged the shipper's endorsement subsequently went bankrupt. The
agent had to reimburse the amount paid to the US shipper by his principal.
A French port agent released two consignments of sawn timber covered by two
separate bills of lading. It subsequently transpired that he had been given one original
and one copy of the same bill of lading, instead of two different originals.
The shipper claimed US$ 150,000 from the shipowner, who in turn obtained
reimbursement from his agent.
Shippers or banks often send a photocopy of the original bill of lading with the
sale documents to the consignee. The fact that a consignee is in a position to fax
what is apparently an original bill of lading to the ship agent should therefore
never be taken as evidence that the consignee is in possession of an original bill of
lading.
RULE 2 - Bills of Lading
Always obtain the correct b/l
A liner agent in Denmark, having obtained an original bill of lading, authorised the
release of a container of computer parts to a consignee in Russia, without noticing that
the container held two different cargoes covered by two separate bills of lading.
Unfortunately the ship agent was subsequently unable to recover the misdelivered cargo
and had to reimburse the shipowner the amount which he had paid to the shipper.
A regular importer who had received a container of furniture every month for 25 years
presented two originals from the same set of bills of lading in exchange for the delivery
of two separate boxes. The importer was in financial difficulties and subsequently went
bankrupt. The Dutch agent had to reimburse his principal.
An English liner agent received the original ocean carrier's bill of lading, duly endorsed,
from a US NVOC with an instruction to only deliver a container of electrical goods
against the NVOC's bill of lading. An employee of the agent made an entry in the
computer simply recording the fact that the original ocean carrier's endorsed bill of
lading had been lodged. Another employee, relying on this entry, released the cargo.
The NVOC bill was left with the bank by the consignee. Care should be taken to
correctly enter any special instructions in a computer system.
The fact that many consignments are covered by two bills of lading, (the ocean
carrier's and another issued by an NVOC) can lead to confusion, especially where
the line's agent also acts as agent for the NVOC (as is often the case).
RULE 3
Delivery of cargo against an indemnity
One of the agent's options, when the original bill of lading is not available, is to deliver
against a letter of indemnity. The indemnity does not relieve the carrier of liability to
the cargo owner. It only provides for compensation for amounts which the carrier may
have to pay to the holder of the original bill of lading.
The agent should therefore also ask himself the questions set out in the
following Rules:
RULE 4 - Indemnity
Has your principal given written authority to release and agreed the wording
and security?
An agent in Indonesia obtained his principal's authority to accept an indemnity,
countersigned by a bank, for delivery of a cargo of timber without the original bill of
lading. Unfortunately the ship agent did not use the shipowner's recommended wording
and allowed the bank to use its own. The bank simply agreed to pass the original bill of
lading to the agent, once it came into the bank's possession. There was no undertaking
to indemnify any party for the consequences of delivering the cargo without the original
bill of lading and, as the original bill of lading never came into the possession of the bank,
it never had to honour its indemnity.
It is not only important that a ship agent obtain his principal's written authority
to release cargo without bills of lading; he should also agree the wording and the
security.
RULE 5 - Indemnity
Has the cargo owner authorised release in writing?
A Turkish liner agent was requested by the receiver of 12 containers of frozen meat
shipped from Denmark to deliver them without original bills of lading. The carrier's bills
of lading were consigned "to order" of the Danish shipper and the receiver produced a
fax from the shipper, confirming that he was the owner of the cargo and authorising
delivery without the original bills of lading. The fax bore the shipper's logo, a
transmission record on the top, and appeared to be signed by the same person who had
signed the invoices. In view of the perishable nature of the cargo and the contents of
the fax, the ship agent released the containers to the receiver in exchange for his
personal letter of indemnity. The receiver subsequently failed to pay for the meat and
the fax was found to have been forged by a former employee of the Danish shipper.
The carrier was liable for the shipper's loss and in turn claimed US$ 400,000 from his
agent.
The agent should have checked with both his principal and the shipper to ensure
that the former agreed to the release without the original bills of lading and that
the latter had in fact sent the fax to the receiver.
An English port agent was appointed by the charterer's general agent, who instructed
him to release 500 metric tonnes of steel without production of the original bill of
lading. Subsequently the shipper of the steel arrested the ship and commenced
proceedings against the shipowner, who then joined in the ship agent as a third party. It
transpired that the charterer, who was also the receiver of the steel, had on-sold it to
the ultimate consignee without paying the shipper and without retrieving the original bill
of lading. The charterer went into liquidation. The shipowner paid US$ 95,000 in
settlement of the shipper's claim and commenced proceedings against the port agent.
As the port agent had been acting both for the shipowner and the charterer, he had
failed in his duty of care to the owner in releasing the cargo without the original bills of
lading on the instructions of the charterer's general agent. The port agent reimbursed
the shipowner.
Was the charterer's general agent also to blame? The answer is "NO", as he had
no duty of care to the shipowner and had not released the cargo. It was the duty
of the port agent to act in the shipowner's interest, and he failed to do so.
"It is perfectly clear
law that a shipowner
who delivers without
production of the bill of
lading does so at his
peril."
Lord Denning
RULE 6 - Indemnity
Is it counter-signed by a first class bank?
A shipowner sought to recover from his agent who had released cargo against
indemnities countersigned by the failed BCCI bank. The agent had authority to accept
indemnities countersigned by first class banks. The owner alleged that the ship agent
had failed in his duty of care, in that BCCI was not a first class bank. It was only when
the Club pointed out to the owner that his own account had been with BCCI that the
claim was withdrawn.
An agent in the Arabian Gulf received instructions from his principal to deliver 77 crates
of plywood to a company who was not the consignee named on the bill of lading.
Unfortunately, despite the instruction, the agent delivered to the named consignee
against an indemnity counter-signed by a local bank. The second receiver, who was in
possession of the original bill of lading, sued the agent in the local courts. The bank
refused to honour its indemnity and had to be joined into the proceedings as a third
party. The court, after proceedings which lasted nine years, ordered the bank to pay
the value of the goods to the second receiver but did not award the agent his costs,
which amounted to US$ 120,000.
The Club has seen several forged bank indemnities, and recommends to its
Members that if they receive a bank indemnity, they should consider taking the
precaution of telephoning the issuing bank to ensure that it had issued that
particular indemnity. Delivering millions of dollars worth of cargo on the strength
of a rubber stamp alone is not advisable.
RULE 7 - Indemnity
Is it addressed to both you and your principal?
One of the Club's Members was recently presented with a perfectly worded letter of
indemnity counter-signed by a first class bank, addressed to "the master/owner/
charterer". The Member referred the wording to the Club who pointed out that, as the
Member's principal was an NVOC, the letter was useless in that it did not protect the
interests of the Member's principal nor the Member himself. The letter was therefore
returned to the bank for amendment.
The Club also recently sighted a letter of indemnity which was only addressed to a subagent and did not cover the owner or the charterer or the head agent. When the ship
was arrested by the shippers in Rotterdam, the bank in the Far East refused to honour
its indemnity as the party who it had agreed to indemnify had not been named in the
proceedings.
Agents must always ensure that letters of indemnity cover all parties who may
seek to rely on them.
RULE 8 - Indemnity
Does it contain adequate financial and time limits?
Agents should always be careful to ensure that the letter of indemnity covers all claims
and costs which could be incurred. There is little point in obtaining a letter of
indemnity for the invoice value of the goods, if a dispute takes five years to litigate. The
amount of the claim will then have doubled as a result of interest and costs. Agents
should always allow for the worst possible scenario when establishing financial
limits.
Care should be taken not to accept indemnities which are only valid for a period of, say,
twelve months. Court cases are unlikely to be resolved within twelve months and the
indemnity could become worthless.
The general rule under English law is to obtain a letter of indemnity valid for
seven years; the six year statutory period, plus the additional year which is
allowed for the serving of a writ.
RULE 9 - Indemnity
Do the goods itemised correspond exactly to those in the delivery order?
A liner agent in Hong Kong was asked to deliver a consignment of frozen chickens
against a letter of indemnity counter-signed by a bank. The indemnity covered 112,000
kilos of frozen chickens with a value of US$ 100,000. The agent faxed the indemnity to
his principal, who confirmed that the cargo should be delivered. Unfortunately the
employee who prepared the delivery order failed to notice that the cargo covered by
the bill of lading was 224,000 kilos of frozen chickens, whereas the indemnity only
referred to 112,000 kilos. The shipper claimed US$ 100,000, the value of the
misdelivered chickens, from the principal who subsequently recovered from his agent.
RULE 10 - Indemnity
Is it an original document?
A liner agent in Spain delivered five containers of electrical goods on five different
occasions against faxed indemnities, which were apparently counter-signed by the
consignee's bank. It subsequently transpired that all the indemnities were forgeries and
the bank had no knowledge of any of them.
Although millions of consign- ments are delivered each year without incident, the
Club has seen an increase in attempts to obtain delivery of cargo using forged
documents. Agents should be extremely vigilant.
Members should note that a deliberate decision to deliver cargo without first
obtaining an original bill of lading may put them outside their Club cover.
IF IN DOUBT CHECK WITH THE CLUB.
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for more information contact:
Charlotte Kirk
at
International Transport
Intermediaries Club Ltd
International House
26 Creechurch Lane
London EC3A 5BA
United Kingdom
Tel: + 44 171 338 0150
Fax: + 44 171 338 0151
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