Section 4 Liabilities for delivery of cargo

4.4.1 General

Even if the carrier has fulfilled his obligations to care for the physical well-being of the goods under Sections 1 and 2 of this Rule and to describe it properly in the bill of lading under Section 3, the purpose of the transport would still not be fulfilled if he then released the cargo to somebody who was not entitled to receive it. Failure to observe regulations regarding proper delivery of the goods may render the carrier liable for the full value of the cargo and more. The cover, such as it is, for such liability is described in this section.

4.4.2 Delivery against original bill of lading Requirements for delivery

The basic rule for delivery under a bill of lading or other similar negotiable document is that delivery should be made to the first party who turns up at the port of destination in possession of and presenting an original bill of lading, which is either issued in the party’s name as receiver or contains an unbroken chain of endorsements in the party’s favour.

The credentials of the bill of lading holder should be checked before delivery. If the result leaves doubt in the carrier’s mind or if there are other circumstances indicating that the receiver’s title to the goods is questionable, the cargo should be withheld pending further investigation such as presentation of all original bills of lading. If this request cannot be met, the carrier should let the appropriate court decide to whom the cargo should be released. Any such complications should be reported to the Club at an early stage to obtain advice and legal assistance. No delivery against copies

Attempts have been made to introduce a system where cargo should be released against photocopies of the original bill of lading. To gain some semblance of validity, such copies have been labelled “First Original Specimen” or similar. Whatever it is called, it remains a copy against which no delivery should ever be made. Release of cargo against a copy bill of lading is the equivalent of delivery of cargo without presentation of a bill of lading for which there is no cover under these Rules. See comments under 4.4.5. No more than one set of original bills of lading

The carrier should, under no circumstances, allow more than one set of original bills of lading for each consignment to be issued. There may be bona fide requests for the replacement of a set of bills of lading once issued. The new set should then replace the previous set through a direct exchange of new for old. When returned, the old set should be destroyed or otherwise invalidated. It is recommended that Members contact the Club for advice in such situations. Original bill of lading travelling with the ship

The carrier is sometimes asked by shippers to carry one of the original bills of lading in the ship’s mail to be delivered to the ship agents at the port of discharge. The idea is that the agents have it signed by the receiver in such a way that delivery can be made against that original. There is a danger, however, that the other originals have been acquired by other parties or are in the hands of the bank arranging the letter of credit. If the letter of credit is not honoured by the receiver because of insolvency or commercial disputes among the parties, the bank may not be compensated for the purchase price advanced to the shipper. Normally the bank would be able to control the situation by having all original bills of lading in its possession. If the cargo has been released against an original bill of lading carried on the ship, the bank’s credit is unsecured. It will no doubt explore a way to get compensation from the carrier by questioning the legality of the procedure under which delivery was effected. Accordingly, the Group Clubs warn against this practice. If Members still have to comply with such a request, the bill of lading issued should be clearly claused as follows:

“One original Bill of Lading retained on board against which Bill delivery of cargo may properly be made on instructions received from shipper/Charterers”.

This would act as a warning to anybody considering acquiring the remaining bills of lading or providing any credit for the sale. It is still recommended that Members request a letter of indemnity from receivers/Charterers and strictly follow all instructions given by the shippers and check who the proper receiver is and ask why none of the remaining bills of lading has been presented. For liabilities arising from delivery against a bill of lading travelling with the ship, the Club will consider whether, under the circumstances of the case, it qualifies for cover under this section. If not, it only remains for the Member to apply for compensation under Rule 19, the Omnibus Rule. Change of destination

The obligation of the carrier to request the presentation of one of the original bills of lading is in respect of delivery at the port of destination mentioned in the bill of lading. To comply with a request from the cargo owner to take delivery at any other port, the carrier must insist on presentation and surrender of the full set of all the originals. Delivery at a port not specified in the bill of lading against less than a full set is the equivalent of wrongful delivery of the cargo at an uncontractual port (or delivery at a contractual port without presentation of an original bill of lading). Such liability is excluded from cover by application of item (a) of this section and also by Rule 11 Section 2 (i). See comments under

If, in a charter situation, there is a request for a change of the destination for the cargo which is not in conformity to the discharge port named in the bills of lading which have already been issued, an Owner Member should make it a condition, before agreeing, that a letter of indemnity is issued by Charterers in return for compliance with the request on terms which covers the Member for the risk of a misdelivery claim (i.e. a claim for delivering the cargo at an uncontractual port).

Although a Member’s exposure to the risk of a misdelivery claim in those circumstances falls outside P&I Insurance, purely as a guide to assist the Member’s negotiations with the Charterer (or other party requesting the uncontractual discharge) the Group of clubs has produced an LOI wording for discharge at a port other than stated in the original bill of lading (see Provision exists for it also to be countersigned by a bank although it is rare for such a counter signature to be provided.

4.4.3 Blank bills of lading

Sometimes Masters are requested to sign blank bills of lading as part of an early departure procedure. Masters should refuse and immediately contact the Owner and the nearest Club correspondent for instructions and assistance.

4.4.4 False bills of lading

False bills of lading are used to commit maritime fraud. They can be either for a completely fictitious cargo or a consignment which already exists or existed and for which there is or was a genuine set of bills of lading in circulation.

The possibility of a successful defence against a claim from the holder of a bill of lading of the first type, is good in most jurisdictions. A deceived receiver will, however, have the sympathy of a local court, especially if the generation of the false bill of lading can be traced back to the carrier’s organisation. Members should consider whether they need to tighten access to information, bill of lading forms, stamps, signatures etc. which could be used to generate a false bill of lading.

The problem is obviously much more serious if delivery of a consignment is made against a false bill of lading before the rightful holder of the genuine bill of lading has collected his goods. It is difficult to predict the outcome of legal proceedings regarding the carrier’s liability. The carrier will most likely be asked to prove that he acted in good faith, that he prudently checked the authenticity of the document and its endorsements and that his servants did not participate in the generation and distribution of the false document.

If the carrier is held liable, it will probably be for at least the full market value of the consignment at the port of destination.

Depending on the details of each case, the Club will consider whether liability under a false bill of lading qualifies for cover under this clause. If not, it remains for the Member to apply for compensation under Rule 19, the Omnibus Rule.

4.4.5 Delivery of cargo without production of an original bill of lading General comments

Carriers of goods by sea often meet the demand of speedy transport but it is difficult to achieve an equally speedy processing of the shipping documents, which are often held up in the banking system, the mail or governmental export/import or exchange control. The laden vessel may arrive at the port of discharge before the documents which the receiver needs to present to the vessel to take delivery of the cargo.

In the above circumstances, the carrier may be requested to release the cargo without the production of an original bill of lading. Receivers may believe they are entitled to delivery of the cargo once it has arrived at the port of destination and that the presentation of an original bill of lading is a mere formality.

Receivers may refer to the “impossibility” of producing an original bill of lading. However, delay in the trade or banking system is no excuse. Today’s communication systems make it possible to process and send documents all over the world within 24 hours.

Electronic bills of lading may eventually make this problem a thing of the past. For further comments see 4.5.2. No cover for delivery without production of an original bill of lading

In the absence of a valid contractual agreement under the terms of the charterparty or Contract of Affreightment to the contrary, the carrier is not obliged to comply with a request to release the cargo until an original bill of lading for the cargo in question has been presented. As stated in this section, there is no cover for a carrier who gives in to a persuasive receiver and discharges the cargo without production of an original bill of lading. Members should refuse any request to release cargo without presentation of an original bill of lading unless (as mentioned above) they have a contractual obligation to do so under the governing charterparty (but that obligation still does not change the fact that the resulting risk of liability for a misdelivery claim falls outside P&I Insurance).

There is no cover under this section even if cargo has been released through no fault of the Member by ship agents acting against or beyond instructions. The only remedy open to the Member is to attempt a recovery from the agents. The agents may, however, be protected by the contract under which they operate or just have no assets to meet their obligations. If they have liability insurance cover it probably contains a limit on compensation. If the Member is entered for FD&D, the Club may be able to assist with any recovery action.

There is no cover even when the carrier is required to release the cargo and accept a bank guarantee where an original bill of lading is not available. Compensation can only be sought under Rule 19, the Omnibus Rule. Storage of cargo inaccessible to receiver

There are situations where the ship cannot be left lying idle indefinitely with the cargo on board waiting for a missing bill of lading. Members should investigate then whether it is possible to discharge the cargo to a customs bonded warehouse or similar where it could be stored, inaccessible to the receiver, until the bill of lading turns up. Such storage may be difficult to arrange for reefer or bulk cargoes. The Club’s local correspondent may be able to assist the ship agents to find a solution in such circumstances. Indemnities

If no other solution is available, the carrier may have to consider the possibility of accepting an indemnity in his favour. As the extent of liability risks are considerable and as those risks are excluded from cover, it is important that the indemnity is drafted and reinforced in such a way that the carrier is protected to the fullest extent.

On the understanding that the Member takes full responsibility for the decision to accept the indemnity, the Club is prepared to assist the Member in making suitable arrangements.

The Club should be consulted in good time and before discharge starts.

Although a Member’s exposure to the risk of a misdelivery claim resulting from discharge of the cargo without production of an original bill of lading falls outside P&I Insurance, purely as a guide to assist the Member’s negotiations with the Charterer (or other party making the request) the Group of clubs has produced an LOI wording for discharge of cargo without the production of an original bill of lading. Provision exists for it also to be countersigned by a bank although it is rare for such a counter signature to be provided.

It is up to the Member whether to accept a guarantee signed by the receiver or the Charterer only. If so, it has to be a receiver or a Charterer whose ability and willingness to honour his obligations is beyond doubt. It is always preferable to have the guarantee countersigned by a first class bank. However, the shipowners’ hands may already be tied by provisions already contained in the governing charterparty.

The amount of the guarantee should be open. If an open guarantee is unobtainable, the amount should not be less than twice the CIF value of the goods. The reason is that a court would consider the receiver’s claim to be based on a breach of contract which would probably make the carrier unconditionally liable for the loss (without the usual Hague Hague-Visby Rules limitations or exclusions of liability) and for indirect consequential damage (such as loss of profit). The carrier’s exposure may very well exceed the CIF value considerably.

The lifetime of the guarantee should not be restricted. Owners are often offered guarantees limited to 13 months from the date of issue. The suggestion is that such a guarantee would protect the carrier during the 12 months that he is open to claims under the Hague and Hague-Visby Rules (see comments under 4.1.10) and provide him an additional month’s time to file a recovery action under the guarantee. The Hague and Hague-Visby Rules time limit, however, may not be applicable to a claim for misdelivery. The most likely time limit to apply would be the 6-year limit under English or U.S. law, which would require the guarantee to be valid for at least that length of time and there should be provision for it to be extended beyond that period for at least the full duration of any legal proceedings brought against the Member for misdelivery of the cargo. Banks may not be willing to issue a guarantee without a specified duration/limit. Such restrictions do not apply to guarantees issued by Charterers or receivers. Charter situations

Ships on charter may be threatened to be declared off hire for delays caused by the Master refusing to start discharge pending the presentation of original bills of lading. Where the refusal to release the cargo is not caused by an unjustifiable act on the part of the Master but in compliance with his duty to protect both the Owner and the Charterer where an original bill of lading is unavailable, the Charterer is not entitled to declare the vessel off hire. The situation may be different if the Owner has agreed in the charterparty to release the cargo without presentation of original bills of lading in exchange for a guarantee or LOI. Owners are best advised not to accept clauses to that effect if they wish to avoid uninsured risks in relation to discharge of the cargo.

A situation where the Charterer’s routine for delivery of cargo may conflict with the Owner’s wish to obtain adequate security against uninsured risks occurs when a chartered ship is operated on a liner service. The release and delivery of the cargo is then arranged by the Charterer’s agents, often a considerable time after the discharging. Should the Charterer or his agent intentionally or negligently release the cargo without the production of an original bill of lading, the rightful cargo owner may attempt to arrest the ship and file his claim against its Owner. Even if there is no contract between the Owner and the receiver that has been breached, in some jurisdictions the Owner may still be held liable. When negotiating a fixture for liner services where such liability could materialise, it is recommended to include a clause in the charterparty to the effect that the Charterer agrees to release cargo only against presentation of an original bill of lading and that he assumes full responsibility in relation to the Member (including posting of security in case the Member’s property is attached) for any misdelivery claim resulting from breach of that obligation. Whether such a commitment in the charterparty should be reinforced by a guarantee or LOI issued by or on behalf of the Charterer, is a commercial decision for the Member in relation to the uninsured risk.

4.4.6 Misdelivery under non-negotiable freight documents

Whereas item (a) of this section deals with the situation of negotiable documents such as bills of lading, item (b) is in respect of non-negotiable documents such as non-negotiable or straight bills of lading and waybills. The meaning of non-negotiable is that the document and the rights that go with it cannot be transferred to a third party. The person has to identify himself as either the receiver named in the document or lawfully nominated by the shipper as the person to whom delivery should be made. If a Member incurs liability because cargo carried under a non-negotiable document is released to someone other than those two categories authorised to take delivery, such liability is excluded under item (b) of this section. Before agreeing to release the cargo to any person not authorised to receive it under a non-negotiable document, the carrier has to consider, at his own risk, whether to take the precaution of obtaining a guarantee as described above.

4.4.7 Production of non-negotiable document

Sub-paragraph (c) takes delivery under a non-negotiable bill of lading, waybill or similar document, one step further and requires production of the non-negotiable document if that is an express condition of the document itself.

The non-negotiable document constitutes an important part of modern trade and to demand presentation would limit the benefit of a fast and simple delivery of cargo. A decision in the House of Lords, The Rafaela S, has however changed this. The most significant implication of the decision is that a non-negotiable bill of lading is a document of title and needs to be presented unless it is clear from the document itself that production is not required. In addition to England, France and Holland have similar interpretations of non-negotiable documents.

Failure to deliver cargo against presentation of a non-negotiable bill of lading, waybill or similar document when required will jeopardize Club cover.