Article

by T.O. Lee

A couple of years ago, Maersk Line added a new delivery clause in its bills of lading to give the carrier an option to release cargo to a consignee without production of an original bill of lading. This new clause created heated arguments amongst bankers, traders and scholars and was the subject of various articles in DCInsight. On 19 September 2007, ICC Denmark sent a query to the ICC Banking Commission for an Opinion on the clause. Ultimately, the issue was brought to the attention of three ICC Commissions (Commissions on Banking, on Transport & Logistics, and on Commercial Law & Practice) for review. For quite some time, no consensus decision could be reached.

Finally, on 3 June 2008, the ICC Commission on Commercial Law & Practice (CLP) provided its Opinion on the issue in ICC Document 460/623. The key points of the Opinion are:

1. The new delivery clause may be affected by the nature of the bill of lading as it is used in transferability, other terms and conditions of carriage, the applicable law and the related charter party, if any.

2. An opinion on negotiable bill of lading would be unhelpful, because this would involve document checkers in a complex assessment of terms and conditions of carriage.

3. The new delivery clause is part of the terms and conditions of carriage, which bankers are not required to examine, according to UCP 600 sub-article 20(a)(v).

4. UCP 600 makes no reference to documents of title and negotiability, and credits should be payment instruments with predictability.

All of these opinions boil down to one sentence - the new delivery clause need not be examined for compliance in letter of credit operations. In other words, it is acceptable under UCP 600.

Too narrow

Although in principle there is nothing wrong with these opinions, they are too academic, made solely from a narrow UCP perspective, without considering the key functions of the bill of lading in international trade and the impact of these opinions on traders, financiers and commodity brokers.

Let us deal with these issues one by one. A bill of lading has three important functions:

1. Acknowledgement of receipt of goods by the carrier

The landmark English cases illustrating this function are: Smith & Co. v. Bedouin Steam Navigation Co. Ltd. [1896] A.C. 70 and Gosse Millerd Ltd. v. Canadian Government Merchant Marine Ltd. [1928] All E.R. Rep. 97.

2. Prima facie evidence that there is a contract of carriage amongst the parties

Landmark English cases illustrating this are: The "Ardennes" (Cargo Owner) v. the "Ardennes" (Shipowners) [1950]2 All E.R. 517 and Pyrene Co. Ltd. v. Scindia Steam Navigation Co. Ltd. [1954] 2 All E. R. 158.

3. A quasi-negotiable document of title

Landmark English cases illustrating this are: E. Clemens Horst Co. v. Biddell Brothers [1912] A.C. 18 and Sanders Brothers v. Maclean & Co. [1883] 11 Q.B.D. 327.

In the English case, The "Stettin" [1889] 14 P.D. 142, Butt J. stated on page 147: "According to English law and the English mode of conducting business, a shipowner is not entitled to deliver goods to the consignee without the production of the bill of lading. I hold that the shipowner must take the consequences of having delivered these goods to the consignee without the production of either of the two parts of which the bill of lading consisted."

My view is that the new delivery clause incorporated in a bill of lading would nullify the judicial decision of the Stettin case, and the shipowner would therefore be free from liability. It follows that if the clause is accepted in credit operations, the third function of the bill of lading could not be applied in international trade, and this would create difficulties for financiers, importers and commodity brokers.

Impact on financiers

If cargo can be released to the consignee without production of an original bill of lading, then the bill of lading could not be used as collateral for the loan extended by a financier. The result could be that an importer might not be able to obtain financing as easily as before. This would seriously retard international trade. The use of credits would be reduced, as bankers are not willing to provide import financing without acceptable collateral.

Another concern for the financier is that fraudsters may be motivated due to the ease of obtaining the goods without production of any original bill of lading.

Impact on importers

If the CLP Commission's position were to be implemented in practice, importers would not certain whether, after paying for the cost of the goods, they would definitely receive the goods from the carrier, which may have released them to the wrong party or even to a fraudster. In China, India, Pakistan, Sri Lanka, Bangladesh and other developing countries where power to import may be restricted to authorized agents, occasionally goods might be released to a third party (not necessarily the authorized importing agent named in the credit) who had a good relationship with the import control authorities and the carrier, without production of an original B/L and without payment under the credit. Even worse, under the clause, the carrier would not be responsible for wrong delivery if it had exercised reasonable care in identifying the claiming party. As a result, credits might not be welcomed by importers as a safe payment tool.

Impact on commodity brokers

Commodity brokers earn their living by "speculating" on price fluctuations of commodities, such as crude oil, sugar, coffee, cement and chemicals. Whilst a cargo ship is still crossing the ocean, the B/L should have already been endorsed from one broker to another many times, and by the time the goods arrive at the port of discharge, the seller might not know to whom the goods have actually been sold. If the new delivery clause is accepted in ordinary bill of lading in credit operations, I can anticipate that some shrewd shipowners could employ it in their charter party bills of lading (CPBL). Some already have done this, even without adding the new clause in their CPBLs. Here is an example. In the case of Total Energy Asia Ltd. v. Standard Chartered Bank, Hong Kong HCCL 68/2002 [Hong Kong], I, as an expert witness, was told that the shipowners had released the commodity, steam coal, to the applicant in India without production of an original CPBL, leaving the credit unpaid. Meanwhile, the name of the shipowners had been changed, making it impossible for the beneficiary to arrest the ship as an effective way to avoid having to bring credit payment disputes to court.

If the carrier or shipowner is allowed to exercise its option to release the goods to the claimed party without production of an original CPBL, few intermediate brokers would be confident enough to take up the endorsed CPBL, as they would not be sure whether they could obtain the goods on arrival. The present trade practice of commodity brokers would be seriously affected, and transfer of title by endorsement in the CPBL might become inoperable.

In short, my view is that if bankers do not examine the new delivery clause for compliance, this would seriously impact international trade practices.

Superficial

In fact, Opinions 1 and 2 by the CLP are superficial and have not taken into consideration of the whole trading picture. First, all document checkers should know the three functions of a bill of lading, which have been incorporated in the workbook of the CDCS examination. It is simple common sense that a stipulated document, including a bill of lading, should fulfil the function of that document, even though in ISBP 681 paragraph 41 and UCP 600 sub-article 14 (f ), the scope of "function" is restricted only to certain specific documents. Consequently, a document checker must check whether the presented bill of lading, however named, really fulfils the three functions of a bill of lading, including being a quasi-negotiable document of title, although this is not expressly stated in the transport articles of UCP 600.

In fact, the issue concerning the new delivery clause is quite simple and straightforward. The real question facing a document checker is whether a bill of lading bearing the clause is acceptable. The CLP Commission need not make it more complicated by bringing in other issues, such as negotiability, consistency with other terms and conditions of carriage, the applicable law and the terms of the related charter party, if any. These are of no concern to document checkers.

I am aware that for a straight (not consigned to order) bill of lading the carrier may be delivered against the identity of the consignee without production of an original in the US and Hong Kong, whilst in England and Singapore delivery must be against an original. This inconsistency among legal provisions does not concern the document checker, as he is protected by article 34 of UCP 600 on questions having legal consequences.

The simple solution

This problem is not as complicated as scholars think it is. Those parties that reject the new delivery clause can simply specify in their credits that the clause, however worded, is not acceptable. The terms and conditions of a credit would override the UCP 600 provisions as well as Opinions or Decisions of ICC Commissions.

Those who allow the carrier to release the goods without production of an original transport document should call for sea waybills in their credits instead to avoid misinterpretation or disputes. The sea waybill performs the same function of a bill of lading except that it is not a quasi-negotiable document of title. Hence, delivery can be made by checking the identity of the claiming party with reasonable care, and the carrier will have no further responsibility. The goods would be deemed to be duly delivered according to the terms and conditions of carriage.

T.O. Lee is a Fellow of the Academy of Experts (L/C) UK, a columnist in Lloyd's "Maritime Asia/ Intermodal Asia" magazine and a member of the UN International Multimodal Transport Association in Geneva. Further information is available at www.tolee.com. His e-mail is experts@tolee.com