ICC Digital Library Forum

Hi there,

Bill of lading clauses again!

Have come across, yet another “variation” to this theme.

I have a credit requiring a “standard article 23 B/L”.

At document presentation, the carrier has inserted the following clause into the document:

QUOTE

"The carrier will require surrender of the original Bill of Lading for the release of the cargo.

If all three original Bills of Lading were to disappear the carrier will accept to release the goods against Letter of Indemnity issued either by the supplier or the consignee"

UNQUOTE

I have seen another one, slightly different – allowing the carrier to release against a “Shipping Guarantee” – and no mentioning of the originals being lost – or who should issue the guarantee for that matter.

How would you react to such a clause? Refuse or accept?

I thank you in advance

Kim

[edited 3/8/2005 11:06:09 AM]

Kim,

Personal views, without liability / responsibility:

Given the time, since it was first raised, I have had to ‘mull over’ the subject (particularly in preparing my DCI article) and to listen to various opinions, I have no doubt the more defensible course of action is to take the view that these are terms and conditions of carriage and therefore per sub-Article 23(a)(v) a banker is not entitled to take them into consideration in determining the facial compliance of documents. I certainly would now feel happier fighting a court action where I had taken up such bills of lading rather then one where I had refused them.

No doubt those that seek to defend what they see as the interests of the applicant or beneficiary will have a different perspective.

Jeremy

I agree with Jeremy's response in relation to checking the B/L. As regards the clause itself it appears pretty harmless as the carrier is not attempting to deny liability for releasing cargo without b/l's (which is why he requires an indemnity).

Phil Gauntlett (back on the chain gang)

Dear Jeremy and Phil,

Thanks for your comments. Much appreciated.

Phil: “Harmless” (?) I am not sure that I agree. With Douglas Adams in the back of my head, I would perhaps call it “mostly harmless”
I see a clear difference in the liability from the point of view of the carrier. So they may not be trying to deny liability – but they are sure trying to reduce it.
So the case a holder of B/L would have against the shipping line who have released against a guarantee – without the original – would be “weaker”.

So the question is – as I see it – how to evaluate this in regards to the credit. I see your point Jeremy, but I sure do not like this one. Especially in the light of the discussions regarding the B/L clauses allowing the carrier to release the goods without the original being surrendered.

Thanks again
Kim

Kim,

Whether or not you ‘like it’ should be neither here nor there when it comes to facial compliance.

To me, the discussions regarding the B/L clauses allowing the carrier to release the goods without the original being surrendered emphasised the importance of not straying beyond the UCP.

Phil,

Good to see you’re back.

Must get together for a Dame Edna.

Jeremy

Dear Jeremy,

I do of course agree with you! When I say that “I do not like it”, it is of course to say, that “facial compliance” in this specific case may not be the same from one bank to another. So the point in time where “I do not like it”, is when I have placed myself in the seat of the nominated bank, and would forward such a document to the issuing bank.
This bank may go one step further than not liking it. It may even refuse it! So what I am trying, is to evaluate how I would stand in that situation.

Best regards
Kim

And the good news is you'd stand in the shoes of Article 23!

Don't forget you also have to consider the 'wrongful dishonour' issue, even if you have not confirmed a credit, if -as nominated bank- you examine documents for compliance and refuse them incorrectly.

The question I would ask when seeing this clause is "What would be the difference in the B/L if the clause was not used ?"

My conclusion is that there is no difference, because it is standard practice that the original B/L is required for release of goods. In the absence of the originals, again it is standard practice that an indemnity is required by the carrier.
If I were in the carrier's shoes I would not accept an indemnity issued by the importer or exporter, but by a first class bank on their behalf, but that is not an issue for UCP and does not concern LC checkers.

Laurence

Dear Jeremy and Laurence,

Thanks.

Jeremy; I do not know if that will help me sleep better at night But thanks anyway!

Laurence; One thing is of course if this is a “case for UCP”; and I am – as indicated – in doubt about that.

I do not however, agree with you that there is no difference whether or not such a clause is inserted in the bill of lading. My transport law is a bit rusty, so perhaps someone can help me here, but as I see the case, it is like this:


THE “USUAL CASE”
B/L states that the goods will be release upon presentation of an original only:

If the shipping line releases the goods without the original, he will be breach of the contract of carriage – between him and the shipper:

* If by mistake, the goods are released without the original - and subsequently the holder of a duly endorsed original bill of lading claims the goods, the shipping line is fully liable, and must cover the entire loss caused by their actions.
(Any limitations mentioned in the B/L based on number of packages or weight will not apply)

* The fact that the release of goods is based on i.e. a Shipping Guarantee, does not change the above: they are still in breach of the contract, and will be fully liable, and must cover the entire loss caused by their actions.
They can however use the bank guarantee (or letter of indemnity) to seek recourse from the issuer of the guarantee. This is however a separate case.

From the view of the “B/L holder in due course” however, they are 100% protected - and will be indemnified, because the bank guarantee is outside the contract of carriage – and will have no bearing on their claim against the shipping line.

THE B/L GUARANTEE CASE
B/L states that goods will be released against an original OR a Letter of Indemnity / Bank Guarantee:

If the guarantee is "build into" the B/L, it becomes an integrated part of the contract of carriage. Therefore if the goods have been released to the “wrong” receiver against i.e. a Shipping Guarantee, then the holder of the B/L, will have no (or a weaker) case against the shipping line – provided of course they have acted according to the contract of carriage, and in good faith. This is because release against a Shipping Guarantee is mentioned as a possibility in the B/L, and therefore should be expected.
This will - in other words - remove liability from the carrier, and damage a case for a holder in due course.

B/L LOST / NOT LOST
Then it is mentioned (in this specific clause), that this is to be used once the full set is lost in transit. One many however ask: When do you know that it is "lost"?
In cases where negotiable documents are “lost”, you can not just say that “it is lost”. In i.e. the Nordic jurisdictions this must to be established via official channels. In Denmark (just as an example), it should be "announced" in "Statstidende" that unless someone comes forth with the documents before a given date, the documents will be deemed "lost". There after an official "mortification" must be effected.


So I see a clear difference from the view of the shipping line – as well as for the holder of the original B/L.

Best regards
Kim

Kim,

The LOI effectively covers the carrier against releasing to the wrong party as he will be unaware who the holder of the b/l is at the time. I can't read that clause as an attempt to deny liability, otherwise what is the point in them taking an indemnity?

A bit off topic, but it is common in charter party agreements for there to be a clause stating that the Master can accept an LOI in order to discharge the goods (in oil transactions almost all cargoes are discharged against an LOI as the b/l's are never available at the disport due to the chain of several buyers and sellers)

Phil