Non presentation of bills of lading. The word “presentation” can relate to two concepts connected with bills of lading.
First, the master of a chartered ship may be required by the charterparty to sign bills of lading as presented by the charterers. He may also be required to authorise the charterer or the charterer’s agents to sign and issue the bills of lading on his behalf and therefore on behalf of the shipowner. The master is not bound to sign bills of lading in which the cargo is misrepresented or misdescribed. He is also justified in refusing to sign bills of lading, which do not conform to the charterparty. This aspect of “presentation” is not of concern here. However, it may briefly be stated that even though the bills of lading do not precisely conform to the charterparty he can sign them “as presented” (provided, of course that the cargo is actually loaded) and if there is any claim by a third party, for example, a cargo claimant, the shipowner may bring an action against the charterer for indemnity.
The second concept concerns the delivery of the goods carried under a contract of carriage evidenced by the bill of lading. The master can fulfill the shipowner’ s obligation to deliver the goods against the presentation of an indorsed original bill of lading. Only the possessor of this bill of lading is entitled to take delivery of the goods.
Liability can arise from the delivery of cargo without presentation or production of the relevant bill of lading or similar document of title. This is termed “misdelivery” and shipowner’s P and I Associations usually exclude the cover provided to their members for misdelivery (unless the Directors use their discretion to decide otherwise, that is, as provided in the “Omnibus rule” of many P. and I. Associations).
In many trades, charterers and receivers pressure the master of the ship to deliver the cargo without presentation of the bill of lading. This can be common in bulk trades and in the oil trades where journeys may be shorter than the time needed for movement of documents in the documentary credit system. During chartering negotiations, charterers may demand the inclusion of a clause such as:
“Should bills of lading not arrive at the discharging port in time then owners agree to release the entire cargo without presentation of the original bills of lading.”
Even in liner trades, the vessel’s passage between the loading port and the discharging port may be shorter than the time taken for the transaction and delivery of the documents, including the bills of lading. An alleged consignee or indorsee may approach the master or ship’s agent at the port of discharge and request the cargo, claiming that the bills of lading have not yet arrived but that he is entitled to the cargo.
P and I Associations advise their shipowner members that owing to the lack of protection from liability for misdelivery, the member should ensure that the cargo is not delivered without presentation of the original bill of lading. However, commercial pressures are recognised and the Associations advise their members that delivery may be made on presentation of a “letter of indemnity” (more correctly called “letter of guarantee”). The guarantee should be from a first class bank and should cover between 150 and 200 per cent of the CIF value and an unlimited amount. The reason for this high guarantee is that misdelivery can result in the shipowner’s liability to a holder of an original bill of lading being greatly in excess of the invoice value of the goods. It is commercially up likely that a bank would give a guarantee of an unlimited amount. What is a greater problem, however, is that for a receiver to obtain such a guarantee, it would come at some cost and after formalities are completed. Receivers may be unable or unwilling to incur such costs. Therefore they may provide a so called letter of indemnity guaranteed either by themselves or by some persons unacceptable by the ship owner or master on the owner’s behalf.
In any case, this practice cannot be imposed on the master or the shipowner who may still demand the presentation of the original bill of lading before authorising the discharge of the goods.
Not only do P. and I. Associations but also BIMCO warn their members about giving in to pressure to deliver cargo without presentation of the original bill of lading. In BIMCO’s case, it was recognised early that so called “letters of indemnity” may not be the protection they were claimed to be. For example, in 1986, in an article containing a warning not to deliver cargo without surrender of original bills of lading, BIMCO stated:
“Another dangerous ‘solution’ is that of proposal of a ‘letter of indemnity’ by the party claiming delivery. The concept of letter of indemnity sounds familiar and reassuring. The reality is different. Someone else may turn up with the original bill of lading and the ‘giver’ of the letter may be unable or unwilling to indemnify owners for all losses arising out of delivery of valuable cargo to the wrong party … The existence of satisfactory guarantees is not excluded. Whenever a proposal for a bank guarantee is made, owners are strongly recommended to consult their P. and I. Club. Legal experts from the Club will be able to advise whether the proposed guarantee is indeed satisfactory, or whether it must be formulated differently.”
This question of delivering cargo without presentation of the original bill of lading has concerned arbitrators and judges for a long time. The question of “bank guarantees” has also created problems and can cause the charterer of’ the ship to become liable for demurrage or damages for detention. For example, in one French arbitration in December 1988, the charterers had refused to submit a bank guarantee in order to obtain immediate delivery. They. presented the original bill of lading two days after the master’s notice of readiness to discharge. They were liable for demurrage. (Reported in BIMCO Bulletin 6/89.)
In The Siam Venture, 1987, an English court had to decide whether the ship-owner acted reasonably in refusing to deliver the cargo without presentation of the relevant bill of lading or a first class bank guarantee. It was held that the shipowners were entitled to recover demurrage from the charterers for delay during which the master refused to discharge the cargo. The refusal of the master and owner to deliver the cargo was reasonable for the following reasons:
(a) the ship would lose its P. and I. cover for misdelivery;
(b) misdelivery could cause the ship to be arrested by the holder of a good bill of lading; the P. and I. Club would not post security because of the loss of cover;
(c) the cargo covered by the bill of lading was worth a large sum of money, more than US$ 1 million. The judge said:
“If the guarantor had defaulted or even delayed in meeting his obligation the (ownets) would have had to find a substantial sum of money. In the event that they had to bring an action against the guarantor there might have been several years delay in recovering that sum. Companies which appear to be financially sound at one moment may be in financial difficulties shortly thereafter.”
If the ship was arrested and the P. and I. Club did not give security for its release, the judge continued
“…. the shipowners might have been able to secure the release of the ship if they had a bank guarantee which could have been assigned. The guarantee of someone other than a bank would not have been adequate.”
The guarantees being offered were only the charterers’ personal guarantee! indemnity and the receivers’ offer of cheques to the value of the goods, neither of which was acceptable to the shipowners.