As Skuld Club often receives queries from operators, requesting to switch bills of lading, it notes that although the practice is widespread, there is much confusion with regarding whether owners can comply with such request, how new bills should be issued, and whether P&I cover is at risk.
The normal practice with bills of lading is that a it will be signed by or on behalf of the master and issued to the shipper, when a cargo has been loaded on board the ship. Then the shipper will transfer the bill to the consignee, who at discharge port will show the same bill to the carrier and claim delivery of the cargo.
[smlsubform prepend=”GET THE SAFETY4SEA IN YOUR INBOX!” showname=false emailtxt=”” emailholder=”Enter your email address” showsubmit=true submittxt=”Submit” jsthanks=false thankyou=”Thank you for subscribing to our mailing list”]
By switching bills of lading, the result is that the bill of lading which is presented at the discharge port is not the same as the bill which was issued at the loading port. This should cause various concerns for a prudent owner.
The risk of misdelivering the cargo, according to Kristian Valevatn, AVP, Lawyer, Head of Claims Skuld Bergen, is that the most common reason why owners are warned against agreeing to switch bill requests.
Namely, if new bills are issued before the original set is cancelled and returned, there will be numerous bills of lading circulating covering the same cargo.
This is a horrible situation for an owner to be in. If a dishonest shipper has sold the goods twice over, two different consignees may be waving a bill of lading at the quayside claiming delivery of the same cargo, and the carrier may face a shortage claim equal to the full value of the cargo
Mr. Valevatn explains.
Such a risk can be addressed through the use of electronic bills of lading, as e-bills can be changed while the goods are in transit without the need for issuing new ones.
However, there may be perfectly legitimate reasons behind a request for switch bills of lading. For example, in case there has been a change in the consignee’s logistic plans so that the goods must be delivered at another port than first envisaged.
Nevertheless, other requests must cause the red light to flash for the owner. For instance, a request to issue new bills stating another port of loading than that which was the case is clearly aimed at concealing the true origin of the cargo.
In addition, operators should also beware requests to issue ante- or post-dated switch bills. These bills may be used by the requestor to draw on a Letter of Credit with certain parameters set for when a cargo should be shipped. This is a procedure which the courts treat as similar to fraud.
Regarding P&I cover, loss of cover is a possible ramification of not exercising due care when switching bills.
If bills recording incorrect information are issued, discretionary cover like cover for loss in respect of confiscation of the ship by reason of custom laws infringements will be unavailable.
This is because the member cannot be said to have taken all reasonable steps to prevent the infringement of the law or regulation
Skuld says.
Such risks however can be mitigated. As such, Skuld presents a list of precautions to limit the risks for an owner who some reason has agreed to switching bills:
- The requestor must explain the reason behind the request, and the owner should be satisfied that the purpose is legitimate. If in doubt, the request should be rejected;
- The requestor should showcase that it is the lawful holder of the complete set of the original bills. As bills are generally issued in sets of three, some of the bills may be in transit when the request is made and there will be a high risk of having multiple bills in circulation. All bills will invariably be transferred or endorsed at some point, and it must not be assumed that the shipper is always capable of asking for switch bills just because this was the party which the bill was once issued to;
- If the owner is satisfied that the requestor is the lawful holder of the full set of bills and that the request is not tainted by illegality, the requestor should present a draft of the new bill which it wants to be issued: The new bill must be on the same format and contain the same clauses as the original one. Details such as the cargo description, the loading and discharge ports and the weight/quantity of the cargo must be the same. Both the face and the reverse of the bill must be scrutinised for deviating facts or conditions. It is a common misapprehension that the original date of issue should be transferred to the new bill. This, however, would be a deliberate misstatement. Instead, it must be recorded on the face of the bill where and when the cargo was loaded, but the signature field should state the correct place and date of issuance of the new bill.
- The complete set of the original bills must be cancelled, and they must be returned to owners or to a party authorised by owners. Ideally, the owner should wait the courier’s delivery of the original bills before the new ones are issued.
- The requestor should issue a Letter of Indemnity to the owner where all risks and consequences of switching the bills are clearly assumed by the requestor, and the LOI should be co-signed by a bank of good standing.