HOUSE BILLS OF LADING - MAKE SURE THEY ARE NOT MISLEADING
Freight forwarders that issue bills of lading (BOL) need to take extreme care to ensure that their house BOL is not misleading to third parties. BOLs by their nature are designed to be relied upon by third parties. Parties use BOLs as security for payment or to effectively pass title in goods. For these reasons, freight forwarders need to carefully consider what their documents say to third parties.
Australia Capital Financial Management Pty Ltd v Freight Solutions (Vic) Pty Ltd
In this case the NSW District Court had to consider the following facts:
· ACFM is a finance company that lent money to an Australian exporter to enable the purchase of goods for export to China.
· A term of the finance was that the exporter would provide the BOLs for the exported goods to ACFM. Without the original BOLs ACFM would not provide the finance.
· The exporter engaged Freight Solutions to arrange the shipment to China. Freight Solutions used third party carriers.
· Freight Solutions issued a BOL that named the exporter as the shipper, the consignee as "TO ORDER", were stamped as "ORIGINAL" and were not endorsed;
· On each BOL issued by Freight Solutions, it signed the document "as agent for" the nominated carrier;
· the exporter provided ACFM with only the Freight Solutions BOLs and ACFM provided finance on this basis;
· the master BOLs were provided to the exporter. However, the exporter did not provide these documents to ACFM;
· the exporter used the master BOLs to obtain the release of the goods in China;
· the exporter defaulted on its repayments and ACFM sought to use the Freight Solutions BOLs to obtain possession of the goods. It found that the goods had been released on presentation of the master BOLs without presentation of the house BOLs.
ACFM made two primary claims against Freight Solutions:
1. Misleading and deceptive conduct in representing that:
a. each Freight Solutions BOL was a negotiable instrument providing an entitlement to the holder to present the Freight Solutions BOL to obtain delivery of the goods;
b. in issuing "ORIGINAL" BOLs consigned "TO ORDER" each BOL could be held by a third party as security for payment of the goods or to secure finance;
2. it had no authority to execute the Freight Solutions BOLs on behalf of the relevant carriers.
Freight Solutions was found liable and ordered to pay ACFM $855,456 plus costs, being the amount ACFM lost by relying on the Freight Solutions BOLs.
The breach of authority claim was clear, Freight Solutions had no right to sign BOLs as agent for the carriers. In doing so, it purported to enter into a contract on behalf of the carrier and impliedly warranted to the world that it had authority to do so. ACFM was entitled to recover the losses it suffered by reason of relying on that warranty.
It was also found that Freight Solutions had engaged in misleading and deceptive conduct. It was found that the Freight Solutions BOLs were (a) not of a kind that entitled the bearer to demand delivery of the cargo, as Freight Solutions had no authority from the ocean carrier to issue them, and (b) conveyed the appearance that they were the only set of negotiable BOLs that related to the shipment, when this was not the case.
Where does this leave house BOLs?
House BOLs are commonly issued by freight forwarders. Forwarders need to consider what is being represented by those house BOLs. The case shows the danger that non-logistics professionals (including Court Judges) may interpret BOLs in an unexpected manner.
Make the nature of the document clear
If the document is a house BOL this can be made clear by describing it as such or referencing the master BOL. If the document is not intended to operate as a BOL, consider whether other language can be used. If the document it meant simply to be a record of the contract of carriage or receipt of the goods and not entitle the holder to possession of the goods, then the document does not need to be called a BOL.
Further, there is no reason why it cannot be stated that the document does not entitle the holder to possession or title of the goods.
Can house BOLs be real BOLs?
The commercial and logistics reality is that many freight forwarders do want their house BOLs to act as true BOLs.
In this case the Court seems to have proceeded on the assumption that a house BOL can never be a real BOL. This is inconsistent with previous case law. It depends on who is contracting with the consignor as the carrier. Where it is door to door carriage, the freight forwarder may be the contractual carrier and the house BOL could be a true BOL. In this case, the master BOL would be a true BOL between the shipping line and the freight forwarder and at the same time, the house BOL would be a true BOL between the freight forwarder and the shipper.
For this reason it is crucial for freight forwarders to always be clear as to whether they are acting as the carrier, or merely as agent of the shipper. This is also important in respect of resolving disputes regarding liability for damage to goods and the carrier's costs.
Never provide both the master BOL and house BOL to the customer
If the house BOL is intended to be a true BOL, do not provide both the house BOL and the master BOL to the customer.
An important aspect of this case was that Freight Solutions provided the shipper with both the master BOL and the house BOL. This meant that the house BOL was of no value as the shipper could obtain delivery of the goods on presentation to the carrier of the ocean BOL alone.
In the normal course, the master BOL would not be released to the customer and would be used by the freight forwarder's agent to obtain delivery from the carrier. That agent would then release the goods to the consignee on presentation of the house BOL.
If that process had been followed in this case, ACFM would have been able to prevent the release of the goods in China by reason of holding the house BOL. While there may still have been a misrepresentation, it would not have caused any loss. ACFM would have been in the same position as if they had received the master BOL.
Acting on behalf of the carrier
House BOLs are not issued by forwarders as agents for the carrier. If a freight forwarder acts as agent for any party, it is as agent for the shipper. House BOLs are issued by the freight forwarder and this should be made clear. Stating that a BOL is issued on behalf of a carrier conveys that it is a master BOL.
This is a difficult area and much depends on the facts of each case. It is important to note that the freight forwarder in this case did not intend to mislead the finance company. The problem seems to have arisen from not considering how third parties would interpret the house BOL.
Please contact us if you need assistance with the wording of your bills of lading.