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Web alert: fraudulent bills of lading
News & Insights 27 January 2015
During recent years, the shipping industry has seen an increase in cases involving the use of fraudulent bills of lading
During recent years, the shipping industry has seen an increase in cases involving the use of fraudulent bills of lading (BL). The club has also recently dealt with quite a few matters concerning unauthorized BL.
In one such case the master had authorized the charterer’s agents at the load port to sign a ‘claused’ BL on his behalf. Then the charterer instructed the owner to deliver the cargo at the port of destination without production of the original BL, against a Letter of Indemnity (LOI). There was an express provision in the subject charterparty which allowed the use of a LOI in such circumstances. After discharge was completed the receiver subsequently presented a claim to the owner for alleged damage to the cargo. It transpired that the receiver was holding a ‘clean’ BL, issued by unauthorized agents ‘for and on behalf of the master’. All the other details on the BL were the same.
In another instance, our member was contacted by the ICC International Maritime Bureau, acting on behalf of the consignee’s bank. The bank had been presented with a ‘suspicious’ set of BL for payment and was seeking to verify their validity. These BL turned out to be totally different, in all aspects, to the ones the member had authorized the charterer’s agent to issue at the load port.
Outcomes for members
There are obviously very serious consequences if an owner is drawn into such a fraud, usually being perpetrated, primarily, against the receiver and/or the bank. It could be, for example, that an intermediate seller in the contractual chain has not paid for the cargo and, therefore, does not have the original BL; so instead issues its own (fraudulent) bills in order to enable itself to sell and be paid for the cargo.
An owner is exposed to even greater risks when their charterer requests the delivery of cargo without production of the original BL, but instead against an LOI.
As per the club’s rules, claims arising out of the delivery of cargo without production of the original BL are subject to the board’s discretion. Insisting upon delivery of the original BL at the discharge port can also help prevent such frauds, as mentioned above, from occurring.
Accepting a LOI in place of a BL
Whilst LOIs for non-presentation of the original BL are commonly used for commercial purposes in the maritime trade, and the club is well aware of this reality, when members are considering whether or not to accept such a LOI they are strongly advised to consider the following:
1. When negotiating their charterparty, members are advised not to undertake in advance the obligation to accept an LOI for delivery of cargo without presentation of the original BL, but instead agree that such a LOI may only be accepted at their ‘sole discretion’. Otherwise, they could be deprived of the right to refuse discharge on a given occasion, unless this is on such terms as they would be prepared to agree.
2. When a LOI is accepted, as a matter of good practice, it is recommended to also attach to it copies of the original BL issued by the master, or his authorised agents. At the discharge port, the master is then advised to liaise with the agents, prior to the commencement of discharge, and seek to verify against which BL agents have been instructed to take delivery of the cargo. Whilst the master is not insisting upon the proper presentation of the original BL, upon discharge, in so doing he does have the opportunity to check all the parties are ‘on the same page’ as to the cargo being delivered.
3. If the master notices anything irregular, members should immediately liaise with their P&I Club for guidance
4. Members should always carry out enhanced due diligence on their charterer, especially when they have not done business with them before. In such circumstances, they are also encouraged to insist on any LOI being counter-signed by a first class bank.
The International Federation of Freight Forwarders Associations (FIATA) has also issued a warning to its members regarding fraudulent activity surrounding the cloning of BL.
This article intends to provide only general guidance on the above issues, arising as a matter of English law. It is not intended to provide legal advice in relation to any specific query. In case of any doubt, the member should not hesitate to contact the authors, or their usual club contact. The law is not static and if in any doubt The Standard Club is always on hand to assist.