In the international trade in goods, the delivery of goods without the original bill of lading refers, as the phrase suggests on its face, to carriers or freight agencies delivering the goods being shipped to the consignee without the presentation of the original bill of lading. Although this practice may be convenient and meet the immediate needs of the trading parties in some cases, it also entails significant legal risks and potential economic losses.
In practice, goods often arrive at the destination port and are ready for delivery before the relevant documents have completed their circulation. At this time, if the original bill of lading has not yet reached the hands of the consignee, the delayed arrival of the bill of lading may incur additional costs such as overdue fees at the port, and, if the goods are perishable, the risk of spoilage and deterioration. Therefore, to reduce costs and facilitate transactions, carriers may choose to deliver cargo without the original bill of lading. For the seller, when the trading parties choose the Group F Incoterms, the actual control of transportation is in the hands of the buyer. In such a situation, if the buyer colludes with the carrier to release the goods without the original bill of lading, the seller may face both financial and material risks.
I. Liability of Carriers in Disputes over Delivery of Goods Without the Original Bill of Lading
i. Liability of Carriers
The bill of lading is negotiable and thus has financial attributes. During the circulation, it is possible for multiple parties to hold copies of the bill of lading at the same time. Therefore, in principle, carriers should deliver goods only to the holder of the original bill of lading. Otherwise, the security of transactions may be threatened, along with the stability of the financial system for freight.
In this regard, Article 2 of the Provisions of the Supreme People's Court on a Number of Issues Relating to the Application of Law to Cases Involving Delivery of Goods in the Absence of Original Bills of Lading ("Provisions on Delivery of Goods in the Absence of Original B/L") stipulates: "Where a carrier delivers goods without an original bill of lading in violation of the provisions of law, thereby causing prejudice to the right[s] of the holder of the original bill of lading, the said holder may demand that the carrier should bear civil liability for the losses resulting therefrom."
As the bill of lading is both proof of the contractual relationship of freight between the carrier and the shipper, and a certificate of ownership of the transported goods, it has the attributes of both a contract certificate and a property certificate. Due to different emphases on the nature of the bill of lading, courts have recognized the carrier's compensatory liability as either being primarily based on tortious liability or contractual liability.
The Provisions on Delivery of Goods in the Absence of Original B/L issued on February 26, 2009, in recognition of the dual nature of the bill of lading, defined the carrier's compensatory liability as a combination of contractual liability and tortious liability. Accordingly, the holder of the original bill of lading may choose to file a lawsuit for compensation based on either contract or tort.
It should be noted that the Provisions also apply to other entities that hold the original bill of lading through legal circulation. These include the issuing bank of a documentary credit, and parties with commercial interests. Therefore, such parties also enjoy the rights of the holder of the bill of lading and can claim compensation from the carrier on the basis of the legal relationship created by the bill of lading.1
ii. Determination of the Completion of Delivery by the Carrier
In disputes over the delivery of goods in the absence of the original bill of lading, the determination of whether the carrier has delivered the goods should not be limited to whether the physical transfer of the goods has been completed. Instead, such a determination should focus more on whether the right to control the goods has been transferred. For example, if the goods change from being under the control of the carrier to being under the control of the consignee, it is generally considered that the carrier has completed the delivery of the goods.
As an example, in the case of "(2015) Hu Hai Fa Shang Trial No. 2888", the buyer and seller agreed on a full container delivery method, but the goods were immediately de-vanned upon arrival at the port. Thereafter, the consignee dissipated the relevant goods to its customers.
The plaintiff argued that since the goods had been de-vanned and the consignee had shown them to customers, the carrier had completed delivered the goods to the consignee, albeit without the original bill of lading. The carrier, on the other hand, argued that although the goods had been de-vanned, they had always been under its control and had not been delivered to the consignee.
The Shanghai Maritime Court, after reviewing the case, considered that the goods had been delivered and that the consignee had obtained control over the goods:
First, the carrier should bear the burden of proving the status of the goods. The carrier claimed that the goods had been stored in a warehouse leased by an affiliated company after de-vanning, but the evidence did not suffice to prove the status of the goods after de-vanning.
Second, if the goods continue to be under the carrier's control, the carrier should be aware of the status of the goods. When the shipper requested the carrier to provide an update about the status of the goods, the carrier not only failed to provide one in a timely manner, but also forwarded the shipper's request to the consignee, asking the consignee to resolve the issue. This was taken to indicate that the carrier was unaware of the status of the goods.
Third, the carrier did not have the necessity to control the goods. Shortly after the goods arrived at the port, the consignee paid the customs duties and paid the freight and overdue fees to the carrier.
Fourth, the delivery of the goods to the consignee is a prerequisite for the consignee to resell the goods. In the absence of such delivery, the consignee will not have satisfied the conditions to resell the goods. The consignee showed its customers the goods involved and alleged that the "entire shipment of goods had latent defects" and that "the goods had been damaged in transit". It was thus ultimately held that the consignee had, due to a failure to resell, instructed the carrier to return the goods.
iii. Liability of the Actual Carrier
According to Article 60 of the Chinese Maritime Law, the actual carrier is procured by the carrier (such as some freight agencies who issue bills of lading to consignors) to carry out all or part of the transportation work. In this case, whether the actual carrier needs to bear the compensatory liability for delivering goods without the original bill of lading falls to be determined in combination with the legal relationship between the carrier and the actual carrier.
a) A Contractual Relationship between the Carrier and the Actual Carrier
In such a case, the carrier plays a dual role in transportation: one is as the carrier, albeit without a vessel, for the consignors; the other is as the consignor for the actual carrier. In such a circumstance, two independent contracts of carriage are established between the consignor and the carrier on the one hand, and between the carrier and the actual carrier on the other. According to the principle of contractual relativity (privity), the execution of the relationship between the carrier and the actual carrier may be held to amount to the delivery of goods without the original bill of lading.
As an example, in the case of "(2019) Zui Gao Fa Min Shen No. 4943", the actual carrier, according to the carrier's instructions, re-issued the bill of lading to the carrier's agent for release at the destination port. The carrier's agent, without receiving the full set of original bills of lading issued by the carrier, instructed the actual carrier to release the goods. According to the legal provisions on agency relations, the legal consequences of the delivery of goods without the original bill of lading by the carrier's agent naturally should be borne by the carrier.
The main dispute in this case was whether the actual carrier should bear joint and several compensatory liability according to the provisions of Article 63 of the Maritime Law. Article 63 provides that " Where liability for compensation is borne by the carrier and the actual carrier, it shall be borne jointly and severally within the scope of that liability." The court discussed this from the aspects of contractual liability and tort liability.
Firstly, the parties' contractual arrangements on the facts of the case resulted in the release agent becoming a legitimate holder of the relevant bill of lading. The actual carrier's unlocking of the goods was done at the request of the release agent, meaning that there was in fact no delivery of goods without an original bill of lading.
Secondly, from the perspective of tortious liability, there was no evidence that the actual carrier had conspired with the release agent and the actual consignee. Accordingly, the actual carrier could not be said to have behaved in a tortious manner.
The court thus held that the actual carrier did not need to bear joint and several compensatory liability for the losses suffered by the cargo owner.
b) An Entrustment Relationship or Charter Contract Relationship Between the Carrier and the Actual Carrier
In the context of an actual carrier – carrier relationship, since the actual carrier does not issue bills of lading and lacks a contractual relationship with the consignor, the holder of the original bill of lading has no right to claim that the actual carrier owes contractual liability for a failure of delivery. However, if the actual carrier arbitrarily implements the delivery, including by delivering without the original bill of lading being produced, it may still be held to be jointly and severally liability with the carrier on a tortious basis.
After the carrier has borne the compensatory liability, it also has the right to recover from the actual carrier. At this time, the court will allocate the compensation payable.
II. Carrier's Liability Exemption
Carriers will often seek to use Article 7 of the Provisions on Delivery of Goods in the Absence of Original B/L as a defense. Article 7 provides that: " Where a carrier is obliged to deliver the goods consigned for carriage to the local customs house or port authority under the law of the place where the port of discharge specified in the bill of lading locates".
In this regard, the Supreme People's Court, in the case of "(2021) Zui Gao Fa Min Shen No. 7603", clarified that if the carrier invokes Article 7 to claim that it has not assumed civil liability for releasing goods without the original bill of lading, it must provide evidence to prove that it has lost the right of control over the goods after delivery in accordance with the relevant local laws.
For example, in cases where the port of discharge is located in Brazil, carriers who deliver goods without the original bill of lading often claim that, according to Brazilian Decree No. 1356 of 2013, a customs policy of clearance before delivery is implemented for imported goods. Therefore, according to local law, the carrier is not liable for compensation for delivery without the original bill of lading if it delivers the goods to the local customs.
This defense is only an explanation for the physical transfer of goods. It does not address whether the right to control the goods has changed. The carrier thus has not completed the purported defense.
The reason for this conclusion is that the purpose of the Brazilian customs policy is to improve the efficiency of goods clearance and simplify the import process. After the carrier hands over goods to the customs, that does not deliver the right to control the goods to the customs authority. Put another way, the importer can only pick up the goods after the carrier or its local agent unlocks the goods in the customs system. This indicates that even after the carrier physically hands over the goods to the Brazilian customs, it still retains control over the delivery of the goods.
Therefore, in such circumstances, the carrier still needs to prove that it continues to exercise control over the goods after delivering them to customs, or that the goods were delivered without the original bill of lading by the customs without its permission.
In the case of "(2019) Zhe Min Zhong No. 422", the goods were controlled and sealed by Brazilian customs after unloading. They were later appropriated by others. The Zhejiang High Court held that although the Brazilian customs system showed that the goods had been delivered, the shipowner was still in a pending locked state, confirming that the carrier did not agree to release the goods. The full set of bills of lading was also still in the carrier's possession, and the carrier was accordingly not responsible for delivery without the original bill of lading.
III. Risk Prevention Measures
i. Suggestions for Carriers
a) Prudence in "Duplicate B/L + Guarantee"
In practice, it is common for carriers to deliver goods without the original bill of lading when the person without the original bill of lading provides a duplicate Bill of Lading and a guarantee. However, the guarantee provided by the person without the original bill of lading does not mean that the carrier can avoid the legal risks of delivery without the original bill of lading.
First, the function of the guarantee is the person's commitment to compensate the carrier for the losses it suffers. If the carrier delivers the goods without the original bill of lading, it must first bear the compensatory liability to the holder of the original bill of lading before it can claim compensation from the guarantor.
Second, the guarantee provided by the person without the original bill of lading is generally a commercial credit guarantee. If the person without the original bill of lading is insolvent or does not otherwise have the ability to compensate, then the risk-bearing function of the guarantee is extremely limited. In addition, there are also situations in practice where the signer of the guarantee does not have authorization and has no right to sign on behalf of the guarantor (subject to considerations of ostensible authority, so far as might be relevant).
Third, although the court generally recognizes the effectiveness of the guarantee for delivery without the original bill of lading, this does not exclude the possibility that the court may determine that the guarantee is invalid in individual cases where there are illegal acts, fraud against a third party (typically the consignor), or collusion to harm the interests of a third party.
Therefore, although the situation of delivery without the original bill of lading with a collateral guarantee is common in practice, it still poses a great legal risk to the carrier, and needs to be treated with caution.
b) Issue Electronic Bills of Lading
In practice, the main reason for delivery without the original bill of lading is that the circulation time of the bill of lading exceeds the circulation time of the goods. Issuing electronic bills of lading can greatly improve the circulation efficiency of the bill of lading, especially for short sea routes. In addition, since the electronic bill of lading only requires the parties to circulate through an electronic data exchange system, it can also effectively mitigate against the risk of fraud.
c) Prudence in Issuing Straight Bills to Ports in Specific Countries, and Alerting the Consignor to the Risks
For example, according to the laws of the United States, Canada and other countries, the consignee of a straight bill only needs to prove their identity, and does not need to provide the original bill of lading to take delivery of the goods. For carriers, complying with local laws can therefore mean bearing the risk of delivery without the original bill of lading. In such circumstances, strictly requiring the consignee to provide the original bill of lading may lead to disputes with the consignee locally.
Although the carrier issues the bill of lading according to the instructions of the consignor, when the consignor requests the carrier to issue a straight bill to a port in such countries, the carrier should either try to avoid issuing a straight bill by advising the consignor otherwise, or at least alerting the consignor to such risks. This will help to avoid subsequent disputes. In addition, the carrier can also issue electronic bills of lading to speed up the circulation efficiency of the bill of lading.
d) Preserving Evidence of Control over the Goods
When the holder of the original bill of lading alleges delivery without the original bill of lading, the burden of proof (after providing preliminary evidence) shifts to the carrier. The carrier is obliged in such circumstances to prove that the right to control the goods has been continuously in its hands.
In practice, the most common evidence provided by carriers is the warehouse receipt for the goods and its notarization. It should be noted that in order to increase the probative weight of this evidence, the warehouse receipt should describe the status of the goods in detail to particularize the goods. Moreover, the carrier should look to avoid storing the goods in the warehouse of the consignee or the consignee's related party.
In addition, records of (a) the consignee's refusal to pick up the goods for legitimate reasons, (b) arranging for the return of the goods before the consignor claims delivery without the original bill of lading, and (c) the consignee's application to the local court for a mandatory order to release the goods are also strong evidence for the carrier's defence and should be properly retained.
ii. Suggestions for Consignors
a) Prudence in Choosing the Form of Documents and Incoterms
When consignors first trade with counterparties, they can use straight bills or at least order bills to ensure that the right to notify delivery is retained in the hands of the original consignor. Consignors adopting a more conservative trading model can effectively avoid situations of delivery without the original bill of lading, which is conducive to the identification of the responsible party in a timely manner in case of disputes. If a relationship of long-term trading develops, the delivery form can be gradually relaxed based on the behaviour of the other party.
In addition, sellers should try to avoid the FOB term, as it affords the overseas freight forwarder designated by the consignee more control, and is vulnerable to collusion between the consignee and forwarder without the original bill of lading. If the buyer requires the use of FOB terms, it can be agreed that the seller designates the carrier, and that the buyer bears the freight, so as to keep the effective control of the goods in their own hands.
b) Pay Attention to the Special Limitation of Action for Maritime Disputes
The holder of the original bill of lading should also pay attention to the special litigation time limit for maritime cargo transportation contract disputes. Article 257 of the Maritime Law stipulates that, "The prescribed period for compensation claims on ocean-shipping cargo transportation against a carrier shall be one year, calculated from the date on which the cargo is delivered or should have been delivered by the carrier". The suspension of the litigation time limit requires not only the claimant to make a claim, but also the obligor agreeing to accept liability.
Therefore, if the holder of the original bill of lading fails to reach a compensation plan with the carrier through negotiation, they should file a lawsuit or arbitration in a timely manner to reflect the limited limitation period.
Footnote
1. (2018) Zhejiang Min Zhong No. 624 - Maritime Cargo Transport Contract Dispute between a Bank and a Tianjin Shipping Company - Case No. 2 of the 2018 National Maritime Court Typical Cases
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
