When can an indorsee of a bill of lading sue the carrier?

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If you are involved in maritime international trade, you will be aware that shipping disputes, including those involving bills of lading, can lead to dangerous waters. If you are in need of urgent, expert legal advice, award winning Bahamas law firm ParrisWhittaker should be your safe haven.

If you are involved in maritime international trade, you will be aware that shipping disputes, including those involving bills of lading, can lead to dangerous waters. If you are in need of urgent, expert legal advice, award winning Bahamas law firm ParrisWhittaker should be your safe haven.

Bills of Lading and Letters of Credit

The Court of Appeal in the UK recently had to determine whether a bank had acquired the right to sue a ship owner by reason of it being in possession of a bill of lading presented to it under a letter of credit¹. The decision has important implications for all traders who rely on letters of credit for payment security in their sale and purchase transactions.

In the original case a court heard that a consignment of gasoil was shipped on a vessel, the Erin Schulte, to Ghana. However, the buyer found that the quality of the gasoil was not acceptable to them and they rejected the consignment. The seller, Gunvor, presented the bills of lading indorsed to Standard Chartered Bank (SCB) as required under the Letter of Credit to SCB on 4th June 2010. However, SCB then, incorrectly, rejected the documents and refused to pay, claiming a discrepancy. The cargo was subsequently discharged without the bills of lading when Gunvor issued a Letter of Indemnity to the carrier. Gunvor then brought proceedings against SCB for not fulfilling the Letter of Credit.  SCB settled these proceedings by paying the claim on full.

SCB then issued proceedings against the owners of the vessel alleging that they had misdelivered the cargo as they did not hold the bills of lading, and claimed its full value. The owners said that SCB did not become lawful holders of the bills of lading as they had rejected the consignments documents. SCB claimed that the simple transfer of the document meant that the indorsed bills of lading had been delivered.

What was the issue?

The issue between the parties was whether SCB had become the holder of the bills of lading under the Carriage of Goods by Sea Act 1992. The court endorsed SCB’s view that they had become lawful holders of the bills of lading on the 4th June 2010, their rejection of the documents being found to be irrelevant. Alternatively, it was found that on June 10th SCB lawfully held the bills of lading when they settled the claim with Gunvor.

The owners of the vessel unsuccessfully appealed this decision. The Court upheld SCB’s lawful holding of the bills of lading through their settlement with Guvnor on June 10th. Regarding the initial judgment that SCB lawfully held the bills of lading on June 4th, the court found that the indorsement was not completed due to SCB rejecting the documents

What does this mean?

The judgment is of great importance to international trade and to the interpretation of the Carriage of Goods by Sea Act 1992. It provides clarification regarding the lawful holding of bills of lading, although it does leave parties faced with a wrongful rejection of documents in a difficult position. If the bills of lading are left with the bank the seller could be left with substantial costs, such as demurrage and the spoiling of goods, as the vessel will not be able to be discharged.

However, if the seller takes back the bills of lading and secures the discharge of the cargo it forgoes its straightforward claim for the sum due under the letter of credit.

How can we help?

At ParrisWhittaker, our expert maritime lawyers have won awards for the high quality of their legal advice. With many years’ experience in handling all kinds of maritime and shipping cases – including demurrage and claims for damages in maritime cases – the experienced maritime and shipping lawyers at Bahamas law firm ParrisWhittaker are ready to act on your behalf.

¹Standard Chartered Bank v. Dorchester LNG(2) Limited (Erin Schulte) [2014] EWCA Civ 1382