Incorrect clausing of bill of lading
A company was appointed as a sub-agent by the general agent of a shipping line and instructed to complete the documentation on its behalf for most of the chartered ships represented by them. In that capacity, the sub-agent received bills of lading for a shipment of logs in several lots from a New Zealand port and simultaneously received from the general agent bill of lading amendments.
The bills, which were completed by the sub-agent in accordance with instructions received from the general agent, were to be claused "Freight payable as per c/p dated ...". Unfortunately, before releasing the bills, the sub-agent also erroneously stamped each bill "Freight prepaid". The freight was due to be paid in stages and the shipper met the first payment but failed to pay the second instalment. The shipper subsequently ceased to trade.
The error of the sub-agent was discovered before the ship arrived at the discharge port and the general agent immediately held the sub-agent liable for the outstanding freight and other costs as the owner had been deprived of his right to lien the cargo. The ship anchored off the port and the owner refused to arrange for discharge to commence until the question of the unpaid freight had been resolved. Demurrage began to accrue at a substantial daily rate. The owner managed to obtain some funds from the consignees and their bank and the cargo was eventually released. The shipowner then claimed U$340,000 in outstanding freight, demurrage and other costs from the sub-agent. The Club's lawyer advised that there were no obvious defences as to liability or quantum and a settlement was subsequently negotiated.
This claim emphasises the care that must always be taken in the preparation of documents - particularly bills of lading. It also highlights the need for substantial indemnity limits as this claim could well have been more costly had the owner not secured partial reimbursement from other parties.