NVOC Bills of Lading
Some of ITIC’s Members operate as non ship owning carriers and this article examines some of the pitfalls that can be encountered when issuing NVOC Bills of Lading.
You have paid the loss – can you recover from the actual carrier?
NVOCs need to pay careful attention when completing the “shipper” box on ocean bills of lading, or they risk not being able to recover loss or damage claims against a carrier. Putting the matter right can be a painful and time and cost consuming exercise. Freight forwarders often issue their own negotiable bill of lading to clients with the name of the actual shipper and consignee completed. In exchange, the forwarder gets the ocean carrier’s bill of lading. Sometimes in the space for the name of the shipper, the forwarder’s name is inserted with the addition of “on behalf of the shipper”.
Problems can occur when there is a cargo loss or damage claim that is the fault of the ocean carrier. If the negotiable bill of lading is clean and the loss or damage occurred before delivery, the forwarder is often obliged to pay the cargo interests. But, when the forwarder turns to the carrier for redress, the carrier may challenge the forwarder’s title to sue because of the phrasing of the bill of lading. The carrier may rely on the argument that the forwarder was merely acting as the shipper’s agent and that the ocean carrier contracted directly with the shipper, not the forwarder. Although the forwarder may argue that he contracted directly with the carrier on the grounds that the forwarder’s NVOC bill of lading was issued to the actual shipper and that he received lump sum freight and not commission from the shipper, the carrier may contend that it is only the ocean bill of lading that matters.
In order to avoid confusion and unnecessary risk, the freight forwarder should avoid using the notation “on behalf of” the actual shipper on the ocean bill of lading but enter only his own name in the box for shipper. For example a forwarder in the Far East issued a negotiable bill of lading to the shipper for a consignment of 6,600 cartons of canned mushrooms from Hong Kong to Seattle. On arrival, the consignee’s surveyor discovered salt-water damage and a claim for US$38,000 was presented. The forwarder was clearly liable under his negotiable bill of lading and reached an amicable settlement with the consignee. The ocean bill of lading read ‘freight forwarder o/b shipper’ and when the forwarder tried to recover from the ocean carrier, the carrier claimed that he had contracted directly with the shipper and the forwarder merely acted as the shipper’s agent. The forwarder’s settlement with the consignee had nothing to do with him, the carrier argued. The forwarder’s case was that he was acting as a principal since he issued his own negotiable bill of lading to the shipper, from whom he received a lump sum freight and that he had no authority from the shipper to act as agent.
The straight bill of lading in the US trade NVOCs and shippers, who are not familiar with the US trade, may fail to realise the particular implications of the issuance of a ‘straight’ or non negotiable bill of lading. In most jurisdictions, the shipper under a straight bill of lading has exactly the same rights over the cargo as under a negotiable document. The consignee is usually obliged to present the original bill of lading to the carrier (or the carrier’s agent) at destination before he can collect the cargo. If the consignee does not pay, the shipper still has the bills of lading and, effectively, controls delivery. In the USA, however, by statute (the Pomerene Act) the straight bill affords the seller no such protection. If a bill of lading is made out to a named consignee, all he has to do is to prove his identity in order to receive the goods.
The carrier has no legal right to withhold cargo and a consignee named in a straight bill can take legal action to enforce delivery, even though he is not in possession of the original bill of lading.
There is quite clearly a problem for shippers and NVOCs in other parts of the world, who may not realise the particular implications of issuing a straight bill of lading to a consignee in the USA. In order to avoid problems, NVOCs trading to the USA should issue ‘to order’ bills of lading wherever possible. NVOCs should explain to customers who ask for straight bills of lading that there is no guarantee that the cargo will be held against presentation of the original bill of lading, and recommend the issue of negotiable bills, which do afford protection, instead. After all, a negotiable bill does not have to be negotiated through a bank; it only has to be endorsed by the shipper.
Clearly there will be clients –perhaps members of the same group – who do not require the protection of a negotiable bill, but many others may.
NVOCs should also be careful of accepting ‘Express’ bills of lading from ocean carriers when they have issued their own negotiable documents. It is standard practice in the USA for carriers to release goods under express bills to the company that cleared the goods through customs and paid any charges due. There have been several instances of companies using this loophole to obtain cargo without going through the tiresome process of paying for it. A further precaution is for NVOCs to use negotiable ocean carriers’ bills wherever possible, with their US partner as ‘notify’ party, to provide additional security, particularly for FCL business.
A number of US Federal Circuit courts have held that in order for the carrier to be able to rely on the US COGSA package limitation of US$500, the bill of lading must give the shipper a ‘fair opportunity’ to declare a higher value so as to avoid the limitation. In order to give a ‘fair opportunity’ the bill of lading conditions must state the US COGSA package limitation and make it clear that a higher value may be declared by a statement of the value on the face of the bill of lading. Some US Federal Circuits, such as the Second Circuit, go further and require that there must be an excess value declaration box on the face of the bill of lading to enable value to be inserted.
Conversely the Ninth Circuit Court of Appeal in Mori Seiki USA Inv. v ALLIGATOR TRIUMPH (1993) held that in so far as that circuit was concerned it was not required that an excess value declaration box be pre-printed on the face of the bill of lading.
Although this is a decision to be welcomed by NVOCs, delight should be restrained by the realisation that many other circuits maintain the view that an excess value declaration box is required. Therefore, NVOCs should have an ‘ad valorem’ box printed on the face of bills of lading used for carriage to or from the USA, otherwise they could find that the amount that they have to pay out for a loss or damage claim, is vastly different from the amount they can recover from the ocean carrier. ITIC would like to thank the TT Club for permission to reproduce this article.