Fraudulent Bill Of Lading: Carrier's Liability Following Discharge

A set of fraudulent bills of lading was successfully presented and provided with delivery order and arising from this, the carrier was sued by the party with the genuine bills of lading. In a claim of this nature, was the carrier entitled to any of the limitations of liability provided in the terms of the bill of lading when goods had been discharged from the vessel? A case ruled by the English Court of Appeal provides an understanding into the carrier's liability under the above circumstances. Briefly the facts of the case are as follows:

An FOB buyer placed a shipment of 18 containers of copper cathodes on board a vessel from Durban , South Africa to Shanghai . A genuine set of bills of lading was issued. At the same time, employees of the ship's agent at Durban issued another set of bills of lading (fraudulent set) for the fraudsters; this set named a company in Shanghai as consignee. To increase the level of fraud, the ship's manifest was altered and in the age of electronic documentation, suspicion did not arise.

The fraudulent bills were sent to the fraudsters located in Shanghai who went ahead to obtain a delivery order for the containers from the ship's agent in Shanghai . On arrival at Shanghai the containers were discharged to a container terminal. Additionally the fraudsters obtained the authority of customs to remove the containers from the terminal, having previously utilized the delivery order to pay customs duty and VAT on the cargo. Such payment was an essential precondition to obtaining the release of the containers.

Subsequently the party holding the genuine bills of lading wanted to take delivery of the cargo but was advised that a delivery order had already been issued. Hence the genuine holder could not take delivery of the cargo. Investigations then revealed evidence of the fraud. Fortunately the carrier was able to instruct the container terminal not to release the containers without further instructions. At this time the cargo was worth over US$2million. In the course of events, the fraudsters filed a legal suit against the ship-owner and their agent in the Maritime Court of Shanghai concerning the ownership of the cargo which was not resolved. The party holding the genuine bills of lading was obliged to become involved in this legal proceeding.

The genuine party additionally commenced proceeding in the English Commercial Court for the delivery of the cargo or for damages from the carrier for the conversion of the cargo (non delivery).The damages sought were to be assessed according to the value of the goods at the date of trial. In addition, the genuine party also claimed for damages on hedging losses suffered in their attempt to mitigate the risk caused by fluctuations in the value of copper.

The containers remained in the container terminal in Shanghai pending the outcome of the disputes in both sets of litigation. The Paramount Clause in the genuine bill of lading provides for shipments (excluding to or from USA) to be subject to the Hague Rules or Hague Visby Rules including the SDR Protocol and for shipments involving USA, the US Carriage of Goods by Sea Act 1936 and US Bill of Lading Act 1916 (Pomerence) shall apply. The Jurisdiction clause provides for English Law and the High Court of London.

The Clause concerning claim valuation, package limitation and time bar relates to the Hague Rules or Hague Visby Rules and SDR limitation or the COGSA limitation depending on which shipment was involved. The claim from the genuine holder was for delivery of the goods or payment of the value of the goods and consequential damages, these would avoid any application of limitation available under the clauses mentioned above.

The carrier/ship owner argued that the bills of lading were governed by those clauses mentioned above or if not entitled to such limitation, the measures of damages should be the value on the date of conversion of the cargo. The argument by the genuine holder disputed the application of limitation as the breach of duty by the carrier/ship owner was a post discharge act. The finding of the first hearing, having delved into the various aspects of the application of the Hague Rules and HV Rules, ruled that limitation was not available for this post discharge breach of duty. Damages were awarded by reference to the value of the cargo at the time of judgment. Consequential loss was rejected except for cost in connection with the Chinese litigation. Interest was also allowed.

The case went on appeal and the outcome in term of award was almost the same except for interest.

Note: This is a very brief note of the case involving “The MSC Amsterdam ” on limitations of liability and is intended to highlight the need to ensure adequate level of insurance to guard against claims where limitations are not available. Whether or not insurance covers the above liability is not the intention of this note.