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Lighthouse - January, 2019.

Release of The Cargo Without The Presentation of Original Bill of Lading

A bill of lading is a document issued by a carrier (or their agent) to acknowledge receipt of cargo for shipment. Although in England, the term once related only to carriage by sea, a bill of lading may be used for any type of carriage of goods. A bill of lading must be transferable and serves three main functions:

  • It’s a conclusive receipt i.e. an acknowledgement that the goods have been loaded;
  • It contains or evidences the terms of the contract of carriage; and
  • It serves as a document of title to the goods.

As much as it is the most important document for shipment of goods from one place to the other, it has become very common for the cargo interest or their agents to demand the release of cargo without submission of the original bill of lading.

At the outset, the answer to whether the cargo can be released without the presentation of the OBL is a big NO! as this involves a lot of risk both for the carrier and the cargo interest since the reasons for the non-presentation are enormous. In spite of this being wrongful there are some carriers and P&I that do release the cargo, subject to certain exclusions and exemptions.

P&I releasing the cargo without presentation of OBL
In general P & I club exclude cover for release of cargo without production of Original Bill of Lading by incorporating an exclusion in their policy. However, certain P&I clubs include an omnibus clause in their Rules which do permit some flexibility by allowing the members to provide cover in some circumstances. At the same time with respect to commercial insurers providing P&I cover, this flexibility is not available to override any specific exclusions provided in the policy wordings.

P&I will be involved in such cases under various roles and various circumstances. When P&I represents the carrier, if the Principals or their agents have released the cargo without the OBL the shipper would be the claiming party. On receiving the claim from the shipper P&I club would reject the claim on the ground that there was no personal negligence. Similarly, when P&I represents the cargo interest, the carrier may have released the cargo without the OBL yet P&I would continue to reject the claim as the fault is off the carrier.

Thus, certain P&I clubs provide a wider cover with respect to release of cargo with Bill of Lading subject to certain specific exclusions already mentioned in the Insurance policy.

Carrier/Shipping Line releasing cargo without the presentation of OBL
When it comes to the carrier, they deny taking responsibility of the cargo that is to be discharged without the presentation of the Bill of lading as it causes a lot of trouble for the shipping line/ carrier eventually.

Although the above is what the carrier mostly follows, there are some cases where the carrier releases the cargo without the Bill of Lading for the following reasons:

  • To maintain a cordial and business relationship with the customer.
  • To reduce the unavailability of the containers.
  • To avoid the destruction cost that would eventually fall on the Carrier in case the consignee has not taken delivery.
  • The time and cost the carrier/ shipping line has to invest in claiming the detention and demurrage charges.

The carrier/ shipping line accept a document called the Letter of Indemnity in which the party including the consignee, delivery agent or any other accepts to indemnify the consignor in case of any consequence that arise in the future.

Letter of Indemnity
It is common in a lot of trades, whether bulk or oil, to accept a Letter of Indemnity (“LOI”) for non-production of bills of lading. A letter of indemnity (LOI) is a document which the shipper/ consignee indemnifies the shipping company against the implications of claims that may arise from the issue of a clean Bill of Lading when either the goods were not loaded in accordance with the description in the Bill of Lading or when the original document is not available.

It is absolutely essential that Members get the wording of the LOI right and ensure that proper procedures are in place to demonstrate compliance with the LOI.Members must also actively weigh up the counter party risk of accepting an LOI. An LOI is only as secure as the party providing it.

When this occurs, the carrier invariably agrees to deliver the cargo in consideration of receiving a Letter of Indemnity (LOI) from their charterer/ receiver. In many cases, a delivery of cargo in this way will proceed without incident. However, whilst the practice is familiar, familiarity can sometimes lead to complacency.

to be continued…

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