Does The Bill Of Lading Reflect The Intended Voyage?

April 2005

A recent decision of the English High Court highlights the potential problems which can arise if the information set out on the face of the Bill of Lading does not accurately reflect the actual voyage by which goods will be transported.

In Sabo S.A. v United Arab Shipping Co. (SAG) [2005] EWHC 307 cargo was shipped on a feeder vessel but transhipped onto an ocean vessel at an intermediate port. However, the terms of the letter of credit expressly forbade transhipment and a Bill of Lading was issued that named the loading and discharge ports and ocean liner vessel only, that referred to the reference number of the letter of credit term, and that bore the statement "TRANSHIPMENT NOT ALLOWED" immediately underneath the credit reference.

No doubt if the planned voyage had been without event the shipper would have received payment under the letter of credit. However, at the port of transhipment the feeder vessel grounded and the goods represented by the bill of lading were damaged by seawater. The receivers discovered that the goods had been loaded on a feeder vessel and would not accept the shipping documents. Accordingly, payment was not made under the letter of credit and the shippers sought to recover their loss from the owners of the vessel named on the bill of lading.

The shippers alleged that they had been induced to enter into a contract of carriage with the owners of the vessel named on the bill of lading. They argued that the bill of lading misrepresented the actual voyage and that if they had known that the voyage involved transhipment they would never have consented to ship their cargo with the defendants. These issues turned on what had been said and agreed when the shipment had been booked with the defendants agents.

In a judgement handed down on 3rd March, 2005, the court held that there was a contract for the carriage of the cargo from load to discharge port that allowed transhipment as a part of the agreed delivery process, and that as far as the shipper was concerned there was no misrepresentation nor any breach of contract by employing a feeder vessel. Therefore, the shippers claim failed on this and other grounds.

However, the decision would have been different if an innocent third party holder of the bill of lading had been the claimant. The court held that the bill of lading misrepresented the facts in so far as it referred to the defendant's vessel as the carrying vessel from the port of loading to discharge, and that although that misrepresentation was not relied on by the shipper, it was intended to deceive subsequent holders of the bill of lading.

The facts and circumstances of this case are perhaps unique but nonetheless provide a cautionary note to carriers who, for commercial reasons, are asked to consider issuing bills of lading that misdescribe the intended voyage. There is a significant risk that such a bill of lading is a fraudulent document with the consequence that a contractual carrier faced with a claim under the bill of lading by an innocent third party claimant may be unable to rely on the normal bill of lading defences. This is probably so whether the carrier knowingly issues such a bill of lading, or whether their agent issues such a bill of lading with or without authority from the carrier. An agent who appears to an innocent third party be acting with authority or within the bounds of authority that such an agent would normally have would probably bind his principal in such a transaction, even if, in fact, he is acting without authority. Club cover for claims arsing in any of these circumstances is not straightforward and will turn on the actual facts and circumstances of each case.