Legal eagle: when should a freight forwarder issue a house bill of lading?

In the latest TT Talk, TT Club has highlighted a recent piece of case law from the NSW Court of Appeal in Australia. The Club said that this case acted as a reminder to freight forwarders to consider carefully the question of ‘whether to issue a house bill of lading’ for a consignment. The Club said that there were clear steps to take to protect the rights of all stakeholders and avoid unforeseen exposures.

On this occasion a freight forwarder contracted with a shipper that exported animal skins and hides. Separately, the shipper entered into a loan agreement with Australia Capital Financial Management Pty Ltd (ACFM) whereby the shipper would provide ACFM with original bills of lading as collateral security, in exchange for drawdowns on the loan. It was intended that ACFM would return the original bills of lading after the shipper had repaid the drawdowns.

In the course of applying for a drawdown, the shipper provided ACFM with 11 house bills of lading issued by the forwarder. When the shipper failed to make the repayments, ACFM attempted to take possession of the cargo, only to discover that it had already been released to a third party by the ocean carrier.

ACFM was successful in its action against the forwarder for the full recovery of the drawdowns, on the grounds of misleading and deceptive conduct.

The NSW Court of Appeal upheld the previous judgment in an action brought by ACFM (Australia Capital Financial Management Pty Ltd v Freight Solutions (Vic) Pty Limited [2017] NSWDC 279 ) which was against the predecessor company of the freight forwarder, which was found to have acted in misleading and deceptive conduct when issuing house bills of lading, whilst simultaneously releasing ocean bills of lading, both of which purported to be original negotiable documents.

What went wrong?

In this case, the ocean carrier issued a set of ocean bills of lading that were “original” and “negotiable” and named the consignee as “to Order” (Ocean Bills).

The forwarder issued a set of house bills of lading that were a close replica of the Ocean Bills, also being “original” and “negotiable” and named the consignee as “to Order” (House Bills). The House Bills were signed by the forwarder “as agent for the ocean carrier”.

The forwarder also released both the House Bills and the Ocean Bills to the shipper, but the latter provided ACFM only with the House Bills. The Ocean Bills were apparently used by a third party to take delivery of the cargo from the ocean carrier.

The court held the House Bills themselves to be misleading and deceptive:

  • the forwarder did not have authority or consent from the ocean carrier to sign off as their agents;
  • the forwarder allowed the issuance of two sets of bills of ladings (House Bills and Ocean Bills) both purporting to be original documents with title to the goods;
  • the House Bills did not in fact give the lawful holder a right to delivery of the goods.

Consequently, the freight forwarder was held to be liable for the loss suffered by ACFM.

TT Club said that, while the issuing of house bills of lading as a business practice should not be discarded, freight forwarders should never issue a house bill of lading when they do not have control over the release of the cargo at destination; especially when the ocean bill of lading issued by the ocean carrier is negotiable.

The Club emphasized that a defining feature of a bill of lading was that it constituted a document of title for the related goods. Thus it must be capable of obtaining delivery of the cargo it relates to when those Bills are presented to the issuer or their authorized agent.

Furthermore, freight forwarders must not sign house bills of lading “as agents of the ocean carrier” unless the ocean carrier has expressly granted authority to the forwarder to do so. “Such representation implies the lawful holder of the house bill of lading has accrued remedies against the ocean carrier”, the Club said. However, if the ocean carrier has not granted authority to the freight forwarder, the ocean carrier will have no liability, and the freight forwarder will be liable for any losses associated with the reliance on the representation.

The Club concluded that, should a freight forwarder find themselves in need of issuing a house bill of lading, it was important to ensure the ocean bill of lading was non-negotiable and remained in possession of the freight forwarder (or their receiving agent), thus ensuring the freight forwarder has control over the release of the cargo by the ocean carrier.

CRO Travel Pty Ltd v Australia Capital Financial Management Pty Ltd [2018] NSWCA 153,6KMBS,W6SD21,Q51ZB,1