Release of cargo without production of original Bill of Lading proves costly

Clyde and Co has reported on a successful defence in a court decision by Ningbo Maritime Court in China (Wenzhou Baililande Rubber Tyre Co Ltd v MSC Mediterranean Shipping Company SA, case number of (2017) Zhe Min Zhong No. 859).

Under the Chinese Maritime Code, a carrier is strictly obliged to deliver cargo against the production of the original Bill of Lading, and, said Clyde, this made it (usually) very difficult to defend a claim lodged by the Bill of Lading holder for the release of cargo without the original document. Clyde said that this recent case provided interested parties with practical guidelines on the subject.

In October 2015, the Claimant, Wenzhou Baililande Rubber Tyre Co. Ltd (Baililande), commissioned the Defendant, MSC Mediterranean Shipping Company SA (MSC) to carry a cargo of containerized tyres from Ningbo, China, to Navegantes, Brazil. As the buyer failed to pay for the cargo, the original Bill of Lading remained in Baililande’s possession. In December 2015, the cargo in question was discharged, and was then registered with the Brazilian Foreign Trade Comprehensive Database. The cargo was subsequently transferred by local Customs to a bonded warehouse and released to the consignee. Baililande, not having been paid by the consignee, lodged a claim against MSC for release of the cargo without production of the original Bill of Lading.

MSC argued that, as required under Brazilian law and regulations, the cargo was delivered at the port, and released to a bonded warehouse controlled by local Customs. According to Article 7 of the Provisions of the Chinese Supreme People’s Court on Several Issues Concerning the Application of Law during the Trial of Cases on Delivery of Goods without the Original Bill of Lading a carrier should not be liable for the delivery of cargo without an original Bill of Lading where it  must deliver the cargo to the local Customs or local port authority, in accordance with the law applicable at the port of unloading specified in the bill of lading.

The 1st Instance Court (NMC) and 2nd Instance Court (Zhejiang Higher People’s Court) ruled in favour of MSC, stating that it should not be liable for the Claimant’s losses.

Its reasoning was that MSC had provided evidence to show that the Brazilian Customs had control over and managed the importation/exportation of cargo, as well as the delivery of cargo via the Brazilian Foreign Trade Comprehensive Database; and the carrier was only able to hold off release of the cargo in circumstances where the freight or general average contributions remained outstanding.

The laws of the port of discharge provided for different periods of responsibility for the carrier and for the port operators.

The port operators at the port of discharge issued a written statement confirming that the cargo in question had been transferred to the bonded warehouse by Customs. This was in compliance with Article 7 of the Provisions.

Clyde & Co said that the decision clearly underlined the Chinese Courts’ view that a carrier should not be deemed automatically liable for a cargo owner’s loss where the cargo is released without the production of the original Bill of Lading. The carrier should instead only be considered liable if it can be shown that it “assisted in” or “led to” the consignee taking delivery of the cargo.

In other words, if there is evidence that the carrier had no control over the cargo after discharge or that the carrier’s act did not cause the release of the cargo (whether intentionally or negligently), it should have a reasonable defence.

Clyde & Co observed that, from the perspective of the shipper/seller of cargo, and in view of the above Court decision, certain issues merited attention.

  • If a shipper wishes to pursue a claim against a carrier for the release of cargo without the production of the original Bill of Lading, it may be insufficient to merely establish that the cargo was released to the consignee, and it would be preferable to show that the carrier “assisted in” or “led to” the consignee taking delivery of the cargo.
  • Where possible, the shipper could ask the consignee/buyer to provide security for the cargo price and / or procure credit insurance. If the consignee refuses to pay, the shipper may choose to pursue a claim against them for unpaid price under the sales contract.
  • The shipper should select an appropriate forwarding agent at the port of discharge. However, if such forwarding agent is at fault in releasing the cargo, the shipper could choose to pursue a claim against them.