The elephant in the room – a cautionary tale for freight forwarders

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By Henry Holland, Lawyer and Frazer Hunt, Partner

The District Court of New South Wales has ruled that a freight forwarder engaged in misleading or deceptive conduct by issuing house bills of lading with all the hallmarks of negotiable bills of lading where the ocean carriers had issued negotiable bills of lading for the same shipments. *

The freight forwarder issued house bills of lading at the request of his client, a shipper involved in the export of sheep skins from Australia to China. The shipper gave the house bills of lading to a financier to secure the advancement of funds under a loan facility. The financier wrongly thought that the house bills gave title to the goods, such that the goods could not be collected without the financier’s consent. When the shipper failed to make repayments under the loan facility, the financier made enquiries of the freight forwarder, only to find out that the goods had already been collected by third parties in China.

In each instance:

  • the freight forwarder issued 3 house bills of lading stamped “original”, as well as 3 copy bills of lading stamped “copy non-negotiable”;
  • the ocean carrier was named in the house bills, and the freight forwarder signed the bills “as agents only”; and
  • the bills of lading were consigned “To Order”, but were not endorsed.

The Court cited a textbook description of bills of lading: “Like an elephant, a bill of lading is generally easier to recognise than to define”. The Court found that while the financier may not have been able to identify every technical aspect, the financier recognised the essential features of a bill of lading, which appeared on its face to give the right to obtain delivery of the goods if there was default in repayment of the loan. i.e. the financier could recognise the elephant.

As the ocean carriers had also issued negotiable bills of lading that named the same parties, there were two sets of negotiable bills of lading for the same shipment.  Even though the house bills of lading were not endorsed, and so could never have been presented to the ocean carriers named on the face to obtain delivery of the shipments, the Court still determined that the freight forwarder had engaged in misleading or deceptive conduct, and was liable for the financier’s losses.

The judge also ruled that the freight forwarder was liable for breach of warranty of authority, by executing bills of lading as agent for ocean carriers, without authority from the ocean carriers.

The case is a warning to freight forwarders who think that they are assisting their clients by issuing separate house bills of lading for “banking purposes” or for ”customs purposes” when such document was never intended to be a contract of carriage or to be negotiated through the banking system.  Freight forwarders need to review their practices and understand that house bills of lading are a legal document that can potentially be acted upon by third parties in unrelated transactions.  Importantly, freight forwarders should never issue separate house bills of lading if the ocean carriers have issued negotiable bills of lading for the same shipment.  Contrary to some initial commentary on this case, the wording of the house bills of lading was not in issue, only that house bills of lading should never have been issued in the first place.

*Australia Capital Financial Management Pty Limited v Freight Solutions (Vic) Pty Limited [2017] NSWDC 279

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