The Rules Adopted In The US Jurisprudence For The Imposition Of Liabilities Upon The Bill Of Lading Holders

The US legal requirements for the imposition of liabilities arising from the contract of carriage upon the holder of Bill of Lading had been explained in two cases: States Marine International Inc. v. Seattle-First National Bank¹ and A/S Dampskibsselskabet Torm v. Beaumont Oil Ltd. and Banque Paribas (Suisse) S.A.². Both cases discuss the situations when the banks financing commodity shipments may incur liability for freight as named consignees and holders of Bills of Lading.
In the first case, States Marine International Inc. v. Seattle-First National Bank, the bank, Seattle-First National Bank financed two shipments of canned salmon on vessels operated by States Marine International, Inc.. The bank held a security interest in the shipments and was named as consignee in the Bills of Lading. At the ports of discharge the goods were delivered in the warehouses which issued negotiable warehouse receipts to the financing bank indicating that the goods were received for the account of "Seattle-First National Bank Acct. Royal Red Seafoods, Inc.." Royal Red Seafoods arranged the sale of salmon and then notified the bank of the sales so that the bank instructs the warehouse to release the goods. The proceeds from the sale of salmon were then forwarded to the bank under a trust receipt arrangement.
However, Royal Red Seafoods failed to pay the freight and the carrier brought a legal action against the bank, the named consignee in the Bills of Lading. The carrier said that by accepting delivery of the goods through the warehouses, the bank as named consignee in the Bills of Lading exercised acts of dominion and control over the goods.
The Court found that the bank acted as a secured creditor and not as an owner of the goods. The Court said that a consignee is prima facie liable for the payment of the freight when he accepts the goods from the carrier, thus showing that the goods are his own and not of the shipper. Even where there is no actual acceptance of the goods by the named consignee, presumptive ownership may arise from his exercise of dominion and control over the shipment. If the consignee reconsigns the goods or changes the shipper`s instructions, such orders would be deemed an implied acceptance of the goods and the consignee has an implied obligation to pay the freight.
The Court held that the acts of the bank did not imply acceptance or control sufficient to impose liability on the bank for the payment of freight.

"The mere designation in the bill of lading of the consignee as the one liable for the freight charges does not create a contractual relationship between the carrier and the consignee, rendering the latter liable therefor, but rather, the consignee becomes liable therefor when an obligation arises on his part from presumptive ownership, acceptance of goods and the services rendered, and the benefits conferred by the carrier for such charges."

The facts of the second case were similar.
Beaumont Oil Ltd. asked Banque Paribas to finance the purchase of cargo of gasoline from Venezuela and to issue a letter of credit for the payment of cargo. The letter of credit required that Bills of Lading to be made out to the order of Banque Paribas and to show New York as port of discharge.
For the carriage of cargo, Beaumont Oil Ltd. voyage chartered the vessel "Torm Rotna" from the shipowner, Dampskibsselskabet Torm. During the carriage, the voyage charterer changed the destination nominating Portland as new port of discharge. At Portland the cargo was discharged into the storage tanks of Time Oil Co. against Charterer`s Letter of Indemnity which was joined in by Banque Paribas. After the delivery of gasoline into the storage tanks, Time Oil Co. issued a warehouse receipt to Banque Paribas. Then Beaumont Oil Ltd. arranged the sale of gasoline and notified the bank of the sales so that the latter approves the delivery of gasoline to purchasers.
Beaumont Oil Ltd. became insolvent and was unable to pay the freight. The shipowner sought to recover the freight due from Banque Paribas, as named consignee and holder of the Charter Party Bills of Lading.
The District Court found that Banque Paribas exercised dominion and control over the cargo. The Court said that by co-signing the letter of indemnity for delivery of the cargo and imposing conditions on the storage of cargo at Time Oil Co., Banque Paribas exercised dominion and control over the cargo so that a promise to pay the freight charges could be implied. The active role played by Banque Paribas was enough to impose liability for freight on the bank.
Banque Paribas appealed and the case went to the US Court of Appeals for the Second Circuit.
The US Court of Appeals for the Second Circuit said that Banque Paribas was not contractually obligated to pay the freight that being the responsibility of voyage charterer. The Court said that the bank neither accepted the goods nor otherwise acted in a manner that would have led to its anticipating liability. The US Court of Appeals for the Second Circuit disagreed with the District Court with regard to the significance of the bank co-signing the charterer`s letter of indemnity to shipowner for delivery of the cargo. The letter of indemnity was intended to protect the shipowner from any liability for discharging the cargo without the presentation of original Bills of Lading. The Court noted that it was Beaumont Oil Ltd. (voyage charterer) and not Banque Paribas that ordered the vessel to change the destination for discharge at Portland instead of New York, as stated in the Bills of Lading.

by Vlad Cioarec, International Trade Consultant

This article has been published in Commoditylaw`s Oil Trade Review Edition No. 3.

Endnotes:

1. 524 F.2d 245 (9th Cir. 1975)
2. 927 F.2d 713 (2nd Cir. 1991)