In What Circumstances The Buyers Of Bulk Commodities May Become Liable For Unpaid Freight Under The Bills Of Lading
Claims for unpaid freight had been reported in cases when the charterers became insolvent and the shipowners sought to recover from the consignees.
An example of such case was the 2001`s claim of Siboti K/S against BP France1.
The voyage charterer ENRON became insolvent and the shipowner Siboti K/S sought to recover the amounts due for freight and loading port demurrage from the consignee, BP France. To secure its claim for the payment of freight and loading port demurrage, the shipowner asserted a lien over the oil cargo after it was discharged into the shore tanks at discharge port based on Asbatankvoy lien clause incoporated into the Bill of Lading. Then the shipowner brought a legal action in the English Courts against the buyer of cargo, BP France, alleging that by taking delivery of the oil cargo under the Bill of Lading, BP France became subject to the outstanding liabilities for the unpaid freight and loading port demurrage, pursuant to section 3(1)(a) of COGSA 1992.
The claim failed for the lack of jurisdiction because the Bill of Lading did not expressly incorporate the English jurisdiction clause of charter party, but the question that remained following the case was whether the shipowners are entitled to recover the unpaid freight from the consignees in case of charterers` insolvency.
It is doubtful whether the shipowners can recover the unpaid freight in jurisdictions which apply the Hamburg Rules, unless the Bills of Lading stipulate that the freight is payable by the consignee or that the consignee could incur liability for the payment of freight.
The article 16 paragraph 4 of the Hamburg Rules has the following provisions:
"A bill of lading which does not, […], set forth the freight or otherwise indicate that freight is payable by the consignee or does not set forth demurrage incurred at the port of loading payable by the consignee, is prima facie evidence that no freight or such demurrage is payable by him. However, proof to the contrary by the carrier is not admissible when the bill of lading has been transferred to a third party, including a consignee, who in good faith has acted in reliance on the absence in the bill of lading of any such indication."
There are a number of Bill of Lading forms that can provide such evidence in case of shipowners` claims. One example is "INTANKBILL 78" that has a box "Freight and charges" for the listing of carriage charges due to the carrier and contains the following statement:
"By taking delivery of the cargo the Consignee shall make himself liable for unpaid freight, deadfreight, demurrage and other charges."
Another example is SOMO2 Bill of Lading form that contains the statement:
"FREIGHT PAYABLE BY BUYER AS ARRANGED"
These Bill of Lading forms are used by the commodity shippers who sell on FOB terms and do not wish to be held liable under the Bills of Lading for freight in case the FOB buyers who chartered the ships are unable to fulfil their charter party obligations.
In US and English jurisdictions the question of consignees` potential liability for unpaid freight depends on the terms of Bills of Lading and charter party incorporated in the Bills of Lading and whether the consignee exercised any rights under the Bills of Lading, i.e. by demanding delivery of the cargo to himself or to a third party.
In 1975`s US law case States Marine International Inc. v. Seattle-First National Bank3, the US Court of Appeals for the Ninth Circuit held that:
"a consignee may be liable for freight charges by virtue of either an express or implied contract."
The relevant paragraphs of the judgment are quoted below:
"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."
"Where, as here, the bills of lading impose no liability the courts must look beyond the express contract to the conduct of the consignee to ascertain whether a promise by him to pay the freight charges may be implied. In establishing such an implied obligation, several indicia have been relied upon.
The most obvious indication of a consignee`s implied agreement to pay for freight charges occurs when he accepts the goods himself. […] 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 shipment. […] [I]f the consignee reconsigns the goods or changes the shipper`s instructions, an implied acceptance of the goods may result, and the inference may then arise that the consignee has assumed liability for the freight charges."
In 1991`s US law case A/S Dampskibsselskabet Torm v. Beaumont Oil Ltd and Banque Paribas (Suisse) S.A., Geneva4, the charterer and consignee Beaumont Oil Ltd. took delivery of an oil cargo against a letter of indemnity and afterwards became insolvent and did not pay the freight. The shipowner sought to recover the freight charge from Banque Paribas, the bank that financed the purchase of oil cargo by Beaumont Oil Ltd..
The Bills of Lading did not specify who was to pay freight charges. The Bills of Lading were issued to the order of Banque Paribas and stipulated that the freight was payable "as agreed".
The charter party stipulated that it was the charterer`s obligation to pay the freight. Notwithstanding charterer`s primary responsibility to pay freight and the fact that Banque Paribas was not expressly contractually obligated to pay freight, the US Court said that it is also necessary to look to the conduct of Banque Paribas "to see whether a promise to pay the freight "may be implied"".
The question was whether Banque Paribas could be held liable for freight charges for its actions as secured creditor, in particular for permitting discharge at a different destination than stated in the Bills of Lading and then for permitting the re-sale of the cargo. The conclusion resulting from the case was that if the banks or other secured creditors holding Bills of Lading made out to order and duly endorsed demand delivery of the goods or instruct the carrier to deliver the goods to a different destination than that stated in the Bills of Lading or to a third party can become liable for the freight charges even though the Bills of Lading do not state who is liable for the freight charges.
The question of consignees` potential liability for freight is relevent in oil trade where the freight is usually payable upon discharge of the cargo in the shore tanks and the shipowners often do not have the possibility to exercise the lien over the cargo.
by Vlad Cioarec, International Trade Consultant
This article has been published in Commoditylaw`s Oil Trade Review Edition No. 3.
Endnotes:
1. See Siboti K/S v. BP France S.A., [2003] EWHC 1278
2. SOMO is the trade name of the State Oil Marketing Organisation, the Iraqi national oil company.
3. 524 F.d 245 (9th Circuit, 1975)
4. 927 F.2d 713 (2nd Circuit, 1991)