Concerns Over Korean Court Ruling In Bill of Lading Dispute

Can a cargo carrier deliver goods without a bill of lading? This is a simple question and yet full of implications for international trade and finance which relies on the use of a document of title called a bill of lading. The answer is of course no. Without the presentation of a bill of lading,a carrier delivers the goods at his peril. If the carrier is able to deliver the goods without the presentation of the bill of lading,the countless number of bills of lading held by the banks in international trade would be worthless and all international transactions based on a bill of lading would be disrupted. That would be to the detriment of all - the banks,the carriers,the traders and the public in general.

Recent Court Decision in Korea

There was a recent trial court decision in Korea,where a carrier who delivered goods without the presentation of a bill of lading was held to be without fault. As a result,the bank which had sued the carrier for the price of the bill of lading that the bank held,lost the case and the bill of lading that the bank held became worthless.

In a short opinion comprised of only seven pages,the court examined the arguments of the bank and the carrier and upheld the argument of the carrier.

When the court decides a case,it not only looks at the arguments of the two sides but also considers the implications of the decision that the court will make.

It is interesting to note that in the decision of the court,there is no mention of how the decision will affect banks and the bills of lading that it holds in its daily operations of international trade. If the bill of lading held by the banks is without any worth,the banks will stop all trade transactions based on the value of the bill of lading.

Let us look in greater detail at the facts of the case to see how the court made its decision and what aspect of the case it seems to have missed.

Facts of the Case

After having paid under a letter of credit,the bank was surprised to find that the carrier had delivered the goods without the presentation of the bill of lading which was still in the possession of the bank.

The exporter and the importer were both one company. The carrier was a major international company and the goods were scrap metal. There was a master bill of lading issued by the carrier and also house bills of lading issued by the freight forwarder.

The goods had been delivered in Korea by the agent of the freight forwarder. The freight forwarder was based in the United States. The bank had sued the said agent of the freight forwarder for wrongful delivery of goods. And the court had ruled that the agent of the freight forwarder was without fault and the bank lost the case.

The freight forwarder in the U.S. issued two house bills of lading. One was consigned to the order of the bank which was sent to the bank which paid for the documents sent under a letter of credit issued by the bank. The other was consigned to the importer and it was designated as an Express Release.

The agent of the freight forwarder claimed that it had paid on the strength of the Express Release issued by the freight forwarder and that it did not know of the issuance of the other house bill of lading consigned to the order of the bank. The court believed the statement of the agent of the freight forwarder and under the circumstances ruled that the agent of the freight forwarder had committed no wrong in this case.

Discussion of the Court Decision

Carriers know that under the terms and conditions of the bill of lading,it is illegal to deliver goods without the presentation of the bill of lading. Delivery of goods without presentation of the bill of lading can even be fraud and conversion of goods. If the carrier is able to somehow deliver the goods to the rightful person without the presentation of the bill of lading,there is no problem. But when there is a problem such as in this case,then the carrier will have to face the legal consequences of its actions. 

Express Release

In order for the Express Release to be handled correctly,the bills of lading have to be presented to the carrier at the port of loading by the rightful holder of the bills of lading. Without such presentation of bills of lading to the carrier,the Express Release lacks the proper authorization.

In this case,there was no presentation of the bills of lading by the rightful holder of the bills of lading to the carrier at the port of lading. Although the agent of the freight forwarder stated that it did not know of the issuance of the house bill of lading consigned to the order of the bank,this is not possible. Unless bills of lading had been presented to the carrier at the port of loading,no Express Release can be issued by the carrier. This is where the court went wrong in its decision. The court did not know that unless the bill of lading was presented to the carrier at the port of loading,the Express Release could not be issued.

Thus if the agent of the freight forwarder claimed that it did not know of the issuance of the house bill of lading consigned to the order of the bank,it lied.

In this case,the exporter was paid for the house bill of lading consigned to the order of the bank that had been sent to the bank under the letter of credit. The exporter then sent the Express Release to the importer who was able to get delivery of the goods from the agent of the freight forwarder with the Express Release.

Issuance of Two House Bills of Lading

Both the house bill of lading consigned to the order of the bank and the house bill of lading issued as an Express Release have the same house bill of lading number. Thus any on-line system used by the freight forwarder and his Korean agent would make it clear that under the one house bill of lading number,there were two bills of lading -- one consigned to the order of the bank and the other consigned to the importer named as an Express Release with the same details as the former document. Thus any claim by the agent of the freight forwarder that he did not know of the issuance of the other house bill of lading consigned to the order of the bank makes no sense.

Having decided that the agent of the freight forwarder had done nothing wrong in delivering the goods to the importer without the presentation of the bill of lading but based on the Express Release,the court does not say anything about what the bank is to do with the bill of lading that it is holding and what would be the effects of making such a bill of lading held by the banks worthless.

Bills of lading are documents of title which are the basis of the international trade financing provided by the banks to facilitate international trade. For the court to not even mention the obvious implications of its decision seems somewhat curious.

The standard on which the actions of an actor are judged is by the standard of his peers. In the International Transport Intermediaries Club Ltd Guidelines for the Release of Cargoes 2013 is the following:

'Telex Release