Release Of Cargo Without Presentation Of Bills Of Lading

The General Insurance Association of Singapore and Singapore Maritime Foundation regularly conduct talks on developments occurring in the industry (Maritime Knowledge Shipping Session) and invite various Shipping and Marine Insurance professionals to share their knowledge and expertise. The latest session was on 17thOct 2018 in which Ms Alicia Leong of Munich Re spoke on Transport Operators, Terminal Operators and Professional Indemnity Cover and Mr Nicholas Mavrias of Charles Taylor spoke on Emerging technologies in Shipping and P&I Cover. Following the talk there was a question and answer session moderated by well-known maritime lawyer, Richard Kuek of Gurbani & Co. We have been regularly attending these talks as this gives us not only an opportunity to keep abreast with the market but also meet friends and colleagues in the industry. One of the questions raised during the Q&A session was on the release of cargo without presentation of Bills of Lading and in particular whether the Transport Liability Operator’s (“TLO”) cover would deal with such claims. While this was indeed answered, given that there are divergences between a traditional P&I Cover and a Transport Liability Cover, we would wish to comment further on this aspect. A TLO cover is a relatively young product compared to the more matured Protection & Indemnity Cover (“P&I”) taken by Shipowners. While there are similarities in these covers, there are some differences and one of them is with respect to the release of cargo without Bills of Lading. Invariably, P&I Clubs exclude cover for release of cargo without production of Original Bills of Lading by incorporating an exclusion in their rules1. However, P&I Clubs2 include an omnibus clause in their Rules which do permit some flexibility by allowing the Directors of the Association to provide cover in some circumstances. With respect to commercial insurers providing P&I cover, this flexibility is not available to override any specific exclusions provided in the policy wordings.

A TLO cover is provided under “named perils” wordings i.e. the loss must fall within one of the sections of the policy (positive cover) and that there must be no exclusions in the policy which deny this positive cover. Invariably, most of the TLO policies provide cover for “Physical loss or damage to the cargo and consequential loss arising”3 (Cargo Liabilities) and for Errors and Omissions (includes delivery of cargo without presentation of Bills of Lading). However, TLO policies generally restrict this cover for “intentional and reckless conduct”. Additionally, the policy would incorporate in their General Exclusions “intentional / reckless conduct or failure to take reasonable precautions” such that any loss arising due to such conduct / failure would be excluded from coverage. A TLO may be involved in various roles such as a Freight Forwarder (either agent for the Cargo interests or the Carrier), a Contractual Carrier (NVOCC) or a Performing Carrier. The release of cargo without B/L could therefore occur in various circumstances such as Freight Forwarder (as agent for Carrier): The TLO may be involved in marketing the services of their Principals and may have issued their Principals Bills of Lading. The Principal or their destination / delivery agent may have released the cargo without seeking an original Bill of Lading. Given that the Shipper will be mainly affected by not being paid by the buyer, they may contact the TLO from whom they made the booking. As the TLO’s role in this shipment is purely that of an agent, the TLO would, in most jurisdictions4, be entitled to deny the claim given that there was no personal negligence. However, this would still require the TLO to defend the claim to avoid any default judgment. Accordingly, the TLO policy would respond to defend the TLO against any cargo claims pursued by the cargo interests in such instances. Freight Forwarder (as agent for cargo interests): The TLO may be involved in assisting their clients to book space with Carriers (Carriers B/L would be issued naming the TLO’s clients as the Shipper). If the Carrier or the Carrier’s agent releases the cargo without B/L, cargo interests could well pursue the TLO for their loss. Again, as the loss is due to the fault of the Carrier or their agents, no liability appears to attach to the TLO5. However, the TLO would have to actively respond denying the claim and directing the claim to the correct contractual parties (again if action is initiated and if the TLO fails to defend the claim, they could well receive a default judgment). The TLO policy would respond to defend the cargo claim pursued against them. Contractual / Performing Carrier: In this case, the TLO or their agents would have released the cargo without insisting for the surrender of the Original Bills of Lading as required. The cargo was released by the TLO themselves: If the release was effected deliberately either due to the provision of a Letter of Indemnity by the consignee6 or by colluding with them, then this would be considered as “intentional / reckless” such that the cover would be excluded. However, if the cargo was released due to an isolated error, then the loss may fall for coverage under the Errors & Omissions extension . The limits under an Errors and Omissions extension are generally restricted to a lower amount vis-à-vis the main cover. Hence, if a TLO requires higher limits for such claims, they must either seek an increase for the Errors & Omissions Extension or consider seeking cover under a Marine Professional Indemnity Policy7. The cargo was released by TLO’s agents: In this case, unless the policy wordings clearly exclude such losses, it is submitted that the policy would engage under the main section i.e. “Physical loss or damage to the cargo” and deal with the loss. Once the loss is settled, TLO Insurers would be subrogated to the rights of the TLO and can then pursue the TLO’s agent for recovery. In conclusion, a TLO policy provides wider cover vis-à-vis P&I cover with respect to release of cargoes without Bills of Lading subject to exclusions provided in the policy. TLO’s would be well advised to also
-Ensure that they have appropriate limits for their TLO risks
-Have an appropriate Standard Operating Procedures in place for release of cargoes
-Ensure to conduct a background search of their Principals / Agents so that they protect their recovery rights.

1 An example of the Rules would be “Unless and to the extent that the Members’ Committee in its discretion otherwise decides there shall be no recovery from the Association in respect of liabilities, costs or expenses arising out of delivery of cargo carried under a negotiable bill of lading or similar document of title (including an electronic bill of lading) without production (or the equivalent thereof in the case of an electronic bill of lading) of that bill of lading or document by the person to whom delivery is made, except where cargo has been carried on the entered ship”.
2 Transport Liability Mutuals such as TT Club also incorporate an Omnibus Clause in their Rules.
3 TT Club 2018 wordings provides cover under T1 for “Your liability for physical loss and damage of cargo and resulting consequential damage”. Physical Loss is defined in the policy as “damage, destruction, seizure, or deprivation of property such that there is no prospect of recovering the property or part of it”.
4 For instance – Article 138 of the Maritime Code of Kuwait provides that a ship agent shall be deemed as the representative of the Carrier in respect of claims arising out of the carriage by sea brought in the place of the agents place of business. Article 139.2 requires the ship agent to provide a cash deposit at a Kuwaiti bank or a bank guarantee as security for the execution of Kuwait Court judgements against his principal.
5 A TLO could be liable if there was some personal fault or negligence – say that they were aware that their clients wanted the shipment to be effected by a quicker carrier. However, the TLO booked with a carrier with a service which did not consider the requirements of their clients.
6 See our earlier article on release of cargo against LOI at
7 An Errors and Omissions cover is provided as an extension to the main policy. On the other hand, a Marine Professional Indemnity (“PI”) policy, although generally providing the same cover as an Errors and Omissions policy is the “main policy” and will be for higher limits. A PI policy is generally taken by professionals such as Ship Agents, Surveyors, Consultants, etc.


Source: NAU




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