Release of goods without bill of lading - International Law Office

Facts
Comment

Facts

In November 2008 Jiangsu Maibaolong Co Ltd concluded a sales contract with a Danish buyer and nominated Scan Global Logistics Co Ltd to handle the carriage of the goods. As the Chinese agent of Scan Global, Scan Logistics (Shanghai) Co Ltd dealt with related consignment procedures.

When the batch of goods arrived safely at the destination, the Danish buyer failed to make payment against the documentation and Scan Global delivered the goods to the buyer without the original bill of lading. Consequently, Jiangsu Maibaolong took legal action against Scan Global and Scan Shanghai for total loss.

Scan Global and Scan Shanghai were in a difficult position. As the carrier which had delivered the goods without the original bill of lading, Scan Shanghai was not entitled to enjoy the limitation of liability and was likely to be found responsible for Jiangsu Maibaolong's total loss.

Scan Shanghai argued that, as the vendor, Jiangsu Maibaolong should bear partial responsibility with regard to the delivery of goods without the original bill of lading.

The goods supplied by Jiangsu Maibaolong were subject to certain quality problems, which left the buyer unable to resell them in good time and recover the purchase cost. As a result, the buyer failed to pay Jiangsu Maibaolong on time.

Once the goods arrived at the destination, the buyer did not take delivery against the bill of lading for a long period. The goods were deemed to have failed to clear Customs and were ready to be auctioned by the Danish authorities. When informed by the buyer that Jiangsu Maibaolong had agreed to release the goods before collecting the money, in order to prevent further loss, Scan Global released the goods to the buyer in good faith. Nevertheless, Jiangsu Maibaolong, which had remained unpaid for a long time, paid no attention to the whereabouts of the goods and did not contact Scan Global and Scan Shanghai on this subject. Consequently, Scan Global lost the opportunity to claim for recovery from the Danish consignee. Thus, Scan Global obtained no benefit, but had to bear a substantial liability.

As the freight forwarder, Scan Shanghai was not responsible for problems occurring during transportation once it had fulfilled its obligation of cargo space booking. It was thus difficult for Jiangsu Maibaolong to attribute liability to Scan Shanghai for the release of the goods without the original bill of lading.

As the carrier, Scan Global was likely to have to bear responsibility for the delivery of goods without the original bill of lading. However, as the company was registered in Denmark, it would be difficult to enforce a Chinese court's judgment in Denmark, even if Jiangsu Maibaolong ultimately won the lawsuit. Moreover, owing to the global financial crisis and the sustained economic downturn in Europe, from 2009 the buyer's business went into decline. With the company about to enter bankruptcy proceedings, there was little chance for Jiangsu Maibaolong to recover a loss by suing the Danish buyer, and the latter hoped to resolve the dispute with Jiangsu Maibaolong through Scan Global and Scan Shanghai.

A consensus was reached and both parties signed a settlement agreement to close the file. The carrier paid the counterparty 68% of the amount claimed.

Comment

Although the carrier had erred in delivering the goods without an original bill of lading, it managed to avoid the full consequences and a payment of 100% compensation.

Where a dispute arises due to a delivery of goods without the original bill of lading, the parties should consider whether consultations and negotiation can be used to resolve the dispute, rather than proceeding to litigation. Since such an approach is less likely to damage a good business relationship between parties, they may still be able to cooperate in future. However, a carrier that commits an error must have a correct and objective understanding of its responsibilities and obligations.

For further information on this topic please contact Jin Yu-Lai at Shanghai Kai-Rong Law Firm by telephone (+86 21 5396 1065), fax (+86 21 5396 1204) or email (jinyulai@skrlf.com).