Fraud and Bills of Lading

Publication Date01 Mar 1996
AuthorJohn Bassindale
SubjectAccounting & finance
Journal of Financial Crime Vol. 4 No. 1 Maritime Fraud
Fraud and Bills of Lading
John Bassindale
Because of their nature, bills of lading present
numerous opportunities for fraudsters to manip-
ulate the commodity trades. These opportunities
arise because of the unique range of functions that
such bills perform. What follows is a brief exposi-
tion of the three main legal functions of a bill of
lading, as well as three areas of commerce where
bill of lading frauds frequently occur.
First, the bill records the fact that the goods des-
cribed in it have been either 'shipped' or 'received
for shipment'. Further if the bill is not 'claused', it
will also generally record the fact that the goods
have been received in 'apparent good order and
condition'. This does not, of course, necessarily
mean that the goods comply with the sale contract
description. But it does mean that they are not
obviously broken or damaged. The bill of lading
therefore serves as a receipt by the carrier for the
goods described in it, and the statements which the
carrier makes about this may amount to contrac-
tual representations by him, for which he can be
held responsible.
The second and related feature of the bill is its
function as a transferable 'document of title'. A
carrier is, in theory, only obliged to deliver goods
to a lawful endorsee or consignee who presents an
original to him at the discharge port. This means
that possession of the bill will indicate cither a
right, or at least an ability, to take physical delivery
of the goods at the end of the voyage. In practice,
of course, if the bill is not available, the goods may
be delivered against a letter of indemnity, but that
docs not affect the underlying legal position. It
follows that the bill needs to be capable of transfer
or negotiation from seller to buy down the trading
chain (or through the banking chain), until it
reaches the hands of the receiver who is going to
take physical delivery. That party will then take up
and pay for the document on the clear understand-
ing that it gives him possession of the goods des-
cribed in it. That person may, at least in a CIF or
CFR contract, never have seen the goods at all.
Nor will he necessarily have had a representative at
the load port, verifying that the goods have even
been put on board. Thus he, and in many cases his
bank, rely on the information contained in the bill,
without having any realistic prospect of checking
that the facts stated in it are true.
The combination of these two functions of the
bill, as a receipt and a document of title, means
that buyers rely on the bill as an indication first,
that the goods are there, secondly, that they are
shipped in apparent good order and condition and,
thirdly, that they will be able to get possession of
the goods by tendering the bill at the discharge
port. It follows that, if a bill is produced which
records any of those matters inaccurately, the
potential for fraud has been created. And (as will
be seen below) anyone involved in the production
of such a document is likely to be regarded by the
courts as a party to that fraud.
A third function of the bill is its role as a con-
tract of carriage. In the hands of the shipper, the
bill of lading will generally evidence the contract
of carriage. On transfer, however, it will usually
create a contract between the lawful holder and the
carrier. If the information on the bill is inaccurate,
the buyer may then have a contractual cause of
action against the carrier. In many cases, the carrier
will have been given an indemnity by the shipper
(or perhaps by someone else) in order to persuade
him to issue a bill containing inaccurate informa-
tion in the first place. If he is then sued by the
buyer, he is likely to want to recover under that
indemnity. However, the position is not that
straightforward. If the shipowner and the shipper/
seller are regarded by the court as having, in effect,
conspired to defraud the buyer by putting into
circulation an inaccurate bill of lading, the indem-
nity issued by the shipper in order to persuade the
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