In October this year the District Court of New South Wales handed down a judgment in the matter of Australian Capital Financial Management Pty Limited (ACFM) v Freight Solutions (VIC) Pty Limited (Freight Solutions) [2017] NSWDC 279 that provides a clear warning to freight forwarders and all those issuing bills of lading.
Freight Solutions (an Australian freight forwarder) was found liable to ACFM (a financier) for damages for misleading and deceptive conduct and breach of warranty of authority in the amount of $845,456.93 by reason of issuing house bills of lading that masqueraded as ocean carriers bills.
The facts of the matter can be summarised as follows:
- ACFM loaned money to the exporter of sheepskins and cowhides from Australia to China;
- It was a condition of the loan agreement that the exporter deposit all original shipping documents for each shipment with ACFM, including bills of lading;
- Upon payment of the balance drawn down on the loan facility, ACFM would release the relevant shipping documents to the importer in China who could then proceed to collect the goods;
- Freight Solutions were the freight forwarder who arranged the shipping of the skins and hides for the exporter;
- Freight Solutions issued eight bills of lading. Four purported to be issued as agent for carrier China Ocean Shipping, two as agent for Mitsui OSK Lines, one as agent for PIL and one as agent for OOCL;
- All named the exporter as shipper, were marked “TO ORDER”, and stamped “ORIGINAL”. None were endorsed to a third party;
- The bills of lading were delivered by the exporter to ACFM in return for drawdowns on the loan facility;
- However, Freight Solutions did not have authority from the ocean carriers to issue the bills of lading and unbeknown to ACFM, ocean bills of lading were also issued by the ocean carriers. These were not provided to ACFM;
- The cargo was delivered to importers in China but ACFM did not receive payment under the loan facility; and
- ACFM believed that they were secured as holders of the original bills of lading but they were not by reason of the bills of lading issued by the ocean carriers.
Damages for misleading and deceptive conduct
Section 18 of the Australian Consumer Law provides that:
“A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”
Section 236 of the Australian Consumer Law provides for damages to be awarded to a person who suffers loss or damage by reason of the misleading and deceptive conduct.
The court found that ACFM reasonably believed that the bills of lading issued by Freight Solutions were issued on behalf of the ocean carriers, were bearer bills and were the only bills of lading in existence such that ACFM could reasonably rely on those bills of lading as security. It mattered not that the bills of lading had not been endorsed because the loan agreement provided that ACFM could call on the exporter to endorse the bills of lading if it wished.
The court found that, but for the issuance of the bills of lading by Freight Solutions, ACFM would not have released funds to the exporter such that Freight Solutions’ conduct had caused the loss suffered.
Breach of warranty of authority
Further, the court found that Freight Solutions purported to execute each bill of lading as agent for the ocean carrier, without having authority from any of the ocean carriers. The court held that a cause of action for breach of warranty of authority is available even if the plaintiff enters into a transaction with another person, rather than the agent who misstated the extent of its authority. As such Freight Solutions were also liable to ACFM in damages for breach of warranty of authority.
Bills of lading – Handle with care
The case serves as a good reminder of the number of parties in the logistics chain who may reasonably rely on the terms of a bill of lading whether it be a house bill or an ocean bill. As a document of title, receipt and contract of carriage, a bill of lading has unique characteristics which require accuracy and careful handling at every turn. The issuance of duplicate bills of lading (identical or otherwise) gives rise to a very significant risk even if the intended purpose appears purely administrative on its face.
Australian law permits claims to be brought for misleading and deceptive conduct despite a lack of contractual nexus between the parties. As such, freight forwarders may be exposed to claims by parties of whom they are not even aware if they issue bills of lading that are inaccurate in any way.
This article was written by Chris Sacré, Special Counsel and Matthew Brooks, Partner.