Switch bill of lading issues: A brief overview
TM Law’s Nico Saunders (below left) and Henry Stockley (below right) summarise the legal and practical consequences associated with the practice of issuing switch or split bills of lading
The practice of ‘switching’ bills of lading
involves a second bill being issued in substitution for the first bill of lading. Although the practice is widespread and often
has a sound commercial basis, potential issues arise as to whether the carrier can and should comply with such request. The issuance of switch bills may involve risk
and uncertainty for the carrier. The primary questions are whether the party
requesting switch bills has the right to do so, and what a carrier can do to mitigate risk.
Why are switch bills required? Switch bills are often requested for reasons such as: 1. There may be a change to the contracting parties because a sale has fallen through. Therefore the cargo may have to be redirected to a new buyer.
2. A seller of the goods in a chain of contracts may not want the original shipper to appear on the bills of lading. Instead, the seller is named as the shipper (this is not uncommon in practice).
Introduction By way of simple summary of industry practice, upon shipment of a cargo a bill of lading is issued to the shipper who, once it receives payment, transfers the bill to the consignee, enabling it to take delivery of the cargo at the discharge port by presenting the bill of lading to the master. When a bill of lading is ‘negotiable’, it may be
transferred multiple times before delivery is taken by the ultimate purchaser of the goods. Bills of lading therefore usually constitute:
• A receipt for the goods (evidence of quantity and condition);
• Evidence of the contract of carriage and its terms;
• A document of title to the goods (giving the lawful holder the right to claim delivery upon presentation, the power to transfer that right, symbolic possession of the goods and title to sue the carrier). A bill of lading also often forms an important
part of a credit arrangement and represents a bank’s security in respect of any credit advanced to a buyer.
3. A change in discharge port because the goods have been resold, the onward transport arrangement has changed or the seller has an option to discharge at one of a number of ports.
4. The buyer requires one bill of lading to cover multiple small parcels to facilitate on-sale or requires multiple bills of lading that effectively break a bulk shipment into smaller parcels.
5. To take account of commingling, consolidation or blending of cargo, or to change the description of the goods.
6. If the cargo is discharged and reloaded other than at the original loadport.
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