Fishy business

IN June 2003, a Panamanian company sold frozen fish to Italian buyers with payment against documents at destination. Buyers indicated to sellers their bank in Italy where sellers could send the original documents to obtain payment upon receipt. Sellers sent the original documents through their bank to the indicated Italian bank. But what if sellers, having shipped the goods, and given the original documents to their Panamanian bank to arrange for payment against documents with the buyers’ bank, discovered that the collecting bank in Italy did not exist? And what if it is too late to get the original documents back, as the buyers are already in possession of them? That’s what happened to the Panamanian company.

The point at issue was actually to avoid delivery of goods even though they were represented by valid documents. The Panamanian company appointed SLM-Studio Legale Morace (an Italian firm specialised in shipping, aviation and international commercial law) to invalidate the original bill of lading and/or to avoid delivery of the goods in Italy to the b/l holder. According to Italian law, the only person entitled to invalidate the original bill of lading is the consignee mentioned in the document. However, in the case in question, there was prima facie evidence to the shipper and the carrier of goods that the b/l had been obtained by the consignee in a fraudulent manner.

SLM solved the issue by appealing to the good faith and fair dealing principles that the carrier, based on the carriage contract, and “anyone, in performing contractual obligations” must follow. The Panamanian company avoided the release of the goods and succeeded in recovering both the original documents and, of course, the goods. However, Carlo Morace, a partner at SLM, says, “Banks must be responsible for checking with the receivers’ bank that it is instructed to receive documents and proceed with payment upon such receipt. Very often, as in this case, banks just take the documents and send them to the indicated address without checking even for the existence of the receiving bank. Banks should not act simply as couriers.”