Foiling the forgers

FOLLOWING the UK Commercial Court decision in Motis Export Ltd v Dampskipsselskabet AF 1912, shipowners should be aware that the tendering of forged bills of lading by known or unknown parties at the discharge port, with the aim of obtaining delivery orders, which, in turn, allow taking delivery of the cargo, has become an unfortunate fact in today's shipping business.

From both a practical and an academic perspective, the release of goods against fraudulent documents raises a number of issues, including whether the delivery of goods to a person who is not entitled to them is considered a "loss of goods" in the sense of the applicable maritime law. It also raises the question of what defences are available to the carrier in cases of such a misdelivery of goods.

In the United Arab Emirates (UAE), the contract of carriage of goods by sea, including related topics such as carrier's liability for loss of or damage to the transported goods, is governed by the Commercial Maritime Law of 1981 (CML). The law is largely influenced by the Kuwaiti Maritime Law of 1980 and the Egyptian Maritime Law of 1976.

In respect of carriers' liability, none of the relevant international conventions (Hague/Hague-Visby Rules, Hamburg Rules) has been ratified by the UAE. But some of their provisions, with significant amendments, have been directly incorporated into the law.

A contract of carriage of goods by sea is defined as a contract whereby a carrier is obliged to carry goods from one port to another against payment of freight by the shipper and to deliver the goods to a designated person. Under UAE law, the carrier is liable for loss or damage sustained by the goods during the period from the time of taking delivery of the goods at the port of loading until delivery of same to the rightful person at the discharge port, unless it is proved by the carrier that the loss or damage arose from one of a list of "excepted causes". If a bill of lading is issued, this liability will be compulsory.

In order to establish the carrier's liability, or a possible exemption in cases where cargo has been released to a person not entitled to them, it is necessary to start with the question of whether such misdelivery constitutes a "loss" of goods. In Motis Exports Ltd v Dampskibsselkabet AF 1912, the English court had to interpret a bill of lading clause and held that loss of goods is not the same as misdelivery of goods. In conclusion, the court held the carrier fully liable and denied it the chance to resort to any exemption provided in the bill of lading.

In the UAE, the term "loss" is not defined in law. The Arabic term used in the law is "halaak". It carries a notion of totality and can be translated as "total loss" or "total destruction". The meaning of the legal term "loss" is to be interpreted and determined in the context of the carrier's obligation under the contract. It should also be viewed and interpreted from the perspective of the rightful cargo owner or the party who is entitled to the goods respectively.

In accordance with the provisions of the CML, the carrier is obliged to use the necessary care in loading, stowing, arranging, carrying, protecting, discharging and delivering the goods, and must ensure that the cargo reaches the rightful person. Misdelivery is the result of non-fulfilment of these obligations by the carrier. It is therefore submitted that the term "loss" is to be given a broad meaning and includes any cause whatsoever rendering the carrier unable to deliver the goods to the rightful person.

Comparing the Explanatory Notes on the Draft Commercial Maritime Law, which have been prepared by the UAE Ministry of Justice and Islamic Affairs, with the actual provisions of the law, it is also felt that it was the intention of the UAE legislator to impose on the carrier a comprehensive liability if for any reason it is not able to fulfil its contractual obligation to deliver the goods undamaged, complete and on time to the rightful person. From the point of view of the rightful cargo owner, or the party entitled to the goods, misdelivery of cargo is the same as non-delivery.

Once a misdelivery - and, as such, a loss - has occurred, the question of possible defences for the carrier arises. It should be noted that, under UAE law, a carrier would not be able to escape liability by referring to the terms of the bill of lading and to successfully claim that its obligations to the shipper ceased, in terms of an exemption clause in the bill of lading, on discharge of the cargo from the vessel, or on handing it over into the custody of any port or customs authority. Under UAE law the carrier is liable for any loss or damage sustained by the goods from the time of taking delivery at the port of loading until the time of delivery to the rightful consignee at the discharge port.

UAE courts decided on various occasions that a 'delivery to the consignee' requires that the latter obtains physical possession. Storage of goods in a warehouse or with the customs authority cannot be construed as being a 'delivery' in the context of the law. The carrier's liability as provided in the law is mandatory, and any limitations in the bill of lading are without effect. But a carrier will be exempted from any liability if it proves that the loss arose from one of a list of causes provided in Article 275 (1) CML.

Among other reasons, the carrier is not liable if the loss arises from "any act or omission on the part of the shipper or owner of the goods or his agent or representative" or "any other cause which does not arise out of the default of the carrier or those working under him or his agent". The burden of proof rests on the carrier. Subject to the circumstances, a carrier may, for instance, submit that there was no default on its part or on the part of its agent, because special cargo release procedures had been implemented in order to minimise the risk of becoming the victim of fraudulent documents. If such procedures existed, and provided the carrier and its agents complied with them, it is possible to argue that the carrier fulfilled its obligations under Article 272 (2) CML "to use the necessary care in delivering the goods" to the rightful person.

Much will depend on the quality of the forgery. Considering that it is the carrier who controls the form, signature and issuing of its bills of lading, a court could be expected to place a considerable burden on the carrier to substantiate and prove the absence of any fault.

Under Article 275 of CML, the carrier shall not be liable if the loss arose from any act or omission on the part of the shipper or owner of the goods or its agent or representative. This provides a further basis for a possible defence of the carrier. A successful defence will, of course, require a thorough prior investigation of the underlying facts. Possibilities to be considered in this regard may include the question of how the forgery has been accomplished, especially where the forgery is of high quality and looks almost identical to the original. It should come as no surprise if, in cases where cargo was released against fraudulent documents, there are indications that the shipper had some part in the process. However, the full burden of proof still rests on the carrier.

Preventing a liability is obviously better than defending a claimed liability, though not necessarily easier. Carriers are therefore advised to ensure that their agents are fully aware of the existence of fraudulent documents and that they do not deviate from required cargo release procedures. In the same context, carriers should reconsider existing cargo release procedures to determine ways and means in which they can be improved in order to minimise the risk of being deceived by fraudulent documents.