Admiralty Law’s Role in Release of Shipment

Admiralty Law’s Role in Release of Shipment

Q: I just read your Jan. 31 column concerning the international forwarder whose Hong Kong partner/agent is demanding he hold the imported freight until the agent’s principal, the seller, has received payment — even though the U.S. consignee claims to have a 30-day line of credit with the seller, and objects to the delay.

You and the party who posed the question appear to have overlooked an important fact: The issue of whether the forwarder must release the shipment upon arrival in the U.S. turns on only a couple of facts based on general admiralty law.

If the shipment is based on an order (of shipper) bill of lading, the consignee must pay the bank, get the original B/L and then endorse and tender it, along with his payment for the charges owed, to the U.S. forwarder. If it’s a direct shipment, the consignee simply must tender the original B/L after it’s endorsed, again along with paying any charges due. If the consignee fails to tender the original B/L (OBL), he is not entitled to the shipment.

The forwarder must take its direction from the B/L, the contract of carriage. As long as the importer tenders the original B/L, duly endorsed and pays the charges, the forwarder must release the goods. It doesn’t have the option to withhold them for any reason, because doing so opens it up to a lawsuit for conversion. If no OBL is tendered, however, there is no duty to release the goods under general principles of admiralty law.

Susan Kohn Ross
International Trade Counsel
Mitchell Silberberg & Knupp
Los Angeles

A: I haven’t even a nodding acquaintance with admiralty law and must thank Susan — also a JOC monthly columnist (see Customs Update, page 31) — for the succinct education she provided me. She says admiralty law trumps commercial law (the basis for my original answer) in this area, and I have no reason to doubt her.

Under commercial law, the bill of lading serves as the contract of carriage and that’s all. It doesn’t ordinarily bear on title to the goods (except for an order bill, a rarity these days in domestic trade).

But under admiralty law, apparently the original of that document (OBL) is proof of right to possession of the goods, whether it’s an order bill or not. So Su’s comments clarify the procedures my original correspondent should follow in delivering or withholding the shipments, and should overcome any complaints he’s getting from his principal, the consignee.

That is, either the consignee can present the OBL and is therefore entitled to the goods, or he can’t and the forwarder holds them. It’s black and white, and no disputes should arise.

None of that, however, explains the inconsistency of my original correspondent’s problem and his principal’s supposed line of credit with the Hong Kong seller.

Ordinarily, Su tells me, the seller’s receipt of payment triggers the OBL to the buyer. If it’s an order B/L, a local bank (to the seller) has the OBL and turns it over when the seller pays, a payment duly wired to the seller’s bank; otherwise payment is made to the seller, who returns the OBL.

(Of course, the seller might not pay. In that case, the bank or seller retains the OBL, without which the freight won’t be released, and the seller directs alternative disposition.)

Where there’s a line of credit, though, payment isn’t an immediate issue. In such a case, the seller ought to ship direct and provide the buyer with the OBL with no banks involved. Isn’t that what “credit” means?

So one of two things is happening: Perhaps the buyer is presenting the OBL, and the Hong Kong agent is pressuring his forwarder to withhold delivery pending payment, in which case the forwarder and the agent are acting improperly, and the forwarder is subject (as Su says) to a lawsuit for conversion. Or perhaps the buyer doesn’t have the OBL, in which case, what’s he griping about?

All of which reconfirms my original feeling that something’s funky. Either the “line of credit” is a phantasm, with the seller unwilling to give the buyer the goods until it has cash in hand, or the forwarder and/or his agent are getting too vigorous about upholding the seller’s rights.

Thanks again, Su, for the education and the help.

Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455; phone, 843-559-1277; e-mail, Contact him to order the most recent 351-page compiled edition of past Q&A columns, published in 2010.