Switch Bills of Lading

Under practice of issuing switch bills procedure, the original set of bills of lading under which the goods have been shipped is surrendered to the carrier, or his agents, in exchange for a new set of bills in which some of the details, such as those relating to the name and address of the shipper, the date of issue of the bills or the port of shipment, have been altered. This practice may be adopted for a variety of commercial reasons.

On the one hand, the object may be to conceal the source of the goods where such source is politically sensitive; alternatively the practice may be adopted for fraudulent purposes, for example to avoid customs duties at the port of loading or discharge, or to misrepresent the date of shipment where such date controls the purchase price of the goods shipped. Whatever the motive, ‘it is a practice fraught with danger, not only does it give rise to obvious opportunities for fraud but also, if it is intended that the bills of lading should constitute contracts of carriage with the actual owner of the ship (as opposed to any disponent owner) the greatest care has to be taken to ensure that the practice has the shipowner’s authority’. Thus the provision in an employment and agency clause in a time charter entitling the charterer to issue bills of lading does not automatically authorise him to issue a second set of switch bills. Again, while there may be express authority in a sub-charter for the sub-charterer to issue switch bills, such bills will not bind the shipowner in the absence of a similar provision in the head charter.

The greatest risk associated with this practice is of the carrier failing to ensure that the original set of bills is surrendered before the new set is issued. In such an event the circulation of two competing sets of bills not only increases the opportunities for fraud but also creates problems for the carrier, aware of the existence of two sets, in ensuring that the goods are delivered to the rightful claimant. As it would be the shipowner or his agent, in the normal case, who was responsible for the issue of the bills, it would seem appropriate that he should bear the cost of any resulting loss.

Problems will also arise where the terms of the two sets of bills are not identical. It is arguable that a subsequent endorsee of a switch bill will have no complaint on discovering that the terms of the original bill were more favorable to his interests.

From the contractual point of view, the surrender of the original set of bills in consideration of the issue of the switch bills could be regarded as a bilateral variation of the terms of the contract of carriage by the parties currently involved. Difficulties might, however, arise where the two sets of bills were issued in different jurisdictions and the Hague-Visby Rules were applicable in one but not the other.

In such circumstances, would the Rules be applicable throughout the carriage or, if applicable to the original bills, would they be displaced by the issue of the switch bills? Again, a number of issues remain to be resolved where the carriage forms part of an international sale contract, particularly where the latter is financed by a documentary credit.

To what extent will the terms and representations in the switch bill satisfy the documentary requirements of the credit, or will the bill provide the buyer with the continuous documentary cover required from port of shipment to the destination? Despite the increasing use of switch bills, there has been little litigation on the subject and many of these questions remain to be answered.