What is Switch Bill of Lading?

What is Switch Bill of Lading?

The practice of issuing a Switch Bill of Lading involves surrendering the original Bill of Lading (B/L), under which the cargo was initially shipped, to the carrier or its agents in exchange for a new set of B/Ls that have modified details such as the shipper’s name and address, the issue date, or the port of shipment. This procedure can be utilized for various commercial purposes, including concealing the cargo’s origin if the source is politically sensitive, or for fraudulent objectives like evading customs duties or misrepresenting shipment dates which may affect the purchase price of the goods.

Switch Bills of Lading are inherently risky due to their potential for facilitating fraud. Additionally, when such bills are intended to establish contracts of carriage with the actual shipowner (not merely a disponent shipowner), it is critical to secure the shipowner’s explicit authorization. This is because a provision in a Time Charter (T/C) that allows the charterer to issue B/Ls does not automatically extend to the issuance of Switch B/Ls. Furthermore, even if a sub-charter contains express permission for issuing Switch B/Ls, these do not bind the shipowner unless similar permissions are included in the head charter.

A significant hazard of this practice is the risk of the carrier issuing a new set of B/Ls without first ensuring the surrender of the original set. The presence of two conflicting sets of B/Ls not only raises the likelihood of fraudulent activities but also complicates the carrier’s responsibility in guaranteeing that the cargo is delivered to the legitimate recipient. Normally, the shipowner or the shipowner’s agent, who issues the B/Ls, should bear any resulting losses from such discrepancies.

Differences between the terms of the original and the switch B/Ls can also pose challenges. An endorsee of a Switch B/L might find the terms of the original B/L more favorable, potentially leading to disputes or dissatisfaction. Legally, replacing the original B/L with a Switch B/L could be seen as a mutual amendment of the carriage contract by the involved parties. However, complications might arise if the B/Ls were issued under different legal jurisdictions, particularly concerning the applicability of the Hague-Visby Rules.

A critical question is whether the Hague-Visby Rules, if applicable to the original B/L, continue to apply following the issuance of a Switch B/L. Moreover, complexities might emerge when the carriage is part of an international sale transaction, especially those financed by documentary credits (Letters of Credit). It is essential to determine whether the terms and representations in the Switch B/L satisfy the documentary requirements of the credit and provide the buyer with the necessary continuous documentary coverage from the port of shipment to the destination.

Despite the growing use of Switch B/Ls, there has been limited litigation addressing these issues, leaving many legal questions unresolved and the practice shrouded in uncertainty.

Why a Switch Bill of Lading?

The process of transporting goods often necessitates changes to the original bill of lading, leading to the issuance of a switch bill of lading that reflects updated information.

Minor adjustments might be directly endorsed on the original bill, but more significant modifications like alterations to the discharge port, changes in the buyer or receiver, detailed updates in the goods description, or trading terms usually require a new bill of lading.

Occasionally, shippers use switch bills of lading to conceal the true seller or the cargo’s actual origin country. While this practice raises ethical questions, it is sometimes employed for various reasons.

A switch bill of lading can only be issued when the original bill is not in use, and the cargo hasn’t been delivered to the buyer. The original shipper, typically the one authorized to request changes, must return the first set of the original bill of lading to the shipping company, along with a signed, stamped request and the buyer’s written consent.

Upon issuing the switch bill of lading, the original set becomes obsolete. It is crucial that there aren’t two different bill of lading sets for the same cargo.

Global trade and goods transportation are constantly evolving. Negotiations often lead to changes in the sale terms and conditions, which might require updating the original bill of lading during the cargo’s voyage.

Changes could be due to alterations in the discharge port, corrections in the cargo description for customs, or the buyer reselling the in-transit goods. In such instances, the original bill needs updating to reflect these new details.

If the original bill of lading is not updated, it could complicate the cargo clearance at the destination port. A new, updated bill of lading – the switch bill – is therefore issued to ensure smooth clearance by the rightful buyer at the new port.


What is Stack Dates?

Stack dates and switch bills are distinct concepts in shipping logistics, each addressing different aspects of the transportation process.

A switch bill of lading is essentially a revised version of an existing bill of lading, used to update or alter information such as the destination port, the description of the goods, or the identity of the buyer. It’s issued when there’s a need to change significant details after the original bill of lading has been issued.

On the other hand, stack dates refer to specific deadlines set by the port for when containers must arrive to be loaded onto a scheduled vessel. These dates typically range from 2 to 5 days and are crucial for maintaining shipping schedules. Missing a stack date means the container hasn’t arrived at the port within the allocated time frame and, therefore, cannot be loaded onto the intended vessel. Reasons for missing stack dates can vary, including poor planning, unforeseen delays like strikes or natural disasters, etc. In such cases, the container will have to wait for the next available sailing, possibly on a different ship.

It’s important to note that switch bills of lading are not applicable for situations involving missed stack dates because, in these scenarios, the original bill of lading hasn’t been issued yet. The switch bill of lading is only relevant when there’s already an existing bill that needs to be updated or altered.


What Should Not be Changed in a Switch Bill of Lading?

When issuing a switch bill of lading, it’s crucial to maintain certain aspects of the original bill unchanged, as they are fundamental to the cargo’s transportation contract.

  1. Cargo Description: The fundamental description of the cargo must remain the same. The contract of sale and purchase is for specific commodities, and altering the basic description effectively changes the contract itself. However, further details can be added to the description in the switch bill of lading for clarity or to fulfill specific requirements.
  2. Quantity of Cargo: The quantity of cargo cannot be altered in a switch bill of lading since the cargo has already been shipped and its quantity is fixed.
  3. Dangerous Goods Declaration (DGD): For hazardous cargo, the DGD remains unchanged. This declaration includes information about the dangerous goods category, special packaging and packing requirements, and necessary marks and labels. The switch bill of lading must reflect the same DGD as in the original.
  4. Legal Compliance Undertaking: The statement confirming adherence to national and international laws for transporting hazardous goods remains unaltered in the switch bill of lading.
  5. Cargo Dimensions: For Out-of-Gauge (OOG) cargo, the dimensions specified in the original bill of lading remain constant. The switch bill of lading won’t show any changes to the cargo’s dimensions.
  6. Port of Loading and Sailing Date: The port of loading and the date of sailing are also fixed and won’t change in the switch bill of lading, as the cargo’s voyage has already commenced from a specific port.
  7. Original Clauses: The original clauses stated in the original bill of lading will be carried over and remain unchanged in the switch bill of lading.

It’s essential to adhere to these stipulations to ensure the switch bill of lading is valid and accurately reflects the transported cargo while complying with legal and contractual obligations.


Misuse of Switch Bill of Lading

The misuse of a switch bill of lading is a potential concern, especially if changes are made without the buyer’s knowledge, which could constitute fraud. To mitigate this risk, it’s crucial for the buyer and seller to establish clear, upfront agreements.

Prior to finalizing any business contract, both parties should thoroughly discuss and agree upon all aspects of their transaction, including the specifics of transporting goods from the seller’s location to the buyer’s designated warehouse. This discussion is essential as transportation plays a significant role in the execution of business agreements.

The contract should explicitly state that any modifications to original documents, like the bill of lading, require the buyer’s written consent. This stipulation ensures transparency and mutual agreement on any changes, safeguarding both parties’ interests.

Additionally, incorporating specific clauses in the insurance policy covering the transaction can be a prudent measure. These clauses would address potential issues stemming from the improper use of a switch bill of lading, providing an extra layer of protection and clarity in the event of disputes or misunderstandings related to transportation and document handling.


P&I Cover and Switch Bill of Lading

Protection and Indemnity Clubs (P&I Clubs) frequently encounter inquiries from shipowners about switching bills of lading. Despite the commonality of this practice, it often leads to confusion about the shipowners’ ability to comply, the proper issuance of new bills, and the implications for P&I Cover. Addressing these concerns, this article will outline key considerations for shipowners when responding to requests for switch bills and offer practical guidelines to minimize associated risks.

Key Concerns for Shipowners:

  1. Legal and Contractual Implications: Switching bills of lading can have legal ramifications, particularly if the changes are substantial or if they are made without the consent of all parties involved. Shipowners should be aware of the potential for contractual breaches and the legal consequences that could follow.
  2. Risk of Fraud: There is a risk of fraud, especially if the switch bill of lading is used to misrepresent the cargo’s origin, condition, or value. Shipowners need to ensure that the switch does not facilitate fraudulent activities.
  3. Impact on P&I Cover: Switching bills may affect the shipowner’s protection and indemnity cover. It’s crucial to understand how such changes might impact the insurance terms and conditions.

Practical Guidelines for Minimizing Risks:

  1. Verify the Legitimacy of the Request: Shipowners should confirm that the request for a switch bill of lading comes from a legitimate party with the right to make such a request, usually the shipper or consignee.
  2. Ensure Written Consent: Obtain written consent from all relevant parties, including the shipper, consignee, and any other stakeholders. This consent should detail the changes and acknowledge agreement to them.
  3. Consult with P&I Clubs: Before proceeding with the switch, consult with the P&I Club to understand the potential implications on insurance cover and seek advice on the best practices.
  4. Accurate and Transparent Documentation: Ensure that the new bill of lading accurately reflects the cargo and the terms of carriage. Transparency in documentation can prevent misunderstandings and potential legal issues.
  5. Legal Advice: In cases of uncertainty or complexity, seeking legal advice can provide clarity and help in navigating the potential risks associated with switching bills.

By following these guidelines, shipowners can better navigate the complexities of switch bills of lading, ensuring compliance with legal requirements and minimizing risks to their operations and P&I cover.


Concerns with Switch Bill of Lading (B/L)

Under usual circumstances, with various exceptions, a bill of lading is endorsed by the master or their representative and given to the shipper after the cargo is loaded onto the ship. In exchange for payment, the shipper then passes this bill to the consignee. At the destination port, the consignee submits this bill to the carrier to collect the cargo.

However, when bills of lading are switched, the document tendered at the destination port differs from the one initially issued at the port of loading. This situation can raise several issues for a careful shipowner, of which three key concerns will be outlined here.

1- Increased Risk of Misdelivery Claims

The primary concern for owners regarding the agreement to switch bill requests is the elevated risk of delivering cargo to the wrong party. This issue arises particularly if new bills are generated before the original ones are invalidated and returned. In such cases, multiple bills of lading could exist simultaneously for the same cargo, creating a highly problematic scenario for the owner. For instance, if a deceitful shipper has sold the cargo to multiple parties, two different recipients might each present a valid bill of lading at the port, both claiming the same cargo. This situation could lead to the carrier facing claims for the cargo’s full value.

One way to reduce the risk of having multiple active bills is through the use of electronic bills of lading. E-bills allow for amendments while the cargo is en route, eliminating the need to issue new physical documents.

2- Potential Illegality

Requests for switch bills of lading can sometimes be based on valid reasons, such as a change in the consignee’s logistical plans necessitating delivery at a different port than initially planned.

However, shipowners should be cautious about certain types of requests that could indicate questionable motives. For example, a request to issue new bills indicating a different port of loading than the actual one is a clear attempt to disguise the cargo’s true origin. This could be an effort to bypass sanctions or to avoid import duties. Similarly, requests to consolidate cargo at a secondary loading port and issue new bills stating all cargo was loaded there could be an attempt to mask the cargo’s actual journey.

Particularly concerning are requests for ante- or post-dated switch bills. These might be used to manipulate Letter of Credit terms, which courts often view as fraudulent.

If shipowners comply with switch bill requests for illegitimate reasons, they risk being implicated in the requester’s illegal activities. The consequences of such involvement, especially in cases like evading sanctions, can be severe and damaging for the shipowner. Therefore, it’s critical for shipowners to thoroughly assess the intent behind a switch bill request before agreeing to it.

3- Prejudiced P&I Cover

While most P&I (Protection and Indemnity) policies don’t explicitly state that switching bills of lading will automatically result in a loss of coverage, shipowners could still face a loss of cover if due diligence isn’t exercised during the process.

For instance, P&I cover for cargo claims might be forfeited if the switched bill of lading is either ante- or post-dated, or if it includes incorrect descriptions of the cargo or its quantity, especially when the member or a ship officer is aware of these inaccuracies. Similarly, cover for fines could also be jeopardized under these circumstances.

Additionally, if bills of lading containing incorrect information are issued, discretionary cover like protection against losses due to vessel confiscation by customs law infringements may not be available. This is because issuing incorrect bills can be seen as not taking reasonable steps to prevent legal violations.

Moreover, most P&I Clubs have a fundamental prerequisite for any coverage to be valid: the shipowner must not knowingly use the vessel for illegal activities. If this condition is breached, such as by issuing switch bills of lading for deceptive purposes, it could invalidate the shipowner’s insurance coverage. Therefore, utmost care and adherence to legal and ethical standards are imperative when dealing with the switching of bills of lading.


How to minimize the risk of Switch Bill of Lading?

For shipowners, complying with a request for switch bills of lading can be driven by significant commercial motivations, and sometimes this compliance is agreed upon in the charterparty. However, it’s important to note that a charterer cannot compel shipowners to agree to switch bills as part of an illegal scheme. For shipowners who have agreed to switch bills for valid reasons, here is a non-exhaustive list of precautions to minimize risks:

  1. Legitimacy of the Request: The requestor must provide a valid reason for the switch, and the shipowner should ensure the purpose is legitimate. If there’s any doubt, the request should be declined.
  2. Verification of Bill of Lading (B/L) Holder: The requestor must prove they are the lawful holder of the entire original bill set. As bills are usually issued in sets of three, and some may be in transit, there’s a high risk of multiple bills circulating. It’s also important to remember that the shipper might not always have the authority to request switch bills.
  3. Drafting the New Bill of Lading (B/L): If the shipowner is convinced of the requestor’s legitimacy and the absence of illegal intentions, the requestor should present a draft of the New Bill of Lading (B/L):
    • The new bill should mirror the original in format and clauses. Key details like cargo description, loading and discharge ports, and cargo weight/quantity must be identical. Both sides of the bill should be checked for discrepancies.
    • The original issue date should not be transferred to the new bill, as this would constitute a misstatement. The new bill should accurately reflect the cargo’s loading details and the correct issuance date and location.
  4. Cancellation and Return of Original Bill of Lading (B/L): The complete set of original bills must be canceled and returned to the shipowners or an authorized party. Ideally, the shipowner should wait to receive the original bills before issuing the new ones.
  5. Letter of Indemnity (LOI): The requestor should provide a Letter of Indemnity (LOI), assuming all risks and consequences of switching the bills. This LOI should also be co-signed by a reputable bank, further ensuring the shipowner’s protection.

By following these steps, shipowners can effectively manage the risks associated with switching bills of lading while fulfilling their commercial obligations.

Shipowners are cautioned to seriously consider the risks associated with switching bills of lading. Every request for such a switch should be meticulously evaluated. Shipowners must not become complacent or overly reliant on the success of past switch bill procedures. Reassurances from brokers or pool managers should be taken with caution, as they do not bear the consequences if issues arise. The real risk lies with the shipowners, who could face significant problems, including the detention of their vessel by customs authorities or arrest due to the mis-delivery of cargo, if the switch bill process is mishandled. Therefore, it is imperative for shipowners to exercise due diligence and thorough risk assessment in each case of switching bills of lading.


Is it legal to issue Switch Bill of Lading?

A switch bill of lading is issued to replace an existing bill for cargo already loaded onto a ship, but it differs in some respects from the original bill it replaces.

Under English law, there are no legal objections to switching bills of lading, provided all parties involved in the carriage contract consent and there’s no fraudulent intent behind the request.

A bill of lading serves as a receipt, detailing the quantity and condition of goods at shipment, and functions as a title document and (if not ‘straight’) a negotiable instrument. The final buyer, typically not present at loading, relies on the bill’s accuracy. Often, the original bill is integral to credit arrangements, acting as security for bank credits to the buyer.

The carrier must exercise caution and assess the differences between the original and proposed switch bill of lading. Any misleading information in the switch bill, such as cargo origin, loading date, or description, could jeopardize P&I cover and render indemnity letters from the requestor unenforceable.

Legitimate reasons for bill switching include changes in sale contracts or cargo consolidation from different suppliers. It’s crucial that the shipper is correctly identified in the carriage contract and on the bill of lading.

If a carrier agrees to switch bills, it is vital to ensure the surrender and cancellation of all original bills before releasing new ones. This confirms consent from all parties and minimizes misdelivery claims.

Contractually, a carrier is typically not obligated to switch bills unless specifically agreed upon. Charterparties usually don’t provide charterers with the right to issue switch bills.

Carriers should consider the following when requested to switch bills:

  • The requestor’s relation to the carriage contract and their authority to make the request.
  • The differences between the existing and proposed bills.
  • The potential for misleading third parties regarding cargo details.
  • The impact of the switch on P&I cover.
  • The legitimacy of the requestor’s reason for switching.
  • The requestor’s control over all original bills for cancellation.
  • The viability and asset backing of the indemnity letter offered by the requestor.

This list is not exhaustive, and shipowners should seek further advice from P&I clubs or legal advisors if in doubt.


What are the reasons for switching a Bill of Lading?

A switch bill of lading is issued to replace the original bill of lading given to the shipper when the goods were received or loaded. This new bill is often issued at a different port from where the goods were loaded, and it can be issued anywhere globally where the issuer has an office or authorized agent.

There are various legitimate reasons for requesting a switch bill of lading, as highlighted by the International Transport Intermediaries Club (ITIC). These include:

  • Changing the named discharge port on the original bill, often due to the goods being resold and needing new bills naming a new discharge port.
  • A seller in a series of transactions wanting to replace the original shipper’s name on the bills, thus issuing a new set with the seller listed as the shipper.
  • Consolidating goods initially shipped in small parcels under one bill of lading to simplify resale, or conversely, splitting a bulk shipment into multiple smaller parcels.

Published cases also shed light on potential reasons for switching bills. For instance, in the Bandung case, the court noted that switch bills might be used to hide the origin of goods, the identity of the original shipper, the shipment date, or to account for on-board commingling of cargo. An example from the Seyou Products case in Singapore showed goods shipped from Korea, transshipped in Singapore, with switch bills issued to show Singapore as the load port, altering the shipper’s name to keep the cargo source confidential.

However, reasons for switching to a different load port can be more problematic, such as circumventing sanctions against certain states. Similarly, changing the cargo description in switch bills might involve evading import restrictions on the originally described cargo.

As discussed in further sections, the reasons for requesting a switch bill can significantly affect its legal validity and the risks associated with switching.


Does the issue of a Switch Bill of Lading (B/L) constitute novation? 

The only known analysis of legal issues related to switch bills, to the author’s knowledge, is a 1996 article by Toh Kian Sing. Toh states that even though the original bill of lading is considered spent after being surrendered and cancelled for a switch bill, the underlying contract of carriage persists. This transition from one bill to another simply offers new proof of the existing contract without altering it. However, this perspective may be limited to specific contexts, like the continued applicability of Hague-Visby Rules after the switch, as discussed later. It’s argued that the original contract’s survival isn’t always guaranteed. For instance, in the ‘Finmoon’ case, where a bill of lading was replaced by an identical one at a different port, the contract remained the same. But changes like altering party names, destinations, or cargo amounts in the bill suggest a contract novation or variation.

Commonly, bills of lading are switched to change the shipper or consignee’s name. Such changes might signify a contract novation, where a new party replaces an original one with everyone’s consent. Novation extinguishes the old contract for a new one without needing new consideration. For example, if ‘X’ owes ‘Y’ and they agree with ‘Z’ that ‘Z’ will pay instead, ‘Y’ consents to release ‘X’ in exchange for ‘Z’s promise to pay.

In switch bill scenarios, the bill issuer often has major obligations, making them the debtor in this analogy. The new consignee or shipper takes over the rights and obligations of the original party. Carrier consent for this switch can be prearranged, like including a clause in the shipowner-charterer contract. English law allows for such advance consent to novation, as seen in Habibsons Bank Ltd v Standard Chartered Bank, where it’s noted that explicit use of ‘novation’ isn’t necessary for its legal effect.

1- Altering the Shipper’s Name

Altering the shipper’s name on a bill of lading by issuing a switch bill can be controversial, especially if the original bill’s shipper name is considered a factual declaration of who actually shipped the goods. Such a change might be seen as fraudulent misrepresentation. Nonetheless, commercial needs often require buyers to maintain confidentiality of their sources when reselling goods, achievable through a switch bill that doesn’t disclose the original shipper’s identity. This is acceptable if the shipper’s name change is interpreted not as a factual error but as a contractual change, where the original shipper is replaced by the buyer in the contract.

However, when a switch bill changes the shipper’s name to that of a buyer or charterer, it’s usually at the buyer’s request, who already holds the bill of lading. This makes the buyer a party to the carriage contract without needing a contractual change. A switch bill’s issuance might have broader implications, as the transferee assumes both the rights and obligations of the shipper, extinguishing the original shipper’s rights and obligations. If this constitutes a contractual change, the carrier can only enforce rights and defenses against the newly named shipper.

The original shipper typically agrees to be replaced in the bill, as key rights over the cargo are preserved. For instance, under English law, an unpaid seller’s right to stop goods in transit remains intact regardless of their status as the shipper. The price for requesting a name change is assuming the shipper’s obligations and liabilities towards the carrier. Carriers agreeing to such switches should be aware that their recourse against the original shipper might be lost.

2- Altering the Consignee’s Name

Merely being named as the consignee on a bill of lading doesn’t automatically involve that individual in the transport contract or grant them rights to enforce it. However, under the UK’s Carriage of Goods by Sea Act 1992, such an individual can gain legal rights against the carrier if they lawfully hold the bill, without needing an endorsement. Therefore, altering the consignee’s name can be significant, affecting who may have legal rights against the carrier. In the case of The Sea Master, a switch bill of lading was issued, changing both the cargo destination and the consignee’s name to a bank involved in financing. The key question was whether the bank, as a result, became liable to the shipowners under the bill of lading terms, like for hazardous cargo shipment or demurrage fees. The bank, designated as the consignee, faced a counterclaim for significant demurrage charges due to delayed sub-sales, but it contested being the original party to the switch bill contract. The court didn’t resolve this, leaving it to arbitration due to a clause the bank was bound to when it became the bill’s lawful holder. It’s unlikely that the issuance of a switch bill alone changes the ‘original party’ in a carriage contract unless there’s a contractual replacement. A change in the consignee between the carrier and the bill’s lawful holder typically results in a contract variation, not a complete replacement, as it’s just an agreement to deliver to someone different than initially planned.

3- Altering the Carrier’s Name

A question often considered in the context of switch bills being issued is whether this action can lead to a change in the contractual carrier, potentially resulting in a contractual novation. This scenario was presented in a case in the Singapore courts, where M-Power, holding a bill of lading, requested a switch bill to modify the shipper’s name and the cargo description. Goodway issued the switch bill and later claimed they acted as agents for VTC, the original bill’s issuers. They argued that switch bills should only be issued by the original carrier or their representative. M-Power contended there was no indication of Goodway acting as VTC’s agent.

The goods were delivered without the bill of lading, leading M-Power to sue Goodway as carriers. Initially, they won by default, but the Assistant Registrar overturned this judgment, and the High Court dismissed M-Power’s subsequent appeal, indicating these issues should be addressed at trial. However, there seems to be no final decision on the case, suggesting a possible private settlement or resolution. Had M-Power proven VTC was an undisclosed principal, Goodway could have been liable as principals, according to laws on undisclosed principals. But, given M-Power’s knowledge of VTC issuing the original bill, it’s unlikely they would’ve successfully argued Goodway was acting as the principal. This rationale wouldn’t apply to a transferee of the switch bill unaware of the switch or the original bill’s issuer.

4- Changes Other than Ones Relating to the Charterparty

It’s argued that reasons for issuing a switch bill of lading, which don’t involve replacing one contractual party with another, shouldn’t be seen as a novation of the contract. Instead, these should be regarded as requests to alter the carriage contract. While this paper doesn’t delve deeply into the laws of contractual changes, it’s important to note that in one scenario, agreeing to the change means a new voyage and discharging cargo at another port. In another, it means delivering varying cargo quantities to different recipients than initially agreed. In both situations, the alteration would mean freeing the issuer from their initial bill obligations.

5- Effect of Switching Bill of Lading (B/L) for the Purposes of Insurance

It’s important to consider that altering certain details can impact insurance processes. Cargo insurance certificates, which detail the cargo and its journey, including consignee names, bill of lading references, and dates, can be affected by switch bill modifications. These changes, especially in the case of a new discharge port, could complicate filing insurance claims for lost or damaged goods. Inconsistencies between the switch bill and the insurance certificate might also lead to banks rejecting documents under a letter of credit. Additionally, changes like these might require activating a held-covered clause in the insurance agreement, possibly entailing notifications and extra payments.


Who may request the Switch Bill of Lading (B/L)?

When a request for a switch bill of lading is made, the receiver must assess if the request comes from an authorized individual, capable of requesting a change or novation in the contract. This depends on the contract of carriage parties at the time of the request. The Maersk v Sonaec Villas case exemplifies the complexity of determining the involved parties. In this case, a straight bill of lading was issued, not a negotiable one, with the buyer named as consignee. After the buyer’s payment failure, the seller, recognized by a Chinese court as the cargo’s owner, obtained the bill’s possession and requested a switch bill from the carriers, Maersk. The pivotal question was whether issuing the switch bill infringed the buyer’s rights as the consignee under the original bill. Despite the buyer being an original party to the contract under COGSA, the seller had the right to redirect the goods if unpaid.

The case analysis raises questions, as the original bill didn’t mention the seller or agents as the shipper, and the FOB terms sale contract usually implies the buyer arranges carriage, making it unclear why the seller was considered the original contract party. It could be argued that the consignee’s rights didn’t affect the seller’s right to resume possession under sales law. This case highlights the importance of caution when issuing a switch bill to ensure the requestor is legitimately entitled.

Further complexity is illustrated in cases from Singapore and Malaysia. In the Bandung case, the original bills were pledged to a bank, which remained the lawful holder with rights against the carrier even after the bills were released under a trust receipt. The court ruled that the pledge survived the issuance of switch bills. This suggests possession of the original bill is a prerequisite for requesting a switch. However, in a Malaysian case, the sellers, holding the original bills, saw the cargo released against switch bills requested by the buyer, without the carrier’s knowledge or consent of the original bill’s holder, highlighting the necessity of consent from the legal holder for a switch.

Notably, charterparty clauses often allow the charterer to request switch bills in exchange for the original bill, implying the charterer must possess the original bill or have consent from the possessor. This reinforces the complexity and legal intricacies involved in the issuance of switch bills of lading.


Issuer’s Consent to the Switch of Bill of Lading (B/L)

The key element in determining if a switch bill issue is a novation or a variation of the contract of carriage lies in the consent of the bill’s issuer. While cases haven’t explicitly labeled the switch as either, the authorization from the original bill’s issuer, or their agent, is crucial. To ensure a successful switch request, obtaining the issuer’s consent at the start of the contractual relationship is advisable. In practice, charterparties may include clauses that allow the shipowner or disponent owner to issue switch bills under certain conditions. However, when issuing switch bills as the shipowner’s agent, it’s important to adhere to the clause’s terms.

For instance, in the Islamic Republic of Iran Shipping Lines (IRISL) v Phiniqia International Shipping LLC case, a breach of contract occurred as the switch bill was issued without surrendering the first set of the original bill, despite a clause requiring this action and a letter of indemnity. Similarly, in Daewoo Hong Kong v Mana Maritime Inc, the switch bill, which changed the shipper’s name, was unauthorized due to the absence of a consent clause in the charterparty. The question then arises whether a clause stating ‘Bills of Lading shall be signed as Charterers direct, without prejudice to this Charter’ provides adequate authority for issuing switch bills at will. The Atlas case suggests a more specific clause might be needed for proper authorization.

Ad hoc agreements for switches are also possible at the time of the request. These typically hinge on the surrender of the original bill of lading and other imposed conditions, without which the issuer is not obligated to proceed with the switch.


Cancellation of the Original Bill of Lading (B/L)

A “Switch Bill of Lading” truly becomes such when the Original Bill of Lading is given up and nullified in exchange for the new one. Issuing a fresh set of bills without annulling the old ones can lead to substantial liability for the issuer. Historical cases indicate that the original bill of lading retains its status as a title document until it is surrendered and voided. For example, in “The Lycaon,” the court criticized the carrier’s agents for issuing a second bill of lading without first obtaining and voiding the initial bill, demanding a convincing explanation for the whereabouts of the first bill. The issuance of a second bill led to confusion over who had the right to the delivery, resulting in the carrier choosing not to deliver the cargo upon its arrival in Douala, causing significant costs that the cargo owners attempted to recover from the carriers. Similar delays were seen in “The Vasiliy Golovnin,” where a switch bill to change the discharge port was not executed due to the charterer’s failure to present the original bill. The court ruled the carrier’s decision to discharge at the original port as reasonable.

Issuing a second bill without voiding the first could indicate fraud intent. In “Samsung v Devon Industries,” collusion between charterers and shipping agents to issue prepaid bills without settling with the seller was deemed fraudulent. The case underscored the importance of fulfilling ‘cash against documents’ terms, highlighting the need for payment before considering the documents as owned. The fraudulent issuance of the second bill allowed the sellers to claim the cargo from the shipowners, who bore the loss due to the charterers’ insolvency.

“Technical Waxes” further illustrates potential fraud in issuing switch bills. Here, the implausibility of a shipping agent’s explanation for issuing a switch bill, when the ship wasn’t in the claimed location, pointed to fraudulent activities. These cases emphasize the need for carriers and their authorized agents to be cautious in issuing switch bills to prevent abuse and fraud.

International Law and Switch Bill of Lading (B/L)

In cases where a switch bill of lading alters or replaces an original contract, it’s essential to assess its impact on mandatory international public law. Two main situations can arise: firstly, if the switch bill originates from a different jurisdiction with a different international transport convention than the original; and secondly, if the switch bill shows a different port of loading or discharge. These situations raise questions about whether a different legal regime applies to the switch bill and, if so, whether this new regime’s limitations and liability exclusions for the carrier will be recognized.

The criteria for applying different conventions vary. For instance, the Hague Rules consider the bill of lading’s place of issue, while the Hague-Visby Rules also include the bill’s issuance in a Contracting State or carriage from a port in a Contracting State. The Hamburg Rules have a more extensive list of criteria. Conflicts can arise if the switch bill changes the port of loading or discharge or if it’s issued in a different place than the original bill, potentially altering the carrier’s liability.

Regarding the applicability of these conventions, if a switch bill indicates a different port of loading than the original, it may be considered a misrepresentation. However, this issue doesn’t arise if the goods are transhipped at an intermediate port with a new bill issued. In cases where the actual port of loading is under sanctions, the switch bill’s contract might be void due to illegality or public policy concerns.

If the switch bill is a contract variation, the applicable regime might be that of the port indicated in the switch bill. Issues arise if goods are lost or damaged between the actual and indicated ports of loading. In such cases, liability and risk assessments become complex, especially in cases of gradual damage.

Difficulties also emerge when the switch bill’s place of issue imposes a different legal regime than the original place of shipment, potentially altering liabilities and rights. Such variations might be upheld unless they are seen as attempts to circumvent mandatory legal rules. Therefore, replacing regimes like the Hamburg Rules with the Hague or Hague-Visby Rules might be problematic.



Risks of consenting to the issue of Switch Bill of Lading (B/L)

The issuance of switch bills of lading presents significant risks for the carrier, even though they might consent to it for business-related reasons. Recognizing and understanding these risks is vital for taking steps to prevent and mitigate potential issues.

1- Risk of Liability for Misrepresentation

As previously mentioned, switching a bill of lading without a corresponding change or amendment in the contract can be equivalent to intentionally including false information or errors in the bill of lading. If a loss occurs because of accepting such a bill as part of the contract of carriage, the holder is entitled to a remedy. A key question is whether using the same date on the switch bill as on the original bill of lading amounts to misrepresentation. Notably, in a CIF (Cost, Insurance, and Freight) transaction, the buyer may reject a switch bill dated later than the actual shipment. The Hansson case demonstrated that in CIF sales, the freight contract must be secured at shipment time, and a bill of lading issued much later and in a different location than the original was deemed unacceptable. This case highlighted the ambiguity of certain notations on the switch bill, leading to uncertainty about the holder’s rights. Thus, a bill of lading tendered under these circumstances may not be considered a through bill of lading. This presents a potential issue when a switch bill, issued significantly later or in a different place than the original, needs to be tendered for a CIF contract.

There are valid reasons for dating the switch bill the same as the original, even if it’s issued later, but it raises the question of potential misrepresentation. According to UCP 600, Article 20(a)(ii), the bill of lading’s issuance date is considered the shipment date unless an on board notation states otherwise. This suggests that backdating a switch bill to reflect the shipment date might not be misleading if the goods were indeed shipped on that date. Practices like dating switch bills for split bulk cargo with the original bill’s date support this. However, as shown in IRISL v Phiniqia, in disputes, especially those involving fraud allegations, the issue date can be contested. A safer approach might be to indicate the actual issue date along with a note that the switch bill replaces an earlier bill and mention the original bill’s issue date.

2- Risk of Fraud against Buyer and Seller

The examples of Samsung v Devon, IRISL v Phiniqia, and PT Karya highlight the complexities surrounding switch bills of lading, which can be illegitimately requested by a buyer to secure payment from a sub-buyer without paying the original seller. In these instances, the switch bill was issued while the original bill was still active. The consequences for the original bill’s issuer varied: in IRISL v Phiniqia, the original bill’s issuers did not sanction the switch bill’s issuance; in Samsung v Devon, the second set of bills was issued with the shipping agents’ collusion; and in PT Karya, the agents were deemed authorized to issue the switch bills. Consequently, in the latter two cases, the original bills’ issuers were held accountable. These cases underscore the responsibility of the issuer to restrict the authorization for issuing switch bills and to vigilantly oversee those agents who have the apparent authority to circumvent these restrictions.

3- Risk of loss of P&I Cover 

Protection and Indemnity (P&I) Clubs advise their members on the correct procedures for issuing alternate bills of lading. This advice highlights several key points: verifying the requester’s authorization, securing consent from all involved parties, ensuring the wording of the new bill is clear and non-misleading, and confirming a valid reason for the change. Additionally, it’s crucial that the requester holds all original bills, which must be ready for surrender and cancellation. The effectiveness of any indemnity provided in return for the bill switch also plays a role. The degree to which failing in these aspects affects P&I coverage depends on the specific terms of coverage in each situation.

Due to the potential risk of losing coverage, the issuer usually demands an indemnity from the person asking for the bill switch. In such instances, it’s vital for the issuer or their agent to act strictly within the boundaries defined by the indemnity, adhering precisely to its instructions. As Manaadier notes, if an agent is instructed to issue a switch bill based on a customer’s indemnity, they should confirm the wording with the principal and get the indemnity approved before proceeding.

However, caution is advised when relying too heavily on an indemnity. Particularly, if the switch is requested for an illegal purpose, the indemnity might be invalid, depending on the issuer’s awareness. The case of Brown Jenkinson v Percy Dalton demonstrated that an indemnity provided for issuing a clean bill of lading for known defective cargo, with an intent to deceive, was unenforceable due to its fraudulent nature. Similarly, from The Jag Ravi case, it’s inferred that an indemnity is unenforceable if it’s intended for an illegal purpose. This includes not only fraud but also evasion of administrative laws like import regulations, tax laws, or sanctions.

4- Risk of Lack of Enforceability for Illegality 
Cargo owners sometimes ask for switch bills to sidestep laws against trading with oil-rich countries. An example is the Feoso case, where an agent issued switch bills without proper authority. The shipowner, not having received the Letter of Indemnity, refused to accept these bills and demanded the original, which made the cargo illegal in China, its destination. The court ruled the shipowner’s decision to leave Huangpu without offloading the cargo as reasonable. In another instance, IRISL v Phiniqia, it was mentioned that switch bills were considered to avoid sanctions against an Iranian company. In Sea Glory Maritime Co v Al Sagr National Insurance Co, there was a late move to change defense points after discovering claimants might issue false switch bills to bypass Iran trade rules. Switch bills in these cases would change the Iranian shipper’s name or port, potentially for illegal reasons. As carrying sanctioned items like transshipped oil from Iran could breach sanctions, shipowners are advised to include clauses in contracts to reject issuing switch bills for these reasons, as recommended by INTERTANKO and BIMCO.

Mitigating Risks of Switch Bill of Lading (B/L)

The risks in international trade transactions often arise because parties involved don’t have sufficient access to accurate and consistent information about goods or the confirmation of ownership rights. This lack of clarity can lead to unauthorized individuals requesting switch bills of lading. The issue is further compounded when agents might issue these bills without proper authority, resulting in the holders of these bills having either no rights or unenforceable rights due to legal complications. Adopting centralized or distributed ledger systems, which act as a single source of truth, could significantly reduce these risks by providing transparency.

In recent years, there’s been a shift towards electronic transport documents. Significant steps have been taken by various organizations and groups, such as the International Group of P&I Clubs and BIMCO, to incorporate electronic bills of lading in their operations. These changes are a response to the growing adoption of electronic systems, especially by large chartering corporations. The interest in distributed ledger technology, particularly blockchain, to replace paper bills of lading is also on the rise.

These electronic systems can mitigate risks associated with switch bills by ensuring that any substitution for a bill can only be issued with the original issuer’s consent and following the cancellation of the original bill. This process would prevent unauthorized issuance and provide real-time information about contractual terms and entitlements. Additionally, these systems could make the reasons for switch requests more transparent, enabling quicker and more informed decision-making. The audit trail created by these systems would offer clear obligations regarding the goods in question.

However, it’s surprising that INTERTANKO advises against using the essDOCS system as per Clause 30 of BP VOY 5, which facilitates the electronic issuance and signing of bills of lading. This reluctance might stem from the requirement for shipowners to subscribe to and understand the system. Nonetheless, when implemented, these systems can greatly reduce the risks in switching bills of lading by providing clear visibility into contractual terms and entitlements.