The consequences for a Director of not delivering the bills of lading

The author , Managing Partner at Blas de Lezo in Spain, comments on a recent judgment (218/2013 dated September 27, 2013 ) issued in Bilbao forcing a Director of a freight forwarding company to pay five million dollars for refusing to issue and deliver the bills of lading.

The maritime industry in Spain sees quite frequently how certain alleged rights are exercised without a proper analysis, without addressing the serious legal consequences that may result out of them. Blas de Lezo has recently won a case in which a company, we will call “A”, contracted with a freight forwarder we will call “T”, the transport of certain goods from China to Vigo, Bilbao and Pasajes.

Let us briefly recall the facts of this case that have brought such dramatic consequences for the Director of the freight forwarding company. One of the main disputes between the parties, alleged by “T”, related to the cargo volume. “T ” refused to issue and deliver bills of lading arguing that more volume had been shipped on board, and that as a consequence, if a larger volume of goods was loaded, freight should be also be increased. Company “A” in turn argued that regardless of the volume loaded, the freight paid was fixed and also agreed in a “lumpsum” basis. “A” paid all the agreed freight and demanded the delivery of the bills of lading. But relying on this dispute over the volume, “T” considered unilaterally entitled to retain the bills of lading and not deliver them until that higher freight unilaterally demanded by it was paid in full.

Blas de Lezo, representing the company “A”, commenced arbitration in London requesting the Arbitral Tribunal to rule on the merits of this alleged lien on the bills of lading. Blas de Lezo argued that no lien can be exercised on the transport documents, in particular when the agreed freight had already been paid in full. “T” however insisted on its alleged right not to issue or deliver bills of lading, based on the alleged existence of a lien on the transport documents. The Arbitral Tribunal decided in favour of “A”, thus giving support to Blas de Lezo’s arguments: there is no lien or right of retention on the bills of lading, in particular when the agreed freight has been paid in full.

The Arbitral Tribunal also found that in any event the Freight Forwarder was not entitled to any additional freight for its allegations of a greater volume of cargo being shipped. “Lumpsum” meant just that, freight all inclusive, with no possibility of being reviewed at a later stage under any circumstance, whether volume or otherwise.

Any reasonable Director of a Freight Forwarding company would have put an end of this matter here. However, “T” through one of its Directors, refused to comply with this Award. This forced company “A” to enforce the Award in Spain. The Commercial Court of Bilbao again ruled in favour of company “A”, publishing a Court Resolution confirming the decision of the Arbitration Tribunal in London. But again, the Director opted for not to fulfill its obligation to issue and deliver the bills of lading as ordered.

This forced “A” to initiate enforcement proceedings against “T” asking the Court in Spain to give a monetary value to a bill of lading. If the Director at “T” was unwilling to deliver the bill of lading, “T” and the Director should pay the value of that bill of lading.

But ¿which is the value of a bill of lading? Supporting Blas de Lezo`s arguments, the Court decided that as a bill of lading is a document of title, the fair monetary value of it should necessarily be the value of the goods described in the front of it. Hence the forwarding “T ” has been ordered to pay five million U.S. dollars, as this was the value of the goods.

The consequence of it all was that, as a result of the Director at “T” refusing to deliver the Bills of Lading, the freight forwarding company went bankrupt and, unable to cope with such payment, entered into liquidation. It is indeed a decision difficult to understand, on why Director led the forwarding company to go bankrupt and then into liquidation.

In Spain, a Judge has always to rule on whether the bankruptcy proceedings (receivership or administration) have been “fortuitous” or “guilty”. This meant that in the light of the arguments of the parties, the Judge had to decide whether the cause of the bankruptcy, in this case the Director’s refusal to deliver the bills of lading, was fortuitous or guilty.

Blas de Lezo pleaded that it was of course guilty. Fortuitous is usually in most cases an investment that turns out to be a disaster, maybe out of the own evolution of the market, or a loyal customer over the years that suddenly stops paying bills, and the many other examples we have sadly seen that the sector has been suffering in recent years.

But the decision by a director and a business manager, not to deliver the bills of lading, despite numerous requests by the Court, can never be regarded as a fortuitous act. In fact, the Court called it “clearly, a premeditated criminal intent”, what we call in Spanish “dolo directo”.

The Director, in a final attempt to avoid the unavoidable, blamed his lawyers at Court. He said that he was advised that he should not issue and deliver the bills of lading and that he was simply following that professional advice.

But this was an argument that did not convince either the judge or the public prosecutor, who also appeared at Court. The Director had many chances to realise how wrong their lawyers were: fines imposed by the Court of 3,000 euros for each month passed without delivering the bills of lading, or the Judge ordering the entrance of the police at the freight forwarder offices to get possession of the bills of lading. But none of these drastic measures changed the mind the Director: he continued to retain and did not deliver the bills of lading.

There is no doubt that the advice and strategy of his lawyers were proven not only wrong – alarmingly wrong – but disastrous for the freight forwarder and its Director.

But we cannot forget that lawyers do not make decisions. Decisions of freight forwarders, and by extension of all companies in our industry, whether consignees, shippers, brokers or carriers, are taken by their managers. Managers and Directors must be very careful in evaluating the advice they receive from lawyers or from any other advisor, and any good lawyer must carefully warn the client of all risks faced by a freight forwarder to help those Managers and Directors to take the best possible decision in each case.

And which have been, on a practical level, the consequences for the Director who refused to deliver the bills of lading? By the Judgment reported here, the Director of the freight forwarding company has been found guilty of causing the disappearance of the company he directed; has been banned from managing any other company or business and has been ordered to pay all amounts owed to the company’s creditors.

But this does not end here. To comply with such a ruling, the Judge has ordered all of the personal property of the Director to be seized. Absolutely everything. Houses, cars, motorcycles, bank accounts, shares, pension plans…

The advice to be drawn from this case is to consider very seriously the risk faced by freight forwarders when they decide to retain the bills of lading in circumstances such as those described here, since that decision may mean that that under the current legal regime the Director might end up paying the economic value of the goods described in them. In this case, nearly five million US dollars.

Miquel Roca
Managing Partner
Blas de Lezo Abogados

NOTE: This article has been published by Diario del Puerto on 6 November 2013.