Billions of VND almost lost for fake Bill of Lading

At the end of  2016, a Vietnamese company (“CTV”) bought 4,000 tonnes of heavy steel scrap of melting, CFR Saigon Port, Incoterms 2010, payment by L/C at sight. The cargo was loaded onto a ship at Kobe port (Japan). Although the bank confirmed all documents were compliant on the surface, after investigation, lots of problems have been discovered.

Ngo Khac Le, Arbitrator of VIAC

Facts

At the end of  2016, a Vietnamese company (“CTV”) bought 4,000 tonnes of heavy steel scrap of melting, CFR Saigon Port, Incoterms 2010, payment by L/C at sight. The cargo was loaded onto a ship at Kobe port (Japan).

The Seller (“CNC”) had completed the delivery of goods and prepared payment documents valued at nearly USD 900,000. They then informed CTV name of the ship, itinerary, name and the address of shipping agent in Saigon for the purpose of receiving goods when ship arrives.

After receiving the full set of documents, the issuing bank had checked and confirmed that all the documents appeared on the surface to constitute a complying presentation of UCP 600/2007/ICC. Therefore, the bank transferred the documents to advising bank to inform CTV accordingly for preparation to receive goods.

Disputes

Through examination of the documents, CTV discovered some suspicious signs on the Bill of Lading and inspection report, and thus decided to conduct further investigation.

Contacting the ship owner, CTV knew that they time chartered out to TLS. Continuing to ask TLS, CTV was confirmed that they were the time charterer and as carrier in a voyage charter  with CNC being charterer and final destination port is Saigon, but the quantity (weight) of cargo was lower than stated on Bill of Lading; they did not authorize the shipping agent to issue the B/L; the place of issuing the B/L was not Kobe port where the goods was actually loaded onto the ship; it was written on B/L “freight prepaid” but TLS confirmed that they had not received any payment yet; the signing date of the B/L was earlier than the date when the cargo was actually loaded; the goods was not heavy steel scrap of melting (according to some photos from TLS). Moreover, TLS said that it already instructed their lawyers to sue CNC, including lien on cargo to sell for compensation of damages.

By checking with the International Maritime Bureau (IMB) – a body of International Chamber of Commerce (ICC) – whose one of its functions is prevention of wrong behaviors in trade and maritime, CTV and Vietnamese bank were informed by IMB that the Bill of Lading Issuer did not issue this Bill of Lading.

When being asked by CTV for comment on the results of the inspection of loaded goods, NKKK - the Japan inspection company confirmed that the inspection report was fake and requested lawyers to sue CNC.

The shipping agent in Saigon Port, when invited as a witness at the hearing, confirmed that TLS appointed them to act as an agent but did not send a copy of B/L and relevant documents to carry out procedures for the vessel to enter into the port and did not pay agent fee.

With the above information, CTV has contacted CNC by all possible means of communication for many times to clarify the status of shipment and requested CNC to comply with the contract, documents as stated in the contract but CNC did not have any response to CTV’s phone calls, emails and facsimiles.

Therefore, according to Commercial Law 2005 and Civil Code 2015, CTV lodged a request for arbitration against CNC at an arbitration centre as provided in the contract to terminate the contract and request CNC to compensate the damages. Then, they asked the Court to order interim measure to suspend payment of goods. After considering, the Court decided to force the bank to hold the payment.

Arbitral award

During arbitral proceeding, being requested to provide documents, evidences to prove that they had paid the freight, issued lawful B/L, inspected goods, etc., CNC, however, did not provide any of such documents but only a letter in which they reaffirmed that their behaviour was reasonable (without any attached document to prove it). At the hearing, CNC was absent without any reason, nor did it appoint authorised representative according to the Summon of Arbitral Tribunal.

After analysing entire case with facts and evidences, according to Article 312(4) Commercial Law 2005, Article 423(2) Civil Code 2015 and Parties’ arguments, Arbitral Tribunal found that CNC had provided CTV with documents that were not suitable to the practice of international trade and shipping, which results in breaching the contract to the extent that Parties could not achieve the purpose of the contract. CNC, also violated Article A3(a) CFR Saigon Port Incoterms 2010 of contract of carriage. The ship did not enter into the port because CNC breached the contract. With the above analysis of B/L, CTV could not receive goods even if the ship entered into port. In fact, the ship arrived outside of the port but could not go inside, then, went to another port and held the cargo to claim for damage due to the fact that CNC has not paid freight and demurrage.

Arbitral Tribunal decided to award CTV the right to terminate the contract, and also reminded CTV of complying to the procedure provided by Vietnamese laws and regulations.

Comments

CTV acted timely to prevent the bank from making payment instantly because the documents seemed to comply with L/C requirements and thus, prevent the lost.

Through the dispute, it can be concluded that even with the documents confirmed by the banks (on the surface), it was necessary to check every detail of the documents together with actual shipment, detailed itinerary, especially with Bill of lading. Although L/C is considered the safest and most secured payment method, careful checking is of utmost important to prevent money lost by commercial fraud.