New law may help banks
whose customers default
THE RULES governing letters of credit allow banks to accept seawaybills.
However, South African banks are reluctant to use seawaybills. This is because our law does not recognise a seawaybill as a 'document of title' i.e. as a symbolic 'key to the warehouse,' which allows the bank to take possession of the goods if unpaid. A bank holding a seawaybill as security under a letter of credit cannot use it to 'access the warehouse.'
New legislation, the Sea Transport Documents Act, may be passed after the elections. This will allow banks named as consignees in certain varieties of seawaybills to take delivery of the goods, if their customers default. The bank will not then be the owner of the goods, but once they are in its possession, it will be able to exercise any contractual lien it might have against its client.
However, with most seawaybills, a shipper can alter the identity of a named consignee at any stage, so it is still poor security.
The solution is to give the bank the right to alter the consignee. This could be done by naming the bank as both shipper and consignee. However, the bank would then incur liabilities under the contract of carriage. A better option would be for the bank to be named as the consignee and for the shipper's right to alter the identity of the consignee to be contractually restricted. This could be done by transferring this right to the bank using a 'non disposal' clause.
After the passage of the Act, the use of seawaybills should increase in South Africa, reducing documentation cost and potential liability. Next time we consider a recent court case which highlights the dangers of bills of lading and the failure of standard trading terms to protect freight forwarders.
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