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Shippers, unpaid freight & switch B/Ls

Unpaid freight and switch bills of lading – does the original shipper cease to be liable?

llawarra Fortune was voyage chartered by Gujarat India to carry coal from Australia to India. B/Ls were marked freight payable as per C/P. Freight and other shipping costs were eventually not paid and switch bills were issued at 2nd discharge port identifying a third party as shipper. Time charterer had taken assignment of the shipowner’s rights under B/Ls and was looking to recover $3.2m from the original shipper, WCL.

Supreme court of New South Wales found the terms of the switch B/Ls to be identical to the terms of the original B/Ls, which strongly pointed to the conclusion that parties did not intend to preserve WCL’s obligations. Switch bills constituted a novation of contract whereby original shipper’s liabilities were extinguished upon issuance of switch B/Ls.

The court went on to consider if WCL would have been liable for the freight had it not been for cancellation of original B/Ls. The answer is yes. Shipper’s common law obligation is to pay freight for the carriage of goods and that obligation arises independently of the terms of the sea-carriage document and is implied from the mere fact of shipping goods into the carrier’s ship for carriage.

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