What should a FOB seller do when goods are unloaded without payment?

What should a FOB seller do when goods are unloaded without payment?

The classic situation: a seller has delivered goods and a buyer has not paid for them. The seller has no idea that the goods have been unloaded and that the original bills of lading have been produced. As a result, the seller is left with nothing but a strong desire to recover either money or the goods.

In this article, we explain how to avoid such a situation or, if it is too late to do so, how to increase the chances of recovery.


In our recent case, the seller (referred to as “OilTrade") sold sunflower oil to the buyer (referred to as "Ether") on FOB terms. The contract provided for English law, a "cash against documents" method of payment, and incorporated FOSFA arbitration rules.

The goods were loaded and the shipowner issued bills of lading. OilTrade sent scanned copies of the shipping documents to Ether upon its request and sent the originals to Ether’s bank to receive payment. For several weeks, Ether promised to pay but did not do so.

A month later, it turned out that the goods had already been unloaded in Rotterdam (even though Ether did not have the original bills of lading "in hand", only scanned copies). At this point, Ether stopped communicating with OilTrade.

OilTrade contacted the shipowner and the ultimate consignee (referred to as “Nomax”). It became clear that Nomax, who also acted as the charterer of the vessel, bought the goods from Ether and paid for them against scanned copies of the shipping documents. Referring to a Letter of Indemnity (“LOI”) issued by Nomax, the shipowner unloaded the cargo in Rotterdam without the original bills of lading.

Nomax subsequently took a position that as it had paid for the goods to Ether and never had any contractual relationships with OilTrade, so all claims should be made against Ether.

The shipowner's position was that it had not signed a charter with OilTrade, and therefore all claims should be made against Nomax or Ether.

Why did this happen?

The FOB seller is not a charterer of the vessel and, accordingly, he cannot give instructions to the vessel and has no actual control over its cargo after loading.

Furthermore, it is a usual practice that, the consignee must present the original bills of lading to the shipowner before receiving the cargo. Otherwise, the bill of lading holder can sue the shipowner for wrongful discharge of the cargo.

However, there is another option for the consignee: he can provide the shipowner with a LOI and receive the cargo in return. To put it simply, the LOI is a letter, by which the consignee grants the shipowner an indemnity against claims in return for unloading the cargo without the original bills of lading. The possibility of unloading under the LOI may be stipulated at the time of entering into the charter or the parties may agree on it at a later stage. By accepting the LOI, the shipowner assumes the risk, but in return avoids downtime and releases the vessel for the next voyage.

In our case, the seller had the original bills of lading, however Nomax was still able to unload the cargo under the LOI.

Options for actions

The first most obvious option for the seller was to file a claim for non-payment against Ether to FOSFA as per the contract between them. However, arbitration can last up to a year and even longer, especially if the defendant tries to drag out the process. Moreover, there was no guarantee that Ether would have any funds at the time of enforcement of the arbitral award or would not go bankrupt.

It also made sense to try to claim compensation from Nomax and the shipowner:

  • The cargo has still legally belonged to OilTrade, because the ownership did not pass to Ether under the OilTrade-Ether contract, which provided for transfer of ownership upon full payment for the goods. Therefore, Nomax did not own the cargo.
  • The shipowner violated his shipping obligations by discharging the goods without the original bills of lading, which were always held by OilTrad.

Nevertheless, there were still several practical problems.

First, the dispute between OilTrade and Nomax was non-contractual. It was unclear where to sue, and which law to apply. Since the cargo was unloaded in Rotterdam, it was reasonable to refer the dispute to Dutch law and Dutch courts.

Secondly, in relation to OilTrade's dispute with the shipowner, the bills of lading for the cargo were issued on the pro forma basis of the Congenbil 1994. Paragraph 1 of the rules on the reverse side of this bill of lading incorporates the arbitration clause and the chartering right

bill of lading

On the basis of this clause, OilTrade could have sued the shipowner in arbitration for wrongful discharge of the cargo. The problem was that OilTrade (like any FOB seller) did not have a copy of the charter to consider which arbitration proceedings to initiate.

Another issue was the need to correctly determine to whom exactly we need to sue. According to the vessel’s register, the vessel had two shipowners: a disponent owner (the actual shipowner) and a registered owner (the registered shipowner).

It is common that a claim is brought against the company on whose behalf the ship's master issued the bills of lading. However, this usually cannot be determined from the bills of lading (as in the present case): the documents may only have the ship's seal and the captain's signature. Nevertheless, it is possible to determine on behalf of which company the master has signed the bills of lading at the type of charter:

  • If it is a time charter, one should bring a claim against the registered owner (as the vessel is chartered together with the crew);
  • If it is a bareboat charter, you should bring a claim against the disponent owner (as the charterer is responsible for crewing the vessel).

We tried to clarify the above issues with the shipowners and Nomax, but they refused to cooperate. Eventually, we decided to bring the claims against both shipowners before LMAA, as this is the most common forum for resolving such maritime disputes. Our plan was that if the shipowner stated that we had sued to the wrong company or institution, we would claim all arbitration costs from the counterparty since such a situation occurred exclusively due to the shipowners’ failure to cooperate with OilTrade.


A claimant can seize a debtor's accounts or property to support its claim in court or arbitration. In legal language, this is called "securing the claim". To strengthen our position, we decided to:

  • arrest the cargo in Rotterdam;
  • arrest the vessel in Malta.

The main difficulty was to find a property that could be seized, nevertheless, we managed to impose both arrests.

Arrest of cargo in Rotterdam

All that we knew was the name of the terminal, where the cargo had been unloaded. We were unaware of the date and exact location of the cargo (the terminal in question had a lot of storage space in Rotterdam). It was also unclear whether the cargo was still at the terminal, as it had been uploaded several months before.

Dutch law provides for a flexible arrest procedure: it can be imposed on any similar cargo stored in the debtor's quota at the terminal, even though the exact location of the cargo is unknown.

However, there is always a risk that the debtor has removed the entire cargo from the terminal at the time of the arrest. In our case, we decided to proceed because Nomax was among large companies active in the oilseeds market, which usually have at least some quantities of cargo in their quota.

Another issue was that we needed to specify the claim in support of which the arrest application was made. In order to minimise the risks, the best option was to seek a court order for the arrest in support of:

  • A future claim against Ether for non-payment for the goods (i.e. institution of FOSFA proceedings);
  • A future claim against Nomax for damages caused by the wrongful disposal of the cargo owned by OilTrade.

The Dutch court imposed the arrest one day after we applied for the same. Further, the terminal confirmed that it stored the Nomax cargo after receipt of the seizure order.

Arrest of the vessel

Further, we traced the movement of the vessel and found out that she was sailing to Malta. It was a fortunate jurisdiction for us as it is relatively easy and quick to get an arrest warrant issued in Malta. By the moment vessel reached Malta (a few days after the arrest in the Netherlands) we already had a copy of the charter, so we knew exactly against whom to make the arrest.

The application for the arrest was prepared within a few hours. We applied to the Maltese court to arrest the vessel in support of a future claim against the shipowner before LMAA. Less than 24 hours later, the court imposed the arrest.

What happened next?

After the arrests were made, Nomax reached out OilTrade shortly. The shipowner's business was effectively blocked and it was suffering serious losses due to the vessel’s downtime caused by the arrest. The shipowner began to put pressure on Nomax to reach an amicable settlement with OilTrade.

As a result, OilTrade and Nomax entered into a direct contract, whereby Nomax paid OilTrade the contract value for the cargo unlawfully loaded (in effect, Nomax paid twice for the cargo), in return for which OilTrade lifted the arrests.

OilTrade then initiated FOSFA arbitration against Ether, where it aims to recover its costs of obtaining the arrests and damages for breach of the contract.

Danil Hristich, Head of Fortior's Ukrainian office, Sergey Platonov (Associate) and Giles Xuereb (of Counsel) were in charge of this matter.

Article tags:
Related Services:
Gafta and FOSFA Arbitration Gafta and FOSFA Arbitration
Team members
Danil Hristich
Sergey Platonov
Do you have a problem that we can help you with?