Bills of Lading

 

Bills of Lading often are prepared by shippers and carriers, and they must rely principally on information supplied by shippers (seller). Carriers often will have little opportunity in the course of loading independently to confirm all that is said by shippers as to the nature, condition and quantity of their cargoes. Nonetheless because the bill of lading is a receipt issued by the carrier, it is the carrier and not the shipper that will be liable to the receiver for any discrepancies between the quantity and apparent order and condition of the cargo on shipment, as acknowledge in the bill of lading and of the cargo as delivered to the receiver.

 

 

Bills of Lading - Introduction

It is difficult to ascertain when bills of lading really were first used. First clues of its use or origins are found in the Italian town of Triani. When in 1063 it was decided that every master of the sea should have a clerk who should keep records of ship’s cargo. Nearly six hundred years later, in 1681, bills of lading were recognized and formulated as definite form of documents by an ordinance called ‘the ordonnance de la Marine’[1]. In sixteenth century the use of the bill of lading was widespread and definition being an acknowledgement which the master of the ship makes of the number and quality of the goods loaded on board[2]. Moreover the body of mercantile law and sea customs were less recorded as it was considered in those times that if merchants and sea masters know simple customs, there is no need to make it cumbersome by writing it[3]. However it should be noted that bill of lading as a receipt invoked or intended very little liability on the ship owners or on the ship masters. Thus the evolution of this was, with the expansion of sea trades, to formulate bill of lading into a multipurpose document that have liabilities attach to it especially when things go wrong, in possession of the carriers or in possession of the sea masters. In twentieth century, therefore it was the nature of bill of lading that was evolved through the introduction of Hague international rules and that was later amended in 1968 by Hague Visby Rules. As far as the English law is concerned those rules are mostly incorporated into Carriage of sea Act 1971.

In recent times bill of lading plays a crucial role in the carriage of goods by sea. The bill of lading can be defined as a document of title whereby the carrier, also known as ship owner, acknowledges that goods have been delivered to him by the shipper (seller) for the purpose of carriage. Moreover, it is important to note that the bill of lading in itself is not the contract of carriage but simply restates the terms of the contract. The bill of lading is a commercial document with a long history and with four distinct characteristics.

 

Nature of Bills of Lading

At present the following sections will examine the functions and nature of bill of lading before the duties of carrier and shippers, in the light of Hague Visby rules, sales of goods act 1979, Carriage Sea Act 1971 and common law of Tort, could be analyzed.

There are three main functions of bill of lading. Firstly it is a receipt and therefore will state the condition and quantity of the goods when they are transferred into the custody of the carrier. It will also state the date on which they were loaded, and will identify the carrying vessel as well as the ports of loading and discharge. It will usually be prepared by the consignor, the party who is the current owner of the goods to be loaded onto the vessel. In doing so, it will rely on the ‘mate’s receipts’, which are the ship’s records of the cargo loaded and presented to an agent of the carrier, such as the captain of the ship, for signature. Therefore bill of lading is usually treated, prima facie as conclusive evidence between the shipper and the carrier in relation to weight, quality and apparent condition of the goods[4]. Inevitably, from a buyer’s perspective, the information presented on the face of bill of lading will give rise to an estoppel in common law or will constitute fraud or negligent misrepresentation[5]. However, Schmitz[6] elaborates that there are complications from a commercial and practical point of view. In particular there might be difficulties to ascertain the parties to the bill of lading especially if the bill of lading provides the delivery of goods to a third party. Furthermore, the person who shipped the goods may have done so as an agent of another party. However it could be argued that in modern world where communication has become fast and personalized it might be easier than thought to determine the parties to bill of lading and the fact that if there were acting as agents or not. However this situation will remain complicated but with little effort could easily be resolved. Moreover to eliminate such complications and difficulties there are various types of bills of lading that could be used to describe the nature of business transaction accurately for example negotiable and non-negotiable bills of lading, charter party bills of lading clean and claused bills of lading.

Secondly bill of lading is used as a title document and that was first recognized by the courts as far back as in 1794 in Lickbarrow v Mason[7]. This is by far the most useful function of the bill of lading that enables the possessor to sold the goods while the goods are on board of a ship and could also be used as a document upon which bank could issue credit. However problems could arise if there is more than one party who is claiming the cargo at the point of delivery. In that scenario the party that presents the bill of lading issued first, carrier is obliged to deliver the goods to it[8]. Therefore three points should be noted in terms of nature of bill of lading as title document those are also briefly argued by Paul Todd[9]. Firstly the holder of the bill of lading has constructive possession of the goods whereby actual or physical possession of the goods remains with the carrier. Secondly the transfer of the bill of lading is only a symbolic transfer of property and not an actual transfer of goods. Thirdly the transfer of bill of lading only passes such rights as the parties indented to pass. For example if an agent has a bill of lading the prevailing intention is that the agent is only intended to take delivery of the goods and therefore no other right in goods would pass[10]. Moreover if a bank has taken security over the bill of lading the intention is that bank has charge over the goods and actual proprietary rights have not passed. In commercial transactions these terms of engagements are all smooth and practically let the business run seamlessly but when things go wrong, it could be argued, that legal rights, obligations and remedies are very cumbersome to establish and even if those hurdles could be overcome result may not be in favor of the grieved party.

Third Main function of the bill of lading is evidence to the original terms of carriage contract that is signed before the bill of lading is actually issued[11]. Furthermore It should be noted that the terms presented on the bill of lading, between carrier and a bona fide transfer are prima facie conclusive and carrier therefore is estopped from adducing external evidence to the contrary[12]. However problem could arise if a bill of lading is issued with inaccuracies, errors or oversight. Because once bill of lading is issues and element of fraud is eliminated, commercial and legal functions of bill of lading render such alterations[13].

 

Duties and Liabilities of Shippers to the Buyer

Bill of lading contracts with the shipper are subject to statutory intervention in three respects. Firstly, the Carriage of Goods by Sea Act 1971 provides that an international Convention, the Hague-Visby Rules, shall have the force of law as regards such terms of these contracts as concern the carriage of the goods, depending, inter alia, on the country in which the bill of lading is issued[14]. All bills of lading issued in the UK are subject to the Hague-Visby Rules. Secondly, the Carriage of Goods by Sea Act 1992[15]effect is a statutory transfer of this initial contract to a party who subsequently becomes a ‘lawful holder’ of the bill of lading. Thirdly, both the Carriage of Goods by Sea Act 1971 and the Carriage of Goods by Sea Act 1992 entitle third-party holders of the bill of lading to rely on the truth of certain evidential statements contained in the bill of lading, notwithstanding that the carrier may possess the evidence necessary to refute them. It can be stated that the creation of a bill of lading is triggered by the shipper whereby the latter, who had formerly entered into a contract of sale of goods with a foreign buyer, has to ship the agreed goods to the buyer.  The shipper has various duties that he needs to undertake but for the purpose of this paper consideration is given on the obligations of the seller in relation to the Cost Insurance Freight contract (CIF) and Free on Board contract (FOB).  There are three types of FOB contracts as stated by Devlin J. in Pyrene Co Ltd v Scindia Navigation Co Ltd[16] and it depends which type of contract is used by the parties. Under a CIF contract, compared to a FOB contract, the shipper needs to, not only nominate a ship to carry the goods but also has to insure the goods. Therefore, the shipper must send a bill of lading to the carrier informing him about the goods to be shipped.  Moreover, according to Article II of the Hague-Visby Rules, the shipper has to prepare the bill of lading with due diligence and care in order to avoid any rejection of the goods by the buyer[17]. Furthermore, section 51 of the Sale of Goods Act 1979 provides that the buyer has the right to reject the documents and thus the buyer can also seek damages against the shipper. However if buyer has inspected the goods via third party and an appropriate certification has been issued it could potentially exclude seller’s liability and therefore buyer could bring an action in Tort against the third party that had inspected those goods.

From buyers perspective whether it is FOB or CIF contract if there are discrepancies in relation to quality, quantity and in the apparent condition of the goods, buyer could bring an action against the sellers personally notwithstanding the remedies it may have against the carriers that shall be discussed in the later section. In this respect seller or shipper is under the implied and statutory duties of the Sales and Goods Act 1979 to provide the buyer with the agreed quantity and of satisfactory quality of goods[18]. Buyer could seek damages for non delivery[19], damages for breach of warranty[20] and an action for specific performance[21]. However the situation becomes complicated when bill of lading is issued and seller or shipper has performed its part of obligations under FOB or CIF contract. In this scenario buyer may only have the option to bring an action in tort or may have to rely on shippers to bring an action against the carries due to the fact that sellers were acting as an agent of the buyers.

 

Duties and Liabilities of Carriers to Buyers

The main duty of the carrier is to carry[22]the goods on board a named vessel from the port of dispatch to the port of destination. However, at the port of destination, he has the obligation to deliver the goods to the person entitled to receive them in accordance with the bill of lading[23] and upon the production of a bill of lading. As stated in the title of this paper, it is the shipper who prepares the bill of lading and it is the carrier who accepts it. If for instance, there are some discrepancies in relation to the description of the goods, the carrier can state those particulars on the bill of lading and can issue a “claused bill” and thus removes himself from any liability as to the shipment of the goods and then it will be the shipper who will be liable. However if a clean bill of lading is issued, firstly according to Cremer v General Carriers SA[24], carrier cannot avoid liability in reliance to the estoppels created by it[25] and secondly by virtue of the bill of lading and shippers information provided within, shipper deemed to have guaranteed to the carrier the accuracy of the quality, quantity and weight but such indemnity under the Hague-Visby Rules, Art III, r5 cannot be relied upon by the carriers against an action by the receivers of the goods. Even if shipper provides carrier an expressed indemnity, under the circumstances, it may be illegal and thus will not protect the carrier. Furthermore carrier is only required by Hague-Visby rules, Art III, r3b to state in the bill of lading either the number of packages or pieces or the quantity or the weight but not all those particulars and therefore can add a qualifying clause in relation to other particulars. As a result to exclude liability carriers some time add expressed quantity ‘unknown’ and as described above the bill of lading is prima facie evidence of the quantity and quality shipped[26]. However in the Skarp[27] it was decided that by adding the ‘unknown’ clause a carrier cannot escape liability that acknowledges having received the goods in apparent good condition and proper weight. In addition to that the common use of words “said to” in relation to the description, contents or weight or other measure of a cargo supplied by the shipper and entered on the face of the bill of lading might not operate, at least alone, to qualify, as between the carrier and a consignee, the accuracy of factual statements to which they relate[28]. In any event it really defeats the commercial purpose of bill of lading if such description is used that could otherwise easily be obtained for instance from ‘mates receipt’.

Furthermore Hague-Visby Rules Art III provides, in respect of the safety of the goods, that carrier is responsible of making the ship seaworthy, properly man, equip and supply the ship and make all the relevant parts of the ship fit and safe for carriage of goods. Basically Hague-Visby rules have underlined the fact that carriers or ship-owners must exercise ‘due diligence’ and must act properly and carefully. However it seems that the responsibilities imposed by the Act[29]  are lighter than the common law principles. Breach of any of the duties above could provide the buyer of goods with a remedy but onus of proof is on the cargo owners. This however presents a significant problem as most of the in house documents are held by the carries and the buyer has to spend considerable expense and time to obtain such documents for a successful claim.

From a buyers perspective if the cargo is lost due to un seaworthiness two points need to be noted. Firstly the duty of due diligence to make the ship seaworthiness is just before the point of sailing. Secondly Hague- Visby Rules, Article IV provides for a list of situations where the carrier is not liable if the goods are damaged or destroyed. However if the loss or damage has occurred due to ship being unseaworthy the carriers or ship-owners are deprived of reliance on the Article IV r.2 [30]exceptions but may still limit its liability[31]. Therefore it will be for the carriers to establish that the loss or damage comes within the meaning of Article IV r2 exception and then for the buyer to prove negligence[32]. Finally buyer is also protected against the carriers as it cannot contract out of their liability for loss of or damage to, or in connection with, goods arising from their negligence fault or even failure in their duties imposed by the Hague-Visby Rules[33]. Therefore a clause in the contract of carriage purported to exclude liability for those obligations would be null and void[34]. There are two considerations for buyers when bringing a claim against the carriers. Firstly that it has the authority to do so and secondly the time limits for claims is observed. Finally to make sure that the buyer sues the right defendant as identity of the carrier is not always apparent[35].

 

Conclusion

As it has been seen that bills of ladings are prepared by the shippers and serve various commercial and legal purposes therefore shippers and carriers both have duties and liabilities to the receivers of the goods by the intervention of sales and goods act 1979, common law of Tort and Hague-Visby Rules. In the course of business it is however the buyer that is being protected by those various legal and commercial instruments and not the shippers or carriers. It seems that the basic rule is that if shippers have wrongly, fraudulently or maliciously packed the goods and quality, quantity or weight is incorrect whereby carriers performed their side of the contract accurately, then shipper is liable to the buyer for it. On the other hand once the goods are given in custody of a carrier and a bill of lading has been duly signed and from that point onward carrier is solely responsible to deliver the goods in the same condition, quality and weight as it has been received and noted on the bill of lading. In practice as well as in law when the goods are delivered to the carriers it is reasonable to assume that as a commercial carrier it will check the goods and according to agreed set of Rules will record it on a bill of lading, a document that has a history of over a millennia. Secondly sea vogues present risks but those risks are mostly covered by the marine insurance. Thirdly the integrity of the vessel and its seaworthiness is again reasonability of the carrier as fright is being charged for it. Therefore it is justifiable that once the bill of lading, as a receipt is signed and on the balance of evidence, there are discrepancies in relation to quantity or weight or apparent condition of the goods then carrier must be responsible.

 

 

 



[2]  Torsten Schmitz ‘ The Bill of Lading as a document of title’ Journal of International Trade Law and Policy 2011. P 2

[3] W.P Bannett ‘The history and present position of the bill of Lading’ (Cambridge University Press 1914).

[4] Carriage of Goods by Sea Act 1971, s 1(6), Hague-Visby Rules, Article III, Rule 4

[6] Torsten Schmitz ‘ The Bill of Lading as a document of title’ Journal of International Trade Law and Policy 2011.  p 8-10

[7] [1794] 5 T.R. 683

[8] Glyn, Mills & Co. v East and West India Dock Co. [1882] 7 App. Cas. 591.

[9] Paul Todd ‘Bills of Lading as documents of Title’ Journal of Business Law 2005 p 3

[10] Leduce v Ward [1888] 20 Q.B.D, paras 457

[11] The Ardennes [1951] 1 KB. 55; Choyang Shipping Co Ltd v Coral (UK) Ltd [1997] 2 Lloyd’s Rep. 641.

[12] Leduce v Ward [1888] 20 Q.B.D.

[14] Simon Baughen, Shipping Law ( 4th edn Cavendish 2009) chapter 3

[15] Replacing the Bill of Lading Act 1855

[16] [1954] 2 Q.B. 402 at 424

[17]  Aliakimon [1966] A.C 785

[18] Sales and Goods Act 1979, s 13

[19] Above s 51

[20] Above no 18, s 53

[21] Above no 18, s 52

[22] Article III Hague-Visby Rules

[23]Carole Murray David and others, Schmitthoff Export Trade; The law and Practice of International Trade ( 11th edn, Sweet & Maxwell 2007) p 285

[24] [1974] 1 W.L.R. 341 at 353

[26] Noble Resourses v Cavalier Shipping Corp; the Atlas [1996] 1 Lloyd’s Rep. 642

[27] [1935] P. 134

[28] The River Gurara [1998] 1 Lloyd’s Rep. 225 @ 234 per Phillips LJ; The Boukadoura [1989] 1 Lloyd’s Rep. 393 @ 399 per Evans J.; cf.,e.g., The Galatia [1979] 2 Lloyd’s Rep. 450.

[29] Carriage of goods Act 1971, s 3

[30] Hague-Visby Rules

[32] The Theodegmon [1990] 1 Lloyd’s Rep. 52

[33] Art III, r8

[34] The Hollandia [1983] A.C. 565

[35] Above no 31. p 36-38

 

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