The Importance and Various Effects of Bill of Lading in International Trade

The Importance and Various Effects of Bill of Lading in International Trade Kevin Tivano Tandayong

Prepared for: Prof. Michael Philip Furmston

Introduction According to Webster’s New World Law Dictionary,1 a bill of lading is defined as “a document issued by a carrier or by a shipper’s agent that identifies the goods received for shipment, where the goods are to be delivered, and who is entitled to receive the shipment”. As of today, the bill of lading has played an important role in governing international trade due to its legal functions as a receipt of the goods, an evidence of a contract of carriage, and a document of title to the goods.

Bill of Lading as a Receipt of the Goods The first legal function of the bill of lading is that it serves as an evidence of the master’s receipt of the shipper’s goods. Upon receiving the shipper’s goods, the master is ought to issue a bill of lading, on demand of the shipper, which contains specific information regarding the goods, primarily the quantity, or weight, or number of packages, and the condition of the goods loaded.2 This information will then be regarded as an honest representation of the truth regarding the goods. Thus, the bill of lading now enables the master, the shipper, and the receiver to establish the fact whether the goods are loaded onto the vessel in good condition. However, we should note that often, the master is unable to confirm the information of the goods given by the shipper because the goods are concealed within packaging. An issue might arise when there is a discrepancy between the quantity, or the condition, of the goods stated in the bill of lading and that of the goods received by the receiver. Now, it is obvious that since the master is the one who issues the bill of lading, the master is held liable for this discrepancy instead of the shipper. At this point, the bill of lading shall be prima facie evidence between the carrier and the shipper that the actual condition of the goods are in

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Bill of Lading. (n.d.). Retrieved 15 October 2013, from www.yourdictionary.com/bill-of-lading See Hague and Hague-Visby Rules, Article III, rule 3

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accordance with the information given by the shipper.3 Therefore, it is deemed that the shipper has guaranteed the accuracy of information provided at the time of shipment and shall indemnify the carrier against losses, damages, and expenses arising from such inaccuracies.4 Additionally, this receipt function of the bill of lading can be used as a commercial proof of completing a contractual obligation between the buyer and the seller, especially under FOB (Free on Board). Under FOB, the seller must bear the full liability for the cost and safety of the goods up to the point where the goods pass the named ship’s rail. The signed bill of lading will then be the proof that the seller has fulfilled his obligation by delivering the goods safely to the named ship.

Bill of Lading as a Contract of Carriage Bill of lading as a contract of carriage has mainly two different legal functions: it may only serve as the evidence of the contract of carriage or it may serve as the actual contract of carriage. As between the shipper and the carrier, the bill of lading only serves as the evidence of the contract of carriage, not as the contract itself. The contract itself is formed by the mutual exchange of promises between the shipper and the carrier that takes place before the bill of lading is issued. A further explanation of this notion is found in the judgment of a famous case – The Ardennes. In The Ardennes,5 the plaintiff seller, wished to ship Mandarin oranges from Spain to London, and specifically requested that the oranges should arrive before 1 December in order to avoid an unwanted rise in import duty. The contract of carriage contained an express clause that the vessel would sail directly to London. The bill of lading, which was issued after the contract was made, contained a ‘liberty to deviate’ clause, giving the vessel liberty to call at any port on her way to London. In other

See Hague and Hague-Visby Rules, Article III, rule 4; Carriage of Goods by Sea Act 1992, section 4 See Hague and Hague-Visby Rules, Article III, rule 5 5 See The Ardennes [1951] 1 KB 55 3 4

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words, there was a difference between the terms of the contract and the terms of the bill of lading. Later, it turned out that, instead sailing to London directly, the vessel went first to Antwerp to unload another cargo. Therefore, the vessel was late when it reached London on 4 December. As a result, when the plaintiff’s cargo arrived in London, (a) there had been an increase in the import duty, and (b) the price of Mandarin oranges fell, all of which events would not occur should the vessel arrived in London on time. The ship owner argued that the contract was the bill of lading and he was allowed to call at any port; however, Lord Goddard made a point that: “…The contract has come into existence before the bill of lading is signed; the latter is signed by one party only, and handed by him to the shipper usually after the goods have been put on board… It is unnecessary to cite authority further than the two cases already mentioned for the proposition that the bill of lading is not itself the contract; therefore, in my opinion, evidence as to the true contract is admissible.6” Hence, it is held that the bill of lading, in this case, is just the evidence of the contract of carriage and not the actual contract itself. On the other hand, the bill of lading becomes the actual contract of carriage where it is in the hands of a consignee – or indorsee – which is not involved in the negotiation of the contract of the carriage. In Leduc v Ward,7 a shipper requested that a cargo of rapeseed was to be shipped from the port of Fiome to Dunkirk. Instead of going directly to Dunkirk, the vessel sailed firstly to Glasgow and was lost, together with the cargo, by perils of the sea. The original contract of carriage between the shipper and carrier was that the vessel should proceed firstly to Glasgow; however, there was a ‘liberty clause’ in the bill of lading that enabled the vessel to call at any port. The facts of this case are similar to those of the case mentioned in the previous paragraph, but the decision is different. In this case, Lord Esher said that as far as the consignee was concerned, the contract of 6 7

Ibid., at p. 59 See Leduc v Ward [1888] 20 QBD 475

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carriage had been reduced into writing and that parol evidence to alter or qualify the effect of the writing was not admissible. In other words, in the hands of the consignee, the bill of lading is the actual contract between the consignee and the person for whom the master signs the bill of lading, which usually is the ship owner or the charterer. Commercially, the bill of lading as a contract of carriage also plays a vital role in governing international trade as it contains detailed terms of the trade matters. The bill of lading will cover the scope of duties of the carrier in relation to the carriage and discharge of the cargo. Furthermore, it will also cover the scope of duties of the person entitled to the cargo in relation to the payment of freight, discharge of the cargo, and delivery of the cargo. Hence, the bill of lading, as a contract of carriage, specifically defines and limits the liabilities of the parties involved in the trade.

Bill of Lading as a Document of Title to the Goods Lastly, bill of lading is a document of title to the cargo. It serves as an acknowledgement by the carrier that the cargo will be held for whoever is the current holder of the bill of lading. This nature of bill of lading is best seen in the light of the following judgment in Sanders Brothers v Maclean & Co8: “…The bill of lading…is universally recognized as its symbol, and the indorsement and delivery of the bill of lading operates as a symbolical delivery of the cargo. Property in the goods passes by such indorsement and delivery of the bill of lading, whenever it is the intention of the parties that the property should pass, just as under similar circumstances the property would pass by an actual delivery of the goods.9” Furthermore, a bill of lading may be considered as negotiable or nonnegotiable. A bill of lading is considered to be negotiable if it is expressed to be 8 9

See Sanders Brothers v Maclean & Co [1883] 11 QBD 327 Ibid., at p. 341

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transferable by the terms in the bill of lading. If the consignee is designated ‘order’, the bill of lading is transferable by delivery and indorsement of the shipper. If the consignee is shown as ‘bearer’, or ‘holder’, or blank, the bill of lading is transferable by delivery without indorsement from the shipper. If the consignee is designated named consignee ‘or order’, the bill of lading is transferable by indorsement of the named consignee. On the contrary, if the consignee is designated without ‘or order’, the bill of lading is considered as non-negotiable, which is also known as straight bill of lading. This bill of lading now becomes a bearer document transferable only to the consignee whose name is stated in the bill of lading.10 In other words, the principle of a negotiable bill of lading is that it can be transferred as many times as needed to different persons by delivery or endorsement if necessary. On the other hand, the essence of a non-negotiable bill of lading is that it is only transferable once, to a named consignee, by delivery without indorsement. The transfer of bill of lading, either by delivery or indorsement, will then create a contract of carriage between the carrier and the transferee that is subject to the terms and conditions stated in the bill of lading.11 Looking from the perspective of the carrier, this transferable nature of a bill of lading will cause the carrier to be concerned with whom the cargo should be delivered to. If there were only one original bill of lading, this concern would easily been erased by simply releasing the cargo against this single original bill of lading. In practice, however, bill of lading is issued in sets of three originals: one of them is retained on the vessel; another is sent to the party to whom the goods are consigned; the third is retained by the shipper.12 The reason why there is a need for three originals is that to ensure that at least one original is at the discharge port when the vessel finally arrives, and this kind of practice would create no difficulty if the bill of lading were just a receipt of the cargo. However, because the bill of lading is also a document of title to the cargo, the use of more than one bill of lading now provides room for fraudulent practices. Thus, the carrier must be really cautious in releasing the cargo to the Goode, R. (2010). Goode on Commercial Law (p. 981). Penguin: London. See Hague and Hague-Visby Rules, Article III, rule 4; Carriage of Goods by Sea Act 1992, section 4 12 Malynes, G. (1686). Consuetudo, Vel, Lex Mercatoria (p. 87). London. 10 11

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right person. In an event where there is an absence of sufficient claim on the cargo, or suspicious circumstances that raise a reasonable suspicion, the carrier is entitled and obliged to release the cargo against the first person that presents one of the original bills of lading, making this person the legal owner of the cargo.13

Conclusion Indeed, throughout history, the bill of lading has developed into one of the most important legal instruments that govern international trade. As a receipt of the goods, the bill of lading contains detailed information of the goods, which enables the parties in the trade to establish the fact whether the goods are in good condition. Furthermore, as a contract of the carriage, the bill of lading also serves as the legal instrument that governs the contractual relationships of the parties in the trade. Last but not least, the bill of lading as a document of title of the goods serves as an acknowledgement by the carrier that the cargo will be delivered to whoever is the current holder of the bill of lading.

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

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