Maritime Law and Personnel Management Topic: 4 Functions of Bills of Lading

MA2026

Singapore Maritime Academy

Maritime Law and Personnel Management

LESSON

Bill of Lading
Objectives: At the end of this lesson students should be able to: State who issues the Bill of Lading. State the purpose of the Mates Receipt. State the three functions of the Bill of Lading. Describe the various types of Bills of Lading. Describe the salient features of a Bill of Lading. Explain what is meant by clean Bills, claused Bills and Letters of Indemnity. Explain the problems that may arise when the statement weight, quantity, quality unknown is endorsed in the Bill of Lading. Discuss the consequences of wilful insertion of untrue statements. Explain the relationship between the Bill of Lading & the Charter Party covering the same agreement. State the carriers duty concerning the delivery of goods. State the carriers liability for non-delivery.

Reference Books: Shipping and the Law (by W. E. Astle) The shipbrokers Manual, Volume 1 (by Lloyds of London Press)

FJF/Jan2011

SP-SMA

Maritime Law and Personnel Management Topic: 4 Functions of Bills of Lading

MA2026

Introduction When a sale of goods takes place on an international basis and involves transportation of the goods by sea, a relationship begins between the seller or charterer and the shipowner. This relationship is established in a contract of affreightment and the document containing the terms and conditions of carriage may either be a Bill of Lading or a Charter Party.

1.1

Issue of Bill of Lading

On loading the cargo the shipowner is under an obligation to issue to the shipper a B/L, which is issued pursuant to the Contract of Affreightment or Charter Party. The B/L is signed by the master of the ship or agent on behalf of the shipowner. The signing of the B/L is written evidence of the terms on which the goods are to be carried for a specified freight.

FJF/Jan2011

SP-SMA

Maritime Law and Personnel Management Topic: 4 Functions of Bills of Lading

MA2026

1.2

The purpose of a Mates Receipt

This is a document prepared and issued by the chief officer of the vessel. It states the correct receipt of the cargo loaded on board and will show any discrepancies in the quantity in the pre-shipment condition of the cargo. From the issue of the Mates Receipt, the shipowner is in full possession of the cargo and from that time, will be responsible for the safety of the cargo. Once the cargo is loaded on the vessel, the shipper can demand the issue of a B/L. This is where the purpose of the Mates Receipt arises because all the necessary information of the cargo loaded is transferred from the Mates Receipt to the Bill of Lading. 1.3 Functions of a Bill of Lading

The Bill of Lading serves three major purposes. 1) As a Receipt for the Goods Shipped
a.

Receipt as to Quantity: Prima facie evidence at Common Law of the weight or quantity of goods shipped. Position under the Hague/Visby Rules provides that the shipper can demand that the carrier issues a B/L showing either the number of packages or pieces, or the quantity or weight. No obligation to issue a B/L or acknowledge the quantity shipped, unless requested by the shipper. Receipt as to Condition: This refers merely to the apparent condition in so far as the carrier or his agent is able to judge by a reasonable outward inspection. Likewise, the effect at Common Law makes this prima facie evidence. The position under the Hague/Visby Rules states that the B/L is prima facie evidence of receipt by the carrier of the goods as therein described, but is conclusive evidence when the bill has been transferred to a third party acting in good faith. Receipt as to Leading Marks: Any identification or quality marks appearing on the goods shipped will normally be recorded in the B/L. the shipowner will not, however, be estopped at Common Law from denying that goods were shipped under the marks as described in the B/L unless such marks are essential to their identity or description. Effect of Other Representations in the B/L: The Hague/Visby Rules contain no requirement for additional information to be incorporated into the B/L. However, the parties themselves or their agents may include statements of fact, which are capable of raising an estoppel in favour of future transferees for value of the bill.

b.

c.

d.

FJF/Jan2011

SP-SMA

Maritime Law and Personnel Management Topic: 4 Functions of Bills of Lading

MA2026

2) As Evidence of the Contract of Carriage A B/L is not the contract but only the evidence of the contract as the contract had come into existence before the B/L was signed. 3) As a Document of Title Negotiable B/Ls originated in sea transport because past voyages were normally lengthy and invariably slow. The owners of cargo therefore required a document of title in order to raise credit for an international sale or to take advantage or an opportunity to sell goods in transit. 2. 2.1 Types of Bills of Lading Shipped Bill of Lading

It is the most satisfactory type of receipt that can be obtained concluding conclusively that the cargo has been loaded on board the ship in apparent good condition and is now under the supervision and responsibility of the carrier. The Shipped Bill of Lading is of immense value in the area of international trade. The reason for this is that shippers, bankers and consignees involved in the carriage of cargo can once the Shipped Bill of Lading is issued, be convinced that the cargo has been loaded on the ship and from a legal point of view the cargo is in transit. 2.2 Received for Shipment Bill of Lading

It is issued in circumstances when there is congestion in the port and the cargo to be loaded is awaiting shipment. To meet the difficulties caused by the congestion the carrier may issue a Received for Shipment Bill of Lading. This would mean that the cargo has been handed over to the carrier and is in his custody but has not been loaded on the seagoing vessel. The cargo concerned may be stowed in a warehouse, or transit shed or even of the quayside. This is a very unsatisfactory situation as the cargo is exposed to risks of fire, loss or damaged caused by weather and pilferage. Another situation can arise i.e. the cargo can be shut of the named vessel and in practice can be described as doubtful fulfilment of the shippers legal obligation under the contract. For this reason the Received for Shipment B/L is not acceptable to banks in the transaction of international trade and such banks are most adverse to negotiating such a form of B/L unless of course the Contract of Sale makes express provisions for it. In circumstances where a Received for Shipment B/L has been issued, once the vessel has arrived and the cargo loaded, the Received for Shipment B/L will be cancelled and a Shipped B/L issued to the shipper of the cargo.

FJF/Jan2011

SP-SMA

Maritime Law and Personnel Management Topic: 4 Functions of Bills of Lading

MA2026

2.3

Clean Bill of Lading

It is a B/L that has no superimposed clause or notation that expressly declares a defective condition of the goods or its packaging. The carrier is obliged, after the cargo has been loaded to ensure to his satisfaction that the cargo has no defects and the packaging is in good condition to withstand the rigours of the intended voyage. In this respect the carrier is not required to inspect the contents of any package, as this would be to time consuming. Provided the carrier is satisfied that the cargo is in apparent good order and condition then he may insert in the B/L the words shipped in apparent good order and condition. This would constitute a Clean B/L. 2.4 Claused Bill of Lading

Such a Bill of Lading contains clausing or wordings to state the goods when received on board the vessel were not in apparent good order and condition. Although, Claused Bills of Lading are unpopular with cargo interests and bankers it is essential that the carrier protect his own interest. Otherwise, the carrier may face claims from the cargo interests at a later date. In this case if the carrier can produce evidence by means of a Claused Bill of Lading to indicate a defective condition in the cargo or its packaging at the time of loading, it would be good evidence to refute liability for such a claim. 2.5 Through Bill of Lading

This is issued when the cargo is collected at the inland point of origin. From that moment on the carrier is responsible as a bailee of the cargo until it is delivered at the final inland destination. It should be noted that the carrier would have to arrange the carriage of the cargo by road or rail and in these cases, through contractual obligations be in a position to sub-contract certain responsibilities for certain parts of the entire journey. It is important to note that a Through B/L places the entire liability on the carrier making the contract and his liability does not end even when the cargo has been passed on to the other carriers, unless the Bill of Lading contains a special clause specifying liability. Nevertheless, as already mentioned through sub-contract partial liability for certain stages of the carriage can be made the responsibility of the individual carrier undertaking that part of the carriage. 2.6 Transhipment Bill of Lading

It is issued in circumstances when the carrier is unable to provide a direct service between two ports and where two or more vessels may have to be used to transport the cargo to the final destination.

FJF/Jan2011

SP-SMA

Maritime Law and Personnel Management Topic: 4 Functions of Bills of Lading

MA2026

In these cases the responsibility of the cargo rests with the carrier that issued the B/L. In practice, however, a system of receipts given for the cargo on arrival at the transhipment port and again on shipment on the second vessel will ensure that liability for any claims can be firmly established. 3.1 Letter of Indemnity

It is a letter of undertaking given by the shipper to the shipowner, master or agent in return for providing a Clean B/L, where a qualified bill would be justifiable. In such a letter the shipper gives an undertaking to indemnify the shipowner in respect of any loss or liability the shipowner may be faced with as a consequent of issuing Clean Bills of Lading. No one should ever lend himself to this practice as this may lead to the person concerned being found guilty of conniving at fraud. In any case a Letter of Indemnity cannot be used as evidence in a court. It is binding in honour only and cannot be sued upon, should the shipper who has issued the Letter of Indemnity go back on his word. 3.2 Salient Features of a Bill of Lading are listed as follows: The name of the shipper. The name of the vessel. An accurate and full description of the cargo, which will include weight, marks, numbers, cubic measurements etc. The port of shipment. The port of discharge. Full details of the freight including when and where it may be paid or whether it is payable in advance, pre-paid or at the port of destination. The full name of the consignee or in circumstances where the shipper may withhold the consignees name a statement To Order. The number of the Bill of Lading, signed by the Master of the vessel or his Agent acknowledging receipt of the goods. The actual date of such signature. Clause Paramount. By this clause, the Hague or Hague Visby Rules may be incorporated within the terms of the Bill of Lading. Lien Clause. This establishes that the shipowner is entitled to a lien on the cargo in certain circumstances related to non-payment of freight.

FJF/Jan2011

SP-SMA

Maritime Law and Personnel Management Topic: 4 Functions of Bills of Lading

MA2026

Voyage Clause. This clause allows the vessel to sail with or without pilots or tugs, to tow or be towed and to call at any port in any order both on and off the advertised route and to carry certain goods on deck. Freight Clause. This clause deals with the payment of freight under the bill of Lading. General Average Clause. The Bill of Lading would state the if General Average was to arise then possibly the York Antwerp Rules 1994 would apply. Salvage Clause. This would provide that where salvage services may be necessary the salvage award would also be payable in circumstances where there was a sister ship salvaged. Deck Cargo. Such a clause would apply in respect to cargo carried on deck, stipulating that the shipowner would insert a clause in the Bill of Lading that such cargo is carried on deck at shippers risk and thereby relieving the shipowner from liability for such cargo. Transhipment Clause. This clause would relate to circumstances where cargo had to be transhipped and would allow the shipowner to undertake a voyage in this way and is a means of enabling the shipowner to be absolved from responsibility once the goods have left his vessel, even though he has, under the terms of the Bill of Lading, undertaken to carry the goods until final destination Weight, Quantity, Quality Unknown endorsed on the Bill of Lading

3.3

The term above is not evidence of the quantity shipped on the ship. If a Bill of Lading contains the words weight, quantity, quality unknown and the endorsee of the B/ L wishes to succeed in an action against the shipowner for non-delivery or short delivery, the endorsee must in effect show that the goods were shipped on board in the first place. The above was decided in the case of New Chinese Antimony Company ltd vOcean Steamship Company Ltd. In this case the B/L contained a clause stating weight, quantity, quality unknown. On discharging the cargo it was apparent that there was some short delivery and the endorsee of the B/L sued the shipowner. The Court of Appeal held that the B/L was not prima facie evidence of the quantity shipped and to establish a claim the burden of proof law on the endorsee of the B/L to prove that the stated cargo had been shipped on board the ship. 3.4 Incorporation of Charter Party Clauses into Bills of Lading

Bills of Lading are commonly expressed to incorporate the terms and conditions of the Charter Party under which the ship may be trading at the time of shipment of the goods. How and what provisions are incorporated depends very much on the wordings used in the incorporating clause. The incorporation of the terms and conditions of a contract of affreightment in the B/L has over the years given rise to
FJF/Jan2011 7 SP-SMA

Maritime Law and Personnel Management Topic: 4 Functions of Bills of Lading

MA2026

numerous disputes and even recently there has been a case where a B/L provided that all conditions of the charter party are deemed to be incorporated in the B/L.

In the above case it had to be decided whether the B/L incorporated the Arbitration Clause stated in the charter party. The Master of the Rolls in the Court of Appeal suggested that the key word involved was conditions which in the context of the clause was a word, which took its meaning from its immediate surroundings. In context of the B/L, he explained the word conditions meant conditions under which goods are loaded, stowed, kept, cared for, carried and discharged. Therefore the Arbitration Clause was not in that category and was not incorporated into the terms and conditions of the B/L. It will be seen from the above that extreme care must be taken with such incorporations clauses to avoid the likelihood of disputes arising at a later time. 3.5 Carriers Duty Concerning Delivery of Goods

Carrier is to deliver the cargo in the same condition as the cargo was in at the time of loading on board the ship. At this point it is necessary to examine the basic sequence of events that can lead to cargo claims: The cargo is delivered into the custody of the carrier who in most cases will be the shipowner. The master as the representative of the carrier issues a Bill of Lading that records the condition and quantity of the cargo delivered for shipment. If the cargo arrives at the destination in a damage condition or fails to arrive at all, the receiver will seek to recover his loss from his cargo insurers. Sometimes a cargo receiver in order to preserve his record with his insurers may decide to pursue his claim directly against the carrier. If the cargo underwriters settle a cargo claim then they acquire the same rights, as the cargo owner would have to recover the costs from the party responsible for the loss. Accordingly, if the cargo underwriters consider that the carrier is legally liable for the loss or damage to the cargo they may attempt to recover the cost of loss or damage from the shipowner. The carrier may, however be able to rely upon the defences available under the Bill of Lading. The carrier, if unable to rely upon the defences available under the Bill of Lading, will have to reimburse the cargo receiver for his loss.

FJF/Jan2011

SP-SMA

Maritime Law and Personnel Management Topic: 4 Functions of Bills of Lading

MA2026

3.6

Carriers Liability for Non-Delivery

If the cargo never arrives because the carrier loses them, the cargo owner is entitled to the value of the cargo at the time and place of arrival, less the cost of shipping i.e. the freight. A similar approach is used for damaged goods. The measure of damages is the difference between the sound value of the cargo at the time and place of arrival, less the actual value of the damaged goods. If the goods arrive late, then the measure of damages is the difference between their value at the date the cargo did arrive and the date the cargo should have arrived. Market fluctuations, even large unpredictable ones, are borne by the carrier.

FJF/Jan2011

SP-SMA