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Bill of Lading

Written By: Pratima Joglekar - 5th Year Law Student of I.L.S.Law College, Pune
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A bill of lading serves as evidence for a contract of affreightment . This usually arises when a ship owner, or other person authorized to act on his behalf employs his vessel as a general ship by advertising that he is willing to accept cargo from people for a particular voyage.

However, it must be observed that all countries do not follow the same form of legislation globally. The broad categories may be stated as follows:
i. The Hague Rules.
ii. The Hague/Visby amendments.
iii. The Hamburg Code.
iv. Hybrid systems based on the Hague/Visby and Hamburg regimes.

Functions of The Bill of Lading

A brief overview
The importance of the bill of lading can be understood by considering the following chain of events of a transaction.
An individual wishing to ship a consignment of goods overseas approaches a shipping line by reserving space on the vessel. This may be done directly or through an agent. The carrier then instructs the place and time of delivery of the goods and the individual is then issued with a receipt indicating the type and quantity of the goods and the condition in which the carrier’s agent received them. Then, the carrier is responsible for the goods.

The shipper , meanwhile, gets a copy of the carrier’s bill of lading form. He will enter details regarding the type, quantity of goods shipped together with any relevant marks, the port of destination and the name of the consignee. The carrier’s agent will check the cargo details against the tallies at eh time of loading and will acknowledge them. The freight will be calculated and then the bill will be signed and will be given to the shipper. The shipper may then directly dispatch the bill to the consignee or through a bank in the case of international sales contract by documentary credit.

The consignee may decide to sell the goods while in transit then he may indorse the bill in favour of the purchaser. Eventually the consignee or indorsee will surrender the bill at the port of discharge in return for delivery of the goods.

1. Bill of lading as a receipt

When the bill of lading in the hands of the shipper, it becomes a receipt for the quantity of goods received, the condition of goods received and leading marks. However, the evidentiary value of the bills in all these cases is not the same in all case and it depends upon the circumstances of the case such as whether the bill falls within the Carriage of Goods by Sea Act 1971 or not.

Bill Of Lading Falling Within The Carriage Of Goods By Sea Act 1971

Under Article III (3) of this Act, the carrier has to include the leading marks, the number of packages or pieces or the quantity or weight of the goods and the apparent order and condition of the goods on the bill of lading. The statements made on the bill of lading are regarded as prima facie evidence of the receipt of the goods as described under III(4).
Bill Of Lading Not Falling Within The Carriage Of Goods By Sea Act 1971
Statements as to quantity:
According to Common Law, a statement specifying quantity received is a prima facie evidence of the quantity shipped. The burden of proof lies on the carrier to prove that the cargo as specified has not been shipped. This burden is an absolute one.

In the case of Smith v/s. Bedouin Steam Navigation Co [1896], the bill of lading stated that 1,000 bales of jute had been shipped, whereas only 988 bales were delivered. It was held that the carrier could successfully discharge the burden of proof only if he could show that the goods were not shipped, not merely that the goods may not possibly have been shipped.

There may be endorsements on the bill of lading with statements such as weight and quantity unknown and the courts recognize these, since information on quantity entered on a bill of lading is based on statements made by the shipper and which does the carrier not normally verify. However, when the statements is contained as ‘ quantity unknown’ alongside the gross weight entered by the shippers for the purposes of Section 4 the weight entered is not a representation that the quantity was shipped.

Example: A bill of lading which states that 11,000 tones of cargo were shipped ‘ quantity unknown’ means that the quantity is unknown and not that that amount of cargo was actually shipped, this would be the meaning construed by the Courts.

According to the Hague/Visby Rules, the shipper can demand the carrier issue a bill of lading showing ‘either the number of packages or pieces, or the quantity, weight etc as furnished in writing by the shipper’. Accordingly, the carrier may use any of these three methods of quantifying cargo. However, he cannot acknowledge one kind and disclaim knowledge of others.

In the case of Oricon v/s Integraan (1967), the bills of lading acknowledged the receipt of 2,000 packages of copra cake said to weigh gross 1,05,000 Kgs for the purposes of calculating freight only. It was held that while each of the bills of lading being Hague Rules of bills of lading, acknowledged the number of packages shipped as a prima facie evidence.

Regarding the evidentiary bill of lading is concerned; the Hague/Visby Rules serve as prima facie evidence of the amount of cargo shipped.

Statements as to condition:
This is the second type of statement, in which the bill of lading is a representation by the ship owner as to the condition in which the goods were shipped.
In Common Law, the statements as to the condition of the goods shipped are regarded as prima facie evidence in the hands of the shipper, but conclusive evidence in the hands of a bona fide purchaser.

In the case of Compania Naviera Vascongada v/s Churchill (1906), the timber became badly stained with petroleum while awaiting shipment; the master nevertheless issued a bill of acknowledging that the timber had been shipped in good order and condition. It was held that the ship owners were estopped from denying the truth of the statement against the assignee of the bill. In order to make the statement in the bill of lading binding as an estoppel it is necessary that the person so acting upon it would have done so upon a prejudice, wherein in this case the defendants were prejudiced since they accepted the bills of lading as a good tender on the belief that the timber was in good condition.

The estoppel will be effective only in respect of defects, which would be apparent on a reasonable inspection by the carrier or his agents. In the case of Silver v/s Ocean Steamship Co (1930), the ship owners had issued clean bill of lading covering cargo of Chinese eggs shipped in 42 - lbs square tins which were not covered with any cloth or packing. When the goods arrived at their destination in a damaged condition, the Court of Appeal held that while the ship owners were estopped from contending either the cargo was insufficiently packed or that the tins were gashed on shipment, they were not estopped from alleging that pin - hole perforations in the tins were present on shipment, since the latter would not necessarily be apparent on reasonable inspection.

Statements as to leading marks:
Where the carrier records leading marks on the bill of lading, he will not be estopped at common law from denying the goods were shipped under the marks as described in the bill. However, where the marks are essential to the identification of description of the cargo, the prima facie evidence rule is applied. The distinction between a public and a private mark is an important factor in establishing whether a mark is or is not material to the identity of the goods.
Indemnity agreements: Indemnity agreements may be agreed to be entered into by the shipper and the carrier to produce a clean bill of lading, that is, a bill of lading with no reservations on it. It affects its commercial value in number of ways:
i. The consignee normally relies on the bill of lading to establish whether the goods as agreed in the contract of sale have been shipped and where the bill of lading is claused he may refuse payment.
ii. Should the consignee or the shipper want to sell the cargo during transit, it is unlikely to be sold on the basis of a claused bill of lading.
iii. As a document of title the bill of lading is often used to raise money from banks and finance houses. These institutions normally prefer to lend money against a clean of lading.

2. Bill of lading as evidence of contract of carriage

In the hands of the shipper a bill of lading serves as evidence of the contract of carriage though it contains the terms of carriage. The contract with the shipper is likely to have been concluded orally long before the issue of the bill of lading. The document may vary some of the agreed terms or contains terms that have not been agreed to by the parties.

In the case of Crooks v/s Allan (1879) according to Lush J, a bill of lading is not a contract, only evidence of the contract. If a shipper of goods is not aware when he ships them or is not informed in the course of the shipment, that the bill of lading which will be tendered to him which will contain such a clause, he has a right to suppose that his goods are received on the usual terms.

In the case of The Ardennes (1951) the ship’s agent assured the shipper that the vessel of a consignment of oranges would sail directly to London and arrive there before 1 December. The ship however, stopped at Antwerp on her way to London and arrived at London on 4th December. When sued for breach of contract by the shipper, the ship owner relied on the bill of lading, which contained a clause giving the ship liberty to deviate during the course of her voyage. It was held that the oral evidence put forward by the shipper was admissible.

3. Bill of lading as contract of carriage

Upon endorsement to a third party, the bill of lading is a contract of carriage, but so far as the holder of the bill is the shipper, the bill of lading can be evidenced only as a carriage of contract. Any oral or written agreement between the shipper and the ship owner not expressed on the bill of lading will not affect the third party on the grounds of lack of notice. In the case of Leduc v/s Ward (1888), The endorsee of a bill of lading sued the ship owner for loss to cargo due to deviation in the course. The ship owner contended that they were not liable, since the shipper was aware at the time of shipment that the ship would deviate. The court held that anything that took place between the shipper and the ship owner not embodied in the bill of lading could not affect the endorsee.

4. Bill of lading as document of title

Until goods are physically delivered, the possession of the bill of lading is deemed to be constructive possession of the goods. Transfer of the bill of lading is deemed to be constructive possession of the goods. Transfer of the bill of lading by the seller to the buyer is deemed to be symbolic delivery of the goods to the buyer and the buyer, on the ship’s arrival could demand delivery of the goods.

In the case of Sanders v/s MacLean (1883), the bill of lading by the law merchant is universally recognized as its symbol and the endorsement and delivery of the bill of lading operates as a symbolic delivery of the cargo.

The buyer can sell the goods on while they are at sea to the third party by simply endorsing the bill of lading and delivering it to the third party. The third party, by becoming the holder, can demand delivery of the goods on arrival.

Not all bills of lading, however, are transferable. To impart transferability to a bill of lading, it must be drafted as order bills . Upon endorsement, the endorsee takes the place of the original party to the bill of lading, and will be sue and be sued on all the terms, express and implied int eh bill of lading despite privity of contract. This is due to operation of Section 2 and 3 of the Carriage of Goods by Sea Act, 1992.

A bill of lading need not be equated with a bill of exchange, which is a negotiable instrument in the strict legal sense.

In the case of Gurney v/s Behrend (1854) it was observed that a bill of lading is not like a bill of exchange or a promissory note, a negotiable instrument that passes by mere delivery to a bona fide transferee for valuable consideration, without regard to the title of the parties who make the transfer.

Therefore, bill of lading is a transferable document although in some jurisdictions it is considered as a negotiable instrument.

Delivery of documents

The carrier is under an obligation to deliver the cargo only against the original bill of lading if not, then he will be liable in contract as well as in tort to the bill of lading holder. In the absence of bill of lading, if a person wishes to take delivery of the goods, then he has to prove that he is entitled to the possession of the goods and there is a reasonable explanation for such absence.

There are ‘notify party’ clauses, which are used in which case, the carrier has to notify a customs broker, banker, and warehouseman of the arrival of the goods. In some cases, though not in all, the law of country or custom itself may provide requires the production of a bill of lading. Therefore, in this case, the carrier will not be liable in non - production of the bill of lading.

According to Clarke J, there is a difference between the law and custom and such differentiation is as follows:

Law: If it were a requirement of the law of the place of performance that the cargo must be delivered to the agent of plaintiffs with out the presentation of an original bill of lading, the defendants would have performed their obligations under the contract of carriage.

Custom: Equally, if there were a custom of the port that cargo was always delivered to the agent of the person entitled to possession without the production of the original bill of lading, delivery to the agent would probably amount to performance of the defendant’s obligations under the contract of carriage.

Practice: Practice must be distinguished from custom. A vessel may be discharged by any methods, which is consistent with the practice in the port. However, it would not be a good performance of the defendant’s obligations under the contract if it were merely the practice for vessels to deliver the goods without presentation of a bill of lading.

Forgery

Forgery is a common phenomenon is in international trade. There was an issue regarding the position of the innocent carrier delivering goods against the bill of lading.

In the case of Motis Exports Ltd v/s Dampskibsselskabet AF 1912 Aktieselskab Akteiselskabet Dampskibsselskabet Svendborg (2000) the cargo was under the Maersk Line Bills of lading which included clause 5(3)(b) which stated the carrier shall have no liability whatsoever for any loss or damage howsoever caused to the goods while in its actual or constructive possession before loading or after discharge over ship’s rail, or if applicable, on the ship’s ramp. The carriers released the goods against forged bills of lading. It was held that the delivery against an original bill of lading is obligatory and hence, delivery against a forged bill of lading will not be construed in favour of the carrier.

Conclusion
Hence, bills of lading play a very important part in international trade. Depending upon the rules, which are followed, there are different implications for different parties, which are involved. This article gives a very brief description of the nature and functions of the bill of lading.

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