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Function of a bill of lading in cargo ships agreement

Bills of Lading are internationally respected documents on which banks and other institutions rely when advancing large sums of money. If a Master or agent signs a bill of lading knowing or suspecting that the cargo description is incorrect, or if a false date is deliberately inserted in the bill, a court will probably consider that a fraud has been committed. This will render worthless any guarantees or letters of indemnity that may have been tendered by the shipper and expose the ship to liability for any loss that has been suffered.

The Master should be aware of the condition of cargo loaded to the extent that he can reasonably be expected to have inspected it. If it is impossible for him to properly inspect the cargo, the Bill of Lading should be qualified accordingly. Additionally, the Master will often be under a duty to state the quantity or weight or number of pieces of cargo shipped, and once he has signed bills to that effect it will be very difficult to claim that a different quantity was shipped. As it seldom, if indeed it ever, happens that the Master or his officers are in a position to check or vouch for the quantity of cargo shipped, mate's receipts and bills should always be claused "...shipper's weight, quantity and quality unknown..." or, in the case of bagged cargo "...xxxx bags said to contain... weight, quantity and quality unknown..."

The intrinsic value represented by a Bill of Lading tends to give rise to many disputes and accordingly, if there is any doubt about how a bill should be claused, advice of the owners or the P&I Club should be sought.

The bill of lading in the hands of a third party

At common law, a bill of lading is only prima facie evidence as to the quantity, weight and condition of goods shipped, i.e. if a bill is signed for a greater quantity of cargo than is actually shipped, it may be possible, provided the bill is not endorsed to a third party, for the carrier to refute the statements on it. Once the bill is endorsed to a third party, however, it becomes conclusive evidence of the shipment, i.e. the carrier will be bound by the bill of lading’s terms and conditions, whether the goods were shipped or not. (Since liner bills of lading are usually made out in a shore office and not on board, it is quite possible for bills to be issued for cargo that was not shipped for some reason.)

Section 4 of the Carriage of Goods by Sea Act 1992 (COGSA 92) underlines the common law position in the UK by providing that: “A bill of lading which
(a) represents goods to have been shipped on board a vessel or to have been received for shipment on board a vessel; and
(b) has been signed by the master of the vessel or by a person who was not the master but had the express, implied or apparent authority of the carrier to sign bills of lading, shall, in favour of a person who has become the lawful holder of the bill, be conclusive evidence against the carrier of the shipment of the goods or, as the case may be, of their receipt for shipment. every bill of lading in the hands of a consignee or indorsee for valuable consideration becomes conclusive evidence of the shipment as against the master or person signing the bill of lading, notwithstanding that such goods or part of them may not have been shipped.”

A Conclusive Evidence Clause is inserted in some bills of lading stating that the contents of the bill will be conclusive evidence against the contracting parties. It is very important, therefore, for the master to ensure, before signing a bill containing such a clause, that an accurate tally has been made of the goods received on board. (If there has been fraud on the part of the shipper, however, the clause will not be binding on the carrier.)

The bill of lading as a receipt for freight

If the bill of lading is endorsed with words such as “FREIGHT PAID or “FREIGHT PREPAID”, then once it is signed it becomes prima facie a receipt for the freight.

If the freight has not actually been paid, but the receipted bill of lading is endorsed to a third party, the carrier will probably lose his right to recover the freight, i.e. the statement becomes conclusive evidence that freight has been paid. It is important, therefore, to verify before signing such a bill of lading that freight has in fact been paid. (In practice the agent will normally do this.)

The bill of lading as a document of title

“Title”, in the context of carriage of goods, means the right to possession, as distinct from the right to ownership.

A “document of title” is a document embodying the undertaking of a person holding goods (who is called a “bailee”) to hold the goods for whoever is the current holder of the document and to deliver them to that person in exchange for the document16.

Possession of an original bill of lading is equivalent in law to the right to possession of the goods described in the bill, i.e. it gives title or “constructive possession” to the goods it represents. In other words, an original bill of lading, being a “bearer document”, is good evidence that its holder is the rightful possessor of the goods. This enables any holder to obtain delivery of the goods at the discharge port by production of an original bill of lading.

Title to the goods may be transferred after shipment to a third party, such as a bank under a Letter of Credit arrangement, by “negotiation” (i.e. transfer) of the full set of original bills of lading by the shipper, subject to the bills being made out in a way that permits this in law. A bill of lading made out so as to enable its negotiation is a “negotiable document of title”. Bills which are not made out in a way that permits negotiation are termed “nonnegotiable”, and are often endorsed to clearly indicate this.

To make the original bills of lading negotiable they must either be made out with the words “to order” in the space allocated for the consignee’s name, or “to (XYZ CONSIGNEE LTD.) or his order” in the same space, which allows the original consignee to transfer title to a third party, such as another buyer of the goods, if required.

Transfer of title from the shipper may be made by any one of three methods, as follows:

i) By means of a “blank endorsement”, whereby the shipper stamps the back of each original bill with his company’s stamp and adds his signature, but without inserting any transferee’s name, before passing the set of bills to the transferee. A blank-endorsed “order” bill of lading (i.e. one made out “to order”) is a bearer document, like a postal order or a cheque made out to “Cash”, and the carrier must deliver the goods to whoever presents any one of the originals (unless he has reason to suspect fraud). Like a bearer cheque, a blank-endorsed bill of lading is a dangerous document but due to the requirements of banks which are asked by international traders to advance money against documents it is commonly used.

ii) By “specific endorsement” on the back of the bill of lading, e.g. “deliver to ABC Receivers Ltd”, with the stamp and signature of the shipper. The person to whom title is thus transferred may be termed the “endorsee”.

iii) By attaching authorised delivery instructions on the shipper’s stationery, e.g. a Delivery Order from the shipper to the consignee.

Once a bill of lading has been negotiated, the endorsee or transferee becomes subject to the same liabilities and has the same rights against the carrier as if the contract of carriage had originally been made with the endorsee. This means that if freight or demurrage is payable before delivery of the cargo, the endorsee may be liable for the payment. To protect the endorsee the contract terms must be clear and unambiguous, and where some term in the original contract is not included in the bill of lading terms, it will not be binding on the endorsee.

The reason for making out a set of original bills of lading is that, if a single bill of lading were to be lost, the consignment of goods would have to be warehoused, a duplicate obtained (which would cause delay), or an indemnity given to the carrier, before the goods could be released. Since this would be time-consuming and costly, bills of lading are normally issued in sets of two or more “originals”, the most common number of originals being three.

It is unwise to enclose a full set of bills of lading in one envelope, because of the danger of all the bills being lost together. Banks will therefore split a set into two envelopes, one being posted immediately and the second being held for 2, 3 or 4 days and then posted, to avoid the possibility of both envelopes being in transit in the same bag.

Several non-negotiable, “copy” bills of lading will normally be made for filing and other purposes, and one of them is usually marked “CAPTAIN’S COPY” and travels on the ship in the master’s custody.

Outline of bill of lading contents

A bill of lading is a receipt for goods either received (before shipment) or shipped on board. It provides good evidence of the existence and terms of a contract between the shipper and carrier . (A contract of carriage may exist without issue of a bill of lading, however.)

Long form bills of lading, as issued by carriers operating liner services, typically contain about 30 printed and numbered clauses. The majority of clauses are common to the bills of most major carriers, although the wording may differ. Additional clauses are added by carriers to address the special features of their particular trades.

A long form liner bill of lading will usually, when issued, contain the following details:

• a reference number;
• name and address of the shipper or his agent;
• name and address of the consignee, or “to order”, or “to the order of (consignee’s name inserted)”;
• name and address of any notify party (e.g. a receiver taking delivery of the goods for the consignee);
• ports of loading and discharge;
• name of the carrying vessel;
• any leading marks for identification of the goods (as stated by the shipper);
• the number and kind of packages or pieces (as stated by the shipper);
• description of the goods (as stated by the shipper);
• gross weight or measurement (as stated by the shipper);
• the order and condition of the goods if not in “apparent good order and condition” on receipt;
• the place where freight is payable, if freight has not been paid;
• the number of original bills of lading forming the “set” (so that the consignee or any transferee, such as a bank, can determine whether all original documents in the set have been delivered, in case of fraud or mistake);
• the date of receipt of the goods for shipment or, on a “shipped” bill of lading, the date of shipment;
• the place and date of issue;
• the signature of the carrier, master or carrier’s agent; and
• the carrier’s standard terms and conditions (on the back).

P&O Nedlloyd’s bill of lading includes clauses numbered and named as follows:
1. Definitions;
2. Carrier’s tariff;
3. Warranty;
4. Sub-contracting and indemnity;
5. Carrier’s responsibility – port-to-port shipment;
6. Carrier’s responsibility – combined transport;
7. Sundry liability provisions;
8. Shipper-packed containers;
9. Inspection of goods;
10. Carriage affected by condition of goods;
11. Description of goods;
12. Shipper’s/merchant’s responsibilities;
13. Freight;
14. Lien;
15. Optional stowage and deck cargo;
16. Live animals;
17. Methods and routes of carriage;
18. Matters affecting performance;
19. Dangerous goods;
20. Notification and delivery;
21. FCL multiple bills of lading;
22. General average and salvage;
23. Variations of the contract;
24. Law and jurisdiction;
25. Validity;
26. Limitation of liability;
27. USA clause paramount.

A charter party bill of lading will usually contain a clause to the effect that all terms and conditions of the charter party identified in the bill of lading are incorporated in the bill.

The “CONGENBILL” charter party bill of lading (1994 edition) includes clauses numbered and named as follows:

1. Unnamed ;
2. General Paramount Clause;
3. General Average;
4. New Jason Clause; 5. Bothto- Blame Collision Clause.

“CONGENBILL” Clause 1 states as follows:
“All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, are herewith incorporated. The Carrier shall in no case be responsible for loss of or damage to cargo arisen prior to loading and after discharging.”

The carrier’s exceptions from liability are contained in the Hague or Hague-Visby Rules, which are normally applied to the contract by the Clause Paramount.

Stamped or hand-written clauses, e.g. “CLEAN ON BOARD” and “FREIGHT PREPAID”, may be endorsed on a bill of lading, and will override any printed clauses. A bill of lading that has been surrendered at the discharge port may be endorsed by the carrier’s agent with the word “ACCOMPLISHED”.

Related other info pages

  1. What is a bill of lading ?

  2. A bill of lading is a receipt for goods either received (before shipment) or shipped on board. It provides good evidence of the existence and terms of a contract between the shipper and carrier ...

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  3. Function of a bill of lading in cargo ships agreement

  4. a bill of lading is only prima facie evidence as to the quantity, weight and condition of goods shipped, i.e. if a bill is signed for a greater quantity of cargo than is actually shipped, it may be possible, provided the bill is not endorsed to a third party,...

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  5. Bill of lading related problems

  6. Problems may arise handling a bill of lading....

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  7. How the bolero system works ?

  8. Bolero is designed for all parties in the trade process: importers, exporters, freight forwarders, port authorities, inspection agencies, carriers, ship’s agents, customs agencies and financial institutions....

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  9. Delivery conditions in a time charter agreement

  10. Unless the contract contained in the bill of lading, charter party or sea waybill expressly provides otherwise, goods stated in the contract of carriage as being carried on deck and which are, in fact, stowed on deck will not be protected by the Hague-Visby Rules. ...

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  11. Hague-Visby Rules defining cargo ships obligations and liability

  12. Hague-Visby Rules (HVRs) are properly called the Hague Rules as Amended by the Brussels Protocol 1968 and apply to every bill of lading or any similar document of title relating to the carriage of goods between ports...

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  13. Hamburg Rules

  14. Hamburg Rules are properly called the United Nations Convention on the Carriage of Goods by Sea 1978, were drafted under the auspices of the UN agency UNCITRAL and introduced in 1992 in response to shippers’ complaints that the Hague and Hague-Visby Rules were unfavourably weighted in favour of the carrier....

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  15. Outline of a mate's receipt

  16. A mate’s receipt is a receipt, issued and signed by the carrying ship’s chief mate (or the ship’s agent on his behalf), for goods received on board....

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  17. Sea waybills and related procedure

  18. A sea waybill is a receipt for goods shipped on board. It bears good evidence of the existence and terms of a contract between the shipper and carrier, but is not a contract itself....

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  19. What is standard shipping note

  20. Standard Shipping Note (SSN) is a shipping document widely used in the UK liner trades to accompany a consignment of goods from their place of origin (e.g. a factory) to the place of loading (e.g. an inland container depot) or the port of shipment....

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