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Bill of lading related problems & handling guideline for ship master

A bill of lading is a receipt for goods either received (before shipment) or shipped on board cargo ship. 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.) Problems may arise handling a bill of lading. Summarized below some basic procedures need to be followed by ship master .

If damaged or otherwise defective cargo is presented for loading

Where shippers offer damaged or defective goods for shipment, i.e. cargo which is not in the “apparent good order and condition” as stated in the printed terms on most bills of lading, the master’s duty is either:

i) to reject the goods (with the advice/assistance of an independent cargo surveyor where necessary); or

ii) to accept the goods for carriage on condition that he will issue a claused bill of lading stating the nature of the deficiency.

The master is entitled, as the carrier’s agent, to enter remarks on the bill of lading as to the apparent order and condition of the goods. Since some remarks may not be effective in protecting the carrier against claims by third parties, the master should contact the owner’s P&I club correspondent before making any remarks of which he is uncertain; certain remarks may have adverse consequences for the shipper when he presents a “shipped” bill of lading to his bank in compliance with the terms of a Letter of Credit.



Where the damaged or defective cargo is steel in any form, the P&I club correspondent should always be consulted before any remarks are made on the bill of lading. Where rusty steel is shipped, as is often the case, claims will inevitably arise. The master is fully justified in clausing a bill of lading relating to a steel cargo on which rust is apparent. However, to simply write “rusty” on the bills of lading is not recommended by the P&I clubs, since it may not be effective in protecting the carrier’s position and it may have adverse consequences for the shipper when he presents the bills of lading to his bank and demands payment for the goods.

The P&I clubs advise that remarks on the degree of rusting, e.g. “extremely rusty” or “superficially rusty” should never be made.

In every case where steel is being loaded and rust is apparent, the master should contact the P&I club correspondent before making any remarks on the bill of lading. Certain clauses will be recommended by the club, while the use of others will not be approved of.


If master is asked to sign “clean” bills of lading when these are not justified

A clean bill of lading is a bill of lading bearing no superimposed clauses stating a defective condition or shortage of the goods. It states that the goods have been received “in apparent good order and condition...”, without further remarks as to their condition.

A dirty bill of lading, also known as a “claused” or “foul” bill, is one claused with remarks such as “torn bags”, “rusty drums”, etc.

A Letter of Indemnity (or “back letter”) may be offered by the shipper, promising to indemnify the master or carrier against any loss or liability as a consequence of signing a clean bill of lading. However, acceptance of a Letter of Indemnity of this type in return for clean bills makes the master a party to an act of deception or fraud on banks, consignee/buyer, and insurers, since it is an attempt to obtain payment for goods knowing them to be unsound. There may be personal criminal liability for fraud on the part of the carrier and the master, and a heavy financial liability on the shipowner. This type of Letter of Indemnity has no legal standing in English law and cannot be sued on if the shipper goes back on his promise of indemnity.

A master should consult his owners and their P&I club’s correspondent if he is in any doubt, but should never accept a Letter of Indemnity of this sort without the written orders of his owners.


If ship and shore loading figures differ

Where the ship’s cargo quantity measurements show less cargo loaded than the quantity stated by the shipper, the master should generally enter the ship’s figures on the face of the bill of lading.

Some shipowners require their masters to endorse a bill of lading which does not provide space for the ship’s figures in the following terms: “Vessel’s measurements are stated below and this Bill of Lading only acknowledges the shipment of the weight or quantity given in the vessel’s measurements on completion of loading”.

Where the shipper refuses to accept such an endorsement the master should write a Letter of Protest to the shipper, pointing out the discrepancy in the figures and stating that the bill of lading will be signed under protest. A copy of the Letter of Protest should be stapled to each negotiable copy of the bill of lading (i.e. each bill of lading in the set of “originals”).

If the ship’s measurements show more cargo loaded than advised by the shipper, the shipper’s figures should be entered on the bill of lading. No Letter of Protest will be necessary.


If a charterer’s bill of lading has to be used

Where a charter party requires the master to sign bills of lading as presented by the charterer, the master should first verify that the bills of lading incorporate the terms of the Hague or Hague-Visby Rules. (This will generally be stated in the Clause Paramount or Paramount Clause.)

P&I clubs usually restrict cover to contracts incorporating terms at least as favourable as those given by the Hague Rules or Hague-Visby Rules. Where there is no reference in the charterer’s bill of lading to the incorporation of these Rules, the P&I club correspondent should be contacted.

Where the master is required to sign “clean” bills of lading as presented by the charterer, “clean” has been held by a court to mean only that the bill of lading should not be claused to the effect that demurrage was due at the loading port, without affecting the master’s right to clause the bill of lading as to the apparent order and condition of the goods where necessary.

Where a contractual lien for demurrage is given by the charter party terms, and demurrage is due at the loading port but not paid, the master should clause the bill of lading to that effect so that the lien can be exercised if necessary at the discharge port.


If the number of original bills of lading shown on the face of the bill is not the same as the number of negotiable bills of lading

The number of original bills of lading in the set should, before signing, be entered in a space provided on the face of each bill. (In addition to these “originals”, there may be several other “non-negotiable copy” bills, each of which should be clearly marked as such.)

Where the master is asked to sign bills of lading and the number of “original” bills presented for signature is not the same as the number indicated on the face of the bill, the master should:

• attempt to ascertain the reason for the discrepancy;
• call the P&I club correspondent;
• refuse to sign the bills until the correct number is inserted.


If two or more sets of bills of lading are requested by the shipper

Two or more sets of original bills of lading may have to be issued in the following circumstances:

• where cargo is shipped by more than one shipper (e.g. at multiple loading ports);
• where cargo is consigned to more than one consignee; or
• where more than one type, grade or specification of cargo is shipped by one shipper.

In the tanker trades it may happen that two or more consignments of cargo, shipped by different shippers, are intentionally loaded into one tank, so that it becomes impossible to determine the respective shippers’ quantities on completion of loading. In such cases the master should endorse and sign separate bills of lading to the effect that the shipments are part cargoes, or are part of a bulk cargo.

Where multiple consignments are loaded, but only one total figure is given, the master should consult the shipper as to the apportionment of quantities on the bills of lading for each consignment. Where no instructions are obtainable, the total quantity loaded should generally be divided between the bills of lading in proportion to the original split of the nominated consignments. For example, where the consignments were nominated as 40,000 tons consigned to Party A and 60,000 tons to Party B, but only 99,400 tons are loaded, the apportionment on the bills of lading should be 39,760 tons and 59,640 tons respectively.


If a bill of lading presented for signing is written in an incomprehensible foreign language or alphabet

Bills of lading are, in some countries (e.g. Libya), presented for signing in a foreign language or alphabet which may not be known to the master. In such case the master should arrange for the bill of lading to be translated by an independent third party (i.e. someone other than an agent of either the carrier or charterer). If in doubt, the P&I club correspondent or British consul should be asked whom to employ.

If a translator cannot be found, the master should make out his own bill of lading in English (using another bill of lading form as a model), and issue this to the shipper for completion of the shipment details before signing. Only appropriate clauses should be incorporated.


If the master is asked to sign blank or partially completed bills of lading

Except where the Early Departure Procedure is being properly used in the tanker trades , blank or partially-completed bills of lading should never be signed and issued by the master, for obvious reasons.

In all cases where the master is asked to sign blank or partially-completed bills of lading, the P&I club correspondent should be advised.


If Early Departure Procedure is used

Some oil terminals and tanker companies use an “Early Departure Procedure” (“EDP”) to allow tankers to sail on completion of cargo operations without having to wait for cargo figures to be prepared and documents produced. The practice is more commonly used when the ship’s time is at a premium, but at other times is discouraged.

In the EDP system:

1. Bills of lading are prepared before completion of loading, but without any loaded cargo quantity as advised by the shipper.

2. The agent presents the bills of lading for the master’s signature before completion of loading.

3. The master returns the originals of the bills of lading to the agent but retains the non-negotiable “captain’s copies” together with “copy” bills for consignees, and other completed cargo documents.

4. The master writes any necessary Letter of Protest regarding the order or condition of the cargo, and allows any investigation to be completed before departure.

5. After departure of the ship, the agent communicates the shipper’s final loading figures to the master as soon as they are available.

6. If the master agrees the communicated figures, he enters them on his “captain’s copies” of the bill of lading and on the consignee’s copies, while the agent completes the original bills of lading and signs them on behalf of the master.

7. If the master does not agree with the shipper’s figures he informs the agent, who writes a Letter of Protest to the shipper on the master’s behalf and completes and signs the bills of lading under protest.

8. The agent releases all original documents to the shipper, who sends them to the consignee.

At some ports the practice may be to present bills of lading to the master for signature either blank or only partiallycompleted, but the master should never sign such documents, and should instead call the P&I club correspondent. Agents should be authorised to sign bills of lading on behalf of the master only after the master has been made aware of, and has agreed to, any details (including loading figures) to be entered.


If bills of lading have to be re-issued or amended

The master may be asked to re-issue or amend a previously issued bill of lading. He should never agree to this without the consent of the P&I club correspondent.

The P&I club correspondent will normally ensure that before a second set is issued, all bills of lading in the first set are returned and cancelled or destroyed. (The number of original bills returned should, of course, tally with the number of originals issued, as stated on the face of each bill.)

Each bill of lading in the new set should be claused as follows:

This is a replacement Bill of Lading issued at…………….… on the …… day of ………………… (month/year) on cancellation of an original Bill issued at ……………… on the …… day of ………………….(month/year) to show (reason for re-issuing bills of lading).


If the master is asked to pre-date or post-date bills of lading

Under the terms of a Letter of Credit, payment to the seller of the goods will normally depend on the goods being shipped on a particular date, or between particular dates, and banks will generally refuse to pay the seller if the actual date of loading does not correspond with the date stipulated in the Letter of Credit. Cases therefore arise where the incorrect loading date is inserted in bills of lading in an attempt to evade a delay in obtaining payment.

A“shipped” bill of lading should always be dated for the actual date of loading, or the date of completion of loading. Although the master may be requested to sign pre-dated or post-dated bills of lading, he should never do so.


If delivery of cargo is requested without presentation of the relevant bill of lading

In the tanker trades, cargoes are commonly bought and sold many times during a voyage, causing delays in the arrival of the bills of lading, and the problem commonly arises that the cargo arrives at the discharge port before a copy of an original bill of lading can be produced.

In other cases, the bill of lading may be missing for a variety of reasons. The receiver may claim that the bills have been lost, stolen or delayed. In such cases, there is there is the possibility of misdelivery and a serious risk of fraud.

If the master negligently delivers cargo to the wrong party without first requiring production of an original bill of lading, the carrier will be held wholly liable for the consequences and will receive no backing from his P&I club or sympathy from the courts. Wrongful delivery may even result in the arrest and sale of the ship to recover the cargo’s value for the rightful owner.

Ifit is likely that the bill of lading has merely been delayed, the goods may be delivered - with the shipowner’s and the P&I club’s agreement - after the receiver signs an acceptable Letter of Indemnity. An “acceptable” Letter of Indemnity is one that:

• promises to indemnify the shipowner against all consequences and liabilities of delivery to the wrong person;

• is phrased in terms acceptable to the owner’s P&I club; and

• is countersigned by a first class bank or cargo insurance underwriter, i.e. one able to meet any claim.Some P&I clubs print the text of their standard Letter of Indemnity in their club handbook or rulebook, which should be carried on board. This does not imply, however, that the club will always give cover for claims arising under such Letters of Indemnity.

If an acceptable Letter of Indemnity cannot be offered, the cargo should not be delivered.


If cargo delivery is requested against presentation of an original bill of lading carried on board

In some cases an original bill of lading may be sent to the consignee on board the carrying vessel. The master should issue a receipt to the shipper or his representative (e.g. the freight forwarder). The master should not accept for carriage original bills of lading made out “to order”, or where there is no named destination or where the destination is qualified, e.g. “Lands End for orders/intention Le Havre”.

The master should not accept original bills of lading for carriage if the shipper refuses to sign the receipt, or if no party is named as receiver in the bill of lading.

The master should not discharge against an original bill of lading carried on board if the discharge port is different from the destination shown in the bill of lading. In this case he should consult the owner and the P&I club correspondent.

On arrival at the discharge port the master should hand the bill of lading to the party named in the receipt, if his identity can be confirmed.


If two parties present “original” bills of lading

The master should immediately contact the P&I Club correspondent. The bills of lading may be left with a court of law to settle the dispute. In the meantime, the goods should be landed to a warehouse/tank, etc., where they should be held until the dispute has been settled and freight and charges have been paid.


If goods are unclaimed at the discharge port

The master is not obliged to deliver goods to a receiver until one original bill of lading is presented, but neither is he obliged to retain unclaimed goods on board. At common law, if goods are not claimed within a reasonable time, the master may land and warehouse them. The master has a duty to do this, in fact, rather than detain his ship in port beyond her laytime and make the charterer liable for demurrage. The warehouseman becomes a common agent of both carrier and consignee and should be instructed to release the goods only on payment of all outstanding charges (e.g. freight and demurrage). Warehousing expenses will be for account of the receiver of the goods.

If the goods remain unclaimed, they may usually be sold by the carrier after a reasonable time (depending on local law) and after advertising for the consignee in the national press. Carriers often insert a clause known as a London Clause in their bills of lading giving them the right to land goods on arrival; this clause overrides the common law position.

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