THE FUNCTIONS OF THE BILL OF LADING

Both CIF and FOB contracts have two features which are important to remember before examining the functions of the bill of lading:

• Firstly, payment is made by the seller tendering various documents to the buyer in return for the agreed price. These documents include the all-important bill of lading, which acts as a receipt, as evidence of the contract of carriage between the shipper and the carrier, and as a document of title. The bill of lading, therefore, makes payment against documents viable because the buyer will be secure in the knowledge that possession of the bill of lading will allow him to take delivery of the goods when the ship finally arrives. From the seller’s perspective, the retention of the bill of lading allows him to retain ownership of the transported goods until the agreed price is received. Equally, possession of the bill affords security for the financing bank.

• The second important feature of both CIF and FOB contracts is that, subject to the contract, the risk is transferred on loading. Once the goods are “over the ship’s rail” the risk is with the buyer even though the seller may retain ownership of the goods. In essence, the transfer of risk means that the buyer accepts the risk of loss or damage to the goods sustained whilst in transit. A buyer or bank financing the purchase will naturally be concerned that risk has passed and will, therefore, need confirmation that not only have the goods been loaded on to the vessel, but also that there exists a means of recovering potential loss or damage sustained during the voyage from the carrier. As will be seen the bill of lading alleviates to a large extent both of these concerns.

1-The Bill of Lading as A Receipt

This receipt function is a primary function of the “face” of a bill of lading, i.e. the front side of the bill. Specific information to particular cargoes is generally entered in numbered boxes. This information includes the description and weight or volume of bulk cargoes or, in the case of containerised cargoes, the dimensions, number and seal numbers of the containers.

There will also be a statement regarding the apparent condition of the cargo on shipment. Indeed, under the Hague-Visby Rules (Article III, rule 3b), a carrier is obliged, if so requested, to issue a bill of lading which states the number or quantity or weight of the cargo and its apparent order and condition.

Statements as to number and condition are representations which, under common law and the Hague Rules, give rise to an estoppel against the carrier preventing him from denying either the number or quantity of the cargo shipped, or its condition on shipment. Under the Hague Rules, a bill of lading is prima facie evidence of the quantity shipped. The effect is to place the burden on the carrier to disprove the accuracy of the bill of lading once the bill has been transferred (or negotiated) to a third party receiver.

The Hague-Visby Rules on the other hand, under Article III, rule 4, provide that the bill of lading will be conclusive proof in the hands of a third party to whom the bill of lading has been transferred in good faith. This means that even if contrary proof is brought forward against the shipper, the shipper’s liability will have been extinguished if the bill has been transferred to a third party in good faith.

Section 4 the Carriage of Goods by Sea Act 1992 provides that: 

“A bill of lading which –

(a) represents goods to have been shipped on board a vessel or 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 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.”

Although section 4 is not expressly limited to third parties (as in the case of the Hague-Visby Rules), it is impliedly subject to this limitation by virtue of section 5(5) of the same Act which states: “The preceding provisions of this Act shall have effect without prejudice to the application, in relation to any case, of the rules [the Hague-Visby Rules] which for the time being have the force of law by virtue of section 1 of the Carriage of Goods by Sea Act 1971.”

Therefore, any statements in a bill of lading relating to quantity of goods loaded are still only of prima facie effect when the carrier issued by the original shipper. A bill of lading is only conclusive evidence if the action is brought by a third party (i.e. an endorsee). Given the strict nature of this estoppel, carriers will often qualify their representations with words such as “said to weigh” or “apparent good order and condition”.

With regard to the condition of the goods, a bill of lading will usually be “clean”, i.e. it will usually state the apparent good order and condition of the cargo on shipment. Again, the carrier is estopped from denying the apparent good order and condition of the cargo. Therefore, if the cargo arrives damaged the carriers will be prima facie liable unless it can be shown that despite its appearance, the cargo was not in good order and condition on shipment. That might be the case, for example, where the cargo has some kind of inherent problem, or alternatively where all of the cargo could not be reasonably inspected by the crew, for example when the cargo is palletised.

Bills of lading are often prepared by carriers and they must rely on the information supplied by the shipper. Carriers often will have little opportunity, in the course of loading, to independently confirm all that is stated by shippers as to the nature, condition and quantity of their cargoes, for example because cargo is concealed within packaging.

Nevertheless, we have seen that since the bill of lading is a receipt issued by the carrier, it is the carrier and not the shipper that will be liable to the receiver for any discrepancies between the quantity and apparent order and condition of the cargo on shipment, as acknowledged in the bill of lading, and of the cargo as delivered to the consignee. It has been shown that the face of a bill of lading can give rise to an estoppel against the carrier. However, it should be noted the face of a bill of lading can also become actionable as a fraudulent or negligent misrepresentation, although estoppel remains the most likely course of legal action.

The carrier is undoubtedly placed at considerable risk by the information inserted on the face of the bill of lading. This information will generally be stated or deemed to have been supplied and warranted by the shipper, who will be required to indemnify the carrier against inaccuracies in the information provided for inclusion in the bill of lading.

Estoppels are dependent on representations as to fact and subsequent detrimental reliance on those representations. It will, therefore, be necessary for the consignee to show reliance on the said representation; however, in the context of a “clean” bill of lading this will not be troublesome. 

2-The Bill of Lading as Evidence of the Contract of Carriage

Section 5(1) of the Carriage of Goods by Sea Act 1992 provides that:

‘the contract of carriage’ – (a) in relation to a bill of lading or sea waybill, means the contract contained in or evidenced by that bill or sea waybill”.

It is clear, therefore, that sometimes the bill of lading can effectively be the terms of the contract of carriage, and that in other circumstances it merely represents evidence of the contract of carriage. It is vital to appreciate the different circumstances which dictate which of the two possibilities applies. It has long been recognised that the terms set out on the reverse of the bill of lading are only evidence of the contract of carriage as between shipper and carrier. The contract itself will obviously have been agreed before the bill was issued, i.e. at the time of booking the ship. If the terms of a bill of lading do not reflect those of the earlier agreement, the shipper is not disbarred from submitting evidence of the earlier agreement. 

However, it is important to note that the bill of lading serves as conclusive evidence of the bill of lading terms of the contract of carriage between the carrier and a bona fide endorsee, i.e. the carrier is estopped from bringing evidence forward to the contrary. This means that the third party may rely on it as the contract of carriage. In summary, the position is, therefore, as follows:

(a) Whilst in the possession of the shipper, the bill of lading represents the contract, i.e. it is merely evidence of it. The actual contract may be different from the bill of lading.

(b) Once the bill of lading has been transferred or endorsed to a third party, the bill of lading should not be treated as simply evidence of the contract. It may be relied on by the third party as the contract itself.

3-The Bill of Lading as a Document of Title

Bill of lading is treated not only as a contract of carriage but also as a document of title. Accordingly, constructive possession of the goods can be passed by endorsement and delivery of the bill of lading from one person to another. The bill of lading thus represents the goods, it was described as the “keys to the warehouse”.

It is accepted that when the term “negotiable” is used in the context of a bill of lading, it merely means transferable. Whilst the term “negotiable” continues to be used, it should be noted that a bill of lading is not a truly negotiable instrument in the sense that an endorsee cannot pass by endorsement any rights in the goods greater than those he already has. 

In addition to its other characteristics as a receipt for the goods and as evidence of the contract between shipper and shipowner, the bill of lading fulfils two distinct functions:

1. It is a symbol of constructive possession of the goods which (unlike many such symbols) can transfer constructive possession by endorsement and transfer: it is a transferable ‘key to the warehouse’.

2. It is a document which, although not capable of directly transferring the property in the goods which it represents, merely by endorsement and delivery, nevertheless it is capable of being part of the mechanism by which property is passed.”

The transfer of constructive possession means that the new holder of the bill of lading is entitled to claim the goods from the carrier at the discharge port or sue the carrier in the event of misdelivery. The transfer of the bill of lading is not an automatic transfer of the property in the goods – the transfer of the bill transfers those rights that the parties intend to pass.

By: Mohamed Fawzy Elsaman