Contract of Carriage and Bill of Lading
The contract of carriage is entered between the carrier and the shipper. The initial contract for carriage may be verbal or may be set out in a short booking note. Commonly, the cargo space will have been booked by telephone, email or letter. The preliminary contract may be acknowledged by both the shipper and carrier to incorporate the carrier’s standard terms of business.
The contract of carriage may be entered on the carrier’s standard bill of lading terms. The bill of lading may set out the full terms of the contract. In other cases, the shipper may contract on the contractual terms in the bill of lading, while some other terms of the contract are made informally.
The bill of lading may embody the terms of the contract but may not necessarily constitute the contract itself. The entire facts and documents may be relevant to ascertain the terms of the contract. Evidence may be given which varies its terms. Where a standard bill of lading is used, or there is a course of dealing between the parties, there is a strong presumption that it embodies the contract of carriage and governs the dealings between the parties.
Certain terms may be implied by common law or statute depending on the governing law. If the Hague-Visby Rules apply, then the rules are automatically annexed to the bill of lading and form part of the contract. To the extent that clauses are inconsistent with The Hague or Hague Visby Rules which have a mandatory effect, it is deemed modified, varied or rendered void. Subject to this, the general law of contract applies.
Functions of Bill of Lading I
The bill of lading is a multifunction document, which is of key importance in the international sale of goods by maritime transport.
The bill of lading may embody and include the terms of the contract of carriage. They may be printed on the reverse. The terms may be incorporated by reference. In some cases, they may be incorporated from a charterparty. Certain terms may be implied by common law or statute depending on the governing law.
The bill of lading also acts as a receipt issued by the carrier once the goods have been loaded onto the vessel. This receipt can be used as proof of shipment for customs and insurance purposes, and also as commercial proof of completing a contractual obligation, especially under Incoterms such as CFR (cost and freight) and FOB (free on board).
Functions of Bill of Lading II
The bill of lading represents the title to the goods. The person who possesses the bill of lading has constructive (deemed) possession of the goods. The retention of the bill of lading retains control of the goods until the contract price is paid.
The bill of lading confers presumptive title to the goods on the named consignee or lawful holder. However, the seller cannot pass better title than he himself has. If the goods are subject to an encumbrance (such as a mortgage or charge), or are stolen, the bill of lading cannot grant full title to the holder.
Where there is a sale with payment against the documents, the buyer contracts that the price will be paid against tender of the documents. The documents usually include the invoice, bill of lading and the applicable insurance policies. The buyer, by paying the price against delivery of the bill of lading will have the security of knowing that he has an entitlement to title and to possession of the goods, by possession of the bill.
Parties and Bill of Lading
Under a contract for carriage, the shipper is the person who consigns the goods. The shipper may be the buyer or seller of the goods. It is usually the seller. The shipper contracts with the carrier, who may be the shipowner or a charterer. The shipper may alternatively contract with a freight forwarder or other party.
The bill of lading should identify the shipper. He may be an agent for the buyer (under certain forms of contract) or may be a freight forwarder who is equally agent of the seller or buyer.
The carrier will not necessarily be specified in the bill of lading. The carrier may be the shipowner or charterer. The freight forwarder may be the carrier and may subcontract with a third party. The carrier itself may sub-contract. There may be questions of interpretation as to who is the shipper, carrier and charterer.
The bill of lading is conclusive in relation to the terms of the carriage as between the carrier and the consignee /endorsee. The latter are not subject to the terms of any other agreement between the shipper and carrier not reflected in the bill unless otherwise agreed. Section 1 of the Bill of Lading Act 1855 provides that the consignee (and / or endorsee) assume all rights and obligations as if the contract contained in the bill had been made with it.
Bill as Title Document
A bill of lading is unique in that possession may be transferred without the other party’s (carrier’s) acknowledgement or attornment. The constructive possession given by the bill to the holder, entitles him to claim the goods from the carrier at the port of discharge. He may sue the carrier if the goods are not delivered or if they are delivered to somebody else.
The bill of lading may also constitute a contract between the carrier and the holder, breach of which entitles the holder to sue for mis-delivery. Where the carrier mis-delivers to a person having a counterpart bill without proper authority, he will have a defence to mis-delivery provided that he is not aware of the want of title.
In accordance with international long-standing custom, the endorsement of the bill of lading may transfer both possession and title to the goods. The seller may contract to reserve title to the goods.
Bill as a Receipt
The bill of lading plays multiple functions. In the first instance, it acts as a receipt and sets out the state of the goods, quantity and other apparent particulars, when delivered to the carrier. It will specify the date, the vessel, the port of landing and discharge. It is prepared by the person who remits the goods / the shipper, usually on the carrier’s standard form.
The shipper gives a receipt of the records of cargo loaded. It is presented to the carrier for signature. Generally, three original bills of lading are issued. One part is issued to the party who delivers custody of the goods to the carrier. This person is the shipper or consignor. It may be the seller or an agent or another on his behalf. The carrier may be a ship owner or maybe a charterer of the vessel.
The sale contract and letter of credit will usually require a clean bill of lading. This is a receipt showing conformity, without qualification. A clean bill shows that the goods have been shipped and delivered in apparent good order and condition. Where there are adverse comments, there is a “claused” bill of lading.
Consignee and Shipped Bill
Once goods are transferred to the carrier, there is a “shipped” bill of lading. Where goods are transferred into the carrier’s custody at an earlier stage, the bill of lading will be “received for shipping”. This will, in turn, become a shipped bill when receipted by the carrier or its agent as such.
The bill of lading will identify the person to whom delivery is to be made at the port of discharge. This is the consignee. The designation of the consignee is not the final. The consignor retains the right to give new instructions to the carrier, while he possesses the bill of lading.
The shipper / consignor authorises the carrier to deliver the goods to the consignee or its order. A bill of lading is assignable in the same manner as a bill of exchange. In the same way, the bill of lading may leave the consignee blank or state that it is to a particular person or his order. In this case, the bill may be a bearer bill. Delivery is to be made to the person with possession.
The carrier is obliged to deliver the goods to the person who presents the original bill of lading whether named as consignee, or a subsequent assignees/holder.
With a bearer bill, where no consignee is specified, possession can be transferred by delivering the bill of lading to the assignee. Where there is an order bill, it must be endorsed or signed in the same manner as a bill of exchange. Endorsement passes the entitlement to possession of the goods.
Charterparties and Bill of Lading I
A bill of lading does not have a contractual effect, where a charterparty has been entered with the person who has issued the bill. There may still be a bill of lading in conjunction with the charterparty, which is a contract of carriage for the consignee of the goods covered by it. In this case, and regardless of whether the shipper contracts by a charterparty, the ultimate buyer of goods, will usually obtain a right against the carrier for loss or damage on the terms of the bill of lading, generally subject to The Hague Visby Rules.
The charterparty may contemplate third party bills of lading which may be entered in relation to goods to be carried. The bill of lading may incorporate the terms of the relevant charterparty. The charterparty must exist and be set out in writing prior to the entry into the bill of lading. Only those clauses that are relevant to the contract of carriage are incorporated. For example, an arbitration clause would require specific incorporation. The incorporation is given effect provided that it is meaningful in the context of a bill of lading and insofar as it is so relevant.
Where the master of the ship signs the bill of lading, he usually does so on behalf of the shipowner. Where there is a voyage or time charter party, not by demise, the master may sign on behalf of the owner and not the charterer. In this case,the bill lading gives the holder a right of action against the shipper/carrier for loss or damage in transit. The buyer/holder has an action on the terms of the bill of lading, subject to the Hague-Visby rules.
Charterparties and Bill of Lading II
The position may be varied by practice between the parties or by the express terms of the contract. The charterer’s obligations to take care in relation to loading, handling and discharge continue even if the shipowner is the party to the contract.
If there is a charter by demise, the master may sign for the charterer. A demise charter is an arrangement for the hiring of a vessel whereby no administration or technical maintenance is included as part of the agreement. The charterer obtains possession and full control of the ship along with the legal and financial responsibility for it.
The bill of lading gives the holder a right of action against the shipper/carrier for loss or damage in transit. This is the case, irrespective of whether the shipper contracts on the basis of a charterparty. The buyer/holder has an action on the terms of the bill of lading, subject to the Hague-Visby rules.
A bill of lading may contain a demise clause which provides that the contract is made with the owner or demise charterer, rather than the issuer of the bill so that the issuer is not liable. It may provide that the ship is not owned by or chartered by demise to the company or line by whom the bill of lading is issued, the bill of lading shall take effect only as a contract with the owner or demise charterer as the case may be as principal made through the agency of the said company or line who acts as agents only, and who shall be under no personal liability whatsoever in respect thereof”
Electronic bills have begun to replace paper bills of exchange. The electronic document interchange system is known as EDI. A public digital key is used to decrypt and authenticate the electronic bill. The Bill of lading in Europe project BOLERO contemplates the transmission of data through a central registry system operated by a body of which shipper’s, carriers, consignees and banks will be members. The body would have a system of rules governing electronic bills of lading or waybill.
A named holder to order is designated upon loading. The named party may notify the registry that it will unload the goods and it will no longer be assignable. Another member of the system may be designated in a manner equivalent to endorsement.
A pledge or security may be made through the system. A pledgee obtains the right to designate a successor. Ultimately, there is a holder to order to whom delivery must be made who is usually the end buyer who takes delivery of the goods.
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