Bill of Lading Commercial and Legal Functions of Bills of Lading

‘The usual practice is for the master or agent of the ship to give bills of lading for the cargo, although it may he shipped under a charter party. When the charterer himself ships the goods, these bills of lading operate as receipts for them, and also as documents of title which he can negotiate, and thereby constructively transfer the possession of the goods.
A TREATISE ON THE LAW RELATING TO THE CARRIAGE OF GOODS BY SEA, by Thomas Gilbert Carver, M.A., 4th edition.

A receipt, an evidence of contract and a document of title

A bill of lading is a document signed which at the end of loading is presented by the shipper to the master or other agent of the shipowner (or to the shipowner itself, but that practice is generally abandoned nowadays). This document states that certain specified goods have been shipped in a particular ship, and which purports to set out the terms on which the goods have been delivered to and received by the ship.

Receipt

When goods have been loaded on board of vessel and signed bill of lading handed by the master to the shipper, such bill of lading begins its existence in a role of master’s receipt for shipper’s goods.

The bill of lading is always dated on its face, thus reflecting the day of completion of loading and also the moment when the goods were shipped. Moreover the bill of lading contains the following information: the name of the vessel, the port of shipment and the port of delivery.

Evidence of Contract of Carriage

Text books when describing contracts of carriage by sea commonly place bill of lading in one line with the charterparty contract. The bill may be the contract of carriage as between the shipper and the carrier but frequently comes some time after that contract is made. Being a receipt at the beginning of maritime adventure, the bill of lading later forms an implied contract (s 2 of the Carriage of Goods by Sea Act 1992) for safe custody of the cargo between the carrier and the person taking delivery of the goods.

It is a receipt for the goods, stating the terms on which they were delivered to and received by the ship, and the excellent evidence of those terms, but it is not a contract. That has been made before the bill of lading was given. Take for instance goods shipped under a charterparty, and a bill of lading differing from the charterparty; as between shipowner and shipper at least the charterparty is binding.
Per Lord Bramwell in Sewell v Burdick [1875] 10 AC 74, at p.105

This statement was further explained in S. S. Ardennes (Cargo Owners) v S.S. Ardennes (Owners) (The Ardennes) [1951] 1 KB 55, case where, in breach of his verbal promise, the shipowner deviated from the route to London and called first at Antwerp but later, in reply to the shipper’s claim for damages, contended that on the terms of bill of lading evidence of any other bargain or promise was not admissible. Lord Goddard CJ in his judgment said that:

The contract has come into existence before the bill of lading is signed; the latter is signed by one party only, and handed by him to the shipper usually after the goods have been put on board. No doubt if the shipper finds that the bill contains terms with which he is not content, or does not contain some term for which he has stipulated, he might, if there were time, demand his goods back; but he is not, in my opinion, for that reason, prevented from giving evidence that there was in fact a contract entered into before the bill of lading was signed different from that which is found in the bill of lading or containing some additional term. He is no party to the preparation of the bill of lading [not always the case, remark is mine]; nor does he sign it. It is unnecessary to cite authority further than the two cases already mentioned for the proposition that the bill of lading is not itself the contract; therefore in my opinion evidence as to the true contract is admissible.

Extent of the carrier’s undertaking to take care of cargo in his sole custody usually, but not always, is identical with the shipowner’s corresponding liability under a charterparty.

Document of Title

As well as being a receipt, the bill of lading, may also act as a document of title. When issuing a bill of lading the shipowner undertakes to the consignor to deliver the goods on presentation of an original bill of lading at the port of discharge. This undertaking is transferable to subsequent holders of the bill of lading without any further involvement of the shipowner. The use of the words ‘to order’ or ‘to assigns’ indicates the transferability of this undertaking, which is what gjves the document its character as a document of title.

It shall be noted, however, that under the common law, bill of lading is transferrable, but not negotiable, in a way as bill of exchange is. When transferred ('negotiated'), the bill of lading operates to transfer right of possession of the goods it represents, but not necessarily the ownership in the goods, which depends on the terms of the contracts of sale and/or carriage and the intention of the parties. As a document of title the bill of lading is unique among transport documents, enabling merchants to trade the goods, by trading the document.

Bills of Lading usually issued in sets of 3 originals. This practice is very ancient and was explained in Malynes’s Lex Mercatoria (1686) at p. 97: "Of the Bills of Lading there is commonly Three Bills of one tenor. One of them is enclosed in the letters written by the same Ship; another Bill is sent overland to the Factor or Party to whom the goods are consigned; the third remaineth with the Merchant, for his testimony against the Master, if there were any occasion of loose dealing." It is noticeable, however, that there are only very few cases reported (Scrutton on Charterparties, 18th. ed., 1974, mentioned only two) on the fraud related to Bills of Lading where existence of more than one bill was justified. (See also Historical overview of legal status of bill of lading)

As it was said, a bill of lading is generally regarded as a document of title and when it was put into circulation by the seller, it could be suggested that there is an intention on the part of the seller to transfer property in the goods to the recipient of the bill of lading. But it is not necessary so. As Eder J noted in Carlos Soto v AP Moller-Maersk AS [2015] EWHC 458 (Comm), in CIF and CFR contracts, the mere transfer of the bill of lading is only prima facie evidence of the transfer of property but it is not determinative. In Carlos Soto v AP Moller-Maersk AS the buyer on CFR terms had a right both to cancel the letter of credit and to reject the goods in the stipulated circumstances. The judge held that while the ordinary right of rejection of the goods has no bearing on when property is intended to pass, but when it is supplemented by the right to cancel the letter of credit in certain circumstances, then such special features of the contract between the buyer and the seller justify the conclusion that it was never the intention for property in the cargo to pass to the buyer until, at least, the buyer paid and the seller received the contract price under their contract. The following principles stated in Benjamin’s Sale of Goods, para 19-099 were expressly approved by the court:

The courts look to those dealings in order to determine whether the seller intended, on the one hand, unconditionally to appropriate the goods to the contract, or, on the other hand, to reserve the right of disposal. As the question of passing of property is one of "actual intention" it is "impossible to lay down a general rule applicable to all c.i.f. contracts".

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