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Bills of Lading

Capt Sarabjit Butalia MSc FNI

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Bills of Lading

• What is the basic objective and aim in

developing a document such as Bills of
Lading?
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Bills of Lading
• At the end of the session students should be able to
answer the following question.
• 1.Is the Bills of Lading a contract or commercial
document.
• 2.Role of Bills of Lading in International Trade
• 3.Key features of Bills of Lading.
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Bills of Lading
• The document which developed to resolve the
obvious conflict between the interests of the
buyer and seller ,and to provide, adequate
security for the bank was the Bill of Lading.
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Bills of Lading
• The Bill of Lading provides the seller with some security
against default by the buyer provides the buyer with
assurance that the seller has performed before he is required
to make payment.
• The delivery of the goods can be made only against the
presentation of an original bill of lading ,it follows that
transfer of the document can also transfer the right to take
possession of the goods on discharge.
• It is for this reason is called the document of tittle.
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Bills of Lading
• The seller can demand payment against the Bill of
Lading and if he not paid can ( in theory at least)
retain the Bill of Lading and hence the right to collect
the goods at discharge ,or alternatively use the bill of
lading to the goods to another buyer.
• The seller therefore shall retain the property in the
goods as security against non-payment ,so that if the
buyer went into liquidation they would not form part
of the buyer’s general assets.
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Bills of Lading
• A bill of exchange or "draft" is a written order by the
drawer to the drawee to pay money to the payee. A
common type of bill of exchange is the cheque , defined
as a bill of exchange drawn on a banker and payable on
demand.
• Bills of exchange are used primarily in international trade,
and are written orders by one person to his bank to pay
the bearer a specific sum on a specific date. Prior to the
advent of paper currency, bills of exchange were a
common means of exchange. They are not used as often
today
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Bills of Lading

• Shipped Bills of Lading and risks

associated with it in respect to various
stake holders.

• Discuss
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Bills of Lading
• Shipped Bills of Lading;
• The Shipped Bill of Lading provides evidence that the
seller has performed his side of the bargain.
• The buyer can inspect the bill of lading before
payment is made for the goods, inspection of the
document providing the necessary assurance that the
seller has performed.
• Thus a clean bill of lading provides the best indication
of condition on shipment that is possible in practice.
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Bills of Lading
• Shipped Bills of Lading; ( Advantages)
• 1. It provides evidence that that seller has performed
his contractual obligation. Evidence of Shipped Bill as
required by FOB and CIF against received for
shipment.
• 2.Document of title
• 3. Transfer of a document of title may also operate
to transfer the property in goods.
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Bills of Lading
• Shipped Bills of Lading; ( Disadvantages)
• It’s a document of title ,a carrier is taking an
enormous risk in delivering without production of an
original bill of lading :if he delivers to someone who
is not entitled to the cargo ,he is liable to the true
owner of the full value of the cargo wrongly
delivered.
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Bills of Lading
• Bills of Lading fulfils three roles;
• 1. It is a Contract. The shipping company agrees with
the shipper—either the exporter or the importer,
depending on the Terms of Trade (or Incoterms), to
transport the merchandise from one port to another
for a given amount of money; it is a contract of
carriage.
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Bills of Lading
• Bills of Lading fulfils three roles;
• 2. It is a Receipt for the Goods. When the shipping
company signs the bill of lading, it is acknowledging
that it has received the goods in good condition and
that everything seems in proper order. The
document acts as a receipt for the goods; the
shipping company accepts responsibility for the
goods until their port of destination.
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Bills of Lading
• Bills of Lading fulfils three roles;
• 2. In some cases, the shipping company finds that something is
"wrong" with the merchandise it is picking up (for example, the
drums in which the merchandise is contained are rusty, or there
are some damaged crates, or the merchandise was loaded
when it was raining, or the merchandise was packaged in crates
that are too weak to sustain an ocean voyage) and it does not
want to assume responsibility for that condition. In those cases,
the shipping company will make a note about the issue or write
an exception on the bill of lading of what it has observed. The
bill of lading then becomes a soiled bill of lading or a foul bill of
lading
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Bills of Lading
• Bills of Lading fulfils three roles;
• 2. In the opposite situation (i.e., when the shipping company
finds everything in proper order at the time of loading and
does not record any reservations at the receipt of the goods),
the bill of lading is considered clean. In general, Letters of
Credit and Documentary Collection transactions require a
clean bill of lading should the bill of lading be soiled, it would
require an amendment to the Letter of Credit. Carriers may
not accept goods for transportation if loading them would
result in a soiled bill of lading.
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Bills of Lading
• Bills of Lading fulfils three roles;
• 3. It is a Certificate of Title. The document that the
shipping company will need to see to authorize the
release of the goods in the port of destination will
also be the bill of lading. It is commonly considered
that the company who has the original of the bill of
lading is the one to which the goods belong, or that
the bill of lading is a Certificate of Title.
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Bills of Lading
• There are two types of bills of lading in this respect;
the straight bill of lading is one on which the name of
the consignee (the person or company who will pick
up the goods at the port of destination) is specified.
• The’’ to order’’ bill of lading is one in which the name
of the consignee is left blank or the term "to order" is
written. This means that the bill of lading is
negotiable bill of lading; in other words, it allows the
sale of the cargo while it is at sea.
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Bills of Lading
• This is a common occurrence in certain industries,
notably in the oil business, in which it is not unusual
to see a specific cargo change hands several times
during a given voyage.
• In some cases, the cargo is sold to a company that
wants the cargo delivered in a different port, and the
shipping company is asked to arrange for that
alternative.
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Bills of Lading
• The multimodal bill of lading is a fairly recent document that
has emerged because of the substantial increase in the
number of international shipments in which the exporter
delivers the goods to a carrier who will arrange for the
transportation and delivery of the shipment until its final
destination. Because the shipment is likely to take more than
one mode of transportation, it is called an “multi modal
shipment." Multi Modal bills of lading, therefore, cover
several legs of an international shipment.
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Bills of Lading
• Multimodal bills of lading, therefore, cover several
legs of an international shipment. They are straight
bills of lading in the majority of cases. Multi Modal
bills of lading are also receipts for the goods and
evidence of a contract of carriage between the
shipper and the carrier.
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Bills of Lading
• Multimodal bills of lading, therefore, cover several
legs of an international shipment. They are straight
bills of lading in the majority of cases. Multi Modal
bills of lading are also receipts for the goods and
evidence of a contract of carriage between the
shipper and the carrier.
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Bills of Lading
• Combined Transport Document;
• Typically the shipper will consign the goods to a
forwarding agent at a collection depot inland.
• The Forwarding agent usually arranges the entire
operation ,there is likely to be more than one actual
carrier and different carriers will be usually
responsible for each section of the combined
transport operation.
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Bills of Lading
• Combined Transport Document;
• Combined transport documents can be either
negotiable or non-negotiable.
• Because the combined transport documents can be
issued earlier than the traditional bill of lading before
the goods are shipped ,a negotiable document can in
theory in appropriate kinds of transcation,help to
resolve the problem of the vessel arriving before the
documents can catch up
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Bills of Lading
• Combined Transport Document; Unlikely to provide
security equivalent to the shipped bill of lading.
• 1. Issued before the shipment and hence not a
shipped bill but a received B/L
• 2.Different international conventions may govern
each part of the operation so that carrier’s liability
varies depending on where damage to the cargo
occurs.
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Bills of Lading
• Combined Transport Document;
• The essence of the combined transport document is
that one carrier usually the forwarding agent ,makes
himself responsible for the entire operation.
• He may sub contract each stage or more commonly
each stage after the initial land leg ,but he contracts
with the shipper as principal.
• He is liable to shipper and if the goods are damaged
on any of the three stages he will be sued for damage
caused
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Bills of Lading
• Combined Transport Document;
• However the forwarding agent will be able to recoup
his from other carrier.
• The single contracting carrier often referred to as a
Combined Transport Operator.( C.T.O)
• Combined Transport document may be issued by a
N.V.O.C. ( Non vessel operating carrier) such as
freight forwarder.
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Signing of Bills of Lading

• When Master signs the B/L, the Master does so, not
on behalf of the Charterers or Shippers, but on
behalf of the Owners.

• The B/L is an Owner’s document, and it is the

Master’s responsibility to ensure to the best of his
ability that it is properly prepared and signed. This
applies whether the ship is employed on a Voyage or
Time Charter.
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Information on Bills of Lading

• Accurate information:
• If the B/L contains inaccurate or misleading
statements about the quality or quantity of
the cargo it covers, then Owners will be liable
for the consequences, at least in the first
instance. The Master’s main concern must be,
to see that this cannot happen.
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Remarks on
Bills of Lading
• Therefore it is essential that the Master clauses
directly on the bills the correct condition of the
quality and quantity of cargo if these two items have
not be properly described in the document
presented to him for signing.
• If he wants assistance with the wording to be used in
the clausing, he should call the commercial office
who may engage the local P & I representative for
advice.
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Action incase of incorrect B/L

Bills of Lading
• If an incorrect B/L is issued, for whatever reason, the
situation is not necessarily wholly beyond repair, but
speed of action is essential, since once a third party
takes up the B/L relying on what is says, it is too late
to make any correction. The Master must therefore
notify the Owners and Charterers immediately of any
apparent irregularity in any B/L which he has issued
(or which he knows or believes has been issued by
the ship’s agents).
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Authorization of signing Bills of

Lading on Master’s Behalf
• As the B/L is an Owners’ document, third parties
such as Charterers and Shippers have limited powers
to interfere with the Master signing it. However it is
not unusual for a charterparty to provide for the
Charterers or their agents the authority to sign B/L’s
for and on behalf of the Master. In such cases the
Master must issue the agent with the authority to
sign B/L’s on his behalf in writing, such authority is to
include any additional remarks the Master expressly
requires included in the B/L’s.
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Legal Role of Bills of Lading

• Under normal circumstances, the B/L is the principal
evidence of the receipt of the cargo which it
describes.
• However, it is not the only evidence, and it remains
open to the Owners to avoid a claim by showing that
what the B/L states is in fact correct.
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Bills of Lading & Master’s Role

• For example, apart from paying great attention to the
contents of the B/L itself, the Master must also take all
practical steps which may subsequently assist Owners to resist
any short delivery claim by proving that no cargo has been
physically lost (e.g. by draught survey, by written protest as to
any doubt or discrepancy in determining of weights or
volumes.
• Charterers’ surveyors or inspectors must justify any statement
which they may make as to the condition of the cargo or
‘pumpability’ of oil residues, and also by keeping properly
consistent records of bilge pumping with wet cargoes such as
ore concentrates).
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LOI and Clean Bills of Lading

• In some circumstances, shippers/agents may
offer to give the Master a letter of indemnity in
return for the Master signing clean Bills of Lading.
• The Master must not accept such a letter without
first checking/obtaining authorisation from the
Company. A Letter of Indemnity is strictly not
enforceable in law. Only the Company can decide
if such a letter is acceptable on commercial
grounds.
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Bills of Lading as Negotiable

Instrument
• Payment for the goods can therefore be made
against the bill of lading and bill can be
negotiated ( provided it has been made out to
order) from one holder to another ,thereby
transferring from one holder to another the
right to obtain delivery of the goods from the
ship.
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Sea Way Bill

• A sea waybill-otherwise known as a waybill is also a
receipt and a contract of carriage.
• However it is not treated as a document of title
since unlike Bill of Lading it not negotiable and
remains at all times a contract with the shipper.
• Since the sea waybill is neither negotiable nor a
document of title it is not well suited to transactions
involving documentary credits because banks tend to
place great importance on security.
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Seaway Bills
• Sea waybill should therefore be used only
when there is no intention of on-selling the
goods during the course of the voyage.
• For this reason they are used most often in
the container trade
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Non-Negotiable waybills
• It’s a document which the consignee does not
to present to take delivery of the goods.
• The liner waybill is such a document and it can
be carried on the ship itself.
• Similar to airway bill and carrier delivers to a
named consignee whereas a bill of lading it is
usual only to deliver against the production of
the original document.
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Non-Negotiable waybills
• Waybills and consignment notes therefore
have distinct advantages for carriers and they
can travel with the goods.
• Like Bills of lading evident of Carriage
contract.
• It also constitutes a receipt for the goods by
the carrier .Unlike a bill of lading however it
can be made out by the consignor.
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Non-Negotiable waybills
• Note; If there is no likelihood of the goods
being resold during transit ,and so long as
there is no problem about the payment ,then
a traditional bill of lading is unnecessary.
• Waybills us regarded as unsuitable where a
documentary credit transaction is involved.
• Waybill only constitutes a receipt of goods.
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Signing of Bill of Lading & EDP

• In some trades (particularly tankers loading
AG ports), the Bill of Lading is always signed
by the Agent on behalf of the Master at some
later time after sailing the port. This practice is
called Early Departure Procedure (EDP).
• The Master will authorise the Agent in writing
that he may sign the B/L on his behalf under
certain strict conditions.
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Signing of Bill of Lading & EDP

• If the Master at any time discovers that he has
issued an incorrect B/L, he must notify his
commercial operator and/or management
office immediately, giving full details of its
particulars, including names of shippers,
consignees and notify parties.
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Original Bills Carried on Board

• In certain trades it is not uncommon for the
Master to carry one Original Bill of Lading on
board and the other two go ashore. Ostensibly
this enables the Master to deliver the cargo
having sighted an original bill of lading.
However, the drawback is that any one of the
originals is adequate to negotiate the sale of
the cargo.
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Original Bills Carried on Board

• The two originals not carried on board may
have been used for trading the cargo. If so,
the original on board will no longer reflect the
true ownership of the cargo. If the Master is
aware that he is carrying one original from a
set of originals, he must also be aware that
this original does not necessarily show the
ownership of the cargo.
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Original Bills Carried on Board

• The Owner’s legal defences against a wrongful
delivery claim will be less than viable if delivery is
made against an original carried on board.
• However, if a bill must be carried on board, then the
Owner may seek to protect himself by inserting a
clause in the Bill of Lading along the following
lines:“One original bill of lading retained on board
against which, bill delivery of cargo may properly be
made on instructions from shippers/charterers.”
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Bills of Lading & Charter Party

• Once the cargo has been shipped under a
Chartered vessel it is clear that the ship owner
can be a party to different contracts( the
charter party and the bill of lading) with two
different contracting parties (the charterer
under the charter party and the consignee
under the bill of lading).
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Bills of Lading and Charter Party

• Example 1;Employment orders given by the
charterer under the charter party may put the owner
in breach of his obligations to the cargo owner under
the bill of lading.
• An order given by a charterer to change the port of
discharge from Port A to B after the Bills of lading
have been released for Port A would if the shipowner
complied with them make him guilty of deviation
under the bill of lading contract.
• This could seriously prejudice his P&I cover
( Insurance)
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Bills of Lading and Charter Party

• Conflicting duties under the Charter Party and the
Bill of Lading
• Example
• The issue of a bill of lading may seriously diminish
the effectiveness of rights which the owner may have
under the charter.
• For example an owner has the right under Clause 5
of the NYPE form of charter to withdraw the vessel
from the charterer’s employment if hire has not
punctually been paid.
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Bills of Lading and Charter Party

• Example
• However if a bill of lading has been issued in the
meantime a withdrawal may be not much use to the
ship owner since he completely separate obligations
to the cargo owner under the bills of lading will
continue
• These obligations include the duty to proceed to and
deliver the cargo at the port specified in the bill of
lading even though the bill of lading freight may
already have been pre-paid to the charterer and
even though no further hire will be payable under
the time charter.
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Bills of Lading and Charter Party

• Example
• Indeed the owner may even have to pay out
of his own pocket port expenses ,stevedoring
charges and other costs which should have
been for the time charterer’s account under
the time charter if the charter had not been
terminated by the withdrawal.
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Bills of Lading and Charter Party

• Which is the governing contract of carriage-The
Charter Party or the Bill of Lading?
• Example 1
• A is a seller of goods on CIF terms to B .Under that
contract it is the duty of A to arrange the
transportation of the goods to B and in order to
perform his duties under the sale of contract.
• A charters a ship from her owner C
• Once the cargo has been shipped a bill of lading is
signed by the ship’s master on behalf of his owner as
carriers and released to A as shipper.
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Bills of Lading and Charter Party

• Which is the governing contract of carriage-The
Charter Party or the Bill of Lading?
• Example 1
• Whilst the bill of lading is held by A it does not
operate as a contract of carriage between A and C
since there is already a Charterparty contract
between those two parties.
• When the bill of lading is endorsed by A to B
pursuant to the contract of sale then ,in the hands of
B it operates as a contract of carriage between B and
C since there is no charter party contract between B
and C.
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Bills of Lading and Charter Party

• Which is the governing contract of carriage-The
Charter Party or the Bill of Lading?
• Example 2
• A sells B on FOB terms .In this case the duty to
provide the transportation falls on B and he charters
the ship C .Once the cargo has been shipped the
master releases the bill of lading to A as shipper.
• Whilst the bill of lading is held by A it operates as a
contract of carriage between A and C since there is
no charter party contract between A and C.
•
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Relationship between the Charter

party and Bills of Lading
• Which is the governing contract of carriage-The
Charter Party or the Bill of Lading?
• Example 2
• Once the bill of lading is endorsed by A to B the bill
of lading will not operate as a contract of carriage
between B and C since there is already a charter
party contract between B and C.
• Once the bill is further endorsed by B to D it operates
as a contract of carriage between D and C since there
is no charter party contract between D and C.
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Bills of Lading and Charter Party

• Once the cargo has been shipped under a Chartered
vessel it is clear that the ship owner can be a party to
different contracts( the charter party and the bill of
lading) with two different contracting parties (the
charterer under the charter party and the consignee
under the bill of lading).
• Therefore unless the two contracts are on back to
back terms there is a potential for confusion and
conflict.
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Bills of Lading Clauses

• Paramount Clause:
• A Clause Paramount (sometimes named “General
Paramount Clause”) incorporates into the
contract of carriage one of three international
conventions setting out minimum terms and
conditions out of which the carrier cannot
contract, i.e. the Hague Rules, the Hague-Visby
Rules or the Hamburg Rules. It is inserted in any
charter party under which a bill of lading is
required to be issued, and is also found in various
forms in liner and charter party bills of lading.
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Bills of Lading Clauses

• General Average;
• A clause specifying is to be adjusted and or
paid irrespective of the ports of call involved
and the laws relating to GA.
• Strikes; Both parties to a charterparty have
risks and liabilities in the event of a strike.
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Bills of Lading Clauses

• New Jason Clause (or Amended Jason Clause)
• Is required to protect owners against the possibility
of US lawsuits.
• Under US common law, a ship-owner cannot claim
General Average contributions from cargo where
there has been faulty navigation or management of
the ship.
• The owners will therefore seek to exonerate himself
from liability for loss from these causes
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Bills of Lading Clauses

• Both to Blame Collision Clause
• Under the Hague and Hague-Visby Rules
collision, as a “peril of the sea”, is an
excepted peril, allowing the carrier to avoid
cargo loss or damage claims arising out of a
collision with another ship. Normally an
owner of collision damaged cargo must
therefore claim on his cargo insurance policy