7â Bills of lading

7â Bills of lading

The bill of lading is the most commonly used contract of affreightment. The bill of lading serves several different functions: it can act as a receipt for the goods, as evidence of the contract of carriage, as well being a negotiable document of title. In the United Kingdom, bills of lading are subject to statutory regimes, namely, the Carriage of Goods by Sea Act 1971, which imposes a limitation of liability under the Hague-Visby Rules on bills of lading issued in the United Kingdom. The COGSA 1992 allows the lawful holder of the bill of lading and other sea carriage documents to have rights of suit.

(a)â Functions of the bill of lading

(i)â Bill of lading as receipt for goods

The bill of lading will serve as a receipt for the quantity, condition and leading marks of goods received. Article III(3) of the Hague-Visby Rules states that the shipper can demand the carrier issue a bill of lading, which contains information as to the quantity, order and condition, and leading marks of the goods. Article III(4) provides that such statements in the bill of lading shall be prima facie evidence of receipt by the carrier but conclusive evidence once the bill is transferred to a third party in good faith. At common law, a ship-owner could avoid liability even towards a bona fide transferee of the bill of lading if he could prove that the goods were not in fact shipped. This is seen in Grant v. Norway,109 where the master signed a bill of lading that twelve bales of silk had been shipped, when in fact they had not been loaded on board the ship. The holders of the bill of lading had no remedy as the master had no authority to sign for goods which were not loaded. This problem was somewhat resolved by the Hague-Visby Rules, Article III(4). However, as the Rules do not apply to all types of bills, section 4 of the COGSA 1994 was enacted, which covers a wider range of bills.

Statements as to the order and the condition of the goods are prima facie evidence in favour of the shipper but conclusive once the bill is in the hands of a bona fide purchaser for value. The master of the ship can either issue a bill of lading as ‘clean’ if the goods are in good order and condition, or ‘claused’ if the goods contain defects. In Compania Naviera Vascongada v. Churchill,110 a cargo of timber became badly stained with petroleum while awaiting shipment. The

109 (1851) 10 CB 665.â 110â [1906] 1 KB 237.

266 Carriage of goods by sea

master issued a clean bill of lading but was estopped from disclaiming the truth when a claim was brought by the third-party bill of lading holders. However, the master will only be held liable for statements which he could verify by reasonable inspection of the goods.111 If the bill of lading discloses the defect in the goods then the master can issue a ‘clean’ bill of lading.

In some cases, the shipper may promise the master an indemnity against liability from third parties if the master issues a clean bill even though he knows the statements to be untrue. In Brown, Jenkinson & Co. Ltd v. Percy Dalton,112 the master issued a clean bill of lading against an indemnity for a cargo of orange juice even though it was apparent the barrels were leaking. It was held that as the statements were known to be false, the plaintiffs could not enforce the indemnity and were liable in the tort of deceit.

However, in the absence of fraud an indemnity is permitted under Article III(5) in relation to statements as to quantity or leading marks but not as to the condition of goods.

Q20 Explain the shipper’s liability for statements made in the bill of lading. What is the effect of such statements on the consignee?

(ii)â Bill of lading as evidence of contract of carriage

In practice, the shipper will have concluded the terms of carriage before the bill of lading is issued. While the bill remains in the hands of the shipper, this is evidence of the contract of carriage. When the bill is transferred to a third party, it will be treated as the contract of carriage, meaning it will contain the relevant terms and conditions. Therefore, any oral agreements between the shipper and carrier will not bind the third party.113

(iii)â Bill of lading as document of title

To be a document of title a bill of lading must be drafted ‘to order’ and name a consignee. A bill of lading which is drafted without the words ‘to order’ is known as a straight bill– these are not documents of title.114

The bill of lading represents the goods, and possession of the bill is treated as equivalent to possession of the goods which it covers. The transferee of the bill of lading will not acquire a better title to the goods than was held by the previous owner.

(b)â The Carriage of Goods by Sea Act 1992

The COGSA 1992 improved the earlier position under the Bills of Lading Act 1855 under which the contract of carriage was governed by rules of privity.

111Silver v. Ocean Steamship Co. [1930] 1 KB 416.

112[1957] 2 QB 621.â 113â Leduc v. Ward (1888) 20 QBD 475.

114See The Rafaela S [2005] 1 Lloyd’s Rep. 347.

Under the COGSA 1992, any lawful holder of a bill of lading, sea waybill or delivery order is vested with the right of suit under the contract of carriage. Section 2(1) states:

(a)the lawful holder of a bill of lading;

(b)the person who (without being an original party to the contract of carriage) is the person to whom delivery of the goods to which a sea waybill relates is to be made by the carrier in accordance with that contract; or

(c)the person to whom delivery of the goods to which a ship’s delivery order relates is to be made in accordance with the undertaking contained in the order,

shall (by virtue of becoming the holder of the bill or, as the case may be, the person to whom delivery is to be made) have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract.

The lawful holder of the bill of lading is defined in section 5(2) as:

(a)a person with possession of the bill who, by virtue of being the person identified in the bill, is the consignee of the goods to which the bill relates;

(b)a person with possession of the bill as a result of the completion, by delivery of the bill, of any indorsement of the bill or, in the case of a bearer bill, of any other transfer of the bill;

(c)a person with possession of the bill as a result of any transaction by virtue of which he would have become a holder falling within paragraph (a) or (b) above had not the transaction been effected at a time when possession of the bill no longer gave a right (as against the carrier) to possession of the goods to which the bill relates;

and a person shall be regarded for the purposes of this Act as having become the lawful holder of a bill of lading whenever he has become the holder of the bill in good faith.

Once a transfer is made, section 2(5) extinguishes the rights of the previous transferee or any other party. However, the shipper can still retain property in the goods. Section 2(4) allows the party with right of suit to exercise that right on behalf of a party who has suffered loss.

Section 3 states that liability will only attach if the party:

(a)takes or demands delivery from the carrier of any of the goods to which the document relates;

(b)makes a claim under the contract of carriage against the carrier in respect of any of those goods; or

(c)is a person who, at a time before those rights were vested in him, took or demanded delivery from the carrier of any of those goods.

The intermediate holder of the bill will no longer incur liability under the contract of carriage once title to sue has been transferred. However, the shipper may still remain liable to the carrier for outstanding freight.