Bill of Lading
A Bill of Lading is a receipt for goods either received (before shipment) or shipped on board.
- Is a good evidence of the existence of a contract between the shipper and carrier. It is not a true contract since only one party signs it.
- Is a document of title, signifying that the holder has the legal right to possession of the goods it describes. Right to possession is different from the right to ownership, which is determined by the terms of the sale contract.
- May, depending on how Bill of Lading is made out, be negotiable i.e. transferable to a third party so as to affect the transfer of title to the goods it describes.
The B/L’s prime function is as a receipt issued for:
- Goods received for shipment either by a carrier or a freight forwarder pending shipment on a vessel: or
- Goods shipped on board the carrying vessel.
- B/L states the quantity and apparent order and condition of the goods shipped and normally declares “received in good order and condition unless otherwise stated” or “shipped in good order and condition unless otherwise stated”. If there is a shortage or damage to the cargo, appropriate remarks are made on the face of the B/L.
- If there is no clause on the B/L showing a defective condition or quantity of the goods on receipt by the carrier, the consignee may i. reasonably expect to receive the goods in good order and condition. Any loss or damage to the goods will then be presumably due to carrier’s negligence unless it can be proved due to acts of God, inherent vice of the goods etc.
- When a mate’s receipt is given the description on the B/L of the quantity/ condition of the goods is copied from the mate’s receipt, it is important that the mate’s receipt states the actual quantity and condition of the goods, where there are other remarks than “good order and condition”.
B/L as evidence of contract
The conditions on which goods are accepted for shipment constitute the terms of the contract of carriage between the shipper and the carrier, except when the shipper is also a charterer; in which case,
- there could be no charter party, or
- there is a charter party and the charterer is also the shipper, or
- there is a charter party but the charterer is not the shipper.
Where there is no charter party e.g. where containerized cargo is loaded on a container vessel in the shipowner’s own B/L, the shipowner is the legal carrier and issues its own B/L containing the company’s terms and conditions of carriage. Some liner operators issue a booking note signed by both the parties, which is a contract of carriage.
Where the charterer is also the shipper, the charterer is in effect issuing himself a B/L.
Where the charterer is not the shipper e.g. a carrier is time-chartering a vessel and operating her in his own liner service, the contract of hire is contained in the time charter party. The contract of hire between the carrier and the shipowner is contained in the time charter party. A B/L issued to the shipper is evidence of the contract of carriage between the carrier and the shipper. If the B/L contains no reference to the existence of a C/P, the shipper’s contract of carriage will be with the shipowner. But if the B/L contains a reference to a C/P, the shipper’s contract will be with the time charter.
B/L as a document of title
A document of title is a document, which gives a person (bailee) the authority to hold the cargo and deliver it to any person in exchange of that document.
Possession of an original B/L is equivalent to the right to possession of the goods as per the B/L. In other words, any holder of the original B/L can obtain delivery of the goods at the discharge port by producing the original B/L.
The title of the goods can be transferred after shipment to a third party by negotiation. A B/L made out so as to enable its negotiation is a negotiable document of title and B/L not made out in a way that permits negotiation is termed as “non-negotiable” and clearly endorsed to indicate that.
Transfer of title from the shipper is made under three methods:
- Blank endorsement, whereby the shipper stamps the back of each original B/L with his company’s stamp and signature without inserting any transferee’s name, before passing the set of B/L to the transferee. A blank endorsed B/L is like a bearer cheque made out to be encashed by anyone presenting the same. It is a dangerous document as anyone presenting the original B/L can take delivery of the cargo. It is commonly used as required by the bankers of the day.
- Specific endorsement on the back of the B/L with the stamp and signature of the shipper. The person to whom the title is transferred may be termed as the “endorsee”.
- Attaching authorised delivery instructions on the shipper’s stationery e.g. a Delivery Order from the shipper to the consignee. Once the B/L is negotiated the endorsee or transferee become subject to the same liabilities and has the same rights against the carrier as if the contract of carriage had originally been made with the endorsee. This means if freight or demurrage is payable, the endorsee must pay before taking delivery.
The reason for having three original B/L is that in case the 1st original is lost or misplaced the consignee can take delivery of the cargo with the 2nd or 3 original. Nowadays with electronic B/L generation, the need of three original B/Ls is generally not required. Several “non-negotiable” B/Ls are given to the shipper for various purposes including the one marked “Captain’s Copy”.
Different types of B/L
B/Ls are produced in many styles by shipping companies, shippers, charterers, freight forwarders and organisations like BIMCO. Several types are used for different purposes.
- “Long-form” B/L has spaces or boxes on its front for typed details and the numerous printed conditions of carriage at the back. Most liner shipping companies have their own long-term B/L.
- “Short-form” B/L has only a few standard terms printed on it. It usually mentions that the B/L issued is under terms and conditions of a relevant C/P.
- “Direct” B/L is for carriage of goods from one place to another and does not anticipate any transhipment. It has clauses on the reverse and is used for liner services.
- “Combined transport” B/L covers carriage of goods from door-to-door by several modes of transport. It is common in liner container trade.
- “Through” B/L is issued when the carriage will involve both sea and other transport modes, but different carriers will only be held responsible for that stage of transport only, e.g. railway, sea or road.
- “Received for shipment” B/L is issued when the cargo is received at the freight depot after being cleared through customs and other authorities and ready for shipment on board. When the goods are eventually shipped oh board, the above B/L is returned and a fresh on board B/L is issued.
- “Shipped” B/L is issued when the goods are loaded on the carrying ship.
- “Straight” B/L is an American term for no-negotiable B/L.
Difference between a Clean and Dirty B/L
A clean B/L has no superimposed clauses stating a defective condition or shortage of the goods. It states that the goods are received in apparent good order and condition without any remarks as to their condition.
A dirty B/L is also known as a ‘claused’ or ‘foul’ B/L. It is claused with remarks such as ‘torn bags’, ‘rusty drums’ or ‘three more cases in dispute – if found on board will be delivered’ etc.
A banker normally demands a full set of clean B/L as per the terms of the Letter of Credit (LoC). Pressure will be exerted on the master to release a clean B/L even when the actual conditions do not justify doing so.
What is Letter of Indemnity (LoI)?
Letter of Indemnity (Lol) or a back letter as it is sometimes called is often offered by the shipper promising to indemnify the master or the carrier against any loss or liabilities as a consequence of signing a clean B/L. However, acceptance’of a Lol for a clean B/L makes the master party to an act of deception or fraud on banks, consignee/buyer, and insurer, since it is an attempt to obtain payment for goods knowing them to be unsound. This type of LoI has no legal standing in the courts of law and cannot be sued on if the shipper goes back on his promise of indemnity.
A master must consult his owners and the P & I club if he is in doubt. He must never accept a Lol without the written orders from his owners.
A Mate’s receipt (MR) is a receipt issued and signed by the chief mate of the ship for goods received on board. MR is nowadays replaced by a modem document called the Standard Shipping Note (SSN), but can still be seen in a conventional trade like general cargo, dry bulk or tanker. The information in both the MR should be identical to that of the B/L.
The MR should be completed from the ship’s tally and show the actual quantity and condition of the cargo as received. When the condition of cargo justifies it, the M/R should be remarked as ‘torn bags’, ‘stained bales’ or ‘rust drums’ etc. Should there be a difference in the tally of the ship and the shipper, MR should reflect the smaller of the two figures with the remark that “X more bales in dispute, if onboard to be delivered”, X being the difference in the tally figures. MR is normally in shipowner’s format and made in triplicate. The original is given to the shipper, the 2nd given to the agent and the 3rd left in the book of MR to be referred to at the time of issuance of the B/L. M/R is not a document of title.
Precautions to be taken while signing a B/L
When a shipmaster has to sign and issue original bills of lading, he must take great care to ensure that all potential contractual pitfalls are covered. He must consult the P & I club and seek their advice before signing and releasing the original B/L. Shipped B/L is signed and given to the shipper through the agent. Freight may be payable before signing the B/L depending on the carrier’s terms.
When an MR is issued to the shipper on shipment of cargo, the MR may be required to be surrendered before issuance of the original shipped on board B/L.
The master must incorporate following before issuance of the B/L:
- the goods have actually been shipped;
- the date of shipment is correct as stated in the MR;
- the B/L is not marked freight paid or freight prepaid if not true;
- the clausing of the MR is incorporated in the B/L;
- the reference is made to the C/P, where on exists;
- any C/P terms do not conflict with the B/L terms; and
- the number of the original B/L released is stated.
Every original B/L must be fully signed by the authorised signatory.
Typical B/L related problems
- When damaged or otherwise defective cargo is presented for loading;
- If master is asked to sign a clean B/L when it is not justified;
- If shore and loading figures differ;
- If a charterer’s B/L is used, where the master is required to sign a clean B/L as presented by the charterer;
- If the number of original B/L in the set as shown in the face of the B/L is not the same as the number of negotiable B/L;
- If two or more sets ofB/L is requested by the shipper;
- If the B/L presented to the master for signing is written in an incomprehensible language or alphabet;
- If the master is asked to sign a blank or partially completed B/L; 9. Early departure procedure is used to allow tankers to sail on completion of cargo without waiting for final cargo figures;
- If the B/L has to be reissued or amended;
- If the master is asked to pre-date or post-date a B/L;
- If delivery of cargo is asked for without the presentation of the original B/L, which may cause misdelivery and serious problems;
- If cargo delivery is requested against the presentation ofaB/L carried on board when the B/L is ‘to order’ and does not specify the name of the consignee or the port of discharge;
- If two parties present original B/L
A Sample Bill for reference: