Bill of Lading as A Document of Title

Bill Of Lading As A Document Of Title

1. Types Of Bill Of Lading

A bill of lading may be a straight bill or an order bill. A straight bill of lading provides for ‘delivery of goods to a named consignee and not to order or assigns or bearer, and so [is] not transferable by endorsement’ (per Lord Bingham of Cornhill in The Rafaela S).

An order bill is one made out to order or assigns. A bearer bill is (for our purposes) on the same footing as a bill to order or assigns. Whether a document that is made out to a named consignee only, and not to order, etc. is a bill of lading rather than some other type of document such as a sea waybill depends upon whether:

a) it was issued in a set of three identical documents

b) it uses the traditional wording, notably the attestation clause ‘IN WITNESS whereof the number of Original Bills of Lading stated above all of this tenor and date, has been signed, one of which being accomplished, the others to stand void’

c) an original bill must be surrendered in exchange for the goods or a delivery order.

It will be difficult for a carrier who has issued a document in the traditional form of a bill of lading to argue that it is not a bill of lading at common law or for the purposes of the Hague-Visby Rules. Under section 1(2) COGSA 92, however, a straight bill of lading is deemed to be a sea waybill in the context of COGSA 92

The use of paper bills of lading usually causes delays at the ports of discharge. For this reason, serious steps have been taken to dematerialise order bills of lading. An increasing number of shipping companies use electronic bills of lading. However, there is still no piece of legislation under English law governing such bills of lading. The Rotterdam Rules contain provisions on electronic transport records, but the rules are not in force.

Due to the rise of containerisation, multimodal bills of lading are also widely in use.

2. Delivery Of The Goods In Exchange For Surrender Of An Original Bill Of Lading

It is well settled that carriers who deliver the goods without receiving an original bill of lading in exchange do so at their own risk (The Stettin). The delivery without presentation of the bill of lading is a breach of contract, and this breach deprives the carrier of all contractual exclusions and limitations that would otherwise be applicable under the contract of carriage contained in or evidenced by the bill of lading (The Ines and Sze Hai Tong Bank v Rambler Cycle Co). However, it should be noted that the Hague-Visby Rules (and the limitations therein such as the time bar under Art. III, r.6) can apply to a misdelivery clause at least where the misdelivery occurs during the carrier’s period of responsibility under the Hague-Visby Rules.

The invariable practice of issuing bills of lading in sets of three does provide scope for fraud (see Sanders v Maclean) and may give rise to competing claims (Glyn Mills v East & West India Dock). It has long been the undoubted practice’ to deliver ‘without enquiry’ to the holder who first presents the bill of lading (per Lord Bingham of Cornhill in The Rafaela S). Straight bills of lading must also be presented for delivery if there is an implied or an express provision in the bill of lading to that effect (The Rafaela S).

In Glencore International AG v MSC Mediterranean Shipping Co SA, the shipper sued the carrier for breach of contract of carriage, bailment and conversion in relation to the misappropriation of their two containers. The relevant bills of lading provided that they had to be ‘surrendered by the Merchant to the Carrier … in exchange for the Goods or a Delivery Order’. At the discharge port, it was common for containers to be delivered under an electronic release system. Under this system, a bill of lading holder was to present a computer-generated PIN code to the terminal in order to obtain delivery of their goods. Previously, the carrier had delivered goods to the shipper’s agent at the port of discharge, using the electronic release system without any problems.

On this occasion, the carrier sent the shipper’s agent a PIN code, but the shipper’s agent was informed that the two containers had already been collected. It was held that the carrier was liable for misdelivery, as the two containers were not delivered against the presentation of the relevant bills of lading. The previous dealings as to the use of the electronic release system were not sufficient to override the express provision in the bill of lading that the cargo had to be delivered against the presentation of the bill of lading. It was also held that the PIN code sent to the shipper’s agent by the carrier could not be considered as a delivery note. The decision clearly shows that in order to avoid the presentation rule, the bill of lading must contain clear and specific provisions to that effect.

A charterer cannot require the master to deliver cargo without production of the bills of lading (see The Houda). An exemption clause is unlikely to protect the carrier against liability for delivery to receivers who did not produce genuine bills of lading in their favour. Where the goods are delivered upon surrender of what appear to be genuine but are in fact forged transport documents, the carrier will be liable for misdelivery (Motis v Dampskibsselskabet).

In The Sormovskiy, Clarke J took the view that the presentation rule would not apply where: 

a) the law of the place of discharge required delivery without delivery

b) a binding custom at the port of discharge made a similar requirement

c) the bill of lading was stolen or lost and where it was proved to the master’s reasonable satisfaction the person seeking delivery of the goods was entitled to possession of the goods.

It should be noted that this case was later doubted in East West v DKBS 1912.

In practice, it is not uncommon for the cargo to arrive before the bills of lading reach the receivers. In this event, delivery will normally be made in return for letters of indemnity. (The Laemthong Glory – where the Contracts (Rights of Third Parties) Act 1999 was applied to enable the owners to sue on a letter of indemnity given by the receivers to the charterers.) For the meaning of delivery, see the decision of Diplock LJ (as he then was) in Barclays Bank Ltd v Commissioners of Customs and Excise, where he said that a contract of carriage contained in or evidenced by a bill of lading cannot be discharged by performance until the carrier has actually surrendered possession of the goods, by divesting himself of all power to compel any physical dealing in or with the cargo that can prevent the lawful holder from obtaining the possession (see also The Jag Ravi). For the indemnity provisions of a letter of indemnity to be engaged, the delivery must be made to the correct party pursuant to the letter of indemnity, see the decision in The Songa Winds.

In The Bao Yue, a cargo of iron ore was carried from Bandar Abbas, Iran to Tianjin, China on board the vessel. The bill of lading contained a provision providing that the carrier was entitled to discharge the cargo and put it into a ‘custom-bonded warehouse’. When the ship arrived at Tianjin, no bill of lading was presented (the bill of lading was still in the hands of the shipper), and the cargo was put into a ‘custom-bonded warehouse’. The cargo remained in the warehouse for three and a half years. As a result, the storage charges exceeded the value of the cargo, and the warehouse owner refused to deliver the cargo until the shortage charges were paid.

The shipper brought an action against the contractual carrier (who was the shipowner) for unlawful conversion. It was held that the bill of lading gave the carrier authority to store the cargo and subsequently to create lien for the costs of storage. It was further held that the carrier would, in any case, have implied authority in bailment to store the cargo and exercise lien for the unpaid storage costs.

In addition to the concept of sub-bailment see the decision of the Privy Council in The Pioneer Container. It is also common to see two other concepts of bailment: ‘bailment for reward’ and ‘quasi-bailment’. The concept of quasi-bailment is used in cases where there is no actual transfer of possession of goods between the bailor and the bailee. In such cases, the transferee undertakes to take possession of the goods and later delegates a sub-contractor to perform this task.

This regularly happens in cases where a freight forwarder who does not own a vessel sub-contracts the carriage of goods to a shipowner. Bailments can be either gratuitous or for reward. The latter will include cases where a warehouse owner receives goods for storage for reward (i.e. storage charges). The standard of care and diligence imposed on a bailee for reward is higher than that required of a gratuitous bailee.

3. COGSA 92

This Act repeals and replaces the Bills of Lading Act 1855. The aim in both cases is to secure that rights and liabilities under a contract of carriage of goods by sea pass to the consignee of the goods. The major weakness of the 1855 Act was that it linked the passing of contractual rights and liabilities to the passing of ownership in the goods.

COGSA 92 overcomes this difficulty, but at the price of some tortuous drafting. The following points deserve particular attention.

First, the Act makes parallel provision for bills of lading, sea waybills and ship’s delivery orders. However, it is drafted on the basis that ‘straight’ bills are not bills of lading at all. Straight bills of lading are considered to be ‘bills of lading or similar documents of title’ for the purposes of application of the Hague-Visby Rules, which are scheduled to the Carriage of Goods by Sea Act 1971.

Second, after the statutory transfer of rights to a ‘lawful bill of lading holder’ under section 2(1) of COGSA 92, the shipper’s rights are extinguished: East West v DKBS 1912. This rule does not apply to sea waybills and straight bills of lading (which are treated just as sea waybills under COGSA 92). In the case of such transport documents, it is possible for the shipper to change the consignee until the goods are discharged.

Thus, in AP Moller-Maersk v Sonaec Villas Cen Sad Fadoul, the shipper was held to be entitled to change the consignee in a straight bill of lading, as the goods were not yet discharged at the time of the change. 

Third, whether or not the shipper’s rights are extinguished through the operation of section 2(1), the contractual liability of the shipper towards the carrier will not extinguish through the transfer of the transport document to the consignee. The shipper remains liable towards the carrier, as an original party to the contract (section 3(3) of COGSA 92).

Fourth, a lawful bill of lading under COGSA 92 might be entitled to get full damages despite an early recovery from an intermediate seller (The Baltic Strait). 

The concept of ‘lawful bill of lading holder’ is defined under section 5(2) of 

COGSA 92. In order for an endorsee of a bill of lading to become a lawful bill of lading holder, the following conditions must be satisfied: 

a) completion of an endorsement by delivery of the bill of lading to the endorsee

b) voluntary and unconditional transfer of possession by the holder to the endorsee, and

c) an unconditional acceptance by the endorsee (The Erin Schulte).

Fourth, unlike the transfer of rights, liabilities under the contract of carriage contained in a bill of lading are not automatically transferred to a party who becomes a lawful bill of lading holder. Section 3(1) of COGSA 92 stipulates the steps can trigger the transfer of contractual liabilities to the lawful bill of lading holder. Moreover, an ‘intermediate’ holder of a bill of lading, who has negotiated the bill on to another party, does not incur liabilities under the contract merely by cooperating in the discharge of the cargo (The Berge Sisar: ‘demand’ in section 3 means requiring full transfer of possession in return for surrender of the bill).

Fifth, rights under a contract of carriage contained in or evidenced by a bill of lading cannot be transferred after the bill of lading is spent. This rule does not apply where either subsection (a) or subsection (b) of Section 2(2) COGSA 92 finds room for application. On the interpretation of subsection (a) by the courts (The Ythan). 

Sixth, the special provisions in sections 2(2) and 3(1)(c) COGSA 92 should be noted, which deal with the situation when bills of lading arrive after the goods themselves.

Finally, although COGSA 92 does not talk of multimodal transport documents, some types of multimodal transport document can be treated as received for shipment bills of lading.As discussed above, electronic transport records are not covered in this act. On the collection of cargo through the use of PIN codes, see the decision in MSC Mediterranean Shipping Company SA v Glencore International AG.

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