A bill of lading is one of the most important types of shipping document. It is a document signed by a carrier (eg, a shipowner, master or charterer) which states that certain goods have been:

transported from one place to another on board a particular ship; and

delivered to a particular party named in the bill of lading.

The legislation of some jurisdictions also expressly stipulates that a carriage contract is evidenced by a bill of lading, which is issued by the carrier or its representative at the shipper’s request. In addition, the bill of lading is a document of title giving the consignee or endorsee of the bill the right to sell the applicable goods while they are in transit.

There are three types of bills of lading:

nominate bills of lading – which require goods to be delivered to a named party and are non-negotiable documents of title;

order bills of lading – which provide for goods to be delivered to the order of a specified person or assignee and may be negotiated by endorsement or endorsement in blank; and

bearer bills of lading – which permit any holder of the bill to take delivery of the goods and may be negotiated by simple delivery, without endorsement.

Bill of lading as receipt

Being a receipt for goods, a bill of lading contains a description of the applicable goods in the margin. This description is perhaps the most important part of a bill of lading, as the consignee or endorsee of the bill, which wishes to buy the goods by having the bill endorsed to it, normally has no opportunity to verify the quantity and quality of the buyer’s representations by examining the goods. The consignee or the endorsee therefore parts with the purchase price in reliance on the carrier’s description of the goods in the bill of lading.

In other words, the bill of lading is an acknowledgment of the receipt of the goods specified therein. It usually indicates:

the leading marks necessary for the goods’ identification, as furnished in writing by the shipper before loading;

the number of packages or pieces or the quantity or weight of the goods, as indicated by the shipper in writing; and

the apparent order and condition of the goods.

If made fraudulently or negligently, such representations may form the basis of an action in tort against the carrier by third parties which suffer loss in reliance on them – in particular, consignees which take up and pay for the shipping documents when they would, if the true facts had been stated, have been entitled to reject them. The stipulations of the Hague-Visby Rules and the Hamburg Rules are broadly similar to this effect.

A bill of lading is prima facie or, in certain cases, conclusive evidence of the facts contained therein – for example, the leading marks or the condition, quantity, quality and date of loading of the goods. The bill of lading may contain a conclusive evidence clause.

Where the bill of lading is only prima facie evidence, the carrier has the burden of proving that it is incorrect. The carrier or its master or agent must, after receiving the goods into its charge, issue to the shipper on its demand a bill of lading. This must show, among other things, the leading marks necessary for the identification of the goods as furnished in writing by the shipper and the apparent order and condition of the goods, save where the carrier, master or agent has:

reasonable grounds for suspecting that the specified marks, quantity, quality or weight do not accurately represent the goods received; or

no reasonable means of checking.

In considering the precise legal position as to the statements in a bill of lading relating to cargo, regard must be given not only to the contractual clauses, but also to the applicable maritime rules (eg, the Hague Rules, the Hague-Visby Rules and the Hamburg Rules). The extent to which a bill operates as a receipt with regard to quantity, condition and quality must also be considered separately. The legal purpose of focusing on the bill of lading as a receipt should also be noted. A bill of lading holder which can show that goods have been discharged in different quantities or a different condition to that recorded in the bill will have good evidence that the damage or loss occurred when the goods were in the carrier’s custody. This evidence can be used to show that the carrier breached its obligation to look after the goods as set out in the contract or in the Hague Rules, the Hague-Visby Rules or the Hamburg Rules.

The bill of lading may also be considered conclusive evidence with regard to the representations contained therein. A bill of lading will be conclusive evidence in favour of a party which has become the lawful holder of the bill – against the carrier of the shipment of the goods or, as the case may be, their receiver for shipment – where it:

represents goods to have been shipped on board a vessel or to have been received for shipment on board a vessel; and

has been signed by the vessel’s master or a person who had the carrier’s express, implied or apparent authority to do so.

However, such a bill of lading is not conclusive evidence of statements as to the order and condition of the goods or any other such matters.

This principle is founded on common law, according to which an estoppel arises against a party that makes a clear and unequivocal representation of fact to another party knowing of its falsehood or with the intention that it should be acted on, where the other party has acted on such representation and has thereby been prejudiced by the representation. In such cases, the party which made the representation cannot claim that the fact is different to that which it represented it to be. Thus, shipowners are estopped from making false claims against the assignee of a bill of lading, stating that the freight has been paid in advance or that the goods have been shipped in good order and condition.

By an express term, the bill of lading may be made conclusive evidence of the quantity of the shipped goods. In this case, in the absence of fraud, the shipowner is bound by the statement in the bill of lading and cannot escape liability by showing that the goods specified therein, or a portion of them:

were not shipped; or

were lost before shipment by an excepted peril.

The cause of the misstatement is immaterial; it may be a miscalculation or a mistaken belief that, in the circumstances, the goods had to signed for, but not put on board. If there is a miscalculation, the shipowner cannot, where there are two or more classes of goods concerned, escape liability for delivering less than the specified quantity of another class, since the bill of lading is conclusive evidence with regard to the quantities of both classes. However, where words are inserted qualifying the statement with regard to quantity, or where the charterparty contains an inconsistent condition which is incorporated in the bill of lading:

the bill of lading can no longer be regarded as conclusive evidence of the quantity of shipped goods; and

the shipowner is not precluded from showing that all or part of the goods were not shipped.

Where the Hague-Visby Rules apply, a bill of lading is prima facie evidence of the receipt by the carrier of such goods where it:

has been issued by the carrier or the carrier’s master or agent to the shipper; and

shows, among other things:

the leading marks necessary for the identification of the goods, the number of packages or pieces or the quantity or weight of the goods, as the case may be; and

the apparent order and condition of the goods.

Where the bill of lading has been transferred to a third party acting in good faith, it is conclusive evidence.

In a bill of lading, the words “shipped in good order and condition” do not constitute a warranty. Rather, they amount to a representation that the goods were shipped in apparent good order and condition. If an endorsee changes its position on the validity of this representation and afterwards sues the shipowner for delivering the goods in bad condition, the shipowner (where it was not induced to make the statement by fraud) will be estopped from denying that the goods were shipped in apparent good order and condition. However, the shipowner will not be estopped from proving that the internal condition of the goods was bad.

A bill of lading is conclusive evidence only with regard to what it acknowledges as having been shipped. Clauses qualifying the statements in the bill (eg, using words such as “said to contain” or “weight unknown”) and the extent to which the mandatory maritime rules allow such qualifications must be considered. A bill of lading containing such qualifications is known as a ‘claused bill of lading’. Further, particular receipt problems arise where containers are used to carry goods.

Bill of lading as document of title

Arguably, the principal purpose of a bill of lading is to enable the party entitled to the goods represented in the bill to dispose of them while they are in transit. By mercantile custom, the possession of a bill is, in many respects, equivalent to the possession of the goods and the transfer of the bill of lading usually has the same effect as the delivery of the goods themselves. A bill of lading is thus a symbol of, or a key to, the goods specified therein.

In this context, a bill of lading is notably deemed to operate merely as a symbolic transfer of possession of goods, but not necessarily as a transfer of the property therein. The transfer of the bill passes such rights in the goods in such a way that the parties intend to do so. Where the consignee or endorsee of a bill of lading is the shipper’s agent at the port of destination, it is evident that the parties, by transferring the bill of lading, intend to pass only the right to claim delivery of the goods from the carrier on arrival of the ship.

Therefore, on a transfer of a bill of lading by way of sale, mortgage or pledge, the property in the goods passes either absolutely or otherwise, according to the parties’ intention, to the transferee, provided that:

the transferor could dispose of them; and

the right of the original owner of the goods to stop them in transit is either wholly defeated, where there is an absolute transfer by way of sale, or becomes subject to the mortgage or pledge.

However, as a bill of lading is not, in the full sense of the word, a negotiable instrument, the title of the transferor to the bill of lading and its ability to dispose of the goods specified therein are important elements to be considered.

As regards the shipowner, the bill of lading is a document of title, entitling its holder on production to delivery of the goods. Accordingly, a delivery to the holder of the bill of lading – even where it is not entitled to the goods – discharges the shipowner, provided that it is made in good faith without notice of any defect in the holder’s title. However, the shipowner is not discharged, regardless of how bona fide its act may be, by delivering the goods to the wrong person without producing the bill of lading.

Bill of lading as carriage contract

It has long been accepted that the terms set out on the reverse of a bill of lading are evidence only of the carriage contract between the shipper and the carrier, since the contract is agreed before the bill of lading has been issued. In other words, the contract of carriage will generally be made before the goods are sent to the ship and the contract may afterwards be reduced into writing and expressed in the bill of lading.

It is equally accepted that the bill of lading terms regarding the carriage contract between the carrier and a bona fide transferee are conclusive, and that the carrier is estopped from adducing external evidence to the contrary.

Where there is a charterparty, a bill of lading is prima facie the contract between the shipowner and an endorsee, under which the goods are carried. This is the case when the endorsee is unaware of the charterparty’s terms and may be so even where it knows of them. As between the shipowner and the charterer, the bill of lading may in some cases have the effect of modifying the contract contained in the charterparty. However, in general, the charterparty will prevail and the bill of lading will operate solely as an acknowledgment of receipt.

Comment

A ‘bill of lading’, which is the most important document in the carriage of goods by sea, may be defined as a receipt for the goods delivered to and received by a ship, which:

is signed by the party which contracts to carry the goods or its agent; and

evidences the terms of the carriage contract under which the goods have been so delivered and received.

During the transit and voyage period, the bill of lading is recognised by the law merchant as the symbol of the goods described therein and the endorsement and delivery of the bill of lading constitutes the symbolic delivery of the goods. Property in the goods passes by such endorsement whenever and to the extent that this is the parties’ intention, just as, in similar circumstances, the property would pass by actual delivery of the goods. The holder of the bill of lading is entitled against the shipper to have the goods delivered to it, to the exclusion of other persons. It is thus in the same commercial position as if the goods were in its physical possession, subject to the fact that:

it runs the risk of non-delivery of the goods by the shipowner; and

in order to obtain actual delivery of the goods from the shipowner, it may be obliged to discharge the shipowner’s lien for freight.

Source: Wakim & Associates