A bill of lading (B/L), as an important legal document for international trade and transportation of goods by sea, is not only an evidence of the contract of carriage, it also serves as a shipment receipt and a document of title to the goods. The Club noticed that legal issues in relation to bills of lading have been frequently brought up in the handling of P&I claims, and thus this article is prepared to put into perspective important things for carriers to consider in signing and executing B/Ls.

I.    Functions of the B/L

A bill of lading is defined in Article 71 of the Maritime Law to be “a document which serves as an evidence of the contract of carriage of goods by sea and the taking over or loading of the goods by the carrier, and based on which the carrier undertakes to deliver the goods against surrendering the same.” To understand the legal concept of it and the liabilities covered by P&I clubs, it’s important to first identify the three functions of the bills of lading.

First, it is evidence of a contract where agreement has been reached between the carrier and the shipper for carriage of goods by sea. It’s important to recognize that, such document is not necessarily the contract of carriage itself as the agreement is usually reached before a bill of lading is issued, and for the holder of the bill of lading or the consignee, what is agreed beyond the bill of lading is not legally binding.

Second, a bill of lading is evidence of the fact that the cargo was received or loaded. When the document functions as prima facie evidence of the receipt of cargo, the carrier is entitled to contend any inconsistency between the cargo received and whatever described in the bill of lading. But once it is transferred to a third party acting in good faith, the document becomes conclusive evidence and the carrier won’t be able to defend unless it is otherwise stated in the bill of lading or an unknown clause is incorporated. And in the event of cargo loss, the carrier cannot recover from the shipper without first compensating the cargo owner.

Third, a bill of lading is proof of the carrier’s guarantee on delivering the goods as agreed, and the holder of the bill of lading is entitled to possession of the goods from the carrier. It’s also recognized as document of title in the Hague Visby rules. In accordance with Chinese law, a straight bill of lading would require delivery against presentation and for order bill of lading, delivery should be made against presentation of an original bill of lading with uninterrupted series of endorsement. 

II.    B/L issues and advice to Members

Cargo claims are known as one of the largest categories of P&I claims both in number and value, and owners are most likely to be held liable for such a claim brought under the bill of lading. Therefore, caution should be exercised when signing/issuing bills of lading and before confirming the delivery, especially under the following circumstances where owners may be excluded from cover as provided in the club rules.

1.      Delivery to a port not named in the B/L

A port of discharge is agreed in the bill of lading for the carrier to make delivery to the consignee. But in practice, a charterer may request discharge of cargo at a place other than that named in the bill of lading for time and cost efficiency considerations. Then a deviation will be committed, and the owner may be subject to additional liabilities arising from discharging at a different port or transferring the cargo.

It’s specified in the club rules that unless and to the extent that the Directors otherwise decide, there shall be no recovery from the club if liabilities arise out of discharge of cargo at a place other than the place provided in the contract of carriage. It will be prudent for owners to timely inform the club for further advise if such a request is made by cargo interests.

2.      Delivery without production of an original B/L

The reasons for owners to deliver cargo without presentation of an original bill of lading can be complicated in practice, but no matter the reason it is the owners that may be exposed to substantial claims as consequence of wrongful delivery. Sometimes, it is because of seller/buyer disputes – a seller who holds the bill of lading as the shipper (or the bank may have it) wishes to sell to some other buyer for business reasons, and the former buyer showed up and just took the cargo without paying, nor presenting the bill of lading. In some other cases, it’s the contradiction between the charterer’s order and the carrier’s obligation – the charterer may instruct discharge of cargo without production of the bill of lading to avoid additional costs or demurrage if the ship arrives at the destination before the consignee actually has the bill of lading.

It’s provided in the club rules that liabilities arising from delivery of cargo without production of an original bill of lading are excluded from cover. In the event of misdelivery, owners may be deprived of P&I cover as well if the consistency of endorsement is not carefully reviewed in the first place. Owners should beware that there have been some recent cases where owners suffered great loss for compensating the shipper or one of the buyers even though the original bill of lading was collected.

3.      Date to be inserted in the B/L

A bill of lading is either a “shipped” bill, which has the date when the goods are loaded on board, or a “received for shipment” bill, which has the date when the goods are taken into the charge of the carrier. And there are advanced B/L, that is to say, a carrier or its agent may, at the request of the shipper, issue a shipped bill prior to the date when the cargo is actually loaded, when the cargo interest fails to have the cargo ready for shipment, or the vessel fails to reach the port within the shipment time as agreed in the letter of credit. Likewise, an ante dated B/L where a person deliberately backdates the bill is deemed fraud, which means defend or limitation of liability will no longer be an option for the owner.

In the event of misdated bills of lading, owners will be exposed to claims from cargo interests and P&I cover may not be available for such claims as the club rules exclude cover for claims in certain circumstances where the bill of lading is ante/post dated, unless and to the extent that the Directors otherwise decide. Therefore, to protect their own rights, the master should check the accuracy of date and the Mate’s Receipt before signing or authorizing a third person to sign the bill of lading, and contact the owner for further advise if the bill is misdated.

4.      Description of goods and number/quantity/weight

The description of the goods on the bill of lading must be consistent with the goods actually received by the carrier. According to Article 14 of UCP600, data in a document when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with data in that document. For any discrepancies between the description on B/L and the actual cargo received, or between the description and the document on board (draft or ullage report), the master should notify the owner immediately before issuing the bill of lading.

In addition, carriers will sometimes clause the bill of lading with the words “weight/number/quantity unknown” to protect themselves from any claims that the shipper might levy on them for shipment of the declared cargo. Where containers are loaded by shipper and sealed, the bill of lading is typically claused “shipper’s load and count”. The remark “in apparent good order and condition” is to be inserted in the bill of lading should the cargo be loaded in good order and undamaged, or it should not be signed if the condition suggests otherwise. The master should then inform the owner in time, and when immediate dialogue with the owner cannot be established, ensure the order and condition of cargo is accurately described both on the B/L and the Mate’s Receipt to effectively protect the owner’s rights.

As mentioned before, the master and chief officer should guarantee the accuracy of information contained on the issued B/L and Mate’s Receipt. The club rules provide that cover is excluded should the bill of lading issued with the knowledge of the Member or the master with an incorrect description of the cargo or its quantity or its condition, or which contains any fraudulent misrepresentation. Again, Members are advised to be prudent and seek club advise where necessary.

The shipper or charterer may ask the master to issue a clean bill of lading and then offer to the owner a letter of indemnity in return, which could put the owner at huge risk – the risk of being accused of fraud even. Although it’s common in practice for owners to issue clean bills of lading out of commercial considerations, the owner will be in a difficult position to recover the compensation it has made to the holder of the B/L from whoever issued the letter of indemnity.

III.    Conclusions

In addition to the above circumstances, it’s also stipulated in the club rules that cover is excluded for any liabilities arising under a bill of lading already issued if the entered ship fails to arrive at a port of loading or fails to load any particular cargo, and for deliberate breach of contract of carriage on the part of the Member. By going through the exclusions, this article serves as a reminder for Members to be cautious with the issuance of bills of lading to mitigate business risks.

For more information, please contact your manager at the Club.