P r e p a r e d f o r : P r o f .

Mi c h a e l P h i l i p F u r m s t o n
The Importance and Various Effects of
Bill of Lading in International Trade
Kevin Tivano Tandayong

08
Fall
1
Introduction

According to Websters New World Law Dictionary,
1
a bill of lading is
defined as a document issued by a carrier or by a shippers agent that identifies
the goods received for shipment, where the goods are to be delivered, and who is
entitled to receive the shipment. As of today, the bill of lading has played an
important role in governing international trade due to its legal functions as a
receipt of the goods, an evidence of a contract of carriage, and a document of title
to the goods.

Bill of Lading as a Receipt of the Goods

The first legal function of the bill of lading is that it serves as an evidence of
the masters receipt of the shippers goods. Upon receiving the shippers goods,
the master is ought to issue a bill of lading, on demand of the shipper, which
contains specific information regarding the goods, primarily the quantity, or
weight, or number of packages, and the condition of the goods loaded.
2
This
information will then be regarded as an honest representation of the truth
regarding the goods. Thus, the bill of lading now enables the master, the shipper,
and the receiver to establish the fact whether the goods are loaded onto the vessel
in good condition.

However, we should note that often, the master is unable to confirm the
information of the goods given by the shipper because the goods are concealed
within packaging. An issue might arise when there is a discrepancy between the
quantity, or the condition, of the goods stated in the bill of lading and that of the
goods received by the receiver. Now, it is obvious that since the master is the one
who issues the bill of lading, the master is held liable for this discrepancy instead
of the shipper. At this point, the bill of lading shall be prima facie evidence
between the carrier and the shipper that the actual condition of the goods are in

1
Bill of Lading. (n.d.). Retrieved 15 October 2013, from www.yourdictionary.com/bill-of-lading
2
See Hague and Hague-Visby Rules, Article III, rule 3
2
accordance with the information given by the shipper.
3
Therefore, it is deemed
that the shipper has guaranteed the accuracy of information provided at the time
of shipment and shall indemnify the carrier against losses, damages, and expenses
arising from such inaccuracies.
4


Additionally, this receipt function of the bill of lading can be used as a
commercial proof of completing a contractual obligation between the buyer and
the seller, especially under FOB (Free on Board). Under FOB, the seller must bear
the full liability for the cost and safety of the goods up to the point where the
goods pass the named ships rail. The signed bill of lading will then be the proof
that the seller has fulfilled his obligation by delivering the goods safely to the
named ship.

Bill of Lading as a Contract of Carriage

Bill of lading as a contract of carriage has mainly two different legal
functions: it may only serve as the evidence of the contract of carriage or it may
serve as the actual contract of carriage.

As between the shipper and the carrier, the bill of lading only serves as the
evidence of the contract of carriage, not as the contract itself. The contract itself is
formed by the mutual exchange of promises between the shipper and the carrier
that takes place before the bill of lading is issued. A further explanation of this
notion is found in the judgment of a famous case The Ardennes. In The Ardennes,
5

the plaintiff seller, wished to ship Mandarin oranges from Spain to London, and
specifically requested that the oranges should arrive before 1 December in order
to avoid an unwanted rise in import duty. The contract of carriage contained an
express clause that the vessel would sail directly to London. The bill of lading,
which was issued after the contract was made, contained a liberty to deviate
clause, giving the vessel liberty to call at any port on her way to London. In other

3
See Hague and Hague-Visby Rules, Article III, rule 4; Carriage of Goods by Sea Act 1992, section 4
4
See Hague and Hague-Visby Rules, Article III, rule 5
5
See The Ardennes [1951] 1 KB 55
3
words, there was a difference between the terms of the contract and the terms of
the bill of lading. Later, it turned out that, instead sailing to London directly, the
vessel went first to Antwerp to unload another cargo. Therefore, the vessel was
late when it reached London on 4 December. As a result, when the plaintiffs cargo
arrived in London, (a) there had been an increase in the import duty, and (b) the
price of Mandarin oranges fell, all of which events would not occur should the
vessel arrived in London on time. The ship owner argued that the contract was
the bill of lading and he was allowed to call at any port; however, Lord Goddard
made a point that:

The contract has come into existence before the bill of lading is signed;
the latter is signed by one party only, and handed by him to the shipper
usually after the goods have been put on board It is unnecessary to cite
authority further than the two cases already mentioned for the proposition
that the bill of lading is not itself the contract; therefore, in my opinion,
evidence as to the true contract is admissible.
6


Hence, it is held that the bill of lading, in this case, is just the evidence of the
contract of carriage and not the actual contract itself.

On the other hand, the bill of lading becomes the actual contract of carriage
where it is in the hands of a consignee or indorsee which is not involved in the
negotiation of the contract of the carriage. In Leduc v Ward,
7
a shipper requested
that a cargo of rapeseed was to be shipped from the port of Fiome to Dunkirk.
Instead of going directly to Dunkirk, the vessel sailed firstly to Glasgow and was
lost, together with the cargo, by perils of the sea. The original contract of carriage
between the shipper and carrier was that the vessel should proceed firstly to
Glasgow; however, there was a liberty clause in the bill of lading that enabled the
vessel to call at any port. The facts of this case are similar to those of the case
mentioned in the previous paragraph, but the decision is different. In this case,
Lord Esher said that as far as the consignee was concerned, the contract of

6
Ibid., at p. 59
7
See Leduc v Ward [1888] 20 QBD 475
4
carriage had been reduced into writing and that parol evidence to alter or qualify
the effect of the writing was not admissible. In other words, in the hands of the
consignee, the bill of lading is the actual contract between the consignee and the
person for whom the master signs the bill of lading, which usually is the ship
owner or the charterer.

Commercially, the bill of lading as a contract of carriage also plays a vital
role in governing international trade as it contains detailed terms of the trade
matters. The bill of lading will cover the scope of duties of the carrier in relation to
the carriage and discharge of the cargo. Furthermore, it will also cover the scope
of duties of the person entitled to the cargo in relation to the payment of freight,
discharge of the cargo, and delivery of the cargo. Hence, the bill of lading, as a
contract of carriage, specifically defines and limits the liabilities of the parties
involved in the trade.

Bill of Lading as a Document of Title to the Goods

Lastly, bill of lading is a document of title to the cargo. It serves as an
acknowledgement by the carrier that the cargo will be held for whoever is the
current holder of the bill of lading. This nature of bill of lading is best seen in the
light of the following judgment in Sanders Brothers v Maclean & Co
8
:

The bill of ladingis universally recognized as its symbol, and the
indorsement and delivery of the bill of lading operates as a symbolical
delivery of the cargo. Property in the goods passes by such indorsement
and delivery of the bill of lading, whenever it is the intention of the parties
that the property should pass, just as under similar circumstances the
property would pass by an actual delivery of the goods.
9


Furthermore, a bill of lading may be considered as negotiable or non-
negotiable. A bill of lading is considered to be negotiable if it is expressed to be

8
See Sanders Brothers v Maclean & Co [1883] 11 QBD 327
9
Ibid., at p. 341
5
transferable by the terms in the bill of lading. If the consignee is designated
order, the bill of lading is transferable by delivery and indorsement of the
shipper. If the consignee is shown as bearer, or holder, or blank, the bill of lading
is transferable by delivery without indorsement from the shipper. If the consignee
is designated named consignee or order, the bill of lading is transferable by
indorsement of the named consignee. On the contrary, if the consignee is
designated without or order, the bill of lading is considered as non-negotiable,
which is also known as straight bill of lading. This bill of lading now becomes a
bearer document transferable only to the consignee whose name is stated in the
bill of lading.
10
In other words, the principle of a negotiable bill of lading is that it
can be transferred as many times as needed to different persons by delivery or
endorsement if necessary. On the other hand, the essence of a non-negotiable bill
of lading is that it is only transferable once, to a named consignee, by delivery
without indorsement. The transfer of bill of lading, either by delivery or
indorsement, will then create a contract of carriage between the carrier and the
transferee that is subject to the terms and conditions stated in the bill of lading.
11


Looking from the perspective of the carrier, this transferable nature of a
bill of lading will cause the carrier to be concerned with whom the cargo should
be delivered to. If there were only one original bill of lading, this concern would
easily been erased by simply releasing the cargo against this single original bill of
lading. In practice, however, bill of lading is issued in sets of three originals: one of
them is retained on the vessel; another is sent to the party to whom the goods are
consigned; the third is retained by the shipper.
12
The reason why there is a need
for three originals is that to ensure that at least one original is at the discharge
port when the vessel finally arrives, and this kind of practice would create no
difficulty if the bill of lading were just a receipt of the cargo.

However, because the bill of lading is also a document of title to the cargo,
the use of more than one bill of lading now provides room for fraudulent
practices. Thus, the carrier must be really cautious in releasing the cargo to the

10
Goode, R. (2010). Goode on Commercial Law (p. 981). Penguin: London.
11
See Hague and Hague-Visby Rules, Article III, rule 4; Carriage of Goods by Sea Act 1992, section 4
12
Malynes, G. (1686). Consuetudo, Vel, Lex Mercatoria (p. 87). London.
6
right person. In an event where there is an absence of sufficient claim on the
cargo, or suspicious circumstances that raise a reasonable suspicion, the carrier is
entitled and obliged to release the cargo against the first person that presents one
of the original bills of lading, making this person the legal owner of the cargo.
13


Conclusion

Indeed, throughout history, the bill of lading has developed into one of
the most important legal instruments that govern international trade. As a
receipt of the goods, the bill of lading contains detailed information of the goods,
which enables the parties in the trade to establish the fact whether the goods
are in good condition. Furthermore, as a contract of the carriage, the bill of
lading also serves as the legal instrument that governs the contractual
relationships of the parties in the trade. Last but not least, the bill of lading as a
document of title of the goods serves as an acknowledgement by the carrier that
the cargo will be delivered to whoever is the current holder of the bill of lading.



----- 17 October 2013 -----

13
See Glyn, Mills & Co v East and West India Dock Co [1882] 7 App. Cas. 591