EXHAUSTIVE EXAMINATION OF THE BILL OF LADING ACT Authored By- Manish Tripathi & Parv Ranka
EXHAUSTIVE EXAMINATION OF
THE BILL OF LADING ACT
Authored By- Manish Tripathi & Parv Ranka
PREAMBLE
The Indian act is based on the bills
of lading act,1855 and 1856 passed by the British parliament (18 and 19 vict.
C.111). the act has been declared to be in force in the whole of (British)
India except scheduled districts. It is extended to the new provinces and
merged states by the merged states (laws) act, 1949, and to the states of
Manipur, Tripura, and Vindhya Pradesh by the union territories (laws) act,
1950. The act is further extended to the union territory of Pondicherry by the
Pondicherry (extension of laws) act, 1968 with effect from 18th
December 1969. [1]
The preamble of the act speaks of two
purposes for passing the bills of lading act, 1856.
a) Firstly, where the bill of lading is
issued to the consignor or consignee or is transferred by endorsement to an
endorsee with a definite intention to pass the property in the goods specified
in the bills of lading, the rights and liabilities under the contract between
the ship owner and original shipper contained, in the bills of lading is
transferred to the endorsee.
b) Secondly, the endorsee on
presentation of the bills of lading is entitled to claim the delivery of the
goods contained in the bill of lading. The ship owner cannot be allowed to say
that though the bill of lading was issued, no goods in fact were laden on board
the ship. The shipping company is bound by its own statements in the bill of
lading that the goods were received on board in apparently good order and
condition. The shipping company will remain always liable to the bona fide holder
for value of the bill of lading. In Malabar steamship co. V. central bank of
India, AIR 1939 Sindh 225,[2] it
was held that the shipping company owned a duty to the bank, the endorsee of
the bill of lading on the principle of estoppel. Therefore, where the consignor
obtained the bill of lading from the manager of the shipping company before the
arrival of the ship and pledged the bill of lading with the bank and
disappeared after endorsing the bill of lading in favor of the bank, the
shipping company was held liable to the bank to the tune of the value of the
goods contained in the bill of lading and shipping company was not allowed to
say that though the bill of lading was issued, no goods in fact were laden on
the ship as the stock was seized by the police at the instance of the creditors
of the consignor who defaulted.
EVOLUTION OF BILL OF LADING
Although India has a very ancient
maritime tradition and practices, apart from the techniques of navigation and
allied matters, no tangible evidence has been brought to light regarding the
documentary aspects of shipments. Since Britain was ruling India for long, she
has followed law and practices derived from England. Bill of lading is one
such. It is not known when bills of lading were first used, although records of
cargoes placed on board ocean-going vessels have probably existed for thousands
of years. Greeks and Romans were all well-known seafarers, yet no evidence has
been found of sea code. Ancient Indians were also seafarers trading with
islands and ports around Indian ocean. [3]
In the early days of trading voyages,
it was the practice of the merchant to travel with his goods in which case the
particulars of the goods were entered into the ‘book’ or a ship’s register or
‘manifest’, which formed part of ship’s papers.
The requirement that every master
must take on board a clerk is mentioned in the ordinance maritime Trani
(an Italian town) of 1063 and refers to the ship’s book and register. This
appears to be the earliest reference to the keeping of records of goods loaded
on board ships. The French writer Desjardins in his droit commercial
maritime says that in a document of 1255, le fuero real it is said that the
owners of ships should cause to be enrolled in the register all the articles
put on board ships giving their nature and quantity. [4]
In the course of time, the merchant
sought to avoid the necessity of travelling with his goods and eventually a
system was developed whereby a document would be issued by the master in the
form of a receipt for the goods loaded on board. Thus the ‘book’ led to a
document analogous to bill of lading which was nothing more than the receipt of
the goods. Such receipt for the goods seemed to have been issued in Goa during
the time of Portuguese rule.
The documentation procedures in the
earliest shipping voyages are an unexplored area and it calls for intensive research.
Indian sources offer good scope for such research, apart from sources of other
countries. Mr. Alan Mitchel Hill in his very informative book, bill of lading
laws and practice, has summarized the transitional stages in the evolution of
bill of lading as under:
When merchants traveled with their
goods, the particulars recorded formed part of the ship’s papers and the
development of a receipt from the master did not come until much later. In
Paris a 14th century manuscript called customs of the sea has been
preserved which is believed to have been drawn up, at Barcelona, in which the
register book which had to be kept by the ship’s clerk is mentioned. It further
states that the merchant sought to make known to the ship’s clerk before the
ship sets sail any goods other than those entered in writing, as the ship owner
would not be responsible for damage to goods other than those recorded. This
writing, which according to customs of the sea also included an account of
receipts and payments, seems to refer to the rudimentary bill of lading and
seems to be in the nature of a document of title as well as the evidence of the
merchant’s right to the goods entered in his name, at the end of the voyage. [5]
These passages show a transitional
period in the history of the bill of lading when it seems probable that oral
evidence of shipments was replaced by the ship’s register which led eventually
to the private contract made between the individual merchant and the master.
This period also saw a development when merchants travelling with the goods
simply dispatched them to a consignee and this necessitated a signed extract
from the register book as a separate and distinct document of title. It became
very difficult to prove title if this single document was lost, as the shippers
were in all respects at the mercy of the master who possessed the sole proof of
contract.
In the latter half of the 16th
century, the use of the bill of lading was widespread and was defined in Le
guidon de la Mer[6] as
the acknowledgement which the master of the ship makes of the number and
quality of the goods on board and goes on to carefully distinguish it from the
charter party by saying that ‘trois coppies’ of it must be drawn up. The words
to the effect that ‘one of them being accomplished, the others shall be void’
also appeared around this time. It is also interesting to note that in the case
of Chapman v peers (1534) it was expressly stated that it had long been
the practice of merchants and the rule of law that no liability be attached to
the master or owner of the ships for goods not entered in the book of lading.
The need to transfer the title in the goods before they arrived at their
designation was brought about by the spread of commerce and the increasing
complexity of business, hence the endorsement of the bill of lading to the
buyer. The first reported case in which endorsement is actually mentioned in
connection with the assignment of a bill of lading is that of Snee v Prescot
(1793). Thus, the practice was well established by the 18th
century and the negotiable bill of lading was in common use.
The earliest bill of lading
qualifications used at that time were of general nature such as ‘act of god’ or
‘inherent vice’, but the 18th century judicial decisions caused ship
owners to strengthen their bills of lading, with provisions known as
‘exoneration clauses’[7] or
‘negligence clauses’. These not only stipulated the old common law exceptions
but also served to protect the ship owners from liability for all perils of the
sea and navigation. As this tendency was accentuated throughout the maritime
nations, ship owners began to exempt themselves from practically every
liability, even for their own negligence, which led to disputes and complaints
from merchants in international trade. As soon as an unfavorable court decision
was given, the ship owner’s legal advisers were instructed to draft a fresh set
of clauses to nullify the result for the future.
The growing dissatisfaction of
shippers, bankers and underwriters eventually forced the ship owners to
negotiate and improve the situation which in turn led to the adoption, between
1890 and 1901, of model bill of lading mostly in the bulk grain, coal and
timber trades. In fact, a conference form bill of lading was adopted in 1882 at
a meeting in Liverpool which was the first to recognize ‘due diligence’ and to
fix a limit of liability of £100 sterling per package. This conference form
bill of lading formed the basis of Hamburg rules adopted at Hamburg in 1885.
The text of ‘Hamburg’ bill of lading considerably reduced the number of
exonerating clauses which had been numerous up to that time, although it is
understood that Italy was one of the last countries to resist the merchant’s
pressure for reform.
It was about this time that the
problems between ship owning, and cargo interests came to a head in the British
dominions and the United States and legislation was demanded to remove the
chaotic states of affairs brought about by the ship owner’s unlimited freedom
of contract. Recommendations followed for the adoption of an international form
for all bills of lading in order to highlight and prevent the casual manner in
which alterations and additions were introduced without any consideration for the
owners of goods.
Ocean bills of lading were obviously
in urgent need of reforms because they had by this time acquired qualities
other than that of a receipt. Merchants had discovered that by the use of banks
and finance houses, it was possible to extend their trade by employing the same
capital outlay and spreading the risk of loss by the payment of a simple
premium or insurance. Thus, in the event of disaster, not uncommon in those
days, they were able to remain in business. It became possible for banks to
advance cash against the security of bill of lading which in turn made it
possible for business to be extended by the purchase and shipment of other
consignments. The bank having made the advance was likewise secured as it held
the title to documents against payments at the port of discharge.
SECTION 1
Section 1 of the act provides that
where the consignor does not reserve any rights in respect of the consignment
booked by him and the bill of lading clearly shows that the goods in
consignments should pass to the consignee or where the bill of lading is
endorsed in the name of a third party as an endorsee in clear and unimaginable
terms, then under the provision of this act such consignee or endorsee is entitled to sue the
shipping company for loss or damage of or non-delivery of the goods as if the
contract contained in the bill of lading had been made by the shipping company
with such consignee or endorsee and such consignee or endorsee shall incur the
same liability in respect of payment of freight, etc., as if the original
contract was made with him. This is a clear departure from the common law rule
that a mere consignee or endorse has no right to file a suit against the
carrier unless it is provided that he was the owner of the goods. Such consignee
or endorse at common law cannot file a suit under the contract entered into
between the original consignor and remedy is by way of damages only.
Once a bill of lading is transferred,
whether one bill or more in the whole set it can transfer the goods mentioned
in the bill of lading and thereby property in the goods can sufficiently pass
in favor of a third party (Sanders v. Maclean, 1883 11 Q.B.D. 327)[8].
However, an indorse who sells the goods under the bill but retains bill of
lading remains liable under the contract (Flower v. Knoop 1878 40 L.T. 180)
though the pledgee may be liable under the terms of bill of lading if he takes
delivery of the goods mentioned in the bill of lading (Brandt v. Liverpool
1923 All E.R. 656)[9].
The consignee who claims his rights
under the bill of lading to recover the loss is equally bound by its terms
under this section and therefore it is not necessary for the ship owners to
prove that the consignee expressly authorized his shipping agent to accept the
terms of the bill of lading (Bombay steam navigation co. V. Vasudev, 29 Bom.
L.R. 1551)[10].
SECTION 2
Section 2 of bills of lading act,
1856 provides that notwithstanding what is provided under the act, it will not
prejudice the rights of the unpaid seller to stop the goods in transit even if
the bill of lading shows a third party as a consignee or it is endorsed in
Favour of a third party. Section 50 of the Indian sale of goods act, 1930
provides that “when the buyer of goods becomes insolvent, the unpaid seller,
who has parted with the profession of the goods, has the right of stopping them
(goods) in transit, that is to say, he may resume profession of the goods as
long as they are in the course of transit, and may retain them until payment or
tender of the price.”
Section 51 provides the duration of
transit in the following manner: -
1) Goods are deemed to be in course of
transit from the time when they are delivered to a carrier or other bailee for
the purpose of transmission to the buyer, until the buyer, or his agent in that
behalf takes delivery of them from such carrier or other bailee.
2) If the buyer or his agent on that
behalf obtains delivery of the goods before their arrival at the appointed
destination, the transit is at an end.
3) If, after the arrival of the goods at
the appointed destination, the carrier or other bailee acknowledges to the
buyer or his agent that he holds the goods on his behalf and continues in
possession of them as bailee for the buyer or his agent, the transit is at an
end, and it is immaterial that a further destination for the goods may have
been indicated by the buyer.
4) If the goods are rejected by the
buyer and the carrier or other bailee continues to be in possession of them,
the transit is not deemed to be at an end, even if the seller has refused to
receive them back.
5) When goods are delivered to a ship
chartered by the buyer, it is a question depending on the circumstances of the
particular case whether they are in the possession of the master as a carrier
or as agent of the buyer.
6) Where the carrier or other bailee
wrongfully refuses to deliver the goods to the buyer or his agent on that
behalf the transit is deemed to be at an end.
7) Where part delivery of the goods has
been made to the buyer or his agent in that behalf, the remainder of the goods
may be stopped in transit, unless such part delivery has been given in such circumstances
as to show an agreement to give up possession of the whole of the goods.
Section 52 of the act provides that:
1) The unpaid seller may exercise his
right of stoppage in transit either by taking actual possession of the goods,
or by giving notice of his claim to the carrier or other bailee in whose
possession the goods are. Such notice may be given either to the person in
actual possession of the goods or to his principal. In the latter case, the
notice to be effectual shall be given at such time and in such circumstances
that the principal, by the exercise of reasonable diligence may communicate it
to his servant or agent in time to prevent delivery to the buyer. [11]
2) When notice of stoppage in transit is
given by the seller to the carrier or other bailee in possession of the goods,
he shall re-deliver the goods to, or according to the directions of the seller.
The expenses of such redelivery shall be borne by the seller.
The unpaid seller’s right to stop in
transit will be defeated if the goods are already re-sold by the buyer. The
original buyer then stops the goods in transit as against the new buyer. This
right will also be defeated if the buyer has taken delivery under the bill of
lading. It was however held in Re McLaren, Ex-parte cooper (1879), 11 Ch. D.
68 that where there is a direction to stop in transit the goods by the
unpaid seller after a portion of which is already delivered before the unpaid
seller has exercised his right to stop the goods in transit will not entitle
the carrier to deliver the balance of the goods as stoppage in transit will
become effectual to the balance of the goods the moment the unpaid seller has
exercised that right. [12]
The cardinal principle regarding the passing of property in goods under
a contract is that property passes where it is intended to pass. This is
embodied in section 19 of the sale of goods act. Section 20 to 24 of the act
lays down rules for ascertaining the intention of the parties unless they are
in conflict with the terms of the contract. In the case of unascertained goods,
the property in them passes when they are unconditionally appropriated to the
contract by any of the parties with the assent of the other. Again, such assent
need not be expressed and may even be given before or after the appropriation.
Where the goods are delivered to a carrier for the purpose of transmission to
the buyer without the reservation of the right of their disposal, the seller
must be taken to have appropriated the goods to the contract unconditionally.
Such a right may be created expressly by the terms of the contract or may arise
by the conduct of the seller in appropriate the goods to the contract subject
to certain conditions. Under section 25(2) of the act, the seller’s right of
disposal is preserved when goods are shipped and by the bill of lading, they
are delivered to the order of the seller or his agent.
In Rungta v. Owners etc. In S.S.
Edison, 66 C.W.N. 1083 (1102) the contract between the parties provided
that the payment for the goods was to be made under an irrevocable, divisible
and transferable letter of credit to be opened by the buyer in Favour of the
seller at the latest by the end of December 1956. Provisional payment under the
said letter of credit was to be made against documents including full set of
bills of lading to order of the buyer. Final settlement was to be made based on
weight, analysis or iron contents determined at the discharge of the goods at
the destination (in this case Yugoslavia). The terms of the contract did not
give the seller any right of disposal of the goods once they were shipped and
the documents contemplated by the parties came into existence. The property in
the goods thereof passed to the buyer on shipment and the issue of the bill of
lading in Favour of the buyer. The seller was then left only with his rights
under section 46(1) of the sale of goods act. But before this section can be
invoked the seller must prove that (1) he was an unpaid seller and (2) that the
defendant buyer was insolvent (3) the transit of the goods was not ended and
(4) the property in the goods passed to the buyer.
The question of stoppage in transit
only arises when the vendor loses possession. The vendor can exercise directly
his lien for the unpaid till the goods are in his possession.
In the present case it was held that
the property in the goods passed to the buyer and since the plaintiff did not
ship the goods within the contract period, he cannot claim the price of the
goods.
F.O.B. and C.I.F. contracts
Under F.O.B. (free on board) contracts
once the goods are left on board the ship, the risk to the purchaser begins in
respect of freight and other circumstances. In C.I.F[13].
(cost, insurance and freight) contracts, the goods are to be carried by sea at
the risk of the purchaser, but the seller performs his part of the contract by
shipping goods of the contracted description in a ship bound for contracted
destination and sending or tendering within reasonable time after shipment the
shipping documents in the form of a bill of lading, an insurance policy and
goods invoice[14]. The
general rule regarding the passing of property in F.O.B. contracts was laid
down in brown v. hare[15].
The general principles enumerated in this case is (1) that the contract being
F.O.B. the goods were to be for account of the defendants as soon as delivered
on board; (2) that taking the bill of lading to the shipper’s own order, and
then endorsing it to the defendants has precisely the same effect as taking the
bill of lading to the order of the defendants; (3) the forwarding of the bill
of lading to the broker was only for the purpose of his getting the defendant’s
acceptance on handing the same over in terms of the contract and with the
intention not of preventing the passing of property but of controlling the
possession only. In other words, the property passed when the goods were placed
free on board in performance on the contract.
Maintainability of the suit after
endorsement
A bill of lading is a document of
title. It is a well-known mercantile document of title which when transferred
in the business world by endorsement, passes to the endorsee good title to the
goods covered by such bill of lading. Being itself a document of title,
endorsement of the bill of lading necessarily means something to do with title,
either transferring the title or completing the acquisition of title or
perfecting it or putting a conclusive seal by providing the document of title
or facilitating or protecting possession or possessory title. Endorsement of a
bill of lading can never be an act which has nothing to do with title and by
applying section 1 to this act, the endorsement of the bill of lading will
complete and perfect the purchaser’s title.
In A.N. Navigation v. Jethalal AIR
1959 cal. 479(488)[16] it
was held that though the first plaintiff had the real title before the actual
endorsement on the bill of lading will not disentitle him from claiming on the
bills of lading in the suit after the endorsement. [17]
SECTION 3
This section can be divided into two
parts. The first part deals with the situation in which a consignee or endorsee
for valuable consideration is protected against any defense raised on behalf of
the shipping company that inspite of the signing of a bill of lading by the
master of the vessel or any other person on his behalf, the goods or part of
the goods in fact were not laden on the ship. The first part of the section
clearly operates as an estoppel against the shipping company (firm Malabar
steamship co. V. central bank of India Ltd., AIR 1939 siVdh, 225)[18].
The bill of lading is sufficient evidence to establish the fact that the goods
were actually put on board and were received by the master of the ship. A bill
of lading disclaiming liability as to number or quantity firstly does not offer
any prima facie evidence and has no probative value (Pannalal Krishnalal v.
Osaka shosen Kaisha, 70 CWN 307)[19].
The statement in the bill of lading as to the number of bags shipped does not
constitute conclusive evidence against the ship owner, though the judicial
committee found, strong prima facie evidence that the stated number of bags
were shipped unless there was some provision in the bill of lading which
precludes the result. The terms “weight, contents and value when shipped
unknown” were construed to mean that in signing a bill of lading there was
disclaimer of knowledge in regard to the weight or contents or value of such
bags, but there was no disclaimer as to the number of bags (attorney general
of Ceylon v. Scindia steam navigation co. Ltd., 1962 AC 60)[20].
Where a bill of lading purporting to be for 50 tons of coal contained a printed
clause ‘weight, contents and value unknown’ and similar words were also written
above the signature of the master, it was held that under section 3 of the bill
of lading act 1856 in the above form was not, in the hands of a consignee for
value, conclusive evidence against the master of the shipment of 50 tons W.N.
col & Co. V. J.S. Castle (1872) 9 Bom. FICR 321.
Where the shipping company issues a
bill of lading without noting down any defects in the goods or packing, it will
be termed as a clean bill of lading. A clean bill of lading is one that does
not contain any reservation as to the apparent good order or condition of
either the goods themselves, or their packaging. Therefore, a defect in packing
is noted in a bill of lading, it would render it an unclean bill (The
Ellerman & Bucknall Steamship Co. Ltd. V. Sha Bhgarjee Sonmull and others,
AIR 1966 S. C. 1892)[21].
The second part of the section deals
with the position where the shipping company can prove that the holder of the
bill of lading, I.e., either the consignee or the endorsee knew or had
knowledge at the time of receiving the bill of lading that whole or part of the
consignment mentioned in the bill of lading was not laden on board the ship.
The shipping company can further show that the signature of the master of the
ship was obtained by the shipper by fraud or misrepresentation and that there
was no neglect or default on the part of the master or any other person singing
the bill of lading in question o issuing the same to the shipper. The proviso
to the section will not avail the shipping company where it is provided that
the master had knowingly signed a false statement (Evans v. James (1928) 34
Cora. Cas. 172)[22].
A mistake in writing figures of the particles is not sufficient to make the
shipping company liable when mate’s receipt shows certain articles as in
dispute (Valieri v. Boyland (1866) L.R. L.C.P. 382).
SHIPPER’S RISK
The term ‘shipper’s risk’ or
‘merchant’s risk’ should only mean such loss or such damage that might arise
consequent upon the goods being put on the deck which will have to be proved by
the shipping company. The loss must be related to the goods being shipped on
the deck[23]. The
clause that the goods are shipped on deck at the owner’s risk will not be of
any avail to the shipping company in case where the goods are totally lost and
not delivered. In home insurance Co. Ltd., New York by its agents Volkart
Bros. Madras and another v. Ramnath & Co., Madras, AIR 1955 Mad. 602[24], nine
drums were shipped from Bombay to Madras ‘on the deck at the shipper’s risk’
and were lost as they could not be traced on arrival of the ship at Madras.
Held, that the shipping company was liable. The words, “at merchant’s risk”
will not exempt a ship-owner from liability to contribution in a case of proper
jettison. The words cover a case not only of improper jettison but of a loss
caused by a collision and stranding owing to the negligence of the master or
crew (Dharamdas Thawardas v. the Persian Gulf stream Navigation Co.
Ltd. 78 I. C. 972: AIR 1925 sind 76).
EXEMPTION CLAUSE IN A BILL OF LADING
This is to provide for the rights and
liabilities of the parties in reference to the contract to carry, and that it
is not concerned with liabilities to contribute to the general average. The
question whether an exemption clause covers the liability to contribute in
general average in a case of proper jettison depends on the intention of the
parties[25].
There is nothing to prevent a ship owner from making an exception in his own
favor by which he is to be relieved from the ordinary laws of the sea, but if
he wishes to do so, he ought to do so in clear words. If a ship owner wishes to
introduce into a bill of lading so novel a clause as one exempting him from
general average contribution, a clause which not only deprives the shipper of
an ancient and well understood right, but which might avoid his policy and
deprive him also of all recourse to the underwriter, he ought not only to make
it clear in words but also to make it conspicuous by inserting at in such type
and in such a part of the document as that a person of ordinary capacity and
care, could not fail to see it (Dharamdas v. the Persian Gulf steam
navigation co. Ltd. 78 1. C: AIR 1925 sind 76).
Prior to the passing of the carriage
of goods by sea act, 1925, the English common law was applied in this country.
Under the English law it was open to a carrier by sea to limit his liability by
a writing such as in bill of lading the conditions that the company would not
be liable for any damages, etc. or that the liability for the company would
absolutely cease when the goods are over or beyond the side of the company’s
own ship level with the rail or that company shall not be liable for any damage
capable of being covered (Woosaji v. the Asiatic steam navigation Co. Ltd.
45 I. C. 168). It is however not permissible to the carriers under the
carriage of goods by sea act, 1925 to claim immunity from the consequences of
their own negligence by stipulating that the ship will not be responsible for
shortage or loss for that clause would clearly be ultra vires the statute, and
therefore, null and void. Therefore, if the loss or damage arises from the
neglect, fault or failure in the duties and obligations as provided in the
statutory articles or rules, then a clause in the bill of lading exempting the
carrier from liability for such loss and damage would be null and void and of
no effect (Asiatic Steam Navigation Co. Ltd. V. Dharamshi & Co. AIR 1959
Cal 479)[26].
DELIVERY OF GOODS UNDER A
BILL OF LADING
Under English law, a ship owner is
not entitled to deliver goods to the consignee without the production of the
bill of lading[27]. But
where the name of the consignee appears on the bill of lading or where the
person who first presents the bill of lading and takes away the goods, the ship
owners are not liable when subsequently somebody challenges the right of the
ship owners. In Glyn mills v. east and west India dock co., (1882), L.T. 390[28]
the goods were delivered to x under the bill of lading but during the voyage x
pledged one bill with the bank for loan and obtained delivery of the goods from
the defendants with a second bill. In a suit by the plaintiff against the
defendants to recover the value for wrongful delivery, it was held by the house
of lords that the defendants were entitled to deliver the goods on the second
bill of lading as the defendants had no notice of any dealings by x with the
first set of bills. Lord Blackburn, who delivered the judgement said, the
master must interplead or deliver to the one who he thinks has the better
right, as his peril if he is wrong. And I think it probably would be the same
if he had knowledge that there had been an assignment, though no one had given
notice of it or as yet claimed under it. At all events, he would not be safe,
in such a case in delivering without further inquiry. But............. when the
master has no notice or knowledge of anything but that there are other parts of
the bill of lading, one of which it is possible may have been assigned, he is
justified or excused in delivering according to his contract to the person
appearing to be the assignee of the bill of lading which is produced to
him.
BURDER OF PROOF
[29]The bill of lading generally is prima
facie evidence against the ship owner of the shipment on board of the goods
acknowledged under the bill of lading to have been shipped. “The evidence to
displace the bill of lading must show not merely that the goods may not have
been shipped, but that they were not (smith v. Bedouin (1896) A.C. 70)[30]
but this may be shown by conclusive evidence that after receipt by the ship
owner none of the ships were lost or stolen and that he has delivered all that
he received. The statement in the bill of lading is not to be displaced merely
by a consideration of the balance of probabilities” (scrutton,
charterparties and bills of lading, 16th Edn., p.70).
If the ship owner is bound by the
contents of the bill of lading, his bailee, the port trust who acted as
clearing agent for the ship owner would equally be bound (The Madras port
trust v. K.P.A.T.A Nadir, AIR 1968 Mad. 42)[31].
Section 3 of the bills of lading act,
1856 is limited to the master or the person signing the bill of lading. In Pohuman
v. the Karachi port trust, AIR 1925 Sindh 221 plaintiffs who were holders
of certain bills of lading of tin plates filed a suit against the shipping
company and port trust to recover the value of 57 mild steel plates short
accounted for. The suit was dismissed by the lower court except one plate which
was proved to be short landed. Plaintiffs filed revision against the order of
the lower court. In their written statement port trust submitted that 2070
plates bearing various marks were landed at Karachi of which 2014 plates were
delivered to the consignee according to the proper marks shown in the bill of
lading of the plaintiff. The remaining 56 plates bore different marks from
those shown in the bill of lading of the plaintiffs. Those 56 plates were
tendered to the plaintiff but were rejected. Plaintiff relied on the
description of the plates as given in the bills of lading and the provisions of
section 3 of the bills of lading act and contended that in the absence of any
proof that the bill of lading was granted under misinterpretation, without any
default on the part of person signing them, and wholly due to the fault of the
shipper or the holder of such bills of lading, the particular marks as shown in
the respective bills of lading were put on board. Held, ordinarily the bills of
lading would no doubt afford such evidence against the shipping company but in
view of the difficulty of verifying particular marks on the articles of a
similar nature shipped on bard that the shipping companies protect themselves
by inserting a clause that the marks or numbers though shown in the bill of
lading are unknown to them and that they do not admit that the marks or numbers
shown in the bill of lading are correct.[32]
They also protect themselves against obliteration of marks and since the bill
of lading in the present case exempts the shipping company, the description of
marks as given in the bill of lading is therefore no evidence against the
shipping company. It was therefore for the plaintiff to prove by evidence aliunde
that plates bearing the particular marks were actually handed over to the
shipping company and since they had failed to prove the revision application
must also fail as against the shipping company. Plaintiff could not rely on the
description given in the bills of lading against port trust as section 3 of the
bills of lading act is limited to the master or the person signing the bills.
Even if it is argued that the port trust was acting as the agents of the
shipping company, they would equally be entitled to take advantage of the
exemption in the bill of lading.
SHIPMENT UNDER A BILL OF LADING
SALE OF GOODS ACT, 1930
The shipment of the goods under the
bills of lading has a different legal effect than handing over a consignment to
a common carrier. Under the sale of goods act, 1930, where there is a contract
for the sale of unascertained goods the property: in the goods does not pass to
the purchaser unless there is unconditional appropriation of the goods in a
deliverable state to the contract[33].
In the case of such a contract, delivery of the goods by the vendor to the
common carrier is an appropriation sufficient to pass the property but it is
not so where the goods are handed over for shipment on board a ship under a
bill of lading. Where the goods are delivered on board a vessel to be carried,
and a bill of lading is taken, the delivery by the seller is not delivery to
the buyer, but to the captain as bailee for delivery to the person indicated by
the bill of lading[34].
The seller may therefore take the bill of lading to his own border. The effect
of this transaction is to control the possession of the captain and make the
captain accountable for delivering the goods to the seller as the holder of the
bill of lading. The bill of lading is the symbol of property, and by so taking
the bill of lading the seller keeps to himself the right of dealing with
property shipped and also the right of demanding possession from the captain,
and this is consistent even with a special term that the goods are shipped on account
of and at the risk of the buyer (Carona Sahu Co., Pvt. Ltd. V. State of
Maharashtra, AIR 1966 S.C. 1153(1155))[35].
“The English cases, however, on which
the sale of goods act was founded seem to show that the appropriation would not
be such as to pass the property if it appears or can be inferred that there was
no actual intention to pass it. If the seller takes the bill of lading to his
own order and parts with it to a third person, not the buyer, and that third
person, by possession of the bill of lading, gets the goods, the buyer is held
not to have the property so as to enable him to recover from the third party,
notwithstanding that the act of the seller was a clear breach of the contract”
(Gabarron v. Kreett (1875) 10 Ex, 274)[36].
CONTRACT
OF AFFREIGHTMENT
The
word ‘affreightment’ is derived from the French word “affreightment”
which means the leasing of a vessel. Today the term is applied to all contracts
of carriage by sea and is extended to contracts of carriage by other modes of
transport. [37]
A
contract may be concluded between the carrier and a shipper for the carriage of
goods from one port to another port, subject to certain terms evidenced in a
bill of lading or a contract may be arranged between the ship owner and a
shipper (termed a charter) for the hire of the whole or part of a vessel for a
particular voyage or voyages or for a period of time, in the terms of a charter
party. In every contract, there must be some consideration for its performance,
and in the contract of affreightment this consideration is termed freight.[38]
Every
contract of affreightment imposes on both parties to the contract specific
obligations, rights and immunities either implied by common law or expressed by
statute or by the written terms of the contract itself.
Implied
obligations and immunities in a
contract
of affreightment:
In
all contracts of affreightments there are certain implied obligations and
immunities, subject to any express term that may be agreed otherwise by the
parties. Briefly they are:
·
The carrier accepts the responsibilities and
liabilities of the bailee. However, the carrier is impliedly exonerated for
loss or damage to the cargo arising from acts of God, state enemies and
inherent vice. Bailee is a person, also called a custodian, with whom some
article is left, usually pursuant to a contract (called a “contract of
bailment”), who is responsible for the safe return of the article to the owner
when the contract is fulfilled.
·
the carrier undertakes to provide a
sea-worthy ship.[39]
·
The vessel must proceed on the agreed voyage
with reasonable dispatch, and without unreasonable deviation.
·
The shipper undertakes not to ship dangerous
goods without notice.
The
carrier’s right to freight is impliedly secured by a lien on the goods. Lien is
the right to detain or retain the property of another person for
non-fulfillment of an obligation. If, subsequent to the formation of a contract
of affreightment, its performance becomes impossible (for example, by the
outbreak of hospitalities), the contract is discharged.
Statutory
obligations, rights and immunities in a contract of affreightment:
Certain statutory exemptions to ship
owners’ liabilities have also been conferred by the merchant shipping acts.
Briefly, they are as to:
a) Dangerous goods
b) Loss or damage by fire arising
without the ship owner’s fault or privity.
c) Loss or damage to valuable goods,
such as jewelry, and the like.
d) The power of the ship owners to apply
for limitation of liability.
Legislation based on the-Hague rules,
1924 and the carriage of goods by sea act, 1924 of U.K. has been imposed in
most of the leading maritime countries of the world; so, there is some measure
of uniformity in such legislation. the Indian carriage of goods by sea act,
1925, regulates shipments under bill of lading on outward voyages from India.
The provisions of the Indian act are the same as the Hague rules, 1924, as
amended by the Hague Vislay rules 1979 which are now discussed.
The ship owner’s responsibilities and
liabilities:
1. To exercise due diligence and care;
to make the ship seaworthy; properly man, equip and supply the ship; and to
make the ship cargo worthy.
2. Properly and carefully load, handle,
stow, carry, keep, care for and discharge the goods carried, subject to the
various immunities provided.
3. On demand, and after receipt of the
goods, to issue a bill of lading showing:
· Leading marks necessary for the
identification of the cargo;
· Number of packages, pieces, quantity,
or weight, as furnished in writing by the shipper; and
· The apparent order and condition of
the goods. The bill of lading is then prima facie evidence of the receipt by
the carrier of the goods as therein described.
4. To assure the accuracy of the details
furnished by the shipper, otherwise the shipper shall indemnify the carrier
against all loss, damage and expenses arising or resulting from such
inaccuracies.
5. to receive notice of loss in writing
at port of discharge at time of, remove unless damage be not apparent, when
notice note be given within three days.
6. To provide the shipper with a
“shipped bill” on request after loading.
7. The ship owner can decide not to
contract out of or lessen his responsibilities imposed by the act under article
5 of the act. He can surrender his rights or immunities or increase his
responsibilities, provided such surrender or increase is embodied in the bill
of lading.[40]
The ship owner’s rights and
immunities
1. To be relieved from loss or damages
arising or resulting from un-seaworthiness unless caused by want or due
diligence.
2. To be relieved from responsibility
for loss or damage arising from: -
· Negligent navigation or management of
the ship.
· Fire, unless caused by actual fault
or privity of the carrier.
· Perils of the sea, act of God, act of
war, public enemies, arrest or restraint by princes, rulers or people or
seizure under legal process, quarantine restrictions, act or omission of the
shipper or agent, strikes, riots, civil commotions, saving or attempting to
save life or property at sea, inherent vice, insufficiency or inadequacy of
marks, latent defects not discoverable by due diligence, or other cause arising
without actual fault or the carrier agents.
3. Not to have the right to claim from
the shipper for loss or damage sustained without the actual fault or neglect of
the shipper or his agent.
4. Not to be liable for any loss or
damage resulting from any deviation in saving/attempting to save life or
property at sea, or any reasonable deviation. At any time before discharge to
land, destroy or render innocuous dangerous goods without compensation when
shipped without the carrier’s consent. The shipper is liable for all damage or
expense directly or indirectly resulting from shipment.
5. Not to be liable for any loss or
damage exceeding £ 100 per package or unit, (amended in 1993 to read special
drawing rights (SDR) 666.67 per package or SDR 2 per kilo of the gross weight
of the goods whichever is higher) unless the nature and value have been
declared by the shipper before shipment and inserted in the bill of lading.
BILL OF LADING, IT’S FUNCTIONS, TYPES
AND IMPORTANT CLAUSES
“A bill of lading is a receipt for goods
placed on board or to be placed on board a vessel, signed by the person who
contracts to carry them or his agent, and is the written evidence of the terms
on which the goods are to be carried for a specified freight”.
When the goods are delivered into the
custody of the carrier, the first receipt usually given is the dock receipt or,
if the goods are received alongside in ship, the mate’s receipt when the goods
are actually loaded on board. This receipt is surrendered in exchange for the
bill of lading. From the time of issue of the mate’s receipt, the ship owner
holds the goods on the terms of his usual bill of lading; and is responsible
for the safety of the goods, unless he restricts his pre-shipment liability. A
ship owner may contract out of such responsibility because the act applies only
from the time the goods are actually loaded on board the vessel. In practice,
it is usual, therefore, for the bill of lading to stipulate that the carrier
bears no liability before shipment or after discharge. This brings into focus
the wide cover provided by underwriters under the transit clause of the
institute cargo clauses.
Neither the dock receipt nor the
mate’s receipt is a document of title, nor are the statements made therein
conclusive against either the master or the ship owner. Consequently, the
shipper who has sold the goods is anxious to obtain the bill of lading at the
earliest possible moment, because this document constitutes a document of
title.
The “shipped” bill of lading can only
be issued after the actual loading of the goods. However, delay because of
congestion on wharves and the like frequently occurs, and in consequence, the
bill of lading may, in many cases, only be available for transmission abroad
and arrive in the country of import after the arrival of the goods themselves.
This naturally causes inconvenience to all parties, and possibly delays in
delivery of the cargo. In addition, if there is an agreement to ship by a
specified vessel the bill of lading must evidence shipment by that vessel. [41]
To meet these difficulties some
shipping companies have adopted the practice of issuing a “received for
shipment” bill of lading, as in the USA. Banks are usually averse to
negotiating such a form of bill of lading, unless the contract of sale makes
express provision therefore. The reason for such
action is that the bill of lading does not evidence actual shipment, the cargo
may be shut out of the named vessel, the goods may be lost or damaged before
actual loading and the tender of a “received for shipment” bill of lading is a
doubtful fulfillment at law of a shipper’s obligations under a shipping
contract.
The important functions of a bill of
lading are:
· A bill of lading is a receipt for the
goods by the carriers.
· It is written, but not conclusive,
evidence of the terms of the contract of carriage.
· It is a negotiable or
quasi-negotiable document through the bank.
· It is a document of title.
The bill of lading is a receipt for
the goods:
In this respect, the bills of lading
act, 1855, of the U.K. provides (corresponding bill of lading act was passed in
India in 1856). “Every bill of lading in the hands of a consignee or endorsee
for valuable consideration, representing goods to have been shipped on board a
vessel, shall be conclusive evidence of such shipment as against the master or
other person signing the same, provided that the master or other person so
signing may exonerate himself in respect of such misrepresentation by showing
that it was caused without any default on his part, and wholly by the fraud of
the shipper or of the holder”.[42]
It will be observed that a master is
bound by statements of fact contained in a bill of lading, which he has signed,
and is responsible for misstatements, whether made by mistake or through
negligence. The position of the ship owner must be carefully noted. The master
has no implied authority from the ship owner to sign bills of lading for goods,
which have not been shipped, and therefore, statements in the bill of lading as
to weight, quantity and number of goods shipped are not conclusive as against
the ship owner. However, there is strong evidence against the ship owner and if
the latter disputes their accuracy the burden of proving inaccuracy rests upon
him. The carriage of goods by sea act, 1925, provides that a bill of lading
shall be prima facie evidence of the receipt by the carrier of the goods
therein described. The only exceptions to this provision are the shipment of
bulk cargoes, coming within the terms of rule 4 and 5 of article III of the
act.
The bill of lading is the written
evidence of the terms of the contract of carriage. Although no document is
legally necessary in the contract of affreightment between the carrier and the
shipper, in practice the terms agreed are invariably expressed in writing in
the form of a charter party or a bill of lading or both.
IMPORTANT CLAUSES IN BILL OF LADING
A. Transshipment
It's impossible for a ship owner to
carry cargoes to every port, and so some cargo is transshipped. There are
occasions, however, particularly in abnormal times, when transshipment, forced
discharge and/or reshipment may be necessary. The bill of lading gives carriers
liberty to do this. The institute cargo clauses provide protection to the
assured during transshipment, forced discharge and reshipment.
B. Deviation
The carriage of goods by sea act
allows the ship owner to make a reasonable deviation.
C. Liberties clause
Owing to the international situation,
ship owners protected themselves by inserting in bills of lading a clause which
provides that if circumstances should arise which cause the master to consider
it unsafe to proceed to or enter the port of destination, he may carry the
cargo to the nearest safe and suitable port and discharge it there. The
responsibility of the vessel then ceases, and such discharge constitutes a
complete delivery under the contract of carriage.
D. The transit clause of the institute
cargo clauses
This clause provides protection to
the insured against the above eventualities.
a sub-clause provides that the insurance shall remain in force in the
following circumstances:
· During delay beyond the control of
the insured,
· During any deviation, forced
discharge, reshipment or transshipment.
· During any variation of the
adventure, arising from the exercise of a liberty granted to ship owner or
charterer under the contract of affreightment.
Another sub-clause of the transit
clause provides that if, after discharge of goods at the final port of
discharge but prior to delivery or expiry of 60 days,
as the case may be, the goods are to be forwarded to a destination, other
than the one insured, the insurance shall not extend beyond the commencement of
transit to such other destination. Insurance cover in such circumstances has to
be specially arranged.
The termination of contract of
carriage clause provides that if prompt notice is given to insurers, and
continuance of cover is requested, subject to payment of additional premium, if
any, the insurance cover any be continued by insurers either:
Until the cargo is sold or delivered
at such port, or
· Until the expiry of 60 days after
arrival of the cargo at such port (this time limit may be extended by special
agreement) whichever shall first occur.
· If the cargo is forwarded within the
above period of 60 days (or any agreed extension thereof) to the destination
named in the policy, or to any other destination, until the transit is
terminated in accordance with the provisions of the transit clause.
E. G.A. clause
The bill of lading frequently stipulates how
general average losses are to be adjusted, and it is usual for underwriters on
cargo to pay general average according to York-Antwerp rules.[43]
F. “Both to blame” collision clause
This clause is inserted in bills of
lading in situations, which involve American jurisdiction. In many maritime
countries, the law provides that if two ships collide with each other, the
liability to pay for damages to each other is determined and apportioned,
according to the degree of blame attached to each. If cargo is damaged, the
cargo owner can recover a proportionate cost of the damage from the
non-carrying vessel. He cannot do so from the vessel carrying his cargo because
the bill of lading exempts the ship owner from such liabilities. However, in
practice the insurers pay for such damage and, under subrogation proceedings,
recover the loss from the non-carrying vessel.
A different position arises under
U.S. law, which provides that, in the event of collision between two ships, both
be deemed to be equally at fault. The insurers, in turn, indemnify the insured
cargo owners in respect of this liability subject to insured’s notification to
the insurers in the event of a claim by ship owners. Insurers have a right, at
their cost, to defend the insured against such a claim.[44]
G. Himalya clause
A ship owner who wishes to protect
his master, crew or independent contractors will insert in charter party/ bill
of lading words exempting such persons from liability. It is named the Himalaya
clause, after the case of Adler and Dirkson (1985) involving a personal injury
claim on board S.S. Himalaya and the clause has been inserted into the
passenger ticket.[45]
· High sea sales: As the bill of lading is a document
of title, it becomes possible to effect “high sea sales” by the consignee, by
endorsing the bill of lading in Favour of the purchaser of the goods. High sea
sales do not attract sales tax. Since the bill of lading is a document of
title, the ship owner is obliged to deliver and is justified in delivering the
goods to the holder of the first bill of lading presented to him, always
provided he is without knowledge or notice of anything making it wrong to do
so. The ship owner is not entitled to, nor is he justified in delivering the
goods to anyone who does not produce a bill of lading, and if the ship owner
should do so he may become liable to pay damages for wrongful delivery. In
practice, goods are often obtained from the ship owner without production of
the bill of lading, the claimant giving him a letter of indemnity (P & I
club require certain safeguards to be followed when releasing goods on a letter
of indemnity).
· Bill of lading as a negotiable
instrument: bills of
lading making goods deliverable to order or to order or assigns are by
mercantile custom “negotiable and transferable”. This does not connote true
negotiability in law. In practice it is usual for a shipper to secure a
“shipped” bill of lading made out for cargo to be deliverable “to order”- such
a document is both a document of title and negotiable to this extent. However,
all bills of lading are not so capable of negotiability. A bill of lading
issued where the goods are deliverable to a named person, where there is no
absolute transfer of “property”, or where the bill of lading is pledged as
security, is not negotiable.
· Underwriter’s rights: since the bill of lading is a
document of title, the underwriter retains the complete set on payment of a
total loss of cargo as proof of his right to the ownership of anything that may
remain of the property insured and to safeguard his rights of subrogation.
· Copies of bill of lading: bills of lading are usually issued
in sets of three or more copies, one of which being
accomplished, the other to stand void. In addition to these three copies, a
copy is made out for the captain, called the “captain’s copy”, and is retained
by the agent of the ship and afterward handed to the captain with the other
ship papers. In practice, the brokers who deal with the shipping of the goods
keep a further copy.
Letter of indemnity:
If any packages are found to be damaged or
defective when goods are received on a vessel, the nature of such damage or
defect is noted on the bill of lading, and the document is then said to be
"claused" or "foul" or "dirty". However, as under
shipping contracts the seller of the goods is bound to deliver to the buyer a
clean bill of lading, and also to satisfy the bank who is negotiating the
documents, it has become customary, when goods are so found damaged at time of
loading, for the shipper to give a "letter of indemnity" to the
carrier in order to secure a "clean" document. This practice is
detrimental to the interests of the underwriters because it nullifies, to a
certain extent, their rights to subrogation. Efforts have been made to make the
practice illegal, without effect, shipper and carrier do it
confidentially. [46]
TYPES OF BILLS OF LADING
Bills of lading are usually
classified as follows-
a) Clean bill of lading- the bill of
lading does not incorporate any adverse remark regarding the cargo or packing.
This signifies shipment in good order and condition. Buyers generally stipulate
in their letter of credit for a clean bill of lading to ensure that goods are
shipped in good order and condition. Banks will then accept only clean bill of lading before the value
of the goods are released to the shipper. [47]
b) Claused bill of lading- Here the bill
of lading incorporates some remarks or adverse marks, e g. "5 cases
broken" (caused bill). If the letter of credit stipulates 'clean' bill of lading, then the bank will not accept
'claused' bill of lading. Sometimes a carrier accepts a letter of indemnity
from shippers and issues a so-called 'clean' bill of lading without mentioning
adverse remarks. The legal aspects of this
procedure are discussed below.
c) Received for shipment bill of lading-
here, the carrier issues 'received for shipment' bill of lading when the
shipper presents cargo whilst the ship will be arriving and loading the cargo
later. This practice is in vogue in the USA where ship owners take berths /
warehouses on lease where the cargo received can be kept, in safe custody. This
bill of lading is negotiable through banks in the USA. In India, it is not
feasible as at the ports the security of the cargo is in the hands of port
authorities and not in the hands of ship owners. Ship owners are exposed to
unlimited risks in this regard.
d) Through bill of lading- when cargo is
to be transshipped at an intermediate port by another vessel the first vessel
issues a through bill of lading, collecting through freight covering transit
from the port of shipment to the final port of discharge. This bill of lading
is negotiable, and the cargo will be released by the second carrier at the
final port of discharge, against the surrender of the through bill of lading
issued by the first carrier. An example is Bombay to Lagos, with transshipments
at Genoa. [48]
e) Stale bill of lading- when the
original bill of lading reaches the consignee after the vessel’s arrival at
destination it becomes stale. Because of such delayed arrival of the bill of
lading; the consignee cannot clear the goods from the port within free days
allowed by the port, thus incurring demurrage on the cargo. The shippers, in
case of delay in transmitting documents, should ask the consignee to execute a bond
to the carrier’s agent at destination and obtain delivery order and clear the
cargo within the free days allowed. After receipt of original negotiable bill
of lading, it should be duly discharged and submitted to the carrier and the
bond cancelled. According to letter of credit rules, shippers have to submit to
banks, bill of lading and other documents within 21 days from the date of
shipment I.e., the date of bill of lading, then only banks will pay. If
shippers submit these documents after 21 days, banks will refuse payment saying
that bill of lading has become stale. [49]
f) Short bill of lading- in this bill of
lading only the essential information required will be mentioned, without
stating all the terms and conditions of a full-fledged bill of lading. Nevertheless,
this bill of lading is subject to all terms and conditions of a regular bill of
lading. Sometimes the term ‘short B/L’ is used to denote a bill of lading
issued under a voyage charter party, serving only as a receipt for the goods
received on board the ship.[50]
OTHER TYPES OF BILLS OF LADING:
a) Straight B/L. (Recta B/L)- this is a
non-negotiable B/L not transferable by endorsement. Such bills of lading are
sometimes (through rarely) issued in respect of high value goods in favor of a
named consignee only. Under a straight bill, the carrier is bound to deliver
the goods to the originally named consignee, without production of the bill of
lading.
b) Open B/L- it gives no indication of
the person to whom the goods are consigned. The carrier is discharged of
responsibility if the goods are delivered to whoever presents open B/L. The
receiver does not have the right to hold the goods if his title to the B/L is
found to be defective.
c) Express B/L- the express bill of
lading is a document for the fast delivery of a consignment. The original B/L
is not required in this case, which is surrendered at the load port.
d) Switch B/L- often called the trader’s
second set of B/L intended to replace the first set of B/L issued. Usually used
where a seller/trader wishes to keep the name of his supplier I.e., shipper,
secret- confidential from the ultimate buyer of the goods. Under this type of
B/L only, the name of the shipper and/or consignee and/or notify party can be
changed. The normal B/L number remains the same. To prevent fraud, the shipping
company should never issue second set of B/L until the first set issued is
surrendered to the shipping company.
e) Endorsed B/L- on the basis of
endorsement B/L has been classified into two types:
1) To order and endorse in bank (merely
signed without mentioning anybody’s name). Since this is endorsed in blank any
person who gains possession of the bill can get delivery of the cargo.
2) Endorsed to the order of..........
when B/L is endorsed to a specified person, a bank or a company, only that
party can claim delivery of the goods. (e.g., endorsed to the order of
syndicate bank, and notify ABC company. The bank will endorse the B/L in favor
of the consignee/ notify party, when they satisfy the bank by paying the amount
due to the bank.
CONTRACTUAL RIGHTS UNDER
A BILL OF LADING
Under a bill of lading, the
contractual rights are those involved in contracts of (1) affreightment and (2)
bailment. The shipper, in return for his liability to pay freight, is entitled
to have the goods carried by the ship owner to the agreed port and there safely
deliver in the same order and condition as that in which they were received,
unless loss or damage thereto has been occasioned by causes excepted by
implication, by law, or by the written terms of the contract, as evidenced by
the bill of lading. [51]
Seaway bill:
ship owners issue seaway bill in place of bill of lading at the request of shippers. It is a non-negotiable document, which evidences:
· A contract for the carriage of goods
by sea,
· The taking over or loading of the
goods by the carrier, and
· By which the carrier undertakes to
deliver the goods to the consignee named in the document.
The seaway bill incorporates the
Hague Visby rules and the normal terms and conditions of the contracting carrier’s
bill of lading and has to be made out to a named consignee to whom the goods
are to be delivered. The benefit of the document is that it does not
necessarily have to be produced to obtain physical transfer of goods, adequate
proof of identity of the named person being all that is required. The principal
benefits of seaway bill are as follows-
A) It does not have to be produced to
obtain the goods and obviates postal delays particularly when fast transit
times are involved, thus avoiding demurrage charges and shed-rent.
B) Its suitable for “in-house”
documentation where no financial risk is involved I.e., household and personal
effects, samples and goods of no commercial value or shipments between
companies or branches of a single multinational organization.
C) Its suitable for open account trading
where absolute confidence exists between the parties to the transaction. [52]
COVERGENCE OF SEAWAY BILL TO A
NON-NEGOTIABLE INSTRUMENT
it's generally possible, should the
necessity arise, to convert a seaway bill into a non-negotiable waybill or
vice-versa, provided that the cargo is still in the possession of the ocean
carrier, and subject of course to the surrender of the complete set of original
documents. The procedure is different from that of a bill of lading because the
consignment should be manifested on a separate sheet and an arrival notice sent
by the ship’s agents at destination to the named consignee stating that the
consignment has been affected under a waybill thus indicating that a bill of
lading was not issued for the shipment. It is this notification or other
suitable means of identification, which should be presented by the named
consignee, together with any collection charges that have been incurred to
obtain delivery of the goods. The seaway bill is acceptable when documents are
transmitted through a bank for collection unless the bank actually finances the
transaction or the letter of credit does not permit its use.
‘COMBIDOC’ AND ‘FIATA’ MULTIMODAL
TRANSPORT BILL OF LADING
There are two internationally accepted documents in multimodal transport field and they are the COMBIDOC evolved by the ballistic international maritime council (BIMCO) and FBL evolved by the international federation of freight forwardness associations (FIATA). The COMBIDOC is generally used by vessel operating MTOs while FBL is used by non-vessel operating MTOs, mostly freight forwarders. The FBL has been revised on the basis of the UNCTAD/ICC rule and is known as the FIATA M.T. bill of lading. The ICC has approved the document for purposes of documentary credit and has also authorized FIATA to show the IIC logo on it, with a view to protect the interests of all concerned, FIATA has prescribed specific procedures for the use of FBL.[53]
The contents of both COMBIDOC and the
FIATA multimodal transport bill of lading and substantially the same except for
slight variations. They have standardized formats and spell out interalia the
contractual obligations of the parties to the multimodal contract, their
responsibilities as well as their rights and immunities.
a) While the MTD (Multimodal Transport
Document) prescribed by the government of India is applicable only to
multimodal transport, the FIATA document and the COMBIDOC can be used even when
transport is performed only by one mode. This provides flexibility in use.
b) While the government of India
document imposed MTO liability for loss resulting from loss of/or damage to
goods or delay in delivery, there is no mention of any consequential loss
except for delay in delivery in the FIATA document.
c) In the FIATA document, the benefit of
exemption from liability enjoyed by the ocean carrier when loss of/or damage to
cargo occurs on account of immunities such as error in navigation or management
of the ship, etc. Has been extended to the multimodal transport operators. This
follows the corresponding provision in the UNCTAD / ICC rules. But in a similar
provision does not appear in the government of India document.
d) Regarding limits of compensation for
delay in delivery the government of India document has limited the compensation
to freight payable for the goods delayed but not exceeding the total freight
payable under the multimodal transport contract. This is confusing as it refers
to two limits. In order to reflect properly the corresponding provision of the
UNCTAD / ICC rules, it should read that compensation for delay should not
exceed the freight payable under the multimodal transport contract.
The corresponding provision in the
FIATA document is to the effect that compensation for delay should not exceed
twice the freight payable under the multimodal transport contract. The COMBIDOC
refers only to compensation for delay payable at the stage when delay occurred
is known and is limited to the freight payable for that stage of transport. [54]
Documentation in multimodal transport
should be viewed in the border perspective of its bankability to foreign buyers
in international trade, especially in relation to India’s exports. Documents
which are currently in use by multimodal transport operators worldwide have so
far posed no problem. Acceptance of MTD by foreign buyers depends upon the
ability of the MTO in India to fulfil the contractual obligation for which he
has to depend upon the available infrastructural facilities in the country like
road, rail, safety, equipment, port facilities, and assured transit time. If
these infrastructural facilities are well developed and efficiently operated,
confidence in the system develops. In the present stage of development in India
with many inhibiting problems, this confidence has not been built up so far in
the minds of foreign buyers. This possibly explains their reluctance to accept
the MTD until the infrastructural facilities prove their efficiency and
dependability. In contrast ocean bill of lading enjoys acceptability by foreign
buyers, as though centuries of experience, sea leg of the transport has proved
to be relatively reliable. [55]
PRECAUTION TO PREVENT FRAUDS
Bill of lading is issued by ship
owners in sets of three original by one of which being accomplished and another
stand void. The reason for this originated in very early days of international
trade, when there was a significant risk of document being lost; if three were
issued and sent separately, there was a good chance that at least one bill of
lading would arrive safely. This system still continues presently but the
system has obvious risk of fraud e.g., a consignee or endorsee having received
all three sets, fraudulently enters into three separate sub-sales of the same
goods. [56]
Preventing such situations, buyers
and banks can protect themselves by paying only against all three originals.
Where payment is by banker’s documentary credit, banks usually demand all three
sets as security for their advances. Presently only original and duplicate are
issued and the same precautions can be taken by buyers and bank. [57]
DOCUMENTARY CREDIT (LETTER OF CREDIT)
Under documentary credits, the
importer approaches his bank. On the basis of the instructions given by the
importer, his bank gives a written undertaking to the overseas bank that if the
exporter presents certain shipment and payment documents covering the goods
within a fixed period, the bank will make payment to the exporter. Such an
understanding is called ‘letter of credit’.
The terms and conditions of a letter
of credit relate to the delivery of the relevant set of shipping documents
which include bill of lading, marine insurance policy, certificate or origin,
commercial invoice, consular invoice, inspection certificate, packing list,
declaration forms, etc. [58]
Payments through a documentary letter
of credit have the following advantages:
a) Once the exporter fulfils the
conditions of credit and presents the documents for negotiation to his bankers
in his own country, he receives his payment as per the terms of the letter of
credit and is entitled to receive full payment for the exports he has made.
b) Once the letter of credit is
established, the exporter may be reasonably sure that all the import trade
regulations of the buyer have been complied with and that the transfer of funds
against payment would not normally pose a problem from the exchange control
authorities.
c) Where the letter of credit is
confirmed and without recourse, the liability of the exporter ceases, once he
has presented the negotiable set of documents and adhered to all the conditions
of the LC.
d) A letter of credit in India is an
important document, for a commercial bank advances pre-shipment finance, such
as packing credit against the letter of credit.
Parties to a letter of credit:
·
Opener-
He is the importer who makes application to the bank and on whose behalf the
letter of credit is opened.
·
Opening
or issuing bank- It is the importer’s bank and it establishes the letter of
credit on behalf of the opener.
·
Beneficiary-
He is the exporter who is entitled to receive the benefit under the letter of
credit.
·
Advising
bank- This bank operates in the country of the exporter. This is the
correspondent bank which sends an advice to the beneficiary, indicating that
credit has been established in his Favour.
·
Negotiating
bank- The bank which negotiates the drafts under the credit is called the
negotiating bank. By negotiating the drafts, this bank becomes “an endorser and
Bonafide holder” of the draft and has recourse to the drawer of the bill until
it is accepted and paid by the drawee.
·
Paying
bank- the bank on which the draft or the bill of exchange is drawn under the
commercial letter of credit is called the paying bank. The paying bank can be
the issuing bank, the confirming bank or the notifying bank. [59]
Operation of letters of credit:
a) The importer opens an L/C with his
bank stating the kind of L/C required.
b) The opening bank issues the L/C and
forwards it to its branch or its correspondent in the exporter’s country and
requests it to confirm the credit. The correspondent bank informs the exporter
that an L/C has been opened in his name.
c) The exporter ships the goods and
presents the full set of documents to the bank along with the draft.
d) The negotiating bank receives the
documents and makes payment in accordance with the terms of the L/C.
e) The documents are then sent by the
negotiating bank to the issuing bank which hands them over to the importer.
f) At maturity of the draft, the
importer makes payment to the issuing bank and the issuing bank in turn makes
payment to the negotiating bank. [60]
TYPES OF LETTERS OF CREDIT
1. Revocable letter of credit-
revocable credit is the credit which would be
revoked, withdrawn, cancelled or modified by the opening bank with prior notice
to the beneficiary. Revocable credit does not constitute any legal binding on
the concerned bank or the beneficiary. The bank which establishes a revocable
letter of credit cannot cancel the transaction once it takes place I.e., after
the draft is negotiated. When a letter of credit has been modified or
cancelled, a notice must be given to the beneficiary so that he may not send
goods to the importer in future.
Revocable credit gives greater
control to the importer over the activities of the exporter. If the importer is
not satisfied with the goods he receives or with the delivery dates or is in
any other way annoyed about the manner the exporter is handling the business,
he can modify or cancel the documentary credit or threaten to do so. according
to article 20 of the uniform customs and practices for practices for documentary
credit, the negotiating bank has the right to be reimbursed for any payment,
acceptance or negotiation made by it prior to the receipt of the notice of
modification or cancellation under a revocable credit. [61]
2. Irrevocable letter of credit-
Irrevocable credit is a definite
undertaking on the part of an issuing bank. It constitutes commitment of the
bank to the beneficiary that if all the terms and conditions of the credit are
complied with, provisions for payment contained in the credit will be duly fulfilled.
In simple terms, irrevocable credit is one which cannot be revoked, amended or
cancelled by the issuing bank without concurrence of the beneficiary or any
other interested party, including the confirming bank, irrevocable credit is a
firm commitment on the part of the opening bank, which once issued cannot be
withdrawn by it unilaterally.
Normally, a credit is a conditional
undertaking by a bank to pay. In case of irrevocable credit, the undertaking by
the issuing bank is not conditional upon the solvency of the importer or the
performance of obligations, but is absolute after the exporter has drawn his
draft in accordance with the instructions. If the importer fails, the bank
granting the credit takes over the risks, the exporter is thus relieved of such
risks. [62]
3. Confirmed letter of credit-
When the negotiating bank adds its
information to an irrevocable letter of credit, the credit is called confirmed
letter of credit, while advising the exporter about the opening of the letter
of credit, the negotiating bank adds the following clause to that effect:
“The above credit is confirmed by us
and we hereby undertake to honor the drafts drawn under this credit on
presentation provided that all the terms and conditions of the credit are duly satisfied”
The negotiating bank adds its
confirmation only if it is instructed to do so by the opening bank. Confirmed
credit can neither be modified nor cancelled without the agreement of all
concerned. This is a foolproof method of payment because if the exporter
submits his bills in accordance with the terms of credit, the bank makes
payment to him. [63]
4. Revolving letter of credit-
A revolving letter of credit is one
where the amount of credit is automatically renewed after the bills are
negotiated. The opening bank specifies the total amount up to which the bills
drawn may remain outstanding at a time. This letter of credit is issued in a
revocable form so that the concerned bank may modify or cancel it if the
importer delays taking up drafts on presentation. [64]
5. Transferable letter of credit-
A transferable letter of credit is
one which contains an express provision that the benefits under it may be
transferred either fully or partly to one or more parties. It is only the
beneficiary who can draw the bill of exchange under it. The amount of a
transferable L/C can be divided in favor of more than one party. In our
country, such an L/C can be transferred only once and that too within the
country itself. [65]
6. Non-transferable letter of credit-
In case of a non-transferable letter
of credit, only the beneficiary can take advantage of it provided he submits
the relevant set of documents to the bank. Ordinarily, all letters of credit
are non-transferable unless it is specially mentioned that a particular letter
of credit is transferable. [66]
7. Back-to-back letter of credit-
This type of letter of credit can be
opened by an exporter when he receives a non-transferable irrevocable L/C. He
may request his banker to open a local or domestic letter of credit in Favour
of some party, on the strength of the original L/C. These two credits are
called back-to-back letter of credit, one being issued on the security of the
bank. The distinctive feature of this credit is that it is based on the
original credit and calls for the documents evidencing dispatch of the goods
mentioned in the original credit. Such documents are in turn utilized by the
exporter for negotiation under the original credit. Banks are reluctant to open
back-to-back credit. If it agrees to open a back-to-back letter of credit, the
original letter of credit is retained by the bank as a security. [67]
8. With recourse letter of credit-
Under this type of letter of credit,
the exporter is held liable to the bank if the bill is not honored by the
importer. Thus, he is required to make payment to the bank in that case.
9. Without recourse letter of credit-
Under this type, the opening bank
cannot have recourse to the drawer of the bill I.e., the exporter, if payment,
is defaulted by the importer. Instead, he can have recourse to the drawee only,
and if the drawee fails to honor the bill, the banker can realize the amount by
disposing off the goods by giving notice to the importer. It may, therefore, be
noted that when a bill of exchange is drawn without recourse, the drawer’s
liability ends as soon as soon as the bill is negotiated.
10.Red clause letter of credit-
The term ‘red clause’ relates to the
authority given to the negotiating bank to provide advances to the beneficiary
to enable him to manufacture or purchase goods from local suppliers. It is
called red clause credit because it is printed in red to differentiate it from
the text of the credit. Under this type of credit, the risk of non-submission
of documents or non-execution of order is borne by the opening bank and not by
the negotiating bank. [68]
11. Green clause letter of credit-
The term ‘green clause’ envisages the
grant of storage facilities at the port in addition to the pre-shipment payment
to the beneficiary. The opening of such credit covering import of goods in
India requires prior approval.
12. Restricted letter of credit-
This type of letter of credit is
called ‘restricted’ because of its mode of operation. If the shipping documents
against a specific letter of credit are to be negotiated through the notifying
bank only, then the letter of credit stating such a condition is called
restricted letter of credit. Normally, the negotiating banks do not encourage
restricted letters of credit because they lose business on such transactions
and cannot earn foreign exchange. Further, if the letter of credit is
restricted to another bank, such a bank may not finance the exporter. It may be
noted that the term restricted does not appear on any letter of credit. [69]
LEGAL VIEW
The use of the letter of credit as a
tool to reduce risk has grown substantially over the past decade. Letters of
credit accomplish their purpose by substituting the credit of the bank for that
of the customer, for the purpose of facilitating trade. The law pertaining to
letter of credit may be summarized in a nutshell thus, as has been done in the
Halsbury’s laws of England:
“It is often made a condition of a
mercantile contract that the buyer shall pay for the goods by means of a
confirmed credit, and it is then the duty of the buyer to procure his bank,
known as the issuing or originating bank, to issue an irrevocable credit in
favor of the seller by which the bank undertakes to the seller, either directly
or through another bank in the seller’s country known as the correspondent or
negotiating bank, to accept drafts drawn upon it for the price of the goods,
against tender by the seller of the shipping documents. The contractual
relationship between the issuing bank and the buyer is defined by the terms of
the agreement between them under which the letter opening the credit is issued;
and as between the seller and the bank, the issue of the credit duly notified
to the seller creates a new contractual nexus and renders the bank directly
liable to the seller to pay the purchase price or to accept the bill of
exchange upon tender of the documents. The contract thus created between the
seller and the bank is separate from, although ancillary to, the original
contract between the buyer and the seller, by reason of the bank’s undertaking
to the seller, which is absolute. Thus, the bank is not entitled to rely upon
the terms of the contract between the buyer and the seller which might permit
the buyer to reject the goods and to refuse payment therefore; and conversely,
the buyer is not entitled to an injunction restraining the seller from dealing
with the letter of credit if the goods are defective.
CONCLUSION
Observing this, it is clear how
significant the bill of lading because there is no means of recovering damages
through accusations of loss, damage, or other ownership disagreements. Any
legal adjudicator would invalidate the case on a technicality if the bill of
lading in question isn't legitimate and properly filled out. For any form of
transportation or transit to be completed successfully, the bill of lading is a
pivotal part of documentation. It serves as irrefutable legal proof and a
resource for cargo data for procedural necessities. In global commerce, bills
of lading play an essential role. Rules have distinct consequences for the
individuals involved relying on how they are observed.
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