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Bills of lading: Basic concepts and issues

A bill of lading is more than a mere contractual or legal or transport document. It evidences several facets of relationships between various parties and continues to be debated in the legal circles regarding its form and significance.

I. Introduction

A bill of lading is a contractual document issued by the carrier by sea of goods which such carrier takes possession of and transports. Generally, a bill of lading would contain details about the transported goods such as the type, quantity, weight, value, and date of shipment of such goods. From a definitional perspective, it is difficult to give a precise definition of a bill of lading, but it could certainly be said to possess the following essential attributes:

(i) It serves as a transport receipt which the carrier gives to the seller for transporting his goods;

(ii) It serves as evidence of contract between the carrier and the exporter; and

(iii) It serves as a document of title for the importer or the buyer.

From the above, it is evident that there are the following parties primarily involved:

  • Carrier, which transports the goods from the place of exporter to the place of importer;

  • Exporter, the party which may be the seller or the shipper, who intends to have his goods transported to another place using the carrier’s transportation services, and thus gives the physical possession of the goods to the carrier at the loading port; and

  • Importer, the party which may be the buyer or the importer, who takes the physical possession of the transported goods at the discharge port from the carrier.

The life of a conventional bill of lading might consist of:

  1. Issue by the carrier to the shipper and/or seller of goods;

  2. Endorsement by the shipper and delivery to the bank of the buyer of the goods, where it is presented to obtain payment against a letter of credit;

  3. Subsequent endorsement through the banking chain to the buyer; and

  4. Presentation by the buyer to the carrier at the discharge port. Upon delivery of the goods to the party entitled to them, the contract of carriage has been performed, and the bill of lading becomes ‘spent’ or ‘accomplished’.

[‘Bills of Lading’, Richard Aikens et al, Second Edition, Chapter 2]

II. Bill of lading as a proof of transportation

In India, besides the general law of contract (the Indian Contract Act, 1872) and transfer of property (the Transfer of Property Act, 1881), bills of lading are summarily governed by a short law, viz. the Bills of Lading Act, 1856, which is based on the English Bills of Lading Act, 1855.

Section 3 of the Bills of Lading Act, 1856 states that:

“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”

Thus, the following points may be drawn up regarding the treatment of bill of lading as a document evidencing transportation:

  1. A bill of lading is an undisputed proof that the transportation of goods has actually taken place as the carrier issues the bill of lading in which all the details of the goods which are to be shipped by him are mentioned such as type, quantity, weight, value and date of shipment of the goods.

  2. A bill of lading also serves the purpose of a contract in which both the carrier and the exporter have entered on agreed terms and conditions, so this contract between these parties is conclusive that transportation of the goods have taken place.

  3. The buyer or importer can only obtain the delivery of the goods when he submits/shows the bill of lading or its copy to the carrier.

III. Bill of lading as a document of title

“Title” refers to the set of facts evidencing ownership over a certain property. Further, ownership consists of a complex of rights, all being rights in rem, resulting that the owner has the right to use, transfer, sell the goods or dispose of the goods according to his or her choice. Generally, a bill of lading serves as a document of title, and its endorsement and handing over evidences the transfer of title from one party to the other. Thus, when a seller of goods transfers the bill of lading to his buyer, the ownership or title of the goods gets transferred from the seller to the buyer.

However, it is important to override the above with the importance of contract (i.e., the intention of the contracting parties). The exact time or place or situation when this transfer of title takes place would primarily depend on the contract. Thus, if the parties do not intend to transfer title with the endorsement or handing over of the bill of lading, the title continues to be governed by the contact.

In international trade, if the contract is silent, this may be governed by standard terms known as the Incoterms (International Commercial Terms) which are published by International Chamber of Commerce. These terms define the exact delivery point from where the responsibility of the seller ends and that of the buyer starts. [There are total 11 incoterms which mainly specifies different delivery points where the title/ownership along with the cost, risk and responsibility get transferred from seller to the buyer.] Of these, Free on Board or Freight on Board (FOB) & Cost and Freight or Cost no Insurance Freight (CNF) are the most common incoterms. In FOB contracts, the transfer of title takes place at the loading port (port of the seller), while in CNF contracts, the transfer of title takes place at the discharge port (port of the buyer).

IV. Amendment of bill of lading

A Bill of Lading can be amended as often as the parties wish to at any time before or after the export of the goods as per the convenience of the parties by payment of certain fees. An exporter can amend BL as many times as he wants to prior to the vessel’s date of departure but if the vessel has departed the exporter has to take prior permission of the shipping agent before making any amendment in the bill of lading. However, the importer does not have any specific reason to make an amendment in the bill of the lading as it would cause discrepancies in the manifest of the shipping agent and the bill of lading which in consequence will lead to violation of customs regulations.

V. Conclusion

Bill of Lading is a very crucial document especially for international transportation of the goods. With the introduction of the electronic bill of lading it has now become very convenient for the parties to overview end to end delivery of the goods. A bill of lading must be drawn in careful manner, details regarding parties, goods be entered correctly in order to avoid any issues later. In law, the legal issue regarding the significance and characterization of the bill of lading would continue to be debatable and the answer to it would always lie in the bill of lading and underlying contracts being read and interpreted together.

Authored by: Jitin Bharadwaj, Advocate, Metalegal Advocates. The view expressed are personal and do not constitute legal opinion.


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