The Negotiability Of The Bill Of Lading International Law Essay

‘Despite a bill of lading sometimes being stamped “negotiable bill", the document does not have the status of negotiability and even the term “quasi-negotiable" is confusing when used for bills of lading.’

Critically evaluate the function of the bill of lading with regard to its negotiability.

Introduction

A bill of lading is a document issued by or on behalf of a carrier of goods by sea to the person with whom he has contracted for the carriage of goods [1] . It is a document of title at common law. In the early Middle Ages the bill of lading was used as a form of “on board" record of the goods and by the eighteenth century, when owners could no longer travel with the goods to their destination, the bill became negotiable by indorsement to any third party. [2] The bill can be used as a receipt for the goods, as a contractual document and as a document of title. The document can be made out to ‘order’ or to ‘other assigns’ (order bill) or to a named consignee (straight bill).Either way, they are both documents of title, as I will analyze later, and are transferable to other consignees. However, just because a bill of lading is transferable, that does not mean that it is also negotiable. So, it would be better to use the word ‘quasi-negotiable’.

Functions of the Bill of lading

1) As a receipt

First of all, a bill of lading is conclusive evidence of a receipt for shipment. It is used as evidence acknowledging that the goods have been shipped or received for shipment [3] .Moreover, the carrier will provide a bill of lading with information concerning the apparent order and condition of the goods and quantity of the products on shipment, any leading marks necessary for identification and date of shipment [4] .As far as the shipper of the goods is concerned the bill as a receipt works as prima facie evidence that he has fulfilled his part of the contract and as far as the consignee is concerned that the goods have been shipped [5] .However, it is of great importance that a bill of lading is clean, meaning that the goods have been shipped in good order and condition, because the consignee is not able to physically examine the goods and takes for granted that the goods were in good order and condition when shipped, as written on the bill of lading [6] . A shipowner who signs a bill of lading for goods "shipped in apparent good order and condition" is estopped from alleging that the goods were not in good condition when shipped and also that by reason of the particular nature and shape of the containers in which the goods are placed damage to the goods has been caused by "insufficiency of packing" [7] .

2) As evidence of contract

Secondly, the bill of lading functions as evidence of the contract of carriage and is treated by the law [8] as the actual contract once it has been indorsed to a third party [9] .Between the seller and the carrier the bill of lading is not the complete contract, but it is only evidence. For example, in the Ardrennes [10] there was an oral agreement between the shipowners and the shipper to proceed directly to the destination port, whereas the Bill of Lading contained a clause enabling the carrier to divert and stop at other ports before reaching the destination. The Court held that ‘the parties could vary the Bill of Lading through the oral undertaking’.

Between the buyer and the carrier, though, the bill of lading becomes a contract and not just evidence. That is quite logical because the buyer cannot be aware of any oral agreements between the shipper and the carrier. So, in the Leduc &Co v Ward [11] the court held that the terms represented by the bill of lading are conclusive and no evidence may be admitted to contradict or vary them. Based on the Bills of Lading Act 1985 [12] the buyer, consignee or endorsee has the right to sue and is subject to the same liability in respect of such goods, as if the contract contained in the Bill of Lading had been made with himself.

3) As a document of title

Thirdly, it is a document of title to the goods. This last function entitles the holder of the bill of lading, who at the same time is the owner of the goods, to sell the goods while they are still in transit to any third party simply by endorsing the bill of lading and delivering it to a third party. The case where we can truly understand the nature of the bill of lading as a document of title is the Sanders v Maclean [13] and in particular judge, Bowen L.J. said: “A cargo at sea while in the hands of the carrier is necessarily incapable of physical delivery. During this period of transit and voyage, the bill of lading by the law merchant is 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. It is the key which, in the hands of the rightful owner, is intended to unlock the door of the warehouse, floating or fixed, in which the goods may chance to be"

Moreover, the bill of lading can be used as a document of title only if it is negotiable, i.e. able to be transferred to any third party simply by delivery or indorsement. In practice, a substantial number of carriers issue negotiable bills of lading, principally because these are required as security under a letter of credit (or other financing arrangement) and because they are often requested or suggested by the seller or shipper because it is intended that the goods should be sold during transit [14] .A document of title in order to be negotiable has to be transferable. An ‘order’ bill, made out to a named consignee or his “order or assigns" is transferable and is without doubt a document of title at common law. A ‘straight’ bill, on the other hand, has been an issue of great controversy in the past whether it is a document of title after all. The ‘straight’, non- negotiable, bill can be transferred only once to a named consignee. In the Henderson &Co v Comptoire d’ Escompte de Paris [15] a bill naming a consignee or ‘ordrer of assigns’ was not transferrable. In the Happy Ranger [16] the straight bill, referencing to the Hague-Visby Rules, was not considered a document of title. Rafaela S [17] was the case where the House of Lords indicated that a straight bill is a document of title, under the Hague- Visby Rules. Hamburg Rules [18] , on the contrary, make it clear that all types of bill of lading (straight bills included) are considered documents, Last but not least, the Carriage of Goods by Sea Act, who replaced the Bills of Lading Act 1855, applies to “any bill of lading, any sea waybill and any ship’s delivery order", excluding though “references to a document which is incapable of transfer either by indorsement or, as a bearer bill, by delivery without indorsement" [19] Thus, ‘straight’ bills are not included as documents of title and treated in the same way as a species of sea waybill. [20] .That is not truly correct, though. They may both be non transferable, but the distinction between them can be drawn in the way the document describes itself and in the wording and form of the document, which makes the goods deliverable to a named consignee. [21] Furthermore, it is a document of title, requiring its presentation to obtain delivery of the cargo. In the case of a straight bill, while the characteristic of transferability is absent, there is no reason why one should thereby infer that the parties had intended to do away with the other main characteristic, ie delivery upon presentation [22] .

Negotiable bill of lading

Despite a bill of lading is not a negotiable instrument, it is often stamped as “negotiable", resolving in a lot of confusion. It must be stated that a bill of lading is not a truly negotiable instrument in the full legal sense [23] and when “stamped" as a negotiable bill of lading what is really meant is that it is transferable by indorsement and delivery. Rix LJ in the Rafaela S [24] stated that ‘the bill was of the hybrid kind which can, according to the way blanks in it are filled in, be used either as an order or as a straight bill: one of its printed boxes was headed “Consignee: BL not negotiable unless ‘ORDER OF"’; and the bill merely gave the name of the consignee without adding these two words’. The best way to describe a document of title like the Bill of Lading is to use the term ‘quasi-negotiable’. It is a written contract without the full privileges of a negotiable paper, but enjoys many of them and it occupies a kind of middle ground negotiable paper and the ordinary contract [25] .

The Bill of Lading has been stamped ‘negotiable’ or ‘non- negotiable’ in relation to its use in certain occasions. For example, it is considered ‘negotiable’ when used in commodity trade, such as trade in grain or oil where Bills of Lading are purchased and sold in string contracts [26] .Moreover, another occasion is when the buyer pledges the Bill as a collateral security to the bank before the arrival of the goods [27] . Whereas, it is considered ‘non-negotiable’ when the consignee will take delivery of the goods on arrival and has no intention of endorsing the Bill [28] .A bill of Lading is not truly negotiable, but only transferable. This can be seen in the Kum v Wah Tat Bank Ltd [29] where Lord Devlin stated that “The bill of lading obtains its symbolic quality from the custom found in Lickbarrow v Mason and that is a custom which makes bills of lading “negotiable and transferable" by endorsement and delivery or transmission" .However, there are cases that still refer to the Bill as a negotiable instrument, like the OK Petroleum AB v Vitol Energy SA [30] .

Moreover, English law is based on the concept that the bill of lading represents the goods and therefore its transfer should not have greater effect than the transfer of what it represents [31] .It is stated in Lickbarrow v Mason [32] that ‘possession of a bill of lading is considered the same with the actual possession of the goods and simply by indorsing the bill the goods are under a different owner’. The bill of lading should not be negotiable, since the goods cannot be negotiable. Resulting to the fact that when the buyer endorsees to another third party without having paid for the goods, the latter cannot have possession of the goods ,even if his was acting in good faith.

Furthermore, a bill of lading is not a negotiable instrument, because a negotiable instrument gives to the transferee a better title than that possessed by a transferor. As it has been said in the Lickbarrow v mason [33] ‘the word negotiable was not used in the sense in which it is used as applicable to a bill of exchange, but as passing the property in goods only’. Thus, a bill of lading, like a bill of exchange, may be made out to a named consignee or his order or assigns, but that is not enough to be characterized as a negotiable instrument. ‘The negotiability of bills of lading is less developed than that of bills of exchange in two respects. First, while a bill of exchange is negotiable unless its negotiability is expressly excluded, a bill of lading is only negotiable if made negotiable. Secondly, a holder of a bill of lading , unlike the holder in due course of a bill of exchange, cannot acquire a better title than that of his predecessor’ [34] .There is one exemption, though, where the transferee might have a better title than that of his transferor in the bill of lading. The bill of lading in the hands of a transferor is only prima facie evidence against the carrier, while against a transferee of the bill the carrier is precluded from denying accuracy of its content [35] .

Conclusion

In short, a bill of lading is a document of title both in common law and in the statutory sense and can perform three functions. As expressed above, I believe that a bill of lading would best be described as a quasi-negotiable document of title, a hybrid kind. That is because when it is stamped as negotiable, what is only meant is that it is transferable to another third party. But, that is not enough so as to be characterized as negotiable, because in contrast to a negotiable instrument a bona fide transferee in a bill of lading cannot acquire a better title to the goods represented in the bill of lading. Furthermore, since a bill of lading represents the goods on shipment and the goods are not negotiable it is quite logical to assume that the bill of lading is also not negotiable.

BIBLIOGRAPHY

CASES

APL Co Pte Ltd v Voss Peer [2002] 4 SLR 481

C P Henderson &Co v Comptoire d’ Escompte de Paris [1873] LR 5PC 253

J I MacWilliam Co Inc v Mediterranean Shipping Co S [1990] 2 All ER 1024(Rafaela S)

Leduc &Co v Ward [1988] 20 Q.B.D. 475

Parsons Corp v CV Scheepvaartonderneming Happy Ranger [2002] EWCA Civ 694(The Happy Ranger)

Sanders v Maclean (1883) 11 Q.B.D. 327

Ss Ardennes v ss Ardennes [1951] 1KB 55