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MARINE CARGO CLAIMS LONG TERM COURSEWORK LAMM-07

WHY HAVE BILLS OF LADING BEEN SO IMPORTANT IN PROMOTING THE
INTERNATIONAL CARRIAGE OF GOODS BY SEA

AND

WHAT ARE THE PROBLEMS THAT CURRENTLY FACE THEIR CONTINUED USE?
This essay makes an analysis of the Bills of Lading, its historical past, its evolved functional
present and its inevitable switch in the future. The concluding part this essay sheds light on some
of the problems that the system presently faces.
The history of the bill of lading and its continuous evolution.
The bills of lading have in fact been the backbone of the international carriage of goods by sea.
The earliest origins of the use of the bills of lading have been evidenced in the 14th century
although documents similar to bills of lading were used during the early Roman times of the
eleventh century when merchant trade between Mediterranean ports began to grow1. The bill of
lading started out as an advice to whom, the goods loaded on a ship should be delivered to.
Bensa in his book The early history of bills of lading gave a description of two bills of lading
he located2. It was around 1350 when a statute was enacted to record the goods shipped by means
of a ships register, and by employing a clerk to record the same who would be liable himself, for
the entries made therein3. Before this, merchants sailed the same ship their cargo was carried
upon and negotiated trade at the port of destination, so separate records didnt seem necessary.
As trading practices changed and merchants began to ship goods to their correspondents at the
port of destination, advising them by written transcripts of cargo shipped and how to deal with

1 .The Evolution of The Ocean Bill of Lading Mc Laughlin, as seen in Richard

Aikens: Bills of Lading, 2006, Ch 1.p1.
2 . Richard Aikens: Bills of Lading Informa 2006, Ch 1.p1 para 1.2
3 . ibid at Ch.1 para 1.1 It was stated that if the ships register was found in
possession of anyone else but the clerk then nothing recorded in it should be
believed, and that if the clerk lied and made false statements in it he should lose his
right hand and be branded a liar and all his possessions should be seized.
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them and also in some cases, requiring the carrier to deliver copies of the ships register.4 The
practice of registering the cargo in the ships book was replaced by issuing paper bills of lading at
a later stage. In the fourteenth century the bill of lading clearly served as a receipt of the goods
shipped on board5. The need of transferability (and thus the proof of entitlement) arose when
the goods were dispatched before the shipper could determine whether he would consign to an
agent or sell the goods while afloat by way of indorsement or otherwise. Transferability was
evidenced in the second quarter of the sixteenth century by its appearance in the files of libels of
the High Court of Admiralty, The Thomas [1538], The Mary [1541] and The White Angel
[1557].6 In a landmark case of Lickbarrow v. Mason7, in the eighteenth century, it became
clear that the bill of lading had derived another legal function of transfer of the property but the
issue of legal title to the goods upon transfer was still unclear8. The factors act 1842 gave legal
validity to the bill of lading to be a document of title by way of its sect. 4 which gave the right
of lien upon such documents of title and a deemed right to lien upon the goods. Now the question
of the right to sue under the bill of lading was the next step in its progression and this was
hindered by the concept of the privity of contract rule at common law and also by judgments in
Thompson v. Dominy [1845]14 M&W& Howard v. Shepherd [1850] 9 C.B. 2979 and
eventually led to the enactment of The 1855 Bills of Lading Act in the U.K. which held that,
the right to sue and liability, towards the carrier also transferred to every consignee or
endorsee of the bill of lading10. The 1855 Bills of lading Act defined the bill of lading as a
conclusive contract of carriage in the hands of the transferee or endorsee, as it was equally an
4 . ibid at p.8. The Early History of Bills of Lading Ch 1.p1.
5 . ibid at p 2 para 1.4,1.5
6 . ibid at page 3 footnotes 15,16.
7 . ibid at page 7 footnote 36.
8 . ibid at page 8 s-1.35, Sargent v. Morris [1820]2b.&ALD277, Patten v.
Thompson[1816] 5m.&S.350.
9 . ibid at page 10
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evidence of contract of carriage between a shipper and carrier11. But problems arose due to
the link between passing of property and transfer of contractual rights12. In 1870 the right to
having legal possession in the goods, by a lawful holder of the bill of lading was affirmed at
common law by the important case of Barber v. Meyerstein [1870] HL 4 H.L. 31713.
However, the harsh stand of the limited common law exceptions made the carrier an equivalent
insurer of the goods, and if negligence ever be proved then even those exceptions could not be
relied upon. The carriers counteracted this by their strong bargaining power, mitigating their
losses by incorporating clauses absolving themselves of many liabilities, in some instances even
from their own acts of negligence which was judged objectively and upheld at common law due
to freedom of contract. This led to widespread criticism and dissatisfaction amongst cargo
interests and insurers alike. Different countries complicated international trade by adopting their
own individual legislation as to the rights and liabilities between cargo owners and carriers eg.
the 1893 Harter act in the U.S.A (made it unlawful for shipowners to include clauses absolving
them of losses arising out of their own negligence).; the 1903 Shipping and Seaman Act of New
Zealand: the 1904 Carriage of Goods by Sea Act in Australia; the Canadian Water Carriage of
Goods Act1910. An international consensus then led to the formation of The Hague Rules in
August 1924. Thus the bill of lading thus took its course from just being a mere receipt for
the goods shipped on board to being a negotiable and assignable document of title, a
contract of carriage of goods by sea in the possession of third parties and in the hands of
the shipper evidence of that contract.
The Hague rules were followed by The Hague Visby rules in 1968 as result of an amendment.
The Hague Visby rules were further amended by a 1979 protocol and were called the amended
10 . Bills of Lading Act 1855 Rule 1 and 2. (1855 Act now repealed by the COGSA
1992 Act.)
11 . ibid, Rule 3 of the Act.
12 . The Delfini [1990] 1 Lloyds rep. 252 where the property does pass, or passes
too early for the purposes of the Act. Lloyds Maritime and Commercial Law
Quarterly 1990.
13 . Op. Ct. No 9 at page 10 s-1.39
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Hague Visby rules which came into force in 1984. A parallel set of rules were also
recommended by the UNCTAD in 1971 known as The Hamburg Rules, prepared by the
UNICITRAL which came into force from 1st January 1992. The Hamburg rules addressed some
problems with The Hague and Hague Visby rules but however did not receive wide international
acceptance. The important difference all the conventions brought was that of exercising due
diligence in making the ship seaworthy instead of it being an absolute requirement at common
law. The Multimodal Convention 1980 was due to containerization and codifies combined
transport. It brought Multi Stage Bills (MSBs) (also known as Through Bills, Combined
Transport Documents or Multimodal Transport documents) into existence and all its properties
derived from the traditional bills of lading. The complex nature of containerized and
consolidated shipments deviated in principle from the traditional Bill of Lading principles. The
relationship between the carriers, the actual carriers, the cargo owners etc are complicated further
by conferences, pool agreements and other similar arrangements14.
The conventions apply to the bills of lading and promulgate the rights, liabilities and
limitations under that bill. The importance of the bill of lading in international trade made it
imperative for countries to regulate its functions and give it a force of law. Different countries
have adopted the various rules selectively in their legislation15 often amending the rules to suit
them best, it is important to check the effect of the rules under those amended legislations16
Different forms and types of Bills of Lading have evolved and some as listed below are, (a)
Shipped B/L; (b) Received for Shipment B/L; (c) Through Transport Document; (d) Stale Bill;
(e) Groupage and House B/L; (f) Transhipment B/L; (g) Clean B/L; (h) Claused B/L; (i)
Negotiable B/L; (j) Non Negotiable B/L; (k) Container B/L; (l) Charter Party B/L etc, each with
its own characteristic, suited to its own specific purpose and named correspondingly17.
14 . Alan Branch: Elements of Shipping Ch. 12 and Richard Aikens: Bills of
Lading Ch.11 pp 312.
15 . The Carriage of Goods By Sea Act 1992 and 1971 is given the force of law by
legislation in the United Kingdom.
16 . Prof. Dr. R. Williams: Marine Cargo Claims Lecture Notes.
17 . Alan E. Branch: Elements of Shipping Ch 12 Bills of Lading
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The present evolved Bill of lading possesses serves 3 basic characteristics that entail distinct
functions under each head as are described hereunder (but not limited to);
1) A receipt for the goods;
It serves as a representation of the goods loaded, the vessel it is loaded on and the
shipper, in some types the identity of the consignee as well.
It serves as a representation of the quantity loaded.
It serves as a representation of the apparent condition the goods are loaded in.
2) A contract of carriage;
It serves as a prima facie evidence of contract in the hands of the shipper
It becomes a conclusive document of evidence of contract in receipt by
consignees, indorsees and third parties.
It states terms of the contract both implied and express.
It incorporates legislation and gives the contract a force of law.
It sets out duties under the contract for the concerned parties.
It sets out liabilities and limitation of liabilities.
It gives the right to claim by suit.
It assigns contractual rights by way of transfer.
3) Document of Title;
It serves as a security for payment.
It serves as a transferrable document denoting constructive possession of goods.
It facilitates sale by indorsement.
It can be used for mortgage or pledging purposes.
It gives a right to lien and a right to claim.
It is required to be presented to take delivery of goods from the carrier.
Under the Documentary Credit System governed by the UCP (600 being the latest version), the
Bill of Lading is one of the transport documents required for payment. It is important to note that
under this system the bank honors documents and payment in made in respect to all the
documents correctly placed. In the documentary credit system, cross border banks provide the
security in a cross nation buyer and seller relationship, in order to facilitate international trade
guaranteeing payment in form of a Letter of Credit. The buyer or consignee opens a Letter of
Credit with his issuing bank who then passes the Letter of Credit to the Confirming bank at the
sellers place promising to pay when the Bill of Lading and a set of other documents are placed.
The payment is made to the seller once he submits these documents, the bank transfers the
documents and payment is received from the buyer on releasing these documents to the buyer of

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goods who in turn needs them for taking delivery of the goods from the carrier18. The
documentary credit system evolved as a result of the bill of lading and is an essential part of
international trade between unknown buyers and sellers in differing governmental systems.
Thus the bill of lading has evolved as an intricate system in operation and has been
important in promoting the international carriage of goods by sea.
However as every system have its imperfections and likewise the bill of lading is no objection to
the rule and is fraught with technical, legal and other problems. The solution would lie in
holistically improving the system rather than concentrating on just the functions and effects of
the bill of lading. The electronic age has left open possibilities for efficient tallying and
accounting procedures in addition to the electronic paperless trading system, like the RFID and
Barcode systems19. The system is efficiently being used in container and air transport.
Problems of the traditional Paper Bills of Lading:
Costs of the BL its generation and management runs into billions of dollars each year. Paper
costs, printing and labour costs are significant heads of additional costs in maintaining the
system. A paperless system is inevitable, but it presently faces lack of willingness to change and
also its initial teething difficulties.
Errors due to the paper based system are quite common, typographical or by oversight often
leading to expensive consequences. If clauses, such as weight and quantity unknown20 is omitted
by way of oversight it can render the carrier open to claims for shortages similarly issuing clean

18 UCP 600, art 20 and UCP 500, art 23 both require the bill of lading to be presented.
19 Nicholas Gaskell: Bills of Lading in an electronic age, Lloyds Maritime and Commercial
Law Quarterly 2010. See foot note 56. Radio Frequency Identification Device and commercial
electronic code read by either a radio or an infrared scanner that rapidly updates an online
computerized system providing information of receipt and location of goods.

20 Atlas[1996] 1 Lloyds Rep 642.

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bills when the cargo loaded is obviously defective21. References are often made in the bills of
lading of the charterparty but the dated column is frequently left blank.
Fraud: There are various ways a fraudster can cheat the existing documentary credit system.
Forgery is an easy way that the bill of lading can be replicated. In order to counter fraud, there
has been an increased use of special security paper to produce bills, and even the use of
lightweight thin paper can make photocopying of originals more difficult22.Misrepresentations
and ante-dated bills23 are common types of documentary lapses in the system. The American
accord establishes where confirming documents are tendered the bank must accept and pay
against them, possibly under a later right to indemnity24. The traditional practice of issuing
multiple originals of the bill is also another contributing factor to documentary fraud.
Standardization and incorporation of terms and clauses: The incorporation of terms of the
charterparty into the bill is often not very transparent25, as it is not possible to click on a link (eg,
from a bulk carriers website) to reach the terms of the particular charter, as one would to find
the normal terms of a liner carrier. The judgments of Ines and Starsin verify that
incorporation of terms can be misleading. Successful incorporation of terms are imperative as a
matter of law and Short Forms of Bills of lading can be used for everyday straightforward
transport needs similar to a train ticket or an airplane ticket which refers to a long form of
agreement referenced elsewhere if so desired for perusal26.

21 Galatia[1980] 1 Lloyds Rep 453.

22 Op. Ct. 19 at p 235.
23 The American Accord[1983] AC 168
24 Paul Todd: Maritime Fraud [2003]LLP
25 In the Miramar[1984]AC 676 it was held that receivers did not have to pay for
demurrage but charterers did.
26 Dr. Richard Williams: Waybills and Short Form Documents, Lloyds Maritime and
Commercial Law Quarterly.[1979] p 298
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Need for presentation for receipt of goods and issues of letters of indemnity are frequent in
the system. In the present day with shorter shipping times and banking delays due to the
documentary credit system, the cargo often arrives before the bill of lading can be ready in the
hands of the shipper so a solution to this problem could be to use a non negotiable document
such as a seawaybill in trade where a negotiable document is not necessary and the cargo can be
expected to arrive before the documents27. Letters of indemnity for delivery is viewed with
caution and shipowners often insist on countersign by a bank which can be an expensive
proposition for a consignee and certainly not justified to receive his own goods28.
With four conventions and numerous regimes in force, an attempt is being made to prevent
further fragmentation by The Rotterdam Rules opened for signature on 23rd December 2009.
The convention will work on similar lines of the multimodal convention involving door to door
carriage provided that at least one leg of voyage is a sea leg. It follows the pattern of the
Hamburg rules as such that it applies to contracts of carriage irrespective of the type of
documentation used and is also applicable where electronic equivalents replace paper
documents29.
An Electronic trading system is the way forward in the present times, which is based on the
principle of functional equivalence and an electronic transport record30.The system attempts to
replicate all the functions of the paper trading system and private companies viz. Bolero and
ESS-Databridge and pilot projects have already been incorporated in certain trades. However it
can be noted that neither of the companies have been successful in replacing paper completely31.
27 Dr. Richard Williams: Waybills and Short Form Documents, Lloyds Maritime and
Commercial Law Quarterly.[1979]
28 F. M. Ventris: The Bill of Lading in the Oil Tanker Trade. Lloyds Maritime and
Commercial Law Quarterly.[1981] p 480.
29 . John F. Wilson: Carriage of Goods by Sea. Ch.8
30 The electronic transport record is an electronic equivalent to the paper transport
document, Op.Ct. No 19 at p 271. Functional equivalence.
31 Op. Ct. No. 19 at p 266 C: Electronic Trading System.
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The electronic system is also susceptible to fraud by cyber crime and hackers and it is possible to
break through digital signatures and encryption as seen from the numerous credit card frauds and
website breaches. A solution is definitely possible and the electronic bill of lading will
definitely aid in improving the existing paper system and eventually minimizing the
reliance on a paper document if not replacing it altogether.
-------------------------------------------- End ----------------------------------------------------------Total Words not including footnotes and bibliography: 2615
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4.
5.

Alan Branch: Elements of Shipping

Bills of Lading Act 1855 (now repealed by the COGSA 1992 Act.)
Carriage of Goods by Sea Act 1992
Dr. R. Williams: Marine Cargo Claims Lecture Notes.
Dr. Richard Williams: Waybills and Short Form Documents, LMCLQ.[1979] p
298
6. F. M. Ventris: The Bill of Lading in the Oil Tanker Trade. LMCLQ.[1981] p 480
7. Lloyds Maritime and Commercial Law Quarterly 1979
8. Lloyds Maritime and Commercial Law Quarterly 1981
9. Lloyds Maritime and Commercial Law Quarterly 1986
10. Lloyds Maritime and Commercial Law Quarterly 1990
11. Lloyds Maritime and Commercial Law Quarterly 1996
12. Nicholas Gaskell: Bills of Lading in an electronic age, Lloyds Maritime and
Commercial Law Quarterly 2010
13.Paul Todd: Maritime Fraud [2003]LLP
14.Richard Aikens: Bills of Lading Informa 2006
15.The Journal of International Maritime Law: Vol 15 Jan-Feb 2009 David A
Glass, Rawindaran Nair: Towards Flexible carriage documents? Reducing the
need for modally distinct documents in international goods transport
16.The U.C.P. 600