Feb 21, 2016

The Importance of a Bill of Lading in International Trade by Damilola Osinuga

Credits - www.cargax.com

International trade dates back to centuries and has often been seen as a driving force to economic, social and political stability. It significantly contributes to the gross domestic product of nations. Bill of lading is a written evidence of a contract for the carriage and delivery of goods sent by sea for certain freight. Typically, a shipper delivers goods to a carrier while the carrier or his agent issues a bill of lading. The Court in B.M.Ltd.v.WoermannLine defined a bill of Lading as

“A written document signed on behalf of the owner of the ship, in which goods are embarked, acknowledging the receipt of the goods and undertaking to deliver them at the end of the voyage, subject to such conditions as may be mentioned in the bill of lading. The bill of lading is therefore a written contract between those who are expressed to be parties to it”

Types of Bill of Lading

Negotiable and Straight Bill of Lading
A bill of lading is negotiable when it is made out to the bearer and can be passed hand to hand just like cash.
Shipped and Received for Shipment Bills
A shipped bill of lading is one which states that the goods have actually been shipped on board. The received for shipment bill of lading is usually issued when the carrier receives goods into its custody prior to shipment.
Clean Bill of Lading and Claused Bill of Lading
A bill of lading is said to be clean when it qualifies the goods in good order and condition on receipt by the carrier. A bill is claused when it is annotated to show that the goods carried are not in apparent good order and condition (bad condition). Where a document is claused, such document may be rejected by the buyer.

•Through Bills of Lading
This is usually used when the carriage of goods is to be undertaken by two or more carriers.

The bill of lading is a significant document in international sales especially to the buyer. The bill of lading serves the following functions.

Bill of Lading as a Receipt
The Court in Ogwuru v.Co-op bank of E/N Ltd. stated that it serves as a receipt for goods. A bill of lading is evidence of the fact stated in it which means that a shipped bill is evidence that such goods have been conveyed and such was shipped on the date of shipment stated on the bill. Its relevance as an evidential device becomes expedient when the carrier has not delivered what was shipped by the seller. When there is a dispute as regards the quantity of goods or condition of goods, the bill of lading, (pursuant to Article 3 rule 4) becomes a prima facie evidence that the goods where shipped in the conditions stated on the bill of lading. Such evidence becomes conclusive .

Bill of Lading as a Document of Title
A document of title is a document that allows the holder to deal with the goods like he is the owner of such goods. The concept of a bill of lading as a document of title has been well conceptualized by Sassoon. He stated that a bill of lading allows a buyer or his agent to obtain actual delivery of the goods at the designated port. A lawful holder of a bill of lading can be said to have constructive possession of the goods. While goods are in transit, the owner of such goods can sell his goods to another person just buy delivering the bill of lading for consideration. Thus, a lawful holder can pass the property in goods by delivering the documents to a third party. It is pertinent to state that a Straight Bill of Lading is not a document of title.

Bill of Lading as a Document of Credit
Documentary credit covers letter of credit transactions where the buyer’s bank provides a letter of credit that effects the payment for the goods purchased. The seller is comforted by substituting the credit worthiness of the bank for the creditworthiness of the buyer. Documentary credit usually provides the seller with a reliable mechanism of payment. The seller is assured of payment irrespective of whatever dispute arises from the sale contract. The use of documentary credit has become so popular that Lord Diplock stated that:

“International trade has to an increasing extent been financed by bankers’ confirmed credits. So much so that the classic f.o.b and c.i.f contracts of the textbook providing for cash or acceptance against document without the intervention of the banker are now probably the exception rather than the rule”

The requirements of a bill of lading to be used for documentary credit are stated in Article 20 UCP 600. The UCP does not expressly state any discrepancies between a negotiable bill of lading and a non-negotiable bill of lading. Banks will usually demand the full set of bills of lading if more than one is issued and would reject any tender which is less than the full set.
 A typical example of this is stated as follows; Parties will usually agree upon a contract of sale, then the buyer will contact its bank to have a letter of credit issued with the seller as the beneficiary. A letter of credit can either be funded by a loan or simply debited from the buyer's account balance if sufficient funding is available. The issuing bank corresponds with an advising bank that is usually in the seller’s country. The advising bank acts as the issuing bank agent in effecting payment under the letter of credit.

 The seller then goes on to procure a contract of carriage with a carrier in exchange for a bill of lading stating that such goods will be delivered at the agreed destination. The bill of lading is presented to the bank as a condition to secure final payment. The issuing bank then returns the document to the buyer who afterwards, presents the bill of lading to the carrier to reclaim his goods.

The bill of lading has over the years become so important in documentary evidence. The bank will only be willing to accept a clean bill of lading with other requirements stated in Article 20 of the UCP in other to effect a documentary form of credit in favour of the buyer.

Bill of lading as a document that gives right to sue
Section 375(1) of the Merchant Shipping Act, states that:
Every consignee of goods named in a bill of lading, and every endorsee of a bill to whom the property in the goods therin mentioned shall pass upon or by reason of such consignment or endorsement shall have transferred to and vested in him all the right of suit, and be subject to the same liabilities in respect of such goods as if the contract contained in the bill of lading had been made with himself”
This means that the right to sue is derived from acquiring the bill of lading. The provision makes it clear that only a named consignee or where the bill is endorsed, can have a right to sue.

The Bill of Lading as the only binding Contract of Carriage between the Buyer and Carrier
The only binding contract between the buyer who is usually the receiver of the goods and the carrier is that which is on the bill of lading. This simply means that terms agreed outside the bill of lading are excluded. The rationale behind this principle is that the buyer has only a notice of those terms on the bill of lading and subjecting him to terms outside this, will amount to a violation of the principle of contract law. The court upheld this position in Leduc v. Ward where the court held that the argument of the carrier - that there was no deviation because it had been agreed between the shipper and the carrier - didn’t bind the buyer since it was outside the bill of lading.

The bill of lading has had a long history and has efficiently served the commercial community. It is remarkably a product of ingenuity. The single purpose of enabling negotiability and transferability has put it at advantage over every other kind of document used for shipping. It is convenient and has been said by Sir Anthony Lloyd to be of “Magical quality”.

The use of bill of lading by the commercial and business community makes parties feel more comfortable. Although the bill of lading is more susceptible to fraud, it is still the most important document in a shipping document.

This Article was produced by ‘Damilola Osinuga. LL.B, LL.M, ACIArb. A Legal Practitioner and expert in the areas of Maritime, Insurance, International Trade and Ship Brokerage. 
Editor's note: This article is written by Damilola Osinuga LL.B, LL.M, ACIArb and was originally posted on www.linkedin.com .