The Dematerialisation of the Bill of Lading

• Date: 01 January 2007

The Dematerialisation of the

Bill of Lading

KELLY T. MCGOWAN*

The Traditional Bill of Lading

Introduction

A contract for the carriage of goods by sea is normally evidenced by a bill

of lading when the goods to be shipped form only part of the cargo carried

on board. The bill of lading has a number of characteristics. Firstly, its role

as a document of receipt. The bill of lading acts as a receipt for those goods

shipped. The traditional shipped bill of lading began as a non-negotiable

receipt issued by the ship-owner to the shipper to contain details of the

description, quality and condition of the goods. Secondly, its role as a docu-

ment of title. More recently, the bill of lading has evolved into a document

of title. This important function enables the cargo-owner to sell the goods

to a third party whilst they are in transit. Finally, its role as evidence of the

contract of carriage. Problems have arisen, however, as it is evident that the

bill of lading has failed to adapt to technological advancements and it is for

this reason why we have seen the partial demise of the bill and its replace-

ment by other documents, such as waybills.

This paper investigates the reasons for the demise of the traditional bill

of lading and looks at the specific requirements of the ever developing

commercial world. These requirements most definitely involve faster

delivery of the bill of lading, therefore the proposals put forward using

Electronic Data Interchange (“EDI”) will be evaluated. It is clear that any

electronic equivalent must contain the same characteristics as the current

paper bill of lading and, therefore, these proposals are not without their

problems. This paper evaluates those problems and assesses the effect

international conventions, EU directives, statutory legislation, and case law

have on the development of an electronic bill of lading. In addition, the

paper shall focus on the roles of the bill of lading as a document of receipt,

evidence of the contract of carriage and as a document of title in both a

paper-based system and under an electronic system.

Signif‌icant changes are required in order to bring the bill of lading in line

with commercial practice. It is hoped that recent initiatives will instil in the

modern bill of lading the commercial conf‌idence it once had in the past.

* Kelly T. McGowan LLM (University of Kent at Canterbury), Trainee Solicitor with

Dillon Eustace

The Dematerialisation of the Bill of Lading 69

Role of the Traditional Bill of Lading

The bill of lading originated in the fourteenth century as a non-negotiable

receipt issued by the ship-owner, for cargo received, to a merchant who did

not intend to travel with his goods.1It acts as a receipt for the goods

shipped and contains certain admissions as to the type, quantity and

condition of the goods as loaded on board. Mercantile practice eventually

saw the incorporation of the terms of carriage into the bill of lading. Those

terms included exclusion clauses which were more likely to be introduced

by the shipowner as the stronger bargaining party in an attempt to exclude

himself from liability should the goods be lost or damaged en-route.

By the eighteenth century, the bill of lading had evolved into a negotiable

document thereby enabling the merchant to sell the goods whilst they were

still at sea. It is for this reason that the bill of lading is considered a docu-

ment of title in that it permits the original owner of the goods to endorse the

bill in favour of a purchaser on a sale. The subsequent purchaser may then

decide to either obtain delivery of the goods at the port of discharge by

producing the bill of lading2which is made out to his “order” by the seller,

or he may replicate the same process and sell the goods to another party.

The main problem with the traditional shipped bill of lading as it stands

is that delivery of the goods can only be made to the holder of the original

bill of lading and quite often the bill does not arrive to the purchaser until

long after the ship has arrived at the port. During this time, the vessel is

likely to be incurring port charges and will not be earning freight. This is

particularly problematic for the carrier of perishable goods which need to

be contained or transferred to specif‌ic conditions3or the carrier of oil cargo

who will be under pressure for a quick turn-around. In anticipation of the

likelihood of such events, the rights and liabilities of each of the parties must

be clear. For this reason there must be a clear point when the assignee under

the transaction obtains the rights as well as the liabilities in the goods under

the bill of lading from the assignor.

Bill of Lading as a Receipt

It is common practice for the bill of lading to be signed by the loading

broker or master.4It will normally acknowledge the quantity and condition

of the goods when loaded. The reason for this acknowledgement is so that

1Wilson, Carriage of Goods by Sea, (4th ed) (Pitman, 2001), p 119

2The bill of lading must be produced in order to obtain delivery of the goods. There may

be severe consequences where the goods are misdelivered against other documentation.

3For example, refrigeration is required in the case of fruits, shellf‌ish and the like.

4A loading broker or master is commonly employed by the shipowner to load the

goods on board the vessel. This function may also be carried out by the carrier who

will sign the bill of lading in this capacity.

70 KELLY T. McGOWAN

the ship must deliver “what she received as she received it, unless relieved

by the expected perils”.5

Receipt as to quantity – Common Law

The bill of lading is prima facie evidence that the quantity of goods that are

alleged to have been shipped, have in fact been shipped. In order to avoid

liability a shipowner is bound to deliver the full amount of goods signed for

in the bill unless he can prove that the whole or some part of it was not

shipped. The burden is a difficult one to discharge and according to Lord

Shand in Henry Smith & Co v Bedouin Steam Navigation Co,6in order for

the carrier to avoid liability, “the evidence must be sufficient to lead to the

inference that the goods may possibly not have been shipped, but in point

of fact they were not shipped”.

The bill of lading will normally contain a description of the quantity of

goods loaded on board, either by the number of packages or by the weight

in bulk. Notwithstanding that description and statement of number or

quantity, the shipowner is not estopped7by the signature of the bill of

lading by the master, from showing that the goods, or part of them, were

never actually put on board.8In Grant v Norway,9a bill of lading was

signed by the master for twelve bales of silk, which the shipowner could

prove had not been loaded on board the ship. In deciding whether the

shipowner was liable for non-delivery, it was held that the master had no

authority to sign for goods that were not shipped and so the bona fide

endorsees of the bill of lading could not claim for non-delivery. Such a

decision is quite difficult to accept when one considers how much the

endorsee or consignee relies upon a concise statement as to the quantity of

the goods shipped.

For this reason, the enactment of section 3 of the Bills of Lading Act,

1855, attempted to address this problem. It stated that a bill of lading in the

hands of a consignee or endorsee is conclusive evidence, against the master

or other person signing it, that the goods representing to have been shipped

on board a vessel, have been shipped. It does not overcome the problem

however, where the holder of the bill of lading knew that the goods had not

been shipped. According to Moccata J. in V/O Rasnoimport v Guthrie

&Co,10 section 3 only provides that the bill of lading is conclusive evidence

5Per Lord Sumner in Bradley v Federal Steam Navigation Co Ltd [1927] 137 LT 266,

p 267

6[1896] AC 70 HL

7ie, he is not prevented from denying the truth of a statement he has made or from

denying the facts that he has alleged to exist.

8Carver, Carriage by Sea, Vol 1 (13th ed) (Stephen and Sons, 1982), p 102

9[1851] 10 CB 665

10 [1966] 1 Lloyd’s Rep 1