Does a Bill of Lading override a Sales Contract..??

Image for question boyI thought of kick starting the articles for 2015 with a question.. Does a Bill of Lading override a Sales Contract..??

I received below question from one of the readers of this blog via the Question form on the sidebar..

We are new to the export business. We plan to use FCA Incoterms in the agreement between our company and our overseas customer. However, we are concerned about liability we would have as being named shipper on the BL.

My question is : Which is the overriding or superior contract, the BL or the Sales Agreement with Incoterms?

Michael

Image for opinionBasically what Michael wants to know is, if a container is shipped on FCA basis and his company (seller) is shown as the shipper on the bill of lading and something happens to the shipment, will his company be at risk..??

In such cases of claims, does a Bill of Lading override the Sales Contract or vice-versa..??

What are your views and opinions on this question..??

What did you think of the above article..?? Comment below..

16 comments on “Does a Bill of Lading override a Sales Contract..??

  1. P R Rajesh says:

    Hi Harish,

    Was going through the above article & the various comments with regards to the same….though It is very very old one I thought of giving my inputs
    As per my understanding the B/L is title document evidencing the contract of carriage. It is made out basis the sales contract between the seller & the buyer. The contract of carriage is governed by the Incoterms which outlines the various risks & responsibilities of carriage of goods. Under FCA the ownership of the cargo remains with the Shipper (can be Seller) till such time he has transferred it to the buyer or the Consignee named on the B/L. So Michael should not be worried about any additional liability by being named as a Shipper on the B/L. He is a liable party under the contract of carriage. Perhaps what can be done is to use a FCR (Forwarders Cargo receipt) to get his payments from the buyer & let the nominated forwarder be evidenced as Shipper on the B/L. This H B/L would show the forwarder as Shipper, Buyer as Consignee & notify party. Delivery agent being the forwarders destination office who has been nominated by the buyer to handle the shipment through their various international network officers. Cargo gets released to the buyer upon receipt of the endorsed FCR from the Shipper.
    Please Correct me if I am wrong.
    We used to do this in the late 90’s.

  2. Semon says:

    Under FCA, risk of loss of damage to the cargo would pass from the seller to Michael’s firm at the point where the cargo is delivered (Please note named place of delivery is a critical deciding factor as FCA presents 2 possible options, and therefore the need for this to be clearly defined in the sales contract)

    So, whether Michael is named as shipper or not in the B/L vis-à-vis risk of loss/damage to his container is immaterial if Michael has already taken delivery of goods.

    In this regard, The sales contract supersedes the B/L in protecting him against loss of cargo because:

    1.The B/L merely covers the contract of carriage and not title/ownership of the container.
    2. The Sales Contract could be worded to say payment will only be made upon receipt of the cargo at final destination for (multimodal transport) or POD
    3. Insurance obligation is not within the scope of FCA. The Sales Contract thus overrides the B/L in defining who covers insurance, the types of risks covered, the assured party, whether warehouse-warehouse et cetera.
    4. In my opinion, in law, courts decisions will tend to rely more on terms in the sales contract than the B/L.

    However, the B/L could potentially override the Sales Contract if the latter is poorly drafted to the extent isks are ambiguous, or worded to unfairly favour the seller.

    Please correct me where I may be wrong.

    Regards,
    Aggrey

    1. Hello Semon, Michael is the seller, selling to an overseas customer under FCA terms.. You have considered Michael to be the buyer.. Would this change your opinion..??

    2. Semon Aggrey says:

      Hi Hariesh,

      My bad! Of course Michael is the seller. In this regard, my earlier opinion doesn’t change much.

      The Sales Contract would provide a stronger avenue for him to minimize the allocation of risks, especially if he convinces the buyer to choose a place of delivery as close to his premises as possible. If the Sales Contract conditioned on title to the goods passing to the buyer once goods are delivered (say,in exchange for immediate payment), Michael would thus remove any risks associated with him being named as shipper on the B/L.

      Disclaimer: I must admit that I am a novice when it comes to the the two subjects of (i) marine insurance and (ii) process of how B/Ls are issued by Carriers and the underlying contracts of carriage.
      This blog will undoubtedly take care of that problem and for that alone, thanks a million Hariesh, A. Robertson and everyone else.

      Regards,

      Semon

  3. It looks a simple question, however the answer is complicated than it seems!

    FCA (Free Carrier) is a commonly used incoterms in all over the world for all types of transportations including sea, air and road transportation. Simply it refers to a contract of sales in which seller fullfills his obligation to deliver when he has handed over the goods, cleared export, into the charge of the carrier named by the buyer at named place or point. When delivery to carrier is completed then buyer is responsible for all other importation process including loading of cargo, freight, insurance, import custom clearing and other documents such as import license in case required. Buyer is also liable to promptly notify shipper with respect to name of the planned line, vessel and delivery order time period. If the consignee misses to do one of them properly and cannot prove himself by creating sufficient proof such as e mail or commercial document showing he did everything properly then, consignee might become liable under some laws.

    When coming on to your question; First of all differences between a contract of sales and a contract of carriage should to be literally understood.
    A contract of sales is a deal made between seller of a good and his buyer. Although provisions of this contract are determined by these two parties internationally recognized trade practices incoterms 2010 are intended primarily to clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods. However as stated in the first sentence precise provisions of trade are depends on trading parties. On the other hand, a contract of carriage is a contract between a carrier of goods and the shipper of these goods. Contracts of carriage typically define the rights, duties and liabilities of parties to the contract. In the other words in a contract of carriage freight payer party have to be clearly mentioned by respect to freight type such as collect or prepaid.
    The party to whom title passes and who is entitled to submit freight loss and damage claims is determined by the “FCA” term. The risk of loss passes to the buyer where the terms of sale are “FCA ” origin regardless of the party responsible for the payment of freight charges. Under a contract of carriage shipper’s responsbility varies with respect to carrier and localized laws.
    By the view point of shipping, the bill of lading and the sales contract should be consistent. For example, the sales contract should be FCA origin if the seller expects the buyer to file freight loss and damage claims. The sales contract should be FCA destination if the seller expects to file freight loss and damage claims. The bill of lading must also properly designate the party responsible for the payment of freight charges consistent with the terms of sale. If the seller has agreed to be responsible for the carrier’s freight charges, the bill of lading must be marked “prepaid”. If the buyer is to be responsible for the payment of freight charges, the bill of lading must be marked “collect”. To ensure that the carrier does not look to the seller for the payment of freight charges on a collect shipment, the seller should be careful to sign the provisions of on the uniform domestic straight bill of lading. Otherwise, the seller remains liable to the carrier in the absence of payment of collect freight charges by the consignee.

  4. marcello hellmeister says:

    This for sure is a very complex issue and we must not forget that International Law is a gray field. Both, INCOTERM and BL are ruled by international conventions or treaties , which set some guideliness and some countries agree or not in join it. There are countries which the international rules do not override internal rules and so on. Regarding the BL, this is for sure a contract establishing co-responsibilities between the parties – SSLine/ Shpr and Cnee- and INCOTERMs is not a sales contract, just a international convention. So BL rules the terms and conditions of international transport, including risks and acts of God and the responsibles and co-responsibles. Anyhow this issue open a gray field which lawyers know very well how sail on it.

  5. Chirag Sheth says:

    Non of them overrides another, contract of sales is between seller and buyer whereas bill of lading is a contract of carriage between “cargo owner” and career, cargo owner here is defined by the terms mentioned on contract of sale.
    In this case under FCA terms, seller is responsible to deliver goods at his risk and cost to a place/person named by buyer.
    Beyond that named place/person, all risks, costs and ownership is buyer’s.
    Seller has no liability after delivery of goods at named place by buyer at his cost and in sound condition.
    Not to mention, that proper proofs and documentations are maintained by seller.

  6. Kishan Barai says:

    If you follow FCA terms the liability of Shipper ends when he provide the goods at the destination which is Pre decided by the buyer and the seller. In FCA terms, the buyer generally loads the goods in ship, the shipper only does the custom clearance, loading is not the responsibility of the shipper. The loading is done at the responsibility of buyer. So naturally the contract ends before the B/L is prepared or issued.

    1. Hi Kishan your point is noted and understood, but the question was if the seller is shown as the shipper on the bill of lading and there is a claim, will the shipper be affected because of this and will the sales contract then override the bill of lading or vice versa..

  7. Under FCA the risk, cost and responsibility in respect of the cargo passes from seller to buyer when the cargo is handed to the carrier at the named place. The carrier as well as the forwarding agent is nominated by the buyer and thus the name of the shipper should not be that of the seller.

    As far as the responsibility of the seller is concerned, he has to load and seal the container and ensure it is available for collection by the carrier or deliver the container to the nominated carrier. There should therefore be no risk to the seller. There is the concern about receiving payment for the cargo.

    Payment is not regulated by the Incoterms rules, there being 4 different aspects to any purchase contract, the payment, insurance, sales contract plus transport. Each need to be in place by the responsible party.

    Therefore the seller should not be at any risk should something happen to the cargo. Perhaps the person posing the question needs to spell out more of the type of risk he/she was thinking to give a more detailed answer.

    1. Hello Alexander, thanks for your comment.. The issue of payment that you have raised is a very valid point..

      According to the Incoterms for FCA, the seller has no obligation to arrange the carriage unless requested by the buyer or if it is commercial practice, but this has to be done at the buyer’s risk/expense..

      Using a hypothetical case, let us say the seller has arranged the carriage based on commercial practice and the shipment has sailed and using your point reg payment for the cargo, say for example the buyer hasn’t paid the seller yet and the seller is holding the original bill of lading awaiting payment from the buyer..

      In this case, although by sales contract, the seller is no longer the owner of the goods, by contract of carriage, he is the title holder as he is the shipper and he is holding the original bill of lading..

      Would it be right to say that the seller would remain the owner of the goods till he has been paid, although he has already effected the shipment..?? In FCA he shouldn’t have released the goods before payment of the cargo, but he did.. This has happened to sellers who haven’t fully comprehended the terms of sale and consider holding of an original bill of lading as security enough..

      How will this affect the shipment in the case of say General Average where necessary security for General Average Contributions is to be obtained from the ‘cargo owners’..

    2. PINHEIRO says:

      Alexander as a strong point -……………… the name of the shipper should not be that of the seller.

    3. Hi Pinheiro, who do you think should be the shipper on the bill of lading bearing in mind that some countries may require shipper to be the one also filing the customs documentation..

  8. thecorncobb says:

    Very good, clear text reference on Bill of Lading, with some comment vis-à-vis Sales Contract, can be found here.
    Enjoy!

    1. Incoterms do not regulate the transfer of ownership of the goods or payment terms. Please take this into account.

    2. A bill of lading can not replace a contract of sale – among other things because it does not regulate many things and above all does not indicate the price of goods and terms of payment for the goods.

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