When does a Bill of Lading become a Contract of Carriage..??

When does a Bill of Lading become a Contract of Carriage..?? 

A brilliant question.. Let us first look at some definitions..

Bill of Lading : is a transport document issued by a carrier to convey information about the cargo and the condition in which it has been received and transported..

The bill of lading has 3 basic purposes or roles..

  1. Evidence of Contract of Carriage
  2. Receipt of Goods
  3. Document of Title to the goods

Contract of Carriage : The popularly used conventions and rules covering the Carriage of Goods by Sea define Contract of Carriage as below :Image for COC ComparisonPage 1 of any carrier’s bill of lading will show which of the above conventions govern the carriage..

Let us look at the subject question in the context of containerised cargo..

Image for contract shakeIn normal trade the rates and other terms are negotiated between the shipper/cargo owner and the carrier, and once they reach an agreement or contract (maybe verbal or written), the shipment is “booked” with the carrier and this may be considered as the commencement of the contract of carriage..

The carrier usually sends a booking confirmation as acceptance of the booking..

Clauses in the booking confirmation sent by the carrier will indicate the terms and conditions that will govern the booking and contract of carriage..

I have quoted below, clauses shown on the booking confirmations of some of the lines and you may notice that all of them say that the booking is subject to the terms and conditions of the line’s bill of lading, which comes at a much later stage once the shipment has been effected..

CMA-CGM

Shipment shall be subject to CMA CGM bill of lading terms and conditions available in any CMA CGM agencies or on CMA CGM web site: www.cma-cgm.com

Hamburg Sud

THIS BOOKING CONFIRMATION IS SUBJECT TO THE TERMS AND CONDITIONS OF OUR BILL OF LADING OBTAINABLE FROM THE CARRIER OR THE CARRIERS WEBSITE AT:
www.hamburgsud-line.com/hsdg/de/hsdg/termsofuse.jsp.

THE CONDITIONS OF OUR BILLS OF LADING AND SEA WAYBILLS CONTAIN LIMITATIONS OF LIABILITY WHICH DEVIATE FROM STATUTORY GERMAN LAW.

Hapag Lloyd

Hapag-Lloyd AG is operating under the terms and conditions of its bill of lading or sea waybill depending on which document will be issued for the shipment. Our terms and conditions will be provided to you upon request or may be viewed at any office of Hapag-lloyd AG or its agents or under www.hapag-lloyd.com.

Safmarine

This contract is subject to the terms, conditions and exceptions, including the law & jurisdiction clause and limitation of liability & declared value clauses, of the current Safmarine Line Bill of Lading (available from the Carrier, its agents and at terms.safmarine.com/carriage), which are applicable with logical amendments (mutatis mutandis).

Agent for shipping line

Remarks:
* Please note that all cargo shipped is subject to terms and conditions on the lines bill of lading

The client has the option to go through the terms and conditions on the bill of lading and advise the carrier if he finds any terms that may not be suitable for his business and/or carriage..

BL as evidence

From the above it is clear that although the bill of lading follows the contract of carriage physically, the terms of the contract of carriage are governed by the bill of lading..

The bill of lading also being a receipt for the goods, states the terms on which they were delivered to and received by the ship, and maybe considered as an excellent evidence of these terms, but it is not a contract..

Therefore, as far as containerised trade is concerned, since the contract has already come into existence before the bill of lading is prepared and issued, a bill of lading cannot become a contract of carriage but only be considered as evidence of the contract of carriage..

Let us look at this question in the context of carriage under charter parties..

The bill of lading as an evidence of the contract of carriage applies to shipments where shippers ship cargo in small quantities using either containerised service or break bulk service where there are no full charters or charter parties involved..

Image for Charter PartyWhere charter parties are involved, especially where the shipper charters the entire ship from the owner, the bill of lading issued along with a charter party does not evidence the terms of the contract of carriage between shipowner and cargo owner because in this case, the contract between them is governed solely by the terms of the charter party..

In cases where the contract is governed by the charter party, the Bills issued to a charterer acts merely as receipt for the cargo received and shipped and as a document of title in case the charterer decides to sell the goods while they are still in transit..

The bill of lading will, however, typically identify the charter party which is applicable to the carriage of the goods by reference to the date and place of the charter party..

If anyone has any concurring or opposing views as to when a bill of lading becomes a contract of carriage, please do share.. 

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13 comments on “When does a Bill of Lading become a Contract of Carriage..??”

  1. By Dimitris Reply

    Hello Hariesh,

    What abt if the Shipper (as declared in the issued and signed B/L) declares officially that the cargo is on financial hold due to unsettled amounts due, therefore the cargo loaded onboard should NOT be discharged until further instructions fm Shipper, while the Charterer who has charter the Vessel under an official c/p declares that there is NO any financial hold and the cargo needs to be discharged ASAP?

    In this case what should Vessel’s (Owners) actions?

    Thks,
    Dimitris

  2. By Irina Reply

    I would like to ask you for your opinion on the following (mu question may be confusing, but this is because the entire situation is confusing to me). This arose as a matter of insurance sum payment, as cargo was damaged on ship and our P&I insurerers have asked for the relevant B/Ls (specifically, owners B/L was asked for)
    If we are charterers of a vessel (a time charter), which we use as feeder vessel, transporting third-party cargo from a smaller port to be transshipped to an ocean vessel for further carriage, I assume that we should be issuing B/Ls to our clients, to whom we have so undertaken to transport the cargo, as carriers. On the other hand, from your post I understand that the owners of the vessel should be issuing B/Ls to us, as receipt for the cargo on board. Does this mean that there may actually be two sets of B/Ls involved in such carriage?

    Thank you.

    • By Hariesh Manaadiar

      Hello Irina under TC, the charterer is incharge of the commercial operation of the ship whereas the shipowner remains responsible for the technical operation of the vessel.. So in the case of TC, commercially the master of the ship reports to the charterer and as such any bill of lading signed by the master of the ship will be on behalf of the charterer, in this case you.. So if you are chartering the ship on TC from a ship owner and using the ship as a feeder vsl between smaller ports, then yours will be the only bill of lading to be issued.. The shipowner will not be issuing any bills here..

      If you were a direct cargo owner then the shipowner will issue the bill as a receipt for the cargo on board, not when you are acting as a TIME CHARTERER..

      Trust this assists..

    • By Irina

      Thank you. It certainly helps. At least it is in line with what I figured for myself the documentation should be. However, could you help with one more issue here. To give you some background, our country (Moldova) has a port only for several years, no experience with maritime shipments and virtually no legislation in the field, so it is really hectic. We usually act as forwarders for our client and undertake to carry door-to-door (we perform local road haulage to local port and, as time-charterers – the feeder leg of the journey to the first transshipment port; and we book the further ocean journey with the maritime C-lines). Since we take over the cargo inland, our shipper-client is not interested in our BL on the feeder leg of the journey (nobody requests it and it is not usually issued; what everybody is interested in is the ocean BL issued by the C-lines). However, even if there is no need for this feeder BL, I suppose there should be a document issued by the feeder vessel owners to us, as time charterers, in confirmation of the cargo received on board. So far, such a document was not ever issued. What they do, is issue a cargo manifest for all cargo on board. But this document has another function. This is why insurers’ question about owners’ BL confused me, as I have a hunch that there should be some kind of document in this respect. Now that we are planning to lay a claim with the vessel owners for cargo damaged on board, this became a rather urgent issue. Is this document a mate’s receipt? Is it something else? Thank you once again

  3. By Manikandan Reply

    Thank u for ur reply…
    I am an MEO class I candidate giving exams…
    In my question papers I was going through the topic OSTENSIBLE AUTHORITY and RATIFICATION with respect to signing of Bill of Lading. It would be of great help for my exams if u could plz explain those topics with some examples..
    Thanking u in advance..

  4. By Manikandan Reply

    Plz correct me if my understanding is wrong,

    To summarize,

    Case 1: A Bill Of Lading is a evidence of contract of carriage between the shipper and the carrier, if no carter party is involved and BL is dealing only with two parties (shipper and the carrier)

    Case 2: When there is a charter party involved, the Bill of Lading issued to the shipper/charterer is only the receipt for the goods on board and a Document of Title.
    When these goods are sold to other party during the transit or when the Bill of Lading is endorsed to a third party by means of sale to the endorsee, now the Bill of Lading will be a actual contract of carriage between the endorsee and the carrier.

  5. By Madhav Singh Reply

    So, Is it safe to assume that Bill of lading can never be considered as Contract of carriage , but only as evidence of contract.

  6. By Madhav Singh Reply

    sir, in the initial paragraphs you say that for containerised trade the bill of lading cannot become a contract of carriage. Then , you say that B/L is an evidence of contract of carriage ( purpose 1, para 1) for small shipments. That is in this case also, this is not actually contract of carriage. Again when charter parties are involved, the B/L is merely a receipt. Hence, Please clarify as to when B/L becomes the contract of carriage

    • By Hariesh Manaadiar

      Hi Madhav, in my post I have mentioned “Therefore, as far as containerised trade is concerned, since the contract has already come into existence before the bill of lading is prepared and issued, a bill of lading cannot become a contract of carriage but only be considered as evidence of the contract of carriage..”

      Trust this clarifies..

  7. By Prasoon Kumar Gupta Reply

    If a Bill of lading, issued under charter party, is indorsed to a bona fide purchaser for a value, the bill of lading will become the conclusive or actual contract of carriage so far as the endorsee is concerned.
    The endorsee will only be affected by the charter party if its terms are clearly incorporated in the bill of lading. The bill of lading is contract itself in the sense that it contains the contractual terms between carrier and endorsee.

    • By Hariesh Manaadiar

      Hello Prasoon, as long as the relationship is limited between the shipper and carrier it will be simple.. Things become more complicated when the bill of lading is endorsed in favour of an endorsee.. If the endorsee wishes to claim against the carrier it may rely on the terms of the bill of lading.. Under these circumstances, the carrier or shipper will not be able to say “ but the booking note had the following terms…”.. The endorsee can look to the terms of the bill of lading alone..

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