Copyright © 2010 Holland & Knight LLP All Rights Reserved

BILLS OF LADING: BROADER THEMES, CURRENT ISSUES

William J. Honan

Friday, May 31, 2013

A bill of lading is a document that is signed by, or on behalf of, thecarrier which has three common characteristics:

1. it serves as a receipt for the goods,2. it constitutes a document of title and3. it evidences the contract of carriage as to those goods.

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A negotiable bill of lading is one capable of transfer which (i) describes the consignee as being “to order” or to “X or to its order” or very similar variants using the words “to order,” and (ii) does not, on its face, note that it is “non-transferrable.” Otherwise the bill of lading is referred to as a non-negotiable or straight bill of lading.

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A clean bill of lading is one bearing no clause or notation expressly declaring a defective condition of the goods or their packaging. The word “clean” need not appear.

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A sea waybill is a document which contains or evidences an undertaking by the carrier to the shipper to deliver to the entity that is identified as being entitled to delivery. A sea waybill is a receipt for the goods, but it is non-transferable and is not a document of title.

It’s two principal advantages:

1. unlike a bill of lading, it does not have to be transmitted to the consignee in order for the goods to be recovered from the carrier and

2. the shipper can vary its delivery instructions to the carrier at any time during transit.

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The charter exception: If, under a charter, the bill of lading, issued by the owner, is in the possession of the charterer, the charter remains the contract of carriage as between the owner and the charterer. As between the owner and charterer, the bill of lading is only a receipt for the cargo (and probably still a document of title). If, however, the bill of lading is negotiated by the charterer to a third party, the bill of lading can become the contract of carriage between the owner and the third party bill of lading holder.

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A Bill of Lading As a Receipt for Goods

1. Place of issuance: Usually the port of loading but it can be anywhere.

2. Date of a “shipped” bill of lading (i.e., date on which the goods are placed on board): The date on which the loading of the goods covered by the bill of lading is completed.

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The “As Presented” Issue

Clause 30 of the NYPE (’93) time charter:a) The Master shall sign the bills of lading or waybills for cargo as

presented in conformity with mates or tally clerk’s receipts. However, the Charterers may sign . . . on behalf of the Master, with the Owner’s prior written authority, always in conformity with mates or tally clerk’s receipts. [emphasis added]

b) All bills of lading or waybills shall be without prejudice to this Charter Party and the Charterers shall indemnify the Owners against all consequences or liabilities which may arise from any inconsistency between this Charter Party and any bills of lading or waybills signed by the Charterers or by the Master at their request.

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“Hill Harmony” Excerpt

The question raised by this dispute is not a new one. It reflects the conflict of interest between owners and charterers under a time charter. Under a voyage charter the owner or disponent owner is using the vessel to trade for its own account. He decides and controls how he will exploit the earning capacity of the vessel, what trades he will compete in, what cargoes he will carry. He bears the full commercial risk and expense and enjoys the full benefit of the earnings of the vessel. A time charter is different . . . . [I]n return, he [the owner] transfers the right to exploit the earning capacity of the vessel to the time charterers.*

__________________*Whistler International Ltd. v. KKK Ltd. (the “Hill Harmony”) [2001] 1 A.C 638, 652.

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General Rule

If a charter party provides that a master is to sign bills “as presented,” then he or she is bound to sign, regardless whether the terms of the bills reflect the charter, unless the bills contain extraordinary items or terms manifestly inconsistent with the charter party.

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Examples1. Permissible

• containing a demise clause,• indicating “freight prepaid” in the context of a time charter,• including a different jurisdiction clause for the resolution of

disputes.2. Impermissible

• naming a discharge port outside the charter trading limits,• not incorporating clauses required by the charter,• misrepresenting the condition of the cargo,• including an incorrect date of issuance.

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Saga Explorer [2013 1 Ll.L. Rep. 401]

• Shipment of steel pipes from Korea to the U.S.• Load port survey found and the Mate’s Receipts noted: “partly rust

stained,” “wetted before shipment by rain” and “partly rust stained with white oxidation on surface.”

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Saga Explorer [2013 1 Ll.L. Rep. 401] (continued)

• Bills of Lading: “Shipped in apparent good order and condition….”• Bills of Lading also contained what in the trade is referred to as a

“Retla Clause”:

[T]he phrase “apparent good order and condition” set out in the preceding paragraph does not mean the Goods were received … free of visible rust or moisture …. If the Merchant so requests, a substitute Bill of Lading will be issued omitting this definition and setting forth any notations which may appear on the mate’s receipts.”

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Saga Explorer [2013 1 Ll.L. Rep. 401] (continued)

“What occurred was not an honest and reasonable non-expert view of the cargo as it appeared by a deceitful calculation made on behalf of the owners by their authorized agent at the request of the shippers and to the prejudice of those who would rely on the contents of the bill of lading.”

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Saga Explorer [2013 1 Ll.L. Rep. 401]

It is highly unlikely that a shipper of cargo would ask for a claused bill of lading reflecting the terms of a Mate’s Receipt: rather the contrary, as the present case reveals.

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Bill of Lading as Contract of Carriage

1. Who are the parties to the bill of lading?a) On the cargo side, it’s the shipper (sometimes the consignee)b) On the vessel side, it’s the carrier

2. What is the relevance of an entity being the carrier?a) the carrier may be responsible if the goods are damaged or lost in

transit (and all the other obligations and defenses contained in COGSA)

b) the carrier is subject to remedies to secure cargo’s claim

3. Carrier: COGSA and the Hague Rules define a carrier as “the owner or charterer who enters into a contract of carriage with a shipper.”

a) Did the owner or the charterer enter into the contract of carriage?b) If the charterer claims that it did so on behalf of the owner, did the

charterer’s representative have authority to sign the bill of lading for the owner?

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General Rules

(a) If signed by the master or “for the Master,” the presumption is that the carrier is the Master’s employer, i.e., the owner.

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General Rules (continued)

(b) If there is an express indication in the bill of lading on which basis it would be reasonable to assume that the time charterer was the carrier, the time charterer would be considered to be the carrier.

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General Rules

(c) If there is an ambiguity, one must make a judgment as to what a reasonable shipper or consignee would decide concerning which entity is to be the carrier. There is a possibility that both could be held to be the carrier.

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Starsin [2003] 1 Lloyd’s Rep. 571 (H.L.)

• The bill of lading was signed by CPS, the time charterer, with CPS identified as the “carrier” on the face of the bill of lading (in the signature box).

• On the reverse side of the bill of lading was a provision expressly stating that the owner was the contracting party, i.e., was the carrier.

• The House of Lords ruled that the language on the face of the bill of lading trumped the language on the reverse side. Great weight should be given to the face of the bill of lading particularly as to the contents of the signature page.

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Saga Morus 641 F.3d 105 (5th Cir. 2011)

• Saga Forest Carriers entered into a time charter with Daewoo Logistics

• Daewoo entered into an agreement with a purchaser of Chinese steel pipe to carry it from Dalian to Houston.

• Under the terms of the Saga/Daewoo time charter, the Master, if requested by Daewoo, was “to sign Bills of Lading for cargo as presented, in conformity with Mate and Tally Clerk’s receipts.”

• The pipes, prior to loading at Dalian, were found to be rusty and this condition was so noted in the Mate’s Receipts. Daewoo’s representative, however, signed clean bills of lading.

• Daewoo went bankrupt, leaving the Owner to defend the law suit.

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Saga Morus 641 F.3d 105 (5th Cir. 2011)

• The purchaser of the pipe sued the shipowner under the bill of lading.

• Court found against the purchaser because the Daewoo representative, in signing the bills of lading not in conformity with Mate’s Receipts, exceeded his authority. Hence, the owner was not a party to the bill of lading and could not be held liable as the carrier.

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Bill of Lading as Document of Title

1. The consignee must surrender the negotiable bill of lading as a condition to the carrier’s delivery of the cargo.

2. To overcome this requirement, charterers include provisions in the charters stating that if a bill of lading were to be unavailable, delivery is to be made upon the issuance of an indemnity either in the form set out in the charter or in the form specified by the International Group of P&I Clubs.- see, e.g., Cl. 27(d) and (e) in ExxonMobilVoy ‘05.

3. To avoid this burden altogether, parties are relying more on sea waybills.- non-negotiable/non-transferrable- no need to surrender

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BLENDING ISSUES

1. Blending must be subject to safety rules and the capabilities of the vessel and the parcels to be blended must be compatible.

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BLENDING ISSUES

1. Blending must be subject to safety rules and the capabilities of the vessel and the parcels to be blended must be compatible.

2. Charterer must be responsible for all costs.

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BLENDING ISSUES

1. Blending must be subject to safety rules and the capabilities of the vessel and the parcels to be blended must be compatible.

2. Charterer must be responsible for all costs.3. Charterer must indemnify Owner for any adverse consequences

including claims for contamination, failure to meet contractual specifications, etc.

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BLENDING ISSUES

1. Blending must be subject to safety rules and the capabilities of the vessel and the parcels to be blended must be compatible.

2. Charterer must be responsible for all costs.3. Charterer must indemnify Owner for any adverse consequences

including claims for contamination, failure to meet contractual specifications, etc.

4. Any bills of lading that have been issued need to be surrendered and cancelled. After blending, new bills of lading need to be reissued.

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BLENDING ISSUES

1. Blending must be subject to safety rules and the capabilities of the vessel and the parcels to be blended must be compatible.

2. Charterer must be responsible for all costs.3. Charterer must indemnify Owner for any adverse consequences

including claims for contamination, failure to meet contractual specifications, etc.

4. Any bills of lading that have been issued need to be surrendered and cancelled. After blending, new bills of lading need to be reissued.

5. If possible, the new bill of lading should contain (a) the details of the originally loaded cargo(es) including nature of cargo and the quantity of cargo, (b) the date and place of loading and (c) the date and place of commingling.

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BP Commingling Clause

(a) Owners agree, if so requested by Charterers, to instruct the Master to commingle the cargo or cargoes loaded on board, always in strict compliance with safety rules, and subject to the technical characteristics of the Vessel.(b) Charterers warrant that any cargoes to be commingled or blended on board shall be stable and compatible and that no precipitation of solid deposits in cargo tanks, pipes, pumps, valves will occur.(c) Charterers will hold Owners harmless and keep them fully indemnified against all costs, losses, claims (including, but not limited to, claims for contamination or quality deterioration or failure to meet any contractual specification) and expenses (including, but not limited to, legal expenses) caused by or in any way arising from Charterers’ instructions to commingle or blend on board. Any additional costs incurred as a result of commingling/blending operations are for Charterers’ account.

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BP Commingling Clause

In the event of commingling or blending on board, Charterers shall return all three (3) original copies of all bills of lading issued in respect of the cargoes to be blended or comingled to Owners for cancellation. Upon return of their original copies of the bills of lading as aforesaid, Owners will issue replacement bills of lading in respect of the commingled or blended cargo as described by Charterers, which will state on their face:the details from the bill of lading pursuant to which the cargoes were originally loaded, including the nature of the cargo, the original quantity loaded and the date and place of loading; and the place and date of the blending or commingling took place.

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ExxonMobil Cargo Operations Clause

Charterer shall have the option to commingle, blend, add dyes, or additives, and / or carry out such other cargo operations (“cargo operations”) as charterers may reasonably request; provided that such cargo operations are within the technical capability of the Vessel and that the Master consider it safe to do so. Charterer indemnifies the Owner, Vessel and Master against liability for any cargo quality claims that may arise as a direct result of the onboard blending, including cargo quality claims from a third party.Any additional charges that result directly from Charterer exercising such cargo operations, including demurrage, port charges, extra agency fees, consumed bunkers at documented replacement cost, etc., and which are not included in the freight agreed under Part I (G) of this Charter Party shall be for the account of Charterer.In case of blending operation, Charter will surrender to Master all original Bills of Lading for the unblended cargo and the Master will provide new consolidated Bills of Lading on completion of blending operations, which Bills of Lading will reflect the actual grade that has been blended.

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Elisewin S.M.A. 4137 (2011)

• The chartered-in owner sub-chartered the “Elisewin” to STB, an affiliate of ExxonMobil, on an ExxonMobilVoy 2005 form for a voyage that resulted in loading in Nigeria.

• Clause 27(a): “Bills of Lading shall be signed by Master as presented, . . . .” It also provided for the Charterer to indemnify the Owner for any inconsistency or irregularity in papers supplied by Charterer or its agents.

• The vessel arrived at Qua Iboe on January 30, 2008 and began loading. Charterer stated that it was going to submit a bill of lading dated January 31st even if the loading extended into February. In fact, the loading ended at 6:42 a.m. on the morning of February 1st.

• On February 1st, the Charterer presented a bill of lading dated January 31st and the Master refused to sign insisting that the bill be dated February 1st. This dispute led to a 5 day delay in the vessel’s departure.

• The Owner sought demurrage which included that 5 day period as used laytime.

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Copyright © 2010 Holland & Knight LLP All Rights Reserved

BILLS OF LADING: BROADER THEMES, CURRENT ISSUES

William J. Honan

Friday, May 31, 2013