Bill of Lading

A bill of lading is a document used in the carriage of goods by sea.

The shipper (the party initially in possession of the goods) gives the goods to the carrier (the party transporting the goods by sea). In return, the carrier signs and issues a bill of lading to the shipper, which will state that the carrier has received or loaded the goods delivered to it by the shipper. The bill of lading gives the shipper (or any subsequent lawful holder) contractual rights against the carrier and constructive possession of the goods. The shipper can either retain the bill of lading or transfer it to a third party, usually in performance of a contract of sale of the goods or by way of pledge where financing arrangements are in place. The lawful holder of the bill of lading is legally entitled to claim delivery of the goods from the carrier.

There is no statutory definition of a bill of lading. To determine whether a document is a bill of lading, a court will consider certain characteristics of the document. These characteristics include

(i) the document being titled “bill of lading”,

(ii) the inclusion of information ordinarily found in a bill of lading, and

(iii) where issued in a set of three originals, the inclusion of the following standard wording: “one of which being accomplished, the others stand void

The bill of lading originated as a receipt for goods that had been put on board another person’s ship. A mercantile custom later developed whereby the bill of lading was used to transfer constructive possession of the goods while they were at sea and this custom became recognised by law.

Today, bills of lading are governed by four sources of law:

(1) the common law;

(2) the Carriage of Goods by Sea Act 1971 (“COGSA 1971”);

(3) the Sale of Goods Act 1979 (“SOGA”); and

(4) COGSA 1992.

COGSA 1971 implements the Hague-Visby Rules, an international treaty which applies to contracts of carriage covered by a bill of lading or any similar document of title which relates to carriage of goods by sea. This means that the agreement to issue a bill of lading will trigger the application of the Hague-Visby Rules.The Hague-Visby Rules set out requirements for the form and content of a bill of lading; for example, a bill of lading must enable the identification and verification of the goods.

A bill of lading is a transferable document of title to goods. It can therefore be used to transfer rights, but not to transfer an overriding title. This means that the transferee of a bill of lading will generally only acquire as good a title as the transferor.

A bill of lading is traditionally understood to have three functions:

as a receipt for the goods,

as evidence of the contract of carriage, and

as a document of title (meaning that possession of the bill gives one constructive possession of the goods specified in it).

These functions reflect how bills of lading are used in practice:

(1) to check facts about the goods;

(2) to effect constructive delivery of the goods when the document is delivered;

(3) to give a financing bank a pledge over the goods;

(4) to exclude persons other than the holder from claiming delivery of the goods or giving instructions to the carrier regarding the goods; and

(5) to make the contract of carriage binding and enforceable as between the carrier and the transferee.

It is common for bills of lading to be issued in sets of three originals, each stating “any one of which being accomplished, the others shall be void”. This means that the carrier is considered to have fully performed its obligations under the contract of carriage and as bailee on terms if it delivers the goods against any one of the three originals.

For a bill of lading to be a document of title in the common law sense, it must be either a bearer bill or an order bill. This excludes “straight” bills of lading, under which the relevant goods are deliverable only to a named party (called the “consignee”). Although they may satisfy the requirements of bills of lading in other ways, straight bills of lading “either contain no words importing transferability or contain words negativing transferability.

This is the essential difference between a straight bill of lading and an order or bearer bill. A carrier must deliver the goods to the party named in a straight bill of lading, whereas voluntary transfer of an order or bearer bill (with indorsement, for the former) is enough to transfer rights over the goods to the transferee.

While the straight bill of lading is not a document of title in the common law sense, having possession of it, and being able to demonstrate that one is in possession of it, is an essential part of using it. A straight bill of lading is also transferable in the sense that the shipper would need to transfer the bill to the consignee for the latter to obtain constructive possession of the goods. Conversely, if the shipper wanted to withhold constructive possession from the consignee (e.g as a response to the consignee’s failure to pay), this could be done by refusing to give the consignee the bill.