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Bills of Lading Act 1855

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Bills of Lading Act 1855. Different countries have enacted legislation to protect holders of bills of lading generally from carriers, who were mainly shipowners in the 19th century and who would attempt to avoid any liability for loss of or damage to goods belonging to the holders of the bills of lading.

Such an early attempt by national legislatures was the very short U.K. Bills of Lading Act 1855. Other Acts were passed by other countries. For example in the United States the Pomerene Bills of Lading Act 1916. had a similar purpose to that of the U.K. Act but the U.S. Act seems to protect bills of lading holders in a better way.

Another example is the Canadian Bills of Lading Act 1985, which is, in some respects, similar to the U.K. Act. Emphasis will be laid here on the U.K. Act, especially because some of its provisions are under criticism in English courts in the 1990s and moves are afoot in the U.K., through the Law Reform Commission, to modify the deficiencies.

Under English law a contract is made between two "parties" each of which has rights and obligations under the contract. In the case of carriage of goods by sea the contract of carriage is usually made between the carrier (or by an agent on his behalf] and the shipper. This contract can be evidenced by a bill of lading. When the bill of lading is transferred to a consignee or endorsee these persons are "third parties" to the original contract and, under English common law, third parties do not have the benefit or burden of the original contract. It is said that contracts under English common law are not "assignable".

The most important function of the bill of lading is that it is a document of title and features importantly in international trade. Transfer of bills of lading transfers the right to dealing with the property in the goods. It is said that the "property passes". Therefore the transfer of a bill of lading transfers the property in the goods. However, because the benefit and burden of the contract could not be transferred (or assigned) to a third pasty, the holder of a bill of lading, who was not the party who entered into the original contract of carriage with the carrier, was at a disadvantage when it came to bringing an action against the carrier for loss of or damage to the goods during carriage. If the goods were damaged or lost, only the original party to the contract, the shipper, could bring an action. In most circumstances this party was no longer interested in the goods, having been paid for them either directly by the buyer or by a bank on behalf of the buyer, under a system of documentary credits. The original shipper does not usually suffer the loss.

The Bills of Lading Act 1855 were passed in England as an attempt to cure this and other problems related to trade. Pan of the preamble to the Act is significant to show the reason for the legislation:

"Whereas, by the custom of merchants, a bill of lading of goods being transferable by endorsement, the property in the goods may thereby pass to the endorsee, but nevertheless all rights in respect of the contract contained in the bill of lading continue in the original shipper or owner; and it is expedient that such rights should pass with the property:..."

Section 1 of the Act then provided:

"Every consignee of goods named in a bill of lading, and every endorsee of a bill of lading to whom property in the goods therein mentioned shall pass, upon or by reason of such consignment or endorsement shall have transferred to and vested in him all rights of suit and be subject to the same liabilities in respect of such goods as if the contract contained in the bill of lading had been made with himself"

At the time the Act was passed, it may have seemed admirable from the point of view of consignees and endorsees to whom the property passed, that is, the buyers for value. Such persons could now bring an action for a claim against the carrier. However, the section gradually faced a barrage of criticism from lawyers and also from commercial people because it hardly copes with the commercial transaction conditions of the 20th century. One major reason for criticism is the requirement that property must pass.

Reasonably shortly after the passing of the 1855 Act in Sanders v. Maclean, 1883, the judge significantly had the following to say about the passing of property and of the function of the bill of lading in general:

"A cargo at sea while in the hands of the carrier is necessarily incapable of physical delivery. During this period of transit and voyage, the bill of lading by the law merchant is universally recognised as its symbol, and the endorsement and delivery of the bill of lading operates as a symbolic delivery of the cargo. Property in the goods passes by such endorsement and delivery of the bill of lading, whenever it is the intention of the parties that the property should pass, just as under similar circumstances the property would pass by an actual delivery of the goods. And for the purpose of passing such property in the goods and completing the title of the endorsee to full possession thereof, the bill of lading, until complete delivery of the cargo has been made on the shore to someone rightfully claiming under it, remains in force as a symbol, and carries with it not only the full ownership of the goods, but also all rights created by the contract of carriage between the shipper and the shipowner. It is a key which in the hands of a rightful owner is intended to unlock the door of the warehouse, floating or feed, in which the goods may chance to be."

This requirement of "passing of property by consignment or endorsement" before a bill of lading holder can sue (and be sued) can and has created problems especially in the law and commerce of modem 20th century business transactions.

An early problem occurred when the Bill of lading was indorsed over to a bank.

The endorsement may not pass any property at all if a bill of lading is indorsed in favour of a bank as security for a loan. In this case the bank which is the holder o the bill of lading can bring no action for breach of contract under the section. Under an endorsement of a bill of lading to a bank as security, the property in the goods is not transferred. The bank cannot really deal with the goods. A mortgage is not created by the endorsement. What passes is only a special property that is as security, not the property. Therefore in such cases the Act will not apply. In an early case in which similar circumstances existed, Sewell v. Burdick, 1884, the Act was of little help to a bank.

In an early 20th century case, Brandt v. Liverpool, 1924, also involving a bank and a bill of lading indorsed to the bank, the court was at pains to find an "implied contract" between the endorsee and the shipowner on the basis that when delivery was made to the endorsee freight had been due so as to give the shipowner a lien on the cargo and the endorsee then presented the bill of lading and either paid the freight or undertook to pay the freight before taking delivery. If Freight is outstanding, the owners will have a lien on the cargo but the endorsee does not pay the freight nor undertake to pay it. In this situation, no contract of carriage will be implied between the shipowner and the endorsee. The chance of failure of the endorsee's obtaining an implied contract will be increased if the endorsee dues not present the bills of lading to the shipowner to obtain delivery.

Section 1 of the Act may not assist a claimant and although Brandt v. Liverpool contracts were devised by the courts, even these may be unhelpful to a claimant to whom the property in the goods does not pass.

Two modern cases also demonstrate that section 1 of the Bills of Lading Act may require amendment or repeal by the U.K. Parliament. The legal position of buyers of part of a bulk cargo under bill of lading may not have the protection that the Act seemed to provide for endorsees and consignees.

In The Aramis, 1989, the vessel loaded a bulk cargo in Argentina for discharge at more than one port in Europe. For the carriage, various bills of lading were issued, including one for 204 tonnes and another for 255 tonnes, each for carriage to Rotterdam. On the way to Rotterdam the vessel called at another port, where part of the bulk cargo was discharged. The two bills of lading were indorsed to two buyers.

At Rotterdam, agents of the buyer presented the first bill of lading and supervised the discharge. No cargo was discharged under this bill of lading. Agents of the second buyer also presented the bill of lading but obtained delivery of only 11.55 tonnes. There was a considerable shortage- of cargo. The possible reason was that too large a part of the bulk cargo was discharged at the previous port, (an "overdelivery"). The bills of lading related to cargo, which was part of a bulk.

Under the English Sale of Goods Act 1979, section 16 provides that "Where there is a contract for the sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained". This section of the Act is the same as a section in the earlier legislation, the Sale of Goods by Sea Act 1893. Unascertained goods are not identified at the time the contract is entered into. Part of a larger bulk cargo is unascertained: A portion of a bulk cargo shipment can be ascertained when the goods can be definitely and physically identified. In The Elafi, 1981, it was said: "What is needed for ascertainment is that the buyer should be able to say 'Those are my goods'. This requirement is satisfied if he can say, 'All those are my goods'. There is no need to say that any particular goods came from any particular source."

If the goods are "ascertained goods" property would pass by endorsement of the bill of lading and all rights under the contract of carriage would be transferred to the endorsee or consignee because of section 1 of the Bills of Lading Act. In The Aramis the buyers could show no contractual relationship between themselves and the shipowner because no property passed under section 16 of the Sale of Goods Act and therefore section 1 of the Bills of Lading Act could not apply. While the Court of Appeal had to follow orthodox principles of English law, modern buyers of parts of a larger bulk cargo will continue to be disadvantaged until there is some change in the English legislation, if the dispute has to be decided under the English (or similar) legal system. The mere endorsement of the bill of lading to a person does not pass the property in the goods. Something more needs to be done, as was done in Brandt v. Liverpool, 1924, where the bank as pledgee and endorsees of the bill of lading presented it and paid the freight that was due. In this situation, the English court was prepared to imply a contract between the endorsee and the shipowner.

The second modern case concerned The Delfini, 1990, also a decision of the English Court of Appeal. An oil trader purchased 100,000 tonnes of Algerian condensate from a supplier in Algeria. The trader sold between 20,000 and 25,000 tonnes to the first buyer. The first buyer sold an identical cargo to the second buyer. (This was an obvious resale and frequently occurs in oil trades where "chain sales" are transacted.) The vessel was chartered to carry the complete cargo from Algeria to Italy. The charterparty was governed by English law. Bills of lading were issued incorporating all terms, conditions and exceptions of the charterparty but this was not specifically identified. The bills of lading identified the oil supplier as "shipper”, and no consignees were named although the words "to order" were used in place of the consignees' names.

The vessel arrived at the discharging port after a short passage and before the documents (including the bills of lading) reached the oil trading firm. A day after the vessel's arrival the trader issued to the vessel's agents a "letter of indemnity" and, to the first buyer, an invoice for the cargo and also a "letter of indemnity" countersigned by a reputable bank. The first buyers invoiced the second buyers the same day and the vessel commenced discharging two days later. After yet another two days the discharging was completed. Three days after completion of discharge all payments were made under the invoices for the full quantity of cargo specified in the bills of lading. A week later, the bank received a complete set of shipping documents from the shipper. The bills of lading were indorsed and sent on to the first buyer. They were never presented to the shipowner or the owner's agents for cancellation.
Thus, the property transaction was completed before the bill of lading was indorsed and was independent of the bill of lading. The judge at first instance (before the appeal came to the Court of Appeal) decided that the property passed to the buyers on discharge of the oil from the vessel. This was before the bills of lading arrived. He decided that the bill of lading was no longer a document of title after the goods were discharged because the goods were already in the possession of the buyer. Subsequent endorsement was not necessary to pass property or entitlement to the property to the buyers. Therefore section 1 of the Bills of Lading Act 1855 could not apply and they could not claim under a contract of carriage for short delivery of the oil cargo. The judge was supported by the Court of Appeal.

The Delfini was applied in another 1990 case concerning The Filiatra Legacy, also carrying oil under bills of lading and again where there was an alleged short delivery. It was held by the court that the goods were ascertained on loading. The bill of lading was an "Order bill of lading" to the seller's order, resulting in the seller's having the right of disposal of the goods. Therefore the passing of property was deferred. The condition on which the seller exercised this control on the goods was the securing of the price exchanged for the shipping documents. The property in the goods passed to the buyers on shipment when the price was paid.

The buyer's claim against the shipowner was based on the assertion that the vessel retained the missing oil on board after completion of discharge. Because the property was held to pass to the buyers, they were successful in their claim.

The issue of chain sales of oil, short delivery of the cargo or part of it and section 1 of the Bills of Lading Act featured also in yet another, mid-1990 case, The Captain Gregos. The last purchasers of the oil were held to be subject to the terms in the bill of lading, which resulted in the one-year time limitation under the Hague-Visby Rules applying to claims under a bill of lading. The previous purchasers (seller to the last purchaser) did not have property at the time of the discharge because property already passed to the final purchasers. Therefore there were no bill of lading terms between this claimant and the shipowner nor an implied contract. Therefore this claimant was not governed by the one-year time bar.

While section 1 of the Bills of Lading Act may protect some consignees and endorsees by transferring a1l the rights (and liabilities) from the shipper to the consignee/endorsee, section 2 protects the original owner or shipper in a minor way but at the same time keeps alive the shipper's liabilities related to the payment of freight. The shipper or seller is firstly given a right of stoppage of the goods during their transit, especially if the buyer becomes insolvent. The seller may resume possession of the goods by giving a notice of his claim to the carrier. Such notice must be given before the carrier delivers the goods to the buyer, especially if the buyer presents a bill of lading and claims the goods. The goods can (and should) be returned to the seller or held for the -seller at his cost. However, if the consignee or buyer indorses the bill of lading to a third-party endorsee in good faith and for value, the seller's right of stoppage during transit comes to an end.

The section also imposes liabilities on the shipper for freight, especially i£ an endorsee does not pay the freight in spite of being required to do so. Section 2 does not seem to have created as many problems as section 1 and also section 3.

Section 3 is considered to have been an attempt to cure the problems caused by cases such as Grant v. Norway, 1851, for holders of bills of lading but there may be some areas where problems can still arise for B/L holders.

A bill of lading is essentially a receipt for cargo. This characteristic can be related to quantity, quality, identifying marks and condition of the cargo when it was shipped. If cargo is not leaded on board, the document issued as a receipt for cargo cannot be such a receipt and therefore cannot bind the carrier if the carrier's agent, for example the master, signs and issues the document. Grant v. Norway established that a master (or any other agent of the carrier) does not have the authority to sign bills of lading for goods not shipped. This is different under the English Law of Tort and Law of Agency where an employer can be made vicariously liable for negligent acts done by his employees or agents during the course of their employment. Grant v. Norway removed the fault in a cause of action against the carrier. A holder of a bill of lading would have to bring an action against the issuer of the bill of lading, possibly under breach of warranty of authority. Then section 3 of the Act provided:

"Every bill of lading in the hands of a consignee or endorsee for valuable consideration, representing goods to have been shipped, shall be conclusive evidence of such shipment as against the master or other person signing the same, notwithstanding that such goods or some part thereof may not have been so shipped, unless such holder of the bill of lading shall have actual notice at the time of receiving the same that the goods had not in fact been laden on board: . . ."

The section does not establish a definite cause of action (fault) against either the master or other person signing the bill of lading. It is not even conclusive evidence against the carrier. The section does not operate if there is a short delivery of cargo, only non delivery, because the cargo was not shipped at all. If section 3 was supposed to act as an "estoppel" by which the issuer of a bill of lading cannot dispute the accuracy of statements in the document-it relates only to quantity stated to have been shipped. The U.S. Pomerene Bills of Lading Act 1916 provides a protection also to other attributes of the cargo, such as identifying marks, quality and condition.

Despite the deficiency of section 3 of the U.K. Act, when the international Hague Rules were adopted in 1924, Art. III, r. 4, which deals with the evidence-status of the bill of lading, did not cure the principle. This was: “ . . . prima facie evidence of the receipt by the carrier of the goods as therein described in accordance with paragraphs 3(a),(b) and (c)."

"Prima facie evidence' is evidence that prevails until it is disproved by better evidence (by the earner). Paragraphs 3(a), (b) and (c) referred to identifying marks, quantity and condition, respectively, o£ the goods after they were received in the charge of the carrier. However, the evidence was only against the shipper, the original holder of the bill of lading.

In 1968, the amendments to the Hague Rules caused the implementation of the Hague-Visby Rules and a new sentence was added to Art. III, r. 4. The addition stated: "However, proof to the contrary shall not be admissible when the bill of lading is transferred to a third party acting in good faith."

The "third party" can be a consignee or endorsee and if "proof to the contrary shall not be admissible", this means that the evidence of the statements in the bill of lading is "conclusive" or that it cannot be contradicted. This is an estoppel against the carrier. However even this may not have solved the problems for a number of reasons. First , the Rule may not apply if there is no shipment of goods, only receipt by the carrier. Secondly, if there is no actual receipt or shipment there may be no contract of carriage and the document alleged to be a "bill of lading" may not be the evidence of the contract of carriage, which is one of the essential characteristics of a bill of lading. Thirdly, the Hague-Visby Rules may not always apply to carriage of goods by sea under bills of lading. Some bills of lading still contain a "Clause paramount" subjecting the carriage to the Hague Rules which do not have the second sentence of Art. III, r. 4. Finally, the "conclusive evidence" nature of the bill of lading may be diluted by a clause stating "Weight, Quality and Contents Unknown".

 

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