Closing a deal between an unknown buyer and seller is difficult. Add to this the cross-border element and the many different agents on the way, and trade suddenly gets complicated. When goods are shipped and on their course on high seas, often neither the seller nor the buyer has physical ownership or possession of the goods, they could be with the warehouse operators, clearing agents, export customs, freight forwarders, import customs or port authorities. It’s no wonder people are often worried about the goods and their safety when in transit.

A bank financing the import of goods, therefore, needs to ensure that the goods are transported safely, to reach the end destination in one piece. They should have a clear understanding of the different modes of transport, the various transport documents involved and their significance, how to effectively retain control over the goods, as well as utilising insurance or other security enforcement measures to seize control in the case of goods going awry.

An introduction to the Bill of Lading: the most crucial document in international trade

The bill of lading is crucial to the smooth running of international trade. This is true for at least three reasons. First, rather than leaving goods inert in the hold of a ship, traders make valuable use of goods in transit by selling documents representing the goods. Secondly, the bill of lading plays a central part in letters of credit. Finally, the bill of lading guards the buyer on shipment terms against loss or damage in transit by giving him rights against the carrier. Approximately 90% of goods traded internationally are transported by sea. The Negotiable Bill of Lading (B/L) is a key document in almost all international trade transactions where the cargo is intended to be sold between trading partners during the course of its transportation by sea.

A history of the Bill of Lading

The paper Bill of Lading can be traced back to the 14th century. In its primitive form, it was a receipt indicating the nature of the cargo and the quantity. The owner of the goods would often travel with the cargo and sell it at the destination.

At that time, the function of the Bill was simpler: when the vessel arrived at its destination, the Owner of the goods would produce the Bill to the Master and direct him to release the cargo to his Buyer. 

As commerce became more complex and volumes increased, traders did not travel with the goods and needed to give the Master instructions: the custom, therefore, developed off writing Delivery Orders on the Bill telling the Master who to contact at the discharge port. By the 19th century, the utility of Bills of Lading was developed further as documents of title capable of automatically transferring contractual rights under the bill to the endorsee of the Bill.

Legislative developments in the 20th century, including the Hague and Hague – Visby Rules, further defined the rights and obligations applying to the carriage of goods under Bills of Lading.

Bill of Lading – is the “Title”defined?

There is surprisingly little agreement about what ‘title’ the bill of lading actually represents and according to the latest edition of Benjamin Sale of Goods – there is no authoritative definition of “document of title to goods” at common law. It is the word ‘title’ which causes difficulty- does it mean that:

The short answer is that the phrase ‘document of title’ is typically used to mean any number of these quite different concerns.

The three important functions of the marine bill of lading:

1. Evidence of Contract of Affreightment

The carrier may be the owner, charterer or freight forwarder and is the party who enters into a contract of carriage of goods with the shipper. Normally, the Master will be deemed to be in the employment of the shipowner and the Master’s signature will more often than not constitute a contract with the shipowner. Regardless of who the carrier is, the Master should assume that he will be signing the bills of lading or authorising another to sign on his behalf. The terms of carriage are usually found on the reverse side of the Bill of Lading; however, the carrier may have agreed to special terms of carriage with a charterer. Referencing the charter party in the bill of lading is important.

Many people think that a bill of lading is a contract between the Seller and the Buyer and many also think that a bill of lading is a contract of carriage between the Carrier and Shipper.

Bill of Lading is not the contract but evidence of the contract of carriage entered into between the “Carrier” and the “Shipper or Freight Owner” in order to carry out the transportation of the freight as per the contract between the buyer and the seller.

The contract between a shipper and the carrier was already established when the shipper or their third-party logistics provider made a booking with the carrier to carry the freight from A to B. It is that earlier agreement that holds and counts.

2. Evidence of shipment 

The function of receipt applies to all bills of lading whether negotiable or not, and to waybills. The Bill of Lading will normally provide evidence when the goods were received and their status on receipt in terms of marks (to identify the goods), apparent order and condition and number, quantity or weight.

3. Document of title

Title in the context of Bills of Lading means the right to possession of the goods from the carrier. It does not mean right to ownership – the sales contract usually determines this. If the right to possession of the goods from the carrier is determined by the possession of a document such as a Bill of Lading, then that document is a document of title. Therefore, the person presenting an original Bill of Lading is entitled to delivery of the goods at the place of destination. Where a negotiable Bill of Lading exists, it provides a constructive delivery of goods. This means that when a bill of lading is issued in negotiable form, ownership of the goods to which the Bill of Lading relates can be conveyed by transferring the document from one person to another.

Negotiability and title are subject to any previous defect in title – e.g. if the Bill of Lading has been stolen or fraudulently altered. In other words, a Bill of Lading is, in fact, a document of delivery, relating to the right of possession of the goods it mentions, not a document of title (which is a misnomer) relating to the right of property in those goods.

Under English law, the expression “documents of title to the goods” is used in two senses; a narrow common law sense and a much broader statutory sense. While there is no authoritative definition of documents of title to goods at common law, it would appear that “a document relating to goods, the transfer of which operates as a transfer of the constructive possession of the goods and may operate as a transfer of the property in them” suffices. The paper Bill of Lading meets this requirement and is recognized as a document at common law to the exclusion of any other class of documents.