by Michael Peiris

I would like to address the article on the received for shipment bill of lading by Shariar Masum in the October-December 2011 issue of DCInsight.

In the article, Mr Masum contended that the received for shipment bill of lading has attained an equal legal status and importance as that of the on board bill of lading since the Carriage of Goods by SeaAct of 1992 (COGSA). Mr Masum even proposed to treat a received for shipment B/L as a complying B/L under the UCP.

However, I am unable to ascertain why Mr Masum found it necessary to make this argument. I cannot point to any article in UCP 600 stating that a received for shipment B/L is an unacceptable document in letter of credit transactions. Instead, article 19, which deals with multimodal transport documents, includes a provision to accept bills of lading that indicate a taking in charge equivalent to a received for shipment B/L.

UCP and the received for shipment B/L

An experienced documentary checker looking at the documents presented and the Incoterms of the transaction should know which UCP article is to be applied. For example, if the description of goods states the terms of delivery as "CIF Colombo", the documentary checker should know that he has to examine the bill of lading as per article 20 of UCP 600, since article 19 deals with multimodal transport or transport documents covering at least two different modes of transport. The reason is that Incoterms CIF is applicable only for sea shipment, and the risks associated with delivery will be passed to the consignee at the loading point.

In such a situation, the B/L is required to show, either in the text or as a notation, that the cargo has been taken on board the named ship. If, on the other hand, the description uses the Incoterm "CIP Colombo" with or without mentioning a loading port, the carrier would issue a bill of lading stating a taking in charge or a received for shipment B/L at a place of its business(CFS/CY) in the exporter's country, stating the destination as Colombo.

Apart from the above, if the transport document shows that it covers a shipment from the place of taking in charge or port to the place of final destination mentioned in a letter of credit, the transport document must not show that shipment or dispatch has been effected by only one mode of transport. However, as per ISBP 681, the document may be silent regarding the modes of transport used. According to the latest thinking, the term "on board" does not necessarily mean on board the ship but on board the first carrier, which could even be a truck.

It is not correct to assume that the carrier or the ship-owner can always deny liability for goods that have been taken on board. Therefore, it does not make any difference in accepting a received for shipment B/L instead of an on board B/L. It is true that in the past various courts have decided in favour of ship-owners that have denied liability with regard to goods reported to have been taken on board by their masters, even before and after the enactment of legislation designed to protect the contracting parties.

Transfer of property and contractual rights

The UK Bill of Lading Act 1855 was said to be a result of an attempt to reverse the decision in Thompson vs Dominy (1845), which denied the transferee's authority to sue the carrier for alleged incomplete delivery of cargo. However, with the enactment of the 1855 Act it became clear that transfer of the B/L passes property in goods as well as the contractual rights and liabilities.

As pointed out in Mr Masum's article, in Grant vs Norway (1851) just four years before the Bill of Lading Act was passed, another controversial verdict was delivered by Jervis CJ, clearing the ship-owner from liability for non-delivery of cargo despite having issued a B/L signed by his master. This verdict concerned the authority of the master who had signed the bill of lading. The case was filed by the plaintiff against the ship-owner for tort, and it was later proved that no goods had been taken on board and the master had no authority to sign a B/L unless the relevant goods had been taken on board.

This decision has long been regarded as out of line with other agency authorities, and its effect was to reduce significantly the value of a bill of lading in the hands of an endorsee for value. However, the immediate reaction to the judgment was the introduction of section 3 of The Bill of Lading Act 1855, which stipulates that "every bill of lading in the hands of a consignee or indorsee for valuable consideration, representing goods to have been shipped, shall be conclusive evidence of such shipment as against that master or other person signing the same, notwithstanding that such goods or some part thereof may not have been shipped ... Provided that the master or other person so signing may exonerate himself in respect of such misrepresentation by showing that it was caused without any default on his part."

Although it appeared that section 3 of the Bill of Lading Act 1855 remedied the defect of Grant v Norway, it did not clear up the question of whether to hold the ship-owner responsible for non-delivery after it had issued a B/L as a received for shipment or an on board B/L. It does provide conclusive evidence against the master or anyone signing the document for the goods received for shipment on board the vessel. However, it does not provide a cause of action against him; therefore, if no goods are shipped there will still be no contract of carriage.

At the same time, one has to understand that by the law of merchant (ITALICS lex mercatoria) a bill of lading is universally recognized as a symbol of the goods; thus, the endorsement and delivery of the B/L operates as a symbolic delivery of the cargo. However, a bill of lading is not negotiable in the sense of bills of exchange are. Hence, the holder who endorses a B/L cannot give a better title than the one he has.

Accordingly, a shipper that has obtained a B/L through unwarranted means without shipping the goods does not have a title to pass on to the endorsee; therefore, whether it is an on board or a received for shipment B/L, the endorsee cannot sue the carrier for non-delivery.

Conclusive evidence and cause of action

What has the 1992 Carriage of Goods by Sea Act has done to remedy the above situation? Section 4 of the Act (Hamburg Rules) stipulates:

"A bill of lading which
- Represents goods to have shipped on board a vessel or received for shipment on board a vessel; and br/>Has been signed by the master of the vessel or by a person who was not the master but had the express, implied or apparent authority of the carrier to sign bills of lading, br/>Shall in favour of a person who has become the lawful holder of the bill, be conclusive evidence against the carrier of the shipment of the goods or, as the case may be, of their receipt for shipment."

One clarification in Section 4 was to provide conclusive evidence of responsibility of the carrier - not just the master as stipulated in Section 3 of the 1855 Act - in cases where shipment or receipt for shipment is involved. Even so, Section 4 did not change the earlier Act as regards a cause of action. Therefore, if no goods are shipped, the nullity argument from Heskel v Continental Express Ltd (1949) may still apply.

Court cases, legislation and the UCP

These examples make it clear that even with all the changes made in legislation, there is still no clarity with regard to making ship-owners or masters liable for the loss of cargo or non-delivery without an established cause of action. In the past, before issuing their judgments against or in favour of ship-owners, courts have independently established a cause of action without having conclusive evidence against masters or shipping brokers. I presume this trend will continue. Yet the acceptability and reliability of an on board bill of lading as a key to helping genuine traders buy and sell goods in mid-sea may not be changed in the near future.

In spite of this, ICC has carefully followed developments in transport technology and has made the necessary changes in the UCP to accept either received for shipment or on board B/Ls, as the case may be, depending on the nature of the underlying contract as stipulated by the applicant. In view of this, I see no reason to assert that COGSA 1992 has opened the way for the UCP to treat the received for shipment B/L as it does the on board B/L, since such provisions have been included in UCP from the 1974 revision onward.

Michael Peiris is Consultant to ICC Sri Lanka (ICCSL) and Chair of the ICCSL Banking Committee. He is former Head of Trade Finance in the Union Bank of Colombo and Chief Manager International Operations in the Hatton National Bank PLC, also in Colombo.

His e-mail is