ASM – Bill of Lading (D.

Gautama)
Q- a) State three different functions that Bill of Lading is said to fulfill.
b) The charterer demands that a clean Bill of Lading be issued. What recourse the
Master has under these conditions? (P-20,23)

Answer:
A Bill of Lading fulfills the following functions:
1. It is a receipt for the goods received on board.
2. It is document of title.
3. It is an evidence of a contract.
The Bill of Lading is a ‘quasi-negotiable’ document.
If a charterer demands a clean Bill of Lading despite the fact the cargo received is not in a
condition that warrants that, then the Master should :
a) Ask for a Letter of Indemnity backed by a Bank Guarantee.
b) Contact Owners and check whether Charterers have given any form of undertaking which
is within the Charter Party clauses that can demand a clean Bill of Lading.

Further, it should be noted that :

A "clean" Bill of Lading :
As a general rule, the carrier must, on demand of the shipper, issue a Bill of Lading showing "the
apparent order and condition" of the cargo at the time of loading.

A "clean" Bill of Lading is one which describes the cargo as being in "apparent good order and
condition", without containing adverse remarks. A clean Bill of Lading is effectively a
representation that, at the time of shipment, the cargo was in good order and condition as far as
would be apparent from the type of inspection which a reasonable carrier could be expected to
make. This representation will usually prevent the carrier from arguing that any damage to the
cargo occurred before the cargo was received into his custody.

For example, if a carrier issues a clean Bill of Lading for steel coils which were rust stained
before shipment, the carrier can usually be held liable to the receiver for that rust staining. The
carrier cannot argue that the coils were already rust stained when loaded onto his vessel, because
he is bound by the clean Bill of Lading he issued.

The statements in the Bill of Lading as to the apparent order and condition must be accurate: the
carrier is not protected if he or the Master use reasonable care but still issue an inaccurate Bill.
Consequently, if in doubt the Master should seek guidance from the Club Correspondent or a
Surveyor appointed to assist. Any remarks on the Bill of Lading usually reflect remarks in the
Mate s Receipts, so the remarks in the Mate s Receipts must also be accurate.

Letters of Indemnity
In the "real world", the shippers often need a clean Bill of Lading for their sales contracts or
letters of credit and they may attempt to persuade the vessel's Charterers or Owners to issue a
clean Bill, even though the cargo is obviously not in apparent good order and condition.

In return for a clean Bill of Lading, the shipper will often offer a Letter of Indemnity which, on
its face, appears to indemnify the owner or charterer against all possible consequences of issuing
a clean Bill of Lading.
It is, however, extremely dangerous to issue a clean Bill of Lading in these circumstances.
Firstly, the issue of a Bill of Lading containing a false statement is a crime in many countries, as
it is, in essence, a conspiracy by the shipper and the carrier to defraud the receiver. Secondly, any
Letter of Indemnity would almost certainly be legally unenforceable. Even where shippers have
honoured such Letters of Indemnity in past cases (for commercial reasons) they may not do so in
future cases, where the sum involved is more substantial and where there is a dispute as to the
extent to which damage has a pre-shipment origin. Thirdly, the Member will lose his P&I cover
if he issues, or authorizes the issue of, a clean Bill of Lading for cargo which he knows is
damaged. The only circumstances where a Letter of Indemnity may be acceptable is where there
is a genuine dispute as to whether a clean Bill of Lading should be issued.

Claused Bills of Lading

Where the cargo is not in apparent good order and condition, the carrier is entitled to insist on the
Bill of Lading being claused.

If there is no Charterparty applicable, the carrier can probably decide on his own wording for the
clausing, provided that the wording is neither inaccurate nor misleading. However, if the carrier
exaggerates the severity of any damage or defects, he may be liable to the shippers.

If there is a Charterparty, the carrier may be under an obligation to issue Bills of Lading "as
presented". In those circumstances, the shippers are probably entitled to decide on their own
wording for the clausing but the carrier is still not obliged to accept that clausing if it is
inaccurate or misleading.

As a general rule, a carrier should attempt to agree the wording of clausing with the shippers: in
practice, the pre-shipment Surveyor will, at many ports, negotiate routine clausing with the
shippers on behalf of the carrier. If, however, an agreement cannot be reached, in cases where the
dispute may be significant, the Club should be notified (either directly or through its
Correspondents) since there may not only be a factual or expert dispute (as to the extent to which
the cargo is not in apparent good order and condition) but a legal dispute as to the identity of the
party entitled to decide on the precise wording of any clausing.

Q. Highlight the importance of a Bill of Lading and enumerate the precautions to be

exercised by the Master prior signing Bills of Lading. ( P-59)
Explain the procedure for delivery of cargo if “To Order” is incorporated in the column
where consignees name is to be inserted.
Answer:
A Bill of Lading is an important document because it is a :
a) Receipt for goods received on board
b) It is an evidence of a contract
c) It is a document of title and a quasi-negotiable document.

The importance of the bill of lading can be understood by considering the following chain of
events of a transaction.
An individual wishing to ship a consignment of goods overseas approaches a shipping line by
reserving space on the vessel. This may be done directly or through an agent. The carrier then
instructs the place and time of delivery of the goods and the individual is then issued with a
receipt indicating the type and quantity of the goods and the condition in which the carrier’s
agent received them. Then, the carrier is responsible for the goods.

The shipper , meanwhile, gets a copy of the carrier’s bill of lading form. He will enter details
regarding the type, quantity of goods shipped together with any relevant marks, the port of
destination and the name of the consignee. The carrier’s agent will check the cargo details
against the tallies at eh time of loading and will acknowledge them. The freight will be
calculated and then the bill will be signed and will be given to the shipper. The shipper may then
directly dispatch the bill to the consignee or through a bank in the case of international sales
contract by documentary credit.

The consignee may decide to sell the goods while in transit then he may indorse the bill in favour
of the purchaser. Eventually the consignee or indorsee will surrender the bill at the port of
discharge in return for delivery of the goods.

What is meaning of “To Order” in a Bill of Lading?

Bill of Lading (B/L) that is written (drawn) 'To Order' of the consignee and is, therefore, a
negotiable-instrument of title. Ownership of goods covered under it can be transferred by one
party to another by signature (endorsement) and delivery of the B/L. Generally, goods which
have not been paid-for in advance (goods sent under an open-account or a letter-of-credit) are
shipped under 'To Order' B/L which is of two types
(1) To Order, Blank Endorsed: not consigned to any named party but 'To Order' of the consignor,
with the intended-consignee's name given under 'notify party.' The consignor must stamp and
sign (endorse) this B/L so that its title can be transferred. (see blank endorsement).
(2) To Order, Bank: consigned to a bank with the intended consignee's name given under 'notify
party.' The bank endorses the B/L to the intended consignee against payment of (or a pledge to
pay) the amount of the accompanying bill of exchange.
'To Order' B/Ls are used commonly in letter of credit transactions, and may be bought, sold, or
traded, or used as security for borrowing money from banks or other lenders.

Questions in ASM Papers:

Q.4. (P 27) What are the precautions to be observed by a Ship Master prior to signing a Bill of
Lading (B/L) under Voyage Charter and under Time Charter. Explain the meaning and
importance of “Paramount Clause” when it is included in the Bill of Lading. (Also P-43, Q2).
Q.3(b). ( P-40) Under a voyage charter B/Ls are presented for signing, what clauses would you
ensure the B/Ls should normally contain.