One of the functions of a bill of lading is to
act as a receipt for the cargo shipped. The bill must therefore contain an accurate
record of the quantity of cargo carried. This is often more complicated than it
may at first appear and this article looks at two of the key issues that can
arise.
Introduction
Bills of lading are the cornerstone of nearly
all contracts of carriage by sea. Once issued, a bill of lading:
(1) acts as a receipt for the cargo shipped;
(2) represents the contract of carriage between
the receiver and carrier; and
(3) is a document of title for the goods in
question and, in turn, a negotiable instrument.
By virtue of (3), property in the goods being
transported on board a ship can be passed from one buyer to another while the
sea carriage is still in progress, through what is known as an endorsement on
the bill.
The legal issues surrounding bills of lading
are vast, as are the international conventions that have been created by the
shipping community. These international conventions include the Hague1 and
Hague-Visby2 Rules and the Hamburg Rules3.
Ship versus shore figures
All three above-mentioned conventions require
that bills contain accurate and true information as to the quantity and
condition of the cargo loaded. For example, under Article III Rule 3 of the
Hague/Hague-Visby Rules, after receiving the cargo, and on the demand of the
shipper, the master is obliged to issue a bill of lading evincing, amongst
other things, the quantity of cargo to be carried.
A recurring problem many carriers face,
especially when loading liquid cargoes, is when the ship and shore figures show
different quantities of cargo. Ships rely on their individual tank gauges,
often as well as a draft survey, while shore-side terminals and facilities use
a variety of different
methods to calculate the quantity of cargo
provided to a ship. While no method is beyond repute, more often than not, a
shore-side terminal/facility will claim it has provided more cargo to a ship
than the amount the ship claims to have received.
Refusal to sign
In these circumstances, provided the master
has reasonable grounds for suspecting the quantity (or for that matter
condition) of the cargo loaded on board the ship is inaccurate, he may refuse
to sign the bill of lading ‘as presented’. However, if the master unreasonably
refuses to sign or
authorize the issue of a bill of lading with
the use of shore figures, he runs the risk of being in breach of Article III of
the Rules and possibly also liable to his charterer (under the subject charter)
for any delay and consequent costs/losses down the chain.
Case study
What constitutes a reasonable refusal will, as
with all things, turn on the particular facts of the case. However, the English
courts handed down some useful guidance in The Boukadoura4. In this
case, there was a difference between the shore and ship figures of about 1%.
The master was prepared to put both the ship and the shore figures on the bill
of lading, but the shippers refused and insisted on the shore figures being
used.
In an attempt to resolve the dispute, a second
draft survey was carried out by an independent surveyor. This confirmed the
ship’s figures, but the shippers nonetheless still refused to accept a bill of
lading showing the ship’s figures. Ultimately, and after considerable delay, a
bill of lading based on the ship’s figures was issued and the cargo was carried
to its destination and discharged, without any shortage claim. The charterer
subsequently claimed for the time lost due to the delay at the load port.
Although the charterparty provided for bills
of lading to be issued by the master ‘as presented’, the court agreed that the
master was only obliged to issue a bill lading for the quantity of cargo he reasonably
believed to have been loaded.
Reasonable refusal
There are no clear-cut guidelines to determine
when, or if, a master can reasonably refuse to issue a bill of lading if he
considers the quantity of cargo shown on the bill to be inaccurate. Each case
will turn on its individual facts and also largely depend on expert evidence
(including additional draft surveys). Further, and somewhat irrespective of the
law of the subject charterparty, the location and law of the loading port will
play an important role in any ‘budding’ dispute.
Therefore, as soon as a master is aware of a
problem in this respect, it is vital that he contacts the club or club’s local correspondent
for advice and guidance (ideally with personal attendance on board) before any
dispute escalates.
Other options
Other options available to a master (rather
than insisting upon a corrected bill of lading) include: demanding a letter of indemnity
(LOI) from the shipper and/or charterer, issuing a letter of protest (LOP) or
obtaining guidance from the local court as to the correct quantity of cargo loaded.
All of these options have their own shortcomings and, it should be mentioned,
club cover implications where a master or member issues a bill of lading with knowledge
that it contains an incorrect statement as to the quantity of cargo loaded on
board the ship 5.
Early Departure Procedure - Why is it used?
In many terminals, considerable pressure is
placed on the ship to leave the loading berth quickly. In such cases, tank
gauging and corresponding generation of documentation can often be performed in
a hurried fashion and the onus is always on the ship’s officers to ensure
errors are not made.
By definition, an Early Departure Procedure
(EDP) normally requires that the ship departs prior to the bill of lading
having been issued, and sometimes even before the quantity of cargo on board
has been officially determined. EDPs are especially prevalent in the North Sea
and the Middle East, and the practice raises a number of factual uncertainties and
possible legal liabilities for the shipowner.
We deal with these below. While an EDP is said
to be at the option of the visiting ship, in reality there is often heavy
pressure on an owner to comply. Terminals are keen to have maximum use of their
facilities and minimum delay to waiting ships.
Charterers are frequently worried about the
effect of delay on discharging schedules, as well as complications with regard
to laytime and demurrage.
It is known that an EDP is commonly a feature
of pre-fixture negotiations and that charterers often seek to use their
commercial clout with a view to the inclusion of express provisions stating an
owner’s acceptance of an EDP and corresponding deductions from laytime for any
‘lost’ time resulting from an owner’s non-compliance with it.
Who signs the bill?
Following an EDP, the bill of lading is usually
signed by the locally appointed agent, on behalf of the master, at some later
stage after the ship has sailed the port. The master will usually authorise the
agent, in writing, that he may sign the bill of lading on his behalf under
certain strict conditions. In this respect, we strongly recommend that an EDP
should not be followed unless the master has permission from his commercial
operator or the charterer.
Points to note
The master’s authorisation to the agent should
also be limited to the signing and releasing of the bills of lading only, and
be valid only when all details, including quantity/quality of cargo, have first
been approved by the master.
If possible, the local agents should be required
to fax a copy of the (draft) bills to the ship for the master’s approval prior
to utilising his authorisation to sign and release the bills of lading.
Upon receipt, the master would be well advised
to check through the drafts very carefully, prior to confirming his approval of
the agent’s signing them. In particular, when confronted with a draft bill of
lading, the master should examine the following aspects (on the face of the bill)
and ensure they accurately reflect his own records and information:
i) the quantity of cargo said to have been
loaded;
ii) the description and condition of cargo;
iii) the date;
iv) the description of the voyage, including
load and discharge port(s).
If the bill is incorrect
If a master or ship’s crew subsequently discover
that a bill has been issued incorrectly (and hopefully against their strict
instructions/written letter of authority), then they must notify their
management office immediately.
This should also be notified to the member’s
usual club claims handler as soon as possible, who will then be able to advise
the member how best to proceed so as to minimise problems and possible
liabilities at the discharge port(s). Such steps may include:
i) giving the consignee, or notify party, on
the face of the bill, written notice of the ship’s own figures;
ii) issuing LOPs to all interests, including
shippers, the charterer(s), charterer’s(s’) agents, and, if
possible, the consignee or notify party;
iii) a request for the shippers to attach a
copy of the LOP to the bill and to forward a copy of the protest to the buyers.
Such measures will probably not avoid
liability, but may avoid a claim for what will usually be a paper loss.
Cargo shortage
As indicated above, a port/terminal’s EDP can
sometimes ‘push’ a ship to anchorage even before the quantity of cargo on board
has been properly determined by the ship’s crew, by way of tank gauges and
draft surveys.
If this occurs, then there is no ‘benchmark’
against which the ship can check the loaded quantity against shore-side
figures, and thus there may be no immediate notification to the master of any
discrepancy.
It is vital that the implementation of an EDP
does not expose a ship to any unwarranted liability caused by, say, an
unexpected passage cargo ‘loss’, in turn attributed to unreliable gauging at
the load port shore-side terminal.
Whenever a ship and its crew come under
commercial pressure to vacate a loading terminal before they have had the
proper opportunity to verify the ship’s own figures, this must be resisted so
far as possible. The use of the vessel’s own agents is perhaps one way of
avoiding the EDP problem and the pressures involved, although it is appreciated
that, with isolated terminals, this will probably be difficult and costly. This
must however be compared to the risk exposure of issuing bills with incorrect
cargo figures.
Conclusion
Owners should seek to include an express
provision in the subject charter stating that an EDP is
not accepted, wherever this is commercially
possible.
This charterparty provision should be brought
to the attention of the master in order that he can resist commercial pressure
from the charterer and its representatives on site.
Bills of lading are not to be signed until the
accuracy of their contents have first been verified and, if necessary,
appropriately qualified by the master or the authorized agent of the master.
Owners willing to take a stance can take heart from the decision of the English
courts in the case of The Boukadoura. In that case, it was held that,
although the charterparty provided that bills of lading were to be signed ‘as
presented’, there was an implied requirement that the bills ‘as presented’
actually related to the cargo and did not contain a misdescription which was
known to be incorrect.
The use of the vessel’s own agents (where
commercially and financially viable) is perhaps one practical way of avoiding
the EDP problem or the pressures involved in inserting shore-side figures into
a bill of lading.
The member should contact the club as soon as
a discrepancy or dispute arises as to ship versus
shore-side figures at a load port. The club’s
local correspondents may be able to send someone
to attend on board to assist the master and
crew.
