If a bill of lading is an evidence of contract of carriage, then what is a contract of carriage..??

A Bill of Lading is one of the most important documents in the shipping cycle and comes in different forms such as Negotiable or Order Bill of Lading, Sea Waybill or Express Bill of Lading and Straight Bill of Lading with further permutations and combinations such as Port to Port Bill of Lading, Combined Transport Bill of Lading or Multimodal Bill of Lading and Through Bill of Lading ..

As most of you may know by now, a Bill of Lading has 3 basic purposes or roles..

1. Evidence of Contract of Carriage;
2. Receipt of Goods; and
3. Document of Title to the goods

In its role as Evidence of Contract of Carriage, the emphasis is on the term “Evidence” because contrary to popular belief, a Bill of Lading is neither

1. a contract between the Seller and the Buyer nor
2. a contract of carriage between the Carrier and Shipper

So if the bill of lading is the evidence of the contract of carriage, then what is the contract of carriage..?? This is the question in the minds of many in the industry and I will try to shed some light on this issue here..

Cornell Law School defines a Contract as

An agreement between private parties creating mutual obligations enforceable by law.  The basic elements required for the agreement to be a legally enforceable contract are: mutual assent, expressed by a valid offer and acceptance; adequate consideration; capacity; and legality.

As per the definition of many shipping lines,

Carriage means the whole or any part of the operations and services undertaken by the Carrier in respect of the Goods covered by their Bill of Lading.

A contract of carriage may, therefore, be defined as an agreement that is concluded between a carrier and a customer for the carriage of goods from Point A to Point B by the carrier against payment of freight by the customer..

As per this definition, one of the basic elements of a contract of carriage is a valid offer and acceptance..

In the case of an ocean freight shipping transaction, an offer and acceptance can start with a freight quotation by the carrier and acceptance of the same by the customer..

The acceptance can be in the form of an email confirming the acceptance of quoted rates or a booking placed with the carrier..

Traditionally, a contract of carriage is concluded prior to the issue of a bill of lading and the contract of carriage will provide clauses like below which says that the shipment shall be subject to the terms and conditions of the Bill of Lading..

This Booking Confirmation is issued at the request and for the convenience of the Merchant, but is nevertheless subject to the terms and conditions of the Carrier’s standard long term Bill of Lading for this trade which may be viewed online or a copy can be obtained from the Carrier or its agents.

This carrier is referring specifically to a “standard long term Bill of Lading” so that it is not confused with a “short-form Bill of Lading“..

The popularly used conventions and rules covering the Carriage of Goods by Sea define Contract of Carriage as below:

The relevant conventions that govern the carriage can be identified by referring to Page 1 (Terms and Conditions – usually referred to as ‘Reverse or back of the bill of lading’) of any carrier’s bill of lading..

This the reason that the Bill of Lading is termed as the “Evidence of Contract of Carriage” as the Contract of Carriage was already created when the carrier made the offer and customer confirmed acceptance and cargo was loaded on board before the bill of lading was even issued..

There are a few types of contracts that are made prior to the issue of a bill of lading – Charter parties, Contracts of Carriage, Agreements to arrange carriage or simple booking notes protecting space on board a ship..

There are also cases where Bill of Lading becomes a Contract of Carriage and cases where Bills of Lading refer to the contract of carriage for the terms and conditions..

Therefore, it is very important to understand the relationship between a Contract of Carriage and Bill of Lading and the effects of these two documents on the various parties involved..

 

Is there no tangible or visible Contract of Carriage..??

The bill of lading as evidence of the contract of carriage applies to shipments where shippers ship cargo in small quantities using either containerised service or break bulk service where there are no full charters or charter parties involved..

In the case of container shipments, an email or phone call by the customer to the carrier asking for a booking to be made or a booking confirmation sent by a carrier to a customer is considered to be a Contract of Carriage made on the basis of an offer and acceptance and governed by the terms and conditions referenced in the bill of lading..

But there are also cases where the Bill of Lading is considered to be a Contract of Carriage..

Where charter parties are involved, especially where the shipper charters the entire ship from the owner, the bill of lading issued along with a charter party does not evidence the terms of the contract of carriage between shipowner and cargo owner because in this case, the contract between them is governed solely by the terms of the charter party..

In cases where the contract is governed by the charter party, the Bills issued to a charterer acts merely as a receipt for the cargo received and shipped and as a document of title in case the charterer decides to sell the goods while they are still in transit..

The bill of lading will, however, typically identify the charter party which is applicable to the carriage of the goods by reference to the date and place of the charter party..

There are cases where it has been established that when reference is made to a specific voyage charter party in a bill of lading, a copy of that charter party should also be presented along with the bill of lading in the event the bill of lading is endorsed to a new holder as the voyage charter party is the Contract of Carriage..

If there are no references made to the charter party in the bill of lading or vice versa, this could be considered as two separate contracts between the same parties for the carriage of the same goods which means these two could be in conflict..

As per industry experts, where there is a conflict between incorporated terms and terms printed on the bill of lading itself, then the printed term will prevail over any incorporated term..

A bill of lading becomes a contract of carriage when it is endorsed to someone who is not a party to the voyage charter as that then creates a new contract between new parties..

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