The Charterer’s Rights and the Indemnity

The Hague-Visby Rules require that, after receiving the cargo, the carrier or his master or agent must on the shipper's demand issue to that shipper a bill of lading. More detailed provisions relating to the shipowner’s obligations with respect to issuing bill of lading (B/L) will be set out in the charterparty. For example, BPTIME 3 provides that “Bills of lading and waybills shall be signed as Charterers direct, without prejudice to this Charter”.

This obligation to sign bills of lading (B/Ls) “as directed” relates to the form of the bill of lading (B/L), not the facts it states: it does not require or condone the signing of bills of lading (B/Ls) which are inaccurate. A carrier cannot, for example, be obliged to sign a B/L which misstates the quantity or quality of the cargo.

The charterer’s right to direct the form and content of the bill of lading (B/L) is balanced by the indemnity included in the charterparty by which the charterer agrees to indemnify the shipowner “against all liabilities that may arise from signing the bills of lading and waybills in accordance with the directions of Charterers to the extent that such bills of lading and waybills impose more onerous liabilities than those assumed by Owners under the terms of this Charter” (example taken from BPTIME 3).

Statements about Quality and Quantity

Both the Hague and Hague-Visby Rules provide that the description of the cargo in a bill of lading (B/L) (weight, condition, etc.) "shall be prima facie evidence" of the correctness of the description so given. Under the Hague-Visby Rules, when the bill of lading (B/L) is transferred to a third party in good faith, the statements describing the cargo become conclusive because "proof to the contrary shall not be admissible" (HVR, Art III, r.4).

However, it can be difficult for the carrier to ascertain the condition of the cargo and there can be genuine debate about the exact amount of cargo on board. It is for this reason that most bills of lading (B/Ls) include a phrase such as "weight and condition unknown" and "apparent good order and condition" (or an equivalent). By the inclusion of these provisions, a holder of the bill of lading (B/L) will not be entitled to claim against the carrier for any shortfall or shortcomings by basing his claim on the bill of lading particulars. However, these provisions are only effective in cases of genuine doubt, or where checking is not possible. They cannot be used to cover known discrepancies, or discrepancies which could readily have been detected.

Clean and Claused B/Ls

A "clean" bill of lading (B/L) is issued when the master has no reason to doubt the apparent good order and condition of the cargo when shipped. If is it apparent to the master that the goods are in fact damaged, he must describe the damage to the cargo on the front of the bill of lading (B/L), in which case the bill of lading (B/L) is described as "claused". For example, a bill of lading (B/L) will be "claused" if it includes reference to discoloration or contamination of the cargo, or to the volume loaded being in dispute.

The statements "weight and condition unknown" or "apparent good order and condition" will not prevent the bill being clean. However, these phrases are no protection against defects or shortages which are, or should have been, apparent. A shipowner’s failure accurately to describe the cargo or its quantity or condition in the bill of lading (B/L) may entitle his P&I Club to avoid claims for resulting damage.

Shippers sometimes try to persuade carriers to sign a "clean" bill of lading (B/L) and accept a Letter of Indemnity for any losses arising from their failure to "clause" the bill of lading (B/L) . This will only be acceptable when there is a genuine difference of opinion as to the condition or description of the goods. If the defects in the goods are clear, the LOI route will not protect the owner as the LOI will be deemed unenforceable by the courts. Such an LOI is seen as an agreement between the carrier and the shipper to commit a fraud on an innocent third party (the holder of the B/L) by concealing the true condition of the goods, and is therefore unenforceable as a matter of public policy.

Dating a bill of lading (B/L)

The B/L must be dated the date of completion of loading of the cargo covered by the bill. Misdating a bill may constitute fraud and a carrier will not be entitled to claim under his P&I insurance for any losses arising from misdating the bill of lading (B/L). In such circumstances, a letter of indemnity from the shipper/charterer will not be enforceable (because it is designed to facilitate the issuance of a false bill of lading (B/L)) and is therefore of no assistance to the shipowner.

Signing a bill of lading (B/L) 

When the cargo has been loaded, the shipper must present a B/L to the master or his agent for signature within a reasonable time. The bill of lading (B/L) can be signed by the Master, the ship’s agent (following an express letter of authority signed by the Master), the charterers (who may be authorised either by virtue of the charterparty or by express letter of authority from the Master) or the shipowner’s head office, in all cases subject to the Master confirming the contents of the bill of lading (B/L).

Amending a bill of lading (B/L) , Switch and Split

Where a blending or commingling of two separate parcels of cargo en route is required by the charterers, the bills of lading (B/Ls) already issued for the shipment will need to be switched. Charterparties have detailed blending provisions. For example, Exxon Mobil uses the following clause in its voyage charters: “Charterer will surrender to Master all original Bills of Lading (B/Ls) for the unblended cargo and the Master will provide new consolidated Bills of Lading (B/Ls) on completion of blending operations which Bills of Lading will reflect the actual grade that has been blended.”

Similar principles apply where a bill of lading (B/L) holder requires a cargo covered by one bill of lading (B/L) is to be "split" for discharge as two or more separate parcels. Provided that all originals are surrendered and the "split" bills accurately record the origin and description of the cargo, it is difficult to see that the carrier will incur any liabilities arising simply from dividing of the cargo parcels.

However, as noted in INTERTANKO’s Practical Guide to Tanker Bills of Lading, “The other eventuality in which switched bills of lading may be envisaged is in order to avoid the impact of such matters as trade embargoes. Any such device is almost certain to involve the infringement of at least one country's laws, as for example by falsifying the state of origin of the cargo. The parties to such practices will usually be well aware of the manifest illegality of what they are doing. They are also likely to understand the possible consequences of such illegalities, including as they do the possible seizure of both ship and cargo. Where illegality is involved in a bill of lading switch, an indemnity arrangement will be of no avail as it would be legally unenforceable.”

Production and Delivery

The bill of lading (B/L) is the "key" to the goods. Once the master has issued a negotiable bill of lading (B/L), he has imposed on the shipowner a contractual obligation to deliver the cargo to any person to whom that bill of lading (B/L) is negotiated and a corresponding duty not to deliver the goods without its presentation. This contractual obligation is enforceable by the holder of the bill of lading (B/L). 

However, as identified by INTERTANKO in its Practical Guide to Tanker Bills of Lading “It is nowadays unusual for an original bill of lading to be available for presentation at the discharge port. This is not (of course) because communications in general have slowed down; it is because very many cargoes are now traded while in transit - not just once or twice but in some cases more than a hundred times. Since most such trades will require to be financed through banks, and on credit terms for at least one party, it often becomes impossible for an original bill to be available at the discharge port. The right and duty of the master to deliver the cargo to the first person to present an original bill of lading at the discharge port is a basic principle of maritime law, but it has little contact with reality in modern trading conditions.”

As a result, cargoes are delivered against Letters of Indemnity in which the Charterer identifies the person to whom the master should deliver the cargo and agrees to indemnify the carrier if he suffers any loss as a result of delivering to such person. In agreeing to deliver on these terms, the carrier is taking an obvious risk as he does not obtain a good discharge unless the person to whom he delivers the cargo is the person entitled to it. In addition, the Carrier will lose his P&I Cover if he delivers without production of the original bill of lading (B/L). Essentially, the LOI (which is rarely backed by a bank guarantee) takes the place of the carrier’s P&I cover.

It is also worth noting that delivery under an LOI does not give the carrier a blanket indemnity. The Carrier still has to check that the person taking physical possession of the cargo is the person identified as the recipient of the cargo under the LOI. The standard LOI wording prepared by the IG provides that the Carrier will be indemnified if he delivers the cargo to the receiver named in the LOI – so the Carrier needs to check to ensure that the person physically taking delivery of the cargo at the discharge port represents the receiver named in the LOI. This is also reflected in the most recent case we are aware of on delivery under LOIs - The Bremen Max (2009 LLR 1 at 81). In this case, the Court found that the Carrier has a duty to ensure that he delivers to the person identified in the LOI, failing which the LOI will not protect the Carrier.