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The Association occasionally comes acrosstransport documents issued by carriers in through transport where inaccuraciescan be spotted. These refer mainly to the manner in which feeder bills of ladingare completed, especially in what concerns the identity of the parties to thedocument.

 

In this article we will deal solely withthe so-called ‘pure’ through bill of lading, that is, a bill under which theissuer (or contractual carrier) undertakes as principal to deliver (or procureothers to deliver) the cargo to final destination, and remains responsiblethroughout the carriage.

 

Transhipment under through transport

In the operation of through transport acarrier (hereafter called “TT carrier”) may sub-contract parts of the carriageto another carrier (hereafter called “feeder”).

 

Bills of lading issued by TT carriers forthrough transport normally contain a clause conferring a liberty on them tosub-contract the whole or any part of the carriage of the goods.1Accordingly, where the carrier makes use of such liberty, cargo interests  will contract with the TT carrier, who inturn will sub-contract with a feeder. In this case cargo interests do notautomatically enter into a contractual relationship with the feeder. Thesub-contract is between the TT carrier and the feeder.

 

For the sake of illustration we will usethe following example, which is typical in through transport. A TT carrier (A)issues a bill of lading to shippers (S) for carriage of a container  from Hong Kong to Seattle, with a clauseconferring liberty on him to sub-contract the whole or any part of the carriageof the goods. The cargo is loaded on to A’s vessel in Hong Kong. However, A’svessel is not scheduled to call at Seattle at all, but instead brings thecontainer to San Francisco, where it is transhipped on board a feeder vessel(B). The feeder issues a bill of lading for carriage of the cargo from SanFrancisco to Seattle.

 

In cases similar to the above example theTT bill of lading is normally issued correctly, naming the parties to thedocument as follows: 

 

Carrier: A

Shipper: S

Consignee: either “to order” or a namedreceiver in Santos, say R

The feeder bill of lading, however, is notalways issued in a proper manner, as will be noted below.

 

The functions of the feeder bill of lading

Contractual Function

The feeder bill of lading should beevidence of a contract between the TT carrier and the feeder. The TT carrier,by choosing to sub-contract part of the carriage contracted under the terms ofthe TT bill of lading, hires the feeder to perform that part of the carriage.

 

Receipt Function

The TT carrier himself (or his agent at thetranshipment port) is the party from whom the feeder receives the cargo at thetranshipment port. Accordingly, the feeder bill of lading should be a receiptfor the goods issued by the feeder to the TT carrier (or his agent at thetranshipment port).

 

Control Function

When the TT carrier gives the feeder thecargo for carriage he must make sure that he keeps control over possession ofthe cargo in order to secure delivery under the TT bill of lading. Consequentlythe feeder bill should at all times be a document entitling the TT carrier tocontrol the delivery of the goods at the final destination.

 

It is the TT bill of lading (and not thefeeder bill) which is issued to the cargo interests, and is therefore theshipping document negotiated by them under a letter of credit or other form offinancing. This means that there is generally no need for the feeder bill oflading to be issued in negotiable form.

 

The details in the feeder bill

The Carrier

As a rule the carrier is correctlyidentified in feeder bills of lading. In the example mentioned above, B wouldbe identified as the carrier. This rarely causes problems in practice.

 

The Shippers

One common mistake in feeder bills oflading is to name the shippers under the through bill of lading also asshippers under the feeder bill. In the example above this would mean naming Sas shippers. However, this may have several consequences, which may not beintended by the parties.

 

The bill of lading so issued is a statementthat the feeder received the cargo from S. However, in fact the feeder does notreceive the cargo from S, and therefore cannot give him a receipt for thegoods. As mentioned above, the TT carrier himself (or his agent at thetranshipment port) is the party from whom the feeder receives the cargo at thetranshipment port, and should appear as shipper of the cargo in the feederbill.

 

Where the TT carrier instructs the feederto name S as shipper in the feeder bill of lading, the TT carrier must haveauthority from S to do so. This is because naming somebody as shipper in a billof lading may give this person rights and liabilities under the bill. Forexample, under English law there is an implied obligation on shippers not toship dangerous goods without notifying the carrier (see article in Gard News139 on this point). Also, under the Hague and Hague-Visby Rules shippers areliable to indemnify the carrier against loss, damages and expenses arising orresulting from inaccuracies in the particulars inserted in the bill of ladingas to marks, number, quantity and weight as furnished by them. 

 

In cases where there is potential liabilityon the shippers, and where the shippers under the TT bill of lading are namedas shippers under the feeder bill on the instructions of a TT carrier who didnot have authority to do so, it would appear that two consequences may follow:either the feeder may be unable to enforce any rights against S as shippers,or, if he does, S may have a recourse action against the TT carrier for alllosses arising from having been named as shippers in the feeder bill.

 

Naming somebody other than the TT carrieras shippers under the feeder bill of lading may also create confusion as to whothe parties to the contract evidenced by the feeder bill are. The feeder billmay appear on its face to evidence a contract between the feeder and the thirdparty named in the bill, as opposed to the TT carrier. However, there is nointention on the part of the third party (in the example, S) to enter suchcontract. S has contracted with A for the through carriage, and has noknowledge of the actual contract with B. Through the liberty clause in the TTbill of lading cargo interests give the TT carrier the liberty to sub-contractthe carriage in his own name (that is, in the TT carrier’s name). The clause inquestion does not give A authority to bind S contractually to another carrier.2Accordingly, the feeder bill of lading issued as above does not evidence orcreate a contract between cargo interests and the feeder (although it doescreate much confusion).

 

Therefore the feeder bill of lading muststate who the shippers of the cargo for that part of the journey actually are.In the absence of  an agencyrelationship entitling the TT carrier to name a third party as shipper underthe feeder bill, the shipper will in fact be the TT carrier (or his agent atthe transhipment port), since he is the party presenting the cargo to thefeeder for carriage. Naming the TT carrier as shipper in this case will alsomake clear that  the contract evidencedby the bill is a contract between the feeder and the TT carrier.

 

Delivery instructions

The feeder bill must indicate the party towhom delivery is to be made. This will of course depend on the instructionsgiven by the shipper (the TT carrier in this case). As mentioned above, the TTcarrier must ensure that he preserves control over the cargo until delivery ismade to the final receivers under the TT bill of lading.

 

In practice this can be achieved throughthe TT carrier instructing the feeder to deliver the cargo to himself (the TTcarrier) or his agents at the discharge port named in the feeder bill, who inturn will deliver the cargo to the final receiver against presentation of theTT bill of lading. Accordingly, the feeder bill of lading should be issued in aform similar to that of a “house” bill.3 This implies that thedocument should be issued in non-negotiable form.

 

However, that is not always what theparties do. TT carriers many times give feeders delivery instructions whichstrip them (the TT carriers) of any right of control over delivery of the cargoat the discharge port.

 

In what instances would it be acceptablefor a feeder bill of lading to be issued in a form other than the one suggestedabove? Several possibilities are examined below.

 

Non-negotiable TT bill of lading

Where the TT bill of lading is issued innon-negotiable form, with delivery to be made to a named consignee, the feederbill should also be made out in non-negotiable form. However, it is doubtfulwhether in this instance it would be satisfactory for the TT carrier toinstruct the feeder to deliver to somebody other than himself or his agents atthe discharge port, even if he instructs delivery to be made the named consignee under the TT bill of lading.This is because in many jurisdictions, cargo can only be delivered by thecarrier against surrender of the original bill of lading issued by him, evenwhere the bill is in non-negotiable form.4

 

The problem when the feeder bill names thesame consignee as the TT bill is that the TT carrier (A) will have issued abill of lading to S, undertaking to deliver the cargo to R, but will havesurrendered possession of the goods to the feeder (B), and will be unable toobtain possession back from the feeder in order to make delivery under the TTbill. Even if the cargo is delivered to the named consignee (R) by the feederagainst presentation of the feeder bill of lading, A may still be liable to aclaim for misdelivery by R under the through bill of lading. Delivery of thecargo to R by B under the feeder bill does not necessarily discharge A’sobligation under the TT bill to also deliver the same cargo!

 

Another practical problem in this case isthat the named consignee will generally hold the TT bill of lading (as opposedto the feeder bill), against presentation of which he will attempt to takedelivery of the cargo at the discharge port. In jurisdictions where thenon-negotiable feeder bill has to be presented to allow proper delivery of thecargo by the feeder, the latter may incur liabilities if he delivers otherwisethan against the feeder bill.

 

One possible option would be for the TTcarrier to hand the original feeder bill of lading to cargo interests, againstpresentation by them of the original TT bill of lading at the discharge port.5

 

A sensible course of action in this casewould in fact be for the feeder to issue a sea waybill (which is not a documentof title) providing for delivery to the consignee named in the TT bill oflading, instead of issuing a feeder bill of lading. However, to ensure thatdelivery is properly carried out under the terms of the TT bill in jurisdictionswhere cargo can only be delivered by the carrier against presentation of theoriginal non-negotiable bill of lading issued by him, the TT carrier shouldinstruct the feeder to deliver to the person named in the waybill against thepresentation by him of the original TT bill of lading.

 

Problems may also arise if the feederaccepts to deliver the cargo against presentation of the TT bill of lading, asopposed to the feeder bill. In this case, if the bill of lading issued by thefeeder was in negotiable form, then the feeder will have no P&I cover forliabilities, costs and expenses arising out of such delivery. P&I coverwill also be prejudiced if although the feeder bill of lading was innon-negotiable form, the cargo is delivered to someone other than the consigneenamed in the feeder bill of lading (even if delivered to the consignee named inthe TT bill of lading, if they are different).

 

Negotiable TT bill of lading

Where the TT bill of lading is made out “toorder” it will be infeasible for the TT carrier to ensure that the cargo isdelivered to the proper consignee or endorsee against presentation of theoriginal TT bill of lading if he is not himself present or does not have anagent at the discharge port. This is because at the time the TT carrier handsthe cargo to the feeder for carriage and gives him delivery instructions, hedoes not know who the person entitled to delivery under the TT bill of ladingwill be at the time of discharge, since the bill may be endorsed several timesduring carriage. In addition, delivery under a negotiable bill of ladingpresupposes the physical transfer of the original bill from the cargo receiverto the carrier.

 

Where the TT carrier is present or has anagent at the discharge port, he can ensure that proper delivery is made underthe TT bill of lading in various ways. For example:

– By instructing the feeder to deliver thecargo to the TT carrier himself or his agents at the discharge port. In thiscase the feeder bill would normally be made out in non-negotiable form. The TTcarrier may also request the feeder to issue a sea waybill, providing fordelivery to the TT carrier or his agent. Upon arrival of the feeder vessel atthe discharge port the TT carrier or his agents would present the feeder billof lading to the carrier, or identify themselves as the party entitled todelivery under the waybill, and take delivery of the cargo. The TT carrier orhis agents would then arrange to properly deliver the cargo to the lawfulholder of the TT bill of lading against presentation of that document.

 –By instructing the feeder to issue a negotiable bill of lading, endorsing andsending the feeder bill of lading to the agents at the discharge port andinstructing them to endorse the feeder bill to the lawful holder of the TT billof lading, following which the original TT bill should be exchanged for theoriginal feeder bill duly endorsed, which would entitle the endorsee to takedelivery of his cargo from the feeder vessel.

A similar procedure can be followed wherethe feeder issues a sea waybill naming the TT carrier as shippers: once theoriginal TT bill is presented to him or his agents, the TT carrier instructsthe feeder to deliver to the person entitled to delivery under the TT bill.

 

Although instructing the feeder to issue anegotiable bill of lading to be exchanged for the original TT bill at the portof discharge is a solution that involves more risk, it may be required inplaces where local Customs or other regulations restrict the carrier’salternatives on how to deliver the cargo, by demanding that for example thatthe feeder bill, and not the through bill, be used for clearance of importcargoes.

 

However, as mentioned above, the TT carrierhas the discretion to ask the feeder to issue a sea waybill, as opposed to abill of lading. Doing so would avoid the risks arising from the existence oftwo negotiable bills of lading relating to the same cargo, and at the same timewould entitle the TT carrier or his agents (provided they are named as shipperin the waybill) to give the feeder instructions to deliver the cargo to theparty entitled to it under the TT bill of lading once one original is presentedto them.

 

In all cases the TT carrier should ensurethat delivery to the consignee or final endorsee is only made followingpresentation of the original TT bill of lading. Giving the feeder deliveryinstructions which may cause delivery in any other way will prejudice the TTcarrier’s P&I cover.

 

The feeder, on the other hand, willnormally be protected if he delivers in accordance with the instructions in thefeeder bill of lading or waybill. However, in certain jurisdictions and undercertain circumstances the feeder may become liable to a third party who callsfor delivery under the TT bill of lading.6  In this case the feeder’s P&I cover for any liability to theholder of the TT bill of lading arising from the delivery of the cargo to theperson entitled under the feeder bill will not be prejudiced. Nevertheless, thefeeder should secure a right of recourse against the TT carrier for suchliability to the holder of the TT bill of lading by including a circularindemnity clause in the feeder bill of lading, providing that the shipper (theTT carrier) is to indemnify the feeder for any losses arising from claimsbrought directly by the holder of the TT bill of lading.

           

Conclusion

We trust the above will assist Members inissuing and instructing issuance of feeder bills of lading which reflect theintention of the parties, and especially that entitle TT carriers to properlydeliver cargoes under the terms of their own bills of lading, thereby reducingthe level of liability of both, TT and feeder carriers, and avoiding theconfusion created by incorrect issuance, especially in claims handling.       

 

Footnotes

1  A typical liberty clause would be on termssuch as:

“The Carrier shall be entitled tosub-contract on any terms the whole or any part of the carriage of the goodsand any and all duties whatsoever undertaken by the Carrier in relation to thegoods”

2  If it does, the transport in question willnot be the so-called ‘pure’ through transport, which is being dealt with inthis article. See for instance the liberty clause in the “Conlinebill” bill oflading (clause 6) for an example of one such clause.

3  A “house” or “groupage” bill of lading is oneissued by a carrier to a forwarding agent who collects and /or deliversindividual cargoes from a group shipment which is covered under one bill oflading. All the cargo is consigned to an agent who will in turn deliver to eachindividual receiver.

4  Some jurisdictions, however, treat anon-negotiable bill of lading as a waybill, and allow delivery withoutpresentation of the original bill of lading.

5  See also comments in that respect under“Negotiable TT bill of lading”, below.

6  For instance under American law, where thefeeder knew or should have known of the TT bill of lading. See Insurance Company of North America v S/SAmerica Argosy 732 F. 2d 299, 1984 AMC 1547 (2d Cir. 1984).