Delivery Clauses in Bills of Lading

University essay from Lunds universitet/Juridiska institutionen

Abstract: This thesis covers the subject of delivery clauses in negotiable and non-negotiable Bills of Lading. The use of such clauses raises legal issues relating to transport law, letter of credit (L/C) law and sale's law. Legal issues involving different legal areas are often difficult to solve, since there are no clear-cut solutions. The document of title function, which is a fundamental quality of most Bills of Lading, requires surrender of the document for delivery. This function of the Bill of Lading causes expensive delays for parties involved in transports when the goods arrive at the port of discharge before the documents of title. The sea waybill is a transport document that lacks this document of title function. Hence, carriers prefer to use sea waybills instead of Bills of Lading. However, customers of the carrier often consider the Bill of Lading the best security-providing document and agree upon its use already in the underlying sales contract. Furthermore, following the Hague/Visby Rules, a shipper has a right to demand the issuance of a Bill of Lading from the carrier. For these reasons, the Bill of Lading rather than the sea waybill, is the document used in the majority of transportations by sea. In addition, the Bill of Lading is often used when there is no need to use such a document. One way to decrease this ''misuse'' of Bills of Lading is to inform commercial parties of the possibility of using specific provisions in the sea waybill so that equal security to that offered by the Bill of Lading is achieved. Commercial parties also need to be informed of the possible advantages of using sea waybills. This is the purpose of different recommendations on international level. Delivery clauses, on the other hand, are the carrier's own solution to the extra liabilities caused by the document of title function in Bills of Lading. This legal subject is controversial since delivery clauses aim at exempting the carriers from liability for delivery of the goods without surrender of the Bills of Lading. Hence, the delivery clause practically aims at depriving the Bill of Lading of its document of title character. Deprived of this function, the document will have the characteristics of a sea waybill. For this reason, the first relevant question is whether a Bill of Lading changes character when a delivery clause is inserted into the document. The prevailing view seems to be that a delivery clause printed in large letters on the ''front'' side of a Bill of Lading will give the document the same character as a sea waybill. There are, however, strong arguments supporting the view that delivery clauses are invalid. Furthermore, the validity of the clause seems to depend on how it is construed and where in the document it is inserted. This possible change in character has been causing confusion for banks working with documentary credits. Banks are faced with the question&semic should a Bill of Lading that incorporates a delivery clause be accepted under the documentary credit when the instructions of the credit call for a Bill of Lading with the document of title character? One limitation to the bank's duty of examination is that it does not need to take into consideration the ''terms and conditions'' of the Bill of Lading. The first opinion of the ICC stated that delivery clauses in Bills of Lading were such terms and conditions that the bank is entitled to ignore. This opinion of the ICC was much criticised, since accepting delivery clauses in documents of title may have several adverse implications. Taking account of the criticism, the ICC modified its statement and concluded that delivery clauses relating to negotiable Bills of Lading are not accepted under the documentary credit in contrast to delivery clauses in non-negotiable Bills of Lading that are. Hence, the ICC chose to make a distinction between negotiable and non-negotiable Bills of Lading. It seems that most banks have chosen to comply with these statements, while certain banks are refusing to accept non-negotiable Bills of Lading if they incorporate delivery clauses. A buyer that requests negotiable Bills of Lading, which is the case in the great majority of documentary credits, need not fear that their banks will accept Bills of Lading with delivery clauses printed in large letters on the ''front'' side. If the documentary credit allows the acceptance of non-negotiable Bills of Lading, on the other hand, there is a risk that these documents will contain delivery clauses. The acceptance of non-negotiable Bills of Lading with delivery clauses will often involve more risks for both banks and buyers, particularly considering that a sea waybill without express protective provisions offers less security. The documentary credit as a service safeguarding the rights of the buyer will consequently lose some of its value if the bank accepts a sea waybill when the buyer expects a document of title. For this reason, if a bank follows the ICC's statement relating to non-negotiable Bills of Lading, then the buyer may consider adding specific language to the instructions of the credit in order to prohibit the acceptance of non-negotiable Bills of Lading with delivery clauses. Seen from another perspective, a seller risks being in breach of contract in connection with the underlying sale's agreement if he/she tenders a sea waybill when a document of title is required. Commercial parties need to have the possibility of demanding the document called for in the underlying sale's contract. The failure to fully condemn delivery clauses in all documents of title facilitates their continued use by some carriers. The obligation to issue Bills of Lading should not be circumvented by inserting delivery clauses. Since delivery clauses printed in large letters on the front side of Bills of Lading seem to convert the documents into sea waybills, the customer of the carrier has a legal right to demand the issuance of a Bill of Lading in which there is no delivery clause. The Hague/Visby rules entitle the shipper to demand the issuance of a ''real'' document of title.

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