Title to Goods and Bills of Lading

An original Ocean Bill of Lading, as well as being a receipt for the goods given by the carrier and evidence of the contract of carriage, is also a negotiable document and one that carries title to the goods detailed on its face.  These last two aspects, in particular, have been a cornerstone of international trade since the 18th Century.  However, what does the term ‘title’ actually mean?  And, in this case, does title to the goods mean ownership of those goods?

In 18th Century England (due to the mercantile custom of the time) it was agreed that if the seller physically passed the Bill of Lading to the buyer, usually with a written notation verifying this transfer, then this was an acceptable way of transferring the property in the underlying goods from one party to another.  It also meant that the Carrier had to legally deliver the cargo to the new holder of the Bills of Lading (subject to any lien for unpaid freight).

However, there are two contracts in play in this scenario.  First, there is the contract between the buyer and the seller with regards to the goods.  Secondly, there is the contract between the carrier (shipping company) and the shipper (which can be either the buyer or the seller).  It actually makes more sense if the buyer is the shipper since they are the party who has the greater interest in the goods being delivered.  But it is sometimes the seller who contracts with the shipping company to transport the goods.  In this case, if the seller had contracted the contract of carriage, did the transfer of the Bill of Lading between seller and buyer also pass the contract of carriage?  In the 18th Century the answer was apparently no.  An English Court, in the case of ‘Thompson v Dominy‘ held that the transfer of the Bill of Lading transferred only the property in the goods and not the contract of carriage.

This led to the passing of the Bills of Lading Act in 1855 in England, whereby the buyer succeeded to the contract of carriage organised by the seller, if the buyer obtained the property in the cargo.  Go forward 130 years or so and modern shipping practices were finding it frustratingly difficult to successfully apply aspects of the 1855 Act, mainly because what is happening now had not even been considered as possibilities in the 1850’s.  Hence the Bills of Lading Act 1855 was repealed by the Carriage of Goods by Sea Act in 1992.

Under the 1992 Act the Bill of Lading is still recognised as a document of title.  What ‘title’ means in this respect is that the buyer and seller can deal with cargoes covered by the Bill of Lading through the medium of the Bill of Lading itself.  Essentially, the delivery of the bill is tantamount to the delivery of the underlying cargo because the Bill of Lading carries with it construction possession of the cargo. However, this does not mean that whoever physically holds the original Bill of Lading is now the owner of the goods covered by that Bill of Lading.

The relevant Act in this respect (in England) is Section 17 of the Sale of Goods Act, since it provides that the property in the goods passes according to the consensual intention of the parties involved in the contract.  The Bill of Lading, by itself, cannot be a guarantee of ownership, firstly because it does not ensure that the person who placed the cargo on board the ship owned them in the first place and secondly, there is no rule anywhere that the ownership of the cargo can be transferred only through the medium of a Bill of Lading.  It is just a matter of mercantile practice that the Bill of Lading is used as an instrument that effects proprietary transfers when the goods are in transit.  In reality, however, the property in the goods passes by virtue of the contract of sale.

According to Devlin J in Heskill v Continental Express Ltd “The reason why a Bill of Lading is a document of title is because it contains a statement by the Master of a ship that he is in possession of cargo, and an undertaking to delivery it.” (1950)

It is this undertaking by the carrier to deliver the cargo to the right party that often causes a misunderstanding about ownership.  A carrier cannot be made to deliver to anyone other than the person entitled to possession of the goods under the Bill of Lading.  The carrier may, therefore, decline to deliver except to the party physically holding the Bill of Lading, even if the person demanding delivery is the named consignee.

This is because if the carrier does deliver to someone other than the party physically holding the Bills of Lading, then it could be financially and legally liable to the person entitled to the delivery as well as for a breach of the Bill of Lading contract.  This is why it is good practice to advise the carrier, before the transport takes place, who owns the goods at each stage of the voyage especially since, with modern transport practices, the cargo often arrives before the Bills of Lading do.  In this circumstance, it has become common (in some parts of the world) for the carrier to be given an indemnity to release the goods, mainly to avoid costly demurrage and storage charges at the port of import.

There is another point which must always be considered.  All of the laws quoted in this article refer to England and Wales.  This does not mean that the laws of England and Wales are the defining interpretations in the concept of title and Bills of Lading.  In fact, anything but.  The local laws that apply in each place of delivery are the only ones which count, unless expressly stated otherwise in the contract of sale.  Therefore, it could be that in some countries, the concept of Title to goods in the form of a Bill of Lading, may also confer ownership of those goods.

Generally speaking, however, the fact that a Bill of Lading is a document of title to goods in respect of the contract of carriage, does not mean that it is a document of ownership of those goods in respect of the contract of sale.  (Unless, of course, this is expressly stated to be so in the contract of sale).  It might represent a useful means for the transfer of the general property from seller to buyer and serve also to transfer constructive possession of the goods it represents, but (except where local laws state otherwise) having title in the goods through the medium of a Bill of Lading, is not the same as legal ownership of those goods.

Maria Narancic from Point to Point Export Services is an independent international trade adviser who assists organisations world wide with their international trade projects, documentation, Documentary Credits and import/export training.  She is based in the United Kingdom.  If you require any further assistance with the matters mentioned above, please do contact us by e-mail on info@point-point.com or check out other articles on International Trade on the Point to Point Export Services website at www.point-point.com

 

 

Comments are closed.