Freight Forwarder’s Bill of Lading : Are they Bills of Lading?
Bills of lading have conventionally been issued by shipowners. However, recently bills issued by non-vehicle owning carriers like freight forwarders have become rampant. Traders, and even bankers/lawyers/courts, may treat them as good as a bill issued by a shipowner. This article will show that NVOC bills are not as good as shipowner’s bill and suggest they should be statutorily controlled.
The commercial problem
When a bill of lading is issued by a shipowner, if a cargo claim arises, the ship can be arrested to secure P&I Club’s undertaking to settle any award. But when it is issued by an NVOC, the claim will likely lie against the NVOC only and the ship cannot be arrested. An important feature of a bill of lading is the security it carries, i.e. remedy of arresting the ship, is missing in NVOC bills. In Minmetals v Nakhoda, timber on board a ship was transacted for USD13 million with house bills of lading issued by a freight forwarder. The cargo was not delivered and the cargo interest ended up with a claim against the freight forwarder only.
The legal issue : Is that a bill of lading?
A bill of lading is not defined by any of the statutes or conventions, hence one must resort to common law for its meaning. The three functions of a bill of lading, at common law, are i) acknowledgement of receipt of cargo; ii) a document conferring constructive possession on the holder of the bill, i.e. goods-token function; and iii) evidence of contract of carriage. A bill issued by an NVOC can have the first and last functions, but not the second one.
The NVOC does not have the actual possession, hence cannot, by its document, give anyone a right to claim against him the possession, i.e. constructive possession. Robert Desty well observed the link between the actual possession and constructive possession thus:
There is a mixed possession: actual possession in the carrier, and an implied possession in the owner.
More practical reasons, first it will not be logical that there are two separate documents conferring constructive possession unto two separate persons for the same cargo, one issued by the NVOC to the end-shipper and another issued by the shipowner to the NVOC. Second, the duty of the shipowner will be to deliver the cargo only to the person presenting the bill issued by it, and it will be inconsistent to say that any other person holding any other bill has the right of possession of the cargo. In Jones v European & General Express, Rowlatt J emphasised the functions of ‘possession’ and ‘undertaking’ as follows:
It must clearly be understood that a forwarding agent is not a carrier; he does not obtain the possession of the goods; he does not undertake the delivery of them at the other end.
A scholarly text that will support the proposition in this article is Schmitthoff who said:
… a bill of lading … can only be issued by a sea carrier in his capacity of carrier … If authority for this rather elementary proposition is required, … the great case of The Julia may suffice.
Recently, the Malaysian Court of Appeal in Punjab National Bank v Malayan Banking Berhad disallowed a confirming bank’s reimbursement-claim against the issuing bank when the former had paid the seller upon a freight forwarder’s bill.
Is an NVOC’s bill transferable (or negotiable)?
Transferability of a bill (to a subsequent buyer or bank) is tied to the status of the document being, legally, a bill of lading. There are two distinct matters of transferability, namely, transferability of the constructive possession, i.e. the ‘goods-token’ function, and transferability of the contractual rights. The former is regulated by common law that recognises a bill of lading to be transferable. The latter is regulated, in the UK, by Carriage of Goods by Sea Act 1992, which allows the contractual rights under a bill to be transferred.
The central feature of transferability at common law is that the bill carries with it the constructive possession, hence passing of the bill is as good as passing of the goods, i.e. the possession of the goods / the possessory right in the goods. For this, the bill must represent the possession of the goods, i.e. the constructive possession. As an NVOC’s bill does not carry with it the constructive possession, because the NVOC does not have the actual possession, it cannot be transferable at common law.
For transferability under the statute, the document must be a bill of lading in the first place. This refers back to common law. Given that an NVOC bill is not a bill of lading at common law, the statutory-transfer will not apply to it, hence no transfer of contractual rights can take place by a transfer of such a bill.
Accordingly, in both cases, an NVOC’s bill is not transferable. Some authors have argued NVOC’s bills have commercially gained a status of transferability. This argument cannot be right as it will be a legal impossibility for NVOC’s bills to be a bill of lading for lack of constructive possession function.
Thus, bills of lading issued by NVOCs on their own right are an anathema to the carriage of goods by sea and have caused severe commercial problems. They are deceptive and should be statutorily controlled.
-  Robert Desty, ‘Manual of the Law relating to Shipping and Admiralty‘, (San Francisco, S. Whitney, 1879): Chapter X.
-  (1920) 4 Ll L Rep 127 (EW HC).
-  CM Schmitthoff, ‘The Development of the Combined Transport Document’ in C-J Chen (ed), Schmitthoff’s Select Essays on International Trade Law (Dordrecht: Martinus Nijhoff Publishers, 1988), p. 376.
-   AC 293 (UK HL).
-   1 LNS 232,  5 MLJ 732 (MY CA).
-   3 CLJ 19,  6 MLJ 152 (Malaysian CA)..
-  LLB (Hons), LLM, CLP, FCIArb (London) – Advocate and Solicitor, Malaysia. Arbitrator, THAC and AIAC panels. Copyright with Author.