A Bill of Lading is a document issued by and on behalf of the “carrier” of the Goods by Sea, to a person (usually known as a “Shipper”) with whom he has contracted for the carriage of the goods. The said document contains all the terms and conditions of carriage and evidences a Contract of Affreightment as between the “carrier” and the “Merchant” i.e. the shipper, the consignee, the receiver, the holder in due course of the Bill of Lading. A bill of lading is a receipt, it is a contractual document, it is a document of title and all the rights and obligations of the parties thereto as well as the 3rd parties are associated therewith and in the handling of the cargo that it covers.
Traditionally in times gone by, the identity of the carrier was known and it was only this carrier who used to issue his document, namely the bill of lading, to the merchant and the contracts of affreightment were thus crystallized. The term, “carrier”, was associated with the carrying vessel/ it’s owner. However, with the passage of time and the changes that came in with the containerization era, quite many changes have taken place in ways in which contracts of affreightment are entered into and performed. More often than not today, the ship which actually carries the cargo by sea is not the contractual “carrier”, and does not have a contract with the actual shipper or “merchant”, but the ship or its owners contract with a multimodal transport operator or a non vessel operating common carrier or a freight forwarder or a cargo consolidator or such parties, with whom the vessel enters into contracts of affreightment, to which the shipper or “merchant” is not a party. The multimodal transport operator or a non vessel operating common carrier or a freight forwarder or a cargo consolidator or such parties, enter into contracts of affreightment with the shipper / merchant and issue their own documents, and in so far as the merchants are concerned, the former only would be the “carrier” and contractual claims, if any, in relation to the said contract and/or the cargo covered thereby, ought to be directed only against such carriers.
However, there is an increasing trend by the Indian trade, in relation to their contractual claims, to also make the carrying vessel a party Defendant and seek its arrest. Further, actions including criminal complaints are sought to be filed against agents of the carrying vessel, in relation to contractual claims, inspite of the law being very clear that an agent of a disclosed principal is not liable for any act and/or omission and/or breach of contract by his principal. Therefore, in relation to the issue being discussed in this article, not only is an agent not liable for its principal’s contracts and/or its breach, but further, when the principals themselves do not have a contract with the merchant, an agent is not liable and/or responsible and it is my view that it is only being resorted to by the trade to pressurize a local party to pay up and/or obtain security for the claim by arrest of the carrying vessel or her “sister” vessel. Such a security eventually, in my opinion, would be discharged by the Courts and no useful purpose would be served by such actions which will eventually be dismissed.
There are matters involving such issues presently before the Bombay High Court and in due course, the Court will decide this issue. Till such time the Court decides this issue, the vessel interests suffer prejudice in view of their vessel being arrested for a claim with which they are not even concerned and them having to furnish and maintain the security till the suit is disposed of. The Claimants also may get prejudiced, interalia, by failing and/or omitting to sue the proper party, being thereafter barred by limitation, being unable to disclose any cause of action against the ship or being unable to sustain the claim against the vessel, no privity of contract, on the issue of jurisdiction and such like issues, eventually being unable to recover anything in relation to their contractual claim, even in cases where their contractual “carrier” would indeed be liable for the claim. “Carrier” means the party with whom the merchant enters into a contract of affreightment.
The problems that arise in such arrangements where the ocean carrier does not issue his bill of lading to the merchant directly and/or enter into contracts of affreightment with the merchant directly, are manifold : (a) vessel which actually carries the cargo could render itself liable to arrest and claim ; (b) the vessel on whose behalf an agent has acted would have issued its documents to a consolidator/ MTO, etc., and would have successfully performed its obligations under its documents, but, due to breach and/or negligence on a third party’s part, would be faced with claims; (c) agents, its directors, its employees may face criminal complaints and/or investigations, of which there is a rise in recent times, where the agent for no fault whatsoever, is threatened to be arrested and he has to undergo a few anxious weeks before the immediate problems are sorted out and he continues to fight a battle – all this because the “carrier”, i.e. a Freight forwarder or MTO or consolidator or NVOCC or such likes’ counter part at the discharge port outside the country, delivers a consignment without production of the freight forwarder’s original Bill of Lading, with which the troubled agent/carrier is not even concerned with.
The original document of the line is surrendered by Freight Forwarders / Cargo Consolidators, and this brings the ocean carrier’s liability to an end, but that still does not stop a shipper from proceeding against all those who are even remotely concerned with the carriage, since courts are slow or it is cumbersome and expensive to go outside the country and take steps, etc.. Local merchants take the easy way out - they file Consumer Complaints, criminal complaints and such like, which eventually the carrier and/or the agent would be successful in defending, but the pressures, bad publicity and such like, force or induce them to settle instead of bad publicity though in reality, they may not even be liable. There is no fool proof or cast iron / water tight protection against nuisance and pressure tactics that may be adopted, but atleast, once proper precautions are taken, an agent/carrier can come out unscathed eventually.
Another issue which arises from the modern arrangements : the Freight Forwarders and Consolidators issue their own bill of lading to the shipper. The shipper, in turn delivers up the goods at the nominated sites and is issued a Mate’s receipt by the Ocean carrier or his agent. In law, once the goods are loaded on board the vessel, though not entitled to in view of the arrangement, the shipper could demand the ocean carrier’s original shipped on board bill of lading, against the surrender of the issued Mate’s receipt or received for shipment Bill of Lading, in view of the commonly used wordings in such pre-printed document, failing which, he could make a claim against the ocean carrier for non issuance of his bill of lading, in case he remains unpaid by the buyer. Like wise, the customs documentation requires for the details of the “vessel” Bill of Lading to be entered for processing shipping bill. One of the ways for avoiding such issues is for issuance of mate’s receipt, only in the name of the ocean carrier’s contracting party, i.e. the “carrier”. Frankly, in today’s containerized transportation, there is no necessity to issue a mate’s receipt. What is to be issued is a received for shipment Bill of Lading, which can be substituted by shipped on board document later – that too, in the name of the ocean carrier’s contracting party, i.e. the “carrier”. It should be then up to the “carrier” and the actual shipper, to connect the cargo and documentation and file the same with the Customs, etc.. It is necessary for the Customs Department to make appropriate changes in keeping with changing trends in transportation by sea and put in place an appropriate procedure which would save ocean carriers / vessels unnecessary actions and claims. However, till such time we have a binding decision on the liability of the ocean vessel/it’s owner for a breach of contract by the contracting “carrier”, the issue remains open.
One of the very common issues and/or problems that arise in connection with Bills of Lading is delivery without production of original Bill of Lading. It is important to remember that a carrier and/or his agent shall deliver the goods to the person entitled to receive the goods only against production of the original Bill of Lading. More often than not, in today’s business, carriers/agents receive requests for delivery of consignment without production of original Bill of Lading but against Bank Guarantee and/or corporate undertaking and/or against appropriate Indemnities. Securities such as Bank Guarantees, Indemnities etc., are only for personal protection of the carrier and/or the agent and it does not absolve the carrier from liability and/or claims should a 3rd party present the original Bill of Lading and demand delivery. The security so obtained whilst delivering cargo without production of original Bill of Lading, will not be an answer to a claim from the holder of the Original Bill of Lading.
Typically what happens if a Claimant makes a claim against the Carrier is that the carrier would be obliged to pay and settle with the Claimant, and in turn, the carrier would turn to the party who has taken the delivery without production of original Bill of Lading and make a claim against such party on the basis of the security provided. Therefore, it will be noted that delivering cargo without production of original Bill of Lading is a sure way of inviting claims against the carrier.
This leads us to further issues and/or problems: What happens if the “Security” is forged and/or fraudulent ? This would lead to a situation where the Carrier would be held liable for any claim that the holder of the original Bill of Lading may bring against the carrier and the carrier will not even have a recourse against any party and it may also expose the agent to claims from the carrier, if the agent has not followed the carrier’s instructions or orders, for a reimbursement of costs and claims, as well as the costs and expenses for defending the claim from the original Claimants.
Therefore, it is imperative that agents should always act in accordance with and under the express written authority of the principals / carrier in the matter of giving delivery of cargo without production of original Bills of Lading. Further, if the carrier has instructed the agent to deliver against a particular security to be obtained, the agent must make sure that the security is in the form and content, as desired by the principals and further, it has to be and has been signed, executed and issued by the party whose name appears on it and who is supposed to have issued the same. For example, if the security provided is signed by a Bank, then cross check with the Bank, if the document is signed by the Bank, if the Bank has indeed issued the document and further, the person who has signed the document has indeed the Bank’s authority to do so, failing which the agent may be exposing himself to claim not only from the original Claimants but also from their own principal. This is in addition to the fact that the security i.e. Bank guarantee or other security is obtained only to protect the carrier’s interests and not as an answer to any Claimants.
Further, there is a distinction between a Bank Guarantee and a letter of indemnity counter signed by a Bank. A Bank counter signs a Letter of Indemnity merely for the purpose of identifying the signature of the person who has signed the original document, without any liability on the Bank. Therefore, it is very important to check the wordings of such Letters of Indemnity to make sure that the Bank has in fact jointly and/or severally with the principal issuer of the document, bound themselves to pay any claims should the original Bill of Lading not be produced or delivered, or should any claim be made on the carrier or the agents by a holder of the original Bill of Lading. Carrier and their agents and their respective insurance carriers are faced with number of litigations which involve delivery without production of original Bill of Lading, delivery against fraudulent or forged documents and such issues and inspite of it being trite law that delivery shall only be given against the presentation of original Bills of Lading, due to commercial considerations, one acts otherwise and expose ourselves to claims. In order to avoid claims, one has to take the trouble to atleast cover all possible sources of claims rather than expose oneself to huge liability which, interalia, would depend upon the nature and value of the cargo covered by such document.
Another problem that is regularly faced with respect to Bills of Lading, are predating, post dating Bills of Lading and/or the wrong particulars being entered in Bills of Lading. Bills of Lading should and shall state the correct particulars and nothing else. However, in view of commercial considerations, often with a view to please customers, carriers or their agents accede to such wrongful requests. The law requires a carrier to issue a Bill of Lading which shall contain the correct particulars in relation to the goods and other details that the document covers. Ante dating, predating, post dating and filling in incorrect particulars including endorsement “Shipped on Board” when actually the goods have not been shipped on board, give rise to various kinds of claims, which not only exposes the carrier to claims but also the agents towards claim from their own principals. Most of the agency agreements require the agents not to act contrary to what is stated above and the principal’s instructions, but also that they should issue documents that reflect the correct and true position. Failure to do so would make the agent liable to his own principal and the agent may become bound and liable to reimburse the principal the amount of the claim and all the costs and expenses in defending the same.
A Bill of Lading is issued by a “Carrier”. An agent is issuing the said document for and on behalf of and in the name of the Carrier. Therefore, the document should make it very clear that the agent is issuing the same “as agent” of the carrier without any liability on the agent’s part. A number of agents are being dragged to Consumer Forums lately and in number of cases, the agents have lost the cases and have had to pay the amount of the claims though they are not liable to pay at all, in view of the fact that they have signed the document without an endorsement “as agents only”. Therefore, this needs to be noted and covered appropriately by an agent. Under the Indian Contract Act, an Agent is not liable and/or responsible for any claim against his principal if the name and identity of his principal is disclosed and the contract is entered into by the Agent for and on behalf of and under the authority of and in the name of his principal. But the document that an agent signs, must clearly say so, failing which the agent may be exposed to liability.
In connection with actions by third parties against agents, it would be relevant to note the law on the issue. Section 230 of the Indian Contract Act, 1872, is the relevant provision of law directly dealing with the issue. The said Section, interalia, states that an Agent cannot personally enforce contracts entered into by him on behalf of his principal, nor is he personally bound by them, particularly when the agent has disclosed the name of his principal and the disclosed principal can be sued. Based upon the aforesaid provision, it will be noted that if the agent has disclosed the name of his principal and he is an agent of a disclosed principal, and the contract has been entered into directly by the principal, though signed by the agent, as agent and for and on behalf of the principal, then the agent is not liable for any act and/or omission and/or breach of the said contract by the principal. Some case law on this issue are enumerated here under:
In cases reported in AIR 1919 PATNA 143, AIR 1914 Madras 97, at 98, etc., the Courts have interalia held that an Agent is not bound and therefore not liable in a contract entered into by him on behalf of a disclosed principal. In a case reported in AIR 1982 CALCUTTA 365, at 370, a Division Bench of that Court has gone on to hold that even if the disclosed principal is in a foreign country and can be sued there, the agent will not be liable. In another case reported in AIR 1927 MADRAS 1102, at 1103, the Court has held that a promise enforceable against principal cannot be enforced against agent, i.e. the agent is not liable for any act, omission and/or breach of the principal. Even when an Agent had signed a promissory note as an agent of a disclosed principal, the Orissa High Court, in a case reported in AIR 1957 ORISSA 86, at 89, has held that the Agent is not liable for the debt personally.
With specific reference to contracts evidenced by bills of lading signed by agents of disclosed principals, for and on behalf of the principals, the Courts have held that the agent is not liable to any breach of the contract of affreighment, to wit the bill of lading, by the principal. AIR 1959 CALCUTTA 479, at 489 (Division Bench); AIR 1982 CALCUTTA 161, at 162 - in this case, the Court had directed the name of the agent, who had been made a Defendant in the Suit, to be struck out from the Plaint / Suit. In another matter reported in AIR 1999 BOMBAY 401, the Bombay High Court has confirmed that in a contract of carriage entered into by agent contracting on behalf of foreign principal who was named and disclosed, the agent can not be sued personally nor made personally liable for alleged breach of contract. There are also unreported cases on the issue which clearly lay down that an agent is not responsible and/or liable and cannot be proceeded against for the act and/or omission and/or breach of contract by principal, when the agent has disclosed his principal and the contract has been entered into for and on behalf of the principal.
In fact, in a case reported in (1998) 3 SCC 247, the Hon’ble Supreme Court of India has held that the Contract Act applies to complaints filed under the Consumer Protection Act, and an Agent can invoke section 230 of the Contract Act whether in proceedings before the Commission or otherwise and if facts found support him and his said defence cannot be brushed aside.
It is trite law, therefore, that an Agent of a disclosed principal, having entered into a contract for and on behalf of and in the name of the principal, is not liable and/or responsible for any act and/or omission and/or breach of the said contract by the principal.
It is seen that criminal cases for offences under sections 407, 420, 424 and 120B of the Indian Penal Code, is sought to be filed against the agents / its directors/ principle officers. Section 407 refers to the offence of criminal breach of trust by carrier, etc. An agent is not the carrier and therefore, this section, read along with what I have stated hereinbefore, will not apply to an agent at all. Section 420 refers to cheating and dishonestly inducing delivery of property. If the act complained of by the Complainant has taken place outside India and the agent has nothing to do with it, this provision will also not apply. Neither is the agent concerned with dishonestly and/or fraudulently removing or concealing any property, particularly when he is not even the agent of the contracting “carrier”. Therefore, section 424 also, will not apply. Section 120B refers to conspiracy, the ingredients for which would also be lacking in the course of the normal and regular business of the agent.
In this presentation, I have tried to cover the most commonly faced problems in connection with Bills of Lading, by ocean carriers and their agents in India, today. The do’s & don’t’s in respect of Bills of Lading generally covered hereinabove, also applies world wide.
Apart from case law, it would be useful to have a working knowledge of the provisions of the Carriage of Goods by Sea Act, 1925, the Bills of Lading Act, 1855, the Multimodal Transportation of Goods Act, 1992, the Hague / Hague-Visby / Hamburg / and now, the Rotterdam Conventions; all of which would be relevant in respect of this subject.