Maritime Law and Practice in China

Liang Zhao and Lianjun Li

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CHAPTER 5 Bill of lading: Functions

5.1 In the CMC 1992, a contract of carriage of goods1 by sea is a contract under which the carrier, against payment of freight, undertakes to carry by sea the goods contracted for shipment by the shipper from one port to another.2 The carriage of goods by sea in the CMC 1992 includes sea-to-river and river-to-sea direct transport but not coastal traffic, and the provisions concerning the bill of lading do not apply to the maritime transport of goods between the ports of China.3 The Contract Law 1999 applies to the coastal and inland water carriage of goods. 5.2 A bill of lading in the CMC 1992 is a document that serves as evidence of the contract of carriage of goods by sea and the taking over or loading of the goods by the carrier, based on which the carrier undertakes to deliver the goods against the surrender of the bill of lading.4 It can be concluded that the bill of lading in the CMC 1992 has three functions, namely, evidence of contract, receipt of goods and document of title. The relevant issues include document of title and property rights, delivery of goods without bill of lading and letters of indemnity.

Evidence of contract

5.3 The bill of lading is evidence of contract of carriage of goods by sea between the shipper and the carrier. If a bill of lading is issued under a voyage charter and the bill of lading holder is not the charterer, the rights and obligations of the carrier and the holder of the bill of lading shall be governed by the clauses of the bill of lading.5 The carriage of goods by sea may be arranged through a freight forwarder who provides storage, loading and carriage services to the seller, but there may not be a contract of carriage of goods between the seller and the freight forwarder unless the freight forwarder issues the seller a house bill of lading, which acts as evidence for a carriage of goods contract between the seller and the freight forwarder. In Shaoxing Dite Import & Export Co Ltd v Shanghai Shifa International Freight Forwarding Co Ltd,6 the freight forwarder delivered a bill of lading

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issued from a third party on which the freight forwarder was not identified as the carrier. It was held that the seller had no title to sue the freight forwarder based on the contract of carriage evidenced by the third party’s bill of lading, because that bill of lading was not an evidence of contract between the seller and the freight forwarder. 5.4 When there is a conflict between the original carriage contract and the terms of the bill of lading, the original contract prevails if it can be proved. In Globe Express Services (Shanghai) Ltd v China Shipping Container Lines Tianjin Co Ltd and China Shipping Container Lines (Hong Kong) Co Ltd,7 the carrier agreed to carry the goods on a certain date but actually delayed the carriage for a month. The shipper finally arranged for the carriage of the goods by air and claimed against the carrier for the air carriage freight. The carrier argued that there was a liberty clause on the reverse side of the bill of lading that entitled the carrier to carry the goods to the destination at any time by any means of transport. The Shanghai Maritime Court held that the terms of the bill of lading were not the real intention of the parties and would not bind the shipper. 5.5 In shipping practice, a bill of lading may not be issued if parties agree to release goods by telex. In such a circumstance, a sample copy of bill of lading confirmed by the shipper is still evidence of contract of carriage of goods by sea between the shipper and the carrier.8 The circumstance may not be certain if the sample copy of bill of lading is not confirmed by the shipper. In Longhai Gelin Seafood Co Ltd v Pacific International Lines Pte Ltd and Others,9 the shipper received a sample of bill of lading through a freight forwarder and requested a telex release upon notice, but such a request did not reached the carrier through the freight forwarder. The carrier did not deliver the goods according to the terms of the sample bill of lading, but argued that the sample bill of lading was not evidence of the contract between the shipper and the carrier because the shipper had not expressly confirmed the sample. This was a typical issue of battle of forms under contract law. In the view of the SPC, the shipper should have accepted the sample of bill of lading without objection since the request for telex release had not reached the carrier, and, therefore, the sample bill of lading was evidence of the contract between the shipper and the carrier. The Contract Law provides that an acceptance shall be made in the form of a notice, unless, in light of trade practices or as indicated by the offer, the offeree may indicate assent by performing an act.10 In this case, the SPC seems to have concluded that the silence was to be deemed as preliminary evidence of the acceptance of the offer. This conclusion may not comply with the requirement from the Contract Law unless it is provided that such acceptance by silence is a kind of trade practice. 5.6 The bill of lading under the CMC 1992 is not only the evidence of contract between the shipper and the carrier, but also governs the relationship between the carrier and the consignee or the holder of the bill of lading with respect to their rights and obligations.11 It provides a legal basis for the rights of suit of the consignee and the bill of lading holder who are not parties to the contract evidenced by the bill of lading, although it seems too

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general and simple compared to the provisions of the UK Carriage of Goods by Sea Act 1992.12 The rights of suit of the bill of lading holder are obtained through the transfer of the bill of lading. In some special circumstances, the rights of suit of the person who was the bill of lading holder may not be extinguished even if the bill of lading has been transferred. In Shanghai C&J International Trade Co Ltd v MISC Berhad,13 the buyer as the bill of lading holder found damage to the goods before taking delivery and raised a claim against the carrier. Meanwhile, the buyer sub-sold the goods to a third party with discount of the price of the goods and then claimed against the carrier for the loss of the discount. The Ningbo Maritime Court took the view that the sub-sale of the goods was an act of mitigation and a positive measure to reduce the loss of the buyer. In fact, the sub-buyer suffered no loss because of the discount of the price, but the buyer actually suffered the loss. Therefore, it was held that the buyer was still entitled to claim against the carrier although it had already transferred the bill of lading to another person. 5.7 The CMC 1992 further provides that neither the consignee nor the holder of the bill of lading shall be liable for demurrage, dead freight and all other expenses in respect of loading incurred at the loading port unless the bill of lading clearly states that the aforesaid demurrage, dead freight and all other expenses are to be borne by the consignee and the holder of the bill of lading.14 The purpose of this provision is obviously to deny the liability of Chinese importers (including the consignee and the bill of lading holder) of the payment of costs and expenses incurred at ports of loading. However, standard bills of lading always contain a freight and charge clause and a lien clause for security of such a liability.

Receipt of goods

5.8 In the CMC 1992, the carrier shall, on demand of the shipper, issue to the shipper a bill of lading when the goods have been taken over by the carrier or have been loaded on board.15 Where a carrier has issued a document other than a bill of lading as evidence of the receipt of the goods to be carried, such a document is prima facie evidence of the conclusion of the contract of carriage of goods by sea and the taking over by the carrier of the goods as described therein. Such documents, such as sea waybills that are issued by the carrier, are not negotiable.16 It is not clear whether a shipper can request a bill of lading based on a contract of carriage or upon its demand. The Shanghai Maritime Court takes the view that the request for a bill of lading is a legal right of the shipper in the CMC 1992.17 It may become complicated if a FOB seller, who is not a contractual shipper but an actual shipper in the CMC 1992, demands the issue of a bill of lading, but the carrier may insist on issuing bill of lading to the contractual shipper. The carrier may agree to issue a sea waybill as a receipt of goods rather than a bill of lading to the FOB seller, but the seller may obtain the bill of lading through a maritime injunction.

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5.9 A bill of lading may be signed and issued by a person authorised by the carrier. A bill of lading signed and issued by the master of the ship carrying the goods is deemed to have been signed and issued on behalf of the carrier.18 The CMC 1992 recognises bills of lading issued before or after the shipment of goods, which are namely the received bill of lading and the shipped bill of lading. If the carrier has issued, on demand of the shipper, a received bill of lading or other similar documents before the goods are loaded on board, the shipper may surrender the same to the carrier as against a shipped bill of lading when the goods have been loaded on board. The carrier may also note on the received bill of lading or other similar documents with the name of the carrying ship and the date of loading, and, when so designated, the received bill of lading or other similar documents shall be deemed to constitute a shipped bill of lading.19 5.10 The carrier should adequately describe the goods on the bills of lading, including name, number and quantity of goods, when the bills of lading are issued at the request of the shipper. However, if the bill of lading contains particulars concerning the name, mark, number of packages or pieces, weight or quantity of the goods with respect to which the carrier or the other person issuing the bill of lading on his behalf has knowledge or reasonable grounds to suspect that such particulars do not accurately represent the goods actually received, or, where a shipped bill of lading is issued, loaded, or if he has had no reasonable means of checking, the carrier or such other person may make a note on the bill of lading specifying those inaccuracies, the grounds for suspicion or the lack of reasonable means of checking.20 In these circumstances, the carrier may use an “unknown” clause to replace the description of goods on bill of lading, but it must explain the reason why some particulars are unknown. Otherwise, the unknown clause will be invalid.21 5.11 If a bill of lading concurrently contains the weight of goods and an unknown clause, the unknown clause may be held invalid. In DSM CITRIC ACD (Wuxi) Ltd v Sparkle International Enterprises Ltd and Others,22 the carrier described the weight and other particulars of the goods, but also included an unknown clause on the bill of lading. It was held by the Wuhan Maritime Court that the unknown clause lessened the carrier’s obligation to describe the goods on the bill of lading. According to the CMC 1992, any stipulation in a contract of carriage of goods by sea or a bill of lading or other similar documents evidencing such contract that derogates from the provisions of the chapter for carriage shall be null and void. Therefore, it was held that the unknown clause was null and void.23 However, it is questionable whether description of goods on the bill of lading is a legal obligation of the carrier under the CMC 1992. In fact, there is no express provision regarding such an obligation in the CMC 1992. Therefore, the unknown clause shall not be null and void automatically. Whether particulars of goods are known and whether the unknown clause qualifies the description of goods are questions of fact, and not questions of law.

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5.12 For the description of the quality of goods, the carrier is required to describe the apparent order and condition of goods. In shipping practice, the carrier may make notes on the bill of lading according to the notes of apparent order and condition of goods on the mate’s receipt. If the carrier or the other person issuing the bill of lading on his behalf made no note on the bill of lading regarding the apparent order and condition of the goods, the goods are deemed to be in apparent good order and condition.24 Except for an unknown note concerning the name, mark, number of packages or pieces, weight or quantity of the goods, the bill of lading issued by the carrier or the other person acting on his behalf is prima facie evidence of the taking over or loading by the carrier of the goods as described therein. Proof to the contrary by the carrier shall not be admissible if the bill of lading has been transferred to a third party, including a consignee, who has acted in good faith in reliance on the description of the goods contained in the bill of lading.25 5.13 Although it has been noted in Chinese judicial practice that description of apparent order and condition of goods on bill of lading is important for international trade, Chinese courts may not require the carrier to make such description. In Mac Steel International USA Corp v Chinese-Polish Joint Stock Shipping Company and others (Mac Steel v Chinese–Polish Shipping),26 the SPC took the view that the carrier has the discretion to decide whether to make notes on the bill of lading according to the notes on the mate’s receipt. In this case, the goods carried were cold rolled steel and the mate’s receipt described apparent damage to the package of the steel. The carrier, based on professional knowledge and due diligence, believed that the apparent order and condition described on the mate’s receipt would not affect the quality of the steel products. The SPC, therefore, held that there was no fault or fraud of the carrier who did not make notes concerning the apparent bad order and condition on the bill of lading. 5.14 It is a question of fact whether a carrier has exercised due diligence to decide for the necessity of notes regarding the apparent order and condition on bill of lading. In Shenzhen Zhongxing Oil Co Ltd v Arktis Carrier Shipping Co Ltd,27 the goods carried were sorghum with inclusion of some sorghum halepense and sorghum almum, which were prohibited from entering China, according to the Chinese Quarantine Law. The carrier did not make notes for the inclusion of impurities. The Guangzhou Maritime Court held that the carrier bore no fault for the issue of a clean bill of lading because the proportion of impurities was very low in the context of all of the goods and it did not affect the apparent order and condition of goods. However, it will be the carrier’s fault if a clean bill of lading is issued where the impurity is obvious. In (China) MINMETALS Trade Corporation v Radiant Shipping Limited,28 the proportion of impurities was 6 per cent, which were much higher than the 2 per cent requirement for the “apparent clean” condition of goods. Therefore, the master or the carrier should have accordingly found and noted the apparent bad condition through visual examination of goods. The Qingdao Maritime Court held that the master in

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this circumstance should make the appropriate notes and was at fault when he issued a clean bill of lading without notes. 5.15 The carrier should exercise due diligence to examine the goods only within the scope of its professional knowledge and skills. In Minermet SpA v China Shipping Bulk Carrier Co Ltd and China Metallurgical Import & Export Guangdong Company,29 the goods described on the bill of lading were fused magnesia – chrome sinter but the goods actually carried were valueless stones. The Dalian Maritime Court held that the carrier was responsible only for the apparent order and condition, and not the actual quality of the goods. 5.16 The SPC in Mac Steel v Chinese–Polish Shipping pointed out that as a matter of fact, the package problem noted on the mate’s receipt had no connection with the damage to the goods. It proved the accuracy of the carrier’s decision. However, there is no requirement of such connection in the CMC 1992 regarding the carrier’s obligation to describe the goods on the bill of lading. Furthermore, in the CMC 1992 there is no such discretion of the carrier to decide whether to make notes on the bill of lading if the mate’s receipt has relevant notes. On the contrary, the CMC 1992 provides that if the carrier made no note on the bill of lading regarding the apparent order and condition of the goods, the goods shall be deemed to be in apparent good order and condition.30 The carrier did not make any notes on the bill of lading in Mac Steel v Chinese–Polish Shipping, but the deemed result obviously was inconsistent with the fact that the steel products were in apparent bad order and condition. 5.17 The carrier may use special clauses on bills of lading to replace a description of apparent order and condition of goods, particularly the goods of steel production. Standard forms of bill of lading for the carriage of steel products usually contain the RETLA clause, which provides that:

If the Goods as described by the Merchant are iron, steel, metal or timber products, the phrase “apparent good order and condition” set out in the preceding paragraph does not mean the Goods were received in the case of iron, steel or metal products, free from visible rust or moisture or in the case of timber products free from warpage, breakage, chipping, moisture, split or broken ends, stains, decay or discoloration. Nor does the Carrier warrant the accuracy of any piece count provided by the Merchant or the adequacy of any banding or securing. If the Merchant so requests, a substitute Bill of Lading will be issued omitting this definition and setting forth any notations which may appear on the mate’s or tally clerk’s receipt.

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