The bill of lading functions as a receipt for the goods, a document of title, and as evidence of the contract of carriage. This article provides an overview of the bill of lading’s usage in international trade, and the legal protection afforded to the shipper by the supporting Hague-Visby Rules, applicable within English law.
Introduction to the Bill of Lading
The bill of lading’s usage dates back to around the fourteenth century, whereby it was issued by the shipowner to a merchant who did not accompany the goods on the shipping route, as a non-negotiable receipt when goods were loaded onto a ship. It would contain remarks addressing the description of the goods, the quantity of the goods, and the condition in which they were shipped. This scope expanded to include terms of the contract of carriage as a basis for the carrier and the merchant cargo-owner to refer to. By the eighteenth century, the usage had extended to acquire its third characteristic, as a negotiable document through which the title to the goods could be obtained, whilst the goods were at sea.
The introduction of the English concept of freedom of contract resulted in shipowners seeming to take advantage of the status of their position, and include terms within the contract of carriage which served to indemnify the carrier for any loss or damage, even when caused by the carrier. This was widely considered to be unreasonable, and twenty-six nations collaborated to ratify the The International Convention for the Unification of Certain Rules of Law relating to Bills of Lading (“Hague Rules”) 1924 which addressed the minimal obligations of the carrier in Article III and identified contractual defences in Article IV.
The Hague-Visby Rules
The United Kingdom’s Carriage of Goods by Sea Act (COGSA) 1971 has given statutory effect to the Hague-Visby Rules (HVR), which endeavour to achieve a compromise between the best interests of the carrier and the cargo owner, and limit the capacity for the carrier to contract out of their application.
Many shippers and consignees may not be aware that in the absence of their holding insurance for the cargo, the bill of lading will generally provide a degree of cover, and the ability to claim against the carrier for loss or damage.
Art X of the Hague Visby Rules states that they will apply to every bill of lading if:
a) the bill of lading is issued in a contracting state
b) the carriage is from a port in a contracting state
c) the contract contained in or evidenced by the bill of lading provides that these Rules, or legislation of any State giving effect to them, are to govern the contract.
The following countries have ratified or acceded to the 1968 Visby amendments to the Hague Rules:-—Belgium, Denmark, Poland, Ecuador, Singapore, Egypt, Sri Lanka, France, Sweden, GDR, Switzerland, Lebanon, Netherlands, Spain, Syria, Norway, Tonga and United Kingdom.
The Hague-Visby Rules limit the carrier’s liability to a monetary unit referred to as a special drawing right (SDR). The SDR is defined by the International Monetary Fund as 666.67 units of account per package or unit or 2 units of account per kilo of the gross weight of the goods lost or damaged, whichever is higher. The value of an SDR is based on a basket of the world’s five leading currencies – the US dollar, euro, yuan, yen and the UK pound. At the time of writing, the SDR is equivalent to £1.02 pounds sterling. Therefore, the Hague-Visby Rules limits the carrier’s liability to £681.46 per package or £2.04 per kilogram.
Art III (6) of the Rules establishes that any claim in respect of the goods carried will be time barred unless proceedings have been commenced within one year of their delivery, or the date when they should have been delivered.
A derogation of the Rules will apply if the damage was related to:
1) Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier in the navigation or in the management of the ship
2) Fire, unless caused by the actual fault or privity of the carrier
3) The catch-all exception.
However, a carrier will not be able to rely on a listed exception if:
a) the peril could have been avoided by exercise of reasonable care
b) the operative cause of the loss was the unseaworthiness of the vessel
c) there has been a fundamental breach of the contract of carriage.
Carrier Liability and the ‘Thorco Lineage’ Case
With the case of Trafigura PTE Ltd v TKK Shipping Ltd (The ‘Thorco Lineage’) [2023] the Commercial Court decided not to follow an earlier decision that had caused controversy in The Limnos [2008]. The Thorn Lineage was grounded in 2018 whilst carrying 10,287.07 MT of zinc calcine, and the vessel experienced extensive damage, which resulted in 764.07 MT of the cargo becoming lost or damaged.
If the claim in tort was based upon the cargo that was physically damaged, the claim would have had amounted to 1,528,140 SDR (approx. US$2.05 million). However, if the claim in tort was based upon both the economic and physical damages, the value of the claims would be limited to 20,574,140 SDR (approx. US$27.5 million).
The claimants posited that the entire cargo had become subject to economic damages as a liability to salvors and on-shipment costs had been incurred, resulting in a claim of 9,523 MT to the client’s possessory or proprietary title.
The court ruled in the claimant’s favour, agreeing that the value of the goods that were salvaged had diminished due to the salvage charges. It was found that the claim in tort was to be limited to the weight of the entire cargo.
Conclusion
Shippers and consignees should be vigilant in reviewing the terms and conditions outlined in a Bill of Lading to safeguard their interests, and banks should maintain awareness of the one year time bar, when accepting a bill of lading as security for a loan against the value of the goods or similar (see our article: Shipping Law: The One Year Time Bar and Trade Finance, discussing the ‘The Giant Ace’ ruling for further information. While the Hague-Visby Rules provide a degree of protection against unfair contractual practices, claimants must remain mindful of limitations on liability and the strict one-year time bar for pursuing claims. Legal advice and comprehensive cargo insurance ( may further mitigate risks in international trade.
