Authority of master to sign. The master of a vessel is a “general agent” of the shipowner to perform all activities relating to the usual employment of the vessel.
Therefore he is considered to have the usual authority to sign a bill of lading. The authority given to the master or implied by the law as having been given binds the shipowner as “principal”. If the master acts without authority, the owner may not be bound. If the vessel is chartered, there may be circumstances when the master may also act as agent of the charterer.
Problems can arise if the master signs a bill of lading for cargo, which has never been received or shipped. In the old case of Grant v. Norway, 1851, this occurred. The court decided that the master had no authority to sign and issue a bill of lading for cargo not received. The first function of the bill of lading, that of a receipt for cargo, failed. Therefore the owner was not liable because the absence of cargo meant there could be no receipt for cargo nor contract to carry a non-existent cargo.
Accordingly, the holder of the bill of lading, for example, an endorsee far value, may possess a document that has no value.
The Bills of Lading Act was passed in England in 1855 and one of its provisions was meant to protect such consignees and endorsees when the master signed and issued a bill of lading for cargo not received. The Preamble to the Act contained the words:
“ . . . it frequently happens that the goods in respect of which bills of lading purport to be signed have not been laden on board, and it is proper that such bills of lading in the hand of a bona fide holder for value should not be questioned by the master or other person signing the same on the ground of the goods not having been laden as aforesaid: . . .”
Section 3 of the Act then provided:
“Every bill of lading in the hands of a consignee or endorsee for valuable consideration, representing goods to have been shipped, shall be conclusive evidence of such shipment as against the master or other person signing the same, notwithstanding that such goods or some pan thereof may not have been so shipped . . . Provided that the master or other person so signing may exonerate himself in respect of such misrepresentation by showing that it was caused without any default on his part, and wholly by the fraud of the shipper, or of the holder, or some person under whom the holder claims.”
Poor drafting has caused the section to be quite ineffective against a shipowner although it is evidence against a master. Even here there is no cause of action, that is, the signing does not establish that the master is at fault, but is only “evidence”. Evidence itself may also be weak because it is difficult to envisage how the bill of lading can be evidence (or proof) of shipment when shipment never took place.
The inadequacy of section 3 to make the shipowner liable led to a change in the Hague Rules in 1968. In those rules (established in 1924) Art. III, r. 4 had stated:
“Such a bill of lading shall be prima facie evidence of the receipt by the carrier of the goods as therein described in accordance with paragraphs 3(a), (b) and (c).”
The “paragraphs 3(a), (b) and (c)” referred to the carrier or the master or agent of the carrier showing in the bill of lading the leading marks necessary for identification of the goods, the quantity or weight of the goods and the apparent order and condition. The amendments made in 1968 created the Hague-Visby Rules and Art. III, r. 4 then contained the same words with the addition of a second sentence. The new article is:
“Such a bill of lading shall be prima facie evidence of the receipt by the carrier of the goods as therein described in accordance with paragraphs 3(a), (b) and (c). However, proof to the contrary shall not be admissible when the bill of lading has been transferred to a third party acting in good faith.”
This change may reduce the effect of Grant v. Norway on the rights of a consignee or an endorsee or similar third party. However, an argument may still be used by a shipowner that if the goods were never received but the master signed the bill of lading there was still no contract and therefore no liability. Of course, if the master signed a bill of lading for cargo never shipped, he himself did so without authority and can be sued by a holder of the bill for breach of warranty of authority.
In The Garbis, 1982, it was established that the shipowner could show that a master had the right to refuse to sign a bill of lading that was inconsistent with a charterparty, more easily than for the owner to show that the master had or did not have authority cu sign.
The Garbis, a tanker, was chartered to load and carry a cargo of naphtha. One clause in the charterparty provided that the charterer agreed that some colour drop in the cargo of naphtha was acceptable. Another clause required the master to sign bills of lading, on request, in the form appearing at the end of the charterparty. The same clause also provided that: “. . . the carriage of cargo under the Charter Party and under all Bills o£ Lading issued for the cargo shall be subject to the .. . terms . . . of this clause and such terms shall be incorporated verbatim or be deemed incorporated by the reference in any such bills of lading . . . “
The bill of lading presented for the master’s signature did not contain an appropriate incorporation clause. There were also blanks in the bill of lading where the names of the parties to the charter and the date of the charter were omitted. The master initially refused to sign the bill of lading as presented but did so after the charterers gave two “letters of indemnity”. It was held in the English court that the master did have the right to refuse to sign a bill of lading which was not as required by the charterparty. It is the charterer’s obligation to present a B/L which is compatible with the terms in the charterparty.
The master was also permitted to refuse to sign a bill of lading for a larger amount of cargo than was actually shipped in the case of The Boukadora, 1989. A charterparty may require the master to sign bills of lading-as presented “. . .without prejudice to this charterparty”. If the master does not sign a bill of lading that imposes on the shipowner a liability greater than under the charterparty, the question that arises is whether the owner can seek an indemnity from the charterer. The master may consider that signing bills of lading, which are incompatible with terms in the charterparty, may be necessary because of commercial pressures. In any event he cannot be forced to sign a bill of lading far cargo never shipped, if he knows this nor to sign a clean bill of lading when the cargo or packaging is defective, but commercial pressures can be brought on the master in many ways, not least of all by aggressive shippers or their agents. Included in the agents’ or charterers’ arguments is often an offer of an unenforceable “letter of indemnity” in exchange.
The authority of the master to sign bills of lading can bind the shipowner but he may be able to claim indemnity from the charterer in two ways. First, the charterer or his agent, in presenting incompatible bills of lading for signature, commits a breach of charter and an action may be brought for damages for breach. Secondly, in the absence of an express indemnity provision, indemnity can be implied into the charter. However, in either situation the shipowner may have to trace and find the charterer and take appropriate legal action, which is time-consuming and expensive.
The bill of lading can be consistent with the charterparty yet impose greater liability on the shipowner than does the charter. For example, if the bill of lading incorporates the Hague-Visby Rules, the liability may be higher than under the charterparty. In this situation the charterer neither commits a breach of charter nor presents a bill of lading incompatible with the charterparty. The owner may be unable to claim damage for breach. The implication of a term allowing the owner to claim indemnity may vary with the circumstances of each case and can be very uncertain for the owner.
In order to exercise his authority and also to delegate it to charterers or agents, the master should write a letter to the charterers or agents authorising them to sign bills of lading on his behalf, but always in accordance with mate’s receipts and clauses on mates’ receipts, failing which the shipowner is to be indemnified.
If the master signs bills of lading or fails to sign them when required and there is evidence of the master’s negligence in either situation, the non-exercise of his authority will cause the shipowner to become liable to the holders of the bills of lading. There are various other circumstances where the master acts within his authority to sign and issue bills of lading and each time causes the shipowner to become liable. For example, in The Almak, 1985, it was decided that the master’s signing a bill of lading with the wrong date may cause the shipowner to lose any indemnity from the charterers.