Clean bill of lading

Clean bill of lading. The carrier is bound to deliver the goods in the same order and condition as when he received them into his charge. When the goods are received, the bill of lading is issued, on demand of the shipper, and this should state the description of the goods as received, including the apparent order and condition.

If this is all the bill of lading is meant to be, a receipt for cargo, then the shipper will not be concerned with the actual description of the condition of the goods as received. If the goods are damaged when received, they can be delivered in an identical condition, no worse, no better. However, the bill of lading does not have only this characteristic. It features importantly in the sale of goods and because the buyers and sellers are separated, the payment is made in exchange for documents that are considered to represent the goods. Because the buyer usually intends to buy goods that are in good condition, any statement on the bill of lading that the goods are not in that condition will inevitably cause the buyer, or the banks, on his behalf, to refuse to pay.

Bankers protect themselves and their buyer clients by adhering to the “Uniform Customs and Practice for Documentary Credits 1983” (“UCP 1983”). Article 34 of the UCP 1983 states:

“(a) A clean transport document is one which bears no superimposed clause or notation which expressly declares a defective condition of the goods and/or the packaging.

(b) Banks will refuse transport documents bearing such clauses or notations unless the credit expressly stipulates those clauses or notations, which may be accepted.

(c) Banks will regard a requirement in a credit for a transport document to bear the clause `clean on board’ as complied with if such transport document meets the requirement of this Article . . .”

The clause or notation must refer to the actual deficiency of the goods or packaging. Any notations by the master or agent should be factual, not legalistic. For example, if the goods or packaging are wet, the notation should say so, not “vessel not responsible for condition of goods if wet”. The notations must refer to the condition of the goods and/or packaging at the time of shipment.

This requirement arose in Canada and Dominion Sugar v. Canadian National SS Ltd., 1946, where a bill of lading was issued for sugar received in “apparent good order and condition”. The bill of lading was issued before the goods were actually shipped. When the goods were shipped, it was observed that many bags were stained, torn and re-sewn. Such a statement was made on the mate’s receipt. The bill of lading was not claused in conformity with the mate’s receipt. The endorsees were unable to claim that because the bill of lading was a “clean one”, the carriers could not escape liability. It was pointed out by the court that the Hague Rules required a shipped bill of lading to be issued on demand of the shipper after the goods were shipped. The earlier bill of lading was not a shipped bill. The shippers had not demanded a shipped bill.

In another, more recent case, also concerning the shipment of sugar, the judge said that:

. . . a ‘clean bill of lading’ has never been exhaustively defined. I have been referred to a number of text books and authorities which support the proposition that a ‘clean’ bill of lading is one in which there is nothing to qualify the admission that the goods were in apparent good order and condition . . . Some clearly regard the relevant time as being that of shipment. Some are silent as to what is the relevant time. None refers subsequently to any time subsequent to shipment.” (The Galatia, 1979)

The banks may like to “define” a “clean bill of lading” for their purpose, and the UCP, which has been in existence since 1933, may produce a definition of a “bankers’ clean bill of lading”. Indeed, in The Galatia, the judge was invited to consider the bankers’ test as the “practical test” for clean bills of lading, but decided that merely because two banks had rejected a bill of lading with a clause as being “unclean”, this did not necessarily cause the bill of lading to be stating what was not correct at the time of shipment.

In The Galatia the vessel was chartered to carry a cargo of sugar from India to Iran. The contract of sale provided for payment against documents, which had to be produced to the bank. The documents had to include “clean, `On-board’ bills of lading”. The cargo was stowed on board in apparent goad order and condition and clean mate’s receipts were issued. A fire occurred four days after commencement of loading and about 200 tonnes of sugar were badly damaged and had to be discharged as being condemned as a total loss. The intention seems to have been that one bill of lading would cover the entire shipment. However, because of the partial loss of the cargo, two bills of lading were issued, one for the damaged sugar and the other for the undamaged quantity. The buyers paid for the undamaged amount. They, and the banks, refused to pay for the damaged cargo because they argued that the bill of lading was not clean. The bill of lading was on a standard form acknowledging the shipment in apparent good order and condition, but bore a typewritten notation:

“Cargo covered by this bill of lading has been discharged Kandla view damaged by fire and/or water used to extinguish fire for which general average declared.”

The banks considered the notation offended the UCP definition of a clean bill of lading and did not effect payment. However, the judge decided that the rejection was wrong because the bill of lading stated that the cargo was in good order and condition when it was shipped and this was an accurate statement of the facts. Therefore, the bill of lading was “clean”. The bill of lading did not have to describe the condition of goods after shipment.


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