Law Firm in India

Charter Party Bill of Lading

Around 90% of world trade is carried by sea & seaborne trade is expected to remain the dominant mode for moving cargoes.

We are familiar with the increasingly important role shipping plays in our globalised world. Around 90% of world trade is carried by sea & seaborne trade is expected to remain the dominant mode for moving cargoes. Ex Secretary General of IMO Mr. Mitropoulos once remarked “Without shipping half the world would starve to death due to hunger and the other half would die of cold.

Bills of Ladings are one of the most important documents in International trade & International finance.

Amongst the various functions they serve, one very important role is that of being a “Document of title” which means that whoever is the holder of the bill of lading is also the owner of the goods.

Exporters use them to retain constructive control over the goods while they seek payment from the buyers, and being documents of title they can be used as a security for getting credit from bankers. They are preferred by bankers when giving credit as no other document in International trade can give a stronger control over the goods (security) than a Bill of Lading.

Bankers exercise control of the title over goods by either taking physical possession of all the original Bills of ladings or by simply putting their names on the ORDER Bill of ladings meaning that no further transaction of goods can take place without their consent.

In international trade there are various types of Bills of Lading but this article proposes to concentrate only on “Charter Party Bill of Lading”.

The “Charter Party Bill of Lading “must give an express reference to an already existing charter party contract on its face. A bill of lading could give an express reference in any one of the following ways: 
  • Bill of lading contains a wording similar to the following: "Issued pursuant to charter party dated ----.". 
  • Bill of lading shows "freight payable as per charter party dated ----" or similar phrase. 
  • The document is entitled "Charter Party Bill of Lading”

As seen in the above picture there is a contract of SALE between the shipper / seller and the receiver / buyer for example for 100,000 MT of Iron ore from India to Japan.

In order to transport that Iron Ore, if the shipper charters a ship himself it’s a pretty direct contract. The shipowner in turn issues to the shipper a receipt for the goods loaded on his ship. This is known as a Marine Bill of lading.

NOW let’s introduce a charterer in this scenario. Charterer is a fellow who has taken the vessel on hire thus becoming the commercial operator of the vessel. Now when the shipper loads his goods his Bill of lading is issued by the charterer (as a carrier) and not the shipowner. These are known as CHARTER PARTY BILL OF LADINGS.

The contract between the shipper and the charterer is known as CONTRACT OF CARRIAGE and the contract between the charterer and the shipowner is the called CHARTER PARTY. (See figure)

It is therefore evident that NO DIRECT CONTRACT exists between the shipper and shipowner under “Charter Party Bill of Lading” (CPBL).

Though signed by the Master of the vessel who is a representative of the owners, in reality, the CPBL is issued by the Ship Captain on behalf of the charterer of the vessel and effectively it is the charterer who issues the B/L to the shipper for the goods being shipped on board the vessel he has chartered . For the charterer it is merely a receipt for the goods shipped as all the terms and conditions are mentioned already in the charter party as was declared by courts in Leduc v Ward (1888) 20 QBD 4751.

It’s important to understand that while a Marine Bill of Lading is issued by the Shipowner or his agents a CPBL is issued by a Charterer or his agents.

AS against a normal MARINE B/L where the bankers are more comfortable in extending credit, they are very apprehensive about accepting CHARTER PARTY BILL OF LADINGS.

To make matters simple when we transport goods by truck and the goods get damaged, we hold the CARRIER liable. In CPBL it is the charterer who is the carrier for shipper even though he has loaded his goods on a ship belonging to the shipowner. At times this could present difficulties to the shipper. For instance, if the charterer fails to pay the charter hire to the shipowner, the shipowner under can withhold the cargo for non-payment. In such a situation it is the shipper or the owner of the cargo who suffers. But frustratingly the shipper/owner of goods cannot move against the shipowner as he has no contractual relations with him. The situation becomes even more complicated if there is sub-charterer also involved as some charter parties do permit the charterer to further sub charter the vessel.

The Uniform Customs and Practice for Documentary Credits (UCP) drafted by ICC (International Chamber of Commerce) is a set of rules utilized by bankers and commercial parties for trade finance.

A Marine Bill of lading is covered under Article 20 of UCP 600, while Article 22 covers Charter Party Bill of Lading. As per Article 22, if a LC (letter of Credit) calls for a Charter Party BL, or mentions that CBPLs are acceptable, then presenting a CPBL would comply with this condition. A CPBL should contain an indication that it is subject to a Charter Party, and can be signed by the master, the owner or the charterer or their agent on their behalf (as against the carrier or the master or their agent in the case of Marine Bill of Lading).

Under CPBL’s Problems can also arise where the shipowner has first chartered the vessel to a charterer under a Charter Party and the Charterer in turn contracts with a shipper under a Contract of carriage on terms different from the Charter party.

Two crucial questions which must be answered in this case are:

(i) where there is a conflict between the terms of the bill of lading and the terms of the charter party under which it was issued, which terms would be binding on the shipper – the charter party terms or the bill of lading terms?
(ii)  and who is the carrier where goods are carried on a chartered ship?

In Leduc v Ward (1888) 20 QBD 4751 courts ruled that when the B/L is issued as a follow up of the C/p between the charterer and the owner then B/L is merely a receipt of goods as all the main terms of the carriage are already in the earlier contract viz the charter party.

Now consider a FOB contract where the charterer is also the consignee, as in the case of President of India v Metcalfe [1969] ALL ER 1549, the charterer was caught by a term, an arbitration clause, of the charter party even though there was no such clause in the bill endorsed to him by the shipper. Thus, where the charterer takes the bill directly from the shipper, his seller, it is clear that the endorsement of the bill to the charterer is very much an incident of the contract of sale and is in no way intended by any of the parties to alter the contractual agreements between the shipowner and the charterer, contained in the charter party. And hence any variations in terms between the C/P and the B/L can give rise to serious disputes.

Concluding, this was an attempt to have a fair idea of what is a CPBL and its difference with Marine BL. Cargoes in bulk will continue to move worldwide, Charterers will continue to hire ships, CPBL’s will continue to be used. Hence for reasons of its unique identity CPBL are to be treated with special care and it is always advisable to take legal assistance whenever entering into any International transportation of goods contracts.


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