The bill of lading and property and title to the goods

Chapter 6

The Bill of Lading and Property and Title to the Goods

(A) Introduction

6.1 The bill of lading is, under the common law, a document of title to goods. Rather confusingly, this does not, however, mean that its transfer necessarily confers title to the goods on its transferee. This chapter considers three areas: the bill of lading as a document of title to goods at common law; the effect of the retention or transfer of the bill of lading on the transfer of property in the goods covered by the bill; and the circumstances where, unusually, the transferee of a bill of lading may receive a better title to the goods than his transferor had.

(B) The bill of lading as a document of title at common law

6.2 The ocean bill of lading is the only document of title to goods at common law presently recognised under the English common law.¹ As such, the transfer of a bill of lading is capable of transferring to the transferee the symbolic possession of the goods. It is this ability that distinguishes the bill of lading from other documents that contain or evidence contracts of carriage and other documents that operate as a receipt of the goods.

6.3 It is often said that the bill of lading is recognised by the common law as a document of title to goods by reason of the custom of merchants established in Lickbarrow v Mason.² As was seen in Chapter 1, however, the decision in that case was that the transfer of the bill of lading was, by the custom of merchants, capable of raising a presumption of an intention to transfer property in the goods. The bill’s ability to give its holder symbolic possession of the goods was only developed later, in the House of Lords decision in Barber v Meyerstein,³ where Lord Hatherley quoted Martin B.’s judgment from the court below with approval:

6.4 Consequently, because bills of lading are documents of title at common law they are “a symbol of possession”⁵ and a document that “represents the goods”.⁶ Delivery of the bill of lading consequently operates as a “symbolical delivery” of the goods referred to in it.⁷

6.5 In practical terms, the bill of lading’s ability to give its holder symbolic possession of the goods is important because it enables the goods to be pledged as security whilst the goods are at sea.⁸

6.6 The bill of lading’s ability to give its holder symbolic possession of the goods to which it relates results from three factors:

1. (1) First, the bill of lading contains an undertaking by the carrier to deliver the goods only to its holder. The bill, therefore, gives the holder sufficient control over the goods for its holder to be given the same legal rights as a person with actual custody of the goods. It also evidences the carrier’s intention not to interfere with the presenter of the bill’s ability to obtain actual custody of the goods on arrival.
   
2. (2) Secondly, the transfer of the bill raises a presumption that the transferor no longer intends himself to exercise any control over the goods or to interfere with the transferee’s ability to obtain actual possession of them.
   
3. (3) Thirdly, the transfer of the bill raises the opposite presumption, that is that the transferee intends to exercise control over the goods and to exclude others from doing so.

6.7 Sir Frederick Pollock explained the ability of keys and bills of lading to give their holders symbolic possession of goods as follows:

6.8 It was no doubt the similarity in legal effect of keys and bills of lading that led Bowen L.J. in his famous dictum¹⁰ to describe the bill of lading as “the key to the warehouse, floating or fixed”. Importantly, however, although the transfer of a bill of lading (like the transfer of a key to a warehouse) is capable of transferring symbolic possession of the goods and the transfer raises a presumption of an intention to transfer such possession, it does not follow that all transfers of bills of lading necessarily transfer symbolic possession of the goods. Ultimately, the presumptions raised by the transfer of a bill of lading are capable of being rebutted by evidence of a contrary intention.

Straight bills of lading

6.9 Until recently there was a good deal of debate on the status of straight bills of lading, with the preponderance of academic writings suggesting that it was not a bill of lading or “similar document of title” within the meaning of the Hague and Hague-Visby Rules,¹¹ or a document of title at common law. There was also doubt over whether a carrier under such a bill of lading was entitled or bound to deliver to the named consignee without production of the bill. The conventional wisdom, as set out in the Law Commission Report¹² was that:

1. (1) a straight bill of lading was not a document of title at common law;
   
2. (2) it did not have to be produced before the consignee could obtain delivery and thus was often retained by the shipper; and
   
3. (3) the Bills of Lading Act 1885 had no application to straight bills of lading, which had not been “invented” at the date it was passed.

6.10 The House of Lords’ decision in The Rafaela S,¹³ upholding that of the Court of Appeal,¹⁴ in which Rix L.J. gave the leading judgment, has now provided definitive answers on these issues and to an extent has overturned the conventional thinking. In particular the Law Commission’s view that a straight bill of lading need not be produced to obtain delivery has been held to be wrong and:

1. (1) for the purposes of the Hague and Hague-Visby Rules a straight bill is a bill of lading;¹⁵
   
2. (2) if it were not it would be a “similar” document of title;¹⁶ and
   
3. (3) delivery under a straight bill of lading can only properly be made against production of it.¹⁷

6.11 Although the House of Lords’ ruling has clarified some issues, it does leave some problems unresolved.¹⁸ The ratio of the decision is clearly commercially sensible in that the Hague Rules are concerned with the contractual terms contained in a bill of lading rather than its function as a document of title under the English common law, and there is every reason to suppose that the Rules were intended to cover straight bills of lading. The House of Lords, however, went further and suggested, obiter, that the touchstone of a document of title under the common law is that it has to be produced in exchange for delivery. This potentially widens the category of such documents to include, for example, various other types of receipt. By suggesting that a straight bill is a document of title (not only for the purposes of the Hague Rules but also at common law) the court elided two distinct if related principles. The first is the rule that a carrier is contractually obliged to deliver only against production of a bill of lading. This does not, however, make a document that has to be produced to obtain delivery a document of title for the purposes of the common law. The second is the principle that a document of title is one capable of transferring symbolic possession¹⁹ by indorsement and delivery. A straight bill is not such a document even though it may be “transferred” once, to the consignee (and indeed must be if the assumption that there is an obligation to produce it to obtain delivery is correct).

Received for shipment bills of lading

6.12 Are received for shipment bills of lading documents of title under the common law? The Privy Council in The Marlborough Hill²⁰ clearly thought that the particular received for shipment bill in that case was indeed so.²¹ Lord Phillimore, giving the advice of the Privy Council, stressed (i) that one of the bills had to be, if required, surrendered before the delivery of the goods, (ii) that it was contemplated by the document that the shipper would assign his rights and that the assignee and holder of the document would present it at the port of delivery and (iii) “that his receipt and not that of the shipper will be the discharge to the shipowner”.²² Accordingly, he emphasised the fact that the carrier would regard himself as bound to deliver the goods only against the surrender of the bill,²³ and the transferor and transferee both regarded the transfer of the bill as a transfer of control of the goods so that the transferor no longer intended to exercise any control over the goods and the transferee intended to exclude all others from control.

6.13 In a subsequent decision, McCardie J. considered that this conclusion of the Privy Council in The Marlborough Hill was wrong.²⁴ He said, without elaborating, that there are “profound differences” between a received for shipment bill and a shipped bill. Undoubtedly, to a c.i.f. buyer the differences are vital, and should justify the buyer’s rejecting documents that do not include a shipped bill, as McCardie J. decided. However, it is suggested that those differences do not justify one document being a document of title and the other not. In both cases the goods are held by someone who intends not to interfere with the holder of the bill for the time being obtaining delivery of the goods, and merchants transfer both bills with the intention of transferring control over the goods. Consequently, whilst the received for shipment bill might not properly be called a bill of lading, there is no logical reason why it should not be regarded as a document of title at common law.²⁵

6.14 Not all received for shipment bills are, however, the same. In Ishag v Allied Bank International²⁶ the bill recorded the ship upon which it was intended that the goods be transported, but did not state that the goods were, at the time of its issue, in the custody of the carrier. Rather, it merely stated that the goods were “at the disposal” of the carrier’s agents.²⁷ Lloyd J. was satisfied that the document in question was legally indistinguishable from a received for shipment bill of lading and held that “it [was] covered by the custom as found proved in The Marlborough Hill” and was, accordingly, a document of title.²⁸ Whether or not this decision is defensible depends upon whether by “at the disposal” of the carrier it was meant that the goods were in his control or whether it merely meant that the carrier had a contractual right to call for their delivery. In the latter case it is arguable that the carrier had an insufficient degree of control over the goods themselves for it to be said that possession of the document was analogous to possession of the goods.

Mate’s receipts and delivery orders

6.15 A mate’s receipt is not a document of title to goods at common law and is unlikely ever to be recognised as such.²⁹ Although it acknowledges receipt of the goods³⁰ and is signed by the mate of the vessel when the goods are delivered into the custody of the carrier,³¹ the necessary degree of control over the goods is absent because, in the absence of an express stipulation, the holder of the receipt is not necessarily entitled to have the bill of lading delivered to him.³² In light of this, it cannot be said that the carrier does not intend to interfere with the holder of the receipt’s ability to take possession of the goods. Even where the receipt provides that it must be surrendered before the bill of lading will be issued, this term is inserted solely for the protection of the carrier and he can, therefore, waive it at will.³³

6.16 For a mate’s receipt to be recognised as a document of title, it must be shown, first, to give the necessary degree of control over the goods and, secondly, to give rise, upon its transfer, to presumptions as to the intentions of the transferor and transferee, respectively, to relinquish and to take possession of the goods. If these presumptions are shown to exist, either by custom or by proving the parties’ intention from the document, it will be regarded as giving symbolic possession and, therefore, as a document of title. If the presumptions are proved to exist by custom, that custom must be universally³⁴ known such that carriers or merchants dealing with the document can be presumed to do so with knowledge of the presumptions raised by it. Although it was shown in Kum v Wah Tat Bank, Ltd.³⁵ that it was customary to regard the mate’s receipt as equivalent to a bill of lading, the fact that the particular receipt in question was marked “non-negotiable” was repugnant to the custom.³⁶

Delivery warrants and orders

6.17 A delivery warrant is a document whereby the possessor of the goods states that he will deliver them to a named person or his assignee. Delivery orders are not usually issued by the person in possession of the goods, but are orders from a person with a right to direct the disposal of the goods to the person with possession or who is expected to obtain possession as to how the goods are to be dealt with.³⁷

6.18 It has never been decided that delivery warrants are not documents of title at common law,³⁸ but there has also been no decision that they are. In Zwinger v Samuda,³⁹ although it was not necessary to decide whether it had been proved, evidence was given as to the existence of a custom. The plaintiff proved:

6.19 Once again, all the elements necessary to establish that the holder had symbolic possession of the goods were proved; the custodian of the goods gave effect to the documents and transferors and transferees regarded them as passing property in the goods, and presumably, therefore, the transferor did not intend to interfere with the new owner’s right to delivery and the transferee was presumed to intend to exclude all others from obtaining actual possession of the goods.

6.20 With regard to delivery orders, whilst it is submitted that there is no reason why a delivery warrant could not be a document of title, delivery orders, not being issued by the holder of the goods, could never be. It would not be possible to show the necessary intention on the part of the bailee to give the holder a sufficient degree of control over the goods to give him symbolic possession. Consequently, it would be irrelevant whether or not the holder could show the existence of a custom of merchants that regarded the transfer of a delivery order as a transfer of the goods.

6.21 A delivery order issued by the owner of the goods⁴¹ would only be effective to give the holder legal possession of the goods after the bailee had attorned to the holder.⁴² An attornment usually requires the bailee to communicate his agreement to hold the goods forthwith for the holder of the order.⁴³ In Laurie and Morewood v Dudin & Sons⁴⁴ the plaintiffs sought to establish that, by a custom of the trade, a person who has sent a delivery order was entitled to assume that the wharfinger would hold and deliver the goods to his order, provided he did not reply to the contrary. On the facts of the case, the custom was not established.⁴⁵ Even if it had been, the document would not, technically, have been a document of title. Although possession of the order, after a reasonable time for the wharfinger to refuse to hold the goods, might give the holder constructive possession, it would be by reason of an implied attornment. The holder’s possession would be constructive possession and not symbolic possession.

(C) Proprietary effects between sellers and buyers

6.22 Although bills of lading are documents of title, this does not mean that possession of the document gives or evidences ownership of the goods. The position, as discussed in detail below, is complex but, in essence, the retention or transfer of a bill of lading gives rise to various presumptions as to the intention of the transferor and transferee with regard to the property in the goods.

6.23 From as early as 1787, the transferor’s intention became an important factor in the bill of lading’s effect on the property in the goods referred to in it.⁴⁶ First, intention⁴⁷ became relevant to whether property passed and, much later, to what property passed. Thus, it was soon held that property could pass without the transfer of the bill,⁴⁸ might not pass even upon its transfer and, if it did pass, might not be the absolute ownership of the goods.

6.24 If the transfer of property was dependent upon intention, what role did the bill of lading have to play? The starting point in answering this question is the fact that the shipper’s retention of the bill affects his position in respect of the goods.

The shipper’s/seller’s retention of the bill of lading

6.25 Commonly the seller of goods will retain the bill of lading relating to them as security for the price. It is then usually presented against payment, property being intended to pass once payment has been made or secured.

6.26 During the nineteenth century, two possible reasons for the retention of the bill reserving the property to the seller were put forward. The first was that the mere retention of the bill by the seller meant that the buyer could never legitimately obtain,⁴⁹ nor the carrier legitimately surrender, possession of the goods, and the seller thereby retained control of the goods.⁵⁰ Alternatively, it was said that the fact that the seller was named as the person to whose order delivery of the goods was to be made meant that the carrier was the seller’s agent and there had therefore been no delivery to the buyer;⁵¹ the converse, however, would also follow: if the buyer was named there would have been a delivery to the buyer’s agent and property would have passed upon shipment.

6.27 Ultimately the former reasoning prevailed with the effect that any retention of the bill by the seller, whether to the seller’s, or his agent’s,⁵² order,⁵³ the buyer’s order⁵⁴ or drawn in blank,⁵⁵ meant that the property in the goods was presumed to be reserved.⁵⁶ Section 19(2) of the Sale of Goods Act codified the common law position with respect to seller’s order bills,⁵⁷ and the common law is still applied to buyer’s order bills and bills drawn in blank. These two presumptions interact with Sale of Goods Act 1979, sections 17⁵⁸ and 18, rule 5. The requirement of an unconditional appropriation in rule 5 is nothing more than evidence of the seller’s intention to pass the property⁵⁹ as required by section 17. The retention of control evidences an intention not to pass property and, therefore, not to appropriate the goods proprietarily.⁶⁰ Because this is dependent upon the seller’s presumed intention, a reservation, even in breach of the sale contract, will be effective.⁶¹

The nature of the interest reserved

6.28 Despite statements to the effect that the seller retains only the special and not the general property in the goods,⁶² or that the seller merely retains a lien over the goods,⁶³ or that, although property was not split, the buyer received a conditional property, the seller retaining a reversionary interest by retention of the bill,⁶⁴ none of these views have been widely adopted and in retaining the bill of lading the seller is generally regarded as reserving to himself the general property in the goods covered by it.⁶⁵

6.29 Although the form of the bill of lading or its retention by the seller may raise a presumption that property in the goods is retained by the seller, such a presumption is, of course, only that, a presumption, and it is therefore capable of being rebutted by other factors. In Scottish & Newcastle International Ltd. v Othon Ghalanos Ltd.⁶⁶ property in the goods passed independently of the form of the bill of lading. The sale contract between the parties was “to all intents and purposes an fob contract”⁶⁷ with payment to be 90 days from the arrival of the goods at destination. In those circumstances, property passed on shipment.⁶⁸ The contract provided for the goods to be shipped under non-negotiable bills made out to the buyer as consignee and they were to be forwarded to the buyer “immediately after shipment”. Given the clear intention of the seller that the goods should be delivered to the buyer before payment,⁶⁹ the result, it is suggested, would have been the same even if the bill of lading had been negotiable and to the seller’s order.

Transfer of the bill of lading

6.30 Although the seller’s transfer of the bill of lading might raise a presumption of an intention to pass the property in the goods, if this presumption is rebutted, as it often is (the condition of reservation being that the buyer pay the price⁷⁰ or provide security for payment),⁷¹ the seller retains the property in the goods despite his having transferred bill.

Documentary bills⁷²

6.31 Given that the transfer of a bill of lading raises a prima facie presumption of an intention to pass the property in the goods to the transferee, a difficulty is bound to arise. The buyer wants control of the goods before payment, but the seller wants to retain it until payment or until he has security for payment. The tendering of documents under a letter of credit provides one solution, but what happens in situations (perhaps increasingly rare) where a letter of credit is not used? Payment is most unlikely to be made by the physical handing over of money on the presentation of documents. One option is for the seller to send the bill of lading to the buyer together with a bill of exchange for him either to accept or to pay.

6.32 Section 19(3) of the Sale of Goods Act 1979, provides that:

6.33 As the seller who retains the bill of lading is taken to reserve the property in the goods, this section merely nullifies any presumed intention that may have otherwise arisen from the transfer of the bill of lading to the buyer.

Documentary bills – the condition of reservation?

6.34 The seller is usually deemed to reserve property until he is paid or payment is secured. With a documentary bill the question begged is whether property passes upon the buyer’s acceptance or payment of the draft. Although not finally settled, logic and the origins of the presumption⁷⁶ dictate that the answer depends entirely upon the presumed intention of the seller and, therefore, whether he intends to reserve property until acceptance⁷⁷ or payment.⁷⁸ Where the documentary bill is tendered via an agent, the best evidence of his intention will be the instructions he gives to that agent.⁷⁹ Where tendered directly to the buyer, the statements as to when the buyer can retain the bill of lading will best evidence his intention.⁸⁰

6.35 One final question arises. What is the effect on the condition of reservation where the bill of lading is attached to a draft for a sum in excess of the contract price? Does property pass upon the tendering of the contract price or on tendering the sum demanded? The seller can unilaterally reserve the property to the goods and, theoretically, can do so on any terms he chooses.⁸¹

(D) The transfer of the bill of lading other than to the buyer

Transfers of the bill of lading to banks or agents

6.36 Although much less complicated, a few words are necessary about the proprietary effect of the transfer of the bill of lading other than to the buyer. The purposes for which the bill of lading can be transferred are many and varied and only the most common can be considered here, that is, where the bill is transferred to either a bank or an agent.

6.37 Under mercantile practice of the early nineteenth century, it was common for the bill of lading to be transferred to a factor for sale who also extended finance for the cargo, receiving the bill as both a means of selling the goods and of securing his advance. It may be for this reason that the position of bankers and agents who receive a bill of lading as security for an advance is essentially the same. Provided that there is evidence of an agreement, express or implied, that the specific goods⁸² covered by the document are to be held as security for the repayment of an advance,⁸³ the agent or banker is generally⁸⁴ considered to be a pledgee⁸⁵ of the goods and the bill of lading itself.⁸⁶