|“An Overview to Introduction of Electronic Bill of Lading, Advantages, Side Effects”. Acknowledgement
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The advent of information technology has revolutionized the trading system to a great extent. With its speed, reliability and cheapness, traders have a strong tendency to use the modern communications means instead of the conventional means of dispatching documents over the globe. The trend to replace paper documents with electronic data has urged the shipping companies and the traders to demand for an introduction of electronic bill of lading so as they transact over the seas without having to bother about arrivals or dispatches of the relevant documents which used to take longer time through the traditional means of communication.
This study aims at evaluating the introduction of the electronic bill of lading in order to assess its advantages, disadvantages and the legal complications and hindrances in the way of incorporating the means of information technology into the conventional legislation. For this purpose, the study presents the bill of lading in its historical perspective and analyzes the developments by referring different cases under the courts of trial. Also, the study evaluates the developments made towards legislations to bring the electronic data interchange into the streamline of the existing laws.
CHAPTER 1BRIEF INTRODUCTION TO THE RESEARCHIntroduction
Bill of Lading is one of the most crucial documents which facilitate trade through Sea. A bill of lading made out “to order” or “to bearer” is a document of title at common law. As such, its delivery, while the goods are at sea, symbolizes delivery of the goods themselves. It has long been known that generally, the carrier is entitled to, and indeed must deliver the goods only to the lawful holder of such a document, against its production.
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Where it is not envisaged that the goods will be sold at sea, there is no need to use an order bill of lading, and indeed, its use can be very inconvenient for carriers. Many such cargoes are now carried under sea waybills. A sea waybill is not a document of title. Its transfer generally has no legal consequences at all. Generally, the carrier is obliged to deliver to the person named in the sea waybill, whether or not the waybill is produced. Indeed, one of its main advantages, as far as carriers are concerned, is precisely that they can make delivery, without waiting for its production.
There is also a third type of document, the straight, non-negotiable bill of lading, not made out to order but naming a consignee. This document can be transferred once only. The Carriage of Goods by Sea Act 1992 treats it as a species of waybill, not a document of title. Its status was never determined under the Bills of Lading Act 1855 (which was replaced by the 1992 Act), though the language of s.1 suggested its inclusion. These provisions, however, are (or were) concerned with the transfer of contractual rights and duties, and not with delivery of the cargo.
However, in 2005 the House of Lords held, in The Rafaela S, that a straight bill of lading was a document of title, to trigger the application of the Hague-Visby Rules. Since the relevant wording was unchanged from the previous Convention, it would also be a document of title under the Hague Rules. Although it was not necessary for the actual decision, the reasoning may well go further, granting it the status of a document of title at common law, because the consignee must produce it to obtain delivery of the cargo. It follows that there are three, not just two, distinct categories of document, and that the straight bill of lading can more effectively be retained by a seller, as security for payment. The bill of lading not only is helpful in facilitating the trade but also serve as a document on which financial institutions especially banks rely in order to make payments to other party on behalf of their clients. Traditionally, Bill of Lading has been manually prepared in multiple copies which are then sent to relevant parties according to the terms of the contract. As this process is comparatively slower and take much time to reach the destination, there is growing need to adopt some faster and more reliable methods which would also serve as a legal document when there arises any necessarily to defend it in the court of law. Recent trends and shifts in the international trade have necessitated the use of more rapid means of communication between the parties to the contract in order to save cost and make the whole process more swift and efficient. Electronic Bill of Lading is one such innovation in the field of international trade which has been made in order to make the whole process efficient and swift.
This study undertakes to analyze the advantages and disadvantages of the Electronic Bill of lading in the context of its efficiency, ease and speed of its usage and its implications in the trial courts.
1.1 Aims and Objectives of the Research
The aims and objectives of this paper are to evaluate the possible benefits and disadvantages of introducing the electronic bill of lading into the trading business. For this purpose, this study will focus on how an electronic bill of lading can be introduced and evaluate how its introduction can improve the trade besides analyzing its possible legal complications for the courts and for the law makers. Due to the increased use of electronic data interchange (EDI) by most of the shipping companies, the need for the introduction of an electronic bill of lading has become a necessity of the time. Therefore before the introduction of the electronic bill of lading into the mainstream law, its possible impacts on the relationships between the buyer, seller, shipping companies and the financial institutions will be evaluated so that a comprehensive view emerge as to what exactly would happen after its introduction and promulgation.
For this thesis, the case study methodology will be adopted so that by analyzing different cases, the possible outcomes of the electronic bill of lading may be evaluated. The case study research is the most common qualitative method used in information systems (Orlikowski and Baroudi 1991). Yin (2002) defines a case study as “an empirical inquiry that investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident” The use of case research can be best understood by comparing it to other qualitative methods like ethnography, action research, and grounded theory. The case studies are also cross compared as many sub-themes may be discussed to support the main theme of the case study. (McNamara, 1997). These methods differ in several ways. The ethnographic researchers are required to spend a significant amount of time in the field, mix with the people they study, and place the phenomena studied in their social and cultural context. In action research the focus is more on what practitioners do, becoming fully engaged participants rather then observers (Avison et al. 1999). Grounded theory is a research method that develops a theory that is grounded on data systematically gathered and analyzed. The major difference between grounded theory and other methods is that there should be a continuous interaction between data collection and analysis (Myers 1997).
Case study research can consist of either a single case or multiple cases. Single-case studies are appropriate in circumstances where, for example, the case represents a case for testing a well-formulated theory. In multiple-case studies, a multiple design must follow a replication rather than sampling logic (Yin 2002). When no other cases are available for replication, the researcher is limited to single-case designs. This study represents a single-case study design, which means that only one case has been taken under investigation. The choice between single-case design and multiple-case design should also be kept open during the research process. The reasons for this are that the selected single-case may turn out to be a misrepresentation of the research phenomenon, or that the case does not work out well for some reason (Yin, 2002). Depending upon the researcher’s philosophical assumptions the case study research can be positivist, interpretive, or critical (Dubé and Paré 2001). Positivist studies generally attempt to test theory, in an attempt to increase the predictive understanding of phenomena. Just as case research can be positivist, interpretive, or critical, it can also be exploratory, explanatory or descriptive. In exploratory case studies, fieldwork and data collection may be undertaken prior to definition of the research questions and hypotheses. This type of study has been considered as a prelude to a research. However, the framework of the study must be created ahead of time. Descriptive cases require that the investigator begin with a descriptive theory, or face the possibility that problems will occur during the project (Bryn 2004) The proposed case study adopts the explanatory approach that is suitable for doing causal studies, mainly to test the theory (Dubé and Paré 2001).Case studies typically combine several data collection methods such as interviews, documentation, observations, and questionnaires that are a source of qualitative and/or quantitative data (Dubé and Paré 2001). A key strength of the case study method involves using multiple sources and techniques in the data gathering process to strengthen the research findings and conclusions. The researcher determines in advance what evidence to gather and what analysis techniques to use with the data to answer the research questions. Data gathered is normally largely qualitative, but it may also be quantitative. A frequent criticism of case study methodology is that it is dependent on a single case and so it is incapable of providing a generalized conclusion (Tellis 1997). Yin (2002) argues that the relative size of the sample, whether 2, 10, or 100 cases are used, does not transform a multiple case into a macroscopic study. The goal of the study should establish the parameters, and should then be applied to all research. In this way, even a single case could be considered acceptable, provided it met the established objective.
This methodology has been selected for doing this law dissertation because of the fact that this study will develop a case for the use of electronic bill of lading into the modern day business and how law may be promulgated to bring the electronic bill of lading under its ambit. For the purpose of this research, this case study will also include references to the legal cases being decided by the honorable courts as a support references to make a case for the use of electronic bill of lading besides referring them in general framework also to discuss the general interpretation of the legal provision of the relevant laws as to how the practical issues have been dealt by the law so as to interpret the legal provisions.
1.3 Literature Review
In order to bring the electronic bill of lading into the streamline of the existing legislation, there have been efforts from different countries, organizations and institutions. In the following section, a review of these efforts is presented to illustrate the developments in this direction.
1.3.1 Bill of Lading Electronic Registry Organization
With the increasing use of information technology, especially the use of internet because it is faster and cheaper means of communication, e-commerce continues to advance and develop rapidly. Marketing and conducting business over the internet are growing by leaps and bounds. Some policy-makers who advocate the ideology of laissez-faire economic theory do prefer minimal regulatory intervention. According to them the industry should regulate itself, and that non-performing companies will be out of business anyway under the theory of survival of the fittest. Some governments, on the other hand, prefer treating cyberspace as a marketplace just like a stock market. As stock markets are subject to the listing rules established and enforced by the relevant authorities, so should transactions conducted over the internet be regulated, and enforced by the relevant legal systems if certain applicable standards are complied with.
Bolero (Bill of Lading Electronic Registry Organization) is a significant step in this direction and it is the most recent system for dematerializing shipping documents. Bolero was launched in September 1999 and has brought optimism for paperless international trade in the international business community–banks, insurers, importers, and exporters. As has been discussed previously, the problems with paper documents, particularly the bill of lading, in international trade are evident from the growing dissatisfaction and increasing legislative complications for the traders and shippers. One of the most disturbing problems of the bill of lading is that its preparations and movements of paper documents are so slow that cargoes often arrive at their destination before the bill of lading and other documents arrive. Besides the slower communication of documentation, there are also complicated government regulations, and the demands from banks to see and check seaborne trade documents. Because vessels cannot wait for the arrival of the necessary documents as demurrage charges will accrue and schedules of vessels will be distorted, parties obtain letters of indemnity from banks to enable them to take delivery of their cargo. The resort to letters of indemnity adds to the paperwork, costs, and legal problems. Thus, this situation may be referred to as the paper documentation crises. The best solution to all these problems and complications of the traditional bill of lading is to replace paper shipping documents with electronic documents, as has been done in many areas of modern banking. There is no doubt that the electronic documents are fast to issue, transmit and process, and this eliminates the late arrival of shipping documents. The other advantage of the electronic documents is that these are amenable to automation, and automation eliminates re-keying of data entry and the potential associated errors that are so debilitating to letters of credit. The apparent advantages of the electronic documents are that they save precious time and are cost effective with added advantage of efficiency and convenience. The need to eliminate paper has been recognized by the international business community and efforts to dematerialize shipping documents have been in progress since the past 40 years, although there is no significant success in this direction. The Bolero system is one step in this direction which offers some hope for the business community to achieve better results in this regard.
In conjunction with the European Commission, Bolero was initiated in 1994 by a consortium of carriers, traders, banks and telecommunications companies. Its technical trials were started in 1995 and 1996, however, after that the Bolero project went into slow period and nearly became defunct. Later, in late 1997, SWIFT (Society for Worldwide Interbank Financial Transactions) and the TTC (Through Transport Mutual Insurance Association Ltd), two influential organisations in international transportation and payments, joined the project and boosted up a fresh enthusiasm and support to the cause.
Bolero Operations Ltd was incorporated in April 1998 under the stewardship of SWIFT and the TTC to run the Bolero system. Together with the BAL (Bolero Association Ltd), [FN19] SWIFT and TTC and over 500 companies and industry organisations worldwide worked together to review the functional and legal capabilities of the Bolero system. The work culminated in a second phase of trial between late 1998 and early 1999. Unlike SeaDocs, which was designed for oil trade, a wide range of commodity sectors are involved in Bolero. As well, several banks, shippers, freight forwarders, and carriers were involved in Bolero’s trial. Bolero was finally launched commercially on September 27, 1999, following the trials and product developments. Bolero operates through a Core Message Platform (BCMP) and a title registry (BTR. Bolero replicates the negotiability function of bills of lading in a creative way, using the principles of novation and assignment, as it recognizes that BBLs may not have full legal effect under the bills of lading laws of most jurisdictions. Bolero adopts a contractual mechanism that relies on the principles of novation, to transfer the contract of carriage, and of attornment, for the carrier to acknowledge it holds the goods to the order of the transferee.
Functioning: Under Bolero, a carrier (C) issuing a BBL to a shipper (S) first transmits the message to BCMP indicating that the message is meant for S. BCMP acknowledges receipt of the message to C, checks the message for authenticity (origin and uniqueness), endorses the message by adding its own digital signature and forwards the message to S. S is required to acknowledge receipt. If S wishes to transfer the BBL to an entity, say a bank (B), S communicates through BCMP. Upon receipt of the transfer instruction by BCMP from S, BCMP checks the message for authenticity, and verifies it against its BTR records. If BCMP is satisfied with the authenticity of the document, it adds its own digital signature and forwards S’s message to B and registers B in the BTR as the new holder of the BBL. The process is repeated for subsequent transfers, say from the bank to the importer.
Bolero thus retains the core features of the traditional documentary basis of international sale transactions but eliminates the slow paper medium of documentation. The Bolero mechanism supports documentary credits, which are a crucial method of financing international sales. Technically, the Bolero mechanism for transferring BBLs involves an extra step compared to the paper bill of lading: the paper bill of lading is transferable between parties without referring to a title registry. In practice, the extra step should pose no disadvantage because electronic transmissions can be accomplished in a fraction of the time of paper-based communications. The involvement of the title registry adds to the security of the system and lessens the risk of forgery and fraud, as Bolero checks all messages for authenticity and certifies them digitally before forwarding the messages to their intended recipients.
Bolero performs three important roles. First, Bolero operates as an electronic messaging platform for the international trade community. Secondly, it operates as a trusted third party and certification authority. Thirdly, Bolero acts as a title registry carrying out transactions involving BBLs after they are created. These three roles are essential for user trust, confidence and participation. To enhance security, messages through Bolero are encrypted for transmission, where local laws permit, while confidentiality is maintained by transmitting messages as attachments in envelopes. While the Bolero system maintains strict security and privacy features, it adopts a liberal user interface and integration tools system. The system is accessible over public networks that support internet protocols as well as private networks. Users can connect through stand-alone or gateway devices, or interface with Bolero through a service bureau, such as a port community system or a bank proprietary network.NEW ZEALAND: E-COMMERCE
Legislative reform concerning the e-commerce are underway in New Zealand in various areas, the most important being the Electronic Transactions Bill 2000 introduced in November 2000. The purpose for introducing this law is to remove any legislative impediments to electronic transactions and where possible, to remove any uncertainty at law which might arise when transactions are carried out electronically.
The Bill is based on the 1996 model law on electronic commerce issued by the United Nations Commission for International Trade Law (UNCITRAL), two reports produced by the New Zealand Law Commission on electronic commerce and the Australian Electronic Transactions Act 1999. The Bill has many similarities to legislation already in place or proposed in Singapore, Canada, Ireland, Hong Kong and India.
The scope of the Bill is quite broad in that it will extend to all electronic transactions and electronic records whether commercial or non-commercial. The most important function of the Bill is to modify all other legislation requiring documentation in writing, written signatures and the retention of paper documents. Examples of the latter category are the Companies Act 1993 and the Income Tax Act 1994.
There are a large number of exceptions to making electronic documents and electronic signatures acceptable. Wills, affidavits and statutory declarations, negotiable instruments and bills of lading, land registration documents, are just a few examples of documents which will still need to be in writing and signed in the conventional manner.
It is not intended that anyone be compelled to accept electronic documents as the provisions in the Bill allow e-technology only if it is functionally equivalent to writing and the recipient has agreed. This is in contrast to the Australian Act where Federal Government entities are compelled to accept electronic communications and signatures.
The Bill is deliberately “technology neutral” and does not specify what constitutes an acceptable format for an electronic signature. It seems that the Bill does not even require that the signature be digital in form, and simply requires that–the electronic method used is sufficiently reliable for the relevant purpose. Whether this would extend to include acceptance “buttons” on websites clicked on by consumers as in the U.S. E-Sign Act remains to be seen, although the wording seems broad enough to encompass such “signatures” in appropriate transactions.
Privacy Act amendments
Amendments have been proposed to New Zealand’s Privacy Act 1993 to ensure New Zealand provides sufficient protection to meet European Commission requirements for data export. The Privacy Act 1993 is comprehensive for internal purposes but does not provide for transborder data flow.
The amendment will: (1) mean foreign citizens not resident in New Zealand will be able to have access and correct data pertaining to them held in New Zealand, and (2), give the Privacy Commissioner the power to prohibit the export of personal data from New Zealand; if (a) the destination country does not have privacy safeguards comparable to the Privacy Act; (b) the export may contravene the laws of a country other than New Zealand from which the data originated; or (c) the export is likely to breach the principles of national application in the OECD Guidelines Governing the Protection of Privacy and Transborder Flows of Personal Data. The amendments have been included in the Statutes Amendment Bill introduced into Parliament on December 12, 2000.
1.3.3 CHINA’S ELECTRONIC SIGNATURE ACT 2005
In order to keep at par with the international trade developments and requirements, China has introduced Electronic Signature Act, coming into effect on April 1, 2005. Through this act the major problem that has been faced by the use of electronic means of documents communication, i.e., written requirements or the signature of parties that the courts require during trial, have been tried to resolve. Digital signatures are created and verified by “public key cryptography”, the branch of mathematics applied in the process of transforming messages, so that it becomes unintelligible to anyone except the intended recipient. “Public key cryptography” employs two different but mathematically related “keys”–one for creating a digital signature or transforming data into a scrambled form, and another key for verifying a digital signature or returning the message to its original form.
To verify a digital signature, the verifier must have access to the signer’s public key and have assurance that it matches the signer’s private key. However, a public and private key pair has no inbuilt connection with any person, as it is merely a pair of numbers. It is necessary to use one or more trusted third parties to associate an identified signer with a specific public key. That trusted third party is termed a “certification authority” in most technical standards. To associate a key pair with a prospective signer, a certification authority issues a “digital certificate”, an electronic record which guarantees that the prospective signer identified in the certificate holds the corresponding private key. The prospective signer is referred to as the “subscriber”. A certificate’s principal function is to bind a key pair with a particular subscriber. A “recipient” of the certificate (i.e. the relying party) can use the public key listed in the certificate to verify whether the digital signature was genuinely created by the prospective signer holding the corresponding private key.
Before the enactment of the Electronic Signature Act, there were no rules governing certification authorities at the national level in China. However, private and governmental certification authorities had been established to provide certification services to individuals and enterprises in Shanghai, Beijing, Guangzhou, Shenzhen, Hainan and other cities since early 2000. In the absence of national legislation dealing with certification authorities, some provincial governments promulgated regulations to govern certification services. As with so many spheres of market reform in China, Shanghai is the pioneer in electronic commerce. Issued in Shanghai on January 1, 1999, the Shanghai Digital Certificate Rules is the first piece of legislation in China addressing the use of digital certificates and electronic signatures. Shortly after the promulgation of the legislation, Shanghai established both an Electronic Certification Authority and an Identifier-Key Entrusting Centre in January 2000.
The other cities promptly closed the technology gap with Shanghai. The Hainan Digital Certificate Rules and Beijing Digital Certificate Rules were respectively promulgated on August 9, 2001 and August 20, 2002. Subsequently, the Guangdong Digital Certificate Rules came into operation on February 1, 2003. The Guangdong Digital Certificate Rules comprehensively define an “electronic signature” as:
“any electronic record consisting of letters, characters, figures or codes and employing an identification measure, such as an image, password, cryptographic key or biometric identifier, including iris, retinal and fingerprint scans”.
The legislation also declares that electronic forms of signatures will have the same validity as written signatures in business transactions. Although these digital certificate rules achieved remarkable successes, the sad reality was that the highest level of technological capability was spatially concentrated only on China’s more sophisticated cities. The provincial rules as regards the encryption technology were only enacted in a small set of urban nodes, enlarging the gap between the coastal metropolitan cities and the vast bulk of China. The widening gap between the coastal and inner areas has prompted the Chinese government to pursue the enactment of the Electronic Signature Act operating at the national level. In July 2002, the Ministry of Commerce (MOFCOM) announced in the “Second E-Commerce Policy and Law Forum” held in Shanghai that they had appointed experts to draft China’s Electronic Signature Act. The experts appointed were aware that jurisdictions in Asia like Malaysia, the Philippines, Singapore, Japan, India, Hong Kong and Taiwan *48 had already enacted their own electronic signature legislation. Since China is a long-standing member of the United Nations, the Chinese experts carefully studied the relevant model laws recommended by the United Nations Commission on International Trade Law (UNCITRAL), in particular the UNCITRAL Model Law on Electronic Commerce 1996 and UNCITRAL Model Law on Electronic Signatures 2001. The Model Laws are intended to serve as models for the creation of uniform legal rules and practice in connection with the use of computerised systems in international trade. The experts took the view that the draft Electronic Signature Act must provide that electronic signatures can serve as evidence with regard to electronic data interchange and electronic documents. The draft law must also promote the process of paperless transactions by, for example, allowing electronic mails to become admissible as evidence in courts.
After many rounds of revising the bill, the Standing Committee of the National People’s Congress finally passed the legislation on August 28, 2004, intended to come into operation on April 1, 2005.
The Electronic Signature Act adopts a two-tier approach. Under the first tier, without prejudice to any rules of evidence, an electronic signature or record shall not be denied admissibility in evidence in any legal proceedings on the sole ground that it is an electronic record. At the second tier, if a rule of law requires the signature of a person or provides for certain consequences if a document is not signed by a person, a digital signature of the person satisfies the requirement, but only if the digital signature is qualified as a “secure” digital signature. To qualify as a “secure” electronic signature, the signature must:
be created using data that the signatory has exclusive ownership;
be created using data that the signatory could keep under his or her sole control;
be linked to a system (e.g. a certification authority) so that subsequent alteration of the signature is detectable; and
be linked to a system (e.g. a certification authority) so that subsequent change of the content or format of the data message is detectable.
If an electronic signature satisfies all four conditions, it enjoys a special legal status as the “secure” signature. It is accorded a presumption of validity by the Chinese courts. Alternatively, the legislation allows the signatory and the party relying upon the electronic signature to contractually alter the four conditions by mutual agreement.
The Licensing of Certification Authorities
It is an offence, punishable with a fine, for a company to operate a certification authority in China without a licence. The Chinese licensing authority will only grant a licence to a certification authority which is “trustworthy”. In assessing the trustworthiness of an applicant, the licensing authority takes into account a list of benchmarks, such as the technical and managerial expertise of its personnel; its financial resources; its operating premises; its capability to bear risk and liability; the technology and facilities used to maintain its security controls; and its compliance with the legal and administrative requirements. Mr Cao Kangtai, the Director of the Legislative Affairs Office of the PRC State Council, observed: “Considering the weakness of China’s social credibility system, the draft law regulates that the online signatures certification providers should be approved and administered by governments.” Mr Wang Yiming, the Vice Chairman of the Law Committee of the PRC National People’s Congress, averred: “Certification authorities should be approved and supervised by governments while they should be oriented by market forces and be instructed by professional associations”.
The current certification authorities operating in China, such as China Telecom Certification Authority and China Finance Certification Authority, are predominantly controlled by the Chinese government. They should have no problem in obtaining the relevant licences to provide certification services. On November 11, 2004, the China E-commerce Association and the Material Evidence Validation Centre of the PRC Ministry of Public Security jointly launched a new system entitled the “Electronic Signature Safety Seal” system. In China, enterprises and companies often have a special red seal (usually with a red star in the middle of it) that can constitute a binding signature. Under the new system, the authorised holders of the business seals can encrypt the seals. Each encrypted seal is supported by a corresponding digital certificate issued by the certification authority. In the past, China has suffered a huge amount of loss owing to fraudulent activities involving the misuse and forgery of corporate seals. The Chinese government anticipates that the use of e-seals will enhance credibility and reduce transaction costs in electronic commerce. Immediately after the launch of the new system, enterprises such as China International Travel Service, China International Economic Consulting Company and Shanghai Zhongtai Industry Company have all signed up to use the system to execute agreements with international parties. The system is believed to be the first step towards the implementation of the Electronic Signature Act 2005.
However, since almost all the certification authorities operating in China are state-controlled, it is uncertain whether private and foreign companies will also be accredited to establish certification authorities in China. Under the World Trade Organisation (WTO) agreements, the Chinese government has agreed to open up the “value-added” telecommunications service sector to foreign investors, by up to 50 per cent eventually. Internet services, email, voice mail, online transactions, videoconferencing, databases and fax service are defined as “value-added” services. Hence, in line with the spirit of trade liberalisation under WTO, the accreditation process must be as transparent as possible.
1.3.4 The positions in the United States, European Union and Hong Kong
Different stakeholders in electronic commerce, nevertheless, hold different opinions as to how their governments should *49 regulate electronic signatures. The United States, for example, offers only the barest assurance. Under their “E-Sign” (Electronic Signatures in Global and National Commerce Act of 2000), a contract’s validity cannot be denied simply because it is in electronic form. It states that electronic signatures cannot be denied legal validity solely because they are not in written form. It does not require any minimum level of security for an electronic contract to receive the same basic legal enforceability as a written signature. An electronic signature is liberally defined as “an electronic sound, symbol or process, attached to or logically associated with a contract”. This is commonly described as the “minimalist approach” or the “technology-neutral approach”. This approach does not treat one technology as more superior than any other competing technology. The legislation merely places an electronic document on the same basic level of admissibility in court proceedings as that of a written document.
The European Union, like the United States, offers its e-stakeholders a general rule of validity, but goes further than the United States by offering a presumption of validity to specific technologies that create the electronic contract. The “EU Electronic Signature Directive” follows the two-tier approach. To create “a harmonised framework for the legal recognition of electronic signatures throughout the European Union”, the Directive’s first tier forbids discrimination between handwritten and electronic signatures. The second tier confers additional legal status to “advanced” electronic signatures. To qualify as an “advanced” electronic signature, the signature must:
have a unique link to the signatory;
be capable of identifying the signatory;
be created using means that the signatory could keep under his or her sole control; and
be linked to data so that subsequent change of data is detectable.
If the electronic signature meets these requirements, the Directive then extends a presumption of validity to this advanced electronic signature.
Hong Kong’s Electronic Transaction Ordinance is somewhere between the European and the American approaches. On the one hand, the Ordinance forbids discrimination between handwritten and electronic signatures, and discrimination between a written document and an electronic document. On the other hand, the court will only automatically recognise a digital signature verified by an electronic certificate issued by a “recognised” certification authority. The Ordinance states that the Hong Kong Postmaster General, together with two other accredited service providers, are the only recognised certification authorities.
The Hong Kong approach is arguably more conservative than the EU or the PRC approach. Using the well-known system BOLERO as an example, the four pre-conditions laid down in the EU Directive on Electronic Signatures (and also China’s Electronic Signature Act) may well be completely fulfilled by the BOLERO system. A BOLERO signature is very likely to be regarded as an “advanced” or “secure” electronic signature under the EU or PRC legal system, and therefore enjoys the presumption of validity. In contrast, a BOLERO signature does not enjoy the presumption of validity in Hong Kong, unless and until it becomes one of the recognised certification authorities under the Ordinance. Unfortunately, notwithstanding the widespread criticism of the single recognition approach adopted in the Electronic Transaction Ordinance, the Hong Kong Government is slow to change its position. The Hong Kong Government considers that the public key cryptography provided by the Postmaster General and the other recognised certification authorities is the only trustworthy technology in the market which gives the confidence needed in developing electronic commerce. Should new technology (which the Hong Kong government considers as trustworthy as the public key cryptography) emerge, the existing legislation may then be amended to cope with such new technology.
It is obvious that the levels of regulation in China, Hong Kong, the United States and European Union are remarkably different. The “minimalist approach” in the United States, the “advanced/secure signature approach” in the European Union and China, and the more conservative “single recognition approach” in Hong Kong all adopt different conceptual frameworks. The fundamentally dissimilar policy orientations and legislative perspectives will hinder, rather than promote, international electronic commerce. Legislators from different countries should participate more actively in dialogue and co-operation that strive for global regulatory harmony.
1.4 Outcome of the Research
In the above section, the deficiencies of the traditional bill of lading have been discussed. It is evident that in the modern ages when speed counts for efficient management of business and the cargos and vessels are much faster than the early ages, there is growing need of faster communication of documents pertaining to the trade. The advent of information technology has brought revolution in every sphere of life. This revolution has equally impacted the trade concepts and the business community has been demanding to incorporate the modern information technology into the exiting system of international trade providing full legal protection. In this direction, different countries have proposed or promulgated legislation which provide cover to the traders in the filed of bill of lading. In the above sections these developments have been discussed briefly and it is evident from these developments that the information technology is fully capable to meet the modern requirements of the business community.
As this study aims to evaluate possible benefits and advantages of the introduction of the electronic bill of lading, the possible outcome of this study would be a significant contribution to the knowledge, especially for the traders, shippers and the law makers. This study would also be beneficial for the people involved in the information technology filed making developments to secure internet from the possible threats of fraud. Further, the students of legal field may also benefit from it as it provides comprehensive overview of the bill of lading and how it is going to reshape itself with the developments in information technology.
The Bill of Lading1.2 Historical Background
In the previous chapter, the deficiencies of the traditional bill of lading have been discussed in the context of the growing trend to use information technology as a faster means of communication. In this regard, the various steps taken to incorporate information technology into the traditional bill of lading have also been discussed at length. However, it is imperative to discuss the evolution of the bill of lading to discuss what areas of it are more prone to criticism and why there is dissatisfaction about these on behalf of the traders. In the following section, an overview of the bill of lading is presented in its historical perspective.
The bill of lading is a commercial document with a long history; it has meant different things at different time. Beginning as a bailment receipt for goods, it has developed into a receipt containing the contract for carriage and acquired a third characteristic, a negotiable document of title. Bills of lading, as a “foundation of oversees trade”, serve three distinct purposes:
they are a receipt for goods;
they are best evidence of the contract of carriage; and
as a negotiable document of title the bill of lading replaces those goods indicated on its face, enabling the endorser to transfer the property in the goods.
The carrier, by endorsing a bill of lading, states that it has received the specified goods and it promises to transport and deliver them to the designated and legitimate endorsee/consignee. In international trade, bills of lading, once passed legitimately for value out of the hands of the shipper, facilitate the documentary credit process as documents of title, where payment is made against a document upon which reliance can be placed to accurately represent the goods shipped. Ownership of the bill of lading is tantamount to ownership of the goods. Banks, through a system of documentary credit, finance a considerable proportion of international trade. Under the normal CIF contract, the seller is required to submit to the bank the bill of lading together with other documents once the goods are shipped. Upon presentation of these documents in the form required the bank, the seller is then entitled to the payment of the contract price.
Possession of the bill of lading may be considered as equivalent to possession of the goods with regard to three distinct purposes:
the holder of the bill of lading is entitled to delivery of the goods at the port of discharge;
the holder can transfer ownership of the goods during transit merely by endorsing it; and
the bill of lading can be used as a security for a debt.
By commercial usage, the bill of lading has become the ‘key-document” in the contract of sale. Accordingly, the seller is obliged to tender to the buyer a shipped onboard bill of lading under common shipment contracts concluded on C&F and CIF terms.
Where the International Convention for the Unification of Certain Rules Relating to Bills of Lading, otherwise known as the Hague and Hague/Visby Rules, apply, Article III(3) expressly acknowledges the shipper/seller’s right to demand such a document according to the term of the contract of carriage. In addition to its obligation to receive and carry the goods to their destination, the carrier also has the duty to convey the information it receives from the shipper to the consignee through the particulars inserted in the bill of lading. The carrier may only avoid inserting such statements “which has reasonable ground for suspecting not accurately to represents the goods actually received, or which he has had no reasonable means of checking”.
If, however, the particulars are inserted in the bill of lading without any qualifications, the bill shall be prima facie evidence of the receipt of the carrier of the goods as described in the bill of lading. Article III(4), as amended by the “Visby-Protocol”, explicitly contains, in contrast to the original Hague Rules, the supplementary provision that the carrier is estopped from disproving the description of the goods in the bill of lading when it has been transferred to a third party acting in good faith. If the bill of lading is silent as to any damage or other insufficiency of the goods, the law imposes a legal presumption that the goods were in good order and condition at the time of delivery to the carrier. Such a bill of lading without any qualifications on its face is called a “clean bill lading”.
Due to their function as prima facie evidence, bills of lading very often become the most important pieces of evidence in marine cargo disputes concerning cargo damage, short delivery or non-delivery. For the shipper the bill of lading can provide evidence of its contract. For the consignee, it will be evidence of its right to possession of the cargo. In marine cargo disputes it is frequently difficult to explain the cause of mischief to cargo, a difficulty which has been exacerbated by an increase in containerized packaging. In claims to recover compensation from the maritime carrier for the loss of or damage to cargo the respective burdens of proof are the central issues. Thus, the outcome of a dispute often depends on the proof and the failure of one party or the other to discharge its burden. Sometimes the description of the goods mentioned in the bill of lading may differ materially from what appears in the supplier’s invoice or credit requirements. Depending on the insertions made by the shipper and carrier on its face, the qualifications the bill of lading may suffer in various forms from defects impairing its negotiability or the transferability of the goods. First, the buyer under a CIF contract may be entitled to reject the documents if the description of the goods in the bill of lading does not correspond with their description in the sale invoice. Second, the term of a CIF contract might entitle the buyer or bank to insist on the production of a “clean” bill, containing an unqualified statement that the goods were shipped in good order and condition. Finally, statements of fact might affect the negotiability of the bill in the hands of a consignee, since the goods would not be readily salable in transit if the bill disclosed that they had been shipped in a damaged condition.
In a straightforward proceeding against a reasonable carrier, a prima facie case may usually be established if the claimant can produce clean bill of lading and unqualified “bad-order” discharge receipts. If, however, the burden of proof should revert to it, the claimant would normally face great difficulty in trying to establish how, where and when the loss or damage occurred, as most of the necessary supporting information would be in the possession of the carrier or of the warehouse, or would otherwise be unavailable. Further practical difficulties frequently faced by cargo claimant in establishing their claims are pilferage or unobserved specific acts of negligence or default on the part of anyone. Among the various documents that may be issued by or on behalf of the carrier and which may form evidence of the bailment itself and, depending on its contents, also of the quantity of cargo, its order, condition and loading on board, the bill of lading is the most important.
Unfortunately, the legal drafting and the interpretation of the relevant provision of the Hague and Hague/Visby Rules governing the evidentiary of representations made in the bill of lading has not been as clear as the importance of the issue in practice would suggest. As proof of the lack of clarity, an additional sentence was introduced into Article III(4) of the Hague Rules by the Visby-Protocol of 1968. Moreover, problems occur with regard to the permission of qualification or exclusions by means of which the carrier tries to avoid the binding force of statements on the face of the bill of lading.
The common law too has not been clear as regards the evidentiary value of bills of lading and the application of the doctrine of estoppel. The interpretive difficulties under English common law have resulted in problems with the interpretation of other relevant statutes in the United Kingdom and in the United States which are derived from the common law.
As discussed previously, though the bill of lading has developed over the ages and facilitated traders to carry out their business through sea, a number of reasons and events have resulted in the Bill of Lading losing its merchantability. Besides some quite important legal impediments discussed in the previous section, there are some technological developments that have set new trends in carrying out business at faster pace. On the other hand, the traditional means of bills of lading have failed to facilitate merchants in the context of latest technological and transportation developments. The legal impediments of the traditional bills of lading and the advantages of using the information technology facilities have convinced the people involved in carrying goods through sea to look for other alternative possible means which may facilitate them to do their business with ease and speed of use and providing them legal security at the same time. The Electronic Bill of Lading seems to address this problem to a great extent. Recent trends and shifts in the international trade have necessitated the use of more rapid means of communication between the parties to the contract in order to save cost and time and make the whole process more swift and efficient. With the increasing use of computers and enhanced information technology facilities, international trade is now making extensive use of computer technology and moving toward electronic commerce. Electronic Bill of Lading is one such innovation in the field of international trade which has been made in order to make the whole process efficient and swift.
1.2 Formation of the Bill of Lading
The exact coming into usage of the bill of lading cannot be determined with certainty. However, there are the records of cargoes being place on board ocean-crossing vessels have probably existed for well over a thousand years. In Greek and Roman times no formal sea code existed and maritime law evolved from the customs and practices of the early seafaring traders.
11th to 16th Century
One of the earliest references to the keeping of records of goods loaded on board ships that represents unquestionable evidence of delivery are the Ordinamenta et Consuetudo Maris de Trani of 1063, which refer to a ship’s book or register. This statute, passed by various commercial cities of the Mediterranean, required every ship’s master to take with him a clerk, who was obliged to swear an oath of fidelity and to enter the record of the goods received from the shipper into his parchment book. These entries had to be made in the presence of the master, the shipper and one other witness. Moreover, the Ordinamenta et Consuetudo Maris de Trani stipulated that the register would act as evidence of the receipt of the goods and that the clerk was neither an agent of the shipper nor of the master but a public officer, appointed to safeguard the interests of both. Another reference can be found in the Traite de Droit Commercial Maritime, in which a similar codification of 1255, The Fuero Real is cited, according to which the owners of ships should “cause to be enrolled in the register all the articles put on board ships, giving their nature and quantity”. A similar codification was L’ Ordonnance sur la police de la navigation de 1258. Subsequently, like statutes were passed which also appeared in Los Partidos.
Whereas these recorded details format part of the ship’s papers when merchants traveled with their goods, the development of a receipt from the master did not come until much later. Such a “register book”, which had to be kept by the ship’s clerk, is mentioned in the 14th century manuscript Compilation connue sous le nom de consulat de la mer, which is preserved in Paris but believed to have been drawn up at Barcelona. This manuscript further states that the merchants ought to make known to the ship’s clerk as soon “as the ship sets sail” of any goods other than those entered in writing, as the owner would not be held responsible for damage to goods other than those recorded. Furthermore, this record included an account of receipts and payments. At this time an early and rudimentary form of bills of lading appears to have been both a document of title as well as evidence of the merchant’s right to the goods entered in his name at the end of voyage. This manuscript may therefore be regarded as proof of a transitional period during which oral evidence of shipment was replaced by the ship’s register, which eventually led to the private contract made between the individual merchant and the master. At the same time, the practice emerged in which merchants no longer traveled with their goods. Instead, they simply dispatched them to a consignee, a custom which necessitated a signed extract from the register book as a separate and distinct document of title. It became very difficult to prove title if this single document were lost, as the shippers were in all respects at the mercy of the master, who possessed the sole proof of the contract.
Pursuant to the provisions of a 1379 statute of the City of Ancona, every clerk had to give a copy of his register to those having a right to demand it, “and this in spite of any prohibition by the master or owner”. In addition to the delivery of the copies to the shipper, a copy of the register had to have been left at the port of departure in the hands of a safe person, “so that in event of an accident to the clerk or his books, proof of that which was laden on the vessel, of its quality and quantity could be found in the copy so deposited”. In requiring that an excerpt from the register be delivered to the shipper, the statute of the City of Acona reflects the beginning of the “bill”, as opposed to the “book” of lading.
Drawing a conclusion one may say that rudimentary bills of lading had come into existence by the late 14th century and that, at the time, it was not contemplated that they would be transferred. They served as some sort of a receipt but it is not known if possession of the document entitled the possessor to delivery of the cargo. There is no proof, despite the contention to the contrary made by some authors, that the early bills represented a “more natural indicium of title.” Instead, when the goods were consigned to a correspondent, it was merely required that the latter produce evidence of its identity, as would the consignee under a non-negotiable bill today. Furthermore, even if the bill were considered as essential to delivery, it need not be an indicium of title in the sense of ownership. Lastly, the bill may not yet be regarded at this point in time as having performed a contractual function which bound the carrier to the terms of shipment.
16th to 18th Century
In France a statute with stipulations similar to those of the City of Ancona was passed in 1552 and, by the end of the 16th century, the use of the bill of lading had become widespread. By then the bill was defined as “the acknowledgment which the master of the ship makes of the number and quality of the goods loaded on board”. It is noteworthy that the French statute of 1552 already provided that the clerk had to enter in the book not only a description of the boxes received, but also of the merchandise contained in them. Also in the 16th century, in the case of Chapmon v. Peers, it was expressly acknowledged that it had long been the practice of merchants and a rule of law that no liability attached to the master or owner of the ship for goods not entered in the “book of lading.” Since the document could provide evidence of the merchant’s right to the goods entered in his name, it had the character of an early document of title. The spread of commerce and the increasing complexity of business brought about the need to transfer the title to the goods before they arrived at their destination. Bills of lading as proof of transferability became increasingly important regarding delivery of the goods to the shipper or his agent, their assigns, or those providing for delivery to a third person or his assigns.
Another step in the development towards the present bill of lading was made with the requirement of “trios coppies” under the Ordinance of Louis XIV, published by the king in 1681. One copy of the bill of lading had to remain with the shipper, one with the master and one was to be forwarded by another ship to the consignee. On the face of the bill statements about the quantity of merchandise, the marks of the merchandise, its condition, the name of the consignee and the amount of freight had to be indicated. Consequently, endorsement of the bill of lading to the buyer prior to the arrival of the goods became common practice. As proof that the person demanding delivery of the goods at destination was actually entitled to them, bills of lading were respected as the most reliable document. It had also become customary use that “the first of which bills being accomplished, the other to stand void”. From the 14th until the end of the 16th century bills of lading had gradually adopted a contractual function, although most bills of lading were still dependent on and referred to charterparties. There were, however, some bills which did not refer to another document. Its seems that with the increasing number of cargoes per vessel, entering into a charterparty with all the shippers had become impracticable. Consequently, as today, under these circumstances the contract of carriage was embodied in the bill of lading. Bills of lading then served as evidence of the goods shipped. The writer Malynes states that:
No ship should be freighted without a Charterpartie, meaning a Charter or Covenant between two parties, the Master and the Merchant: and Bills of lading do declare what goods are laden, and bindeth the Master to deliver them well conditioned to the place of discharge, according to the contents of the Charterpartie, binding himself, his ship, tackle, and furniture of it, for the performance thereof.
This phrase may be interpreted to mean that the bill of lading, when in the hands of a transferee, was intended to bind the carrier contractually. It is submitted that the bill of lading bound the carrier by virtue of its being evidence against it of the quantity and quality of goods loaded, whereas the carrier’s obligations were fixed by the charterparty. According to Postelthwayt, the bill of lading was “a memorandum, of acknowledgment, signed by the master of the ship; and given to a merchant, or any other person, containing an account of the goods which the master has received on board from that merchant or other person, with a promise to deliver them at the intended place, for certain salary.”
It may be concluded, after having examined the relavant case law, that charterparties embodying the contract were commonly used and that bills of lading were only regarded as containing the contract in cases where they were issued to shippers who were not parties to the charterparty. However, the practice of only issuing bills of lading was beginning to develop in the custom of merchants. This custom involved the drawing up of bills before the shipper had actually determined for whom the cargo was destined. The carrier then delivered the goods to the first person who presented the bill. By virtue of the custom, holders of a bill came to be thought of as entitled to delivery. Correspondingly, carriers were regarded as being under an obligation to compensate holders for their failure to deliver.
iii. 18th to 20th Century
By the end of the 17th century, the transferable bill of lading appears to have been well established. In 1794, in the leading case of Lickbarrow v. Mason, a verdict of a jury of the City of London decided that bills of lading were “judicially” recognized as negotiable and transferable documents of title. In this decision, Lord Loughborough held that “a bill of lading is the written evidence of a contract for the carriage and delivery of goods sent by sea for a certain freight. The contract in legal language is a contract of bailment”. However, in cases where goods were lost at sea, this decision was problematic because at the time the goods had arrived, or should have arrived, the buyer would probably already have acquired title to the goods although the contract of carriage had been made with the original function. This judgment, in connection with the case of Grant v. Norway, eventually led to the first codification in modern times concerning bills of lading, the Bills of Lading Act, 1855.
In Grant v. Norway the master of a ship signed a bill of lading acknowledging the shipment of 12 bales of silk, although the goods had never been loaded on board the vessel. The bill had been endorsed to a third party as security for a debt. When the debt remained unsettled, proceedings were brought against the ship-owner as the consignment had never been shipped. The case was dismissed because the court held that the master’s action was outside the scope of his authority and therefore did not bind the ship-owner.
Until the end of the 19th century, maritime law generally held the carrier absolutely liable for loss of or damage to cargo, whether or not it had been negligent. The carrier could only avoid liability by proving that the matter fell within one of the” common law exceptions”, i.e. in cases where loss or damage was caused by an act of God, a public enemy, inherent vice and general average. The carrier, however, remained liable even in those cases where it had been negligent or otherwise at fault. The cargo claimant succeeded if he could prove receipt of the goods for carriage in good order and either non-delivery or delivery in bad order, provided that the carrier could not show that one of the “common law exceptions” had caused the loss or damage. In effect the carrier was a warrantor of safe arrival, and fault was immaterial.
It would seem that not even the common law exceptions availed the ship-owner unless they were expressly stipulated in the bill of lading. Thus, in connection with the implied guarantee of seaworthiness of the vessel, the ship owner’s liability under both the common law and the civil law codes was, at least in theory, strict. The form of bills of lading remained almost unchanged until the end of the 19th century. In England, in the course of the nineteenth century, the doctrine which equated the public sea carrier with the common carrier was introduced in cargo shipping, thereby rendering the public sea carrier strictly liable for the safety of the cargo. The carrier was able to escape liability only by proving that the cause of the loss or damage was exempted by the contract. The common law subjected the exceptions mentioned above to two secondary resources of liability. The carrier barred from taking advantage of the exception if the effective cause of the loss or damage was either:
i). its failure to supply a seaworthy ship at the beginning of the voyage or;
ii). Its failure to exercise care in the carriage of the cargo.
“In England of the lat nineteenth century the doctrine of freedom of contract was almost sacred.” Consequently, English courts diminished the carrier’s liability even further by permitting appropriately worded exemptions to relive the carrier form these secondary obligations. Where exoneration clauses were upheld, the position of the carrier became virtually the reverse of that under the general maritime law. In sharp contrast to the English common law position, U.S. courts did not tolerate additional exceptions in bills of lading issued by the carrier beyond these two, and they would invoke public policy in order to refuse enforcing what they regarded as “unreasonable conditions”. This diverging view of public policy was introduced around 1870, after the U.S. courts had initially followed the English rule.
Hence, exemptions for negligence on the part of ship-owners or their servants were void if U.S. law was applicable, i.e. where either the contract was governed by the law of the United States, or where the contract was to be wholly or partly performed within the United States, even though the contract had been made abroad with reference to some other law by which the clauses were valid. U.S. law even applied if there was an express agreement by the parties that the contact should be governed by some other law. An exception, however, was made if the loss or damage had occurred at the foreign port of shipment, and if the contract was valid and effective there. This development eventually led to the adoption of the Harter Act in 1893.
Whereas the English rule had the advantage of providing certainty, the law had become thoroughly unsatisfactory in both countries by the end of the 19th century. This situation at the time is best summarized by the statement of the Imperial Shipping Committee in its report of 1921:
There is nothing in English law to stop [a ship-owner] from contraction out of the whole or any part of his liability, and, by a practice which has gradually extended since about 1881, British ship-owners do habitually in their bill of lading contract themselves out of their common law liability to a large extent.
The Liverpool “Conference Form”
In 1882 a first attempt to achieve international uniformity for the law governing bills of lading was made by the Association for the Reform and Codification of the Law of Nations at Liverpool. This draft of a “model bill of lading” was to restrict the number of clauses being used by carriers to escape and avoid liability for loss of or damage to cargo. The guiding principal was the need for a compromise between cargo and vessel interests. The “Conference form” introduced a liability of the carrier for negligence “in all matters relating to the ordinary course of the voyage” and the obligation of the carrier to exercise “due diligence” to make the ship seaworthy. Furthermore, a package limitation was agreed upon in the absence of a declaration of higher value and the inclusion of specific “exceptions” for which the carrier would not be liable.
As far as the description of the goods in the bill of lading was concerned, the draft only stipulated that “1. Quality marks, if any, to be of the same size as and contiguous to the leading marks; and if inserted in the Shipping Notes accepted by the Mate, the Master is bound to sign Bills of Lading conformable thereto.”
The “Conference form” never achieved general acceptance, although the New York Produce Exchange published amended version in 1883 and 1884. Only a few features were included in standard bills of lading of the Mediterranean, Black Sea, and Baltic general produce and grain trades in 1885. The Hague Rules eventually incorporated only the distinction between “ordinary” matters, such as stowage and the care of the cargo, and “accidents of navigation”. No provisions of the “Conference form” with regard to the evidentiary value of bills of lading were, however, incorporated in the Hague Rules.
After the Association for the Reform and Codification of the Law of Nations had abandoned the “Conference form”, a different approach was taken at the Hamburg Conference in 1885.
The “Hamburg Rules of Affreightment”
Instead of a detail model bill of lading, a set of rules was proposed. These “Hamburg Rules of Affreightment could voluntarily be incorporated into bills of lading by reference, as, for example, the York-Antwerp Rules. With regard to the description of goods in the bill of lading, rule XVI of the Rules provided:
Weight, measure, quality, contents, and value, although mentioned in the Bill of Lading, to be considered as unknown to the master, unless expressly recognized and agreed to the contrary. Simple subscription not to be considered as such agreement.
According to a statement made at the conference, the mere “effect of the clause ‘weight, measure, quality, contents, and value unknown,” was to shift the Burdon of proof to the cargo claimant. It was also held that the qualification “weight, measure, quality, contents, and value unknown” had the effect that the presumption pursuant to rule XVI was irrebuttable if statements as to weight, measure, quality, contents, and value were inserted in the bill. The parties, however, free to enter into an agreement to a different effect. On the one hand, it was expressed “that captains should be compelled to measure and weight goods delivered to them”, or be prohibited to insert such qualifications. On the other hand, it was declared that rule XVI embodied a usage “which had already become universal”. “[N]o shipper would be willing, considering the different countries in which goods were received, to undertake the responsibility for weight, &c.” As a reason for that it was added, “captain had not usually time to undertake such duties as were proposed to be cast upon them.”
Yet the rules turned out to be an unworkable compromise since the carrier was to “be responsible for the … faults and negligence, but not for errors in judgment, of the master, officers and crew”. Adopted only by a few German companies, the rules did not have a general impact internationally. In 1887 the Hamburg Rules were “rescinded” by the Law Association and the principles of the Conference form were reaffirmed. Their influence on the Hague Rules, however, was that the format as a set of uniform rules was considered more persuasive than a model bill of lading. The concept of the Hague Rules as to representations in the bill of lading, however, was to be considerably different. Until the adoption of the Hague Rules the common usage was continued, according to which the usual statements in the bill of lading as to weight, a description of the goods and their estimated value were qualified by such clauses as “weight, measure, quantity, quality, contents and value unknown” in order to relieve the carrier from liability for the delivery of goods of such weight, description and value.
For approximately thirty-five years after the Hamburg Conference no legislative efforts had been made regarding the law governing bills of lading until the initiative of the Comité Maritime International (CMI), founded in 1897, led to the creation of the Hague Rules. This occurred after the CMI had successfully completed its work on the Convention for the Unification of Certain Rules Relating to Collisions Between Vessels and the Convention for the Unification of Certain Rules Relating to Assistance and Salvage at Sea.
Early Domestic Legislation
After several countries had unilaterally enacted domestic legislation governing exoneration clauses in bills of lading, an even bigger divergence in the law was created in the international context. Conflicting provisions and different national interpretations of the general maritime law eventually led to increased support on the carriers’ part for uniform international legislation.
By the end of the 19th century the state of the law on bills of lading had become so chaotic that the Harter Bill was introduced in the United States in 1892. the bill was intended to be an instrument of trade war strongly favoring cargo interests. The final Harter Act, adopted in 1893, represented more of a compromise between the U.S. and the English views.
With regard to the proper delivery of the cargo, the Act declared illegal any clauses exonerating the carrier from liability for loss or damage due to “negligence, fault, or failure”. Furthermore, under the Act the ship-owner is bound to issue a bill of lading or other shipping document stating marks, number or quantity, whether carriers’ of shippers’ weight, and apparent order or condition. The Act further stipulates that such document is prima facie evidence of receipt of the merchandise as described.
After the adoption of the Shipping and Seaman Act in New Zealand in 1908, the Sea-Carriage of Goods Act in Australia in 1904, and the Canadian Water Carriage of Goods Act, the Dominions Royal Commission unanimously recommended in its report of March, 1917, that legislation be enacted along the lines of the Canadian Water Carriage of Goods Act, 1910. In 1920 the Imperial Shipping Committee was appointed to inquire into and report on, inter alia, all matters concerned with ocean freights and facilities, etc. The committee unanimously recommended legislation along the lines of the Canadian Water Carriage of Goods Act, 1910. The work of the Committee and its report had a very important impact on the 1921 Conference at The Hague convened by the Maritime Law Committee of the International Law Association. Legislation was not passed until 1924 with the Carriage of Goods by Sea Act, 1924 (U.K.) based on the Hague Rules.
Chapter 3Role of Bill of Lading
It was felt that the English Law was inadequately dealing with the problems created by the modern trade and carriage practices. This inability was very obvious in cases where the goods were lost or damaged in transit. In order to address these issues Carriage of Goods act 1992 was enacted to replace the old Bill of Lading act 1855 with new provisions with respect to the bill of lading and other shipping documents. This act was promulgated in July 1992 with the intentions to modify the existing laws in order to make them compliant with modern business practices. The new act took care of most of the deficiencies of the old law as the new legal reforms took over. The Carriage of Goods act makes very critical changes into the old law. The first major change which it outlined was the separation of the transfer of contract rights and the transfer of property.
Carriage of Goods Act replaced the Bill of Lading Act 1855 as the Bill of Lading Act 1855 was repealed on 16th September 1992. The Old Bill of Lading Act 1855 carried serious flaws in it and in 1991 the Law Commission of England & Wales and Scottish Law produced a report named “Rights of Suit in respect of carriage of goods by sea “which researched the problems created by the BLA or the areas where it failed to provide a proper legal protection to the damaged party. This report was the basis for the enactment of the Carriage of Goods by Sea Act of 1992.
Carriage of goods act primarily deals with the transfer of contractual rights and imposition of contractual liabilities in respect of the Bill of Lading, Sea Way Bill and Ship’s delivery orders.
This act applies to following documents ;( Carriage of Goods by Sea Act, 1992)
Any Bill of Lading
Any Seaway Bill
Any Ship’s delivery order
This critical review will evaluate the Carriage of Goods Act with section by section in most of the cases however, in order to limit it so as to fulfill the words requirement; focus will be on the most important sections of the act.
This document outlines the rights under shipping documents. This section is important in the sense that it removes the link between the passing of the property and the transfer of contractual rights as it vested the powers to sue to the lawful holder of the bill of lading. This section set aside the privy problem by providing that a lawful holder of all the documents to which this act applies shall have the vested rights of suit under the contract of carriage as If she or he has been party to the contract. (Higgs & Humphreys, 1993). Through this article, the holder, in most of the cases the carrier has been given the rights of action free from any linkage to the issue of passing of property. This in fact has given the banks as the holders of security of bill of lading as a pledge to sue the carrier if the bill of lading was transferred to them before it ceased to be transferable. Similarly sub-section 2 of the said section provides further that any person who becomes holder because of the re-endorsement of the bill of lading in case the goods or rejected to sue the career when a bill of lading ceases to be transferable.
Section 3 of this act deals with the liabilities under the shipping documents. According to this section any person who takes or demands delivery from the carrier makes a claim under the carriage and before the vesting of powers in him took or demanded the delivery of the goods is liable to same liabilities if he is party to the contract. In Aegean Sea Traders Corp Vs Respol Petroleo SA, Aegean Sea Traders Corp (AST) claimed that “RP had become liable for damages, following the total loss of AST’s vessel, Aegean Sea, with a cargo of crude oil causing large scale pollution. The charterer was ROIL, a wholly owned subsidiary of RP, who argued that, pursuant to the Convention on Limitation of Liability for Maritime Claims 1976 Art.2 , it was entitled to limit its liability to the shipowners on the same basis as it could limit liability to cargo interests or other third parties (in effect to about USD 12 million). The huge outstanding losses included the ship valued at USD 12 million, the oil cargo valued at USD 215,709.50, freight valued at USD 354,066.05, salvage costs of NLG 17.5 million and an unspecified amount owed to the international compensation fund, together with claims for property damage, for clean up and for loss of use and loss of profits from the owners of boats, fish and shellfish farms, fishing equipment manufacturers, shops and the local and national government of Spain. AST contended that RP were liable pursuant to the Carriage of Goods by Sea Act 1992, or by implied terms as to the safety of the chosen port, or by an implied indemnity in the bills of lading, one of which had been endorsed to them in error, or, alternatively by their acceptance of delivery of some of the salvaged oil on the orders of the civil government”. (Lloyd’s Rep, 1998). It was held “1) the 1976 Convention did not entitle the charterer to limit claims as against owners, rather than against cargo interests or other third parties, especially as such a limitation could have been an express term of the charterparty, and (2) the 1992 Act s.3 did not apply because RP had never become a lawful holder of one of the bills of lading. The receipt of salvaged oil by RP’s refinery in compliance with a government direction could not be considered as taking delivery of the cargo. There was no necessity sufficient to imply either a term of port safety or an indemnity into the bill of lading as these could have been made express terms.”(Lloyd’s Rep, 1998).
The Aegean Sea Case has also been discussed in more details by Natalie Campbell as follows:
The Aegean SeaThe facts
“While proceeding to berth, a vessel carrying a cargo of oil grounded on rocks outside La Coruna. Under the directions of the civil authorities the salvors pumped the oil remaining on board the vessel into a refinery owned by Repsol. The shipowners proceeded against the charterers, ROIL, for breach of the safe port warranty. They also made the same claim against Repsol under one of the two bills of lading that covered the cargo. This claim was pleaded on the basis that Repsol had made a demand for delivery of the cargo and had briefly obtained possession of the bill of lading after the salvors had pumped it into their refinery. Accordingly they should be held liable under s.3 (1) (c).
Although Repsol had obtained the bill of lading this had occurred by accident. Their subsidiary company, ROIL, had purchased the cargo f.o.b. from Louis Dreyfus. ROIL in turn had sold on to Repsol ex ship. After the salvors had pumped the oil into Repsol’s refinery, ROIL requested Louis Dreyfus to send them the documents as a matter of urgency. Louis Dreyfus mistakenly sent to ROIL a bill of lading endorsed to Repsol. ROIL passed this on to Repsol. When the mistake was discovered the parties agreed for the bill to be returned at once to Louis Dreyfus who then re-endorsed it to ROIL and marked the previous endorsement to Repsol as “void”.
For Repsol to be liable under s.3 they would first have to fit the definition of a holder of a bill of lading in s.5 (2) (b):
“A person with possession of the bill as a result of the completion, by delivery of the bill, of any endorsement of the bill …”
Repsol certainly had physical possession of the bill for a brief period of time, but Thomas J. held that there had been no completion of any endorsement by delivery of the bill to them. First, there had been no delivery to Repsol as Louis Dreyfus had sent the bill to ROIL as principal. Secondly, the completion of endorsement required an acceptance by the endorsee of the delivery to them of the bill of lading. Repsol had not accepted the bill as they had returned it to Louis Dreyfus for reindorsement. The intention of both the transferor and the transferee is therefore critical to the process of endorsement. Furthermore, a party who receives a bill of lading which it knows has been sent to it in error will not satisfy the additional requirement imposed by s.5 that he has become the holder of the bill “in good faith”.
Thomas J. then held that it was not therefore necessary for Repsol to re-endorse the bill to Louis Dreyfus to allow them, in their turn, to rectify their mistake and re-endorse it to ROIL, reasoning:
“It cannot have been intended by the draftsman of the Act that a person to whom a bill of lading is endorsed and sent in error has then to act as if he was a person entitled to endorse the bill of lading as a precondition of the person who made the mistake being able to rectify his error by re-endorsing and delivering it to the correct party; the person to whom it was sent was not the lawful holder and not therefore entitled to endorse it.
He concluded by finding that the shipowners could still not have proceeded against Repsol even if they had briefly become the holder of the bill of lading within s.5. No demand for delivery had been made by Repsol. The cargo was delivered into their refinery pursuant to the orders of the civil authorities. Although, prior to the casualty, Repsol had given the shipowners a letter of indemnity to provide for delivery without production of a bill of lading, its terms were only effective if the shipowners agreed to deliver in such a fashion and imposed no delivery obligations on either Repsol or the shipowners. Furthermore, no warranty of safety could be implied into a bill of lading because the right to nominate a port remained solely with the charterer.
The implications of the decisions
The decisions both indicate a judicial reluctance to impose liabilities on parties who have never had or no longer have the benefit of rights of suit under s.2. The majority view in The Berge Sisar is clearly based on the view that COGSA 1992 did not intend to impose liabilities on a wider class of third parties than that affected by the Bills of Lading Act 1855. As was the case under that Act, the effect of the decision is that at any one time liability under a bill of lading can fall on no more than one party in addition to the original shipper. This is greatly to be welcomed as it prevents the commercial uncertainty, particularly as regards liability for freight and demurrage that would have resulted from any increase in the number of potential defendants against whom a shipowner could proceed under the bill of lading.
In the common situation where delivery is effected without production of a bill of lading, the law on transfer of liabilities may now be summarised as follows. Section 3(1)(c) of COGSA 1992 allows for a contractual relationship to exist between the carrier and a person claiming delivery at a time before the right is vested in him. Where a person takes or demands delivery before he has any contractual rights, such as where he takes delivery pursuant to a letter of indemnity, he will become liable under s.3 when he subsequently obtains possession of the bill of lading, so obtaining rights of suit under s.2. However, no rights will be transferred if the delivery of the document fails to complete delivery because the document is endorsed to the wrong party. The intermediate endorsee who becomes liable in this way will, unlike the original shipper, be entitled to divest itself of liability. To do this it must divest itself of its statutory rights of suit. Unfortunately, the judgment of Millett L.J. is unclear as to whether the intermediate endorsee must also be able to show that another endorsee now satisfies the conditions of liability set out in s.3.
In any event, the liabilities imposed on an endorsee by COGSA 1992 are without prejudice to the continuing liability of the original shipper by virtue of s.3(3). In this manner, s.3 has adopted the legal structure of section 1 of the Bills of Lading Act 1855, which Lord Lloyd of Berwick defined as follows in The Giannis NK:
“Whereas the rights of the contract of carriage were to be transferred, the liabilities were not. The shippers were to remain liable, but the holder of the bill of lading was to come under the same liability as the shipper. His liability was by way of addition, not substitution.”
In conclusion, two small and interesting points emerge from the decisions. First, both decisions provide confirmation, albeit tacit, that an endorsee can potentially become liable in respect of events that occurred prior to endorsement, as was the case under the Bills of Lading Act 1855. Secondly, The Aegean Sea also contains useful dicta on the extent of a bill of lading holder’s liability. The views of Thomas J. as to the right to nominate a discharge port are particularly useful. By confining this right to the charterer, Thomas J. has avoided the uncertainty that would have ensued had he accepted that the bill of lading holder had a parallel right of nomination. Consequently, holders of bills of lading do not have to worry that they will become a new target for shipowners’ unsafe port claims”. (Natalie, 2000)
In the Berge Sistar following case comments have been provided by Natalie Campbell in Journal of Business Law.
The Berge SisarThe facts
“Borealis were the intended end buyers of a cargo of propane. Prior to delivery of the cargo at Stenungsund, they demanded samples of the cargo, on the basis of which they rejected the cargo as not being of contractual quality. They sold the cargo on to Dow Europe before delivery was effected, receiving and endorsing the bills of lading shortly after delivery. Borealis issued proceedings against Stargas, their seller, on May 10, 1994 and joined Bergesen, the shipowner, initially as a third party and later as a co-defendant. Stargas claimed an indemnity from Bergesen, under their charterparty, in respect of any liability Stargas owed to Borealis. Bergesen served a defence and counterclaim against Borealis, claiming that Borealis, having been the lawful holders of the five bills of lading covering the cargo, were liable for damage allegedly caused to the Berge Sisar by corrosive compounds in the cargo.
The counterclaim brought into question the potential liability of a potential end buyer, especially one who has claimed a right over the cargo, incurred liabilities under s.3 of COGSA 1992 and then sold on the cargo prior to delivery. Section 3(1) provides:
“Where subsection (1) of section 2 of this Act operates in relation to any document to which this Act applies and the person in whom rights are vested by virtue of that sub-section–
Takes or demands delivery from the carrier of any of the goods to which the document relates;
makes a claim under the contract of carriage against the carrier in respect of any of those goods;
Is a person who, at any time before those rights were vested in him, took or demanded delivery from the carrier of any those goods,
That person shall (by virtue of taking or demanding delivery or making the claim or, in a case falling within paragraph (c) above, of having the rights vested in him) become subject to the same liabilities under that contract as if he had been a party to that contract.”
The shipowners argued that, by demanding samples of the cargo prior to delivery, Borealis had demanded delivery of the cargo and had therefore become liable under sub-heading (c) once they obtained possession of the bills of lading.
Millett L.J., who gave the principal majority judgment, held that the demand for delivery, made by Borealis before endorsing the bills of lading, had not become irrevocable.
“Intermediate holders of a bill of lading remain potentially liable under the contract of carriage, and become actually liable if they take any of the steps mentioned in s.3 (1). But unless and until they take actual delivery of the goods their position is not irreversible…. If he then demands or takes delivery of the goods it is appropriate that he should become subject to the liabilities under the contract of carriage. But there is no good reason why his liability should be additional to instead of in substitution for the liability of the previous holder of the bill; or why the latter should remain liable merely because he made a claim or demand which he has since withdrawn.”
Millett L.J. took the view that such a holder of a bill of lading, who incurs liability under the contract of carriage, is in the same position as a holder of a bill of lading would have been under the Bills of Lading Act 1855; that is to say, the holder is liable unless and until he endorses the bill to someone who also fulfils the conditions of liability, as was held in Smurthwaite v. Wilkins, a decision which the Law Commission had not recommended be reversed. In the view of Millett L.J.:
“Liability does not remain irrevocably with the holder who takes any of the steps mentioned in the section unless, of course, the nature of those steps precludes any further dealing with the goods. If not, and the holder endorses, the bill in favour of a third party who becomes liable, the previous holder is exonerated.”
Therefore, the counterclaim brought by Bergesen under the bills of lading was of no standing because (a) Borealis had endorsed the bills of lading to Dow Europe and were therefore no longer the lawful holders of these bills at the time of the action and (b) Dow Europe had taken delivery of the cargo, so fulfilling the conditions of liability under s.3.
However, it is questionable as to whether Millett L.J. should have relied so heavily on Smurthwaite v. Wilkins. The Law Commission did not refer to this case in the context of the transfer of liabilities, nor did the drafters of the Carriage of Goods by Sea Act 1992 implement the case directly into the Act. Indeed, the issue in The Berge Sisar seems not to have been anticipated by the Law Commission. The minority view, held by Sir Brian Neill L.J., has some strength concerning the linguistic structure of COGSA 1992. Nowhere in COGSA 1992 is there any provision applicable to s.3 which is the equivalent of s.2 (5); the Act does not expressly transfer away liability from an endorsing party yet the Act expressly transfers rights away from the endorsing party. Millett L.J. countered this issue as follows:
“It was argued that the absence of any divesting provision in s.3 corresponding to s.2(5) led to the opposite conclusion. But in my judgment the divestment operates automatically. Section 3(1) imposes liability only upon those holders of the bill who have contractual rights vested in them by virtue of s.2 (1). Save in the case of the original consignor, such rights are vested by transfer from the previous holder, who does not retain the rights which he is taken to have transferred (a result which is confirmed by s.2 (5) to which s.2 (1) is expressly made subject). After endorsement of the bill, the endorser no longer qualifies as a person in whom the liabilities are vested by the opening words of s.3 (1). The fact that he did so previously and at a time when he satisfied the further conditions of liability specified in s.3(1) subjected him to liability but, in my opinion, only until he transferred the rights to the new holder.”
Therefore, a party may only bring an action, claiming liability against another party, where that other party has rights vested in them under the bill at the time the action is brought.
The Court of Appeal in The Berge Sisar did not have to consider the effect of transferring liability away from an endorsing party, because in this case, the party who received the bill from Borealis became the end holder when they claimed a right under the bill of delivery of the cargo, so becoming liable anyway under the bill. However, suppose the ultimate endorsee in this situation had not claimed a right under the bill because the ship had sunk prior to delivery, caused by the dangerous nature of the cargo. The judgment of Millett L.J. suggests two possible conclusions as to the liability already incurred by Borealis, but Millett L.J. does not prefer one conclusion over the other. First, the judiciary relies on Smurthwaite v. Wilkins to state that once liability is incurred, it passes under the bill to the endorsee concurrently with rights being vested in that party. Secondly, any liability incurred by an intermediate party vanishes when rights are vested in the endorsee. These two conclusions depend on Millett L.J.’s meaning of the word “divestment”.
The first conclusion is not a viable proposition. It applies the old law, as held under the Bills of Lading Act 1855, to the new law found within COGSA 1992. Such an application would represent a conservative judiciary which is afraid to accept the new law and even to consider radical developments. The first conclusion is not feasible within the ethos of COGSA 1992 in that liability should not be imposed on an endorsee until that endorsee claims a right. This situation would leave “old” liability in limbo until that endorsee claimed a right. As seen, an intermediate holder of the bill is divested of incurred liability when they are divested of rights under the bill. It would be inequitable under COGSA 1992 to impose “old” liability on an endorsee before they have claimed a right. However, if “old” liability is passed with rights to an endorsee, as in Smurthwaite v. Wilkins, the “old” liability would be calculated into the market price of that cargo.
The second conclusion is a viable prospect commercially and in law. The market price of cargo carried by sea should not include a calculation for hidden incurred liabilities. The endorsee must always satisfy the conditions set out in s.3 COGSA 1992 before becoming liable. The second conclusion is justified on general equitable principles; where an intermediate holder is divested of rights, it is inequitable to require the party to retain liability. Where an intermediate holder of a bill is divested of rights and liabilities on endorsement, then it is more appropriate that any incurred liability vanishes than remain in limbo until the endorsee claims a right. If the second conclusion is the accepted interpretation of Millett L.J.’s judgment, then Millett L.J. has been ambiguous in his use of the term “divest”. His reference to “any divesting provision in s.3 corresponding to s.2 (5) …” implies that “divest” means “a transfer away to another party” as in s.2 (5).” (Natalie, 2000)
This section deals with the representations in the bill of lading. According to this section, a bill of lading is conclusive evidence in favor of the person who become holder of such bill against the carrier of the shipment.
In Homburg Houtimport BV (HH) Vs Agrosin Private Limited (AP), HH was the owner of the plywood cargo which was shipped on AP’s vessel which was chartered to some other company. Title of the goods was transferred to the HH during the voyage of the goods. During the proceedings of the case, HH alleged that AP is responsible for the damage during the voyage as it was because of the bad stowage. HH also alleged that the Bill of Lading identified AP as the carrier of the goods and not the chatterer therefore AP is liable for the goods. “However, the rest of the clauses on the bill defined the carrier as being the party who undertook the obligation of carriage and on whose behalf the bills had been signed. As the charterers’ agents had signed the signature box of each of the bills, HH submitted that if the contractual claim failed, AP owed it a duty in tort due to its negligence in allowing the cargo to become damaged during bailment. AP denied liability in tort and contended that it was an independent contractor to the carrier and that under a Himalaya clause contained in the bills it was exempted from all liability. HH argued that the Himalaya clause did not protect AP and did not provide a blanket defence” (Lloyd’s Rep, 1999).
It was held that the AP was not the carrier to the goods as the proper interpretation of the bill held that the charterers’ agent signed the bill which made it clear that the AP was not liable to HH. Due to the independent nature of the AP, Himalaya Rules were also not applicable to the AP however AP did hold to HH the duty of care which was breached and AP was held liable for it.
The major four sections of this act suggest that there is an ample room for the development of the legal provisions which are needed in order to ensure that the English Law is as per the modern standards of the business and international trade. Apart from that the multiple applications of some other laws such as Hague Rules make it interdependent on the other international laws.
Chapter 4Evolution of the Electronic Bill of Lading
In the previous chapters, the evolution of the bill of lading has been discussed in its historical perspective. Bill of lading in its present form is the result of deliberations and experiments of ages and it has experienced so many modifications and amendments. Still, this process of amendments continues in order to make it fulfill the requirements of the present market equipped with the modern means of electronic communications.
The ease, speed and cheapness of internet has resulted in extensive popularity of it in spite of its being prone to frauds, hacking threats and other similar insecurity. The trend to use internet as an alternative means of communication is witnessed in every sphere of life. Traders, merchants, shippers, multinational companies and banks too are on the way to adopt internet as an alternative means of communication over the globe. The bill of lading is no exception to this trend and there is growing demand of introducing the electronic bill of lading to replace the traditional means of sending paper documents over sea which take a long time to reach their destination. In this direction, every country has made significant efforts to introduce or incorporate necessary amendments in the existing laws so as to facilitate traders and shippers to carry on their business under the legal cover. As has been discussed in the second chapter, China, New Zealand, South Africa, UK, India and the United States have already adopted necessary measures to incorporate the information technology into the existing laws. However, there are still many concerns of the traders and the legal implications of these introductions at international level are not without objections. The main difference between the traditional bill of lading and the electronic bill of lading is that of the written papers. As the main requirement to trial, proceed and verdict by the courts is the written proofs of the agreements, signatures of the parties and other contractual documents that the parties agree and conclude to be bound by law. On these documents rests the judicial system and relies much on these written papers. On the other hand, the electronic documents do not fulfill these written requirements and this has been the main concern as to how an electronic record can be produced in the court of trial and how the contract parties can sign the contract and what would be the validity of an “electronically signed” computer record. In the following sections, the author of this dissertation provides answer aiming at evaluating the possible benefits and advantages of the introduction of the electronic bill of lading.
Legal Recognition of Data Messages
The major concern of the data messages submitted through over the internet in lieu of the conventional shipping documents is whether a data message can be treated as a document and whether it be accepted as evidence in courts. Many countries, (both civil law and common law systems), generally admit computerised records as an evidence. The English courts are an example of it which recognised other means of passing on information than paper documents. In Derby & Co v. Weldon (No 9) (1991) Vinelott J. held that the database of a computer, in so far as it contained information capable of being retrieved and converted into readable form and whether stored in the computer or record in backup file, is a document for the purposes of the High Court rules governing discovery of documents.
The ‘best evidence rule’ requires presentation of the best available evidence. Where there is an original document, a data message would not be accepted as the best evidence and its value would be that of the hearsay evidence. However, in absence of an original document, a data message or a computer print-out could be considered as the best available evidence.
The Courts requirement of a ‘writing’ or a ‘document’
in most jurisdictions the requirement of a ‘writing’ or a ‘document’ is imposed or implied by laws. For example, in Australia, the Carriage of Goods by Sea Act 1991 (Cwlth) defines the term ‘contract of carriage’ as ‘a contract of carriage covered by a bill of lading or any similar document of title …’ The definition of ‘document’ provided in Section 25 of the Acts Interpretation Act 1901 (Cwlth) includes:
‘any paper or other material on with there is writing;
any paper or other material on which there are marks, figures … having a meaning for persons qualified to interpret them; and
any article or material form which sounds images or writings are capable of being reproduced with or without the aid of any other article or device.’
Although the meanings of document are not limited only to a paper document, in so far as ocean bills of lading are concerned, the Australian bills of lading legislation may cover bills of lading in paper form since the law requires them to be signed.
As already noted, the English court has held that the database of a computer is a document for the purposes of the High Court rules. This, however, may not satisfy the requirement of ‘writing’. Since the definition of ‘writing’ in the Interpretation Act 1978 (UK) includes ‘typing, printing, lithography, photography and other modes of representing or reproducing words in visible form’, an electronic message itself is not visible and cannot be included in the meaning of ‘writing’. Therefore, if a document is required to be written, such an electronic message is not a document. One observer presents a view that since electronic communication is more common, the word ‘document’ should be more generously construed.
Signature and other authentication
As the courts require written documents of the contracting parties, the other problem with the electronic documents is that of the signatures of the parties and the authentication required by domestic and international law through a manual signature. Signature is very essential because it not only authenticates parties to a contract but also evidences an intention to be legally bound. Authentication of a transmission by a signature is an indication to the recipient and third parties of the origin of the document and the intention of the party who issues that document.
The Hamburg Rules provide for signature ‘in writing, printed in facsimile, perforated, stamped, in symbols, or made by any other mechanical or electronic means, if not inconsistent with the law of the country where the bill of lading is issued’. Most provisions of the Australian bills of lading legislation require a signature.
The word ‘signature’ appears to be restricted by the courts to manual signatures. Consequently it is not certain that the courts will include an electronic form of authentication as a ‘signature’ so that this uncertainty could only be resolved by legislation. A facsimile signature was accepted as a signature by the High Court of Australia in Electronic Rentals Pty Ltd v. Anderson (1971). The area is not entirely clear. In Molodyski v. Vema Australia Pty Ltd (1980) the issue was whether a fax of a signed document amounted to a document signed by the sender (the offerer) which was then signed by the recipient (offeree) amounted to a binding signed agreement. Cohn J (obiter) stated that whether delivery by fax of a signed document is as effective as delivery of the original signed agreement depends on the intention of the signatory. If the signatory intends the facsimile signature to be used to authenticate the document and regarded as one’s signature, then the document is to be regarded as a copy duly signed.
In Twyman Pastoral Co Pty Ltd v. Anburn Pty Ltd Young J assumed, not deciding, that a fax could not meet both the writing and signature requirements. In contrast to these two decisions, in NM Superannuation Pty Ltd v. Baker and Others (1989 Cohen J (obiter) suggested that a faxed signature was not the original signature and so might not be adequate where a signature was required. In this case the issue did not require decision as there was no signature required in the matter at issue.
Some ways to overcome the signature problem
There are some ways to overcome the signature problem which may render the document its legal validity. The signature or other authentication can be done in many ways, for instance,
by using secret digital codes, similar to PIN numbers used for automatic teller machines;
by using more complex systems of public keys cryptography which provides a mathematical scheme for arranging computer data;
by using ‘digital signature’ as in the Utah Digital Signatures Act 1996
Whatever of the above mentioned means for signing a documents are adopted, it is debatable and should be decided though the multilateral discussions to make it acceptable for all the contracting parties. The Model Law explicitly gives appropriate technical solutions the same legal validity as a traditional signature and allows the parties to agree on specific means. Article 6 of the Model Law provides:
‘Where a rule of law requires a signature, or provides for certain consequences in the absence of a signature, that rule shall be satisfied in relation to a data message if:
a method is used to identify the originator of the data message and to indicate the originator’s approval of the information contained therein; and
b that method is reliable as was appropriate for the purpose for which the data message was generated or communicated, in the light of all circumstances, including any agreement between the originator and the addressee of the data message.’
According to this article, the Model Law does not require a specific technique of signature, any electronic signature technologies can be introduced in the future as appropriate without changing the law.
Document of title and negotiability
Negotiable document of title is a key function of bills of lading. A question concerning document of title and negotiability in an electronic bills of lading context is whether negotiability and transferability of rights in goods can be accommodated in electronic bills.
A planning of future work on EDI is a discussion on negotiability and transferability of rights in goods concerning maritime bills of lading. An interesting proposal was noted by the United States of America and raised as an issue for the consideration of the Working Group.
‘It should be borne in mind that what is being ‘transferred’ is not the paper or EDI message (that being just the medium), but the rights and/or title to the subject of the transaction. (UN 1995c)‘.
Apart from the extensive work of the UNCITRAL on EDI uniformity in international trade, there have also been other efforts by countries and other organisations to facilitate the use of EDI for bills of lading. For example, UN/EDIFACT (Electronic Data Interchange for Administration, Commerce and Transport) has developed the standard electronic messages that are necessary to create an electronic bill of lading. The Committee Maritime International (CMI) has provided a set of rules for the use of electronic bills. There are also supporting rules by the International Chamber of Commerce (ICC); the provisions related to the use of electronic bills of lading in INCOTERMS 1990 and UCP 500
The CMI Rules for Electronic Bills of Lading 1990
The Committee Maritime International (CMI) adopted Rules for Electronic Bills of Lading in 1990. The CMI Rules are voluntary so they will apply only if the parties to a contract of carriage agree so, the Rules then operate by incorporation into the contract. The CMI Rules provide for a private registry system for electronic messages as bills of lading. This is distinct from a central registry system such as that set up by Project Bolero.
The CMI rules are operated by the carrier issuing to the shipper an electronic bill of lading using electronic messages together with a private code or ‘key’, possession of which entitles the holder to control the goods. This right of control is passed to other interests after notification by the shipper to the carrier who cancels the original key and gives a new key to the new person entitled to control of the goods. In this way the key holder should have the same rights as the bill of lading holder.
The CMI Rules provide a solution to legal requirements of writing and signature that the carrier, shipper and all subsequent parties utilising these procedures agree that any national or local law, custom or practice requiring the contract of carriage to be evidenced in writing and signed, is satisfied by these procedures. In agreeing to adopt these Rules, (Rule 11) the parties shall be taken to have agreed not to raise the defence that this contract is not in writing.
The CMI Rules are currently a useful set of rules that establish a procedural basis for the use of electronic bills of lading. However, the Rules lack provisions dealing with the issues of what constitutes an actual receipt of an offer and subsequent acceptance. The Rules also have no guideline in the event of system failure.
Project Bolero (Bills of Lading for Europe)
The most recent project on electronic bills of lading is a pilot project called Bolero (Bills of Lading for Europe). The project is being operated by a business consortium of shipping companies, banks and telecommunications companies and aims to replace paper-based shipping documents with an online computerized registry.
The project attempts to address the special legal issues that arise when paper negotiable documents are converted into electronic form. In particular, Bolero’s initial focus is the use of EDI systems as negotiable bills of lading. The processes used in the project are based on the CMI Rules for Electronic Bills of Lading. The replacing of paper-based international trade documents with EDI messages will result in saving time and costs and also increase levels of security against fraud and a reduction in the possibility of error.
The Bolero services are based on the exchange of EDI messages between a central service known as the ‘registry’ and users. The users, normally are carriers, shippers, freight forwarders and banks, will send and receive messages from the central registry by means of a computer workstation. Users also will be able to exchange messages directly between themselves. The central registry will contain details of shipping documents contained in a ‘consignment record’. Access to these details will validate and authenticate messages received, and automatically generate messages to other users in response to messages received.
Under the Bolero project, there are strong security controls and procedures to protect the integrity and prove the authenticity of electronic messages. The particularly important security feature is the use of digital signature techniques. These authenticate the message sender and prevent modification of transactions in transit.
Critical Evolution of the Electronic BOL
International efforts to replace traditional paper bills of lading with an EDI system still have a long way to go. Even though there are a number of rules that support the use of electronic bills of lading and also projects that actually operate electronic bills of lading in practice, there is still a lack of international confidence in the use of electronic bills. This is because one of the distinguishing features of international trade is that a large number of parties may be involved in a single shipment of goods. In addition to the buyer and the seller, contracts of carriage can easily involve several banks in different countries, insurance companies, carriers, forwarders, port and customs authorities. Each of these parties may have a documentary requirement so that it is particularly difficult to devise a comprehensive EDI system for bills of lading.
In relation to electronic bills of lading, it remains a question whether a centralized registry approach, such as the Bolero project, can work on more than a limited basis. However, the UNCITRAL Working Group on EDI considered that the work undertaken within the CMI, or the Bolero project, was aimed at facilitating the use of EDI transport documents but did not, in general, deal with the legal effect of EDI transport documents. Thus, particular attention needs to be given to the future work of UNCITRAL which could bring legal support to the new methods being developed in the field of ‘electronic transfer of rights’.
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