On the 1stof June 2021, the Baltic and International Maritime Council (BIMCO) announced that it would coordinate with the International Chamber of Commerce (ICC) and other key stakeholders to formulate a globally accepted standard format for electronic bills of lading. It is hoped that the adoption of a standard format would promote the electronic bill’s widespread usage and accelerate digitization in shipping. This article will elaborate on how standardization is only a piece of the puzzle in promoting the use of electronic bills of lading, since the question of functional equivalence remains unaddressed.
Functions Of A Bill Of Lading
To understand why there has been great hesitation against widespread usage of electronic bills, it is crucial to understand the functions of a bill of lading. The bill of lading is a pivotal document in the carriage of goods by sea, typically issued by the carrier (ship owner or the charterer of a ship) containing details of the goods loaded, details of the ship, consignor and consignee, port of lading and of discharge, etc. In an oversimplified version of events, after verification by the master of the ship, the bill is then sent by the consignor (the seller in an international sale of goods) to the consignee (the buyer) through post, who will then present the bill at the port of discharge to collect the goods as described therein. In the meanwhile, the bill may also be presented at the buyer’s bank for issuance of a Letter of Credit. In this chain of events, the bill of lading performs three key functions: it is a receipt of the goods, an evidence of a contract of carriage, and a document of title. These functions were for centuries accepted as a customary practice, before being recognized through legislations and judicial decisions.
Why Electronic Bills?
The problems caused by a paper based bill of lading are well-known. Very often, the bill of lading arrives at the port of discharge much later than the goods itself, which can cause damages to the tune of millions to the contracting parties. The bill is usually issued in a set of three, which translates to additional paper costs, courier costs and adds to the industry’s carbon footprint. Once issued, there is little scope for any modification to be made if required, and despite this, there is a widespread problem of fraud. The electronic bill of lading can easily solve most of these problems, more so since recent electronic bills are blockchain based. The Digital Container Shipping Association (DCSA), an organization established by some of the largest container shipping companies in the world to facilitate digitization, estimates that just fifty percent of electronic bill adoption could save more than four billion dollars annually for the industry. Why then, is the shipping industry slow in embracing this system?
Why Not Electronic Bills?
When introducing electronic bills of lading into the shipping sector, the crucial concern is that of functional equivalence. Does the electronic bill of lading satisfy all the three vital functions performed by a paper-based one? It is appropriate to answer this question in reference to an electronic bill of lading that is approved for use by the International Group of P&I Clubs. As of today, the group has approved seven electronic bills of lading for use by its clients, the oldest of which is the Bolero (Bill Of Lading Electronic Registry Organization) Exchange Platform run by Bolero International Limited. The Bolero electronic bill of lading replicates functions of a paper bill of lading in the following manner:
Receipt of goods
The original function of a bill of lading was to act as a receipt of the goods loaded. Once the carrier prepares the bill of lading and master of the ship verifies it, the bill is an evidence as to what goods were loaded on to the vessel, in what condition and when. The bill is also crucial in determining whether the carrier breached his duty to deliver the goods in the same condition as when loaded. Thus, a carrier has to exercise maximum caution in verifying the accuracy of description provided in the bill. Since it is practically difficult to verify all the details at times, common law provides that the bill of lading is only a prima facie evidence, which may be rebutted by the carrier using contrary evidence.
Since the receipt function of a bill of lading is essentially recording of data relating to the goods, it can be easily replicated in electronic systems like Bolero. The crucial factor to satisfy this function of the bill is to ensure that precise data is recorded and transmitted securely. The authenticity of the carrier’s (issuer’s) identity and details of the goods should be secure and verifiable. Thus, an electronic bill of lading can very easily function as a receipt of the goods carried.
Proof of Contract of Carriage
In a standard bill of lading, the terms and conditions relating to performance of the carriage is contained on its backside. However, the bill of lading is not a contract of carriage in itself; it only serves as an evidence of the terms and conditions as included in the actual contract of carriage. This evidentiary value is extremely useful in some cases as the law in most jurisdictions does not require the contract of carriage to be concluded in writing. The relation between the bill of lading and the contract of carriage varies depending on the kind of contract entered into between the shipper and the carrier. In charter parties for example, the terms and conditions of the contract are usually expressly incorporated into the bill of lading so as to bind any holder of the bill, subject to certain conditions.
Similar to the receipt function, the proof of contract function is also recording and transmitting of data in its essence. This will include data relating to the relevant ports, dates, terms and conditions of carriage, etc. and can easily be replicated in the electronic system. Hence, this function too is served as between the shipper and the carrier by the electronic bill.
Document of Title
Bills of lading are documents of title as recognized by various national legislations and international conventions. This means that the rights tied to the goods mentioned on the bill are transferred along with transfer of possession of the bill. This recognition ensures that the seller in an international sale of goods is able to transfer his titular rights to the buyer before the goods actually arrive at the port of discharge, so that the buyer can take delivery. Thus, this function of the bill ensures its negotiability. It also enables banks to provide credit to the buyer by using the bill as collateral. The transfer of the bill also entitles its holder to assert other legal rights in the contract of carriage evidenced by the bill.
This function of a bill of lading is the most difficult to replicate in an electronic system since the document of title status is usually recognized by law, either through legislations or through customary practice acknowledged by the courts. No such legal recognition has been given to the electronic bills of lading yet. Therefore, transfer of an electronic bill of lading from the seller to the buyer does not imply transfer of the title and rights to the goods. Issuance of letters of credit is also an issue here, since banks would not expose themselves to risk by issuing credit against an electronic bill which does not have legal recognition. Thus, as long as the law does not recognize an electronic bill as a document of title that can be transferred through an electronic transfer, the document of title function of a paper bill is not performed by the electronic bill. This is the biggest challenge to the use of electronic bills of lading and predictably where BIMCO’s new initiative will fall short to promote its widespread adoption.
In the Bolero system, the document of title function is achieved by using a multiparty contract system where all users of the interface agree and acknowledge that the holder of an electronic bill will have certain rights to the goods. The Bolero Rulebook lists the complete set of rights of an electronic bill’s holder and is complemented by the Bolero Title Registry, which records precise details of the current holder which can only be altered by such a holder. Similar to the physical system, the holder of a bill in the Bolero platform gains constructive possession and control over the goods, and the right to demand delivery from the carrier. However, since the Bolero Rulebook applies only to the users of this interface, the electronic bills can only be used where all the parties involved in a carriage are its users.
The Way Forward
The shipping industry’s shift into use of electronic bills of lading is inevitable. It is also a crucial step for reducing the industry’s carbon footprint. However, how long the process will take is dependent on many factors relating to available technical infrastructure and legal framework. From a legal standpoint, following are some of the required changes:
- The key to achieve functional equivalence is in recognizing electronic bills as documents of title. This may be done through international conventions and national legislations, since the courts are not at a liberty to give this recognition due to the electronic bill’s non customary status.
- The laws of some countries require documents of title to be in tangible form and to be signed. Any such requirement will have to be done away with.
- Laws will have to be altered to acknowledge electronic records as ‘documents’ to enable any commercial transaction without actual physical possession of papers. Further to maintain the negotiable nature of bills, the rights tied to such an electronic record should be digitally transferable. In February 2021, Singapore became one of the world’s first countries to adopt a legislation that recognizes digitally transferable electronic records, based on the UNCITRAL’s Model Law on Electronic Transferable Records.
To inspire the confidence of legislatures and international bodies however, the electronic systems will have to prove their reliability and security to merchants and other stakeholders in the industry. Until then, BIMCO’s initiative of standardization will nevertheless be the first step towards extensive use of electronic bills.
About the Author
Devika Radha is a final year law student at Symbiosis Law School Pune, keen to pursue her interest in admiralty law. She can be reached at email@example.com or http://www.linkedin.com/in/devikaradha for feedback and queries.
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