The Relation between Contract of Carriage by Sea and Bill of Lading

August 2019 Duygu Öner
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Introduction

A contract of carriage may be defined as an agreement that is concluded between a carrier and a shipper for the carriage of goods by sea, in which a carrier, against the payment of freight, undertakes to deliver goods from one port to another.

While concluding a contract of carriage, the negotiations are made by the shipper and the carrier, and the terms and conditions are established by the above-mentioned parties. In general, the contract of carriage is executed with the carrier by either the seller or the purchaser, depending on the terms of the sale agreement. However, in maritime trade, at times the contract of carriage provides a clause that the shipment shall be subject to the terms and conditions of the Bill of Lading, a document which is issued unilaterally at a later stage by the carrier. On the other hand, some Bills of Lading refer to the contract of carriage for the terms and conditions. Therefore, it is crucial to understand the relation between contracts of carriage and Bills of Lading, and the effects of these two documents on the parties to the carriage.

Bill of Lading

A Bill of Lading (B/L) is a bill which is issued by the carrier, or by the captain, representing the carrier, setting forth the details, the type, quantity, and destination of the goods being carried. In maritime law, a B/L has three primary functions: It serves as a receipt of the cargo by the carrier; it proves the conclusion of a transport contract; and functions as a document of title.

Receipt of Cargo

The B/L functions as a receipt between of the cargo by the carrier. Once the B/L is issued by the carrier, it serves as a receipt that the goods have been received by the carrier as per the contract for carriage, and that the goods have been received in good condition.

Document of Title

As a transferable document, a B/L represents the document of title, meaning that whomever is the holder of the B/L, the consignee in general, holds title to the goods. In this respect, the holder of the B/L has the right to claim the goods from the carrier, and the carrier is obliged to deliver the goods to the holder of the B/L upon presentation of the same. The goods are delivered in return for the copy of the B/L that includes the annotation about delivery of the goods.

Evidence of Contract of Carriage

The B/L serves as evidence for the carriage contract containing the terms and condition under which the transportation of the goods will be carried out. The B/L also serves as proof of the carrier. As per Article 1238 of the Turkish Commercial Code (the “TCC”), the person signing the B/L in his capacity as the carrier, or in whose name and on behalf the bill of lading is signed, shall be deemed the carrier.

Types of Contracts of Carriage

Under Turkish law, two types of contracts of carriage are recognized, under which the carrier, concerning the freight, undertakes to carry the goods, those being (i) voyage charter contracts and (ii) contracts in shipping liner trade.

The Relation between Contract of Carriage and Bill of Lading

As per Article 1237/1 of the TCC, the Bill of Lading governs the legal relation between the carrier and the holder of the Bill of Lading. This means that the third-party holder of the Bill of Lading is only bound by the content of the Bill of Lading, and the terms and conditions provided in the carriage of contracts are not applicable to the holder of the Bill of Lading. On the other hand, the relation between the carrier and the charterer are governed by the provisions of the contract of carriage.

As per Article 1237/3 of the TCC, where there is reference in the B/L as to the voyage charter party, a copy of that charter party, being a contract of carriage, shall be represented in the event of endorsement of the bill of lading to the new holder. In such case, the provisions set forth in the charter party may be pursued against the holder of the B/L, where the nature of such provisions allows. In other words, the charter party should be attached to the B/L, and it should be presented to the holder of the B/L.

In a dispute where this issue is discussed, the Court of Cassation held that unless the contract of carriage is represented to the holder of the B/L, the provisions set forth in the contract of carriage shall not bind the holder of the B/L[1]. The subject of the dispute derived from the goods that were damaged during sea carriage. The consignee, as holder of the B/L, filed a lawsuit before the Turkish courts against the carrier for compensation of the damage that occurred to the goods. The carrier argued that the claim should be rejected based on the fact that the arbitration clause set forth in the contract of carriage concluded between the shipper and the carrier, as well as the provisions of the contract of carriage, are binding upon the holder of the B/L, as there is a reference to the provisions of the charter party in the B/L. The court of first instance accepted the carrier’s argument and found that the consignee, the holder of the B/L, is bound by the provisions of the charter party, as there is a reference in the B/L as to the charter party clauses. The Court of Cassation, reviewing the case upon appeal of the consignee, overruled the decision of the first instance court stating that the provisions of the charter party binds the consignee, where the nature of such provisions allows, only if a copy of that charter party is also presented to the holder of the B/L, along with the B/L itself, in accordance with Article 1237/3 of the TCC. The Court of Cassation further stated that the burden of proof that the charter party has been presented to the consignee is on the carrier, and the carrier failed to prove that the charter party was presented to the holder of the B/L.

In another case that was subject to a decision dated 2017 of the 11th Civil Chamber of the Court of Cassation[2], a lawsuit was filed before the Turkish courts against a carrier by the insurer that compensated the loss of its insured with regard to the goods that were found to be deficient at the port of arrival. The carrier argued that there is an arbitration clause provided in the charter party, and that there is a reference to the charter party in the B/L that was held by the insured; therefore, the insured, as the holder of the B/L, is bound by the arbitration clause provided in the charter party. The court of first instance dismissed the case due to the existence of the arbitration agreement. However, the Court of Cassation overruled the decision of the first instance court on the basis that the court of first instance failed to review whether the conditions stipulated in Article 1237/3 of TCC had been met.

Conclusion

The relation between the contract of carriage and the B/L becomes an issue at times when there is a reference in one to the other. The TCC clearly sets forth that the provisions of a contract of carriage, where the nature of such provisions so allows, may only be binding on the holder of the B/L if a copy of the contract of carriage is represented to the holder of the B/L. Although there are only a few decisions with respect to this issue, the decisions show that the Court of Cassation examines, in such cases, whether or not the contract of carriage, which is referred to in the B/L, has been provided to the holder of the B/L.

[1] 11th CC of the Court of Cassation No. 2016/8794 E., 2017/6687 K., 29.11.2017.

[2] 11th CC of the Court of Cassation No. 2016/1662 E., 2017/4494 K.,19.09.2017.

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