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Electronic Bills of Lading (eB/L) – Part 2

Jagan - February 25, 2016 - 0 comments

We had earlier published an article on eB/L’s in Sep 2014 and this is a continuation of the earlier article. This article will focus on the differences between paper and electronic Bills of Lading with particular reference to the Bolero platform.

  1. We were recently advised by one of our readers that in our earlier article on Electronic Bills of Lading, we missed pointing out a fundamental fact that in a paper B/L, the transfer of title was accomplished through endorsement, whereas in an eB/L (Bolero, eSSDocs & E-Title), this was accomplished by other methods including Novation and Attornment. As we did miss pointing this out, we are writing this article to consider the differences between a paper B/L and eB/L with respect to transfer of title.
  2. As you are probably aware, there are presently three platforms available i.e. Bolero, eSSDocs & E-Title for eB/L’s. We had written to all of the platforms to seek a copy of their Rulebook / User Agreement and received a copy of the Bolero Rulebook (we thank Paul Mallon of Bolero International Limited for his assistance without which this article would not have been published) and therefore this article shall focus on how the Bolero platform accomplishes the transfer of title. As and when we receive the User Agreements/Rulebook of eSSDocs and E-Title, we shall publish another article touching on how they (eSSDocs and E-Title) accomplish the tranfer of title (eB/L – part 3).
  3. The Bolero Rulebook constitutes an agreement between Users and between Users and the Bolero Association (acting on its own behalf or on behalf of other Users – S 2.1.1(1)). Further, each User agrees to be bound by the Bolero Rulebook (S 2.1.2(1)). The Bolero platform accomplishes transfer of the Bolero eB/L through Novation and Attornment. The first question to ask is what are these terms i.e. Novation and Attornment? For the benefit of the non-lawyers, we define below the relevant terms as applicable in English Contract Law.
    1. Privity of Contract: It is a doctrine which confers rights and liabilities of the contract only to the contracting parties. The UK Rights of Third Parties Act 1999 has made some changes to this doctrine and which provides that in order for a third party to be entitled to enforce contractual terms, the contract must provide that the third party may or purport to provide a benefit to the third party (S 1(1)(a) & (b)).
    2. Novation: It is mechanism whereby one party transfers all of their obligations and benefits under the contract to a third party i.e. the third party will replace one of the original party as a party to the contract. In order for novation to be accomlished, all parties (the initial contracting parties and the third party) will have to agree to this transfer. Following the novation, the original contract between the original parties will be replaced by a new contract between one of the original parties and the third party.
    3. Assignment: Transfer of a right or obligation under a contract by one of the original parties to the contract to a third party. It differs from Novation in that the parties to the contract do not change with the privity of contract existing between the original parties. What can be assigned is generally the benefits and not the burdens.
    4. Attornment: Once a contract has been novated, this term refers to an acknowledgement of the existence of the relationship between the original party and the third party under the contract.
  4. The obvious question would be as to why Bolero eB/L cannot mirror the paper B/L’s? Our understanding on the differences is as follows:
    1. A negotiable paper B/L is transferred by endorsement to a third party – however, this would stand against the English Privity of Contract doctrine. Hence, The UK Bills of Lading Act 1855 provided an exception to this rule under S1 and which stated “Every Consignee of Goods named in a Bill of Lading, and every Endorsee of a Bill of Lading to whom the Property in the Goods therein mentioned shall pass, upon or by reason of such Consignment or Endorsement, shall have transferred to and vested in him all Rights of Suit, and be subject to the same Liabilities in respect of such Goods as if the Contract contained in the Bill of Lading had been made with himself.” As there were issues with this act, the UK Parliament legislated The Carriage of Goods Act 1992 to replace the Bills of Lading Act 1855. S2(1) of COGSA 1992 deals with Rights under shipping documents and provides for the person who becomes the lawful holder of the bill of lading or whom delivery is effected under the contract of carriage or by a ship’s delivery order in accordance with the undertaking contained in the delivery order, that person … all rights of suit under the contract of carriage as if he had been party to that contract. S3(1) of COGSA 1992 provides for the person (under S2(1)) to have the liabilities provided in the contract when he takes or demands delivery from the carrier…, makes a claim under the contract of carriage against the carrier… or is a person who, at a time before those rights were vested in him, took or demanded delivery …
    2. COGSA 1992 makes reference to eB/L’s (the earlier act – Bills of Lading act 1855 referred to only Bills of Lading given that electronic systems were not in place). However, the UK COGSA 1971 (which incorporates The Hagues Rules as amended by the protcol signed at Brussels – commonly known as The Hague-Visby Rules) do not make any provision for eB/L’s. The Hague-Visby Rules deal with the rights and responsibilities of the carrier and the cargo interests and apply to all Bills of Lading and / or negotiable documents of title,  As the Hague-Visby Rules do not make provision for eB/L’s, this is where the lacuna crops up.In view of the above, Bolero have considered novation and attornment to try and mirror, as far as possible, the paper B/L.
  5. As mentioned in 3 ii above, once a novation has been accomplished, one of the original party of the eB/L is no longer part of the contract with his role being transferred to the third party. Hence, contractual rights spring up to the third party as soon as a novation has been accomplished. However, in the case of a paper B/L, the rights only spring up as provided under S2(1) of COGSA 1992 and for liablities as provided under S3(1) of COGSA 1992 i.e. when he demands delivery…. This in our opinion is a crucial difference between a paper B/L and a Bolero eB/L in that in a paper B/L, the liabilities only spring up on demand or delivery whereas in an Bolero B/L, it springs up on novation. In the circumstances, a carrier is entitled to pursue the third party once the contract has been novated and need not wait till such time the third party demands delivery… This will therefore put the subsequent party on a Bolero eB/L on risk as soon as they accept title to the transfer of documents. No doubt the new holder may take time to decide as to whether they wish to accept the title and in this regard, the Bolero Rulebook provides for a maximum of 1 day (S 3.5.2). With respect to pledgee and bearer holders, the Bolero Rule book (S3.5.3 & 3.5.4) provides that there would be no novation of the contract of carriage unless the pledgee holder is mentioned as the “To Order Party” or the bearer holder wishes to exercise his rights which he could do by first designating itself as holder-to-order, whereupon it shall become a party to the contract of carriage.
  6. In a paper B/L, the original parties to the contract continue to remain liable irrespective of whether the Title to the goods has been transferred or not. This is an important right as the Carriers (who will continue to subsist during the contract) would generally be able to ascertain the risks of doing business with their initial counterparty (Shipper) and may have no knowledge of the third parties to whom the B/L has been endorsed to (in paper B/L) or novated to (in the case of an Bolero eB/L). The Bolero Rule book Cl 3.5.3(1) however provides that irrespective of the contract being novated, the original shipper continues to be liable to the carrier under the contract of carriage. In the circumstances, provisions in the Bolero eB/L mirror the paper B/L in this aspect.
  7. In conclusion, while there are differences between the paper and Bolero eB/L’s, this is primarily due to the way Bolero eB/L have been structured. However, our view is that barring the aspect of liability springing up on novation (as mentioned in 3ii & 5 above), there does not appear to be any major differences between a paper B/L and a Bolero eB/L.

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