Is momentum growing for the wider adoption of electronic bills of lading? Is BIMCO’s new electronic bills of lading clause for charterparties a big step forward? This article looks at why such clauses are required and explains how the clause works.
The concept of electronic bills of lading has been around for at least thirty years, but until now they have not been widely adopted. One of the key obstacles the e-bill has faced is the sheer success and longevity of the traditional paper bill of lading. English law as regards the traditional paper bill has developed over more than 200 years and the upshot is that people know that paper bills work and can therefore be safely relied on. Finding an electronic solution acceptable to owners, charterers, cargo interests, insurers and banks that fulfils all of the functions of paper bills has proven to be a daunting task.
Nevertheless, e-bills must surely one day replace good old paper and their time is increasingly coming. With the law still to catch up and, in the absence of adequate international rules, it has fallen to the market (perhaps no bad thing) to devise the necessary legal framework. Two primary alternative systems, Bolero and essDOCS, now offer subscribers an integrated contractual solution for the creation, transfer and surrender of electronic bills.
The BIMCO clause
The new BIMCO electronic bills of lading clause has been driven by demand from the shipping community for a charterparty clause clarifying the conditions under which owners will issue electronic bills. Below we set out (in italics) and explain the wording of the draft BIMCO clause.
(a) At the Charterers’ option, bills of lading, waybills and delivery orders referred to in this Charter Party shall be issued, signed and transmitted in electronic form with the same effect as their paper equivalent.
- Why do charterers and owners need to agree that electronic bills may be issued?
At present, English law is premised on the issuance of paper bills. For example, the legislation dealing with the transfer of rights of suit to third party lawful holders of a bill of lading (COGSA 1992) only applies to paper bills of lading. As a result, the consignee under an electronic bill of lading will not, as a matter of law, obtain rights of suit and will not therefore be able to pursue a cargo claim against the carrier.
Further, at common law, an electronic bill of lading is incapable of acting as a document of title, given the rule that a master is only obliged to deliver goods against the surrender of an original paper bill of lading.
On this basis an e-bill is not a "bill of lading" as recognised in English law. This naturally deters people from using e-bills.
Systems such as Bolero or essDOCS endeavour to deal with this by having the users of e-bills agree between them a set of rights and obligations similar to those arising under a conventional paper bill. In other words, Bolero and essDOCS operate on a contractual basis between those who sign up to their systems.
To be effective, electronic bills of lading should only be used where two conditions are fulfilled. First, owners and charterers must agree to this in the relevant charterparty. Second, all parties in the cargo chain (shippers, owners, charterers, consignees etc) must sign up to an electronic trading system such as Bolero or essDOCS.
- Why are charterers given an option to request the issuance of electronic bills?
Sub-clause (a) gives charterers the right to ask for an electronic bill to be issued. In other words, the default position is the conventional paper bill, but the charterer has the option to ask for an e-bill. This is important because for systems such as Bolero or essDOCS to work, everyone involved in the cargo chain must sign up. An "outsider" is therefore not likely to want an e-bill and it would not be negotiable to the world at large. A charterer looking to keep his trading options open must, therefore, be able to use standard paper bills of lading but he wants the option to use e-bills as an alternative.
(b) For the purpose of Sub-clause (a) the Owners shall subscribe to and use Electronic (Paperless) Trading Systems as directed by the Charterers, provided such systems are approved by the International Group of P&I Clubs. Any fees incurred in subscribing to or for using such systems shall be for the Charterers’ account.
- Why must owners subscribe to electronic trading systems as directed by charterers?
As discussed above, any attempt to use electronic bills of lading outside a contractual circle is currently unfeasible. Sub-clause (b) therefore sensibly makes clear that owners need to sign up to the relevant system under which charterers have made a request for electronic bills of lading to be issued.
- Why must the relevant system be approved by the International Group?
In order to avoid jeopardising P&I cover, it is crucial that the particular electronic trading system intended to be used is approved by owners’ insurers. We understand that, at present, the two solution providers approved by the International Group are Bolero and essDOCS.
(c) The Charterers agree to hold the Owners harmless in respect of any additional liability arising from the use of the systems referred to in Sub-clause (b), to the extent that such liability does not arise from Owners’ negligence.
- What is the purpose of this sub–clause?
Generally speaking, whilst charterers and cargo interests have been enthusiastic supporters of electronic bills of lading, the shipowning community has been much more circumspect, fearing that the replacement of paper bills might lead to an unforeseen increase in owners’ liabilities. Sub-clause (c) is therefore intended to encourage owners to adopt electronic bills by obliging charterers to hold the owners harmless for any liabilities that would not have arisen had paper bills been used.
BIMCO’s new electronic bills of lading clause for charterparties is only a small part of a bigger picture. Any party thinking of incorporating the new clause into its charterparties and then using electronic bills of lading needs to consider carefully a lengthy list of related issues, including whether electronic bills of lading are suitable for the trade in question; which paperless trading system should be adopted; and what the position is regarding insurance. Nevertheless, the new clause is definitely a welcome development that should further encourage owners and charterers to adopt electronic bills of lading.