Bill of Lading

Bills of Lading: These documents will be examined in Lesson Eight. However, mention should be made of the clausing of bills of lading in relation to freights. Sometimes letters of credit between the seller and buyer of a cargo stipulate that bills of lading are to be claused ‘freight prepaid’, and a buyer is then entitled to assume that freight has indeed been paid when the bills eventually come into his possession. It can, in fact, be tantamount to fraud to reach an alternative agreement between seller and shipowner/carrier and mark bills of lading ‘freight prepaid’ where none, or only partial freight has been paid. Not only that, if a shipowner releases bills marked ‘freight prepaid’ before receiving any or all freight, that shipowner is in effect admitting receipt of all freight and may find extreme difficulty in obtaining any balance, whilst being obliged to deliver the cargo in full to the receiver/holder of the bills. There can be no objection to clausing of bills such as ‘freight payable as per charterparty’, and it is surely better for a shipowner or his port agent to retain bills of lading marked ‘freight prepaid’ until the freight is actually received. Most voyage charterparties give a shipowner/carrier a lien on the cargo for non-payment of freight and deadfreight (see clause 24 of the MULTIFORM), this will not apply if the shipowner has released ‘freight prepaid’ bills of lading. Sometimes charterers offer to issue a ‘letter of indemnity’, indemnifying shipowners for issuing ‘freight prepaid’ bills without physical receipt of the freight. Depending on their trust of the charterer, some shipowners accept such a letter, but wise ones demand that it is countersigned by a first class bank.