Does the Copy Bill of Lading require a Signature?

By Chang-Soon Thomas Song

Both the original and copy bills of lading are issued by carriers or forwarders acting as

Does a copy bill of lading require a signature? I am a banker. The question was placed with me by a colleague in a different part of the bank while I work in the Trade and Service Department which advises,negotiates and handles disputes in letters of credit where both the original bills of lading and copy bills of lading are handled each day in hundreds of transactions.The answer is easy. And it is “no”.A copy of a bill of lading does not require a signature.

Both the original and copy bills of lading are issued by carriers or forwarders acting as agent for the carriers. Usually the bills of lading are issued in three originals and a number of copies are also issued for use by bankers and traders for their files.

The original bills of lading are issued in the original, duplicate and triplicate. Effectively, they are all originals and any one of them can be presented to the carrier to claim the goods represented by the bill of lading. And there are copies which are called nonnegotiable copies of bills of lading printed on top of the copy bills of lading which are obviously not signed. If a copy is signed, then someone who does not read the title of the document “nonnegotiable copy bill of lading”might mistake the copy of bill of lading as an original bill of lading due to the signature.

Statutory interpretation

Most laws enacted by Parliament are interpreted by the judges presiding over the courts and applied to the facts presented in the case at bar. There is something called statutory interpretation which is a compilation of ways in which laws had been interpreted by the judges over time and which are not decisive but provides certain guide to the judges who are confronted by cases when the words of a statute have to be interpreted in order to apply it to the facts of the case.

Lord Mansfield of the UK is regarded as the father of English commercial law. He incorporated the law merchant into the common law of England. The law merchant does not refer to laws made by merchants. Obviously,merchants are not members of Parliament and they do not have law-making powers. The law merchant simply refers to the practice of merchants developed in medieval fairs and carried over the centuries in international trade. You can consider the Article 5 of the U.S. Uniform Commercial Code as incorporation of the law merchant into statutory law in the United States.

The point here is that unlike most laws which are enacted by Parliament and interpreted and applied by the judges to the facts of the case, commercial law starts not from Parliament or the common law but from the law merchant, the practice of merchants.

Recent US Court of Appeals Decision

In Mago International v LHB AG, the Court ruled that the Bill of Lading copy presented could only“evidence” shipment only if it was a photocopy of a Bill of Lading signed by the carrier.

Usually when a copy bill of lading is required under a letter of credit, for instance, three originals and two copies, then the three original bills of lading and two non-negotiable copies bill of lading issued by the carrier are presented to the bank by the exporter.

When a copy of a bill of lading is required, one could of course copy one of the signed original bills of lading but that is usually not done as the carrier already provides several copies of the non-negotiable copy bills of lading.

Under a standby letter of credit or in open account transactions,where the original bills of lading had already been sent to the importer, copies of the bills of lading are presented to the bank under the standby or the open account transactions to claim payment from the issuing bank or the importer's bank.

In such cases, the nonnegotiable copies of a bill of lading issued by the carrier are used. Exporters do not copy signed original bills of lading as they have already been sent to the importers directly.

Strict Compliance in Letters of Credit

The words strict compliance and substantial compliance are often used in general contract laws under different circumstances.There are instances where a rather rigid application of a rule is called for and other instances where a more flexible standard should be applied. It depends on all the circumstances of the case.

The words “strict compliance”in letters of credit law originates from Equitable Trust v Dawson Partners. Lord Sumner explained strict compliance in the decision and when we read the decision and how the rule was applied to the facts, it is not a rigid application of a rule but a reasonable expectations standard which had been applied.

Under US law, strict compliance is the rule and it is applied under standard practice of banks which can be proved with expert opinions. Expert opinions generally explain the context of the standard practice so that the judges can apply the letter of credit rules under context to the facts of the case. I am afraid that the expert opinion relied on by the judge in the case was not an accurate one. It is up to the judge to ponder on the explanations given by the expert.

There is a tendency on the part of judges to strictly interpret the words of a statute to the facts of a case so that they will not be criticized as “making law” and not simply “interpreting the law”. But there is no difference between making law and interpreting the law. Laws are general principles which are meaningless by themselves. They only come alive when a judge presented with the facts of a case, interprets the general principles and applies them to the facts of the case to provide a just and fair decision.As the circumstances of each case differ from one another, each case has to be judged on the merits under the circumstances of each case.

Strict Compliance, Substantial Compliance

Whether a strict compliance or a substantial compliance is applied depends on the circumstance of each case. Sometimes a rigid application of a rule may be called for because such was the intention of the parties and the transaction requires such a rigid application.And then there are circumstances where a substantial compliance is the just and the fair application of the rules.

When a judge is unsure of the purpose of a rule which is applicable to the case at hand,he should be very careful when applying the said rule to the case to make sure that the result is fair and just.

The consequences of applying either a strict compliance or a substantial compliance rule to the facts of a case should also be considered when making the final decision as to which rule to apply.

Under US law, strict compliance is the rule and it is applied under standard practice of banks which can be

Applying Law to the Facts

Laws and rule of law are all general principles which are fine by themselves. But alone they are useless in the resolution of any dispute between the parties. When the facts of a case are presented to the court, the judge looks at the rules to apply and then the facts to which the rules should be applied and ponders on the proper interpretation of the rules to the facts of the case.

Law is for the judge and the facts are for the jury. Such is the formula but it is the interpretation of the rules to the facts of the case which is crucial and this is undertaken by either the judge or the jury. Here the context and the circumstances of the individual case are paramount. There is never a simple application of the rules to the facts of a case.

Facts of the Case

In 2011, Mago, a company based in New York entered into a contract to sell chicken, beef and other meat products to Genita,a company based in Kosovo.Mago received a standby letter of credit issued by a Kosovo Bank and confirmed by LHB Bank in Germany.

If payment was not made by the importer Genita, the exporter Mago would draw on the standby letter of credit to the confirming bank LHB Bank in Germany.

Mago had shipped the goods under the contract but no payment was made by the importer and Mago drew on the standby letter of credit.

The confirming bank refused payment arguing that the nonnegotiable copy bill of lading issued by the carrier did not conform to the requirement under the standby letter of credit.

Difference between a Photocopy and a Copy

The standby letter of credit required: “photocopy of Bill of Lading evidencing shipment of goods to the applicant.”

The issue in this case is whether the non-negotiable copy bill of lading issued by the carrier is the photocopy of a bill of lading evidencing shipment of goods to the applicant.

Photocopy would refer to a copy made by a copying machine like Xerox. One could argue that the photocopy of a bill of lading differs from the non-negotiable copy bill of lading issued by the carrier. Carriers usually issue three original bills of lading and several non-negotiable copy bills of lading. The non-negotiable copy bills of lading are not photocopies but simply issued by the carrier without a signature.

The Court did not distinguish between the photocopy and the non-negotiable copy bill of lading so we will regard the photocopy as the equivalent of the non-negotiable copy bill of lading. Under bank practice and commercial practice in general,both are just copies without any distinction between the two of them. They are both not original documents and are copies.

Discrepancy under Commercial and Standby Letter of Credit

Under the standby letter of credit, the exporter ships the goods with confidence because if payment is not made, their claim through their local banker to the confirming bank will bring about the payment from the confirming bank.

Unlike commercial letters of credit with many different shipping documents and thus occasions for various specious discrepancies from those documents, claims under standby letter of credit is usually paid without dispute as there is simply the demand for payment with a statement that payment had not been made and copy of the bill of lading to show that shipment had been made.

Thus it is a curious case.Although there are various discrepancy disputes under commercial letters of credit with many different shipping documents, it is difficult to imagine how the issuing bank or a confirming bank could come up with a discrepancy notice under a standby letter of credit.

Under commercial letters of credit, the banker examines the documents presented with the requirements under the commercial letter of credit and the articles of the Uniform Customs and Practices for Documentary Credits. The International Chamber of Commerce had compiled some useful standard practices in the examination of documents and published it under the name International Standard Banking Practice under Letters of Credit.These are examples reviewed by bankers around the world when undertaking the examination of documents under letters of credit.

Significance of Copy Documents

There is one point which needs to be taken account of in the examination of documents. All documents presented under a letter of credit are presumed to be an original document unless otherwise stated.

Under the Uniform Customs and Practices for Documentary Credits, all of the requirements refer to original documents.Copies of documents are not the documents that are examined by bankers in general.

Copy of a document has neither legal effect nor commercial significance. They are useful to a certain extent for a certain purpose but no further.

The examination of a copy document is not the same as the examination of an original document. One could suspect forgery of an original document. A copy document is not suspected of forgery. It is only a copy.

One thing to remember about forged documents is that they are not the province of the examination by bankers. All documents are presumed to be genuine and if the presented documents are in fact forged, the presenters may be prosecuted under the criminal law but the banker is not responsible for detecting such forged documents.

What is the Crucial Document in a Standby Letter of Credit?

In a standby letter of credit,the most important document is the default statement by the beneficiary which simply states that the applicant had failed to fulfill his obligations under the contract. Thus, in a sales contract,that means that the applicant had not made payment for the goods.

The copy of the bill of lading can be included in the documents to show that shipment had been made, but even if the copy of the bill of lading is lacking, that makes not much difference to the claim under the standby letter of credit.

In this case, there is a requirement for a photocopy of a bill of lading which evidence that shipment had been made by the applicant. This is a common phrase used and this simply means a copy of a bill of lading as the originals had been sent to the applicant.

When the beneficiary had not made a copy of the original signed bill of lading, and because of that he is stopped from receiving payment, it is to put it lightly bad faith on the part of the confirming bank. Of course,this confirming bank will find that future confirmations by them will not be regarded as of much worth by international traders.

Trust Placed in the Issuing and Confirming Bank

The discrepancy notice is sent by the issuing bank to the beneficiary so that the beneficiary can cure the discrepancy and represent the documents to the issuing bank. When an original document is found discrepant,it can be cured and presented again. But if a copy document is found discrepant, how do you cure a copy document? This is not a rhetorical question.

Both commercial letter of credit and standby letter of credit are issued to ensure payment despite any change in the financial standing of the applicant.This is the basis of international trade where the exporter can trust the solvency of the issuing bank or the confirming bank to make payment once the beneficiary had performed his part of the bargain. But if after performing his part of the bargain, the beneficiary is unable to receive payment because the copy of the bill of lading is not the copy of the signed original bill of lading which had already been sent to applicant, the process becomes a farce. Despite all the esoteric argument by bank experts or the lawyers or judges, it will not convince the exporter that he is rightly refused payment due to his fault, i.e. not presenting just what the commercial letter of credit or the standby letter of credit called for.

Rule of Contra Proferentem

When the beneficiary is not sure about what kind of document he is supposed to present to the issuing or confirming bank,what then? Is it so clear to the beneficiary that the “photocopy of the bill of lading evidencing shipment by applicant” refers to the copy of the signed bill of lading which is rarely used in international trade?

Following the rule of contra proferentem, when the standby letter of credit is unclear, the responsibility is laid on the issuing or confirming bank not the beneficiary. If the standby letter of credit required “a copy of the signed bill of lading evidencing shipment by applicant,” the beneficiary would have made a copy of the signed original bill of lading before sending the original bills of lading to the applicant.

When the requirement is simply “photocopy of bill of lading evidencing shipment by applicant,” one cannot blame the beneficiary thinking of the nonnegotiable copy bill of lading issued by the carrier.