Carriage of Goods By Sea
By Barrister Mahbub Shafique
►Carriage of Goods By Sea Act, 1925,
►Bills of Lading Act, 1856
Three Parts:
►Sale of Goods by sea or carriage by sea;
►Finance;
►Sale of goods or sale.
Free on board (f.o.b. ) contract:
Definition:
The f.i.b sales contract requires the seller to place the goods on board a vessel nominated by the buyer within the stipulated contractual period.
Buyer’s obligations:
a) Identification of the port of shipment
b) Date of shipment
c) Nomination of the vessel
d) Buyer's obligations for expenses and payment of the price
Seller’s obligations:
a) The seller's duty to load the goods
b) The duty to procure an export license
c) Delivery of the documents
Cost. insurance and freight (CIF) Contract
Definition
When goods are purchased under a CIF contract, the obligations of the seller end only when he ships the goods to the port of shipment specified in the contract, at his own expense, and insures the goods under a policy of marine insurance for the sea voyage in terms usual for the type of goods and voyage involved.
Seller’s obligations-
a) Shipment of the goods
b) The shipping documents
The bi1l of lading
The policy of insurance
The commercial invoice
Other documents required by the buyer - export and import licenses and certificates of quality.
Buyer’s obligations-
a) To pay the seller on tender of the documents
b) To take delivery of the goods
c) Additional duties.
Contract of Affreightment
Introduction:
A contract for the carriage of goods by sea is called the contract of affreightment. A contract of affrieghtment may take one of two forms –
i. Charter-party – In the Charter-party the ship itself is hired.
ii. Bill of lading – A bill of lading the goods are delivered to the shipowner for carriage and he issues a bill of lading and in he issues a bill of lading.
Charter-party contract are of two kinds. Namely –
1. Voyage Charter-party
2. Time Charter-party
►Demise Charter-party
►Non-Demise Charter-party
Bill of lading (Issued by the carrier):
1. Receipt
Custody – Acknowledging the facts of receipt
Nature – Nature of the goods at the time of shipment.
2. Evidence of the terms of the contract of carriage
Record of the original contract between S and B
3. Document of title(Possession)
Prima facie S unless passed to B or endorsed to B, then B will be a endorsee of the Bill of Lading means transfer the contractual right of possession.
· If the contract is right B will receive
- Performance;
- Property;
- Right of possession;
- Right to sue under the insurance;
- Right to the carrier to perform his obligation.
Implied Terms in Contract of Affreightment
Introduction:
A contract for the carriage of goods by sea is called the contract of affreightment. A contract of affrieghtment may take one of two forms –
i. Charter-party – In the Charter-party the ship itself is hired.
ii. Bill of lading – A bill of lading the goods are delivered to the shipowner for carriage and he issues a bill of lading and in he issues a bill of lading.
Implied undertaking:
In every contract of affrieghtment, whether Charter-party or bill of lading, certain undertakings on the part of the carrier are implied. In addition to the express clauses agreed by the parties every contract of affreightment has a series of obligations are implied which are automatically incorporated into the contract in the absence of agreement to the contrary.
Seaworthiness:
In every contract of affreightment there is an implied obligation to provide a seaworthy vessel fit to meet and undergo the perils of the sea and other incidental risks to which of necessity she must be exposed in the course of a voyage.
The obligation covers not only the physical state of the vessel but also the competence and adequacy of the crew, the sufficiency of fuel and other supplies, and the facilities necessary and appropriate for the carriage of the cargo.
The Maore King (Cargo Owners) v. Hughes – A ship with defective refrigerating machinery was held unseaworthy for a cargo of frozen meat.
Queensland National Bank Ltd v. Peninsular and Oriental Steam Navigation
The Thorsa - The consignment was of some casks of oil. It was towed on board the ship and, there being no deck above them, the other cargo, which consisted of a quantity of palm kernels, was placed on them. The casks were consequently crushed by the weight and much of the oil was lost. The House of Lords held that the damage was due, not to unseaworthiness, but to improper stowage., The vessel was unquestionably fit to receive and carry the cargo in question. She was a well built and well found ship and lacked no equipment necessary for the carriage of palm oil and the damage arose because placed upon them was a weight which no casks could be expected to bear. There being an exception in the contract for loss due to bad stowage, the shipowner was held not liable. Thus unseawotthiness and bad stowage are two different things.
· Ship must be sufficiently sea worth;
· It should be fit to receive and carry the contract cargo to destination.
· Cargo worthiness is part of sea worthiness and is different from bad storage.
Nature of the obligation:
An absolute obligation of sea worthiness, in the event of breach he will be liable irrespective of fault. Either be seaworthy or made to be sea worthy otherwise cargo owner may through out the contract. It amounts to an undertaking not merely that they should do their best to make the ship fit but that the ship should really be fit. On the other hand the owner is not under a duty to provide a perfect ship but merely one which is reasonably fit for the purpose intended. The standard required is not an accident free-ship nor an obligation to provide ship or gear which might withstand all conceivable hazards. The test would be objective in that ‘the vessel must have that degree of fitness which an ordinary careful and prudent owner would require his vessel to have at the commencement of her voyage having regard to all the possible circumstances of it.
A shipowner will be liable not only for his own negligence but also for the negligence of any party even including an independent contractor to whom he has delegated responsibility for making the vessel seaworthy: The Muncaster Castle.
Incidence of obligation:
The requirement for the shipowner to provide a seaworthy vessel comprises a two-fold obligation. On the one hand the vessel must be suitably manned and equipped to meet the ordinary perils likely to be encountered while performing the services required of it, while at the same time it must be cargoworthy in the sense that it is a fit state to receive the specified cargo.
First aspect of the seaworthiness of the ship concerns not only to the physical condition of the ship but also extends to the competence of the crew and the adequacy of stores and documentation. Thus the shipowner will be equally in breach where he employs an incompetent engineer or other officer.
Second aspect is related to the cargo worthiness of the vessel. An obligation to ensure that the ship is in a fit state to receive the contractual cargo. There is no continuing warranty: McFadden.
Burden of proof:
The burden of proof of unseaworthiness will rest on the party alleging it.
The Theodegmon – if the carrier owner adduces his evidence that shipowner is in breach,
- shipowner must adduce his part of defense,
- Cargo owner can say that shipowner would not be able to rely because the ship should have been seaworthy,
- Shipowner demonstrates that the initial unseaworthiness did not arise on due diligence: Fjord Wind
The Arianna – Always a question of fact depending on individual case.
- there is a permissible way of showing seaworthiness i.e. if something is dangerous fort the cargo to go to sea or to load or to unload. It is a pure question of fact.
Remedies:
The shipowner’s obligation to provide a seaworthy ship was classified as an innominate or intermediate term by the Court of Appeal in Hong Kong Fir Shipping Co. Cargo owner has a right to sue for damages. Right to terminate the contract for repudiatory breach.
Reasonable dispatch:
In every contract carriage requires the shipowner or carrier to perform his contractual obligations with reasonable dispatch. Whenever no time is specified for a particular obligation there is an implied obligation to complete the performance within a reasonable time. Performance of this obligation is judged not on a strictly objective basis but in relation to what can reasonably be expected from the shipowner under the actual circumstance existing at the time to performance. When the language of the contract does not expressly or by implication fix any time for the performance of a contractual obligation the law implied that it shall be preformed within a reasonable time.
To exercise reasonable dispatch appears to fall into the innominate or intermediate terms. Remedy will depend on effect of the breach. The injured party will always be able to recover compensation in the form of damages for any unreasonable delay, he will only be able to repudiate the contract if the delay is so prolonged as to frustrate its object.
In Freeman v
Deviation:
The owner of a vessel whether operating a liner service or under charter impliedly undertakes that his vessel while performing its obligations under the contract of carriage will not deviate from the contract voyage. Deviation has been defined as ‘an intentional and unreasonable change in the geographical route of the voyage as contracted.’
In order to determine whether such a deviation has occurred it is first necessary to ascertain the precise route envisaged by the contract of affreightment. In the absence of express provision about the route the presumption is that the proper route is the direct geographical route between the ports of loading and discharge. Presumption can be rebutted by the shipowner adducing evidence as to the customary route in the trade or the previous route that been used by the shipowner.
Deviation means departure from contract route. Two kinds of deviation
→ Justified;
→ Unjustified(Wrongful deviation)
A departure from the proper route is permissible in the following circumstances
Deviation for the purpose of saving life is protected and involves neither forfeiture of insurance nor liability to the goods owner in respect loss which would otherwise be within the exceptions of ‘perils of the seas’, and as necessary consequence of the foregoing deviation for the purposes of communicating with a ship in distress is allowable, in as much as the state of the vessel in distress may involve danger to life. On the other hand deviation for the sole purpose of saving property is not thus privileged, but entails all the usual consequences of deviation.
Scaramanga v stamp - The defendants’ ship was chartered by the plaintiffs to carry a cargo of wheat from Cronstadt to
To avoid danger to ship or cargo:
The master is under an obligation to exercise reasonable care and skill in ensuring the success of the joint enterprise and accordingly is entitled to deviate from the proper course in order to ensure the safety of the vessel and its cargo. In deed in the majority of cases he will be under a duty to take such action. The risks may arise from natural causes such as storms ice or fog or they may involve political factors such as the outbreak of war or the fear of capture by hostile forces. But a mere temporary obstruction will not suffice such as a shortage of tugs or a neap tide. In
On the other hand where continuation of the voyage would result in substantial damage to the cargo master might be under a duty to deviate to protect the interests of the cargo owners.
Dangerous goods:
Shipper or charterer is under an obligation not to carry dangerous goods.
Safe port:
A charterer is under an implied obligation to nominate a safe port. In the majority of charters this implied obligation is re-enforced by an express term of the same effect. The classic definition was provided by Sellers LJ in The Eastern City – ‘A port will not be safe unless in the relevant period of time the particular ship can reach it, use it and return from it without in the absence of some abnormal occurrence being exposed to danger which cannot be avoided by good navigation and seamanship.’
Liability for discharge
Shipper is under and obligation to deliver the goods in the same position he got it. Otherwise the charterer or cargo owner must bear the expenses.
Must delivery the property to the right person. Right person means deliver in accordance with the contract.
Glyn Mills v E & WI Docks – Must deliver the first person apparently holding valid Bills of lading.
Exceptions of the implied terms:
1. Act of God;
2. State’s / Public enemies;
3. Inherent Vise(inherent defect) in the product;
4. Defective packing;
Functions of Bill of Lading
Bills of lading have got three functions i.e. (1) As receipt of goods shipped;
(2) As evidence of the contract of carriage;
(3) As document of title.
As receipt for goods shipped:
Originally the bill of lading started life as a mere bailment receipt which was required to obtain delivery of the goods at the port of discharge. Even as a mere bailment receipt it has three commercial effects-
Firstly: They formed the basis of any cargo claim by the receiver should the goods be short delivered or damaged on discharge.
Secondly: Where the goods had been sold under c.i.f contract payment has to be made against delivery of documents, the buyer was entitled to reject the document if the description of goods in the bill of lading did not correspond with their description invoice.
Thirdly: Negotiable nature of it.
Art III rule 3 of the Hague/Visby Rules entitles the shipper to demand the issue of a bill of lading containing certain specified information -
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‘After receiving the goods into his charge the carrier or the master or agent of the carrier shall, on demand of the shipper, issue to the shipper a bill of lading showing among other thing-
a) The leading marks necessary for identification of the goods as the same are furnished in writing by the shipper before the loading of such goods starts, provided such marks are stamped or otherwise shown clearly upon the goods if uncovered, or on should ordinarily remain legible until the end of the voyage.
b) Either the number of packages or pieces, or the quantity, or weight, as the case may be as furnished in writing by the shipper.
(c) The apparent order and condition of the goods.’
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The Hague/Visby Rules further provide that such statements in a bill of lading shall be the prima facie evidence of the receipt by the carrier of the goods as so described, but conclusive evidence against him once the bill has been transferred to a third party acting in good faith.
Indemnity:
In return, the shipper is ‘deemed to have guaranteed’ to the carrier the accuracy of any information supplied by him in writing for incorporation in the bill and is required to indemnify the carrier against all loss arising in the event of any inaccuracies.
Estoppel:
If the carrier does not find the goods as described by the shipper under Hague/Visby Rule Art III rule 8 the carrier may exclude his liability by putting a clause such as ‘weight unknown’ null, void and of no effect. The obiter in The Mata K by Clarke clarified that the inclusion of the provision ‘weight unknown’ does not have the effect of relieving the carrier from such a liability or lessening such a liability. It merely means that the provisions of Article III rule 4 as to prima facie evidence cannot come into effect. Art.III Rule 4 sets up a statutory estoppel by stating that – A bill of lading shall be prima facie evidence of the receipt by the carrier of the goods as there in described …… However proof to the contrary shall not be admissible when the bill of lading has been transferred to a third party acting in good faith. It does not confer a cause of action but merely negates defence which would otherwise be available. Thus in Oricon ‘weight unknown’ clause did not protect the carrier for wrong delivery number.
Estoppel explained:
A shipowner who issues a clean bill of lading is bound by the statement in it that the goods are shipped in good or in apparent good order and condition; if the statement turns out to be untrue the shipowner is estopped from alleging its falsity as against a purchaser who relies on the statement at its face value and acts on it to his detriment. In order to be effective estoppel has to be a clear statement of fact by representation which being relied on by the other party to his detriment causing him loss and damages. In Canadian & Dominion, it was held that estoppel operates with its terms. Here sugar was found damaged but shipowner gave clean bill. But estoppel failed because the statement was not sufficiently clear and unqualified. The statement of good order and condition was not qualified by the other terms of the bill of lading. The same principle was applied in Enmeralda, where carrier was not liable for short delivery because container was packed by shipper not shipowner. Further more bill of lading clarified that carrier would not be liable for short delivery.
Receipt as to quantity:
At common law:
In the hands of the shipper, the bill of lading is prima facie evidence at common law of the weight or quantity of goods shipped. To avoid liability, the carrier has the burden of proving that the goods were not shipped as stated in the bill: Smith v Bedouin Steam Navigation Co Ltd.
In Grant v
Art III rule 4 of
Under Hague/Visby Rule:[Art.III Rule 3(b)]
Art III rule 3 of the Hague/Visby Rules entitles the shipper to demand the issue of a bill of lading containing certain specified information either the number of packages or pieces, or the quantity by the shipper which prima facie evidence in favour of the shipper, but conclusive evidence once the bill comes into the hands of a bona fide purchaser for value.
Receipt as to quality:
The second type of statement traditionally included in a bill of lading is a representation by the ship owner as to the condition in which the goods were shipped: The Galatia. This refers merely to their apparent condition in so far as the carrier or his agent is able to judge by a reasonable outward inspection. At a time when an increasing proportion of cargo is containerised, such statements are only of limited value since, in the majority of cases, they will refer merely to the outward appearance of the container or other packaging, and not to the condition of the goods inside.
In many cases the shipper will be anxious to avoid any such endorsements on the bill since the shipment is being financed by a documentary credit from a bank under which he is required to produce a ‘clean bill of lading’ i.e a bill containing an unqualified statement that the goods were shipped ‘in good order and condition’.
At common law:
As with representations as to quality, statements as to the condition in which goods are shipped are prima facie evidence in favour of the shipper, but conclusive evidence once the bill comes into the hands of a bona fide purchaser for value:Smith. Thus in Compania Naviera Vasconhada v Churchill where timber became badly stained with petroleum master of the ship nevertheless issued a bill of lading acknowledging that the timber had been shipped in good order and condition. Channell J held that, in these circumstances, the shipowners were estopped as against an assignee of the bill of lading from denying the truth of the statement. The justification for the estoppel was detrimental reliance by the assignee. The estoppel has even been held effective in favour of a party who had advanced money to the shipper on the security of the bull and subsequently obtained delivery of the goods from the carrier on presentation of the bill and payment of the freight even though technically he was not a party to the contract of carriage. But it must be remembered. However that the estoppel will only be effective in respect of defects which would be apparent on a reasonable inspection by the carrier or his agent. Though it is of course possible at common law for the shipowner to exclude responsibility for the truth of such statements or to indorse the bill with a clause to the effect ‘condition unknown’.
Hague/Visby Rule:[ Art III rule 3(c)]
Carrier will often be under considerable pressure from the shipper to issue a clean bill of lading, in these circumstances the carrier may be induced to ignore defects in the condition of the cargo in return for promise to indemnity by the shipper. Such an indemnity will provide illusory protection for the shipowner since it will be ineffective as a defence to any claim brought by a third party on the clean bill, and may even be unenforceable against the shipper on the ground that its object is to defraud the consignee or his bank. While dealing with indemnities, it might be relevant to recall that under Art III rule 5 of the Hague/Visby Rules the carrier is provided with a statutory implied indemnity to cover losses resulting from being required to acknowledge the quantity or leading marks of the goods received on the basis of information supplied by the shipper, which turns out to be false.
In Galatia Brown Wilkinson stated that fraud will not be allowed. Mr. Lord Avershed further emphasised that if the object is not to fraud then valid contract.
Receipt as to leading marks:
At common law:
Any identification or quality marks appearing on the goods shipped will normally be recorded in the bill of lading. The shipowner will not however be estopped at common law from denying that goods were shipped under the marks described in the bill unless such marks are essential to their identity or description. In Parsons v New Zealand Shipping Co as the marks were not material to the identity of the goods there was no estoppel.
Under Hague/Visby Rule:[ Art III rule 3(a)]
Art III rule 4 are only applicable to ‘leading marks necessary for the identification’. The shipper can demand that such marks are acknowledged by the shipowner provided ‘they are stamped or otherwise shown clearly upon the goods… in such a manner as should ordinarily remain legible until the end of the voyage.
Silver v. Ocean Steamship Company, Limited - Frozen eggs were found to be perforated and damaged. A shipowner who signs a bill of lading for goods "shipped in apparent good order and condition" is estopped as against the holder of the bill of lading from alleging that the goods, in respect of matters externally visible on a reasonable examination, were not in good condition when shipped; and (per Scrutton and Slesser L.JJ.) is further estopped from alleging that by reason of the particular nature and shape of the containers in which the goods are placed damage to the goods has been caused by "insufficiency of packing" within Art. IV., r. 2, of the Schedule to the Carriage of Goods by Sea Act, 1924, where the nature and shape of the containers were apparent on the shipment of the goods.
Canada and Dominion Sugar Co Ltd - It is settled law that an innocent indorsee for value of a bill of lading is entitled to act on the statements contained in the bill of lading unless he has, at the material time, clear and definite knowledge from other sources that the statements in the bill are untrue. However, if the statement in the bill of lading is qualified, the necessary conditions of estoppel, which could have been set up by the indorse as against the shipowner if the statement in the bill of lading had been unqualified, have not been satisfied and the estoppel fails.
The appellants claimed as holders of a bill of lading in respect of a quantity of sugar shipped on the respondents' steamship. The appellants, who had purchased the sugar on c.i.f. terms, took up the bill of lading against payment of 95 per cent of the purchase price, and thereupon became owners of the sugar, and duly thereafter paid the balance of the purchase price. The sugar was found to be damaged. The bill of lading signed by the agents of the shipowners was a "receipt for shipment" bill of lading. The bill of lading contained in the first line the statement, "Received in apparent good order and condition" and bore an endorsement "signed under the guarantee to produce ship's clean receipt" and was issued before completion of the loading. The ship's receipt signed by the agents for the shipowners has the notation "Many bags stained, torn and resewn". Held, the statement in the bill of lading was qualified and, therefore, could not operate as an estoppel. As a result the appellants' claim failed.
Morris and Pearce LJJ held that the indemnity was illegal because the consideration for it was the making of a representation of fact known to be false with intent that it should be acted upon.
Grant v
In Lickbarrow v Mason, Buller J stated that ‘a bill of lading is an acknowledgement by the captain of having received the goods on board his ship there it would be a fraud in the captain to sign such a bill of lading if he had not received the goods on board and the consignee worked be entitled to his action a against the captain for the fraud.
Henry Smith & Co - A cargo of jute was shipped from
Ocean Steamship - A bill of lading for antimony oxide ore stated that 937 tons had been shipped on board; in the margin was a typewritten clause "A quantity said to be 937 tons," and in the body of the bill of lading was printed in ordinary type the clause "weight, measurement, contents and value (except for the purpose of estimating freight) unknown":--
Held, that the bill of lading was not even prima facie evidence of the quantity of ore shipped, and that in an action against the shipowners for short delivery the onus was upon the plaintiffs of proving that 937 tons had in fact been shipped.
As evidence of the contract of carriage
The terms behind the bill of lading do not constitute the contract of carriage itself, but merely provide evidence of it.
The contract is normally concluded orally long before the bill is issued and the terms are inferred from the carrier’s sailing announcements. Thus even if the goods are damaged or lost before the bill of lading is issued shipper will not be deprived of his right under the contract for breach of it: Pyrene v Scindia Navigation Co.
The Ardennes – Plaintiff wished to export some orange to
“The bill of lading is not the contract of carriage but only evidence of its terms.”
A carrier is not bound by the terms of the bill of lading. Thus if the bill of lading is handed over after the making of the contract of carriage and contains an exemption clause not originally agreed on that clause might not form part of the contract.
Crooks & C v Allan – held without a contract of carriage the bill of lading was simply a nullity.
Leduc v Ward – Shipper knew about the deviation and thus waived the breach. But third party was not bound by the waiver. Reliance must come from endorsee.
Heskell v Continentak Express Ltd – Reservation of place is not contractual. Without a contract of carriage the bill of lading was simply a nullity.
Pyrene v Scindia – Reservation of place is contractual
The Dunelima – Seller contracted to sell to the charterer. Charterer alleged short delivery and referred to arbitration. Whether arbitration clause was incorporated? In respect of the carriage of goods can sue the other party under arbitration clause.
Document of title
If the document of title only makes provision for delivery to a named consignee, it is known as a ‘straight’ bill of lading or waybill and lacks the negotiability quality required to qualify it as a document of title. Such a document is not so attractive as security for a commercial credit nor can the holder of the bill transfer a good title to the goods during transit.
There are three purposes for which possession of the bill may be regarded as equivalent to possession of the goods covered by it:
1. The holder of the bill is entitled to the delivery of the goods at the port of discharge;
2. The holder can transfer the ownership of the goods during transit merely by indorsing the bill;
3. The bill can be used as security for a debt.
Indorsing and delivery of the bill of lading normally transfer the ownership in the goods covered by it to the endorsee, provided that four requirements are met:
1. The bill must be transferable on its face;
2. The goods must be in transit at the time of the endorsement;
3. The bill must be initiated by a person with good title;
4. The endorsement must be accompanied by an intention to transfer the ownership in the goods covered by it.
Function in finance contract (Seller – Buyer - Buyer’s bank)
If a buyer requests his bank to pay for the goods being on the process of shipment, the bank opens a bank of credit and through a letter of credit the payment is made. Thus under the normal c.i.f. contract once the goods are shipped the seller is required to submit to the bank the bill of lading together with the original sales invoice and a policy of insurance covering the goods during transit. On the presentation of all the documents is then entitled to the payments of the contract price.
Function in carriage contract:
The fact that the bill is a symbol representing the goods during transit has the following consequences:
a. The holder of the bill controls the goods during transit;
b. A lawful holder of the bill, by S.2(1) of the Carriage of Goods by Sea Act 1992, has title to sue under the contract of carriage as if he had been an original party to it. He becomes subject to liabilities under the contract only when he takes or demands delivery of the goods from the carrier, or initiates a claim for loss or damage.
c. The holder is entitled to delivery of the cargo at the port of discharge on presentation of the bill of lading.
Carriage of Goods By Sea Act, 1925
Introduction:
The Carriage of Goods By Sea Act, 1925 covers only contracts of carriage covered by a bill of lading or any similar document of title in so far as such document relates to the carriage of goods by sea.
If the parties envisage that the contract of carriage will be covered by a bill of lading it would appear that the Rules will take effect even though in the event no such document is in fact issued. In Pyrene Co Ltd v Scindia Navigation Co the trial judge held that the important factor was whether the parties in contracting envisaged the issue of a bill of lading and not whether one was in fact actually issued.
Types of cargo which are excluded:
Two types of cargo are expressly excluded from the application of the Act according to Art I Rule (c). These consist of ‘live animals’ and ‘cargo which by the contract of carriage is stated as being carried on deck and is so carried’.
In both the case parties are free to negotiate their own terms contract. The exclusion is justified by the peculiar risk attached to the carriage of both categories of cargo arising in the first case from the nature and inherent propensities of the animals involved and in the second from the exposed position in which the cargo is stowed.
Deck cargo [Article 1, Rule (c)]:
Two requirements need to be satisfied in order to avoid the operation of the Rules.
I. First the cargo must actually be stowed on deck and
II. Secondly this fact must be clearly stated on the bills of lading. Unless both requirements are met the contract of carriage will be controlled b the Rules.
In Svenska Traktor AB v Maritime Agencies (
Period of coverage of the rules:
It is clear that carrier liability is subject to the Rules not only during the actual carriage but also during the loading and discharge operations as where the cargo falls back on dockside while being lifted abroad with the ship’s tackle or where is falls into the sea while being discharged into lighters.
Provisions of Hague Visby Rules as incorporated by our Carriage of Goods By Sea Act, 1925:
Duties of the carrier:
Obligation to provide a seaworthy ship – Article III Rule 1:
At common law the carrier was under an absolute obligation to provide a seaworthy ship subject only to the common law exceptions has now been replaced by an obligation to use due diligence.
Article III Rule 1
“The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to
(a) Make the ship seaworthy;
(b) Properly man, equip and supply the ship;
(c) Make the holds, refrigerating and cool chambers and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation.”
Explained:
The three aspect of the seaworthiness i.e.
(1) the physical condition of the ship,
(2) the efficiency of the crew and equipment and
(3) the cargo worthiness of the vessel.
Duration of obligation:
The Article requires the carrier to exercise due diligence to provide a seaworthy ship ‘before and at the beginning of the voyage’. The phrase has been interpreted as covering ‘the period from at least the beginning of the loading until the vessel starts her voyage’.
The implied undertaking as to seaworthiess in Art III Rule 1 constituted an overriding obligation any breach of which deprived the carrier of the protection of the exceptions listed in Art IV [Art IV Rule 2(b) – the fire exception under which the shipper would not be responsible for the consequences of fire unless it resulted from the actual fault or privity of the owners] in respect of any resulting damage.
A shipowner would not be held liable if defects develop on the voyage or arise during a call at an intermediate port. In Leesh River Tea Co v British India Steam Navigation Co. a vessel was held not to be unseaworthy within the meaning of Art III when cargo was damaged by the surreptitious removal of a storm valve cover plate by a person unknown while the vessel was calling at an intermediate port.
Meaning of due diligence:
The standard imposed by this obligation has been interpreted by the courts as being roughly equivalent to that of the common law but with the important difference that it is a personal obligation that cannot be delegated. The carrier may employ some other person to exclude to exercise due diligence but if the delegate is not diligent then the carrier is responsible.
The
A fitter employed by independent ship repairers carelessly refixed the inspection covers of storm valves of a ship with the result that cargo shipped under the Hague Rules was damaged by sea water. The fitter was employed by reputable repairers and he was properly left to refix the covers without supervision. The cargo owners sued for damages for breach of r. 1 of Art. III of the Hague Rules. Held, the shipowners were in breach of the rule.
If the defect should have been apparent on a reasonable inspection of the vessel at the time f take over the carrier cannot in that event rely for protection even on the certificate of a Lloyd’s Surveyor.
Union of
Burden of Proof:
Art. IV Rule 1 provides that the carrier shall not be liable for loss or damage arising or resulting from unseaworthiness unless caused by want of due diligence on his part to make the ship seaworthy as defined in Art III Rule 1. Further more when ever loss or damage has resulted from unseaworthiness the burden of proving the exercise of due diligence shall be on the carrier or other person claiming exemption under this article.
The general presumption is that no onus is cast on the carrier in relation to proof of due diligence until the other party has first established that the vessel was unseaworthy and that his loss was attributable to that fact.
Care of Cargo [Art. III Rule 2]:
Subject to the provisions of Article IV, the carrier shall properly and carefully load handle, stow, carry, Keep, care for and discharge the goods delivered.
This Article has been construed as requiring from the carrier the exercise of a standard roughly equivalent to that of reasonable care. According to Lord Reid in Albacora v WestCott and Laurance Line ‘properly’ meant in accordance with a sound system. He continued the obligation is to adopt a system which is sound in light of all the knowledge which the carrier has or ought to have about the nature of the goods. And if that is right then the respondent has not adopted a sound system.
Duration of obligation:
The wording of Art. III Rule 2 implies a continuous obligation on the carrier running from ‘tackle to tackle’ i.e. from the commencement of loading to the completion of discharge.
Burden of proof:
The onus rest with the carrier to establish that the goods were carried ‘properly can carefully’. The onus shifts to the carrier to bring the cause of damage with in one of the exceptions listed in Art.IV Rule 2(a)-(p). If he fails to do so he will strictly be held liable unless he can prove that the damage or loss occurred without the actual fault or privity of the carrier or without the fault or neglect of the agents or servants of the carrier.
Obligation to issue a Bills of Lading [Art.III Rule 3]:
‘After receiving the goods into his charge the carrier or the master or agent of the carrier shall on demand of the shipper issue of the shipper a bill of lading showing among other things –
a. Leading marks;
b. Quantity;
c. Quality.
Exceptions (Rights and immunities of the carrier)[Art. IV Rule 2]-
‘Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting form
(a) Act, neglect or default of the master, mariner, pilot or the servants of the carrier in the navigation or in the management of the ship;
(b) Fire, unless caused by the actual fault or privity of the carrier;
(c) Perils, dangers and accidents of the sea or other navigable waters;
(d) Act of God;
(e) Act of war;
(f) Act public enemies;
(g) Arrest or restraint of princes, rulers or people, or seizure under legal process;
(h) Quarantine restrictions;
(i) Act or omission of the shipper or owner of the goods his agent or representative;
(j) Strikes or lockouts or stoppage or restraint of labour from whatever cause whether partial or general;
(k) Riots and civil commotions;
(l) Saving or attempting to save life or property at sea;
(m) Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice of the goods;
(n) Insufficiency of packing;
(o) Insufficiency or inadequacy of marks;
(p) Latent defects not discoverable by due diligence;
(q) Any other cause arising without the actual fault or privity of the carrier.
Freight:
Introduction:
Freight is the consideration payable to the carrier for the carriage of goods from the port of shipment to the agreed destination. The obligation to pay freight can arise either under a voyage charter or a bill of lading contract, but must be clearly distinguished from the obligation to pay hire under a time charter.
In the absence of agreement to the contrary the common law presumes that freight is payable only on delivery of the goods to the consignee at the port of discharge. Payments of freight and delivery of the goods are said to be concurrent conditions in other words the carrier cannot demand payment of freight unless he is willing and able to deliver the goods at the place agreed. The test of right to freight is the question whether the service in respect of which the freight was contracted to be paid has been substantially performed and as a rule freight is earned by the carriage and arrival of the goods ready to be delivered to the merchant[Dakin v Oxley]. On the other hand if goods are to be delivered by instalments the consignee must if required pay for each delivery made and is not entitled to withhold payment until all the goods are delivered.
From the cargo owner’s standpoint he has undertaken to pay freight as a quid pro quo for the sale delivery of his goods at the agreed destination. The only case where full freight becomes payable in such circusmtances is where failure to reach the port of discharge is solely due to some act or de4fault on the part of the cargo owner. The carrier can however protect himself against such eventuality in one of the three ways. (1) he can insure against such a loss of freight, (2) he can stipulate for some proportion of the freight to be paid in advance, (3) he can tranship the goods and claim the full freight when they arrive at their destination.
Calculation of freight:
Freight is normally assessed in relation to cargo quantity and normally be specified in a fright clause in the contract of affreightment. The freight unit may take a variety of forms based on weight or measurement or cubic measurement.
However where there is likely to be a reduction in the weight of cargo during transit due to the evaporation of liquid cargoes or loss in the normal handling of dry bulk cargoes freight is usually assessed in relation to the amount of cargo delivered rather than the amount shipped.
Deduction from freight:
Where cargo arrives at its destination in a damaged state or is short delivered the agreed freight is nevertheless payable in full and the receiver is allowed no right of set-off even though the deterioration is so great that the cargo delivered is no longer worth the freight. Lord Wilberforce in Aries Tanker Corp adduced without any doubt that a claim in respect of cargo cannot be asserted by way of deduction from freight is a long established rule in English law.
Freight is however not payable where the goods are so badly damaged on their arrival that they are unmerchantable in the sense that they no longer answer their commercial description. Thus no freight was payable on a cargo of solidified cement in Duthie v Hilton which has been salvaged from a vessel that had been scuttled on the discovery of a fire in its hold. A similar result followed in Asfar v Blundell where a cargo of dates salved following a collision in the
If the traditional view of deviation still survives any unjustifiable deviation from the contractual voyage will amount to a fundamental breach of the contract of carriage entitling the cargo owner to regard himself as discharged from all outstanding obligation under the contract. But in Tate & Lyle a dicta suggests that the carrier would be able to claim a reasonable sum for freight based on a quantum meruit basis.
Advance freight:
The parties to a contract of affreightment may expressly provide that the whole or part of the freight shall be payable in advance. There is however a strong presumption at common law that freight is only payable on delivery of the goods at destination and so any provision for advance payment must be clearly expressed. If expressly agreed about advancement freight is then due at the time indicated and if not paid will remain due even though the goods are lost in transit and never reach their destination.
Once freight has been paid in advance it is not recoverable by the shipper even if the cargo is subsequently lost during the voyage, provided that such loss is covered by exception in the relevant charterparty or bill of lading. Advance payment is equally irrevocable where the contract of carriage is frustrated before the cargo reaches its destination since in such circumstances there is no total failure of consideration within the rule established in the Fibrosa Case and this situation was expressly excluded from the provisions of the Law Reform(Frustrated Contracts) Act 1943.
Specialised types of freight:
Fright may take the form of an agreed amount for the use of the whole or part of a ship to carry cargo on a given voyage instead of being calculated on the basis of the weight or measurement of cargo shipped. As with other form of freight lump sum freight is presumed to be payable on safe delivery of the cargo at the port of discharge but the parties frequently provide for the whole or proportion of the sum to be paid in advance.
Pro Rata freight:
The general rule at common law is that in the absence of agreement to the contrary no freight is payable unless the cargo is delivered at the agreed destination. Even though the carrier is excused from carrying from carrying the goods to the port of discharge by the intervention of excepted peril he is not entitled to claim freight proportional to the amount of the voyage completed.
Back freight:
Where a carrier is prevented from delivering the cargo at the agreed destination for some reason beyond his control such as the outbreak of war or failure of cargo owner to take delivery then he must deal with the cargo in the owner’s interest and at the owner’s expense. If he is unable to obtain instruction from the cargo owner he may land and warehouse the goods tranship them carry them on to another port or return them to the loading port whichever action is the most appropriate in the circumstances. He is then entitled to recover the expenses involved as ‘back freight’.
Dead freight:
Where the charterer has failed in his obligation to provide a ‘full and complete cargo’ the shipowner is entitled to damages for breach of contract otherwise known as ‘dead fright’. The shipowner under such circumstances is under a duty to mitigate his loss being expected to take reasonable steps to procure alternative cargo. He is entitled to the cost of taking such action together with the value of any freight still outstanding.
Party from whom freight is due:
The party normally liable to pay freight is the party entering into the contract of affreighment with the carrier-namely the charterer in the case of a voyage charterparty or the shipper in the case of a bill of lading contract.
Charterparty freight:
The charterparty is the party primarily responsible for payment of freight due under a voyage charter and he remains liable even though he sub-charters the vessel or issues bills of lading to third parties reserving under them a similar amount of freight as that due under the charterparty.
Bills of lading freight:
The shipper will normally be liable for the freight on goods shipped under a bill of lading unless the carrier is informed at the time of shipment that he is merely action as agent on behalf of another party.
Party to whom freight is due:
Freight due under a voyage charter or bill of lading contract is normally payable to the party with whom the shipper entered into the contract of carriage, although the terms of that contract may provide otherwise the carrier has complete freedom in designating the person to whom freight is payable. The following are the principal parties to whom freight maybe payable –
The shipowner:
The shipowner will normally be entitled to payment of voyage charter freight and in the absence of any charterparty to freight due under a bill of lading contract. The only exception arises in relation to a vessel chartered by demise where such freight is payable to the demise charterer.
The master:
The master is customarily authorised to collect the freight as agent of the shipowner but cannot recover it by action except in the rare case where the contract of carriage has been made expressly with himself.
The charterer:
A purchaser of the ship:
Assignee of freight:
An underwriter:
Shipowner’s lien:
Introduction:
A lien is the right given to a shipowner to retain possession of the cargo at the port of discharge as security for the payment of freight or other charges. Such a right may in certain circumstances arise at common law or it may be provided for in an express term of the contract of carriage.
Liens at common law:
The shipowner’s right to exercise a lien at common law arises independent of contract and is based exclusively on the ability of the shipowner to retain possession of the goods concerned. The right is restricted and is available at common law in three cases only:
1. For the recovery of a general average contribution due from cargo:
2. For expense incurred by the shipowner in protecting the cargo:
3. To recover the fright due on delivery of the cargo:
Certain requirements must be met before the shipowner will be allowed to exercise the lie for fright.
1. First as the right is dependent on the shipowner retaining possession of the goods it will be lost as soon as the cargo is delivered to the consignee or his agent.
2. Secondly exercise of the lien is dependent on payment of freight and delivery of cargo being treated as concurrent obligations.
3. Finally where a chartered vessel is used as a general ship the common law lien for the charter fright cannot be exercised against the goods of a third party which have been shipped under a bill of lading contract.
It should be noted that the common law lien merely gives a right to retain possession of the goods it confers no right of resale even where expenses are involved in their retention.
Express contractual lien:
Parties to a contract of carriage, whether under charter or bill of lading invariably make express provision for appropriate liens rather then rely I the implied lien of the common law.
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