carriage law (2)

Edition: 1.1 January 2000

Module C: Certificate in Shipping Business

Diploma in Shipping Logistics—Jamaica Maritime Institute 1−1

Distance Education Course SB–205.5

Carriage of Goods by Sea Law

Unit 1 Maritime trade & the international sales contract

International maritime trade requires the use of standard forms of

sales contracts in which it is clear what the responsibilities of the

various parties involved are. Buyers and sellers who operate at great

distances from each other need to have confidence that goods will

arrive as ordered and be paid for promptly.

The three lessons in this unit discuss:

• maritime trade

• international sales contracts

• international commercial trading terms.

Unit 1: Maritime trade & sales contracts Carriage of Goods by Sea Law

Module C: Certificate in Shipping Business (Course SB-205.5)

1−2 Diploma in Shipping Logistics—Jamaica Maritime Institute

Unit 1 ...........Activities and expectations

Agenda To complete this unit, you will:

• Read and study the text in this unit.

• Apply the information by performing the Activities

• Test yourself by doing the Practice Exercises and checking your

answers.

Resources There is no textbook for this course. All the information you require

is in this Study Guide. In addition, your Student Manual lists some

books that you may wish to read to expand your knowledge.

Learning outcomes When you have completed this unit you will be able to:

• Discuss the broad historical changes in the way maritime trading

is done and the issues raised by these changes.

• Explain what is meant by documentary sale and credit.

• Describe how letters of credit are issued.

• List the documents involved in documentary sale and credit.

• Differentiate among the various international commercial-

trading terms (INCOTERMS).

Carriage of Goods by Sea Law Unit 1: Maritime trade & sales contracts



Lesson 1...... Maritime trade From time immemorial, people have found that trading with each

other improves their standard of living. When two parties conclude a

trading deal, each regards him- or herself as being better off as a

result of the deal. If this were not so, then they wouldn’t trade.

Trading along rivers and across lakes, and later, across seas and

oceans, is an activity that goes back to the earliest of times. At first,

transportation was by rafts and simple wooden craft like canoes, and

later by complex ships. Today, developing countries depend heavily

on imported goods, because many desirable commodities are not yet

manufactured at home. In return, many developing countries have

historically been sources of raw material and agricultural produce for

countries with more developed economies. Amongst most

developed countries, high levels of both imports and exports are

regarded as signs of a healthy economy.

In the early days of modern maritime trading, the master of the

vessel owned both the ship and the cargo. The shipowner would

transport the goods to the buyer’s location (a market), and sell them

upon arrival. The shipowner only got paid at the end of the journey,

and then only if the goods arrived safely and someone was found at

the port of destination who was willing to buy them.

With increased trade came specialization, and the functions of the

carrier became separated from those of the trading partners. Sale

upon arrival was largely abandoned in favour of a system whereby

the goods were sold in advance of their being shipped.

Responsibility for securing transportation for the goods could then

rest either with the seller or the buyer depending on the terms of the

contract of sale. Most often it was the buyer who became

responsible for transportation, but in either case, carriers became free

to offer their services to whomever needed them, without themselves

having any direct financial interest in the cargo.

Convenience and responsibilities in modern trade In earlier days, to make contact with sellers overseas for the delivery

of needed goods, buyers spent much time and money travelling

between countries. In modern international trade, most

communications are carried out electronically, and even credit and

payments are arranged in this way. This has facilitated long-distance

trade arrangements that allow the buyer and seller to remain at home

while transacting business. Sale of goods by the carrier on arrival at

the port of destination has been replaced by the sale of goods by the

seller on delivery to the carrier, who transports them to the buyer at




the port of destination. Systems must be in place to ensure that the

various parties involved can be held to account.

Clarifying responsibilities of buyer, seller, and carrier

Issues arising from a system of sale on delivery include:

• how can the seller be certain that the buyer is able to pay once

the goods have been shipped

• how can the risk of non-payment be minimized

• how can the buyer trust the seller

• how can delivery on time be ensured

• if the seller is supplying the buyer with goods that the seller has

bought from a subcontractor, how can the seller prevent the

buyer from discovering the source and contacting the supplier

directly

• before payment, how can the buyer check that the goods are

exactly those ordered

• should the seller be prepared to deliver the goods before

payment is received?

Activity 1. Find out what are the major cargo types shipped into and out of

your country. Discover where they originate or where they are

destined.

2. Talk to a carrier and find out how delivery is usually made and

what the credit arrangements are for paying transportation fees.

3. Talk to an importer and to an exporter and find out how credit

arrangements are usually handled in their companies.




Practice Exercise for Lesson 1 Test your understanding of Lesson 1 by answering these questions.

Check your answers and read again any parts you found difficult.

The answer key is at the back of this unit.

1. Which of the following best describes how most modern trade

takes place?

a. goods are sold on arrival—that is, they are taken to a port of

destination and then sold to the buyer

b. goods are sold and paid for before transportation

c. goods are sold subject to delivery to the buyer

d. the seller gets paid only if the goods arrive safely

2. When is the seller’s job finished?

a. on productions of the goods and arranging the sale

b. on delivery of the goods to the carrier

c. on delivery of the goods to the port of destination

d. on receipt of the goods by the buyer

3. List at least six concerns about the responsibilities of buyer,

seller, and carrier that arise in modern cargo trade.

a. _________________________________

b. _________________________________

c. _________________________________

d. _________________________________

e. _________________________________

f. _________________________________




Lesson 2 ......International sales contracts Many possible problems may arise when seller, carrier, and buyer

are different entities operating at a distance, and where the point of

sale might be either the port of loading or the port of destination.

Those involved in international trade have developed a method

known as documentary sale to address these problems. The system

of documentary credit was also developed to facilitate reliable

payment without relying upon cash on delivery.

Documentary sale In a documentary sale, the transaction is effected by documents,

without the need for face-to-face interaction. The international sales

contract that has developed is a contract for the sale of goods or

services. It is made between a buyer and seller who are usually in

two separate locations. The contract details the terms and conditions

of the sale.

CIF and FOB sales

A documentary sale can be implemented in many ways. Two of the

best-known sale types are the CIF and FOB sales contract:

• CIF means cost, insurance, and freight. The price of the goods

includes the cost of the goods, plus the cost of insurance, plus the

cost of transportation, arranged by the seller, to a named

destination

• FOB means free on board. The price of the goods comprises the

cost of the goods, plus delivery to a named shipping port and

transfer to a named vessel designated by the buyer.

In both cases, once across the rail of the ship at the shipping port, the

goods become the buyers’. The insurance supplied by the seller in a

CIF contract is on behalf of the buyer, and it would be the buyer who

would make a claim in the event of damage at sea or during

discharge.

These and other sale types will be detailed in Lesson 3 of this unit.

Cargo insurance is more thoroughly discussed in the course Marine

Insurance (DSL course SB–305.2).




Documentary credit Payment in a documentary sale arrangement may be effected in two

ways:

• payment and sale on receipt of goods

• payment and sale by way of documentary credit.

Documentary credit is the internationally accepted method of

organizing payment for shipped goods.

The letter of credit

A documentary credit transaction begins when the seller requests the

buyer to establish a credit in the seller’s favour for the purpose of

paying the agreed price. The buyer accordingly opens what is

termed a letter of credit with his or her bank. The letter of credit is

normally irrevocable, that is, once open, the buyer cannot simply

close it for no good reason. It is as though the money had already

left the account.

By issuing a letter of credit, the buyer’s bank agrees to pay the seller

once the seller fulfils the buyer’s stipulations. These stipulations

would normally include a requirement that the goods shipped

conform to specifications for example. The buyer’s bank would

accordingly require documentary evidence that the goods do indeed

conform to specifications before making a payment.

There are usually two banks involved in a documentary credit

arrangement, the buyer’s bank and either the seller’s bank or a bank

in the seller’s country. The bank of the buyer, the one that opens the

letter of credit, is called the issuing bank. The seller’s designated

bank may simply be an advising bank or it may have the more

important role of being the confirming bank.

Advising the credit

If the seller’s designated bank is just “advising the credit”, it simply

receives the payment on behalf of the seller and advises the seller

that it has been received. Such a bank is under no commitment to

make payment to the seller, even though it may be nominated in the

credit as the bank authorized to accept drafts, pay the seller, and

otherwise negotiate the transaction. In other words, as far as the

buyer is concerned, payment to the seller’s designated bank is all that

is required. Once this has been done, transactions between that bank

and the seller are of no further concern to the buyer.




Confirming the credit

In cases where the seller does not wish to depend on the assurance of

a foreign bank for payment, the buyer’s bank would arrange for

either the seller’s bank or another bank in the seller’s country to

confirm the letter of credit. On presentation of all of the required

documents—the bill of lading, invoice, insurance certificate, and so

on—to the seller’s designated bank, the seller receives the purchase

price. Once the seller is paid, the seller’s designated bank forwards

the documents to the buyer’s bank and is reimbursed. The buyer’s

bank will in turn seek reimbursement from the buyer, either

immediately or, if credit has been extended, at the expiration of the

credit period. The documents remain with the buyer’s bank until the

buyer pays the bank.

When the seller’s designated bank is “confirming the credit”, it must

accept payment, pay the seller, and otherwise negotiate without

recourse to the seller provided all the documents are in order and the

credit requirements are met.

The obvious advantages of this kind of sale are that:

• the seller is certain of being paid the agreed price once the

necessary documents are handed over to its bank

• the buyer is certain that the seller will be paid only after the

goods are shipped.

The documents The documents involved in documentary sale and credit are:

• bill of lading

• commercial invoice

• certificate of origin

• certificate of inspection or surveyor’s certificate

• insurance certificate.

Bill of lading

A bill of lading is a document evidencing the loading of goods on a

ship. It is also legal evidence of the existence of a contract of

carriage by sea. In the contract of carriage, the carrier commits him

or herself to carry specified goods from one point to another for a

certain sum of money.




Commercial invoice

The commercial invoice is the accounting document sent to the buyer

by the seller detailing the payments due.

Certificate of origin

The certificate of origin is a signed statement providing evidence of

the origin of the goods. This document may allow for economic

benefits or penalties to goods from certain regions.

Certificate of inspection or surveyor’s certificate

The certificate of inspection or surveyor’s certificate may be issued

by a classification society certifying that the ship and its equipment

complies with the customer’s stipulations.

Insurance certificate

The insurance certificate is a document proving that the goods have

been insured against the risks specified in the letter of credit.

Activity Try to obtain and study copies of the following documents involved

in documentary sale and credit:

• bill of lading

• commercial invoice

• certificate of origin

• certificate of inspection or surveyor’s certificate

• insurance certificate.




Practice Exercise for Lesson 2 Test your understanding of Lesson 2 by answering the following

questions. Check your answers and read over any parts you found

difficult. The answer key is at the back of this unit.

1. What were the purposes of developing a documentary sale

system?

_____________________________________________

_____________________________________________

_____________________________________________

2. What is an international sales contract?

It is made between ______________________________

_____________________________________________

It is a contract for sale of _________________________

_____________________________________________

The contract details _____________________________

_____________________________________________

3. What is a CIF sale?

a. the price of the goods includes the cost of the goods,

insurance, and transportation

b. the price of goods, insurance, and freight are all separate

c. the price (cost) of the goods includes the freight

d. the cost of freight is handled separately

4. By what two ways may payments be made in a documentary

sale?

_____________________________________________

_____________________________________________

5. Which bank(s) is/are usually involved in a letter of credit?

a. the buyer’s bank only (the issuing bank)

b. the buyer’s bank and the seller’s bank

c. the advising bank and the confirming bank




6. What does a bank agree to do when it issues a letter of credit?

_____________________________________________

_____________________________________________

7. What does the confirming bank do once the seller is paid?

a. nothing, everything is completed at this point

b. contact the buyer directly to be reimbursed

c. contact the buyer’s bank and ask them to get payment from

the buyer for the seller’s bank

d. contact the buyer’s bank for direct reimbursement

8. What is the advantage of a documentary sale arrangement for the

buyer?

_____________________________________________

_____________________________________________

9. Which type of bank is under no obligation to make payments in a

documentary sale?

a. issuing bank

b. advising bank

c. confirming bank

10. What five documents are involved in a documentary sale

involving documentary credit?

a. _________________________________

b. _________________________________

c. _________________________________

d. _________________________________

e. _________________________________




Lesson 3 ......International commercial trading terms (INCOTERMS) There are various different types of international sales contracts.

They vary according to the specific terms of the contract and the

roles and responsibilities of the buyer vis-à-vis the seller. Because

national law and custom varies, some internationally recognized

regulations and terminology are desirable and useful.

International and national regulation The terms of the contract would also to some extent depend on the

governing national laws. A contract for sale of goods across

international boundaries would be subject to the normal laws of

contract in the country of jurisdiction. The country of jurisdiction

could be any of the following:

• the country in which the contract was made

• the country where the goods were manufactured

• the country where the goods were shipped.

Development of INCOTERMS

The International Chamber of Commerce (ICC) set out in 1953 to

overcome the problems of conflicting national laws and

interpretations by establishing a standard set of trade terms and

definitions that offer “neutral” rules and practices. They developed a

set of international commercial trading terms, known as INCOTERMS.

When one party or the other hesitates to subject itself to the national

laws and procedures of the other, a reference to INCOTERMS is the

answer. Both parties can then be sure that their legal relations are

grounded in a fair and reasonable international standard based on the

following principles:

• the liabilities and responsibilities of parties could vary in

accordance with various laws

• the terms are drawn from the most common practices of

international trade so that they could be adopted by the greatest

possible number of traders

• where there are major differences in current practice,

INCOTERMS provide for the minimum liabilities on the part of the

seller, leaving it to the parties to provide for greater liabilities in

their contracts if they so desire




• references to the customs of a particular trade or port are kept to

a minimum, although it may be impossible to avoid them

completely.

INCOTERMS do not provide rules for the interpretation of all trade

terms used in international commerce but concentrate on the most

important ones.

Historically, most of the frequently used trading terms were referred

to by three-letter abbreviations such as CIF and FOB. However,

with the advent of containerization and multimodal transportation it

became necessary to have terms that recognised more extended

boundaries. Working together with the United Nations, the ICC has

now given a standard name and abbreviation to 13 different terms,

published in ICC Publication No. 460, “INCOTERMS 1990.”

The INCOTERMS and their abbreviations The standard commercial trading terms and internationally

recognized abbreviations are as follows:

C&F—cost and freight (also seen as CFR)

In C&F sales, the seller must pay the cost of the goods and the

freight charges necessary to bring the goods to the named

destination. The risk of loss of or damage to the goods, as well as of

any unforeseen cost increases, is transferred from the seller to the

buyer when the goods pass the ship’s rail in the port of shipment.

C&F is the same as CIF (cost, insurance, and freight) except that

once the goods are aboard a vessel, all insurance arrangements in a

C&F contract are the responsibility of the buyer.

CIF—cost, insurance, and freight

In a CIF sale, it is the seller’s obligation to procure the goods as

described in the contract, select a ship to carry the goods to the

specified destination, and arrange for appropriate insurance cover.

The contract may leave the selection of the ship and the insurance

entirely to the seller, or it may specify the type of ship, for example,

a liner ship, or the type of insurance cover, for example, warehouse-

to-warehouse coverage.

Example: A sale may be described as “CIF Port of Kingston”. This would mean that the price includes the cost of the goods, the freight to the Port of Kingston, and the insurance during transportation to that port. In the invoice, the three items may be indicated separately or as a lump sum.




Once the insurance is arranged and the goods are loaded on board the

ship, the seller possesses three documents: an invoice, a marine

insurance policy, and the bill of lading. There may also be other

certificates such as weights and measures or survey reports,

depending on the requirements of the buyer. These documents prove

that the seller has fulfilled his or her obligations. By presenting the

documents to the appropriate bank, the seller requests that the buyer

fulfils his or her the obligation to pay the agreed price.

The risk in the goods passes to the buyer when the goods are loaded

on board. Any loss or damage to the goods thereafter is borne by the

buyer who must make any claims against the insurers.

CIP—freight, carriage, and insurance paid to…

In CIP sales, the seller pays the freight for the carriage of the goods

to the named destination and must procure insurance against the risk

of loss of or damage to the goods during the carriage. The seller

contracts with an insurer and pays the insurance premium. A CIP

sale is very similar to a CIF sale; the difference is that the “ship’s-

rail” transfer point of ownership has been made more general.

CPT—freight or carriage paid to…

In CPT sales, the seller pays the freight for the carriage of the goods

to the named destination. The risk of loss of or damage to the goods,

as well as of any cost increases, is transferred from the seller to the

buyer when the goods have been delivered into the custody of the

first carrier. A CPT sale is similar to a C&F (cost and freight) sale;

the difference is that the “ship’s-rail” transfer point of ownership has

been made more general and the term can consequently be used for

all modes of transport such as multimodal and ro/ro operations. The

document issued by the person contracting to carry the goods to the

named destination may be used by the seller, who must furnish a bill

of lading, waybill, or carrier’s receipt in order to be paid.

DAF—delivered at frontier

Delivered at frontier, DAF, means that the seller’s obligations are

fulfilled when the goods have arrived at the destination country’s

frontier, but before their customs border. The term is primarily

intended to be used when goods are to be carried by rail or road, but

it may be used for any mode of transport.

DDP—delivered duty paid

The term delivered duty paid (DDP) denotes the seller’s maximum

possible obligation when followed by words naming the buyer’s




premises. The term may be used irrespective of the mode of

transport. The seller is responsible for delivery costs, insurance, and

any duties payable at the destination or en route.

If the parties wish that the seller should clear the goods for import

but that some of the costs payable upon the import of the goods

should be excluded, such as value added tax, this should be made

clear by adding words to this effect. For example “DDP exclusive of

VAT and/or taxes”.

DDU—delivered duty unpaid

In DDU sales, the seller delivers the goods to a named place but with

customs duties unpaid. The seller pays all transportation and

insurance costs to this point, except the duties.

DEQ—delivery ex quay

The term delivery ex quay (DEQ) means that the seller makes the

goods available to the buyer on the quay (wharf) at the destination

port named in the sales contract. The seller has to bear the full cost

and risk involved in bringing the goods there. Two types of DEQ

contracts are in use:

• ex quay (duty paid) in which the seller is liable to clear the goods

for import

• ex quay (duties on buyer’s account) in which the buyer is liable

to clear the goods for import.

Parties are recommended always to use the fully descriptive terms, or

else there may be uncertainty as to who is responsible for clearing

the goods for import.

DES—delivery ex ship

Delivery ex ship (DES) means that the seller will make the goods

available to the buyer on board the ship at the destination named in

the sales contract. The seller has to bear the full cost and risk

involved in bringing the goods there.

EXW—ex works

Ex works (EXW) means that the seller’s only responsibility is to

make the goods available at the seller’s premises (office or factory).

In particular, the seller is not responsible for loading the goods in the

vehicle provided by the buyer, unless otherwise agreed. The buyer

bears the full cost and risk involved in bringing the goods from there




to the desired destination. This term represents the minimum

obligation for the seller.

FAS—free alongside ship

FAS is the term when the seller’s obligations are fulfilled when the

goods have been placed alongside the ship on the quay or in lighters.

This means that the buyer has to bear all costs and risks of loss of or

damage to the goods during loading and transportation. Note that,

unlike FOB, an FAS sale requires the buyer to clear the goods for

export.

FCA—free carrier (named point)

FCA terms have been designed to meet the broader requirements of

modern transport, such as multimodal container transport or roll-on-

roll-off (ro/ro) traffic. It is based on the same principle as FOB. The

difference is that the seller’s obligations are fulfilled when the goods

are delivered into the custody of the carrier at the named point. If no

precise point can be specified at the time of the contract of sale, the

parties refer to a generality such as “the place where the carrier takes

charge of the goods”. The risk of cargo loss or damage is transferred

from seller to buyer at that point rather than at the ship’s rail.

FOB—free on board

In an FOB sale, the seller’s obligation is to procure the goods and

deliver them on board the ship nominated by the buyer. It is the

buyer’s obligation to arrange for the carriage of the goods to their

destination and insure them. The buyer must nominate the port of

loading, unless it is already stipulated in the contract, and the name

of the ship, and must inform the seller when the ship is likely to

arrive at the loading port. Once the ship arrives for loading, the

seller must deliver the goods on board at his/her own expense.

Once the goods are loaded on board, a bill of lading is issued to the

seller. Presentation to the relevant bank of the bill of lading and any

other documents required according to the letter of credit entitles the

seller to receive the sale price of the goods.

The risk in the goods passes to the buyer when the goods are loaded

on board. The buyer bears the risk of loss/damage to the goods,

subject to the insurance cover, and pays the freight and any other

charges levied by the ship owner.

FOB airport

FOB airport is based on the same principle as FOB. The seller’s

obligation is fulfilled by delivering the goods to the air carrier at the




airport of departure. The risk of loss of or damage to the goods is

transferred from the seller to the buyer at this point.

FOR/FOT—free on rail; free on truck

These terms are similar to FOB, but refer to rail and truck rather than

ship transportation. The term “truck” may also be taken to refer to

railway wagons. These terms are used only when goods are to be

carried by rail.

Activity Ask some local businesses or your own place of work to show you

some sales or purchase contracts that involve transportation and

identify any INCOTERMS that are used. Try to find out whether the

same terms are always used by particular businesses, and why they

choose to use those term(s). Are the businesses in question sellers or

buyers?







1. It is the seller’s obligation is to procure the goods and deliver

them on board the ship nominated by the buyer. It is the buyer’s

obligation to arrange for the carriage of the goods to their

destination and insure them. Which INCOTERM does this

describe?

_____________________________________________

2. The seller pays the freight for multimodal carriage of goods to a

named destination. The seller must pay for insurance against the

risk of loss of or damage to the goods during the carriage.

Which INCOTERM does this describe?

_____________________________________________

3. It is the seller’s obligation to procure the goods as described in

the contract, select a ship to carry the goods to the specified

destination, and arrange for appropriate insurance cover. Which

INCOTERM does this describe?

_____________________________________________

4. Which INCOTERM represents the minimum obligation of the

seller?

_____________________________________________

5. Which INCOTERM represents the maximum obligation of the

seller?

_____________________________________________

6. What is an FCA sale?

_____________________________________________

_____________________________________________

_____________________________________________




Answer keys

Lesson 1 1. c. goods are sold subject to delivery to the buyer

2. b. on delivery of the goods to the carrier

3. Any six of the following:

– how can the seller be certain that the buyer is able to pay

once the goods have been shipped

– how can the risk of non-payment be minimized

– how can the buyer trust the seller

– how can delivery on time be ensured

– if the seller is supplying the buyer with goods that the

seller has bought from a subcontractor, how can the

seller prevent the buyer from discovering the source and

contacting the supplier directly

– before payment, how can the buyer check that the goods

are exactly those ordered

– should the seller be prepared to deliver the goods before

payment is received.

Lesson 2 1. The system of documentary sale was developed to avoid the

problems that may arise when seller, carrier, and buyer are

different entities operating at a distance.

2. It is made between the buyer and seller who are usually at

separate locations.

It is a contract for sale of goods or services.

The contract details the terms and conditions of the sale.

3. a. the price of the goods includes the cost of the goods,

insurance, and transportation

4. − payment and sale on receipt of goods

− payment and sale by documentary credit




5. b. the buyer’s bank and the seller’s bank

6. When issuing a letter of credit, the bank agrees to pay the seller

once the seller fulfils the buyer’s stipulations.

7. d. contact the buyer’s bank for direct reimbursement

8. The buyer is assured that payment will be made to the seller only

after the goods are shipped.

9. b. advising bank

10. The five documents involved are:

– bill of lading

– commercial invoice

– certificate of origin

– certificate of inspection (surveyor’s certificate)

– insurance certificate.

Lesson 3 1. FOB

2. CIP

3. CIF

4. EXW

5. DDP

6. In FCA sales, the seller’s obligations are fulfilled when the

goods are delivered into the custody of the carrier at a named

point. If no precise point can be specified at the time of the

contract of sale, the parties refer to a generality such as “the

place where the carrier takes charge of the goods”. The risk of

cargo loss or damage is transferred from seller to buyer at that

point.






Unit 2 Maritime trade & the contract of carriage

The transport of goods by sea involves many people and businesses

that are linked by means of contractual arrangements of various

types. The three lessons in this unit discuss:

• transport of goods by sea

• contracts of carriage

• the maritime transportation chain.

Unit 2: Maritime trade & contract of carriage Carriage of Goods by Sea Law








answers.





• Distinguish between private and common carriers.

• Distinguish between liner services and tramp services.

• Explain what is meant by closed and open liner conferences.

• Identify various shippers’ associations.

• Differentiate among the various categories of cargo (break-bulk,

bulk, and containerized).

• Describe CY and CFS loading.

• Explain the use of EIRs in container shipping

• Discuss contracts of carriage (including the use of bills of lading

and charter parties).

• Differentiate among time, voyage, and demise charter parties.

• Identify the people and businesses involved in the maritime

transport chain.

Carriage of Goods by Sea Law Unit 2: Maritime trade & contract of carriage



Lesson 1...... Transport of goods by sea In an international sales transaction, once goods have left the seller,

security over the goods may be a problem. It needs to be clear who

has responsibility for the safety of the cargo while it is in transit. To

solve this, a legal arrangement has been instituted between the

shipper of goods and the shipowner who carries those goods. This

arrangement is quite separate from the agreement between the buyer

and the seller of the goods.

Private and common carriers The shipowner is known as the carrier in this relationship. The

carrier may be either a private or a common carrier:

• a private carrier has the right to choose whether or not to accept

offers for carriage, whether the vessel is full or empty

• a common carrier offers to carry the goods at a reasonable rate

for anybody, provided there is space on the vessel.

Chartered vessels and tramp shipping services are examples of

private carriers. Liner shipping services are examples of common

carriers. They provide a regular service on a particular advertised

route at advertised freight rates.

The law has distinguished between these two types of carrier.

Ingate vs. Christie In the case of Ingate v. Christie (1850), because the defendant had the word “lighterman” posted over the door of his office, it was proved that he carried anyone who engaged his vessel. The court held that he was a common carrier.

The common carrier may lawfully refuse offers to carry goods only

under the following conditions:

• the carrier does not profess to takethose types of cargo

• the goods cannot be conveniently carried in the vessel

• the destination is off the customary route of the vessel

• the time is unreasonable.

Liner services Liner shipping services may be provided by conference lines and

non-conference lines. These were also discussed in the course




Commercial Shipping (DSL course SB-101.3). They provide similar

services and enter into similar contracts of carriage with shippers.

Conference lines

Conference lines are carriers who have grouped themselves into

organizations called liner conferences. A liner conference is a group

of two or more carriers that provides international liner services for

cargo within specified geographical limits. They have an agreement

to operate under uniform or common freight rates. Although

conferences are not direct participants in the transportation chain,

they have a great deal of influence on the way it operates.

Closed and open conferences

There are two types of conferences: closed and open. In a closed

conference, a shipping line can be admitted as a member only if all

the other members agree—rather like a private club. The basis for

admission is normally the strength of the applicant. Open

conferences exist mainly in the trade to and from the United States of

America because of US anti-trust laws. These stipulate that any line

seeking membership must be admitted, provided they fulfil the

criteria regarding tonnage, economy, and service plans.

Advantages and disadvantages of conferences

The main advantages of the conference system are:

• stability of freight rates

• regularity of services.

The main disadvantages are:

• rates are usually high

• rates do not fluctuate according to supply and demand

• rules and procedures are inflexible

• consideration of shippers’ requests for rate reductions involves

lengthy procedures.

International regulation of conferences

Many came to believe that conferences had too much power and

control over carriage rates and conditions. Some felt they operated

as cartels. In order to regulate conference practices at the

international level, the UN Code of Conduct for Liner Conferences

was adopted in 1974. This convention came into force in 1983 and

is applicable to conferences operating between the territories of




contracting countries. Some Caribbean States, notably Jamaica and

Trinidad and Tobago are contracting parties to the convention.

Non-conference lines

In recent years non-conference lines have posed a challenge to the

conference system. This has been attributable to the development of

containerization and the emergence of many independent carriers

including several container consortia. This has resulted in more

competitive rates and terms for shippers.

Tramp services This service has no fixed itinerary or schedule and is operated on any

route according to supply and demand. Tramp vessels are usually

chartered at negotiated rates particularly when the quantity of cargo

is large.

Shippers’ associations Associations of producers or exporters of specific commodities, as

well as individual shippers may also group themselves into various

types of national organizations, or use the services of central

organizations. These are not direct participants in the transportation

chain, but influence how it operates.

Shippers’ councils

Shippers’ councils protect the interest of shippers (in regard to

transport services such as conferences) providing them with useful

information and negotiating on their behalf. Shippers’ councils

negotiate with shipping conferences on matters such as freight rates

and quality and adequacy of shipping services. Jamaica, for

example, has a national Shippers’ Council whose membership

includes individual shippers as well as corporate entities such as

manufacturers’ associations, chambers of commerce, and exporters’

associations.

Freight booking centres and agents

Some countries may also have a freight booking centre (FBC) set up

with state support. A shipper may use the centre on a voluntary

basis. The FBC can obtain more attractive freight rates from

shipping lines by aggregating cargo and offering large shipments for

transportation.




Shipping agents

In many Caribbean countries, this function is carried out by

individual shipping agents that may offer concessionary rates on

large shipments of local produce.

Categories of cargo Transport of goods by sea can be broadly categorized according to

the type of goods and their method of packing. These categories are

shipped under different types of legal documentation:

• break-bulk cargo is transported in conventional packing such as

boxes, crates, bags, or pallets. This type of cargo is usually

carried on the basis of conventional bills of lading

• containers may hold break-bulk or bulk cargo. Containerized

cargo is usually carried on the basis of container bills of lading

• bulk cargo has not been packed and is carried loose in the vessel.

Bulk cargo is usually carried on the basis of a charter party.

Container shipments

Containers are usually loaded and discharged ashore. They may be

handled from the point of origin to the point of destination in

different ways. These include container yard (CY) and container

freight station (CFS) loading. Responsibility for the costs and risks

involved at various stages vary.

Container yard (CY) loading and delivery

In CY loading, the shipper picks up the empty container from the

carrier’s yard or from a leasing company designated by the carrier

and takes the container to a warehouse or other inland facility. The

shipper then loads (stuffs) the container with cargo, and seals the

container with the seal given by the carrier. A container that is

stuffed and sealed by the shipper is called a full container load or

FCL. The shipper then returns the container to the carrier at the

container yard or port terminal for eventual loading into the ship and

carriage to destination.

All expenses for trucking, including the costs of transporting the

container to the shipper’s stuffing facility and returning it to the

carrier, stuffing the cargo, checking, tallying, and customs approval

are borne by the shipper. In CY loading, the carrier’s obligations are

to issue an empty container, to accept the stuffed container when it is

returned by the shipper, and to load it on to the ship for carriage.

Upon discharge of a full container from the ship to the container

yard, the consignee takes delivery and transports the loaded




container to the destination warehouse (or other facility). There, the

consignee unloads (strips or unstuffs) the container, which is then

returned empty to the carrier or leasing company. All this is done at

the consignee’s expense. The carrier’s responsibility ends when the

container is discharged to the custody of the consignee or the port.

Container freight station (CFS) loading

A container freight station (CFS) is usually a warehouse or covered

space designated by the carrier to receive non-containerised or loose

cargo from the shipper. According to the rules of some ports, the

CFS has to be situated inside the port premises or at some place

designated by the port.

In a CFS, smaller parcels of cargo are often consolidated into full

loads for more efficient shipping. These smaller parcels are termed

less than a container load (LCL). The carrier provides and pays for

the labour to receive, check, tally, and stuff the parcels of cargo into

the container. The carrier is responsible for the cargo from the time

it is received at the CFS or from the time it is stuffed into the

container.

Upon discharge of the container from the vessel, the carrier takes it

to a container freight station, or another place designated by the port.

There the carrier strips the container and makes the loose cargo

available to the consignee. All this is done at the carrier’s expense.

The carrier’s responsibility ends when the individual parcels of cargo

are delivered to the consignee or into the custody of the port.

Equipment interchange receipts (EIR)

The movement of the container from the shipper’s premises to the

port is on the basis of an equipment interchange receipt (EIR). The

EIR is signed each time the container changes hands. The person

accepting the container for carriage notes any damages to the

container at that time on the EIR.

FCL shipments

In an FCL shipment the container may be trucked from the shipper’s

warehouse or inland destination to the carrier’s yard or the port by an

independent trucker or company. The trucker checks the container

before accepting it and notes any damage on the EIR. When the

carrier accepts the container from the trucker, the carrier too checks

it and notes any further damage that may have occurred while the

container was in the custody of the trucker. The trucker would be

responsible to the shipper for any such damage, subject to his

contract with the shipper.




When they accept FCL shipments carriers are responsible for

delivering the containers to consignees in the same external

condition as when they were received, and with their seals intact.

They are not then responsible for the condition of the cargo inside

the sealed containers.

LCL shipments

If carriers accept LCL cargo they must deliver the cargo to the

consignee in the same condition as when it was received. In this

case the container becomes, in effect, an extension of the ship.

Instead of stowing the cargo directly in the ship’s holds the carrier

first stows it in the container. The carrier is then responsible for any

loss or damage to the cargo inside the container, subject to the

contract of carriage.

Activity Talk to a carrier. Visit their premises and find out as much as you

can about their business. Ask them to show you an EIR.

Find out the following:

1. Is the business a private carrier or a common carrier?

2. Which categories of cargo (bulk, break-bulk, containerized) do

they usually transport?

3. About how much cargo do they handle in a year?

4. How many clients do they typically have in a year?

5. How do they set their freight rates?

6. Do they belong to a liner conference and/or a shipping council or

similar organization?

7. Do they operate out of a container yard and/or container freight

station?







1. The owner of a charter vessel may refuse to charter it for the

carriage of a particular harmless, legal shipment, even though the

vessel is available. True or false? Explain.

a. true

b. false

_____________________________________________

2. What is an open liner conference?

a. an organization of carriers that admits only shipping lines

approved by their existing members

b. an organization of carriers that allows any shipping line of

the appropriate type to join

c. a convention open to all carriers that meets regularly to

agree on standards

d. organizations of carriers whose aim is to make all parts of

the transportation chain more efficient and open

3. List the four main disadvantages of the liner conference system.

a. _________________________________

b. _________________________________

c. _________________________________

d. _________________________________

4. Give four characteristics of tramp services.

a. _________________________________

b. _________________________________

c. _________________________________

d. _________________________________




5. Name three groups besides shippers that are likely to belong to a

shippers’ council.

a. _________________________________

b. _________________________________

c. _________________________________

6. What is the purpose of an FBC?

a. regulation and standardization of freight rates

b. negotiation with shipping conferences

c. state regulation of shipping services

d. improving freight rates by aggregating cargo

7. Who else often performs this service in Caribbean countries?

_____________________________________________

8. Which category of cargo is more likely to be carried under a

charter party rather than a bill of lading?

a. break-bulk

b. containerized break-bulk

c. containerized bulk

d. bulk

9. In CY loading and delivery, who usually stuffs the container?

a. the shipper

b. the carrier

c. the consignee

d. CY personnel

10. In CY loading and delivery, who usually strips the container?

a. the shipper

b. the carrier

c. the consignee

d. CY personnel

11. In CFS loading, who usually stuffs the container?

a. personnel paid by the shipper

b. personnel paid by the carrier

c. personnel paid by the consignee

d. personnel paid by the CFS station




12. In CFS loading, who usually strips the container?

a. personnel paid by the shipper

b. personnel paid by the carrier

c. personnel paid by the consignee

d. personnel paid by the CFS station

3. When and where is the EIR signed?

a. when the container leaves the shipper’s premises

b. when the container is transferred from the primary to the

secondary carrier

c. when the container reaches its destination

d. whenever the container changes hands throughout its route

4. What is the carrier responsible for when transporting an FCL

shipment?

a. delivering the goods stuffed into the container in the same

condition as when they were received

b. delivering the container in good external condition




Lesson 2 ......Contracts of carriage The transport of goods by sea uses a fairly complex legal system that

evolved over a long period and is designed to facilitate the orderly

flow of trade. Difficulties may arise from various factors. These

include the multiplicity of risks to which goods travelling at sea are

exposed, and the obligations and liabilities of the various parties to

adequately secure against such risks. Complications may also arise

because two different forms of contract are used, namely, the bill of

lading (B/L) and the charter party (CP). These may be used singly or

together.

Carriage under a bill of lading Persons wishing to send small parcels of goods by sea must seek out

a vessel that contracts to carry cargo to the desired destination port.

Such a vessel may sail regularly along a certain line of ports at

advertised times (a liner), or sail from port to port looking for cargo

(a tramp). The legal document used to evidence contract of carriage

on these types of vessels is a bill of lading.

A B/L evidences the loading of goods on a ship. It is also evidence

of a contract of carriage by sea, in which the carrier commits to carry

the gods from one point to another in exchange for the payment of a

certain sum of money, called freight.

Contents of the B/L

Bills of lading will be described in more detail in Units 3 and 4. No

legally specified B/L form is required. In fact, all shipping lines may

have their own form of bill of lading. However, in general, a B/L

contains a number of expressed or implied clauses and some of its

contents are usually regulated by national law.

• On its face are statements identifying or describing the carrier,

the ship, the shipper, the consignment, the voyage, and

sometimes the value of the cargo.

• The reverse of the document contains various clauses governing

the relationship between the carrier and the holder of the B/L.

Carriage under a charterparty A charterparty is a contract between a ship owner and the person

requiring use of the ship described in the document (the entry ship).

Bills of lading may also be issued by charterers. There are various




forms of charterparties. The most common of which are time,

voyage, and demise charters.

Time charters

In a time charter, the owner provides the charterer with a ship and

the services of its crew for a certain period. Time charter agreements

are normally quite specific with respect to details of the ship’s

performance both at sea and for cargo handling purposes throughout

the period of hire. The agreements may be rigid with respect to

trading limits and the exemption of certain types of cargo.

Employment clause

The ship’s master is under the time charterer’s orders as to

movements, ports of call, bunkering arrangements and costs, and the

cargo to be carried. The right by the charterer to direct the master is

laid down in the employment clause, which usually states:

“…the master to be under the orders of the charterer as

regards employment, agency or other arrangements.”

Responsibilities for costs

The time charterer plays a substantial part in the operation of the

ship. In addition to the cost of hire, the time charterer pays all port

dues; all cargo loading, stowage, and discharging costs; and all fuel

oil consumed during the period of charter, until the ship is delivered

back to the shipowner.

During the period of the charter, the ship remains the property of the

shipowner who is still responsible for insurance of hull and

machinery, survey costs, crew wages and costs, and the cost of

general upkeep of the vessel.

Voyage charter

This is the oldest form of chartering. In a voyage charter, the

shipowner provides the charterer with all or part of the transport

capacity of the ship so that charterer may transport goods. The rights

and duties of the shipowner and the charterer are determined

according to the voyage charter party. The standard form of voyage

charter party is known by the code name GENCON.

The voyage charter may be for one or more voyages. Payment is in

the form of freight per ton of cargo carried. The freight rate varies

with the type of cargo and with the duration and length of the

voyage.




In this kind of chartering, both the nautical and commercial aspects

of operating the ship remain in the hands of the shipowner. The

charterer in this case is like a normal shipper who has made a

reservation for all or part of the ship to transport goods. The

charterer has nothing to do with the operation of the ship itself.

Rights and duties of the shipper, charterer, and shipowner

Charterers normally use the chartered capacity to transport their own

cargo, but they may at times arrange for other shippers to use the

chartered capacity. Thus the charterer may or may not be the

shipper. In both situations, the charterer may obtain a bill of lading

from the shipowner.

• A charterer who is also the shipper may require a B/L in order to

facilitate delivery at the port of discharge or to sell the cargo.

• A shipper who is not the charterer would need a B/L from the

shipowner/carrier.

The rights and duties of the shipowner and the B/L shipper and/or

consignee would be governed by the bill of lading, unless the terms

of the charter party have been incorporated into the B/L.

Demise charter

In this method of chartering, the owner provides the ship to the

charterer for a definite period, but the ship has no crew and

sometimes is not fully equipped. The shipowner in fact provides the

“bare boat”—hence its alternate name, bareboat charter. Payment is

by way of charter hire, as in a time charter, although the amount

would be less, considering the greater cost to the charterer in

operating the ship.

Activity Visit a shipping business, and try to obtain and read copies of time,

voyage, and demise charter parties. Find out how often relatively

they issue the various types of C/P.







11. What are the two major sources of complications that may cause

difficulty in contracts of carriage?

a. ________________________________

b. _________________________________

2. Which of the following statements is true?

a. a bill of lading is also issued whenever a charter party is

used

b. a charter party is always issued whenever a bill of lading is

issued

c. a bill of lading may be issued in addition when a charter

party is used

d. a charter party may be issued in addition to a carriage of

contract

3. What are the three most common types of charter party?

a. _________________________________

b. _________________________________

c. _________________________________

4. Under a time charter, whose orders control the ship’s

movements?

a. the shipowner

b. the shipper

c. the charterer

d. the ship’s master

5. Under a voyage charter, who controls the nautical aspects of the

voyage?

a. the shipowner

b. the shipper

c. the charterer





6. Under a voyage charter, who controls the commercial aspects of

the voyage?

a. the shipowner

b. the shipper

c. the charterer


7. Why might a charterer who is also the shipper require a bill of

lading in addition to a charter party?

_____________________________________________

_____________________________________________

8. Who provides the crew for a vessel under a demise charter?

a. the shipowner

b. the shipper

c. the charterer





Lesson 3...... The maritime transport chain Transport of goods by sea requires both equipment and human

involvement. The most important item of equipment required is, of

course, the vessel. Three main categories of people can be

distinguished:

• providers of transport services—the carriers, who may be owners

or charterers (hirers) of the ship

• users of the transport services—the shippers and receivers, who

may be buyers or sellers (importers or exporters) of goods

• transport auxiliaries—the parties who provide various ancillary

services required by the carriers and shippers, such as freight

forwarders, port operators, and stevedores.

Identifying the parties in the maritime transport chain can perhaps

best be done by means of the following example:

Example: A contract is made in Jamaica for the sale of bananas packed in crates, CIF to the Port of Liverpool in the UK. In this example, the seller is the shipper, and the seller decides to ship the consignment from Boundbrook Wharves on the vessel MV Kingston.

1. The goods are produced on the seller’s farm in Port Antonio. The quantity required under the contract is packed for transport there.

2. The consignment is transported by road from the premises of the shipper to the port. Such transportation may be done by the shipper or it may be done by a separately contracted road haulier.

3. The shipper may engage a freight forwarder/forwarding agent to attend to the formalities involved in shipping. The freight forwarder/forwarding agent attends to the customs formalities and co-ordinates with the carrier or carrier’s agent and the port, arranging to send the cargo down to the port for loading at the correct time.

4. Once the cargo is handed over to the port it remains in its custody, either in the warehouse or on the quay until being loaded on board. (At certain ports, the cargo may be kept in the customs warehouse). The port workers (shore workers) would move the cargo from storage to the place of loading.

5. The stevedore loads the cargo, stowing and securing the goods in the ship in accordance with the ship’s instructions. The stevedoring function may be performed by the port




authority using its own or contracted labour, or may be performed by a specialized stevedoring company.

6. The carrier (that is, the operator of mv Kingston, who may be the owner or the charterer) transports the goods to the Port of Liverpool. On arrival, stevedores discharge the cargo from the ship. The carrier’s agent or port agent may arrange for a survey of the cargo, either on board before discharge, or on shore after discharge.

7. The buyer (receiver/consignee) appoints a clearing agent who is usually the forwarding agent to attend to the customs formalities and clearing of the goods from the port. If there is loss or damage to the cargo, the clearing agent appoints a cargo surveyor in conjunction with the cargo insurers, to assess the loss/damage to the cargo.

8. The consignee or the freight forwarder/clearing agent arranges for the consignment to be transported to the receiver/consignee premises.

To summarize, the following parties have been identified in the

maritime transport chain, working between seller and buyer:

• shipper

• freight forwarder/forwarding agent

• customs officer

• port-shore workers/stevedores

• carrier

• ship or port agent

• customs broker

• receiver/consignee.

Activity In the port nearest to you, try to identify specific businesses and

organizations that operate at each stage of the transportation chain as

described in the last paragraph of this lesson.







1. What are the three main categories of people involved in the

transport of goods? Give two examples of each.

a. _________________________________

_________________________________

b. _________________________________

_________________________________

c. _________________________________

_________________________________

2. List at least four more parties involved in the transport chain

other than those listed in answer to question 1.

a. _________________________________

b. _________________________________

c. ________________________________

d. _________________________________




Answer keys

Lesson 1 1. a. true

Chartered vessels are private carriers and the right of refusal

of work is what distinguishes a private carrier from a

common carrier. Common carriers carry goods for anybody

who wishes to pay for their services.

2. b. an organization of carriers that allows any shipping line of

the appropriate type to join

3. − rates are usually high

− rates do not fluctuate with supply and demand

− rules and procedures are inflexible

− rate changes require lengthy consultation procedures

4. − no fixed itinerary

− no fixed schedule

− usually chartered at negotiated rates

− operated on supply and demand

5. − manufacturers’ associations

− chambers of commerce

− exporters’ associations

6. d. improving freight rates by aggregating cargo

7. shipping agents

8. d. bulk

9. a. the shipper

10. c. the consignee

11. b. personnel paid by the carrier

12. b. personnel paid by the carrier




13. d. whenever the container changes hands throughout its route

14. b. delivering the container in good external condition.

Lesson 2

1. − multiple types of risks during transportation

− the use of two different types of contract (B/L) and C/P)

2. c. A bill of lading may be issued in addition when a charter

party is used.

3. − time charter

− voyage charter

− demise (bareboat) charter

4. c. the charterer

5. a. the shipowner

6. a. the shipowner

7. The charterer/shipper may require a B/L to facilitate delivery at

the port of discharge, or to sell the cargo. Also, the rights and

duties of the shipowner and the shipper are governed by the B/L

8. c. the charterer.

Lesson 3

1. − providers of transport (charterers and shipowners)

− users of transport (importers, exporters, shippers, and

receivers)

− providers of auxiliary services (freight forwarders, port

operators, and stevedores)




12. Any four of the following:

– shipper

– importer

– exporter

– freight forwarder

– forwarding agent

– customs officer

– port shore worker

– stevedore

– carrier

– ship’s agent

– port agent

– customs broker

– receiver/consignee.






Unit 3 The conventional bill of lading

This unit discusses the conventional bill of lading (B/L) issued for

the shipment of break-bulk cargo. It explains how the bill of lading

regulates the relationship between the carrier and the

shipper/receiver. It also discusses other documents commonly used

in the carriage of goods by sea.

The three lessons in this unit discuss:

• definition and functions of the B/L

• signing and dating the B/L

• the clean B/L and letter of indemnity.

Unit 3: Conventional bill of lading Carriage of Goods by Sea Law





• Read and study the text in this unit and any assigned passages in

the Student Reader.



answers.


is in this Study Guide and your Student Reader. In addition, your

Student Manual lists some books that you may wish to read to

expand your knowledge.


• Define a conventional bill of lading (B/L).

• Identify the international conventions that regulate the use and

contents of Bs/L (Hague, Hague Visby, and Hamburg Rules)

• Describe the form and contents of a B/L.

• Identify the three main functions of a B/L.

• Know how to endorse, sign, and date a B/L.

• Identify the other documents used in maritime transportation of

cargo.

• Explain what is meant by a clean bill of lading.

• Describe the use of reservation clauses and letters of indemnity

with bills of lading.

Carriage of Goods by Sea Law Unit 3: Conventional bill of lading



Lesson 1...... What is the bill of lading? A bill of lading (B/L) is easier to describe than define. As stated in

Unit 2, it evidences the loading of goods on a ship or other

transportation vehicle. Although it is not in itself a contract of

carriage, it provides legal evidence of the existence of a contract of

carriage. Such a contract does not necessarily exist in writing, but

may have been merely verbal—even the result of a telephone

discussion. In this contract of carriage, the carrier commits to

carrying the goods from one point to another in exchange for the

payment of a certain amount of money. Essentially, the bill of lading

is the document that regulates the contractual relationships between

the carrier, the shipper, and the receiver.

The B/L plays a vital role in the relationship between the buyer and

seller. In a CIF sale using a letter of credit, for example, the seller

can obtain payment as soon as the goods are shipped, by presenting

the B/L to the bank as proof of shipment.

Bills of lading (Bs/L) are used internationally and must abide by

certain international standards. The regulations used are the Hague

and Hague Visby Rules.

The Hague and Hague Visby Rules The Hague Rules were derived at the first international convention

on the carriage of goods by sea held in 1924 at Brussels, Belgium.

They are officially called the International Convention for the

Unification of Certain Rules Relating to Bills of Lading. A

subsequent international convention resulted in the Brussels Protocol

of 1968, usually referred to as the Hague Visby Rules. This protocol

amended the Hague Rules concerning limitation of financial liability.

These rules have been ratified and incorporated into the domestic

legislation of many countries in the Caribbean region. For example,

Jamaica and Trinidad each incorporate the Hague Rules in a

Schedule to their respective Carriage of Goods by Sea Act.

Bill of lading form and contents No legally specified bill of lading form exists and carriers are free to

design their own forms. Usually the face of the B/L contains

information identifying and describing the parties—the carrier, the

shipper, and the consignee, if named by the shipper. National

maritime legislation may also require the inclusion of certain

particulars relating to the cargo (see below). The reverse side of the




B/L contains terms and conditions governing the relationship

between the carrier and the holder of the bill of lading.

The bill of lading set (originals and copies)

The bill of lading is normally issued in a set of at least three

originals, one for the consignee, one for the shipper, and one to be

kept on board the vessel. There are also several copies marked “non-

transferable”. The number of original Bs/L may vary according to

the special requirements of the shipper—the number of originals

given to the shipper is stated on the bill of lading. The shipper sends

the originals to the receiver by different methods to ensure that at

least one original bill of lading will reach its destination in time for

the receiver to take delivery. The carrier is free of responsibility

once the cargo is delivered against any one of them.

Information on the B/L relating to the goods

Article 111 Rule 3 of the Hague Rules provide that a bill of lading

should contain the following information:

• either the number of packages or items, or the quantity or weight

of cargo, as the case may be (as furnished in writing by the

shipper)

• the apparent order and condition of the goods. The preamble to

the B/L usually states, “taken on board the following goods in

apparent good order and condition”. If the goods are not in good

condition the carrier must state this on the face of the bill of

lading

• the distinctive marks intended to identify the cargo, given before

loading. These marks must be stamped or otherwise shown

clearly in such a manner that they would remain legible until the

end of the voyage.

“Weight and quantity unknown”

Carriers have for many years made a practice of inserting in the bill

of lading terms such as “weight and quantity unknown”. The result

of this is that the burden of proving what was actually shipped shifts

to the shipper. For example:

Case: New Chinese Antimony Co. vs. Ocean SS Co. (1917) A bill of lading presented to and signed by the shipowner’s agent stated that 937 tons of ore had been shipped on board. The bill of lading contained the clause weight, measurement content, and value unknown. A quantity less than 937 tons was delivered and the shipper claimed damages. The court held that the




burden of proving how much ore had been shipped was on the shipper.

According to Article 111, the shipper can demand that the carrier

delete these words and comply with rules by giving conclusive

descriptions. The shipper can however waive this right.

Information on the B/L relating to the parties

Carrier

The name of the carrier is generally found at the top of the bill of

lading. The carrier may be the actual owner of the ship or a time or

demise charterer.

Master of the ship

The name of the master is not found on modern bills of lading.

The ship

The ship’s name enables the shipper/receiver to identify the owner of

the ship when the carrier is only a time or demise charterer of the

ship. This could be particularly important in a time charter, for the

time charterer may not be responsible for cargo loss or damage under

certain circumstances. In such a case, the shipper/receiver would

have to make a claim against the shipowner.

Shipper

The bill of lading normally contains the name and address of the

shipper. This information is particularly important if the B/L does

not contain any information about the consignee. The carrier may

need to contact the cargo interests urgently in the event of a casualty.

Information on the B/L relating to the voyage.

The bill of lading describes the voyage envisaged by indicating the

ports of loading and discharge.

Functions of the bill of lading The conventional bill of lading has three main functions:

• receipt for goods shipped or delivered to the carrier

• written evidence of a contract of carriage

• document of title.




Receipt for goods

The bill of lading is a receipt signed by the carrier or his/her

representative (the master or the agent). It is given to the shipper on

demand and states that the goods described in it have been loaded on

a certain ship or other type of transport vehicle, bound for a certain

destination.

Under common law, the bill of lading is prima facie evidence that

the goods indicated (by quantity, condition, and marks) have been

shipped. This means that it would be difficult for the carrier to later

dispute the quantity or condition of such goods. Under the Hague

Visby Rules, the carrier cannot deny the statements at all once the

B/L is transferred to a third party.

Evidence of contract of carriage

There is considerable debate as to whether the bill of lading is the

actual contract of carriage between the shipper and the carrier. It is

possible to contend that the goods are loaded on board in pursuance

of a prior contract made between the shipper and the carrier, and that

the contract is not necessarily contained in the bill of lading, which is

issued later. This would be important in a legal case where the

carrier or the shipper wished to bring in oral evidence that the

carriage was agreed on terms that were not included in the B/L.

The prevailing legal position appears to be that the bill of lading is

excellent evidence (amongst others) of the terms of the contract with

regard to the carrier and the shipper. However, it is the only

evidence of the terms of the contract with regard to the carrier and

the subsequent holder (the consignee) of B/L. This means that, while

the carrier and the shipper can bring in other evidence such as oral

undertakings, freight notes, or sailing announcements to prove that

the parties agreed on terms that may be at variance with the B/L, the

carrier and the consignee have to strictly abide by what is stated in

the bill of lading.

Document of title to the goods

The bill of lading is the official document representing the goods.

For many purposes possession of the bill of lading is equivalent to

legal possession of the goods. It enables the holder to receive the

goods himself or to deliver the goods by endorsing and delivering the

bill of lading.




Delivery “to order”

A bill of lading making goods deliverable “to order” is considered to

be a negotiable document in that the property in the goods can be

transferred by endorsement and delivery.

Common law assignment of a bill of lading

Under common law, in order that the assignment of a bill of lading

should function as required by parties, certain conditions must be

complied with:

• the bill of lading must state that it is transferable. This is so that

delivery of the goods can be made to the order of the assignees

of the person taking the B/L

• the goods must be in transit. That is, they must have been

handed over to the shipowner or his agent for carriage, and not

yet have been received by the person entitled to lay claim to

them by virtue of possessing the B/L

• the B/L must have been put in circulation by one who had good

title to it. For example, a purchaser for value will have no rights

in relation to the goods if the B/L was sold by someone who

stole it.

Specifying who may receive the goods—endorsing a B/L Goods shipped under a bill of lading may be made deliverable to a

named person, to the order of a named person, or to the bearer of the

B/L.

The named bill of lading

In a named bill of lading, the name and address of the consignee is

specified precisely. The goods may be delivered only to that named

person. In a named B/L, the phrase “To the order of” that appears on

the bill is deleted.

This form of B/L is normally used for non-commercial shipments,

such as cargo carried under bilateral agreements between

governments, shipments made by one branch of a company to

another, or shipment of goods bought overseas and shipped by and to

the same company. Because of this, the shipper may also be named

as the consignee.

In a letter of credit situation, the legal consequence of naming the

consignee is that the B/L cannot be endorsed (signed over) to another

party, and is thus said to be non-negotiable.




The order bill of lading

The order bill of lading contains the phrase “To the order of…”

followed by the name of the beneficiary. This may be the shipper,

the consignee, or the bank. The beneficiary is identified in the box

reserved for the name of the consignee.

Endorsement in full

To endorse this form of bill of lading, the beneficiary may write on

the reverse side of the bill of lading, “Deliver to the order of…”,

followed by the name of a new beneficiary, and signed by the first

beneficiary. This is called endorsement in full. The person to whom

the B/L is endorsed may be the final receiver or an intermediary

beneficiary.

Endorsement in blank

The bill of lading may also be endorsed in blank. In order to do so,

the beneficiary simply signs and dates the bill of lading. In this way,

the bill of lading may pass from hand to hand by mere delivery, and

any holder may obtain delivery by presenting it to the carrier. The

bill of lading is then, in effect, a bearer bill of lading, which is

described below.

Endorsement by the bank

In practice, most bills of lading are negotiated through the bank. In

the case of an order B/L, the shipper may endorse it in full or in

blank and hand it over to the bank. The bank would then endorse it

to the consignee. As a result, when the bill of lading is presented to

the carrier for delivery of the goods it already contains an

endorsement by the bank.

The bearer bill of lading

In the bearer bill of lading, the phrase “To the order of” is replaced

by “To the bearer”. Any holder of a bearer bill of lading can take

delivery of the goods without needing to identify themselves or

providing further documentation. This bill of lading is not

commonly used in business transactions. It poses a risk to the

shipper, since anyone who obtains the bill of lading even through

fraudulent means can take delivery of the goods.




Other documents used in maritime transport operations

Orders originating from the shipper

The forms of such documents vary from company to company. All

however are documents issued, signed, and dated by the shipper or

representative requesting the carrier to load a specified consignment

on board ship.

The order contains a commitment of the shipper and is in the form of

a note to the carrier. It is commonly referred to as the shipping note.

This document may serve as the basis for the drafting of the bill of

lading. However, it should not be confused with the bill of lading, as

it does not have any of its legal characteristics.

Receipts originating from the carrier

When goods are loaded onto feeder ships prior to being transferred

onto ocean-going vessels, a document may be issued by the carrier

which is called the collective bill of lading. This document, prepared

by and for the carrier, provides a list of all the different parcels

belonging to the different shippers.

At most, the collective B/L may be considered to be a receipt if

given to the shipper. In no case is to considered to be a document of

title or evidence of a transport contract.

Delivery orders

The delivery order is issued by the carrier or carrier’s agent to enable

the receiver/consignee to take delivery. This may be from the vessel

or from the warehouse or quay where the goods have been

discharged. When the consignee or representative produces the

original bill of lading, the carrier or agent scrutinizes it and issues a

delivery order. This instructs the master of the vessel or the port to

deliver the goods to the receiver or receiver’s agent.

The delivery order is not a document of title, nor does it contain the

terms of the contract between the carrier and the shipper/receiver. It

usually does not enable the receiver/consignee to bring an action

against the shipowner for any loss or damage to the goods.

The non-negotiable sea waybill

The sea waybill is essentially a document providing for the

automatic delivery of cargo to a nominated consignee. If the person

applying to take delivery of the goods can produce identification as

the consignee nominated on the waybill, a document of title is not

needed. The goods will be delivered to that person.




The great differences between a waybill and a B/L is that when

shipping under a B/L, proof of ownership of title is required to take

delivery of a consignment. The B/L itself must be produced as

evidence of title.

Mate’s receipt

The mate’s receipt is the document tendered by the shipowner or

ship’s agent to the shipper upon delivery of the goods onto the quay

for shipment. A mate’s receipt is often issued by the ship’s officer’s

mate after checking the tally clerk’s records of what has been

received. Only later is the bill of lading checked against the mate’s

receipt.

The manifest

The manifest is a document issued by the shipping company (carrier)

or the ship’s agent at the port(s) of loading. It summarizes the

information extracted from all the bills of lading issued for each port

of discharge for the voyage in question.

The headings on the document provide the following information:

• name and tonnage (gross and net registered) of the ship

• nationality of the ship

• ship’s master’s name

• ports of loading and discharge

• departure date.

Different columns on the manifest are allocated to record the

following information relating to each separate bill of lading:

• identification number of the bill of lading

• marks and numbers of the packages

• nature of the goods being shipped

• shipper’s name

• ship’s agent’s name

• address for notification

• weight and/or measurement of the shipment.

A distinction has to be made between the cargo manifest and the

freight manifest. The cargo manifest must remain on board ship

during the entire voyage. It is to be used by the master of the ship or




by other authorities who may be involved with the ship. It may also

be considered an essential document for the use of customs

authorities.

Activity 1. Visit a carrier’s place of business and obtain a blank bill of

lading. Note how many copies are included. Read everything

printed on it and try filling it in as though you were shipping

goods (of your choice) from your place of residence to a real or

imagined consignee at a port in South America.

2. Discuss with the carrier any issues that might arise in sending,

carrying, and receiving such a shipment.

3. Find out what other documentation (if any) might be needed by

the shipper, the carrier, and the consignee.







1. Which of the following best describes a bill of lading?

a. it is the same as a contract of carriage

b. it plays the same role in transportation of break-bulk cargo

as a charter party does for bulk cargo

c. it provides evidence of the existence of a contract of

carriage

d. it serves as a letter of credit in a CIF sale

13. What set of international rules, regulation, or standards must be

met by bills of lading?

_____________________________________________

3. Where are the terms and conditions that govern the relationship

between carrier and the holder of a B/L recorded?

a. in the contract of carriage

b. in the Hague Visby Rules

c. on the face of the bill of lading

d. on the reverse side of the bill of lading

4. Why is a set of several original bills of lading sent out?

a. to ensure that at least one original reaches the destination in

time for the receiver to take delivery

b. so that agents as well as parties to the carriage of contract

can have them

c. because several people in the transportation chain need

them for reference

d. to ensure that an original reaches each possible destination

point

5. What three items of information about the shipped goods must

appear on the bill of lading according to the Hague Rules?

a. _________________________________

b. _________________________________

c. _________________________________




6. Must the carrier define the weight or quantity of cargo shipped

on the B/L?

a. no, the carrier may always insert “weight and quantity

unknown” in the B/L

b. yes, the shipper must demand that the carrier insert the

weight and quantity

c. yes, the carrier must insert the weight and quantity under

the Hague Rules

d. no, the shipper may waive the right to insist that the carrier

includes the weight and quantity

7. Why is it important to include the name of the shipper on the

B/L?

_____________________________________________

_____________________________________________

8. What are the three functions of a bill of lading?

a. _________________________________

b. _________________________________

c. _________________________________

9. If there is an error in the bill of lading, the carrier may change it

so long as interested parties are notified.

True or false? Explain.

a. true

b. false

_____________________________________________

10. If there is a dispute about the terms of carriage, can the

disputants refer to anything other then the bill of lading?

a. yes, they must refer to the written contract of carriage

b. yes, they may refer to oral undertakings, freight notes,

sailing announcements, and any other relevant material

c. no, the B/L contains the only legal description of the terms

of carriage

d. no, nothing else may be used as evidence of the terms of

carriage




11. What is meant by “a negotiable document of title”?

_____________________________________________

_____________________________________________

12. What conditions does the common law say must be in place for

the bill of lading to function properly in transferring title?

a. _________________________________

b. _________________________________

c. _________________________________

13. Which of the following statements are true, and which are false?

a. a named B/L is non-negotiable

b. an order B/L is non-negotiable

c. endorsement in full means that a B/L has been signed over

to another specified person

d. endorsement in blank means that a B/L has become non-

negotiable

e. a bearer bill of lading allows anyone holding it to pick up

the goods described

f. a B/L handed over to a bank may be endorsed in full or in

blank

14. What is a shipping note?

a. a note containing orders from shipper to carrier

b. a note from carrier to shipper confirming orders

c. a note made by the shipper to record an oral contract

d. a note containing the main points in a bill of lading

15. What is a collective bill of lading?

a. a B/L covering all shipments from a single shipper

b. a B/L for all parcels of goods in a carrier’s vessel

c. a B/L for all parcels of goods in a feeder vessel

d. a B/L for transferring goods to the warehouse at the point of

discharge in case the consignee cannot take immediate

delivery




16. Who issues a delivery order?

a. shipper

b. carrier

c. consignee/receiver

d. ship’s master

17. What must a consignee do to take delivery of a shipment under a

sea waybill?

a. produce a document of title to the goods

b. produce a copy of the waybill

c. produce a copy of the contract of carriage

d. produce personal identification

18. When is the mate’s receipt issued?

_____________________________________________

19. List at least six of the columns of information on a manifest.

a. _________________________________

b. _________________________________

c. _________________________________

d. _________________________________

e. _________________________________

f. _________________________________




Lesson 2 ......Signing and dating the bill of lading Bills of lading are freely available, so to prevent parties from using

them inappropriately or from denying their agreement to a contract

of carriage, it is essential for both parties to understand the

agreement, and, where appropriate, to sign and date the document.

In theory, the bill of lading should be completed by the carrier

according to the particulars provided by the shipper. In practice,

however, the bill of lading is usually completed by the shipper or

shipper’s representative, who would later send it to the carrier for

verification and signature.

The Hague and the Hague Visby Rules do not have any provisions

regarding the signatures of the shipper and the carrier on the bill of

lading. National legislation, which gives effect to these Rules, is

also silent on this matter. The United Nations Convention on the

Carriage of Goods by Sea, 1978, was held in Hamburg, Germany, in

an attempt to replace and improve the Hague Rules and the Hague

Visby Rules. These more recent Hamburg Rules include specific

provisions regarding the parties who may sign the bill of lading and

the method of their signatures. This is important with regard to the

B/L’s functions as a receipt and as evidence of a contract.

Signing the bill of lading The particulars of a shipment are usually filled in by the shipper or

the freight forwarder and given to the carrier for signature.

As a receipt for goods shipped

The bill of lading is a receipt for goods shipped and in certain

circumstances the carrier is unable to deny the particulars included in

the bill of lading. Since bills of lading are usually filled out by the

shipper, if no confirming signature were required, shippers might

claim to have shipped goods by a carrier, when in fact they did not.

Or the carrier might lose or sell the goods and deny having carried

them. Having the signature of the carrier on the document prevents

the carrier from denying that the bill of lading was issued.

On the other hand there is no particular reason for the shipper to sign

the bill of lading. Shippers either fill in the bill of lading or check

the accuracy of what is stated on it before accepting it as a receipt

from the carrier.




As evidence of the contract of carriage

If the shipper does not sign the bill of lading, the issue arises as to

whether the parties are bound by such terms.

Generally under common law a contract does not have to be in

writing or be signed in order to be legally binding. A bill of lading

falls into the category of standard form contracts. That is, a contract

in which one party makes an offer based on standard trading terms or

uses a standard form. The party who makes the offer, in this case the

carrier, would be bound by those terms.

The issue of whether the other party (in this case, the shipper) would

be bound by these terms would depend on the following conditions

being met:

• are the terms an integral part of the contract between the

shipper and the carrier? In general, this depends on whether a

document was intended to be a contractual document or merely a

receipt. A B/L is regarded as best evidence and at times the only

evidence of the terms of the contract, as well as a receipt for

goods

• has the bill of lading has been signed by the shipper? As

noted above, the shipper may not have signed the B/L

• if it is not signed, has reasonable notice of the terms have

been given? Shippers are usually well aware of the terms on

which goods are shipped in any regular line or trade. They have

easy access to printed bills of lading, which can be bought in

some countries and obtained from the carriers in others. These

may be read and clarified at leisure.

Reading the B/L before signing it

The modern bill of lading however has such a long list of exclusions

and limitations, which are printed in such minute type that it may not

be easily legible or attract the notice of the shipper. The question

might arise whether the shipper can be assumed to have notice of all

the clauses in the B/L and be bound by them. The answer appears to

be yes. Shippers are usually bound by the printed terms and

conditions (clauses) on the reverse side of the bill of lading

irrespective of whether they have read them. The term caveat

emptor (let the buyer beware) is important here, where the shipper is

the buyer of a service.

If however the carrier introduces an unusual or novel clause that

excludes certain liabilities, then the carrier must ensure that the

clause is quite clear to the shipper, both in meaning and legibility.




Dating the bill of lading Neither the Hague Rules nor the Hague Visby Rules contain any

provisions regarding the dating of bills of lading. It is however the

usual practice of the carrier or carrier’s agent to date the bill of

lading when it is signed.

Dating the bill of lading is particularly important with regards to its

function as a receipt for goods shipped. By such dating the carrier

confirms that the goods were loaded on board on a particular day.

This date would be considered the date on which the goods were

shipped and could be relevant and important in certain legal

situations.

Pre-dating a B/L

A shipper might wish to pre-date a bill of lading, so that the receiver

believes goods were shipped earlier than was the case. This would

allow the shipper to receive payment earlier. Pre-dating the bill of

lading is a misrepresentation of fact on the part of the carrier,

resulting in possible legal liability.

Any party who is suspicious of the date appearing on the bill of

lading may check the sailing schedules and the port records to

ascertain when the goods were shipped. It would be particularly

dangerous for the shipper to request pre-dating of the B/L if the date

requested is one prior to the arrival of the ship at the port of loading

or prior to loading, as this information could be easily obtained by

the buyer/receiver.

Activity There is no specific Activity for this lesson.







1. Which internationally accepted rules have provisions for the

signing of bills of lading?

a. Hague

b. Hague Visby

c. Hamburg

d. none of them

2. Which of the following best describes the written completion of

the B/L?

a. it should be completed by the carrier, but in practice is

usually filled in by the shipper

b. it should be completed by the shipper, but in practice is

usually filled in by the carrier

3. What is the purpose of the carrier signing the B/L?

_____________________________________________

_____________________________________________

4. Can a shipper who does not sign the B/L be held to the terms of

the contract that the B/L describes?

a. no, because the B/L is not a contract

b. no, because there is no agreement without both signatures

c. yes, because the shipper filled in the details or supplied

them to the carrier

d. yes, because even though it is not signed, the usual terms of

shipping and the details on standard Bs/L are freely

available for shippers to read and understand.

5. What must happen if the carrier wishes to introduce an unusual

clause to the B/L?

_____________________________________________

_____________________________________________




6. Which date is considered the date of shipment of goods?

a. date the goods were handed to the carrier by the shipper

b. date the goods were loaded on board the carrier’s main

transportation vehicle or vessel

c. date on which the bill of lading is signed

d. any date agreed between the shipper and carrier




Lesson 3...... The clean bill of lading, reservations, and the letter of indemnity The majority of goods are in good order when they are shipped. The

normal bill of lading contains a printed clause stating that the goods

are shipped in good order. This is more convenient than having to

type or write such a phrase each time a bill of lading is issued. If

however the goods are not in good order, the carrier has the right and

duty to state their actual condition.

Clean bills of lading A filled out bill of lading is usually sent to the carrier for verification

and signature. If the carrier has not contradicted the particulars

inserted by the shipper or made any adverse comment on the bill of

lading regarding the goods, the B/L is said to be a clean bill of

lading. A clean bill of lading implies that the carrier had an

opportunity to inspect the goods prior to loading, agrees with the

shipper’s description, and confirms that the goods are in good order.

Unfortunately, things are not always as simple as this. The goods

may not be in apparent good order or condition at the time they are

loaded on board the ship; or the carrier and shipper may disagree

about the quantity of goods loaded. Ways are needed for carriers to

protect themselves against lawsuits if incorrect shipments are

delivered through no fault of theirs. The two methods used are

reservations and letters of indemnity, to be described below.

Reservations on general shipment When unable to accept the description of the shipper or unable to

confirm that the goods are in good order, the carrier would include a

reservation as a clause in the B/L. This protects the carrier’s interest

in the event of a claim from the consignee at the port of discharge. A

bill of lading containing reservations is no longer considered a clean

B/L. In effect, carrier’s reservations in a B/L contradict the

information provided by the shipper.

From the bank’s point of view, a letter of credit must state whether

or not a clean bill of lading is required for payment to be made to the

shipper. It is up to the buyer to instruct the bank what are acceptable

terms, and to state whether reservation clauses are acceptable or not.




The shipper would not want the carrier to “clause” the bill of lading

if a clean B/L is required for payment. Any carrier’s clauses with

regard to the condition, quantity, or marks of the goods would

prevent the bill of lading from being clean.

The Hague Rules about reservation clauses

The Hague Rules have a number of provisions which are relevant to

the carrier’s right to clause the bill of lading.

Article III {c} states that the carrier must show the apparent order

and condition of the goods on the bill of lading. Article III also

provides that no carrier, master, or agent of the carrier shall be bound

to state or show in the bill of lading any marks, number, quantity or

weight which he has reasonable grounds for suspecting do not

accurately to represent the goods actually received or which he had

no reasonable means of checking.

If the contract of carriage is subject to the Hague Rules and the

carrier fails to contradict any information on the B/L that there are

reasonable grounds for suspecting do not accurately represent the

goods received, then the carrier will be liable to the consignee. The

carrier is held liable for any damage found on delivery at the port of

destination unless the circumstances fall within any of the defined

exceptions and reservations.

Using precise descriptions

To be legally valid, inserted clauses contradicting the information

included in the bill of lading should be precise and clearly defined.

In practice, carriers usually insert expressions such as “said to

contain”, “said to be”, “weight unknown”, and “insufficient

condition”, into the shipper’s descriptions. However there is a

school of thought which suggest that these would not help the carrier

to avoid liability, in the event of a claim for loss/damage to the goods

by the consignee, because they are too imprecise.

Categories of reservation clauses

Clauses usually inserted by the carrier may be divided into two

categories: those concerning what goods are sent, and those

concerning the condition of the goods.

Clauses about marks, numbers, quantity, and weight

A reservation concerning the marks, numbers, quantity and weight of

the goods would reduce the value of the bill of lading’s use as a

receipt. Although it remains evident that some goods have been




shipped, there is a difference of opinion between shipper and carrier

about precisely how much and of what. The quantity of goods are

said by the shipper to amount to the figure stated in the bill of lading

but the carrier does not admit that figure and contradicts it with a

reservation clause. The result is that the shipper cannot rely on the

statement as evidence of the amount shipped, while the carrier will

be able to deny that the quantity stated by the shipper was shipped.

Clauses about the condition of the goods

With regard to the apparent condition of the goods, the carrier

confirms in the preamble to the bill of lading “shipped in apparent

good order and condition…” Thus, the bill of lading would be

considered clean unless it is specifically claused otherwise.

Any admission as to good order is only with regard to the outward

appearance of the goods. The carrier has no means of checking the

internal condition of the goods.

Clauses regarding the condition of the goods may be inserted in two

circumstances:

• if the apparent condition of the goods is unsatisfactory, the

carrier is entitled to describe on the bill of lading the damage

discovered on loading the goods. This protects the carrier

against any claim arising out of pre-shipment damage

• if the present condition of the goods is satisfactory but packaging

is such that it is obvious that the goods cannot withstand the

voyage without loss/damage, the carrier is entitled to so state on

the bill of lading. For example, if fragile goods have insufficient

packing, normal carriage conditions might be expected to cause

damage. If reported on the B/L, this protects the carriers from

claims due to such resulting damage (assuming normal care is

taken during transportation).

Reservations regarding containers

When the shipment is a full container load (FCL), the carrier would

be unaware of the contents of the container. He receives the

container sealed and is unable to check the:

• nature of the goods.

• apparent condition of the goods.

• number of packages

• weight of packages

• quality of stowage inside container.




The shipper may describe the goods as “one container containing

500 cartons of machinery spares”. Being unable to check the

particulars of the goods, the question arises as to what the carrier

should allow the shipper to include in the description of the goods, or

what reservations the carrier should make on the bill of lading.

There are two options:

• make the shipper describe the goods simply as “one container

gross weight X kg”. This ensured that the carrier makes no

commitment regarding the goods stowed inside the container,

but only as to the weight of the filled container

• make clear reservations on the bill of lading regarding the

information the carrier is unable to check.

In practice the carrier prefers the second solution. Container bills of

lading for FCL shipments usually contain clauses such as:

one container said to contain 200 bales rubber

weight and contents unknown

or

shippers load and count.

It may be argued that these clauses are not specific enough to be

valid and protect the carrier in the event of loss/damage to the cargo

inside the container. The special nature of container shipments

however requires that the carrier should only be held to have

received a container that was in external good order. Thus the

shipper usually brings independent evidence to show the contents

and quantity of goods stowed in the container, instead of relying on

the statement in the bill of lading. If the container is delivered in

external good order and with the seal intact, the carrier would usually

not be responsible for any loss/damage to the contents of the

container.

Letters of indemnity In an international transaction, the seller who ships the goods usually

needs a clean bill of lading in order to obtain payment from the bank.

When there is reason to doubt the particulars of the shipment

supplied by the shipper, the carrier may be reluctant to issue a clean

bill of lading as it may result in unnecessary involvement in liability

claims for loss or damage of goods. In this situation, the shipper

may offer the carrier a letter of indemnity in exchange for a clean bill

of lading. Indemnity is protection or security against loss. In this

case, it means that the shipper would protect the carrier from claims

made for damaged or lost goods.




The letter of indemnity is the written commitment of the shipper to

indemnify the carrier for any claims that may result from issuing a

clean B/L despite any loss and/or damage and/or shortage that may

have been observed at the time of loading the goods.

In the event of a claim against the carrier by the consignee arising

out of loss or damage covered by the letter of indemnity, the carrier

may first have to settle the claim with the consignee. The carrier

may then look to the shipper for reimbursement. If the shipper

refuses to compensate the carrier, the carrier may try to legally

enforce the letter of indemnity.

Legal validity of a letter of indemnity

In many countries, an indemnity given to the carrier by a shipper

may not be enforceable. The reason for this is that the letter’s main

objective is considered to have been to defraud the consignee or the

bank.

When the acceptance of the indemnity involves the suppression of

material facts that the consignee has a right to know, it has been

judicially held that the carrier is an accomplice in deceit or fraud.

Thus, the indemnity itself is illegal and, therefore, void. On the other

hand, the information concerned may be of minor importance and

perhaps even already known to any person experienced in the trade

itself. In such cases it is probable that no deceit would be either

intended or committed. The courts usually refuse to enforce any

agreement that has an illegal motive and letters of indemnity may be

one such instance.

Example: The bulk of a consignment of juice in barrels was shipped to a Dutch firm, and the residue of the consignment was sent to a German firm. The consignment was shipped to London from Hamburg, it being known to the shippers, ship owners’ agents, and Dutch buyers that the barrels were old, frail, and leaking on shipment. A clean B/L was issued by the shipowner’s agents against the shipper’s letter of indemnity.

Following the arrival of the consignment at Hamburg, the consignees brought a claim against the shipowners for the loss that the consignment had suffered in transit. The claim was paid by the shipowner’s agents. There then followed a claim by these agents to be indemnified by the shippers under the terms of the letter of indemnity.

The shippers, in answer to this claim, put forward the plea that the letter of indemnity was issued in pursuance of a conspiracy between themselves and the shipowners to misrepresent the condition of the barrels and was therefore, unenforceable. It was also argued that the Dutch buyers, being aware of the true




condition of the barrels on shipment, had no right of recovery from the shipowner’s agents based upon the issue of a clean B/L. Accordingly there was no obligation of the shipowner’s agents to settle the claim made by the consignees.

The ruling of the Court of Appeal was that, by the issue of a clean B/L, the shipowner’s agents made a representation that they knew to be false, and which they intended should be relied upon by persons who received the B/L. Thus, all the elements of the tort of deceit were present. Therefore, a promise to indemnify the ships’ agents against any loss resulting to them from making that representation was unenforceable.

However not all indemnities against clean bills of lading are

unenforceable. For example, a carrier may claim to have discovered

some faulty condition with regard to the goods to be taken on board,

but be assured by the shipper that this is not so. In such a situation

the carrier may issue a clean bill of lading against an indemnity.

This would probably be upheld by the courts in the event that claims

were made against the carrier for those faults.

In trivial matters and bona fide disputes where it is difficult to

ascertain who is correct, the courts may be willing to treat letters of

indemnity as a useful practice and enforce them, assuming that the

carrier “has clean hands” (is innocent of deliberate wrongdoing).

This would be based on the equitable principle that “he who comes

to equity must come with clean hands”. Equity is the principle of

fair justice that supplements or prevails over common law and statute

law.

The uncertainty surrounding the enforcement of letters of indemnity

does not prevent the carrier from issuing clean bills of lading on the

strength of such letter, for it may at times be the only way out for

him. Quite often the carrier becomes aware of the discrepancy

between the description of the shipper and the port tally only when

the bill of lading is presented, by which time the goods have been

loaded on board and it would not be practical to refuse to carry it. It

may also be that the shipper is a regular or important client whom the

carrier would wish to accommodate.

In the final analysis, the value of a letter of indemnity depends on the

shipper’s intention to honour it. It is prudent for the carrier to resist

issuing a clean bill of lading where loss/damage is observed before

loading. This is doubly important because in the event that the

carrier is held responsible by the consignee for such damage, the

carrier cannot later recover this loss from their liability insurers.

Insurers would take the position that the responsibility had been

assumed by the carrier for commercial reasons.




Bank guarantees supporting letters of indemnity

In the event that a clean bill of lading has to be issued in somewhat

doubtful circumstances, the carrier could request that the letter of

indemnity be supported by a bank guarantee. This gives the carrier a

choice of claiming from the bank if the shipper fails to respond. A

reputable bank would be likely to meet its commitments without the

carrier having to resort to litigation.

Activity Visit a shipper and/or a carrier and try to obtain or read recent

examples of reservations and letters of indemnity.







1. The carrier need not write on the bill of lading that the shipment

is in good order but must make a note if the shipment is not in

good order (showing damage or shortage).


a. true

b. false

_____________________________________________

2. What is a clean bill of lading?

a. a B/L that is properly signed and dated

b. a B/L on which the carrier has not made any adverse or

contradictory comments about the shipment

c. a B/L on which the shipper has not made any adverse

comments about the shipment

d. a B/L on which no incorrect statements are made

3. What two things might carriers do if they are unsure that the

shipment is as described by the shipper?

a. _________________________________

b. _________________________________

4. Why might the addition of a reservation clause be unacceptable

to a shipper?

a. because the goods may not be acceptable to the consignee

b. because it makes the shipper look dishonest

c. because it means the carrier will not take them

d. because payment by letter of credit may depend upon a

clean bill of lading




5. If a bill of lading represents a contract of carriage subject to the

Hague Rules, what three provisions of the Rules affect the use of

reservation clauses?

a. _________________________________

_________________________________

b. _________________________________

_________________________________

c. _________________________________

_________________________________

6. It is better to use broad, somewhat vague descriptions when

inserting a reservation clause into the B/L, rather then trying to

be too specific. True or false? Explain.

a. true

b. false

_____________________________________________

7. What is the effect of a reservation concerning the quantity of

goods received?

a. the B/L is no longer evidence of shipment

b. the B/L is no longer a document of title

c. the B/L is less useful as a receipt

d. the B/L is no longer usable for transporting the goods

8. Which two circumstances allow a carrier to insert a reservation

clause about the apparent condition of the goods?

a. ________________________________

_________________________________

b. _________________________________

_________________________________

9. What are two ways to describe an FCL shipment in a B/L so as

to protect the carrier against shipper’s inaccurate descriptions of

the container contents?

a. _________________________________

b. _________________________________




10. Why might a shipper issue a letter of indemnity to the carrier?

a. because the shipper’s description of the goods is vague or

inaccurate and the carrier needs reassurance

b. so that the carrier can avoid all liability for damage caused

during transportation

c. to satisfy the bank that the goods are shipped in good order

d. to allow the carrier to give a clean bill of lading that will

satisfy the bank issuing a letter of credit

11. Under what circumstances might a letter of indemnity given to

the carrier by the shipper not be recognized as valid by the legal

system?

_____________________________________________

_____________________________________________

12. What is the usefulness of a bank guarantee supporting a letter of

indemnity?

_____________________________________________

_____________________________________________




Answer keys

Lesson 1 1. c. it provides evidence of the existence of a contract of

carriage

2. The Hague and Hague Visby Rules

3. d. on the reverse side of the bill of lading

4. a. to ensure that at least one original reaches the destination in

time for the receiver to take delivery

5. − amount of cargo (number of items or packages, quantity or

weight)

− condition of the goods (“in good order”, “packaging torn”,

“dented”, etc.)

− clearly legible identifying marks

6. d. no, the shipper may waive the right to insist that the carrier

includes the weight and quantity

7. The carrier may need to contact all the cargo interests in the

event of a casualty.

8. − receipt for shipped goods

− written evidence of a contract of carriage

− document of title

9. b. false

Under the Hague Visby Rules, a carrier may not deny

statements on the bill of lading once it is transferred to a

third party.

10. b. yes, they may refer to oral undertakings, freight notes,

sailing announcements and any other relevant material

11. A negotiable document of title means that the property to which

the document refers may be transferred by endorsement or

delivery to another person.




12. − the B/L must state that it is transferable

− the goods must be in transit

− the person circulating the B/L must have legal rights (“good

title”) to it

13. a. true

b. false

c. true

d. false

e. true

f. true

14. a. a note containing orders from shipper to carrier

15. c. a B/L for all parcels of goods in a feeder vessel

16. b. carrier

17. d. produce personal identification

18. After checking the tally clerk’s records of what has been

received.

19. Any six of the following:

− identification number of the B/L

− identifying marks of packages

− nature of shipped goods

− shipper’s name

− ship’s agent’s name

− notification address

− weight/measure of shipment.

Lesson 2 1. c. Hamburg

2. a. it should be completed by the carrier, but in practice is

usually filled in by the shipper




3. The B/L is (amongst other things) a receipt for the shipped

goods. The carrier’s signature confirms the receipt of goods as

described by the shipper.

4. d. yes, because even though it is not signed, the usual terms of

shipping and the details on standard Bs/L are freely

available for shippers to read and understand

5. The carrier must ensure that the unusual clause is clearly legible

and understood by the shipper.

6. c. date on which the bill of lading is signed.

Lesson 3 1. a. true

The bill of lading already has a printed clause stating that

the goods are in order. The carrier notes any damage or

shortage on the B/L to ensure protection against claims of

loss during carriage.

2. b. a B/L on which the carrier has not made any adverse or

contradictory comments about the shipment

3. − include a reservation clause on the B/L

− obtain a letter of indemnity from the shipper

4. d. because payment by letter of credit may depend upon a

clean bill of lading

5. − the carrier must show the apparent condition of goods in the

B/L

− the carrier or carrier’s agent need not show on the B/L any

weights, marks, or quantities that they suspect are not

accurate

− if the carrier does not contradict statements made by the

shipper in the B/L regarding the condition of the goods, the

carrier will be held liable to the consignee for their

condition on delivery

6. b. false

To be legally valid, a reservation clause should be precise

and clearly defined so that the carrier may avoid being held

liable for that particular noted damage or shortage.




7. c. the B/L is less useful as a receipt

8. − when there is obvious damage to the goods when the carrier

receives them

− when the carrier considers that packaging is inappropriate or

insufficient so that damage or loss is liable to occur under

normal transportation conditions

9. − have the shipper use a neutral description that may be

readily checked, such as “container weighing so many

kilograms”—the container is easily weighed

− make a clear reservation on the B/L regarding information

the carrier cannot check

10. d. to allow the carrier to give a clean bill of lading that will

satisfy the bank issuing a letter of credit

11. A letter of indemnity would be considered invalid if it involved

the suppression of facts that the consignee had a right to know.

That is, if deceit or fraud are involved. The carrier must have

“clean hands”.

12. In the event that the shipper does not respond to a carrier’s claim

(based on the letter of indemnity) in a dispute over loss or

damage, the bank would likely meet its commitment to the

carrier without the need for litigation.






Unit 4 Documents for multimodal & multistage transportation

With the introduction of containers, most cargo is loaded and

unloaded at terminals inland or at the port rather than at the quayside.

The conventional bill of lading has had to be adapted to

accommodate these changes. Shipments, whether containerized or

not, may involve several vessels requiring specialized bills of lading.

The three lessons in this unit will cover the topics of:

• multimodal transport documents

• liability under multimodal transport documents

• through and transshipment bills of lading.

Unit 4: Multimodal transport documents Carriage of Goods by Sea Law






• Apply the information by performing the Activities.


answers.





• Describe the changes in the conventional bill of lading brought

about by containerization.

• Understand and use the terminology of multimodal

transportation documents.

• Identify he characteristics of multimodal transportation

documents.

• Discuss the liability of the carrier at various stages of the journey

under multimodal transportation documents.

• Describe the use of through and transshipment bills of lading.

Carriage of Goods by Sea Law Unit 4: Multimodal transport documents



Lesson 1...... History and terminology The transport of containers involves an extension to the carrier’s

responsibility beyond the ship’s rails. The carrier may accept the

container from an inland terminal or sea terminal at the port of

loading, and deliver it at a sea or inland terminal at the port of

discharge. This often means that the container must be transported

to and from the port by the carrier using either road or rail transport.

When containerization commenced, the transport documents used

were conventional bills of lading, which were marginally adapted to

accommodate the issues that arose. It was the sea carriage part of the

transport that was considered to be important. The pre-carriage,

transport to the port of loading, and on-carriage, transport from

destination port to the consignee, by road or rail were considered

supplementary. When container bills of lading first developed a few

clauses were simply added to a conventional bill of lading to deal

with the fact that the cargo was in containers. Gradually however,

internationally recognized transport documents specifically geared to

multimodal transport developed.

Development of the combined transport bill of lading A combined transport bill of lading (CTBL) resembles a

conventional bill of lading. To begin with, it was the ocean carrier

who required a CTBL to cover pre-carriage and on-carriage periods

of combined transport, which had become an important segment of

the total voyage. The container bill of lading gave the carrier the

flexibility to accept containers from any inland destination.

However, other parties who did not operate ships, or any means of

transport for that matter, but yet wished to undertake the transport of

goods, also used the CTBL for voyages involving a combination of

transport modes.

Although it was historically used in transport involving carriage by

sea, there is nothing to prevent a CTBL from being used in transport

that does not involve sea transport. It can also be used in

transportation that involves only a single mode of transport, such as

sea carriage from port to port.

Liability

In the first container bills of lading, no attempt was made to develop

a uniform system of liability according to which the carrier would

assume responsibility for the whole transport from when the

container leaves the shipper’s premises, to when it is delivered at the




consignee’s premises. These liability issues are now much clearer

and will be discussed in Lesson 2.

Terminology and definitions The use of containers introduced the need for new terminology and,

as always occurs during innovations there was much confusion in

what to call things. Standard terminology and usage have developed

but many of the older terms are still widely used.

Multimodal transport operators

A carrier or other person who offers to transport goods by more than

one mode of transport may be called a combined transport operator

(CTO) or a multimodal transport operator (MTO). The United

Nations Convention on International Multimodal Transport of Goods

(1980) used the term multimodal transport. Therefore, the term

multimodal is currently considered more appropriate than combined.

The terms vessel operating and non-vessel-operating multimodal

transport operators (VO-MTOs and NVO-MTOs) are used for

uniformity and precision.

Multimodal transport documents

The combined transport bill of lading (CTBL) is a bill of lading that

is used where one party undertakes to carry goods by more than one

means of transport in a single continuous flow. It usually refers to

transportation that includes carriage by sea.

The terms combined transport document (CTD) and multimodal

transport document (MTD) are used interchangeably with CTBL.

Technically and historically, they were different than CTBLs,

because they did not necessarily refer to ocean transport and were

considered more general than CTBL. In practice, nowadays, there is

no substantial difference in the contents of these documents.

The most all-embracing, widespread term for such transport

documents is the multimodal transport document. Newer CIF and

FOB contracts specify the use of MTDs rather than bills of lading.

Negotiability of multimodal transport documents

The legal restraints on the negotiability of multimodal transport

documents as documents of title in international trade have gradually

disintegrated. At first they were regarded as being merely evidence

of receipt for shipment by the MTO. Users of these documents now

accept that they are fully negotiable and they are commonly

described as such on the face of the documents. Most significantly,

the use of combined transport documents under letters of credit was




sanctioned by the ICC’s Customs and Practice for Documentary

Credits (1984).

The MTD is defined as follows:

The MTD is a negotiable transport document used

when at least two different modes of transport are

required under a letter of credit.

Activity Try to visit a container shipping company and talk to someone who

works with the transport documents.

1. Find out what terminology they use for the documents for

multimodal transportation of cargo.

2. Find out what are the advantages and disadvantages of container

shipping from a carrier’s point of view.







1. What do the following abbreviations stand for?

a. CTO

b. MTO

c. CTBL

d. CTD

e. MTD

2. Which term does the UN prefer to use as the standard?

a. CTBL

b. CTD

c. MTD

3. What is a CTBL used for?

_____________________________________________

_____________________________________________

_____________________________________________

4. Why were CTBLs and MTDs necessary?

a. because sea transport became less important

b. to provide terms of carriage for inland transportation

c. to provide protection in case containers contained damaged

cargo

d. to extend terms of carriage to include overland transport

5. What is the definition of an MTD?

_____________________________________________

_____________________________________________

_____________________________________________




Lesson 2...... Liability of the carrier in multimodal transport The whole issue of liability of the carrier is more complex when

several modes of transport are involved, possibly with the use of

other, subcontracted carriers. This is further complicated by the use

of varied terminology and a variety of transport documents.

International agreements Attempts have been made to establish an international regime of

liability for carriage by more than one mode of transport. There have

been two important international agreements:

• the International Chamber of Commerce’s 1973 voluntary code

regarding uniform rules for combined transport documents.

These rules have no statutory force in themselves They operate

only by virtue of the contract between the consignor and the

operator that may comply with them

• the United Nations Convention on International Multimodal

Transport of Goods (1980) held that the transport operator is

liable for the whole of the transport covered by a multimodal

transport contract.

Responsibility clauses in a bill of lading Historically, sea-going carriers were not responsible for pre- and on-

carriage periods of the transport. Their liability was limited to the

period during which goods were within the boundaries of the ship’s

rail. Containerization produced the need for clarification of

responsibilities during pre- and on-carriage. The following is an

example of a responsibility clause in a bill of lading used for

container transport:

RESPONSIBILITY. The carrier shall not be

responsible for loss of or damage to goods during

the periods before receipt of the goods at the sea

terminals at the port of loading or after delivery of

the goods at the sea terminals at the port of

discharge. The appropriate Carriage of Goods by

Sea Act is hereby deemed to apply during the entire

period the goods are laid at the sea terminals.

Nevertheless where by the nature of this bill of

lading where the contract of carriage is in respect of




through transit of containerised or unitized goods

commencing at and terminating at interior places

which are expressly stated in the bill of lading the

carrier shall be responsible for the goods in the

manner herein provided from the time they are

received for shipment until they are delivered at the

specified place at the destination.

During the period before receipt of the goods at the

sea terminal of the port of loading or after delivery

of the goods at the sea terminal at the port of

discharge, the carrier hereby accepts the same

liability in respect of the goods as would have

existed if every participating sub carrier had made a

separate and direct contract of carriage with the

merchant in respect of that part of the through

transit undertaken by him.

If it cannot be established in whose custody the

goods were when damage or loss occurred the

damage or loss shall be deemed to have occurred

during the sea voyage, and the appropriate Hague

Rules legislation shall apply.

Liability under multimodal transport documents The ocean-going carrier usually uses the services of other carriers

(for example road hauliers or railway companies) to transport goods

to and from the port. Where losses occur at sea, liability is handled

as under a conventional bill of lading (see Unit 3). That is, if any

national law or international convention is applicable to the contract,

the operator’s liability is governed by that law or convention.

Therefore, the Hague and Hague Visby Rules apply quite often. If

there is no applicable national law or international convention, the

liability of the operator is governed according to the terms included

in the transport document.

When loss is not at sea

Where loss or damage is identified as having occurred during a mode

other than carriage by sea, (for example road or rail) the carrier is

responsible to the shipper/consignee according to the liability regime

applicable to that mode of transport. If any national law or

international convention is applicable to the contract, the transport

operator’s liability is governed by the terms included in the

document.




The liability of the MTO is identical to the liability accepted by the

carrier who actually performed that part of carriage. This is referred

to as the network liability principle. For example, if the goods are

damaged during the pre-carriage by road, the carrier accepts the

same responsibility as a road haulier. If any national law or an

international convention is applicable to carriage of goods by road,

the carrier’s liability is governed by such laws.

When the place of loss cannot be established

When the stage of transport where loss or damage occurs is not

known, the liability of the operator usually depends on the specific

terms of the transport document.

CTBL liability clauses

The CTBL usually contains specific (and often elaborate) clauses

about the combined transport operator’s liability. The following are

typical clauses from a CTBL:

Period of liability

The CTO assumes liability and undertakes to pay

compensation for loss of or damage to the goods

occurring within the same time of taking them into

his charge and the time of delivery, to the extent set

out in this CTBL.

When the stage of transport where loss occurred is

not known:

Compensation shall be calculated by reference to

the value of such goods at the time and place they

are delivered or should have been delivered.

The CTO shall not be liable to pay compensation if

the loss or damage was caused by: an act or

omission of the merchant… Insufficient or defective

nature of the goods or packing… Strikes, lockouts,

stoppage etc….

Claims and liability under the UN Convention

The basis of liability of the MTO under the UN Convention is

similar to that of the Hamburg Rules and is based on the concept of

“presumed fault or neglect” wherever the loss/damage occurs. That

is, the operator accepts liability for the goods from the place of

receipt until the place of delivery, as noted on the multimodal

transport document. The liability of the MTO is thus independent of




the subcontractors. All claims are made directly against the MTO,

who then may seek redress from sub-contractors.

Activity Talk to a carrier about the issues of liability and responsibility for

safe transportation when containers are used. Find out what their

procedures for checking cargo, containers, and documents are.







1. What is the main difference in responsibilities for the carrier in

transporting containerized rather than loose cargo?

_____________________________________________

2. What is in a responsibility clause in a bill of lading used for

container transport?

a. the carrier’s responsibility on the ocean leg

b. the varied liability of the carrier throughout the

transportation chain

c. the varied liability of the shipper throughout the


d. a description of responsibility for the container as opposed

to the cargo itself

3. If the main leg of the journey is by sea, what type of

responsibility must the carrier accept for the pre-carriage leg by

rail to the port?

a. the same as the ocean leg of the journey

b. the standard one for pre- and post-carriage

c. the same as would apply to road hauliers

d. the same as would apply to rail hauliers

4. What is the carrier’s liability if the carrier sub-contracts one leg

of the journey under a combined transport bill of lading?

a. the carrier accepts the same liability as a sub-contractor

would have had for that leg of the journey under a separate

direct contract of carriage

b. the carrier has no liability for that leg of the journey. It is as

though that leg is under a separate contract of carriage

between the subcontractor and the client

5. What is the carrier’s liability if it cannot be established where in

the multimodal transportation the damage took place?

_____________________________________________




Lesson 3 ......Through and transshipment bills of lading So far in this unit, we have mainly considered a bill of lading for

carriage between two ports performed by one ship. It is not unusual

however for such carriage to be performed by more than one ship,

with one or more transshipments at way ports. That is, the carrier

may move the cargo from one ship to another while it is in transit.

The cargo need not necessarily be containerized. The following

example illustrates the possible complexity of modern cargo

shipping involving several stages.

Example 1: A 45 ton, 402 cubic-metre filter destined for a paper mill in eastern Sumatra was recently shipped from Finland. The Finnish office of an international carrier issued a CTBL for the total transport. Pre-carriage by feeder ship was from Finland to Hamburg. The filter was then transshipped aboard the NOL IRIS for transport to Singapore. The Singapore office of the same company arranged further transshipment to Sumatra and then final on-carriage by barge to the filter’s final destination.

The following somewhat simpler example of transshipment is a

typical occurrence within the Caribbean. It illustrates what

information may or may not be included in the bill of lading.

Example 2: Goods are scheduled to be shipped from the UK to Jamaica via Trinidad and Tobago. The carrier or agent would agree to carry the goods to Jamaica knowing that the cargo would have to be transshipped in Trinidad and Tobago. The carriage from Trinidad and Tobago to Jamaica would be performed by another carrier. The bill of lading may or may not contain a statement that the cargo will be transshipped in Trinidad and Tobago.

When a voyage has several stages, the contracting carrier may make

arrangements by means of sub-contracts for carriage in the other

stages of the voyage. Most often, the contracting carrier is the first

carrier. To facilitate this type of arrangement, two types of transport

document are used: the through bill of lading and the transshipment

bill of lading.

The through bill of lading The term through bill of lading is loosely used to refer to a document

containing a contract of carriage that is in stages. The separate

stages would be performed by different carriers by a process of

transshipment.




In practice, the through bill of lading has two characteristics that

distinguish it from conventional bills of lading. It contains:

• a clause giving the carrier the right to transship the cargo

• a statement that the cargo will be transshipped at a particular

port.

The transshipment bill of lading The transshipment bill of lading is nothing more than a receipt from

the second carrier to the first carrier. It verifies that the goods have

been received on board the second ship. The first (contracting)

carrier forwards this transshipment B/L to the contracting carrier’s

agent at the port of discharge. When the goods arrive at the

destination port, this agent can then present the transshipment B/L to

obtain a delivery order for the goods.

The way these B/Ls work together The way these bills of lading work is as follows:

1. At the first port of loading, the contracting carrier (who is

usually the first carrier) issues a through bill of lading to the

shipper.

2. At the transshipment port, the second carrier issues a

transshipment bill of lading to the first carrier.

3. The contracting carrier forwards the transshipment B/L to the

carrier’s agent at the port of discharge.

4. When the vessel on which the goods are transshipped arrive at

the port of discharge, the agent of the contracting carrier presents

the transshipment B/L and obtains the delivery order for the

goods. Under normal circumstances, the contracting carrier

would likely have transshipped goods belonging to several

shippers. In this case, the contracting carrier’s agent would

obtain separate delivery orders for each shipment.

5. The consignee may or may not be aware that the goods have

been transshipped. The consignee presents the through bill of

lading to the agent of the contracting carrier and obtains the

delivery order to take delivery of the goods (usually from the

port).

There is no fixed method by which delivery orders are given to the

consignee. The contracting carrier may work out a method which

suits all the parties involved. The method outlined above would be

particularly useful in a situation where the shipper and consignee are




not aware of the transshipment or do not know on which vessel the

goods are to be transshipped to the destination.

Legal differences of through and transshipment B/Ls The question arises as to whether the through and transshipment bills

of lading have the same legal effect as the conventional bill of

lading. That is, are they receipts for goods shipped, evidence of the

contract of carriage, and transferable documents of title?

• The through bill of lading is recognised as having all three

characteristics of the conventional bill of lading.

• The transshipment bill of lading is a receipt for goods shipped,

and may contain the contract or arrangement between the two

carriers. However, it is not a document of title.

Holders of through B/Ls can claim delivery of goods at the

destination on the strength of a through B/L alone. They can obtain

compensation against the first carrier for loss and damage. They

may also be able to claim against the subsequent carriers if the place

of damage or loss can be proved to have occurred in those legs of the

voyage.

Activity Talk to a carrier and try to obtain samples of through and

transshipment bills of lading. Read everything printed on them.







1. What are the two characteristics of a through bill of lading?

a. ___________________________________________

b. ___________________________________________

2. In what important way is a transshipment bill of lading different

from a conventional bill of lading?

a. it is not a receipt for goods shipped

b. it is not document of title

c. it is not evidence of a contract of carriage

d. there is no important difference

3. Where is a through bill of lading issued?

a. at the first port of loading

b. at the first transshipment port

c. at all ports of loading

d. at the port of discharge

4. Who gives and receives the transshipment bill of lading?

a. it passes from the contracting carrier to the first carrier

b. it passes from the first carrier to the second carrier

c. it passes from the second carrier to the first carrier

d. it passes from the second carrier to the carrier’s agent

5. Holders of a transshipment bill of lading can claim delivery of

goods at the destination on the strength of that B/L alone. True

or false? Explain.

a. true

b. false

_____________________________________________




Answer keys

Lesson 1 1. a. CTO = combined transport operator

b. MTO = multimodal transport operator

c. CTBL = combined transport bill of lading

d. CTD = combined transport document

e. MTD = multimodal transport document

2. c. MTD

3. The combined transport bill of lading is used where one party

undertakes to carry goods by more than one means of transport

in a single continuous flow. It usually refers to transportation

that includes carriage by sea.

4. d. to extend terms of carriage to include overland transport

5. The multimodal transport document is a negotiable transport

document used when at least two different modes of transport are

required under a letter of credit.

Lesson 2 1. The main difference is the addition of pre- and post-carriage to

the ocean leg of the carriage.

2. b. the varied liability of the carrier throughout the


3. d. the same as would apply to rail hauliers

4. a. the carrier accepts the same liability as a sub-contractor

would have had for that leg of the journey under a separate

direct contract of carriage

5. The damage for which the carrier is liable is deemed to have

taken place during the sea voyage.




Lesson 3 1. A through bill of lading contains:

− a clause giving the carrier the right to transship

− a statement that the cargo will be transshipped ata particular

port.

2. b. it is not document of title

3. a. at the first port of loading

4. c. it passes from the second carrier to the first carrier

5. b. false

Holders of the through bill of lading may claim the goods at

the destination. The transshipment bill of lading enables the

agent of the contracting carrier to obtain the delivery order.

This agent has received the transshipment B/L from the

contracting carrier.






Unit 5 The functions of parties to ocean transportation

Many people are involved in modern carriage of goods by sea. Their

interactions can be complex, and it is important to understand their

individual and mutual responsibilities.


• ship’s agents and brokers

• shipper, consignee, and related parties

• ancillary parties.

Carriage of Goods by Sea Law Unit 5: Functions of parties



Unit 5........... Activities and expectations


1. Read and study the text in this unit.

2. Apply the information by performing the Activities

3. Test yourself by doing the Practice Exercises and checking your

answers.





• Identify various parties to the carriage of goods by sea.

• Describe the functions of the various parties to carriage of goods

by sea.

• Describe the relationships among these various parties and how

they are governed.

Unit 5: Functions of parties Carriage of Goods by Sea Law



Lesson 1 ......Ship’s agents and brokers With the possible exception of ancillary parties such as the port

authorities and the functionaries of customs, the responsibilities of

the parties in the maritime transport chain are governed in the main

by contracts. The general law of contract therefore regulates the

relationships among the various parties.

The ship’s (port) agent The ship’s agent or port agent represents the owner of the cargo

carrier whilst the ship is in a port of call. This agent is responsible

for the husbandry of the ship before and during its call to a port. The

agent’s functions include:

• attending to the administrative formalities of the port

• arranging the supplies and bunkers to the ship

• resolving problems relating to the crew

• attending to loading and discharging operations

• providing technical assistance to the ship

• providing legal assistance if required.

Providing information

In addition to dealing with these ship-related duties, the agent must

constantly keep the shipping company informed about conditions in

the port. This information includes such things as freight rates,

market trends, and any commercial or legal changes that may affect

the company’s operation. Some examples of relevant changes are

new policy regulations on cargo allocations or liner conferences, new

carriers on the scene, structural changes in the port, changes in

pilotage or port regulations, and so on.




Functions before the vessel reaches port

Before the vessel calls at the port, the agent prepares for its call, in

the following ways:

• export cargo—marketing and booking the cargo

• import cargo—notifying appropriate parties of the arrival of

ship, ensuring discharge and delivery

• port administration—making provision for the ship’s arrival

(arranging pilotage, berthing, and cargo storage)

• ship’s requirements—the carrier or master should usually telex

or radio these requirements to the agent before arrival. They

may include such items as cash advances, bunkers, stores, fresh

water, crew changes, and repairs.

Functions while the vessel is in port

During the ship’s call at the port, the agent attends to the following

activities:

• cargo handling—co-operate with port authorities, stevedores

and deck officers to load and discharge the cargo

• scheduling—

– monitor the loading or discharge to avoid unnecessary

delay

– maintain close contact with the receivers to ensure

prompt delivery or removal of the cargo

• supplies and services for master and crew—ensure needs for

bunkers, water, stores, cash, medical care etc. are met

• documentation—

– arrange for the preparation of transport documents such

as cargo manifests and stowage plans

– check and sign bills of lading as required

prepare a report on the ship’s call at the port




• finances—collect freight from shippers and receivers

• information and communication—

– keep the shipping company (carrier) and its agents at the

next port fully informed of the progress of cargo

operations and any other relevant details relating to the

movement of the ship

inform the head office of the shipping company and its agent

at the next port about the date and time of vessel

departure

• legal requirements—

– examine any claims that have been made against the

vessel and process the claims (particularly cargo claims)

if he has authority to do so

accept service of writs and other court documents. This

would depend upon the extent of the contract with the

carrier and whether such is provided for in the contract.

The shipbroker The usual and principal function of a shipbroker is to arrange

contracts for chartering, buying, or selling an entire vessel. The

broker provides information about the market and assists in the

negotiation of contracts. A shipbroker is an agent for one, or in some

cases both, of the parties to the contract whether it is a charter party

or a sales agreement.

The shipbroker’s role is essentially to provide the link between the

parties seeking to charter, sell, or buy a vessel. For example, the

broker might link a carrier who has an empty ship or empty space

with a shipper who requires transport capacity.

Chartering brokers and sales brokers

The shipbroker may be called a chartering broker or sales broker

depending on the functions performed.




• Chartering brokers assist in the negotiations that result in the

charter party. Sometimes the broker negotiates directly. The

usefulness of the chartering broker lies in the provision of

information about the current freight market and expertise in

drafting and interpreting charter parties.

• Sales brokers provide a similar function in the sale and purchase

of second-hand ships, linking the parties and helping to negotiate

the sale or purchase. Some brokers specialize in tankers, and

they are at times called tanker brokers.

Activity 1. Arrange to visit a ship’s agent in the port nearest to you and

discuss the work they do.

2. Arrange to visit a shipbroker in the port nearest to you and

discuss the work they do.







1. How are most relationships among parties to ocean

transportation of cargo defined and governed?

_____________________________________________

_____________________________________________

2. Who represents the owner of a cargo carrier when it is in a port

of call?

a. shipper’s agent

b. ship’s agent

c. shipbroker

d. port administrator

3. List at least four functions of a port agent.

a. _________________________________

b. _________________________________

c. _________________________________

d. _________________________________

4. What important function in addition to ship-related and cargo-

related duties do ship’s agents have?

_____________________________________________

5. List at least four things done by a ship’s agent to prepare for a

vessel’s arrival in port.

a. _________________________________

b. _________________________________

c. _________________________________

d. _________________________________




6. Who is responsible for collecting freight from shippers and

receivers?


b. ship’s agent

c. shipbroker


7. Who is responsible for preparing reports on a particular ship’s

call at a port?


b. ship’s agent

c. shipbroker


8. Who is responsible for arranging the needed contacts for buying

and selling a cargo vessel?


b. ship’s agent

c. shipbroker


9. Who is responsible for helping a cargo shipper to charter a

vessel?


b. ship’s agent

c. shipbroker





Lesson 2 ......The shipper, consignee, and related parties

The shipper The shipper is the person who enters into a contract with the carrier

for the carriage of goods by sea. A shipper may be a bulk shipper or

a liner shipper.

Bulk shippers

A bulk shipper ships a large quantity of homogenous goods, (packed

or unpacked) requiring the loading capacity of an entire ship or a

large part of a ship. A bulk shipment is usually performed on the

basis of a charter party.

Liner shippers

A liner shipper ships small homogenous or heterogeneous parcels of

goods that require relatively small amounts of shipping space for

each shipment and are shipped to numerous destinations. The

shipments may be direct to destination or via transshipment at

intermediate ports. A liner shipment is performed on the basis of a

bill of lading.

Shippers, charterers, and contracts of carriage

Where the shipper is someone other than the charterer, then the

contract of carriage is governed largely (though not entirely) by the

terms of the bill of lading. The contract may also incorporate further

express terms such as terms from a commercial invoice or booking

note.

Where the shipper is the charterer, then it is the terms of the charter

party that govern the contract of carriage.




Role of the shipper

The role of the shipper is to:

• obtain the goods and prepare them with adequate packing for

shipping

• find an appropriate vessel for this cargo. This may be done

directly with a carrier, shipping agent, or port agent; or it may be

done with the help of a freight forwarder

• send the goods to the load port, so that the ship can load without

delay

– in a shipment under a bill of lading the carrier or agent

would call for the cargo and fix a time for the cargo to be

sent down to the port

in a voyage charter, the ship would give notice to the

charterer as soon as it is ready to begin loading

operations. The shipper would then have, for example,

24 hours to get the cargo to the quay or place of loading

and commence loading.

The shipper and container shipments

For full container load (FCL) shipments, the shipper would:

• arrange with a trucker/haulier to bring the empty containers and

return the loaded containers to the carrier

• observe the times stipulated by the carrier for pick-up of empties

and delivery of loaded containers

• provide dunnage and other material and stow the cargo properly

inside the container

• make accurate representations to the carrier with regard to the

nature, condition, weight, and measurement of the cargo inside

the container.

For less-than-full container load (LCL) shipments, the shipper would

deliver the cargo properly packed and labelled to the carrier at

designated times.

Sometimes the shipper is also the trucker/haulier, but most often this

is not the case. Some responsibilities for container shipments belong

to the trucker/haulier, who would:




• ensure that the chassis is mechanically sound and in good

condition

• take care of the container while it is in his/her custody

• deliver the loaded container to the carrier

• complete the equipment interchange report (EIR).

The consignee/receiver The consignee or receiver is the person named in a bill of lading

(B/L) to whom goods are to be delivered. Normally, the B/L states

that goods are deliverable to the consignee or their “order or

assigns”. In this case, the contract of carriage is governed basically

by the B/L terms together with any other terms expressly

incorporated into it.

Where the shipper has the goods made deliverable to the shipper’s

agent then there is no real consignee. The shipper becomes, in effect

the consignee, and the agent is an “order or assign”.

The significance of this lies in the relative importance of the

statement about the condition of the shipment signed by the carrier in

the B/L. This statement is only regarded as prima facie1 evidence in

disputes between shipper and carrier about the condition of goods. It

would serve as conclusive evidence in a dispute between consignee

and carrier.

The contract of carriage and the receiver

One of the basic principles of the law of contract is that a person who

is not a party to a contract cannot get any benefit nor have any

obligation under it. This is referred to as the “privity of contract”.

The contract of carriage is made between the shipper, who may be

the seller, and the carrier. The receiver, who may be the buyer, is not

a party to the contract and would usually have no rights or

obligations under the contract.

The receiver, however, has to deal with the carrier on two important

matters:

• obtaining delivery of the goods

• making a claim on the carrier in the event of cargo loss or

damage.

1 Prima facie evidence means at first sight; based on first impressions.




Delivery

The unique nature of the bill of lading enables the receiver to be the

person entitled to the goods. According to the contract of carriage as

enumerated in the bill of lading, the carrier undertakes to deliver the

goods to the named receiver or any one who produces a properly

endorsed bill of lading. Thus the person who holds the bill of lading

gets delivery upon its production and is considered the receiver.

Claims against the carrier

The problem of claims made by someone who is not privy to the

contract is difficult. Various methods have been devised over the

years to get round the problem. In English Law, the problem was

settled in 1855 by the passing of the Bills Of Lading Act, which

states that:

Every consignee of goods named in a bill of lading

and every endorsee of a bill of lading to whom

property in the goods have passed shall have

transferred to him all rights of suit and be subject to

the same liabilities in respect of such goods as if the

contract continued in the bill of lading had been

made with himself.

This Act has been incorporated into the laws of many Caricom

states. Examples are the Bills of Lading Act of Jamaica (1872) and

the Schedule to the Trinidad & Tobago Carriage of Goods by Sea

Act 1926 on Rules Relating to Bills of Lading.

The endorsee The endorsee is the person to whom the bill of lading has been

assigned by endorsement by the previous holder. The most recent

case law indicates that, for the endorsee to sue on the basis of a bill

of lading, both endorsement of the B/L and delivery of the goods

must have been made to the same person.

The freight forwarder The traditional role of a freight forwarder was that of an intermediary

between carrier and shipper. The freight forwarder acted as an agent

in making the transport arrangements without actual possession of

the goods.

The modern role of the freight forwarder is a complex one and often

involves extended services. These cover all activities involved from

the time the cargo leaves the shipper’s warehouse up to the time it is

delivered at its destination. The freight forwarder may act for the




shipper or receiver. When acting for the receiver the freight

forwarder is sometimes called the clearing agent.

The general role of the freight forwarder

The services rendered by a freight forwarder to the client may be as

follows:

• providing professional advice on the selection of the carrier

• informing the client of the formalities that must be completed

before shipping the goods (for example, export clearance)

• sometimes attending to these formalities

• arranging the road/rail transport to the port

• arranging for customs to check the goods

• taking delivery of the goods for the receiver

• in the case of loss or damage to cargo, tendering reservations as

required against the carrier

• in the case of transshipment cargo, arranging for the

warehousing of the goods at the port and reshipping them under

optimum conditions of price and time.

The freight forwarder and customs broker

The freight forwarder is often also a custom agent. In many islands

of the Caribbean region, the role of the freight forwarder is made

distinct from that of a customs broker. However, both parties may

operate from the same office and even within the same company, but

offering distinct services.

The legal responsibility and liability of the freight forwarder in this

regard are limited by the terms and conditions of the contract

between the freight forwarder and the shipper.

Varying roles for exports and imports

The role of the freight forwarder varies depending upon whether the

cargo dealt with is being imported or exported.




Import cargo

The carrier may discharge and deliver imported cargo in two ways:

• direct delivery of goods from the ship’s tackle to the vehicles of

the receiver

• indirect delivery of the goods such as when the goods are

delivered into the custody of the port for storage. The port

would later deliver the goods to the receiver.

The freight forwarder may therefore do the following:

• take delivery of the goods either from the carrier directly or from

the port

• if the freight is payable at destination, pay it and all port charges,

which would include stevedoring and warehousing expenses

• arrange for customs formalities to be completed and pay any

dues before he clears the goods from the port

• take all necessary measures to preserve the rights of the client

against the vessel, which may involve making reservations on

the bill of lading

• notify the carrier of any loss or damage to the goods

• inform the cargo insurer or insurers agents of any loss or damage

and arrange a survey of the goods

• forward the bill of lading to the shipper.

Export cargo

When dealing with export cargo, the freight forwarder does the

following:




• receives the goods at (or near) the port or arranges for their

transport from the premises of the client to the port

• completes the customs formalities or arranges for these to be

completed by an authorized custom agent

• in some ports, delivers the goods either stacked in warehouses or

on the quay to the port authority or the shore handling company

before loading operations begin

• in other ports, delivers the goods directly on to the quay for

loading

• completes the bill of lading and obtains the signature of the

carrier or agent

• takes any required measures to defend the interests of the client.

For example, the freight forwarder may tender reservations

against the road haulier in the event of any loss or damage to

goods. This would protect the client’s right to take subsequent

action.

The multimodal transport operator A multimodal transport operator (MTO) is a person who concludes a

contract to carry goods by more than one means of transport and may

function either as carrier or as shipper. MTOs can be divided into

two categories:

• vessel-operating multimodal transport operators (VO-MTOs).

• non-vessel-operating multimodal transport operators

(NVO-MTOs); also known as non-vessel-operating common

carriers (NVOCCs).

VO-MTOs

VO-MTOs are shipowners who extend their services (mainly

because of containerization) to include carriage over land and even

carriage by air. Normally they do not own or operate means of

transport by road, rail, or air. They arrange for these forms of

transport by subcontracting with other carriers.

NVO-MTOs

NVO-MTOs are not ocean carriers (shipowners). In fact, although

they may be owners or operators of some other means of transport

such as trucks, they need not own or operate any means of transport

at all. These businesses arrange the carriage of goods by using more




than one means of transport. They do this by subcontracting with

carriers, and usually offer a door to door service.

Freight forwarders and NVO-MTOs

Misunderstandings at times occur over the role of a freight forwarder

and an NVO-MTO. This is because many freight forwarders have

diversified their activities to such an extent that they at times offer to

carry cargo, operating effectively as NVO-MTOs. From a legal

point however, the role of the freight forwarder and the NVO-MTO

is quite distinct and separate.

• Freight forwarders commit themselves to ensure the smooth

flow of the cargo according to the instructions of their clients,

using all means at their disposal. Their obligations are to

facilitate carriage and to attend to the ground arrangements.

They have no commitment to ensure that the cargo reaches its

destination.

• NVO-MTOs are responsible for cargoes not only while they are

in their custody but even while they are in the custody of the

subcontracted carriers. Unlike the freight forwarder, the NVO-

MTO has to achieve the end result, and ensure that the cargo is

delivered.

Although the two are easy to distinguish legally, from the operational

point of view it could be difficult to determine whether a certain

function was performed by some one acting as a freight forwarder or

as an NVO-MTO.

Activity 1. Talk to a carrier, a shipper, and a freight forwarder about the

ways their jobs are affected by containerization.

2. Discuss with a freight forwarder and an MTO the ways in which

their functions overlap and differ.







1. Which type of shipper ships small parcels of goods to numerous

destinations?

_____________________________________________

2. What type of document usually specifies the terms of carriage

for a bulk shipper?

a. they are not specified

b. charter party

c. contract of carriage

d. bill of lading

3. What type of document usually specifies the terms of carriage

for a liner shipper?


b. charter party


d. bill of lading

4. If the shipper is not the charterer of the cargo vessel, what is the

main source of the terms of carriage?


b. charter party


d. bill of lading

5. Name four parties who might help the shipper to find an

appropriate vessel.

a. _________________________________

b. _________________________________

c. _________________________________

d. _________________________________




6. How does the shipper know when to load goods on vessel under

a voyage charter?

_____________________________________________

_____________________________________________

_____________________________________________

_____________________________________________

7. When a shipper wishes to send in a container a shipment that

will not completely fill it, what are the shipper’s responsibilities

regarding packing and stowing?

a. stow the packed shipment in the container with plenty of

dunnage and other protective material

b. give the cargo to the carrier to pack and stow in the

container

c. give the packed cargo to the carrier to stow in the container

d. give the cargo to the haulier to pack and stow in the

container

8. Why might a consignee be better off to be named in the bill of

lading, rather than have the shipper’s agent be the named

receiver?

_____________________________________________

_____________________________________________

_____________________________________________

9. What is privity of contract?

_____________________________________________

_____________________________________________

10. Given the tradition of privity of contract, how is it that a

consignee may make claims under a contract of carriage between

a shipper and a carrier?

_____________________________________________

_____________________________________________

_____________________________________________




11. Under what conditions may an endorsee sue under the terms of a

bill of lading?

a. whenever the endorsement is proper (legal)

b. when it is properly endorsed and the cargo is delivered to

the endorsee

c. when the endorsee collaborates with the receiver of the

goods

d. an endorsee may not sue under the terms of a B/L

12. What is the difference between a freight forwarder and a clearing

agent?

a. the freight forwarder acts for both shipper and receiver, but

the clearing agent acts only for the receiver

b. the freight forwarder acts for the shipper and the clearing

agent acts for the receiver

c. the freight forwarder acts for the receiver and the clearing

agent acts for the shipper

d. the clearing agent acts for both shipper and receiver, but the

freight forwarder acts only for the receiver

13. What is the usual relationship of the freight forwarder and

customs agent in the Caribbean region?

a. they operate totally separately

b. they operate separately but offer similar services and may

work from the same office

c. they operate separately, offering distinct services, but may


d. the same person may do both jobs

14. List at least five things the freight forwarder may have to do

when helping with imported cargo.

a. _________________________________

b. _________________________________

c. _________________________________

d. _________________________________

e. _________________________________




15. From a legal point of view an MTO may act as

a. a carrier or a shipper

b. a carrier only

c. a shipper only

d. a freight forwarder




Lesson 3 ......Ancillary parties Various other organizations are important players in the maritime

transportation chain. They perform services that facilitate operation

of the vessels, cargo handling ship-to-shore and vice versa, and the

import and export of cargoes.

Port authorities and operators Some port authorities are completely autonomous, others more

directly controlled by government. All are empowered by and

answerable to a port city, state, provincial, or regional government.

In many developing countries there is some control by central

government. A port authority has responsibility for:

• safe navigation

• traffic control

• harbour maintenance

• port development.

Usually the port delegates some of its authority and duties to other

organizations. Often they charge certain tariffs to those using the

port’s facilities.

Landlord ports

The port authority may delegate all of its function related to port

operations to private companies by way of management contracts.

This is the case in the Port Authority of Jamaica, which operates as a

regulatory authority as well as a landlord port. This means that

although it may own some port facilities, it does not itself operate

any of these facilities.

The port and the cargo transport chain

The port is a key point in the maritime transport chain and today

provides a number of diverse services. In smaller ports, these

services might be offered by a single organization, but in some ports

these services are undertaken by separate entities. For example a

private shore handling company may arrange for the storage and

custody of the cargo before loading and after discharge, while

another stevedoring company would arrange for the actual loading

and discharge of cargo. In some other ports, however, shore

handling and stevedoring services are provided by the port authority,

the port workers at times specializing in various tasks.




Cargo functions of a modern port

A reasonably clear distinction can be drawn in modern port

operations, resulting in three separate main functions, which are

undertaken by different types of port workers:

• cargo handling—this is performed by stevedores. It is a

physical activity consisting of loading, stowing, breaking stow,

and discharging cargo.

• cargo reception and identification—this is done by shore

handling personnel such as cargo receivers, tally clerks, store

keepers, etc. These port personnel receive the cargo from the

shipper/freight forwarder and arrange for its storage and custody.

They move the cargo under the appropriate ship’s tackle during

loading operations.

• cargo storage and custody—these people store and conserve

the goods after discharge and prior to their delivery to the final

receivers. They also store goods prior to loading.

Shore handling company responsibilities

Since the shore handling company (or the port authority) may in

principle be responsible for the goods, they take a count of the goods

and examine them jointly with the carrier at the time of loading and

discharge. This is done to ensure that they are not liable for loss or

damage that has taken place while the cargo was in the custody of

the carrier.

If cargo is found to be damaged, such damage would be noted on the

documents issued by them. The documents are signed by the master

or one of the ship’s officers and by a representative of the shore

handling company or port authority. They become important

documents for both the port and the carrier on questions of liability.

Customs brokers and customs officers Customs brokers and officers execute customs formalities and secure

revenue to the countries in respect of imports and exports.

Customs brokers and customs entry reports

Before loading or discharging cargo, a vessel must be “entered in”

with customs. This is the responsibility of the ship’s master but is

usually carried out by the ship’s agent before arrival.




The customs entry report

The custom’s entry report is prepared by the importer or a customs

broker. It is usually accompanied by commercial invoices and

packing lists. Duty is paid at this time. The entry report has the

following functions:

• vessel declaration

• crew list

• cargo declaration (cargo manifest or bills of lading)

• passenger list.

This report has two main functions: to provide a record and to serve

as a basis for levying tariffs.

Customs officers and customs releases

Customs officers are government officials. In most countries,

customs and excise is part of the government’s treasury or

department of revenue. They often also have strong links with law

enforcement agencies. Their main functions are:

• collecting import duties and taxes such as value-added taxes

(VATs), goods and services taxes (GSTs), and excise taxes on

liquor and tobacco

• preventing entry of prohibited or restricted goods—in their role

of controller, they work closely with police forces and are

empowered to enforce laws

• maintaining statistical data for the government.

All cargo is held in bond until it is entered and cleared by customs.

This may involve the use of special bonded facilities. Customs

officers (appraisers) inspect the paperwork and the cargoes to verify

the quality and quantity of goods in the entry. After a shipment is

inspected and passed by customs, a customs release is issued. This

is required before the goods may be released to the importer.

Similar procedures and paperwork apply to exports. Exporters file

export declarations and customs receives a complete listing such as

the export cargo manifest.

Activity Find out which ancillary parties to cargo carriage are active in your

local port. Talk to as many of them as you can to find out what they

do and how many people are employed in their offices.







1. What is a port authority responsible for?

a. _________________________________

b. _________________________________

c. _________________________________

d. _________________________________

2. What is a landlord port?

_____________________________________________

3. Stevedoring services are always provided by the port authority.


a. true

b. false

_____________________________________________

4. What are the three main cargo functions in a modern port?

a. _________________________________

b. _________________________________

c. _________________________________

5. Why do shore handlers inspect the goods as they are discharged?

a. so that they may claim insurance for losses or damage

b. to ensure they are in a fit state for storage and/or delivery

c. because they may wish to sue the carrier

d. to protect themselves against being held liable for losses

caused by the carrier

6. Who may “enter in” the ship with customs? Mark any that

apply.

a. ship’s master

b. ship’s agent

c. customs broker

d. importer




7. Who prepares the customs entry report? Mark any that apply.

a. ship’s master

b. ship’s agent

c. customs broker

d. importer

8. What are the three functions of customs officials?

a. _________________________________

b. _________________________________

c. _________________________________

9. When is a customs release issued?

a. when goods are exempted from duties

b. when they are held in bond

c. when duty is paid

d. when the shipment is inspected and passed




Answer keys

Lesson 1 1. These relationships are defined in contracts, which are governed

by contract law.

2. b. ship’s agent


– attending to the administrative formalities of the port

– arranging the supplies and bunkers to the ship

– resolving problems relating to the crew

– attending to loading and discharging operations

– providing technical assistance to the ship

providing legal assistance if required

4. The provision of information about conditions at the port such as

freight rates, market trends, commercial and legal changes, liner

regulations, pilotage, and new carriers.


− marketing and booking exports

− notifying interested parties of the arrival of imports

− ensuring discharge and delivery of imports

− organizing needed cargo storage

− arranging pilotage and berthing of arriving ships

− arranging for special provisions as requested by the carrier

or ship’s master such as repairs, bunkers, cash advances,

stores, and water



8. c. shipbroker

9. c. shipbroker.




Lesson 2 • liner shipper

2. b. charter party

3. d. bill of lading

4. d. bill of lading

5. − carrier

− shipping agent

− port agent

− freight forwarder

6. The ship notifies the charterer when it is ready to begin loading.

After this, the shipper has a specified amount of time to get the

cargo to the quay and commence loading.

7. c. give the properly packed cargo to the carrier to stow in the

container

8. The consignee might be better off because, in a dispute between

the shipper (or agent) with the carrier, the B/L statement about

the condition of the goods serves only as prima facie evidence,

not conclusive evidence.

9. Privity of contract means that a person who is not a party to a

contract may not derive benefits or obligations because of it.

10. Many countries have laws based on the UK Bills of Lading Act,

which states that the rights of suit may be transferred from the

parties to the contract of carriage to anyone named in the B/L

containing its terms.

11. b. when it is properly endorsed and the cargo is delivered to

the endorsee

12. a. the freight forwarder acts for both shipper and receiver, but

the clearing agent acts only for the receiver

13. c. they operate separately, offering distinct services, but may





14. Any five of the following:

− take delivery of goods from the carrier or the port

− pay any freight due at destination and any port charges

(such as stevedoring and warehousing)

− complete customs formalities and pay dues

− act to preserve the client’s rights against the vessel—this

may mean making reservations on the B/L

− notify the carrier of any loss or damage

− inform the cargo insurer or insurer’s agents of loss or

damage and arrange a survey

− forward the B/L to the shipper

15. a. a carrier or a shipper.

Lesson 3

1. − safe navigation

− traffic control

− harbour maintenance

− port development

2. In a landlord port, the port authority owns some port facilities

but does not operate them.

3. b. false

In some ports, stevedoring services are offered by private

companies.

4. − cargo handling

− cargo reception and identification

− cargo storage and custody

5. d. to protect themselves against being held liable for losses

caused by the carrier

6. a. ship’s master

b. ship’s agent




7. c. customs broker

d. importer

8. − collecting duties and taxes

− preventing entry of prohibited or restricted goods

− maintaining statistical data

9. d. when the shipment is inspected and passed.






Unit 6 Carriers’ rights, obligations, and defences

Carriers have obligations to perform as specified by custom and in

the terms of their contracts of carriage. They also have clearly

delineated rights and ways to legally defend themselves in the face of

claims made against them.


• legal obligations of the carrier

• rights and defences of the carrier under the bill of lading

• other obligations and rights of the carrier.

Unit 6: Carriers’ rights, obligations, & defences Carriage of Goods by Sea Law








answers.





• Identify carriers’ rights, obligations, and defences under

common law.

• Identify carriers’ rights, obligations, and defences (exclusions)

under the Hague and Hague Visby Rules.

• Explain what is meant by providing a seaworthy ship.

• Identify specific requirements during loading, stowage, the

voyage, discharge, and delivery.

• Discuss to what extent carriers may extend or limit their rights,

obligations, and defences under common law and under Hague


• Describe how carriers may extend or limit certain rights,

obligations, and defences under common law and under Hague


• Identify the limits of application of the Hague and Hague Visby

Rules.

Carriage of Goods by Sea Law Unit 6: Carriers’ rights, obligations, & defences



Lesson 1...... Legal obligations of the carrier The carrier has certain recognized obligations, some of which derive

from common law and others that are regulated under national law

and international conventions such as the Hague Rules.

Obligations at common law The basic undertaking of a carrier is to carry the goods from the port

of loading to the port of discharge, and there deliver the cargo in the

same condition as it was received. This undertaking can actually be

verbal or written. In this Unit we examine the common carrier’s

obligations as contained in a written contract, particularly the

conventional bill of lading.

In order to perform this basic undertaking, the carrier must fulfil a

number of obligations. Most of these obligations would be

expressed in the contract. Where they are not, they may be implied

by the courts as being essential to the performance of the main

undertaking.

The carrier must do the following:

• provide a seaworthy ship

• load and stow the goods on board the ship

• take care of the goods

• proceed with reasonable dispatch

• proceed without unreasonable deviation

• discharge the goods upon arrival of the ship at port of discharge

• deliver the goods to the consignee.

Common law exclusions and specified exclusions

The carrier’s undertakings are subject to certain exclusions, which

may be expressed in the contract or merely, implied. From the

outset, the common law recognized that carriers might not be able to

fulfil their obligations due to causes beyond their control. As a

matter of course, common law implied two exclusions: “act of God”

and “act of King’s enemies”. This means that the carrier cannot be

held liable for losses caused by natural disasters and wars and so on.

Later, another was added, namely: “inherent vice of the goods”. For




example, certain foodstuffs are subject to ripening and may rot on a

long journey through natural processes that cannot be stopped.

In addition to these common law exclusions, the carrier and the

shipper could agree to any express exclusion because of the concept

of freedom of contract. The stronger bargaining strength of the

carrier gradually led to so many exclusion clauses in the contract,

they almost cancelled the carrier’s basic undertaking.

National laws and international conventions National maritime legislation in the common law countries protects

the position of the shipper by restricting the carriers’ rights to reduce

their obligations with exclusion clauses. Most common law

countries have enacted national legislation in accordance with one or

more of the international conventions that regulate cargo carriage at

sea—that is, the Hague Rules and the Hague Visby Rules.

Where the international rules apply, the applicable obligations and

exclusions are automatically considered to be part of the bill of

lading. This is so even if they do not appear in print and even if

there is no clause in the bill of lading specifically incorporating the

Rules.

Obligations under the Hague and Hague Visby rules

The relevant provisions in the Hague Visby Rules are almost

identical to those of the Hague Rules. These impose on the carrier

minimum obligations which may not be contracted out of, and fix the

limits of exclusions. The minimum obligations set out in the Hague

Rules largely correspond to the obligations identified by the common

law.

The Hague Rules and charter parties

The scope of application of the Hague Rules is limited. According to

Article I (b) of the Hague Rule, the rules apply to any contract of

carriage covered by a bill of lading (B/L) or any similar document of

title in so far as such document relates to the carriage of goods by

sea. The Hague Rules would thus not apply to a charter party (C/P).

Although the charter party contains the contract of carriage between

the carrier and shipper, it is not a document of title. However, if a

B/L is issued under a C/P, the Hague Rules would apply to the B/L

from the moment it regulates the relationship of its holder and the

carrier.

Thus, although the carrier and the shipper can include any clause

they like regarding their obligations within the charter party, they

must ensure that any B/L issued under the C/P conforms to the




Hague Rules. If it does not, the terms that are contrary to the Rules

would be legally invalid and the appropriate provisions of the Rules

would be deemed incorporated instead.

The Hamburg Rules

The Hamburg Rules of 1992 were signed by 20 nations and

destroyed the previous uniformity of international rules. These rules

are seen as being more advantageous to the shippers, who make up

most of the developing world. However, the Hague Rules continue

to dominate the Caribbean region partly because the large

shipowning nations who make the B/Ls find the Hamburg Rules to

be to their disadvantage. The Hamburg Rules have been ratified in

this region only by Barbados.

Providing a seaworthy ship Under common law and international convention, by undertaking to

carry goods by sea, the carrier implies that the vessel to be used is

seaworthy. Seaworthiness has two aspects to it:

• the ship itself must be fit to encounter the perils of the voyage.

Courts generally have held that a vessel is seaworthy if the hull,

tackle, and machinery are in good repair, there is enough fuel

and ballast, and the ship has an efficient crew

• the ship must be fit and ready to receive and carry the cargo

safely on the voyage.

Under common law

Under common law, the undertaking of seaworthiness requires not

only that the carrier has made every effort to make the ship fit, but

that the ship is in fact fit to carry the goods to the destination. That

is, it is an absolute undertaking. However, under common law, this

undertaking could be excluded by inserting in the contract a clearly

worded exclusion clause.

Under the Hague Rules

Under the Hague Rules, the common law absolute undertaking is

replaced by an undertaking that, before and at the beginning of the

voyage, the carrier will exercise due diligence to make the ship

seaworthy.




In the Caribbean

To give a Caribbean example, the Jamaica Carriage of Goods Act

and the Trinidad & Tobago Carriage of Goods Act have similar

provisions. These state that in any contract for the carriage of goods

by sea to which the rules apply, there shall not be implied any

absolute undertaking by the carrier of goods to provide a seaworthy

ship.

Elements of seaworthiness

The Hague Rules elaborate the different elements of the requirement

of seaworthiness. Article III (1) states as follows:

The carrier shall be bound before and at the

beginning of the voyage to exercise due diligence to:

1. Make the ship seaworthy;

2. Properly man, equip and supply the ship;

3. 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.

Although the Hague Rules requirement of seaworthiness may seem

less stringent than the common law requirement, this is not so in

practice for the following reasons.

• Unlike in common law, the undertaking is one of the minimum

obligations under the rules, and it cannot be avoided or lessened

by the carrier.

• The English courts have held that there must be “due diligence”

by the persons, whether servants, agents or independent

contractors that are engaged by the carrier to make the ship

seaworthy. Thus the negligence of a fitter employed by an

independent and competent firm of repairers could be attributed

to the carrier. This makes the burden of proving “due diligence”

quite difficult in practice.

Loading and stowing the goods on board Under common law loading was a joint obligation of the carrier and

the shipper. The shipper lifted the goods up to the ship’s rail and the

carrier took it in and stowed it. Carriers had to ensure that their part

of the loading and stowing operation was performed properly and

carefully. The parties, of course, could agree that only one of them

would be responsible for the entire loading operation, or that the

carrier could perform it without being held responsible for any loss

or damage to the goods.




The Hague Rules indicate that loading is an obligation of the carrier,

although there is nothing in the Rules to say that it cannot be a joint

operation. The carrier however cannot exclude responsibility for

improper loading. Article II of the Hague Rules states:

The carrier shall properly and carefully load,

handle…

When does loading begin?

Loading is an important function because it is the starting point of

the application of the Hague rules to the carrier of goods by sea. The

carrier and the shipper are only bound to contract in accordance with

the rules from the loading of goods. They may insert into their

contract any exclusion clause dealing with responsibility for the

goods before loading.

It is important, then, to decide when exactly loading begins. Since

loading is a lengthy operation in which the shipper or shipper’s agent

too may play some part, it is not easy to decide exactly when loading

begins vis-à-vis the carrier. The point at which loading begins

depends on the custom of the port, the type of cargo to be loaded,

and method of loading. Concepts such as “passing the ship’s rails”

which had been developed prior to the Hague Rules are still in use

under the Rules.

Stowing

The carrier is responsible for the proper stowage of cargo even if the

task is physically performed by the shipper. It always takes place

under the supervision of the master or crew of ship.

Under the common law, the carrier could exclude liability for

stowage with a suitable exclusion clause. Under the Hague Rules

however, this is not possible. Stowage is indicated as one of the

obligations of the carrier.

Taking care of the goods The carrier must take care of the goods, ensuring that they suffer no

loss or damage during the voyage. Thus, for example, the carrier

would provide adequate ventilation during any change of

temperature if the goods could be affected by it. The carrier must

also prevent any theft or pilferage of the goods at way ports. While

this obligation may be excluded under the common law, it may not

be excluded under the Hague Rules.




Proceeding with reasonable dispatch Under common law, the carrier has an implied obligation to proceed

on the voyage with reasonable dispatch. What would amount to

reasonable dispatch depends on the facts of each case. Like other

common law obligations this too can be excluded by an appropriate

exclusion clause.

The Hague Rules make no reference to the undertaking of reasonable

dispatch, and it remains an implied obligation, which the parties can

exclude by a clause in the bill of lading. This is one of the reasons

why the carrier may not be held responsible for delay in the carriage

of goods.

Proceeding without unjustifiable deviation At common law, it is implied that the carrier will not deviate from

the contract route unless such deviation is reasonable and justified.

A deviation is considered to be justified if at least one of the

following conditions applies:

• it is in order to save human life

• it is necessary to the safety of the voyage.

The carrier can, under common law, insert a clause excluding this

obligation.

Under the Hague Rules, too the carrier must proceed without

unjustifiable deviation. The Rules however improve the common

law position of the carrier, by expanding the situations where

deviation is justified. Article IV (4) allows deviation in the

following cases:

• to save life

• to save property

• in reasonable response to circumstances.

Whether a particular deviation is considered reasonable depends on

the facts of each case.

The obligation not to deviate unjustifiably or unreasonably is

considered fundamental to the contract of carriage. Deviations have

far-reaching repercussions. The main one is the carrier’s

responsibility for losses that the shipper or receiver may suffer

because of the deviation. Also, deviation is said to displace the

contract to such an extent that the carrier is denied all rights and

exclusions under the contract from the point of deviation onward.




The carrier is then left only with the common law exclusions namely,

Act of God, King’s Enemies, and inherent vice.

Liberty clauses

The bill of lading often contains what is known as a liberty clause.

This gives the carrier the right to call at any port. The question arises

as to whether a liberty clause would amount to an exclusion clause

and thus be contrary to the Hague Rules. The answer appears to be

that liberty clauses are indeed contrary to the Rules.

Liberty clauses are used, for example, when a common carrier is

carrying cargo to a number of destinations and requires the flexibility

to call at any port. The carrier thus undertakes to carry the cargo

from the port of loading to the port of discharge calling at any other

port of his choice. The courts however tend to interpret liberty

clauses restrictively, as giving the right only to call at certain other

ports. These would be any ports in the course of the advertised

voyage or along its geographical route.

Discharging the goods Under the common law, discharge is a joint obligation, like loading.

Under the Hague Rules, the shipowner has an obligation to discharge

the cargo. Article III (2) of the Hague Rules state that:

…the carrier shall properly and carefully load,

…and discharge the goods carried.

Discharge is the carrier’s final obligation under the Hague Rules.

Port of discharge and force majeure

The port of discharge is always agreed upon and included in the bill

of lading. Most bills of lading however make provision for the

carrier’s inability to discharge at the agreed port due to

circumstances beyond their control (called force majeure). These are

unpredictable events beyond the control of the carrier, such as

strikes, lock outs, blockage, ice, etc. If any of these types of events

prevent the carrier from discharging at the agreed port, the carrier is

entitled to discharge in another safe and convenient port. Force

majeure clauses are valid under the common law and the Hague

Rules.

Place (berth) of discharge

At the port of discharge the carrier must proceed to the place of

discharge indicated in the bill of lading, or, if no such place is

indicated, to the carrier’s place of choice. In practice, the place or




berth where the ship is discharged is usually decided by the port.

Special cargo such as dangerous goods or bulk cargo may have a

customary berth in the port.

Notice of discharge

The carrier has no obligation to give notice of arrival to the

receiver/consignee unless this was so agreed. If the name of the

consignee is indicated on the bill of lading under “party to be

notified”, this would amount to an agreement to notify. In this case,

the carrier would be obliged to inform that person.

Manner of discharge

In common law, the carrier’s obligation is to get the goods out of the

ship’s hold and put them on the ship’s deck or alongside, so that the

receiver could take the goods without difficulty. This however is

often altered by the custom of the port. In many ports today the

receiver is not present at the time the cargo is discharged and the

goods may have to be moved and possibly stored before being

received by the consignee/receiver. The total discharging operation

is carried out by the ship and the port.

The Hague Rules do not elaborate the manner of discharging the

goods. It would thus depend on the custom of the port and the type

of goods. Even if the receiver decides to perform the entire function

of discharge, it is unlikely that the carrier could avoid responsibility

for discharge.

End of discharge

The point at which discharge ends or, to be more precise, the point at

which the carrier’s part of discharge ends, is important. This is

because that is the point at which the Hague Rules cease to apply to

the contract of carriage of goods. Discharge is the final activity

regulated by the Rules. This does not mean that the carrier has no

further obligations towards the goods, but it means that the carrier is

free to contract further tasks in any manner. The carrier could

exclude all responsibility for the goods after they are discharged

from the ship.

There is no fixed rule regarding the end of the carrier’s function of

discharge. As in loading, it would depend on the intention of the

parties and the custom of the port. Many ports yet follow the

practise of the “ship’s rail” that is, responsibility of the carrier ceases

as the goods are lifted off board over the ship’s rail. The bill of

lading could stipulate when discharge is to end and it often contains

clauses that specify the end of discharge and the end of the carrier’s




responsibility towards the cargo. For example the bill of lading may

contain a clause which states:

… the goods are considered to be at the shipper’s

risk as soon as they are discharged over the ship’s

rails

or

…the goods to be at risk of consignee from ship’s

tackle.

These clauses do not appear to contravene the Hague Rules.

LOB certificates

As a result of these clauses, the carrier would not be held responsible

for any loss or damage to the goods after discharge from the ship,

even if the carrier continues to handle them. For example if the

goods were to fall overboard during the discharging operation, the

carrier could decline responsibility for such loss as they would have

passed the ship’s rails. This position is acknowledged in many ports.

These ports issue LOB (lost overboard) certificates. The carrier may

produce LOB certificates in legal defence in the event of a claim

from the consignee.

Delivering the cargo At the time when discharge was a joint operation between the carrier

and the receiver, discharge and delivery would have amounted to one

function. This would be the position even today in the case of direct

delivery of cargo. Legally, however, they are two different

functions.

According to the common law, the carrier is obliged to give personal

delivery to the receiver or the receiver’s agent. The carrier remains

responsible for the goods till then. This could however be altered by

the customs of the port or the provisions in the contract of carriage.

As the Hague Rules do not apply to this part of the carriage, bills of

lading usually contain provisions regarding delivery. According to

the B/L provision, the carrier could simply discharge the cargo into

the custody of the port and leave without further responsibility. For

example a clause in the bill of lading could state:

… wherever it is compulsory or customary at any

port to deliver the cargo to the custom or port

authorities, delivery so made shall be considered

final delivery.




Although discharge of the cargo into the port releases the carrier

from taking care of the goods any further, the carrier is obliged to

authorize delivery to the proper consignee. The carrier’s obligation

is to deliver or authorize delivery to the first person who presents a

properly endorsed bill of lading.

Activity 1. Find out what national laws (if any) are in place in your country

to regulate the obligations of a cargo carrier.

2. When were they enacted?

3. Do they make reference to the Hague or Hague Visby Rules?







1. What is the basic undertaking of the carrier?

_____________________________________________

_____________________________________________

2. List at least four of the things that the carrier must do to achieve

this basic undertaking.

a. _________________________________

b. _________________________________

c. _________________________________

d. _________________________________

3. What are the three common law exclusions?

a. _________________________________

b. _________________________________

c. _________________________________

4. Which of the following is true in most common law countries?

a. restrictions to carrier’s obligations are strictly limited to

common law exclusions

b. the right of carriers to reduce their common law obligations

is restricted by national law

c. common law exclusions are overturned by the carrier’s

obligations under Hague and Hague Visby Rules

d. no special laws are needed because the terms of carriage are

always expressed in the bill of lading

5. In a country that recognizes the Hague Rules, they apply to all

contracts of carriage. True or false? Explain.

a. true

b. false

_____________________________________________




6. What is the main difference in common law and Hague Rule

requirements regarding seaworthiness of the cargo vessel?

a. common law require seaworthiness, whereas the Hague

Rules do not

b. the Hague Rules require seaworthiness whereas the

common law does not

c. under common law, the ship must be seaworthy, whereas

under the Hague Rules, the carrier needs only to have made

a diligent effort to ensure seaworthiness

d. under the Hague Rules, the ship must be seaworthy,

whereas under common law, the carrier needs only to have

made a diligent effort to ensure seaworthiness

7. If a carrier wishes to exclude responsibility for damage caused

during loading, would it be better to operate under common law

or under the Hague Rules? Explain.

a. common law

b. Hague Rules

_____________________________________________

_____________________________________________

8. What do the Hague Rules say about responsibility for stowage?

a. nothing

b. that it is up to the shipper and carrier to decide

c. that it is the stevedore’s responsibility

d. that it is the carrier’s responsibility

9. What responsibilities (if any) does the carrier have to prevent

theft of goods?

a. none because it is not within the carrier’s control

b. under the Hague Rules this responsibility may be excluded,

but it is absolute under common law

c. under common law this responsibility may be excluded, but

it is absolute under the Hague Rules

d. it is voluntary because the common law and Hague Rules

both allow the carrier to exclude this responsibility




10. What do the Hague Rules say about the carrier acting with

reasonable dispatch?

a. nothing

b. that it depends on the facts of the case

c. that this obligation may be negotiated and/or excluded

d. that the carrier’s obligation is absolute in this regard

11. Under the Hague Rules, what three things might be regarded as a

justifiable deviation?

a. _________________________________

b. _________________________________

c. _________________________________

12. What is a liberty clause and is it acceptable under the Hague

Rules?

_____________________________________________

_____________________________________________

_____________________________________________

13. Under the Hague Rules, whose responsibility is discharge?

a. the shipper

b. the carrier

c. the shipper and carrier jointly

d. the stevedores

14. Are force majeure clauses considered legally valid?

a. no

b. yes, under common law

c. yes, under the Hague Rules

d. yes, under common law and the Hague Rules

15. Which of the following is true?

a. the carrier is legally obliged to notify the consignee that a

shipment has arrived

b. the carrier is not legally obliged to notify the consignee that

a shipment has arrived

c. the carrier is only legally obliged to notify the consignee

that a shipment has arrived if it has been so agreed




16. What is the chief determinant of the way in which goods are

discharged?

a. the bill of lading

b. common law

c. the Hague Rules

d. custom of the port

17. When do the Hague Rules cease to apply to a contract of

carriage?

a. when the ship arrives at the port of discharge

b. when discharge starts

c. when discharge ends

d. when the consignee receives the goods

18. When is an LOB certificate issued, and by whom?

_____________________________________________

_____________________________________________

19. From a legal point of view, what is the relationship between

discharge and delivery?

a. they are regarded as identical

b. they are regarded as separate functions

c. they are separate under the Hague Rules

d. they are identical under common law




Lesson 2...... Rights and defences of the carrier under the B/L The obligations of carriers must be viewed in the light of their rights

and defences against claims. The common law provides the carrier

with three defences whether they are included in the contract or not.

It also gives the carrier the right to include many more defences

against damage claims, with the agreement of the shipper. These

could be used to exclude the specific obligations listed.

The Hague and Hague Visby Rules take away the carrier’s right to

exclude any of the listed obligations. However, the Rules give

carriers seventeen strong defences against claims. They also limit

the carrier’s monetary liability for losses. The defences and rights

indicated in the Rules are available to the carrier even if they are not

expressed in the bill on lading. These defences correspond largely

with the defences that the carrier would include in the contract if it

were governed by the common law.

Exclusions in Article IV of the Hague Rules According to Article III, paragraph 2 of the Hague Rules, the

carrier’s obligation to load, handle, carry, etc., is subject to the

provisions of Article IV, which contains the list of defences and

exclusions. Articles IV of the Hague Rules state that neither the

carrier nor the ship shall be responsible for loss or damage arising or

resulting from the following:

…act, neglect, or default of the master, mariner

pilot, or the servant of the carrier in the navigation

or in the management of the ship

This exclusion is not as wide as it seems because it helps the carrier

only if the cause of loss or damage is due to poor navigation or

management of the ship. Poor management of the cargo is not

covered by it. Still there was and is a perception that it offers a large

amount of protection to the carrier, possibly at the expense of the

shipper. The Hague Rules do not define “navigation” or

“management” but they have been subject to much judicial

discussion. The courts have tried to prevent shipowners from

avoiding the results of their own fault or negligence. In interpreting

the two terms, the courts have tried to distinguished between:




• acts or defaults that are connected with the ship itself, which

would be within the exclusion

• acts or defaults that are connected with the cargo, which would

not be within the exclusion.

Circumstances that can result in cargo damage

The first two groups in the following examples are acts of poor

navigation or ship management that might result in damaged or lost

cargo, but for which the carrier might not be held liable. The final

group is more directly connected with the cargo, so that the carrier is

more likely to be held accountable. These are:

• acts connected with navigation

– ship negligently striking the quay

ship negligently grounding on a reef

• acts connected with ship management

– failure to take soundings of the water level of the hold

– allowing the ship to exceed the permitted draft

failure to use locking bars on hatches in heavy seas

• acts connected with cargo management, and not the ship

– allowing rain water to get into hatches by not protection

them with hatch covers while in port

– pilfering by stevedores

failure to secure cargo.

In effect the Hague Visby Rules exonerate the carrier from damage

caused by negligent navigation and ship management.

Other Hague Visby exclusions

Damage due to fire

The Hague Visby Rules exonerate the carrier from cargo damage or

loss due to fire. This is so provided there was no fault or privity2 on

the carrier’s part.

2 Privity is a relation between parties that is recognized by law. In law, a person having an interest or part in

any action is said to be “privy to” that action.




Perils, dangers and accidents of the sea or other navigable waters

Damage due to “perils of the sea” covers all occurrences that are

connected or peculiar to the sea. It includes any damage to the goods

caused by sea water, storms, collision, and stranding, which could

not be foreseen and guarded against.

It does not cover incidents that occur on the sea but are not peculiar

to the sea. Examples of this are rats eating the cargo at sea, or

damage done by the bursting of a boiler in the ship.

Act of God

The exclusion of “Acts of God” refers to any accident due to natural

causes that could not have been prevented by human intervention.

Such accidents would include lightning, floods, frost, and sometimes

even wind.

Act of war

This exclusion covers all consequences of an act of war. It covers

the consequences of acts done in a civil war as well as hostilities

between separate countries.

Act of public enemies

This exclusion covers acts done by enemies of the state. Together

with the exclusion of act of war, it covers the action of any

belligerent state. It is unlikely to cover acts done by pirates and

traitorous subjects.

Arrest, restraint, or seizure under legal process

This covers any act done by the state or sovereign power. Such acts

would normally be seizure, arrests, embargoes, and blockages

affecting the goods. It would also cover government action resulting

in the detention of the goods and prohibitions of discharge.

Quarantine restrictions

This covers loss or damage to goods due to their being subject to

quarantine procedures. This could involve damage to cargo due to

fumigation or delay in discharging.

Act of omission by the shipper, or the owner of the goods, his agent or his representative

This usually covers loss or damage arising out of the conduct of the

shipper. For example the shipper may give the carrier an inaccurate

description of the goods, which causes the carrier to stow the goods




in the wrong place. Acts or omissions falling under this exclusion

may also be covered by the last three listed below.

Strikes or lockouts or stoppages or restraints of labour from whatever cause, whether partial or general

A strike is considered to be a general refusal by workers to work in

consequence of an alleged grievance. The strike may be a refusal to

work by the portside labour such as stevedores, or by the crew of the

ship. The carrier must use reasonable means to continue business

and obtain workers. The clause in the Hague Rules is quite wide and

covers more than simple strikes.

Riot and civil commotion

Riots amount to criminal activity. A civil commotion indicates

something between a riot and a civil war. The elements of

turbulence and tumult would have to be present.

Saving or attempting to save life or property at sea

This would cover loss/damage to goods arising out of any attempt to

provide assistance to passengers or cargo of other ships.

Wastage in bulk or weight

The carrier is not liable for wastage in bulk or weight or any other

loss or damage arising from inherent defect, quality or vice of the

goods. The exclusion covers loss or damage to the goods arising due

to its own character. For example, some goods, such as humid coal,

lose weight or volume over a long period. The wastage would result

in an apparent shortage of the goods.

Deterioration of perishables

Perishable cargo such as vegetables may decay; juice and fluids

undergo fermentation and acidity; grain may heat up and/or become

infested with weevils; cargo that has been packed into bags in damp

condition may develop mould. The carrier is not liable for these

developments. This assumes that the carrier continues to care for the

cargo in the normal manner, providing adequate ventilation.

Example: Bananas were sent from a Caribbean Island to Dubai in a general cargo vessel fitted with a manual ventilation system. The carrier ventilated the holds whenever the weather permitted it. As expected the voyage lasted several weeks. Upon arrival it was found that the bananas had started to sprout, and hence the consignment was useless for marketing.




The carrier was deemed to have carried the bananas in a satisfactory manner and the damage was attributable to the inherent vice of the goods. The shipper should have transported them on a refrigerated vessel.

Sweat damage

Condensation may form on the sides of the ship’s holds and or on the

goods directly, due to the passage of the ship from cold to warm

climates or vice versa.

The carrier is expected to prevent the goods from touching the ship’s

sides and the bottom by placing adequate dunnage (wooden planks

under and around the goods. Adequate ventilation must be provided

also, depending on the weather. Some older vessels have only

manual ventilators. If the ship has taken all possible precautions and

sweat still forms on the goods, the carrier would not be held

responsible for any resultant loss.

Insufficiency of packing

This exclusion covers loss/damage to the goods that may arise

because of defective or inadequate packing by the shipper.

The carrier often attempts to rely on this exclusion when goods are

discharged in a damaged condition with the outer packing torn. This

is particularly so in the case of alcoholic drinks, for which the

customary packing is bottles inside cardboard boxes. However since

the carrier gives a bill of lading at the outset stating that the goods

are in good order, it would be difficult to later claim that the packing

was unsatisfactory. In practice, where defective packing could have

contributed to the damage, the carrier may agree to settle a claim at

50% of the loss.

Insufficiency or inadequacy of marks

This exclusion would help if the carrier can show that the goods have

been discharged but cannot be identified because of the insufficiency

of marks and identification labels of the shipment. It would also

cover a case where the marks have faded or cannot be distinguished

from the marks of other shipments.

The exclusion would not cover a case where the marks in the bill of

lading differ from the marks in the goods. This is particularly

relevant if the consignee demands goods with marks corresponding

to those in the bill of lading. The carrier has a duty to issue a bill of

lading indicating the correct marks.




Latent defects not discoverable by due diligence

This exclusion covers loss or damage to goods arising due to latent

defect of the ship. A defect is latent if it cannot be discovered by a

person of reasonable skill using ordinary care.

Example: Bauxite was shipped from a Caricom Port to Rotterdam. The ship was examined by the marine supervisor of the carrier and confirmed to be in order. During the voyage, a pipe carrying ballast water burst, flooding one of the holds where the cargo was stowed, causing extensive damage.

In this case, the damage was attributed to a latent defect not discoverable by due diligence.

Any other cause arising without the actual fault or privity of the carrier

The exclusion continues as

...or without the fault or neglect of the agent or

servant of the carrier, but the burden or proof shall

be on the person claiming the benefit of this

exception to show that neither the actual fault or

privity or the carrier nor the fault or neglect of the

agents or servants of the carrier contributed to the

loss or damage.

This is a “catch-all” exclusion that would help the carrier if the loss

does not fall within other listed exclusions, but there is no fault or

negligence on the carrier’s part. Although there is no need to

establish the cause of loss/damage in order to rely on this exclusion,

the carrier must show that there was no fault or negligence of carrier,

or carrier’s servants and agents. In practice, the only way to show

absence of fault or negligence would be to establish the actual cause

of damage. This exclusion cannot easily be relied upon.

Example—case not falling within this exclusion: Bananas were shipped from a Caricom Port to Liverpool. At Liverpool, the vessel was discharged by stevedores who were independent contractors. Precautions were taken by the carrier to guard the cargo at night, but some of the cargo was stolen in the night by thieves.

It was held that the thieves were probably friends of the stevedores and that the carrier had not established a contrary position. It was also held that the stevedores were agents of the carrier and the carrier had not established the lack of fault or negligence on the part of the agent.




Activity Talk to a carrier, a shipper, or a lawyer about any recent claim

against a carrier for lost or damaged cargo.

1. Find out if the claim or defence came under the Hague or Hague

Visby Rules.

2. What were the circumstances of the loss/damage?

3. What defence against the claim did the carrier use? Did a

recognized exclusion apply?

4. Was the claim successful?

5. How much money was involved in the claim?







1. Which of the following best expresses carrier’s rights under the

Hague and Hague Visby Rules?

a. the carrier has three defences against claims whether they

are in the B/L or not, but they may be excluded

b. the carrier may not exclude any listed obligations

c. the carrier and shipper may agree between themselves to

exclude any obligations except the three listed ones

d. the carrier has unlimited liability for losses when the claim

is just

2. Under the Hague Rules, if courts wish to prevent carriers from

avoiding responsibility for damaging other people’s property,

what do courts strive to establish when settling claims?

_____________________________________________

_____________________________________________

3. For what three things do the Hague Visby Rules say that carriers

are not responsible?

a. _________________________________

b. _________________________________

c. _________________________________

4. If a shipment of iron parts goes rusty because of damage by sea

water during a storm, is that considered damage due to a peril of

the sea?

a. yes, because a storm is a peril of the sea

b. no, because iron always rusts when damp




5. Which four Hague Visby exclusions might be used by a carrier

to cover the following situations?

a. cargo is damaged because a terrorist group places a mine in

the ship’s path

b. the label on the cargo package says canned fruit when in

fact it is fresh fruit that subsequently goes rotten

c. unavoidable delay due to bad weather cause a cargo of

bananas to become overripe and rot

d. an apparently sturdy bulkhead structure collapses during the

voyage, causing one cargo to taint another

6. Whose fault is it if the marks or labels described on the bill of

lading do not match the marks and labels on the shipment?

_____________________________________________




Lesson 3 ......Other obligations and rights of the carrier Hague and Hague Visby Rules do not deal with every possible

situation. Certain circumstances and periods of carriage are not

mentioned. The carrier may have various other rights and

obligations that are expressed through clauses in the bill of lading.

Clauses lessening the carrier’s liability Under the common law, the carrier could include in the bill of lading

any clause lessening the carrier’s liability. However, under the

Hague and Hague Visby Rules, the bill of lading could contain only

clauses corresponding to the list of exclusions in the rules.

It would not be acceptable to put clauses into the B/L that allowed

the carrier to handle the cargo irresponsibly. For examples a clause

stating that the carrier is not responsible for damage arising out of

bad stowage would be considered legally invalid under the Hague

Rules.

Clauses increasing the carrier’s responsibility The Hague Rules have no prohibition against the carrier surrendering

the available rights and defences or increasing the carrier’s

responsibility, provided they are expressed in the bill of lading.

Situations not covered by the Hague Rules

Before loading and after discharge

As already observed, the Hague Rules apply to the contract only

from the point of loading to the point of discharge. Thus, before

loading and after discharge, the carrier would be responsible for the

goods according to the common law. Common law gives the carrier

only three implied exclusions—far fewer than the Rules. Therefore,

to avoid liability for the goods completely or even to bring liability

to the standard set in the Hague Rules, the carrier would have to put

express exclusions into the bill of lading to cover this period.

Delay

The Hague Rules contain compulsory provisions only with regard to

loss or damage to cargo. They do not appear to impose any

responsibility on the carrier concerning delays.




Livestock and deck cargo

The Hague Rules exclude live animals and deck cargo from its

ambit. Such carriage would thus be governed by the common law

and the carrier could exclude responsibility in any manner. A bill of

lading issued for deck cargo would usually contain a clause stamped

on it stating,

Carried on deck at shipper’s risks.

Activity There is no specific Activity for this lesson.







1. What periods of carriage are not covered by the Hague Rules?

_____________________________________________

2. What legal regime covers these periods?

a. none

b. common law

c. national laws

d. this may be agreed between shipper and carrier

3. Can carriers limit their liability during these periods?

a. no, liability is unlimited under the common law

b. no, liability may not be limited when Hague and Hague

Visby do not apply

c. yes, by choosing to invoke Hague or Hague Visby

d. yes, by putting exclusion clauses in the bill of lading

4. What do Hague Rules say about delays that cause damage to

cargo?

_____________________________________________

5. What type of cargo is not covered by Hague or Hague Visby

Rules?

_____________________________________________




Answer keys

Lesson 1 1. The carrier undertakes to carry goods from the port of loading to

the port of discharge, and there deliver the cargo in the same

condition as it was received.


− provide a seaworthy ship

− load and stow the goods

− take good care of the goods

− proceed with reasonable dispatch

− discharge the goods on arrival at the destination port

− deliver the goods to the consignee

3. − act of God

− act of the King’s enemies

− inherent vice of the goods

4. b. the right of carriers to reduce their common law obligations

is restricted by national law

5. b. false

The Hague Rules do not apply to charter parties unless a bill

of lading is also issued under the C/P, in which case the

Hague Rules apply to the B/L’s terms.

6. c. under common law, the ship must be seaworthy, whereas

under the Hague Rules, the carrier needs only to have made

a diligent effort to ensure seaworthiness

7. a. common law

Under common law, the carrier and shipper may agree

between themselves to waive or take on such

responsibilities. Under the Hague Rules, the carrier may

not waive responsibility for improper loading.

8. d. that it is the carrier’s responsibility




9. c. under common law this responsibility may be excluded, but

it is absolute under the Hague Rules

10. a. nothing

11. − to save life

− to save property

− to respond reasonably to circumstances

12. A liberty clause is a clause in the bill of lading that gives carriers

the right to call at any port. It is contrary to the Hague Rules—

courts usually restrict the right to certain ports.

13. b. the carrier

14. d. yes, under common law and the Hague Rules

15. c. the carrier is only legally obliged to notify the consignee

that a shipment has arrived if it has been so agreed

16. d. custom of the port

17. c. when discharge ends

18. The certificate may be issued by the port if cargo is lost

overboard after passing the ship’s rail during discharge.

19. b. they are regarded as separate functions.

Lesson 2 1. b. the carrier may not exclude any listed obligations

2. Courts try to differentiate between acts or defaults connected

with the ship and acts or defaults connected with the cargo.

3. − damage due to negligent navigation

− damage due to poor ship management

− damage due to fire

4. a. yes, because a storm is a peril of the sea




5. a. act of public enemies

b. act of omission by shipper (wrong labelling)

c. deterioration of perishables (inherent vice of the goods)

d. latent defect not discoverable by due diligence

6. It is the carrier’s fault. It is the carrier’s duty to issue an accurate

bill of lading even though the shipper may fill it out.

Lesson 3 1. Hague Rules do not cover the period before loading on board

and after discharge.

2. b. common law

3. d. yes, by putting exclusion clauses in the bill of lading

4. nothing

5. livestock and deck cargo.






Unit 7 Liability of the carrier

Carriage of goods is performed under contracts of carriage. Like any

other contract, these may be deliberately or inadvertently breached.

The liability of the carrier for loss and damage to the goods

transported is discussed in this unit.


• basis of liability—breach of contract

• limitation of liability

• time limits for claims.

Carriage of Goods by Sea Law Unit 7: Liability of the carrier








answers.





• Explain what is meant by breach of a contract of carriage and

how such breach is established.

• Identify the way in which a carrier may be liable—through

payment or through completed performance.

• Define how liability is assessed.

• Describe the ways in which liability is limited by international

and national regulation.

• Discuss time limits for liability claims.

Unit 7: Liability of the carrier Carriage of Goods by Sea Law



Lesson 1 ......Basis of liability—breach of contract In order for liability to arise there must be some legal duty that has

not been performed or obligation that has not been met. In a contract

for the carriage of goods by sea, as in any other contract, if the

carrier fails in this way, the carrier is said to be in breach of contract.

Carrier’s breach of contract As discussed the carrier’s main obligations are to properly and

carefully load, carry, discharge, and deliver the goods. In practical

terms this means that the carrier must discharge and deliver the

goods in the same condition that they were received in. Failing to do

this, the carrier would be in breach of the contract.

Establishing the breach

It is up to the shipper and/or consignee to establish the breach. This

can be done by showing that the goods were handed over to the

carrier in good order and were received from the carrier in bad order.

Once the shipper/consignee makes out a prima facie case against the

carrier, the burden shifts to the carrier. The carrier would have

already noted on the bill of lading any damage or loss that occurred

before loading. Therefore, the carrier must show that he or she is not

liable, in spite of the loss or damage to the goods. The carrier can do

this if it can be shown that the loss or damage was covered by an

exclusion clause in the contract. If unable to show that the case falls

within an exclusion, the carrier is liable for the loss that flows from

the breach.

The burden would then shift back to the shipper or consignee to

disprove the carriers defence. The shipper or consignee may attempt

to do by alleging that the vessel had been unseaworthy or the carrier

had been negligent.

To avoid liability, the carrier would have to show that due diligence

was exercised to make the vessel seaworthy, and/or that there was no

negligence. If unable to show this, the carrier is liable for the loss.

Activity There is no Activity for this lesson.







1. What is meant by being “in breach of contract”?

_____________________________________________

_____________________________________________

2. What does being “in breach of contract” mean for a carrier?

_____________________________________________

_____________________________________________

3. Who must establish that a breach of contract occurred? Check

any that apply.

a. shipper

b. carrier

c. consignee

4. What are the two ways in which carriers may show that they are

not liable for damaged goods?

a. ________________________________

_________________________________

b. _________________________________

_________________________________




Lesson 2 ......Limitations of liability Once it is clear that some liability of the carrier is involved, it

becomes necessary to examine the nature of that liability. A party

that is in breach of contract may be liable in two main ways:

• pay damages to the other party

• ensure specific performance of the contract.

Specific performance is only granted in special circumstances and

rarely in the case of a breach of contract of carriage. This unit

therefore examines only the issues arising in the assessment of

damages.

Assessing damages Under common law, when two parties have made a contract which

one of them has broken, the “innocent” party ought to receive

damages, that is financial compensation. These should be the

amount required to put the party in the same position as if the

contract had been performed correctly.

To do this, the party must be compensated for:

• loss arising naturally (that is in the usual course of things) from

the breach of contract

• loss arising because of the special circumstances of the case,

known to both parties at the time of contract (that is, in

circumstances where the other party could have contemplated

this possible loss).

When a carrier is in breach of contract, the damages that a

shipper/consignee ought to receive in order to put him in the same

position as if the goods had been carried properly and carefully

would be as follows:

• for loss arising naturally: the cost of the goods at the place the

consignee should have received it (that is, replacement value—

for practical purposes this is calculated on the basis of the CIF

value

• for loss arising due to special circumstances: the cost of any

other loss suffered by the shipper/consignee, due to the

unavailability of the goods at the time they should have been

delivered in good order. This could be the loss of profits of the

consignee, or liability to a third party on an agreement of resale.




Limitation of liability Although the carrier may be liable for breach of contract, this

liability may be further excluded or limited by the contract. The

common law, national law, and international conventions have

different approaches to this type of limitation.

Certain national legislation and various international conventions

place limits on the liability of the carrier relating to the limitation of

liability of seagoing ships. These include:

• the Hague Rules

• the Hague Visby Rules

• the Hamburg Rules

• various Merchant Shipping Acts

• other national legislation.

Limitation under common law

The common law does not place any limit on the liability of the

carrier. Such liability would be assessed according to the normal

principles of contract law. However the common law allows the

carrier the freedom to include in the contract or bill of lading any

clauses concerning the damages for which the carrier might be liable.

Thus bills of lading governed by the common law could contain a

clause limiting liability to the CIF value of the goods lost or

damaged.

Limitation under the Hague Rules

The Hague Rules took away the carrier’s freedom to include any

clause limiting his liability in the bill of lading. However, the rules

specified certain limits to the carrier’s liability. The carrier could

rely on these limits irrespective of their inclusion in the bill of lading.

Under the Hague Rules there may be a:

• monetary limit

• package limitation

• per unit limitation.

Monetary limit

The Hague Rules limited the liability of the carrier to £100 (pounds

sterling) per package or unit unless the nature and value of the goods

were declared by the shipper and inserted in the bill of lading. The

rules state that the monetary units are to be taken to be gold value,




but in practice it is taken to be £100 or the equivalent in other

currency on the day of arrival of the ship at the port of destination.

When making a claim on the carrier under the Hague Rules, the

consignee would first calculate the loss and substantiate it with

documentary evidence. The carrier would check whether there is a

liability for the type and extent of loss claimed. If there is, the

carrier will then examine the amount claimed. If the amount is less

than £100 per package the carrier would pay it in full. If it exceeds

£100 per package, the carrier would pay up to £100.

Package limitation

A package is an element of the consignment packed separately and

identified by distinctive marks. A package can be parcel, a carton, a

crate, a pallet, or even a container. The monetary limit of £100 is

applied to each package as enumerated in the bill of lading.

Example: Suppose a bill of lading states: “500 cartons highland tea”. The per package limitation would apply to each carton. Thus, if the partial or complete damage to a single carton is assessed at £80, the carrier would pay £80 per damaged carton. If the damage is assessed at £120 per carton, the carrier would pay only £100 per damaged carton because of the monetary limit.

The package limit, though seemingly simple, has created problems in

application when a number of packages are consolidated in a larger

package such as a crate, pallet, or container. The question then arises

as to whether the £100 limit should be applied to the smaller or the

larger package. The Hague Rules make no reference to consolidated

goods and the carrier would naturally attempt to claim the larger

package as the package to which limits apply.

Example: Suppose that the shipper stuffs 1000 packages of Highland tea into a container for FCL shipment. The bill of lading may state one container said to contain 1000 packages… or one container containing 1000 packages….

Under the Hague Rules, the carrier would naturally attempt to define the whole container as the package with the £100 limit. This argument has succeeded in the past, where the bill of lading stated, said to contain 1000 packages, However, similar claims failed when the bill of lading stated containing 1000 packages.

The container cannot be claimed as the package when a carrier

transports it as an LCL shipment. In this case, it is considered that

the shipment is stuffed into a container for the carrier’s convenience.




Per unit limitation

The unit limitation is normally applied to bulk cargo. A unit of

cargo can refer to:

• commodity units, depending on the nature of the goods

• shipping units, as referred to in the bill of lading

• weight units, depending on the units of weight or measure used

to calculate freight.

The unit most commonly used is the shipping unit. For example, the

bill of lading may refer to “100 tons of Highland Tea”. The £100

limit would then apply to each ton of tea. If the B/L referred to

10 000 kilograms of tea, the £100 limit would apply to each

kilogram.

When the bill of lading indicates both the weight and the number of

packages, the weight is ignored. In this situation, the weight is

normally included simply to show the calculation of freight. The

monetary limit would be applied to each package noted on the bill of

lading.

Limitation under the Hague Visby Rules

Under the Hague Visby Rules some important clarifications and

changes have been made with regard to the assessment of the

carriers’ liability. Amounts recoverable are linked to market prices

and the maximum liability has been increased.

The total amount recoverable must be calculated with reference to

the value of the goods at the place and at the time when the goods

were discharged, or should have been so discharged. The value of

the goods must be fixed according to the commodity exchange price

or current market price. If there are no such prices available, they

must be assessed according to the normal value of goods of the same

kind and quality.

The maximum liability of the carrier has been increased to either

10 000 francs per package or unit, or 30 francs per kilo of gross

weight of the goods, whichever is higher. When goods are

consolidated by the carrier into larger packages, the number of

packages or units enumerated in the bill of lading would be the

number of packages to which the limit would apply.

The carrier would not be entitled to the limitation of liability

provided under Hague Visby under certain circumstances. This

would arise if it were proved that the damage resulted from an act or

omission of the carrier, done with intent to cause damage or

recklessly and with knowledge that damage would probably result.




Limitation under the Hamburg Rules

The United Nations Convention on the Carriage of Goods by Sea,

1978, was convened in an attempt to replace the Hague Rules and the

Hague Visby Rules. The rules adopted in the Convention, usually

called the Hamburg Rules, go a long way in achieving a fair balance

of the rights and obligations of the carrier and the shipper. The

significant shift of responsibility towards the carrier can be observed

from the following:

• the scope of application of the rules has been widened

• the period of the carrier’s liability has been extended to include

the periods during which the carrier is in charge of the goods at

the port of loading and port of discharge

• the liability of the carrier is said to be based on the principle of

“presumed fault or neglect”. The rules contain no specific

exclusions. Carrier are responsible for loss or damage to cargo

while it is in the their custody, unless they can show that they

and their servants took all measures that could reasonably be

required to avoid the occurrence and its consequences

• the carrier is held liable for delay

• the carrier may be liable for fire, if the claimant proves that the

fire arose from fault or neglect on the part of the carrier

• the receiver may treat the goods as lost after a period of 60 days

after the agreed date of delivery

• the monetary limit of the carrier’s liability has been changed and

is indicated in units defined by the International Monetary Fund.

Limitation under other conventions

Two other international conventions affect liabilities for loss and

delay of cargo shipments. These are:

• Limitation of Liability of Seagoing Ships (1957)

• Limitation of Liability of Maritime Claim (1976)

Limitation under these conventions is based on tonnage.

Limitation under national legislation

The UK Merchant Shipping Act of 1894 is incorporated into the laws

of many Caribbean States. The Act allows shipowners to limit their

liability for loss or damage based on tonnage.




The 1987 Trinidad & Tobago Merchant Shipping Act as well as the

1998 Jamaica Shipping Act also provide for limitation of the

carrier’s liability based on tonnage.

These Acts also provide for the limitation of liability of port

authorities and owners of docks.

Activity Find out what national or international rules your country applies in

the case of limitation of carrier’s liability. What year were these

rules adopted there?







1. What are the two ways in which anyone who is in breach of

contract can be held liable?

a. _________________________________

b. _________________________________

2. What is the purpose of damages?

a. to make up for the aggravation of a broken contract

b. to enable the shipper or consignee to pay for a second

attempt at carriage

c. to complete the contract as agreed

d. to put the injured party in the same position as if the

contract had been properly performed

3. What two types of losses must the injured party be compensated

for?

a. _________________________________

b. _________________________________

4. Name at least three types of regulation that relate to limitation of

carrier’s liability.

a. _________________________________

b. _________________________________

c. _________________________________

5. How is carriers’ liability limited under the common law?

a. no limits are allowed under the common law

b. the carrier may include a clause limiting liability

c. limits are the same as under the Hague Rules

d. the limit is the CIF value of the lost or damaged goods




6. What common law freedom did the Hague Rules take away?

a. the freedom to limit liability

b. the freedom to use a bill of lading to describe limits

c. the freedom to insert any clause in the bill of lading that

limits liability

d. none

7. What are the three types of limit defined under the Hague Rules?

a. _________________________________

b. _________________________________

c. _________________________________

8. Under the Hague Rules, if the values of two lost packages of

cargo are £110 and £90 sterling respectively, but these values are

not stated in the bill of lading, how much is the carrier liable for

in each case?

a. for the £110 package, liability is _______

b. for the £90 package, liability is ________

9. An LCL container shipment of 100 cartons, each containing a

dozen tins of nuts is damaged. What package limitation is most

likely to be applied to a claim?

a. container

b. carton

c. tin

d. either carton or tin, depending on the B/L

10. What two changes in limitation did the Hague Visby Rules

introduce?

a. _________________________________

b. _________________________________

11. List at least four changes in liability limitation introduced by the

Hamburg Rules.

a. ________________________________

b. _________________________________

c. _________________________________

d. _________________________________




12. Who benefits most from the changes introduced by the Hamburg

Rules?

a. shipper

b. carrier

c. consignee

d. no-one; everyone is affected equally

13. Under the convention Limitation of Liability of Maritime Claim

(1976), limitation is based on:

a. packaging

b. shipping units (bulk)

c. tonnage

d. weight units

14. Under the 1998 Jamaica Shipping Act, liability limitation is

based on:

a. packaging

b. shipping units (bulk)

c. tonnage

d. weight units




Lesson 3...... Time limits for claims The common law has always recognized a right to limit the period

during which actions may be brought before the courts. This was to

ensure that claimants did not “sleep on their rights” so as to have the

threat of legal action hanging forever over the heads of those who

might be affected. It is also usual for common law countries to have

statutes of limitation. These written laws place a limit on the time to

claim from one year for suits against the Crown to six years in civil

matters. International maritime conventions also fix certain time

limits during which action must be brought before the courts.

Time limits under the Hague Rules The Hague Rules specify a time limit within which claims must be

brought against the carrier. An action must be brought in a court of

law or an arbitrator must be appointed to look into the claim within

one year after delivery of the goods or the date when the goods

should have been delivered. If the shipper or consignee fails to do

this in time, the carrier will be discharged of all liability.

Extending the time

In practice, the consignee can request an extension of time before the

lapse of a year, if the claim is being processed by the carrier. The

carrier usually grants such an extension, although there is no legal

obligation to do so. If the carrier refuses to grant an extension, the

consignee would have to immediately file an action in court.

The gold clause agreement

Some carriers are party to a special agreement called the “gold clause

agreement”. According to this, the carrier is obliged to grant a time

extension of one year.

Time limits under the Hamburg Rules Under the Hamburg Rules, the standard time limit for bringing a

claim against the carrier has been extended to two years.

Activity Under the regulations used in your country, what is the time

limitation for making liability claims?







1. Why does the common law limit the time in which claims are to

be made?

_____________________________________________

2. What is the time limit for bringing action in a court of law under

the Hague Rules?

a. within one year of the agreed date of delivery

b. within two years of the agreed date of delivery

c. within six years of the agreed date of delivery

d. none, because extensions are always granted

3. What is a gold clause agreement?

a. an agreement not to ask or grant extensions

b. an agreement to extend the time limit indefinitely

c. an agreement to extend the limit another year

d. an agreement to settle liability in gold rather than currency

4. What is the time limit for bringing action in a court of law under

the Hamburg Rules?

a. within one year of the agreed date of delivery

b. within two years of the agreed date of delivery

c. within six years of the agreed date of delivery

d. none, because extensions are always granted




Answer keys

Lesson 1 1. A person who is in breach of contract has failed to perform a

legal duty or to meet a legal obligation as specified in a contract

to which the person is a party.

2. Breach of contract occurs when the carrier fails to discharge and

deliver the goods as agreed in the contract of carriage and in the

same condition that they were received in.

3. a. shipper

and/or

c. consignee

4. The carrier may show that:

a. the loss or damage was covered by an exclusion clause in

the terms of carriage

or, if it is not covered by an exclusion

b. due diligence was observed to make the ship seaworthy and

there was no negligence during the voyage, discharge, and

delivery to the consignee.

Lesson 2 1. a. by paying damages to the other party

b. by ensuring performance or completion of the contract

2. d. to put the injured party in the same position as if the

contract had been properly performed

3. − losses arising naturally from the breach such as the cost of

the goods at the place where the consignee should have

received them

− losses due to special circumstances such as loss of profits or

liability to third parties because of their non-delivery or

damaged condition




4. Any three of the following:

− Hague Rules

− Hague Visby Rules

− Hamburg Rules

− various Merchant Shipping Acts

− other national legislation

5. b. the carrier may include a clause limiting liability

6. c. the freedom to include a clause in the bill of lading that

limits liability

7. − monetary limit

− package limitation

− per unit limitation

8. a. £100

b. £90

9. d. either carton or tin, depending on the B/L

10. − amounts recoverable were linked to market prices

− maximum liability was increased





− the scope of application of the rules has been widened

− the period of the carrier’s liability has been extended to

include the periods during which the carrier is in charge of

the goods at the port of loading and port of discharge

− the liability of the carrier is said to be based on the principle

of “presumed fault or neglect”. The rules contain no

specific exclusions

− the carrier is held liable for delay

− the carrier may be liable for fire, if the claimant proves that

the fire arose from fault or neglect on the part of the carrier

− the receiver may treat the goods as lost after a period of

60 days after the agreed date of delivery

− the monetary limit of the carrier’s liability has been changed

and is indicated in units defined by the International

Monetary Fund

12. b. carrier

13. c. tonnage

14. c. tonnage.

Lesson 3 1. So that a person does not have to endure an on-going threat of

legal action indefinitely.

2. a. within one year of the agreed date of delivery

3. c. an agreement to extend the limit another year

4. b. within two years of the agreed date of delivery.






Unit 8 Liability of other parties in the carriage of goods

In addition to the carrier, many other individuals and businesses are

involved in the carriage of goods. This unit discusses their

obligations and the extent to which they may contract out of their

liabilities.


• obligations of the shipper and related parties

• obligations of the port authority and ancillary parties

• obligations of the ship’s agent.

Carriage of Goods by Sea Law Unit 8: Liability of other parties








answers.





• Identify the obligations of the shipper, receiver/consignee,

freight forwarder, multimodal transport operator, port

authority/operator, cargo handlers, and ship’s agent,

• Identify the ability, if any, of these various parties to contract out

of their liabilities.

Unit 8: Liability of other parties Carriage of Goods by Sea Law



Lesson 1 ......The shipper and related parties

Obligations of the shipper Clause 5 of the Hague Rules provides that:

The shipper shall be deemed to have guaranteed to

the carrier the accuracy at the time of shipment of

the marks, number, quantity and weight (of the

goods) as furnished by him.

In this regard the shipper may be said to have five main obligations

under the contract of carriage. These are to:

• prepare the goods for shipment

• take them to the port and/or hand them to the carrier

• describe the goods accurately on the bill of lading

• inform the carrier of the dangerous nature of the goods if

necessary

• pay the freight.

Preparing the goods for shipment

Correct preparation includes proper packaging and labelling, and the

placement of marks and numbers clearly so that they will remain

legible until the end of voyage.

Handing the goods to the carrier

When goods are taken down to the port, whether they are handed

over to the carrier or to port personnel depends upon the custom and

practice of the port. Delay in handing over the cargo could result in

the cargo being shut out by the carrier.

Describing goods accurately

The shipper must provide the details of the goods to the carrier in

writing. This enables the carrier to include the information on the

bill of lading. In practice, the shipper usually completes the bill of

lading and the carrier checks the particulars before signing it. By

signing and issuing the bill of lading, the carrier confirms that the

goods described have been shipped.




The carrier is then liable to a third party who buys the shipped goods

on the strength of the bill of lading. If the goods have been

inaccurately described and the buyer has suffered loss, a claim may

be made against the carrier. There is however an obligation on the

shipper to indicate the information accurately. Failure to do so will

make the shipper liable to reimburse the carrier for any loss the

carrier may suffered by way of payment to a third party.

If however the nature or value of the goods have been knowingly

wrongly stated by the shipper, the carrier is not liable for loss or

damage suffered by third parties. The shipper is directly liable to

those who have suffered loss.

Informing the carrier of danger

Unless otherwise stated, the shipper implies that the goods shipped

are not dangerous. Thus, if the goods are dangerous, the shipper has

an obligation to inform the carrier. If he or she fails to fulfil this

obligation, the shipper is liable for all damages and expenses directly

or indirectly arising or resulting from such shipment of the

dangerous goods.

Paying the freight

The freight is usually agreed between the shipper and the carrier

before shipment. By shipping the goods, the shipper is considered to

have agreed to pay the freight. Although the consignee is usually

required to pay the freight, the shipper remains liable to pay if the

consignee fails to do so.

Common carriers have published freight rates for different

commodities and destinations. Regular shippers may however get

rebate or a preferential rate on certain commodities. The applicable

freight rate and the calculation of the freight are usually stated on the

bill of lading.

If there is no provision to the contrary, freight is payable on delivery,

and is calculated on the amount delivered. However the carrier and

the shipper may agree on other methods such as:

• lump sum freight where cargo must reach its destination for

payment to be made

• advance freight where freight must be paid even if the ship is

lost and the cargo never delivered

• pro rata freight, which is payment in proportion to the part of the

voyage accomplished or part of cargo delivered.




Obligations of the receiver/consignee The consignee has two obligations:

• to receive the cargo

• to pay the freight.

Receiving the cargo

The consignee may have to accept the cargo direct from the ship,

from the quay, or from the place where it is stowed. The consignee

may or may not play a part in the discharging operation. This would

depend on the terms of the contract and the custom and regulations

of the port.

Paying the freight

The carrier can refuse to give delivery of the goods until freight is

paid. The receiver/consignee’s obligation to pay freight may arise in

three ways:

• taking delivery of the cargo can imply a promise to pay freight

• the bill of lading may contain a clause making delivery

conditional on payment of freight

• the law applicable to the parties may require it. For example the

UK Bills of Lading Act, Section 1, which has been incorporated

into the laws of many Caribbean countries. This imposes on all

consignees and endorsees to whom “property in goods” passes,

the obligation to pay freight.

Obligations of the freight forwarder The freight forwarder’s role has moved from the traditional one of

making the transport arrangements for the shipper, to that of

undertaking the whole transport operation.

A forwarder’s obligations can be classified under three categories:

• acting in the traditional way as an intermediary

• undertaking a specific function for the shipper or the carrier

• performing the entire transport operation.




Acting as a traditional intermediary

Liability to the shipper

In this case the freight forwarder takes on the liability of any other

agent, whose duty under common law is to the client. There is an

obligation to act with reasonable care to protect and further the

client’s interest. Failure to do so would be a breach of this duty. If

the client suffers loss as a result, the freight forwarder would be

liable for it.

The manner and extent to which the freight forwarder must protect

the shipper’s interest would depend on the functions undertaken.

These functions are usually included in a written contract, quite often

the forwarder’s standard form contract. This document may also

contain exclusion clauses, for like carriers, any others engaged in

providing services connected with the carriage of goods would wish

to limit their liability.

Subject to what is stated in the contract, when acting as an

intermediary, the forwarder has the following main obligations.

Keeping the client informed…

This obligation would arise particularly if the goods have

suffered loss or damage. The freight forwarder must give the

client all information regarding the circumstances of such loss so

that the client can protect their interest in the goods. This would

be the position whether the forwarder had actual possession of

the goods or not.

Selecting the carrier with care…

The forwarder must select the carrier carefully. If this selection

is negligent, the forwarder would be liable to the shipper for any

loss that may arise from such choice.

Taking care of the goods.

If in actual possession of the goods, the forwarder must take

proper care of them.

Making reservations upon taking delivery of goods.

When taking delivery, the forwarder must make adequate

reservations against the carrier (land or sea) if it is damaged.




Ensuring accuracy of the particulars on the bill of lading

If completing the bill of lading, the forwarder must ensure that it

is correctly filled, without any misrepresentations that would

make the shipper liable to indemnify the carrier. If the shipper

becomes so liable, the forwarder would have to reimburse the

shipper.

Liability to others

In the traditional role, the forwarder acts only as agent for the

principal. The agent incurs no personal liability vis-à-vis third

parties. The principal, who is the shipper in this case, would be

liable for any wrongful acts or omissions done within the scope of

the agent’s authority. The agent may of course be liable to

indemnify the shipper, but this would depend on the contract with

the shipper. The freight forwarder may be able to rely on an

exclusion clause to limit liability.

If the freight forwarder acts outside the scope of agreed authority,

then he or she would be personally liable to third parties. In this

event the forwarder would not be able to rely on any of the

exclusions in the contact with the shipper. For example, the freight

forwarder may be held responsible if a crane were damaged due to a

misrepresentation made by the forwarder about the weight of a

consignment which exceeded the safe working load of the crane,

causing it to collapse.

Undertaking specific functions for shipper or carrier

The freight forwarder may undertake to carry out some particular

function for the shipper, such as collection, storage, or consolidation

of cargo. The forwarder may also undertake to carry out some

function for the carrier, such as canvassing or booking freight.

In the above situations, it may be difficult to decide whether the

freight forwarder is acting as an agent for the shipper or carrier, or

whether he or she is acting for personally as principal.

Liability to shipper

In undertaking to deliver cargo to the carrier, the freight forwarder

may be a principal with respect to the shipper, rather than an agent.

This is because, rather than simply following the shipper’s

instruction, the freight forwarder is offering a delivery service. This

would also be the case with regards to storage of cargo, if the

forwarder stores the cargo rather than arranging with a storage

company on the shipper’s behalf to store it. The forwarder’s liability

towards the shipper is governed by their contract.




Liability to others

Freight forwarders that act as principals are alone responsible for

their actions vis-à-vis third parties.

Thus if the freight forwarder offers a delivery service to the shipper,

the freight forwarder would have to negotiate as a principal with a

road haulier to get the goods to the port. The forwarder would then

be personally responsible to the haulier.

At times the freight forwarder may be deemed to be acting as the

principal even when acting for the shipper. For example, when

booking space on a ship in the London freight market, the freight

forwarder is deemed to be acting as principal and may be responsible

in the event of non-shipment.

When undertaking additional functions such as confirming

shipments, or countersigning official weight and quantity certificates,

the freight forwarder would be personally liable. Nevertheless this

does not preclude the forwarder from remaining an agent so far as

the forwarding operations are concerned.

Undertaking to perform the transport operation

Freight forwarders have diversified their activities to such an extent

that some forwarders offer to transport the cargo to the destination

even though they do not own or operate any means of transport. In

doing so the forwarder acts as a non-vessel-operating multimodal

transport operator (NVO-MTO).

Obligations of the multimodal (combined) transport operator The role of the multimodal transport operator (MTO) is described in

Unit 5. The MTO may or may not be operators of ships. The MTO

operates as a principal with regard to the shipper as well as with

regard to the other carriers negotiated with in order to get the cargo

carried to its destination.

The MTO is obliged to ensure that the cargo reaches the destination

in good order. The MTO is liable as principal to the shipper if the

cargo is damaged while it is in the MTO’s custody or the custody of

another carrier. In the latter case, the MTO would have an action for

reimbursement against the other carrier. This is an ideal situation for

the shipper who wishes to transport goods by more than one means

of transport. Rather than seeking redress from each individual

carrier, the shipper simply makes a claim against the MTO who in

turn must claim against the liable subcontracting carriers.

Note, however, it is possible for multimodal transport to take place

on terms that are less attractive than these ideal terms. Quite often




the MTO commits to carry the goods to their destination, but accepts

responsibility for cargo only while it is in the MTO’s custody or

while being carried by transport operated by the MTO. In the event

of loss or damage, the shipper/consignee would then have to

ascertain when the loss or damage occurred and claim against the

actual carrier concerned.

Network liability principle

Multimodal transport document (MTDs) in use today are mainly

based on the network liability principle. This principle means that in

respect of loss or damage that can be shown to have occurred during

a particular part of the transport, the liability of the MTO would be

identical to the liability accepted by the carrier who actually

performed that part of the carriage. The MTO would thus enjoy the

same exclusions and limitation as the subcontracted carrier.

Activity Talk to an experienced multimodal transport operator or freight

forwarder and discuss how modern transportation developments over

the last decade have affected their obligations and liability when

operating in the Caribbean.







1. List four of the obligations of the shipper.

a.

b. _________________________________

c.

d. _________________________________

2. What is the term for an arrangement in which payment is made

by the shipper in proportion to the part of the voyage

accomplished or part of cargo delivered?

a. payment on delivery

b. lump sum freight

c. advance freight

d. pro rata freight

3. What are the two obligations of the receiver/consignee?

a. _________________________________

b. _________________________________

4. The consignee must take receipt of the goods from the ship.


a. true

b. false

_____________________________________________

5. Explain why a person who receives goods may be obliged to pay

freight even if the package was unexpected.

_____________________________________________

_____________________________________________

_____________________________________________

_____________________________________________




6. List the five obligations of the freight forwarder to the shipper.

a.____________________________________________

b.____________________________________________

c.____________________________________________

d.____________________________________________

e.____________________________________________

7. Is the freight forwarder ever liable to third parties?

a. no; the FF has obligations only to the shipper

b. no; only the shipper has such liabilities; the FF merely

represents the shipper

c. yes; if the FF acts outside the scope of agreed authority

d. yes; as the agent, the FF is liable to third parties for the

shipper’s errors and omissions

8. What governs the liability of a freight forwarder to the shipper?

_____________________________________________

9. A freight forwarder may be held responsible as a principal even

when acting for the shipper. True or false? Explain.

a. true

b. false

_____________________________________________

_____________________________________________

10. What is the relationship of an MTO to a shipper?

a. agent

b. same as freight forwarder

c. principal

d. principal unless damage occurs in the custody of another

carrier

11. What does the “network liability principle” imply regarding the

liability of an MTO?

_____________________________________________

_____________________________________________




Lesson 2...... The port authority and ancillary parties The functions of cargo handling, reception, identification, storing,

and custody is undertaken by the port’s shore handling personnel or

by stevedores. Many of these functions take place before cargo is

loaded on board and after it is discharged. Thus some of the

activities are not covered by the Hague Rules and the parties

concerned may contract with each other in any manner they wish.

Liability of port authorities The liability of port and harbour authorities is limited by national

legislation such as the Trinidad & Tobago Merchant Shipping Act

and the Jamaica Shipping Act as well as the UK Merchant Shipping

Act, 1894, which still remains law in some Caribbean Islands. Under

the Jamaica Pilotage Act, the liability of pilots is also limited.

Liability of stevedores Under the Hague Rules, loading, stowing, breaking stow, and

discharging are the carrier’s obligations. This means that, unless the

occurrence is covered by an exclusion clause, the carrier would be

liable to the shipper if the goods suffer loss or damage during these

activities.

It is the carrier that engages stevedores to perform all or some of

these functions. The carrier is free to enter into any contract with the

stevedore. The terms of the contract may depend on whether the

stevedores are from a private firm or from the port authority. The

carrier may have greater flexibility in negotiating terms with a

private firm than with the port authority. The port authority is more

likely to have fixed terms. These terms are sometimes included in

the regulations that govern the port.

In case of loss/damage to cargo while handling it, the stevedore is

liable to the carrier subject to the exclusions and limitations in the

contract or port regulations. The carrier is liable to the

shipper/consignee according to the Hague Rules.

Liability of shore handling personnel The activities that precede loading and follow discharge are usually

considered to be the shipper’s responsibility. Such activity is outside

the scope of the Hague Rules and often outside the carrier’s sphere




of influence. The functions of receiving, transferring, storing, and

taking care of the cargo are performed on behalf of the shipper.

They are done by the shore handling personnel of the port authority

or by a private company.

The private firm or port authority are responsible for any loss or

damage to the cargo while in their custody according to the contract

between them and the shipper. In the case of a statutory authority,

their liability is specified by the regulations of the port. Quite often

shore handling personnel exclude liability for loss or damage to

goods unless caused by their “fault or negligence”. In some ports,

the goods are handled and stored “at the shipper’s risk”.

Activity Try to arrange to talk to an appropriate official of the port authority

or a port operator nearest to your home or work. Discuss the

organization’s obligations and liabilities in modern cargo

transportation.







1. Which activities undertaken by the port authority or port

operator are covered by the Hague Rules?

a. Hague Rules cover only activities during and after loading,

and during and before discharge

b. Hague Rules cover all loading and discharge operations on

board and ashore

c. none—Hague Rules cover only the voyage at sea

d. it depends entirely on the contract of carriage

2. What limits the liability of port authorities in the Caribbean?

a. Hague Rules

b. another international convention

c. Hamburg Rules

d. national legislation

3. If a carrier hires stevedores from the port authority to stow cargo,

who is liable if the cargo is damaged during the stow? Check

any that apply. Explain your answer(s).

a. the carrier

b. the stevedores

c. the port authority

d. it depends entirely on the contract

_____________________________________________

_____________________________________________

4. Who is liable to whom when the port authority damages goods

while they are in storage after discharge but before delivery to

the consignee?

a. carrier is liable to shipper

b. port authority is liable to shipper

c. port authority is liable to carrier

d. port authority is liable to the consignee




Lesson 3 ......The ship’s agent From the point of view of liability, a distinction is drawn between

shipping agencies that are independent and those that are a branch or

department of a shipping company.

The shipping agency that is a branch or department of the shipping company (carrier)

In this situation those engaged in the functions of the agency are

employees of the carrier. They have been allocated the task of

servicing the ship in port. Like any other employee, they have

responsibilities toward the shipping company that employs them.

The company is responsible for the actions of their employees.

Responsibility to third parties

The shipping company (carrier) is responsible for all the actions of

the employees engaged in the agency function done in the course of

their employment. Any contract they enter into, for example,

supplies to ship, would be on behalf of, and in the name of, the

shipping company. The officer in charge usually has the authority to

contractually bind the shipping company/carrier up to a particular

monetary limit. The shipping company/carrier is then directly liable

under this contract.

The shipping agency as an independent An independent shipping agency is an individual or company that

represents or handles one or more carriers calling at the port in which

the agency operates. In this situation the shipping agency is quite

independent of the carrier.

Responsibility toward the carrier

The agent’s obligations toward the carrier depend on the agency

contract between them. Under common law, the agent has a duty to

act in utmost good faith toward the principal, in this case, the carrier.

If there is a loss as a result of failing to do this, the agent may have to

make good the loss.

If liability is incurred while acting within the scope of agreed

authority on behalf of the carrier, the agent may claim such loss from

the carrier. In that case, the carrier is responsible to third parties for

the agent’s actions. If the agent acts with negligence or outside the




scope of agreed authority, and the carrier suffers a loss as a result,

the carrier may recover such loss from the agent.

Responsibility toward third parties.

In discharging agency functions, agents may act in their own names

or may act as agents on behalf of others. When acting

independently, the agent is personally responsible and liable to third

parties.

When they act for others, agents disclose the identity of the principal,

that is, the carrier. The carrier is then responsible to third parties

assuming the agent has acted responsibly and within the scope of the

agency agreement.

Activity Try to talk to a ship’s agent about the ways in which liability has

been affected by modern transportation trends.







1. Who is responsible for the actions of shipping agents employed

by a carrier?

a. the agents

b. the carrier

c. it is entirely determined by a contract of carriage

d. it is entirely determined by a contract between the agent and

the carrier

2. Who is responsible for the actions of an independent shipping

agent?

a. the agents

b. the carrier

c. it is entirely determined by a contract of carriage

d. it is entirely determined by a contract between the agent and

the carrier

3. What determines the obligation of an independent shipping agent

toward a carrier?

a. the Hague Rules

b. the Hague Visby Rules

c. the Hamburg Rules

d. the contract between them

4. Is the carrier responsible to third parties for the actions of an

independent shipping agent? Explain your answer.

a. yes

b. no

5. When is the shipping agent responsible to third parties?

_____________________________________________

_____________________________________________




Answer keys

Lesson 1 1. Any four of the following:

− prepare the goods for shipment

− take them to the port and/or hand them to the carrier

− describe the goods accurately on the bill of lading

− inform the carrier of the dangerous nature of the goods if

necessary

− pay the freight

2. d. pro rata freight

3. − to receive the cargo

− to pay the freight

4. b. false

The consignee may accept cargo from the ship, the quay, or

a stowage facility.

• There are three possible reasons why the consignee may have to

pay freight:

− in taking delivery of the goods, a promise to pay freight

may be implied

− a clause in the B/L may require such payment

− the law of the country concerned may require it

6. The five obligations of freight forwarder to shipper are:

− keep the client informed so as to protect the client’s interest

− select the carrier carefully

− take care of the goods

− note reservations against the carrier when taking delivery of

goods if they are not in the same condition as when shipped

− ensure the accuracy of the B/L particulars

7. c. yes; if the FF acts outside the scope of agreed authority




8. their contract

9. a. true

Even though the FF usually avoids liability while acting for

the shipper, in some circumstances such as booking space

for the shipper on a ship in the London freight market they

may be deemed to be acting as principals.

10. c. principal

11. The network liability principle is that the liability of an MTO on

a particular leg of multimodal transport is the same as the

liability that would have been accepted by the carrier who

performed that leg.

Lesson 2 1. a. Hague Rules cover only activities during and after loading

and during and before discharge.

2. d. national legislation

3. a. the carrier

and

b. the stevedores

The carrier is liable to the shipper or consignee. The stevedores

are liable to the carrier.

4. b. port authority is liable to shipper.

Lesson 3 1. b. the carrier

2. a. the agents

3. d. the contract between them

4. a. yes, provided they act within the scope of their agreement

5. The shipping agent is responsible to third parties when acting

independently in their own names, rather than on behalf of

others.






Unit 9 Delivery of goods

In the carriage of goods a distinction is made between discharge and

delivery of cargo. Although the carrier’s obligation under Hague

Rules ends at discharge, some responsibility continues because the

carrier must then authorize delivery of the goods to the entitled

consignee/receiver. This unit examines what occurs between

discharge and delivery under various circumstances.

The three lessons in this unit cover the topics of:

• normal and problematic delivery

• non-delivery and misdelivery

• delivery in the case of general average.

Unit 9: Delivery of goods Carriage of Goods by Sea Law








answers.





• Describe the normal delivery process after discharge.

• Describe how delivery processes are adapted when there is

damage, shortage, a split delivery, delivery without a bill of

lading, or delivery to a changed consignee or destination.

• Discuss liability when cargo is delivered to the wrong place or

not at all.

• Describe the effects of general averaging on delivery.

Carriage of Goods by Sea Law Unit 9: Delivery of goods



Lesson 1...... Normal and problematic delivery Discharge and delivery are regarded as two separate functions.

Article I (e) of the Hague Rules speak of discharge as being the final

obligation of the carrier, rather than delivery. It may not be the

carrier’s final responsibility, though. This continues for up to one

year after delivery of the goods or the date when the goods should

have been delivered. During this time, claims may be made against

the carrier.

The practical obligation of the carrier toward the goods may end

when the goods are discharged onto the quay or into the custody of

the port. However, the carrier is further involved by having to

authorise the port to give delivery to the person entitled to receive

the foods.

This may become complicated if all of the goods are not received

together and in good order. This unit examines what transpires

between discharge and delivery of the goods and the procedure with

regard to delivery in the following situations:

• normal delivery

• delivery of damaged goods

• short delivery (missing cargo)

• split delivery

• irregular delivery

• delivery under general average.

Normal delivery Goods are tallied when they are discharged from the ship and the

tally sheets indicate the quantity of goods discharged, the

corresponding marks and numbers, and the place where the goods

have been landed. Any discrepancies or peculiarities would be noted

on this tally sheet. The tally sheets may be signed by a

representative of the port and the ship.

The shipowner’s duty is to give the delivery order to the first person

who presents a properly endorsed bill of lading. On becoming aware

of the arrival of the ship, the consignee presents the bill of lading to

the carrier or carrier’s agent. The carrier or agent then gives a

delivery order directing the port to release the goods to the

consignee.




The consignee checks the port records to ascertain whether the goods

have been discharged and if so where they are stored. After

completing the documentation, the consignee would take delivery

from the shore handling company or the port authority and examine

the goods at that time.

Delivery of damaged goods

On-board and shore surveys

In a conventional vessel, before discharge, the goods that appear to

have suffered damage are usually separated and surveyed on board.

The survey is carried out by carrier’s staff and the cargo handlers

(port/stevedores). In some ports a shore survey would be conducted

instead of an on-board survey. In certain ports these surveys may be

carried out by the carrier alone. However, sometimes, particularly if

a large shipment is known to have suffered damage, the survey may

be done by the consignee as well.

The findings of these surveys would be contained in an on-board

survey report or a shore survey report. The tally sheets would also

contain a special notation if the goods were in a damaged condition

at time of discharge.

Notifying interested parties

In some ports notice of any loss or damage must be given to the port

authority at or before the removal of the goods. The consignee

would also give notice of loss or damage to the carrier.

Notifying the underwriter

If the goods are damaged, the consignee would inform the cargo

underwriter and make arrangements to have the goods surveyed for

insurance purposes as soon as possible. This survey may take place

in the port premises, if this is allowed by the port, or at the

consignee’s premises.

The consignee may invite the carrier to take part in the survey

conducted by the cargo underwriter. The carrier usually declines to

attend a joint survey carried out after discharge, on the basis that

carrier’s liability would be determined according to the on-board

survey report or shore survey report. However, it may be difficult

for the carrier to rely on the on-board survey report because it may

not reflect the condition of the goods at the time it is fully discharged

from the ship. In practice however the consignee agrees to

determine the carrier’s liability on the basis of one of the above

survey reports.




Short delivery After obtaining the delivery order, the consignee may be unable to

trace the goods in the port. This may be either because the carrier

has not yet discharged the goods or because they have been lost after

discharge into the custody of the port.

When unable to trace the goods on the discharging records available

at the port, the consignee may come personally to the carrier’s or

agent’s office to ask for assistance in tracing the goods. If not, the

consignee may simply lodge a claim with the carrier, demanding the

goods or compensation for their loss.

The carrier would then check through the records. If the goods have

been properly discharged according to the carrier’s tally sheets, the

carrier would quote the tally sheets and their numbers and refer the

consignee to the port authority.

Tracer requests and final turn-out reports

If there were no such record, the carrier would take steps to trace the

goods by sending out a set of forms called tracer requests. These

would be sent to the master of the ship and to the way ports that the

ship called at on the voyage. Their function is to check whether the

goods have been retained on board or discharged elsewhere by

mistake.

If the goods are traced, they are shipped to the correct port of

discharge. Carriage may be either on a ship operated by the same

carrier or a ship operated by another carrier.

If the replies to the tracer requests are negative, the carrier would

confirm the loss and take steps to settle the claim. By this time the

carrier may also be able to recheck whether and how the goods have

been short-landed by referring to another document issued by the

port called the final out-turn report. This report indicates:

• cargo that has been discharged and is warehoused

• cargo that has not been discharged but remains on board

• goods that have been cleared by the consignee and are no longer

lying in the warehouse(s).

Delay and compensation

This exercise can take several months and can cause great

inconvenience to the consignee who can obtain neither the goods nor

compensation from the carrier or cargo underwriter. The cargo

underwriter is reluctant to compensate the consignee until the carrier

confirms that the goods are lost.




Split delivery The consignee may request the carrier to issue a number of separate

delivery orders for a consignment represented by one bill of lading.

This could be because the consignee wishes to sell or has sold the

consignment to a number of different buyers and wishes to let them

take delivery direct from the port. This means that the consignee

avoids having to take delivery of the entire consignment and split it

up.

The carrier could agree to such an arrangement. It does not matter to

the carrier how many parties take delivery from the port, as long as

the delivery orders issued agree with the total amount stated in the

bill of lading.

Irregular delivery There are various ways in which delivery of goods can be considered

irregular:

• delivery without a bill of lading

• delivery to a different destination

• delivery to another consignee.

Delivery without presentation of the bill of lading

When unable for some reason to present an original bill of lading, the

receiver may request the carrier to deliver the goods without one. If

it was an order bill of lading, the receiver may also be noted as the

beneficiary in the copy bill of lading available with the carrier. The

shipper may confirm that the person is the one entitled to delivery.

It could very well be that the consignee is the genuine owner of the

goods and the bill of lading has either not yet reached the consignee

or has been misplaced. On the other hand it could also be that the

beneficiary noted on the bill of lading has sold the goods to another,

and is attempting to take delivery before the new owner does. It may

also be that the consignee has not made payment and cleared the bill

of lading from the bank.

The carrier’s obligations are to deliver the goods to the first person

who produces an original bill of lading. Delivery contrary to this can

make the carrier liable for the value of the goods to the legitimate

holder of the bill of lading.

Indemnifying the carrier

There may however be situations where the carrier feels there is no

alternative but to deliver the goods without production of the bill of




lading. For example, where the goods can only be directly delivered

to the receiver, the carrier may have to wait in port for an indefinite

period unless willing to deliver the goods without the bill of lading.

In such a situation the carrier would ask the consignee for a letter of

indemnity and a bank guarantee from a reputable bank. These two

documents would give the carrier some protection in the event of a

claim from the lawful holder of the bill of lading. The carrier would

seek reimbursement from the person to whom delivery was made

and the bank that issued the guarantee.

A similar problem may arise if the shipper claims to have lost the bill

of lading and is thus unable to get payment from the bank. In such a

situation the carrier may agree to issue a fresh set of bills of lading,

on the strength of a letter of indemnity from the shipper, supported

by a bank guarantee.

The incidence of fraud is so frequent and the value of cargo is so

high today that the carrier of his agent must be very careful in giving

delivery without the production of the bill of lading.

Delivery to another consignee

Unit 3 discussed how, in a named bill of lading, the goods must be

delivered to the consignee noted on the bill. The bill of lading

cannot be simply endorsed to another. The carrier’s obligation

would be to make delivery to that named consignee. Where goods

have been shipped on a named bill of lading the shipper may later

request the carrier to deliver the cargo to a person other than the

consignee noted on the bill of lading. This may be due to the fact

that the original sale between the seller (shipper) and the buyer

(consignee) did not work out and another sale has been arranged.

If the shipper can produce the original set of bills of lading, then an

appropriate amendment can be made and the new consignee can be

indicated on the bill of lading. If the shipper cannot produce all the

original bills of lading then the carrier can only agree to the request

for change on the strength of a letter of indemnity and a bank

guarantee from the shipper.

Delivery to another destination

If a destination change is requested by the shipper, the carrier could

agree, subject to any additional payment of freight if the shipper can

produce all the original bills of lading. If this cannot be done, there

is always the risk that one or more bills of lading have been

transferred to a third party. If so, the carrier has an obligation to that

person to deliver the goods at the destination indicated in the bill of

lading.




A change of the destination/discharge port could only be agreed

upon if the shipper gives the carrier a letter of indemnity together

with a bank guarantee. Then the carrier would be indemnified in the

event of a claim by any holder of a copy of the original bill of lading.

Activity Talk to a carrier and discuss recent examples of

1. short delivery

2. delivery of damaged goods

3. delivery without a bill of lading.







1. At what point does the carrier’s obligation end according to the

Hague Rules?

_____________________________________________

2. What is the shipowner’s duty with regard to delivery orders?

a. to give it to the port authority to await the arrival of an

appropriate bill of lading

b. to give it only to the consignee named on the bill of lading

c. to give it to the first person presenting a properly endorse

bill of lading

d. to give it to the carrier’s agent who arranges delivery with

the consignee

3. What four things must a consignee do when taking delivery, if

the goods have already been discharged to the port?

a. _________________________________

b. _________________________________

c. _________________________________

d. _________________________________

4. Who may be involved in on-board or shore surveys? Check any

that apply.

a. ship’s staff (carrier)

b. cargo handlers (port or stevedores)

c. carrier’s agent

d. consignee

5. If goods are delivered damaged, what should the consignee do?

a. ___________________________________________

b. ___________________________________________




6. When might the port be held accountable for missing cargo?

a. whenever the consignee finds that cargo is missing on

taking delivery

b. whenever cargo is missing on delivery but tally sheets show

the goods were discharged properly

c. when there is disagreement about how much cargo has been

discharged

d. never

7. What is the purpose of tracer requests?

_____________________________________________

_____________________________________________

8. What is indicated on a final turn-out report?

a. _________________________________

b. _________________________________

c. _________________________________

9. What is the relationship between delivery orders and bills of

lading?

a. there is only one delivery order per B/L

b. there may be several delivery orders per B/L

c. one delivery order may apply to several B/Ls

d. there is no relationship between delivery orders and B/Ls

10. In what three ways could a delivery be considered irregular?

a. _________________________________

b. _________________________________

c. _________________________________

11. Who is held responsible if delivery is made from the port to the

wrong person without a bill of lading?

a. the port

b. the shipper

c. the carrier

d. whoever handed over the goods




12. What would give the carrier some protection against liability for

delivery to another destination if someone shows up with an

unchanged original bill of lading and demands the goods?

a. ________________________________

b. _________________________________




Lesson 2 ......Non-delivery & misdelivery The question arises of what is to be done when the carrier fails to

deliver the goods or delivers them to the wrong place or person.

Both non-delivery and misdelivery have been held by the courts to

be outside of the scope of the Hague Visby Rules.

Example: Case of “The Captain Gregos” This recent case heard by the UK High Court concerned the one-year limitation period contained in Article III of the Hague Visby Rules. The Court held that a matter of misdelivery, whether honest, dishonest, intentional, or merely mistaken is entirely outside the scope of the Rules.

The court, therefore, decided that carriers could limit or exclude their contractual liability for wrongful delivery of cargo. They could also include in the bill of lading time limits for the commencement of legal suits in respect of contractual claims for wrongful or misdelivery.

In such cases, one could assume that the six-year limitation period at

common law would apply. The court did not, however, deal with the

issue as to when the time allowed should start to count. It could start

at:

• the date of the vessel report

• the date delivery is acknowledged.

The custom of many ports is to use the date of the ship report.

Activity Talk to a carrier about their experiences of losing shipments

completely or sending them to the wrong destination. Find out what

documentary and practical processes they used to put matters right.

Find out also what parts of their processes make these occurrences

unlikely.







1. May a carrier insert an exclusion clause into the bill of lading

limiting the carrier’s responsibility if the goods are mistakenly

delivered to the wrong place?

a. yes, because the issue comes under common law

b. yes, because Hague Visby allows it

c. no, because Hague Visby does not allow it

d. no, because the common law does not permit it

2. What is the custom of many ports regarding the date from which

the limitation period is counted for placing claims of wrongful

delivery?

a. date of discharge

b. date of ship’s report

c. date of delivery as per the bill of lading

d. date the actual delivery is acknowledged




Lesson 3 ......Delivery under general average When the ship and the cargo are exposed to a common danger, the

ship’s master may sacrifice some cargo or incur extra expense to

avert the danger and continue with the voyage. Losses from such a

sacrifice are shared among the ship and cargo interests. This

principal is known as general average (GA) and the sacrifices and

expenses that the parties share are known as general average

sacrifices and expenses. The course Marine Insurance (DSL course

SB–305.2) discusses general average in more depth.

At first, general average was limited to situations where an actual

physical sacrifice was made such as when some part of the ship or

the cargo was jettisoned. Later, it was frequently applied to

situations where nothing was physically lost, but money was spent to

ensure that the ship could proceed with its voyage safely without

losses. General average is thus the sharing of costs and expenses in a

very special situation.

Necessary conditions for general average to apply A general average situation occurs if the following conditions are

satisfied:

• there must be danger common to the whole adventure

• there must be a real, intentional sacrifice or expense

• the sacrifice or expense must be necessary

• the sacrifice or expense must be extraordinary.

Which expenses are claimable as general average?

After a GA sacrifice, the various expenses involved in restoring ship

and cargo to an acceptable state must be sorted out to determine

which are GA expenses and which are not. This can be tricky.

Example: Suppose that a vessel develops a substantial leak in the hull below the waterline. The master takes a decision to ground the vessel in order to prevent it from sinking. By taking this action he saves the vessel and the cargo, but the leak has to be stopped and the damage suffered by the ship due to the grounding has to be repaired. A short-term repair is made to the leak, and a more permanent and thorough repair is done later. The vessel has to




be also refloated in order to continue the voyage. Which of these expenses must be shared under general average?

The expenses involved in stopping the leak so as to continue with the voyage would be allowed as GA expenses. Extra expenses incurred on completely repairing the leak would be attributed solely to the carrier. The expenses incurred in repairing the grounding damage and the expenses incurred in refloating the ship would be GA expenses.

Adjustment of general average

The adjustment of general average is a complicated task and is

usually done by specialists known as average adjusters. When a

casualty occurs that calls for a sacrifice of cargo or incurring extra

costs, the carrier would consult the average adjusters. If they

confirm that it is a GA situation, the carrier must give notice to the

receivers/consignees as soon as possible. Delivery of the cargo is

withheld until the formalities have been completed.

The adjusters obtain from the carrier all the losses and expenses

involved, including the value of any goods sacrificed. They then

examine each one to determine whether it is a GA expense or should

be borne by the shipper or carrier.

Example: Suppose there is damage to a ship and its cargo caused by fire, and further damage caused by the water used to extinguish the fire. In this case, the cost of repairing the damage to the ship caused by fire would not be a GA expense. This loss would be borne by the carrier.

Cost of the cargo damaged by fire would be borne by the cargo owner(s). Remember that under the Hague Rules, the carrier would not be responsible for damage to cargo if the cause of damage was fire.

The cost of repairing the damage to the ship caused by water would be considered a GA expense because if the fire had not been put out the losses would have been even greater. The cost of any cargo damaged by water would also be a GA sacrifice. Thus, these financial losses would be combined and then shared proportionately among the various interests in the venture, according to the value of their property at the end of the voyage. These include the shipowner and all cargo owners involved in the voyage.

The York Antwerp Rules

General average would be adjusted according to the law of the port

of discharge unless there were a specific provision to the contrary in

the bill of lading. Most bills of lading today contain a clause that




general average adjustment is to be done according to the York

Antwerp Rules.

The York Antwerp Rules of 1994 are widely used to regulate

average adjustment today. In 1924, the York Antwerp Rules first

attempted to bring some uniformity into a highly variable GA

adjustment process that depended on the rules and practices at ports

of discharge. The various earlier versions of these Rules attempted

only to clarify certain specific matters on which the practice of

various countries differed. Later versions went further and not only

added to the Rules but also included statements of the basic

principles of general average.

Activity Try to get hold of a copy of the 1994 York Antwerp Rules—ask your

local tutor if you have difficulty. Review all the rules, but especially

the general average procedures and those aspects of the rules that

affect discharge and delivery of cargo to consignees when some

cargo has been sacrificed.







1. When must a carrier notify a consignee that a general average

(GA) sacrifice of cargo has occurred?

a. as soon as the GA situation occurs at sea

b. as soon as possible after the GA situation is confirmed as

such by the adjusters

c. when remaining cargo is discharged

d. when remaining cargo is delivered

2. In most cases, how is it decided whether a particular loss in a GA

situation is to be borne by the shipper or the carrier or by

everyone involved in the venture?

a. the average adjusters decide using the Hamburg Rules

b. the average adjusters decide using the Hague Rules

c. the average adjusters decide using the Hague Visby Rules

d. the average adjusters decide using the York Antwerp Rules

3. How is it decided which rules to use in adjusting average?

_____________________________________________

_____________________________________________

_____________________________________________




Answer keys

Lesson 1 5. Uon discharge from the vessel onto the quay or into the custody

of the port.

2. c. to give it to the first person presenting a properly endorse

bill of lading

3. a. check port records to ascertain discharge and place of

storage

14. complete necessary documentation

15. take delivery from the port authority

d. examine the goods to ensure complete delivery in good

condition

4. a. ship’s staff (carrier)

b. cargo handlers (port or stevedores)

d. consignee

5. a. notify the cargo underwriter

b. arrange for a survey for insurance purposes

6. b. whenever cargo is missing on delivery but tally sheets show

the goods were discharged properly

7. They check to see whether goods have mistakenly been retained

on board or discharged at the wrong port.

8. − cargo that has been discharged and is warehoused

− cargo that has not been discharged and is still on board

− cargo that has been cleared by the consignee and is no

longer in the warehouse(s)

9. b. there may be several delivery orders per B/L

10. − delivery without a B/L

− delivery to a different destination

− delivery to another consignee than originally named




11. c. the carrier

12. − a letter of indemnity from the consignee

− a bank guarantee

Note that these would not be needed if all original bills of lading

have the change noted properly on them.

Lesson 2 1. a. yes, because the issue comes under common law

2. b. date of ship’s report.

Lesson 3 1. b. as soon as possible after the GA situation is confirmed as

such by the adjusters

2. d. the average adjusters decide using the York Antwerp Rules

3. Most bills of lading contain a clause stating that general average

adjustment will be done according to York Antwerp Rules.

Otherwise, the laws that are in force at the port of discharge

would apply.






Unit 10 Reservation & claims against the carrier

When cargo is damaged or lost, claims may be made against the

carrier. To do this, any obvious damage must be noted at the time of

delivery, and damage or loss discovered only upon unpacking must

be reported within a certain time. This unit discusses the ways in

such reservations and claims are properly made against the carrier.

The three lessons in this unit cover the topics of:

• notice of loss (reservation)

• legal effect of reservation

• preliminary aspects of making a claim.

Carriage of Goods by Sea Law Unit 10: Reservation and claims



Unit 10......... Activities and expectations





answers.





• Distinguish between apparent and non-apparent loss and

damage.

• Explain how to make reservations against the carrier using the

proper forms in the event of lost or damaged cargo.

• Identify the time limits allowed for reservations and claims

• Explain the legal effect of reservations

• Differentiate among joint surveys, court surveys, and cargo

underwriter’s surveys.

• Identify the persons who may make claims against the carrier.

• Identify the rules regarding jurisdiction over cargo claims.

Unit 10: Reservation and claims Carriage of Goods by Sea Law



Lesson 1 ......Notice of loss (reservation) At the time of taking delivery, the consignee may give notice of lost

or damaged goods to the carrier or carrier’s agent. Such notice is

called reservation. This notice preserves the consignee’s right to

claim against the carrier at a later date. The notice would be with

regard to a partial loss—shortage or damage and not total loss of a

consignment. The requirement to give such notice is contained in

the Hague and Hague Visby Rules.

Apparent and non-apparent loss or damage The Hague and the Hague Visby Rules distinguish between apparent

and non-apparent loss and damage, but the Rules do not define

apparent and non-apparent. The legal question arises as to how this

is to be determined. The following examples indicate that damage

and loss are considered apparent when the consignee, or the

consignee’s representative, would be able to detect such damage and

loss by a rapid but sufficient check that could be made by a

reasonable person. Clearly, much depends on the circumstances of

each case.

Example 1: A strong smell of engine oil emanated from bags of coffee beans and could be detected by any person nearby. This damage would be considered apparent.

Example 2: A shipment of “900 litres of honey” was delivered and not weighed until after unpacking. A shortage of 75 litres of honey from this shipment was considered a non-apparent loss, as there was no indications of any shortage until the shipment was weighed.

Example 3: A shortage of 60 bags of charcoal out of a consignment of 2700 bags was considered non-apparent loss because of the time it would have taken to count so many bags at the time of delivery.

Example 4: A consignment of 100 cartons of machinery spare parts, with 10 cartons having their covers torn was considered to have apparent damage.

Example 5: A shortage of only 6 litres of soya oil was still considered an apparent shortage because the tank into which the oil was being directly pumped had a transparent, easily visible measurement scale.




Example 6: Damage to the enamel-coated interior of a 15-tonne tank was considered apparent damage because the tank was provided with a manhole, thus enabling an internal inspection to be made at the time of delivery. If no such inspection aperture had existed, it would have been considered non-apparent damage.

The form of the reservation According to the Hague and the Hague Visby Rules, the notice with

regard to loss or damage must be sent to the carrier or carrier’s agent

at the port of discharge. The notice does not need to be sent by

registered post, but that would be a prudent method as it would avoid

disputes as to whether the notice was properly sent to the carrier.

The notice must be in writing and indicate the “general nature” of the

loss or damage that the goods have suffered.

For example, a notice stating that the goods were wet, crushed, had

torn bags, and spilled cargo, or goods possibly pilfered from torn

cartons, would be adequate. Precise details need not be given at this

stage. But a printed notice referring very broadly to “loss or damage

which might be discovered” would not be adequate.

Time allowed to make reservations The time allowed for making reservations depends on whether the

damage is apparent or not.

Apparent damage

According to the Hague Rules, Article III Paragraph 6, the consignee

must give notice of apparent loss or damage “before or at the time of

the removal of the goods into the custody of the person entitled to

delivery…”

Non-apparent damage

According to the Hague Rules, notice regarding non-apparent loss or

damage must be given to the carrier “within three days of the

delivery of the goods”.

Time limits are discussed more fully in Lesson 3 of this Unit.

Activity Ask a carrier to show you an example of a proper notice of

reservation.







1. What is a notice of reservation?

_____________________________________________

_____________________________________________

2. How is the difference between apparent and non-apparent

damage defined?

a. by the Hague Rules

b. by the Hague Visby Rules

c. by considering whether a reasonable person could detect the

damage with a rapid but sufficient check

d. by considering whether a reasonable person could possibly

detect the damage with a thorough check

3. If a liquid is pumped directly into a tank upon discharge, what

determines whether any loss is considered apparent?

a. whether the liquid was measured when it was shipped

b. whether the liquid is measured as it is discharged

c. whether the tank has a measurement scale

d. whether the tank has an easily visible, transparent scale

4. What do the Hague Rules say about the form of reservation?

a. that the reservation notice must be sent to the carrier (or

agent) at the port of discharge

b. that the reservation notice must be sent to the carrier (or

agent) at the port of loading

c. that the reservation notice must be sent to the carrier (or

agent) by registered post

d. nothing

5. How much time is allowed under the Hague Rules for notice to

be given of non-apparent damage?

_____________________________________________




Lesson 2...... Legal effect of reservation According to the Hague Rules, if the consignee does not give notice

of cargo loss or damage at the time of delivery, this would be prima

facie evidence that the carrier delivered the goods in the same

condition as stated in the bill of lading. The drafters of these Rules

appear to have intended that consignees should rely on reservations

to prove that the goods were loaded in good order but discharged in

bad order. The provision however does not have that effect. It is

still up to the consignee to bring evidence that the goods were

damaged when they were delivered. This is so whether the

consignee gives notice to the carrier or not. The consignee would do

this quite easily by producing the clean bill of lading to show

shipment was in good order and the cargo survey report to show

delivery was in bad order.

Proving loss or damage without a reservation notice However, if no reservation notice has been given, the consignee

could be at a disadvantage. This is because the acceptance of the

goods without reservation would be prima facie evidence that the

carrier had delivered the goods in good condition. The consignee

would then have to:

• prove the damage by showing that the goods were received in

bad order

• prove that the loss or damage occurred while the goods were in

the custody of the carrier.

Had the consignee given notice there would have been no such

burden, and it would have been the carrier who would have had the

burden of proving that the loss or damage did not occur while in the

carrier’s custody.

Example: A carton containing refrigerated meat arrived at the discharge port, with the meat partly defrosted and emitting a strong smell. The consignee took delivery without giving notice of damage to the carrier. On discovering that the meat was spoilt, the consignee arranged a survey in conjunction with the cargo underwriter.

Removal without notice was prima facie evidence of delivery in good order by the carrier. Therefore, the consignee had to not only establish the damage by producing the survey report, but also that it occurred while in the custody of the carrier. To do this, the consignee had to obtain the temperature records of the refrigerated compartment of the ship during the voyage.




Allowed evidence proving damage

Evidence that would be admitted in legal proceedings to prove

damage include:

• a tally sheet

• any other survey report document issued by the relevant port

authority

• witnesses

• a customs bill

• a final out-turn report.

Joint survey or inspection In the Hague Rules, there are two main provisions dealing with joint

surveys. They are in Article III, paragraph 6.

Notice and joint surveys

The Rules state that the notice in writing need not be given if the

state of the goods has, at the time of their receipt, been jointly

surveyed or inspected. In practice, unless the loss or damage is

serious, no joint survey is carried out at time of delivery of the

goods. The consignee also does not usually give notice of loss or

damage at the time of delivery or immediately after.

However, if there is damage or loss, the consignee would inform the

cargo underwriter and arrange a survey. The carrier would accept

liability on the basis of the tally sheets and onboard or shore survey

report carried out by the port in the presence of the carrier’s

representative.

The carrier’s reasons for not normally insisting on notice of loss or

damage or and being reluctant to have a joint survey could be

attributed to the following:

• the survey conducted by the port in the presence of the carrier

may be considered a joint survey as the port would in a sense act

on behalf of the consignee

• it would be inconvenient if a large number of consignees

requested the carrier’s presence at surveys.

Surveys on board

The Rules also state that in the case of any actual or perceived loss or

damage, the carrier and the receiver shall give all reasonable

facilities to each other for inspecting and tallying the goods. The




carrier is usually reluctant to allow the consignee too survey the

cargo on board. Although the consignee can be discouraged from

coming on board, the carrier may have to allow an inspection on

board if the consignee insists.

Court surveys The consignee may apply to the court to get an order to hold a joint

survey. The surveyor appointed by the court would notify the parties

concerned of the date and place where the survey would be

conducted. The carrier normally declines to participate at surveys

organized by the consignee.

The role of the carrier in a court survey

The fact that a carrier did not attend the survey would not affect the

validity of the survey report. The surveyor does not make any

decision regarding the carrier’s liability. The surveyor only makes

observations on the possible cause of loss and the extent of the loss.

The carrier may contest or disagree with the survey findings. In the

event of the claim being taken to court, it is likely that the court

survey would be relied upon. The carrier could however produce

evidence to show that the court survey should not be relied on, such

as:

• surveys carried out on board

• surveys carried out ashore by the port

• expert witnesses.

Cargo underwriter’s survey In the event of loss or damage, the consignee would call the cargo

underwriter (or representative) who would arrange for a survey. The

survey could be performed by any authorised surveyor appointed by

the underwriter. The cargo underwriter’s survey is performed

mainly to ascertain the type and degree of loss or damage, and to

check whether it falls within the cargo insurance cover taken out by

the shipper or receiver.

Insurance settlement vs. claims against the carrier

The survey report however is also used to substantiate the loss or

damage suffered by the consignee when making a claim on the

carrier. If the survey report indicates loss or damage to the cargo, the

consignee would initially make a claim on the insurer. The insurer

will then inform the consignee to first make a claim on the carrier.




Although in theory the insurer should settle the consignee’s claim

and take up the claim with the carrier under subrogation, this is not

done in practice, unless it is a large or a complicated claim. The

insurer usually makes the consignee process the claim with the

carrier. The insurer pays compensation only after the carrier declines

liability or has paid the amount the carrier is liable for. Since the

carrier may take several months to finalise a claim, the consignee

might have to wait a long time before getting compensation from

either the carrier or the insurer.

Activity Ask a carrier or insurance company to let you read a copy of at least

one type of survey report.







1. What must the consignee do under the Hague Rules to justify a

claim of damage during transit?

_____________________________________________

_____________________________________________

_____________________________________________

2. If the consignee does not give a reservation notice at the time of

delivery, what two things will have to be proven to make a claim

against the carrier for damage?

a. _________________________________

b. _________________________________

3. Name four things that could be used as evidence of cargo

damage during carriage.

a. _________________________________

b. _________________________________

c. _________________________________

d. _________________________________

4. If a joint survey has been done, there is no need to give written

notice of damage. True or false? Explain.

a. true

b. false

_____________________________________________

_____________________________________________

_____________________________________________

_____________________________________________




5. When there has been some damage to cargo, is the carrier

obliged to allow the consignee on board for an inspection?

a. yes, under the Hague Rules, the carrier and receiver must

accommodate each other

b. no, the Hague Rules say that the carrier need not allow the

consignee on board, although an on-shore survey must be

accommodated

6. Does the carrier usually attend a court survey requested by the

consignee?

a. yes, both interested parties must attend such a survey

b. yes, the carrier usually attends although he/she is not

required to do so

c. no, only the party requesting the survey can attend

d. no, the carrier does not usually attend even though he/she

may do so

7. What are the two purposes of a cargo underwriter’s survey?

a. _________________________________

b. _________________________________

8. What is the usual process with an average sized claim for cargo

damaged in transit?

a. the consignee claims from the insurance company and the

carrier at the same time

b. the consignee claims from the insurance company who

settle and then claim under subrogation from the carrier

c. the consignee claims from the carrier first and then from the

insurance company if the carrier will not settle

d. the consignee claims from the carrier only. Only large

claims are made on the insurance company




Lesson 3...... Preliminary aspects of making a claim When goods carried by sea are damaged, partially lost or completely

lost, the consignee is entitled to make a claim against the carrier for

damages. The purpose of this lesson is to analyse the procedural and

technical requirements that must be satisfied to sustain a cargo claim

in court.

The technical requirements for making a claim The requirements that are dealt with here are not the rules or

procedures of the relevant court, but the basic requirements that must

be satisfied by the claimant. If any of these requirements have not

been satisfied, the carrier could validly object to the claim. In such a

situation the court may reject the claim without going into its merits.

If the technical requirements are satisfied and the court examines the

merits of the case, the liability of the carrier would be determined

according to specified rights and obligations. The technical

requirements that must be satisfied are:

• the claimant must be entitled to bring the action against the

carrier

• the claim must be brought to court within the time limit

• the court must have the competency to deal with the case.

Persons entitled to claim against the carrier The Bills of Lading Acts, which are part of the legislative framework

of many Caribbean countries, have similar provisions. They provide

that persons other than the shipper, who may not, in a contractual

sense, be privy to the contract of carriage, may bring claim against

the carrier. This includes people such as the receiver/consignee who

was not a party to the initial contract of carriage made between the

shipper and the carrier.




The following persons would also be entitled to make a claim on the

carrier:

• the consignee named in the bill of lading

• where order bill of lading has not been endorsed, the shipper

• where the bill of lading is generally endorsed (that is, in blank)

the holder of the bill of lading

• where the bill of lading has been endorsed specially, the named

beneficiary under the last endorsement

• where the shipper or consignee is entitled to claim against the

carrier and is compensated by the cargo insurer; if those rights

are subrogated to the insurer, the insurer is entitled to make a

claim against the carrier.

Time limit The law in each country usually provides a time limit within which a

claim must be brought to court. The time limit varies with the type

of claim. Once the time has lapsed, the court will not hear the case.

The time limit applicable to cargo claims depends on the national

legislation and the relevant international conventions.

Applicable time limit under the Hague Rules

According to the Hague Rules the time limit allowed to bring an

action against the carrier is one year. Article III, paragraph 6 states:

In any event the carrier and the ship shall be

discharged of all liability in respect of loss/

damage to goods unless suit is brought within one

year after delivery of the goods or of the date when

the goods should have been delivered.

Starting point of time limit

Claims may be for damage or partial loss, or for complete non-

delivery (total loss). Time limits are handled differently for these

cases.

Damage or partial loss

According to the Hague Rules, the time limit for making claims of

partial loss starts running from the date of delivery of the goods. The

question as to when delivery of the goods actually takes place has

been the subject of much debate. One view is that it would be the

date on which the consignee takes delivery of the goods. The other




view is that it is the date on which goods are delivered into the

custody of the port or shore handling company. That is, the date of

discharge from the vessel.

The first view may be more in keeping with the letter of the law.

However, the second view is usually applied, as it is more in keeping

with the practical realities of commercial shipping operations. The

carrier would discharge the goods on to the quay and they would be

kept in the custody of the port, either on the quay or in warehouses,

until the consignee takes delivery. It is possible to argue that the port

takes delivery of the goods on behalf of the consignee. As the

consignee can take delivery any time after the goods are discharged,

it would not be fair on the carrier to postpone the commencement of

the time limit to a date of the consignee’s choice.

One reason for imposing a time limit is to enable carriers to assess

the outstanding claims against them after a given period, or the

possibility of such claims. It is unlikely that the Rules would have

envisaged that period being extended at the discretion of the

consignee.

Non-delivery

According to the Hague Rules the time limit for claims of non-

delivery starts running from the time when the goods should have

been delivered. That is, the date on which the goods should have

been delivered to the port authority or shore handling company. This

date would usually be considered as the date on which the ship

completed discharging cargo destined for that port.

Extension of the time limit

The Hague Rules make no provision for an extension of time by the

carrier. However an extension given in writing by the carrier at the

request of the consignee would be binding on the carrier.

The Hague Visby Rules clarify the position with regard to an

extension of the time. These Rules state that the period may be

extended, if the parties so agree.

Arbitration

If the claim is referred to arbitration within the time limit, that would

amount to suit being brought under the Hague or the Hague Visby

Rules.




Rules governing jurisdiction The shipper or consignee who has a cargo claim would take up the

matter with the carrier in the first instance. The action may be either

for damages or for money due. If unable to obtain a satisfactory

settlement, the claimant may wish to take up the matter in court. The

question would then arise as to what would be the appropriate court

in which to file an action.

The international character of shipping makes the determination of

the appropriate court a complex task and it is difficult to lay down

any rules without getting involved in debatable legal issues. At the

risk of oversimplifying, the action may be filed in the courts of the

country:

• where the port of discharge is situated

• where the defendant resides

• where the defendant has a place of business

• where the defendant owns property, such as real estate or

business.

In addition, an action may be brought against the ship which carried

the goods, or a ship in the same fleet, according to the admiralty

jurisdiction law of the country where the ship is when the claim is

filed. Also, the bill of lading may have a jurisdiction clause that

provides that a particular country has exclusive jurisdiction to hear

claims arising out of the carriage.

Activity There is no Activity for this lesson.







1. What are the three technical requirements for a claim that must

be met by the claimant before a court will agree to look at the

claim’s merits?

a. ________________________________

b. _________________________________

c. _________________________________

2. List the five parties who may bring a claim against a carrier.

a. _________________________________

b. _________________________________

c. _________________________________

d. _________________________________

e. _________________________________

3. According to usual commercial practice (as opposed to the letter

of the law), when does the time start running for making claims

for partial loss?

a. on discharge of the goods from the ship into the custody of

the port

b. on delivery of the goods to the consignee/receiver

c. from when the loss was first noticed by the

consignee/receiver

d. from the time of joint survey

4. When does the time start running for claims regarding non-

delivery of cargo?

_____________________________________________

5. May the time limit for claims be extended?

a. yes, if the claimant asks in writing

b. yes, if the carrier agrees in writing

c. no, the Hague Rules do not allow it

d. no, the Hague Visby Rules do not allow it




6. What (if any) time limits apply to arbitration procedures?

_____________________________________________

_____________________________________________

7. Name four factors that could possibly determine the jurisdiction

in which a claim may be filed.

a. _________________________________

b. _________________________________

c. _________________________________

d. _________________________________




Answer keys

Lesson 1 1. A reservation is a notice given by the consignee to the carrier at

the time of delivery preserving the right of the consignee to

claim against the carrier at a later date in the event that damage

or loss is discovered later.

2. c. by considering whether a reasonable person could detect the

damage with a rapid but sufficient check

3. d. whether the tank has an easily visible, transparent scale

4. a. that the reservation notice must be sent to the carrier (or

agent) at the port of discharge

5. Notice of non-apparent damage must be given within three days

of delivery.

Lesson 2 1. The consignee must show that the goods were shipped in good

order and received with damage or loss.

2. − that the goods were received in a damaged condition

− that the damage occurred while they were in the carrier’s

custody


– tally sheet

– other survey report from port authority

– witnesses

– customs bill

final out-turn report

4. b. false

Although the Hague Rules do not require it as long as there

has been a joint survey, in practice joint surveys are not

done unless damage is serious. Often the consignee doesn’t

give notice of damage for a short while after delivery, and a

joint survey may be called after this.




5. a. yes, under the Hague Rules, the carrier and receiver must

accommodate each other

6. d. no, the carrier does not usually attend even though he/she

may do so

7. The cargo underwriter’s survey is:

– to ascertain the type and degree of loss/damage

– to check whether it falls within the cargo insurance cover

It may also be used by the consignee and/or the insurer in

making a claim on the carrier.

8. c. the consignee claims from the carrier first and then from the

insurance company if the carrier will not settle.

Lesson 3

1. − the claimant must be entitled to bring action against the

carrier

− the claim must be brought to court within the time limit

− the court must be competent to deal with the case

2. − consignee named in the B/L

− if the B/L is not endorsed, the shipper

− if the B/L is endorsed in blank, the holder of the B/L

− if the B/L is endorsed specially, the last named beneficiary

− an insurer using subrogated rights of the shipper or

consignee

3. a. on discharge of the goods from the ship into the custody of

the port

4. From when the goods should have been discharged from the ship

into the custody of the port.

5. b. yes, if the carrier agrees in writing

6. If the claim is taken to arbitration within the time limits that is

the same as a suit being brought under the Hague or Hague

Visby Rules.





– the country of the port of discharge

– the country where the defendant resides

– the country where the defendant works

– the country where the defendant owns property

– the country where the ship or a sister ship is at the time

of claim

the country whose jurisdiction is named in the bill of lading.