Unit 3 - Carriage of Goods by Sea Lec Notes PDF

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UNIT 3 CONTRACTS IN INTERNATIONAL SALES LAW - CARRIAGE OF GOODS BY SEA INTRODUCTION These notes give an account of the course of business in a carriage of goods by sea. They explain the basic principes of the Bill of Lading and the liability of the carrier of the goods under the Hague-Visby Rules. The two most important sets of terms in export sales, Free on Board and Cost-Insurance-Freight are also examined. CARRIAGE OF GOODS BY SEA Unimodal and Multimodal Goods may be transported by sea, air or land. If only one method of transportation is used then it is unimodal. A combination of methods is multimodal. Unimodal international transport is governed by international conventions: Sea transport – the Hague-Visby Rules relating to Bills of Lading Air transport – the Warsaw Convention (as amended) Land transport by road – the CMR (Convention relative au contrat de transport international des merchandises de route). Methods of Transport Goods by sea in bulk – shipper may hire a whole vessel – charterparty. Individual packages are loaded in the ship’s hold or on deck and are carried under a Bill of Lading. Container transport – traditional transport documents or variations are used. Combined Transport Documents – FIATA (“Fédération Internationale des Associations de Transitaires et Assimilés” or in English, “International Federation of Freight Forwarders Associations") combined transport bills of lading. As a large amount of transport is now carried out by containers it is now provided for banks to accept multimodal transport document provided this covers the entire carriage. The Course of Business in the Carriage of Goods by Sea Exporter concludes contract of sale of goods with buyer abroad. Exporter concludes contract of carriage with a shipowner from UK port of shipment to port of destination. This is the contract of carriage by sea. The remuneration to be paid to the shipowner is the freight. The shipowner is the carrier. The exporter is the shipper.

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Unless there is a charterparty the terms of the contract of carriage are evidenced by the bill of lading – a receipt from the shipowner that the goods have been delivered to him and stating the terms of the contract. The shipper will usually instruct a forwarder to book freight space for the cargo. The shipowner employs an agent, the loading broker, to find cargoes. The shipowner advises the shipper of the name of the ship and the time when the ship is ready to receive the goods and the closing date (the last date when the goods will be received for loading). The place and mode delivery of the goods to the shipowner are fixed by agreement between the parties or by the custom of the port. In the absence of anything in the above the shipper must deliver the goods alongside the ship at his own expense. The shipper then receives the mate’s receipt. This covers date of loading / identification marks /weight / measurement /condition of goods. The receipt may be ‘clean’ or ‘claused’ (qualified). Any qualifications on the mate’s receipt are later incorporated in the Bill of Lading – making it either ‘clean’ or ‘qualified’. The mate’s receipt is an acknowledgement that the goods are in the shipper’s possession and at his risk. It is also prima facie evidence of ownership of the goods. It is not a document of title. Its transfer does not pass possession of the goods. If the records of loading comply with the draft bill of lading sent by the shipper then the bill of lading is signed by the loading broker and handed to the shipper. This will be a ‘clean bill.’ If the bill of lading is ‘claused’ then it may create problems in relation to the finance. Unless payment is arranged under a letter of credit the bill is sent to the consignee by air mail. The consignee will not be able to take delivery of the goods from the shipowner without the bill of lading. If goods are sold under a letter of credit the exporter will hand over the bill to the advising or nominating bank and that bank will forward the documents to the issuing bank. The ship’s agent will issue a ‘delivery order’ and the goods will be delivered from the ship to the person entitled to take delivery.

THE CONTRACT OF CARRIAGE BY SEA A charterparty is governed by common law rules and freedom of contract applies. The shipowner may modify his normal liability without limitations except those general principles of common law. A contract of carriage is evidenced by the bill of lading and is largely regulated by statute law, Carriage of Goods by Sea Act 1971. The Act qualifies contractual 2

liability and restrains the shipowner from introducing exemptions from his liability beyond those admitted by the rules relating to bills of lading, the Hague-Visby Rules, which are appended to the Act. Conclusion of the Contract of Carriage by Sea The contract of carriage by sea is concluded prior to the issue of the Bill of Lading – the Bill of Lading merely evidences the terms of the contract. A special term of the contract of carriage (even an oral one) may therefore override the general clauses printed in the bill of lading. The Ardennes [1951] 1 KB 55 Freight ‘Freight is the reward payable to the carrier for the safe carriage and delivery of the goods; it is payable only on safe carriage and delivery; if the goods are lost on the voyage nothing is payable’ (Kirchner v Venus (1859) 12 Moore PC 361 at 390). The carrier’s obligation is readiness to deliver the goods not their actual delivery. ‘Safe’ does not refer to the condition of the goods. If the cargo is damaged the shipowner is entitled to freight unless the damage is so serious the goods have completely lost their merchantable character (Asfar v Blundell [1896] 1 QB 123). This means that the cargo owner is not entitled to a set off but has an action against the carrier. Calculation of Freight Normally calculated by weight. Shipper may agree to pay lump sum freight for the use of the ship or a portion (usually in charterparties). Prepaid freight – normally the shipper can only claim for freight on arrival but this can be varied by the contract – payment on signing of bill of lading – claim survives an anticipatory breach – payable even if lost at sea unless the ship did not sail / goods lost before advance freight became due / goods lost by an event other than excepted peril. In the absence of agreement the freight becomes due on the final sailing of the ship. Shipper has an insurable interest. This raises problems with CIF contracts. Is the freight paid by the seller ( freight prepaid bills of lading) or by the buyer on arrival (freight collect bills of lading)? In the latter, the seller has to give the buyer credit by deducting the freight price from the invoice price. On a freight collect bill of lading the buyer’s obligation to pay is dependent on the arrival of the goods and is a true CIF contract. Dead Freight is where the shipper fails to deliver the goods and the shipowner uses the space for other goods. The earned freight has to be deducted when claiming damages.

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Who Pays the Freight? Look at the contract of sale - this regulates the ultimate responsibility for freight as between the parties to the sale. If the bill of lading contains no express provisions: 1. The shipper is primarily liable – contractual liability. 2. The consignee is not liable for freight under the contract of carriage as he is not a party unless he is the shipper himself (under an FOB contract) or the shipper made the contract as his agent. The shipper may demand the freight from the consignee in any of the circumstances set out in s.3(1) Carriage of Goods by Sea Act 1992. 3. A seller who exercises his right of stoppage in transit is liable to pay the freight to the shipowner. Shipowner’s Lien The shipowner has a lien on the goods of the shipper which are in his possession. This is usually dealt with by the Bill of Lading. BILLS OF LADING The principal purpose of a Bill of Lading is to enable the owner of the goods to dispose of them rapidly – even if the goods are not in his hands – e.g. sale of goods at sea. A Bill of Lading is; 1. A formal receipt by the shipowner that goods of a stated species, quantity and condition are shipped to a stated destination in a certain ship or at least are received into the custody of the shipowner for the purposes of shipment. 2. Evidence of the contract of carriage repeating in detail the terms of the contract concluded prior to the signing of the bill. 3. A document of title to the goods enabling the consignee to dispose of the goods by indorsement and delivery of the bill of lading. International Rules Relating to Bills of Lading Carriage of Goods by Sea Act 1971 (preceded by the Carriage of Goods by Sea Act 1924) implementing the Hague-Visby Rules. These are primarily to protect the position of the shipper and are intended to replace a conventional contract with a legislative bargain under which the carrier’s position was to be one of restricted exemption. Territorial Application

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Article X The provisions of these Rules shall apply to every bill of lading relating to the carriage of goods between ports in two different States if: (a)

the bill of lading is issued in a contracting State, or

(b)

the carriage is from a port in a contracting State, or

(c)

the contract contained in or evidenced by the bill of lading provides that these Rules or legislation of any State giving effect to them are to govern the contract, whatever may be the nationality of the ship, the carrier, the shipper, the consignee, or any other interested person.

The rules only apply to the carriage of goods by sea (s.1(3)) and do not cover any land transport. s. 1(3) of the said provisions shall have effect (and have the force of law) in relation to and in connection with the carriage of goods by sea in ships where the port of shipment is a port in the United Kingdom, whether or not the carriage is between ports in two different States within the meaning of Article X of the Rules. Mayhew Foods Ltd v Overseas Containers Ltd [1984] 1 Lloyd’s Rep 317 Article 3 Rule 8 “Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to, or in connection with, goods arising from negligence, fault, or failure in the duties and obligations provided in this article or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect. A benefit of insurance in favour of the carrier or similar clause shall be deemed to be a clause relieving the carrier from liability.” The Hollandia [1983] AC 565 In March 1978 an English company (the cargo owners) shipped a large machine on board a vessel belonging to Dutch carriers, for carriage from Scotland to Bonaire in the Netherlands Antilles, under a bill of lading which, by cl 2, provided (i) that the proper law of the contract was to be Dutch law (where the original Hague Rules for the carriage of goods by sea still applied), (ii) that the Court of Amsterdam was to have exclusive jurisdiction and (iii) that the liability of the carriers under the bill of lading was to be limited to 1,250 Dutch florins (about £250) per package. Under art IV, para 5(a) of the Hague-Visby Rules, as set out in the schedule to the Carriage of Goods by Sea Act 1971, the carriers' liability for loss or damage to the machine was limited to some £11,500. The machine was transhipped at Amsterdam onto a Norwegian vessel for carriage to Bonaire. During discharge at Bonaire, the machine was severely damaged, the cost of the damage being estimated at £22,000. The cargo owners brought an action in England against the carriers claiming damages. The cargo owners claimed to be entitled, by virtue of art X of the Hague-Visby Rules, to bring their action in England because the bill of lading was issued in, and the carriage was from a port in, a 'contracting State', i.e. the United Kingdom. By art III, para 8 of the Hague-Visby Rules it was provided that 'any clause ... in a contract of carriage ... lessening [the carrier's] liability ... shall be null and void and of no effect'. The carriers applied to the English court for, and were granted, a stay of the action 5

on the grounds that the cargo owners were bound by the exclusive jurisdiction clause in the bill of lading and that the action should accordingly proceed in the Netherlands. The cargo owners appealed, contending that the exclusive jurisdiction clause in the bill of lading was null and void under art III, para 8 of the Hague-Visby Rules and that they were thus entitled to bring their action in England. The Court of Appeal upheld that contention, removed the stay and allowed the action to proceed. The carriers appealed to the House of Lords, contending, inter alia, that a choice of forum clause only prescribed the procedure by which disputes arising under the contract of carriage were to be resolved and did not ex facie deal with liability at all and so was not a 'clause ... lessening ... liability' which was rendered null and void by art III, para 8. Held - The description of provisions in contracts of carriage which were rendered 'null and void and of no effect' by art III, para 8 of the Hague-Visby Rules embraced every provision in a contract of carriage which, if it were applied, would have the effect of lessening liability otherwise than as provided by those rules, Accordingly cl 2 of the bill of lading, in so far as it limited liability for loss or damage otherwise than as provided by those rules, was null and void under art III, para 8. Where an exclusive jurisdiction clause in a bill of lading did not ex facie offend against art III, para 8 because it came into operation only when a dispute arose between the parties, but where also it was established as a fact that the foreign court chosen as the exclusive forum would apply a domestic substantive law which would result in limiting the carriers' liability to a sum lower than that to which they would be entitled if art IV, para 5 of the Hague-Visby Rules applied, an English court was required by the 1971 Act to treat the choice of forum clause as of no effect. Since the Court of Amsterdam was bound to limit the carriers' liability in accordance with the Hague Rules rather than the Hague-Visby Rules, if followed that the English court in exercising its discretion regarding a stay of proceedings was bound to treat the bill of lading as if it had no choice of forum clause and to refuse a stay unless the carriers were able to satisfy it, independently of cl 2 of the bill of lading, that the Court of Amsterdam was a forum conveniens and the English court was not. Since the carriers had not established that the conditions for the granting of a stay had been fulfilled a stay would be refused and the appeal would be dismissed. Documentary Application s.1.(4) “Subject to subsection (6) below [not reproduced here], nothing in this section shall be taken as applying anything in the Rules to any contract for the carriage of goods by sea, unless the contract expressly or by implication provides for the issue of a bill of lading or any similar document of title.” There must therefore be a bill of lading for the Rules to apply or if a receipt is used instead it must be marked ‘as if the receipt were a bill of lading’ to incorporate the rules. A ‘clause paramount’ may be inserted into bills of lading to incorporate the Rules into a contract of carriage to which they may not otherwise have applied. Any divergence between exceptions for the shipowners and the Rules will be settled by application of the rules.

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Types of Bills of Lading Charterparty Bills of Lading Where a charterer ships goods himself the terms of the contract are contained in the charterparty. Once the consignee receives the bill of lading this will constitute the contract of carriage but the Rules do not apply to charterparty bills although most charterparties expressly incorporate the Rules. Negotiable and Non-Negotiable Bills When applied to a Bill of Lading the term negotiable means transferable but case law still refers to them as negotiable instruments. They are not, however, the same as bills of exchange. If the bill is made out to bearer it is transferable by delivery – if it is made out to order it is transferred by indorsement and delivery (rarely used). The Bill of Lading is primarily a document of title to the goods. If it is to be negotiable it must expressly be made so (cf bills of exchange). ‘Consignee (if ‘Order’ state Notify Party)’ For a negotiable bill the shipper inserts order and the name of the consignee. For a non-negotiable bill ‘order’ is not inserted. A holder of a bill of lading cannot obtain a better title than his predecessor (cf bills of exchange). This subject to two exceptions: Firstly an indorsee taking a bill from a factor acting in excess of his authority ( Factors Act 1889 s.2(1)). Secondly the unpaid seller’s rights of stoppage and lien are defeated by a previous transfer of a bill from the buyer to an indorsee who takes the bill in good faith and for valuable consideration (Sale of Goods Act 1979 s.47(2)). Shipped and Received Bills ‘Shipped in apparent good order and condition by…..on board the ….’ ‘Received in apparent good order and condition from……for shipment on board the ship….’ A shipped bill acknowledges the goods are loaded on board ship. A received bill only confirms that the goods are delivered into his custody. A buyer under a CIF contract can insist on a shipped bill unless the contrary is agreed or is customary. Where the Rules apply; Article 3 r.3 ‘After receiving the goods into his charge the carrier or the master or agent of the carrier shall, on demand of the shipper, issue to the shipper a bill of lading showing among other things(a)

The leading marks necessary for identification of the goods as the same are furnished in writing by the shipper before the loading of such goods starts, provided such marks are stamped or otherwise shown clearly upon the goods 7

if uncovered, or on the cases or coverings in which such goods are contained, in such a manner as should ordinarily remain legible until the end of the voyage. (b)

Either the number of packages or pieces, or the quantity, or weight, as the case may be, as furnished in writing by the shipper.

(c)

The apparent order and condition of the goods.

Provided 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 ground for suspecting not accurately to represent the goods actually received, or which he has had no reasonable means of checking.’ Article 3 r.7 ‘After the goods are loaded the bill of lading to be issued by the carrier, master, or agent of the carrier, to the shipper shall, if the shipper so demands, be a "shipped" bill of lading, provided that if the shipper shall have previously taken up any document of title to such goods, he shall surrender the same as against the issue of the "shipped" bill of lading, but at the option of the carrier such document of title may be noted at the port of shipment by the carrier, master, or agent with the name or names of the ship or ships upon which the goods have been shipped and the date or dates of shipment, and when so noted, if it shows the particulars mentioned in paragraph 3 of Article III, shall for the purpose of this article be deemed to constitute a "shipped" bill of lading.’ Through Bills of Lading A single bill of lading can be taken out for the entire journey where more than one means of transport is to be used. The shipper only has to deal with the carrier who signs the through bill. The Act and the Rules apply to through bills issued in respect of goods dispatched from a port in the UK or any other Contracting State. Date of the Bill of Lading The correct date of a ‘shipped bill’ is the date when the goods are loaded. For a ‘received bill’ it is the date when the goods are taken into the charge of the carrier. If it is notated ‘shipped’ the date of the shipment is that of the notation. In relation to the contract of carriage – if ...