Bills of lading
Abhinayan Basu
JASN13
Introduction to Commercial Shipping Law
Lund University
17 -18 January 2011
1
International sale involves several contracts
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Sale contract
Charterparty (C/P)
Bill of lading (B/L)
Letters of credit
2
Functions of Bill of Lading
(i) Receipt for goods received on board and prima facie
evidence of weight, quality, quantity and condition of
goods; clean or claused bill of lading; “shipped” or
“received for shipment” bill of lading; mate’s receipt;
estoppel when in the hands of someone other than
the shipper (i.e., lawful holder or endorsee)
(ii) Document of title; right to take delivery of goods;
transfer of title by endorsement.
3
Functions of Bill of Lading
(iii) Evidence of the terms of a contract of carriage between the
shipper and carrier; the terms are usually subject to one of the
international conventions.
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If the charterparty is a contract of carriage and the bill of
lading is also a contract of carriage, which contract governs
the carriage of the cargo on the voyage in question?
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where the B/L is issued to the charterer as shipper (i.e., CIF
or C&F) = C/P
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where the B/L is subsequently acquired by the charterer as
receiver or intermediate buyer (i.e., FOB) = C/P
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any other case = B/L (because the holder of the B/L will not
a party to the C/P; he will not be the charterer of the vessel)
4
Bill of lading : Negotiable Instrument
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Property in common law and civil law systems are usually in
terms of personality and realty or movable and immovable.
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Personal property is held as a chose in possession (tangible) or a
chose in action (intangible).
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Endorsement of a chose in action transfers right of title from
one holder to another for valuable consideration. This makes
the chose in action a negotiable instrument.
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Sea waybill is generally considered to be a non-negotiable
instrument; in the Rafaela S case it was held by the House of
Lords that a “straight” bill of lading can be considered as a
document of title.
5
Historical Evolution
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Strict liability of carrier
Contracting out of strict liability through exemption clauses
Harter Act of the United States in 1893
The Hamburg Rules adopted in 1885
National legislation of Canada, Australia, New Zealand
CMI conference in 1922
Adoption of Hague Rules in 1924
CMI Stockholm Conference in 1963 leading up to Visby
Protocol in 1968
Adoption of Hamburg Rules in 1978
1998 to 2008 – CMI and UNCITRAL deliberations leading up to
the Rotterdam Rules in 2009
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Salient Features of Hague/ Hague
Visby Rules
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Definitions
Scope and Period of Application
Seaworthiness and cargoworthiness
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Duty to issue bill of lading
No Contracting Out
Carrier’s Defences, Catalogue of Exceptions
Time for suit
Limitation of Liability
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Burden of proof
Carrier’s duty to care for cargo
Breaking limitation
Himalaya clauses
Deviation
7
Definitions
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"contract of carriage" applies only to contracts of
carriage covered by a bill of lading or any similar
document of title,…
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What if bill of lading not issued yet? E.g., damage
occurs during loading? Pyrene v. Scindia; it is
contemplated that bill of lading will be issued.
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What if bill of lading not issued at all? Happy
Ranger; Specimen form, bill of lading never
issued; damage during loading in Italy; intended
to be covered by bill of lading.
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Definitions
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Bill of lading or similar document of title:
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Received for shipment – Art III r 3
Through or combined transport bill of lading (sea leg)
Straight bill of lading – Rafaela S
Documents regarded as documents of title in custom or
trade
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Except if marked non-negotiable; e.g., mate’s receipt
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Documents acknowledging shipment
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Receipts of cargo retained by consignor
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Ship delivery order
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Not sea waybill
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Definitions
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Art I (c): “goods” excluded from the Rules – live
animals, deck cargo – excluded for policy reasons
– greater risks with these cargoes
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Precondition for deck cargo to be excluded: clear
statement that goods are carried on deck; and in
fact cargo is so carried; it is not enough to have
general liberty clause to carry cargo on deck
(Svenska Traktos)
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Scope of Application
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The geographical scope (from where is the shipment?) - Art X
(a) – (b)
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,…
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The documentary approach – Art I (b) – definition of contract
of carriage
"contract of carriage" applies only to contracts of carriage
covered by a bill of lading or any similar document of title, …
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Scope of Application
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Express incorporation in bill of lading – Art X (c)
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… (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, (Tunisia
is a contracting state to the Hamburg Rules. But all the
ships of the government owned shipping company of
Tunisia incorporates Hague-Visby Rules in their bills of
lading).
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whatever may be the nationality of the ship, the carrier,
the shipper, the consignee, or any other interested person.
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Incorporation must be express and specific
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Scope of Application
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Incorporation in charterparties
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The Rules do not apply to charterparties by force of law; Art
V.
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Can apply contractually through a Paramount Clause which
is a term of art meaning incorporation of the Rules in a
charterparty.
13
Period of Application
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Art I (e) - "carriage of goods" covers the period from the time
when the goods are loaded on to the time they are discharged
from the ship.
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Operation of the Rules determined by limits of contract and
not by limits of time; Pyrene v. Scindia.
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Tackle to tackle: If the carrier undertakes to perform loading
and discharging then HVR come into operation from the
moment cargo is attached to ship’s tackle until the moment
ship’s tackle is released at discharge.
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The extent to which loading and discharging are brought
within the carrier’s obligations is left to the parties to
decide; (FIOST Terms)
14
Period of Application
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Art II (subject to Art VI) refers to carrier’s
responsibilities, liabilities and immunities from
loading to discharge.
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Art VII allows freedom to the parties to agree terms
of liability relating to loading or discharge.
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Seaworthiness
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Art III r 1;
The carrier shall be bound, before and at the beginning of the
voyage, to exercise due diligence to
(a) make the ship seaworthy;
(b) properly man, equip and supply the ship;
(c) make the holds, refrigerating and cool chambers, and all
other parts of the ship in which goods are carried, fit and safe for
their reception, carriage and preservation.
Exercise due diligence implies duty to exercise reasonable care
and skill; lack of it is negligence.
The duty is non-delegable; The Muncaster Castle
Negligence of reputable fitter delegated by owner will not
absolve owner from liability.
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Seaworthiness
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Exercise of due diligence involves not only that owner
personally shall exercise due diligence but also all his servants
and agents.
Why owner liable? Allocation of risk is on the shipowner and
not on the cargo interest.
Duration of duty: Art IV r 1: duty extends to period before and at
the beginning of the voyage; Maxine Footwear v. Canadian
Government Merchant Marine Ltd.; duty starts at least from the
beginning of loading till vessel starts in her voyage.
Voyage is meant the contractual one from port of loading to the
discharge.
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Seaworthiness
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Scope of the duty: make ship physically seaworthy; properly
man, equip and supply the ship; 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.
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Examples of physical condition
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Failure to secure nuts in storm valves
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Fatigue cracks in reduction gear (breakdown)
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Failure of steering gear after commencement of voyage
(stranding)
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Fracture in shell plating due to fatigue after serious damage
to frames and brackets during log trade.
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Seaworthiness
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Examples of improper manning
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Inefficiency of chief engineer to check sufficiency of burnable oil,
lack of which caused breakdown
Inefficiency of chief engineer who opened wrong valve during
pumping operations
Lack of fire fighting training
Due diligence requires owner to examine competence of crew and
not just relying on certificates
Example of insufficient equipment
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Failure to provide plans of engine room
Failure to provide plan of ballast and fuel system
Inadequate number of functioning walkie-talkies, defective fire
extinguishers, lack of specific documents dealing with danger of
fire
Insufficient bunkers
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Seaworthiness
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Cargoworthiness: Holds, refrigeration and cool chambers, and
other parts carrying cargo must be fit and safe to receive and
carry the particular cargo; any contamination or unclean tanks
damaging cargo will make the ship uncargoworthy.
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Art III r 1 is an overriding obligation which means if not
fulfilled, carrier cannot invoke Art IV immunities; e.g., where
the unseaworthiness caused fire, carrier could not rely on
defence in Art IV r 2 (b); any clause in the bill of lading lowering
liability by agreement is null and void (Art III r 8).
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Seaworthiness - Burden of proof
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The cargo interests must prove
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Contract with the carrier
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Non-delivery or damage to goods carried
Burden shifts to carrier to show prima facie he is covered by
exemptions, e.g., negligent navigation
Burden returns to cargo interests
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Ship was unseaworthy (sometimes is inferred)
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Damage was caused by unseaworthiness
Carrier to show he and his servants/agents exercised due
diligence (Art IV r 1); failing that, no reliance on immunities of
Art IV r 2.
21
Carrier’s duty to
care for cargo
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Art III r 2: Subject to the provisions of Article IV, the carrier shall
properly and carefully load, handle, stow, carry, keep, care for
and discharge the goods carried.
It is not an overriding obligation like Art III r 1 but continuous;
meaning there is prima facie an obligation under Art III r 2
which may be displaced by provisions of Art IV r 2 qualifying
liability which the carrier might otherwise be under.
The extent to which loading and discharging are brought within
carrier’s obligation is left to parties to decide.
Freedom of contract to delineate the scope of the obligations of
Art III r 2.
Like Art III r 1, it is non delegable duty; International Packers
Careful means without negligence
Properly means with a sound system
22
Duty to issue bill of lading
Art III r 3
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To issue bill of lading for its document of title function
To ensure the bill of lading contains certain matters for its
function as a receipt; facilitating its use in connection with sale
of goods contract and letters of credit; providing essential
information for a cargo claim
Shipper is entitled and can demand issue of bill of lading
‘shipped and received’ Art III r 7
Bill of lading is issued only if shipper demands, Art III r 3
On demand is construed as within reasonable time which in
circumstances must be very short
23
Duty to issue bill of lading
Art III r 3
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Bill of lading contains minimal description
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Leading marks
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Packages or pieces, quantity
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Apparent order and condition
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The above have probative value, Art III r 4, prima facie evidence,
but proof to contrary not admissible if bill of lading transferred
to third party acting in good faith
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Art III r 5 – shipper guarantees statements on bill of lading;
gives carrier right of indemnity against shipper
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No Contracting Out
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Art III r 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.
Clauses held invalid:
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A choice of law or forum clause resulting in lowering limit of
liability
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Arbitration clause limiting the time limit set in Art III r 6
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Clause relieving carrier from correct delivery infringing Art
IV r 2 (n), (o)
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Clause undermining obligation of seaworthiness
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No Contracting Out
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Valid clauses
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Any clause not lessening carrier’s liability - ‘one way
mandatory’
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Liberty to transship on terms consistent with Art III
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Arbitration clause if no less time limit
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FIOST terms
26
Carrier’s Defences,
Catalogue of Exemptions
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(a) act, neglect, or default of the master, mariner, pilot or the
servants of the carrier in the navigation or in the management of
the ship;
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‘navigation’ – something affecting safe sailing
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‘management’ – acts not affecting sailing but the vessel
itself
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Want of care of cargo vs. Management
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Failure to use tarpaulins meant to cover cargo vs. failure to
use locking bars to secure tarpaulin in rough weather (want
to care of ship indirectly affecting cargo)
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Theft of cover plate to hold was not default in management
of ship
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Whose negligence? Negligence of master, crew, servants of
carrier and not negligence of carrier himself
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Carrier’s Defences,
Catalogue of Exemptions
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(b) fire, unless caused by the actual fault or privity of the carrier;
means without the personal fault of the carrier or the directing
mind of the company
(c) perils, dangers and accidents of the sea
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Perils or accidents must be fortuitous and unexpected, not dangers
from ships decay or wear and tear from action of winds and waves
Casualty that could not be foreseen as necessary incident of
adventure
Weather can been seen by forecasts; severe weather not worse than
reasonably expected weather in a particular region
Perils of the sea need not be unpredictable and unforeseen as there
is no such mention in the language of paragraph (c); would carrier
be protected if he was aware of adverse weather? (Bunga Seroja
[1999] – Australian case)
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Carrier’s Defences,
Catalogue of Exemptions
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(d) act of God;
(e) act of war;
(f) act of public enemies;
(g) arrest or restraint of princes, rulers or people, or seizure
under legal process;
(h) quarantine restrictions;
(i) act or omission of the shipper or owner of the goods, his
agent or representative;
(j) strikes or lock-outs or stoppage or restraint of labour from
whatever cause, whether partial or general;
(k) riots and civil commotions;
(l) saving or attempting to save life or property at sea;
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Carrier’s Defences,
Catalogue of Exemptions
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(m) wastage in bulk or weight or any other loss or damage
arising from inherent defect, quality or vice of the goods;
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wastage same as leakage
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inherent vice means unfitness to withstand ordinary
transit (fish bacteria)
(n) insufficiency of packing;
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packing to be done in accordance with normal practice
for goods on such voyage
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it may be apparent on loading
(o) insufficiency or inadequacy of marks;
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insufficiency of marks may cause misdelivery
(p) latent defects not discoverable by due diligence;
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Carrier’s Defences,
Catalogue of Exemptions
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(q) any other cause arising without the actual fault and privity
of the carrier
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Catch all provision; ‘any other cause’ is construed widely
although it does not state ‘whatsoever’.
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ejusdem generis rule (of the same kind) does not apply
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Often used when other exceptions do not apply; e.g.
stevedore’s servants stole cargo
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But carrier must prove without actual fault of privity; but if
evidence obscure, carrier liable
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Also covers carrier’s servants and agents
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Time for suit
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A cargo claimant is required to file a suit against the
carrier within one year before the action is time
barred
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Art III (6) sets out in detail the procedure that a
claimant must comply with in order to bring an
action against the carrier.
32
Limitation of Liability
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Unless nature and value of goods is declared before shipment
and inserted in bill of lading
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Art IV r 5 - … neither the carrier nor the ship shall in any event
be or become liable for any loss or damage … in an amount
exceeding 666.67 units of account per package or unit or 2 units
of account per kilo …
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Unit of account is the special drawing right (SDR) defined by
IMF
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Converted into national currency … on date to be determined
by the law of court seized of case.
33
Limitation of Liability
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package: a bundle of things packed up or whether in a box or
separately
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or unit: is it synonymous to package? Is it a freight unit by
which bulk cargo can be measured? Is it a unit such as a car?
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Containers – Art IV r 5 (c): for contents to be taken into account
must be enumerated in bill of lading
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If bill of lading qualified by ‘said to contain’ or ‘weight, number
etc. unknown’ clauses – does it negate enumeration? What is its
effect?
34
Breaking limitation
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Art IV r 5 (e): if 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; same test as in
1976 Limitation Convention.
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Different from the Hague Rules which followed the
“actual fault or privity” doctrine.
37
Himalaya clauses
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A Himalaya clause is a contractual provision expressed to be for
the benefit of a third party who is not a party to the contract.
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The clause takes its name from a decision of the English Court
of Appeal in the case of Adler v. Dickson (The Himalaya).
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It is accepted as a “stipulation for another” (“stipulation pour
autrui”) under the civil law, without any new law or
jurisprudence.
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Whether stevedores could benefit from the carrier’s package
limitation or time-for-suit provision?
38
Himalaya clauses
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With growth of multimodal shipments, a much broader range
of the carrier’s subcontractors wanted to claim the benefit of a
broader range of the carrier’s defences and limitations of
liability, including inland carriers that were unrelated to the
maritime aspects of the contract.
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Article IV bis of the Hague-Visby Rules attempts to extend
“Himalaya” protection to at least the carrier’s servants and
agents, although not to independent contractors.
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Courts in most jurisdictions have concluded that third parties
would be protected if the bill of lading included an adequate
“Himalaya clause,” and most carriers now incorporate adequate
Himalaya clauses into their bills of lading.
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Deviation
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Art IV r 4: Any deviation in saving or attempting to save life or
property at sea or any reasonable deviation shall not be
deemed to be an infringement or breach of these Rules or of the
contract of carriage, and the carrier shall not be liable for any
loss or damage resulting therefrom.
Liberty to deviate clauses:
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Usual to contain liberty in bill of lading
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Are such clauses invalid by Art III r 8?
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Matter of construction; they define scope of contracted
voyage; courts strive to narrow the application of a liberty
clause; liberty clause is a valid contractual clause
40
Deviation
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Consequences of deviation:
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Unauthorized deviation breach of contract; remedy damages for delay
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Displacement of contract? Fundamental breach?
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Modern approach: deviation can be explained on the basis
of the interpretation of contract rule.
41