Ship Chartering

Ship Chartering refers to the practice of renting or leasing a ship for the purpose of transporting cargoes or passengers between different locations. Ship Chartering is essential to the global shipping industry and international trade, as it enables companies to efficiently and cost-effectively move large volumes of cargo worldwide. In Ship Chartering, a Shipowner leases their ship to a Charterer, who then operates the ship according to the stipulations laid out in a Charterparty agreement. Ship Chartering comes in various forms, including Voyage Charter, Time Charter, and Bareboat Charter each defining distinct terms and obligations for the Shipowner and Charterer.

The process of Ship Chartering involves the leasing of a ship to move cargo or passengers, similar to renting a truck for land transportation. Charterer and Shipowner enter into a Charterparty agreement that outlines specific terms such as freight rates, loading and unloading speeds, and laytime.

Shipbrokers are integral to the Ship Chartering process. Shipbrokers serve as the link between those looking to charter a ship and Shipowners, helping to find a ship that matches the Charterer’s requirements. Moreover, Shipbrokers assist Shipowners in identifying appropriate Charterers. While Ship Chartering primarily focuses on cargo transport, it is also utilized for passenger movements. For instance, cruise companies often lease ships for lengthy durations. Furthermore, charterers may also rent additional vessels like tugs and workboats to support cargo operations.

Grasping the subtleties of chartering is crucial for ensuring efficient and economical transportation of cargoes worldwide. We will provide the most thorough and detailed explanation of the Ship Chartering and Ship Chartering Process to date. We will categorize the Ship Chartering and Ship Chartering Process into the following subcategories:

1. What is Ship Chartering?
2. Understanding Charterparty and Bill of Lading (B/L)
3. Implied Obligations in Charterparty
4. Understanding Time Charterparty
5. Understanding Voyage Charterparty
6. Understanding Bill of Lading (B/L)
7. Understanding Hague Visby Rules
8. Understanding Rotterdam Rules
9. Understanding Hamburg Rules
10. Bill of Lading (B/L) issued under Charterparty
11. Exceptions included in Charterparty
12. Shipowner’s ability to Limit their Liability
13. Freight
14. Shipowner’s authority to enforce a Lien
15. Resolving Disputes in Ship Chartering
16. Breach of Charterparty
17. Challenges in Combined Transportation

 

1- What is Ship Chartering?

Parties involved in Ship Chartering

A Ship Charterer’s responsibilities and roles vary based on the type of charter agreement:

Voyage Charter: Here, the Ship Charterer contracts the ship for a specific journey or series of voyages. The Shipowner supplies the ship, crew, and handles operational expenses, while the Voyage Charterer pays a freight rate based on the cargo’s volume or weight. Voyage Charters are the most prevalent type of chartering arrangement in the shipping industry.

Time Charter: In a Time Charter, the Time Charterer leases the ship for a determined period. The Shipowner provides the ship and crew, and Time Charterer covers operational costs such as bunker (fuel) and port fees. Time Charterer is in charge of directing the ship’s course and managing the expenses related to cargo loading and unloading. Time Charters typically last from short to medium terms.

Bareboat Charter: Ship Charterer taking complete control over the ship’s operations, which includes hiring the crew, securing insurance, and procuring necessary supplies. Bareboat Charterer also shoulders the costs for bunker (fuel), port fees, and other operational expenses. Bareboat Charters are generally utilized for long-term agreements.

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2- Shipowner

A Shipowner is either an individual or a company that possesses one or more ships, utilized for transporting goods or passengers along various maritime routes. Shipowners may operate independently, managing their own vessels, or be part of larger shipping companies that have a fleet catering to diverse markets and cargo types.

The primary duty of a Shipowner is to offer shipping services to Charterers needing transportation for goods or passengers. Shipowners are tasked with maintaining and operating their ships according to international regulations, safety standards, and environmental guidelines. They are responsible for employing and overseeing the crew, keeping the ship seaworthy, and ensuring compliance with all legal and technical standards.

A Ship Owner is the entity that owns the ship and generates income by leasing it to Charterers. This owner could possess a single vessel or a fleet of various ships in different types and sizes. The Ship Owner manages the day-to-day maintenance of the ship, ensuring adherence to safety and seaworthiness standards among other regulations. Furthermore, the Ship Owner coordinates and finances inspections and ship registration fees.

The initial expense of acquiring or building the ship, often substantial, falls on the Ship Owner. Consequently, consistently securing Charterers is vital. They are also accountable for paying the crew and, in the case of Voyage Charters, covering all other voyage expenses.

Shipowners are integral to international trade and the global shipping industry, providing the necessary ships and services for the global transport of goods and passengers. Success for Shipowners requires a deep understanding of the shipping market, ship types, maintenance and operational costs, regulations, and safety standards.

What are the responsibilities of a Ship Owner? 

The involvement and responsibilities of Shipowners vary depending on the type of charter agreement:

Voyage Charter: In a Voyage Charter, the Shipowner supplies the ship, crew, and covers operational expenses for a designated voyage or series of voyages. Voyage Charterer pays a freight rate determined by the cargo’s volume or weight. Here, the Shipowner is in charge of the overall operation and performance of the ship, adhering to the Charterer’s directives regarding the route, and the loading and unloading of cargo.

Time Charter: In a Time Charter, the Shipowner provides the ship and crew, and handles operational costs like bunker (fuel) and port fees for a specified period. Time Charterer directs the ship’s movements and bears the costs associated with cargo handling. In this arrangement, the Shipowner plays a significant role in the ship’s operation, ensuring that the crew executes the Time Charterer’s instructions and manages the ship’s performance effectively.

Bareboat Charter: Shipowner leases out the ship without any crew, supplies, or insurance. Bareboat Charterer assumes complete control over the ship’s operation, including hiring the crew, securing insurance, and acquiring necessary provisions. The Shipowner’s main duty is to ensure the delivery of a seaworthy ship that complies with the Bareboat Charterer’s needs.

3- Shipbroker

A Shipbroker is a specialized intermediary who plays a crucial role in facilitating transactions between Shipowners and Charterers in the maritime sector. Acting as agents, Shipbrokers link parties looking to charter ships for transporting cargo or passengers with Shipowners who offer ships for hire. Their main objective is to negotiate and secure favorable terms for both parties, ensuring a profitable and successful deal.

In ship chartering, the Shipbroker serves as a mediator between the Charterer and the Ship Owner, aiming to secure the best agreement for their Principle. With a deep understanding of the shipping industry, Shipbrokers are instrumental in negotiating the terms of the charter party.

Shipbrokers typically earn a commission paid by the Charterer, Ship Owner, or both. They also provide essential market intelligence and advice on the current dynamics of the shipping industry, aiding their clients in making well-informed decisions.

Possessing comprehensive knowledge of shipping markets, ship types, freight rates, and market trends, Shipbrokers leverage their expertise to guide clients through the chartering process. They offer strategic advice on chartering options, shipping routes, and other key aspects that influence chartering decisions. Shipbrokers may specialize in various segments of the shipping industry, such as dry bulk, tankers, containers, or passenger ships.

Their expertise and connections are invaluable in the shipping industry, helping to ensure the efficient transport of goods and passengers globally. Shipbrokers are essential to the success of both Shipowners and Charterers, providing crucial market insights and facilitating smooth chartering operations.

What are the responsibilities of a Shipbroker? 

The primary roles and responsibilities of a Shipbroker include:

1. Chartering Negotiations: Shipbrokers serve as intermediaries between the Charterer and the Shipowner, negotiating the terms and conditions of the charter on behalf of their clients. They aim to secure the most advantageous rates and conditions for all involved parties.
2. Chartering Contract Preparation: After reaching an agreement, Shipbrokers assist in drafting the charter party agreement, a legal document that specifies the terms and conditions of the charter. They ensure that all essential clauses and provisions are incorporated to safeguard the interests of both the Shipowner and the Charterer.
3. Market Analysis: Shipbrokers continuously track market conditions, freight rates, and trends to provide their clients with timely and accurate information. This insight helps clients make well-informed decisions and spot opportunities within the market.
4. Ship and Cargo Matching: Shipbrokers assess the Charterer’s needs and match them with appropriate ships from their network of Shipowners. They verify that the ships align with the Charterer’s specifications regarding size, type, and cargo capacity.
5. Post-Fixture Services: Shipbrokers may also offer post-fixture services, which include monitoring the ship’s performance during the charter, ensuring prompt payments, and addressing any disputes or issues that arise between the contracting parties.

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Types of Ship Chartering

There are three main types of ship charters: voyage charter, time charter, and bareboat charter:

1- Voyage Charter

In a voyage charter, the charterer contracts the ship for a specific voyage or set of voyages. The shipowner provides the ship, crew, and covers operational expenses, while the charterer pays a freight rate based on the volume or weight of cargo transported. Voyage charters are the most common type of chartering agreement in the shipping industry.

A Voyage Charter is the most commonly used chartering type. It involves the chartering of a ship for a specific voyage between two or more ports. Voyage Charterer hires the ship for the voyage, and the Shipowner takes back control of the ship after the voyage is complete. The Voyage Charterparty specifies the laytime, which is the time allotted for loading and unloading the ship. If the laytime is exceeded, penalties are applied by the Shipowner (Demurrage), and if the time taken is less than stipulated, the Voyage Charterer may receive a partial refund (Despatch).

Payment for a voyage charter is generally charged on a per-ton basis, but for some cargo types, the charterer may pay a Lump Sum Freight. A voyage charter can be a one-off contract or part of several consecutive voyages.

Contract of Affreightment (COA): What is Contract of Affreightment (COA)?

A Contract of Affreightment (COA) is a legal agreement between a shipper and a carrier, where the carrier agrees to transport a specified quantity of goods over a certain period of time or across multiple voyages. The contract outlines the terms and conditions under which the carrier will provide transportation services for the shipper’s goods, including the freight charges, payment terms, cargo description, delivery dates, and any other relevant details. This type of contract is commonly used in the shipping industry for bulk cargo or larger shipments that require multiple voyages to transport.

2- Time Charter

In a Time Charter, the Time Charterer rents the ship for a specific period. The Shipowner provides the ship, its crew. Time Charterer covers expenses, such as bunker (fuel) and port charges. Time Charterer is responsible for directing the ship’s movements and covering the costs of cargo loading and unloading. Time charters are usually short to medium-term agreements.

Time Charter allows the Time Charterer to use the ship for an agreed period of time, where they have complete control over the ship’s routes, destinations, and more. Time Charterer is responsible for most of the costs incurred by the ship during the agreed time, including fuel costs (bunkers), cargo handling costs, port charges, and more. The time charter ends when the specified time runs out, regardless of the ship’s location. This type of charter is commonly used for ships that support a specific civil construction or offshore project, such as tug boats, anchor handling tugs, crew boats, and supply ships.

Voyage Charter Vs Time Charter

Responsibilities in Voyage Charter and Time Charter

SERVICE	VOYAGE CHARTER	TIME CHARTER
Crew Hire and Payment	Owner	Owner
Bunkers (Fuel)	Owner	Charterer
Cargo Operations Port DAs	Owner	Charterer
Ship Maintenance Costs	Owner	Owner

 

3- Bareboat Charter

In Bareboat Charter, the charterer leases the ship without any crew, provisions, or insurance. The charterer takes full responsibility for the ship’s operation, including hiring the crew, obtaining insurance, and providing necessary supplies. Bareboat charters are typically used for long-term arrangements.

Bareboat Charter is a type of ship chartering where the charterer leases the ship for a long period, usually for many years, and assumes full responsibility for the ship’s operation and maintenance, both legally and financially. The charterer pays for all the costs associated with the ship during the charter time, including crewing, fuel, and insurance. This arrangement is particularly attractive to ship owners who want to avoid the day-to-day running of the ship. Under a bareboat charter, the charterer may have the option to eventually gain ownership of the ship through a hire-purchase agreement.

What are the advantages of Bareboat Charter?

A bareboat charter offers the advantage of greater freedom and control for the charterer, as they have the ability to determine the itinerary and choose their own crew. Additionally, agreeing to a long-term charter can lower the overall cost and there may be an option for the charterer to eventually take ownership of the ship through a hire-purchase agreement.

Is Ship Chartering insured?

When taking out a charter agreement, it is important to note that the charterer assumes various responsibilities, one of which is the requirement for insurance coverage. This insurance should provide liability coverage for cargo damage, ship damage, environmental damage, and marine salvage. It is essential for the charterer to carefully review the contract and understand their obligations regarding insurance.

Ship chartering typically involves various types of insurance to protect the interests of both the shipowner and the charterer. Insurance is essential in the shipping industry to mitigate potential risks and financial losses that may arise due to accidents, cargo damage, or other unforeseen events. Some common types of insurance involved in ship chartering include:

1. Freight, Demurrage, and Defense (FD&D) Insurance: FD&D insurance covers legal costs and expenses arising from disputes related to charter party agreements, such as claims for unpaid freight or demurrage. This insurance is often provided by the same P&I Clubs that offer P&I insurance.
2. Cargo Insurance: Cargo insurance protects the charterer or cargo owner against loss or damage to the cargo during transportation. This insurance is typically taken out by the charterer or the cargo owner, as they have an insurable interest in the cargo being transported.
3. Hull and Machinery Insurance: This insurance covers the physical damage to the ship itself, including its hull, machinery, and equipment. It is usually taken out by the shipowner to protect their investment in the ship.
4. Protection and Indemnity (P&I) Insurance: This type of insurance covers the shipowner’s third-party liabilities, such as crew injuries, damage to third-party property, or pollution caused by the ship. P&I insurance is typically provided by specialized clubs known as P&I Clubs, which are mutual insurance associations made up of shipowners.
5. War Risk Insurance (WRI): This insurance covers losses resulting from war-related perils, such as terrorism, piracy, or acts of war. It can be taken out by both the shipowner and the charterer to protect their respective interests.

Insurance Responsibilities in Ship Chartering

In a ship chartering arrangement, the specific insurance requirements may vary depending on the type of charter:

1. Voyage Charter: In a voyage charter, the shipowner generally provides hull and machinery and P&I insurance, while the Voyage Charterer or Cargo Owner is responsible for cargo insurance.
2. Time Charter: In a time charter, the Shipowner typically provides hull and machinery and P&I insurance, while the Time Charterer may be responsible for cargo insurance and other specific insurance depending on the charter party agreement.
3. Bareboat Charter: Bareboat Charterer assumes full responsibility for the ship’s operation and is usually required to obtain hull and machinery, P&I, and other necessary insurance coverage.

The exact insurance requirements and responsibilities for ship chartering should be clearly outlined in the charter party agreement to ensure that all parties are adequately protected and understand their obligations.

What is Charter Party Agreement?

A charter party agreement is a legal contract between the shipowner and the charterer that outlines the terms and conditions of the charter. It specifies the details of the ship, cargo, route, duration, payment terms, and other essential information. It is crucial for both parties to thoroughly review and understand the charter party agreement to ensure a smooth and successful ship chartering process.

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Factors to Consider in Ship Chartering:

a) Type of Cargo – Different types of cargo require different types of ships. For example, dry bulk cargo (such as coal or grains) requires specialized dry bulk carriers, while liquid cargo (such as oil or chemicals) requires specialized tankers.

b) Ship Size and Specifications – The size and specifications of the ship should match the requirements of the cargo being transported. Ship size is usually measured in deadweight tonnage (DWT) or gross tonnage (GT).

c) Route and Distance – The intended shipping route and distance will impact the cost of the charter, as fuel consumption and port charges vary depending on the route.

d) Duration – The duration of the charter agreement will affect the charter rate. Longer charter agreements may lead to lower daily rates, while shorter agreements may have higher daily rates.

e) Market Conditions – The supply and demand for ships in the market will influence the charter rates. Higher demand for ships will result in higher charter rates, while lower demand will lead to lower rates.

In conclusion, ship chartering is a vital aspect of the global shipping industry, enabling the efficient transportation of goods across the world. Understanding the different types of chartering agreements and the factors that influence them is crucial for businesses looking to charter ships for their cargo transportation needs.

Ship Chartering Process

The ship chartering process involves a series of steps that connect shipowners and charterers to facilitate the transportation of goods or passengers across the world. This process is essential to the global shipping industry and international trade. The following is an overview of the key steps in the ship chartering process:

1. Identifying Requirements: The charterer begins by determining their specific shipping needs, such as the type and volume of cargo, preferred ship size and specifications, loading and discharging ports, and the desired schedule for transportation.
2. Engaging a Shipbroker: The charterer may engage a shipbroker, a professional intermediary with expertise in the shipping market and connections with shipowners. The shipbroker helps the charterer navigate the chartering process and negotiate favorable terms with shipowners.
3. Market Analysis and Ship Search: The shipbroker or charterer conducts market research and analysis to gather information on freight rates, ship availability, and market trends. They then search for suitable ships that match the charterer’s requirements, contacting shipowners with ships available for charter.
4. Chartering Negotiations: Once a suitable ship is identified, the shipbroker or charterer negotiates the terms and conditions of the charter with the shipowner. This may include the freight rate, laytime (time allowed for loading and unloading cargo), demurrage (penalties for exceeding laytime), payment terms, and other relevant clauses.
5. Charter Party Agreement: After reaching an agreement on the charter terms, the shipbroker or charterer drafts a charter party agreement, which is a legal contract outlining the rights and obligations of both parties. This document includes details about the ship, cargo, route, duration, and other essential terms. Both parties review, negotiate, and ultimately sign the agreement.
6. Pre-Voyage Preparations: Before the voyage begins, both parties must prepare for the transportation of the cargo. The shipowner ensures the ship is seaworthy, complies with all regulations, and is ready to receive cargo. The charterer arranges for the cargo to be transported to the loading port, and any necessary permits or documentation are obtained.
7. Loading and Transportation: The ship arrives at the loading port, and the cargo is loaded onto the ship according to the terms outlined in the charter party agreement. Once the cargo is safely loaded, the ship departs for its destination.
8. Discharging and Payment: Upon arrival at the discharging port, the cargo is unloaded, and any inspections or documentation required by local authorities are completed. The charterer pays the freight charges and any other fees specified in the charter party agreement to the shipowner.
9. Post-Fixture Services: After the voyage is completed, the shipbroker or charterer may provide post-fixture services, such as monitoring the ship’s performance, ensuring timely payments, and resolving any disputes that may arise between the parties.

The ship chartering process is a complex and essential part of the global shipping industry, requiring cooperation and coordination between charterers, shipowners, and shipbrokers to ensure the efficient and cost-effective transportation of goods and passengers.

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2- Understanding Charterparty and Bill of Lading (B/L)

When a Shipowner, either directly or via a Shipbroker, commits to transporting goods by sea or to provide a ship for such a purpose, this agreement is termed a Charterparty. These contracts can adopt various formats, though typically they fall into two categories: those formalized in Charterparties and those documented by Bills of Lading (B/L). When the Shipowner commits the entire capacity of his ship for a specific voyage or a defined time period, it usually constitutes a Charterparty. Conversely, if the Shipowner operates his ship within the liner trade, offering transport services to any interested party, the contract generally manifests as a Bill of Lading (B/L). It’s important to note that the categories of Charterparty and Bill of Lading (B/L) are not entirely distinct, as it’s common for a Charterer to lease a ship for a certain duration and then use it as a general carrier.

Charterparty is a freely negotiated contract, solely influenced by the Laws of Supply and Demand. The negotiating power of the parties (Shipowners and Charterers) hinges on the prevailing conditions of the shipping market. Nevertheless, both Shipowner and Charterer freely negotiate their terms without any legal restrictions. Typically, Shipowners and Charterers opt for a Standard Charterparty Form as the foundation of their contract, to which they often add Additional Clauses (Rider Clauses) tailored to their specific needs. These Standard Charterparty Forms have diverse origins—some have evolved over years linked to specific trades like grain, coal, or iron ore, while others are crafted by firms monopolizing particular sectors like oil transport. Many such forms have been created over the past century by documentary committees from organizations such as the United Kingdom Chamber of Shipping, BIMCO, and the Japanese Shipping Exchange, representing both shipowner and charterer interests.

The availability of these standard forms significantly benefits international trade, especially when Shipowners and Charterers are based in different countries and face language barriers. Familiarity with a Standard Charterparty Form prevents parties from being caught off-guard by unexpected clauses, allowing them to focus on core terms like Freight, Laytime, and Demurrage Rates. The global adoption of Standard Charterparty Forms also ensures uniform application of laws and their interpretation by courts. However, these benefits can diminish when parties merely use the standard form as a template for their contract. Based on their bargaining strengths, they may modify existing clauses and introduce new ones, resulting in a contract that barely resembles the original form. This often leads to confusion and promotes litigation.

There are primarily two basic types of Ship Charter:

1. Voyage Charter
2. Time Charter

Additionally, there is the Demise Charter or Bareboat Charter, which, although not technically a carriage charter, is a lease of the ship that transfers possession as well as management and navigation to the Charterer. Depending on whether the ship is chartered for a set time or one or more voyages, in both instances the Shipowner maintains control over equipping and managing the ship and commits to providing a transport service. In a Voyage Charter, the Shipowner pledges to transport a cargo between specific points. In contrast, in a Time Charter, the Shipowner makes his ship’s carrying capacity available to the Charterer for a defined period. A typical instance of a Voyage Charter occurs when a seller under a CIF contract, having agreed to transport goods to the buyer, charters a ship for the journey. Alternatively, a Time Charter is often employed by Carriers looking to expand their fleet temporarily without the costs associated with purchasing or operating a ship.

Before delving into the specifics of these two primary forms of Ship Charter, it is crucial to acknowledge the existence of various hybrid contracts that arise from the freedom of contractual negotiation. One such hybrid is the Trip-Time Charter (TCT), which involves a Time Charter for a ship specifically for a cargo voyage. Unlike a Voyage Charter where freight is typically charged per unit of cargo upon voyage completion, a Trip-Time Charter (TCT) ensures that the Shipowner is compensated for the entire duration of the voyage until the cargo is unloaded at its destination. A variant of this form is designed to safeguard the Shipowner in scenarios where the discharge port is remote and unlikely to provide subsequent cargoes, requiring the hire payment to continue until the ship returns to more frequented trade routes.

Another hybrid is the Consecutive Voyage Charter (CVC), where the ship, chartered for a specific time frame, is obligated to complete multiple voyages between designated ports during that period. An alternative, known as the Contract of Affreightment (COA), serves a similar purpose, involving the Shipowner’s commitment to transport specified quantities of a bulk commodity between certain ports over time, choosing the ships as he deems fit.

These two basic types of Ship Charter, the Voyage Charter and the Time Charter, are fundamentally different in their operation. While both ensure that the Shipowner remains in charge of the ship’s management, offering a transport service, their roles diverge significantly:

• In a Voyage Charter, the Shipowner agrees to move a specific cargo from one port to another. Here, the Shipowner assumes most operational responsibilities but is exposed to risks such as delays from uncontrollable factors, which might affect the fixed freight rate.
• In contrast, a Time Charter allows the Charterer extensive control over the commercial use of the ship within agreed limits, typically making the Charterer responsible for direct costs resulting from their directives, like fuel expenses, port charges, and loading/unloading costs. The Charterer must also cover any liabilities arising from the issuance of Bills of Lading (B/L) under their direction. In this arrangement, the Shipowner benefits from a more predictable revenue stream through a flat Hire Rate, regardless of operational delays unless they stem from factors attributable to the Shipowner, such as mechanical failures or crew issues, which might trigger an Off-Hire Clause.

The method of payment also distinguishes the two types. Voyage Charters often involve a lump sum payment for the entire journey or a rate based on the cargo amount. Time Charters, however, charge based on the time the ship is under the Charterer’s control, taking into consideration the essential duration for the operation and any potential delays that extend this period. This pricing model focuses negotiations on the expected time required to complete the transport, the allowed number of Lay Days for loading and unloading, and the Demurrage costs if these Lay Days are exceeded.

These structural distinctions not only define the operational responsibilities and financial liabilities between the Shipowner and Charterer but also shape the contractual landscape in maritime freight, catering to the diverse needs of global trade.

Bill of Lading (B/L) Contract

Charterers’ Bill of Lading (B/L) in Bulk Shipping

Challenges often occur when attempting to differentiate the impact of two types of Contracts of Carriage, particularly when both Charterparty and Bill of Lading (B/L) are utilized simultaneously. In such scenarios, Charterers transporting their goods on a chartered ship need confirmation of the quantity and condition of goods loaded. A Bill of Lading (B/L) provided to a Charterer under these conditions primarily serves as Receipts for the shipped cargo and as potential Documents of Title (DOT) if the Charterer opts to sell the goods while in transit. However, the Bill of Lading (B/L) does not verify the terms of the Charterparty between the Shipowner and Charterer, as their agreement is exclusively dictated by the Charterparty. Furthermore, the Hague Visby Rules do not govern the Contract of Carriage while the Bill of Lading (B/L) is retained by the Charterer, though these rules become applicable once the cargo is sold and the Bill of Lading (B/L) is transferred to a third party.

Time Charters typically grant the Charterer the authority to issue Bill of Lading (B/L) on behalf of third party Shippers and to submit them to the Ship Master for signature in exchange for an indemnity from the Charterer for any extra liabilities the Shipowner incurs as a result. This privilege is crucial, for instance, when a ship is chartered to enhance the Charterer’s fleet, thus allowing him to manage the ship’s commercial operations. In such cases, the Bill of Lading (B/L) becomes the primary contractual document concerning the Shipper, governing the Contract of Carriage just as if the ship were not chartered. Between the Shipper and Carrier, the terms of the Charterparty are irrelevant unless explicitly included in the Bill of Lading (B/L) contract. Nonetheless, there often remains the underlying issue of determining whether, under the Bill of Lading (B/L), the Shipowner or the Charterer should be considered the Carrier for the purposes of the Hague Visby Rules.

Bareboat Charterparty

The Bareboat Charter or Demise Charter, which is distinct from other charter types previously discussed, functions as a lease of the ship rather than a Contract of Carriage. This form of charter parallels hiring a self-drive car as opposed to using a taxi service. In a typical Time Charter, the Shipowner maintains control over the ship’s operations. However, under a Bareboat Charter or Demise Charter, the Charterer replaces the owner and, during the lease period, takes possession and full control of the ship.

In a Bareboat Charter, the Charterer staffs and outfits the ship and takes on all responsibilities for its Navigation and Management. Essentially, the Charterer acts as the Shipowner throughout the charter’s term, covering all operational costs and insuring the ship.

The Bareboat Charter or Demise Charter is particularly apt for government shipping operations, especially during wartime or other emergencies. In the private sector, it offers a Shipowner the opportunity to expand his fleet temporarily without the financial burdens of ownership, yet allows for complete control over the chartered ship. This charter type can also serve as a Hire-Purchase Agreement, securing the financing company while the ship’s purchase price is paid off in installments. Although Bareboat Charters or Demise Charters are less common than Voyage Charters and Time Charters, their usage has increased recently, notably in the oil tanker sector and for government leases.

As the Charterer in a Bareboat Charter or Demise Charter acts almost as the ship’s owner, they are considered the Carrier under the Hague Visby Rules. Thus, the Bareboat Charterer or Demise Charterer is accountable for any damage to the cargo and is liable under any Bill of Lading (B/L) signed by the Ship Master. Conversely, the Bareboat Charterer or Demise Charterer is entitled to any salvage the ship earns. Since the Shipowner does not possess the ship, he cannot place a lien over cargo as security for the Charter Hire.

What is the difference between Bareboat Charter and Demise Charter?:

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3- Implied Obligations in Charterparty

Alongside the Express Clauses agreed upon by the Shipowner and Charterer, every Charterparty is shaped against a backdrop of customary commercial practices, from which a series of obligations are implied. These are inherently incorporated into the Charterparty unless explicitly stated otherwise. Originating from the law merchant, these obligations yield consistent outcomes at Common Law, whether the Charterparty terms are specified within a Charterparty or documented through a Bill of Lading (B/L). However, an important caveat exists. Under Charterparties governed by the Hague Visby Rules, the range and application of these implied obligations are modified, and the capacity of both the Shipowner and Charterer to mutually exclude these obligations is significantly restricted.

3.1- Dangerous Cargoes

The framework at Common Law has been bolstered by various statutes aimed at regulating the shipment of specific cargo categories. These laws generally establish protocols for marking, packing, and stowing cargoes, with compliance enforced through fines and other penalties. An early example of such legislation is found in the Merchant Shipping Act 1894 (S446), which mandates that Shippers of certain listed cargoes must notify the Ship Master or Shipowner of their characteristics prior to shipment and clearly label the exterior of any package or container with the nature of the cargoes. Failure to comply results in a penalty of £100 for each violation. Additionally, if Unmarked Cargoes are loaded without the required notification to the carrier, the Merchant Shipping Act 1894 (S448) allows the Ship Master or Shipowner to dispose of such cargoes overboard without facing any civil or criminal liability.

Subsequent legislation includes regulations set forth by the Secretary of State for Trade and Industry under the Merchant Shipping Act 1995 (S85), which aim to enact the safety measures outlined in the International Conventions for the Safety of Life at Sea (SOLAS). The current Merchant Shipping (Dangerous Goods and Marine Pollutants) Regulations 1997 implement the 1974 SOLAS Convention and its 1978 Protocol, as amended. These regulations classify Dangerous Cargoes according to the IMDG Code (International Maritime Dangerous Goods Code) and other designated IMO (International Maritime Organization) publications, and they detail comprehensive standards for the documentation, marking, packaging, and stowing of such cargoes. Additionally, there are more specialized codes governing the transport of bulk cargoes like grain, iron ore, oil, and coal.

3.2- Seaworthiness and Cargoworthiness

In every Charterparty, it is an implied obligation to ensure the ship is Seaworthy, capable of facing and surviving the sea’s perils and other inherent risks during a voyage. In most Charterparties, this implied promise is bolstered by an Express Term to the same effect. For example, the preamble of the NYPE Form (New York Produce Exchange Form) mandates that the ship must be “tight, staunch, strong, and fully equipped for the service”. This obligation extends beyond the physical condition of the ship to include the crew’s competence and adequacy, the adequacy of fuel and supplies, and the necessary facilities for transporting the cargo.

At Common Law, the duty of the Shipowner to provide a Seaworthy Ship is absolute. If breached, the Shipowner is liable regardless of fault, implying not just an effort to make the ship fit, but a guarantee of its fitness. However, the obligation does not demand a flawless ship, but one that is reasonably suitable for its intended purpose. The requisite standard is not for a ship free of accidents or one that could withstand all possible dangers, but rather one that a prudent Shipowner would deem fit at the start of the voyage, considering all potential circumstances. This standard varies based on the voyage’s nature, the cargo type, and potential dangers along the route. Although this Common Law obligation can be waived by a specific clause in the Charterparty, courts typically interpret such clauses narrowly, as seen in the Nelson Line v Nelson case where a clause exempting the Shipowner from liability for damage “capable of being covered by insurance” did not exclude liability for damage due to unseaworthiness. To effectively exclude liability, such Clauses must be clearly and unambiguously stated. An example is The Irbenskiy Proliv case, where a Bill of Lading (B/L) Clause was broad enough to exclude all liability for unseaworthiness, despite the claimant’s argument against its validity.

Under the Hague Visby Rules, the Absolute Obligation at Common Law is replaced by a Duty to Exercise Due Diligence to ensure the Ship is Seaworthy. Thus, while the Carrier is no longer absolutely liable without fault, they remain responsible for their negligence and that of any party, including independent contractors, tasked with making the ship Seaworthy. This shift in liability comes with a rule that nullifies any attempts by the Carrier to further diminish or negate his obligation to provide a Seaworthy Ship.

Many modern standard Charterparty Forms now incorporate the Hague Visby Rules concerning Seaworthiness. For instance, the NYPE Form (New York Produce Exchange Form) uses a Clause Paramount to expressly integrate the provisions of the US Carriage of Goods by Sea Act 1936, and the Baltime Form negates the Shipowner’s liability for cargo loss or damage unless due to a lack of due diligence by the Shipowners or their Manager in preparing the ship for seaworthiness and readiness for the voyage.

These developments suggest that the Common Law Absolute Obligation to provide a Seaworthy Ship has been transitioned to a Duty to Exercise Due Diligence.

The obligation for the Shipowner to provide a Seaworthy Ship entails a dual responsibility. Firstly, the ship must be appropriately manned and equipped to handle the common perils it may encounter during its duties, and secondly, it must be Cargoworthy, meaning it should be in a suitable condition to carry the specified cargo.

Regarding the first aspect of Seaworthiness, the Common Law implied obligation covers not just the physical state of the ship and its equipment but also extends to the competence of the crew and the adequacy of stores and documentation. For instance, a ship would clearly be deemed Unseaworthy if it has faulty engines or a defective compass, or if cargo is stored in a way that makes the ship unstable. Similarly, the Shipowner would breach this obligation by hiring an incompetent engineer or other officers, taking insufficient fuel on board for the journey, or if the voyage’s documentation is lacking. However, once these legal prerequisites are met, the implied obligation does not extend to issues like recommended manning levels or employment conditions set by external bodies like trade unions.

In a Voyage Charter, the duty to ensure the ship is Seaworthy applies at the departure for the Charter Voyage. It does not matter if there were defects rendering the Ship Unseaworthy during the initial journey to the loading port or during the loading process, as long as these issues are rectified by the Time of Departure.

The obligation is considered fulfilled if the ship is Seaworthy at departure, regardless of subsequent events during the voyage or at intermediary stops. “The warranty is merely concerning the ship’s condition at a specific moment—departure. It does not guarantee continuous fitness throughout the voyage. Should any incident occur that damages the cargo, the Shipowner is liable unless the damage stems from a cause within the agreed exceptions.” This means that for a Consecutive Voyage Charter (CVC), the obligation to provide a Seaworthy Ship arises at the start of each voyage executed under the charter. Similarly, if a Voyage Charter is segmented by agreement between the Shipowner and Charterer, the duty to make the Ship Seaworthy recurs at the beginning of each segment. However, the scenario differs under a Time Charter where the obligation is only applicable at the Time of Delivery of the ship under the Time Charterparty, usually complemented by a Maintenance Clause requiring the Shipowner to “maintain the ship in excellent operational condition throughout the charter.”

The second aspect of the Seaworthiness obligation at Common Law concerns the ship’s Cargoworthiness. The Shipowner must ensure the ship is ready to receive the agreed cargo. This would not be met if, for example, the ship’s holds require Fumigating or Cleaning to be ready for cargo, if there’s a malfunction in the refrigeration system meant to transport frozen meat, or if the pumps are insufficient to handle excess water from the cargo. This warranty of Cargoworthiness is active from the start of loading. “The guarantee implies that when the cargo is loaded, the ship must be capable of handling it and the usual perils of the loading process, but there’s no ongoing guarantee once the cargo is aboard that the ship remains suitable through to departure, regardless of any incidents in the interim.” Therefore, in McFadden v Blue Star Line, when cargo was safely loaded but later damaged due to mishandling by the ship’s engineer, it was ruled that the damage post-loading did not violate the Cargoworthiness Warranty.

The inclusion of Hague Visby Rules in many modern Charterparty Forms might influence the operation of the implied Seaworthiness obligation. In Adamastos Shipping Co v Anglo-Saxon Petroleum, the Voyage Charter included a Clause Paramount incorporating the US Carriage of Goods by Sea Act 1936 provisions, which were treated as if directly written into the Charterparty. Consequently, the majority of the House of Lords acknowledged the Hague Visby Rules’ provisions for all voyages under the Charterparty, irrespective of their geographical routes or cargo status. Some legal opinions suggest that under the Hague Visby Rules, the obligation to Exercise Due Diligence to ensure the Ship is Seaworthy should be considered for each voyage under a Time Charter. However, Mustill J expressed caution in The Hermosa case, noting that the typical terms regarding initial Seaworthiness and ongoing maintenance in most Time Charters do not easily align with the Hague Rules’ framework, which mandates Due Diligence for each voyage.

Proof of Unseaworthiness rests with the party alleging it, often supported by judicial inferences, such as seawater in the hold generally being treated as Prima Facie Evidence of Unseaworthiness. Once a breach is established, the claimant must prove that this Unseaworthiness caused the specific loss complained of. For instance, in International Packers v Ocean Steamship Co., cargo damage was attributed not to Unseaworthiness but to crew negligence in securing hatch covers.

Regarding remedies for breach, courts avoid rigid classifications into Conditions or Warranties, preferring to view the obligation to provide a Seaworthy Ship as an Innominate Term (Intermediate Term), as seen in Hong Kong Fir Shipping Co v Kawasaki. This approach allows for responses proportional to the breach’s severity—permitting contract termination for severe breaches while limiting less serious breaches to damage claims. Thus, the remedy available depends on the breach’s impact on the Charterparty’s overall benefit, judged on a case-by-case basis.

In conclusion, the provisions for breach and remedies in Charterparty cases are nuanced, relying heavily on the specific circumstances of each case and the contractual terms agreed upon by the parties.

Where a breach is detected before the performance of the Charterparty has commenced, the Charterer may treat his obligations under the Charterparty as discharged if the breach significantly deprives him of the entire benefit of the Charterparty, and if the breach is unrectifiable within a reasonable time frame. For example, in the Stanton v Richardson case, the ship’s pumping equipment was insufficient for handling surplus water from a cargo of wet sugar. It was determined that the new pumps could not be installed swiftly enough, allowing the Charterer to repudiate the Charterparty.

Conversely, if the breach’s effects are less severe, the Charterer’s remedy is limited to seeking damages. The permissible duration for remedying the defect may vary depending on whether it’s a Voyage Charter or a Time Charter. A brief delay might frustrate the purpose of a Voyage Charter, whereas a Time Charter might tolerate a longer delay without being frustrated. This was exemplified in the Hong Kong Fir case where the Court of Appeal held that a ship’s unavailability for five months for repairs did not frustrate the purpose of a 24-month Time Charter.

Moreover, specific clauses in the Time Charter might provide the Charterer with additional options if the Shipowner fails to rectify a defect before the specified Cancelling Date. For instance, under Clause 22 of the Baltime Charterparty Form, the Charterer has the right to cancel the Charterparty unless the ship is delivered by a certain date, fully prepared for ordinary cargo service. This was effectively applied in The Madeleine case, where the Charterer was able to cancel due to the Shipowner’s failure to provide the required Deratisation Certificate by the Cancelling Date, as stated by Roskill J: “there was here an Express Warranty of Seaworthiness and unless the ship was timely delivered in a Seaworthy condition, including the necessary certificate from the Port Health Authority (PHA), the Charterers had the right to cancel.” Such a right to cancel does not necessarily depend on a breach of obligation by the Shipowners.

When the Unseaworthy state of the ship is discovered only after it has set sail, the mere acceptance of the ship does not imply that the Charterer waives his right to claim damages, nor does it necessarily waive the right to repudiate the Charter provided that the discovered breach is sufficiently serious. This holds particularly true for Time Charters. In the case of a Voyage Charter, if the breach is not noticeable before the ship departs, the Charterer might have limited chances to detect it before the ship completes its journey and the contract is fully performed.

The determination of what remedies are available to the Charterer in the event of a breach of this intermediate obligation by the Shipowner depends on whether the breach occurs before or after the ship has commenced its Charterparty performance. If before, the Charterer can treat his obligations under the Charterparty as ended if the breach fundamentally undermines the whole benefit of the Charterparty, and it is irremediable within a timeframe that would prevent the Charterparty’s purpose from being thwarted. If after, the Charterer is confined to damages unless the breach’s severity justifies repudiation.

In summary, the legal framework surrounding Seaworthiness in Charterparties is complex, shaped by the specifics of each case and the clauses of the Charterparty. Whether a Charterer can repudiate the Charterparty or is restricted to claiming damages often hinges on the nature of the breach, its timing, and the Charterparty’s specific terms.

3.3- Deviation

The Shipowner, whether managing a Liner Service or operating under a Charter, inherently commits to ensuring his ship does not stray from the agreed voyage while fulfilling the terms of the Charterparty. Deviation is typically described as “an intentional and unreasonable alteration of the voyage’s geographical course as outlined in the contract.” To establish if such a Deviation has taken place, one must first identify the intended route set by the Charterparty. Although some standard Charterparty Forms explicitly dictate the route, in their absence, it is generally assumed that the ship should take the shortest Geographical Route between the loading and discharge ports. However, this assumption can be challenged if the Shipowner presents evidence of the Customary Route used in the trade or the route historically taken by the specific shipping line. For instance, in the Reardon Smith Line v Black Sea and Baltic General Insurance case, a ship that was to travel from a Black Sea port to Sparrow Point deviated from the direct route to refuel in Constanza, attracted by the availability of inexpensive fuel. Evidence showed that it was common for ships in that trade to stop in Constanza, with 25% of ocean-going ships traversing the Bosphorus Strait adopting this practice. Consequently, the House of Lords ruled that there was no Deviation from the usual route. Lord Porter succinctly summarized the law:
“It is the obligation of a ship, especially on an ocean journey from one port to another, to follow the common route between those ports. Without contrary evidence, this route is presumed to be the direct geographical path, but it can be altered for navigational or other reasons. Evidence defining the typical route is always permissible unless a specific path is mandated by the Charterparty or Bill of Lading (B/L).”

An Unjustifiable Deviation occurs when the departure from the Contractual Voyage results from a deliberate decision by the Shipowner or the Ship Master. Therefore, there is no violation of this implied commitment if external factors like a storm misdirect the ship, or if navigational errors arise due to the Ship Master’s illness or a malfunctioning compass.

Justifiable Deviations at Common Law:

To prevent harm to the ship or its cargo: the Ship Master is obligated to use reasonable care and skill to ensure a successful voyage, which may include the right to Deviate from the set course to protect the ship and its cargo. Typically, the Ship Master is duty-bound to take such measures. Risks might stem from natural elements like storms, ice, or fog, or from political issues such as war or the threat of interception by enemy forces. However, the threat must be significantly enduring; a temporary hindrance like a tug shortage or a neap tide does not justify a major alteration in the voyage. A common example of a permissible Deviation occurs when the ship, for safety, must enter a port for repairs due to damages incurred during the journey. The cause of the damage, even if it is initial Unseaworthiness of the Ship, is usually irrelevant. For instance, in the Kish v Taylor case, a ship initially chartered to carry a complete load of timber from two Gulf of Mexico ports to the West Continent had to source additional timber from other Shippers after the Charterer failed to provide the full load. Some of this timber was stored on deck, making the ship Unseaworthy. After encountering severe squalls that jeopardized the ship’s safety by shifting the deck cargo, the Ship Master docked in Halifax for essential repairs before continuing to Liverpool to unload. Despite allegations of an Unjustifiable Deviation to Halifax, the House of Lords affirmed the Deviation’s legitimacy, attributing justification to the presence of danger rather than its origin. Lord Atkinson highlighted the policy implications: “The existence of danger, not its cause, defines the nature of a Deviation. Should a ship master, through his own fault or a breach by his owner, find his ship in jeopardy, is he compelled to proceed regardless of risk, or can he seek safety only at the risk of voiding the contract of affreightment?” In such cases, it is prudent to afford the Ship Master the benefit of the doubt since: “Nothing could, in my view, more likely increase the perils faced by life and property at sea than to compel a merchant ship’s master to choose between such alternatives.” It appears a Deviation might be justified even if the risk only concerns the ship and not the Cargo. Conversely, it’s unclear whether a duty to Deviate arises when only slight or partial damage to the cargo is likely. Although the Ship Master should consider both the ship and cargo interests, “I am not ready to assert that the moment it’s clear some damage will occur to part of the cargo, the captain must reverse course, potentially causing substantial expense.” The decision on whether a Deviation is justified under such conditions likely hinges on weighing the danger’s severity against the costs and disruptions of evasive actions.

To rescue human lives or a ship in Distress if lives are at risk: “Deviation to save lives is protected and does not lead to insurance forfeiture or liability for the goods,” according to the Shipowner regarding losses typically excluded under Perils of the Seas. Consequently, Deviation to contact a ship in Distress is permissible, especially if the distressed ship’s situation poses a life threat. Conversely, Deviation solely to save property does not receive the same protection and incurs usual Deviation consequences. In one case, a ship diverted to respond to a Distress Call had the opportunity to rescue the crew of a distressed ship but chose to tow it for salvage instead. Caught in a storm during this operation, the ship ran aground, losing its cargo. This Deviation for salvage purposes was deemed unjustified, and the Shipowners were held liable for the cargo loss, despite it being covered under Perils of the Sea in the Charterparty. The situation would have differed had the weather necessitated towing to save the crew’s lives.

Charterer’s default necessitates the Deviation: Deviation may be warranted to dock and unload Dangerous Cargo loaded without the Shipowner’s knowledge by the Charterer. Similarly, the Ship Master might need to Deviate to acquire additional cargo if the Charterer fails to fulfill his obligation to load a complete cargo.

Justifiable Deviations under the Hague Visby Rules:

In addition to the justifications recognized under Common Law, Article IV rule 4 of the Hague Visby Rules introduces two additional grounds: “Deviation in saving or attempting to save property at sea” and “Any Reasonable Deviation.” Courts in the United Kingdom have interpreted “Reasonable Deviation” quite narrowly, resulting in few reported cases where this principle has been successfully applied.

Liberty Clauses in Charterparty

Most Standard Charterparty Forms include a Liberty Clause that allows the Ship Master to Deviate for specified reasons. For example, Clause 3 of the Gencon Charterparty Form states: “The ship has liberty to call at any port or ports in any order, for any purpose, to sail without pilots, to tow and/or assist ships in all situations, and also to deviate for the purpose of saving life and/or property.” Liberty Clauses in different Charterparty Forms may permit Deviation for various reasons, such as Bunkering (Fueling), adjusting compasses or radio equipment, or for the boarding and disembarking of crew members.

Although these Liberty Clauses, if taken literally, could have extensive implications, they are mainly included for the Shipowner’s advantage. Consequently, courts often employ the principle of Contra Proferentem (which favors the interpretation against the party who drafted the ambiguous term) to interpret these clauses very narrowly. In the Glynn v Margetson case, for instance, oranges were shipped from Malaga to Liverpool under a Bill of Lading (B/L) that granted the Shipowner “liberty to proceed to and stay at any port or ports in any rotation.” Despite the clause’s broad wording, the courts ruled it did not shield the Shipowner when the ship docked at non-Geographical Route ports, resulting in damaged cargo upon arrival. Lord Esher, in a similar case, stated that such a Charterparty Term is usually understood to mean the ship may only stop at ports that are natural and customary on the specified voyage. Even if the clause says the ship can call at any ports, the usual interpretation is that the ship is only allowed to stop at ports along the Geographical Route; hence, the phrase “in any order” is often added. Regardless, Lord Esher noted that the ports must be substantially along the voyage’s course.
These principles of interpretation rely heavily on the skill of the draftsman and can be circumvented with precise language. For example, Clause 13 of the Nubaltwood Charterparty Form permits the Shipowner to call “at any port or ports whatsoever in any order in or out of the route or in a contrary direction to or beyond the port of destination.” Courts have fully enforced such Liberty Clauses, interpreting them as granting the ship freedom to navigate as desired, provided the voyage’s primary purpose is not thwarted.
A complication arises when Standard Charterparty Forms explicitly incorporate the Hague Visby Rules, which set the minimum protections for the Cargo Owner that cannot be diminished by mutual consent. How do these Liberty Clauses align with the requirement in Art IV Rule 4 that a Deviation, unless to Save Life or Property, must be reasonable? U.S. courts have adopted a stringent approach, validating Liberty Clauses in the Charterparty only as far as the Deviation remains Reasonable. English courts, however, view an Express Liberty Clause as delineating the contractual voyage’s boundaries rather than excusing departures by the Shipowner from this route. According to Hodson LJ, “the purpose of the Hague Visby Rules is not to define the contract of service’s scope but to stipulate the terms under which that service is to be performed.” It is likely the same interpretation would apply if a Bill of Lading (B/L) issued under a Charterparty explicitly includes a Liberty Clause from the charter.

At Common Law, any Unjustifiable Deviation from the prescribed route is seen as a fundamental breach of the Charterparty. “The departure from the voyage agreed upon is a breach by the Shipowner of his contract, a breach so serious that no matter how minor the Deviation, the other party to the contract may consider it a fundamental breach, thus freeing himself from all Charterparty Terms,” it is often stated. Traditionally, a Fundamental Breach differed from a condition because it entitled the Innocent Party to Repudiate his obligations under the Charterparty and sue for extensive Damages, ignoring any Exceptions or Limitation of Liability Clauses in the Charterparty.

Historically, this importance was due to Marine Insurance practices in the United Kingdom and the United States, where a Deviation would void cargo insurance coverage. The strict liability imposed on the Shipowner aimed to protect the Cargo Owner. Modern insurance practices have mitigated this issue; policies usually feature a Held Covered Clause allowing for coverage extension in case of Deviation for an Additional Premium (Extra Premium). Along with the introduction of broad Liberty Clauses into Charterparties, these changes have diminished the practical significance of the Deviation concept.

Recent judicial opinions, notably in the Suisse Atlantique and Photo Production v Securicor cases, have cast doubt on whether the strict interpretation of Deviation as a legal rule can persist. These rulings suggest that the concept of fundamental breach as a legal rule was a judicial mistake initially meant to shield consumers from Exclusion Clauses, a need which the Unfair Contract Terms Act 1977 has made redundant. In commercial contexts, a return to strict contractual interpretation allows parties to freely negotiate contracts and allocate risks.

What does this mean for the traditional understanding of Deviation? On one side, Lord Wilberforce in the Photo Production v Securicor case suggested that Deviation cases might be considered unique due to their historical and commercial contexts. Alternatively, as seen in The Antares case, the Court of Appeal believed Deviation should be integrated into standard contract law, where the entire contract terms, including Exceptions and Liberty Clauses, are evaluated to determine if they were intended to apply to a changed voyage. With such comprehensive tools available, the necessity of a legal rule specific to Deviation is questionable, as expressed by a modern legal scholar: “All the common law control methods are preserved, and these are enhanced by the necessity of reasonableness. The rules of interpretation still predominantly disadvantage the proferens. A skilled judge should easily be able to dismiss an undesirable exemption clause.”

Therefore, what is the Effect of Deviation on the Charterparty? Traditionally, in the event of an Unjustified Deviation, however minor, the Charterer has the option to either view the breach as a Repudiation of the Charterparty or to Waive the breach, leading to a limited recourse for Damages. A similar stance might be taken by a court that finds, upon interpretation, that the Charterparty terms do not apply to the altered voyage. However, this traditional stance should be cautiously regarded until the implications of the decision in the Photo Production v Securicor case are fully understood.

Despite Deviation being a Fundamental Breach of the Charterparty, the Charterer may choose to overlook it and continue to treat the Charterparty as valid since “even a fundamental condition can be waived by the cargo owner.” This approach is common in many instances where the Deviation causes minimal or no loss to the Charterer. In such cases, all Charterparty terms, including Exceptions and Limitation of Liability provisions, remain in effect. Additionally, the Shipowner retains the right to claim Freight and General Average (GA) contributions, while the Charterer’s recourse is limited to seeking damages for any loss due to the deviation that is not exempted by an exception.

A notable example illustrating the Charterer’s options occurred in the Hain SS Co v Tate & Lyle case. A ship was contracted to pick up a sugar cargo from two Cuban ports and one in San Domingo, as nominated by the Charterer. Due to a communication failure by the Shipowner’s Agents, the Ship Master was unaware of the San Domingo port nomination. After loading at the Cuban ports, the Ship Master headed to Queenstown for further instructions. Once the error was realized, the Ship Master was directed back to San Domingo to collect the remaining cargo. However, the ship ran aground leaving Queenstown, resulting in partial cargo loss, with the rest transferred to another vessel for the voyage to the United Kingdom. Before the ship reached its destination, the Bills of Lading (B/L) for the sugar were endorsed to Tate & Lyle, who received the cargo unaware of the Deviation. The court recognized the Deviation as a Fundamental Breach of the Charterparty, giving the Charterers the right to deem the Charterparty repudiated. However, fully aware of the circumstances, the Charterers chose to waive the breach by instructing the ship to return to San Domingo. As the injured party, “the cargo owner can choose to uphold the contract; and doing so fully informed of their rights binds them under general contract law.” Under these conditions, if the Charterers claimed, the Shipowners could invoke the Charterparty’s Perils of the Sea exception for protection. The situation for the Bill of Lading (B/L) Holders was different; they couldn’t waive rights without knowing of the breach. Following the principle set in Leduc v Ward, the Bill of Lading (B/L) Holders weren’t bound by the Charterers’ waiver, preventing the Shipowners from using the Bill of Lading (B/L) Exceptions to defend against any cargo claims from the Consignees.

The responsibility to prove a waiver rests with the Deviating Shipowner, and it’s seldom in the Consignee’s interest to waive the breach once the cargo has arrived, as “a waiver, to be effective and estop a party’s claim, must be unequivocal, definite, clear, cogent, and complete.” There is some uncertainty whether merely referring a dispute to arbitration as per a Charterparty Clause would constitute such a waiver. The prevailing opinion is that it would not.

3.4- Reasonable Dispatch

Every Charterparty inherently involves an obligation for the Shipowner or Carrier to fulfill his contractual duties with Reasonable Dispatch. If no specific timeframe is stated for a duty, an Implied Obligation exists to complete it within a Reasonable Time. For instance, a Voyage Charter typically implies that the ship will embark on the voyage and manage loading and unloading either at the agreed time or within a Reasonable Time. Similarly, in a Time Charter, it is expected that the Ship Master will carry out each voyage with the Utmost Dispatch. The evaluation of this duty is not strictly objective; rather, it considers what is reasonably expected of the Shipowner under the existing circumstances during performance. If the Charterparty’s language does not clearly or implicitly set a timeframe for fulfilling a contractual duty, the law presumes it should be done within a Reasonable Time. This principle applies broadly, not just to Charterparties. In various contracts, the requirement of a reasonable time is often interpreted to mean that the responsible party fulfills his obligations despite prolonged delays, provided these are due to uncontrollable factors, and there is no negligence or unreasonable behavior.

Similar to the Seaworthiness commitment, the duty to ensure Reasonable Dispatch is categorized as an Innominate Term (Intermediate Term). The type of remedy in any case depends on the impact of the breach. Although the affected party can always seek compensation in the form of Damages for any Unreasonable Delay, he can only Repudiate the Charterparty if the delay significantly thwarts its purpose. For example, in the Freeman v Taylor case, after unloading cargo in Cape Town, the Ship Master independently decided to transport mules and cattle to Mauritius on the way to Bombay. This diversion delayed the ship’s arrival in Bombay by about six or seven weeks, leading the court to conclude that the delay was substantial enough to Frustrate the charter’s objective. In instances of less severe delays, however, the affected party’s remedy will be limited to seeking Damages. Such claims might be excluded if the delay falls under an excepted peril.

3.5- Safe Port (SP) and Safe Berth (SB)

Whenever a Charterer has the authority to Nominate Port, whether under a Time Charter or Voyage Charter, it raises the question of whether the Charterer also has a duty to nominate a Safe Port (SP). The nomination right may manifest in one of two forms. Firstly, the Charterer may have the option to choose from a Range of Ports specified in the Charter, such as Iskenderun/Mersin/Antalya. In this scenario, there is no Implied Warranty of safety upon nomination because the Shipowner, by listing the ports in the Charterparty, is considered to have accepted any associated risks. Conversely, the Charterer may be allowed to nominate from various unnamed ports within a Specific Range, like Singapore/Japan. Here, a distinction is necessary between a Time Charter and a Voyage Charter.

For Time Charters, where the Shipowner provides the commercial use of his ship to the Time Charterer, an Implied Warranty concerning the Safety of any Nominated Port is typically assumed. As Donaldson J noted in The Evaggelos Th case, “I should make this implication because common sense and business efficacy require it in cases where the Shipowner relinquishes to the Charterer the right to decide the ship’s destinations and because this aligns with the majority of judicial opinions.”

However, the situation with Voyage Charters is more complex. Without clear precedents, recent cases have indicated that when a Voyage Charterer can Nominate from a Range of Unnamed Ports, such a warranty isn’t automatically implied but depends on the Specific Terms of the Charterparty and whether the implication is necessary for the Charterparty’s practical effectiveness.

In most charters, the necessity for an Implied Obligation is negated by an Express Term serving the same purpose. For instance, Clause 2 of the Baltime Charterparty Form 1939 states: “The ship shall be employed in lawful trades for the carriage of lawful merchandise only between safe ports or places where the ship can safely lie always afloat.”

What then defines a Safe Port (SP) for such warranties? According to case law, the essential concept of a Safe Port (SP) remains consistent whether it pertains to an Express or Implied Warranty, or whether it is related to a Time Charter or Voyage Charter. Sellers LJ provided a classic definition in The Eastern City case, stating: “a port will not be Safe unless, in the relevant period, the particular ship can Reach it, Use it, and Return from it without, barring some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship.”

The period mentioned in the definition encompasses the entire duration the ship utilizes the port, from entry to departure. In some instances, this may extend to include risks in the port’s approaches, such as ice in the St. Lawrence obstructing safe access to the Port of Quebec. Exceptionally, it might even cover dangers on the open sea, like submarine activity near German Ports during wartime. Conversely, once loading or unloading operations are completed, the ship must safely exit the port. For instance, Manchester was deemed an Unsafe Port in a case where, after cargo discharge, a ship’s masts were too tall to pass under bridges on the canal linking the Port to the sea. However, the risk must be directly related to using the Nominated Port, as Devlin J pointed out in the Grace v General SN Co case, noting, “It is obvious in point of fact that the more remote it is from the port, the less likely it is to interfere with the safety of the voyage. The Charterer does not guarantee that the most direct route or any particular route to the Port is safe, but the voyage which he orders must be one which an ordinarily prudent and skilful master can find a way of making in safety.”

Most cases focus on the ship’s safety within the port itself, where the variety of risks covered by the warranty is evident. The most common danger in an Unsafe Port is the risk of Physical Damage to the ship, which might result from inadequate water depth or the presence of ice or periodic silting that obstructs port access. Alternatively, an exposed or rocky anchorage could make a Port Unsafe, especially one prone to sudden gales or other adverse weather. Moreover, political risks, like a blockade or hostilities, or organizational risks due to poor management by Port Authorities (PA), such as inadequate safety equipment or unsafe berths, could also render a Port Unsafe.

Determining whether a Port is Safe is a factual matter, contingent on the specific circumstances, including the type of ship, the tasks to be performed, and the prevailing conditions at the Port at the relevant time. A Port might be safe for one ship type but not for another, such as a Very Large Ore Carrier (VLOC) that cannot access many Ports safe for smaller vessels due to its deep draft. It’s acknowledged that using any port carries some risk, and a port isn’t considered unsafe simply because it may occasionally experience storms, provided that adequate weather forecasts are available and the Port’s organization allows a competent master to take necessary evasive actions. For example, in the case of The Khian Sea, the Court of Appeal deemed a Port Unsafe because, despite receiving adequate storm warnings, the Ship Master was unable to leave his berth due to two other ships anchored nearby. Lord Denning MR highlighted the necessary conditions under the Safe Port (SP) Warranty, including adequate weather forecasting systems, available pilots and tugs, sufficient sea room to maneuver, and an effective system to ensure that such room is always available.

However, not every hazard renders a Port Unsafe. Temporary Obstructions like high winds, neap tides, or silting require the Ship Master to wait a reasonable time until the danger subsides or is removed. Only if the resultant delay is inordinately long, to the extent of frustrating the Charterparty’s objective, does it breach the Safe Port (SP) Warranty. For instance, a Port on the Mississippi was not considered Unsafe despite a 21-day delay caused by fog and periodic silting downstream. Roskill LJ stated that a Charterparty cannot be abandoned due to “commercially unacceptable delay,” meaning a delay beyond a Reasonable Time. The delay must be so severe as to Frustrate the venture. Roskill LJ argued that substituting any other test for frustration would yield a measure exceedingly difficult to apply consistently.

The situation might differ if the port’s characteristics causing the Temporary Hazard existed at the time of its nomination and the shipowner is claiming Damages for Detention, not rescinding the Charterparty. In the recent case of Independent Petroleum Group v Seacarriers, a ship was detained for four days at the Port of Beira due to another vessel running aground and blocking the main channel. Arbitrators found that marker buoys were misplaced due to shifting sands and there was no adequate monitoring system. Although no physical damage occurred and no frustration was claimed, Toulson J still ruled Beira an Unsafe Port and awarded Damages for Detention, finding support in Lord Roskill’s words from The Evia (No 2), emphasizing ongoing risk due to existing conditions at the Time of Nomination.

This interpretation suggests that even without a delay causing frustration, the inherent risks posed by a port’s existing conditions can deem it prospectively Unsafe, as evidenced by the findings in the Independent Petroleum Group v Seacarriers case. Toulson J’s decision illustrates that a port’s inherent characteristics can pose a continuous risk, warranting a finding of unsafety even when the delay is not severe enough to frustrate the purpose of the Charterparty.

The contrast in judicial decisions regarding similar circumstances underlines the complexity of defining what constitutes an Unsafe Port. For example, while Beira was considered Unsafe due to inadequate monitoring and management of navigation risks, another Port might be deemed Safe under similar physical conditions if the local Port Authorities effectively manage these risks. The decisive factor in the Independent Petroleum Group v Seacarriers case was the failure of the Port Authorities in Beira to monitor and ensure the safety of the navigational channel, considered an ongoing breach of duty from the time the Port was Nominated.

Thus, the determination of a port’s safety often hinges on a combination of Physical, Organizational, and Situational factors. Each case is unique and must be assessed on its own merits, considering the specific characteristics of the Port, the ship’s requirements, and the prevailing conditions at the time of use. This approach aligns with the principle that the safety of a Port is not just about natural conditions but also about how well these conditions are managed and communicated by the Port Authorities.

In conclusion, the safety of a port is a multifaceted issue that requires consideration of both natural and managerial elements. Ports must not only be naturally suitable for the ships that use them but also well-managed to adapt to and mitigate potential risks. Effective management includes proper surveillance, timely and accurate weather reports, and ensuring that navigational aids are in good working condition. Only through such comprehensive measures can a Port be deemed Safe, supporting the seamless operation of maritime activities without undue risks to ships and their cargoes.

Safe Port (SP) vs Safe Berth (SB)

Whether a Port is specified in the Charterparty or to be Nominated by the Charterer, it is generally assumed that the Charterer will also have the right to Nominate a Berth or Berths within that Port. Often, the Charterparty explicitly mandates that the Charterer Nominate only Safe Berths (SB), for example, “1/2 Safe Berths Amsterdam.” In scenarios lacking such Explicit Provision, the obligation to Nominate a Safe Berth (SB) hinges on various factors. If the Charterer has expressly warranted the Port as safe, this warranty typically extends to the Berth, implying an obligation for the Charterer to Nominate a Safe Berth (SB).

However, if the Right to Nominate arises at a Port not expressly warranted as Safe by the Charterer, the Court of Appeal has recently determined that there is No Implied Obligation to Nominate a Safe Berth (SB). In the Mediterranean Salvage & Towage Ltd v Seamar Trading case, a Ship was chartered from Chekka (Lebanon) to Algiers (Algeria) carrying bulk cement. The Charterparty did not expressly warrant the Safety of the Port or the Berth. The Charterers nominated a Berth in Chekka where the Ship suffered severe damage due to an underwater obstruction. In addressing a claim for Damages for Breach of an Implied Warranty regarding the Berth’s Safety, the Court of Appeal ruled that such a warranty’s existence depends on the interpretation of the Charterparty’s terms. The Shipowners bore the burden of proof and failed to present any precedent where a warranty had been implied under similar circumstances. The issue revolves around whether the Charterers agreed to assume the risk of hidden dangers at the Berth, and the answer was found to be no.

Conversely, when the Charterer must Nominate a Safe Berth (SB) at a named Port not itself Expressly Warranted as Safe, the Nomination of the Berth does not imply anything about the Port’s Safety. This distinction’s practical implications are exemplified in The APJ Priti case, where a Charterer had the right to nominate “1/2 Safe Berths (SB)” at Bandar Khomeini (Iran), a Port named in the Charterparty but not warranted as Safe. The Ship sustained severe damage from a missile while en route to the Port. The Court of Appeal concluded that damages were not recoverable because the voyage to the Port did not fall under the Safe Berth (SB) Warranty, and there was no warranty, either Express or Implied, regarding the Port’s Safety. As Bingham LJ stated, “I do not accept that the Ship’s passage to and from a Nominated Berth should be treated as including any part of the voyage to and from the Port. It would only include movement within the Port to and from a Nominated Berth.”

What is the difference between Berth Charterparty and Port Charterparty?:

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Frustration of Charterparty

Lord Radcliffe noted, “Frustration occurs whenever the law recognizes that without default of either party, a Contractual Obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.” Non Haec in Foedera Veni (This is not what I promised to do).

Tracing back to its 19th century origins, the Doctrine of Frustration was initially justified on the basis of a term to be Implied to reflect the presumed intention of the parties. However, in more recent years, it has evolved to focus more on the interpretation of the terms of the Charterparty. It is noted that the Implied Term theory, while never serving as the basis for a court’s decision, has been used as a theoretical explanation. A more commonly accepted perspective is that of Lord Wright, who stated, “the court decides the issue and decides it Ex Post Facto based on the actual circumstances of the case. The data for decision are, on the one hand, the terms and construction of the Charterparty, interpreted in light of the existing circumstances at that time, and on the other hand, the events that have occurred. It is up to the court to determine the true position between the parties.”

In practice, while the doctrine can apply to all forms of sea carriage contracts, it is most often associated with Charterparty disputes in decided cases.

Types of Frustration of Charterparty:

1. Impossibility of Performance
2. Supervening Illegality
3. Excessive Delay

In the realm of Charterparties, Frustration can manifest in several ways, including Impossibility of Performance, Supervening Illegality, or Excessive Delay. The determination of Frustration in each instance is a nuanced mix of Fact and Law. While ultimately, deciding whether a Charterparty has been Frustrated is a legal question, this decision must be made after evaluating the pertinent Facts. Consequently, while the invocation of the Doctrine of Frustration is a legal matter, determining whether a delay is extensive enough to qualify as Frustration involves factual assessment.

This distinction gains particular significance in judicial reviews of Arbitration Awards, where courts typically refrain from overturning an Arbitrator’s findings on factual grounds. In a recent judgment on this topic, Lord Roskill stated, “For the future, I believe that in cases otherwise suitable for appeal, the courts should only intervene with Arbitrators’ conclusions on issues such as those arising in Frustration cases in reasoned awards if they are demonstrated to have erred in Law by not applying the correct legal test or if, despite purportedly applying the correct legal test, they have reached a conclusion that no reasonable person could have arrived at, based on the Facts they have determined.”

Impossibility of Performance

The clearest instance of Frustration due to impossibility of performance occurs when a chartered ship is either Actually Lost or declared a Constructive Total Loss (CTL). Often, Time Charterparties include an Express Clause stipulating that Ship Hire paid in advance but unearned must be returned in such events. Conversely, the destruction of cargo that a Charterer intends to ship rarely leads to Frustration of the Charterparty. This is because the Charterer is typically seen as having an absolute obligation to provide a cargo. The only scenario in which a Charterer might be excused is when the contract is interpreted to mean an agreement to load a specific cargo, and that cargo is destroyed through no fault of the Charterer before loading begins. A similar outcome might occur if a ship is chartered to transport a specific commodity, and its export subsequently becomes prohibited by government decree.

Supervening Illegality

A Charterparty will also be Frustrated when changes in the Law make further performance illegal. This presupposes that the Shipowner and Charterer enter into a Charterparty believing that they can legally fulfill their obligations. If this foundational assumption fails, they are relieved from further duties under the contract. It seems irrelevant whether the illegality arises from modifications in English law or the laws of a foreign country where the performance is supposed to occur. Frustration also happens if the onset of war makes continuing the contract’s performance illegal. This could occur if a ship is owned or chartered by an individual who becomes an enemy alien, or if executing the Charterparty requires interactions with individuals in enemy-occupied territories. Under such conditions, the supervening illegality leads to an automatic termination of the contract, regardless of its specific terms or the initial intentions of the Shipowner and Charterer.

Excessive Delay

When the performance of a contract is postponed due to an event or change in circumstances, the Charterparty may become Frustrated if the resultant delay is so extended that it undermines the purpose for which the Shipowner and Charterer entered into the Charterparty. The determination of whether this criterion is met depends on the specifics of each case, though typically, a shorter delay might suffice to frustrate a Voyage Charterparty compared to what might be necessary to terminate a Time Charterparty. In the case of Jackson v Union Marine, the Shipowner agreed to pick up cargo at Newport (UK) promptly, with the understanding that “dangers and accidents of navigation excepted.” However, when the ship grounded in Caernarvon Bay on its way to Newport (UK) and sustained damage requiring six months to repair, all further liabilities under the Charterparty were nullified despite the Exception Clause. The court believed that the Shipowner and Charterer did not intend for this Exception Clause to account for such a significant alteration in the contract’s nature. It seems irrelevant whether the pertinent event occurs before the performance has started or after the Charterparty has been partially fulfilled, as long as its impact serves to Frustrate the intentions of the Shipowner and Charterer in entering the contract. A Frustrating event can manifest in various forms, such as the time needed to complete repairs following a collision, detention by a foreign government, or ongoing strikes.

From a review of decided cases, the most common cause of delay stems from the requisitioning of ships during emergencies or the trapping of ships at the onset of hostilities. In cases of requisitioning, the decision to claim Frustration often depends on the compensation offered by the government. If the compensation exceeds the Ship Hire Rate under a Time Charterparty, the Shipowner is likely to allege Charterparty Frustration. Conversely, if the compensation is lower, the Shipowner may not claim Frustration.

In the case of Tamplin SS Co v Anglo-Mexican Petroleum Products Co, a tanker was chartered for five years to transport oil as directed by the Charterers. With three years remaining on the Charterparty, the tanker was requisitioned by the Admiralty, leading the Shipowner to claim that the Charterparty was discharged. However, the Charterer was willing to continue paying Freight and argued that the foundation of the Charterparty had not vanished since no specific commercial venture was contemplated. This perspective was upheld by the majority in the Appeal Court, possibly influenced by the notion that the Shipowner was seeking to evade the Charterparty to secure higher compensation from the Admiralty. Lord Finlay later noted that the legal principles expressed by the majority and the dissentients were the same, but they differed in applying these principles to the facts at hand.

A contrasting decision occurred in the Bank Line v Capel case, where a Charterer had chartered a ship for a year, but the ship was requisitioned by the government before delivery. Here, the Lords ruled that the Charterparty had been Frustrated, even though the ship was released after only three months. Lord Sumner noted that the short duration of the requisition was irrelevant because the initial expectation was that the requisition would last indefinitely, thus altering the entire nature of the charter.

Additional examples of delays leading to Frustration include numerous instances where ships were trapped unexpectedly by the outbreak of hostilities. Notably, a surge of litigation followed the closure of the Shatt al Arab in 1980 when the Iran-Iraq War began.

Whether an intervening event results in a delay significant enough to Frustrate the commercial purpose of the Charterparty must be determined based on the specific facts of each case. For Time Charterparties, this decision is typically made by comparing the duration of the interruption or delay to the total length of the Charterparty. This assessment is objective and must be made without the benefit of hindsight. As stated by Bailhache J, “the parties (Shipowner or Charterer) must have the right to claim that the Charterparty is terminated by Frustration as soon as the event upon which the claim is based occurs. The question then is what estimate would a reasonable businessperson make of the likely duration of the ship’s withdrawal from service, based on the information available to him at that time, including the cause of the withdrawal. It will be immaterial whether his prediction is later proven right or wrong by subsequent events.”

Therefore, in the Bank Line v Capel case, it was irrelevant that by the time the case went to trial, the requisition had only lasted three months. The determination of Frustration had to be based on the information available when the requisition started. Rights should not be left uncertain or dependent on future outcomes. A Charterparty either binds or it does not, and the law should allow the Shipowner and Charterer to ascertain their position immediately. What occurs later might help reveal what the real probabilities were if they had been reasonably predicted, but when the causes of Frustration have lasted so long or occurred under such conditions as to imply an unreasonable delay, the time to decide the fate of the Charterparty has come.

Burden of Proof in Charterparty Frustration

The burden of proving Frustration rests with the party alleging it. They must convince the court that an intervening event has made the performance of the Charterparty either impossible or fundamentally different from what was agreed upon at the contract’s inception. In evaluating the evidence presented, the court must consider several factors.

To establish Charterparty Frustration, it must be demonstrated that performance has become impossible or so fundamentally altered that enforcing the original terms of the Charterparty would be unjust to the Shipowner or Charterer. It is not mere hardship, inconvenience, or material loss that activates the principle of Frustration. There must also be a change so significant that the duty, if fulfilled, would differ substantially from what was originally contracted. For instance, in the case of Tsakiroglou v Noblee Thor, sellers were obligated to deliver Sudanese groundnuts CIF (Cost Insurance Freight) to Hamburg. Following the Charterparty agreement, hostilities in Egypt led to the closure of the Suez Canal. The only viable alternative for the seller was to reroute via the Cape of Good Hope (COGH) at significantly higher Freight Rates, leading them to claim Frustration. However, the Lords dismissed this claim, determining that although more costly, shipping via the Cape of Good Hope (COGH) was not commercially or fundamentally different from the intended route. Similar judgments have been upheld in cases where ships were Voyage Chartered and Time Chartered. Therefore, Frustration is likely to be considered only when a specific route specified in the contract becomes impassable or when the ship carries perishable cargo that might not withstand an alternative route.

Express Provision in the Charterparty

Originally, the Doctrine of Frustration was triggered by an unforeseen event that significantly altered the obligations outlined in the Charterparty. Initially, if a specific event was predictable and not addressed in the Charterparty, it was assumed that the Shipowner and Charterer had intended to establish an Absolute Obligation. However, subsequent cases have indicated that this presumption may be incorrect, and Frustration is generally not excluded unless the Charterparty explicitly covers the event in its Express Terms. For example, in the Tatem v Gamboa case, the Charterparty was deemed Frustrated when a ship chartered to evacuate refugees during the Spanish Civil War was seized by Nationalists, even though such a seizure was foreseeable.

Moreover, even when an Express Clause in the Charterparty covers a particular event, courts typically interpret these clauses stringently. This approach resembles the Contra Proferentem rule used in interpreting clauses that seek to exclude liability for a fundamental breach.

In the Jackson v Union Marine case, the Charterparty was found Frustrated when the ship ran aground, despite a clause excluding “Dangers and Accidents of Navigation.” The court reasoned that the Shipowner and Charterer did not intend for this clause to apply to such a significant alteration in the nature of the Charterparty. Similarly, in the Bank Line v Capel case, the House of Lords allowed the Shipowner to successfully claim Frustration, even though an Express Clause gave the Charterer, but not the Shipowner, the option to cancel if the ship “be commandeered by Government during this charter.” Lord Haldane expressed that when a Charterparty’s performance depends on the continued availability of the subject matter, and this availability unexpectedly ceases due to circumstances beyond the Shipowner’s control, the Shipowner is not bound unless it is explicitly stated that they have agreed to such terms. In this instance, Lord Haldane found no evidence of such an intention.

Self-induced Frustration of Charterparty

When the event alleged to have disrupted the performance of a Charterparty stems from the actions or decisions of one party, that individual cannot use their own fault as a defense under the Charterparty. For example, in the Maritime National Fish v Ocean Trawlers case, the Charterer had leased a fishing trawler knowing it required an otter trawl, which could not be used without a license from the Newfoundland (Canada) government. The Charterer, who operated four other ships with otter trawls, applied for five licenses but received only three. These were allocated to the other ships, and the Charterer then claimed that this particular charter was Frustrated due to the illegality of operating the trawler without a license. The Privy Council dismissed this claim on the grounds that the Frustration was self-induced, resulting from a conscious choice by the Charterer.

The responsibility to prove that Frustration is self-induced falls on the party asserting it, and there is some ambiguity regarding the scope of this concept. Clearly, a party cannot claim Frustration if the situation arose from a breach of the Charterparty on their part. For instance, if further performance of a Charterparty becomes impossible due to a breach of the Safe Port (SP) Warranty or the obligation of Seaworthiness, the defense of Frustration is not available to the party at fault. The same principle applies if the intervening event is due to Negligent Conduct, such as significant ship damage resulting from negligent actions by the Shipowner or crew members. However, it has been noted that self-induced Frustration involves a deliberate choice, and mere negligence might not suffice. Lord Russell highlighted that such cases “can range from the criminality of the scuttler who opens the sea-cocks and sinks his ship, to the thoughtlessness of a prima donna who sits in a draught and loses her voice. I wish to guard against the assumption that every destruction of corpus for which a contractor can be said, to some extent or in some sense, to be responsible, necessarily implies that the resultant Frustration is self-induced within the meaning of the phrase.”

 

4- Understanding Time Charterparty

The terms of a Time Charterparty differ considerably from those of a Voyage Charterparty due to their distinct functions. In a Time Charter, the Shipowner provides the ship for a specified period, during which the Time Charterer has the flexibility to use the ship for their own purposes within the agreed contractual framework. The Time Charterer, who manages the ship’s commercial operations, is responsible for the related costs and must indemnify the Shipowner against any liabilities arising from following the Time Charterer’s commercial directives. Although various Standard Time Charterparty Forms exist, they typically include certain Core Clauses.

The operational efficiency of the chartered ship is vital for the Time Charterer, as the success of the commercial venture relies heavily on this factor. Consequently, the Preamble of the Time Charterparty details the ship’s specifications, such as Speed, Loading Capacity (DWCC), and Bunker Consumption. The legal implications of these specifications and the remedies available for any inaccuracies vary. New York Arbitrators often treat specifications related to Ship Speed and Bunker Consumption as Continuing Warranties, implying that the ship is expected to maintain these capabilities throughout the Time Charter period. Conversely, English courts view these specifications merely as Warranties, which pertain to the ship’s condition upon delivery under the Time Charter. If these Warranties are breached, the usual Damages would be the difference between the market rate of Ship Hire for a ship that meets the specifications and the actual chartered ship. For a breach of the Ship Speed Warranty, an alternative remedy could be to designate the ship as Off-hire for the duration required.

A Clause in the Time Charterparty usually specifies the exact length of the Time Charter Period, which may be defined in days, months, or years. However, it is understood that the precise timing for a ship’s operations under a Time Charterparty cannot be perfectly aligned so that the ship arrives at the designated port for Redelivery exactly on the termination date. As a result, the ship may arrive Too Early (Underlap) or Too Late (Overlap), potentially causing disputes, particularly during periods of fluctuating Ship Charter Rates. Courts recognize this issue and generally allow a Margin of Tolerance (around 5%) around the stated duration unless explicitly addressed by the parties. If the Time Charterer returns the ship after the Time Charter Period but within the permitted Overlap, they must compensate at the usual Time Charter Rate. If the return exceeds the Overlap Allowance, it constitutes a Breach of the Time Charterparty, making the Time Charterer liable for Damages based on the current market Ship Hire Rates.

Ship Hire is payable for the entire Time Charter Period, irrespective of whether the Time Charterer uses the ship. On the other hand, an Off-hire Clause is commonly included to ensure that no Ship Hire is due when the ship is not fully available to the Time Charterer due to an accident or a deficiency for which the Shipowner is responsible. The Off-hire Clause details specific situations when the ship will be considered Off-hire, activating the clause simply upon the occurrence of the event, without needing to prove fault on the part of the Shipowner.

If the Off-hire Clause is activated, the Time Charterer is entitled to a reduction in Ship Hire to compensate for the time the ship was unavailable. Many Off-hire Clauses explicitly permit the Time Charterer to deduct the calculated amount from the subsequent Ship Hire payment. Even in the absence of explicit terms, courts generally allow such deductions from Ship Hire, provided they are made in good faith and based on reasonable grounds.

Ship Hire is the fee charged for using the ship, typically calculated as a fixed daily rate over a specified period, such as 30 days or a calendar month. Ship Hire is generally paid in advance, either monthly or semi-monthly. When ships are Time Chartered for extended periods, they face risks like currency fluctuations, changes in the shipping market, and the effects of inflation on operational costs incurred by the Shipowner. As a result, Shipowners and Time Charterers often include specific provisions in the Time Charterparty to address these risks. This usually involves a Currency Clause that fixes an exchange rate between the payment currency and another relevant currency, and an Escalator Clause that allows for periodic adjustments to the Ship Hire Rate based on predefined economic factors.

Under Common Law, time is generally not considered of the essence in Time Charters, meaning that a Shipowner cannot cancel the Time Charterparty for late payment of Ship Hire unless the delay undermines the purpose of the charter. Consequently, it’s common to include a specific clause in the Time Charterparty that grants the Shipowner the right to withdraw the ship in case of payment default. Initially designed to address non-compliance or recover the ship from a potentially bankrupt Time Charterer, this clause is now also used to take advantage of fluctuations in market Ship Hire rates. Ships are frequently withdrawn immediately upon payment default and then offered to the same Time Charterers at the higher prevailing market rates. Courts have interpreted these Withdrawal Clauses strictly and typically do not provide equitable relief to Time Charterers facing forfeiture. To mitigate this, an Anti-Technicality Clause can be added to the Time Charterparty, requiring the Shipowner to give a specified notice period before exercising the right to withdraw the ship.

Most Time Charterparties include a clause that grants the Time Charterer full use of the ship within agreed limits and requires the Ship Master to comply with the Time Charterer’s orders. The Time Charterer’s trading activities are defined by agreement and can specify types of cargo and geographic trading limits. It is typically required that the Time Charterer only use the ship between Safe Ports (SP) and Safe Berths (SB). A significant right given to the Time Charterer is the ability to issue Bills of Lading (B/L) which the Ship Master must sign upon request, even if the terms differ markedly from those of the Charterparty. As the Ship Master acts as the Shipowner’s agent when signing these Bills of Lading (B/L), the terms are enforceable against the Shipowner by any good-faith Indorsee of the Bill of Lading (B/L). The Shipowner is not protected from claims arising from cargo damage unless due to the Shipowner’s or Ship Managers’ lack of diligence in maintaining the ship’s seaworthiness or other personal acts or defaults. Without a proper incorporation Clause in the Bill of Lading (B/L), terms in the Time Charterparty binding the Shipowner and Time Charterer remain exclusive to their agreement.

Description of the Ship in Time Charterparty

Since the Time Charterer manages the ship’s Commercial Operation and is required to pay Ship Hire at a Fixed Rate throughout the Time Charter Period, the profitability of the operation largely depends on the ship’s characteristics and performance. Consequently, Standard Time Charterparty Forms typically start with a Preamble that provides a detailed description of the ship, including Ship Name, Flag, Ownership, Class, Gross Tonnage (GT), Net Tonnage (NT), Cargo Capacity (DWCC – Deadweight Cargo Capacity), Ship Speed, and Bunker Consumption. The venture’s success often relies on the accuracy of these details, as the Time Charterer is primarily responsible for ensuring the ship’s efficient performance. Therefore, it is crucial for the Time Charterer to obtain a comprehensive Ship Description and, if needed, arrange for a survey by qualified professionals. However, the Shipowner’s reputation often serves as a more reliable benchmark.

Although any part of the Ship Description could be critical in specific situations, such as the Ship’s Flag during wartime, most disputes tend to focus on Cargo Capacity (DWCC – Deadweight Cargo Capacity), Ship Speed, and Bunker Consumption. To minimize conflicts over minor discrepancies, these specifications are often qualified with terms like “About” or similar, allowing for a tolerance of approximately 5%. Additionally, when Ship Speed is mentioned, it is standard to include a clause such as “in good weather conditions,” which allows Arbitrators to disregard measurements taken on days with winds stronger than force 4 or 5 on the Beaufort Scale.

Specifications in a Time Charterparty are intended to be contractually binding, providing assurances from the Shipowner about the ship’s performance. However, their exact legal significance is still debated. The question is whether these specifications merely describe the ship’s capabilities at the time the Time Charterparty is signed or if they represent contractual commitments that the ship will maintain these capabilities throughout the Time Charter period, or at least up until Delivery to the Time Charterer.

In New York, statements about Ship Speed and Bunker Consumption are generally viewed as Continuing Warranties, requiring the ship to maintain these capabilities throughout the Time Charter period. Conversely, British courts have historically taken a narrower approach. For example, in the late 19th century, the Court of Appeal determined that a statement regarding a ship’s Classification was not a Continuing Warranty but only relevant at the time the Time Charterparty was executed. Recent judgments have softened this view somewhat. In the Cosmos Bulk Transport Inc v China National Foreign Trade Transportation Co case, Judge Mocatta J ruled that a Ship Speed Warranty pertains to the ship’s performance at the date of Ship Delivery under the Time Charterparty.

In this case, while the ship met the warranted Speed when the Time Charterparty was signed, its performance later declined due to mollusc encrustation on the hull while at a tropical port finishing a prior charter. Judge Mocatta J held the Shipowners accountable for the breach, asserting that “commercial considerations require that the description of the ship’s speed applies as of the date of the Ship’s Delivery, regardless of its condition at the Time Charterparty’s signing.” He extended similar reasoning to Bunker Consumption and Cargo Capacity (DWCC – Deadweight Cargo Capacity), distinguishing these from earlier cases related to Ship Classification Warranties. He reasoned that changes in Ship Classification, which are beyond the control of both parties, mean that the Shipowner should only be responsible for the accuracy of such statements at the time they were made.

The Shipowner is not generally required to guarantee the continuous accuracy of specifications throughout the Time Charter Period, though some Tanker Time Charterparty Forms may include such guarantees explicitly. Normally, unless the Shipowner undertakes actions like selling the ship—which could alter Ship Ownership and potentially the Ship Flag—specifications such as Ship Speed and Bunker Consumption are expected to remain consistent from the signing of the Time Charterparty to the ship’s Delivery.

The Time Charterer bears the responsibility of proving any non-compliance with these specifications, which can be difficult. A serious breach might allow the Time Charterer to terminate the Time Charterparty, but more frequently, the Time Charterer is restricted to seeking damages for the ship’s failure to meet the specified standards. Under contract law, damages are typically calculated by comparing the market charter rates for a ship that meets the specifications with the rate for the ship as delivered. This method can be complex in practice and may result in only nominal damages.

In the Cosmos Bulk Transport case, the court adopted a different approach for breaches of Ship Speed Warranty, permitting the Time Charterer to classify the ship as Off-hire for any additional time required on the voyage due to the breach.

Other provisions in the Time Charterparty may offer alternative remedies for discrepancies in the ship’s description. For instance, many Time Charterparties include a clause requiring “All Voyages with the Utmost Dispatch,” which can address issues with Ship Speed. Additionally, an Off-hire Clause might account for reductions in Ship Speed due to “defects in or breakdowns of any part of her hull, machinery, or equipment.” The New York Produce Exchange (NYPE) Form also provides a remedy for cases where bottom fouling affects the ship’s speed, permitting the Time Charterer to request that the ship be cleaned at the Shipowner’s expense.

Period of Ship Hire

A dedicated clause in the Time Charterparty will specify the duration of the Time Charter Period, which can be defined in terms of days, months, or years, or a combination of these. It is also becoming common for the Time Charter Period to be determined by the time required for a particular voyage or a round trip between named ports. Practically, Trip Time Charters (TCT) are handled like standard Time Charters, although the Time Charterer will be in breach if the ship is not sent on the agreed voyage.

However, it is recognized that precise scheduling to ensure the ship arrives at the Redelivery Port exactly on the termination date of the Time Charter is not always possible. Issues often arise when planning the final voyage under the Time Charterparty, particularly with whether it will result in an Underlap (finishing early) or Overlap (finishing late) relative to the designated time limit. The Time Charterer’s aim is to generate revenue, either through operating the ship in the Liner Trade or more commonly by sub-chartering it for specific voyages. The goal is to arrange voyages that maximize the ship’s profitability while ensuring its timely return to the Redelivery Port. Disputes are common during periods of fluctuating Ship Hire Rates, and are further complicated by varying Overlap Clause wording. When Ship Charter Rates are high, the Time Charterer will seek to maximize every moment of the Time Charter Period, while the Shipowner will want to regain control of the ship. When Ship Charter Rates drop, the situation reverses. Time Charterparties include clauses to manage these scenarios, and it is important to first evaluate the accuracy of the specified time limit and then the Ship Charter Rate applicable during any Overlap Period.

When a Time Charterparty specifies a fixed duration, such as “eight months” or “three years,” without further qualifications, courts typically interpret time as not being of the essence. They often allow for a reasonable Margin of Error, generally around 4% to 5%. Conversely, New York Arbitrators use the “Overlap/Underlap Rule” to determine if the Time Charterer can dispatch the ship on a final voyage under the Time Charterparty. According to this rule, the Time Charterer may opt for either an Underlap (finishing early) or Overlap (finishing late) to bring the Ship Redelivery as close as possible to the end of the Time Charter Period.

Including terms like “About” before the Time Charter Period, as seen in the New York Produce Exchange (NYPE) Form, acknowledges this reasonable allowance. Many Time Charterparties feature an Express Clause specifying acceptable leeway, such as “a period of 8 months, 15 days more or less at the Time Charterer’s Option” or “minimum 8/maximum 10 months.” These clauses define the maximum allowable flexibility, and Redelivery outside these bounds would be considered a breach. Additionally, estimates such as “duration about 17/18 months without guarantee” offer further flexibility, with liability for exceeding the 18 months depending on whether the initial estimate was made in good faith and based on reasonable grounds.

The Shipowner and Time Charterer can either explicitly or implicitly make time a critical element of the Time Charterparty. For instance, in the case of Watson v Merryweather, the Time Charterparty specified “Redelivery to Shipowners between 15 and 31 October,” which led to the conclusion that time was of the essence. Therefore, failing to Redeliver the ship by 31 October was deemed a breach of the Time Charterparty. Similarly, the absence of the term “About” before the Time Charter Period in the New York Produce Exchange (NYPE) Form implies that time is a critical factor.

If the ship is returned to the Shipowner before the end of the agreed minimum period, the Time Charterer generally does not receive a refund and is still required to pay the Full Ship Hire for the entire Time Charter Period. If such early Ship Redelivery is deemed a breach of the Time Charterparty, the Shipowner might need to mitigate losses by attempting to rehire the ship if commercially viable within the remaining Time Charter Period. However, this strategy can be risky, as demonstrated in the case of The Zenovia. In this case, the latest allowable Ship Redelivery Date was 22 November. However, as the Time Charter approached its end, the Shipowner received around 30 days’ notice of Redelivery, initially set for 6 November. Due to the swift completion of the Final Voyage and increasing Ship Charter Rates, an Additional Voyage was feasible before the Time Charter concluded. Consequently, the Time Charterer adjusted the Ship Redelivery Date to “About 20 November.” The Shipowner, who had already arranged a new Fixture based on the original earlier Redelivery Date, challenged the Time Charterer’s right to change the date and withdrew the ship from the Time Charter on 2 November. Judge Tomlinson determined that the Shipowner was liable for Damages due to wrongful repudiation of the Time Charterparty. He found no grounds to imply a term that the Time Charterer would avoid actions that might delay the earlier Ship Redelivery Date and did not find a sufficiently clear and unequivocal promise to establish an Estoppel.

In cases of Overlap, the Time Charterer’s liability depends on whether they are in breach of the Time Charterparty. If Ship Redelivery occurs within the allowed tolerance period and the Time Charterer is not in breach, they will be required to pay for the additional time at the standard Time Charter Rate. If Ship Redelivery occurs beyond this period, damages will be calculated based on the current market Ship Charter Rate.

Recently, courts have applied the Legitimate Final Voyage Test to determine if a Time Charterer has breached the Time Charterparty. According to this test, the Time Charterer is not in breach if, when dispatching the ship on its Final Voyage, it was reasonable to expect that the voyage could be completed within the Time Charter Period plus any allowable extension. The validity of the Final Voyage is assessed based on the circumstances at the time of departure, rather than when the voyage was ordered.

Even if the Final Voyage is deemed legitimate, the Time Charterer must still ensure timely redelivery of the ship. If unforeseen events prevent this, the Time Charterer will be held liable for Breach of the Time Charterparty, even if the delay is due to factors beyond their control. In such situations, the Time Charterer must continue paying Ship Hire at the agreed Charter Rate until redelivery and may also owe Damages if the Market Charter Rate exceeds the agreed rate during the excess period.

Certain Time Charterparty Clauses may relieve the Time Charterer from this liability by requiring the Shipowner to complete a Legitimate Final Voyage without responsibility for late delivery, provided the delay is caused by circumstances beyond the Time Charterer’s control. These Clauses do not typically allow for requiring the Shipowner to undertake an illegitimate Final Voyage unless explicitly specified. For instance, the Shelltime (Clause 18) form includes a provision: “Notwithstanding the stated charter period, should the ship be upon a voyage at the expiry of the period of this charter, charterers shall have the use of this ship at the same rate and conditions for such extended time as may be necessary for the completion of the round voyage on which she is engaged.”

In The World Symphony case, the Court of Appeal determined that the clause allowing the Time Charterer to order a Final Voyage, even if it extends beyond the specified Time Charter Period, takes precedence over the Time Charter Period clause. This means that during such a Final Voyage, the Time Charterer is entitled to use the ship at the normal Time Charter Hire Rate, despite any delay beyond the originally stipulated redelivery time.

In contrast, Lord Denning MR in The Dione case articulated a different stance. If the Time Charterer dispatches the ship on an Illegitimate Final Voyage—one that cannot reasonably be completed within the Time Charter Period—the Shipowner has the right to refuse this direction and request alternative instructions for a Legitimate Final Voyage. Should the Time Charterer fail to provide these alternative instructions, the Shipowner may consider it a fundamental Breach of the Time Charterparty, arrange a new charter, and seek Damages. If the Shipowner proceeds with the Illegitimate Final Voyage, they are entitled to receive payment for the Excess Period at the Current Market Charter Rate if it exceeds the agreed Charter Rate. In The Dione case, where the charter was for “6 months, 20 days more or less at the Time Charterer’s option,” the Time Charterer’s Final Voyage extended beyond the expected redelivery date of 28 September, with actual redelivery occurring on 7 October. Consequently, the Time Charterer was held liable to pay hire at the Time Charterparty Rate up to 28 September and at the Market Rate for the period thereafter.

When determining Damages for a Breach of the Time Charterparty, the applicable Market Ship Hire Rate should reflect the current rate for a Time Charter of Equivalent Length to the breached charter, rather than the rate for a theoretical Voyage Charter related to the Illegitimate Final Voyage. In The Johnny case, where a ship was chartered under a Baltime Time Charterparty Form for a “minimum 11/maximum 13 months” term that expired on 7 November 1974, the ship was sent on a Final Voyage to Karachi, Pakistan, on 19 September. This resulted in the ship being Redelivered 29 days late. The court ruled that the appropriate Market Hire Rate for the additional 29 days should be based on the Current Hire Rate for an 11/13-month Time Charter, rather than the rate for a Voyage Charter to Karachi, as the Shipowner had contended.

Ship Off-hire Clause

Standard Time Charterparty Forms generally include an Off-Hire Clause, which stipulates that the Time Charterer does not owe Ship Hire during periods when the ship is unavailable for use due to issues within the Shipowner’s responsibility. The specific conditions that lead to a ship being Off-hire and the duration for which Ship Hire is suspended vary depending on the wording of the Off-Hire Clause in each Time Charterparty form. For instance, the Baltime Time Charterparty Form (Clause 11A) states:

“In the event of drydocking or other necessary measures to maintain the efficiency of the ship, deficiency of men or owner’s stores, breakdown of machinery, damage to the hull, or other accident that hinders or prevents the working of the ship for more than twenty-four consecutive hours, no hire shall be payable for the time lost during the period the ship cannot perform the required service. Any hire paid in advance will be adjusted accordingly.”

Typically, the Off-Hire Clause will list the range of events that can cause a ship to be Off-hire. Sometimes, there may be multiple smaller Off-Hire Clauses covering specific issues, such as Ship Speed Deficiency or Drydocking, scattered throughout the Time Charterparty. This can lead to inconsistencies or contradictions unless these clauses are clearly cross-referenced to the main Off-Hire Clause. The Standard Off-Hire Clause is activated by the occurrence of one of the listed events, irrespective of any fault by the Shipowner.

Off-hire Clauses, being No Fault Clauses, are interpreted strictly by courts, and the Time Charterer must clearly demonstrate their entitlement to a suspension of Ship Hire. As Judge Bucknill LJ observed, “I think he must bring himself clearly within the exceptions. If there is a doubt as to what the words mean, then I think those words must be read in favor of the Shipowners because the Time Charterer is attempting to limit the Shipowners’ right to Hire.” The Off-hire Clause is not impacted by Exception Clauses or Force Majeure Clauses in the Time Charterparty. However, other clauses may specifically exclude the Off-hire Clause in certain situations, such as if the event causing the off-hire is due to the Time Charterer’s negligence. There is also some authority suggesting that the Off-hire Clause may not apply if the event causing the off-hire results from the Time Charterer’s breach of the Time Charterparty. Even if the ship goes Off-hire due to such a breach, the Shipowner might still seek damages for the loss of Ship Hire.

The Standard Off-hire Clause typically ends with the phrase, “or by any other cause preventing the full working of the ship.” This phrase generally covers only causes that directly affect the ship’s operational efficiency and excludes external delays not related to the ship’s physical condition or crew. For example, delays caused by blockages in the La Plata River or by a ship being overloaded for Panama Canal entry are not covered by the Off-hire Clause. Conversely, delays in obtaining Free Pratique due to health concerns about a crew member are considered closely related to the ship’s performance and thus qualify as Off-hire. The term “any other cause” is not generally interpreted under the Eiusdem Generis Rule, as it is often difficult to isolate a distinct category from the listed items. When the Off-hire Clause is modified to include “any other cause whatsoever,” the Eiusdem Generis Rule does not apply. Typically, the clause covers unforeseen events rather than those naturally resulting from the ship’s usage.

Typically, the Time Charterer cannot invoke the Off-hire Clause unless the ship is rendered unusable due to one of the specific events listed in the clause. For example, if an engine breakdown occurs at sea, it may render the ship Off-hire. However, if the same breakdown happens while the ship is discharging cargo in port and the ship remains functional for that task, it would not affect the Off-hire status. Likewise, if the Shipowner installs new equipment at the Time Charterer’s request while the ship is waiting for a Berth, the Off-hire Clause does not apply, as the Time Charterer still has access to the ship. The impact of the Off-hire Clause depends on its exact wording, and the courts’ strict interpretation can result in very different outcomes, even for clauses that seem similar.

The majority of Standard Off-Hire Clauses fall into one of two distinct categories:

1. Period Clause
2. Net Loss of Time Clause

A Period Clause defines the specific timeframe during which Ship Hire is suspended due to certain events. For example, if events such as crew shortages or drydocking trigger the Off-hire Clause, Ship Hire is suspended until the ship is fully restored to operational efficiency and can perform the required service. A partial restoration of the ship’s efficiency generally does not end the suspension. This type of Clause is relatively easy to apply as long as the events listed are clearly identifiable. For instance, in a situation where defective loading equipment caused time loss, it was ruled that the Period Clause applied for the entire duration the Time Charterers were deprived of using the equipment, irrespective of whether loading was delayed by strikes, adverse weather, or cargo issues.

In contrast, a Net Loss of Time Clause simply states that Ship Hire is not payable for the time lost due to specified events. As described in the Baltime Time Charterparty Form (Clause 11A): “no hire to be paid in respect of any time lost thereby during the period in which the ship is unable to perform the service immediately required.”

At first glance, this wording suggests that Ship Hire is not suspended solely due to the occurrence of a specified event but only if, and to the extent that, time is lost as a result. This distinction is crucial in cases where a ship remains partially efficient, such as when only one of several loading cranes breaks down or when there is a Ship Speed Deficiency.

With a Period Clause, the obligation to pay Ship Hire resumes once the ship is fully operational and the Time Charterer can use it as intended. Therefore, if a ship has to deviate for repairs, the Time Charterer will bear the costs associated with making up for lost time after repairs are completed, unless the Time Charterparty specifies otherwise. A similar outcome is observed under English Law with the Net Time Lost type of Off-hire Clause. Despite this clause including “Any Time Lost” as a result of the specified event, recent cases indicate a broader principle: time lost is not deducted once the ship’s full operational efficiency is restored.

In The Marika M case, the court determined that the Time Charterer could not deduct time lost while waiting for a berth after the ship, which had previously gone Off-hire due to running aground, was refloated. This delay was considered a direct consequence of the grounding. Specific terms addressing such scenarios can be included in the Off-hire Clause itself. For example, the Intertanktime 80 Time Charterparty Form (Clause 20) specifies: “Ship Hire shall cease to be payable from the commencement of such deviation for repairs until the time when the vessel is again ready to resume her service from a position not less favourable to Time Charterers than that at which the deviation commenced.”

Off-hire Clauses often include a De Minimis Provision, which becomes effective only after 24 or 48 hours have passed since the specified event. Once this period has elapsed, all lost time, including the initial 24 or 48 hours, is considered. Despite the suspension of Ship Hire payments during the Off-hire period, the Time Charterer remains responsible for other obligations under the Time Charterparty, such as paying for fuel, port services, or crew overtime during this time.

Sometimes, the Off-hire Clause may offer the Time Charterer the option to extend the Time Charter by an equivalent period. However, this option can be unfavorable to Shipowners, especially in a rising Charter Rates market or if a subsequent charter has already been arranged. Therefore, it is more typical for the Off-hire Period to be counted as part of the original Time Charter Term. If the Off-hire event results from a breach of the Shipowner’s warranty or other acts not covered by exceptions, the Time Charterer may also be entitled to claim damages in addition to suspending Ship Hire payments.

Payment for Ship Hire

An Express Clause in a Time Charterparty usually outlines the timing, location, and frequency of Ship Hire payments, specifying the currency in which these payments are to be made. Ship Hire amounts are typically set at a fixed rate for a defined period, which can range from 24 hours to 30 days or a calendar month. Instalments of Ship Hire are often scheduled to be paid monthly or semi-monthly. Given the extended duration of these payments, they are particularly vulnerable to inflation and fluctuations in currency value.

To address these risks, Time Charterparties often include Currency Clauses to establish a fixed exchange rate between the payment currency and other relevant currencies. Additionally, an Escalator Clause may be included to adjust the Ship Hire Rate in response to increases in ship Operating Costs. For example, the Baltime Time Charterparty Form (1939 – Clause 6) provides:

“Time Charterers to pay as hire per 30 days, commencing in accordance with Clause 1 until the Redelivery to the Shipowners. Payment of Ship Hire to be made in cash without discount, every 30 days, in advance.”

Typically, a Time Charterparty stipulates that Ship Hire must be paid in cash. In The Brimnes case, Judge Brandon commented that “these words must be interpreted against the background of modern commercial practice. So interpreted, it seems to me that they cannot mean only payment in dollar bills or other legal tender of the US. They must have a wider meaning, comprehending any commercially recognised method of transferring funds, the result of which is to give the transferee the unconditional right to the immediate use of the funds transferred.” This implies that banker’s drafts and payment slips are generally accepted as equivalent to cash. However, there is some debate over whether Payment Orders under the London Currency Settlement Scheme are considered equivalent to cash. Although Payment Orders are viewed as equivalent to cash in the banking sector, a customer cannot access the funds until the document has been processed.

Conversely, Judge Lloyd in The Afovos case held that payment via telex transfer from one bank to another should be considered payment in cash for this purpose. Judge Lloyd reasoned that “when payment is made by telex transfer from one bank to another for the account of a customer, the payment is complete when the telex is received and tested by the receiving bank; so if the Shipowners were to inquire at their bank, they would be informed ‘yes, the money has arrived for your account.’ It is not necessary for the funds to be credited to the Shipowners’ account or for them to be able to withdraw the funds. It is sufficient that the funds have been received for the Shipowners’ account.”

This perspective contrasts sharply with the approach taken by the House of Lords in The Chikuma case. In that instance, the Ship Hire instalments had been paid into the Shipowner’s bank in Genoa on the due date, but the telex transfer included a value date that was four days later. According to Italian banking practice, this meant the funds in the Shipowner’s account did not accrue interest until the value date, and withdrawing the money would have involved paying interest. This situation effectively constituted an overdraft facility that the bank was obligated to provide. The House of Lords thus determined that such a payment did not qualify as cash.

In The Brimnes case, where both the Shipowner and Time Charterer had accounts at the same branch of the same bank, the receipt of a telex instruction from the Time Charterer to transfer the Ship Hire instalment into the Shipowner’s account did not constitute a cash payment. The payment was only considered effective once the amount had been credited to the Shipowner’s account, allowing them to access the funds.

Additionally, Ship Hire payments must be made in advance at either monthly or semi-monthly intervals. Payments are required before the performance period begins and can be made on or before the due date. If the due date falls on a Sunday or a non-banking day, the payment must be made by the preceding banking day; otherwise, the Time Charterer will be in default. However, the Time Charterer has until midnight on the due date to make the payment.

Lord Hailsham LC in The Afovos noted that “it is a general principle of law that when a person is obligated to perform an act by a specific date, they have the entire day to fulfill their duty.” Therefore, the Time Charterer is not considered in default until the end of that day, even if payment can only be made during banking hours. Griffiths LJ also emphasized that it is preferable to fix such important obligations to a specific time, like midnight, rather than depending on the varying business hours of different banks, which could lead to confusion.

In the absence of specific provisions to the contrary, the final instalment of Ship Hire due under the Time Charterparty must be paid in full, even if the ship is redelivered before the end of the charter period. Any overpayment of Ship Hire will be refunded by the Shipowner once the ship is returned.

The requirement for timely payment of Ship Hire in advance is strictly enforced, and the Time Charterer is considered in default if payment is not made by the due date, regardless of whether the delay is just a few hours or minutes. The nature of the default—whether intentional or not—is irrelevant. As long as there are no exceptional circumstances excusing the delay, failing to make the payment on time is enough to constitute default, regardless of any deliberate or negligent behavior.

Deductions from Ship Hire

The Time Charterer may have the right to adjust the Ship Hire for various reasons, such as advances for Port Disbursements (PDA) made on the Shipowner’s behalf, deductions for Off-hire Periods, allowances for Ship Speed Deficiency, failures to meet Time Charterparty Specifications, or compensation for Damage to cargo. In such instances, many Time Charterers prefer to deduct these amounts from future Ship Hire Payments rather than risk the difficulty of obtaining an Arbitration Award from an insolvent Shipowner or a single ship-owning company located in a distant country. Conversely, Shipowners generally resist any interruptions to their cash flow.

Some Time Charterparties specifically allow the Time Charterer to make deductions from future Ship Hire Payments for Port Disbursements (PDA) or Off-hire Periods. In contrast, other Time Charterparties may prohibit deductions in the event of a disputed claim or may suspend Ship Hire payments due when the ship is Off-hire.

In the absence of an Express Right to Deduct from Ship Hire specified in the Time Charterparty, British courts have traditionally been hesitant to permit self-help measures. Historically, it has been established that claims related to cargo cannot be settled through deductions from Freight, and this principle was initially extended to deductions from Ship Hire. For instance, in the Seven Seas Transportation v. Atlantic Shipping case, Judge Donaldson determined that there is no general equitable right of set-off for time lost under an Off-hire Clause. Judge Donaldson’s reasoning was based on concerns about potential disputes if the Shipowner denied liability or contested the claim amount. Exercising a deduction right in such cases could lead to the risk of the ship being Withdrawn for non-payment of Ship Hire, especially if the claim turned out to be partially or entirely unjustified.

Conversely, Judge Parker in The Teno case proposed a different approach, arguing that it would be fundamentally unfair to allow a Shipowner to collect Ship Hire for a period during which they failed to provide the contracted services. Judge Parker supported the notion of an Equitable Right of set-off, allowing the Time Charterer to make deductions from future Ship Hire Payments to account for Port Disbursements (PDA) made on the Shipowner’s behalf and for periods when the ship was Off-hire due to machinery breakdowns. Additionally, Judge Parker extended this right of set-off to both total and partial withdrawal of the ship’s use.

In The Nanfri case, the Court of Appeal tackled the divergent opinions on deductions from Ship Hire payments. The Time Charterer had deducted an amount from a Ship Hire instalment due to an earlier alleged loss of speed by the chartered vessel. Lord Denning MR distinguished Ship Hire from Freight, stating that the prohibition against deductions from Freight does not apply to Ship Hire payments under a Time Charter. He emphasized that the rules for Freight and Hire are fundamentally different and should not be applied interchangeably.

Lord Denning MR noted that a clear distinction must be made between defensive rights of set-off and cross-claims or counterclaims. Only those cross-claims that are directly related to the plaintiff’s demand and closely connected with it can be deducted. Therefore, if a Shipowner wrongfully deprives the Time Charterer of the ship’s use due to a breach of contract, the Time Charterer is entitled to deduct an amount equivalent to the Ship Hire for the lost period.

Although the House of Lords has not yet reviewed this decision and has recently adopted a more stringent interpretation of Time Charter Clauses, the principles established in The Nanfri have been upheld by lower courts. Judge Mocatta supports this decision as consistent with commercial practice, though he notes that set-off is restricted to claims that directly challenge the Ship Hire demand. Claims related to cargo damage or unrelated issues are excluded, and the Time Charterer cannot deduct more than the Ship Hire due for the period during which the required services were not provided.

A Time Charterer is not permitted to make advance deductions from Ship Hire for Anticipated Off-hire Periods. In The Li Hai case, where a Ship Hire instalment was due while the ship was scheduled for routine drydocking estimated to last around eight days, the trial judge ruled against allowing such advance deductions. The judge noted that allowing deductions based on estimates rather than actual events would create cash flow issues and lead to potential disputes.

When deductions from Ship Hire are allowed, courts recognize that it would be unfair to penalize the Time Charterer for minor errors in calculating the exact deduction amount. A reasonable estimate made in good faith is acceptable. The precise figures can be determined later either through mutual agreement between the Shipowner and Time Charterer or, if an agreement cannot be reached, through arbitration. If it turns out that the Time Charterer has deducted more than necessary, the Shipowner can recover the excess amount. This approach maintains the integrity of the express right to deduct as provided by many Off-hire Clauses, without undermining it by penalizing minor

Right to Withdraw Ship for Non-payment of Ship Hire

Under Common Law, time is generally not considered of the essence in a contract, which means a Shipowner cannot repudiate the Time Charterparty and withdraw the ship solely due to late Ship Hire payments, unless there is clear evidence of the Time Charterer’s intent not to perform. This could be evidenced by an explicit repudiation of obligations or a pattern of repeated non-payment. However, many Time Charterparties include a specific contractual right for the Shipowner to withdraw the ship. For example, the Baltime Time Charterparty Form (Clause 6) stipulates:

“In the event of payment default, the Owners have the right to withdraw the Ship from the Charterers’ service, without protest and without court intervention or other formalities, and without prejudice to any other claims the Owners may have against the Charterers under the Charter.”

Similarly, the New York Produce Exchange (NYPE) Form (Clause 5) allows the Shipowner to act in the event of “failure to make punctual and regular payment of hire.” These clauses were initially designed to exert pressure on persistent defaulters or to recover the ship before the Time Charterer’s insolvency led to bankruptcy proceedings. During times of fluctuating market rates, such clauses have been advantageous for Shipowners with long-term Time Charters at fixed rates. By invoking these clauses and withdrawing the ship for a payment default, Shipowners have been able to recharter the vessel at current market rates, occasionally even offering it back to the original Time Charterer.

In the vivid words of Lord Denning MR, “When market rates for ship charters are rising, Shipowners meticulously monitor Ship Hire payments. A minor lapse by the Time Charterer—a few minutes late or a few dollars short—triggers swift action from the Shipowners. They issue a Notice of Withdrawal and demand full payment of Ship Hire at the current peak market rate. Although the ship is seldom actually withdrawn, arrangements are often made for it to continue operating as if nothing occurred. The ensuing dispute is typically resolved through arbitration or court to assess the validity of the Notice of Withdrawal. Despite the seeming sharp practice, the courts view this as a hard-nosed business tactic rather than dishonesty.”

These clauses grant Shipowners considerable leverage but can also lead to contentious disputes. While the right of withdrawal is frequently exercised in response to payment defaults, it is often used strategically to either pressure Time Charterers into compliance or to reposition the vessel to take advantage of higher market rates.

In practice, invoking these clauses often results in negotiations between the Shipowner and the Time Charterer, and disputes are usually settled before arbitrators or in court, focusing on whether the Notice of Withdrawal was justified under the Time Charterparty terms. Despite potential disputes, courts generally consider these practices as part of normal business operations rather than evidence of bad faith.

Moreover, Ship Withdrawal Clauses are designed to protect the Shipowner’s interests by ensuring that significant payment issues are resolved promptly. The right to withdraw the ship provides a mechanism to address non-payment effectively and safeguard the Shipowner’s financial interests.

While the strict enforcement of withdrawal clauses may appear severe, it underscores the high stakes in managing ship charter agreements and the need for adherence to agreed terms. The interplay between enforcement and practical business considerations continues to influence how these clauses are applied and interpreted in Maritime Law.

A Time Charterer defaults if they fail to pay a Ship Hire instalment on time, or if payment is partial on the due date. This highlights the importance of determining whether the Time Charterer has an implied right to make Deductions from Ship Hire under certain circumstances. Ship Hire Payments must be made on or before the specified date to be deemed Punctual Payments or In Advance Payments. If payment is due on a day when banks are closed, it must be completed by the end of trading on the preceding business day. These requirements are enforced rigorously, regardless of whether the delay in Ship Hire Payment is by days or mere hours. A Late Ship Hire payment made before the Shipowner has exercised their Right to Withdraw the ship will not rectify the default unless the Shipowner chooses to accept the payment as timely and Waive the Breach. The Court of Appeal’s contrary decision in The Georgios case was specifically overturned by the Lords in The Laconia. Clear Notice of Withdrawal must be given to the Time Charterer or their Agents; notice to the Ship Master is insufficient. While no specific wording is mandated, the Time Charterer must be informed that the Shipowner views the Non-payment of Ship Hire as a termination of the Time Charterparty.

A Shipowner may lose their Right of Withdrawal if they waive the Breach. To prove waiver, the Shipowner’s actions must clearly and unequivocally show that they accepted Late Ship Hire Payment as if it were on time, or that the delay in rejecting the payment could reasonably lead the Time Charterer to believe it was accepted. Receipt of late payment by an Agent does not constitute a waiver unless the Agent has Explicit Authority to make such decisions on behalf of the Shipowner.

In The Laconia case, where Ship Hire payment was due on a Sunday, the Time Charterer’s bankers delivered a payment order for the correct amount under the London Currency Settlement Scheme to the Shipowner’s bank at 3 p.m. the next day. After receiving the payment order, the bankers were instructed to refuse the money and return it to the Time Charterer’s bank. The House of Lords determined that the Shipowners were still entitled to Withdraw the Ship. The bankers were only performing a ministerial function and lacked the authority to make commercial decisions about the continuation or termination of the Time Charterparty. “It was not within the bankers’ Express or Implied Authority to make business decisions regarding late Ship Hire payments without specific instructions. The bankers followed instructions to reject the payment and returned it to the Time Charterers the next day, which was considered a reasonable timeframe.”

Accepting a portion of the Ship Hire on or before the due date does not waive the Shipowner’s Right to Withdraw the Ship if the full amount is not paid by midnight on the due date. In the case of The Mihalios Xilas, the Time Charterers had the right to deduct Bunker (Fuel) Costs and Shipowner’s Port Disbursements (PDA) from the final month’s Ship Hire. However, the Time Charterer mistakenly thought that the ninth month was the final month and intended to deduct $31,000 from the Ship Hire instalment due on 22 March without disclosing the basis for these deductions. On 20 March, the Shipowner objected to the proposed deduction but did not instruct their bankers to reject the remaining Ship Hire, which was paid on 21 March. The Shipowner later discovered that the Time Charterer was treating the ninth month as the final month and requested further details and supporting vouchers, which were not provided. The Shipowner then withdrew the Ship on 26 March. The Time Charterer claimed damages for Wrongful Withdrawal, arguing that by accepting the payment on 21 March, the Shipowner had waived their Right to Withdraw the Ship. The House of Lords ruled that accepting part of the Ship Hire on 21 March did not constitute a waiver since the Time Charterer had until the end of trading on 22 March to make the full payment, and no default had occurred at that time. Lord Diplock observed that “waiver requires knowledge” and agreed that the Shipowners were entitled to a reasonable period to verify the situation with the Time Charterer and the Ship Master before deciding to withdraw the Ship. Consequently, the four-day period from 21 March to noon on 26 March was considered a reasonable timeframe. Additionally, retaining the advance Ship Hire payment during this period did not amount to an unequivocal waiver of the right to withdraw.

Subsequent cases have established that a delay of four to five days past the Ship Hire Payment due date is typically deemed reasonable and does not constitute a waiver of the breach. Judge Lloyd in The Scaptrade case observed that “the minimum time reasonably necessary will depend on the specifics of the case. In some situations, it may be appropriate for Shipowners to take time to evaluate their position, as withdrawing from a Time Charter is a significant decision that should not be made lightly. In other cases, Shipowners might reasonably seek legal advice. It would be unjust to expect Shipowners to act immediately or to consider themselves at risk for granting a short grace period to Time Charterers.”

Moreover, there is precedent suggesting that if a Shipowner consistently fails to enforce strict legal rights regarding Ship Hire payments, this could establish a pattern that prevents them from exercising the Right of Withdrawal for future breaches by the Time Charterer. However, the Shipowner must give adequate notice of their intention to revert to strict legal enforcement in such cases.

In the Tankexpress v Compagnie Financière Belge des Petroles case, a seven-year Time Charter required Ship Hire to be paid in cash, monthly in advance, with a provision allowing the Shipowner to withdraw the ship “in default of such payment.” Initially, the Time Charterer consistently mailed a cheque to the Shipowner’s London bank two days before the payment was due, and the Shipowner accepted this method for two years without complaint. When the payment for September 1939 was delayed due to the outbreak of war, the Shipowner attempted to exercise their Right to Withdraw the Ship. The House of Lords ruled against the Shipowner. Lord Porter remarked, “In this situation, it is evident that the method of contract performance was adjusted by an arrangement to send payment to Hambros Bank by cheque posted in time to reach London by the 27th of the month. While Shipowners could have insisted on strict performance after providing proper notice, they could not abruptly change the accepted method of performance without first notifying the Time Charterers and allowing them the opportunity to comply as required.”

On the other hand, a distinction must be made between an accepted mode of performance and a scenario where the Shipowner repeatedly accepts Late Ship Hire Payments without objection. In such cases, this behavior does not generally indicate that the Shipowner will forgo their Right to Withdraw in the event of a future late payment. In The Scaptrade case, the Court of Appeal found that estoppel did not arise even though six out of 22 installments were paid late. Judge Robert Goff remarked, “It is not easy to deduce from the mere acceptance of late payments in the past that the Shipowners have unequivocally represented that they will not exercise their strict legal right of withdrawal for future late payments, especially since the circumstances of earlier late payments may differ from those of the present.”

There was initially hope that the Equitable Doctrine of relief against forfeiture could soften the impact of a strict withdrawal clause. However, this doctrine received limited support in The Laconia case. Lord Denning MR observed in the Court of Appeal, “On reflection, I do not think equity would intervene in such a commercial case. It would leave the parties to determine their rights by law. Commercial matters require certainty, timeliness, and speed, which equity does not provide.” In the House of Lords, Lord Wilberforce agreed, noting the clear distinction between Charterparty contracts and land leases, where the Equitable Doctrine was developed. Lord Simon suggested there might be rare cases where a failure to make punctual payment due to an accident could unfairly disadvantage the Time Charterers, making it unconscionable for the Shipowners to withdraw. However, he acknowledged such cases would be extremely rare. This potential exception appears to have been definitively ruled out by The Scaptrade case, which held that courts do not have jurisdiction to grant equitable relief in these situations. Robert Goff LJ’s judgment in the Court of Appeal underscores the current judicial stance:

“In commercial transactions, it is essential that parties know their legal position if an event affecting their rights occurs. The Court should avoid creating obstacles to determining this position, as prompt action may be necessary and have significant consequences. The policy favoring certainty in commercial transactions opposes equitable intervention, which could lead to uncertainty, disputes, and litigation. Thus, extending such jurisdiction would interfere with the exercise of contractual rights and is not deemed appropriate.”

The courts’ hesitance to apply Equitable Relief in these cases is partly due to the presence of Anti-Technicality Clauses, which can be included in a Time Charterparty with mutual consent. These clauses generally require the Shipowner to give specific notice to the Time Charterer before invoking the Withdrawal Clause in case of a Ship Hire payment default. For instance, in The Libyaville case, the Time Charterparty included a clause stipulating that, “in the event of a failure to make punctual and regular payment, Shipowners must provide Time Charterers with two banking working days’ written notice to correct the failure.” Courts have strictly enforced these Anti-Technicality Clauses, ruling that an inquiry about a missed Ship Hire installment does not qualify as notice of intent to withdraw. Additionally, notice under such a clause cannot be issued before midnight on the due date, so any notice given before midnight but after banks have closed on the due date is deemed ineffective.

Judge Griffiths, in The Afovos case, highlighted the practical reasons behind this strict adherence: “Ship Hire payments are often processed via telex through various banks, and delays can occur due to oversights. Once the Time Charterer has instructed their bank to make the payment, they lose control over the transaction as it passes through the banking system. Therefore, Shipowners must notify Time Charterers if payment has not been received. Early notification before the deadline might not convey urgency, causing the Time Charterer to expect the payment to be credited on time. Conversely, notification after the deadline ensures the Time Charterer understands the breach and has a clear 48-hour window to remedy the situation.”

When the Shipowner exercises the right to withdraw the ship due to default in Ship Hire payment, it results in the termination of the Time Charterparty. The Shipowner cannot temporarily withdraw the ship to compel payment unless explicitly permitted by the Time Charterparty. Such an action would constitute a breach of the Time Charterparty, for which the Shipowner would be liable for damages. Additionally, the Shipowner cannot engage in other actions, such as revoking the Time Charterer’s authority to sign a Bill of Lading (B/L) or instructing the Ship Master not to sign a pre-paid Bill of Lading (B/L). In The Nanfri case, such conduct was deemed a repudiatory breach, allowing the Time Charterers to terminate the agreement.

Practical challenges arise when a ship is withdrawn after cargo has been loaded. Recent cases have established that in such scenarios, expenses related to bailment during the unloading period, as well as the cost of bunker (fuel) used for discharge, can be claimed. If a Bill of Lading (B/L) has been issued prior to the withdrawal, especially to parties other than the Time Charterer, the withdrawal would generally be contingent on completing the voyage covered by that Bill of Lading. Typically, after a Notice of Ship Withdrawal is issued, Shipowners and Time Charterers often reach an agreement to continue the charter under the original terms. If the Notice is deemed valid, the Time Charterer will pay the increased market charter rate; if invalid, the original charter rate remains.

The immediate effect of withdrawing the ship is the termination of the Time Charterparty, and the Shipowner is not entitled to any Ship Hire for the remaining charter period. Furthermore, the Shipowner cannot retain any unearned Ship Hire that was paid in advance. Damages for the unexpired portion of the Time Charter can only be claimed if the default in Ship Hire payment is considered a repudiation of the Time Charterparty by the Time Charterer. As time is generally not of the essence in a Time Charter, a default in Ship Hire payment rarely amounts to repudiation. Consequently, a Shipowner intending to withdraw the ship usually relies on the Withdrawal Clause specified in the Time Charterparty.

Indemnity Clause in Time Charterparty

Most Time Charterparties include an Indemnity Clause that grants the Time Charterer the full use of the ship during the charter period and requires the Ship Master to follow the Time Charterer’s orders and instructions.

A significant right provided by such an Indemnity Clause is the Time Charterer’s authority to issue Bills of Lading (B/L), which the Ship Master must sign upon request. These Bills of Lading can be enforced by third-party holders against the Shipowner, even if their terms differ considerably from those in the Time Charterparty. In return, the Time Charterer agrees to indemnify the Shipowner for any additional liabilities arising from these actions.

An example of this type of clause is found in the Baltime Time Charterparty Form (Clause 9): “The master shall conduct all voyages with the utmost efficiency and provide customary assistance with the ship’s crew. The master shall comply with the charterers’ orders regarding employment, agency, or other arrangements. The charterers shall indemnify the owners against any consequences or liabilities arising from the master, officers, or agents signing bills of lading or other documents, or complying with such orders, as well as any irregularities in the ship’s documents or for overcarrying goods.”

Judge Devlin aptly highlighted the rationale behind including such an Indemnity Clause: “If the Shipowner is to give up his freedom of choice and place the Ship Master under the Time Charterer’s orders, it is only fair that the Shipowner should receive full indemnity in return.” This specific Indemnity Clause is designed to cover any additional costs or liabilities that arise from making the ship available to the Time Charterer. These liabilities might result from the Time Charterer’s instructions regarding the ship’s use or from the Ship Master signing Bills of Lading (B/L) as requested by the Time Charterer.

For example, the Shipowner can seek compensation for physical damage if the ship is sent to a hazardous port or tasked with carrying dangerous cargo. The Shipowner is also protected against financial liability to third parties if cargo is released without presenting the relevant Bill of Lading (B/L) upon the Time Charterer’s instruction. Moreover, if the Ship Master signs a Bill of Lading (B/L) with terms more onerous than those specified in the Charterparty—such as omitting Charterparty exceptions or falling under the Hague-Visby Rules—the Shipowner is indemnified against any extra liability incurred.

While it might initially seem that this Indemnity Clause would allow the Shipowner to recover all additional costs or liabilities arising from the charter, there are several limitations on the Shipowner’s right to such recovery under this clause.

Firstly, under a Time Charterparty, the Shipowner remains accountable for navigation and ship management. Therefore, the Shipowner cannot seek compensation for losses arising from negligent navigation or issues of unseaworthiness, even if these occur while executing the Time Charterer’s instructions. These responsibilities are inherent to the Shipowner’s role. Judge Lloyd in The Aquacharm explained: “Not every loss during a voyage is recoverable. For instance, Shipowners cannot claim damages for heavy weather simply because an alternative route ordered by the Time Charterers might have avoided it. The connection is too remote. Likewise, routine navigation costs, such as ballasting, cannot be claimed even if they arise from the Time Charterer’s orders.”

Secondly, while the Ship Master must follow the Time Charterer’s instructions within a reasonable period, they are not obliged to comply with orders that exceed the Time Charterer’s authority. A clause requiring the Ship Master to obey the Time Charterer’s orders does not extend to directives that go beyond the Time Charterer’s legitimate power. Therefore, if the Ship Master is instructed to go to an obviously unsafe port or to sign a Bill of Lading (B/L) that contradicts the Time Charterparty terms, the Shipowner cannot use the Indemnity Clause to recover resulting losses. However, the courts typically acknowledge the Ship Master’s difficult position and generally afford them the benefit of the doubt, provided their actions were reasonable and made in good faith.

Lastly, causation must be addressed. The mere fact that a loss occurs while following the Time Charterer’s orders does not automatically prove that the loss was directly caused by, or is a legal consequence of, such compliance. Without concrete evidence establishing this causation, there is no entitlement to indemnity. For example, an Indemnity Clause does not cover losses caused by crew negligence. Likewise, indemnity will not apply if a cargo, such as coal, emits methane gas that ignites due to unrelated repair work. In such cases, the court may find that the cargo’s loading was not the direct cause of the explosion. The essential question is whether the loss to the Shipowner was an unavoidable outcome of following the Time Charterer’s instructions.

Recent judgments have shown that, in the absence of an Express Term, a Right to Indemnity might be implied when a Shipowner places the Ship Master under the Time Charterer’s orders. This implication is based on Business Efficacy: if the Time Charterer requires full control over the ship, voyages, cargoes, and Bill of Lading (B/L) terms, the Shipowner should be entitled to indemnity for any resulting losses or liabilities. However, no implied indemnity will apply if the Shipowner has expressly or implicitly agreed to assume the risk at the Time Charterparty’s formation. Any implied indemnity will also be limited by the same constraints as an express indemnity and will be excluded if there is a conflicting provision in the Time Charterparty.

Redelivery of the Ship under Time Charterparty

In a Time Charterparty, it is common for the agreement to specify that the ship must be redelivered to the Shipowner at a designated port or within a specified range of ports in good condition, “ordinary wear and tear excepted.” If the Time Charterer fails to meet this obligation due to a breach of their duties under the Time Charterparty, they are liable for damages. This liability also extends to any damage to the ship for which the Time Charterer is responsible under the Employment and Indemnity Clause.

There is some debate about whether this clause imposes a strict obligation on the Time Charterer to return the ship in good order. Since the Shipowner typically agrees to maintain the ship in an efficient condition throughout the Time Charter Period, it can be argued that the Time Charterer’s responsibility might be limited to damage they have directly caused or damage resulting from their instructions.

Even with the requirement to return the ship in good condition, the Shipowner cannot refuse to accept redelivery due to unresolved defects. As stated by Lord Denning MR, this requirement is “not a Condition precedent to the right to redeliver, but only a stipulation providing a remedy in Damages.” Therefore, if repair costs exceed the ship’s value after repairs, the Shipowner must accept redelivery and seek damages instead of withholding ship hire until repairs are completed. Both legal and commercial considerations necessitate that the Time Charterparty concludes even if the ship’s condition upon redelivery is unsatisfactory.

The concept of “Ordinary Wear and Tear” is determined by the specific use for which the ship was chartered. For instance, in a case concerning the refitting of a liner used for troop transport during World War I, Lord Buckmaster commented:

“It is challenging to understand how a Time Charterparty for a ship specifically hired to transport troops and similar cargo can overlook the expenses incurred during its operation.”

If a ship is chartered for a specific type of trade and operates without negligence, any damage resulting from such use should be considered Fair Wear and Tear.

The Time Charterer’s final obligation is to return the ship to the port or location specified in the Time Charterparty. If the ship is returned to a different location, the Shipowner is entitled to continue using the ship at the charter rate of hire until it reaches the proper redelivery point. This voyage to the redelivery location is considered part of the chartered service. To compensate for this breach, the Time Charterer must pay the Ship Hire the Shipowner would have earned had the voyage been completed as originally agreed. Practically, this means damages are calculated based on the net profit from a hypothetical voyage to the agreed redelivery point under the Time Charterparty, minus any net profit from alternative employment during the time needed to complete the hypothetical voyage.

 

 

 

5- Understanding Voyage Charterparty

Introductory Clauses in Voyage Charterparty

All Standard Voyage Charterparty Forms will incorporate an Introductory Clause that identifies the contracting Shipowner and Voyage Charterer, the ship, and the designated voyage. The principal concern of the Voyage Charterer regarding the ship’s description is its Cargo Capacity (DWCC Deadweight Cargo Capacity), as any shortcomings in the ship’s performance are the responsibility of the Shipowner. Cargo Capacity is typically stated in terms of DWCC (Deadweight Cargo Capacity), which indicates the maximum cargo weight the ship can transport when loaded to its allowable Draught. DWCC (Deadweight Cargo Capacity) denotes the peak weight of cargo a ship can handle but does not guarantee the ability to transport that specific amount of any cargo, as the Stowage Factor (SF) of the selected cargo plays a crucial role. Therefore, although the ship can manage the weight of a dense cargo like iron ore, it might lack the necessary stowage space for an equivalent weight of a voluminous cargo like scrap or grain. In such cases, it is usually more beneficial for the Voyage Charterer if the Cubic Capacity (Bale or Grain Capacity) of the cargo space is detailed. Typically, the mentioned DWCC (Deadweight Cargo Capacity) in a Voyage Charterparty excludes bunkers, stores, etc., needed for the journey. However, many Standard Voyage Charterparty Forms, like GENCON 1994, do not clarify this aspect. Regarding voyage specifics, the Voyage Charterparty may specify the Loading Port and Discharging Port, or the Voyage Charterer might have the privilege to Nominate such ports, either from an outlined list or a defined geographic region.

Freight Clause in Voyage Charterparty

Voyage Charterparty typically documents the agreed Freight rate, the cargo’s unit of measurement, and the timing and location of Freight payment. Calculating Freight is generally straightforward, but it’s crucial for the Voyage Charterparty to specify whether the calculation should be based on the cargo’s shipped quantity or the amount discharged. This distinction is vital because when cargo is weighed at both loading and discharge, discrepancies often occur due to errors in weighing equipment or natural factors. For instance, some cargoes may lose weight due to spillage or evaporation, while others might gain weight from moisture absorption during the journey.

To circumvent these issues, quoting Freight as a Lump Sum for the entire voyage, regardless of the shipped quantity, is often more effective. This approach is typically chosen when adequate weighing facilities are unavailable at the ports or when the Shipowner and Voyage Charterer are unsure of the available cargo amount. Opting for a Lump Sum is particularly beneficial when shipping bulk cargo, and the Voyage Charterer is obliged to provide a Full and Complete Cargo (FCC). In such cases, any deficiency results in the payment of dead freight. Standard Voyage Charterparty Forms also stipulate whether Freight is payable in Advance upon signing the Bill of Lading (B/L) or only upon delivery at the Discharging Port. To safeguard the Shipowner’s interests, a Lien Clause is often included, granting the Shipowner a lien on the cargo until Freight payment is completed. It’s also common to require part of the Freight to be paid in Advance with the remainder due upon cargo delivery. Additionally, Rider Clauses usually address the currency for Freight payment, a critical consideration for the Shipowner during periods of fluctuating exchange rates, particularly if voyage expenses are expected in a different currency.

One final point that needs clarification is whether the quoted Freight rate encompasses the costs of loading and unloading the cargo (cargo handling costs), or if these are additional expenses for the Voyage Charterer. Typically, the term FIOST (Free In Out Stowed Trimmed) applies to the Shipowners in Voyage Charters. When bulk cargoes are handled at private wharves, or when port handling charges are challenging to predict in advance, it is more practical to quote Freight on Net Terms, leaving the cargo handling costs to be covered directly by the Voyage Charterer. Even in situations where Gross Terms are applied and the port handling charges fall under the Shipowner’s responsibility, the Shipowner may safeguard his interests with a clause stating that he is liable for port handling charges only up to a certain rate per tonne of cargo. If the costs exceed this rate, the Voyage Charterer becomes responsible for the additional expenses.

Cargo Clause in Voyage Charterparty

When a Cargo Seller charters the ship for delivering an export order, the cargo’s type and quantity are typically specified precisely, for instance, 120,000 metric tonnes of coal. Conversely, if the aim of the Voyage Charter is a broader trading venture, the Voyage Charterer might have the option to choose from a designated range of cargoes, such as soybean and/or corn, or might even be allowed to transport “any lawful cargo.” In these scenarios, the Voyage Charterer is generally required to ship a Full and Complete Cargo (FCC), which is the maximum quantity of a particular cargo that the ship can accommodate. If a specific amount like 50,000 metric tons is set, it is customary to include a permissible variation of plus or minus 5 percent, under terms like MOLOO (More or Less Owner’s Option) or MOLCO (More or Less Charterer’s Option). Should the Voyage Charterer fail to provide the stipulated quantity of cargo, they will be obliged to pay compensation for the deficiency in the form of Dead Freight (DF).

Laytime Clause in Voyage Charterparty

The Laytime Clause is a crucial element in a Voyage Charterparty, detailing the period allocated for loading and unloading the cargo. These designated “Lay Days” are provided free to the Voyage Charterer, considered as part of the Freight payment. If these Lay Days are exceeded, the Voyage Charterer must compensate the Shipowner, either through predetermined Liquidated Damages (known as Demurrage) or Unliquidated Damages (referred to as Damages for Detention). Additionally, the term LAYCAN, which stands for “Laydays Commence and Cancelling Date,” is used to define the time frame within which a ship must arrive at the loading port for a specific Charterparty.

During the negotiations leading up to the signing of the Voyage Charterparty, the Voyage Charterer aims to secure an adequate number of Lay Days to accommodate unforeseen delays during the loading or unloading processes, while the Shipowner prefers to limit these days to free up the ship for other engagements sooner. Given the financial stakes, it is critical for the Laytime Clause to be precisely articulated to avoid potential litigation.

Defining the exact moment when Laytime begins is a complex issue. The standard approach requires two conditions: first, the ship must become an Arrived Ship by reaching the specified destination in the Voyage Charterparty, which could be a Berth, Port, or Dock. Secondly, the Shipowner must issue a Notice of Readiness (NOR) to the Voyage Charterer. If port congestion prevents the ship from reaching its designated destination and becoming an Arrived Ship, the Shipowner bears the risk of delay unless a clause has been negotiated into the Charterparty that counts time waiting for a berth as Laytime. Once the ship is acknowledged as an Arrived Ship, Laytime starts running within a specified period after the issuance of the NOR.

As Laytime begins to count against the Voyage Charterer from a specified moment, it’s crucial that the Voyage Charterparty offers a reasonably precise prediction of when the ship will arrive at the loading port. This allows the Voyage Charterer to ensure that the cargo is ready for loading. However, it is rare for a Shipowner to commit to a specific arrival date, except in cases where the ship is already idle at the loading port. Typically, Voyage Charterparties are negotiated well in advance, and Shipowners are hesitant to specify exact arrival dates due to potential unforeseen contingencies that may occur.

The usual practice is for the Voyage Charterparty to specify an expected date for the ship to be ready to load at the loading port and to pair this with a Cancelling Date. If the ship has not arrived by this Cancelling Date, the Voyage Charterer has the option to terminate the Voyage Charterparty (this period is referred to as LAYCAN – Laydays Commence and Cancelling Date). Naturally, the Shipowner prefers as long a period as possible between these two dates to accommodate potential delays, while the Voyage Charterer aims for the shortest possible interval to reduce storage costs at the port.

The second aspect of Laytime concerns its duration. Both the Shipowner and Voyage Charterer typically agree on a specific number of days or hours allowed for the loading or unloading operations. This practice is much more effective than using vaguer terms like “Fast As Can (FAC)”, “Custom of Port”, or “Customary Quick Despatch (CQD)”, which often lead to disputes. An alternative approach is to specify a loading rate, such as 15,000 metric tons per day, allowing the Laytime duration to be calculated once the total cargo weight is known. Additional details may include whether the specified Laytime is to run continuously or if it will be suspended on Sundays, Public Holidays, or in cases of Bad Weather. These details are subject to negotiation between the Shipowner and Voyage Charterer.

Additional Clauses address situations where the loading or discharging operation exceeds the specified Laytime. In such cases, the Voyage Charterer must compensate for the extra time, and it is common to include provisions in the Voyage Charterparty for the payment of Demurrage at a predetermined rate for this additional time. Demurrage is considered agreed Liquidated Damages for contract breach and is recoverable by the Shipowner without the need to demonstrate a loss. The Demurrage Rate is typically set in relation to the current Freight Rates, and courts generally do not intervene in its enforcement unless the recoverable amount is deemed exorbitant and disproportionate to the potential maximum loss caused by the delay. If found excessive, the Demurrage Clause may be invalidated as a penalty, although this does not apply when the Demurrage Rate is notably low and unreflective of potential losses.

If there is no Demurrage Clause, or if the fixed period for Demurrage (e.g., 7 days) has expired, the Shipowner is entitled to claim Unliquidated Damages for Detention as compensation for losses incurred due to the delay.

To motivate the Voyage Charterer to expedite the loading process, the Voyage Charterparty might include provisions for the payment of Despatch Money by the Shipowners for any Laytime saved. Typically, the rate for Despatch Money is set at 50 percent of the agreed Demurrage Rate, known as DHD (Despatch Half of Demurrage). It is crucial for both the Shipowner and Voyage Charterer to clearly specify whether Despatch Money is payable for All Time Saved (ATS) or only for Working Time Saved (WTS).

Other Clauses in Voyage Charterparty

The Voyage Charterparty Clauses described above provide a foundational structure for the Voyage Charterparty; however, additional provisions are often included to address various aspects such as the Shipowner’s responsibility for cargo care, conditions allowing the ship to deviate from the agreed route, and clauses that address the impact of external factors like Ice, War, or Strikes on fulfilling contractual obligations. These clauses can differ significantly across various Standard Voyage Charterparty Forms and are often customized by the Shipowner and Voyage Charterer to suit specific needs and circumstances. This customization ensures that both parties tailor the contract to address potential risks and responsibilities uniquely associated with each voyage.

Performance of the Voyage Charterparty

The execution of a Voyage Charterparty is structured into four distinct stages:

A- Preliminary Voyage
B- Loading Port Operation
C- Carrying Voyage
D- Discharging Port Operation

Typically, the responsibility for stage 1 (Preliminary Voyage) and stage 3 (Carrying Voyage) lies solely with the Shipowner. In contrast, stage 2 (Loading Operation) and stage 4 (Discharging Operation) are collaborative efforts involving both the Shipowner and the Voyage Charterer, although the control primarily rests with the Voyage Charterer. The Voyage Charterparty documents detail the specific responsibilities of each party for these stages. A crucial concern for both parties is determining who bears the risk of loss due to delays that are beyond the control of either the Shipowner or the Voyage Charterer.

Voyage Charters are particularly vulnerable to delays caused by factors such as adverse weather, mechanical issues during the voyage, or logistical problems like strikes or the lack of available berths upon arrival at a port. Generally, unless otherwise stipulated in the Voyage Charterparty, the risk of unforeseen delays is borne by the party responsible for the stage during which the delay occurs. It is possible, however, for the Shipowner and Voyage Charterer to negotiate clauses that shift this risk, such as exceptions that suspend the running of Laytime during strikes.

Accurately determining when one stage ends and another begins is critical, especially when defining the start of Laytime. While the termination of the Loading and Discharging stages can usually be clearly identified, courts have struggled to establish a straightforward method for marking the completion of the voyage stages and the commencement of Laytime. Consensus dictates that three criteria must be met for Laytime to begin: the ship must have reached its designated destination and become an Arrived Ship, a Notice of Readiness (NOR) to load must be issued, and the ship must be physically ready to load. The challenge lies in defining what constitutes an “Arrived Ship,” a term that requires precise legal and practical definition to avoid disputes and ensure clarity in contractual obligations.

Arrived Ship in Voyage Charterparty

To determine when a ship qualifies as an Arrived Ship, it’s crucial to understand that there are three main types of Voyage Charterparty, based on the specified loading point:
1- Port Charterparty
2- Berth Charterparty
3- Dock Charterparty

For Berth Charter and Dock Charter, the situation is quite clear: a ship becomes an Arrived Ship only upon entering the designated Berth or Dock. In both scenarios, the Shipowner bears the risk of any delays in reaching the specified Berth or Dock. The same principle applies when the Voyage Charterer, who has the express right to Nominate the Berth or Dock, chooses a busy one, resulting in inevitable delays. Courts have ruled that this right would be of minimal value to the Voyage Charterer if they had to consider the Shipowner’s convenience before making such a nomination. However, developing a criterion for an Arrived Ship under a Port Charterparty presents more challenges due to the larger area involved and the varied definitions of a Port, whether viewed from a Geographical, Administrative, or Commercial perspective. After several conflicting earlier decisions, clarity was provided by the House of Lords in the case of the Johanna Oldendorff. In this instance, the Voyage Charterer, under a Port Charterparty, had nominated the port of Liverpool/Birkenhead. When the ship reached the Port, no Berths were available, and it was directed to anchor at the Mersey Bar, located some 17 miles from the Dock Area but within the Administrative limits of the port. The critical issue was whether the Johanna Oldendorff was an Arrived Ship at the Mersey Bar, or whether Laytime only commenced 16 days later when the ship finally entered a Berth. In their review, the House of Lords criticized the earlier reliance on a ship’s arrival within the Commercial Area of a Port, as in the case of The Aello, arguing that such an area was too vague and led to unnecessary legal uncertainties without considering practical commercial implications. They favored a more practical approach, outlined in the following propositions:

The ship must be within the Geographical and Legal area of the Port as commonly understood by its users. Therefore, a ship cannot be considered an Arrived Ship if the Port Authorities (PA) order the ship to remain outside this area. The decisive criterion is whether the ship is immediately and effectively at the disposal of the Voyage Charterer, meaning the ship can swiftly move to the Berth when informed that one is available. Given the advancements in radio communication and the increased speed of modern ships, a ship could meet this criterion even if anchored some distance from the designated Berth, as it would typically receive advance notice of when the Berth is expected to be available.
The ship is assumed to be effectively at the disposal of the Voyage Charterer when anchored in a usual waiting area for a Berth at that Port, with the burden of proving otherwise resting on the Voyage Charterer. If the ship is anchored elsewhere, the Shipowner has the opportunity to demonstrate that it is still effectively at the disposal of the Voyage Charterer, though the proof responsibility in this scenario shifts to the Shipowner.

Since the Mersey Bar was within the Administrative Limits of the Port of Liverpool/Birkenhead and served as the normal anchorage for ships awaiting a Berth at that Port, the Johanna Oldendorff was deemed an Arrived Ship.

Within four years, the House of Lords had another opportunity to reconsider their stance in the Maratha Envoy case. The Voyage Charterer had nominated Brake, a river port on the Weser, as the loading port. However, with no Berths available, the ship was instructed not to proceed upstream but to wait at the Weser Light. Positioned in the Weser estuary about 25 miles downstream from Brake, this was the customary waiting spot for ships the size of the Maratha Envoy due to the absence of suitable anchorages on the river itself. Reviewing the criteria for an Arrived Ship as set out in the Johanna Oldendorff case, the Court of Appeal believed the key factor was whether the ship was immediately and effectively at the disposal of the Voyage Charterer. They argued that being outside the strict Port Limits should not preclude a ship from being considered an Arrived Ship, provided it was at the usual waiting place and at the Charterer’s disposition. Nevertheless, on appeal, the House of Lords quickly dismissed this view, reaffirming the standards set in the Johanna Oldendorff. Thus, the Maratha Envoy was not an Arrived Ship while at the Weser Light, as it lay outside the Port of Brake’s limits.

This decision, while clarifying the legal position, has not been universally accepted in the shipping industry and does not align with the more adaptable approaches seen in other jurisdictions. Any practical test for an Arrived Ship should definitively establish the point at which the risk of time lost transfers from the Shipowner to the Voyage Charterer. A potential drawback of the Johanna Oldendorff criteria is their lack of a robust method for pinpointing the Port Area in particular cases, despite the entire test depending on this definition. Although Lord Diplock claimed that applying the Oldendorff test has posed little difficulty, it might be easier in practice to identify a port’s Usual Waiting Place rather than its precise limits. Furthermore, it could be argued that for such purposes, the Shipowner should be seen as having met his obligation under a Port Charter when he has brought the ship as close as feasible to its destination at a congested Port, where the ship is anchored at a location from which any further advance into a vacant Berth is controlled by the Port Authorities (PA). In such situations, it raises the question whether it was ever the intent of the Shipowner and Voyage Charterer that the risk of additional delays should solely depend on whether the PA directs the ship to wait inside or outside the port limits.

Voyage Charterparty Terms Shifting Risk of Delay

When considering the legal stance under Common Law regarding delays due to port congestion that aren’t covered by provisions in the Voyage Charterparty, the approach of Shipowners can significantly vary. Often, to mitigate the risk of such delays, Shipowners prefer to opt for a Port Charterparty rather than a Berth Charterparty or Dock Charterparty because it’s relatively easier for a ship to be deemed an Arrived Ship in the face of port congestion under a Port Charterparty. Alternatively, Shipowners may insist on incorporating specific clauses in the Voyage Charterparty to transfer the risk of delays due to port congestion.

One commonly employed method is the inclusion of “Time Lost Waiting for Berth Clauses,” which aim to shift the risk of delay. For instance, a typical clause found in the Gencon Voyage Charterparty specifies that “Time lost in waiting for Berth to count as Loading or Discharging time.” This clause essentially shifts the risk of delay from the moment the ship could have docked if a berth had been available. Thus, under a Berth Charterparty, this would cover any waiting time in the port until a berth becomes available. In the context of a Port Charterparty, it would apply to waiting times both outside and inside the port, even if the ship does not meet the Johanna Oldendorff criteria of being “immediately and effectively” at the disposal of the Voyage Charterer. The key factor here is whether the primary cause of delay is the non-availability of a berth.

Originally, the Time Lost Waiting for Berth Clause was primarily associated with Berth Charterparties. However, due to its effectiveness, it was later adopted in Port Charterparties, leading to potential confusion. This confusion arises from the possible overlap between waiting time and Laytime provisions; a ship could be an Arrived Ship and still be waiting for a berth. For many years, courts prioritized the Time Lost Clauses independently of the Laytime provisions, requiring the Voyage Charterer to pay for all time lost, regardless of whether it occurred on a Sunday or public holiday, or whether a Laytime exception might otherwise have been applicable.

This interpretation was eventually challenged and corrected by the House of Lords in The Darrah, which overruled previous decisions. It was clarified that whether the Time Lost Waiting for Berth Clause stipulates that all time lost waiting for a berth counts as Loading Time or Laytime, the result remains consistent: all such time lost is treated as Laytime, as if the ship were actually in the berth and at the disposal of the Charterer for loading or discharging operations. Lord Diplock noted that in calculating Time Lost in Waiting for a Berth, any periods that would have been excluded in the computation of permitted Laytime if the ship had been in a berth should also be excluded. Thus, when Waiting Time and Laytime overlap (i.e., the ship is an Arrived Ship while still waiting for a berth), Laytime provisions take precedence, and the Time Lost Clause is considered redundant.

Congested Ports

In ports known for frequent congestion, or where the normal waiting area lies outside the port limits, standard clauses are often included in contracts to specify that Laytime begins from the moment a ship reaches a designated point but is unable to proceed due to lack of available berths or other obstacles. Such clauses are applicable even if the ship has not yet become an Arrived Ship. For example, in the case of Compañia Naviera Termar v Tradax Export, the Voyage Charterparty stipulated that if the ship could not berth at Hull due to congestion, “time to count from next working period after ship’s arrival at Spurn Head anchorage.” Similarly, in the Weser Light situation of The Maratha Envoy, the existence of a Time Lost Clause for the Port of Brake, though not included in the Voyage Charterparty, influenced the House of Lords to uphold a strict interpretation of the Arrived Ship status.

Whether in Berth or Not (WIBON)

The Whether in Berth or Not (WIBON) clause addresses situations where a ship, under a Berth Charterparty, reaches its destination but finds no berth available. This clause allows the Shipowner to issue a valid Notice of Readiness (NOR) to load as soon as the ship arrives at the port, assuming other conditions for a valid NOR are met. Roskill LJ noted that the WIBON clause effectively transforms a Berth Charterparty into a Port Charterparty for the purpose of applying the Johanna Oldendorff criteria and initiating Laytime.

An attempt to broaden the application of the WIBON Clause occurred in The Kyzikos case, where a ship was delayed by fog for three days upon entering the discharging port, preventing it from reaching an available berth because the Pilot Station was closed. However, the judiciary unanimously held that there was no precedent in earlier case law to support this extension. They concluded that the WIBON Clause should only apply when no berth is available, not when a berth cannot be reached due to adverse conditions like bad weather.

Reachable Berth

Many Voyage Charterparties incorporate a clause mandating the Voyage Charterer to nominate a reachable berth upon the ship’s arrival at its destination. In The Angelos Lusis case, it was determined that such a clause shifts the risk of delay to the Voyage Charterer if they fail to nominate a vacant berth due to port congestion. Although initial decisions have suggested that the clause’s applicability isn’t limited to physical obstructions but also extends to scenarios where a berth is available but not reachable due to adverse weather conditions or fog.

Under this clause, the ship doesn’t need to qualify as an Arrived Ship in the strict technical sense. It is sufficient that the ship has reached a point, either inside or outside the port, where it would be delayed without a berth nomination. From that point, the Voyage Charterer assumes the risk of any delay, and is liable for damages for breach of the Voyage Charterparty if they fail to nominate a reachable berth.

However, if the ship also qualifies as an Arrived Ship at that point, causing Laytime to commence, then the Voyage Charterer is not obliged to compensate twice for the same period. This was illustrated in The Delian Spirit case, where it was ruled that once Laytime began, the Voyage Charterer could offset the time saved at the loading port against the initial time lost while unable to nominate a reachable berth. Conversely, if the ship is not an Arrived Ship at that point, the two periods—the time saved at the discharging port and the time lost waiting for a berth nomination—run independently. Thus, time saved later cannot be used to offset the earlier delay due to the inability to nominate a reachable berth.

Ship Readiness to Load or Discharge

Before Laytime can commence, three conditions must be met: the ship must first become an Arrived Ship at the designated Loading Port. Additionally, the Shipowner must issue the prescribed Notice of Readiness (NOR) to load, and the ship must actually be Ready to Load. Absent a specific provision in the Voyage Charterparty, English law does not mandate that the Ship Master provide a Notice of Readiness (NOR) to unload to the consignee at the Discharging Port.

Notice of Readiness (NOR)

The primary function of a Notice of Readiness (NOR) is to inform the Voyage Charterer that the ship is prepared to commence loading, thereby marking the beginning of Laytime Calculation. Under Common Law, the Notice of Readiness (NOR) can be issued in any form, as long as it is effectively communicated; however, if the Voyage Charterparty specifies a certain Notice of Readiness (NOR) form, like a written Notice of Readiness (NOR), that specified form must be adhered to. From a practical business perspective, giving an advance Notice of Readiness (NOR) of expected readiness is advantageous for the Voyage Charterer, and many Standard Voyage Charterparty Forms stipulate the provision of such a Notice of Readiness (NOR) at a predetermined time before the ship’s arrival. For example, the Polcoalvoy Voyage Charterparty (Clause 2) mandates at least ten running days’ written notice of the approximate date of readiness to load.

Conversely, many Voyage Charterparty Forms focus on certainty, with Common Law requiring a simple Notice of Actual Readiness to load. This Notice of Readiness (NOR) is valid only if it concerns an Arrived Ship that is truly ready to load at the time the Notice of Readiness (NOR) is given. English Law is strict in this area, rendering a Notice of Anticipated Readiness ineffective, even if the ship was in fact ready to load when the Notice of Readiness (NOR) was issued. Complications can arise if, despite an invalid Notice of Readiness (NOR), the ship proceeds to berth and either load or discharge cargo without issuing a subsequent valid Notice of Readiness (NOR). According to strict legal standards, without a valid Notice of Readiness (NOR), Laytime does not begin, meaning the Shipowner not only forfeits any claim for Demurrage but might also be required to pay the Voyage Charterer Despatch Money for the entire period of agreed Laytime. While this outcome adheres to legal standards, it often doesn’t reflect commercial realities.

However, the courts have been reluctant to conclude that a premature Notice of Readiness (NOR) automatically becomes effective once the ship is ready to discharge and begins the discharge with the cooperation of the Voyage Charterers. Simply being aware of the ship’s readiness to discharge is not sufficient for the Voyage Charterers. There needs to be something more, such as an implied or express agreement to forego the requirement for a Notice of Readiness (NOR), or a waiver or estoppel that binds the Voyage Charterers to forego the need for a subsequent valid Notice of Readiness (NOR).

The Court of Appeal found that the conditions were satisfied in The Happy Day case, where the ship, despite missing the tide and being unable to enter the Port, issued a Premature Notice of Readiness (NOR) to discharge. The ship berthed the following day and began discharging. The legal questions before the court were whether a subsequent Notice of Readiness (NOR) was necessary to start Laytime, and if not, when Laytime should begin. In this instance, the Voyage Charterer was fully aware of the ship’s arrival and its readiness to discharge. Moreover, through their Port Agents, the Voyage Charterer had accepted instructions to discharge the ship without any reservations about the validity of the Notice of Readiness (NOR) they had previously received. Under these circumstances, Judge Potter believed that “the doctrine of waiver may be invoked and applied in such a case, and the commencement of loading by the Charterer or Receiver without rejection of or reservation regarding the Notice of Readiness (NOR) can properly be treated as the additional factor which Lord Justice Mustill suggested was necessary, alongside mere knowledge of Readiness on the part of the Charterer, to justify a finding of Waiver or Estoppel.” On the facts of the case, the Notice of Readiness (NOR) that had been tendered was deemed to have been accepted when discharging began.

A broader interpretation of this issue is hinted at by Judge Rix’s comment in The Front Commander case, stating, “If a Charterer uses a ship, known to be ready at the time of use, which has been tendered to Charterer by a Valid Notice of Readiness (NOR), or by an invalid notice whose invalidity is known, the Charterer must expect time to run against him subject to any express contrary agreement.” This case involved a Voyage Charterparty that included a Specific Laycan Clause. The ship arrived at the loading port, issued a Notice of Readiness (NOR), and began loading a day before the earliest loading date specified in the Laycan provision. Despite this, and even though the Voyage Charterer had sent multiple emails during the loading voyage urging the Shipowner to issue a Notice of Readiness (NOR) and start loading as soon as possible after arriving at the loading port, the Voyage Charterer argued that Laytime should not start until the earliest Layday specified in the Laycan Clause. Rejecting this argument, Judge Rix in the Court of Appeal emphasized that “the Charterer not only consented to an early tender of Notice of Readiness (NOR), berthing, and commencement of loading but gave orders to that effect.”

In some European jurisdictions, the issues associated with anticipatory Notices of Readiness (NOR) are mitigated because such notices are considered effective as long as the ship is ready by the time the Notice of Readiness (NOR) expires. Many Voyage Charterparties additionally stipulate that Notices of Readiness (NOR) must be given during specific office hours, for example, between 0800 and 1700 hours. This raises the question of whether a Notice of Readiness (NOR) issued outside these hours is completely void, necessitating the issuance of a second Notice of Readiness (NOR) within the designated time frame. Recent legal rulings have determined that, as long as the ship is ready to load at the time an invalid Notice of Readiness (NOR) is given, there is no valid reason why such a notice shouldn’t become effective from the time stipulated by the Voyage Charterparty for it to be issued.

Should it later be discovered that the ship was not Ready to load, then the Notice of Readiness (NOR) would be wholly ineffective, and Laytime would not commence. Conversely, if the Voyage Charterer proceeds to load without issuing a Protest Letter (PL), thereby waiving the default, they cannot later challenge the readiness of the ship unless there is evidence of fraud.

Under English Law, there is no requirement for a Notice of Readiness (NOR) at the Discharging Port, as it is the responsibility of the consignee to monitor the ship’s arrival. This practice likely originates from Liner Contracts where notifying a multitude of consignees could unduly burden the Shipowner, especially if the Bill of Lading (B/L) has been transferred during the voyage. However, this rule is more challenging to justify in the context of Voyage Charterparties. As Judge Donaldson noted, “once his cargo has been loaded, the Voyage Charterer may be expected to take an interest in the movements of the ship which the Voyage Charterer would not have prior to loading.” To circumvent issues related to identifying the ultimate consignee, the Voyage Charterparty can require the Ship Master to issue a Notice of Readiness (NOR) to specified Port Agents at the Discharging Port.

Actual Readiness to Load

Whether a ship is Ready to Load is determined by several factors, including the ship’s position, its physical ability to receive the cargo, and compliance with all Port Health Authority (PHA) and documentary requirements. Regarding the ship’s physical position, it is now established that a Notice of Readiness (NOR) to load can be issued even if starting the Loading Operation is impossible because the ship is not in Berth. Thus, if other conditions are satisfied, a ship may be considered ready to load once it qualifies as an Arrived Ship under a Port Charterparty or when the Voyage Charterparty specifies that Laytime begins to run “Whether the ship is in Berth or Not” (WIBON).

From a physical perspective, a ship is not Ready to Load unless it is cleared and prepared in all its Cargo Holds to allow the Voyage Charterer complete control of every part of the ship allocated for cargo, except for the space reasonably required for Ballast to maintain stability. The Voyage Charterer must have immediate access to all the Cargo Holds, and therefore, the ship is not Ready to Load as long as even a small amount of previous cargo remains in any Cargo Hold that needs to be discharged, or if over-stowed cargo must be removed to access the Voyage Charterer’s cargo.

Another aspect of the ship’s Physical Readiness includes its Cargoworthiness, meaning that “the ship must be fit to receive the agreed cargo.” Therefore, Cargo Holds must be clean and free from contamination, the ship’s gear must be operational, and any special equipment required for specific cargoes must be available and set up. However, if the Voyage Charterer is given a choice among a range of cargoes, the ship may legally be considered Ready to Load even if it is not specifically fit to receive the particular cargo chosen by the Voyage Charterer.

The requirement for a ship to be Ready to Load, however, is moderated by the principle of De Minimis, which suggests a somewhat less stringent test for Port Charterparties compared to Berth Charterparties. For ships at Berth, it is generally required that they be fully prepared to receive cargo before issuing a Notice of Readiness (NOR). However, it has been established that an Arrived Ship under a Port Charterparty may issue a Notice of Readiness (NOR) even if the hatches have not yet been removed or the discharging gear rigged, provided that these tasks can be completed by the time the ship berths.

The final component of Ship Readiness involves compliance with Port Regulations, including satisfying Port Health Requirements and securing the necessary documentation. In this regard, several of these prerequisites are often seen as mere formalities. Shipowners have been permitted to issue a Notice of Readiness (NOR) even if they have not yet received Free Pratique (WIFPON Whether In Free Pratique Or Not), or a local police permit to move upriver. However, such a Notice of Readiness (NOR) would likely be rendered ineffective if the Ship Master does not obtain the required documentation by the time, or shortly after, the ship berths.

A- Preliminary Voyage

Voyage Charterer’s Nomination of Loading Port

The loading port may be explicitly specified in the Voyage Charterparty, or the Voyage Charterer may be given the right to nominate a port from a specified geographical area, such as “One Safe Port (SP) East Coast of India,” or from a list of ports named in the Voyage Charterparty. When the port is specified in the Voyage Charterparty, the Shipowner has an absolute obligation to proceed to that port, barring usual exceptions, and there is no implied warranty by the Voyage Charterer regarding the safety of the port.

If the Voyage Charterer has the right to nominate the port, they must make their choice either within the time specified or within a reasonable timeframe. Should the Voyage Charterer fail to do so, the Shipowner cannot withdraw the ship but must wait for further instructions unless the delay becomes so extended that it results in the frustration of the Voyage Charterparty. However, the Voyage Charterer is liable for any losses the Shipowner incurs due to delays in receiving port nomination instructions. Once the Voyage Charterer has made their selection, the chosen port is treated as if it had been originally specified in the Voyage Charterparty, and this choice is irrevocable.

In choosing a port, the Voyage Charterer has broad discretion within the indicated range and is not required to consider the convenience of the Shipowner. Consequently, the Voyage Charterer may nominate a port that is busy or affected by strikes, and the Shipowner has no basis for complaint unless the resultant delay is so prolonged that it frustrates the purpose of the Voyage Charterparty. For instance, in the case of Reardon Smith Line Ltd v Ministry of Agriculture, the Voyage Charterer nominated the Port of Vancouver during a strike by elevator operators. The strike prevented loading for over six weeks, yet the court determined that the delay was not unreasonable enough to frustrate the Voyage Charterparty. Not only was the Voyage Charterer within their rights to nominate a strike-affected port, but they could also invoke a strike clause in the Voyage Charter to avoid liability for demurrage incurred during the waiting period. It was noted that Voyage Charterparties are seldom frustrated by strikes as they are inherently unpredictable and could be resolved suddenly. Nonetheless, there is evidence to suggest that in specific scenarios, courts may be inclined to limit an entirely unfettered choice of port. In a recent case where the Voyage Charterer had the right to nominate “1/2 Safe Ports (SP) all India,” the court ruled that the Voyage Charterer was not entitled to nominate ports in a non-geographical order.

The right to nominate a port in a Voyage Charterparty is typically paired with a clause mandating that any nominated port must be safe. This requirement is a natural extension of the right to nominate, ensuring the Shipowner’s interests are adequately safeguarded. Recent legal interpretations have indicated that, in the absence of such a clause within the Voyage Charterparty, Common Law does not automatically impose a similar obligation. If the Voyage Charterer fails to nominate a safe port, the damages recoverable may include actual physical damage to the ship, losses due to delays, and extra costs incurred from having to unload the cargo at an alternative port. Additionally, if an obstruction prevents the Voyage Charterer from loading a full cargo, they may also be liable for claims of Dead Freight (DF).

The Shipowner’s primary duty during the preliminary or carrying voyage is to transport his ship to the port specified in the Voyage Charterparty or nominated by the Voyage Charterer. However, this obligation is often modified by the clause “or so near thereto as the ship may safely get.” If this clause is invoked successfully, the contractual voyage is deemed complete upon the ship’s arrival at an alternative port. Consequently, the Shipowner may then claim the full Freight, and the consignee is responsible for the costs associated with transporting the cargoes to the originally intended destination. Due to the significant implications of this clause, it has been interpreted narrowly, leading to substantial litigation over when it can be applied and the suitability of any Alternative Port chosen by the Shipowner.

The cases demonstrate that a Shipowner can only rely on the Voyage Charterparty clause “or so near thereto as the ship may safely get” when there is an obstruction or hazard of a permanent nature, or one that would cause an unreasonable commercial delay, preventing entry into a Port. Temporary obstacles like high winds or unfavorable tides do not warrant invoking this clause. For example, in the Metcalfe v Britannia Ironworks case, a ship destined for Taganrog could not enter due to ice blocking the Sea of Azov, expected to last until April. However, the Shipowner was not allowed to invoke the clause to unload at a nearby port at the mouth of the Sea of Azov, as the court considered the ice a temporary obstacle. This ruling was influenced by the fact that Taganrog was explicitly named in the Voyage Charterparty, and it was expected that the Shipowner should have been aware of the typical winter conditions in the Sea of Azov.

Conversely, in The Athamas case, when pilotage authorities on the Mekong River prevented the ship from proceeding to Phnom Penh due to strong currents, the Court of Appeal permitted the master to use the clause to justify unloading at Saigon after determining that safe passage would not be possible for an additional five months.

Concerning the choice of an Alternative Discharging Port, conflicts of interest between the consignee and the Shipowner frequently arise. The consignee aims to have the cargo unloaded as close to the intended destination as possible to reduce additional transport costs, while the Shipowner favors a nearby Safe Port (SP) with suitable discharging facilities. To address this, courts have applied the Ambit Test, requiring that the chosen Alternative Port be within a reasonable proximity to the original port. This test aims to restrict the broad interpretation of the “so near thereto” clause, which, if taken literally, could permit a Shipowner to unload at the loading port if a permanent obstruction prevented departure.

The Ambit Test was rigorously applied in the Metcalfe case, where a port at the mouth of the frozen Sea of Azov was not considered within the ambit of Taganrog, some 300 miles away. However, more recent cases have indicated a more flexible approach to the Ambit Test, recognizing that “distance is relative” and that Voyage Charterers and Shipowners are assumed to possess standard commercial knowledge and understand that some regions have fewer ports. For instance, a distance of 250 miles might be reasonable in the South China Sea, where ports are sparse, unlike the densely ported North Continent.

In terms of the clause “so near thereto as the ship may safely get,” the term “safely” relates specifically to the safety of the ship, not the cargo. This includes not only physical obstructions and weather conditions but also political risks and delays due to port congestion.

To enhance the Shipowner’s protections, various modifications can be added to the Voyage Charterparty clause. Including the words Always Afloat (AA) shields the Shipowner from potential damage due to grounding, enabling the Shipowner to unload at the nearest Safe Port (SP) in case of significant delays. The modification “at all times of the tide Always Afloat” (AA) further broadens this protection by removing the necessity for the Shipowner to wait for a favorable tide.

Voyage to the Loading Port under Voyage Charterparty

It is uncommon for a ship to be in Berth at the Loading Port and ready to fulfill the Voyage Charterparty upon chartering. Typically, the ship is some distance away from the Loading Port and engaged in a prior Voyage Charter. Therefore, the ship must make a Preliminary Voyage to the designated Loading Port as stipulated in the Voyage Charterparty. This journey marks the initial phase of fulfilling the Voyage Charterparty, setting the stage for potential conflicts of interest between the Voyage Charterer and the Shipowner.

The Voyage Charterer requires at least an approximate Estimated Time of Arrival (ETA) of the ship at the Loading Port to coordinate the availability of the cargo. An accurate Estimated Time of Arrival (ETA) is crucial for the Voyage Charterer to avoid unnecessary storage expenses if the cargo is ready too early or additional Demurrage costs if the cargo arrives too late. On the other hand, the Shipowner is cautious about committing to a specific arrival time to evade liability for a Breach of the Voyage Charterparty should unexpected delays occur.

The basis for any Estimated Time of Arrival (ETA) is the information about the ship’s current location and its availability from prior commitments. Most Standard Voyage Charterparty Forms contain a Clause that specifies the ship’s position at the time the Voyage Charterparty is signed. The courts place significant emphasis on the accuracy of this data. A notable discrepancy in the reported position of the ship constitutes a Breach of Condition in the Voyage Charterparty, providing grounds for the Voyage Charterer to terminate the agreement. In the absence of a precise commitment from the Shipowner, Common Law presumes an obligation for the Shipowner to embark on the Preliminary Voyage with Reasonable Dispatch. Failure to fulfill this duty allows the Voyage Charterer to seek Damages for any losses incurred due to the delay. However, the Voyage Charterer is not permitted to rescind the Voyage Charterparty unless the breach substantially frustrates the voyage’s intended purpose.

Expected Readiness in Voyage Charterparty

The Voyage Charterer typically desires greater accuracy, yet Shipowners often hesitate to commit to a precise arrival time at the Loading Port or a definite date for starting the Preliminary Voyage. Setting such specific timelines could make timing a crucial element of the Voyage Charterparty, and any deviation from the agreed schedule could be seen by the courts as a Breach of Condition, permitting the Voyage Charterer to terminate the Voyage Charterparty.

To mitigate this, most Voyage Charterparty Forms include a clause that requires the Shipowner to provide an estimated readiness date, accompanied by another clause that allows the Voyage Charterer to cancel the Voyage Charterparty if the ship does not arrive by a subsequent specified date (LAYCAN). These clauses collectively establish the earliest and latest dates by which the Voyage Charterer may need to begin loading and must accept the ship for loading, respectively. The Voyage Charterer benefits from minimizing the interval between these dates to reduce unnecessary storage expenses, while the Shipowner favors a longer duration to reduce the risk of losing the Voyage Charter should the ship be delayed on its Preliminary Voyage. The span of this interval often depends on the period between signing the Voyage Charterparty and the anticipated arrival at the loading port.

A statement from the Shipowner about the expected readiness date does not guarantee that the ship will be ready to load by that date. Thus, if the ship arrives later than this date, it does not inherently represent a Breach of the Voyage Charterparty, nor does it entitle the Voyage Charterer to Damages. Absent an Express Cancelling Clause, the Voyage Charterer cannot terminate the Voyage Charterparty unless the delay is extensive enough to frustrate the purpose of the contract. However, the Shipowner is expected to have an honest and reasonable belief that the ship will be ready by the specified date. If the Shipowner is aware that the ship will not reach the Loading Port by the designated date or has no reasonable basis for such a belief, it constitutes a Breach of Condition in the Voyage Charterparty, enabling the Voyage Charterer to repudiate the agreement. For example, issuing an unqualified Estimated Time of Arrival (ETA) without verifying conditions at the relevant Port would be unreasonable if such checks could have disclosed potential problems like adverse weather, port closures, or berthing difficulties.

Cancellation Clause in Voyage Charterparty

Absolute Right to Cancel Voyage Charterparty

The Right to Cancel on the specified date (Cancellation Date) is an absolute right held by the Voyage Charterer and can be executed regardless of whether the ship’s delayed arrival is due to the Shipowner’s fault or an exception covered by the agreement. While such exceptions may shield the Shipowner from claims for Damages, they do not inhibit the Voyage Charterer from utilizing the Cancelling Option. Moreover, the inability to Nominate a Loading Port does not restrict the Voyage Charterer from canceling the Voyage Charterparty.

In the case of Mansell Oil Ltd v Troon Storage Tankers, the Voyage Charterparty provided the Voyage Charterer the ability to Nominate a Port within the Ghana/Nigeria range and also included an option to cancel the Voyage Charterparty if the ship was not delivered by a designated date. Before the start of the Voyage Charter, the Shipowner was obligated to perform significant structural modifications to the ship, which were not completed by the Cancellation Date. The Shipowner contested the Voyage Charterer’s attempt to cancel, arguing that the failure to Nominate a Loading Port was a Condition precedent to exercising the cancellation option. The Court of Appeal dismissed this argument on two fronts. Firstly, there was no explicit clause in the Voyage Charterparty that declared the Nomination of a Loading Port as a Condition precedent to cancellation, nor was there any rationale to imply such a clause. Secondly, implying such a condition would be futile since the ship was physically incapable of fulfilling any nomination at the time of cancellation.

Previous Voyage Charterparty

Responsibilities of Voyage Charterer and Shipowner

The traditional division of responsibility for loading operations at Common Law between the Shipowner and the Voyage Charterer follows the Alongside Rule. According to this rule, it is up to the Voyage Charterer to bring the cargo alongside the ship, within reach of the ship’s tackle, at which point it becomes the Shipowner’s duty to load it on board. Conversely, during discharging operations at the destination port, the consignee must receive the cargo once it has been placed over the side by the Shipowner and is free of the ship’s tackle. This Alongside Rule effectively delineates responsibilities, assigning the costs of land-based operations to the Voyage Charterer and those conducted on board to the Shipowner. However, in modern shipping practices, this rule often does not reflect reality, as loading and unloading operations both ashore and aboard are typically carried out by stevedores. Moreover, bulk cargoes are usually handled not by the ship’s tackle but by shore-based equipment like elevators, grabs, or cranes, which are often owned or controlled by the Voyage Charterers. In such scenarios, the Voyage Charterparty might stipulate that cargoes are carried on Free In Out (FIO) terms, meaning that the Voyage Charterer will manage and finance both the loading and unloading operations.

Absent an explicit agreement to the contrary, Common Law applies the Alongside Rule, making the Voyage Charterer responsible only for the costs of moving the cargo to where the ship’s tackle can reach it. If the ship cannot berth in a particular port, this responsibility extends to covering the cost of lighter vessels needed to transfer the cargo to the ship’s side. The Voyage Charterer also bears the risk of any delays during this task, and according to the principle set in Grant v Coverdale case, cannot claim protection from exceptions applicable only to the ship loading operation.

Providing the Cargo

Typically, the Voyage Charterparty specifies the type and quantity of cargo the Voyage Charterer is to supply at the Loading Port, though how the Voyage Charterer procures this cargo falls outside the charter’s scope. The Shipowner’s concern is merely whether the cargo will be available at the Loading Port when needed. The Voyage Charterer has an absolute obligation to supply the cargo, and no excuse, such as inability due to crop failures, government export restrictions, or transport delays due to strikes or bad weather, is acceptable. Most Voyage Charterparties include Exception Clauses for delays in loading, but these generally cover only the actual process of loading the ready cargo, not delays in providing the cargo. This was underscored in Grant v Coverdale, where despite cargo being delayed due to ice blocking transport from a warehouse to the loading dock, the court held that the Exception Clause only pertained to the loading operation and did not cover delays in transporting cargo to the loading point. However, if storage facilities at a port are some distance from the loading berths, transporting the cargo between these points is considered part of the loading process and covered by the Exception Clauses. This was evident in cases involving container storage outside dock areas or wheat transported from distant warehouses to the loading port.

If difficulties in procuring a specific cargo are anticipated, the Voyage Charterer can mitigate the risk of failing to meet their obligations by ensuring the inclusion of a clearly worded Exception Clause in the Voyage Charterparty.

The cargo specified in the Voyage Charterparty is usually clearly defined, whether it involves a particular type, such as 50,000 tonnes of grain, or a range of possible cargoes, such as wheat, barley, or rice, from which the Voyage Charterer is free to select. Sometimes the agreement allows for any lawful cargo. The Voyage Charterer is obligated to supply cargo of the specified type(s), and attempting to load a different type constitutes a significant breach of the Voyage Charterparty, giving the Shipowner the right to terminate the agreement. If the Shipowner accepts a substituted cargo, it is implied that the Voyage Charterer will pay the current rate of Freight for that type of cargo as specified in the Voyage Charterparty.

When the Voyage Charterparty allows a choice among a range of Alternative Cargoes, the Voyage Charterer has the freedom to select from these options, even though the Freight Rates may vary for different cargoes. The Voyage Charterer is also required to load a full cargo from the available options. If certain cargoes later become unavailable, the Voyage Charterer must choose an alternative from the specified range. The intention to load a particular cargo does not constitute a definitive selection, and the Voyage Charterer cannot claim frustration of the Voyage Charterparty if the chosen cargo is unavailable. Even if the failure to load the selected cargo is covered by an Exception Clause, the Voyage Charterer remains obligated to load an alternative cargo. As Judge Viscount Radcliffe stated, “If a Voyage Charterer has undertaken to ship a full and complete cargo made up of alternative cargoes as in the terms, the Voyage Charterer’s obligation is to have ready at the Loading a complete cargo within the range of those alternatives. Consequently, the fact that the Voyage Charterer is prevented from loading one of the possible types of cargo by a cause within the Exceptions Clause, even though that is the type that the Voyage Charterer has himself selected and provided for, is not an answer to a claim for Demurrage (D).” This duty of selection, with its corresponding responsibility, continues until the final ton is loaded onto the ship. However, if the Voyage Charterer is prevented from loading their original choice of cargo, they are entitled to a reasonable period to make alternative arrangements.

In rare cases, a Voyage Charterer may have a true choice between different cargoes. For instance, in Reardon Smith Line v Ministry of Agriculture, the ship was chartered to carry “a full and complete cargo of wheat in bulk,” with the Voyage Charterer having the option to substitute up to one-third of the cargo with barley for an additional Freight charge. When a strike prevented the loading of any wheat, the House of Lords determined that the Voyage Charterer could rely on the Strike Clause in the Voyage Charterparty and was not obliged to load an alternative cargo of barley. The wording of the Voyage Charterparty provided the Voyage Charterer with a genuine choice between the two cargoes, and in the event that one type of cargo was unavailable, the Voyage Charterer was not required to load the other.

Cargo Amount

The allocation of responsibility for cargo provision in a Voyage Charterparty typically specifies how much cargo the Voyage Charterer must supply. When a ship is chartered for a specific export order or other defined consignment, the cargo description in the Voyage Charterparty will be precise, such as “1,000 Toyota Corolla cars,” clearly outlining the Voyage Charterer’s obligations. However, it is more common for Standard Voyage Charterparty Forms to include a clause that mandates the Voyage Charterer to provide a Full and Complete Cargo (FCC). This obligation is assessed based on the actual capacity of the ship rather than the capacity stated in the Voyage Charterparty, should there be a discrepancy. For example, in a case where a ship chartered to load a Full and Complete Cargo (FCC) of iron ore was guaranteed by the Shipowner to carry “50,000 tons, Excluding Bunkers (Fuel),” it was later found that the ship could safely carry 52,000 tons of this cargo. The Court of Appeal then held the Voyage Charterer responsible for shipping a cargo of 52,000 tons. It is important to note, however, that the DWCC (Deadweight Cargo Capacity) refers only to the Ship Holds and other parts of the ship typically used for cargo carriage. The Voyage Charterer is not required to provide ballast or fill spaces in cabins, Bunkers, or on Deck unless specifically agreed in the Voyage Charterparty.

To increase precision, the obligation to load a Full and Complete Cargo (FCC) often comes with a Voyage Charterparty Clause that specifies Maximum and Minimum quantities (MIN/MAX). Courts have interpreted this as obligating the Voyage Charterer to load either a Full Cargo or up to the specified Maximum amount, whichever is less. This also serves as a warranty by the Shipowner that the ship can carry the stipulated amount. A variation of this is the More or Less Owners Option (MOLOO), where the Ship Master declares a cargo amount between the specified Maximum and Minimum at the start of loading, setting the exact quantity to be loaded.

Some modern Voyage Charterparty Forms specify exact cargo quantities, either in tonnage, cubic capacity, or another measure, often with an allowance like “10% More or Less,” or qualified by terms such as “About.” Courts typically interpret “About” to allow a variance of 3% to 5%. If the Voyage Charterer fails to load the agreed cargo amount, it results in lost Freight for the Shipowner, and the Voyage Charterer could be liable for Damages in the form of Dead Freight (DF). The Voyage Charterer might also face additional expenses, such as needing extra ballast to compensate for cargo shortages, which are generally recoverable as Damages for Breach of Voyage Charterparty.

A particular challenge arises when the Voyage Charterer is entitled to ship a variety of cargoes of different shapes and sizes. The Voyage Charterer must ensure no Broken Stowage (BS) remains, filling gaps between items with other cargo to avoid liability for Dead Freight (DF) unless the loading method is a local custom.

If the Voyage Charterer fails to provide the agreed cargo upon the ship’s arrival at the Loading Port, the Shipowner must wait until Laytime expires. Even then, the Shipowner is not entitled to Withdraw the ship unless it is evident that the Voyage Charterer has no intention of loading a cargo or the delay would Frustrate the objective of the Voyage Charterparty. However, if the Voyage Charterer Expressly or By Conduct refuses to load, the Shipowner may treat this as an anticipatory Breach and Withdraw the ship before the Lay Days expire. The Shipowner must then take reasonable steps to mitigate losses, especially if other cargoes are available from different Shippers at that port. If the Shipowner does not accept the refusal as final, the Voyage Charterparty continues, and the Shipowner will have no claim if the Voyage Charterer later decides to load a cargo or if a supervening event Frustrates the further performance of the Voyage Charterparty.

Laytime

Laytime, as defined in the Voyage Charterparty, is the allotted timeframe within which the Loading or Discharging Operation must be completed. This period is fully at the disposal of the Voyage Charterer, who is deemed to have compensated for it through the Freight. Judge Salmon described Laytime as “a sort of bogey for the course.” Should the Laytime be surpassed, the Voyage Charterer is obligated to compensate the Shipowner through either Demurrage (D) or Damages for Detention (DFD). It is in the best interest of the Voyage Charterer for the Laytime to be as lengthy as possible to accommodate any unexpected delays. Conversely, it is economically beneficial for the Shipowner to ensure the Ship’s quick turnaround. To encourage quicker operations, the Ship might offer an incentive to the Voyage Charterer in the form of Dispatch Money (DM), should the Loading Operation conclude ahead of schedule.

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Laytime Calculation

Laytime can be specified in the Voyage Charterparty in various forms, such as a Specific Number of days or hours, or tied to a Fixed Rate of loading or discharge. At times, the phrasing of the Laytime Clause may be more General, such as when the Voyage Charterer commits to load the cargo with Customary Dispatch (CD), Customary Quick Despatch (CQD), or As Fast As the Ship Can Receive (AFA). These more General phrases are taken to mean that the Voyage Charterer must load the cargo within a Reasonable Time, in accordance with the customs of the port, and is expected to maintain Reasonable Dispatch throughout the Loading or Discharging Operation.

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Running Days (RD), Working Days (WD), Weather Working Days (WWD)

When Laytime is defined as a specific number of Days or Running Days (RD) within a Voyage Charterparty, the courts interpret this to mean uninterrupted 24-hour periods, unless specific days are excluded, such as Sundays and Holidays Excepted (SHEX) or Saturdays, Sundays, and Holidays Excepted (SSHEX). Without these exclusions, Laytime runs continuously through weekends, holidays, and other non-working periods like Saturday afternoons, even if work on those days at the Port is atypical. This formula is essentially an abstract method for computing Average Loading Time, and legality of work on those days within a particular Port is irrelevant. Traditionally, such periods are considered Calendar Days beginning at midnight.

Alternatively, Laytime can be delineated as Working Days (WD), which are days when work normally occurs at the Port, excluding Sundays and holidays (SHEX) or Fridays and holidays (FHEX) in Muslim countries. A Working Day (WD) encompasses the entire day, so it counts towards Laytime even if the Voyage Charterer does not plan to load or is unable to due to Bad Weather, unless an exception applies. The operational hours for loading on a Working Day (WD) are determined by the Port’s customs, and Saturdays typically count as full days despite potential half-day customs.

Weather Working Days (WWD) refine this further by excluding from Laytime calculation any working day that would have been disrupted by Bad Weather if loading had been planned. The intent of the Voyage Charterer during such Weather Working Days (WWD) is irrelevant; a day’s classification as a full or partial Weather Working Day (WWD) depends solely on the weather conditions themselves. If only part of the day is affected by Bad Weather, Laytime is adjusted accordingly. The term “Weather” is broadly defined and includes conditions like rain, gales, and ice that hinder loading. However, Weather must impact the loading process directly, not just the ship’s safety—thus, a ship moved from a Berth by the Harbour Master (HM) due to impending bad weather does not affect its designation as a Weather Working Day (WWD).

In contemporary Standard Voyage Charterparty Forms, Laytime might be calculated based on a specified daily loading or discharging rate, such as 10,000 tons per Weather Working Day (WWD). The number of Lay Days is calculated by dividing the total cargo amount by the stated daily rate, treating any resulting fractional day appropriately rather than granting an additional full day as in the past. This Laytime calculation can be specified further as a Daily Rate Per Hatch (PH) or Daily Rate Per Workable Hatch (PWH). In the Daily Rate Per Hatch (PH) scenario, the total rate is the product of the daily rate and the number of Ship Hatches. The concept of a Working Hatch refers to a Ship Hatch that is active because it either covers a Hold being loaded or unloaded. Once a Hold is filled or emptied, its Hatch is no longer considered “Workable.” The Average Daily Quantity (ADQ) of cargo loaded or unloaded cannot be determined until operations begin and will vary as these proceed. If all Ship Hatches remain Workable throughout the operation, then the Laytime calculation is straightforward, based on the time taken to load or unload the largest hold.

Laytime Suspension

How do interruptions from hindrances and obstructions affect Laytime during the Loading or Discharging Operations? If no specific Laytime is established or if the Voyage Charterer must load with Customary Dispatch (CD), it appears that any interruption that significantly disrupts the operations, provided it is beyond the Voyage Charterer’s control and he has otherwise conducted the operations with Reasonable Dispatch, will pause Laytime. Interruptions could include Strikes, Port Congestion preventing berth availability, or the ship being detained.

However, if Laytime is clearly specified in the Voyage Charterparty, the Voyage Charterer has a stringent duty to adhere to the designated timeframe and must manage the risks of any interruptions unless these are specifically addressed by Exception Clauses in the Voyage Charterparty or are due to the Shipowner’s actions. Consequently, the Voyage Charterer could be liable for additional costs due to delays from Port congestion, Strikes involving the Shipowner’s Stevedores, the need for additional Ballast to stabilize the ship during loading, or temporarily relocating the ship for safety reasons in Bad Weather. Yet, delays directly attributable to the Shipowner’s fault or actions taken purely for the Shipowner’s advantage, such as moving the ship away from a berth to refuel, would not count against the Voyage Charterer. Most Voyage Charterparty agreements include Exception Clauses that suspend Laytime for typical delays such as Port congestion, Strikes, Bad Weather, civil disturbances, or any other unforeseen events beyond the Voyage Charterers’ control.

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Completion of Loading Operation and ETC (Estimated Time of Completion)

Laytime is entirely at the Voyage Charterer’s disposal, as Laytime is considered paid for within the Freight. The Voyage Charterer has the liberty to use this time as seen fit, without the Shipowner being able to object, provided the designated Laytime is not exceeded. The manner in which the cargo is Loaded and Discharged is decided solely by the Voyage Charterer. The pace at which these operations are conducted is irrelevant to the Shipowner; only the total duration matters.

This principle was notably applied in the Margaronis Navigation Agency v Peabody case, where a ship was chartered to Load a Full and Complete Cargo (FCC) of maize at a rate of 1,000 tons per Weather Working Day (WWD), with Sundays and Holidays Excepted (SHEX). The Voyage Charterer directed the Stevedores to cease operations on Friday, December 27, after loading all but 11.81 tons of the required 12,600 tons, aiming to secure a January Bill of Lading (B/L). Loading resumed the following Tuesday and concluded within 40 minutes. Although the operation finished within the agreed Laytime, the Shipowner sought Damages for Detention (DFD), arguing that the Voyage Charterer had Detained the ship unnecessarily. The Court of Appeal, affirming the Arbitrator’s ruling, found that a shortfall of about 12 tons was not commercially insignificant given the precision of the loading equipment used, thereby justifying the temporary Detention of the ship until the cargo’s completion.

Conversely, after the completion of the Loading, the Voyage Charterer cannot Detain the ship if the Laytime has not elapsed. In the Nolisement (Owners) v Bunge y Born case, despite the Loading finishing 19 days before the Lay Days expired, the Voyage Charterer delayed for an additional three days in submitting the Bill of Lading (B/L) due to indecision over the Discharging Port. This resulted in the Voyage Charterer being liable for Damages for Detention (DFD) for two days. This scenario highlights the inconsistency in penalizing the Voyage Charterer for Detaining the ship post-Loading if they could maintain control by retaining a small amount of cargo.

It is essential to note that the Loading Operation includes not only bringing the cargo aboard but also its Stowage, typically the Shipowner’s responsibility. This process is considered part of the Loading and must be completed within the Lay Days, requiring the Voyage Charterer to deliver the cargo to the ship in time for Stowage.

With the end of the Loading Operation, the risk of delay due to unforeseen hindrances like ice or bad weather shifts back to the Shipowner, who then bears any associated costs.

Demurrage (D), Damages for Detention (DFD), and Despatch Money (DM)

Demurrage (D)

If the Voyage Charterer detains the ship beyond the agreed Lay Days, the Voyage Charterer is in Breach of the Voyage Charterparty. However, most Voyage Charterparties include a Clause allowing the Voyage Charterer to keep the ship for extra days to finish the Loading or Discharging Operation by paying a Fixed Daily Rate, known as Demurrage (D), which serves as Liquidated Damages.

Traditionally, this Extra Period (Demurrage) was legally described as Lay Days that must be paid for. This is misleading because it hides the fact that, although the Voyage Charterer is in Breach of the Voyage Charterparty, the Voyage Charterer is allowed, upon payment of the agreed Daily Rate, to detain the ship to potentially fulfill the broken Voyage Charterparty and thus reduce further Damage. Nonetheless, it is an unusual situation because, despite the Breach, the Shipowner cannot rescind the Voyage Charterparty and withdraw the ship during the Demurrage Period unless the Voyage Charterer’s failure to load constitutes a repudiation of the Voyage Charterparty, or the delay is so significant that it Frustrates the purpose of the Voyage Charterparty. This rule applies whether the Voyage Charter specifies a fixed number of days on Demurrage or no time limit is expressed, such as 5 days for the Loading Operation, followed by Demurrage at $10,000 per day.

At Common Law, Demurrage (D) is considered Liquidated Damages, and a Demurrage Clause (DC) is solely a construct of the Voyage Charterparty, functioning as a provision for agreed Damages for Detention (DFD) of the ship beyond the agreed Lay Days. The stipulated amount is recoverable by the Shipowner regardless of proof of Damage and represents the maximum amount recoverable for loss due to the Detention. Demurrage (D) thus covers losses of Freight under subsequent Voyage Charterparties affected by the delay or from the consequent decrease in the number of Voyages possible under a Consecutive Voyage Charterparty (CVC). However, Demurrage (D) does not limit claims for losses arising from other causes than Detention, such as failure to Load a Full Cargo.

Like any provision for Liquidated Damages, a Demurrage Clause (DC) can be invalidated by the courts as a penalty if the Daily Rate is set excessively high compared to the greatest possible loss that could result from the Breach of Voyage Charterparty. In such cases, the courts would deem the Shipowner adequately compensated by recovering the Shipowner’s Actual Loss. A similar principle does not seem to apply in reverse when the Daily Rate is unreasonably low. In such cases, the Shipowner cannot recover his Actual Loss but is limited to the specified Demurrage Rate, even if the delay was deliberately caused by the Voyage Charterer for his own benefit. Such a scenario could be prone to abuse when costs and Freight Rates are rising, leaving the Shipowner without an effective remedy if excessive delay causes the Shipowner to lose a subsequent Voyage Charter.

The actual Demurrage Rate (DR) will be specified in the Voyage Charterparty and is typically a Fixed Rate aligned with the current Freight Rates at the time the Voyage Charter is concluded. Since such Fixtures are often arranged well in advance, the figure may not reflect prevailing Freight Rates by the time Demurrage (D) becomes payable. Liability for Demurrage (D) payment starts immediately after the expiration of the Lay Days and continues uninterrupted through Sundays, Holidays, and other periods usually excluded from Laytime, such as Bad Weather Working Days (WWD). The guiding principle for Demurrage is “Once On Demurrage, Always On Demurrage.” For this reason, Laytime Exceptions generally do not apply to a Demurrage Period (DP) unless Expressly stated in the Voyage Charterparty. For instance, in a case where the House of Lords denied a Voyage Charterer the use of a Strike Exception after Laytime had ended, Lord Reid explained that “the Shipowner might well say: true, your breach of contract in detaining my ship after the end of Laytime did not cause the Strike, but if you had fulfilled your contract the strike would have caused no loss because my ship would have been on the high seas before it began: so it is more reasonable that you should bear the loss than that I should.”

However, the “Once On Demurrage, Always On Demurrage” rule can still apply even if the event covered by the Exception happens before Laytime expires. An Exception can be Expressly Stipulated in the Voyage Charterparty to cover the Demurrage Period (DP), such as when it is stated that Demurrage (D) is to be paid at $1,000 Per Hour unless detention arises from a Lock-out, Strikes, etc. Similarly, Demurrage (D) will not accrue during a period where the delay is due to the fault of the Shipowner or results from actions taken by the Shipowner for his own convenience. Demurrage (D) will, however, accrue where the delay is accidental and not due to the fault of either Shipowner or Voyage Charterer. Even when the delay results from a Breach of Voyage Charterparty by the Shipowner, Demurrage may still be payable if the length of such Delay is beyond the Reasonable contemplation of the parties as a possible consequence of the Breach.

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Damages for Detention (DFD)

If the Voyage Charterparty does not include a provision for the payment of Demurrage (D), the Voyage Charterer will be liable for Damages for Detention (DFD) for any period the Voyage Charterer detains the ship beyond the expiration of the Lay Days. In this situation, Damages are at large and will be determined by the court based on the Actual Loss suffered by the Shipowner, following the standard principles for Remoteness of Damage in the Voyage Charterparty. Damages for Detention (DFD) also apply where a Voyage Charterparty specifies a fixed number of days for Demurrage (D) payment, and those days have passed. In this latter case, the court typically assesses Damages at a rate equivalent to the agreed Demurrage Rate (DR), although either the Shipowner or Voyage Charterer can argue that the Demurrage Rate (DR) does not reflect the Actual Loss suffered by the Shipowner.

The Shipowner cannot withdraw the ship during any period for which Demurrage (D) payment has been agreed unless the delay frustrates the purpose of the Voyage Charterparty. Once the specified Demurrage Period (DP) has ended, the Shipowner is not obliged to stay in Port to complete the Loading Operation and is not limited to seeking Damages for Detention (DFD). If part of the cargo is loaded, the Shipowner may depart and claim compensation as Dead Freight (DF), or if no cargo is shipped by the Voyage Charterer, the Shipowner may cancel the Voyage Charterparty and pursue Damages at large. However, if the delay occurs at the Discharging Port, the Shipowner has little choice but to complete the Discharging Operation and claim Damages for Detention (DFD).

Despatch Money (DM)

Although Laytime is at the free disposal of the Voyage Charterer, the Voyage Charterer is not entitled to any reward under Common Law for completing the Loading or Discharging Operation in less time than allocated. Since it is often beneficial for a Shipowner to have the ship available as soon as possible, an incentive is frequently provided by including a Despatch Money Clause in the Voyage Charterparty. This clause allows the Voyage Charterer to receive payment at an agreed Daily Rate, typically set at Half the Demurrage Rate (DHD: Despatch Half Demurrage), for time saved. However, disputes often arise regarding the calculation of Despatch Time. The key question is whether Despatch Money (DM) is payable only for Laytime Saved or if it also covers Sundays, Holidays, and other periods typically excluded from Laytime calculations. There is a strong argument that Time Saved should be considered as Time Saved to the ship, similar to how time lost on Demurrage (D) is seen as time lost for the ship. Nevertheless, legal decisions have been inconsistent on this matter, and much depends on the specific wording of the Despatch Money Clause in the Voyage Charterparty. At one extreme, the clause might state that Despatch Money (DM) is payable for All Time Saved, while at the other, it might specify payment only for Laytime Saved.

Typically, the periods for which Demurrage (D) or Despatch Money (DM) are payable are calculated separately at the Loading Port and the Discharging Port. Consequently, it is of little benefit to the Voyage Charterer to receive Despatch Money (DM) at one Port if they incur Demurrage at the other Port, given that the Demurrage Rate (DR) is usually set at twice the rate of Despatch Money (DM). The Voyage Charterer would prefer to offset time saved at the Loading Port against time lost at the Discharging Port or vice versa. This can be achieved in two ways: either by stipulating that Laytime shall be Reversible Laytime or that the time for Loading and Discharging shall be Averaged Laytime. When Laytime is Reversible Laytime, the Voyage Charterer can combine the time used at each Port and subtract these periods from the Overall Laytime until it is exhausted. Allowances will be made for Sundays, Holidays, and other periods excepted from Laytime calculation. Under Averaged Laytime, the amount of Laytime used at each Port is calculated separately, and Time Saved at one port is set against excess time used at the other Port. The main difference between the two Laytime Calculations is that in Averaged Laytime, the Voyage Charterer might receive credit for Time Saved, such as on Sundays, which would not have counted as Laytime. It appears that the Voyage Charterer has the option to invoke such provisions and will be presumed to have chosen not to do so if they claim Despatch Money (DM) at the Loading Port.

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C- Carrying Voyage

Once the Loading Operation is complete, responsibility for fulfilling the Voyage Charterparty shifts to the Shipowner. The Shipowner must proceed with Reasonable Dispatch (RD) to transport the cargo to the designated Discharging Port. Since Freight is determined by the cargo carried rather than the time taken for the Voyage Charter, the Shipowner benefits from completing the Carrying Voyage as quickly as possible, though they are protected by exceptions for delays beyond their control. Typically, the Shipowner will notify the Consignee of the Estimated Time of Arrival (ETA) at the Discharging Port (DP). However, there is no Cancelling Clause for this Carrying Voyage, as the cargo owner has little incentive to cancel the Voyage Charterparty at this stage.

The Carrying Voyage ends when the ship becomes an Arrived Ship at the Discharging Port and is ready to unload the cargo. These conditions are the same as those for the Preliminary Voyage, and once met, Laytime begins to run, which is the Voyage Charterer’s responsibility.

If the Voyage Charterer has the explicit right to Nominate a Berth, the ship does not become an Arrived Ship until it reaches the specific Berth named in the Voyage Charterparty. When exercising this option, the Voyage Charterer is not obligated to consider the Shipowner’s convenience and may even Nominate a congested Berth, provided the resulting delay is not so extensive as to Frustrate the purpose of the Voyage Charterparty. Without an explicit right to nominate a Berth, the Voyage Charterer appears to still have the option to select the Berth but must assume the risk of any delays from their choice.

English Law does not mandate giving Notice of Readiness (NOR) at the Discharging Port. It is the Consignee’s responsibility to monitor the ship’s arrival. In practice, this poses few issues for the Voyage Charterer since modern Standard Voyage Charterparty Forms typically include a clause requiring the Shipowner to provide Notice of Readiness (NOR). Even at Common Law, Notice of Readiness (NOR) must be given if the Shipowner does not reach the designated port but invokes the “so near thereto as the ship can safely get clause.” Similarly, the Voyage Charterer does not bear the risk of any delay if their failure to learn of the ship’s arrival is due to the Shipowner’s fault.

D- Discharging Port Operation

Cargo Delivery

Cargo Delivery to the Right Person

The Shipowner is also obligated under the Voyage Charterparty to ensure that the Cargo is delivered at the Discharging Port to the rightful recipient. Typically, few issues arise when the Voyage Charterer is also the Consignee since the Voyage Charterer’s identity will be known, and the cargo is usually covered by a Non-negotiable Receipt, which does not require presentation for delivery. However, when a Bill of Lading (B/L) is issued, the situation becomes more complex. The Shipowner’s primary obligation is to deliver the Cargo to the Consignee named in an Un-indorsed Bill of Lading (B/L) or to the individual to whom the Bill of Lading (B/L) has been validly endorsed. If the Shipowner delivers the Cargo upon presentation of the Bill of Lading (B/L) accordingly, the Shipowner is typically protected, provided he is unaware of any other claims or circumstances that should raise suspicion. For instance, in the Glyn, Mills & Co v East and West India Dock Co case, cargo was to be delivered “to Cottam & Co or assigns.” Cottam & Co deposited one Bill of Lading (B/L) from the set with the Claimant Bank as collateral for a loan, then later obtained delivery of the cargo at the Discharging Port using the second Un-indorsed Bill of Lading (B/L). It was ruled that delivery was made in good faith and without knowledge of the bank’s claim, so no liability for wrongful delivery occurred, even though only one Bill of Lading (B/L) from the set was presented.

If the Shipowner is aware of competing claims, he risks liability for conversion of the cargo’s full value if he delivers to anyone other than the rightful recipient. In such situations, the Shipowner should interplead and withhold delivery until the disputing claimants settle the matter in court at their own expense. Finally, a Shipowner who delivers cargo without the presentation of a Bill of Lading (B/L) does so at his own risk, even if delivery is to the person named as Consignee in the Bill of Lading (B/L). Traditionally, such delivery has been considered a Fundamental Breach of the Voyage Charterparty, and if the cargo is delivered to the wrong person, it may prevent the Shipowner from relying on Bill of Lading (B/L) exceptions for protection.

Absence of Consignee

The challenge facing the Shipowner upon arrival at the Discharging Port may be the absence of any Consignee ready to receive the cargo. As the Shipowner has a duty to make personal delivery of the cargo, simply unloading the cargo and leaving it on the dockside does not discharge that obligation under Common Law. In such circumstances, the Shipowner must allow the Consignee a Reasonable Time to collect the cargo. If the Consignee fails to do so, the Shipowner may land and warehouse the cargo at the Consignee’s Expense. However, it is questionable whether the Shipowner can absolve himself of his strict liability as a Carrier merely by warehousing the cargo, although he retains the protection of the carriage exceptions to counterbalance any such potential liability.

Personal delivery might be excused by the Custom of the Port or by an Express Clause in the Voyage Charterparty. For instance, in certain ports, Cargo Delivery to a dock company or to harbor porters may be regarded as equivalent to personal delivery to the Consignee. In the Chartered Bank of India v British India Steam Navigation Co case, such an Express Clause was accompanied by a provision stating that the Shipowners’ liability would cease absolutely as soon as the cargo was free of the ship’s tackle. These Voyage Charterparty Clauses were deemed effective in excluding the Shipowners from liability when a Port Agent employed by the Shipowner Fraudulently delivered the cargo without presentation of the Bill of Lading (B/L).

For additional protection, the Shipowner must rely on the terms of the individual Contract of Carriage. Many Standard Bill of Lading (B/L) Forms include a selection of Remedies available to the Shipowner if a Cargo Owner fails to take delivery at the Discharging Port. These Remedies range from the basic right to discharge and warehouse the cargo to the right, after a specified period, to auction the cargo and recoup any outstanding Freight or other charges from the sale proceeds.

Delivery of Mixed or Unidentifiable Cargo

The Shipowner is responsible for delivering to the Consignee at the Discharging Port the specified quantity of Cargo consigned to them, in the condition in which it was Shipped. Issues arise when such Cargo is shipped along with similar cargo destined for other Consignees and loses its identity during the Carrying Voyage. This loss of cargo identity may occur either because the leading marks are obliterated or the cargoes themselves become irretrievably intermixed with other cargoes on the ship. In the latter scenario, it is generally immaterial whether the cargoes involved are liquid or consist of grain particles or their equivalent, as it would be commercially impractical to separate them in most cases.

The liability of the Shipowner in these circumstances depends on whether the event causing the loss of cargo identity is covered by an Exception Clause. For instance, the mixing of cargo may be due to a Peril of the Sea, or the Voyage Charterparty may have an Exception Clause excluding the Shipowner from liability for obliteration or absence of cargo marks. In such cases, while the Shipowner will avoid liability, the unidentifiable cargo will become the property of the Bill of Lading (B/L) Holders, who will hold as tenants in common of the whole, in the proportions in which they contributed to it. Judge Bovill expressed the principle as: “When goods of different owners become by accident so mixed together as to be undistinguishable, the owners of the goods so mixed become tenants in common of the whole in the proportions which they have severally contributed to it.”

The situation differs when the occurrence is not covered by an Exception Clause. The Shipowner will be in Breach of the obligation to deliver the specified cargo to the consignee and cannot reduce their liability by requiring the Consignee to accept an appropriate proportion of the mixed cargoes. The situation is further complicated if part of the Cargo is lost at sea while a portion of the remainder arrives at the Discharging Port in an unidentifiable state. In these circumstances, it may be impossible to determine what proportion of the claimant’s missing cargo falls into either category. In the Sandeman v Tyzack case, a quantity of bales of jute was shipped to various Consignees under a Bill of Lading (B/L) that recorded the appropriate Cargo Identification Marks. The Bill of Lading (B/L) Expressly Excluded the Shipowner’s liability for obliteration or absence of cargo marks. On discharge, 14 bales were missing, and a further 11 were not labeled as indicated in the Bill of Lading (B/L) and could not be identified as belonging to any particular consignment. In response to the claimant’s claim for Short Delivery of six bales from his consignment, the Shipowner argued that he should be required to accept an appropriate proportion of the 11 unidentifiable bales in mitigation of his loss. The House of Lords rejected this argument, stating that the Shipowner could only succeed if they could prove that the claimant’s missing bales were among the 11 unidentifiable bales. Only in such a case could the Shipowner rely on the Exception Clause covering “obliteration or absence of marks.” As Lord Loreburn stated, “apart from the 11 unidentifiable bales, there were 14 missing bales. It may be that the six which the appellants complain have not been delivered to them were among these 14. So, the Shipowner cannot prove, at least they have not proved, that the failure to deliver these six was due to any absence or obliteration of marking of such bales.”

Reference must be made to the situation where Part of a Cargo shipped in Bulk is Lost or Damaged during the Carrying Voyage as a result of an Excepted Peril. In such a case, the Shipowner is not required to apportion the loss or damage between the various consignees but can deliver the full quantity of sound cargo due to the First Consignee to take delivery.

 

 

6- Understanding Bill of Lading (B/L)

History of the Bill of Lading (B/L)

The Bill of Lading (B/L) originated in the 14th century as a Non-negotiable Receipt by a Shipowner for a merchant not accompanying the cargo. The document detailed the cargo’s type, quantity, and condition at the time of shipment. Over time, to mitigate arising disputes between Cargo Owners and the Carrier, terms from the Charterparty were integrated into the Bill of Lading (B/L). By the 18th century, it evolved to include a Negotiable feature through endorsement, catering to merchants desiring to sell their cargo prior to the ship arriving at the Discharging Port.

Historically, the Carrier’s obligation under a Bill of Lading (B/L) to safely deliver cargo was stringent, except for exceptions known as Common Law Exceptions, which included:

1. Act of God,
2. Public Enemies
3. Inherent Vice

Despite these Exceptions, if the Carrier’s Negligence contributed to a loss, liability was maintained. The Carrier’s obligation mirrored the Shipowner’s under a Charterparty. However, with the rise of contract freedom in the 19th century, Bill of Lading (B/L) Carriers began incorporating Clauses limiting their Common Law Liability. The culmination of this trend was the attempt by some Carriers to exempt themselves entirely from liability, even if Negligence was involved. Pushback from Shippers, Bankers, and Underwriters led to model Bill of Lading (B/L) in some regions and protective legislation like the Harter Act 1893 in the United States, which aimed to restrict the exclusion of Carrier Liability.

Over time, it became clear that such fragmented legislation was inadequate, but many shipowning nations were concerned that abandoning contract freedom would lead to higher Freight Rates, disadvantaging their Carriers. An international solution became necessary, leading to discussions among Shipowners, Shippers, Underwriters, and Bankers from leading maritime countries. These discussions, facilitated by the International Law Association’s Maritime Law Committee in 1921 in The Hague, resulted in the Hague Rules after extensive negotiation. These rules, formalized at the Brussels Convention on 25 August 1924, sought to standardize certain aspects of the Bill of Lading (B/L) and ensure minimal protection for the Cargo Owner. While the Hague Rules didn’t cover all aspects of sea carriage, they defined essential Carrier obligations and limited the extent to which Carriers could protect themselves using Exception Clauses and Limitation Clauses. Subsequently, major maritime nations legislated the Hague Rules, including the United Kingdom with the Carriage of Goods by Sea Act 1924.

Over the years, dissatisfaction has increased regarding the limited protection provided to Cargo Owners by the Hague Rules. The criticism focused on the restricted scope of the Hague Rules, as they typically only applied to outward Bill of Lading (B/L) and only during the tackle-to-tackle period. Furthermore, the Hague Rules applied to specific contract aspects rather than offering a comprehensive code, leading Cargo Owners to argue that the underlying philosophy was still tilted in favor of the Carrier.

However, opinions on how to advance were split. On one side, major ship-owning nations resisted substantial changes, preferring minor adjustments to the Hague Rules to rectify the most glaring issues. This stance led to a set of draft amendments known as the Brussels Protocol, finalized at a conference in Brussels in February 1968. The updated Hague Rules, now incorporating these amendments, are called the Hague Visby Rules. On the other side, some leading cargo-providing countries, mostly from Developing Nations, pushed for more extensive reforms. Their efforts through UNCTAD led to a new comprehensive code that covered all aspects of sea carriage contracts, resulting in the Hamburg Rules, which were formalized at a conference in Hamburg in March 1978 and came into effect on November 1, 1992, after receiving the necessary 20 ratifications.

Meanwhile, the United Kingdom and several Western European countries chose to adopt the Hague Visby Rules and enacted laws to enforce the Convention. In the United Kingdom, this took the form of the Carriage of Goods by Sea Act 1971, which became effective on June 23, 1977, after meeting the necessary ratification threshold. Several other states have also integrated the Hague Visby Rules into their maritime codes, applying them in international trade reciprocally.

This situation results in a complex international landscape regarding sea carriage contracts. While many countries still adhere to the original Hague Rules, 30 have adopted the Hague Visby Rules, and another 32 have adopted the Hamburg Rules. Additionally, a fourth group is implementing hybrid systems that combine elements from both the Hague Visby Rules and the Hamburg Rules. This legal complexity does not promote the development of international trade, and a greater uniformity would be beneficial.

Main Functions of Bill of Lading (B/L)

When a Shipper wishes to send a cargo shipment overseas, they typically approach a shipping line, often through a Freight Forwarding Agent (FFA), to reserve space on a ship. The Carrier then instructs the Shipper on when and where to deliver the goods. Once delivered, the Carrier’s Agent issues a Receipt detailing the type and quantity of cargo received and its condition upon receipt. From that point, the Carrier generally controls the cargo and oversees its loading onto the ship.

Subsequently, the Shipper usually obtains a copy of the Carrier’s Bill of Lading (B/L) Form, available from the Carrier’s Agent or local stationers. On this form, the Shipper details the cargo’s type, quantity, marks, the Discharging Port, and the Consignee’s name. Upon receiving the completed Bill of Lading (B/L), the Carrier’s Agent verifies the cargo details against loading tallies and acknowledges them if required. After calculating the Freight and recording it on the Bill of Lading (B/L), either the Ship Master or Ship’s Agent signs the document and releases it to the Shipper in exchange for the Mate’s Receipt (MR) or similar document and any advance Freight payment. The Shipper can then either send the Bill of Lading (B/L) directly to the Consignee or use it in an international sales transaction involving a Letter of Credit (LC). In some cases, the Consignee might sell the cargo in transit, endorsing the Bill of Lading (B/L) to a buyer. Ultimately, the final Consignee or Indorsee presents the Bill of Lading (B/L) at the Discharging Port to claim the cargo.

This summary underscores the critical role of the Bill of Lading (B/L) in executing the carriage contract, and it is essential to examine the various functions of the Bill of Lading (B/L) more closely. The Bill of Lading (B/L) serves three primary functions:

A- Bill of Lading (B/L) as a Receipt for Cargo
B- Bill of Lading (B/L) as Evidence of Charterparty
C- Bill of Lading (B/L) as a Document of Title (DOT)

A- Bill of Lading (B/L) as a Receipt for Cargo

Originally, the Bill of Lading (B/L) was established as a basic Bailment Receipt necessary to ensure the delivery of cargo at the Discharging Port. It would typically document the quantity, description, and condition of the shipped cargoes as acknowledged by the Carrier. These recorded facts carried significant commercial implications. First, the Bill of Lading (B/L) acted as the basis for any claims regarding cargo that was either short delivered or damaged upon discharge. Second, in transactions involving cargo sold CIF (Cost Insurance Freight), where payment depended on the receipt of certain documents, the buyer could refuse these documents if the cargo’s description in the Bill of Lading (B/L) differed from that on the sales invoice. Under CIF (Cost Insurance Freight) terms, the buyer or bank could also insist on a Clean Bill of Lading (B/L), which verifies that the cargo was shipped in good order and condition. Third, these declarations could greatly affect the Bill of Lading (B/L)’s negotiability for a Consignee, particularly if the cargo was noted as damaged, making it less likely to be sold during transit.

In such scenarios, it’s vital for the Shipper or Consignee that the Carrier delivers precise and unequivocal statements about the cargo’s quantity and condition in the Bill of Lading (B/L). Without these statements, a Consignee faced with receiving short or damaged cargo would have to prove the cargo’s condition and quantity at the time of shipment. Although these details are usually filled in by the Shipper, the Carrier’s Agent might insert clauses like “weight, quantity, and condition unknown” or “Shipper’s count” to protect the principal before signing the Bill of Lading (B/L). Given the Carrier’s dominant bargaining position, Shippers often cannot prevent these clauses. To counteract this, the Hague Visby Rules (Art III Rule 3) allow Shippers to demand a Bill of Lading (B/L) with specified details:

Upon accepting the cargo, the Carrier, Carrier’s Agent, or Ship Master is required, at the Shipper’s behest, to issue a Bill of Lading (B/L) that must include:

a) Apparent good order and condition of the cargo
b) Leading Marks necessary for identification of the cargoes as provided by the Shipper before loading, ensuring these marks are visible on the cargo or containers in a manner that remains readable throughout the journey
b) The count of packages or pieces, or the quantity or weight, as specified by the Shipper

In exchange, the Shipper is considered to have vouched for the accuracy of this data entered into the Bill of Lading (B/L) and is responsible for compensating the Carrier for any losses due to inaccuracies. The Carrier is not required to provide a Bill of Lading (B/L) with this information unless explicitly requested by the Shipper and may decline if the data appears incorrect or unverifiable.

The Hague Visby Rules further dictate that such information in the Bill of Lading (B/L) should be regarded as Prima Facie Evidence of the Carrier having received the cargo as described, and becomes conclusive evidence against the Carrier once the Bill of Lading (B/L) is transferred to a Third Party acting in good faith. Although Common Law previously had similar provisions, the Hague Visby Rules remove the necessity for reliance, which was essential for activating the Estoppel mechanism under Common Law. Nonetheless, there remains some ambiguity about the consequences if a Carrier fails to meet a Shipper’s information request as per Hague Visby Rules (Art III Rule 3). A possible remedy, suggested by Judge Clarke in The Mata K case, is to apply Hague Visby Rules (Art III Rule 8) to nullify any clauses like “Weight Unknown,” although this approach could potentially contravene the intended purpose of Hague Visby Rules (Art III Rule 3), warranting further legal examination.

Should the Bill of Lading (B/L) incorporate a clause stating that assertions about the cargo’s quantity and condition “shall be conclusive evidence” against the Carrier, then no contradictory evidence would be admissible, even if the Shipper is the one challenging and the Carrier can demonstrate otherwise.

It is now essential to explore in greater depth each of the three roles of the Bill of Lading (B/L) as a Receipt Function, initially from the perspective of Common Law and subsequently under the Hague Visby Rules. This dual approach remains necessary as some transport contracts are not governed by the Hague Visby Rules.

Bill of Lading (B/L) Cargo Quantity

Bill of Lading (B/L) Cargo Quantity under Common Law

In the possession of the Shipper, the Bill of Lading (B/L) acts as Prima Facie Evidence under Common Law regarding the cargo’s weight or quantity. To evade liability, the Carrier is tasked with proving that the cargo described in the Bill of Lading (B/L) was not actually shipped. This burden is considerable, as the Carrier must conclusively prove that the cargo was indeed not shipped, rather than just likely not shipped. For example, in the case of Smith v Bedouin Steam Navigation Co, where 988 bales of jute were noted under a Bill of Lading (B/L) that 1,000 bales were shipped, Lord Shand asserted that the Carrier needs to provide evidence strong enough not just to suggest possible non-shipment, but to conclusively show non-shipment. This can be challenging to establish after the fact, especially if the Carrier was initially unaware of the non-shipment when the Bill of Lading (B/L) was signed, making it difficult to later ascertain the true status unless evidence like unshipped cargo found at the Loading Port can be presented. Nonetheless, if the Carrier can prove this, the Shipper should not gain financially as they have not truly incurred a loss based on the Bill of Lading (B/L) statement.

Previously under Common Law, a Shipowner could disclaim liability even to a bona fide Bill of Lading (B/L) transferee if it was demonstrated that the cargo was not actually shipped. This scenario was ripe for an Estoppel application as with condition statements, yet it was legally justified because the Ship Master was deemed not to have the Ostensible Authority to commit the Shipowner to such statements. In the Grant v Norway case, where the Ship Master acknowledged shipment of 12 unshipped bales of silk, the court ruled against the Bill of Lading (B/L) indorsees, stating they had no recourse when the absence of cargo was confirmed. Judge Jervis articulated that the Ship Master had no genuine authority to sign a Bill of Lading (B/L) unless the cargo was indeed shipped, and that it was unreasonable for anyone to presume such authority existed irrespective of the cargo’s presence.

Although endorsed in subsequent decisions, this judgment proved problematic as a Consignee’s reliance on a Bill of Lading (B/L) for quantity is as critical as reliance on cargo condition, yet protection through Estoppel was only afforded in the latter case. This also negates the intent behind requiring the Ship Master to verify shipped quantities. However, if the Ship Master possesses financial substance, he might be liable for damages arising from the breach of Warranty of Authority when making the statement.

Thankfully, the adverse impacts of this legal inconsistency have been largely alleviated by the Hague Visby Rules (Art III Rule 4), which declare that statements of quantity in a Bill of Lading (B/L) are conclusive evidence favoring a Consignee or Indorsee who accepts the Bill of Lading (B/L) in good faith. Yet, where the Hague Visby Rules do not apply, such discrepancies persisted until the enactment of the Carriage of Goods by Sea Act 1992 (Section 2). Effective from 16 September 1992, this act confirms that representations in a Bill of Lading (B/L) regarding the quantity of goods shipped or received for shipment are Conclusive Evidence against the Carrier in favor of a legitimate Bill of Lading (B/L) holder, aligning Common Law more closely with the Hague Visby Rules. However, it is not retroactive, nor does it protect those entitled under a Sea Waybill.

Under Common Law’s contract freedom, a Shipowner can negate the Prima Facie evidentiary effect of a quantity statement in a Bill of Lading (B/L) through endorsements such as “Weight and Quantity Unknown”, “Shipper’s Count”, or “Said to Weigh 100,000 tons”. In cases where a printed clause conflicts with a written quantity statement in the Bill of Lading (B/L), the courts generally interpret that the stated figure is merely the Shipper’s unverified claim.

In the case of New Chinese Antimony Co Ltd v Ocean Steamship Co, the Bill of Lading (B/L) for a cargo of antimony oxide noted 937 tons were shipped, but included a clause stating “weight, measurement, contents and value unknown”. The Court of Appeal determined that this clause meant the written statement did not serve as even Prima Facie Evidence of the shipped quantity. Judge Viscount Reading explained that the clause indicated the Shipowner received a quantity of ore claimed by the Shipper to weigh 937 tons, but the Shipowner neither confirmed nor accepted this weight except for freight calculation purposes.

Bill of Lading (B/L) Cargo Quantity under Hague Visby Rules

Hague Visby Rules (Article III Rule 3) state that the Shipper may request the Carrier to issue a Bill of Lading (B/L) that details the number of packages or pieces, or the quantity or weight of cargo, as declared by the Shipper. The Carrier is not required to issue a Bill of Lading (B/L) or acknowledge the quantity of cargo shipped unless specifically requested by the Shipper. Without such a request, Consignees or Assignees of the Bill of Lading (B/L) cannot demand adherence to this rule. Typically, however, the Carrier will issue a Bill of Lading (B/L) for his own purposes. The Carrier can choose how to quantify the cargo based on the information provided by the Shipper but is not obligated to acknowledge all provided metrics and can disclaim knowledge of others. For example, in the Oricon v Intergraan NV case, the Bill of Lading (B/L) acknowledged the receipt of 2,000 packages of copra cake “said to weigh gross 105,000 kgs for calculating Freight only.” Judge Roskill opined that while the Bill of Lading (B/L), as a Hague Visby Rules Bill of Lading (B/L), acknowledges the number of packages shipped and is Prima Facie Evidence of those numbers, it does not serve as evidence of the cargo’s weight. Under these conditions, the burden of proving the weight of the shipped cargo before succeeding in a short delivery claim rests with the Consignee. As for the evidentiary value of the Bill of Lading (B/L), the Hague Visby Rules align with Common Law by treating the Bill of Lading (B/L) as Prima Facie Evidence of the shipped cargo amount in the Shipper’s hands. The distinction arises in that the Bill of Lading (B/L) is treated as Conclusive Evidence once transferred to a Third Party acting in good faith, without the requirement for the Third Party to have given value, only requiring good faith.

Bill of Lading (B/L) Cargo Condition

Traditionally, the second type of statement in a Bill of Lading (B/L) concerns the Shipowner’s assertion about the cargo’s condition at shipping, referring only to its Apparent Condition as can be reasonably inspected from the outside. In the age of containerization, such statements often have limited value, typically only pertaining to the container’s or packaging’s external appearance, not the actual condition of the cargo within. The Shipowner’s Agent is obligated to record any observed damage during inspection and ensure the cargo is delivered in the same condition as received, barring contractual exceptions. Often, Shippers resist any endorsements on the Bill of Lading (B/L) that could compromise the issuance of a Clean Bill of Lading (B/L), required for shipments financed through a Letter of Credit (LC) from a bank, which necessitates a Bill of Lading (B/L) stating the cargo was shipped “in good order and condition.” However, Shipowners may not be entitled to Clause a Bill of Lading (B/L) even if the inspection reveals damage, provided the cargo’s condition is adequately described in the Bill of Lading (B/L). In the Sea Success Maritime v African Maritime Carriers case, despite a pre-loading survey by the Shipowners’ P&I Club finding rust and superficial damage on hot rolled steel coils, Judge Aikens ruled that Shipowners were not entitled to Clause the Bill of Lading (B/L) if the Charterer intended to include the cargo’s condition from the survey in the Bill of Lading (B/L). Judge Aikens interpreted the term “good” in “apparent good order and condition” to mean “properly” described in the Bill of Lading (B/L). Thus, even if cargo is described as damaged or imperfect, it can still be declared in “apparent good order and condition.” This might seem surprising, but practically, any Transferee of the Bill of Lading (B/L) would be as aware of the cargo’s condition as if the Bill of Lading (B/L) had been Claused (Dirty Bill of Lading B/L). Such a Bill of Lading (B/L) is unlikely to qualify as a Clean Bill of Lading (B/L).

Bill of Lading (B/L) Cargo Condition under Common Law

Similar to quantity representations, statements regarding the condition in which cargo is shipped are Prima Facie Evidence in favor of the Shipper but become conclusive evidence once the Bill of Lading (B/L) is held by a Bona Fide purchaser for value. In the Compania Naviera Vascongada v Churchill case, where timber stained with petroleum was issued a Bill of Lading (B/L) stating it was in “good order and condition,” Judge Channell ruled that the Shipowner was Estopped from denying the statement’s accuracy against an assignee of the Bill of Lading (B/L). The rationale for the Estoppel was the detrimental reliance by the Assignee, who argued that they were prejudiced because they accepted the Bill of Lading (B/L) as a valid tender under a contract for clean timber, based on the assurance of good condition, and paid the full contract price.

Such detrimental reliance is typically evident, whether because the shipment is part of an international sale and the purchaser was induced to pay the contract price by the Clean Bill of Lading (B/L), or because the Consignee of the Bill of Lading (B/L) secured delivery of the goods by presenting the Bill of Lading (B/L) and paying the required Freight. Estoppel has also been effective in favor of a party who advanced money to the Shipper secured by the Bill of Lading (B/L) and subsequently obtained delivery of the goods from the Carrier by presenting the Bill of Lading (B/L) and paying the Freight, even if technically not a party to the carriage contract. However, the Estoppel is only effective concerning defects that would be apparent upon a reasonable inspection by the Carrier or Carrier’s Agent. Thus, in the Silver v Ocean Steamship Co case, while the Shipowners were Estopped from claiming that cargo of Chinese eggs shipped in unclad 42-lb square tins was inadequately packed or that the tins were gashed at shipment, they were not estopped from alleging that pin-hole perforations in the tins existed at shipment, as such defects would not necessarily be evident upon reasonable inspection.

At Common Law, it is possible for the Shipowner to either disclaim responsibility for the accuracy of condition statements or to endorse the Bill of Lading (B/L) with a clause stating “Condition Unknown”. However, representations regarding the condition are typically seen as statements made by the Shipowner following a reasonable inspection of the cargo, distinct from representations about quantity or leading marks, which merely acknowledge the information provided by the Shipper. Thus, courts generally scrutinize any attempt by the Shipowner to negate the efficacy of such representations stringently.

For instance, in The Peter der Grosse case, a marginal endorsement stating ‘weight, contents, and value unknown’ did not negate a positive statement in the Bill of Lading (B/L) that the cargo was shipped in good order and condition. It is generally understood that a clear statement by the Shipowner that the cargo was shipped in “Good Order and Condition” will override any standard printed clause in the Bill of Lading (B/L) that suggests the condition of the cargo upon shipment was unknown.

If the cargo is found to be damaged at shipment, the Shipowner can qualify this by listing the observed damages on the Bill of Lading (B/L) in the form of a marginal endorsement. Such endorsements should specify the exact damage but can be phrased in a way that renders the condition representation too ambiguous to establish an Estoppel. In the Canada & Dominion Sugar Co Ltd v Canadian National Steamships Ltd case involving the shipment of a cargo of sugar, the Shipper was keen to secure a Clean Bill of Lading (B/L) and to facilitate his business arrangements, the Carrier agreed to issue a Bill of Lading (B/L) before completing the loading operation upon receiving assurances that there was nothing wrong with the cargo. Despite this, the Bill of Lading (B/L) stated that the cargo had been “shipped in apparent good order and condition”, but the Shipowner included a marginal endorsement “signed under guarantee to produce ship’s Clean Receipt”. In fact, the sugar had been damaged while on the wharf awaiting shipment, and the Mate’s Receipt (MR) later noted “many bags stained, torn, and resewn”. When the Assignees of the Bill of Lading (B/L) later brought an action, the Privy Council ruled that they could not rely on an Estoppel unless the condition statement in the Bill of Lading (B/L) was unambiguous and unqualified. The court reasoned that the qualifying words “Signed under guarantee to produce ship’s Clean Receipt” clearly indicated on the Bill of Lading (B/L) conveyed to any reasonable businessperson that if the Ship’s Receipt was not clean, then the statement regarding the cargo’s apparent order and condition should not be taken as unqualified. Given this qualification and the availability of the Mate’s Receipt (MR) to potential buyers, the court determined that the Assignee could not rely on the Estoppel.

Bill of Lading (B/L) Cargo Condition under Hague Visby Rules

Under the Hague Visby Rules (Art III Rule 3), a Shipper has the right to request that a Bill of Lading (B/L) include a declaration about the cargo’s apparent order and condition as assessed by the Carrier. This Bill of Lading (B/L) then acts as Prima Facie Evidence that the Carrier received the cargo as described, and it becomes conclusive evidence once it is transferred to a Third Party acting in good faith. Unlike Common Law, this rule does not require detrimental reliance.

The Ship Master is permitted to make marginal notes on the Bill of Lading (B/L) reflecting the true condition of the cargo but cannot incorporate clauses that exempt him from the mandates of the Hague Visby Rules (Art III). It is unexpectedly common for courts to accept these kinds of liability limitations from Shipowners on technical bases. For instance, in the case of Canada Dominion Sugar Co Ltd v Canadian National Steamships Ltd, it was argued that the Hague Visby Rules nullified the Shipowner’s statement that the Bill of Lading (B/L) was “signed under guarantee to produce ship’s Clean Receipt”. Lord Wright clarified that the Hague Visby Rules (Art III Rule 3) are applicable only if the Shipper specifically requests a Bill of Lading (B/L) that reflects the cargo’s apparent order and condition, and there was no such request in this situation.

A similar perspective was adopted by the United States Court of Appeals in the Tokio Marine & Fire Ins Co v Retla Steamship Co case, which involved shipping pipes from Yokohama (Japan) to Los Angeles (USA). Even though rust and moisture were noted on the tally-sheets and the Mate’s Receipt (MR), a Clean Bill of Lading (B/L) was issued with a clause stating that “apparent good order and condition” does not imply the cargo was free from visible rust or moisture. The court ruled that, because the Shipper did not ask for a revised Bill of Lading (B/L) that included these notations, the Consignee had to accept the initial qualification as valid under the Hague Visby Rules. This ruling highlights a concern that Consignees or Assignees might lose their rights due to such clauses.

Carriers are often pressured by Shippers to issue a Clean Bill of Lading (B/L) to facilitate sales or fulfill Letters of Credit (LC) requirements. Consequently, Carriers might overlook cargo defects in exchange for a Letter of Indemnity (LOI) from the Shipper, promising to compensate for any resulting losses from subsequent cargo receiver claims. However, such Letters of Indemnity (LOI) provide minimal protection to the Shipowner as they do not defend against third-party claims on a Clean Bill of Lading (B/L) and may be unenforceable if intended to defraud a Consignee or Bank. This was evident in Brown, Jenkinson & Co Ltd v Percy Dalton, where despite the Shipper’s promise to indemnify for issuing a Clean Bill of Lading (B/L) for damaged cargo, the Court of Appeal, led by Judge Evershed, declared the Indemnity (LOI) void due to fraud.

While Letters of Indemnity (LOI) are prevalent in international trade and are enforceable when no fraud is present, they are particularly useful in bona fide disputes about the cargo’s condition to avoid complications with Letters of Credit (LC). According to Hague Visby Rules, a Carrier may also refuse to verify the cargo’s condition if inspection is unfeasible, which could warrant a Letter of Indemnity (LOI) when a Clean Bill of Lading (B/L) is necessary. Nonetheless, such indemnity becomes invalid if the Carrier is aware of the falsity of the declaration.

Furthermore, the Hague Visby Rules (Art III Rule 5) grant Carriers a statutory Implied Indemnity against losses due to acknowledging the Quantity or Leading Marks based on inaccurate information from the Shipper. However, this rule does not extend to the cargo’s Condition and does not specify the legality of such an Indemnity if the Carrier is aware of the misinformation. In cases of uncertainty, it is advisable for the Carrier not to investigate, provided the Shipper is solvent and likely to fulfill the terms of the Letter of Indemnity (LOI).

Bill of Lading (B/L) Cargo Identification Marks

Quality or Identification Marks present on shipped cargo are typically documented in the Bill of Lading (B/L). Nonetheless, under Common Law, a Shipowner is not estopped from contesting that the cargo was shipped under the Marks described in the Bill of Lading (B/L) unless these Marks are vital to identifying or describing the cargo. This was illustrated in the Parsons v New Zealand Shipping Co case, where a shipment of frozen lamb carcasses was detailed in a Bill of Lading (B/L) that indicated all 608 carcasses bore the Mark 622X. However, only 507 of these bore the Mark 622X, with the remainder marked 522X. When the cargo reached the Discharging Port, the Indorsees for value of the Bill of Lading (B/L) refused to accept the 101 carcasses with the different mark, arguing that the Shipowners were estopped from denying that all carcasses shipped bore the 622X Mark. The trial judge noted that all carcasses were of identical quality and value, and the Seller had used the Marks solely for internal accounting. Consequently, a majority in the Court of Appeal concluded that since the Marks did not affect the goods’ identity, no estoppel was warranted.

Judge Collins emphasized, “The crucial aspect is the identity of the cargo shipped with those purported as shipped; that is the core of the Misrepresentation, and anything irrelevant to that identity should not be involved in the estoppel. Clearly, where Marks carry no market significance and reveal nothing to a Buyer about the nature, quality, or quantity of the cargo he is purchasing, it doesn’t matter whether the cargo bears one Mark or another.” He further elaborated that “an incorrect statement regarding such Marks complicates identification but does not alter the cargo’s existence or identity.”

However, if Cargo Leading Marks relate to the cargo’s identity or description, the Marks listed in the Bill of Lading (B/L) act as Prima Facie Evidence against the Carrier and as conclusive evidence when the Bill of Lading (B/L) is held by a Bona Fide Indorsee for value.

The Hague Visby Rules adopt a similar stance regarding Cargo Leading Marks, with provisions under Hague Visby Rules (Art III Rule 4) applicable solely to “Cargo Leading Marks necessary for identifying the cargo.” Shippers may insist that the Shipowner acknowledges such Marks, provided the “Cargoes are stamped or clearly displayed on the cargoes in such a manner that they should remain legible until the end of the voyage.”

Under the Hague Visby Rules, the Shipowner is not required to recognize any Quality Marks on the cargo in the Bill of Lading (B/L) unless they are essential to the cargo’s identity. If the Ship Master chooses to note such Marks voluntarily, it is established under Common Law that the Shipowner is not estopped from later proving that cargoes of different quality were shipped. The Ship Master generally lacks the Apparent Authority to include such Cargo Marks, often lacking the necessary commercial expertise to assess their accuracy. In the Cox v Bruce case, the Court of Appeal decided that the Shipowner was not estopped from contesting, against an Indorsee for value, that the quality Marks on a jute shipment had been incorrectly recorded on the Bill of Lading (B/L) by the Ship Master: “It was outside the Ship Master’s responsibilities to include these quality marks, thus the Ship Master did not have the authority to make such a representation, and it should not be assumed by any businessperson that the Ship Master possessed such authority.”

Other Representations in the Bill of Lading (B/L)

Although the Hague Visby Rules do not mandate the inclusion of extra details in the Bill of Lading (B/L), the Shipowner and Shipper may still add factual statements that could potentially establish an Estoppel for future holders of the Bill of Lading (B/L) who acquire it for value. An important example of such a detail is the issuance date of the Bill of Lading (B/L). If the Ship Master or Ship Agent is authorized to sign the Bill of Lading (B/L) on the Shipowner’s behalf, this authority extends to including the Date and Place of issuance in the Bill of Lading (B/L). In certain situations, if the sales contract requires the cargo to be shipped under a Bill of Lading (B/L) with a specific Date and the Loading Operation is delayed, a Bill of Lading (B/L) that is Back Dated may be issued. This backdated document might lead the Buyer to authorize payment based on its date. If the cargo arrives later than expected and the Buyer needs to purchase alternative supplies to fulfill his obligations, the Buyer (Consignee) has the right to seek damages from the Shipowner for Misrepresentation. This stance was solidified in the Grant v Norway case where the court robustly dismissed the claim that the Ship Agent didn’t have the authority to misstate the Date on the Bill of Lading (B/L). It’s unreasonable to presume that the specifics of the Ship Agent’s Authority to include correct dates are common knowledge, particularly since determining the accurate date is generally beyond the usual duties or capabilities of the Ship Agents. Under the right conditions, a similar Estoppel could be applicable to statements in the Bill of Lading (B/L) concerning the shipping date of the cargo.

B- Bill of Lading (B/L) as Evidence of Charterparty

Every Standard Bill of Lading (B/L) Form includes, on its reverse side, a set of Printed Terms or references to the detailed terms in the Long Form Bill of Lading (B/L). It’s widely recognized that these Printed Terms are not themselves the Charterparty (Contract of Carriage) but merely serve as Evidence of such a contract. The Charterparty, whether agreed upon in writing or verbally, is typically established well before the Bill of Lading (B/L) is drafted, based on prior negotiations between the Shipper and the Shipowner regarding the shipment of the cargo. Therefore, if the cargo is lost or damaged before the Bill of Lading (B/L) is finalized, the Shipper retains the right to seek legal remedies for any breach of contract. Furthermore, if the terms in the Printed Bill of Lading (B/L) that is later issued do not match the originally agreed-upon terms of the Contract of Carriage, the Shipper is not restricted from proving the actual terms that were agreed upon. This was underscored by Judge Lush in 1879, who stated: “The Bill of Lading (B/L) is not the Contract, but merely Evidence of the Contract of Carriage. Accepting a Bill of Lading (B/L) does not automatically bind one to all its stipulations without regard to the actual circumstances. If the Shipper was not made aware, or was not informed during the shipment process, that the forthcoming Bill of Lading (B/L) would include specific clauses, he has the right to expect that his cargo is handled according to the standard terms and to demand a Bill of Lading (B/L) that accurately reflects these terms.”

However, the primary legal discussion on this subject was prominently featured in The Ardennes case. In this instance, the claimant needed to ship mandarin oranges from Cartagena to London, hoping they would arrive before December 1 to sidestep an impending hike in import duties. He relayed this urgency to the Ship Agent, who verbally assured him that if the cargo was loaded by November 22, the vessel would head directly to London. Contrary to these assurances, the ship was already scheduled to carry other cargo to Antwerp, and the issued Bill of Lading (B/L) included a Liberty Clause that permitted stops at additional ports en route to London. Due to a stopover in Antwerp, the vessel did not arrive in London until December 4, after the duty increase and a significant drop in the market price of oranges because of other arriving cargoes. When the exporter sought compensation for breach of contract, the shipowner cited the Liberty Clause in the Bill of Lading (B/L) in defense. Lord Goddard supported the admissibility of oral evidence to clarify the original terms of the Contract of Carriage, affirming: “It is well recognized that a Bill of Lading (B/L) is not, in itself, the Contract between the Shipowner and the Shipper of cargo, though it serves as excellent evidence of its terms. The Contract of Carriage is in existence before the Bill of Lading (B/L) is signed, which is typically done by the Shipowner and handed to the Shipper after the cargo is onboard. If the Shipper discovers terms he disagrees with, or notices missing stipulations he had requested, he might, if feasible, demand the return of his goods. Nonetheless, this does not prevent him from demonstrating that a Contract of Carriage was in place prior to the signing of the Bill of Lading (B/L) and that this contract was different from or included additional terms not listed in the document. The Shipper does not participate in creating the Bill of Lading (B/L), nor does he sign it.”

If this assertion holds, two important qualifications must be considered. Firstly, the Bill of Lading (B/L) invariably serves as Prima Facie Evidence of the Charterparty Terms, and it can often be challenging for a party contesting its accuracy to meet the burden of proof. Secondly, it is misleading to broadly claim that the Shipper plays no role in the creation of the Bill of Lading (B/L). In most instances, the Shipper is tasked with inputting the cargo details and thus has a chance to review the other terms specified in the document.

Moreover, once endorsed to a Bona Fide Third Party for value, the Bill of Lading (B/L) becomes definitive Evidence of the Charterparty Terms. In the Leduc v Ward case, the indorsees of a Bill of Lading (B/L) sought damages for a consignment of rapeseed lost near the Clyde. They contended that an unjustifiable deviation to Glasgow by the ship invalidated the Shipowner’s reliance on the ‘Perils of the sea’ exception in the Bill of Lading (B/L). The Shipowner argued that the deviation was justified since the Shipper knew at the time of shipment that the ship would call at Glasgow. The Court of Appeal found that the Bill of Lading (B/L) conclusively evidenced the Charterparty Terms, basing its decision on the Bills of Lading Act 1855, which states that the indorsee of a Bill of Lading (B/L) “shall have transferred to, and vested in, him all rights of suit, and be subject to the same liabilities as if the contract contained in the Bill of Lading (B/L) had been made with himself.” Judge Fry supported his judgment on the premise that “the provision of the statute making the contract contained in the Bill of Lading (B/L) assignable is inconsistent with the idea that any interaction between the Shipper and the Shipowner not included in the Bill of Lading (B/L) could affect the contract.” This case thus represents another instance of the Estoppel Doctrine favoring a Bona Fide Indorsee of the Bill of Lading (B/L) for value, aligning with how courts perceive the Receipt Function of the Bill of Lading (B/L). However, Lord Esher extended this argument by asserting:

“It may be true that the Charterparty (Contract of Carriage) is created before the Bill of Lading (B/L) is issued, typically before the cargo is sent to the ship. But once the cargo is aboard, the Ship Master is authorized to formalize that contract in writing; thereafter, the general legal doctrine that prohibits oral evidence from altering or qualifying the written contract applies, making the document the sole Evidence of the Contract.”

This perspective not only applies to the Bill of Lading (B/L) held by the Shipper but also casts doubt on the authority of the decision in The Ardennes case. This argument is reinforced by the Bills of Lading Act 1855’s explicit reference to “the contract contained in the Bill of Lading (B/L),” a point Judge Fry emphasized, noting: “Here is a clear legislative declaration that there is a contract in the Bill of Lading (B/L), intended to benefit the indorsee under such circumstances. It thus seems impossible now to argue that there is no contract in the Bill of Lading (B/L), regardless of prior interpretations.”

Maintaining the ruling of The Ardennes case as incorrect and seeking to revive the full strength of the Parol Evidence Rule at this juncture would not align with the expectations of the reasonable businessperson. It is essential to remember that the Parol Evidence Rule has been significantly modified since the 1888 decision in the Leduc v Ward case, and rectification can be sought if the written document diverges from the terms of a prior oral agreement.

Moreover, Lord Goddard, before delivering his judgment in The Ardennes case, had thoroughly reviewed the Leduc v Ward case and concluded that it “was a case between the Shipowner and Indorsee of the Bill of Lading (B/L), where the terms are conclusive by virtue of the Bills of Lading Act 1855. In such cases, the statute establishes it as the contract.” Under these circumstances, it might be preferable to consider the principle of The Ardennes case still valid, as it aligns with commercial norms and the judicial approach to the Receipt Function of the Bill of Lading (B/L).

Bill of Lading (B/L) issued to Charterers

C- Bill of Lading (B/L) as Document of Title (DOT)

The Negotiable Bill of Lading (B/L) arose from sea transport due to the typically extended and slow journeys. Consequently, Cargo Owners required a Document of Title (DOT) to either obtain a Letter of Credit (LC) for international trades or exploit opportunities to sell the cargo while it was in transit. A Bill of Lading (B/L) acts as a Document of Title (DOT) solely if it is issued as an Order Bill of Lading (B/L), wherein the Carrier consents to deliver the cargo to a designated “Order” at the destination. If a Bill of Lading (B/L) specifies delivery to a Named Consignee, it is termed a Straight Bill of Lading (B/L) or Sea Waybill, lacking the negotiable feature necessary for it to be considered a Document of Title (DOT). The Straight Bill of Lading (B/L) is not as beneficial as security for a Letter of Credit (LC) and does not allow for the transfer of a legitimate title to the cargo during transit. The Order Bill of Lading (B/L), transferable by endorsement, essentially represents the cargo, and holding the Bill of Lading (B/L) is seen as equivalent to holding the actual cargo.

Judge Bowen eloquently noted in the Sanders v Maclean case:

“When cargo is at sea in the care of the Carrier, it is inherently impossible to deliver physically. During this transport and voyage phase, the Bill of Lading (B/L), as per merchant law, is universally accepted as the symbol of the cargo. The endorsement and delivery of the Bill of Lading (B/L) act as a symbolic delivery of the cargo. The property in the cargo changes hands through such endorsement and delivery of the Bill of Lading (B/L) when it is intended by the parties that ownership should transfer, similarly to how it would through physical delivery of the cargo. It functions as the key that, in the hands of its rightful owner, opens the door to the warehouse, be it stationary or mobile, where the cargo is located.”

The possession of the Bill of Lading (B/L) equates to possession of the covered cargo for three key reasons:

• The Bill of Lading (B/L) Holder is guaranteed delivery of the cargo at the Discharging Port.
• The Bill of Lading (B/L) Holder has the ability to transfer ownership of the cargo during transit by endorsing the Bill of Lading (B/L).
• The Bill of Lading (B/L) can act as collateral for a debt.

The development of the Bill of Lading (B/L) as a Document of Title (DOT) has been so effective that it now serves three distinct functions relating to the Charterparty, the sale of cargo in transit, and the facilitation of a Letter of Credit (LC). Nevertheless, there is a widespread sentiment, particularly among Shipowners, that these varied roles should be distinct to avoid the Carrier being burdened with issues unrelated to their direct responsibilities.

Bill of Lading’s (B/L’s) Function in Contract of Sale

Endorsement and delivery of the Bill of Lading (B/L) typically result in the transfer of ownership of the cargo to the Indorsee, provided four conditions are satisfied:

a- The cargo must be in transit at the time of the Bill of Lading (B/L) Endorsement. This doesn’t necessarily mean that the cargo should be at sea, but it should be under the control of a Carrier or Freight Forwarding Agent (FFA) for transport purposes and not yet delivered to the designated recipient at the Discharging Port. The ability to assign is forfeited once the cargo has been delivered, a delivery warrant has been issued, or a delivery order has been accepted.

b- The Bill of Lading (B/L) must be explicitly transferable. Specifically, the Bill of Lading (B/L) should be an Order Bill of Lading (B/L) that is deliverable to the “Order” of the Shipper or Consignee. This is not applicable when the Bill of Lading (B/L) designates delivery solely to a specific individual or states that it is Non-negotiable. Bills of Lading (B/Ls) are typically issued in sets of three to six Originals (Original Bill of Lading (B/L)), and barring any special agreements to the contrary, endorsing one Bill of Lading (B/L) from a set is enough to transfer ownership of the cargo. Any subsequent endorsements of the remaining Original Bills of Lading (B/Ls) will not affect cargo ownership. This principle was affirmed in the Barber v Meyerstein case, where after the cargo’s initial sale and partial endorsement, attempts to leverage another Bill of Lading (B/L) for an advance from a Third Party were ineffectual. Lord Westbury ruled that the initial transfer secured the cargo, making any later transactions with other Bills of Lading (B/Ls) legally inferior.

c- The Bill of Lading (B/L) must be endorsed by someone with legal cargo title. Possessing the Bill of Lading (B/L) equates to holding the cargo itself, meaning the Indorsee receives no better title than that of the Indorser. The Bill of Lading (B/L) lacks the properties of a Negotiable instrument. Essentially, endorsing a Bill of Lading (B/L) assigns the right to receive the described cargo at its destination and releases the Shipowner from further obligation. It does not confer ownership rights that the Shipper did not have, as possession of the Bill of Lading (B/L) would not outweigh actual possession of the cargo.

d- The endorsement must reflect a clear intent to transfer cargo ownership as stipulated by the Bill of Lading (B/L). Only the ownership level that the parties intended at the time of the Bill of Lading (B/L) Endorsement will be transferred. Possible scenarios include:

• Parties intend a complete transfer of property, such as in a standard sales contract.
• No transfer of property rights to the cargo is intended, often in cases like internal cargo movements between branches of the same company in different countries—a frequent occurrence in multinational companies where no change in ownership is anticipated. Additionally, a Seller might ship cargo under a sales agreement yet retain ownership as security until payment is made. Normally, ownership passes to the buyer when goods are unconditionally allocated to the contract with both parties’ consent, express or implied. This typically occurs in export sales when the seller delivers the cargo to a Carrier for the buyer. To safeguard an unpaid Seller’s interests, the Sale of Goods Act 1979 allows the Seller to reserve disposal rights over the cargo, preventing ownership transfer until payment is received. This right may be exercised explicitly by naming the Seller or the Seller’s Agent as Consignee, or by attaching a Draft Bill of Exchange to the Bill of Lading (B/L) sent to the Buyer.
• The endorsement might be intended merely as a pledge for temporary security against a loan. In such cases, there is no intent for the creditor to become the owner of the cargo, although provisions might allow for later ownership should the loan remain unpaid. Blank endorsements are often made to banks as collateral for loans.

Bill of Lading’s (B/L’s) Function in Financing Contract of Sale

A significant portion of international trade is facilitated by banks using a system of documentary credits (Letter of Credit LC). Within this framework, the prospective Buyer asks his bank to issue a Letter of Credit (LC) in favor of the Seller. To access these funds, the Seller must ship the contracted cargo and then present the required documents in the specified form to the bank. The specific responsibilities of the Seller and Buyer are determined by the terms of the credit, but standard formats for these transactions are recommended by the International Chamber of Commerce (ICC) under the title Uniform Customs and Practice for Documentary Credits. For example, in a typical CIF (Cost Insurance Freight) contract, once the cargo is shipped, the Seller must provide the bank with the Bill of Lading (B/L), the Original Sales Invoice, and an Insurance Policy that covers the cargo during transit. Upon presenting these documents as stipulated by the bank, the Seller is entitled to receive payment of the contract price.

The Bill of Lading (B/L) is crucial to any system of Documentary Credits. Initially, the bank uses the Bill of Lading (B/L) to verify that the Seller has met all the conditions set by the bank for the credit before releasing any funds. This includes checking the cargo’s quantity and description on the Bill of Lading (B/L) against the Sales Invoice to identify any discrepancies. The bank also considers the shipping date, the cargo’s condition upon shipment, and whether the cargo was loaded on deck. The Letter of Credit (LC) typically requires a Shipped Bill of Lading (B/L) rather than a Received Bill of Lading (B/L), which merely acknowledges that the cargo has been handed over to the Carrier. Banks are generally cautious about accepting terms from any Charterparty that might apply to the ship carrying the cargo.

Besides the details listed in the Bill of Lading (B/L), the bank values its role as a Negotiable Document of Title (DOT), offering the necessary security for the credit. Should the Creditor default, the bank can take control of the cargo via the Bill of Lading (B/L) to mitigate its losses. However, a potential security issue arises because the Bill of Lading (B/L) is often issued in several Originals. This poses a risk that another Original Bill of Lading (B/L) Holder might claim the cargo at the Discharging Port before the bank. To prevent this, the Letter of Credit (LC) terms usually require that all Original Bills of Lading (B/L) be submitted to the bank before any funds are disbursed.

Bill of Lading’s (B/L’s) Function in Carriage Contract

The fundamental function of a Bill of Lading (B/L) as a Document of Title (DOT) pertains mainly to its relationship with the Charterparty. In this context, the representation of the cargo by the Bill of Lading (B/L) during transit results in several implications:

• The Bill of Lading (B/L) Holder has control over the cargo throughout the transit.
• A lawful Bill of Lading (B/L) Holder is entitled under the Carriage of Goods by Sea Act 1992 to pursue legal action under the Charterparty as if they were an initial signatory. Such lawful holders only assume the associated liabilities when they either take or request delivery of the cargo from the Carrier, or start a claim for damage or loss.
• The Bill of Lading (B/L) Holder has the right to claim delivery of the cargo at the Discharging Port upon presenting the Bill of Lading (B/L).

The second point needs additional exploration.

Typically, endorsing and delivering a Bill of Lading (B/L) transfers the ownership of the specified cargo, yet such endorsements have not effectively transferred the Charterparty’s rights and obligations to the Indorsee under Common Law. This issue arises from the traditional Doctrine of Privity of Contract, which limits legal proceedings to the original parties of the Charterparty. English Law has gradually introduced various statutory and judicial remedies to allow cargo receivers, in most disputes, to assert their right to sue the Carrier. Initially, this challenge was addressed by the Bills of Lading Act 1855, which linked the right to sue to cargo ownership. According to this act, a Consignee or Endorsee of a Bill of Lading (B/L) who gains ownership of the cargo through consignment or endorsement automatically obtains the right to sue. To bolster the Bills of Lading Act 1855, Common Law evolved to include two remedial measures: courts began to imply a separate contract between the Consignee or Indorsee and the Carrier, distinct from the Charterparty between the Shipowner and Charterer, effective from the cargo’s delivery at the Discharging Port against the Bill of Lading (B/L). Additionally, a tort remedy became available for cases where damage or loss resulted from the negligence of the Carrier or its servants. Nevertheless, the limited effectiveness of these measures highlighted the need for deeper reform, prompting the Law Commission to propose a thorough solution. This proposal was enacted into law by the Carriage of Goods by Sea Act 1992, which now regulates the right to sue on a Charterparty. Despite this, the option of an implied contract remains available as an alternate remedy when necessary.

The Carriage of Goods by Sea Act 1992 (COGSA 1992)

The Carriage of Goods by Sea Act 1992, formulated by the Law Commission, was enacted on 16 September 1992 and applies to all Charterparties initiated from that date onwards. This act broadens the scope beyond its predecessor, the Bills of Lading Act 1855, which was limited to Bill of Lading (B/L). The Carriage of Goods by Sea Act 1992 also encompasses Sea Waybills and Ships’ Delivery Orders. For Bill of Lading (B/L), the distinction between a shipped or received for shipment Bill is irrelevant. Additionally, the Secretary of State is authorized to create regulations that extend the act’s provisions to any electronic data interchange that may replace traditional written documents in the future.

The Carriage of Goods by Sea Act 1992 introduces two notable changes from previous laws:

A- The right to sue is no longer dependent on ownership of the cargo.

B- The assignment of rights under a Charterparty is now independent of the transfer of liabilities.

The specifics of the Carriage of Goods by Sea Act 1992 are as follows:

1. The right to sue is assigned to the Lawful Bill of Lading (B/L) Holder, the Consignee named in a Sea Waybill, or the person entitled to delivery under a Ship’s Delivery Order, regardless of actual cargo ownership.
2. A Lawful Bill of Lading (B/L) Holder is defined as a person who:
   • Is named as Consignee in the Bill of Lading (B/L),
   • Is an Indorsee of the Bill of Lading (B/L),
   • Would be considered under the above categories if possession of the Bill of Lading (B/L) was taken before it ceased being a Document of Title (DOT).

This covers situations where the cargo is delivered against a bank guarantee before the Bill of Lading (B/L) reaches a Consignee or Indorsee. By the time the Bill of Lading (B/L) is in their hands, it no longer serves as a transferable Document of Title (DOT), including instances where the cargo is lost in transit. However, the final Bill of Lading (B/L) Holder can sue only if they became a holder under arrangements made before the Bill of Lading (B/L) stopped being transferable.

3. Transferring the right to sue from one Lawful Bill of Lading (B/L) Holder to another terminates the contractual rights of the Shipper or any Intermediate Bill of Lading (B/L) Holder, even if the Shipper retains ownership of the cargo. This was evident in the East West Corp v DKBS case where, despite the return of the Bill of Lading (B/L) to the Shipper, no rights to sue were restored without further endorsement.
4. Since the right to sue is separate from cargo ownership, a person with the right to sue under the Carriage of Goods by Sea Act 1992 may not have personally suffered any loss or damage from the Carrier’s breach of the Charterparty. Such a person can sue on behalf of the actual sufferer and hold any recovered damages for them. However, the act does not obligate a Bill of Lading (B/L) Holder to act on behalf of another, making entities like banks prefer to be named as Consignees to secure the right to sue directly.
5. Liabilities under the Charterparty are no longer automatically transferred with the right to sue. Under the Carriage of Goods by Sea Act 1992, liabilities attach to those vested with the right to sue only when they take or demand cargo delivery, make a claim under the Charterparty, or had taken or demanded delivery before the rights of suit were vested. This protects entities like banks holding the Bill of Lading (B/L) for security from assuming Charterparty liabilities until they claim the cargo or initiate legal proceedings.
6. The rules described also apply, as appropriate, to Consignees identified in a Sea Waybill or persons entitled to delivery under a Ship’s Delivery Order. They can sue based on the contract evidenced by the Sea Waybill or the terms of the Delivery Order but only regarding the specific cargo.

While a Sea Waybill is inherently Non-negotiable, provisions often allow for an Alternative Consignee to be nominated by the Shipper. In such instances, the right to sue transfers once the Shipper directs the Carrier to deliver to someone other than the original Consignee named in the Sea Waybill.

Implied Contract and Bill of Lading (B/L)

While many issues related to the title to sue have been addressed by the Carriage of Goods by Sea Act 1992, the long-established Common Law mechanism of the implied contract remains available if the remedies provided by the Carriage of Goods by Sea Act 1992 prove inadequate or unsuitable in specific cases. Courts have been willing, in appropriate situations, to imply a contract between a Consignee or Indorsee of a Bill of Lading (B/L) and the Carrier, which is distinct and independent of the original Contract of Carriage (Charterparty) between the Shipper and Carrier. This implied contract arises from the delivery of the cargo against the presentation of the Bill of Lading (B/L), with consideration provided by the payment of any outstanding Freight or other charges due under the original Contract of Carriage (Charterparty) by the cargo receiver. It was then a logical extension for courts to presume that the terms of the implied contract were those of the Bill of Lading (B/L) under which delivery was made.

An example of this principle can be seen in the Cremer v General Carriers case, where a cargo of tapioca chips was shipped in bulk under two Bills of Lading (B/Ls) issued to the Consignee. Despite the fact that the Mate’s Receipts (MR) noted that the tapioca was damp on shipment, both Bills of Lading (B/Ls) were Clean. The Consignee then Indorsed one of the Bills of Lading (B/Ls) to the claimant and handed it over along with a Ship’s Delivery Order for part of the remaining cargo. After the Claimant took delivery of his portion of the cargo using these documents, he later sued the Carrier for cargo damage caused by moisture, relying on the Estoppel created by the Clean Bill of Lading (B/L). Even though the Claimant had no rights under the original Contract of Carriage (Charterparty) since property in the cargo had not been transferred by Indorsement of the Bill of Lading (B/L), the trial judge ruled in favor of the Claimant. He stated that “A contract incorporating the terms of the Bill of Lading (B/L) was to be implied between the Plaintiffs and the Defendants by reason of the payment of the Freight by the Plaintiffs and the delivery of the cargo by the Defendants against the Bill of Lading (B/L).”

Moreover, it was determined that if the Claimant had taken delivery against a Ship’s Delivery Order (rather than a Delivery Order issued by the Seller), he was entitled to the same rights as if he had taken delivery under a Bill of Lading (B/L). However, in both situations, it was crucial that delivery was made against the payment of Freight or other outstanding charges, as this provided the necessary consideration to make the implied contract enforceable. Presumably, in cases where Freight was Prepaid and there were no other outstanding charges, the Indorsee would be unable to invoke this principle. The boundaries of this doctrine are not clearly defined, though it has been established that the decision to imply a contract in any given case is one of fact rather than law. While some judges have advocated for restraint, others have been willing to extend its application as a general remedy. For instance, in The Elli case, the Court of Appeal ruled that where cargo had reached the Discharging Port before the documentation, a guarantee to present the Bill of Lading (B/L) when it arrived was as effective as the actual presentation in inferring a contract. Additionally, where there has been significant mutual cooperation between the Carrier and the cargo Receiver, which can only be explained by the existence of some form of contractual relationship, courts have been inclined to imply a contract to give business reality to the transaction. For example, in The Captain Gregos case, where a consignment of oil, involved in a series of chain sales, was delivered to the ultimate purchaser in Rotterdam without the appropriate documentation, the Shipowner made delivery against a Letter of Indemnity (LOI). The available evidence suggested to the court that the cargo could not have been discharged into the purchaser’s refinery complex in Rotterdam without the active cooperation of both the purchaser and the ship’s crew. In these circumstances, the Court of Appeal found “very powerful grounds for concluding that it is necessary to imply a contract between BP and the Shipowners to give business reality to the transaction between them and create the obligations which both parties believed to exist.” However, the same court was less accommodating in the subsequent case of The Gudermes, where a quantity of oil sold to the claimants was shipped on a ship later found to have no operative heating coils. The oil, having cooled in transit, was refused by the claimant’s sub-purchasers in Ravenna, fearing it might clog their underwater sealine. The claimants then arranged for the oil to be transshipped into another ship off Malta, reheated on board, and subsequently delivered to Ravenna. In an effort to recover the cost of transshipment, the claimants argued that, due to their dealings with the Carrier concerning the transshipment, a Brandt v Liverpool contract should be implied on the terms of the Bill of Lading (B/L), which expressly incorporated the Hague Visby Rules. The Court of Appeal rejected this argument and emphasized that before a contract can be implied, the conduct of the parties must be explicable only on the basis of the contract sought to be implied. In its view, the final decision must be one of fact and, in the circumstances of this case, the facts did not support the implication of a new contract between the parties.

There are clear limitations on how far this fiction can be extended. No contract was implied in The Aramis case, where the Carrier failed to deliver any cargo. In this instance, a quantity of cargo covered by several Bills of Lading (B/Ls) had been shipped in bulk, but by the time the Final Bill of Lading (B/L) was presented at the Discharging Port, the cargo supply had been exhausted. The Court of Appeal refused to imply a contract based merely on the presentation of a Bill of Lading (B/L) in the absence of any corresponding response from the Carrier that could be interpreted as an acceptance of the claimant’s offer. This decision effectively denied any remedy for non-delivery.

Similarly, the mere presentation of a Bill of Lading (B/L) followed by partial delivery will not constitute sufficient evidence to establish an implied contract when the parties’ actions could equally be seen as fulfilling obligations and rights under the original contract. The lack of consideration provided by the party presenting the Bill of Lading (B/L) may be a key factor in reaching this conclusion, but it does not appear to be decisive.

Finally, there are two practical issues arising from the implied contract concept. The first raises doubts about whether this approach can provide a remedy for the consignee under a Sea Waybill. Since Sea Waybills were created to avoid problems caused by the late arrival of shipping documents and are not typically presented to obtain delivery of the cargo, the implied contract approach does not offer a practical solution to the issue of the consignee’s title to sue under such a document. The second issue concerns the proper law of the implied contract. In the absence of a choice of law clause in the Bill of Lading (B/L), the proper law of a contract implied from the parties’ conduct at the port of discharge might differ from that governing the original contract of carriage.

Bill of Lading (B/L) and Third Parties

Bailment on Terms

One approach to achieving this objective was presented by the Privy Council in The Pioneer Container case. In this case, various claimants had arranged with a Carrier for the transport of their cargo from Taiwan to Hong Kong, either as a complete voyage or as part of a through transport to other ports. In each instance, the Bill of Lading (B/L) issued to the Shipper included a Clause allowing the Carrier to sub-contract “on any terms the whole, or any part, of the carriage, loading, unloading, storing, warehousing, or handling” of the cargo. The transport was, in fact, sub-contracted to the defendant Shipowners, who issued a Feeder Bill of Lading (B/L) acknowledging Receipt of the cargo and including an exclusive Taiwan Jurisdiction Clause. During the voyage to Hong Kong, the Defendant’s ship was involved in a collision and sank, resulting in the loss of the Claimant’s cargo. The Claimant then sought to recover their loss by issuing a writ in rem in Hong Kong against a sister ship of the Defendant’s ship. In response, the Defendant sought a stay of proceedings based on the exclusive Taiwanese Jurisdiction Clause in the Feeder Bill of Lading (B/L). The weak point in the Defendant’s argument was that the Jurisdiction Clause was part of their sub-contract with the Freight Carrier, while it was acknowledged that no contractual relationship existed between the Defendant and the Claimant. The Privy Council addressed this gap by invoking the Doctrine of Bailment on terms, a concept that had been explored in earlier cases, though mainly in Obiter Dicta. There was no doubt that the original contract of carriage between the Claimants and the Carriers created a Bailor and Bailee relationship, and as noted by Pollock and Wright in the late nineteenth century, if the Bailor had authorized the Bailee to enter into a sub-bailment of the cargo, then while there would be no Privity of Contract between the original Bailor and the Sub-bailee, “it would seem that both the owner and the first bailee have concurrently the rights of a bailor against the sub-bailee according to the nature of the sub-bailment.” The question then was to what extent the head Bailor could be bound by the terms of the sub-bailment. According to the Privy Council, “if the effect of the sub-bailment is that the sub-bailee voluntarily receives into his custody the Cargo Owner’s goods and so assumes towards the owner the responsibility of a Bailee, then to the extent that the terms of the sub-bailment are consented to by the owner, it can properly be said that the owner has authorized the bailee to regulate the duties of the sub-bailee in respect of the goods entrusted to him, not only towards the bailee but also towards the owner.”

In the context of The Pioneer Container case, there was no doubt that the Claimant had consented to the sub-bailment, and by authorizing the Carrier to sub-contract “on any terms,” such consent would encompass all contractual provisions except those that were unreasonable or unexpected in their context. Moreover, the Privy Council found that including a Jurisdiction Clause of this type in the sub-bailment would align with the reasonable commercial expectations of those engaged in this type of trade, and such incorporation would generally lead to a conclusion that is sensible in the context of the carriage of cargo by sea, particularly in a container ship, as it facilitates an orderly and efficient resolution of disputes in a single jurisdiction, avoiding unnecessary legal costs and the risk of inconsistent outcomes in different jurisdictions. Consequently, the Privy Council granted the stay, holding that the Claimant was bound by the Jurisdiction Clause, even though no contractual relationship existed between them and the sub-bailees.

What, then, are the characteristics and effects of such a bailment on terms, and what potential does it have for use in other carriage situations? It is clear that the relationship between the Cargo Owner and Sub-bailee is independent of contract and is created by the voluntary taking of possession of cargo with the knowledge that they are the property of persons other than the immediate Bailor. The result is that such Sub-bailees owe the duty of a Bailee not only towards their Immediate Bailor but also towards the Cargo Owner. In fulfilling such duties, to what extent can the Sub-bailee invoke the Exceptions, Limitation of Liability provisions, and time bars contained in his sub-contract with the Intermediate Bailor, as reinforced by the Hague Visby Rules? The key requirement appears to be the consent of the Cargo Owner to the sub-bailment on the terms in question. As Lord Denning MR stated in the Morris v CW Martin & Sons Ltd case, “The answer to the problem lies, I think, in this: the owner is bound by the conditions if he has expressly or impliedly consented to the bailee making a sub-bailment containing those conditions, but not otherwise.” Although this opinion was expressed Obiter, it was adopted by the Privy Council as the basis of its judgment in The Pioneer Container case. On the facts of that case, there was little doubt as to the owner’s consent. The Bill of Lading (B/L) provided that the Carrier should be entitled to sub-contract on any terms the whole or any part of the carriage. Where, as here, the consent is very broad in its terms, only terms that are so unusual that they could not reasonably be understood to fall within such consent are likely to be excluded. In the opinion of the Privy Council, there was nothing unusual or unreasonable in an Exclusive Jurisdiction Clause, which would commonly be found in the container trade.

Once one accepts the premise of a sub-bailment on terms, then the facts of The Pioneer Container are reasonably clear-cut. To what extent, however, will this principle apply in other carriage situations? Bills of Lading (B/L) for sea carriage frequently incorporate Clauses entitling the Carrier to sub-contract the carriage of the cargo, while for Bills of Lading (B/Ls) covering Combined Transport, sub-contracting is virtually a necessity. Some Bills of Lading (B/Ls) follow The Pioneer Container pattern and allow sub-contracting “on any terms” or “on any terms whatsoever,” while others allow it “on any terms which are reasonable in the circumstances.” More difficulty may arise from Bills of Lading (B/Ls) that include a general authority to sub-contract, though without reference to the terms. Here again, it could be argued that the Shipper has consented to the Bailment on terms, subject only to the aforementioned test of reasonableness.

However, what is the position when the Bill of Lading (B/L) makes no reference to the possibility of sub-contracting? Lord Denning MR indicated in the Morris v Martin case that implied consent by the Shipper of the cargo to a sub-bailment on terms might be sufficient, and this view was adopted by the Privy Council in The Pioneer Container case: “Such consent may, as Lord Denning MR pointed out, be Express or Implied; and in this context, the sub-bailee may also be able to invoke, where appropriate, the principle of Ostensible Authority.” A typical example of Implied consent might arise when the Cargo Shipper contracts for their carriage with a Freight Forwarder (FF) or another person known to the Cargo Shipper to operate as a Non-ship Owning Carrier (NOC). In such a case, the Shipper must be presumed to be aware that performance of the contract is to be sub-contracted.

Even though consent to a sub-bailment may be Implied, it does not automatically follow that there is consent to all the terms of that sub-bailment. Here again, the test of reasonableness may be an appropriate guide, particularly if the terms involved are standard conditions in the particular trade. Thus, it has been suggested that the terms of a sub-bailment might satisfy the Reasonableness Test where the Exclusions and Limitations of Liability were no wider than their counterparts in the Contract of Carriage concluded between the Cargo Shipper and the contractual Carrier. Certainly, it is arguable that where carriage by sea is anticipated, a sub-bailee should be entitled to rely on the defenses provided by the Hague Visby Rules where such rules were mandatorily incorporated into the contract of sub-bailment. Different conditions might apply where the effect of such rules was dependent on contractual incorporation.

However, what is clear is that the sub-bailee cannot rely on the terms of a sub-bailment to which the Cargo Owner did not consent. Any argument to the contrary was rejected by the Privy Council in The Pioneer Container case as being inconsistent with the reasoning of Lord Denning MR in the Morris v Martin case. “As Lord Denning MR sees it, once it is recognized that the sub-bailee, by voluntarily taking the owner’s cargo into his custody, ipso facto becomes the bailee of those goods vis-à-vis the owner, it must follow that the owner’s rights against the sub-bailee will only be subject to terms of the sub-bailment if he has consented to them, i.e., if he has authorized the bailee to entrust the cargo to the sub-bailee on those terms.”

Vicarious Immunity

While the House of Lords strictly enforced the Privity Rule in the Scruttons v Midland Silicones case, which prevented Stevedores, engaged as Independent Contractors, from invoking the protection of a Limitation Clause in the contract of carriage, Lord Reid suggested a possible solution. He proposed that an Agency Relationship might address this issue. According to Lord Reid, such a relationship could have been established if four key conditions were met: “Firstly, the Bill of Lading (B/L) must clearly indicate that the Stevedore is intended to be protected by the liability-limiting provisions. Secondly, the Bill of Lading (B/L) must state that the Carrier, in addition to contracting for these provisions on his own behalf, is also acting as Agent for the Stevedore, ensuring that these provisions apply to the Stevedore. Thirdly, the Carrier must have authority from the Stevedore to do this, or perhaps later ratification by the Stevedore would suffice. Fourthly, any issues regarding consideration moving from the Stevedore must be addressed.”

This approach was quickly adopted by the drafters of the Bill of Lading (B/L) considered by the Privy Council in The Eurymedon case. In this case, a drilling machine was shipped from Liverpool to New Zealand under a Bill of Lading (B/L) that incorporated the Hague Visby Rules. The Bill of Lading (B/L) included a specific Clause stating that any Servant, Agent, or Independent Contractor employed by the Carrier would be entitled to the same protection as the Carrier, and that the Carrier was contracting not only on his behalf but also as Agent on behalf of these parties. When a Stevedore was later sued for Negligence for Damage caused to the drilling machine during discharge, he sought to rely on the Hague Visby Rules (Art III Rule 6), which barred any action brought more than 12 months after the damage occurred. The Privy Council, with two members dissenting, held that the Stevedore was entitled to this protection because the Carrier, in concluding the contract of carriage, had acted as Agent on his behalf. The terms of the Bill of Lading (B/L) were found to meet the four criteria suggested by Lord Reid.

Once the Agency concept was validated, its potential was quickly recognized. It could be used not only to extend the protection of the carriage contract to the employees of a contractual Carrier and Independent Contractors involved in its performance but also to offer similar protection for an actual Carrier when the carriage itself had been delegated to a sub-contractor or was part of a Combined Transport operation. Clauses using this concept soon appeared in many Standard Bill of Lading (B/L) Forms. The effectiveness of this strategy depended on the foresight of the contracting parties and their mutual agreement to include it in their contract.

However, the use of the Himalaya Clause, which relies on this strategy, has its limitations, as shown in The Starsin case. In this case, a Charterer’s Bill of Lading (B/L) was issued that included a Himalaya Clause intended to exempt the Independent Contractor from any liability to the Shipper for, among other things, Negligent damage to the cargo. The majority of the Court of Appeal ruled that, insofar as the Himalaya Clause attempted to extend to the Independent Contractor a broader exemption than that available to the contractual Carrier under the Hague Visby Rules, it was void under the Hague Visby Rules (Art III Rule 8). Similarly, in The Mahkutai case, a Charterer’s Bill of Lading (B/L) was issued that included both a Himalaya Clause and an Indonesian choice of Jurisdiction Clause. When the Cargo Owner sued for cargo damage, the Shipowner unsuccessfully tried to rely on the Jurisdiction Clause in the Bill of Lading (B/L). The Privy Council stated that the primary purpose of a Himalaya Clause is to prevent the Cargo Owner from bypassing the contractual defenses available to the Carrier by suing the actual Tortfeasor for Negligence. These defenses were meant to benefit only one party, whereas Jurisdiction Clauses were designed to create mutual rights and obligations. Lord Goff expressed regret at this conclusion, noting that “it is inevitable that technical points of contract and Agency Law will continue to be invoked by Cargo Owners seeking to enforce Tortious Remedies against Stevedores and others, without being restricted by the Exceptions and Limitations in the relevant Bill of Lading (B/L) Contract.” To the extent that this decision hinges on the specific wording of the Himalaya Clause, its impact could likely be mitigated by careful drafting.

Direct Approach

The previous examples of judicial creativity have their limitations and none effectively resolves the core issue. Ultimately, the solution must involve directly addressing the problem of privity. This approach was taken by the Supreme Court of Canada in 1993 in the London Drugs Ltd v Kuehne & Nagel case. In this case, the Claimant had delivered a transformer to a warehouseman for storage under a contract that limited the warehouseman’s liability to $40 per package unless the Cargo Owner declared the true value of the cargo and paid an additional charge. The Claimant chose not to exercise this option. Later, employees of the warehouseman damaged the transformer while using a forklift, contrary to express instructions. When sued for Damages in Negligence, the employees sought to invoke the Limitation of Liability Clause in the contract between the Claimant and the Claimant’s Employer, despite not being parties to that contract. In these circumstances, the Supreme Court of Canada was willing to create an exception to the privity rule and allow the employees to limit their liability to $40. The majority of the court stressed that they were not abolishing the Privity Rule but were simply creating a new exception, representing only an Incremental Change. Judge Iacobucci, in a judgment concurred by three of his five colleagues, explained the rationale for this new exception: “When an employer and a customer enter into a contract for services and include a Clause Limiting the Liability of the employer for damages arising from conduct that is normally expected to be performed by the employer’s employees, and in fact is performed by them, there is simply no valid reason for denying the benefit of the Clause to employees who carry out the contractual obligations.”

The majority of the court believed it did not make commercial sense to allow a Plaintiff to invoke the Doctrine of Privity in such cases to circumvent a contractual Exclusion or Limitation of Liability Clause to which he had willingly agreed.

Two conditions must be met for such an exception to apply. First, the Limitation of Liability Clause must either Expressly or Impliedly extend its benefit to the employees seeking to rely on it. Secondly, those employees “must have been performing the very services provided for in the contract between their employer and the customer when the loss occurred.”

While this decision focused on an Employer–Employee Relationship, the Canadian Supreme Court clarified in the subsequent Fraser River v Can-Dive Services case that the exception was not intended to be limited to such relationships. In this case, the Charterer of a barge, when sued in Negligence for the loss of the ship, sought to rely on a waiver of subrogation Clause in the hull subscription policy taken out by the Barge Owner. Although he was not a party to the insurance contract, the Supreme Court ruled in his favor, finding that the two basic requirements for the exception had been met. The parties to the insurance policy had clearly intended to extend the benefit of the waiver of subrogation clause to any Charterer of the ship, and the third-party beneficiary in this case was engaged in the very activities anticipated by the Clause on which he sought to rely.

On this occasion, the Supreme Court also addressed whether the original contracting parties could unilaterally revoke the provision in favor of the Third Party beneficiary. The Court held that such a revision of the contract was no longer possible without the Third Party’s consent once the benefit had crystallized by the occurrence of the event envisaged by the contract.

To what extent might English Courts follow a similar path? Lord Goff in The Mahkutai case acknowledged that “the time may well come when, in an appropriate case, it will fall to be considered whether the courts should take what may legitimately be perceived to be the final, and perhaps inevitable, step in this development and recognize in these cases a fully-fledged exception to the Doctrine of Privity of Contract, thus escaping from all the technicalities with which courts are now faced in English Law.” However, for various reasons, he did not believe that the appeal in The Mahkutai case was the right occasion to follow the example set by the Canadian Court.

Contracts Act 1999  (Rights of Third Parties)

The legislature addressed the challenge by enacting the Contracts Act 1999 (Rights of Third Parties), which came into effect on 11 May 2000. This statute allows a Third Party (such as a Shipbroker) to enforce a contractual provision in their own name if either the contract includes an Express Term granting this right, or if the contract appears to confer a benefit on the Third Party, unless it is clear from the contract’s interpretation that the parties did not intend for the Third Party to have a personal right to enforce the benefit. In both cases, the right of enforcement depends on the Third Party being explicitly identified in the contract by name, class, or description (the Shipbroker’s name must be expressly stated in the Charterparty). However, there is a specific exception concerning contracts for the Carriage of Goods by Sea. In such cases, the statutory right to enforce a contractual provision does not grant positive rights to a Third Party but is expressly limited to allowing a Third Party to benefit from an Exclusion or Limitation of Liability provision in such a contract.

The first part of the new statutory enforceability test seems to offer an alternative to using a Himalaya Clause. In typical scenarios covered by such a clause, the agency mechanism is specifically designed to extend the protection provided by the carriage contract’s provisions to a Third Party performing the obligations outlined in the contract. These Third Parties are usually identified by description. The direct relief offered by the new statutory remedy may eventually replace the more cumbersome agency mechanism in the Himalaya Clause, although the Contracts Act 1999 (Rights of Third Parties) explicitly preserves existing Common Law Remedies. The practical effectiveness of the new statutory provisions will be crucial in determining their use.

One potential drawback of the new legislation is that it retains the right of the original contracting parties to modify or cancel the contract without the consent of the Third Party beneficiary. Exercising this right, which could remove the protection otherwise granted to the Third Party, is subject to certain conditions. The original parties cannot modify or cancel the contract without the Third Party’s consent once the Third Party has communicated their acceptance of the contractual provisions to the Promisor, or if the Third Party has relied on these provisions and the Promisor is aware of this reliance or could reasonably have anticipated it.

All three potential restrictions assume that the Third Party is aware of the contractual provision in their favor when they either accept it or act in reliance on it. The Law Commission, in its report supporting the legislation, explicitly states that “Reliance on a promise, in our view, means conduct induced by the belief (or expectation) that the promise will be performed or at least, that one is legally entitled to performance of the promise.” The issue arises in cases where the Stevedore or Sub-contractor may be unaware of the Himalaya Clause in the Bill of Lading (B/L) at the time they perform what would otherwise be considered an act of reliance. Would the lack of intentional reliance in this context undermine the legislation’s purpose? In practice, this may have little impact, as any changes to the contract terms require the agreement of both original contracting parties, and a carrier is unlikely to agree to a change that would expose them to an Indemnity Claim by the Third Party. For example, in Scruttons v Midland Silicones case, the Carrier, in hiring Stevedores to unload the cargo, had contracted to provide them with the same protection as the Carrier in the Bill of Lading (B/L). When the Stevedores were held liable for the full value of the damaged cargo due to the Privity Rule, they were later able to recover their loss from the Carrier as damages for Breach of Contract.

Presentation of Bill of Lading (B/L)

The distinctive feature of the Bill of Lading (B/L) is that delivery of the Cargo must be made against the surrender of this document. This rule serves a dual purpose: it protects the Bill of Lading (B/L) Holder by ensuring that the Carrier only delivers the Cargo against presentation of the Bill of Lading (B/L), and it also fulfills the Carrier’s duty to deliver under the contract of carriage. The primary challenge for the Carrier arises from not knowing the identity of the party entitled to delivery at the Discharging Port, especially when the Cargo has been sold and resold to Third Parties during transit. Given the risk of substantial damages for misdelivery, the Carrier naturally prefers using a Straight Bill of Lading (B/L) or Non-negotiable Bill of Lading (B/L) which obligates delivery only to the Named Consignee. However, using such Non-negotiable Bills of Lading (B/L) often isn’t viable in export sales.

Further complicating the Carrier’s situation is the traditional issuance of the Bill of Lading (B/L) in sets of three Original Bills of Lading (B/L). This practice allows for the delivery of the Cargo against the presentation of any single Original Bill of Lading (B/L). Originating from the 16th century, this method ensures one Original Bill of Lading (B/L) is retained by the Shipper, another by the Carrier as part of the Ship’s Bag, and the third dispatched to the Consignee, potentially via different methods like sea-mail or airmail. Despite its historical roots, the utility of this practice was questioned as early as 1882 by Lord Blackburn, who argued that a single Original Bill of Lading (B/L), serving as the sole Document of Title (DOT), with certified copies as needed, would suffice. Yet, if the aim is to safeguard the interests of various parties against lost Bills of Lading (B/L) or defaulting Shippers, then retaining an Original Bill of Lading (B/L) remains essential for securing delivery from the Carrier.

To protect the Carrier, Bills of Lading (B/L) often include a clause stating that “one Original Bill of Lading (B/L) being accomplished, the other Bills of Ladings (B/Ls) to stand void.” Thus, the Carrier is shielded if delivery is made against a single Unendorsed Original Bill of Lading (B/L) or a validly Endorsed Bill of Lading (B/L). However, the Carrier faces strict liability for delivering against a forged endorsement, presenting a clear opportunity for fraud—yet, surprisingly, there are few recorded cases of such misuse. One notable exception was the Glyn Mills v East & West India Dock Co case, where a cargo of sugar was shipped to Cottam and Co in London, and despite being endorsed to Glyn Mills as security for a loan, Cottam and Co obtained the Cargo by presenting an Unendorsed Original Bill of Lading (B/L). The House of Lords ruled the warehouseman not liable for misdelivery since he acted in good faith, unaware of the bank’s claim.

If the Carrier or the Carrier’s Agent blatantly disregards the obligation to deliver the Cargo only against the presentation of the Original Bill of Lading (B/L), they commit a fundamental Breach of the Contract of Carriage, losing protection from all Exceptions and Limitation of Liability Clauses. For example, in the Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd case, the Carrier’s Agent released the cargo without requiring the Original Bill of Lading (B/L), relying on a form of indemnity from the appellant bank. Despite claims that such practices were common in Singapore, the Privy Council affirmed that knowingly delivering Cargo without requiring the Original Bill of Lading (B/L) constituted a breach of fundamental contract obligations, thereby voiding the Cesser Clause protection.

The principle of Fundamental Breach has evolved following the decision in Photo Production v Securicor, shifting from a rule of law to a question of contract interpretation. Recent judicial opinions suggest that courts are inclined to interpret exception clauses narrowly, especially when they could excuse breaches of fundamental contractual obligations. However, it is now feasible to draft clauses that completely exclude liability for disregarding the presentation rule, as seen in The Antwerpen case, where a carrier was fully protected by a clause in the Bill of Lading (B/L) that covered actions constituting a fundamental breach of contract. Ironically, such a well-crafted clause could undermine the entire purpose of the rule.

Problems in Presentation of Bill of Lading (B/L)

The unique characteristic of the Bill of Lading (B/L), which mandates the delivery of Cargo only upon the presentation of the Original Bill of Lading (B/L), presents significant practical challenges. Advances in transport technology, such as containerization, have expedited shipments, yet this speed is often outpaced by banking delays and slower postal services, causing the Cargo to arrive at its destination before the Original Bill of Lading (B/L). This scenario is especially common in the shipment of bulk cargoes over short sea routes and places the Carrier in a dilemma.

If the Carrier insists on the presentation of the Original Bill of Lading (B/L), several issues may arise. Without knowing the identity of the current Bill of Lading (B/L) Holder or the reasons for the delay in the arrival of the Original Bill of Lading (B/L), the Carrier cannot predict when it will be available. Often, there may be no storage options for the Cargo, other than on board the ship. In such cases, the Charterer could face liabilities for Demurrage (D) or Damages for Detention (DFD), and the Shipowner risks losing subsequent charters that might contain a Cancelling Clause. For liner trades, the Carrier faces scheduling concerns. Additionally, there are risks for the Cargo Owner, especially if the Cargo is perishable or subject to fluctuating market prices.

Alternatively, if the Carrier is reasonably certain of the identity of the Cargo Receiver, they might risk delivering the Cargo without the presentation of the Original Bill of Lading (B/L). However, this action is perilous as it constitutes wilful misconduct and a deliberate breach of the Carrier’s contractual obligations. If the Carrier delivers to the incorrect party, even in good faith, they could lose all protections afforded by the contract of carriage, including those under the Hague Visby Rules Exceptions and Limitations of Liability, as well as the protection of liability insurance provided by the Protection and Indemnity Club (P&I Club).

A third option involves the Carrier requiring a Letter of Indemnity (LOI) before agreeing to deliver without the Original Bill of Lading (B/L). Typically, a bank indemnity is demanded, though sometimes a Charterparty may only require personal guarantees. However, a Letter of Indemnity (LOI) is only as reliable as the financial standing of the guarantor, and bank indemnities can be costly as they often require ample coverage in terms of both time and amount.

None of these three methods offers an ideal solution to the issue posed by the absence of the Original Bill of Lading (B/L) when needed. Over the years, various proposals have been suggested to address this issue with varying success. One clear solution is for the sales contract or Bill of Lading (B/L) to explicitly accommodate such situations, as seen in the standard GAFTA 100 Form used in the grain trade, which allows Sellers to provide alternative documents or an indemnity that permits Buyers to obtain delivery of the Cargo and make payment in exchange for the same. Additionally, measures can be taken to expedite the transmission of current forms of documentation, such as producing documents at the Cargo’s destination or near the Consignee, where details can be quickly provided via modern communication systems. Arrangements for the presentation of the Original Bill of Lading (B/L) to a bank or the Carrier’s Agent at a convenient location other than the Discharging Port can also be made. Efforts have also been made to speed up document production through the adoption of uniform layouts by organizations like the International Chamber of Shipping (ICS), allowing all necessary documentation to be produced efficiently, accurately, and swiftly. These uniform formats ensure the master document contains all relevant information while the various copies display only the necessary details, reducing transcription errors significantly.

Short Form Bill of Lading (B/L)

One of the first data aligned documents introduced was the Short Form Bill of Lading (B/L). The goal with the Short Form Bill of Lading (B/L) was to streamline documentation and enhance production speed by minimizing the information displayed on the Bill of Lading (B/L). This was accomplished by removing the Printed Clauses of the contract of carriage from the reverse of the Bill of Lading (B/L) and replacing them with a straightforward Clause that incorporates the Carrier’s standard terms and conditions. The Short Form Bill of Lading (B/L) can be produced in a proprietary format with the Carrier’s name printed at the top, or in a generic format where the name of the chosen Carrier is added by the Shipper. The latter format offers significant advantages as it is universally applicable and eliminates the need for the Shipper to maintain separate stocks of Bill of Lading (B/L) for each Carrier.

The key feature of the Short Form Bill of Lading (B/L) is that it retains all the functions of the Standard Long Form Bill of Lading (B/L): it serves as a Receipt, provides Evidence of a Charterparty, and acts as a Transferable Document of Title (DOT), allowing the Short Form Bill of Lading (B/L) Holder to sell the Cargo in transit or pledge it to a bank. Consequently, it serves as a direct replacement for the Long Form Bill of Lading (B/L) in all contexts and has been endorsed by the banking sector as suitable security for Letter of Credit (LC). Like the Long Form Bill of Lading (B/L), it is subject to the Hague Visby Rules.

The primary challenge with the Short Form Bill of Lading (B/L) concerns the effectiveness of the incorporation Clause across different Jurisdictions. In the Common Law world, its validity is generally undisputed as it meets all the criteria set by the Doctrine of Notice established in a series of ticket cases. However, the response of courts in Civil Law Jurisdictions might be less predictable, especially if a copy of the Carrier’s Standard Terms is not easily accessible. Courts might also show more sympathy towards the assignee of a Short Form Bill of Lading (B/L) who might be disadvantaged by not having access to the Standard Terms, unlike the Shipper who likely has a copy in their office. For this reason, some Shippers opt to print key provisions of the contract on the Short Form Bill of Lading (B/L) itself, somewhat counteracting the original purpose of the format. Such terms typically include Jurisdiction and Choice of Law Clauses which are crucial for the Consignee, Arbitration Clauses, and Clauses Expressly incorporating the Hague Visby Rules. It is also important to note that the Short Form Bill of Lading (B/L) is essentially a Received for Carriage Document, whereas banks issuing a Letter of Credit usually require a Shipped Bill of Lading (B/L). Although there are options to add a Shipped notation, any delay in doing so can undermine the goal of saving time.

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Sea Waybill

In scenarios where a Negotiable Document of Title (DOT) is not necessary, the presentation challenge can be addressed by replacing the Traditional Bill of Lading (B/L) with a Sea Waybill. Originally developed for land and air transport where Negotiable Documents of Title (DOT) were not needed due to the brief nature of the journeys, the Sea Waybill simplifies the delivery process. Since a Sea Waybill does not permit negotiation, the Carrier’s duty is to deliver the Cargo directly to the Named Consignee, provided the Named Consignee can verify their identity, eliminating the need for presenting the Sea Waybill before receiving the Cargo.

Unlike the Bill of Lading (B/L), the Sea Waybill serves as a Receipt and provides Evidence of the contract of carriage, but it does not function as a Negotiable Document of Title (DOT). This limitation makes it less suitable for transactions involving Letters of Credit (LC) or scenarios where the Consignee might need to sell the Cargo in transit. Despite these limitations, the Sea Waybill is increasingly used, particularly in trans-Atlantic trade of containerized Cargo, where reports suggest up to 85 percent of such trade could be conducted using Sea Waybills. It is particularly advantageous for in-house cargo movements within multinational firms, shipments of personal effects, and open account trading with established and trusted overseas Buyers where security is not a concern. General cargo, which is rarely sold in transit, and mixed ownership cargo in containers arranged by Freight Forwarders (FF), are also suitable for Sea Waybill use because they are specifically intended for delivery to the Named Consignee.

The modern Sea Waybill mirrors the Short Form Bill of Lading (B/L) as a concise document with a blank reverse side but includes a Specific Clause incorporating the Carrier’s Standard Terms and Conditions. Like the Short Form Bill of Lading (B/L), it is primarily a Received for Carriage Document, though Shipped Notations can be added. However, unlike the Short Form Bill of Lading (B/L), the Sea Waybill is not governed by the Hague Visby Rules, though many standard forms include a clause expressly incorporating these rules except for Deck Cargo and live animals.

The primary advantage of using a Sea Waybill is that it circumvents the delays associated with the arrival of the Bill of Lading (B/L). The Consignee only needs to prove their identity at the Discharging Port to receive the Cargo, as the Sea Waybill does not adhere to the Presentation Rule. Since no negotiation of the document is required, the details of the Sea Waybill can be swiftly transmitted via fax or email, speeding up the transfer of necessary information. However, its major drawback is its non-negotiable nature and lack of status as a Document of Title (DOT), which makes it unsuitable for Letter of Credit (LC) transactions that prioritize security.

To address these anomalies, the Comite Maritime International (CMI) recently developed a set of rules for voluntary incorporation into any contract of carriage governed by a Sea Waybill. These rules acknowledge that contracts covered by Sea Waybills are subject to the same international conventions or national laws as would apply if the contract had been covered by a Bill of Lading (B/L) or similar Document of Title (DOT). They also include provisions similar to Hague Visby Rules Articles III Rules 3 and 4, making representations about the quantity or condition of the Cargo Received for Shipment (RFS) Prima Facie Evidence in favor of the Shipper and conclusive for a Consignee acting in good faith.

Additionally, these rules confirm the Shipper’s right to change the Consignee’s name anytime before the Consignee takes delivery of the Cargo, provided the Shipper notifies the Carrier and covers any resulting costs. This control can be transferred to the Consignee not later than when the Cargo is received by the Carrier, and this transfer must be noted on the Sea Waybill. Banks willing to accept a Sea Waybill as security for a Letter of Credit (LC) will likely require such a transfer of control. The rules also stipulate that while the Carrier must deliver the Cargo to the Consignee upon proper identification, the Carrier is not liable for incorrect delivery if they have taken reasonable care to verify the Consignee’s identity.

Straight Bill of Lading (B/L)

The Straight Bill of Lading (B/L) is a document less commonly used than the Sea Waybill but serves a similar function due to its non-negotiable nature. Unlike the Sea Waybill, the Straight Bill of Lading (B/L) uses the Standard Bill of Lading (B/L) Form, which can be drafted either as a negotiable or non-negotiable document. When issued as a Straight Bill of Lading (B/L), the Cargo is consigned directly to a specified person without reference to Order. As a shipping document, the Straight Bill of Lading (B/L) maintains all the attributes of the Standard Bill of Lading (B/L) except that it is non-negotiable, sharing similar limitations as the Sea Waybill when used as security for Letters of Credit (LC) or other financial arrangements.

The non-negotiability of the Straight Bill of Lading (B/L) raises similar concerns to those associated with Sea Waybills, particularly regarding the applicability of the Hague Visby Rules to the carriage contract it covers. Without definitive case law, academic consensus initially suggested that such regulatory frameworks did not apply because the Straight Bill of Lading (B/L) was not considered a Document of Title (DOT). However, this view was overturned by the House of Lords in The Rafaela S case, which involved a Straight Bill of Lading (B/L) for shipping printing machinery with an ultimate destination of Boston. The cargo was discharged and reshipped on a different vessel owned by the same Carrier without a new Bill of Lading (B/L). The House of Lords decided that two separate contracts were involved, with the on-carriage forming a new contract that would have been governed by the Hague Visby Rules if a Straight Bill of Lading (B/L) had been issued for it, emphasizing that such a document should be treated expansively under the Hague Visby Rules.

The Lords approached the matter from a policy perspective, asserting that the Hague Visby Rules aimed to protect Third Parties like Consignees from onerous terms in contracts they had not negotiated. They argued that a Straight Bill of Lading (B/L) should be included under these protections because it was known at the time the Hague Rules were drafted, and there was no intention to exclude them. The Lords ultimately held that the Straight Bill of Lading (B/L) qualifies as a similar Document of Title (DOT) under the Carriage of Goods by Sea Act 1992, applicable to the contract of carriage and thus subject to the Hague Visby Rules.

This decision clarifies the applicability of the Hague Visby Rules to the Straight Bill of Lading (B/L) but leaves several questions unresolved. For instance, while a Straight Bill of Lading (B/L) may be a Document of Title (DOT) under the Hague Visby Rules, it remains unclear whether it serves as such for other legal purposes, such as Letters of Credit or under the Sale of Goods Act 1979. It is also uncertain whether presentation of the Straight Bill of Lading (B/L) is always a precondition for Cargo delivery under a carriage contract. This decision could also impact international standards, potentially conflicting with the US Pomerene Act, which allows Cargo delivery under a Straight Bill of Lading (B/L) based on proof of identity alone, without requiring document surrender. This issue may have broader implications if the Act’s scope is extended to include incoming shipments to the United States.

Furthermore, in terms of legal standing to sue for loss or damage to Cargo, the Straight Bill of Lading (B/L) is treated similarly to a Sea Waybill under the Carriage of Goods by Sea Act 1992, assigning the right to sue to the consignee named in the Bill of Lading (B/L).

Bill of Lading (B/L) and Central Registry System

Carriers are increasingly pressured to release cargo without a Bill of Lading (B/L) presentation. Although Carriers could potentially insure against the risks involved, Protection and Indemnity Clubs (P&I Clubs) currently do not cover such risks. Relying on Letters of Indemnity (LOI) is costly, and banks are more hesitant to extend credit in these circumstances. Carriers often view the requirement for a Bill of Lading (B/L) presentation as a problem stemming from the Cargo Owner’s business practices, which they believe should be the Cargo Owner’s responsibility to solve financially, including any changes in protection and indemnity.

One proposed solution is the development of an electronic central registry system, though this has not progressed beyond experimental stages. This system would involve creating a central electronic registry where the Bill of Lading (B/L) is deposited immediately after issuance by the Carrier. The Bill of Lading (B/L) would still be issued in its traditional negotiable form at the loading port, but no physical transfer of the document would occur after deposit. Instead, all subsequent transactions involving the Bill of Lading (B/L) would be recorded at this registry, based on notifications by the current Consignee of record.

Under this system, the Carrier would notify the electronic central registry of the Estimated Time of Arrival (ETA) when less than 48 hours from the discharge port. The registry would then request the current Consignee to confirm the identity of the person authorized to receive the cargo, at least 24 hours before the ship’s arrival. Once this information is received, no further transactions involving the Bill of Lading (B/L) could be registered, and the Carrier would be instructed to deliver the cargo to the identified Consignee. Instructions from the registry would act as the equivalent of presenting the Bill of Lading (B/L) to the Carrier, fulfilling the Carrier’s delivery obligations under the contract of carriage.

This electronic central registry system would maintain the use of existing Bill of Lading (B/L) forms and would not necessitate changes in the current body of case law. Notifications of transactions to the registry would have the same legal effect as a physical transfer of the Bill of Lading (B/L), transferring property in the cargo and allowing reliance on its stated conditions. This system addresses the issue of Bill of Lading (B/L) delays by ensuring the Carrier can discharge duties by delivering to the party specified by the registry, without the risk of conflicting claims from holders of different Original Bill of Ladings (B/L), as the Bill of Lading (B/L) would no longer circulate physically.

However, implementing such a system successfully faces several significant challenges. Banks and Protection and Indemnity Clubs (P&I Clubs) must be assured of the system’s security to protect their interests. The initial setup of the electronic central registry system would be costly, with ongoing costs potentially covered by user fees, though the substantial initial investment remains a concern. Additionally, the system would need to be universally accepted and possibly located at strategic global locations. The legal framework, especially regarding the application of the Hague Visby Rules to Bills of Lading (B/L) within this system, would need clear definition. Lastly, the risk of errors or negligence by the registry staff and the associated liability would need careful consideration, potentially increasing insurance costs and user fees.

An alternative practical solution recently developed, particularly in the oil trade, involves the Shipper giving an Original Bill of Lading (B/L) to the Ship Master with instructions to deliver it to a specified person at the Discharging Port. This method bypasses delays but raises concerns about legal validity and the risks of Wrongful Delivery, especially if other Original Bill of Ladings (B/L) are fraudulently endorsed by the Shipper. While this practice resolves the timing issue, it introduces legal and operational risks that might not adequately protect the Carrier against claims from bona fide third-party Indorsees.

Electronic Bill of Lading (B/L)

In recent times, there has been a push for a more innovative approach that fully utilizes modern technology. Electronic communication methods are already prevalent in the shipping industry for sending various types of data, including ship manifests and Bill of Lading (B/L) information. The challenge is whether these technologies can be harnessed to create electronic alternatives to the traditional paper Bill of Lading (B/L). For any new Bill of Lading (B/L) system to be successful, it must gain acceptance from a broad spectrum of stakeholders such as Shippers, Carriers, Consignees, Banks, Underwriters, and Protection and Indemnity Clubs (P&I Clubs), many of whom are traditionally resistant to change and have conflicting interests.

A comprehensive market survey by UN Trade and Development (UNCTAD) revealed that electronic alternatives to the traditional Bill of Lading (B/L) are not as prevalent in commercial practices as one might expect. The survey highlighted that for an electronic Bill of Lading (B/L) to be viable in the shipping market, it must perform all the functions of the traditional paper version while also being legally recognized. It is generally agreed that an electronic Bill of Lading (B/L) can serve as a Receipt and provide Evidence of a Charterparty.

Transitioning to an electronic record for a paper Sea Waybill should be relatively straightforward. However, replicating the traditional Bill of Lading (B/L)’s unique role as a Document of Title (DOT) presents a significant challenge. Legally, the status of an Electronic Bill of Lading (B/L) remains uncertain, especially concerning whether it qualifies as a document under the Carriage of Goods by Sea Act 1971 and the Carriage of Goods by Sea Act 1992. These acts explicitly apply to Bill of Lading (B/L) or other documents and presume the use of paper. Although the Carriage of Goods by Sea Act 1992 allows for regulations to adapt its provisions to technological advancements, such regulations have not yet been implemented.

However, a potential resolution is offered by the proposed Rotterdam Rules, which aim to replace the Hague Visby Rules and introduce a legal framework that treats electronic and paper communications equivalently, provided there is express or implied consent from both the Carrier and Shipper. The Rotterdam Rules outline specific procedures for using electronic records, and such procedures must be explicitly referenced in the contract particulars for any relevant transaction.

Bill of Lading (B/L) and Atlantic Container Line Datafreight System

The initial foray into electronic systems was marked by the introduction of the Atlantic Container Line Datafreight System, which underwent experimental testing in Sweden. This system leverages electronic data processing to eliminate traditional documentation. At the point of cargo receipt, the Shipper provides the essential shipment details, which are entered into the Carrier’s computer at the Loading Port. The Carrier adds necessary information, including the Freight amount and any relevant Clean Bill of Lading (B/L) notations. Subsequently, the system generates a Datafreight Receipt with all entered data, certifies it as the initial printout, and hands it to the Shipper. This information is then transferred to a secondary computer at the Discharging Port, which sends an advance notice of the cargo’s arrival to the Consignee, along with a copy of the Datafreight Receipt. Modeled after the Sea Waybill, this procedure avoids issues related to cargo disposition during transit, requiring the Consignee only to provide identification to receive the cargo.

The Atlantic Container Line Datafreight System introduces several benefits. It addresses delays related to the Bill of Lading (B/L) by eliminating the need for document presentation and aligns well with established business practices without necessitating legal changes. The system essentially fulfills the legal roles of a Bill of Lading (B/L), such as acting as a Receipt and evidencing the carriage contract. However, its major limitation is that it does not serve as a Document of Title (DOT), making it unsuitable for transactions where the Consignee may want to sell the cargo en route. Yet, it can secure a Letter of Credit (LC) if the financing bank is named as the Consignee. Under this arrangement, the cargo seller would secure payment upon shipment and by presenting the certified Datafreight Receipt, provided it meets the bank’s requirements, including naming the buyer’s bank as the Consignee and including a Clean Bill of Lading (B/L) notation with a declaration transferring disposal rights of the cargo to the Consignee during transit.

Following this process, an advance Notice of Arrival (NOA) and a second copy of the Datafreight Receipt are sent to the buyer’s bank, along with a similar notice to the buyer to facilitate loan repayment before cargo arrival. Once payment is received, the bank releases the Cargo Receipt, enabling the buyer to take delivery.

However, there remains uncertainty regarding the security effectiveness in a Letter of Credit (LC) scenario, especially if the buyer becomes insolvent during transit. Traditionally, banks are hesitant about being named as Consignee due to the obligations under the contract of carriage. If the buyer fails to repay the loan, banks face the challenge of disposing of the cargo while possibly delaying delivery instructions to the Carrier, replicating the issues initially caused by the late arrival of the Bill of Lading (B/L).

Bill of Lading (B/L) and Electronic Data Exchange Systems

The fundamental advantage of Electronic Data Exchange Systems is found in the rapid and efficient exchange of an electronic Bill of Lading (B/L). Yet, for such systems to be commercially viable, they must replicate the functions of a Negotiable Paper Bill of Lading (B/L), allowing cargo to be sold while in transit. To achieve this, an Electronic Bill of Lading (B/L) must meet two criteria: it must feature a form of electronic signature for authentication, and it must maintain the unique security properties of the paper Bill of Lading (B/L).

The first criterion is addressed by implementing an Electronic Signature, a broad term for any electronic numbers or letters used to authenticate a message. This can range from simple PIN numbers to sophisticated public key cryptography systems that generate a Digital Signature. To meet the security requirements akin to those of a paper Bill of Lading (B/L), various encryption methods are employed. Encryption involves complex mathematical formulas that convert electronic text into a format unreadable to anyone without the decryption key. Despite rapid technological advancements in code-breaking, the security of the text depends on the complexity of the encryption code used. Two types of encryption are commonly used: the Private Key system and Public Key cryptography.

In the Private Key system, a single key is used for both encrypting and decrypting the data. This system mirrors the functions of a Negotiable Bill of Lading (B/L), allowing for successive sales of cargo in transit. Under this system, cargo details are entered into the Carrier’s computer by the Shipper at the Loading Port, and the Shipper is given a Private Key to control the cargo during transit. The Shipper can transfer control by instructing the Carrier to hold the cargo for a Named Consignee, who can then direct the Carrier to deliver to an Alternative Consignee if desired. Each transfer involves the cancellation of the existing Private Key and the issuance of a new one to the Transferee, ensuring that the Carrier takes instructions only from the current Key Holder. This system’s implementation follows the CMI (Comité Maritime International) Rules for Electronic Bills of Lading (B/L), which allow for opting out under certain conditions, such as the need for a physical Bill of Lading (B/L) for customs or Letter of Credit (LC) purposes.

The Public Key system, in contrast, uses two mathematically related keys where the Public Key is widely available and the Private Key remains confidential to the owner. This system can secure the confidentiality of messages and authenticate the sender’s identity through digital signatures, unique to both the message and the Private Key used to create it. Recipients can verify the sender’s identity and the integrity of the message using the sender’s Public Key.

However, despite these technological advances, there remains a global hesitancy to fully embrace Electronic Bills of Lading (B/L) due to the traditional security offered by tangible Bills of Lading (B/L). A critical aspect of a paper Bill of Lading (B/L) is its uniqueness to one holder at a time, a feature that must be convincingly replicated in an electronic format to gain broader acceptance. If a system can restrict rights to a single owner at any time, effectively mimicking the physical possession of a Bill of Lading (B/L), it could replace the need for a physical document. The challenge lies in ensuring that electronic systems can reliably distinguish the Original Bill of Lading (B/L) from copies, maintaining the integrity and ownership rights associated with traditional negotiable documents.

Bill of Lading (B/L) and Bolero

Bolero represents the latest innovation in the realm of Electronic Bill of Lading (B/L), aiming to harness electronic data interchange to replicate the three fundamental functions of a traditional Bill of Lading (B/L). However, the adoption of Bolero faces two significant legal hurdles. Firstly, there is uncertainty about whether an Electronic Bill of Lading (B/L) qualifies under the legal definition required to activate relevant maritime legislation and conventions. To address this, a contractual approach has been devised, mandating all Bolero users to enter a multilateral agreement that contractually replicates the roles of a paper Bill of Lading (B/L). This foundational contract would explicitly incorporate the Hague Visby Rules or other pertinent maritime conventions, while also ensuring compliance with the CMI (Comité Maritime International) Rules for Electronic Bill of Lading (B/L).

The second challenge arises from the non-negotiable nature of an Electronic Bill of Lading (B/L), potentially complicating the privity of contract. Bolero’s solution is to utilize novation to update the contract of carriage upon the endorsement of the Electronic Bill of Lading (B/L). This process extinguishes the existing contract between the Carrier and Shipper, establishing a new contract with the same terms between the Carrier and the Named Consignee. This procedure repeats with each subsequent endorsement, transferring control of the cargo and legal standing to sue the Carrier to each new Indorsee.

Operational specifics of Bolero involve all transactions, like endorsements, being relayed through Bolero to the recipient rather than directly between parties. Bolero authenticates these transactions using the unique Private Key assigned to the sender, further securing the process with its digital signature. Despite its sophisticated framework, Bolero remains a subscription-based system reliant on widespread market participation. Without significant adoption, frequent switches to traditional paper Bill of Lading (B/L) may be necessary. Additionally, its reliance on advanced technology may limit its applicability in less developed regions or in jurisdictions requiring paper documentation for customs or other legal processes. Bolero’s future as a definitive solution for Electronic Bill of Lading (B/L) challenges remains to be seen, dependent on its ability to inspire confidence and meet the rigorous security and legal standards of the maritime and financial industries.

Switch Bill of Lading (B/L)

Under the Switch Bill of Lading (B/L) process, the Original Bill of Lading (B/L) issued for the shipped cargo is surrendered to the Carrier or the Carrier’s Agent in return for a new set of Bill of Lading (B/L) with altered details such as the Shipper’s name and address, the issuance date of the Bill of Lading (B/L), or the Loading Port. This practice can be used for various commercial reasons, including hiding the origin of politically sensitive cargo or for fraudulent activities like evading customs duties at the Loading or Discharging Port or misrepresenting the shipment date that affects the cargo’s purchase price. The practice is fraught with risks, not only providing opportunities for fraud but also necessitating explicit authorization by the Actual Shipowner, not merely any Disponent Shipowner. Provisions in an Employment Clause and Agency Clause in a Time Charter that permit the Charterer to issue Bill of Lading (B/L) do not inherently grant permission to issue a Switch Bill of Lading (B/L). Likewise, even if a Sub-Charterparty explicitly allows a Sub-Charterer to issue a Switch Bill of Lading (B/L), it won’t bind the Shipowner without a similar clause in the Head Charter.

A major risk of this procedure is the Carrier issuing the new set of Bill of Lading (B/L) without securing the surrender of the Original Bill of Lading (B/L) first. This scenario leads to the existence of two competing sets of Bill of Lading (B/L), increasing fraud potential and complicating the Carrier’s duty to deliver the cargo to the rightful owner. Normally, the Shipowner or the Shipowner’s Agent who issues the Bill of Lading (B/L) should absorb the cost of any resulting losses.

Challenges also emerge if the terms of the two sets of Bill of Lading (B/L) are not identical. A subsequent Indorsee of a Switch Bill of Lading (B/L) may have no issues upon discovering that the terms of the Original Bill of Lading (B/L) were more beneficial. From a contractual perspective, the exchange of the set of Original Bill of Lading (B/L) for the Switch Bill of Lading (B/L) could be viewed as a mutual amendment of the contract of carriage terms by the parties currently involved. Problems might arise, however, where the two sets of Bill of Lading (B/L) were issued in different jurisdictions and the Hague Visby Rules were applicable in one but not the other. Would the Hague Visby Rules apply throughout the carriage or be nullified by the issuance of the Switch Bill of Lading (B/L) if they applied to the Original Bill of Lading (B/L)? Furthermore, numerous issues remain unresolved when the carriage is part of an international sales contract, particularly when financed by a Letter of Credit (LC). It is uncertain whether the terms and conditions of the Switch Bill of Lading (B/L) would meet the documentary requirements of the Letter of Credit (LC) or provide the buyer with continuous documentary coverage from the Loading Port to the Discharging Port. Despite the frequent use of Switch Bill of Lading (B/L), these questions have yet to be thoroughly litigated and answered.

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7- Understanding Hague Visby Rules

Under Common Law, parties to a Contract of Affreightment (COA) covered by a Bill of Lading (B/L) or a similar document, as well as those to a Charterparty, had complete autonomy to negotiate their own terms. However, the 19th-century exploitation of the Shipowner’s and the Carrier’s dominant bargaining position led to the restriction of this freedom with the introduction of the Hague Rules in 1924. The aim of the Hague Rules, and subsequently the Hague Visby Rules, was to shield Cargo Owners from the Carriers’ widespread liability exclusions. This protection was established by mandating that Standard Clauses be embedded in the Bill of Lading (B/L), outlining the risks that the Carrier must accept and defining the maximum coverage the Carrier could seek from Exclusion and Limitation of Liability Clauses. Any further attempts to diminish or negate such fundamental liability were deemed null and void. Nonetheless, the Carrier is not prohibited from accepting greater liability than what the Hague Visby Rules minimally prescribe.

The Hague Visby Rules provide a fundamental, compulsory set of contractual clauses to be included in a contract of carriage, while allowing parties the freedom to negotiate additional terms. These rules are incorporated as a schedule in the Carriage of Goods by Sea Act 1971.

Application of the Hague Visby Rules

Types of Carriage Covered by the Hague Visby Rules

The primary criteria for applying the Hague Visby Rules focus on the document that governs the contract of carriage rather than the contract itself. The Hague Visby Rules (Art I(b)) specify that they apply “only to contracts of carriage covered by a Bill of Lading (B/L) or any similar Document of Title (DOT) as far as such document pertains to the carriage of goods by sea.” This principle is further supported by the Carriage of Goods by Sea Act 1971, which legislatively enacts the Hague Visby Rules and states in subsection (4) that ‘Subject to subsection (6), nothing in this section shall be construed as applying the Hague Visby Rules to any sea carriage contract unless the contract explicitly or implicitly includes the provision for the issue of a Bill of Lading (B/L) or any similar Document of Title (DOT).”

It appears that the Hague Visby Rules do not intend to cover carriage contracts that contemplate issuing a Sea Waybill or other non-negotiable documents, as these are not Documents of Title (DOT).

Moreover, the Hague Visby Rules would not apply to a Charterparty or even a Bill of Lading (B/L) issued under a Charterparty, as long as the Bill of Lading (B/L) remains with the Charterer. In these cases, the Bill of Lading (B/L) functions merely as a Receipt and does not govern the Contract of Carriage, which is exclusively outlined in the Charterparty. However, once a Bill of Lading (B/L) is transferred to a Third Party, the situation shifts, and the Hague Visby Rules become effective the moment such a Bill of Lading (B/L) or similar Document of Title (DOT) starts to regulate the relationship between a Carrier and a Bill of Lading (B/L) Holder.

Conversely, if the parties anticipate that the contract of carriage will be covered by a Bill of Lading (B/L), the Hague Visby Rules are triggered even if such a document is ultimately not issued. This was affirmed in the Pyrene Co Ltd v Scindia Navigation Co case, where a consignment of fire tenders was delivered next to the ship for shipment. As one of the tenders was being hoisted aboard by the ship’s tackle, it fell back onto the dockside, causing severe damage. Although the remaining tenders were safely loaded, and the Bill of Lading (B/L) eventually issued did not mention the damaged tender, when the Carrier attempted to limit his liability under the Hague Visby Rules (Art IV Rule 5), the Shipper contended that this was not permissible as the carriage of the damaged tender was not covered by a Bill of Lading (B/L). The trial judge decided that the crucial aspect was the parties’ expectation of issuing a Bill of Lading (B/L) at the time of contracting, not whether one was actually issued. Since contracts of carriage are typically finalized well before any Bill of Lading (B/L) is issued, he concluded, “whenever a contract of carriage is concluded with the anticipation that a Bill of Lading (B/L) will eventually be issued, that contract is, from the outset, governed by a Bill of Lading (B/L) and thus, inherently a contract of carriage subject to the Hague Visby Rules.”

While the operation of the Hague Rules was limited by the Carriage of Goods by Sea Act 1924 to Bill of Lading (B/L) issued for outward voyages from the United Kingdom, Hague Visby Rules (Art X) significantly broaden their scope to include:

every Bill of Lading (B/L) related to the carriage of cargo between ports in two different states if: a) Bill of Lading (B/L) is issued in a contracting State, or b) carriage is from a port in a contracting State, or c) the contract contained in or Evidenced by the Bill of Lading (B/L) stipulates that these Hague Visby Rules, or legislation of any State giving effect to them, shall govern the contract, regardless of the nationality of the ship, the Carrier, the Shipper, the Consignee, or any other interested party.

Hague Visby Rules (Art X) explicitly envision an international contract of carriage between ports in different states, although the Carriage of Goods by Sea Act 1971 (s 1(3)) extends the application of the Hague Visby Rules, as far as the United Kingdom is concerned, to also encompass coastal trade.

Two conditions specified in Hague Visby Rules (Art X) meet the fundamental requirement that a Bill of Lading (B/L) be issued: where the Bill of Lading (B/L) is issued in a contracting state and where the Bill of Lading (B/L) explicitly incorporates the Hague Visby Rules, regardless of the geographical location of the Loading Port in either scenario. The third alternative pertains merely to carriage from a port in a contracting state. This introduces a potential ambiguity because unless the outward shipment itself automatically activates the Hague Visby Rules, their application could be circumvented by the Carrier issuing a Non-negotiable document instead of the required Bill of Lading (B/L). Although Hague Visby Rules (Art III Rule 3) certainly grants the Shipper the right to demand the issue of a Bill of Lading (B/L) upon the Carrier or the Carrier’s Agent receiving the cargo, this right is only effective if the Hague Visby Rules are already operational. As the principal aim of the drafters of both the Hague Visby Rules was to make their application compulsory for outward cargo shipments from contracting states, it is crucial to resolve this ambiguity. Perhaps the most sensible approach would be to apply the Hague Visby Rules to all cases of outward shipments from the United Kingdom unless the shipper was not entitled to demand the issue of a Bill of Lading (B/L) or other Document of Title (DOT), as issuing such documents was not customary in a specific trade or intended by the parties. This interpretation would accommodate the common use of Sea Waybills in container trade and for roll-on/roll-off traffic and aligns with the spirit of the Carriage of Goods by Sea Act 1971 (s 1(4)) which asserts that nothing in this section shall apply the Hague Visby Rules to any contract for the carriage of cargo by sea unless the contract explicitly or implicitly mandates the issue of a Bill of Lading (B/L) or any similar Document of Title (DOT).

Several lawyers believe that the parties cannot exclude the application of the Hague Visby Rules, where otherwise applicable, either by mutual agreement or by the Shipper accepting a Sea Waybill and not exercising the Shipper’s right under Hague Visby Rules (Art III Rule 3) to demand a Bill of Lading (B/L). Such a power to exclude by agreement would be crucial for adopting new documentary procedures.

This interpretational challenge is compounded by the language of Hague Visby Rules (Art VI), which essentially allows the Carrier and Shipper to bypass the provisions of the Hague Visby Rules and negotiate their terms for the carriage of specific cargoes. These cargoes, considered unique and not typically part of regular trade, may justify a special contract due to their particular characteristics or the circumstances under which they are transported. Examples include experimental cargoes or contracts for the transport of nuclear waste. Hague Visby Rules (Art VI) also stipulates that such cargoes should be accompanied by a Non-negotiable Receipt, ensuring that the unique terms of such contracts are not transferred to anyone other than the original Shipper. A final provision clarifies that the special provisions of Hague Visby Rules (Art VI) do not apply to ordinary commercial shipments conducted in the regular course of trade. This clause is often seen merely as emphasizing that the special provisions apply solely to the carriage of specific cargoes, although some commentators view it as excluding the possibility of circumventing the application of the Hague Visby Rules for normal commercial cargoes by using Sea Waybills or other Non-negotiable Receipts.

Lastly, it’s important to note that the scope of the Hague Visby Rules has been further broadened by the Carriage of Goods by Sea Act 1971 (s 1). Not only does this act extend coverage to the coastal trade within the United Kingdom, but under Carriage of Goods by Sea Act 1971 (s 1(6)(b)), the Hague Visby Rules are also legally binding in relation to ‘any receipt, which is a non-negotiable document marked as such if the contract contained in or Evidenced by it expressly stipulates that the Hague Visby Rules govern the contract as if the Receipt were a Bill of Lading (B/L)’. This subsection aims to clarify the legal implications of a clause in a Non-negotiable Receipt that explicitly incorporates the Hague Visby Rules, rather than defining the conditions under which the Hague Visby Rules would apply to such a document.

Cargoes Excluded by Hague Visby Rules

Two types of cargo are Expressly Excluded from the application of the Hague Visby Rules (Art I(c)). These are Live Animals and “cargo which by the contract of carriage is stated as being carried on Deck and is so carried”. In both scenarios, the parties are at liberty to negotiate their own terms of carriage for such cargoes. The exclusion arises due to the unique risks associated with each category of cargo; the first due to the nature and inherent characteristics of the animals, and the second due to the exposed positioning of the cargo.

Deck Cargo

Two conditions must be met to circumvent the operation of the Hague Visby Rules for Deck cargo. First, the cargo must indeed be Stowed on Deck, and secondly, this fact must be Explicitly Stated on the Bill of Lading (B/L). If either condition is unmet, the contract of carriage remains governed by the Hague Visby Rules. Thus, the Rules will still apply if the Bill of Lading (B/L) omits any mention of Deck stowage even though the cargo is Stowed on Deck, or if the Bill of Lading (B/L) claims the cargo is to be carried on Deck but it is actually Stowed in the Ship Hold.

Determining whether cargo is Stowed on Deck is straightforward; however, proving that such a statement is included on the Bill of Lading (B/L) can be challenging. The decisive factor is whether an innocent Transferee can verify, just by examining the Bill of Lading (B/L), whether the cargo was Stowed on Deck. Consequently, a clause in the Bill of Lading (B/L) granting the Carrier discretionary power to stow cargo on Deck would be inadequate, as the Transferee would be unable to ascertain if this discretion was exercised. In the case of Svenska Traktor v Maritime Agencies, where a consignment of tractors was shipped under a Bill of Lading (B/L) providing the Carrier liberty to Stow the cargo on Deck, and one tractor was lost overboard, the court ruled against the Shipowner. The judge argued that “a general liberty to carry goods on deck does not constitute a definitive statement that the goods are being carried on deck,” emphasizing the need for such a statement to act as a clear notification to Consignees and Indorsees under the Bills of Lading Act 1855 (s 1) that they are receiving Deck Cargo.

Furthermore, a Bill of Lading (B/L) clause stating the Carrier is permitted to carry the cargo on Deck unless the Shipper objects also fails to satisfy the requirement, as the Transferee would have no means of knowing whether an objection was made. This was highlighted in the Encyclopaedia Britannica v Hong Kong Producer case, where encyclopaedias shipped in containers were damaged by seawater. The Carrier’s attempt to invoke an Exclusion Clause was unsuccessful because the court determined the Hague Visby Rules (Art I(c)) did not apply; the clause merely suggested potential Deck stowage but did not confirm it.

Lastly, it is crucial to note that customary practices in the trade, such as the Deck carriage of timber or inflammable materials, do not influence the applicability of the Hague Visby Rules. If the Carrier wishes to benefit from the exclusion provided by Hague Visby Rules (Art I(c)) and avoid their operation, the Bill of Lading (B/L) must contain an Express Clause stating that the cargo has been shipped on Deck.

Consent to Deck Carriage

At this juncture, it is pertinent to address a related issue that is often conflated with the circumstances under which Deck Cargo is not subject to the provisions of the Hague Visby Rules. This concerns the implications for the contract of carriage when the Carrier opts to stow the cargo On Deck without prior consent from the Shipper. Traditionally, such actions were deemed a Fundamental Breach of the contract of carriage, preventing the Carrier from invoking any contractual terms and exceptions for protection in cases of loss or damage to the cargo. Notably, the US Court of Appeals in the Encyclopaedia Britannica v Hong Kong Producer case held that following such a Breach, the Carrier was barred from utilizing the protection offered by the Hague Visby Rules, particularly the Limitation of Liability Clause. However, these assumptions no longer seem valid under English Law. The Doctrine of Fundamental Breach has likely been rendered obsolete following the House of Lords’ decision in the Photo Production v Securicor Transport case. Furthermore, the Court of Appeal in The Kapitan Petko Voivoda case ruled that even if cargo is carried On Deck in breach of an express underdeck carriage agreement, it does not prevent the Carrier from using the Limitation of Liability provisions in the Hague Visby Rules for defense against cargo claims. Judge Longmore argued that ‘the seriousness of the breach is no longer an adequate measure for deciding the applicability of exemption or limitation clauses to specific breaches.’

When considering this purely as a matter of interpretation, the phrase “in any event” is crucial. It most naturally means “in every case”, regardless of how serious the contract breach is; whether or not the cargo was stowed under deck. Consequently, the Carrier was able to limit his liability despite what was previously considered a Fundamental Breach of the contract of carriage.

To prevent such breaches of the contract of carriage, the Shipper must have consented, either Expressly or Impliedly, to the Stowage of the cargo On Deck. It appears that a general Liberty Clause in the Bill of Lading (B/L) or even a Clause stating “the carrier is permitted to stow on Deck unless Shipper objects” might suffice, provided the Shipper was adequately notified of the Clause at the time of shipment. For instance, in the Svenska Traktor case, the Court of Appeal, while denying the Carrier’s right to exclude the provisions of the Hague Visby Rules due to the absence of a Deck shipment statement in the Bill of Lading (B/L), still acknowledged that the inclusion of a Liberty Clause in the Bill of Lading (B/L) meant that Deck Stowage did not constitute a breach of the contract of carriage. Thus, the court allowed the Carrier the defenses provided by the Hague Visby Rules. Similarly, consent is typically implied when it is customary in the trade to ship certain types of cargoes On Deck, such as timber, certain dangerous cargoes, and notably, containers on a specially designed container ship. This interpretation, however, is disputed by Judge Tetley, who contends that a printed Liberty Clause in a Bill of Lading (B/L) does not imply consent unless it is accompanied by a clear statement that the cargo has indeed been shipped On Deck. In his view, a Liberty Clause is merely an option, and the absence of a definitive statement in the Bill of Lading (B/L) serves as an assurance that the option has not been exercised. He argues that any resulting ambiguity is problematic, as the Carrier could easily clarify the situation with a clear On Deck statement in the Bill of Lading (B/L). Judge Tetley believes that Carrier hesitation likely stems from concerns that a bank or a Consignee might refuse a Bill of Lading (B/L) indicating Deck Carriage. Thus, he views shipment On Deck without explicit documentation as a Fundamental Breach of Contract.

This perspective, however, finds little support in UK cases, as evidenced by the Court of Appeal’s decision in the Svenska Traktor case. Moreover, there are valid commercial reasons for omitting clear statements about Deck Carriage in the Bill of Lading (B/L). In the container trade, for example, approximately 30 percent of containers are typically carried On Deck in an efficient operation. The final placement of each container depends on multiple factors, including the potential hazardous nature of its contents, the ship’s trim, or simply the timing of its arrival at the dockside. In such scenarios, the Carrier seldom has the opportunity to annotate each Bill of Lading (B/L) and typically relies on the inclusion of a Liberty Clause.

Period of Coverage of the Hague Visby Rules

While the Hague Visby Rules apply to a specific contract of carriage covered by a Bill of Lading (B/L), they do not govern the entire performance of the contract of carriage but are relevant only to the sea transport portion. According to the Hague Visby Rules, the Contract of Carriage encompasses the period from when the cargo is loaded onto the ship to when it is discharged from the ship.

This period is typically interpreted as covering the Tackle-to-Tackle Period where the Carrier is responsible for both loading and discharge, starting when the Ship’s Tackle hooks onto the cargo at the Loading Port and ending when the tackle is released at the Discharging Port. Thus, Carrier liability under the Hague Visby Rules extends not only during the voyage but also during loading and discharging operations, such as instances where the cargo falls back onto the dockside while being lifted aboard with the Ship’s Tackle, or into the sea during discharge into lighters. However, the Hague Visby Rules do not extend to any additional time the cargo is under the Carrier’s control outside the Tackle-to-Tackle period. Under modern trading conditions, this period can be significant, especially since cargo for shipment, delivered to a Ship Agent nominated by the Carrier, is often discharged into a designated warehouse at its destination. Since Hague Visby Rules (Art VII) allow parties to negotiate their own terms regarding the care of cargo before loading and after discharge, Carriers often attempt to exclude responsibility during this period. This is known as the before and after problem and is a recognized weakness in the Hague Visby Rules, which cargo interests are now seeking to rectify.

Complexities with Through Bill of Lading (B/L) or Combined Transport Bill of Lading (B/L)

Another issue arises when cargo is shipped under a Through Bill of Lading (B/L) or Combined Transport Bill of Lading (B/L) that involves transshipment at an intermediate port. The question is whether the Hague Visby Rules govern the entire operation or only up to the port of transshipment. A key factor in this determination is the wording of Hague Visby Rules (Art I(c)), which specifies that the Contract of Carriage for the purposes of the Hague Visby Rules is covered by a Bill of Lading (B/L) “insofar as such document relates to the carriage of goods by sea.” It is clear then that the Hague Visby Rules are inapplicable to any segment of through transport involving land or air carriage. However, a Canadian court expanded on this by ruling that even when sea carriage is anticipated throughout transit, the Hague Visby Rules do not cover periods when the cargo is on the dockside awaiting transshipment. In the Captain v Far Eastern Steamship Co case, cargo shipped from Madras to Vancouver under a contract expected to involve transshipment was stored on the dock in Singapore for three weeks, during which it sustained rainwater damage. The court allowed the Carrier to rely on a contractual clause excluding liability for this period, asserting that the Hague Visby Rules did not apply while the cargo was dockside, as it does not relate to the carriage of cargo by water.

This decision, however, was distinguished by Judge Bingham in the Mayhew Foods v OCL case involving the carriage of frozen poultry from Sussex to Jeddah. The Bill of Lading (B/L) covered the entire journey, and the Shipper was unaware of the Carrier’s intention to transship the cargo in Le Havre. Judge Bingham noted that it would be unexpected for the Carrier to discharge, store, and tranship the cargo, thus avoiding liabilities they would have faced if they had shipped directly from Southampton to Jeddah. He concluded that such actions still related to and connected with the sea carriage, thereby falling under the Hague Visby Rules. The decision implies that when cargo is shipped from a contracting state under a Bill of Lading (B/L) that covers the entire sea journey to the final destination, despite any intermediate transshipment, the Hague Visby Rules apply throughout the operation, governed by the requirements of Hague Visby Rules (Art X).

The decision in The Morviken case is pertinent primarily in scenarios where the Hague Visby Rules are obligatory. If the Hague Visby Rules are not directly applicable, courts are reluctant to assume that selecting English Law implies an intent to integrate the Hague Visby Rules into the contract of carriage as defined by Hague Visby Rules (Art X). For example, in The Komninos S case, a cargo of steel coils shipped from Thessaloniki (GR) to Ravenna (IT) under a Bill of Lading (B/L) stipulating UK courts for dispute resolution implied an associated Choice of Law. When a cargo damage claim arose, the Shipowner sought to utilize Exclusion Clauses, which would be invalid under the Hague Visby Rules if applicable. However, as Greece was not a contracting state at that time and the shipment did not originate from a contracting state, the Hague Visby Rules were not mandatorily applicable. The Court of Appeal declined to deduce an intent to incorporate the Hague Visby Rules merely from the inclusion of a forum selection clause, allowing the Shipowner to apply the contractual exceptions.

Furthermore, it is essential to recognize that parties can explicitly include the Hague Visby Rules in a Bill of Lading (B/L) or Non-negotiable Receipt when these rules would not typically apply. Previously, such actions were regarded purely as contractual agreements, and courts would resolve any disputes between the Hague Visby Rules and other contract terms through standard interpretation. However, the Carriage of Goods by Sea Act 1971 (s 1(6)) now specifies that in any conflict, the provisions of the Hague Visby Rules will supersede any Express Terms of the contract that are inconsistent with them, aiming to give statutory binding effect to voluntary contractual agreements. This outcome is contingent on the Non-negotiable Receipt fully adopting the Hague Visby Rules. In The European Enterprise case, a shipment of meat packed in a refrigerated tractor trailer from Dover (UK) to Calais (FR) under a Non-negotiable Consignment Note included the Hague Visby Rules with certain limitations, including a less generous Limitation of Liability than those stipulated in Hague Visby Rules (Art IV Rule 5). When the cargo suffered damage in transit, the Cargo Owner contended that the lower contractual limit was voided by the Carriage of Goods by Sea Act 1971 (s 1(6)(b)), which endowed the Hague Visby Rules with legal force. The trial judge dismissed this argument, noting that the Hague Visby Rules were not inherently applicable to Non-negotiable Receipts, allowing parties to negotiate their terms and decide on the extent of incorporation into their Contract of Carriage. The judge remarked it would be odd if a voluntary Paramount Clause, reflecting only a partial adoption of the Hague Visby Rules, resulted in statutory binding character for all the Hague Visby Rules where there was no foundational contractual bond. Judge Steyn further noted that before the Hague Visby Rules could achieve legal force upon incorporation into a Non-negotiable Receipt, strict adherence to two formal requirements outlined by the Carriage of Goods by Sea Act 1971 (s 1(6)(b)) was necessary: the receipt must explicitly state its Non-negotiable nature and must explicitly dictate that the Hague Visby Rules govern the contract of carriage as if the Receipt were a Bill of Lading (B/L). Failure to include this specific phrasing would prevent the Hague Visby Rules from obtaining statutory force.

Basic Provisions of the Hague Visby Rules

The Hague Visby Rules were crafted not as a comprehensive, all-encompassing code governing the carriage of cargo by sea but were designed to establish a basic yet mandatory framework for the contract of carriage. Parties are free to negotiate additional terms outside of this framework. As suggested by the title of the Hague Visby Rules Convention, the primary goal was to standardize certain regulations related to Bill of Lading (B/L) to achieve significant uniformity in safeguarding the interests of both Carriers and Cargo owners. The provisions of the Hague Visby Rules are broadly categorized into two groups: first, those that set the minimum obligations of the Carrier, and second, those that outline the maximum protections available to the Carrier, including the extent to which liability can be limited.

Duties of the Carrier under the Hague Visby Rules

1- Obligation to Provide a Seaworthy Ship – Hague Visby Rules (Art III Rule 1)

Traditionally, the Carrier was absolutely obligated under Common Law to provide a Seaworthy Ship, subject only to the Common Law exceptions of Act of God, Queen’s Enemies, or Inherent Vice. This liability is now replaced by an obligation to exercise Due Diligence under the Carriage of Goods by Sea Act 1971 (s 3). The Hague Visby Rules (Article III Rule 1) stipulate that:

The Carrier must, before and at the beginning of the voyage, exercise Due Diligence to:

• Make the ship Seaworthy.
• Properly man, equip, and supply the ship.
• Ensure that the ship holds, refrigerating and cool chambers, and all other parts of the ship where cargo is carried, are fit and safe for their reception, carriage, and preservation.

In Hague Visby Rules (Article III), the obligation encompasses the three recognized aspects of Seaworthiness under Common Law: the physical condition of the ship, the efficiency of the crew and equipment, and the Ship’s Cargoworthiness.

1(a)- Duration of the Obligation to Provide a Seaworthy Ship

Hague Visby Rules (Art III Rule 1) mandates that the Carrier exercise Due Diligence to ensure the ship is Seaworthy “before and at the beginning of the voyage.” This phrase has been interpreted to cover the period starting from at least the beginning of the loading operation until the ship departs on its voyage. An illustrative case saw the claimant’s cargo lost when the defendant’s ship had to be scuttled before it could depart on the contractual voyage. During the loading, an attempt to thaw ice in the scupper holes with an oxyacetylene lamp led to a fire, necessitating the scuttling of the ship. Although the Shipowner attempted to invoke the fire exception under Hague Visby Rules (Art IV Rule 2(b)), the Privy Council ruled that the loss resulted from a breach of the Seaworthiness obligation since the Carrier’s duty to exercise Due Diligence persisted throughout the loading and until the ship’s departure. The Carrier’s failure to prevent the fire, caused by the negligence of its servants, breached this obligation, rendering the Carrier liable. The Privy Council noted that the implicit guarantee of Seaworthiness in Hague Visby Rules (Art III Rule 1) is an overarching obligation, any violation of which negates the Carrier’s right to claim the protections under Hague Visby Rules (Art IV) for any resultant damage. If the Shipowner ensures the ship is Seaworthy before it sets sail, they are not liable under the Hague Visby Rules for defects that arise during the voyage or at an intermediate port. The definition of “voyage” under Hague Visby Rules (Art III) spans the entire journey indicated on the Bill of Lading (B/L), regardless of intermediate stops. The Charterparty doctrine of stages, which requires the ship to be Seaworthy at the start of each stage, does not apply under these rules. Thus, in the case of Leesh River Tea Co v British India Steam Nav Co, a ship was not deemed Unseaworthy under Hague Visby Rules (Art III) when cargo was damaged due to the secretive removal of a storm valve cover plate by an unknown person while the ship was docked at an intermediate port.

Furthermore, in The Satya Kailash case, where a ship was chartered to lighten another ship that could not enter port due to excessive load, an incident occurred. During the operation, both ships collided due to negligent navigation by the chartered ship. The court found that the Paramount Clause within the charter, which incorporated the US Carriage of Goods by Sea Act 1936, allowed the Shipowner to utilize the Hague Visby Rules’ exceptions covering negligent navigation. This decision highlights that the Act’s provisions were deemed applicable even though the charter involved no cargo-carrying voyage and was not connected to any voyage to or from a US port. This interpretation suggests that courts are likely to uphold clauses that incorporate the Hague Visby Rules into charterparties, emphasizing that the requirement for these rules to have the force of law mainly applies when explicitly included in a Bill of Lading (B/L) or Non-negotiable Receipt.

Incorporating the Hague Visby Rules into a Charterparty significantly alters the foundational obligations that arise under such agreements.

Ship Seaworthiness Obligation

Traditionally, Common Law mandates a strict obligation to provide a Seaworthy Ship. This is modified by the Hague Visby Rules to a requirement of exercising due diligence to ensure the Ship is Seaworthy “before and at the beginning of the voyage.” Interpreting this phrase within a Charterparty context poses challenges. Specifically, it is uncertain whether this duty arises only at the start of the initial voyage or extends to the commencement of each voyage within the Charterparty. While straightforward for Voyage or Trip Charters, which typically involve a single voyage, the scenario becomes complex with multiple voyage charters. The House of Lords, in the case of Adamastos Shipping Co v Anglo-Saxon Petroleum, ruled that the duty covers all voyages under a Charterparty, whether the ship is loaded or in ballast. This ruling was specific to a Consecutive Voyage Charter, but it is suggested that the obligation similarly applies to each voyage under a Time Charter when each voyage requires new Bill of Lading (B/L) that incorporates the Hague Visby Rules, depending on the overall interpretation of the Charterparty.

Additionally, the Lords in the Adamastos case recognized that the Hague Visby Rules’ provisions for compensation due to breaches of the Seaworthiness Obligation (Hague Visby Rules Art IV Rule 1 and Rule 2) are not confined to physical cargo damage or loss. They extend to compensatory damages for freight losses incurred due to an Unseaworthy Ship completing fewer voyages than planned during the charter term, as long as the loss fits within the scope of activities outlined in Hague Visby Rules (Art II).

Exceptions

In Charterparties, Shipowners typically undertake a broader array of activities than those covered under standard Bill of Lading (B/L) contracts or those envisaged by the exceptions listed in Hague Visby Rules (Art IV Rule 2). A pertinent question is whether a Shipowner can claim the immunities provided in the Hague Visby Rules for these extensive activities if the Charterparty incorporates these rules. This was affirmatively answered in The Satya Kailash case by the Court of Appeal. Despite the unusual nature of the operation (lightening another overloaded ship), the Shipowner successfully invoked the Navigation Exception from the US Carriage of Goods by Sea Act 1936, incorporated into the Charterparty. This decision underscores that broad incorporation clauses can extend statutory immunities to cover additional contractual duties under the Charterparty, as highlighted by Judge Goff’s assertion that general incorporation terms effectively shield the owner regarding statutory duties and other contractual activities stipulated by the Charterparty.

9- Understanding Hamburg Rules

The 1968 Brussels Protocol’s amendments to the Hague Rules did not achieve widespread acceptance. Many nations with significant cargo interests viewed these as merely a stopgap measure, and there was a burgeoning call for a thorough overhaul of carrier liability to formulate a comprehensive code addressing all aspects of the carriage contract. This initiative led to the drafting of a new convention, ratified at a United Nations-sponsored international conference in Hamburg in March 1978. Known as the “Hamburg Rules,” this convention came into effect on 1 November 1992, a year after the deposit of the twentieth ratification instrument. To date, 34 states have adopted the convention, though no major maritime nations have ratified it yet.

The Hamburg Rules govern sea carriage contracts, defined as any contract where the carrier, in exchange for freight payment, agrees to transport goods by sea from one port to another. If the contract includes multimodal transport, the Hamburg Rules apply only to the maritime segment. This differs from the Hague Visby Rules, which focus on contracts evidenced by a Bill of Lading (Bill of Lading) or a similar Document of Title (DOT). Under the Hamburg Rules, it does not matter whether a Bill of Lading or a Non-negotiable Receipt is issued, and the definition of a Bill of Lading in Art 1.7 is crafted accordingly. However, like its predecessors, the new convention does not apply to charterparties or to Bill of Lading (B/L) issued under them unless the Bill of Lading regulates the relationship between the carrier and the Bill of Lading (B/L) Holder, that is, it is issued or negotiated to someone other than the charterer.

The Hamburg Rules apply to contracts of sea carriage between ports in different states (excluding coastal trade), and the scope of covered voyages is similar to those listed in the Hague Visby Rules (Art X), with a notable exception. The Hamburg Rules regulate both inward and outward Bill of Lading (B/L), a crucial consideration for shipowners trading with countries where the Hamburg Rules are effective. There is also a provision for parties to explicitly incorporate the Hamburg Rules into the Bill of Lading (B/L) or other contract evidence.

Unlike the Hague Visby Rules, which apply only from Tackle-to-Tackle, the Hamburg Rules operate for the Entire Duration the Carrier is responsible for the cargo, from loading at the departure port to unloading at the destination port. This extended period is clearly defined, addressing the existing ‘before and after’ issue seen in the Hague Visby Rules, where the carrier can disclaim liability for cargo not physically on board his ship.

Carrier Liability under the Hamburg Rules

In establishing a uniform and comprehensive standard for Carrier Liability, the creators of the Hamburg Rules have embraced the long-standing argument by cargo interests that Carrier Liability should exclusively rely on fault. They assert that a Carrier must be accountable for all loss of, or damage to, cargo resulting from his own fault or that of the Carrier’s Agents and Servants, without any exceptions. Consequently, they have decided to articulate an affirmative rule of responsibility based on assumed fault and to eliminate the list of exceptions found in the Hague Visby Rules (Art IV Rule 2). This foundational liability is articulated as follows:

“Carrier is liable for losses stemming from damage to or loss of the goods, as well as from delivery delays if the event causing the loss, damage, or delay occurred while the goods were under his care as outlined in Article 4, unless the Carrier demonstrates that he, his servants or agents, took all reasonable measures to prevent the event and its repercussions.”

Regarding the majority of exceptions in the Hague Visby Rules that typically do not involve the Carrier’s fault, the removal of these exceptions should minimally impact Carrier Liability. This elimination might even be advantageous legally, as it reduces the uncertainty surrounding the scope and definition of such exceptions, which are merely instances where fault cannot be ascribed to the Carrier. Nonetheless, a significant shift in responsibility is anticipated by removing the exception for negligence in the navigation or management of the ship. Cargo interests have consistently argued that it is unfair for a Carrier, who has complete control over the ship and cargo, to exclude such liability fundamental to the carriage contract. This form of protection is not afforded to carriers in any other transport mode. Carrier interests are understandably hesitant to relinquish such conventional protection and argue, among other points, that such a change would lead to a significant rise in Freight Rates. Resistance to discarding the exception for faults in ship management is less pronounced since it is widely acknowledged that this conflict with the Carrier’s Duty of Care towards the cargo has led to considerable legal uncertainty and litigation.

Nature of Carrier Liability under the Hamburg Rules

By implementing a uniform liability test, the Hamburg Rules draftsmen aimed to rectify some of the discrepancies and ambiguities stemming from the vague language in the Hague/Visby Rules. Under these earlier rules, the carrier’s obligation to ensure a seaworthy ship was confined to exercising ‘due diligence’, while he was mandated to care for the cargo ‘properly and carefully’ throughout the journey. The adoption of a uniform fault-based liability test is intended to address these issues. Under the Hamburg Rules, the carrier’s obligation to maintain a seaworthy ship is evaluated on the same grounds as his duty towards the cargo, with both responsibilities extending over the entire carriage duration. The remaining question is how national courts will interpret the carrier’s duty to take ‘all necessary measures to prevent the occurrence and its consequences’. Will British courts view this as indicative of negligence liability, or will they continue to hold the carrier responsible for the negligence of independent contractors, as in The Muncaster Castle case? If the latter interpretation prevails, will a similar duty of care extend to the cargo? Regrettably, the quest for uniformity in interpretation is not helped by the introduction of varied terminology, such as the use later in the Hamburg Rules (Art 5) of ‘fault or neglect’ by the Carrier rather than ‘all necessary measures’. Does the same duty of care apply in both instances? Further complexity arises from attaching to the Hamburg Rules a Common Understanding that the Carrier’s Liability under the Hamburg Rules rests on the principle of presumed fault or neglect.

Burden of Proof under the Hamburg Rules

To enhance uniformity and simplicity, the Hamburg Rules introduce a consistent Burden of Proof Rule. Under the Hague Visby Rules, Burden of Proof was addressed explicitly only in specific situations, leading to divergent interpretations by courts. Particularly challenging has been determining the respective Burden of Proof between the Carrier’s Duty of Care towards cargo in Hague Visby Rules (Art III Rule 2) and reliance on exceptions listed in the Hamburg Rules (Art IV Rule 2.13). The Hamburg Rules aim to clarify this by presuming fault in all instances of loss or damage to cargo, thereby standardizing the Burden of Proof on the Carrier. This approach is rationalized by the advantage of placing the burden on the party most familiar with the facts. The exception is fire-related damage; here, the burden shifts away from the Carrier due to the complexity of pinpointing a fire’s origin at sea, where most fires tend to originate with the cargo. Hamburg Rules (Art 5.4) specify that the Carrier is liable for fire-related losses only if the Cargo Owner demonstrates fault or neglect by the Carrier, the Carrier’s Servant, or the Carrier’s Agents, or their failure to take all reasonable measures to extinguish the fire and mitigate its effects.

Specific Provision for Particular Cases under the Hamburg Rules

Hamburg Rules (Art 5) make distinct provisions for certain scenarios. It’s acknowledged that some cargo types, like animals or deck cargo, pose assimilation challenges to any standard Carrier Liability formula. The drafters of the Hague Visby Rules chose to exempt such problematic cases, permitting contracting under specific terms for such transports. Recognizing the difficulties but objecting to entirely exempting such cargo from the code, Cargo Owners favored a more inclusive approach. The Hamburg Rules drafters concurred, opting to initially include these cases in the general formula, then address their unique aspects separately.

Live Animals under the Hamburg Rules

Under Hamburg Rules (Art 5.1), the carriage of live animals adheres to the general care obligation, but the Carrier won’t be liable for losses stemming from inherent risks of this transport type. Furthermore, if the Carrier proves adherence to the Shipper’s instructions regarding animal transport and links the specific loss to these risks, it will be presumed the loss occurred due to these risks unless evidence shows part or all of the loss was due to negligence or fault by the Carrier, the Carrier’s Servants, or the Carrier’s Agents.

Deck Cargo under the Hamburg Rules

Under Hamburg Rules (Art 9), Deck Cargo is treated as standard cargo and governed by the Rules if shipped according to an agreement with the Shipper, trade usage, or legal requirements. If the cargo is on deck per agreement, this must be noted on the Bill of Lading (B/L). Absent such notation, the Carrier must prove the agreement’s existence but cannot use it against a Third Party who acquires the B/L in good faith. If cargo is on deck without consent or authority, it doesn’t constitute a Fundamental Breach of contract, but liability for losses during deck transport is limited to those “resulting solely from the carriage on deck”. Nonetheless, the Carrier retains the right to invoke liability limitations under Hamburg Rules (Art 6) unless violating an explicit commitment to stow the goods below deck.

Deviation under the Hamburg Rules

Under the Hague Visby Rules (Art IV Rule 4), a Carrier is exempt from liability for losses due to ‘any deviation in saving or attempting to save life or property at sea or any reasonable deviation.’ During the formulation of the Hamburg Rules, there was consensus on maintaining the Carrier’s exemption from liability when deviating to save lives at sea. However, extending this exemption to include property-saving deviations, especially when not linked to saving lives, garnered less support. Critics argued that this allowed Carriers to benefit significantly from salvage operations, often at the expense of the cargo on their own ship. The clause regarding Reasonable Deviation in the Hague Rules often led to interpretative challenges but was seldom successfully invoked in courts. The Hamburg Rules drafters decided against a specific provision for deviation. Instead, they integrated liability for losses resulting from Deviation under the general Carrier Liability umbrella, holding the Carrier accountable unless it can be shown that ‘all measures that could reasonably be required to prevent the occurrence and its consequences’ were taken. However, it was deemed necessary to specifically address losses from life-saving attempts, but providing blanket immunity for property-saving attempts was seen as potentially problematic. The final wording in Hamburg Rules (Art 5.6) states: “Carrier is not liable, except in general average, where loss, damage or delay in delivery resulted from measures to save life or from reasonable measures to save property at sea.”

Partial Liability of Carrier under the Hamburg Rules

Under the Hague Visby Rules, complications arise when the Carrier’s fault merges with an exception under Hague Visby Rules (Art IV), contributing to cargo damage. Sometimes, Carrier negligence is the primary cause of loss; other times, it may exacerbate an existing problem. If the Carrier’s fault leads to an excepted peril, such as storm damage to cargo due to Carrier’s Negligence, courts typically rule that the exception does not absolve the Carrier. Conversely, if the Carrier’s Negligence coincides with another factor causing damage, like cargo spoilage from combined strike-related delays and poor ventilation, the Carrier might only be liable for the portion of loss directly attributable to their fault, if this portion can be distinctly determined. The Hamburg Rules attempt to clarify this by stating the Carrier is liable ‘only to the extent that the loss, damage or delay in delivery is attributable to his fault,’ provided the Carrier can determine the loss percentage attributable to other factors. Generally, if the Carrier cannot prove this, they are liable for the full loss, a challenging burden to meet.

Loss Caused by Delay in Delivery under the Hamburg Rules

The Hague Visby Rules lack a specific clause for losses due to delivery delays. When such delays result in physical damage to the cargo, like quality deterioration, recovery is likely under Hague Visby Rules (Art III Rule 2), which mandates general cargo care. However, the position is less clear concerning Purely Economic Loss, such as market loss due to delays. Some countries explicitly allow for such loss recovery in their maritime laws, while Common Law often considers it within the ‘reasonable contemplation of the parties’ as per the Hadley v Baxendale case. Ambiguities often lead to clauses in Liner Bill of Lading (B/L) that limit or exclude liability for delays. To eliminate these uncertainties and align sea transport with other international modes, the Hamburg Rules explicitly state the Carrier is liable for losses from delivery delays unless they can prove no fault on the part of the Carrier or the Carrier’s Servants or Agents. In English law, this liability is expected to remain limited to losses foreseeable by both parties, aligning with the Hadley v Baxendale standard.

Limitation of Liability under the Hamburg Rules

Despite compelling arguments that maintaining the principle of Limitation of Liability is outdated, the authors of the Hamburg Rules decided to keep it, arguing it benefits both the Shipper and the Carrier. This is because it allows the Carrier to predict risks beforehand, enabling the establishment of stable and lower Freight Rates. Nonetheless, any newly agreed limits should be set high enough to motivate the Carrier to adequately care for the cargo and should be adjusted for inflation over time. Like in the Hague Rules, special attention was needed for defining the correct unit of cargo and choosing an appropriate monetary unit for accounts. During the development of the Hamburg Rules, there was a strong push for a weight-based liability formula, similar to other transport conventions. Ultimately, a dual system was maintained to benefit owners of high-value, lightweight cargo. An improvement in the Hamburg Rules was to clarify the conflict between ‘Shipping’ and ‘Freight’ units by distinctly stating that the unit in question is a ‘package or other shipping unit.’

This dual system is strictly for addressing liability for cargo loss or damage. As for delays in delivery, this system was not deemed fit. Instead, the preferred method was to limit liability to an amount up to two and a half times the Freight Payable for the delayed cargo, ensuring it does not surpass the total Freight Payable under the carriage contract. The maximum recoverable amount for any combination of loss, damage, or delay cannot exceed what would be compensated in a total loss scenario. Questionably, the cap on maximum compensation for delays is limited to the amount stated in the Bill of Lading (B/L) Freight. For container limitation, the Hamburg Rules adopt the solution from the Hague Visby Rules, where the shipping units are considered as the individual items specified in the Bill of Lading (B/L) or a similar document. If a container or pallet’s contents are not itemized separately, then the container or pallet, along with its contents, is treated as a single shipping unit. Should there be loss or damage to the container or pallet itself, it is considered a separate unit for limitation purposes, unless provided by the Carrier. When there are disputes over the Shipper’s load and count as noted on the Bill of Lading (B/L) due to doubt or lack of verification opportunity, the Carrier is required to note a reservation in the Bill of Lading (B/L) and state the reasons for it.

Unit of Account under the Hamburg Rules

Rejecting the Poincaré Franc, the drafters of the Hamburg Rules chose the Special Drawing Right (SDR) as defined by the International Monetary Fund (IMF) as the preferred unit of account. According to Hamburg Rules (Art 26), ‘the relevant units of account should be converted into the national currency of a State based on the currency’s value on the date of judgment or on a date agreed by the parties’. For states in the IMF, this conversion follows IMF regulations. For non-members, the state itself decides the conversion approach. Some countries may not allow calculations based on this method, in which case they may revert to using the Poincaré Franc. In terms of liability limits, under the SDR system, the Carrier’s Liability is restricted to ‘equivalent to 835 units of account per package or other shipping unit, or 2.5 units of account per kilogram of gross cargo weight lost or damaged, whichever is higher’. For states allowed to use the Poincaré Franc, the limits are set at 12,500 and 37.5 monetary units, respectively, a 25 percent increase over the current limits in the Hague Visby Rules.

Limitation of Action under the Hamburg Rules

Under the Hamburg Rules, actions are time-barred if judicial or arbitral proceedings are not initiated within two (2) years from the delivery of the cargo or from when it should have been delivered. This timeframe applies whether the proceedings are initiated by the Cargo Owner or the Carrier, contrasting with the twelve (12) month period specified under the Hague Visby Rules, which only applies to actions against the Carrier or the Ship. During the limitation period, the party against whom a claim is made can extend this period by a written declaration to the claimant. Actions for indemnity can be initiated after the basic limitation period, with a minimum extension of ninety (90) days from the date the party seeking indemnity has settled the claim or has been served with process in the action against themselves.

Dangerous Cargo under the Hamburg Rules

The Hamburg Rules establish three new protocols for handling dangerous cargo. Firstly, the Shipper must clearly mark or label the cargo as dangerous. Secondly, the Shipper must inform the Carrier about the cargo’s dangerous nature and any necessary safety measures. Lastly, the Bill of Lading (B/L) must explicitly state that the cargo is dangerous. The consequences for non-compliance are similar to those under the Hague Visby Rules. If the Shipper fails to disclose the dangerous nature of the cargo and the Carrier is unaware, the Shipper is liable for any resulting loss. Moreover, the Carrier has the authority to unload, destroy, or neutralize the dangerous cargo without compensation whenever necessary. Even with prior consent to transport, the Carrier may take such actions if the cargo poses a real threat to life or property during the voyage.

Jurisdiction under the Hamburg Rules

When a claim related to a contract for the carriage of cargo under the Hamburg Rules is brought, the claimant has a broad choice of jurisdictions for initiating judicial or arbitral proceedings. As long as the chosen court is competent under its domestic laws, proceedings can be started in any court located in: a) the principal place of business of the defendant, or, if not available, the habitual residence of the defendant; b) the place where the contract was made, provided the defendant has a business, branch, or agency there through which the contract was made; c) the port of loading or the port of discharge; d) any additional location specified for this purpose in the sea carriage contract.

Additionally, an action can be initiated in the courts of any contracting state where the carrying ship or a sister ship has been arrested according to standard legal procedures. In such cases, the defendant has the right to request that the hearing be moved to one of the jurisdictions mentioned above in the Hamburg Rules (Art 21.1), provided they can furnish adequate security to cover any potential judgment. No proceedings related to the convention can be initiated in any other court.

Definition of the Carrier under the Hamburg Rules

The primary objective of the Hamburg Rules, much like their predecessors the Hague Visby Rules, is to ensure that the Shipper has fundamental and non-waivable rights against the Carrier. As such, any attempt to deviate from the stipulations of the Hamburg Rules is deemed null and void. However, the Carrier is permitted to assume greater responsibilities than those outlined in the contract of carriage or to relinquish rights provided under the Hamburg Rules. So, who exactly qualifies as the Carrier under the Hamburg Rules? The term Carrier is broadly defined in Hamburg Rules (Art 1) as ‘any person by whom or in whose name a contract of carriage of goods by sea has been concluded with a Shipper.’ This definition is broader than that of the Hague Visby Rules, encompassing not only the Shipowner or Charterer but also any individual who has negotiated a sea carriage contract as principal, regardless of whether they intend to physically transport the cargo themselves. This could include a Freight Forwarder (FF), a combined transport operator, or any non-ship owning Carrier.

Furthermore, the Hamburg Rules differentiate between the Carrier, as previously described, and the Actual Carrier—the party actually tasked with performing the carriage. Often, the Carrier and Actual Carrier are the same entity. The Hamburg Rules clarify that even if the contracting Carrier delegates the carriage, they remain responsible for any actions or omissions by the Actual Carrier and their Servants and Agents acting within their employment scope. Additionally, the Hamburg Rules apply to the Actual Carrier’s responsibilities for their portion of the carriage, with overlapping obligations resulting in joint and several liabilities.

These provisions significantly aid the Cargo Owner claimant who currently faces the challenging task of deciphering the complex relationships among Shipowners, Charterers, and Demise Charterers to pinpoint the Carrier. Under the Hague Visby Rules, only the Contractual Carrier is recognized. In contrast, the Hamburg Rules simplify this by imposing the same obligations on both Contractual and Actual Carriers, allowing a claimant to confidently sue an Actual Carrier liable for any loss, damage, or delay during the portion of the carriage they perform, regardless of their status as the Contractual Carrier. This practical approach often favors suing the Shipowner directly.

Only in specific circumstances are contracting Carriers allowed to disclaim liability. This exception occurs when the contract of carriage explicitly states that a particular segment of the carriage is to be performed by a named individual other than the Contractual Carrier. In such cases, the Contractual Carrier may explicitly exclude liability for that segment. This is particularly relevant in scenarios involving Combined Bill of Lading (B/L) or Through Bill of Lading (B/L), where a segment of the carriage is assigned to an Actual Carrier, though the particular on-carrier’s name might not be known at the time of shipment. Conversely, there is no apparent reason why the term ‘specified part of the carriage’ cannot extend to cover the entire carriage period when a non-ship owning contractual carrier negotiates the contract. Thus, a Voyage Charterer or Time Charterer could specify the Actual Carrier in the carriage contract and transfer all liability to the Shipowner.

Prospects for Adoption of the Hamburg Rules

The resistance to adopting the Hamburg Rules from shipowning groups stems from several concerns. Firstly, there is a significant opposition to eliminating the catalogue of exceptions, particularly the exclusion of liability for Negligent Navigation. Secondly, there are reservations about the revised formulation of the fire exception, and the extension of the time limit for initiating legal proceedings to two (2) years is also widely unpopular. A broader worry relates to the language and terminology used in the Hamburg Rules. Unlike the well-litigated and understood provisions of the Hague Visby Rules, the Hamburg Rules introduce new concepts in language that often result from diplomatic compromises, potentially leading to extensive and costly litigation. With the burden of proof now squarely on the Carrier, there is concern that litigation might become more frequent to test the strength of the Carrier’s defenses. All these issues, combined with significantly higher liability limits, have led opponents to argue that implementing the Hamburg Rules would inevitably raise Freight Rates.

Proponents of the Hamburg Rules counter these objections by pointing out that similar predictions of dramatic increases in Freight Rates were made before the implementation of the Hague Visby Rules and were proven incorrect. They argue that it is time for a more equitable redistribution of risk between the Cargo Owner and Carrier, and it is reasonable for the burden of proving the cause of loss to lie with the party that has access to the relevant facts. They also contend that there is no rationale for granting the sea Carrier immunity from consequences of their own Negligent Navigation when such protection is not offered to Carriers by other modes of transport. Advocates also emphasize the need for a uniform global regime of Carrier Liability. Despite the unpopularity of proposed amendments in the Brussels Protocol, they believe that adopting the Hamburg Rules, which have considerable support in some developing countries, represents the best chance for establishing a uniform regime in the near future.

Critics argue that the main flaw of the Hamburg Rules is the drafters’ failure to adopt strict liability for the Carrier, thereby centralizing all risk on them. Retaining the principle of package limitation of liability means that both cargo and Carrier’s Liability insurance remain necessary, perpetuating the complications and costs associated with risk allocation. A more radical solution would not be favorable for cargo underwriters or maritime lawyers.

Looking ahead, what are the prospects for widespread adoption of the Hamburg Rules? Currently, no major maritime nation has ratified the Rules, though they have been implemented in 34 states, representing about 5% of global trade. Despite this modest start, several factors suggest that their influence might grow. In jurisdictions where they are implemented, the Hamburg Rules mandatorily apply to both inbound and outbound cargoes, regardless of origin. They mandate that the Bill of Lading (B/L) include a Paramount Clause that integrates the Rules and nullifies any contract terms that detract from them to the Cargo Owner’s disadvantage. Failure to include this clause results in the Carrier being liable for any loss due to its absence. Additionally, claimants have a broad choice of forums for litigation or arbitration, unrestricted by any contractual forum choice clauses.

In practice, this could lead to conflicting conventions applying to a single voyage. For instance, a voyage from a United Kingdom port to a Hamburg state would be governed by the Hague Visby Rules at the shipping port and by the Hamburg Rules at the discharge port. The applicable Rules would depend on where the dispute is litigated. Assuming the Bill of Lading (B/L) includes the relevant Paramount Clause, the Cargo Owner could choose to litigate in the Hamburg state regardless of any contractual forum choice. Even if a lawsuit is initiated in an English court, the Paramount Clause would still be effective under the Hague Visby Rules (Art V), which allows enforcement of terms more favorable to cargo interests. If the English court applies the Hague Visby Rules because the carriage contract failed to incorporate a Hamburg Rules Paramount Clause, the Cargo Owner could subsequently claim indemnity from the Carrier for any resulting loss.

 

 

 

10- Bill of Lading (B/L) issued under Charterparty

Typically, the issuance of a Bill of Lading (B/L) by the Shipowner’s Agent or Ship Master is standard practice, even if the cargo is transported under a Charterparty. Most Charterparty agreements explicitly allow for this, and if the Shipper is not the Charterer, they are usually entitled to request a Bill of Lading (B/L) under the Hague Visby Rules. The specific role and impact of such a Bill of Lading (B/L) depends on the identity of the Bill of Lading (B/L) Holder, and conflicts may arise when the Bill of Lading (B/L) terms differ from those of the Charterparty. Each scenario deserves careful analysis.

Bill of Lading (B/L) Issued to the Charterer

In cases where a Bill of Lading (B/L) is issued for cargo shipped by the Charterer, the document serves primarily as a receipt for the shipped cargo and potentially as a Document of Title (DOT), but it does not serve as Evidence of the Charterparty. The relationship between the Shipowner and Charterer is defined strictly by the Charterparty unless it specifies that its conditions may be altered or overridden by a subsequent Bill of Lading (B/L). This principle also applies when a Bill of Lading (B/L) issued initially to a Third Party Shipper is later transferred to the Charterer. For instance, in the President of India v Metcalfe case, the Charterer was bound by an Arbitration Clause in the Charterparty, despite the absence of such a clause in the Bill of Lading (B/L) that was transferred to him.

Under the Hague Visby Rules, a Bill of Lading (B/L) in a Charterer’s possession does not govern the relationship between the Carrier and the Bill of Lading (B/L) Holder as mandated (Art Ib). The connection between the Shipowner and Charterer remains exclusively regulated by the Charterparty. Nonetheless, the Hague Visby Rules (Art V) ambiguously state that if a Bill of Lading (B/L) is issued for a ship under a Charterparty, it must adhere to these rules, suggesting that although a Charterer cannot demand a Bill of Lading (B/L) under these conditions, if one is issued, it must include details as stipulated by the Hague Visby Rules (Art III Rule 3). This issue is often resolved in Standard Charterparty Forms by directly integrating the Hague Visby Rules into the Charterparty.

Bill of Lading (B/L) Issued to a Third Party Shipper

When a non-Charterer ships cargo on a chartered ship, the Shipper faces two challenges if the cargo is lost or damaged during transport. Firstly, the Shipper must determine which Carrier to hold accountable for the cargo claim. Secondly, the Shipper needs to define the exact terms of the Charterparty.

Who is the Carrier?

Identifying the Carrier can be challenging as the Bill of Lading (B/L) may not specify this, often listing the Shipowner, the Charterer, the Sub-charterer, or their Agent instead. Typically, the Ship Master, acting as the Shipowner’s Agent, signs the Bill of Lading (B/L). This multiplicity of possible signatories complicates determining the responsible Carrier, especially under English law which recognizes only one liable party per carriage contract. The challenge intensifies under the Hague Visby Rules, where a cargo claim must be lodged within a twelve-month period, and a misidentification of the Carrier can render legal actions obsolete due to time constraints.

In usual circumstances, the Shipowner is considered the Carrier. Despite any existing Charterparty, the Shipowner’s responsibility for managing the ship remains, and the Ship Master, as the Shipowner’s Agent, signs any issued Bill of Lading (B/L). This remains true regardless of whether a Time Charterer arranged the Charterparty or the Bill of Lading (B/L) is issued in their name. The authority of the Time Charterer to issue a Bill of Lading (B/L) hinges on an Express Clause within the Charterparty:

“Although appointed by the Shipowner, the Ship Master shall follow the orders and directions of the Time Charterer concerning employment and agency; and shall sign the Bill of Lading (B/L) as per the Mate’s Receipt (MR) or Tally Clerk’s Receipts. All Bill of Lading (B/L) shall be without prejudice to this Charter.”

A Bill of Lading (B/L) issued and signed under such an Express Clause by the Ship Master will legally bind the Shipowner, making them the Carrier under the resultant carriage contract. This binding occurs even if the Bill of Lading (B/L) is signed directly by the Time Charterer, provided it indicates the Time Charterer is signing on behalf of both the Ship Master and the Shipowner. This also applies if the Time Charterer’s Agent signs similarly. Additionally, if the Head Time Charterer authorizes sub-letting, the Sub-charterer gains equivalent authority to require a Bill of Lading (B/L) signature either from the Ship Master or to sign it themselves.

The extent of the Time Charterer’s authority to bind the Shipowner with a Bill of Lading (B/L) can vary. For example, the New York Produce Exchange Form (NYPE Form) allows the Time Charterer to present a Bill of Lading (B/L) for the Ship Master’s signature “without prejudice to this Charterparty,” meaning the Time Charterer, not the Shipowner, decides on the form of the Bill of Lading (B/L), provided it does not infringe on the Shipowner’s rights under the Charterparty. Experience shows that the Ship Master rarely refuses to sign a Bill of Lading (B/L) presented by the Time Charterer unless its terms starkly conflict with the Charterparty. Nonetheless, few cases have successfully relied on this principle, and Shipowners often cannot prevent the inclusion of clauses like a Demise Clause or a Jurisdiction Clause in the Bill of Lading (B/L) that differ from the Charterparty.

While the Shipowner is typically the Carrier, the intention might be for the Time Charterer to assume this role. Even under the Hague Visby Rules, either the Shipowner or the Time Charterer could be the Carrier. If the Charterparty specifies that the Ship Master signs the Bill of Lading (B/L) “As Agent on behalf of the Charterers,” then the Charterer will clearly be bound. Alternatively, the Charterer becomes the Carrier if they negotiate the Charterparty in their name and issue the Bill of Lading (B/L), or if they sign without indicating they are acting as an Agent for the Ship Master and Shipowner. The interpretation depends on the Bill of Lading (B/L) terms and the overall document construction.

Even when the Charterer appears as a party on the Bill of Lading (B/L), they may attempt to shift contractual liability to the Shipowner. A common strategy is the incorporation of a Demise Clause in the Bill of Lading (B/L), which typically states: “if the ship is not owned or chartered by Demise to the company or line issuing this Bill of Lading (B/L) (despite any contrary indications), this Bill of Lading (B/L) shall function as a contract with the Shipowner or Demise Charterer, as applicable, with the issuing company or line acting solely as Agents and bearing no personal liability.”

The Demise Clause clarifies that the issuer of the Bill of Lading (B/L) bears no liability unless they are the Shipowner or a Demise Charterer. However, it leaves ambiguity about their exact status, leaving the Bill of Lading (B/L) Holder uncertain about who they are actually contracting with. Judge Tetley pointed out that such vagueness is problematic, especially given the limited timeframe under the Hague Visby Rules for initiating claims, contradicting the impression given by listing the Charterer’s name on the Bill of Lading (B/L). While many jurisdictions reject the Demise Clause, others interpret it narrowly. However, its validity was affirmed by the High Court in the Berkshire case, where Judge Brandon stated: “The Demise Clause clearly intends that the Bill of Lading (B/L) serves as the Shipowner’s contract, issued by Ocean Wide merely as agents. It’s a standard, ordinary clause, not an exceptional one.”

Furthermore, the Hague Visby Rules (Art III Rule 8) invalidate any attempts to negate Carrier Liability as specified by the rules. The Demise Clause is deemed acceptable because it aims to clarify, not exclude, who is liable under these rules. An alternative way for the Charterer to avoid liability is through an Identity of Carrier Clause, which might state: “The contract evidenced by this Bill of Lading (B/L) is between the Shipper and the named Shipowner, establishing the Shipowner alone as liable for any damages or losses from non-performance of any carriage obligations.”

Like the Demise Clause, the Identity of Carrier Clause removes ambiguity by explicitly naming the Shipowner as the Carrier, potentially making it more favorable. However, the presence of these clauses in a Bill of Lading (B/L) is not definitive. In the Starsin case, the House of Lords determined the Bill of Lading (B/L) was a Charterer’s Bill of Lading (B/L) despite containing both clauses, focusing on the fact that the signature box was filled by the Loading Port Agent as the Charterer’s Agent, labeled as the “Carrier”. They emphasized that in disputes, a reasonable person familiar with shipping would prioritize specific provisions introduced by the contracting parties over generic pre-printed terms and would rely more on clearly stated terms on the front of the Bill of Lading (B/L) than on the back. Lord Bingham expressed skepticism that a Shipper or Transferee of a Bill of Lading (B/L) would rely on detailed conditions on the reverse over a clear, direct statement of the Carrier on the front.

What are the contract terms?

When cargo is shipped by a Third Party, the terms reflected in the Bill of Lading (B/L), whether issued by the Shipowner or a Time Charterer, essentially serve as prima facie evidence of the Charterparty’s Terms, though this can be contested by evidence of specific terms agreed upon by the Shipper and Carrier. Normally, a Third Party remains unaffected by the Charterparty Terms even if they are aware of its existence, and will not be bound by any conflicting Charterparty Terms or those that contradict the Hague Visby Rules.

Shipowners often try to ensure their liability is not expanded by Time Charterers’ issuance of Bill of Lading (B/L) and may include a clause that incorporates the terms of the Charterparty. Under English law, such an Incorporation Clause is valid if it sufficiently notifies the Shipper at or before the contract of carriage is entered into. Typically, this requirement is met as the clause would appear as a Printed Clause in a document that the Shipper would normally review before shipping the cargo. Courts, however, strictly interpret these clauses, reluctant to impose Charterparty terms on a Third Party Shipper unlikely to have seen them.

Three criteria must be satisfied for an Incorporation Clause’s effectiveness, as highlighted in cases involving attempts to include Charterparty Arbitration Clauses in a Bill of Lading (B/L). Courts adopt a stringent Contra Proferentem approach, given the rarity of Arbitration Clauses in Bill of Lading (B/L) despite their commonality in Charterparties.

First, the Incorporation Clause must be contained within the Bill of Lading (B/L) itself, independent of the Charterparty’s provisions. While Charterparties may specify intentions for Bill of Lading (B/L) issuance and details, such intentions are irrelevant to the Bill of Lading (B/L) Holder, whose contract is found solely in the Bill of Lading (B/L). General references to Charterparty Terms are insufficient for courts to explore the Charterparty for intended clauses. As Sir John Donaldson MR noted, the agreement between Shipowners and Charterers is irrelevant unless explicitly included in the Bill of Lading (B/L) contract.

Second, the Incorporation Clause’s wording must aptly describe the Charterparty Clause it seeks to incorporate, known as the Description Issue. Over time, court attitudes have varied in strictness, but effectively drafted Incorporation Clauses have enforced a range of Charterparty Clauses against Bill of Lading (B/L) Holders, including liens for Charterparty Freight, Dead Freight, and Demurrage, even if these were incurred at the Loading Port and not noted on the Bill of Lading (B/L).

Incorporating Arbitration Clauses, however, has proven more challenging. Such clauses, viewed as ancillary to the main contract of carriage, require specific referencing within the Bill of Lading (B/L). For example, in The Varenna case, the phrase “all conditions and exceptions of which Charterparty” was deemed insufficient to describe an Arbitration Clause. Likewise, in the Siboti v BP France case, “all terms whatsoever” failed to specifically include a Charterparty Exclusive Jurisdiction Clause. This judicial approach, although reminiscent of that applied to Exception Clauses, offers limited control over the problem, as drafters might eventually bypass it. Ultimately, whether courts will enforce unusual or unexpected Charterparty terms in the context of a Bill of Lading (B/L) remains a question of how each Incorporation Clause is constructed.

 

 

 

11- Exceptions included in Charterparty

Provisions typically found in Charterparties exempt parties from liability for damage or loss resulting from specified contingencies. Should there be no express stipulations in the Charterparty, the Carrier can invoke the Common Law Exceptions:

A- Queen’s Enemies
B- Inherent Vice
C- Act of God

In cases where the Charterparty and Bill of Lading (B/L) fall outside the scope of the Hague Visby Rules, parties are free to negotiate their own terms, and the scope and extent of such Exceptions depend on their respective bargaining power. For Bill of Lading (B/L) governed by the Hague Visby Rules, however, Carrier protection is limited to the 17 Exceptions outlined in Hague Visby Rules (Article IV Rule 2). These Exceptions range widely, from perils of the sea to defective packing and even negligent navigation. Initially introduced into Charterparties to protect the Shipowner, many modern versions stipulate that various perils are mutually excepted, making these exceptions equally available to the Charterer, though many may not pertain to his obligations. Below is a discussion of some widely utilized Exceptions incorporated into the Charterparty by Common Law, Agreement, or Statute.

Common Law Exceptions

A- Queen’s Enemies

While “Queen’s Enemies” is a Common Law Exception, it is commonly included as an Express Term in Charterparties. This Exception covers acts by states or their subjects with whom the sovereign is at war, justified by the inability of the Carrier to seek recourse as the involved parties are outside the jurisdiction of national courts. It also extends to reasonable actions taken by the Carrier to avoid threats, such as deviating to a neutral port to escape capture. It primarily pertains to public enemies of the state and does not extend to land robbers or sea pirates. For foreign national or company Carriers, “Queen’s Enemies” covers enemies of the Carrier’s sovereign, be it an Emperor, Queen, or reigning Duke. Often, the phrase “restraint of Princes and Rulers” is added to Charterparties, covering all forms of lawful authority restraint or interruption. A similar exception, “Act of Public Enemies,” is included in the Hague Visby Rules (Article IV Rule 2g), aiming to have a comparable effect when combined with the Act of War exception.

B- Inherent Vice

Carriers are not liable under Common Law for loss or damage arising solely from the cargo’s inherent qualities or defects. The “Inherent Vice” Exception is often cited with perishable cargoes like fruit or fish, which naturally deteriorate during transit. It also covers inevitable wastage in bulk cargoes like oil or grain, assuming such reduction falls within customary trade tolerances. Certain liquids known to ferment or metal cargoes prone to rust during transport are also examples. The Carrier, upon accepting such cargoes, is expected to manage them with care commensurate with their nature. If the Carrier opts to transport such cargoes, they must employ a sound system based on their knowledge or presumed knowledge of the cargo’s characteristics. The extent of care depends on the Carrier’s understanding of the cargo’s specific traits. For example, in a case involving wet salted fish shipped from Norway to Italy without refrigeration advice from the Shipper, the Carrier successfully invoked the Inherent Vice Exception, as the deterioration was inherent to the fish under the conditions authorized by the Charterparty. This principle holds unless the Charterparty specifies conditions like refrigeration, which would negate the Inherent Vice claim. Even with a Clean Bill of Lading (B/L) issued, the Carrier is not estopped from claiming this exception if the loss resulted solely from the cargo’s inherent inability to withstand ordinary voyage conditions and was not exacerbated by the Carrier’s actions. Correspondingly, the Inherent Vice Exception under the Hague Visby Rules (Article IV Rule 2m) covers losses or damages arising from inherent defects, qualities, or vices of the cargo.

C- Act of God

The Act of God Exception is applicable only when damage or loss is entirely due to natural causes, without any human intervention. James LJ in the Nugent v Smith case defined it as follows: “Act of God is simply a way to express that the Carrier is not liable for any accident which he can prove was caused by natural forces alone, without human interference, and that no amount of foresight, effort, and care that could reasonably be expected from the Carrier could have prevented it.” Therefore, damages caused by natural events such as storms, frost, lightning, or strong winds would fall under the Act of God Exception, even if these events are relatively frequent. Conversely, the Carrier cannot claim the Act of God Exception if the damage was foreseeable and could have been mitigated by reasonable measures. For instance, in the Siordet v Hall case, the Shipowner could not invoke this exception when cargo was damaged by water from a burst pipe after a severe frost, as the court held that the Shipowner should have anticipated the frost and drained the boiler while the ship was docked. Additionally, this exception does not apply if there is any human involvement in the event causing the loss. Hence, the defense of Act of God was not applicable in a scenario where a ship ran aground in fog, regardless of the Shipowner’s non-negligence.

Charterparty Exceptions

Standard Charterparty Forms contain a variety of exceptions, known as Charterparty Exceptions, which can be further supplemented by expressly incorporating Common Law Exceptions or the list specified in the Hague Visby Rules (Article IV Rule 2). Below are some of the most commonly used Charterparty Clauses.

A- Perils of the Sea

This exception is more encompassing than the Act of God as it includes any damage to cargo caused by risks unique to the sea or to ship navigation that cannot be averted through Reasonable Care. It encompasses losses from ships running aground in fog, being swept onto rocks in a storm, or collisions with other ships, provided the ship’s owner is not at fault. However, this exception is limited to sea-specific risks and does not cover perils common to other environments or transport modes, such as damage from rain, lightning, or fire, or losses due to pests like rats or cockroaches contaminating the cargo. The exception may also apply to consequential losses from actions taken to mitigate a sea peril, as highlighted in Canada Rice Mills v Union Marine Ins case, where a rice cargo suffered heat damage due to periodic closing of ventilators and hatches to block seawater during a storm. Lord Wright stated that such measures necessitated by sea conditions are not separate causes of damage but direct results of sea perils necessitated by routine seamanship.

The Perils of the Sea exception does not require weather conditions to be extreme or unexpected since storms and rough seas are common in maritime travel. However, Shipowners are expected to exercise Reasonable Care to avoid such perils where feasible. This exception does not cover natural wear and tear from regular wind and wave action.

This exception is phrased differently across various Charterparty Forms, from the simple “Perils of the Sea” to “Dangers and accidents of the seas, rivers, and navigation of whatsoever nature and kind”. In the Hague Visby Rules, it is described as “perils, dangers, and accidents of the sea or other navigable waters”. The scope of coverage is similar across versions, though broader formulations extend to navigation in inland waters as well as the high seas.

B- Collisions – Both-to-Blame Clause

Collisions are recognized within the Perils of the Sea Exception but are often listed separately in many Charterparty Forms. Shipowner cannot utilize this clause if the Cargo Owner proves that the collision was caused by the carrying Ship’s Fault, as negligence supersedes other exceptions. If the other ship’s owner is entirely at fault, the Cargo Owner may pursue a Tort Claim to recover the full loss. More commonly, when both ships share blame, the Cargo Owner can recover from each according to their fault percentage.

The situation is complicated by the Hague Visby Rules, which stipulate that if a Carrier has made all reasonable efforts to ensure the ship is Seaworthy, they are not liable for losses caused by Negligent Navigation. Under Hague Visby Rules, the Cargo Owner cannot claim damages from a Carrier, regardless of the Carrier’s degree of fault in the collision. Cargo Owner’s potential claims against the other Shipowner remain unaffected.

In the U.S., courts have debated how to apply the exception for Navigational Fault. Under U.S. law, Cargo Owner can recover Full Damages from the non-carrying Shipowner in a collision where both ships are to blame. The non-carrying Shipowner can then recoup half the amount from the carrying ship under the Divided Damages Rule. This method circumvents the Navigational Error Exception but applies only when both parties are at fault. If the carrying Shipowner is solely at fault, the Exception prevents any recovery by the Cargo Owner. Many find it paradoxical to absolve a carrier of all liability for sole negligence in navigation yet hold them partially liable if they are only partly to blame.

To address this inconsistency, it has become standard to include a Both-to-Blame Clause in Bill of Lading (B/L) or Charterparty Forms. Both-to-Blame Clause effectively requires Cargo Owners to indemnify the carrier to the extent they must compensate for cargo damage under the ‘divided damages’ rule. Given the significant legal power U.S. Shipowners have to detain any ship owned by the same company as a collision counterpart in U.S. ports, utilizing this clause is prudent for any Shipowner whose ships might dock in the U.S.

However, U.S. courts have typically found such clauses in Bill of Lading (B/L) to conflict with the general legal principle that Carriers cannot contract out of liability for their or their Agents’ Negligence. The U.S. Supreme Court has argued that altering the established rule that losses in a both-to-blame collision are equally shared should be the role of Congress, not Shipowners. The Court noted it would be just as odd to compel a cargo owner, entitled to full damages from a non-carrying ship, to forfeit part of that recovery due to a stipulation in a Bill of Lading (B/L).

U.S. adherence to this stance was confirmed in the case of The Frances Hammer, where a Clause selecting Danish Law and jurisdiction was dismissed as an attempt to sidestep U.S. law and contest the validity of a Both-to-Blame Clause in Denmark.

Despite U.S. court resistance, Both-to-Blame Clauses are still commonly included in carriage contracts, though their legality in documents other than Bill of Lading (B/L) remains untested. A glimmer of hope for proponents of these clauses came in the American Union Transport Inc v USA case, where a Californian court upheld a Both-to-Blame Clause in a Charterparty. The court differentiated between Bill of Lading (B/L) and Charterparty contracts, suggesting that in the Charterparty, parties are free to contract out of liability for negligence, provided the Harter Act’s provisions are not explicitly incorporated into the Charterparty or Bill of Lading (B/L). The significance of this ruling, however, is limited if no Bill of Lading (B/L) was issued and the Charterers utilized the ship’s full capacity. Doubts persist about the validity of Both-to-Blame Clauses in Bill of Lading (B/L) derived from a Charterparty once negotiated to a Third Party.

Hague Visby Rules Exceptions

This section focuses on three unique exceptions found in the Hague Visby Rules, distinct from the more traditional ones previously discussed.

A- Act, Neglect, or Default of the Ship Master, Mariner, Pilot, or the Carrier’s Servants in the Navigation or Ship Management

Historically, exceptions for errors in navigation or ship management date back to the 19th century and were commonly included in Bills of Lading (B/L) even before the introduction of the Hague Visby Rules. Originally, this exception was designed to protect from Errors of Navigation and did not apply in cases of proven negligence by the Carrier. However, over time, it has evolved to encompass scenarios involving negligence. Introduced statutorily in the US Harter Act of 1893, this exception stated that a Shipowner, having ensured the ship’s seaworthiness, would not be liable for losses resulting from navigation or management errors. The Hague Visby Rules adopted a similar stance in Article IV Rule 2a. Despite its longstanding use and venerable origins, this exception has faced criticism from cargo interests, being seen as an outdated favor towards Sea Carriers not extended in other transport conventions, such as the Hamburg Rules.

The Hague Visby Rules cover faults in both navigation and management of the ship. The term “Faults of Navigation” has been interpreted by courts to include incidents where, due to the negligence of the Ship Master or Crew Members, a ship collides with another, runs aground, or strikes a reef. This exception has also applied to cases under a Charterparty, covering damages beyond cargo, like negligent collisions with a Charterer’s wharf or another assisting ship. Distinguishing management faults within this exception from the Carrier’s duty to care for the cargo under Hague Visby Rules (Article III Rule 2) has proven challenging. The courts often consider the primary target of negligent acts, focusing on whether the negligence pertained more to cargo care or ship management. Sir Francis Jeune in The Glenochil case differentiated these by emphasizing care directed towards the ship that indirectly affects cargo. Greer LJ later clarified this by stating that if negligence primarily concerns the ship’s upkeep rather than cargo care, liability is not incurred.

For instance, Negligent Stowage or improper cargo securing during discharge directly affects cargo care, and thus, resulting damage does not fall under this exception. Likewise, in the Gosse Millerd v Canadian Government Merchant Marine case, negligence was found when Hatch Covers were left open for convenience during repairs, and rainwater damaged the cargo because tarpaulins meant to protect the cargo were not replaced. The House of Lords ruled that since the tarpaulins were specifically for cargo protection, this negligence pertained to cargo care and not ship management.

A- Negligence

As stated by Judge Willes J, “The exception in the Bill of Lading (B/L) merely shields the Shipowner from the Absolute Liability typical of a Common Carrier, not from the repercussions of lacking reasonable skill, diligence, and care.” No peril is considered an Act of God, Restraint of Princes, or Danger of the Sea if it could have been prevented through reasonable care. Once the Carrier establishes a prima facie case that the loss is covered by an Exception, the burden of proof shifts to the Cargo Owner to demonstrate that the actual cause of the loss was due to the Carrier’s Negligence. If the Cargo Owner cannot meet this burden, the Carrier is justified in relying on the Exception.

B- Fundamental Breach

A Fundamental Breach of the contract of carriage, such as the ship deviating from its agreed course, allows the Cargo Owner to repudiate the Charterparty, negating the Carrier’s ability to invoke any Charterparty Exceptions. However, if the Cargo Owner opts to overlook the Breach and proceed with the Charterparty, the Shipowner or Carrier regains the right to claim the exemptions’ protection. Following the House of Lords’ ruling in the Photo Production Ltd v Securicor Transport case, whether a particular Exception applies post-Fundamental Breach depends on contractual interpretation. This was evident in The Kapitan Petko Voivoda case where cargo, inappropriately stowed on deck contrary to an agreement for below-deck stowage, incurred seawater damage during severe weather. The Carrier attempted to invoke the Hague Visby Rules Exceptions, but Judge Langley ruled that “A Shipowner who agrees to carry cargo below deck but wrongfully stows it on deck cannot claim exemptions for Perils at Sea or insufficient packing if the damage is directly caused by on-deck carriage, which would not have occurred if stowed below deck.” However, if the loss would have transpired regardless of the stowage location, the Carrier might still utilize relevant exemptions, such as losses due to fire, Act of God, or Negligent Navigation, although the specifics of each case would dictate applicability.

C – Ship Unseaworthiness

A Shipowner or Carrier is prohibited from invoking an Exception if the Cargo Owner proves that the immediate cause of loss was not the excepted peril but Ship Unseaworthiness. For instance, in Standard Oil of New York v Clan Line Steamers, where a turret ship capsized in a storm, the Shipowners could not claim the Perils of the Sea Exception once it was determined that the loss was due to their failure to adequately instruct the Ship Master on handling this type of vessel, rendering the ship Unseaworthy.

 

 

 

12- Shipowner’s ability to Limit their Liability

One distinctive aspect of Maritime Law is the Shipowner’s ability to limit liability for losses or damages resulting from Negligent Navigation or Ship Management. Established in the 19th century, this rule was initially a form of state support for the maritime industry, embodying early protectionism. Today, its relevance is not so much rooted in its historical context as in providing Shipowners with a predictable risk prior to embarking on a trading venture. Lord Denning MR described it as a public policy rule, born from history and rationalized by practicality, suggesting that if Shipowners can predetermine their maximum liability, it simplifies and reduces the cost of obtaining insurance, which is also beneficial for the injured party who can be assured of compensation.

Historically, two primary systems for limiting a Shipowner’s liability have evolved. Initially, the liability was capped at the value of the ship plus the current Freight. This model is still used in many countries, including the United States, but it has significant drawbacks. The older and less seaworthy the ship, the more likely it is to cause accidents, yet the compensation available under this model is minimal. Particularly in the U.S., where the fund is limited to the post-accident value of the ship plus pending Freight, compensation can be woefully inadequate if the ship is destroyed.

An alternative method based on the ship’s tonnage was introduced in the United Kingdom in 1854 and has been adopted by various international conventions in the 20th century. This creates a fund proportional to the ship’s size, from which all claims for personal injury and property damage are paid. If the total claims exceed the fund, they are proportionately reduced. Although this approach often results in a larger fund than the previous system, it can disproportionately favor owners of smaller ships, who may cause as much damage as larger vessels.

Up until recently, the United Kingdom’s Shipowner’s Limitation of Liability was regulated by the Merchant Shipping Act 1894, as amended by the Merchant Shipping (Liability of Shipowners and Others) Act 1958, which included provisions from the International Convention Relating to the Limitation of Liability of Sea Going Ships (1957). However, as of December 1, 1986, this was superseded by the Merchant Shipping Act 1979, which implemented the International Convention on Limitation of Liability for Maritime Claims (1976). This convention was drafted under the IMO (International Maritime Organisation) and is now encompassed in the Merchant Shipping Act 1995.

Merchant Shipping Act 1995

The need for substantial revisions to the Shipowner’s Limitation of Liability was acknowledged following extensive criticism of the International Convention Relating to the Limitation of Liability of Sea Going Ships (1957). Inflation and fluctuations in gold prices had diminished the real value of existing limits to such an extent that a separate liability limitation for oil pollution was deemed necessary to ensure sufficient compensation levels. Concerns about inflation’s impact on smaller Shipowner’s Limitations of Liability were raised at a time when the insurance market was believed capable of handling higher costs resulting from increased limits. These concerns prompted the main changes introduced by the Merchant Shipping Act 1979.

Claims Covered

The International Convention on Limitation of Liability for Maritime Claims (1976) broadens the scope of claims included within the limitation fund. Like earlier conventions, it primarily addresses claims related to loss of life, personal injury, or damage to property (including harbor structures and aids to navigation), directly linked to the ship’s operations or salvage efforts, and consequential losses arising from these. The Convention also encompasses claims due to delays in carrying cargo or passengers by sea, rights violations outside of contract, wreck removal, cargo destruction, and third-party actions taken to mitigate losses caused by the defendant. The Shipowner’s Limitation of Liability is applicable regardless of the basis of liability and extends to recourse or indemnity claims under contracts or other legal means. However, specific claims are excluded under the Merchant Shipping Act, including those related to salvage, contributions in General Average (GA), pollution, nuclear damage, and personal injuries or property damage caused by crew under contracts governed by English Law.

Parties Covered

The Merchant Shipping Act 1995 allows Shipowners and Salvors to limit their liability under the International Convention on Limitation of Liability for Maritime Claims (1976). The term “Shipowner” includes owners, Charterers, Managers, and Ship Operators, covering all types of Charterers (Time, Voyage, Bareboat). Initially, it was contended that the limitation was only available to Charterers performing as Shipowners, i.e., managing and operating the ship.

However, the Court of Appeal in CMA CGM SA v Classica Shipping Ltd case clarified that the term “Charterer” should be interpreted based on its plain meaning, free from English Law biases. Thus, a Charterer can limit liability regardless of their role, whether acting as a Shipowner or in their typical capacity. For instance, in a case where fire and explosions led to a ship’s abandonment requiring extensive repairs, the Charterer invoked the International Convention on Limitation of Liability for Maritime Claims (1976) against claims by the Shipowner due to alleged dangerous cargo. The Court of Appeal supported the Charterer’s right to limit liability based on the type of claim filed against them rather than their role at the time of liability.

In situations where cargo claims settled by the Shipowner are involved, such liabilities fall under the International Convention on Limitation of Liability for Maritime Claims (1976) Article 2. However, claims related to ship damage do not qualify for limitation. It’s unclear whether “Shipowner” extends to Ship Repairers, Shipbuilders, or Mortgagees, but they might qualify under Article 1.4, which protects anyone responsible for acts causing the Shipowner’s liability. Additionally, Article 1.5 extends limitation rights to the ship itself when a claim is made directly against it.

Expanded Rights for Salvors

Significantly, the International Convention on Limitation of Liability for Maritime Claims (1976) extends limitation rights to Salvors, who were previously only able to limit liability for navigation or ship management. Now, Salvors and their Agents and Servants can limit liability even when sued personally for actions not directly related to ship management. This change broadens protection for those involved in salvage operations, covering all services connected to salvage.

Moreover, insurers of the liable party can now limit their exposure to the same extent as the insured, enhancing coverage security.

Regarding the ship involved in incidents, the Merchant Shipping Act 1995’s provisions apply not just to typical ships but also to any navigable structures, whether complete or under construction. This right to limit liability extends to all ships, whether seaworthy or not, ensuring comprehensive coverage under the Act.

Limitation Amount

The International Convention on Limitation of Liability for Maritime Claims (1976) significantly increased the liability limits, which were further raised by the 1996 Protocol to the Convention effective from May 13, 2004. The 1996 Protocol aims to adjust for inflation since 1976 and to increase limits for smaller ships to align with the rising cost of claims involving such ships. Limitations continue to be based on tonnage but will now be calculated using Gross Tonnage (GT) according to the Tonnage Convention (1979). This adjustment is expected to substantially increase limits for specific types of ships like vehicle carriers and container ships. The 1996 Convention and Protocol maintain the structure established by the International Convention Relating to the Limitation of Liability of Sea Going Ships (1957), setting distinct limits for claims related to loss of life and personal injury versus those for cargo damage and other losses. The unit of account for limitation purposes is the Special Drawing Right (SDR) from the International Monetary Fund (IMF).

The updated limits effective from May 13, 2004, are:

A- For claims regarding loss of life or personal injury:

• Ships not exceeding 2,000 tons: 2 million SDRs
• For each ton from 2,001 to 30,000 tons: 800 SDRs
• For each ton from 30,001 to 70,000 tons: 600 SDRs
• For each ton over 70,000 tons: 400 SDRs

B- For claims related to property damage or other losses:

• Ships not exceeding 2,000 tons: 1 million SDRs
• For each ton from 2,001 to 30,000 tons: 400 SDRs
• For each ton from 30,001 to 70,000 tons: 300 SDRs
• For each ton over 70,000 tons: 200 SDRs

States adopting the Limitation of Liability for Maritime Claims (1976) have the discretion to set general limits for ships under 300 tons. In the United Kingdom, a 1998 Order in Council by the Department of Environment, Transport, and the Regions set limits at 1 million SDRs for personal claims and 500,000 SDRs for property claims, which is half the minimum prescribed in the Protocol.

Both the Convention and the Protocol preserve the “spill-over” arrangement. If the fund reserved for personal injury claims is exhausted, any remaining personal injury claims will rank pari passu with claims for property damage or other losses against the fund designated for the latter. Thus, if an incident results only in loss of life and personal injury claims, the total potential fund available equals the combined limits set for personal injury and other claims. Conversely, if only cargo claims are involved, the maximum sum available is the fund reserved after applying the limits for property and other claims.

Breaking the Limits

Limitation of Liability for Maritime Claims (1976) (Article 4) introduced a significant change in the criteria for overriding limitation rights by eliminating the old standard of Actual Fault or Privity from the Merchant Shipping Act (1894). Going forward, to bypass the limitation rights, a claimant must demonstrate that the loss or damage was due to a Personal Act or Omission of the liable party, executed with the intent to cause such loss, or recklessly with knowledge that such loss would probably ensue. This new criterion marks a significant shift from previous legislation. Firstly, the burden of proof now lies with the Claimant, meaning that in uncertain cases, the liable party can uphold the limit. Secondly, the criteria are stricter, making it significantly more challenging to exceed the limits. The loss must stem from a Personal Act or Omission of the liable party, and it must be shown that they either intended the loss or acted recklessly, understanding the likely consequences.

Identifying the liable party remains problematic, especially when the act or omission involves the conduct of a Public Company. Since a Public Company acts through Agents, it is often challenging to determine whether an act should be considered that of the Public Company itself or just a Personal Act of its Agents or Servants. Under the Alter Ego Test, the individual’s role within the Public Company must be such that their actions can be seen as those of the Public Company itself. Typically, this would mean being a member of the Board of Directors (BOD) or holding a similar position. The actions of lower-level employees or junior management would not meet the Alter Ego Test.

Regarding the required mental state, it involves either a deliberate intent to cause loss or recognition of the likely results of one’s actions. It is questionable whether such a mindset could be ascribed to the Marine Superintendent in The Lady Gwendolen case or to the liable parties in most other Actual Fault or Privity cases. It seems that going forward, when duties are delegated, the only Personal Act that matters is the act of delegation itself. The delegate’s faults are irrelevant. This leads to the conclusion that the increased liability limits set by the Limitation of Liability for Maritime Claims (1976) are balanced by a standard that makes these limits almost impossible to surpass.

 

 

13- Freight

Duty to Pay Freight

Freight constitutes the payment owed to the Shipowner or Carrier for transporting cargo from the Loading Port (LP) to the Discharging Port (DP). This duty to pay Freight arises from either a Voyage Charter or a Bill of Lading (B/L) contract, distinct from the obligation to pay Ship Hire under a Time Charter. Unlike Ship Hire, which is due for the usage of a ship over a specified period regardless of its cargo carriage use, Freight payments cover the transportation of cargo from one port to another.

Without a Charterparty stating otherwise, Common Law assumes that Freight is due only upon cargo’s Delivery to the Consignee at the Discharging Port (DP). The simultaneous conditions of Freight Payment and cargo Delivery imply that the Shipowner or Carrier cannot seek Freight payment unless capable of delivering the cargo as agreed. The entitlement to Freight hinges on whether the contracted service has been substantially executed, and generally, Freight is deemed earned once the cargo is transported and available for Delivery to the Consignee. However, if cargo delivery is staggered, the Consignee is obliged to pay for each installment delivered and cannot defer payment until the complete shipment is received.

A Charterparty is considered whole and indivisible, meaning Freight is not owed unless the cargo is delivered to the specified Discharging Port (DP). The cause of non-delivery, such as ice in the Baltic Sea blocking the chartered ship, is irrelevant to the Freight payment. Even Exceptions in the contract, which shield the Shipowner or Carrier from non-delivery claims, do not justify a Freight claim if not earned. From the Cargo Owner’s perspective, the Freight payment is in exchange for the guaranteed Safe Delivery of cargo at the Discharging Port (DP). Only in cases where the failure to reach the port is solely the Cargo Owner’s fault does full Freight become due. To mitigate potential losses, the Shipowner or Carrier may take precautions such as insuring against Freight loss, requiring a portion of Freight paid in Advance, or opting for cargo transshipment to claim full Freight upon arrival at the Discharging Port (DP).

Freight Calculation

Freight typically correlates with the cargo quantity, with the calculation basis outlined in the Charterparty’s Freight Clause. Freight Units might vary, being quoted per weight, package, or cubic measurement. When Freight Calculation depends on weight or volume, and fluctuations are expected during transit, it’s crucial to determine the measurement timing. Risk distribution dictates this timing choice, often provided in Standard Charterparty Forms to occur either at the Loading Port (LP) or Discharging Port (DP). For instance, if cargo weight may decrease during transit, such as with liquid evaporation or routine dry bulk handling losses, Freight is generally calculated based on the quantity delivered at the Discharging Port (DP). Conversely, if cargo may gain weight from moisture absorption, Freight is typically based on the amount loaded at the Loading Port (LP).

Deductions from Freight

When cargo reaches its destination damaged or is Short Delivered, the agreed Freight must still be paid in full, and the Charterer is denied any right of set-off, even if the damage renders the cargo nearly worthless compared to the Freight. Lord Wilberforce has affirmed in a recent case that “it is a well-established rule in English Law that claims concerning cargo cannot be used to offset Freight charges.” Nonetheless, the Consignee can pursue a cross-claim for damages unless the claim is precluded by an Exception or is Time Barred. However, the Charterer lacks the right to deduct from the Freight unless this right is Explicitly stated in the Charterparty.

The reasoning behind this rule is often questioned and seen as arbitrary, yet it still stands as a legal rule even without a clear justification. Lord Denning defended this rule on policy grounds, stating, “proper business conduct requires that Freight be paid as per the contract terms. Payments should not be delayed due to claims of in-transit cargo damage. Allowing such delays could let dishonest individuals make baseless claims to evade payment, leading to unwanted delays.” Roskill LJ also noted that changing this law could potentially disrupt the current risk distribution between the Shipowners’ Underwriters and their Protection and Indemnity Clubs (P&I Clubs). Currently, since there is no valid defense against a Freight claim, all liabilities from Shipowners to Cargo Owners are assumed by the Protection and Indemnity Clubs (P&I Clubs). Introducing a defense against Freight claims might shift potential Freight Loss claims to fall on the Shipowners’ Underwriters instead.

Freight is not owed if the cargo is so severely damaged upon arrival that it becomes Unmerchantable, losing its ability to meet its Commercial Description. For instance, No Freight was due for a shipment of solidified cement in the Duthie v Hilton case, salvaged from a vessel scuttled after discovering onboard fire. Similarly, in the Asfar v Blundell case, a shipment of dates recovered post-collision in the Thames River was deemed unfit for consumption due to oil and sewage contamination. Distinguishing between Damaged Cargo and Cargo that has lost its identity remains delicate, and as Donaldson J explained, “the question is whether an honest merchant would need to adjust the cargo’s description significantly enough to nullify it. If such adjustment nullifies the description, No Freight is earned as the cargo is undelivered. If it is merely an adjustment, the cargo is considered delivered, despite being damaged or contaminated.”

Ship Deviation and Freight

If the traditional concept of Ship Deviation persists, any Unjustifiable Ship Deviation from the agreed voyage constitutes a Fundamental Breach of the Charterparty, allowing the Charterer to dismiss all remaining obligations under the Charterparty. In such scenarios, Freight that would be due upon cargo delivery under the Charterparty is no longer payable. However, it has been suggested that if the cargo is still safely transported to the Discharging Port (DP), then the Shipowner or the Carrier might claim a reasonable Freight amount on a Quantum Meruit basis.

Freight Payment in Advance

Shipowners and Charterers might explicitly agree within a Charterparty that all or a portion of the Freight is to be paid in Advance. This is commonly seen in the Liner Trade and many Voyage Charters, especially when transactions involve a Letter of Credit (LC). Nevertheless, under Common Law, there is a strong presumption that Freight is due only upon cargo delivery at the Discharging Port (DP), and thus any clauses about Advance Freight Payments need to be distinctly stated in the Charterparty. For example, in a situation where cargo was being shipped from the United Kingdom to Portugal, a clause stating “Freight for the said cargo, being paid in United Kingdom” was interpreted to indicate the payment location rather than the timing.

The exact moment when Freight Payable in Advance is due can be defined in several ways, such as “on signing Bill of Lading (B/L),” “on sailing of the ship,” or within a specified time after such events. Freight then becomes due at the specified time and remains due even if the cargo is lost during transit and fails to reach the Discharging Port (DP). Conversely, if the cargo is lost or the Charterparty is Frustrated before the set payment time, the obligation to pay Freight is voided. For instance, where Freight was due on “final sailing” of the ship, the duty was nullified when the ship ran aground while being towed in a ship canal en route to the open sea. As Judge Parke B expressed, “final sailing” implies the ship’s ultimate departure from the port, out of the artificial boundaries and ready for its voyage. However, when Freight under a Voyage Charterparty was due “on signing Bill of Lading (B/L)” and the ship sank soon after departure due to crew negligence, the Charterer remained liable for Freight despite not presenting the Bill of Lading (B/L) for signing.

Once Freight is Paid in Advance, it is Not Recoverable by the Charterer even if the cargo is lost during the voyage, assuming such loss falls under an Exception noted in the relevant Charterparty or Bill of Lading (B/L). This stance is typically supported by Common Law and often reinforced by an Express Clause stating that Freight is Not Refundable “Ship and/or Cargo Lost or Not Lost” (FDEDANRSAOCLONL: Freight Deemed Earned, Discountless And Non-Returnable Ship And Or Cargo Lost Or Not Lost).

Advance Freight also remains Irrecoverable when the Charterparty is Frustrated before the cargo reaches the Discharging Port (DP), as this does not constitute a total failure of consideration under the rule set in the Fibrosa case, explicitly excluded by the Law Reform (Frustrated Contracts) Act 1943.

The principle that Freight paid in Advance is Not Refundable is peculiar to English Law and does not apply in European legal systems or in the United States, where Freight must be returned to the Charterer if the cargo does not arrive at the Discharging Port (DP).

Judge Hobhouse in a recent case elaborated on the unique treatment of Advance Freight, stating, “Advance Freight is not adjustable based on subsequent events, nor is it repayable, wholly or partially, even if the voyage is incomplete. It is not governed by the typical contractual principles of failure or partial failure of consideration. Once earned, the risk associated with Advance Freight falls on the Charterer, and later mishaps or misfortunes during the voyage do not permit the Charterer to shift any of that risk back to the Shipowner.”

This divergence in English Law from other legal frameworks likely arises from the distinction made by Sir John Donaldson MR in The Lorna I case between the timing of Freight payment and its earning. Other legal systems focus solely on the latter, advocating that unearned Freight should be refundable. English Law, however, treats both aspects with equal significance. Absent specific contractual terms, Freight is only earned upon cargo delivery at the Discharging Port (DP). Yet, it is possible to stipulate Advance Freight payment, establishing a duty to pay Freight at a point before it is earned, though this commitment may be subject to change or affirmation through an Express Term, ensuring that Advance Freight paid under the Charterparty is Not Returnable or Not Recoverable if the Charterparty is frustrated before the Freight is earned.

Freight Payment in Advance

If the terms of the Charterparty stipulate that advance Freight is payable within three (3) days of the Ship Master signing the Bill of Lading (B/L), and declare “Freight Non-returnable Cargo and/or Ship Lost or Not Lost,” the situation becomes complex if the ship is lost in heavy sea conditions before the three-day period expires. The Court of Appeal ruled that no Freight was payable or earned before the end of the three-day period, by which time the loss of the ship and cargo had Frustrated the Charterparty. The clause stating Freight is Non-Returnable was interpreted to apply only to Freight that had been, or should have been, paid at the time the Frustrating event occurred. However, one court member believed that if the relevant Freight had been paid during this period, it would have been irrecoverable upon the ship’s loss.

Contrast this with the scenario in The Dominique case, where Freight was to be Prepaid within five (5) days of signing the Bill of Lading (B/L), and “Full Freight Deemed to be Earned on signing Bill of Lading (B/L), Discountless and Non-returnable, Ship and/or Cargo Lost or Not Lost” was specified. Here, when the ship was seized by a creditor due to the Shipowner’s financial troubles during the charter’s performance, the Charterer viewed the Shipowner’s failure to secure release as a Repudiatory Breach of Contract. Still, the Charterer was held liable for Freight, as it was deemed earned upon the signing of the Bill of Lading (B/L), regardless of the subsequent payment window. Judge Hobhouse noted, “Thus, there is a liability for Freight as an existing debt from the moment the Bill of Lading (B/L) is signed, although the actual payment is deferred.”

The prevailing theory is that once Freight liability accrues, either through reaching the set payment date or because Freight is deemed earned, it becomes a debt obligation. Subsequent voyage incidents and misfortunes then do not allow the Charterer to shift any of that risk back to the Shipowner. From this point, the risk associated with the Freight is typically not insurable by the Shipowner but is often covered by the Charterer who made the Advance Freight payment, as part of the cargo’s insured value. Thus, the financial risk is essentially limited to the insurance premium paid.

The assignment of risk also helps resolve another issue regarding the payment of Advance Freight, often raised at the Loading Port (LP), on whether such payment is towards Freight or merely a loan to cover the ship’s disbursements and current expenses. This depends on the interpretation of the Charterparty’s terms and the intentions of the parties involved. The onus is on the Shipowner to prove that the payment was intended as Advance Freight; otherwise, it is recoverable as a loan. Typically, the solution hinges on which party insures the Advance Freight Payment. If the Charterer insures it, the payment is likely intended as Advance Freight, as a loan would not entail taking on such risk. If only a portion of the Freight is paid in advance, this amount is considered a partial payment of the total due upon delivery. Hence, if any cargo is lost during transit, the Charterer is only liable for the balance if the total Freight due on the delivered cargo exceeds the advance paid. Alternatively, there is no loss of the Freight paid in advance unless the Freight due on the delivered cargo is less than the advance.

Freight Types

A – Pro Rata Freight

Under Common Law, the prevailing principle is that no Freight is due unless the cargo reaches the designated Discharging Port (DP). If the journey to the Discharging Port (DP) is interrupted by an Excepted Peril, the Shipowner cannot claim Freight based on the portion of the voyage completed. This was exemplified in the Hunter v Prinsep case, where a ship traveling from Honduras to the United Kingdom was wrecked on St Kitts. The salvaged cargo was sold by the Ship Master without consulting the Cargo Owner. The court rejected a claim for Pro Rata Freight, ruling that Freight is earned through the delivery of cargo at the specified Discharging Port (DP), and the sale suggested the Ship Master’s decision against completing the voyage.

Conversely, the Charterparty may explicitly allow for Pro Rata Freight under certain conditions, such as when the failure to deliver cargo at the Discharging Port (DP) is due to the Charterer’s fault. For instance, Pro Rata Freight was justified when the Charterer ignored a notification from the Ship Master about the cargo’s risk in a Salvage situation, resulting in a court-ordered sale. Pro Rata Freight might also be implied if the Charterer accepts the cargo before reaching the Discharging Port (DP) under conditions that suggest the termination of its further transportation is accepted. However, this inference is not drawn simply from accepting cargo before it reaches the Discharging Port (DP) unless the Shipowner is ready and able to finish the delivery. Pro Rata Freight claims require voluntary acceptance of the cargo at an Intermediate Port that conclusively indicates the cessation of its onward transport. This inference was absent when the Charterer, under protest, accepted cargo delivery about 100 miles short of the Discharging Port (DP) due to ice blockages in the Baltic Sea.

B – Lump Sum Freight

Lump Sum Freight is an agreed total paid for utilizing either all or part of a ship to transport cargo on a specified voyage, calculated independently of the cargo’s weight or dimensions. This Freight remains fully claimable even if the full cargo amount is not loaded, provided the shortfall isn’t due to the Shipowner’s negligence—such as when a Shipper fails to supply sufficient cargo. Typically, Lump Sum Freight is assumed payable upon the safe delivery of the cargo at the Discharging Port (DP), although it’s common for all or part of this amount to be paid in advance.

For Lump Sum Freight conditioned on the “Right and True Delivery” of the cargo at the Discharging Port (DP), complete delivery of the cargo is unnecessary before the Shipowner can claim the Freight. This was affirmed when a portion of the cargo was jettisoned after the ship ran aground, yet the court recognized the Shipowner’s right to the full Lump Sum Freight for the safely delivered remainder. Lord Lindley noted that “Right and True Delivery” should be interpreted flexibly, considering Excepted Perils. The exact proportion of cargo that needs to be delivered to justify Freight payment remains undetermined, but it likely must be a significant portion.

In the referenced case, the cargo loss was due to an Excepted Peril, and full Freight was still deemed payable even if not all shipped cargo was delivered, regardless of any faults by the Shipowner. Here, the general prohibition against Freight Deductions would apply, necessitating any cargo claims be pursued as separate legal actions.

Furthermore, the Shipowner retains the right to claim Lump Sum Freight even if the cargo arrives at the Discharging Port (DP) on a different ship. If the original vessel is unfit to complete the voyage, the Shipowner may tranship the cargo. Additionally, the Shipowner might recover Freight if the cargo is retrieved by the crew after being washed ashore from a stranded ship.

C – Dead Freight

When a Voyage Charterer does not fulfill the obligation to load the full quota of cargo as specified by the Charterparty, the Shipowner may claim damages known as Dead Freight. The critical factor is the actual quantity of cargo loaded, regardless of the Charterer’s intentions. For example, in The Archimidis case, even though the Charterer provided the full contracted amount of cargo at the Loading Port (LP), the Court of Appeal found them liable for Dead Freight because it was known that the ship could not safely load and leave the port with that quantity due to conditions at the Loading Port (LP). Additionally, the Shipowner is expected to mitigate losses by attempting to find Alternative Cargo if feasible. The Shipowner can claim the costs incurred in securing such cargo, plus any outstanding Freight.

The calculation of Dead Freight might be defined within the Voyage Charterparty as a Liquidated Damages Clause. Recent judicial interpretations indicate that such clauses do not necessarily cap the damages recoverable for breaching the Voyage Charterparty; the Shipowner may also pursue demurrage losses resulting from not loading the minimum agreed cargo. Without such a clause, Dead Freight is calculated based on the Freight rate for the unused cargo space minus any costs the Shipowner would typically incur to earn that Freight. Common Law does not provide a lien for Dead Freight, although it is usually addressed in the Charterparty.

D – Back Freight

If a Shipowner cannot deliver cargo at the agreed Discharging Port (DP) due to circumstances beyond control, like war or the Charterer’s failure to accept delivery, the Shipowner must act in the Charterer’s interest at the Charterer’s expense. If the Shipowner receives no instructions from the Charterer, options include landing and storing the cargo, transhipping, moving the cargo to another port, or returning it to the Loading Port (LP), choosing the most suitable action. The Shipowner may then recover the associated costs as Back Freight.

The Shipowner has no duty to send the cargo to the agreed Discharging Port (DP) merely to earn Freight when Excepted Perils prevent completing the voyage in the original ship. However, if the Freight is insured and the cargo can be forwarded at a cost lower than the at-risk Freight, the insured must either forward the cargo to earn the Freight or allow the Freight Underwriters the opportunity to do so by abandonment.

Payment of Freight

A – Responsible Party for Freight Payment

Typically, the party liable for Freight payment is the one who enters into a contract of carriage with the Shipowner or the Carrier, commonly the Charterer in a Voyage Charterparty or the Shipper in a Bill of Lading (B/L) contract. However, this contract may allow for other parties to be responsible for Freight payment, or the initial liability can shift through the indorsement of the Bill of Lading (B/L).

Charterparty Freight

In a Voyage Charterparty, the Charterer is primarily responsible for the Freight payment and maintains liability even if the ship is sub-chartered or if Bills of Lading (B/L) are issued to third parties reserving the same Freight amount as stipulated in the Charterparty. The Shipowner is not required to seek payment initially from the Bill of Lading (B/L) Holder, nor does waiving the lien and releasing the cargo to the Consignee without securing Freight payment diminish the Shipowner’s right to pursue the Charterer.

Often, the Charterer’s interest in the Charterparty may diminish once the cargo is shipped, for instance, if the Charterer is acting as an agent for a third party or has sold the cargo under a sale contract requiring the Charterer to arrange for shipment. Under these conditions, the Charterparty typically includes a Cesser Clause, which ends the Charterer’s liability for Freight and other transport costs once the cargo is loaded onto the chartered ship. This clause effectively absolves the Charterer of Freight liability provided the Shipowner is given equivalent security, such as a lien on the cargo. However, the Cesser Clause does not absolve the Charterer of liability as a Bill of Lading (B/L) holder.

Bill of Lading (B/L) Freight

Normally, the Shipper is liable for Freight on cargo shipped under a Bill of Lading (B/L) unless it is declared at shipment that the Shipper is acting merely as an agent for someone else. The Shipowner’s liability can be waived by an explicit term in the Bill of Lading (B/L) or if the Carrier extends credit to the Consignee, such as accepting a bill of exchange drawn on the Consignee for convenience.

After the Shipper has transferred the Bill of Lading (B/L) to a Consignee or Indorsee, the responsibility for Freight payment changes significantly following the repeal of the Bills of Lading Act 1855 by the Carriage of Goods by Sea Act 1992. Given that this act only applies to Bills of Lading (B/L) issued on or after September 16, 1992, it is necessary to evaluate the implications under both legal frameworks.

Bill of Lading (B/L) issued before Carriage of Goods by Sea Act 1992

The initial obligation of the Shipper to pay Freight endures even after the Bill of Lading (B/L) is indorsed to a Consignee or other Indorsee. This is because the Bills of Lading Act 1855 (Section 2) explicitly preserves the Shipowner’s or Carrier’s right to seek recourse against the Shipper. The Act granted the Shipowner or Carrier a legal right to claim Freight from any Consignee or Indorsee who acquired property in the cargo through its Indorsement. Without this provision, the Doctrine of Privity of Contract would typically preclude any Freight claims against third parties. There were still issues, notably when the Bills of Lading Act was not applicable, for instance, if the Indorsement was not intended to transfer cargo ownership. Previous legal interpretations suggested that presenting a Bill of Lading and accepting cargo could be seen as an implicit promise to pay Freight, dependent on the specific circumstances and not a legal standard. An implied agreement must be supported by consideration, possibly provided by the Shipowner or Carrier releasing the cargo without exercising a Lien. A second issue was the Consignee’s or Indorsee’s liability for Advance Freight still due at the time of cargo delivery. Typically, they would be liable as the Bills of Lading Act stated that such a party should be treated as if they had directly entered into the Bill of Lading contract.

Bill of Lading (B/L) issued after Carriage of Goods by Sea Act 1992

The responsibility of the Shipper to pay Freight remains after the Bill of Lading (B/L) is indorsed to a Consignee or other Indorsee. The Carriage of Goods by Sea Act 1992 (Section 3) stipulates that even when a subsequent Consignee or Indorsee becomes liable to pay Freight, it does not affect the Shipper’s continuing obligation. A Consignee or Indorsee, upon gaining the right to sue under the Act, does not automatically incur the contract’s obligations, including Freight payment. These obligations apply once the Consignee or Indorsee acts on the contract by taking or demanding cargo delivery, making a claim, or after having taken delivery before acquiring the right to sue. Regarding Advance Freight, the Carriage of Goods by Sea Act 1992 declares that a subsequent Consignee or Indorsee assumes the same liabilities as if they were the original contract party. Whether Estoppel could protect a Transferee who accepted the Bill of Lading in ignorance of outstanding Freight is debatable.

B – Party to whom Freight is payable

Freight under a Voyage Charterparty or a Bill of Lading (B/L) contract is typically payable to the party the Charterer contracted with for carriage, though contract terms might vary. The Shipowner or Carrier can designate whom Freight is payable to, and initial obligations may shift prior to Freight accrual through subsequent sales or mortgages of the ship, or assignment of the Freight to a Third Party. When facing conflicting payment claims, the payer is advised to interplead.

A- Shipowner

Generally, the Shipowner is entitled to payment of Voyage Charter Freight and, unless specified by a Charterparty, to Freight under a Bill of Lading (B/L) contract. An exception exists for ships under a Bareboat Charterparty or Demise Charterparty, where Freight is payable to the Bareboat Charterer or Demise Charterer. Typically, Freight is collected by an Authorized Agent, such as the Shipbroker at the Loading Port (LP) or the Ship Master at the Discharging Port (DP). Payment to an Authorized Agent discharges the obligation unless trade customs or notice dictates otherwise. Part owners of a ship share Freight entitlement in accordance with their shares in the ship, managed under partnership laws, with a Managing Owner or Joint Agent usually appointed to collect Freight.

B- Ship Master

The Ship Master is typically authorized to collect Freight on behalf of the Shipowner, but cannot legally enforce this collection through action unless the contract of carriage explicitly involves the Ship Master directly. The Ship Master cannot initiate a lawsuit for Freight if they have signed the Bill of Lading (B/L) as an agent for the Shipowner. Furthermore, the Ship Master does not have the right to offset any wages or advances made on behalf of the ship against the Shipowner.

C- Bareboat Charterer or Demise Charterer

For ships under a Bareboat Charterparty or Demise Charterparty, Freight from both sub-charters and Bill of Lading (B/L) is payable to the Bareboat Charterer or Demise Charterer. For ships operating under a Time Charterparty or Voyage Charterparty, who is entitled to the Freight specified in the Bill of Lading (B/L) depends on the specific contract terms and case circumstances. Typically, though issued by the Charterers, the Bill of Lading (B/L) is signed by the Ship Master or another Authorized Agent on behalf of the Shipowners, making it the Shipowner’s bill. The Shipowner can appoint agents to collect Freight at the Discharging Port (DP) but must reconcile any surplus Freight with the Charterer after deductions. Conversely, if the Bill of Lading (B/L) is signed by the Ship Master or another agent for the Charterer, it is considered the Charterer’s Bill of Lading (B/L), entitling them to any due Freight.

D- Buyer of the Ship

The sale of the ship includes the rights to any Freight being earned at the time of sale, which is payable to the Shipowner.

E- Mortgagee of the Ship

Mortgaging a ship does not inherently include rights to Freight. These rights only emerge once the Mortgagee has taken Actual or Constructive possession of the ship. For Constructive possession, notifying the Charterer or Consignee is adequate when the ship is at sea, provided Actual Possession is taken promptly afterwards. Upon taking possession, the Mortgagee is entitled to any Freight being earned under the ongoing contract of carriage, except for Advance Freight if it has already been paid to the Shipowner. The Mortgagee has no claim to Freight that accrued before taking possession, nor to any unpaid Freight from prior voyages. If there are multiple mortgages on a ship, the priority for Freight entitlement is determined by the registration date of the mortgage rather than the date it was issued.

F- Assignee of Freight

Freight rights can be assigned independently of the ship, and if statutory requirements for assignment are met, the Assignee can legally claim Freight in their own name. The assignment must be in writing, absolute, not conditional or merely as a charge, and the Debtor must be notified in writing. While such assignments are immediately effective between the parties, they are subject to existing equities. In successive assignments, the payor is justified in paying the first Assignee who notifies them. Without any notice, payment to the original entitled party is sufficient for discharge. An assignment of Freight has precedence over any subsequent ship sale or mortgage unless the Mortgagee was unaware of the assignment at the time of the mortgage. However, it does not supersede any prior ship sale, as the sale includes rights to accruing Freight. If the Mortgagee has not yet taken possession of the ship, a subsequent Assignee has priority over any Freight that has already accrued.

G- Underwriter

When a ship is abandoned to an underwriter, they gain rights to any subsequent Freight. However, if the Ship Master has already transhipped the cargo before the abandonment, any resulting Freight from the voyage’s completion belongs to the original ship’s owner.

 

 

 

14- Shipowner’s authority to enforce a Lien

Lien

Lien grants the Shipowner the right to retain possession of the cargo at the Discharging Port (DP) as security for the payment of Freight or other charges. This right may emerge under Common Law or could be explicitly specified in the Charterparty.

Liens at Common Law

The right of a Shipowner to assert a Lien at Common Law is independent of any contract and relies solely on the Shipowner’s ability to retain possession of the relevant cargo. This right is limited to three specific cases under Common Law:

A- It allows for the recovery of Freight owed upon the delivery of cargo as per the Charterparty or Bill of Lading (B/L) contract. However, a Lien does not naturally arise for the recovery of other charges like Dead Freight (DF), Demurrage (D), or Damages for Detention (DFD).

B- It is applicable for the recovery of a General Average (GA) Contribution due from the cargo. Typically, the Shipowner releases the cargo to the Consignee in exchange for an Average Bond (AB) or another form of security.

C- It covers Expenses incurred by the Shipowner in safeguarding the cargo, authorized under an Agency of Necessity, allowing the Ship Master to take necessary steps to protect the Cargo Owner’s interests during the voyage.

Requirements for Exercising the Common Law Lien for Freight

To exercise a Lien for Freight, the Shipowner must maintain possession of the cargo; this right is forfeited once the cargo is delivered to the Consignee or their Agent. Similarly, a Shipowner under a Bareboat Charterparty or Demise Charterparty lacks a Lien for Charter Hire as they do not retain possession of the ship.

Furthermore, the enforceability of the Lien depends on the concurrent obligations of paying Freight and delivering cargo. If the Charterparty stipulates payment of Freight after the cargo delivery date, the right to a Lien is void, as seen in the Tamvaco v Simpson case, where the Shipowner couldn’t enforce a Lien when the Charterparty allowed for later payment despite the Shipper’s insolvency.

The Lien right is specific to the cargo consignment on which Freight is due and may extend over the entire consignment even if only part of the Freight is outstanding. For single contracts involving multiple cargoes consigned to the same individual on the same voyage under different Bills of Lading (B/L), the Shipowner may assert a Lien across all such cargoes. However, once Bills of Lading (B/L) are indorsed to various assignees, the Lien is limited to those specific Bills where Freight remains unpaid. If cargo is delivered in installments, the Lien only applies to installments where Freight is due. A Lien for Charter Freight on a general ship cannot be enforced against Third-Party cargo shipped under a separate Bill of Lading (B/L) unless explicitly allowed by the Bill of Lading (B/L).

Issues arise when the Charterparty mandates Advance Freight Payment. Generally, Common Law Lien cannot be applied for such Freight, especially if the cargo is deliverable to a Consignee other than the one responsible for the Advance Freight payment. A Shipowner is precluded from enforcing a Lien against a Consignee or Assignee who received the Bill of Lading (B/L) under the presumption that the Freight was prepaid, as illustrated in the Gardner v Trechman case where the court denied the Shipowner the right to enforce a Lien for unpaid charter Freight against a third-party Bill of Lading (B/L) Holder.

In conclusion, while the Common Law Lien allows the Shipowner to retain cargo, it does not authorize resale, even if retention incurs costs. However, in cases of Liens for charter Freight, the Shipowner might recover these costs through Demurrage claims due to delays.

Contractual Liens

Parties in a contract of carriage, whether under a Charterparty or Bill of Lading (B/L), typically specify Express Terms for Liens rather than depending on the Implied Lien provided by Common Law. This approach allows them to secure not only the payment of Freight but also the reimbursement of other charges or losses incurred by the Shipowner. These clauses might be tailored to cover specific charges or drafted broadly to include “All Charges Whatsoever.” An example of a specific clause is from the Gencon Charterparty 1994 Form (Clause 8): “Shipowners shall have a Lien on the cargo and on all sub-Freights payable in respect of the cargo, for Freight (F), Dead Freight (DF), Demurrage (D), claims for Damages and for all other amounts due under this Charterparty including costs of recovering same.” A more general clause is seen in the SCANCON Charterparty (Clause 3): “Shipowners shall have a Lien on the cargo for any amount due under this contract and the necessary costs of recovering same.”

Characteristics of Contractual Liens

Like the Common Law Lien, the enforceability of a Contractual Lien depends on the Shipowner maintaining possession of the cargo. Once the cargo is transferred to a Consignee or Assignee of the Bill of Lading (B/L), the right is forfeited. However, as it is based on contractual terms, it is enforceable only against parties to the contract of carriage. For example, a Lien in a Time Charterparty intended to secure Unpaid Hire is not enforceable against a Third Party’s cargo shipped under a Bill of Lading (B/L), even if the Third Party was aware of the Charterparty when their cargo was shipped. Lord Lindley has ruled that a lien does not extend to seizing one person’s cargo for another’s debt without clear, explicit consent recognized by the court. Such a Lien would be enforceable only if the Charterparty clause were explicitly included in the Bill of Lading (B/L) issued to the Third Party Shipper.

Challenges in interpretation arise when the Charterparty clause aims to extend the Lien beyond the Charterer’s cargo to cover any cargo on the ship. For instance, the New York Produce Exchange Form (NYPE) (Clause 18) states the Shipowner has a “Lien upon all cargoes and all Sub-Freights for any amounts due under this Charterparty.” Logically, the Doctrine of Privity of Contract should apply regardless of the clause’s wording, and no Lien should be enforceable against a Third Party Shipper unless it is expressly included in their Bill of Lading (B/L). This stance was supported by Judge Mocatta in The Agios Giorgis case, who could not see how New York Produce Exchange Form (NYPE) (Clause 18) could allow Shipowners to detain cargo not owned by the Charterers or on which no Freight was due to the Shipowners unless the Bill of Lading (B/L) expressly subjected the cargo to the Charterparty Lien.

Conversely, Judge Donaldson in The Aegnoussiotis case presented a different perspective when a Shipowner attempted to enforce a Charterparty Lien by halting the discharge of a Consignee’s cargo until outstanding Ship Hire was paid. The issue was whether Ship Hire continued to accrue during the discharge suspension. Judge Donaldson suggested that under New York Produce Exchange Form (NYPE) (Clause 18), the Time Charterer is expected to ensure that a Contractual Lien is created in favor of the Shipowner, ideally by including it explicitly in the Bill of Lading (B/L). Failure to do so, allowing the Shipowner to assert a Lien over Third Party cargo, would not relieve the Charterer from their breach of contract, thus validating the Lien’s exercise against them and continuing the accrual of Ship Hire during the suspension period. This judgment, based on specific circumstances, does not negate the general legal principle established in The Agios Giorgis case.

Timing for Exercising a Lien

The core purpose of a Lien is to withhold the cargo from someone who seeks to obtain it. Judge Donaldson illustrated this in The Mihalios Xilas case, ruling that the Shipowner could not enforce the Lien by stopping the ship at a Bunkering Port en route to the Discharging Port (DP) because there was no demand for the cargo at that location. Such action is only justified if the Lien cannot be enforced at the Discharging Port (DP) under special circumstances, such as when cargo is consigned to a foreign government at the Discharging Port (DP). However, once the ship arrives at the Discharging Port (DP), the Shipowner may exercise the Lien without objection, as insisting otherwise could incur unnecessary costs and potentially cause port congestion, which would diminish the Lien’s commercial value.

Lien on Sub-Freights

Many Time Charterparties stipulate that a Lien for Ship Hire extends not only to the cargo but also to Sub-Freights owed to the Charterers. This typically includes Freight on Bill of Lading (B/L) issued by the Charterers and Freight due on Sub-Charters. The term “Lien” is somewhat incorrect in this context as Sub-Freights are not physically possessed by the Shipowner. Instead, the Time Charterparty Lien Clause essentially allows the Shipowner to intercept Sub-Freight payments before they reach the Time Charterer. Once Sub-Freight reaches the Time Charterer, the Lien is lost, as it does not grant the Shipowner rights to trace these payments once received by the Time Charterer.

How is a Lien on Sub-Freights Exercised?

A Lien on Sub-Freight is typically enforced by notifying the Bill of Lading (B/L) Holder or Sub-Charterer that any due Freight should be paid directly to the Shipowner. The enforceability of such a Lien depends on whether the contract of carriage was made with the Shipowner or the Time Charterer. If Bill of Lading (B/L) issued by the Time Charterer is signed by the Ship Master as an agent for the Shipowner, the carriage contract is between the Shipper and Shipowner, giving the Shipowner the legal right to the Freight. The Shipowner can intervene before the Freight is paid and instruct the Agent to collect it on their behalf.

If the Time Charterer appoints an Agent to collect Freight, the Agent acts on behalf of both parties and can be directed by the Shipowner to either collect outstanding Freight or surrender any collected Freight. However, the Lien can only cover Ship Hire that accrued prior to the Agent receiving the Sub-Freight, not any Hire that accrues thereafter.

Conversely, if the Bill of Lading (B/L) is signed either by the Time Charterer or by the Ship Master as an agent for the Time Charterer, the contract of carriage is between the Shipper and the Time Charterer, and the legal right to the Freight rests with the Time Charterer. In such Charterer’s Contracts, the Shipowner needs to intercept the Freight before it reaches the Time Charterer or their Agent, as the Lien is forfeited once the Sub-Freight is in the Time Charterer’s possession.

Issues arise when Bill of Lading (B/L) demands pre-payment of Freight, as this effectively nullifies the Charter Lien on Sub-Freights. The Ship Master might still need to sign such Bill of Lading (B/L) if the Time Charterparty allows the Time Charterer to set any Freight rate. The only protection for the Shipowner in such cases is to ensure the Bill of Lading (B/L) includes a clause from the Charterparty that explicitly grants a Lien on cargo for overdue Ship Charter Hire. However, this is often unacceptable in international CIF (Cost, Insurance, Freight) contracts that involve Letters of Credit (LC), which typically require pre-paid Freight and prohibit including Charterparty terms in the Bill of Lading (B/L).

Cesser Clause

When cargo is delivered under a Bill of Lading (B/L), the Shipowner or Carrier typically holds the Receiver accountable for transport-related charges, such as Freight, often securing such claims with a Lien on the cargo. When a Bill of Lading (B/L) is issued under a Charterparty, the Charterer generally remains liable for charter-related charges like Demurrage (D), Damages for Detention (DFD), and Dead Freight (DF). However, Charterers may not want to remain liable once the cargo is loaded, especially if they have arranged the ship to transport cargo to an overseas buyer or are acting as an agent for an undisclosed principal. To absolve the Charterer from ongoing liability, Charterparties often include a Cesser Clause. This clause typically stipulates that the Charterer’s liability for transport charges ends once the cargo is shipped. An example of such wording is: “ship to have a Lien on the cargo for all Freight (F), Dead Freight (DF), Demurrage (D) and Charterer’s liability under this charter to cease on cargo being shipped.”

Once the Cesser Clause is activated, the Shipowner’s recourse is limited to actions against the cargo (i.e., Lien) or under the Bill of Lading (B/L) contract. The Cesser Clause usually applies retroactively, covering liabilities incurred before the completion of loading, such as Dead Freight (DF) or Demurrage (D) at the Loading Port. Courts typically do not interpret Cesser Clauses literally. According to Judge Donaldson J, Cesser Clauses imply that the Charterer’s liability ceases only if and to the extent that the Shipowner has an alternative remedy via a Lien on the cargo.

Thus, a Charterer is released from liability under the charter only to the extent that the Shipowner has a corresponding Lien on the cargo. This interpretation aligns with what is considered a reasonable interpretation of the parties’ intentions. Effective incorporation of Charterparty Liens into the Bill of Lading (B/L) and precise wording of the Cesser Clause are crucial to cover relevant charges. Furthermore, the granting of a Lien alone is insufficient unless the Shipowner can practically enforce it. For instance, the enforceability of a Lien might be impeded by contractual terms, such as Demurrage (D) not being payable until a week after the cargo’s scheduled discharge date. Additionally, legal barriers might prevent the enforcement of a Lien, such as when cargo is consigned to a foreign government that does not permit Liens at the Discharging Port (DP).

There is no clear authority on whether a Cesser Clause would hold if enforcing a Lien is not commercially practical or if the cargo’s value does not adequately cover the claim, though some Cesser Clauses address this scenario.

The courts’ strict interpretation of Cesser Clauses reflects commercial criticisms. Cesser Clauses are generally unfavorable in transactions involving Letters of Credit (LC), as they shift the Shipowner from a direct action against the Charterer to a less certain, costly, and lengthy remedy against the cargo. From the Bill of Lading (B/L) Holder’s perspective, accepting liability for unspecified charges at the time of receiving the Bill of Lading (B/L) is problematic.

 

 

 

15- Resolving Disputes in Ship Chartering

Conflicts of Law in Charterparties

Charterparties often feature an international aspect, whether due to the Shipowners and Charterers being based in different countries or because the execution of the Charterparty occurs in a different state than where it was formed. Disputes from such Charterparties may raise issues concerning the jurisdiction for initiating legal actions and the applicable law governing the transaction. Standard Forms of Bill of Lading (B/L) and Charterparty typically address these concerns by including clauses that specify a chosen forum and law. In the absence of such clauses, courts must determine jurisdiction and applicable law based on the specific circumstances of each case.

Jurisdiction of English Courts

Under the oversight of International Conventions and European Law, English courts’ jurisdiction, whether in Personam or in Rem, traditionally hinges on the service of legal documents. The Civil Procedure Rules (CPR) 1998 have simplified these procedures compared to the past.

For services within the United Kingdom, the court can authorize alternative methods not listed in the Civil Procedure Rules (CPR) 1998, and the claim form may be served as specified in a contract. An in Personam claim form is generally served to an authorized solicitor or directly to the Defendant if no solicitor is available. Exceptionally, service might not be required. An in Rem claim form should be served on the ship involved in the claim or any ship owned by the Defendant and can also be served via an authorized solicitor or as specified in the Civil Procedure Rules (CPR) 1998. Jurisdiction covers claims related to cargo loss or damage and agreements related to cargo carriage or ship use or hire.

It is also possible to serve an in Personam Claim form on a person outside the UK under specific conditions listed in the Practice Direction to Part 6 of the Civil Procedure Rules (CPR) 1998:

1. Claim seeks a remedy against a person domiciled within the jurisdiction.
2. Claim seeks an injunction compelling the Defendant to act or refrain from acting within the jurisdiction.
3. Contract-related claims where the contract:
   • Was made within the jurisdiction.
   • Was made through an agent residing or trading within the jurisdiction.
   • Is governed by English Law.
   • Includes a clause assigning jurisdiction to English courts for dispute resolution.
4. Claims related to a contract breach within the jurisdiction.
5. Claims seeking a declaration of no contract existence, where such a contract would meet the conditions in paragraph 6 if it existed.
6. Tort claims where:
   • The damage occurred within the jurisdiction.
   • The act causing the damage occurred within the jurisdiction.
7. Claims enforcing a judgment or award.

Despite these rules, permission from the court is required to issue a claim form for serving outside the UK, guided primarily by International Conventions and specific legislative provisions. This process under Part 6 of the Civil Procedure Rules (CPR) 1998 is not automatically granted and must be judicially approved.

Statutory authority defines specific conditions under which powers can be exercised, leaving it to the discretion of the Court to decide their applicability in each case. The Claimant bears the burden of demonstrating:

A- a solid arguable case that falls within Part 6c,
B- a reasonable prospect of success for the claim, and
C- that England is the most suitable forum.

Choice of Forum

English law’s approach involves the autonomy of the parties in choosing their forum. The crucial question is whether the parties to a Charterparty have absolute freedom to select a forum, or if there must be a connection between the dispute’s subject matter and the selected forum. This depends on the specific court addressed and its jurisdictional capacity. The fundamental issues are how likely the chosen court is to accept jurisdiction and to what extent other courts will honor this preference by staying actions within their jurisdictions. Generally, the nominated forum is more inclined to accept jurisdiction compared to other courts staying proceedings out of respect for the choice of forum clause. The effectiveness of a stay application depends on whether the forum clause is exclusive or non-exclusive.

The rationale behind choosing a specific forum often stems from the desire of litigants to proceed in familiar courts. However, with parties from different countries, a neutral and respected forum with relevant expertise is typically chosen. Subject to statutory constraints from international conventions that the UK adheres to, English courts uphold the principle of contractual freedom, agreeing to jurisdiction even if the contract lacks ties to the selected forum. For instance, in The Chapparal case, despite the lack of direct connection to the UK, an English court accepted jurisdiction based on the forum choice clause when a US company contracted a German firm to tow equipment from the US Gulf to Italy, where it sustained damage during transit.

Furthermore, English courts can issue anti-suit injunctions to prevent parties under their jurisdiction from pursuing cases in foreign courts if such actions are considered vexatious or oppressive, though this power is used sparingly to maintain international legal comity. Judge Morison noted in The Hornbay case that anti-suit injunctions might be perceived as intrusive by other jurisdictions. Nevertheless, such injunctions are generally upheld where there’s an exclusive jurisdiction or arbitration agreement within the UK, barring compelling reasons to the contrary. These proceedings are regarded as vexatious without significant justification.

Considerations for Granting an Injunction

In evaluating whether to issue an injunction, several factors are considered: delays in applying for the injunction, how far the foreign proceedings have progressed, any potential loss of security, whether connected proceedings fall outside the injunction’s scope, and if it would lead to multiple legal actions. For instance, granting an injunction would be inappropriate if the breach of the agreement is merely speculative or if the application of English Law as the governing law in an Arbitration Agreement isn’t convincingly established. It is also unlikely that an injunction would be granted if the purpose of litigation in foreign courts is only to secure a precautionary measure and does not address the core issues of the claim.

Conversely, English courts are prepared to recognize a Foreign Jurisdiction Clause, often granting a stay on proceedings that contravene such a clause. In The Eleftheria case, Judge Brandon outlined principles for granting a stay of both English and foreign proceedings. He emphasized that the court should generally grant a stay unless compelling reasons are presented not to do so, placing the burden of proof on the Claimant. Key considerations include:

1. The location of the evidence or where it can be more easily accessed, considering the cost and convenience of trial between English and foreign courts.
2. The law governing the contract and any differences from English Law, recognizing that foreign laws are ideally adjudicated by the courts of the respective country.
3. The countries to which the parties are most closely connected.
4. Any potential prejudice to the Claimants by having to sue in a foreign court, such as loss of security for their claim, facing a statute of limitations not applicable in England, or the inability to enforce a potential judgment. Other concerns include political, racial, or religious biases that might impede a fair trial.

However, the court avoids comparing the merits of different legal systems, focusing instead on ensuring no party is disadvantaged by transferring proceedings to a foreign jurisdiction. For instance, in The Kislovodsk case, Judge Sheen conditioned the stay on the defendant providing adequate security for any judgment from the Leningrad court and ensuring that the Claimant’s witnesses received visas to attend the trial.

Various international conventions that have been assimilated into English Law by statute include jurisdictional guidelines that modify the general rules previously discussed. These conventions typically address specific issues that inherently involve cross-border elements. For instance, in maritime transport, the Hague Visby Rules do not specifically state jurisdictional clauses. Nevertheless, the House of Lords in The Morviken case invalidated a clause that selected a jurisdiction not adhering to the Hague Visby Rules, as it contravened Article III Rule 8 of those Hague Visby Rules. This ruling effectively restricts the choice of jurisdiction concerning claims under the Hague Visby Rules.

The Brussels I Regulation and Convention on Jurisdiction and Judgments

European Union

In 1978, the United Kingdom acceded to the European Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters of 1968, which became part of English law starting January 1, 1987. This Convention introduced a unique jurisdictional framework within its domain and facilitated the acknowledgment and execution of judgments. It also applied to jurisdictional matters and judgments between England, Scotland, and Northern Ireland. Subsequently, the Convention was superseded by the European Regulation 44/2001 (Brussels I) for all EU member states, excluding Denmark, for legal actions initiated after March 1, 2002, and for judgments in cases that commenced before that date under conditions similar to the Convention. An accord to extend the application of European Regulation 44/2001 (Brussels I) to Denmark was enacted on July 1, 2007.

European Union (EU) and the European Free Trade Area (EFTA)

Lugano Convention of 1988 was established by the EU member states and the EFTA member states to incorporate principles akin to those of the Brussels Convention, and it was integrated into English Law via the Civil Jurisdiction and Judgments Act of 1991. A revised version of this Convention was signed on October 30, 2007, and as of January 1, 2010, it obliges all EU member states (excluding Denmark) and Norway. Upon individual ratification and after three months, Denmark, Iceland, and Switzerland may also adhere to it.

European Union Regulation 44/2001 (Brussels 1)

European Union Regulation 44/2001 closely mirrors the 1968 Brussels Convention, and thus many interpretations and applications of the Convention remain relevant. However, there are key differences to consider. For one, the Brussels Convention’s deference to other conventions on specific issues is substantially reduced under the European Union Regulation 44/2001. Additionally, the types of national courts that can refer cases to the European Court of Justice are more restricted. For instance, under the European Union Regulation 44/2001, priority is given only to conventions that were in force before the member state in question joined the European Union Regulation 44/2001.

Regarding English courts under the amended European Economic Community (EEC) Treaty, only the House of Lords is now authorized to refer matters to the European Court of Justice. The Regulation’s scope is similar to that of the Convention and is not strictly limited to EU States; it also addresses cases where the defendant is domiciled in a member state and extends to matters involving non-member states or persons domiciled therein. For example, jurisdiction allocation by Article 2 of the Convention and Regulation extends beyond inter-member state disputes to include jurisdictions involving parties domiciled in non-member states.

The fundamental principle of the Regulation is that jurisdiction should generally lie with the courts of the member state where the defendant is domiciled. However, claimants have the option to bring suits in other contracting states if the dispute is sufficiently connected to those states, as specified by the Regulation.

For claims founded in tort, proceedings may be brought in the state where the damage occurred or might occur. In contractual disputes, it’s where the performance of the obligation was due—defined for sales of goods as the place of delivery within a member state and for services as the place of service provision.

The Regulation also outlines exceptions to these general rules. For instance, exclusive jurisdiction can be granted irrespective of domicile for specific types of legal proceedings, such as those concerning the validity of a company’s decisions or public registry entries in a member state. Moreover, any agreements conferring jurisdiction on a member state’s court are respected, especially when one or more parties are domiciled in a member state. A court where a defendant appears can claim jurisdiction unless the appearance is solely to contest jurisdiction, and no other court has been granted exclusive jurisdiction under Article 22 of the Regulation.

Furthermore, if legal actions involving the same parties and causes are initiated in courts of different member states, courts other than the first seised must stay their proceedings. Similarly, related actions in different member states may lead to stays to avoid duplicative litigation.

Historically, English courts have tried to limit the Convention’s scope in specific areas, such as the allocation of jurisdiction only to matters between member states and applying the forum non conveniens principle. However, the European Court has deemed these practices incompatible with the Convention, a stance that extends to the Regulation. This has necessitated a dual approach to jurisdictional rules by English courts, differentiating between cases falling within the European Union framework and those that do not, emphasizing a substantive connection between the dispute and the chosen forum over mere procedural considerations.

Lugano Convention 1988

The Lugano Convention 1988 largely mirrors the provisions of the EC Convention, with substantive jurisdictional rules diverging mainly around employment contracts. Updated to align seamlessly with Brussels 1, this Convention simplifies the relationship between the two European Union frameworks without necessitating further elaboration.

The Lugano Convention 1988 is applicable when the defendant resides in a European Free Trade Area (EFTA) state and the nature of the proceedings would have, under the corresponding EC Convention or Regulation, conferred exclusive jurisdiction to a specific state. When addressing matters relevant to non-member states, Regulation 44/2001 takes precedence over the Lugano Convention for member states. Additionally, where cases involve the same parties and the same or related actions across states, including an EFTA state, the provisions of the Lugano Convention come into effect.

Choice of Law

In Charterparties with an international scope, cargo claims often prompt questions about the applicable law. The Rome Convention on the Law Applicable to Contractual Obligations has largely replaced Common Law rules regarding choice of law, providing a unified approach for European Community states. Incorporated into English law through the Contracts (Applicable Law) Act 1990 and detailed in its Schedule 1, this Convention applies to all contracts formed after its enforcement on April 1, 1991—regardless of whether the law involved is of a contracting state.

While the Convention’s approach largely mirrors the pre-existing English legal practices, it has been succeeded by EC Regulation 593/2005 (Rome I) for contracts concluded after December 17, 2009. Rome I retains much of the Convention’s structure and scope, with minor substantive variations. Both the Convention and Rome I regulate Charterparty, limiting the application of Common Law to matters outside the scope of these frameworks or other international agreements incorporated into English law. Understanding the nuances and operations of the European Union frameworks is enhanced by a concise review of the historical Common Law context.

Common Law Approach

Express Choice of Law

In international Charterparties, it is often crucial to establish which national law governs the agreement or its specific aspects, as legal rights and remedies can vary significantly across different systems. This is why Charterparties frequently feature an express choice of law clause to prevent later disputes. The selection of a legal system may be influenced by various factors, including the dominant bargaining position of one party or the legal system’s reputation. There is some consensus that aligning the choice of law with the choice of forum is advantageous, allowing judges to interpret the laws with which they are most familiar.

English courts typically honor the parties’ clearly stated intentions regarding the choice of law, even if the chosen law has no direct connection to the dispute’s subject matter. Under English law, where intention governs and the parties explicitly state their choice of law in the Charterparty, it is hard to contest this choice unless it is not bona fide, is illegal, or public policy reasons necessitate its avoidance.

However, such broad freedom to choose a governing law comes with caveats: the choice must be made in good faith, it must not violate public policy of the relevant jurisdiction, and it should not conflict with any compulsory statutory provisions.

English courts also do not support a Floating Choice of Law, where a Charterparty clause grants one party the power to choose the contract’s governing law at will. The fundamental nature of contract law dictates that the governing law must be integrated into the contract from its inception and cannot be left indeterminate until one party decides.

Implied Choice of Law

In the absence of an explicit choice of law clause, the inclusion of a forum selection clause for litigation or arbitration in the Charterparty was once seen as a strong indicator of the contract’s intended governing law. It was previously thought that an Arbitration Clause, for instance, implied an intention for arbitrators to apply the law they are most familiar with.

However, subsequent case law indicates that such presumptions are not definitive. The presence of an arbitration clause is merely one of several factors considered when determining a contract’s proper law. Lord Diplock noted that while the implication of an arbitration clause is strong, it can be overridden by other indicators of the parties’ intentions.

For example, in the case involving a standard tanker voyage Charterparty negotiated in France between a French Shipowner and a Tunisian Charterer, the contract included both a London Arbitration Clause and a clause stating that the Charterparty was governed by the laws of the ship’s flag. The House of Lords ruled that French law was the appropriate legal framework, with the majority pointing to the explicit choice of law clause and the minority emphasizing the contract’s closest connections. Lord Wilberforce emphasized that commercial arbitrators are ideally positioned to determine a contract’s proper law, considering their expertise in balancing various factors against commercial intentions.

When no Choice of Law is indicated

Challenges arise when a contract lacks an Express or Implied indication of the governing Law. In such situations, courts must employ an objective approach, considering the Charterparty’s terms, the parties’ positions, and all relevant circumstances. Typically, the proper Law for a Charterparty without a specified choice is the system with the closest and most substantial connection. This connection is established by examining various factors, including the parties’ residence or nationality, the contract’s formation and execution locations, the subject matter’s location, and, in cases involving ships, the flag’s Law. These factors, once considered presumptive indicators, now contribute to a broader assessment without any single factor being decisive.

Rome Convention

Application of the Rome Convention

Effective from April 1, 1991, the Rome Convention governs contractual obligations across varying jurisdictions, regardless of any direct link between the Charterparty or the parties and a contracting state. The convention omits a definition for ‘contractual obligations,’ leaving interpretation to national and European courts. However, it excludes certain contracts from its scope, such as Arbitration Agreements, Choice of Forum Clauses, and certain insurance contracts, which are covered under EU Law or remain governed by common law. This convention also applies to conflicts between different parts of the United Kingdom.

The Rome Convention mandates that the applicable Law governs all contract aspects not specified within the convention itself, including material and formal validity. For example, issues of consent may be referred to the Law of the habitual residence if applying the otherwise governing Law seems unreasonable. Moreover, a Charterparty may be deemed valid under the Law of the country where it was concluded if not otherwise specified.

While the Rome Convention aligns with Common Law in prioritizing the parties’ intentions, stating, “A contract shall be governed by the Law chosen by the parties,” this choice must be made with “reasonable certainty” and may be express or inferred from the contract’s terms or circumstances.

However, this freedom to choose the governing Law is not absolute. Courts may apply mandatory local laws regardless of the chosen Law and prevent parties from evading national mandatory rules by selecting a foreign Law when all other contract elements are exclusively linked to one state. Such choices must also not contravene any international conventions that the state is a party to or be manifestly incompatible with the forum’s public policy.

In cases where the parties have not made a Choice of Law, the convention presumes that the contract is governed by the Law of the country most closely connected to it. This is often where the party responsible for the contract’s characteristic performance is based, whether that’s their habitual residence, their principal place of business, or another relevant location specified in the contract.

For contracts related to immovable property or certain Charterparties, like single Voyage Charterparties, the presumed applicable Law is that of the country where the Carrier’s principal place of business is located—assuming it coincides with the loading or discharge location or the consignor’s principal place of business. If these conditions aren’t met, the Law most closely connected to the contract must be determined based on the specific facts of the case, without relying on presumptions. These presumptions are set aside if the characteristic performance can’t be determined or if the overall circumstances indicate a closer connection to another country.

Interpreting the Rome Convention

The Rome Convention closely aligns with traditional Common Law rules, which might suggest that these rules would heavily influence its interpretation in the United Kingdom. However, the 1990 Act mandates that UK courts must consider any decisions or opinions from the European Court regarding the Convention. Moreover, the Convention itself emphasizes the importance of considering its international nature and the goal of uniform interpretation and application across nations. Consequently, it appears that the evolution of choice of law rules will likely be shaped more by European legal traditions than by Common Law precedents.

Regulation (EC) 593/2008 – Rome I – Law Governing Contractual Obligations

Rome I largely mirrors the Rome Convention, with adjustments necessary for its transition from a convention to a binding regulation, ensuring alignment with other specific transaction regulations. Although much of the Regulation’s language remains similar to that of the Convention, stating that changes in wording do not aim to alter meanings, the Regulation’s format and detailed provisions for certain contract types suggest a move towards more specific ‘connecting factors’ when parties have not chosen an applicable law. Habitual residence is established as a key connecting factor for both individuals and corporate entities.

Key Aspects of the Convention (Art 2)

The scope of the Convention includes:

(i) Comprehensive rules on insurance contracts integrating the choice of law framework with Insurance Directives. (ii) Specific provisions for passenger carriage. (iii) Clauses concerning contractual subrogation, set-off, and multiple liability.

Notably, insurance contract exclusions have been modified to accommodate new inclusions regarding pre-contractual obligations, now covered by Rome II. A clarification in the Preamble specifically addresses the carriage of goods, indicating that the exclusion of negotiable instruments extends to bills of lading concerning their negotiable nature.

Choice of Law by Parties (Art 3)

Parties must now demonstrate their choice of law ‘expressly or clearly through the contract terms or the case circumstances.’ Replacing ‘reasonable certainty’ with ‘clearly demonstrated’ sets a more precise and possibly stricter standard. A revised phrase (Article 3.3) maintains that such a choice does not affect the enforcement of indispensable legal rules, though it’s stated that no significant change is intended.

Applicable Law in the Absence of Choice

The Regulation emphasizes legal certainty by: (i) substituting presumptions with definitive rules, (ii) detailing provisions for various contract types, and (iii) removing the allowance for applying different laws to severable contract parts. Except for specified contracts, the general rule is that the law of the country where the party responsible for the characteristic performance resides should apply. Each specified contract type now has a definitive rule—for example, a sales contract is governed by the law of the country where the seller resides. The shift towards applying a single law to the entire contract, regardless of the connection of parts of the contract to that law, may raise concerns about the practicality of such uniformity. The European Court of Justice’s approach, favoring the independence of distinct contract parts, might offer a more flexible alternative to this enforced unity.

Under the general framework of the Regulation, the law governing Charterparty closely aligns with the Convention’s presumptions. Specifically, it designates the law of the carrier’s habitual residence, assuming the presence of one of three connections with that jurisdiction.

The traditional connections of ‘loading’ and ‘discharge’ stipulated by the Convention are updated to ‘delivery’ and ‘receipt’ in the Regulation—terms that better reflect the context. If these conditions are not fulfilled, the governing law defaults to that most closely associated with the transaction, initially determined by the agreed place of delivery under the Regulation.

Non-application of Applicable Law: Public Policy and Overriding Mandatory Provisions

The Regulation adheres to the Convention by allowing the non-application of choice-of-law rules based on public policy or overriding mandatory provisions, specifically outlined in Article 21, mirroring those in the Convention.

In cases where the mandatory nature of a provision is vital, the Convention allows for the non-application of chosen law if it stems from the laws of the forum or any closely connected jurisdiction, regardless of the otherwise applicable law. The Regulation underscores this by explicitly incorporating ‘Overriding’ in its title to emphasize the importance of these provisions.

Security for Claims

Despite fulfilling jurisdictional prerequisites and securing a favorable judgment, enforcing such a judgment remains a challenge if the defendant lacks assets. To mitigate potential losses between judgment and enforcement, claimants are advised to secure interim measures to ensure any favorable judgment can be satisfied. Both the Brussels and Lugano Conventions do not influence the availability of such measures.

Action in Rem

As established under the Supreme Court Act 1981 (Section 21(4)), Admiralty Court jurisdiction in Rem is invoked by serving an in rem claim form within territorial waters on a ship related to the claim. This jurisdiction requires that at the time the cause of action arose, the person liable if sued in Personam (‘the relevant person’) was the ship’s owner or Charterer or in control of it. Additionally, at the action’s initiation, the ship must be beneficially owned or chartered by Demise to that person. Claims can also be made against any ship beneficially owned by the relevant person at the time the action is initiated.

This remedy is accessible for most Charterparty claims, with the Act specifying it’s available for any claims related to cargo carriage or ship use or hire. It applies to foreign and British ships within British waters at the claim form’s service time. Its advantages include not requiring the liable party’s presence within the jurisdiction to initiate proceedings against his ship. Additionally, serving the in rem claim form allows for the ship’s arrest, prompting the Beneficial Owner to either acknowledge the claim and defend the action or not. As Sir George Jessel MR explained, this process involves proceeding against the ship itself, potentially securing a judgment without the shipowner’s direct involvement.

Furthermore, upon serving the claim form, the claimant gains preferential creditor status. If the Beneficial Owner does not acknowledge the claim, the ship’s value caps any potential recovery, although typically, the ship’s value substantially exceeds the claim amount. This Action in Rem, therefore, serves dual purposes: it establishes jurisdiction and secures the claimant necessary assurances that any judgment will be honored. Additionally, any security deposited for the ship’s release or the ship itself remains protected from any subsequent events that could affect the defendant’s financial stability, thereby preserving the claimant’s status as a preferred creditor or securing an alternative form of security.

Freezing Injunction

This modern security measure was originally developed by Lord Denning and later officially recognized under the Supreme Court Act 1981 (Section 37(3)). It is also listed among the interim remedies in the Civil Procedure Rules. This injunction acts as a preventive measure by prohibiting a party involved in legal proceedings from transferring movable assets out of the jurisdiction or disposing of them in a manner that could harm the claimant while awaiting the final judgment. Typically, it includes an order requiring the disclosure of all assets located within United Kingdom.

This injunction is a discretionary equitable remedy, and non-compliance can lead to charges of contempt of court. It proves particularly effective when dealing with defendants located outside of the jurisdiction and is often used alongside a request to serve a claim form pertaining to the main claim under the Civil Procedure Rules 1998 (CPR Part 6), which replaced the Rules of the Supreme Court (Order 11). To obtain this injunction, the defendant must be under the jurisdiction of the English court, and the claimant must show a strong, arguable case. If the defendant is overseas, serving the claim form related to the injunction is managed by the Civil Procedure Rules 1998 (CPR). It is crucial to recognize that this injunction is designed only to preserve the defendant’s assets, creating a potential fund from which any resulting judgment might be satisfied, rather than prioritizing the claimant over other creditors. Courts emphasize that this injunction is not intended to adjust bankruptcy laws or to act as a pre-trial attachment. As stated by Judge Colman J, the purpose of the injunction is “to prevent the defendant from circumventing justice by disposing of assets outside regular business operations, thus becoming judgment-proof. The claimant does not hold a security interest in the assets under such an order but only seeks to enforce the court’s directive to prevent specific disposals of the assets.”

Initially, this type of injunction was only granted if the claimant had a significant cause of action within the jurisdiction. However, legislative updates have since removed this restriction, allowing the injunction to support both English and international proceedings. A key consideration for granting this discretionary relief in support of foreign proceedings is its appropriateness under the specific circumstances, considering the proceedings are outside the jurisdiction. No other restrictions apply. Factors that might deem it inappropriate include the potential impact on the management of the case by the foreign court, any policy by the foreign court against issuing globally effective orders, risks of conflicting orders from different jurisdictions, and the potential ineffectiveness of the order.

The widespread use of this remedy led to the development of guidelines to prevent its misuse. Firstly, the party requesting the injunction must present a compelling and arguable case against the defendant and fully disclose all relevant information transparently. Any suspicion of failure to do so can lead to the denial of the injunction. Secondly, the claimant must provide detailed particulars of their claim and an impartial summary of the defendant’s responses. Thirdly, the claimant needs to demonstrate that the defendant possesses assets that could be targeted by the injunction, with evidence such as the existence of a bank account, even if it’s overdrawn, being sufficient. Fourthly, the claimant must show there is a real risk that the assets could be dispersed or hidden before a judgment can be enforced. As Lord Denning MR pointed out, the mere fact that the defendant is overseas is insufficient on its own. There must be evidence suggesting a serious risk of the defendant fleeing or disposing of assets prematurely. Lastly, the claimant must commit to covering any potential costs if the final judgment is unfavorable and may be required to provide security to the court to this effect.

Provided these conditions are met, the Freezing Injunction serves as an effective safeguard for a prospective litigant. Initially, it was designed as a remedy against foreigners outside the jurisdiction. Over time, its applicability has expanded to include defendants of any nationality, assets located anywhere, and proceedings in any country. This does not imply that the injunction is as readily enforceable against assets abroad as those within England, or in foreign proceedings compared to English ones. The Claimant faces a substantial burden when seeking an injunction against foreign assets for cases in a foreign state.

Typically, a global order impacting foreign assets and involving foreign proceedings necessitates a commitment from the Claimant not to enforce it without the English court’s approval. The Court of Appeal has provided detailed guidelines on the discretionary factors for permitting such enforcement.

The broad use of the injunction has raised concerns about potential undue burdens on innocent Third Parties. Therefore, any order must include terms that limit its impact on individuals or assets outside the jurisdiction. Concerning individuals, the order should only affect Third Parties if they are under the jurisdiction of the English court, have received written notice of the order, and can prevent its violation abroad, or if the order is enforceable by the court in the relevant country. Regarding assets, the order should stipulate that nothing within prevents a Third Party from adhering to obligations believed to exist under foreign law or the governing law of any contract with the respondent, and comply with any foreign court orders, provided notice of such proceedings has been issued. Often, the assets targeted by the Freezing Injunction are held by banks or other Third Parties, expected to freeze the relevant account or asset upon notification of the injunction. In these instances, the Claimant must promise to compensate Third Parties for costs incurred in adhering to the injunction. In some cases, courts have declined to grant a Freezing Injunction if it would unduly interfere with a Third Party’s operations.

Limitations have also been imposed on the scope of the Freezing Injunction, even regarding the Defendant. The amount of assets frozen is capped at the value of the Claimant’s quantifiable claim. Under certain conditions, the court may adjust the injunction to allow the Defendant to settle his regular business debts as usual. This leniency is granted because the primary aim of the Freezing Injunction is to prevent asset dispersal, not to grant the Claimant precedence over other creditors.

Arbitration

Most Charterparties feature an Arbitration Clause stipulating that disputes be referred to Arbitration. This is standard for Charterparties, though less common in Bills of Lading (B/L), unless the B/L includes a Charterparty’s Arbitration Clause. The enforceability of such Arbitration Clauses, contingent on the Charterparty’s validity, was definitively addressed in the House of Lords’ Fiona Trust & Holding Corp v Privalov case. It involved a Shipowner who attempted to cancel a set of Charterparties due to alleged bribery. The dispute centered on whether the Charterparty’s validity should be court-tested or if the Arbitration Clause remained enforceable. Lord Hoffmann clarified that the Arbitration Act 1996’s principle of separability (Section 7) ensures that a main contract’s invalidity does not affect the Arbitration Agreement, which must be viewed as a separate agreement, voidable only on grounds directly pertaining to the Arbitration Agreement itself.

Arbitration offers many advantages to a litigant, being less costly, quicker, and more informal than court litigation, often resolved through document reviews. Arbitrators, typically experts chosen by the parties, are not strictly bound by precedent, focusing instead on the merits of the specific case. The confidentiality of Arbitral Proceedings appeals to those preferring to keep their agreement details private, as Arbitration Awards in the United Kingdom are not publicized. However, the primary drawback is that isolated awards without explanatory reasons do not contribute to legal predictability through precedent establishment.

Arbitration Act 1996

From 31 January 1997, the Arbitration landscape in the United Kingdom has been governed by the Arbitration Act 1996. Before this Act, the applicable law was scattered across three different statutes, further complicated by a broad spectrum of Case Law. The Arbitration Act 1950 compiled most of the basic Arbitration legislation, the Arbitration Act 1975 implemented the New York Convention on the enforcement of Foreign Arbitration Awards, and the Arbitration Act 1979 aimed to enhance the finality of Arbitration Awards by reducing the supervisory role of English courts. This dispersion across various statutes, coupled with the extensive Case Law, made the legal framework cumbersome, leading to delays and increased costs. To preserve its international standing, the English Arbitration system needed a streamlined approach.

A Departmental Advisory Committee, formed by the Department of Trade and Industry and led by Saville LJ, crafted a new Bill tailored to consolidate and refine the law related to Arbitration under an Arbitration Agreement. This Bill aimed not only to amalgamate the existing statutory and Common Law on Arbitration but also to introduce key modifications to offer a more adaptable procedure. The primary intent was to allow the parties significant control over all aspects of the Arbitration Proceedings, including choosing Arbitrators, deciding on procedural rules, defining the powers of the Arbitral Tribunal, and determining the reach of the Arbitration Award. The law minimized mandatory legislative requirements and curtailed the courts’ interventionist roles to only those necessary for ensuring justice. This law received Royal Assent in June 1996 and became effective on 31 January 1997, applying to all Arbitrations initiated from that date onward.

Arbitration basic principles

Seat of the Arbitration

The Arbitration Act 1996 introduced the concept of the Seat of the Arbitration, defining it as the Juridical Seat, separate from the actual physical venue of the Arbitration Proceedings. While these two are often the same, there are instances where the juridical seat could be in a different location, such as when parts of the Arbitration Proceedings occur in various countries. This Seat can be determined by the parties within the Arbitration Agreement, or they may delegate this decision to another individual or Tribunal they authorize. If not explicitly decided, the Seat must be objectively determined based on the parties’ agreement and all relevant circumstances. The Arbitration Act 1996’s provisions apply when the Seat of Arbitration is in the United Kingdom.

Autonomy of the Parties

Rooted in mutual consent, the Arbitration Act 1996 acknowledges this foundation by granting parties substantial control over the management of Arbitration proceedings. They can decide on matters like the size and makeup of the Arbitration Tribunal, the procedural rules, and whether there is an option to appeal to the High Court on a point of law. Certain mandatory powers remain with the court for public policy reasons, such as the authority to stay legal proceedings, remove an Arbitrator, or enforce an Arbitration Award. Apart from these, the parties enjoy broad autonomy in managing Arbitration Proceedings, with many provisions of the Arbitration Act 1996 applicable unless agreed otherwise by the parties.

C – Delay in Prosecuting the Claim

The extent to which courts could dismiss an Arbitration claim due to prolonged delays was a longstanding concern. While parties are typically expected to nominate their Arbitrators promptly, Common Law did not impose time limits on conducting Arbitration Proceedings, potentially compromising the fairness of the hearing. Lord Diplock, in the Bremer Vulcan v South India Shipping Corp case, stated that the High Court lacked general supervisory authority over Arbitration Proceedings beyond those specified in existing Arbitration Acts. He noted that Arbitration, being a voluntary process agreed upon by the parties, entails a mutual obligation to proceed with reasonable speed. If a party was dissatisfied with the pace, the appropriate action was to seek directions from the Arbitrator, who could then set a hearing date and decide the case based on available evidence. Without such a request, the Arbitrator was not required to proactively manage the proceedings. This issue was ultimately addressed by the Courts and Legal Services Act 1990 (Section 102), now encapsulated in the Arbitration Act 1996 (Section 41(3)), which allows the Arbitral Tribunal to dismiss a claim if there is excessive and unjustifiable delay by the Claimant that risks a fair trial or causes significant prejudice to the respondent. Notably, this dismissal power resides with the Arbitration Tribunal, not the High Court, and parties may opt out through their Arbitration Agreement.

Enforcement of Arbitration Awards

In the United Kingdom, a final award by an Arbitration Tribunal can be enforced as a court judgment upon receiving High Court approval. However, if the unsuccessful Defendant lacks sufficient assets within the jurisdiction to satisfy the award, questions arise regarding the award’s enforceability abroad. The New York Convention 1958 facilitates the reciprocal enforcement of Arbitration Awards among signatory countries, provided specific criteria are met. Initially brought into UK law by the Arbitration Act 1975, these provisions are now part of the Arbitration Act 1996, Part III.

To enforce a Foreign Arbitration Award, one must present the Authenticated Original Award and the Original Arbitration Agreement, or certified copies of these documents. Enforcement is subject to safeguards that allow for refusal if there was procedural impropriety or if enforcing the award would contravene the public policy of the enforcing state. With these protections, a Foreign Arbitration Award may be enforced in the same manner as a local court judgment or used defensively in legal proceedings. Given the widespread acceptance of the New York Convention 1958, Arbitration Awards potentially have greater international enforceability compared to court judgments.

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16- Breach of Charterparty

Forms of Breach of Charterparty

A breach of Charterparty happens when a party either refuses or fails to fulfill one or more obligations they have agreed to under the Charterparty. Such a breach can manifest in three primary ways: The defaulting party may explicitly repudiate their liability under the contract, perform an act that makes further contract performance impossible, or simply fail to perform when required. For instance, in a Time Charterparty scenario, the Shipowner may either repudiate its duty to provide the chartered ship, make further performance impossible by selling the ship to another party, or withdraw the ship during the charter term. Breaches can occur not only while the Time Charterparty is being performed but also before performance is required from either party. Each breach type automatically grants the right to seek damages, and in some cases, allows the non-defaulting party to consider itself released from any further obligations under the Charterparty.

Anticipatory Breach of Charterparty

An Anticipatory Breach of Charterparty occurs when a party repudiates their obligations before the scheduled performance date. This breach allows the non-defaulting party to immediately sue for Breach without waiting for the performance date. Lord Campbell explained that a contract creates an ongoing relationship between the parties, implicitly pledging that neither will act against the other in a manner that harms this relationship before the completion of the contract. However, an Anticipatory Breach does not automatically end the contractual obligations; for the Repudiation to take effect, it must be acknowledged by the other party. A unilateral Repudiation does not dissolve the Charterparty; it requires acceptance by the non-repudiating party to conclude the agreement. For example, in The Simona case, a ship intended for transporting steel from South Africa to Spain was involved in a repudiation scenario. After failing to meet the agreed laycan, the Shipowner requested an extension which the Charterer denied and subsequently canceled the Charterparty prematurely. Despite this, the Shipowner proceeded as if the contract was still valid by updating the readiness notice. Lord Ackner noted that a wrongful refusal to fulfill obligations doesn’t automatically terminate the Charterparty. The non-repudiating party has the choice to either accept the Repudiation and claim damages or disregard the termination attempt and maintain the Charterparty’s validity.

If the non-repudiating party chooses to overlook the Anticipatory Breach, the Charterparty remains effective, and both parties continue to be bound by their respective duties and rights. This decision allows the Charterparty to potentially be completed by either party, who may also benefit from any circumstances that might later justify non-completion. Thus, if the contract becomes impossible to fulfill or is otherwise frustrated between the breach and the scheduled performance date, both parties are relieved from further duties under the Charterparty.

Conversely, the party initially in default may benefit from any situation that would ordinarily dissolve the Charterparty, while the party that ignored the breach cannot seek damages for the earlier Repudiation. In The Simona case, the Charterer was still able to use the Cancellation Clause when the ship was unavailable by the Cancellation Date, despite the earlier breach. However, if the non-defaulting party decides to acknowledge the Anticipatory Breach, they can immediately initiate a damages claim, calculated as of the scheduled performance date rather than the actual breach date. Therefore, the decision mainly affects the breach resolution rather than the assessment of damages.

Effects of Breach of Charterparty

The significance of Charterparty terms varies; some are crucial for the contract’s validity, while others are minor and do not prevent the achievement of the Charterparty’s goals even if partially unmet. Additionally, there is a category of terms where the impact of a breach depends on the specific nature of the breach and the circumstances.

Condition Terms vs Warranty Terms of Charterparty

Charterparty terms are traditionally categorized as either Conditions or Warranties. A Condition is a fundamental term where non-fulfillment fundamentally changes the expected outcome of the Charterparty, allowing the non-defaulting party to treat the Charterparty as Repudiated and discharge themselves from further obligations. Conversely, a Warranty is a lesser term where breaches can be remedied through Damages, and such breaches do not excuse the non-defaulting party from their Charterparty obligations. The distinction was emphasized by Lord Diplock in the Hong Kong Fir Shipping Co v Kawasaki case. He stated that some obligations are so critical that any breach deprives the non-defaulting party of almost all the benefits expected from the contract, qualifying these as Conditions. On the other hand, there are obligations where breaches do not significantly impact the intended benefits, classified as Warranties.

Applying this distinction in practice can be challenging. To determine if a term is a Condition, several approaches are used: statutory designation, as seen in the Sale of Goods Act 1979, judicial precedents which have classified certain obligations as Conditions, and explicit agreement by the parties involved, though the term’s use alone isn’t definitive. Questions also arise regarding Express Terms that allow termination upon specific events, like a Time Charterer’s right to withdraw a ship for non-payment of Ship Hire, or a Voyage Charterer’s right to terminate if a ship isn’t delivered on time. These situations, while akin to a breach of Condition, do not grant automatic rights to Damages unless the delay or non-payment constitutes a Repudiatory Breach, which is rare. Therefore, it may be more accurate not to label these terms as Conditions in the strictest sense but as contractual options to terminate the Charterparty upon specified events.

Lastly, if there are no other indicators, the intention of the Parties to consider a specific term as a Condition can often be inferred from the nature of the Charterparty and the circumstances surrounding it. For example, Time Clauses in commercial contracts are usually treated as Conditions by the courts because parties in commercial transactions need to know their rights immediately and should not have to wait for events to unfold before determining those rights. In the Bunge v Tradax Export case, the agreement was for the purchase of soya bean meal FOB (Free On Board) from one US Gulf Port at the Seller’s Option. The Buyer was required to give 15 days’ Notice of Nomination of a ship to load the cargo. The Seller viewed the Buyer’s failure to provide timely Notice as a Repudiatory Breach. The House of Lords readily classified the Notice Requirement as a Condition, affirming that this was appropriate for Time Clauses in mercantile contracts. Lord Roskill noted that in commercial contracts where one party’s performance of a term is a Condition precedent to another party’s performance, particularly an Essential Term like nominating a single Loading Port (LP), the timing of the former obligation is generally considered a Condition. Consequently, in FOB (Free On Board) Sales Contracts, if a Seller agrees to Nominate a Loading Port (LP) by a certain date or a Buyer must open a Letter of Credit (LC) by the agreed shipment date, timeliness is deemed essential.

The situation becomes more complex when performance spans a prolonged period. For instance, a Time Charterer is obligated to pay Ship hire semi-monthly in advance during the Charterparty. Without a specific Time Charterparty Term stating otherwise, a single delayed payment is seldom seen as a Repudiatory Breach of the Charterparty. This is because such a minor delay in paying one installment does not significantly deprive the Shipowner of the overall benefits expected from the Time Charter. A Breach is only considered Repudiatory if the surrounding circumstances clearly show the defaulting party’s intention to disregard the contractual obligations. Two crucial factors in determining such an intention are the significance of the Breach relative to the entire Charterparty and the likelihood of its recurrence. Thus, the late payment of one out of fifty-four Ship Hire installments is unlikely to be viewed as a grave Breach of the Time Charterparty, whereas an explicit refusal to make any further payments would clearly indicate a decision to no longer adhere to the Charterparty obligations.

Intermediate Terms (Innominate Terms) of Charterparty

Charterparty obligations don’t always neatly fit into the categories of Condition Terms or Warranty Terms. Some Charterparty Terms, known as Intermediate Terms or Innominate Terms, involve breaches that can vary significantly in severity. For instance, providing a Seaworthy Ship might fail due to minor, quickly fixable defects or severe issues leading to total loss of the ship. Thus, applying a uniform remedy to all cases would be unfair. Such terms only lead to treating the breach as Repudiatory if it deprives the non-defaulting party of almost the entire benefit intended from the Charterparty. In the Hong Kong Fir Shipping Co v Kawasaki case, where a ship was Off-hire for 20 weeks due to initial Unseaworthiness during a 24-month Time Charter, the Court of Appeal ruled that the breach wasn’t serious enough to discharge the Time Charterer from the Charterparty.

The concept of Intermediate Terms provides a flexible and fair approach, though it brings a degree of uncertainty to legal proceedings. For instance, in the Hong Kong Fir case, the Time Charterer, after losing 20 weeks, treated the breach as Repudiatory and chartered another ship, only to find it had made an incorrect decision, leading to its own Repudiatory Breach. This uncertainty has led some judges to emphasize the need for certainty in commercial dealings, where predictability is crucial, particularly in Commercial Law. The challenge lies in balancing predictability with equitable treatment on a case-by-case basis. Lord Roskill noted that while the fundamental principles for determining whether a term is a Condition remain unchanged, there needs to be a balance between the need for certainty and avoiding undue rescission for minor technical breaches where damages would suffice.

Effects of a Repudiatory Breach of Charterparty

When a Defaulting Party commits a breach of a Condition or shows a clear intent not to fulfill their obligations, the Innocent Party may choose to treat the Charterparty as discharged. However, the breach itself does not automatically release all outstanding obligations. The non-defaulting party may still enforce the contract, allowing the Defaulting Party a chance to rectify their position or potentially avoid further liability due to a supervening event not caused by their fault. Alternatively, the non-defaulting party may rescind the Charterparty, or “Accept the Repudiation,” clearly indicating that due to the other party’s wrongful actions, they consider the Charterparty terminated, enabling them to immediately sue for Damages.

A – Affirmation of the Charterparty

Even if the breach is Repudiatory, the non-defaulting party may choose to overlook it and continue fulfilling the Charterparty. This might be advantageous if continuing the Charterparty is still profitable or if the breach is merely technical, such as a minor Deviation that does not result in significant loss. The effects of such a waiver include:

1. Once this decision is made, it is irreversible, provided the parties were aware of the breach at the time. For example, if parties unknowingly accept cargo at the port of discharge despite a deviation by the ship en route, this is not considered a waiver of the breach.
2. The obligations of the Charterparty remain fully effective, and the defaulting party can still invoke all Exceptions and Limitation of Liability clauses for the duration of the Charterparty. They can also benefit from any events that later Frustrate the Charterparty.
3. The Injured Party retains the right to seek Damages for losses incurred due to the breach.

B – Acceptance of Repudiatory Breach of the Charterparty

When the Innocent Party opts to recognize a Repudiatory Breach, it is immediately freed from all further obligations under the Charterparty and can sue for Damages. Determining whether this decision has been made can be complex if there isn’t a clear expression of intent. Legal precedents suggest that formal communication isn’t necessary to accept a repudiation; actions or conduct that clearly indicate the Charterparty is considered terminated are adequate. For instance, in The Santa Clara case, the Buyer’s failure to load a cargo of propane by the deadline, followed by a telex Repudiating the Contract, was interpreted as an Anticipatory Breach. Although the ship eventually sailed and the cargo was loaded, neither party pursued further contract performance. During litigation for damages, the Seller’s omission to tender a Bill of Lading (B/L), essential for payment under the CIF (Cost Insurance Freight) terms, was perceived by the Arbitrator as accepting the Buyer’s Repudiatory Breach. The court noted that it wasn’t necessary for the aggrieved party to personally notify the breaching party of this decision; indirect notification through an intermediary could suffice. Accepting a Repudiatory Breach exempts the Innocent Party from further obligations but doesn’t nullify the entire contract or its other conditions, which underpin any Damages claims. Hence, any claims for Breach will still be governed by the contract’s Exceptions, Limitation Clauses, and other stipulations.

Action for Damages in Charterparty

The primary goal of Litigation or Arbitration related to Charterparty agreements is to secure compensation for losses incurred due to a Breach of the Charterparty. Regardless of the severity of the Breach, the injured party is eligible to seek Damages. The assessment of such compensation involves two key considerations: the Remoteness of Damage and the measure of Damages. Compensation is not available for all losses caused by a Breach, as the defaulting party cannot be held accountable for losses that are Unreasonably Remote or Unexpected. Therefore, the challenge in the Remoteness of Damage lies in pinpointing which types of losses caused by a Breach are sufficiently connected and Proximate to warrant compensation. Once liability is established for a specific type of loss, the next task is to determine the monetary amount recoverable for that loss. The overarching principle here is to financially restore the Injured Party to the position they would have occupied had the Charterparty been duly performed.

Remoteness of Damage in Breach of Charterparty

The standard for assessing liability for damages was set in the Hadley v Baxendale case by the Court of Exchequer Chamber. According to Alderson B, compensable loss must be either naturally occurring from the Breach according to typical outcomes or such that could have been foreseen by both parties at the contract’s inception as a likely outcome of the Breach.

This principle distinguishes two types of damages: Natural and Normal Loss that anyone would anticipate, and Abnormal Loss that arises from unique circumstances only chargeable to the Defaulter if these were clearly communicated at the onset of the Charterparty. A Defaulter with extensive experience in a specific trade or detailed knowledge of the context may have an expanded liability due to a better understanding of potential losses from a Breach. For instance, in The Heron II case, the Shipowner was held accountable for the drop in sugar prices due to late delivery, as the Shipowner should have anticipated the market conditions in Basrah affecting sugar prices upon arrival. Typically, however, such specific market knowledge is not expected of a mere Carrier, who generally knows less about the cargo’s specific requirements or other Special Circumstances that might lead to Exceptional Loss if delivery is delayed.

Modern legal approaches tend to merge the dual rules of Remoteness from the Hadley v Baxendale case into a singular concept. The Injured Party is entitled to recover only those losses that were foreseeably within contemplation at the time the Charterparty was formed. As Robert Goff J suggests, this method aligns more closely with real-world practices, with courts favoring a tailored assessment based on the defendant’s knowledge rather than strictly applying the traditional categories.

In applying the test of reasonable contemplation, courts must consider one critical factor: the likelihood that the anticipated events will occur. The liability seems to hinge more on the potentiality rather than the certainty of loss, although the exact degree of probability required became obscured during discussions in the case of The Heron II. The House of Lords critiqued previous interpretations that a consequence of a breach was sufficiently proximate if its occurrence was a serious possibility or was “on the cards,” yet they did not establish a clear alternative standard. The preferred descriptions for the required probability included terms like “real danger” or “liable or not unlikely” to occur. However, all Lords agreed that contract law demands a higher degree of probability to meet the remoteness test than tort law, which relies on reasonable foresight. They argued that in contract scenarios like a Breach of Charterparty, the injured party typically has the chance to inform the other party of potential breach consequences during the contract negotiations.

A – Failure of the Shipowner to Deliver Cargo

When cargo is lost in transit, the standard loss for the consignee is the value of the cargo at the intended time and place of delivery minus the cost of freight and insurance. The specific importance of the cargo to the consignee is not considered unless it was reasonably foreseeable by the Shipowner at the contract’s initiation. For instance, in the British Columbia Sawmill Co v Nettleship case, the defendant was contracted to transport heavy machinery to Canada for a sawmill. The machinery was packed in crates, but the Shipowner was not informed about the contents of each crate. Crucially, all the essential sawmill parts were in one crate that was lost during transit. While the charterer could recover the market value of the lost parts, their claim for loss of profits due to a 12-month construction delay was deemed too remote, as the Shipowner had not foreseen the critical nature of the contents within the specific crate.

B – Breach of Charterparty Obligations

A Shipowner who does not make their ship available on time for a Voyage Charterparty should anticipate that the charterer cannot transport their cargo as planned. The suitable damages would cover the additional cost of arranging alternative transportation. However, any profit loss from reselling the cargo due to the breach would be considered too remote unless the Shipowner was made aware of this potential at the contract signing. On the other hand, if a Charterer fails to provide any or full cargo, the normal loss to the Shipowner is limited to the lost freight. In a Time Charterparty, if the Shipowner fails to deliver the ship or repudiates their obligations during the charter, the natural result is that the Time Charterer loses use of the ship. If a substitute ship is available for time chartering, damages are generally calculated based on the difference between the contracted rate and the market rate for chartering a substitute during the same period. Expected Profit Loss from using the ship is usually too remote unless it fits within the reasonable contemplation criteria set forth during the contract formation.

A similar situation arises when a Time Charterer fails to return the chartered ship to the Shipowner on the agreed date. The Shipowner, deprived of the use of their ship, is entitled to claim as Damages the difference between the Time Charter and market rates for Ship Hire during the overrun period. This principle was upheld by the House of Lords in the recent case of Transfield Shipping Inc v Mercator Shipping Inc. In this instance, the Shipowner had arranged a new charter based on the expected Redelivery of their ship from a prior Time Charter, setting the rate at the prevailing market price for a duration of approximately 4/6 months. However, an eight-day delay in Redelivery forced the Shipowner to extend the Cancellation Date on the new Time Charter, incurring an $8,000 daily reduction in Ship Hire due to a drop in market rates. Both Christopher Clarke J and the Court of Appeal, agreeing with the majority of Arbitrators, ruled that the Shipowner could recover the daily loss of $8,000 in Ship Hire for the 191-day duration of the new charter, as such losses were within the scope of the Hadley v Baxendale rule, given the Time Charterer’s knowledge of the shipping trade and the foreseeability of such delays impacting subsequent fixtures.

However, the House of Lords took a divergent approach, deeming the Loss of Profits on a subsequent fixture too Remote. They noted that late Redelivery under a Time Charterparty is common, yet there was no precedent for claiming such Lost Profits. Lord Rodgers stated, “such loss was not the ordinary consequence of a breach of that kind. It occurred in this case only because of the extremely volatile market conditions. This loss could not have been Reasonably Foreseen as likely to arise from the delay in question. It was, accordingly, too Remote to warrant a claim for damages for Breach of Charterparty.” Therefore, compensation was limited to any difference between the Charterparty and current market Ship Hire rates.

Lords Hoffmann and Hope suggested incorporating an additional consideration—whether the Defendant had accepted responsibility for the risk of such loss, even if it was Reasonably Foreseeable. They posited that if the parties had assessed their liability before contracting, they would likely have concluded that losses stemming from disruption to the following fixture were not the responsibility of the Time Charterer. The other members of the Court chose not to delve into the issue of risk assumption, leaving it for future discussion.

C – Cargo Damaged in Transit

When cargo is damaged during transit, the typical loss is the decrease in the cargo’s value at the delivery point. Compensation is calculated based on the market value difference of the cargo in undamaged condition versus its actual condition upon delivery. Any Loss of Profits from resale is not compensable unless such loss was foreseen by both parties at the time of contract formation.

D – Cargo Delivered Short of Destination

The recoverable loss in this scenario is the cost of transporting the cargo to its contractual destination.

E – Delay in Delivery of the Cargo

Delays in the delivery of cargo can lead to various types of losses for the Consignee. They may lose the opportunity to use the cargo, face issues with forward sales, or suffer from deterioration in the cargo’s physical quality or a significant drop in market value. Generally, damages for loss of forward sales or the inability to use the cargo for a special purpose are not recoverable unless those circumstances were made known to the Defaulter at the time of contracting. However, compensation for the normal deterioration in quality of perishable cargo due to delay would not be considered too remote.

The complexity increases when the loss is purely due to a drop in market value during the delay. In sales contracts, the measure of damages is straightforward—the difference in market price of equivalent cargo at the due and actual delivery dates. In carriage contracts, however, this issue has historically been viewed through the lens of Remoteness rather than just a measure of damages. Courts have needed to decide whether such a market decline could have been reasonably anticipated at the time the Charterparty was formed, distinguishing between regular seasonal fluctuations and those that are unusual and unexpected. For example, in The Ardennes case, the late delivery of a cargo of oranges due to a deviation by the Shipowner led to a substantial market price fall, which was deemed recoverable since such fluctuations were seasonal and thus foreseeable. The House of Lords further clarified this in The Heron II case, where sugar was delivered late to Basrah after a deviation to pick up additional cargo. Despite the Shipowner’s lack of specific knowledge of the Consignee’s immediate sale plans, it was ruled that the timely delivery to a market with known sugar trading meant that a delay could likely cause significant loss, which should have been contemplated.

Measure of Damages

Once a Defaulter’s liability for a specific consequence of a Breach of Charterparty is established, the next step is to determine the compensation amount. The underlying principle is to financially position the Injured Party as if the contract had been properly executed. This measure in Charterparty cases slightly differs from the tort principle of restitutio in integrum, where the goal is to return the Injured Party to their pre-tort condition.

A – The Rule in Operation

For non-delivery of cargo by the Shipowner, the loss to the Consignee is calculated as the cost of buying equivalent cargo on the open market at the intended time and place of delivery, minus the costs of freight and insurance. This enables the Consignee to buy similar goods on the open market without incurring a loss, effectively placing them in the position they would have been if the Charterparty had been fulfilled. If the Consignee has made a forward sale, the agreed resale price of the cargo does not influence the damage assessment, whether it is lower or higher than the market price.

The contrast between the contract price and the market price also serves as the primary rule for calculating damages for other breaches of Charterparty, such as a Shipowner’s repudiation of a Time or Voyage Charter. This principle is apt because the availability of a market usually means that the Innocent Party can acquire a substitute at the time of the breach, thereby fulfilling the contract’s objective.

Another element influencing the timing of damage assessment is whether the Innocent Party is required to accept a Repudiatory Breach of Charterparty. This issue was examined in the Carbopego-Abastecimento de Combustiveis v AMCI Export Corp. case. The contract, stipulating the sale of coal, included options for two shipments deliverable up to “March 2004.” An additional clause extended the ‘contract period’ to “31 March 2004, or until both parties have fulfilled their obligations, whichever is later.” The Claimant activated both options, but the shipments remained pending after March 2004. In July 2004, amid a rising market, the Claimant proposed new delivery dates for the shipments, warning that failure to agree would constitute a Repudiatory Breach. The Defendant denied liability, leading to the Claimant terminating the contract on 9 August. The core dispute was whether damages should be based on the market price of coal on 31 March or the significantly higher price on 9 August. Judge Aikens concluded that while the failure to deliver by 31 March was a breach, it was not automatically Repudiatory, allowing the Claimant to suggest new delivery dates. Further failure to deliver then became a Repudiatory Breach. Judge Aikens found the Claimant’s actions to complete the contract as commercially legitimate and reasonable, deciding that assessing damages based on the 9 August market price would better align with compensatory principles. This unique ruling may hinge on the contract’s defined period, as typically, a Claimant refusing to accept a Repudiatory Breach and attempting to continue the contract might struggle to meet the legitimate interest criterion established in The Alaskan Trader case.

Other Relevant Considerations in Assessing Damages

A – Assessment by the Parties

Parties can pre-determine the damages for a breach and include this assessment in the Charterparty. Courts will enforce this agreement if it represents an authentic pre-estimate of potential losses from the breach, referred to as Liquidated Damages. The Claimant cannot claim more than this agreed amount. Conversely, a Penalty is a sum set above reasonable anticipated losses, intended to enforce compliance with the Charterparty. Courts will not uphold such penalties as they contradict the compensatory nature of damages, which are meant to cover Actual Loss only. An example of a Liquidated Damages provision is a Demurrage Clause in a Voyage Charterparty, specifying compensation for detaining the ship beyond the agreed Lay Days.

In interpreting a Demurrage Clause, courts focus on the parties’ intentions over the literal wording. A clause is likely deemed a Penalty if the specified amount is extravagant and unconscionable relative to the maximum conceivable loss from the breach. Hence, a Demurrage Clause will be unenforceable if it mandates compensation for exceeding Lay Days vastly surpassing any possible market rates.

B – Duty to Mitigate

Damages will not compensate for losses that could have reasonably been avoided by the Claimant, as it is expected that they take any reasonable actions to mitigate their loss. While recent cases have highlighted that the Claimant is not strictly obligated to mitigate but may act in their own business interests, they cannot necessarily pass on the costs of such actions to the wrongdoer. “A Defendant is only liable for the portion of the Claimant’s loss directly caused by the Defendant’s Breach of Duty.” Failure to mitigate can lead to the court determining that the resultant loss does not stem from the original breach. For example, if a Shipowner fails to deliver a chartered ship, it would be prudent for the Time Charterer to hire a substitute ship, especially in a rising market. Costs incurred in mitigating the loss are recoverable as part of the Damages, but if the Claimant avoids loss by chartering a substitute at a more favorable rate, only Nominal Damages may be claimed. The Claimant is not expected to incur further losses in mitigation efforts or take actions that could harm their commercial reputation. Whether reasonable steps to mitigate have been taken is determined on a case-by-case basis.

Issues may arise when an Injured Party opts not to accept a Repudiatory Breach and holds the defaulting party to the contract. Such behavior, even if unreasonable, keeps the contract active and obviates the need for mitigation. This is feasible only if further performance does not require cooperation from the defaulting party. In White & Carter Councils Ltd v McGregor, the appellants proceeded with an advertising contract despite immediate cancellation by the respondents. The House of Lords, by a narrow majority, ruled that the appellants were not obligated to accept the repudiation or mitigate losses, making the respondents liable for the full contract price. This ruling, although controversial, stands unless the Claimant lacks a legitimate financial or other interest in performing the contract rather than claiming damages. An example of when this principle does not apply occurred in The Alaskan Trader case, where after a serious engine breakdown and the Time Charterer’s indication of no further need for the ship, the Shipowner repaired the ship at significant cost and offered it for the remainder of the charter period. The High Court ruled they were not entitled to hire fees, as they had no legitimate interest in keeping the contract active.

Remedies Other Than Damages

In addition to the Common Law remedy of damages for Breach of Charterparty, parties may seek the Equitable Remedies of Specific Performance and Injunction, which are discretionary and therefore less commonly applied in Charterparty and Bill of Lading (B/L) contexts. These remedies are usually reserved for situations where damages are insufficient. Courts typically refrain from ordering Specific Performance of Charterparties involving service provisions or those requiring ongoing court supervision. Despite individual factors, the combined effect of these principles generally prevents Charterparties from being specifically enforced today.

A – Specific Performance

Specific Performance as a remedy for a breach of a Charterparty is rarely granted. For example, in the 1858 case of De Mattos v Gibson, Lord Chelmsford LC denied this remedy for a Voyage Charterparty, citing the impracticality of court supervision over such a contract’s performance. Similarly, Lord Diplock firmly rejected the applicability of Specific Performance in the context of a Time Charterparty, classifying it as a service contract. He stated, “being a contract for services it is thus the very prototype of a contract which before the fusion of law and equity a Court would never grant specific performance. In the event of failure to render the promised services, the party to whom they were to be rendered would be left to pursue such remedies in damages for breach of contract as he might have at common law.”

While there are instances where barriers to Specific Performance have been overcome, such as in some building contracts where the obligations are clear and do not require extensive court supervision, the prohibition on enforcing service contracts typically pertains only to personal services. Nevertheless, specific performance remains an uncommon decree for enforcing obligations under charterparties or bills of lading, mainly because alternative ships or services are usually available, making damages a sufficient remedy. Only in unique circumstances, where the ship or services possess distinctive qualities crucial to the contract, might specific performance be considered appropriate.

B – Injunction

Courts adopt a similar stance regarding injunctions in cases of Charterparty breaches, particularly when granting an injunction would essentially force performance of the Charterparty. For example, Lord Diplock in The Scaptrade case denied an injunction that would prevent a Shipowner from withdrawing their ship due to late payment of Ship Hire, noting that such an injunction, though negative in form, would compel the Shipowner to perform the contract, equating it to a decree of specific performance, which English courts traditionally do not enforce in service contract breaches.

However, temporary injunctions are sometimes granted to maintain the status quo pending litigation, especially in Time Charters where Shipowners might withdraw ships for non-payment. Following Lord Diplock’s guidance, it’s deemed more appropriate to restrain Shipowners from using their ship contrary to the Time Charter rather than preventing them from withdrawing the ship. This was evident in the Privy Council’s approach in the Lord Strathcona v Dominion Coal Co. case, though this decision, specific to its facts, was later criticized.

Further support for this approach appeared in Lauritzencool v Lady Navigation Inc., where two ships were part of a disputed pool arrangement under EC Treaty consideration. When Shipowners declined an assurance not to withdraw the ships pending arbitration, the Claimant secured an interim injunction to prevent the use of the ships contrary to the Time Charters. The Court of Appeal, led by Mance LJ, distinguished between injunctions that prevent a party from exercising a contractual right and those that restrain actions outside the contract’s terms, supporting the latter as it doesn’t directly compel contract performance but prevents actions that contravene the contract’s stipulations.

Mance LJ also noted that unlike personal service contracts in the entertainment and sports industries, where injunctions against alternative employment are denied, the business nature of charter relationships in cases like Lauritzencool v Lady Navigation Inc. implies that companies would continue to operate in their mutual interests despite injunctions, resolving disputes through arbitration if necessary.

 

 

 

17- Challenges in Combined Transportation

Limitation of Liability

Carriage contracts typically include a clause that limits the Carrier’s Liability, though mandatory Conventions set a baseline. The critical task in Combined Transport of pinpointing exactly where cargo loss occurs is highlighted by the diverse minimum limits stipulated by different Conventions, ranging from 17 Special Drawing Rights (SDRs) per kilo for air transport to 2 per kilo under the Hague Visby Rules.

To foster uniformity, the International Chamber of Commerce (ICC) Rules recommend a minimum limit of roughly 2 Special Drawing Rights (SDRs) per kilo when no Specific Convention applies. In many modern Combined Transport documents, this has been standardized to 2 Special Drawing Rights (SDRs) per kilo or a more precise amount of 2 or 2.5 US dollars per kilo.

For the Cargo Owner, the challenge lies in the unpredictability of which limit will apply should their cargo sustain damage during transit. This depends on the stage where the damage or loss occurred and whether that stage can be pinpointed. Only when the stage cannot be identified, or no International Convention applies, can the parties rely on the uniform limit set by the contract.

Claims in Tort

In Combined Transport, it is common for the Combined Transport Operator (CTO) to subcontract individual legs to independent carriers. This arrangement does not create a direct contractual link between the Cargo Owner and the Actual Carrier, who typically has a Unimodal Contract with the Combined Transport Operator (CTO) under relevant Unimodal Convention guidelines. Consequently, nothing stops the Cargo Owner from pursuing a negligence claim against the Actual Carrier, bypassing any contractual limitations with the Combined Transport Operator (CTO).

This loophole can be sealed using traditional methods similar to those in ocean Bill of Lading (B/L). One approach is incorporating a Himalaya Clause into the Bill of Lading (B/L), which extends the contract’s protections to Servants, Agents, or Independent Contractors.

Another tactic involves a circular indemnity clause, based on the premise that while a contract between X and Y cannot govern Z’s actions (if Z is not a party), Y can be compelled to control Z’s actions or compensate A for any resulting losses when entering into a contract with Z. This principle is often employed in Time Charters or Voyage Charters, requiring any Bill of Lading (B/L) issued by the Charterer to include clauses that prevent the Bill of Lading (B/L) Holder from suing parties other than the Carrier, with a provision for the Charterer to indemnify the Shipowner in case of breach. This mechanism is especially beneficial in consortium agreements where container operators pool resources, ensuring that Container Operators are shielded from claims by other members’ customers through a series of Indemnity Clauses that originate from the Consortium Operating Agreement (COA) and extend into the Container Operator’s Bill of Lading (B/L) and contracts with Sub-contractors.

The efficacy of these circular indemnities was evidenced in the Nippon Yusen Kaisha v International Import and Export Ltd case, where a Combined Transport Operator (CTO) secured a perpetual injunction to halt cargo damage proceedings against a Sub-contracting Carrier initiated by the Indorsee of the Bill of Lading (B/L), defying an agreement not to sue as stipulated in the Bill of Lading (B/L). The International Chamber of Commerce (ICC) Rules also allow the Combined Transport Operator (CTO) to extend these protections to his employees, agents, or others involved in fulfilling the contract.

Combined Transport and Letter of Credit (LC)

The necessity for a Letter of Credit (LC) in financing international trade remains crucial, whether Combined Transport or Unimodal Carriage is employed. However, from the Bank’s perspective, the security provided by a Combined Transport Document (CTD) is less robust than that offered by an ocean Bill of Lading (B/L). Firstly, a Combined Transport Document (CTD) that covers the entire transit is not legally recognized as a Document of Title (DOT). Secondly, since the cargo often originates from an inland point, the document issued is a Received For Shipment Bill of Lading (B/L), not the Shipped Bill of Lading (B/L) preferred by banks. Despite these issues, banking practices have evolved to accommodate changes in transport methods, notably since 1969 when container operators OCL and ACL’s Combined Transport Bill of Lading (B/L) began being accepted by banks for Port-to-Port (PTP) shipments, provided they were endorsed as Shipped Bill of Lading (B/L). Banking procedures have further adapted as demonstrated by the 2007 International Chamber of Commerce’s (ICC’s) Customs and Practice for Documentary Credits, which now accept a Combined Transport Document (CTD) unless the credit explicitly requires an ocean Bill of Lading (B/L). This document may list a different place of taking charge from the Loading Port (LP) or a different final destination from the Discharging Port (DP), and may involve cargoes in containers or pallets. If the Letter of Credit (LC) specifies an ocean Bill of Lading (B/L), a Combined Transport Document (CTD) is still acceptable if it is issued and signed by a named Carrier or Carrier’s Agent and includes a Shipped notation on a Named Ship. Unless the Letter of Credit (LC) demands an On Board Document, banks will accept a document showing that the cargo has been taken in charge or received for shipment.

Effect of Transhipment

By its nature, Combined Transport involves multiple Unimodal stages, with Transhipment occurring at each stage’s end. These Transhipment periods often fall outside the scope of existing Unimodal Conventions, allowing parties to freely negotiate terms and for the Combined Transport Operator (CTO) to potentially exclude liability during these transfers. This issue is mitigated in many standard Combined Transport Bill of Lading (B/L) by the Combined Transport Operator (CTO) accepting liability from when the cargo is taken into charge until it is delivered to the Consignee. Challenges arise when Transhipment is necessary during a specific leg if it’s inconvenient for the Combined Transport Operator (CTO) to perform the contract directly. This may occur if the Combined Transport Operator (CTO) cannot carry the cargo for the entire journey and must Tranship under certain conditions, such as lacking a full consignment for a specific port. Transhipment is also integral to systems involving interconnecting services. If the Bill of Lading (B/L) allows for Transhipment and the Combined Transport Operator (CTO) accepts liability throughout transit, there are no issues.

During the Sea Leg, if the Combined Transport Operator (CTO) is defined as a carrier under the Hague Visby Rules (Article I(a)), they are entitled to Sub-contract but cannot exclude their own liability during the Sea Leg while under a Bill of Lading (B/L). Even if the contract allows the Combined Transport Operator (CTO) to Tranship, they remain fully responsible for cargo safety under the Hague Visby Rules (Article III) during the Transhipment Period. The only exception might be if the Transhipment during the Sea Leg is seen as forming two separate contracts, each with its own Bill of Lading (B/L); here, the Combined Transport Operator (CTO) might exclude personal Liability under the Hague Visby Rules for the onward journey. Such arrangements are uncommon as a single Through Bill of Lading (B/L) is typically preferred when a Letter of Credit (LC) is involved.

Transhipment and Letter of Credit (LC)

Combined Transport Operation presents two primary challenges from a Bank’s perspective when a Letter of Credit (LC) is involved. Firstly, Banks typically require a Shipped Bill of Lading (B/L) for security, but a Combined Transport Bill of Lading (B/L) often constitutes a Received For Shipment Bill of Lading (B/L). Secondly, Banks are hesitant to accept the risks associated with Transhipment and have historically been inclined to prohibit clauses that permit such practices. These issues have largely been addressed by the modern Combined Transport Document (CTD), in which the Combined Transport Operator (CTO) takes responsibility for the cargo from receipt to delivery. The International Chamber of Commerce (ICC) Rules (2007 Edition) acknowledge this, stating that unless the Letter of Credit (LC) explicitly prohibits Transhipment, Banks will accept transport documents indicating Transhipment if the entire journey is covered by one consistent Transport Document. Furthermore, the ICC Rules allow for Transport Documents that include Transhipment provisions to be accepted even if Transhipment is prohibited by the Letter of Credit (LC), provided certain criteria are met.

Multimodal Convention 1980

A review of the challenges posed by Combined Transport leads to an examination of the main elements of the Multimodal Convention signed in 1980. Drafted under the auspices of UNCTAD (UN Trade and Development), its provisions align closely with those established by the Hamburg Rules. It remains uncertain if its chances of ratification have been enhanced by the implementation of the latter convention. The Multimodal Convention applies to a single multimodal transport contract involving a Multimodal Transport Operator (MTO), acting as the principal, and a consignor, for the transport of cargo from a collection point in one country to a delivery point in another via multiple modes of transport. It is crucial that either the place of cargo receipt or delivery is in a contracting state.

The Multimodal Transport Operator (MTO) is responsible for the cargo from the time it is taken into charge until delivery. The liability of the Multimodal Transport Operator (MTO) mirrors the Hamburg Rules’ concept of presumed fault but is subject to a limitation based on either 920 units of account per package or unit or 2.75 per kilo of the gross cargo weight. Notably, if the transit does not involve a Sea Leg, the limitation is solely based on weight, at 8.33 units of account per kilo. Should the Multimodal Transport Operator (MTO) delegate parts of the contract to a Sub-contractor, that Actual Carrier can claim any defenses available to the Multimodal Transport Operator (MTO), including limitation clauses.

A persistent issue in drafting a Multimodal Convention is deciding whether to adopt a Uniform or Network Solution to address the Multimodal Transport Operator’s (MTO’s) liability. The advantages of a uniform liability across all transport stages are clear, although it may conflict with existing Unimodal Conventions. The Multimodal Convention seeks a middle ground: if the location of damage cannot be pinpointed, a uniform liability and limitation apply as described. However, if damage occurs on a specific leg and the relevant Unimodal Limitation is higher than that stated in the Multimodal Convention, then a network limitation will apply while maintaining uniform liability throughout the transport.