Carriage of Goods by Sea Object of the carriage of the goods by sea

The object of the carriage of the goods from port to port is that they may be sold or otherwise dealt with at the place destination; and the person who wants them at that place for sale or use there acts under assumption that they will arrive there at or about a certain time in the ordinary course of a voyage there from the port of shipment.
Leduc & Co v Ward (1888) 20 QBD 475 per Lord Esher M.R. at p.481.

There are two main types of contract which are in wide use when we speak about transportation of goods by sea: a charterparty contract and a bill of lading contract. Speaking of bill of lading contract, however, one shall bear in mind that in some cases the bill of lading can be no more than a receipt for goods loaded on board, in some it may serve as an evidence to the charterparty contract and, finally, it imposes contractual obligations for safe custody of the cargo on the carrier before the person taking delivery of the goods. For more information on bills of lading follow this link.

Charterparty, in its turn, is a contract concluded between the shipowner and the charterer with the purpose to employ an entire vessel or some principal part of her for a voyage or series of voyages or for a period of time (see Caffin v Aldridge [1895] 2 QB 366; [1895] 2 QB 648 for discussion on hiring of entire capacity of ship) . Bill of lading contract, in its turn, is a contract for the carriage of goods.

Moreover, unlike the bills of lading, the charterparties are not subject to both mandatory application of the Hague and the Hague-Visby Rules and to statutory obligations contained in the Carriage of Goods by Sea Act 1992. Thus a charterparty is a contract which is negotiated in a free market where bargaining strength of the parties is highly dependent on the factor of supply and demand and governed by the ordinary law of contract. There are three main categories of charterparty:

   1. a voyage charterparty whereby the vessel is chartered for a specified voyage;
   2. a time charterparty whereby the vessel is chartered for a specified period of time;
   3. a charterparty by demise whereby the vessel is leased to the charterer. (See also Charter by Demise)

Every contract of affreightment whether charterparty or bill of lading is negotiated against a background of custom and commercial usage and in addition to the express clauses agreed by the parties also consist of implied obligations, i.e. obligations which are automatically incorporated into the contract in the absence of agreement to the contrary.

There are several main implied obligations imposed by the law on the owner:

   1.Undertaking to provide seaworthy ship
   2. Obligation to perform the voyage with reasonable dispatch
   3. Obligation not to deviate from agreed route

And on the charterer:

   1. Obligation to nominated safe port
   2. Obligation not to ship dangerous goods

Historical background and introductory overview
Although history of Bills of lading is rather difficult to trace it can be safely assumed that it has had a recognised existence in commerce and commercial law for more than four hundred years, while some authors assert that it has been known from at least the fourteenth century. In the Medieval Ages shippers (usually the owners of the goods) as a rule accompanied their cargoes on the voyage to destination and bill of lading served only as an invoice of the goods shipped. Record of the goods loaded was kept by ship’s clerk in the "Register", "Book" or "Writing." All these names apparently describe a document which was kept by ship’s clerk with a copy given to the merchant as a receipt. Such rudimentary bills of lading was not transferrable, mainly, because merchant travelled with their goods and while original was in possession of the shipowner the only one copy of bill, held by merchant, was necessary. Read more →
Statutory Developments

With the rapid growth of international trade and significant influence of laissez-faire ideology on the development of contract law in the first half of the nineteenth century, the shipowners were able to took advantage of their superior bargaining power by introducing clauses into the contract of carriage which, to an increasing extent, excluded their common law liability. Thus, with the passing of time, characteristics of a common carrier had been vanished to the bigger or smaller degree from the way shipowners conducted their business and they became private carriers.

Unrestricted application of the doctrine of freedom of contract to the bills of lading contracts (and to charterparties as well) was vigorously opposed by other involved sides, namely shippers, bankers and underwriters. Finally it led to understanding that there is no practical value in any piecemeal solution, but only internationally recognised agreement can be acceptable for all parties.

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Functions of Bills of Lading

A bill of lading is a document signed which at the end of loading is presented by the shipper to the master or other agent of the shipowner (or to the shipowner itself, but that practice is generally abandoned nowadays). This document states that certain specified goods have been shipped in a particular ship, and which purports to set out the terms on which the goods have been delivered to and received by the ship.

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Types of Bills of Lading

bearer bill of lading - A bill of lading, which does not identify a consignee but is merely marked ‘to order’. When a bearer bill is transferred to a third party, constructive possession canbe transferred without the need for indorsement of the bill.

charterparty bill of lading - A bill of lading, which incorporates the terms of a charterparty.

charterer’s bill of lading - A bill of lading, issued by a charterer rather than a shipowner. Any implied or statutory contract that arises under this document will be with the charterer, rather than the shipowner.

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Legal effect of Master’s signature on bill of lading

Master is not required to be an expert on the condition of cargo loaded, so he may ask for professional advice from a surveyor but ultimately it will be a matter of his own judgement on the appearance of the cargo being loaded. The master’s signature on the bill confirms conformity of the quantity and quality of the cargo loaded with that description represented in bill of lading. If the master signs the bill knowing that the statement as to apparent quality and quantity of the goods or the date of shipment is incorrect, he makes the owners vicariously liable in fraud to anyone who suffers loss by relying on the presentation (see Fraudulent Representation).

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Date, Quantity and Quality Statements

… when in some instances, the charterers require the master to sign bills of lading ‘for any cargo in such form as charterers direct’ the question of extent of such authority may be brought up. In Mendala III Transport v Total Transport Corp (The Wilomi Tanana)[1993] 2 Lloyd’s Rep 41, where 7 bills of lading were issued with a wrong date, it was held that ‘provided that the owners do not go so far as to issue fresh bills of lading and to do so in a form that is inconsistent with the charter-party or the instructions that have been given by the charterers … charterers cannot forbid the owners to correct an error in a bill of lading with the concurrence of the shippers or so as to protect themselves from a potential liability to a subsequent holder of the bill of lading.’

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Discrepancies and Delays related to Date, Quantity and Quality Statements

… in tanker trade, quantity of crude oil or petroleum product(s) loaded, assessed by measurements done ashore at the terminal and afterwards shippers enter these figures in the bill of lading. On the other hand ship’s figures ascertained on board by way of measurement of ship’s tanks and concomitant calculations done by especially appointed surveyor together with responsible for cargo operations ship’s officer. These figures, obtained ashore and on board of tanker, as a rule, differ from each other. There are many factors contributing to these discrepancies such as superseded tables used by the terminal in the calculation of Bill of Lading quantities, inaccurate vessel experience factor, Cargo Custody transfer practices and the competency of Cargo Inspectors (read more OIL CARGO LOSSES AND PROBLEMS WITH MEASUREMENT).

When ship’s measurements show less cargo than stated in bill of lading the charterers are facing potential liabilities for cargo shortage at the discharge port. Therefore they usually specifically provide in their voyage instructions for actions required from the owners and the master of the vessel in such circumstances.

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Go to Bills Of Lading chapter
  • An absolute obligation

    It is implied by common law in every contract of affreightment an obligation that shipowner shall provide a seaworthy vessel. (See also Foundation of carrier’s liability to provide sseaworthy ship). Extent of this duty is such, that he is responsible for any latent defect the existence of which renders the ship unseaworthy even if the defect could not have been detected by any reasonable means before it actually showed itself and for any other loss or damage caused by unseaworthiness because exception clauses would not cover loss or damage occasioned by initial unseaworthiness.

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  • A relative and flexible term

    Seaworthiness can also be described as a relative and flexible standard because its degree which the vessel is required to maintain depends on many things such, for example, as: the nature of the trade and on the particular voyage on which the ship is about to embark ; on the particular stages of that voyage and on the nature of the ship itself.Moreover, duty to provide a seaworthy ship at common law also includes the second aspect, namely, cargoworthiness, which is an undertaking that the vessel should be reasonably fit to receive and carry the cargo and deliver it at the specified destination.

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  • Modern Regime

    The absolute undertaking of seaworthiness implied by the common law is nowadays usually abrogated either by express words in standard charterparty forms or by incorporation into the contract of carriage The Hague or The Hague-Visby Rules. The Rules limit the carrier’s liability to exercise due diligence to make the ship seaworthy before and at the beginning of the voyage: Art III (1) and Art IV (1). Furthermore, duty to exercise due diligence is a positive obligation which the carrier must discharge in order to be protected by Art IV(2).

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  • Foundation of liability

    Foundation of the carrier’s liability to provide seaworthy vessel originated, so far as the earliest evidence goes, from the law of bailments where the duties of a common carrier were equal to those of bailees in general, i.e. to return the goods entrusted to him in same condition as they were initially delivered (see Common Carriers). The law thus implied an absolute responsibility of the carrier-bailee for the loss, even when happening without fault on the part of the person intrusted. In performance of his duty the law of bailments obliges every conductor operis, not to omit anything, however inconsiderable, which the nature of the contract requires. So in every contract for the carriage of goods between a carrier who is ready to transport goods for hire, and the person employing his vessel for that purpose, it is a term of the contract on the part of the carrier, implied by law, that his vessel is tight and fit for …

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  • Carrier’s liability as an insurer

    From fundamental rule insisting on delivery of the goods carried by sea undamaged, it followed that the shipowner’s obligation to furnish a seaworthy ship is incidental to his liability as an insurer of safe delivery of the goods and subject only to the excepted perils. Because of this, the said duty is not a superadded to, and exceeding the terms of his contract of carriage but is implied and independent of any other contractual term the carrier may have. Actually, the condition of the vessel is generally immaterial so far as the ship has arrived at her destination and the goods are safe, therefore question of her seaworthiness can only arise where the immediate cause of the loss is an excepted peril, or where for some other reason the contract to insure does not apply. The law of marine insurance attaches great importance to the matter of seaworthiness and generally adopts common law phraseology.

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  • The doctrine of stages

    It is well to emphasize that an absolute obligation of the carrier of goods by sea to provide a seaworthy ship is not continuous under common law. It requires, for example, that the ship must be fit to receive her cargo at the commencement of loading only as a ship for the ordinary perils of lying afloat in harbour and need not be fit for sailing. Then on the completion of each stage she must have the degree of fitness which is required for the next stage.

    For example in Reed (A E) & Co v Page, Son & East Ltd [1927] 1 KB 743 barge the Jellicoe, had a carrying capacity of 170 tons was seaworthy when the loading commenced, but at the end of loading 190 tons were put on board, and after the loading was finished and while she was remaining alongside the steamer waiting for a tug to tow her she sank, and her cargo was lost. The court held …

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Marine Adventure. Obligations of Merchant and Shipowner

Obligations of a shipowner and a merchant regulated by the common law rules were mutually absolute – the former shall reach place or places named in contract, there load the goods and deliver them to the receiver. The latter shall provide for the goods and pay freight. Read also Common law duties.

The law of contract regulates performance of obligations which the parties have chosen to impose on themselves in the course of their commercial relations. Most of general principles of English law of contract were developed in the eighteenth and the nineteenth centuries on the rise of public interest to the philosophy of laissez-faire, accordingly the courts saw their role mainly in holding the parties to their bargain as provided in contract. Contacts of sea carriage were no exception to this rule (read more on absolute contracts here).

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As near thereto as she can safely get. Geographical limits
…when, by the terms of a charterparty, a loaded ship is destined to a particular dock, or as near thereto as she may safely get, the first of these alternatives constitutes a primary obligation; and, in order to complete her voyage, the vessel must proceed to and into the dock named, unless it has become in some sense "impossible" to do so…
Per Lord Watson in Dahl v Nelson, Donkin, and Others, (1881) 6 App. Cas.38, at p.57

Construction ‘as near thereto as she can safely get’ was invented to address situations when without fault from either side the vessel could not get alongside her berth or dock on arrival because of permanent obstruction. All risks of delays occasioned in the ordinary course of navigation, like tides, fog and bad weather the shipowner was considered to agree to bear.

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As near thereto as she can safely get. Politically unsafe

In Ogden v Graham (1861) 1 B&S 773, the charterers nominated port in Chili, which at the time of nomination was closed by the government of Chili and no vessel can call into it without running the risk to be confiscated. The charterers had no knowledge of this order of Chilean government when entered into the contract of carriage with the owners. Consequently the vessel was delayed for 38 days and owners claimed damages on the ground that nominated port was not safe within the meaning of charterparty.

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International Sale Contracts. Introduction

Basis of any carriage of the goods by sea is a sale contract, i.e. a contract between the seller of the goods and the buyer. When actual sale and purchase has been agreed between parties they make arrangements for transportation of the commodity from place of origin to place of delivery. Therefore each international transaction which involves sea transit of the goods usually contemplates at least two contracts: a contract of sale and a contract of affreightment.

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Sale Contracts. CIF Terms.

Contract on CIF (cost, insurance, freight) terms, when compared with FOB contract, shifts burden of responsibilities in international sale transaction onto the seller’s side, who is to do the following things:

First, to make out an invoice of the goods sold. Second, to ship at the port of shipment goods of the description contained in the contract. Third to procure a contract of affreightment under which the goods will be delivered at the port contemplated by the contract. Fourth, to arrange for an insurance upon the terms current in the trade which will be available for the benefit of the buyer. Fifthly, with all reasonable despatch to send forward and tender to the buyer these shipping documents, namely, the invoice, bill of lading and policy of assurance, delivery of which to the buyer is symbolical of delivery of the goods purchased, placing the same at the buyer’s risk and entitling the seller to payment of the price.
Per Lord Atkinson in Johnson v Taylor Bros & Co Ltd [1920] AC 144 at pp.155-156
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Sale Contracts. FOB Terms

The term fob stands for "free on board" and represents a type of sale contracts under which the buyer generally takes all the risks and expenses from the moment the goods crossed ship’s rail. When the goods sold on fob terms the buyer is to nominate the ship and the seller undertakes to place the goods on board of ship at an agreed port of shipment. The seller bears all expenses and charges related to delivery of the goods on board of ship, and also he is under the duty to obtain export license.

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Sale Contracts. Three types of FOB contract

FOB variations reflect different form legal point of view options, when in case of simple fob the buyer enters into contract of carriage and acquire the right to sue the carrier under this contract. In case of classic fob and fob with additional services, the buyer only becomes party to any contract of carriage and is able to sue on it when the bills of lading were endorsed to him and the only contract of which he could avail himself is that contained in or evidenced by the bill of lading.

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Sale Contracts. Laytime & Demurrage

International transaction for the sale of goods has underlying contract of sale between the seller and the buyer and contract of carriage between either seller or the buyer and the carrier. The carrier is usually being compensated by way of liquidated damages, namely demurrage, for delays in loading and discharging in excess of the time stipulated for these operations in charterparty, i.e. in excess of laytime. Accordingly provisions as to laytime and demurrage in the sale contracts are intended to pass on to the counterparty to the sale contract the cost of demurrage paid to the shipowner. (For laytime and demurrage issues as applicable to the charterparties, follow this link)

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