Transfer Of Goods

Sales and Carriage of Goods by Sea & Justifiable and Unjustifiable Deviation.

In a cross-border transaction consisting of the transfer of goods from one country to another by sea, apart from the exporter and importer, there are many other intermediary parties involved. As a result, in parallel but, independently of the main contract, the exporter and importer often enter into secondary contracts such as insurance, agency, carriage of goods by sea and letter of credits. The party who will bear the costs related to freight, insurance and other transportation costs is determined by the types of agreement between the seller and buyer.

(1)Terminologies and procedures

In practice, depending on the goods to be transported, there are two types of carriage contract, namely, under a bill of lading which is regulated by statutory provisions and under a charterparty which falls under common law rules. Whereas the former is suitable for the carriage of smaller quantities of goods (packed in boxes), the latter is appropriate for the transportation of goods such as grains, coal or oil which requires the whole space on a ship.

A bill of lading is the documentary proof of a carriage contract between the ship owner, known as the carrier and the exporter, known as the shipper. As acknowledged in Lickbarrow v Mason (1794), the bill of lading is also a document of title to the goods agreed to be delivered to the consignee. It can also be rendered a negotiable instrument as per the wishes of the shipper.

In practice, due to the complexities of such transactions and to improve efficiency, both parties enter into agreements through their respective intermediaries; the forwarder being instructed by the shipper to procure freight space for the cargo from the carrier's agent, the loading broker. There are different types of freights such as lump sum freight, prepaid freight, pro rata freight and back freight; these are designed to cater for the different needs of shippers.

A sailing card, issued by the loading broker informs the shipper of the place and time the ship is ready to receive the goods. Before loading, tally clerks, who inspect the cargo record any defect in the packaging or in the goods themselves in a document known as the mate's receipt which is later incorporated in the bill of lading. At this point, it is clear that formation and performance of the carriage contract precede the issuing of the bill of lading. In The Ardennes (1951), it was held that any orally agreed terms which is not reflected in the bill of lading, takes precedence over the latter's terms and conditions.

In an era of globalisation, such transactions involve many countries and parties of different nationalities, subjecting carriage contracts to many potential jurisdictions. To promote certainty, efficiency and fairness, the rules governing bills of lading were harmonised. The Hague Rules, ratified by many countries was reviewed by the Brussels Protocol of 1968 and is now known as the Hague-Visby Rules. This was later revised by the United Nations Convention on the Carriage of Goods by Sea 1978 and the Hamburg Rules which has a larger applicability came into force in 1992. At present, whereas the Hague-Visby Rues is in force in the UK through the Carriage of Goods Act 1971, the United States still adheres to Hague Rules and twenty countries have ratified the Hamburg Rules. It is to be noted that The Hague-Visby Rules is not applicable as per Article 1(c) and Article VI; in such situations the transaction is governed by the English common law which leaves much contractual freedom to the parties.

(2) Legal issues of the Hague-Visby Rules

Contractually, the carrier owes the shipper certain duties and vice-versa and any clause in the carriage contract which decreases the carrier's liability in relation to Article III is null and void; The Saudi Prince (1988) Under Article III, the carrier is liable only if his servants, agents or he is negligent. This is to be contrasted with the common law rules where in Steel v State Line Steamship Co (1877), the court held the carrier liable for not providing a seaworthy ship even though he was not negligent. For the purpose of Article III, seaworthiness included cargoworthiness; in Alimport v Iasmos Shipping Co SA where the ship was infested with insects, thus rendering discharge of the goods impossible due to the authorities' prohibition, the court held the ship to be unseaworthy.

Article IV exempts from liability the carrier where unseaworthiness is caused without any negligence. The burden rests on the owner of the cargo to prove that the damage or loss caused to the goods resulted from the unseaworthiness of the ship; Minister of Food v Reardon Smith line Ltd (1951) . At this point, the burden of proof shifts on the carrier to prove that his agents or servants and he have not been negligent; Phillips Petroleum Co v Cabanali Naviera SA. Rule 2 of Article IV specifies events under which the carrier is not liable for the loss or damage of the cargo. To rely on Rule 2 exceptions, the carrier has the burden of proving that loss or damage resulted from the specified events.

Unless the value stated, Article IV Rule 5 provides for a maximum limit of 666.67 units per package or 2 units per kilogramme, of damages recoverable. The unit of account is a special drawing right (SDR) as defined by the International Monetary Fund and can be converted in national currencies. Such a ceiling cannot by agreement of the parties, be decreased; The Hollandia Case (1983).

Concerning dangerous goods, the court, in The Giannis NK (1998), adopting a wide interpretation of Article IV Rule 6, held that dangerous goods included goods which were indirectly dangerous in that they were liable to give rise to the loss of other cargo. and that Article IV Rule 6 takes precedence other Article IV Rule 3.

It is to be remembered that under Article III Rule 6, a claim against the carrier for loss of or damage to the goods can only be instituted within one year. Before taking legal action, it is important to ascertain the legal carrier of the goods. Depending on the circumstances, the legal carrier, with whom the carriage contract is made, can be the shipowner or the charterer. By repealing the Bill of Lading Act 1855, the Carriage of Goods Act 1992 greatly extends the rights of the consignee to sue the carrier.

(3) Justifiable and Unjustifiable Deviation

At common law

Whenever, the carriage of goods contract falls outside the statutory provisions of the Hague Rules, the Hague-Visby Rules or the Hamburg Rules, English common law would govern the contract. Although, common law provides maximum freedom to the parties in shaping their agreement according to their needs, there are some essential duties according to which the terms of the contract must be interpreted, on of which is the duty to carry the goods to the appointed place of destination without deviation.

As a general rule, the carrier is under an obligation to ensure that the vessel under the contract of carriage proceed on the voyage in the usual and customary route. Where the route is not stated in the contract, the customary route may be the usual route taken by ships in the particular trade or it could be the route consistently taken by the carrier concerned. The burden of proving that the route taken was customary remains on the shipowner. In Reardon Smith Line Ltd v Black Sea and Baltic Insurance Co (1939), the carrier called at Constantza for cheap bunkers and this added 200 miles. Arriving there, some of the cargo had to be jettisoned. It was decided by the judge that the shipowner is entitled to rely on his own wisdom to decide where to call at for bunkers as long as the decision is reasonable. In this case, having regard to the economical factor, convenience, and the fact that many shipping lines engaged in this practice, the court held that the ship did not deviate.

Moreover, for the purpose of carriage contracts, legal deviation occurs only when the physical deviation is intentional. In Rio Tinto Co Ltd v Seed Shipping Co (1926) where a physical deviation occurred due to the misinterpretation of navigational instructions of an ill shipmaster, the Court held that no legal deviation occurred due to lack of the required mens rea. An important limitation on the need for the an intention to deviate is where physical deviation occurred as a result of the shipmaster's error, albeit involuntarily; the House of Lords held in Hain Steamship Co Ltd v Tate & Lyle Ltd (1936), that it was a breach of the duty where the deviation was the consequence of the shipmaster not receiving his shipping instructions in time.

Common Law Exceptions

Firstly, a deviation is justified if it is necessary to save human life. However a deviation to save property is not justified unless that saving the latter is necessary to save human life. In the authoritative case of Scaramanga & Co v Stamp (1880), it was held that: Deviation for the purpose of saving life is protected, and involves neither forfeiture of insurance nor liability to the goods owner in respect of lossdeviation for the purpose of communicating with a ship is distress is allowable inasmuch as the state of the vessel in distress may involve danger to lifedeviation for the sole purpose of saving property is not thus privileged. If therefore, the lives of the persons on board a disabled ship can be saved without saving the ship, as by taking them off, deviation for the purpose of saving the ship will carry with it all the consequences of an unauthorised deviation.

Secondly, a carrier is allowed to deviate if the purpose of the deviation is to avoid danger to the ship or cargo such as emergency repairs or to avoid capture by enemy forces. In J&R Kish v Charles Taylor, Sons & Co (1912), deviation was held to be justified even though the ship needed repairs due to its pre-existing unseaworthiness.

Thirdly, deviation may be allowed with the consent of both parties by a 'liberty clause'. However, the courts have adopted a restrictive approach in their interpretation. The general rule is that the 'liberty clause' should not be interpreted so as to defeat the commercial object of the contract. In Leduc v Ward (1888), it was held that it could not be within the contemplation of the parties to treat the words any ports at any order to meanany port in the world; such a construction was simply too wide and not consistent with the mercantile object of the contract of carriage

The restrictive approach was furthered in Stag Line Ltd v Foscolo, Mango & Co Ltd(1932), the House of Lords held that the liberty to deviate under a 'liberty clause' is acceptable only when the decision to deviate is reasonable. However, a clearly drafted 'liberty clause' which states that the ship has the liberty 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 must be given full effect: Connolly Shaw v Nordenfjeldske SS Co (1934).

Unjustified deviations

An unjustified deviation would result in the carriage contract being suspended: Bailey v Joly, Victoria Co (1890). In such a situation, the carrier cannot rely on exemption clauses contained in the contract, which is put to an end by the breach of the duty not to deviate, a fundamental condition of the contract: Joseph Thorley Ltd v Orchis Steamship Co Ltd (1907). However, if after the unjustified deviation occurred, the cargo owner instructs the carrier to proceed to the customary route to perform the dead, contract, the carrier is entitled to rely on exemption clauses contained in the contract which has been brought to life by the cargo owner's instructions.

Hague-Visby Rules- Carriage of Goods Act 1971

Article IV(4): Any deviation in saving or attempting to save life or property at sea or any reasonable deviation shall not be deemed to be an infringement or breach of these Rules or of the contract of carriage, and the carrier shall not be liable for any loss or damage resulting therefrom. Here the position is less strict that at common law. It appears that whenever a deviation is reasonable, it is justified: Stag Line Ltd v Foscola, Mango & Co. Ltd (1932) where a deviation to disembark engineers was held to be reasonable and justified.

The effect of unjustified deviation differs from common law. Under the Hague-Visby Rules, although a breach of the duty not to deviate brings the contract to an end, by virtue of Section 1(2) Carriage of Goods Act 1971, which give the Rules the force of law, the carrier is still entitled to rely on the exceptions to limit his liability.

(4) Bibliography

(1) Law of International Trade, J.C.T Chuah, 2^nd Edition, Sweet & Maxwell

(2) Schmitthoff's Export Trade, The Law and Practice of International Trade, Leo D'Arcy, Carole Murray, Barbara Cleave, Sweet and Maxwell, 10^th Edition, 2002

(3) For example, a contract for the selling of apples, together with its terms and conditions such as price, quantity,

Please note: The above essays and dissertations were written by students and then submitted to us to display and help others. Thanks to all the students who have submitted their work to us.