Charterparty, Bills of Lading, Carriage of Goods by Sea

Research Title: Carriage of Goods by Sea: Jason shipped a consignment of tea on board the happy Sailor, a ship which has been chartered by Speedy Carriers from Standard Shipping Lines Ltd. A clause in the charterparty provides for disputes to go to arbitration. The crates which were used were to be shipped from Hong Kong to Ireland were covered by a bill of lading that contained a clause stating "terms as per charterparty" The consignment was sold to Clara and the bill of lading was endorsed to her.

On arrival in Ireland, one crate was dropped into the harbour by stevedores employed by Speedy Carries to load and unload cargo. When the remaining two crates were unloaded, it was discovered that the tea had been contaminated due to being stored next to a cargo of chemical fertilizer and the tea was no longer fit for human consumption.

Advise Clara on:
A claim against Speedy Carriers and or Standard Shipping Lines

Whether she is bound by the arbitration clause, and

If she brings acclaim against the stevedores, whether they can rely on an exclusion or limitation of liability clause contained in the contract of carriage.

In this essay I shall be considering the factual scenario given above and analysing whether Clara has any claims against Speedy Carriers and Standard Shipping Lines. I will also be considering whether or not she will be bound by the arbitration clause contained in the contract for carriage. Finally I shall discuss whether or not she will have any potential claim against the stevedores and if so whether they would be able to rely on any exclusion clause contained in the contract of carriage.

Claim against Standard Shipping Lines
When a person becomes the lawful holder of a bill of lading as Clara has here by it being indorsed to her, that person can assert contractual rights against the shipowner, here being Standard Shipping Lines, as stated in the case of Fry v Chartered Mercantile Bank of India 1. This is the case even where there is a charterparty. The reason for this is that the original contract between the shipowner and the shipper is not transferred with the bill of lading, except in so far as it is incorporated in it. I will talk about incorporation of the terms of the charterparty into the bill of lading later when I deal with the issue of the arbitration clause.

This therefore establishes that there is a contractual connection between Clara and Standard Shipping Lines. I will now go on to consider what the terms of such a contract would be and whether there would be any merit in pursuing a claim based on breach of any of those terms.

Under the Carriage of Goods by Sea Act 1971 every contract of carriage which is covered by a bill of lading is subject to certain implied terms known as the Hague-Visby Rules. These Rules do not apply to charterparties as such; but bills of lading issued under charterparties must comply with those Rules. The Rules specify which responsibilities and liabilities the parties to the contract are subject to and which rights and immunities they are entitled to. In the case of the shipowner, these responsibilities, liabilities, rights and immunities are in relation to the loading, handling, stowage, carriage, custody, care and discharge of the goods which are dealt with under the contract of carriage. Art. III., r. 2, of the Schedule to the Carriage of Goods by Sea Act, 1924, provides that "Subject to the provisions of Art. IV., the carrier shall properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried.". 'Properly' in this context means in accordance with a sound system as was held in the case of G. H. Renton & Co., Ltd. v. Palmyra Trading Corporation of Panama 2, and goes over and above the obligation imposed by the word 'carefully'. To 'properly discharge' the goods means to execute 'delivery from the ship's tackle in the same apparent order and condition as on shipment'. If the owner of the goods can show that they were not delivered in the same condition as on shipment the onus is on the shipowner to prove that he has exercised reasonable care, as stated in the case of Gosse Millard Ltd v Canadian Government Merchant Marine Ltd (The Canadian Highlander)3

We have now established that if the goods are delivered in a damaged condition, the shipowner is liable to the indorsee of the bill of lading for all damage sustained by the goods while in his custody. This is unless the damage is occasioned by some inherent defect in the goods themselves or by some other peril excepted by the bill of lading or at common law or, in the case of contracts for the carriage of goods by sea to which the Hague-Visby Rules apply, by virtue of the Carriage of Goods by Sea Act 1971. The measure of damages in this situation, in the absence of any provision to the contrary, is the difference between the value which the goods would have had if they had been delivered undamaged and the price for which they were or could have been sold on the day of arrival in their actual condition.

Therefore, unless Standard Shipping Lines can show that they had exercised all reasonable care, and that the damage was sustained due to one of the situations above, Clara should be able to bring a successful claim against them for the difference between the value of the contaminated tea and what would have been the value of the uncontaminated tea.

Claim against Speedy Carriers
Common law tells us that if the shipowner wishes to discharge the responsibility of loading, stowing and discharging the goods to the charterer, clear words are required to this effect, as was stated in the recent case of Jindal Iron and Steel Co Ltd and others v Islamic Solidarity Company Jordan Inc. and others 4. We do not know the exact provisions of the contract between Standard Shipping Lines and Speedy Carriers, but if the charterparty did expressly pass the responsibility to Speedy Carriers then Clara's claim against Standard Shipping Lines as explained above would instead be a claim against Speedy Carriers.

Apportionment of Liability
It may be that both Standard Shipping Lines and Speedy Carriers are partly at fault for the damage to the goods, in which case the liability would be apportioned between them. The issue of apportioning liability between the shipowner and the charterer was considered in the case of AB Marintrans v Comet Shipping Co Ltd (The "Shinjitsu Maru No 5")5 . This case made particular reference to the US case of Coco-Cola Co v SS Norholt6 which involved a consignment of tea which was contaminated by improper stowage. In the US case it was held that liability could be apportioned between the shipowner and the charterer because, although the responsibility for the loading and stowage of the goods had been expressly given to the shipowners in the charterparty, the charterer had acted negligently in stowing the tea near a cargo of acid, after having been told that this could damage the tea. However, although this decision is persuasive on the UK courts, it is not binding, and was not followed in the Shinjitsu Maru No.5. Whether or not it would be followed here can not be determined as we do not have enough detailed facts, although it is possible.

Arbitration clause
As discussed above, the contract between the indorsee and the shipowner of charterer is the bill of lading and not the contract of carriage. Therefore as against the indorsee, neither the shipowner nor the charterer may rely on any terms of the original contract which are not incorporated in the bill of lading, as the holder is not an assignee of the original contract and is, therefore, not bound by its terms. Clara will therefore only be bound by the arbitration clause if it has been incorporated into the bill of lading.

Where a bill of lading contains a term incorporating a clause or clauses from a charterparty, the charterparty clause is incorporated into the bill of lading if three conditions are satisfied. The first of these conditions is that the incorporation clause in the bill of lading must aptly describe the charterparty clause sought to be incorporated. The incorporation clause may specifically identify the charterparty term sought to be incorporated, such an incorporation clause being strictly construed and incorporation being limited to the clause described. Alternatively, the incorporation clause may be drawn in general terms, in which case it will, depending on the width of the incorporation clause, prima facie incorporate only those charterparty terms which are germane to the subject matter of the bill of lading contract, namely terms dealing with the shipment, carriage and discharge of the cargo, and the payment of the freight.

The second condition is that the charterparty clause sought to be incorporated must be intelligible within the context of the bill of lading. The courts will not manipulate the wording of the charterparty clause in order to give it a different meaning within the bill of lading from that of the plain words of the charterparty.

The third and final condition is that the charterparty clause must be consistent with all other clauses in the bill of lading.

In the case of Thomas & Co Ltd v Portsea SS Co Ltd7 a bill of lading contained the provision "with other conditions as per charter party". In the charterparty was contained the clause "Any dispute or claim arising out of any of the conditions of this charter shall be adjusted at port where it occurs, and same shall be settled by arbitration". It was held in the case that the arbitration clause was not incorporated in to the bill of lading. The reasoning behind this decision as per Lord Loreburn LC was that the arbitration clause in the charterparty had not been explicitly incorporated into the bill of lading. The general incorporation clause used was not deemed to be sufficient to incorporate the arbitration clause. If we follow the decision in this case it would appear that Clara will not be bound by the arbitration clause, as there was no express mention of the arbitration clause in the bill of lading, but merely a general incorporation clause.

Claim against the stevedores

If an action in respect of loss or damage to goods covered by a contract of carriage is brought against a servant or agent of the charterer, such servant or agent not being an independent contractor, such servant or agent is entitled to avail himself of the defences and limits of liability which the charterer is entitled to invoke under the Hague-Visby Rules.

A servant or agent of the carrier is nevertheless not entitled so to avail himself of the defences and limits of liability if it is proved that the damage resulted from an act or omission of the servant or agent done with intent to cause damage or recklessly and with knowledge that damage would probably result as stated in Cia Portorafti Commerciale SA v Ultramar Panama Inc, The Captain Gregos .8

This means that regardless of any exclusion clause contained in the contract of carriage the stevedores would be able to rely on the same limitations on liability as Speedy Carriers. However, on the facts which we have been given, it would seem that none of these limitations are relevant here so I shall go on to consider the availability to them of the clauses in the contract of carriage.

In order to answer this issue I shall refer to the information already given above. The contract which the indorsee has with the parties to the contract of carriage is not the contract of carriage itself but rather the bill of lading. This means that the parties to the contract of carriage can not rely its terms when dealing with the indorsee unless those terms have been incorporated into the bill of lading. The conditions for incorporation were given above when I was discussing the arbitration clause. There is no mention of any clause limiting the liability of the stevedores being expressly incorporated into the bill of lading so I will therefore conclude that they can not rely on it.

Conclusion

In conclusion I would say that Clara can bring a claim against either Speedy Carriers or Standard Shipping Lines or both of them depending on the terms of the charterparty between them and the apportionment of liability. Sje would be likely to succeed in such a claim given the terms which are implied into her contract with them under the Hague-Visby Rules.

I would also conclude that Clara will be not bound by the arbitration clause as it was not expressly incorporated in to the bill of lading.

Finally, I would also say that the stevedores should not be able to rely on a clause in the contract of carriage which limits there liability as once again there is no mention of such a clause being explicitly incorporated into the bill of lading.

  1. (1886) LR 1 CP 689[^ Return]
  2. [1957] AC 149[^ Return]
  3. [1927] 2 KB 432[^ Return]
  4. [2003] EWCA Civ 144[^ Return]
  5. [1985] 1 Lloyd's Rep 568[^ Return]
  6. 1972 AMC 388; 333F Supp 946[^ Return]
  7. [1912] AC 1[^ Return]
  8. [1990] 1 Lloyd's Rep 310[^ Return]

BIBLIOGRAPHY

Websites

WestLaw UK Online
LexisNexis Butterworths Online
Halsbury's Online

Cases

AB Marintrans v Comet Shipping Co Ltd (The "Shinjitsu Maru No 5") [1985] 1 Lloyd's Rep 568
Cia Portorafti Commerciale SA v Ultramar Panama Inc, The Captain Gregos [1990] 1 Lloyd's Rep 310
Coco-Cola Co v SS Norholt 1972 AMC 388; 333F Supp 946
Fry v Chartered Mercantile Bank of India (1886) LR 1 CP 689
G. H. Renton & Co., Ltd. v. Palmyra Trading Corporation of Panama [1957] AC 149
Gosse Millard Ltd v Canadian Government Merchant Marine Ltd (The Canadian Highlander) [1927] 2 KB 432
Jindal Iron and Steel Co Ltd and others v Islamic Solidarity Company Jordan Inc. and others [2003] EWCA Civ 144
Thomas & Co Ltd v Portsea SS Co Ltd [1912] AC 1

Legislation

Carriage of Goods by Sea Act 1971

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