CHIEF MATES
PHASE 2

SUBJECT : MARINE LAW

TOPIC : COMMERCIAL LAW – A Simple Understanding of Bill Of Lading, Documentary Credit System and CHARTER & CHARTERPARTIES

i. Except for the law of marine insurance, law relating to Contract of AFFREIGHTMENT (COA) is perhaps the most difficult subject in shipping law.

ii. COA is a concept and not a physical contract. COA takes a physical form in the form of a contract, which depends on the relationship of the ship-owner in the process of carriage of goods. COA can result in any of the two forms – CHARTERPARTY or BILL of LADING (more discussion on this later).

iii. The difficulty arises FIRST place from the use of two entirely forms of contract; the charter-party and bill of lading.

iv. SECOND, there is the multiplicity of risks to which goods transported by sea are exposed to.

v. THIRD is the process of loading and discharging the vessel, which can give rise to demurrage; hardly an issue in land transport.

vi. FOURTH is the fact that a contract of carriage is usually preceded by a sale of goods and that the person who contracts with the ship-owner for the carriage of goods may be either the seller or the buyer (depending upon whether FOB terms where the contract of carriage is made by the buyer; on the other hand, if it is CIF, then the contract of carriage is made by the seller).

vii. We are only concerned with the point of view of carriage because sale of goods contract becomes material to the contract of AFFREIGHTMENT only to the extent that it determines the identity of the party contracting the carrier.

viii. It therefore now becomes necessary to define a carrier; of which distinction has been made between a COMMON CARRIER and a PRIVATE CARRIER.

ix. But first; are not a carrier and a ship the same? NO. Carrier here means a shipping company; whereas, a ship is an individual ship.

x. Now; let’s get to understand a Common Carrier and a Private Carrier. Although difficult to put an exact definition; in simple words we can say that a COMMON CARRIER is an entity that offers to take goods for everybody, provided there is room for carriage and it is carried out at the standard or a reasonable rate; and very importantly, a common carrier is under a duty to accept goods offered to him for carriage; if he unlawfully denies the carriage (there is space available but refuses to carry), he commits a criminal offence, as well as becomes liable for damages to the owner of goods.

xi. PRIVATE CARRIER is an entity, who has, and reserves, the right to accept or reject the goods for carriage and can make a different bargain every time in terms of cost of carriage.

xii. To put it in the form of a question – Did the carrier generally reserve the right of refusing to carry the goods even if there is space available for carriage or he accepts the goods whenever there is space available? In the first instance; he is a Private, and in the second a Common Carrier.

xiii. A final point of interest related to Common Carrier and Private Carrier – the question of liability for the safety of goods during the course of carriage.

xiv. A Common Carrier has a strict liability and is thus absolutely liable for the safety of goods entrusted to him for carriage whereas, a Private Carrier is only liable if the loss or damage occurred due to his negligence.

xv. Due to the limitation of right to refuse goods for carriage and strict liability in case of damage to goods; a Common Carrier has diminishing importance in modern times of carriage of goods by sea.

xvi. But still due to absence of a standardise practice in the form of a law and to overcome the burden of extensive liability for the safety of goods; ship-owners who were involved as Common Carriers, started including exception clauses with their contract with the shipper – surprisingly, this was upheld (favoured) by the courts in England if a related dispute was taken to court!

xvii. A movement started in England that there needs to be a proper law to standardise the practice of carriage of goods by sea; primarily because carriage of goods by sea is international in nature.

xviii. This led to a meeting at The Hague in September 1921 where an agreement was reached regarding a number of rules, which came to be known as HAGUE RULES.

xix. (The rules contained in Hague Rules were enacted by England as Carriage of Goods by Sea Act, 1924; now replaced by Carriage of Goods by Sea Act, 1971). But, we need to focus on the INDIAN scenario – in India the Indian Carriage of Goods by Sea Act, 1925 (Indian COGSA), incorporates the Hague Rules. In 1993 however, India amended its COGSA & included certain provisions of H-V Rules – increased limits as prescribed in H-V Rules; BUT, H-V Rules do not, in themselves, have the force of law in India.

xx. The original Hague Rules relating to bill of lading improved the legal situation of owners of goods shipped under bills of lading and this has been maintained.

xxi. Although the Hague Rules do not take the ship-owner back to absolute liability; but at the same time the owner of goods does not have to face the ship-owner without protection under law.

xxii. The Hague Rules had good sailing till about fifty years or so; but with changing practices in terms of carriage of goods by sea; amendments had become necessary.

xxiii. The Hague Rules were amended by the Brussels Protocol of 1968 and known as Hague-Visby Rules or Amended Hague Rules.

xxiv. The structure of Hague Rules has been maintained but THREE points required amendments.

xxv. ONE – limit of ship-owner’s liability for damage to or loss of cargo.

xxvi. TWO – cargo owners started acting smart in cases where the damage to or loss of cargo resulted from negligence of ship-owners servants (people onboard!). Their approach – we are not going to accept a limited compensation by the ship-owner, let us instead take the ship-owner’s servant to court and claim for full damages. Since, servants of the ship-owner are not bound by the same limitation; they were liable to pay, but in doing so could go bankrupt. So, the ship-owner decided to pay but eventually with Hague-Visby Rules this was settled by allowing the servants to have the level of liability as enjoyed by the ship-owner.

xxvii. THREE – with advent of containerisation where packages are loaded inside a single container thus; did the liability of the ship-owner extend to individual packages or the container as single unit? This was sorted by specific clauses in the bills of lading.

xxviii. The official title of The Hague Rules is the "International Convention for the Unification of Certain Rules of Law relating to Bills of Lading".

xxix. HAGUE RULES in maritime law is the international code that defines the rights and liabilities of a carrier by imposing minimum standards upon commercial carriers of goods by sea.

xxx. The Hague Rules represented the first attempt by the international community to find a workable and uniform way to address the problem of ship-owners regularly excluding themselves from all liability for loss or damage to cargo.

xxxi. The objective of the Hague Rules is to establish a minimum mandatory liability of carriers.

xxxii. Under the Hague Rules the shipper bears the cost of lost/damaged goods if they CANNOT PROVE that the vessel was unseaworthy, improperly manned or unable to safely transport and preserve the cargo, i.e. the carrier can avoid liability for risks resulting from human errors provided they exercise due diligence and their vessel is properly manned and seaworthy.

xxxiii. These provisions have frequently been the subject of discussion between ship-owners and cargo interests on whether they provide an appropriate balance in liability; but that is beside the point and not within our syllabus here!

xxxiv. The Hague Rules form the basis of national legislation in almost all of the world's major trading nations, and cover nearly all the present international shipping.

xxxv. The Hague Rules have been updated by two protocols, but neither addressed the basic liability provisions, which remain unchanged.

xxxvi. After being amended by the Brussels Amendments (officially the "Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading") in 1968, Hague Rules became known colloquially as the Hague–Visby Rules.

xxxvii. In addition, the U.N. established a fairer and more modern set of rules, the Hamburg Rules (effective 1992).

xxxviii. Also, a more radical and extensive set of rules is the Rotterdam Rules, but as of August 2020, only 5 states have ratified these rules, so they are not yet in force.

What are the liabilities of the Carrier as per The Hague Rules?

i. The Hague Rules require that the Carrier has to exercise due diligence to:

a. Make the ship seaworthy; however, if loss or damage has resulted from ship being unseaworthy; the burden of proving the exercise of due diligence to make the ship seaworthy shall be on the Carrier.

b. Properly man, equip and supply the ship.

c. Make the holds, refrigerating chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation.

d. Shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.

e. After receiving the goods into his charge, the Carrier/Master/Agent shall, on demand of the shipper, issue to the shipper a Bill of Lading, which is called a “Shipped Bill of Lading”.

ii. The issued Bill of Lading must contain the following information:

a. The leading marks necessary for identification of the goods as the same are furnished in writing by the shipper before the loading of such goods starts, and that the marks should ordinarily remain legible until the end of the voyage.

b. Either the number of packages or pieces, or the quantity, or weight, as the case may be, as furnished in writing by the shipper; provided that the Carrier/Master/Agent has no reasons to suspect otherwise.

c. The apparent order and condition of the goods.

iii. The Bill of Lading is a prima facie evidence of receipt of goods by the Carrier.

iv. The Hague Rules apply to ALL Bills of Lading of contracting States.

v. What is the meaning of LADING? Lading means the act of loading a ship with cargo; therefore, Bill of Lading means evidence of loading a ship with cargo.

vi. The shipper guarantees the Carrier regarding the accuracy of information about the goods at the time of shipment and also, the shipper indemnifies the Carrier against all loss, damages and expenses arising or resulting from inaccuracies in such particulars.

vii. Apart from above, the Carrier CONTINUES to be liable for any other damages caused to the goods.

viii. It is important to note that the shipper can still inform the Carrier, IN WRITING, at the port of discharge of any incorrect information provided by him that can result in damage to goods; within three days after arrival at discharge port. If not, then discharge of goods at port of discharge will be prima facie evidence that the Carrier has delivered the goods as described in the Bill of Lading.

ix. In any case the Carrier is discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods.

x. The Carrier will not be responsible for loss or damage arising from (IMMUNITIES):

a. Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier in the navigation or in the management of the ship.

b. Fire, unless caused by the actual fault of the Carrier.

c. Perils of the sea.

d. Act of God.

e. Act of war.

f. Quarantine restrictions.

g. Strikes or lockouts of labour from whatever cause.

h. Riots and civil commotions.

i. Saving or attempting to save life or property at sea; and thus, any deviation in saving or attempting to save life or property at sea will not be taken as a breach of this Convention or of the contract of carriage, and therefore the Carrier shall not be liable if this results in any loss or damage.

j. Due to inherent defect, quality or vice of the goods.

k. Insufficiency of packing.

l. Insufficiency or inadequacy of marks.

m. Latent defects not discoverable by due diligence.

xi. The maximum liability of the carrier in case of damage or loss of goods shall not exceed 100 Pounds Sterling per package or unit, or the equivalent of that sum in other currency unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading; VERY IMPORTANT – the Carrier is relieved of liability of damage/loss if the value of goods have been deliberately incorrectly stated by the shipper.

xii. VERY IMPORTANT – it is the shipper’s responsibility to declare in writing to the Carrier any dangerous goods prior their loading. If the shipper does not do this; then the Carrier can land the dangerous goods anywhere and any related costs will be on the shipper. Also, even though the shipper may have informed the Carrier in writing about the dangerous nature of the goods contracted for carriage; if such goods become dangerous to the ship at any stage during the voyage; the Carrier can have them destroyed and will not be held liable to compensate the shipper; except for the contribution to General Average.

Hague Rules	Hague –Visby Rules
1. Rules shall have effect & not force of law.	1. The rules shall have the force of law.
2. Carrier’s liability – 100 pounds per package or unit.	2. 10,000 francs per package or unit or 30 francs per Kg of gross weight of goods lost or damaged, whichever is higher/666.67 SDR per unit or 2 SDR per kg of gross weight of goods lost or damaged, whichever is higher.
3. The carrier is discharged from all liabilities if action is not brought within 1 year from the date of delivery of the goods or the date when they should have been delivered.	3. The period of 1 year may be extended if the parties so agree after the cause of action have arisen.
4. Consignee can file suit only for “loss or damage” to the goods.	4. Consignee can file suit not only for “loss/damage” but also for wrong delivery.
5. No such provision.	When goods are transhipped from one vessel to another and if the other carrier has to pay a claim for loss or damage to goods occurred while the cargo was in custody of the original carrier the rules give 3 months extension from the time when the other carrier pays the claim in which to pursue his right of indemnity against the original carrier.
6. Apply only to outward B/L.	6. Apply to every B/L if: B/L is issued in a contracting state or Carriage is from a port in a contracting state or Contract contained in B/L provides that the H/V rules are to govern the contract.
7. No reference to the extension of carrier’s defences and limits of liability to his servant or agent.	7. Servant/agent of Carrier is entitled to same defences and limits of liability which the carrier is entitled to invoke under the rules (Himalaya Clause).

Now, let’s get to the understanding, where is the application of Hague / Hague-Visby Rules – the most important document involved – Bill of Lading!

A bill of lading, which is the most important document in the carriage of goods by sea, may PRIMARILY be defined as a RECEIPT for goods delivered to, and received by, a ship, which:

a. Is signed for by the party (Carrier) that contracts to carry the goods;

b. It is a DOCUMENT OF TITLE for the goods, signifying that the holder of the Bill of Lading can take delivery of the goods it states; and

c. EVIDENCES the terms of the carriage contract under which the goods have been so delivered and received between the shipper and the Carrier.

i. During the transit, the Bill Of Lading is recognised by law as the symbol of the goods described therein and the endorsement for delivery of the Bill Of Lading constitutes the symbolic delivery of the goods.

ii. Property in the goods passes by such endorsement whenever the property would pass by actual delivery of the goods.

iii. The holder of the Bill of Lading is entitled against the shipper to have the goods delivered to it, to the exclusion of other persons.

iv. It is thus in the same commercial position as if the goods were in its physical possession, subject to the fact that:

a. it runs the risk of non-delivery of the goods by the ship-owner; and

b. In order to obtain actual delivery of the goods from the ship-owner, it may be obliged to discharge the ship-owner's lien for freight.

Bill of Lading as RECEIPT

i. Being a receipt for goods, a Bill Of Lading contains a description of the applicable goods in the margin.

ii. This description is perhaps the most important part of a Bill Of Lading, as the consignee (The consignee is the recipient of the goods being shipped) of the bill, which wishes to buy the goods by having the bill endorsed to it, normally has no opportunity to verify the quantity and quality of the buyer's representations by examining the goods.

iii. The consignee therefore parts with the purchase price in reliance on the Carrier's description of the goods in the Bill Of Lading.

iv. In other words, the Bill Of Lading is an acknowledgment of the receipt of the goods specified therein. It usually indicates:

a. the leading marks necessary for the goods' identification, as furnished in writing by the shipper before loading;

b. the number of packages or pieces or the quantity or weight of the goods, as indicated by the shipper in writing; and

c. the apparent order and condition of the goods.

v. If made fraudulently or negligently, such representations may form the basis of an action in tort against the Carrier by third parties, which suffer loss in reliance on them.

vi. A Bill Of Lading is prima facie or, in certain cases, conclusive evidence of the facts contained therein – for example, the leading marks or the condition, quantity, quality and date of loading of the goods.

vii. Where the Bill Of Lading is only prima facie evidence, the Carrier has the burden of proving that it is incorrect.

viii. The Carrier or its Master or agent must, after receiving the goods into its charge, issue to the shipper on its demand A Bill Of Lading.

ix. This must show, among other things, the leading marks necessary for the identification of the goods as furnished in writing by the shipper and the apparent order and condition of the goods, save where the carrier, master or agent has:

a. reasonable grounds for suspecting that the specified marks, quantity, quality or weight do not accurately represent the goods received; or

b. no reasonable means of checking.

x. In considering the precise legal position as to the statements in a Bill Of Lading relating to cargo, regard must be given not only to the contractual clauses, but also to the applicable maritime rules (e.g. the Hague Rules, the Hague-Visby Rules and the Hamburg Rules).

xi. The extent to which a bill operates as a receipt with regard to quantity, condition and quality must also be considered separately.

xii. A Bill Of Lading holder, which can show that goods have been discharged in different quantities or a different condition to that recorded in the bill will have good evidence that the damage or loss occurred when the goods were in the Carrier's custody.

xiii. This evidence can be used to show that the Carrier breached its obligation to look after the goods as set out in the contract or in the Hague Rules, the Hague-Visby Rules or the Hamburg Rules.

xiv. The Bill Of Lading may also be considered conclusive evidence with regard to the representations contained therein.

xv. A Bill Of Lading will be conclusive evidence in favour of a party which has become the lawful holder of the bill – against the Carrier of the shipment of the goods or, as the case may be, their receiver for shipment – where it:

a. represents goods to have been shipped on board a vessel or to have been received for shipment on board a vessel; and

b. has been signed by the vessel's Master or a person who had the Carrier's express, implied or apparent authority to do so.

xvi. However, such a Bill Of Lading is not conclusive evidence of statements as to the order and condition of the goods or any other such matters.

xvii. By an express term, the Bill Of Lading may be made conclusive evidence of the quantity of the shipped goods.

xviii. In this case, in the absence of fraud, the ship-owner is bound by the statement in the Bill Of Lading and cannot escape liability by showing that the goods specified therein, or a portion of them:

a. were not shipped; or

b. were lost before shipment by an excepted peril.

xix. The cause of the misstatement is immaterial; it may be a miscalculation or a mistaken belief that, in the circumstances, the goods had to be signed for, but not put on board.

xx. If there is a miscalculation, the ship-owner cannot escape liability for delivering less than the specified quantity, since the bill of lading is conclusive evidence with regard to the quantity.

xxi. However, where words are inserted qualifying the statement with regard to quantity, or where the charter-party contains an inconsistent condition which is incorporated in the bill of lading:

a. the bill of lading can no longer be regarded as conclusive evidence of the quantity of shipped goods; and

b. the ship-owner is not prohibited from showing that all or part of the goods were not shipped.

xxii. Where the Hague-Visby Rules apply, a Bill Of Lading is prima facie evidence of the receipt by the Carrier of such goods where it:

a. has been issued by the carrier or the carrier's master or agent to the shipper; and shows, among other things - the leading marks necessary for the identification of the goods, the number of packages or pieces or the quantity or weight of the goods, as the case may be; and the apparent order and condition of the goods.

xxiii. Where the Bill Of Lading has been transferred to a third party acting in good faith, it is conclusive evidence.

xxiv. In a bill of lading, the words "shipped in good order and condition" do not constitute a warranty.

xxv. Rather, they amount to a representation that the goods were shipped in APPARENT good order and condition.

xxvi. If an endorsee changes its position on the validity of this representation and afterwards sues the ship-owner for delivering the goods in bad condition, the ship-owner will be ESTOPPED from denying that the goods were shipped in apparent good order and condition. However, the ship-owner will not be ESTOPPED from proving that the internal condition of the goods was bad.

xxvii. A Bill Of Lading is conclusive evidence only with regard to what it acknowledges as having been shipped.

xxviii. Clauses qualifying the statements in the bill (e.g. using words such as "said to contain" or "weight unknown") and the extent to which the mandatory maritime rules allow such qualifications must be considered.

xxix. A Bill Of Lading containing such qualifications is known as a 'CLAUSED Bill Of Lading'.

Bill Of Lading as DOCUMENT OF TITLE

i. Arguably, the principal purpose of a Bill Of Lading is to enable the party entitled to the goods represented in the bill to dispose of them while they are in transit. By mercantile custom, the possession of a bill is, in many respects, equivalent to the possession of the goods and the transfer of the Bill Of Lading usually has the same effect as the delivery of the goods themselves.

ii. A Bill Of Lading is thus a symbol of, or a key to, the goods specified therein.

iii. In this context, a Bill Of Lading is notably deemed to operate merely as a symbolic transfer of possession of goods, but not necessarily as a transfer of the property therein.

iv. Where the consignee of a Bill Of Lading is the shipper's agent at the port of destination, it is evident that the parties, by transferring the bill of lading, intend to pass only the right to claim delivery of the goods from the carrier on arrival of the ship.

v. However, as a Bill Of Lading is not, in the full sense of the word, a negotiable instrument, the title of the transferor to the bill of lading and its ability to dispose of the goods specified therein are important elements to be considered.

vi. As regards the ship-owner, the Bill Of Lading is a document of title, entitling its holder on production, to delivery of the goods.

vii. Accordingly, a delivery to the holder of the Bill Of Lading – even where it is not entitled to the goods – discharges the ship-owner, provided that it is made in good faith without notice of any defect in the holder's title.

viii. However, the ship-owner is not discharged, regardless of how bona fide its act may be, by delivering the goods to the wrong person without producing the Bill Of Lading.

Bill of lading as EVIDENCE of CARRIAGE CONTRACT

i. It has long been accepted that the terms set out on the reverse of a Bill Of Lading are evidence only of the carriage contract between the shipper and the Carrier, since the contract is agreed before the Bill Of Lading has been issued.

ii. In other words, the contract of carriage will generally be made before the goods are sent to the ship and the contract may afterwards be reduced into writing and expressed in the Bill Of Lading.

iii. It is equally accepted that the Bill Of Lading terms regarding the carriage contract between the carrier and a bona fide transferee are conclusive, and that the Carrier is ESTOPPED from citing external evidence to the contrary.

iv. Where there is a charter-party, a Bill Of Lading is prima facie the contract between the ship-owner and an endorsee, under which the goods are carried.

v. This is the case when the endorsee is unaware of the charter-party's terms and may be so even where it knows of them.

vi. However, in general, the charter-party will prevail and the Bill Of Lading will operate solely as an acknowledgment of receipt.

vii. There are basically three categories of Bills Of Lading:

1. Nominate Bills of Lading – require goods to be delivered to a named party and are non-negotiable documents of title;

2. Order Bills Of Lading – provide for goods to be delivered to the order of a specified person and may be negotiated by endorsement; and

3. Bearer Bills Of Lading – permit any holder of the bill to take delivery of the goods without endorsement.

viii. These days even on ships loading oil in bulk, the ship’s Master may be required to sign the Bill of Lading (B/L); because generally, there are separate departments looking after the cargo documentation and the authorization for cargo contracts.

ix. However, the Master of the ship is still required to endorse the cargo carried on board for all legal proceedings.

x. As a general rule, the Master has the authority by law to sign the Bill of Lading on behalf of the Ship Owner.

xi. Sometimes the legal jargon mentioned on the Bill of lading can be unclear and confusing; it is therefore, essential that Master of the ship who is the owner’s representative should thoroughly go through and if required be advised systematically before signing the bill of lading.

xii. In a nutshell; following are the points that must be considered before signing the bill of lading:

1. The Shipper's Identity.

2. Port and Date of Loading.

3. Port of Discharge.

4. Condition of the Goods.

5. Quantity and Description of Cargo Loaded.

6. Freight.

7. Conflicting terms

Let’s discuss each of the above points with some clarity.

The Shipper’s Identity

a. The shipper is at a contract with the carrier which means that any information provided by the shipper if untrue could make the carrier liable.

b. The shipper has to indemnify the carrier and may also have to back freight in this respect.

c. Therefore it is essential that the name, identity and addresses are clearly mentioned on the Bill of Lading.

Port and Date of Loading

a. The date of loading should coincide with the date as stated in the Mates’ receipt.

b. This provides an indication of the origin of goods and is at times crucial to determine the customs duty structure or permissibility of the goods into a country.

Port of Discharge

a. Unless the charter party for a port to be nominated after the vessel sails to avoid deviation charges, the ship must precede with all dispatch to the port of discharge as said.

b. The Master must ensure that this falls within the charter party limits.

Condition of the Goods

a. Confirm that the goods have indeed actually or physically been shipped on board the ship.

b. Check accordingly that an accurate description of the goods is present on the Bill of lading, whether any short-loading or dead-freights are correctly mentioned. Ensure that all of the conditions must be in lieu with the Mates’ receipt and the Bill may have a clause to reflect the actual condition of the goods.

Quantity and Description of Cargo Loaded

a. Prior to endorsing the Bill of lading, the master should ensure that the quantity and description of the goods is true to its correct value of that loaded on board.

b. This can be done by counter-checking the Mates’ receipt along with the other cargo documents.

Freight

a. Ensure that the Bill of Lading is not marked “Freight Paid” or “Freight Prepaid”, as in certain cases, if not true. The master must confirm and verify the factual position of the freight with the ship owner or shipper.

b. It is also recommended to get a written confirmation from either of the two.

Conflicting Terms

a. No clause of the Bill of Lading should ever conflict with that of the charter party terms. If the Bill has to be CLAUSED as per the charter party terms then such references must be clear and unambiguous.

b. Finally, check to see whether the number of original Bill of ladings are in the set provided as stated.

NEGOTIABLE AND NON-NEGOTIABLE BILL OF LADING

NEGOTIABLE Bill of Lading

i. In this type of bill, clear instruction is provided to make the delivery of the goods to anyone having the possession of the original B/L, which itself signifies the title and control of the freight.

ii. In this type of bill, the buyer/ receiver or his/her agent has to acquire and present an original copy of the B/L at the discharge port.

iii. In the absence of original B/L, the goods will not be released.

NON-NEGOTIABLE Bill of Lading

i. This type of B/L fixes a specific consignee/name of the receiver to whom the goods will be delivered to.

ii. It, however, does not itself serve the ownership of the goods.

iii. Under this type of B/L, the assigned receiver/buyers can claim the cargo by confirming their identity.

TYPES OF BILL OF LADING; On the Basis of Execution

Straight Bill of Lading

i. Where a bill of lading is made out to a named consignee without adding the words "to order", the bill is non-transferable and is generally known as a straight bill of lading.

ii. Bills of lading made out "to order", or to a named party with the words "or to order", are generally known as "order bills of lading"; they are transferable, and are accepted as documents of title.

Open Bill of Lading

i. This is a negotiable Bill of Lading where the name of Consignee can be changed with consignees’ signature and thus transferred.

ii. This can be transferred multiple times.

iii. Switch Bill of Lading is a type of Open Bill of Lading.

Bearer Bill of Lading

i. This is a bill that states that delivery shall be made to whosoever holds the bill.

ii. Such bill may be created explicitly or it is an order bill that fails to nominate the consignee whether in its original form or through an endorsement in blank.

iii. A bearer bill can be negotiated by physical delivery.

iv. They are used for bulk cargo that is turned over in small amounts.

Order Bill of Lading

i. This is the bill uses express words to make the bill negotiable.

ii. This means that delivery is to be made to the further order of the consignee using words such as “delivery to A Ltd. or to order or assigns.

iii. The cargo is only delivered to the actual holder of the bill of lading, and it has to be verified by an agent who issues delivery order and the verified bill of lading. The order bill of lading:

a. is the most modern type bill which is widely used all over the world

b. ensures the safety of delivery of cargo to a genuine holder of B/L

c. Since the ship visits several foreign ports where the language, practice, procedures may be different the master might be inconvenienced during the delivery of the cargo. People might fraudulently collect the cargo.

d. To overcome this difficulty and avoid future cargo claims and litigations, the consignee or the holder is required to surrender the bill of lading to the ship’s agent at the discharge port who will verify the genuineness of the bill of lading.

e. When satisfied the agent will issue a delivery order and the verified bill of lading.

iv. Now any person can collect the cargo from the ship by surrendering the bill of lading and the delivery note to the ship.

v. As the bill of lading is made to “to order” of the consignee, it is a negotiable instrument of title.

vi. This means that the ownership of the bill of lading can be transferred from one person to another by authorising signature and delivery of the bill of lading.

vii. All goods which have not been paid in advance and are shipped under “To order” of the bill of lading can be categorised into two types:

1. To Order, Blank Endorsed: not consigned to any named party but ‘To Order’ of the consignor, with the intended consignee’s name given under ‘notify party.’ The consignor must stamp and sign (endorse) this B/L so that its title can be transferred.

2. To Order, Bank: consigned to a bank with the intended consignee’s name given under ‘notify party.’ The bank endorses the B/L to the intended consignee against payment of (or a pledge to pay) the amount of the accompanying bill of exchange. ‘To Order’ B/Ls are used commonly in the letter of credit transactions and may be bought, sold, or traded, or used as security for borrowing money from banks or other lenders.

ON the basis of Method of Operation

Received for Shipment Bill of Lading

i. This bill is sent from agent/charterer to shipper.

ii. The endorsement of this bill ensures that the carrier has received goods but does not confirm it is onboard of the assigned vessel.

Shipped Bill of Lading

i. This bill of lading is issued when cargo is loaded on board; it binds the ship-owner and the shipper directly.

Clean Bill of Lading

i. This B/L is one which states that the cargo has been loaded on board the ship in apparent good order and condition.

ii. Such a Bill of Lading will not bear a clause or notation which expressively declares a defective condition of goods and/or the packaging.

Dirty Bill of Lading

i. If the ship-owner raises an objection to convey that the condition of the cargo is not in good order, he/she can include a clause thereby causing the Bill of Lading to be “CLAUSED or dirty” along with the remarks as per the finding of the cargo condition; e.g. torn packing, broken cargo, shortage in the quantity of the goods etc.

ii. It is the opposite of Clean Bill of Lading and sometimes also referred to as Soiled Bill of Lading; it reflects that the goods were received by the carrier in anything but good condition.

Through Bill of Lading

i. This Bill of Lading is a legal document that allows for direct delivery of cargo from point A to point B.

ii. The bill allows transportation of goods both within domestic borders and through international shipment as it serves as a receipt of the cargo, a contract of carriage, and sometimes title for the products as well.

Combined Transport Bill of Lading

This bill gives information about cargo being transported in large containers by sea and land, i.e. through multi-model transport.

So now; let’s have a look at a sample of B/L! BUT; it’s described here in parts although ALL the information is on the front page of B/L!

1. Shipper/Exporter (information to be provided by shipper)

2. Consignee (information to be provided by shipper).

3. Notify Party (information to be provided by shipper) – for shipment status.

4. Mode of Initial Carriage (Transportation mode where the carrier first receives the goods until the port of loading).

5. Place of Initial Receipt

Location where Carrier takes possession of cargo

6. Vessel Name

7. Port Of Loading

Port where the cargo will be loaded on board the vessel

8. Port Of Discharge

Port where the cargo will be arriving

9. Place of Delivery By Carrier

City where the Carrier will be delivering the cargo to the consignee

10. Booking No. (information to be provided by shipper)

A unique control number to reference the shipment with the carrier

11. Bill Of Lading No.

A unique control number to reference the Bill of Lading

12. Export References (information to be provided by shipper)

Shippers’ reference number

13. Forwarding Agent No.

Full details of freight forwarder and license number

14. Point And Country Of Origin

Point and country of the cargo origin

15. For Delivery Of Goods Please Present Documents To

Full details of carrier’s agent at destination who handles cargo release

16. Domestic Routing/Export Instructions

The actual terminal where the cargo will be loaded onto the shipping vessel; e.g. Garden City terminal, Port of Savannah

17. Freight Payable At

‘Origin’ or ‘destination’ depending on whether freight has already been prepaid or will need to be paid upon collection at destination

18. Type of Movement

Door-to-door or port-to-port

19 & 20 Marks & Numbers/Container Numbers (information to be provided by shipper)

Markings that are on the outer packing of the cargo for identification purposes;

For LCL, this would be a label located on the outside of a carton or on the shrink-wrap around a pallet.

For FCL, it’s the container number. Remember to list the container seal number as well for easy reference.

21. Total Number of Packages (information to be provided by shipper); Sum of what’s listed in the above field.

22. Description of Packages and Goods (information to be provided by shipper).

Description of each package, including the specifics of commodity in its smallest units (e.g. 2000 cartons of plates loaded on 10 pallets), type of package (boxes, barrel, etc.) and the quantity per package; include handling instructions (fragile, should be kept cool, etc.).

23. Gross Weight (information to be provided by shipper)

Total gross weight, in kilograms, for each item per line; If shipping to/from the US, list both kilograms and pounds.

24. Measurement (information to be provided by shipper)

For LCLs, these are the dimensions of each package you’re shipping.

25. Freight Charges

Full list of freight charges such as ocean freight, terminal handling, etc.

26. Prepaid

Amount that has been prepaid by the shipper; This is usually the ocean freight price and any extra charges at origin.

27. Collect

Amount that needs to be paid for cargo collection

28. & 29 By & Dated

Signature or stamp by the individual representing the shipping line (Carrier).

Coming Back to the Main Issue of Liability of Carrier for Damage to Goods!

i. Historically; it has all been about liability of the Carrier.

ii. We’ve already discussed – Common Carrier had strict liability to compensate for damages. So, what did they do?

iii. Common Carriers started inserting clauses in B/L to limit their liability to very small amounts.

iv. To overcome this; Hague Rules were first developed.

v. The Rules (HV) are clear that Carrier is liable for damage to the goods and will, in case of loss or damage to the goods, be obliged to fully compensate the receiver of goods. But this was not as severe as earlier; that is before The Hague Rules.

vi. So; we need to make distinction among:

1. The Hague Rules 1924;

2. The Hague-Visby Rules (FIRST amendment to Hague Rules); and

3. The SDR Protocol 1979 (SECOND amendment to Hague Rules).

Let’s take this evolution of Rules one by one!

According to Hague Rules 1924

i. Liability limits for the Carrier were set - an amount not exceeding £100 per package or unit, or the equivalent of that sum in other currency,

ii. However; liability of the Carrier was not blind towards responsibility of the shipper - Carrier shall NOT be responsible in any event for loss or damage to or in connection with goods if the nature or value of goods shipped has been knowingly misstated by the shipper in the B/L – meaning; the shipper will have to take care of compensation!

iii. But, with evolution of containerisation; there was an issue.

iv. Liability was applicable to per package or unit; now, is the container to be considered as a unit or does the limitation of liability of 100 pound sterling refer to each consignment in the container?

v. This was sorted out by the amendment (Visby amendment to Hague Rules), which we call as Hague-Visby Rules (HV Rules). So, let’s talk about liability under Hague-Visby Rules.

According to Hague-Visby Rules (HV Rules)

i. When B/L states the number of packages or units contained in the container, the limitation of liability refers to each unit; otherwise the container is considered as a package or unit.

ii. Also; liability limit was increased under HV Rules - unless the value of goods have been declared by shipper before shipment and inserted in B/L, liability amount will not exceed the equivalent of 10,000 francs per package or unit or 30 francs per kilo of gross weight of the goods lost or damaged, whichever is the higher.

According to the SDR Protocol 1979 (SECOND amendment to Hague Rules)

i. To make it easier; the IMF by 1978 had developed the concept of SDR – Special Drawing Rights; so, there was a second amendment to Hague Rules, which is called the SDR Protocol 1979.

ii. The approach was same; but limits amended, that is if the shipper does not declare the value of goods and have it inserted in B/L; liability of Carrier will not exceed the equivalent of 666.67 SDR per package or unit or 2 SDR per kilo of gross weight of the goods lost or damaged, whichever is the higher.

iii. But again; it was not a blanket requirement of liability; does not mean that the Carrier is to be held liable for compensation in every case of damage!

iv. Although HV Rules prohibit the Carrier to insert any Clause in B/L to suit itself however, TWO exceptions were made to protect the Carrier:

1. When the Carrier has reasonable grounds to suspect that the marks, number, quantity or weight given by shipper do not represent the goods actually received on board; and

2. When Carrier has had no reasonable means of checking the goods being loaded.

v. In both above mentioned cases, the Carrier is not obliged to enter the details regarding the goods in B/L; but at the same time, Carrier does not have to acknowledge that these details are correct.

vi. In such case, B/L will show the Clause "Weight and quantity unknown".

S. No.	Primary Difference Related to What?	Affected Article	Hague Rules	Hague-Visby Rules	Remarks
1.	Primary amendment is related to TIME BAR for making claim for damage.	Article III describes obligations of Carrier with regards to care of cargo under its possession during transit.	After lapse of 1 year post-cargo is “delivered”, Carrier has no further responsibilities in respect of loss or damages to cargo.	Even if 1 year time bar is exceeded, cargo owner still can pursue for damage/loss claims, provided both parties agree to that extension.	A crucial amendment; Firstly, cargo owner has to investigate & make sure when damage occurred, & whether damage occurred r when Carrier is in possession of goods.
2.	Primary amendment is related to INCREASE in AMOUNT of LIABILITY of CARRIER.	Article IV describes the maximum amount of Carrier’s liability in case of loss/damage.	Claim for losses/damages made by cargo owner cannot exceed 100 pounds per package/unit,	Pound replaced with SDR; amount is 666.67 SDR or 2 SDR per KG.	The ambiguous “package or unit” is supplemented with the gross weight of the goods.
3.	Primary amendment is related to application of Rules.	Article X describes circumstances when Rules can be applied to B/L issued by a country (State).	Applies to “all bills of lading issued in any of the contracting States.	Applies to EVERY B/L between ports in two different States if: B/L issued in contracting State/ is from port in contracting State/ it’s written in B/L that HVR is applicable.	The most important amendment.

HAMBURG RULES

i. Although topics have been discussed as separate entities, like a watertight compartment, but sometimes it is easier to understand when the topic is discussed as a comparison with a relevant topic already existing.

ii. Such is the case with Hamburg Rules; for, its understanding becomes simpler in comparison to Hague-Visby Rules.

Just a recap…

iii. Objective of Hague Rules and Hague-Visby Rules was to protect cargo owners from widespread exclusion of liability by Carriers.

iv. This objective was achieved by incorporating standard clauses into the B/L, defining risks which must be borne by Carrier and specifying maximum protection Carrier could claim from exclusion and limitation of liability clauses.

v. Hague Rules and Hague-Visby Rules are substantially the same except in the areas discussed below:

vi. Applicability - Hague Rules was restricted by COGSA as incorporated B/L issued in respect of outward voyages from the country; Hague-Visby Rules extended it to a wider ambit as an international contract of carriage ‘between ports in different states’

vii. Hague Rules did not use the expression “contracting State” but named a country in which the law was enacted and usually provided; Hague-Visby Rules used the words “contracting States” so that no conflict of law situations would arise.

viii. Limitation of Liability - Limitation of Liability in respect of Hague Rules was £ 100 per package; Hague-Visby Rules increased to 10,000 francs per package or unit or 30 francs per kilo.

ix. Also, Hague Rules formula was to containers, pallets and other devices for the consolidation of goods and the rules limited the liability of the carrier to US$ 500/- for the entire contents of the container; Hague-Visby Rules retained the “package or unit” limitation of liability for individual items of cargo of high value but also introduced an alternative formula based on the weight of the cargo.

Now, let’s move to HAMBURG RULES!

x. Hamburg Rules applies to all contracts for the carriage of goods by sea between two states.

xi. As compared to HV Rules, which come into operation where B/L or similar document of title covers contract of carriage by sea; Hamburg Rules apply to the contract of carriage and NOT to B/L but the Hamburg Rules still envisage that the carrier should issue B/L.

xii. HV Rules provides that Rules are applicable to all goods, ware, merchandise and articles of every kind except live animals and deck cargo; Hamburg Rules cover all kinds of cargo including live animals.

xiii. Provisions regarding Dangerous Cargo dealing with liability for its shipment although remain on same lines; but reinforces the implied term that the shipper will not ship dangerous goods without the consent of the carrier; Hamburg Rules introduced Three new requirements for the shipment of dangerous goods:

xiv. There should be an indication in the cargo that it is dangerous.

xv. The dangerous character of the goods has to be informed to the Carrier.

xvi. Necessary precaution to be taken B/L must include an express statement that the goods are dangerous.

xvii. Where HV Rules apply to the contract of carriage from the time when the goods are loaded on to the time they are discharged from the ship (Tackle to Tackle); The Hamburg rules covers the period during which Carrier is in charge of the goods at the port of loading during the carriage, and at the port of discharge. Carrier is deemed to be in charge of the goods at the time of receipt of goods to the time of delivery.

xviii. Carriers duties and liabilities - Hamburg Rules holds the Carrier is liable for loss, damage, or delay in delivery of goods, if the loss occurred while the goods were under the Carrier’s charge.

xix. Carrier Immunities HV Rules provide a wide list of exceptions in favour of the Carrier; Hamburg Rules do not have an extensive list of exception clauses.

xx. Limitation of Carriers Liability HV Rules limits liability for loss or damage: 666.67 SDRs per package or 2 SDRs per kilogram, whichever is higher; Hamburg Rules have increased to 835 SDRs per package or 2.5 SDRs per kilogram, whichever is higher.

xxi. Notification of loss or damage – in HV Rules notice of loss or damage must be given in writing to the Carrier at the port of discharge before or at the time of delivery, or where the loss or damage is latent, within 3 days of delivery; in Hamburg Rules notice of loss or damage must be given in writing no later than 1 working day after the goods were delivered to consignee, or where the loss or damage is latent, within 15 consecutive days after delivery to the consignee.

xxii. CONCLUSION The Hamburg Rules has been strongly opposed by ship owning interests as it is feared that they would tend to increase Carrier’s liability and therefore affect the cost of insurance through the P & I Clubs.

MATE’S RECEIPT (MR)

i. A Mate’s Receipt (MR) is a receipt issued and signed by Chief Mate of the ship for goods received on board.

ii. MR is nowadays replaced by a modern document called Standard Shipping Note (SSN), but can still be seen in conventional trade like general cargo, dry bulk or tanker.

iii. The information in B/L should be identical to what is confirmed in MR.

iv. MR should be completed from ship’s tally and show the actual quantity and condition of the goods received.

v. The focus must be stating the actual condition; thus if the condition f cargo received on board justifies it, must be remarked as, for example, “torn bags”, “stained bales” etc.

vi. Should there be a difference in tally between the ship’s figures and the figures provided by shipper, MR should reflect the smaller of the two figures with the remark, for example, “…X more bales, in dispute, to be delivered on board…”; where, X denotes the difference in ship’s tally figures; AND MR is in a format that is provided by ship-owner and made in triplicate.

Difference between MR and B/L

S. No.	MATE’S RECEIPT (MR)	BILL OF LADING (B/L)
1.	Mate’s receipt is issued when goods are placed on board ship after verification of quantity and condition.	Bill of Lading is prepared & issued based on Mate’s receipt.
2.	Mate’s Receipt is prepared and issued by chief officer.	B/L is issued by Master, or Agent, or Owner of the ship, or charterer.
3.	Mate’s receipt simply acknowledges the receipt of goods inboard prior to carriage. It does not guarantee carriage of goods.	B/L acknowledges receipt of specified goods for carriage on board the particular ship.
4.	Cargo maybe refused to carriage even after preparation of Mate’s Receipt.	Once B/L is prepared cargo must be carried unless refused for valid reasons (Dangerous cargo, improper declaration, etc).

S. No.	MATE’S RECEIPT (MR)	BILL OF LADING (B/L)
5.	Mate’s Receipt is not evidence of existence of any contract of AFFREIGHTMENT.	B/L is the evidence of existence of contract of AFFREIGHTMENT.
6.	Mate’s Receipt is prepared by chief officer in capacity of servant of Master.	B/L is signed by the Master in capacity of Agent of carrier.
7.	Mate’s Receipt is not legal requirement but a procedural convenience.	B/L is legal requirement in accordance with HV Rules (which will of course be incorporated into national law of country).
8.	Mate’s Receipt is not a legal document and is not admissible as evidence in court of law.	B/L is legal document. It is admissible in court of law even in absence of person who has signed it.
9.	MR does not bind Carrier.	B/L binds the Carrier.
10.	Mate’s Receipt is a temporary document prepared for the purpose of verifying cargo when it is brought onboard.	B/L is a permanent document.
11.	Mate’s Receipt may be destroyed once B/L is prepared.	B/L must be preserved for a period of 3 years from the date of delivery of cargo or the cargo claims are settled whichever is later (this is because the consignee can take the Carrier to COURT to make claims one year after discharge.
12.	Mate’s Receipt is not a negotiable document.	B/L is a negotiable document unless specifically barred.
13.	Mate’s Receipt is inferior document to B/L.	B/L is superior document to Mate’s Receipt. In case of any disputes between Mate’s Receipt and B/L as to quantity or quality of cargo, the B/L will prevail.
14.	Cargo cannot be delivered against Mate’s Receipt.	Cargo must be delivered against B/L.

S. No.	MATE’S RECEIPT (MR)	BILL OF LADING (B/L)
15.	Mate’s Receipt does not give title to goods.	B/L gives right to title to the goods.
16.	Mate’s Receipt does not give right to cargo claims.	B/L gives right to cargo claims.

Sea WAYBILL

i. In some cases it is not necessary to have a Document of Title supporting the claim for delivery of goods; in these cases, the Bill of Lading may be replaced by another type of document, such as the Sea Waybill.

ii. A Sea Waybill therefore is evidence of a contract of carriage and receipt of the goods being transported and NOT a Document of Title; whereas a Bill of Lading acts as the contract of carriage and receipt of the goods, while also serving as a document of title affording ownership.

iii. A Sea Waybill is used when the shipper decides to release ownership of the cargo immediately.

iv. This means that the goods can be delivered to the person identified in the document, and they will simply have to verify their identity.

v. It is important to mention that a Sea Waybill only plays an evidential function and does not give title to the goods (non-negotiable).

vi. When the shipment is loaded, the shipper receives a SWB simply as a reference.

vii. In this case, neither the shipper nor the receiver of goods is obligated to submit any additional documents to the Carrier, and therefore the cargo is released as soon as it is available at the port.

When is it better to use a Sea Waybill?

i. When there is a high degree of trust between the shipper and the consignee.

ii. When the goods will not be traded or sold during transport.

iii. When the goods are paid for with an approved line of credit

LETTER OF INDEMNITY (LOI)

i. Many of you might have heard the term Letter of Indemnity (LOI) in day to day shipping practice.

ii. There have been several arguments, discussions, commercial threats, litigation etc surrounding this LOI.

iii. But many still have doubts on what an LOI is, when it can and should be used, whether it is legally enforceable and whether it is worth the paper it is written on.

iv. LOI is a document given by the party requesting some special service/requirement that deviates from a normal or regulated practice, to the party that would be providing said service or requirement.

v. This letter assigns the recipient of the LOI the right to recover liabilities, losses, and costs arising from the provision of the specific service/requirement from the issuer of the LOI.

vi. Popular scenarios where LOIs are used are as below:

a. Release of cargo without production of Original Bill of Lading

b. Release of cargo against lost Original Bill of Lading

c. Delivering cargo at a port other than that stated in the bill of lading

d. Issuing of Clean Bill of Lading

e. Issuing of Switch Bill of Lading

f. Issuing of back dated or pre dated bill of lading

g. Requesting carrier to carry on with cargo operations when it is raining

vii. As we discussed previously, carrier liabilities are normally covered by P&I Club.

viii. In each of the cases where an LOI is requested, the Carrier will consider it on the basis of a commercial necessity and usually involves the Carrier taking on some non-contractual risk.

ix. The practice of acting on requests based on LOIs is viewed by most P&I clubs as a form of documentary fraud constituting a fundamental breach of P&I Club cover.

x. You may have heard the phrase “An LOI is not worth the paper it is printed on”. While an LOI may be issued for several cases, it may be legally enforceable only when it is issued for actions that are not illegal or prohibited by law.

xi. For example if a customer requests an LOI for the issuance “Clean Bills of Lading” and the Carrier accepts the LOI despite knowing that there was damage to the cargo in the case of break bulk shipments where cargo is physically visible or without the ability to verify the condition of cargo in containerised cargoes, it may be considered as misrepresentation and fraud which could render the LOI unenforceable if it goes to court.

Precautions to be taken by the Carrier

i. It must be understood by the trade that the Carrier accepting an LOI for the various reasons mentioned above, does so while bearing two types of risks:

1. The Carrier’s insurance cover could be compromised in situations where they are required to delivery cargo without production of a bill of lading or delivering cargo at a port other than that what is shown on the bill of lading..

2. The Carrier also takes an additional/unnecessary risk of not knowing whether the LOI received can relied upon in a court of law – mainly in terms of whether the entity issuing the LOI is the one authorised to do so etc.

ii. This risk is also important because the LOI is only as good as the entity signing it and in cases where claims happen a few years down the line, there is no guarantee that the issuer will still be in business at that time.

Who Issues LOI?

i. LOI is a document which the shipper indemnifies the Carrier against the implications of claims that may arise from the issue of a clean Bill of Lading when the goods were not loaded in accordance with the description in the Bill of Lading.

Release of Cargo without Surrender of Original B/L

i. There will be situations where the agent is instructed or requested to deliver cargo without taking the original B/L; sometimes without any security at all and sometimes against provision of a Letter of Indemnity (LOI).

ii. Great care is needed as there is considerable risk involved in both these practices.

iii. Delivery of cargo to a party not holding an original B/L is a breach of the B/L contract and the legal holder of the B/L can sue the Carrier (ship-owner), or the party who has wrongfully delivered the cargo.

iv. The legal holder of the B/L could be the shipper, the receiver, a bank, or another party to whom the B/L has been negotiated.

v. The obtaining of an LOI DOES NOT RELIEVE the Carrier of liability to the cargo owner, it only provides for compensation from the party or parties issuing the indemnity for amounts which the Carrier may have to pay to the holder of the original B/L.

vi. If release against an LOI is authorised by the Carrier, it is the agent’s duty to make sure that it is correctly worded, correctly signed and (if required by the principal) counter-signed by a bank.

vii. THE BOTTOM LINE – IMMEDIATELY call the P & I Club representative in port of discharge for clarifications; preferably in writing. DO NOT release the cargo until proper clarifications have been sought from either the said P & I Club representative or the ship-owner.

DEVIATION

i. The Master is expected to proceed from load port to discharge port without delay and without departure from the usual geographical route.

ii. If s/he fails to do so then this may amount to a deviation from the contractual passage.

iii. DEVIATION therefore, in its legal sense is an unjustified departure from the contractual voyage.

iv. The general rule is that the contractual passage will follow the usual geographical route unless it can be shown that:

a. There is a universal custom to follow another route.

b. That the circumstances surrounding the passage made it clear that intention of the parties was that some other route should be taken.

c. If the B/L expressly describes what route is to be taken or gives the ship owner liberty to select alternative routes even if this means departing from the usual geographical route.

d. If it can be shown that it was necessary for ship to leave the contractual route for reasons of safety of the venture.

e. If it is shown that it was required to save life or property.

v. Where the ship departs from the contractual passage (as stated above) without justification; the consequences of this deviation in legal terms are very drastic.

vi. In very broad terms, the ship owner will be deprived of its contractual rights (for example, to receive freight and to enjoy defences expressly given to it by the contract).

Lawful Deviation and Unlawful Deviation

i. The distinction between lawful deviation and unlawful deviation is important because the borderline between these two concepts is not always so easy to find.

ii. Generally, it can be said that deviation for the purpose of avoiding danger to crew, vessel and cargo or deviation for the purpose of saving life or property, are LAWFUL DEVIATIONS.

iii. If a deviation is NOT a result of any causes stated above (iv – a to e) it will be treated as UNLAWFUL DEVIATION.

iv. Unlawful Deviation is a breach of contract.

P&I Bunkering Clause & Deviation

i. The Clause gives liberty to a ship to deviate for taking bunkers so that a ship owner can take bunkers at ports near oil producing countries where bunker prices are considerably lower.

Delay & Deviation

i. Delay in proceeding to discharge port may cause loss to the buyer of goods and thus, delay may also amount to a deviation in the legal sense.

ii. However, simple failure to commence the loaded voyage and proceed as quickly as possible is not a deviation in the legal sense (for example, delay in pilot boarding a vessel; however, in such a case the Master must support such a reason with Letter of Protest).

iii. IMPORTANT - to amount to a deviation in the legal sense, delay, which makes the passage performed entirely different from that which the parties envisaged would be performed, would have to occur to constitute a deviation.

The Procedure of Documentary Credit System

i. The "Documentary Credit System" is a money transfer system commonly used in overseas trade to enable sellers to secure their payment.

ii. It is a system used in international trade where the BUYER and SELLER are from different countries.

iii. The system relies heavily on documents, which are carefully checked by the banks involved before they make payment.

iv. It is developed to include a measure of security to trade transactions by involving a third party, the BANK.

v. The bank provides additional security for both parties i.e. it plays the role of an intermediary by assuring the seller that he will be paid if he provides the bank with the required documents and by assuring the buyer that his money will not be paid unless the shipping documents evidencing proper shipment of his goods are presented.

vi. The procedure is as follows:

1. The Seller and the overseas buyer agree in a Contract of sale that payment shall be made under a Documentary Credit.

2. The buyer requests a Bank in his own country to open a documentary credit in favour of the seller on the time specified by the buyer.

3. The Issuing Bank opens credit in favour of the beneficiary if the specified documents are duly tendered and other times & conditions of the credit are followed. The issuing bank may open the credit by sending it directly to the seller or the issuing bank may arrange for a bank in the seller’s country - Buyer's bank sends LOC to Seller's bank

4. The Correspondent Bank advises the seller that the credit has been opened and the seller may go ahead and ship the items.

5. The seller ships the goods and tenders the required documents to the correspondent bank. The documents usually include an invoice, insurance certificate, full set of “clean on board” bills of lading made “to order” which are obtained once goods are shipped.

6. The documents submitted to the Correspondent ( Advising ) bank shall conform to the terms of the credit by the seller. The Advising Bank will pay the contract price and reimbursements to the Seller.

7. Documents submitted by the seller to the Advising Bank are presented to the Issuing bank.

8. Before releasing the documents to the buyer, the issuing bank will, in turn, seek payment from the buyer.

9. Buyer receives documents, enabling him to obtain the release of goods from the ship and the Issuing Bank reimburses the Seller Bank.

Advantages of Documentary Credit System

i. It enables the buyer to confirm his paying capacity which is important when establishing new trade relations.

ii. By guaranteeing the payment with a documentary credit, the buyer can achieve more profitable terms of delivery and payment for goods.

iii. The buyer can be sure that the bank will pay money to the seller no sooner than it receives the documents corresponding to the delivery of the goods.

iv. In case the documents submitted by the seller do not correspond to the terms of the Letter of Credit (quality, quantity, packing etc. not in compliance) the buyer can be sure that the payment under the letter of credit will not be processed.

v. Banking experience and knowledge for the implementation of complex commercial contracts can be applied.

vi. The documentary credit is a payment obligation of the bank and the seller can be sure of receiving the money subject to the timely submission of the documents corresponding to the terms of the letter of credit to the bank.

vii. Chances of complexities with the documents and fraud are less, a number of parties to the contact are limited and they are well connected to each other through a single contract of sale. Grievances if any can be resolved in a court of law effortlessly.

CHARTER & CHARTERPARTIES

i. The word “Charterer” is probably as old as the word “Ship” itself.

ii. It is all business; and like in all kind of business, there are at least two parties involved, one of which provides a service or product to the other for a price.

iii. With respect to carrying the cargo onboard ships, these two parties are Ship owner who has the ship and provide the space on the ship to carry the cargo; and Shipper who has the cargo and wants a ship to transport the cargo.

SHIPPER CARRIER

SHIPPER (buyer or seller) contacts a Carrier to provide a ship.

SELLER BUYER

Example: Seller has cargo in Malaysia; Buyer buys that cargo but wants it delivered in Rotterdam. If seller is required to deliver the cargo at Rotterdam, the seller finds a ship and thus becomes the SHIPPER. If, buyer buys the cargo in Malaysia with delivery in Malaysia, then in this case buyer becomes the SHIPPER.

iv. Then where does the term CHARTERER fits into this!

v. Charterer is the party that has chartered (think of simple word “hired”) the ship.

vi. If the shipper has chartered the entire ship then shipper will also be the charterer.

vii. In most of the cases, charterer is a kind of middle man between shipper(s) and Carrier.

viii. This is particularly the case if there is more than one shipper.

ix. For example, if the vessel is to load 50000 tons of cargo, there could be 10 shippers, say each of them with 5000 tons of cargo; alone none of the shipper would want to hire the entire vessel of 50000 tons capacity for their 5000 tons of cargo; so they contact a charterer for transporting their cargo.

x. The charterer’s job is to find a vessel for the cargoes they have from different shippers and maximising the space on ship they plan to hire.

xi. Broker or no broker, the charterer and Carrier would agree on the terms and conditions which would form “Charter Party Agreement“; or simply, CHARTERPARTY.

xii. CHARTERPARTY is a detailed document which, apart from various clauses, has information such as:

a. When and where the vessel is required to be;

b. the freight agreed;

c. If the broker was used, who need to pay the brokerage fee and how much etc.

xiii. Even though ship-owner is primarily dealing with the charterer, it does not mean that the ship-owner would have no relation with the shipper.

xiv. Shipper and ship-owner are connected by the “Carriage of Goods at Sea Act”, also called COGSA; the main point of which is that ship-owner is required to issue Bill of Lading to the shipper for the cargo loaded onboard.

xv. While the CHARTERPARTY is a formal agreement, the contract of carriage is governed by various laws and regulations such as Hague-Visby Rule.

xvi. CHARTERPARTY supplements the contract of carriage.

xvii. Usually you would find a mention of the charter party agreement in the bill of lading. The wording in the bill of lading could be something like this…

xviii. “…This shipment is carried pursuant to CHARTERPARTY between “Charterer’s name” and “Carrier’s name” and all the terms, clauses, conditions, liberties and exceptions whatsoever contained therein are incorporated into this Bill of Lading…”

xix. But do the ship-owners and charterers do this exercise of negotiating the format of the charter party agreement each time they do the business together - Absolutely not because it would take a lot of time.

xx. So, they use pre-defined forms, which are developed by Independent International stakeholders such as BIMCO and INTERTANKO and are widely used in the shipping business.

xxi. There are different forms for different trades; for instance, there is form SHELLVOY 6 for use in tanker trade and then there is form AMWELSH 93 for coal dry cargo chartering.

xxii. Also if a charterer and ship owner have done the business before, they use the same charter party agreement for the future shipments too.

xxiii. Now that we understand the concept of chartering, let us understand the different ways in which the ships can be chartered - Voyage Charter, Time charter, Demise Charter.

xxiv. There are different ways in which a charterer can charter (Hire) the vessel.

xxv. Charterer can charter the vessel for one voyage (Voyage Charter), for a particular time period (Time Charter) or they can hire and run the vessel as if they are the owner of the vessel (DEMISE OR BAREBOAT CHARTER – there is a slight difference between the two - A demise charter whereby the charterer has the right to place its own Master and crew on board of the vessel is called a BAREBOAT CHARTER). WHY is it so?

xxvi. Demise means death or associated with a ‘kill’. Therefore, here the ship-owner is “killing his right” (giving-up his right) to employ his own Master + one senior officer and thereby allowing the charterer to do that as well, along with ALL other elements.

xxvii. In each type of charter, charterers and ship-owners have different area of responsibilities:

Element of Operation	VOYAGE CHARTER	TIME CHARTER	BAREBOAT CHARTER	DEMISE CHARTER
Fuel	SHIPOWNER	CHARTERER	CHARTERER	CHARTERER
Employment of Master & Chief Engineer	SHIPOWNER	SHIPOWNER	SHIPOWNER	CHARTERER
Employment of Officers & Crew	SHIPOWNER	SHIPOWNER	CHARTERER	CHARTERER
Crew Costs	SHIPOWNER	SHIPOWNER	CHARTERER	CHARTERER
Port Dues	SHIPOWNER	CHARTERER	CHARTERER	CHARTERER
Ship Management	SHIPOWNER	SHIPOWNER	CHARTERER	CHARTERER

VOYAGE CHARTER

i. Under the voyage charter, the ship is hired from the ship owner for one voyage.

ii. The charter agreement lists the ports of call, destination, and restrictions on cargo, if any.

iii. Payment of voyage charters can be done in two methods – on a per-ton basis, or on a lump-sum basis.

iv. One voyage could consist of multiple load ports and multiple discharge port; the best analogy to the term voyage charter is that with hiring an UBER for a ride from one place to the other, sometimes with multiple stops in between!

v. Similarly, under the Voyage Charter, the charterer has hired the ship’s cargo space. But the Master and crew still remain under the disposal and instructions of ship owner.

vi. There are some important terms used in a contract agreement that lays out the time-based rules to be followed for the duration of the contract.

vii. LAYTIME refers to the time that a charterer is allowed to complete the loading and unloading process at a port of call. Since the owner pays duties and berthing charges at the port, they expect the charterer to hasten the process.

viii. In case the charterer exceeds the LAYTIME laid out in the contract, he is obliged to pay a penalty known as demurrage. This covers the extra costs incurred by the ship-owner owing to the delay by the charterer.

ix. On the other hand, if the ship is able to complete the loading and unloading operations before the stipulated time, the charterer can claim payment of a despatch from the owner. This is often seen as an incentive for charterers to complete the port operations as soon as possible.

x. When we hire a cab for a ride, we just pay the hire (pre-agreed or by the meter); we do not pay for or are not concerned about the fuel costs or the amount of fuel consumed; therefore, under the Voyage Charter, charterer is not concerned about the fuel consumption - fuel costs are for the ship owners.

xi. Also, when we hire an UBER, we do not pay for maintenance of the cab; therefore, under Voyage Charter it is the ship owner who pays for maintenance of the ship (whenever we have any doubt about anything under voyage charter, just think of this analogy of hiring the cab)!

xii. In a Nutshell - a voyage charter involves a charterer hiring a vessel for the purpose of a single voyage (with more than one load port or more than one discharge port), in which the route and ports have been pre-determined. The responsibility of duty and other payments along with recruitment is handled completely by the ship-owner, while the cargo is the sole responsibility of the charterer.

xiii. However, VERY IMPORTANTLY, the terms LAYDAYS or LAYTIME are associated with VOYAGE CHARTERPARTY.

xiv. This is because, there are FOUR Stages involved to execute:

1. Loading Voyage to the load port.

2. Loading Operation.

3. Carrying Voyage – to the discharge port.

4. Discharging Operation.

i. Too many uncertainties to operate within and ship owner’s freight (and profits) - cannot depend upon so many uncertainties!

ii. So the ship-owner and charterers agree on the factors like allowed number of days for loading and discharging.

iii. In chartering terms this is called “LAYDAYS” or “LAYTIME”.

iv. The LAYDAYS is mentioned in the voyage charter party agreement between ship owner and charterer and it could be mentioned as number of days and hours or as tons per hours or per day.

v. If the charterer uses more time for loading and discharging than the allowed LAYDAYS as per charter party agreement, then charterer is supposed to pay for extra time used; chartering term for this additional payment is “Demurrage”.

vi. But if the charterer uses less time than LAYDAYS then ship owner need to pay the charterer for the time saved; chartering term for this is “DESPATCH”.

TIME CHARTER

i. The Time Charter Parties are different from the voyage charter parties and the difference lies in their functions.

ii. A Time Charter is a TIME-BOUND AGREEMENT, as opposed to a voyage charter.

iii. Thus, as the name suggest the vessel is chartered for a specific period of time and the charterer can use it for any purpose within the limits prescribed by the contract.

iv. In other words, the ship-owner leases a vessel to a charterer for a fixed period of time, and they are free to sail to any port and transport any cargo, subject to legal regulations.

v. The time charter agreement can span anywhere from a few days to a few years.

vi. Obviously, charterer does not sail on the vessel but provides instructions to the master of the vessel in their stead. This includes permissible cargo, route and ports, required charter speed etc.

vii. Since payment is on a daily basis, the charterer may be delayed for a certain reason, and these are covered in the agreement; therefore, time not included in the final payment is known as OFF-HIRE Hours. For instance, if a vessel is slowed down because of poor weather that could not have been predicted, the extra time spent is not included in the final time count Off-Hire!

viii. If some form of damage occurs and repairs need to be carried out, the duration is considered to be off-hire.

ix. Certain clauses can be inserted in the agreement (CHARTERPARTY) that allows for a fixed number of off-hire hours - beyond this, the charterer is charged for delays.

x. In this kind, the charterer controls the commercial activities of the vessel and in the terms of contract the charter must also explain fuel consumption, the capacity of loading and the speed of vessel.

xi. As the success of the commercial charterer depends on all the above mentioned qualities of the ship and the charter also explains the time period in very clear words thus, there should be no ambiguity in it and must be given in days, month or years.

xii. In a Nutshell – a Time Charter involves leasing a vessel for a fixed period, on a per-day rate, where the charterer is free to use the vessel. The owner still manages the ship. Clauses are inserted to protect the charterer from having to pay for hours that were spent due to events that could not have been foreseen.

A Specific Comparison

S. No.	Element	Time Charter	Voyage Charter
1.	Responsibilities of the Parties	(1). Ship-owner remains responsible for technical operation of vessel, but commercial control of vessel is handled by charterer. (2). Ship-owner covers all costs associated with crewing; maintenance of vessel & insurance; vessel fuel consumption & port charges to be paid by charterer.	(1). Both technical & commercial management handled by ship-owner. (2). Ship-owner is not only responsible for costs associated with crewing, maintenance of vessel & insurance, but also pays for all costs of the voyage, including bunkers and port charges.
2.	Duration	(1). Time charter party is signed for a limited period of time without dictating a fixed route to the charterer. (2). During charter party contract period, charterer can operate vessel commercially within allowed routes freely.	(1). Voyage charter party is signed to carry specific amount of goods between pre-determined routes, and carry pre-defined cargo between pre-determined ports. (2). Once the transportation is completed, voyage charter party contract ends.
3.	Contract Amount Calculation	Charterers pay daily hire to ship-owners.	(1). Charterers obliged to pay freight to ship-owner. (2). Freight calculated either according to quantity of cargo loaded, or lump-sum freight (money paid to shipper for charter of ship up to stated limit irrespective of quantity of cargo).

BAREBOAT CHARTER (+ DEMISE CHARTER if case be as explained earlier)

i. Basically the vessel owners put the vessel, without crew, at the complete disposal of charterers and pay her capital costs, but (usually) no other costs.

ii. Charterers have commercial and technical responsibility for the vessel, and pay all costs except capital costs.

iii. Bareboat charterers become virtual owners under the charter party.

iv. A bareboat charter (sometimes called a charter by demise or demise charter, is a contract for the hire of a vessel for an agreed period during which the charterers acquire most of the rights of the owners.

v. It may be thought of as the marine equivalent of a long-term vehicle lease contract.

vi. Bareboat Charter is used by owners such as banks who are not prepared to operate or manage ships themselves.

vii. It may be hinged to a purchase option after expiry of the charter or during the hire period. (Hire payments may include instalments of the purchase price, and transfer of ownership may follow the final instalment. Many permutations are possible.)

CHARTERPARTY CLAUSES

BUNKER CLAUSE

i. A Bunker Clause stipulates that the charterer shall accept and pay for all fuel oil in the vessel's bunkers at port of delivery and conversely, (owners) shall pay for all fuel oil in the vessel's bunkers at port of re-delivery at current price at the respective ports.

ii. It is customary to agree upon a certain minimum and maximum quantity in bunkers on re-delivery of the vessel.

SHIP CLAUSE

i. Under this clause, the owner of the ship writes clearly that the ship would be seaworthy at the start of the voyage in every respect, in other words, the ship would be appropriate to travel to the country for which it is taken.

ICE CLAUSE

i. An Ice Clause is inserted in a CHARTERPARTY when a vessel is bound for a port or ports which may be closed to shipping by ice when the vessel arrives or after the vessel's arrival.

ii. In a charter it is the responsibility of the charterer to send the ship to a safe port.

iii. A port which is “ice-bound” or in which ice conditions can cause damage to the ship, may not be a “safe port”.

iv. To confirm the protection for the ship-owner a protective clause dealing with ice conditions is inserted in the CHARTERPARTY.

v. In addition to the matter of a safe port, the insurers of the ship (“hull insurers”), who are undertaking to indemnify the owner for damage to the ship, clearly will want to reduce their risks.

vi. Therefore they may impose trading limits on the use of the ship.

vii. The Ice Clause must be analysed with example of Trading Limits as Institute Warranties; done in lass.

viii. Ice Clause is connected mostly with the trading limits of a time-chartered ship but generally, with respect to chartering, the limits include areas in which there are hazards from ice, such as the Baltic Sea and the St. Lawrence Seaway, at certain times of the year.

ix. Ice Clause protects the ship-owner from ice hazards and insurance problems that could result from trading in ice conditions.

LIGHTERAGE CLAUSE

i. A LIGHTERAGE clause is inserted into charter-parties which show as port of discharge any safe port in a certain range, e.g. Havre/Hamburg range.

NEGLIGENCE CLAUSE

i. A Negligence Clause tends to exclude ship-owner's or Carrier's liability for loss or damage resulting from an act, default or neglect of the master, mariner, pilot or the servants of the carrier in the navigation of manoeuvring of a ship, not resulting, however, from want of due diligence by the owners of the ship or any of them or by the ship's husband or manager.

INDEMNITY CLAUSE

i. Under a Time CHARTERPARTY the ship-owner puts the vessel at the disposal of the charterer, who can choose for himself what cargo he shall load and where he shall send the ship, provided that the limits prescribed by the contract are not exceeded.

ii. When deciding who has to bear the consequence of a choice being made in one way rather than the other, it is reasonable to assume that the consequences shall fall upon the person who made the choice, for it is the charterer who had the opportunity to decide upon the wisdom of the selection he makes; therefore, there are THREE elements of Indemnity Clause:

A. An implied indemnity for the ship-owner to be indemnified against the consequences of complying with Charterers' orders for employment of the vessel e.g. the consequences of the carriage of a particular cargo.

B. An implied indemnity that the terms imposed on the Owners by any Bills of Lading issued by the Charterers will be heavier on Charterers than the Owners' obligations under the CHARTERPARTY.

C. An implied indemnity arising from Owners' compliance with Charterers' request to deliver cargo without presentation of a Bill of Lading.

READY BERTH CLAUSE

i. A ready berth clause is inserted in a CHARTERPARTY, i.e. a stipulation to the effect that lay days will begin to count as soon as the vessel has arrived at the port of loading or discharge "whether in berth or not".

ii. It protects ship-owner's interests against delays which arise from ships having to wait for a berth.

REDELIVERY CLAUSE

i. Charterers’ obligation to re-deliver vessel in same condition as when delivered (fair wear and tear excepted); redelivery place, date and time; giving of notice of redelivery by charterers; provisions where vessel is on a voyage at agreed.

ii. A time-chartered vessel goes “off hire” when she is redelivered to her owner.

iii. A Redelivery Clause will normally be found in a time charter party.

iv. Under most time charter parties the vessel must be in the same good order at redelivery as when delivered (fair wear and tear excepted).

v. An off-hire survey is required to determine the extent of any damage done during the period of hire.

vi. The charterers will normally be liable for the cost of repairs.

vii. The vessel may be redelivered “clean” or “dirty”. If the charterers are given the option of redelivering the vessel “dirty”, a sum in compensation to the owners will be provided for in the charter party.

CESSER Clause (cessation of liability - that is, termination of liability)

i. A lien is the right to hold the property of another as security for performance of an obligation.

ii. A Carrier can for example retain possession of cargo on board the ship until freight or other sums due have been paid.

iii. Therefore in many cases the right to exercise a lien will be an efficient weapon to protect to enforce a claim.

iv. CESSER Clause provides that charterer's liability for specified payments shall cease at a particular time, usually after shipment of the cargo – always agreed in exchange for ship-owner's lien on cargo can be exercised at the discharge port.

v. In most cases a ship-owner will prefer to turn to the charterer for payment of demurrage instead of some other third party (such as the receiver of cargo at discharge port).

vi. However, in some cases charterers are unable to pay and in those cases it is obviously to the ship-owner's advantage if he is able to recover unpaid demurrage from the receiver under the terms of a lien/CESSER clause.

vii. If demurrage is payable day by day, but not paid, then the ship-owner must at some stage decide whether to withhold rest of the cargo until demurrage has been paid (obviously at the discharge port).

viii. Therefore, in absence of no lien being exercised, the ship-owner may find himself out of pocket and with no valid claim against the charterer or the receiver.

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CHIEF MATES MMD EXAM

COMMERCIAL LAW – A Simple Understanding of Bill Of Lading, Documentary Credit System and CHARTER & CHARTERPARTIES

CHIEF MATES
PHASE 2

SUBJECT : MARINE LAW

TOPIC : COMMERCIAL LAW – A Simple Understanding of Bill Of Lading, Documentary Credit System and CHARTER & CHARTERPARTIES

NEGOTIABLE AND NON-NEGOTIABLE BILL OF LADING

TYPES OF BILL OF LADING; On the Basis of Execution

Let’s take this evolution of Rules one by one!

According to Hague Rules 1924

According to the SDR Protocol 1979 (SECOND amendment to Hague Rules)

i. To make it easier; the IMF by 1978 had developed the concept of SDR – Special Drawing Rights; so, there was a second amendment to Hague Rules, which is called the SDR Protocol 1979.

iii. But again; it was not a blanket requirement of liability; does not mean that the Carrier is to be held liable for compensation in every case of damage!

HAMBURG RULES

Just a recap…

When is it better to use a Sea Waybill?

Release of Cargo without Surrender of Original B/L

VOYAGE CHARTER

READY BERTH CLAUSE

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Post a Comment

Popular posts from this blog

BULKHEADS - NAVAL ARCHITECT (STABILITY) CHIEF MATES PHASE 1

Suppression of Unlawful Acts (SUA) Convention; 1988

COMMERCIAL LAW – A Simple Understanding of Bill Of Lading, Documentary Credit System and CHARTER & CHARTERPARTIES

CHIEF MATES PHASE 2

SUBJECT : MARINE LAW

TOPIC : COMMERCIAL LAW – A Simple Understanding of Bill Of Lading, Documentary Credit System and CHARTER & CHARTERPARTIES

NEGOTIABLE AND NON-NEGOTIABLE BILL OF LADING

TYPES OF BILL OF LADING; On the Basis of Execution

Let’s take this evolution of Rules one by one!

According to Hague Rules 1924

According to the SDR Protocol 1979 (SECOND amendment to Hague Rules)

i. To make it easier; the IMF by 1978 had developed the concept of SDR – Special Drawing Rights; so, there was a second amendment to Hague Rules, which is called the SDR Protocol 1979.

iii. But again; it was not a blanket requirement of liability; does not mean that the Carrier is to be held liable for compensation in every case of damage!

HAMBURG RULES

Just a recap…

When is it better to use a Sea Waybill?

Release of Cargo without Surrender of Original B/L

VOYAGE CHARTER

READY BERTH CLAUSE

Comments

Post a Comment

Popular posts from this blog

BULKHEADS - NAVAL ARCHITECT (STABILITY) CHIEF MATES PHASE 1

Suppression of Unlawful Acts (SUA) Convention; 1988

CHIEF MATES
PHASE 2