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Back to Basics – Contract of Carriage


Jagan - September 14, 2022 - 0 comments

  1. Shipowners are invariably in a better bargaining position and able to incorporate various clauses in the contract of carriage / Bills of Lading entitling them to either exclude liability or limit liability for any loss or damage to cargo. Given this was something unacceptable to the cargo interests and other stake holders, the reaction which came initially was enactments of various legislationsand subsequently the adoption of uniform rulesii which led to some protection to cargo interests for the loss of or damage to the cargo whilst under the care and custody of the Carriers (who include the Owners and Charterers)iii.
  2. The old structure of Owners and Charterers as Carriers underwent a change in the later part of the 20th century, particularly with the advent of containerization, given that it was no longer possible for Carriers to trade only using their own tonnage or equipment. This is particularly true in the present moment where Container Operators may own and operate vessels in one sector but may have no tonnage in another sector, due to which they (Container Operators) either slot charter space or load on “use basis” on third party vessels. Some Container Operators also trade without having any physical assets, except for say equipment (containers), and instead wholly rely on using third party vessels either on slot charters or on “use basis”. The development of this trade was useful given that the trade in containers had grown exponentially and that it was no longer only on port-to-port basis and but often extended from and to various inland locations. Given the above, there was the development of various types of Carriers i.e., Vessel Operating Common Carriers (“VOCC”) and Non-Vessel Operating Common Carrier’s (“NVOCC”). While NVOCC’s issued their Bills of Lading to the cargo interests, the VOCC’s either issued their (VOCC’s) Bills of Lading on similar terms or with some divergences, say, not listing the cargo with particularity as may have been stated in the NVOCC’s BL. Alternatively, the VOCC’s / NVOCC’s may issue Sea Waybill to their underlying counterparty, which may arguablyiv result in a different liability regime given that the Hague and the Hague-Visby Rules apply to contracts of carriage covered by a bill of lading or any similar document of title…v.
  3. While the cargo conventions are usually the basis of agreed cargo liabilityvi, Carriers would naturally consider whether they could either exclude or limit liability by denying that the Hague or Hague-Visby Rules applied and instead a more beneficial provision in their contract applied irrespective of whether their counterparty are an intermediate carrier (say NVOCC’s who have contracted on use basis) or cargo interests. We submit that it has never been the intention of intermediate carriers and cargo interests to contract on lesser terms than that provided under either the Hague or the Hague-Visby Rules. However, this point comes up again and again whenever there is any opportunity to use technical defences to entitle Carriers to deny or reduce liability.
  4. In AP Moller-Maersk A/S trading as Maersk Line v Kyokuyo Limited, a case between Cargo Interests and Maersk Line, the English Court of Appeal held that if the contract, when concluded, provided for a bill of lading to be issuedvii, then the Hague-Visby Rules would have the force of law (irrespective of the fact that a non-negotiable waybill was actually issued for the case at hand). The judgement further pointed out that if the Hague Rules were to apply, the individual pieces of cargo or the container were the relevant package or unit under Art IV Rule 5 (it did not apply in this case and therefore this part of the judgement is obiter dicta).
  5. Basis the above, at least under English Law, absent specific contractual agreement that only waybills would be issued by the Carrier as a matter of course, a cargo interest and intermediate carrier, would be entitled to expect that the Hague-Visby Rules would apply as long as a BL was contemplated. The other issue which may arise is the enumeration of the packages and for this, the cargo interests/intermediate carrier should declare the correct amount of packages/weight of the cargo at the time of loading and insist for the same to be stated in the BL for the subject shipment.
  6. While the AP Moller-Maersk A/S trading as Maersk Line v Kyokuyo Limited is certainly helpful given that it would generally be persuasive in common law jurisdictions, this issue would still rear time and again both at common law and other jurisdictions. This being the case, we would prefer if there is a broad agreement on the terms of the contract of carriage which should compulsorily apply so that this ambiguity is plugged once and for all.
    1. With respect to intermediary carriers, a basis has already been provided in the terms of SLOTHIREviiiand therefore this could be one of the options to deal with this issue.
    2. With respect to cargo interests, it would be simpler and appropriate to allow for all shipments to be governed by the Hague or Hague-Visby Rules irrespective of the document being issued for the shipment. In this regard, we note that Peninsular Malaysian has enacted provisions in 2020 to be applicable for all sea carriage documents and which would include waybillsix. Alternatively, if parties wish to consider a different basis to govern the liability aspects, it would be best to agree prior to the formation of the contract and which would promote contractual certainty and ensure that both intermediary carriers and cargo interests are able to take appropriate risk management measures such as insurance to deal with their exposures.

i.See the Harter Act enacted by the United States of America in 1893,  the Sea Carriage of Goods Act 1904 legislated in Australia and The Water Carriage of Goods Act 1910 by Canada.
ii.
See the Hague Rules and the Hague Visby Rules.
iii.
See Art 1(a) which is materially same in both The Hague and The Hague Visby Rules.
iv.
See Para 4 below.
v.
See Art 1(b) of the the Hague and the Hague Visby Rules.
vi.
It is a requirement under the P&I Cover provided by both Mutuals and Fixed Premium Insurers that their Members / Insured contract of carriage in on terms less favourable to the Member than those laid down in the Hague or Hague-Visby Rules solely because of the relevant terms of carriage being of mandatory application… (see R34(1)iii of the Gard Rules 2022)
vii.
See para 61 & 63 of the COA judgement.
viii.
See Clause 14(f) of the Slothire
ix.
See Arun Kasi & Co bulletin of 05th Aug 2021 in which he discusses about the changes effected.

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