Liner Bill of Lading Clauses – need for improvement?

Bill of Lading Clauses – Need for Improvement?

1. Recently, Mr Jagmeet Makkar¹ delivered a presentation on the Pitfalls of a poorly drafted dispute resolution clause. His talk also touched on common problems and pathological clauses. His discussion prompted us to consider whether similar drafting issues exist in common Liner Bills of Lading (“B/L”) and whether there are any pathological clauses. While our review suggests that Liner B/L’s are generally fit for purpose, developments in legislation, case law and commercial practice indicate that several commonly used clauses benefit from reconsideration.
2. What is a Pathological Clause? A pathological clause is a clause in a contract that is defective in its drafting such that it would create uncertainty about how the clause should operate or how it should be interpreted. Our review of the common Liner B/L’s leads us to believe that while the clauses can be improved keeping in mind the changes in law in various jurisdictions, they are generally fit for purpose. Even if a clause were to be found defective, given that in most cases there would be compulsory application of local laws (which would generally provide for various laws including the Hague or the Hague Visby Rules with amendments) any interpretation would be based on the application of the local laws and with the gaps being dealt with the contractual provisions in the B/L.
3. We suggest that Carriers continue to regularly review (as laws continue to develop in various jurisdictions) the below clauses and if necessary, amend them keeping in line with any changes:
   1. Law and Jurisdiction
   2. General Average
   3. Force Majeure
4. Law and Jurisdiction:
   1. Invariably, Liner Bills of Lading would provide for a specific law of the contract (for instance English or Singapore Law) and an exclusive jurisdiction (say the High Court of London or the Singapore High Court) unless the shipments are to and from the United States and in which case, they would expressly provide for the application of US Law and a specific court in the US².
   2. While some courts may give effect to these clauses, it is our understanding that civil law jurisdictions will, if approached, assert jurisdiction such that the provisions of the clause are of no avail. Civil Law countries such as China³ and Spain have also legislated for the application of their law and jurisdiction for shipments to and from their countries.
   3. With respect to common law jurisdictions, while most may give effect to the Law and Jurisdiction provisions, Australia expressly provides in their legislation for the application of Australian Law for shipments effected out of Australia and with jurisdiction⁴ for the Australian courts for shipments to and from Australia.
   4. Issues will also arise say due to the conflicting provisions of the US Law and Jurisdiction for US Shipments and the application of the mandatory law available in say China/Spain. In this case, a Chinese/Spanish Shipper or Consignee will be entitled to pursue in China/Spain under Chinese/Spanish Law irrespective of the Law and Jurisdiction Clause provided in the B/L. Additionally, Carriers may also find it difficult to pursue Shippers/Consignees in their (Shipper’s/Consignee’s) jurisdiction as they would be contractually bound to initiate action in the jurisdiction mentioned in the B/L (this can be one of the defences of the cargo interests if action is initiated outside the jurisdiction provided in the B/L).
   5. To avoid such conflicting issues (which may arise due to the initiating party taking advantage of their laws and jurisdiction), we would recommend that the Law and Jurisdiction Clause is amended to cater for this eventuality i.e. allowing for the Law and Jurisdiction of the cargo interests who may pursue the Carrier or be pursued by the Carrier⁵.
   6. Additionally, to avoid multiple actions, Carriers should consider Arbitration as the default dispute resolution method and which in our opinion is more suited for multi-party/multi jurisdiction disputes. Any issues of “jurisdiction” can be dealt by allowing the cargo interests jurisdiction to be the seat of the arbitration⁶.
5. General Average:
   1. This issue cropped up for a Congen 94 B/L and which provides for GA to be adjusted as per the York Antwerp Rules 1994 (“YAR 1994”) or any subsequent modifications thereof⁷. The High Court held that YAR 2016 were to apply as they were the latest version of the YAR.
   2. Liner Bills of Lading generally provide for specific edition of the YAR to apply for the adjustment of GA. In this regard, the TT Series 100 provides for YAR 1974 while the Maersk, MSC, Hapag Lloyd, HMM B/L provides for YAR 1994.
   3. The latest edition of YAR 2016 were reached after wide consultation with interest stakeholders including Owners. The provisions of the later editions of YAR limit the scope of GA and therefore later editions of YAR appear to be more beneficial to the cargo interests. However, given that B/L’s are adhesion contracts, the decision on which YAR is to be incorporated lies with the carrier and not with the cargo interests.
   4. One issue which may crop up would be in a multi carrier GA in which different Carrier’s B/L provide for different editions of YAR’s. In this case, the practice of Average Adjusters has been to adjust the apportionment of Owners and Cargo interests based on the B/L provisions issued to the cargo interests. We had earlier argued that this is incorrect⁸ given that it may be inconsistent with the contractual provisions which the Owners would have contracted with the Charterers and so on. To ensure consistency, predictability and to avoid disputes in such multi Carrier GA’s, it would be best if Carriers voluntarily incorporate YAR 2016 as the basis of adjustment in their GA clauses.
6. Force Majeure⁹: The recent geopolitical developments in the Middle East have led to carriers issuing end-of-voyage notices and imposing additional charges where cargo interests request onward carriage to the original or an alternative destination. In view of these developments, the Force Majeure clause should be reviewed to determine whether it adequately addresses risks arising from sanctions, deviations necessitated by war, armed conflict or related port closures, port storage charges, container detention following the termination of the contractual voyage, and cargo abandonment. While the current provisions may be sufficient to allocate these risks, a review is recommended to ensure that the clause remains robust, commercially appropriate, and fit for purpose in the current operating environment.
7. Conclusion: While B/L’s issued in the Liner Industry are generally fit for purpose, given the continuing evolution of international trade, sanctions regimes, geopolitical events and mandatory national legislation, periodic review of standard Bill of Lading clauses is essential to ensure that they continue to allocate risk effectively and the B/L provisions remain enforceable across multiple jurisdictions.

¹ Mr Makkar is based at Hong Kong and is a Fellow of the ICS and holds various positions including as Lead Faculty at IIM Mumbai and CMMI, EMBA program. He is a well-known maritime arbitrator and is listed in various panels including the HKMAG and SCMA.

² See Clause 20 of TT Series 100 B/L wordings, Clause 26 of the Maersk B/L and Clause 10.3 of the MSC B/L.

³ See our earlier article, China’s New Maritime Code and Para 11 b on Spanish Law in our article, The Revolving Seat.

⁴ See Section 11 of the Australian Carriage of Goods by Sea Act 1991.

⁵ We had suggested something similar for Arbitration in our article, The Revolving Seat (see Para 18).

⁶ See again our above article, The Revolving Seat.

⁷ See our earlier article, The Star Antares – YAR 1994 or 2016?

⁸ See our earlier article, General Average – Differing Codes

⁹ See our earlier articles, Frustration and Force Majeure in Liner Contracts & Force Majeure Revisited.