Liner Container Contracts – Contractual Issues

Our below article focusses on both the formation of a contract and the limitation of liability available for Delay related claims with respect to Container Shipments.

1. When is a contract formed?
   1. It is uncontroversial that for chartering contracts under English Law, the contract is formedⁱ when parties (Owners & Charterers) agree on all aspects of the contract with no subjectsⁱⁱ remaining to be lifted. In Liner contracts, parties are at unequal bargaining power and the terms of the contract are invariably based on a boilerplateⁱⁱⁱ Bill of Lading (“BL”) wordings issued by the Carrier. The BL is only issued after the shipment is effected and therefore, they are only considered as evidence of a contract of carriage. This simply means that if there are any agreements between the Shipper and the Carrier made at the time of the booking, the terms of the BL can be displaced^iv.
   2. The booking process for container shipments is generally as below:
      1. Carrier provides a freight quote.
      2. If this meets with the approval of the Cargo interests, they will issue a Booking Order (“BO”) to the Carrier.
      3. The Carrier will subsequently issue a Booking Confirmation (“BC”) providing details of the intended vessel and the location / terminal it will be berthing together with details where the empty container (Equipment Release Order “ERO”) is to be picked up for loading the cargo.
      4. The cargo interests would pick up the container and transport it to their warehouse for loading the cargo and subsequently transport and gate into to the designated bay / terminal as advised by the Carrier.
      5. Depending on the loading space available, the cargo will be loaded and subsequently, the vessel will sail on its intended route.
      6. The Carrier will then issue its BL to the Shipper and with the date of BL generally being the date of the vessel sailing out from the port.
   3. We submit that the freight quotation provided by the Carrier is akin to an Invitation to Treat and the BO is an Offer made by the Cargo interests to the Carrier and if accepted (this is where the contract is formed), the Carrier issues a BC together with the ERO. In this regard, we chanced on a video^v which discusses the difference between an Offer and an Invitation to Treat.
   4. If the Carrier and Cargo interests sign an annual contract, then the terms of the contract would be governed by the annual contract and which would provide various provisions including the volumes to be loaded. Our comments on 1b would not apply as there are specific provisions which have been agreed by the parties prior to the booking.

2. Delay^vi:
   1. One of the duties of a Carrier is to progress the voyage with Due Despatch and which simply means that the Carrier must proceed with the voyage as quickly as reasonably possible. It is possible for Carriers to shift this duty by incorporating clauses to reduce this duty subject to the application of mandatory laws, if any.
   2. Given the unpredictable nature of weather and potential risks during voyage, Delays do occur. This being the case, if the cargo shipped is time sensitive, then Cargo interests must seek guaranteed timelines (Ocean Carriers will never provide any guaranteed timelines given that this will breach their liability cover) or ship by other modes of transport which provide for quicker transit time.
   3. The Hague & Hague Visby Rules do not have any provisions for delay^vii. Hence, Carriers incorporate provisions in their BLs to deal with delay related claims. The common clauses are as below
      1. … the Company is nevertheless found liable for delay, its liability shall in no circumstances exceed the amount of the Company’s Charges in respect of the relevant Services^viii.
      2. …, the Carrier shall in no circumstances be liable for direct, indirect or consequential loss or damage caused by delay or any other cause whatsoever and howsoever caused. Without prejudice to the foregoing, if the Carrier is found liable for delay, liability shall be limited to the freight applicable to the relevant stage of the transport^ix.
   4. If there is payment of positive freight and should the Carrier be found liable for Delay related claims, the Carrier would be entitled to limit their liability to the value of freight which they had earned for that specific movement.
   5. There are some trade routes in which due to weak demand and surplus inventory, Carriers provide “Zero” or “Negative” Freight so that their containers are moved to a location of demand. We had earlier written an article arguing that “Zero” or “Negative” freight does not mean that there is no consideration^x and therefore we will not touch on this. The issue is what is the amount which the Carrier should tender to the Cargo interests should they face a Delay Claim? Unfortunately, we have not been able to sight any case laws on “Delay” provisions and therefore we submit as below:
      1. If the provisions of the “Delay” clause provide for Company’s Charges, then this would include landside and documentation charges (both at load and discharge port) charged by the Carrier. This being the case, the total charges including the freight would be the amount which the Carrier would be entitled to limit liability to. If the freight provided is negative (i.e. the Carrier makes a payment to the Shipper) and which is more than charges charged by the Carrier, then it would be nonsensical to seek payment of charges from the Cargo interests. Instead, we submit that the Carrier would be entitled to limit liability with no further payment to be made to the Cargo interests.
      2. If the provisions of the “Delay” clause provide for freight, then this would not arguably include the other charges collected by the Carrier for both Load and Destination Terminal Handling Charges (which in turn the Carrier may be paying to the Terminals), documentation charges etc. In this case, as mentioned in 2di above, the Carrier’s liability should arguably be nil.

^i. See article on Formation of the contract: What happens when the fixture is on ‘subject to …’? published at Shipowners website.
^ii. See article on ‘Charterparty “Subjects” – Latest Case Law’  published in North of England’s website Charterparty “Subjects” – Latest Case Law.
^iii. See article on “Boilerplate Clauses in English Law Contracts” published by Clifford Chance.
^iv. See The Ardennes
^v.See video by Lavocat Law – Singapore Law – offer versus an invitation to treat
^vi.See our earlier article, Delays – Container Shipments.
^{vii. Both the Hamburg Rules and the Rotterdam Rules have provisions related to Delay related claims.
viii.} Maersk Bills of Lading Standard Terms and Conditions, Clause 40d.
^ix. TT Series 100 Bills of Lading Wordings, Clause 6(3)(D).
^x. See our earlier article, All about Freight.