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- This article will focus on the liability of a Seller who is listed as a Shipper in the Bill of Lading (“BL”). It is not uncommon for a Seller to be pursued by the Carrier for unpaid charges incurred in relation to the cargo, say, due to the Consignee failing to come forth and take delivery. More often, this comes as a shock to the Seller given that they may have received payment under their contract for sale of goods and subsequently transferred the negotiable Bill of Lading by endorsement (either to a named party or in blank). This being the case, the Seller generally presume that they do not bear any liability and instead believe that the Carrier only has a right to pursue the Consignee.
- Contract of Sale:
- Incoterms® or International Commercial terms help to prevent confusion by clarifying amongst others the obligations of both the Seller and Buyer with respect to transfer of risks, cargo, and costsii. The issue here is whether the Incoterms® provide for the liability exposures arising from an uncleared container at destination? Unfortunately, we have not sighted any specific provision in the Incoterms® to deal with this aspect and therefore while they are an useful aid, the Seller must also consider their liability exposures relating to the contract of carriage so as to avoid any exposures at a later date.
- The contract of sale of Goods would generally provide for the commonly used Incoterms® (the latest edition being Incoterms® 2020iii). If the shipment is effected in containers, it is recommended to use FCA or CPT/CIPiv. However, old habits die hard, and therefore it is not uncommon for containers shipments to still provide for FOB or CNF/CIF.
- The contract of sale of goods is between the Seller and Buyer. As the Carrier is not a party to this contract, they are not bound by their provisions. If the Buyer/Consignee is unresponsive (say they have gone bust) and do not come forth to take deliveryv, then the obvious target available to the Carriers would be the Shipper given that they are the original party to the contract of carriage.
- Contract of Carriage:
- Often the terms of the contract of carriage with the Carrier will be agreed by a Booking Party (who may be an intermediary such as a Freight Forwarder). After the goods are loaded on board a vessel, the Carrier will issue a Bill of Ladingvi to the Booking Party (“BP”) with details provided by them (BP). It is not uncommon for the BP to provide details of the Seller to be listed as the Shipper in the BL. If the details of the Shipper listed in the BL are provided with the express or implied concurrence of the Seller, then the Seller will be a party to the contract such that they would be bound by the BL terms and conditions. However, if the details of the Seller are submitted to the Carrier by the intermediary without their express or implied concurrence, then the Seller would be entitled to deny that any BL contract exists with themvii.
- If the contract of carriage provides for either English or Singapore law, then S 3(3) of both the UK COGSA 1992viii / Singapore Bill of Lading Act 1992ix provide that the original parties to the contract (i.e. the Shipper) remain liable irrespective of the transfer of title of cargo. Although we have no knowledge of the provisions in other jurisdictions and systems of law, we submit that the effect should be similar given that the Shipper is a party to the contract of carriage with the Carrier.
- If the Shipper is indeed the original party to the BL contract, they must consider whether there are entitled to any defences to the claims pursued by the Carrier. As the BL will be governed by the Hague Visby Rules (“HVR”) either by force of law or through contractual incorporation (Clause Paramount), we consider the relevant provisions:
- Art 1 b : Contract of carriage’ applies only to contracts of carriage covered by a bill of lading or any similar document of title, in so far as such document relates to the carriage of goods by sea, including any bill of lading or any similar document as aforesaid issued under or pursuant to a charter party from the moment at which such bill of lading or similar document of title regulates the relations between a carrier and a holder of the same.
- Art 1 e : Carriage of goods’ covers the period from the time when the goods are loaded on to the time they are discharged from the ship.
- Art III (8): Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to, or in connection with, goods arising from negligence, fault, or failure in the duties and obligations provided in this article or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect. A benefit of insurance in favour of the carrier or similar clause shall be deemed to be a clause relieving the carrier from liability
- Art IV (3): The shipper shall not be responsible for loss or damage sustained by the carrier or the ship arising or resulting from any cause without the act, fault or neglect of the shipper, his agents or his servants.
- Art IV (6): Goods of an inflammable, explosive or dangerous nature to the shipment whereof the carrier, master or agent of the carrier has not consented with knowledge of their nature and character, may at any time before discharge be landed at any place, or destroyed or rendered innocuous by the carrier without compensation and the shipper of such goods shall be liable for all damages and expenses directly or indirectly arising out of or resulting from such shipment. If any such goods shipped with such knowledge and consent shall become a danger to the ship or cargo, they may in like manner be landed at any place, or destroyed or rendered innocuous by the carrier without liability on the part of the carrier except to general average, if any.
- If the claim for charges is outside the period of ambit of the HVR i.e. prior to loading and after discharge, then the HVR should not apply (unless their application has been extended to apply throughout the period of the Carrier’s responsibility) and instead the other provisions in terms and conditions of the Bills of Lading should apply (which may indeed be ousted by compulsory provisions available in some jurisdictions such as the Indian Contract Act / Malaysian Contract Act)
- If the claim is for charges incurred during the carriage, say by shipment of undeclared dangerous goods, the Carrier would be entitled to pursue the Shipper on the basis of Art IV(6) of the HVR. While defences could be raised on the basis of Art IV(3) i.e. absence of negligence of the Shipper, in the case of dangerous cargo, this is not possible given that Art IV(6) rule is a bundle of “freestanding” rights and obligations dealing specifically with dangerous cargo.
- With respect to charges incurred for uncleared cargo say for unpaid container demurrage and detention and disposal charges, this accrues outside the period of the application of the HVR. This being the case, the provisions of the HVR should not apply. Instead, the Carrier’s entitlement to recovery would be on the provisions of the BL contract and / or common law. The only bar to recovery would perhaps be when the contract becomes commercially frustrated and in which case, accrual of further container detention / demurrage would cease from this momentx.
- Possible Solutions:
- If an Exporter wishes to avoid such exposures, they should consider providing terms in the contract of sale avoiding the necessity of their being listed as the Shipper in the Bill of Lading (say Incoterms FCA).
- If the Exporter wishes to retain control over the goods till they have been paid, then being listed as Shipper and retaining possession of the BL would ensure that the payment risks are reduced. However, they do come with attendant exposures given that in case of unpaid charges by the Consignee, the Carrier would be entitled to pursue the Shipper for recovery. The only way to perhaps cater for this exposure is
- conduct a background search of the Buyer / counter party to ensure that they would be able to satisfy any liabilities arising under the contract of carriage / sale.
- continue to maintain visibility on the shipment till the cargo is clearedxi.
ii. See https://www.trade.gov/know-your-incoterms
iv. Revisiting the correct usage of the terms and which can be viewed at https://www.shippingsolutions.com/blog/incoterms-2010-rules-revisiting-the-correct-application-of-the-delivery-terms
v. See S 3(1) of the UK COGSA 1992 / Singapore Bills of Lading Act 1992.
vi. See Art III (3) of The Hague / Hague Visby Rules and which state “After receiving the goods into his charge the carrier or the master or agent of the carrier shall, on demand of the shipper, issue to the shipper a bill of lading …”
vii. See article by Ince and Co on MVV Environment Devonport Ltd v. NTO Shipping GmbH & Co KG & Ors (MV Nortrader)  EWHC 1371 (Comm)
x. Please see our earlier article on Validity of Detention & Demurrage Clauses
xi. Almost all major shipping lines provide container tracking and therefore a Shipper should track the shipment till clearance.
Very nicely written an informative article – Shippers liability issues and suggested solutions.
Generous of Jagan to have promoted Shipping & Freight Resource, an equally good website just like yours. This liability of the shipper is a complex one with large stakes involved. One issue is whether (a) the B/L introduces terms which bind the Shipper, (b) in the case of an FOB Shipment, is it equally to bind the Shipper,
(c) slightly more complicated is whether the consignor is the same as the Shipper. Take the case of FOB shipments. Under the Hague Visby Rules Article 1(a) the definition of carrier “includes the owner of the charterer who enters into a contract of carriage with the shipper”. This Shipper can actually be therefore referring to the receiver of the FOB cargo.
For defending Container Detention, there are further arguments to say (a) the Container Demurrage type provisions exceed the minimum standards applicable under the Carriage of Goods by Sea Acts / Hague Visby Rules, and are therefore unenforceable. (b) these are invalid Liquidated damages since the realistic loss suffered by the carrier is only the market rent of the container which has far less. (c) if that container company had idle containers at that location, those could have been simply deployed and therefore there was no financial loss at all suffered by the carrier due to his not being able to utilise the containers that remained under detention.
Thank you for your kind words and also for commenting on our articles.
Re. Container detention, I believe that some common law jurisdiction have allowed their validity. However, with respect to India and Malaysia, given that these jurisdictions have legislation in place for contract i.e. Indian Contract Act and Malaysian Contract Act, the application of the container detention clause above the actual loss is in doubt. However, if the law of the contract is English or Singapore law, we then submit that it should be possible for the Carrier to recover the Container detention till the contract becomes commercially frustrated.