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Edition: 1.

1 January 2000

Distance Education Course SB–205.5


Carriage of Goods by Sea Law

Unit 1 Maritime trade &


the international
sales contract
International maritime trade requires the use of standard forms of
sales contracts in which it is clear what the responsibilities of the
various parties involved are. Buyers and sellers who operate at great
distances from each other need to have confidence that goods will
arrive as ordered and be paid for promptly.
The three lessons in this unit discuss:
• maritime trade
• international sales contracts
• international commercial trading terms.

Module C: Certificate in Shipping Business


Diploma in Shipping Logistics—Jamaica Maritime Institute 1−1
Unit 1: Maritime trade & sales contracts Carriage of Goods by Sea Law

Unit 1 ...........Activities and expectations


Agenda
To complete this unit, you will:
• Read and study the text in this unit.
• Apply the information by performing the Activities
• Test yourself by doing the Practice Exercises and checking your
answers.

Resources
There is no textbook for this course. All the information you require
is in this Study Guide. In addition, your Student Manual lists some
books that you may wish to read to expand your knowledge.

Learning outcomes
When you have completed this unit you will be able to:
• Discuss the broad historical changes in the way maritime trading
is done and the issues raised by these changes.
• Explain what is meant by documentary sale and credit.
• Describe how letters of credit are issued.
• List the documents involved in documentary sale and credit.
• Differentiate among the various international commercial-
trading terms (INCOTERMS).

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1−2 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 1: Maritime trade & sales contracts

Lesson 1...... Maritime trade


From time immemorial, people have found that trading with each
other improves their standard of living. When two parties conclude a
trading deal, each regards him- or herself as being better off as a
result of the deal. If this were not so, then they wouldn’t trade.
Trading along rivers and across lakes, and later, across seas and
oceans, is an activity that goes back to the earliest of times. At first,
transportation was by rafts and simple wooden craft like canoes, and
later by complex ships. Today, developing countries depend heavily
on imported goods, because many desirable commodities are not yet
manufactured at home. In return, many developing countries have
historically been sources of raw material and agricultural produce for
countries with more developed economies. Amongst most
developed countries, high levels of both imports and exports are
regarded as signs of a healthy economy.
In the early days of modern maritime trading, the master of the
vessel owned both the ship and the cargo. The shipowner would
transport the goods to the buyer’s location (a market), and sell them
upon arrival. The shipowner only got paid at the end of the journey,
and then only if the goods arrived safely and someone was found at
the port of destination who was willing to buy them.
With increased trade came specialization, and the functions of the
carrier became separated from those of the trading partners. Sale
upon arrival was largely abandoned in favour of a system whereby
the goods were sold in advance of their being shipped.
Responsibility for securing transportation for the goods could then
rest either with the seller or the buyer depending on the terms of the
contract of sale. Most often it was the buyer who became
responsible for transportation, but in either case, carriers became free
to offer their services to whomever needed them, without themselves
having any direct financial interest in the cargo.

Convenience and responsibilities in modern trade


In earlier days, to make contact with sellers overseas for the delivery
of needed goods, buyers spent much time and money travelling
between countries. In modern international trade, most
communications are carried out electronically, and even credit and
payments are arranged in this way. This has facilitated long-distance
trade arrangements that allow the buyer and seller to remain at home
while transacting business. Sale of goods by the carrier on arrival at
the port of destination has been replaced by the sale of goods by the
seller on delivery to the carrier, who transports them to the buyer at

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Unit 1: Maritime trade & sales contracts Carriage of Goods by Sea Law

the port of destination. Systems must be in place to ensure that the


various parties involved can be held to account.

Clarifying responsibilities of buyer, seller, and carrier


Issues arising from a system of sale on delivery include:
• how can the seller be certain that the buyer is able to pay once
the goods have been shipped
• how can the risk of non-payment be minimized
• how can the buyer trust the seller
• how can delivery on time be ensured
• if the seller is supplying the buyer with goods that the seller has
bought from a subcontractor, how can the seller prevent the
buyer from discovering the source and contacting the supplier
directly
• before payment, how can the buyer check that the goods are
exactly those ordered
• should the seller be prepared to deliver the goods before
payment is received?

Activity
1. Find out what are the major cargo types shipped into and out of
your country. Discover where they originate or where they are
destined.
2. Talk to a carrier and find out how delivery is usually made and
what the credit arrangements are for paying transportation fees.
3. Talk to an importer and to an exporter and find out how credit
arrangements are usually handled in their companies.

Module C: Certificate in Shipping Business (Course SB-205.5)


1−4 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 1: Maritime trade & sales contracts

Practice Exercise for Lesson 1


Test your understanding of Lesson 1 by answering these questions.
Check your answers and read again any parts you found difficult.
The answer key is at the back of this unit.
1. Which of the following best describes how most modern trade
takes place?
a. goods are sold on arrival—that is, they are taken to a port of
destination and then sold to the buyer
b. goods are sold and paid for before transportation
c. goods are sold subject to delivery to the buyer
d. the seller gets paid only if the goods arrive safely

2. When is the seller’s job finished?


a. on productions of the goods and arranging the sale
b. on delivery of the goods to the carrier
c. on delivery of the goods to the port of destination
d. on receipt of the goods by the buyer

3. List at least six concerns about the responsibilities of buyer,


seller, and carrier that arise in modern cargo trade.
a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________
e. _________________________________
f. _________________________________

Module C: Certificate in Shipping Business (Course SB-205.5)


Diploma in Shipping Logistics—Jamaica Maritime Institute 1−5
Unit 1: Maritime trade & sales contracts Carriage of Goods by Sea Law

Lesson 2 ......International sales contracts


Many possible problems may arise when seller, carrier, and buyer
are different entities operating at a distance, and where the point of
sale might be either the port of loading or the port of destination.
Those involved in international trade have developed a method
known as documentary sale to address these problems. The system
of documentary credit was also developed to facilitate reliable
payment without relying upon cash on delivery.

Documentary sale
In a documentary sale, the transaction is effected by documents,
without the need for face-to-face interaction. The international sales
contract that has developed is a contract for the sale of goods or
services. It is made between a buyer and seller who are usually in
two separate locations. The contract details the terms and conditions
of the sale.

CIF and FOB sales


A documentary sale can be implemented in many ways. Two of the
best-known sale types are the CIF and FOB sales contract:
• CIF means cost, insurance, and freight. The price of the goods
includes the cost of the goods, plus the cost of insurance, plus the
cost of transportation, arranged by the seller, to a named
destination
• FOB means free on board. The price of the goods comprises the
cost of the goods, plus delivery to a named shipping port and
transfer to a named vessel designated by the buyer.

In both cases, once across the rail of the ship at the shipping port, the
goods become the buyers’. The insurance supplied by the seller in a
CIF contract is on behalf of the buyer, and it would be the buyer who
would make a claim in the event of damage at sea or during
discharge.
These and other sale types will be detailed in Lesson 3 of this unit.
Cargo insurance is more thoroughly discussed in the course Marine
Insurance (DSL course SB–305.2).

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1−6 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 1: Maritime trade & sales contracts

Documentary credit
Payment in a documentary sale arrangement may be effected in two
ways:
• payment and sale on receipt of goods
• payment and sale by way of documentary credit.

Documentary credit is the internationally accepted method of


organizing payment for shipped goods.

The letter of credit


A documentary credit transaction begins when the seller requests the
buyer to establish a credit in the seller’s favour for the purpose of
paying the agreed price. The buyer accordingly opens what is
termed a letter of credit with his or her bank. The letter of credit is
normally irrevocable, that is, once open, the buyer cannot simply
close it for no good reason. It is as though the money had already
left the account.
By issuing a letter of credit, the buyer’s bank agrees to pay the seller
once the seller fulfils the buyer’s stipulations. These stipulations
would normally include a requirement that the goods shipped
conform to specifications for example. The buyer’s bank would
accordingly require documentary evidence that the goods do indeed
conform to specifications before making a payment.
There are usually two banks involved in a documentary credit
arrangement, the buyer’s bank and either the seller’s bank or a bank
in the seller’s country. The bank of the buyer, the one that opens the
letter of credit, is called the issuing bank. The seller’s designated
bank may simply be an advising bank or it may have the more
important role of being the confirming bank.

Advising the credit


If the seller’s designated bank is just “advising the credit”, it simply
receives the payment on behalf of the seller and advises the seller
that it has been received. Such a bank is under no commitment to
make payment to the seller, even though it may be nominated in the
credit as the bank authorized to accept drafts, pay the seller, and
otherwise negotiate the transaction. In other words, as far as the
buyer is concerned, payment to the seller’s designated bank is all that
is required. Once this has been done, transactions between that bank
and the seller are of no further concern to the buyer.

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Diploma in Shipping Logistics—Jamaica Maritime Institute 1−7
Unit 1: Maritime trade & sales contracts Carriage of Goods by Sea Law

Confirming the credit


In cases where the seller does not wish to depend on the assurance of
a foreign bank for payment, the buyer’s bank would arrange for
either the seller’s bank or another bank in the seller’s country to
confirm the letter of credit. On presentation of all of the required
documents—the bill of lading, invoice, insurance certificate, and so
on—to the seller’s designated bank, the seller receives the purchase
price. Once the seller is paid, the seller’s designated bank forwards
the documents to the buyer’s bank and is reimbursed. The buyer’s
bank will in turn seek reimbursement from the buyer, either
immediately or, if credit has been extended, at the expiration of the
credit period. The documents remain with the buyer’s bank until the
buyer pays the bank.
When the seller’s designated bank is “confirming the credit”, it must
accept payment, pay the seller, and otherwise negotiate without
recourse to the seller provided all the documents are in order and the
credit requirements are met.
The obvious advantages of this kind of sale are that:
• the seller is certain of being paid the agreed price once the
necessary documents are handed over to its bank
• the buyer is certain that the seller will be paid only after the
goods are shipped.

The documents
The documents involved in documentary sale and credit are:
• bill of lading
• commercial invoice
• certificate of origin
• certificate of inspection or surveyor’s certificate
• insurance certificate.

Bill of lading
A bill of lading is a document evidencing the loading of goods on a
ship. It is also legal evidence of the existence of a contract of
carriage by sea. In the contract of carriage, the carrier commits him
or herself to carry specified goods from one point to another for a
certain sum of money.

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1−8 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 1: Maritime trade & sales contracts

Commercial invoice
The commercial invoice is the accounting document sent to the buyer
by the seller detailing the payments due.

Certificate of origin
The certificate of origin is a signed statement providing evidence of
the origin of the goods. This document may allow for economic
benefits or penalties to goods from certain regions.

Certificate of inspection or surveyor’s certificate


The certificate of inspection or surveyor’s certificate may be issued
by a classification society certifying that the ship and its equipment
complies with the customer’s stipulations.

Insurance certificate
The insurance certificate is a document proving that the goods have
been insured against the risks specified in the letter of credit.

Activity
Try to obtain and study copies of the following documents involved
in documentary sale and credit:
• bill of lading
• commercial invoice
• certificate of origin
• certificate of inspection or surveyor’s certificate
• insurance certificate.

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Diploma in Shipping Logistics—Jamaica Maritime Institute 1−9
Unit 1: Maritime trade & sales contracts Carriage of Goods by Sea Law

Practice Exercise for Lesson 2


Test your understanding of Lesson 2 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. What were the purposes of developing a documentary sale
system?
_____________________________________________
_____________________________________________
_____________________________________________

2. What is an international sales contract?


It is made between ______________________________
_____________________________________________
It is a contract for sale of _________________________
_____________________________________________
The contract details _____________________________
_____________________________________________

3. What is a CIF sale?


a. the price of the goods includes the cost of the goods,
insurance, and transportation
b. the price of goods, insurance, and freight are all separate
c. the price (cost) of the goods includes the freight
d. the cost of freight is handled separately

4. By what two ways may payments be made in a documentary


sale?
_____________________________________________
_____________________________________________

5. Which bank(s) is/are usually involved in a letter of credit?


a. the buyer’s bank only (the issuing bank)
b. the buyer’s bank and the seller’s bank
c. the advising bank and the confirming bank

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Carriage of Goods by Sea Law Unit 1: Maritime trade & sales contracts

6. What does a bank agree to do when it issues a letter of credit?


_____________________________________________
_____________________________________________

7. What does the confirming bank do once the seller is paid?


a. nothing, everything is completed at this point
b. contact the buyer directly to be reimbursed
c. contact the buyer’s bank and ask them to get payment from
the buyer for the seller’s bank
d. contact the buyer’s bank for direct reimbursement

8. What is the advantage of a documentary sale arrangement for the


buyer?
_____________________________________________
_____________________________________________

9. Which type of bank is under no obligation to make payments in a


documentary sale?
a. issuing bank
b. advising bank
c. confirming bank

10. What five documents are involved in a documentary sale


involving documentary credit?
a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________
e. _________________________________

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Diploma in Shipping Logistics—Jamaica Maritime Institute 1−11
Unit 1: Maritime trade & sales contracts Carriage of Goods by Sea Law

Lesson 3 ......International commercial


trading terms (INCOTERMS)
There are various different types of international sales contracts.
They vary according to the specific terms of the contract and the
roles and responsibilities of the buyer vis-à-vis the seller. Because
national law and custom varies, some internationally recognized
regulations and terminology are desirable and useful.

International and national regulation


The terms of the contract would also to some extent depend on the
governing national laws. A contract for sale of goods across
international boundaries would be subject to the normal laws of
contract in the country of jurisdiction. The country of jurisdiction
could be any of the following:
• the country in which the contract was made
• the country where the goods were manufactured
• the country where the goods were shipped.

Development of INCOTERMS
The International Chamber of Commerce (ICC) set out in 1953 to
overcome the problems of conflicting national laws and
interpretations by establishing a standard set of trade terms and
definitions that offer “neutral” rules and practices. They developed a
set of international commercial trading terms, known as INCOTERMS.
When one party or the other hesitates to subject itself to the national
laws and procedures of the other, a reference to INCOTERMS is the
answer. Both parties can then be sure that their legal relations are
grounded in a fair and reasonable international standard based on the
following principles:
• the liabilities and responsibilities of parties could vary in
accordance with various laws
• the terms are drawn from the most common practices of
international trade so that they could be adopted by the greatest
possible number of traders
• where there are major differences in current practice,
INCOTERMS provide for the minimum liabilities on the part of the
seller, leaving it to the parties to provide for greater liabilities in
their contracts if they so desire

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• references to the customs of a particular trade or port are kept to


a minimum, although it may be impossible to avoid them
completely.

INCOTERMS do not provide rules for the interpretation of all trade


terms used in international commerce but concentrate on the most
important ones.
Historically, most of the frequently used trading terms were referred
to by three-letter abbreviations such as CIF and FOB. However,
with the advent of containerization and multimodal transportation it
became necessary to have terms that recognised more extended
boundaries. Working together with the United Nations, the ICC has
now given a standard name and abbreviation to 13 different terms,
published in ICC Publication No. 460, “INCOTERMS 1990.”

The INCOTERMS and their abbreviations


The standard commercial trading terms and internationally
recognized abbreviations are as follows:

C&F—cost and freight (also seen as CFR)


In C&F sales, the seller must pay the cost of the goods and the
freight charges necessary to bring the goods to the named
destination. The risk of loss of or damage to the goods, as well as of
any unforeseen cost increases, is transferred from the seller to the
buyer when the goods pass the ship’s rail in the port of shipment.
C&F is the same as CIF (cost, insurance, and freight) except that
once the goods are aboard a vessel, all insurance arrangements in a
C&F contract are the responsibility of the buyer.

CIF—cost, insurance, and freight


In a CIF sale, it is the seller’s obligation to procure the goods as
described in the contract, select a ship to carry the goods to the
specified destination, and arrange for appropriate insurance cover.
The contract may leave the selection of the ship and the insurance
entirely to the seller, or it may specify the type of ship, for example,
a liner ship, or the type of insurance cover, for example, warehouse-
to-warehouse coverage.
Example:
A sale may be described as “CIF Port of Kingston”. This would
mean that the price includes the cost of the goods, the freight to
the Port of Kingston, and the insurance during transportation to
that port. In the invoice, the three items may be indicated
separately or as a lump sum.

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Unit 1: Maritime trade & sales contracts Carriage of Goods by Sea Law

Once the insurance is arranged and the goods are loaded on board the
ship, the seller possesses three documents: an invoice, a marine
insurance policy, and the bill of lading. There may also be other
certificates such as weights and measures or survey reports,
depending on the requirements of the buyer. These documents prove
that the seller has fulfilled his or her obligations. By presenting the
documents to the appropriate bank, the seller requests that the buyer
fulfils his or her the obligation to pay the agreed price.
The risk in the goods passes to the buyer when the goods are loaded
on board. Any loss or damage to the goods thereafter is borne by the
buyer who must make any claims against the insurers.

CIP—freight, carriage, and insurance paid to…


In CIP sales, the seller pays the freight for the carriage of the goods
to the named destination and must procure insurance against the risk
of loss of or damage to the goods during the carriage. The seller
contracts with an insurer and pays the insurance premium. A CIP
sale is very similar to a CIF sale; the difference is that the “ship’s-
rail” transfer point of ownership has been made more general.

CPT—freight or carriage paid to…


In CPT sales, the seller pays the freight for the carriage of the goods
to the named destination. The risk of loss of or damage to the goods,
as well as of any cost increases, is transferred from the seller to the
buyer when the goods have been delivered into the custody of the
first carrier. A CPT sale is similar to a C&F (cost and freight) sale;
the difference is that the “ship’s-rail” transfer point of ownership has
been made more general and the term can consequently be used for
all modes of transport such as multimodal and ro/ro operations. The
document issued by the person contracting to carry the goods to the
named destination may be used by the seller, who must furnish a bill
of lading, waybill, or carrier’s receipt in order to be paid.

DAF—delivered at frontier
Delivered at frontier, DAF, means that the seller’s obligations are
fulfilled when the goods have arrived at the destination country’s
frontier, but before their customs border. The term is primarily
intended to be used when goods are to be carried by rail or road, but
it may be used for any mode of transport.

DDP—delivered duty paid


The term delivered duty paid (DDP) denotes the seller’s maximum
possible obligation when followed by words naming the buyer’s

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Carriage of Goods by Sea Law Unit 1: Maritime trade & sales contracts

premises. The term may be used irrespective of the mode of


transport. The seller is responsible for delivery costs, insurance, and
any duties payable at the destination or en route.
If the parties wish that the seller should clear the goods for import
but that some of the costs payable upon the import of the goods
should be excluded, such as value added tax, this should be made
clear by adding words to this effect. For example “DDP exclusive of
VAT and/or taxes”.

DDU—delivered duty unpaid


In DDU sales, the seller delivers the goods to a named place but with
customs duties unpaid. The seller pays all transportation and
insurance costs to this point, except the duties.

DEQ—delivery ex quay
The term delivery ex quay (DEQ) means that the seller makes the
goods available to the buyer on the quay (wharf) at the destination
port named in the sales contract. The seller has to bear the full cost
and risk involved in bringing the goods there. Two types of DEQ
contracts are in use:
• ex quay (duty paid) in which the seller is liable to clear the goods
for import
• ex quay (duties on buyer’s account) in which the buyer is liable
to clear the goods for import.

Parties are recommended always to use the fully descriptive terms, or


else there may be uncertainty as to who is responsible for clearing
the goods for import.

DES—delivery ex ship
Delivery ex ship (DES) means that the seller will make the goods
available to the buyer on board the ship at the destination named in
the sales contract. The seller has to bear the full cost and risk
involved in bringing the goods there.

EXW—ex works
Ex works (EXW) means that the seller’s only responsibility is to
make the goods available at the seller’s premises (office or factory).
In particular, the seller is not responsible for loading the goods in the
vehicle provided by the buyer, unless otherwise agreed. The buyer
bears the full cost and risk involved in bringing the goods from there

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to the desired destination. This term represents the minimum


obligation for the seller.

FAS—free alongside ship


FAS is the term when the seller’s obligations are fulfilled when the
goods have been placed alongside the ship on the quay or in lighters.
This means that the buyer has to bear all costs and risks of loss of or
damage to the goods during loading and transportation. Note that,
unlike FOB, an FAS sale requires the buyer to clear the goods for
export.

FCA—free carrier (named point)


FCA terms have been designed to meet the broader requirements of
modern transport, such as multimodal container transport or roll-on-
roll-off (ro/ro) traffic. It is based on the same principle as FOB. The
difference is that the seller’s obligations are fulfilled when the goods
are delivered into the custody of the carrier at the named point. If no
precise point can be specified at the time of the contract of sale, the
parties refer to a generality such as “the place where the carrier takes
charge of the goods”. The risk of cargo loss or damage is transferred
from seller to buyer at that point rather than at the ship’s rail.

FOB—free on board
In an FOB sale, the seller’s obligation is to procure the goods and
deliver them on board the ship nominated by the buyer. It is the
buyer’s obligation to arrange for the carriage of the goods to their
destination and insure them. The buyer must nominate the port of
loading, unless it is already stipulated in the contract, and the name
of the ship, and must inform the seller when the ship is likely to
arrive at the loading port. Once the ship arrives for loading, the
seller must deliver the goods on board at his/her own expense.
Once the goods are loaded on board, a bill of lading is issued to the
seller. Presentation to the relevant bank of the bill of lading and any
other documents required according to the letter of credit entitles the
seller to receive the sale price of the goods.
The risk in the goods passes to the buyer when the goods are loaded
on board. The buyer bears the risk of loss/damage to the goods,
subject to the insurance cover, and pays the freight and any other
charges levied by the ship owner.

FOB airport
FOB airport is based on the same principle as FOB. The seller’s
obligation is fulfilled by delivering the goods to the air carrier at the

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Carriage of Goods by Sea Law Unit 1: Maritime trade & sales contracts

airport of departure. The risk of loss of or damage to the goods is


transferred from the seller to the buyer at this point.

FOR/FOT—free on rail; free on truck


These terms are similar to FOB, but refer to rail and truck rather than
ship transportation. The term “truck” may also be taken to refer to
railway wagons. These terms are used only when goods are to be
carried by rail.

Activity
Ask some local businesses or your own place of work to show you
some sales or purchase contracts that involve transportation and
identify any INCOTERMS that are used. Try to find out whether the
same terms are always used by particular businesses, and why they
choose to use those term(s). Are the businesses in question sellers or
buyers?

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Practice Exercise for Lesson 3


Test your understanding of Lesson 3 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. It is the seller’s obligation is to procure the goods and deliver
them on board the ship nominated by the buyer. It is the buyer’s
obligation to arrange for the carriage of the goods to their
destination and insure them. Which INCOTERM does this
describe?
_____________________________________________

2. The seller pays the freight for multimodal carriage of goods to a


named destination. The seller must pay for insurance against the
risk of loss of or damage to the goods during the carriage.
Which INCOTERM does this describe?
_____________________________________________

3. It is the seller’s obligation to procure the goods as described in


the contract, select a ship to carry the goods to the specified
destination, and arrange for appropriate insurance cover. Which
INCOTERM does this describe?

_____________________________________________

4. Which INCOTERM represents the minimum obligation of the


seller?
_____________________________________________

5. Which INCOTERM represents the maximum obligation of the


seller?
_____________________________________________

6. What is an FCA sale?


_____________________________________________
_____________________________________________
_____________________________________________

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Carriage of Goods by Sea Law Unit 1: Maritime trade & sales contracts

Answer keys
Lesson 1
1. c. goods are sold subject to delivery to the buyer

2. b. on delivery of the goods to the carrier

3. Any six of the following:


– how can the seller be certain that the buyer is able to pay
once the goods have been shipped
– how can the risk of non-payment be minimized
– how can the buyer trust the seller
– how can delivery on time be ensured
– if the seller is supplying the buyer with goods that the
seller has bought from a subcontractor, how can the
seller prevent the buyer from discovering the source and
contacting the supplier directly
– before payment, how can the buyer check that the goods
are exactly those ordered
– should the seller be prepared to deliver the goods before
payment is received.

Lesson 2
1. The system of documentary sale was developed to avoid the
problems that may arise when seller, carrier, and buyer are
different entities operating at a distance.

2. It is made between the buyer and seller who are usually at


separate locations.
It is a contract for sale of goods or services.
The contract details the terms and conditions of the sale.

3. a. the price of the goods includes the cost of the goods,


insurance, and transportation

4. − payment and sale on receipt of goods


− payment and sale by documentary credit

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5. b. the buyer’s bank and the seller’s bank

6. When issuing a letter of credit, the bank agrees to pay the seller
once the seller fulfils the buyer’s stipulations.

7. d. contact the buyer’s bank for direct reimbursement

8. The buyer is assured that payment will be made to the seller only
after the goods are shipped.

9. b. advising bank

10. The five documents involved are:


– bill of lading
– commercial invoice
– certificate of origin
– certificate of inspection (surveyor’s certificate)
– insurance certificate.

Lesson 3
1. FOB

2. CIP

3. CIF

4. EXW

5. DDP

6. In FCA sales, the seller’s obligations are fulfilled when the


goods are delivered into the custody of the carrier at a named
point. If no precise point can be specified at the time of the
contract of sale, the parties refer to a generality such as “the
place where the carrier takes charge of the goods”. The risk of
cargo loss or damage is transferred from seller to buyer at that
point.

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1−20 Diploma in Shipping Logistics—Jamaica Maritime Institute
Edition: 1.1 January 2000

Distance Education Course SB–205.5


Carriage of Goods by Sea Law

Unit 2 Maritime trade &


the contract of
carriage
The transport of goods by sea involves many people and businesses
that are linked by means of contractual arrangements of various
types. The three lessons in this unit discuss:
• transport of goods by sea
• contracts of carriage
• the maritime transportation chain.

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Unit 2: Maritime trade & contract of carriage Carriage of Goods by Sea Law

Unit 2 ...........Activities and expectations


Agenda
To complete this unit, you will:
• Read and study the text in this unit.
• Apply the information by performing the Activities
• Test yourself by doing the Practice Exercises and checking your
answers.

Resources
There is no textbook for this course. All the information you require
is in this Study Guide. In addition, your Student Manual lists some
books that you may wish to read to expand your knowledge.

Learning outcomes
When you have completed this unit you will be able to:
• Distinguish between private and common carriers.
• Distinguish between liner services and tramp services.
• Explain what is meant by closed and open liner conferences.
• Identify various shippers’ associations.
• Differentiate among the various categories of cargo (break-bulk,
bulk, and containerized).
• Describe CY and CFS loading.
• Explain the use of EIRs in container shipping
• Discuss contracts of carriage (including the use of bills of lading
and charter parties).
• Differentiate among time, voyage, and demise charter parties.
• Identify the people and businesses involved in the maritime
transport chain.

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2−2 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 2: Maritime trade & contract of carriage

Lesson 1...... Transport of goods by sea


In an international sales transaction, once goods have left the seller,
security over the goods may be a problem. It needs to be clear who
has responsibility for the safety of the cargo while it is in transit. To
solve this, a legal arrangement has been instituted between the
shipper of goods and the shipowner who carries those goods. This
arrangement is quite separate from the agreement between the buyer
and the seller of the goods.

Private and common carriers


The shipowner is known as the carrier in this relationship. The
carrier may be either a private or a common carrier:
• a private carrier has the right to choose whether or not to accept
offers for carriage, whether the vessel is full or empty
• a common carrier offers to carry the goods at a reasonable rate
for anybody, provided there is space on the vessel.

Chartered vessels and tramp shipping services are examples of


private carriers. Liner shipping services are examples of common
carriers. They provide a regular service on a particular advertised
route at advertised freight rates.
The law has distinguished between these two types of carrier.
Ingate vs. Christie
In the case of Ingate v. Christie (1850), because the defendant
had the word “lighterman” posted over the door of his office, it
was proved that he carried anyone who engaged his vessel.
The court held that he was a common carrier.
The common carrier may lawfully refuse offers to carry goods only
under the following conditions:
• the carrier does not profess to takethose types of cargo
• the goods cannot be conveniently carried in the vessel
• the destination is off the customary route of the vessel
• the time is unreasonable.

Liner services
Liner shipping services may be provided by conference lines and
non-conference lines. These were also discussed in the course

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Commercial Shipping (DSL course SB-101.3). They provide similar


services and enter into similar contracts of carriage with shippers.

Conference lines
Conference lines are carriers who have grouped themselves into
organizations called liner conferences. A liner conference is a group
of two or more carriers that provides international liner services for
cargo within specified geographical limits. They have an agreement
to operate under uniform or common freight rates. Although
conferences are not direct participants in the transportation chain,
they have a great deal of influence on the way it operates.

Closed and open conferences


There are two types of conferences: closed and open. In a closed
conference, a shipping line can be admitted as a member only if all
the other members agree—rather like a private club. The basis for
admission is normally the strength of the applicant. Open
conferences exist mainly in the trade to and from the United States of
America because of US anti-trust laws. These stipulate that any line
seeking membership must be admitted, provided they fulfil the
criteria regarding tonnage, economy, and service plans.

Advantages and disadvantages of conferences


The main advantages of the conference system are:
• stability of freight rates
• regularity of services.

The main disadvantages are:


• rates are usually high
• rates do not fluctuate according to supply and demand
• rules and procedures are inflexible
• consideration of shippers’ requests for rate reductions involves
lengthy procedures.

International regulation of conferences


Many came to believe that conferences had too much power and
control over carriage rates and conditions. Some felt they operated
as cartels. In order to regulate conference practices at the
international level, the UN Code of Conduct for Liner Conferences
was adopted in 1974. This convention came into force in 1983 and
is applicable to conferences operating between the territories of

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contracting countries. Some Caribbean States, notably Jamaica and


Trinidad and Tobago are contracting parties to the convention.

Non-conference lines
In recent years non-conference lines have posed a challenge to the
conference system. This has been attributable to the development of
containerization and the emergence of many independent carriers
including several container consortia. This has resulted in more
competitive rates and terms for shippers.

Tramp services
This service has no fixed itinerary or schedule and is operated on any
route according to supply and demand. Tramp vessels are usually
chartered at negotiated rates particularly when the quantity of cargo
is large.

Shippers’ associations
Associations of producers or exporters of specific commodities, as
well as individual shippers may also group themselves into various
types of national organizations, or use the services of central
organizations. These are not direct participants in the transportation
chain, but influence how it operates.

Shippers’ councils
Shippers’ councils protect the interest of shippers (in regard to
transport services such as conferences) providing them with useful
information and negotiating on their behalf. Shippers’ councils
negotiate with shipping conferences on matters such as freight rates
and quality and adequacy of shipping services. Jamaica, for
example, has a national Shippers’ Council whose membership
includes individual shippers as well as corporate entities such as
manufacturers’ associations, chambers of commerce, and exporters’
associations.

Freight booking centres and agents


Some countries may also have a freight booking centre (FBC) set up
with state support. A shipper may use the centre on a voluntary
basis. The FBC can obtain more attractive freight rates from
shipping lines by aggregating cargo and offering large shipments for
transportation.

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Unit 2: Maritime trade & contract of carriage Carriage of Goods by Sea Law

Shipping agents
In many Caribbean countries, this function is carried out by
individual shipping agents that may offer concessionary rates on
large shipments of local produce.

Categories of cargo
Transport of goods by sea can be broadly categorized according to
the type of goods and their method of packing. These categories are
shipped under different types of legal documentation:
• break-bulk cargo is transported in conventional packing such as
boxes, crates, bags, or pallets. This type of cargo is usually
carried on the basis of conventional bills of lading
• containers may hold break-bulk or bulk cargo. Containerized
cargo is usually carried on the basis of container bills of lading
• bulk cargo has not been packed and is carried loose in the vessel.
Bulk cargo is usually carried on the basis of a charter party.

Container shipments
Containers are usually loaded and discharged ashore. They may be
handled from the point of origin to the point of destination in
different ways. These include container yard (CY) and container
freight station (CFS) loading. Responsibility for the costs and risks
involved at various stages vary.

Container yard (CY) loading and delivery


In CY loading, the shipper picks up the empty container from the
carrier’s yard or from a leasing company designated by the carrier
and takes the container to a warehouse or other inland facility. The
shipper then loads (stuffs) the container with cargo, and seals the
container with the seal given by the carrier. A container that is
stuffed and sealed by the shipper is called a full container load or
FCL. The shipper then returns the container to the carrier at the
container yard or port terminal for eventual loading into the ship and
carriage to destination.
All expenses for trucking, including the costs of transporting the
container to the shipper’s stuffing facility and returning it to the
carrier, stuffing the cargo, checking, tallying, and customs approval
are borne by the shipper. In CY loading, the carrier’s obligations are
to issue an empty container, to accept the stuffed container when it is
returned by the shipper, and to load it on to the ship for carriage.
Upon discharge of a full container from the ship to the container
yard, the consignee takes delivery and transports the loaded

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container to the destination warehouse (or other facility). There, the


consignee unloads (strips or unstuffs) the container, which is then
returned empty to the carrier or leasing company. All this is done at
the consignee’s expense. The carrier’s responsibility ends when the
container is discharged to the custody of the consignee or the port.

Container freight station (CFS) loading


A container freight station (CFS) is usually a warehouse or covered
space designated by the carrier to receive non-containerised or loose
cargo from the shipper. According to the rules of some ports, the
CFS has to be situated inside the port premises or at some place
designated by the port.
In a CFS, smaller parcels of cargo are often consolidated into full
loads for more efficient shipping. These smaller parcels are termed
less than a container load (LCL). The carrier provides and pays for
the labour to receive, check, tally, and stuff the parcels of cargo into
the container. The carrier is responsible for the cargo from the time
it is received at the CFS or from the time it is stuffed into the
container.
Upon discharge of the container from the vessel, the carrier takes it
to a container freight station, or another place designated by the port.
There the carrier strips the container and makes the loose cargo
available to the consignee. All this is done at the carrier’s expense.
The carrier’s responsibility ends when the individual parcels of cargo
are delivered to the consignee or into the custody of the port.

Equipment interchange receipts (EIR)


The movement of the container from the shipper’s premises to the
port is on the basis of an equipment interchange receipt (EIR). The
EIR is signed each time the container changes hands. The person
accepting the container for carriage notes any damages to the
container at that time on the EIR.

FCL shipments
In an FCL shipment the container may be trucked from the shipper’s
warehouse or inland destination to the carrier’s yard or the port by an
independent trucker or company. The trucker checks the container
before accepting it and notes any damage on the EIR. When the
carrier accepts the container from the trucker, the carrier too checks
it and notes any further damage that may have occurred while the
container was in the custody of the trucker. The trucker would be
responsible to the shipper for any such damage, subject to his
contract with the shipper.

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When they accept FCL shipments carriers are responsible for


delivering the containers to consignees in the same external
condition as when they were received, and with their seals intact.
They are not then responsible for the condition of the cargo inside
the sealed containers.

LCL shipments
If carriers accept LCL cargo they must deliver the cargo to the
consignee in the same condition as when it was received. In this
case the container becomes, in effect, an extension of the ship.
Instead of stowing the cargo directly in the ship’s holds the carrier
first stows it in the container. The carrier is then responsible for any
loss or damage to the cargo inside the container, subject to the
contract of carriage.

Activity
Talk to a carrier. Visit their premises and find out as much as you
can about their business. Ask them to show you an EIR.
Find out the following:
1. Is the business a private carrier or a common carrier?
2. Which categories of cargo (bulk, break-bulk, containerized) do
they usually transport?
3. About how much cargo do they handle in a year?
4. How many clients do they typically have in a year?
5. How do they set their freight rates?
6. Do they belong to a liner conference and/or a shipping council or
similar organization?
7. Do they operate out of a container yard and/or container freight
station?

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Carriage of Goods by Sea Law Unit 2: Maritime trade & contract of carriage

Practice Exercise for Lesson 1


Test your understanding of Lesson 1 by answering these questions.
Check your answers and read again any parts you found difficult.
The answer key is at the back of this unit.
1. The owner of a charter vessel may refuse to charter it for the
carriage of a particular harmless, legal shipment, even though the
vessel is available. True or false? Explain.
a. true
b. false
_____________________________________________

2. What is an open liner conference?


a. an organization of carriers that admits only shipping lines
approved by their existing members
b. an organization of carriers that allows any shipping line of
the appropriate type to join
c. a convention open to all carriers that meets regularly to
agree on standards
d. organizations of carriers whose aim is to make all parts of
the transportation chain more efficient and open

3. List the four main disadvantages of the liner conference system.


a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________

4. Give four characteristics of tramp services.


a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________

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5. Name three groups besides shippers that are likely to belong to a


shippers’ council.
a. _________________________________
b. _________________________________
c. _________________________________

6. What is the purpose of an FBC?


a. regulation and standardization of freight rates
b. negotiation with shipping conferences
c. state regulation of shipping services
d. improving freight rates by aggregating cargo

7. Who else often performs this service in Caribbean countries?


_____________________________________________

8. Which category of cargo is more likely to be carried under a


charter party rather than a bill of lading?
a. break-bulk
b. containerized break-bulk
c. containerized bulk
d. bulk

9. In CY loading and delivery, who usually stuffs the container?


a. the shipper
b. the carrier
c. the consignee
d. CY personnel

10. In CY loading and delivery, who usually strips the container?


a. the shipper
b. the carrier
c. the consignee
d. CY personnel

11. In CFS loading, who usually stuffs the container?


a. personnel paid by the shipper
b. personnel paid by the carrier
c. personnel paid by the consignee
d. personnel paid by the CFS station

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12. In CFS loading, who usually strips the container?


a. personnel paid by the shipper
b. personnel paid by the carrier
c. personnel paid by the consignee
d. personnel paid by the CFS station

3. When and where is the EIR signed?


a. when the container leaves the shipper’s premises
b. when the container is transferred from the primary to the
secondary carrier
c. when the container reaches its destination
d. whenever the container changes hands throughout its route

4. What is the carrier responsible for when transporting an FCL


shipment?
a. delivering the goods stuffed into the container in the same
condition as when they were received
b. delivering the container in good external condition

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Lesson 2 ......Contracts of carriage


The transport of goods by sea uses a fairly complex legal system that
evolved over a long period and is designed to facilitate the orderly
flow of trade. Difficulties may arise from various factors. These
include the multiplicity of risks to which goods travelling at sea are
exposed, and the obligations and liabilities of the various parties to
adequately secure against such risks. Complications may also arise
because two different forms of contract are used, namely, the bill of
lading (B/L) and the charter party (CP). These may be used singly or
together.

Carriage under a bill of lading


Persons wishing to send small parcels of goods by sea must seek out
a vessel that contracts to carry cargo to the desired destination port.
Such a vessel may sail regularly along a certain line of ports at
advertised times (a liner), or sail from port to port looking for cargo
(a tramp). The legal document used to evidence contract of carriage
on these types of vessels is a bill of lading.
A B/L evidences the loading of goods on a ship. It is also evidence
of a contract of carriage by sea, in which the carrier commits to carry
the gods from one point to another in exchange for the payment of a
certain sum of money, called freight.

Contents of the B/L


Bills of lading will be described in more detail in Units 3 and 4. No
legally specified B/L form is required. In fact, all shipping lines may
have their own form of bill of lading. However, in general, a B/L
contains a number of expressed or implied clauses and some of its
contents are usually regulated by national law.
• On its face are statements identifying or describing the carrier,
the ship, the shipper, the consignment, the voyage, and
sometimes the value of the cargo.
• The reverse of the document contains various clauses governing
the relationship between the carrier and the holder of the B/L.

Carriage under a charterparty


A charterparty is a contract between a ship owner and the person
requiring use of the ship described in the document (the entry ship).
Bills of lading may also be issued by charterers. There are various

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forms of charterparties. The most common of which are time,


voyage, and demise charters.

Time charters
In a time charter, the owner provides the charterer with a ship and
the services of its crew for a certain period. Time charter agreements
are normally quite specific with respect to details of the ship’s
performance both at sea and for cargo handling purposes throughout
the period of hire. The agreements may be rigid with respect to
trading limits and the exemption of certain types of cargo.

Employment clause
The ship’s master is under the time charterer’s orders as to
movements, ports of call, bunkering arrangements and costs, and the
cargo to be carried. The right by the charterer to direct the master is
laid down in the employment clause, which usually states:
“…the master to be under the orders of the charterer as
regards employment, agency or other arrangements.”

Responsibilities for costs


The time charterer plays a substantial part in the operation of the
ship. In addition to the cost of hire, the time charterer pays all port
dues; all cargo loading, stowage, and discharging costs; and all fuel
oil consumed during the period of charter, until the ship is delivered
back to the shipowner.
During the period of the charter, the ship remains the property of the
shipowner who is still responsible for insurance of hull and
machinery, survey costs, crew wages and costs, and the cost of
general upkeep of the vessel.

Voyage charter
This is the oldest form of chartering. In a voyage charter, the
shipowner provides the charterer with all or part of the transport
capacity of the ship so that charterer may transport goods. The rights
and duties of the shipowner and the charterer are determined
according to the voyage charter party. The standard form of voyage
charter party is known by the code name GENCON.
The voyage charter may be for one or more voyages. Payment is in
the form of freight per ton of cargo carried. The freight rate varies
with the type of cargo and with the duration and length of the
voyage.

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In this kind of chartering, both the nautical and commercial aspects


of operating the ship remain in the hands of the shipowner. The
charterer in this case is like a normal shipper who has made a
reservation for all or part of the ship to transport goods. The
charterer has nothing to do with the operation of the ship itself.

Rights and duties of the shipper, charterer, and shipowner


Charterers normally use the chartered capacity to transport their own
cargo, but they may at times arrange for other shippers to use the
chartered capacity. Thus the charterer may or may not be the
shipper. In both situations, the charterer may obtain a bill of lading
from the shipowner.
• A charterer who is also the shipper may require a B/L in order to
facilitate delivery at the port of discharge or to sell the cargo.
• A shipper who is not the charterer would need a B/L from the
shipowner/carrier.

The rights and duties of the shipowner and the B/L shipper and/or
consignee would be governed by the bill of lading, unless the terms
of the charter party have been incorporated into the B/L.

Demise charter
In this method of chartering, the owner provides the ship to the
charterer for a definite period, but the ship has no crew and
sometimes is not fully equipped. The shipowner in fact provides the
“bare boat”—hence its alternate name, bareboat charter. Payment is
by way of charter hire, as in a time charter, although the amount
would be less, considering the greater cost to the charterer in
operating the ship.

Activity
Visit a shipping business, and try to obtain and read copies of time,
voyage, and demise charter parties. Find out how often relatively
they issue the various types of C/P.

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Carriage of Goods by Sea Law Unit 2: Maritime trade & contract of carriage

Practice Exercise for Lesson 2


Test your understanding of Lesson 2 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
11. What are the two major sources of complications that may cause
difficulty in contracts of carriage?
a. ________________________________
b. _________________________________

2. Which of the following statements is true?


a. a bill of lading is also issued whenever a charter party is
used
b. a charter party is always issued whenever a bill of lading is
issued
c. a bill of lading may be issued in addition when a charter
party is used
d. a charter party may be issued in addition to a carriage of
contract

3. What are the three most common types of charter party?


a. _________________________________
b. _________________________________
c. _________________________________

4. Under a time charter, whose orders control the ship’s


movements?
a. the shipowner
b. the shipper
c. the charterer
d. the ship’s master

5. Under a voyage charter, who controls the nautical aspects of the


voyage?
a. the shipowner
b. the shipper
c. the charterer
d. the ship’s master

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6. Under a voyage charter, who controls the commercial aspects of


the voyage?
a. the shipowner
b. the shipper
c. the charterer
d. the ship’s master

7. Why might a charterer who is also the shipper require a bill of


lading in addition to a charter party?
_____________________________________________
_____________________________________________

8. Who provides the crew for a vessel under a demise charter?


a. the shipowner
b. the shipper
c. the charterer
d. the ship’s master

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Lesson 3...... The maritime transport chain


Transport of goods by sea requires both equipment and human
involvement. The most important item of equipment required is, of
course, the vessel. Three main categories of people can be
distinguished:
• providers of transport services—the carriers, who may be owners
or charterers (hirers) of the ship
• users of the transport services—the shippers and receivers, who
may be buyers or sellers (importers or exporters) of goods
• transport auxiliaries—the parties who provide various ancillary
services required by the carriers and shippers, such as freight
forwarders, port operators, and stevedores.

Identifying the parties in the maritime transport chain can perhaps


best be done by means of the following example:
Example:
A contract is made in Jamaica for the sale of bananas packed in
crates, CIF to the Port of Liverpool in the UK. In this example,
the seller is the shipper, and the seller decides to ship the
consignment from Boundbrook Wharves on the vessel MV
Kingston.
1. The goods are produced on the seller’s farm in Port Antonio.
The quantity required under the contract is packed for
transport there.
2. The consignment is transported by road from the premises
of the shipper to the port. Such transportation may be done
by the shipper or it may be done by a separately contracted
road haulier.
3. The shipper may engage a freight forwarder/forwarding
agent to attend to the formalities involved in shipping. The
freight forwarder/forwarding agent attends to the customs
formalities and co-ordinates with the carrier or carrier’s agent
and the port, arranging to send the cargo down to the port
for loading at the correct time.
4. Once the cargo is handed over to the port it remains in its
custody, either in the warehouse or on the quay until being
loaded on board. (At certain ports, the cargo may be kept in
the customs warehouse). The port workers (shore workers)
would move the cargo from storage to the place of loading.
5. The stevedore loads the cargo, stowing and securing the
goods in the ship in accordance with the ship’s instructions.
The stevedoring function may be performed by the port

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authority using its own or contracted labour, or may be


performed by a specialized stevedoring company.
6. The carrier (that is, the operator of mv Kingston, who may be
the owner or the charterer) transports the goods to the Port
of Liverpool. On arrival, stevedores discharge the cargo
from the ship. The carrier’s agent or port agent may arrange
for a survey of the cargo, either on board before discharge,
or on shore after discharge.
7. The buyer (receiver/consignee) appoints a clearing agent
who is usually the forwarding agent to attend to the customs
formalities and clearing of the goods from the port. If there is
loss or damage to the cargo, the clearing agent appoints a
cargo surveyor in conjunction with the cargo insurers, to
assess the loss/damage to the cargo.
8. The consignee or the freight forwarder/clearing agent
arranges for the consignment to be transported to the
receiver/consignee premises.
To summarize, the following parties have been identified in the
maritime transport chain, working between seller and buyer:
• shipper
• freight forwarder/forwarding agent
• customs officer
• port-shore workers/stevedores
• carrier
• ship or port agent
• customs broker
• receiver/consignee.

Activity
In the port nearest to you, try to identify specific businesses and
organizations that operate at each stage of the transportation chain as
described in the last paragraph of this lesson.

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2−18 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 2: Maritime trade & contract of carriage

Practice Exercise for Lesson 3


Test your understanding of Lesson 3 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. What are the three main categories of people involved in the
transport of goods? Give two examples of each.
a. _________________________________
_________________________________
b. _________________________________
_________________________________
c. _________________________________
_________________________________

2. List at least four more parties involved in the transport chain


other than those listed in answer to question 1.
a. _________________________________
b. _________________________________
c. ________________________________
d. _________________________________

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Unit 2: Maritime trade & contract of carriage Carriage of Goods by Sea Law

Answer keys
Lesson 1
1. a. true
Chartered vessels are private carriers and the right of refusal
of work is what distinguishes a private carrier from a
common carrier. Common carriers carry goods for anybody
who wishes to pay for their services.

2. b. an organization of carriers that allows any shipping line of


the appropriate type to join

3. − rates are usually high


− rates do not fluctuate with supply and demand
− rules and procedures are inflexible
− rate changes require lengthy consultation procedures

4. − no fixed itinerary
− no fixed schedule
− usually chartered at negotiated rates
− operated on supply and demand

5. − manufacturers’ associations
− chambers of commerce
− exporters’ associations

6. d. improving freight rates by aggregating cargo

7. shipping agents

8. d. bulk

9. a. the shipper

10. c. the consignee

11. b. personnel paid by the carrier

12. b. personnel paid by the carrier

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2−20 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 2: Maritime trade & contract of carriage

13. d. whenever the container changes hands throughout its route

14. b. delivering the container in good external condition.

Lesson 2
1. − multiple types of risks during transportation

− the use of two different types of contract (B/L) and C/P)

2. c. A bill of lading may be issued in addition when a charter


party is used.

3. − time charter
− voyage charter
− demise (bareboat) charter

4. c. the charterer

5. a. the shipowner

6. a. the shipowner

7. The charterer/shipper may require a B/L to facilitate delivery at


the port of discharge, or to sell the cargo. Also, the rights and
duties of the shipowner and the shipper are governed by the B/L

8. c. the charterer.

Lesson 3
1. − providers of transport (charterers and shipowners)
− users of transport (importers, exporters, shippers, and
receivers)
− providers of auxiliary services (freight forwarders, port
operators, and stevedores)

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Unit 2: Maritime trade & contract of carriage Carriage of Goods by Sea Law

12. Any four of the following:


– shipper
– importer
– exporter
– freight forwarder
– forwarding agent
– customs officer
– port shore worker
– stevedore
– carrier
– ship’s agent
– port agent
– customs broker
– receiver/consignee.

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2−22 Diploma in Shipping Logistics—Jamaica Maritime Institute
Edition: 1.1 January 2000

Distance Education Course SB–205.5


Carriage of Goods by Sea Law

Unit 3 The conventional


bill of lading
This unit discusses the conventional bill of lading (B/L) issued for
the shipment of break-bulk cargo. It explains how the bill of lading
regulates the relationship between the carrier and the
shipper/receiver. It also discusses other documents commonly used
in the carriage of goods by sea.
The three lessons in this unit discuss:
• definition and functions of the B/L
• signing and dating the B/L
• the clean B/L and letter of indemnity.

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Unit 3: Conventional bill of lading Carriage of Goods by Sea Law

Unit 3 ...........Activities and expectations


Agenda
To complete this unit, you will:
• Read and study the text in this unit and any assigned passages in
the Student Reader.
• Apply the information by performing the Activities
• Test yourself by doing the Practice Exercises and checking your
answers.

Resources
There is no textbook for this course. All the information you require
is in this Study Guide and your Student Reader. In addition, your
Student Manual lists some books that you may wish to read to
expand your knowledge.

Learning outcomes
When you have completed this unit you will be able to:
• Define a conventional bill of lading (B/L).
• Identify the international conventions that regulate the use and
contents of Bs/L (Hague, Hague Visby, and Hamburg Rules)
• Describe the form and contents of a B/L.
• Identify the three main functions of a B/L.
• Know how to endorse, sign, and date a B/L.
• Identify the other documents used in maritime transportation of
cargo.
• Explain what is meant by a clean bill of lading.
• Describe the use of reservation clauses and letters of indemnity
with bills of lading.

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3−24 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 3: Conventional bill of lading

Lesson 1...... What is the bill of lading?


A bill of lading (B/L) is easier to describe than define. As stated in
Unit 2, it evidences the loading of goods on a ship or other
transportation vehicle. Although it is not in itself a contract of
carriage, it provides legal evidence of the existence of a contract of
carriage. Such a contract does not necessarily exist in writing, but
may have been merely verbal—even the result of a telephone
discussion. In this contract of carriage, the carrier commits to
carrying the goods from one point to another in exchange for the
payment of a certain amount of money. Essentially, the bill of lading
is the document that regulates the contractual relationships between
the carrier, the shipper, and the receiver.
The B/L plays a vital role in the relationship between the buyer and
seller. In a CIF sale using a letter of credit, for example, the seller
can obtain payment as soon as the goods are shipped, by presenting
the B/L to the bank as proof of shipment.
Bills of lading (Bs/L) are used internationally and must abide by
certain international standards. The regulations used are the Hague
and Hague Visby Rules.

The Hague and Hague Visby Rules


The Hague Rules were derived at the first international convention
on the carriage of goods by sea held in 1924 at Brussels, Belgium.
They are officially called the International Convention for the
Unification of Certain Rules Relating to Bills of Lading. A
subsequent international convention resulted in the Brussels Protocol
of 1968, usually referred to as the Hague Visby Rules. This protocol
amended the Hague Rules concerning limitation of financial liability.
These rules have been ratified and incorporated into the domestic
legislation of many countries in the Caribbean region. For example,
Jamaica and Trinidad each incorporate the Hague Rules in a
Schedule to their respective Carriage of Goods by Sea Act.

Bill of lading form and contents


No legally specified bill of lading form exists and carriers are free to
design their own forms. Usually the face of the B/L contains
information identifying and describing the parties—the carrier, the
shipper, and the consignee, if named by the shipper. National
maritime legislation may also require the inclusion of certain
particulars relating to the cargo (see below). The reverse side of the

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Unit 3: Conventional bill of lading Carriage of Goods by Sea Law

B/L contains terms and conditions governing the relationship


between the carrier and the holder of the bill of lading.

The bill of lading set (originals and copies)


The bill of lading is normally issued in a set of at least three
originals, one for the consignee, one for the shipper, and one to be
kept on board the vessel. There are also several copies marked “non-
transferable”. The number of original Bs/L may vary according to
the special requirements of the shipper—the number of originals
given to the shipper is stated on the bill of lading. The shipper sends
the originals to the receiver by different methods to ensure that at
least one original bill of lading will reach its destination in time for
the receiver to take delivery. The carrier is free of responsibility
once the cargo is delivered against any one of them.

Information on the B/L relating to the goods


Article 111 Rule 3 of the Hague Rules provide that a bill of lading
should contain the following information:
• either the number of packages or items, or the quantity or weight
of cargo, as the case may be (as furnished in writing by the
shipper)
• the apparent order and condition of the goods. The preamble to
the B/L usually states, “taken on board the following goods in
apparent good order and condition”. If the goods are not in good
condition the carrier must state this on the face of the bill of
lading
• the distinctive marks intended to identify the cargo, given before
loading. These marks must be stamped or otherwise shown
clearly in such a manner that they would remain legible until the
end of the voyage.

“Weight and quantity unknown”


Carriers have for many years made a practice of inserting in the bill
of lading terms such as “weight and quantity unknown”. The result
of this is that the burden of proving what was actually shipped shifts
to the shipper. For example:
Case: New Chinese Antimony Co. vs. Ocean SS Co. (1917)
A bill of lading presented to and signed by the shipowner’s agent
stated that 937 tons of ore had been shipped on board. The bill
of lading contained the clause weight, measurement content,
and value unknown. A quantity less than 937 tons was delivered
and the shipper claimed damages. The court held that the

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Carriage of Goods by Sea Law Unit 3: Conventional bill of lading

burden of proving how much ore had been shipped was on the
shipper.
According to Article 111, the shipper can demand that the carrier
delete these words and comply with rules by giving conclusive
descriptions. The shipper can however waive this right.

Information on the B/L relating to the parties

Carrier
The name of the carrier is generally found at the top of the bill of
lading. The carrier may be the actual owner of the ship or a time or
demise charterer.

Master of the ship


The name of the master is not found on modern bills of lading.

The ship
The ship’s name enables the shipper/receiver to identify the owner of
the ship when the carrier is only a time or demise charterer of the
ship. This could be particularly important in a time charter, for the
time charterer may not be responsible for cargo loss or damage under
certain circumstances. In such a case, the shipper/receiver would
have to make a claim against the shipowner.

Shipper
The bill of lading normally contains the name and address of the
shipper. This information is particularly important if the B/L does
not contain any information about the consignee. The carrier may
need to contact the cargo interests urgently in the event of a casualty.

Information on the B/L relating to the voyage.


The bill of lading describes the voyage envisaged by indicating the
ports of loading and discharge.

Functions of the bill of lading


The conventional bill of lading has three main functions:
• receipt for goods shipped or delivered to the carrier
• written evidence of a contract of carriage
• document of title.

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Unit 3: Conventional bill of lading Carriage of Goods by Sea Law

Receipt for goods


The bill of lading is a receipt signed by the carrier or his/her
representative (the master or the agent). It is given to the shipper on
demand and states that the goods described in it have been loaded on
a certain ship or other type of transport vehicle, bound for a certain
destination.
Under common law, the bill of lading is prima facie evidence that
the goods indicated (by quantity, condition, and marks) have been
shipped. This means that it would be difficult for the carrier to later
dispute the quantity or condition of such goods. Under the Hague
Visby Rules, the carrier cannot deny the statements at all once the
B/L is transferred to a third party.

Evidence of contract of carriage


There is considerable debate as to whether the bill of lading is the
actual contract of carriage between the shipper and the carrier. It is
possible to contend that the goods are loaded on board in pursuance
of a prior contract made between the shipper and the carrier, and that
the contract is not necessarily contained in the bill of lading, which is
issued later. This would be important in a legal case where the
carrier or the shipper wished to bring in oral evidence that the
carriage was agreed on terms that were not included in the B/L.
The prevailing legal position appears to be that the bill of lading is
excellent evidence (amongst others) of the terms of the contract with
regard to the carrier and the shipper. However, it is the only
evidence of the terms of the contract with regard to the carrier and
the subsequent holder (the consignee) of B/L. This means that, while
the carrier and the shipper can bring in other evidence such as oral
undertakings, freight notes, or sailing announcements to prove that
the parties agreed on terms that may be at variance with the B/L, the
carrier and the consignee have to strictly abide by what is stated in
the bill of lading.

Document of title to the goods


The bill of lading is the official document representing the goods.
For many purposes possession of the bill of lading is equivalent to
legal possession of the goods. It enables the holder to receive the
goods himself or to deliver the goods by endorsing and delivering the
bill of lading.

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Carriage of Goods by Sea Law Unit 3: Conventional bill of lading

Delivery “to order”


A bill of lading making goods deliverable “to order” is considered to
be a negotiable document in that the property in the goods can be
transferred by endorsement and delivery.

Common law assignment of a bill of lading


Under common law, in order that the assignment of a bill of lading
should function as required by parties, certain conditions must be
complied with:
• the bill of lading must state that it is transferable. This is so that
delivery of the goods can be made to the order of the assignees
of the person taking the B/L
• the goods must be in transit. That is, they must have been
handed over to the shipowner or his agent for carriage, and not
yet have been received by the person entitled to lay claim to
them by virtue of possessing the B/L
• the B/L must have been put in circulation by one who had good
title to it. For example, a purchaser for value will have no rights
in relation to the goods if the B/L was sold by someone who
stole it.

Specifying who may receive the goods—endorsing a B/L


Goods shipped under a bill of lading may be made deliverable to a
named person, to the order of a named person, or to the bearer of the
B/L.

The named bill of lading


In a named bill of lading, the name and address of the consignee is
specified precisely. The goods may be delivered only to that named
person. In a named B/L, the phrase “To the order of” that appears on
the bill is deleted.
This form of B/L is normally used for non-commercial shipments,
such as cargo carried under bilateral agreements between
governments, shipments made by one branch of a company to
another, or shipment of goods bought overseas and shipped by and to
the same company. Because of this, the shipper may also be named
as the consignee.
In a letter of credit situation, the legal consequence of naming the
consignee is that the B/L cannot be endorsed (signed over) to another
party, and is thus said to be non-negotiable.

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Unit 3: Conventional bill of lading Carriage of Goods by Sea Law

The order bill of lading


The order bill of lading contains the phrase “To the order of…”
followed by the name of the beneficiary. This may be the shipper,
the consignee, or the bank. The beneficiary is identified in the box
reserved for the name of the consignee.

Endorsement in full
To endorse this form of bill of lading, the beneficiary may write on
the reverse side of the bill of lading, “Deliver to the order of…”,
followed by the name of a new beneficiary, and signed by the first
beneficiary. This is called endorsement in full. The person to whom
the B/L is endorsed may be the final receiver or an intermediary
beneficiary.

Endorsement in blank
The bill of lading may also be endorsed in blank. In order to do so,
the beneficiary simply signs and dates the bill of lading. In this way,
the bill of lading may pass from hand to hand by mere delivery, and
any holder may obtain delivery by presenting it to the carrier. The
bill of lading is then, in effect, a bearer bill of lading, which is
described below.

Endorsement by the bank


In practice, most bills of lading are negotiated through the bank. In
the case of an order B/L, the shipper may endorse it in full or in
blank and hand it over to the bank. The bank would then endorse it
to the consignee. As a result, when the bill of lading is presented to
the carrier for delivery of the goods it already contains an
endorsement by the bank.

The bearer bill of lading


In the bearer bill of lading, the phrase “To the order of” is replaced
by “To the bearer”. Any holder of a bearer bill of lading can take
delivery of the goods without needing to identify themselves or
providing further documentation. This bill of lading is not
commonly used in business transactions. It poses a risk to the
shipper, since anyone who obtains the bill of lading even through
fraudulent means can take delivery of the goods.

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Carriage of Goods by Sea Law Unit 3: Conventional bill of lading

Other documents used in maritime transport operations

Orders originating from the shipper


The forms of such documents vary from company to company. All
however are documents issued, signed, and dated by the shipper or
representative requesting the carrier to load a specified consignment
on board ship.
The order contains a commitment of the shipper and is in the form of
a note to the carrier. It is commonly referred to as the shipping note.
This document may serve as the basis for the drafting of the bill of
lading. However, it should not be confused with the bill of lading, as
it does not have any of its legal characteristics.

Receipts originating from the carrier


When goods are loaded onto feeder ships prior to being transferred
onto ocean-going vessels, a document may be issued by the carrier
which is called the collective bill of lading. This document, prepared
by and for the carrier, provides a list of all the different parcels
belonging to the different shippers.
At most, the collective B/L may be considered to be a receipt if
given to the shipper. In no case is to considered to be a document of
title or evidence of a transport contract.

Delivery orders
The delivery order is issued by the carrier or carrier’s agent to enable
the receiver/consignee to take delivery. This may be from the vessel
or from the warehouse or quay where the goods have been
discharged. When the consignee or representative produces the
original bill of lading, the carrier or agent scrutinizes it and issues a
delivery order. This instructs the master of the vessel or the port to
deliver the goods to the receiver or receiver’s agent.
The delivery order is not a document of title, nor does it contain the
terms of the contract between the carrier and the shipper/receiver. It
usually does not enable the receiver/consignee to bring an action
against the shipowner for any loss or damage to the goods.

The non-negotiable sea waybill


The sea waybill is essentially a document providing for the
automatic delivery of cargo to a nominated consignee. If the person
applying to take delivery of the goods can produce identification as
the consignee nominated on the waybill, a document of title is not
needed. The goods will be delivered to that person.

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The great differences between a waybill and a B/L is that when


shipping under a B/L, proof of ownership of title is required to take
delivery of a consignment. The B/L itself must be produced as
evidence of title.

Mate’s receipt
The mate’s receipt is the document tendered by the shipowner or
ship’s agent to the shipper upon delivery of the goods onto the quay
for shipment. A mate’s receipt is often issued by the ship’s officer’s
mate after checking the tally clerk’s records of what has been
received. Only later is the bill of lading checked against the mate’s
receipt.

The manifest
The manifest is a document issued by the shipping company (carrier)
or the ship’s agent at the port(s) of loading. It summarizes the
information extracted from all the bills of lading issued for each port
of discharge for the voyage in question.
The headings on the document provide the following information:
• name and tonnage (gross and net registered) of the ship
• nationality of the ship
• ship’s master’s name
• ports of loading and discharge
• departure date.

Different columns on the manifest are allocated to record the


following information relating to each separate bill of lading:
• identification number of the bill of lading
• marks and numbers of the packages
• nature of the goods being shipped
• shipper’s name
• ship’s agent’s name
• address for notification
• weight and/or measurement of the shipment.

A distinction has to be made between the cargo manifest and the


freight manifest. The cargo manifest must remain on board ship
during the entire voyage. It is to be used by the master of the ship or

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Carriage of Goods by Sea Law Unit 3: Conventional bill of lading

by other authorities who may be involved with the ship. It may also
be considered an essential document for the use of customs
authorities.

Activity
1. Visit a carrier’s place of business and obtain a blank bill of
lading. Note how many copies are included. Read everything
printed on it and try filling it in as though you were shipping
goods (of your choice) from your place of residence to a real or
imagined consignee at a port in South America.
2. Discuss with the carrier any issues that might arise in sending,
carrying, and receiving such a shipment.
3. Find out what other documentation (if any) might be needed by
the shipper, the carrier, and the consignee.

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Unit 3: Conventional bill of lading Carriage of Goods by Sea Law

Practice Exercise for Lesson 1


Test your understanding of Lesson 1 by answering these questions.
Check your answers and read again any parts you found difficult.
The answer key is at the back of this unit.
1. Which of the following best describes a bill of lading?
a. it is the same as a contract of carriage
b. it plays the same role in transportation of break-bulk cargo
as a charter party does for bulk cargo
c. it provides evidence of the existence of a contract of
carriage
d. it serves as a letter of credit in a CIF sale

13. What set of international rules, regulation, or standards must be


met by bills of lading?
_____________________________________________

3. Where are the terms and conditions that govern the relationship
between carrier and the holder of a B/L recorded?
a. in the contract of carriage
b. in the Hague Visby Rules
c. on the face of the bill of lading
d. on the reverse side of the bill of lading

4. Why is a set of several original bills of lading sent out?


a. to ensure that at least one original reaches the destination in
time for the receiver to take delivery
b. so that agents as well as parties to the carriage of contract
can have them
c. because several people in the transportation chain need
them for reference
d. to ensure that an original reaches each possible destination
point

5. What three items of information about the shipped goods must


appear on the bill of lading according to the Hague Rules?
a. _________________________________
b. _________________________________
c. _________________________________

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6. Must the carrier define the weight or quantity of cargo shipped


on the B/L?
a. no, the carrier may always insert “weight and quantity
unknown” in the B/L
b. yes, the shipper must demand that the carrier insert the
weight and quantity
c. yes, the carrier must insert the weight and quantity under
the Hague Rules
d. no, the shipper may waive the right to insist that the carrier
includes the weight and quantity

7. Why is it important to include the name of the shipper on the


B/L?
_____________________________________________
_____________________________________________

8. What are the three functions of a bill of lading?


a. _________________________________
b. _________________________________
c. _________________________________

9. If there is an error in the bill of lading, the carrier may change it


so long as interested parties are notified.
True or false? Explain.
a. true
b. false
_____________________________________________

10. If there is a dispute about the terms of carriage, can the


disputants refer to anything other then the bill of lading?
a. yes, they must refer to the written contract of carriage
b. yes, they may refer to oral undertakings, freight notes,
sailing announcements, and any other relevant material
c. no, the B/L contains the only legal description of the terms
of carriage
d. no, nothing else may be used as evidence of the terms of
carriage

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11. What is meant by “a negotiable document of title”?


_____________________________________________
_____________________________________________

12. What conditions does the common law say must be in place for
the bill of lading to function properly in transferring title?
a. _________________________________
b. _________________________________
c. _________________________________

13. Which of the following statements are true, and which are false?
a. a named B/L is non-negotiable
b. an order B/L is non-negotiable
c. endorsement in full means that a B/L has been signed over
to another specified person
d. endorsement in blank means that a B/L has become non-
negotiable
e. a bearer bill of lading allows anyone holding it to pick up
the goods described
f. a B/L handed over to a bank may be endorsed in full or in
blank

14. What is a shipping note?


a. a note containing orders from shipper to carrier
b. a note from carrier to shipper confirming orders
c. a note made by the shipper to record an oral contract
d. a note containing the main points in a bill of lading

15. What is a collective bill of lading?


a. a B/L covering all shipments from a single shipper
b. a B/L for all parcels of goods in a carrier’s vessel
c. a B/L for all parcels of goods in a feeder vessel
d. a B/L for transferring goods to the warehouse at the point of
discharge in case the consignee cannot take immediate
delivery

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Carriage of Goods by Sea Law Unit 3: Conventional bill of lading

16. Who issues a delivery order?


a. shipper
b. carrier
c. consignee/receiver
d. ship’s master

17. What must a consignee do to take delivery of a shipment under a


sea waybill?
a. produce a document of title to the goods
b. produce a copy of the waybill
c. produce a copy of the contract of carriage
d. produce personal identification

18. When is the mate’s receipt issued?


_____________________________________________

19. List at least six of the columns of information on a manifest.


a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________
e. _________________________________
f. _________________________________

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Unit 3: Conventional bill of lading Carriage of Goods by Sea Law

Lesson 2 ......Signing and dating the bill of


lading
Bills of lading are freely available, so to prevent parties from using
them inappropriately or from denying their agreement to a contract
of carriage, it is essential for both parties to understand the
agreement, and, where appropriate, to sign and date the document.
In theory, the bill of lading should be completed by the carrier
according to the particulars provided by the shipper. In practice,
however, the bill of lading is usually completed by the shipper or
shipper’s representative, who would later send it to the carrier for
verification and signature.
The Hague and the Hague Visby Rules do not have any provisions
regarding the signatures of the shipper and the carrier on the bill of
lading. National legislation, which gives effect to these Rules, is
also silent on this matter. The United Nations Convention on the
Carriage of Goods by Sea, 1978, was held in Hamburg, Germany, in
an attempt to replace and improve the Hague Rules and the Hague
Visby Rules. These more recent Hamburg Rules include specific
provisions regarding the parties who may sign the bill of lading and
the method of their signatures. This is important with regard to the
B/L’s functions as a receipt and as evidence of a contract.

Signing the bill of lading


The particulars of a shipment are usually filled in by the shipper or
the freight forwarder and given to the carrier for signature.

As a receipt for goods shipped


The bill of lading is a receipt for goods shipped and in certain
circumstances the carrier is unable to deny the particulars included in
the bill of lading. Since bills of lading are usually filled out by the
shipper, if no confirming signature were required, shippers might
claim to have shipped goods by a carrier, when in fact they did not.
Or the carrier might lose or sell the goods and deny having carried
them. Having the signature of the carrier on the document prevents
the carrier from denying that the bill of lading was issued.
On the other hand there is no particular reason for the shipper to sign
the bill of lading. Shippers either fill in the bill of lading or check
the accuracy of what is stated on it before accepting it as a receipt
from the carrier.

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3−38 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 3: Conventional bill of lading

As evidence of the contract of carriage


If the shipper does not sign the bill of lading, the issue arises as to
whether the parties are bound by such terms.
Generally under common law a contract does not have to be in
writing or be signed in order to be legally binding. A bill of lading
falls into the category of standard form contracts. That is, a contract
in which one party makes an offer based on standard trading terms or
uses a standard form. The party who makes the offer, in this case the
carrier, would be bound by those terms.
The issue of whether the other party (in this case, the shipper) would
be bound by these terms would depend on the following conditions
being met:
• are the terms an integral part of the contract between the
shipper and the carrier? In general, this depends on whether a
document was intended to be a contractual document or merely a
receipt. A B/L is regarded as best evidence and at times the only
evidence of the terms of the contract, as well as a receipt for
goods
• has the bill of lading has been signed by the shipper? As
noted above, the shipper may not have signed the B/L
• if it is not signed, has reasonable notice of the terms have
been given? Shippers are usually well aware of the terms on
which goods are shipped in any regular line or trade. They have
easy access to printed bills of lading, which can be bought in
some countries and obtained from the carriers in others. These
may be read and clarified at leisure.

Reading the B/L before signing it


The modern bill of lading however has such a long list of exclusions
and limitations, which are printed in such minute type that it may not
be easily legible or attract the notice of the shipper. The question
might arise whether the shipper can be assumed to have notice of all
the clauses in the B/L and be bound by them. The answer appears to
be yes. Shippers are usually bound by the printed terms and
conditions (clauses) on the reverse side of the bill of lading
irrespective of whether they have read them. The term caveat
emptor (let the buyer beware) is important here, where the shipper is
the buyer of a service.
If however the carrier introduces an unusual or novel clause that
excludes certain liabilities, then the carrier must ensure that the
clause is quite clear to the shipper, both in meaning and legibility.

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Unit 3: Conventional bill of lading Carriage of Goods by Sea Law

Dating the bill of lading


Neither the Hague Rules nor the Hague Visby Rules contain any
provisions regarding the dating of bills of lading. It is however the
usual practice of the carrier or carrier’s agent to date the bill of
lading when it is signed.
Dating the bill of lading is particularly important with regards to its
function as a receipt for goods shipped. By such dating the carrier
confirms that the goods were loaded on board on a particular day.
This date would be considered the date on which the goods were
shipped and could be relevant and important in certain legal
situations.

Pre-dating a B/L
A shipper might wish to pre-date a bill of lading, so that the receiver
believes goods were shipped earlier than was the case. This would
allow the shipper to receive payment earlier. Pre-dating the bill of
lading is a misrepresentation of fact on the part of the carrier,
resulting in possible legal liability.
Any party who is suspicious of the date appearing on the bill of
lading may check the sailing schedules and the port records to
ascertain when the goods were shipped. It would be particularly
dangerous for the shipper to request pre-dating of the B/L if the date
requested is one prior to the arrival of the ship at the port of loading
or prior to loading, as this information could be easily obtained by
the buyer/receiver.

Activity
There is no specific Activity for this lesson.

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3−40 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 3: Conventional bill of lading

Practice Exercise for Lesson 2


Test your understanding of Lesson 2 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. Which internationally accepted rules have provisions for the
signing of bills of lading?
a. Hague
b. Hague Visby
c. Hamburg
d. none of them

2. Which of the following best describes the written completion of


the B/L?
a. it should be completed by the carrier, but in practice is
usually filled in by the shipper
b. it should be completed by the shipper, but in practice is
usually filled in by the carrier

3. What is the purpose of the carrier signing the B/L?


_____________________________________________
_____________________________________________

4. Can a shipper who does not sign the B/L be held to the terms of
the contract that the B/L describes?
a. no, because the B/L is not a contract
b. no, because there is no agreement without both signatures
c. yes, because the shipper filled in the details or supplied
them to the carrier
d. yes, because even though it is not signed, the usual terms of
shipping and the details on standard Bs/L are freely
available for shippers to read and understand.

5. What must happen if the carrier wishes to introduce an unusual


clause to the B/L?
_____________________________________________
_____________________________________________

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Unit 3: Conventional bill of lading Carriage of Goods by Sea Law

6. Which date is considered the date of shipment of goods?


a. date the goods were handed to the carrier by the shipper
b. date the goods were loaded on board the carrier’s main
transportation vehicle or vessel
c. date on which the bill of lading is signed
d. any date agreed between the shipper and carrier

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3−42 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 3: Conventional bill of lading

Lesson 3...... The clean bill of lading,


reservations, and the letter
of indemnity
The majority of goods are in good order when they are shipped. The
normal bill of lading contains a printed clause stating that the goods
are shipped in good order. This is more convenient than having to
type or write such a phrase each time a bill of lading is issued. If
however the goods are not in good order, the carrier has the right and
duty to state their actual condition.

Clean bills of lading


A filled out bill of lading is usually sent to the carrier for verification
and signature. If the carrier has not contradicted the particulars
inserted by the shipper or made any adverse comment on the bill of
lading regarding the goods, the B/L is said to be a clean bill of
lading. A clean bill of lading implies that the carrier had an
opportunity to inspect the goods prior to loading, agrees with the
shipper’s description, and confirms that the goods are in good order.
Unfortunately, things are not always as simple as this. The goods
may not be in apparent good order or condition at the time they are
loaded on board the ship; or the carrier and shipper may disagree
about the quantity of goods loaded. Ways are needed for carriers to
protect themselves against lawsuits if incorrect shipments are
delivered through no fault of theirs. The two methods used are
reservations and letters of indemnity, to be described below.

Reservations on general shipment


When unable to accept the description of the shipper or unable to
confirm that the goods are in good order, the carrier would include a
reservation as a clause in the B/L. This protects the carrier’s interest
in the event of a claim from the consignee at the port of discharge. A
bill of lading containing reservations is no longer considered a clean
B/L. In effect, carrier’s reservations in a B/L contradict the
information provided by the shipper.
From the bank’s point of view, a letter of credit must state whether
or not a clean bill of lading is required for payment to be made to the
shipper. It is up to the buyer to instruct the bank what are acceptable
terms, and to state whether reservation clauses are acceptable or not.

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Unit 3: Conventional bill of lading Carriage of Goods by Sea Law

The shipper would not want the carrier to “clause” the bill of lading
if a clean B/L is required for payment. Any carrier’s clauses with
regard to the condition, quantity, or marks of the goods would
prevent the bill of lading from being clean.

The Hague Rules about reservation clauses


The Hague Rules have a number of provisions which are relevant to
the carrier’s right to clause the bill of lading.
Article III {c} states that the carrier must show the apparent order
and condition of the goods on the bill of lading. Article III also
provides that no carrier, master, or agent of the carrier shall be bound
to state or show in the bill of lading any marks, number, quantity or
weight which he has reasonable grounds for suspecting do not
accurately to represent the goods actually received or which he had
no reasonable means of checking.
If the contract of carriage is subject to the Hague Rules and the
carrier fails to contradict any information on the B/L that there are
reasonable grounds for suspecting do not accurately represent the
goods received, then the carrier will be liable to the consignee. The
carrier is held liable for any damage found on delivery at the port of
destination unless the circumstances fall within any of the defined
exceptions and reservations.

Using precise descriptions


To be legally valid, inserted clauses contradicting the information
included in the bill of lading should be precise and clearly defined.
In practice, carriers usually insert expressions such as “said to
contain”, “said to be”, “weight unknown”, and “insufficient
condition”, into the shipper’s descriptions. However there is a
school of thought which suggest that these would not help the carrier
to avoid liability, in the event of a claim for loss/damage to the goods
by the consignee, because they are too imprecise.

Categories of reservation clauses


Clauses usually inserted by the carrier may be divided into two
categories: those concerning what goods are sent, and those
concerning the condition of the goods.

Clauses about marks, numbers, quantity, and weight


A reservation concerning the marks, numbers, quantity and weight of
the goods would reduce the value of the bill of lading’s use as a
receipt. Although it remains evident that some goods have been

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3−44 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 3: Conventional bill of lading

shipped, there is a difference of opinion between shipper and carrier


about precisely how much and of what. The quantity of goods are
said by the shipper to amount to the figure stated in the bill of lading
but the carrier does not admit that figure and contradicts it with a
reservation clause. The result is that the shipper cannot rely on the
statement as evidence of the amount shipped, while the carrier will
be able to deny that the quantity stated by the shipper was shipped.

Clauses about the condition of the goods


With regard to the apparent condition of the goods, the carrier
confirms in the preamble to the bill of lading “shipped in apparent
good order and condition…” Thus, the bill of lading would be
considered clean unless it is specifically claused otherwise.
Any admission as to good order is only with regard to the outward
appearance of the goods. The carrier has no means of checking the
internal condition of the goods.
Clauses regarding the condition of the goods may be inserted in two
circumstances:
• if the apparent condition of the goods is unsatisfactory, the
carrier is entitled to describe on the bill of lading the damage
discovered on loading the goods. This protects the carrier
against any claim arising out of pre-shipment damage
• if the present condition of the goods is satisfactory but packaging
is such that it is obvious that the goods cannot withstand the
voyage without loss/damage, the carrier is entitled to so state on
the bill of lading. For example, if fragile goods have insufficient
packing, normal carriage conditions might be expected to cause
damage. If reported on the B/L, this protects the carriers from
claims due to such resulting damage (assuming normal care is
taken during transportation).

Reservations regarding containers


When the shipment is a full container load (FCL), the carrier would
be unaware of the contents of the container. He receives the
container sealed and is unable to check the:
• nature of the goods.
• apparent condition of the goods.
• number of packages
• weight of packages
• quality of stowage inside container.

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Diploma in Shipping Logistics—Jamaica Maritime Institute 3−45
Unit 3: Conventional bill of lading Carriage of Goods by Sea Law

The shipper may describe the goods as “one container containing


500 cartons of machinery spares”. Being unable to check the
particulars of the goods, the question arises as to what the carrier
should allow the shipper to include in the description of the goods, or
what reservations the carrier should make on the bill of lading.
There are two options:
• make the shipper describe the goods simply as “one container
gross weight X kg”. This ensured that the carrier makes no
commitment regarding the goods stowed inside the container,
but only as to the weight of the filled container
• make clear reservations on the bill of lading regarding the
information the carrier is unable to check.

In practice the carrier prefers the second solution. Container bills of


lading for FCL shipments usually contain clauses such as:
one container said to contain 200 bales rubber
weight and contents unknown
or
shippers load and count.
It may be argued that these clauses are not specific enough to be
valid and protect the carrier in the event of loss/damage to the cargo
inside the container. The special nature of container shipments
however requires that the carrier should only be held to have
received a container that was in external good order. Thus the
shipper usually brings independent evidence to show the contents
and quantity of goods stowed in the container, instead of relying on
the statement in the bill of lading. If the container is delivered in
external good order and with the seal intact, the carrier would usually
not be responsible for any loss/damage to the contents of the
container.

Letters of indemnity
In an international transaction, the seller who ships the goods usually
needs a clean bill of lading in order to obtain payment from the bank.
When there is reason to doubt the particulars of the shipment
supplied by the shipper, the carrier may be reluctant to issue a clean
bill of lading as it may result in unnecessary involvement in liability
claims for loss or damage of goods. In this situation, the shipper
may offer the carrier a letter of indemnity in exchange for a clean bill
of lading. Indemnity is protection or security against loss. In this
case, it means that the shipper would protect the carrier from claims
made for damaged or lost goods.

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3−46 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 3: Conventional bill of lading

The letter of indemnity is the written commitment of the shipper to


indemnify the carrier for any claims that may result from issuing a
clean B/L despite any loss and/or damage and/or shortage that may
have been observed at the time of loading the goods.
In the event of a claim against the carrier by the consignee arising
out of loss or damage covered by the letter of indemnity, the carrier
may first have to settle the claim with the consignee. The carrier
may then look to the shipper for reimbursement. If the shipper
refuses to compensate the carrier, the carrier may try to legally
enforce the letter of indemnity.

Legal validity of a letter of indemnity


In many countries, an indemnity given to the carrier by a shipper
may not be enforceable. The reason for this is that the letter’s main
objective is considered to have been to defraud the consignee or the
bank.
When the acceptance of the indemnity involves the suppression of
material facts that the consignee has a right to know, it has been
judicially held that the carrier is an accomplice in deceit or fraud.
Thus, the indemnity itself is illegal and, therefore, void. On the other
hand, the information concerned may be of minor importance and
perhaps even already known to any person experienced in the trade
itself. In such cases it is probable that no deceit would be either
intended or committed. The courts usually refuse to enforce any
agreement that has an illegal motive and letters of indemnity may be
one such instance.
Example:
The bulk of a consignment of juice in barrels was shipped to a
Dutch firm, and the residue of the consignment was sent to a
German firm. The consignment was shipped to London from
Hamburg, it being known to the shippers, ship owners’ agents,
and Dutch buyers that the barrels were old, frail, and leaking on
shipment. A clean B/L was issued by the shipowner’s agents
against the shipper’s letter of indemnity.
Following the arrival of the consignment at Hamburg, the
consignees brought a claim against the shipowners for the loss
that the consignment had suffered in transit. The claim was paid
by the shipowner’s agents. There then followed a claim by these
agents to be indemnified by the shippers under the terms of the
letter of indemnity.
The shippers, in answer to this claim, put forward the plea that
the letter of indemnity was issued in pursuance of a conspiracy
between themselves and the shipowners to misrepresent the
condition of the barrels and was therefore, unenforceable. It was
also argued that the Dutch buyers, being aware of the true

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Unit 3: Conventional bill of lading Carriage of Goods by Sea Law

condition of the barrels on shipment, had no right of recovery


from the shipowner’s agents based upon the issue of a clean
B/L. Accordingly there was no obligation of the shipowner’s
agents to settle the claim made by the consignees.
The ruling of the Court of Appeal was that, by the issue of a
clean B/L, the shipowner’s agents made a representation that
they knew to be false, and which they intended should be relied
upon by persons who received the B/L. Thus, all the elements of
the tort of deceit were present. Therefore, a promise to
indemnify the ships’ agents against any loss resulting to them
from making that representation was unenforceable.
However not all indemnities against clean bills of lading are
unenforceable. For example, a carrier may claim to have discovered
some faulty condition with regard to the goods to be taken on board,
but be assured by the shipper that this is not so. In such a situation
the carrier may issue a clean bill of lading against an indemnity.
This would probably be upheld by the courts in the event that claims
were made against the carrier for those faults.
In trivial matters and bona fide disputes where it is difficult to
ascertain who is correct, the courts may be willing to treat letters of
indemnity as a useful practice and enforce them, assuming that the
carrier “has clean hands” (is innocent of deliberate wrongdoing).
This would be based on the equitable principle that “he who comes
to equity must come with clean hands”. Equity is the principle of
fair justice that supplements or prevails over common law and statute
law.
The uncertainty surrounding the enforcement of letters of indemnity
does not prevent the carrier from issuing clean bills of lading on the
strength of such letter, for it may at times be the only way out for
him. Quite often the carrier becomes aware of the discrepancy
between the description of the shipper and the port tally only when
the bill of lading is presented, by which time the goods have been
loaded on board and it would not be practical to refuse to carry it. It
may also be that the shipper is a regular or important client whom the
carrier would wish to accommodate.
In the final analysis, the value of a letter of indemnity depends on the
shipper’s intention to honour it. It is prudent for the carrier to resist
issuing a clean bill of lading where loss/damage is observed before
loading. This is doubly important because in the event that the
carrier is held responsible by the consignee for such damage, the
carrier cannot later recover this loss from their liability insurers.
Insurers would take the position that the responsibility had been
assumed by the carrier for commercial reasons.

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3−48 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 3: Conventional bill of lading

Bank guarantees supporting letters of indemnity


In the event that a clean bill of lading has to be issued in somewhat
doubtful circumstances, the carrier could request that the letter of
indemnity be supported by a bank guarantee. This gives the carrier a
choice of claiming from the bank if the shipper fails to respond. A
reputable bank would be likely to meet its commitments without the
carrier having to resort to litigation.

Activity
Visit a shipper and/or a carrier and try to obtain or read recent
examples of reservations and letters of indemnity.

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Unit 3: Conventional bill of lading Carriage of Goods by Sea Law

Practice Exercise for Lesson 3


Test your understanding of Lesson 3 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. The carrier need not write on the bill of lading that the shipment
is in good order but must make a note if the shipment is not in
good order (showing damage or shortage).
True or false? Explain.
a. true
b. false
_____________________________________________

2. What is a clean bill of lading?


a. a B/L that is properly signed and dated
b. a B/L on which the carrier has not made any adverse or
contradictory comments about the shipment
c. a B/L on which the shipper has not made any adverse
comments about the shipment
d. a B/L on which no incorrect statements are made

3. What two things might carriers do if they are unsure that the
shipment is as described by the shipper?
a. _________________________________
b. _________________________________

4. Why might the addition of a reservation clause be unacceptable


to a shipper?
a. because the goods may not be acceptable to the consignee
b. because it makes the shipper look dishonest
c. because it means the carrier will not take them
d. because payment by letter of credit may depend upon a
clean bill of lading

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Carriage of Goods by Sea Law Unit 3: Conventional bill of lading

5. If a bill of lading represents a contract of carriage subject to the


Hague Rules, what three provisions of the Rules affect the use of
reservation clauses?
a. _________________________________
_________________________________
b. _________________________________
_________________________________
c. _________________________________
_________________________________

6. It is better to use broad, somewhat vague descriptions when


inserting a reservation clause into the B/L, rather then trying to
be too specific. True or false? Explain.
a. true
b. false
_____________________________________________

7. What is the effect of a reservation concerning the quantity of


goods received?
a. the B/L is no longer evidence of shipment
b. the B/L is no longer a document of title
c. the B/L is less useful as a receipt
d. the B/L is no longer usable for transporting the goods

8. Which two circumstances allow a carrier to insert a reservation


clause about the apparent condition of the goods?
a. ________________________________
_________________________________
b. _________________________________
_________________________________

9. What are two ways to describe an FCL shipment in a B/L so as


to protect the carrier against shipper’s inaccurate descriptions of
the container contents?
a. _________________________________
b. _________________________________

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10. Why might a shipper issue a letter of indemnity to the carrier?


a. because the shipper’s description of the goods is vague or
inaccurate and the carrier needs reassurance
b. so that the carrier can avoid all liability for damage caused
during transportation
c. to satisfy the bank that the goods are shipped in good order
d. to allow the carrier to give a clean bill of lading that will
satisfy the bank issuing a letter of credit

11. Under what circumstances might a letter of indemnity given to


the carrier by the shipper not be recognized as valid by the legal
system?
_____________________________________________
_____________________________________________

12. What is the usefulness of a bank guarantee supporting a letter of


indemnity?
_____________________________________________
_____________________________________________

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Answer keys
Lesson 1
1. c. it provides evidence of the existence of a contract of
carriage

2. The Hague and Hague Visby Rules

3. d. on the reverse side of the bill of lading

4. a. to ensure that at least one original reaches the destination in


time for the receiver to take delivery

5. − amount of cargo (number of items or packages, quantity or


weight)
− condition of the goods (“in good order”, “packaging torn”,
“dented”, etc.)
− clearly legible identifying marks

6. d. no, the shipper may waive the right to insist that the carrier
includes the weight and quantity

7. The carrier may need to contact all the cargo interests in the
event of a casualty.

8. − receipt for shipped goods


− written evidence of a contract of carriage
− document of title

9. b. false
Under the Hague Visby Rules, a carrier may not deny
statements on the bill of lading once it is transferred to a
third party.

10. b. yes, they may refer to oral undertakings, freight notes,


sailing announcements and any other relevant material

11. A negotiable document of title means that the property to which


the document refers may be transferred by endorsement or
delivery to another person.

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12. − the B/L must state that it is transferable


− the goods must be in transit
− the person circulating the B/L must have legal rights (“good
title”) to it

13. a. true
b. false
c. true
d. false
e. true
f. true

14. a. a note containing orders from shipper to carrier

15. c. a B/L for all parcels of goods in a feeder vessel

16. b. carrier

17. d. produce personal identification

18. After checking the tally clerk’s records of what has been
received.

19. Any six of the following:


− identification number of the B/L
− identifying marks of packages
− nature of shipped goods
− shipper’s name
− ship’s agent’s name
− notification address
− weight/measure of shipment.

Lesson 2
1. c. Hamburg

2. a. it should be completed by the carrier, but in practice is


usually filled in by the shipper

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Carriage of Goods by Sea Law Unit 3: Conventional bill of lading

3. The B/L is (amongst other things) a receipt for the shipped


goods. The carrier’s signature confirms the receipt of goods as
described by the shipper.

4. d. yes, because even though it is not signed, the usual terms of


shipping and the details on standard Bs/L are freely
available for shippers to read and understand

5. The carrier must ensure that the unusual clause is clearly legible
and understood by the shipper.

6. c. date on which the bill of lading is signed.

Lesson 3
1. a. true
The bill of lading already has a printed clause stating that
the goods are in order. The carrier notes any damage or
shortage on the B/L to ensure protection against claims of
loss during carriage.

2. b. a B/L on which the carrier has not made any adverse or


contradictory comments about the shipment

3. − include a reservation clause on the B/L


− obtain a letter of indemnity from the shipper

4. d. because payment by letter of credit may depend upon a


clean bill of lading

5. − the carrier must show the apparent condition of goods in the


B/L
− the carrier or carrier’s agent need not show on the B/L any
weights, marks, or quantities that they suspect are not
accurate
− if the carrier does not contradict statements made by the
shipper in the B/L regarding the condition of the goods, the
carrier will be held liable to the consignee for their
condition on delivery

6. b. false
To be legally valid, a reservation clause should be precise
and clearly defined so that the carrier may avoid being held
liable for that particular noted damage or shortage.

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7. c. the B/L is less useful as a receipt

8. − when there is obvious damage to the goods when the carrier


receives them
− when the carrier considers that packaging is inappropriate or
insufficient so that damage or loss is liable to occur under
normal transportation conditions

9. − have the shipper use a neutral description that may be


readily checked, such as “container weighing so many
kilograms”—the container is easily weighed
− make a clear reservation on the B/L regarding information
the carrier cannot check

10. d. to allow the carrier to give a clean bill of lading that will
satisfy the bank issuing a letter of credit

11. A letter of indemnity would be considered invalid if it involved


the suppression of facts that the consignee had a right to know.
That is, if deceit or fraud are involved. The carrier must have
“clean hands”.

12. In the event that the shipper does not respond to a carrier’s claim
(based on the letter of indemnity) in a dispute over loss or
damage, the bank would likely meet its commitment to the
carrier without the need for litigation.

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3−56 Diploma in Shipping Logistics—Jamaica Maritime Institute
Edition: 1.1 January 2000

Distance Education Course SB–205.5


Carriage of Goods by Sea Law

Unit 4 Documents for


multimodal &
multistage
transportation

With the introduction of containers, most cargo is loaded and


unloaded at terminals inland or at the port rather than at the quayside.
The conventional bill of lading has had to be adapted to
accommodate these changes. Shipments, whether containerized or
not, may involve several vessels requiring specialized bills of lading.
The three lessons in this unit will cover the topics of:
• multimodal transport documents
• liability under multimodal transport documents
• through and transshipment bills of lading.

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Unit 4 ...........Activities and expectations


Agenda
To complete this unit, you will:
• Read and study the text in this unit.
• Apply the information by performing the Activities.
• Test yourself by doing the Practice Exercises and checking your
answers.

Resources
There is no textbook for this course. All the information you require
is in this Study Guide. In addition, your Student Manual lists some
books that you may wish to read to expand your knowledge.

Learning outcomes
When you have completed this unit you will be able to:
• Describe the changes in the conventional bill of lading brought
about by containerization.
• Understand and use the terminology of multimodal
transportation documents.
• Identify he characteristics of multimodal transportation
documents.
• Discuss the liability of the carrier at various stages of the journey
under multimodal transportation documents.
• Describe the use of through and transshipment bills of lading.

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Carriage of Goods by Sea Law Unit 4: Multimodal transport documents

Lesson 1...... History and terminology


The transport of containers involves an extension to the carrier’s
responsibility beyond the ship’s rails. The carrier may accept the
container from an inland terminal or sea terminal at the port of
loading, and deliver it at a sea or inland terminal at the port of
discharge. This often means that the container must be transported
to and from the port by the carrier using either road or rail transport.
When containerization commenced, the transport documents used
were conventional bills of lading, which were marginally adapted to
accommodate the issues that arose. It was the sea carriage part of the
transport that was considered to be important. The pre-carriage,
transport to the port of loading, and on-carriage, transport from
destination port to the consignee, by road or rail were considered
supplementary. When container bills of lading first developed a few
clauses were simply added to a conventional bill of lading to deal
with the fact that the cargo was in containers. Gradually however,
internationally recognized transport documents specifically geared to
multimodal transport developed.

Development of the combined transport bill of lading


A combined transport bill of lading (CTBL) resembles a
conventional bill of lading. To begin with, it was the ocean carrier
who required a CTBL to cover pre-carriage and on-carriage periods
of combined transport, which had become an important segment of
the total voyage. The container bill of lading gave the carrier the
flexibility to accept containers from any inland destination.
However, other parties who did not operate ships, or any means of
transport for that matter, but yet wished to undertake the transport of
goods, also used the CTBL for voyages involving a combination of
transport modes.
Although it was historically used in transport involving carriage by
sea, there is nothing to prevent a CTBL from being used in transport
that does not involve sea transport. It can also be used in
transportation that involves only a single mode of transport, such as
sea carriage from port to port.

Liability
In the first container bills of lading, no attempt was made to develop
a uniform system of liability according to which the carrier would
assume responsibility for the whole transport from when the
container leaves the shipper’s premises, to when it is delivered at the

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consignee’s premises. These liability issues are now much clearer


and will be discussed in Lesson 2.

Terminology and definitions


The use of containers introduced the need for new terminology and,
as always occurs during innovations there was much confusion in
what to call things. Standard terminology and usage have developed
but many of the older terms are still widely used.

Multimodal transport operators


A carrier or other person who offers to transport goods by more than
one mode of transport may be called a combined transport operator
(CTO) or a multimodal transport operator (MTO). The United
Nations Convention on International Multimodal Transport of Goods
(1980) used the term multimodal transport. Therefore, the term
multimodal is currently considered more appropriate than combined.
The terms vessel operating and non-vessel-operating multimodal
transport operators (VO-MTOs and NVO-MTOs) are used for
uniformity and precision.

Multimodal transport documents


The combined transport bill of lading (CTBL) is a bill of lading that
is used where one party undertakes to carry goods by more than one
means of transport in a single continuous flow. It usually refers to
transportation that includes carriage by sea.
The terms combined transport document (CTD) and multimodal
transport document (MTD) are used interchangeably with CTBL.
Technically and historically, they were different than CTBLs,
because they did not necessarily refer to ocean transport and were
considered more general than CTBL. In practice, nowadays, there is
no substantial difference in the contents of these documents.
The most all-embracing, widespread term for such transport
documents is the multimodal transport document. Newer CIF and
FOB contracts specify the use of MTDs rather than bills of lading.

Negotiability of multimodal transport documents


The legal restraints on the negotiability of multimodal transport
documents as documents of title in international trade have gradually
disintegrated. At first they were regarded as being merely evidence
of receipt for shipment by the MTO. Users of these documents now
accept that they are fully negotiable and they are commonly
described as such on the face of the documents. Most significantly,
the use of combined transport documents under letters of credit was

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sanctioned by the ICC’s Customs and Practice for Documentary


Credits (1984).
The MTD is defined as follows:
The MTD is a negotiable transport document used
when at least two different modes of transport are
required under a letter of credit.

Activity
Try to visit a container shipping company and talk to someone who
works with the transport documents.
1. Find out what terminology they use for the documents for
multimodal transportation of cargo.
2. Find out what are the advantages and disadvantages of container
shipping from a carrier’s point of view.

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Practice Exercise for Lesson 1


Test your understanding of Lesson 1 by answering these questions.
Check your answers and read again any parts you found difficult.
The answer key is at the back of this unit.
1. What do the following abbreviations stand for?
a. CTO
b. MTO
c. CTBL
d. CTD
e. MTD

2. Which term does the UN prefer to use as the standard?


a. CTBL
b. CTD
c. MTD

3. What is a CTBL used for?


_____________________________________________
_____________________________________________
_____________________________________________

4. Why were CTBLs and MTDs necessary?


a. because sea transport became less important
b. to provide terms of carriage for inland transportation
c. to provide protection in case containers contained damaged
cargo
d. to extend terms of carriage to include overland transport

5. What is the definition of an MTD?


_____________________________________________
_____________________________________________
_____________________________________________

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Carriage of Goods by Sea Law Unit 4: Multimodal transport documents

Lesson 2...... Liability of the carrier in


multimodal transport
The whole issue of liability of the carrier is more complex when
several modes of transport are involved, possibly with the use of
other, subcontracted carriers. This is further complicated by the use
of varied terminology and a variety of transport documents.

International agreements
Attempts have been made to establish an international regime of
liability for carriage by more than one mode of transport. There have
been two important international agreements:
• the International Chamber of Commerce’s 1973 voluntary code
regarding uniform rules for combined transport documents.
These rules have no statutory force in themselves They operate
only by virtue of the contract between the consignor and the
operator that may comply with them
• the United Nations Convention on International Multimodal
Transport of Goods (1980) held that the transport operator is
liable for the whole of the transport covered by a multimodal
transport contract.

Responsibility clauses in a bill of lading


Historically, sea-going carriers were not responsible for pre- and on-
carriage periods of the transport. Their liability was limited to the
period during which goods were within the boundaries of the ship’s
rail. Containerization produced the need for clarification of
responsibilities during pre- and on-carriage. The following is an
example of a responsibility clause in a bill of lading used for
container transport:
RESPONSIBILITY. The carrier shall not be
responsible for loss of or damage to goods during
the periods before receipt of the goods at the sea
terminals at the port of loading or after delivery of
the goods at the sea terminals at the port of
discharge. The appropriate Carriage of Goods by
Sea Act is hereby deemed to apply during the entire
period the goods are laid at the sea terminals.
Nevertheless where by the nature of this bill of
lading where the contract of carriage is in respect of

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through transit of containerised or unitized goods


commencing at and terminating at interior places
which are expressly stated in the bill of lading the
carrier shall be responsible for the goods in the
manner herein provided from the time they are
received for shipment until they are delivered at the
specified place at the destination.
During the period before receipt of the goods at the
sea terminal of the port of loading or after delivery
of the goods at the sea terminal at the port of
discharge, the carrier hereby accepts the same
liability in respect of the goods as would have
existed if every participating sub carrier had made a
separate and direct contract of carriage with the
merchant in respect of that part of the through
transit undertaken by him.
If it cannot be established in whose custody the
goods were when damage or loss occurred the
damage or loss shall be deemed to have occurred
during the sea voyage, and the appropriate Hague
Rules legislation shall apply.

Liability under multimodal transport documents


The ocean-going carrier usually uses the services of other carriers
(for example road hauliers or railway companies) to transport goods
to and from the port. Where losses occur at sea, liability is handled
as under a conventional bill of lading (see Unit 3). That is, if any
national law or international convention is applicable to the contract,
the operator’s liability is governed by that law or convention.
Therefore, the Hague and Hague Visby Rules apply quite often. If
there is no applicable national law or international convention, the
liability of the operator is governed according to the terms included
in the transport document.

When loss is not at sea


Where loss or damage is identified as having occurred during a mode
other than carriage by sea, (for example road or rail) the carrier is
responsible to the shipper/consignee according to the liability regime
applicable to that mode of transport. If any national law or
international convention is applicable to the contract, the transport
operator’s liability is governed by the terms included in the
document.

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The liability of the MTO is identical to the liability accepted by the


carrier who actually performed that part of carriage. This is referred
to as the network liability principle. For example, if the goods are
damaged during the pre-carriage by road, the carrier accepts the
same responsibility as a road haulier. If any national law or an
international convention is applicable to carriage of goods by road,
the carrier’s liability is governed by such laws.

When the place of loss cannot be established


When the stage of transport where loss or damage occurs is not
known, the liability of the operator usually depends on the specific
terms of the transport document.

CTBL liability clauses


The CTBL usually contains specific (and often elaborate) clauses
about the combined transport operator’s liability. The following are
typical clauses from a CTBL:
Period of liability
The CTO assumes liability and undertakes to pay
compensation for loss of or damage to the goods
occurring within the same time of taking them into
his charge and the time of delivery, to the extent set
out in this CTBL.
When the stage of transport where loss occurred is
not known:
Compensation shall be calculated by reference to
the value of such goods at the time and place they
are delivered or should have been delivered.
The CTO shall not be liable to pay compensation if
the loss or damage was caused by: an act or
omission of the merchant… Insufficient or defective
nature of the goods or packing… Strikes, lockouts,
stoppage etc….

Claims and liability under the UN Convention


The basis of liability of the MTO under the UN Convention is
similar to that of the Hamburg Rules and is based on the concept of
“presumed fault or neglect” wherever the loss/damage occurs. That
is, the operator accepts liability for the goods from the place of
receipt until the place of delivery, as noted on the multimodal
transport document. The liability of the MTO is thus independent of

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the subcontractors. All claims are made directly against the MTO,
who then may seek redress from sub-contractors.

Activity
Talk to a carrier about the issues of liability and responsibility for
safe transportation when containers are used. Find out what their
procedures for checking cargo, containers, and documents are.

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Practice Exercise for Lesson 2


Test your understanding of Lesson 2 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. What is the main difference in responsibilities for the carrier in
transporting containerized rather than loose cargo?
_____________________________________________

2. What is in a responsibility clause in a bill of lading used for


container transport?
a. the carrier’s responsibility on the ocean leg
b. the varied liability of the carrier throughout the
transportation chain
c. the varied liability of the shipper throughout the
transportation chain
d. a description of responsibility for the container as opposed
to the cargo itself

3. If the main leg of the journey is by sea, what type of


responsibility must the carrier accept for the pre-carriage leg by
rail to the port?
a. the same as the ocean leg of the journey
b. the standard one for pre- and post-carriage
c. the same as would apply to road hauliers
d. the same as would apply to rail hauliers

4. What is the carrier’s liability if the carrier sub-contracts one leg


of the journey under a combined transport bill of lading?
a. the carrier accepts the same liability as a sub-contractor
would have had for that leg of the journey under a separate
direct contract of carriage
b. the carrier has no liability for that leg of the journey. It is as
though that leg is under a separate contract of carriage
between the subcontractor and the client

5. What is the carrier’s liability if it cannot be established where in


the multimodal transportation the damage took place?
_____________________________________________

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Lesson 3 ......Through and transshipment


bills of lading
So far in this unit, we have mainly considered a bill of lading for
carriage between two ports performed by one ship. It is not unusual
however for such carriage to be performed by more than one ship,
with one or more transshipments at way ports. That is, the carrier
may move the cargo from one ship to another while it is in transit.
The cargo need not necessarily be containerized. The following
example illustrates the possible complexity of modern cargo
shipping involving several stages.
Example 1:
A 45 ton, 402 cubic-metre filter destined for a paper mill in
eastern Sumatra was recently shipped from Finland. The
Finnish office of an international carrier issued a CTBL for the
total transport. Pre-carriage by feeder ship was from Finland to
Hamburg. The filter was then transshipped aboard the NOL IRIS
for transport to Singapore. The Singapore office of the same
company arranged further transshipment to Sumatra and then
final on-carriage by barge to the filter’s final destination.
The following somewhat simpler example of transshipment is a
typical occurrence within the Caribbean. It illustrates what
information may or may not be included in the bill of lading.
Example 2:
Goods are scheduled to be shipped from the UK to Jamaica via
Trinidad and Tobago. The carrier or agent would agree to carry
the goods to Jamaica knowing that the cargo would have to be
transshipped in Trinidad and Tobago. The carriage from
Trinidad and Tobago to Jamaica would be performed by another
carrier. The bill of lading may or may not contain a statement that
the cargo will be transshipped in Trinidad and Tobago.
When a voyage has several stages, the contracting carrier may make
arrangements by means of sub-contracts for carriage in the other
stages of the voyage. Most often, the contracting carrier is the first
carrier. To facilitate this type of arrangement, two types of transport
document are used: the through bill of lading and the transshipment
bill of lading.

The through bill of lading


The term through bill of lading is loosely used to refer to a document
containing a contract of carriage that is in stages. The separate
stages would be performed by different carriers by a process of
transshipment.

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In practice, the through bill of lading has two characteristics that


distinguish it from conventional bills of lading. It contains:
• a clause giving the carrier the right to transship the cargo
• a statement that the cargo will be transshipped at a particular
port.

The transshipment bill of lading


The transshipment bill of lading is nothing more than a receipt from
the second carrier to the first carrier. It verifies that the goods have
been received on board the second ship. The first (contracting)
carrier forwards this transshipment B/L to the contracting carrier’s
agent at the port of discharge. When the goods arrive at the
destination port, this agent can then present the transshipment B/L to
obtain a delivery order for the goods.

The way these B/Ls work together


The way these bills of lading work is as follows:
1. At the first port of loading, the contracting carrier (who is
usually the first carrier) issues a through bill of lading to the
shipper.
2. At the transshipment port, the second carrier issues a
transshipment bill of lading to the first carrier.
3. The contracting carrier forwards the transshipment B/L to the
carrier’s agent at the port of discharge.
4. When the vessel on which the goods are transshipped arrive at
the port of discharge, the agent of the contracting carrier presents
the transshipment B/L and obtains the delivery order for the
goods. Under normal circumstances, the contracting carrier
would likely have transshipped goods belonging to several
shippers. In this case, the contracting carrier’s agent would
obtain separate delivery orders for each shipment.
5. The consignee may or may not be aware that the goods have
been transshipped. The consignee presents the through bill of
lading to the agent of the contracting carrier and obtains the
delivery order to take delivery of the goods (usually from the
port).

There is no fixed method by which delivery orders are given to the


consignee. The contracting carrier may work out a method which
suits all the parties involved. The method outlined above would be
particularly useful in a situation where the shipper and consignee are

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not aware of the transshipment or do not know on which vessel the


goods are to be transshipped to the destination.

Legal differences of through and transshipment B/Ls


The question arises as to whether the through and transshipment bills
of lading have the same legal effect as the conventional bill of
lading. That is, are they receipts for goods shipped, evidence of the
contract of carriage, and transferable documents of title?
• The through bill of lading is recognised as having all three
characteristics of the conventional bill of lading.
• The transshipment bill of lading is a receipt for goods shipped,
and may contain the contract or arrangement between the two
carriers. However, it is not a document of title.

Holders of through B/Ls can claim delivery of goods at the


destination on the strength of a through B/L alone. They can obtain
compensation against the first carrier for loss and damage. They
may also be able to claim against the subsequent carriers if the place
of damage or loss can be proved to have occurred in those legs of the
voyage.

Activity
Talk to a carrier and try to obtain samples of through and
transshipment bills of lading. Read everything printed on them.

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Carriage of Goods by Sea Law Unit 4: Multimodal transport documents

Practice Exercise for Lesson 3


Test your understanding of Lesson 3 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. What are the two characteristics of a through bill of lading?
a. ___________________________________________
b. ___________________________________________

2. In what important way is a transshipment bill of lading different


from a conventional bill of lading?
a. it is not a receipt for goods shipped
b. it is not document of title
c. it is not evidence of a contract of carriage
d. there is no important difference

3. Where is a through bill of lading issued?


a. at the first port of loading
b. at the first transshipment port
c. at all ports of loading
d. at the port of discharge

4. Who gives and receives the transshipment bill of lading?


a. it passes from the contracting carrier to the first carrier
b. it passes from the first carrier to the second carrier
c. it passes from the second carrier to the first carrier
d. it passes from the second carrier to the carrier’s agent

5. Holders of a transshipment bill of lading can claim delivery of


goods at the destination on the strength of that B/L alone. True
or false? Explain.
a. true
b. false
_____________________________________________

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Answer keys
Lesson 1
1. a. CTO = combined transport operator
b. MTO = multimodal transport operator
c. CTBL = combined transport bill of lading
d. CTD = combined transport document
e. MTD = multimodal transport document

2. c. MTD

3. The combined transport bill of lading is used where one party


undertakes to carry goods by more than one means of transport
in a single continuous flow. It usually refers to transportation
that includes carriage by sea.

4. d. to extend terms of carriage to include overland transport

5. The multimodal transport document is a negotiable transport


document used when at least two different modes of transport are
required under a letter of credit.

Lesson 2
1. The main difference is the addition of pre- and post-carriage to
the ocean leg of the carriage.

2. b. the varied liability of the carrier throughout the


transportation chain

3. d. the same as would apply to rail hauliers

4. a. the carrier accepts the same liability as a sub-contractor


would have had for that leg of the journey under a separate
direct contract of carriage

5. The damage for which the carrier is liable is deemed to have


taken place during the sea voyage.

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Lesson 3
1. A through bill of lading contains:
− a clause giving the carrier the right to transship
− a statement that the cargo will be transshipped ata particular
port.

2. b. it is not document of title

3. a. at the first port of loading

4. c. it passes from the second carrier to the first carrier

5. b. false
Holders of the through bill of lading may claim the goods at
the destination. The transshipment bill of lading enables the
agent of the contracting carrier to obtain the delivery order.
This agent has received the transshipment B/L from the
contracting carrier.

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Distance Education Course SB–205.5


Carriage of Goods by Sea Law

Unit 5 The functions of


parties to ocean
transportation
Many people are involved in modern carriage of goods by sea. Their
interactions can be complex, and it is important to understand their
individual and mutual responsibilities.
The three lessons in this unit will cover the topics of:
• ship’s agents and brokers
• shipper, consignee, and related parties
• ancillary parties.

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Unit 5........... Activities and expectations


Agenda
To complete this unit, you will:
1. Read and study the text in this unit.
2. Apply the information by performing the Activities
3. Test yourself by doing the Practice Exercises and checking your
answers.

Resources
There is no textbook for this course. All the information you require
is in this Study Guide. In addition, your Student Manual lists some
books that you may wish to read to expand your knowledge.

Learning outcomes
When you have completed this unit you will be able to:
• Identify various parties to the carriage of goods by sea.
• Describe the functions of the various parties to carriage of goods
by sea.
• Describe the relationships among these various parties and how
they are governed.

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Lesson 1 ......Ship’s agents and brokers


With the possible exception of ancillary parties such as the port
authorities and the functionaries of customs, the responsibilities of
the parties in the maritime transport chain are governed in the main
by contracts. The general law of contract therefore regulates the
relationships among the various parties.

The ship’s (port) agent


The ship’s agent or port agent represents the owner of the cargo
carrier whilst the ship is in a port of call. This agent is responsible
for the husbandry of the ship before and during its call to a port. The
agent’s functions include:
• attending to the administrative formalities of the port
• arranging the supplies and bunkers to the ship
• resolving problems relating to the crew
• attending to loading and discharging operations
• providing technical assistance to the ship
• providing legal assistance if required.

Providing information
In addition to dealing with these ship-related duties, the agent must
constantly keep the shipping company informed about conditions in
the port. This information includes such things as freight rates,
market trends, and any commercial or legal changes that may affect
the company’s operation. Some examples of relevant changes are
new policy regulations on cargo allocations or liner conferences, new
carriers on the scene, structural changes in the port, changes in
pilotage or port regulations, and so on.

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Functions before the vessel reaches port


Before the vessel calls at the port, the agent prepares for its call, in
the following ways:
• export cargo—marketing and booking the cargo
• import cargo—notifying appropriate parties of the arrival of
ship, ensuring discharge and delivery
• port administration—making provision for the ship’s arrival
(arranging pilotage, berthing, and cargo storage)
• ship’s requirements—the carrier or master should usually telex
or radio these requirements to the agent before arrival. They
may include such items as cash advances, bunkers, stores, fresh
water, crew changes, and repairs.

Functions while the vessel is in port


During the ship’s call at the port, the agent attends to the following
activities:
• cargo handling—co-operate with port authorities, stevedores
and deck officers to load and discharge the cargo
• scheduling—
– monitor the loading or discharge to avoid unnecessary
delay
– maintain close contact with the receivers to ensure
prompt delivery or removal of the cargo

• supplies and services for master and crew—ensure needs for


bunkers, water, stores, cash, medical care etc. are met
• documentation—
– arrange for the preparation of transport documents such
as cargo manifests and stowage plans
– check and sign bills of lading as required
prepare a report on the ship’s call at the port

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• finances—collect freight from shippers and receivers


• information and communication—
– keep the shipping company (carrier) and its agents at the
next port fully informed of the progress of cargo
operations and any other relevant details relating to the
movement of the ship
inform the head office of the shipping company and its agent
at the next port about the date and time of vessel
departure

• legal requirements—
– examine any claims that have been made against the
vessel and process the claims (particularly cargo claims)
if he has authority to do so
accept service of writs and other court documents. This
would depend upon the extent of the contract with the
carrier and whether such is provided for in the contract.

The shipbroker
The usual and principal function of a shipbroker is to arrange
contracts for chartering, buying, or selling an entire vessel. The
broker provides information about the market and assists in the
negotiation of contracts. A shipbroker is an agent for one, or in some
cases both, of the parties to the contract whether it is a charter party
or a sales agreement.
The shipbroker’s role is essentially to provide the link between the
parties seeking to charter, sell, or buy a vessel. For example, the
broker might link a carrier who has an empty ship or empty space
with a shipper who requires transport capacity.

Chartering brokers and sales brokers


The shipbroker may be called a chartering broker or sales broker
depending on the functions performed.

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• Chartering brokers assist in the negotiations that result in the


charter party. Sometimes the broker negotiates directly. The
usefulness of the chartering broker lies in the provision of
information about the current freight market and expertise in
drafting and interpreting charter parties.
• Sales brokers provide a similar function in the sale and purchase
of second-hand ships, linking the parties and helping to negotiate
the sale or purchase. Some brokers specialize in tankers, and
they are at times called tanker brokers.

Activity
1. Arrange to visit a ship’s agent in the port nearest to you and
discuss the work they do.
2. Arrange to visit a shipbroker in the port nearest to you and
discuss the work they do.

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Practice Exercise for Lesson 1


Test your understanding of Lesson 1 by answering these questions.
Check your answers and read again any parts you found difficult.
The answer key is at the back of this unit.
1. How are most relationships among parties to ocean
transportation of cargo defined and governed?
_____________________________________________
_____________________________________________

2. Who represents the owner of a cargo carrier when it is in a port


of call?
a. shipper’s agent
b. ship’s agent
c. shipbroker
d. port administrator

3. List at least four functions of a port agent.


a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________

4. What important function in addition to ship-related and cargo-


related duties do ship’s agents have?
_____________________________________________

5. List at least four things done by a ship’s agent to prepare for a


vessel’s arrival in port.
a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________

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6. Who is responsible for collecting freight from shippers and


receivers?
a. shipper’s agent
b. ship’s agent
c. shipbroker
d. port administrator

7. Who is responsible for preparing reports on a particular ship’s


call at a port?
a. shipper’s agent
b. ship’s agent
c. shipbroker
d. port administrator

8. Who is responsible for arranging the needed contacts for buying


and selling a cargo vessel?
a. shipper’s agent
b. ship’s agent
c. shipbroker
d. port administrator

9. Who is responsible for helping a cargo shipper to charter a


vessel?
a. shipper’s agent
b. ship’s agent
c. shipbroker
d. port administrator

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Lesson 2 ......The shipper, consignee, and


related parties
The shipper
The shipper is the person who enters into a contract with the carrier
for the carriage of goods by sea. A shipper may be a bulk shipper or
a liner shipper.

Bulk shippers
A bulk shipper ships a large quantity of homogenous goods, (packed
or unpacked) requiring the loading capacity of an entire ship or a
large part of a ship. A bulk shipment is usually performed on the
basis of a charter party.

Liner shippers
A liner shipper ships small homogenous or heterogeneous parcels of
goods that require relatively small amounts of shipping space for
each shipment and are shipped to numerous destinations. The
shipments may be direct to destination or via transshipment at
intermediate ports. A liner shipment is performed on the basis of a
bill of lading.

Shippers, charterers, and contracts of carriage


Where the shipper is someone other than the charterer, then the
contract of carriage is governed largely (though not entirely) by the
terms of the bill of lading. The contract may also incorporate further
express terms such as terms from a commercial invoice or booking
note.
Where the shipper is the charterer, then it is the terms of the charter
party that govern the contract of carriage.

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Role of the shipper


The role of the shipper is to:
• obtain the goods and prepare them with adequate packing for
shipping
• find an appropriate vessel for this cargo. This may be done
directly with a carrier, shipping agent, or port agent; or it may be
done with the help of a freight forwarder
• send the goods to the load port, so that the ship can load without
delay
– in a shipment under a bill of lading the carrier or agent
would call for the cargo and fix a time for the cargo to be
sent down to the port
in a voyage charter, the ship would give notice to the
charterer as soon as it is ready to begin loading
operations. The shipper would then have, for example,
24 hours to get the cargo to the quay or place of loading
and commence loading.

The shipper and container shipments


For full container load (FCL) shipments, the shipper would:
• arrange with a trucker/haulier to bring the empty containers and
return the loaded containers to the carrier
• observe the times stipulated by the carrier for pick-up of empties
and delivery of loaded containers
• provide dunnage and other material and stow the cargo properly
inside the container
• make accurate representations to the carrier with regard to the
nature, condition, weight, and measurement of the cargo inside
the container.

For less-than-full container load (LCL) shipments, the shipper would


deliver the cargo properly packed and labelled to the carrier at
designated times.
Sometimes the shipper is also the trucker/haulier, but most often this
is not the case. Some responsibilities for container shipments belong
to the trucker/haulier, who would:

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• ensure that the chassis is mechanically sound and in good


condition
• take care of the container while it is in his/her custody
• deliver the loaded container to the carrier
• complete the equipment interchange report (EIR).

The consignee/receiver
The consignee or receiver is the person named in a bill of lading
(B/L) to whom goods are to be delivered. Normally, the B/L states
that goods are deliverable to the consignee or their “order or
assigns”. In this case, the contract of carriage is governed basically
by the B/L terms together with any other terms expressly
incorporated into it.
Where the shipper has the goods made deliverable to the shipper’s
agent then there is no real consignee. The shipper becomes, in effect
the consignee, and the agent is an “order or assign”.
The significance of this lies in the relative importance of the
statement about the condition of the shipment signed by the carrier in
the B/L. This statement is only regarded as prima facie1 evidence in
disputes between shipper and carrier about the condition of goods. It
would serve as conclusive evidence in a dispute between consignee
and carrier.

The contract of carriage and the receiver


One of the basic principles of the law of contract is that a person who
is not a party to a contract cannot get any benefit nor have any
obligation under it. This is referred to as the “privity of contract”.
The contract of carriage is made between the shipper, who may be
the seller, and the carrier. The receiver, who may be the buyer, is not
a party to the contract and would usually have no rights or
obligations under the contract.
The receiver, however, has to deal with the carrier on two important
matters:
• obtaining delivery of the goods
• making a claim on the carrier in the event of cargo loss or
damage.

1
Prima facie evidence means at first sight; based on first impressions.

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Delivery
The unique nature of the bill of lading enables the receiver to be the
person entitled to the goods. According to the contract of carriage as
enumerated in the bill of lading, the carrier undertakes to deliver the
goods to the named receiver or any one who produces a properly
endorsed bill of lading. Thus the person who holds the bill of lading
gets delivery upon its production and is considered the receiver.

Claims against the carrier


The problem of claims made by someone who is not privy to the
contract is difficult. Various methods have been devised over the
years to get round the problem. In English Law, the problem was
settled in 1855 by the passing of the Bills Of Lading Act, which
states that:
Every consignee of goods named in a bill of lading
and every endorsee of a bill of lading to whom
property in the goods have passed shall have
transferred to him all rights of suit and be subject to
the same liabilities in respect of such goods as if the
contract continued in the bill of lading had been
made with himself.
This Act has been incorporated into the laws of many Caricom
states. Examples are the Bills of Lading Act of Jamaica (1872) and
the Schedule to the Trinidad & Tobago Carriage of Goods by Sea
Act 1926 on Rules Relating to Bills of Lading.

The endorsee
The endorsee is the person to whom the bill of lading has been
assigned by endorsement by the previous holder. The most recent
case law indicates that, for the endorsee to sue on the basis of a bill
of lading, both endorsement of the B/L and delivery of the goods
must have been made to the same person.

The freight forwarder


The traditional role of a freight forwarder was that of an intermediary
between carrier and shipper. The freight forwarder acted as an agent
in making the transport arrangements without actual possession of
the goods.
The modern role of the freight forwarder is a complex one and often
involves extended services. These cover all activities involved from
the time the cargo leaves the shipper’s warehouse up to the time it is
delivered at its destination. The freight forwarder may act for the

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shipper or receiver. When acting for the receiver the freight


forwarder is sometimes called the clearing agent.

The general role of the freight forwarder


The services rendered by a freight forwarder to the client may be as
follows:
• providing professional advice on the selection of the carrier
• informing the client of the formalities that must be completed
before shipping the goods (for example, export clearance)
• sometimes attending to these formalities
• arranging the road/rail transport to the port
• arranging for customs to check the goods
• taking delivery of the goods for the receiver
• in the case of loss or damage to cargo, tendering reservations as
required against the carrier
• in the case of transshipment cargo, arranging for the
warehousing of the goods at the port and reshipping them under
optimum conditions of price and time.

The freight forwarder and customs broker


The freight forwarder is often also a custom agent. In many islands
of the Caribbean region, the role of the freight forwarder is made
distinct from that of a customs broker. However, both parties may
operate from the same office and even within the same company, but
offering distinct services.
The legal responsibility and liability of the freight forwarder in this
regard are limited by the terms and conditions of the contract
between the freight forwarder and the shipper.

Varying roles for exports and imports


The role of the freight forwarder varies depending upon whether the
cargo dealt with is being imported or exported.

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Import cargo
The carrier may discharge and deliver imported cargo in two ways:
• direct delivery of goods from the ship’s tackle to the vehicles of
the receiver
• indirect delivery of the goods such as when the goods are
delivered into the custody of the port for storage. The port
would later deliver the goods to the receiver.

The freight forwarder may therefore do the following:


• take delivery of the goods either from the carrier directly or from
the port
• if the freight is payable at destination, pay it and all port charges,
which would include stevedoring and warehousing expenses
• arrange for customs formalities to be completed and pay any
dues before he clears the goods from the port
• take all necessary measures to preserve the rights of the client
against the vessel, which may involve making reservations on
the bill of lading
• notify the carrier of any loss or damage to the goods
• inform the cargo insurer or insurers agents of any loss or damage
and arrange a survey of the goods
• forward the bill of lading to the shipper.

Export cargo
When dealing with export cargo, the freight forwarder does the
following:

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• receives the goods at (or near) the port or arranges for their
transport from the premises of the client to the port
• completes the customs formalities or arranges for these to be
completed by an authorized custom agent
• in some ports, delivers the goods either stacked in warehouses or
on the quay to the port authority or the shore handling company
before loading operations begin
• in other ports, delivers the goods directly on to the quay for
loading
• completes the bill of lading and obtains the signature of the
carrier or agent
• takes any required measures to defend the interests of the client.
For example, the freight forwarder may tender reservations
against the road haulier in the event of any loss or damage to
goods. This would protect the client’s right to take subsequent
action.

The multimodal transport operator


A multimodal transport operator (MTO) is a person who concludes a
contract to carry goods by more than one means of transport and may
function either as carrier or as shipper. MTOs can be divided into
two categories:
• vessel-operating multimodal transport operators (VO-MTOs).
• non-vessel-operating multimodal transport operators
(NVO-MTOs); also known as non-vessel-operating common
carriers (NVOCCs).

VO-MTOs
VO-MTOs are shipowners who extend their services (mainly
because of containerization) to include carriage over land and even
carriage by air. Normally they do not own or operate means of
transport by road, rail, or air. They arrange for these forms of
transport by subcontracting with other carriers.

NVO-MTOs
NVO-MTOs are not ocean carriers (shipowners). In fact, although
they may be owners or operators of some other means of transport
such as trucks, they need not own or operate any means of transport
at all. These businesses arrange the carriage of goods by using more

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Carriage of Goods by Sea Law Unit 5: Functions of parties

than one means of transport. They do this by subcontracting with


carriers, and usually offer a door to door service.

Freight forwarders and NVO-MTOs


Misunderstandings at times occur over the role of a freight forwarder
and an NVO-MTO. This is because many freight forwarders have
diversified their activities to such an extent that they at times offer to
carry cargo, operating effectively as NVO-MTOs. From a legal
point however, the role of the freight forwarder and the NVO-MTO
is quite distinct and separate.
• Freight forwarders commit themselves to ensure the smooth
flow of the cargo according to the instructions of their clients,
using all means at their disposal. Their obligations are to
facilitate carriage and to attend to the ground arrangements.
They have no commitment to ensure that the cargo reaches its
destination.

• NVO-MTOs are responsible for cargoes not only while they are
in their custody but even while they are in the custody of the
subcontracted carriers. Unlike the freight forwarder, the NVO-
MTO has to achieve the end result, and ensure that the cargo is
delivered.

Although the two are easy to distinguish legally, from the operational
point of view it could be difficult to determine whether a certain
function was performed by some one acting as a freight forwarder or
as an NVO-MTO.

Activity
1. Talk to a carrier, a shipper, and a freight forwarder about the
ways their jobs are affected by containerization.
2. Discuss with a freight forwarder and an MTO the ways in which
their functions overlap and differ.

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Practice Exercise for Lesson 2


Test your understanding of Lesson 2 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. Which type of shipper ships small parcels of goods to numerous
destinations?
_____________________________________________

2. What type of document usually specifies the terms of carriage


for a bulk shipper?
a. they are not specified
b. charter party
c. contract of carriage
d. bill of lading

3. What type of document usually specifies the terms of carriage


for a liner shipper?
a. they are not specified
b. charter party
c. contract of carriage
d. bill of lading

4. If the shipper is not the charterer of the cargo vessel, what is the
main source of the terms of carriage?
a. they are not specified
b. charter party
c. contract of carriage
d. bill of lading

5. Name four parties who might help the shipper to find an


appropriate vessel.
a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________

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6. How does the shipper know when to load goods on vessel under
a voyage charter?
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________

7. When a shipper wishes to send in a container a shipment that


will not completely fill it, what are the shipper’s responsibilities
regarding packing and stowing?
a. stow the packed shipment in the container with plenty of
dunnage and other protective material
b. give the cargo to the carrier to pack and stow in the
container
c. give the packed cargo to the carrier to stow in the container
d. give the cargo to the haulier to pack and stow in the
container

8. Why might a consignee be better off to be named in the bill of


lading, rather than have the shipper’s agent be the named
receiver?
_____________________________________________
_____________________________________________
_____________________________________________

9. What is privity of contract?


_____________________________________________
_____________________________________________

10. Given the tradition of privity of contract, how is it that a


consignee may make claims under a contract of carriage between
a shipper and a carrier?
_____________________________________________
_____________________________________________
_____________________________________________

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11. Under what conditions may an endorsee sue under the terms of a
bill of lading?
a. whenever the endorsement is proper (legal)
b. when it is properly endorsed and the cargo is delivered to
the endorsee
c. when the endorsee collaborates with the receiver of the
goods
d. an endorsee may not sue under the terms of a B/L

12. What is the difference between a freight forwarder and a clearing


agent?
a. the freight forwarder acts for both shipper and receiver, but
the clearing agent acts only for the receiver
b. the freight forwarder acts for the shipper and the clearing
agent acts for the receiver
c. the freight forwarder acts for the receiver and the clearing
agent acts for the shipper
d. the clearing agent acts for both shipper and receiver, but the
freight forwarder acts only for the receiver

13. What is the usual relationship of the freight forwarder and


customs agent in the Caribbean region?
a. they operate totally separately
b. they operate separately but offer similar services and may
work from the same office
c. they operate separately, offering distinct services, but may
work from the same office
d. the same person may do both jobs

14. List at least five things the freight forwarder may have to do
when helping with imported cargo.
a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________
e. _________________________________

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15. From a legal point of view an MTO may act as


a. a carrier or a shipper
b. a carrier only
c. a shipper only
d. a freight forwarder

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Lesson 3 ......Ancillary parties


Various other organizations are important players in the maritime
transportation chain. They perform services that facilitate operation
of the vessels, cargo handling ship-to-shore and vice versa, and the
import and export of cargoes.

Port authorities and operators


Some port authorities are completely autonomous, others more
directly controlled by government. All are empowered by and
answerable to a port city, state, provincial, or regional government.
In many developing countries there is some control by central
government. A port authority has responsibility for:
• safe navigation
• traffic control
• harbour maintenance
• port development.

Usually the port delegates some of its authority and duties to other
organizations. Often they charge certain tariffs to those using the
port’s facilities.

Landlord ports
The port authority may delegate all of its function related to port
operations to private companies by way of management contracts.
This is the case in the Port Authority of Jamaica, which operates as a
regulatory authority as well as a landlord port. This means that
although it may own some port facilities, it does not itself operate
any of these facilities.

The port and the cargo transport chain


The port is a key point in the maritime transport chain and today
provides a number of diverse services. In smaller ports, these
services might be offered by a single organization, but in some ports
these services are undertaken by separate entities. For example a
private shore handling company may arrange for the storage and
custody of the cargo before loading and after discharge, while
another stevedoring company would arrange for the actual loading
and discharge of cargo. In some other ports, however, shore
handling and stevedoring services are provided by the port authority,
the port workers at times specializing in various tasks.

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Carriage of Goods by Sea Law Unit 5: Functions of parties

Cargo functions of a modern port


A reasonably clear distinction can be drawn in modern port
operations, resulting in three separate main functions, which are
undertaken by different types of port workers:
• cargo handling—this is performed by stevedores. It is a
physical activity consisting of loading, stowing, breaking stow,
and discharging cargo.
• cargo reception and identification—this is done by shore
handling personnel such as cargo receivers, tally clerks, store
keepers, etc. These port personnel receive the cargo from the
shipper/freight forwarder and arrange for its storage and custody.
They move the cargo under the appropriate ship’s tackle during
loading operations.
• cargo storage and custody—these people store and conserve
the goods after discharge and prior to their delivery to the final
receivers. They also store goods prior to loading.

Shore handling company responsibilities


Since the shore handling company (or the port authority) may in
principle be responsible for the goods, they take a count of the goods
and examine them jointly with the carrier at the time of loading and
discharge. This is done to ensure that they are not liable for loss or
damage that has taken place while the cargo was in the custody of
the carrier.
If cargo is found to be damaged, such damage would be noted on the
documents issued by them. The documents are signed by the master
or one of the ship’s officers and by a representative of the shore
handling company or port authority. They become important
documents for both the port and the carrier on questions of liability.

Customs brokers and customs officers


Customs brokers and officers execute customs formalities and secure
revenue to the countries in respect of imports and exports.

Customs brokers and customs entry reports


Before loading or discharging cargo, a vessel must be “entered in”
with customs. This is the responsibility of the ship’s master but is
usually carried out by the ship’s agent before arrival.

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The customs entry report


The custom’s entry report is prepared by the importer or a customs
broker. It is usually accompanied by commercial invoices and
packing lists. Duty is paid at this time. The entry report has the
following functions:
• vessel declaration
• crew list
• cargo declaration (cargo manifest or bills of lading)
• passenger list.

This report has two main functions: to provide a record and to serve
as a basis for levying tariffs.

Customs officers and customs releases


Customs officers are government officials. In most countries,
customs and excise is part of the government’s treasury or
department of revenue. They often also have strong links with law
enforcement agencies. Their main functions are:
• collecting import duties and taxes such as value-added taxes
(VATs), goods and services taxes (GSTs), and excise taxes on
liquor and tobacco
• preventing entry of prohibited or restricted goods—in their role
of controller, they work closely with police forces and are
empowered to enforce laws
• maintaining statistical data for the government.

All cargo is held in bond until it is entered and cleared by customs.


This may involve the use of special bonded facilities. Customs
officers (appraisers) inspect the paperwork and the cargoes to verify
the quality and quantity of goods in the entry. After a shipment is
inspected and passed by customs, a customs release is issued. This
is required before the goods may be released to the importer.
Similar procedures and paperwork apply to exports. Exporters file
export declarations and customs receives a complete listing such as
the export cargo manifest.

Activity
Find out which ancillary parties to cargo carriage are active in your
local port. Talk to as many of them as you can to find out what they
do and how many people are employed in their offices.

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Practice Exercise for Lesson 3


Test your understanding of Lesson 3 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. What is a port authority responsible for?
a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________

2. What is a landlord port?


_____________________________________________

3. Stevedoring services are always provided by the port authority.


True or false? Explain.
a. true
b. false
_____________________________________________

4. What are the three main cargo functions in a modern port?


a. _________________________________
b. _________________________________
c. _________________________________

5. Why do shore handlers inspect the goods as they are discharged?


a. so that they may claim insurance for losses or damage
b. to ensure they are in a fit state for storage and/or delivery
c. because they may wish to sue the carrier
d. to protect themselves against being held liable for losses
caused by the carrier

6. Who may “enter in” the ship with customs? Mark any that
apply.
a. ship’s master
b. ship’s agent
c. customs broker
d. importer

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7. Who prepares the customs entry report? Mark any that apply.
a. ship’s master
b. ship’s agent
c. customs broker
d. importer

8. What are the three functions of customs officials?


a. _________________________________
b. _________________________________
c. _________________________________

9. When is a customs release issued?


a. when goods are exempted from duties
b. when they are held in bond
c. when duty is paid
d. when the shipment is inspected and passed

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Answer keys
Lesson 1
1. These relationships are defined in contracts, which are governed
by contract law.

2. b. ship’s agent

3. Any four of the following:


– attending to the administrative formalities of the port
– arranging the supplies and bunkers to the ship
– resolving problems relating to the crew
– attending to loading and discharging operations
– providing technical assistance to the ship
providing legal assistance if required

4. The provision of information about conditions at the port such as


freight rates, market trends, commercial and legal changes, liner
regulations, pilotage, and new carriers.

5. Any four of the following:


− marketing and booking exports
− notifying interested parties of the arrival of imports
− ensuring discharge and delivery of imports
− organizing needed cargo storage
− arranging pilotage and berthing of arriving ships
− arranging for special provisions as requested by the carrier
or ship’s master such as repairs, bunkers, cash advances,
stores, and water

6. b. ship’s agent

7. b. ship’s agent

8. c. shipbroker

9. c. shipbroker.

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Lesson 2
• liner shipper

2. b. charter party

3. d. bill of lading

4. d. bill of lading

5. − carrier
− shipping agent
− port agent
− freight forwarder

6. The ship notifies the charterer when it is ready to begin loading.


After this, the shipper has a specified amount of time to get the
cargo to the quay and commence loading.

7. c. give the properly packed cargo to the carrier to stow in the


container
8. The consignee might be better off because, in a dispute between
the shipper (or agent) with the carrier, the B/L statement about
the condition of the goods serves only as prima facie evidence,
not conclusive evidence.

9. Privity of contract means that a person who is not a party to a


contract may not derive benefits or obligations because of it.

10. Many countries have laws based on the UK Bills of Lading Act,
which states that the rights of suit may be transferred from the
parties to the contract of carriage to anyone named in the B/L
containing its terms.

11. b. when it is properly endorsed and the cargo is delivered to


the endorsee

12. a. the freight forwarder acts for both shipper and receiver, but
the clearing agent acts only for the receiver

13. c. they operate separately, offering distinct services, but may


work from the same office

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14. Any five of the following:


− take delivery of goods from the carrier or the port
− pay any freight due at destination and any port charges
(such as stevedoring and warehousing)
− complete customs formalities and pay dues
− act to preserve the client’s rights against the vessel—this
may mean making reservations on the B/L
− notify the carrier of any loss or damage
− inform the cargo insurer or insurer’s agents of loss or
damage and arrange a survey
− forward the B/L to the shipper

15. a. a carrier or a shipper.

Lesson 3
1. − safe navigation
− traffic control
− harbour maintenance
− port development

2. In a landlord port, the port authority owns some port facilities


but does not operate them.

3. b. false
In some ports, stevedoring services are offered by private
companies.

4. − cargo handling
− cargo reception and identification
− cargo storage and custody

5. d. to protect themselves against being held liable for losses


caused by the carrier

6. a. ship’s master
b. ship’s agent

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7. c. customs broker
d. importer

8. − collecting duties and taxes


− preventing entry of prohibited or restricted goods
− maintaining statistical data

9. d. when the shipment is inspected and passed.

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Edition: 1.1 January 2000

Distance Education Course SB–205.5


Carriage of Goods by Sea Law

Unit 6 Carriers’ rights,


obligations, and
defences

Carriers have obligations to perform as specified by custom and in


the terms of their contracts of carriage. They also have clearly
delineated rights and ways to legally defend themselves in the face of
claims made against them.
The three lessons in this unit will cover the topics of:
• legal obligations of the carrier
• rights and defences of the carrier under the bill of lading
• other obligations and rights of the carrier.

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Unit 6 ...........Activities and expectations


Agenda
To complete this unit, you will:
• Read and study the text in this unit.
• Apply the information by performing the Activities
• Test yourself by doing the Practice Exercises and checking your
answers.

Resources
There is no textbook for this course. All the information you require
is in this Study Guide. In addition, your Student Manual lists some
books that you may wish to read to expand your knowledge.

Learning outcomes
When you have completed this unit you will be able to:
• Identify carriers’ rights, obligations, and defences under
common law.
• Identify carriers’ rights, obligations, and defences (exclusions)
under the Hague and Hague Visby Rules.
• Explain what is meant by providing a seaworthy ship.
• Identify specific requirements during loading, stowage, the
voyage, discharge, and delivery.
• Discuss to what extent carriers may extend or limit their rights,
obligations, and defences under common law and under Hague
and Hague Visby Rules.
• Describe how carriers may extend or limit certain rights,
obligations, and defences under common law and under Hague
and Hague Visby Rules.
• Identify the limits of application of the Hague and Hague Visby
Rules.

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Lesson 1...... Legal obligations of the


carrier
The carrier has certain recognized obligations, some of which derive
from common law and others that are regulated under national law
and international conventions such as the Hague Rules.

Obligations at common law


The basic undertaking of a carrier is to carry the goods from the port
of loading to the port of discharge, and there deliver the cargo in the
same condition as it was received. This undertaking can actually be
verbal or written. In this Unit we examine the common carrier’s
obligations as contained in a written contract, particularly the
conventional bill of lading.
In order to perform this basic undertaking, the carrier must fulfil a
number of obligations. Most of these obligations would be
expressed in the contract. Where they are not, they may be implied
by the courts as being essential to the performance of the main
undertaking.
The carrier must do the following:
• provide a seaworthy ship
• load and stow the goods on board the ship
• take care of the goods
• proceed with reasonable dispatch
• proceed without unreasonable deviation
• discharge the goods upon arrival of the ship at port of discharge
• deliver the goods to the consignee.

Common law exclusions and specified exclusions


The carrier’s undertakings are subject to certain exclusions, which
may be expressed in the contract or merely, implied. From the
outset, the common law recognized that carriers might not be able to
fulfil their obligations due to causes beyond their control. As a
matter of course, common law implied two exclusions: “act of God”
and “act of King’s enemies”. This means that the carrier cannot be
held liable for losses caused by natural disasters and wars and so on.
Later, another was added, namely: “inherent vice of the goods”. For

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example, certain foodstuffs are subject to ripening and may rot on a


long journey through natural processes that cannot be stopped.
In addition to these common law exclusions, the carrier and the
shipper could agree to any express exclusion because of the concept
of freedom of contract. The stronger bargaining strength of the
carrier gradually led to so many exclusion clauses in the contract,
they almost cancelled the carrier’s basic undertaking.

National laws and international conventions


National maritime legislation in the common law countries protects
the position of the shipper by restricting the carriers’ rights to reduce
their obligations with exclusion clauses. Most common law
countries have enacted national legislation in accordance with one or
more of the international conventions that regulate cargo carriage at
sea—that is, the Hague Rules and the Hague Visby Rules.
Where the international rules apply, the applicable obligations and
exclusions are automatically considered to be part of the bill of
lading. This is so even if they do not appear in print and even if
there is no clause in the bill of lading specifically incorporating the
Rules.

Obligations under the Hague and Hague Visby rules


The relevant provisions in the Hague Visby Rules are almost
identical to those of the Hague Rules. These impose on the carrier
minimum obligations which may not be contracted out of, and fix the
limits of exclusions. The minimum obligations set out in the Hague
Rules largely correspond to the obligations identified by the common
law.

The Hague Rules and charter parties


The scope of application of the Hague Rules is limited. According to
Article I (b) of the Hague Rule, the rules apply to any contract of
carriage covered by a bill of lading (B/L) or any similar document of
title in so far as such document relates to the carriage of goods by
sea. The Hague Rules would thus not apply to a charter party (C/P).
Although the charter party contains the contract of carriage between
the carrier and shipper, it is not a document of title. However, if a
B/L is issued under a C/P, the Hague Rules would apply to the B/L
from the moment it regulates the relationship of its holder and the
carrier.
Thus, although the carrier and the shipper can include any clause
they like regarding their obligations within the charter party, they
must ensure that any B/L issued under the C/P conforms to the

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Hague Rules. If it does not, the terms that are contrary to the Rules
would be legally invalid and the appropriate provisions of the Rules
would be deemed incorporated instead.

The Hamburg Rules


The Hamburg Rules of 1992 were signed by 20 nations and
destroyed the previous uniformity of international rules. These rules
are seen as being more advantageous to the shippers, who make up
most of the developing world. However, the Hague Rules continue
to dominate the Caribbean region partly because the large
shipowning nations who make the B/Ls find the Hamburg Rules to
be to their disadvantage. The Hamburg Rules have been ratified in
this region only by Barbados.

Providing a seaworthy ship


Under common law and international convention, by undertaking to
carry goods by sea, the carrier implies that the vessel to be used is
seaworthy. Seaworthiness has two aspects to it:
• the ship itself must be fit to encounter the perils of the voyage.
Courts generally have held that a vessel is seaworthy if the hull,
tackle, and machinery are in good repair, there is enough fuel
and ballast, and the ship has an efficient crew
• the ship must be fit and ready to receive and carry the cargo
safely on the voyage.

Under common law


Under common law, the undertaking of seaworthiness requires not
only that the carrier has made every effort to make the ship fit, but
that the ship is in fact fit to carry the goods to the destination. That
is, it is an absolute undertaking. However, under common law, this
undertaking could be excluded by inserting in the contract a clearly
worded exclusion clause.

Under the Hague Rules


Under the Hague Rules, the common law absolute undertaking is
replaced by an undertaking that, before and at the beginning of the
voyage, the carrier will exercise due diligence to make the ship
seaworthy.

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In the Caribbean
To give a Caribbean example, the Jamaica Carriage of Goods Act
and the Trinidad & Tobago Carriage of Goods Act have similar
provisions. These state that in any contract for the carriage of goods
by sea to which the rules apply, there shall not be implied any
absolute undertaking by the carrier of goods to provide a seaworthy
ship.

Elements of seaworthiness
The Hague Rules elaborate the different elements of the requirement
of seaworthiness. Article III (1) states as follows:
The carrier shall be bound before and at the
beginning of the voyage to exercise due diligence to:
1. Make the ship seaworthy;
2. Properly man, equip and supply the ship;
3. Make the holds, refrigerating and cool
chambers, and all other parts of the ship in which
goods are carried fit and safe for their reception,
carriage and preservation.
Although the Hague Rules requirement of seaworthiness may seem
less stringent than the common law requirement, this is not so in
practice for the following reasons.
• Unlike in common law, the undertaking is one of the minimum
obligations under the rules, and it cannot be avoided or lessened
by the carrier.
• The English courts have held that there must be “due diligence”
by the persons, whether servants, agents or independent
contractors that are engaged by the carrier to make the ship
seaworthy. Thus the negligence of a fitter employed by an
independent and competent firm of repairers could be attributed
to the carrier. This makes the burden of proving “due diligence”
quite difficult in practice.

Loading and stowing the goods on board


Under common law loading was a joint obligation of the carrier and
the shipper. The shipper lifted the goods up to the ship’s rail and the
carrier took it in and stowed it. Carriers had to ensure that their part
of the loading and stowing operation was performed properly and
carefully. The parties, of course, could agree that only one of them
would be responsible for the entire loading operation, or that the
carrier could perform it without being held responsible for any loss
or damage to the goods.

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The Hague Rules indicate that loading is an obligation of the carrier,


although there is nothing in the Rules to say that it cannot be a joint
operation. The carrier however cannot exclude responsibility for
improper loading. Article II of the Hague Rules states:
The carrier shall properly and carefully load,
handle…

When does loading begin?


Loading is an important function because it is the starting point of
the application of the Hague rules to the carrier of goods by sea. The
carrier and the shipper are only bound to contract in accordance with
the rules from the loading of goods. They may insert into their
contract any exclusion clause dealing with responsibility for the
goods before loading.
It is important, then, to decide when exactly loading begins. Since
loading is a lengthy operation in which the shipper or shipper’s agent
too may play some part, it is not easy to decide exactly when loading
begins vis-à-vis the carrier. The point at which loading begins
depends on the custom of the port, the type of cargo to be loaded,
and method of loading. Concepts such as “passing the ship’s rails”
which had been developed prior to the Hague Rules are still in use
under the Rules.

Stowing
The carrier is responsible for the proper stowage of cargo even if the
task is physically performed by the shipper. It always takes place
under the supervision of the master or crew of ship.
Under the common law, the carrier could exclude liability for
stowage with a suitable exclusion clause. Under the Hague Rules
however, this is not possible. Stowage is indicated as one of the
obligations of the carrier.

Taking care of the goods


The carrier must take care of the goods, ensuring that they suffer no
loss or damage during the voyage. Thus, for example, the carrier
would provide adequate ventilation during any change of
temperature if the goods could be affected by it. The carrier must
also prevent any theft or pilferage of the goods at way ports. While
this obligation may be excluded under the common law, it may not
be excluded under the Hague Rules.

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Proceeding with reasonable dispatch


Under common law, the carrier has an implied obligation to proceed
on the voyage with reasonable dispatch. What would amount to
reasonable dispatch depends on the facts of each case. Like other
common law obligations this too can be excluded by an appropriate
exclusion clause.
The Hague Rules make no reference to the undertaking of reasonable
dispatch, and it remains an implied obligation, which the parties can
exclude by a clause in the bill of lading. This is one of the reasons
why the carrier may not be held responsible for delay in the carriage
of goods.

Proceeding without unjustifiable deviation


At common law, it is implied that the carrier will not deviate from
the contract route unless such deviation is reasonable and justified.
A deviation is considered to be justified if at least one of the
following conditions applies:
• it is in order to save human life
• it is necessary to the safety of the voyage.

The carrier can, under common law, insert a clause excluding this
obligation.
Under the Hague Rules, too the carrier must proceed without
unjustifiable deviation. The Rules however improve the common
law position of the carrier, by expanding the situations where
deviation is justified. Article IV (4) allows deviation in the
following cases:
• to save life
• to save property
• in reasonable response to circumstances.

Whether a particular deviation is considered reasonable depends on


the facts of each case.
The obligation not to deviate unjustifiably or unreasonably is
considered fundamental to the contract of carriage. Deviations have
far-reaching repercussions. The main one is the carrier’s
responsibility for losses that the shipper or receiver may suffer
because of the deviation. Also, deviation is said to displace the
contract to such an extent that the carrier is denied all rights and
exclusions under the contract from the point of deviation onward.

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The carrier is then left only with the common law exclusions namely,
Act of God, King’s Enemies, and inherent vice.

Liberty clauses
The bill of lading often contains what is known as a liberty clause.
This gives the carrier the right to call at any port. The question arises
as to whether a liberty clause would amount to an exclusion clause
and thus be contrary to the Hague Rules. The answer appears to be
that liberty clauses are indeed contrary to the Rules.
Liberty clauses are used, for example, when a common carrier is
carrying cargo to a number of destinations and requires the flexibility
to call at any port. The carrier thus undertakes to carry the cargo
from the port of loading to the port of discharge calling at any other
port of his choice. The courts however tend to interpret liberty
clauses restrictively, as giving the right only to call at certain other
ports. These would be any ports in the course of the advertised
voyage or along its geographical route.

Discharging the goods


Under the common law, discharge is a joint obligation, like loading.
Under the Hague Rules, the shipowner has an obligation to discharge
the cargo. Article III (2) of the Hague Rules state that:
…the carrier shall properly and carefully load,
…and discharge the goods carried.
Discharge is the carrier’s final obligation under the Hague Rules.

Port of discharge and force majeure


The port of discharge is always agreed upon and included in the bill
of lading. Most bills of lading however make provision for the
carrier’s inability to discharge at the agreed port due to
circumstances beyond their control (called force majeure). These are
unpredictable events beyond the control of the carrier, such as
strikes, lock outs, blockage, ice, etc. If any of these types of events
prevent the carrier from discharging at the agreed port, the carrier is
entitled to discharge in another safe and convenient port. Force
majeure clauses are valid under the common law and the Hague
Rules.

Place (berth) of discharge


At the port of discharge the carrier must proceed to the place of
discharge indicated in the bill of lading, or, if no such place is
indicated, to the carrier’s place of choice. In practice, the place or

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berth where the ship is discharged is usually decided by the port.


Special cargo such as dangerous goods or bulk cargo may have a
customary berth in the port.

Notice of discharge
The carrier has no obligation to give notice of arrival to the
receiver/consignee unless this was so agreed. If the name of the
consignee is indicated on the bill of lading under “party to be
notified”, this would amount to an agreement to notify. In this case,
the carrier would be obliged to inform that person.

Manner of discharge
In common law, the carrier’s obligation is to get the goods out of the
ship’s hold and put them on the ship’s deck or alongside, so that the
receiver could take the goods without difficulty. This however is
often altered by the custom of the port. In many ports today the
receiver is not present at the time the cargo is discharged and the
goods may have to be moved and possibly stored before being
received by the consignee/receiver. The total discharging operation
is carried out by the ship and the port.
The Hague Rules do not elaborate the manner of discharging the
goods. It would thus depend on the custom of the port and the type
of goods. Even if the receiver decides to perform the entire function
of discharge, it is unlikely that the carrier could avoid responsibility
for discharge.

End of discharge
The point at which discharge ends or, to be more precise, the point at
which the carrier’s part of discharge ends, is important. This is
because that is the point at which the Hague Rules cease to apply to
the contract of carriage of goods. Discharge is the final activity
regulated by the Rules. This does not mean that the carrier has no
further obligations towards the goods, but it means that the carrier is
free to contract further tasks in any manner. The carrier could
exclude all responsibility for the goods after they are discharged
from the ship.
There is no fixed rule regarding the end of the carrier’s function of
discharge. As in loading, it would depend on the intention of the
parties and the custom of the port. Many ports yet follow the
practise of the “ship’s rail” that is, responsibility of the carrier ceases
as the goods are lifted off board over the ship’s rail. The bill of
lading could stipulate when discharge is to end and it often contains
clauses that specify the end of discharge and the end of the carrier’s

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responsibility towards the cargo. For example the bill of lading may
contain a clause which states:
… the goods are considered to be at the shipper’s
risk as soon as they are discharged over the ship’s
rails
or
…the goods to be at risk of consignee from ship’s
tackle.
These clauses do not appear to contravene the Hague Rules.

LOB certificates
As a result of these clauses, the carrier would not be held responsible
for any loss or damage to the goods after discharge from the ship,
even if the carrier continues to handle them. For example if the
goods were to fall overboard during the discharging operation, the
carrier could decline responsibility for such loss as they would have
passed the ship’s rails. This position is acknowledged in many ports.
These ports issue LOB (lost overboard) certificates. The carrier may
produce LOB certificates in legal defence in the event of a claim
from the consignee.

Delivering the cargo


At the time when discharge was a joint operation between the carrier
and the receiver, discharge and delivery would have amounted to one
function. This would be the position even today in the case of direct
delivery of cargo. Legally, however, they are two different
functions.
According to the common law, the carrier is obliged to give personal
delivery to the receiver or the receiver’s agent. The carrier remains
responsible for the goods till then. This could however be altered by
the customs of the port or the provisions in the contract of carriage.
As the Hague Rules do not apply to this part of the carriage, bills of
lading usually contain provisions regarding delivery. According to
the B/L provision, the carrier could simply discharge the cargo into
the custody of the port and leave without further responsibility. For
example a clause in the bill of lading could state:
… wherever it is compulsory or customary at any
port to deliver the cargo to the custom or port
authorities, delivery so made shall be considered
final delivery.

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Although discharge of the cargo into the port releases the carrier
from taking care of the goods any further, the carrier is obliged to
authorize delivery to the proper consignee. The carrier’s obligation
is to deliver or authorize delivery to the first person who presents a
properly endorsed bill of lading.

Activity
1. Find out what national laws (if any) are in place in your country
to regulate the obligations of a cargo carrier.
2. When were they enacted?
3. Do they make reference to the Hague or Hague Visby Rules?

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Practice Exercise for Lesson 1


Test your understanding of Lesson 1 by answering these questions.
Check your answers and read again any parts you found difficult.
The answer key is at the back of this unit.
1. What is the basic undertaking of the carrier?
_____________________________________________
_____________________________________________

2. List at least four of the things that the carrier must do to achieve
this basic undertaking.
a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________

3. What are the three common law exclusions?


a. _________________________________
b. _________________________________
c. _________________________________

4. Which of the following is true in most common law countries?


a. restrictions to carrier’s obligations are strictly limited to
common law exclusions
b. the right of carriers to reduce their common law obligations
is restricted by national law
c. common law exclusions are overturned by the carrier’s
obligations under Hague and Hague Visby Rules
d. no special laws are needed because the terms of carriage are
always expressed in the bill of lading

5. In a country that recognizes the Hague Rules, they apply to all


contracts of carriage. True or false? Explain.
a. true
b. false
_____________________________________________

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6. What is the main difference in common law and Hague Rule


requirements regarding seaworthiness of the cargo vessel?
a. common law require seaworthiness, whereas the Hague
Rules do not
b. the Hague Rules require seaworthiness whereas the
common law does not
c. under common law, the ship must be seaworthy, whereas
under the Hague Rules, the carrier needs only to have made
a diligent effort to ensure seaworthiness
d. under the Hague Rules, the ship must be seaworthy,
whereas under common law, the carrier needs only to have
made a diligent effort to ensure seaworthiness

7. If a carrier wishes to exclude responsibility for damage caused


during loading, would it be better to operate under common law
or under the Hague Rules? Explain.
a. common law
b. Hague Rules
_____________________________________________
_____________________________________________

8. What do the Hague Rules say about responsibility for stowage?


a. nothing
b. that it is up to the shipper and carrier to decide
c. that it is the stevedore’s responsibility
d. that it is the carrier’s responsibility

9. What responsibilities (if any) does the carrier have to prevent


theft of goods?
a. none because it is not within the carrier’s control
b. under the Hague Rules this responsibility may be excluded,
but it is absolute under common law
c. under common law this responsibility may be excluded, but
it is absolute under the Hague Rules
d. it is voluntary because the common law and Hague Rules
both allow the carrier to exclude this responsibility

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10. What do the Hague Rules say about the carrier acting with
reasonable dispatch?
a. nothing
b. that it depends on the facts of the case
c. that this obligation may be negotiated and/or excluded
d. that the carrier’s obligation is absolute in this regard

11. Under the Hague Rules, what three things might be regarded as a
justifiable deviation?
a. _________________________________
b. _________________________________
c. _________________________________

12. What is a liberty clause and is it acceptable under the Hague


Rules?
_____________________________________________
_____________________________________________
_____________________________________________

13. Under the Hague Rules, whose responsibility is discharge?


a. the shipper
b. the carrier
c. the shipper and carrier jointly
d. the stevedores

14. Are force majeure clauses considered legally valid?


a. no
b. yes, under common law
c. yes, under the Hague Rules
d. yes, under common law and the Hague Rules

15. Which of the following is true?


a. the carrier is legally obliged to notify the consignee that a
shipment has arrived
b. the carrier is not legally obliged to notify the consignee that
a shipment has arrived
c. the carrier is only legally obliged to notify the consignee
that a shipment has arrived if it has been so agreed

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16. What is the chief determinant of the way in which goods are
discharged?
a. the bill of lading
b. common law
c. the Hague Rules
d. custom of the port

17. When do the Hague Rules cease to apply to a contract of


carriage?
a. when the ship arrives at the port of discharge
b. when discharge starts
c. when discharge ends
d. when the consignee receives the goods

18. When is an LOB certificate issued, and by whom?


_____________________________________________
_____________________________________________

19. From a legal point of view, what is the relationship between


discharge and delivery?
a. they are regarded as identical
b. they are regarded as separate functions
c. they are separate under the Hague Rules
d. they are identical under common law

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Lesson 2...... Rights and defences of the


carrier under the B/L
The obligations of carriers must be viewed in the light of their rights
and defences against claims. The common law provides the carrier
with three defences whether they are included in the contract or not.
It also gives the carrier the right to include many more defences
against damage claims, with the agreement of the shipper. These
could be used to exclude the specific obligations listed.
The Hague and Hague Visby Rules take away the carrier’s right to
exclude any of the listed obligations. However, the Rules give
carriers seventeen strong defences against claims. They also limit
the carrier’s monetary liability for losses. The defences and rights
indicated in the Rules are available to the carrier even if they are not
expressed in the bill on lading. These defences correspond largely
with the defences that the carrier would include in the contract if it
were governed by the common law.

Exclusions in Article IV of the Hague Rules


According to Article III, paragraph 2 of the Hague Rules, the
carrier’s obligation to load, handle, carry, etc., is subject to the
provisions of Article IV, which contains the list of defences and
exclusions. Articles IV of the Hague Rules state that neither the
carrier nor the ship shall be responsible for loss or damage arising or
resulting from the following:
…act, neglect, or default of the master, mariner
pilot, or the servant of the carrier in the navigation
or in the management of the ship
This exclusion is not as wide as it seems because it helps the carrier
only if the cause of loss or damage is due to poor navigation or
management of the ship. Poor management of the cargo is not
covered by it. Still there was and is a perception that it offers a large
amount of protection to the carrier, possibly at the expense of the
shipper. The Hague Rules do not define “navigation” or
“management” but they have been subject to much judicial
discussion. The courts have tried to prevent shipowners from
avoiding the results of their own fault or negligence. In interpreting
the two terms, the courts have tried to distinguished between:

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• acts or defaults that are connected with the ship itself, which
would be within the exclusion
• acts or defaults that are connected with the cargo, which would
not be within the exclusion.

Circumstances that can result in cargo damage


The first two groups in the following examples are acts of poor
navigation or ship management that might result in damaged or lost
cargo, but for which the carrier might not be held liable. The final
group is more directly connected with the cargo, so that the carrier is
more likely to be held accountable. These are:
• acts connected with navigation
– ship negligently striking the quay
ship negligently grounding on a reef

• acts connected with ship management


– failure to take soundings of the water level of the hold
– allowing the ship to exceed the permitted draft
failure to use locking bars on hatches in heavy seas

• acts connected with cargo management, and not the ship


– allowing rain water to get into hatches by not protection
them with hatch covers while in port
– pilfering by stevedores
failure to secure cargo.

In effect the Hague Visby Rules exonerate the carrier from damage
caused by negligent navigation and ship management.

Other Hague Visby exclusions

Damage due to fire


The Hague Visby Rules exonerate the carrier from cargo damage or
loss due to fire. This is so provided there was no fault or privity2 on
the carrier’s part.

2
Privity is a relation between parties that is recognized by law. In law, a person having an interest or part in
any action is said to be “privy to” that action.

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Perils, dangers and accidents of the sea or other navigable waters


Damage due to “perils of the sea” covers all occurrences that are
connected or peculiar to the sea. It includes any damage to the goods
caused by sea water, storms, collision, and stranding, which could
not be foreseen and guarded against.
It does not cover incidents that occur on the sea but are not peculiar
to the sea. Examples of this are rats eating the cargo at sea, or
damage done by the bursting of a boiler in the ship.

Act of God
The exclusion of “Acts of God” refers to any accident due to natural
causes that could not have been prevented by human intervention.
Such accidents would include lightning, floods, frost, and sometimes
even wind.

Act of war
This exclusion covers all consequences of an act of war. It covers
the consequences of acts done in a civil war as well as hostilities
between separate countries.

Act of public enemies


This exclusion covers acts done by enemies of the state. Together
with the exclusion of act of war, it covers the action of any
belligerent state. It is unlikely to cover acts done by pirates and
traitorous subjects.

Arrest, restraint, or seizure under legal process


This covers any act done by the state or sovereign power. Such acts
would normally be seizure, arrests, embargoes, and blockages
affecting the goods. It would also cover government action resulting
in the detention of the goods and prohibitions of discharge.

Quarantine restrictions
This covers loss or damage to goods due to their being subject to
quarantine procedures. This could involve damage to cargo due to
fumigation or delay in discharging.

Act of omission by the shipper, or the owner of the goods, his agent or
his representative
This usually covers loss or damage arising out of the conduct of the
shipper. For example the shipper may give the carrier an inaccurate
description of the goods, which causes the carrier to stow the goods

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in the wrong place. Acts or omissions falling under this exclusion


may also be covered by the last three listed below.

Strikes or lockouts or stoppages or restraints of labour from whatever


cause, whether partial or general
A strike is considered to be a general refusal by workers to work in
consequence of an alleged grievance. The strike may be a refusal to
work by the portside labour such as stevedores, or by the crew of the
ship. The carrier must use reasonable means to continue business
and obtain workers. The clause in the Hague Rules is quite wide and
covers more than simple strikes.

Riot and civil commotion


Riots amount to criminal activity. A civil commotion indicates
something between a riot and a civil war. The elements of
turbulence and tumult would have to be present.

Saving or attempting to save life or property at sea


This would cover loss/damage to goods arising out of any attempt to
provide assistance to passengers or cargo of other ships.

Wastage in bulk or weight


The carrier is not liable for wastage in bulk or weight or any other
loss or damage arising from inherent defect, quality or vice of the
goods. The exclusion covers loss or damage to the goods arising due
to its own character. For example, some goods, such as humid coal,
lose weight or volume over a long period. The wastage would result
in an apparent shortage of the goods.

Deterioration of perishables
Perishable cargo such as vegetables may decay; juice and fluids
undergo fermentation and acidity; grain may heat up and/or become
infested with weevils; cargo that has been packed into bags in damp
condition may develop mould. The carrier is not liable for these
developments. This assumes that the carrier continues to care for the
cargo in the normal manner, providing adequate ventilation.
Example:
Bananas were sent from a Caribbean Island to Dubai in a
general cargo vessel fitted with a manual ventilation system.
The carrier ventilated the holds whenever the weather permitted
it. As expected the voyage lasted several weeks. Upon arrival it
was found that the bananas had started to sprout, and hence the
consignment was useless for marketing.

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The carrier was deemed to have carried the bananas in a


satisfactory manner and the damage was attributable to the
inherent vice of the goods. The shipper should have transported
them on a refrigerated vessel.

Sweat damage
Condensation may form on the sides of the ship’s holds and or on the
goods directly, due to the passage of the ship from cold to warm
climates or vice versa.
The carrier is expected to prevent the goods from touching the ship’s
sides and the bottom by placing adequate dunnage (wooden planks
under and around the goods. Adequate ventilation must be provided
also, depending on the weather. Some older vessels have only
manual ventilators. If the ship has taken all possible precautions and
sweat still forms on the goods, the carrier would not be held
responsible for any resultant loss.

Insufficiency of packing
This exclusion covers loss/damage to the goods that may arise
because of defective or inadequate packing by the shipper.
The carrier often attempts to rely on this exclusion when goods are
discharged in a damaged condition with the outer packing torn. This
is particularly so in the case of alcoholic drinks, for which the
customary packing is bottles inside cardboard boxes. However since
the carrier gives a bill of lading at the outset stating that the goods
are in good order, it would be difficult to later claim that the packing
was unsatisfactory. In practice, where defective packing could have
contributed to the damage, the carrier may agree to settle a claim at
50% of the loss.

Insufficiency or inadequacy of marks


This exclusion would help if the carrier can show that the goods have
been discharged but cannot be identified because of the insufficiency
of marks and identification labels of the shipment. It would also
cover a case where the marks have faded or cannot be distinguished
from the marks of other shipments.
The exclusion would not cover a case where the marks in the bill of
lading differ from the marks in the goods. This is particularly
relevant if the consignee demands goods with marks corresponding
to those in the bill of lading. The carrier has a duty to issue a bill of
lading indicating the correct marks.

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Latent defects not discoverable by due diligence


This exclusion covers loss or damage to goods arising due to latent
defect of the ship. A defect is latent if it cannot be discovered by a
person of reasonable skill using ordinary care.
Example:
Bauxite was shipped from a Caricom Port to Rotterdam. The
ship was examined by the marine supervisor of the carrier and
confirmed to be in order. During the voyage, a pipe carrying
ballast water burst, flooding one of the holds where the cargo
was stowed, causing extensive damage.
In this case, the damage was attributed to a latent defect not
discoverable by due diligence.

Any other cause arising without the actual fault or privity of the carrier
The exclusion continues as
...or without the fault or neglect of the agent or
servant of the carrier, but the burden or proof shall
be on the person claiming the benefit of this
exception to show that neither the actual fault or
privity or the carrier nor the fault or neglect of the
agents or servants of the carrier contributed to the
loss or damage.
This is a “catch-all” exclusion that would help the carrier if the loss
does not fall within other listed exclusions, but there is no fault or
negligence on the carrier’s part. Although there is no need to
establish the cause of loss/damage in order to rely on this exclusion,
the carrier must show that there was no fault or negligence of carrier,
or carrier’s servants and agents. In practice, the only way to show
absence of fault or negligence would be to establish the actual cause
of damage. This exclusion cannot easily be relied upon.
Example—case not falling within this exclusion:
Bananas were shipped from a Caricom Port to Liverpool. At
Liverpool, the vessel was discharged by stevedores who were
independent contractors. Precautions were taken by the carrier
to guard the cargo at night, but some of the cargo was stolen in
the night by thieves.
It was held that the thieves were probably friends of the
stevedores and that the carrier had not established a contrary
position. It was also held that the stevedores were agents of the
carrier and the carrier had not established the lack of fault or
negligence on the part of the agent.

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Activity
Talk to a carrier, a shipper, or a lawyer about any recent claim
against a carrier for lost or damaged cargo.
1. Find out if the claim or defence came under the Hague or Hague
Visby Rules.
2. What were the circumstances of the loss/damage?
3. What defence against the claim did the carrier use? Did a
recognized exclusion apply?
4. Was the claim successful?
5. How much money was involved in the claim?

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Practice Exercise for Lesson 2


Test your understanding of Lesson 2 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. Which of the following best expresses carrier’s rights under the
Hague and Hague Visby Rules?
a. the carrier has three defences against claims whether they
are in the B/L or not, but they may be excluded
b. the carrier may not exclude any listed obligations
c. the carrier and shipper may agree between themselves to
exclude any obligations except the three listed ones
d. the carrier has unlimited liability for losses when the claim
is just

2. Under the Hague Rules, if courts wish to prevent carriers from


avoiding responsibility for damaging other people’s property,
what do courts strive to establish when settling claims?
_____________________________________________
_____________________________________________

3. For what three things do the Hague Visby Rules say that carriers
are not responsible?
a. _________________________________
b. _________________________________
c. _________________________________

4. If a shipment of iron parts goes rusty because of damage by sea


water during a storm, is that considered damage due to a peril of
the sea?
a. yes, because a storm is a peril of the sea
b. no, because iron always rusts when damp

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5. Which four Hague Visby exclusions might be used by a carrier


to cover the following situations?
a. cargo is damaged because a terrorist group places a mine in
the ship’s path
b. the label on the cargo package says canned fruit when in
fact it is fresh fruit that subsequently goes rotten
c. unavoidable delay due to bad weather cause a cargo of
bananas to become overripe and rot
d. an apparently sturdy bulkhead structure collapses during the
voyage, causing one cargo to taint another

6. Whose fault is it if the marks or labels described on the bill of


lading do not match the marks and labels on the shipment?
_____________________________________________

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Lesson 3 ......Other obligations and rights


of the carrier
Hague and Hague Visby Rules do not deal with every possible
situation. Certain circumstances and periods of carriage are not
mentioned. The carrier may have various other rights and
obligations that are expressed through clauses in the bill of lading.

Clauses lessening the carrier’s liability


Under the common law, the carrier could include in the bill of lading
any clause lessening the carrier’s liability. However, under the
Hague and Hague Visby Rules, the bill of lading could contain only
clauses corresponding to the list of exclusions in the rules.
It would not be acceptable to put clauses into the B/L that allowed
the carrier to handle the cargo irresponsibly. For examples a clause
stating that the carrier is not responsible for damage arising out of
bad stowage would be considered legally invalid under the Hague
Rules.

Clauses increasing the carrier’s responsibility


The Hague Rules have no prohibition against the carrier surrendering
the available rights and defences or increasing the carrier’s
responsibility, provided they are expressed in the bill of lading.

Situations not covered by the Hague Rules

Before loading and after discharge


As already observed, the Hague Rules apply to the contract only
from the point of loading to the point of discharge. Thus, before
loading and after discharge, the carrier would be responsible for the
goods according to the common law. Common law gives the carrier
only three implied exclusions—far fewer than the Rules. Therefore,
to avoid liability for the goods completely or even to bring liability
to the standard set in the Hague Rules, the carrier would have to put
express exclusions into the bill of lading to cover this period.

Delay
The Hague Rules contain compulsory provisions only with regard to
loss or damage to cargo. They do not appear to impose any
responsibility on the carrier concerning delays.

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Livestock and deck cargo


The Hague Rules exclude live animals and deck cargo from its
ambit. Such carriage would thus be governed by the common law
and the carrier could exclude responsibility in any manner. A bill of
lading issued for deck cargo would usually contain a clause stamped
on it stating,
Carried on deck at shipper’s risks.

Activity
There is no specific Activity for this lesson.

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Practice Exercise for Lesson 3


Test your understanding of Lesson 3 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. What periods of carriage are not covered by the Hague Rules?
_____________________________________________

2. What legal regime covers these periods?


a. none
b. common law
c. national laws
d. this may be agreed between shipper and carrier

3. Can carriers limit their liability during these periods?


a. no, liability is unlimited under the common law
b. no, liability may not be limited when Hague and Hague
Visby do not apply
c. yes, by choosing to invoke Hague or Hague Visby
d. yes, by putting exclusion clauses in the bill of lading

4. What do Hague Rules say about delays that cause damage to


cargo?
_____________________________________________

5. What type of cargo is not covered by Hague or Hague Visby


Rules?
_____________________________________________

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Answer keys
Lesson 1
1. The carrier undertakes to carry goods from the port of loading to
the port of discharge, and there deliver the cargo in the same
condition as it was received.

2. Any four of the following:


− provide a seaworthy ship
− load and stow the goods
− take good care of the goods
− proceed with reasonable dispatch
− discharge the goods on arrival at the destination port
− deliver the goods to the consignee

3. − act of God
− act of the King’s enemies
− inherent vice of the goods

4. b. the right of carriers to reduce their common law obligations


is restricted by national law

5. b. false
The Hague Rules do not apply to charter parties unless a bill
of lading is also issued under the C/P, in which case the
Hague Rules apply to the B/L’s terms.
6. c. under common law, the ship must be seaworthy, whereas
under the Hague Rules, the carrier needs only to have made
a diligent effort to ensure seaworthiness

7. a. common law
Under common law, the carrier and shipper may agree
between themselves to waive or take on such
responsibilities. Under the Hague Rules, the carrier may
not waive responsibility for improper loading.

8. d. that it is the carrier’s responsibility

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9. c. under common law this responsibility may be excluded, but


it is absolute under the Hague Rules

10. a. nothing

11. − to save life


− to save property
− to respond reasonably to circumstances

12. A liberty clause is a clause in the bill of lading that gives carriers
the right to call at any port. It is contrary to the Hague Rules—
courts usually restrict the right to certain ports.

13. b. the carrier

14. d. yes, under common law and the Hague Rules

15. c. the carrier is only legally obliged to notify the consignee


that a shipment has arrived if it has been so agreed

16. d. custom of the port

17. c. when discharge ends

18. The certificate may be issued by the port if cargo is lost


overboard after passing the ship’s rail during discharge.

19. b. they are regarded as separate functions.

Lesson 2
1. b. the carrier may not exclude any listed obligations

2. Courts try to differentiate between acts or defaults connected


with the ship and acts or defaults connected with the cargo.

3. − damage due to negligent navigation


− damage due to poor ship management
− damage due to fire

4. a. yes, because a storm is a peril of the sea

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5. a. act of public enemies


b. act of omission by shipper (wrong labelling)
c. deterioration of perishables (inherent vice of the goods)
d. latent defect not discoverable by due diligence

6. It is the carrier’s fault. It is the carrier’s duty to issue an accurate


bill of lading even though the shipper may fill it out.

Lesson 3
1. Hague Rules do not cover the period before loading on board
and after discharge.

2. b. common law

3. d. yes, by putting exclusion clauses in the bill of lading

4. nothing

5. livestock and deck cargo.

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Edition: 1.1 January 2000

Distance Education Course SB–205.5


Carriage of Goods by Sea Law

Unit 7 Liability of the


carrier

Carriage of goods is performed under contracts of carriage. Like any


other contract, these may be deliberately or inadvertently breached.
The liability of the carrier for loss and damage to the goods
transported is discussed in this unit.
The three lessons in this unit will cover the topics of:
• basis of liability—breach of contract
• limitation of liability
• time limits for claims.

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Carriage of Goods by Sea Law Unit 7: Liability of the carrier

Unit 7........... Activities and expectations


Agenda
To complete this unit, you will:
• Read and study the text in this unit.
• Apply the information by performing the Activities
• Test yourself by doing the Practice Exercises and checking your
answers.

Resources
There is no textbook for this course. All the information you require
is in this Study Guide. In addition, your Student Manual lists some
books that you may wish to read to expand your knowledge.

Learning outcomes
When you have completed this unit you will be able to:
• Explain what is meant by breach of a contract of carriage and
how such breach is established.
• Identify the way in which a carrier may be liable—through
payment or through completed performance.
• Define how liability is assessed.
• Describe the ways in which liability is limited by international
and national regulation.
• Discuss time limits for liability claims.

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Unit 7: Liability of the carrier Carriage of Goods by Sea Law

Lesson 1 ......Basis of liability—breach of


contract
In order for liability to arise there must be some legal duty that has
not been performed or obligation that has not been met. In a contract
for the carriage of goods by sea, as in any other contract, if the
carrier fails in this way, the carrier is said to be in breach of contract.

Carrier’s breach of contract


As discussed the carrier’s main obligations are to properly and
carefully load, carry, discharge, and deliver the goods. In practical
terms this means that the carrier must discharge and deliver the
goods in the same condition that they were received in. Failing to do
this, the carrier would be in breach of the contract.

Establishing the breach


It is up to the shipper and/or consignee to establish the breach. This
can be done by showing that the goods were handed over to the
carrier in good order and were received from the carrier in bad order.
Once the shipper/consignee makes out a prima facie case against the
carrier, the burden shifts to the carrier. The carrier would have
already noted on the bill of lading any damage or loss that occurred
before loading. Therefore, the carrier must show that he or she is not
liable, in spite of the loss or damage to the goods. The carrier can do
this if it can be shown that the loss or damage was covered by an
exclusion clause in the contract. If unable to show that the case falls
within an exclusion, the carrier is liable for the loss that flows from
the breach.
The burden would then shift back to the shipper or consignee to
disprove the carriers defence. The shipper or consignee may attempt
to do by alleging that the vessel had been unseaworthy or the carrier
had been negligent.
To avoid liability, the carrier would have to show that due diligence
was exercised to make the vessel seaworthy, and/or that there was no
negligence. If unable to show this, the carrier is liable for the loss.

Activity
There is no Activity for this lesson.

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Practice Exercise for Lesson 1


Test your understanding of Lesson 1 by answering these questions.
Check your answers and read again any parts you found difficult.
The answer key is at the back of this unit.
1. What is meant by being “in breach of contract”?
_____________________________________________
_____________________________________________

2. What does being “in breach of contract” mean for a carrier?


_____________________________________________
_____________________________________________

3. Who must establish that a breach of contract occurred? Check


any that apply.
a. shipper
b. carrier
c. consignee

4. What are the two ways in which carriers may show that they are
not liable for damaged goods?
a. ________________________________
_________________________________
b. _________________________________
_________________________________

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Unit 7: Liability of the carrier Carriage of Goods by Sea Law

Lesson 2 ......Limitations of liability


Once it is clear that some liability of the carrier is involved, it
becomes necessary to examine the nature of that liability. A party
that is in breach of contract may be liable in two main ways:
• pay damages to the other party
• ensure specific performance of the contract.

Specific performance is only granted in special circumstances and


rarely in the case of a breach of contract of carriage. This unit
therefore examines only the issues arising in the assessment of
damages.

Assessing damages
Under common law, when two parties have made a contract which
one of them has broken, the “innocent” party ought to receive
damages, that is financial compensation. These should be the
amount required to put the party in the same position as if the
contract had been performed correctly.
To do this, the party must be compensated for:
• loss arising naturally (that is in the usual course of things) from
the breach of contract
• loss arising because of the special circumstances of the case,
known to both parties at the time of contract (that is, in
circumstances where the other party could have contemplated
this possible loss).

When a carrier is in breach of contract, the damages that a


shipper/consignee ought to receive in order to put him in the same
position as if the goods had been carried properly and carefully
would be as follows:
• for loss arising naturally: the cost of the goods at the place the
consignee should have received it (that is, replacement value—
for practical purposes this is calculated on the basis of the CIF
value
• for loss arising due to special circumstances: the cost of any
other loss suffered by the shipper/consignee, due to the
unavailability of the goods at the time they should have been
delivered in good order. This could be the loss of profits of the
consignee, or liability to a third party on an agreement of resale.

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Carriage of Goods by Sea Law Unit 7: Liability of the carrier

Limitation of liability
Although the carrier may be liable for breach of contract, this
liability may be further excluded or limited by the contract. The
common law, national law, and international conventions have
different approaches to this type of limitation.
Certain national legislation and various international conventions
place limits on the liability of the carrier relating to the limitation of
liability of seagoing ships. These include:
• the Hague Rules
• the Hague Visby Rules
• the Hamburg Rules
• various Merchant Shipping Acts
• other national legislation.

Limitation under common law


The common law does not place any limit on the liability of the
carrier. Such liability would be assessed according to the normal
principles of contract law. However the common law allows the
carrier the freedom to include in the contract or bill of lading any
clauses concerning the damages for which the carrier might be liable.
Thus bills of lading governed by the common law could contain a
clause limiting liability to the CIF value of the goods lost or
damaged.

Limitation under the Hague Rules


The Hague Rules took away the carrier’s freedom to include any
clause limiting his liability in the bill of lading. However, the rules
specified certain limits to the carrier’s liability. The carrier could
rely on these limits irrespective of their inclusion in the bill of lading.
Under the Hague Rules there may be a:
• monetary limit
• package limitation
• per unit limitation.

Monetary limit
The Hague Rules limited the liability of the carrier to £100 (pounds
sterling) per package or unit unless the nature and value of the goods
were declared by the shipper and inserted in the bill of lading. The
rules state that the monetary units are to be taken to be gold value,

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but in practice it is taken to be £100 or the equivalent in other


currency on the day of arrival of the ship at the port of destination.
When making a claim on the carrier under the Hague Rules, the
consignee would first calculate the loss and substantiate it with
documentary evidence. The carrier would check whether there is a
liability for the type and extent of loss claimed. If there is, the
carrier will then examine the amount claimed. If the amount is less
than £100 per package the carrier would pay it in full. If it exceeds
£100 per package, the carrier would pay up to £100.

Package limitation
A package is an element of the consignment packed separately and
identified by distinctive marks. A package can be parcel, a carton, a
crate, a pallet, or even a container. The monetary limit of £100 is
applied to each package as enumerated in the bill of lading.
Example:
Suppose a bill of lading states: “500 cartons highland tea”. The
per package limitation would apply to each carton. Thus, if the
partial or complete damage to a single carton is assessed at
£80, the carrier would pay £80 per damaged carton. If the
damage is assessed at £120 per carton, the carrier would pay
only £100 per damaged carton because of the monetary limit.
The package limit, though seemingly simple, has created problems in
application when a number of packages are consolidated in a larger
package such as a crate, pallet, or container. The question then arises
as to whether the £100 limit should be applied to the smaller or the
larger package. The Hague Rules make no reference to consolidated
goods and the carrier would naturally attempt to claim the larger
package as the package to which limits apply.
Example:
Suppose that the shipper stuffs 1000 packages of Highland tea
into a container for FCL shipment. The bill of lading may state
one container said to contain 1000 packages… or one container
containing 1000 packages….
Under the Hague Rules, the carrier would naturally attempt to
define the whole container as the package with the £100 limit.
This argument has succeeded in the past, where the bill of lading
stated, said to contain 1000 packages, However, similar claims
failed when the bill of lading stated containing 1000 packages.
The container cannot be claimed as the package when a carrier
transports it as an LCL shipment. In this case, it is considered that
the shipment is stuffed into a container for the carrier’s convenience.

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Per unit limitation


The unit limitation is normally applied to bulk cargo. A unit of
cargo can refer to:
• commodity units, depending on the nature of the goods
• shipping units, as referred to in the bill of lading
• weight units, depending on the units of weight or measure used
to calculate freight.

The unit most commonly used is the shipping unit. For example, the
bill of lading may refer to “100 tons of Highland Tea”. The £100
limit would then apply to each ton of tea. If the B/L referred to
10 000 kilograms of tea, the £100 limit would apply to each
kilogram.
When the bill of lading indicates both the weight and the number of
packages, the weight is ignored. In this situation, the weight is
normally included simply to show the calculation of freight. The
monetary limit would be applied to each package noted on the bill of
lading.

Limitation under the Hague Visby Rules


Under the Hague Visby Rules some important clarifications and
changes have been made with regard to the assessment of the
carriers’ liability. Amounts recoverable are linked to market prices
and the maximum liability has been increased.
The total amount recoverable must be calculated with reference to
the value of the goods at the place and at the time when the goods
were discharged, or should have been so discharged. The value of
the goods must be fixed according to the commodity exchange price
or current market price. If there are no such prices available, they
must be assessed according to the normal value of goods of the same
kind and quality.
The maximum liability of the carrier has been increased to either
10 000 francs per package or unit, or 30 francs per kilo of gross
weight of the goods, whichever is higher. When goods are
consolidated by the carrier into larger packages, the number of
packages or units enumerated in the bill of lading would be the
number of packages to which the limit would apply.
The carrier would not be entitled to the limitation of liability
provided under Hague Visby under certain circumstances. This
would arise if it were proved that the damage resulted from an act or
omission of the carrier, done with intent to cause damage or
recklessly and with knowledge that damage would probably result.

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Limitation under the Hamburg Rules


The United Nations Convention on the Carriage of Goods by Sea,
1978, was convened in an attempt to replace the Hague Rules and the
Hague Visby Rules. The rules adopted in the Convention, usually
called the Hamburg Rules, go a long way in achieving a fair balance
of the rights and obligations of the carrier and the shipper. The
significant shift of responsibility towards the carrier can be observed
from the following:
• the scope of application of the rules has been widened
• the period of the carrier’s liability has been extended to include
the periods during which the carrier is in charge of the goods at
the port of loading and port of discharge
• the liability of the carrier is said to be based on the principle of
“presumed fault or neglect”. The rules contain no specific
exclusions. Carrier are responsible for loss or damage to cargo
while it is in the their custody, unless they can show that they
and their servants took all measures that could reasonably be
required to avoid the occurrence and its consequences
• the carrier is held liable for delay
• the carrier may be liable for fire, if the claimant proves that the
fire arose from fault or neglect on the part of the carrier
• the receiver may treat the goods as lost after a period of 60 days
after the agreed date of delivery
• the monetary limit of the carrier’s liability has been changed and
is indicated in units defined by the International Monetary Fund.

Limitation under other conventions


Two other international conventions affect liabilities for loss and
delay of cargo shipments. These are:
• Limitation of Liability of Seagoing Ships (1957)
• Limitation of Liability of Maritime Claim (1976)

Limitation under these conventions is based on tonnage.

Limitation under national legislation


The UK Merchant Shipping Act of 1894 is incorporated into the laws
of many Caribbean States. The Act allows shipowners to limit their
liability for loss or damage based on tonnage.

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The 1987 Trinidad & Tobago Merchant Shipping Act as well as the
1998 Jamaica Shipping Act also provide for limitation of the
carrier’s liability based on tonnage.
These Acts also provide for the limitation of liability of port
authorities and owners of docks.

Activity
Find out what national or international rules your country applies in
the case of limitation of carrier’s liability. What year were these
rules adopted there?

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Practice Exercise for Lesson 2


Test your understanding of Lesson 2 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. What are the two ways in which anyone who is in breach of
contract can be held liable?
a. _________________________________
b. _________________________________

2. What is the purpose of damages?


a. to make up for the aggravation of a broken contract
b. to enable the shipper or consignee to pay for a second
attempt at carriage
c. to complete the contract as agreed
d. to put the injured party in the same position as if the
contract had been properly performed

3. What two types of losses must the injured party be compensated


for?
a. _________________________________
b. _________________________________

4. Name at least three types of regulation that relate to limitation of


carrier’s liability.
a. _________________________________
b. _________________________________
c. _________________________________

5. How is carriers’ liability limited under the common law?


a. no limits are allowed under the common law
b. the carrier may include a clause limiting liability
c. limits are the same as under the Hague Rules
d. the limit is the CIF value of the lost or damaged goods

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6. What common law freedom did the Hague Rules take away?
a. the freedom to limit liability
b. the freedom to use a bill of lading to describe limits
c. the freedom to insert any clause in the bill of lading that
limits liability
d. none

7. What are the three types of limit defined under the Hague Rules?
a. _________________________________
b. _________________________________
c. _________________________________

8. Under the Hague Rules, if the values of two lost packages of


cargo are £110 and £90 sterling respectively, but these values are
not stated in the bill of lading, how much is the carrier liable for
in each case?
a. for the £110 package, liability is _______
b. for the £90 package, liability is ________

9. An LCL container shipment of 100 cartons, each containing a


dozen tins of nuts is damaged. What package limitation is most
likely to be applied to a claim?
a. container
b. carton
c. tin
d. either carton or tin, depending on the B/L

10. What two changes in limitation did the Hague Visby Rules
introduce?
a. _________________________________
b. _________________________________

11. List at least four changes in liability limitation introduced by the


Hamburg Rules.
a. ________________________________
b. _________________________________
c. _________________________________
d. _________________________________

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12. Who benefits most from the changes introduced by the Hamburg
Rules?
a. shipper
b. carrier
c. consignee
d. no-one; everyone is affected equally

13. Under the convention Limitation of Liability of Maritime Claim


(1976), limitation is based on:
a. packaging
b. shipping units (bulk)
c. tonnage
d. weight units

14. Under the 1998 Jamaica Shipping Act, liability limitation is


based on:
a. packaging
b. shipping units (bulk)
c. tonnage
d. weight units

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Lesson 3...... Time limits for claims


The common law has always recognized a right to limit the period
during which actions may be brought before the courts. This was to
ensure that claimants did not “sleep on their rights” so as to have the
threat of legal action hanging forever over the heads of those who
might be affected. It is also usual for common law countries to have
statutes of limitation. These written laws place a limit on the time to
claim from one year for suits against the Crown to six years in civil
matters. International maritime conventions also fix certain time
limits during which action must be brought before the courts.

Time limits under the Hague Rules


The Hague Rules specify a time limit within which claims must be
brought against the carrier. An action must be brought in a court of
law or an arbitrator must be appointed to look into the claim within
one year after delivery of the goods or the date when the goods
should have been delivered. If the shipper or consignee fails to do
this in time, the carrier will be discharged of all liability.

Extending the time


In practice, the consignee can request an extension of time before the
lapse of a year, if the claim is being processed by the carrier. The
carrier usually grants such an extension, although there is no legal
obligation to do so. If the carrier refuses to grant an extension, the
consignee would have to immediately file an action in court.

The gold clause agreement


Some carriers are party to a special agreement called the “gold clause
agreement”. According to this, the carrier is obliged to grant a time
extension of one year.

Time limits under the Hamburg Rules


Under the Hamburg Rules, the standard time limit for bringing a
claim against the carrier has been extended to two years.

Activity
Under the regulations used in your country, what is the time
limitation for making liability claims?

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Practice Exercise for Lesson 3


Test your understanding of Lesson 3 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. Why does the common law limit the time in which claims are to
be made?
_____________________________________________

2. What is the time limit for bringing action in a court of law under
the Hague Rules?
a. within one year of the agreed date of delivery
b. within two years of the agreed date of delivery
c. within six years of the agreed date of delivery
d. none, because extensions are always granted

3. What is a gold clause agreement?


a. an agreement not to ask or grant extensions
b. an agreement to extend the time limit indefinitely
c. an agreement to extend the limit another year
d. an agreement to settle liability in gold rather than currency

4. What is the time limit for bringing action in a court of law under
the Hamburg Rules?
a. within one year of the agreed date of delivery
b. within two years of the agreed date of delivery
c. within six years of the agreed date of delivery
d. none, because extensions are always granted

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Answer keys
Lesson 1
1. A person who is in breach of contract has failed to perform a
legal duty or to meet a legal obligation as specified in a contract
to which the person is a party.

2. Breach of contract occurs when the carrier fails to discharge and


deliver the goods as agreed in the contract of carriage and in the
same condition that they were received in.

3. a. shipper
and/or
c. consignee

4. The carrier may show that:


a. the loss or damage was covered by an exclusion clause in
the terms of carriage
or, if it is not covered by an exclusion
b. due diligence was observed to make the ship seaworthy and
there was no negligence during the voyage, discharge, and
delivery to the consignee.

Lesson 2
1. a. by paying damages to the other party
b. by ensuring performance or completion of the contract

2. d. to put the injured party in the same position as if the


contract had been properly performed

3. − losses arising naturally from the breach such as the cost of


the goods at the place where the consignee should have
received them
− losses due to special circumstances such as loss of profits or
liability to third parties because of their non-delivery or
damaged condition

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4. Any three of the following:


− Hague Rules
− Hague Visby Rules
− Hamburg Rules
− various Merchant Shipping Acts
− other national legislation

5. b. the carrier may include a clause limiting liability

6. c. the freedom to include a clause in the bill of lading that


limits liability

7. − monetary limit
− package limitation
− per unit limitation
8. a. £100
b. £90

9. d. either carton or tin, depending on the B/L

10. − amounts recoverable were linked to market prices


− maximum liability was increased

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11. Any four of the following:


− the scope of application of the rules has been widened
− the period of the carrier’s liability has been extended to
include the periods during which the carrier is in charge of
the goods at the port of loading and port of discharge
− the liability of the carrier is said to be based on the principle
of “presumed fault or neglect”. The rules contain no
specific exclusions
− the carrier is held liable for delay
− the carrier may be liable for fire, if the claimant proves that
the fire arose from fault or neglect on the part of the carrier
− the receiver may treat the goods as lost after a period of
60 days after the agreed date of delivery
− the monetary limit of the carrier’s liability has been changed
and is indicated in units defined by the International
Monetary Fund

12. b. carrier

13. c. tonnage

14. c. tonnage.

Lesson 3
1. So that a person does not have to endure an on-going threat of
legal action indefinitely.

2. a. within one year of the agreed date of delivery

3. c. an agreement to extend the limit another year

4. b. within two years of the agreed date of delivery.

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Edition: 1.1 January 2000

Distance Education Course SB–205.5


Carriage of Goods by Sea Law

Unit 8 Liability of other


parties in the
carriage of goods

In addition to the carrier, many other individuals and businesses are


involved in the carriage of goods. This unit discusses their
obligations and the extent to which they may contract out of their
liabilities.
The three lessons in this unit will cover the topics of:
• obligations of the shipper and related parties
• obligations of the port authority and ancillary parties
• obligations of the ship’s agent.

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Unit 8........... Activities and expectations


Agenda
To complete this unit, you will:
• Read and study the text in this unit.
• Apply the information by performing the Activities
• Test yourself by doing the Practice Exercises and checking your
answers.

Resources
There is no textbook for this course. All the information you require
is in this Study Guide. In addition, your Student Manual lists some
books that you may wish to read to expand your knowledge.

Learning outcomes
When you have completed this unit you will be able to:
• Identify the obligations of the shipper, receiver/consignee,
freight forwarder, multimodal transport operator, port
authority/operator, cargo handlers, and ship’s agent,
• Identify the ability, if any, of these various parties to contract out
of their liabilities.

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Lesson 1 ......The shipper and related


parties
Obligations of the shipper
Clause 5 of the Hague Rules provides that:
The shipper shall be deemed to have guaranteed to
the carrier the accuracy at the time of shipment of
the marks, number, quantity and weight (of the
goods) as furnished by him.
In this regard the shipper may be said to have five main obligations
under the contract of carriage. These are to:
• prepare the goods for shipment
• take them to the port and/or hand them to the carrier
• describe the goods accurately on the bill of lading
• inform the carrier of the dangerous nature of the goods if
necessary
• pay the freight.

Preparing the goods for shipment


Correct preparation includes proper packaging and labelling, and the
placement of marks and numbers clearly so that they will remain
legible until the end of voyage.

Handing the goods to the carrier


When goods are taken down to the port, whether they are handed
over to the carrier or to port personnel depends upon the custom and
practice of the port. Delay in handing over the cargo could result in
the cargo being shut out by the carrier.

Describing goods accurately


The shipper must provide the details of the goods to the carrier in
writing. This enables the carrier to include the information on the
bill of lading. In practice, the shipper usually completes the bill of
lading and the carrier checks the particulars before signing it. By
signing and issuing the bill of lading, the carrier confirms that the
goods described have been shipped.

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The carrier is then liable to a third party who buys the shipped goods
on the strength of the bill of lading. If the goods have been
inaccurately described and the buyer has suffered loss, a claim may
be made against the carrier. There is however an obligation on the
shipper to indicate the information accurately. Failure to do so will
make the shipper liable to reimburse the carrier for any loss the
carrier may suffered by way of payment to a third party.
If however the nature or value of the goods have been knowingly
wrongly stated by the shipper, the carrier is not liable for loss or
damage suffered by third parties. The shipper is directly liable to
those who have suffered loss.

Informing the carrier of danger


Unless otherwise stated, the shipper implies that the goods shipped
are not dangerous. Thus, if the goods are dangerous, the shipper has
an obligation to inform the carrier. If he or she fails to fulfil this
obligation, the shipper is liable for all damages and expenses directly
or indirectly arising or resulting from such shipment of the
dangerous goods.

Paying the freight


The freight is usually agreed between the shipper and the carrier
before shipment. By shipping the goods, the shipper is considered to
have agreed to pay the freight. Although the consignee is usually
required to pay the freight, the shipper remains liable to pay if the
consignee fails to do so.
Common carriers have published freight rates for different
commodities and destinations. Regular shippers may however get
rebate or a preferential rate on certain commodities. The applicable
freight rate and the calculation of the freight are usually stated on the
bill of lading.
If there is no provision to the contrary, freight is payable on delivery,
and is calculated on the amount delivered. However the carrier and
the shipper may agree on other methods such as:
• lump sum freight where cargo must reach its destination for
payment to be made
• advance freight where freight must be paid even if the ship is
lost and the cargo never delivered
• pro rata freight, which is payment in proportion to the part of the
voyage accomplished or part of cargo delivered.

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Obligations of the receiver/consignee


The consignee has two obligations:
• to receive the cargo
• to pay the freight.

Receiving the cargo


The consignee may have to accept the cargo direct from the ship,
from the quay, or from the place where it is stowed. The consignee
may or may not play a part in the discharging operation. This would
depend on the terms of the contract and the custom and regulations
of the port.

Paying the freight


The carrier can refuse to give delivery of the goods until freight is
paid. The receiver/consignee’s obligation to pay freight may arise in
three ways:
• taking delivery of the cargo can imply a promise to pay freight
• the bill of lading may contain a clause making delivery
conditional on payment of freight
• the law applicable to the parties may require it. For example the
UK Bills of Lading Act, Section 1, which has been incorporated
into the laws of many Caribbean countries. This imposes on all
consignees and endorsees to whom “property in goods” passes,
the obligation to pay freight.

Obligations of the freight forwarder


The freight forwarder’s role has moved from the traditional one of
making the transport arrangements for the shipper, to that of
undertaking the whole transport operation.
A forwarder’s obligations can be classified under three categories:
• acting in the traditional way as an intermediary
• undertaking a specific function for the shipper or the carrier
• performing the entire transport operation.

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Acting as a traditional intermediary

Liability to the shipper


In this case the freight forwarder takes on the liability of any other
agent, whose duty under common law is to the client. There is an
obligation to act with reasonable care to protect and further the
client’s interest. Failure to do so would be a breach of this duty. If
the client suffers loss as a result, the freight forwarder would be
liable for it.
The manner and extent to which the freight forwarder must protect
the shipper’s interest would depend on the functions undertaken.
These functions are usually included in a written contract, quite often
the forwarder’s standard form contract. This document may also
contain exclusion clauses, for like carriers, any others engaged in
providing services connected with the carriage of goods would wish
to limit their liability.
Subject to what is stated in the contract, when acting as an
intermediary, the forwarder has the following main obligations.

Keeping the client informed…


This obligation would arise particularly if the goods have
suffered loss or damage. The freight forwarder must give the
client all information regarding the circumstances of such loss so
that the client can protect their interest in the goods. This would
be the position whether the forwarder had actual possession of
the goods or not.

Selecting the carrier with care…


The forwarder must select the carrier carefully. If this selection
is negligent, the forwarder would be liable to the shipper for any
loss that may arise from such choice.

Taking care of the goods.


If in actual possession of the goods, the forwarder must take
proper care of them.

Making reservations upon taking delivery of goods.


When taking delivery, the forwarder must make adequate
reservations against the carrier (land or sea) if it is damaged.

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Ensuring accuracy of the particulars on the bill of lading


If completing the bill of lading, the forwarder must ensure that it
is correctly filled, without any misrepresentations that would
make the shipper liable to indemnify the carrier. If the shipper
becomes so liable, the forwarder would have to reimburse the
shipper.

Liability to others
In the traditional role, the forwarder acts only as agent for the
principal. The agent incurs no personal liability vis-à-vis third
parties. The principal, who is the shipper in this case, would be
liable for any wrongful acts or omissions done within the scope of
the agent’s authority. The agent may of course be liable to
indemnify the shipper, but this would depend on the contract with
the shipper. The freight forwarder may be able to rely on an
exclusion clause to limit liability.
If the freight forwarder acts outside the scope of agreed authority,
then he or she would be personally liable to third parties. In this
event the forwarder would not be able to rely on any of the
exclusions in the contact with the shipper. For example, the freight
forwarder may be held responsible if a crane were damaged due to a
misrepresentation made by the forwarder about the weight of a
consignment which exceeded the safe working load of the crane,
causing it to collapse.

Undertaking specific functions for shipper or carrier


The freight forwarder may undertake to carry out some particular
function for the shipper, such as collection, storage, or consolidation
of cargo. The forwarder may also undertake to carry out some
function for the carrier, such as canvassing or booking freight.
In the above situations, it may be difficult to decide whether the
freight forwarder is acting as an agent for the shipper or carrier, or
whether he or she is acting for personally as principal.

Liability to shipper
In undertaking to deliver cargo to the carrier, the freight forwarder
may be a principal with respect to the shipper, rather than an agent.
This is because, rather than simply following the shipper’s
instruction, the freight forwarder is offering a delivery service. This
would also be the case with regards to storage of cargo, if the
forwarder stores the cargo rather than arranging with a storage
company on the shipper’s behalf to store it. The forwarder’s liability
towards the shipper is governed by their contract.

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Liability to others
Freight forwarders that act as principals are alone responsible for
their actions vis-à-vis third parties.
Thus if the freight forwarder offers a delivery service to the shipper,
the freight forwarder would have to negotiate as a principal with a
road haulier to get the goods to the port. The forwarder would then
be personally responsible to the haulier.
At times the freight forwarder may be deemed to be acting as the
principal even when acting for the shipper. For example, when
booking space on a ship in the London freight market, the freight
forwarder is deemed to be acting as principal and may be responsible
in the event of non-shipment.
When undertaking additional functions such as confirming
shipments, or countersigning official weight and quantity certificates,
the freight forwarder would be personally liable. Nevertheless this
does not preclude the forwarder from remaining an agent so far as
the forwarding operations are concerned.

Undertaking to perform the transport operation


Freight forwarders have diversified their activities to such an extent
that some forwarders offer to transport the cargo to the destination
even though they do not own or operate any means of transport. In
doing so the forwarder acts as a non-vessel-operating multimodal
transport operator (NVO-MTO).

Obligations of the multimodal (combined) transport operator


The role of the multimodal transport operator (MTO) is described in
Unit 5. The MTO may or may not be operators of ships. The MTO
operates as a principal with regard to the shipper as well as with
regard to the other carriers negotiated with in order to get the cargo
carried to its destination.
The MTO is obliged to ensure that the cargo reaches the destination
in good order. The MTO is liable as principal to the shipper if the
cargo is damaged while it is in the MTO’s custody or the custody of
another carrier. In the latter case, the MTO would have an action for
reimbursement against the other carrier. This is an ideal situation for
the shipper who wishes to transport goods by more than one means
of transport. Rather than seeking redress from each individual
carrier, the shipper simply makes a claim against the MTO who in
turn must claim against the liable subcontracting carriers.
Note, however, it is possible for multimodal transport to take place
on terms that are less attractive than these ideal terms. Quite often

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the MTO commits to carry the goods to their destination, but accepts
responsibility for cargo only while it is in the MTO’s custody or
while being carried by transport operated by the MTO. In the event
of loss or damage, the shipper/consignee would then have to
ascertain when the loss or damage occurred and claim against the
actual carrier concerned.

Network liability principle


Multimodal transport document (MTDs) in use today are mainly
based on the network liability principle. This principle means that in
respect of loss or damage that can be shown to have occurred during
a particular part of the transport, the liability of the MTO would be
identical to the liability accepted by the carrier who actually
performed that part of the carriage. The MTO would thus enjoy the
same exclusions and limitation as the subcontracted carrier.

Activity
Talk to an experienced multimodal transport operator or freight
forwarder and discuss how modern transportation developments over
the last decade have affected their obligations and liability when
operating in the Caribbean.

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Carriage of Goods by Sea Law Unit 8: Liability of other parties

Practice Exercise for Lesson 1


Test your understanding of Lesson 1 by answering these questions.
Check your answers and read again any parts you found difficult.
The answer key is at the back of this unit.
1. List four of the obligations of the shipper.
a.
b. _________________________________
c.
d. _________________________________

2. What is the term for an arrangement in which payment is made


by the shipper in proportion to the part of the voyage
accomplished or part of cargo delivered?
a. payment on delivery
b. lump sum freight
c. advance freight
d. pro rata freight

3. What are the two obligations of the receiver/consignee?


a. _________________________________
b. _________________________________

4. The consignee must take receipt of the goods from the ship.
True or false? Explain.
a. true
b. false
_____________________________________________

5. Explain why a person who receives goods may be obliged to pay


freight even if the package was unexpected.
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________

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6. List the five obligations of the freight forwarder to the shipper.


a. ____________________________________________
b.____________________________________________
c. ____________________________________________
d.____________________________________________
e. ____________________________________________

7. Is the freight forwarder ever liable to third parties?


a. no; the FF has obligations only to the shipper
b. no; only the shipper has such liabilities; the FF merely
represents the shipper
c. yes; if the FF acts outside the scope of agreed authority
d. yes; as the agent, the FF is liable to third parties for the
shipper’s errors and omissions

8. What governs the liability of a freight forwarder to the shipper?


_____________________________________________

9. A freight forwarder may be held responsible as a principal even


when acting for the shipper. True or false? Explain.
a. true
b. false
_____________________________________________
_____________________________________________

10. What is the relationship of an MTO to a shipper?


a. agent
b. same as freight forwarder
c. principal
d. principal unless damage occurs in the custody of another
carrier

11. What does the “network liability principle” imply regarding the
liability of an MTO?
_____________________________________________
_____________________________________________

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Carriage of Goods by Sea Law Unit 8: Liability of other parties

Lesson 2...... The port authority and


ancillary parties
The functions of cargo handling, reception, identification, storing,
and custody is undertaken by the port’s shore handling personnel or
by stevedores. Many of these functions take place before cargo is
loaded on board and after it is discharged. Thus some of the
activities are not covered by the Hague Rules and the parties
concerned may contract with each other in any manner they wish.

Liability of port authorities


The liability of port and harbour authorities is limited by national
legislation such as the Trinidad & Tobago Merchant Shipping Act
and the Jamaica Shipping Act as well as the UK Merchant Shipping
Act, 1894, which still remains law in some Caribbean Islands. Under
the Jamaica Pilotage Act, the liability of pilots is also limited.

Liability of stevedores
Under the Hague Rules, loading, stowing, breaking stow, and
discharging are the carrier’s obligations. This means that, unless the
occurrence is covered by an exclusion clause, the carrier would be
liable to the shipper if the goods suffer loss or damage during these
activities.
It is the carrier that engages stevedores to perform all or some of
these functions. The carrier is free to enter into any contract with the
stevedore. The terms of the contract may depend on whether the
stevedores are from a private firm or from the port authority. The
carrier may have greater flexibility in negotiating terms with a
private firm than with the port authority. The port authority is more
likely to have fixed terms. These terms are sometimes included in
the regulations that govern the port.
In case of loss/damage to cargo while handling it, the stevedore is
liable to the carrier subject to the exclusions and limitations in the
contract or port regulations. The carrier is liable to the
shipper/consignee according to the Hague Rules.

Liability of shore handling personnel


The activities that precede loading and follow discharge are usually
considered to be the shipper’s responsibility. Such activity is outside
the scope of the Hague Rules and often outside the carrier’s sphere

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of influence. The functions of receiving, transferring, storing, and


taking care of the cargo are performed on behalf of the shipper.
They are done by the shore handling personnel of the port authority
or by a private company.
The private firm or port authority are responsible for any loss or
damage to the cargo while in their custody according to the contract
between them and the shipper. In the case of a statutory authority,
their liability is specified by the regulations of the port. Quite often
shore handling personnel exclude liability for loss or damage to
goods unless caused by their “fault or negligence”. In some ports,
the goods are handled and stored “at the shipper’s risk”.

Activity
Try to arrange to talk to an appropriate official of the port authority
or a port operator nearest to your home or work. Discuss the
organization’s obligations and liabilities in modern cargo
transportation.

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Carriage of Goods by Sea Law Unit 8: Liability of other parties

Practice Exercise for Lesson 2


Test your understanding of Lesson 2 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. Which activities undertaken by the port authority or port
operator are covered by the Hague Rules?
a. Hague Rules cover only activities during and after loading,
and during and before discharge
b. Hague Rules cover all loading and discharge operations on
board and ashore
c. none—Hague Rules cover only the voyage at sea
d. it depends entirely on the contract of carriage

2. What limits the liability of port authorities in the Caribbean?


a. Hague Rules
b. another international convention
c. Hamburg Rules
d. national legislation

3. If a carrier hires stevedores from the port authority to stow cargo,


who is liable if the cargo is damaged during the stow? Check
any that apply. Explain your answer(s).
a. the carrier
b. the stevedores
c. the port authority
d. it depends entirely on the contract

_____________________________________________
_____________________________________________

4. Who is liable to whom when the port authority damages goods


while they are in storage after discharge but before delivery to
the consignee?
a. carrier is liable to shipper
b. port authority is liable to shipper
c. port authority is liable to carrier
d. port authority is liable to the consignee

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Lesson 3 ......The ship’s agent


From the point of view of liability, a distinction is drawn between
shipping agencies that are independent and those that are a branch or
department of a shipping company.

The shipping agency that is a branch or department of the shipping


company (carrier)
In this situation those engaged in the functions of the agency are
employees of the carrier. They have been allocated the task of
servicing the ship in port. Like any other employee, they have
responsibilities toward the shipping company that employs them.
The company is responsible for the actions of their employees.

Responsibility to third parties


The shipping company (carrier) is responsible for all the actions of
the employees engaged in the agency function done in the course of
their employment. Any contract they enter into, for example,
supplies to ship, would be on behalf of, and in the name of, the
shipping company. The officer in charge usually has the authority to
contractually bind the shipping company/carrier up to a particular
monetary limit. The shipping company/carrier is then directly liable
under this contract.

The shipping agency as an independent


An independent shipping agency is an individual or company that
represents or handles one or more carriers calling at the port in which
the agency operates. In this situation the shipping agency is quite
independent of the carrier.

Responsibility toward the carrier


The agent’s obligations toward the carrier depend on the agency
contract between them. Under common law, the agent has a duty to
act in utmost good faith toward the principal, in this case, the carrier.
If there is a loss as a result of failing to do this, the agent may have to
make good the loss.
If liability is incurred while acting within the scope of agreed
authority on behalf of the carrier, the agent may claim such loss from
the carrier. In that case, the carrier is responsible to third parties for
the agent’s actions. If the agent acts with negligence or outside the

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Carriage of Goods by Sea Law Unit 8: Liability of other parties

scope of agreed authority, and the carrier suffers a loss as a result,


the carrier may recover such loss from the agent.

Responsibility toward third parties.


In discharging agency functions, agents may act in their own names
or may act as agents on behalf of others. When acting
independently, the agent is personally responsible and liable to third
parties.
When they act for others, agents disclose the identity of the principal,
that is, the carrier. The carrier is then responsible to third parties
assuming the agent has acted responsibly and within the scope of the
agency agreement.

Activity
Try to talk to a ship’s agent about the ways in which liability has
been affected by modern transportation trends.

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Practice Exercise for Lesson 3


Test your understanding of Lesson 3 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. Who is responsible for the actions of shipping agents employed
by a carrier?
a. the agents
b. the carrier
c. it is entirely determined by a contract of carriage
d. it is entirely determined by a contract between the agent and
the carrier

2. Who is responsible for the actions of an independent shipping


agent?
a. the agents
b. the carrier
c. it is entirely determined by a contract of carriage
d. it is entirely determined by a contract between the agent and
the carrier

3. What determines the obligation of an independent shipping agent


toward a carrier?
a. the Hague Rules
b. the Hague Visby Rules
c. the Hamburg Rules
d. the contract between them

4. Is the carrier responsible to third parties for the actions of an


independent shipping agent? Explain your answer.
a. yes
b. no

5. When is the shipping agent responsible to third parties?


_____________________________________________
_____________________________________________

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Answer keys
Lesson 1
1. Any four of the following:
− prepare the goods for shipment
− take them to the port and/or hand them to the carrier
− describe the goods accurately on the bill of lading
− inform the carrier of the dangerous nature of the goods if
necessary
− pay the freight

2. d. pro rata freight

3. − to receive the cargo


− to pay the freight

4. b. false
The consignee may accept cargo from the ship, the quay, or
a stowage facility.
• There are three possible reasons why the consignee may have to
pay freight:
− in taking delivery of the goods, a promise to pay freight
may be implied
− a clause in the B/L may require such payment
− the law of the country concerned may require it

6. The five obligations of freight forwarder to shipper are:


− keep the client informed so as to protect the client’s interest
− select the carrier carefully
− take care of the goods
− note reservations against the carrier when taking delivery of
goods if they are not in the same condition as when shipped
− ensure the accuracy of the B/L particulars

7. c. yes; if the FF acts outside the scope of agreed authority

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8. their contract

9. a. true
Even though the FF usually avoids liability while acting for
the shipper, in some circumstances such as booking space
for the shipper on a ship in the London freight market they
may be deemed to be acting as principals.

10. c. principal

11. The network liability principle is that the liability of an MTO on


a particular leg of multimodal transport is the same as the
liability that would have been accepted by the carrier who
performed that leg.

Lesson 2
1. a. Hague Rules cover only activities during and after loading
and during and before discharge.

2. d. national legislation

3. a. the carrier
and
b. the stevedores
The carrier is liable to the shipper or consignee. The stevedores
are liable to the carrier.

4. b. port authority is liable to shipper.

Lesson 3
1. b. the carrier

2. a. the agents

3. d. the contract between them

4. a. yes, provided they act within the scope of their agreement


5. The shipping agent is responsible to third parties when acting
independently in their own names, rather than on behalf of
others.

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8−170 Diploma in Shipping Logistics—Jamaica Maritime Institute
Edition: 1.1 January 2000

Distance Education Course SB–205.5


Carriage of Goods by Sea Law

Unit 9 Delivery of
goods
In the carriage of goods a distinction is made between discharge and
delivery of cargo. Although the carrier’s obligation under Hague
Rules ends at discharge, some responsibility continues because the
carrier must then authorize delivery of the goods to the entitled
consignee/receiver. This unit examines what occurs between
discharge and delivery under various circumstances.
The three lessons in this unit cover the topics of:
• normal and problematic delivery
• non-delivery and misdelivery
• delivery in the case of general average.

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Unit 9: Delivery of goods Carriage of Goods by Sea Law

Unit 9 ...........Activities and expectations


Agenda
To complete this unit, you will:
• Read and study the text in this unit.
• Apply the information by performing the Activities
• Test yourself by doing the Practice Exercises and checking your
answers.

Resources
There is no textbook for this course. All the information you require
is in this Study Guide. In addition, your Student Manual lists some
books that you may wish to read to expand your knowledge.

Learning outcomes
When you have completed this unit you will be able to:
• Describe the normal delivery process after discharge.
• Describe how delivery processes are adapted when there is
damage, shortage, a split delivery, delivery without a bill of
lading, or delivery to a changed consignee or destination.
• Discuss liability when cargo is delivered to the wrong place or
not at all.
• Describe the effects of general averaging on delivery.

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Carriage of Goods by Sea Law Unit 9: Delivery of goods

Lesson 1...... Normal and problematic


delivery
Discharge and delivery are regarded as two separate functions.
Article I (e) of the Hague Rules speak of discharge as being the final
obligation of the carrier, rather than delivery. It may not be the
carrier’s final responsibility, though. This continues for up to one
year after delivery of the goods or the date when the goods should
have been delivered. During this time, claims may be made against
the carrier.
The practical obligation of the carrier toward the goods may end
when the goods are discharged onto the quay or into the custody of
the port. However, the carrier is further involved by having to
authorise the port to give delivery to the person entitled to receive
the foods.
This may become complicated if all of the goods are not received
together and in good order. This unit examines what transpires
between discharge and delivery of the goods and the procedure with
regard to delivery in the following situations:
• normal delivery
• delivery of damaged goods
• short delivery (missing cargo)
• split delivery
• irregular delivery
• delivery under general average.

Normal delivery
Goods are tallied when they are discharged from the ship and the
tally sheets indicate the quantity of goods discharged, the
corresponding marks and numbers, and the place where the goods
have been landed. Any discrepancies or peculiarities would be noted
on this tally sheet. The tally sheets may be signed by a
representative of the port and the ship.
The shipowner’s duty is to give the delivery order to the first person
who presents a properly endorsed bill of lading. On becoming aware
of the arrival of the ship, the consignee presents the bill of lading to
the carrier or carrier’s agent. The carrier or agent then gives a
delivery order directing the port to release the goods to the
consignee.

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The consignee checks the port records to ascertain whether the goods
have been discharged and if so where they are stored. After
completing the documentation, the consignee would take delivery
from the shore handling company or the port authority and examine
the goods at that time.

Delivery of damaged goods

On-board and shore surveys


In a conventional vessel, before discharge, the goods that appear to
have suffered damage are usually separated and surveyed on board.
The survey is carried out by carrier’s staff and the cargo handlers
(port/stevedores). In some ports a shore survey would be conducted
instead of an on-board survey. In certain ports these surveys may be
carried out by the carrier alone. However, sometimes, particularly if
a large shipment is known to have suffered damage, the survey may
be done by the consignee as well.
The findings of these surveys would be contained in an on-board
survey report or a shore survey report. The tally sheets would also
contain a special notation if the goods were in a damaged condition
at time of discharge.

Notifying interested parties


In some ports notice of any loss or damage must be given to the port
authority at or before the removal of the goods. The consignee
would also give notice of loss or damage to the carrier.

Notifying the underwriter


If the goods are damaged, the consignee would inform the cargo
underwriter and make arrangements to have the goods surveyed for
insurance purposes as soon as possible. This survey may take place
in the port premises, if this is allowed by the port, or at the
consignee’s premises.
The consignee may invite the carrier to take part in the survey
conducted by the cargo underwriter. The carrier usually declines to
attend a joint survey carried out after discharge, on the basis that
carrier’s liability would be determined according to the on-board
survey report or shore survey report. However, it may be difficult
for the carrier to rely on the on-board survey report because it may
not reflect the condition of the goods at the time it is fully discharged
from the ship. In practice however the consignee agrees to
determine the carrier’s liability on the basis of one of the above
survey reports.

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Carriage of Goods by Sea Law Unit 9: Delivery of goods

Short delivery
After obtaining the delivery order, the consignee may be unable to
trace the goods in the port. This may be either because the carrier
has not yet discharged the goods or because they have been lost after
discharge into the custody of the port.
When unable to trace the goods on the discharging records available
at the port, the consignee may come personally to the carrier’s or
agent’s office to ask for assistance in tracing the goods. If not, the
consignee may simply lodge a claim with the carrier, demanding the
goods or compensation for their loss.
The carrier would then check through the records. If the goods have
been properly discharged according to the carrier’s tally sheets, the
carrier would quote the tally sheets and their numbers and refer the
consignee to the port authority.

Tracer requests and final turn-out reports


If there were no such record, the carrier would take steps to trace the
goods by sending out a set of forms called tracer requests. These
would be sent to the master of the ship and to the way ports that the
ship called at on the voyage. Their function is to check whether the
goods have been retained on board or discharged elsewhere by
mistake.
If the goods are traced, they are shipped to the correct port of
discharge. Carriage may be either on a ship operated by the same
carrier or a ship operated by another carrier.
If the replies to the tracer requests are negative, the carrier would
confirm the loss and take steps to settle the claim. By this time the
carrier may also be able to recheck whether and how the goods have
been short-landed by referring to another document issued by the
port called the final out-turn report. This report indicates:
• cargo that has been discharged and is warehoused
• cargo that has not been discharged but remains on board
• goods that have been cleared by the consignee and are no longer
lying in the warehouse(s).

Delay and compensation


This exercise can take several months and can cause great
inconvenience to the consignee who can obtain neither the goods nor
compensation from the carrier or cargo underwriter. The cargo
underwriter is reluctant to compensate the consignee until the carrier
confirms that the goods are lost.

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Unit 9: Delivery of goods Carriage of Goods by Sea Law

Split delivery
The consignee may request the carrier to issue a number of separate
delivery orders for a consignment represented by one bill of lading.
This could be because the consignee wishes to sell or has sold the
consignment to a number of different buyers and wishes to let them
take delivery direct from the port. This means that the consignee
avoids having to take delivery of the entire consignment and split it
up.
The carrier could agree to such an arrangement. It does not matter to
the carrier how many parties take delivery from the port, as long as
the delivery orders issued agree with the total amount stated in the
bill of lading.

Irregular delivery
There are various ways in which delivery of goods can be considered
irregular:
• delivery without a bill of lading
• delivery to a different destination
• delivery to another consignee.

Delivery without presentation of the bill of lading


When unable for some reason to present an original bill of lading, the
receiver may request the carrier to deliver the goods without one. If
it was an order bill of lading, the receiver may also be noted as the
beneficiary in the copy bill of lading available with the carrier. The
shipper may confirm that the person is the one entitled to delivery.
It could very well be that the consignee is the genuine owner of the
goods and the bill of lading has either not yet reached the consignee
or has been misplaced. On the other hand it could also be that the
beneficiary noted on the bill of lading has sold the goods to another,
and is attempting to take delivery before the new owner does. It may
also be that the consignee has not made payment and cleared the bill
of lading from the bank.
The carrier’s obligations are to deliver the goods to the first person
who produces an original bill of lading. Delivery contrary to this can
make the carrier liable for the value of the goods to the legitimate
holder of the bill of lading.

Indemnifying the carrier


There may however be situations where the carrier feels there is no
alternative but to deliver the goods without production of the bill of

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Carriage of Goods by Sea Law Unit 9: Delivery of goods

lading. For example, where the goods can only be directly delivered
to the receiver, the carrier may have to wait in port for an indefinite
period unless willing to deliver the goods without the bill of lading.
In such a situation the carrier would ask the consignee for a letter of
indemnity and a bank guarantee from a reputable bank. These two
documents would give the carrier some protection in the event of a
claim from the lawful holder of the bill of lading. The carrier would
seek reimbursement from the person to whom delivery was made
and the bank that issued the guarantee.
A similar problem may arise if the shipper claims to have lost the bill
of lading and is thus unable to get payment from the bank. In such a
situation the carrier may agree to issue a fresh set of bills of lading,
on the strength of a letter of indemnity from the shipper, supported
by a bank guarantee.
The incidence of fraud is so frequent and the value of cargo is so
high today that the carrier of his agent must be very careful in giving
delivery without the production of the bill of lading.

Delivery to another consignee


Unit 3 discussed how, in a named bill of lading, the goods must be
delivered to the consignee noted on the bill. The bill of lading
cannot be simply endorsed to another. The carrier’s obligation
would be to make delivery to that named consignee. Where goods
have been shipped on a named bill of lading the shipper may later
request the carrier to deliver the cargo to a person other than the
consignee noted on the bill of lading. This may be due to the fact
that the original sale between the seller (shipper) and the buyer
(consignee) did not work out and another sale has been arranged.
If the shipper can produce the original set of bills of lading, then an
appropriate amendment can be made and the new consignee can be
indicated on the bill of lading. If the shipper cannot produce all the
original bills of lading then the carrier can only agree to the request
for change on the strength of a letter of indemnity and a bank
guarantee from the shipper.

Delivery to another destination


If a destination change is requested by the shipper, the carrier could
agree, subject to any additional payment of freight if the shipper can
produce all the original bills of lading. If this cannot be done, there
is always the risk that one or more bills of lading have been
transferred to a third party. If so, the carrier has an obligation to that
person to deliver the goods at the destination indicated in the bill of
lading.

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Unit 9: Delivery of goods Carriage of Goods by Sea Law

A change of the destination/discharge port could only be agreed


upon if the shipper gives the carrier a letter of indemnity together
with a bank guarantee. Then the carrier would be indemnified in the
event of a claim by any holder of a copy of the original bill of lading.

Activity
Talk to a carrier and discuss recent examples of
1. short delivery
2. delivery of damaged goods
3. delivery without a bill of lading.

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Carriage of Goods by Sea Law Unit 9: Delivery of goods

Practice Exercise for Lesson 1


Test your understanding of Lesson 1 by answering these questions.
Check your answers and read again any parts you found difficult.
The answer key is at the back of this unit.
1. At what point does the carrier’s obligation end according to the
Hague Rules?
_____________________________________________

2. What is the shipowner’s duty with regard to delivery orders?


a. to give it to the port authority to await the arrival of an
appropriate bill of lading
b. to give it only to the consignee named on the bill of lading
c. to give it to the first person presenting a properly endorse
bill of lading
d. to give it to the carrier’s agent who arranges delivery with
the consignee

3. What four things must a consignee do when taking delivery, if


the goods have already been discharged to the port?
a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________

4. Who may be involved in on-board or shore surveys? Check any


that apply.
a. ship’s staff (carrier)
b. cargo handlers (port or stevedores)
c. carrier’s agent
d. consignee

5. If goods are delivered damaged, what should the consignee do?


a. ___________________________________________
b. ___________________________________________

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6. When might the port be held accountable for missing cargo?


a. whenever the consignee finds that cargo is missing on
taking delivery
b. whenever cargo is missing on delivery but tally sheets show
the goods were discharged properly
c. when there is disagreement about how much cargo has been
discharged
d. never

7. What is the purpose of tracer requests?


_____________________________________________
_____________________________________________

8. What is indicated on a final turn-out report?


a. _________________________________
b. _________________________________
c. _________________________________

9. What is the relationship between delivery orders and bills of


lading?
a. there is only one delivery order per B/L
b. there may be several delivery orders per B/L
c. one delivery order may apply to several B/Ls
d. there is no relationship between delivery orders and B/Ls

10. In what three ways could a delivery be considered irregular?


a. _________________________________
b. _________________________________
c. _________________________________

11. Who is held responsible if delivery is made from the port to the
wrong person without a bill of lading?
a. the port
b. the shipper
c. the carrier
d. whoever handed over the goods

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12. What would give the carrier some protection against liability for
delivery to another destination if someone shows up with an
unchanged original bill of lading and demands the goods?
a. ________________________________
b. _________________________________

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Lesson 2 ......Non-delivery & misdelivery


The question arises of what is to be done when the carrier fails to
deliver the goods or delivers them to the wrong place or person.
Both non-delivery and misdelivery have been held by the courts to
be outside of the scope of the Hague Visby Rules.
Example: Case of “The Captain Gregos”
This recent case heard by the UK High Court concerned the one-
year limitation period contained in Article III of the Hague Visby
Rules. The Court held that a matter of misdelivery, whether
honest, dishonest, intentional, or merely mistaken is entirely
outside the scope of the Rules.
The court, therefore, decided that carriers could limit or exclude
their contractual liability for wrongful delivery of cargo. They
could also include in the bill of lading time limits for the
commencement of legal suits in respect of contractual claims for
wrongful or misdelivery.
In such cases, one could assume that the six-year limitation period at
common law would apply. The court did not, however, deal with the
issue as to when the time allowed should start to count. It could start
at:
• the date of the vessel report
• the date delivery is acknowledged.

The custom of many ports is to use the date of the ship report.

Activity
Talk to a carrier about their experiences of losing shipments
completely or sending them to the wrong destination. Find out what
documentary and practical processes they used to put matters right.
Find out also what parts of their processes make these occurrences
unlikely.

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Practice Exercise for Lesson 2


Test your understanding of Lesson 2 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. May a carrier insert an exclusion clause into the bill of lading
limiting the carrier’s responsibility if the goods are mistakenly
delivered to the wrong place?
a. yes, because the issue comes under common law
b. yes, because Hague Visby allows it
c. no, because Hague Visby does not allow it
d. no, because the common law does not permit it

2. What is the custom of many ports regarding the date from which
the limitation period is counted for placing claims of wrongful
delivery?
a. date of discharge
b. date of ship’s report
c. date of delivery as per the bill of lading
d. date the actual delivery is acknowledged

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Lesson 3 ......Delivery under general


average
When the ship and the cargo are exposed to a common danger, the
ship’s master may sacrifice some cargo or incur extra expense to
avert the danger and continue with the voyage. Losses from such a
sacrifice are shared among the ship and cargo interests. This
principal is known as general average (GA) and the sacrifices and
expenses that the parties share are known as general average
sacrifices and expenses. The course Marine Insurance (DSL course
SB–305.2) discusses general average in more depth.
At first, general average was limited to situations where an actual
physical sacrifice was made such as when some part of the ship or
the cargo was jettisoned. Later, it was frequently applied to
situations where nothing was physically lost, but money was spent to
ensure that the ship could proceed with its voyage safely without
losses. General average is thus the sharing of costs and expenses in a
very special situation.

Necessary conditions for general average to apply


A general average situation occurs if the following conditions are
satisfied:
• there must be danger common to the whole adventure
• there must be a real, intentional sacrifice or expense
• the sacrifice or expense must be necessary
• the sacrifice or expense must be extraordinary.

Which expenses are claimable as general average?


After a GA sacrifice, the various expenses involved in restoring ship
and cargo to an acceptable state must be sorted out to determine
which are GA expenses and which are not. This can be tricky.
Example:
Suppose that a vessel develops a substantial leak in the hull
below the waterline. The master takes a decision to ground the
vessel in order to prevent it from sinking. By taking this action he
saves the vessel and the cargo, but the leak has to be stopped
and the damage suffered by the ship due to the grounding has to
be repaired. A short-term repair is made to the leak, and a more
permanent and thorough repair is done later. The vessel has to

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be also refloated in order to continue the voyage. Which of


these expenses must be shared under general average?
The expenses involved in stopping the leak so as to continue
with the voyage would be allowed as GA expenses. Extra
expenses incurred on completely repairing the leak would be
attributed solely to the carrier. The expenses incurred in
repairing the grounding damage and the expenses incurred in
refloating the ship would be GA expenses.

Adjustment of general average


The adjustment of general average is a complicated task and is
usually done by specialists known as average adjusters. When a
casualty occurs that calls for a sacrifice of cargo or incurring extra
costs, the carrier would consult the average adjusters. If they
confirm that it is a GA situation, the carrier must give notice to the
receivers/consignees as soon as possible. Delivery of the cargo is
withheld until the formalities have been completed.
The adjusters obtain from the carrier all the losses and expenses
involved, including the value of any goods sacrificed. They then
examine each one to determine whether it is a GA expense or should
be borne by the shipper or carrier.
Example:
Suppose there is damage to a ship and its cargo caused by fire,
and further damage caused by the water used to extinguish the
fire. In this case, the cost of repairing the damage to the ship
caused by fire would not be a GA expense. This loss would be
borne by the carrier.
Cost of the cargo damaged by fire would be borne by the cargo
owner(s). Remember that under the Hague Rules, the carrier
would not be responsible for damage to cargo if the cause of
damage was fire.
The cost of repairing the damage to the ship caused by water
would be considered a GA expense because if the fire had not
been put out the losses would have been even greater. The cost
of any cargo damaged by water would also be a GA sacrifice.
Thus, these financial losses would be combined and then shared
proportionately among the various interests in the venture,
according to the value of their property at the end of the voyage.
These include the shipowner and all cargo owners involved in
the voyage.

The York Antwerp Rules


General average would be adjusted according to the law of the port
of discharge unless there were a specific provision to the contrary in
the bill of lading. Most bills of lading today contain a clause that

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general average adjustment is to be done according to the York


Antwerp Rules.
The York Antwerp Rules of 1994 are widely used to regulate
average adjustment today. In 1924, the York Antwerp Rules first
attempted to bring some uniformity into a highly variable GA
adjustment process that depended on the rules and practices at ports
of discharge. The various earlier versions of these Rules attempted
only to clarify certain specific matters on which the practice of
various countries differed. Later versions went further and not only
added to the Rules but also included statements of the basic
principles of general average.

Activity
Try to get hold of a copy of the 1994 York Antwerp Rules—ask your
local tutor if you have difficulty. Review all the rules, but especially
the general average procedures and those aspects of the rules that
affect discharge and delivery of cargo to consignees when some
cargo has been sacrificed.

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Practice Exercise for Lesson 3


Test your understanding of Lesson 3 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. When must a carrier notify a consignee that a general average
(GA) sacrifice of cargo has occurred?
a. as soon as the GA situation occurs at sea
b. as soon as possible after the GA situation is confirmed as
such by the adjusters
c. when remaining cargo is discharged
d. when remaining cargo is delivered

2. In most cases, how is it decided whether a particular loss in a GA


situation is to be borne by the shipper or the carrier or by
everyone involved in the venture?
a. the average adjusters decide using the Hamburg Rules
b. the average adjusters decide using the Hague Rules
c. the average adjusters decide using the Hague Visby Rules
d. the average adjusters decide using the York Antwerp Rules

3. How is it decided which rules to use in adjusting average?


_____________________________________________
_____________________________________________
_____________________________________________

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Answer keys
Lesson 1
5. Uon discharge from the vessel onto the quay or into the custody
of the port.

2. c. to give it to the first person presenting a properly endorse


bill of lading

3. a. check port records to ascertain discharge and place of


storage
14. complete necessary documentation
15. take delivery from the port authority
d. examine the goods to ensure complete delivery in good
condition

4. a. ship’s staff (carrier)


b. cargo handlers (port or stevedores)
d. consignee

5. a. notify the cargo underwriter


b. arrange for a survey for insurance purposes

6. b. whenever cargo is missing on delivery but tally sheets show


the goods were discharged properly

7. They check to see whether goods have mistakenly been retained


on board or discharged at the wrong port.

8. − cargo that has been discharged and is warehoused


− cargo that has not been discharged and is still on board
− cargo that has been cleared by the consignee and is no
longer in the warehouse(s)

9. b. there may be several delivery orders per B/L

10. − delivery without a B/L


− delivery to a different destination
− delivery to another consignee than originally named

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11. c. the carrier

12. − a letter of indemnity from the consignee


− a bank guarantee
Note that these would not be needed if all original bills of lading
have the change noted properly on them.

Lesson 2
1. a. yes, because the issue comes under common law

2. b. date of ship’s report.

Lesson 3
1. b. as soon as possible after the GA situation is confirmed as
such by the adjusters

2. d. the average adjusters decide using the York Antwerp Rules

3. Most bills of lading contain a clause stating that general average


adjustment will be done according to York Antwerp Rules.
Otherwise, the laws that are in force at the port of discharge
would apply.

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Edition: 1.1 January 2000

Distance Education Course SB–205.5


Carriage of Goods by Sea Law

Unit 10 Reservation &


claims against the
carrier

When cargo is damaged or lost, claims may be made against the


carrier. To do this, any obvious damage must be noted at the time of
delivery, and damage or loss discovered only upon unpacking must
be reported within a certain time. This unit discusses the ways in
such reservations and claims are properly made against the carrier.
The three lessons in this unit cover the topics of:
• notice of loss (reservation)
• legal effect of reservation
• preliminary aspects of making a claim.

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Carriage of Goods by Sea Law Unit 10: Reservation and claims

Unit 10......... Activities and expectations


Agenda
To complete this unit, you will:
• Read and study the text in this unit.
• Apply the information by performing the Activities
• Test yourself by doing the Practice Exercises and checking your
answers.

Resources
There is no textbook for this course. All the information you require
is in this Study Guide. In addition, your Student Manual lists some
books that you may wish to read to expand your knowledge.

Learning outcomes
When you have completed this unit you will be able to:
• Distinguish between apparent and non-apparent loss and
damage.
• Explain how to make reservations against the carrier using the
proper forms in the event of lost or damaged cargo.
• Identify the time limits allowed for reservations and claims
• Explain the legal effect of reservations
• Differentiate among joint surveys, court surveys, and cargo
underwriter’s surveys.
• Identify the persons who may make claims against the carrier.
• Identify the rules regarding jurisdiction over cargo claims.

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Unit 10: Reservation and claims Carriage of Goods by Sea Law

Lesson 1 ......Notice of loss (reservation)


At the time of taking delivery, the consignee may give notice of lost
or damaged goods to the carrier or carrier’s agent. Such notice is
called reservation. This notice preserves the consignee’s right to
claim against the carrier at a later date. The notice would be with
regard to a partial loss—shortage or damage and not total loss of a
consignment. The requirement to give such notice is contained in
the Hague and Hague Visby Rules.

Apparent and non-apparent loss or damage


The Hague and the Hague Visby Rules distinguish between apparent
and non-apparent loss and damage, but the Rules do not define
apparent and non-apparent. The legal question arises as to how this
is to be determined. The following examples indicate that damage
and loss are considered apparent when the consignee, or the
consignee’s representative, would be able to detect such damage and
loss by a rapid but sufficient check that could be made by a
reasonable person. Clearly, much depends on the circumstances of
each case.
Example 1:
A strong smell of engine oil emanated from bags of coffee beans
and could be detected by any person nearby. This damage
would be considered apparent.
Example 2:
A shipment of “900 litres of honey” was delivered and not
weighed until after unpacking. A shortage of 75 litres of honey
from this shipment was considered a non-apparent loss, as there
was no indications of any shortage until the shipment was
weighed.
Example 3:
A shortage of 60 bags of charcoal out of a consignment of 2700
bags was considered non-apparent loss because of the time it
would have taken to count so many bags at the time of delivery.
Example 4:
A consignment of 100 cartons of machinery spare parts, with 10
cartons having their covers torn was considered to have
apparent damage.
Example 5:
A shortage of only 6 litres of soya oil was still considered an
apparent shortage because the tank into which the oil was being
directly pumped had a transparent, easily visible measurement
scale.

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Example 6:
Damage to the enamel-coated interior of a 15-tonne tank was
considered apparent damage because the tank was provided
with a manhole, thus enabling an internal inspection to be made
at the time of delivery. If no such inspection aperture had
existed, it would have been considered non-apparent damage.

The form of the reservation


According to the Hague and the Hague Visby Rules, the notice with
regard to loss or damage must be sent to the carrier or carrier’s agent
at the port of discharge. The notice does not need to be sent by
registered post, but that would be a prudent method as it would avoid
disputes as to whether the notice was properly sent to the carrier.
The notice must be in writing and indicate the “general nature” of the
loss or damage that the goods have suffered.
For example, a notice stating that the goods were wet, crushed, had
torn bags, and spilled cargo, or goods possibly pilfered from torn
cartons, would be adequate. Precise details need not be given at this
stage. But a printed notice referring very broadly to “loss or damage
which might be discovered” would not be adequate.

Time allowed to make reservations


The time allowed for making reservations depends on whether the
damage is apparent or not.

Apparent damage
According to the Hague Rules, Article III Paragraph 6, the consignee
must give notice of apparent loss or damage “before or at the time of
the removal of the goods into the custody of the person entitled to
delivery…”

Non-apparent damage
According to the Hague Rules, notice regarding non-apparent loss or
damage must be given to the carrier “within three days of the
delivery of the goods”.
Time limits are discussed more fully in Lesson 3 of this Unit.

Activity
Ask a carrier to show you an example of a proper notice of
reservation.

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Practice Exercise for Lesson 1


Test your understanding of Lesson 1 by answering these questions.
Check your answers and read again any parts you found difficult.
The answer key is at the back of this unit.
1. What is a notice of reservation?
_____________________________________________
_____________________________________________

2. How is the difference between apparent and non-apparent


damage defined?
a. by the Hague Rules
b. by the Hague Visby Rules
c. by considering whether a reasonable person could detect the
damage with a rapid but sufficient check
d. by considering whether a reasonable person could possibly
detect the damage with a thorough check

3. If a liquid is pumped directly into a tank upon discharge, what


determines whether any loss is considered apparent?
a. whether the liquid was measured when it was shipped
b. whether the liquid is measured as it is discharged
c. whether the tank has a measurement scale
d. whether the tank has an easily visible, transparent scale

4. What do the Hague Rules say about the form of reservation?


a. that the reservation notice must be sent to the carrier (or
agent) at the port of discharge
b. that the reservation notice must be sent to the carrier (or
agent) at the port of loading
c. that the reservation notice must be sent to the carrier (or
agent) by registered post
d. nothing

5. How much time is allowed under the Hague Rules for notice to
be given of non-apparent damage?
_____________________________________________

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Lesson 2...... Legal effect of reservation


According to the Hague Rules, if the consignee does not give notice
of cargo loss or damage at the time of delivery, this would be prima
facie evidence that the carrier delivered the goods in the same
condition as stated in the bill of lading. The drafters of these Rules
appear to have intended that consignees should rely on reservations
to prove that the goods were loaded in good order but discharged in
bad order. The provision however does not have that effect. It is
still up to the consignee to bring evidence that the goods were
damaged when they were delivered. This is so whether the
consignee gives notice to the carrier or not. The consignee would do
this quite easily by producing the clean bill of lading to show
shipment was in good order and the cargo survey report to show
delivery was in bad order.

Proving loss or damage without a reservation notice


However, if no reservation notice has been given, the consignee
could be at a disadvantage. This is because the acceptance of the
goods without reservation would be prima facie evidence that the
carrier had delivered the goods in good condition. The consignee
would then have to:
• prove the damage by showing that the goods were received in
bad order
• prove that the loss or damage occurred while the goods were in
the custody of the carrier.

Had the consignee given notice there would have been no such
burden, and it would have been the carrier who would have had the
burden of proving that the loss or damage did not occur while in the
carrier’s custody.
Example:
A carton containing refrigerated meat arrived at the discharge
port, with the meat partly defrosted and emitting a strong smell.
The consignee took delivery without giving notice of damage to
the carrier. On discovering that the meat was spoilt, the
consignee arranged a survey in conjunction with the cargo
underwriter.
Removal without notice was prima facie evidence of delivery in
good order by the carrier. Therefore, the consignee had to not
only establish the damage by producing the survey report, but
also that it occurred while in the custody of the carrier. To do
this, the consignee had to obtain the temperature records of the
refrigerated compartment of the ship during the voyage.

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Allowed evidence proving damage


Evidence that would be admitted in legal proceedings to prove
damage include:
• a tally sheet
• any other survey report document issued by the relevant port
authority
• witnesses
• a customs bill
• a final out-turn report.

Joint survey or inspection


In the Hague Rules, there are two main provisions dealing with joint
surveys. They are in Article III, paragraph 6.

Notice and joint surveys


The Rules state that the notice in writing need not be given if the
state of the goods has, at the time of their receipt, been jointly
surveyed or inspected. In practice, unless the loss or damage is
serious, no joint survey is carried out at time of delivery of the
goods. The consignee also does not usually give notice of loss or
damage at the time of delivery or immediately after.
However, if there is damage or loss, the consignee would inform the
cargo underwriter and arrange a survey. The carrier would accept
liability on the basis of the tally sheets and onboard or shore survey
report carried out by the port in the presence of the carrier’s
representative.
The carrier’s reasons for not normally insisting on notice of loss or
damage or and being reluctant to have a joint survey could be
attributed to the following:
• the survey conducted by the port in the presence of the carrier
may be considered a joint survey as the port would in a sense act
on behalf of the consignee
• it would be inconvenient if a large number of consignees
requested the carrier’s presence at surveys.

Surveys on board
The Rules also state that in the case of any actual or perceived loss or
damage, the carrier and the receiver shall give all reasonable
facilities to each other for inspecting and tallying the goods. The

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carrier is usually reluctant to allow the consignee too survey the


cargo on board. Although the consignee can be discouraged from
coming on board, the carrier may have to allow an inspection on
board if the consignee insists.

Court surveys
The consignee may apply to the court to get an order to hold a joint
survey. The surveyor appointed by the court would notify the parties
concerned of the date and place where the survey would be
conducted. The carrier normally declines to participate at surveys
organized by the consignee.

The role of the carrier in a court survey


The fact that a carrier did not attend the survey would not affect the
validity of the survey report. The surveyor does not make any
decision regarding the carrier’s liability. The surveyor only makes
observations on the possible cause of loss and the extent of the loss.
The carrier may contest or disagree with the survey findings. In the
event of the claim being taken to court, it is likely that the court
survey would be relied upon. The carrier could however produce
evidence to show that the court survey should not be relied on, such
as:
• surveys carried out on board
• surveys carried out ashore by the port
• expert witnesses.

Cargo underwriter’s survey


In the event of loss or damage, the consignee would call the cargo
underwriter (or representative) who would arrange for a survey. The
survey could be performed by any authorised surveyor appointed by
the underwriter. The cargo underwriter’s survey is performed
mainly to ascertain the type and degree of loss or damage, and to
check whether it falls within the cargo insurance cover taken out by
the shipper or receiver.

Insurance settlement vs. claims against the carrier


The survey report however is also used to substantiate the loss or
damage suffered by the consignee when making a claim on the
carrier. If the survey report indicates loss or damage to the cargo, the
consignee would initially make a claim on the insurer. The insurer
will then inform the consignee to first make a claim on the carrier.

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Although in theory the insurer should settle the consignee’s claim


and take up the claim with the carrier under subrogation, this is not
done in practice, unless it is a large or a complicated claim. The
insurer usually makes the consignee process the claim with the
carrier. The insurer pays compensation only after the carrier declines
liability or has paid the amount the carrier is liable for. Since the
carrier may take several months to finalise a claim, the consignee
might have to wait a long time before getting compensation from
either the carrier or the insurer.

Activity
Ask a carrier or insurance company to let you read a copy of at least
one type of survey report.

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Practice Exercise for Lesson 2


Test your understanding of Lesson 2 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. What must the consignee do under the Hague Rules to justify a
claim of damage during transit?
_____________________________________________
_____________________________________________
_____________________________________________

2. If the consignee does not give a reservation notice at the time of


delivery, what two things will have to be proven to make a claim
against the carrier for damage?
a. _________________________________
b. _________________________________

3. Name four things that could be used as evidence of cargo


damage during carriage.
a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________

4. If a joint survey has been done, there is no need to give written


notice of damage. True or false? Explain.
a. true
b. false
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________

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5. When there has been some damage to cargo, is the carrier


obliged to allow the consignee on board for an inspection?
a. yes, under the Hague Rules, the carrier and receiver must
accommodate each other
b. no, the Hague Rules say that the carrier need not allow the
consignee on board, although an on-shore survey must be
accommodated

6. Does the carrier usually attend a court survey requested by the


consignee?
a. yes, both interested parties must attend such a survey
b. yes, the carrier usually attends although he/she is not
required to do so
c. no, only the party requesting the survey can attend
d. no, the carrier does not usually attend even though he/she
may do so

7. What are the two purposes of a cargo underwriter’s survey?


a. _________________________________
b. _________________________________

8. What is the usual process with an average sized claim for cargo
damaged in transit?
a. the consignee claims from the insurance company and the
carrier at the same time
b. the consignee claims from the insurance company who
settle and then claim under subrogation from the carrier
c. the consignee claims from the carrier first and then from the
insurance company if the carrier will not settle
d. the consignee claims from the carrier only. Only large
claims are made on the insurance company

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Carriage of Goods by Sea Law Unit 10: Reservation and claims

Lesson 3...... Preliminary aspects of


making a claim
When goods carried by sea are damaged, partially lost or completely
lost, the consignee is entitled to make a claim against the carrier for
damages. The purpose of this lesson is to analyse the procedural and
technical requirements that must be satisfied to sustain a cargo claim
in court.

The technical requirements for making a claim


The requirements that are dealt with here are not the rules or
procedures of the relevant court, but the basic requirements that must
be satisfied by the claimant. If any of these requirements have not
been satisfied, the carrier could validly object to the claim. In such a
situation the court may reject the claim without going into its merits.
If the technical requirements are satisfied and the court examines the
merits of the case, the liability of the carrier would be determined
according to specified rights and obligations. The technical
requirements that must be satisfied are:
• the claimant must be entitled to bring the action against the
carrier
• the claim must be brought to court within the time limit
• the court must have the competency to deal with the case.

Persons entitled to claim against the carrier


The Bills of Lading Acts, which are part of the legislative framework
of many Caribbean countries, have similar provisions. They provide
that persons other than the shipper, who may not, in a contractual
sense, be privy to the contract of carriage, may bring claim against
the carrier. This includes people such as the receiver/consignee who
was not a party to the initial contract of carriage made between the
shipper and the carrier.

Module C: Certificate in Shipping Business (Course SB-205.5)


Diploma in Shipping Logistics—Jamaica Maritime Institute 10−201
Unit 10: Reservation and claims Carriage of Goods by Sea Law

The following persons would also be entitled to make a claim on the


carrier:
• the consignee named in the bill of lading
• where order bill of lading has not been endorsed, the shipper
• where the bill of lading is generally endorsed (that is, in blank)
the holder of the bill of lading
• where the bill of lading has been endorsed specially, the named
beneficiary under the last endorsement
• where the shipper or consignee is entitled to claim against the
carrier and is compensated by the cargo insurer; if those rights
are subrogated to the insurer, the insurer is entitled to make a
claim against the carrier.

Time limit
The law in each country usually provides a time limit within which a
claim must be brought to court. The time limit varies with the type
of claim. Once the time has lapsed, the court will not hear the case.
The time limit applicable to cargo claims depends on the national
legislation and the relevant international conventions.

Applicable time limit under the Hague Rules


According to the Hague Rules the time limit allowed to bring an
action against the carrier is one year. Article III, paragraph 6 states:
In any event the carrier and the ship shall be
discharged of all liability in respect of loss/
damage to goods unless suit is brought within one
year after delivery of the goods or of the date when
the goods should have been delivered.

Starting point of time limit


Claims may be for damage or partial loss, or for complete non-
delivery (total loss). Time limits are handled differently for these
cases.

Damage or partial loss


According to the Hague Rules, the time limit for making claims of
partial loss starts running from the date of delivery of the goods. The
question as to when delivery of the goods actually takes place has
been the subject of much debate. One view is that it would be the
date on which the consignee takes delivery of the goods. The other

Module C: Certificate in Shipping Business (Course SB-205.5)


10−202 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 10: Reservation and claims

view is that it is the date on which goods are delivered into the
custody of the port or shore handling company. That is, the date of
discharge from the vessel.
The first view may be more in keeping with the letter of the law.
However, the second view is usually applied, as it is more in keeping
with the practical realities of commercial shipping operations. The
carrier would discharge the goods on to the quay and they would be
kept in the custody of the port, either on the quay or in warehouses,
until the consignee takes delivery. It is possible to argue that the port
takes delivery of the goods on behalf of the consignee. As the
consignee can take delivery any time after the goods are discharged,
it would not be fair on the carrier to postpone the commencement of
the time limit to a date of the consignee’s choice.
One reason for imposing a time limit is to enable carriers to assess
the outstanding claims against them after a given period, or the
possibility of such claims. It is unlikely that the Rules would have
envisaged that period being extended at the discretion of the
consignee.

Non-delivery
According to the Hague Rules the time limit for claims of non-
delivery starts running from the time when the goods should have
been delivered. That is, the date on which the goods should have
been delivered to the port authority or shore handling company. This
date would usually be considered as the date on which the ship
completed discharging cargo destined for that port.

Extension of the time limit


The Hague Rules make no provision for an extension of time by the
carrier. However an extension given in writing by the carrier at the
request of the consignee would be binding on the carrier.
The Hague Visby Rules clarify the position with regard to an
extension of the time. These Rules state that the period may be
extended, if the parties so agree.

Arbitration
If the claim is referred to arbitration within the time limit, that would
amount to suit being brought under the Hague or the Hague Visby
Rules.

Module C: Certificate in Shipping Business (Course SB-205.5)


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Unit 10: Reservation and claims Carriage of Goods by Sea Law

Rules governing jurisdiction


The shipper or consignee who has a cargo claim would take up the
matter with the carrier in the first instance. The action may be either
for damages or for money due. If unable to obtain a satisfactory
settlement, the claimant may wish to take up the matter in court. The
question would then arise as to what would be the appropriate court
in which to file an action.
The international character of shipping makes the determination of
the appropriate court a complex task and it is difficult to lay down
any rules without getting involved in debatable legal issues. At the
risk of oversimplifying, the action may be filed in the courts of the
country:
• where the port of discharge is situated
• where the defendant resides
• where the defendant has a place of business
• where the defendant owns property, such as real estate or
business.

In addition, an action may be brought against the ship which carried


the goods, or a ship in the same fleet, according to the admiralty
jurisdiction law of the country where the ship is when the claim is
filed. Also, the bill of lading may have a jurisdiction clause that
provides that a particular country has exclusive jurisdiction to hear
claims arising out of the carriage.

Activity
There is no Activity for this lesson.

Module C: Certificate in Shipping Business (Course SB-205.5)


10−204 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 10: Reservation and claims

Practice Exercise for Lesson 3


Test your understanding of Lesson 3 by answering the following
questions. Check your answers and read over any parts you found
difficult. The answer key is at the back of this unit.
1. What are the three technical requirements for a claim that must
be met by the claimant before a court will agree to look at the
claim’s merits?
a. ________________________________
b. _________________________________
c. _________________________________

2. List the five parties who may bring a claim against a carrier.
a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________
e. _________________________________

3. According to usual commercial practice (as opposed to the letter


of the law), when does the time start running for making claims
for partial loss?
a. on discharge of the goods from the ship into the custody of
the port
b. on delivery of the goods to the consignee/receiver
c. from when the loss was first noticed by the
consignee/receiver
d. from the time of joint survey

4. When does the time start running for claims regarding non-
delivery of cargo?
_____________________________________________

5. May the time limit for claims be extended?


a. yes, if the claimant asks in writing
b. yes, if the carrier agrees in writing
c. no, the Hague Rules do not allow it
d. no, the Hague Visby Rules do not allow it

Module C: Certificate in Shipping Business (Course SB-205.5)


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Unit 10: Reservation and claims Carriage of Goods by Sea Law

6. What (if any) time limits apply to arbitration procedures?


_____________________________________________
_____________________________________________

7. Name four factors that could possibly determine the jurisdiction


in which a claim may be filed.
a. _________________________________
b. _________________________________
c. _________________________________
d. _________________________________

Module C: Certificate in Shipping Business (Course SB-205.5)


10−206 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 10: Reservation and claims

Answer keys
Lesson 1
1. A reservation is a notice given by the consignee to the carrier at
the time of delivery preserving the right of the consignee to
claim against the carrier at a later date in the event that damage
or loss is discovered later.

2. c. by considering whether a reasonable person could detect the


damage with a rapid but sufficient check

3. d. whether the tank has an easily visible, transparent scale

4. a. that the reservation notice must be sent to the carrier (or


agent) at the port of discharge

5. Notice of non-apparent damage must be given within three days


of delivery.

Lesson 2
1. The consignee must show that the goods were shipped in good
order and received with damage or loss.

2. − that the goods were received in a damaged condition


− that the damage occurred while they were in the carrier’s
custody

3. Any four of the following:


– tally sheet
– other survey report from port authority
– witnesses
– customs bill
final out-turn report

4. b. false
Although the Hague Rules do not require it as long as there
has been a joint survey, in practice joint surveys are not
done unless damage is serious. Often the consignee doesn’t
give notice of damage for a short while after delivery, and a
joint survey may be called after this.

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Unit 10: Reservation and claims Carriage of Goods by Sea Law

5. a. yes, under the Hague Rules, the carrier and receiver must
accommodate each other

6. d. no, the carrier does not usually attend even though he/she
may do so

7. The cargo underwriter’s survey is:


– to ascertain the type and degree of loss/damage
– to check whether it falls within the cargo insurance cover
It may also be used by the consignee and/or the insurer in
making a claim on the carrier.
8. c. the consignee claims from the carrier first and then from the
insurance company if the carrier will not settle.

Lesson 3
1. − the claimant must be entitled to bring action against the
carrier
− the claim must be brought to court within the time limit
− the court must be competent to deal with the case

2. − consignee named in the B/L


− if the B/L is not endorsed, the shipper
− if the B/L is endorsed in blank, the holder of the B/L
− if the B/L is endorsed specially, the last named beneficiary
− an insurer using subrogated rights of the shipper or
consignee

3. a. on discharge of the goods from the ship into the custody of


the port

4. From when the goods should have been discharged from the ship
into the custody of the port.

5. b. yes, if the carrier agrees in writing

6. If the claim is taken to arbitration within the time limits that is


the same as a suit being brought under the Hague or Hague
Visby Rules.

Module C: Certificate in Shipping Business (Course SB-205.5)


10−208 Diploma in Shipping Logistics—Jamaica Maritime Institute
Carriage of Goods by Sea Law Unit 10: Reservation and claims

7. Any four of the following:


– the country of the port of discharge
– the country where the defendant resides
– the country where the defendant works
– the country where the defendant owns property
– the country where the ship or a sister ship is at the time
of claim
the country whose jurisdiction is named in the bill of lading.

Module C: Certificate in Shipping Business (Course SB-205.5)


Diploma in Shipping Logistics—Jamaica Maritime Institute 10−209

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