Carriage of Goods by Sea - Coursework Example

?Carriage of Goods by Sea Part A. Liability for Damages and Loss for the Carriage of Goods by Sea under the Hague/Visby Rules All claims and liabilities arising out of the aborted voyage of the MV Costanzia involve the charter party between Bushey Lines and Hadley Marine Ltd., Hadley and ASS, the bill of lading between Blanca Ltd. and Bushey Lines and the sale of half of the consignment of coal to Burn Well Ltd (a third party). The applicable law is the Carriage of Goods by Sea Act 1971 as well as the Carriage of Goods by Sea Act 1992 and the appended Hague/Visby Rules 1968. Any claims against Bushey Lines and Hadley Marine Ltd. are founded on the application of the Carriage of Goods by Sea Act 1971 and the Hague/Visby Rules 1968. Contracts for the carriage of goods by sea which are described by a bill of lading are covered by the Carriage of Goods by Sea Act 1971 which gives effect to the Hague-Visby Rules 1968.1 The 1971 Act and by extension the Hague/Visby Rules 1968a are only applicable to “outwards bills of lading” which essentially means bills of lading that are issued “from a British port” or a port in Northern Ireland so that the “port of destination is immaterial”.2 Specifically Article X of the Hague Visby Rules 1968 provide that: The provisions of these Rules shall apply to every bill of lading relating to the carriage of goods between ports in two different States if (a) The bill of lading is issued in contracting State, or (b) The carriage is form a port in a contracting State...3 The applicability of the Hague/Visby Rules to the contractual terms of the bill of lading between Bushey and Blanca is important in terms of establishing possible liability and claims. Pursuant to Article IV of the 1968 Rules, the carrier is only “liable for loss or damage arising or resulting from unseaworthiness” if such unseaworthiness is “caused by want of due diligence on the part of the carrier to make the ship seaworthy” and to ensure that the ship is “properly manned, equipped and supplied”, before and at the start of the voyage.4 On the facts of the case it is not revealed whether or not the hull to the MV Costanzia was damaged prior to the voyage or damaged at the beginning of the voyage. As it turns out the facts merely reveal that the damaged hull was discovered at the beginning of the voyage and thus it must be assumed that the carrier (Bushey) performed due diligence in ensuring that the ship was seaworthy at the beginning of the voyage as they immediately contacted Hadley (the shipowner) who in turn dispatched ASS a society to which Hadley belonged to survey the damages. ASS’s surveyor however, erroneously determined that the ship was seaworthy for the voyage to Canada after temporary repairs, but would have to have more thorough repairs conducted once the ship arrived in Canada. Based on the surveyor’s erroneous findings, the ship set sail once again, but subsequently sank with the result that its freight was lost. Assuming the hull was damaged prior to leaving the port at Southampton, the ship was not seaworthy rendering the carrier liable if the unseaworthiness is a result of the carrier’s own negligence.5 If the hull was damaged prior to leaving the port, it can be assumed that the carrier was negligent, and thus Article IV(2)(p) applies. Article IV(2)(p) provides that the ship owner and the carrier will only be exempt from “latent defects not discoverable by due diligence”.6 It can be argued that since the damage to the hull was discovered once the voyage began, it was not a latent defect that could not have been discovered by due diligence. Based on the assumption that the damaged hull existed prior to the voyage and ultimately caused the damages and losses suffered by Blanca, both Bushey and Hadley as carrier and shipowner respectively are liable under Article IV(2)(p) of the Hague/Visby Rules, 1968. Even if the damages to the hull were not sustained until after the ship began its voyage, Bushey and/or Hadley will remain liable under the Hague/Visby Rules, 1968. Although the surveyor was hired via ASS to survey the hull’s damages, he was for all intents and purposes acting as an agent for the shipowner (Hadley) and the carrier (Bushey). The carrier’s obligation to ensure due diligence pursuant to the Hague/Visby Rules is not solely with respect to personal conduct. The carrier remains liable for the failure to use due diligence on the part of his/her servants and/or agents.7 The burden is on the shipowner and the carrier to prove that they did in fact carry out due diligence pursuant to the Hague/Visby Rules 1968.8 Essentially liability for unseaworthiness is founded on the obligation to ensure that the ship is fit for purpose physically and in the manner that it is maintained and manned. As Viscount Cave noted in Elder, Dempster and Co. v Paterson Zochonic and Co. Ltd: It is well settled that a shipowner or charterer who contracts to carry goods by sea thereby warrants not only that the ship in which he proposes to carry them shall be seaworthy in the ordinary sense of the word, that is to say she will be tight stanch and strong and reasonably fit to encounter whatever perils may be expected on the voyage, but also that both the ship and her furniture and equipment shall be reasonably fit for receiving the contract cargo and carrying it across the road.9 In AEReed and Co. Ltd. v Page, Son and East, Scrutton LJ ruled that seaworthiness has two main implications for shipowners and carriers. The two main implications are: 1. The ship must be physically fit and properly manned and maintained for the voyage contemplated; and 2. The ship must be fit to take on and transport the cargo it agrees to receive and transport.10 The law relative to seaworthiness both at common law and by virtue of the Hague/Visby Rules require that a ship is physically fit. This does not require that the ship is new, but merely that it is in a position to withstand the ordinary perils of the sea during the contracted voyage. The ship must be fit and projected to be fit at the time of taking on the cargo and at the beginning of the voyage. Obviously a ship that leaves port with a broken or damaged hull or sustains a damaged hull at the beginning of the voyage is not seaworthy pursuant to both common law and the Hague/Visby Rules. Even if it can be argued that the point at which the ship sustained a damaged hull, was well after the voyage began, the carrier remains under a duty to ensure that the cargo is protected11 and discovering and properly repairing a ship’s damages in mid voyage would obviously go hand in hand with the duty to protect cargo. Be that as it may, the duty to provide a seaworthy ship under the test provided by Scrutton LJ does not exempt the shipowners and the carrier once surveyors are found to be or are believed to be negligent or failed to use due diligence. As the carrier and the shipowner both have a duty to ensure that the ship is properly manned and maintained for the duration of the contemplated journey.12 As McKinnon LJ stated in Smith, Hogg and Co. v Black Sea and Baltic General Insurance, the duty to perform due diligence in ensuring that the ship is seaworthy: Is a limitation or qualification more apparent than real because the exercise of due diligence involves not merely that the ship owner personally shall exercise due diligence but that all his servants and agents shall exercise due diligence.13 It therefore follows that neither the shipowner nor the carrier may shift liability by claiming that the seaworthiness of the ship was left to the ship’s crew or the repair personnel. The fact that surveyor was distracted when he made the decision to recommend temporary repairs to the ship’s hull will not exempt Bushey nor Hadley of their obligations to perform due diligence relative to the seaworthiness of the ship. They may however wish to serve third party proceedings on ASS as third parties liable for sharing responsibility for the negligence of their surveyor, depending on the terms of the contract and membership agreement between ASS and Hadley. With respect to the manner in which the ship only made temporary repairs to the hull and ultimately failed to provide a ship that was seaworthy, both Hadley and Bushey can be liable for negligence. Negligence is described as a breach of duty to take care which causes damages to the complainant, or breach of a duty of care when a duty of care is said to exist.14 The duty imposed by the Hague/Visby Rules and the common law to use due diligence in ensuring a ship is seaworthy is tantamount to a duty of care.15 Where it can be established that negligence on the part of the shipowner or the carrier is directly related to the loss or damages, the shipowner and the carrier will be liable for loss and/or damages sustained. It was held in Silver v Ocean Steamship Co. Ltd, that a shipowner and a carrier may not rely on exemptions contained in any bill of lading or the Hague/Visby Rules if they were found to be negligent.16 Burn Well can also make a claim against Hadley and Bushey pursuant to the Carriage of Goods by Sea Act 1992. By virtue of the Carriage of Goods by Sea Act 1992, the transfer of a the contract to a third party transforms the third party into a lawful holder of the bill of lading in circumstances where the carrier is obligated to give possession of the goods to a third party.17 Blanca instructed the master to deliver one half of the consignment to Burn Well and therefore Burn Well becomes a third party who is a lawful holder of the bill of lading and can thus rely on the bill of lading to pursue a claim against Hadley and Bushey for damages and loss relative to the lost cargo. Even where the bill of lading was not actually transferred to Burn Well, the latter may still claim damages and losses. It was held in MacMillanCo. Inc. v Mediterranean Shipping Co. Sa (The Rafaela S) that the purpose of the Hague/Visby Rules is to protect all parties to a contract for the carriage of goods by sea and this includes third parties.18 Carr and Stone explained that: A straight bill of lading, while not showing the succession of transfers associated with a classic bill of lading, is still capable of one transfer to the named consignee (a third party). So a named consignee under a straight bill of lading is within the purview of the Hague-Visby Rules.19 It therefore follows that even if the bill of lading does not initially name Burn Well as a third party, the later was identified by name to the master and thus effectively identified and named as a person to whom the bill of lading is at least partially transferred to. Thus, Burn Well is a third party entitled to claim damages and loss with respect to the lost cargo. The LMAA arbitration clause is valid despite the application of the Hague/Visby Rules to the bill of lading. As Baughen explains, the bill of lading is not only descriptive of the goods to be loaded and transported, but it also provides the contractual terms and conditions between the parties. The bill of lading can also implement terms form other documents including the charterparty. However, terms in the charterparty will not form a part of the contractual terms of the bill of lading unless it is incorporated in the bill of lading.20 The bill of lading between Bushley and Blanca expressly stated that the terms of the charter are incorporated in the bill of lading. Therefore the LMAA arbitration clause applies for the resolution of claims and disputes relative to loss and damages sustained aboard the chartered vessel. Based on the authorities cited above it would therefore appear that Burn Well may have a claim against Blanca for breach of contract under the law of contract. Burn Well also has a claim against Bushey and Hadley as carrier and shipowners respectively for failing to perform due diligence and for negligence resulting in the unseaworthiness of the ship. Blanca likewise has a claim in negligence and for failure to perform due diligence to ensure the ship was seaworthy against Bushey and Hadley. Bushey and Hadley are at liberty to third party ASS in respect of the negligence of their surveyor. Part B. Bill of Ladings and the Hague/Visby Rules By virtue of Article I(b) of the Hague/Visby Rules, the Hague/Visby Rules will be applicable if the contract for the carriage of goods by sea is provided for by a bill of lading or document of a similar nature. In this regard, Article 1(b) of the Hague/Visby Rules 1968 reads as follows: 'Contract of carriage' applies only to contracts of carriage covered by a bill of lading or any similar document of title, in so far as such document relates to the carriage of goods by sea, including any bill of lading or any similar document as aforesaid issued under or pursuant to a charter party from the moment at which such bill of lading or similar document of title regulates the relations between a carrier and a holder of the same.21 According to Carr and Stone, the courts have been entirely liberal in their interpretation of documents as bills of lading so as to safeguard against attempts to avoid liability or to bypass the protections accorded parties under the Hague/Visby rules.22 In fact, the court has even come to the conclusion that a bill of lading applied in a case where none existed. In Pyrene Co. Ltd. v Scindia Navigation a fire tender was damaged upon being transferred aboard a ship. When the damages were sustained no bill of lading had been issued although it was issued at a later date. The damages to the fire tender was not documented and the carrier attempted to rely on Hague Rules in support of a claim of limitations relative to liability. The complainant argued however that since the damages to the fire tender occurred at a time where no bill of lading was issued limitations on liability would not arise. It was held that despite the fact that there was no bill of lading at the relevant time, the parties had fully expected that a bill of lading would be issued eventually. The court went on to states that: The contract is form its very creation covered by a bill of lading, and is, therefore, from its very inception a contract of carriage within the meaning of the Rules and to which the Rules apply.23 The courts are therefore prepared to liberally construe the Article 1(b) of the Hague/Visby Rules liberally to come to the conclusion that a bill of lading exist. In other words, the fact that any bill of lading or similar document of title will invoke the Hague/Visby Rules gives courts the flexibility to liberally interpret what amounts to a similar document of title. Carr and Stone argue that the courts have even gone so far as to construe customs in trade in such a way as to conclude that a similar document of tile exists.24 In Lickbarrow v Mason the court was satisfied with evidence of mercantile custom establishing the existence of a document of title and thus a bill of lading.25 Although neither the Hague/Visby Rules or the Hague Rules were not in existence at the time of this ruling, it demonstrates the court’s propensity to establish the existence of a bill of lading for the purpose of identifying and enforcing the parties’ liabilities and obligations with respect to the contract for the carriage of goods by sea. More recently, in Kum v Wah Tat Bank Ltd. it was held that a document of title can be established by reference to trade custom. However, trade custom would only be capable of establishing the existence of a document of title in cases where the applicable custom is reasonably well known to such an extent that an outsider making inquiries would readily solicit uniform answers. Lord Devlin stated that: ...the custom must be so generally known that an outsider who makes reasonable enquiries could not fail to be made aware of it. The size of the market or the extent of the trade affected is neither here nor there...A good and established custom...obtains the force of a law, and is, in effect, the common law within that place to which it extends.26 Thus the courts have demonstrated a propensity to imply the existence of a document of title in cases where it may not be possible to infer that a bill of lading exist, so as to bring the case within the Hague/Visby Rules. However, where it is possible to infer the existence of a bill of lading the courts appear to do so without hesitation. For example in MacMillanCo. Inc. v Mediterranean Shipping Co. Sa (The Rafaela S) a consignment of freight was shipped pursuant to a straight bill of lading. The freight was shipped from Durban to Felixstowe although its final destination was Boston. Once the ship arrived in Felixstowe the freight was once again shipped to Boston and sustained damages on the voyage to Boston. The freight was on ships owned by the same party and there was no bill of lading for the cargo shipped to Boston. It was held, there were two shipments and there was no doubt that a straight bill of lading would have been rendered had it been asked for.27 The bill of lading is said to be an important document for regulating the carriage of goods by sea. However, there can a confusion in its applicability if a clause is invalid in one jurisdiction and valid in another. The Hague/Visby Rules cures this potential of conclusion by ensuring that the port of departure has jurisdiction over the bill of lading. Thus the courts may be minded of the potential for confusion and are eager to ensure that a contract for the carriage of goods by sea is governed by a bill of lading so as to bring it under the Hague/Visby Rules. By taking this approach, there is greater consistency and less confusion with respect to interpreting the rights and obligations of the parties to a contract for the carriage of goods by sea.28 Carr and Stone explain that the bill of lading is entirely important to “international commerce where sea carriage is envisaged”.29 Although, initially, the bill of lading was no more than a receipt reflecting the cargo and its “quantity”, it has since developed into a document of title: ..such that possession of the bill of lading was deemed to constructive possession of the goods. Recognition of the bill of lading as a symbol for the goods made way for the sale of goods to a third party during transit.30 Goods could be delivered in a symbolic way by transferring or endorsing the bill of lading.31 The fact is the bill of lading has emerged as an important document for defining and identifying goods, the parties and the relationship between relevant parties to a contract for the carriage of goods by sea. The bill of lading is neither defined by common law nor statute.32 Regardless the importance of the bill of lading is manifested by it various functions and is demonstrative of the reasons why it is brought under the Hague/Visby Rules and why courts are eager to construe the facts and circumstances of a case so as to find that a bill of lading exists for the purpose of bringing the case within the jurisdiction of the Hague/Visby Rules. In this regard, the bill of lading functions as s receipt. It also provides “evidence of the contract of carriage”, is a “contract for the carriage” as well as a “document of title depending on whether the holder of the bill of lading is the shipper, consignee, or endorsee.”33 As a receipt the bill of lading provides valuable evidence of the goods at a time when both the recipient and the carrier/shipowner agree to the description of the goods. The bill of lading reflects the quantity and condition of the goods and thus provides the courts with undisputed evidence of the quality and quantity of the goods. Thus courts would have a significant interest in interpreting documents as bills of lading independent of the application of the Hague/Visby Rules. For instance in Grant v Norway, it was ruled that where it can be shown that goods were not shipped, the carrier would not be liable to the transferee under the bill of lading.34 However, this kind of problem was solved by the Bills of Lading Act 1855 (subsequently replaced by the Carriage of Goods by Sea Act 1992). By virtue of Section 3 of the Bills of Lading Act 1855, all bills of lading: In the hands of a consignee or endorsee for valuable consideration representing goods to have been shipped on board a vessel shall be conclusive evidence of such shipment as against the master or other person signing the same, notwithstanding that such or some part thereof may not have been so shipped, unless such holder of the bill of lading shall have had actual notice at the time of receiving the same that the goods had not in fact been laden on board.35 Section 3 of the Bills of Lading Act 1885 did not appear to apply to third parties and was replaced by Section 4 of the Carriage of Goods by Sea Act 1992 which applies to third parties.36 The bill of lading also has significant evidentiary value relative to its function as an identifier of the condition of the goods to which it applies. For instance in Compania Naviera Vascongada v Churchill a consignment of timber had been stained although the master described the goods as shipped in good condition in the bill of lading. The carriers were not permitted to deny the authenticity of their bill of lading statement.37 Thus the bill of lading can provide valuable evidence of deceit on the part of the carrier relative to the condition of the goods. Based on the evidentiary value of the bill of lading it is hardly surprising that the courts may be minded to interpret any document of title that performs a similar function as a bill of lading. More significantly the bill of lading functions as evidence of a contract for the carriage of goods by sea and provides perhaps the greatest incentive for courts to interpret documents of title as bills of lading and also explains why the Hague/Visby Rules applies to the bills of lading. It is important to note however, that the bill of lading is not the actual contract, but evidence of the contract for the carriage of goods by sea. As Lush J pointed out in Crooks v Allan: ...a bill of lading is not the contract, but only evidence of the contract; and it does not follow that a person who accepts the bill of lading which the shipowner hands him necessarily, and without regard to circumstances, binds himself to abide by all its stipulations.38 The bill of lading will therefore be valuable evidence capable of corroborating the terms and conditions of an oral contract for the carriage of goods by sea. Oral evidence may be permitted to contradict an erroneous reflection in the bill of lading as well.39 The bill of lading is particularly important in its role as a document of title. Quite often goods are delayed in terms of shipment or lost or damaged and physical proof of their existence is not always possible. Thus the bill of lading functions as a symbolic representation of the goods.40 This allows for the assumption that the holder of the bill of lading is in possession of the goods. As a result, the goods can be transferred by virtue of the bill of lading and thus the right of delivery and possession can be transferred without having to wait for the goods to be transferred.41 Given the multi-layered nature of the bill of lading and its evidential value, it is hardly surprising that the Hague/Visby rules applies when a bill of laden or a similar document applies to a contract for the carriage of goods by sea. The bill of lading or any document providing similar evidentiary value is therefore a valuable tool for identifying the rights, obligations and liabilities of the parties to a contract for the carriage of goods by sea. The Hague/Visby Rules are concerned with the protection of all parties to the carriage of goods by sea and seeks to avoid jurisdictional problems associated with the interpretation of clauses in a bill of laden. Thus the courts are motivated by both the evidentiary value of the bill of lading and the fact that the Hague/Visby Rules deals with liability in a way that is calculated to achieve international harmony and its ability to reduce the number of jurisdictions that might be applicable to a single contract for the carriage of goods by sea. Bibliography AEReed and Co. Ltd. v Page, Son and East [1927] 1 KB 743. Baughen, S. (2009). Shipping Law. Oxon, UK: Routledge-Cavendish. Bills of Lading Act 1855. Canada Steamship Lines v The King [1952] AC 192. Carr, I. and Stone, P. (2010). International Trade Law. Oxon, UK: Routledge-Cavendish. Carriage of Goods by Sea Act 1971. Carriage of Goods by Sea Act 1992. Compania Naviera Vascongada v Churchill [1906] 1 KB 237. Crooks v Allan [1879] 5 QBD 38. Elder Dempster & Co. Ltd. v Pateson, Zochonis & Co. Ltd. [1924] AC 522. Grant v Norway [1851] 10 CB 665. Hague Visby Rules 1968. Kouladis, N. (2006). Principles of Law Relating to International Trade. New York, NY: Springer. Kum v Wah Tat Bank Ltd. [1971] 1 Lloyd’s Rep 439. Lickbarrow v Mason [1794]5 Term Rep 683. Lochgelly Iron and Coal v M’Mulan [1934] AC 1. MacMillanCo. Inc. v Mediterranean Shipping Co. Sa (The Rafaela S) [2004]QB 702. Pyrene Co. Ltd. v Scindia Navigation [1954]2 QB 402. Reynolds, F. (1990). “The Hague Rules, the Hague-Visby Rules, and the Hamburg Rules.” MLAANZ Journal, Vol. 7: 17-34. Riverstone Meat Co. Pty Ltd. v Lancashire Shipping Co. Ltd. (The Muncaster Castle) [1961] AC 807. Sanders v Maclean [1883]11 QBD 327. Silver v Ocean Steamship Co. Ltd [1930] KB 416. Smith, Hogg and Co. v Black Sea and Baltic General Insurance [1939] 2 All ER 855. The Ardennes [1951] 1 KB 55. Voss v APL Co. Pte. Ltd. [2002]2 Lloyd’s Rep 707. Read More