Maritime Law, Bills of Lading, and Charter Party Contracts - Essay Example

Maritime Law, Bills of Lading and Charterparty Contracts The business of transporting goods by sea is a hazardous business which can be affected by many risks and these risks can translate into losses for the carrier as well as other cargo interests such as the sender or the intended recipient. The carrier or the master of the shipping vessel has a duty to transport the goods delivered to them with due diligence, in a seaworthy ship and to deliver these goods to the rightful owners as described in the bill of lading which is required to be produced when the goods are delivered to the carrier. However, accidents can occur at sea and damage by fire which may break out on board a ship by accident is considered to be beyond the control of the carrier. Goods which are dispatched under the CIF or the Cost, Insurance and Freight terms are covered by insurance against damages including any damage which may have occurred as a result of a fire. FOB or the Free On Board terms of trade do not require that the sender of the goods purchase any insurance cover and the risks are transferred to the purchaser or the intended recipient. Still other mishaps which can occur may include delivery of goods to the wrong parties or damages which may arise as a result of delays in unloading the cargo as well as demurrage due to a consignee not collecting the cargo promptly. A ship may be partly or fully chartered for the purpose of transporting large consignments of goods under what are known as charterparty contracts. This brief essay attempts to examine some of the legal issues involved in the transportation of cargo by sea through a process of examination of a hypothetical case that is described in the essay. Contents 1. Introduction 4 2. English Law Perspectives of the Allan and Sinkers Ltd Case 5 3. Conclusion 10 Appendix A – The Case under Discussion 12 References / Bibliography 15 1. Introduction A very large volume of trade that is conducted between commercial interests belonging to different nations is transported by ships which sail across the vastness of the world’s oceans. Because the monetary value of the goods that are transported and the time that a ship can take to reach its destination can be substantial, therefore, disputes can arise as a result of failure of a carrier to discharge its contractual obligations to securely transport goods that have been entrusted in its care. Substantial damages can result if a shipping company does not deliver goods securely to the rightful owners. Parties from at least two countries may be involved and it can be difficult to decide which court may have a jurisdiction over any dispute. However, because shipping across the oceans has been of considerable importance to humanity and for nearly all nations of the globe, maritime law has now developed into a substantial body of law which deals with many aspects related to the conduct of international shipping. United Kingdom has been a great maritime nation which has had an influence in many parts of the world, therefore, English Law has had a substantial influence on the laws related to the carriage of goods by ships, especially in what are known as common law countries which were the former colonies of England. International agreements such as the Hague Protocol, the Hague – Visby Rules, Hamburg Rules and other international conventions now have an influence on the legalities of transportation of goods by ships (Compuserve.com, 2006, Pp. 1) and (Hakan, 2005, Chapters 1 – 3). Even though the views of the courts in England have also been influenced by the previously mentioned international conventions, it is still instructive to examine the legalities of carriage of goods by sea from an English Law perspective (Jones, 2005, Pp. 1). This brief essay attempts to examine the English Law perspectives associated with the carriage of goods by sea through a process of examination of the case involving the shipping company Sinkers Ltd, which has been contracted by a Mr. Allan. A charterparty contract was entered into between Sinkers Ltd and Mr. Allan. The case being discussed is described in Appendix A of this essay (Appendix A). The next section of this essay takes a look at the legal issues involving English law that are involved with the case being discussed. 2. English Law Perspectives on the Sinkers Ltd and Allan Case A charterparty is a written contract between the owner of a vessel and someone, either a legal person or a company, who has entered into this contract with the intention of using the vessel or a part of the vessel for the transportation of goods on a particular voyage to certain ports of interest in exchange for the payment of freight (Wikipedia, 2006, “Affreightment”). The conditions for the discharge of a charterparty agreement are mentioned on the agreement and include the name as well as the tonnage of the vessel, the captain of the ship, the names of the freighter and the letter to the freight, the time and the place for loading and unloading, the price of the freight, conditions associated with any indemnity or demurrage that is to be paid for delays as well as any other conditions that are agreed upon. The bill of lading is a document that is issued to the sender and acknowledges that the goods for shipment have been received and have been placed on the stated vessel for transportation. Bills of lading may be non-negotiable or negotiable. Non-negotiable or straight bills of lading require that goods must only be delivered to the consignee. Negotiable bills of lading can be re-routed by the person who has the possession of the properly issued bill of lading. For the case under consideration, the consignment was shipped from the United Kingdom, therefore, the High Court of the United Kingdom which applies English Law has jurisdiction. United Kingdom maritime law now applies Hague – Visby Rules. Common law establishes liability on carrier for safe carriage of goods as praetor’s edict de nautis, cauponibus et stabulariis which states: “When sailors … have received property for safekeeping, I will grant an action against them if they do not restore it” (Holloway, 1999, “The Contract of Carriage at Common Law”). In English law ownership does not pass on to a different party merely on account of an agreement and delivery of goods is required to take place. Furthermore, it should be remembered that Allan had sold consignments of cricket balls to Andrew’s club and Darren’s club on CIF or Cost, Insurance and Freight basis. Allan should have dispatched to the two clubs an insurance policy for the goods in transit after paying for the premium of the insurance. Darren’s club which has received damaged cricket balls which were sold to them on a CIF basis should not be suing Sinkers Ltd because even though the damage to the balls occurred as a result of a claimed fire in the ship’s hold, Allan should have insured the consignment and it is either Allan’s responsibility or that of the insurance company to compensate Darren’s club for the damage to their consignment. Hence, it is Allan or the insurer who has the capacity to sue Sinkers Ltd for any damages to goods that have occurred in transit and it is Allan’s responsibility to either present an insurance company to compensate Darren’s club for the damage caused to the cricket balls, or if there is no insurance company that has been involved in insuring the consignment, to pay for the damage from his resources. The Hague / Visby rules as well as the fire statutes of both the United States of America and the United Kingdom do not assign liability to the owners of a ship in case of damage to goods as a result of fire, unless it can be proved that the fire occurred as a result of the design or neglect of the ship owner (Tetley, 2002, “Responsibility for Fire in the Carriage of Goods”). Thus, Darren’s club should first contact Allan or the insurance company, if any, bringing to their attention the damage to the cricket balls as a result of fire, unless they have very strong reasons to suspect that ship’s master is lying or that the fire occurred as a result of the master’s negligence, in which case it will be appropriate to try and get the matter to the attention of the admiralty authorities who can act as witness and investigate the facts. The straight bill which Sinkers Ltd has provided does not exclude all loss or damage that can occur to the cargo that has been transported. A carrier is prima facie liable for all goods that it has received in good order for transportation to a destination and which have turned out to be damaged or in bad order, unless the carrier can prove that it is exempted from liability due to the occurrence of an event for which the carrier cannot be held responsible (Tetley, 2004, The Burden and Order of Proof in Marine Cargo Claims). Fire, the bursting of boilers or damage to shafts etc are some of the exemptions which a carrier enjoys. The carrier has to prove the cause of the loss and that there was due diligence to make the vessel seaworthy prior to the voyage. Any attempts by a carrier not to conduct proper investigations into why goods were damaged in transit or why accidents occurred has been held against the carrier in courts of law. In a dispute involving damaged goods, a claimant has to prove that the person is the owner of the goods and that the claimant is the proper person who has the right to claim for damages. However, in this case, it is Allan and the insurance company who has the capacity to sue Sinkers Ltd because it is Allan who insured and dispatched the goods. If Allan and the insurance company do not assume responsibility to act then it is they who are liable for failing to conclude their contracts into which they had entered. Damage as a result of fire is covered in most insurance policies that can be purchased to cover risks involving damage to goods during shipping (Lex Mercatoria, 2006, Pp. 1). The order of proof related to claims of damage to goods during shipping involves the cargo owner proving his loss or damage, the carrier proving the cause of the loss, the carrier proving any exceptions, the cargo claimant proving any negligence on the part of the carrier and both parties presenting any other arguments (Tetley, 2004, The Burden and Order of Proof in Marine Cargo Claims). A carrier is entitled to be paid demurrage by the party which entered into a charterparty agreement with the carrier if the time for which the vessel has been engaged in the unloading of the cargo, which it was contracted to carry, exceeds a specified number of days, called the lay days. Demurrage is required to be paid by the hour or by the day as fixed in the charterparty agreement (Wikipedia, 2006, “Affreightment”). Demurrage is, therefore, required to be paid by the party which has signed the charterparty agreement and whose signature appears on the bill of lading i.e. the sender of the goods and not the party to which the goods have been consigned under the CIF terms, unless there is negligence or delay on the part of the receiving party to collect the cargo which has been consigned to them. The signature on the charterparty agreement is important as it is the signatory who is deemed to have entered into an agreement with the carrier (DMC Case Notes, 2003, “Internaut v. Fercometal”). Whereas the liabilities of the sender do not pass on to the consignee as a result of being named on the bill of lading, it is important for the consignee to cooperate with the carrier in order to enable the carrier to fulfil its obligations in regard to the delivery of the goods which have been carried (British Maritime Law Association, 1999, Questions 3.1.3 and 3.2.1). Thus a consignee who fails to ensure that a cargo is discharged in a timely fashion is liable to pay demurrage or damages to the carrier for the time period of the delay. Thus, neither Andrew’s club nor Darren’s club are liable for the payment of any demurrage unless it can be proved by the carrier that the delay in the collection of the cargo that was consigned to them was the fault of the two clubs. In the absence of any negligence on the part of the two clubs to whom the cargo was consigned, it is Allan, the sender of the goods who is liable for the demurrage because it was Allan who had entered into the charterparty agreement with Sinkers Ltd. Owners of the vessel which has carried the goods and which is involved in the demurrage are required to notify the charterers within a time frame stipulated in the charterparty agreement about the requirement to pay any demurrage (ITIC Insurance, 2006, Pp. 1). Usually a time frame of 60 days is allowed for notification about any demurrage which may have been incurred and 90 days is permitted for the submission of demurrage claim along with any supporting documentation. Thus, it is important for the carrier to submit any claims within the stipulated period otherwise they or their insurers become liable for the payment of the demurrage. Sometimes, there is no time that is fixed in the charterparty for loading or discharging of cargo and under these circumstances, it is important that the carrier load or discharge with all dispatch and then claim for the payment of demurrage for the time that the vessel may have been detained as a result of discharging of the cargo. If a transferable bill of lading had been issued, then a carrier is obliged to deliver the consignment of goods upon presentation of the bill of lading. However, the sender is entitled to direct the carrier to deliver the cargo to another person if the bill of lading has not been passed on to the consignee. Once the bill of lading has been passed on to the consignee, the consignee is the legal owner of the goods and has the right to claim the goods from the carrier (British Maritime Law Association, 1999, Questions 4.11 and 4.1.2). After having passed on the original bill of lading to Andrew’s club, Allan does not have the right to ask the carrier or Sinkers Ltd to then deliver the goods which had been consigned to another person. However, Sinkers Ltd have no means of knowing that Allan has indeed dispatched the bill of lading to Andrew’s club and in such a situation they are liable for the delivery of goods that had been consigned to Andrew’s club, but may have been deliberately misled by Allan who is the sender and the person who had entered into the charterparty agreement. Thus, Sinkers should have released the goods to an impostor only under the written instructions of Allan and can sue Allan for damages resulting from having been misled. Allan had obviously directed Sinkers Ltd to release the goods to an impostor in order to minimize the demurrage bill for which he was potentially liable. However, having done this, it was his duty to come to an arrangement with Andrew’s club so that this club was not unduly inconvenienced as a result of his action. Strictly speaking, Andrew’s club is quite right in demanding that Sinkers Ltd deliver the goods that have been consigned to them and it is the duty of Sinkers Ltd to do so on the production of the bill of lading. Sinkers Ltd can only avoid liability from Andrew’s club if they can identify the impostor who had been given the goods that were consigned to Andrew’s club and if Andrew’s club can amicably collect these goods from the impostor. It is the carrier’s duty to produce goods for the rightful owners who hold the bill of lading (Forwarderslaw.com, 2005, Pp. 1). The next section of this essay presents some conclusions that can be drawn from the previous discussion. 3. Conclusion From the previous discussion about the hypothetical case that has been considered in this essay, it is clear that the minimization of liability and risks in the transportation of cargo by sea requires that all parties be very familiar with the laws related to such activities. English law has influenced a very large number of common law countries and thus it is important for those involved in shipping to be familiar with these laws. Transportation of cargo by sea is a business in which liabilities can be very substantial and thus all parties should endeavour to fulfil their legal obligations correctly. Appendix A – The Case under Discussion The Essay PROBLEM: Allan voyage chartered The Freedom of Preston from Sinkers Ltd., to carry two large consignments of cricket balls from Southampton (UK) to New York (US). Allan had sold one of the consignments to Andrew’s cricket club and the other to Darren’s cricket club, the sales to both clubs being on CIF terms. The charter was on a standard voyage charter form and included an English law clause. The charter incorporated the Hague Rules. The cricket balls were shipped and the master signed a clean straight bill for each consignment. Both bills included a clause which said “all terms as per charterparty”, and both had to be presented to the carrier for the goods to be released. The bills made no mention of the Hague or Hague-Visby rules. One bill named Andrew’s club as the consignee of the goods therein and the other Darren’s club as the consignee of the goods therein. Allan transferred the appropriate documents to Andrew and Darren. The ship proceeded to New York where she berthed. Darren presented his club’s straight bill to the carrier and received the appropriate consignment. Unfortunately, an inspection of the cricket balls showed that many had been badly damaged on the voyage. Darren has obtained a statement from the master who admitted that a small fire had started in one of the ship’s holds, in which the cargo consigned to Darren’s club had been stowed. This fire had caused more damage than would be expected due to the master and crew not being properly alerted to what was happening on board. When Andrew arrived to collect his club’s consignment, the master told him that it had already been given to someone pretending to be Andrew’s agent. This impostor had been most persuasive and had managed to trick Allan into instructing the master to release the goods without presentation of the bill. It transpires that reaching the berth and unloading the goods had taken longer than expected and the vessel had gone on to demurrage. Allan, being anxious to keep demurrage to a minimum had persuaded the master to release the goods (to the impostor) without presentation of the bill. The master had been most unhappy to do this, but had complied with Allan in return for the promise if indemnity from Allan. There was further bad luck for Darren’s and Andrew’s respective clubs. Sinkers have informed Andrew and Darren that their clubs are liable for accrued demurrage, on the basis that they are the “lawful holders” of the straight bills and that the “all terms as per charter clause” put them on notice of their liability to make such payment. It appears that Allan is in financial difficulties and that he has gone to meditate on a beach in South Africa, which has made Sinkers think that they should forget about him and instead proceed against the clubs in respect of their claim for the demurrage. Sinkers are of the view that it would be promising to bring a claim against Darren’s club, as it has made quite a lot of money by running extra-curricular dancing classes after cricket training sessions. The Essay TASK / Questions: Please answer the following four questions, but bearing in mind that weighting of the answers will not necessarily divide equally between each of the questions. When answering the questions, please pay particular attention to / make reference to Hague Protocol, Visby Rules, Hague-Visby Rules, and Charterparty contracts. Please also write from an English Law perspective (as opposed to International or US Law). 1. Darren’s club is eager to sue Sinkers for loss and damage to his goods but is anxious, as his club did not negotiate a contract of carriage with Sinkers. What is your advice on this issue? 2. Sinkers have said that their straight bill excludes all loss and damage however it may occur, and that these terms will govern any action brought by Darren’s club. Please advise Darren on this issue. 3. Can Sinkers claim demurrage against the cricket clubs? 4. Will Sinkers be liable to Andrew’s club in respect of their cargo? 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