The Contracts of Carriage of Goods by Sea by Reference to International Instruments Such as the Hague-Visby Rules

A CRITICAL ANALYSES OF THE CONTRACTS OF CARRIAGE OF GOODS BY SEA BY REFERENCE TO INTERNATIONAL INSTRUMENTS SUCH AS THE HAGUE-VISBY RULES

Ngutor Solomon Jato¹ -

INTRODUCTION

It is right to say that trade in goods represent an essential share in the gross domestic product (GDP) of most states or regions, and that international trade transactions continue to support significantly, the economic growth and development of various nations.² However, it must be noted that this trade is largely dependent on the transportation of such goods from one place to another except, of course, where the sale relates to electronic items such as software and electronic books. Otherwise, transportation is integral to international trade and depending on the sale contract (e.g. cost, insurance, freight – CIF or free on board - FOB) between the seller and the buyer, the seller is usually responsible for arranging for the transportation of the cargo from his country to the buyer’s country.³ The transportation of goods may be by air, road, rail, or sea. The transportation of goods, by whatever mode, must be done in a safe and efficient manner if the parties to the transaction are to be satisfied and trade relations, sustained. Therefore, it is paramount to have in place binding agreement between parties to any contract for the transportation of goods as well as laws which create, unify and if necessary, regulate the transactions by setting minimum or further obligations, liabilities and rights for the parties.

This essay is concerned with contracts of carriage of goods by sea, and consequently, excludes discussions on carriage by other modes of transportation.⁴ The sea mode of transportation of goods is perhaps the most used as about 80% of internationally traded goods are carried by sea.⁵ A contract of carriage of goods by sea is one which is made for transportation of a bulk or general cargo between a shipper (a seller or buyer) and a carrier (a shipowner or charterer) of the cargo.⁶ The contract may be embodied in a charterparty (where the shipper of goods charters a ship from the shipowner) or evidenced by a bill of lading (where the shipper procures shipping space from the shipowner or a charterer).⁷ Thus, where a shipowner makes available his entire vessel for a particular voyage, a specific period of time or by demise the contract of carriage is termed a ‘charterparty’ and generally governed by common law principles which afford the parties the freedom to negotiate terms without statutory interference.⁸ On the other hand, where spaces on the vessel are made available to anyone intending to ship general cargo, the contract is evidenced by and may be termed a ‘bill of lading’⁹ and in this case, certain regulatory restrictions have been imposed on parties’ freedom of contract.¹⁰

The scope of this essay is however, further limited to contracts of carriage evidenced or covered by a bill of lading. This impliedly excludes discussions on contracts for which the basic contractual document is a charterparty. In other words, this essay will critically discuss the contracts of carriage of goods by sea which are covered by a bill of lading by making reference to governing international instruments such as the Hague-Visby Rules.¹¹

CONTRACT OF CARRIAGE OF GOODS BY SEA (THE BILL OF LADING)

A contract of carriage of goods by sea as stated earlier is one made between a shipper and a carrier by which the carrier will, for a charge, undertake to transport the shipper’s cargo to a destination and deliver to a designated person.¹² Often than not, there is a verbal agreement between the parties further to which the carrier issues a bill of lading upon shipment of the cargo.¹³ The bill of lading will therefore: record the goods as having been loaded on board the ship and as such serve the function of a receipt for such goods;¹⁴ a document of title to such goods; and an evidence of the contract of carriage between parties.¹⁵

It should be noted that between the carrier and the shipper, the bill is only an evidence of the contract between the parties thus, in Owners of the Cargo Lately Laden on Board the Ardennes v Owners of the Ardennes (the Ardennes)¹⁶ the carrier’s verbal undertaking to the shipper, to sail to London directly was held to be binding even though the bill of lading stated that the carrier can break the journey. The court decided that the bill of lading is not itself the contract of carriage between the shipper and the carrier although it is an excellent evidence of it. The bill is however, a contract of carriage when transferred to a third party (endorsee or consignee).¹⁷

From evolution,¹⁸ through its development to the modern day usages, the above functions as well as terms evidenced in a bill of lading, have not only pointed out the importance of the document in international trade but also indicated how central it is in determining the rights and liabilities of the parties to contracts of carriage.¹⁹ Although at common law, carriers were strictly liable for the safe transportation and delivery of a cargo to the designated place, prior to 1924, carriers could avoid this liability by including disclaimers in the bills of lading.²⁰ This resulted in the shippers bearing all the risks of shipment. In the UK, even in the face of the apparent inequality in the bargaining powers of the parties to carriage contracts, the courts, on the authority of the principles of freedom of contract (laissez faire) prevalent at that time, interpreted such clauses in favour of carriers and exempted them from liability for loss or damage arising from perils of the sea, deviation, unseaworthiness of the ship and even negligence.²¹

1924 witnessed the first international convention - the Hague Rules²² which prescribed the minimum level of liability binding on a carrier which could not be lessened by agreement of parties. In the UK this Rules were adopted and incorporated into the Carriage of Goods by Sea Act 1924. In the United States however, there was as early as 1893, the Harter Act which under s. 2, equally made it unlawful to lessen, weaken or avoid the minimum amount of liability set for the Shipowner.

Today, nearly every contract of carriage covered by a bill of lading is governed by an international convention.²³ And as stated above, these conventions, basically define and set minimum contractual obligations for the parties, and further make it unlawful for them to by agreement, avoid or lessen such obligations.²⁴ The carrier may however, undertake to assume obligations which are higher than the minimum.²⁵

It is paramount to note that, in recent times, advancement in technology has strongly influenced dematerialization of transport documents. Although, not effectively achieved, efforts are continually being made²⁶ to shift from the traditional paper bills of lading to electronic bills of lading (eBL).²⁷ This is driven by the need to; speed up transactions thereby reducing the problems created by the late arrival of transport documents at ports of discharge; save costs; enhance payment arrangements; and security.²⁸ These are regarded as the advantages of the eBL which set it apart from the paper bills of lading for which the reverse is the case in the face of modern day trade practices. The eBL must however, reflect the above stated functions of a paper bill of lading.²⁹ Unlike the Hague, Hague-Visby and Hamburg Rules,³⁰ the Rotterdam Rules³¹ recognise the need for the use of electronic transport documents and accordingly, provides for the use of eBL in contracts of carriage.³²

In this essay, the Hague-Visby Rules (hereafter the Rules) will be the primary convention to which reference will be made. Other international instruments such as the Hague, Hamburg and Rotterdam Rules will be referred to, though less.

The extent of application of the Rules to contracts of carriage

It is important to start by understanding that the Rules are not applicable to every contract of carriage and therefore, apply only to those covered by a bill of lading or any similar document of title issued in relation to goods carried by sea.³³ Thus, the Rules exclude their application from contracts not covered by a bill of lading as well as contracts covered by any document which does not constitute a document of title.³⁴ Therefore, if the contract is covered by a waybill, the Rules will not apply since a waybill, lacks the character of a negotiable document of title.³⁵ The Rules will however, apply where the contract is covered by a straight bill of lading, which lacks the character of negotiable document of title like a waybill but employs the form of a standard bill of lading to which extent, it may become a negotiable document.³⁶ Thus, in JI MacWilliam Co. Inc v Mediterranean Shipping Co. SA (The Rafaela S),³⁷ the claimant who was a named consignee under a straight bill of lading, which indicated that the bill was non-negotiable, sought the application of the Rules to a contract of carriage in respect of which goods carried from Durban, South Africa got damaged between Felixstowe, England and Boston, USA. The Court held that the Rules were applicable, and in so holding, stated that the document was a document of title because it expressly provided that it had to be presented to obtain delivery of the goods.

The Rules further provide that, the Rules will apply to any similar document regulating the relationship between a carrier and the holder even if it is issued pursuant to a charterparty.³⁸ This means a bill of lading issued under a charterparty will bring the contract of carriage under the application if the Rules. It is also settled that where a charterparty through a ‘paramount clause’, incorporates the provisions of the Rules, they become applicable even though they will ordinarily not be applicable to charterparties.³⁹ This principle was well illustrated by Lord Denning in Adamastos Shipping Co Ltd v Anglo Saxon Petroleum Co Ltd ⁴⁰ where he stated that, “When a paramount clause is incorporated into a contract, the purpose is to give the Hague Rules contractual force: so that, although the bill of lading may contain very wide exceptions, the rules are paramount and make the shipowners liable for want of due diligence to make the ship seaworthy and so forth”.

In respect of territoriality, the Rules will only apply if the bill of lading was issued in a contracting state; the port of loading is located in a contracting state; or a state legislation and/or the contract of carriage provides that they be applicable.⁴¹ This is not entirely the case with the Hamburg and the Rotterdam Rules as they will apply irrespective of where the bill was issued provided the ports of loading and discharge and in addition, under the Rotterdam Rules, the place of receipt and delivery are within a contracting state.⁴²

With regards to the period of carriage covered by the Rules, art I (e) provides that “carriage of goods covers the period from the time the goods are loaded on to the time they are discharged from the ship”. This provision seems uncertain as to when the carrier may be held liable for cargo damages occurring for example, before the cargo crosses the ships trail. This uncertainty was laid to rest by Devin J. in Pyrene Co Ltd v Scindia Navigation Co Ltd ⁴³ where he stated that the period covered by the Rules include the whole period of the voyage including the whole operations of loading and off-loading with no precise moment in time e.g. when the cargo crosses the ship’s rail.⁴⁴ The provision of the Rules on the period of carriage have thus, been interpreted liberally and held to be applicable in later cases such as Trafigura Beheer BV v Mediterranean Shipping Co SA.⁴⁵ The Hamburg and Rotterdam Rules are however, explicit on the period of application being: the whole period when the carrier is in charge of the goods,⁴⁶ and in addition wherever he receives and delivers them.⁴⁷

Certain cargoes (e.g. live animals and deck cargoes)⁴⁸ are excluded from the application of the Rules, and in such cases, parties’ freedom to negotiate their terms is not restricted by the Rules but governed common law.⁴⁹ Deck cargoes are however, not excluded under the Hamburg Rules and a carrier cannot contract to carry cargo on deck at the shipper’s risk.⁵⁰

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¹ Mr. Jato is a Barrister and Solicitor with B.T. Azua & Co. (Defence Chambers) Abuja. He has been engaged in general litigation and alternative dispute resolutions between Federal and State Government Agencies/Parastatals and corporate and private individuals. He has an LL. B (Bayero University), LL.M (Coventry University), and Certificate in Strategic Management, Leadership and Professional Consulting from the Chartered Management Institute. He also specializes in Oil, Gas and Energy Law and is a member of the Nigerian Bar Association.

² WTO, World Trade Statistical Review 2017 https://www.wto.org/english/res_e/statis_e/wts2017_e/wts2017_e.pdf at page 5

³ See Indira Carr, and Peter Stone, International Trade Law (6th ed, Routledge, 2018) at page 158

⁴ Generally, the use of the phrase ‘contract of carriage’ in this essay means contracts of carriage of goods by the sea mode of transportation only although carriage by the sea mode combined with another mode may be regarded as carriage by sea where appropriate.

⁵ UNCTAD, Review of Maritime Transport 2015, UNCTAD/RMT/2015 www.unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1374

⁶ See Jason Chuah, Law of International Trade: Cross-Border Commercial Transactions, (5th ed, Sweet & Maxwell, 2013) at pages 243-245. See also art 1 (a) of the Hague-Visby Rules on who is a carrier for the purpose of a contract of carriage to which the Rules are applicable.

⁷ See John F. Wilson, Carriage of Goods by Sea, (7th ed, Pearson Education Ltd., 2010) at page 3

⁸ See Jason Chuah, note 5, at pages 243, 247 and 248

⁹ See John F. Wilson, note 6, at page 3

¹⁰ See John F. Wilson, note 6, at page 6

¹¹ Formally – The Hague Rules as Amended by the Brussels Protocol, 1968

¹² See Indira Carr, and Peter Stone, note 2, at page 224

¹³ See John F. Wilson, note 6, at page 5

¹⁴ See art III r4 of the Hague-Visby Rules

¹⁵ See Bernard Eder et al., (eds) Scrutton on Charterparties and Bills of Lading (23rd ed, Sweet & Maxwell, 2015) at pages 9-10

¹⁶ [1951] 1 KB 55 at 59

¹⁷ See Leduc & Co v Ward (1888) 20 QBD 475

¹⁸ See William P. Bennett, The History and Present Position of the Bill of Lading as a Document of Title to Goods, (Cambridge University Press, 1914) at pages 1 – 15, for the historical evolution and construction of the bill of lading in international trade.

¹⁹ See Indira Carr, and Peter Stone, note 2, at page 170. See also Jason Chuah, note 5, at page 199

²⁰ See Indira Carr, and Peter Stone, note 2, at page 224

²¹ Ibid

²² the International Convention for the Unification of Certain Rules Relating to Bills of Lading, 1924

²³ See Indira Carr, and Peter Stone, note 2, at page 224

²⁴ See John F. Wilson, note 6, at page 6

²⁵ Ibid at page 174

²⁶ Notably through the Comite Maritime International (CMI), Bills of Lading Electronic Registry Organisation (BOLERO) and United Nations Commission on International Trade Law (UNCITRAL)

²⁷ Miriam Goldby, ‘Legislating to Facilitate the use of Electronic Transferable Records: a Case Study : Reforming the Law to Facilitate the Use of Electronic Bills of Lading in the United Kingdom’ (UNCITRAL Colloquium on Electronic Commerce, New York, February 2011) at page 2 https://www.uncitral.org/pdf/english/colloquia/EC/Legislating_to_facilitate_the _use_of_electronic_Transferable_records_-_a_case_study_.pdf accessed 4 January 2018

²⁸ See Miriam Goldby, note 26, at page 2. See also Indira Carr and Peter Stane, note 2, at page 195

²⁹ See Panagiota Kalofolia, ‘Electronic Bills of Lading: Legal Obstacles and Solutions’ (2004) 2 (1) HLJ 45 at page 45-46

³⁰ Formally - United Nations Convention on Carriage of Goods by Sea 1978 – which was intended to be an improvement on the Hague-Visby Rules

³¹ Formally - United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea 2008 – these Rules are not in force as they require 20 states’ instruments of ratification which requirement is yet to be met. See art 8 of the Rules.

³² See art 1 (17) of the Rotterdam Rules

³³ See art 1 (b) of the Hague-Visby Rules. See also Jason Chuah, note 5, at page 336 |Note, while the Rules do not contemplate carriage by sea and other modes (multi-modal transport) as falling within a contract of carriage by sea, the Hamburg and the Rotterdam Rules admit this situation.

³⁴ See art 1 (b) of the Hague-Visby Rules

³⁵ See John F. Wilson, note 6, at page 159

³⁶ Ibid, at page 161

³⁷ [2005] 1 Lloyd’s Rep 347

³⁸ See art 1 (b) of the Hague-Visby Rules

³⁹ See Jason Chuah, note 5, at page 345

⁴⁰ [1957] 2 QB 233 at 266

⁴¹ See art X of the Hague-Visby Rules

⁴² See art 2 and 5 of the Hamburg and the Rotterdam Rules respectively. See also Francesco Berlingieri, ‘A Comparative Analysis of the Hague-Visby Rules-Visby Rules, the Hamburg Rules and the Rotterdam Rules’ (General Assembly of the AMD, Marrakesh, November 2009) at page 3 http://www.uncitral.org/pdf/english/workinggroups/wg_3/Berlingieri_paper_comparing_RR_Hamb_HVR.pdf

⁴³ [1954] 2 QB 402

⁴⁴ See Jason Chuah, note 5, at page 348, 350

⁴⁵ [2007] EWCA Civ 794

⁴⁶ See art 4 of the Hamburg Rules

⁴⁷ See art 12 of the Rotterdam Rules. See also Francesco Berlingieri, note 38, at page 5

⁴⁸ See art 1 (c) of the Hague-Visby Rules

⁴⁹ See Jason Chuah, note 5, at page 350

⁵⁰ See Glenn R Bauer, ‘Conflicting Liability Regimes: Hague-Visby Rules-Visby v Hamburg Rules – A Case by Case Analysis,’ (1993) 24 (1) J Mar L & Com 53, at page56