Marine Transport
Bill of Lading
A bill of lading is a multi-function document, commonly used in international maritime trade. It acts as a receipt for the goods by the carrier. It usually sets out the terms of carriage. It may incorporate the terms of the charter party (the lease) of the ship which carries the goods. It usually constitutes title to the goods.
A bill of lading is a negotiable instrument. Accordingly, rights under it can be endorsed to another party, in a similar manner to a cheque. A bill of lading can be made out to bearer (the holder) or to a named person. It can be transferred on terms such that the transferee acquires certain legal protections, against flaws in the underlying bill and the transferor’s title to it.
Bills of lading are not always used in marine transport. There may be a delivery order, which is not a document of title. This may be used where there are multiple buyers.
Sea waybills act as receipts and set out the terms of the contract of carriage but are not title documents.
Bills of lading are not usually used in road, rail, and air transport. A consignment note is commonly used. It sets out the terms of the contract of carriage. There are international conventions dealing with the consignment note. The notes are not negotiable, nor do they constitute documents of title to the goods.
Contracts of Carriage
Contracts for the carriage of goods are governed by contract law. The bill of lading will contain the contract terms, either expressly, by implication or by reference. Under the Bills of Lading Act, the benefit of the seller’s rights in the contract of carriage are passed to the buyer. The carriage of Perishable Foodstuffs (International Carriage) Act applies to perishables
The carriage of goods contract is made between the seller and ship owner or charterer. A charterer is effectively the lessee of a ship. The carrier may not have any interest in the ship. It may be a freight forwarder who subcontracts with owners and charterers. A demise clause may be inserted by a carrier who does not have a direct interest in the ship. It provides that the bill of lading is to be treated, for certain purposes as a contract with the shipowner or charterer.
The consignee is entitled to enforce the bill of lading / contract of carriage. Similarly, endorsees who hold it as assignees or for security may enforce. The contract of carriage passes when it is endorsed and delivered.
The bill of lading is a document of title to the goods. However, a transferor does not give the transferee better title. The person holding the bill. is entitled to demand delivery of the goods. The carrier is entitled to require that the bill of lading be produced.
Clean Bill of Lading
The bill of lading must be “reasonably and readily fit to pass current in commerce”. The carrier must issue a bill of lading giving particulars of the goods, their apparent order and condition, quantity, marks, et cetera.
The bill of lading must generally be shipped “clean”. A shipped bill confirms that that the goods have been received and transit has commenced. A clean bill shows that the goods and packaging appear to be in order.
The bill must identify the goods. The bill of lading is presumptive evidence that the goods have been received in the amount and the apparent condition. This is conclusive in favour of a third party acting in good faith.
Free on-Board Contracts
The buyer must book a place for the goods on a ship at the relevant port during the requisite period. In the case of free-on-board contracts, the law of the seller’s state will usually apply, being the place where the goods are loaded. If the contract is most closely connected with Ireland, the Irish Sale of Goods Act will apply.
In a “free on board” contract, the seller’s responsibility is to tender the shipping documents, showing that the goods have been loaded. This may be the shipping receipt, bill of lading or other receipt. The price is usually paid in return for tender of the documents. The buyer may reject the goods if they do not conform to the contract and may refuse to make payment. The risk passes to the buyer on loading.
Under the Sale of Goods Act, a free-on-board seller must notify the buyer of the shipment so that the buyer can insure. Notification is not required if the buyer already has the requisite information. As the buyer selects the port and ship, this will usually be the case.
In “free on board” arrangements, the property in the goods is presumed to pass on loading. The transfer of the bill will generally pass the property. In some FOB contracts, the property in the goods may be retained until a later date. The buyer insures the goods. The risk passes on loading.
Where the seller makes out a bill of lading, it is presumed under the Sale of Goods Act, that the property in the goods is retained until title passes under the bill. In overseas sales, it is commonly presumed or stated that that property in the goods does not pass until there is a defined adequate assurance of payment.
CIF Contracts I
“Cost Insurance Freight” (CIF) terms are commonly used in relation to commodities. It is the seller’s responsibility to determine the port from which goods are sent. Insurance and freight are included in the price. The seller does not promise that the goods will arrive. The duty is to consign them at an appropriate ship. The buyer is sent the necessary documents to allow it to take delivery of the goods on arrival.
The seller sends the buyer a bill of lading showing that the goods have been shipped, an insurance policy for the voyage and an invoice for the goods. This is generally exchanged against payment or delivery of an assurance in relation to payment, commonly a letter of credit.
In a sense, the seller’s obligation is to deliver the documents relating to goods, which constitute their title. Delivering the bill of lading together with insurance is equivalent to delivery of the property in, and possession of the goods.
The obligation to deliver the documents and make payment are concurrent. Once conforming documents are tendered or given, the buyer must pay. This is the case even if the goods are damaged or lost in transit.
CIF Contracts II
The buyer can reject the goods if they do not conform to the contractual specification.
If the documents do not conform to the specification, if the bill of lading is not “clean”, does not identify the goods or indicate shipment in accordance with the contract, they can be rejected.
If upon examination of the goods, nonconformity which is not disclosed by the documents is revealed, the buyer may reject the goods. The seller may be entitled to re-tender the good unless there is a fundamental breach of contract
The risk rests with the buyer in transit. However, the property / ownership does not pass until the bill of lading is transferred in exchange for payment. In contrast, in the case of FOB terms, the property passes on shipment.
Conventions.
The Hague-Visby Rules; some of the rules are mandatory and override clauses to the contrary in contracts for the carriage of goods. The financial liability limits are expressed in “Special Drawing Rights”; SDRs. This is the IMF’s notional currency, which may be converted into real currencies.
There is a ceiling on damages that may be recovered unless the nature and value of goods are declared and embodied in the bill of lading. The limit is 667 SDU units of account per package or 2 units of account per kilogram whichever is higher, i.e., c€550 or c€1.60 per kilogram. Higher amounts can be agreed.
The limitation does not apply where the damage results from acts or omissions by the carrier which are intentional or reckless, or where a shipper knowingly misstates the nature and value of the goods
Application of Conventions
The Hague-Visby Rules apply to a bill of lading for the carriage of goods between two ports in different states, if the bill of lading is issued in a contracting state, the carriage is from a port in contracting state or the contract provides that the rules apply. Ireland is a contracting state. They also apply to a waybill or other non-negotiable document, that incorporates the rules.
While the rules are broadly similar under the Conventions, there are variations. Some states are party to the older Convention only. The choice of law may be therefore of importance. The mandatory provisions of The Hague-Visby Rules may apply so that a third state’s law, in the case of shipment from Ireland, may not be made to apply.
The parties may apply the law of a state, other than the one in which The Hague-Visby Rules apply. However, they cannot do so where there is no real connection with that other jurisdiction.
Shipper’s Obligations
The Hague-Visby Rules impose the following obligations on the shipper (consignor). The cargo must be tendered to the carrier in accordance with the contract terms. The cargo must be free from dangerous conditions or defects. Anything dangerous must be disclosed to the carrier. Liability is strict, irrespective of the shipper’s state of knowledge.
The shipper guarantees the accuracy of the marks, numbers, quantity, and particulars of the goods provided as is usual, that it is bound by the terms of the bill. The carrier has recourse against the shipper if the details are wrong. The shipper must pay the freight. This is a presumptive position. It may be expressly agreed that the consignee is to pay the price.
Carrier’ Rights
The carrier is entitled to freight when he tenders or delivers the goods in good condition at the port of destination. If the full amount is not loaded or delivered, the carrier is entitled to pro-rata payment for the quantity delivered, unless the contrary is provided. If the goods are damaged, the carrier is entitled to freight. Whoever is liable for the freight may claim damages. There is no right of set off.
At common law, the carrier has a lien over the goods for freight due. This includes the cost of protecting the goods. The lien covers the goods concerned and not other goods. The agreement may provide otherwise.
Carrier’s Obligations
The carrier’s obligations under The Hague-Visby Rules are as follows. There is an implied term that the ship is seaworthy. The carrier must use due diligence to ensure that the ship is and remains in satisfactory condition. This includes all storage and other facilities. The carrier will not be liable if goods are lost, notwithstanding that it took due care.
The shipper is entitled to demand a bill of lading showing what has been delivered. It must contain, in particular, information sufficient to identify the goods, their quantity, weight, and apparent condition. The carrier need not examine the actual condition of the goods. It need only the check their apparent condition.
The carrier must properly and carefully load, handle, care for and discharge the goods. This includes taking care to ensure that the goods are not damaged. It is implied that the vessel will load, that it is ready to commence the voyage and that it will proceed with the voyage at all reasonable dispatch.
If there is a specified or established route, that must be followed. Deviations are permitted only on reasonable grounds.
The carrier must unload the goods and put them on the dock or alongside the quay etc. as the case may be. The consignee is entitled to receive custody of the goods, subject to freight being paid. The shipper must deliver the goods to the person with custody of the bill. Where they are not collected within a reasonable time, they may be put in a warehouse at the owner’s expense.
Excepted Risks
The carrier cannot contract out of the minimum obligations under Hague-Visby Rules. Certain risks are excepted, and the carrier is not liable for them. These include
- act of God, act of war, act of enemies, arrest by quarantine;
- accidents, fire not caused by fault;
- act, neglect or default of the master mariner, the pilot, or servants of the carrier;
- strikes, lockouts, riots;
- lifesaving;
- wastage arising from inherent defects in the goods, insufficiency of packing, insufficiency of marks;
- latent defects;
- others cause arising without the fault or privity of the carrier or the agents of the carrier.
The burden of proof is on the carrier.
The exception for acts of the master mariner, pilot, and servants in the management of the ship is not as broad as first appears. It must relate to negligence in taking care of the ship, as opposed to the cargo. If the cargo is not properly cared for, the carrier’s negligence is not excepted. It applies only that of the captain/pilot, carrier’s employee. The carrier can be liable for the negligent appointment of an incompetent master.
The last grounds based on “other cause”, relates to acts caused by strangers for whom the carrier cannot be held responsible.
The carrier must use due diligence to provide a seaworthy ship. If this cannot be shown, none of the limitations set out above apply. The seaworthiness is an overriding obligation.
Claim
There is a one-year time limit for making a claim. This runs from the date when the goods are delivered or should have been delivered. The defendant may not rely on its own fraud to take advantage of the time limit.
The limit of the carrier’s liability is €550 per package or €1.60 per kilogram, whichever is higher. The limitation does not apply where there is fraud or knowledge that the damage would probably result.
Ship owners and charterers are entitled to an overall limit of liability for damage based on the ship’s tonnage. Where they act recklessly or with the knowledge that the loss will occur, this limit does not apply.
It is not possible in a contract for carriage to restrict the monetary ceiling any further, where The Hague-Visby Rules apply. They are minimum obligations on the carrier below which it is not possible to reduce the level of protection for the shipper and consignee. It appears that in the case of goods shipped from Ireland that the Hague-Visby Rules cannot be avoided by choosing a third-party jurisdiction.
Liability and Insurance
Liability for cargo is limited in accordance with international Conventions. They govern the international carriage of goods by air. They define the carrier’s responsibilities, bases of liability, financial liability limits, responsibility for sub-contractors, documents requirements, consigners liabilities, special provisions regarding dangerous goods and claim time limits.
It is essential to arrange appropriate insurance cover. Marine insurance covers not only ocean shipping but also rail and air transport. As with all insurance, it is necessary that there be an insurable interest in the goods. This means that the goods belong to the insured who bears the risk associated.
The Shipping company’s liability for cargo they carry is set by international conventions and does not always equate to the full value of the goods. The level of protection various from market to market. The main risk that arise in the international trade or loss damage and delay including potential of customs. How these risks are shared between buyers and sellers should be covered by the terms of the sale of contract using INCOTERM.