Claims Guides Bills of Lading 5 - Cargo Claimants’ Rights and Liabilities

Disputes may occur at the discharge port between owners and cargo interests.

Cargo interests will often claim What is the contract of carriage? which charter party applies as a matter against the owners under the bills of construction, and if they do not have Owners should check which of lading, as the contract of carriage. this already, obtain a full copy of it. The documents comprise the terms The intention of this note is to provide answer may not be straightforward if and conditions of the contract of owner Members with some general there are multiple charter parties. carriage, and ensure they have all the guidance on the key issues to consider documents containing such terms to Under English law, there is a presumption when such claims are presented. Such hand. Is the bill of lading the contract that if the parties to a bill of lading issues include what obligations cargo of carriage or are the terms contained neglect to insert the date of the interests may have with regards to in another document? applicable charter party, or insert an the cargo, and what recourse owners incorrect reference (i.e. to a charter party may have against cargo interests or In order to check what the contract that does not exist) the head time charter Charterers, if cargo interests behave of carriage is, consideration should party will apply and be incorporated, unreasonably with respect to delivery be given to the relationship of the because this is the charter party to which of the cargo. parties involved. the owner is a party (unless the vessel is If a claim is asserted against owners (i) Relationship between Cargo demise chartered). as the carrier under a bill of lading, Receiver and Carrier: This presumption is displaced if there owners should consider the standing A transferrable bill of lading may be is a sub voyage charter party, in which of the parties involved, whether the transferred from a person with title, case the sub voyage charter party is the bill of lading is indeed the correct to a person without title i.e. from a applicable charter, because this is more document to determine the contractual consignee named in the bill of lading closely connected with the carriage of relationship between the owners and to a consignee not named in a bill the goods and the particular voyage the party making the claim. of lading. This allows trading of the performed under the bill of lading. goods on the voyage. Owners should seek to obtain a copy of the sub voyage charter to check A transferable bill of lading will be the terms as soon as possible. The the contract of carriage as between a presumption is also displaced if the bill carrier and a cargo receiver, to whom of lading is a charterers’ bill, in which the original bill of lading has been case the charterer is the carrier. lawfully transferred. Owners should also consider the Owners should ensure they obtain a wording of the incorporation clause in complete copy of the original bill of the bills of lading. General words of lading (both front and back pages) to incorporation check the terms, and any incorporated documents, such as the applicable (i.e. “all terms, conditions…”) are only charter party, including the applicable capable of incorporating the germane law and jurisdiction provisions or any terms of a charter party, such as those agreement for arbitration. relating to loading, carrying, discharge and payment of freight. Terms which (ii) Applicable terms referenced have no connection to the carriage in a bill of lading: of the cargo, or onerous terms, such Owners should check whether any as demurrage obligations and liens, charter party terms are said to be are not likely to be incorporated. incorporated into the bill of lading: is Ancillary clauses, such as entire a specific charter party referenced agreement clauses, will generally not (usually by date) in the incorporation be incorporated into a bill of lading clause? If not, owners need to consider Claims Guides

unless specifically mentioned. There the master’s signature is likely to bind and a person shall be regarded for the must also be specific express wording the demise charterer. purposes of this Act as having become to incorporate a jurisdiction clause or the lawful holder of a bill of lading Pursuant to the Hague and Hague-Visby an arbitration agreement; a statement wherever he has become the holder of Rules the carrier will be a named party that all terms are incorporated is the bill in good faith. in the contract of carriage and this not sufficient to incorporate these could be the owners or charterers; the Often a party who brings a claim provisions. carrier is not necessarily the physical against the carrier and may even (iii) Relationship between carrier. The distinction may not be so arrest the ship is not the lawful holder a shipper and a carrier: important in some jurisdictions where of the bill of lading, and may be, for the receiver may pursue a claim against example, the buyer of the cargo under In the case of the contractual the owner as the physical carrier as well a sale contract, who has not received relationship between a shipper and a as the named carrier under the bills of by way of transfer or indorsement a carrier, the bill of lading will generally lading. The Hamburg Rules impose a right to assert a claim under the bill only be evidence of the contract of joint and several liability on the named of lading. carriage. This is because the contract carrier and the actual physical carrier. of carriage will have been arranged The fact that the claimant is a However the determination of the prior to the issue of the bill of lading, party to a sale contract does not applicable law and jurisdiction for a and other documents, such as a necessarily mean he is the lawful cargo claim, in each case, will be fact booking note or fixture note may be holder of the bill of lading. specific, the scope of which is not relevant to determine the terms agreed covered in this article. The distinction is important. The sale between a shipper and carrier. contract determines title to the goods, Where the shipper is also the Do the claimants have title to sue? but this is immaterial to the transfer charterer, the contract of carriage of contractual rights under a bill of The contract of carriage will assist with will be the charter party and the bill lading. “Title” in the context of bills identifying whether the claimants have of lading itself has no contractual of lading means the right to receive title to sue. Where the bill of lading is effect. However the bill of lading will possession of the goods from the the contract of carriage, only the lawful still serve as evidence of receipt of carrier. The lawful holder of a bill of holder of a bill of lading is the party to the goods, and will still function as a lading is entitled to take delivery of the the contract of carriage with the carrier, document of title, if transferable. goods upon surrender of the original and has title to sue the carrier. bill of lading, and the carrier has no Once the terms of the contract of Under English law, section 5(2) of the obligations to deliver the cargo at the carriage are identified, Members Carriage of Goods by Sea Act 1992 discharge port to anyone else. should check: defines a lawful holder of a bill of A party to a sale contract, who is not (a) Whether the claim is being made lading, and states the following: the lawful holder of the bill of lading, against the contractual carrier; (a) a person with possession of the may have recourse against their (b) Whether the cargo interests have a bill who, by virtue of being the counterparty to the sale contract for right to sue under the contract person identified in the bill, is the any alleged losses, but will have no of carriage. consignee of the goods to which right to sue the carrier under the bill the bill relates; of lading. Who is the carrier? (b) a person with possession of the It is important to check the contract of bill as a result of the completion, carriage to see whether cargo interests by delivery of the bill, of any have claimed against the right party. indorsement of the bill or, in the The contractual carrier may not case of a bearer bill, of any other necessarily be the owner, because transfer of the bill; the bills of lading may name the (c) a person with possession of the charterers or another party as the bill as a result of any transaction carrier. This is a question of analysing by virtue of which he would have the wording in the bill of lading and become a holder falling within applying the rules of construction. paragraph (a) or (b) above had not Under English law the form of the bill the transaction been effected at a of lading is not necessarily conclusive. time when possession of the bill no Where the bill of lading is signed by longer gave a right (as against the the master, the carrier will usually carrier) to possession of the goods be held to be the registered owner. to which the bill relates; Where the vessel is demise chartered, Claims Guides

Owners should demand the surrender In the case of negotiable bills of Potential liabilities of cargo by the cargo claimants of the original lading, the contractual rights of each claimants under bills of lading bill of lading for verification. If there lawful holder will be extinguished each Cargo claimants may assume liabilities are disputes under the financing time the bills of lading are transferred under the contract of carriage if arrangement (such as under a letter to the next lawful holder by delivery or they seek to take the benefit of the of credit) one of the banks involved by indorsement. This may be different contractual rights assigned to them may still be in possession of the bills to other shipping documents, such under the bills of lading. of lading at the time the goods reach as a sea waybill, where the transfer the discharge port. In such a case, the of the document is without prejudice For example, the lawful holder of lawful holder of the bill of lading will to the rights of the original party to the bill of lading may assume certain most likely be the bank (even if it is the contract. The obligation under liabilities if he (COGSA 1992 s. 3): only acting as an agent). Accordingly, a sea waybill is to deliver to the 1) Takes or formally demands to the ultimate cargo interest demanding named consignee or to the shipper’s take physical possession from the delivery may not have possession of nominated recipient of the goods, carrier of any goods to which the the original bill of lading. provided that person is the named bill of lading relates; consignee or nominated recipient. Careful attention must be paid when Under a “straight” bill of lading, which 2) Makes a formal claim against checking original negotiable bills of names a consignee and cannot be the carrier by way of court or lading, such as “to order” or “bearer” transferred, delivery must still be arbitration proceedings, such as bills, to ensure that the final endorsee made against the original bill of lading. arresting the ship. (This does not or bearer is the same as the party include a situation where the cargo asserting a claim against the carrier. It should also be remembered that a claimants have not instigated legal person becomes the “lawful holder” It is also important to check that proceedings but have simply made of a bill of lading under The Carriage the sale of the goods to the person a demand against the threat of of Goods by Sea Act (COGSA) 1992, bringing a claim, did not take place arrest and received a P&I Club if he becomes such a holder in good after the goods were delivered at the letter of undertaking). faith. This will not cover persons who discharge port, or in the case of a become the endorsee on a set of bills Such liabilities of cargo interests casualty, after the cargo has been lost by fraudulent means. may include losses arising from the or declared a constructive total loss. shipment of any dangerous cargo, In these situations, the bill of lading Once the parties to a contract of as well as a duty to take delivery ceases to give a right to possession carriage have been established, owners of the cargo. The shipper is liable, upon delivery. The claimant may, should consider whether they could regardless of the operation of COGSA, however, acquire residual rights under assert any claims against the cargo though not as regards the obligation the bill of lading -i.e. to claim damages claimants under the bills of lading. to take delivery, if the bill has been for misdelivery claims. transferred.

Cargo claimants may be held liable to owners for the costs of storing the cargo after physical discharge from the vessel, but pending delivery, even if the costs of doing so outweigh the value of the cargo (The “Bao Yue” [2015] EWHC 944).

However the recovery of such sums may be costly and difficult if the cargo claimants are based in a jurisdiction where enforcement of foreign judgments or arbitration awards is difficult, or where the cargo claimants do not have sufficient assets for the purposes of securing or enforcing owners’ claim against them. The practical difficulties as regards enforcement of storage charges may be mitigated by any local rights to sell the cargo. Claims Guides

Other considerations: occasioned by the time charterer’s About the Author recovery from charterers agents in the sense the wording was used in the off-hire clause. Christina Anderson Owners should consider the terms of Associate the charter party and whether they Charterers bear responsibility to T +852 2863 4546 are able to seek recourse against the owners for discharging the cargo, and E Christina.Anderson charterers to recover any losses arising may be liable to owners for damages @westpandi.com from the cargo interests. in detention or demurrage for delay at the discharge port, subject to any Christina is an Associate in the West of Owners may be able to claim against express exceptions to laytime and / England’s Hong Kong office, handling P&I charterers pursuant to an implied right and FD&D matters for Members in the or demurrage. The conduct of cargo of indemnity under the charter against Asia Pacific region. She is a dual qualified interests (reasonable or otherwise) will solicitor in both England & Wales and in Charterers for the consequences of usually not provide the charterers with Hong Kong, specialising in marine and complying with charterers’ orders a defence to such claims, if under the international trade disputes. Christina and delivering the cargo (The “Island charter, the obligation for charterers practised commercial litigation and Archon” (CA) [1994] 2 Lloyd’s Rep arbitration at two international law firms to discharge is non-delegable (see 227). They will probably not have this for 7 years and was based in both London The “Andra” [2012] 2 Lloyd’s Rep 587). and Hong Kong prior to joining the Club right if the cause of the cargo claim in 2015. was the vessel’s unseaworthiness or What damages and losses are recoverable from charterers would other actions of the vessel / owner or Get in touch breach of charterparty by owner. also depend on the factual matrix of West of England Insurance Services the dispute, and would be subject (Luxembourg) S.A. Charterers may be held liable to to the usual English law rules of owners for the actions of “charterers’ causation and remoteness. Hong Kong Office agents”, a definition which might be 1302 China Evergrande Centre 38 Gloucester Road extended to include sub charterers, Cargo claims made up the shippers and consignees. However, Wanchai Hong Kong charterparty chain whether or not such actions by the T +852 2529 5724 charterers’ agents are attributable to Although this Guide primarily charterers will depend on the specific considers cargo claims made under London Office One Creechurch Place provisions in the charter party and the bills of lading, owners should note Creechurch Lane relationship between the charterers that cargo claims may also be made London EC3A 5AF and cargo interests. In The “Global by cargo interests, who are sub- T +44 20 7716 6000 Santosh” [2016] 1 Lloyd’s Rep 629, charterers, against their disponent E [email protected] head charterers won in the English owners, and any liability may be W www.westpandi.com Supreme Court, reversing previous passed up the charter party chain to Court’s findings, that a vessel head owners. Accordingly, Members arrested by a sub-sub-charterer in should check the terms of their charter © West of England Insurance Services. relation to a sale contract demurrage party to see if the Hague or Hague- All rights reserved. The opinions expressed in this publication are those of the authors. dispute fell within an off hire proviso Visby Rules are incorporated, and/or This note is intended for general guidance or exclusion. The Supreme Court whether the parties have agreed for only and should not be relied upon as legal found that the arrested vessel was cargo claims to be determined under advice. Should you require specific advice contractually off-hire and head the Inter-Club Agreement, which on a situation please contact us. charterers were not obliged to pay provides for an automatic allocation charter hire. The arbitrators’ original of liabilities between owners and majority decision in head charterers’ charterers, depending on the type favour was restored. The Supreme and cause of the claim. Court recognised the difficulty of the issue, but ultimately preferred the reasoning and conclusions of the March 2018 original London arbitrators that a mistaken arrest of the vessel could not be regarded as having been

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