Bills of Lading March 2011

5/24/2018 Bills of Lading March 2011

1/82

Bills of LadingA selection of articles previouslypublished by Gard AS


2/82

Gard AS, March 2011

2


3/82

Gard AS, March 2011

3

Contents

Disclaimer

The information contained in this publication is compiled from material previously published by Gard AS and is

provided for general information purposes only. Whilst we have taken every care to ensure the accuracy and qualityof the information provided at the time of original publication, Gard AS can accept no responsibility in respect of anyloss or damage of any kind whatsoever which may arise from reliance on information contained in this publicationregardless of whether such information originates from Gard AS, its shareholders, correspondents or othercontributors.

Introduction .......................................................................................................................................5

English law - Switching bills of lading .............................................................................................6

Egyptian law - Bill of lading reservations upheld ...........................................................................7

Spanish law Validity of jurisdiction clause in a bill of lading ......................................................8

Fake CONGENBILLS ........................................................................................................................9

UCP 600 - How the new rules on documentary credits may affect contracts

of carriage .................................................................................................................................10

Identity of carrier and jurisdiction clauses in Germany ...............................................................13

Chinese court applies US law in straight bill of lading case .......................................................14

Hong Kong law - Straight bills of lading .......................................................................................15

Straight bills under Chinese law ...................................................................................................15

Early departure procedure via e-mail ...........................................................................................16

When can a master refuse to load damaged cargo? ..................................................................17

Short measures Value your bills of lading as much as your pints of beer ...............................20

Clausing bills of lading correctly - Standard of reasonable care affirmed .................................22

Bills of Lading: Is the shippers stowage request always compulsory? .....................................25Early departure procedure and bills of lading .............................................................................27

US Customs regulations relating to cargo declarations ..............................................................29

The problems caused by ante-dating bills of lading ...................................................................32

Identity of the carrier - The House of Lords decides ...................................................................32

The date of the bill of lading .........................................................................................................33

English lawIs the demise clause now dead and buried? .............................................................35

English law Whose bill of lading is it anyway? ...........................................................................37

Deck Cargo ....................................................................................................................................39

A Summary of English and US Law ...............................................................................................39FIOS revisited .................................................................................................................................41

FIOS revisited (again) .....................................................................................................................43

Delivery of cargo in Chile An English law perspective .............................................................44

Delivery orders ................................................................................................................................47

Delivery of cargo in Chile revisited ...............................................................................................48


4/82

Gard AS, March 2011

4

A message to all shipowners who agree to deliver cargo against anything

other than a true original bill of lading ....................................................................................49

English law Misdelivery in Chile A follow-up ..........................................................................50

English law Straight bills of lading - One more piece in the puzzle ........................................51

Straight bills of lading Delivery Do your bills use clear words? ............................................52

Straight bills of lading Do your bills use clear words? (Part II) .................................................54Bills of lading - Delivery of cargo - The Republic of Korea and the

Peoples Republic of China .......................................................................................................56

The missing bill of lading ...............................................................................................................58

Cargo shipped on deck - The imperfect bill of lading ................................................................62

Who decides the form of the bill of lading? Owners or charterers? ..........................................63

Forum selection clauses in bills of lading .....................................................................................66

Non-order bills fully in order after the RAFAELA S? ....................................................................69

Rules apply to straight bills - House of Lords decides RAFAELA S ............................................72

FIOS revisited - The final chapter? ................................................................................................75US law - Himalaya clauses in multimodal transport .....................................................................77

US Law - Date alone on CONGENBILL sufficient to incorporate

a charterparty into a bill of lading ............................................................................................79

Appendix .........................................................................................................................................80

Gard Guidance on Bills of Lading .................................................................................................80


5/82

Gard AS, March 2011

5

Introduction

This booklet contains a collection ofloss prevention material relating to billsof lading and which has been publishedby Gard over the years.

Gard - the P&I Club - has considerableexperience of bill of lading issuesboth from claims handling as well asfrom dealing with Member enquiries.Experience indicates that even thesimplest of mistakes or an oversight

in a bill of lading can lead to complexand expensive problems at a later date.These issues are important consideringthat the Members P&I cover canoften be at stake. Gard is committedto sharing its experience with othersthrough the various loss preventionpublications.

The bill of lading has its origins in thetrade and carriage of goods by seahundreds of years ago. It has sincedeveloped into a very important legaldocument, evidencing the carriersreceipt of the goods, the terms of the

contract of carriage and the right topossession of the goods. With thisimportant role come problems; one of

which is the required presentation of anoriginal bill of lading in order to be ableto take delivery of the cargo.

Although the practice of paperlesstrading is developing rapidly,shipowners and their Masters will, formany years to come, be burdenedwith the responsibility of signing andauthorising signature of bills of lading,and delivering cargo against the same.

The delivery of cargo carried underbills of lading is just one of the generaltopics covered by this compilation.Other topics include the clausing anddating of bills of lading; the identity ofthe carrier under bills of lading and,if the worse happens and a disputearises, forum selection clauses. All ofthese topics and more are listed inthe contents page of this compilation.Under each topic you will find listedrelevant material previously publishedby Gard.

As an Appendix to this compilation,

you will also find a copy of the contentspage of Gards Guidance on Bills ofLading publication. The purpose of that

publication is to be a practical referenceguide and to assist the Master inavoiding any pitfalls and problems.The guidance explains, with exampleswhere possible, what a bill of ladingcan and is used for, the obligationsthe Master has with regard to bills oflading, the consequences of things notbeing done correctly, what should bedone/considered before signing billsof lading or authorising others to sign,

how delivery against bills of ladingshould be made and how to deal withspecific problems/issues that may arise.Should you wish to obtain a copy ofthe Guidance on Bills of Lading pleasecontact Gard AS.

Hopefully, this compilation will bea useful aid in providing guidance,answers to a query, or at the very least apointer in the right direction.

The law on bills of lading is not staticand changes may affect any guidanceprovided in the material contained

within this compilation. If in doubt orto confirm the current position, Gard isalways on hand to assist.


6/82

Gard AS, March 2011

6

English law - Switchingbills of lading

Gard News 201,February/April 2011

When a carrier receives a request tosubstitute the original set of bills oflading with a new set he should beaware of the risks involved. A recentEnglish case considers some aspects ofthis problem.

A recent case1in the English HighCourt is one of very few on the not souncommon practice of switching bills oflading, that is, substituting the original

set of bills with a new set.

BackgroundYekalon Industry Inc (Yekalon), aChinese company, was a seller of30 containers of tiles to Sonaec SA(Sonaec), with the goods being shippedon Maersks liner service throughlocal agents High Goal Logistics GDLtd (High Goal). The bill of lading,which was later treated by the Englishcourts as a waybill (and which termwill be used in this article for thesake of clarity), named Sonaec asconsignee and the shipper(s) as B & D

Co Ltd P/C (pour compte de) VernalInvestment (Vernal) & Yekalon. Vernalis a subsidiary or associate companyof Sonaec. The consignee was Sonaec

Villas in Cotonou, Benin. The notifyparty was Vernal P/C Sonaec Villas. Thecontainers were to be loaded in Chinafor discharge in Benin.

Seller not paidShortly after the waybill had beenissued (it remains unclear whether thecontainers were in fact shipped), seller

Yekalon claimed that it had not beenpaid by buyer/consignee Sonaec andasked agent High Goal for the waybill.High Goal refused on the groundsthat it had not received instructionsfrom B & D Co Ltd acting on accountof the shippers. Yekalon applied tothe Chinese courts and obtained adeclaration that Yekalon was entitled topossession of the waybill.

Switched billsOn declaring that they had stillnot been paid by Sonaec, Yekalonsurrendered the original waybills toMaersk and requested a new bill issued

to the order of Yekalon (which, beingto order, would make it a bill oflading). Yekalon subsequently found anew buyer and then surrendered thereplacement bill of lading for a second

replacement naming the new buyer asthe consignee.

Buyer commences proceedingsagainst the carrierBuyer Sonaec later commenced courtproceedings against carrier Maersk inBenin, claiming that they were entitledto possession of the cargo. The Benincourt made an interim ruling in favourof Sonaec requiring Maersk to ship

the cargo to Sonaec and imposing adaily fine on Maersk of USD 4,800 untilit complied. This was despite Maerskhaving challenged the Benin courts

jurisdiction (the waybill contained anexclusive English law and jurisdictionclause) and also disputing that Sonaecno longer had title to sue since thewaybill had been cancelled.

The carrier seeks relief from theEnglish High CourtHaving failed to persuade the Benincourt, Maersk sought a declaration fromthe English High Court that Sonaec

must submit its dispute to the lattercourts jurisdiction and that Sonaecno longer had title to sue under thewaybill. The High Court granted bothdeclarations to Maersk and in reachingits decision the court had to tacklesome difficult questions: was Sonaec aparty to the waybill and was Sonaec stillbound by the exclusive English law and

jurisdiction clause after the waybill hadbeen surrendered?

The courts answer to both questionswas yes, but the question of whetherthe surrender of the waybill brought toan end the rights of Sonaec was moredifficult. This was because the waybillstated that B & D Co Ltd acted onaccount of two entities, one of whichwas seller Yekalon and the other ofwhich was Vernal, a subsidiary of buyerSonaec. The court was ultimatelypersuaded by the Chinese court orderto deliver the waybill to Yekalon,therefore giving Yekalon the right to re-direct delivery or to cancel the waybill.

CommentAlthough Sonaec had submitted

a written response to the Englishproceedings, it was not supportedby a statement of truth, and Sonaecdid not appear in the English courtproceedings. Had they done so,

the declarations may not have beenobtained as easily, particularly thedeclaration that only Yekalon had theright to re-direct delivery or to cancelthe waybill, in circumstances where thewaybill named B & D Co Ltd as actingfor the account of two entities withopposing interests.

It may be of note that the judgeappears to have been somewhat

uncomfortable with the lack of evidenceprovided in the English proceedings,both as to Maersks knowledge ofcertain documents that may haveevidenced B & D Co Ltds taking overof the goods for the account of Sonaec(referred to in the written response fromSonaec to the English proceedings)and Yekalons evidence in the Chineseproceedings that they were the ownerand shipper.

It is not clear whether Sonaec made anyattempt to challenge the Chinese courtdecision or what effect the English court

declarations had in the case overall.

ConclusionThe case highlights the importance ofmaking clear who the shipper is in a bill,whether it is a waybill or bill of lading.If this is unclear, problems are likely tobe encountered should the shipperrequest the carrier to re-direct deliveryor issue replacement bills. The casealso serves to stress the importance ofestablishing the proper party entitled tomake such a request.

There are other risks associated withswitching bills, which are beyondthe scope of this article. At the veryleast the carrier should ensure that alloriginal bills of the first set issued aresurrendered before a new set is issued.If there is a request to change anydetails in the bills then advice should besought before this is agreed.

Footnotes1 A.P. Moller-Maersk A/S (trading asMaersk Line). v Sonaec Villas Cen SadFadoul [2010] EWHC 355 (Comm).


7/82

Gard AS, March 2011

7

Egyptian law - Bill oflading reservations

upheldA landmark judgment has beenissued by the Supreme Court in Egyptupholding for the first time ever adefence based on reservations made bythe carrier on a bill of lading.

FactsA cargo of five containers said tocontain 3,300 bags of PVC granuleswas shipped on board a vessel fromBusan, Korea to Egypt in 2004. Upon

the vessels arrival at Alexandriathe containers were all found to beempty. The Egyptian receivers fileda lawsuit against the carrier seekingcompensation for the non-delivery ofthe cargo.

In 2007, a first instance court rejectedthe receivers claim and allowed thedefence presented on behalf of thecarriers (that the containers had notbeen weighed at the loading port andhad seals intact at discharge). Thereceivers filed an appeal and in 2008the Court of Appeal reversed the first

instance judgment and held the carrierresponsible to pay compensation fornon-delivery of the cargo plus interest

at the rate of five per cent per annumand costs. Carriers then appealed tothe Supreme Court.

Appeal to the Supreme CourtThe appeal was based on evidencethat the containers in question hadnot been weighed at the loading port.In addition, on arrival at Alexandriathe containers seals were foundto be intact without any sign of

tampering. The Court of Appeal hadfailed to address these crucial facts.Furthermore, the following disclaimerappeared on the front side of therelevant bill of lading:

Above particulars furnished byshippers, but without responsibility ofor representation by carrier.Shippers load, stow, weight andcount.

The Supreme Court held that theabove clauses in the bill of ladingshould have a binding effect on the

parties to the contract of carriage, soin order to succeed with their claim theshippers had to provide evidence that

the 3,300 bags of PVC granules wereinside the containers at the time theywere loaded on board the vessel, whichshippers were unable to do.

ConclusionThis is an unprecedented judgmentin Egypt, which may not only have aneffect on fraudulent cases of emptycontainers being shipped as loadedwith cargo, but may also apply to partial

shortages of containerised cargo andother modes of carriage.

We thank Mr Ahmed Metwally, of EldibPandi, Egypt, for the above information.



8/82

Gard AS, March 2011

8

Spanish law Validity ofjurisdiction clause in a bill

of ladingThe Spanish Supreme Court hasrecently ruled on the validity of a

jurisdiction clause in a bill of lading.

Regulatory backgroundOn 1st March 2002, EU CouncilRegulation 44/2001 came into forceacross the EU with the aim of unifyingthe recognition and enforcement of

judgments in civil and commercialmatters, replacing the 1968 Brussels

Convention on jurisdiction andenforcement of judgments in civil andcommercial matters (the Convention).1The decision reported in this articlewas given against the background ofthe 1968 Convention, as Regulation44/2001 was not in force at the time thesuit was originally filed. Nevertheless,the specific Convention provisions onwhich the decision is based have beenessentially reproduced in Regulation44/2001, so that the result will mostprobably be the same for cases broughtunder the Regulation.2

Article 17 of the Convention statesthat if the parties to a dispute, oneor more of whom is domiciled in acontracting state, have agreed thata court or the courts of a contractingstate are to have jurisdiction to settleany disputes which have arisen or whichmay arise in connection with a particularlegal relationship, that court or thosecourts shall have exclusive jurisdiction.Article 17 also lays down the formalrequirements of such jurisdictionagreements: (a) they must be in writingor evidenced in writing, or (b) in a formwhich accords with practices whichthe parties have established betweenthemselves, or (c) in international tradeor commerce, in a form which accordswith a usage of which the parties are orought to have been aware and whichin such trade or commerce is widelyknown to, and regularly observed by,parties to contracts of the type involvedin the particular trade or commerceconcerned.

The argumentsCargo interests commencedproceedings before the First InstanceCourt in Spain against a carrier fordamage to cargo carried under a bill oflading. The carrier, relying on a printedclause in bold letters on the front of thebill of lading that referred to the Englishcourts, challenged the jurisdiction ofthe Spanish courts and maintained theexclusive jurisdiction of the courts in

London. Cargo interests alleged thatthe clause was not applicable, as itdid not comply with the requirementsof Article 17 of the Convention. Inparticular, cargo interests alleged thatthey had not signed the bill of ladingand that they were not involved in thecarriage of goods by sea.

Therefore the question to beconsidered by the Spanish courtswas whether the clause on the frontof the bill of lading constituted avalid agreement on jurisdiction inaccordance with the requirements laid

down in Article 17 of the Convention.

The First Instance Court and the Courtof Appeal ruled in favour of the carrier.The cargo owner appealed to theSupreme Court.

The Supreme Court decisionThe Supreme Court confirmed the FirstInstance Court and Court of Appealdecisions and upheld the validity of the

jurisdiction clause in the bill of lading.The court found that: The absence of the cargo interestssignature on the bill of lading could notmean that they had not accepted theconditions of carriage. The jurisdictionclause was clear and was printed in boldletters on the front of the bill of lading.Signature is only a means of expressingan agreement. Moreover, it is acceptedthat a party can give consent throughlack of response or silence. Cargo interests were relying on theterms of the bill of lading to pursue the

1 See article Recognition and enforcement of judgments in the EU in Gard News issue No. 169.2 The relevant provisions are found in Article 17 a), b) and c) of the Convention, which have been incorporated into Article 23 of the Regulation.Although the caput of the articles have slightly different wordings, paragraphs a), b) and c) are identical.3 See also article Identity of carrier and jurisdiction clauses in Germany in Gard News issue No. 186.

claim for damage and were bound bythe jurisdiction clause as well.

Furthermore, in accordance withexisting case law, the court consideredthe clause in the context of themaritime trade, where the partiesconsent to the jurisdiction clause ispresumed to exist where their conductis consistent with a usage whichgoverns the area of international trade

or commerce in which they operateand of which they are, or ought to havebeen, aware.

ConclusionA jurisdiction clause on the front of a billof lading will satisfy the requirementsof Article 17 of the Convention andbind the parties despite the absence ofsignature.

This decision of the Spanish SupremeCourt is a welcome extension to the lineof judgments under the Convention/Regulation 44/2001 holding jurisdiction

clauses valid. The conclusion that acustom of the trade exists regardingthe inclusion of jurisdiction clausesinto bills of lading mirrors that of theSupreme Court of at least another EUstate3and is also a very positive legaldevelopment.

Gard News 194,May/July 2009


9/82

Gard AS, March 2011

9

Fake CONGENBILLS

Members should be aware that thereare fake CONGENBILLS in circulation,which differ from the authorised versionin key aspects.

Gard News would like to remindmembers and clients of the warningissued by BIMCO in relation to fakeCONGENBILLs which are in circulationin the market.1BIMCO has receivedmany enquiries, as has Gard, regardingbills entitled CONGENBILL 2004,when in fact the latest edition ofthe CONGENBILL was issued byBIMCO in 1994. The fake version ofthe CONGENBILL differs from theauthorised version in two key respects:

a) The General Average clauseincorporates the York-Antwerp Rules2004.b) The both-to-blame collision clause ismisprinted.

Since CONGENBILLs are specificallydesigned for use with correspondingBIMCO charterparties, a potentialdispute could arise in respect of aconflict between a BIMCO charterparty

whose standard terms incorporate

the York-Antwerp Rules 1994 and thefake CONGENBILL 2004 ostensiblyincorporating the York-Antwerp Rules2004.

The background to this issue is that the2004 version of the York-Antwerp Rulesis considered by several shipowner/operator organisations (in particularBIMCO and the International Chamberof Shipping) to be less advantageousto their members than is the 1994version, and these organisations adviseagainst the use of the 2004 version incharterparties and bills of lading.

In particular, the 2004 version of theYork-Antwerp Rules disallows salvageexpenses, which is a departure fromseveral preceding versions of the

York-Antwerp Rules. It should also benoted that the York-Antwerp Rules arenot a convention and only take effectby being incorporated into individualcontracts of affreightment, and earlierversions of the York-Antwerp Rulesare often still incorporated into manycontracts of affreightment. Gardrecommends that where possible

members and clients try to incorporate

Gard News 187,August/October 2007

the 1994 version of the Rules as themost updated and representing theirbest interests.

A supplementary point which maybe of interest relates to whether the2004 version of the Rules can beconsidered as an amendment to the1994 Rules. This point arises becausecharterparties and bills of lading oftenincorporate the term 1994 Rules orany subsequent amendments. Itwas agreed at the CMI Conference in

Vancouver in 2004, at which the 2004

version of the Rules were finalised,that this version of the Rules was notan amendment or modification of the1994 Rules, but rather was a completelynew set of Rules. Thus where contractsof affreightment such as CONGENBILL1994 refer to the York-Antwerp Rules1994 or any subsequent modificationthereof the 1994 Rules still will apply.

Footnotes1 See www.bimco.org/Members%20Area/News/General_News/2006/11/1120-Warning%20Fraudulent%20CONGENBILL.aspx .


10/82

Gard AS, March 2011

10

UCP 600 - How the new rules

on documentary credits may

affect contracts of carriageThe ICCs new rules on documentarycredits are now in force and couldgive rise to some confusion andcomplications for carriers.1

IntroductionThe financing of the international saleof goods is largely based on letters ofcredit, which are issued by a bank andare an undertaking to make a specifiedpayment to a beneficiary provided that

the terms of the letter of credit arecomplied with. The benefit of a letterof credit sale is that, via the banks, theseller secures his money after partingwith the goods (by handing them tothe carrier) and the buyer secures rightsto the goods before parting with hismoney, with all this being done onthe basis of an exchange of compliantdocuments. Since the banks themselvesare financially exposed, they willexercise great care in ensuring that thesale documents, including the bill oflading, comply with the letter of credit.Many letters of credit are governed

by the Uniform Customs and Practicefor Documentary Credits2(UCP), aset of standard rules and practiceson the issuance and use of letters ofcredit, which will often be voluntarilyincorporated into the sales contract andwhich will largely determine whethersale documents, including the bill oflading, comply with the letter of credit.A new version of the rules, UCP 600,was approved in October 2006 andcame into force on 1st July 2007.3

The importance of UCP can bedemonstrated by the comments of LordHoffman in the STARSIN, a recent andrelevant case in the House of Lords.4He said:Since it is common general knowledgethat banks almost invariably issue lettersof credit on the terms of UCP 500, thoseterms will be part of the backgroundavailable to the reasonable readerseeking to ascertain the meaning ofthe bill of lading. He will know that a

bank, one of the potential addresseeswhich anyone issuing a bill of ladingmust have in mind, would accept itas meaning that the person namedon the front as the carrier was indeedthe carrier. And the reasonable readerwill not think that the bill of ladingcould have been intended to have onemeaning to a bank and another to aconsignee or assignee.

The most relevant UCP articles to thoseinvolved in the transportation of goodsare the ones dealing with transportdocuments and it is important to beaware of the provisions. We will brieflyconsider here the main aspects andchanges involving those articles mostrelevant to transportation by sea. It isapparent that the new articles could giverise to confusion as to the identity of thecontractual carrier and complications forcarriage of cargo on deck.

Bills of lading GeneralUCP continues to differentiate between

what might be regarded as liner bills,charterparty bills and multimodal bills.5

In the case of liner and charterparty billsof lading it remains a requirement forboth types to indicate that the goodshave been shipped on board a namedvessel on a given date and at the portof loading stated in the credit. The dateof issuance of the bill will be deemedto be the date of shipment unless thebill contains an on-board notationindicating the date of shipment, inwhich case the date stated in thatnotation will be deemed the date ofshipment. In the case of multimodalbills, similar requirements remain inplace as for other types of bill, but therelevant date is (as it was under UCP500) the date the goods have beendispatched, taken in charge or shippedon board at a place stated in the credit.It also remains the case with UCP 600that shipment to the port of discharge,or in the case of multimodal/combined

1 See article UCP 600 in Gard News issue No. 186.2 Published by the International Chamber of Commerce (ICC).

3 Copies of UCP 600 are available from the various ICC book shops or from www.iccbookshop.com/details.php?id=189.4 The STARSIN [2003] 2 W.L.R 711 HL.5 For non-negotiable sea waybills see further below.6 There are finer details with these provisions, e.g., where intended ports or places are indicated or, in the case of a charterparty bill, where a range ofdischarge ports is indicated, but it is not proposed to go into those details here.


transport bills, the place of finaldestination (as stated in the credit) mustalso be indicated in the bill of lading.6

For the three types of bill of lading,authentication of the bill, required bythe previous UCP 500, is now removed,as Article 3 of UCP 600 providesthat a document may be signed byhandwriting, facsimile signature,perforated signature, stamp, symbol

or any other method of mechanical orelectronic authentication.

Liner bills of ladingArticle 20 is of great relevance to linerbills which will often cover containerisedor unitised goods. It still requires: an indication of the name of thecarrier; and signature by the carrier or a namedagent for or on behalf of the carrier; or signature by the master or a namedagent for or on behalf of the master.

Under UCP 600 the masters name need

no longer appear on the bill. Theredoes, however, remain a requirementthat any signature by the carrier, masteror agent be identified as that of thecarrier, master or agent and that anysignature by an agent must indicatewhether the agent has signed for or onbehalf of the carrier or for or on behalfof the master.

The position concerning transhipment(unloading from one vessel andreloading to another vessel duringthe carriage) does not appear to havechanged much from UCP 500. Libertyclauses, which give a carrier the right totranship, continue to be disregarded7by the banks (this is now explicit underUCP 600). Like UCP 500 did, UCP 600will allow a bill indicating that the goodswill or may be transhipped, providedthe entire carriage is covered by oneand the same bill. A bill indicating thattranshipment will or may take place isalso acceptable under UCP 600, even if


11/82

Gard AS, March 2011

11

the credit prohibits transhipment, butonly if the goods have been shippedin a container, trailer or lash barge asevidenced by the bill.

Multimodal bills of ladingArticle 19 applies to multimodal orcombined transport documents, however

named.8It replaces Article 26 of UCP500. The reference in Article 26 of UCP500 to multimodal transport operatoris now replaced simply with carrier.The signature provisions therefore readthe same as those for bills of ladingunder Article 20. The position regardingtranshipment is also similar to Article 20,with logical differences to cover differentmodes of transport.

CommentIf the bill identifies as carrier somebodyother than the vessel owner or demisecharterer, potential confusion could

arise in some jurisdictions as to theidentity of the contractual carrier if themaster signs the bill or an agent signsfor the master. Would the contractualcarrier be deemed to be the namedcarrier or, by virtue of the masterssignature, the vessel owner/demisecharterer?9To avoid such confusion itwould be preferable that the carriersigned the bill as carrier or an agent didso on behalf of the carrier.

As for transhipment, it remains a littleunclear whether banks will accepta transhipment bill covering goods

which are not in a container, traileror lash barge, where transhipment isprohibited under the credit.

Charterparty bills of ladingArticle 22 deals with charterparty bills,which often cover bulk cargoes. Asin UCP 500, the significant differencebetween this article and Article 20 isthat charterparty bills are not requiredto name the carrier. UCP 600 willrequire: signature by the master or a namedagent for or on behalf of the master; or signature by the owner or a namedagent for or on behalf of the owner; or signature by the charterer or a namedagent for or on behalf of the charterer.

The significant change from UCP 500 isfound in the last bullet point, which is anew provision. There is also a requirementthat any signature by the master, owner,charterer or agent be identified as that ofthe master, owner, charterer or agent andthat any signature by an agent on behalfof the owner or charterer must indicatethe name of the owner or charterer. Theother notable change from UCP 500 is thatthe port of discharge may now be shownas a range of ports or a geographicalrange, as stated in the credit.

CommentArticle 20 may increase the scopefor confusion over the identity ofthe contractual carrier. UCP 600 nowpermits signature by or for/on behalfof the charterer. For example, if inaccordance with UCP 600 a typicalform of bill of lading (to be used with

a charterparty) were signed by orfor the charterer without naming thecarrier, who would be identified by thatbill as the contractual carrier? UnderEnglish law the bill as a whole would beconsidered, not just the signature, soin the example given, how would onereconcile the signature with the printedwords so often seen in the attestationclause of a typical form of bill of lading(to be used with a charterparty) whichread in witness whereof the masterhas signed...? Arguably, those printedwords could be said to be irrelevantin the example given, because the

master has not signed the chartererhas signed and has done so on hisown behalf. There is English case lawwhich suggests that an owners form ofbill which contains nothing to suggestthat the charterers signed as agentsfor the master or owners makes thatbill a charterers bill.10There is alsoEnglish case law which suggests that ifthe charterer signs a bill containing thewords signed for the master then thebill would be an owners bill.11

The English courts will give effect to anexpress statement identifying the carrier

providing it is clear and unambiguous.12Therefore, if in the example givenabove the typical form of bill oflading (to be used with a charterparty)were signed for the charterer BulkChartering Ltd the carrier that would,under English law, be taken to be aclear and unambiguous identification ofBulk Chartering Ltd as the contractualcarrier regardless of pre-printed termsand conditions.

If the contractual carrier is not madeclear in the bill of lading13andthe owner is found not to be thecontractual carrier, that could result inhim being exposed to a claim in tort,possibly with no contractual defencesor limitations. Under English law ownersmay be able to rely on the terms of thebill as bailees. However, the same maynot be the case in other jurisdictionswhere a ship may be targeted. Manytypical forms of bill of lading (to beused with a charterparty) and therelevant charterparties themselves donot contain a Himalaya clause givingowners the benefit of the bill of ladingterms and conditions and/or protection

from claims in tort by third parties.

If the identity of the carrier is unclearand the charterer has signed the bill,

complications could also arise withdemands for security for a claim againstthe charterer in addition to the owner.

The law of the United States is quitedifferent. According to United Stateslaw, the vessel in rem, the ownerin personam, and the charterer in

personam would probably all beconsidered carriers regardless of whohas signed the bill. The vessel wouldbe deemed to have ratified the bill oflading when she sailed with the billof lading cargo on board. The vesselin rem would also be bound by asignature on behalf of the master inthe bill of lading. The owner would bedeemed to be the carrier if it issuedthe bill of lading or if it authorised thecharterer to issue a bill of lading. Thecharterer would be liable if it issuedthe bill of lading. There are certainexceptions to these general rules, but

a shipowner and charterer would bewise to assume that the vessel, theowner and the charterer would all beconsidered carriers. If the claimant wereto name the wrong entity as the carrier,United States courts would freelygrant leave to amend a complaint toinclude the correct carrier. If the correctcarrier would not be prejudiced by theamendment, the amendment wouldrelate back to the time the originalcomplaint was filed, thus preventing atime bar argument.

Given the scope for confusion it is

recommended that: Although for charterparty bills UCP600 does not require the carrier tobe identified for documentary creditpurposes, conflicting provisions inthe bill as to the identity of the carriershould be avoided. If the owners andcharterers agree that the charterersare to be the contractual carrier, thenin addition to signature by or for thecharterers, a clear and unambiguousidentification of charterers as the carrieris recommended. That owners only permit charterersto issue bills in their own name oras carrier if the bill contains a clearand unambiguous identification ofcharterers as carrier and incorporates asuitably drafted Himalaya clause givingowners the benefit of the bill of ladingterms and conditions and/or protectionfrom claims in tort by third parties. That charterers take care to avoidthemselves being identified as carrierunder a bill which they may not intendto be. Simple signature by or for thecharterers on a typical form of bill oflading (to be used with a charterparty)which does not contain a clear andunambiguous identification of thecarrier could be interpreted in some

jurisdictions to be a charterers bill orindeed a bill under which both owners


12/82

Gard AS, March 2011

12

and charterers are deemed contractualcarriers. That owners and charterers seek toexpressly agree in the charterparty howbills are to be issued, following up withclear instructions to the master/agentsto check that bills are being issuedcorrectly once signed.

Non-negotiable sea waybillAs in UCP 500, UCP 600 has a separatearticle (Article 21) dealing with non-negotiable sea waybills. This is nowsimilarly worded to the new bill oflading article (Article 20) insofar asconcerns signature and indication thatthe goods have been shipped on boarda named vessel on a given date and ata port of loading stated in the credit.There is no longer a transhipmentprovision for sea waybills.

On deck, Shippers load and

countIt remains the case with UCP 600(Article 26) that a transport documentmust not indicate that the goods areor will be loaded on deck. A clausestating that the goods may be loadedon deck remains acceptable. However,the words unless otherwise stipulatedin the Credit, which appeared in UCP500, have been omitted from UCP600, which suggests that under UCP600 the parties may not agree in theirletter of credit that bills of lading are toexpressly state that the cargo is to becarried on deck. The same article also

reconfirms that a transport documentbearing a clause such as shippers loadand count and said by the shipper tocontain is acceptable.

CommentThe removal of the words unlessotherwise stipulated in the Credit withregard to the acceptance of on deckbills would appear to create a problemif the letter of credit is subject to UCP

600 and the bills are claused on deck,even if the parties have agreed toon deck bills in their letter of credit.However, there are provisions in Articles1 and 2 of UCP 600 which suggest thatthe parties to the letter of credit dohave scope to agree terms that differfrom the UCP rules and that the terms

of the credit will take precedence overthose rules. If the bank is unsure as tothe position, this may result in pressureon carriers to issue bills which do notindicate that the goods are carried ondeck when in fact the goods are carriedon deck. If carriers agree to this, theymay prejudice their P&I cover. This isbecause the absence of a statementin the bill that the goods are shippedon deck risks a finding that the deckcarriage has been unauthorised. Thepotential consequences of such afinding are the loss of the carriersdefences and limitations of liability,

which would prejudice P&I cover. UnderEnglish law a general liberty to carrygoods on deck (which is acceptableunder UCP 600) is simply that aliberty, or an option (available to thecarrier) and on its own is insufficientto authorise deck carriage,14sincea third party transferee of the bill oflading would not be able to ascertainwhether the liberty had been exercisedor not.15Unless there is an establishedcustom of the trade, it is recommendedthat the carrier strongly resists anypressure to issue bills which do notexpressly state that that the goods are

carried on deck when in fact they arecarried on deck.

Clean transport documentIt remains the case with UCP 600(Article 27) that a bank will only accepta clean transport document, which isdefined as one bearing no clause ornotation expressly declaring a defectivecondition of the goods or theirpackaging. The same article now makes

7 In other words, the presence of a liberty clause will not make the bill a non-compliant document under UCP even if transhipment is prohibited by the

letter of credit.8 The fact that this article is now the first transport article under UCP indicates that the banks are seeing many more bills covering such transport.9 See for example the articles Whose bill of lading is it anyway? Gard News issue No. 162 and Identity of the carrier The House of Lords decides inGard News issue No. 170.10 THE OKEHAMPTON [1913] P. 173 at p. 180, in which the judge commented The Court must of course construe the whole instrument before it inits factual context, and cannot ignore the terms of the contract. But it must seek to give effect to the contract as intended, so as not to frustrate thereasonable expectations of businessmen. If an obviously inappropriate form is used, its language must be adapted to apply to the particular case.11 The REWIA [1991] 2 Lloyds Rep. 325, in which the judge commented that a bill of lading signed for the master cannot be a charterers bill unless thecontract was made with the charterers alone, and the person signing has the authority to sign, and does sign, on behalf of the charterers and not theowners.12 The STARSIN [2003] 2 W.L.R 711 H.L13 In which case a claimant may have other, although less certain, avenues of claim: against the owner in contract and/or tort/bailment and/or againstthe charterer in contract.14 See Svenska Tractor v. Maritime Agencies (1953) 2 Q.B. 295 and the article Deck Cargo A Summary of English and US Law in Gard News issueNo.145.15 However, the absence of a statement in the bill that the goods are shipped on deck should not matter where there is a custom of the trade or port ofloading to stow the specific goods on deck for the voyage in question. For instance, carriage of enclosed containers on decks of purpose-built containerships is almost universally regarded as a customary method of carriage. Belgium, however, is an exception see the article Belgium Carriageof containers on deck in Gard News issue No. 162. Similarly, the carriage of logs on deck of purpose-built log-carrying vessels is also accepted ascustomary.16 Article 26 of UCP 600 states that a transport document may bear a reference to charges additional to the freight.

it clearer that the word clean neednot appear on a transport document,even if a credit has a requirement forthe transport document to be clean onboard.

FreightUnder UCP 600 there is no equivalent

of Article 33 under UCP 500, whichprovided that banks would accepttransport documents stating that freighthas still to be paid. This implies thatthe banks will no longer bother withprovisions regarding freight.16

ConclusionAt the time of going to press the newedition of the International StandardBanking Practice for the Examination ofDocuments under Documentary Credits(ISBP) was published. The ISBP is thecompanion document to UCP and maywell assist in clarifying how the banks will

interpret the changes under UCP 600.

It is somewhat ironic that the Houseof Lords in the STARSIN used UCP500 to help them clarify the identityof the carrier in a case concerning aliner bill and that UCP 600 has thepotential to make matters unclear as faras charterparty bills are concerned. Afurther comment from Lord Hobhousein the STARSIN suggests that UCP600 has a lot to live up to: the currentversion of the code (UCP 500) has madesignificant changes to the previousversions and among other things,

requires that the actual identity ofthe carrier should be disclosed andparticularized by naming it or him onthe face of the bill of ladingAll this isa worthy aspiration.

We are grateful to Professor CharlesDebattista, of Stone Chambers inGrays Inn and of the University ofSouthampton, for his assistance in thepreparation of this article.


13/82

Gard AS, March 2011

13

Identity of carrier andjurisdiction clauses in

GermanyThe German Supreme Court hasrecently held an identity of carrierclause invalid.

The factsA German-owned vessel was charteredto an English company which in turncontracted with another Englishcompany for the carriage of 560 steeltubes from the UK to Sweden. Thereceiver of the tubes under the bill of

lading claimed that 114 of the tubesarrived in damaged condition. Thebill of lading, which was signed by themaster, named the English charterersas carriers and contained the followingprinted clauses:

3. JurisdictionAny dispute arising under this Bill ofLading shall be decided in the countrywhere the carrier has his principalplace of business, and the law of suchcountry shall apply except as providedelsewhere herein ...

17. Identity of CarrierThe contract evidenced by this Billof Lading is between the Merchantand the Owner of the vessel namedherein (or substitute) and it is thereforeagreed that said Shipowner only shallbe liable for any damage or loss due toany breach or non-performance of anyobligation arising out of the contract ofcarriage whether or not relating to thevessels seaworthiness ...

Suit was filed against the shipownersbefore the German courts. Both thecourts of first and second instancefound that the German courts hadno jurisdiction to hear the case. TheSupreme Court left this question tobe answered by the court of secondinstance by referring the matter backto that court. However, in doing sothe German Supreme Court set out anumber of considerations which are ofwider interest.

Legal considerationsThe German Supreme Courts decisionsets out from the premise that, basedon EU Council Regulation 44/2001 on

jurisdiction and the recognition and

enforcement of judgments in civil andcommercial matters (the Regulation),the German courts would have

jurisdiction, as the defendants seat iswithin Germany, unless the parties hadderogated from this general rule inaccordance with article 23 paragraph 1of the Regulation. The question thus tobe considered was whether the clausesin the bill of lading constituted such anagreement.

The first question was which law was tobe applied to the case. Difficulties arosefrom the combination of the jurisdictionclause and the identity of carrier clause.The question of the applicable lawturned on the validity of the identity ofcarrier clause. And in the view of thecourt the validity of this clause had tobe judged by the law which appliedaccording to the jurisdiction clause.In order to solve this circle, the courtresorted to the principle of Germanconflict of law rules according to whichthe applicable law would be that

which would apply if the identity ofcarrier clause were indeed valid. If theclause were valid, the German ownerwould be treated as the carrier andtherefore German law would be appliedregarding the validity of the identity ofcarrier clause.

The court then found that the writtenadditions to the bill of lading, namelythat the English charterers werenamed as the carrier, conflicted withthe identity of carrier clause. Sincethe printed clauses of a bill of ladingare deemed under German law tobe general terms and conditions, theindividual agreement regarding theidentity of the carrier would prevailover the general (printed) terms. Thecourt held that naming the charterersas carrier on the face of the bill oflading was an individual agreement. Asa consequence, the identity of carrierclause was held to be invalid and thecarrier was held to be the chartererswith their seat in England. In this regardthe court referred to the judgement ofthe House of Lords in The STARSIN.1It followed that if the identity of carrier

clause was invalid the jurisdiction clause

1 [2003] 1 Lloyds Report 571.


meant that the English courts hadjurisdiction and that English law wouldapply to the case.

In order, however, to decide on thejurisdiction of the German courtsdespite article 2 of the Regulation, ithad to be further ascertained whetheror not the jurisdiction agreement inclause 3 of the bill of lading was bindingon the parties. This question was to be

decided in autonomous interpretationof article 23 paragraph 1, 3rd sentenceof the Regulation. For all questions notruled by the Regulation, English law wasto be applied.

The court then held that the existenceof choice of law and choice of

jurisdiction clauses in a bill of ladingwas a widely known custom of the tradein international maritime trade andthat therefore the formal requirementsof article 23 of the Regulation werefulfilled.

The court then held that the receiver ofthe goods claiming under the terms ofthe bill of lading accepts the choice of

jurisdiction based on this trade usage(custom of the trade). Consequently, theclaimant was bound by the jurisdictionclause.

Nevertheless, the court found that,based on the findings of the lowercourts, it could not be said that theshipowner had accepted the clausein the same way. The owner neithersucceeded to rights under the bill oflading nor did he consent to its termsafter the bill of lading was issued.However, the question now to bedecided and ascertained by the courtof second instance was whether thedefendant owner was, maybe by acustom of the trade, involved in theunderlying agreement.

Since this question could not bedetermined based on the findings ofthe lower courts, it was referred back tothe appeal court.

Comments

With this decision the German


14/82

Gard AS, March 2011

14

Supreme Court has extended its line ofjudgments holding identity of carrierclauses invalid in cases where the billof lading clearly names a charterer ascarrier on its face.

The finding that a custom of thetrade exists regarding the inclusion

of jurisdiction clauses into bills oflading is new and conforms with theunderstanding of learned scholars.

The question of whether or not thedefendant is bound by the jurisdictionclause will have to be considered by theappellate court based on the principles

Chinese court appliesUS law in straight bill oflading case

Chinese court finds that US law appliesto case by force of contract and that asa result cargo can be delivered withoutproduction of an original straight bill oflading.

An article in Gard News issue No. 1761drew readers attention to a decisionof the Chinese judiciary that in futurecases where the Maritime Code of thePeoples Republic of China (PRC) wasapplicable, the Chinese courts should

adopt the principle that cargo carriedunder bills of lading, including straightbills, should only be delivered againstproduction of the original bill. Thatdecision, however, is relevant to caseswhere Chinese law applies, and in arecent case the Chinese courts heldthat US law applied, which resultedin the carrier avoiding liability fordelivering cargo without production ofa straight bill.

The subject case, before theGuangzhou Maritime Court, involved

a Chinese shipper, who had not beenpaid for the goods by the consignee.The shipper sought to recover hisloss by claiming in tort against thecarrier who had delivered the cargoto the consignee in Canada withoutproduction of the original bill. The billexpressly provided for US law to applyand the court held (upheld on appeal)as follows: The claim in respect of delivery ofcargo without production of the original

bill was a contractual one and could notbe advanced in tort. The shipper and carrier had voluntarilyagreed to apply US law and such anagreement was lawful and effective itdid not violate public interest of thePRC. Proof of the relevant US law had beenascertained in previous civil judgmentsof the Chinese courts.

With regard to the last point, US lawpermits the carrier to deliver goodscovered by a non-negotiable (straight)

1 Delivery of cargo carried under straight bills of lading Developments in China.2 See article Straight bills of lading Not so straightforward in Gard News issue No. 169.3 See article Rules apply to straight bills House of Lords decides RAFAELA S in Gard News issue No. 178.

bill of lading to the named consigneewithout surrender of the original bill,unless he has notice from the shipperor another party claiming to have titleto the goods demanding that thegoods not be delivered to the namedconsignee.2

This recent decision of the Chinesecourts is a welcome one for carriers,not just because the carrier avoidedliability, but because the court was

willing to apply the contractually agreedlaw. Unfortunately, a carrier can notbe certain that will always be the caseand where straight bills, as opposed towaybills, are used the carrier would beadvised to exercise extreme cautionbefore delivering cargo withoutproduction of the original bill.3

We are grateful to Messrs Wang Jing& Co., Law Firm, Guangzhou, forreporting the above case.

of English law, which, according to thefindings of the Supreme Court, rule anyaspects left open by the Regulation.

We thank Dr. Tobias Eckardt, of Ahlers& Vogel, Hamburg, for the aboveinformation.



15/82

Gard AS, March 2011

15

The Hong Kong Commercial Court hasrecently had to consider the nature ofstraight bills of lading.

Straight billsA straight bill of lading is a bill of ladingwhich bears the name of the consignee,as opposed to the so-called to orderbill of lading.

An article in Gard News issue No. 178

reviewed the position of straight billof lading under English law in light ofthe House of Lords decision in theRAFAELA S case.1

It is typical for a bill of lading to containan attestation clause:In witness whereof, the carrier by itsagents has signed three (3) original Billsof Lading all of this tenor and date, oneof which being accomplished the othersto stand void. One of the Bills of Ladingmust be surrendered duly endorsedin exchange for the goods or deliveryorder.

This was the case with the RAFAELA S.In Gard News 178, readers were warnedof the potential risk in delivering goodswithout presentation of a straight billcontaining such an attestation.

Hong KongThe issue of straight bills of lading hasrecently come up in two related actionsdecided by the Commercial Court inHong Kong.2

The facts in the two Hong Kong casesare slightly different from those in theRAFAELA S, while being identical toeach other in the following aspects.The bills of lading in both actionsincorporated only the first limb ofthe full attestation clause (In witnesswhereof, the carrier by its agents hassigned three (3) original Bills of Ladingall of this tenor and date, one of whichbeing accomplished the others tostand void) but did not mention thatone of the bills must be surrenderedin exchange for the goods. In eachaction the defendant carrier argued

that such a clause did not impose uponthe carrier the contractual obligationto deliver the goods upon productionof an original bill of lading and that theusual presentation rule in to orderbills of lading should not apply tostraight bills.

The decisionThe Hong Kong Court (Stone J)disagreed and relied on the previous

English authority of the RAFAELA S andthe Singapore Court of Appeal decisionin Voss v APL.3 The court thoughtthere should not be one rule fororder bills and one rule for straightbills, and emphatically declined theproposition that straight bills shouldbe treated as akin to sea waybills. TheSingapore Court in the Voss case hadalso indicated that the rule requiringpresentation of a straight bill as a pre-requisite for obtaining delivery had theadvantage of simplicity of applicationand certainty, and would preventconfusion and avoid shipowners and

their agents having to decide whether abill of lading is a straight bill or an orderbill.

It remains to be tested if clearerwording in the contract indicating thatthe original bill of lading is not requiredto be presented before delivery ofgoods will have a different effect toinvalidate the usual presentation rule.

Hong Kong law - Straightbills of lading

1 MacWilliam Co Inc v The Mediterranean Shipping Co SA [2005] 1 Lloyds Rep 347.2 Carewins Development (China) Limited v Bright Fortune Shipping Ltd and Carewins Development (China) Limited v Hecny Shipping Limited, HCCL 49 &50/2004, 27th July 2006.3 [2002] 2 Lloydss Rep 707. See article Straight bills of lading Not so straightforward in Gard News issue No. 169.

Straight bills under Chinese lawReaders will recall that the article Delivery of cargo carried under straightbills of lading Developments in China in Gard News issue No. 176reported on a decision of the Chinese judiciary that in cases where theMaritime Code of the Peoples Republic of China (PRC) was applicable, theChinese courts should adopt the principle that cargo carried under bills oflading, including straight bills, should only be delivered against productionof the original bill. That decision, however, is relevant to cases where Chineselaw applies, and in a recent case the Chinese courts held that US law applied,which resulted in the carrier avoiding liability for delivering cargo withoutproduction of a straight bill. For further details see article Chinese courtapplies US law in straight bill of lading case in Gard News issue No. 182.

However, the defendant carriersucceeded in his defence on a differentground. He was able to rely on anexemption clause on the bill of ladingto exclude liabilities after discharge ofthe goods.

AppealThese two Hong Kong cases are nowunder appeal. If the higher courtreaches a different decision on the main

issues then Gard News will let readersknow. Any readers who are interestedcan refer to the Hong Kong judgmentsin full at the Hong Kong Department ofJustice website: http://legalref.judiciary.gov.hk/lrs/common/search/search_result_detail_frame.jsp?DIS=53439&QS=%28%24carewins%29&TP=JU.



16/82

Gard AS, March 2011

16

Early departureprocedure via e-mail

unsurprising that, at some stage,somebody would think to combine EDPand e-mail, particularly given that speedis common to both.

The master of a vessel insured by Gardhas recently received an e-mail withattached copies of original bills of

lading, which except for signature werecompleted in all respects, together witha request from the agents to sign thebills on his behalf.

The practice of sending any formof original bill of lading by e-mailcan be extremely dangerous giventodays sophistication in fraud. Sucha practice is not, however, confinedto EDP. Indeed, Gard is aware of thedevelopment of electronic bill oflading systems, one of which involvesmade-up original bills of ladingavailable via the web for shippers

to print off at their offices, adding

A shipowner member has recentlybrought to Gards attention the practiceof early departure procedure via e-mail.

Early departure procedure (EDP) itself isnot new. An article in Gard News issueNo. 1501explained the hazards of thepractice, which often involves issuing

signed but otherwise blank bill oflading forms. Interestingly, the practicewhich is the subject of the article inGard News issue No. 150 appears tobe an improvement on the pure EDPthat has been witnessed before, in thatthe master is, apparently, given theopportunity to approve/correct the billof lading contents before authorisingsignature. However, it is suspected thatagreeing any corrections is far fromeasy in reality.

There has been an increase in thegeneral use of e-mail in the issuing

of bills of lading and it is perhaps

1 Entitled Early departure procedure and bills of lading.


their own signature as authorisedon behalf of the carrier. However,these systems will usually incorporatesecurity arrangements and the pointhere is that, with the EDP practicedescribed, such arrangements are likelyto be loose to say the least. Hence,owners would be advised to refuse to

participate in the practice. It would bemuch more preferable to only circulatethe information to be entered on theoriginal bill of lading form. If charterersinsist on the practice, owners couldoffer to appoint their own agents at thesame loading port, so that e-mailingbills would not be necessary.


17/82

Gard AS, March 2011

17

When can a masterrefuse to load damaged

cargo?

Following a recent decision of theEnglish High Court, very clear termsmust be set out in the charterparty ifthe parties wish to give the master theright to reject damaged cargo before itis loaded.

IntroductionThe question of whether a cargo,often a cargo of steel products, is inapparent good order and conditionand the resulting disagreement as towhether the bill of lading should beclaused (and if so, in what terms) arisesregularly. Disagreement may arise

because there is a genuine factualdispute as to the true condition of thegoods. Alternatively (or sometimesadditionally), for letter of credit reasons,a shipper will want a clean bill of lading,whereas a master has the right and theduty to protect both the shipowner andthe future bill of lading holder(s) andto place remarks on the bill which inhis reasonably-held opinion accuratelyreflect the condition of the goods.

Any disagreement is usually resolved bydiscussion between the parties. Eithera wording for insertion into the bill bythe master is agreed, or a clean billis issued against the provision to the

shipowners by the charterers of a letterof indemnity (LOI). The first solution isthe one preferred and recommendedby Gard. The second is likely to leavean owner without P&I cover (see Rule34 1 ix of Gards 2005 Statutes andRules) and with little or no defence toa claim by an innocent third party fordamage which should have been notedon the bill.

In Gards experience, it is relatively rarefor a master to refuse to load damagedcargo. This usually happens when thereis a clause in the charterparty which

requires the master to sign clean billsof lading, but which allows him to rejectcargo which is in such a conditionthat a clean bill could not be issued.Nevertheless, this does happen fromtime to time and a recent decision ofthe English High Court1provides usefulguidance on the points which masters,owners and charterers should have inmind when faced with such a situation.Interestingly, this was an appeal byowners Sea Success Maritime (SSM)from an award in favour of charterersAfrican Maritime Carriers (AMC) by atribunal of London arbitrators. UnderEnglish law, it is very difficult to obtainleave to appeal against an arbitration

1 Sea Success Maritime Inc. v. African Maritime Carriers Ltd. [2005] EWHC 1542 (Comm); 15th July 2005.

Gard News 180,November 2005/January 2006

award. The fact that leave to appeal wasgranted suggests that the judge whoheard the application thought therewere important issues which should beheard by the High Court.

The factsSSM were the owners and AMC thecharterers of the SEA SUCCESS. Thevessel was chartered on the well-knownNew York Produce Exchange form.There were several other charterpartiesdown the line to various sub-charterers, essentially on identicalterms. The same arbitrators were

appointed under each charterpartyand the disputes were dealt withconcurrently.

In September 2004, the vessel wasordered to load a cargo of steelpipes at Constanza, Romania. Havinginspected them before loading,the master found the pipes to bedamaged. He refused to load them.The dispute was resolved by the issueto owners of an LOI. The vessel thensailed to Novorossiysk. There, shewas instructed to load a cargo of hotrolled steel coils. The same situation

arose. The master considered thecoils to be damaged (which in Gards


18/82

Gard AS, March 2011

18

experience is not uncommon with suchcargo) and refused to load them. Thistime, rather than an LOI being issued,the parties entered into a withoutprejudice agreement which resolvedthe immediate problem. The cargo was

then loaded.

The basis on which the masterrefused to load the cargoIn support of his decision to refuse toload the cargo in question, the master(and SSM) referred to clause 52 of thecharterparty with AMC. This clauseread:The vessel to use Charterers Billsof Lading or Bills of Lading approvedby Charterers and/or sub-Chartererswhich to include Clause ParamountGeneral, USA or Canadian, asapplicable, during the period ofthis Charter. Master to authorise,time by time, in writing Charterersor their appointed Agents to signBills of Lading on behalf of Masterin accordance with Mates Receipts.Master has the right and must reject anycargo that are [sic] subject to clausingof the BS/L.

SSM relied on the last sentence of thisclause which, they argued, meant thatthe master could and should refuseto load cargo which was in such acondition that, if it was loaded, the bills

of lading would have to be claused.Effectively they were arguing that onlycargo which was in apparent goodorder and condition could be loaded.

There seems to have been no disputebetween SSM and AMC as to theactual condition of the cargo at bothConstanza and Novorossiysk. Sofar as the Novorossiysk cargo wasconcerned, AMC agreed and confirmed

that the bills of lading would containthe description of the cargo and itscondition as set out in the pre-loadingsurvey report prepared on ownersbehalf. On this basis, AMC said thatthe master would not need to clausethe bills of lading (because they alreadycontained the surveyors remarks) andthus that he had no good reason torefuse to load the cargo.

The arbitrationThe dispute went to arbitration. It washeard by three well-known Londonarbitrators. Essentially, they had todecide two questions:1. In what circumstances, on thetrue construction of clause 52 of thecharterparty, is the master entitled andobliged to reject the cargo presentedfor shipment/tendered for loading?2. Did those circumstances exist atNovorossiysk?

In answer to the first question, thetribunal decided that the master could/should reject the cargo ... if the cargo,once loaded (emphasis added) wouldbe properly described in the bill of

lading in a way which would qualify thestatement of apparent good order andcondition ... proposed to be stated inthe bill of lading by the shipper.

In answer to the second question, thetribunals answer was no, on thebasis that there was no dispute as tothe condition of the cargo, nor thedescription of it that would be insertedin the bills of lading. The tribunal was

no doubt influenced by the fact thatSSM and AMC were essentially inagreement as to the proper conditionof the cargo. SSM sought leave toappeal against these findings andobtained it. The appeal was heard bythe High Court in early July 2005.

The High Courts findingsThe judge upheld the tribunals decisionand thus found in favour of AMC.Broadly, he approved of the tribunalsreasoning. He made the particular pointthat clause 52 (and presumably similarclauses) was not intended to be used ifthere was no dispute between SSM andAMC as to the condition of the cargo.The judge accepted that the clausewould operate if the master (correctly)intended to clause the bill in relationto the condition of the cargo, but theshipper did not agree.

The judge also dealt with whathe called the timing point. Thisconcerned SSMs argument that it wasimpractical for a master to try to rejectcargo once it had been loaded, anargument with which many readers will

have sympathy. Nevertheless, the judgerejected this argument. He concludedthat, after the initial inspection of thecargo (whether by the master or by the


19/82

Gard AS, March 2011

19

pre-loading surveyor), the charterers/shippers have the opportunity tochange their intended description ofthe cargo in the bill of lading. Thus,he felt, it would be premature for themaster to reject the cargo at that time.If charterers/shippers agreed to thebill being worded in terms acceptable

to the master, there is no dispute andclause 52 does not operate (see above).In the judges view, it was only if thecharterers/shippers declined to changetheir description of the cargo in thebill of lading (i.e., refused to allow thebill to be claused as required by themaster) that clause 52 operated and themaster was then allowed and requiredto reject the cargo.

Because it did not arise here, the judgesaid nothing as to the masters positionif the charterers/shippers do not replyto his request that they agree to the

bill(s) of lading being worded in termsacceptable to him. Under English law,silence is not agreement. Thus it wouldseem that, if faced with a clause in thecharterparty worded similarly to clause52, the master would probably haveto continue loading, but would havethe right and obligation to clause thebill(s) himself, just as he would have ifthe charterers/shippers had refused hisrequest.

CommentIt must be said that clause 52 is notclearly worded. Although the intention

appears to be that the master hasthe right and must reject damagedcargo prior to loading, the last sentencehas been interpreted by a tribunal ofLondon arbitrators and a High Court

judge as meaning something different,especially as to when the master canexercise his right and obligation to

reject. If owners, or indeed charterers,wish to give the master the right toreject damaged cargo before it isloaded, this will have to be set out invery clear terms in the charterparty.

We have mentioned above the positionwhere a clause in the charterparty requires

the master or his agent to sign only cleanbills of lading, but also gives him theright to reject cargo for which clean billscan not be issued. Based on this case, itseems that such a right to reject may ariseonly once the cargo has been loaded. It istherefore suggested that owners who areasked to accept such a clause stipulate inclear terms that the master is entitled torefuse to load (not merely reject) cargofor which in his opinion a clean bill couldnot be issued.

It is also worth stressing that both thetribunal and the judge appear to have

been strongly influenced by the factthat SSM and AMC were in agreementas to the condition of the cargo,especially the Novorossiysk cargo. Itis apparent that AMC were willing toallow SSMs surveyors remarks to beinserted into the Novorossiysk bills.Had this been done, it would havebeen difficult for SSM to have arguedthat the bills did not accurately statethe condition of the cargo at the time itwas received by the vessel. If there hadbeen no agreement between SSM andAMC and had AMC insisted on cleanbills being issued, it seems the position

would have been very different. Thejudge found that clause 52 wouldhave operated in such circumstances,although he does not seem to haveconsidered how, in practice, the vesselwould have discharged the steel coilsalready loaded.

Lastly, the judge re-stated what almostall practitioners would recognise asbeing the correct state of affairs insuch matters. To paraphrase the judge,he said that if the master (or often asurveyor acting for owners) inspectsthe cargo and reasonably considersit to be in such a condition that the

bill of lading should be claused, theparties have a choice. Either thecharterers/shippers agree to the billof lading being so claused, in whichcase the master can sign it, or giveauthority for it to be signed on hisbehalf, because he is satisfied that itaccurately reflects the condition of thecargo, or the charterers/shippers refuseto themselves clause the bill, in whichevent the master must do so himself.

In so saying, the judge repeated thewell-known position under English lawthat a master has to take what he called

a ... reasonable, non-expert view of thecargo ... as he sees it.

A master will often seek a secondopinion from a surveyor and in thecase of cargoes of steel products, it iscommon for pre-loading surveys to becarried out, as happened here. Whatis uncommon is that the master andSSM refused to allow the cargo to beloaded, even though AMC confirmedthat the surveyors remarks would beinserted into the bills of lading.

Both the arbitrators and the judge

found that clause 52 of the charterpartydid not allow SSM to refuse to load thecargo. It remains to be seen whether,having lost on two occasions, SSM wishto appeal to the Court of Appeal. Weshall keep readers informed.


20/82

Gard AS, March 2011

20

Short measures Valueyour bills of lading as much

as your pints of beerYour pint of beer Short measure?The British have long since loved theirpints of beer. A pint now costs aroundtwo pounds, depending on where andwhat quality one chooses to drink. Thebeer drinker is not only concernedwith price and quality, however. Whenbeing poured into the glass most beersproduce a froth or head. The size of thishead varies enormously, and accordingto some campaigners it is often larger

than it should be. Essentially this meansthat the customer gets less liquidbeer than the pint he paid for and thesupplier (the pub) makes more profitbecause it is paid for a pint, whereasthe actual liquid quantity suppliedis less. According to campaigners,research carried out by UK TradingStandards Officers shows that eight outof ten pints served are less than 100per cent liquid, that the average liquidserved is less than 95 per cent, and thatshort measures cost consumers overGBP 1 million a day.

Bulk liquid cargo shortage claims The concern The short measure?Whilst Gard Services itself can notcomment on these reported results,it does have its own experience ofwhat could be termed short measuresas far as the carriage of bulk liquidcargoes is concerned. Gard Servicessees a number of bulk liquid cargoshortage claims and many are the resultof paper differences. In some cases,however, it is worrying that an elementof the shortage may be attributableto the issuing of a bill of lading for aquantity of cargo that, according toships figures, has not been shipped onboard. So what has all this got to dowith short measures and pints of beer,the reader may ask? Well, think of theship as the pint-sized beer glass, thecargo as beer, the shore terminal as thepub and the master as the customer (heis not the drinker of course, he is thecustodian, looking after the beer anddelivering it safely to the consumer).Instead of the froth or head disguisingthe quantity actually received, the shoretank figures (which are greater than theships figures) will commonly be used

to try and persuade the master whatquantity has been received on board.If the master relents to pressure and

issues a bill of lading showing the shorefigures, without qualification, that isakin (as explained further below) tothe customer paying the pub for hispint of beer. Furthermore, if the ship,as with the pint-sized beer glass with alarge head, has actually received lesscargo on board than the shore terminalfigures would suggest, that is also akinto a short measure. For the terminalthat could mean being paid (usually on

the basis of the bill of lading figures) fora quantity of cargo never supplied.

The legal positionSo why is the issuing of a bill of ladingakin to the customer paying for his pint?Well, one of the functions of the bill is areceipt for the goods loaded and if thequantity stated in the bill is inaccurate,that can be held against the carrier(usually the owner in the tanker trade),on whose behalf the master is signingthe bill. Most bills of lading issued forbulk liquid cargoes are negotiable,that is, they can be transferred (usually

by endorsement) from one party toanother. In the bulk liquid trade, billsmay be transferred numerous times, sothat the receiver entitled to possessionof the cargo at the discharge port maybe at the end of a long chain. Becausethat receiver is not likely to have hada representative at the load port toconfirm that the quantity stated in thebill of lading is the quantity actuallyshipped, he is entitled to place somereliance on the quantity stated in thebill. This entitlement is recognisedby international and national lawsapplicable to carriage of goods bysea, such as the Hague or Hague-VisbyRules. Under the Hague-Visby Rules,1the quantity stated in the bill of ladingwill, when relied on by an innocentthird party, be held to be conclusiveevidence of the quantity shipped onboard. In other words, the carrier cannot dispute the quantity, even if thereis evidence that the ship has receiveda short measure. If the quantity in thebill is overstated, the carrier is at risk ofbeing liable for a claim to make goodany short measure.

Of course, most bills contain the wordscondition, weight, measure, marks,numbers, quality, contents and value

1Article III (4).


unknown, and this general reservationmay well be sufficient to protect thecarrier. However, it may be insufficientwhen the shore figures exceed theships by an amount beyond a normaland/or customary difference. Whilst theshore figures may be unknown to theextent that the master has not beenable to take his own measurements/dohis own calculations with regard to theshore tanks, the size of the difference

between the ship and shore figuresalone may give rise to suspicion thatthe shore figures are inaccurate. Underthe Hague and Hague-Visby Rules2themaster is not bound to state a quantitywhich he has reasonable groundsfor suspecting does not accuratelyreflect the goods actually received. Ifthe master nevertheless states such aquantity in the bill, the carrier may beunable to dispute the short measure,even if there is evidence to the contrary.

But what is a normal and/or customarydifference? Well, it depends on the

circumstances and the means ofmeasurement used to determinethe ships figures. For tankers, theaccuracy of tank calibrations, measuringmethods and equipment will needto be considered in relation to theprevailing circumstances and conditions(e.g., swell). In very general terms, ifthe shippers (terminal) figures exceedthe ships figures by more than 0.25per cent, Gard Services suggests thatthe bill of lading be claused. A smallerpercentage, however, may be relevant,and in this regard, when a full cargo isloaded, reference should be made tothe Vessel Experience Factor (VEF).

The VEF is a ratio calculated by acomparison between the ship andshippers volume figures. Many tankerswill have a record of these fromprevious shipments. Particular attentionshould be paid to previously calculated

VEFs that are very similar for a particularcargo and place of loading. These

VEFs may be considered as the normaland customary difference. However,caution must be exercised when using

VEFs, e.g., a calculated VEF can only

be considered reliable if it is calculatedin accordance with industry guidelines.For further information on the VEF seeGards publication Towards Safer Shipsand Cleaner Seas.


21/82

Gard AS, March 2011

21

Short measure What to do?So what should the master do ifpresented with a bill showing shoreterminal figures that exceed thequantity on board according to theships figures? This is where it getsdifficult unlike with a pint of beer, it isoften simply not practical to demand a

top-up. If the difference is normal and/or customary, the master need onlyensure that he reserves the carriersright to challenge the shore terminalsfigures, should that be necessaryat a later date. This is achieved byensuring that the bill contains a generalreservation, such as condition, weight,measure, marks, numbers, quality,contents and value unknown. Remarkssuch as clean on board or shippedon board should be avoided, as theymay be interpreted as giving moresupport to the shore terminal figuresand may lessen the carriers ability to

rely on the general reservation.

If the shore terminals figures exceedthe ships figures by an amount beyonda normal and/or customary difference,it may be appropriate (time permitting)for both ship and shore to re-calculatetheir figures. Mistakes may have beenmade, e.g., the amount of cargo leftin the line between the shore tank andthe ship may not have been deductedfrom the amount delivered to the vesselaccording to the shore tank figures.Unless and until recalculation shows thedifference to be normal and customary,

the master should request the shippersto omit/delete their respective figuresfrom the bill of lading. The master is notobliged to issue a bill of lading showingthe shippers quantity or weight in suchcircumstances.3If the shippers insist thata quantity or weight be shown in thebill, the ships figures should be used. Ifthis is unacceptable, the master shouldclause the bill of lading with the shipsfigures, e.g., ships figures: 12,500barrels or some other appropriatewording. If this is refused, the mastershould issue a written protest to theterminal/shipper as well as the chartererand call for the assistance of the localcorrespondent before the bill is signed.

At least as far as English law (which willgovern a large number charterparties) isconcerned, there is authority on whichthe owners (assuming they are thecarrier under the bill), and therefore themaster, can rely in support of their rightnot to sign inaccurate bills. The case inquestion4is more fully reported in GardNews issue No. 150, but a summaryis helpful here. The ships figureswere 5,078 barrels (0.94 per cent) less

than the shippers and quite rightlythe master refused to sign the bill of

2Article III (3).3Hague and Hague-Visby Rules Article III (3).4The Boukadoura (1989) 1 Lloyds Rep. 393.

lading without clausing it with the shipsfigures. As a result, the vessel sailedafter a delay of 24 hours. The ownersclaimed damages from the charterersas a result of the delay. The chartererscontended that the master actedunreasonably, but the English HighCourt disagreed and the owners claimsucceeded. Owners can rely on thiscase to apply pressure on charterers,whether they be voyage or timecharterers (the latter carrying the riskof delay in the first instance anyway),who may in turn be able to exert some

pressure on the shippers/terminal to bemore reasonable.

Readers may well ask what aboutletters of indemnity from the shippersor charterers in return for issuing billsshowing shore figures in excess ofthe ships? The simple answer is that,where the difference is beyond whatmight be considered to be normal andcustomary, courts will probably takethe view that such letters of indemnityfacilitate a fraud, i.e., it is a deliberateact of inserting into the bill of ladinginformation known to be inaccurate.Such letters of indemnity are not legallybinding, and therefore offer the carrierno protection if the shipper or charterergoes back on his promise.

Care should also be taken when agentsare authorised to sign bills of lading onthe masters behalf in circumstancesoutlined above. The authorisationshould clearly be conditional on the billof lading being issued/claused with theships figures. If sufficient reliance cannot be placed on charterers agents todo this, owners would be best advisedto instruct protecting agents.

The cost of getting it wrongSo what is the cost of failing toclause bills of lading in respect ofshort measures? Well, a one per centshortage on a 45,000 MT deadweightproduct tanker, with a clean productvalue of USD 225 per MT would be inexcess of USD 100,000. The cost is evengreater to the member, because Clubcover may not be available. Rule 34.1(cargo liability) of AssuranceforeningenGards current Statutes and Rulesexcludes cover for costs and expensesarising out of the issue of a bill of

lading or other document known by themember or the master to contain anincorrect description of the cargo or itsquantity (our emphasis) or its condition.

Summary and conclusionNext time you are buying a pint for afriend in the pub remember that if heis not happy with a short measure youshould get a top-up. Spare a thought,however, for the master who can notdo the same. When dealing with otherpeoples cargoes, the carrier is countingon the master to get it right. If he doesnot, the consequences will be moreserious than a disgruntled friend.

Gards Guidance on Bills of Lading New editionFor further advice on bills of lading,particularly dealing with pressureto sign bills, see Gards Guidanceon Bills of Lading. This publicationhas been re-printed, including thenew International Group wordingsconcerning letters of indemnity fordelivery without production of originalbills of lading another problem onwhich the Guidance on Bills of Lading

gives important advice. The Guidancecan also be found on the Gard websiteat www.gard.no.