A Project work

On

“CARRIAGE OF GOODS BY SEA”

Submitted towards the partial fulfillment of

IInd Semester of M.B.A. & M.B.L.degree course, for the subject

COMMERCIAL TRANSACTIONS

NATIONAL LAW UNIVERSITY, JODHPUR

April, 2008

PREFACE

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Preparing an academic project at the Post Graduation Level should serve as the very

base of further practical projects likely to be taken up by the candidate during his

future career. Luc de Clapiers de Vauvenargues, a French Author has very well said

that Men despise great projects when they do not feel themselves capable of great

successes. But it is normally seen that academic projects are a result of the candidate’s

feeling that he is really capable of undertaking the proposed project.

With the same conception in my mind, I have made an honest attempt to study the

“Carriage of goods by Sea.” The time that has been passed/invested in searching here

and there and everywhere for anything relevant to carriage by sea and its associated

rules has given me a fair idea as to how merely roaming in the sea of internet add

value to your research skill and of course the knowledge of the topic you searched for.

Though able efforts have been made to focus the study paper entirely only on the

carriage of goods by sea, it may be that some point in time the paper may seem

deviating from the topic due to the fact that it is necessary to introduce relative

information about the topic also.

Carriage by Sea as a discipline has always been a dynamic issue which expands its

scope along with changes in commercial world. This topic can be said to be important

from the point of view of international trade as well as sale of goods-both of which

are part of the course being pursued. The research carried out by the student

independently helps him gain a lot of knowledge. This is my own experience also in

this research journey and preparation of this project report.

I hope the reader will have some good idea about the topic having gone through this

study paper and that is the only criteria of the success or otherwise of this study paper.

ACKNOWLEDGEMENT

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As a child, you acknowledged everything you accomplished, as you grow older

and more sophisticated, you acknowledge only major accomplishments but an

endeavor of this magnitude would not have been possible without the invaluable

help and support of Mr.Bipin Kumar who helped me till the very last minute (at

the oddest of hours) of the final dictate and supported me summing up the work

without whom this work would not have reached this place.

However, the student has tried very hard to make the research paper as thorough as

possible. This attempt at a good research paper however humble would not have been

possible had the student not been given a chance to work on it. The student therefore

would like to thank the faculty in charge for entrusting the student with the area of

research herein.

But I still fail to understand the scarcity of this page to put in the efforts of all

those people who helped me and guided me through this small part of the paper

that I have completed.

Anything that I do in my life is incomplete without the blessings of GOD who are

my parents only.

SYNOPSIS

Project Topic:“Carriage of Goods by Sea”

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Introduction: - The carriage of goods means the transportation of goods from one

place to another within the country or from one country to another. The transportation

of goods plays an important role in commercial transactions, and consequently in the

economic development of a country. The law relating to carriage of goods is

therefore, of great significance. There are three persons involved in cases of carriage

of goods. They are:-

1) Carrier

2) Consignor or shipper

3) Consignee

In spite of recent developments in other forms of transport carriage by sea remains the

most usual way of transporting goods overseas. In terms of the weight, well over 90%

of goods are so carried. Sea transit may last for several weeks during which the goods

will be subject to the dangers inherent in the sea transit.

Objectives:

This research has been designed to fulfill certain underlying objectives, which could

facilitate in better understanding of the topic. These objectives could be classified as

follows:

1. To study in detail the rules relating to carriage of goods by sea .

2. To know about the importance of the bill of lading in carriage contracts

3. To know in brief about the sale contracts based on sea carriage.

Research Methodology:Since the research is a non-doctoral one, therefore the data would be mainly collected

from secondary sources of information. These will include books, journals and

internet.

Chapterization:

a. Synopsis

b. Project work

1. Introduction

2. Contract of Affreightment

3. Bill of Lading: Types and Functions

4. The Carrier’s Responsibilities under a Bill of Lading

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5. The Carrier’s Immunities

6. The Shipper’s Responsibilities and General Clause

7. Sale contracts based on sea carriage

8. Bibliography

Bibliography:

Books:

1) A Text book on Mercantile Law by P.P.S.Gogna

2) Day and griffin:-The Law of International Trade

3) Schmitthoff’s Export Trade (The Law and Practice of International Trade)

In the commercial life of any country, the need for carrying goods from one place to another

cannot be over emphasized. Also, goods are to be moved from one country to another. For

these purposes, a contract of carriage is to be entered into. The persons, organizations or

associations which carry goods are known as carriers. It is the normal, indeed crucial, incident

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to the contract of sale that the goods should be shipped to the buyer .Depending on the type of

contract we are dealing with; this duty may fall either on the seller or the buyer. The party

who arranges for the goods to be shipped is the shipper.

“Carriage is simply the transportation of goods/cargo from one location to another. It

involves loading, stowage, transportation, unloading and delivery.”

Definition of a contract of carriage:-A contract of carriage of goods is a contract of

bailment for reward. It may however, be noted that a contract of carriage is not an

ordinary contract of bailment. It is something more than that because the liabilities of

the carrier (i.e. the person transporting the goods) are more than those of the bailee.

There are three persons involved in a contract of carriage. They are:-

1) Carrier: A person who undertakes (i.e. agrees) to transport the goods, is called a

carrier (or carrier of goods).

2) Consignor or shipper: A person, who delivers the goods to the carrier for

transportation, is called a consignor or shipper.

3) Consignee: A person to whom the goods are addressed and to whom the carrier

should deliver the goods is called a consignee.

KINDS OF CARRIERS

The carriers may be classified into two types:-

i) Common carriers

ii) Private carriers

Common carriers: - A common carrier is one who is engaged in the regular business

of transportation of goods, and undertakes for hire, to transport the goods of any

person who chooses to employ him. The term “common carrier “is defined as:

“Common carrier denotes a person, other than the Government, engaged in the

business of transporting for hire, property from place to place, by land or inland

navigation, for all persons indiscriminately. Persons include any association or body

of persons whether incorporated or not.”1

1 Section 2 of the Carriers Act, 1865

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Characteristics of a common carrier: The characteristics of a common carrier are as

follows:-

1) The common carrier must be engaged in a regular business of transportation of

goods. A person who occasionally transports the goods is not a common carrier.

2) The common carrier must carry on his transportation business for money. A

person, who transports the goods free of charges, is not a common carrier.

3) The common carrier must transport the goods only. A carrier who carries

passengers is not a common carrier.

4) The common carrier may be an individual, a firm or a company. Bu the

government is not considered as a person for this purpose. Thus, the post office is not

a common carrier although it may carry goods.

5) The term common carrier is applied to the transportation of goods by land and

inland water ways. It does not apply to carriage by sea or air.

6) The common carrier must transport the goods of all persons without any

indiscrimination.2 As a matter of fact, a common carrier is bound to transport the

goods of any person provided there is space in the vehicle. If he refuses to transport

the goods besides there being space in the vehicle, then the carrier is liable to pay

damages.3

If a common carrier reserves the right to refuse to transport the goods of some

person, he is not a common carrier.

There are certain exceptional circumstances when the common carrier can lawfully

refuse to transport the goods of any person. These circumstances are:

a) If there is no space in the vehicle

b) If the goods are not of the type which he usually transports as a common carrier.

c) If the reasonable charges for carriage are not paid

d) If the goods are unlawful, of dangerous nature or improperly packed

e) If the destination is not on his normal route, and also if the destination can be

reached only through area of disturbance.

RIGHTS OF A COMMON CARRIER

There are certain rights that a common carrier possesses. These are:-

2 As used in section 2 of the Carriers Act, 18653 Crouch v London & North Western Rly Co., (1854) Ex 556

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1) Right to receive charges: A common carrier is entitled to receive the agreed

charges (remuneration) for his work i.e. for transportation of goods. If the charges for

his work are not agreed, then he is entitled to receive reasonable charges.

It may also be noted that a common carrier can also demand advance payment. But if

he accepts the goods without demanding payment of freight in advance, then he

cannot afterwards claim payment until he carried the goods to the destination.4

2) The carrier is also entitled to charge extra for the risk in respect of scheduled

articles. However, such extra charges must be displayed at the place of booking in

English as well as in the language of that place.5

3) Right of particular lien: The right of lien means a person’s right to retain the goods

until the lawful charges due in respect of the goods are paid to him. A common carrier

can exercise his lawful right of lien, over the goods transported by him, for his

charges.

LIABILITIES OF A COMMON CARRIER

1) The liability of any common carrier for the loss or damage to any [property

(including container pallet or similar article of transport used to consolidate goods)

delivered] to him to be carried, not being of the description contained in the schedule

to the Carriers Act, 1865, shall not be deemed to be limited or affected by any public

notice; but any such carrier, not being the owner of a railroad or tramroad constructed

under the provisions of Act 22 of 18636 may by special contract, signed by the owner

of such property so delivered as last aforesaid or by some person duly authorized in

that behalf by such owner, limit his liability in respect of the same.

2) The liability of the owner of the railroad or tramroad constructed under section 22

of 1863, is not limited by special contract. However, the owner of such railroad or

tramroad will be held liable for loss to goods caused by negligence or criminal act on

his part or by his agents or servants.7 Thus, where any loss or damage of goods is

caused by criminal acts of the carrier or his servants or agents, the liability cannot be

limited by special contract.8

4 Crouch v Great Northern Rly Co. (1856) 11 Exch 7425 Section 4 of the Carriers Act, 18656 See now the Land Acquisition Act, 1894, Sec 27 Section 7 of Carriers Act, 18658 Gaya Muzaffarpur Roadways Co. v Fort Gloster Industries Ltd., AIR 1971 Cal 494

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3) Common carrier liable for loss or damage caused by neglect or fraud of himself or

his agent: In simple words, a common carrier is liable to pay damages if loss/damage

to the goods is caused by fraud or negligent act of himself or his agent. But when

damage to goods takes place due to an accident taking place ( example bursting of the

tyre of the vehicle) it will not constitute negligence on the part of the driver and it

cannot be said that the carrier did not take proper care in maintaining tyre of the

vehicle. Thus, the carrier is not liable to pay damages.9

A carrier will also not be held liable if the consignment of goods is wrongly

delivered.10

BURDEN OF PROOF:- In any suit brought against a common carrier for the loss,

damage or non-deliver of goods (entrusted to him) for carriage, it is not necessary that

the plaintiff prove the fault of the carrier by showing the negligence or any other

criminal act of the carrier, his servants or agents.11

In other words, the burden of showing that the damage to goods was not caused due to

the negligent act of the carrier or his agents or servants would be entirely on the

carrier.12

2) Private carrier: A private carrier is one who casually or occasionally transports the

goods of persons of his own choice. He is not engaged in the regular business of

transportation of the goods. The private carrier reserves his right to accept or reject

the goods offered to him by carriage. In other words, he undertakes to transport the

goods of others on special terms which are mutually agreed upon between him and the

consignor.

Characteristics of a private carrier

9 State of Rajasthan v Mehta Transport Co., AIR2002 Raj 15710 The Manager, Doars Transport (P) Ltd. V Canara Bank , AIR 1992 Mad 32411 Hussainbhai Mulla Fida Hussain v Motilal Nathulal, AIR 1963 Bom 20812 Assam Bengal Roadways Ltd. V Union of India, AIR 1988 Kant 157

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1) The private carrier is not engaged in the regular business of transportation of

goods.

2) The private carrier is not bound to transport the goods of all persons. He reserves

the right to accept or reject the goods offered to him for transportation.

3) The private carrier transports the goods for selected persons of his own choice, and

not for everybody.

4) The private carrier may also transport the goods gratuitously i.e. without any

charge.

COMPARISON BETWEEN A COMMON CARRIER AND A PRIVATE

CARRIER

Common Carrier Private carrier

1) Engaged in the regular business of Not engaged in the regular business

Transportation of goods. Of transportation of the goods. He

Occasionally transports the goods

Of others.

2) Transports the goods of all persons Does not transport the goods of

Without any discrimination. All persons.

3) Always transports the goods for hire may also transport the goods

(i.e. charges) without any charges.

4) Does not reserve his right to reject the Reserves his right to reject the

Goods. Goods.

5) Liabilities of a common carrier are Liabilities are not governed by

Governed by Carriers Act, 1865. Carriers Act, 1865 but by the

Law relating to bailment that

Is the Indian Contract Act, 1872.

CARRIAGE OF GOODS BY SEA

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Carriage is frequently the final step in a contract for the sale of goods . The shipper is

often the vendor of the cargo. The ultimate consignee is often the buyer of the cargo. Risk and

title to the goods will often pass during the course of the contract of carriage. There is a

general presumption that title passes when risk passes but this is a rebuttal presumption. The

exact point at which risk and title pass depends on the terms of the contract of sale and the

intention of the parties.

Contract of Affreightment: A contract to carry goods by sea is called the “contract of

affreightment” and the consideration or charges paid for the carriage is called the

“freight”. A contract of affreightment may take either of the two forms, namely—

(i) a charter party, where an entire ship, or a principal part of a ship is placed at the

disposal of merchant known as a charterer); A charter party may be for a particular

period, or for a particular voyage. In the former case it is called a time charter party and in

the latter case, a voyage charter party has no specific form; the form varies from trade to

trade depending on the customs of the trade.

(ii) a bill of lading where the goods are to be carried in a general ship and the person

consigning the goods is known as a shipper.

There are three persons involved in a contract of affreightment. These are:-

1) Ship-owner: A person who is the owner of the ship and undertakes to transport the

goods is called a “ship-owner”. In other words, he is the carrier of the goods.

2) Charterer: A person, who hires the ship and delivers the goods to the ship-owner

for transportation, is called a charterer. In other words, he is the consignor of the

goods and is also known as a shipper.

3) Consignee: - A person to whom the goods are addressed and to whom the ship-

owner should deliver the goods is called a “consignee”.

TYPES OF FREIGHT

1) Lump sum freight: - While freight is normally arranged according to weight,

measurement or value, the shipper may agree to pay a lump sum as freight for the use

of the entire ship or a portion thereof. In this case, the amount of freight payable by

the shipper is fixed and invariable and , if the ship-owner is ready to perform his

contract, is payable whether the shipper uses the hired space to full capacity, or loads

below capacity or does not load at all. Moreover, in the absence of agreement to the

contrary, the whole lump sum freight is payable if only part of the loaded cargo is

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delivered by the ship-owner at the port of destination and the remainder is lost.

However, the ship-owner cannot claim lump sum freight if he is unable to deliver at

least part of the cargo.

2) Pro rata freight: - It is the freight which is payable proportionate to the goods

loaded on the ship or to the use of carrying capacity of the ship. Sometimes, ship-

owner agrees to load the full cargo. But only loads and carries a part of it. In such

cases also, he will be entitled to pro-rata freight only unless there is an express

agreement for the payment of the whole freight.

3) Dead freight: - Where the shipper fails to load the cargo or the full cargo after

arranging with the ship-owner for its carriage, he is in breach of the contract of

carriage and is liable to pay the agreed freight as damages (dead freight). But the ship-

owner, who uses the freight space which would have been taken up by the goods of

the defaulting shipper, and carries therein goods of other shippers, has to deduct the

earned freight when claiming damages.

4) Back freight: - When the delivery of the goods has been prevented by events beyond the

control of ship owner or his master, the master is empowered to take steps in dealing with the

goods. The ship owner then becomes entitled to charge the shipper or the cargo owner back

freight to cover expenses incurred by the shipmaster.

5) Primage: - It is the extra freight which is payable, by an agreement, to the captain of

the ship. It is calculated at a fixed percentage on the ordinary freight. As a matter of

fact, it is a sort of reward to the captain of a ship for taking care of the cargo put on

board the ship. Nowadays, the payment of primage is not a common practice.

THE CARRIER’S ( IMPLIED)RESPONSIBILITIES UNDER A BILL OF

LADING

The common law implies three undertakings by the carrier into a contract of carriage

by sea. These terms may be excluded by express terms in the contract. The common

law differs in these matters from the Hague-Visby Rules. The three terms relate to the

seaworthiness of the vessel, to deviation from route and to delay.

SEAWORTHINESS

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When goods are to be carried by sea the fitness of the vessel which is to do so is

obviously a matter of concern to any person having an interest in the goods. At

common law it is an implied term of the contract of contract that the ship shall be

seaworthy. A ship is not seaworthy if it has a defect which a prudent owner would

have required to be rectified before sending the ship to sea. This requirement is

absolute; the ship must be seaworthy and it is not enough that every effort has been

made to make it so.

The ship must be seaworthy in two respects. It must be fit to sail on the particular

voyage or a particular stage of the voyage and it must be fit to receive the particular

cargo. As regards the ship itself, unseaworthiness can take many forms. It may be a

physical defect, such as inefficient engines but it may also take the form of

incompetence on the part of the crew. In this respect the ship must be seaworthy when

it sails and there is no breach of term if it is so but becomes unseaworthy while on the

voyage.

E.G. The Maori King (Cargo owners) v Hughes13, a ship was held to be unseaworthy

in respect of a cargo of frozen meat because refrigeration equipment was defective. In

this respect the ship must be seaworthy when the cargo is loaded and there is no

breach of the implied term if it becomes unfit for the cargo after the cargo has been

loaded.

The legal effect of a breach of the term will depend on the effect of the breach on the

contract. If the breach results in unseaworthiness which is such as to frustrate the

commercial purpose of the contract of carriage the cargo owner will be entitled to

repudiate the contract. If it is not so serious he must rely on the action for damages.

Under a contract for carriage in a general ship the cargo owner will normally be in the

latter position unless he is the original shipper. Also, if there is a breach of the implied

term, the carrier cannot rely on a clause absolving him from liability for some cause

of loss or damage unless the loss/ damage was actually caused by the

unseaworthiness.

On the other hand, under the Hague-Visby Rules, the carrier is liable before and at

the beginning of the voyage, to exercise due diligence to make the ship seaworthy,

properly man, equip and supply the ship and make the cargo spaces fit and safe for the

reception, carriage and preservation of goods. This is identical with the common law

but in this case, the burden on the carrier is only to exercise due diligence to make the

13 [1895] 2 QB 550, CA

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ship seaworthy. It is not absolute like that in common law. If due diligence has not

been used to make the ship seaworthy the carrier will be liable for any loss or damage

resulting from the unseaworthiness even though the primary cause of the loss of

damage was one for which the carrier would not otherwise be liable under the Rules.

DEVIATION

There is an implied undertaking at common law in any contract for the carriage of

goods by sea that the vessel will at unreasonably deviate for the agreed route or, if

there is no agreed route, form the usual route or, if there is no usual route, from the

direct route. Since the undertaking is implied it can be excluded by an express term in

the contract.

There is no breach of the term if a ship deviates on reasonable grounds as, for

example, to avoid the dangerous weather or to save the life at sea, although deviation

to save property at sea is not a permitted deviation art common law as it is under the

Hague-Visby Rules.14

The importance of the term for the cargo owner lies in the legal effect of a breach of

the term by the carrier. Any voluntary and unjustified deviation is a fundamental

breach of the contract of carriage. In consequence, the cargo owner is entitled to

repudiate the contract and, if he does so, the carrier will lose the benefit of any

immunity in the contract protecting him from liability for loss or damage except those

available to a common carrier and even the common carrier’s defences will only be

open to him if he can prove that the loss or damage would have occurred even if there

had been no deviation.

Example:-Joseph Thorley Ltd. V Orchis Steamship Co15.-A vessel carrying goods

from Cyprus to London deviated, at the beginning of the voyage, to ports of Eastern

Mediterranean. When the vessel arrived at London the cargo was damaged by the

negligence of the stevedores unloading it. When the cargo owner sued in respect of

this damage the carrier pleaded a clause in the contract absolving him from liability

for any such damage. It was held that because the vessel had deviated the cargo owner

was entitled to repudiate the contract of carriage and the carrier was not then entitled

to the benefit of the community unless he should show that the damage by stevedores

14 Rio Tinto Co v Seed Shipping Co (1926) 42 TLR 38115 [1907] 1 KB 660, CA

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in London would have occurred even if the vessel had not deviated in the Eastern

Mediterranean, a demonstration which clearly presented some difficulties.

A cargo owner is not bound to repudiate the contract in these circumstances. He may

waive the breach of the undertaking either expressly or by implication. Any such

waiver will not, however, affect the rights of a subsequent indorsee of a bill of lading

who takes it without knowledge of the deviation.

Under the Hague-Visby Rules any deviation in saving or attempting to save life or

property at sea or any reasonable deviation is not deemed to be an infringement or

breach of the Rules or of the contract of carriage and the carrier is not liable for any

resulting loss or damage. The Hague-Visby Rules are silent as to the legal effect of an

unreasonable deviation on the contract of carriage and the position will therefore be as

at common law.

A deviation, in addition to being a breach of the contract of carriage by sea, may

amount to a breach of a contract of sale by a seller who has agreed, expressly or by

implication, that the goods will be carried on a particular route. The legal effect of

such a breach would, of course, be a matter to be decided under the law on the sale of

goods.

DELAY

At common law there is an implied undertaking by the carrier that the voyage will be

carried on without undue delay. In many cases delay will amount to deviation. The

Hague-Visby Rules are silent on this matter.

DUTIES OF A CARRIER BY SEA

In case of carriage of goods by sea, the carrier is the ship-owner or the charterer who

enters into a contract with the consignor (shipper) for the carriage of goods. The

duties of a carrier by sea are:-

1) Duty to exercise due diligence: - It is the most important duty of a carrier by sea.

The duty requires that the carrier shall be bound, before and at the commencement of

the voyage, to exercise due diligence in respect of the following:-

(a) To make the ship seaworthy

(b)To properly man, equip and supply the ship

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(c) To make the holds, refrigerating and cool chambers, and all other parts of the ship

in which the goods are carried, fit and safe for their reception, carriage and

preservation.

The words “before and at the beginning of the voyage” are important in respect of

the above stated duties. This means the period from at least the beginning of the

loading until the vessel starts on the voyage. If there is failure to exercise due

diligence during that period, the carrier will be held liable for the loss. Thus, where

the ship was seaworthy when the cargo was loaded but was lost in fire before the

beginning of voyage, the carrier was held liable for the loss.

2) Duty to load and handle the goods properly:-It is another duty of the carrier to be

careful in dealing with the goods to be carried on board the ship. This duty requires

that the carrier shall properly and carefully load, handle, stow (i.e. store or fill

properly), carry, keep, care for and discharge the goods carried by him.

THE CARRIER’S IMMUNITIES

Under the Hague-Visby Rules the carrier will not be liable for loss of or damage to

the cargo caused by the events below16. It should however be noted that these

immunities will not avail the carrier if he ahs not exercised due diligence to make the

ship seaworthy and the loss or damage was caused by the unseaworthiness.

(a) Act, neglect or default of the master, mariners, pilot or the servants of the

carrier in the navigation or in the management of the ship. While few problems

have arisen concerning “navigation”, difficulties have arisen on what is meant by

“management of the ship”. It does not include care of the cargo, which is a separate

duty.

(b) Fire, unless caused by actual fault or privity of the carrier.

(c) Perils, dangers and accidents of the sea or other navigable waters. These are

dangers to which the sea transit is particularly prone, such as stranding, storms,

collision and seawater damage. To come within the immunity it must be shown that

the loss or damage was caused by something more than the ordinary action of wind

16 Art. IV (2)

16

and waves. There must be an element of fortuity about the event and it must not be

some occurrence which in the ordinary course of events should have been foreseen

and guarded against.

Also, the carrier may be protected by this immunity even though the peril of the sea

was not the immediate cause of the loss or damage.

(d) Act of God. This is any natural event for which no human agency is responsible

and against which precautions could not reasonably have been taken. Thus, a carrier

could not plead Act of God when a ship went aground in a fog, since human agency

was necessary to steer the ship on the shoal.17

(e) Act of war. This is any direct hostile act resulting from war. War probably

includes civil war and does not necessarily involve an official declaration of war.

(f) Public enemies. The nature of these is unclear, though most authorities instance

pirates.

(g) Arrest or restraint of princes, rulers or people or seizure under legal process.

The phrase “princes, rulers or people” in effect means “established governments” and

the immunity covers cases of government action such as embargoes, import bans,

quarantine restrictions and the like.

(h) Quarantine restrictions. In view of the preceding immunity there appears to be no

reason for the appearance of this as a separate immunity as far as English law is

concerned.

(i)Act or omission of the shipper or owner of the goods, his agent or representative

(j) Strikes or lockouts or stoppages or restraints of labour whatever cause whether

partial or general.

17 Liver Alkali Co v Johnson (1872) LR 7 Exch 267

17

(k) Riots or civil commotions. A civil commotion has been said to be an intermediate

stage between a riot and a civil war.18

(l) Saving or attempting to save life or property at sea.

(m) Wastage in bulk or weight or any other loss or damage arising from an

inherent defect, quality or vice of the goods. This exception, which in the common

law is known as “inherent vice”, covers any loss occurring through some natural

defect or quality in the goods themselves, as, for example, acid in the fertilizers

eventually rotting the bags in which they were packed.”

The immunity will naturally not avail the carrier if the damage, though arising from

the nature of the goods, was caused by bad stowage.

(n) Insufficiency or inadequacy of marks

(o)Insuffiency of packing. This immunity, like the previous one, will not apply where

there has been bad stowage.

(p) Latent defects not discoverable by due diligence

(q) Any other cause arising without the actual fault or privity of the carrier or

without the fault or neglect of the agents or servants of the carrier…….The carrier

will be able to claim the benefit of this immunity only to the extent that he can prove

the absence of fault, privity or neglect.

BILL OF LADING

The term “bill of lading” may be defined as a document acknowledging the shipment

of the goods, and containing the terms and conditions upon which the goods are to be

transported by the ship. It is signed by the ship-owner or his authorized agent or by

the master of the ship. It should also be stamped.

However, it must be observed that all countries do not follow the same form of

legislation globally. The broad categories may be stated as follows:

18 Bolivia Republic v Indemnity Mutual Marine Assurance Co Ltd [1909] 1 KB 785, CA

18

i. The Hague Rules.

ii. The Hague/Visby amendments.

iii. The Hamburg Code.

iv. Hybrid systems based on the Hague/Visby and Hamburg regimes

FUNCTIONS OF THE BILL OF LADING 19

1. Bill of Lading as a Receipt: - The bill of lading will acknowledge the quantity

of goods put on board, their description and their condition. The bill of lading

form will usually be completed by the shipper or his forwarding agent and sent to

the carrier. As the goods are loaded they will be checked by tally clerks and if the

particulars are found to be correct the bill of lading will be signed for the carrier

by his agent, the loading broker. However, the evidentiary value of the bills in all

these cases is not the same in all case and it depends upon the circumstances of the

case such as whether the bill falls within the Carriage of Goods by Sea Act 1971

or not.

Bill Of Lading Falling Within The Carriage Of Goods By Sea Act 1971

Under Article III (3) of this Act, the carrier has to include the leading marks, the

number of packages or pieces or the quantity or weight of the goods and the

apparent order and condition of the goods on the bill of lading. The statements

made on the bill of lading are regarded as prima facie evidence of the receipt of

the goods as described under III(4).

Bill Of Lading Not Falling Within The Carriage Of Goods By Sea Act 1971

Statements as to quantity:

According to Common Law, a statement specifying quantity received is a prima facie

evidence of the quantity shipped. The burden of proof lies on the carrier to prove that

the cargo as specified has not been shipped. This burden is an absolute one.

In the case of Smith v/s. Bedouin Steam Navigation Co [1896], the bill of lading

stated that 1,000 bales of jute had been shipped, whereas only 988 bales were

delivered. It was held that the carrier could successfully discharge the burden of proof

19 http://www.essexcourt.net/uploads/publication/BILLOFLD.doc

19

only if he could show that the goods were not shipped, not merely that the goods may

not possibly have been shipped.

There may be endorsements on the bill of lading with statements such as weight and

quantity unknown and the courts recognize these, since information on quantity

entered on a bill of lading is based on statements made by the shipper and which does

the carrier not normally verify. However, when the statements is contained as ‘

quantity unknown’ alongside the gross weight entered by the shippers for the

purposes of Section 4 the weight entered is not a representation that the quantity was

shipped.

Example: A bill of lading which states that 11,000 tones of cargo were shipped ‘

quantity unknown’ means that the quantity is unknown and not that that amount of

cargo was actually shipped, this would be the meaning construed by the Courts.

According to the Hague/Visby Rules, the shipper can demand the carrier issue a bill

of lading showing ‘either the number of packages or pieces, or the quantity, weight

etc as furnished in writing by the shipper’. Accordingly, the carrier may use any of

these three methods of quantifying cargo. However, he cannot acknowledge one kind

and disclaim knowledge of others.

In the case of Oricon v/s Integraan (1967), the bills of lading acknowledged the

receipt of 2,000 packages of copra cake said to weigh gross 1,05,000 Kgs for the

purposes of calculating freight only. It was held that while each of the bills of lading

being Hague Rules of bills of lading, acknowledged the number of packages shipped

as a prima facie evidence.

Regarding the evidentiary bill of lading is concerned; the Hague/Visby Rules serve as

prima facie evidence of the amount of cargo shipped.

Statements as to condition: Bill of lading usually contains the printed words,

“Shipped in good order and condition.” At common law, in the hands of the shipper,

this statement is not even prima facie evidence of the condition of the goods when

shipped. It amounts merely to evidence of the condition and if the goods arrive

damaged the onus remains with the shipper to show that the goods were shipped in In

Compania Naviera Vasconzada V Churchill and Sim 20 timber was stained with oil

20 [1906] 1 Lloyds Rep 642

20

when shipped but a “clean” bill of lading was nonetheless issued to the shipper who

indorsed it to a third party. The indorsee sued the carrier in respect of the damage.

The carrier was estopped, by the statement in the bill of lading, from denying that the

timber was in good condition when loaded and was thus liable to the indorsee for the

damage.

On the other hand, in Canadian and Dominion Sugar Co Ltd v Canadian National

(West Indies) 21Steamships the bill of lading contained the phrase “signed under

guarantee to produce ship’s clean receipt”, thus clearly incorporating the receipt terms

into the bill of lading. The receipt stated, “Many bags stained, torn and re-sewn.” The

bill of lading statement thus qualified did not estop the carrier from proving the

condition of the timber when shipped.

Statements as to leading marks: Leading marks are the distinguishing marks, code

marks, symbols etc. placed on the goods or their containers by the shipper. Where the

Hague-Visby Rules apply, the carrier can refuse to enter them on the bill of lading

unless they are such as should ordinarily remain legible until the end of the voyage.

At Common law the carrier is entitled to show that goods shipped were marked

otherwise than as noted I the bill of lading as long as the marks in question are not

material to the description of the goods.

In Parsons V New Zealand Shipping Co.22 some carcasses of frozen lamb were found

on arrival to bear marks different from those in the bill of lading. The marks in

question only reflected details in the shipper’s storage system and were not related to

the quality or description of the carcasses. The carrier was thus entitled to prove that

the carcasses delivered were the ones actually loaded. It appears, however, that the

carrier is not bound by any statement as to the marks that indicate quality, on the

grounds that he is not a judge of quality.

THE BILL OF LADING AS A DOCUMENT OF TITLE

A document of title is one which the law recognizes as representing the goods so that

the transfer of the document to a party will vest in that party the ownership or

possession of the goods to which the document relates, provided that this transfer of

rights was intended by the parties. Some documents of title are so by virtue of the

21 [1947] AC 46, PC22 [1901] 1 KB 548, CA

21

common law’s recognition or mercantile usage while others have been made so by

statute. The ability to transfer property rights in goods by the transfer of a document is

the keystone of international trade practice.

The bill of lading has long been recognized by the courts, following mercantile usage,

as having this quality. In E Clemens Co V Bidell Bros23, the buyer under a CIF

contract was offered a bill of lading but refused to pay until the goods themselves

were delivered. It was held that since possession of the bill of lading amounted in law

to the possession of the goods the seller was entitled to perform his part of the

contract by handing over the document.

BILL OF LADING AS A NEGOTIABLE INSTRUMENT

A bill of lading is a document of title of the goods mentioned in it i.e. it is a symbol

of the ownership of the goods. Thus, the consignee named in a bill of lading is the

owner of the goods mentioned in it, and cans ell them while they are still in sea i.e. in

transit. The goods can be sold by the consignee by transferring the bill of lading to the

purchaser. For the purpose of transferring, the bill of lading may be classified into two

types:-

1) Order bill of lading: - In this case, the goods shipped under a bill of lading are

made deliverable to “a particular person” or to “his order.”

2) Bearer bill of lading:-In this case, the goods shipped under a bill of lading are

made deliverable to a “name left blank” or to “a bearer”.

An order bill of lading can be validly transferred by making an indorsement in favour

of the transferee, and then delivering the same to him. And a bearer bill of lading can

validly be transferred by its mere delivery to the transferee. When the bill of lading is

validly transferred, the transferee becomes entitled to the goods mentioned in the bill

of lading. This characteristic of a bill of lading resembles that of a negotiable

instrument. On account of this similarity between the two kinds of instruments, a bill

of lading is generally described as “quasi negotiable” or “as good as negotiable”. It

may be noted that a bill of lading is negotiable only in the sense that it is transferable.

Thus, in the strict legal sense of the term, a bill of lading is not a negotiable

instrument.

The points of difference between a negotiable instrument and a bill of lading:-

23 [1912] AC 18, HL

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1) A negotiable instrument is a contract to pay money, and entitles its holder to

receive the money due on it. On the other hand, a bill of lading is not a contract to pay

money. It entitles its holder to obtain the goods covered by it i.e. mentioned in it.

2) In case of a negotiable instrument, a transferee who gets in good faith and for value

(e.g. a holder in due course) gets a better title than that of the transferor. But, the

transferee of a bill of lading does not get a better title than that of the transferor e.g. if

he acquires it bonafide and for value i.e. the transferee of the bill of lading gets it

subject to any defect in the title of the transferor.

Statement of Principles as per The (Indian) Bills of Lading Act, 1856 .

The standard short form bill of lading is a part of the contract of carriage of goods and it

serves a number of purposes:

it is evidence that a valid contract of carriage exists and it incorporates the full terms of

the contract between the consignor and the carrier by reference (i.e. the short form simply

refers to the main contract as an existing document, whereas the long form of a bill of

lading (connaissement intégral) issued by the carrier sets out all the terms of the contract

of carriage);

it is a receipt signed by the carrier confirming whether goods matching the contract

description have been received in good condition (a bill will be described as clean if the

goods have been received on board in apparent good condition and stowed ready for

transport); and

it is also a document of transfer, but not a negotiable instrument, i.e. it governs all the

legal aspects of physical carriage but, unlike a cheque or other negotiable instrument, it

does not affect ownership of the goods actually being carried. This matches everyday

experience in that the contract a person might make with a commercial carrier like FedEx

is separate from any contract for the sale of the goods to be carried.

KINDS OF A BILL OF LADING

A bill of lading is of the following types:-

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1) Clean bill of lading: - It is a bill of lading which acknowledges the receipt of the

goods in their perfect condition. The perfect condition of the goods is indicated by

using certain words in the bill of lading such as “shipped in good order and condition.

As a matter of fact, a bill of lading begins with these words, and the ship-owner may

cancel these words if the goods are not in a perfect condition. It may be noted that in

case of a clean bill of lading, the ship-owner is bound to deliver the goods in the same

condition in which they were at the time of loading, excepting the ordinary

depreciation of voyage. In this case, the ship-owner cannot take the defence that the

gods were not in a good order and condition when they were loaded on the ship.

2) Qualified bill of lading: - It is a bill of lading which does not acknowledges the

receipt of goods in the perfect condition. The use of certain words such as “goods

shipped in a damp condition: or “weight, value and contents unknown”: indicate that

the goods are not in a perfect condition. If the goods are not in a perfect condition, the

ship-owner may retain these words, and cancel the opening words reading as “shipped

in good order and condition”. In this case, the ship-owner qualifies his liability and is

not bound to deliver the goods in the perfect condition.

3) Through bill of lading: - It is a bill of lading which is issued by a ship-owner for

the transportation of goods partly in his own ship, and partly in the ship of another

ship-owner for an inclusive freight. Sometimes the goods are to be carried partly by

sea and partly by land, and the ship-owner has charged for both the carriages i.e. by

sea and land. In such cases also, the bill of lading issued by the ship-owner is a

through bill of lading. It may be noted that in such cases, in the absence of any

contrary provision, a contract is considered to be made with the ship-owner who

issues the bill of lading , and he would be liable for the loss occurring on any part of

the journey.

4) Received for shipment bill of lading: - It is a bill of lading which states that the

goods have been received for shipment. It may be noted that it is not a “proper bill of

lading”. It operates only as a receipt of the goods received for shipment. A proper bill

of lading, also called the “shipped bill of lading” is issued only after the goods are

loaded on the ship. If a “received bill of lading” is held by the charterer, he must after

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the loading of the goods, surrender it to the ship-owner and obtain from him the

“shipped bill of lading”.

OTHER DOCUMENTS (RELATED TO CARRIAGE BY SEA)

Mate’s receipt: - It is a temporary receipt given by the person incharge of the ship as

an acknowledgement that the goods have been received on board the ship. After the

bill of lading is prepared, this receipt is handed over to the master in exchange for the

bill of lading. It may be noted that a mate’s receipts is not a document of title. It

simply entitles the holder to receive the bill of lading from the master of the ship.

Sea way- bill: - A sea way bill is a receipt for goods carried by sea but differs from a

bill of lading in that it is not a document of title. It contains or evidences an

undertaking by the carrier to the shipper to deliver the goods to an identical person.

The shipper may, at any time before the delivery of the goods, change the identity of

the person to whom delivery is to be made. The consignee obtains delivery not by

presenting the way-bill, which remains in the hands of the shipper, but by production

of acceptable evidence of his identity as consignee.

The sea way-bill cannot be used as a security. Its chief advantage lies in the fact that it

does not have to be transmitted to the consignee to enable him to obtain the goods.

Delivery orders:-An exporter, who ships the bulk cargo and receives one bill of lading

in respect of it, or an indorsee of this bill of lading, may afterwards, while the goods

are in transit, sell various unascertained portions of the cargo to different buyers. He

clearly cannot transfer the bill of lading to all the buyers and must find some other

way to satisfy each buyer’s demand for some document evidencing his right to the

goods he has bought which will enable him to collect or resell them. In such cases a

delivery order may be used, “delivery order” is not a precise term and the legal status

and effect of such a document will depend on its nature and the circumstances in

which it is issued.

A delivery order is not a document of title unless proved to be so by reason of

mercantile custom.

CLAUSES OF A BILL OF LADING

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A bill of lading issued in case of a general ship contains the clauses in respect of

terms of the contract of affreightment. These are generally the same as contained in a

“charter party”. The clauses of a bill of lading should state the following particulars:-

1) Name of the parties

2) Name of the ship

3) Port of loading

4) Port of destination

5) Name of the consignee

6) Marks for the identification of the goods such as number of package

7) Statement regarding the condition of the goods and their quantity or quality or

weight

8) Other terms and conditions of contract of affreightment such as amount of freight,

expected perils etc

COMPARISON BETWEEN A CHARTER PARTY AND A BILL OF LADING

Charter party Bill of lading

1) It is a document by which the charterer It is not the document by which the

enters into a contract with the ship-owner ship is in contract with the

charterer.It

for the hire of the whole or substantial part acknowledges the receipt of goods

by

of the ship. the ship-owner for carriage.

2) It always contains all the terms and It may or may not contain all such

conditions of the contract mutually terms and conditions.

agreed between the ship-owner and

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charterer.

3) It is the governing document between It is an acknowledgement of the

the ship-owner and charterer. It does not receipt of the goods loaded on the

acknowledge the receipt of the goods. ship.

4) It is not a document of title to the It is a document of title to the

goods

goods. mentioned in it.

5) It does not possess any characteristic It possesses some of the

of a negotiable instrument. And thus, it characteristics of a negotiable

cannot be transferred to a third person. instrument. However, it is not

negotiable in the legal sense of

the term.

6) It may be for a particular voyage or It is always for a particular

for a particular period of time. destination.

7) It requires a stamp of higher amount. It requires a stamp of less

amount

as compared to a charter party.

8) It may amount to lease of the ship to It can never amount to lease of

the

the charterer. ship to the charterer.

AN ELECTRONIC BILL OF LADING 24

Bills of lading have always been issued as paper documents. However, the

replacement of a paper bill of lading with an electronic bill of lading seems a sensible

step forward in the new electronic commerce world. A major problem facing an

electronic bill of lading is the negotiability of such documents of title. A document of

title relies upon the transferability of the document by physical possession. An

electronic bill of lading cannot be handled in physical possession with the result that it

cannot be produced on delivery, nor endorsed to a new holder. Therefore, this inhibits

the capability of it representing a document of title.

24 Journal of Information, Law and Technology, 2001

27

Various ways around this problem have been sought. In 1985, a “bill of lading

registry” was suggested by the Chase Manhattan bank and INTERTANKO, which

was established Sea Dock Registry Ltd. Unfortunately this survived only six months.

The idea of a registry was further developed by the CMI Uniform Rules for Electronic

Bills of Lading adopted in 1990. Also, established in 1996, the UNICTRAL Model

Law on Electronic Commerce aims to solve many of the problems affecting the legal

effect of electronic documents.

The registry system is designed to be a depository for documents, while the rights to

the goods are transferred by the communicating of authenticated messages between

the registry and the parties who have an interest in the goods. The registry facilitates

the transfer of title from one party to another, canceling the first party’s title at the

moment the title is transferred to the new holder. The newest project in this area is

called “BOLERO”, whose name stands for Bill of Lading Electronic Registry

Organization. BOLERO is an internet-based system and therefore, relatively

inexpensive. BOLERO builds on the CMI Rules but has established a central registry

as the secure third party. BOLERO has set up an electronic registry for bills of lading

called “the title registry”. The registry is a database application. It creates and

transfers the rights and obligations relating to an electronic bill of lading. The title

registry deals with any change of interest in the goods.

Where the BOLERO system is used, the carrier creates a BOLERO bill of lading,

sends the instructions to the title registry and the shipper is logged as holder of the

BOLERO bill. If the holder of the bill wishes to transfer his constructive possession to

the bill to another, he can make the transfer by attornment. Attornment occurs when

the holder sends instructions to the registry that name the new holder. Once these

instructions are received the registry sends a message confirming the new holder. The

cargo is delivered to the last holder of the bill by the registry giving up the BOLERO

bill to the carrier.

BOLERO incorporates security for all transactions. Digital signatures of relevant

parties are used and all messages are secure from unauthorized access. In the UK the

Electronic Communications Act 2000 regulates the provision of electronic signatures,

encryption technology and reliance on third parties such as BOLERO. However,

service providers must have a connection with the jurisdiction, i.e. the service must be

provided from premises in the UK or to persons carrying on a business in the UK.

This Act, therefore, does not support electronic commerce.

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The EU Electronic Directive deals with the certain legal aspects of information

society services. The liability of BOLERO or other similar information society service

providers is generally set out in Rule 4 of the Directive. The Article provides for the

conclusion of contracts electronically, although there is no provision for sanctioning

the recognition of a contract made and evidenced by an electronic instrument.

The UNICTRAL Model Law on Electronic Commerce (as amended 1998) was

created because of the inadequate legislation which existed in relation to international

trade and electronic commerce. It covers the main legal issues like requirements for

writing, signature, admissibility and probative value and actions related to contracts of

carriage of goods. Its provisions have generally found their way into national laws and

the UK Electronic Communications Act 2000 is consistent with the provisions of the

UNICTRAL Model Law.

The International Chamber of Commerce also launched an e-business tool that

provides secure online contracting based on ICC’s model international sale contract. It

enables the speed and convenience of dealing over the web. Thus, with the e-

commerce era moving ahead, the electronic bill of lading is also gaining ground.

INCOTERMS 25 i.e. INTERNATIONAL COMMERCIAL TERMS USED

FREQUENTLY IN THE COURSE OF CARRIAGE OF GOODS

There are a number of special trade terms ,such as INCOTERMS 2000 ,open to traders to

apply to their contract of sale .These have been laid down by the relevant trade

association ,such as the International Chamber of Commerce .They are often referred to

during the course of drafting the Bill Of Lading during the carriage of goods by sea.

1. EXW (Ex Works)

The buyer bears all costs and risks involved in taking the goods from the seller's premises to

the desired destination. The seller's obligation is to make the goods available at his premises

(works, factory, warehouse). This term represents minimum obligation for the seller. This

term can be used across all modes of transport.

25 INCOTERMS 1990, ICC Publication No. 460(ICC, Paris, 1990)

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2.FCA (Free Carrier)

The seller's obligation is to hand over the goods, cleared for export, into the charge of the

carrier named by the buyer at the named place or point. If no precise point is indicated by the

buyer, the seller may choose within the place or range stipulated where the carrier shall take

the goods into his charge. When the seller's assistance is required in making the contract

with the carrier the seller may act at the buyers risk and expense. This term can be used across

all modes of transport.

3.CPT (Carriage paid to.)

The seller pays the freight for the carriage of goods to the named destination. The risk of loss

or damage to the goods occurring after the delivery has been made to the carrier is transferred

from the seller to the buyer. This term requires the seller to clear the goods for export and can

be used across all modes of transport.

4.CIP (Carriage and insurance paid to.)

The seller has the same obligations as under CPT but has the responsibility of obtaining

insurance against the buyer's risk of loss or damage of goods during the carriage. The seller is

required to clear the goods for export however is only required to obtain insurance on

minimum coverage. This term requires the seller to clear the goods for export and can be used

across all modes of transport

5.FOB (Free on Board)

Once the goods have passed over the ship's rail at the port of export the buyer is responsible

for all costs and risks of loss or damage to the goods from that point. The seller is required to

clear the goods for export. This term should only be used for sea or inland waterway

transport.

6.CFR (Cost and Freight)

The seller must pay the costs and freight required in bringing the goods to the named port of

destination. The risk of loss or damage is transferred from seller to buyer when the goods pass

over the ship's rail in the port of shipment. The seller is required to clear the goods for export.

This term should only be used for sea or inland waterway transport.

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7.CIF (Cost, Insurance and Freight)

The seller has the same obligations as under CFR however he is also required to provide

insurance against the buyer's risk of loss or damage to the goods during transit. The seller is

required to clear the goods for export. This term should only be used for sea or inland

waterway transport.

8.DES (Delivered Ex Ship)

The seller has fulfilled his obligation to deliver when the goods are available to the buyer on

board the ship uncleared for import at the main port of destination. The seller is responsible

for all costs and risk of loss or damage in bringing the goods to the named port of destination.

This term should only be used for sea or inland waterway transport.

9.DEQ (Delivered Ex Quay)

The seller has fulfilled his obligation to deliver when the goods are available to the buyer on

the quay (wharf) at the named port of destination, cleared for importation. The seller is

responsible for all risks and costs including duties, taxes in making available the goods at the

port of destination. This term should only be used for sea or inland waterway transport.

Thus an INCO Term must be accompanied by a "named place" ex. "FOB Sydney", "EXW

Tahiti"

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BIBLIOGRAPHY

Books

1. Day and Griffin: The Law of International Trade, 2nd Edition

2. Incoterms in Practice, International Chamber of Commerce, (ed. and contributor of

a chapter on Incoterms and the Contract of Carriage), 1995

3.

Websites

1. http://westlaw.com

2. http://www.

3. htt

4. http:// www.findarticles.com

5. http://hinduonnet.com

6. http://www.legalserviceindia.com

7. http://www.helplinelaw.com

8. http://www.jstor.org

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