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Shane Sankaranarayana Maritime Business & Law Class II Page 1 Revised : 25/05/2013 Authorized by; HOD Navigation

Business and law

Class II


Contents

Contract law 03

Bills of lading 08

International rules related to bills of lading 18

Letter of indemnity 21

Hague Visby rules 28

Chartering of ships 36

Deviation 47

Charter party clauses 50

Lay time calculations 58

Liens 68

Salvage 73

Losses (Marine Insurance) 83

Marine insurance 91

Hull & machinery insurance 99

Cargo insurance 105

P & I Clubs 111

Port of refuge 113

Letter of protest 120

Note of protest 123

Wrecks 127


Contract Law

Introduction to contracts

A contract is an agreement made between two or more parties. This may be a verbal

agreement or may be a documented agreement or may be an agreement made through internet.

Usually, this is a promise made by one party to another party to carry out certain things for the

benefit of both the parties. It could be money for goods or money for services or goods for goods

or goods for services etc. This can be explained with a simple example as below;

Example

When a person (say, Mr. X) is buying a pen from a shop, Mr. X is making a contract with the

seller. The seller is benefited because he can sell his products and Mr. X is benefited because he

gets his pen.

Basically, a contract is an agreement giving rise to obligations which are enforced or

recognised by law. If any one of the parties could not fulfil the promises made after the contract

is made, the party which received damages may be able to claim for his damages through the

law. The law of formation of contracts and the laws of remedies for the breaches are different

from country to country. During this course we will be discussing only about the English Law.

Examples of contracts

Non-maritime contracts

Civil construction contracts

Sale contracts

Travelling contracts

Insurance policies

Job contracts

Maritime contracts

Bills of lading

Charter parties

Salvage

Crew agreements

Marine insurance policies


The contents of contracts

Mainly, there are two types of terms, i.e. expressed terms and implied terms. Expressed

terms mean, the conditions which are expressly agreed between the parties. It may be agreed

verbally or in writing.

A contract may contain terms which are not expressly stated but which are implied, either

because the parties intended this, or by operation of law, or by custom or usage.

As an example, if you call a building constructor to build a house for you, the conditions

such as date of commencement, date of completion, the plan of the house etc. are agreed

expressly. But, terms such as the type of material to be used, the competency of the workers may

be implied.

Conditions for a valid contract

In the formation of a contract there are three elements to be satisfied, i.e.

Offer

Acceptance

Consideration

If any one of the above elements are not been fulfilled, there is no a contract. Remember,

to create a contract, all three elements must be fulfilled. These elements are generally used

while making contracts through words or documents. To get the whole concept of contract, one must have a clear idea about the above three elements. Now, we shall discuss about these

elements separately.

1. Offer

During a contract, one party must offer something to a second party. This offer is known

as the offer in the law of contract. The party offering is known as the Offeror and the party receiving offer is called as the Offeree. This offer could be money for goods, money for service or service for goods.

Example

Mr. X comes across with a nice pen in a shop window while walking on the pavement. He

decides to buy it. He bargains about the price with the seller and offer is created when Mr. X is

paying money for the pen.

Displays in shops, paper advertisements, televisions commercials and radio

commercials are considered as invitations to treat, but, not offers. These invitations are open for the general public by the seller inviting them to make contracts.


In the above example, if the price of the pen is written as 100 US$ at the shop window and Mr. X

offers 90 US$, at this moment, if the seller refuses, there is no contract. The seller can make a

counter offer, the pen for 95 US$. If Mr. X agrees, then, the contract is made. At this moment the

contract is made not for the initial offer but for the counter offer.

An offer may be terminated by following conditions;

Counter offer

Revocation

Death of offeror or offeree

Lapse of time

2. Acceptance

This has the normal meaning of acceptance according to English. Once accepted after an

offer, a binding contract is formed. Following items must be carried out to fulfil this element.

The acceptance must be informed to the offeror.

The terms of acceptance must be same as the terms of the offer.

The agreement must be clearly understandable.

Silence is not considered as an acceptance. The acceptance must be communicated to the

offeror by any means, such as, e-mail, post, fax, verbally etc. If not communicated, there is no a

binding contract. If the terms of the acceptance are different from the terms of the initial offer, it

becomes a counter offer which leads to another new contract. No contract is made until both are

the same. Finally, a reasonable person should be able to understand what the parties have agreed

exactly. If it is not, it may be considered as mistakes or misrepresentations. No valid contracts

are made under such conditions.

3. Consideration

For a consumer contract to be legally binding, as well as offer and acceptance, there must

also be consideration or a price. Consideration means that both parties must do something or

promise to do something which they intend to be legally binding. In contracts for goods or

services, this usually means that one party promises to pay a price and the other party promises

to supply goods or services. Consideration must be something that can be valued in the face

of law. It can be money or goods or services.

How to discharge a contract

Discharging a contract means coming to an end of the contract. After the discharge of the

contract, all the parties are relieved from their obligations. A contract may be discharged in one

of the following ways;


1. by performance 2. by agreement 3. by frustration 4. by operation of law 5. by breach

Discharge by performance

When all the parties have successfully carried out their duties and obligations according

to the contract, it is known as a contract discharged by performance.

Discharge by agreement

The parties themselves can agree to end the contract, form a new contract or vary the

original one. When the parties have agreed to end the contract, the original contract will be

cancelled and if the parties have form a new contract or vary the original one, the original

contract will be superseded by the amended one.

Discharge by frustration

A contract will become frustrated when the contractual obligations cannot be carried

out without the fault of any of the parties involved. Therefore, when a contract is frustrated, none

of the parties involved are responsible for each other. The losses occurred up to the time of

frustration has to be borne by them.

Discharge by breach of contract

Where one of the parties fails to perform their side of the contract the innocent party may

be able to terminate the contract and commence proceedings for damages (or other appropriate

remedy).

The effect of termination is to release both parties from future obligations, but not those

that have already been incurred (e.g. the obligation to pay for goods received or work done); or

that are intended to continue after the contract has come to an end (e.g. restraint of trade clauses

in employment contracts).

Not all breaches entitle the innocent party to terminate the contract. It is only breaches of

conditions (or essential terms) or fundamental breaches (of innominate terms) that allow for

termination. Breaches of warranties (or minor terms) do not allow for termination, however, the

innocent party is entitled to sue for damages.


Discharge by operation of law

A contract may be discharged independently of the wishes of the parties, i.e., by operation

of law. This includes discharge;

a) by death (in the case of contracts for Personal service) b) by insolvency c) by unauthorized alteration of the terms of a written agreement d) lapse of time


Bill of Lading

There are few important weaknesses involved in an international sale of goods. First, the

seller does not know the financial situation of the buyer because both of them are in two different

states. Therefore, the seller has to take a risk in selling goods to an unknown buyer. This can be

avoided by an advance payment to the seller by the buyer. But, in doing so, the buyer has to take

a risk for the quantity and condition of the cargo shipped. This can be completely avoided by

using a letter of credit.

Letter of credit means a letter from a bank guaranteeing that a buyer's payment to a seller

will be received on time and for the correct amount. In the event that the buyer is unable to make

payment on the purchase, the bank will be required to cover the full or remaining amount of the

purchase.

Letters of credit are often used in international transactions to ensure that payment will

be received. Due to the nature of international dealings including factors such as distance,

differing laws in each country and difficulty in knowing each party personally, the use of letters

of credit has become a very important aspect of international trade. The bank also acts on behalf

of the buyer (holder of letter of credit) by ensuring that the supplier will not be paid until the

bank receives a confirmation that the goods have been shipped.


Secondly, the buyer is not present at the loading port to inspect the cargo. Even the

potential buyers cannot inspect the cargo for the condition and quantity while in transport.

Therefore, the buyers are also taking a risk during international sale of goods.

Finally, the cross boarder transport via sea is time consuming than other transport modes.

This delay in sea transport is used for the benefit of the commercial world by making it possible

to sell the goods while they are onboard. But, while the cargo is at sea, it cannot be physically

transferred to future buyers.

The above problems can be avoided by use of a bill of lading. Because a bill of lading

represents the true quantity and apparent condition of the cargo and also, having the possession

of a bill of lading is considered as having the ownership of the cargo which it represents. A bill

of lading has three elements;

1) It is a receipt for the goods loaded,

2) It is an evidence of contract of carriage,

3) It is a document of title

Now, we shall consider about the above three elements in detail.

1) Bill of lading as a receipt

This is issued by or on behalf of the carrier when the cargo is loaded onboard, describing

the quantity and the condition of the cargo. Bill of lading does not represent the quality of the

cargo loaded. At the time of loading, the liability of the cargo passes from the shipper to the

carrier. Therefore, the carrier should ensure that the bill of lading correctly represents the

condition and the quantity of the goods loaded. If not, even though the goods were loaded in

damage condition or in a lesser amount, the carrier will be liable for the under carriage or for the

damage amount of cargo. Since the bill of lading is transferable, the ultimate buyers do not have

any idea of the actual quantity and the condition of the cargo and they are totally relaying on the

condition and the quantity of the cargo as described on the bill of lading.

When a claim is brought against a carrier related to less carriage of cargo or cargo damage,

if he can prove that the damage was occurred before the cargo was loaded onboard or the actual

amount of cargo loaded is less than the described amount on the bill of lading, he may avoid the

liability. A bill of lading is a prima facie evidence on the hands of a shipper (Hague/Visby rules,

Article III, regulation 4). i.e., if a claim is brought by the shipper, the carrier can produce the

mates receipts, tally sheets, load port figures etc., to prove his innocence. But, a bill of lading

becomes the conclusive evidence for the quantity and the condition of the cargo, if a claim is

brought by a third party acting in good faith (Hague/Visby rules, Article III, regulation 4). i.e.,

the carrier may not be allowed to use mates receipts, tally sheets, load port figures etc., to defend


himself. Once the bill of lading is transferred to a third party acting on good faith, the bill of

lading becomes the one and only evidence which represents the quantity and condition of the

cargo. Therefore, a ship Master should be very care full in signing a bill of lading.

According to Article III regulation 3 of Hague and Hague/Visby rules the following shall

be included in a bill of lading;

3. After receiving the goods into his charge the carrier or the master or agent of the carrier shall, on demand of the shipper, issue to the shipper a bill of lading showing among other things:

(a) The leading marks necessary for identification of the goods as the same are furnished in writing by the shipper before the loading of such goods starts, provided such marks are

stamped or otherwise shown clearly upon the goods if uncovered, or on the cases or

coverings in which such goods are contained, in such a manner as should ordinarily

remain legible until the end of the voyage.

(b) Either the number of packages or pieces, or the quantity, or weight, as the case may be, as furnished in writing by the shipper.

(c) The apparent order and condition of the goods.

Provided that no carrier, master or agent of the carrier shall be bound to state or show in the

bill of lading any marks, number, quantity or weight which he has reasonable ground for

suspecting not accurately to represent the goods actually received, or which he has had no

reasonable means of checking..

Practically, a bill of lading is filled by the shipper himself. Depending upon the agreement

between the shipowner/carrier and the shipper/charterer, it will be signed by the master or by the

charterer on behalf of the master or by the charterer himself. When signing a bill of lading,

master should consider about the following;

a) Date of the bill of lading

The date should be the date of completed loading. When multiple cargoes are loaded,

which belong to multiple shippers separate bills of lading will be issued for each set of cargo.

The master must ensure that the respective bill of lading is dated as per the completed

loading dates of the respective cargoes. This should tally with the mates receipt.

b) Number/quantity/weight of the cargo

If the master has reasonable grounds to believe that the figures entered on the bill are

wrong he is not bound to sign the bill of lading. The master has an obligation to check the


number or quantity or the weight of the cargo loaded to his ship by means of checking

draughts, physical counting and checking against mates receipt. If there is a difference

between the ships figures and shippers figures, a master has following options;

Refuse to sign the bill of lading.

Convince the shipper to include the ships figures on the bill of lading.

Include a clause such as weight/quantity unknown or shippers

weight/quantity or said to be or STC (Said To Contain). If he states

weight/quantity unknown, he is not guaranteeing the figures included on the bill of

lading. The claimant should produce other evidences such as load port figures etc., to

prove his claim. Clauses such as said to be or STC are not clear yet in the face of

law. Therefore, weight/quantity unknown clause may safe guard the shipowner than

the other two clauses. But, it depends upon the jurisdiction where the claim is

brought.

To sign the bill of lading against a letter of indemnity. This is discussed in detail later.

Before clausing a bill of lading a master must check the charterparty agreement. Some

charterparties prohibits clausing of bill of lading as it may affect the re-saleability of the cargo.

Clausing a bill of lading means inserting amendments to it by the master (example changes to

the weight & quantity of the cargo, changes to the apparent order and condition of the cargo). A

bill of lading which is not claused is called as a clean bill of lading. Inclusion of statements such

as weight/quantity unknown, shippers weight/quantity, said to be, STC are not considered as

clausing a bill of lading. i.e. even when the bill of lading is endorsed with such statements in is

considered as a clean bill of lading.

c) Apparent order and condition of the cargo

This is the condition of the cargo which is apparent (visible) to the Master, but, not the

quality. The question of whether the cargo is in apparent good order and condition is affected

by the description of the cargo. (e.g. cargo described as contaminated product can still be

described as being in apparent good order and condition where as cargo described simply as

product could not be so described if the product was visibly damaged). If Master issues a clean

bill for already damaged cargo, the carrier is liable for the damage. Apparent good order and

condition is a very common standard term which is included on a bill of lading if the cargo is in

good condition. If the cargo is not in apparent order and condition, a Master has following

options;

Refuse to sign.

He can describe the true condition of the cargo. That description must be accurate and

proportionate. If it is not, then the carrier will be liable. If any statement other than


the apparent good order and condition is included on the bill of lading, it is

not a clean bill of lading.

Sign the bills of lading as requested and demand an indemnity if a claim is made.

This will be discussed later.

2) Bills of lading as an evidence of contract of carriage

Bill of lading is an evidence of contract of the carriage of goods by sea between the

shipper and the carrier. The carrier could be the shipowner or the charterer. It depends upon who

has signed the bill of lading and on whose behalf. It is important to verify who is the carrier to

bring a claim by the cargo owner.

A bill of lading signed by the master by himself or by others for the master or on

behalf of the master, usually bind the ship owner as the carrier, because, the master is

owners representative. In the case of a demised chartered ship, master represents the

charterers but not the ship owner.

If the charterers sign the bill of lading by themselves, or if their agents do so, on their

behalf, the charterers are the carriers.

If the bill of lading contains identity of the carrier or Demise clause then, shipowner

is the carrier (in the case of a demise chartered ship, the charterer), unless the other terms

of the bill of lading (including its signature) make it clear that the carrier is intended to

be the charterers.

There are implied as well as expressed terms in bills of lading contracts. Some of these

terms are relevant to the master as well. For example, even if the bill of lading says nothing

about the seaworthiness of the ship there is an implied term that the ship will be seaworthy at the

beginning of the voyage. The seaworthiness will be discussed in detail later.

The terms of the bill of lading are regulated by Hague or Hague/Visby or Hamburg (in

future Rotterdam rules as well) rules, depending upon the contract or the agreement between the

parties. Therefore, even the bill is silent in certain terms, the carrier or the charterer would be

bound by implied terms as mentioned before.

3) Bill of lading as a document of title

In the context of carriage of goods document of title means, it is transferable

(negotiable) and which must therefore, be produced as evidence of title to the goods before

a carrier can be obliged to give delivery of cargo. Once the cargo has been shipped and the bill

of lading signed, it becomes a symbol of that cargo and is brought and sold in the same way as

the cargo itself would have been if it were in the sellers possession. The transfer of the bill of


lading to the buyer has the effect in law of transferring the right to possession of the cargo at the

end of the carriage and, in so far as possession is proof of ownership, possessing the bill of

lading is proof of the ownership of the goods. The bill of lading in the hands of the receiver has

been linked to the key of the warehouse door, i.e., it enables him to obtain possession of the

goods. The carrier must deliver the goods to the first person presenting a valid bill of lading

properly endorsed in his favour. If the carrier delivers cargo to anyone else, or if he delivers in

the absence of a bill of lading and the cargo falls into wrong hands carrier will be liable. In such

a situation;

The carrier will be liable for the full value of the cargo miss delivered,

Usually has no defence for the carrier,

Usually has no right to limit his liability and

Carrier will lose his P & I cover

All the bills of ladings are not negotiable. To make the bill negotiable, the term to

order must be included in the consignee box. Such a bill also called as an order bill. If the

word To is included in the consignee box, it is not negotiable. Such a bill is called as a

straight bill of lading.

Usually, three original bills are issued by the carrier (some times more bills are issued

by the carrier, in that case those are issued in sets of three and all these spare sets of bills are not

negotiable).

Check the following before signing a bill of lading

Check the date on the bill of lading. Never sign a post-dated or antedated bill, as this

could be a vehicle for fraud.

Check the description of cargo on the bill of lading against the mates receipt.

Check that the port of delivery is one to which you are bound and that it is within the

range of ports permitted by the charter party and crew agreement.

If the presented bill of lading is in foreign language, request a translation in English. If it

is not possible, endorse the bill in English with the quantities taken from the mates

receipt.

Check that the number of original bills presented for signature corresponds with the

number of bills stated to have been issued. If it does not, then amend the bill.

Where carriage is under a charter party, check that the terms of the charter party are

incorporated into the bill of lading.

Check that any freight rate on the bill of lading is not prejudicial to any freight rate in the

charter party, and if dead freight or demurrage are outstanding, that these are endorsed on

the bill.


Mates receipt

In ancient times this was issued by the chief officer by referring into the tally sheets

made by the tally clerks and also by the physical inspections made by the chief officer. It

includes identification marks, quantities and condition of the cargo loaded. The shipper would

then take the mates receipt to the master to exchange it for the bill of lading. The bill of lading

should incorporate all the conditions, if any, inserted in to the mates receipt. Mates receipt is

the first evidence that the goods are received and statements on the document describe the

quantity of goods, any identifying marks and the apparent condition.

Now a days, the mates receipt is prepared by shore personnel, but not by the chief

officer. It will be presented to the chief officer for his signature. If the actual quantity and the

condition of the cargo are different from the documented figures, chief officer must enter the

correct figures and condition of the cargo.

Types of bills of lading

There are various types of bills of lading developed for various other purposes. These

forms have different advantages and disadvantages when comparing with each other.

a) Straight bill of lading

This is not negotiable, but, need to present to the master to take delivery of cargo. This is

only transferable from the shipper to the named consignee only. This has the following elements;

It is a receipt for the cargo

It is an evidence of contract of carriage

Under English law, it is a document of title, because, it is transferable once and need

to present to the master to take the delivery of cargo. Earlier, this was not considered

as a document of title, but, now it is changed.

This is usually, used with expensive cargoes to avoid miss delivery of cargoes. But, the

disadvantage is that it is not negotiable like the order bill.

b) Seaway bills

This is not negotiable at all and does not require to be presented to the master to take the

delivery of the cargo. This has the following elements;


This is a receipt for the cargo shipped.

This is an evidence of contract of the carriage

This is not a document of title

The present day ships are much faster than the old days ships. Therefore, the ships arrive

before the arrival of the bill of lading at the discharge port. On the other hand, during in-house

transhipments, the cargo is not required to be sold while at transport. Therefore, seaway bills can

be used to avoid the problems involved with the conventional bills of lading. The problems are

cargo cannot be sold while at sea and also no security on the cargo. This is used widely in the

container transport.

c) Through bills of lading

These are used in unimodal transport mode, but, which contain two or more sea legs in

two or more ships. When it is not possible for the sea carrier to perform the entire sea voyage

itself, it will arrange for the goods to be transhipped at an intermediate port (assuming that the

contract of carriage contains a liberty to tranship the cargo). The speciality in here is, even

though the transport is unimodal, it involves two or more separate sea voyages and also

warehousing at the intermediate ports.

Usually, the carrier will issue a through bill of lading to cover the whole passage and

separate bills of lading to cover the each voyage, at the commencement of each voyage, if the

same carrier is involve in all transhipments. If the voyages after the first one is to be carried out

by a different carrier, the cargo owner can use a freight forwarder to exercise reasonable care in

selecting a competent carrier for the onward voyages.

d) Electronic bills of lading

These are generally functional equivalent, i.e., having the same elements and

characteristics of paper bills of lading. The main purposes of electronic bills of lading are to

reduce costs involve in paper documentation, avoid fraud and to avoid delays involve in

conventional bills of lading. Electronic bills of lading are in use by APL (American President

Line) which is an in-house system (developed and used by APL only). A common system is run

by BOLERO and SeaDocs. These are separate companies and to use them, the carrier must take

the membership of those companies.

Electronic bills of lading are not still common among traders because, the legality of them

are not yet clear, most of the countries do not recognize them legally and also most of the

countrys require paper documentation.


e) Combined or multimodal transport documents

As the name suggests these are used with multimodal transport, i.e., when engaged in

different transport modes like air, sea and land. This is issued to cover the entire transport (door

to door) and generally issued by freight forwarders. A separate bill of lading is used to cover the

sea passage of the cargo.

f) Received for shipment bill of lading

This is issued when the carrier receives cargo to his custody from a shipper at a warehouse

or dock, but, before loading on to a ship. Even though the carrier is liable for the goods prior

loading to the vessel, master is liable for the cargo only after it passes the ships rails.

g) Shipped bills of lading

Once a cargo is loaded which is under a received for shipment bill of lading, that bill of

lading becomes a shipped bill of lading. Master is liable for the cargo when the shipped bills of

lading are issued.

h) Accomplished bill of lading

Once the cargo is delivered to the prescribed consignee at the port of discharge, that bill of

lading losses its value. Such a bill is called as an accomplished bill of lading.

i) Claused bill of lading

A bill of lading endorsed with remarks regarding number/quantity/weight and apparent

condition is known as a claused bill of lading.

j) Clean bill of lading

This is a bill of lading without any adverse remarks relating to the number/quantity/weight

and condition of the cargo is called as a clean bill of lading.

k) Delivery order

This is usually used in the bulk trade, when seller wants to sell the cargo to more than one

buyer. Only one bill of lading is issued since only one shipment available. The seller will instruct

the shipowner to deliver required amount of tonnes out of the whole bill of lading consignment


to a named consignee or to the holder of the delivery order. Once the ship owner agrees to carry

out the instructions and signed by the master or his agents, it becomes ships delivery order. So

the master has to deliver the goods covered by the delivery order against presentation of that

document. This will replace the former undertaking given on issue of the bill of lading to deliver

against presentation of bill of lading. Only a ships delivery order can transfer constructive

possession to the holder. Therefore, only ships delivery orders are an acceptable substitute for

bills of lading where part of a bulk cargo is sold under a contract of sale that provides for

payment against documents. COGSA 1992 applies to ships delivery orders.


International rules related to bills of lading

a) Hague Rules and Hague/Visby rules

In ancient times, ship owners had extensive powers over the shippers and cargo owners.

Shipowners managed to escape their liabilities by using these powers and the principle of

freedom of contract during cargo damages. Therefore, the cargo owners were disappointed and

the reliability of the bills of lading was greatly affected. This was the main reason to develop the

Hague rules in 1924. Most of the maritime nations ratified Hague rules and still this is in force.

These rules apportioned responsibility for the safe delivery of cargo between shipper, carrier and

receiver and denied these parties, particularly the carrier, the ability to contract out minimum

levels of responsibility.

These rules are applicable to contract of carriages through bills of lading, but, if the

parties agree, will be applicable to charterparties as well. The incorporation of the rules to

charterparties is done by a clause in the bill of lading.

These rules do not apply to deck cargoes, if such cargoes are carried on deck after

making a note on the bill of lading to that effect. If such cargoes are carried on deck without

saying on the bill of lading that they are carried on deck or the cargoes are actually carried under

deck, even the bill of lading states that they are carried on deck, these rules will be applied. Live

animals are also not covered by the rules.

The limitation provisions on the Hague rules is only applicable to packages and unit

cargoes. Solid bulk cargoes, liquid bulk cargoes and gas bulk cargoes are not included in the

limitation provisions of the rules because there were no such ships during that time.

Hague rules are still applicable in countries such as USA (US COGSA), Australia etc.,

but, with various local amendments to update the rules to present day standards and technology.

The international traders were under impression that the Hague rules are more ship

owner friendly and therefore, in 1968, amendments to the Hague rules were brought up and these

are known an as Hague/Visby rules. There are few main differences between Hague rules and

Hague/Visby rules such as, the limitations are increased in Hague/Visby rules, bulk cargoes are

included Hague/Visby rules etc.

Seaworthiness

A vessel must have that degree of fitness which an ordinary careful and prudent owner

would require his vessel to have at the commencement of her voyage having regard to all the

probable circumstances of it. Would a prudent owner have required that it (i.e. the defect)

should be made good before sending his vessel to sea, had he known of it? If he would, the ship

was not seaworthy.. (Justice Channell in McFadden v Blue Star Line).


Seaworthiness is a warrant (promise) given by the ship owner to the shipper and in ordinary

language, seaworthiness means that the vessel is fit to meet and undergo the perils of the sea and

other incidental risks to which she must necessarily be exposed in the course of the voyage. It

could be an implied term (in some charterparties) or an express term (in bills of lading contracts

and some charterparties). Article III, regulation 1 and 2 of Hague/Visby rules states that;

1. The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to:

(a) Make the ship seaworthy;

(b) Properly man, equip and supply the ship;

(c) Make the holds, refrigerating and cool chambers, and all other parts of the ship in which

goods are carried, fit and safe for their reception, carriage and preservation.

2. Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle,

stow, carry, keep, care for, and discharge the goods carried.

In general terms a vessel must be cargoworthy before the commencement of loading and

seaworthy prior to the commencement of voyage. Cargoworthiness is a category of

seaworthiness. If there are defects in the cargo spaces, heating systems, cooling systems etc., the

master must ensure to make them fit for the reception of cargo before the commencement of

loading. On the other hand, if there are any defects on the ship which may affect the safe

navigation, the master must take steps to rectify the defects before the commencement of the

voyage. The time a vessel required to be seaworthy may change in the case of a charterparty,

which will be discussed latter. The following examples can be given as un-seaworthiness;

An incompetent crew

Crew which is insufficiently instructed

Insufficient number of crew

Out dated charts

Insufficient bunkers for the voyage (but, if it is a custom of the trade to take bunkers on

the way in some other port, it is not considered as unseaworthiness)

Stowage which affects the safety of the vessel

Deficient systems ashore or onboard

Absence of documents required by the law (including local laws)

A ship can be uncargoworthy due to the presence of other cargoes

The seaworthiness depends upon various factors such as nature and age of the ship, the

kind of voyage expected, the nature of cargo etc. i.e., an old ship may not be seaworthy as a new

ship. When making the contract the shipper knows this and he does not expect the condition of a

new ship from an old one. Whatever the case may be, the master shall take due diligence to make

the vessel seaworthy in all respects.


Carriers exemption of liability during cargo damage

Article IV, regulation 1 & 2 of Hague/Visby rules provide a long list of exemptions of

carriers liability as follows;

1. Neither the carrier nor the ship shall be liable for loss or damage arising or resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make

the ship seaworthy, and to secure that the ship is properly manned, equipped and supplied, and

to make the holds, refrigerating and cool chambers and all other parts of the ship in which goods

are carried fit and safe for their reception, carriage and preservation in accordance with the

provisions of paragraph 1 of Article III. Whenever loss or damage has resulted from

unseaworthiness the burden of proving the exercise of due diligence shall be on the carrier or

other person claiming exemption under this article.

2. Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting

from:

a) Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier in the navigation or in the management of the ship.

b) Fire, unless caused by the actual fault or privity of the carrier. c) Perils, dangers and accidents of the sea or other navigable waters. d) Act of God. e) Act of war. f) Act of public enemies. g) Arrest or restraint of princes, rulers or people, or seizure under legal process. h) Quarantine restrictions. i) Act or omission of the shipper or owner of the goods, his agent or representative.

j) Strikes or lockouts or stoppage or restraint of labour from whatever cause, whether partial or general.

k) Riots and civil commotions. l) Saving or attempting to save life or property at sea. m) Wastage in bulk of weight or any other loss or damage arising from inherent

defect, quality or vice of the goods.

n) Insufficiency of packing. o) Insufficiency or inadequacy of marks. 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, but the burden

of proof shall be on the person claiming the benefit of this exception to show that

neither the actual fault or privity of the carrier nor the fault or neglect of the

agents or servants of the carrier contributed to the loss or damage.

If the carrier has not exercised due diligence in making the vessel seaworthy, he will not

be able to exempt from his liability under Article IV of Hague/Visby rules and also he may lose

the right to limit his liability under Article IV, regulation 5.


Letter of indemnity

Letter of indemnity is issued in order to persuade one party to comply with a request made

by another party to perform some task which that party is not obliged to perform under the

contract. In the trade of shipping, letters of indemnities are normally requested in the following

situations;

Releasing of clean or ante-dated bills of lading

Delivery of cargo without surrender of original bills of lading

Change of destination/deviation

Switch bills of lading

Commingling

a) LOI Against clean bills of lading

A shipper may offer a letter of indemnity to compensate a carrier should the carrier suffer

loss as a result of issuing a clean bill of lading. Article III, regulation 5 of Hague/Visby rules

says;

5. The shipper shall be deemed to have guaranteed to the carrier the accuracy at the time of

shipment of the marks, number, quantity and weight, as furnished by him, and the shipper shall

indemnify the carrier against all loss, damages and expenses arising or resulting from

inaccuracies in such particulars. The right of the carrier to such indemnity shall in no way limit

his responsibility and liability under the contract of carriage to any person other than the

shipper.

According to above, carrier has authority to indemnify against clean bills of lading, but,

the carrier can not avoid his liability just by receiving a letter of indemnity. If a carrier issues a

clean bill of lading by knowing the cargo is under weight/quantity, the carrier can not avoid his

liability once the bill of lading is transferred to a third party acting on good faith. Therefore, a

clean bill must not be issued if the master has reasonable grounds to believe that the actual

figures and the documented figures are different.

On the other hand, above regulation does not provide an indemnity in relation to the apparent

good order and condition of the goods since the carrier himself has a duty to verify the apparent

good order and condition of the goods and can not rely simply on statements made by other

persons in this regard.

Masters have no authority of their own to issue clean bills of lading against letters of

indemnity. A master who is instructed by shipowners to issue only clean bills of lading should

protect himself by obtaining such instructions in writing.


b) LOI to deliver cargo without original bills of lading

In order to avoid delays letters of indemnities are offered to carriers to proceed with the

delivery of cargoes without production of the bill of lading. There is no custom obliging a carrier

to accept such a letter of indemnity. Unless there is a term in the contract of carriage obliging

him to accept a letter of indemnity the carrier is not obliged to accept one and can insist on

waiting until the original bill of lading have been produced.

The rules of all the P & I clubs emphasise that the carrier is not covered for claims resulting

from the delivery of cargo without surrender of original bill of lading. While the clubs suggests

standard draft forms of letters of indemnities if the carrier wishes to accept one they emphasise

that the carrier does not reinstate club cover by doing so, i.e., the letter of indemnity is intended

to be instead of the club cover.

P & I guide lines regarding signing bills of lading

If the master in any doubt about any aspect of the bill of lading is to seek the advice of

the Company. Assistance and advice can also be sought from the local P & I

correspondent.

If the Master feels that he has signed a bill of lading under duress or threat of any kind, he

must inform the Company as soon as it is safe to do so. He should also make a detailed

report of the circumstances involved.

Predominantly in the tanker trade, a shipper, loading terminal or charterer may request

the ship to follow Early Departure Procedure (EDP). Amongst other things, EDP usually

involves the Master issuing a signed but otherwise blank bill of lading form.

Alternatively, the bill of lading may be completed except for the quantity or weight.

Clearly this procedure exposes the Company to significant liabilities. Accordingly, if the

Master is requested to follow EDP and/or sign a blank bill of lading he should refuse and

contact the Company immediately.

There would be insufficient time for the ships officers to perform a detailed survey of all

of the cargo from the time of the arrival of the vessel until the cargo is loaded. Hence the

assistance of an independent surveyor is essential if the condition of the cargo at this time

is to be fully and accurately determined. This is done to assist the Master to ensure that

the Mates receipts and bills of lading are appropriately clause and accurately describe

the apparent condition of the cargo at the time he accepts responsibility of the cargo.


The clausing of the bill should be accurate as far as possible. If the cargo is found to be

wet, then the documents should be claused for example 1% wet before shipment. If rust

is found, the type and extent of the rust should be described using the phrases discussed

earlier. Similarly, if the cargo has mechanical damage, the type and extent should be

included in the clause. Appropriate clauses should indicate the likely cause, for example

marked by handling gear. It is important that these remarks are as accurate as possible.

The affected cargo should be identified & quantified. General terms such as some,

a few and a number of should be avoided.


INT GROUP A

STANDARD FORM LETTER OF INDEMNITY TO BE GIVEN IN RETURN FOR DELIVERING CARGO WITHOUT

PRODUCTION OF THE ORIGINAL BILL OF LADING

To : [insert name of Owners] [insert date]

The Owners of the [insert name of ship]

[insert address]

Dear Sirs

Ship: [insert name of ship]

Voyage: [insert load and discharge ports as stated in the bill of lading]

Cargo: [insert description of cargo]

Bill of lading: [insert identification numbers, date and place of issue]

The above cargo was shipped on the above ship by [insert name of shipper] and consigned to [insert

name of consignee or party to whose order the bill of lading is made out, as appropriate] for delivery at

the port of [insert name of discharge port stated in the bill of lading] but the bill of lading has not arrived

and we, [insert name of party requesting delivery], hereby request you to deliver the said cargo to "X

[name of the specific party] or to such party as you believe to be or to represent X or to be acting on

behalf of X" at [insert place where delivery is to be made] without production of the original bill of

lading.

In consideration of your complying with our above request, we hereby agree as follows :-

1. To indemnify you, your servants and agents and to hold all of you harmless in respect of any liability, loss, damage or expense of whatsoever nature which you may sustain by reason of delivering the cargo in accordance with our request.

2. In the event of any proceedings being commenced against you or any of your servants or agents in connection with the delivery of the cargo as aforesaid, to provide you or them on demand with sufficient funds to defend the same.

3. If, in connection with the delivery of the cargo as aforesaid, the ship, or any other ship or property in the same or associated ownership, management or control, should be arrested or detained or should the arrest or detention thereof be threatened, or should there be any interference in the use


or trading of the vessel (whether by virtue of a caveat being entered on the ships registry or otherwise howsoever), to provide on demand such bail or other security as may be required to prevent such arrest or detention or to secure the release of such ship or property or to remove such interference and to indemnify you in respect of any liability, loss, damage or expense caused by such arrest or detention or threatened arrest or detention or such interference, whether or not such arrest or detention or threatened arrest or detention or such interference may be justified.

4. If the place at which we have asked you to make delivery is a bulk liquid or gas terminal or facility, or another ship, lighter or barge, then delivery to such terminal, facility, ship, lighter or barge shall be deemed to be delivery to the party to whom we have requested you to make such delivery.

5. As soon as all original bills of lading for the above cargo shall have come into our possession, to deliver the same to you, or otherwise to cause all original bills of lading to be delivered to you, whereupon our liability hereunder shall cease.

6. The liability of each and every person under this indemnity shall be joint and several and shall not be conditional upon your proceeding first against any person, whether or not such person is party to or liable under this indemnity.

7. This indemnity shall be governed by and construed in accordance with English law and each and every person liable under this indemnity shall at your request submit to the jurisdiction of the High Court of Justice of England.

Yours faithfully

For and on behalf of

[insert name of Requestor]

The Requestor

Signature


INT GROUP B

STANDARD FORM LETTER OF INDEMNITY TO BE GIVEN IN RETURN FOR

DELIVERING CARGO AT A PORT OTHER THAN THAT STATED IN THE BILL OF

LADING

To : [insert name of Owners] [insert date]

The Owners of the [insert name of ship]

[insert address]

Dear Sirs

Ship: [insert name of ship]

Voyage: [insert load and discharge ports as stated in the bill of lading]

Cargo: [insert description of cargo]

Bill of lading: [insert identification number, date and place of issue]

The above cargo was shipped on the above ship by [insert name of shipper] and consigned to [insert

name of consignee or party to whose order the bill of lading is made out, as appropriate] for delivery at

the port of [insert name of discharge port stated in the bill of lading] but we, [insert name of party

requesting substituted delivery], hereby request you to order the ship to proceed to and deliver the said

cargo at [insert name of substitute port or place of delivery] [X [name of the specific party] or to such

party as you believe to be or to represent X or to be acting on behalf of X] against production of at least

one original bill of lading.

In consideration of your complying with our above request, we hereby agree as follows :-

1. To indemnify you, your servants and agents and to hold all of you harmless in respect of any liability, loss, damage or expense of whatsoever nature which you may sustain by reason of the ship proceeding and giving delivery of the cargo against production of at least one original bill of lading in accordance with our request.

2. In the event of any proceedings being commenced against you or any of your servants or agents in connection with the ship proceeding and giving delivery of the cargo as aforesaid, to provide you or them on demand with sufficient funds to defend the same.

3. If, in connection with the delivery of the cargo as aforesaid, the ship, or any other ship or property in the same or associated ownership, management or control, should be arrested or detained or should the arrest or detention thereof be threatened, or should there be any interference in the use or trading of the vessel (whether by virtue of a caveat being entered on the ships registry or otherwise howsoever), to provide on demand such bail or other security as may be required to


prevent such arrest or detention or to secure the release of such ship or property or to remove such interference and to indemnify you in respect of any liability, loss, damage or expense caused by such arrest or detention or threatened arrest or detention or such interference, whether or not such arrest or detention or threatened arrest or detention or such interference may be justified.

4. The liability of each and every person under this indemnity shall be joint and several and shall not be conditional upon your proceeding first against any person, whether or not such person is party to or liable under this indemnity.

5. This indemnity shall be governed by and construed in accordance with English law and each and every person liable under this indemnity shall at your request submit to the jurisdiction of the High Court of Justice of England.

Yours faithfully

For and on behalf of

[insert name of Requestor]

The Requestor

Signature


Hague-Visby Rules

Article I

Definitions

In these Rules the following expressions have the meanings hereby assigned to them

respectively, that is to say,

(a) "carrier" includes the owner or the charterer who enters into a contract of carriage with a shipper;

(b) "contract of carriage" applies only to contracts of carriage covered by a bill of lading or any similar document of title, in so far as such document relates to the carriage of goods

by water, including any bill of lading or any similar document as aforesaid issued under

or pursuant to a charter-party from the moment at which such bill of lading or similar

document of title regulates the relations between a carrier and a holder of the same;

(c) "goods" includes goods, wares, merchandise and articles of every kind whatsoever, except live animals and cargo which by the contract of carriage is stated as being carried

on deck and is so carried;

(d) "ship" means any vessel used for the carriage of goods by water;

(e) "carriage of goods" covers the period from the time when the goods are loaded on to the time they are discharged from the ship.

Article II

Risks

Subject to the provisions of Article VI, under every contract of carriage of goods by

water the carrier, in relation to the loading, handling, stowage, carriage, custody, care and

discharge of such goods, shall be subject to the responsibilities and liabilities and entitled to the

rights and immunities hereinafter set forth.

Article III

Responsibilities and Liabilities

1. The carrier shall be bound, before and at the beginning of the voyage, to exercise due diligence to

(a) make the ship seaworthy; (b) properly man, equip and supply the ship;


(c) make the holds, refrigeration and cool chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation.

2. Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle, stow, keep, care for and discharge the goods carried.

3. After receiving the goods into his charge, the carrier, or the master or agent of the carrier, shall, on demand of the shipper, issue to the shipper a bill of lading showing among other

things

(a) the leading marks necessary for identification of the goods as the same are furnished in writing by the shipper before the loading of such goods starts, provided such marks are

stamped or otherwise shown clearly upon the goods if uncovered, or on the cases or

coverings in which such goods are contained, in such a manner as should ordinarily

remain legible until the end of the voyage;

(b) either the number of packages or pieces, or the quantity, or weight, as the case may be, as furnished in writing by the shipper;

(c) the apparent order and condition of the goods:

Provided that no carrier, master or agent of the carrier shall be bound to state or show in

the bill of lading any marks, number, quantity, or weight which he has reasonable ground for

suspecting not accurately to represent the goods actually received or which he has had no

reasonable means of checking.

4. Such a bill of lading shall be prima facie evidence of the receipt by the carrier of the goods as therein described in accordance with paragraphs 3(a), (b) and (c).

However, proof to the contrary shall not be admissible when the bill of lading

has been transferred to a third party acting in good faith.

5. The shipper shall be deemed to have guaranteed to the carrier the accuracy at the time of shipment of the marks, number, quantity and weight, as furnished by him, and the shipper

shall indemnify the carrier against all loss, damages and expenses arising or resulting

from inaccuracies in such particulars. The right of the carrier to such indemnity shall in

no way limit his responsibility and liability under the contract of carriage to any person

other than the shipper.

6. Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the

removal of the goods into the custody of the person entitled to delivery thereof under the

contract of carriage, or, if the loss or damage be not apparent, within three days, such

removal shall be prima facie evidence of the delivery by the carrier of the goods as

described in the bill of lading.


The notice in writing need not be given if the state of the goods has at the

time of their receipt been the subject of joint survey or inspection.

Subject to paragraph 6bis the carrier and the ship shall in any event be

discharged from all liability whatsoever in respect of the goods, unless suit is brought

within one year of their delivery or of the date when they should have been delivered.

This period may, however, be extended if the parties so agree after the cause of action has

arisen.

In the case of any actual or apprehended loss or damage the carrier and the

receiver shall give all reasonable facilities to each other for inspecting and tallying the

goods.

6.bis An action for indemnity against a third person may be brought even after the expiration

of the year provided for in the preceding paragraph if brought within the time allowed by

the law of the Court seized of the case. However, the time allowed shall be not less than

three months, commencing from the day when the person bringing such action for

indemnity has settled the claim or has been served with process in the action against

himself.

7. After the goods are loaded the bill of lading to be issued by the carrier, master or agent of the carrier, to the shipper shall, if the shipper so demands, be a "shipped" bill of lading,

provided that if the shipper shall have previously taken up any document of title to such

goods, he shall surrender the same as against the issue of the "shipped" bill of lading, but

at the option of the carrier such document of title may be noted at the port of shipment by

the carrier, master or agent with the name or names of the ship or ships upon which the

goods have been shipped and the date or dates of shipment, and when so noted the same

shall for the purpose of this Article be deemed to constitute a "shipped" bill of lading.

8. Any clause, covenant or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to or in connection with goods arising from

negligence, fault or failure in the duties and obligations provided in this Article or

lessening such liability otherwise than as provided in these Rules, shall be null and void

and of no effect.

A benefit of insurance or similar clause shall be deemed to be a clause relieving the

carrier from liability.

Article IV

Rights and Immunities

1. Neither the carrier nor the ship shall be liable for loss or damage arising or resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make

the ship seaworthy, and to secure that the ship is properly manned, equipped and


supplied, and to make the holds, refrigerating and cool chambers and all other parts of the

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

in accordance with the provisions of paragraph 1 of Article III.

Whenever loss or damage has resulted from unseaworthiness, the burden of

proving the exercise of due diligence shall be on the carrier or other person claiming

exemption under this article.

2. Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from

(a) act, neglect, or default of the master, mariner, pilot or the servants of the carrier in the navigation or in the management of the ship;

(b) fire, unless caused by the actual fault or privity of the carrier; (d) perils, dangers and accidents of the sea or other navigable waters; (e) act of God; (f) act of war; (g) act of public enemies; (h) arrest or restraint of princes, rulers or people, or seizure under legal process; (i) quarantine restrictions; (j) act or omission of the shipper or owner of the goods, his agents or representative; (k) strikes or lock-outs or stoppage or restraint of labour from whatever cause whether partial

or general;

(l) riots and civil commotions; (m) saving or attempting to save life or property at sea; (n) wastage in bulk or weight or any other loss or damage arising from inherent defect,

quality or vice of the goods;

(o) insufficiency of packing; (p) insufficiency of inadequacy of marks; (q) latent defects not discoverable by due diligence; (r) any other cause arising without the actual fault and privity of the carrier, or without the

fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on

the person claiming the benefit of this exception to show that neither the actual fault or

privity of the carrier nor the fault or neglect of the agents or servants of the carrier

contributed to the loss or damage.

3. The shipper shall not be responsible for loss or damage sustained by the carrier or the ship arising or resulting from any cause without the act, fault or neglect of the shipper, his

agent or his servants.

4. Any deviation in saving or attempting to save life or property at sea or any reasonable deviation shall not be deemed to be an infringement or breach of these Rules or of the

contract of carriage, and the carrier shall not be liable for any loss or damage resulting

there from.

5. (a) Unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading, neither the carrier nor the ship shall in any


event be or become liable for any loss or damage to or in connection with the goods in an

amount exceeding 666.67 units of account per package or unit or 2 units of account per

kilogramme of gross weight of the goods lost or damaged, whichever is the higher.

(b) The total amount recoverable shall be calculated by reference to the value of such goods at the place and time at which the goods are discharged from the ship in accordance with

the contract or should have been so discharged.

(c) Where a container, pallet or similar article of transport is used to consolidate goods, the number of packages or units enumerated in the bill of lading as packed in such article of

transport shall be deemed the number of packages or units for the purpose of this

paragraph as far as these packages or units are concerned. Except as aforesaid such article

of transport shall be considered the package or unit.

(d) The unit of account mentioned in this Article is the Special Drawing Right as defined by the International Monetary Fund. The amounts mentioned in sub-paragraph (a) of this

paragraph shall be converted into national currency on the basis of the value of that

currency on the date to be determined by the law of the Court seized of the case. The

value of the national currency, in terms of the Special Drawing Right, of a State which is

a member of the International Monetary Fund, shall be calculated in accordance with the

method of valuation applied by the International Monetary Fund in effect at the date in

question for its operations and transactions. The value of the national currency, in terms

of the Special Drawing Right, of a State which is not a member of the International

Monetary Fund, shall be calculated in a manner determined by the State.

Nevertheless, a State which is not a member of the International Monetary Fund

and whose law does not permit the application of the provisions of the preceding

sentences may, at the time of ratification of the Protocol of 1979 or accession thereto or

at any time thereafter, declare that the limits of liability provided for in this Convention to

be applied in its territory shall be fixed as follows:

(i) in respect of the amount 666.67 units of account mentioned in sub-paragraph (a) of paragraph 5 of this article, 10,000 monetary units;

(ii) in the respect of the amount of 2 units of account mentioned in sub-paragraph (a) of paragraph 5 of this Article, 30 monetary units.

The monetary unit referred to in the preceding sentence corresponds to 65.5

milligrammes of gold of millesimal fineness 900. The convention of the amounts

specified in that sentence into the national currency shall be made according to the

law of the State concerned. The calculation and the conversion mentioned in the

preceding sentences shall be made in such a manner as to express in the national

currency of that State as far as possible the same real value for the amounts in sub-

paragraph (a) of paragraph 5 of this Article as is expressed there in units of account.


States shall communicate to the depositary the manner of calculation or the

result of the conversion as the case may be, when depositing an instrument of

ratification of the protocol of 1979 or of accession thereto and whenever there is a

change in either.

(e) Neither the carrier nor the ship shall be entitled to the benefit of the limitation of liability provided for in this paragraph if it is proved that the damage resulted from an act or

omission of the carrier done with intent to cause damage, or recklessly and with

knowledge that damage would probably result.

(f) The declaration mentioned in sub-paragraph (a) of this paragraph, if embodied in the bill of lading, shall be prima facie evidence, but shall not be binding or conclusive on the

carrier.

(g) By agreement between the carrier, master or agent of the carrier and the shipper other maximum amounts than those mentioned in sub-paragraph (a) of this paragraph may be

fixed, provided that no maximum amount so fixed shall be less than the appropriate

maximum mentioned in that sub-paragraph.

(h) Neither the carrier not the ship shall be responsible in any event for loss or damage to, or in connection with, goods if the nature or value thereof has been knowingly mis-stated by

the shipper in the bill of lading.

6. Goods of an inflammable, explosive or dangerous nature to the shipment whereof the carrier, master or agent of the carrier has not consented, with knowledge of their nature

and character, may at any time before discharge be landed at any place or destroyed or

rendered innocuous by the carrier without compensation, and the shipper of such goods

shall be liable for all damages and expenses directly or indirectly arising of or resulting

from such shipment.

If any such goods shipped with such knowledge and consent shall become a

danger to the ship or cargo, they may in like manner be landed at any place or destroyed

or rendered innocuous by the carrier without liability on the part of the carrier except to

general average, if any.

Article IVbis

Application of Defences and Limits of Liability

1. The defences and limits of liability provided for in these Rules shall apply in any action against the carrier in respect of loss or damage to goods covered by a contract of carriage

whether the action be founded in contract or in tort.

2. If such an action is brought against a servant of the carrier (such servant or agent not being an independent contractor), such servant or agent shall be entitled avail himself of


the defences and limits of liability which the carrier is entitled to invoke under these

Rules.

3. The aggregate of the amounts recoverable from the carrier, and such servants and agents, shall in no case exceed the limit provided for in these Rules.

4. Nevertheless, a servant or agent of the carrier shall not be entitled to avail himself of the provisions of this Article, if it is proved that the damage resulted from an act or omission

of the servant or agent done with intent to cause damage or recklessly and with

knowledge that damage would probably result.

Article V

Surrender of Rights and Immunities and Increase of Responsibilities and Liabilities

A carrier shall be at liberty to surrender in whole or in part all or any of his rights and

immunities or to increase any of his responsibilities and liabilities under the Rules contained in

any of these Articles, provided such surrender or increase shall be embodied in the bill of lading

issued to the shipper.

The provisions of these Rules shall not be applicable to charter-parties, but if bills of

lading are issued in the case of a ship under a charter-party they shall comply with the terms of

these Rules. Nothing in these Rules shall be held to prevent the insertion in a bill of lading of any

lawful provision regarding general average.

Article VI

Special Conditions

Notwithstanding the provisions of the preceding Articles, a carrier, master or agent of

the carrier and a shipper shall in regard to any particular goods be at liberty to enter into any

agreement in any terms as to the responsibility and liability of the carrier for such goods, and as

to the rights and immunities of the carrier in respect of such goods, or his obligation as to

seaworthiness, so far as this stipulation is not contrary to public policy, or the care or diligence of

his servants or agents in regard to the loading, handling, stowage, carriage, custody, care and

discharge of the goods carried by water, provided that the terms agreed shall be embodied in a

receipt which shall be a non-negotiable document and shall be marked as such.

Any agreement so entered into shall have full legal effect.

Provided that this Article shall not apply to ordinary commercial shipments made in

the ordinary course of trade, but only to other shipments where the character or condition of the

property to be carried or the circumstances, terms and conditions under which the carriage is to

be performed are such as reasonably to justify a special agreement.

Shane Sankaranarayana Maritime Business & Law Class II Page 35 Revised : 05/07/10, 25/10/13 Authorized by; HOD Navigation

Article VII

Limitations on the Application of the Rules

Nothing herein contained shall prevent a carrier or a shipper from entering into any

agreement, stipulation, condition, reservation or exemption as to the responsibility and liability

of the carrier or the ship for the loss or damage to, or in connection with the custody and care and

handling of goods prior to the loading on and subsequent to the discharge from the ship on which

the goods are carried by water.

Article VIII

Limitation of Liability

The provisions of these Rules shall not affect the rights and obligations of the carrier under

any statute for the time being in force relating to the limitation of the liability of owners of

vessels.

Article IX

Liability for Nuclear Damage

These Rules shall not affect the provisions of any international Convention or national law

governing liability for nuclear damage.

Article X

Application

The provisions of these Rules shall apply to every bill of lading relating to the carriage of

goods between ports in two different States if:

(a) the bill of lading is issued in a Contracting State, or

(b) the carriage is from a port in a Contracting State, or

(c) the contract contained in or evidenced by the bill of lading provides that these Rules or legislation of any State giving effect to them are to govern the contract,

Whatever may be the nationality of the ship, the carrier, the shipper, the

consignee, or any other interested person.


CHARTERING OF SHIPS

Same like the bill of lading, charters are also employments for a vessel. In the

case of the Torrenia, Justice Hobhouse said that, a bill of lading is a contract of carriage of

goods and a charterparty is a contract for the carriage of goods. i.e., bill of lading itself is a

contract of carriage of goods, but, a charterparty is intended to give rise to bailments (but not

necessarily) between the parties to the charterparty. That contract could be for the whole vessel

or a part of the vessel.

This is an agreement between the ship owner and the charterer under specific

terms and conditions for the use of a ship or her cargo space. There are express terms as well as

implied terms. The breach of certain terms by one party may lead to cease the charter agreement

by the other party. Therefore, the master must have a proper understanding of the charterparty as

well as implied terms, if they are not expressed.

There are various types of charters in use and they have specific advantages

and disadvantages in relation to each other. The ship owners always try to find ways to maximize

his income by using these chartering strategies. If his vessel is time chartered (the shipowner will

be getting a fixed hire during that time) and during that period of time, the market rates rises, it

will be beneficial for the charterer, but, not for the shipowner. In such a period of time a prudent

shipowner may prefer one or more voyage charters rather than a time charter. On the other hand,

during a time charter, if the market rate for that particular vessel drops down, it will be beneficial

for the shipowner to remain in the time charter, but, not to the charterer, because the charter is

already fixed for a fixed amount of rate for a specific duration of time. Now we will consider

about those charterparties one by one.

Demise or bareboat charters

Demise charters are generally long time contracts such as 10 years or above. In this case,

the ship owner provides the bare ship to the charter. These are created not so much with a view

to the carriage of goods but more as part of a complicated financing arrangement, often with the

intention that the charter should become the owner of the ship in due course. Thus, a contract for

the purchase of a ship by installments will often incorporate a demise charter into the contract. A

variant of this would be for a financing bank to lend the funds required to buy the ship, the bank

then acquiring the ownership of the ship but demise chartering it to the borrower for the period

of the loan. This would enable the bank to avoid not only the operating costs but also the

liabilities which it would otherwise have to bear in relation to the operation of the ship under

mortgage. Demise charters are also concluded between two associated companies for tax

employment reasons.

There are occasions where the ship owners bareboat charter their ships just because

they are not interested in managing the vessels. In such cases, occasionally, the ship owner may


reserve the rights to nominate senior officers, if he is not satisfied with the senior officers

provided by the charterers and also sometimes he will be responsible for the hull insurance and

initial delivery survey.

Under a demise charter, all the operating costs of the vessel such as port charges, crew

expenses, bunkering costs, maintenance costs, insurance costs etc., are borne by the charterer.

When considering between the ship owner and the charterer, the bareboat charterer is the carrier.

Since the crew are employees of the charterer and not of the ship owner, the acts, neglect or

omissions of the crew are imputed to the charterer and not to the owner (e.g. pollution, collision).

Voyage charters

A voyage charter-party is a contract to carry a specified, normally full, cargo between

named ports at an agreed freight rate.

The ship owner promises to provide a named vessel at a nominated port, to carry a

specified cargo and to deliver at a nominated port by the charterer. The charterer pays for the

service on the basis of the quantity of cargo carried and delivered. If the charterer fails to load

the agreed amount, then, the charterer is supposed to pay the dead freight for the balance

unloaded cargo. The freight rates may vary depending upon the length of the voyage and the type

of the cargo.

The risk of delay is on the ship owner. The delays in cargo operations are offset to

some extent by using suitable laytime and demurrage clauses in the charter party.

The ship owner is responsible for the appointment of crew, crew costs, costs involve

with bunkers, maintenance, port charges, insurance etc. depending upon the charter party,

sometimes the charterer pays the stevedoring costs and sometimes by the shipowner.

Bills of lading are normally issued under a voyage charter-party and signed by the master

or on his behalf. Such bills of lading may incorporate the terms of the charter-party which, in any

case, takes precedence over the bills of lading as between shipowner and charterer. Generally, in

case of voyage charter parties the bills of lading are issued by the ship owner. In that case, when

bills of lading have been transferred to a third party they constitute the contract between the

shipowner and that party.

Time charterparties

The charterer hires the vessel for a specific time period, but, not for long as a demise

charter. This may be short (for few months) or may be long (for few years) which depends upon

the charterers requirements. The charterers have more powers over the vessel than in a voyage charter. In exchange for the hire payment the charterer retains the right to decide which cargoes


are carried may use the vessel for any voyage he wants within the trading area agreed in the

charter-party.

. The charterer is responsible for the fuel costs, port dues, pilotage charges and all

other expenses involved with carrying his cargoes. At the same time, the crew overtime in

connection with the cargo is usually for the account of the charterer, and separate time sheets

should be kept in that respect. The ship owner is responsible for crew costs, maintenance

costs, insurance costs etc. The shipowner must keep the vessel in thoroughly efficient state,

fully documented and ready to do the charterers bidding. The charterer must pay the fixed hire

whether he use the vessel or not at specified time interval on the charterparty (e.g. weekly,

monthly etc.)

Usually, the time charter-party contains a description of the ship, including its speed and

fuel consumption. If there is any inability to maintain the warranted speed or consumption as a

result of heavy weather or other cause should be substantiated by entries in the log-book.

The master, while managing the ship for commercial ventures is still responsible for the

safe operation of the ship to the owner to see that the charterer does not use the vessel in a way

that may damage or endanger the vessel.

In case of time charter parties, the master is usually required to sign bills of lading as

presented to him by the charterer or the charter-party may give the charterer the right to sign

them on his behalf.

Both demise and time charters contain detailed on-hire/off-hire clauses which are

important to a master. Therefore, he must collect all necessary information for commercial

settlement and the resolution of disputes.

In time chartering, delivery means handing over the vessel to charterers for the purpose of

chartering. Re-delivery means taking

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