Bill of Lading as Evidence of the Contract of Carriage

Bill Of Lading As Evidence Of The Contract Of Carriage

1. General rule: distinction between shippers and transferees of bills of lading

It has been settled since the nineteenth century that the bill of lading is not the contract, but merely evidence of it where it is in the hands of a shipper. Both the Carriage of Goods by Sea Act 1971 (COGSA 71) and COGSA 92 acknowledge this by referring to the contract ‘contained in or evidenced by’ a bill of lading (COGSA 71, section 1(6), COGSA 92, section 5(1)). One consequence of this is that shippers will not be bound by unusual terms in a bill of lading unless they have been brought to their attention (Crooks v Allan).

It also follows that if the carrier and shipper have agreed to terms that are not stated in the bill of lading these may be relied upon by these parties, who are the original parties to the contract (evidenced by the bill of lading). See The Ardennes, where the owners had to pay damages to the shippers for the loss of their seasonal market because the owners broke an oral undertaking to proceed directly to London, in spite of a liberty to deviate in the bill itself.

The situation changes completely when the bill of lading is transferred from the shipper to another person. It has been held since Leduc v Ward that the transferee is not bound by any oral agreement the shipper may have made with the carrier. Leduc v Ward concerned an alleged liberty to deviate. Although Lord Esher MR’s judgment appears to have been influenced by the so-called parol evidence rule, the true reason is explained in The Spiros C. It would be inconsistent with the transferability of bills of lading and their use in international trade if subsequent holders could be affected by agreements that do not appear in the terms of the bill.

Special problems arise in cases in which the vessel is subject to at least one charter party, where it is likely that the carriage of goods by sea will be subject to at least two separate contracts: the charter party and the contract of carriage contained in or evidenced by a bill of lading. 

Ideally, the contractual terms relating to the carriage of the goods will be the same under both the charter party and the bills of lading. Incorporation clauses are commonplace in bills of lading in order for the shipowner who is also the carrier under the bills of lading to turn to and face the bill of lading holders on the same terms as the charter party. However, if these two contracts are on different terms, the question arises as to which contract governs the relationship between the parties. It has long been settled that as between the charterer and the shipowner, the charter party is the contract and the bill of lading operates merely as a receipt and a document of title (Rodocanachi v Milburn). However, there is an exception to this rule: when a charterer buys goods covered by a bill of lading while using the vessel as a ‘general ship’, disputes in relation to the carriage of the goods will be governed by the bill of lading, not by the charter party (see Calcutta Steamship v Andew Weir and Co).

2. Parties to the contract: identity of the carrier

Where bills of lading are issued in respect of cargo which is carried on a ship that has been let to time charterers (as may well be the case where goods are carried by a shipping line), several factors previously made it difficult for holders of the bills of lading to know whether the contract was made with the charterers or with the shipowners.

Unlike some other European systems, English law tolerated the use of so-called ‘demise clauses’ – that is to say, a provision (usually buried in the small print on the back of the bill) that if the party issuing the bill is not the owner or demise charterer of the ship, the bill is to take effect solely as a contract with the owner or demise charterer. Moreover, much ingenuity was devoted to construing the bill ‘as a whole’ to take account of the small print.

Such uncertainty was very difficult to reconcile with the protection of transferees of bills of lading that the interests of international commerce require. Fortunately, in The Starsin, the House of Lords adopted a radical new approach that recognises the needs of international commerce and brings the law on bills of lading into line with international banking practices, by which banks do not examine the terms and conditions on the back of the bill of lading when deciding whether the bill conforms with the requirements of a documentary credit. Under The Starsin, if the carrier is clearly identified on the face of the bill of lading, that identification will be decisive on the question of identity of carrier (see The Hector).

If there is no such clear identification and if there is an identity of carrier or a demise clause in the bill of lading, the question of identity of carrier will be decided by reference to that clause (The Venezuela and The Berkshire). If the bill of lading does not contain such a clause, then the courts will proceed on the assumption that the shipowner is the carrier (The Rewia). This presumption is not followed in cases where the bill of lading is issued in the charterers’ form and where the charterers are a very well-known shipping company (see Elder Dempster v Paterson Zochonis).

3. Incorporation of charter party terms in bills of lading

English law permits the practice of referential incorporation of terms from a charter party into a bill of lading, but has set strict requirements:

  1. in the interests of commercial certainty
  2. in recognition of the fact that a bill of lading ‘may come into the hands of a foreign party with no knowledge and no ready means of knowledge of the terms of the charter party’ (per Bingham LJ in The Federal Bulker).

The principles are usefully summarised in Siboti v BP France.

While it may be difficult to reconcile all the cases, certain principles are well established:

  1. The question of incorporation is decided by reference to the putative proper law of the bill of lading (see The Heidberg).
  2. The charter party to be incorporated must be reduced into writing before the bill of lading is issued (see The Heidberg).
  3. If the charter party is amended after the bill of lading is issued, the original charter party, not its amended version, can be incorporated, unless the incorporation clause in the bill of lading clearly provides otherwise (see Fidelitas Shipping Co Ltd v V/O Exportchleb).
  4. Recap telexes and emails will satisfy the writing requirement (The Epsilon Rosa and The Channel Ranger).
  5. The charter party to be incorporated need not be identified in the bill of lading (The Garbis).
  6. If the vessel is subject to more than one charter party and if the charter party to be incorporated is not identified in the incorporation clause, it is presumed that the head charter party is incorporated (The San Nicholas).
  7. Where the head charter party is a time charter party and where the sub-charter party is a voyage charter party, English law shifts this presumption to the voyage sub-charter party.
  8. Where freight is payable ‘as per charter party’ payment subject to agreed deductions that are not provided for in the charter party itself will be due payment (The Spiros C).

The process of incorporation involves two stages:

  1. The first stage is for the intention to incorporate the charter party clause in question to be shown by clear words in the bill of lading such as ‘all terms, conditions and exceptions to be as per charter party’. Operative words of incorporation are to be found in the bill of lading, not in the charter party (The Varenna). General words of incorporation such as this can only incorporate those charter party provisions that are ‘germane to the receipt, carriage, or delivery of the cargo or the payment of freight’. For instance, a free in and out, stowed and trimmed (FIOST) clause or a similar clause can be incorporated through general words of incorporation (The Jordan II). An arbitration clause is not germane in this sense and will not be incorporated by general words (Thomas v Portsea). The same applies to an exclusive jurisdiction clause (Siboti v BP France). Where an incorporation clause refers to a ‘law and arbitration’ clause of a charter party and where the relevant charter party only provides for English law and jurisdiction, the incorporation clause will be apt to incorporate the English law and jurisdiction clause in the charter party (The Channel Ranger).
  2. The second stage only arises if the bill of lading refers specifically to the clause to be incorporated or, where general words are used, the clause is germane to the carriage. At this second stage it must be shown that the charter party wording is apt for inclusion in the bill of lading, and, in the case of a ‘germane’ clause, some ‘verbal manipulation’ is usually permissible (The Annefield).

Thus, in The Nerano, the bill of lading provided that all terms and conditions and the arbitration clause of the charter party were incorporated, thus satisfying stage one. However, the arbitration clause referred only to disputes ‘between the Owners and Charterers’. The Court of Appeal held that stage two was also satisfied: the intention to refer disputes to arbitration was clear and the wording of the arbitration clause could be manipulated to cover disputes under the bill of lading.

However, in Miramar Maritime v Holborn Oil Trading, the House of Lords held that a charter party clause imposing liability for demurrage on the charterer (and thus germane to the carriage) could not be manipulated by substituting ‘consignee’ for ‘charterer’. It was unlikely that the parties intended to impose such uncertain and potentially extensive liabilities on consignees in respect of matters over which they might have had no control, such as demurrage accrued at the loading port.

After the stage of manipulation, it may then be necessary to consider if the incorporated charter party provisions are consistent with the express provisions in the bill of lading. If they are not, the express provisions in the bill of lading will prevail over the incorporated charter party provisions (Gardner v Trechmann).

4. Bills of lading and third parties

The problem to be considered here is whether clauses in a bill of lading that limit or exclude the carrier’s liability can be relied upon by independent third parties who are engaged in the actual operations of loading, carrying or discharging the goods.

In no other branch of the subject has there been such wavering of judicial opinion. In Elder Dempster v Paterson Zochonis, the House of Lords upheld the owners’ right to rely on the exception for bad stowage contained in bills of lading issued by the charterers. For many years this decision was viewed with some suspicion and said to be anomalous, but its soundness is now accepted as an application of the ordinary principles of the law of bailment (The Mahkutai).

It is also now accepted that a suitably drafted clause (a so-called ‘Himalaya’ clause) will confer the benefit of exceptions in the bill of lading on servants, agents and independent contractors such as stevedores (The Eurymedon, The New York Star). The courts now recognise that it is undesirable, in a commercial context, that plaintiffs should be allowed to circumvent exception clauses by suing the agent who caused the damage. That would mean ‘redistributing the contractual allocation of risk which is reflected in the freight rate and in the parties’ respective insurance arrangements’ (per Lord Goff of Chieveley in The Mahkutai).

The same result can now be achieved under the provisions of the Contracts (Rights of Third Parties) Act 1999.

In The Mahkutai, the wording of the particular Himalaya clause was held not to be sufficiently clear to give the shipowners the benefit of an exclusive jurisdiction clause. A differently worded clause could have achieved the result contended for.

If the party seeking to rely on a Himalaya clause has also entered into a contract of its own with the shipper, that contract will take precedence over the Himalaya clause. See The Rigoletto, where the stevedores were found to be bailees. Principles of bailment may lead to the inclusion of an exclusive jurisdiction clause, as well as exceptions in the bill of lading (The Pioneer Container).

In The Bao Yue, it was held that a shipowner was entitled to cover reasonable expenses of dealing with a cargo where the consignee was unwilling or unable to perform his/her duty to discharge the cargo. In support of this decision, Mr Justice Males said at para.48: ‘I would hold that a goods owner who authorises a bailee to deliver goods into storage must be taken to authorise the creation of a lien where that is a reasonable and foreseeable incident of the storage contract which the bailee is authorised to conclude’.

  • For further enquiries or clarification, kindly contact us.