CONTRACT OF CARRIAGE OF GOODS BY SEA

The bulk of maritime commercial activity involves carriage of goods. The most important

document used in this type of transaction is the bill of lading or transport documents as in the

Rotterdam rules. There are two main types of contract which are in wide used when we speak

about transportation of goods by sea; a charter party contract and a bill of lading contract.

A charter party is a contract, a private contract between two principal parties. A bill of lading is

the best available evidence of the contract of carriage between the shipper and the carrier, and

contains the contract when it reaches the hands, properly and unconditionally, of an innocent

third party.

A) CHARTERPARTIES

Charter party is a maritime contract between a ship-owner and a ‘charterer’ for the hire of ship

for either the carriage of passengers or cargo, or a yacht for pleasure purposes.

Thus, a charter party is a private agreement between two parties, individuals or corporate. Like

any other contract, only those who entered into it can sue or be sued upon it. The person entitled

to use the ship is the chatterer and the ship is said to be under charter. Charter parties can be

divided in to three categories:

1) VOYAGE CHARTERPARTY

The voyage charter is one of the oldest forms of contract for the carriage of goods. In a voyage

(trip) charter party, freight is paid by the charterer. The amount of freight payable can be agreed

as a lump sum, but more usually depends on the quantity of cargo carried. It does not depend on

the time the voyage takes. The same principle holds good for the consecutive voyage charter

party except that there freight is paid for a series of consecutive voyages.
The chatterer pays the ship owner freight; the basis on which freight is calculated being

independent of the time the voyage actually takes .thus the ship owner bears the risk of any

delay. If the voyage takes longer than expected, the ship owner loses out: he cannot claim any

extra freight from the chatterer to compensate for delay; nor can he make use of the vessel for the

period to earn freight elsewhere.

TERMS PECULIAR TO VOYAGE CHARTERS

A number of unique terms applies just to voyage charter

- Voyage charters make provisions for freight , the amount of which usually depends on

the amount of cargo loaded

- All voyage charter parties have clauses stipulating how much cargo the chatterer must

load and how quickly it must be loaded and discharged

- To encourage as little delay as possible , all voyage charter parties have lay time and

demurrage clauses, which are intended to hurry up the cargo handling process; lay time is

the time in which ( after a valid notice of readiness has been tendered) the chatterer is

allowed to load and/or discharge. If he exceeds the lay time allowed, demurrage becomes

payable at an agreed rate. Demurrage can be technically defined as liquidated damages

for the chatterer’s breach of contract in not completing the handling the cargo within the

lay time

2) TIME CHARTER

A time charter party is a contract (between ship owners and the chatterers) for the hire of a

ship owned by the ship owners, and the services of its crew for a period of time. The contract

relates typically with the date of the charter party, the names and domicile of the contracting

parties, the name, present position, the description and condition of the vessel. The chatterers
will have the use of the vessel for an agreed period, which is typically fixed as a number of

calendar months. It is obviously difficult for the chatterers to be able to predict exactly when

the last voyage to be completed, so a margin is usually agreed at chatterer’s option to allow

for the final voyage to be completed. The consideration moving from the chatterer is the

payment of hire. There will be a hire clause including a withdrawal provision conferring

upon the owners the right to withdraw the vessel for non-payment of hire.

It follows that it is in the interests of the chatterers to hurry, because they pay hire at the same

rate however much, or little use, they make of the vessel over the charter party period. It is

the charter party who bears the risk of any delay. Although the master and the crew are

engaged by the owners in a time charter, the master is under the orders of the chatterers and

must go where the chatterers direct.

Clauses in a time charter

There are substantial differences between the two types of charter

- The time charter party always contains stipulations as to the speed of the vessel whereas

voyage charter parties need not rarely do. The speed of the vessel is of importance to time

chatterers because on it directly depends the number of voyages they can complete within

the period.

- Since under a time charter it is in the interest of the chatterer to hurry up, there is no need

for lay time and demurrage provisions. On the other hand, however, there will be an off-

hire clause to prevent hire continuing to be payable when the ship is unusable to the

chatterer. E.g due to repairs

3) DEMISE CHARTERPARTIES
This is in many respect similar to time charter parties. Demise charter party are also for a period,

the hire payable depending upon the period, rather than the number of voyages made, or the

tonnage of the cargo carried. The time charter party is the more modern form of agreement, the

origins of the demise charter pre-dating those of time charter parties. Today the charter party by

demise is rarely used for the general carriage of freight. Charters by demise are usually used for

short term hire of passenger vessels. Recently however, longer time charter parties have become

more common again, especially in the oil tanker trade.

Distinction between time and demise charters

- The main distinction between the two is that under a time charter party, the ship owner

provides not only the vessel itself, but also the services of the master and crew. Under a

demise charter, the service of the master and crew are not provided.

- Under time charter, although the master is under the directions of the chatterer, the

owners technically retain possession of the vessel. Demise chatterers on the other hand,

take full possession of the vessel

- Under a time charter party, the owners remain responsible for the maintenance of the

vessel, and there is also typically an off-hire clause.

B) CONTRACT OF CARRIAGE OF GOODS (A BILL OF LADING)

Background of the bill of lading

Bills of lading have been known from at least the thirteenth century. At that times, shippers

(usually the owners of the goods) as a rule accompanied their cargo on the voyage to destination

and bill of lading served only as an invoice of the goods shipped. Later, in the sixteenth and

seventeenth centuries, when larger ships began to carry varied goods belonging to several

shippers, this practice gradually frizzled out and it became the custom to incorporate the terms
of the contract of carriage into the bill of lading. Finally, to meet the requirement of the

businessmen who wished to sell the goods before the vessel reached its destination, the bill of

lading extended its status to a document of tittle. At the end of the eighteenth century, bill of

lading was characterised as’ the written evidence of a contract of the carriage and delivery of

goods sent by sea for a certain freight.

DEFINITION OF BILL OF LADING

A bill of lading is literally a document that records certain goods as having been loaded on board

a ship. If the carrier fails to deliver the stated quantity, there will be evidence to indicate that loss

or damage occurred while the goods were in transit. In summary, a bill of lading issued by a

carrier which acknowledges the receipt of cargo, containing terms of carriage and may operates

as a document of title.

The Halsbury’s Laws of England at paragraph 1532 defines a bill of lading as: ‘a document

signed by the owner, or by the master or agent of the ship owner, which states that certain

specified goods have been shipped in a particular ship, and which purports to set out the terms on

which the goods have been delivered to and received by the ship for carriage.

LEGAL CHARTER OF A BILL OF LADING (FUNCTION OF THE BILL OF LADING)

A) AS A RECEIPT

The bill of lading will acknowledge the quantity of goods put on board, the description and the

condition. As the goods are loaded they will be checked by a tally clerks and if the particular are

found to be correct it will be signed by the parties. Under the rules, the carrier is bound on the

shipper’s demand, to issue a bill of lading which must show, among other things, the leading
marks necessary for identification of the goods, the number of packages/pieces or the quantity or

weight of the goods and their apparent order and condition. When goods have been loaded on

board of vessel and signed bill of lading handed by the master to the shipper, such bill of lading

begins its existence in a role of master’s receipt for shipper’s goods and not a contract as

between the shipper and the ship owner. It is a receipt for the goods, stating the terms on which

they were delivered to and received by the ship, and the excellent evidence of those terms, but it

not a contract. The carrier is not bound to show any of this information in the bill of lading if he

has reasonable ground to suspect its accuracy.

B) DOCUMENT OF TITLE

As well as being a receipt, the bill of adding, may also act 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. When issuing the bill of lading, the ship-owner undertakes to the consignor to

deliver the goods on the presentation of an original bill of lading at the port of discharge. This

undertaking is transferable to subsequent holders of the bill of lading without any further

involvement of the ship-owner. The use of the words to ‘order’ or ‘to assigns’ indicates the

transferability of this undertaking, which is what gives the document its character as a document

of title. However, under the common law, the bill of lading is transferable but not negotiable in a

way as bill of exchange is. When transferred, the bill of lading operates to transfer right of

possession of the goods it represents but not necessarily the ownership in the goods, which

depends upon the terms of the contracts of sale and /or carriage and the intention of the parties.

The bill of lading had long been recognize by the courts, following mercantile usage, as having

this quality, in Clemens Horst Co v Biddell Bros, 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.

C) EVIDENCE OF CONTRACT OF CARRIAGE

Being a receipt as between the carrier and the shipper, at the beginning of a maritime adventure,

the bill of lading may later evidence a contract between the carrier and the person taking delivery

of the goods for safe custody of the cargo. Though not in it the contract between the ship owner

and shipper of the goods, the bill of lading can be a good evidence of the terms of contract.

TYPES OF BILLS OF LADING

There are many documents which use the description bill of lading but which preface it by such

words such as ocean, liner, or straight, electronic bill, surrender bill etc.

1) Liner bill of lading

This is a bill issued by a shipping line that usually offers a regular service, with fixed loading

dates at particular ports of call;

2) Marine bill of lading or ocean bill of lading

This refers to a document covering the carriage of goods by sea and not by any other mode of

carriage

3) Straight bill of lading

This bill states that goods are consigned to a specified person and it is not negotiable free from

existing equities i.e any endorsee acquires no better rights than those held by the endorser. So if
for instance, the carrier or another holds a lien over the goods as security for the unpaid debts,

the endorsee is bound by the lien.

4) BEARER BILL OF LADING

This bill states that delivery shall be made to whosoever holds the bill. Such bill may be created

explicitly or it is an order bill that fails to nominate the consignee whether in its original form or

through an endorsement in blank.

5) Blank bill of lading

This does not name the consignee but makes the goods deliverable to bearer or order or assigns.

It may be transferred by delivery without endorsement. ‘Blank’ is used in two senses: that is so

long as the goods are delivered to a name left blank or the endorsement is blank.

OTHER DOCUMENTS USED IN CARRIAGE OF GOODS BY SEA

1) MATE’S RECEIPT

Documents other than the bill of lading are used in respect of goods carried by sea. One of these

is the ‘mate’s’ receipt which may be given when good are in the custody of the ship but no bill of

lading has been issued. The document is not normally a document of title although it may be so

in some cases by virtue of a local custom. The carrier is not estopped by any statement in the

mate’s receipt as to quantity or condition. The holder of the mate’s receipt is, however, prima

facie entitled to have the bill of lading issued to him. Since the bill of lading will be issued on the

basis of the mate’s receipt it follows that any defect in the condition of the goods should be noted

in the latter document. In the Nogar Marin the master issued a clean mate’s receipt although the
cargo of wire rods was rusty when loaded. The ship’s agents consequently issued a clean bill of

lading. The master had been negligent and was liable on the bill of lading

2) 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 an undertaking by the carrier to the shipper to deliver the goods to

an identified 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. It is not a document of time so it cannot be used

as security. The chief advantage lies in the fact that it does not have to be transmitted to the

consignee to enable him to obtain the goods.

3) Delivery orders

An exporter who ships a bulk cargo and receives one bill of lading in respect of it, or an endorsee

of this bill of lading ; may afterwards, while the goods are in transit, sell various unascertained

portions of this cargo to different buyers. He clearly cannot transfer the bill of lading to all the

buyers and must finds 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 case a delivery order may be used.

A delivery a document addressed by the owner of the goods to a party such as a carrier or

warehouseman who has custody of the goods, ordering him to deliver them to or hold them for a

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

of mercantile custom.