Ch 11 - Transportation

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Chapter 11 TransportationChapter 11 TransportationChapter 11 TransportationChapter 11 TransportationA. TRADE TERMS

A Note on the Incoterms"Free" TermsFOB-Free on BoardFAS-Free AlongsideCIF-Cost, Insurance, and FreightCFR-Cost and FreightDES-Delivered Ex ShipFCA-Free CarrierEXW-Ex Works

B. TRANSPORTATIONC. INLAND CARRIAGED. CARRIAGE OF GOODS BY SEA

Common CarriageThe Bill of LadingCarrier's Duties under a Bill of LadingCarrier's ImmunitiesLiability LimitsTime LimitationsThird-Party Rights (Himalaya Clause)

E. CHARTERPARTIESVoyage CharterpartiesTime CharterpartiesCharterparties and Bills of Lading

F. MARITIME LIENSG. MARITIME INSURANCE

PerilsAverage Clauses

H. CARRIAGE OF GOODS BY AIRCHAPTER QUESTIONSREVIEW PROBLEM

A. TRADE TERMSA. TRADE TERMSA. TRADE TERMSA. TRADE TERMS

Sales contracts involving transportation customarily contain

abbreviated terms describing the time and place where the buyer isto take delivery. These trade terms, such as free on board (FOB)and cost, insurance, and freight (CIF), may also define a varietyof other matters, including the time and place of payment, theprice, the time when the risk of loss shifts from the seller to the buyer, andthe costs of freight and insurance.

The same trade abbreviations are widely used in both domestic and



international trans-actions. Unfortunately, they have different meanings

depending on the governing law. 1 In the United States, for example, the UniformCommercial Code defines trade terms for domestic and export sales. In the United

Kingdom, the terms are defined by reference to case law. 2 Virtually all domesticlaws, however, allow the parties to define the terms themselves, or to

incorporate definitions from foreign legislation or from a specific set ofprivate rules. The United Nations Convention on Contracts for the InternationalSale of Goods similarly allows parties to incorporate trade terms of their

choosing. 3

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1 See Trade Terms, an International Chamber of Commerce publication (Document No. 16, issued in 1955), which

describes how 10 major trade terms are defined in 18 countries.

Not all countries use trade terms, however. Japan, for example, has no established set of domestic trade

terms. Hisashi Tanikawa, "Risk of Loss in Japanese Sales Transactions," Washington Law Review, vol. 42, p.

475 (1967).

2 See D. Michael Day, The Law of International Trade, pp. 40-80 (1981).

3 UN Convention on the International Sale of Goods, Article 6 (1980), provides: "The parties may exclude the

application of this Convention, or ... derogate from or vary the effect of any of its provisions."

The most widely used private trade terms are those published by theInternational Chamber of Commerce (ICC). Called In to Terms, they are well knownthroughout the world, and their use in international sales is encouraged by trade

councils, courts, and international lawyers. 4 First published in 1936, thecurrent version is Incoterms 1990. 5 Parties who adopt the Incoterms, or any othertrade terms, should make sure they express their desire clearly. For example, a

contract might refer to "FOB (Incoterms 1990)" or "CIF (U.S. Uniform CommercialCode)." Courts will otherwise apply the definitions used in their own

jurisdictions. 6 Parties should also refrain from casually adopting any particularset of terms. The ICC's Incoterms, which are possibly the most complete of allsuch rules, are lengthy and deserve careful study. Finally, parties should bewary about making additions or varying the meaning of any particular term, exceptto the extent that it is allowed by the rules they adopt or by judicial decision.



Courts are as apt to ignore a variation, or hold that the entire term is inef-

fective, as they are to apply it. 7

The parties 1 failure to use any trade term at all can also produce unexpectedresults. Courts are then left to divine the parties' intent and to decide the

case based on local commercial practice. Such a problem arose in the next case.

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4 The National Foreign Trade Council in New York, which issued its own definitions, the Revised American

Foreign Trade Definitions, in 194-1, has since 1930 encouraged traders to use the Incoterms instead. See

Paul I-I. Vishny. Guide to International Commerce Law, § 2-36 (1998).

5 International Chamber of Commerce, Incoterms I9VQ (Publication Mo, 4fiO, TWO). The previous version was

published in 1980, International Chamber of Commerce, Incoterms (Publication No. 350,1980).

6 Frederic Eiscmann, "'Incoterms and the British Export Trade,'' Journal of Business Law., vol. 1965, p. 119

(1965), doubts that Incoterms have become sufficiently accepted to constitute u trade usage or custom.

7 Paul H. Vishny, Guide to International Commerce Law, 5 2-37 (1998).

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Case 11Case 11Case 11Case 11- ---1 Pestana v. Karinol Corporation et al.1 Pestana v. Karinol Corporation et al.1 Pestana v. Karinol Corporation et al.1 Pestana v. Karinol Corporation et al.United States, Florida District Court of Appeal. Third District (l979).

Southern Reporter, Second Series, vol. 367, p. 1096 (1979).

Judge Hubbart:Judge Hubbart:Judge Hubbart:Judge Hubbart:

* * *

The central issue presented for review is whether a contract for the salt ofgoods which stipulates where the goods are to tie sent by carrier but contains(a) no explicit provisions allocating the risk of loss while the goods are in thepossession of the carrier and (b) no delivery terms such tit, FOB place ofdestination, is a shipment contract or a destination contract under the UniformCommercial Code. We hold that such a contract, without more, constitutes ashipment contract wherein the risk of loss passes to the buyer when the seller



duly delivers the goods to the carrier under a reasonable contract of carriagefor shipment to the buyer. Accordingly, we affirm.

…Where the risk of loss falls on the seller at the lime the goods sold arelost or destroyed, the seller is liable in damages to the buyer for nondelivery,

unless the seller tenders a performance in replacement for the

destroyed goods. On the other hand, where the riskof loss falls on the buyer at the time the goods arelost or destroyed, the buyer is liable lo the sellerfor the purchase price of the goods sold.

In the instant case, we deal with the normalshipment contract involving the sale of goods. The

defendant Karinol pursuant to this contract agreedto send the goods sold, a shipment of watches, to the plaintiff's decedent inChetumal, Mexico. There was no specific provision in the contract between theparties which allocated the risk of loss on the goods sold while in transit. Inaddition, there" were no delivery terms such as FOB Chetumal contained in thecontract.

All agree that there is sufficient evidence that the defendant Karinolperformed its obligations as a seller under the Uniform Commercial Code if this

contract is considered a shipment contract. Karinol put the goods sold in thepossession of a carrier and made a contract for the goods safe transportation tothe plaintiff's decedent.

Karinol also promptly notified the plaintiff's decedent of the shipment andtendered to said party the necessary documents to obtain possession of the goodssold.

The plaintiff Pestana contends, however, that the contract herein is adestination contract in which the risk of loss on the goods did not pass untildelivery on such goods had been tendered to him at Chelumal, Mexico—an eventwhich never occurred. He relies for this position on the notation at the bottomof the contract between the parties, which provides that the goods were to besent to Chetumal, Mexico. We cannot agree. A '"send to" or ''ship to" term ispart of every contract involving the sale of goods where carriage is contemplatedand has no significance in determining whether the contract is a shipment or



destination contract for risk of loss purposes. As such, the "send to" termscontained in this contract cannot, without more, convert this into a destinationcontract.

The plaintiff (buyer) was liable lo the defendant (seller) for the full

contract price of the watches.

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A Note on the IncotermsA Note on the IncotermsA Note on the IncotermsA Note on the Incoterms

Because the ICC's Lncotenns are the most commonly used trade terms, most of thisdiscussion of tradeterms will focus onthem.

The 1990 revisioncontains severalsignificantmodifications,reflecting changes bothin technology and inshipping practices that

occurred during the1980s.The ICC, inintroducing the newterms, states; "The mainreason for the 1990revision of Incotermswas the desire to adaptterms to the increasinguse of electronic datainterchange (EDI)." Theterms, accordingly,allow parties totransmit documentselectronically, including negotiable bills of lading, so long as their contractspecifically allows them to do so. The second major reason for the revisionstemmed "from transportation techniques, particularly the unitization of cargo in



containers, multimodal transport and roll-on roll-off traffic with roadvehicles and railway wagons in 'short sea' maritime transport." Incoterms 1990,

as a consequence, no longer uses terms that apply to peculiar modes of land andair transport—for example, free on rail (FOR), free on truck (FOT), and FOBairport. Instead, the "free carrier" term has been expanded.

The 1990 revision groups the trade terms into four groups arranged accordingto the parties' obligations. The "E" Group (i.e., ex works [EXW]) requires thebuyer to take delivery of the goods at the buyer's premises. The "F" Group(i.e.,free carrier[FCA], free alongsideship [FASJ, and free onboard] requires theseller lo deliver goodsto a carrier. The "C"Group (i.e., cost andfreight [CFR]; cost,insurance, and freight[CIF]; carriage paid lo[CPT]; and carriage andinsurance paid to [C1P])requires the seller to

arrange and pay COTcarriage, but he doesnot assume the risk forJoss or damage once thegoods are delivered lothe carrier. The "D"'Group (i.e., deliveredat frontier [DAF],delivered ex ship (DBS),delivered ex quay [DEQ],delivered duty unpaid[DDU], and deliveredduty paid [DDPJ) requires the seller lo bear all costs and risks of bringing thegoods to the buyer's country.

Certain Incoterms apply only to particular forms of transport. FAS, FOB, CFR,



CIF, DES, and DEQ apply only to sea and inland waterway transport. The otherterms—EXW. FCA, CPT, CIP, DAF, DDU, and DDP—apply to any form of transport.These last are especially important when several different forms of transport(i.e., "multimodal" transport) are used to get goods to their destination. Thisarrangement of the Incoterms is summarized in Exhibit 11-5.

The most important trade terms are discussed in the text. Other terms are definedin Exhibit 11-8.

"Free" Terms"Free" Terms"Free" Terms"Free" Terms

Several of the common trade terms begin with the word free freefreefree (e.g.,freeonboard,freealong-side,freecarrier)."Free"means

thatthesellerhasanobligationto deliver the goods to a named place for transfer to a carrier. National lawssometimes treat the "free" terms as interchangeable, so it is important forcontracting parties to identify not only the term but also the set of rules that

applies to their particular transaction. 8

FOBFOBFOBFOB————Free on BoardFree on BoardFree on BoardFree on Board

Historically, free on board,free on board,free on board,free on board, as its name suggests, is a maritime trade term; andin most of the world its use remains limited to seaborne commerce. The ICC'sIncoterms 1990, accordingly, uses it only in connection with the carriage of



goods by sea. In common law countries, however, it is also used

for inland carriage aboard any "vessel, car or other vehicle." 9

The FOB (port of shipment) contract requires a seller to deliver goods onboard a vessel that is to be designated by the buyer in a manner customary at the

particular port. For example, FOB Singapore requires the buyer to name the shipthat will accept delivery in Singapore, and the seller must deliver the goods onboard the ship as required by the port rules in Singapore. The Incoterms 1990

description of the parties' particular duties is set out in Exhibit 11-6.

Theessenceof anFOB

contractis thenotionthat asellerisresponsibleforgettinggoodsonboard ashipdesignatedby abuyer.What is

meantby "onboard"hasbeentheissue



inmany cases and is described in detail in the Incoterms. Traditionally (andaccording to the Incoterms), goods are "on board" a ship the moment they crossits rail. A seller's responsibility, however, does not end at that point, unlessthe goods are also "appropriated to the contract"—that is, they are "clearly set

aside or otherwise identified as the contract goods." Thus,

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8 In. France, for example, the distinction between FOB and FAS is sometimes blurred. Frederic Eisemann,

Usages de la Vente Commercial Internationale, p. 83 (1972).

9 United States, Uniform Commercial Code, § 2-319(l)(c). For the practice in the United Kingdom, see D.

Michael Day, The Law of International Trade, p. 42 (1981)

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Source: Incoterms 1990 (International Chamber of Commerce, Pub. No. 460).

the seller continues to be responsible for the goods even after the buyer'schosen ship takes control of the goods at the end of its cargo boom and begins tohoist the goods off the dock. Moreover, the seller may remain responsible for thegoods even after they are loaded onto the ship, if they remain unidentified tothe buyer's contract. This traditional rule is both applied and criticized in the

following case

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Case 11Case 11Case 11Case 11- ---2 Pyrene Co., Ltd. v. Scindia Navigation Co., Ltd.2 Pyrene Co., Ltd. v. Scindia Navigation Co., Ltd.2 Pyrene Co., Ltd. v. Scindia Navigation Co., Ltd.2 Pyrene Co., Ltd. v. Scindia Navigation Co., Ltd.

England, Queen's Bench, 1954.

AU England Law Reports, vol. 2,p. 158 (1954).

In August, 1948, the plaintiffs entered into a contract with the Government ofIndia, through the Indian Store Department (known as I.S.D.), by which theyagreed to sell a number of “Pyrene” airfield crash tenders, FOB London. InFebruary, 1951, the plaintiffs notified I.S.D., through its shipping agents,Bahr, Behrend &Co. (who were also freight brokers)

for the defendants), arranged for the tender to be



shipped on the SS Jalazad, belonging to thedefendants. In pursuance of instructions contained in a letter dated April 7,1951, from I.S.D., the plaintiffs delivered the tender at the Royal Albert Dockin the Port of London for delivery to the defendants for loading. On April

16,1951, the tender was put into a Port of London barge and delivered to thedefendants alongside the Jalazad, and, while the defendants' stevedores were inthe process of lifting it on board the ship by means of the ship's tackle andbefore it was across the skip's rail, it was, through the fault of the ship,dropped and damaged.

Judge Devlin:Judge Devlin:Judge Devlin:Judge Devlin:

... The damage to tie tender cost £966 lo repair and the plaintiffs sue fur that

sum. The defendants admit liability, but claim that the amount is limited underArticle IV (5) of the Hague Rules. The limit stated in that rule is ... £200....

The fire tender was not the only piece of machinery supplied by the plaintiffsfur shipment on board this ship, though it was the only piece that was damagedbefore shipment. A bill of lading had been prepared to cover the whole shipment,and it was issued to I.S.D. in due course but with the fire tender deleted fromit. The bill of lading incorporated the Hague Rules and was subject to theirprovisions, as by the Carriage of Goods by Sea Act. 1924, § 3, it was bound to

be. It is not disputed that, in this case, as in the vast majority of cases, thecontract of carriage was actually created before the issue of the bill of ladingwhich evidences its terms.

I think it is convenient to begin by considering the effect of the rules. Forcounselfortheplaintiffscontendsthat,evenif abilloflading



coveringthe fire tender had been issued incorporating the rules, the holder of the billwould not be subject to immunity in respect of an accident occurring at thisstage of the loading. If this is so, it disposes of the defendants' plea. If itis not so, I shall have to consider whether the rules affect the contract of

affreightment when no bill of lading is issued, and whether the plaintiffs were aparty to that OT any similar contract. The argument of counsel for the plaintiffsturns on the meaning to be given to Article I(e) which defines "carriage forgoods" as covering:

the period from the time when the goods are loaded on to the time when theyare discharged from the ship.

Counsel says these goods never were loaded on to the ship. In a literal sense

obviously they were not. But counsel docs not rely on the literal sense; thereare rules which could hardly be made intelligible if they began to operate onlyafter the goods had been landed on deck. He treats the word "on" as having thesame meaning as in "free on board"; goods are loaded on the ship as soon as theyare put across the ship's rail, which the tender never was He relies on Harris v.

Best, Ryley & Co. 10 and Argonaut Navigation Co., Ltd. v. Ministry of Food, S.S.

Argobec 11 which lay down the rule that loading it. a joint operation, theshipper's duty being to lift the cargo lo the rail of the ship (I shall refer to

that as the first stage of the loading) and the shipowners to take it on boardand stow it (I shall refer lo that as the second stage).

Counsel contends, therefore, that the accident occurred outside the periodspecified in Article l(c). So, he says Article IV (5) (which limits liability),and, indeed, all the other rules which regulate the rights and responsibilitiesof the shipowner, do not apply....

In my judgment, this argument is fallacious, the cause of the fallacy,

perhaps, lying in the supposition inherent in it that the rights and liabilitiesunder the rules attach lo a period of time. I think they attach to a contract orpart of a contract. I say "part of a contract" because a single con-tracl maycover both inland and sea transport; and, in that

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10Law Times Reports, vol. 68, p. 76 (1892).



11 All England Law Reports, vol. 1949, pt. 1, p. 160 at p. 163 (King's Bench, 1949).

case, the only part of it that falls within the rules is that which, to use thewords in thedefinition of

"contract ofcarnage'" inArticle l(b),"relates to thecarriage ofgoods by sea."Even if"carriage ofgoods by sea"were given bydefinition themost restrictedmeaningpossible—forexample, theperiod of the voyage—the loading of the goods (by which I mean the wholeoperation of loading in both its stages and whichever side of the ship's rail)

would still relate to the carriage on (he voyage and so be within the "contractof carriage."

Article II is the crucial article which, for this purpose, has to beconstrued. It is this article that gives the carrier all his rights andimmunities, including the right to limit his liability—

But before I try to elucidate that, let me state my view of Article I(e). For,as I have said, though not dominant, it is not irrelevant; in construing

"loading" in Article II you must have regard to similar expressions throughoutthe rules, Article I(e) included. In my judgment, no special significance need begiven to the phrase "loaded on". It is not intended to specify a precise momentof time—The function of Article I(e) is, I think, only to assist in thedefinition of contract of carriage. As T have already pointed out. there isexcluded from that definition any part of a larger contract which relates, forexample, to inland transport. It is natural to divide such a contract into



periods, a period of inland transport, followed, perhaps, by a period of seatransport and then again by a period of inland transport. Discharging from railat the port of loading may fall into the first period; loading on to the shipinto the second. The reference to "when the goods are loaded on" in Article I(e)is not, I think, intended to do more than identify the first operation in the

series whichconstitute thecarriage ofgoods by sea. as"when they aredischarged"denotes thelast. The use ofthe rather looseword "cover," Ithink, supportsthis view.

... Article111(2), forexample,provides: "the

carrier shallproperly andcarefully load,"etc. If "load"includes boutstages, doesthat oblige the shipowner, whether he wants to or not, to undertake the whole ofthe loading? If so, it is a new idea to English lawyers, though, perhaps, morerevolutionary in theory than in practice. But, if not, and '"load" includes onlythe second stage, then should it not be given a similar meaning in Article IIwith the result that immunity extends only to the second stage? There is,however, a third interpretation to Article 111(2). The phrase "shall properly andcarefully load" may mean that the carrier shall load and that he shall do itproperly and carefully, or that he shall do whatever loading he does properly andcarefully. The former interpretation, perhaps, fits the language more closely,but the latter may be more consistent with the object of the rules. Their object





The term free alongside or free alongside ship requires the seller to delivergoods to a named port alongside a vessel to be designated by the buyer and in a

manner customary to the particular port. 14 ''Alongside" hastraditionally meant that the goods be within reach of a ship's

Lifting tackle. This may, as a consequence, require that theseller hire lighters. to[take the goods out to a ship in portswhere this is the practice. In other respects, therequirements of an FAS term are the same as an FOB contract.The seller's responsibilities end upon delivery of the goodsalongside.

CIFCIFCIFCIF————Cost, Insurance, and FreightCost, Insurance, and FreightCost, Insurance, and FreightCost, Insurance, and Freight

The most important and commonly used shipping term is cost,insurance, and freight. The CIF term is preferred by buyersbecause it means that they have little to do with the goodsuntil the goods arrive at a port of destination in theircountry. A CIF price quote also allows buyers to compareprices from suppliers around the world without having to takeinto consideration differing freight rates, since the seller pays the freight andinsurance. Export-sellers are often under pressure from [heir governments to usedomestic carriers and insurers, so they too like the term. On the other hand,sellers may not be able lo find domestic carriers or insurers; and buyers, underpressure from governments that are also concerned about employing nationalcarriers and insurers, may settle for an FOB contract.

In short, a CIF contract requires the seller to arrange for the carriage ofgoods by sea to a port of destination and to turn ewer to the buyer the documentsnecessary to obtain the goods from the carrier or to assert a claim against aninsurer if the goods are lost or damaged. Tile three documents that the seller

(as a minimum) has to provide—the invoice, the insurance policy, and the bill oflading—represent the three elements of the contract: cost, insurance, andfreight. The seller's obligations are complete when the documents are tendered tothe buyer. At that time, the buyer is obliged Lo pay the agreed-upon price.

The responsibilities of the parties to a CIF contract under Incotcnns 1990 aredescribed in Exhibit 11-7.



CFRCFRCFRCFR————Cost and FreightCost and FreightCost and FreightCost and Freight

The cost and freight (port of destination) term is the same as the CIF termexcept that the seller does not have lo procure marine insurance against the riskof loss or damage to the goods during transit. Because theinsurance required under a CIF contract only has to coverminimum conditions (the so-called FPA or free from particularaverage conditions), buyers wishing to purchase moreextensive policies will want lo use a CFR contract. Thebuyer's responsibilities under a CFR contract (known also as a C & F contract)are considered in the next case

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14Incoterms 1990, p. 32 (International Chamber of Commerce, Pub. No. 46(1).

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Source:

Incoterms1990

(International

Chamber

of

Commerce,Pub. No.460)

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Case 11Case 11Case 11Case 11----3 Phillips Puerto Rico Core, Inc. v. Tradax Petroleum,3 Phillips Puerto Rico Core, Inc. v. Tradax Petroleum,3 Phillips Puerto Rico Core, Inc. v. Tradax Petroleum,3 Phillips Puerto Rico Core, Inc. v. Tradax Petroleum,

United States, Court of Appeals, Second Circuit, 1985.

FederalReporter,SecondSeries,vol.



782, p. 314 (1985).

Circuit Judge Mansfield:...Circuit Judge Mansfield:...Circuit Judge Mansfield:...Circuit Judge Mansfield:...

This convoluted maritime controversy had its origins in early September 1981 whenPhillips, a corporation organized under Delaware law with its principal place ofbusiness in Puerto Rico, agreed to buy 25-30,000 metric tons of naphtha fromTradax, a corporation organized under Bermuda law, with its principal place ofbusiness in Switzerland. Tradax had just purchased the naphtha from another firm.Schlubach & Co., and the naphtha was located in Skikda, Algeria. The Tradax-Phillips contract. which was made by telephone and then confirmed by telex onSeptember 3, 1981. specified that the sale was to be "C& F" (cost and freight) Cm

ay am a. Puerto Rico and that shipment was to be made between September 20-28,1981.No dates for delivery were specified. The agreement incorporated theInternational Chamber of Commerce 1980 Incoterms, a set of standardized terms forinternational commercial contracts, which define a"C & F" contract as one in which the sellerarranges and pays for the transport of the goods,but the buyer assumes title and risk of loss atthe time of shipment. The contract was also toinclude Tradax's standard contract provisions"subject to [Phillips'] review and acceptance."

These standard terms, including a force majeure [15]

clause and an arbitration clause, were not recitedin the telex but were subsequently mailed byTradax to Phillips with a confirming letter andarrived several weeks later.

Soon after the original contract was entered into on September 8, 1981, atelex from Phillips to Tradax provided documentation and delivery instructionsgiving the destination in Puerto Rico and listing Phillips as consignee. Thetelex confirmed that "title and risk of loss to products shall pass to buyer atthe limeproductTeaches thevessel[’]s



flange atthe load pott." On September 16 Tradax nominated the Oxy Trader, an integratedtug barge, as the vessel for the journey, and after determining that the Traderwould fit in the Puerto Rico berth and was available at the correct times,Phillips accepted the nomination.

The Trader arrived at Skikda for loading on the afternoon of September20.1981, and loading commenced the following day. The naphtha was completelyloaded by the early morning of September 24 and al 1030 hours that

morning the ship embarked

The Trader's voyage was cut short ... when the ship was detained by the CoastGuard at Gibraltar for an inspection. Tradax relayed word of the delay toPhillips, which telexed back on October 1 that October 15 was the last acceptabledelivery date....

On October 7, Tradax received word that the Trader might have a latentdefect... that the authorities were not letting the. Trader proceed, and that thenaphtha cargo would have to be transshipped. Tradax relayed this message toPhillips.

On October 9. Phillips telexed Tradax slating that it was "declaT[ing| forcemajeure," that it would "not make any payments under the contract until the eventof force majeure abates," and that it was reserving the right to can-eel thecontract if delivery did not occur within 30 days. Tradax responded, reiteratingits claim that its responsibility ended at the time of shipment and notifyingPhillips that it would present the shipping documents [or payment of the contractprice the following day. Phillips again instructed its Puerto Rico office not tomake payment if Tradax tendered the documents.

On October 13 a Tradax representative presented the shipping documents forpayment al Phillips' Puerto Rico office. A Phillips employee examined thedocuments briefly— about 30 seconds according to Tradax's witness— and statedthat they seemed to be in order but that he had been instructed not to pay. Atelex back to Tradax that day reaffirmed Phillips' unwillingness to pay until theabatement of the claimed force majeure.

.. . [O]n November 9, Phillips informed Tradax that it was terminating the



contract due to the "unseaworthiness" of the Trader, ''discrepancies in thedocuments,'" and an "unreasonable delay'" in performance. Although Phillips andTradax representatives tried to negotiate a new contract by which Phillips wouldbuy the naphtha on "delivery" terms, negotiations fell through when Tradax's man-agement refused to accept that deal. The transshipment then began on November 13,

with a bill of lading which left open the destination port. On November 19,Tradax informed Phillips that it would try to sell the naphtha on the open marketand would hold Pliillips liable for any damages. Tradax then sold the naphtha toa third party for $.S8 per gallon, after first offering it lo Phillips on condi-tion that Tradax retain its right lo claim in arbitration the difference betweenthat price and the contract price, 'fradax's total loss on the naphtha, comparedto the contract price, was $911,710.31, plus incidental damages.

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[ 15 French: ''superior force." An event or effect that cannot be reasonably anticipated or controlled.]

... On August 1,1984, Judge Carter filed his decision in the case, findingPhillips liable to Tradax for $1,039,330.99 plus prejudgment interest fromOctober 13, 1981. The court held that Phillips had anticipatorily breached thecontract by declaring its unwillingness to pay because of force majeure…

From this judgment Phillips appeals.

DiscussionDiscussionDiscussionDiscussion

The 1980 Incoierms define a "C & F" contract as one in which:

[t]he seller must pay the costs and freight necessary to bring the goods tothe named destination but the risk of loss of or damage to the goods, as wellas of any cost increases, is transferred from the seller to the buyer whenthe goods pass the ship's rail in the port of shipment.

... As a "C & F" seller Tradax had two duties that are relevant here: lodeliver the naphtha to an appropriate carrier with which it had contracted forshipment and to tender proper documents to Phillips. Phillips in return wascontractually obliged to pay for the naphtha when presented with the shipping



documents by Tradax. It is undisputed that alter Tradax loaded the naphtha onthe Oxy Trader and presented Phillips with the shipping documents on October13,1981, Phillips refused to pay for the cargo. If Tradax had adequatelyperformed its contractual duties, Phillips' refusal to pay for the naphthaconstituted a breach of the contract as of October 13, unless it was somehow

excused from performing.

Phillips asserts several grounds for its failure lo pay Tradax on October 13:(1) the existence of a "force majeure," (2) unreasonable delay in Tradax'sperformance,(3) discrepancies in Tradax's shipping documents, and (4)unsuitability (unseaworthiness) of the Oxy Trader, On the undisputedcircumstances of this case, however, none of these theories suffice to excusePhillips' failure to pay on Tradax's presentation of the documents.

Force MajeureForce MajeureForce MajeureForce Majeure

Phillips first relies on the force majeure clause among Tradax's standardcontract terms, which were to be included in the contract "subject to [Phillips']review and acceptance;" the contract, however, did not actually arrive atPhillips' office for review until after the Oxy Trader left port. The standardforce majeure clause reads:

FORCE MAJEURE: In the event of any strike, fire or other event . . .

preventing or delaying shipment or delivery of the goods by the seller…theunaffected party may cancel the unfulfilled balance of the contract. ...

We . . .look to the basic purpose of force majeure clauses, which is ingeneral lo relieve a party from its contractual duties when its performance hasbeen prevented by a force beyond its control or when the purpose of the contracthas been frustrated. .. . The burden of demonstrating force majeure is on theparty seeking to have its performance excused.... and. as Judge Carter pointedout, the nonperfomiing party must demonstrate its efforts to perform itscontractual duties despite the occurrence of the event that it claims constitutedforce majeure …

With these principles in mind, we cannot agree that Phillips' performance wasexcused by its invocation of force majeure. Even if the detention of the ship bythe Coast Guard constituted force majeure, and we arc inclined to agree withJudge Carter that it did not, that detention did not frustrate the purpose of the



contract or prevent Phillips from carrying out its obligation under the termsof the parties' contract to make payment. Indeed, to hold that the force majeure

clause may be interpreted to excuse the buyer from that obligation, as Philipsurges, would be to wholly overturn the allocation of duties provided for in "C &

F" sales. We do not find any evidence that the parties intended such a result.

…The force majeure clause thus did not alter the design of the "C & F"contract by requiring Tradax to assure delivery of the naphtha at the ultimatedestination in Puerto Rico before it would be entitled lo payment. Theauthorities Phillips cites in support of its contention that a "'C & F" sellerretains responsibility for events after the lime of shipment are plainlydistinguishable. The court in Gaioil International Inc. v. Tradax Petroleum,

Lid. ]6 stated "tentative [ly]" that a "C & F" seller could be liable for having

"wrongfully delay[ed] the actual delivery of the goods," in that case byinstructing a ship to wait outside the harbor at the port of discharge. Here, incontrast, the absence of any such wrongful conduct on Tradax's part makes such

deviation from the standard : 'C & F" division of responsibility inappropriate.

______

16 Commercial Ct., Queen’s Bench Division, Slip Opinion at p. 24 (July 31, 1984); Lloyd’s Law Reports,

Queen’s Bench, vol. 1985, pt. 1,p. 350 (1985).

* * *

Defects in the DocumentsDefects in the DocumentsDefects in the DocumentsDefects in the Documents

There is equally little merit in Phillips' claim that it was excused from paymentunder the contract because Tradax tendered defective shipping documents. While itis true that in a sale by documents the seller's tender of the documents Is

judged very strictly. Phillips' objection to the documents here, as Judge Carternoted, "is an afterthought and must fail" Without having seen the shippingdocuments, Phillips twice instructed its agents that because of force majeure,

they were not to pay Tradax when the latter presented the papers for payment.When Tradax presented the papers in Puerto Rico, a Phillips employee chose togive them only a cursory examination before staling that they seemed "okay," butthat he had been instructed not to pay.



* * *

The Suitability of the Oxy TrailerThe Suitability of the Oxy TrailerThe Suitability of the Oxy TrailerThe Suitability of the Oxy Trailer

Phillips was not relieved of its contractual obligation because of Tradax's

selection of the Oxy Trader. The relevant provision in the 1980 Incotermsrequires that a "C & F" seller contract for the carriage of the goods "in aseagoing vessel. . .of the type normally used for the transport of goods of thecontract description." Although the Oxy Trader, an integrated lug barge, was ofnovel design in that the tug and the barge were married together, this featuredid no! disqualify the Trader as a ship that might "normally" be used fortransport. A new design would not carry with it such a disqualification. Indeed,the status of the Trader as a ship normally used for transport was confirmed by

the United States Coast Guard's certification of it for ocean transport and forcarriage of comparable cargoes and by Phillips' own approval of the choice of theship. Moreover, the Oxy Trader had safely sailed on transatlantic trips.

…The remaining claims raised on appeal need little discussion…The judgmentof the district court is affirmed.

_________________________________________________________________________________

DESDESDESDES————Delivered Ex ShipDelivered Ex ShipDelivered Ex ShipDelivered Ex Ship

A delivered ex ship, or arrival, contract requires the seller to deliver goods toa buyer at an agreed-upon port of arrival. Lord Sunnier, inYangtsze Insurance Association, Lid. v. Lukmanjee, described

the seller's obligations under such a contract ns follows: 17

In. the case of a sale "ex ship,'" the seller has to causedelivery to be made to the buyer from a ship which has

arrived al the port of delivery and has reached a placetherein which is usual for the delivery of goods of the kindin question. The seller has therefore to pay the freight, or otherwiserelease the shipowner's lien and to furnish the buyer with an effectualdirection to the ship to deliver. Until this is done, the buyer is not boundto pay for the goods.

This is very different from a CIF contract. Under the DES contract, the seller



is not required TO deliver documents to the buyer, but to deliver the goods.In practice, however, he will probably provide the buyer with a delivery order orsome other document that will enable the buyer to take possession from the ship,rather than appear in person to make delivery.

Also, the seller remains responsible for the goods until they are delivered.Thus, unlike the CIF term, the seller is not obliged to obtain insurance far Thebuyer's benefit. In the Yangtsze Insurance case, just quoted, timber to bedelivered ex ship was off-loaded into the sea next to the carrier andconsolidated into rafts for transfer ashore. However, before the transfer anddelivery could be made, the timber was destroyed by bad weather. The EnglishCourt of Appeal observed that the risk for the loss of goods in an ex shipcontract does not shift to the buyer until delivery is made. It consequentlyrefused to hold that the insurance policy purchased by the seller for his own

benefit could inure to the benefit of the buyer, because the buyer had yet tolake delivery and therefore had no rights in the property.

______

17 Law Reports, Appeal Cases, vol. 1918, p. 585 at 589 (1918).

FCAFCAFCAFCA————Free CarrierFree CarrierFree CarrierFree Carrier

The 1990 revision of Incoterms expanded the free carrierfree carrierfree carrierfree carrier term tocover all contracts involving air and land transport. Olderterms, such as FOB airport, free on rail (FOR) and free on truck

(FOX), have been eHminateu'. 18The FCA term requires the sellerto deliver goods to a particular carrier at a named terminal, depot, airport, orother place where the carrier operates. The costs of transportation and the risksfor loss shift to the buyer at that time.

______

18

FOR

contracts

require

a

seller



to

deliver goods to a railway carrier and pay all expenses up to that time, including the cost of packaging the

goods for rail carriage. FOR contracts are the same as an FOR contract, except that the seller must also pay

for loading the goods on the railway's cars (or "trucks").

EXWEXWEXWEXW————Ex WorksEx WorksEx WorksEx Works

Under an ex works contract, a seller is obliged only to deliver the goods at hisown place of business. All the costs connected with transportation are theresponsibility of the buyer.

B. TRANSPORTATIONB. TRANSPORTATIONB. TRANSPORTATIONB. TRANSPORTATION

The following is a typical example of how goods are transported by sea from a

seller in Country A to a buyer in Country B. Goods are picked up at the seller'splace of business by an inland carrier and transported to a seaport for carriageabroad. The inland carrier will deposit the goods in a warehouse or portdepository for examination by customs officials and for consolidation with othergoods if the load is not large enough to occupy a ship by itself. A stevedorecompany or the ship's crew will load the goods. The crew will then stow the goodsaboard ship, mark the goods with "leading" marks, and issue a bill of lading tothe shipper. At a seaport in Country B, the ship will be directed by portauthorities to tie up at a pier or to anchor at a moorage in the harbor. When thebuyer produces the bill of lading, the ship's crew will unload the goods onto thedock or, if the ship is anchored out, into a lighter for transfer ashore. Thecrew or a stevedoring company will then deliver the goods to a customhouse or abonded warehouse for inspection. Once customs has inspected the goods and theirrelated documents, and collected any import taxes or duties, the goods will bereleased for entry into Country B. A local inland carrier will then transport thegoods to the buyer's place of business.

When goods are transported by air, rail, or truck, much the same procedure isfollowed, except that the carrier will issue an air waybill or similarnonnegotiable receipt instead of a bill of lading, and the transfer of goods willmore commonly be done by the carriers without the assistance of stevedores orother intermediaries.

In making arrangements for the transportation of goods, the buyer and sellerwill deal with a variety of intermediaries, such as freight forwarders,



warehousemen, port authorities, stevedores, and customhouse brokers. The mostimportant of these agents for most shippers is the freight forwarder freight forwarderfreight forwarderfreight forwarder, or

confirming house. 19 Unless a merchant has a large staff dedicated to makingshipping arrangements, the use of a freight forwarder will save time and expense.

Freight forwarders, for example, arrange three out of every four shipments movedacross the New York docks. 20

Freight forwarders are companies with specialized knowledge of internationalmarkets, finance, transport, customs, sales law, and other related matters. Inmost countries they are licensed by the government. In the United States, forexample, inland freight forwarders are licensed by the Interstate CommerceCommission, air freight forwarders by the Civil Aeronautics Board, and oceanfreight forwarders by the Federal Maritime Administration. Unlicensed brokers and

agents also are commonly available who perform much more limited services (suchas the booking of ocean freight or the handling of air cargo). A "full service"freight forwarder can help with or perform the following:

* Obtaining quotations on CIF and C & F contracts

* Determining the availability of ships and port facilities

* Estimating costs based on gross weight, cubic feet, value, description of

the goods, and the port of destination

* Booking space

* Procuring export licenses

* Reviewing letter of credit terms

* Tracing inland shipments

* Preparing shipping documents, including export declarations

* Preparing and authenticating consular invoices

* Procuring certificates of origin from local Chambers of Commerce

* Purchasing insurance



* Presenting banking drafts and collecting payment

______

19 The term "freight forwarder" is used in North America, while the terms "confirming house" or "export

house" are used in the United Kingdom.

20 Gerald H. Ullman, The Ocean Freight Forwarder, The Exporter and the Law, p. 2 (1967).

C. INLAND CARRIAGEC. INLAND CARRIAGEC. INLAND CARRIAGEC. INLAND CARRIAGE

The first stage of transporting goods overseas almost always involves an inlandcarrier, either a trucking or rail company, which moves the seller's goods fromthe seller's place of business to a seaport or airport. Except for ex workscontracts, it is common for the seller to arrange for inland carriage, with theinland carrier transferring the goods to a freight forwarder at a seaport orairport for the latter to arrange and oversee the shipment of the goods abroad.

In the absence of universal conventions, several regional agreements regulatetransport by road and rail. In Europe, road transport is regulated by the 1956Convention on the Contract for the International Carriage of Goods by Road(Convention relative au control de transport international de merchandises par

route or CMR)21 and rail transport is governed by the 1980 Convention Concerning

International Carriage by Rail (Convention relative aux transports internationalferroviares or COTIF). 22 Similar agreements exist in other parts of the world,with the significant exception of North America. 23

The CMRis representative of the conventions governing road transport. Itapplies whenever goods are shipped between two countries, at least one of whichis a signatory of the Convention. The Convention requires a carrier to issue aconsignment note. Unlike a bill of lading (including the bill of lading issued byinland carriers in the United States), the CMRconsignment note is not a

negotiable instrument. It is, nonetheless, prima facie evidence of the making ofa transport contract and of the receipt and the condition of the goods. The Con-vention also grants the consignee the right to demand delivery of the goods inexchange for a receipt and to sue the carrier in his own name for any loss,damage, or delay for which the carrier is responsible. However, up until the timethat the goods are turned over to the consignee, the shipper (consignor) has theright to order the carrier to stop them in transit, to change the place for



delivery, or to order them delivered to a different consignee.

If a road carriage contract involves the use of multiple carriers, eachcarrier is treated as a party to the contract, and each is responsible for theentire transaction. Suits can be brought against the first or last carrier, or

the carrier in possession at the time of the loss.

Carriers are liable for loss, damage, or delay up to the liability limit setby the Convention, so long as the consignment note states that carriage isgoverned by the CMR. The liability limit is 8.33 Special Drawing Rights (SDRs)per kilogram, unless the consignor declares a higher value and pays a surcharge.If the consignment note fails to include a reference to the CMR, the carrier willbe liable for any resulting injury. In either case, the burden of proof rests onthe carrier, which will be liable unless it can show that the loss, damage, OTdelay was caused by the consignor or the consignee. A consignee has to notify thecarrier within 7 days of delivery to assert a claim for loss or damages, andwithin 21 days to make a claim for losses resulting from delay.

The COTIF, which governs rail transport, contains in most respects the sameprovisions as the CMR. The carrier's liability for losses, however, is 17 SDRsper

______

21 The text of the CMRis posted on the Internet at http://www.jus.uio.n0/lm/toc/x.OO-

carriage.of.goods.htmlitroad.

The member states as of 1999 were Austria, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, the

Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iran, Ireland, Italy,

Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Macedonia, Moldova, Morocco, the Netherlands, Norway,

Poland, Portugal, Russia, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, Tajikistan, Tunisia,

Turkey, Turkmenistan, the United Kingdom, Uzbekistan, and Yugoslavia. Multilateral Treaties Deposited with

the Secretary-General Status as at 27 April 1999, posted on the Internet at http://www.un.org/Depts/Treaty/

final/ts2/newfiles/part_boo/xi_b-boo/xi__b_ll. html.

22 The text of the COTIF is posted on the Internet at http://www.jus.uio.n0/lm/toc/x.OO-

carriage.of.goods,html#rail.

The member states as of 1999 were Albania, Antigua and Barbuda, Austria, Belgium, Bosnia, Bulgaria, Croatia,



Denmark, Finland, France, Germany, Greece, Iran, Iraq, Ireland. Italy, Lebanon, Liechtenstein, Luxembourg,

Macedonia, Morocco, the Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden,

Switzerland, Syria, Tunisia, Turkey, the United Kingdom, and Yugoslavia. See InforMare at http://www.

informare. it/dbase/convuk.htm.

23 Paul H. Vishny, Guide to International Commerce Law, § 2-34 (1998).

kilogram. 24

D. CARRIAGE OF GOODS BY SEAD. CARRIAGE OF GOODS BY SEAD. CARRIAGE OF GOODS BY SEAD. CARRIAGE OF GOODS BY SEA

Most goods are transported by common carriers, that is, a carrier holding itselfto carry goods for more than one party. Only a few shipments are large enough torequire the shipper to hire an entire vessel. The contract to employ an entirevessel is known as a charterparty. We will return to charterparties afterdiscussing common carriage.

Common CarriageCommon CarriageCommon CarriageCommon Carriage

Where the owner or operator of a vessel is willing to carry goodsfor more than one person, the vessel is known as a general ship

or common curriercommon curriercommon curriercommon currier. 7- 5 Unlike private carriers, common carriersare the subject of extensive municipal legislation and

international conventions.

Merchants who employ common carriers will find that there arethree sorts. A conference lineconference lineconference lineconference line is an association of seagoingcarriers who have joined together lo offer common freight rates.Independent linesIndependent linesIndependent linesIndependent lines have their own rate schedules. 'Tramp vessels Tramp vesselsTramp vesselsTramp vesselsalso have their own rate schedules, but unlike conference andindependent lines, they do not operate on established schedules.

Exporters who agree to ship all or a large share of theircargoes with a conference line receive a discounted rale. 26

Independent lines, however, generally offer lower rates than aconference line's nondiscounted rates. In most countries, thetariffs of ocean carriers are not regulated, and both conferenceand independent lines will commonly offer regular shipperssubstantial rebates. In the United States, however, ocean



carriers have to file their tariffs with the Federal Maritime

Commission, and American law forbids rebates. 27

The Bill of LadingThe Bill of LadingThe Bill of LadingThe Bill of Lading

A bill of ladingbill of ladingbill of ladingbill of lading is an instrument issued by an ocean carrier to a shipper withwhom the carrier has entered into a contract for the carriage of goods. 2S Themultilateral treaty governing bills of lading is the International Convention for

the Unification of Certain Rules of Law Relating to Bills of Lading. 29 Thistreaty is known both as the 1921 Hague Rules—because they were originallyproposed by the International Law Association at a meeting at The Hague in 1921—and the Brussels Convention of 1924—because they were recommended for adoptionat a diplomatic conference held in Brussels in 1924. The Hague Rules wereextensively revised in 1968 by a Brussels Protocol, and the amended 1968 version

is known as the Hague-Visby Rules. 30 Most countries, including the United States,are parties to the 1921 Rules. 31 A few, including France and the United Kingdom,have adopted the Hague-Visby amendments. 32 The domestic laws implementing theseconventions are typically called Carriage of Goods by Sea acts. 33 In addition,many states have supplementary legislation that also governs bills of lading in

both municipal and international settings. 34

A bill of lading serves three purposes: First, it is a carrier's receipt forgoods. Second, it is evidence of a contract of carriage. Finally, it is adocument of title; that is, the person rightfully in possession of the bill is

entitled to possess, use, and dispose of the goods that the bill represents. 35

______

24 The liability limit for personal injury to a passenger is 70,000 SDRs.

25 The definition of "common carrier" is has been the subject of much litigation. See Yung E Chiang, "The

Characterization of a Vessel as a Common or Private Carrier," Tulane Law Review, vol. 43, p. 299 (1974).

26 Conference lines offer their regular customer rebates in two ways: (1) by a contract system in which the

shipper signs a contract to use only conference ships and (2) by a system of deferred rebates of varying

amounts that require the shipper to not use nonconference ships to send goods lo the area in question for a

period of lime (commonly 3 or 6 months). Under the first of these arrange merits the shipper is entitled lo

an immediate discount; under the second, the rebate is retained by the carrier until the shipper has met the

condition of not using nonconference ships. Clive M. Schmitrhoff, Schmilthnff's Export Trade: The Law &



Practice of International Trade, p. 548 (9th ed., 1990).

27 United Slates Code, Title 46, Appendix, § 1709, paras. (b)(l) and (b)(2).

28 In the United States, a bill of lading is also issued by inland carriers. See Uniform Commercial Code, §

§ 2-319and 2-320.

29 The text of the Hague Rules is posted on the Internet at

hitp://www.iiustiiiedu.au/asi/iJiher/dfat/treaties/19560002.html.

Receipt for GoodsReceipt for GoodsReceipt for GoodsReceipt for Goods

A bill of lading describes the goods put on board a carrier, states the

quantity, and their condition. The form itself is normally filled out in advanceby the shipper; then, as the goods are loaded aboard the ship, the carrier'stally clerk will check to see that the goods loaded comply with the goods listed.The carrier, however, is responsible only to check for outward compliance—thatis, that the labels comply and that the packages are not damaged. If all appearsproper, the appropriate agent of the carrier will sign the bill and return it to

the shipper. 36 Bills certifying that the goods have been properly loaded on boardare known as "on board bills of lading," or dean bills.

______

30 The text of the Hague Rules as modified by the Brussels Protocol (the Hague-Visby Rules) is posted on the

Internet at http://www.uct.acza/depts/shiplaw/cagsa.himitHague Visby Rules, at

http://ananse.irv.uit.no/trade_law/doc/Sea.Carriage.Hague.Visby. Rules. 1968.html , and athttp://www.

admiraltyIaw.com/hague.html.The Brussels Protocol itself is posted at

http://www.austlii.edu.awau/other/dfat/seldoc/l968/1403.html.

A United Nations Convention on the Carriage of Goods by Sea, drafted and signed in 1978 (the Hamburg Rules),

came into force among 20 developing states in November 1992. As to those states, it modifies the Hague-Visby

rules by establishing a single basis of liability for a carrier's breach of duty and it also governs

"through transport," that is, shipments from the point of departure ashore through their final delivery

inland via truck, rail, or plane. Because these rules also increase the liability liabilityliabilityliability of carriers, they have

been ignored by all of the major maritime states. As of 1999, there were 26 states parties. Multilateral

Treaties Deposited with the Secretary-General, Status as at 27 April 1999,

http://www.un.org/Depts/Treaty/final/ts2/newfiles/part_boo/xi_ d-boo/xi_d_3.html.



31 The member states as of 1999 were Algeria, Angola, Antigua and Barbuda, Argentina, Bahamas, Barbados,

Belize, Bolivia, Bosnia, Congo, Croatia, Cuba, Cyprus, Fiji, Gambia, Ghana, Grenada, Guyana, Iran, Ireland,

Israel, Ivory Coast, Jamaica, Kenya, Kiribati, Kuwait, Macedonia, Madagascar, Mauritius, Monaco, Nauru, the

Netherlands, Nigeria. Papua New Guinea, Paraguay, Peru, Portugal, Saint Lucia, Solomon Islands, Seychelles,

Slovenia, Somalia, Saint Kitts-Nevis, Saint Vincent, Trinidad and Tobago, Turkey, Tuvalu, the United

Kingdom, the United States, and Yugoslavia. See InforMARE at http://www.mformare.it/dbase/convuk.htm.

32 The member states as of 1999 were: Australia, Belgium, Bermuda, Canada, Denmark, Ecuador, Finland, France,

Germany, Gibraltar, Greece, Hong Kong, Italy, Japan, Latvia, Liberia, Luxembourg, the Netherlands, New

Zealand, Norway, Poland, Singapore, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Syria, Tonga, and

the United Kingdom. See id.

33 The United Kingdom statute is the Carriage of Goods by Sea Act (1971) in Statutes, vol. 41, chap. 1312.

The United States Carriage of Goods by Sea Act is codified in the United States Code, Title 46, § 1300 et

seq.

34 In the United States, the two other important acts are the Bill of Lading Act (Interstate and Foreign Com-

merce), in United States Code, Title 46, § 14306, and the Harter Act, in United States Code, Title 46. §§

190-196. In the United Kingdom, the Bill of Lading Act (1855) in Statutes, vol. 31, Chap. 44 also applies.

35 In re Marine Sulphur Queen, Federal Reporter, Second Series, vol. 460, p. 89 at p. 103 (Second Circuit Ct.

of Appeals, 1972).

36The United States Carriage of Goods by Sea Act, United States Code, Title 46, § 1303(3), provides: "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 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 inwriting by the shipper.

Should there be a discrepancy between the goods loaded andthe goods listed, the statement on the bill is considered

prima facie evidence that the goods were received in the con-dition shown in any dispute between the shipper and the



carrier. 37 Nevertheless, the carrier can, if it is able,introduce evidence to rebut this evidence. However, once the bill is endorsed andnegotiated to a third party, this is no longer the case. An endorsee's knowledgeof the goods is limited to what is on the bill of lading. For this reason, theHague and Hague-Visby Rules hold that the bill is conclusive evidence as to the

goods loaded once the bill has been negotiated in good faith to a third party.The carrier is then barred from introducing evidence to contradict the bill oflading.

If, at the time the goods are being loaded, the carrier's tally clerk notes adiscrepancy, a notation to this effect may be added to the bill of lading. Calleda claused bill of lading, such bills are normally unacceptable to third parties,including a buy of the goods under a CIF contract or a bank that has agreed topay the seller under a documentary credit on receipt of the bill of lading and

other documents. Such a notation, however, may be made on the bill only at thetime the goods are loaded. Later notations will have no effect, and the bill willbe treated as if it were "clean." The significance of clean and claused bills oflading is discussed in the next case.

_____________________________________________________________________

(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 grounds for suspecting not accurately to represent the goods actually received, or which

he has had no reasonable means of checking."

37 Id., § 1303(4), provides: "Such a bill of lading shall be prima facie evidence of the receipt by the

carrier of the goods as described in accordance with paragraphs (3)(a), (b) and (c), of [§ 1303]... ,"

________________________________________________________________________________

Case 11Case 11Case 11Case 11- ---4 M. Golodetz &4 M. Golodetz &4 M. Golodetz &4 M. Golodetz & Co.Co.Co.Co., Inc. v. Czarnikow, Inc. v. Czarnikow, Inc. v. Czarnikow, Inc. v. Czarnikow- ---Rionda Co., Inc. (TheRionda Co., Inc. (TheRionda Co., Inc. (TheRionda Co., Inc. (The

Galitia)Galitia)Galitia)Galitia)

England, Queen Bench's Division (1978).

All England Law Reports, vol. 1979, pt. 2, p. 726 (1979). 38

The setters contracted to sell to the buyers between 12,000 and 13,200 tons ofsugar, C & F Bandarshapur, Iran. The contract provided, among other things, that



payment was to be made against a complete set of clean "on board" bills of ladingevidencing that freight had been paid. After part of the consignment of sugar hadbeen loaded, a fire broke out on the ship, as a result of which 200 tons of sugarwere damaged and had to be discharged. The remainder of the consignment wasloaded and carried to its destination. The sellers tendered two bills of lading

to the buyers. The first was in respect to the 200 tons of sugar that had beenlost and the second was in respect to the balance of the consignment. The firstbill in its printed clauses acknowledged shipment of the goods in apparent goodorder and condition. In addition, however, it bore a typewritten note statingthat the cargo covered by the bill had been discharged because it had beendamaged by fire and/or water. The second bill was taken up and paid for by thebuyers, but the first bill was rejected by them on the ground that it was not a"clean" bill of lading. The sellers claimed that the typewritten note did not

prevent it being a clean bill of lading and that they were entitled to be paidthe price of the 200 tons of sugar that had been lost.

Judge Donaldson:Judge Donaldson:Judge Donaldson:Judge Donaldson:

* * *

The DisputeThe DisputeThe DisputeThe Dispute

The parties to this dispute are household names in the world trade in sugar. Both

are based in New York. The sugar concerned was to be shipped from Kandla in Indiato Iran. The reason why the matter comes to the English Commercial Court is thatthe contract incorporated the rule of the Refined Sugar Association and providedfor arbitration in London.

______

38 Affirmed by the Court of Appeal, Civil Division, All England Law Reports, vol. 1980, pt. 1, p. 501

(1980). The statement of facts is from the appellate report.

... The question at issue is, of course, who is to stand the loss in respectof the 200 tons of sugar which was destroyed by or as a consequence of the fire?The board of appeal of the Refined Sugar Association has held that the loss mustfall on the sellers. The sellers now appeal.

The Sellers' Claim toThe Sellers' Claim toThe Sellers' Claim toThe Sellers' Claim to thethethethe PricePricePricePrice



Under the terms of the contract, the sellers areentitled to be paid the price on lender of "clean 'On Board' bills of ladingevidencing freight having been paid." Counsel for the sellers submitted that thisbill of lading qualified for this description, notwithstanding the notationrecording that the sugar had been discharged fire damaged.... In his submission,the sellers, having tendered this bill of lading, were entitled to be paid theprice. Alternatively, the sugar was at the risk of the buyers when it wasdestroyed and, that being so, the sellers were entitled to be paid the pricewhether or not they tendered this or any other bill of lading.

Counsel for the buyers challenged these submissions root and branch. In hissubmission, there were no less than eight reasons why the sellers were notentitled to be paid the price. It is, of course, for the sellers to make outtheir case, but in all the circumstances, it is convenient to consider whetherthey have done so in the context of counsel's objections.

(a) That the bill of lading(a) That the bill of lading(a) That the bill of lading(a) That the bill of lading was not "clean" not "clean"not "clean"not "clean"

(i) The practical test

Counsel for the buyers submits that there are two possible tests to be applied,the practical and the legal. The practical test is whether a bill of lading inthis form is acceptable to banks generally as being a "clean" bill of lading.Since 1962, virtually all banks have accepted the international rules set out ina document issued by the International Chamber of Commerce entitled UniformCustoms and Practices for Documentary Credits ("UCP Rules"). Rule 16 provides asfollows:

A clean shipping document is one which bears no superimposed clause ornotation which expressly declares a defective condition of the goods and/orthe packaging. Banks will refuse documents bearing such clauses or notations

unless the credit expressly states clauses or notations which may beaccepted.

This definition fails to specify the time with respect to which the notationspeaks. The bill of lading and any notation speak at the dale of issue, but theymay speak about a stale of affairs which then exist or about an earlier slate ofaffairs or both. If the rule refers lo notations about the state of affairs atthe time of the issue of the bill of lading or, indeed, at any time after



shipment of the 200 tons was completed, the bill of lading is not "clean"within the meaning of that word in the rule, for the notation clearly drawsattention to the cargo being damaged. If, however, it refers to notations aboutthe state of affairs on completion of shipment, the bill of lading is equallyclearly clean for it shows that the goods were in apparent good order and

condition on shipment and suggests only that they were damaged after shipment.

Counsel for the buyers draws attention to the fact that this bill of ladingwas rejected by two different banks. The first rejection was by the sellers' ownbank when the bill of lading was tendered by the shippers under the FOB supplycontract. The second rejection was by the buyers' subpurchasers bank when it wastendered to them by the buyers without prejudice to the rights of the parties asbetween sellers and buyers. On these facts, counsel for the buyers invites me tohold that this bill of lading is not a "clean" bill in commercial or practicalterms.

Let me consider this "practical" lest. The information as to what prompted thebanks' action is somewhat sparse.. ..

…There is no contemporary note of why the banks refused to accept thedocuments, but there is a letter dated March 24th, 1976, reading:

Your draft and documents valued $183,732.00, payment for which was not

effected because Bills of Lading showing the following clause Quote "Cargocovered by this Bill of Lading has been discharged at Kandla View damaged byfire and/or water used to extinguish fire for which general average declared"Unquote, whereas credit class of clean (uncaused) Bills of Lading.

It is not uninteresting that it was not the buyers' bank which rejected thedocuments, but the buyers themselves (by a letter of April 22nd, 1975 referred toin the [arbitration] award). Furthermore, although they gave as a aaa reason the factthat the clause prejudiced their ability to negotiate the documents with theirbuyers, the letter of 24th March 1976 set out above suggests that the documentswere only rejected by the subbuyers' bank some weeks later on May 13th. 1975.However, there may have been more than one rejection.

It is clear that the subbuyers' bank thought that a letter of creditincorporating the UCP rules and calling for 'clean" bills of lading was onlysatisfied if the bills were wholly unclaused. This goes further than the UCP





to an estoppel and the terms of the bill of lading contract may exempt theshipowner from a breach of this obligation, but everything stems from the stateof the goods as shipped. As between seller and CIF or C & F buyer, the propertyand risk normally pass on the negotiation of the bill of lading, but do so asfrom shipment. Thus, the fact that the ship and goods have been lost aftershipment or that a liability to contribute in general average or salvage hasarisen is no reason for refusing to lake up and pay for the documents.

In these circumstances, it is not surprising that there appears to be no casein which the courts or the textbook writers have had to consider a bill of ladingwhich records the fate of the goods subsequent to shipment and, indeed, I havenever seen or heard of a bill of lading like that in the present case. Nor is itsurprising that some of the judgments and textbooks do not in terms say that when

reference is made to the condition of the goods what is meant is their conditionon shipment.

However, I have no doubt that this is the position. The bill of lading withwhich I am concerned casts no doubt whatsoever on the condition of the goods atthat time and does not assert that at that time the shipowner had any claimwhatsoever against the goods. It follows that in my judgment this bill of lading,unusual though it is, passes the legal test of cleanliness.

(b) The bill of lading was rightly rejected as being unmerchantable(b) The bill of lading was rightly rejected as being unmerchantable(b) The bill of lading was rightly rejected as being unmerchantable(b) The bill of lading was rightly rejected as being unmerchantable

Counsel for the buyers submits that documents tendered under a C & F contractmust be merchantable and that, in the context of a bill of lading, this may be afactor of cleanliness or an independent quality which is required. He seeks tosupport this proposition by reference to Hansson v. Hamel & Horley, Ltd."-' inwhich Lord Sumner said:

When documents are to be taken up the buyer is entitled to documents which

substantially confer protective rights throughout. He is not buying alitigation, as Lord Trevethin (then A. T. Lawrence, J.) says in the General

Trade Co.'s Case. 41 These documents have to be handled by banks, they have tobe taken up or rejected promptly and without any opportunity for prolongedinquiry, they have to be such as can be re-tendered to subpurchasers, and itis essential that they should so conform to the accustomed shipping documentsas to be reasonable and readily fit to pass current in commerce.



I need hardly say that I accept this proposition unreservedly. A tender ofdocuments which, properly read and understood, calls for further enquiry or aresuch as to invite litigation is clearly a bad tender. But the operative words are"properly read and understood." I fully accept that the clause on this bill oflading makes it unusual, but properly read and understood it calls for no inquiry

and it casts no doubt at all on the fact that the goods were shipped in apparentgood order and condition or on the protection which anyone is entitled to expectwhen taking up such a document whether as a purchaser or as a lender on thesecurity of the bill....

______

39 All England Law Reports, vol. 1958, pt. 1, p. 264 (Queen's Bench. 1958).

40 Alt England Law Reports, vol. 1922, p. 237 at p. 241 (Ct. of Appeal, 1922).

41 Re General Trading Co. & Van Slolk's Commissiehandel, Commercial Cases, vol. 16, p. 95 (1911).

The only ground for holding that the bill of lading was not "reasonably andreadily fit to pass current in commerce" is that the form is unusual and that twobanks and the buyers rejected it. If the buyers wanted bills of lading which werenot only "clean," but also in "usual form," they should have contractedaccordingly. They did not do so and I am not prepared to hold that the bill wasunmerchantable...

ConclusionConclusionConclusionConclusion

For the reasons which I have sought to express, I consider that this was a"clean" bill of lading and that the buyers should have accepted it and paid theprice. In reaching this conclusion, I have, regretfully, to disagree with the

decision of the board of appeal [of the Refined Sugar Association]. That decisionseems to me to have been based solely on considerations of law. Had it been aconclusion based on trade practice and included, for example, a finding that abill in this form was not acceptable in the trade, my decision would, of course,have been different.

... Accordingly, for the reasons which I have expressed, I answer thequestions of law in favor of the sellers.



Order accordingly. Leave to appeal to the Court of Appeal.

_______________________________________________________________________

Contract of CarriageContract of CarriageContract of CarriageContract of Carriage

Between the shipper and the carrier the bill of lading is evidence of theircontract of carriage. Either may rebut this by producing evidence of other terms.However, as is the case where the bill functions as a receipt, the bill becomesconclusive evidence of the terms of the contract of carriage once it isnegotiated to a good-faith third party. Again, this is because the endorsee'sknowledge of the terms of the contract of carriage is limited to what appears on

the bill of lading. 42

Document of TitleDocument of TitleDocument of TitleDocument of Title

Two kinds of bills of lading need to be distinguished: the straight bill andthe order bill. A straight bill is issued to a named consignee and isnonnegotiable. The transfer of a straight bill gives thetransferee no greater rights than those of his transferor. Anorder bill, on the other hand, is negotiable and conveys greaterrights. The holder of an order bill of lading, provided he has

received it in good faith through due negotiation, has a claim totitle and, by surrendering the bill, to delivery of the goods. In1883 Lord Justice Bowen wrote what has become the time-honored definition of the

order bill of lading: 43

A cargo at sea while in the hands of the carrier is necessarily incapable ofphysical delivery. During this period of transit and voyage, the bill oflading by the law merchant is universally recognized as its symbol, and theendorsement and delivery of the bill of lading operates as a symbolical

delivery of the cargo. Property in the goods passes by such endorsement anddelivery of the bill of lading, whenever it is the intention of the partiesthat the property should pass, just as under similar circumstances theproperty would pass by an actual delivery of the goods. And for the purposeof passing such property in the goods and completing the title of theendorsee to full possession thereof, the bill of lading, until completedelivery of the cargo has been made on shore to someone rightfully claiming



under it, remains in force as a symbol, and carries with it not only the fullownership of the goods, but also all rights created by the contract ofcarriage between the shipper and the shipowner. It is a key which in thehands of the rightful owner is intended to unlock the door o[ the warehouse,floating or fixed, in which the goods may chance to be.

______

42 In the Emilien Marie Case, Law Journal Reports, Admiralty, vol. 44, p. 9 (1875), the carrier issued three

bills of lading to the shipper with the understanding that the last would apply only if there was enough of

the perishable cargo left at the port of destination. The shipper nonetheless negotiated the bill to a third

party who was unaware of the understanding. The court held that the endorsee was entitled to demand the full

quantity.

43Sanders v. Maclean & Co., Law Reports, Queen's Bench Division, vol. 11, p. 327 at p. 341 (1883).

Order bills, although they are negotiable instruments, should not be confusedwith bills of exchange (such as checks or trade acceptances). Maritime commercialpractice is less developed than the law of commercial paper, and though bothclasses of instruments are related, they are also distinct.

Like bills of exchange, order bills of lading may be made out "to bearer" or"to the order" of a named party. Bearer instruments are transferred by delivery:order instruments by negotiation, that is, by endorsement and delivery. Inpractice, bills of lading are seldom made out to bearer, as they are documents oftitle that serve as the symbol or token of the goods described in the bill.

The negotiation of an order bill transfers title in the goods. This is whatmakes the bill valuable. Because the bill is "negotiable," so too are the goods.This enables the person named on the bill to transfer the goods while a ship is

in transit. In other words, possession of the order bill is in most respects thesame as possession of the goods. This was the holding in the next case.

____________________________________________________________________

Case 11Case 11Case 11Case 11- ---5 Barclays Bank, Ltd. v. Commissioners of Customs and Excise5 Barclays Bank, Ltd. v. Commissioners of Customs and Excise5 Barclays Bank, Ltd. v. Commissioners of Customs and Excise5 Barclays Bank, Ltd. v. Commissioners of Customs and Excise

England, Queen's Bench Division. 1963.



Lloyd's Reports, vol. 1963,pt. 1, p. 81 (1963).

Lord Justice Diplock:Lord Justice Diplock:Lord Justice Diplock:Lord Justice Diplock:

This case raises a short point of great importance to merchants, hankers andother persons accustomed to dealing with bills of lading and documents of titleby which symbolic delivery of the goods to which they relate may be made. Theissue arises under a Sheriff's interpleader in which the plaintiffs, BarclaysBank, Ltd., whom I shall call "the Bank", claimed to be entitled to possession aspledgees of two consignments of washing machines shipped from Rotterdam toCardiff in February and March. 1961, and seized in execution in September. 1961,on behalf of the defendants, Her Majesty's Customs and Excise, who are judgmentcreditors, while the goods were

lying in a bonded warehouse at Cardiff docks

Bruilrix Electric Company, Ltd., whom f shall call "Bruitrix", in February, 1961,purchased from a Dutch supplier 100 cartons of washing machines. C1F Cardiff,delivery against acceptance of bills of exchange for £924 11s. 8d., payable 37days after shipment. Barclays Bank. Ltd., were, in fact, also collecting agentsfor the shippers' bank, but that fact is immaterial. On February 15,1961, theconsignment

was shipped under a bill of lading to order ofshippers. It was shipped by Hudig & Pieters, ofRotterdam, Netherlands

... in and upon the …Motor Vessel Echo whereof[— the name is not inserted—] ... is Masterfor the present voyage now lying in the Port ofRotterdam to be delivered at Cardiff…

The goods were described as…cartons washingmachines ... Freight Paid and then it says:

Notify address: Bruitrix Electric Co. Ltd., 1, Station Road. Hirwaun.and bythe bill of lading the shipowners, the Bristol Steam Navigation Company,Ltd., undertook to carry the goods and to deliver the same

…from the ship's deck (where the Shipowner's responsibility shall cease), at



the Port of Cardiff …unto order of shippers or to his or their assigns…

Suffice it 10 say. the documents came forward, the bill of exchange wasaccepted by Bruitrix, the bill of lading and invoice handed to Bruitrix inFebruary, ] 961. On February 18.1961, the goods were discharged at Cardiff. They

were put into a transit warehouse belonging to the British Transport Commissionand there held lo the order of Bristol Steam Navigation Company, Ltd., theshipowners. The outturn advice, issued by the British Transport Commission, showthem as held on account of Bristol Steam Navigation Company, Ltd, No steps loobtain delivery or entry of customs clearance were taken by Bruitrix and thegoods remained for the lime being in the transit warehouse.. ..

On June 2,1961, which is the crucial dale for the purpose of this case,Bruitrix pledged the bills of lading with the Bank as security for advances made

by the Bank on overdraft, and executed in respect of the deposit of the bills oflading, a memorandum of pledge—

The bills of lading and apparently the invoices were deposited with the Bankby Bruitrix and remained in possession of the Bank at all material times untilSeptember, 1961. The shipowners were unaware of the Bank's interest in the billsof lading, or the goods, until early in July. In the meantime, the question ofCustom's clearance became important....

To resume the history of the matter, on August 22, 1961, the Customs andExcise recovered judgment against Bruitrix for £475 for arrears of purchase tax

and upon Sept. 9,1961, a writ of fieri facias l 44l was issued lo the Sheriff ofGlamorgan. On Sept. 21,1961, the Bank gave formal written notice of the pledge tothe shipowners but, as I have already indicated, the shipowners had been aware ofthe Bank's interest in the matter since early in July before the goods weretransferred from the transit shed to the bonded warehouse.

On September 26, the shipowners asked the Bank for payment of their charges,being charges which had accrued, I think, in most cases since July, but hadaccrued is respect of the warehousing and the removal from one warehouse toanother. On September 29, the Sheriff entered into walking possession of thegoods at 3 p.m. On September 28, the shipowners had issued delivery orders lo theBank upon presentation by the Bank to the shipowners of the bills of lading. Thedelivery orders were taken by the Bank to the British Transport Commission whichissued dock warrants to the Bank in respect of the goods at 5 p.m. on September



29. The dock warrants are in fact by statute documents of title but at thetime that they were issued the Sheriff had already taken walking possession ofthe goods on behalf of the Customs and Excise as judgment creditors.

Although T have dealt with the history after June 2, to show how the issue

arises in this case, the question which I have to decide is whether on June 2,1961, the bills of lading were still documents of title for the goods lo whichthey related, so that effective pledge of the goods could be made by deposit ofthe bills of lading endorsed in blank with the Bank for security for moneyadvanced to Bruitrix, or, put more broadly, whether the bills of lading werestill documents of title to the goods by endorsement on delivery of which therights and property in (he goods would be transferred. If so, it is now conceded,first, that there was a valid pledge of the goods on June 2,1961, and second,that nothing had happened after June 2, 1961, affecting the Bank's right aspledgees.

I find as facts, (1), that at alt material limes from the moment of theirunloading at Cardiff docks until June 2, 1961, and, indeed, until September 29,1961, the goods were in the physical possession of the British TransportCommission as warehousemen and held by the British Transport Commission as suchwarehousemen on behalf of and to the order of shipowners; (2) that at allmaterial times the British Transport Commission would only have released physical

possession of the goods or issued a dock warrant—that is a document of title—inrespect thereof to a person named in and presenting a delivery order issued bythe shipowners; (3) that the shipowners would at no material time have issued adelivery order authorizing the British Transport Commission to deliver possessionof the goods to any person except upon the presentation by that person to theshipowners of a bill of lading relating to the goods either endorsed in blank orendorsed to the person presenting the bill of lading.

The contention of the Customs and Excise is that as soon as (1.) a contract of

carriage by sea is complete, or at any rate the contract of carriage evidenced bythe bill of lading is complete, and (2), the bill of lading is in the hands ofthe person entitled to the property in, and possession of the goods, and is in aform which would entitle him upon mere presentation lo obtain delivery of thegoods from the shipowner— that is endorsed to him or endorsed in blank—itceases to be a document of title by delivery and endorsement of which the rightsand properly in the goods can be transferred. This is indeed a startling



proposition of law which, if correct, would go far to destroy the value of abill of lading as an instrument of overseas credit. It would mean that no bankcould safely advance money on the security of a bill of lading without firstmaking inquiries at the port of delivery, which may be at the other side of theworld, as to whether the goods had been landed with the shipowner's lien, if any,

discharged or released. It would also mean that no purchaser of goods could relyupon delivery and endorsement to him of the bill

______

[ 44 Latin: ''cause it to be done," Judicial writ directing a sheriff to satisfy a judgment from a debtor's

property,]

of lading as conferring upon him any title to the goods without making similar

inquiries, for it; would follow that once the goods had been landed and any lienof the shipowner released or discharged, the owner of the goods could divesthimself of the property in them without reference to the bill of lading. It wouldalso follow that the shipowner, once the goods had been landed in the absence ofany lien, could not safely deliver the goods to the holder of the bill of ladingupon presentation because the property in and right to possession of the goods,might have been transferred by the owner to some other person. To hold that thiswas the law would be to turn back the clock to 1794 before the acceptance by (heCourt of the special verdict of the Jury as to custom of merchants in the case of

Lickbarrow v. Mason,* 5 and which laid the foundation for the financing ofoverseas trade and the growth of commodity markets in the 19th century.

The contract for the carriage of goods by sea, which is evidenced by a bill oflading, is a combined contract of bailment and transportation under which theshipowner undertakes to accept possession of the goods from the shipper, to carrythem to their contractual destination and there to surrender possession of themto the person who, under the terms of the contract, is entitled to obtain pos-

session of them from the shipowners. Such a contract is not discharged byperformance until the shipowner has actually surrendered possession (that is, hasdivested himself of all powers to control any physical dealing in the goods) tothe person entitled under the terms of the contract to obtain possession of them.

So long as the contract is not discharged, the bill of lading, in my view,remains a document of title by endorsement and delivery of which the rights ofproperty in the goods can be transferred. It is clear law that where a bill of



lading or order is issued in respect of the contract of carriage by sea, theshipowner is not bound to surrender possession of the goods to any person whethernamed as consignee or not, except on production of the bill of lading. Until thehill of lading is produced to him. unless at any rate, its absence has beensatisfactorily accounted for, he is entitled to retain possession of the goodsand if he does part with possession he does so at his own risk if the person towhom he surrenders possession is not in fact entitled to the goods.

In the present case, the contract of carriage evidenced by the bills oflading, had not been discharged on June 2, 1961, when Bruilrix purported topledge the goods to the Bank by deposit of the bills of lading as security foradvancement of money to them. The goods were in the constructive possession ofthe shipowners being held in the physical possession of the British TransportCommission on behalf of and to the order of the shipowners who had power tocontrol any physical dealing with them. No bill of lading had at that date beenproduced to the shipowners. The shipowners were under no obligation to surrendertheir constructive possession and control to deal with the goods, except onproduction of the bill of lading and had no intention of doing so. In thosecircumstances it seems to me beyond argument that the bills of lading were at allmaterial limes effective documents of title for the goods by deposit of which tothe Bank a valid pledge of the goods for security on advances could be made.. ...

.. Lord Justice Bowen says this

The law as to the endorsement of bills of lading is as clear as in my opinionthe practice of all European merchants is thoroughly understood. A cargo atsea while in the hands of the carrier is necessarily incapable of physicaldelivery. During this period of transit and voyage, the bill of lading by thelaw merchant is universally recognized as its symbol, and the endorsement anddelivery of the bill of lading operates as a symbolical delivery of the

cargo. Property in the goods passes by such endorsement and delivery of thebill of lading, whenever it is the intention of the parties that the propertyshould pass, just as under similar circumstances the property would pass byan actual delivery of the goods. And for the purpose of passing such propertyin the goods and completing the title of the endorsee to full possessionthereof, the bill of lading, until complete delivery of the cargo has beenmade on shore to some one rightfully claiming under it, remains in force as a



symbol, and carries with it not only the full ownership of the goods, butalso all rights created by the contract of carnage between the shipper andthe shipowner. It is a key which in the hands of a rightful owner is intendedto unlock the door of the warehouse, floating or fixed, in which the goodsmay chance to be.

... In my opinion the pledge made on June 2, by deposit of the bill of ladingwas a valid pledge and as a consequence I think that I can give judgment for theplaintiffs in this case.

______

45 Term Reports, vol. 5, p. 683 (King’s Bench, 1794)

Unlike transferees of bills of exchange, a transferee who obtains an order billof lading in good faith and for value paid is not a holder in due course who isentitled to claim the goods from the carrier "free of equities" or "free of

personal defenses." 46 This is a significant difference. In practice, it meansthat should an order bill of lading be obtained by fraud and endorsed to a bonafide purchaser for value, the recipient will not acquire title to the goodsdescribed in the bill. On the other hand, if the same thing were to happen with abill of exchange that was neither overdue nor dishonored, the recipient (whowould be a holder in due course) would be entitled to the money or propertydescribed in that hill. Because of this difference, an order bill of lading is

sometimes described as only a "quasi-negotiable" instrument. 47

______

46 British practice uses the phrase ''free of equities"; American practice uses "free of personal defenses."

Both refer to a class of adverse claims that the person obliged to perform may assert against a holder, bill

not a

The definitional basis for this difference between bills of exchange and orderbills of lading can be found in Lord Justice Bowen's description, quoted earlier.Even when a bill of lading is properly endorsed and delivered, title lo the goodswill pass only when the bill of lading is negotiated with the intention oftransferring the goods. For example, a seller may endorse a bill of lading to his



agent in the port where the goods are lo be discharged so that the agent candeal directly with a particular buyer. Because the seller did not intend to passtitle to the agent by his endorsement, title would not pass. If the agent were tofraudulently sell the bill to a third party, the third party would also not havetitle. In such a circumstance, the seller could order the carrier lo deliver thegoods only to the intended buyer, or if delivery had already been made to thethird party, the seller could sue that person for conversion. This is so becausethe transferee of an order bill of lading acquires both the rights and the lia-

bilities of his transferor. 48

Bills of lading are also distinct from bills of exchange because theyadditionally represent a contract for carriage. Negotiation of an order bill oflading produces the unique result of a transfer of the right to enforce Iheunderlying transportation agreement. For example, in the case of The Albazero,

cargo was lost due to the alleged negligence of the carrier. The holders of thebill of lading were unable to sue because the statute of limitation set by theHague Rules had run. Accordingly, the charterers, who were business affiliates ofthe holders, attempted to sue under the charterparly, which was not subject tothe same statutory time limits. The British House of Lords held that thecharterers could not sue. By endorsing the bill of lading, which also representedthe contract of carriage, they had transferred all of their contractual rights lo

the transferee. 49

Carrier's Duties under a Bill of LadingCarrier's Duties under a Bill of LadingCarrier's Duties under a Bill of LadingCarrier's Duties under a Bill of Lading

A carrier transporting goods under a bill of lading is required by the Hague and

Hague-Vis by Rules to exercise "due diligence" in 30

(a) Making the ship seaworthy.

(b) Properly manning, equipping, and supplying the ship.

(c) Making the holds, refrigerating, and cool chambers, and all other parts ofthe ship inwhich goods are carried, fit and safe for their reception, carriage, andpreservation.

(d) Properly and carefully loading, handling, stowing, carrying, keeping,caring for, and



discharging the goods carried.

Most courts strictly enforce this obligation. For example, in Riverstone MeatCo. Pty., Ltd. v. Lancashire Shipping Co., Ltd., cargo was damaged by water dueto the negligent work of a shipfitter employed by a ship repair company. The

court held that the carrier had failed to use due diligence in making the shipseaworthy. 5

_______________________________________________________________________

holder in due course. Such equities or personal personalpersonalpersonal defenses include breach of contract, lack or failure of

consideration, fraud in the inducement, some forms of illegality, mental incapacity, ordinary duress,

discharge by payment or cancellation, and nondelivery.

47

Clive M. Schmitthoff, Schmitthoff's Export Trade: The Law & Practice of International Trade, p. 537 (9thed, 1590).

48 The rule was applied in a more roundabout way in Sewell v. Burdick, Law Reports, Appeal Cases, vol. 10,

p, 74 (1884). There, a bank that was the holder of the bill of lading argued that it was not obligated to

pay the cost for storing the goods after they were discharged from the carrier because the shipper had not

intended to transfer title lo it. The court agreed, noting that the shipper had given the bill of lading to

the bank only as a pledge for a loan.

49

All England Law Reports, vol. 1976. pt. 3,p. 129 (House of Lords, 1976).

50 International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, Article

3 (1924) (the 1921 Hague Rules); Brussels Protocol, Article 3 (1968) (the Hague-Visby Rules).

1

Carrier's ImmunitiesCarrier's ImmunitiesCarrier's ImmunitiesCarrier's Immunities

Both the Hague and Haguc-Visby Rules exempt carriers from liability from damages

that arise from any: 52

(a) Act, neglect, or default of the master, mariner, pilot, or the servants ofthe 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 water;



(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 legalprocess;(h) Quarantine restrictions;

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

(j) Strikes or lockouts or stoppage or restraint of labor from whatever cause,

whether partial or general; provided that nothing herein contained shall beconstrued Lo relieve a carrier from responsibility for the carrier's ownacts;

(k) Riots and civil commotions;

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

(m) Wastage in bulk or weight or any other loss or damage arising frominherent 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; and

(q) Any other cause arising without the actual fault and privity of thecarrier and without the fault or negligence of the agents or servants of

the carrier, but the burden of proof shall be on the person claiming thebenefit of this exception to show that neither the actual fault or privityof the carrier nor the fault or neglect of the agents or servants of thecarrier contributed to the loss or damage.

These immunities are narrowly construed. If cargo is injured and the injuryfalls within one of the exemptions, the carrier will nonetheless be responsible



if the underlying cause was the result of the carrier's failure to exercisedue diligence in carrying out its fundamental duties. This point is illustratedin the following case.

______

51 All England Law Reports, vol. 1961, pt. 1. p. 495 (1%1).

52 International Convention [or the Unification of Certain Rules of Law Relating to Bills of Lading, Article

4, (1924) (the 1921 Hague Rules); Brussels Protocol, Article 4, (1968) (the Hague-Visby Rules).

______________________________________________________________________________

Case 11Case 11Case 11Case 11- ---6 Great China Metal Industries Co. Ltd. v. Malaysian6 Great China Metal Industries Co. Ltd. v. Malaysian6 Great China Metal Industries Co. Ltd. v. Malaysian6 Great China Metal Industries Co. Ltd. v. MalaysianInternational Shipping Corp.International Shipping Corp.International Shipping Corp.International Shipping Corp.

High Court of Australia.

High Court of Australia Reports, vol. 1998, no. 65 (1998). 53

Judges Gaudron, Gummow and Hayne:Judges Gaudron, Gummow and Hayne:Judges Gaudron, Gummow and Hayne:Judges Gaudron, Gummow and Hayne:

In 1989, 40 cases of aluminum can body stock in coils were consigned from Sydneyto Keelung, Teelung, Taiwan. The respondent Issued a bill of lading dated 5

October 1989, acknowledging receipt of the goods in apparent good order andcondition. The vessel named in the bill as the intended vessel was the MV BungaSeroja.

The shipper named in the bill was Strang International Pty. Ltd. ("Strang") asagenl for Comalco Aluminium Ltd. Strang packed the containers in which the cargowas shipped. The appellant was named in the bill as "the notify party" andproperty in the goods duly passed toil.

The bill provided that it should have effect subject tolegislation giving effect to the Hague Rules. By the Sea-

Carriage of Goods Act 1924 (Commonwealth), 54 the HagueRules applied to the carriage of the goods. The parties tothe bill of lading were deemed by 85 4(1) and 9(1) of thatstatute to have intended to contract according to theHague Rules.



In the course of its passage across the Great Australian Bight, the vesselencountered heavy weather. That weather had been forecast before the vessel leftport. Some of the goods were damaged.

Although, as will appear, it is not determinative of the outcome of the

appeal, the question to which submissions primarily were directed is the meaning

and effect of Art. IV rule 2(c) of the Hague Rules that:

Neither the carrier nor the ship shall be responsible for loss or damagearising or resulting from—

(c) perils, dangers and accidents of the sea or other navigable waters ...

The appellant contended that:

• this exception (the "perils of the sea" exception)does not apply if damage to cargo results from sea and weather conditionswhich could reasonably be foreseen and guarded against;

• the weather encountered by the Bunga Seroja was foreseen; and the statementof Judges Mason and Wilson in Ship ping Corporation of India Lid. v Gamien

Chemical Co (A/Asia) Pty Lld. 55 that "sea and weather con ditions which mayreasonably be foreseen and guarded against may constitute a peril of thesea" is wrong and should not be followed.

* * *

The appellant pleaded that the respondent had failed to meet itsresponsibility under Art. III rule 1 of the Hague Rules to exercise, before andat the beginning of the voyage, due diligence to make the ship seaworthy, toproperly man, equip and supply The ship and to make (he holds and all other partsof the ship in which the goods were carried fit and safe for their reception,carriage and preservation. It also pleaded failure by the respondent to properlyand carefully load, handle, stow, carry, keep, care for, and discharge the goodscarried (Art. Ill rule 2). By its defense, the respondent relied upon variousimmunities specified in Art. IV rule 2. In particular, the respondent pleadedthat it was not responsible for any loss or damage to the goods arising orresulting from perils of the sea and that any damage to the goods resulted or



occurred by reason of that matter.

The trial judge (Judge Carruthers) entered judgment for the respondent. HisHonor concluded:

In my view, the [respondent] has established to the requisite degree that thedamage to the subject cargo was occasioned by perils of the sea. ... Insummary, the evidence satisfies me that, bearing in mind the anticipatedweather conditions; (i) when the Bunga Seroja sailed from Burnie she was fitin all respects for the voyage; (ii) the [respondent] properly and carefullyloaded, handled, stowed, carried, kept and cared for the subject cargo; and(iii) there was no neglect or default of the master or other servants of the[respondent] in the management of the ship or cargo.

______

54 Section 4(1).This has now been replaced by the Carriage of Goods by Sea Act 1991 (Commonwealth), which

incorporates the Haguc-Visby Rules.

55 Commonwealth Law Reports, vol. 147. p. 142 at p. 166 (1980).

I am satisfied that the damage to the subject cargo was occasioned byperils of the sea, in that, the pounding of the ship by reason of the heavy

weather caused the coils within the container to be dislodged and therebysustain damage.

The New South Wales Court of Appeal dismissed an appeal. The appeal to thisCourt also should be dismissed.

* * *

In understanding the operation of the Hague Rules, there are three important

considerations. The rules must be read as a whole, they must be read in the lightof the history behind them, and they must be read as a set of rules devised byinternational agreement for use in contracts that could be governed by any ofseveral different, sometimes radically different, legal systems. It is convenientto begin by touching upon some matters of history.

Uniform ConstructionUniform ConstructionUniform ConstructionUniform Construction



Because the Hague Rules are intended to apply widely in international trade, itis self-evidently desirable to strive [or uniform construction of them. As hasbeen said earlier, the rules seek to allocate risks between cargo and carrierinterests and it follows that the allocation of those risks that is made when therules are construed by national courts should, as far as possible, be uniform.Only then can insurance markets set premiums efficiently and the cost of doubleinsurance he avoided.

In Gamlen, Judges Mason and Wilson note that: 56

[t]here is a difference between the Anglo-Australian conception of '"perilsof the sea" and the United Stales-Canadian conception. According lo thelatter, "perils of the sea" include losses to goods on board which arepeculiar to the sea and "are of an extraordinary nature or arise from

irresistible force or overwhelming power, and which cannot be guarded againstby the ordinary exertions of human skill and prudence." 37 In the UnitedKingdom and Australia it is not necessary that the losses or the cause of the

losses should be "extraordinary." 58 Consequently sea and weather conditionswhich may reasonably be foreseen and guarded against may constitute a perilof the sea.

When reference is made lo occurrences identified as "extraordinary." thequestion arises as to the nature of the relativity which is contemplated. Thus ithas been said that the events which occurred "may be considered extraordinary ascompared with an even voyage upon a placid sea; and yet [they] may be an entirely

ordinary occurrence as compared with transportation by sea generally. 59

It may be that the difference between Anglo-Australian and American-Canadianconstruction of the "perils of the sea" exception is less than might appear from

reference to cases such as The Giulia 60 or The Rosalia 61— both decisions of the[United States] Second Circuit Court of Appeals. In The Rosalia a peril of the

sea was described as "something so catastrophic as to triumph over thosesafeguards by which skillful and vigilant seamen usually bring ship and cargo toport in safety." More recent authority in the United States has, perhaps, placedless emphasis on whether what happened was extraordinary and catastrophic. Butwhether or not that is an accurate reflection of more recent developments, thereis great force in what Judge Learned Hand said in Philippine Sugar Centrals

Agency v. Kokusai Kisen Kabushiki Kaisha: 62



The phrase, "perils of the sea," has at times been treated as though itsmeaning were esoteric: Judge Hough's vivid language in The Rosalia ... hasperhaps given currency to the notion. That meant nothing more, however, thanthat the weather encountered must be too much for a well-found vessel lowithstand …The standard of seaworthiness, like so many other legal

standards, must always be uncertain, for the law cannot fix in advance thoseprecautions in hull and gear which will be necessary to meet the manifolddangers of the sea. That Judge Hough meant no more than this in TheRosalia ... is shown by his reference to the definition in The Warren

Adams 63 ... as the equivalent of what he said. That definition was asfollows: "That term may be defined as denoting 'all marine casualtiesresulting from the violent action of the elements, as distinguished fromtheir natural, silent influence." " It would be too much to hope that TheRosalia .. . will not continue to be cited for more than this, but it would begratifying if it were not.

* * *

... [A]s the Second Circuit Court of Appeals said of perils of the sea, in a

marine insurance case. New Zealand Insurance Co v. Hecht, Levis & Kahn: 64

______

56 Id. , at pp, 165-166.

57 The Giulia, Federal Reporter, vol. 218, p. 744 (US. 2nd Circuit C(, of Appeals, 1914), adopting Joseph

Story, Commentaries on the La of Bailments: with Illustrations from the Civil and the foreign Law, § 512(a)

(9th ed.. 1-878).

58 Thomas G. Carver. Carriage by Sea; vol. 1, § I hi, (12th ed., l971):Skandia Insurance Co. Ltd.v.

Skoljarev, Commonwealth Law Report vol. 142,p.375 at pp. 386-3H7 (1979)…

59 ClinchfieJd Fuel Co. v. Aetna Insurance Co., South Eastern Reporter, vol. 114, p. 543 at p. 546 (Supreme

Ct. of South Carolina, 1922).

60 Federal Reporter, vol. 218, p. 744 (U.S. 2nd Circuit Ct. of Appeals, 1914)

61 Id ., vol. 264,p. 285 (U.S. 2nd Circuit Ct. of Appeals, 1920).

62 Id., vol. 106, p. 32 at pp. 34-35 {U.S. 2nd Circuit Ct. of Appeals, 1939}.



63 Id., vol. 74, p. 413 at p. 4] 5 (U.S. 2nd Circuit Ct. of Appeals, 1896).

64American Maritime Cases, vol. 1941, p. 1188 at p. 1189 (1941) per Judges Learned Hand. Chase and Clarke.

We may concede arguendo [65]

that they cover only "extraordinaryoccurrences," . . . but if so, while they do not include those injuries whichare the run of all voyages, they certainly do include occasional visitationsof the violence of nature, like great storms, even though these are no morethan should he expected.

Thus there arc statements to be found in the United States authorities that a''perils of the sea" exception may apply even if the weather encountered was nomore than expected.

Nor should statements made in the many English cases dealing with perils ofthe sea be read divorced from their context. Some can, we think, be seen as nomore than decisions about particular facts. Others examine questions of onus ofproof and concurrent causation, which do not arise in this case. Particular

reference need be made to only two of the English cases— The "Xantho" 66 andHamilton, Fraser & Co v, Pandorf & Co,'' 1 Both cases predated the Hague Rules andconcerned the construction of an exception in bills of lading in favor of"dangers and accidents of the seas." We mention The "Xantho" for the distinctiondrawn by Lord Herschell between perils of the sea and other losses of which thesea is the immediate cause. He said:

I think it clear that the term "perils of the sea" does not cover everyaccident or casualty which may happen to the subject-matter of the insuranceon the sea. It must be a peril "of the sea. Again, it is well settled that itis not every loss or damage of which the sea is the immediate cause that iscovered by these words. They do not protect, for example, against that

natural and inevitable action of the winds and waves, which results in whatmay be described as wear and tear. There must be some casualty, somethingwhich could not be foreseen as one of the necessary incidents of theadventure.

The distinction drawn by his Lordship is important and must be borne in mindwhen considering the operation of the "perils of the sea" exception.



The second case, Pandorf, is worthy of note because it shows that there may bedamage resulting from a peril of the sea despite there being no greatcatastrophic event. It was held, there, that a cargo was damaged by "dangers andaccidents of the seas" when, during the voyage, rats gnawed a hole in a pipe thusallowing water into the hold. It is important to mile, however, that it wasadmitted or proved that the ship was seaworthy and that the damage occurredwithout fault on the part of the crew. Those facts being accepted, what otherexplanation for the occurrence could be given save that it was a peril of thesea'? If the decision appears strange to the modem eye, its oddity lies not inthe conclusion reached but in the premises from which that conclusion proceeded:that the ship was seaworthy and that the loss was not caused by default of thecrew. But we need not say whether those findings of fact would now be regarded asopen.

Many other cases were mentioned in argument or can be found in the books. Wethink it desirable to touch briefly on only three other streams of authority.First, it seems that in German law, a peril of the sea need not be anextraordinary event and that a storm of a certain force is regarded as a peril of

the sca. 68 Similarly, in French law a peril of the sea need not be "unforeseeableand insur-mountable." 69 Finally, the Supreme Court of Canada held in GoodfellowLumber Sales v. Verreaulc 70 that:

... even if the loss is occasioned by perils of the sea, the ship owner isnevertheless liable if he failed to exercise due diligence to make the shipseaworthy at the beginning of the voyage and that unseaworthiness was adecisive cause of the loss.

How then are these disparate streams of authority to be brought together? Inour view one must begin by recognizing that the inquiry is, in large part, afactual inquiry—is the carrier immune in respect of what otherwise would be itsfailure to discharge its responsibilities under Art. Ill because the loss or

damage to the goods arose or resulted from a cause which brings the carrierwithin the Immunity conferred by Art. TV rule 2?

If cargo has been lost or damaged and if the vessel was seaworthy, properlymanned, equipped and supplied, what led to the loss or damage? Did it arise orresult from want of proper slowing (Art. Ill rule 2)7 Did it arise from the "act,neglect or default of the master ... or the servants of the carrier in the



navigation or in the management of the ship" (Art. IV rule 2(a))? Or, did itresult from some other cause peculiar to the sea? The last is a peril of the sea.

In Gamlen Judges Mason and Wilson said that "sea and weather conditions whichmay reasonably be foreseen and guarded against may constitute a peril of the

sea." The fact that the sea and weather conditions that were encountered couldreasonably be foreseen, or were actually forecast, may be important in decidingissues like an issue of alleged want of seaworthiness of the vessel, an allegeddefault of the master in navigation or management, or an alleged want of properstowage. Similarly, the fact that the conditions encountered could have beenguarded against may be very important, if not decisive, in considering thoseissues. (Their decision may then make it unnecessary to consider the '"perils ofthe sea" exception.) But if it is necessary to consider the "perils of the sea"exception, the fact that the conditions that were encountered could reasonably beexpected or were forecast should not be taken to conclude that question. To thatextent we agree with what was said by Judges Mason and Wilson in Gamlen. Such anapproach, even if it is different from the American and Canadian approach, betterreflects the history of the rules, (heir international origins and is the betterconstruction of the rules as a whole.

______

65

Latin: "as a matter of argument." A statement made byway of argument or as a hypothetical.] hypothetical.]hypothetical.]hypothetical.]

66 Law Reports, Appellate Cases, vol. 12, p. 503 (1887).

67 Id., vol.l2,p.518(lK87).

68 General Motors Overseas Operation v SS Goettingen, Federal Supplement, vol. 225, p. 902 at pp. 904-905

(U. S. Dist. Ct. S. Dist. of N. Y., 1964)

, , . ( ., )

70 Supreme Court Reports, vol. 1971 p. 522 at p.528 (1971)

The Present AppealThe Present AppealThe Present AppealThe Present Appeal

In the present ease the trial judge held that there was no breath of Art. IIT

/ /// . . . / / / % % % % % % % % % % % ...



rule 1 or rule 2. That is the trial judge rejected die contentions that duediligence had not been exercised to make the ship seaworthy, to properly man,equip and supply the ship and to "make the holds ... and all other parts of theship in which goods are carried, fit and safe for their reception, carriage andpreservation."' Indeed the trial judge found that in fact the vessel was fit in

all respects for the voyage when it left port, further, the trial judge rejectedthe contention that the carrier had not properly and carefully stowed the goods.It follows, as we have indicated earlier in these reasons, that the owner havingfailed to prove any breach of the carrier's responsibilities under Art, III, theapplicability of the defense of perils of the sea within the meaning of paragraph(c) of Art. TV rule 2 did not strictly arise. However, in the light of thefindings made at the trial, the conclusion that the damage to the cargo wasoccasioned by perils of the sea was correct. The fact that the weatherencountered had been forecast before the vessel left port does not deny thatconclusion.

It was submitted by the appellant that the master should not have left port orshould have diverted so as to avoid the weather which was forecast. The formercontention appears not to have been made at trial. The latter was, but wasrejected. The trial judge, having heard the evidence of experts called by bothparties, said that he was "unable to conclude that any deficiencies in theconduct of the ship and her cargo by [the ship's master] have been demonstrated".

There is no basis for departing from that finding. Once it was made, the trialjudge's conclusion that there was no neglect or default of the master or otherservants of the carrier in the management of the ship or cargo was inevitable. Tothe extent that the appellant now seeks to expand its contention to include theproposition that the vessel should not have left port, it is enough to say that,if the judge's finding does not meet the contention, it is a contention thatcould be made only with evidence to support it and there was none.

* * *

The failure of the submissions by the appellant makes it unnecessary toconsider grounds urged in support of the decision of the Court of Appeal by therespondent in its Notice of Contention.

The appeal should be dismissed with costs.

_____________________________________________________________________

/ /// . . . / / / % % % % % % % % % % % ...



Liability LimitsLiability LimitsLiability LimitsLiability Limits

Carriers have long attempted to set monetary limits on their Liability in theevent they are found liable for loss of or damage to a cargo. The permissiblelimits are now established by convention. The Hague Rules of 1921 limit a

carrier's liability to (a) UK £100 per package or (b) UK £100 per unit whenshipped in "customary freight units." 71

One reason many nations had a strong interest in amending the Hague Rules inthe 1960s was the belief that its monetary limits were inadequate. The limitswere dramatically raised in the Haguc-Visby Rules. Those rules set the limits at"10,000 gold francs per package or unit, or thirty gold francs per kilo of the

gross weight of the goods lost or damaged, whichever is the higher." 72 This goldor ''Poincaré" franc is not a unit of currency, but rather an amount of gold. At

current conversion rates, it is equivalent to approximately US $1 or UK £0.60.

The limits do not apply if the parties agree to higher amounts. They also donot apply if the carrier acted either (a) "'with intent to cause damage" or (b)

"recklessly and with knowledge that damage would probably result." 73

______

71 International national Convention for the Unification of Certain Rules of Law Relating to Bills of

Lading, Article 4, § 5 (1924) (the 1921 Hague Rules). Article 9 provides: -'Those contracting stales inwhich the pound sterling is not a monetary unit reserve lo themselves the right of translating the sums

indicated in this convention in terms of pounds sterling into terms of their own monetary system in. round

figures.'

72 Id. , Article IV, §5.

73 Id., Brussels Protocol, Article IV, §5 (1968) (the Hague-Visby Rules).

________________________________________________________________________________

The low limits set in the Hague Rules—which remain in effect in the UnitedStates— have forced shippers suing in American courts to suggest creativedefinitions for the terms "package" and "customary freight unit" as a way toobtain a respectable recovery. Courts, not unsympathetic to their plight, havesometimes adopted these suggestions. One such court produced the opinion in thefollowing case.

/ /// . . . / / / % % % % % % % % % % % ...



_____________________________________________________________________

Case 11Case 11Case 11Case 11- ---7 Croft & Scully Co. v. M/VSkulptor Vuchetich et al7 Croft & Scully Co. v. M/VSkulptor Vuchetich et al7 Croft & Scully Co. v. M/VSkulptor Vuchetich et al7 Croft & Scully Co. v. M/VSkulptor Vuchetich et al ....

United States, Court of Appeals. Fifth Circuit, 1982.

Federal Reporter, Second Series, vol. 664, p. 1277 (1982).

Circuit Judge John R. Brown:Circuit Judge John R. Brown:Circuit Judge John R. Brown:Circuit Judge John R. Brown:

Appellant Croft & Scully Co. appeals from a decision by the District Courtlimiting to $500 its recovery in an incident where the parties stipulatednegligence…

Things Go Better with CokeThings Go Better with CokeThings Go Better with CokeThings Go Better with Coke

Croft & Scully contracted to ship 1755 cases of soft drink from Houston, Texas tothe middle eastern country of Kuwait. Apparently Kuwaitis would like to bePeppers, too. Croft & Scully arranged to ship the soft drinks on board M/VSkulptor Vuchetich, which arrived in Houston December 8,1977. Baltic ShippingCo., owner of Skulptor ,

dispatched a 20-foot steel container to Croft &Scully's warehouse in Wharton, Texas. Employees ofthe supplier loaded the 1755 cases, each containing4 "6-packs" or 24 cartons, into the container,closed and scaled it—a real Teem effort. Thesupplier then trucked the container to Goodpasture's yard, near the Houston Ship Channel,which Baltic had selected as convenient storagefacility pending arrival of Skulptor.

During the Refreshing Pause between arrival ofthe container and arrival of Skulplor, the vessel'sagent prepared a Bill of Lading, and hired Shippers Stevedoring, Inc., to tototo loadthe soft drink container on board Skulplor.

Pepsi Cola Hits the SpotPepsi Cola Hits the SpotPepsi Cola Hits the SpotPepsi Cola Hits the Spot— ———On the PavementOn the PavementOn the PavementOn the Pavement

As one ofofofof the Stevedore's employees was lifting the container, with withwithwith the use of a

/ /// . . . / / / % % % % % % % % % % % ...



forklift, he negligently dropped it. By our calculations, 42,12(1 cans of soft softsoftsoftdrinks crashed to the ground, ground,ground,ground, never a thirst to quench. In the Crush, the canswere damaged. The stevedore, no doubt, was in no mood to have a Coke and a smile.

Dr. Pepper at 10,2 and § 1304Dr. Pepper at 10,2 and § 1304Dr. Pepper at 10,2 and § 1304Dr. Pepper at 10,2 and § 1304

Croft & Scully sued Goodpasture, ,,, Shippers Stevedoring, and Skulplor and herowners to pick up the Tab for its damages. The TheTheThe District Court dismissed the suitas to Good-pasture because it had no agency relationship with ShippersStevedoring. Relying upon a aaa so-called HimalayaHimalayaHimalayaHimalaya Clause ill the Bill of Lading, itgranted the remaining defendants' motion for summary judgment and, finding thatthe container constituted a "package" within the meaning of 5 4(5) of [theCarriage of Goods by Sea Act (COGSA), which implements the Hague Rules in theUnited States.] limited Shippers Slevcdoring's liability liabilityliabilityliability to $500. Croft & Scully

appeals. Things do Better on appeal, and we reverse and remand. case. Clause 17of the Bill of Lading makes dear provision for an increased valuation at a higherfreight rate. A more unequivocal declaration, in fact, one could not find. AsCroft & Scully could have availed itself of extra loss or damage protection, butchose not to, the District Court ruled dial the Himalaya Clause applied.

A Peek at the Himalaya ClauseA Peek at the Himalaya ClauseA Peek at the Himalaya ClauseA Peek at the Himalaya Clause

Croft & Scully asserts that the Himalaya Clause limiting recovery to $500 $500$500$500violates public policy. That claim fails to make the grade, given our decision in

Brown & Hoot v. M/VPeisiindcr 74 upholding such a clause. Indeed, the conflictwhich we surmounted there does not even arise in this

______

74 Federal Reporter, Second Series. Vol. 648, p. 415 (Fifth Circuit Ct. of Appeals, 1981)

DonDonDonDon’’’ ’t Judge the Package by Its Appearancet Judge the Package by Its Appearancet Judge the Package by Its Appearancet Judge the Package by Its Appearance

Even if liability is limited to $500 per package. Croft & Scully argues, thecardboard cases of soft drinks rather than the 20-foot container shouldconstitute the relevant "package." Shippers Stevedoring responds with equal fer-



vor that the container is the "package." Their argument, we think, given therecent decision in Allstate Insurance Co. v. Inversion's Navieras Imparca,75holds no water, carbonated or otherwise.

We begin by pointing out that COGSA docs not apply by its own force and

effect, since the incident occurred in the yard and not on the vessel. Rather theBill of Lading incorporates COGSA. Thus, its provisions are merely terms of thecontract of carriage which, like any other contractual terms, call out forjudicial interpretation in case of dispute....

The District Court further observed that the Fifth Circuit had not establisheda test to determine what constitutes a "package" under COGSA. Since the date ofits order, this Court has formulated such a test in whose good hands theparties—and the District Court —must rest.

Allstate involved the loss of 341 cartons of stereo equipment. The shipperloaded the cartons inside a container, sealed it, and had its agent deliver it tothe carrier. The carrier issued a Bill of Lading which described the contentsboth in number and in kind. When the container arrived in Venezuela, it was asempty as a can of soda on a hot summer day. "The shipper sought recovery for itsfull damages, but the carrier relying on COGSA, sought shelter in the $500limitation. Although the District Court concluded that the container was theCOGSA package, the winds of judicial change Schwepped away the $500 shelter andexposed the carrier to full liability.

Judge Anderson, writing for the Court, after reviewing the history of COGSAand decisions in other Circuits, found that each stereo carton was a discrete"package." He based his decision on a case in the Second Circuit, Mitsui & Co. v.

American Export Lines. 7b There Judge Friendly expressly rejected as unworkableand unsound the old "functional economics" test. 77… Instead, relying on dicta inLeather's Best. Inc. v. S.S. Mormaclynx 78he looked to see whether the carrier had

clear, unequivocal notice of the container's contents:

Clearly the goal of international uniformity is better served by the approachin Leather's Best that generally a container supplied by the carrier is not aCOGSA package if its contents and the number of packages or units aredisclosed…

We find nothing in the Bill of Lading to indicate that the contracting parties



intended some special meaning of the term “package." Since Croft & Scullyincluded information about the contents of the container and their number,Allstate governs. Therefore, the District Court erred in granting summaryjudgment on the "'package" issue.

Customary Freight UnitCustomary Freight UnitCustomary Freight UnitCustomary Freight Unit

Even if the container was not a COGSA -package," Shippers Stevedoring contends,the Court should uphold the $500 award because the container was a "customaryfreight unit" within the ambit of § 4(5) of COGSA, and thus the Himalaya Clausestill applies....

Caterpillar Americas Co. v. S/S Sea Roads 79 99 9 held that the "customary freightunit" was a tractor and its parts rather than hundredweight units, "regardless of

the harshness or seemingly illogic of such result":

With respect to the words "customary freight unit," the authorities areconclusive that this phrase refers to the unit upon which the charge forfreight is computed and not to the physical shipping unit. As thus construed,the statute gives the court the task of determining what unit was actuallyused by the carrier for computing the freight charge on the shipment in ques-tion. Under the statute the freight unit, if one exists, will control thequestion of limitation of liability, unless the freight unit employed was a

mere sham, and, therefore not a "customary" unit within the meaning of thestatute—

From these cases, we deduce that "customary freight unit" is a question offact that will vary from contract to contract. Of particular importance in thisas in any contractual dispute, then, is the parties' intent, as expressed in theBill of Lading, applicable tariff, and perhaps elsewhere—

Although Graft & Scully admitted that the freight charge was $220U, calculated

on a "flat container rate," we do not know how the parties arrived at that rate.Does it depend upon the contents, weight, value, custom of the trade, applicabletariffs, if any, or other factors? The District Court must consider thesequestions on remand. If it finds that the container was a "customary freightunit," then the Court should reinstate the $500 limitation of liability. If not,then it should hold further proceedings to determine the amount of damages. We,of course, express no opinion concerning the outcome.



______

75 Id., vol. 64fi, p. 164 (Fifth Circuit Ct. of Appeals, 1981).

76 Id ., vol. 636, p. 807 (Second Circuit Ct. of Appeals, 1981).

77 That test, which lingered beyond its lime as a Sprite disrupting the admiralty for sonic years, looks to

sec whether the goods as packaged prior lo shipping were "functional," i.e., hi for shipping and transport

individually as packed. It necessitated much judicial guessing work, and we are well rid of it.

78 Federal Reporter, Second Series, vol. 800, p. 815 (Second Circuit Ct. of. Appeals, 1971).

79Federal Supplement, vol. 231, p. 647 (Dist. Ct. S. Dist. of Florida, 1964), affirmed. Federal Reporter,

Second Series, vol. 364, p. S29 (Fifth Circuit Ct. of Appeals, 1966).

RecapRecapRecapRecap

We affirm the District Court's dismissal of Goodpasture and its conclusion thatthe Himalaya Clause applies. We reverse its grant of summary judgment forShippers Stevedoring and its finding that the steel container was a COGSApackage. As the District Judge never reached the important factual questionwhether the container of soft drink cartons was a "customary freight unit," we

remand for further inquiry into the facts and for consideration of the parties'intent, factors that will guide the trial Court in determining the meaning ofthat COGSA clause.

Affirmed in part, reversed in part and remanded.

_____________________________________________________________________

Time LimitationsTime LimitationsTime LimitationsTime Limitations

A claim for loss or damages must be instituted within 1 year after the goods were

or should have been delivered. 80 The claim may be initiated by filing suit orcommencing an arbitration proceeding. 81

ThirdThirdThirdThird----Party Rights (Himalaya Clause)Party Rights (Himalaya Clause)Party Rights (Himalaya Clause)Party Rights (Himalaya Clause)

The Hague and Hague-Visby Rules apply only to the carrier and



the party or parties shipping goods under a bill of lading.Third parties who help in the transport of the goods but who are not parties tothe carriage-of-goods contract contained in the bill of lading have no contrac-tual right to claim the liability limits established by the conventions. Thus,officers, crew members, agents, and brokers who work for a carrier, as well asstevedores who commonly work for a unit of a shipping line, can be sued underlocal laws of tort or delict without the convention-imposed cap.

To extend the liability limits of the conventions to their employees, agents,and even independent contractors (such as stevedores), carriers have added aclause to their bills of lading, known as a Himalaya Clause,Himalaya Clause,Himalaya Clause,Himalaya Clause, which entitles themto claim the protection of the Hague or the Hague-Visby Rules. These clauses are

valid in the United States but generally unenforceable in the United Kingdom.Most U.K. courts refuse to enforce the Himalaya Clause because of a doctrineknown as privity of contract, which says that only persons party to a contract

may enforce its provisions. 82

In the United States, on the other hand, the doctrine of privity is, at best,haphazardly enforced. As a consequence, most American courts allow the personsnamed in a Himalaya Clause to claim the rights it grants as third-party

beneficiaries. 83

E. CHARTERPARTIESE. CHARTERPARTIESE. CHARTERPARTIESE. CHARTERPARTIES

A charterpartyA charterpartyA charterpartyA charterparty is a contract for the hire of an entire shipfor a particular voyage or a set period of time. Oil, sugar,grain, ores, coal, and other bulk commodities are almostalways shipped under such contracts.

The Hague and Hague-Visby Rules do not apply to charterparties, unless a bill

of lading issued by the shipowner comes into the hands of a third party. Thecharterer and the owner are free to set the terms of their contract, and commonlythey use standardized contracts drafted at various conferences and known by suchcode names as Baltime and Gencon. Interpretations and legal obligations vary fromcountry to country, so a forum selection clause and a choice-of-law clause are

common, and important, provisions. 84

______





damages, known as demurrage,demurrage,demurrage,demurrage, that the shipowner can charge forevery idle day that exceeds the agreed-upon lay days. The obligation to pay thedemurrage will be secured by a lien on the cargo, which any holder of thecorresponding bill of lading will have to pay off before taking delivery.

Time CharterpartiesTime CharterpartiesTime CharterpartiesTime Charterparties

Under a time charterpartytime charterpartytime charterpartytime charterparty the charterer engages the use of avessel for a stated period of time. The charterer normally pays"hire" monthly, and the shipowner will be entitled to withdrawthe ship from the charterer's use if a monthly installment isnot paid promptly. Questions of demurrage and dead freight do not arise becausethe shipowner receives hire while the ship is loading and unloading and whether

or not it is carrying a cargo.

The charterer has the right to direct the ship to proceed to wherever it isneeded. Ordinarily, the only limitation on this right is the charterer's promiseto engage only in lawful trades, to carry only lawful goods, and to only directthe vessel to safe ports. If the shipowner attempts to interfere with thecharterer's use of the vessel, he will be in breach of the charterparty.

Charterparties and Bills of LadingCharterparties and Bills of LadingCharterparties and Bills of LadingCharterparties and Bills of Lading

The contract of carriage between a charterer and a shipowner is the charterparty.The shipowner will commonly issue the charterer a bill of lading when goods areloaded on board; however, between the two of them, the bill will be only areceipt for goods and a document of title. Should the charterer transfer thebill, the position of the third-party endorsee will be different. The Hague orHague-Visby Rules will apply, and the contract between the shipowner and theendorsee will be governed by the bill of lading. Of course, the bill of ladingmay incorporate the terms of the charterparty. In that case, the endorsee will be

governed by its terms. To incorporate the terms of the charterparty, the bill oflading must do so clearly and unambiguously, and the terms of the charterpartymust not conflict with any express terms of ttte bill of lading or (if theyapply) the Hague or Hague-Visby Rules.

______

54 The law of charterparties is vast and its terminology peculiar. Reference to one of the standard texts on



the subject is vital for a complete understanding. See, for example, J. Bes, Chartering and Shipping Terms

(10th ed., 1977); Michael Wilford, Terrance Coghlin, and Nicholas Healy, Time Charters (2nd ed., 1982);

Wharton Poor, American Law of Charter Parties and Ocean Bills of Lading (5th ed. supp. by R. Bauer, 1974);

and Stewart C. Boyd, Andrew S. Burrows, and David Foxton, Scrutton on Charterparties and Bills of Lading

(20th ed., 1996),

F. MARITIME LIENSF. MARITIME LIENSF. MARITIME LIENSF. MARITIME LIENS

A lien is a charge or ororor claim against property that exists to satisfy some debt orobligation. A maritime lienmaritime lienmaritime lienmaritime lien is a charge OT claim against a vessel, its freight,

or its cargo. 85 The main purpose of maritime liens is to ensure that a vessel canadequately obtain credit to properly outfit itself for a voyage.

In common law countries, ,,, a vessel is regarded as a juridical person separateand apart from its owner. Thus, a ship itself may be liable for the shipowner'sbreach of contract OT for the crew's negligence, or even for damages causedwithout the shipowner's or crew's fault, as when port regulations require theship to use a pilot and the pilot causes the injury. In sum, the owner is notessential to the existence of a lien against a ship.In civil law countries, onthe other hand, a maritime lien (or "privilege") is a right in property, but theproperty is not independent of the owner. The lien, in essence, exists against

the owner as a debtor.

The distinctive characteristic of maritime liens, whether defined by thecommon or the civil law. is that they do not require possession. They attach tothe resresresres (i.e., the vessel, freight, or cargo) and travel with it. They are also

secret. 81) If a vessel is sold, the lien "goes with the ship." even if the newowner is unaware of its existence. In common law countries, countries,countries,countries, the foreclosure of amaritime lien follows a peculiar procedure. The res is seized (if it is a vessel,it is "arrested") without prior notice to the owner. An admiralty court takescustody, and a suit proceeds against the tiling. If the lien-holder's claimsucceeds, the res is sold, the proceeds are distributed among the various lien-holders, and the title to the property is transferred to the purchaser of the res

free of all claims. In civil law countries, by comparison, the res is notregarded as something distinct from its owner. A foreclosure suit is initiatedagainst the owner, and the resresresres is then seizedis then seizedis then seizedis then seized as a way to compel the owner toappear and furnish security before the res can be released.



When there arc multiple lien-holders, the various claims must be ranked. Amultilateral treaty, the 1926 International Convention for the Unification ofCertain Rules Relating to Maritime Liens and Mortgages (known as the Brussels

Convention), establishes a hierarchy among lien claims. 87 Although the Conventionhas not been widely adopted, its ranking of liens is representative of most

municipal schemes. 88 Under the convention, claims are Tanked as follows:

1. Judicial costs and other expenses

2. Seaman's wages

3. Salvage and general average

4. Tort claims

5. Repairs, supplies, and necessaries

6. Ship mortgages

The following case illustrates how courts go about applying this ranking.

______

85 A vessel is practically any floating object capable of being propelled for the purpose of carrying goods,

including any equipment, or appurtenances on board. Cargo is the goods carried aboard a vessel. Freight is

the sum of money paid for the carriage of cargo. Geoffrey H. Longnecker," Development of the Law of Maritime

Liens," Tulane Law Review, vol. 45, p. 574 (1971).

86 In some civil law countries, however, shipbuilding liens (known as maritime mortgages) must be recorded

with a government agency.k Ivon d'Almeida Pires-Filho, "Priority of Maritime Liens in the Western Hemi-

sphere: How Secure Is Your Claim?" University of Miami Inter-American haw Review, vol. 16, p. 51)7 (1985).

The same is technically true in common law countries, because shipbuilding liens are not considered to be

maritime trans actions. See North Pacific S.S. Co. v. Hall Bros. Co., United Stales Reports, vol. 249, p.

119 (Supreme Ct., 1919).

87 League of Nations Treaty Series, vol. 120, p. 187.

88 For a comparison of the 1926 Brussels Convention with the maritime lien laws of North and South America,

see Ivon d'AImeida Pires-Filho, "Priority of Maritime Liens in the Western Hemisphere: How Secure Is Your

Claim?" University of Miami Inter-American Law Review, vol. 16, p. 507 (1985).



______________________________________________________________________

Case 11Case 11Case 11Case 11- ---8 The Chinese Seamen's ForeignTechnical Services Co. v. Soto8 The Chinese Seamen's ForeignTechnical Services Co. v. Soto8 The Chinese Seamen's ForeignTechnical Services Co. v. Soto8 The Chinese Seamen's ForeignTechnical Services Co. v. SotoGrande Shipping Corp., SAGrande Shipping Corp., SAGrande Shipping Corp., SAGrande Shipping Corp., SA

People's Republic of China, Shanghai Maritime Court, 1987.

Journal of Maritime Law and Commerce, vol. 20, p. 217 (1989). 89 © 1989 by theJefferson Law Book Co., Division of Anderson Publishing Co. and the author, ToddL. Platek.

The FactsThe FactsThe FactsThe Facts

The plaintiff in this action was engaged in the provision of crewing services forvessels in maritime commerce. The defendant was the owner of the Panamanian M/VPomona. The plaintiff and the defendant shipowner executed a crewing servicescontract on December f 7,1984, in Shanghai. The contract required the plaintiffto provide 25 seamen, including a master, officers and crew, to serve for oneyear aboard the Pomona. The defendant was to pay monthly wages of $20,833 to theplaintiff. On January 14. 1985, the plaintiff dispatched the 25 seamen to thevessel. By September 16,1985. the plaintiff had received only two payments,totaling $21,455 for wages and $840.80 for ship's stores. The plaintiff claimed

$225,283.05 in wage payments form the defendant shipowner.

The Seizure and SaleThe Seizure and SaleThe Seizure and SaleThe Seizure and Sale

On September 16, 1985, the plaintiff submitted to the Shanghai Maritime Court apetition for the seizure of the Pomona. The petition prayed for an orderdirecting the shipowner to post security in the amount of US$ 200,000, oralternatively, for an order directing the sale of the vessel. The court foundthat the petition was procedurally correct, that it alleged a claim for which

seizure of foreign flag vessels is allowed under Chinese law, and that it setforth a reasonable basis for seizure. On September 28 the court therefore orderedthe vessel's seizure.

Due to the failure of the shipowner to furnish security, the court ordered thesale of the Pomona in accordance with Article 93, clause 3 of the Law of CivilProcedure (For Trial Implement a lion) of the People's Republic of China.



Clause 3 ... provides that if the property under legal custody cannot be heldand maintained for a long period, the People's Court may compel a sale anddeposit the proceeds in the court's registry. The Pomona was sold at publicauction on October J8, 1985, and sales proceeds of $430,000 were generated anddeposited in the court's registry. Simultaneously, the court published an

official announcement that all creditors of the vessel should apply to registertheir claims within 30 days.

The SuitThe SuitThe SuitThe Suit

On October 3. 1985, the plaintiff commenced suit inthe Shanghai Maritime Court and sought, in addition

to the above-mentioned back wages of the seamen, thefuel expenses which it had covered for the vessel,the cost of the vessel arrest, its legal fees,liquidated damages for breach of contract, andinterest. The total amount of plaintiff's claim was$259,636.03.

The shipowner failed to file answering papers within the time limit prescribedby law. Although twice formally summoned by the court, the shipowner consistently

failed to submit any legitimate reasons for its refusal to enter a formalappearance in the action. Having given the defendant the requisite opportunity tobe heard, the court conducted a trial of the action in the shipowner's absence.

_______

89 This derision was reported in the Bulletin of the Supreme People's Court (Zhonghua Renmin Gongheguo

Zuigao Renmin Fayuan Gongbao), vol. 13, published March 20,1988. The actual decision of the Shanghai

Maritime Court is not available for public reference. Case files in Chinese courts are generally available

for review only by court personnel and the attorneys for the parties. This summary was prepared by Todd L.

Platek. Esq., Kirlin, Campbell & Kealing, New York.

______

The RulingsThe RulingsThe RulingsThe Rulings

The court ruled that the shipowner had breached the Icons of the contract and



should bear full responsibility for the consequences of its unfulfilledobligations. Following international custom and practice as well as Chinese law,the court ruled as follows:

1. The shipowner was required to compensate the plaintiff for crew wages in the

amount of $ 190,149.24;

2. The shipowner was required to compensate the plaintiff for fuel expenses inthe amount of $3,5O0.(X);

3. The plaintiffs claims for other, expenses were denied;

4. The shipowner was required to bear certain costs of litigation, includingthe filing fee ($1,176.87), the application fee for seizure of the vessel($625), and miscellaneous litigation expenses ($139.90), totaling $1,941.77.Those expenses were to be deducted from the sales proceeds after the effec-tive date of the ruling.

The Preliminary Distribution of the Sales ProceedsThe Preliminary Distribution of the Sales ProceedsThe Preliminary Distribution of the Sales ProceedsThe Preliminary Distribution of the Sales Proceeds

The order took effect after it was served upon the parties and the lime forappeal had expired. In accordance with a recent Supreme People's Court directiveentitled "Special Rules on the Payment of Claims Against "Vessels Sold by CourtOrder," the court directed the convening of a meeting of creditors to engage inthe liquidation of the debts arising out of this case. It publicly verified thesum of money available for distribution, the priority of claims, the nature andextent of each creditor's claim, and the methods of negotiating the creditors'claims. After marshalling the creditors' evidence and examining the value of theclaims, the court certified four creditors" claims in addition to the plaintiff'sjudgment for crew wages. The additional claims certified by the court were the

following:

1. A claim for seamen's wages in the sum of $171,840.26 put forward by theChinese Seamen's Foreign Technical Services Company ("CSFTSC")of the Shanghai Maritime Transport Bureau;

2. Claims totaling $23,292.18 for harbor usage,ship's stores and other items put forward by the Ningpo Branch of the China



Ocean Shipping Agency ("COSA");

3. A ship mortgage in the amount of $1,931,530.34 held by the NationalWestminster Bank. USA.

4. A claim asserted by the Repair Center of theShanghai Shipbuilding Industry Corporation ("SSIC") for repairs totaling$39,000.

The Pomona sales proceeds were applied first to litigation costs and

certain ... custodia legis [90] expenses. The costs and expenses paid in thismanner consisted of the $1,941.77 in costs awarded to the plaintiff, $25,185.88in claims and expenses arising from the sale of the vessel, and $3,500 for thediesel oil and lighterage expenses incurred by the plaintiff during the period of

seizure. The remaining amount of US$ 399,372.35 was augmented by $17,921.1)7 ininterest earned while the sales proceeds were held in legal custody at the Bankof China. The fund available to creditors was thereby raised to US$ 417,294.02.

The priority rules established by the aforementioned directive rank seamen'swages in the first priority class. The plaintiffs judgment for seamen's wages andthe wage claim of the Shanghai CSFTSC, which together amounted to $361,989.50,were therefore paid first out of the remaining sales proceeds.

The second priority class established by the directive includes nationaltaxes, harbor usage fees and other port expenses. The claim of the Ningpo COSAincluded items totalling $9,574.29, which fell within the second class. Thoseitems were accordingly paid next.

There were no other claims in the first three priority classes established bythe directive.The next highest claim was the mortgage held by the NationalWestminster Bank, which was listed between the fourth and fifth priority classes,The remaining claims of the Ningpo COSA, including claims for fuel and watersupplied to the vessel, and the repair costs claimed by the Repair Center ofSSIC, were deemed "other registered claims" within the meaning of the directive.They fell within the fifth priority class, below the mortgage. The balance of thesales proceeds, totalling $45,730,23 was therefore distributed to the mortgagee,and the remaining claims were left unpaid.

The Final Distribution of Sales ProceedsThe Final Distribution of Sales ProceedsThe Final Distribution of Sales ProceedsThe Final Distribution of Sales Proceeds



After another step in the deliberations, the Shanghai CSFTSC "reconsidered" theeffect of the plaintiff's lead in this case and agreed to transfer $12,400.26 tothe plaintiff from its own portion of the preliminary distribution. The ShanghaiCSFTSC and the National Westminster Bank then “reconsidered" the actual Jossesof the Repair Center of SSIC Corporation and the Ningpo Branch of COSA. and

agreed to allow them, from their portions of the preliminary distribution,'"suitable amounts" to remedy their losses. In this way, the five claimantsarrived at the following final distribution of payments:

• The plaintiff received $202,549,50:

• The Shanghai CSFTSC received $150,000;

• The Ningpo Branch of COSA received $15,274.29;

• The National Westminster Bank USA received$44,970.23;

The Repair Center for SSIC Corporation received $4,500.00.

______

[ 90 Latin: “in the custody of the law.” Refers to property held in the custody of a court.]

G. MARITIME INSURANCEG. MARITIME INSURANCEG. MARITIME INSURANCEG. MARITIME INSURANCE

The trade terms the parties choose in their sales contract determine who isresponsible for purchasing maritime insurance, and who benefits from it. However,even when the "risk of loss" shifts from the seller to the buyer, the sellercontinues to have an interest in seeing that the goods are insured. If the goodsare lost and the buyer is either bankrupt or unwilling to pay, insurance may bethe only basis for recovery available to the seller.

Should a party who is required to purchase insurance be involved in anisolated sale, he can purchase a special cargo policy covering the single sale.It is more common, however, for cargo to be covered by an open cargo policy. Sucha policy is an open-ended contract that insures all the cargo of an exporterduring a particular time period. All of the exporter's shipments, whether bytruck, rail, air, or vessel, are covered. Parties involved in an isolated saleoften arrange to have their goods covered by the open cargo policy of a freight



forwarder or customhouse broker.

PerilsPerilsPerilsPerils

The perils covered by special and open cargo policies commonly include thefollowing:

1. Loss or damage from the sea (e.g., weather, collision, stranding, sinking)

2. Fire

3. Jettison (i.e., the dumping of cargo in order to protect other property)

4. Forcible taking of the ship

5. Barratry (i.e., the fraudulent, criminal, or wrongful conduct of thecaptain or crew)

6. Explosion

7. Fumigation damage

8. Damage from loading, discharging, OT transshipping cargo

The coverage of maritime insurance policies is examined in the following case.

_________________________________________________________________

Case 11Case 11Case 11Case 11- ---9 Western Assurance Co. of Toronto v. Shaw9 Western Assurance Co. of Toronto v. Shaw9 Western Assurance Co. of Toronto v. Shaw9 Western Assurance Co. of Toronto v. Shaw

United States, Court of Appeals, Third Circuit, 1926.

Federal Reporter, Second Series, vol. 11, p. 495 (1926).

Circuit Judge Davis:Circuit Judge Davis:Circuit Judge Davis:Circuit Judge Davis:

This was an action to recover on a contract of maritime insurance against theWestern Assurance Company for the total loss of the barge Holly, while moored ata wharf in Chester, Pennsylvania. She was insured "against the adventures andperils of the harbors, bays, sounds, seas, rivers," etc. She was loaded withthree large boilers, weighing 60 tons each, which she was to take to Norfolk,



Virginia. They were lying in the middle of the barge, lengthwise and end to end.On the night of December IS, 1919, she listed to the starboard and sank early thenext morning. When she listed, the boilers rolled to starboard and caused orhastened her sinking.

The learned trial judge found that "the final plunge was due to the swell of asteamer breaking over the part of the deck, which served as a washboard andfilling her," that this was a peril against which she was insured, and so decreedthat the respondent pay for the loss sustained. The case is here on appeal.

The insurance company urged, as a defense in the District Court and here, thatthe libelant did not establish a loss by "perils of the seas" against which thecompany insured, and that the proximate cause of the loss was the unseaworthinessof the boat.

In order to recover, it is necessary for the libelant to bring his claim forloss within the provisions of the policy and establish that the loss was causedby one of the perils against which the barge was insured…

It is difficult to give a definition which will neither be too narrow nor toobroad, of the phrase, "perils of the sea." In defining it, courts have usedvarious expressions which cannot be easily reconciled. The learned trial judgedefined a "peril of the sea" as "any threatening danger from the sea," the

"operative cause." "the efficient cause," "the causa causans. [91] In an enlargedsense all losses from maritime adventures arise from perils of the sea, But suchlosses do not come under this phrase within the meaning of maritime insurancepolicies. "Perils of the sea" against which underwriters insure arc confined toextraordinary occurrences, such as stress of weather, winds and waves, lightning,tempests, rocks, etc

If a loss arises from the ordinary circumstances or wear and tear of a voyage,the insurer is not liable because a seaworthy vessel is supposed to endure usualand customary occurrences. The words are therefore used to describe abnormalcauses and extraordinary circumstances....

The testimony by which libelant sought to establish that a steamer in factpassed which might have produced a swell is very unsatisfactory. By leadingquestions, Nicholein A. Delegeorgen, captain of the barge, was led to say thatwaves from a passing steamer caused the barge to roll. Bui, on the contrary, he





wire rope or cables to the boilers and wharf—that caused the sinking andoccasioned the loss. It seems to us that there is no escape from the conclusionthat there was"want of ordinary care and skill in loading" and that this resulted in anunseaworlhy condition of the barge with respect thereto …

The policy excepted from the risks insured against all claims arising "fromthe want of ordinary care and skill in loading and slowing the cargo.” Theproofs not onlyonlyonlyonly show that the claim docs not come within the risks against whichthe barge was insured, but they clearly show that it arises from the want ofordinary care and skill in loading, and comes within the above exception.

Therefore the decree is reversed, with directions lo the District Court lodismiss the libel, with costs.

______

[ 91 Latin: “the immediate cause.”]

_______________________________________________________________________

Average ClausesAverage ClausesAverage ClausesAverage Clauses

The loss of cargo can be either total or partial. Total loss is ordinarilygoverned by a "constructive loss" clause in a maritime insurance policy. Thisusually includes (a) losses exceeding one-half the value of the cargo or (b)

losses where the cost of recovery exceeds the cargo's vnlue. 92

______

92 Leslie J. Buglass, Marine Insurance Claims; American Law and Practice, p. 16 (2nd

ed., 1972)

A partial loss is known in the marine insurance industry as a

particular average. A "free from particular average 11 (FPA)policy provides the most limited recovery for partial losses.Such a policy ordinarily covers only losses from fire,stranding, sinking, or collision of the vessel. A "withaverage" (WA) policy provides more protection; however, it



ordinarily contains a "franchise" clause that provides forpayment only if the loss exceeds a specified minimum amount (the franchise

amount). WA policies can also be purchased without a franchise clause. 93

General averageGeneral averageGeneral averageGeneral average comes about in the carriage of goods at sea when, in order to

avoid some threat to the whole venture, some expense has to be incurred, or someloss or damage is deliberately inflicted, in order to save the ship and itscargo. For example, a ship may run aground. In order to get it afloat, some ofthe cargo or some of the ship's supplies may have to be jettisoned, or salvagetugs may have to be hired. When this happens, everyone having an interest in theship and its various cargoes will have benefited. Each must then contribute, inproportion to the value of their interest, to restoring the party who sufferedthe loss or damage or who incurred the expense. This is called a "generalaverage" contribution.

Normally, marine insurance will cover each shipper's contribution. However, ifinsurance is not purchased or should a policy not cover general average, then theshipper must pay the contribution before the ship's crew will release the goods.Similarly, if a buyer has already paid for the goods and received a bill oflading, then the buyer (because the bill of lading will transfer the risk of lossto the buyer at that point) must come up with the contribution before the ship'screw will turn over the goods. In either case, the ship will have a lien claim

against the goods, and, if the contribution is not paid, it may foreclose on thegoods, sell them, and retain that portion of the sale price it receives to coverthe cost of the contribution.

A person seeking to claim a general average contribution from other partiesmust show (a) that the loss was incurred to benefit everyone and (b) that theperson making the claim was not responsible for causing the danger. For example,a shipping company cannot claim general average when it has hired tugs to refloata ship that ran aground because of the captain's faulty navigation.

H. CARRIAGE OF GOODS BY AIRH. CARRIAGE OF GOODS BY AIRH. CARRIAGE OF GOODS BY AIRH. CARRIAGE OF GOODS BY AIR

The carriage of goods on aircraft is regulated by the 1929 Warsaw Convention(formally known as the Convention for the Unification of Certain Rules Relating

to International Carriage by Air). 94 Two amendments to the Convention have beenadopted and are now in force: 95 the Hague Protocol of 1955 96 and Montreal ProtocolNo. 4 of 1975. 97 As with inland carriage, the documents used in air carriage—the



air waybills and consignment notes—are not documents of title. 98 This reflectsthe practical difference between air flight and ship transport. The bills andnotes used in air transportation arrive with the goods rather than being sentseparately.

______

93 W. Grande, Servicing World Markets: Administrative Procedures, p. 61 (1979).

94 The text of the Warsaw Convention is in United Nations Treaty Series, vol. 261, p. 421, and vol. 266, p.

444. A copy is posted on the Internet at

http://www.jus.uio.no/bn/air.carriage.warsaw.convenlion.1929/doc.html and at http://www.

Stauffacherlaw.ch/warsa w/warsaw. html.

The states parties to the Warsaw Convention (but not of the Hague or Montreal Protocols) were, as of 1999,

Afghanistan, Albania, Antigua and Barbuda, Armenia, Austria, Azerbaijan, Bahamas, Bangladesh, Barbados,

Belgium. Belize, Benin, Botswana, Brunei, Bulgaria, Burkina, Burma, Cambodia, Canada, Chad, Chile, China,

Congo, Cuba, Dominica, Ecuador, Ethiopia, Fiji, France, Gabon, Gambia, Georgia, Grenada, Guinea, Guyana,

Iceland, India, Indonesia, Iran, Iraq, Ivory Coast, Jamaica, Japan, Jordan, Kazakhstan. Kenya, Kiribati,

Latvia, Lebanon, Lesotho, Liberia, Libya, Liechtenstein, Lithuania, Malawi, Malaysia, Mali, Malta, Mexico,

Moldavia, Monaco, Mongolia, Morocco, Namibia, Nepal, New Zealand, Nigeria, North Korea, Papua New Guinea,

Paraguay, the Philippines, Qatar, Russia, Rwanda, Saint Lucia, Saint Kilts and Nevis, Saint Vincent, Solomon

Islands, Saudi Arabia, Senegal, Seychelles, Sierra Leone, Slovakia, Somalia, South Africa, Sri Lanka, Sudan,

Suriname, Swaziland, Syria, Tajikistan, Taiwan, Tanzania, Tonga, Trinidad and Tobago, Tunisia, Turkmenistan,

Tuvalu, Ukraine, the United Arab Emirates, Uruguay, Vanuatu, Western Samoa, Yemen, Zaire, Zambia, and

Zimbabwe. See InforMARE at http://www.informare.it/dbase/convuk.hirn .

At the heart of the Warsaw Convention is a definition ofthe air waybill.air waybill.air waybill.air waybill. In states that are parties to theConvention—but not to Montreal Protocol No. 4—the bill mustdescribe (a) the nature of the goods being shipped; (b) themethod of packing and any marks or numbers; (c) the weight,quantity, volume, or dimensions of the goods; (d) theapparent condition of the goods and their packaging; and (e)

a statement that the carriage is subject to the Convention's rules. 99 MontrealProtocol No. 4, which encourages carriers to use electronic records, requiresonly three things to appear on the paper waybill that accompanies a consignmentof goods: (a) the places of departure and destination, (b) an intermediatestopping place in a different state (if the place of departure and destination



are in the same state), and (c) the weight of the consignment. 100

The incentive the Convention offers carriers for including these requiredelements on a waybill is a limitation on liability. This is set at 17 Special

Drawing Rights (SDRs) per kilogram. 101 This means that any provision in the

waybill establishing a lower amount is void. Of course, a shipper may declare ahigher value and pay the cost for insuring the excess.

The benefit to the shipper in using a Warsaw Convention air waybill is thatthe shipper does not have to prove that the carrier caused the injury to anylost, damaged, or delayed goods. The shipper has to make a claim within 7 dayswhen the bills are governed by the Warsaw Convention and 14 days if they arecovered by the Amended Convention, but the burden In addition to regulating thecarriage of goods, the two Warsaw Conventions also regulate the carriage of

passengers. Again, the liability of the carrier is limited so long as the airlineticket contains a notice of the applicability of one of the Conventions. Whetherthe liability limits created by the Convention are exclusive is examined in thenext case.

______

95 Other protocols that have been adopted but that are not currently in force are the Guadalajara Protocol

of 1.961 (the text is posted al http://www.stauffacherlaw.ch/warsaw/guada.html), the Guatemala Protocol of

1971 (http://www.stauffacherlaw.ch/warsaw/guate.html), Montreal Protocol No. 1 of 1975

(http://www.stauffacher-law.ch/warsaw/addprotl.html), Montreal Protocol No. 2 of 1975

(http://www.stauffacherlaw.ch/warsaw/ addpro\2.html), and Montreal Protocol No. 3 of 1975

(http://www.stauffacherlaw.ch/warsaw/addprot3.html). %The text of the Hague Protocol is in United Nations

Treaty Series, vol. 1963, p. 373, and is posted on the Internet with the United Nations Treaty Series on-

line collection at http://www.un.org/Depts/Treaty/cotlection/series/ search.htm.

The Hague Protocol increased the liability limits for injuries to passengers and their baggage to 250,000

francs from the 20,000 francs set in the 1929 convention. Warsaw Convention (as amended by the Hague Pro-

tocol), Article 22.

The states parties to the Warsaw Convention as amended by the Hague Protocol (but not parties to Montreal

Protocol No, 4) were, as of 1999, Benin, Belarus, Cameroon, Congo (Brazzaville), the Czech Republic, El

Salvador, Germany, France, Iceland, Ivory Coast, Laos, Luxembourg, Madagascar, Mexico, Pakistan, Poland,

Romania, Russia, Slovakia, Ukraine, and Venezuela. See United Nations Treaty Series on-line collection at h

tip :/www.un.org/Depts/Treaty/collection/series/series/search.htm.



97 The text of the Montreal Protocol is posted on the Internet at http://www.jus.uio.no/lm/air.carriage .

warsaw.convention.montrealprotocol.4.1975/doc.html and at http://www.stauffacherlaw.di/warsaw/addprot4.

html.

The states parties to the Warsaw Convention as amended by the Montreal Protocol were, as of 1999, Argentina,

Australia, Bosnia, Brazil. Colombia, Croatia, Cyprus, Denmark, Egypt, Estonia, Ethiopia, Finland, Ghana,

Greece, Guatemala, Honduras, Hungary, Ireland, Israel, Italy, Kuwait, Macedonia, Mauritius, Nauru, the

Netherlands, Niger, Norway, Oman, Portugal, Singapore, Slovenia. Spain, Sweden, Switzerland, Togo. Turkey,

the United Kingdom, the United States, Uzbekistan, and Yugoslavia. See International Air Transport

Association web page at http://www.iata.org/cargo/protocol4.htm.

Note: the states parties to the Montreal Protocol are automatically states parties to the Warsaw Convention

as amended by the Hague Protocol. Montreal Protocol No. 4, Article XVII(2).

98 Article 15(3) of the Convention as amended by the Hague Protocol, however, provides that "Nothing in this

Convention prohibits the issue of a negotiable waybill."

99 Warsaw Convention of 1929, Article 8.

100 Warsaw Convention as amended by Montreal Protocol No. 4, Article 8.

101 The Warsaw Convention of 1929 specifies a liability limit of 250 gold or "Poincaré" francs per kilogram

(or approximately 200 SDRs per kilogram at current exchange rates).

is then on the earner to prove that it did not take "all necessary measures" to

avoid the loss, damage, or delay. l02

102 Lord Justice Greer in Grein v. Imperial Airways. Ltd., Law Reports, King's Bench, vol. 1937, pt. 1, p. 50

at p. 57 (1937), observed: “The effect of [the phrase‘all necessary measures'] is to put upon [the air

carriers] (he obligation of disproving negligence, leaving them liable for damages for negligence if they

fail to disprove it." Under the Warsaw Convention of 1929, and as amended in 1955 by 1955 by1955 by1955 by the Hague Protocol, a

carrier may avoid all liability if it canliability if it canliability if it canliability if it can show that the consignor was partly at fault. Montreal Protocol No.

4 changes this, establishing a system of comparative fault. fault.fault.fault. If a percentage of loss or damage is

attributable to both the consignor and the carrier, the air carrier will then be liable for its percentage

share. Warsaw Convention as amended by Montreal Protocol No. 4, Arlicle 21.

____________________________________________________________________

Case 11Case 11Case 11Case 11- ---10 Abnett v. British Airways Plc.10 Abnett v. British Airways Plc.10 Abnett v. British Airways Plc.10 Abnett v. British Airways Plc.



England, House of Lords, 1996.

All England Law Reports, vol. 1996, pt. 1, p. 193

Lord Hope of Craighead:Lord Hope of Craighead:Lord Hope of Craighead:Lord Hope of Craighead:

My Lords,

The question in these two appeals is whether the Warsaw Convention as amended atThe Hague, 1955, as set out in the Schedule 1 to the Carriage by Air Act 1961,provides the exclusive cause of action and sole remedy for a passenger who claimsagainst the carrier for loss, injury and damage sustained in the course of, orarising out of, international carriage by air.

In both cases claims were made against the respondents, British Airways Pic.,by passengers who had been traveling on a scheduled international flight from theUnited Kingdom to Malaysia via Kuwait. The flight left London Heathrow for KualaLumpur on 1 August 1990. It landed in Kuwait for refueling on 2 August 1990,about five hours after Iraqi forces had begun to invade Kuwait at (hecommencement of what became known as the Gulf War. The passengers and crew wereall taken prisoner by the Iraqis. They were detained initially at Kuwait Airport,then at Kuwait City and thereafter in Baghdad. The appellants, who weresubsequently released and returned to the United Kingdom, claimed damages against

the respondents for the consequences of their captivity. Their claims forpersonal injury were made at common law, as it was accepted that they had noremedy in this regard under article 17 of the Convention. [This was because theappellants' injuries were not sustained on board or while embarking ordisembarking from the respondent's aircraft, but while they were prisoners inIraq.]

* * *

The IssueThe IssueThe IssueThe Issue

Although there are some differences of detail between the two actions... theissue of law which arises in both of these appeals is the same. It is whether theWarsaw Convention as amended at The Hague, 1955 provides the exclusive cause ofaction and remedy in respect of claims for loss. injury and damage sustained inthe course of, or arising out of, international carriage by air. If the answer to



that question is in the affirmative, it is accepted that the claims which havebeen brought in each cast: for damages at common law for persona] injury must bedismissed....

______

103 This case is posted on the Internet at the House of Lord's Web site

at http://www.parliament . The –stationery-

office.co.uk/pa/ld199697/ldjudgmt/jd961214/abnett01.htm.

* * *

The Provisions of the ConventionThe Provisions of the ConventionThe Provisions of the ConventionThe Provisions of the Convention

In Chapter I, article 1(1) is in these terms:

(1) This Convention applies to all International carriage of persons, baggageor cargo performed by aircraft for reward, It applies equally to gratuitouscarriage by aircraft performed by an air transport undertaking.

* * *

The only other chapter which contains provisions relevant to this case isChapter III, which is headed "Liability of the Carrier." The articles comprisedin this chapter are those numbered from 17 to 30. of which the following is abrief summary. Article 17 is concerned with the carrier's liability for death orinjury suffered by a passenger. Article 18 is concerned with the carrier'sliability for destruction or loss of or damage to registered baggage or cargo.Article 19 provides that the carrier is liable for damage occasioned by delay inthe carriage by air of passengers, baggage or cargo. These provisions must beread together with article 24, which provides that, in the cases covered by(these articles, any action for damages, however founded, can only be brought

subject to the conditions and limits set out in the Convention. Article 20provides: "The carrier is not liable if he proves that he and his servants oragents have taken all necessary measures to avoid the damage or that it wasimpossible for him or them to take such measures." Article 21 deals with caseswhere the damage was caused or contributed to by the injured person's negligence.Article 22 makes provision for the limitation of the liability of the carrier foreach passenger and for registered baggage and cargo, and article 23 provides:



"Any provision tending to relieve the carrier of liability or to fix a lowerlimit than that which is laid down by the Convention shall be null and void...."' Article 25 provides that these limits of liability shall not apply if thedamage results from an act or omission of the carrier, his servants or agentsdone with intent to cause damage or recklessly. Article 25, 25A, 26 and 27contain various ancillary provisions. Article 28, which deals with jurisdiction,restricts the places where an action for damages may be brought, and providesthat "questions of procedure shall be governed by the law of the court seized ofthe case." Article 29 provides that the right to damages shall be extinguished ifthe action is not brought within two years. Lastly, article 30 deals with thecase where the carriage is to be performed by various successive carriers.

As I shall require examining the wording of articles 17,18,23 and 24 moreclosely at a later stage, it is convenient now to set out the full terms ofthese articles. They are as follows:

Article 17:Article 17:Article 17:Article 17:

The carrier is liable for damage sustained in the event of the death orwounding of a passenger or any other bodily injury suffered by a passenger,if the accident which caused the damage so sustained look place on board theaircraft or in the course of any of the operations of embarking or

disembarking.

* * *


Any provision tending to relieve the carrier of liability or to fix a lowerlimit than that which is laid down in this Convention shall be null and void,but the nullity of any such provision does not involve the nullity of thewhole contract, which shall remain subject to the provisions of thisConvention.

Paragraph (1) of this article shall not apply to provisions governing jossor damage resulting from the inherent defect, quality or vice of the cargocarried.




In the cases covered by articles 18 and 19 any action for damages, howeverfounded, can only be brought subject to the conditions and limits set out inthis Convention.

In the cases covered by article 17 the provisions of the preceding

paragraph also apply, without prejudice to the questions as to who are thepersons who have the right to bring suit and what are their respectiverights.

* * *

The Approach to ConstructionThe Approach to ConstructionThe Approach to ConstructionThe Approach to Construction

I now turn to the material which we were invited to consider in Teaching ourdecision as to how we should decide this issue…

* * *

((((vii) Analysis of This Materialvii) Analysis of This Materialvii) Analysis of This Materialvii) Analysis of This Material

... 1 turn therefore immediately to the Convention itself, which is the primarysource to which we must look far a solution to the question we have to decide.

(a) The English Text of the Convention(a) The English Text of the Convention(a) The English Text of the Convention(a) The English Text of the Convention

I can confine myself to the English text, because all parties were agreed that .. . there was for present purposes no material difference between it and theFrench text.

The Convention describes itself as a '"Convention for the Unification ofCertain Rules relating to International Carriage by Air." The phrase "Unificationof Certain Rules" tells us two things. The first, the aim of the Convention lion

is to unify the rules to which it applies. If this aim is to be achieved,exceptions to these rules should not be permitted, except where the Conventionitself provides for them. Second, the Convention is concerned with certain rulesonly, not with all the rules relating to international carriage by air. It doesnot purport to provide a code which is comprehensive of till the issues that mayarise. It is a partial harmonization, directed to the particular issues withwhich it deals.



These issues are identified in the principal chapter headings, which are thoseto Chapters 11, 111 and TV— "Documents of Carriage;' "Liability of the Carrier"and "Provisions Relating to Combined Carriage.'' Nothing is said in thisConvention about the liability of passengers to the carrier, for example. Nor isanything said about the carrier's obligations of insurance, and in particularabout compulsory insurance against third party risks. It is clear from thecontent and structure of the Convention that it is a partial harmonization onlyof the rules relating to international carriage by air. That is sufficient togive content to the phrase "Certain Rules." I do not find in that phrase anindication that, in regard to the issues with which the Convention does purportlo deal, its provisions WCTC intended to be other than comprehensive.

The principal search for indications of an intention one way or the other

about exclusivity of provision in regard to the carrier's liability must beconducted within the provisions of Chapter III First, [however, it is worthnoting that] Article 1 (1) states that the Convention applies to "allinternational carriage of persons, baggage or cargo performed by aircraft forreward." The word "all" is important, simply because it is so all embracing. Itindicates that the framers of the Convention were looking to solutions, no doubtby a process of adjustment and compromise, which could be regarded as acceptablefor universal application in all cases...

* * *

Turning to Chapter III itself, the chapter heading expresses its subjectmatter in the words '"Liability of the Carrier." In contrast to the title to theConvention itself, which uses the expression "Certain Rules," we find here aphrase which is unqualified. My understanding of the purpose of this chaptertherefore, from what we have seen so far, is that it is designed lo set out allthe rules relating to the liability of the carrier which arc to be applicable toall international carriage of persons, baggage or cargo by air to which the

Convention applies.

Article 22 ... is important, because it limits the liability of the carrier.It does so in terms which enable the limitation of liability to be appliedgenerally to all cases where the carrier is liable in the carriage of persons andof registered baggage and cargo. Article 22(1) begins simply with the words "Inthe carriage of persons." Article 22(2)(a) begins with the words "In the carriage



of registered baggage and of cargo." The intention which emerges from thesewords is that, unless he agrees otherwise by special contract—for whichprovision is made elsewhere in the article—the carrier can be assured that hisLiability to each passenger and for each package will not exceed the sums staledin the article. This has obvious implications for insurance by the carrier and

for the cost of his undertaking as a whole. Article 22(4) makes provision for theaward, in addition, of the whole or part of the costs of the litigation. But thisis subject to the ability of the carrier to limit his liability for costs by anoffer in writing to the plaintiff. The effect of these rules would, 1 think, beseverely distorted if they could not be applied generally to all cases in which aclaim is made against the carrier.

Articles 23 and 24 also are provisions which seem to have been designed toapply generally, and to indicate that the possibility of exceptions lo the ruleslaid down in Chapter III was not being contemplated. Article 23 slates that anyprovision lending to relieve the carrier of liability or to fix a lower limitthan that which is laid down in the Convention shall be null and void. It thengoes on to state that the nullity of any such provision does not involve thenullity of the whole contract, which is to remain subject to the provisions ofthe Convention. The generality of effect is to be found in the opening words,since the article applies to "any provision'" which tends to relieve the carrierof liability or to fix a lower limit than that laid down by the Convention. I

think that the purpose of this provision is clear. It is to protect the passengeror other person dealing with the carrier against provisions of the kind which itdescribes. Contracting out of liability in contracts of carriage is, of course,now widely regulated by statute. But no doubt in the early 1920's, when whatbecame the Warsaw Convention was being negotiated, carriers engaged ininternational carriage by air were free lo contract on whatever terms they caredto select, controlled only by the demands of the marketplace in which they wereoperating. To surrender freedom of contract on this issue was an importantconcession on the part of carriers, which made sense only in the context of theentire set of rules by which their conduct was lo be regulated.

The counterpart of what was plainly a compromise is to be found in thefollowing article, article 24. This Article provides that in the cases covered byarticles 18 and 19 and by article 17 respectively—these cases are dealt withseparately in two different paragraphs—"any action of damages, however founded,can only be brought subject lo the conditions and limits set" by the



Convention....

* * *

The structure of these two provisions seems to me therefore to be this. On theone hand the carrier surrenders his freedom to exclude or to limit his liability.On the other hand the passenger or other party to the contract is restricted inthe claims which he can bring in an action of damages by the conditions andlimits set out in the Convention. The idea that an action of damages may bebrought by a passenger against the carrier outside the Convention in the casescovered by article 17—which is the issue in the present case—seems to beentirely contrary lo the system which these two articles were designed to create.

* * *

(d) Decisions by the Foreign Courts(d) Decisions by the Foreign Courts(d) Decisions by the Foreign Courts(d) Decisions by the Foreign Courts

Much of the discussion in both the Outer House and the Inner House in the Courtof Session was taken up with a detailed examination of various cases on thistopic from the United Stales of America. All the judges in that court were of theview however that, in the end, no clear guidance was available from this sourceto enable them to rely on this material in reaching their decision in the presentcase. Lord Marnoch observed that the Supreme Court had on two occasions in recent

limes found it either unnecessary or inappropriate to consider the questionwhether the Convention provided an exclusive course of action for injuries

sustained during international air transportation; Air France v. Saks 104 andEastern Airlines Inc. v. Floyd. 10 * The result of his review was that there was noclear or very consistent line of reasoning in these cases to guide him in thisarea of international air law. Lord Mayfield said that it was impossible to drawany clear conclusion as to the stale of U.S. law, and Lord Clyde expressed thesame view, having observed earlier that it was pointless and perhaps impertinentto subject all these cases to critical analysis. Lord Allanbridge was able tofind support in some of the cases for the view which he had already reached onhis examination of the Convention. But in the end he agreed with the observationsof Lord Justice Leggatt in [this case] in the Court of Appeal that, in view ofthe conflicting nature of these authorities and the fact that the Supreme Courthad twice refrained from addressing the present problem, it was necessary toreach a conclusion in this case without any definite aid from the United States.As Lord Justice Leggatt said in his judgment, it appears that the point is not



settled in the United Stales as between circuits and even in some instanceswithin the same circuit. From his consideration of the cases cited to him he wasnot prepared to say where the preponderance of current opinion lies in the UnitedSlates.

I do not think that I can usefully add much to these observations…

* * *

ConclusionConclusionConclusionConclusion

I believe that the answer lo the question raised in the present case is to befound in the objects and structure of the Convention. The language used and thesubject matter with which it deals demonstrate that what was sought lo be

achieved was a uniform international code, which could be applied by the courtsof all the High Contracting Parties without reference to the rules of their owndomestic law. The Convention does not purport to deal with all matters relatinglo contracts of international carriage by air. But in those areas with which itdeals—and the liability of the carrier is one of them—the code is intended tobe uniform and to be exclusive also of any resort to the rules of domestic law.

For these reasons I would dismiss both appeals.

____

104 United States Reports, vol. 470, p. 392 (1985)

105 Id., vol. 499, p. 530 (1991)

______________________________________________________________________

Chapter QuestionsChapter QuestionsChapter QuestionsChapter Questions

1. Seller agreed to ship 10,000 tons of potatoes FOB Tacoma, Washington, toBuyer in Japan. Buyer designated the SS Russet lo take delivery at pier 7 inTacoma. On the agreed dale for delivery, Seller delivered the potatoes lopier 7, but the ship was not at the pier. Because another ship using thepier was slow in loading, the Russet had to anchor at a mooring buoy in theharbor and Seller had to arrange for a lighter to trans port the potatoes incontainers to the ship. The lighter tied up alongside the Russet and a cable



from the ship's boom was attached to the first container. As the containerbegan to cross the ship's rail the cable snapped. The container then fell onthe rail, teetered back and forth for awhile, and finally crashed down theside of the ship and capsized the lighter. All of the potatoes were dumpedinto the sea. Buyer now sues Seller for failure to make delivery. Is Seller

liable?

2. Suppose, in question l, the contract had been FAS Tacoma. Would Seller beliable?

3. Seller agreed to deliver 1,000 air conditioners to Buyer, DES, Port Moresby.The air conditioners were transported by ship to Port Moresby, where theywere off-loaded to the customs shed for inspection. The ship then sent acable to Buyer stating that the air conditioners were in the customs shed

and that the ship was proceeding on its way. Before the Buyer could arrivelo pay the customs duties and collect the air conditioners, the customs shedburned down, destroying all the air conditioners. Buyer sues Seller forfailing to make delivery. Is Seller liable?

4. Suppose, in question 3. the contract had been DEQ Port Moresby. Would Sellerbe liable?

5. Seller in Sydney, Australia, agreed to ship goods on or before December 31

under a CIF Sydney contract to Buyer in Honolulu. The seller was unable toassemble the goods for delivery in time to reach the ship in Sydney and hadto transship the goods by rail to Melbourne, where the ship was taking ongoods on January 3. Seller did load the goods aboard railway cars in Sydneyon December 29 and received a bill of lading from the rail way company onthat date. Seller later obtained a bill of lading from the ship, andtogether with an invoice and a marine insurance policy, tendered both billsof lading to Buyer. Buyer refused to

6. Seller in San Francisco agreed to ship goods to Buyer in London under a CIFSan Francisco contract. After the goods were loaded aboard the ship, butbefore it departed from San Francisco, Seller tendered the documentsrequired by the contract to Buyer and asked to be paid. Buyer refused,asserting that it had a right to inspect the goods upon their arrival inLondon, and that it did not have to pay until it did so and was satisfiedthat the goods were in compliance with the contract. Seller sues for



immediate payment. Will Seller win?

7. Seller in Bombay sells 5,000 bales of cotton to Buyer, C & F (Incoterms1990) Liverpool. Seller transports the cotton to the Bombay harbor and tothe ship designated by Buyer, the SS Allthumbs. Due to an error in counting,

there are only 4,987 bales loaded. The ship's bill of lading, however, showsa quantity of 5,000 bales. Seller then signs over the bill of lading toBuyer in exchange for payment in full for the cotton. When the Allthumbsarrives in Liverpool, the quantity error is discovered, and Buyer sues theship for the lost value of the missing bales. Is the ship liable? Would itmatter if the Seller admitted that the error was not the ship's fault, butthat of the Seller?

8. The SS Anxious was transporting goods to several ports on the east coast ofAfrica, including Beira in Mozambique. While still several hundred miles atsea, the Anxious learned that rebel forces opposing the Mozambiquegovernment were attacking Beira. The ship, nonetheless, pulled into Beiraand tied up at a pier. Immediately thereafter, it was struck by a mortarround. The goods in the ship's main cargo hold were destroyed. Is the shipliable for the loss?

9. Mr. Ess, the owner of the SS Skimpy and an American citizen, borrows moneyfrom MultiBank in London to outfit his ship, giving the bank a maritimelien. Mr. Ess sells the Skimpy to Mi. Tee, a Canadian. Mr. Tec is unaware ofthe lien, and unaware that Mr. Ess has defaulted on the loan. When the shippulls into a British port the bank arranges for it to be arrested and soldto pay off the balance due on the loan. Can the bank do this?

Review ProblemReview ProblemReview ProblemReview Problem

As the Senior Chief Assistant in the law department of MegaBrancli Industries(MBI), you are responsible for reviewing the transportation contracts made by MBIand its subsidiaries.

1. You are reviewing several proposed contracts with oceangoing carriers. Thecontracts contain a variety of Incoterm trade terms, including FOB, FAS,CIF, CFR, DES, FCA, and EXW As to each of these terms:

a. When must the seller make delivery?



b. What documentation must the seller provide to the buyer?

c. What information must the buyer give the seller?

d. Who is responsible for getting insurance?

e. Who is responsible for hiring a carrier to transport the goods?

f. When does the risk of loss shift from the seller to the buyer?

2. An MBI subsidiary in Slate A is shipping goods from its inland plant to aState-A port city where it has arranged for the goods to be loaded aboard anoceangoing carrier.

a. Who should it contact to arrange the inland carriage?

b. What kind of documentation should it provide to the inland carrier?

c. What kind of documentation will the inland carrier provide it?

d. What kind of liability limits apply to this carrier?

3. The MBI subsidiary in State A has its goods loaded aboard an oceangoingcommon carrier in a State-A port city for shipment abroad.

a. What kind of documentation should the subsidiary provide this carrier?

b. What kind of documentation will the carrier give the subsidiary?

c. Should the bill of lading the carrier issues be a straight bill or anorder bill?

d. If the carrier issues a claused bill, what should the subsidiary do?

e. What are the common carrier's responsibilities to MB1 under the bill oflading? What are its immunities? What are its liability limits?

f. Assuming that the bill of lading contains a Himalaya Clause, who benefitsfrom this? As the shipper, should the subsidiary be happy about havingthis clause be a part of the bill of lading?



4. An MBI subsidiary in State B has arranged to hire a ship under a voyagecharterparty. What are the rights and obligations of the subsidiary (i.e.,the charterer)?

5. An MBI subsidiary in State C has arranged to hire a ship under a time

charterparty. What are the rights and obligations of the subsidiary (i.e.,the charterer)?

6. An MBI subsidiary in Stale D owns its own ship, the SS Unlucky. Unbeknownstto the subsidiary (or MBI), the master has a drinking problem and he runsthe ship into the end of a pier in a port city in Stale E, causing damage tothe pier, the ship, the ship's cargo, and several crew members. The masteremployed a local shipfiuing firm to repair the ship but then never paid thefirm. Now ail the injured parties have brought suit in State E against the

MBI subsidiary, and they all have asserted maritime maritimemaritimemaritime liens against the SSUnlucky, What will happen in the suit against the subsidiary if it refusesto appear to defend itself'.' What will happen to the ship? Which of theclaimants will be most likely to recover on its lien against the ship?

7. What kinds of risk does maritime insurance cover? What is an FPA policy? AWA policy?

8. An MBI subsidiary in Country F is shipping goods overseas by air. What

documents does the subsidiary need to give the carrier? What kind ofdocuments will it get in return? What liability limits apply to this carnageof goods?

9. The head of the MBI legal department was flying overseas on an internationalairline. The weather was perfectly clear and all went well until the planewas over the ocean It was then struck by a freak lightning bolt that caused