Claims & Liability

Common Law Carriers

Historically a carrier might be a “common carrier”. The liability of a common carrier at common law is absolute, subject only to limited defences; an act of the enemy, an act of God, inherent vice of the goods and fault of the consignor.

A carrier might carry goods under a series of contracts agreed on commercial terms. Such a carrier was classified at common law as a carrier for reward.  If a carrier for reward can show that the damage was not due to its negligence, it is not liable. Common carriers are rarely encountered in practice.

In order to avoid common carrier liability, carriers commenced inserting limitation and exemption clauses in contracts of carriage. In turn, the courts sought to interpret these clauses as narrowly as possible, in aid of the shipper or buyer. This led to tighter limitation and exemption clauses, which specifically excepted the carrier from each element of the duty. Negligence or other duty must be specifically referred to and excluded in an exemption clause. The clause must be very clear and unambiguous.

Basis of Claim

A claim may be made against the carrier, freight forwarder or charterer depending on the contractual and other arrangements and duties applicable in the circumstances.

A claim may be made for breach of the contract of carriage, which may be wholly of partly comprised in the bill of lading . A contractual claim is usually subject to The Hague Visby rules and its limits on liability.

Liability for the loss (etc.) of goods may arise outside of contract law, through negligence, bailment, (the obligations of the person having possession of goods for reward to take care of them) and /or breach of property rights in respect of the goods (by their loss or destruction).

Claims may also be based on negligence and/or breach of bailee’s duty and / or a property basis, such as trespass to goods / conversion. The contract will generally provide for the jurisdiction and the applicable law. The defendant will commonly be the ship-owner.

Claims Issues

A non-contractual claim is not subject to the Hague-Visby Rules.  Accordingly, in the case of physical damage, a full claim in tort may be available without restriction. However, the courts have sought to bring claims back within the rules in order to avoid circumvention of the contract or Convention limitations of liability.

A carrier is vicariously liable in accordance with general principles, for the default of persons for whom he is responsible. He will retain contractual liability to the shipper /consignee for his subcontractors in most cases. Difficult issues arise in relation to breach of bailment obligations. The extent to which obligations of care can be delegated is not fully clear at law.  Where a carrier’s agent has misdelivered or lost the goods, it is likely the carrier cannot avoid his duty.

Security for the claim may be possible through ship arrest and detention. Upon arrest, the ship is kept in port until the security has been provided for the claim. Ultimately, a judicial sale may be ordered in principle.

Claim in Negligence

The owner or the person entitled to the goods at the time of the negligent act may sue.  If the title has not passed to the buyer, he will have no right action.  The person who has a property or possessory right to the goods may recover damages for negligence, even if the risk has passed to a third party.

A claim for negligence may lie against any person who has breached his duty of care.  This may be the carrier, the carrier’s employees or contractors. A person who acts on the carrier’s instructions within the scope of his authority has no duty of care beyond the obligation to comply with those instructions.

A claim for conversion may be made, only by the person with the immediate right to possession.A claim for conversion lies against the person who delivers goods to a party not entitled to them or who acts in a manner inconsistent with the rights of the person entitled to possession.

Liability as Bailee

There is a common law claim for damages based on bailment against the person who has had custody of goods, who has failed to take reasonable care of them while they were in his custody. This is similar to but has a different historical origin to an action in negligence. Critically, with a bailment, the onus of proof is reversed. The bailee must prove that he has taken reasonable care of the goods.

The carrier owes duties as a bailee for rewards.  See the articles on personal property.  Where goods are recorded as having being received in apparent good condition but have arrived otherwise than that in this condition, the onus is on the carrier to prove that he took care.

The bailee is liable for the acts of his contractors. This need not necessarily be the case in respect of claim based on negligence. It must be shown that the bailee is in possession with the consent of the persons who have an interest in the goods.

Property Claim to Goods / Conversion

The bill is an undertaking by the carrier to deliver goods on presentation. Where there is a failure to do so, there may be a claim under the bill and a claim in tort for conversion for failure to deliver where there is an immediate entitlement to possession of the goods. A claim for conversion may allow recovery of the value of the goods and consequential loss. This may exceed the amount which might be awarded for a breach of contract.

Complex issues arise where the carrier loses possession or control of the goods at the point of discharge, without proof that they have been released to the proper agents on behalf of the holders of the bill of lading. The delivery of the goods to a person with possession of the bill of lading where there is no notice of a defect in their right is sufficient discharge to the carrier.

If the bill is forged, the carrier is liable notwithstanding that he may not be able to know that that this is the case.

The obligation to deliver to the holder of the bill may be varied by the custom of the particular port. In such cases, where delivery is made to a person without the bill of lading, in accordance with custom, it may excuse the carrier.

Hague Visby Rules and Common Law

In practice, most claims and contracts operate in the context of Hague Rules or Hague Visby Rules. However, the common law rules remain relevant. Cargo claims in relation to loss or damage to cargo may arise under charterparties or seaway bills, which are not subject to mandatory Hague Visby Rules. The common law rules themselves have a significant impact on the interpretation of The Hague Visby Rules.

The Hague-Visby rules provide that the servants or agents of the carrier, not being independent contractors, may avail themselves of the same defences and limitations prescribed by the rules for the carrier. This includes defences and limitations of the liability applicable in tort. The limitations are not available where the act or omission of the employee or agent is done with intent to cause damage, recklessly or with knowledge that the damage would result.

The particular type of loss may be outside the scope of Hague Visby Rules. If the loss is within the terms of an exception, the claimant may recover, only if the loss is due to one of the irreducible mandatory Hague Visby Rules.

Proving Loss or Damage

Many disputes will be based on factual matter, such as when the carrier took responsibility for the goods. Contractual terms may require to be interpreted as to the commencement of responsibility. It may extend beyond the time through which physical custody is held.

A claimant, typically the buyer in respect of goods lost during carriage must show that the goods have been lost when the carrier /defendant, was responsible for them. This principle applies, irrespective of the basis of the claim, whether in negligence, bailment or breach of contract. The claimant must prove that the goods have been damaged while in the carrier’s possession. This will require proof of their condition prior to loading.

The goods remain the responsibility of the carrier while they are in its custody or in the custody of a sub-contractor. This will usually be in the period from loading to discharge. This position may be extended by port custom.The Hague Visby Rules apply from loading to discharge. Pre-loading and post discharge damage will usually be excluded.

There are commonly arbitration clauses in the contract. It may cover disputes and matters as to non-contractual liability, in accordance with its scope. It is not necessarily limited  to matters which relate to or arise out of the contract of carriage, in which the arbitration clause is contained.

Claim for Loss

A key issue is whether the person who suffers the loss of goods is entitled to sue.  This will usually be a buyer taking delivery of the goods.  It may also be the original consignor or a funding bank that has paid on foot of a letter of credit. Loss may be incurred for damage, non-delivery, misdelivery or late delivery.

The claim may be made by insurers who have paid on the basis of subrogation.  The ship owners may be insured under a protection and indemnity policy.  However, this will not cover certain losses, such as that arising from deviation, mis-delivery or wrongfully issuing a clean bill of lading for damaged goods.

Claims may be bought on the usual legal basis, such as breach of contract, negligence, conversion, et cetera.  Contractual claims are subject to the Hague-Visby rules.  Claims that are not contractual are not subject to these rules.  On occasions, it may be possible to sue third parties such as subcontractors who are not allowed to rely on the limitations.

It may be possible to enforce the contracts against the shipowner by ship arrest.  This is available in most countries.  When a ship is arrested, it may not leave port until security for the claim has been provided.  It may also be subject to sale by court order if not provided.

Questions may arise in relation to the appropriate forum for hearing claims.  Many such claims are subject to arbitration clauses.

Exemption Clauses I

The general principles applicable to exemption clauses in contracts apply to the interpretation of exemption and limitation clauses in bills of lading. The burden is on the person who asserts the clause to prove that the losses come within its scope. The courts are strongly inclined to limit the effect of such clauses and will seek to interpret them against the interest of the person who is proposing them.

Certain classes of loss are commonly excluded. “Perils of the sea” refer to a fortuitous event, which is of a type which occurs in the carriage by sea as opposed to other types of transport. It may cover events in the port of landing or discharge, provided that they are due to the perils of the sea.

It must be proved that the loss was due solely to the peril, rather than to negligence. For example, if there is an ingress of water due to the negligence of the crew, this is unlikely to be interpreted as caused by a peril of the sea. The risks concerned include those arising from grounding at a port, sudden entry of water unlinked to negligence, bad weather and collision at sea.

An act of God is a sudden direct, typically violent and irresistible act by force of nature. The carrier must prove that he has taken all reasonable steps to take care for the safety of the goods.

Exemption Clauses II

Traditionally, bills of lading included a clause excluding liability on the part of the carrier, its employees, agents and independent contractors.  All exceptions, immunities and limitations available to the carrier were to be available to the latter parties.

The courts have differed in relation to the extent to which the benefit of the clauses can be carried forward to persons who are not parties to the contract.  It may be possible for the carrier to carry forward the exemptions as an agent of those third party.  Consideration must be shown.

Stevedores have been held entitled to avail the limitations where carriers enter the contract on their own behalf and as agents for them (and others).  The contract is a unilateral contract, accepted by performance.

In England Wales and Northern Ireland, the necessity for clauses of the above type has been reduced by the Contracts (Rights of Third parties) Act.

Entitlement to Statement of Particulars in Bill

The Hague Rules and the Hague -Visby Rules allow the shipper to demand a bill of lading which states

  • the leading marks necessary for identification of the goods as the same as those furnished in writing to the shipper before loading the goods, (provided the marks are stamped or otherwise clearly shown on the goods, if uncovered, or on the cases or coverings in which the goods are contained in such a manner as should ordinarily remain legible until the end of the voyage);
  • either the number of packages, the pieces, the quantity or weight, as the case may be furnished in writing by the shipper together with
  • the apparent order and condition of the goods.

The carrier, master or agent of the carrier is bound to state or show in the bill of lading any marks, number, quantity or weight, which he has reasonable grounds for suspecting, does not accurately represent the goods actually received or which he has had no reasonable means of checking.

The carrier is obliged to issue the requisite statement as to order and condition. The carrier is given an indemnity under the rules by the shipper in relation to marks, number, quantity and weight as furnished by him. This does not extend to the apparent order and condition of the goods.

Effect of Statements in Bill of Lading

The Hague Visby Rules provide that a bill of lading is prima face evidence of the receipt by the carrier of the goods as described in accordance with the above provisions. Proof to the contrary, is not admissible when the bill of lading has been transferred to a third-party acting in good faith. The above provisions apply only to bills of lading and not to other waybills by which rules are incorporated by agreement.

The Bill of Lading Act provides that every bill of lading in the hands of a consignee or endorsee for valuable consideration representing goods which have been shipped on board a vessel, is conclusive evidence of such shipping as against the master or other person signing the same, notwithstanding that such goods or some part thereof, have not been shipped.

Bill as Evidence of Condition

The shipper will have the means of vouching the condition of the goods. In contrast, the consignee relies on the accuracy of the bill of lading. The carrier may be left with liability where damage has occurred prior to loading, but where he is not in a position to disprove that this was the case.

The claimant may generally rely on statements in the bill of lading regarding the quantity and superficial condition of the goods. The bill of lading will normally define the quantity of goods, their apparent condition and the type of goods. These statements may constitute warranties in relation to these issues.

Where the action is taken by the shipper, the bill of lading will be prima facie evidence or if claused (qualified), relevant evidence. If it is taken by the endorsee, the statements may be conclusive by way of estoppel.

In order for estoppel to apply, the bill must be signed on behalf of the carrier. The consignee must show that he relied on its accuracy to his detriment. A clean bill of lading confirms that the goods are in apparent good order and condition at the point of loading. A claused bill makes comments in relation to the apparent condition of the goods.

Issues with Statements in Bill of Lading

Estoppel will not apply in respect of every statement in the bill. Many statements by the Master or the person signing the bill are not such upon which a third-party can reasonably rely. In contrast, other types of statements are such upon which reliance may reasonably be had. Statements of quantity and identification are more likely to be relied on than statements as to apparent condition and quality.

Difficulties of proof may arise in relation to what would have happened and whether the loss would have been avoided by the issue of a claused (qualified) bill. Difficult issues of interpretation can arise in relation to what is, or is not, apparent order and good condition. Goods can be in apparent good order while being defective. Leading marks are most relevant to the issue of the identity of the goods.

A claused bill might be expressed in any language if is equivocal in respect of the goods. Clausing may be in different terms, for example, as to weight, quantity, contents, value etc. The clausing should be placed on the front of the bill so that it is evident to the holders.

Issues with Statement in Bill

Misstatements in the bill may constitute deceit or fraudulent misrepresentation. They may constitute negligent misrepresentation. There must be sufficient proximity between the person who signs the bill of lading and the person who relies on it in order for liability to arise.

The person who signs the bill may not have authority on behalf of the ship owner. In that case, that person may be personally liable for breach of warranty of authority. The ship-owner may in other cases have held out that person as having authority, in which event, he would be estopped in accordance with general principles and the carrier will be held to the apparent agency.

References and Sources

Consumer Law  Long      2004

The Law of Transport and Road Haulage (1999) Canny

Consumer Law Rights & Regulation          Donnelly & White 2014

Commercial Law White  2nd ed    2012

Commercial & Economic Law in Ireland  White    2011

Commercial Law Forde  3rd ed    2005

UK Texts

Schmitthoff: The Law and Practice of International Trade 13th ed Carole Murray, David Holloway, Daren Timson-Hunt, Schmitthoffs 2018

Bills of Lading in Export Trade 4th ed Charles Debattista 2018

Arnould’s Law of Marine Insurance and Average 19th ed  Jonathan Gilman, Robert Merkin, Claire Blanchard, Mark Templeman 2018

O’May on Marine Insurance 2nd Ed Julian Hill 2018

Shipping Law 3rd ed  Sweet & Maxwell Ltd 2018

The UN Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea 2nd ed Michael Sturley, Tomotaka Fujita, Gertjan van der Ziel 2018

Commercial Maritime Law Edited by: Melis Ozdel 2018

Springer-VerlagScrutton on Charterparties and Bills of Lading 23rd ed: 1st Supplement

Scrutton on Charterparties and Bills of Lading 23rd ed: 1st Supplement (Book & eBook Pack) Scrutton on Charterparties and Bills of Lading 23rd ed: 1st Supplement (Book & eBook Pack)

Bernard Eder, Howard Bennett, Steven Berry, David Foxton, Christopher Smith 2017

The Bill of Lading: Holder Rights and Liabilities The Bill of Lading: Holder Rights and Liabilities

Frank Stevens 2017

Charterparties: Law, Practice and Emerging Legal Issues Edited by: Baris Soyer, Andrew Tettenborn 2017

Shipping and Trade Law 2017

Multimodal Transport Law Michiel Spanjaart 2017

Maritime Law 4th ed Edited by: Yvonne Baatz 2017