Marine Carriage

Bill of Lading

A bill of lading is a multi-function document, commonly used in international maritime trade. It acts as a receipt for the goods by the carrier. It usually sets out the terms of carriage. It may incorporate the terms of the charter party (the lease) of the ship which carries the goods. It usually constitutes title to the goods.

A bill of lading is a negotiable instrument. Accordingly, rights under it can be endorsed to another party, in a similar manner to a cheque. A bill of lading can be made out to bearer (the holder) or to a named person. It can be transferred on terms such that the transferee acquires certain legal protections, against flaws in the underlying bill and the transferor’s title to it.

Bills of lading are not always used in marine transport. There may be a delivery order, which is not a document of title. This may be used where there are multiple buyers.

Sea waybills act as receipts and set out the terms of the contract of carriage but are not title documents.

Bills of lading are not usually used in road, rail, and air transport. A consignment note is commonly used. It sets out the terms of the contract of carriage. There are international conventions dealing with the consignment note. The notes are not negotiable, nor do they constitute documents of title to the goods.


Contracts of Carriage

Contracts for the carriage of goods are governed by contract law. The bill of lading will contain the contract terms, either expressly, by implication or by reference. Under the Bills of Lading Act, the benefit of the seller’s rights in the contract of carriage are passed to the buyer. The carriage of Perishable Foodstuffs (International Carriage) Act applies to perishables

The carriage of goods contract is made between the seller and ship owner or charterer. A charterer is effectively the lessee of a ship. The carrier may not have any interest in the ship.  It may be a freight forwarder who subcontracts with owners and charterers. A demise clause may be inserted by a carrier who does not have a direct interest in the ship. It provides that the bill of lading is to be treated, for certain purposes as a contract with the shipowner or charterer.

The consignee is entitled to enforce the bill of lading / contract of carriage. Similarly, endorsees who hold it as assignees or for security may enforce. The contract of carriage passes when it is endorsed and delivered.

The bill of lading is a document of title to the goods. A transfer does not give the transferee better title than the transferor.

The person holding the bill. is entitled to demand delivery of the goods. The carrier is entitled to require that the bill of lading be produced.

Clean Bill of Lading

The bill of lading must be “reasonably and readily fit to pass current in commerce”. The carrier must issue a bill of lading giving particulars of the goods, their apparent order and condition, quantity, marks, et cetera.

The bill of lading must generally be shipped “clean”. A shipped bill confirms that that the goods have been received and transit has commenced. A clean bill shows that the goods and packaging appear to be in order.

The bill must identify the goods. The bill of lading is presumptive evidence that the goods have been received in the amount and the apparent condition. This is conclusive in favour of a third party acting in good faith.


Free on-Board Contracts

The buyer must book a place for the goods on a ship at the relevant port during the requisite period. In the case of free-on-board contracts, the law of the seller’s state will usually apply, being the place where the goods are loaded. If the contract is most closely connected with Ireland, the Irish Sale of Goods Act will apply.

In a “free on board” contract, the seller’s responsibility is to tender the shipping documents, showing that the goods have been loaded. This may be the shipping receipt, bill of lading or other receipt. The price is usually paid in return for tender of the documents. The buyer may reject the goods if they do not conform to the contract and may refuse to make payment. The risk passes to the buyer on loading.

Under the Sale of Goods Act, a free-on-board seller must notify the buyer of the shipment so that the buyer can insure. Notification is not required if the buyer already has the requisite information.  As the buyer selects the port and ship, this will usually be the case.

In “free on board” arrangements, the property in the goods is presumed to pass on loading. The transfer of the bill will generally pass the property. In some FOB contracts, the property in the goods may be retained until a later date. The buyer insures the goods. The risk passes on loading.

Where the seller makes out a bill of lading, it is presumed under the Sale of Goods Act, that the property in the goods is retained until title passes under the bill.  In overseas sales, it is commonly presumed or stated that that property in the goods does not pass until there is a defined adequate assurance of payment.


CIF Contracts I

“Cost Insurance Freight” (CIF) terms are commonly used in relation to commodities.  It is the seller’s responsibility to determine the port from which goods are sent. Insurance and freight are included in the price. The seller does not promise that the goods will arrive. The duty is to consign them at an appropriate ship. The buyer is sent the necessary documents to allow it to take delivery of the goods on arrival.

The seller sends the buyer a bill of lading showing that the goods have been shipped, an insurance policy for the voyage and an invoice for the goods. This is generally exchanged against payment or delivery of an assurance in relation to payment, commonly a letter of credit.

In a sense, the seller’s obligation is to deliver the documents relating to goods, which constitute their title. Delivering the bill of lading together with insurance is equivalent to delivery of the property in, and possession of the goods.

The obligation to deliver the documents and make payment are concurrent. Once conforming documents are tendered or given, the buyer must pay. This is the case even if the goods are damaged or lost in transit.


CIF Contracts II

The buyer can reject the goods if they do not conform to the contractual specification.

If the documents do not conform to the specification, if the bill of lading is not “clean”, does not identify the goods or indicate shipment in accordance with the contract, they can be rejected.

If upon examination of the goods, nonconformity which is not disclosed by the documents is revealed, the buyer may reject the goods. The seller may be entitled to re-tender the good unless there is a fundamental breach of contract

The risk rests with the buyer in transit. However, the property / ownership does not pass until the bill of lading is transferred in exchange for payment. In contrast, in the case of FOB terms, the property passes on shipment.


Conventions

The Hague-Visby Rules are part of Irish law under the Merchant Shipping Act. Some of the rules are mandatory and override clauses to the contrary in contracts for the carriage of goods. The financial liability limits are expressed in “Special Drawing Rights”; SDRs. This is the IMF’s notional currency, which may be converted into real currencies.

There is a ceiling on damages that may be recovered unless the nature and value of goods are declared and embodied in the bill of lading. The limit is 667 SDU units of account per package or 2 units of account per kilogram whichever is higher, i.e., c€550 or c€1.60 per kilogram. Higher amounts can be agreed.

The limitation does not apply where the damage results from acts or omissions by the carrier which are intentional or recklessor where a shipper knowingly misstates the nature and value of the goods


Application of Conventions

The Hague-Visby Rules apply to a bill of lading for the carriage of goods between two ports in different states, if the bill of lading is issued in a contracting state, the carriage is from a port in contracting state or the contract provides that the rules apply. Ireland is a contracting state. They also apply to a waybill or other non-negotiable document, that incorporates the rules.

While the rules are broadly similar under the Conventions, there are variations. Some states are party to the older Convention only. The choice of law may be therefore of importance. The mandatory provisions of The Hague-Visby Rules may apply so that a third state’s law, in the case of shipment from Ireland, may not be made to apply.

The parties may apply the law of a state, other than the one in which The Hague-Visby Rules apply. However, they cannot do so where there is no real connection with that other jurisdiction.


Shipper’s Obligations

The Hague-Visby Rules impose the following obligations on the shipper (consignor). The cargo must be tendered to the carrier in accordance with the contract terms. The cargo must be free from dangerous conditions or defects. Anything dangerous must be disclosed to the carrier. Liability is strict, irrespective of the shipper’s state of knowledge.

The shipper guarantees the accuracy of the marks, numbers, quantity, and particulars of the goods provided as is usual, that it is bound by the terms of the bill. The carrier has recourse against the shipper if the details are wrong. The shipper must pay the freight. This is a presumptive position. It may be expressly agreed that the consignee is to pay the price.


Carrier’ Rights

The carrier is entitled to freight when he tenders or delivers the goods in good condition at the port of destination.  If the full amount is not loaded or delivered, the carrier is entitled to pro-rata payment for the quantity delivered, unless the contrary is provided. If the goods are damaged, the carrier is entitled to freight. Whoever is liable for the freight may claim damages. There is no right of set off.

At common law, the carrier has a lien over the goods for freight due. This includes the cost of protecting the goods. The lien covers the goods concerned and not other goods. The agreement may provide otherwise.


Carrier’s Obligations

The carrier’s obligations under The Hague-Visby Rules are as follows. There is an implied term that the ship is seaworthy. The carrier must use due diligence to ensure that the ship is and remains in satisfactory condition. This includes all storage and other facilities. The carrier will not be liable if goods are lost, notwithstanding that it took due care.

The shipper is entitled to demand a bill of lading showing what has been delivered. It must contain, in particular, information sufficient to identify the goods, their quantity, weight, and apparent condition. The carrier need not examine the actual condition of the goods. It need only the check their apparent condition.

The carrier must properly and carefully load, handle, care for and discharge the goods. This includes taking care to ensure that the goods are not damaged. It is implied that the vessel will load, that it is ready to commence the voyage and that it will proceed with the voyage at all reasonable dispatch.

If there is a specified or established route, that must be followed. Deviations are permitted only on reasonable grounds.

The carrier must unload the goods and put them on the dock or alongside the quay etc. as the case may be. Alternatively, the consignee may be responsible. The consignee is entitled to receive custody of the goods, subject to freight being paid. The shipper must deliver the goods to the person with custody of the bill. Where they are not collected within a reasonable time, they may be put in a warehouse at the owner’s expense.


Excepted Risks

The carrier cannot contract out of the minimum obligations under Hague-Visby Rules. Certain risks are excepted, and the carrier is not liable for them. These include

  • act of God, act of war, act of enemies, arrest by quarantine;
  • accidents, fire not caused by fault;
  • act, neglect or default of the master mariner, the pilot, or servants of the carrier;
  • strikes, lockouts, riots;
  • lifesaving;
  • wastage arising from inherent defects in the goods, insufficiency of packing, insufficiency of marks;
  • latent defects;
  • others cause arising without the fault or privity of the carrier or the agents of the carrier.

The burden of proof is on the carrier.

The exception for acts of the master mariner, pilot, and servants in the management of the ship is not as broad as first appears. It must relate to negligence in taking care of the ship, as opposed to the cargo. If the cargo is not properly cared for, the carrier’s negligence is not excepted. It applies only that of the captain/pilot, carrier’s employee. The carrier can be liable for the negligent appointment of an incompetent master.

The last grounds based on “other cause”, relates to acts caused by strangers for whom the carrier cannot be held responsible.

The carrier must use due diligence to provide a seaworthy ship. If this cannot be shown, none of the limitations set out above apply. The seaworthiness is an overriding obligation.


Claim

There is a one-year time limit for making a claim. This runs from the date when the goods are delivered or should have been delivered. The defendant may not rely on its own fraud to take advantage of the time limit.

The limit of the carrier’s liability is €550 per package or €1.60 per kilogram, whichever is higher. The limitation does not apply where there is fraud or knowledge that the damage would probably result.

Ship owners and charterers are entitled to an overall limit of liability for damage based on the ship’s tonnage. Where they act recklessly or with the knowledge that the loss will occur, this limit does not apply.

It is not possible in a contract for carriage to restrict the monetary ceiling any further, where The Hague-Visby Rules apply. They are minimum obligations on the carrier below which it is not possible to reduce the level of protection for the shipper and consignee. It appears that in the case of goods shipped from Ireland that the Hague-Visby Rules cannot be avoided by choosing a third-party jurisdiction.


Liability and Insurance

Liability for cargo is limited in accordance with international Conventions. They govern the international carriage of goods by air. They define the carrier’s responsibilities, bases of liability, financial liability limits, responsibility for sub-contractors, documents requirements, consigners liabilities, special provisions regarding dangerous goods and claim time limits.

It is essential to arrange appropriate insurance cover. Marine insurance covers not only ocean shipping but also rail and air transport. As with all insurance, it is necessary that there be an insurable interest in the goods. This means that the goods belong to the insured who bears the risk associated.

The Shipping company’s liability for cargo they carry is set by international conventions and does not always equate to the full value of the goods. The level of protection various from market to market. The main risk that arise in the international trade or loss damage and delay including potential of customs. How these risks are shared between buyers and sellers should be covered by the terms of the sale of contract using INCOTERM.


International Convention for the Unification of Certain Rules of Law relating to Bills of Lading

Hague Rules

and Protocol of Signature

(Brussels, 25 August 1924)

The President of the German Republic, the President of the Argentine Republic, His Majesty the King of the Belgians, the President of the Republic of Chile, the President of the Republic of Cuba, His Majesty the King of Denmark and Iceland, His Majesty the King of Spain, the Head of the Estonian State, the President of the United States of America, the President of the Republic of Finland, the President of the French Republic, His Majesty the King of the United Kingdom of Great Britain and Ireland and of the British Dominions beyond the Seas, Emperor of India, His Most Supreme Highness the Governor of the Kingdom of Hungary, His Majesty the King of Italy, His Majesty the Emperor of Japan, the President of the Latvian Republic, the President of the Republic of Mexico, His Majesty the King of Norway, Her Majesty the Queen of the Netherlands, the President of the Republic of Peru, the President of the Polish Republic, the President of the Portuguese Republic, His Majesty the King of Romania, His Majesty the King of the Serbs, Croats and Slovenes, His Majesty the King of Sweden, and the President of the Republic of Uruguay,

HAVING RECOGNIZED the utility of fixing by agreement certain uniform rules of law relating to bills of lading,

HAVE DECIDED to conclude a convention with this object and have appointed the following Plenipotentiaries:

WHO, duly authorized thereto, have agreed as follows:


Article 1

In this Convention the following words are employed with the meanings set out below:

(a) “Carrier” includes the owner or the charterer who enters into a contract of carriage with a shipper.

(b) “Contract of carriage” applies only to contracts of carriage covered by a bill of lading or any similar document of title, in so far as such document relates to the carriage of goods by sea, including any bill of lading or any similar document as aforesaid issued under or pursuant to a charter party from the moment at which such bill of lading or similar document of title regulates the relations between a carrier and a holder of the same.

(c) “Goods” includes goods, wares, merchandise and articles of every kind whatsoever except live animals and cargo which by the contract of carriage in stated as being carried on deck and is so carried.

(d) “Ship” means any vessel used for the carriage of goods by sea.

(e) “Carriage of goods” covers the period from the time when the goods are loaded on to the time they are discharged from the ship.


Article 2

Subject to the provisions of Article 6, under every contract of carriage of goods by sea the carrier, in relation to the loading, handling, stowage, carriage, custody, care and discharge of such goods, shall be subject to the responsibilities and liabilities, and entitled to the rights and immunities hereinafter set forth.


Article 3

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

(a) Make the ship seaworthy.

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

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

2. Subject to the provisions of Article 4, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.

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

(a) The leading marks necessary for identification of the goods as the same are furnished in writing by the shipper before the loading of such goods starts, provided such marks are stamped or otherwise shown clearly upon the goods if uncovered, or on the cases or coverings in which such goods are contained, in such a manner as should ordinarily remain legible until the end of the voyage.

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

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

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

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

5. The shipper shall be deemed to have guaranteed to the carrier the accuracy at the time of shipment of the marks, number, quantity and weight, as furnished by him, and the shipper shall indemnity the carrier against all loss, damages and expenses arising or resulting from inaccuracies in such particulars. The right of the carrier to such indemnity shall in no way limit his responsibility and liability under the contract of carriage to any person other than the shipper.

6. Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, or, if the loss or damage be not apparent, within three days, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading.

If the loss or damage is not apparent, the notice must be given within three days of the delivery of the goods.

The notice in writing need not be given if the state of the goods has, at the time of their receipt, been the subject of joint survey or inspection.

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.

In the case of any actual or apprehended loss or damage the carrier and the receiver shall give all reasonable facilities to each other for inspecting and tallying the goods.

7. After the goods are loaded the bill of lading to be issued by the carrier, master, or agent of the carrier, to the shipper shall, if the shipper so demands, be a “shipped” bill of lading, provided that if the shipper shall have previously taken up any document of title to such goods, he shall surrender the same as against the issue of the “shipped” bill of lading, but at the option of the carrier such document of title may be noted at the port of shipment by the carrier, master, or agent with the name or names of the ship or ships upon which the goods have been shipped and the date or dates of shipment, and when so noted, if it shows the particulars mentioned in paragraph 3 of Article 3, shall for the purpose of this Article be deemed to constitute a “shipped” bill of lading.

8. Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to, or in connexion with, goods arising from negligence, fault, or failure in the duties and obligations provided in this Article or lessening such liability otherwise than as provided in this Convention, shall be null and void and of no effect. A benefit of insurance in favour of the carrier or similar clause shall be deemed to be a clause relieving the carrier from liability.


Article 4

1. Neither the carrier nor the ship shall be liable for loss or damage arising or resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make the ship seaworthy and to secure that the ship is properly manned, equipped and supplied, and to make the holds, refrigerating and cool chambers and all other parts of the ship in which goods are carried fit and safe for their reception, carriage and preservation in accordance with the provisions of paragraph 1 of Article 3. Whenever loss or damage has resulted from unseaworthiness the burden of proving the exercise of due diligence shall be on the carrier or other person claiming exemption under this Article.

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

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

(b) Fire, unless caused by the actual fault or privity of the carrier.

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

(d) Act of God.

(e) Act of war.

(f) Act of public enemies.

(g) Arrest or restraint or princes, rulers or people, or seizure under legal process.

(h) Quarantine restrictions.

(i) Act or omission of the shipper or owner of the goods, his agent or representative.

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

(k) Riots and civil commotions.

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

(m) Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice of the goods.

(n) Insufficiency of packing.

(o) Insufficiency or inadequacy of marks.

(p) Latent defects not discoverable by due diligence.

(q) Any other cause arising without the actual fault or privity of the carrier, or without the actual fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.

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

4. Any deviation in saving or attempting to save life or property at sea or any reasonable deviation shall not be deemed to be an infringement or breach of this Convention or of the contract of carriage, and the carrier shall not be liable for any loss or damage resulting therefrom.

5. Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connexion with goods in an amount exceeding 100 pounds sterling per package or unit, or the equivalent of that sum in other currency unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.

This declaration if embodied in the bill of lading shall be prima facie evidence, but shall not be binding or conclusive on the carrier.

By agreement between the carrier, master or agent of the carrier and the shipper another maximum amount than that mentioned in this paragraph may be fixed, provided that such maximum shall not be less than the figure above named.

Neither the carrier nor the ship shall be responsible in any event for loss or damage to, or in connexion with, goods if the nature or value thereof has been knowingly misstated by the shipper in the bill of lading.

6. Goods of an inflammable, explosive or dangerous nature to the shipment whereof the carrier, master or agent of the carrier has not consented with knowledge of their nature and character, may at any time before discharge be landed at any place, or destroyed or rendered innocuous by the carrier without compensation and the shipper of such goods shall be liable for all damage and expenses directly or indirectly arising out of or resulting from such shipment. If any such goods shipped with such knowledge and consent shall become a danger to the ship or cargo, they may in like manner be landed at any place, or destroyed or rendered innocuous by the carrier without liability on the part of the carrier except to general average, if any.


Article 5

A carrier shall be at liberty to surrender in whole or in part all or any of his rights and immunities or to increase any of his responsibilities and obligations under this Convention, provided such surrender or increase shall be embodied in the bill of lading issued to the shipper.

The provisions of this Convention shall not be applicable to charter parties, but if bills of lading are issued in the case of a ship under a charter party they shall comply with the terms of this Convention. Nothing in these rules shall be held to prevent the insertion in a bill of lading of any lawful provision regarding general average.


Article 6

Notwithstanding the provisions of the preceding Articles, a carrier, master or agent of the carrier and a shipper shall in regard to any particular goods be at liberty to enter into any agreement in any terms as to the responsibility and liability of the carrier for such goods, and as to the rights and immunities of the carrier in respect of such goods, or his obligation as to seaworthiness, so far as this stipulation is not contrary to public policy, or the care or diligence of his servants or agents in regard to the loading, handling, stowage, carriage, custody, care and discharge of the goods carried by sea, provided that in this case no bill of lading has been or shall be issued and that the terms agreed shall be embodied in a receipt which shall be a non-negotiable document and shall be marked as such.

Any agreement so entered into shall have full legal effect.

Provided that this Article shall not apply to ordinary commercial shipments made in the ordinary course of trade, but only to other shipments where the character or condition of the property to be carried or the circumstances, terms and conditions under which the carriage is to be performed are such as reasonably to justify a special agreement.


Article 7

Nothing herein contained shall prevent a carrier or a shipper from entering into any agreement, stipulation, condition, reservation or exemption as to the responsibility and liability of the carrier or the ship for the loss or damage to, or in connexion with, the custody and care and handling of goods prior to the loading on, and subsequent to, the discharge from the ship on which the goods are carried by sea.


Article 8

The provisions of this Convention shall not affect the rights and obligations of the carrier under any statute for the time being in force relating to the limitation of the liability of owners of sea-going vessels.


Article 9

The monetary units mentioned in this Convention are to be taken to be gold value.

Those contracting States in which the pound sterling is not a monetary unit reserve to themselves the right of translating the sums indicated in this Convention in terms of pound sterling into terms of their own monetary system in round figures.

The national laws may reserve to the debtor the right of discharging his debt in national currency according to the rate of exchange prevailing on the day of the arrival of the ship at the port of discharge of the goods concerned.


Article 10

The provisions of this Convention shall apply to all bills of lading issued in any of the contracting States.


Brussels Protocol

PROTOCOL OF SIGNATURE

At the time of signing the International Convention for the Unification of Certain Rules of Law relating to Bills of Lading the Plenipotentiaries whose signatures appear below have adopted this Protocol, which will have the same force and the same value as if its provisions were inserted in the text of the Convention to which it relates.

The High Contracting Parties may give effect to this Convention either by giving it the force of law or by including in their national legislation in a form appropriate to that legislation the rules adopted under this Convention.

They may reserve the right:

1. To prescribe that in the cases referred to in paragraph 2(c) to (p) of Article 4 the holder of a bill of lading shall be entitled to establish responsibility for loss or damage arising from the personal fault of the carrier or the fault of his servants which are not covered by paragraph (a).

2. To apply Article 6 in so far as the national coasting trade is concerned to all classes of goods without taking account of the restriction set out in the last paragraph of that Article.

DONE at Brussels, in single copy, August 25th, 1924.

The Hague-Visby Rules – The Hague Rules as Amended by the Brussels Protocol 1968

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Article I

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In these Rules the following words are employed, with the meanings set out below:

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(a) ‘Carrier’ includes the owner or the charterer who enters into a contract of carriage with a shipper.

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(b) ‘Contract of carriage’ applies only to contracts of carriage covered by a bill of lading or any similar document of title, in so far as such document relates to the carriage of goods by sea, including any bill of lading or any similar document as aforesaid issued under or pursuant to a charter party from the moment at which such bill of lading or similar document of title regulates the relations between a carrier and a holder of the same.

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(c) ‘Goods’ includes goods, wares, merchandise, and articles of every kind whatsoever except live animals and cargo which by the contract of carriage is stated as being carried on deck and is so carried.

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(d) ‘Ship’ means any vessel used for the carriage of goods by sea.

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(e) ‘Carriage of goods’ covers the period from the time when the goods are loaded on to the time they are discharged from the ship.


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Article II

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Subject to the provisions of Article VI, under every contract of carriage of goods by sea the carrier, in relation to the loading, handling, stowage, carriage, custody, care and discharge of such goods, shall be subject to the responsibilities and liabilities and entitled to the rights and immunities hereinafter set forth.


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Article III

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

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(a) Make the ship seaworthy;

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

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

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

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

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(a) The leading marks necessary for identification of the goods as the same are furnished in writing by the shipper before the loading of such goods starts, provided such marks are stamped or otherwise shown clearly upon the goods if uncovered, or on the cases or coverings in which such goods are contained, in such a manner as should ordinarily remain legible until the end of the voyage.

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

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

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

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4. Such a bill of lading shall be prima facie evidence of the receipt by the carrier of the goods as therein described in accordance with paragraph 3 (a), (b) and (c). However, proof to the contrary shall not be admissible when the bill of lading has been transferred to a third party acting in good faith.

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5. The shipper shall be deemed to have guaranteed to the carrier the accuracy at the time of shipment of the marks, number, quantity and weight, as furnished by him, and the shipper shall indemnify the carrier against all loss, damages and expenses arising or resulting from inaccuracies in such particulars. The right of the carrier to such indemnity shall in no way limit his responsibility and liability under the contract of carriage to any person other than the shipper.

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6. Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, or, if the loss or damage be not apparent, within three days, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading.

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The notice in writing need not be given if the state of the goods has, at the time of their receipt, been the subject of joint survey or inspection.

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Subject to paragraph 6bis the carrier and the ship shall in any event be discharged from all liability whatsoever in respect of the goods, unless suit is brought within one year of their delivery or of the date when they should have been delivered. This period, may however, be extended if the parties so agree after the cause of action has arisen.

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In the case of any actual or apprehended loss or damage the carrier and the receiver shall give all reasonable facilities to each other for inspecting and tallying the goods.

28

6 bis. An action for indemnity against a third person may be brought even after the expiration of the year provided for in the preceding paragraph if brought within the time allowed by the law of the Court seized of the case. However, the time allowed shall be not less than three months, commencing from the day when the person bringing such action for indemnity has settled the claim or has been served with process in the action against himself.

29

7, After the goods are loaded the bill of lading to be issued by the carrier, master, or agent of the carrier, to the shipper shall, if the shipper so demands be a ‘shipped’ bill of lading, provided that if the shipper shall have previously taken up any document of title to such goods, he shall surrender the same as against the issue of the ‘shipped’ bill of lading, but at the option of the carrier such document of title may be noted at the port of shipment by the carrier, master, or agent with the name or names of the ship or ships upon which the goods have been shipped and the date or dates of shipment, and when so noted, if it shows the particulars mentioned in paragraph 3 of Article III, shall for the purpose of this article be deemed to constitute a ‘shipped’ bill of lading.

30

8. Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to, or in connection with, goods arising from negligence, fault, or failure in the duties and obligations provided in this article or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect. A benefit of insurance in favour of the carrier or similar clause shall be deemed to be a clause relieving the carrier from liability.


31

Article IV

32

1. Neither the carrier nor the ship shall be liable for loss or damage arising or resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make the ship seaworthy, and to secure that the ship is properly manned, equipped and supplied, and to make the holds, refrigerating and cool chambers and all other parts of the ship in which goods are carried fit and safe for their reception, carriage and preservation in accordance with the provisions of paragraph 1 of Article III. Whenever loss or damage has resulted from unseaworthiness the burden of proving the exercise of due diligence shall be on the carrier or other person claiming exemption under this article.

33

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

34

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

35

(b) Fire, unless caused by the actual fault or privity of the carrier.

36

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

37

(d) Act of God.

38

(e) Act of war.

39

(f) Act of public enemies.

40

(g) Arrest or restraint of princes, rulers or people, or seizure under legal process.

41

(h) Quarantine restrictions.

42

(i) Act or omission of the shipper or owner of the goods, his agent or representative.

43

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

44

(k) Riots and civil commotions.

45

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

46

(m) Wastage in bulk of weight or any other loss or damage arising from inherent defect, quality or vice of the goods.

47

(n) Insufficiency of packing.

48

(o) Insufficiency or inadequacy of marks.

49

(p) Latent defects not discoverable by due diligence.

50

(q) Any other cause arising without the actual fault or privity of the carrier, or without the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.

51

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

52

4. Any deviation in saving or attempting to save life or property at sea or any reasonable deviation shall not be deemed to be an infringement or breach of these Rules or of the contract of carriage, and the carrier shall not be liable for any loss or damage resulting therefrom.

53

5 (a) Unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading, neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the goods in an amount exceeding the equivalent of 666.67 units of account per package or unit or units of account per kilo of gross weight of the goods lost or damaged, whichever is the higher.

54

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

55

The value of the goods shall be fixed according to the commodity exchange price, or, if there be no such price, according to the current market price, or, if there be no commodity exchange price or current market price, by reference to the normal value of goods of the same kind and quality.

56

(c) Where a container, pallet or similar article of transport is used to consolidate goods, the number of packages or units enumerated in the bill of lading as packed in such article of transport shall be deemed the number of packages or units for the purpose of this paragraph as far as these packages or units are concerned. Except as aforesaid such article of transport shall be considered the package or unit.

57

(d) The unit of account mentioned in this Article is the special drawing right as defined by the International Monetary Fund. The amounts mentioned in h_visby/art/art04_5asub-paragraph (a) of this paragraph shall be converted into national currency on the basis of the value of that currency on a date to be determined by the law of the Court seized of the case.

58

(e) Neither the carrier nor the ship shall be entitled to the benefit of the limitation of liability provided for in this paragraph if it is proved that the damage resulted from an act or omission of the carrier done with intent to cause damage, or recklessly and with knowledge that damage would probably result.

59

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

60

(g) By agreement between the carrier, master or agent of the carrier and the shipper other maximum amounts than those mentioned in sub-paragraph (a) of this paragraph may be fixed, provided that no maximum amount so fixed shall be less than the appropriate maximum mentioned in that sub-paragraph.

61

(h) Neither the carrier nor the ship shall be responsible in any event for loss or damage to, or in connection with, goods if the nature or value thereof has been knowingly mis-stated by the shipper in the bill of lading.

62

6. Goods of an inflammable, explosive or dangerous nature to the shipment whereof the carrier, master or agent of the carrier has not consented with knowledge of their nature and character, may at any time before discharge be landed at any place, or destroyed or rendered innocuous by the carrier without compensation and the shipper of such goods shall be liable for all damages and expenses directly or indirectly arising out of or resulting from such shipment. If any such goods shipped with such knowledge and consent shall become a danger to the ship or cargo, they may in like manner be landed at any place, or destroyed or rendered innocuous by the carrier without liability on the part of the carrier except to general average, if any.


63

Article IV bis

64

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

65

2. If such an action is brought against a servant or agent of the carrier (such servant or agent not being an independent contractor), such servant or agent shall be entitled to avail himself of the defences and limits of liability which the carrier is entitled to invoke under these Rules.

66

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

67

4. Nevertheless, a servant or agent of the carrier shall not be entitled to avail himself of the provisions of this article, if it is proved that the damage resulted from an act or omission of the servant or agent done with intent to cause damage or recklessly and with knowledge that damage would probably result.


68

Article V

69

A carrier shall be at liberty to surrender in whole or in part all or any of his rights and immunities or to increase any of his responsibilities and obligations under these Rules, provided such surrender or increase shall be embodied in the bill of lading issued to the shipper. The provisions of these Rules shall not be applicable to charter parties, but if bills of lading are issued in the case of a ship under a charter party they shall comply with the terms of these Rules. Nothing in these Rules shall be held to prevent the insertion in a bill of lading of any lawful provision regarding general average.


70

Article VI

71

Notwithstanding the provisions of the preceding articles, a carrier, master or agent of the carrier and a shipper shall in regard to any particular goods be at liberty to enter into any agreement in any terms as to the responsibility and liability of the carrier for such goods, and as to the rights and immunities of the carrier in respect of such goods, or his obligation as to seaworthiness, so far as this stipulation is not contrary to public policy, or the care or diligence of his servants or agents in regard to the loading, handling, stowage, carriage, custody, care and discharge of the goods carried by sea, provided that in this case no bill of lading has been or shall be issued and that the terms agreed shall be embodied in a receipt which shall be a non-negotiable document and shall be marked as such.

72

An agreement so entered into shall have full legal effect.

73

Provided that this article shall not apply to ordinary commercial shipments made in the ordinary course of trade, but only to other shipments where the character or condition of the property to be carried or the circumstances, terms and conditions under which the carriage is to be performed are such as reasonably to justify a special agreement.


74

Article VII

75

Nothing herein contained shall prevent a carrier or a shipper from entering into any agreement, stipulation, condition, reservation or exemption as to the responsibility and liability of the carrier or the ship for the loss or damage to, or in connection with, the custody and care and handling of goods prior to the loading on, and subsequent to the discharge from, the ship on which the goods are carried by sea.


76

Article VIII

77

The provisions of these Rules shall not affect the rights and obligations of the carrier under any statute for the time being in force relating to the limitation of the liability of owners of sea-going vessels.


78

Article IX

79

These Rules shall not affect the provisions of any international Convention or national law governing liability for nuclear damage.


80

Article X

81

The provisions of these Rules shall apply to every bill of lading relating to the carriage of goods between ports in two different States if

82

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

83

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

84

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

85

whatever may be the nationality of the ship, the carrier, the shipper, the consignee, or any other interested person.

86

(The last two paragraphs of this Article are not reproduced. They require contracting States to apply the Rules to bills of lading mentioned in the Article and authorise them to apply the Rules to other bills of lading).

87

(Article 11 to 16 of the International Convention for the unification of certain rules of law relating to bills of lading signed at Brussels on August 25, 1974 are not reproduced. They deal with the coming into force of the Convention, procedure for ratification, accession and denunciation and the right to call for a fresh conference to consider amendments to the Rules contained in the Convention).

1979 Protocol

Protocol (SDR Protocol) amending the International Convention for the Unification of Certain Rules of Law relating to Bills of Lading of 25 August 1924 (The Hague Rules), as amended by the Protocol of 23 February 1968 (Visby Rules)

(Brussels, 21 December 1979)

THE CONTRACTING PARTIES TO THE PRESENT PROTOCOL,

BEING PARTIES to the International Convention for the unification of certain rules of law relating to bills of lading, done at Brussels on 25th August 1924, as amended by the Protocol to amend that Convention, done at Brussels on 23rd February 1968,

HAVE AGREED as follows:


Article I

For the purpose of this Protocol, “Convention” means the International Convention for the unification of certain rules of law relating to bills of lading and its Protocol of signature, done at Brussels on 25th August 1924, as amended by the Protocol, done at Brussels on 23rd February 1968.


Article II

(1) Article 4, paragraph 5(a) of the Convention is replaced by the following:

“(a) Unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading, neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the goods in an amount exceeding 666.67 units of account per package or unit or 2 units of account per kilogramme of gross weight of the goods lost or damaged, whichever is the higher.”

(2) Article 4, paragraph 5(d) of the Convention is replaced by the following:

“(d) The unit of account mentioned in this Article is the Special Drawing Right as defined by the International Monetary Fund. The amounts mentioned in sub-paragraph (a) of this paragraph shall be converted into national currency on the basis of the value of that currency on a date to be determined by the law of the Court seized of the case.

The value of the national currency, in terms of the Special Drawing Right, of a State which is a member of the International Monetary Fund, shall be calculated in accordance with the method of valuation applied by the International Monetary Fund in effect at the date in question for its operations and transactions. The value of the national currency, in terms of the Special Drawing Right, of a State which is not a member of the International Monetary Fund, shall be calculated in a manner determined by that State.

Nevertheless, a State which is not a member of the International Monetary Fund and whose law does not permit the application of the provisions of the preceding sentences may, at the time of ratification of the Protocol of 1979 or accession thereto or at any time thereafter, declare that the limits of liability provided for in this Convention to be applied in its territory shall be fixed as follows:

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

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

The monetary unit referred to in the preceding sentence corresponds to 65.5 milligrammes of gold of millesimal fineness 900′. The conversion of the amounts specified in that sentence into the national currency shall be made according to the law of the State concerned.

The calculation and the conversion mentioned in the preceding sentences shall be made in such a manner as to express in the national currency of the State as far as possible the same real value for the amounts in sub-paragraph (a) of paragraph 5 of this Article as is expressed there in units of account.

States shall communicate to the depositary the manner of calculation or the result of the conversion as the case may be, when depositing an instrument of ratification of the Protocol of 1979 or of accession thereto and whenever there is a change in either.”


Article III

Any dispute between two or more Contracting Parties concerning the interpretation or application of the present Protocol, which cannot be settled through negotiation, shall, at the request of one of them, be submitted to arbitration. If within six months from the date of the request for arbitration the Parties are unable to agree on the organisation of the arbitration, any one of those Parties may refer the dispute to the International Court of Justice by request in conformity with the Statute of the Court.


Article IV

(1) Each Contracting Party may at the time of signature or ratification of this Protocol or of accession thereto, declare that it does not consider itself bound by Article III.

(2) Any Contracting Party having made a reservation in accordance with paragraph (1) may at any time withdraw this reservation by notification to the Belgian Government.


Article V

This Protocol shall be open for signature by the States which have signed the Convention of 25 August 1924 or the Protocol of 23 February 1968 or which are Parties to the Convention.


Article VI

(1) This Protocol shall be ratified.

(2) Ratification of this Protocol by any State which is not a Party to the Convention shall have the effect of ratification of the Convention.

(3) The instruments of ratification shall be deposited with the Belgian Government.


Article VII

(1) States not referred to in Article V may accede to this Protocol.

(2) Accession to this Protocol shall have the effect of accession to the Convention.

(3) The instruments of accession shall be deposited with the Belgian Government.


Article VIII

(1) This Protocol shall come into force three months after the date of the deposit of five instruments of ratification or accession.

(2) For each State which ratifies this Protocol or accedes thereto after the fifth deposit, this Protocol shall come into force three months after the deposit of its instrument of ratification or accession.


Article IX

(1) Any Contracting Party may denounce this Protocol by notification to the Belgian Government.

(2) The denunciation shall take effect one year after the date on which the notification has been received by the Belgian Government.


Article X

(1) Each State may at the time of signature, ratification or accession or at any time thereafter declare by written notification to the Belgian Government which among the territories for whose international relations it is responsible, are those to which the present Protocol applies. The Protocol shall three months after the date of the receipt of such notification by the Belgian Government extend to the territories named therein, but not before the date of the coming into force of the Protocol in respect of such State.

(2) This extension also shall apply to the Convention if the latter is not yet applicable to these territories.

(3) Any Contracting Party which has made a declaration under paragraph (1) of this Article may at any time thereafter declare by notification given to the Belgian Government that the Protocol shall cease to extend to such territories. This denunciation shall take effect one year after the date on which notification thereof has been received by the Belgian Government.


Article XI

The Belgian Government shall notify the signatory and acceding States of the following:

1. The signatures, ratifications and accessions received in accordance with Articles V, VI and VII.

2. The date on which the present Protocol will come into force in accordance with Article VIII.

3. The notifications with regard to the territorial application in accordance with Article X.

4. The declarations and communications made in accordance with Article II.

5. The declarations made in accordance with Article IV.

6. The denunciations received in accordance with Article IX.

IN WITNESS WHEREOF the undersigned, duly authorized thereto, have signed this Protocol.

DONE at Brussels, this 21st day of December 1979, in the English and French languages, both texts being equally authentic, in a single copy, which shall remain deposited in the archives of the Belgian Government, which shall issue certified copies.


Cases

Far East Chartering Ltd & Anor v Great Eastern Shipping Company Ltd

 [2012] EWCA Civ 180

Lord Justice Tomlinson :

Introduction

It is a commonplace in international trade that goods carried by sea arrive at their destination before the documents of title thereto have become available to the ultimate consignee. Often that is because the goods have been sold and resold and there has simply been insufficient time for the documents to make their way through the banking system as they are negotiated from one letter of credit provider to the next. Sometimes the process is held up by there arising perfectly bona fide disputes as to the amount loaded or the condition thereof, its compliance with contractual specification and so forth. In such circumstances it is common for shipowners to be asked to deliver the cargo to the ultimate consignee without production of the document or documents of title, typically a bill or bills of lading. Typically the shipowner is offered an indemnity in respect of the consequences of compliance with the request. So common and accepted is this procedure that the International Group of Protection and Indemnity Clubs circulates to its members recommended standard form letters of indemnity for use in the various situations which typically arise:-

A)        Delivery of cargo without production of the original bill of lading;

B)        Delivery of cargo at a port other than that stated in the bill of lading; and

C)        Delivery of cargo at a port other than that stated in the bill of lading and without production of the original bill of lading.

Sometimes the letter of indemnity is furnished directly by the consignee to the shipowner. Sometimes however there is a chain of such letters. Thus a consignee might issue a letter of indemnity to his seller who might also be or be associated with the charterer of the vessel, who may in turn in reliance on the indemnity from the consignee issue his own Letter of Indemnity to the shipowner. Provision may be made in voyage charterparties obliging the shipowner to discharge cargo without production of bills of lading against a letter of indemnity from charterers in the owner’s P. & I. Club format. Sometimes a bank or other financial institution will join in the letter of indemnity with or without an aggregate limit of liability.

The “Laemthong Glory” (No.2) [2005] 1 Ll Rep 632 and [2005] 1 Ll Rep 688 was, so far as I am aware, the first reported occasion upon which shipowners sought to rely upon a letter of indemnity which was addressed not to themselves but to the charterers. It is important to note that in that case the letter of indemnity was addressed by the receivers to the charterers by name. Cooke J, with whom the Court of Appeal agreed, held that the shipowners were entitled to enforce against the receivers the letter of indemnity which the receivers had given to the charterers. They were entitled so to do by reliance upon the Contracts (Rights of Third Parties) Act 1999. The letter of indemnity by clause 1 offered to indemnify “you”, i.e. the charterers, your servants and agents. Delivery of the cargo could in practice be effected only by the shipowners who were in possession of it. The charterers could not themselves deliver the cargo except by making use of the shipowners to do so. Thus the charterers could only procure the delivery of the cargo to the receivers through the agency of the owners. The owners were accordingly the agents of the charterers for the purpose of complying with the receivers’ request in the receivers’ letter of indemnity addressed to the charterers, namely to deliver the cargo to them under the receivers’ letter of indemnity and were thus properly to be regarded as falling within the category of “agents” whom the receivers promised to indemnify in clause 1 of the letter of indemnity. The letter of indemnity therefore, in the statutory language, purported to confer a benefit upon the shipowners.

The present case is superficially similar to the Laemthong Glory and again shipowners seek to enforce a receivers’ letter of indemnity apparently addressed to the charterers. They seek to do so because the charterers from whom they in turn received a letter of indemnity addressed directly to themselves are in liquidation. His Honour Judge Mackie QC, sitting in the Commercial Court, held that they were entitled so to do. The receivers appeal. They say that for three distinct reasons the judge was wrong so to conclude on the facts of this case because:-

i)          The shipowners never transferred physical possession of the cargo to the receivers and thus did not perform the request to deliver the cargo;

ii)         On its proper construction, in the context of the factual matrix, the receivers’ letter of indemnity was in any event addressed not to the charterers but to the shipowners themselves. That precluded any claim under the 1999 Act because it was not open to the charterers to accept the offer made in the letter of indemnity. The judge accepted that in such circumstances the shipowners would not themselves be able to rely upon a direct rather than a derivative claim against the receivers, notwithstanding the letter of indemnity was on this hypothesis addressed to them, because it was common ground that the shipowners did not know of the existence of the receivers’ letter of indemnity until months after the discharge of the goods (and delivery if that had been effected) had taken place. An offeree cannot accept an offer of which it is ignorant.

iii)        When the charterers asked the receivers to issue the letter of indemnity the charterers knew, although the receivers did not, that the shipper was withholding the original bills of lading as security for payment for the cargo. The charterers, a sister company of the buyers withholding payment from the shippers, therefore intended the letter of indemnity to facilitate delivery not only without production of the original bills of lading but also contrary to the wishes of the shipper and in circumvention of the rights which the shipper was asserting as holder of the original bills of lading and owner of the cargo. Either as a matter of public policy or on the true construction of the letter of indemnity the charterers would not have been entitled to enforce the indemnity against the receivers and, under the 1999 Act, the shipowners could be in no better position than the charterers.

In order to set these arguments into context before addressing them, I must first set out the facts.

The facts

The Second Defendant and Appellant is an Indian company which, amongst other things, imports coal. I shall refer to it hereafter as “Binani”.

The Claimant and Respondent to the appeal is also an Indian company and is the owner of the vessel “Jag Ravi” to which I shall refer hereafter as “the vessel”. I shall refer to the Claimant/Respondent, perhaps inelegantly, as “the owners”.

In July 2008 an Indonesian company, PT Harkat Utama Mulia Mandiri, hereinafter “PTH”, agreed to sell to Visa Comtrade AG, hereinafter “VICAG”, for delivery fob Taboneo twelve monthly shipments of Indonesian steam coal from a specified mine, each of 40,000 tonnes plus or minus 10% or 45,000 tonnes max at vessel’s option.

In August 2008 VICAG agreed to sell to Binani one cargo of 50,000 tonnes plus or minus 10% Indonesian steam coal for delivery c and f fo Navlakhi.

Both contracts contained a contractual specification with which the cargo was to comply. The PTH-VICAG contract provided that analysis of load port samples was to be final and binding for the purposes of invoicing. The VICAG-Binani contract provided that the discharge port certificate of analysis was to be final and binding. In each case the buyer was entitled to a price reduction in the event that certain parameters in the specification were not met. If the discrepancy exceeded certain prescribed limits, the buyer was entitled to reject the coal. Although nothing turns on it, those prescribed limits were not the same in both contracts.

Clause 8.8 of the VICAG-Binani contract provided that:-

“In case the vessel reaches discharging port prior to Buyer receiving original documents, Seller will make prior arrangement with ship owners to allow unloading against Buyer’s Letter of Indemnity.”

The first PTH-VICAG cargo was shipped in mid-September 2008. VICAG complained that it was off-specification and withheld the final instalment of the price. PTH accepted that VICAG was entitled to a price reduction but calculated that a net balance was still due. VICAG adopted the position that it had already overpaid for the cargo.

This case relates to the second PTH-VICAG cargo, which VICAG appropriated to its contract with Binani. For this purpose VICAG’s associated company, Visa Comtrade (Asia), hereinafter “Visa”, on 10 September 2008 chartered the “Jag Ravi” from the owners for one cargo-carrying voyage from Taboneo, Indonesia, to Navlakhi on the west coast of India. The intended cargo was 45,000 tonnes of steam coal.

Clause 11 of the fixture recap provided:-

“IN CASE OF NON AVAILABILITY OF ORIGINAL B/LS AT DISCHARGE PORT, OWNERS TO ALLOW DISCHARGE OF CARGO AGAINST CHARTERERS’ LOI IN OWNERS’ PNI CLUB FORMAT. FAX COPY OF LOI TO BE ACCEPTABLE. COPY OF BS/L TO BE ATTACHED WITH THE LOI.”

The fixture recap further provided by Clause 18:-

“OTHERWISE AS PER M.V JAG RAVI/VISA CP DTD 14TH FEBRUARY, 2008 WITH LOGICAL CHANGES, ALTERATIONS AND AMENDMENTS AS PER MAINTERMS AGREED.

Clause 67 of the earlier charterparty had provided:-

“In case the original Bills of Lading not be available upon vessel’s arrival discharge port, Owners/Master agree to discharging/release cargo against presentation of Charterers Letter of Indemnity in Owners P&I Club wording signed by Charterers only. Fax copy of Letter of Indemnity to be acceptable. Copy of bill of lading to be attached with the Letter of Indemnity.”

Visa is now known as Far East Chartering Limited but is in liquidation. It is the First Defendant in these proceedings but it has taken no part. I shall refer to it hereafter as either “Visa” or “the charterers”.

The cargo, 44,104 tonnes, was loaded by 30 September 2008 and five bills of lading of that date were issued.

VICAG did not pay PTH all of the second instalment of the price, which was payable within three working days after completion of loading of all barges and production of signed copies of the barge bills of lading at the load port, or any part of the balance of the price. VICAG’s purported justification was that this cargo, like the first shipment under its contract with PTH, was off-specification, and furthermore that it was entitled to compensation on account of the first cargo. PTH again accepted that VICAG was entitled to a price reduction, but again calculated that a net balance was due. VICAG again took the position that it had in fact already overpaid. It also asserted claims for loss of profit and loss of goodwill. PTH did not release the original bills of lading to VICAG.

On 6 October 2008 the charterers sent Binani an email message:-

“Enclosed please find format of LOI required from receivers for discharge of cargo without presentation of original Bills of Lading. Please send us the LOI duly executed to enable us to take owners’ confirmation on the LOI.”

Attached was a draft LOI and photocopies of the front of the five bills of lading.

Binani signed the draft LOI as requested and returned it to the charterers. It was in these terms:-

“”Date:            6th October 2008

To:       The Owners / Disponent Owners / Charterers of the MV JAG RAVI

Dear Sirs,

Ship:   MV JAG RAVI

Voyage:         TABONEO ANCHORAGE, SOUTH KALIMANTAN, INDONESIA to NAVLAKHI SEAPORT, INDIA

Cargo:            INDONESIAN STEAM (NON-COKING) COAL IN BULK

Bill of lading:

S.No.  B/L No.           Date    Place of issue           Quantity

1.         01A/BJM-IND/08      30TH SEPTEMBER 2008  BANJARMASIN       10,000 MT

2.         01B/BJM-IND/08      30TH SEPTEMBER 2008  BANJARMASIN       10,000 MT

3.         01C/BJM-IND/08      30TH SEPTEMBER 2008  BANJARMASIN       10,000 MT

4.         01D/BJM-IND/08      30TH SEPTEMBER 2008  BANJARMASIN       10,000 MT

5.         01E/BJM-IND/08      30TH SEPTEMBER 2008  BANJARMASIN       4,104 MT

                                    TOTAL:           44,104 MT

The above cargo was shipped on the above ship by;

P.T.HARKAT UTAMA MULIA MANDIRI

JL. AHMAD YANI KM.37TH, SUNGAI PERING,

MARTAPURA – BANJAR

SOUTH KALIMANTAN, INDONESIA

TEL: +62 511 4773577 FAX: +62 511 4773577

and consigned TO ORDER for delivery at the port of NAVLAKHI SEAPORT, INDIA but the bill of lading has not arrived and we, BINANI CEMENT LIMITED, hereby request you to deliver the said cargo to BINANI CEMENT LIMITED at NAVLAKHI SEAPORT, INDIA without production of the original bill of lading.

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

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

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

3.         If, in connection with the delivery of the cargo as aforesaid, the ship, or any other ship or property in the same or associated ownership, management or control, should be arrested or detained or should the arrest or detention thereof be threatened, or should there be any interference in the use or trading of the vessel (whether by virtue of a caveat being entered on the ship’s registry or otherwise howsoever), to provide on demand such bail or other security as may be required to prevent such arrest or detention or to secure the release of such ship or property or to remove such interference and to indemnify you in respect of any liability, loss, damage or expense caused by such arrest or detention or threatened arrest or detention or such interference, whether or not such arrest or detention or threatened arrest or detention or such interference may be justified.

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

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

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

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

Yours faithfully

For and on behalf of Binani Cement Limited”

With one important exception this is in precisely the form envisaged by version A of the International Group of P. and I. Clubs standard form LOI. After the date of the document the standard form envisages that the maker of the document will [insert name of Owners], who are then on the next line described as “The Owners of the [insert name of ship]” with the next line inviting the maker of the document to [insert address] of the Owners. Here, the charterers invited Binani to issue a letter of indemnity addressed to “The Owners/Disponent Owners/Charterers of the MV Jag Ravi”.

On the same day, 6 October 2008, the charterers Visa issued a letter of indemnity in identical terms save only that:-

i)          It was addressed to:-

The Great Eastern Shipping Co Ltd

Mumbai India

The Owners of the MV JAG RAVI

ii)         After details of the cargo and by whom it had been shipped, the text recorded a request by “we, VISA COMTRADE (ASIA) LIMITED” that “you . . . deliver the said cargo to BINANI CEMENT LIMTED at NAVLAKHI SEAPORT, INDIA without production of the original bill of lading.”

Visa’s LOI was sent to owners’ agents for “Owners’ confirmation on the LOI”.

On 7 October 2008 the owners informed the Master of the vessel:-

“We hv recd chrtrs loi for dely of cargo without obl. You are authorised to disch cargo on arrival navlakhi without obl and deliver cargo to binani cement limited.”

Owners requested that the full address of the receivers as appeared on the bills of lading be included within the text of charterers’ LOI. A revised LOI was issued by charterers on 8 October 2008 incorporating that additional information and that was sent to the owners.

The vessel arrived at Navlakhi on 12 October 2008. Between 12 and 16 October the cargo was discharged at the anchorage into barges. There was no evidence at trial as to by whom the barges were ordered or arranged. The barges were off-loaded into trucks which, in turn, deposited the cargo at stackyards within the confines of the port. The stackyards appear to have been owned and/or controlled by the port authority, the Gujarat Maritime Board, hereinafter the “GMB”.

On 14 October 2008 the owners by their local agents issued a delivery order to the GMB which stated:-

“SUB: M.V. JAG RAVI AT NAVLAKHI PORT – DELIVERY ORDER

With reference to the above, we request your goodself to kindly deliver the below mentioned cargo being discharged from the subject vessel at Navlakhi Anch to the Receivers, M/s. Binani Cement Ltd. through their handling agents M/s. United Shippers Ltd, Jamnagar. The details are as under:

MARKS & NOS DESCRIPTION QUANTITY LOADPORT

Nil in Bulk Indonesian Steam (Non-Coking) Coal 44104 MT Taboneo (Indonesia)

Please note that this Delivery Order is issued subject to terms, conditions & exceptions of the Relevant Charter Party

Thanking you

Yours faithfully

For Compass Shipping & Trading Pvt. Ltd

As Agents”

Binani began removing the cargo from the port by road on 15 October 2008. Between 15 and 21 October it removed about 7,400 tonnes.

On 23 October 2008 Binani notified VICAG that it was rejecting the cargo as being off-specification. It ceased removing cargo from the port.

On 12 November 2008 PTH’s Singaporean lawyers, Messrs Haridass Ho, wrote to the shipowners asserting PTH’s rights as holders of the original bills of lading and complaining that, in breach of the contracts contained in or evidenced by the bills of lading, the shipowners had “discharged and delivered the coal to the Indian receivers without production of the original bills of lading”. The owners were notified of a claim for the loss and damage suffered by PTH in consequence of this breach of contract, namely US$ 1.5M odd, being the balance of the price allegedly due from PTH’s buyer. Proceedings were threatened, including the arrest of the vessel or a sister ship.

In consequence, on 15 November 2008 the owners wrote to GMB “to requesting and urging” it not to deliver any further cargo to Binani and to treat the Delivery Order as being revoked and cancelled. GMB appears to have taken the view that it could not prevent further delivery when it had received a Delivery Order. At all events, as the judge found, it “does not appear to have accepted this revocation”.

On 7 January 2009 Binani reached agreement with VICAG to accept the cargo at a reduced price, US$ 3.79M as against US$ 6.8M. On 11 January 2009 Binani resumed taking delivery of the coal by both road and rail. The owners’ further efforts to prevent the port authority, GMB, from releasing the cargo were unavailing. Between 17 January and 11 February 2009 a further approximately 12,000 tonnes were removed by Binani.

On 25 February 2009 the owners applied in the High Court of Gujurat for an ex parte injunction against the port authority GMB and Binani to prevent removal of further cargo from the port area. The proceedings were brought in public law, asserting breaches of the owners’ constitutional rights. An interim injunction was granted, but was set aside on Binani’s application on 6 March 2009 on the basis that the dispute involved private law rights, and could not be litigated by way of public law proceedings. It was through the evidence deployed in these short-lived proceedings that the owners learned that Binani had issued a letter of indemnity on 6 October 2008.

Binani resumed removal of cargo from the port on 13 March 2009, again by road and rail. By 24 March approximately 75% of the cargo had been removed from the port.

On 25 March 2009 GMB declared that it would not allow the balance of the cargo to be removed unless it was furnished with an indemnity. On 24 April 2009 Binani issued to GMB a letter of indemnity in respect of “any financial liability, loss or damages which they may sustain due to the dispute raised” in the Indian proceedings “on account of delivering the cargo” to Binani. VICAG provided to Binani a counter-indemnity against any liability under its LOI given to GMB. The balance of the cargo was then removed from the port by Binani by road and rail between 7 and 13 May 2009. Binani apparently withheld US$ 1.7M of the reduced price due to VICAG on the grounds that it had not received the original bills of lading.

In June 2009 PTH arrested the vessel’s sister “Jag Lyall” in Singapore. The owners’ claim in this Action is for an indemnity against any liability to PTH in Singapore and against other miscellaneous costs/expenses. The Singapore court gave judgment for PTH on liability in August 2010. Damages have yet to be assessed. Judge Mackie declared that Binani is bound to indemnify the owners in respect of this liability pursuant to its letter of indemnity dated 6 October 2008.

As noted above, the claim is brought under the Contracts (Rights of Third Parties) Act 1999. The Act provides, so far as material:-

“1. – (1) Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if –

(a) the contract expressly provides that he may, or

(b) subject to subsection (2), the term purports to confer a benefit on him.

(2) Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.

(3) The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into.

3. –(1) Subsections (2) to (5) apply where, in reliance on section 1, proceedings for the enforcement of a term of a contract are brought by a third party.

(2) The promisor shall have available to him by way of defence or set-off any matter that-

(a)       arises from or in connection with the contract and is relevant to the term, and

(b)       would have been available to him by way of defence or set-off if the proceedings had been brought by the promisee.

(3) The promisor shall also have available to him by way of defence or set-off any matter if-

(a)       an express term of the contract provides for it to be available to him in proceedings brought by the third party, and

(b)       it would have been available to him by way of defence or set-off if the proceedings had been brought by the promisee.

(4) The promisor shall also have available to him-

(a)       by way of defence or set-off any matter, and

(b)       by way of counterclaim any matter not arising from the contract,

that would have been available to him by way of defence or set-off or, as the case may be, by way of counterclaim against the third party if the third party had been a party to the contract.

(5) Subsections (2) and (4) are subject to any express term of the contract as to the matters that are not to be available to the promisor by way of defence, set-off or counterclaim.

(6) Where in any proceedings brought against him a third party seeks in reliance on section 1 to enforce a term of a contract (including, in particular, a term purporting to exclude or limit liability), he may not do so if he could not have done so (whether by reason of any particular circumstances relating to him or otherwise) had he been a party to the contract.”

Was Binani’s LOI of 6 October 2008 addressed to the charterers?

Although this is the second ground of appeal it seems logical to address it first, as did the judge. Mr Steven Gee QC for Binani submitted that the letter of indemnity was not addressed to the charterers, or rather to Visa, and that it was not therefore capable of being accepted by their agents, the shipowners, on their behalf by their conduct in delivering the cargo, if they did. The charterers had not been invited to perform the task required to complete the unilateral contract offered by Binani. They had not been invited to “walk to York”. Mr Gee accepted that the LOI appeared on its face to be addressed to both owners and charterers but submitted that on its true construction it was not addressed to Visa, the voyage charterers of the vessel. Mr Gee recognised that his own clients’ evidence deployed before the judge contradicted this submission. The evidence of Mr Venkataraman, Senior Vice President (Commercial) of Binani was to this effect:-

“I would clarify that the LOI was not sent to GE (the owners) at any stage. As was agreed with Visa Asia, we would issue the LOI to them and they, in turn, would issue their own letter of indemnity to GE, as is the normal practice.”

However the identity of the addressee of the document was, submitted Mr Gee, a matter of construction on which the subjective understanding of Mr Venkataraman was of no relevance. I agree with Mr Gee on that point. However the evidence was admissible as showing that it is in fact normal practice for there to be a chain of letters of indemnity, so if on its true construction this document was addressed to Visa that would not be an unexpected or anomalous outcome.

Mr Gee prayed in aid the context in which the LOI was given. He pointed to the circumstance that clause 8.8 of Binani’s contract with VICAG envisaged VICAG making arrangements with the shipowners to allow unloading against Buyer’s letter of indemnity, which demonstrated, he suggested, a contemplation that Binani’s LOI would be provided to shipowners, not to VICAG or to VICAG’s sister company, the charterers. He pointed out that the bills of lading, copies of which were sent to Binani with the draft letter of indemnity, were owners’ bills and that it was the shipowners not the voyage charterers who were at risk of being sued by the holders of the original bills in the event that the cargo was delivered without their production. He pointed out that the wording of the LOI is appropriate to confer benefits upon the contracting carrier with possession of the cargo rather than upon a voyage charterer, with a corresponding obligation upon Binani to deliver up the original bills of lading when they came into its possession. Those bills of lading would naturally be expected to be presented to the contracting carrier, said Mr Gee, rather than to a voyage charterer who would have no interest in them. Next, Mr Gee pointed out that under the VICAG-Binani sale contract VICAG had an obligation to deliver original bills of lading to Binani. Why then would Binani undertake to indemnify VICAG’s sister company if the original bills of lading were unavailable? Lastly, Mr Gee pointed to the email under cover of which the draft letter of indemnity was sent by Visa to Binani, which contained the wording “Please send us the LOI duly executed to enable us to take owners’ confirmation on the LOI.” What that meant, as a matter of ordinary language, was that the charterers were going to show Binani’s LOI to owners and ask whether they would deliver the cargo against it.

Mr Gee’s argument necessarily involves that the phrase “The Owners/Disponent Owners/Charterers” is a compendious way of describing a single offeree, that being the contracting carrier with possession of the cargo, who alone would need the protection of the LOI in the event that the cargo was delivered without production of the bills of lading. I do not find that convincing, particularly in the light of the evidence that it is normal practice for receivers to issue letters of indemnity to voyage charterers who, in turn, issue their own letters of indemnity in reliance thereon. The “Laemthong Glory” is an example of a letter of indemnity issued by a receiver to a voyage charterer by name. The Court of Appeal regarded such a letter of indemnity as “by no means lacking in meaning as a contract between them” – see per Clarke LJ at paragraph 30, page 693. It is not difficult to envisage a voyage charterer attracting liability in the event of delivery of cargo without production of bills of lading on the basis of inducing breach of contract or as a joint tortfeasor.

It is I think significant that the form of the LOI for which Binani was here asked represented a departure from the standard P. and I. Club form in that it was addressed not just to the owners of the vessel but also to Disponent Owners/ Charterers. Furthermore, if Visa were contemplating furnishing owners with their own letter of indemnity in the form required by the charterparty, standard P. and I. Club form, it would be natural that they would require a counter-indemnity from receivers, including an obligation that the bills of lading be delivered up by Binani when they came into their possession. The charterers would therefore have an interest in recovering those bills of lading, and it must be remembered that Visa had no pre-existing contract with Binani. It is not a satisfactory answer to that point that Visa happened to be an associated company of VICAG. The email under cover of which the draft letter of indemnity was sent is, I think, at best ambiguous. It could mean that Visa intended to submit Binani’s letter of indemnity to owners for their approval as if it were a contractual undertaking offered to owners directly, but equally it could mean that Visa intended to submit to the owners their own letter of indemnity, but with the same wording as that for which Binani was asked and which therefore required owners’ approval.

I do not consider that the words “The Owners/Disponent Owners/Charterers” can or properly should in this context be construed as a compendious way of describing a single offeree. The letter of indemnity for which Visa asked is addressed severally to three different categories of party, the last of which naturally refers to the voyage charterers, Visa. I am not dissuaded from this view by the argument that “charterers” might mean bareboat charterers, who would of course have possession of the vessel and could therefore be bailees of the cargo. It seems to me that it is more natural to regard the phrase as comprising a descending hierarchy, progressing from the owners through time charterers down to voyage charterers. If anyone was applying their mind to the possibility of a bareboat charterer issuing his own bills of lading they would, I suspect, more readily equate them with the owners at the top of the chain than with the charterers at the bottom of the chain, below therefore the disponent owners by whom in this context is undoubtedly meant time charterers.

For all these reasons in my judgment the natural and proper meaning of the letter of indemnity is that it is addressed to both the owners and the charterers, Visa. In asking for it in that form Visa were in my view keeping their options open. Perhaps they were acting in accordance with their own usual practice. In other circumstances perhaps they would have tendered the document direct to the owners, although under this charterparty owners were entitled to a letter of indemnity from charterers themselves. However, the fact that it would be normal practice for the charterers to rely on this document in furnishing their own letter of indemnity to the owners serves only to reinforce my view that it is appropriate in the context to regard it as addressed to and capable of acceptance by the charterers themselves, as well as by others. I therefore agree with the judge on this point.

Did the owners deliver the cargo to Binani?

Mr Gee submits that there was no delivery of the cargo by the owners to Binani and hence no fulfilment by the charterers of the request made to them in the letter of indemnity. Mr Gee made the point, rightly, that delivery is in this context a legal concept and that it should not be confused with discharge. He reminded us that in Barclays Bank Limited v Customs and Excise [1963] 1 Ll Rep 81 at 88-89, Diplock LJ held that a contract contained in or evidenced by a bill of lading for the carriage of goods by sea is a combined contract of transportation and bailment which is not discharged by performance until the shipowner has actually surrendered possession, that is, has divested himself of all power to compel any physical dealing in the goods, to the person entitled under the contract to obtain possession of them. Delivery to GMB as the shipowners’ bailee was plainly not delivery to Binani. The Delivery Order was no more than an authority in the form of a request to transfer physical possession to Binani. Mr Gee did however accept that the effect of the Delivery Order was that delivery by GMB to Binani pursuant to this authority would have been a good discharge of the GMB’s obligations as the shipowners’ bailee. However, he submitted, unless and until the GMB acted on the authority, it continued to hold the cargo as a bailee for the shipowners. The mere giving by a bailor to a bailee of authority to deliver goods to a third party is not the same as physical delivery of possession by the bailor to the third party.

Mr Gee recognised that 7,400 tonnes of the cargo had indeed been made available to and taken by Binani before Binani stopped taking delivery on 23 October 2008. That however did not avail the shipowners, he submitted, because the letter of indemnity requested that “the said cargo” be delivered and that meant the entire cargo, not part thereof. Insofar as Binani had obtained possession of the balance of the cargo between January and May 2009 that had been achieved without any co-operation at all from the owners and in fact in spite of their best efforts to prevent GMB from permitting Binani to take possession. The shipowners had cancelled their authority to GMB to deliver to Binani or at the very least had attempted to do so. Furthermore, submitted Mr Gee, the GMB had itself done the precise opposite of what it had been asked by shipowners to do in that it had itself demanded a letter of indemnity from Binani. All this was the very antithesis of what was asked for and contemplated under the letter of indemnity, which was that Binani would obtain a prompt transfer of possession from the shipowners, or from the shipowners’ agents with their consent, in return for, and only for, the indemnity promised in the letter.

Attractively and persuasively though these arguments were presented by Mr Gee, I cannot accept that they lead to the conclusion that the shipowners here failed to comply with the request to deliver the cargo. Delivery does not necessarily involve that the shipowners must themselves physically hand over the cargo to the receivers in the sense of physically shovelling the coal onto the consignees’ lorries. As the citation from Diplock LJ makes clear, what is involved in this context is the divesting or relinquishing of the power to compel any dealing in or with the cargo which can prevent the consignee from obtaining possession. Such divesting must of course be effective. The judge held that as a matter of construction of the letter of indemnity the issue of the Delivery Order and the discharge of the cargo were sufficient to amount to delivery. I do not agree that that alone was sufficient, for as the facts here show a shipowner may attempt to revoke the authority given by a Delivery Order and may succeed in doing so. Whether in any given case a shipowner will in fact succeed in revoking an authority given in that way will no doubt depend upon the law governing the relationship between the shipowners and the person to whom the Delivery Order is addressed, and may be affected by the question whether the addressee of the Delivery Order has subsequently attorned to the consignees named in the bill of lading. Evidently the GMB considered that the instruction given to it was irrevocable, albeit it later imposed a condition upon its own compliance. The fact remains however that as a result of the shipowners discharging the cargo into the custody of the GMB and instructing it to deliver the same to Binani without production of the bills of lading, Binani was enabled to obtain possession. The shipowners surrendered possession. As demonstrated by events, the shipowners divested themselves of all power to compel any physical dealing with the cargo. Their attempts to regain control of the cargo and/or to prevent Binani from obtaining possession failed. In these circumstances, in my judgment, the shipowners, as agents for the charterers, have complied with the request to deliver the cargo to Binani at Navlakhi without production of the original bills of lading.

I accept that Binani did not expect to have to appear in proceedings in the Gujurat High Court in order to set aside the shipowners’ interim injunction. But that interlude does not detract from the fact that as a result of the shipowners surrendering possession of the cargo and divesting themselves of the right to compel dealings in it, Binani was enabled to obtain possession thereof without production of the original bills of lading. If anything, the ineffective nature of the shipowners’ intervention goes to show that their measures had indeed been effective to enable Binani to obtain possession in this way.

At a late stage in the process of effecting delivery the GMB placed an impediment on further delivery in the shape of its demand for a letter of indemnity. Mr David Goldstone QC for the shipowners submitted that the GMB was not entitled to ask for an indemnity and in so doing it acted outside the authority given to it by the shipowners. That analysis may be correct as a matter of the law governing the relationship between the shipowners and the GMB. Mr Goldstone also submitted that in any event faced with that demand Binani could have declined to take possession of any further cargo. It could have said that it would wait until such time as it was in possession of the original bills of lading. However Binani chose to comply with the request and continued to take possession of the cargo on the terms proposed by the GMB. In so doing Binani continued to take the benefit of the shipowners’ compliance with the request made by the LOI of 6 October 2008. Binani continued to take possession of the cargo pursuant to the arrangements put in hand by the shipowners to that end, their discharge of the cargo into the hands of the GMB and their instruction to the GMB to deliver it to Binani without production of the bills of lading. I agree with Mr Goldstone that in such circumstances Binani cannot continue to take the benefit of shipowners’ compliance, as charterers’ agents, with the request made in the LOI without also accepting the burden imposed thereby, the indemnity promised in consideration of compliance with the request.

In the event Binani obtained possession of the entire cargo, subject only to some small and inconsequential losses which are said to have been due to “spontaneous combustion”. It is not suggested that these losses detract from the conclusion that Binani received the full cargo. The question whether the indemnity offered in the LOI is available only against delivery of the entire cargo does not therefore arise. However, for the avoidance of doubt, I should indicate my view that on its true construction the LOI offers an indemnity in respect of such delivery as has been effected. If it were to be construed as requiring delivery of the entire cargo before any entitlement to an indemnity arises it would be productive of disputes as to shortages, unpumpable residues and the like. I can see no reason why the indemnity offered should not be regarded as co-extensive with the delivery effected without production of the bills of lading. That is, as it seems to me, the natural and most workable reading.

I have recorded above Mr Gee’s submission that what was asked for under the LOI was a “prompt” transfer of possession. It may be that there is to be implied some such requirement as to timely compliance consistent with the commercial object of the underlying request to deliver cargo without production of original bills of lading. What is a reasonable time might therefore vary with the nature of the cargo, whether it is perishable and so forth. However I do not consider that any such argument can possibly avail Binani here. Binani ceased taking delivery of the cargo on 23 October 2008 having rejected it as off-specification. It did not agree to resume taking delivery until two and a half months later, and then on the basis of a reduced price. It was the existence of the contractual dispute between seller, buyer and sub-buyer which caused the delivery to be other than prompt. Other than the delay caused by the interim injunction, which was minimal, and the delay caused by the GMB’s request for a letter of indemnity, which was beyond charterers’ or shipowners’ control and was again in context insignificant, there is no suggestion that the process of Binani taking delivery was delayed by anything other than the existence of the underlying contractual dispute, or limitations as to the speed at which Binani could itself remove the cargo by road and rail.

Public Policy

I turn finally to public policy. In his oral address Mr Gee developed an argument further to that summarised at paragraph 4(iii) above, which was adumbrated in his skeleton argument. Founding himself upon Dugdale v Lovering (1875) LR 10 CP 196 for the proposition that a carrier may not seek or enforce an indemnity in respect of the consequences of an act which is manifestly illegal or tortious to his knowledge, Mr Gee suggested that that is precisely what the shipowners are here seeking to do. The shipowners have known, he submitted, since receipt of the letter from Messrs Haridass Ho of 12 November 2008 that the original bills of lading were being retained by the shippers as security for payment of the price which was being withheld.

As Mr Gee rightly observed, the practice of taking an express indemnity in exchange for delivery of the cargo without presentation of the original bills of lading developed in response to the problem in modern short-voyage trades of the vessel arriving while the original bills are still in the banking chain. See the discussion in Carver on Bills of Lading, 2nd Ed., 2005 at paragraph 6-009; The ‘Delfini’ [1990] 1 Ll Rep 252 at page 257; The ‘Sormovskiy’ [1994] 2 Ll Rep 266 at 274; and The ‘Berge Sisar’ [2011] 1 Ll Rep 663 at paragraph 35. In such a case, there is an apparently innocent explanation for the absence of the original bills. An implied right of indemnity would apply in such circumstances and it appears to be generally accepted that an innocent carrier is also entitled to enforce an express indemnity. However, submitted Mr Gee, no implied indemnity lies where the carrier knows that delivery is wrongful: Dugdale v Lovering; The ‘Nogar Marin’ [1988] 1 Ll Rep 412. And, while case law is admittedly slight, it follows as a matter of principle that an express indemnity is equally unenforceable in such circumstances. In support of the latter proposition he cited Brown Jenkinson v Percy Dalton [1957] 2 QB 621, which is concerned with an express indemnity in respect of the consequences of issuing a bill of lading known to contain misrepresentations as to the condition of the cargo on shipment, and Aikens et al, Bills of Lading, 2006 paragraph 3.135.

There is some irony in seeking to suggest that the shipowners should be disentitled from claiming an indemnity where at all times after they became aware of the shippers’ claims they attempted to prevent Binani from obtaining possession of the cargo, as indeed Mr Gee complains in a different context. However, like the judge, I do not consider that public policy is here engaged. As Mr Goldstone was able to demonstrate, largely by reference to evidence supplied by Binani itself for use in the proceedings in Singapore, the evidence shows that from the first there was a dispute between PTH and VICAG as to the amount payable for the cargo, having regard to the fact that it did not comply with the contractual specification. This manifested itself at an early stage since clauses 8.2 and 8.3 of the sale contract between PTH and VICAG called for the second and third instalments of the price, payable three days after completion of loading of barges and within fourteen days after the date of the bills of lading respectively, to be calculated, in the first instance, by reference to the estimated fob value of the shipment and, in the second case, by reference to the quality of the coal actually loaded, particularly its gross calorific value. Evidently the cargo was not homogeneous, coming from multiple sources. The variance in reported gross calorific value for each barge was large. There was difficulty and dispute over the sampling and analysis arrangements at the load port. It will be recalled that by clause 5.1 of the PTH-VICAG contract the results of load port sampling and analysis were final and binding. Sampling and analysis on arrival in India did not correspond with load port results, no doubt as a result of the lack of homogeneity of the cargo. The original bills of lading were of course to be released against payment for the cargo and it is clear that there was at all material times a bona fide dispute as to the amount payable. That dispute was the subject of an ICC arbitration between VICAG and PTH begun by VICAG. It is unclear on the evidence deployed in this action precisely when the dispute crystallised, although it can have been no later than when the payment instalment fell due after loading of barges, which was before the end of September 2008. There is no basis whatever for the assertion that Visa, through its sister company VICAG, was on 6 October, when it asked for the LOI from Binani, acting in anything other than complete good faith. There was a bona fide dispute as to the amount payable for the cargo, in the light whereof the original bills of lading might well be unavailable at the discharge port on arrival of the vessel. In those circumstances the LOI was not in my judgment obtained for a purpose which renders it unenforceable. It was obtained in a perfectly normal and lawful manner in circumstances where VICAG believed in good faith that it had made full payment for the cargo and was therefore entitled to release of the original bills of lading. At the very least it is not shown that VICAG did not have that belief. When the shipowners surrendered possession of the cargo and issued their Delivery Order they knew nothing of any dispute between the sellers and the intermediate buyers as to the entitlement to receive original bills of lading. Thereafter when they did learn of the dispute they learned simply that there was a contractual dispute. They were in no position to assess whether delivery or further delivery of the cargo without production of the bills of lading would be manifestly unlawful or tortious, but in any event they proved powerless to intervene in order to prevent Binani taking delivery of the cargo. Accordingly, public policy would not prevent enforcement of the LOI by Visa against Binani and nor does it prevent enforcement by the shipowners against Binani.

For all these reasons I would dismiss this appeal.

Lord Justice Davis :

I agree that this appeal should be dismissed for the reasons given by Tomlinson LJ.

In so far as Mr Gee placed reliance, under his third ground, on the doctrine (still conventionally framed in Latin) of ex turpi causa, the basis for such a plea was most hesitantly and equivocally advanced in Binani’s pleaded defence and further information thereafter provided. Mr Gee accepted in argument that he was not in a position to assert that there was dishonesty or bad faith on the part of VICAG or Visa, let alone the owners. In truth there was no evidence sufficient to show that VICAG or Visa knew (or even believed) that the bills of lading would never be forthcoming. It is a point of comment, moreover, that it seems to have been Binani which was pressing for delivery against production of a LOI.

Lord Justice Longmore :

I agree with both judgments.