Table of contents
- Gard Guidance to the Rules 2023
- Protection and Indemnity (P&I) cover
- RULES PART I – Availability of cover
- Introductory provisions - Rule 1: Interpretation
- Introductory provisions - Rule 2: The cover
- Entries and duration of cover - Rule 3: Entries
- Entries and duration of cover - Rule 4: Duration of cover
- Entries and duration of cover - Rule 5: Certificate of Entry
- Conditions of cover - Rule 6: The Member’s duty of disclosure
- Conditions of cover - Rule 7: Alteration of risk
- Conditions of cover - Rule 8: Classification and certification of the Ship
- Conditions of cover - Rule 9: Survey
- Premiums and Calls - Rule 10: Setting of Estimated Total Calls
- Premiums and Calls - Rule 11: Variation of Estimated Total Calls
- Premiums and Calls - Rule 12: Estimated Total Calls and Owners' General Discount
- Premiums and Calls - Rule 13: Supplementary Calls
- Premiums and Calls - Rule 14: Determination of Estimated Total Calls, Owners' General Discount and Supplementary Calls etc.
- Premiums and Calls - Rule 15: Release Calls
- Premiums and Calls - Rule 16: Closing of Policy Years
- Premiums and Calls - Rule 17: Repayment of premium
- Premiums and Calls - Rule 18: Overspill Calls
- Premiums and Calls - Rule 19: Reserves
- Premiums and Calls - Rule 20: Payment
- Premiums and Calls - Rule 20A: Insurance Premium Tax
- Premiums and Calls - Rule 21: Set-off
- Premiums and Calls - Rule 22: Laid-up returns
- Termination and cesser - Introduction
- Termination and cesser - Rule 23: Termination by a Member
- Termination and cesser - Rule 24: Termination by the Association
- Termination and cesser - Rule 25: Cesser
- Termination and cesser - Rule 26: Effect of cesser or termination
- RULES PART II – P&I cover
- Risks covered - Introduction
- Risks covered - Rule 27: Liabilities in respect of crew
- Risks covered - Rule 28: Liabilities in respect of passengers
- Risks covered - Rule 29: Liability for other persons carried on board
- Risks covered - Rule 30: Liability for persons not carried on board
- Risks covered - Rule 31: Diversion expenses
- Risks covered - Rule 32: Stowaways or Persons saved at Sea
- Risks covered - Rule 33: Life salvage
- Risks covered - Rule 34: Cargo liability
- Risks covered - Rule 35: Extra handling costs
- Risks covered - Rule 36: Collision with other ships
- Risks covered - Rule 37: Damage to fixed or floating objects
- Risks covered - Rule 38: Pollution
- Risks covered - Rule 39: Loss of or damage to property
- Risks covered - Rule 40: Liability for obstruction and wreck removal
- Risks covered - Rule 41: General average
- Risks covered - Rule 42: Salvage
- Risks covered - Rule 43: Towage
- Risks covered - Rule 44: Legal costs
- Risks covered - Rule 45: Enquiry expences
- Risks covered - Rule 46: Measures to avert or minimise loss
- Risks covered - Rule 47: Fines
- Risks covered - Rule 48: Disinfection and quarantine expenses
- Risks covered - Rule 49: Confiscation of the Ship
- Risks covered - Rule 50: Damage to Member’s own property
- Limitations etc. on P&I cover - Introduction
- Limitations etc. on P&I cover - Rule 51: General limitation of liability
- Limitations etc. on P&I cover - Rule 51B: Limitations – Limitation and payment of Overspill Claims
- Limitations etc. on P&I cover - Rule 52: Limitations for charterers and Consortium Vessels
- Limitations etc. on P&I cover - Rule 53: Limitations – oil pollution, passengers and seamen
- Limitations etc. on P&I cover - Rule 54: Amounts saved by the Member
- Limitations etc. on P&I cover - Rule 55: Terms of contract
- Limitations etc. on P&I cover - Rule 56: Non-marine personnel
- Limitations etc. on P&I cover - Rule 57: Liability occurring during through transports
- Limitations etc. on P&I cover - Rule 58: War risks
- Limitations etc. on P&I cover - Rule 59: Specialist operations
- Limitations etc. on P&I cover - Rule 60: Drilling, production vessels, barges and heavy lift vessels
- Limitations etc. on P&I cover - Rule 61: Submarines, diving bells remotely operated underwater vehicles and divers
- Limitations etc. on P&I cover - Rule 62: Waste incineration, disposal operations and landfills
- Limitations etc. on P&I cover - Rule 63: Excluded losses
- RULES PART III – Rules for mobile offshore units
- Rule 64: Terms of cover
- RULES PART IV – Defence cover
- Risks covered - Rule 65: Cases pertaining to the operation of the Ship
- Risks covered - Rule 66: Cases pertaining to acquisition or disposal of the Ship
- Limitations etc. on Defence cover - Rule 67: Excluded costs
- Limitations etc. on Defence cover - Rule 68: Disputes with the Association and other Members – Unpaid sums
- Limitations etc. on Defence cover - Rule 69: The Association’s right to control and direct the handling of a case – withdrawal of cover
- Limitations etc. on Defence cover - Rule 70: Limitation
- RULES PART V – General limitations etc. on P&I and Defence cover
- Rule 71: Other insurance
- Rule 72: Conduct of a Member
- Rule 73: Nuclear perils
- Rule 74: Unlawful trades etc.
- Rule 75: Part Tonnage
- Rule 76: Deductibles
- Rule 77: Administrative costs, insolvency and sanctions etc.
- RULES PART VI – Miscellaneous provisions
- Joint Members, Co-assureds and Affiliates - Rule 78: Cover for Co-assureds and Affiliates
- Joint Members, Co-assureds and Affiliates - Rule 79: Joint Members, Co-assureds, Affiliates and Fleet Entries
- Claims etc. - Rule 80: Time of occurrence
- Claims etc. - Rule 81: Time bar
- Claims etc. - Rule 82: Obligations with respect to claims
- Claims etc. - Rule 83: Exclusion of liability
- Claims etc. - Rule 84: Recoveries from third parties
- Claims etc. - Rule 85: Discharge
- Claims etc. - Rule 86: Currency of payments
- Claims etc. - Rule 87: Payment first by Member
- Claims etc. - Rule 88: Payments and undertakings to third parties
- Assignment, law, arbitration and amendments to Rules - Rule 89: Assignment
- Assignment, law, arbitration and amendments to Rules - Rule 90: Governing law
- Assignment, law, arbitration and amendments to Rules - Rule 91: Arbitration
- Assignment, law, arbitration and amendments to Rules - Rule 92: Amendments to the Rules
- Appendix I Additional insurances
- Appendix II Charterers limits including special limit for Consortium Claims
- Appendix III Oil pollution
- Appendix IV Passengers and seamen
- Appendix V Deductibles
- Appendix VI Rules on Overspill Claims and Overspill Calls and related matters
- Appendix VII Particular clauses
- Additional covers
- Additional covers
Risks covered - Rule 34: Cargo liability
Rule 34 Cargo liability
1 The Association shall cover the following liabilities when and to the extent that they relate to cargo intended to be or being or having been carried on the Ship:
a liability for loss, shortage, damage or other responsibility arising out of any breach by the Member, or by any person for whose acts, neglect or default he may be legally liable, of his obligation properly to load, handle, stow, carry, keep, care for, discharge or deliver the cargo or out of unseaworthiness or unfitness of the Ship;
b liability for loss, shortage, damage or other responsibility in respect of cargo carried by a means of transport other than the Ship, when the liability arises under a through or transhipment Bill of Lading, or other form of contract, providing for carriage partly to be performed by the Ship,
provided that unless and to the extent that the Association in its discretion shall otherwise decide, the cover under this Rule 34.1 does not include:
i liabilities, costs and expenses arising out of delivery of cargo under a negotiable Bill of Lading (including an electronic bill of lading) without production (or the equivalent thereof in the case of an electronic bill of lading) of that Bill of Lading by the person to whom delivery is made except where cargo has been carried on the Ship under either the terms of a non-negotiable Bill of Lading, waybill or other non-negotiable document, and has been properly delivered as required by that document, notwithstanding that the Member may be liable under the terms of a negotiable Bill of Lading issued by or on behalf of a party other than the Member providing for carriage in part upon the Ship and in part by another mode of transport or under the terms of the approved electronic trading system and has been properly delivered to the person so entitled in accordance therewith;
ii liabilities, costs and expenses arising out of delivery of cargo carried under a non-negotiable Bill of Lading, waybill or similar document without production of such document by the person to whom delivery is made, where such production is required by the express terms of that document or the law to which that document, or the contract of carriage contained in or evidenced by it, is subject, except where the member is required by any other law to which the Member is subject to deliver, or relinquish custody or control of, the cargo, without production of such document;
iii liabilities, costs and expenses which would not have been incurred by the Member if the cargo had been carried on terms no less favourable to the Member than those laid down under the Hague or Hague-Visby Rules, save where the contract of carriage is on terms less favourable to the Member solely because of the relevant terms of carriage being of mandatory application;
iv liabilities, costs and expenses arising out of the discharge of cargo at a port or place other than that stipulated in the contract of carriage;
v liabilities, costs and expenses arising out of the failure to arrive or late arrival of the Ship at port of loading or the failure to load any particular cargo or cargoes in the Ship, other than liabilities, costs and expenses arising under a Bill of Lading already issued;
vi liability arising out of carriage under an ad valorem Bill of Lading where a value of more than USD 2,500 (or the equivalent in any other currency) per unit, piece or package is declared and in the case of Bills of Lading subject to the Hague or Hague-Visby Rules where a value of more than USD 2,500 (or the equivalent in any other currency) per unit, piece or package is also inserted in the Bill of Lading, to the extent, in any such case, that such liabilities, costs and expenses exceed in the aggregate USD 2,500 (or the equivalent in any other currency) in respect of any unit, piece or package;
vii liabilities, costs and expenses arising out of the carriage of specie, bullion, precious or rare metals or stones, plate or other objects of a rare or precious nature, bank notes or other forms of currency, bonds or other negotiable instruments, whether the value is declared or not, unless the Association has been notified prior to any such carriage, and any directions made by the Association have been complied with;
viii liability for shortage arising from failure to discharge all cargo on board unless the Member can show that all reasonable and applicable discharge methods were attempted;
ix liabilities, costs and expenses arising out of the issue of an ante-dated or post-dated Bill of Lading, waybill or other document containing or evidencing the contract of carriage, that is to say a Bill of Lading, waybill or other document recording the loading or shipment or receipt for shipment on a date prior or subsequent to the date on which the cargo was in fact loaded, shipped or received as the case may be;
x liabilities, costs and expenses arising out of the issue of a Bill of Lading, waybill or other document containing or evidencing the contract of carriage, known by the Member or the Master to contain an incorrect description of the cargo or its quantity or its condition;
xi liabilities, costs and expenses arising out of a deviation or departure from the contractually agreed voyage or adventure which deprives the Member of the right to rely on defences or rights of limitation which would otherwise have been available to him.
Note: Additional cover in respect of deviation is available pursuant to Rule 2.2 - See Appendix I, paragraph 3.
2 The Association shall cover liability pursuant to compulsorily applicable rules of law for loss caused by delay in the carriage of cargo, provided that the Association shall in no circumstances cover liabilities, costs or expenses arising out of the failure to arrive or late arrival of the Ship at the port or place of loading.
For further commentary see Chapters 3 and 4 of the Gard Guidance on Maritime Claims and Insurance.
(A) Preliminary explanatory remarks
Ships exist primarily because of their ability to transport huge volumes of internationally traded goods over long distances in a safe and cost-effective manner. Apart from cruise and passenger ships, tugs and certain specialist craft, virtually all merchant ships are used to carry goods by sea. In this context the term ’goods’ includes all manner of products provided that they are the property of a third party to whom the carrier owes a duty of care in respect of them. Therefore, for example, ’goods’ do not include containers or equipment owned by, or leased to, the carrier, but includes containers owned by a third party (both loaded and empty).
The carrier’s principal obligations are: to present a seaworthy ship; to receive the cargo on board; to issue correct documentation to the shipper for the cargo received; to carry the cargo in a timely fashion to the agreed destinations, and to deliver it undamaged in the correct quantity to the correct receivers. This is what happens most of the time, but not in all instances, which is why liability in respect of cargo is perhaps the most frequently incurred liability for shipowners and charterers, and why the cover for such liability is a cornerstone of P&I insurance.
A fundamental characteristic of the carriage of goods by sea is that the carrier’s liability is, in most instances determined by mandatory rules of law that implement international conventions such as the Hague1 and Hague-Visby2 Rules and in some instances the Hamburg3 Rules. These conventions have promoted the international uniformity of law and thereby enhanced the efficacy of international seaborne trade.4 A fourth international convention, the Rotterdam Rules,5 is currently awaiting acceptance by the international community but has not at the time that this publication goes to print gained a sufficient number of ratifications to come into force and does not, therefore, have binding international force.
There are several points of general application to be borne in mind when considering the Association’s cover for cargo liabilities:
i Cover is available for liabilities, losses, costs and expenses resulting from the loss of, shortage of or damage to cargo, as well as for ‘other responsibility’ arising as a result of the carriage of cargo on the Ship, which includes financial loss or damage suffered by a third party.
ii Cover is available for the Member’s liability arising as a result of any breach of the obligations that he has in respect of cargo under the contract of carriage, or in tort, or in bailment, or by virtue of the fact that the carrier is a ‘common carrier’.
iii Cover is available on the basis that the Member has acted as a prudent and responsible carrier. Cover is not available for liabilities etc., resulting from the imprudent, unreasonable or fraudulent conduct of the Member, or as a result of any similar conduct, which, in the opinion of the Association, would not be the conduct of a responsible Member.6
Intentional acts of the Member which may increase the risk of cargo damage/loss
Shippers and charterers will often instruct carriers to load, handle, stow, carry, keep, care for or discharge the cargo in a particular manner, particularly in the case of sensitive cargoes, which, on the face of it, may increase the risk of cargo damage/loss. For example, cargo interests may provide the Ship with carriage temperatures for perishable cargoes which are in fact wrong. Should the carriers rely on this information and maintain the temperature in accordance with the instructions given to them, the carriers ought to be able to defend a claim for cargo damage by reliance on “the act/omission of the shipper or owner of the goods” exception in Article IV Rule 2 (i) of the Hague/Hague-Visby Rules. However, if this defence fails and the carriers make a claim for reimbursement under the Rules, the master must be able to convince the Association that the reliance that he placed on the information given by the cargo interests was reasonable in all the circumstances
Carriers are often requested to undertake numerous acts in relation to the cargo which could increase the risk of cargo damage/loss. The following are examples:
a handling ‘dry’ cargo during precipitation;
b commingling or blending cargo, or adding dyes or additives to the cargo for cargo quality purposes, typically in relation to liquid bulk cargoes;
c stowing different grades of liquid bulk cargo otherwise than in accordance with the vessel’s natural segregation, or stowing different grades of dry bulk cargo in the same hold separated only by temporary separation material;
d in-transit fumigation, typically in the case of bulk grain cargoes;
e a particular ‘risky’ stowage method, e.g. California Block Stowage for steel.
It could be said that these operations put the Member at risk of contravening either Rule 72 which excludes liabilities costs and expenses for “acts intentionally done with knowledge that the performance will probably result in injury”, or Rule 74 which excludes liability where “the Ship...is employed in or on an...unsafe or unduly hazardous trade or voyage”. Furthermore, Rule 2 makes it clear that the Member is covered only in respect of liabilities, losses, costs and expenses which arise in direct connection with the operation of the Ship. Therefore, blending cargoes or adding dyes to cargo on board may well not be operations that are considered to be directly connected with the operation of the Ship as a cargo carrying vessel,7 whereas the fumigation of a cargo in transit is considered to comply with the provisions of Rule 2 since it is done for cargo preservation purposes during the carriage.
In many such cases, the attitude that the Association will take in relation to cover will be influenced by the degree of probability of cargo loss/damage that may result from the intentional act. For example, there is probably a low risk of damage if lumped iron ore which already contains a significant moisture content is loaded during rain, whereas the probability of such damage in the case of finished steel products is more real and substantial. Therefore, the Association will normally reserve its position in relation to cover when notified by Members that they have been requested to undertake deliberate or intentional acts, especially in the case of those acts which appear unreasonable or not in direct connection with the operation of the ship. Should the Member then decide to comply with the request, he does so in the knowledge that he may not be covered by the Association for any liability that arises as a result. In other words, the decision to comply with the request is a commercial decision for the Member. The Association may provide guidance on risk control and mitigation but that is done purely as a service to the Member and does not affect cover. Nevertheless, if the Association has reserved cover, then the extent to which the Member has followed such guidance will often be taken into account when the Association finally decides whether or not to confirm cover. The Association will also usually recommend that the Member should obtain an appropriate Letter of Indemnity (LOI) from the requesting party (often the charterer).8
iv The most common form of contract for the carriage of cargo is the bill of lading, but cargo may also be carried under other transportation contracts, such as charterparties, booking notes, contracts of affreightment and waybills. Cover is available for cargo liability arising under all such contracts provided that their terms have been accepted by the Association.9
v The Association, in common with other P&I clubs, makes cover available only for cargo liabilities arising under laws which are widely adopted internationally for the carriage of cargo. Therefore, cover for cargo liability is available only to the extent that the Member is or would have been liable under the provisions of the Hague or Hague-Visby Rules, or the Hamburg Rules where incorporated into the contract of carriage solely by operation of law. Additional liabilities assumed voluntarily by the Member under the contract of carriage are not covered unless and to the extent the Association exercises its discretion to cover such liabilities. However, it should be noted that a Member can obtain cover for some risks that are not covered under the Rules for P&I under the Comprehensive Carrier’s Liability Cover (CCC) that the Association can provide at an additional fixed premium.10 For example, the CCC cover protects the Member should carriage be performed on terms more onerous than the Hague-Visby Rules standard.
vi Cover is available for liabilities incurred as a result of a failure to perform the contract of carriage in a proper manner, but not for liabilities incurred as result of a total failure to perform. This is evident from the wording in 1a, i.e. liability “arising out of any breach…of his obligation properly to load, handle, stow” etc., or “out of unseaworthiness or unfitness of the ship”. Therefore, cover is available only for the manner of performance and not for a failure to perform at all.
(B) …when and to the extent that they relate to cargo intended to be or being or having been carried on the Ship… (Rule 34.1)
Period of responsibility
The Member may incur liability in respect of cargo, not only whilst the cargo is being carried on board, but also both before and after the cargo is on board the Ship, depending on the contractual obligations which the Member has assumed in respect of the cargo. This may depend, inter alia, on the type of cargo and trade. For example, in the liner container trade, carriers often assume more obligations than would normally be the case in the context of pure ocean carriage, e.g. in the case of the temporary storage of the cargo at a container terminal in the port pending shipment or pending delivery to the receiver after discharge. However, in the case of dry bulk cargo shipments such as grain, soybeans or iron ore, the carrier is unlikely to undertake more than the pure loading, carriage and discharging of the cargo, and may sometimes not even undertake the loading and/or discharging operations.
The Hague and Hague-Visby Rules apply compulsorily in most cases from the time that the cargo is attached to the ship’s equipment at the port of loading until it is released from the ship’s equipment at the port of discharge, i.e. tackle-to-tackle, and provide that the carrier must ”properly and carefully…care for... the goods” throughout that period. However, the laws of most countries also provide that the carrier must properly deliver the cargo to the person entitled to receive it even if this cannot take place until after discharge, and that the carrier must take proper care of the cargo until it is delivered. When the Hague and Hague-Visby Rules apply, the Rules provide that the carrier cannot give himself more protection than that to which he is entitled under the Rules during the ‘tackle-to-tackle’ period. However, if the carrier has agreed to keep the cargo in his custody before and/or after the ‘tackle-to-tackle’ period at the port of loading or discharge, the Rules do not prevent the carrier from minimising his liability during such ‘pre-tackle’ and ‘post-tackle’ periods. Therefore, most standard form bills of lading for port to port carriage usually include an express term that the carrier is not liable for loss of or damage to cargo before loading or after discharge. By way of contrast, the Hamburg Rules apply compulsorily throughout the period during which the cargo is in the carrier’s custody whether before, during or after carriage on the ship, and the carrier is obliged to comply with his obligations under the Hamburg Rules throughout such period.
Scope of cover
Notwithstanding the fact that the Hague or Hague-Visby Rules apply compulsorily only to the ’tackle to tackle’ stage, the Member may be legally liable for loss, shortage or damage, or may incur other responsibility in respect of the cargo, even when it has not yet been loaded on board the Ship, and/or even after it has been discharged from the Ship, and cover is available for such liability.
In the case of cargo which has not yet been loaded, cover will be available only if the cargo is intended to be carried on a Ship, i.e. pursuant to a legally binding commitment such as a booking note or a voyage charterparty, to load that cargo on a named Ship which is entered in the Association for P&I risks. Therefore, cover is not available for cargo which is lost or damaged at a time when it has not yet been allocated for shipment on a specific Ship albeit that the intention was to carry the cargo in due course on one of the Ships in the Member’s fleet. This is the case even if all the Ships in the fleet have been entered by the Member in the Association.
Cover is available for liabilities that arise as a result of events which occur whilst the cargo is awaiting shipment in port, or whilst awaiting delivery in port after discharge from the Ship, as a necessary and integral part of the contract of carriage. Such liabilities arise most commonly in the case of container bills of lading under which the carrier assumes responsibility for the cargo from the time that it arrives at the container receiving yard at the port of loading to the time that it is collected by the cargo interests from the container receiving yard at the port of discharge. However, pursuant to the overriding provisions of Rule 2.4, cover is available only to the extent that the liability etc., arises in direct connection with the operation of the Ship and not when the carrier is acting in some other capacity.11
(C) …liability for loss, shortage, damage or other responsibility… (Rule 34.1.a)
Cover is available for the Member’s legal liability for loss, shortage, damage etc. A legal liability is a legal obligation under the applicable law to compensate a third party for financial losses, whether adjudged by a court, or awarded by an arbitration tribunal or agreed by the parties with the approval of the Association.12 In most cases, the legal liability will arise by virtue of the terms of a contract of carriage and/or by mandatory rules of law. However, in certain circumstances, liability may arise in tort13 or as a result of the fact that the carrier is considered to be a ‘bailee’14 of the goods or a ‘common carrier’.15
Loss, shortage, damage, other responsibility
‘Loss’ means either a physical loss, i.e. the total destruction of the cargo as a result of incidents such as fire or sinking in deep waters, or damage which is beyond the possibility of economic repair or restoration or a pure financial loss, e.g. a reduction of on-sale value of the cargo due to changed market conditions.
‘Shortage’ means the delivery to the receiver of a quantity or weight of cargo or a number of packages/items which is less than that which is recorded in the bill of lading or other transport document. This may be because a certain amount of cargo has been lost and/or pilfered during the carriage but claims for shortage can also be made even when there is no ‘loss’ in the sense discussed in the previous paragraph. This can be due either (a) to the fact that the Ship has received less cargo than that which is recorded in the bills of lading or other transport documents, i.e. a short shipment, due, for example, to inaccurate calibration of port or terminal scales in the loading port causing the Ship to appear to have ‘lost’ cargo when, in reality, the cargo so ‘lost’ was never shipped, or (b) to the inherent nature of the cargo, e.g. weight or other loss in transit caused by the evaporation of inherent moisture in a cargo of grain, or the inability to pump all of an oil cargo ashore due to its inherent characteristics. In the case of (a), cover may be excluded if the master or Member knows that the quantity stated in the transport document is incorrect (see S below). However, in the case of (b), the carrier will usually have a defence to such liability under Article IV Rule 2 (m) of the Hague and Hague-Visby Rules and may not, therefore, have the need to make a claim on the Association.
’Damage’ means any kind of physical or chemical change16 to the cargo as described in the Bill of Lading or other transport document that has reduced its economic value and has therefore caused a financial loss to the receiver. In most cases, there will be no doubt that the cargo has suffered actual damage and that this has occurred whilst the cargo was in the carrier’s custody, but the carrier is sometimes held to be liable even when the cargo has not been damaged whilst in his custody if the receiver complains that the cargo received by him differs from that described in the contract or other cargo sale documentation. Typically this can occur with liquid cargoes that are shipped out of specification due to the fault of the shipper. One well-known case involved the shipment of kerosene which was found after discharge from the ship to have a yellowish colour despite the fact that its specification should be ‘water white’. It was further ascertained that the discolouration was caused by fuel oil but it was unclear whether the discoloration occurred during the refining process (i.e. a dispute arising under the cargo sale contract) or by contamination on the vessel. Alternatively, the carrier may also be unjustly held liable for damage that is in fact caused during the carriage by the inherent vice of the cargo, particularly sensitive cargoes such as bananas. In either case, the carrier should in principle normally be entitled to a defence under the provisions of Article IV Rule 2 (i), (m) or (q) of the Hague and Hague-Visby Rules and Article 5 of the Hamburg Rules; however, since liability ultimately depends in most cases on the law of the place where the claim is brought, this cannot be guaranteed.
Cover is also available under Rule 34.1 for the Member’s ‘other responsibility’ in respect of the carriage of cargo, such as a legal liability arising under the applicable law to compensate a third party claimant for loss of profit and other consequential loss. For example, damage may be caused during the course of carriage to a heavy transformer unit which is part of a hydro power plant. The Member may be liable to compensate the receiver not only for the cost of repairing the transformer and for the cost of inspections, transportation and tests, but also for consequential losses sustained as a result of the delayed start-up of the plant. The term ‘other responsibility’ would also include the Member’s liability to indemnify a contractual party, e.g. a charterer, in respect of liability incurred by that charterer to a third party for loss or damage arising from the Member’s breach. This includes claims for indemnity under the Inter-Club New York Produce Exchange (NYPE) Agreement which provides a relatively simple mechanism whereby liability for cargo claims arising under the New York Produce Exchange Form or Asbatime charterparties and/or contracts of carriage authorised under such charterparties, can be swiftly and fairly apportioned between owners and charterers.17
The phrase ’other responsibility’ is intended to be construed broadly since a Member may encounter a multitude of unforeseen cargo claims as a result of his failure to perform his cargo carrying responsibilities. In the event of a casualty, numerous claims can arise cover for which will need to be considered under ‘other responsibility’ because the claims may not concern any damage to the cargo. For example, a salvor who has been engaged to save the ship and cargo under a Lloyd’s Open Form (LOF) contract will typically wish to obtain separate security for his salvage remuneration from both ship and cargo interests, with each interest ultimately paying their share of that remuneration, proportional to the value of property saved. Cargo interests may then seek to recover their share from the shipowner, e.g. on grounds that the casualty was caused by the unseaworthiness of the Ship.
A casualty may also give rise to the need to discharge, tranship and forward the cargo on a substitute vessel. If this is arranged and paid for by charterers or cargo interests, and the cost exceeds the costs that would necessarily have been incurred during the period of repairs to the ship at the place of refuge, the costs will usually be excluded from general average.18 The cargo interests/charterer may then bring a claim against the vessel owner for such costs on the grounds that the casualty was caused by unseaworthiness. The Association would normally cover the Member’s legal liability in this regard despite the failure of the Member to perform the carriage since the additional cost does not form part of, and is separate from, the normal operational cost of the original transport obligation (which is not covered).
A further example of the broad construction that is normally afforded to the phrase ’other responsibility’ is that of the case in which cover was afforded for an owner Member against whom a claim had been brought by voyage charterers for breach of the voyage instructions to delay berthing that they were entitled to give pursuant to a standard charterparty term. Before such instructions were given, the master had accepted an invitation from the terminal to berth and commence loading operations. As a result, the loading was completed on 31 July and a bill of lading for the cargo was issued (as it should be) bearing that date. However, the early completion of loading and concurrent issuance of a bill of lading dated 31 July entitled the buyer of the cargo to pay the lower July purchase price rather than the higher purchase price that the shipper/seller wished to charge if the cargo had been loaded in accordance with their instructions in August. Consequently, the seller/shipper claimed the difference in the price from the voyage charterers on the basis that they were in breach of their contractual obligations to the shipper and the voyage charterers, in turn, claimed compensation from the vessel’s owners. The association was able to provide cover for their Member’s legal liability to the charterers since this had arisen in relation to their failure to properly load.
(D) …arising out of any breach by the Member, or by any person for whose acts, neglect or default he may be legally liable… (Rule 34.1.a)
Cover is available for the Member’s legal liability to cargo interests, whether arising as a result of his own breach of duty, or as a result of the acts, neglect or default of any other person for whose acts etc., the Member is legally liable under the applicable law. Such ‘other persons’ are, first and foremost, the servants of the Member, e.g. the master and Crew of the Ship, but the term also includes ship managers,19 agents and independent contractors who carry out functions in relation to the Ship and/or cargo, e.g. pilots, stevedores, mooring masters, harbour tugs or supercargoes. If the Member has assumed responsibility for cargo prior to loading or after discharge, the ‘other persons’ for whose acts etc., the Member may be liable, may also include agents and independent contractors who carry out functions in relation to the cargo ashore, e.g. terminal haulage workers, warehouse employees and even customs officers. However, Members are encouraged to include clauses that afford protection to third parties such as Himalaya Clause and Circular Indemnity Clauses in their contracts of carriage whenever possible.20 In some instances cargo interests may bring claims directly against such servants, agents or independent contractors rather than against the Member. For example, in some countries, ships’ agents are jointly and severally liable with their principals under local law for liabilities which would normally only attach to the principal. Furthermore, agents are sometimes enjoined in local legal proceedings as a means of establishing jurisdiction for the claim in the claimant’s own country. Subject to the terms of agency contract and the facts of each case, the Association will normally appoint a lawyer to jointly defend the agent and the principal (i.e. the Member). However, separate representation is usually arranged where the agent himself has been negligent (e.g. where the agent has issued a bill of lading on behalf of its principal containing an incorrect and unauthorised description of the goods (see also S)), or has acted outside his authority, since agents usually have their own insurance which may respond in those instances, or in the event that the principal is unable to meet its debts. Alternatively, should the Member be held liable for the agent’s negligence, the Member may be obliged to claim an indemnity from the agent.21
Cover is available for any liability that the Member has to indemnify the servant, agent or independent contractor in respect of liability incurred by them directly to the cargo interests, provided that the terms of the indemnity have been previously approved by the Association. However, the Member is expected to act as a prudent uninsured and to include wherever possible in contracts of carriage standard terms which are intended to protect servants, agents, independent contractors and other third parties against the danger of direct liability to cargo claimants such as Himalaya and Circular Indemnity Clauses.22
(E) …his obligation properly to load, handle, stow, carry, keep, care for, discharge or deliver the cargo… (Rule 34.1.a)
The Hague and Hague-Visby Rules require the carrier to properly and carefully load, stow, carry, keep, care for and discharge the cargo.23 ‘Properly’ and ‘carefully’ are relative terms. In most cases the carrier will be expected to do what a carrier having the knowledge and expertise of a reasonably competent carrier and exercising reasonable care at the time of carriage would have done in similar circumstances, e.g. would such a reasonably prudent carrier have stowed the cargo in a different manner, or would he have applied additional lashing equipment, or would he have ensured better segregation of the cargoes in order to eliminate the risk of commingling? The Association will not impose its own view of the Member’s conduct. If it is found that the Member is in breach of his obligations in this regard and is adjudged to be legally liable, cover is available subject to any other relevant restrictions on cover.
However, liabilities incurred in relation to these activities must be read subject to the provisions of Rule 2, i.e. they must be incurred in direct connection with operation of the ship. Therefore, if the Member undertakes additional obligations that are not in direct connection with the operation of the ship, such as agreeing to blend on board two different cargo products (typically liquid cargoes) in order to change cargo specifications and incurs liability because that should not have been done or was not done properly, cover will not respond.24
Although the Hague and Hague-Visby Rules25 do not expressly impose any responsibility on the carrier in relation to the delivery, as opposed to the mere discharge, of the cargo, the carrier is, nevertheless, normally also obliged under the contract of carriage to properly ‘deliver’ the cargo, i.e. he must ensure that the cargo receiver or his authorised representative obtains physical and legal custody of it. However, a distinction is drawn between delivery of cargo in an incorrect manner to the person that is entitled to receive the cargo (e.g. delivering the wrong quantity of cargo at different ports), and delivery to a party that is not entitled to take delivery of it. In the first case, cover is normally available for liability arising as a result of the failure of the Member to properly deliver the cargo in the correct manner whilst, in the second case, cover is not available pursuant to the provisions of Rule 34.1.i. See (I) below.
(F) …out of unseaworthiness or unfitness of the Ship… (Rule 34.1a)
The carrier is obliged under the Hague and Hague-Visby Rules to exercise due diligence to make the ship seaworthy before and at the commencement of the voyage.26 A ship may be unseaworthy not only because there is a physical defect to its hull or machinery, but also because it is improperly manned, or because the cargo is improperly stowed, or because the ship does not have the necessary documents and clearances to enable it to perform the required voyage. If the carrier is in breach of this obligation, he cannot under English law rely on the defences that would otherwise be available to him.
The term ‘unfitness’ has generally been used to refer to a particular aspect of unseaworthiness and relates to the condition or suitability of the ship’s cargo holds, cargo handling gear or other equipment or facilities that are required to receive and carry the cargo without damage, viewed in the light of the carrier’s transportation obligations. This requirement is often referred to as the ship’s cargoworthiness. For example, a ship which has defective cranes would not be considered fit for the carriage of a bulk cargo to a port that has no suitable cranes, but, unless the contract obliges the carrier to give use of the cranes, the ship would probably be considered fit if cranes are available in the discharge port and can be used effectively to unload the cargo. Similarly, a ship that is required to carry sugar in bulk in holds which have previously contained coal and which have not been adequately cleaned in the meantime would not be considered to be fit for the carriage of the sugar. Another example would be where a reefer ship is unable to maintain the temperatures that are required for the safe carriage of the cargo.
The Association will not impose its own view of whether the Ship is unseaworthy or unfit. If it is found that the Member is in breach of his obligation in this regard and is adjudged to be legally liable, cover is available under Rule 34.1.a subject to any other relevant restrictions on cover.
(G) …liability…in respect of cargo carried by a means of transport other than the Ship, when the liability arises under a through or transhipment Bill of Lading… (Rule 34.1.b)
Whereas Rule 34.1.a focuses on the Member’s liabilities to cargo arising in connection with the entered Ship, Rule 34.1.b applies when the Member incurs liabilities whilst the cargo is not in the care, custody and control of the Ship. Cover is available for liability arising as a result of the carriage of cargo by ‘a means of transport other than the Ship’ and is not restricted to carriage by other ships, i.e. transhipment. Cover is also available in the case of liabilities arising during the course of multi-modal transport where sea carriage is combined with road and/or rail and/or air carriage.
The Member may be liable under a through or transhipment Bill of Lading, or other form of contract, for loss of or damage to cargo that arises as a result of an incident which occurs when the cargo is not being carried on the Ship. A through Bill of Lading usually provides that the issuer of the Bill of Lading (the contractual carrier) undertakes as principal to deliver, or procure others to deliver, the cargo to the final destination. The contractual carrier is responsible for the performance of the entire carriage even for that part of the overall carriage which is actually performed by another carrier (i.e. the actual carrier for that particular segment of the overall carriage). Therefore, the contractual carrier may be liable for cargo loss or damage that occurs whilst the cargo is in the custody of the actual carrier. Such liability is usually determined under the particular transport convention or national law that would have applied compulsorily to the mode of transport during the course of which the cargo loss or damage occurred if a separate contract had been concluded merely for carriage on that leg.27 However, if the transportation stage at which the cargo loss or damage occurred cannot be determined, liability is usually determined by the general provisions of the through Bill of Lading.28
Under a combined transport Bill of Lading, the issuer of the Bill (the contractual carrier) is responsible as principal for only that part of the carriage, usually the sea leg, which he performs himself. The Hague and the Hague-Visby Rules, and in more limited circumstances, the Hamburg Rules, permit the contractual carrier to exclude liability for loss, damage or delay occurring during a stage of the total transport that he does not perform himself and, in such circumstances, he is deemed to act only as an agent for the cargo interests in relation to that part of the carriage which is performed by others, whether that part carriage is by sea or by other means of transport. The terms of the Bill of Lading normally make it clear which parts of the overall carriage are to be performed by the carrier himself and which parts are being arranged by the carrier for and on behalf of the merchant and without any assumption of responsibility on the part of the contractual carrier for events that occur during that particular carriage leg. The carriers that perform that particular carriage leg may, depending upon the terms of the combined transport Bill of Lading and the applicable law and jurisdiction, rely on the terms and conditions of their own bill of lading or other contract issued for the part carriage that they perform, or alternatively, on the terms of the combined transport Bill of Lading issued by the contractual carrier.
Cover is available for liability which arises as a result of through transport, multi-modal and similar transport arrangements even though such liability may not have arisen in direct connection with the operation of the Ship29 since such transport arrangements have become commonplace among a sufficiently large number of P&I club Members for the risk to be considered to be a mutual risk despite the fact that liabilities may be incurred that are not the result of maritime risks. Therefore, cover is available for the Member’s liability in such circumstances, if:
i the cargo liability arises under a through or transhipment Bill of Lading or other form of contract which provides for part of the carriage to be performed by an entered Ship; and
ii the transport is performed under a form of contract approved by the Association. Whilst many liner operators use their own bill of lading forms, the terms of the majority of such bills are today fairly standard and acceptable to the Association; nevertheless, contractual terms can vary considerably and approval may depend on the exact terms and the circumstances of a particular trade;30 and
iii the cargo liability must arise as a result of an event which occurs during the course of the performance of the (through or transhipment) contract of carriage.
However, cover is not available for liabilities that arise as a result of services provided by the Member that may be ancillary to, but not an integral part of, his obligations under such transport arrangements. For example, cover is not available in respect of liabilities that arise as a result of the storage of cargo in a warehouse that is not deemed to be a natural and integral part of the overall contract of carriage of the cargo. Members are advised to consult the Association about such services in order to clarify in advance the scope of available P&I cover and to see whether there is any need for additional cover.
(H) …provided that unless and to the extent the Association in its discretion shall otherwise decide, the cover under this Rule 34.1 does not include… (Rule 34.1) NB. In many of the following instances, the Member may be able to obtain cover for claims that are excluded under Rule 34.1 pursuant to the separate Carrier’s Comprehensive Liability Cover that is provided by the Association on a fixed premium basis. For more details see the Additional Covers section of the Guidance and http://www.gard.no/Content/67474/ComprehensiveCarriersCover2019.pdf
Various liabilities are excluded from cover unless the Association exercises discretion to decide otherwise. The rationale that underpins the need for such exclusions is that the Association is a mutual insurer the Members of which agree to share risks which commonly arise as a result of negligence or similar conduct that can be expected to occur notwithstanding the exercise of due diligence and good seafaring practise. However, it is not considered to be within the spirit or intention of mutual insurance to oblige Members to bear liabilities (often very heavy liabilities) that may be incurred by other Members that conduct their affairs in a more risky fashion, particularly when such conduct is the result of intentional or deliberate acts, the result of which may be to deprive that Member of the defences that would otherwise be available to him to refute claims and, thereby, prejudice the interests of the other Members.
However, in some instances, a Member may find that he has incurred a liability for which cover is excluded but which has been incurred in circumstances which could not have been avoided even though due diligence has been exercised. In such circumstances, the spirit of mutuality may not be considered to be contravened and the Board of Directors of the Association is given discretion to decide whether to reimburse a Member for a liability which is otherwise excluded under the Rules31 and, if so, to decide the level of such reimbursement. The issue will normally be considered initially at a senior level by the managers of the Association before it is referred to the Board. Consequently, the Board of Directors will not be required to consider the exercise of their discretion to allow cover unless and until the managers have concluded that one of the express exclusions is applicable to the Member’s particular claim for compensation.
(I) …delivery of cargo under a negotiable Bill of Lading (including an electronic bill of lading) without production (or the equivalent thereof in the case of an electronic bill of lading) of that Bill of Lading by the person to whom delivery is made… (Rule 34.1 proviso i)
A negotiable Bill of Lading32 is a document which is made out either ‘to the order of’ a named party or generally ‘to order’. It is the words ‘to order’ which indicate that the Bill of Lading is transferable, usually by endorsement, from one party to another during the course of the voyage. Such a Bill of Lading is issued by the carrier or his agents to a shipper in return for delivery of the cargo to the Ship or into the carrier’s care for subsequent loading onto a ship. Such a Bill of Lading has three main functions:
a it is a receipt for the goods delivered to the Ship for carriage;
b it is a document of title to those goods in the sense that only the holder of the original Bill of Lading has a right to claim delivery of the goods at the agreed destination; and
c it is evidence of the contract of carriage for the goods.
Bills of Lading are normally prepared in sets of three originals which, after signature by the master, the ship’s agent or the charterer’s representative if so authorised, are returned to the shipper or his agent. Copies of the original negotiable Bills marked ‘Non-Negotiable Copies’ are sometimes also produced for the benefit of the master and other interested parties to serve as information of the contents of the Bills. These copies marked ‘Non-negotiable’, which should be distinguished from non-negotiable bills of lading which are discussed below under (J), do not, unlike the original negotiable Bills, have the character of documents of title and, accordingly, do not have to be surrendered to the Ship in order to obtain the delivery of the cargo.
The fact that the original Bill of Lading is a negotiable document of title enables the shipper to transfer the title to the goods to another party by transferring the Bill of Lading to that party against payment. This is often done through the medium of bank letters of credit which ensure that the seller/shipper is paid by the bank after having endorsed and transferred the Bill of Lading to the bank, and that the buyer/ receiver will not become a holder of the Bill of Lading until he has paid his bank or provided the bank with acceptable security. In similar fashion, the buyer may sell on or assign the cargo to a third party and transfer the Bill of Lading to that third party by endorsement. Some cargoes, in particular those in the oil trade, may be sold in this way several times during a voyage.
Since the Bill of Lading is a transferable document of title, the carrier must deliver the cargo only to the party who is (a) either the consignee named in the Bill of Lading or the endorsee of the Bill pursuant to the endorsements recorded on the back of the Bill, and who is (b) able to present the relevant original Bill of Lading to him, since possession of the Bill of Lading in such circumstances is implicit proof that the party demanding delivery is the party (and the only party) entitled to take delivery of the cargo. This is so even if the party who is seeking delivery, but who cannot present the original Bill of Lading, does present evidence of his identity which corresponds with the name of the ‘consignee’ recorded on the Bill of Lading that has been issued. The reason for this is that Bills of Lading issued ‘to the order of’ named parties can be transferred by those parties to other parties. Therefore, to ensure that this has not occurred, the carrier should also require surrender of the original negotiable document of title, i.e. the Bill of Lading. It follows that there are considerable risks involved in the delivery of cargo without production of the original Bill(s) of Lading to the person requesting such delivery. In such circumstances, the carrier has no proof that that person is entitled to receive the cargo.
This rule can sometimes place the shipowner in a difficult situation in circumstances which are not within his control. For example, problems can often arise in countries where the local law or local circumstances require the shipowner to deliver the cargo into the custody of a shore-based licensed customs warehouseman or similar entity who is then authorised to deliver the cargo to the person who produces the original negotiable Bills of Lading to them. It should be clearly understood that if the warehouseman were to release the cargo without obtaining the surrender of the original Bills to someone who was not in possession of the original Bills, the shipowner may be liable for a misdelivery of the cargo since the warehouseman will have been acting as the agent of the shipowner in so doing.
In one case, the master was persuaded to deliver the cargo against an expertly produced counterfeit Bill of Lading which could not have been identified as such notwithstanding all reasonable attempts to do so. Nevertheless, the shipowner was found liable to the party that held the (true) original Bills of Lading since the English court decided that it had no choice in such circumstances but to choose between two innocent parties who had both been defrauded (i.e. the shipowner and the holder of the original Bills) and must implement the fundamental rule that the shipowner is liable if delivery has been given without surrender of the original negotiable Bills of Lading.
It is because of cases such as these that the Rules give the Board of Directors the discretion to confirm cover in appropriate circumstances.
There may be various reasons why the original Bill of Lading cannot usually be produced. The Bill of Lading can often be ‘held up’ in the banking system or, due to the fact that the sale of the cargo has fallen through, the shipper may have retained the original Bills of Lading or negotiated them to a substitute buyer. Finally, there is also the risk that the request to deliver the cargo without surrender of the original Bills is being made deliberately in order to defraud the rightful cargo receiver. However, whatever the reason for the unavailability of the Bill(s), a carrier who delivers cargo without requiring the surrender to him of the original Bill(s) of Lading does so at considerable risk.
For historical reasons Bills of Lading are often issued in sets of (usually) three, i.e. there are three original negotiable copies of each Bill. In such circumstances, each original negotiable copy of the Bills is itself a document of title giving rise to the possibility that each of the original copies could be negotiated to different parties, each of which could therefore be in a position to demand delivery of the cargo from the Ship. The traditional rule is that the carrier is entitled to deliver the cargo to the party who presents one of the original Bills of Lading to him unless he is put on reasonable suspicion that the other originals are being held by some other party. If there are grounds for such reasonable suspicion, the carrier should check the position with the shipper and request surrender of all originals of the Bill of Lading. If no satisfactory explanation is provided, it may be necessary in some instances to apply to a court to determine who is entitled to receive the cargo.
If the Bills of Lading are lost or stolen the applicable law may allow a term to be implied to the effect that the master must deliver cargo without production of an original Bill of Lading in circumstances where it is proved to his reasonable satisfaction that the Bills of Lading are not being held by, or to the order of, another party and that the person seeking delivery of the goods is entitled to possession and the Bills of lading. However, it is seldom the case that the evidence is so clear and comprehensive that the master can be satisfied that there are no hidden dangers. Consequently, the safest course of action would usually be to apply to the relevant court and ask the court to order delivery of the cargo on terms set by the court. However, even if a court were to order delivery to be made without production of the original Bills of Lading, cover is still excluded under Rule 34.1.b.i subject to the exercise of discretion by the Board of Directors to allow cover. In considering the exercise of such discretion the Board is likely to wish to consider all relevant circumstances, such as whether the Member ought reasonably to have challenged the court’s decision and/or should have taken additional steps to reduce the risk of misdelivery. In practice, one would expect the Member to work closely with the Association in order to obtain the appropriate legal advice, the cost of which would be for the Member’s account in the first instance, unless the Member were to have Defence cover.
As a result of the difficulties which are often incurred in ensuring that the original Bill(s) are available at the port of discharge on arrival of the Ship, the carrier may be asked by the shipper to retain on board one original Bill of Lading out of the set of three which has been issued at the load port, and to deliver that original Bill to a party notified by the shipper, who then surrenders it to the master and demands the delivery of the cargo against surrender of that original Bill. However, this practise is not recommended as it may cause wrongful delivery of the cargo and cover is not available for liabilities arising as a result of wrongful delivery in such circumstances.33 The liability that the carrier may incur as a result of the wrongful delivery of cargo can be very substantial. It is usually for the whole value of the cargo (which may exceed the value of the Ship) plus interest and costs. The carrier will also usually be unable to rely on any contractual defences or exclusions in the contract of carriage and may lose his right to limit liability.
Electronic bills of lading
The delivery problems described above have arisen because of the paper nature of the traditional bill of lading and the need to produce the paper bill in order to obtain delivery of the cargo. Therefore, in recent years, attempts have been made to try and avoid the difficulty by replacing the paper bill by an electronic equivalent which has come to be known as the electronic bill of lading. An electronic bill of lading is intended to be the legal and functional equivalent of a paper bill of lading. An electronic bill of lading must, therefore, replicate the core functions of a paper bill of lading, namely its functions as a receipt, as evidence of or containing the contract of carriage and as a document of title. As to the use of electronic trading systems in general, reference is made to Rule 63.1. j and the corresponding explanatory notes below.
Proviso i to Rule 34.1 is intended to ensure that the cover that is available under Rule 34 is commensurate whether the cargo is delivered under a paper bill of lading or an electronic bill of lading. Therefore, it is necessary to determine what in the case of an electronic bill of lading would be the equivalent of the production of a paper bill of lading. This will depend upon the terms of the particular electronic trading system that is being used. For example, the Bolero Rules contain detailed provisions governing delivery of cargo carried under an electronic bill of lading issued pursuant to the Bolero trading system.34
Letters of Indemnity (LOI)
When the original Bills of Lading are unavailable at the port of discharge the carrier is often requested to deliver the cargo against the offer of a letter of indemnity, e.g. from the person requesting such delivery and/or from the charterer, which is intended to protect the carrier against any liability which the carrier may face by reason of delivery of the cargo without production of original Bills of Lading.35 However, it should be clearly understood that where delivery is given without surrender of the original Bills of Lading against a letter of indemnity, cover is excluded even if the letter of indemnity is in a form which has been suggested by the Association. The Association and the other P&I clubs that are members of the International Group of P&I Clubs have jointly produced draft forms of LOI (Forms A and AA) which Members may consider to use in such situations. However, the suggestion of any particular form is made by the Association purely as a service to the Member and it must be clearly understood that the acceptance of a letter of indemnity is a commercial decision for the individual Member in the particular circumstances.36 The letter of indemnity is intended to be alternative protection for the Member in view of the fact that P&I cover has been excluded. Therefore, when considering whether to accept such a letter of indemnity, the Member should carefully assess the risks involved, e.g. the risk that the provider of the letter may not be able or willing to honour it, and if not honoured, the risk that it may not be enforceable. The Member should also be aware that the wording of the letter of indemnity may be crucial in that it may be necessary to enforce such terms quickly and with the minimum of complication. The English court has proved ready to do so in most cases unless there is evidence that the LOI has been given in order to assist in the committal of a fraud or an illegal act, which is why most forms of LOI including Forms A and AA are subject to English law and the jurisdiction of the English court.
(J) …except where cargo has been carried on the Ship under the terms of a non-negotiable Bill of Lading, waybill or other non-negotiable document, and has been properly delivered as required by that document… (Rule 34.1 proviso i)
The Guidance to this provision of the Rules should be read in conjunction with the commentary in (L) below.
Non-negotiable bills of lading, waybills and other non-negotiable sea transport documents are often used when there is no intention to sell the cargo in transit. They are often used in coastal and short sea trades where the duration of carriage is short and the use of negotiable documents would be likely to cause delay to the delivery of the cargo. They are also frequently used in trades where the shipper and consignee are associated or affiliated companies, or otherwise closely connected, e.g. an offshore oil production company (shipper) and a refinery (receiver) which are both subsidiaries of the same oil major. Finally, non-negotiable sea transport documents are often used in relation to cargoes carried on feeder vessels, which perform only one leg of a multi-modal or through transport arrangement for which a negotiable Bill of Lading has been issued.
Non-negotiable sea transport documents are receipts for the cargo shipped on board and also represent evidence of a contract of carriage for a particular cargo on a particular ship. However, unlike negotiable Bills of Lading, they are not negotiable documents of title and, therefore, the carrier does not need to demand that the consignee should surrender the original document in order to obtain the delivery of the cargo. On the contrary, proper delivery can be made without presentation and surrender of the original non-negotiable document to the named consignee. Indeed, most standard form sea waybills expressly provide that delivery can be made without production of an original waybill but on production of proof of identity. Alternatively, if the shipper has, after issuance of the non-negotiable sea transport document, nominated a recipient which is different from the consignee originally named in the document and has informed the carrier of the change, the carrier is entitled to deliver the cargo to that newly identified recipient unless delivery has already been requested by a properly authorised representative of the consignee originally named in the document, in which case the carrier is obliged to seek further clarification from the shipper. Most standard form sea waybills are made subject to the Uniform Rules for Sea Waybills of the Comite Maritime International (CMI), which include an option for the shipper to transfer the right of control to the consignee through a statement on the face of the waybill. However, to ensure that delivery has been made to the proper person, the person claiming delivery should be asked to submit adequate proof of identity and authorisation from the named consignee or any other person nominated by the shipper.37
The requirements of US law need special consideration. Under US law, the obligations of a carrier to deliver cargo that is carried under a non-negotiable bill of lading depends on whether the bill has been issued in or outside the USA. Bills that have been issued in the USA are compulsorily subject to the Federal Bills of Lading Act (the Pomorene Act) whilst bills that have been issued outside the USA are subject to the general maritime law of the USA. The Pomorene Act stipulates that if a bill of lading is to be treated as a non-negotiable bill it must be marked as such. If it is so marked, there is no obligation to deliver the cargo against production of the bill but it is, nevertheless, highly recommended that this is done. However, if the bill provides expressly that delivery should be given only against surrender of such a bill, then this must be done. For non-negotiable bills that have been issued outside the USA, the general maritime law of the USA provides that cargo shall be delivered in accordance with the requirements of whatever law that is to govern the bill.
The risk of wrongful delivery under a non-negotiable sea transport document is generally much less than that of wrongful delivery under a negotiable Bill of Lading, particularly if the carriage to which the document applies is not part of a through transport operation, because possession of the document does not by itself give any right to claim delivery of the cargo. However, if cargo carried under a non-negotiable sea transport document is delivered to the wrong party despite the fact that the carrier has taken all reasonable measures38 to deliver the cargo as required by that document, and the carrier nevertheless incurs a legal liability for wrongful delivery, cover is available in respect of such liability subject to any other relevant restrictions on cover.
(K) ...notwithstanding that the Member may be liable under the terms of a negotiable Bill of Lading issued by or on behalf of a party other than the Member providing for carriage in part upon the Ship and in part by another mode of transport…
If the carrier of cargo carried under a non-negotiable sea transport document has performed part of a through transport operation, and is held liable for wrongful delivery under a negotiable through transport Bill of Lading issued by another party, e.g. a non-vessel operating common carrier (NVOCC), cover is available in respect of such liability provided that the carrier can demonstrate that he delivered the cargo properly as required by the non-negotiable sea transport document.39 For example, a freight forwarder, being a typical NVOCC, will often issue his own bill of lading to a cargo interest for door to door carriage. However, the Member may only be responsible for performing the sea leg and may, therefore, issue a non-negotiable document to the freight forwarder for that leg, in which document the freight forwarder has requested delivery to be made to a specifically identified consignee. Provided that the Member properly delivers the cargo to that consignee (who may not be the party entitled to delivery of the cargo under the freight forwarder’s own bill of lading), cover will be available even if the Member faces liability for wrongful delivery under the freight forwarder’s bill.
Cover is also available for an owner of a feeder vessel who has issued a non-negotiable bill of lading or waybill to, for example, a liner operator, in respect of liabilities incurred by the owner of the feeder vessel for the improper delivery of cargo under the liner operator’s negotiable bill of lading. Provided that the Member can demonstrate that he delivered the cargo properly as required by the non-negotiable sea transport document, cover is available even if no other stage of the combined transport involves sea carriage. Should a Member enter into a contact to carry cargo with a party that is not in fact the party that has a proprietary interest in the cargo, exposure to misdelivery claims can best be controlled by not naming the agents of the freight forwarder or liner operator as the shippers and consignees at the respective load and discharge ports.40
(L) …delivery of cargo carried under a non-negotiable bill of lading, waybill or similar document without production of such document by the person to whom delivery is made, where such production is required by the express terms of that document or the law to which that document, or the contract of carriage contained in or evidenced by it, is subject, except where the member is required by any other law to which the Member is subject, to deliver, or relinquish custody or control of, the cargo, without production of such document. (Rule 34.1 proviso ii)
The Guidance to this provision of the Rules should be read in conjunction with the commentary in (J) above.
Proviso ii to Rule 34.1 was included in the Pooling Agreement and the Rules in the light of a succession of court decisions relating to the nature of straight bills of lading and the duties of carriers in relation to the delivery of cargo carried under such documents.
A straight bill of lading is one which is not made out ‘to the order of’ someone (e.g. ‘to the order of X’), but simply made out to a named party (e.g. ‘to X’). Under the laws of some countries such a bill of lading cannot be transferred or negotiated by X in favour of any other party in the same way as the traditional negotiable ‘to order’ Bill of Lading. Accordingly, it was believed for many years that a straight bill of lading should be considered as a form of non-negotiable sea transport document of the type discussed in (J) above and that the same principles should apply to it. In particular, it was considered that, so long as the master was provided with satisfactory evidence that the party demanding delivery of the cargo was the party identified in the straight bill of lading as the party to whom delivery was to be given, i.e. evidence that such party was indeed X, it was not necessary for that party to also produce the original straight bill of lading in order to obtain delivery of the cargo from the ship. However, in a series of cases41 the courts of some common law countries have concluded that a straight bill of lading should not be equated with the non-negotiable sea transport documents described in (J) and that it is necessary for the straight bill of lading to be surrendered to the ship before the master can safely give delivery of the cargo. In other words, it was held that for the purposes of the delivery of cargo, a straight bill of lading is no different from a negotiable ‘to order’ Bill of Lading.
Many standard forms of non-negotiable bills of lading include words such as: “in witness whereof the Master or Agent of the said Vessel has signed the number of Bills of Lading indicated below all of this tenor and date, any one of which being accomplished the others shall be void.” Therefore, where the document42 itself provides in such a way that it must be surrendered to the ship before delivery of the cargo can be given, or where the law which governs the contract of carriage provides that this must be done even if these words were not there, proviso ii to Rule 34.1 states that cover is not available43 for liabilities, costs and expenses which arise if cargo is delivered without production of such document contrary to such requirements unless the Member is, nevertheless, obliged under other applicable rules of law, e.g. pursuant to the local law at the port of discharge, to deliver the cargo without production of such a document.
For the position under US law see the commentary in (J) above.
(M) …the cargo had been or could have been carried on terms no less favourable to the Member than those laid down under the Hague or Hague-Visby Rules… (Rule 34.1 proviso iii)
It is important in the context of mutual insurance that Members should share only those liabilities to which the membership as a whole is put at risk and not liabilities which arise purely as a result of a particular contract or arrangement concluded by any individual Member. Members are expected and required to protect themselves against liability to the maximum extent permitted by the applicable law and proviso iii to Rule 34.1 is intended to implement this principle. The Hague and Hague-Visby Rules represent a natural ‘benchmark’ for liability in that they are widespread international conventions promoting uniformity of law.44
Consequently, cover is available only to the extent of the liability that a carrier would incur for a particular claim under the Hague or Hague-Visby Rules. For example, the Member may have agreed to carry new cars from Japan to Europe under a long term contract in which he has waived the right which is given to carriers under the Hague-Visby Rules to exempt their liability for cargo loss or damage caused by negligent navigation and/or the right to limit their liability according to the weight of each car. Alternatively, the carrier may have guaranteed that hatch covers will remain watertight throughout the voyage. In such circumstances, cover is not available in respect of any liability that is incurred as a result of the waiver of such rights or an increase of the carrier’s responsibilities, i.e. any liability that would have been avoided under the Hague-Visby Rules had the rights not been waived. However, cover is available for all liabilities that would have been incurred under the Hague- Visby Rules. This means that cover is available only for liabilities which are not exempted by the Hague-Visby Rules defences and only for the amount to which the carrier could have limited his liability pursuant to the Hague-Visby Rules, i.e. the package or weight limit. Any liability in excess of that limit is excluded from cover.45
Notwithstanding the above, cover is not excluded under proviso iii to Rule 34.1 for liability which would not have arisen under the Hague or Hague-Visby Rules if such liability cannot be avoided since it has arisen under other compulsorily applicable rules of law which govern such liability. For example, the Hamburg Rules apply compulsorily to all contracts of carriage by sea between two different countries if the port of loading or the port of discharge, as provided for in the contract of carriage, is located in a country which gives effect to the Hamburg Rules. Under the Hamburg Rules, the carrier46 is liable if the occurrence which causes the loss or damage to the goods or the delay in their delivery has taken place whilst the goods are in the custody of the carrier. The carrier can avoid liability only if he proves that he and all his servants and agents took all measures that could be reasonably required to avoid the occurrence and its consequences. Consequently, many of the specific exceptions or defences in favour of the carrier in the Hague and Hague-Visby Rules, such as the ‘negligent navigation or management of the ship’ defence, are not available to carriers under contracts of carriage which are subject to the Hamburg Rules.47 The Rules do not prevent Members trading to and from countries which give effect to the Hamburg Rules, and where, as a result of their doing so, the Hamburg Rules apply by operation of law, cover is available for cargo liability incurred under such Rules. However, cover is not available for liabilities which arise by virtue of the fact that the Member has accepted liabilities greater than those which apply under the Hague or Hague-Visby Rules by voluntarily agreeing to the incorporation of the Hamburg Rules into the contract of carriage in circumstances when those Rules would not otherwise apply compulsorily by operation of law. This may occur, for example, when a charterparty provides expressly that the Hamburg Rules are to apply to claims between owners and charterers under the charter, or where Bills of Lading incorporating the Hamburg Rules are issued in circumstances where the voyage otherwise has no connection with any country that has implemented the Hamburg Rules, or where the Member voluntarily accepts a jurisdiction clause under which disputes are to be referred to the courts of a country which gives effect to the Hamburg Rules. However, even if the carrier has incurred liability under the Hamburg Rules, cover is nonetheless available to the extent that the Member would have been liable under the Hague or Hague-Visby Rules regardless of the fact that his liability has in fact been assessed in accordance with the Hamburg Rules.
The same principles apply if more onerous liability than that which is imposed by the Hague-Visby Rules arises under any other compulsorily applicable rules of national law. For example, under Norwegian law, more onerous rules concerning liability, as well as higher limits of liability, apply in relation to domestic cargo voyages.
Finally, it is possible that the carrier is entitled in certain jurisdictions to rely on rights which are more favourable to him than those that are found in the Hague or Hague-Visby Rules. For example, the US Carriage of Goods by Sea Act 1936 (US COGSA) provides for a package limit of USD 500 per package or, if goods are not packaged, USD 500 per customary freight unit, which may, in some cases, be lower than the package limit that would otherwise have applied under the Hague or Hague-Visby Rules. Therefore, since cover is made available on the premise that the Member is given protection only against legal liabilities that cannot reasonably be avoided, Members are encouraged to draft their contracts of carriage in such a way that the Hague or Hague-Visby Rules apply to the maximum extent permitted, whilst at the same time enabling the carrier to rely on more beneficial terms to the extent that this is possible. However, the Association appreciates that it may be difficult to achieve this balance in all circumstances. Therefore, provided that reasonable efforts have been made to try to achieve this result, cover will not be denied if the Member incurs liabilities under the Hague or Hague-Visby Rules by virtue of the terms of the contract of carriage when less stringent liability would otherwise have been imposed under the local law.
Live animals and deck cargo
The Hague and Hague-Visby Rules do not apply to the carriage of live animals or to cargo which is both carried on deck and stated to be so carried on the Bill of Lading. In other words, the Hague or Hague-Visby Rules do not apply compulsorily only if both provisos are satisfied. Therefore, if goods are carried on deck but this is not recorded on the Bill of Lading, the Rules do apply. However, if both provisos are satisfied, then the principle of freedom of contract applies and Members are able to contract, and are encouraged to contract, on terms that exclude liability and make the merchant solely responsible for the risks of such carriage. This is particularly important in the case of heavy lift cargoes which are frequently carried on deck. However, in some trades this is simply not practicable. For example, containers on a purpose built containership may be carried on or under deck depending on cargo volumes and port rotations etc. Therefore, for example, the Bimco Heavyliftvoybill form is designed to apply the Rules when the cargo is carried under deck whilst excluding liability when goods are carried on deck.48 However, courts have a tendency to scrutinise the wording of deck cargo liberty clauses and exclusions closely and, in the event that the words are not clear, to construe them against the interests of the carrier. For example, the absence of an express reference to unseaworthiness in such an exclusion clause may mean that the clause is not deemed to be wide enough to exclude liability for unseaworthiness. Similarly, if the Bill of Lading does not state expressly which goods, or how much of the goods that have been shipped on board, have been stowed on deck, then such a statement may not be considered sufficient to exclude the applicability of the Hague or Hague-Visby Rules.
If cargo is carried on deck without the authority of the cargo interests, such carriage may constitute deviation under the contract of carriage, cover for liability arising as a result of which is excluded under Rule 34.1.xi (See (T) below). However, unless the carriage on deck is unauthorised, cover is normally available for liabilities that arise in relation to the carriage of deck cargo including heavy lift cargoes unless, in the latter case, liability arises in relation to a Ship which is a semi-submersible heavy lift vessel or a Ship which has been designed exclusively for the carriage of heavy lift cargo, in which cases, cover is not available pursuant to Rule 60.2 unless “the carriage is undertaken on contractual terms approved by the Association”.49 Cover is also available for liability arising in relation to the carriage of live animals. However, since the Hague and Hague-Visby Rules do not apply to the carriage of live animals with the result that the freedom of contract principle applies, the Association recommends that a clause similar to that below is inserted into the bills of lading:
“The carriage of live animals is at the sole risk of the merchant. The carrier and/or ship owner or ship shall be under no liability whatsoever for any injury, illness, death, delay or destruction to such live animals, howsoever arising. Should the Master in his sole discretion consider that any live animal is likely to be injurious to any other live animal or any person or property on board, or to cause the vessel to be delayed or impeded in the prosecution of its voyage, such live animal may be destroyed and properly disposed of without any liability attaching to the carrier and/or ship owner or ship. The merchant shall indemnify the carrier and/or shipowner or ship against all or any extra cost incurred for any reason whatsoever in connection with the carriage of any live animal. Notwithstanding the above, in the event that any court or tribunal determines that the carrier and/or ship owner or ship cannot exclude or limit its liability in the manner described above, the Hague-Visby Rules shall be deemed to apply to this carriage notwithstanding the definition of ‘goods’ set out in those Rules.”
Since the Member is expected to act as a prudent uninsured a failure to comply with such a recommendation may prejudice cover.
In-transit loss and Remaining on Board (ROB) clauses
Tanker voyage charters will often include clauses which make owners responsible for any difference between the vessel’s net standard cargo volumes as measured immediately after loading and before discharge (often 0.5 per cent as determined by a jointly appointed surveyor), and allow the charterers to deduct the value of such cargo from the freight.50 Such clauses are problematic for shipowners since the charterers do not need to prove for the purposes of the deduction from freight that the loss (if there really is one) has been caused by a breach of contract on the part of the shipowner. Furthermore, if there is a loss which can be attributed to a breach by the shipowner of a Bill of Lading that is held by a third party receiver, the shipowner may also be liable to pay damages to such receiver. This does not mean that there is a double recovery of damages since the amount that is deducted from the freight is not a deduction of damages – it is simply the result of the parties’ agreement that, in specified circumstances, less freight is payable. Therefore, the shipowner suffers a possible double jeopardy – he may face a claim in damages and also lose a proportion of the freight. Whilst cover is available for the Member’s liability to pay damages for cargo claims, cover is not available for deductions from freight.51 The Association recommends that shipowner Members should avoid such clauses wherever possible. However, should shipowners consider that they must agree to such clauses for commercial reasons, the Association recommends that shipowners should only agree to clauses that firstly, specify exactly the amount of in-transit loss for which owners are not responsible (e.g. up to 0.3 per cent) and secondly, that such clauses do not permit the charterer to deduct from freight a specified value of cargo which the vessel has been unable to remove from the vessel at the discharge port since, for example, it is unpumpable and/or beyond the reach of the vessel’s pumps. The Association also recommends that shipowner Members should use wherever possible clauses such as that which has been drafted by Intertanko which has more favourable wording and that ROB claims are accurately quantified and that samples are taken for possible analysis. It is also in the shipowner Members’ interests to monitor the fate of any alleged ROB quantity. For example, in many cases, the next cargo is simply loaded on top with the result that the next receiver obtains a windfall in that he receives more cargo than that for which he has paid. Therefore, the Member should try to insist that credit is given for the value of the ROB. Alternatively, it may be possible to sell the ROB and hold the proceeds against a claim.52
(N) …discharge of cargo at a port or place other than that stipulated in the contract of carriage… (Rule 34.1 proviso iv)
Under the contract of carriage, the carrier is obliged to discharge the cargo at one or more named discharge ports, or sometimes one or more ports within a geographical range. Should the contract provide for a range of possible discharge ports the cargo interests will be obliged in due course to nominate a specific port or ports out of the range, following which the contract is thereafter to be read as though it had always referred simply to that port or ports, and the cargo interests are not entitled (unless the contract provides otherwise) to change their minds and nominate another port or ports within the range.
Discharge of cargo at a port or place other than at a discharge port stipulated in the contract of carriage or one that has been nominated out of a range of discharge ports will, prima facie, constitute a breach of contract which may amount to an unreasonable deviation under the applicable law.53 However, other provisions of the contract of carriage may give the carrier the right to discharge the cargo at another port or place. For example, various ‘liberty’ or ‘Caspiana’ clauses may give the carrier such right if it becomes impossible or dangerous for the vessel to reach or stay at the contemplated port due to circumstances such as war, ice etc. In such circumstances, the ship is often entitled, pursuant to the terms of the contract, to discharge the cargo ‘or so near thereunto (i.e. to the named port) as she can safely get’ and the carrier is not in breach of contract if this is done.
The relevant contract of carriage for the purposes of this exclusion is the governing contract of carriage at the time that the cargo is discharged. Therefore, if the original set of Bills of Lading are switched during the voyage (i.e. surrendered to the carrier in exchange for substitute Bills of Lading which provide for discharge at a different port or place), which may occur if it becomes necessary for the cargo to be sold to someone other than the originally intended buyer, it is the substitute Bills that are relevant for these purposes.54 However, if new replacement Bills of Lading are not issued, but the Member enters into a side agreement with the holder of the original Bills to discharge at another place (which might happen, for example, if damaged cargo were to be taken elsewhere for salvage sale/disposal), any liability that the Member might incur as a result of that damage and salvage sale would not be liability that arose directly as a result of discharge at another port or place. The Member should, however, ensure that the on-carriage to the place of salvage sale/disposal is on terms that are no less favourable to the Member than those that are applicable under the Hague or Hague-Visby Rules (see L above) which can usually be achieved by agreeing to on-carry on the same terms as the existing Bill of Lading (assuming also subject to Hague or Hague-Visby Rules).
However, if the carrier agrees to discharge cargo at another port in circumstances other than those allowed by the contract, possibly in response to a request made by the charterers under a charterparty, then he runs the risk that such discharge is a breach of contract and that the voyage to the alternative port may constitute a deviation under the Bill of Lading, which may deprive the carrier of most or all of the Hague and Hague-Visby Rules defences or any other defences that apply to the Bill. In circumstances where no deviation risk exists, for example, where a bill of lading holder agrees to discharge at a different port or place, the exclusion still applies. This is because the agreement may not be in the interests of mutuality. For example, it may be convenient to discharge elsewhere because of port congestion, meaning that the cargo interests gets their cargo sooner and the vessel is free to perform other employment sooner. If, by virtue of such an arrangement, the carrier bears the cost of transporting the cargo, say by land, between the actual and contractual places of discharge, cover does not respond to that cost.
The exclusion also applies where cargo is discharged at another ‘place’ even if this is not a port. For example, if a Ship were to suffer a grounding incident and the Member were to decide to terminate the contract of carriage as he was of the opinion that he could no longer perform it, cover is not available for liability incurred by him to the owners of cargo that has been unloaded from the Ship onto barges and who have been requested to collect it ‘as is, where is’ against payment of earned freight if it is subsequently found that the Member was not entitled to terminate the voyage. In the latter event, the carrier is under a continuing obligation to carry the cargo to the intended destination and a failure by him to do so may well constitute a deviation under the contract of carriage. However, there may be many circumstances, other than a casualty, which necessitate discharge of cargo at a port or place other than that stipulated in the contract of carriage. In all such circumstances, cover is excluded for liabilities, costs and expenses arising from discharge at the other port or place subject to the Directors’ right to exercise their discretion to allow cover. Such a discretionary right is necessary to enable the Association to draw a distinction between situations that are influenced by the Member’s purely commercial interests and those that are more attuned to the mutual interests of the Membership as a whole. For example, there is an obvious difference between a ship that is deliberately discharged at a port other than the one nominated in the bill of lading in order to enable the vessel to meet a cancellation date under her next charter (in which case cover may be excluded pursuant to Rule 8) and a Ship that is discharged at such a port because of the Crew’s failure to properly understand and comply with the charterers’ employment instructions.
However, this exclusion is intended to apply when cargo is knowingly discharged at a port or place other than that stipulated in the contract of carriage and does not apply to liabilities arising from the accidental over-landing of cargo at another port or place which is one out of a number of ports/places where cargo is intended to be discharged on a given voyage. For example, this could occur if bulk cargoes are commingled in one hold/tank for receivers at different ports. In such circumstances, liability does not arise as a result of the discharge of cargo at a port or place other than that stipulated in the contract of carriage but arises as a result of the failure to properly deliver the contracted cargo quantity at the correct contract destination. Similarly, liability arising as a result of the accidental discharge of a containerised cargo at an intermediate port and which cannot, for some reason (e.g. customs regulations), be on-forwarded on a following service, would not fall foul of this exclusion.
A carrier who is requested to knowingly proceed to discharge cargo at a port other than that named in the Bill of Lading contrary to the terms of the Bill of Lading may be persuaded to do so provided that he is given a letter of indemnity from the charterer, cargo receiver or another third party, containing a promise to hold him harmless in respect of any liability that he may incur by so doing. However, it should be clearly understood that where cargo is delivered at a port other than that stipulated in the contract of carriage against such a letter of indemnity, cover is excluded even if the letter of indemnity is in a form which has been recommended by the Association. The Association and the other P&I clubs that are members of the International Group of P&I Clubs have jointly produced draft forms of LOI (Forms B and BB) which Members may consider using in such situations. However, the suggestion of any particular form is made by the Association purely as a service to the Member and it must be clearly understood that the acceptance of a letter of indemnity is a commercial decision for the individual Member in the particular circumstances. The letter of indemnity is intended to be alternative protection for the Member in view of the fact that P&I cover has been excluded. When considering whether to accept such a letter, the Member should carefully assess the risks involved, e.g. the risk that the provider of the letter may not be able or willing to honour it, and if not honoured, the risk that it may not be enforceable.55
(O) …the failure to arrive or late arrival of the Ship at port of loading or the failure to load any particular cargo or cargoes in the Ship, other than liabilities, costs and expenses arising under a Bill of Lading already issued… (Rule 34.1 proviso v)
If the carrier has agreed to present the Ship for the loading of a particular cargo by a specified date the late arrival (or non-arrival) of the Ship at the port or place of loading may cause delay in the carriage of the cargo, cancellation of the contract of carriage as well as damage to the cargo if there is no way to properly preserve it in good condition at the port or place of loading. The late arrival or non-arrival of the Ship will usually be caused by circumstances occurring during the prior engagement(s) of the Ship.
It is not considered to be within the spirit of mutuality that the membership as a whole should share such liability.56 Therefore, unless the Association decides otherwise by the exercise of its discretion, cover is excluded for liabilities arising as a result of the late arrival (or non-arrival) of the Ship at the port or place of loading. The exclusion applies even if the liability arises under compulsory provisions of the applicable law.
Liability for a failure to load cargo arises most frequently where too much cargo has been booked for the Ship with the result that some cargo has to be shut out, or where there is insufficient time to load all the cargo due to ice, tides or other restrictions affecting the loading. In such situations, the carrier may face claims from the owners of the cargo that has not been loaded. The Ship may also be unable to load some or all of her contracted cargo because of a defect in the Ship’s inert gas plant, cranes or other equipment. Consequently, rather than wait for the defects to be repaired, the charterers or cargo interests, who may be under pressure to proceed without further delay because of a potential shut-down of a manufacturing plant, or other demands from the cargo buyers, may decide to load what they can and instruct the vessel to sail under protest without having loaded the full contemplated cargo quantity and/or charter in a substitute vessel and/or divert cargo to another vessel. Claims are often made against the Ship in such circumstances and may include losses suffered by charterers who have been deprived of freight revenue. In all such cases, cover is excluded subject to the exercise of discretion to the contrary by the Directors of the Association.
The exclusion applies to “the failure to load any particular cargo or cargoes”. Therefore, if the vessel has loaded one cargo at one port and arrives late at a second port of loading, the charterers/cargo interests may claim for the costs that they have been obliged to incur as a result of making contingent arrangements for both the cargo that has already been loaded and for that which has yet to be loaded. Such liability is excluded under Rule 34.1 proviso v.
Cover is excluded for liabilities etc., incurred by the Member as a result of the failure to load cargo even if the circumstances that caused the failure were beyond the control of the Member, e.g. because the cargo is deemed to be unsafe. In such circumstances, the Member would normally have a defence to any claims that might be brought against him by charterers and cargo interests for failure to load the cargo and the costs of defending such a claim would typically be covered under the Defence cover. However, the Directors of the Association have a discretion to allow cover in appropriate circumstances and can do so even if the master’s decision to reject the cargo is subsequently proved to be wrong provided that the decision to do so is considered to have been reasonable in all the circumstances. This flexibility enables the Association to draw a distinction between situations that are influenced by the Member’s purely commercial interests and those that are more attuned to the mutual interests of the Membership as a whole.
(P) …liability arising out of carriage under an ad valorem Bill of Lading… (Rule 34.1 proviso vi)
The carrier is normally entitled to limit his liability under contracts of carriage governed by the Hague or Hague-Visby Rules and also the Hamburg Rules to a certain amount per package, unit or gross kilo of weight of cargo which has been damaged or lost, irrespective of the value of the cargo.
However, a shipper of valuable cargo may not wish to restrict his right of recovery to a sum which is less than the value of the cargo in the event of its loss or damage. In such circumstances, the shipper, with the agreement of the carrier, is entitled to avoid the package, unit or weight limitation by declaring the nature and value of the cargo before shipment and inserting it in the Bill of Lading. Such a Bill of Lading is known as an ‘ad valorem’ Bill of Lading and usually commands a higher rate of freight.
Consequently, the issue of an ‘ad valorem’ Bill of Lading increases the carrier’s potential legal liability above that prescribed by the Hague, Hague-Visby Rules and Hamburg Rules.57 The voluntary acceptance by the carrier of increased liability is not considered to be a mutual risk and cover is, accordingly, limited to the sum of USD 2,500, or the equivalent in other currencies, per unit, piece or package. The question of what is the relevant unit, piece or package for these purposes may not be straightforward and the Association should be consulted in case of doubt.
Shippers often require references to a letter of credit or invoice to be recorded on the face of the Bill of Lading in order to link the Bill to the other cargo documents that may be required under the cargo sale contract. The carrier is not obliged to do so and may incur a risk if he agrees to do so since such references may be deemed in some jurisdictions to be the equivalent of a declaration of value with the result that the Bill of Lading may be treated as though it were an ad valorem bill. The Association discourages the Members from allowing such references. However, should the member nevertheless agree to allow such references, the Association recommends that Members should include an appropriate remark on the face of the Bill such as the following:
“the reference to the letter of credit and/or the import license and/or invoice in this contract of carriage is included solely at the request of the merchant for his convenience and to meet his commercial requirements. The carrier does not warrant the accuracy of this information, which is not a declaration of value and in no way affects the carrier’s liability under this contract of carriage. The merchant acknowledges that the value of the goods is unknown to the carrier.”
(Q) …carriage of specie…bonds or other negotiable instruments… (Rule 34.1 proviso vii)
Article VI of the Hague and Hague-Visby Rules allow parties who wish to enter into a contract for the carriage of certain particularly valuable items that are not carried as ordinary commercial shipments in the usual course of trade to do so under a non-negotiable receipt on such terms as may be agreed. Therefore, it is open to the parties to either decrease or increase the liability of the carrier in respect of such shipments.
In view of the value of such special shipments and the potentially high degree of liability which may arise in the event that claims are made in respect of them, cover is available in respect of liabilities etc., arising in respect of such cargo, regardless of whether the value has been declared or not, only if the Association has been notified of the carriage prior to the carriage and the carrier has complied with any directions which have been made by the Association. Such directions may relate to the terms and conditions of the special agreement under which the cargo is shipped, the documentation to be used and the security measures to be taken to protect the cargo. Such matters must be negotiated with the shipper before the cargo is booked and the carrier becomes committed to carry it.
Such cargoes are more often than not carried in containers and, if the Association is to approve such carriage for the purposes of Rule 34.1 proviso vii, it is likely to require the Member to comply with the conditions such as the following:
1 Provision of evidence that the cargo is fully insured by a first class insurer with waiver of subrogation against owners, carrier, their managers, agents, servants, sub-contractors, and insurers;
2 The cargo is carried under a non-negotiable port to port receipt (waybill), with no declared value, along with a remark on its face along the lines ”excluding any and all liability for the cargo whatsoever and howsoever arising, whether from negligence, unseaworthiness or otherwise, and notwithstanding this any liability on the carrier is limited to USD 500 per container”;
3 The cargo is stowed and secured underdeck within a stack where container doors cannot be accessed (assuming this accords with the IMDG Code);
4 The employment of security guards;
5 A proper record is kept of joint inspections of the containers and seals whenever possible at loading and discharging places and/or ports and that a container weight check is also made;
6 Whatever extra precautions that are necessary and appropriate to ensure proper delivery.
(R) …shortage arising from failure to discharge all cargo on board unless the Member can show that all reasonable and applicable discharge methods were attempted… (Rule 34.1 proviso viii)
The carrier is obliged to discharge and deliver the quantity of cargo which has been loaded. For the reasons discussed in (C) above this may or may not be the quantity recorded on the Bill of Lading. However, whatever be the quantity loaded, it may be difficult to discharge all of it. This is a particular problem in the case of some oil cargoes, which, due to their inherent characteristics, tend to stick to the ship’s tanks and lines despite the best endeavours of the crew to pump off all remaining residues.58
Cover is not available for liabilities etc., arising as a result of the short delivery of cargo remaining on board (ROB quantities), unless the Member can demonstrate that all reasonable and applicable discharge methods have been attempted. Where a cargo cannot be discharged due to a breakdown of the Ship’s own pumps or other cargo gear, cover is not available unless the Member is able to prove that the Ship’s equipment could not have been repaired and that portable or shoreside discharging equipment could not have discharged the ROB quantities.
Similarly, cover is not available if discharge operations are ended for the benefit of the Member’s commercial interests, e.g. to enable the Ship to sail for her next employment, before all reasonable and applicable methods to discharge the ROB quantities have been attempted.
(S) …the issue of an ante-dated or post-dated Bill of Lading, waybill or other document containing or evidencing the contract of carriage… (Rule 34.1 proviso ix)
The Bill of Lading date is important in the context of contracts for the sale of the cargo as it will either establish whether the goods have been shipped within the agreed shipping period or it may establish the price which is to be paid for the goods. The relevant date should be the date on which the total quantity of cargo specified on the Bill of Lading has been loaded on the Ship (in the case of a shipped on board Bill) and the date on which it has been received by the carrier for shipment (in the case of a received for shipment Bill). In the case of multiple Bills evidencing the shipment or receipt for shipment of different parcels of cargo, each individual Bill should bear the date on which the particular parcel of Cargo identified on the Bill has been shipped or received as the case may be and not the date on which the last parcel was shipped or received at the port in question. The reason for this is that each Bill of Lading is a separate contract of carriage which requires the date of shipment or receipt of each parcel to be accurately recorded. Carriers will often come under pressure from charterers or shippers to agree that the relevant date is that when cargo hoses are disconnected or when hatch covers finally closed or that local practice provides that Bills of Lading should be dated the previous day if loading is completed before 0600 hours. However, the relevant dating principles are clear and, if Members wish to ensure that the Association is able to provide cover, they must ensure that Bills of Lading are accurately dated.
The shipment date or the received for shipment date may differ from the date on which the Bill was signed (i.e. issued). Therefore, to avoid confusion, some Bill of Lading forms such as the Congenbill 2007 provide for both the shipment date and the date of issuance of the bill to be recorded on the Bill.
A carrier may be liable in tort for any loss or damage arising as a result of the issue of a Bill of Lading which incorrectly records the date of loading, shipment or receipt for shipment. Furthermore, the issue of a falsely dated Bill of Lading also constitutes a fraud upon the person relying upon the date if the issuer of the Bill of Lading knew that the date was incorrect or was reckless in not ensuring that the correct date was recorded. For example, in one case, bills of lading were dated the 19 January, when a good proportion (but not all) of a crude cargo had been loaded. However, the court found that the bills should have been dated the 20 January when loading of the total cargo had been completed. The price of cargo sold under bills of lading dated the 19 January was USD 250,000 less than the value of the cargo had it been sold under bills dated the 20 January and the carriers were liable in damages for the difference in price.59 An ante-dated bill of lading indicates that the cargo has been loaded on board the ship at an earlier date than the true date of loading, e.g. on the 30 July instead of the true date, the 2 August. A post-dated bill of lading indicates that the cargo has been loaded on board the ship at a later date than the true date of loading, e.g. on the 31 August instead of the true date, the 25 August. Post-dated bills of lading are less common than ante-dated bills of lading, but, in either case, cover is not available for liability for loss arising out of the issue of such bills of lading. Furthermore, cover is excluded even if the incorrectly dated bill of lading has been issued by the Member’s agent without the Member’s knowledge.
Dating problems may also arise when cargoes are commingled or blended on board a Ship. After the commingling/blending has taken place the Bills of Lading for the cargo which had been loaded at a prior port are sometimes switched for, i.e. replaced by, new Bills of Lading which are intended to govern the carriage of the total cargo that has been loaded at the prior port and subsequently commingled/blended with other cargo at the subsequent port. There is a tendency to insert on such Bills of Lading the date on which the commingling/blending took place. However, unless the new replacement Bills of Lading also record the date on which the original cargo had been loaded at the prior port, the new Bills of Lading may be considered to be post-dated Bills of Lading since they will give a misleading shipment date.60 If it is to be an accurate record of events, the Bill of Lading that is issued for the total commingled/blended cargo should record the fact that (x) m/t of cargo has been shipped on date (y) at place (z) in the same tank/hold as (a) m/t which was previously shipped on board on date (b) at place (c). If this is not done, cover may be prejudiced if it is considered that the Bill of Lading is post-dated. In order to avoid the insertion of such remarks charterers may offer a LOI holding the shipowner harmless if they agree not to do so. However, Members should be aware that such LOI may be unenforceable if a court or tribunal comes to the conclusion that they were given in order to try to persuade the shipowner to help the charterer or shipper to cheat or mislead a buyer of the commingled/blended cargo.61
(T) …the issue of a Bill of Lading, waybill or other document…known by the Member or the master to contain an incorrect description of the cargo or its quantity or its condition… (Rule 34.1 proviso x)
The carrier is obliged, upon the demand of the shipper, to issue a Bill of Lading stating, inter alia, the number of packages or the quantity or the weight of the goods together with its apparent order and condition.
Once issued, the Bill of Lading is, subject to any valid qualifying statements recording in the Bill of Lading itself,62 prima facie evidence of the receipt by the carrier of the goods of the description, quantity or weight and apparent order and condition recorded on the Bill, but, once negotiated, i.e. endorsed, by the shipper in favour of some other third party, it will in most cases amount to conclusive evidence in the hands of a third party acting in good faith. It follows that the carrier must inspect the goods diligently upon receiving them for shipment by tallying the number of packages, conducting tank filling measurements for liquid cargoes or ship draft measurements for bulk cargoes and making a careful visual inspection of their condition. Following such inspection, any discrepancies or deficiencies should be appropriately recorded in the mate’s receipts and, subsequently, on the Bills of Lading.63
The proviso to Article III Rule 2 of the Hague and Hague-Visby Rules emphasises that neither the carrier nor his agent nor the master is obliged to issue a Bill of Lading recording, inter alia, a quantity, weight or condition of the goods which they had reasonable grounds for suspecting not accurately to reflect the quantity, weight or condition actually received, or which they had no reasonable means of checking. Furthermore, the person inspecting the cargo on behalf of the carrier must exercise his own judgement when deciding whether the cargo is in apparent good order and condition on shipment. However, that person is required to record merely the visible condition of the cargo and not its internal, non-visible, condition. The master is not required to have expert knowledge of the various cargoes carried on his Ship, but where the cargo presented for loading is not in ‘apparent (i.e. visible) good order and condition’ he should inform the shipper that clauses reflecting the true apparent condition of the cargo must be inserted in the Bills of Lading, unless the shipper can provide other (replacement) cargo which justifies the issue of Bills of Lading recording the shipment of cargo in ‘apparent good order and condition’.
It is important to remember that the international sale of goods is effectively a sale of documents in the sense that payment is made against the presentation by the seller of documents that comply with the provisions of the contract of sale and letter of credit (if payment is to be made by letter of credit). One of the important documents for these purposes is the Bill of Lading and, therefore, it is understandable that the shipper will require a Bill that complies with the provisions of the underlying contract of sale and letter of credit. Most contracts of sale and letters of credit provide that payment is to be made only against presentation of a ’clean’ Bill of Lading which is defined in Article 27 of the Uniform Customs and Practise for Documentary Credits 600 (UCP 600) which regulates letters of credit as a document “bearing no clause or notation declaring a defective condition of the goods or their packaging”.Therefore, the insertion of a clause on a Bill of Lading which states that the goods are not in apparent good order and condition will often deprive the Bill of Lading of its ‘clean’ nature, which will in turn make it difficult for the seller of the goods to obtain payment for the goods under the cargo sale contract or letter of credit.
Whilst in strict terms, a Bill of Lading which misdescribes the quantity (as opposed to the apparent order and condition) of cargo is still technically a clean bill, the carrier, nevertheless, has the same duty of care to third parties to ensure that, insofar as can possibly be verified by the Ship, the cargo quantity stated on the Bill of Lading is correct since this is the quantity for which the buyer will normally be obliged to pay. Shippers will often insist on the insertion in the Bill of quantities that are higher than the quantities that have actually been shipped particularly when a shipper is selling on CIF terms where the sales contract is based on the bill of lading figure.
Despite the problems that this may give to the shipper, if the cargo is seen by whoever is inspecting the cargo before shipment on behalf of the Ship to be damaged, the carrier is under a duty to clause the Bill to that effect. Similarly, if the loaded quantity measured by or on behalf of the Ship clearly indicates that the cargo quantity which the shipper wishes to insert on the Bill is not correct, the carrier has a duty either to refuse to sign the Bill of Lading or to record the Ship’s own figures on it. The reason for this is that the carrier has a duty of care to third parties who may be buying the cargo in reliance on the truth of the data recorded on the Bill.64 This issue is discussed further under …incorrect description of the cargo…quantity below.
Because it may be so important for the shipper to obtain a clean Bill, the carriers may, therefore, be pressed by charterers or shippers to accept letters of indemnity or similar undertakings in return for issuing Bills of Lading with descriptions of the cargo, or of its quantity and condition which are known to be incorrect. Such letters of indemnity are usually intended to enable the cargo seller to deceive the cargo buyer and are generally unenforceable.65
Cover is not available for liabilities, costs and expenses arising as a result of the incorrect description of the cargo or of its quantity or condition in the document evidencing the contract, which includes not only Bills of Lading, but also waybills and non-negotiable receipts, which is known to the master or the Member to be incorrect. However, the wording of proviso (x) recognises the reality that there may be circumstances where it cannot be stated with certainty that the data which the shipper wishes to be inserted on the Bill of Lading is incorrect. Therefore, the exclusion applies only where the master knows with a reasonable degree of certainty that the data is incorrect. Further commentary on this issue can be found under …known by the Member or the master… below. However, the exclusion also applies if the master knew that the description in the Bill of Lading was incorrect, even if the Member was not personally aware of any inaccuracy.
..description of the cargo or its quantity or its condition…
‘Description of the cargo’ essentially means its general type, e.g. corn or soyabean, and the general type of packing, e.g. polythene bags or jute bags. It also means marks which identify pieces of cargo. The “…description of the cargo or its quantity or its condition…” is usually one that reflects the reasonable judgment of a reasonably competent and observant master, who is not expected to be an expert.66 The difficulties caused by the commingling and blending of cargoes on board has already been discussed above in (S) above in relation to the dating of the Bills of Lading and in the opening commentary to this Rule. However, commingling/blending can also cause other difficulties, since the description of the cargo on the switched (replacement) Bills of Lading may be that of the commingled/blended cargo and not the true description of the cargo actually shipped at the commingling port before it has subsequently been commingled/blended.67 Consequently, cover may not be available in such circumstances.68
…incorrect description of the cargo…quantity
The most common scenario in which a Bill of Lading contains an incorrect description of the cargo quantity is when it is issued for an amount of cargo that is in excess of that actually shipped. The situation is usually fairly clear where the quantity in dispute can readily be determined, e.g. by tally of the number of packages. Therefore, if, for example, a Member were to face liability for a cargo shortage of five packages because he issued a Bill of Lading for 20 packages, whereas the master knew that, in fact, only 15 packages were shipped, the Member’s cover for liability, cost and expenses in respect of the five packages short would be excluded. However, a more complicated situation arises in the case of bulk cargoes since discrepancies between means of measurement (especially between ship and shore) are commonplace. The most common discrepancy occurs when a Bill of Lading contains a shipped figure according to a shore scale, which far exceeds the figure received on board according to the Ship’s means of measurement (e.g. draft survey). This is commonly called ’shore over ship’. The less common discrepancy occurs when a Bill of Lading contains a shipped figure according to the ship’s means of measurement which is known by the Member or the master to far exceed the loaded figure according to the shore scale (’ship over shore’). The key issue is the magnitude of the discrepancy.
What is a normal and customary difference?
This depends on the circumstances and the means of measurement used to determine the ship’s figures, e.g. a properly executed draft survey is said to have an accuracy of +/- 0.5 per cent.69 Therefore, if the shipper’s figures exceed the draft survey figure by more than 0.5 per cent, the bill of lading should normally be claused. However, a smaller percentage may be relevant depending on the circumstances. For example, the accuracy of tanker tank calibrations, measuring methods and equipment will need to be considered in relation to the prevailing circumstances and conditions. In very general terms, if the shipper’s (terminal) figure exceeds the ship’s figure by more than 0.25 per cent, the bill of lading should normally be claused. However, a smaller percentage may be relevant, and in this regard reference should be made to the Vessel Experience Factor (VEF). 70
As a general ’rule of thumb’, P&I cover may be prejudiced when the bill of lading discrepancy for solid bulk cargoes is 0.5 per cent or more (commonly accepted to be the accuracy of a well-conducted draught survey) and for liquid bulk cargoes is 0.25 per cent or more (regardless of the VEF as that is unlikely to be known by a third party bill of lading holder). Each case is to be decided on its own merits as there are many factors involved which may lend towards application of a different percentage.
In the above examples, the shortage claim exceeds the bill of lading discrepancy, which is not uncommon since quantity differences may also arise in-transit and at discharge if shore received figures are claimed or if there is an ROB. In such circumstances, cover may be determined on a proportional basis.
…incorrect description of the cargo…condition
The most common scenario in which a Bill of Lading contains an incorrect description of the cargo condition is when it is issued for cargo in apparent good order and condition in circumstances where the cargo is not in good order and condition but is in fact defective at the time of shipment and such defect is or should be reasonably apparent to the master. The situation is usually fairly clear where the cargo is obviously damaged. If, for example, a Member were to face liability for wet cargo because a clean Bill of Lading was issued in circumstances where the master knew that the cargo was wet at the time of shipment, the Member’s cover in respect of claims for wetting could be excluded. A more complicated situation arises when it is debatable whether the damage recorded at the time of shipment is the same as that claimed, or when the quantification of the damage recorded at the time of shipment does not exactly match that claimed (it may be the case that different and/or more damage was caused during the carriage). For example, the claim may be for salt water wetting when the wetting recorded at the time of shipment does not refer to the type of wetting and which may have been fresh water. If the clausing is correct, but does not sufficiently describe the damage or identify it to specific goods, cover would not be excluded. As a general rule of thumb, P&I cover may be prejudiced when it is clear that the Bill of Lading contains an incorrect description of the cargo condition. P&I cover may also be prejudiced if the Bill has been claused but was not claused appropriately such as, for example, when the master’s clausing exaggerated or under-stated the actual damage. Each case must be decided on its own merits.
…known by the Member or the master…
The exclusion under Rule 34.1.x applies if the master knew that the description in the Bill of Lading was incorrect, even if the Member was not personally aware of any inaccuracy. The assessment of what the Member or master knew is based on the particular facts of the case and the Association may take a different view to the findings of any legal proceedings. For example, if a Member incurred liability because a court decided that a certain description of the cargo was reasonably apparent to the master, when in the Association’s view, it was not, (or, perhaps, was more properly a description of cargo quality for which the master should not be responsible), the Association may decide that the liability arises more as a result of an unfair legal position/decision rather than as a result of an actual incorrect description, and that, consequently, to apply the exclusion on cover would be unduly harsh on the Member. On the other hand, the quality of a court’s analysis may well sway the Association to take a similar view. Similarly, if there is a dispute at the time of shipment and the Member faces a court order as to how the goods are to be described in the Bill of Lading, the Association may decide that it would be unfair not to cover the Member for liability arising from compliance with such an order, unless the Association felt it reasonable that the order could and should have been challenged because it would result in the issue of a Bill of Lading that would obviously be incorrect.
Charterers or agents sometimes act contrary to owners’ authorisation to issue bills of lading only in strict conformity with claused mate’s receipts and/or a surveyor’s recommended clausing. In such circumstances, the issue of Bills containing an incorrect description of the cargo or its quantity or its condition without the Member’s or master’s knowledge does not implement the exclusion in Rule 34.1.x. However, all available facts need to be considered. If, for example, the Member instructed the master to give an unconditional authorisation to charterers to sign Bills on his behalf, in the knowledge that authorisation to only issue Bills in strict conformity with claused mate’s receipts had previously caused problems for an important charterer, cover may be excluded. Liability arising under an incorrect Bill issued by an employee, other than the master, with or without authority to issue Bills, would need to be considered on a case by case basis. An employee of a Member’s wholly owned liner agency, who has authority to signs Bills of lading instead of the master, would be considered the master for the purposes of this Rule.
When exercising its discretion in relation to this exclusion, the Association may consider what steps, if any, a Member took following receiving knowledge that incorrect Bills had been issued. For example, it may be possible to make all relevant parties to the Bill of Lading aware of the inaccuracy before the Bills are transferred to another party who will be relying on the Bills in good faith. It may also be possible to apply to the Court to rectify (i.e. correct) the Bills.
Switch bills of lading71
Members will often receive requests from cargo interests and charterers to make changes to Bills of Lading that have already been issued, i.e. to switch (surrender) new Bills for old Bills. Unless a genuine mistake has been made in the description of the cargo or its quantity or its condition, those descriptions should not be changed in the new Bills as otherwise the Member may be liable for misrepresentation and cover may be prejudiced.
(U) …deviation or departure from the contractually agreed voyage… (Rule 34.1 proviso xi)
Unless the charterparty or Bill of Lading or the trade in which the Ship is engaged provides for a specific route by which the Ship must perform the laden voyage, the laden voyage must follow the usual and customary route for a ship that is engaged in that type of trade. In the absence of special circumstances, the usual or customary voyage route is presumed to be the shortest geographical route subject to navigational contingencies. Therefore, the usual route may be varied in order to avoid bad weather or draft restrictions which affect a particular Ship. However, the usual or customary route may be different depending on the trade in which the Ship is engaged. For example, whilst the usual or customary route for a bulk carrier may be the direct geographical route, the usual or customary route for a liner vessel may be via the advertised ports of call.
The carrier is guilty of a deviation when he intentionally deviates from the usual and customary route for the laden voyage without justification. There is no deviation if the carrier is forced to deviate from the usual and customary route even if this is caused by the unseaworthiness of the Ship or when he negligently, but unintentionally, follows a different route. Similarly, the carrier may be justified in deviating from the usual or customary route where this is necessary for the safety of the Ship or cargo or to ensure the safe prosecution of a voyage, e.g. to avoid capture of the Ship or cargo, to save life,72 or to repair the Ship in order to enable her to proceed in safety, or to take on bunkers at a common bunker port for ships in general, or for the ships in the line or trade. However, the deviation must be reasonable and prudent for the joint benefit of those involved in the adventure and must not be for the sole benefit of the shipowners. The following statement encapsulates the required factors:
“What departure from the contract voyage might a prudent person controlling the voyage at the time and maintain, having in mind all the relevant circumstances existing at the time, including the terms of the contract and interests of all parties concerned, without obligation to consider the interest of any one as conclusive.”
The concept of ‘deviation’ is not necessarily restricted to the geography of the voyage, but also extends, by the laws of certain countries, to other aspects of the contractually agreed adventure. For example, intentional delay in performing the laden contractual voyage (i.e. a failure to perform the voyage with reasonable dispatch) may amount to deviation if the delay is such as to substitute an entirely different voyage for that originally contemplated by the contract of carriage. Similarly, there may be deviation in the event of transhipment or substitution of the carrying Ship or storage ashore or afloat which is not otherwise permissible under the contract of carriage. However, the most common example of a deviation, other than that relating to the geographical voyage, is the carriage of cargo on deck. The carrier is normally under an implied obligation to stow the goods under deck unless otherwise authorised by custom, convention or agreement, e.g. it is generally accepted that containers may be carried on the deck of purpose-built container ships and lumber on the deck of purpose-built log and forest product carriers. However, unauthorised deck carriage may amount to deviation.
Cover will ordinarily be available for cargo carried in containers stowed on deck provided that:
a The containerised cargo is carried on purpose built container vessels under a contract of carriage which is subject to the Hague/Hague-Visby Rules and which permits carriage on deck (usually in the form of a liberty clause) and the Association considers that the cargo and container are suitable for deck carriage in all the circumstances; or
b Where the containerised cargo is carried on vessels that are not specifically built or fitted for deck carriage of containers, the contract of carriage contains a liberty clause and either:
i states that the cargo is carried on deck and excludes all liability for loss or damage to such cargo; or
ii the contract of carriage is subject to the Hague/Hague-Visby Rules and the Association reasonably considers that the vessel, cargo and container are suitable for deck carriage in all the circumstances.
The carrier is often granted contractual liberty to depart from the usual route, mode of shipment and stowage location by clauses generally known as ‘liberty’ or ‘Caspiana’ clauses. A departure from the agreed mode of carriage which is allowed by such clauses does not amount to a deviation. However, such clauses are construed restrictively against the carrier and must be considered carefully. Some liberty clauses allow bunkering but others expressly exclude bunkering from the liberty to deviate. The BIMCO Liberty and Deviation Clause authorises a number of deviations for bunkers, spares, stores and supplies, crew changes, landing stowaways etc., but the use of this clause does not necessarily mean that all deviations are reasonable. Importantly, the BIMCO Deviation Clause provides that it is also to be incorporated in bills of lading issued under the charterparty, which is important because a carrier under a Bill of Lading is under a completely separate duty to Bill of Lading holders not to commit an unjustified deviation under the Bill.
The question of whether or not there has been a deviation is important since, traditionally, the effect of a deviation has been to deprive the carrier of the benefit of any contractual defences and also, possibly, any rights to limit liability. Consequently, since deviation can give rise to substantial liabilities against which the carrier may have no protection, it is considered that in the interests of mutuality, cover should not be readily available in such circumstances. Deviation is a complex issue that is treated differently depending on the applicable law.73
However, cover is not automatically excluded under Rule 34.1 if there has been a deviation from the contract of carriage. Enquiry will be made in each case as to the defences or rights or limitation (if any) which would have been available to the Member if he had not deviated from the contract, and cover will be excluded only if and to the extent that the deviation has deprived the carrier of a defence or a right to limit liability that would otherwise have been available to him. If the deviation has not increased the Member’s liability, cover is available. In the event of deviation the Association can arrange alternative cover on terms to be agreed (See Appendix 1.4.) This has traditionally been known as Ship Owners’ Liability (SOL) insurance and is usually taken out where there is considered to be a risk of a finding that an unjustified deviation has occurred which may therefore deprive the Member of defences and limits for cargo loss or damage occurring during the deviation. SOL cover extends to the additional liabilities that the Member has assumed by deviating. It does not, however, cover the effect of delay on the condition of the cargo. If the cargo is perishable, SOL cover will not cover any additional loss from the cargo perishing. SOL premiums are usually calculated as a percentage of the value of the cargo.
Examples of circumstances where SOL is most likely to be necessary include:
- A vessel calling at a port or place for the purposes of major repairs, dry-docking or major surveys which are not necessary for the contracted voyage;
- A vessel slow steams or stops short of the contracted place of discharge in order to exercise a lien on cargo and the contract of carriage does not contain an express liberty clause permitting it to do so;
- A vessel departs either geographically or otherwise from the contracted voyage such that there is a greater advantage to owners and a correspondingly greater disadvantage or risk to others;
- Slow steaming, eco-steaming etc., in order to conserve fuel (where the contract of carriage does not contain an express liberty clause permitting it to do so).74
(V) ...the association shall cover liability pursuant to compulsorily applicable rules of law for loss caused by delay in the carriage of cargo... (Rule 34.2)
Delay occurs when the goods have not been delivered at the port or place of discharge or delivery agreed in the contract of carriage within the time expressly agreed in the contract of carriage or, in the absence of such express agreement, within the time which it would be reasonable to expect of a diligent carrier having regard to the circumstances of the case. In such circumstances, a carrier of goods may be found liable for losses caused by the delay in completing the voyage, which losses would include a reduction in value of the cargo caused by a loss of market. However, the availability of cover for such liability will depend on the reason for the delay and on whether the carrier is liable for such losses pursuant to the compulsory provisions of the applicable law.
If the delay has been caused by the intentional acts or omissions of the Member then the Member may be guilty of deviation and is not entitled to cover under Rule 34.1 proviso xi unless the Directors exercise their discretion to extend cover. However, the Member may also incur liability for delay in some circumstances under the law of some countries even if the delay was not caused by the Member’s intentional acts or omissions. If it is considered that such liability accords with the spirit of mutuality, cover may be available for such liability under Rule 34.2 without the need for the Directors to exercise discretion unless delay is the result of either the non-arrival or the late arrival of the Ship at the port of loading. In the latter circumstances, cover is not available unless the Directors exercise their discretion to extend cover pursuant to Rule 34.1 proviso v.
Cover is available under Rule 34.2 only where the liability arises under compulsorily applicable rules of law which the Member cannot avoid by the inclusion of exemption provisions in the contract of carriage or charterparty. Therefore, cover is not available if the liability for loss caused by delay in the delivery of the cargo arises by virtue of a provision in a contract of carriage or charterparty and would not have arisen but for such a provision. For example, if liability for delay arises under a contract of affreightment by virtue of the fact that it includes express provisions for a specific voyage duration or for specific discharge/delivery dates/periods, or under a bill of lading incorporating the terms of such a contract (whether or not the Member authorised such incorporation), cover is not available.
However, if liability arises because of the compulsory provisions of the applicable law then, subject to the restrictions described above, cover is available. The Hague Rules have no provisions relating to delay, liability for which can be (and often is) excluded by suitably drafted clauses in bills of lading. Likewise, the Hague-Visby Rules only allow such damages as are recoverable by reference to the value of the goods and do not, in any event, exceed the package, unit or weight limitation. Therefore, if delay has been caused by the negligent navigation of the Ship, cover is not available since the Member ought to be able to avoid liability for delay pursuant to the negligent navigation defence in Article IV Rule 2 (a). However, if the delay arose as a result of the Member’s failure to exercise due diligence to make the Ship seaworthy before and at the beginning of the voyage, cover would be available. An example of such a case would be where a vessel failed to have documents at the commencement of the voyage (or at the very least a system in place to procure such documents during the voyage) to allow entry and discharge of the cargo at her destination without undue delay.
By contrast, the Hamburg Rules specifically provide for delay in delivery when the goods have not been delivered at the port of discharge provided for in the contract of carriage by sea within the time expressly agreed upon or, in the absence of such agreement, within the time which it would be reasonable to require of a diligent carrier, having regard to the circumstances of the case. Consequently, cover is available where the contract of carriage is compulsorily subject to the incorporation by operation of law of the Hamburg Rules. The Hamburg Rules do not deal specifically with the recovery of economic or consequential losses in the event that the cargo is delayed, but liability is limited to an amount equivalent to two and a half times the freight payable for the goods delayed, but not exceeding the total freight payable under the contract of carriage. National variants of the Hague/Hague Visby Rules may also provide for liability for delay. For example, the Australian Carriage of Goods by Sea Act deals specifically with liability for delay. In general terms, the carrier is liable under Article 4A for loss caused by unreasonable delay unless the carrier can prove that the delay was excusable by one of eight permissible excuses and that it took all reasonable measures to avoid the delay, one of which is ‘circumstances beyond the reasonable control of carrier or its servants or agents’.
Finally, even if international conventions such as the Hamburg Rules do not apply compulsorily to the particular voyage, an obligation to proceed with due despatch is, nevertheless, an implied obligation in most contracts of carriage under the national laws of many countries.
Rule 34.2 is applicable only where liability is caused directly by delay. However, if the delay is itself attributable to some other cause, Rule 34.2 may not be applicable. For example, if the Member is held liable for damage to a perishable cargo by virtue of the fact that it has been delayed, that would not be a liability arising directly as a result of the delay, but as a result of damage caused by the delay and Rule 34.1 would be applicable. Rule 34.2, on the other hand, is designed to cover claims for pure economic loss arising from delay and would, for example, apply to claims where there is no damage and the cargo interest has suffered a loss as a result of a decrease in the market value of the cargo.
1 The full title of the convention is the International Convention for the unification of certain rules of law relating to bills of lading signed at Brussels on 25 August 1924.
2 The full title of the convention is the International Convention for the unification of certain rules of law relating to bills of lading signed at Brussels on 25 August 1924 as amended by the Protocol signed at Brussels on 23 February 1968.
3 The full title of the convention is the United Nations Convention On the Carriage of Goods by Sea 1978.
4 The United Nations Commission on International Trade Law (UNCITRAL) has been working with the Comité Maritime International (CMI) for some years to create a new convention relating to the carriage of goods by sea, as well as multimodal transport arrangements where part of the carriage is done by sea. The work has now resulted in a new draft convention which is likely to be accepted at a meeting organised by UNCITRAL in July 2008. This new convention will amend many aspects of the Hague, Hague-Visby and Hamburg Rules. For more information, see www.uncitral.org.
5 The full title is The United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea 2008.
6 For example, see the Guidance to Rules 7, 72 and 74.
7 See also the commentary in (E) below.
8 For further guidance on LOIs see Chapter 20 of the Gard Guidance on Maritime Claims and Insurance.
9 Most BIMCO and other industry standard forms/clauses would normally be acceptable provided that they are not materially amended.
10 Full details can be obtained at http://www.gard.no/ikbViewer/page/covering-risks.
11 See comments under (G) below, as well as the Guidance to Rule 57.c regarding the cover available for liabilities arising under a through or transhipment Bill of Lading, or other form of contract.
12 See Rule 82.
13 For more detailed commentary see Chapter 3.3 of the Gard Guidance on Maritime Claims and Insurance.
14 A ‘bailee’ is a person who is in possession of the property of someone else (the bailor) and has a duty to look after it. Such duty can arise even if there is no contractual relationship between the bailor and the bailee. For example, if cargo is lost or damaged whilst in the care or custody of the carrier prior to loading or after discharge, the carrier may held to be liable for the loss or damage in his capacity as a ‘bailee’ of the cargo. A carrier may also be considered a ‘bailee’ when receiving cargo which is being carried pursuant to a contract which has been issued by another carrier, as often occurs on transhipment or where a non-vessel operating common carrier (NVOCC) is involved.
15 A Member’s liability to cargo may also arise where the contract has been rescinded following the carrier’s unjustified deviation. In such circumstances, the carrier may, under the laws of some countries, be considered to be a ‘common carrier’ and thereby held to be strictly liable for loss of or damage to the cargo whilst in his care unless caused by the Act of God or public enemies or by inherent vice.
16 In some instances damage is alleged despite the fact that there has been no such change, but rather as a result of the fact that the cargo or its packaging is tainted, or has a foul smell or has some other feature that creates suspicion either that damage has occurred, or that it will be more difficult for the receiver to make use of the cargo in the intended way.
17 For more detailed commentary see Chapter 3.4 of the Gard Guidance on Maritime Claims and Insurance.
18 For more detailed commentary see Chapter 10 of the Gard Guidance on Maritime Claims and Insurance. The situation discussed in the Guidance to Rule 34 must be distinguished from that discussed in the Guidance to Rule 41. Rule 34 concentrates on claims that are brought against the Ship whereas Rule 41 concentrates on claims that are brought by the Ship
19 See the article entitled “Owners beware! – Tort claims against ship managers in the US” in Gard News 168 at: http://www.gard.no/ikbViewer/go/target/52674/.
20 For further commentary see Gard Circulars 11/2010 and 9,2014 and Chapter 3.3.1 of the Gard Guidance on Maritime Claims and Insurance.
21 See the Guidance to Rule 55.
22 For more detailed commentary see Chapter 3.3.1 of the Gard Guidance on Maritime Claims and Insurance.
23 For more detailed commentary see Chapter 188.8.131.52.1 of the Gard Guidance on Maritime Claims and Insurance.
24 See also the commentary in (A) above.
25 The Hamburg Rules does impose such responsibility on the carrier since Article 4.2 provides that ...the carrier is deemed to be in charge of the goods...(b) until the time that he has delivered the goods...”
26 For further commentary see Chapter 184.108.40.206.1 of the Gard Guidance on Maritime Claims and Insurance.
27 For example, if the loss or damage occurred during sea transit, the Hague or Hague-Visby Rules are likely to apply whereas, if the loss or damage occurred during the course of cross-border road transport in Europe, the provisions of the Convention on the Contract for the International Carriage of Goods by
Road (CMR) are likely to apply.
28 For further commentary see Chapter 220.127.116.11 of the Gard Guidance on Maritime Claims and Insurance.
29 See the Guidance to Rule 2.4.a.
30 See the Guidance to Rule 57.c. Appendix V of the Pooling Agreement lays down guidelines relating to the extent to which such liability may be pooled between the members of the International Group of P&I Clubs. Further commentary on the factors that are considered relevant for the purposes of approval
see the article entitled “Through Transport” in Gard News 140 at: http://www.gard.no/ikbViewer/go/target/52159/
31 See the Guidance to Rule 2.5
32 For further information and advice about issues pertaining to Bills of Lading, please see Gard Guidance on Bills of Lading, which can be found on www.gard.no.
33 See the article entitled “The missing Bill of Lading” in Gard News 152 at: http://www.gard.no/ikbViewer/go/target/52588/
34 See section 3.6 of the Bolero Rulebook.
35 For more detailed commentary see Chapter 20 of the Gard Guidance on Maritime Claims and Insurance.
36 See Gard Circulars 9/98 (December 1998) and 2/2001 (February 2001.)
37 It is very important to note that the question of what constitutes proper (or wrongful) delivery, as well as the question of what constitutes a ‘negotiable Bill of Lading’ as opposed to any other type of sea transport document may differ from country to country. The distinction may also depend on the description used in the document itself, as well as the particular trade context. Further guidance can be found in the Gard Guidance on Bills of Lading and Gard Guidance to Masters on www.gard.no
38 For example, making use of all available means of information to verify that the identity of the consignee is correct and consistent with the consignee named in the document.
39 However, cover is available only if the terms of the non-negotiable sea transport contract under which the Member has contracted to carry the cargo have been approved by the Association – See the Guidance to Rule 57.2.
40 Further commentary see the article entitled “Are your feeder bills of lading being properly issued?” in Gard News 140 at: http://www.gard.no/ikbViewer/go/target/52163/
41 See for example the decision of the English House of Lords in the RAFAELA S (2005) 1 Lloyd’s Law Reports 347.
42 The proviso applies not only to straight Bills of Lading, but to any form of non-negotiable Bill of Lading or waybill which has to be produced in order to obtain delivery of the cargo from the ship.
43 Subject to the discretion of the Association to the contrary. However, see in this regard, footnote 15 above.
44 See footnote 4. The Rotterdam Rules are not yet in force and consequently, the Member’s right to cover for liabilities arising under the Rotterdam Rules if incorporated into a contract of carriage by agreement is restricted to liabilities that would have arisen under the Hague or Hague-Visby Rules had such Rules been applicable.
45 The Association has developed additional covers (the Extended Cargo Cover and Comprehensive Carriers’ Cover) which is available to Members who need protection for, inter alia, liabilities which are greater than those imposed by the Hague or Hague-Visby Rules. Further information is available on www.gard.no
46 The carrier may be either the contractual carrier under a contract of carriage concluded with the cargo interests or the actual carrier to whom the contractual carrier has delegated the actual carriage of the cargo.
47 The negligent navigation or management defence has also been excluded from the Rotterdam Rules.
48 See the article entitled “Heavy lift cargoes – Contractual issues and risk allocation” in Gard News 203 at: http://www.gard.no/ikbViewer/go/target/18100519/
49 See the Guidance to Rule 60.2.
50 For further commentary see Chapter 18.104.22.168.1.2 of the Gard Guidance on Maritime Claims and Insurance.
51 See the Guidance to Rules 55 and 63.1.d.
52 For further commentary see the article entitled “Four dips in each tank, please!” in Gard News 161 at: http://www.gard.no/ikbViewer/web/updates/content/53547/four-dips-in-each-tank,-please!
53 See (T) below for a further discussion of the effect of deviation for the availability of cover.
55 For further commentary on switch bills see chapter 20.2.4 of the Gard Guidance on Maritime Claims and Insurance.
56 Proviso v to Rule 34.1 should be read together with Rule 63.h which excludes cover for claims against the Member for delay to the Ship.
57 See (L). Whilst the Association has a discretionary right to cover liabilities that are not covered by virtue of this exclusion it may be sensible for Members who regularly issue ad valorem Bills of Lading to consider purchasing Gard’s Extended Cargo Cover as extra protection.
58 See also the commentary in (M) above in relation to ROB clauses.
59 See also the article entitled “The date of the bill of lading” in Gard News 151 at: http://www.gard.no/ikbViewer/go/target/51869/
60 For further commentary on the problems caused by commingling please see LOIs for commingling or blending cargo on board in Gard News No. 171.
61 For more detailed commentary see Chapter 20 of the Gard Guidance on Maritime Claims and Insurance.
62 Such as ‘weight unknown’ or ‘quantity unknown’ or ‘STC (said to contain)’ clauses.
63 Further Guidance on these aspects can be found in the Gard publications Guidance on Bills of Lading and Guidance to Masters. See www.gard.no.
64 For more detailed commentary on these issues see chapter 3.5 of the Gard Guidance on Maritime Claims and Insurance.
65 For more detailed commentary on letters of indemnity (LOI) see chapter 20 of the Gard Guidance on Maritime Claims and Insurance.
66 See the article entitled “ Clausing bills of lading correctly – Standard of reasonable care affirmed” in Gard News 168 at: http://www.gard.no/ikbViewer/go/target/52671/
67 For more detailed commentary on these issues see chapter 3.5 of the Gard Guidance on Maritime Claims and Insurance.
68 For more detailed commentary on these issues see chapter 20.2.5 of the Gard Guidance on Maritime Claims and Insurance.
69 See the article entitled “The importance of draft surveys in the defence of claims for shortage of bulk cargoes” in Gard News 153 at: http://www.gard.no/ikbViewer/go/target/51574/
70 For more detailed commentary on this issue see the Gard Guidance on Bills of Lading.
71 For more detailed commentary see Chapter 20.2.4 of the Gard Guidance on Maritime Claims and Insurance.
72 Cover is available for extra costs incurred by the Member in so doing. See the Guidance to Rule 31.
73 For more detailed commentary se Chapter 20.2.2 of the Gard Guidance on Maritime Claims and Insurance.
74 For further commentary see the article entitled “Slow Steaming and Virtual Arrival” in Gard News 209 at: http://www.gard.no/ikbViewer/go/target/20734104/ .