direct loss, but also losses caused by the after-effects of a strike – for instance, where loading is delayed as a result of congestion due to a strike, even though the strike had ended by the time the ship calls at the port of loading.74

Strike clauses in bills of lading have recently become more specific and range from clauses that place the entire risk on the shipper to those that attempt to spread the risks evenly between the carrier and the shipper.

The bill of lading may also contain a clause that allows the carrier to discharge goods for a strike-bound port at any safe and convenient port (known as the Caspiana clause). Where there is a Caspiana clause, the consignee will not be able to recover the cost of transhipping the goods to the original destination once the strike is over.75

Latent defects

Where the bill of lading contains a clause excluding liability for a latent defect, it has been interpreted to mean a defect that could not be discovered on such an examination that a reasonably skilled man would make.76

This exception, however, does not qualify the implied or express undertaking of seaworthiness.77 However, where the exclusion for latent defect is qualified by appropriate words, the clause may be successful in restricting the undertaking of seaworthiness. For instance, in Cargo ex Lacoles,78 use of the phrase ‘latent defect existing even at the time of shipment’ was deemed sufficient to qualify the seaworthiness undertaking.

Fire

The shipowner may be able to claim statutory protection for loss or damage due to fire under s 186 of the Merchant Shipping Act 1995 (previously, s 18 of the Merchant Shipping Act 1979), if the ship is a UK ship and the goods are lost or damaged on board the ship.79 So, a clause excluding liability for damage or loss due to fire is required in the contract of carriage if the ship is not a British ship. Where the ship is a British ship and the shipowner wants to exclude liability in case of fire not on board, a specific exclusion clause is needed.

As for the statutory exception, it is available even where the fire has been caused by unseaworthiness as long as the fire occurred without the actual fault or privity of the owner.80 The onus, however, is on the cargo owner to establish that the fire resulted from the carrier’s personal act or omission, committed with intent to cause such loss, or recklessly, and with knowledge that such a loss would probably result.

Other terms in bills of lading

Apart from terms already considered, the bill of lading normally contains terms relating to loading, freight and liens. In the absence of express terms, common law or statute may be relevant in determining the extent of the rights and liabilities of the parties to the contract of carriage.

74Leonis v Rank (No 2) (1908) 13 Com Cas 215.

75Renton v Palmyra Trading Corp [1957] AC 149.

76Dimitrios Ralhas (1922) 13 Lloyd’s Law Rep 363.

77Minister of Materials v World SS Co [1952] 1 Lloyd’s Rep 485.

78(1887) 12 PD 187.

79See ‘Fire’, Chapter 8, pp 234 –5.

80Virginia Carolina Chemical v Norfolk and North American Steam Shipping [1912] 1 KB 229.

Responsibility for loading

The general assumption at common law is that the operation of loading is one that is carried out by the shipowner and the shipper jointly, unless custom or express agreement dictates otherwise; in the absence of custom or express agreement, the shipper is to bring the goods alongside the ship and lift them to the ship’s rail and the shipowner is under an obligation to stow the cargo properly81 and exercise the same skill in stowing and lashing as a properly qualified stevedore.82 If the shipper plays an active role in the stowage of the cargo, he cannot complain of any apparent defects in stowage if he did not voice his reservations at the time.

The shipowner cannot escape liability where he has employed a stevedore, unless it has been expressly agreed that he is not to be held responsible for any negligent stowage on the part of his employees or stevedores. Also, he can extend this clause to protect his employees and stevedores from liability for negligent stowage as long as he makes it clear that he is contracting as agent on behalf of his employees and stevedores.83 As for burden of proof, that lies on the party who alleges lack of reasonable care in stowage; he must also show that the loss or damage to the cargo was a result of negligent stowage.

Freight

Freight is the consideration, or agreed amount, payable to the carrier for carrying cargo to and delivering it at its destination. It is calculated either on the basis of weight, number of packages or volume. The parties normally agree on when freight is earned and payable – for example, on loading, on sailing of ship, or on signing of bill of lading. Clause 11(a) of the Conlinebill (standard liner bill of lading approved by the Baltic and International Maritime Council (BIMCO)) provides that ‘pre-payable freight, whether actually paid or not, shall be considered as fully earned upon loading and non-returnable in any event’. The P&O Containers Ltd Bill of Lading for Combined Transport Shipment or Port to Port Shipment standard terms states, in cl 13(1), that ‘freight shall be deemed fully earned on receipt of the goods by the carrier and shall be payable and non-returnable in any event’.

In the absence of agreement, at common law, freight is payable on delivery of goods at destination. Freight and delivery are concurrent conditions. In other words:

... the true test of the right to freight is the question whether the service in respect of which the freight was contracted to be paid has been substantially performed; and, according to the law of England, as a rule, freight is earned by the carriage and arrival of the goods ready to be delivered to the merchant, though they be in a damaged state when they arrive. If the shipowner fails to carry the goods to the destined port, the freight is not earned. If he carries part, but not the whole, no freight is payable in respect of the part not carried, and freight is payable in respect of the part carried unless … carriage of the whole [is] a condition precedent in the earning of any freight.84

This rule is inflexible, such that, where cargo fails to reach the destination through no fault of the cargo, freight is not payable. Natural circumstances, such as ice preventing a vessel from

81Sandeman v Scurr (1866) LR 2 QB 86.

82Anglo-African Co v Lamzed (1866) LR 1 CP 226.

83New Zealand Shipping v Satterthwaite [1975] AC 154. See Chapter 8, pp 254–8 below, also ss 1 and 6(5) of the Contracts (Rights of Third Parties) Act 1999.

84Dakin v Oxley (1864) 15 CB (NS) 646, at p 660. See also Black v Rose (1864) 2 Moore PC (NS) 277; Paynter v James [1867] LR 2 CP 348; Ritchie v Atkinson (1808) 10 East 294.

reaching its destination, will not displace the rule.85 This holds true as well where cargo is lost, or arrives in an unsatisfactory state. For instance, in Asfar and Co v Blundell,86 where dates, because of fermentation and contamination with sewage, were not satisfactory, freight was not payable. As Lord Escher explained:

There is a perfectly well known test which has for many years been applied to such cases as the present – that test is whether, as a matter of business, the nature of the thing has been altered. The nature of a thing is not necessarily altered because the thing itself has been damaged; wheat or rice may be damaged, but may still remain the things dealt with as wheat or rice in business. But if the nature of thing is altered, and it becomes for business purposes something else, so that it is not dealt with by business people as the thing which it originally was, the question for determination is whether … the original article of commerce, has become a total loss … If they were totally lost as dates, no freight in respect of them become due from the consignee to the person whom the bill of lading freight was payable … [at p 127].87

A question likely to arise is whether a carrier is entitled to the full freight on delivery of damaged goods (short of loss of identity of cargo). Put another way, can a cargo owner’s claim in respect of damaged cargo be set off against freight? The rule in English law is that the cargo owner does not have a right to set off against freight and is traceable to Sheels v Davies.88 It has received subsequent approval in Dakin v Oxley and Meyer v Dresser.89 In a more recent decision, Aries Tanker Corp v Total Transport Ltd (The Aries),90 the House of Lords said that the rule against deduction from freight for damage to cargo in carriage by sea cases was a well settled common law rule. Often criticised as an arbitrary rule, it can be justified on policy grounds: to allow a right to set off against freight is to give the cargo owner the right to take the law into his own hands. And, in Lord Denning’s opinion, a change in the established rule would also ‘enable unscrupulous persons to make all sorts of unfounded allegations so as to avoid payment … even with the most scrupulous, it would lead to undesirable delay’.91 So, in the event of goods arriving damaged, the cargo owner will have to bring a separate action or a cross claim. It must, however, be noted that a right to set off against freight can be expressly created by the parties in the carriage contract.92

In the event of deviation, it must be noted that the freight payable will be calculated on a quantum meruit basis.93

Where parties agree to pay freight in advance, it is not repayable if the carrier fails to deliver the cargo at the destination at common law.94 It is difficult to understand why freight is not repayable, since there is a total failure of consideration. However, advance freight is not treated as a contractual obligation, and the rule is explained in terms of risk. As Hobhouse J said, in The Dominique,95 ‘it is not … a contractual obligation to which rules of failure of consideration, or partial failure, apply in the same way as in other branches of the law of contract. Once earned, advance freight is at

85Metcalfe v Britannia Iron Work Co (1877) 2 QBD 423.

86[1896] 1 QB 123.

87See also Duthie v Hilton (1868) 4 CP 138; Montedison v Icroma The Caspian Sea [1980] 1 Lloyd’s Rep 91.

88(1814) 4 Camp 119; (1814) 6 Taunt 65.

89(1864) 33 LJ Rep CP 289.

90[1977] 1 Lloyd’s Rep 334.

91The Brede [1973] 2 Lloyd’s Rep 333, at p 338.

92The Olympic Brilliance [1982] 2 Lloyd’s Rep 205.

93Hain v Tate and Lyle (1936) 155 LT 177; (1936) 41 Com Cas 350, at pp 368–9; [1936] 2 All ER 597. For more on deviation, see pp 203–6 and Chapter 8, pp 229–232.

94Allison v Bristol Marine Insurance Co (1876) 1 App Cas 209.

95[1987] 1 Lloyd’s Rep 239.

the risk of the charterer and the subsequent incidents and misfortunes of the voyages do not entitle him to transfer any of that risk back to the shipowner’ (p 246). In other words, advance freight is seen as an agreement in respect of allocation of risks for the voyage to be undertaken, and, once allocated, there can be no reallocation on the basis of events arising during the course of the voyage. The rule is said to have originated in the long voyages to India. According to Brett LJ, in Allison v Bristol Marine Insurance Co:

I have drawn attention to all the cases, in order to show how uniform the view has been as to what construction is to be put upon shipping documents in the form of the present charterparty, and as to the uniform, though perhaps anomalous rule, that the money to be paid in advance of freight must be paid, though the goods are before payment lost by perils of the sea and cannot be recovered back after, if paid before the goods are lost by perils of the sea. Although I have said that this course of business may in theory be anomalous, I think its origin and existence are capable of reasonable explanation. It arose in the case of Indian voyages. The length of the voyage would keep the shipowner for too long a time out of money; and freight is much more difficult to pledge, as a security to third persons, than goods represented by a bill of lading. Therefore, the shipper agreed to make the advance on what he would ultimately have to pay and … took the risk in order to obviate a repayment, which disarranges business transactions [p 226].

Interestingly, bills of lading reinforce this common law rule expressly, as illustrated by cl 13(1) of the P&O Containers bill of lading terms cited earlier in this section.96

Where goods are shipped under a bill of lading, the shipper is normally regarded as liable for the freight. The shipper, however, can relieve himself of liability for freight in a number of ways:

(a)by informing the carrier at the time of contracting that he (the shipper) is contracting as an agent on behalf of another (e.g., where the shipper – that is, seller – may be acting as agent for the buyer under an FOB with additional services sale contract);

(b)by an express term in the contract of carriage; or

(c)by obtaining a freight collect bill of lading (e.g., where the parties to a sale contract on CIF terms agree to the issue of a freight collect bill of lading placing the buyer under an obligation to pay on arrival of the goods).97

The shipper, however, is freed of liability where the carrier gives credit to the consignee – for instance, by accepting a bill of exchange drawn on the consignee for the sake of his own convenience.98

Once the bill of lading is endorsed, it creates enhanced rights in favour of the carrier as against the consignee and the endorsee. It does not, however, extinguish the shipper’s liability to pay freight.The rights and liabilities of the various parties to the bill of lading are created and preserved by the Carriage of Goods by Sea Act 1992.99 According to s 3(3), an endorsement of a bill of lading does not extinguish the shipper’s liability for freight. It states:

This section, so far as it imposes liabilities under any contract on any person, shall be without prejudice to the liabilities under the contract of any person as an original party to the contract.

96See p 211.

97The Pantanassa [1970] 1 Lloyd’s Rep 153.

98Strong v Hart (1827) 6 B&C 160; (1827) C&P 55

99See Chapter 6.

As for the endorsee or consignee, it seems he is liable for freight under s 3(1):

Where sub-s (1) of s 2 of this Act operates in relation to any document to which this Act applies and the person in whom rights are vested by virtue of that subsection:

(a)takes or demands delivery from the carrier of any of the goods to which the document relates;

(b)makes a claim under the contract of carriage against the carrier in respect of any of those goods; or

(c)is a person who, at a time before those rights were vested in him, took or demanded delivery from the carrier of any of those goods,

that person shall (by virtue of taking or demanding delivery or making the claim or, in a case falling within para (c) above, of having rights vested in him) become subject to the same liabilities under that contract as if he had been a party to that contract.

As regards the liability of pledgees, like banks who hold bills of lading for security purposes, they will not be liable unless they take or demand delivery of the cargo (s 3(1)).

Lien

At common law, the shipowner has the right to retain the cargo as security in certain circumstances. In other words, he has a lien over the goods.The circumstances in which he can exercise this right are:

(a)payment for freight, assuming payment and delivery are concurrent100;

(b)moneys spent in protecting the cargo; and

(c)general average contribution.

General average is a long established rule in maritime law and the foundation for it is to be found in the Code of Rhodes in the following terms: ‘Concerning the Rhodian Law of Jettison. By the Rhodian Law, care is taken that if, for the sake of lightening the ship, a jettison of merchandise is made, that which is given for all shall be made good by a contribution of all.’101 It requires those engaged in a maritime adventure whose properties have been saved to contribute to those whose cargo or freight is lost or sacrificed. General average refers to the loss incurred by all involved in the maritime adventure – this includes the cargo owner, as well as the shipowner, who may have incurred extraordinary expenditure to save the cargo and the adventure. A more ‘modern’ definition, regarded as authoritative, is provided by Lawrence J, in Birkley v Presgrave,102 in the following terms:

All loss which arises in consequence of extraordinary sacrifi ces made or expenses incurred for the preservation of the ship and cargo come within general average and must be borne proportionately by all who are interested [at p 228].

This right of lien can be exercised only as long as the shipowner retains possession of the cargo. Once cargo is delivered, he loses the right of lien. Liens may also be created by express agreement for dead freight (damages payable to shipowner for not loading agreed amount of cargo),103

100On freight, see pp 211–14.

101Waykins William J in Pirie and Co v Middle Dock Co (1881) 44 LT 426, at p 430.

102(1801) 1 East 220.

103See Cargo ex Argos (1873) LR 5 CP 134; (1873) 28 LT 745.