Scope of application (III) – sea transport
Carriage of goods by sea is very often governed by the Hague-Visby Rules (HVR), i.e. the 1924 Hague Rules as amended by the Visby Protocol of 1968, although some countries still apply the original 1924 Hague Rules, without the Visby amendments. In 1978, in an effort to modernize the law of the carriage of goods by sea, the Hamburg Rules were adopted. These Rules are in force in a number of countries, but did not succeed in gaining widespread adoption. In 2009, the Rotterdam Rules were adopted in a new effort to modernize the law. At present, the Rotterdam Rules have only been ratified by a very few States and are not in force yet.
These different sets of provisions are called 'Rules', because initially, the Hague Rules were meant as model terms and conditions for inclusion in bills of lading. It was soon realized that this voluntary approach would not suffice and the Hague Rules became a full-fletched, binding Convention, but the name 'Rules' stuck.
1. Historical origins.
The common law distinguishes between 'common carriers' and 'private carriers'. The line is not always easy to draw, but in general, a carrier is a common carrier if he generally accepts cargo that he can reasonably carry (i.e. not if the destination is too far away, somewhere where he never goes, etc.), while a private carrier is a carrier who reserves the right the refuse cargo, even if he could reasonably carry that cargo.
In the 19th century, a common carrier was absolutely liable for the cargo entrusted to him, and could only escape liability if he could prove one of four excepted perils (act of God, act of public enemies, fault of the shipper, or inherent vice) and absence of contributory negligence on his part. In practice, this meant that the common carrier was almost an 'insurer' of the cargo.
The courts, however, did allow the carrier to contract out of this liability. After some time, this led to bills of lading that were so packed with exculpatory clauses, even for the carrier's own negligence, that in fact the carrier was no longer liable for anything. This in turn provoked a legislative reaction, intended to limit these exculpatory excesses. The first example of such legislative intervention is the US Harter Act of 1893. Similar Acts were later passed in New Zealand (1903), Australia (1904) and Canada (1910).
After the First World War, the International Law Association prepared a draft uniform model law. This was then taken up by the CMI (Comité Maritime Internationale) and ultimately led to the International Convention for the Unification of Certain Rules of Law relating to Bills of Lading (Brussels, 25 August 1924).
The Hague Rules are basically a compromise between the ship owners and the cargo interests. On the one hand, the ship owners accepted that they would, in principle, be liable for cargo damage, but on the other hand, the Rules provide a number of defenses that would always be available to the carrier, plus a limitation of liability.
2. Charter parties vs. Bills of lading.
In the early days of commercial shipping, all contracts for the use of a vessel were charter parties. The (sailing) vessels were small and only had a limited cargo capacity, which was often taken up by one single merchant. That merchant contracted with the ship owner / Master for the use of his vessel. The bill of lading was simply a receipt, to prove which goods the merchant had brought on board under the charter party. Later, when the ships became bigger and more and more cargo was being shipped, charter parties were not always used anymore and goods started to be shipped under a bill of lading only, which then became a contract between the shipper and the carrier.
Today, carriage under charter parties and carriage under bills of lading exists side by side. Very generalizing, it is said that charter parties are for cargoes that take up the entire ship, or at least a large part of it, while bills of lading are for small(er) cargoes. In practice, this is not always true, but with regard to the carriage conventions, the distinction is relevant, because the (big) charterer is deemed to have equal bargaining power to the ship owner, whereas the (small) shipper under a bill of lading is deemed to be the weaker party, which has to be protected against the ship owner.
The Hague and subsequent Rules, which are mandatory law, therefore only apply to carriage under bills of lading (or similar documents), and explicitly exclude charter parties:
Hague-Visby Rules:
Art. 5. (...) The provisions of this Convention shall not be applicable to charter parties, but if bills of lading are issued in the case of a ship under a charter party they shall comply with the terms of this Convention.
Art. 1.(b) "Contract of carriage" applies only to contracts of carriage covered by a bill of lading or any similar document of title, in so far as such document relates to the carriage of goods by sea, including any bill of lading or any similar document as aforesaid issued under or pursuant to a charter party from the moment at which such bill of lading or similar document of title regulates the relations between a carrier and a holder of the same.
Hamburg Rules:
Art. 2.3 The provisions of this Convention are not applicable to charter-parties. However, where a bill of lading is issued pursuant to a charter-party, the provisions of the Convention apply to such a bill of lading if it governs the relation between the carrier and the holder of the bill of lading, not being the charterer.
Rotterdam Rules:
Art. 6 Specific exclusions
1. This Convention does not apply to the following contracts in liner transportation:
(a) Charter parties; and
(b) Other contracts for the use of a ship or of any space thereon.
2. This Convention does not apply to contracts of carriage in non-liner transportation except when:
(a) There is no charter party or other contract between the parties for the use of a ship or of any space thereon; and
(b) A transport document or an electronic transport record is issued.
Art.7 Application to certain parties
Notwithstanding article 6, this Convention applies as between the carrier and the consignee, controlling party or holder that is not an original party to the charter party or other contract of carriage excluded from the application of this Convention. However, this Convention does not apply as between the original parties to a contract of carriage excluded pursuant to article 6.
Charter parties as such are clearly not subject to the Rules. There is no mandatory law with regard to charter parties; parties enjoy full freedom of contract.
Very often, however, even if goods are carried pursuant to a charter party, there is also a bill of lading issued, for example because the parties need a bill of lading to obtain payment under a letter of credit, or even simply because a bill of lading is required for administrative or Customs purposes. In such case – a B/L issued pursuant to a charter party – a distinction has to be made. As long as the bill of lading remains in the hands of the charterer, it only serves as a receipt. The charter party controls the relation between the parties and the Rules do not apply. If, however, the bill of lading is negotiated to a third party, which is not involved with the underlying charter party, the Rules then become applicable to that bill of lading and govern the relation between the third party holder and the carrier, to protect the position of the third party holder.
3. Scope of application of the Rules.
3.1 Documentary scope.
The Hague-Visby Rules tie in their applicability with the existence of a bill of lading 'or similar document'. Article 2 of the Hague Visby Rules provides that every contract of carriage of goods by sea shall be subject to the Rules, but Article 1.b provides that 'contract of carriage' only refers to contracts of carriage covered by a bill of lading or any similar document of title.
This concept of 'bill of lading or any similar document of title' has given rise to a number of difficulties. First of all, since it refers to similar documents of title, it implies that a bill of lading, to be covered by the Hague-Visby Rules, must also be a document of title. That has always been accepted for order and bearer bills of lading, but was a point of discussion for straight (or named) bills of lading. In the U.K., it was only in The Rafaela S (2005) that the House of Lords held that a straight bill of lading is indeed a 'bill of lading' for the purposes of the Hague-Visby Rules.
The 'similar document of title' concept is even more troublesome, not in the least because there is a notable difference between the English and the French versions of the Hague-Visby Rules (both of which are authentic):
the English version talks about "... a bill of lading or any similar document of title"
the French version talks about " ... un connaissement ou tout document similaire formant titre pour le transport des marchandises par mer", or translated: a bill of lading or any similar document that is a title for the carriage of goods by sea.
According to the English text, therefore, the similar document must be a title to the goods, while the French text refers to a title for the carriage, which is clearly much broader. In France, therefore, the concept of 'similar documents' is interpreted very widely. In the U.K. on the other hand, the interpretation is much stricter. Sea waybills, for instance, are not considered 'similar documents' and thus are not subject to the mandatory Hague-Visby Rules.
Given these problems, the Hamburg Rules and the Rotterdam Rules have abandoned the link to the bill of lading. The Hamburg Rules apply to all contracts of carriage by sea (Art. 2.1), and such contract is defined as any contract whereby the carrier undertakes against payment of freight to carry goods by sea from one port to another (Art. 1.6). The bill of lading is still mentioned and defined in the Hamburg Rules (Art. 1.7), but the existence of a contract of carriage and the applicability of the Rules no longer depend on the bill of lading. The Rotterdam Rules also apply to contracts of carriage (Art. 5.1), which are defined in Art. 1.1 (a contract in which a carrier, against the payment of freight, undertakes to carry goods from one place to another). The Rotterdam Rules do not mention bills of lading anymore, but simply talk about transport documents.
3.2 Geographical scope.
The different Rules, as such, only apply to international carriage. Carriage of goods by sea is most often international, but Member States that do have domestic sea carriage can extend the Rules to also cover such carriage.
The Hague Rules initially provided (Art. 10):
The provisions of this Convention shall apply to all bills of lading issued in any of the contracting States.
The Visby Protocol later extended the scope:
The provisions of this Convention shall apply to every Bill of Lading relating to the carriage of goods between ports in two different States if:
(a) the Bill of Lading is issued in a Contracting State, or
(b) the carriage is from a port in a Contracting State, or
(c) the contract contained in or evidenced by the Bill of Lading provides that the rules of this Convention or legislation of any State giving effect to them are to govern the contract
whatever may be the nationality of the ship, the carrier, the shipper, the consignee, or any other interested person.
Each Contracting State shall apply the provisions of this Convention to the Bills of Lading mentioned above.
This Article shall not prevent a Contracting State from applying the rules of this Convention to Bills of Lading not included in the preceding paragraphs
The Hamburg and Rotterdam Rules have similar provisions:
Hamburg Rules:
Article 2. Scope of application
1. The provisions of this Convention are applicable to all contracts of carriage by sea between two different States, if:
(a) the port of loading as provided for in the contract of carriage by sea is located in a Contracting State, or
(b) the port of discharge as provided for in the contract of carriage by sea is located in a Contracting State, or
(c) one of the optional ports of discharge provided for in the contract of carriage by sea is the actual port of discharge and such port is located in a Contracting State, or
(d) the bill of lading or other document evidencing the contract of carriage by sea is issued in a Contracting State, or
(e) the bill of lading or other document evidencing the contract of carriage by sea provides that the provisions of this Convention or the legislation of any State giving effect to them are to govern the contract.
2. The provisions of this Convention are applicable without regard to the nationality of the ship, the carrier, the actual carrier, the shipper, the consignee or any other interested person.
Rotterdam Rules:
Article 5 General scope of application
1. Subject to article 6, this Convention applies to contracts of carriage in which the place of receipt and the place of delivery are in different States, and the port of loading of a sea carriage and the port of discharge of the same sea carriage are in different States, if, according to the contract of carriage, any one of the following places is located in a Contracting State:
(a) The place of receipt;
(b) The port of loading;
(c) The place of delivery; or
(d) The port of discharge.
2. This Convention applies without regard to the nationality of the vessel, the carrier, the performing parties, the shipper, the consignee, or any other interested parties.
The Hague-Visby Rules (which are currently the most widely used convention) only apply to shipments from a port of a Member State (outbound), not to shipments to a port of a Member State (inbound). Some Member States (e.g. Belgium) have however extended the scope in their national law to also cover inbound shipments.
The Hague-Visby and Hamburg Rules provide that the Rules are applicable if the bill of lading contains a clause that provides that the Rules will apply (Art. 10.c HVR, Art. 2.1.e HambR). Such clause is called a 'Paramount clause'. This is a quite remarkable technique, since the presence of a contractual clause triggers the application of the convention. Parties are, of course, not obliged to reinvent the wheel every time they enter into a contract. If they are satisfied with a certain convention (or national law), they can refer to that convention or law and incorporate it into their contract. In that case, however, the convention does not apply as such, the text of the convention simply becomes a part of their contract. Rather than writing out all rules themselves, the parties include an existing text. Most legal systems will the parties to only incorporate parts of the convention, to amend the text, etc. The effect of a Paramount Clause is fundamentally different. A Paramount Clause does not simply 'copy-paste' the text of the Hague-Visby Rules into the contract of carriage, the presence of the Paramount Clause makes the Hague-Visby Rules applicable as an international Convention, with mandatory effect. Obviously, since the Paramount Clause triggers the application of the Convention as such, the entire convention becomes applicable, and parties are not at liberty to amend the provisions of the convention.
3.3 Scope in time: 'tackle to tackle'.
A carrier is, essentially, a service provider to which goods are entrusted that belong to another party (just like a repair shop, a hotel keeper, etc.). In principle, therefore, the carrier should become liable for such goods from the moment he accepts them until the moment he delivers them to the consignee.
The Hague and Hague-Visby Rules however explicitly allow the carrier to exclude liability for loss or damage occurring before loading into or after discharge from the vessel (Art. 7). The Rules therefore only apply mandatorily to the period between loading and discharging, or 'tackle to tackle'. It should be stressed, however, that Article 7 HVR only provides the carrier with a possibility. In practice, almost every bill of lading does indeed contain an exculpation clause (called 'Before and After' clause, or 'Period of liability' clause), but if that is (exceptionally) not the case, the Hague-Visby Rules apply from reception to delivery.
Sample wording:
The Carrier shall in no event be liable for any loss of or damage to or in connection with the Goods, whether caused by the Carrier's negligence or not, occurring before loading on board and/or after discharge from the Vessel, whether the Goods are awaiting shipment, landed or stored or put into craft, barge, lighter or otherwise whether belonging to the Carrier or not, or pending transshipment at any stage of the Carriage.
Article 1.(e) HVR does provide that 'carriage of goods' covers the period from the time when the goods are loaded on to the time they are discharged from the ship, but this provision does not mean that the Hague-Visby Rules cannot apply before loading or after discharge. If such was the meaning of Article 1.(e), Article 7 would be superfluous.
Although the Hague-Visby Rules allow exculpatory clauses before loading and after discharge, they do not prevent contracting States from introducing national law that (mandatorily) governs those periods. In the U.S.A., for example, the old Harter Act has never been abolished and is still in force today, and applies from reception to delivery. If the bill of lading contains a 'Before and After' clause, the periods before loading and after discharge are governed by the Harter Act. (The U.S. courts have allowed the carrier to choose COGSA instead of the Harter Act, but the carrier cannot contract out of liability.)
The Hamburg Rules explicitly confirm the liability of the carrier during the entire period he is in charge of the cargo:
Article 4. Period of responsibility
1. The responsibility of the carrier for the goods under this Convention covers the period during which the carrier is in charge of the goods at the port of loading, during the carriage and at the port of discharge.
The Rotterdam Rules also confirm this principle, but do again allow 'Before and After' clauses to a certain extent:
Article 12. Period of responsibility of the carrier
1. The period of responsibility of the carrier for the goods under this Convention begins when the carrier or a performing party receives the goods for carriage and ends when the goods are delivered.
(...)
3. For the purpose of determining the carrier’s period of responsibility, the parties may agree on the time and location of receipt and delivery of the goods, but a provision in a contract of carriage is void to the extent that it provides that:
(a) The time of receipt of the goods is subsequent to the beginning of their initial loading under the contract of carriage; or
(b) The time of delivery of the goods is prior to the completion of their final unloading under the contract of carriage.
3.4 Scope: cargoes.
The Hague-Visby Rules apply to contracts for the carriage of 'goods' by sea, and 'goods' are defined in Art. 1.(c) to include basically everything, except deck cargo and live animals.
It is important to realize that these provisions were – at least historically – a protection for the carrier, and not a protection of the cargo interests. When the Hague Rules came into being, the carriers were used to full freedom of contract, with very extensive exculpation clauses. The Hague Rules meant a change to a world of mandatory, presumed liability in exchange for a limited list of defenses and limitation of liability. The carriage of goods on deck (which has always existed and was common in certain trades, such as wood) and the carriage of live animals was considered so risky that it would not be fair or just to subject the carrier to the presumed liability system of the Hague Rules. The deck cargo and live animals provision in the Hague Rules is thus an escape hatch for the carrier, out of the mandatory regime of the Hague Rules, back into the freedom of contract of the old days.
The escape hatch however only opens if a double, cumulative condition is satisfied: the bill of lading must state that the goods are carried on deck, and the goods must indeed be carried on deck. The second condition is quite easy to understand. If, in order to escape the mandatory regime and regain full freedom of contract, it were sufficient to simply state on the bill of lading that the goods are carried on deck, then all bills of lading would standard bear such notation and the Hague Rules would never apply. Therefore the second condition: the carrier only escapes the mandatory regime and regains freedom of contract if the goods are not only stated to be carried on deck, but also actually carried on deck.
3.5 'Escape' routes.
The carriage conventions are, as has already been pointed out, mandatory law. It should come as no surprise that the parties, or one of them, are not always very pleased with this mandatory character and their lack of contractual freedom.
The Hague-Visby Rules do allow the parties to step out of the mandatory field in case of the carriage of 'particular goods' (Art. 6). This provision is quite complex, loaded with conditions, and not easy to interpret or apply in practice. The carrier is allowed to enter into any agreement with regard to his liability if:
- the goods carried are 'particular goods';
- they must not be ordinary commercial shipments made in the ordinary course of trade;
- they must instead be shipments where the character or condition of the property to be carried or the circumstances, terms and conditions under which the carriage is to be performed are such as reasonably to justify a special agreement;
- no bill of lading can be issued;
- the transport document used must be non-negotiable and marked as such;
- the agreement cannot be contrary to public policy.
The Rotterdam Rules have a somewhat similar exception for 'volume contracts', be it that the concept of volume contracts is much clearer defined than the concept of 'particular goods'. A 'volume contract' is a contract of carriage that provides for the carriage of a specified quantity of goods in a series of shipments during an agreed period of time (Art. 1.2 RR). In case of volume contracts, the parties enjoy a greater freedom of contract (Art. 80 RR).
4. FIO(S)(T) clauses.
FIO(S)(T) clauses – Free In and Out (Stowed) (Trimmed) – provide that the cargo interests (shipper, consignee) must load and discharge the vessel. They refer to 'Free' in and out, because loading and discharging the vessel is normally part of the carrier's job, and thus paid for by the carrier. If these operations are taken care of by the cargo interests, they also pay for those services, and thus these operations are 'free' (of cost) for the carrier.
Sample wording:
In case loading and/or discharge are effected by the Merchant at his expense (in which case the terms "FI", "FO" or "FIO" are shown in this Bill of Lading as the case may be), the Carrier's responsibility shall, notwithstanding the preceding paragraph, commence when loading has been completed and/or cease when discharge has begun respectively, and shall be exonerated from any loss of or damage to or in connection with the Goods occurring during such loading and/or discharge, even if such loading and/or discharge are done with the assistance and/or advice of the Master/Vessel's officers/crew, who in such cases, are deemed to be an agent(s) or employee(s) of the Merchant.
To the extent that FIO(S)(T) clauses relate to paying the cost of loading and discharging, they are not problematic. The Rules don't say anything about costs or about how freight should be calculated; parties are free to agree that the costs of loading and discharge will be paid by the cargo interests.
The liability aspect of FIO(S)(T) clauses is problematic, on the other hand. Article 3.2 HVR indeed provides that "... the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried". On the basis of this text, it would seem that that carrier is always liable for the proper loading and discharging of the cargo, without possibility to transfer this liability to the cargo interests. Several States do indeed take this approach, and do not accept that a FIO(S)(T) clause can change the liabilities of carrier. In such States, the scope of the FIO(S)(T) clause is limited to the cost aspect. The consequence of this approach, however, is that if the cargo interests instruct and pay the stevedore, and the stevedore negligently causes loss or damage to the cargo, the carrier is liable for that loss or damage (on the basis of Art. 3.2 HVR), even though the carrier did not select or instruct the stevedore and even though the carrier, under the applicable law, may not even have a (recourse) claim against the stevedore.
The UK courts have taken a different view. Their position is that the carrier's obligation to properly and carefully load, stow, etc. the goods only applies if the carrier has first undertaken to load or stow the goods. In other words, the parties (shipper - carrier) are entitled to agree that it will be the shipper that physically loads and stows the cargo. If that is the case, then the carrier cannot be held liable for what the shipper (or his stevedore) does wrong. It is only when the carrier has first agreed to load the goods that the obligation to do so properly and carefully applies.
The Rotterdam Rules have essentially adopted the UK position. Article 13.2 RR provides:
Article 13 Specific obligations
1. The carrier shall during the period of its responsibility as defined in article 12, and subject to article 26, properly and carefully receive, load, handle, stow, carry, keep, care for, unload and deliver the goods.
2. Notwithstanding paragraph 1 of this article, and without prejudice to the other provisions in chapter 4 and to chapters 5 to 7, the carrier and the shipper may agree that the loading, handling, stowing or unloading of the goods is to be performed by the shipper, the documentary shipper or the consignee. Such an agreement shall be referred to in the contract particulars.
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