Chapter 7

Bills of Lading and Common Law

Chapter Contents

Introduction

It is probable that a proportion of bills of lading issued in the UK is likely to be governed by the liability regime of the Hague-Visby Rules1 – the product of an international convention to redress the imbalance caused by the extended use of, and tolerance toward, exclusion clauses operating in favour of shipowning interests.

Regardless, common law may still be relevant since not all types of bills of lading, or kinds of cargo carried under a transferable bill of lading, trigger the application of the Hague Rules or the Hague-Visby Rules.2 Bills of lading issued for the carriage of live animals, deck cargo, bills of lading that are not documents of title (i.e., bills of lading that are non-transferable)3 and bills of lading issued for the carriage of goods by inland waterway are likely to attract the application of rules founded in common law.

Parties to such bills of lading are free to expressly incorporate the Hague-Visby Rules under ss 1(6)(a) and 1(6)(b) of the Carriage of Goods by Sea Act 1971.4 In the absence of express incorporation of the Hague-Visby Rules, the terms of carriage are largely determined in England by common law – derived from custom and commercial usage – and general principles of contract law as applied to the terms as agreed by the parties.5

Common law implies a number of obligations on the part of both the shipowner (or carrier) and the shipper. The parties can lessen the liability imposed by these implied undertakings, or exclude them altogether, with the aid of contractual stipulations. The stipulations need to be expressed in clear language since lack of clarity will attract the application of the common law implied undertakings to the contract of carriage.6

Implied obligations on the part of the shipowner

The shipowner is under an implied obligation at common law to:

•provide a seaworthy ship,

•proceed with due dispatch,

•carry the cargo to the agreed destination without deviation and

•use due care and skill in navigating the vessel and in carrying the goods.

Seaworthiness

Common law places the shipowner under an implied warranty to supply a ship that is fit for its purposes. As Lord Blackburn said in Steel v State Line7:

I take it ... to be quite clear, both in England and in Scotland, that where there is a contract to carry goods in a ship, whether that contract is in the shape of a bill of lading, or any other form, there is a duty on the part of the person who furnishes or supplies that ship, or that ship’s room, unless something is stipulated which prevents it, that the ship shall be fi t for its purposes. That is generally expressed by saying that it shall be seaworthy ... [at p 86].

The meaning of seaworthiness is two-fold. It refers to both the physical state of the ship and its fitness for receiving the cargo – that is, cargoworthiness.8

As for the ship’s physical state, it must be fit for the purposes of the voyage to be undertaken. That is, the ship must be fit in design and structure and must be suitably equipped to encounter the ordinary perils that are likely on the particular route to her destination at that time of the year.9 The ship is also required to have a sufficient and competent crew for carrying out the intended voyage. So, where the captain and the chief officer are in a drunken state at the start of the voyage10 or the master or the crew is incompetent,11 the ship would be deemed unseaworthy. She must also take a safe supply of bunkers (i.e., fuel) for the intended voyage.12

The question of whether a ship is fit for the voyage or not is a question of fact and will vary from case to case. So, where the weather is expected to be exceptionally rough, the level of seaworthiness will be far higher than the level of seaworthiness for a voyage on calm seas. In other words, the question of seaworthiness is to be ascertained in terms of the surrounding circumstances.

The ship must be seaworthy at the time of sailing.13 If the ship develops faults after the ship has sailed or during the process of getting out of the harbour, the undertaking of seaworthiness would have been satisfied. The ship is deemed to sail when she leaves the moorings with no intention of returning to the moorings.14

The ship must also be cargoworthy – that is, fit to carry the particular cargo safely. So, if the contract of carriage is for carriage of frozen meat, then the ship must have the necessary refrigeration to carry the meat safely on the agreed voyage. Defective refrigerators will be a breach of the seaworthiness warranty.15 If the holds need to be disinfected for the safe carriage of the cargo, failure to do so would be regarded as unseaworthiness.16 Once again, the question of whether or not the ship is fit to carry the cargo is a question of fact.

The undertaking of cargoworthiness, however, needs to be distinguished from that of bad stowage.The distinction between the two may not always be that clear cut. In some instances, it is possible for bad stowage to appear to be an issue of cargoworthiness, as the case of Elder, Dempster v Pater Zochonis17 illustrates. The ship loaded a cargo of palm oil in casks, which were stored at the bottom of the hold. Lacking ‘tween decks’, six tons of palm kernel were stowed on top of the casks. On arrival at Hull, it was found that much of the oil was lost or damaged, because of pressure on the casks caused by the sacks stored directly above them.There was conclusive evidence in the log to show that damage to the casks happened after they were loaded but before the ship set sail. The bill of lading contained an exception clause that protected the shipowners from loss caused by bad stowage.The plaintiffs argued that the lack of ‘tween decks’ was a breach of cargoworthiness. The defendants argued bad stowage. Both the Court of First

8 Rathbone v MacIver [1903] 2 KB 378.

9 Stanton v Richardson (1874) LR 7 CP 421.

10Moore v Lunn (1923) 38 TLR 649.

11Eg, in Standard Oil v Clan Line [1924] AC 100, Lord Atkinson said:

It is not disputed, I think, that a ship may be rendered unseaworthy by the inefficiency of the master who commands her. Does not that principle apply where the master’s inefficiency consists, whatever his general efficiency may be, in his ignorance as how his ship may, owing to the peculiarities of her structure, behave in circumstances likely to be met with on an ordinary ocean voyage. There cannot be any difference in principle, I think, between disabling want of skill and disabling want of knowledge. Each equally renders the master unfit and unqualified to command, and therefore makes the ship he commands unseaworthy [at p 120].

See also Hong Kong Fir v Kawasaki Kisen Kaisha [1962] 2 QB 21. See Toepfer v Tossa Marine (The Derby) [1985] 2 Lloyd’s Rep 325 on the lack of documentation and seaworthiness.

12Fiumana Societa di Navigazione v Bunge [1930] 2 KB 47.

13Stanton v Richardson (1874) 9 CP 390.

14The Rona (1884) 51 LT 28.

15Cargo per Maori King v Hughes [1895] 2 QB 550.

16Tattersall v National SS Co (1884) 12 QBD 297.

17[1924] AC 522.

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Instance and the Court of Appeal decided that the absence of ‘tween decks’ was an issue of cargoworthiness.The decision was reversed in the House of Lords, who concluded that the ship was structurally, at the time the casks were loaded, fit to receive and carry the cargo without injury.The presence of ‘tween decks’ was not necessary for the carriage of the casks and the damage was caused by bad stowage.

The House of Lords acknowledged the difficulties in distinguishing cargoworthiness from bad stowage and went on to say that in some situations bad stowage could amount to unseaworthiness – that is, where it affected the physical safety of the ship. So, for instance, if the casks had been stored in a manner that would have caused the ship to sink on sailing, there would have been a breach of the seaworthiness undertaking due to bad stowage.18

At this juncture, it would be natural to ask whether the warranty of seaworthiness in relation to cargo needs to be satisfied only at the commencement of loading or whether it extends to the time of sailing. According to McFadden v Blue Star Line,19 it seems that the warranty must be fulfilled at the time of loading. Here, a sluice door was opened and improperly closed after the goods were loaded on to the ship but before she set sail.The goods were damaged as a consequence.The court came to the conclusion that there was no breach of seaworthiness since the event causing the damage took place after the goods were loaded on to the ship. The decision in McFadden v Blue Star Line was cited with approval in the House of Lords in Elder, Dempster v Pater Zochonis.20 However, the judgment of Viscount Cave in the latter suggests that the warranty of seaworthiness for cargo ‘extends to fitness for the cargo not only at the time of loading but also at the time of sailing’. In support, he cites The Thorsa.21 However, it is difficult to find dicta for Lord Viscount’s proposition in The Thorsa. In this case, cheese and chocolate were stowed together, as a result of which the chocolate became tainted. On the question of breach of the cargoworthiness warranty, the court came to the conclusion that the cheese was stowed after the chocolate, which did not make the ship uncargoworthy as regards the cargo of chocolate. As Carver states, the dicta in The Thorsa seems to be inconsistent with Viscount Cave’s interpretation in Elder, Dempster v Pater Zochonis. Besides, later judgments have not followed Viscount Cave’s suggestion. For instance, in Reed v Page,22 according to Scrutton LJ:

... the highest measure of liability as a cargo carrying adventure, that is, of ‘cargoworthiness’, is when cargo is commenced to be loaded. It has been decided that if at this stage the ship is fit to receive her contract cargo, it is immaterial when she sails on her voyage, though fit as a ship to sail, she is unfi t by reason of stowage to carry her cargo safely [at p 755].

A related question that arises in this context is, if the warranty of physical safety of the ship attaches at the time of sailing and that of cargoworthiness at the time of loading, are there no intermediate warranties for the period after the goods have been loaded and the ship is waiting to set sail? In Reed v Page, an overloaded barge sank after loading but before being towed to her destination. According to Scrutton LJ, the highest measure of liability attaches at the time when the ship starts on her voyage. Nonetheless, there could be other stages when the warranty of seaworthiness as a ship was applicable – and that is, where the ship was waiting after loading to sail. In his opinion:

... the barge was unseaworthy as a barge from the time loading finished, unfit to lie in the river and unfi t to be towed … it seems … clear that if an overloaded barge, seaworthy in the calm waters of a dock, went out into the river to wait for a tug, there would be a renewed warranty

18See, however, Lord Finlay’s dissenting statement in respect of unseaworthiness.

19[1905] 1 KB 697.

20[1924] AC 522.

21[1916] P 257.

22[1927] 1 KB 743.

of fi tness to navigate and wait, which would be broken by overloading, rendering the barge to lie waiting in the river. In the present, when the loading was fi nished and the man in charge, apparently in the ordinary course of his business, left her unattended in the river waiting for a tug, and unfi t in fact either to lie in the river or be towed, there was a new stage of the adventure, a new warranty of fi tness for that stage, and a breach of that warranty … [at p 757].

The undertaking to provide a seaworthy ship is an absolute obligation at common law. This means that the shipowner has to show that the ship is seaworthy in fact. He cannot escape liability simply by showing that he has taken every precaution to make the ship seaworthy. As Lord Blackburn stated in Steel v State Line23:

... in marine contracts, contracts for sea carriage, there is what is properly called a ‘warranty’ not merely that they should do their best to make the ship fi t, but that the ship should really be fi t [at p 86].

It seems that the absolute undertaking to provide a seaworthy ship is personal to the shipowner, and he cannot escape liability by showing that he has taken care to delegate work to dependable skilled employees and reputable independent contractors. Of course, if the shipowner wishes to lessen his absolute liability, he can do so through express stipulations, but these must be clearly and unambiguously expressed.

The test for ascertaining the seaworthiness of a ship is an objective one. The question to ask is ‘would a prudent owner have remedied the defect before sending the ship to sea had he been aware of the defect’?24 If the answer is affirmative, the ship would be deemed unseaworthy.

The shipowner, however, is not expected to provide a ship that is perfect in every way. Lack of the latest or best appliances, therefore, would not affect the seaworthiness of the ship.25 What is required is that the ship is fitted for the particular voyage, the particular cargo and the particular time of the year according to the degree of care exercised by an ordinary and prudent owner. In other words, the standard expected of the ship is relative to the existing state of knowledge and the standards prevailing at the material time.26

The burden of proof for establishing unseaworthiness rests on the party who asserts it. The party relying on unseaworthiness must plead it in sufficient detail. The unexplained sinking of a ship normally does not automatically raise the presumption that the ship was unseaworthy. However, in some circumstances, the facts may raise this presumption easily, in which case the burden shifts to the other party to show that the ship was in a seaworthy state at the time of sailing. In Fiumana Societa Navigazione v Bunge,27 there was a fire in the coal bunkers, as a result of which the cargo was damaged. No satisfactory explanation for the occurrence of the fire was given, and, in the circumstances, this raised the inference that the fire was caused by the unfitness of the bunker coal – a breach of the seaworthiness warranty. The cargo owner also has to show that it was the unseaworthiness that caused the damage or loss.28

In the event of damage or loss to the cargo due to unseaworthiness, it seems that the shipowner may be liable even where part of the damage could be attributed to other causes as long as seaworthiness is a cause or a real, actual or effective cause of the damage. That is to say, novus actus interveniens will

23(1877) 3 App Cas 72.

24McFadden v Blue Star Line [1905] 1 KB 706.

25Virginia Co v Norfolk Co (1912) 17 Com Cas 277.

26Bradley v Federal SN Co (1927) 137 LT 266.

27[1930] 2 KB 47.

28International Packers v Ocean Steamship [1955] 2 Lloyd’s Rep 218.

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not break the chain of causation and reduce seaworthiness from ‘a cause that causes’ (causa causans) to a cause that is ‘merely an incident which precedes in the history or narrative of events, but as a cause is not in at the death, and hence is irrelevant’ (causa sine qua non). In Smith, Hogg v Black Sea and Baltic General Insurance,29 deck cargo was stored on deck in a manner that made the ship extremely unstable. During bunkering operations, the forepeak was emptied, which increased her degree of list. As a consequence, she lay on her beams and the cargo was damaged. There was an exception clause in the contract that protected the owners for loss or damage caused by the negligence of their employees.The defendants contended that the negligent act of the master in bunkering was the cause of the loss and relied on the exception clause. The court came to the conclusion that a cause of the loss was unseaworthiness. The alleged negligence of the master was proximate in time to the disaster and may have contributed to the disaster ‘but the disaster would not have arisen but for the unseaworthiness’. In other words, the unseaworthiness was effective in bringing about the loss even though other events equally detrimental may have taken place between the moment of unseaworthiness and the moment of damage.

The undertaking of providing a seaworthy ship is regarded as an innominate term. In the event of a breach, the remedy available to the injured party will depend on the seriousness of the breach. If the breach goes to the root of the contract, such as to make further commercial performance of the contract impossible, the injured party can repudiate the contract and claim damages; however, if it does not frustrate the commercial purpose of the contract, the remedy available is damages.30

The shipowner is free to contract out of the implied undertaking of seaworthiness. The stipulation, however, needs to be express, clear and unambiguous.31 A clause couched in general terms would be construed restrictively. For instance, phrases such as ‘at ship’s expense and shipper’s risk’ would be insufficient to exclude the implied obligation.32 In construing the effectiveness of a clause, the courts, however, tend to look at the agreement as a whole.33 A clearly worded clause exempting liability for unseaworthiness may, therefore, be rendered totally or partially ineffective when read in the context of the whole agreement. In Elderslie SS Co v Borthwick,34 among others, the bill of lading contained the following clauses:

Clause 1 – Neither the steamer nor her owners, nor her charterers, shall be accountable for the condition of goods shipped under this bill of lading, nor for any loss or damage thereto, whether arising from failure or breakdown of machinery, insulation, or other appliances, refrigerating or otherwise, or from any other cause whatsoever, whether arising from a defect existing at the commencement of the voyage or at the time of shipment of the goods or not.

Clause 2 – ... whether or not any of the perils, causes or things above mentioned or the loss or injury arising therefrom, be occasioned by or arise from any act or omission, negligence, default of error in judgement of the master, pilot, … crew, stevedores, or other persons whomsoever in the service of the owners or charterers … if reasonable means have been taken to provide against such defects and unseaworthiness [emphasis added].

The court came to the conclusion that, although cl 1 excluded unseaworthiness in clear language, the combined effect of cll 1 and 2 meant that the shipowner could exclude liability only if he could show that he had taken reasonable measures to provide against unseaworthiness.

29[1940] AC 997.

30Hong Kong Fir Co v Kawasaki Kisen Kaisha [1962] 2 QB 26.

31 See for a recent clause that was successful Mitsubishi Corporation v Eastwind Transport Ltd (The Irbensky Proliv) [2005] 1 Lloyd’s Rep 383.

32The Galileo [1914] P 9.

33Nelson v Nelson [1908] AC 16.

34[1905] AC 93.

Due dispatch

Common law implies that the voyage must be prosecuted with due dispatch – that is, the vessel will proceed on the voyage, load and discharge at the time agreed. In the absence of express agreement or agreement by implication, the law implies the performance of the voyage within a reasonable time. What is reasonable is inferred in relation to what can reasonably be expected from the carrier under the actual circumstances at the time of performance.35

This undertaking seems to be treated as an innominate term.The remedy available to the injured party on the breach of this term would, therefore, depend on the consequences of the breach. If the consequences of the breach are not so serious as to go to the root of the contract, the injured party can claim damages only by way of compensation. However, if the consequences are so serious as to frustrate the contract of carriage, the injured party can repudiate the contract and claim damages. In Freeman v Taylor,36 a ship was chartered to take cargo to the Cape of Good Hope and then proceed to Bombay with all convenient speed to load a cargo of cotton. The captain, after discharging the goods at the Cape, loaded a cargo of cattle and mules for discharge at Mauritius. The vessel was delayed by seven weeks. On arrival at Bombay, the charterer refused to load the cotton.The delay of seven weeks was regarded as sufficient to frustrate the commercial purpose of the contract.

Deviation

Under common law, the shipowner is under an implied obligation to carry the cargo to the agreed destination directly without any deviation. The shipowner is presumed to take the direct geographical and safe route to the port of discharge. Where he does not take the direct route to the port of destination, evidence may be adduced to show that the route that he took is the normal customary route. In Reardon Smith Line v Black Sea and Baltic General Insurance,37 the ship deviated from the direct geographical route on a voyage from Poti (in the Black Sea) to Sparrow’s Point (in the US) to Constanza to obtain cheap fuel. The defendants were able to show that their vessels invariably went to Constanza for fuel and that 25% of the vessels plying that route stopped at Constanza. The rule that the ship must not deviate is, however, not that strict, and common law does allow the ship to depart from the direct geographical route in the following circumstances:

•for saving human life and

•for the prosecution of the voyage or for the safety of the adventure.

Deviation from the route defined in the contract is regarded as justified where it occurs for the purposes of saving human lives. This justification, however, is construed strictly and does not extend to the saving of property during the course of saving lives. In Scaramanga v Stamp,38 The Olympias was carrying a cargo of wheat when she sighted The Arion in distress. Instead of taking the crew off the ship, The Olympias agreed to tow the Arion for £1,000.The weather was fine, so there would have been no difficulty in taking the crew off The Arion. It was held that the saving of property during the course of saving life did not amount to a justifiable deviation. However, if saving property is an essential step for saving lives, the saving of property in these circumstances will not be regarded as unjustifiable deviation. So, if the crew cannot be lifted off the ship in distress because of extreme

35Hick v Raymond [1893] AC 22.

36(1831) 8 Bing 124. Note that the due dispatch obligation also applies to the approach voyage.

37(1939) AC 562.

38(1880) 5 CPD 295.

After loading the oranges, the ship went to a port on the north-eastern coast of Spain before proceeding on her voyage to Liverpool. The wide ambit of the clause, however, was ineffective in protecting the shipowner from damages for the decayed condition of the oranges since the clause was seen as frustrating the object of the described voyage. Similarly, in Leduc v Ward,42 ‘liberty to call at any ports in any order’ was construed as imparting a limited right of calling only at those ports that would naturally and usually be ports of call in the voyage named. However, not all liberty clauses are ineffective. In Connolly Shaw v Nordenfjeldske SS Co,43 lemons were shipped under a bill of lading from Palermo to Hull. The clause read: ‘… to proceed to … any ports whatsoever … although … out of or beyond the route …’

The ship deviated to Hull and the shipowner invoked the liberty clause.The court held that the ship had the right to deviate to Hull under the liberty clause provided the object of the contract, the carriage of perishable goods to London, was not frustrated. A suitably worded liberty clause in the right circumstances will protect the shipowner.

The implied obligation of not to deviate is regarded as a condition of the contract. This entitles the cargo owner to repudiate the contract and claim damages or waive the deviation while reserving the right to damages. In the event of repudiation, the shipowner will be unable to rely on clauses, such as exception clauses and freight clauses in the contract of carriage – a rather harsh result as far as the shipowner is concerned. The adverse effect of unjustifiable deviation was justified in Thorley v Orchis SS Co44 on the reasoning that it is ‘such a serious matter, and changes the character of the voyage so essentially, that a shipowner who has been guilty of a deviation cannot be considered as having performed his part of the bill of lading contract, but something fundamentally different, and therefore he cannot claim the benefit of stipulations in his favour contained in the bill of lading’ (p 690). A further reason for regarding deviation as a matter of grave importance is that the shipper loses the benefit of insurance from the moment the vessel actually deviates.

Once the shipper has elected to repudiate the contract, the shipowner is relegated to the position of a common carrier. The general opinion is that, as a common carrier, he is entitled to the common law exceptions – act of God, act of Queen’s enemies and inherent vice – provided he can show that the damage would have been caused by the excepted perils even if he had not deviated45 and reasonable freight on a quantum meruit basis.46

Where the shipper decides to treat the contract as subsisting after hearing of the deviation, the shipowner will have the benefit of the terms of the contract. The waiver of the right to repudiate on the part of the cargo owner must be unequivocal, definite, clear, cogent and complete for it to be operative.47 The waiver of a deviation by a charterer, however, does not affect the consignee of a bill of lading who has no notice of the deviation. In Hain v Tate and Lyle,48 a ship was chartered to carry sugar from Cuban ports and a port in San Domingo to be nominated by the charterers. The ship loaded at the Cuban ports and proceeded to Queenstown. Owing to a communication problem, the master was not aware of the nomination of a port in San Domingo. Once the parties realised the mistake, the master was ordered to proceed to the nominated port. On leaving San Domingo, the ship stranded and part of the cargo was lost. The salvaged cargo was shipped on another vessel, which was collected by the endorsees of the bill of lading who

42(1888) 20 QBD 475.

43(1934) 50 TLR 418.

44[1907] 1 KB 660.

45Morrison v Shaw, Savill [1916] 2 KB 783.

46Hain v Tate and Lyle (1936) 41 Com Cas 350, at pp 368–9.

47McCormick v National Motor Insurance (1934) 40 Com Cas 76, at p 93.

48(1936) 41 Com Cas 350.