Bill of Lading can still carry surprises
The basic functions of a bill of lading (B/L) are widely understood as offering: acknowledgement that the goods have been loaded on board the vessel (the receipt); confirmation that a lawful B/L holder has title to the goods; evidence of the terms of the contract of carriage.
Whilst that may sound simple enough, recent guidance has emphasised that the last of these functions may not be so well understood after all.
One reason is that finding the terms for the contract of carriage involves seeking guidance not only from the face and reverse of the B/L but from relevant provisions in an incorporated charterparty (C/P). Another is that ascertaining terms will also involve establishing which of the Hague Rules / H-V Rules apply and whether they apply automatically or do so by virtue of the Clause Paramount on the back of the bill.
To add to the complexity there are scenarios where a B/L is not even evidence of the terms of the contract of carriage at all; for example, when the B/L is between the same two parties to a C/P (e.g., between an owner/carrier and a charterer/shipper or receiver). Practically this makes sense because a C/P is a contract that has been specifically negotiated between the two parties, while the B/L is seeking to piece terms together between the same parties. In this situation the B/L is only a receipt and, possibly, a document of title. However, the writer has seen examples where this scenario has caught out cargo interests seeking time extensions under B/Ls, which are not evidence of the contract at all, instead of under the relevant C/P incorporating a Clause Paramount, thus potentially time-barring the claims under the C/P.
Two examples which demonstrate the B/L’s role as a contract of carriage from the perspectives of both P&I and FD&D – and indeed DTH – incorporate recent English Court decisions.
Cargo interests and charter parties
The first of these relates to responsibility for cargo operations. At common law the duty to load, stow and discharge the cargo prima facie rests on shipowners while, under the Hague Rules, the carrier is to properly load, handle, stow, carry, keep, care for and discharge the cargo. However, the parties can decide who is to be responsible for these operations between themselves: a carrier can contract out of these obligations so that cargo interests can be responsible.
Clear language is required before a court or arbitral tribunal could safely conclude that the general rule had been ousted by agreement, but this is very possible. This is often done by the incorporation of C/P terms into B/Ls. To be incorporated, such terms must be germane to the shipment.
In EEMS SOLAR  2 Lloyds Rep 487, for example, the relevant C/P clause included the statement: “The cargo shall be brought into the holds, loaded, stowed and/or trimmed, tallied, lashed and/or secured and taken from the holds and discharged by the Charterers, free of any risk, liability and expense whatsoever to the Owners.”
In this case, while there is no express mention of “shippers” or “receivers” and the word “charterers” cannot be read as applying to the shippers or receivers, the phrase “free of any risk, liability and expense whatsoever to the Owners” excludes the Carrier from responsibility for poor stowage under the B/L. The court took this a step further and concluded that therefore, if not owners, it was the cargo interests that were responsible for the stowage and that the specific wording in the C/P as incorporated into the B/L is determinative of responsibility and therefore liability under the B/L.
A recent decision, THE SEA MASTER  EWHC 2030 (Comm), confirmed that the common law duty to carry out the cargo operations lay on the shipowners but, importantly, reiterated that the transfer of the obligation to pay for the cost of discharge to a charterer or receiver would not in itself have the effect of also transferring the obligation to carry out the task from the owner to the paying party. It did not transfer responsibility for the operations.
Therefore, a FIOS (free in and out stowed) provision on the face of a B/L, for example, is unlikely to be sufficient in itself to transfer responsibility for cargo operations to the shippers and receivers and the carrier retains responsibility. In addition, clearer words are required transferring actual responsibility for cargo operations to the shippers and receivers or, at least, away from the owners, such as those in the EEMS SOLAR (and JORDAN II).
This is a reminder for parties to look carefully on the face and reverse of the bill, the incorporated C/P terms that are germane to the shipment and the Hague Rules to determine responsibility for cargo operations. It all depends on the contractual terms as to where liability for cargo claims may lie and there is not a “one size fits all” approach.
While the question of who is liable for cargo operations is often a consideration in respect of cargo damage claims, it too can be a factor for damage to hull claims caused during cargo operations and it should not be lost that the carrier has as much right to sue cargo interests under a B/L as a cargo interest does against the carrier.
Pay me not my agent
The second example relates to the ability of a Carrier to claim freight from cargo interests under the B/L “contract” – a mechanism which has been used frequently over recent years. The principle has been reinforced by subsequent decisions, primarily the BULK CHILE  2 Lloyd’s Rep 38.
In this scenario, the ability to claim freight under the B/L goes further than exercising a lien in respect of any unpaid hire owed by charterers by intercepting freight in that sum. This is because there is a potential right to claim B/L freight in all cases which does not rely on a breach or non-payment by time charterers. Rather, the Carrier can say to B/L Holder: pay me and not my agent, the disponent owner/charterer.
This view was reinforced very recently in MV “SMART”  EWHC 1157 (Comm) (A smart approach to intercepting sub-freights – cjclaw.com) which held that there was no implied obligation that Owners would not revoke Charterers’ authority to collect the freight from Sub-charterers and B/L Holders unless hire and/or other sums were due under the Charter. In other words, in principle there is nothing to stop a contractual carrier under a B/L from calling upon the Shippers/Receivers/B/L Holders to pay the freight for shipment due under the B/L at any stage.
In practice, there is little to be gained by the shipowner claiming B/L freight unless charterers are not making hire payments or are about to become insolvent or hit financial trouble so that they will stop making hire payments; the Carrier would still have to account for any surplus over and above the hire to which it is entitled to its charterer. However, this latest judgment clarifies that a Carrier is able to jump in to call upon freight to be paid directly to it for the shipment before any missed hire payments or breach if the Charterer appears to be heading for impending insolvency or financial difficulties and the Carrier is aware that freight is yet to be paid under the B/L.
Freight prepaid or payable?
A Carrier is in practice not entitled to its freight under the B/L, however, where freight has already been paid as per the B/L terms and the carrier is, in essence too late to call upon the freight to be paid to it directly.
Returning to the contractual construction points in this area, B/Ls are often marked on their face “freight prepaid” or “freight payable as per charterparty” which are, in effect, terms of the contract of carriage.
Freight prepaid is not necessarily a bar to payment but is part of evidence of the contract terms. It entitles a B/L holder who is not responsible for the freight payment to rely on this wording and refuse to make any freight payment to the Carrier. However, if freight was not paid by the shipper who was responsible for the underlying freight payment, freight has not been prepaid and the Owners can claim freight from the shipper who cannot rely on the “freight prepaid” term in circumstances where they know it has not been paid and who are responsible for that (non)payment. If freight has already been paid to a charterer/disponent owner then it is too late and the carrier cannot call upon this freight to be paid to them.
Likewise, the Carrier cannot claim freight from a 3rd party B/L holder, who is able to rely on the words “freight prepaid” unless again that party is responsible for the payment of freight which remains unpaid, such as goods being bought FOB with the receiver as the buyer responsible for arranging carriage and paying freight and has not done so.
Where freight is payable as per charterparty, it is relatively simple in principle to determine whether freight has been paid as per the B/L contract of carriage. This requires confirmation of which C/P terms have been incorporated. If freight not been paid as per the incorporated C/P, the owner can intervene and claim freight under the B/L. If it has, the carrier is no longer entitled for freight to be paid to it.
In short, much of these payment principles turn on agency – freight is usually paid to a charterer/disponent owner as opposed to the Carrier directly who collect such freight as agent for the Carrier. This gives rise to the possibility of the Carrier, as the principal contracting party under the B/L, requiring cargo interests to pay it direct instead of its agent. However, the parties’ rights and obligations also turn on the specific wording of the B/L as evidence of the contract of carriage.
These two examples citing recent case law re-emphasise the important role of a B/L as evidence of the contract of carriage and why it is important to carefully check the terms incorporated therein to establish the rights of the parties to the B/L.
Source: Campbell Johnston Clark Limited