Think Recoveries: Cargo Recovery Claims - The contract of carriage

In order to identify viable recovery target(s), it is of paramount importance to ensure that the correct contract is being considered, or, where there are multiple contracts, that the claim is made under the contract that is most favourable for cargo interests.

As explained in our earlier articles in this series, whenever there is a recovery action, it is essential that steps are taken (1) to protect any time bars; (2) to identify the correct recovery targets; (3) to obtain security for the claims in question; and, (4) to ensure that the party with title to sue is accurately identified. 

At the same time, it is necessary to consider under which contract the claim will be made.  This question often arises where there is both a bill of lading and a charterparty in respect of the same cargo or voyage. 

There are three common factual scenarios.  The first is where the claimant is the lawful holder of the bill of lading and the charterer (under a charterparty where the owner is the same party as the bill of lading contractual carrier/issuer).  Here, any claims for cargo loss and/or damage will typically lie under the respective charterparty.  For example, where an FOB buyer may fix a single voyage charterparty for the carriage of their goods and also be in receipt of the bill of lading.

The second scenario is where the claimant is the lawful holder of a bill of lading and the sub-charterer (under a charterparty where the owner is not the same party as the bill of lading contractual carrier/issuer).  Here, there will be two options.  These are:

1. To pursue the claim under the charterparty; or,
2. To pursue the claim against the shipowner or demise charterer under the bill of lading. 

The third scenario is where the claimant is not a party to any charterparty, and therefore the claim will lie under the bill of lading (or sea waybill), as that is the only contract of carriage.

Out of the scenarios above, claims against the registered owner or demise-charterer are often the most attractive, as it is possible to arrest the vessel in order to obtain security and this may improve the cargo claimant's chances of a successful recovery.

It is crucial to note that where a claim lies under the charterparty as described in the first scenario above, the bill of lading will act as a mere receipt for the cargo that was shipped and the terms of the contract of carriage will be those in the charterparty, insofar as the bill of lading remains in the hands of the charterer.  In such circumstances, the bill of lading has a very limited role in any recovery action by the charterer.  Where, however, the bill of lading has been indorsed and/or transferred to a third party, a claim can be brought under the bill of lading as per the third scenario and the charterer retains a cause of action under the charterparty in their own name.

Where, however, the claim lies under the bill of lading, the bill of lading terms and conditions evidence the contract of carriage between the claimant and the carrier, and the bill will need to be scrutinised for any defences that may be open to the carrier.  Subrogated insurers should ensure that they are provided with a clear, legible copy of the reverse of the bill of lading and any riders, if it is not possible to obtain the originals. While the major carriers often include their terms and conditions on their websites, it is possible that those terms will have been updated after the bill was issued and therefore do not reflect those on the reverse of the bill of lading in question.

As discussed in our previous article, finding out who holds the original bills of lading is an important step in determining whether the claimant has title to sue, especially where the bills are negotiable bills that may have been indorsed multiple times.  Care should be taken if it appears that the bills of lading have been "switched" during transit and reasons for why a second set of bills have been issued should be ascertained.

If it is not possible to carry out a detailed assessment of the various contracts because the cargo is in the grip of a casualty or where the contracts are not immediately available, it is prudent to list all bills of lading and the charterparty/ies in, for example, an LOU, in order to avoid any later dispute that the LOU does not respond to a charterparty claim because only the bill of lading is identified.

Caution!  The time limit for bringing claims against the carrier may differ for each contract, which is why it is important to identify the correct contract before seeking time extensions or commencing proceedings.

The obligations of the carrier vis-à-vis the cargo and the respective defences/limitations that the carrier can rely upon will likely differ depending on whether the claim lies under the charterparty or the bill of lading, even if a bill of lading seeks to incorporate the terms of the charterparty.  This is because clauses from international conventions such as the Hague-Visby Rules (HVR) sometimes apply mandatorily to bills of lading, whereas they will only apply to a charterparty if they have been contractually incorporated into the charterparty.  

The application of the HVR, for example, will be mandatory if the bill of lading was issued and/or the cargo was loaded in a Contracting State to the HVR, such as the UK.  In such circumstances, any contractual term that attempts to lessen the carrier’s liability will be null and void and of no effect, including any time limits that are less than one year and any clauses that seek to reduce the carrier's liability below the applicable package/weight limitation calculated in accordance with the HVR.

For charterparties and bills of lading where the mandatory application of the HVR is not triggered, the position is different.  The Hague-Visby Rules can be incorporated contractually (or not at all), and the carrier can select the clauses that best protect its position, while disregarding those in favour of cargo interests.  Mistakes are often made where a party assumes that the HVR will override the standard form clauses on the reverse of the bill of lading, which is not always the case if the HVR have only contractual effect.  The wording of the paramount clause incorporating the HVR, the law governing the contract, and the form of the bill (e.g. negotiable or straight) will all need to be assessed before a view can be taken on whether the HVR will prevail over the carrier's standard form clauses.

A further layer of complexity arises where there is a chain of contracts.  There may be a chain of charterparties including the head charter, a time charter and a voyage charter.  Equally, a bill of lading may be issued by a NVOCC, who then sub-contracts the carriage to another carrier, such as a slot charterer or voyage charterer, who will then issue a 'master' bill of lading.  Consequently, there may be an 'actual' carrier i.e. the carrier that performed the carriage of the goods to the contractual destination, and a 'contractual' carrier, i.e. the party who issued the bill of lading, for example, a NVOCC.  It is imperative to ensure that you have the correct contract(s) from the chain(s), otherwise steps taken to obtain security or protect time bars may be in vain if given by the incorrect recovery target/under the wrong contract.

Where there is a contractual chain, it is likely that the contractual carrier will seek an indemnity from the actual carrier who was responsible for the loss of or damage to the cargo.  That is of no concern to cargo interests, so long as the cargo claim is satisfied.  Cargo interests are entitled to pursue either or both carriers.

As mentioned in our other articles, it is often possible for cargo interests to bring a claim in tort or bailment against the carrier or shipowner, even if there is no contract with that party.  This cause of action will be in addition to any contractual claim, regardless of whether the contractual claim lies under a charterparty or bill of lading.  That said, it is sometimes possible for the carrier or shipowner to rely on the terms of either the bill of lading or charterparty even where the claim against them is in tort/bailment, depending on the wording of that contract. 

To maximise chances of a successful recovery, it is essential to identify the correct contract of carriage as that will inform cargo interests of the various options open to them and the protective steps that should be taken to protect their claim.  Claiming under the wrong contract may be as fatal as missing a time limit, and protective measures put in place may fall away if they are limited to claims under that contract.  We are able to assist in assessing the various contracts and to offer guidance on the steps that should be taken to safeguard all avenues of claim.