Shipping Law
eBook - ePub

Shipping Law

Simon Baughen

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  1. 450 pages
  2. English
  3. ePUB (mobile friendly)
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eBook - ePub

Shipping Law

Simon Baughen

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About This Book

In this well-established textbook, Simon Baughen expertly covers the whole spectrum of English shipping law, placing the highly specialised rules of shipping in a commercial context and relating them to the general principles of contract and tort law. The book's accessible narrative and useful glossary of key terms will especially benefit students new to shipping law or from non-law backgrounds.

In-depth commentary on judicial decisions and well-balanced coverage and analysis of recent and key cases, such as The Longchamp, Spar Shipping v Grand China Logistics, The Maersk Tangier, provide an up-to-date reference for all students on Shipping Law courses. The comprehensive overview of topics also ensures that the book is ably suited to course use, including discussion of such areas as:

  • Bills of lading

  • Charterparties

  • Salvage

  • Marine Pollution

  • Jurisdiction

  • Choice of Law

  • Arbitration

  • Accidents and collisions

Fully updated throughout, this seventh edition provides an invaluable source of reference and will be of use to both students and to those in practice.

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Part 1
Dry Shipping

  1. 1 The Commercial Background
  2. 2 Title to Sue
  3. 3 Proving Loss or Damage in Transit
  4. 4 The Terms of the Bill of Lading Contract
  5. 5 Statutory Terms of the Bill of Lading Contract
  6. 6 The Future? The Hamburg Rules and the Rotterdam Rules
  7. 7 Combined Transport
  8. 8 Carriage by Road - the CMR
  9. 9 Charterparties
  10. 10 Voyage Charterparties - Payment of Freight
  11. 11 Voyage Charters - Laytime and Demurrage
  12. 12 Time Charters
  13. 13 Damages and Frustration

Chapter 1
The Commercial Background

Chapter Contents

  1. International sales of goods
    1. Payment against documents
    2. Transfer of risk on loading
  2. The four functions of the bill of lading
    1. Receipt
    2. Document transferring constructive possession
    3. Document of title
    4. A potentially transferable carriage contract
  3. Contracts of carriage
    1. The bill of lading
    2. The voyage charterparty
    3. Contracts for the use of the vessel - time charters
  4. Modifications to the traditional carriage contract model
    1. Use of documents other than the bill of lading
    2. Implied contracts
    3. Expansion of the contractual service from pure sea carriage
    4. Containerisation
  5. The cargo claim enquiry
    1. Does the claimant have title to sue the defendant?
    2. If the claimant does have title to sue, can it bring an action against the defendant in the English courts?
    3. Has the loss or damage occurred during the period for which the carrier was responsible for the goods?
    4. If loss is established during the relevant period, what is the defendant's responsibility for it?
    5. If the defendant is responsible for the loss, how will damages be assessed?
A shipowner’s business principally consists of satisfying the demands made by parties to contracts of sale that are located in different countries. The structure of these international sale contracts has had a profound influence on the contracts of carriage made by sellers and buyers to fulfil their commitments towards each other. Therefore, it is helpful to examine this underlying sales structure before going on to consider the nature of the carriage contracts that it generates.

International sales of goods

International sales of goods differ from domestic sales in two important respects.1 First, there is the inconvenience of having payment on delivery when buyer and seller are in different countries. Secondly, there is a commercial need to be able to sell and resell certain types of cargo while in transit. Some oil cargoes, for example, may be sold and resold over 100 times while in transit. The 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG) provides a comprehensive international code for commercial sales of goods and came into force on 1 January 1988. However, it has not been ratified by the UK, which regulates sales of goods through the Sale of Goods Act 1979.
The two most common types of international sales contract are the fob and the cif contract. Under the fob (free on board) contract, the buyer pays for and arranges carriage and the seller’s duty is to load the goods onto a vessel nominated by the buyer. In contrast, under a cif (cost, insurance, freight) contract, it is the seller who pays for and arranges carriage, as well as takes out a policy of insurance on the goods, which will be assigned to the buyer. There are a number of variants,2 but these are the two most significant contractual forms.
Both contracts’ forms display two distinctive characteristics.

Payment against documents

With a sale against documents, the parties contract that payment will be made by the seller tendering various documents to the buyer in return for the contract price. These will include the invoice for the goods and, with a cif contract, the insurance policy covering the goods. However, the most important document that must be tendered under a fob or a cif contract is the bill of lading. This is a multipurpose document, which serves as a receipt, a document conferring constructive possession in the sale goods during the period of their carriage, a document of title and a potentially transferable contract of carriage. These functions will shortly be examined in more detail.
As will be explained below, possession of the bill of lading will confer on its holder constructive possession of the goods during their carriage. This is because the shipowner, who has actual possession, will only deliver the goods to a party presenting a bill of lading that covers them. Therefore, the seller knows that, by retaining the bill of lading, it will also retain control over the sale goods until the buyer pays the contract price. In turn, the buyer will feel secure in paying against this document, because possession of the bill of lading will enable it to take delivery of the goods described therein. If the buyer wishes to resell the goods while they are afloat, it can do so by making a sub-sale, which also provides for payment against transfer of documents relating to the goods, as opposed to payment against actual delivery of the goods. Under these types of contract, the seller will owe a dual obligation to the buyer. The first obligation relates to delivery of the goods themselves; the second relates to transfer to the buyer of documentation relating to the goods.

The financing role of banks

Cif and fob sales are usually mediated through banks that finance the sales under ‘letters of credit’. The buyer will instruct its bank to open a letter of credit in favour of the seller. This will usually be on the terms of UCP 600, a purely voluntary set of rules, which are generally used by banks when opening a letter of credit.3 The seller will tender the documents specified by the letter of credit to the buyer’s bank, which will pay the price in exchange for the documents on being satisfied that the documents conform with the description set out in the terms of the letter of credit. Alternatively, the buyer’s bank, ‘the issuing bank’, may arrange for payment to be made by another bank in the seller’s country, ‘the correspondent bank’. The seller will then present the documents to the ‘correspondent’ bank, which will, in turn, pass the documents on to, and receive payment from, the ‘issuing’ bank.
The buyer’s bank will be entitled to retain the documents until the buyer makes reimbursement of the sale price, which has been advanced by the bank. If the buyer needs the bill of lading to resell the goods, the bank may release it in return for a ‘trust receipt’ under which the buyer declares itself trustee of the goods for the bank. On sale of the goods, the buyer will hold the proceeds of sale on trust for the buyer. This proprietary remedy remains available to the bank so long as the sale proceeds remain traceable in equity. Although the indorsement of the bill of lading to the buyer’s bank may transfer property in the goods to the buyer, the bank, as pledgee of those goods, will have the possession of the bill of lading and consequently constructive possession in the goods that it represents. If the buyer defaults, the bank will be able to realise its security by taking delivery of the goods and selling them.

Transfer of risk on loading

The seller’s obligation to deliver goods of the contract specifications will crystallise not when the goods are actually delivered to the buyer, but when they are loaded onto the carrying vessel. Thereafter, the ‘risk’ in the goods will be with the buyer, even though constructive possession of, and property in, the goods will very probably remain with the seller pending payment by the buyer.4 The transfer of risk on loading means that, vis-à-vis the seller, the buyer accepts the risk of loss or damage to the goods while in transit. So long as the goods match the contract description at the time of loading, the seller will be entitled to its price and will not be liable to the buyer if the goods are damaged between loading and their eventual physical delivery to the buyer. The contract description will specify not only the type, quantity and condition of goods being sold, but also a period of time within which they must be loaded.
For a buyer or a bank financing the purchase through a letter of credit, the transfer of risk on loading will only be acceptable if two conditions are met. First, there must exist some reliable documentary evidence to show that the seller has met its delivery obligations by loading goods of the contract description on board the vessel. Secondly, there must exist a reliable mechanism for recovering loss or damage sustained during transit from the carrier, in the absence of any recourse against the seller. As we shall see, the bill of lading satisfies both of these requirements.

The four functions of the bill of lading

We shall now examine in more detail how the four functions of the bill of lading interrelate to satisfy the expectations of buyers and sellers in sales where risk passes on loading and payment is made against delivery of documents rather than delivery of the goods themselves.


The bill of lading will state the condition and quantity of the goods when they are transferred into the custody of the carrier. It will also state the date on which they were loaded, and will identify the carrying vessel as well as the ports of loading and discharge. It will usually be prepared by the consignor, the party who is the current owner of the goods to be loaded onto the vessel. In doing so, it will rely on the ‘mate’s receipts’, which are the ship’s records of the cargo loaded and presented to an agent of the carrier, such as the captain of the vessel (the ship’s ‘master’), for signature. It is common for bills of lading to be issued in sets of three originals. Once the bills of lading have been signed, they will be issued to the party handing over custody of the goods to the carrier. This party is usually the current owner of the goods in question and is referred to as the ‘shipper’ or the ‘consignor’. The carrier will usually be the shipowner, but this is not always the case. The carrier may, in fact, have chartered or subchartered the vessel.
The sale contract and, where applicable, the letter of credit, will usually require that the bills of lading tendered for payment to the buyer or the bank constitute what are called ‘shipped’, ‘clean’ bills of lading.
Where the goods are transferred into the custody of the carrier when loaded onto the vessel, the bill of lading will be a ‘shipped’ bill of lading. A ‘shipped’ bill will enable a buyer to whom risk passes on loading to check whether the goods at the time of loading match up to the description in the contract of sale. In contrast, where the goods are transferred into the carrier’s custody at an earlier stage – for example, on delivery to the carrier’s wareh...

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