Liability For Loading Stowing And Discharging Cargo - Owners' Right To Contract Out

December 2004

 

In a recent decision the House of Lords* has confirmed the previously held position that an Owner is free to contract out of the "obligation" to load, stow and discharge cargo i.e., that "FOIST" and other similar clauses placing responsibility onto charterers (or shippers, or receivers of cargo for cargo operations) do not fall foul of Art.III r.8 of the Hague/Hague-Visby Rules. 

1. Background 

The appeal concerned the interpretation of the Hague and Hague-Visby Rules. Article III, r. 2 and r.8 provide as follows:

"2. Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried." 

"8. Any clause, covenant or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to, or in connection with, goods arising from negligence, fault or failure in the duties and obligations provided in this Article or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect." 

By a charterparty on the Stemmor form dated 4 December 1997 at Hamburg the owners chartered the vessel to TCI Trans Commodities A.G. for a voyage from Mumbai in India to Motril in Spain. The goods were shipped from Mumbai aboard the vessel as evidenced by two bills of lading on the Congenbill form, both dated 2 January 1998, which were issued on behalf of the shipowners at Mumbai. The bills of lading contained or evidenced contracts of carriage to Motril, in Spain. The bills of lading named Jindal Iron and Steel Company Limited as the shippers and Hiansa S.A. as consignees. The relevant provisions on the face of the bills of lading were as follows: 

"Freight payable as per CHARTERPARTY dated 04.12.97" 

On the reverse of the bill of lading, the relevant terms of the contact of carriage provided as follows: 

"(1) All terms and conditions, liberties and exceptions of the Charterparty, dated as overleaf, are herewith incorporated ..." 

(2) General Paramount Clause 

The Hague Rules contained in the International Convention for the Unification of certain rules relating to bills of lading, dated Brussels the 25 August 1924 as enacted in the country of shipment shall apply to this contract. When no such enactment is in force in the country of shipment, the corresponding legislation of the country of destination shall apply, but in respect of shipments to which no such enactments are compulsorily applicable, the terms of the said Convention shall apply. 

Trades where Hague-Visby Rules apply. 

In trades where the International Brussels Convention 1924 as amended by the Protocol signed at Brussels on February 23 1968 - the Hague-Visby Rules - apply compulsorily, the provisions of the respective legislation shall be considered incorporated in this Bill of Lading." 

The bills of lading incorporated the voyage charterparty. The Hague Rules as enacted in Indian legislation were applicable to this shipment. They correspond to the draft Hague Rules as enacted in the United Kingdom by the Carriage of Goods by Sea Act 1924, which in material respects are the same as the Hague-Visby Rules scheduled to the Carriage of Goods by Sea Act 1971. 

Clauses 3 and 17 of the charterparty provided: 

"3. Freight to be paid at and after the rate of US$ ... per metric ton F.I.O.S.T. - LASHED/SECURED/DUNNAGED...

17. Shippers/Charters/Receivers to put the cargo on board, trim and discharge cargo free of expense to the vessel." 

The acronym F.I.O.S.T. stands for Free In and Out Stowed and Trimmed. There was, therefore, under the charterparty an agreement that the Shippers/Charterers/Receivers were to put the cargo on board, stow it, lash it, secure it, dunnage it and discharge it free of expense to the vessel. It was plainly an agreement designed to transfer responsibility for these particular functions from the shipowners to shippers, charterers and consignees. 

2. "FIOST" and the Court of Appeal Judgement 

The Court of Appeal had been asked to rule on the interpretation of clauses 3 and 17 of the charter party, with cargo interests seeking to argue that clause 17 should be disregarded entirely. Tuckey L.J. concluded (at 103): 

"If one looks at cl. 3 it is clear that the parties have put their minds to what is required to stow the steel coils. Like trimming, lashing/securing/dunnaging was necessary to make the cargo fit for carriage. No trimming was required but after the letter T there is a dash and what is required for this cargo is spelt out. Clause 17 was intended to transfer the obligation to perform all cargo work to the charterer. There is nothing in the remainder of the contract to suggest that this was not the intention of the parties here. They must therefore have intended that the obligation to carry out trimming was intended to refer to what would actually be required which they set out in cl. 3. Against this background they cannot have intended that whilst charterers would have to pay for stowing the cargo as well as loading and discharging it, they did not actually have to do the stowing." 

Tuckey LJ summarised the effect of incorporating clauses 3 and 17 of the charter party into the Bills of Lading (at 106):

 "Clauses 3 and 17 were intended to relieve the defendants of all responsibility for cargo operations." 

This interpretation was not appealed to the House of Lords. The only question before the House was whether the Owners were entitled to rely on clauses 3 and 17, in the face of Art III r.2 and r.8. 

3.The existing law 

Under the common law the duty to load, stow and discharge the cargo prima facie rested on shipowners but it could be transferred by agreement to cargo interests. In Pyrene v Scindia Navigation [1954] 2 QB 402 Devlin J observed that the effect of Article III, r. 2 of the Hague-Visby Rules was not to override freedom of contract to reallocate responsibility for the functions described in that rule. He said (417-418): 

"The phrase 'shall properly and carefully load' may mean that the carrier shall load and that he shall do it properly and carefully: or that he shall do whatever loading he does properly and carefully. The former interpretation perhaps fits the language more closely, but the latter may be more consistent with the object of the Rules. Their object, as it is put, I think, correctly in Carver's Carriage of Goods by Sea, 9th ed (1952), p 186, is to define not the scope of the contract service but the terms on which that service is to be performed. The extent to which the carrier has to undertake the loading of the vessel may depend not only upon different systems of law but upon the custom and practice of the port and the nature of the cargo. It is difficult to believe that the Rules were intended to impose a universal rigidity in this respect, or to deny freedom of contract to the carrier. The carrier is practically bound to play some part in the loading and discharging, so that both operations are naturally included in those covered by the contract of carriage. But I see no reason why the Rules should not leave the parties free to determine by their own contract the part which each has to play. On this view the whole contract of carriage is subject to the Rules, but the extent to which loading and discharging are brought within the carrier's obligations is left to the parties themselves to decide." 

Two years after the decision in Pyrene the very same point came before the House for decision in G H Renton & Co Ltd v Palmyra Trading Corporation of Panama [1957] AC 149. Lord Somervell of Harrow referred to Article III, r. 2, and observed (at 174): 

"It is, in my opinion, directed and only directed to the manner in which the obligations undertaken are to be carried out. Subject to the later provisions, it prohibits the shipowner from contracting out of liability for doing what he undertakes properly and with care. This question was considered by Devlin J in Pyrene Co Ltd v Scindia Navigation Company Limited in relation to the words 'shall properly and carefully load'. I agree with his statement, which has already been cited." 

This represented the existing state of the Law for over 50 years, and the position had been summarised in Scrutton on Charterparties and Bills of Lading, 1996, as follows [at 430-431]: 

"The whole contract of carriage is subject to the Rules, but the extent to which loading and discharging are brought within the carrier's obligations is left to the parties themselves to decide. Thus, if the carrier has agreed to load, stow or discharge the cargo, he must do so properly and carefully, subject to any protection which he may enjoy under Article IV. But the Rules do not invalidate an agreement transferring the responsibility for these operations to the shipper, charterer or consignee." 

4. The decision of the House of Lords 

The decision of the House of Lords was unanimously in favour of upholding the existing law, and was given in the judgement of Lord Justice Steyn. Their Lordships' overriding concern was that English Law should give commercial certainty unless there were overriding reasons for disturbing the status quo. This concern was set out over 200 years ago in a judgement quoted by Steyn LJ (Vallejo v Wheeler (1774) 1 Cowp 143) in which Lord Mansfield observed (at 153):

"In all mercantile transactions the great object should be certainty: and therefore, it is of more consequence that a rule should be certain, than whether the rule is established one way or the other. Because speculators in trade then know what ground to go upon." 

The house of Lords decided that there was no commercial clamour for a change in the existing law. On the contrary, the most recent proposals being discussed by UNCITRAL are that the Owners' right to contract out of the Art III r.2 "obligations" to load, stow and discharge etc should be made explicit in the draft Convention being discussed. 

It is important to note that the House of Lords did not decide the proper construction of Art III r.2; that is, it did not say that the decisions in Pyrene and in Renton were correct, merely that these should not be disturbed. It is therefore open to argue in future that Article III r.2 obligations should be regarded as non-delegable, but such an interpretation would have to be actively desired by the wider shipping community before the Lords would countenance a change in the existing law, and the opposite view (as being discussed by UNCITRAL) seems to be more accepted and, it is suggested, more in line with the traditional English Law approach which is to allow commercial parties freedom to contract as they see fit. 

 

With thanks to More Fisher Brown for preparing this article. More Fisher Brown represented the Owners, Club Members, in this matter.

 

Update - March 2011

 

See report on Subiaco V Baker Hughes on related issues: Free in Stowed - Free of Risk?

 

*Jindal Iron and Steel Co. Ltd and others v Islamic Solidarity Shipping Company Jordan Inc, House of Lords, 25 November 2004