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BILLS OF LADING & THE P&I CLUBS: SOME CURRENT ISSUES
STEPHEN MARTIN
DIRECTOR OF CLAIMS
STEAMSHIP INSURANCE MANAGEMENT SERVICES LIMITED
(A) THE SHIPOWNERS' LIABILITY IN RESPECT OF CARGO WHEN
CHARTERERS' BILLS OF LADING ARE ISSUED
(B) CLUB RULES AND BILLS OF LADING
(C) LIABILITY FOR INCORRECTLY CLAUSING BILLS OF LADING:
(THE “DAVID AGMASHENEBELI”)
(D) NOTES ON DELIVERY OF CARGO AGAINST FORGED BILLS OF
LADING
MONTREAL
14 APRIL 2004
(A) LIABILITY TO HOLDERS OF BILLS OF LADING:
THE SHIPOWNERS' POSITION WHEN NOT THE CONTRACTING CARRIER.
1. In The "Starsin" (House of Lords, 2003)1, cargo was shipped on board the vessel under bills of
lading which displayed the charterers' logo on the front, and contained other indications that the
charterers, rather than the owners, were the contracting carriers. Conflicting pro forma terms on
the reverse of the bills indicated otherwise, stipulating that the shipowners were the carriers.
2. Some of the claimants lacked title to sue in tort,2 and thus could only succeed in actions for
recovery of damages (the cargo was wet damaged during the course of the voyage) if they
brought suit (as transferees of the shipper's contractual rights) under the bills of lading, which
incorporated the Hague Rules.
3. At some point the charterers became insolvent. The cargo interests thus sought to persuade the
First Instance court, the Court of Appeal and ultimately the House of Lords that their bills
evidenced contracts with the shipowners, from whom recovery would thus be possible.
4. The shipowners argued that the charterers were the contractual carriers under the bills. They did
so for various reasons, including:
(i) some of the cargo claimants who (as was established) lacked title to sue, would then be
left without a remedy in tort against them,
(ii) their assertion (which failed both in the Court of Appeal and in the House of Lords) that
the "Himalaya Clause" in the bills of lading excluded all liability on their part (since they
were independent contractors within the meaning of the clause), and thus provided a
complete defence to any claims in tort by those cargo interests who did have the
necessary title to sue.
5. The issue concerning the identity of the carrier – whether owners or charterers – had to be
decided first. The House of Lords concluded unanimously that these were charterers' bills, and
this generated consideration of the issues covered in this note. What was the liability of
shipowners who were not contracting carriers under the bills of lading?
6. Although irrelevant for present purposes, the grounds upon which the House of Lords (and Rix LJ
in the minority in the Court of Appeal) concluded that these were "charterers' bills" provide
comprehensive guidance upon the construction of conflicting terms in bills of lading, or at least
transferable bills of lading.
7. The starting point is that a shipowner who is not the contracting carrier under the bill of lading, but
whose negligence causes damage to cargo, may be sued in tort. (This discussion does not
include the situation in which the bill of lading is a mere receipt, such as when issued to and
retained by the charterer.) Cargo interests may then attempt to circumvent the Hague Rules and
other defences available to the contracting carrier under the bill, by suing another party (here, the
shipowner) in tort.
1
[2003] I Lloyd’s Rep. 571.
2
On this issue - title to sue in tort – the Lords were unanimous in rejecting the first instance Court’s finding that the
claimants could bring suit in respect of progressive damage continuing after they had obtained title to the goods, even
if the material damage had already been done by then. The goods were damaged by negligent stowage, and the
House of Lords held that a single cause of action was complete once significant damage had occurred. Those
acquiring title to the goods thereafter had no cause of action in tort (see The “Aliakmon“ [1986] AC 785).
This is an undesirable outcome, resulting partly from the doctrine of privity of contract. To avoid
it, various solutions have been adopted by the English courts. These include, amongst others,
the implication of a separate contract upon the same terms as the bill of lading, through the actual
presentation of bills and delivery of cargo;3 the definition of tortious duties in line with the
"contemplated and known" terms in the bills of lading;4 the principle of sub-bailment on terms;5
and the incorporation of an agency provision which creates a contract or "arrangement" between
the third party shipowners and cargo interests. As to the latter, these agency provisions when
incorporated in bills of lading in one of various standard forms are usually referred to as
"Himalaya" clauses, after the vessel in which Mrs Adler was a passenger and suffered injury.6
8. The bills of lading contained a fairly standard "Himalaya" clause. So far as presently relevant, it
provided as follows:
"(i) It is ….. agreed that no …… independent contractor ….. employed by the carrier … shall
in any circumstances whatsoever be under any liability whatsoever to the shipper, for any loss,
damage or delay of whatsoever kind arising ….. from any act neglect or default on his part
whilst acting in the course of or in connection with his employment and
(ii) ….. every exemption, limitation condition and liberty … and every right exemption from
liability, defence and immunity …. to which the carrier is entitled hereunder shall also be
available to and … to protect every such servant of the carrier acting as aforesaid, and for the
purpose of all the foregoing provisions of this clause the carrier is …. acting on behalf of and for
the benefit of all persons who are …. his servants (including ….. every independent contractor
from time to time employed by the carrier).
(iii) All such persons shall to this extent be deemed to be party to the contract contained in or
evidenced by this bill of lading".
9. In the House of Lords it was held that despite the apparent inconsistency between para (i) (which
provided absolute exemption from liability), and para (ii) (which provided that the third party
carriers ie shipowners should be subject to the same liability as the contracting carriers, ie
charterers), the former was more than just a promise not to sue the contractual carriers. The
absolute exemption in para (i) meant what it said – the shipowners, as independent contractors of
the charterers, were not to be held liable for any damage whatsoever.
10. From the owners' perspective, so far so good, because the conditions (as stated by Lord Reid in
Scruttons v Midland Silicones7) which were necessary if they were to avail themselves of the
Himalaya clause were, in this case, satisfied; they were sufficiently and correctly identified (the
House upheld the lower Court’s findings that the shipowners were the charterers’ independent
contractors), the actual carriers (charterers) were clearly contracting as agents on their behalf, the
charterers had the owners' authority to do so, and the owners had provided the necessary
consideration to create a contract with the cargo interests by accepting their cargo and in fact
undertaking its carriage8 - not a contract for, but a contract of carriage.
3
Brandt v Liverpool Steam Navigation [1924] 1 KB 575; The “Aramis” [1989] 1 Lloyd’s Rep. 213
4
Elder Dempster v Patterson Zochonis [1924] AC 522; The "Gudermes" [1993] 1 Lloyd’s Rep. 311(Court of Appeal)
5
K H Enterprise, sub nom The “Pioneer Container”, [1994] 2 AC 324 (Privy Council)
6
Adler v Dickson, [1955] 1 KB 158
7
[1962] AC 446
8
In the UK, the last three requirements are no longer necessary under the Contracts (Rights of Third Parties) Act
1999. In such cases, and subject to the conditions of the Act, a third party may claim benefits under a contract
without the need for agency, authority or consideration. However, it is fairly clear that the Act does not permit third
parties to invoke defences which are unavailable to the primary contracting parties (s3(6)). It was thus necessary for
11. Lord Steyn upheld the shipowners’ argument. His reasoning was diametrically opposed to that of
Lord Hobhouse in particular. The latter thought that the shipowners’ claim to absolute exemption
was “remarkable”, characterising it as an attempt to “…. (evade) by means of a bill of lading
clause the Hague Rules scheme, (putting) English law at odds with those legal systems which
were not based upon privity of contract …”. Lord Hoffman, on the other hand, considered that the
shipowners’ submissions were “loyal” to the principles of English law, and to the rationale by
which Himalaya clauses channel claims, both in contract and in tort, to the contracting carrier,
protecting sub-contractors and others from such liability. In Lord Hoffman’s view, the owners’
absolute exemption from liability stood up: the Himalaya clause did not create a contract of
carriage for the purposes of the Hague-Visby Rules, and the wording in sub paragraph (iii) – see
above – did not subject the shipowners to any part of the Hague-Visby Rules.
12. The other four Law Lords concluded otherwise. They held that the para (i) blanket exclusion in
the Himalaya clause could not avail the owners, because paragraph (iii) of the Himalaya clause
imported Article III Rule 8 of the Hague Rules (to which the bills of lading were themselves
subject) into the contract created between cargo interests and shipowners by the Himalaya
clause itself. Article III Rule 8 outlaws any provision excluding or lessening the duties of the
carrier under the Hague Rules, and this (it was held) nullified the absolute exemption of liability in
para (i) of the Himalaya Clause.
The majority appeared to accept, nevertheless, that the Himalaya clause created a separate
contract, different in its terms from that between cargo interests and the contracting carriers
(charterers) under the bills of lading. Three of the Law Lords concluded that the Himalaya clause
was not itself and did not create a contract of carriage for the purposes of the Hague-Visby Rules.
(Lord Bingham seemed to acknowledge a contract upon different terms to that evidenced by the
bills, but thought that the Himalaya clause nevertheless created a contract of carriage within the
meaning of the Hague Rules.)
13. Lord Hobhouse went somewhat further in holding against the owners. He discounted the idea
that by accepting bailment and undertaking carriage of the goods, the shipowners were party to a
"collateral" Himalaya clause contract, separate from the contract evidenced by the bill of lading.
He found that the effect of paragraph (iii) in the Himalaya clause was to bind the shipowners to
the bill of lading contract itself, and thus to subject them to the Hague Rule obligations
incorporated within it, including both the duties, and the invalidation of exemptions, under Article
III.
14. Lord Hobhouse nevertheless cited with approval the dissenting judgment of Barwick CJ in The
"New York Star",9 in which he acknowledged the possibility (at least) that a Himalaya clause
might be capable of providing a beneficiary with full exemption from liability.
15. However, paragraph (iii) of the Himalaya clause stipulated (referring to independent contractors,
encompassing the shipowners) that "all such persons shall to this extent be deemed to be parties
to the contract contained in or evidenced by this bill of lading".
16. Those words made the shipowners party to the bill of lading contract, rather than to any other
agreement collateral to it, and thus they were bound by the terms incorporated in the bills,
including the invalidation of blanket exculpatory provisions such as those under paragraph (i) of
the Himalaya clause. The same words in the same paragraph led to a similar result in the
judgements of Lords Millet, Bingham and Hoffman, but by a different and perhaps rather less
coherent route than that of Lord Hobhouse.
the shipowners, who sought absolute exemption from liability, to argue that they were so entitled under the Himalaya
clause
9
[1981] I WLR 138
17. In their judgements, and because of its paragraph (iii), the Himalaya contract between the
shipowners and cargo interests, albeit distinct from the bill of lading contract, was subject to
Article III Rule 8 of the Hague Rules, which invalidated the blanket exemption in paragraph (i).
Thus far, thus consistent with Lord Hobhouse's approach. But each of the three judges
concluded that the contract between cargo interests and shipowners imposed no prospective or
executory duties of carriage, and was not on all fours with that evidenced by the bills of lading.
Hence, it was subject to none of the positive obligations "laid on the carrier" by Article III Rules 1
and 2 of the Hague Rules. Those obligations were incorporated in the contract of carriage under
the bills of lading, but not in the separate Himalaya contract.
18. Article III Rule 8 only makes "null and void" contractual terms which lessen or exempt liability for
"failure in the duties and obligations provided in this article".
19. The "article" is III, and, according to Lords Bingham, Hoffman and Millet (and indeed Steyn), none
of the "duties and obligations" in Rules 1 and 2 were incorporated in the separate Himalaya
contract. The difficulty in their approach is this: the blanket exemption from liability under
paragraph (i) of the Himalaya clause could not “lessen” any of the duties and obligations under
Article III Rules 1 and 2 of the Hague Rules, since none of these applied to the Himalaya
contract. Article III Rule 8 was in a vacuum; how could it strike down para (i) of the Himalaya
clause?
20. Article III Rule 8 ensures that carriers who are subject to the Hague Rules cannot contract out of
the duties and obligations laid down in Rules 1 and 2 of the Article. If those duties do not exist
(and the three judges held that they did not, so far as the shipowners were concerned), then
Article III Rule 8 is irrelevant. And yet the Law Lords’ conclusions seem to mean that Article III
Rule 8 applied independently of any Hague Rule duties, and outside the Hague Convention, so
as to nullify any exclusion of liability for negligence, including the exemption in paragraph (i) of the
Himalaya clause. This is a curious conclusion, and one which seems to be inconsistent with the
Hague Rules themselves.
21. Against this reasoning, Lord Hobhouse's judgment seems more convincing, (even if entirely
driven by the same policy considerations as those which prompted the Hamburg Rules, which are
currently prompting initiatives within Uncitral to reform the international cargo conventions along
Hamburg lines, and which apply in countries where privity of contract – the driving force behind
most of the issues in The "Starsin – is not recognised). He found that the shipowners were
indeed subject to the duties under the Hague-Visby Rules; on this basis a blanket exemption –
denying those duties – could logically be struck down by Article III Rule 8.
22. Lord Hobhouse was the only one of the five Law Lords to deal with issues of bailment in any
depth. Quoting at length from Lord Goff's Privy Council judgment in K H Enterprise10 he
examined the circumstances in which a shipowner can rely upon the principle of sub-bailment on
terms, in order to invoke the defences and limitations contained in the time charter (to which the
owner is party, and which in many cases will incorporate the Hague Rule defences through a
clause paramount) against claims by holders of bills of lading (to which he is not party).
23. The essential conditions – the voluntary acceptance of the sub-bailment by the shipowner, and
the implied or express consent of the bailor cargo interests – were, in The "Starsin" fulfilled; and
they will be fulfilled, it seems, in many cases where shipowners, sub-contracted to charterers
under a time or voyage fixture, are not the contractual carriers under the bills of lading, and
assume duties as sub-bailees of the cargo interests.
24. Whether this means that in such circumstances the shipowner may invoke charterparty terms
which substantially lessen Hague and Hague-Visby Rules duties and responsibilities is a moot
point. Perhaps it would be difficult to establish implied consent on the shipper's part to sub-
10
sub nom. "The “Pioneer Container" [1994] 2 AC 324
bailment on such restricted terms; and without such consent the owners' plea of sub-bailment on
terms is unlikely to succeed.11
25. How is this relevant to issues concerning cover under Protection and Indemnity Club entry? The
answer is not directly, but indirectly. International Group Clubs are able to cover and to pool
amongst themselves their Members' liability for cargo claims, provided however that the relevant
contract of carriage contains the Hague or Hague-Visby Rules or equally wide exemptions from
liability. If the failure to incorporate such terms results in greater liability than would otherwise
have been the case, then to that extent cover is not available. The "Starsin" was concerned with
a standard form of Himalaya clause, and the conclusion of the four majority Law Lords was that
such a clause operated to confer upon the shipowner, sued in tort, the same Hague Rules
defences as would have been available to him if sued under the bill of lading contract. The
majority went no further than this, as discussed in earlier paragraphs, but their decision is
confirmation of the fact that incorporation of the Himalaya clause offers the protection of the
Hague or Hague-Visby Rules to the same extent as those defences are available to the
contractual carrier under the bill. This is a result which shipowners' P&I Clubs seek to achieve.
26. Most Group Clubs thus recommend the incorporation of a Himalaya clause into bills of lading,
and most would advise shipowners to make it a requirement in their charterparties that any bills of
lading issued by the charterers incorporate a Himalaya clause, to ensure that the contracting
carrier’s defences are also available to them.
27. In The "Starsin", of course, the shipowners sought to go one step further. It is clear (except in
the case of Lord Steyn, who held for the shipowners) that policy considerations played a part in
the majority conclusion that the shipowners could not avail themselves of the complete exemption
from liability in para (i) of the Himalaya clause. Paragraph (iii) of the clause was fatal to the
shipowners' case.
28. In the judgment of the three Law Lords who concluded that the Himalaya contract was separate
to that evidenced by the bill of lading, and in the judgement of Lord Hobhouse who concluded that
the Himalaya contract was the bill of lading contract itself, the wording in para (iii) of the Himalaya
clause was the key to the application of Article III Rule 8 of the Hague Rules. Each of the four
thought that para (iii) was necessary, however, in order to bind transferees of the bills to the
Himalaya contract. The Carriage of Goods by Sea Act 1992 does not, by itself, seem to replace
the perceived need for a provision such as para (iii) because it only transfers rights of suit under
the contract of carriage evidenced by the bill; and, with the exception of Lord Hobhouse, the
House of Lords held that the Himalaya contract was not the contract of carriage evidenced by the
bill.12
11
see Morris v Martin [1996] 1 QB 716, per Lord Denning MR at p 729
12
In The “Starsin” the House of Lords concluded that the Himalaya clause must include a specific wording in order
to bind transferees, who otherwise would not be bound by the (original) Himalaya contract between the shippers and
the (third party) carriers.
That conclusion is consistent with current English statute concerning the transfer of rights and obligations under bills
of lading. The Carriage of Goods by Sea Act 1992 (which has replaced the Bills of Lading Act 1855) provides for the
transfer of rights and liabilities under a bill of lading, but only to the extent arising under the contract of carriage which
is contained in or evidenced by the bill. Although Lord Hobhouse held a different view, the other four Law Lords
regarded the Himalaya contract as distinct from and separate to the contract of carriage evidenced by the bill of
lading. Only under the latter are “rights and liabilities” transferred by statute; such rights as are available under the
Himalaya clause, a separate contract, are not. Hence, the necessity (if successive transferees/ consignees are to be
bound) for the Himalaya clause to contain a wording to the following effect:
“all such persons (ie third party contractors, servants, agents, etc) shall to this extent (ie to the extent of the
defences and rights conferred by the main provisions of the Himalaya clause) be deemed to be party to the
contract evidenced or contained by this bill of lading.”
29. Does the Contracts (Rights of Third Parties) Act 1999 render obsolete the need for a Himalaya
clause if, under it, the third party seeks no greater protection or exemption from liability than the
original contracting party? That question is not fully examined in the “Starsin”, but the answer
appears to be a qualified “yes”. To the extent that a third party may seek to rely upon an
exclusion or limitation of liability in the contract of carriage, he may do so under the Act without a
Himalaya clause, and thus without the need to fulfil the conditions which must be satisfied under a
Himalaya clause. The third party need not establish that the contracting carrier is also acting as
agent on his own behalf; nor that the necessary authority for such agency exists. More
significantly, it is not necessary for the third party to provide any consideration. The problems of
transferability (discussed earlier) are overcome, furthermore, because the immunities and
defences which the third party seeks to invoke are contained in the bill of lading contract of
carriage itself, and rights and liabilities under that contract are transferable in accordance with the
Carriage of Goods by Sea Act 1992.
30. In a nutshell, the 1999 Act to some extent avoids the need for creation of a separate and distinct
contractual arrangement of the kind brought into existence by the Himalaya clause. But it does
not provide a complete solution, and hence the qualified “yes”, because it only allows the third
party to rely upon exclusions or limitations of liability in the contract of carriage. If, on the other
hand, he wishes to invoke a jurisdiction clause, or a time bar, he may be unable to do so under
the 1999 Act alone; those rights are not necessarily an “exclusion or limitation of liability” and the
Third Party Rights Act does not permit a third party to rely upon any other terms in a contract of
carriage by sea.
31. Many of the cases in which Himalaya clauses have been examined are concerned with precisely
these kinds of rights – time bars, jurisdiction agreements, etc. In some, the clause has been
effective to convey such rights to third parties, including stevedores, shipowners and others. The
Himalaya clause may be of less use than it was before the 1999 Act, but it is not yet defunct.
This wording, as was held in The “Starsin”, permits the defences (or at least some of them) set out in the Himalaya
clause to be raised, following transfer of the bill, against successive holders. In effect, those who are protected by the
Himalaya clause attach or “piggy back” their defences to the statutory transfer of rights under the contract of carriage.
The Contracts (Rights of Third Parties) Act 1999 makes deep inroads into the English law principle of privity of
contract, by providing that in certain circumstances “persons who are not a party to a contract” may nevertheless
enforce a term for their benefit. In some respects, the 1999 Act proceeds upon the same basis as a Himalaya clause.
The third party beneficiary must be sufficiently identified in the contract, and it must be clear that the term he wishes
to enforce is intended to operate for his benefit. But the Act itself does not permit a third party to take the benefit of
exclusions or defences which would not be available to the original contracting party (the promisee). This seems to
be the hurdle which would prevent a third party carrier (such as the shipowners in The “Starsin”) from invoking
absolute exemptions which are not available to the actual contracting carriers (such as the charterers in The
“Starsin”). The fact that contracts for the carriage of goods by sea are generally not subject to the Act (by virtue of a
specific exception), appears to be immaterial in the present context; Section 6 (5) contains a saving which allows third
parties to avail themselves of an exclusion or limitation of liability in such a contract.
In The “Starsin”, therefore, the shipowners would not have been assisted by the Act because their ambition was to
achieve more extensive exemption from liability than that available to the original contracting carriers. Section 3 (6)
of the Act expressly prevents a third party from enforcing a term which the contracting party could not himself have
enforced.
(B) CLUB RULES AND BILLS OF LADING
(1) Incorporation of Hague-Visby Rules
Amongst the most familiar of Club Rules are those requiring incorporation of the Hague or Hague-Visby
defences (or equivalent – for example COGSA) in all Bills of Lading and other contracts of carriage under
which cargo claims may be brought. The Rules also exclude liability which would not have been incurred
but for the Member's voluntary agreement to waive Hague and Hague-Visby defences. But it would be
wrong to categorise a Member who has agreed to carry cargo without the benefit of Hague defences as
being in "breach" of Club Rules in some way, or as courting liability through "misconduct". Cover is not
excluded for those reasons, but rather because the definition of mutual risks, so far as cargo liability is
concerned, is aligned with the responsibilities and rights set out in these International Conventions.
Where those rights can be preserved and invoked, they should be.
(2) Delivery of cargo without presentation of the relevant bill of lading
Specific Club Rules define and limit the types of cargo liability insured by Club membership. They include
the following:
"Unless the Directors shall in their absolute discretion or otherwise determine, there shall be no
recovery …. in respect of the Member's liability … arising out of ….
(ii) the delivery of cargo carried on an entered ship without production of the relevant bill of lading;
This Rule does not depend upon the Member's intent or misconduct. The circumstances may be such
that it is quite reasonable for the Master to think that he should deliver cargo without production of an
original bill of lading. It is not a question of misconduct, but rather whether the mutual Clubs should
insure such risks.
Delivery of cargo without presentation of an original bill of lading constitutes a breach of the contract as
evidenced by the bill:
"….. a shipowner who delivers without production of the bill of lading does so at his peril. The
contract is to deliver, on production of the bill of lading, to the person entitled under the bill of lading.
……the shipping company did not deliver the goods to any such person. They are therefore liable for
breach of contract unless there is some term in the bill of lading protecting them. And they delivered
the goods, without production of the bill of lading, to a person who was not entitled to receive them.
They are therefore liable in conversion unless likewise so protected”.13
In The “Houda”,14 the Court of Appeal re-emphasised the principle, and in Motis Exports (at first
instance)15, Rix, J expanded upon it. In that case, the owners of the vessel were presented with forged
bills of lading, which the Master had no reason to suspect were fraudulent. The Master was deceived
and, in reliance upon the forged documents, issued delivery orders for the cargo. (The goods had been
discharged and were in the custody of the owner's agents). After their delivery to the perpetrators of the
fraud, the true owners of the cargo, who held the genuine bills, sued the owners for breach of the bill of
lading contract and, in tort, for conversion.
The owners were held liable, notwithstanding the finding that the Master, without fault, was deceived by
the forgery. The rationale of this decision was that the owner could not be obliged to deliver against
13
Sze Hai Tong v. Rambler Cycle Co. [1959] 2 Lloyd’s Rep. 114, per Lord Denning MR)
14
[1994] 2 Lloyd’s Rep. 541
15
[1999] 1 Lloyd’s Rep. 837
forged bills of lading, and thus was not entitled, as a matter of contract, to do so. Nor was it appropriate
to imply a term protecting the innocent shipowner in such circumstances.16
In the context of the Club Rules, Motis Exports underlines the point made earlier; this risk is excluded not
because of a Member's wrongful intent or otherwise, (there was no such wrongful intent in Motis Exports)
but rather because the tort of conversion in such circumstances is not regarded as mutual. It follows that
delivery of cargo without presentation of bills of lading, against an indemnity provided by charterers or
consignees, remains in the same category of excluded risk. Even if, as is usually the case, such delivery
occurs in innocent circumstances, reflecting normal commercial arrangements (particularly in the carriage
of hydrocarbon oil), the Member's cover is not "reinstated" when he obtains an indemnity or LOI in
exchange for his agreement to release or authorise release of the cargo. Whether or not any such
indemnity is sufficient in fact to replace Club cover depends upon its terms, and the financial standing of
those providing it.17
In cases such as Motis Exports, the question whether cover should be provided to the Member is thus for
the Directors of the Club to decide, in the exercise of their absolute discretion. Cases of this kind are,
fortunately, rare. (See also East West Corporation v DKBS [2002] 2 Lloyd’s Rep 182 (High Court), in
which Thomas J, at pages 204-205, agreed with Rix J's conclusions at first instance in Motis Exports)18
16
"The question is whether the shipowner is entitled to deliver, that is to say has a defence in delivering, against a
forged bill in ignorance of the forgery. If that is so, it can only be by reason of an implied term. It is hard to think,
however, that it is necessary to imply such a term ….. It would subvert the rule that the bill of lading is the key to the
warehouse. Certainly no true owner would think that such an implication would be reasonable. It is wrong to imply a
term unless it is both reasonable and necessary. The fact is that the rule does not in general protect those who act
on forgeries, but rather those whose true title is attacked by forgery. Thus a paying bank which debits its customer,
even in the absence of any negligence by the bank, on a forged cheque, must repay its customer; it has acted
beyond its mandate." (Per Rix J in Motis Exports, pp 842,843).
The case was different to one of theft, where the owner or master parts with the goods involuntarily, or robbery,
where he does so under duress. The act of delivery in this case was intentional, albeit innocent and in ignorance of
the fraud. That amounted to conversion, as well as a breach of the bill of lading terms.
The case was appealed to the Court of Appeal, but not on the findings referred to above, which affirmed the first
instance decision.
17
Nor can the charterers of the vessel require the master to deliver goods without production of the original bill of
lading, unless that specific right is given in the fixture. In The “Houda” [1994] 2 Lloyd’s Rep. 541 (Court of Appeal),
the charterers argued (and succeeded in doing so at first instance) that the master was obliged to comply with such
instructions, relying upon an implied indemnity (from the charterers) if the cargo was mis-delivered. The Court of
Appeal rejected the charterers' arguments, and reversed the first instance court:
"The general rule of common law (is) that, wherever one person acts on the instructions of another and thereby incurs
personal liability or potential liability to a third party, that other cannot afterwards lawfully countermand his instructions
….. the party giving the instructions is not entitled to countermand his instructions upon terms that he indemnifies the
other; he is not entitled to countermand them at all. In the present case, the owners were contractually obliged to
comply with the charterers' instructions, and the master was expressly required to sign bills of lading as the charterers
might direct ….. this amounted to an instruction, not merely to sign bills of lading, but to deliver the cargo to the
person who provided evidence of their entitlement thereto by producing the bills of lading …. By complying with the
charterers' instructions and signing and handling over bills of lading in negotiable form, the master rendered the
owners potentially liable to any third party to whom the bill of lading might be negotiated. In the absence of express
contractual provision entitling them to do so, it was ... no longer open to the charterers to countermand or vary the
instructions by directing the owners to deliver the cargo otherwise than against presentation of the bills of lading,
thereby depriving the owners of the protection to which their original instructions had entitled them." (Per Millet L J in
The “Houda”)
18
The answer to the question "what is the owner to do if bills of lading are unavailable or lost (or stolen)?" is to be
found in Lord Justice Leggat's judgment in The “Houda” at page 553: "… in practice, if the bill of lading is not
available, delivery is effected against an indemnity. Where the bill of lading is lost, the remedy in default of
agreement, is to obtain an order of the court that on tendering a sufficient indemnity the loss of the bill of lading is not
to be set up as a defence.")
(3) Ante-dating of, and mis-description in, Bills of Lading
The Club Rules also exclude cover for liability arising from the ante-dating of a bill of lading, and from an
incorrect description of cargo which is known to the Member or to the Master. Both define the type of
cargo liability insured by the Club, and relate the non-availability of cover to what in many circumstances
must amount to wilful misconduct.
The rationale for excluding liability under ante-dated bills of lading can, however, be explained on grounds
that are independent of intent or conduct. Club cover for cargo liabilities is predicated upon physical risks
encountered during the performance of carriage. Even conversion of cargo, by mis-delivery without
presentation of the bills of lading, amounts to a physical risk of total loss (to the consignees) and thus
(although an excluded risk – see above) constitutes a liability resulting from breach of familiar
Hague/Hague-Visby duties.
The ante-dating of bills of lading involves a quite different assumption of risk, which is not contemplated in
any event under the P&I Club Rules providing cover for cargo liabilities. A Member is indemnified against
liability resulting from breach of his duties to "load, handle, stow, carry, keep, care for, discharge and
deliver cargo, or out of unseaworthiness or unfitness of the entered ship". It appears that even without an
express exclusion of liability resulting from ante-dating, the risk would not be covered, because it does not
in any event result from any breach of the duties set out above.19
The exclusion in Club Rules is thus a reflection of objective limits which define the type of cargo liability
covered by mutual entry, regardless of the Members' knowledge or intent. (The exclusion does not
depend upon the Member's or the Master's knowledge of ante-dating). But it is also a reflection of the
fact that, in cases where the point arises, a bill of lading may well have been ante-dated with the
knowledge of the owners or Master. That knowledge will probably constitute a conspiracy to defraud the
buyers, and the banks acting on their behalf. For this reason the rule is a hybrid, reflecting both the limits
upon the types of cargo liability insured, and the general principle which excludes cover for any liability
resulting from wilful misconduct.
(4) Mis-Description of Cargo
By contrast, the rule excluding cover for liabilities arising from mis-description of cargo in the bill of lading
is dependent upon knowledge; it operates only if the Member or his Master knows that the cargo has
been mis-described, or its condition or its quantity mis-represented. It follows that when the Master and
Member are each unaware of the fact of any such mis-description, liabilities arising under such a bill of
lading are covered in principle.20
19
The primary effect of ante-dating is that the right to reject documents under documentary credit arrangements is
lost. Issuing and confirming banks are mislead into accepting documents which do not fulfil the letter of credit
requirements. The owners' exposure, under such bills, is to the full value of the cargo, regardless whether it is sound,
lost, damaged, delayed or otherwise. In a falling market, consignees may well wish to reject cargoes which have
been shipped later than agreed in the contract of sale with the shippers. Ante-dating deprives them of that right.
Liability may thus arise even in circumstances where the Member is not in breach of any Hague rule obligations.
He will, nevertheless, have little or no defence to a claim for ante-dating and may also be debarred from recovering
any contribution from shippers, or from banks, if he has issued or authorised the issuance of bills of lading in the
knowledge that they are ante-dated. (See the various decisions in Standard Chartered Bank v PNSC).
20
This qualification – that knowledge is required – reflects the fact that in many cases, and particularly in container
operations, the owners will have no means of checking the accuracy of statements concerning description, condition
and quantity which are supplied by the shippers. Nevertheless, the owner may still be held liable for any such mis-
description. He is generally obliged to issue a bill of lading which contains particulars supplied by the shippers. (See
Hague Rules Article III para 3, and the Hague-Visby amendment to para 4 of Article III).
In what circumstances may the owners or Master accept a letter of indemnity from the shippers, in
exchange for issuing a clean (unclaused) bill of lading? The Club Rule, excluding cover, applies when
the owners or Master know that the bill of lading contains a mis-description. If, however, there is an
honest difference of opinion between the shippers, on the one hand, and the owners/Master on the other,
(for example, when light surface rust on a cargo of steel is said by the Master to be "damage", and by the
shippers to be no such thing) the owners will not necessarily prejudice their cover if they agree to issue
unclaused bills.21 As always, it depends upon the circumstances.
However, the master is not obliged to state details which he suspects are inaccurate, or cannot check by reasonable
means (see The “Boukadora” I Lloyd’s Rep.,393). He may endorse the bill of lading, particularly when containerised
cargo is involved, with qualifications such as "S[aid] T[o] C[ontain]" or "shippers' weight and count", "weight, quality,
condition unknown to carrier" etc. None of these however will necessarily protect the owner, after a successful and
uneventful voyage, from liability for mis-description, or for pre-shipment damage, or for any other discrepancy
concerning the cargo for which he is not in fact responsible.
The risk of liability in such circumstances is mutual, unless the master is aware of any mis-description, and
nevertheless agrees to the issuance of "clean" bills of lading (even if reluctantly and under pressure from shippers
and charterers). The principle is quite familiar; if the owner or master voluntarily assumes an unreasonable risk by
agreeing to any form of mis-description in the bill of lading, he exposes himself to non-mutual liability which is not
contemplated under Club Rules.
In The “David Agmashenebeli” a decision of the English High Court in May 2002, (and not appealed) it was held that
the Hague and Hague-Visby Rules did not impose upon the master any contractual obligation to guarantee the
accuracy of statements concerning "the apparent order and condition" of goods. The master is obliged only to
express an honest reasonable view, and to clause the bill of lading if, in accordance with that view, any qualification
concerning the order and condition of cargo is necessary. The master's endorsement is thus a statement reflecting
the judgment and observations of a reasonably competent and observant master in all the circumstances; it is not a
warranty or guarantee of order and condition, nor the conclusion of an expert surveyor. Under the Hague-Visby
amendment to Article III (para 4) a bill of lading is conclusive evidence of the apparent order and condition (Article III
para 3 (c)) of cargo (not its unapparent but actual order and condition), if it has been transferred to a third party acting
in good faith.
21
See Brown Jenkinson v Percy Dalton [1957] 2 Lloyd’s Rep. 1, also The “Sagona” [1984] 1 Lloyd’s Rep. 194
(C) LIABILITY FOR INCORRECTLY CLAUSING BILLS OF LADING: The “David Agmashenebeli”
The “David Agmashenebeli” was unusual.22 Although to do with incorrect clausing of a bill of lading, it
was not the familiar case involving a Master or agent prevailed upon by shippers or charterers to sign
“clean” bills when the condition of the cargo was anything but. The Master of the “David Agmashenebeli”
had if anything been too cautious – excessively cautious – insisting upon the endorsement of mate’s
receipts, and then bills of lading, which indicated much more serious levels of contamination and
discolouration (in a cargo of urea) than he could reasonably have observed. The Master had insisted
upon an “over clausing” directly contrary to the wishes of shippers and various intermediate buyers
interested in the cargo.
The case raised a number of other issues, amongst them what if any loss was sustained as a result of the
“over clausing”. Because Mr Justice Colman held that a limited endorsement to reflect very minor
discolouration and contamination would have been justified, he also concluded that no loss had been
caused to the sellers of the cargo by the more extreme qualifications upon which the Master insisted. He
concluded that even with an (appropriate) minor endorsement, the bills would have been rejected in any
event. Hence, the cargo interests were in no worse position as a result of the actual (inappropriate)
endorsement in the bills.
The debate concerning the duties imposed upon a Master in relation to the clausing of bills of lading was
thus, in the event, moot; whether in breach of those duties, or not, no loss or damages had been suffered
by the cargo claimants.
However, the owners, or Master, were indeed held to have been in breach of those duties and the case is
of importance because of the way in which they were defined.
The claimant cargo interests argued that under Article 3 Rule (iii) of the Hague Rules (which reads as set
out below) the Master was under an absolute obligation to accurately describe the actual apparent
condition of the goods. That obligation was contractual in nature, and thus not qualified by notions such
as reasonableness or honest belief.
Hague-Visby Rules, Art III r 3: "After receiving the goods into his charge the carrier or the master ... shall
on demand of the shipper issue to the shipper a bill of lading showing amongst other things (c) the
apparent order or condition of the goods."
For the shipowners it was argued that as long as the Master was acting honestly in signing a bill of lading
with a certain description of the cargo, he could not be liable or place his owners in breach if, despite his
honest belief in the description, it was nevertheless wrong.
Mr Justice Colman accepted neither of these arguments. He rejected the shippers’ contention that the
description of the cargo was itself a contractual term; what was required under Article 3 Rule (iii) of the
Hague-Visby Rules was that, upon request of the shippers, a bill of lading should be issued containing a
description of the apparent order or condition of the cargo. This did not make the description itself a
contractual term, nor did it impose upon the Master an absolute obligation to give an accurate description.
On the other hand, the shipowners’ contention was for too low a duty. It was not enough merely that the
Master should act honestly; the description of apparent order and condition must also be reasonable, in
the sense that other experienced and reasonably observant Masters could reach the same conclusion. In
most cases of course, an honest Master does act reasonably, and so his duties are closer to the way in
which they were put by the shipowners than by the cargo interests.
22
[2003] 2 Lloyd’s Rep. 92
This conclusion – that the Master’s duties when clausing a bill of lading are neither absolute, nor capable
of being fulfilled by an “eccentric” description - has important practical consequences. The Master is not
expected to be an expert or to act as a surveyor; nor is it incumbent upon him, merely because he is
neither of these things, to employ such an expert to ascertain the actual condition or quality of the cargo.
What the Hague Rules oblige him to do is to state, acting as a reasonably observant and honest Master,
the apparent – to him – condition of the goods.
In The “David Agmashenebeli”, the Master went too far, and it is interesting to note that he may have
done so by using an accurate description to convey an inaccurate impression. To say, for example, that
cargo is “discoloured, and contaminated by foreign substances” may be true whether the discolouration
and contamination is extensive or minor. To use such a general description, however, in the case of
minor discolouration gives a false impression, implying a more serious problem than actually exists. The
Master is not, therefore, permitted to use general words which, whilst technically accurate, create a
materially misleading impression.
In The “David Agmashenebeli”, he insisted upon an endorsement which read, "cargo discoloured also
foreign materials eg plastic, rust, rubber, stone, black particles found in cargo".
In fact, the Court held, based upon extensive expert evidence, that the amount of discolouration was no
more than about 1%, and that of contamination by foreign substances, no more than 0.01%. What the
Master had insisted upon was true in one sense, in the same way that it is true that a new car delivered
with a small crack in the rear quarter light is “delivered in damaged condition”. Nevertheless, the words
used were clearly misleading; they should have been qualified to show how limited was the apparent
extent of the contamination and discolouration.
(D) DELIVERY OF CARGO WITHOUT PRODUCTION OF BILLS OF LADING
(1) Indemnity in favour of Shipowners?
(i) The “Island Archon” [1994] 2 Lloyd’s Rep. 227 (Court of Appeal)
Per Sir Donald Nicholls VC: "In the present case the charterers' directions gave rise to an unforeseen
type of loss, suffered by the shipowner without his fault, arising directly from the delivery of cargo in
accordance with the charterers' instructions. In my view this loss is within the scope of the implied
indemnity. It arises directly from the charterers' orders. And on a fair reading of the charterparty the
shipowner cannot be understood to have accepted this risk when he agreed to act on the charterers'
instructions."
(a) Unforeseen type of loss? Unusual, unprecedented?
(b) In accordance with the charterer's instructions? What instructions, exactly?
(c) It arose directly from the charterer's orders? (Causation).
(d) The shipowner cannot be understood to have accepted this risk?
Per Evans L J: "…… the shipowners are entitled to rely upon an implied right to be indemnified against
the consequences of complying with the time charterers' orders to proceed to Basrah and deliver cargo
there, notwithstanding that it was an order which the time charterers were entitled to give and the
shipowners were bound to obey. There is an express finding that the losses claimed were the direct
consequence of complying with the order and on this basis the shipowners were entitled to succeed …
The fact that the request is a direction which the master is under a contractual duty to obey does not
mean that the rule cannot operate … the right to an indemnity exists under an implied term of the
charterparty. Nor … is the implied term … limited to the consequences of complying with one kind of
direction only, that is, to sign bills of lading in a particular form."
(a) The request … which the Master is under a contractual duty to obey? See "Motis Exports"
(below): certainly not to deliver without, or against fraudulent, bills of lading.
(b) So what kind of direction? Issuing/signing bills of lading an irrelevance?
(c) No question but that the consequences of complying with an unlawful order, or resulting from the
charterer's breach, attract an implied right to indemnity.
(ii) The "Houda" [1994] 2 Lloyd’s Rep. 541 (Court of Appeal)
Per Millett L J: "But (the judge held that in) the case of a time charterparty, while the shipowners cannot
be required to deliver the cargo to a person not in fact entitled to it, they can be required to deliver it to the
person entitled without presentation of a bill of lading… [T]he real difficulty of the judge's conclusion is
that it leads to this: the charterers can lawfully require the shipowners to deliver the cargo without
presentation of the bills of lading if, but only if, the person to whom the cargo is to be delivered is in fact
entitled to receive it. If this is indeed the law, it places the master in an intolerable dilemma. He has no
means of satisfying himself that it is a lawful order with which he must comply, for unless the bills of lading
are produced he cannot know for certain that the person to whom he has been ordered to deliver the
cargo is entitled to it. One solution, no doubt, is that since the master's duty is not one of instant
obedience but only of reasonable conduct, he can delay complying with the order for as long as is
reasonably necessary to satisfy himself that the order is lawful …..
But in my judgment the charterers are not entitled to put the master in this dilemma."
(a) An intolerable dilemma?
(b) Delay complying?
(iii) Motis Exports v Dampskibsselskabet A.F. [1999] 1 Lloyd’s Rep. 837 (High Court)
Per Rix J: "… [S]uppose, however, that the forgery could not reasonably be detected. Can a shipowner
be obliged to deliver against such a bill? It seems impossible to think that he can. He may of course be
deceived but if he obstinately refuses, despite his ignorance of the deception, to deliver against the forged
bill, can he be liable for that refusal to the holder of the forged bill? It cannot be. He may have acted in
ignorance, but he did right.
Now suppose the question is whether the shipowner is entitled to deliver, that is to say has a defence in
delivering, against a forged bill, in ignorance of the forgery? If that is so, it can only be by reason of an
implied term. It is hard to think, however, that it is necessary to imply such a term. It would favour the
shipowner at the expense of the owner of the goods. It would subvert the rule of the bill of lading as the
key to the warehouse. Certainly no true owner would think that such an implication would be reasonable.
… the fact is that the law does not in general protect those who act on forgeries, but rather those whose
true title is attacked by forgery."
(a) Whose true title is attacked by forgery?
(b) What if charterers are contractual carriers under the bills of lading? And shipowners their sub-
contractors23 and their agents for the purpose of discharge and delivery? If mis-delivery, are owners
liable to indemnify charterers? Agent's duty in such circumstances. (See discussion below.)
Rix J: “…. [A]s between shipowner and true goods owner, it is the shipowner who controls the form,
signature and issuance of bills, even if as a matter of practice he may delegate much of that to his time
charterers or their agents. If one of two innocent people must suffer for the fraud of the third, it is better
that the loss falls on the shipowner, whose responsibility it is both to look to the integrity of his bills and to
care for the cargo in his possession and to deliver it aright, rather than on the true goods' owner, who
holds a valid bill and expects to receive his goods in return for it."
NB: On appeal to the Court of Appeal, the Motis Exports conclusions at first instance, as set out in the
passages quoted above, were not challenged.
(iv) The “Island Archon” (again: see above)
Per Evans L J: “… [T]he basic issue (is) whether an indemnity should be implied when a shipowner
places the master under the orders of the charterer, but no corresponding express indemnity is given.
…the implication is justified, in my view, first by "business efficacy" in the sense that if the charterer
requires to have the vessel at his disposal, and to be free to choose voyages and cargoes and bill of
lading terms also, then the owner must be expected to grant such freedom only if he is entitled to be
23
See The "Starsin" [2003] I Lloyd’s Rep. 571 (House of Lords)
indemnified against loss and liability resulting from it, subject always to the express terms of the
charterparty contract.”
(a) Loss resulting from such freedom ….. to choose voyages/cargoes etc.
Rules of the Steamship Mutual, 2004/5:
(a) Delivery of cargo without production of the relevant bills of lading.
(b) Exercise of discretion by Directors of the Club.
(c) General requirements of submission to Directors of the Club for "special consideration".
2 Delivery of Cargo Without Bills of Lading: Indemnity in Favour of Charterers?
In Motis Exports, before the Court of Appeal,24 there was no appeal against Rix J's decision "that delivery
without negligence against forged bills of lading as a result of deception practiced on the defendants
(shipowners) afforded no defence against a claim by the holder of the bills either on the contract or in
conversion."
The question for the Court of Appeal (which was decided against the shipowners at first instance) was
whether the "cesser" clause in the bills of lading – which provided that the carrier should have no liability
for any loss of goods after discharge over ship's rail - provided an absolute defence, since delivery
against the forged bills had indeed taken place after discharge of goods from the ship.
The shipowners argued, inter alia, that the Hague-Visby Rules "confined the period during when freedom
of contract was restricted to that between loading and discharge." The "cesser" clause in the bill of lading
was permissible because Article VII (of the Hague-Visby Rules) permitted the carrier "to exempt or limit
liability for loss or damage to goods in his custody prior to loading and after discharge from the ship".
At first instance, Rix J confirmed the well established principle that delivery without production of the bill of
lading constitutes a breach of an essential term of the contract. The cesser clause did not apply to mis-
delivery (even if innocent), since the owner's release of the cargo was nevertheless intentional. If the
shipowners had intended to have no liability for such mis-delivery, they could "easily" have agreed
specific terms to that effect. That, of course, underlines the sense of Rix J's decision, which the Court of
Appeal affirmed. If the shippers had been asked whether, notwithstanding discharge of the goods, they
considered the owners or Master free to mis-deliver the cargo (i.e. to release it otherwise than upon
presentation of the original bills) they would surely have said: "No".
The decision upon this point, both at first instance and in the Court of Appeal, thus conformed to what the
parties could reasonably have expected. The cesser clause had "never been extended to a simple case
of mis-delivery". It was concerned with "loss or damage to the goods and may well include the case
where the goods are stolen, but it is not concerned with mis-delivery" (Rix J, p 846).
There is no doubt, therefore, that the owners' contractual duty to deliver only upon presentation of bills of
lading is absolute, in the absence of clear words to the contrary. But this contractual duty exists and is
found outside the duties and responsibilities laid down under the Hague or Hague-Visby rules. It forms
no part of those Rules per se. Even if, as is usually the case, the Rules are incorporated into most time
charter parties, and many voyage charters, the question whether the charterers are owed such a duty by
24
[2000] 1Lloyd’s Rep. 211
the shipowners is thus not determined by the Hague Rules. If the owners owe any duties to the
charterers with respect to delivery under the bills of lading, those duties have to be established by some
other term(s) of the charter party.
The charter party regulates contractual relations between the owners and charterers; as between those
parties it is not a document of title and performs no function as "the key to the floating warehouse". There
is no place within a charterparty for the same absolute condition, concerning delivery of the goods, as is
contained in a bill of lading contract. Furthermore, the allocation of responsibility between owners and
charterers need not mirror that between carrier and cargo interests under a bill of lading. In the absence
of express charterparty terms to the contrary, the Master's duty is in most circumstances far from
absolute. As agent for the charterers, must he do any more than act reasonably, in accordance with the
standards and knowledge of an experienced Master, as the charterers would expect? The answer seems
to be: “No”.
Is it unreasonable then, and/or contrary to the charterers' expectations, that an experienced Master acting
reasonably, and in accordance with the manner in which other experienced Masters would also act,
would agree to deliver cargo against a perfect forgery of the covering bills of lading, in the absence of any
warning or knowledge of the fraud? If, as one might argue, the answer is "no", upon what basis could the
charterers recover an indemnity (against their liability for mis-delivery) under the charter party? The
answer seems to be: "None", unless some other route is found by which to impose an absolute duty of
correct delivery upon the shipowners.
To describe the Master’s duty in this way – ie when delivering cargo carried under "charterer's bills" –
would be to adopt similar reasoning to that of Colman J in The “ David Agmashenebeli”25) in his analysis
of the Master's duties with respect to the clausing of bills of lading under Article III Rule 3(c) of the Hague-
Visby Rules. The “ David Agmashenebeli is not, of course, directly comparable; amongst other things,
it concerns duties imposed under the Hague-Rules, rather than those beyond them or when (following
discharge) they have ceased to apply. But the reasoning, nevertheless, is similar, acknowledging (in The
“David Agmashenebeli“) that the Master cannot be expected to act as an expert chemist or surveyor,
and by analogy (in the case of forged bills) that he cannot be expected to act as a forensic expert in
documentary fraud.
In order to conclude that a "qualified" rather than absolute duty is owned to the charterers in respect of
delivery of cargo carried under their bills, one need only accept that the Master should not be expected to
exercise specific skills and analytical functions which are beyond the scope of any reasonable Master,
however experienced.
If this reasoning is right, it means that in circumstances such as those of Motis Exports, the charterers'
right to be indemnified by innocent shipowners, following the latter's mis-delivery against forged
"charterers' bills", cannot be assumed.
25
[2003] 1 Lloyd’s Rep. 92
