Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of Parallelewelten.
How Liabilities Are Acquired
The Carriage of Goods by Sea Act 1992 has provided such a position to the bill of lading consignee or endorsee that it has given him rights and he has also got liabilities for the cargo in the contract of the carriage. This chapter is concerned with the liabilities of the buyer’s in the bills of lading contract that what are the instances where he becomes liable. The chain of the liabilities begins when the holder of the bill of lading claim the benefit of the contract. The COGSA 1992 has made the position of the bill of lading holder such that the claim for the benefit of the contract has become the main thing. The person who has got the rights under section 2 (1) of the COGSA comes under the liabilities. If the person is not having the rights under section 2(1) then he will not come under the liabilities of the contract. But it is also important that the buyer or his agent has also demanded the deliver of the cargo in order to make him liable for the contract under section 3 (1) of the COGSA. As in the case of the Berge Sisar the buyer was not labile because he has not demanded the delivery of the cargo and this demand has to be made from the carrier. The demand made from the carrier has to be of the same goods in order to make him liable. Because the buyer will not be liable if the goods has been damaged or devalued. The buyer has to make the claim regarding the goods to which the bill of lading relates, which is very important for incurring the liabilities in the contract of carriage. A holder of the bill, claiming on behalf of an injured party, will be liable himself and not the injured party. The holder of the spent bill will also incur liabilities if he is having rights under section 2 (1). An intermediate transferee of the bill of lading remains no more liable when he transfer the bill of lading to another person. In the same manner when an intermediate transferee transfer the bill of lading to a sub buyer he lose the contractual rights and as he is no more rights he is no more liable. These are the liabilities which are further discussed in detail in this chapter.
The bill of lading act 1855 section 1 had made the position of the bill’s consignee or endorsee in such a way that it had imposed some liabilities on him in the same way as he acquires rights. But the Carriage of Goods by Sea Act 1992 has split this position and now the acquiring of the rights and the imposition of the liabilities are two separated issues. There are two reasons why the liabilities are divided by the Carriage of Goods by Sea Act 1992. The first reason is that there is no necessary connection amongst the two process because as it is stated by the court in the case of the East and West Corp v DKBS that the analogy of the law regarding to the chooses in action, shows an assignee of the chooses in action is not liable on a contract only because he has acquired a right in it.
The second reason is that it has tried to close the property gap because the new Act has extended the list of the people who may acquire rights in the bill of lading like persons who has acquired the bill of lading by way of security.
The COGSA 1992 has adopted the rule that a person is not liable for a bill of lading contract that merely because rights under it has been transferred to him but he becomes liable when he claims the benefits of the contract. It means that when a person claims the benefit of the contract after that he become liable, only the holding of the bill of lading does not made him liable for the liabilities. These liabilities in particular arise in cases when the carriage of the dangerous goods is concerned.
A person comes under the liabilities of a contract when he claims his rights in that particular contract. It was held by the Law Commission and the Scottish Law Commission in their report in which they said that it is not unfair that a person who claims the rights in delivery or take delivery of the goods must be subject to the terms of the contract of carriage because the person is enforcing or makes an attempt to enforce his rights in the contract. Therefore it is not fair that the carrier will not have any remedy against the endorsee of the bill of lading because the endorsee takes benefit out of the carriage contract without any equivalent burden.
Liabilities imposed by section 3(1) of the Carriage of Goods by Sea Act 1992
The section 3 (1) has described the liabilities which says that subsection 1 of the section 2 of the COGSA 1992 says that when this Act is in operation relating to any documents to which this law applies and the person who has the rights because of this particular subsection of the law,(a) when he takes or demands delivery from the carrier of the goods to which the stated documents are related, (b) or when he makes a claim in the contract of the carriage against the carrier in respect of the goods, (c) or that person to whom rights are not yet transferred but he takes or demands the delivery of the goods from the carrier of any of those goods. That person shall by taking or demanding delivery becomes subject to the same liabilities in that contract as if he has been a party to that contract. The liabilities in this subsection will be got only if two requirements are satisfied those requirements are, 1) that the bill of lading holder acquired the rights because of section 2(1) and the second requirement is that if any incident happens as described in paragraph (a), (b) or (c).
Acquisition of rights under section 2(1)
Section 3 (1) of the COGSA 1992 imposes liabilities on a person who has the contractual rights as described in section 2 (1) of the same Act. It means that a person who has rights in the contract because of the section 2 (1), who becomes the lawful holder of the bill of lading that person has in the same way has the liabilities as well.
Section 2 (1) has said that “(1) Subject to the following provisions of this section, a person who becomes
(a) The lawful holder of a bill of lading;
(b) The person who (without being an original party to the contract of carriage) is the person to whom delivery of the goods to which a sea waybill relates is to be made by the carrier in accordance with that contract; or
(c) The person to whom delivery of the goods to which a ship’s delivery order relates is to be made in accordance with the undertaking contained in the order,
Shall (by virtue of becoming the holder of the bill or, as the case may be, the person to whom delivery is to be made) have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract”�?.
It is important to note that liabilities cannot be incurred where rights have not been acquired in through section 2 (1), like in the case of the Aegean Sea the Court held that if the bill of lading is not endorsed or it is lost in transmission then the person can not incur liabilities under section 3 (1). The reason is that the person has not got rights under section 2 (1) of the COGSA 1992.
If the alleged transferee has not become the holder of the bill by any reason or if the bill is transferred to the charterer in the carrying ship to make it only a receipt in his hand. The person who has such kind of the bill can demand the delivery or can make the claim under the contract of the carriage; he can get the rights in such a contract but this kind of contract cannot incur liabilities under section 3 (1) of the COGSA 1992.
If a person is demanding the delivery of the goods it will be an implied contract and the implied contracts use to impose fewer liabilities than as stated in section 3 (1) of the Act and in such a case the liabilities will be manage by the implied contract and it should not be considered that the defendant had been a party to the original contract. Therefore in such a scenario where a person has not got rights under section 2 (1), then no liabilities can be incurred on the claimant under section 3(1).
A person who takes or demand delivery
In section 3 of the COGSA it is said that a person who takes or demand delivery it is a reference to those who takes the actual physical delivery and not the constructive possession which is obtained by the transferee through the transfer of the bill of lading. The delivery should be as stated in The Berge Sisar case should be the “voluntary transfer of possession”�? got by the holder from the carrier in such a condition in which the holder make himself in such a position to get his contractual rights. It means that the holder should not only provide the berthing facilities and other discharging facilities and the receiving of the samples but the demand should be in such a way which can provide an evidence of his gaining his rights from the carrier. In order to fulfil this requirement the holder of the bill should made a formal demand to the carrier or his agent to deliver the goods to him.
In the case of the Berge Sisar the claimant directed the vessel to their import jetty and give permission her for a berth and had taken a routine samples from the cargo tank before clearing the ship for the discharge in the terminal. The question arises is that whether it was a demand in the section 3 (1) which is there to make them liable for the liabilities under the bill of lading.
According to Millet L.J, the demand made by Borealis before endorsing the bill of lading is not an irrevocable demand. He also said that the intermediate holders of the bill of lading remain liable for the contract of carriage and if they take any step prescribed by section 3 then they become liable for the contract of carriage. But there position is not irrevocable unless and until they take actual delivery. But if they demand or take actual delivery then they comes under the liabilities of the contract of the carriage. They can withdraw, demand or claim and endorse the bill of lading to a third party.
According to the view of the Lord Hobhouse it was not a satisfactory to consider it a demand. He said “what occur did not get even as far as the stage of the Borealis expressing their willingness to receive this cargo into their terminal. It fell a long way short of amounting to any demand or request that it should be. Once Borealis knew what the true characteristics of the cargo were, they refused to accept it from the ship”�?.
Therefore the berthing of the ship and doing the normal routine test were just act of co-operation amongst the merchants before any demand for the final demand or delivery of the cargo. The test which was done by the claimant was to know the true quality of the cargo before taking delivery.
The question which remains unsolved is that what will happen if the holder of the bill makes a demand and his demand is rejected or refused by the carrier and does not opt for suing the carrier and drop the matter and does not make any claim. Lord Hobhouse said regarding the phrase make a claim that it should be understand as referring to the formal claim against the carrier asserting the liabilities of the carrier in the contract of carriage to the holder of the bill of lading. In the case of The Ythan the court said that makes a claim should be refer to the making of a formal claim. In this case the bills holder request for the letter of undertaking from the carrier was not enough to activate section 3 (1) (b).
But in section 3(1) (a) it has been stated that the liabilities are incurred irrespective of the fact whether the carrier or his agent complies with the demand of the holder of the bill. If the carrier dose not comply because of having a legal impediment then the result will be that the holder of the bill who has made the demand will incur the liabilities because he has made the demand for the delivery of the goods despite the fact that the holder has got the rights because of section 2 (1) of the Act.
The main concern of the court was about the position of the lawful holder of a bill of lading in such a circumstances when he takes one of the step specified in section 3(1) and then endorse the bill of lading and transfer the goods to a third person, the question was that whether he is discharge from liabilities under the contract of carriage or not. Miller LJ has pointed this issue and this was not considered by the Law Commission and the Scottish Law Commission’s Report.
“The majority of judges said that unless and until the intermediate bill of lading holder took actual delivery their position was not irreversible.”�? It is not justice to make the holder of the bill liable in such a situation when the carrier does not comply with his demand for the delivery of the cargo. That is the reason that such an unjust result could be avoided by relying on the principle given by section 3(1) (c) which says that the demand for delivery rejected by the person who has no authority to reject has no legal importance and the person who has made the demand will not be bound in such a case for the liabilities of section 3.
Section 3 of the Act needs that a holder of the bill have demanded or taken the delivery and it does not require him to exercise the right of the contract of the carriage. The contractual rights of the endorsee of the bill of lading use to create the problem that whether the holder of the bill to whom the contractual rights has been transferred could avoid the liabilities on the basis of the formal demand on some other ground like the title to the goods. But such a way is not the right method and would fail at the end. When the demand of the holder is rejected and he dose not pursue it, does it incur any liability, is also uncertain. When the bill of lading has not reached the buyer by the time the cargo arrives, then in such a case delivery can be given through a letter of indemnity given by the buyer or the seller. It is also to be kept in mind that the giving of such a letter does not mean a demand under section 3(1) (a), whether the promise contained in the letter of indemnity is to indemnify the carrier when he delivers the goods to the person who makes the promise, or to any one else. In such a case the actual delivery because of the letter will give rise to the implied contract.
Demand made form the carrier
In order to make a demand from the carrier under section 3(1) it is important that the delivery must be demanded or taken from the carrier by the bill holder. This means that it covers those cases of the demand for delivery in which demand is made in a direct manner form the carrier.
According to the case of Barclays Bank Ltd v Commissioner of Custom & Excise, the court held that those goods are also included in the demand for delivery under section 3(1) which has been taken form that warehouse in which the goods were kept for the carrier. But in comparison to this case the court held in the case of the Aegean Sea that the government authorised salvors delivered some oil from a tanker is not a delivery from the carrier.
When the ship owned by A, is time chartered to B and the goods are carried under a bill of lading which is issued to C. in this scenario the contract which is contained in a bill of lading or is evidence by it will be between A and C or between B and C. the contract between A and C, A is the carrier under section 3(1) and in the contract between B and C, it is debatable issue because A and B both can be said the carrier because A has to perform the carriage operation and B has made a contract with C which he want that it should be performed.
The Goods must be the same
It was held in the case of The Aegean Sea that the goods which is demanded or is taken must be the same which were shipped. But this requirement was for example not satisfied where the oil was taken from the cargo after the ship was sunk. Because in this case the quality of the oil was not the same as it was before sinking of the ship. If the delivery is taken of any of the goods to which the bill of lading is related then section 3 (1) (a) is satisfied. This is the requirement of the delivery to hold the transferee liable when he takes a part of the delivery; this may seem as injustice on the part of the transferee. As stated before that only taking sample from the cargo for a routine check will not be considered that the holder has demanded for the delivery. Therefore the demand for the delivery will be considered where the goods are the same as it were in the time of the loading of the goods into the ship.
Claim under the contract of carriage
Liabilities are imposed on a holder under section 3(1) (b) who has acquired contractual rights because of section 2(1) when he makes a claim under the carriage contract against the carrier regarding those goods to which the bill of lading is related. “Makes a claim”�? is understood as to give effect to the section 3, regarding the goods in the carriage contract. “It requires more than merely expressing a view in the course of meeting or a letter and refers to a formal claim against the carrier asserting a legal liability of the carrier under the contract of the carriage to the holder of the bill of lading”�?. But it is also important to remember that under section 3 (1) (b) the holder incurs liabilities even if his claim turn out to be as unfounded. That is the reason that in the case of the Berge Sisar Millet LJ said that “intermediate holder of the bill of lading remain liable if under the contract of carriage and become actually liable if they take ay step mentioned in section 3(1).
The requirements of making a claim in a carriage contract have been stated in section 3(1) (b) which is different from section 3(1) (a). The holder cannot avoid the liabilities under section 3(1) (b) even if he makes a claim in tort against the carrier, where the tort leads to the breach of the carriage contract.
When the goods are carried in a chartered ship the identity of the carrier can be arise in section 3(1) (b). When a claim is made by a transferee of the bill against the ship owner and the contract of carriage is between the shipper and the charterer, then in such a scenario the claim will not be under the contract because there is no between these two parties. The same happened in the Berge Sisar case in which the Bergesen brought a counter claim under the bill of lading was not a good claim because Borealis had endorsed the bill of lading to the Dow Europe and they were not the lawful holder of the bill in the time of the action and the other thing was that Dow Europe has taken delivery of the cargo by fulfilling the requirements of liabilities in section 3. This problem was also is illustrated in the case of Sewell v Burdick in which an action was brought against the bank for being a lawful holder of the bill of lading. The court held that the bank is not liable because it has not got the ownership of the goods. It was held that it would be very difficult for the commerce to make the bank liable despite the fact that it was the holder of the bill of lading because the bank only acts to hold the bill of lading as a security for the payment.
Section 2(4) and the right of claim for others
Liabilities also incur in such a case when a person want to claim on behalf of another one. If a person has got rights under section 2(1) and is a holder of a bill of lading then section 2(4) give him the right to claim for the benefit of another person who has suffered loss because of a breach of the contract. In such a case the person making a claim will be liable under section 3(1) (b) and not the person for whom the claim is made. For example A is making a claim for B, in this case A will come under the liabilities of section 3 (1) (b), and not B. This is optional for A because he can avoid it; the reason is that section 2(4) does not oblige him to exercise his rights under section 2(1). If B request A to exercise these rights for him then A can make a condition for indemnity in case of any liability incur under the contract of carriage.
Liabilities of holder in a spent bill
Contractual rights may be vested in that person who is the holder of the spent bill. The person who is the holder of such a bill of lading can incur liabilities in the contract of the carriage. The reason is that section 3(1) says that a holder of a bill can incur liabilities if he has got the contractual rights under section 2(1). If a person in whom the rights are vested before he took or demanded delivery from the carrier, for those goods which are covered by the bill of lading. This apply in those situation in which the ship arrives before the goods reaches the bill of lading and the goods are delivered to that person who becomes the ultimate holder of the bill of lading. Section 3 (1) (c) applies to such a person who has demanded delivery before becoming the ultimate holder of a bill of lading. If that person has not got the possession of the bill of lading he cannot get the contractual rights under section 2(1) and in the same way he cannot make a demand under section 3(1) (c). The person who has not have the possession of the bill of lading he cannot have the rights to demand delivery for the goods and if the demand of such a person is rejected it does not have any legal value. As it was held in the Berge Sisar that section 3(1) will not apply if there is no actual delivery.
Liabilities under section 3(1) (c) is incur if the person who has having the spent bill, make a demand for delivery of those goods which are covered by the bill. Demand in these circumstances means that demand which is based on the ownership, like in the case of The Berge Sisar the buyer cooperated with the carrier by directed them into their import jetty and took the samples for the checking as it was a practice in the routine. But the court held that it does means a demand under section 3(1) (c).
There is a difference between section 3(1) (c) and section 3(1) (b) regarding the incurring of the liabilities, because under section 3 (1) (b) liabilities are imposed on a person who makes a claim under the contract of carriage. The reason for the difference between the two sub-sections is that before contractual rights were vested in the person and who has become the holder of the bill later on that person can not make a claim in the contract of the carriage. Because of this provision the buyer at the end knows the position of the goods that whether the goods has been lost or destroyed or wrongly delivered and the carrier has committed a breach of the contract. The buyer can in such condition make a claim against the carrier before holding the bill and after holding the bill, can acquire the contractual rights under section 2(1)( c) and this would not come under section 3(1)(c).
Liabilities of intermediate transferee
A person can get contractual rights and incur liabilities under the bill of lading because of becoming the holder of the bill of lading and making a demand for the delivery of the goods. He could also transfer the bill to the sub-buyer before taking delivery of the goods and by doing so he loses his contractual rights. Millet LJ said in the case of the Berge Sisar that a person become liable when he takes any step mentioned in section 3 of the COGSA 1992. liabilities under section 3 are incurred when the holder of a bill perform any one of the three acts, (a) takes or demand delivery from the carrier of any of the goods to which the documents relates, (b) makes a claim under the contract of carriage against the carrier in respect of any of those goods, (c) is a person who, at any time before those rights were vested in him, took or demanded delivery from the carrier of any those goods.
Under the Bill of Lading Act 1855 it was held to be against justice that an intermediate transferee will be liable under that bill in which he has lost rights by transferring it and the assignee was the only person who could receive the cargo and who was liable under the bill. In the Berge Siar it was held that the intermediate transferee has not incurred liabilities under the bill. It was also held that the intermediate transferee who had liabilities in one time has no more have the same liabilities after transferring it to the other person. It was also held that it is not an injustice with the carrier because he uses to get the same rights against the ultimate holder of the bill of lading.
Extent of Liabilities
According to section 3(1) if the conditions in the sub section are satisfied the person who has got the rights under section 2(1) shall become subject to the same liabilities as he has been a party to the contract. The transferee in this subsection is treated as the party to the contract and he incurs all the liabilities, like liabilities for the fright, demurrage and for the damage or loss suffer by the carrier because of the reason that the goods shipped were dangerous. The reason for imposing such liabilities on the transferee is not that he has got rights under the contract, but the liabilities are imposed on him only if he wants to take benefit out of the contract.
Original contracting parties and their liabilities
The position of an original shipper at common law is that he remains liable under the contract, contained or evidence by the bill of lading. In a bill of lading contract the person who made the contract originally remains liable under the common law even though he has transfer the bill of lading to a new implied contract. In transferring the bill of lading to the new holder he comes under the same liabilities under which the original holder remains. The position of the common law has been established by section 3(3) of the Carriage of Goods by Sea Act 1992, which says that “this section, so far as it imposes liabilities under the contract on any person, shall be without prejudice to the liabilities under the contract on any person as an original party to the contract”�?. This section is about the contract which is evidence or contained by the bill of lading and therefore it preserves the original shipper’s liabilities in the contract.
Liabilities for the destroyed or unascertained goods
Goods cease to exist
According to section 5(4) of the 1992 Act which says”�? without prejudice to sections 2(2) and 4 above, nothing in this Act shall preclude its operation in relation to a case where the goods to which a document relates
(a) Cease to exist after the issue of the document; or
(b) Cannot be identified (whether because they are mixed with other goods or for any other reason);
And references in this Act to the goods to which a document relates shall be construed accordingly”�?.
According to this section there is no liability in such a case where the cargo has been destroyed before the issuing of the bill of lading. But this section has also said that if the goods are lost or damaged because of the breach of the carrier then he is liable, in cases in common law like if the delivery order has been issued by a carrier in favour of a third party after the goods covered by the delivery order has been lost because of the breach of the carrier in a contract between the carrier and the shipper.
It is also important to note that the words cease to exist are not only restricted to the total physical loss but it also include that loss, because of which the goods are no more suitable for its purpose, which is as described in the common law doctrine of frustration. This means that the conditions of the goods turn such which frustrate the purpose for which it was in carriage. In the doctrine of the constructive total loss in Insurance Law and in the Sale of Goods Act 1979 sections 6 and 7 the word perish has also support the idea “ceased to exist”�? in the section 5(4) of the COGSA 1992. The stolen goods according to some analogies also come under the doctrine of cease to exist.
Section 5(4) operates without prejudice to section 2(2), (which gives rights to a person to acquire rights in certain conditions) and 4, which means that section 4 can apply even the goods have ceased to exist before the issuance of the documents for example if the goods are stolen during or before shipment. If this section excludes cases like theft from its jurisdiction then it will defeat the purpose for which this section is in operation.
Section 2 (2) has been mentioned which enable a person to file a suit in certain specified cases. This section applies to such condition where the goods are not delivered to anyone but is destroyed like as in the case of The Ythan the cargo was destroyed when the ship sunk.
In section 5(4) the rights can be acquired and the liabilities can be imposed in respect of those goods which are unidentified part of a bulk cargo. These kinds of goods are divided into two groups. The first is the one which consists of those goods, a part of which form part of identified goods and these goods comes under the Sale of Goods Act 1979 as the specific goods and it is considered as the identified goods and for these kinds of goods recourse to section 5(4) is not necessary because it has been considered as the identified goods. The second category of goods are those “which form specified quantity out of a bulk which has been identified either in the contract or by subsequent agreement between the parties”�?. In this category the buyer of the goods acquires ownership in common of such a bulk. But his acquiring of the goods are not because the goods are regarded as ascertained but as an unascertained goods and that is the reason that such kind of goods are not identified goods. Therefore the COGSA 1992 Act section 5(4) applies to it because it is unidentified goods. This section of the Act does not apply to those goods which are not identified because they are generic goods.
The goods which are covered by the bill of lading also come under the application of the section 5(4) of the COGSA1992. Like if ten bills of lading have been issued each covering 1000 tons covering a bulk of ten thousands. In such a situation the person having the possession of the bill of lading for example for 1000 tons, he will be liable for his part of the shipment only and will not be liable for the rest of the cargo.
To conclude liabilities of a holder of a bill of lading has been mentioned in section 3 of the Carriage of Goods by Sea Act. According to this section the buyer incurs the liabilities when he makes a demand form the carrier for the delivery of the cargo. But it is also important that the buyer has got the rights under section 2 of the same Act. The problem which arose in the case of the Berge Siar was that The Law Commission and the Scottish Law Commission in its report has not made a difference between a claim and a demand. That is the reason that in the case of the Berge Sisar, the Bergesen counter claimed that the Borealis has made a demand but in fact according to the court it was not a demand it was just cooperation with the carrier. This issue was decided by the court in favour of the buyer that the buyer was not liable under section 3. The buyer has to make a demand of the same goods as it was in the contract because if the goods are not the same then the buyer will not incur the liability as in the case of the Ythan the oil delivered by the salvors was the one which damaged after the ship sunk. In the oil there was other contamination therefore it was not the same oil. Section 3 has described the liabilities of the intermediate transferee that when he transfers the bill his rights are lost and that is the reason that he no more remains liable. The buyer in the case of a bulk cargo is only liable for his part of the cargo which is covered by the bill of lading. The Carriage of Goods by Sea Act has given rights but it has also provided liabilities for the parties having a bill of lading contract.
1. Benjamin’s on the Sale of Goods, 7th Edition 2009.
2. Jeason Chuah, La
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