Section 1 Cargo liabilities
This section describes the cover for liabilities to cargo. The two main categories of cargo liabilities are transport liability and documentary liability. Transport liability refers to the physical condition of the cargo, in other words to cargo lost or damaged while in the carrier’s care, custody or control. That kind of liability is dealt with in Sections 1 and 2 of this Rule. Documentary liability applies in respect of the particulars and the description of the cargo in the contract of carriage. Section 3 deals with that liability. The carrier also has a liability to deliver the cargo to its rightful owner according to the contract of carriage. The ensuing cover is described in Section 4.
Section 5 deals with paperless trading. Section 6 refers to extraordinary handling costs and expenses incurred by the Member himself. Section 7 deals with General Average and Section 8 with liability arising from deviation.
There are other Rules which concern liabilities in relation to cargo. The cover against cargo-related fines is described in Rule 7 Section 6. Approved terms of contract for carriage of cargo are referred to in Rule 10 Section 2. Important exclusions from cover for cargo liabilities appear in Rule 11 Sections 1–2.
4.1.2 Cargo liability
22.214.171.124 Background of the conventions
The carrier is not liable to compensate the owner or underwriter of cargo for all damage or loss which has occurred on board the ship or otherwise in the custody of the carrier. The carrier has no strict liability for cargo entrusted to him. No such far-reaching liability is even suggested in any international convention pending. Cargo may get damaged or lost without the carrier being liable under any applicable law. It is an important function of the P&I Club to determine whether the circumstances of a case are such that liability does or does not exist and then to settle or defend the claims accordingly.
The extent of the carrier’s liability for cargo depends on the applicable law. Most countries base their domestic law on one of the international conventions on cargo liability. These conventions are the Hague Rules, the Hague-Visby Rules and the Hamburg Rules. The convention known as the Rotterdam Rules has not been ratified by anywhere close to the number of states required. Accordingly, it is not in force. Some countries such as Colombia, Taiwan and Venezuela have not adopted any of the relevant conventions. For such countries the parties to a freight contract can decide the extent of the carrier’s liability within the framework of applicable local national law. Other countries such as Brazil have enacted domestic legislation which imposes even more severe liabilities for cargo than would have followed from any of the conventions. Members trading to such countries can ask for the Club’s advice as to how bills of lading and other contracts of carriage should be drafted in order to afford the Member protection against liabilities and to comply with Rule 10 Section 2. The conventions will be dealt with individually below.
The four conventions mentioned are all based on the principle of setting a mandatory minimum standard for the carrier’s cargo liability. The carrier cannot reduce that liability by any clauses in the contract of carriage. On the other hand, the carrier is allowed to extend his liability beyond the minimum standard imposed. As P&I Insurance is designed to cover those minimum liabilities which the Member is legally unable to avoid or reduce, Rule 10 Section 2 (a) states that the cover for cargo liabilities is conditional upon the contract of carriage having been based upon the Hague Rules or the Hague-Visby Rules. Cargo liabilities beyond those standards, including those following from the Hamburg Rules, are covered only if and to the extent that they are mandatorily applicable or provided for in a contract approved by the Club.
126.96.36.199 The Hague Rules
188.8.131.52.1 General comments on the Hague Rules
The Hague Rules were drafted and adopted by an international convention in 1924. They have become domestic law in a great number of countries. Some countries have since replaced the Hague Rules with the Hague-Visby Rules, which will be commented upon below. Upon request the Club will provide information to a Member as to what kind of legislation applies in each country.
The Hague Rules were drafted at a time when cargo transportation systems were different from those of today. It should be noted that they do not apply only to the carriage of general cargo although many of the leading legal cases date back to the age of break bulk shipments. The Hague Rules – and for that matter the Hague-Visby and Hamburg Rules as well – govern the carrier’s liability for transportation of all kinds of cargo. It is the technical application of the rules that must be adapted to the different characteristics in the transportation of reefer cargoes, oils, chemicals, containers, trailers, etc.
184.108.40.206.2 Paramount Clause
Where adopted, the Hague Rules or Hague-Visby Rules are compulsorily applicable by law. For other countries they can be made applicable by their incorporation into the contract of carriage. To ensure that no wider liability is accepted than that covered under these Rules, bills of lading issued should contain a clause by which the transport is made subject to the Hague Rules or Hague-Visby Rules. Such a clause is called a Paramount clause. A Member should ensure that charterparties contain clauses according to which the party issuing the bills of lading (Owner or Charterer) undertakes to insert a Paramount clause in all bills of lading issued under the charterparty. It is also important, in order to preserve P&I cover, that any charterparty that is the contract of carriage is made subject to the Hague Rules or Hague-Visby Rules. This can only be achieved by express incorporation since the Hague Rules and Hague-Visby Rules do not, otherwise, apply to charterparties.
220.127.116.11.3 Carrier’s and cargo owner’s liabilities
The Hague Rules liability concept is based on a division of liability between the carrier and the owner of the cargo. The carrier has two basic responsibilities. Firstly, he should be reasonably active to ensure that the ship is suitable for loading the intended cargo and carrying it safely to its destination. This is referred to as the obligation to exercise due diligence with regard to seaworthiness before and at the beginning of the voyage (see the comments under 4.1.5). Secondly, the carrier should keep and care for the cargo while it is in his custody (see the comments under 4.1.6).
If the carrier has adequately met these two basic responsibilities, he may invoke a list of exceptions from liability. Loss or damage to cargo caused by a risk on that list should be absorbed by the cargo owner (see the comments under 4.1.8).
18.104.22.168.4 Burden of proof
The allocation of liabilities between the parties depends on the cause of the loss. The cause thus has to be established as far possible through investigation. The division of liability requires rules as to the burden of proof (see the comments under 4.1.4). Both parties need to be active in securing proof to support their respective positions.
Under the Hague Rules the burden of proof in cargo claims often shifts between the cargo claimant and the carrier. Under English law (which governs most bills of lading) if cargo is discharged in a damaged condition the initial burden of proof rests with the carrier to establish that its damaged condition did not result from lack of care for or negligence in relation to the cargo while on board the vessel (i.e. that the carrier took all necessary measures by reference to industry standards to care for the cargo during the voyage). Subject to that, the claimant has to prove, not only the nature and extent of the loss or damage sustained, but also that it was caused by a specific act or omission of the carrier amounting to negligence in relation to the care of the cargo or else by the unseaworthiness of the vessel and that it occurred while the cargo was in the carrier’s custody. If the cargo claimant can produce convincing evidence in these respects, the burden of proof shifts to the carrier. The carrier is considered liable to compensate the loss unless he is able to prove that the damage or loss was not caused through negligence on the part of the crew in relation to the care of the cargo or else (if proved to have been caused by unseaworthiness) it occurred despite the exercise of due diligence to make the vessel seaworthy and that the cause of the loss was a matter for which the carrier is exempted from liability by an explicit exception (see the comments under 4.1.8).
22.214.171.124.5 Time bar
To stand a reasonable chance of discharging his burden of proof, the carrier must be informed of any claim in a timely fashion. The Hague Rules contain provisions on the time bar of cargo claims (see the comments under 4.1.10).
126.96.36.199.6 Limitation of liability
The Hague Rules provide the carrier with a right to limit his liability per package or other unit of the goods (see the comments under 188.8.131.52).
184.108.40.206.7 Special regulations for special cargoes
The Hague Rules contain special regulations for certain types of cargo such as goods of an inflammable, explosive or dangerous nature (see the comments under 220.127.116.11), deck cargo (see the comments under 18.104.22.168), live animals (see the comments under 22.214.171.124) and valuable cargo (see the comments under 126.96.36.199).
188.8.131.52 The Hague-Visby Rules
To meet the needs of modern transports, additional rules were added in 1968 and these became known as the Hague-Visby Rules. They have been adopted by a number of countries and apply to transport from a port in a contracting state, or where the bill of lading has been issued in such a state or contains a Paramount clause making the Hague-Visby Rules applicable.
The Hague-Visby Rules are based on the Hague Rules with some important modifications. A new way of calculating the per package limitation was introduced which considerably increased the extent of the carrier’s liability (see the comments under 184.108.40.206.3). Under the Hague-Visby Rules the particulars contained in a bill of lading constitute conclusive evidence as to the apparent condition of the goods at the time of shipment (see the comments under 220.127.116.11). The time for the carrier to file recovery claims was extended (see the comments under 18.104.22.168). Under the Hague-Visby Rules the carrier’s servants are afforded protection in the sense that they are granted the same rights and immunities as the carrier himself if claims are filed directly against any of them. See the comments on the use of a Himalaya clause under 22.214.171.124.
The burden of proof under the Hague-Visby Rules is the same as under the Hague Rules (see the comments under 126.96.36.199.4).
188.8.131.52 The Hamburg Rules
The Hamburg Rules were adopted in 1978. They came into force in November 1992 (see comments under 10.2.2).
The Hague Rules and Hague-Visby Rules are based on an apportionment of liability between the carrier and the cargo owner. Under the Hamburg Rules, however, there is a presumption that the carrier is responsible for any loss or damage caused to cargo unless he can prove that he took “all measures that could reasonably be taken to avoid the occurrence and its consequences”. This burden of proof is considerably more difficult for the carrier to satisfy than that under the Hague Rules and Hague-Visby Rules. The scope of the carrier’s liability is thus increased in comparison.
The Hamburg Rules are based on the principle of presumed fault or neglect. They still permit, however, the presentation of evidence and arguments in the carrier’s favour. Cargo damage arising under the Hamburg Rules has to be investigated in the traditional way before any commitments are made to the cargo interests. The necessity of obtaining evidence and the way to do it described in the comments under 4.1.4 are equally relevant to claims subject to the Hamburg Rules.
184.108.40.206 The Rotterdam Rules
220.127.116.11.1 General comments on the Rotterdam Rules
The Rotterdam Rules were adopted in 2008. According to Article 94 of the convention, the Rotterdam Rules will come into force one year after ratification by the 20th UN Member state. At the time of writing this text, the Rotterdam Rules have so far been signed by 24 states but only ratified by 4 states. It will be some time before the convention comes into force, if ever.
The purpose of the convention was to modernize the existing international rules relating to contracts of carriage of goods and to achieve international uniformity among states by replacing the existing conventions, i.e. The Hague Rules, The Hague-Visby Rules and the Hamburg Rules.
18.104.22.168.2 Carrier’s and cargo owner’s liabilities
The Rotterdam Rules’ liability regime, in respect to the carrier’s liability, is fault-based. That is to say, the carrier is liable where cargo interests can prove that the loss, damage or delay took place during the period of the carrier’s responsibility.
The carrier is, however, relieved if it can be shown that the cause of damage could not be attributed to its fault and/or falls within the scope of the accepted defences listed in article 17. The fault of the carrier’s servants is dealt with in the same way.
The carrier remains liable if cargo interests can show that the carrier’s conduct contributed to the relevant loss, irrespective of whether the carrier can rely on any defence. The latter development represents a significantly narrower scope of exemption for the carrier in comparison to previous conventions.
The above mentioned development is further highlighted by the exclusion of the error in navigation defence, on which the carrier in previous conventions could rely. The carrier’s duty to exercise due diligence to make the vessel seaworthy before and at the beginning of the voyage has been extended to include the voyage itself. By virtue of article 14 the carrier has an ongoing obligation to exercise due diligence in respect of the vessel’s seaworthiness.
22.214.171.124.3 Time bar
The Rotterdam Rules provides for a 2 year time bar for cargo claims.
126.96.36.199.4 Limitation of liability
Compared with previous conventions, the limits of liability are increased. Article 59 of the Rotterdam Rules dictates that the applicable limit per kilogram is SDR 3, while the limit per package is SDR 875, see under 188.8.131.52.
4.1.3 Cover for cargo liabilities
184.108.40.206 General comments on cover
The cover under this section is for liability which follows from mandatorily applicable law or from a contract of carriage based on the Hague or Hague-Visby Rules, as per Rule 10 Section 2 (a). A Member must further avail himself of all available defences and limit his liability in accordance with the fifth paragraph of Rule 2.
220.127.116.11 Consequential damage
The liability covered is primarily in respect of loss of or damage to the cargo concerned. Liability for consequential damage is covered as long as it is mandatory and caused by loss of or damage sustained by the cargo in question. If an important piece of machinery is lost during the transport causing a factory to stop production and the Member is found legally liable to compensate the loss of production, cover is provided under this section. There is no cover for consequential losses unrelated to the damaged cargo. If a charter is cancelled due to a breakdown of the reefer machinery or other damage to or loss of a chartered ship, a claim for the loss sustained by the Charterers by having to hire substitute tonnage at a higher freight rate is not covered.
18.104.22.168 The period of cover
22.214.171.124.1 The period of liability
126.96.36.199.1.1 The “tackle-to tackle” principle
The carrier’s liability for the cargo was previously thought to be limited to the period from when the ship’s tackle is hooked on at the port of loading until the cargo crosses the ship’s rail at the port of destination: the “tackle-to-tackle” principle. It is no longer upheld by the courts. Instead there is something of a grey zone as to when the carrier’s responsibility attaches before loading and, respectively, ceases after discharging.
188.8.131.52.1.2 The period before loading
Unless contracted otherwise, (see the comments on FIOS terms under 184.108.40.206) the carrier is liable for the loading operation. The condition of the cargo before loading begins is of importance.
For the period before loading it is important to find out when and how the goods arrived at the terminal or quay for loading on board the ship. Was the cargo surveyed? What receipt was given? How was it stored, guarded against theft and protected against any damage that might occur? Who arranged, supervised and paid for any arrangements in relation to the cargo? What practical and legal means did the carrier have to influence the care and handling of the cargo? What contracts exist with stevedores, owners of warehouses and providers of cranes or other means of cargo handling and care?
All information, observations and evidence the Member can provide will assist the Club to establish the extent of the Member’s liability, if any.
220.127.116.11.1.3 The period after discharging
The carrier is liable for the performance of the discharging operation except where the carriage is undertaken on FIOS terms (see comments under 18.104.22.168). Courts are likely to extend the carrier’s liability beyond the time of the discharging operation. When and where the liability ends will depend on the circumstances in each case. For the defence of a cargo claim the carrier should provide information and evidence that certain measures had been undertaken by or on behalf of the carrier.
E.g. the carrier should give the receiver reasonable notice that the cargo has arrived. In so far as the carrier has a choice, the cargo should be entrusted to a reliable warehouse or terminal operator. It should be given adequate care during storage and be protected against theft, heat, cold, rain, dust, etc., as the case may be. Reefer containers should be plugged in. The cargo should be separated and held available for survey. The receiver should be given a reasonable opportunity to pick it up.
As regards evidence of condition upon discharging or delivery, see the comments under 22.214.171.124.2, 126.96.36.199.3, 188.8.131.52.1.3, 184.108.40.206.9 and 220.127.116.11.5.
Liabilities for release and delivery of cargo are covered under Rule 4 Section 4.
18.104.22.168.2 The period of cover – the 14 days rule
The cover is effective during the time before, during and after the contracted carriage. It includes any stage relating to carriage of the cargo on the Member’s vessel before loading and after discharge. For any such stage the cover is limited to 14 days before the commencement of the transport by the vessel and 14 days after its completion. Upon request the Club can extend cover beyond the 14 days period at an additional premium.
It means that the cover is in force before the ship arrives at the port of loading and after it has left the port of destination. As regards the period before loading it is necessary that a separated, individual and identifiable consignment of cargo has been nominated for transportation by the entered ship.
22.214.171.124 Members’ own cargo
Being a third party liability insurance, P&I cover excludes loss or damage sustained by the Member’s own property. Where Members carry their own cargo the cover operates in the same way as if the cargo had belonged to a third party. This does not mean that the P&I Insurance replaces normal cargo insurance. Compensation will be allowed only if and to the extent that the loss or damage was caused by circumstances which made the carrier liable under the Hague or Hague-Visby Rules as applicable. The owner of the cargo may not necessarily be the registered Owner of the entered vessel. The cover under this section is effective even if the Member and the owner of the cargo are separate legal entities as long as they belong to the same group of companies.
4.1.4 The burden of proof
Liability is a construct of law which is determined from known and proven facts. Even if the law differs from one country to another, there are basic rules as to who should prove the facts and against whom it should be inferred if the facts are not available. This is essentially what is meant by “burden of proof”.
126.96.36.199 Burden of proof
The burden of proof is usually on the person who brings a claim in a dispute. It means that the party who has suffered a loss must prove that he has suffered a loss for which the party against whom he is pursuing the claim is liable. This kind of burden of proof applies for example in personal injury cases under Rule 3 and in third party liability cases under Rule 7.
Regardless of who bears the initial burden of proof, the defendant should still prepare his defence. It is generally considered that since the claimant has limited access to the vessel, it therefore has difficulties in getting hold of any evidence that is to be found on board or otherwise within the Member’s organisation. This was the main reasoning behind the shifting of the burden of proof on to the carrier.
The Member has an obligation under Rule 10 Section 4 to co-operate in discharging the burden of proof. Information and evidence is required from both the ship and the Member’s organization, as well as other available sources to enable the Club to rebut any proof or allegations made by the claimant in order to be placed in the best position to assist the Member to defend the claim.
188.8.131.52 Shifting of the burden of proof
The process requires the party on whom the initial burden of proof lies, to discharge it by the presentation of evidence, whereupon the burden then transfers to the other party to produce evidence in rebuttal.
184.108.40.206.1 General comments on the shifting of the burden of proof under the Hague, Hague-Visby and Hamburg Rules
The Hague Rules, Hague-Visby Rules and Hamburg Rules are based on the principle of presumed fault or neglect. It means that there is a shift of burden of proof for cargo claims. The carrier’s liability to pay a cargo claim depends on his ability to prove that the loss did not occur because of his fault or neglect or that it qualifies as one of the legally accepted exceptions from liability. This increases the carrier’s obligation to produce evidence of the facts.
220.127.116.11.2 Discharging surveys
The burden of proof shifts during the handling stages of a cargo claim. First it rests upon the cargo owner or his underwriter to prove the nature, extent and value of the loss or damage and that it existed at the time when the goods left the carrier’s custody. The traditional way for the cargo owner to fulfil his burden of proof is to arrange for a survey of the goods at or after the discharging, to which the carrier is generally invited. Deciding whether to accept or decline the invitation should be considered carefully as it may be possible to dismiss the claim from the outset if the cargo owner fails to establish that the cargo was discharged in a damaged condition. Participation in the survey may make it difficult afterwards to question or criticise its result. On the other hand, it gives the carrier an opportunity to verify the true nature of the alleged loss and to prevent a one-sided and exaggerated assessment of its extent. The recommendation is to contact the Club when an invitation to participate in a survey is received. The pros and cons will be considered. If participation is decided, the Club will assist the Member in nominating and instructing a qualified surveyor and will pay his fees in accordance with Rule 8 Section 1. There is a presumption that works in the carrier’s favour under Article III rule 6 of the Hague and Hague-Visby Rules. The presumption is that, after three days, if there has been no written notice of loss or damage, the goods are presumed to have been delivered in the same condition as described in the bill of lading. This is another factor to be taken into account when deciding whether or not to attend a joint survey. Another factor to be considered is whether the goods have been subject to further transportation from the port or place of discharge.
18.104.22.168.3 Outturn reports and short landing certificates
The carrier is sometimes asked to supply evidence which the cargo owner intends to use against him. Requests to release outturn reports or to issue short landing certificates should generally be refused. Another adverse effect of short landing certificates can be seen from comments under 22.214.171.124.
126.96.36.199.4 Shift of burden of proof to carrier
If and when the cargo owner has successfully met his initial burden of proof and has shown that the cargo was discharged in a damaged condition, the burden shifts to the carrier. He is now liable to compensate the loss until he is able to discharge his burden of proof on the issues of cargo care (see the comments under 4.1.6), seaworthiness (see the comments under 4.1.5) and liability exceptions (see the comments under 4.1.8).
188.8.131.52 Strict liability
As mentioned above, liability is based on the concept of burden of proof. In addition, there is a further category known as “strict liability”. It means that the Member is legally liable for damage regardless of fault or negligence. As an example, liability for pollution (for cover, see Rule 6) is strict for the registered Owner of the vessel. Proof is, however, still required to the same extent as in any other case to verify that the pollution came from the Member’s vessel and the alleged extent of the loss. Such evidence may be used as mitigation in respect of the liability for the loss itself or for the consequences such as fines.
184.108.40.206 How to discharge the burden of proof
220.127.116.11.1 How to prove a case
What constitutes proof? Most jurisdictions do not require strict formalities to be observed with regards presenting evidence. There are still some jurisdictions and situations where proof has to be in a certain form.
Usually a court is prepared to consider any piece of information presented by a party as a proof of its position. The parties are free to collect and present all facts, information and evidence in their favour. The court merely has to be satisfied that the evidence presented relates to the subject matter of the claim.
18.104.22.168.2 Proof of precautionary measures
Evidence may be required not only when an accident has happened but also to prove that adequate precautions were taken to prevent it. Inspections of holds and tanks before loading should be recorded. Clean Tank Certificates, written approval of reefer plant and compartments, Pre Trip Inspection (“PTI”) certificates of reefer containers are examples of important documentary evidence to prove that the carrier fulfilled his obligation to prevent loss or damage. The importance of proving that measures were taken to prevent drug smuggling is described in the comments to Rule 7 Section 6.
22.214.171.124.3 Logbooks and extracts
A central source of information and evidence is the log books which the ship is obliged to keep on board. Old log books must be stored for at least ten years at the Owner’s premises.
Courts and tribunals generally attach evidential weight to matters recorded in log books because of the legal obligation to enter important events in them and also because the entries are made contemporaneously. Such contemporary evidence is considered to carry more weight than observations made later on. Unfortunately this may have the effect that contemporaneous comments entered in log books, for example as to the cause of an incident made at a time when the full facts had not been investigated, can potentially undermine the more considered and better informed result of close expert investigation carried out at a later stage. Caution should be exercised, therefore, not to base entries in the log books on unsupported theories and speculations.
Log extracts should be what they say – true word-by-word extracts of what was entered in the log book. Extracts presented are sometimes a mixture of entries and additional comments. Comments are welcome as evidence and constitute an important source of information, but they should be kept separate from log extracts.
If a piece of information or entry made in the log book proves to be wrong, it should not be erased and made illegible. A single line should be drawn through the faulty word or section in such a way that the original entry is still legible. The amendment should be dated and initialled for future identification of the person who made it. Thereafter a new and correct entry should be made.
What has been said above applies to the rough as well as the fair log books and also to deck, engine and reefer logs.
Reports from the Master, officers and crew are of considerable importance as evidence. They should, however, still avoid making comments on causation that are speculative although they can pose possible theories more freely than in a log book. Observations and clues as to the possible cause and extent of a loss and matters that require further investigation should be reported. Names of witnesses and of those who were on watch or at the scene of an accident should be stated as well as names of pilots, surveyors, stevedore foremen and other potential witnesses.
126.96.36.199.5 Physical evidence
Physical evidence should be preserved with care before anybody else intervenes. See comments under 188.8.131.52.3. A broken wire, shackle or twistlock may have to be presented in court or be subjected to examination afterwards. Any equipment involved in an accident or cargo damage should be secured, tagged and properly stored. Where possible, evidence should be sealed and authenticated with the signatures of two witnesses.
Samples taken should be representative of the type of cargo and damage sampled. It should be possible to identify them if they are submitted in evidence in any related litigation. Where several parties are represented at the survey, there should be a joint sample-taking procedure during which all parties draw and equally share samples from a sufficient quantity of damaged goods. The samples taken should be sealed, stamped, signed or otherwise marked by all parties for future identification. A protocol should be drawn up accordingly.
If no surveyor is available, the officers have to act on their own to secure representative samples of damaged cargo. Contaminated oil can be collected in clean bottles, sealed and supplied with a label which identifies the consignment and tank, states the date of sampling, and is authenticated by two witnesses. Due consideration should be paid to what has been said regarding evidence in comments under 184.108.40.206.1. The Owner or the nearest Club correspondent should be informed of samples taken. If they cannot be removed from the ship, they should be kept for at least a year. The Club should be contacted before any samples relevant to a claim or possible claim are disposed of.
If careless cargo handling is observed on board or ashore a written protest should be filed with the stevedore company. Local stevedore companies will probably not admit liability. It may be sufficient if they can be persuaded to sign for the receipt of the protest.
Noting of sea protests is dealt with in the comments under 10.4.3.2.
220.127.116.11.8 Other documents
Other documents of importance as evidence in claims are general arrangement plans, stowage plans, mate’s receipts, weather-routing printouts, tally sheets, outturn reports, customs shortage certificates, ullage tables, time sheets, plans of tank and piping systems, maintenance records, overtime reports and crew lists. See also the comments under 18.104.22.168.
The personal testimony of officers or other crew members may play an important part in discharging the burden of proof. See comments under 10.4.4.3.
4.1.5 The carrier’s obligation to provide a seaworthy ship
22.214.171.124 General comments on the duty of seaworthiness
As previously mentioned, the carrier has two basic obligations in relation to cargo. Firstly, he should exercise due diligence with regard to the seaworthiness of the vessel before and at the beginning of each voyage. Secondly, he should care for the cargo while it is in his custody. If he can prove that he has met his obligations in these respects, he may avoid liability for cargo damage provided he can also prove that the damage was caused by one of the excepted perils listed in the Article IV rule 2 of the Hague or Hague-Visby Rules (if applicable)as discussed in 4.1.8.
The term “seaworthiness” includes every element in the ship which contributes to the safe performance of the contracted transport. It means more than simply “cargoworthiness”.
Seaworthiness includes the technical maintenance of the ship, its proper manning with competent and capable crew, updated navigational aids, certificates, proper stowage and distribution of cargo and observance of applicable regulations.
Courts require a high standard from carriers with regard to seaworthiness. Dedication in the performance of obligations in this respect is necessary to avoid cargo liabilities.
126.96.36.199 How to exercise due diligence
Under the Hague and Hague-Visby Rules, the carrier does not guarantee seaworthiness. The obligation is to exercise due diligence with regard to seaworthiness before and at the beginning of the voyage to ensure that the ship and its cargo compartments are in such a condition that the cargo to be loaded is expected to be carried on the contracted voyage without any risk of being lost or damaged. In practice it means that the Chief Officer should check the hatches for leakages by inspection and ultrasonic or hose testing. He should verify that the cargo compartments are dry and clean to suit the needs of the cargo to be loaded. Pipes, valves, pumps, heating coils, reefer plants or container fittings should be tested for efficiency. These are just some of the factors in respect of which the carrier is expected to exercise due diligence.
The word “exercise” implies positive action on the part of those on board, to meet the obligation that exists. “Before and at the beginning of each voyage” refers to the period from before the loading of the cargo and runs up to the sailing of the ship.
There are many factors influencing the degree of activity and positive action to be exercised. If the previous cargo was discharged with grabs, the hatch coamings may require close examination. If it was discharged with forklift trucks, pipes in the holds may have to be examined for cracks or ruptures. After a previous cargo of coal, cleaning of the hold must be closely checked
When performing his duty of examining the suitability of the vessel for carrying the cargo safely to its destination, the Master/Chief Officer must consider the characteristics and needs of that particular cargo. They are not supposed to have scientific qualifications to cover all cargoes, but should have qualified experience and knowledge of the cargoes normally carried on that type of ship. If in doubt they are expected to ask for advice or assistance from shippers or the nearest Club correspondent or to engage a cargo surveyor or expert.
188.8.131.52 How to prove that due diligence was exercised
It is not enough to exercise due diligence by adequate pre-loading inspection activities. As can be seen from the comments under 4.1.4, the carrier has the burden of proving that due diligence has been exercised. He will be called upon to demonstrate what he actually did to exercise it. The pre-loading inspection activities undertaken should, therefore, be adequately recorded. The issuance of tank cleanliness certificates or Lloyd’s certificates on the suitability of reefer holds and plant serve the purpose of such proof. They should be kept on board for at least a year. The inspection and its result should be entered in the deck log.
The carrier does not need to prove that the vessel was seaworthy in every respect but only in respect of any aspects that caused or may have caused or contributed to the loss or damage claimed.
184.108.40.206 “To shipper’s satisfaction”
Charterparties sometimes contain a clause to the effect that tanks or holds should be cleaned to the satisfaction of the shipper’s or the Charterer’s surveyor. Approval by such a surveyor does not absolve the carrier from liability if the holds or tanks are still not adequately cleaned. At best the failure of the surveyor, if acting for the shipper, might allow the carrier to invoke the exception granted by Article IV rule 2 (i) of the Hague or Hague-Visby Rules as commented upon under 220.127.116.11.
18.104.22.168 No cover for costs to render ship seaworthy
Costs to render a ship seaworthy to carry the cargo are not covered according to Rule 11 Section 2 (b), nor is there any cover for survey fees to confirm and prove seaworthiness. These are considered operational running costs. See the comments under 22.214.171.124 and 126.96.36.199. At all times, the Member must be considered to have acted as a prudent uninsured.
188.8.131.52 Effect of owner’s negligence with regard to seaworthiness
If a ship is found to be unseaworthy due to a failure by its Owner or somebody performing the Owner’s functions (most typically someone in a managerial position) to exercise due diligence or acting in a negligent manner in relation to the vessel’s seaworthiness prior to the commencement of the voyage, the carrier will be unable to rely upon the exceptions from liability under the Hague or Hague-Visby Rules (see the comments under 4.1.8). If it is proved that the damage resulted from an act or omission of the carrier done with the intent to cause damage, or recklessly and with knowledge that damage would probably result, then the carrier will not be entitled to limit liability under the Hague-Visby Rules(Article IV rule 5 (e)). Such a situation may also involve Rule 11 Section 1 and leave the Member without insurance protection.
184.108.40.206 Effect of Owner’s negligence with regard to global limitation
In some circumstances recklessness in relation to ensuring that a vessel is fit to put to sea can result in the right to limit globally being forfeited. For example, the 1996 Limitation Convention states that “a person liable shall not be entitled to limit his liability if it is proved that the loss resulted from his personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result”. See the comments under 2.11.
4.1.6 The carrier’s obligation to carry, keep and care for the cargo
220.127.116.11 General comments on the duty to care
In addition to his duty with regard to initial seaworthiness, the carrier has an important obligation under the Hague and Hague-Visby Rules properly to carry, keep and care for the cargo when it is in his possession. The word “properly” implies that the measures taken by the carrier should be reasonable and correspond with what is considered customary.
An important element in care for the cargo is to provide proper stowage. It includes elements such as lashing and securing to prevent shifting, separation from deck, bulkheads or cargo which could cause condensation or contamination, and precautions to arrange or avoid ventilation as the case may be. The measures taken should be proper and based on the carrier’s qualified experience and commonly available information on the cargo to be carried.
The U.S. court decision [Bache v. Silver Line, 110 F.2d 60 (2d Cir. 1940)] describes the standard as follows:
“In the carriage of goods the trade must always come to some accommodation between ideal perfection of stowage and entire disregard of the safety of the goods; when it has done so, that becomes the standard for that kind of goods. Ordinarily, it will not certainly prevent any damage and both sides know that the goods will be somewhat exposed; but if the shipper wishes more, he must provide for it particularly.”
Under a charterparty the stowage is often arranged by the Charterer. The apportionment of liability against the cargo owners follows the terms agreed in the charterparty if its terms are incorporated into the bill of lading contract. The interpretation of the FIOS terms (Free In and Out Stowed) could cause a dispute. Under English law it has been decided that although the Hague and the Hague-Visby Rules oblige the carrier carefully to load, stow and discharge, this obligation applies only to the extent that the carrier has contracted to perform such operations but they do not have the effect of prohibiting the carrier from excluding the loading, stowage and discharge of the cargo from the contract of carriage. If, however, the carrier has contracted to perform any part of the loading, stowage and discharge of the cargo, the Hague and the Hague-Visby Rules require the carrier to perform those aspects properly. It is therefore necessary to establish whether and to what extent the bill of lading contact of carriage includes loading, stowage and discharge. For example, when the FIOS terms apply in the charterparty and are incorporated into the bill of lading it has to be determined whether the parties have agreed that the Charterer should perform the stowage. There are a variety of terms which are covered by FIOS shipments such as where it is agreed that:
- The Charterer should pay for the stowage.
- The Charterer should pay for and arrange the stowage.
- The Charterer should pay for, arrange and remain responsible for the stowage free of risk to the Owner.
If the word FIOS appears only in the freight box of the charterparty, alternative 1 probably applies. If the Owner wants the Charterer to assume responsibility for the stowage, the charterparty should contain a clause which clearly spells out alternative 3. Ideally, an Owner should try to avoid charter terms which saddle him with liabilities caused by the Charterer’s commercial operations. That would allow the Charterer to save money by insufficient preparation of the holds or inadequate stowage of the cargo, the adverse consequence of which will be at the Owner’s risk. The effect of FIOS alternative 3 is also achieved by fixtures on a New York Produce Exchange form (with no material amendments to clause 8).
18.104.22.168 Duty to mitigate
The duty to care for the cargo includes a duty to take proper action during the voyage to prevent or minimise damage. Certain oil products must be kept heated, reefer cargo frozen and other types of cargo properly ventilated. If such measures have to be discontinued due to a breakdown of the heating coils, failure of the reefer machinery or restricted ventilation due to heavy weather, the reason has to be properly documented and recorded in the deck log in order for the carrier to meet his burden of proof. Steps have to be taken and recorded to restore proper carrying conditions. This may involve calling at a port of refuge to save a valuable cargo from being lost. Please refer to the comments to Rule 4 Section 8. Any such decisions and actions should be taken in close consultation with the Club.
22.214.171.124 How to prove compliance with the duty to care
Each case will be decided on the facts available. As the main source for such information is the ship, the burden of proof is on the carrier. Detailed information from those on board is vital for a successful defence.
The following records constitute valuable contemporary evidence if kept regularly, in a detailed way and in a neat and orderly manner. They will, furthermore, allow subsequent consideration and conclusions as to the compliance on board with the duty to care for the cargo:
- bilge and ballast tank sounding book with pumping records
- ventilation records including dewpoint, relative humidity and temperature records
- hold and cargo stowage and lashing checking records with observations, action taken and results
- heavy weather records
- hatch cover maintenance and testing records
- cargo-handling gear records.
126.96.36.199 No cover for costs of care
Costs to meet the carrier’s mandatory obligation to carry, keep and care for the cargo are not covered by the P&I Insurance. Rule 11 Section 2 (a) excludes compensation for costs and expenses for the normal fulfilment of a transport obligation. Item (c) of that clause excludes compensation for costs to remedy overloading, bad trim or incorrect stowage of the ship. These exclusions serve to illustrate the principle that operational costs to meet the obligatory/mandatory standard of care are for the Member’s own account.
There are, however, exceptional situations where compensation may be allowed. Rule 8 Section 2 provides cover for preventive costs and amounts saved. Extraordinary handling costs can also be compensated under Rule 4 Section 6.
4.1.7 The carrier’s liability for servants
188.8.131.52 General comments on liability for servants
It is a basic principle of P&I Insurance that cover is provided to the Member for liabilities imposed upon him because his servants were negligent. See the comments under 2.4.
184.108.40.206 Stevedore companies
Damage may be caused during handling operations performed by longshoremen. Under the Hague and Hague-Visby Rules the carrier remains responsible for such damage.
Stevedore companies do not operate under the same mandatory liability provisions as the carrier. They are generally allowed to draft the stevedoring contracts in such a way that they have no liability for damage caused by their negligence. If, however, a Member accepts less favourable terms than are obtainable locally, such terms may be considered unusually burdensome in the sense of Rule 10 Section 2 and thereby prejudice cover.
If longshoremen are seen to be causing loss of or damage to cargo, it follows from Rule 10 Section 4 that the Master has a duty to intervene. The cargo operations should be stopped until better practice or more suitable equipment is used. It is important to evidence any such protective steps taken by the ship. Such evidence will be needed in defence of a claim from the cargo owner and to substantiate a recovery action against the stevedore company. It will probably not be possible to obtain a signed admission of liability but it may be possible to get the stevedore company foreman to sign for receipt.
The Member has an obligation under Rule 10 Section 4 to protect the Club’s interests in pursuing a recovery action against the stevedore company. Even if the terms of the stevedoring contract are unfavourable, it may be possible to have some or all of the terms set aside as unfair.
Terminal operators also are often reluctant to accept liability. It is still the case that frequent and extensive loss or damage occurs to cargo while in the custody of terminal operators for which the carrier has a mandatory liability under the Hague and Hague-Visby Rules. The Member ought to take precautions to safeguard the recovery possibilities (see the comments under 220.127.116.11).
18.104.22.168 Himalaya Clause
A cargo owner or his underwriter should not be able to bypass the exceptions from and limitations of liability afforded to the carrier by the Hague and Hague-Visby Rules by filing the claim direct against the carrier’s servants. Bill of lading forms should contain a Himalaya clause which extends the carrier’s liability exclusions to include his servants. Such protection is automatically provided under the Hamburg Rules.
4.1.8 Cargo losses for which the carrier is not liable
A Member, as carrier, is not necessarily responsible for all loss or damage arising to cargo while in his custody, even if it is considerable and extensive.
If the carrier can successfully discharge his burden of proof according to the Hague and Hague-Visby Rules as described above, he will escape liability if he can prove that the loss or damage was caused by one of the following excepted perils according to Article IV rule 2.
22.214.171.124 Hague and Hague-Visby Rules Exception Article IV rule 2 (a):
Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier in the navigation or in the management of the ship;
Generally, an employer is deemed to be vicariously liable for loss and damage caused to third parties by the negligent acts and omissions of its employees and others who carry out the employer’s business operations (sometimes referred to as “servants and agents”). This exception allows the carrier to avoid such vicarious liability in certain circumstances. It is sometimes hard for those involved to believe that mistakes committed on board, even serious ones, can constitute a valid defence against claims made for the adverse consequences of those mistakes. The explanation for the exception lies in the philosophy behind the Hague and Hague-Visby Rules. Some risks which are typical of the transport of goods at sea should be shouldered by the cargo owner.
It is not the purpose of these comments to analyse in detail the types of negligence which would qualify as a defence for the carrier under this exception. One practical example, which has been decided in court and which has occurred a number of times on ships entered in the Club, is the following: when taking on fresh water the hose was not connected to the forepeak tank but to the No. 1 lower hold or deep tank, where cargo became wetted. This is considered as an error in the management of the ship for which the carrier is not liable. The damage to the cargo is to be absorbed by the cargo owner and his underwriter.
126.96.36.199 Hague and Hague-Visby Rules Exception Article IV rule 2 (b):
Fire, unless caused by the actual fault or privity of the carrier;
The carrier is not liable for damage by fire unless the fire occurs before the commencement of the voyage or was caused either by a breach of his basic obligation in relation to initial seaworthiness or care for the cargo. Fire requires ignition resulting in open flames or at least smouldering (smoke or steam emanating from heating cargo which has not ignited is not considered to come within the fire exception). The carrier is exempted from liability for the consequences of a fire including damage caused by smoke, smell, heat and water used to extinguish it. To enable the Club to assist the Member to defend claims for damage to cargo caused by fire, it is necessary to have full details as to the cause, nature and extent of the fire, proof of ignition (such as photographs of the flaming/smouldering fire – photographs which only show smoke do not establish that there was ignition as, contrary to the popular expression, there can be smoke without a fire) and of the measures taken to contain and extinguish it.
188.8.131.52 Hague and Hague-Visby Rules Exception Article IV rule 2 (c):
Perils, dangers and accidents of the sea or other navigable waters;
From the practical viewpoint of assisting the Member to defend cargo claims, this is one of the crucial exceptions. It contains the basic principle behind the Hague and Hague-Visby Rules that sea perils should be absorbed by the cargo owner. Unforeseeable and unexpected events or conditions at sea constitute an exception from liability for damage caused to cargo. Examples of such excepted perils are heavy weather, collisions and strandings.
It is difficult to define what constitutes heavy weather such that it amounts to a peril of the sea. Even very bad weather should be expected in winter in the North Pacific and the North Atlantic. The information to be supplied by the ship in defence of a claim should contain wind forces and the nature and height of the waves. Foreseeability and duration should be reported as well as the track of the storm as compared to the position and routing of the ship. Other observations which indicate that the conditions were extreme and unexpected are invaluable. Intensity of depressions, cross seas, structural damage caused to the ship itself, speed reductions, course changes, and accidents to other ships in the area are some elements which might help the Club to convince the claimant that this liability exclusion is applicable.
Weather routing is a valuable tool to avoid or minimise the effect of bad weather in-transit. Should the vessel run into heavy weather despite weather routing, wind and wave forecasts, route recommendations, maps and print outs received on board should be kept for at least a year. They constitute vital evidence to defend the carrier under this provision.
The heavy weather defence requires convincing proof that the loss or damage was caused by an extraordinary force which could not reasonably be guarded against. Any fact or piece of information will contribute to the defence. The main source and provider of these facts are the crew.
184.108.40.206 Hague and Hague-Visby Rules Exception Article IV rule 2 (d):
Act of God;
This is the general force majeure exclusion. The carrier is not liable for damage caused by completely unexpected and uncontrollable events such as the ship being struck by lightning.
220.127.116.11 Hague and Hague-Visby Rules Exception Article IV rule 2 (e):
Act of war;
The carrier is not liable for cargo damage caused by war or warlike acts whether in a civil war or a dispute between states. It could be a direct consequence of war such as hits by missiles or an indirect consequence such as a grounding caused by navigational aids having been damaged or withdrawn. For comments as to the cover for war risks, see under Rule 11 Section 5.
18.104.22.168 Hague and Hague-Visby Rules Exception Article IV rule 2 (f):
Act of public enemies;
This exception can be applied to the consequences of action taken by enemies of the state under whose flag the ship is sailing or attacks from pirates or terrorists. To an increasing extent ships become the target of attacks inside or outside ports by armed gangs of robbers where cargo is damaged or stolen. Acts of pirates have significantly increased over the last few years with the consequent risks to the cargo on board laden ships attacked.
Any such attack should be immediately reported to the Club to prepare a defence against any forthcoming claim and because the Club co-operates with international organisations to prevent, investigate and combat robbery at sea. See the comments under 22.214.171.124.
126.96.36.199 Hague and Hague-Visby Rules Exception Article IV rule 2 (g):
Arrest or restraint of princes, rulers or people, or seizure under legal process;
In principle the carrier is protected from liability for seizure, embargo or confiscation of cargo by governments. The situation may be different if the confiscation relates to contraband or unlawful cargo. For further comments, please refer to Rule 11 Section 2 (k). The problem of drug smuggling is dealt with under Rule 7 Section 6 (a).
188.8.131.52 Hague and Hague-Visby Rules Exception Article IV rule 2 (h):
For comments on the cover for the consequences of quarantine, please refer to Rule 7 Section 7. If and to the extent that quarantine restrictions cause loss of or damage to the cargo, the carrier has no liability.
184.108.40.206 Hague and Hague-Visby Rules Exception Article IV rule 2 (i):
Act or omission of the shipper or owner of the goods, his agent or representative;
The carrier is not liable to compensate for loss or damage to cargo caused by the fault of the shipper, the cargo owner or his representative. On the contrary, the shipper may be liable to compensate the carrier for any loss sustained through the fault of the shipper. The situation may arise in connection with, but is not limited to, the shipment and declaration of dangerous cargo. See the comments under 220.127.116.11 and 18.104.22.168. This exclusion underlines the necessity of all cargo losses being thoroughly investigated and the result presented to the Club.
22.214.171.124 Hague and Hague-Visby Rules Exception Article IV rule 2 (j):
Strikes or lockouts or stoppage or restraint of labour from whatever cause, whether partial or general;
The carrier has no liability for damage caused to cargo as a result of strikes or lockouts but the basic obligation to care for the cargo remains. Considering what is possible in view of the strike situation, the carrier should arrange for reefer containers to be plugged in and sensitive or valuable cargo to get adequate protection. The Club can assist and advise Members regarding what to do to avoid cargo liabilities in a strike situation.
Whereas the carrier is relieved of liabilities to cargo for the consequences of a strike under this Article, a strike may cause the carrier to lose time, freight, hire or other revenue. It follows from Rule 11 Section 2 (j) that there is no cover under these Rules for such losses.
Upon request, the Club can assist Members to cover these risks under a Strike Insurance.
Cover can be obtained for:
- Delay by strikes of officers and crew.
- Delay caused by a strike or lockout of any class of labour or personnel other than officers and crew affecting the business of the entered ship.
- Delay caused by post-strike congestion.
The cover is for a daily sum agreed between the Member and the strike underwriter. It is based on a reasonable estimate of daily operating costs. A Time Charterer may insure the charter hire and a Voyage Charterer the demurrage rate.
The cover is for an agreed maximum duration of the delay and may be subject to a deductible period.
126.96.36.199 Hague and Hague-Visby Rules Exception Article IV rule 2 (k):
Riots and civil commotions;
This exception is related to that under (f). It refers to the consequence of civil commotions and insurrections which do not amount to warfare.
188.8.131.52 Hague and Hague-Visby Rules Exception Article IV rule 2 (l):
Saving or attempting to save life or property at sea;
The contractual voyage should be performed without any unjustified deviation. The liability consequences for the carrier of damage caused by unlawful deviation are significant. This problem and the exclusions of cover are dealt with in the comments to Rule 4 Section 8.
Deviations made to save or attempt to save life or property at sea are, however, considered justified. The carrier is protected against liability for loss or damage to cargo as a consequence of such salvage. Please refer to the comments to Rule 3 Section 9 and Rule 7 Section 8.
184.108.40.206 Hague and Hague-Visby Rules Exception Article IV rule 2 (m):
Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice of the goods;
According to Article III rule 3 of the Hague and Hague-Visby Rules, the carrier shall issue a bill of lading showing among other things the apparent order and condition of the cargo. The bill of lading is regarded as evidence that the description of the condition is accurate. The liability for the bill of lading particulars and the insurance cover is described in the comments to Rule 4 Section 3.
Even if the apparent order and condition of the cargo may look good at the time of loading and cause the carrier to issue a clean bill of lading, there may be hidden and inherent defects which do not manifest themselves as damage until the voyage has started. According to this exception, the carrier has no liability for such damage. Grain may be infested, the life span of perishable cargo may have been used up by excessive storage before shipment, and products may not have been sufficiently dried before being sealed in plastic wrapping for shipment. Similar problems for some cargoes which frequently result in claims are mentioned below (see the comments under 220.127.116.11 and 18.104.22.168).
If, for instance, steel coils turn out to be internally rusty at the port of destination, the facts and information received from the ship as to the cause or most likely cause means the difference between success and failure in the defence of the Member. Following the principle of the burden of proof (see the comments under 22.214.171.124) the carrier is considered liable until he can prove that the coils must have already been internally wet in a concealed way at the time of loading and that they could not have been exposed to water while in the carrier’s custody and that proper care was exercised in relation to their carriage (for example in respect of ventilation).
126.96.36.199 Hague and Hague-Visby Rules Exception IV 2. (n):
Insufficiency of packing;
The obligation to issue a bill of lading describing the apparent order and condition of the cargo also refers to its packing and its ability to provide the cargo with adequate protection for the expected, contractual voyage. If in the carrier’s opinion the packing is insufficient, the cargo should either be refused for shipment or the condition of the packing noted on the bill of lading. Please refer to 188.8.131.52 and 184.108.40.206 for further comments on some cargoes where claims may occur on account of inadequate packing.
It sometimes happens that packing which looks good at the time of loading proves to be inadequate to protect the cargo during the voyage. If this can be proved with the help of facts and observations from the ship’s officers or a surveyor, liability can be rejected.
220.127.116.11 Hague and Hague-Visby Rules Exception Article IV rule 2 (o):
Insufficiency or inadequacy of marks;
According to the Hague and Hague-Visby Rules Article III rule 3 the bill of lading issued by the carrier should include the necessary marks to identify the cargo.
Insufficient or inadequate marks may cause loss of or damage to the goods. Consignments of fruit in crates may be mixed up. Pieces of timber may be discharged at the wrong port. Bags may be refused by the receiver or not allowed entry by the customs authorities in the country of destination. Where there are claims of this sort the carrier can reject liability on the strength of this exclusion.
18.104.22.168 Hague and Hague-Visby Rules Exception Article IV rule 2 (p):
Latent defects not discoverable by due diligence;
The exception under (m) above refers to latent defects of the cargo. The exception under (p) is in respect of latent defects in the ship.
This is a logical consequence of the basic obligation on the carrier to show due diligence with regard to seaworthiness before and at the beginning of the voyage. See the comments under 22.214.171.124. If the carrier has shown such due diligence and is able to prove it and there is still a defect in the ship causing damage to the cargo, the defect qualifies as latent in the sense of this exclusion and relieves the carrier from liability.
It takes a lot to satisfy a claimant or a court that unseaworthiness which caused a leakage into the hold during the voyage was impossible to detect before the commencement of the voyage. Full and adequate information from the Member and the officers of his ship can constitute the proof necessary to defend such a claim.
126.96.36.199 Hague and Hague-Visby Rules Exception Article IV rule 2 (q):
Any other cause arising without the actual fault or privity of the carrier, or without the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.
This is the general exclusion which can be used when those under (a)–(p) may not provide a valid defence. For the exclusion to apply the carrier must prove that no fault by the carrier or his servants caused or even contributed to the loss or damage. The exclusion may be invoked when cargo has been stolen despite active and adequate safety precautions taken by the carrier. It may also apply when weather conditions have been bad yet not bad enough to provide a separate and absolute defence under exception (c). Under exception (q) the carrier will have to show that the vessel attempted to avoid the storm and properly stowed and cared for the cargo.
4.1.9 Limitation of liability
188.8.131.52 Background of limitation
As previously described, the carrier may or may not be liable for cargo loss or damage depending on the circumstances of each individual case and his ability to meet his burden of proof successfully. In those situations where he is indeed liable, he may still be allowed to limit his liability to a certain amount of money. The right of limitation follows from international conventions adopted as national law by many countries.
There are two types of limitation, global limitation and package limitation.
184.108.40.206 Global limitation
The right to apply global limitation follows from one of two conventions of 1957 and 1976 (revised by the 1996 protocol). The right to global limitation is not restricted to cargo claims. It applies to marine casualties of various kinds arising out of one incident, for instance liabilities under Rule 7 Sections 1–3 and 5. For comments on global limitation of liability, see 2.11.
220.127.116.11 Package limitation
18.104.22.168.1 General comments on package limitation
To ease the carrier’s liability burden, the Hague Rules, Hague-Visby Rules and Hamburg Rules allow the carrier to limit his liability to a certain amount of money per package, unit or weight of cargo lost or damaged. With each new convention the package limitation amount has been increased.
22.214.171.124.2 Limitation under Hague Rules
According to the Hague Rules the carrier can limit his liability to GBP 100 per package. The corresponding amount under the U.S. Carriage of Goods by Sea Act is USD 500. Other countries have adopted varying amounts in local currency. The Club can supply Members with information on the applicable limitation amount. With some justification the package limitation amount under the Hague Rules has been criticised for being too low, although in some countries the amount has been considerably increased by being calculated in terms of gold value.
126.96.36.199.3 Limitation under Hague-Visby Rules
One of the main arguments for the introduction of the Hague-Visby Rules was to increase the package limitation amount. To avoid the amount varying in local currency, the limitation under the Hague-Visby Rules is calculated in terms of a fictitious currency called the Poincaré franc, defined to contain a certain quantity of gold. The Poincaré franc has since been converted into Special Drawing Rights (“SDR”) in such a way that the limitation amount under the Hague-Visby Rules equals SDR 666.67 per package or SDR 2 per kilo, whichever produces the higher amount. The value of SDR 1 follows the fluctuation of the basket of currencies on which it is based.
188.8.131.52.4 Limitation under Hamburg Rules
In the Hamburg Rules the package limitation is noted in SDR. It constitutes SDR 835 per package or SDR 2.5 per kilo, whichever produces the higher amount.
The limitation amount is to be applied to each package or other unit of the goods lost or damaged.
The definition of a package will be given by the courts on the facts of cases tried. It means that there will be a great variation in definitions from country to country, which does not simplify the practicalities of handling claims. It also follows that bill of lading clauses trying to define the meaning of a package for limitation purpose will carry little weight.
These are just guidelines as to what may constitute a package. One important factor is how the unit is described in the shipping document. The Hague-Visby and Hamburg Rules make it clear that a container is accepted as a unit for package limitation purposes if the number of packages within the container are not specified in the bill of lading. The same thing goes for pallets. For the package limitation to count as one unit, the number of packages stated in the shipping document must be stipulated as “one” – even in cases where the package contains sub-packages. For instance, a large box containing 100 smaller boxes, is to be described as one package. When handling claims in the U.S.A., in particular, it is helpful if freight is charged at a flat rate per container or pallet. A bill of lading drafted along these lines could save considerable amounts in the settlement of a claim, to the benefit of the Member’s record.
On the other hand, where the number of packages within the container is specified in the bill of lading, the number of limitation units equals the number of packages as specified plus one unit for the container itself if it is damaged or lost and does not belong to the carrier. See the comments under 184.108.40.206.5 and 220.127.116.11.
For bulk cargoes, where there are no packages, under the Hague Rules, there is no alternative weight limitation applicable. In some jurisdictions under the Hague Rules, the unit on which the freight has been calculated may be used as the limitation unit. For other types of cargo as well, the freight unit may constitute the applicable limitation unit. An unboxed car or tractor may be regarded as a package for limitation purposes if the freight was calculated on a flat rate per car or tractor and not based on weight or a cubic measure. Under the Hague-Visby and Hamburg Rules there is a per kilo alternative limitation.
18.104.22.168.6 Effect of an ad valorem bill of lading
There is no right to package limitation if the nature and value of the goods has been declared by the shipper and inserted in the bill of lading or other contract of carriage. This creates an ad valorem bill of lading and the carrier is liable then up to the declared value of the goods. In exchange for such an extended liability, the carrier charges a higher freight. P&I cover excludes any liability if it exceeds USD 2,500 per package or unit when such liability arises from carriage under an ad valorem bill of lading or other document in which a value of more than USD 2,500 is declared. The extended liability under an ad valorem bill of lading is covered only if and to the extent that a special cover has been arranged through the Club. The special cover is limited and Members are recommended to contact the Club in connection with ad valorem bills of lading, see the comments under 22.214.171.124.4.
126.96.36.199.7 Effect of deviation
A deviation may deprive the carrier of his right to apply package limitation. For further comments, see 4.8.1.
4.1.10 Time bar on cargo claims
The legal rules on time bar vary considerably from one country to another. Therefore, it is impossible to give a full overall picture of the situation. However, even if the rules vary, the underlying principles are much the same.
188.8.131.52 General rules on time bar
Most countries have a general law on time bar applicable to all debts and obligations for which no special regulations exist. In Sweden the general time limit for such debts is 10 years from the day the debt arose while it is 6 years in the UK and the USA. This is the background for the regulations in Rule 15 regarding time bar under these Rules.
184.108.40.206 Special rules on time bar
In several legal fields the general regulations are replaced by special regulations on time bar. Maritime law is one of those fields. Even within maritime law there are different rules on time bar applicable to different types of claims such as personal injury claims, oil pollution claims and cargo claims.
220.127.116.11 What is the time limit for cargo claims?
Commonly, cargo claims become time barred one year from the day the cargo was delivered or should have been delivered at the destination. However, there are variations internationally. The Club can provide information on the position in any given country through the local correspondent or lawyers there.
18.104.22.168 Why is there a special time limit for cargo claims?
The (one-year) limit for cargo claims is sometimes regarded as an unjustified privilege granted to shipowners. A short time limit is, however, a necessary complement to the burden of proof. As previously described, the shipowner has the burden of proof. That means he is considered liable unless and until he can prove how the loss occurred and that it falls under one of the Hague or Hague-Visby Rules exceptions. To meet this burden of proof it will be necessary to talk to witnesses while they still remember what happened and to trace documents before they have been disposed of. Therefore, it is argued that claimants must be forced to file claims within a time frame that allows meaningful investigations to be conducted.
Time bar is a necessary and justified part of the carrier’s liability concept agreed in international conventions and domestic law. To be covered under these Rules, a Member is supposed to use that defence whenever available.
22.214.171.124 When does the time bar take effect?
In order to establish the expiry date of the time limit, it is necessary to establish the day on which it starts. Time starts to count when the carrier’s liability for cargo ends, viz. normally when the cargo:
- has been discharged
- has been safely placed at receiver’s disposal
- should have been discharged if it had safely arrived at destination.
It follows that it is sometimes difficult to pinpoint a certain day for the commencement of the running of time and, accordingly, for its termination.
126.96.36.199 How may the time limit be interrupted?
The time limit can be interrupted by issuing proceedings. In most places an express agreement from the carrier to extend the time has the same effect.
The length of any extension granted should be defined. If an indefinite extension is granted, the general rules on time bar mentioned above will probably apply.
Usually an extension of one to six months is agreed. The length will be decided on a case by case basis.
Internationally, other ways for claimants to interrupt the running of time may exist.
188.8.131.52 Questions to be considered when an extension of time is requested
There are some questions which should be considered before a request for a time extension is granted.
The claimant should produce a complete set of documents/information in support of a claim such as:
- identity of shipment and bill of lading
- amount of claim and loss specification
- identity of claimant. If the claimant is a cargo underwriter or an agent acting for a cargo underwriter, the documents should include a letter of subrogation executed in the proper way and at the proper time and by which the cargo owner has transferred his rights against the carrier to the underwriter.
If the claimant is unable to produce this basic information, he is probably not in a position to file a claim in court in order to interrupt the running of time.
It is for the claimant to protect time. The carrier has no obligation to assist. Any time extension should be granted on the basis that the claim is not already time barred and, ideally, to a specifically identified claimant or claimants.
Additionally, it should be considered whether there is still enough time left for the claimant to file a claim in court. If the request for an extension is made on the last day, there may not be enough time and the request should be declined.
Where no extension of time is agreed, the claimant can only protect the time from expiring by validly commencing suit.
Waiving a time limit that has already expired should be avoided.
184.108.40.206 Can time be extended without a claim being filed or agreement?
In some jurisdictions there are some claims handling activities which could prejudice a time bar defence or interrupt the running of time.
Likewise, continued discussion or negotiations, without reference to the fact that time has expired, may be interpreted as an implied waiver. Time bar objections should be made at the earliest possible opportunity, which means at the first contact with the claimants after time has expired.
It has happened that shipowners have given a claimant misleading information or withheld documents to make it impossible for the claimant to file a claim in time. Such attempts, when revealed, have not been looked on favourably by the courts. However, the failure to answer a claimant’s request for a time extension will not, in most cases, prejudice the Owners’ position.
220.127.116.11 What are the legal consequences of time bar?
The effect of time bar under maritime law is the complete extinction of the claim. A claim, once time barred, cannot even be used as a set-off against a counterclaim.
18.104.22.168 In whose favour does the time limit operate?
Generally, the time bar operates not only in favour of the carrier but also in favour of the carrier’s servants and persons engaged in the performance of the contract of carriage. This follows from the so-called Himalaya clause included in most bill of lading forms and now a part of the Hague-Visby Rules. It should be noted that the time limit in the cargo conventions applies to cargo claims against the carrier and not to claims by the carrier. Such claims are subject to the time limit in the law governing the contract.
22.214.171.124 What should be done in a charter situation?
If the time limit has been extended without the approval of the counterparty to the charterparty, it does not necessarily mean that the matter has become time barred against him. In some jurisdictions, such as in Scandinavia, an additional time limit for such recovery claims is provided. Claims under charterparties are usually subject to the general time limits in the law that governs the contract and not those under the bill of lading.
It is still advisable to protect time as against the charterparty counterparty by asking the counterparty to approve the extension before it is granted to cargo interests. This is sometimes expressly required by the charterparty provisions.
An extension may, otherwise, be granted on the express condition that the claimant should obtain a similar extension from the charterparty counterparty.
Preserving time in a charterparty relationship requires close co-operation with the Club during the handling of the claim. Even at the negotiation stage of the fixture it can be important to ensure properly drafted provisions are included in the charterparty in order to save a lot of trouble, time and money. It can be helpful for such clauses to include the names of the respective P&I Clubs concerned especially when it is necessary to make urgent contact with the counterparty’s P&I provider.
The question of time bar of recovery claims under a NYPE charterparty was decided in the “Strathnewton” case. Although the charterparty incorporated the Hague Rules via a Paramount clause, the court held that the one-year time limit under the Hague Rules did not apply to the NYPE Inter-Club Agreement. Following that decision, the NYPE Inter-Club Agreement was amended to the effect that any claim under the agreement must be notified to the other party in writing within two years of the date the goods were delivered or should have been delivered (unless the Hamburg Rules apply, in which case the time bar is three years). In the absence of such a notification, any recovery claim is time barred. Time can, of course, still be extended by agreement between the parties. It is important to note that any claim under the NYPE Inter-Club Agreement is still subject to the overall time bar of the charterparty. For example, if the charterparty is subject to English law, the six year contractual time bar will also apply. In this sense, two time bars exist. Firstly, the two year notification time bar and, secondly, the overall time bar in the charterparty (being six years under English law).
The New York Produce Exchange Inter-Club Agreement
The New York Produce Exchange Inter-Club Agreement (“ICA”) was first formulated and entered into by the Group Clubs in 1970. It provides a relatively simple mechanism whereby liability for cargo claims arising under New York Produce Exchange Form (NYPE) or Asbatime charterparties and/or contracts of carriage authorised under such charterparties, can be swiftly and fairly apportioned between Owners and Charterers. The purpose behind the ICA was to avoid costly and protracted litigation.
The apportionment of claims arising out of e.g.:
Unseaworthiness = 100% Owners
Loading, stowage, discharge = 100% Charterer
Shortage, overcarriage = 50/50 split
The ICA, since its inception, has been amended on three occasions: in 1984 to meet the shortcoming relating to the time limit for making claims; in 1996 to cater for the Hamburg Rules and to meet in particular the needs of the container trade; and in 2011 to provide, inter alia, for the provision of counter securities.
As described in the comments under 10.2.2, arbitration clauses in other charterparties such as the Centrocon arbitration clause, may render any recovery claim under the charterparty time barred long before the time for filing cargo claims has expired. It will make the agreed apportionment of liability in the charterparty illusory. Such terms may be regarded as unusually burdensome in the sense of Rule 10 Section 2.
126.96.36.199 Time bar for deck cargo claims
There are court decisions in England and the U.S.A. according to which claims for unauthorised deck shipments (see comments under 188.8.131.52.3) are still subject to the one-year time limit even though the carrier is usually deprived of all other limitations and exclusions of the Hague and Hague-Visby Rules in such a situation.
184.108.40.206 Time bar for recovery claims
The Hague-Visby Rules introduced a special time bar for the situation where one party has settled a claim and undertakes a recovery action against another party who is ultimately responsible for the loss by negligence (in tort) or contract. The time bar for instituting such a recovery claim shall be not less than three months from the date the cargo claim was first settled or the party against whom that cargo claim was made was served with a legal action.
4.1.11 P&I viewpoints on certain types of cargo
This is not a cargo handbook. The Chief Officer is expected to have some knowledge and experience and reasonable access to additional information.
The International Convention for the Safety of Life at Sea, 1974 (SOLAS Convention), as amended, deals with various aspects of maritime safety and contains, in chapter VI, the mandatory provisions governing the carriage of solid bulk cargoes. These provisions are extended in the International Maritime Solid Bulk Cargoes Code (IMSBC Code).
The aim is to facilitate the safe stowage and shipment of solid bulk cargoes by providing information on the dangers associated with the shipment of certain types of solid bulk cargoes and instructions on the procedures to be adopted when the shipment of solid bulk cargoes is contemplated.
The Club also produces cargo and case specific publications as part of its ongoing loss prevention initiatives.
The following comments are provided on some of the more problematic cargoes experienced by the Club.
Coal shipped from U.S. Gulf ports, particularly in the summer months, and also from other countries such as Colombia and China experienced serious heating issues on shipment and/or during the voyage. It has endangered the ship and necessitated discharge of the cargo at a port of refuge.
Coal shipped from anywhere in the world should be carried out in compliance with IMO’s IMSBC code which deals specifically with the following:
- Segregation and stowage requirements.
- General requirements for all coals.
- Special precautions for coals emitting methane.
- Special precautions for self-heating coals.
Full details of the revised schedule can be obtained directly from the IMO and should be available on ships which carry or are likely to carry coal.
Prior to shipment the Master should obtain details of the characteristics of the cargo in writing from the shipper. This should include the contract specification for moisture, sulphur and size. It should furthermore state whether the cargo is liable to emit methane or self-heat so that precautions for carriage as specified in the revised schedule can be followed.
When coal is loaded directly from lighters it is recommended that barge temperatures be obtained prior to shipment.
Trimming of cargo is important. Through the shipper the Master should receive the necessary co-operation from the loading terminal.
The ship should be equipped with proper instruments to monitor the coal during carriage. The Master and officers should be instructed in the use and maintenance of the instruments, including service and calibration. The instruments should measure the concentration of methane, oxygen and carbon monoxide in the atmosphere and test the pH of any bilge water. Instruments should also be available on board to measure the temperature of the cargo in the holds without entering the holds or opening the hatch covers. The results of the testing should be properly recorded for future use and reference. The frequency of the testing should depend upon the information provided by the shippers and the results obtained during and after loading.
If at the time of loading the Master is in any doubt about the safety of the cargo or about the precautions which should be taken to ensure its safe carriage, he should immediately contact the local Club correspondent for assistance.
220.127.116.11.1 General comments on containers
Considerable volumes of cargo are shipped now in containers. It is important to highlight some aspects of the container concept which may affect the carrier’s liability covered under these Rules.
In 2016 SOLAS was amended with a requirement of mandatory verification of the gross mass of packed containers. It introduced two new requirements:
- the shipper is responsible for providing the verified weight by stating it in the shipping document and submitting it to the Master or his representative and to the terminal representative sufficiently in advance to be used in the preparation of the ship stowage plan; and
- the verified gross mass is a condition for loading a packed container onto a ship.
18.104.22.168.2 Containers stuffed by carrier
For containers stuffed by the carrier, the latter has the same obligations with regard to the internal stowage as for any other cargo stowed on the ship. The carrier, furthermore, has the obligation to show due diligence with regard to the seaworthiness and suitability of the container before and at the beginning of the voyage. He must be able to prove afterwards that the container was adequately checked with regard to tightness, cleanliness and ability to ventilate the container properly if that is necessary for the successful performance of the transport. Most containers are submitted to such tests when entering or leaving the container yard. The records of tests performed on each numbered container should be able to be produced as evidence, even years later.
22.214.171.124.3 Containers stuffed by shipper
The obligations are less far-reaching when the container has been stuffed by the shipper or consolidated by a freight forwarder. Then the container is often received by the carrier locked and sealed. The carrier has no responsibility for the internal stowage of the cargo in a container where he has neither performed the stowage nor had an opportunity to check it. The carrier should nevertheless examine the external condition of the container and record irregularities such as holes, leakage of cargo from the container, imbalance, etc. The bill of lading should be claused accordingly. If the irregularity may cause damage to the cargo during the transport, the carrier should take appropriate action, such as mending a hole in the container’s roof. It may be necessary to invite the shippers to attend at the terminal, or even to refuse an unsuitable container for shipment.
The condition of the container seal should be checked and the container seal number noted on loading and discharge to establish whether it has been tampered with during transit.
126.96.36.199.4 Storage before and after sea carriage
The carrier is also responsible for the containers when stored in the terminal prior to or after the sea leg. Containers with attractive or valuable contents should be stored in areas which can be monitored easily and have good lighting. Such containers should preferably be stowed “face to face” in such a way that the locks are inaccessible and the doors cannot be opened. Reefer containers should be plugged in.
188.8.131.52.5 Responsibility for container content
The fact that a container has been stuffed by the shipper and delivered to the carrier in a sealed condition does not exclude the fact that the carrier may be held liable for the particulars entered in the bill of lading regarding the nature, number and weight of the cargo. The extent of such a liability may vary from one country to another. A court’s decision will probably be influenced by the carrier’s opportunity to check the bill of lading particulars. Carriers are generally not supposed to strip, tally and restuff the container as that would be counterproductive to the concept of containerisation. However, where the carrier has reasonable means to weigh the container it should be weighed to satisfy the court that the bill of lading particulars were verified as far as possible.
If a Received for Shipment bill of lading is issued, . the container should be weighed when received, preferably at the terminal gate. An On Board bill of lading requires the weighing procedure to take place as close to the point and time of loading as possible.
Where the carrier has no reasonable means of checking the bill of lading particulars, he may rely on warning clauses in the bill of lading such as “Shipper’s weight, load and count” or “Said to contain”. Such clauses are permitted in the U.S. under the Pomerene Act of 1916 and should be included in all bills of lading for container shipments.
184.108.40.206.6 Responsibility for the container itself
The cover includes the Member’s liability for loss of or damage to containers owned by a third party. Containers owned by the Member are not covered, and neither are containers borrowed, leased or bought under reservation of title. This follows from Rule 7 Section 1 and from the exclusion in Rule 11 Section 2 (g).
220.127.116.11.7 Other comments on containers
For containers stowed on deck, see the comments under 18.104.22.168.2.4. For reefer containers, see the comments under 22.214.171.124. For package limitation on containers, see the comments under 126.96.36.199.5.
188.8.131.52.8 Access to container ships voluntary agreement
184.108.40.206.8.1 Code of Practice
The Code of Practice is a voluntary agreement between the International Group Clubs regarding access to a ship following a casualty and disclosure of relevant ship’s documents. The intention is to try to avoid involving lawyers and courts to obtain orders to come on board ships and obtain disclosure of documents. A mutual agreement will also avoid unnecessary delay of the ship.
Each party will appoint a surveyor or expert and if many Charterers are involved such as Sub-Charterers or Slot Charterers they can probably agree to appoint a single surveyor or expert. Before giving access to the ship, an indemnity agreement is signed where the surveyor or expert agrees not to file any claim of whatsoever nature against the Owner of the ship. A surveyor/expert who is allowed on board will be accompanied by a representative of the Owners and should be given reasonable access to relevant parts of the ship. Upon request Owners shall make available relevant ship’s documentation, which shall be treated by Charterers as confidential and cannot be released to third parties. Interviewing the crew and obtaining statements of the Master, officers or the crew is not allowed.
The Club can provide a copy of the Code of Practice.
220.127.116.11 Dangerous cargo
18.104.22.168.1 General comments on dangerous cargo
By definition the carriage of dangerous cargo significantly increases liability risks. To avoid the manifestation of those risks, it is important for the Member to follow closely the regulations for cover laid down in these Rules.
22.214.171.124.2 The carriage of explosives
The carriage of explosives is no longer excluded. However, in order not to jeopardize P&I cover, all IMDG cargo must be carried in compliance with the IMDG Code and any other applicable regulations for safe operation such as SOLAS, ISM etc.
126.96.36.199.3 Dangerous cargo in packages
Likewise the carriage of other dangerous cargo is approved on condition that the carriage, including packaging, handling, stowage, lashing and segregation, is carried out in compliance with the regulations contained in the IMDG code issued by the International Maritime Organisation (“IMO”).
The IMDG code contains important information as to the characteristics and requirements of dangerous cargo in packed form. Even so, booking and operational staff and the officers of the entered ship require further information to ensure a safe carriage. Details on characteristics and handling should be supplied by the shipper. Further information can be obtained from qualified surveyors or cargo experts. The Club may assist Members in obtaining recommendations and advice. In order to provide quick and adequate assistance the Club needs:
- The IMDG UN number of the cargo.
- The IMDG class of the cargo.
The request for recommendations and advice from the Club should, for example, be in respect of “Isopropanol – UN number 1219, class 3.2”. Shipment of certain types of dangerous cargoes should be accompanied by certificates from authorities verifying the characteristics of the cargo.
The IMDG code contains regulations as to the proper marking of each package of dangerous cargo. When it is received for shipment and loading the carrier should check that the cargo is appropriately marked. Cargo without, or in violation of, proper marking should not be accepted for shipment. A Member is exposed to serious liabilities in respect of personal injury, cargo damage or fines by the carriage of improperly marked dangerous cargo. Such fines are covered under Rule 7 Section 6 (a).
188.8.131.52.5 Dangerous cargo manifests
Dangerous cargo should be listed and declared separately in a dangerous cargo manifest. Any such regulations should be observed. Failure to comply with such formalities may result in fines. The fines are covered under Rule 7 Section 6 (a).
184.108.40.206.6 Shipper’s responsibility
Under the Hague and Hague-Visby Rules the shipper has an obligation to declare the dangerous nature of the goods to the carrier before shipment. If he fails to do so, he is responsible for loss or damage sustained by the carrier or the ship. The carrier may land or destroy cargo which he would not have carried had he been informed of its true nature before shipment.
The Club can assist Members in performing recovery actions against shippers.
220.127.116.11.7 Dangerous cargo in bulk
The IMDG code applies to dangerous cargo shipped in packages. Dangerous cargo may, however, be shipped in large quantities as bulk cargo.
The International Maritime Solid Bulk Cargoes Code (“IMSBC Code”) became mandatory on 1 January 2011 when amendments to the International Convention for the Safety of Life at Sea (SOLAS) entered into force. The IMSBC Code supersedes an earlier “Code of Safe Practice for Solid Bulk Cargoes” (the BC Code). The IMSBC Code is mandatory for all vessels carrying solid bulk cargoes, regardless of the vessels gross tonnage or age.
It is a condition for cover that the carriage is performed in accordance with the requirements of the Code.
18.104.22.168.8 Other regulations than IMO codes for carriage of dangerous cargo
In addition to the IMO codes for package or bulk cargoes of a dangerous nature, there may be other regulations applicable to the shipment as a result of domestic legislation or regulations imposed by local authorities such as the U.S. Coast Guard. It is the Member’s responsibility to find out about any such regulations applicable to a planned shipment.
It is a condition for cover under these Rules that such local regulations are adhered to.
22.214.171.124.9 Crew education
Courses and seminars are arranged to educate ships’ officers and booking and operational staff in matters concerning the carriage of dangerous cargoes. Members’ key personnel should be brought up to date on the new products and shipping techniques being developed.
126.96.36.199.10 Other comments on dangerous cargo
Carriage of radioactive products and nuclear substances is dealt with under Rule 11 Section 7.
Carriage of weapons of war is dealt with under Rule 11 Section 5 (c).
For comments on shipments of coal see under 188.8.131.52.
For comments on the carriage of direct reduced iron (“DRI”) pellets see under 184.108.40.206.
220.127.116.11.11 HNS Convention
In 1996 IMO adopted a new convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances. Neither this convention nor its 2010 Protocol is yet in force. The HNS convention covers some 3,000 substances but excludes coal, woodchips and nuclear substances. The limitation of liability, which was the subject of lengthy discussions within the IMO, is relatively high and, for example, a vessel of 50,000 gt has a limit of SDR 82 million (USD 110 million) and a vessel of 100,000 has a limit of SDR 100 million (USD 135 million).
18.104.22.168 Deck cargo
22.214.171.124.1 General comments on deck cargo
When the Hague Rules were drafted, a ship’s deck was considered to expose cargoes stowed on it to additional risks. Deck stowage was guided by special regulations on liability. Today, when ships and articles of transportation are designed to provide safe and convenient stowage on deck, technical progress sometimes clashes with existing legislation and with an overprotective attitude from the courts which have to apply old rules to new techniques.
There are two basic situations which will be discussed separately, viz. shipment on deck under an on deck or optional bill of lading, and shipment on deck under an underdeck bill of lading.
126.96.36.199.2 Shipment on deck under an on deck or optional bill of lading
188.8.131.52.2.1 Liability may be contracted out of
The mandatory liability for cargo carried under the Hague or Hague-Visby Rules is in respect of what the Hague Rules define as “goods” in Article I (c). “Cargo which by the contract of carriage is stated as being carried on deck and is so carried” does not qualify as goods in the sense of the Hague or Hague-Visby Rules. Therefore, deck cargo is excluded from the mandatory liability system. The carrier is free to contract out of all liability or at least all liability relating to the specific on deck risks, for cargo so carried and stated in the bill of lading as so carried. A cargo owner who chooses on deck stowage, probably in exchange for lower freight, is expected to bear the ensuing risks and insure them separately.
There are two important requirements which must apply: first, the goods must be stowed on deck and secondly, the deck stowage must be clearly stated on the bill of lading or waybill.
As to the first requirement, it may be difficult to classify certain locations on the ship as a deck. The Measurement Convention can provide some clues but the decisive factor must be whether the goods at the actual location are exposed to risks typical of deck stowage. Goods placed in the ship’s hospital have not been considered to be deck stowage. Nor is a covered but open garage on the top deck of a Ro/Ro vessel regarded as deck.
184.108.40.206.2.3 Deck stowage stated on bill of lading
The second requirement, viz. that the deck stowage must be declared on the bill of lading, is important. In trades other than where carriage on deck is customary (for example for shipments on Ro/Ro, heavy lift, containers and log carriers), if the on deck stowage is not brought to the cargo owner’s attention by such a declaration on the bill of lading, he may be unaware of the additional risks and be deprived of the opportunity to buy extra insurance protection. Carriage on deck in such trades might also be regarded as a deviation from the contract of carriage, the effect of which would be to deprive the carrier of the ability to rely on exceptions and limitations. It is important, therefore, that any bill of lading or other document containing/evidencing the contract of carriage for such trades is claused to state on deck stowage and that the risk of such carriage is transferred to the cargo owner. As Article III of the Hague and the Hague-Visby Rules does not make it compulsory for the carrier to issue a bill of lading, it is important for the carrier to ensure that, even if the shipper does not require one to be issued, that, to protect his own interest, the carrier ensures that a bill of lading is issued for all deck cargo which declares the on deck stowage. Otherwise there is a risk that the carrier may be in breach of the fourth part of Rule 4 Section 1 and will find himself without cover under these Rules (the same might apply under Rule 10 Section 2 according to which cover is jeopardised if a Member has entered into a contract containing unusually burdensome terms or lacking the usual protective clauses, absent the approval of the Club).
The carrier may be asked to prove that the shipper actually agreed to carriage on deck. Correspondence at the time of booking, booking notes, shipping confirmation, dock receipts or similar documents should be kept and held available for at least a year.
Where cargo is carried on deck, it is recommended that the following clause be inserted on the face of the bill of lading:
“Carried on deck without liability for loss or damage howsoever caused”.
Where an on deck bill of lading is issued for carriage of cargo to or from the U.S.A. the following clause should be used:
“Carried on deck, any warranty of seaworthiness of the vessel being hereby expressly waived by shipper, and such carriage shall in all other respects be governed by the terms of this bill of lading and the provisions of the Carriage of Goods by Sea Act of the United States, approved 16 April 1936, notwithstanding Section 1 (C) thereof”.
The carrier is entitled to carry containers on deck on purpose-built container vessels. Consolidated cargo in containers can also be carried on deck of a container vessel whilst flats racks are more suitable for under deck stowage. Another cargo where deck shipment is considered customary is logs on board log carriers.
It is nevertheless very important that bills of lading issued for container vessels include a liberty clause giving the carrier the right to stow a container on or under deck. The context is that adequate overall stowage requires a distribution of the containers in the ship according to weight, contents and destination. It may be difficult to state in advance where in the ship a certain container will be placed.
220.127.116.11.2.5 Risks for which liability may not be contracted out
There have been different opinions as to how the liability exclusion for declared deck stowage should be interpreted. The traditional interpretation is that, once outside the mandatory liability regime, the carrier is free to contract on terms which exclude all risks and liability for deck cargo. However, the carrier may still be obliged properly to load, stow, care for and discharge deck cargo. Accordingly, the carrier should always take due and normal precautions concerning those aspects regarding the shipment of deck cargo. It should always be secured in an appropriate manner. It can be argued that for certain types of goods which should never be carried on deck at all (e.g. generators or sophisticated machinery or engines transported on flats or in open top containers) the carrier may still incur a liability for their stowage on deck, even if the bill of lading contract expressly excludes liability for their carriage on deck.
The containers should always be stowed in a safe manner. Open top or flat rack containers should not ordinarily be stowed in exposed positions but protected within the stow.
Even if it may be possible to contract out entirely of liability for declared deck cargo, in appropriate trades (such as for Ro/Ro, container, heavy lift and log carriers), Members may contract on terms which give the carrier liberty to carry cargo on deck without declaring it to be on deck but for the standard of liability provided under the Hague-Visby Rules to apply to such carriage regardless of the absence of the on deck declaration (see comments under 18.104.22.168 and 22.214.171.124 respectively). By application of Rule 10 Section 2 (a) such liability for undeclared deck cargo to which the Hague-Visby Rules apply is covered.
126.96.36.199.2.6 Ship should be suitable for carriage of deck cargo
For a Member who carries containers on deck it is important that his ship is properly adapted to carry such cargo. The inadequate adaptation of a ship for the carriage of containers on deck will render her unseaworthy.
188.8.131.52.3 Shipment on deck under an underdeck bill of lading
If cargo is carried on deck under a bill of lading which does not a) explicitly state that the cargo is so carried or, which does not b) contain a valid liberty clause or, c) where carriage on deck is not customary, such carriage may in itself constitute a breach of contract or deviation (see comments under 184.108.40.206). If it constitutes deviation, the consequences can potentially deprive the carrier of the benefit of some or all of the Hague or Hague-Visby Rules liability exceptions and limitations and in those circumstances cover may be lost (or prejudiced) by reference to the fourth part of Rule 4 Section 1 on grounds that the liability results from an unauthorised on deck shipment.
It is possible for a Member to insure the risk of losing P&I Insurance due to undeclared carriage of cargo on deck by purchasing Deck Cargo Insurance for an additional premium. It may appear at the last minute of loading that there is no room on a fully laden ship for all the cargo booked. The reason may be that certain consignments have occupied a larger space than was reported at the time of booking. To leave cargo behind would expose the Member to claims for non-performance of the contract. If the carrier under such exceptional conditions puts the remaining cargo in a safe place on deck and covers it closely with tarpaulins, the breach of contract risk could be accepted on an ad hoc basis. It is a prerequisite for this cover that no service concept should be based on regular and intentional overbooking where the deck risk is transferred to the Club. Deck shipments of this nature should be declared to the Club in advance or as soon as the deck stowage comes to the Member’s attention. The extent of cover is for the declared value of the cargo. The premium is based on the cargo value.
220.127.116.11 Direct reduced iron (“DRI”)
The problems associated with the safe carriage of this cargo were addressed by the requirements of the IMSBC Code. However, care needs to be taken both in respect of the moisture content and ventilation/inert blanket.
18.104.22.168 Bulk cargoes that may liquefy, including nickel ore
Where the moisture content is too high, certain bulk cargoes such as mineral concentrates respond to the vibrations inherent in sea carriage by behaving more like a liquid than a solid. This has resulted in the sudden loss of a number of vessels and their crews. The IMSBC Code addresses this but care still has to be taken. The Master must be satisfied that the transportable moisture limit has not been exceeded. It is important that Members follow the Mandatory Notification Requirement for shipments of nickel ore from Indonesia or the Philippines whereby Members must immediately notify the Club of any a) future fixtures for loading nickel, or b) if the ship is ordered to load nickel under a current charter. For more information please see the Club circular 2541/2012.
The following precautionary measures are recommended to be followed when shipping grain:
a) Ensure that draft surveys are carried out at both ends.
b) Arrange for hatches to be sealed upon completion of loading in the presence of a local magistrate/bailiff who should issue a certificate to that effect.
c) Ensure that the seals are inspected before breaking by any official organisation such as the local branch of the Chamber of Commerce.
d) Obtain a statement upon completion of discharge from an official organisation such as the local Chamber of Commerce that all cargo has been discharged and that the holds are completely empty.
Masters are advised not to sign statements of shortage established without control or participation from the ship’s side nor to authorise the ship agents to sign any such document on the ship’s behalf. If such signing is made a condition of permission being granted for the ship to sail and the Master finds himself without any effective help from his agents or the Club correspondent, the statement should be endorsed with the words: “All cargo discharged; neither the ship nor her representatives participated in the weighing of the cargo”.
22.214.171.124 Heavy lifts
The ship’s own lifting gear, such as cranes and booms, should carry proper SWL (Safe Working Load) markings. They should, at all times, hold valid and prescribed certificates. Fines for lack of such certificates are excluded from cover under Rule 7 Section 6 item 3 (v). See comments under 126.96.36.199.
Contracts for the hire of cranes, sheer legs and similar equipment should be approved by the Club. See comments under 10.2.6.2.
188.8.131.52 Liquid bulk cargo
184.108.40.206.1.1 General comments on shortage
Carriage of liquid bulk cargoes is plagued with serious claims for shortage. The context for shortage claims is the carrier’s obligation for the particulars in the bill of lading as a document of title. For further comments see under 220.127.116.11.
A shortage claim has to be decided on the documentary evidence available. With such high value cargoes, it is important for the carrier to secure and produce full and adequate figures from loading and discharging. The evidence needs to be convincing to overcome the receiver’s allegation that the full cargo was not discharged.
Before loading, all cargo tanks should be inspected either to confirm that they are empty or to establish the OBQ (On Board Quantity). The condition should be confirmed in writing by a surveyor (Tank Inspection Certificate) in the presence of a representative of the shipper.
After loading, the cargo should be allowed to settle before measuring the ullage, temperature and water content. Immediately after loading the cargo may contain air bubbles which cause an ullage taken too early to show a larger quantity than actually loaded. If the water content is measured before proper settling has been allowed, there may be a claim for shortage of the product and for an excessive quantity of water, making it difficult for the carrier to prove that the water did not enter the tank during the voyage.
If ship-to-ship operations are involved, accurate records should be kept of each transfer.
Other observations such as shore tank figures, stops during loading, shore lines used, etc., may be of assistance in the investigation of a claim. The vessel’s time sheet should be included among the documents sent to the Club as a valuable source of information. Upon loading, the ship’s draft should be measured and recorded.
If the ship’s figures differ from the shore installation figures and from those presented for signature in the bill of lading, the Master should lodge a protest and contact the Owner and the nearest Club correspondent for assistance.
If the cargo requires heating during the voyage or in preparation for discharging, the cargo temperatures should be measured and noted to establish volumes. It is important that an adequate discharging temperature is maintained to minimise the cargo remaining on board (“ROB”).
As described in comments under 18.104.22.168–3, the carrier has an obligation to discharge and deliver the quantity of cargo carried as evidenced by the bill of lading particulars. ROB means that cargo is left on board and that a corresponding shortage exists in the quantity discharged, for which the carrier may be held liable under the Hague or Hague-Visby Rules. Tanker charterparties often contain a cargo or freight retention clause which allows the Charterer to make a deduction from freight or hire for the value of any cargo which an independent surveyor ascertains remains in the ship’s tanks and which is pumpable.
For the effect of such a clause to be covered, it should be confined to the method of payment, viz. by way of set-off against freight. The clause should not extend the carrier’s liability beyond what would follow from the Hague or Hague-Visby Rules. This follows from Rule 10 Section 2. Unconditional acceptance of liability for ROB is not covered. The clause should allow the Charterer to make a deduction from freight only when he can prove that he has suffered a loss.
For a cargo retention clause to apply, the ROB should have been established by the surveyor to be pumpable, not just as liquid or free flowing. The ROB survey should be performed before the hoses are disconnected in order to allow further stripping of any pumpable ROB that is established. If possible, a surveyor should be appointed on the Member’s behalf to conduct the ROB survey jointly with the Charterer’s surveyor. As a running expense, the costs of an ROB survey are not covered. See comments under 22.214.171.124.
A cargo retention clause favourable to the Owner’s interests and recommended by the Club to be included in charterparties is as follows:
If on completion of discharge any liquid and pumpable cargo by the vessel’s equipment remains on board, the presence, pumpability and quantity of such cargo having been certified by an independent surveyor appointed and paid jointly by owners and Charterers, and Charterers thereby suffer a financial loss, Charterers shall have the right to claim up to a maximum amount equal to the FOB loading port value of such cargo plus freight thereon. Provided, however, that any claim is subject to any Hague or Hague-Visby defences or rights and to any other rights or defences available to owners under this charter or otherwise, and provided further that if owners are liable to any third party in respect of failure to discharge such liquid cargo, or any part thereof, Charterers shall indemnify owners against such liability up to the total amount claimed under this clause.
Before discharging is allowed to start, the ship’s draft should be recorded. Temperatures and ullages should be measured in all tanks in the presence of a surveyor and of representatives for the receiver. All relevant observations made during the discharging should be recorded. It could be of value afterwards to know to which shore tanks the oil went and through what shore lines. Stops during discharging may be of importance. The extent of the COW (Crude Oil Washing) should be noted. Even here the vessel’s time sheet may be of value for those investigating a claim.
Upon completion of discharge it is necessary to establish that the tanks are empty or ascertain the extent of remaining unpumpable residues. Employment of a surveyor to obtain proof in this respect is recommended (Empty/Dry Tank Certificate).
Should a complaint be filed by the receivers that the full cargo has not been discharged, detailed investigations should be made in anticipation of a claim. The nearest Club correspondent should be contacted.
Masters are advised not to sign statements of shortages established without control or participation from the ship’s side nor to authorise the ship agent to sign any such documents on the ship’s behalf. If such signing is made a condition of permission being granted for the ship to sail and the Master finds himself without any effective help from his agents or the Club correspondent, the statement should be endorsed with the words: “All cargo discharged, no representative for the ship participated in the establishing of outturn figures presented by the receiver”.
126.96.36.199.1.4 Inevitable transit losses
A traditional bone of contention in discussions of an oil shortage claim is if and to what extent the carrier should be given credit for inevitable in-transit losses. There is always a margin for measurement tolerances, settlement of water and cargo clinging to the tank bulkheads. The old tolerance of 0.5% for in-transit losses may no longer be accepted by the courts. The acceptable extent of in-transit losses will depend on such factors as the volatility or water content of the product or the temperature of carriage compared with the solidification characteristics of the cargo.
Many of the principles for collecting and presenting evidence previously described are applicable to the investigation and defence of claims for contamination. The crucial point is a thorough and adequate cleaning of tanks, pumps and lines. The extent of cleaning has to be considered in relation to the cargo previously carried as well as that to be loaded. As appears from the comments under 188.8.131.52, the carrier is not absolved from liability if the tanks have been inspected and approved by the shipper’s or the Charterer’s surveyor even if the charterparty contains a stipulation to that effect. On the other hand, the shipper’s advice should be sought regarding the cleaning standard and procedure required as the shipper is the party best placed to know the carriage requirements of his own cargo.
A Tank Inspection Certificate should be obtained from a surveyor. First foot samples should be taken and analysed before the loading is allowed to continue. Further samples should be taken at the ship’s manifold or where the shore installation piping system ends. Upon completion of loading further samples should be taken at different levels in all tanks. Please see the comments under 184.108.40.206.6 for advice as to the taking of samples.
During discharging further sets of samples should be taken at the ship’s manifold or at the end of the ship’s hose or discharging device.
Samples should be taken by surveyors in clean bottles, tagged for identification and authentication, and sealed and stored for a sufficient period of time. See the comments under 220.127.116.11.6.
Plans of the ship’s tank and piping system are necessary when investigating a contamination claim. The names and whereabouts of all persons involved in the cargo operations may also be of great help.
When a contamination has occurred, the carrier must prove that due diligence was exercised with regard to seaworthiness at the beginning of the voyage. To this effect evidence is needed, for instance, that the tanks, valves and lines were duly inspected and tested, that the crew was competent to handle the pumps and valves, and that the valves were properly marked in writing and by colours to prevent opening the wrong ones.
18.104.22.168.3 Commingling and blending
Requests to commingle or blend liquid oil cargoes usually come from Charterers or shippers. This procedure is potentially complicated and can expose Members to very large claims for off-spec cargo at the port of destination. It should be kept in mind that the Master and his crew have limited scientific knowledge of inherent characteristics of chemicals or other oil products and it is therefore of utmost importance that Members and Masters consult specialists in this field. Two very important factors when accepting to commingle or blend cargo are the clausing of bills of lading and sampling. Members should closely follow the Club’s recommendations below in order not to prejudice cover.
Cargo of the same specification loaded from different shippers, terminals or ports is considered to be commingling. Bills of lading must properly describe that the cargo has been loaded from different sources and commingled on board the ship. To mitigate the risk of a claim for contamination at the port of destination samples of each product should be drawn from the ships manifold at the start of loading. First foot samples should also be taken as well as on completion of loading of each grade and after commingling on board.
Commingling of cargo of the same specification from the same shipper and terminal but from different shore tanks is not considered a commingling but a normal loading operation.
Blending cargo involves the mixing of two or more grades of different specifications on board the ship for discharge as one homogenous cargo. Since it is very difficult, if not impossible, to scientifically blend cargo on board a ship, receivers may complain that the blend does not correspond to the cargo description in the bill of lading. Such claims may fall outside the Club cover unless the bills of lading have been properly claused to reflect in detail the loading procedures. The Master should ensure that the two grades loaded are individually described in the bills of lading including the name of the ports and the dates.
In addition, the Club recommends that Members obtain a Letter of Indemnity from shippers and/or Charterers. Sampling should be carried out as per 22.214.171.124.1.2
Liquid bulk cargoes may be lost overboard during loading, carriage or discharging. For comments on pollution liabilities please see Rule 6 Sections 1 and 2.
126.96.36.199 Live animals
According to the Hague and Hague-Visby Rules, live animals do not qualify as goods. Therefore, the compulsory liability does not apply to the carriage of live animals.
Shipments of live animals such as livestock, circus animals and racehorses should be carried out under contracts of carriage which exclude liability for illness, injury and death. If a Member becomes liable because the possibilities of excluding liability have not been effectively exhausted, there is no cover under these Rules.
Carriage of live animals may cause the ship to deviate or be subject to quarantine or disinfection. For certain consequences of this there is cover under these Rules. Please refer to Rule 5, Rule 7 Section 7 and Rule 4 Section 7. There is, however, no cover for hire and time lost according to Rule 11 Section 2 (j). Shippers should, therefore, be asked to assume liability for any damage, loss or expense caused to the carrier by the shipment of live animals.
Under the Hamburg Rules the carrier is not liable for loss, damage or delay resulting from any special risk inherent in the shipment of live animals. If the carrier can prove that he followed the shipper’s instructions in respect of the animals and that, in the circumstances of the case, the loss could be attributed to those risks, the loss is presumed to be so caused, unless there is proof that the loss or part of it was caused by negligence on the part of the carrier or his servants.
No general exclusion of liability for live animals is valid under the Hamburg Rules. The possibility of avoiding liability will depend on the information and evidence received from the ship as to the cause of the loss. Such facts are essential for the carrier to meet his burden of proof.
188.8.131.52 Nuclear cargo
See the comments under Rule 11 Section 7.
184.108.40.206.1 General comments on the carriage of paper
Paper and other similar products in rolls are sensitive cargoes and can be damaged easily. The rolls have little, if any, packing that could be described as adequate in relation to the weight, value and vulnerability of the product. To some extent the liability exclusion under the Hague Rule exception (n) should apply (see comments under 220.127.116.11). To a certain extent it has been agreed that the roll constitutes its own packing with cuts not deeper than ½ inch not being compensated by the carrier and cuts deeper than ½ inch being compensated at 60%.
18.104.22.168 Refrigerated cargo
22.214.171.124.1 General comments on refrigerated or frozen cargoes
Cargoes which require a controlled and constant temperature are either refrigerated or frozen. Although there is a great difference in the nature and handling of the two types of cargo, the liability aspects are mainly the same. What is said in the comments regarding reefer cargo, therefore, may also be relevant to frozen cargo. What is said in respect of reefer compartments may also be relevant to reefer containers.
If reefer cargo is not provided with an adequate environment with regard to temperature and ventilation, loss of the entire cargo stowed in that compartment generally results. Not only is reefer cargo by definition heavily dependent on ideal conditions being maintained throughout the voyage, but the cargo is also intended for human consumption, whether as food or medication, and, therefore, subject to strict regulations from the market and from governmental health authorities. Even minor changes in the quality may cause authorities to order the complete destruction of a consignment.
In order for Members who operate reefer services to protect their P&I claims records, it is important to pay close attention to the condition of the ship, its reefer plant and compartments and to the experience and education of officers and crew.
126.96.36.199.2 Pre-loading surveys of reefer plant
The carriage of reefer goods by traditional reefer ships has largely been overtaken by the use of reefer containers. However, some dedicated reefer ships remain. From comments under 4.1.5 it can be seen that the carrier has the burden of proving that he exercised due diligence with regard to seaworthiness before and at the beginning of the voyage. When it comes to reefer shipments this means that the carrier must produce a valid Refrigerating Machinery Certificate issued by the classification society. It confirms the overall suitability of the reefer plant. Furthermore, the carrier must prove that the compartments are clean, free of odour and suitable for carrying the intended type of reefer cargo before loading is allowed to start. The proper operation of the reefer plant and the distribution of cooling air must be evidenced. All this can be done by employing a class surveyor to check and test the relevant parts of the ship and issue a certificate accordingly. Such a certificate, however, does not constitute conclusive evidence. It is regarded as prima facie evidence. If other proven facts show that the surveyor’s conclusions were wrong, the carrier will probably not be considered to have sufficiently discharged his burden of proof.
188.8.131.52.3 PTI of reefer containers
Similar principles apply to reefer containers. The usual procedure is to let the container undergo a Pre Trip Inspection (PTI) before it is placed at the shipper’s disposal or before being stuffed by the carrier. A PTI includes all relevant aspects of the suitability of the container and its reefer machinery. All tests performed should be entered into the PTI certificate, which should be kept easily available for at least a year.
184.108.40.206.4 Shipper’s carrying instructions
Other evidence of importance from the time of loading is any carrying instructions received from shippers and/or Charterers. Members should request such instructions to be in writing for future reference. The instructions should be followed unless they appear inadequate, based on the experience and expertise available.
Carrying instructions and temperatures to be maintained should not be inserted in the bill of lading. Similarly, the carrier should not agree that the bill of lading is claused so as to guarantee a product or hold temperature during the voyage.
If the temperature of reefer cargo received for shipment is different from that in the carrying instructions or from what experience indicates it should be, the bill of lading should be claused accordingly.
220.127.116.11.5 Pre-loading examination of cargo
The special nature of reefer cargoes increases the carrier’s obligation to examine such non-containerised goods before loading. Random checks should be made of its temperature. Samples should be taken to establish the nature and condition of the cargo. From what has been said previously regarding the burden of proof (see the comments under 18.104.22.168) it is important that any pre-loading examinations are recorded for future reference. The bill of lading should be claused as per any such examination. If the pre-loading condition of the cargo is in doubt, a surveyor should be called in to advise the Member whether or under what reservations the cargo should be accepted for shipment.
As mentioned under 22.214.171.124, one of the important exceptions from liability is the inherent vice of the goods according to Hague Rule Article IV rule 2 (m). This exception is often applicable to shipments of vegetables, fruit or meat. The goods might have been infested or their life span reduced by early harvesting or excessive pre-shipment storage. To invoke such a defence, the carrier must prove that the inherent condition could not be detected at the time of loading (see comments under 4.3.3) and that its consequences could not be avoided or mitigated by precautions during the transport.
126.96.36.199.6 Reefer logs
There is important evidence to be collected and maintained in respect of the carrying conditions during the voyage. The reefer log is a fundamental piece of evidence and should be kept carefully. See comments under 188.8.131.52.3. Data readings and recordings should be kept for future reference.
184.108.40.206.7 Automatic temperature readings
Reefer containers are equipped with an electronic data logger for automatic temperature readings. Extracts from the electronic readout constitute evidence as to the performance of the container and its reefer machinery.
The electronic logger should continuously record the temperature from the moment the container is turned on at the place of stuffing until the doors are opened for stripping.
220.127.116.11.8 Obligation to mitigate loss
Should the temperature readings or the regular daily inspections of the reefer cargo during transportation indicate that damage may occur, the carrier has an obligation to mitigate any loss occurring.
Ships carrying reefer containers should have sufficient know-how, tools, spare parts and a supply of appropriate cooling medium to effect basic emergency repairs on board. Improvisation may offer temporary solutions pending final repairs in port. Empty containers may be used to house the cargo temporarily or as a source for spare parts. All steps taken and observations made on the cargo condition should be recorded contemporaneously in the reefer and deck logs.
In case of a serious casualty, such as a reefer machinery breakdown, it may be necessary to take extraordinary action, such as calling at an intermediary port for reefer plant repairs or to discharge, tranship or even sell the cargo. If such decisions need to be taken the Club can assist with expert and legal advice.
Costs incurred in mitigating a loss may be recoverable under Rule 8 Section 2.
18.104.22.168.9 Discharging surveys
If anything abnormal has been observed during loading, in-transit or on discharging, Members are recommended to contact the Club or its local Correspondent in order to arrange a survey. The Club can appoint qualified and independent experts on any type of reefer cargo.
22.214.171.124.1 General comments on steel shipments
The shipment of steel cargoes by sea involves the risk of the steel becoming rusty during the period of shipment. Many factors may cause or contribute to the rusty condition of the steel upon discharge from the vessel such as exposure to rain or snow before shipment or during loading, condensation when steel is shipped cold, leakage through hatches, exposure to moist air in-transit, etc. The carrier can avoid or minimise some of the risks but he cannot change the laws of chemistry – the combination of steel and moisture produces rust.
126.96.36.199.2 Clausing of bills of lading
Steel is often rusty when presented for shipment. The correct thing for the carrier to do is to clause the bill of lading in a manner which reasonably reflects its apparent order and condition on shipment, including rust. A conflict arises due to the fact that to draw down payment under the letter of credit which finances the purchase of the cargo, the sellers / shippers need to present to the financing bank a “clean” bill of lading which does not contain such remarks (however well-founded they may be). The carrier is in a dilemma because under Rule 4 Section 3 he is not covered for the consequences of issuing a clean bill of lading for damaged cargo even if done in exchange for a letter of indemnity from cargo interests or Charterers.
It is generally accepted by the industry that bills of lading for steel shipments can be claused, whenever justified, with the word “rusty” or with any of the following qualifications:
- Partly rust stained
- Rust stained
- Rust spots apparent
- Some rust spots apparent
- Rust spots apparent on top sheets
- Some rust spots apparent on top sheets
- Top sheets rusty
- Some top sheets rusty
- Rusty edges
- Some rusty edges
- Rusty ends
- Some rusty ends
- Rust spotted
- Rust and oil spotted
- Wet before shipment
- Wet steel tubes
- Wet bars
- Rust on metal envelopes
- Covered with snow
- Pitted. Rusty
- Rust with pitting
- Goods in rusty condition
- Edges bent and rust
- Partly rusty
When packed sheet steel is shipped the following two clauses may be used:
- Covers rusty/wet
- Packing rusty/wet
Under the terms of the letter of credit it is usually agreed that such remarks do not prevent the bill of lading from being treated as “clean”.
Qualifications such as “atmospherically” or “superficially” should not be used in the description of the rust or the rusty condition. Such qualifications are not strictly necessary to describe the appearance of the cargo. They are subjective, ambiguous and prone to dispute; all of which may be counterproductive to the carrier’s interests.
188.8.131.52.3 Clause in charterparty
It is important that remarks about the apparent condition of the steel cargo which are noted on the Mate’s Receipt (“M/R”) are replicated in the bills of lading. Bills of lading are often issued by Charterers after the ship has sailed, which gives the Master no opportunity to check that they were adequately claused as per the M/R. The authority contained in the charterparty for the Charterers to sign bills of lading should, therefore, be drafted in such a way that the bills are issued in conformity with the M/R or Tally Clerk’s Receipts and that the Charterers are to hold the Owner harmless if there is a breach of that obligation. See comments under 184.108.40.206.
220.127.116.11.4 Pre-shipment surveys
It is impossible for a Chief Mate to check all individual bars, pipes or coils in a steel cargo when the ship loads in several hatches simultaneously. The Club recommends Members to arrange pre-loading surveys of steel cargoes during loading. Upon request the Club can assist Members in appointing suitable surveyors.
The Club’s Board has decided that pre-shipment surveys of steel cargoes are to be considered as running expenses and should not be compensated. The survey costs can be estimated in advance and calculated into the freight. It is not in line with the concept of mutuality that operational costs for a single type of transport should be shared among the community of Club Members. See comments under 18.104.22.168.
The Club is nevertheless prepared to survey and investigate any damage to steel cargoes which may arise during the voyage as with any other cargo damage claim. If there is a claim, the pre-loading survey report may usefully be deployed as evidence of the condition of the cargo at the time of loading. In such a case, the costs for the pre-loading survey will then be reimbursed under Rule 8 Section 1.
22.214.171.124.5 Loading in rain or snow
Shippers/Charterers often insist that loading of steel products should continue even during periods of rain or snow. It is true that certain qualities of steel are less susceptible to damage from exposure to light rain or snow. Indeed, some products arrive at the port of loading on open railcars and are stored on the quay unprotected and exposed to the elements. Nevertheless, a Master should not be persuaded by assurances that no damage or liability will result. If he considers it necessary and appropriate the Master may obtain the expert advice of a surveyor or guidance and assistance from the Club correspondent in such circumstances.
126.96.36.199.6 In-transit damage
A frequent cause of claims for rust damage to steel products is leaking hatches. A steel cargo produces a low centre of gravity which makes the ship stiff. This puts the lashing and stowage of the cargo under severe strain in heavy weather. Considerable attention should be given to the condition of the hatches. Ultrasonic or hose testing should be arranged before loading is allowed to commence. Even small defects must be remedied. All such precautions should be recorded in the deck log as the Member may be called upon long afterwards to prove what was actually done on board to ensure that the vessel was in a seaworthy condition before and at the beginning of the voyage.
Accurate securing in the holds of heavy steel units is important to avoid shifting, chafing, bending, ovalisation or unwinding.
Cargo holds are usually washed with seawater, leaving chloride-laden traces behind. A final washing should be carried out with fresh water. If this is not done, ship’s sweat containing salt crystals, risks contaminating the steel. This will not only accelerate the development of rust but also give cargo interests and their surveyors the false impression that the hatches have been leaking during the voyage and that the ship’s seaworthiness is at stake. With the burden of proof on the carrier it can be difficult for the carrier to disprove such an allegation.
Holds where steel is to be stowed must be carefully cleaned, especially if they have contained previous cargoes containing sulphur, such as coal, iron ore or phosphate.
Whether to ventilate holds containing steel during the voyage has to be carefully considered so as to avoid the formation of cargo and/or ship sweat. If the steel loaded is colder than the ambient temperature in those areas through which the ship will proceed during her voyage, ventilation should probably be avoided. The temperature of the steel is likely to be lower than the dewpoint of the external air so that cargo sweat will form. If, on the other hand, the steel is loaded in a warm climate, the holds should probably be ventilated in order to avoid the internal hold structures cooling below the dewpoint of the atmosphere within the hold. That would cause ship’s sweat to develop and drip down on to the steel. It is the dewpoint of the air inside the hold as compared with that of the ambient air outside that is the determining factor as to whether or not to ventilate. The ship must, therefore, be equipped to measure the dewpoint both inside and outside the hold. Similarly, it is inadvisable to load steel in the same hold as moisture laden products such as logs or plywood.
188.8.131.52.1 General comments on trailers
The Ro/Ro concept is widely accepted. A considerable part of the Ro/Ro cargo is carried on trailers.
Most trailers are consolidated by shippers or by freight forwarders who perform the internal securing of the units. As producers or sellers of the cargo they ought to have a special interest in the safe and successful performance of the transport. Furthermore, they should be the party most familiar with the needs and characteristics of the goods, such as weight, stability, friction, etc. Unfortunately, goods are often still stowed in trailers with insufficient or sometimes a complete lack of securing. Sometimes the goods are adequately stowed for the forces exerted during road transport but not for the additional forces encountered on a ship at sea. Before the trailer leaves the shipper, its cover is often TIR sealed to comply with international customs regulations. When the trailer is received for shipment in the loading port, it is then physically and legally impossible for the carrier to inspect the internal stowage and securing. Cargo shifting in one trailer may cause a chain reaction involving adjacent trailers. A piece of heavy equipment which becomes detached from one trailer can lead to the destruction to all cargo stowed in that area of the ship. The owners or underwriters of the cargo destroyed will file claims against the equally innocent carrier to recover their losses.
184.108.40.206.2 Education of shippers
Members operating a liner service based on a Ro/Ro trailer concept should prepare and distribute cargo-securing instructions and advice to shippers.
220.127.116.11.3 Pre-carriage inspections
As for the individual shipments, the carrier must perform as much checking of the unit as is both legally and technically capable of being carried out and be able to provide evidence of those checks afterwards. The first opportunity comes when the trailer enters the terminal area in the loading port. The external condition of the trailer should be properly examined and if observations made which might suggest damage or shifting of the cargo or inadequate securing or stability, this should be investigated further and remedied.
The trailer should be equipped with a sufficient number of suitable lashing points to allow the carrier to fulfil his basic obligation to secure the trailer properly on board.
The stowage plan is generally drawn up in the terminal. To the extent possible, trailers with dangerous, heavy or sensitive cargo should be given special attention and stowed accordingly.
Unusual performance of the trailer as it is towed on board, for instance when going up the ramp, would justify and necessitate a further check of the contents and its securing.
18.104.22.168.4 Securing of trailers on board
It is vital that the trailer is properly attached to the ship’s deck by an adequate number of suitable lashings fixed to permanent securing points. The condition of the trailer’s supporting legs should be carefully noted. They are often already damaged when the trailer is received for shipment. They are required not only for the proper storage of the trailer in the terminal before loading and after discharge but also whilst on board.
The trailer chassis should be kept as stable as possible by compressing the springs by means of lashings to the deck or by jacking up the undercarriage prior to securing. Trailers should additionally be supported by a trestle or a jack. However even if the trailer itself is properly secured to the deck the cargo concealed under the tarpaulin may still not be properly secured to the trailer.
22.214.171.124.5 Evidence of internal securing
If damage or shifting occurs, evidence as to the internal securing of the cargo in the trailer and its possible effect on the damage should be collected. The number, nature and application of internal lashings and securing must be recorded in detail. If no surveyor is available, this has to be done by the ship’s officers. According to the Hague and Hague-Visby Rules Article IV rule 3, the shipper is responsible for loss or damage sustained by the carrier or the ship through the shipper’s negligence. The importance of this regulation is not confined to the defence of the claim for damage to the consignment causing the accident. The Member has an obligation to support and secure any opportunity of a recourse action for the Club (see the comments to Rule 10 Section 4 and to Rule 14) and/or the ship’s Hull underwriters) against shippers for losses sustained. According to Rule 14, after indemnifying the Member for the cargo claim liability (once paid) the Club is subrogated to the Member’s rights to bring a recovery action against a negligent shipper.
126.96.36.199 Valuable cargo
188.8.131.52.1 Rules applicable to valuable cargoes
There are two separate Rules applicable to shipments of valuable cargo. Rule 11 Section 2 (d) excludes liability for “specie, bullion and precious metals or stones, plate or other objects of a rare or precious nature, cash, bank notes or other forms of currency, bonds or other negotiable instruments” unless the carriage of such valuables has been approved by the Club. Rule 4 Section 1 states that the Club’s liability in respect of goods for which the value has been declared in the bill of lading is limited to the amounts which appear in the regulations issued by the Club. The right to issue regulations follows from Rule 10 Section 3.
The first category of valuable cargoes excluded under Rule 11 Section 2 (d) is for special shipments of extremely high value which are effectively not of a commercial nature. It could be shipments of mint coins and bank notes or international exhibitions of antiques or precious pieces of art. In view of the nature of these shipments, the Hague and Hague-Visby Rules allow the carrier to issue a contract of carriage containing wider exclusions from liability than those generally allowed. The contract of carriage must be adapted to the nature of the transport and preserve any legal rights the carrier may have to limit his liability. The transport itself may be surrounded with extra security precautions such as stowage in a locker or in a cabin. Special guards or attendants may have to accompany the shipment.
According to Rule 10 Sections 2 and 3 the Club may refuse or reduce compensation where a Member fails to exclude or limit liability where permitted or contracts on unduly burdensome terms.
184.108.40.206.3 Other valuable cargoes
Other types of cargo may have considerable value without being of the special nature which, according to the Hague and Hague-Visby Rules, qualify them for shipment on reduced liability terms as described above. The carrier is mainly protected against excessive liability for cargo of high value by the rules on package limitation which follow from the Hague, Hague-Visby or Hamburg Rules. See the comments under 220.127.116.11. The cover under Rule 4 Section 1 is for the amount to which the Member is or would have been allowed to limit his liability under the law applicable to the contract of carriage. If the carrier has agreed to extend his liability beyond the amount of that limitation, the extended liability is covered only if and to the extent that it has been approved by the Club.
18.104.22.168.4 Ad valorem bills of lading
The method envisaged by Article IV of the Hague and Hague-Visby Rules to extend liability beyond the package limitation is to insert the declared value of the cargo in the bill of lading. By accepting a higher responsibility, the carrier can charge a higher freight based on the value of the cargo.
This type of bill of lading is referred to as an ad valorem bill. As the increased liabilities are assumed with open eyes and for the purpose of earning more freight, the concept of mutuality in relation to fellow Members of the Club justifies the prior approval of the Club and the charging of an additional premium.
It follows from decisions by U.S. courts that a bill of lading form should afford the shipper a fair opportunity to declare a higher cargo value if he so wishes and to pay the corresponding increased freight. It means that the bill of lading form should contain a suitable box for that purpose. In order to protect the carrier adequately, the limitation clause of the bill of lading, in such circumstances, should read:
“Neither the carrier nor the ship shall in any event be liable for any loss or damage in an amount exceeding USD 500 per package or other unit of limitation unless the nature and value of such goods has been declared by the shipper before shipment and inserted into the applicable box of this B/L and additional freight has been paid”.
By the charterparty terms a Charterer is often authorised to issue bills of lading. An Owner can protect himself against any adverse consequences described above by drafting the relevant charterparty clause in such a way that the Charterers are not authorised to issue ad valorem bills of lading.
22.214.171.124.5 Bills of lading with an unwanted ad valorem effect
There are some situations in which the carrier may find that he has assumed a liability over and above the package limitation without intending to achieve that result and without having been rewarded by higher freight.
For some cargoes neither weight nor volume constitutes a suitable basis for freight calculation. Freight is then often charged on the invoice value. If so, the cargo value is stated as the freight basis in the freight box of the bill of lading form. Even if the value has not been inserted for the purpose of assuming liabilities beyond the package limitation, this method of recording freight may potentially result in an allegation that the bill of lading is an ad valorem bill. Members are therefore recommended not to use this method to calculate freight. If it is still not possible to avoid, the following reservation should be inserted in the freight box:
“Value of cargo has been inserted as basis for freight calculation only and is not a declaration of value for any increased per package liability”.
It follows from governmental regulations in some countries that the value of the cargo as a matter of law or regulation must be mentioned in the bill of lading for all cargo imported. The regulations are meant to simplify the proper assessment of import taxes to be paid by the receivers. Most likely, however, attempts will be made by cargo receivers to treat any such bills of lading as ad valorem bills. Members are, therefore, recommended to check whether the authorities will accept alternative documentation of the cargo value such as the separate presentation of invoices. If there are no alternatives to the cargo value being inserted in the bill of lading, it is recommended to insert a reservation, e.g.:
“Cargo value is inserted solely to comply with regulations by the proper authorities for tax assessment purposes and is not a declaration of value for any increased per package liability.”
Another way of attempting to circumvent the carrier’s entitlement to package liability occurs where there is a requirement for bills of lading to make reference to and include the serial number of the letter of credit, sales contract or pro-forma invoice: cargo underwriters have tried to overcome the package limitation by arguing that, by virtue of such additional information, the carrier must have acquired knowledge of the value of the cargo and that the bill of lading should, therefore, be regarded as ad valorem one. There have been local court decisions in jurisdictions outside England and Wales to that effect. The problem has been considered by the Clubs and by BIMCO. As a possible remedy the following clause has been suggested to be included on the face of the bill of lading:
“Particulars of sales contracts and/or order and/or bank Letter of Credit shown herein were inserted at shippers’ request and for their own personal convenience in order to facilitate the negotiation of the B/L. Such particulars were not checked by carriers, and/or Master and/or ship agents, nor were any documents related thereto presented to them. It is, therefore, agreed that the insertion of such particulars or the like in this B/L must not be regarded as a declaration of value of the goods shipped.”
The methods described are designed to deprive the carrier of his legal right to claim the benefit of the per package limitation and to grant the cargo owner free of charge the privileges which would have followed from an ad valorem bill of lading having been issued. One remedy is to treat each bill of lading containing unnecessary particulars as a genuine ad valorem bill of lading and charge increased freight accordingly. An important note is that if such ad valorem bills have been issued, the carrier is recommended to contact the Club since it might be necessary to take out additional insurance cover.
Whether the Member will be deprived of cover if the letter of credit number is inserted in the bill of lading will be decided in the light of the circumstances and the Club’s discretion. The International Group Bill of Lading sub-committee has agreed on the following guideline:
“If a reference to a Letter of Credit amounts to contracting on terms less favourable than Hague/Hague Visby under the law applicable to the contract of carriage, then it seems that cover will be prejudiced. However, there would probably be a case for the Club exercising a favourable discretion in respect of the exclusion where it was reasonably uncertain as to which law was applicable to the contract of carriage or where the applicable law was uncertain as to whether reference to an LC amounted to contracting on terms less favourable than Hague/Hague Visby. Furthermore, Clubs would exercise a discretion favourably where it might be unreasonable for the Carrier to be expected to carry out a potentially lengthy investigation into the applicable law when a bill of lading is presented for the carrier or its agent to issue promptly.”
126.96.36.199.6 Extent of cover for valuable cargo
As regards cover under an ad valorem bill of lading see 188.8.131.52.6.
Valuable cargo carried under a normal bill of lading does not require any extra insurance unless the cargo is of the nature described in Rule 11 Section 2 (d) and for which the insurance cover has been described above.