English And French Jurisprudence On The Effect Of FIO, FIOS And FIOST Terms In The Contracts Of Carriage

The contracts of carriage by sea for grain cargoes commonly state the sea freight on FIO (Free In and Out), FIOST (Free In and Out Spout Trimmed) or FIOSGT (Free In and Out Spout and Grab Trimmed) basis. The owners and disponent owners of the bulk carriers charge the sea freight without the costs of loading and discharging because they do not want to assume the responsibility for the acts of the ports operators and take the risks related to loading and discharging operations.
In order to protect themselves against the potential claims for cargo shortage, the shipowners and disponent owners of bulk carriers provide in the grain voyage charterparties and the contracts of affreightment that in the event that the seals of the hatch covers are found intact upon the vessel`s arrival at the discharge port and the comparison of the cargo weight figures resulting from the vessel`s draft survey reports at loading and discharge port show no or only an insignificant difference, the shipowners/disponent owners shall not be responsible for any shortage claim lodged by the cargo receivers and that it is the charterers` obligation to settle themselves any shortage claim lodged by the cargo receivers or to indemnify the shipowners/disponent owners in the event of a claim settled by the latter<sup>1</sup>.
The effect of FIO, FIOS and FIOST terms was discussed over the years by the London maritime arbitrators, the English Commercial Court, the French maritime arbitrators and the French Commercial Courts in the numerous cases of shortage claims arising from the discharge of grain cargoes at Algerian, Tunisian and Moroccan ports.
The common cause of the cargo shortages in those claims was the cargo leakage from the grabs provided by the port operators appointed by the cargo receivers. The non-tight grabs leaked out the cargo on the ship`s deck, on the sea water and on the quay.
In the arbitration and Court proceedings, the carriers contended that the effect of FIO, FIOS and FIOST terms is to allocate the contractual responsibility for loading and discharging operations exclusively to the charterers, shippers and cargo receivers and to exonerate the carriers from the liability in respect of the cargo losses arising during the discharging operations, since such losses occurred at a time when the cargo was not under the carrier`s control.
The English and French Courts have a different opinion on this matter.
The English Courts consider that the FIO, FIOS and FIOST terms are concerned only with the allocation of cost<sup>2</sup>. In the English jurisprudence the FIO/FIOS/FIOST clause is considered just a financial provision related to the calculation of the sea freight that transfers to the charterers only the costs of loading, stowage, trimming and discharging operations.
In Sea Master Shipping Inc v. Arab Bank (Switzerland) Ltd. & Anor<sup>3</sup>, the English Commercial Court held that a provision that transfers the responsibility for the cost of discharge to a charterer or cargo receiver will not have the effect of also transferring the obligation to carry out the task of discharge from the shipowner to the paying party.
In Jindal Iron and Steel Co. Ltd., TCI Trans Commodities AG and Hiansa S.A. v. Islamic Solidarity Shipping Co. Jordan Inc. (The "Jordan II")<sup>4</sup>, the English Court of Appeal held that if the charterer or receiver has agreed to pay for the discharging operation, there is no presumption that it has also agreed to carry it out or be liable if it is done badly.
In Societe De Distribution De Toutes Merchandises En Cote D`Ivoire (t/a "SDTM-CI") & Ors v. Continental Lines N.V. & Anor⁵, the English Commercial Court held that:

"FIOST terms do not, without more, transfer responsibility for performance of the loading, stowage, trimming and discharge operations to the charterers or the cargo interests."

Therefore, the English Courts require clear words for the transfer of responsibility for loading operation to the voyage charterer and/or the shippers and for discharging operation to the voyage charterer and/or the cargo receiver.
In the French jurisprudence it is considered that the concept of FIO/FIOS/FIOST is not limited to the financial aspects of the cargo handling during the loading and discharging operations, but it also implies that the carrier does not assume the responsibility for such operations⁶.
The French Courts and maritime arbitrators consider that the FIO clause does not allow to imply "a contrario" that the absence of specific words for the transfer of responsibility for the cargo handling during loading and discharging of cargo distorts the nature of the contract of carriage to retain only the financial aspect of the FIO clause⁷.
Thus the simple mention that the sea freight was agreed on FIO basis is sufficient to establish that the shipowner, except in case of any fault on his part, will not incur any responsibility for the consequences of the improper handling of cargo during the discharging operations. Therefore, the charterers have to bear not only the costs but also the risks relating to the cargo handling at the discharge port, including the risk of cargo spillage due to improper handling.
When it comes to the third party holders of the Bills of Lading, the French Courts and maritime arbitrators consider that the FIO/FIOS/FIOST terms should be mentioned on the front page of the Bills of Lading in order to be opposable to the third party holders and their subrogated underwriters.
If the FIO/FIOS/FIOST terms of the charter party are not mentioned in the Bills of Lading, they are not opposable to the third party holders and their subrogated underwriters because the French Courts and maritime arbitrators consider that the third party holders and their subrogated underwriters could not have known the charter party terms⁸.
By contrast, the FIO/FIOS/FIOST terms mentioned in the Bills of Lading are opposable to the third party holders of the Bills of Lading without being necessary for the latter to have specifically expressed their willingness to accept it⁹.
In the French jurisprudence it is considered that the purpose of FIO/FIOS/FIOST clause mentioned on the front page of the Bills of Lading is to state that the carrier will not assume the responsibility and liability for the loading and discharging operations and to make the shipper responsible for the loading operations and the consignee for the discharging operations¹⁰. The "Free Out" clause shifts to the consignee not only the cost of discharging operations but also the responsibilities arising from the task¹¹. Therefore, it exonerates the carrier from liability for any part of the cargo lost or damaged during the discharging operation.
By mentioning the FIO/FIOS/FIOST terms on the front page of the Bills of Lading, the carriers of grain cargoes comply with the rule adopted in the French jurisprudence. In order to comply with both French and English rules, the carrier`s agents should mention in the Bills of Lading in addition to the FIO/FIOS/FIOST terms that the carrier`s responsibility for the cargo shall cease at the time when the stevedores appointed by the consignee begin the discharging operation and that the stevedores at the discharge port are the servants of the consignee or at least include such provisions in the charter party incorporated in the Bills of Lading.

by Vlad Cioarec, International Trade Consultant

This article has been published in Commoditylaw`s Grain Trade Review Edition No. 8.

Endnotes:

1. See CAMP Award no. 1158/2008
2. See Jindal Iron and Steel Co. Ltd., TCI Trans Commodities AG and Hiansa S.A. v. Islamic Solidarity Shipping Co. Jordan Inc. (The "Jordan II"), [2003] EWCA Civ. 144; [2003] 2 Lloyd`s Rep. 87. The English Court of Appeal held that FIOST is simply a "who is to pay" provision. The word "Free" means free of expense and not free of expense and responsibility.
3. [2020] EWHC 2030 (Comm), [2021] Lloyd`s Rep Plus 21.
4. [2003] EWCA Civ. 144; [2003] 2 Lloyd`s Rep. 87.
5. [2015] EWHC 1747 (Comm), [2015] 2 Lloyd`s Rep. 395.
6. See CAMP Award no. 999/ 2 February 1999 and CAMP Award no. 1240/ 19 September 2018.
7. See CAMP Award no. 1240/ 19 September 2018.
8. See CAMP Award no. 1157/ 8 November 2008 and CAMP Award no. 1211/ 9 August 2013.
9. See CAMP Award no. 1123/ 24 December 2005.
10. See CAMP Award no. 1123/ 24 December 2005.
11. See the 1996 decision of the Marseilles Commercial Court in The "World Apollo" case.