The Intended Effect Of Commingling Clause In The Charter Party Bills Of Lading Issued For Parcels Of Vegetable Oils And Biodiesel

The bulk liquid commodities shipped in parcels, such as vegetable oils or biodiesel, are typically carried in vessel`s tanks with no segregation. The Bills of Lading issued for such cargoes contain a statement that the parcel is carried in bulk commingled with other parcels with no segregation and the carrier undertakes to deliver to Bill of Lading holder only the proportion of the bulk represented by the quantity stated in the Bill of Lading. The intended effect of such statement has been explained by the Singapore High Court in the law case Samsung Corporation v. Devon Industries Sdn Bhd¹.
In that case a middleman bought parcels of soyabean oil from various suppliers in Brazil for on-sale to buyers in Bangladesh. The middleman managed to get the payment from the buyers before paying all the suppliers. One of the suppliers, Samsung Corporation sued the middleman in Singapore to recover the value of his cargo.
Samsung Corporation shipped at the Port of Rosario two parcels of soyabean oil: a parcel of 1,000 metric tonnes and a parcel of 1,500 metric tonnes. The Bills of Lading issued for the two parcels contained the following clause:

"Quantity covered by this bill of lading is part of a larger shipment loaded commingled in same tank."

The Singapore High Court held that when similar cargoes are loaded on board the vessel by different shippers and these cargoes are commingled with one another with the consent of all the shippers and it is agreed that each shipper would be entitled to demand the delivery of a quantity of the commingled cargo equal to that loaded by such shipper, each shipper of such cargoes is bound by the commingling clause. It is a well established rule of common law that where one consignment becomes unidentifiable mixed with another and the shipowner cannot be made liable for such admixture, the owners of the consignments so mixed become tenants in common of the whole commingled cargo in the proportions in which they would have severally contributed to that whole.
This rule is stated in Section 20A of the Sale of Goods Act 1979 of the United Kingdom which provides that in case of goods forming part of a bulk, once the bulk from which the goods are part of is identified and the goods paid for, each buyer of such goods becomes an owner in common of the whole of the bulk with an undivided share in the bulk equivalent to the quantity of goods paid for.
Sub-section 10.1.2 of Shell`s General Terms & Conditions for Sales and Purchases of Products, 2010 Edition has the following wording:

"In the case of delivery as a part cargo lot where the Product deliverable hereunder is not identifiable or ascertainable on board the Seller`s Vessel separately from Product destined for receivers other than the Buyer, [...] the Buyer shall be an owner in common of the bulk with the other receivers, each owning a proportion of the bulk represented by their respective bills of lading to the total quantity recorded on all the bills of lading issued in respect of the bulk."

FOSFA Contract forms contain the following clause:

"UNASCERTAINED GOODS: In every instance where a parcel of goods sold by this contract forms an unidentified part of a larger identified quantity of goods of the same description, no separation or distinction shall be necessary and, until separation and identification of the parcel sold hereby from the larger quantity has taken place, the unpaid Seller and/or the Buyer who has made payment is/are the pro rata owner(s) of the whole of the larger quantity in common with Seller(s) and Buyer(s) of the other parts of the larger quantity."

The FOSFA Contract forms for CIF deliveries of vegetable oils stipulate the following conditions for the issuance of Bills of Lading covering commingled parcels²:

"The Bill/s of Lading must identify the ship`s tank/s into which the oil is loaded but should the oil be commingled with other parcels the Bill/s of Lading must indicate the total commingled quantity."

NIOP Rule 1.3 for CFR and CIF sales of bulk vegetable oils stipulates that:

"the sellers must arrange for the carrier to indicate on bills of lading, when parcels in bulk are loaded commingled with other parcels, the total commingled quantity together with a stipulation that as near as practicable proportional delivery shall be made of the commingled parcels to the holders of respective bills of lading."

Rule 1.3 further provides that the CFR and CIF sellers are required to present for payment the Bills of Lading accompanied by a Charter Party Guarantee which guarantees to hold the Buyer harmless from any consequences which may arise from the commingling clause of the Bills of Lading.
Section 20A, sub-section 4 of the Sale of Goods Act 1979 stipulates also that:

"(4)Where the aggregate of the undivided shares of buyers in a bulk determined under subsection (3) above would at any time exceed the whole of the bulk at that time, the undivided share in the bulk of each buyer shall be reduced proportionately so that the aggregate of the undivided shares is equal to the whole bulk."

This means that if the delivered quantity will be less than the shipped quantity due to the inherent loss that occurs during the sea carriage of vegetable oil cargoes, each buyer`s share in the bulk shall be reduced proportionately and the carrier of commingled parcels will deliver to each Bill of Lading holder only that proportion of the bulk represented by the quantity stated in the Bill of Lading.
In the Vegoilvoy Charter Party form the relevant provisions are in the Sub-clause 7(g) which has the following wording:

"When shipments are to be commingled upon loading in the tanks of a vessel
- It is understood that the Vessel will carry cargoes supplied by other Charterers to be carried subject to the terms of substantially similar part-cargo charter parties.
Where the products are similar, the Vessel shall have the right to commingle such products in the tanks of the Vessel, in which case the Vessel undertakes to deliver only that proportion of the cargo actually loaded in the designated tanks which is represented by the percentage that the total amount specified in the bill of lading bears to the total of the commingled shipments delivered at destination.
Neither the Vessel nor Owner assumes any responsibility for the consequences of such commingling, nor for the separation thereof at the time of delivery."

Based on these provisions, the carriers of bulk liquid chemicals drafted commingling clauses for insertion in the Charter Party Bills of Lading when issued for parcels of vegetable oils. An example of such commingling clause is quoted below:

"This shipment of ...................... Metric Tons was loaded on board the vessel as part of one original lot of .................. Metric Tons stowed in ................. with no segregation as to parcels. The  shipment has been commingled with other parcels on board at the request, risk and liability of the shipper. Neither the vessel nor the owners assume any responsibility for the consequences of such commingling nor for the separation thereof at the time of delivery.
The vessel undertakes to deliver only that portion of the cargo actually loaded in the designated tanks which is represented by the percentage that the total amount specified in the Bill(s) of Lading bears to the total of the commingled shipments delivered at destination."

The Charter Party Bills of Lading with commingling clauses are acceptable by banks under letters of credit. ISBP paragraph G21 has the following provisions:

"A charter party bill of lading may indicate that the goods are part of a larger consignment loaded onto the named vessel by reference to "without segregation", "commingled" or words of similar effect."

by Vlad Cioarec, International Trade Consultant

This article has been published in Commoditylaw`s Biofuels Trade Review Edition No. 1.

Endnotes:

1. [1996] 1 SLR 469; [1995] SGHC 246
2. See the Clause 10 of FOSFA Contract No. 54 – Contract for Vegetable and Marine Oil (In Bulk) – CIF Terms and  Clause 11 of FOSFA Contract No. 81 – Contract for Palm and Palm Kernel Oil Products In Bulk – CIF Terms.