The Purpose Of Liberty Clauses And Statements About Transhipment In The Bills Of Lading Issued For Containerised Goods
For the carriage of containerised goods over long routes the container shipping lines use the so-called "relay system" whereby in function of the route, two, three or more vessels may be used. The large container ships operate only between large ports such as New York, Rotterdam and Hong Kong. The carriage of containers from the small local ports to and from the regional transhipment hub port is made by feeder vessels operated by regional carriers.
The use of relay system in container shipping was described by the US District Court of New York in Parnass International Trade & Oil v. Sea-Land Service1 in the following passage:
"Sea-Land, as apparently with several large container ocean carriers, uses a relay system in which the first vessel is the line-haul vessel or the mother ship. This line-haul vessel carries the cargo transocean to a major relay point. At the relay point the cargo of the line-haul vessel is discharged to other smaller vessels, commonly labeled feeder vessels. These feeder vessels then carry the cargo to the discharge destination or to a second relay port and another feeder vessel.
In the instant case, plaintiffs` cargo was carried by the line-haul vessels “Venture” and “Producer”, from Houston to the first relay point, Rotterdam, Netherlands. … The cargo was thereafter discharged from the line-haul vessels and loaded onto a feeder vessel the S.S. S/L Pioneer which left Rotterdam on July 11, 1980, and arrived in Algeciras, Spain on July 15, 1980. The cargo was again off-loaded in Algeciras and loaded aboard the feeder vessel the “Panarea” [for on-carriage to Piraeus]."
The case was a claim for late delivery and unreasonable deviation, the consignee saying that it was not aware of the carrier`s relay system. On the question of late delivery, the Court found that the delay was caused not by the use of relay system but by a strike at the port of discharge, Piraeus. As to the question of whether the carrier`s relay system constituted an unreasonable deviation, the Court held that it was not and that the use of the relay system constituted a custom of trade in container shipping. The relevant passage is quoted below:
"A majority of the ocean going carriers apparently use such a relay system. This system permits the efficient shipment of cargo to various widespread destinations. If the line-haul vessel called at all ports for which they carried the cargo, the cargo obviously destined for later points would take a far longer time to reach their destination. This system permits the cargo to reach their destinations quickly and all approximately in the same period of time."
Another relevant rule adopted in that case was that even if the Bill of Lading does not have a statement about transhipment, where the Bill of Lading`s terms of conditions includes a properly worded "liberty clause"2 3 the transhipment of containerised goods at intermediate ports does not constitute an unreasonable deviation from the terms of Bill of Lading, if there is evidence that the claimant knew or it was made aware that the cargo will be transhipped during the sea carriage4. This rule was upheld in 1995 in another US law case involving the same carrier Yang Machine Tool Co. v. Sea-Land Service, Inc.5. The case was a claim for damage and unreasonable deviation for a shipment from China to California via Yokohama, Japan where the cargo was transhipped. From China to Yokohama the cargo was transported by the vessel "Merchant Prince" and therefrom to California by the vessel "Sea-Land Patriot". During the loading onto the vessel "Sea-Land Patriot" the cargo was damaged. The Bill of Lading identified only the vessel "Merchant Prince" as the carrying vessel with no mention about the port of transhipment or connecting vessel. The shipper made a claim against the carrier Sea-Land to recover the value of damaged goods, saying that it was led to believe that the vessel "Merchant Prince" would sail through to California and the cargo would remain on board that vessel.
The carrier provided evidence that the shipper had contracted with Sea-Land for shipments of cargo over 100 times prior to that occasion and knew that cargoes were transhipped at intermediate ports. In such circumstances, the US Court of Appeals for the Ninth Circuit held that the Bill of Lading`s liberty clause provided sufficient notice of the carrier`s right to use substitute vessels for part of the carriage this encompassing the right to tranship.
Based on these Court decisions, the major shipping lines are confident that their liberty clauses protect them against potential claims for unreasonable deviation and usually do not state in their Bills of Lading that the cargo will be transhipped, the port(s) of transhipment, the feeder or connecting vessels. References to connecting vessels and intended transhipment can hardly be found these days in the Bills of Lading issued by container shipping lines.
However, there are situations when the failure to state on the face of the Bill of Lading that the cargo will be transhipped would be considered a misrepresentation. An example of such situation was the English law case Sabo S.A. v. United Arab Shipping Co6.
The shipper SABO agreed with Makkah Estate a company in Saudi Arabia to supply machines stuffed in containers on a CIF Jeddah delivery terms. The payment was agreed to be made by letter of credit on presentation of shipping documents including the Bill of Lading, insurance policy and a certificate to be issued and signed by the owner, agent, master or shipping company setting out the details of the vessel upon which the cargo was carried and stating the ports of call en route to Saudi Arabia. However, the certificate was not required if shipment was effected by the United Arab Shipping Company or National Shipping Company of Saudi Arabia, provided that they identified themselves in the Bill of Lading as the carrier. To comply with this requirement the shipper agreed to have the cargo transported by United Arab Shipping Company.
The letter of credit specifically stated that transhipment was not allowed.
The cargo stuffed in containers was loaded on board the feeder vessel "Carl Metz" at Piraeus for pre-carriage to Gioia Tauro where the containers had to be transhipped for re-loading on board the vessel "Al Sabahia" of United Arab Shipping Company and carriage to Jeddah.
In order to comply with the letter of credit terms that forbade transhipment7, Hellenic Shipping Agencies Limited, the Piraeus agency of the shipping line United Arab Shipping Company issued a Bill of Lading stating only the port of loading, port of discharge and the vessel "Al Sabahia". There were no references to the pre-carriage by feeder vessel "Carl Metz" or any notation that the cargo was to be transhipped at Gioia Tauro. Based on the information provided by the shipper and Bill of Lading terms, the insurance policy named only the vessel operated by shipping line, "Al Sabahia" and covered the transit of the goods between Vassiliko and Jeddah, with no mention about the pre-carriage made by the feeder vessel "Carl Metz" from Piraeus to Gioia Tauro or about transhipment at Gioia Tauro.
On arrival at the port of transhipment the feeder vessel "Carl Metz" grounded. After the salvage, the salvors exercised a lien and demanded salvage security. When the shipper asked the cargo insurer to provide such security the latter refused on the ground that the insurance policy did not cover the voyage of the feeder vessel "Carl Metz" from Piraeus to Gioia Tauro.
When the feeder vessel grounded, the cargo was damaged by sea water. After being told of the cargo damage at port of transhipment, the CIF buyer was no longer interested to pay for the transport and insurance documents.
The shipper Sabo S.A. sued the shipping line United Arab Shipping Company claiming that United Arab Shipping Company, through its agent Hellenic Shipping Agencies Limited, misrepresented the position to it in the making of arrangements for the carriage of the goods because it stated that there would be no transhipment, thereby inducing it to enter into a contract of carriage with United Arab Shipping Company and to effect an insurance policy, which due to misrepresentation was unenforceable.
The English High Court held that the carrier`s failure to state in the Bill of Lading about the part of carriage performed by the feeder vessel "Carl Metz" and transhipment at Gioia Tauro could have constituted a misrepresentation insofar as it was intended to deceive the issuing bank and the CIF buyer who agreed to pay under letter of credit subject to the condition that there would be no transhipment and could not have known that the carrier did not operate a direct line between Piraeus and Jeddah. Had the issuing bank and CIF buyer paid against the Bill of Lading and then made a claim for misrepresentation against the carrier, the carrier might have been liable for the full value of such claim.
Given the risk of being sued for delay, deviation or misrepresentation, the regional carriers and NVOCCs made statements about transhipment in their Bills of Lading. An example of such statement is presented in the US law case Marcraft Clothes v. M/V Kurobe Maru8. The case was a claim for damage and unreasonable deviation for a shipment of containerised goods from Busan, Korea to New York via Kobe, Japan where the containers were transhipped. The Bill of Lading stated the name of feeder vessel in the "pre-carriage" box separate from ocean vessel, while the port of transhipment was indicated along with the port of loading in the "port of loading" box with the following words: "BUSAN, KOREA FOR T/S AT KOBE"9. The US District Court of New York said that the Bill of Lading indicated clearly enough both feeder and mother vessels and the ports of initial loading and transhipment so that the contracting carrier was entitled to benefit from the limits of liability per package set by COGSA.
Other examples of statements about transhipment are presented in Commoditylaw`s Coffee & Cocoa Trade Review Edition No. 1.
Sometimes the name of line-haul vessel is accompanied by the statements "intended to connect" and "or substitution", because the feeder vessel may not arrive in time at the port of transhipment and thus fail to connect with the line-haul vessel named in the Bill of Lading.
by Vlad Cioarec, International Trade Consultant
This article has been published in Commoditylaw`s Coffee & Cocoa Trade Review Edition No. 1.
Endnotes:
1. 595 F. Supp. 153 (S.D.N.Y. 1984)
2. The liberty clause is a Bill of Lading clause giving the carrier the right to proceed by any route and to tranship the containerised goods from one vessel to another at any port. The liberty clause is commonly included by the container shipping lines in their Bills of Lading`s terms and conditions.
3. Clause 4 of Sea-Land Bill of Lading`s terms and conditions had the following provisions: "It is specifically agreed, without any limitation of the foregoing, that all goods, containers, trailers, or vans may be transferred, transhipped, and carried on several vessels en route in the port of shipment to the port of destination and such transfer, transhipment or change in vessel shall not constitute a deviation; and such transfers and transhipments on various vessels is contemplated, and anticipated by the shipper and owner of the goods."
4. The Greek shipping agent of Sea-Land testified that the consignee Parnass International Trade & Oil was made aware of Sea-Land`s relay system and had dealt with Sea-Land on previous occasions in which Sea-Land had utilized its relay system.
5. 58 F.3d 1350 (9th Cir. 1995)
6. [2005] EWHC 307 (Comm)
7. However, see the provisions of art.20 (c) (ii) which stipulate that: "A bill of lading indicating that transhipment will or may take place is acceptable, even if the credit prohibits transhipment, if the goods have been shipped in a container, ... as evidenced by the bill of lading."
8. 575 F. Supp. 239 (S.D.N.Y. 1983)
9. Hyundai Merchant Marine`s Bills of Lading are issued with such statements.