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RIGHTS AND OBLIGATION OF PARTIES UNDER THE CONTRACT OF CARRIAGE OF GOODS BY SEA



ABSTRACT

Transportation is an integral factor in international trade and the contract of carriage of goods by sea, forms part of the complex web of transactions witnessed at international trade.  The purpose of this project is to illuminate the nature and the inherent features present in the contract of Carriage of Goods by Sea and to also highlight the rights as well as the duties owed by the parties.  It also seeks to point the obligations the law imposes on the parties as well as the liabilities they would incur on the event of breach in this form of contract.


CHAPTER ONE

 

THE NATURE OF THE CONTRACT OF CARRIAGE OF GOODS BY SEA

 

1.1   INTRODUCTION

Man has always been by his nature an interactive and interdependent being, and trade has been one of those means by which he interacts and shows his interdependency.  He engages in the exchange of goods and services for a valuable consideration.

The concept of international trade[1] is not new to man, only that here, this form of exchange seems to resonate on a much broader platform involving a complex web of structures and processes which makes this sort of transaction possible and one of this structure is the carriage of goods by sea, thus it is important to point out that, this form of transportation of goods is not only vital to international trade, but it also forms an integral part of it, that the absence it would make international trade very difficult to undertake.

Though our focus is the rights and obligations of parties under the carriage of goods by sea, full appreciation of this rights and duties will not be attained, if some attention is not given to highlight the nature of this form of transaction.

1.2   DEFINITION

The contract of carriage of goods by sea can easily be seen as a contract involving two parties who for an agreed sum agree to be bound by the terms reached by them. But this definition may be very misleading, for though the contract of carriage involve this important element it is not the same as the usual contracts reached and agreed by parties. 

Perhaps looking at some definitions posed by some authorities, more light would be shed on the nature of this kind of contract. Clive M. Schmitthoff[2] tried to give a vivid description as to the nature of this contract, here he said that a contract of carriage entails a situation where an exporter concludes with a ship owner to carry goods in his ship from one port to another, usually overseas, such contract is known as the contract of carriage by sea[3].  R.M. Goode[4] on the other hand sees a contract of carriage involving two parties the shipper[5] and the carrier.[6]  The shipper is the person to whom the carrier undertakes the duty of transporting the goods.

Black’s Law Dictionary[7] defines it as an agreement for carriage of goods by water, which may employ a bill of lading, a charter party or both to ship goods.

Finally, Article 1 Carriage of Goods By Sea Act[8] defines contract of carriage as those that:

“Apply only to contracts covered by a bill of lading or any similar document of title, in so far as such document relates to the carriage of goods by sea, including any bill of lading or any similar document as aforesaid issued under a pursuant to a charter party from the moment at which such bill of lading or similar document of title regulates the relations between a carrier and a holder of the same”.

1.3       THE DISTINCTION BETWEEN CONTRACT OF CARRIAGE OF GOODS BY SEA FROM OTHER CONTRACTS

 

Usually, under all common law jurisdictions, parties to a contract are primarily the buyer and the seller, who for a consideration would accept to be bound by the agreement reached between both parties, of which liability would accrue from the breach of the said agreement, C.M. Schmitthoff[9] drew our attention to the fact that:

“…A contract is an agreement which will be enforced by the law… there must be at least two parties to an agreement.  One of them will make an offer and the other will indicate its acceptance.  When offer and acceptance correspond in every respect there is an agreement between the parties”.

Comparing this definition with the contract of carriage of goods by sea, we see a marked difference.  Here, unlike in former, the contract is not a contract between the buyer and seller, rather it is between the shipper and the carrier, who conveys the goods to the said destination.  In carriage of goods by sea the shipper could either be the buyer or seller in a usual contract, who depending on the agreement reached may be saddled with the responsibility of entering into a contract with the carrier to convey the goods to a said destination agreed upon by both parties.[10]

Still looking at the distinction, we see further that unlike in a contract where the parties involved are usually two in number, in a contract of carriage of goods by sea the reverse is the case.  This involves several parties whose role (directly or indirectly) can not be undermined.  For example, we have the shipper and the carrier who are primary parties to the transaction, also we have the agents of both parties who can act in position of the principal.  We also have financial institutions[11], such as the banks who are most often times directly involved in his form of contract and also the insurance companies whose role cannot be ignored, especially when taking into cognizance the level of risk involved in this form of transaction.

1.4   TYPES OF CONTRACT OF CARRIAGE

There are two types of contract of carriage:

i.      Charter party

ii.     Bill of Lading

Charter Party

According to Chuah[12] where the shipper intending to ship goods, wants the use of an entire vessel for that purpose, he might wish to enter into a direct contract of carriage with the ship owner, for the charter of the latter’s ship.  This transaction is known as a charter party.  Here the charterer pays freight in exchange for use of the ship.  Another authority[13] sees a charter party

as a contract for the hire of an entire ship for a specified voyage or period of time.  It is important to point out that a charter party is not subject to the Carriage of Goods Act or any other statute.  It is principally governed by the rule of common law and thus the parties are free to make any term as they wish.[14]

Bill of Lading

In circumstances where bills of lading[15] are used, usually what we see in this case is the shipper of goods not wishing to contract for the entire ship, but rather some cargo space on board.  Here he contracts with either the ship owners or the charterer, depending on the arrangement.  In cases were the latter’s applicable, the parties are not bound by the Carriage of Goods by sea Act, as already enunciated above.  But where parties to the contract reach an agreement, the trade usage in such instances is that the shipper receives a bill of lading from the carrier as evidence of the shipment contract.[16]

A bill of lading, is a document which states that certain specified goods have been shipped in a particular ship and which purports to set out the terms on which the goods have been delivered to and received by the ship.[17]

It is common practice for carriers to convey various cargoes for different shippers, in the sense the ship is said to be employed as a general ship under different bills of lading, this is in sharp contrast with the charter party where to whole ship is more often than not in the control of the charterer, who may decide whether or not to adopt the use of the bill of lading in their transactions.

It is impertinent to point out however, that this document is very important and in the eyes of the law it

is seen as such, been that in everyday international sale transactions, it possesses various functions which include:

(a)    Receipt

A bill of lading is a receipt issued by or on behalf of the carrier, whereby he acknowledges that he has shipped the goods or received them for shipment.

(b)    Evidence of Contract

A bill of lading is also an evidence of a contract of carriage.  Here it suffices to say that the bill of lading is an evidence and not the contract itself, because under normal circumstance, the contract would have been concluded before the carrier issues a bill of lading.  Though in some circumstances the terms of the contract are usually incorporated into the contract, what usually is the case, at least as between the carrier and the shipper comments only to evidence of contract of carriage.[18]

(c)    Document of Title

From the back drop of mercantile practice, the bill of lading is seen as symbol by the law of the merchant and universally accepted as such, that the endorsement and delivery of bill of lading operates as a symbolical delivery of the cargo.[19]  Some view this as perhaps the most important function of the bill of lading in that for many purposes possession of a bill is equivalent in law to possession of the goods.[20]  Therefore, merely presenting an original bill of lading the carrier must deliver the goods to the holder at the port of destination.  According to Ivamy,[21] the ability to transfer property rights in goods by the mere transfer of a document is the keystone of international trade practice and the bill of lading was long recognized by the courts, following mercantile usage as having this quality.

The rationale of this statement was aptly pointed by Egbuna J. (as he then was) in Okoronkwo v. Standard Bank of Nigeria Ltd.[22] Where he states that:

“… A cargo at sea while in the hands of the carrier is necessarily incapable of physical delivery.  During this period of transit and voyage, the bill of lading by the law of merchant, is universally recognized as its symbol and the endorsement and delivery of the bill of lading operates as a symbolical delivery of the

cargo…  It is a key which in the hands of his rightful owner is intruded to unlock the door of the warehouse, floating or fixed in which the goods may chance to be”.

Thus a holder of a bill of lading can for example during transit sell and deliver the goods by merely transferring the bill of lading.  This is usually done by endorsing the bill of lading to the third party.  Thought this does not necessarily mean that delivery or endorsement of the bill of lading will inevitably pass title to the endorsee, such would depend on the intention of the parties. 

Lastly, a bill of lading is not a negotiable instrument in the strict legal sense of the term, though it resembles a negotiable instrument in that it can be transferred freely by endorsement and delivery.

It suffices to state that, parties who enter into contract of carriage of goods where a bill of lading is used as a basis of that transactions are in fact bound by the terms relating to the bill and the statute, in this case the Carriage of Goods By Sea Act[23] which regulates the obligations and liability that arises from the contract.

1.5   THE SCOPE OF THE ACT

The Carriage of Goods Act was first mentioned in September 1921 where a meeting was held at the Hague with the object of securing adoption by the countries represented of a set of rules relating to bills of lading, so that the rights and liabilities of both cargo owners as well as carriers may be subject to common rules of application.  The rules that were agreed upon became known as to Hague Rules.  This was subsequently revised and an international treaty was signed in Brussels in August 1924 adopting them.

Statutory force was given to the rules by the Carriage of Goods Act 1926.  By the provisions of this Act, the responsibilities, liabilities, rights and immunities attached to carriers and shippers under the bill of lading are governed by the Hague Rules which are set out in the schedule of the Act.[24]



[1] International Trade was defined by Encarta student 2007 Encyclopaedia as the Exchange of goods and services between nations or states.

[2] Schmitthoff, C.M. Schmitthoff’s Export Trade, the Law and Practice of International Trade, 9th Edition, London: Stevens and Sons 1990 p. 539.

[3] The Contract of Carriage of Goods by sea is also referred to as “Contract of Affreighment”.

[4] Goode R.M. Commercial Law: London. Penguin Books 1982, p. 600 and 601.

[5] Black’s Law Dictionary 8th edition: 4 Shipper is one who contracts with a carrier for the transportation of Cargo.

[6] A Carrier is an individual or organisation i.e. ship owner, that contracts to transport goods for a fee.  Also Article 1 Carriage of Goods By Sea Act gives similar definition of a shipper and carrier.

[7] Ibid.

[8] Cap C2 Laws of the Federation of Nigeria 2004.

[9] Schmitthoff C.M. and Sarve D.A.G. Charlesworth’s Mercantile Law, 19th edition.  London: Stevens and Sons p. 3, also Steven and Borrie’s Elements of Mercantile Law 16th edition. London, Butterworths 1973, p. 26.

[10] For instance in a Free On Board (F.O.B.) Contract, both the buyer and seller are considered as the shipper.  Here the seller is made to carry the cost of shipping by delivering the goods on board and providing a clean on board receipt, provide export licences, tax etc while the buyer will nominate the carrier, enter a contract of carriage and pay for freight including other cost like insurance premium.  While in a contract of cost, Insurance and Freight (C.I.F.) all the cost is laid on the seller who is considered to be a shipper.  While Free Alongside Ship (FAS), the buyer is considered as the shipper.

[11] Anifalaje J.O.:  The Role of Banks in International Trade’.  “The Law and Practice of Trade”.  Lagos, University of Lagos Press, 1992.  Edited by Agbede I.O. Uchegbu A. and Dinakin, Y. p.100.  Here he stated that the bulk of international trade in commodities is carried out through the banks and their foreign correspondents.

[12] Chuah, J.C.T. Law of International Trade. London: Sweet and Maxwell 1998, p. 163.

[13] Fogam, P.K.: “Legal Regulation of Carriage of Goods By Sea”.  The Law and Practice of International Trade.  Lagos: University of Lagos Press, 1992, p. 62.

[14] Ibid.

[15] It is said that bill of lading does not have a definition per se.  Chuah J.E.T. (Ibid) cites the rationale for the concept as that borne out of mercantile practice and not law.  Chuah J.E.T. Law of International Trade. London: Sweet and Maxwell, 1998, p. 141.

[16] Ibid.

[17] Orojo, O. “Nigerian Commercial Law and Practice, p. 415.

[18] Fogam P.K. (Ibid) points out that a bill of lading was only evidence of the contract of carriage and that the cargo owner was entitled to prove that the contract the parties had in fact made contained in term that the voyage would be direct.

[19] Sanders Bro’s V. Maclean (1883) 11 Q.B.D. p. 327.

[20] Ivamy H.E.R. Payne and Ivamy’s Carriage of Goods by Sea, 12th edition.  London: Butterworths 1985, p. 81.

[21] Ibid.

[22] (1947) N.C.L.R. 315 at p. 327.

[23] Laws of the Federation of Nigeria 2004.

[24] Foyam, P.K. Ibid pointed out that: the Hague Rules were amended by the Brussels protocol of 1968 and became known as the Hague Visby Rules.  While many countries effected a change in their laws to reflect the amendments, it would appear that Nigeria is still sticking to the Hague Rules as reflected in her Carriage of Goods by Sea Act, 1926.


RIGHTS AND OBLIGATION OF PARTIES UNDER THE CONTRACT OF CARRIAGE OF GOODS BY SEA


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