Identity of Carrier, Validity of Demise/Identity clause and The Starsin

1. Identity of the Parties to the BOL

Unlike other commercial contracts where the identity of parties is clearly stated in preliminary clause, the identity of parties is subject matter of argument in carriage contracts due to inherent nature of passing goods during the transit and also due to parties involved as ‘carrier’. The party who contracts may actually carry the goods himself or make someone else carry them as happens in charterer’s BOL when charterer issues BOL whereas the party who actually carries the goods is actual carrier. 

1.1. Who is liable?

The Hague Visby Rules (HVR) contains several provisions(1) wherein the ‘carrier’ as well as ‘ship’ are responsible towards cargo for breach of duties. To claim against charterer or shipowner, cargo-claimants must know who will fall under definition of ‘carrier’. Traditionally recourses are available against two defendants: (i) Carrier and (ii) ship. The HVR articles implies that both carrier and ship can be made defendants for the cargo claims as concluded from reading of the article III (6) by stating “the carrier and the ship shall in any event be discharged from all liability” and similar terms used in article III (8), IV (1), IV (2), IV (5)(a), IV (5)(e) and IV (5)(h). 

With the advent of time charter practice, the concept of contractual carrier has become relevant. If the vessel was under charter, the contractual carrier is charterer and actual carrier is often the shipowner. Previously, master signed the BOL as the employee and on behalf of shipowner. Nowadays, the master may sign the BOL as charterer’s agent as agreed under charterparty between shipowner and charterer. If the BOL is signed by or on behalf of master, it is owner’s BOL as the master is considered as acting on behalf of owner even if there is provision in charterparty stating master signs BOL as agent of charterer. The reason for such interpretation is that even when charterparty lays down provision stipulating that master signs BOL as agent of charterer and thus charterparty grants master actual authority to sign BOL on behalf of charterer, it cannot create apparent authority vis-à-vis third party who is not aware about terms of charterparty as the charter cannot constitute ‘holding out’ to the independent party. The master is considered agent of the shipowner even when the name of the charterer appears on BOL form as adjudicated in The Berkshire(2) by Brandon J. Further, even when time or voyage charterer has signed as “agent for master”, the owner was held liable as the master is considered agent of owner.(3)

The imperative question is whether the carrier who actually carries goods is ‘carrier’ or only one who contracts with shipper or both can be considered ‘carrier’ under HVR?

1.2. Identity of Carrier 

Article I (a) of HVR defines ‘carrier’ as “Carrier includes the owner or the charterer who enters into a contract of carriage with a shipper.” Therefore, two interrelated issues arise: (i) the interpretation of the contractual term as to identity of the carrier; and (ii) whether the person so identified authorized the issuance of BOL on their behalf. If the BOL is owner’s BOL the arrest of vessel provides security for cargo claims whereas charterer may be entity with no assets of its own. There can be circumstances when charterer or shipowner becomes bankrupt, can the cargo interest claim against other? Thus, in general interest of cargo-claimants it is advocated that ‘joint liability’ of charterer and shipowner must be considered as ruled by courts in other countries where the Rules ( International Convention for the Unification of Certain Rules of Law relating to Bills of Lading and Protocol of Signature (Brussels, 25 August 1924) (Hague Rules) and the Hague Rules as amended by the Brussels Protocol 1968 (Hague Visby Rules/ HVR) collectively referred to as ‘the Rules’) applies.  

The most common conflict seen in BOL form is signature by charterer or its agent in signature box on front side of BOL and reverse side pre-printed terms stating under identity clause or demise clause that the owner is the ‘carrier’. To determine who is ‘carrier’ courts often tries to identify whether the BOL is charterer’s or owner’s BOL. The key English court authorities often discussed are The Berkshire, The Hector,(4) The Flecha,(5) and The Starsin.(6) In The Berskshire, (The cargo-claimant sued shipowner for damaged goods which was discharged enroute to other vessel not owned by shipowner and such transshipment was considered in breach of the contract.) the charterer who signed and issued the BOL was not held liable due to demise clause which stated that except for demise charter by charterer, the BOL should form a contract between shipowner and shipper. Thus, Brandon J. ruled that the BOL evidenced a contract between shipper and shipowner (7) although it must be noted that charterer was not party to the suit and thus the wordings of court pertaining to charterer must be considered obiter.(8) Consequently, the issue on whether the charterer can be held ‘carrier’ because the charterer’s name was on top of the BOL considering that the charterer did perform the duties of carrier such as loading, discharging, etc. remained unanswered. In The Flecha, Moore Bick J. decided again in similar lines of The Berkshire as it was unusual to describe a liner company loosely as carrier.(9) 

In The Hector, the BOL was issued by an agent “for and on behalf of the Master” containing identity clause providing shipowner as carrier but had typewritten words on its face as “Carrier: US Express Lines” who was time charterer. Rix J. decided differently and held USEL is only party identified expressly by name in BOL and although the identity clause names shipowner and despite general rule of BOL signed by master or its agent is considered owner’s BOL, expression “carrier” on front of BOL was “in which the party with the obligations to carry out the bill of lading contract is clothed.”(10) Thus specifically typed USEL as carrier was ruled as superseding the identity of carrier clause.

Finally, the issue was decided in The Starsin. BOL was issued and signed by agents of charterers “as agents for Continental Pacific Shipping” who was time charterer. Clause 1 of BOL defined carrier “as the party on whose behalf the bill of lading was signed”. Colman J. in commercial court, considering The Hector, reasoned that the shipper as commercial men would not assume that the BOL is signed by master or on his behalf when the signature box contains agent of charterer as carrier.(11) However, court of appeal(12) was divided on the issue and majority agreed with The Flecha whereas Rix LJ. in his persuasive dissent agreed with commercial court and The Hector. The House of Lords ruled in agreement with commercial court’s view and Rix LJ.’s dissent by overruling the court of appeal judgment. The demise and identity clause identifying carrier on reverse side was ruled to be superseded by signature box on the face of BOL contemplating how commercial men would read the documents and identify the ‘carrier’ as one stated in signature box on face of the BOL and not printed boilerplate clause on reverse side of BOL.(13)

2. Joint Liability of Shipowner and Charterer

In ‘The Starsin’, the charterer was bankrupt, and thus the cargo owner sought to recover the damages from owner however the attempt failed as charterer was ruled as carrier for above mentioned reason and the issue of bailment was not raised. The problem for cargo-claimants still remains if charterer or shipowner is bankrupt and the bankrupt party is ruled to be ‘carrier’. Courts must consider the fact that to permit the actual carrier to escape the liabilities under the HVR because he did not sign the BOL, is to permit the avoidance of carrier’s liabilities contrary to article III (8) of HVR. Out of four issues(14) in The Starsin, such interpretation on first issue on identity of carrier made ruling on atleast two out of three other issues a twisted task. The shipowner and charterer share responsibility to load, carry, care for goods and discharge goods and so they both should be ‘carrier’ in respect of third parties as permitting them to stipulate that only one is ‘carrier’ and no other through the contract between them or with shipper indirectly through BOL as “one who signs it” is the form of non-responsibility clause which is prohibited under article III (8) of HVR. To deal with this kind of non-responsibility clause or interpretation Tetley in his works(15) suggest “joint responsibility of both owner and charterer”.

To explore more on joint liability the provisions of the Rules, judgment in The Starsin and international interpterion of identity clause and conventions applicable are considered.

2.1. Interpretation of Hague Rules/HVR

The Rules must be interpreted considering its international application in the maritime trade world.(16) Lord Macmillan in Stag Line v. Foscolo, Mango & Co.,(17) stated that in the interest of uniformity the Rules should not be rigidly controlled by domestic precedents but should be construed on broad principles of general acceptation.(18)

The Rules are undeniably adopted to promote international uniformity in maritime trade and accordingly the courts must consider foreign judgments while interpreting the convention of international application.

2.2. Validity of identity or demise clause

The demise clause and identity clause are argued to be invalid in various Canadian and American cases which issue was not raised before any court in The Starsin. The three cases relevant are discussed here to see the Canadian court’s standpoint. American courts have also declared ‘demise clause’ invalid citing American COGSA sections read with article III (8) hence they are not discussed here. In 1993, Reed J. of Federal Court of Canada (FC) in The Lara S.(19) recognized the carriage of goods as a joint venture between the charterer and the owner and held the charterer and the owner jointly and severally liable as carrier on the rationale of master of vessel supervising the stowage operations and conduct of the voyage, weather the vessel encounters and thus it seems appropriate to hold master and therefore shipowner liable jointly with charterer for the damage arising out of inadequate stowage. Conversely, later judgments both in 1998 by FC in Union Carbide(20) and Jian Sheng(21) rejected Reed J.’s view of joint liability and upheld the demise clause. Both judgments disregarded joint liability. Nadon J. in Union Carbide stated that the definition of carrier in HVR Article I (a) has word “or” which must be read disjunctively.(22) However, Nadon J. made no comment on the reasoning of Reed J. based on article III (8) imperative application or public order for avoiding compulsory legislation which is essence of Reed J.’s judgement on joint liability. In Jian Sheng, the trial court upheld ‘joint liability’ but FC reversed trial court’s judgement and maintained validity of identity clause. In appeal, Federal Court of Appeal, ruled identity clause as valid on ground of acceptance of such clause by parties as general presumption stating, “such law is freely adhered to by parties.” This statement is questionable as BOL is issued by one party when the goods are loaded and almost left the port.  

Both the above judgments stated one common reason for denial of joint venture based on lack of agreed partnership as required to form joint venture. It must be noted that it’s not ‘joint venture’ that is necessary to establish joint liability. It must only be proved that both acted as carrier whether contractual or actual to not transgress the HVR which is compulsorily applicable. Further, the definition stating “or” must not be read in isolation of entire convention. From commercial and practical perspective, the onus of establishing the relationships between numerous charterers and the shipowners should be placed on the shipowners and the charterers instead of the shipper, the consignee or the endorsee who are innocent third parties.(23)

2.3. The Starsin 

2.3.1.Rix LJ. discussed joint liability

Rix LJ. discussed under his dissent in appeal “Another possibility: owners liable as well as charterers?”(24) Rix LJ. states that there do not have to be white and black choices between charterer and shipowner and cites Scrutton which elaborates undisclosed principle concept being applicable on bill of lading to make shipowner liable. The Scrutton’s 1974, eighteenth edition, is cited “the charterer has authority to contract on behalf of the shipowner, it may be that the holder of the bill of lading can sue the shipowner upon it as an undisclosed principal.”(25)

Rix LJ. considered the arguments that charterer’s agent signed BOL on behalf of charterer instead of “on behalf of masters” when charterer or its agent were infact agent of owner to issue BOL “on behalf of master” as authorized under identity and demise clause and Colman J from Queen’s bench, commercial court found ostensible authority.(26) Rix LJ. discussed the agency issue under which the owner could have been liable as undisclosed agent, as owner argued on issuance of BOL as unauthorized and not binding for being issued outside the authority granted. 

The owner’s counsel submitted four important points “(i) the bills were in fact unauthorised, inter alia because the authority given under clause 33 of the time charter was for CPS or their agents to sign bills on the master's behalf, which was not done; (ii) the signatures were in fact for CPS as carrier and therefore there was nothing to bind the owners; (iii) the express terms of the contract, such as clauses 1(c), 33 and 35 themselves, all contemplated only one carrier; and (iv) the point was novel and inconsistent with the settled expectation of the shipping trade.(27) As per Rix LJ. the point (ii) and (iii) would not create any problem. 

There is recognized common law practice where an agent enters into a contract which names himself as the buyer or charterer, when he is in fact acting for a principal as the agent entering into charterparty without disclosing name of principle. This still makes the undisclosed principle personally bound and other party may sue principal directly on discovering about principal’s existence.(28)

Unfortunately, Rix LJ., did not elaborate as the points were not argued and arisen from enquiry from bench and did not form part of formal appeal so there was no opportunity of debate and was reluctant to take a decision based upon it.(29)

2.3.2.UCP 500

Article 23(a)(i) of Uniform Customs and Practice for Documentary Credits, 1993 (UCP 500) was relied upon to conclude that the charterer was the carrier, despite the contradictory wording of the demise and identity-of-carrier clauses. The argument by cargo owners of UCP being irrelevant, for being used to determine terms of letter of credit and not for interpretation between BOL parties, was rejected stating it shows “if the conditions for identifying the carrier have been satisfied”.(30) This is not relevant as banks use BOL as document of title and not as carriage contract. UCP 500 is used for banking purpose and therefore it is not appropriate to rely on its provision as it does not regulate relation between BOL parties. Identification of ‘carrier’ is not the basic function of UCP 500 to rely on for identifying ‘carrier’ as required under HVR.

2.3.3.Other issues

The validity of the demise or identity clause vis-à-vis article III (8) was not discussed in The Starsin. Himalaya clause(31) was characterized as collateral contract between shipper and exempted parties. Collateral contract was stated to be between shipper and owner as “independent contractor” and as contract of exemption rather than as bill of lading or contract of carriage under Hague Rules.(32) However, shipowner who is held as “independent contractor” were not upheld entitled to the exemption under ‘Himalaya clause’ subject to article III (8) which applies to carrier or parties to contract of carriage. The reason for partly applying Hague Rules just because the independent contractor is also the ‘shipowner’ is not stated in the ruling. To grant the benefit of exemption under “contract of exemption” in form of Himalaya clause, the court ruled that shipowner was still not subject to positive applications under article III (1) and (2). Lord Steyn backed exemption of shipowner under Himalaya clause. All other Lords relied on partial application of Hague Rules as the clause applied to ‘shipowner’. Thus, “the Lords in effect declared their “non-carrier shipowner” was a “little bit a carrier” and the non-responsibility clause was invalid under article 3(8) of the Hague Rules (the same article 3(8) they did not apply to invalidate the demise and identity of carrier clauses.) Had the courts chosen to expand the definition of “a carrier,” this would have eliminated the need for the legal gymnastics employed by the House of Lords in The Starsin.”(33)

Conclusion

Considering the confusion over identity of “carrier”, the courts must interpret the Rules in consideration of promoting international uniformity(34) and consider joint liability of charterer and shipowner. This is to ascertain that carrier who carries or shares responsibilities of carrier jointly with other does not escapes his liability indirectly in violation of article III (8) through restricted definition and interpretation of term ‘carrier’ or through clauses such as ‘demise clause’ or ‘identity of carrier’ clause. Such clauses basically act as contract relieving one of the parties performing as ‘carrier’ from his liabilities leaving the difficult onus of proving who is ‘carrier’ on the shipper or the third party. Thus, claim must be allowed against both and they can settle such claim between themselves in indemnity claim.(35)

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(1) Article III (1) carry due diligence for making vessel seaworthy; Article III.

(2) Duty to “properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried”; etc. (2) The Berkshire, [1974] 1 Lloyd's Rep. 185, 188.

(3) Tillmanns & Co. v. S.S. Knutsford Ltd. [1908] 1 K.B. 185.

(4) Sunrise Maritime Inc. v. Uvisco Ltd. (The Hector) [1998] 2 Lloyd’s Rep. 287.

(5) Fetim B.V. And Others v. Oceanspeed Shipping Ltd. (The Flecha) [1999] 1 Lloyd’s Rep. 612.

(6) Homburg Houtimport B.V.v. Agrosin Private Ltd. And Others (The Starsin UKHL) [2003] 1 Lloyd's Rep. 571.

(7) The Berkshire (n 2) 189.

(8)William Tetley, Marine Cargo Claims, (4th Edn. Vol. 1, Thomson Carswell, 2008) 607

(9) The Flecha (n 5) 618.

(10) The Hector (n 4) 294.

(11) Homburg Houtimport B.V 1997 Folio 93 v Agrosin Private Ltd. And Others (The Starsin CC) [2000] 1 Lloyd's Rep. 85, 93.

(12) Homburg Houtimport B.V 1997 Folio 93 v Agrosin Private Ltd. And Others (The Starsin CA) [2001] 1 Lloyd's Rep. 437.

(13) The Starsin UKHL (n 6), [576 – 579] (Lord Bingham), [583-584] (Lord Steyn), [586 – 590] (Lord Hoffmann), [596 – 597] (Lord Hobhouse), [613 – 615] (Lord Millett).

(14) (1) Who is the “carrier”? (2) Whether shipowner can claim benefit under Himalaya clause? (3) Whether claimant has right to claim in tort from the shipowner (non-carrier)? and (4) could the cargo owners have claimed in bailment?

(15) Tetley, Marine Cargo Claims (n 8) 568; William Tetley, ‘Bills of Lading’, (2004) 35 Journal of Maritime Law & Commerce 121

(16) ibid

(17) [1932] A.C. 328.

(18) ibid 350.

(19) Canastrand Industries Ltd. v. The Lara S., [1993] 2 F.C. 553.

(20) Union Carbide Corp. v. Fednav Ltd., (1998) 131 F.T.R. 241.

(21) Jian Sheng Co. v. Great Tempo S.A. (1998) 225 N.R. 140.

(22) Union Carbide (n 20) 264 – 265.

(23) William Tetley, ‘Bills of Lading’, (2004) 35 Journal of Maritime Law & Commerce 121, 123

(24) The Starsin CA (n 12) 451.

(25) ibid

(26) The Starsin CA (n 12) [72].

(27) ibid [73].

(28) Carver’s, Carriage by Sea, (Edited by Raoul Colinvaux, 13th Edn. Vol 1 & 2, London Stevens & Sons 1982), See Deviation and Delay, para 603

(29) The Starsin CA (n 12) 451.

(30) The Starsin UKHL (n 6) [79].

(30) The Starsin UKHL (n 6) [79].

(31) Clause providing exemption from liability to agents of carrier. 92

(32) The Starsin UKHL (n 6) [201 – 206].

(33) Tetley, ‘Bills of Lading’ (n 23) 130

(34) The Lara S. (n 19)

(35) Tetley, Marine Cargo Claims (n 8) 568; Tetley, ‘Bills of Lading’ (n 23)

Note: This research was part of my LLM (Commercial & Corporate Law) dissertation on Delay Claims by Cargo Interest. Considering the international application of the Rules and practical difficulties of cargo interest, the claim against only one party as carrier is rendering the access to remedies impractical. Therefore, the research was to comprehend "can the cargo-claimant make charterer as well as shipowner jointly and severally liable as ‘carrier’?" I am happy to state that I was able to score distinction in the dissertation on the topic.

I hope you found this information useful. I will be happy to hear your views on applicability of joint liability of shipowner and charterer, interpretation of Starsin and HVR in general.