978-0132718974 Chapter 11 Solution Manual Part 2

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Case 11-5: Croft & Scully Co. v. M/V Skulptor Vuchetich et al.

Facts: Shippers Stevedoring (SS), a stevedoring company in the employment of Baltic Shipping,

Issues: (1) Are Himalaya Clauses valid? (2) Was the container either a “package” or a “customary

freight unit”?

Holdings: (1) Yes. (2) Not a package; may be a container.

Law: (1) Himalaya Clauses are valid in the United States. (2) The COGSA limits a carrier’s

Explanation: Because the contents of the container were described on the bill of lading (as 1,755

Order: Remanded to determine how the freight was calculated.

Time Limitations – A claim for loss or damages must be instituted within one year after the

goods were or should have been delivered. The claim may be initiated by filing suit or

commencing an arbitration proceeding.

Third-Party Rights (Himalaya Clause) – The Hague and Hague-Visby Rules apply only to the

carrier and the party or parties shipping goods under a bill of lading. Third parties who help in the

transport of the goods but who are not parties to the carriage-of-goods contract contained in the

bill of lading have no contractual right to claim the liability limits established by the conventions.

Thus, officers, crew members, agents, and brokers who work for a carrier, as well as stevedores

who commonly work for a unit of a shipping line, can be sued under local laws of tort without the

convention-imposed cap.

Carriers have added a clause to their bills of lading, known as a Himalaya Clause, which entitles

them to claim the protection of the Hague or the Hague-Visby Rules. These clauses are valid in

the United States but are generally unenforceable in the United Kingdom. Most U.K. courts

refuse to enforce the Himalaya Clause because of a doctrine known as privity of contract, which

says that only persons who are a party to a contract may enforce its provisions.

Charterparties

A charterparty is a contract for the hire of an entire ship for a particular voyage or a set period of

time. The Hague and Hague-Visby Rules do not apply to charterparties unless a bill of lading

issued by the shipowner comes into the hands of a third party.

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The charterer and the owner are free to set the terms of their contract, and commonly they use

standardized contracts drafted at various conferences and known by such code names as Baltime

and Gencon. Interpretations and legal obligations vary from country to country, so a forum

selection clause and a choice-of-law clause are common, and important, provisions.

Voyage Charterparties – When a charterer employs a ship and its crew for the carriage of goods

from one place to another, the charterer and shipowner have entered into a voyage charterparty,

under which the owner agrees to provide the ship at a named port at a specified time and to carry

the goods to the contract destination.

The charterer agrees to provide a full cargo and to arrange for its loading at an agreed-upon time.

If less than a full load is provided, the shipowner is entitled to charge dead freight for the amount

of the deficiency. This dead-freight charge will be noted on the bill of lading issued by the

shipowner, and a holder who acquires the bill will be obliged to pay the charge before the ship

will turn over the cargo.

The charterparty will also describe the number of lay days that the ship may be idle while goods

are loaded or discharged. Because modern cargo ships are expensive and have a short working

life, the charterparty will additionally describe damages, known as demurrage, that the shipowner

can charge for every idle day that exceeds the agreed-upon number of lay days.

Time Charterparties – Under a time charterparty the charterer engages the use of a vessel for a

stated period of time. The charterer normally pays hire monthly, and the shipowner is entitled to

withdraw the ship from the charterer’s use if a monthly installment is not paid promptly.

Questions of demurrage and dead freight do not arise.

The charterer has the right to direct the ship to proceed to wherever it is needed. Ordinarily, the

only limitation on this right is the charterer’s promise to engage only in lawful trades, to carry

only lawful goods, and to direct the vessel only to safe ports. If the shipowner attempts to

interfere with the charterer’s use of the vessel, he will be in breach of the charterparty.

Charterparties and Bills of Lading – The contract of carriage between a charterer and a

shipowner is the charterparty. The shipowner will commonly issue the charterer a bill of lading

when goods are loaded on board; however, between the two of them, the bill will be only a receipt

for goods and a document of title.

The Hague or Hague-Visby Rules will apply, and the contract between the shipowner and the

endorsee will be governed by the bill of lading. Of course, the bill of lading may incorporate the

terms of the charterparty. In that case, the endorsee will be governed by its terms.

Maritime Liens

A lien is a charge or claim against property that exists to satisfy some debt or obligation. A

maritime lien is a charge or claim against a vessel, its freight, or its cargo. The main purpose of

maritime liens is to ensure that a vessel can adequately obtain credit to properly outfit itself for a

voyage.

In common law countries, a vessel is regarded as a juridical person separate and apart from its

owner. Thus, a ship itself may be liable. In civil law countries, a maritime lien is a right in

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property, but the property is not independent of the owner. The lien, in essence, exists against the

owner as a debtor.

The distinctive characteristic of maritime liens, whether defined by the common or the civil law,

is that they do not require possession. They attach to the res and travel with it. They are also

secret. If a vessel is sold, the lien “goes with the ship,” even if the new owner is unaware of its

existence. In common law countries, the foreclosure of a maritime lien follows a peculiar

procedure. The res is seized without prior notice to the owner. An admiralty court takes custody,

and a suit proceeds against the thing. If the lien-holder’s claim succeeds, the res is sold, the

proceeds are distributed among the various lien-holders, and the title to the property is transferred

to the purchaser of the res free of all claims.

In civil law countries, by comparison, the res is not regarded as something distinct from its owner.

A foreclosure suit is initiated against the owner, and the res is then seized as a way to compel the

owner to appear and furnish security before the res can be released.

When there are multiple lien-holders, the various claims must be ranked. A multilateral treaty, the

1926 International Convention for the Unification of Certain Rules Relating to Maritime Liens

and Mortgages (known as the Brussels Convention), establishes a hierarchy among lien claims as

follows:

Judicial costs and other expenses

Seaman’s wages

Salvage and general average

Tort claims

Repairs, supplies, and necessaries

Ship mortgages

Case 11-6: The Chinese Seamen’s Foreign Technical Services Co. v. Soto Grande Shipping

Corp., Sa

Facts: Plaintiff (P) contracted to provide crewing services to Soto Grande Shipping (SGS), the

Issue: How should the proceeds of the sale of the ship be distributed among the claimants?

Law/Explanation: The following priorities among multiple claimants are established by

Holding/Order: The following claims were paid: First, P and another claimant for seamen’s

wages. Second, a claim for harbor usage, etc. Third, a claim on the ship’s mortgage. Fourth, a

claim for repairs made to the ship. Other claims were left unpaid.

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Maritime Insurance

The trade terms the parties choose in their sales contract determine who is responsible for

purchasing maritime insurance and who benefits from it. Even when the risk of loss shifts from

the seller to the buyer, the seller continues to have an interest in seeing that the goods are insured.

If the goods are lost and the buyer is either bankrupt or unwilling to pay, insurance may be the

only basis for recovery available to the seller.

Should a party who is required to purchase insurance be involved in an isolated sale, he can

purchase a special cargo policy covering the single sale. Such a policy is an open-ended contract

that insures all the cargo of an exporter during a particular time period. All of the exporter’s

shipments, whether by truck, rail, air, or vessel, are covered. Parties involved in an isolated sale

often arrange to have their goods covered by the open cargo policy of a freight forwarder or

customhouse broker.

Perils – The perils covered by special and open cargo policies commonly include the following:

Loss or damage from the sea (e.g., weather, collision, stranding, sinking)

Fire

Jettison (i.e., the dumping of cargo in order to protect other property)

Forcible taking of the ship

Barratry (i.e., the fraudulent, criminal, or wrongful conduct of the captain or crew)

Explosion

Fumigation damage

Damage from loading, discharging, or transshipping cargo

Case 11-7: Assicurazioni Generali (Underwriters) v. Black & Veatch

Facts: MEP Pleasant Hill contracted with Black & Veatch to design, procure equipment for, and

Issues: Were the losses covered under the policy?

Holdings: Yes.

Law / Explanation: The case demonstrates the importance of carefully reading and adhering to

the requirements of the contract and shipping documents. The correspondence between the parties

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Order: Courts ruled in favor of Black & Veatch.

Average Clauses – The loss of cargo can be either total or partial. Total loss is ordinarily

governed by a constructive loss clause in a maritime insurance policy. This usually includes (1)

losses exceeding one-half the value of the cargo or (2) losses where the cost of recovery exceeds

the cargo’s value.

A partial loss is known in the marine insurance industry as a particular average. A free from

particular average (FPA) policy provides the most limited recovery for partial losses. A with

average (WA) policy provides more protection; however, it ordinarily contains a franchise clause

that provides for payment only if the loss exceeds a specified minimum amount.

General average comes about in the carriage of goods at sea when, in order to avoid some threat

to the whole venture, some expense has to be incurred, or some loss or damage is deliberately

inflicted, in order to save the ship and its cargo.

Normally, marine insurance will cover each shipper’s contribution. However, if insurance is not

purchased or if a policy does not cover general average, then the shipper must pay the

contribution before the ship’s crew will release the goods. If a buyer has already paid for the

goods and received a bill of lading, then the buyer must come up with the contribution before the

ship’s crew will turn over the goods.

A person seeking to claim a general average contribution from other parties must show (1) that

the loss was incurred to benefit everyone and (2) that the person making the claim was not

responsible for causing the danger.

Carriage of Goods by Air

The carriage of goods on aircraft is regulated by the 1929 Warsaw Convention (formally known

as the Convention for the Unification of Certain Rules Relating to International Carriage by Air).

Four amendments to the convention were adopted between 1955 and 1975—the Hague Protocol

of 1955, Montreal Protocol No. 1, Montreal Protocol No. 2, and Montreal Protocol No. 4 of 1975.

These subsequent amendments together with the original Warsaw Convention came to be known

as the Warsaw System.

The documents used in air carriage—the air waybills and consignment notes—are not documents

of title. At the heart of the Warsaw System agreements was the definition of the air waybill. In

states that are parties to the convention, the bill must describe:

the nature of the goods being shipped;

the method of packing and any marks or numbers;

the weight, quantity, volume, or dimensions of the goods;

the apparent condition of the goods and their packaging; and

a statement that the carriage is subject to the convention’s rules.

The Montreal Convention (and Protocol No. 4), which encourage carriers to use electronic

records, require only three things to appear on the paper waybill that accompanies a consignment

of goods:

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the places of departure and destination,

an intermediate stopping place in a different state (if the places of departure and destination

are in the same state), and

the weight of the consignment.

The incentive the convention offers carriers for including these required elements on a waybill is

a limitation on liability. This is set at 17 SDRs per kilogram.

The benefit to the shipper in using a Warsaw System or Montreal Convention air waybill is that

the claimant does not have to prove that the carrier’s fault caused the injury to any lost, damaged,

or delayed goods. The person entitled to delivery has to make a claim within seven days of when

the goods arrived or should have arrived (Warsaw Convention) or 14 days if they are covered by

the Montreal Convention for loss or damages. The time limits are 14 days (Warsaw) or 21 days

(Montreal Convention) in the case of damages caused by delay.

The relevant criterion for the application of any one of the international air conventions and its

corresponding legal regime is the concept of “international carriage.” The international air

convention that will apply to a particular carriage of goods is the one that has been entered most

recently between the nation from which the goods are sent and the destination nation.

II. Chapter Questions

Shipping Terms—FOB, FAS

1. Students’ answers may vary. The seller continues to be responsible for the goods even after the

2. Students’ answers may vary. The seller’s responsibilities end upon delivery of the goods

3. Students’ answers may vary. Incoterms 2010 eliminated four terms from the 2000 revision,

Shipping Terms—CIF

4. Students’ answers may vary. The seller’s obligations are complete when the documents are

5. Students’ answers may vary. The seller’s obligations are complete when the documents are

Effect of the Bill of Lading

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6. Students’ answers may vary. An endorsee’s knowledge of the goods is limited to what is on the

bill of lading. The Hague and Hague-Visby Rules hold that the bill is conclusive evidence as to

the goods loaded once the bill has been negotiated in good faith to a third party. The carrier is

Between the shipper and the carrier, the bill of lading is evidence of their contract of carriage.

The Hague and Hague-Visby Rules

7. Students’ answers may vary. Both the Hague and Hague-Visby Rules exempt carriers from

Maritime Liens

8. Students’ answers may vary. Some may argue that the bank can do this. In common law

countries, a vessel is regarded as a juridical person separate and apart from its owner. Thus, a ship

III. Key Terms

Air waybill—An instrument issued by an air carrier to a shipper that serves as a receipt for

goods and as evidence of the contract of carriage but is not a document of title for the goods.

Bill of lading—An instrument issued by an ocean carrier to a shipper that serves as a receipt

for goods shipped, as evidence of the contract of carriage, and as a document of title for the

goods.

Charterparty—A contract to hire an entire ship for a particular voyage or for a particular

period of time.

Claused bill of lading—A bill of lading indicating that some discrepancy exists between the

goods loaded and the goods listed on the bill.

Clean bill of lading—A bill of lading indicating that the goods have been properly loaded on

board the carrier’s ship.

Common carrier—A ship that carries goods for all persons who choose to employ it so long

as there is room.

Conference line—An association of seagoing common carriers operating on established

routes that have joined together to offer common freight rates.

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Cost and freight (port of destination)—The seller must pay the cost and freight necessary to

bring the goods to the named port of destination.

Cost, insurance, and freight—The seller must pay the costs and freight necessary to bring the

goods to a named port of destination and must procure marine insurance against the buyer’s

risk of loss to the goods during the carriage.

Dead freight—A charge imposed on a charterer when a chartered ship has less than a full

load.

Demurrage—A charge made by a shipowner when a charterer keeps a ship idle for more than

the agreed-upon number of lay days.

Ex works—The seller fulfills his obligations to deliver by making the goods available at his

premises.

Free—When used in a trade term, it means that the seller has an obligation to deliver goods to

a named place for transfer to a carrier.

Free alongside ship—The seller fulfills his obligations to deliver when the goods have been

placed alongside the vessel on the quay or in lighters at the named port of shipment.

Free carrier—The seller fulfills his obligations to deliver by handing over the goods, cleared

for export, to a carrier named by the buyer.

Free on board—Seller fulfills his obligations to deliver when the goods have passed over the

ship’s rail at the named port of shipment.

Freight forwarder—A firm that makes or assists in the making of shipping arrangements.

General average—A contribution by those jointly involved in a maritime venture to make

good the loss by one of them for his voluntary sacrifice of a part of the ship or cargo to save

the residue of the property and the lives on board, or for the extraordinary expenses

necessarily incurred for the benefit and safety of all.

Himalaya Clause—A term in a bill of lading that purports to extend to third parties the

carrier’s liability limits established by the Hague and Hague-Visby Rules.

Incoterms—Trade terms published by the International Chamber of Commerce.

Independent line—A seagoing common carrier operating over established routes with a stated

rate schedule.

Lay days—The number of days that a charterer may keep a chartered ship idle for the loading

of goods.

Maritime lien—A charge or claim against a vessel or its cargo.

Order bill of lading—A bill of lading that is negotiable.

Particular average—A loss to a ship or its cargo that is not to be shared in by contributions

from all those interested, but is to be borne by the owner of the injured thing.

Res—From Latin: “a thing.” The vessel or cargo to which a maritime lien attaches.

Straight bill of lading—A bill of lading issued to a named consignee that is not negotiable.

Time charterparty—A contract to hire an entire ship for a particular period of time.

Trade terms—Standardized terms used in sales contracts that describe the time, place, and

manner for the transfer of goods from the seller to the buyer.

Tramp vessel—A seagoing common carrier operating with a stated rate schedule but without

established routes.

Voyage charterparty—A contract to hire an entire ship for a particular voyage.

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