National Law Institute University, BHOPAL

TRANSPORT LAW

Topic: RIGHTS AND LIABILITIES UNDER BILL OF LADING AND

CHARTER PARTY

Submitted to:- Submitted by:-

Prof. Neha Sharma Addway Bandyopadhyay

2013 BALLB 110

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ACKNOWLEDGEMENT

I am most humbly grateful to our faculty of Transport Law, Professor Neha Sharma for
giving me the opportunity to work on issue of Rights and Liabilities under Bill of lading and
Charter Party. It has indeed increased my interest in the subject manifold and has honed my
skills of research generally and specifically relating to Transport law. I am also grateful to the
efficient library staff who guided me all the while with books and references. I am obliged
and overwhelmed by their effort in making this project a success. I would also like to forward
my gratitude to the staff of the computer lab.

Last but not the least; I would like to express my indebtedness to my parents who were a
source of constant inspiration and an unyielding support in all my endeavours.

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Table of Contents

INTRODUCTION ..................................................................................................................... 4
STATEMENT OF PROBLEM .................................................................................................. 4
RESEARCH PROBLEM ........................................................................................................... 4
HYPOTHESIS ........................................................................................................................... 4
RESEARCH METHODOLOGY............................................................................................... 4
CHARTER PARTY AGREEMENTS ....................................................................................... 5
a. Demise or time charter parties-........................................................................................ 5
b. Non-demise or Voyage Charter Parties ........................................................................... 6
RIGHTS AND LIABILITIES UNDER CHARTER PARTY CONTRACTS .......................... 7
BILL OF LADING .................................................................................................................... 9
RELATIONSHIP OF BILL OF LADING AND CHARTER PARTY ................................... 12
CONFLICT BETWEEN BILL OF LADING AND CHARTER PARTY .............................. 13
INCORPORATION OF CHARTER PARTY TERMS IN BILL OF LADING OR VICE
VERSA .................................................................................................................................... 15
GOVERNING LAW: AS PER BILL OF LADING OR CHARTER PARTIES .................... 18
CONCLUSION ........................................................................................................................ 20
BIBLIOGRAPHY .................................................................................................................... 21

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INTRODUCTION

International trade is of paramount importance for any country as all countries of the world
have embraced the concept of open economies. International transactions have become a
common phenomenon in the 21st century. The contract of sale of goods in such transactions
is concluded between two or more persons carrying on their trade in different countries,
governed by different legal systems. Carriage of goods by sea is preferred because of its cost
efficiency and also because it connects the remote corners of the earth. It is for this very
purpose of transporting the goods from the place of the seller to the place of the buyer that the
seller has to make certain arrangements. Such arrangements include entering into a contract
of Affreightment with the owner of the ship or a sea going vessel which is to transport the
goods. It also includes preparing a bill of lading which in essence involves passing over of
the property in the goods to the master of the vessel.

STATEMENT OF PROBLEM

Charter party agreements and bills of lading are both contracts governing the carriage of
goods by sea. Often, they are both executed simultaneously in respect of the same voyage.
Each carries different rights and duties, creating a possibility of confusion.

RESEARCH PROBLEM

The purpose of this paper is to examine the rights and liabilities of the charter parties in
general when they enter into a contract of Affreightment and which contract would apply in
case of a simultaneously executed bill of lading.

HYPOTHESIS

In case of a conflict, a charter party agreement prevails over a bill of lading. A bill of lading
only acts as a receipt or document of title for the goods being carried.

RESEARCH METHODOLOGY

Doctrinal.

4
CHARTER PARTY AGREEMENTS

A Contract of Affreightment is a contract between the owner of the ship transporting the
goods and another party known as the charterer by which the ship-owner agrees to carry
goods of the charterer in his ship or to give to the charterer the use of the whole or part of the
cargo-carrying space of the ship for the carriage of his goods on a specified voyage or
voyages or for a specified time.1 The charterer on his part agrees to pay a specified price,
called freight for the carriage of the goods or the use of the ship2.

A charter party is a contract whereby a ship owner agrees to place his ship or part of it at the
disposal of a merchant or any other person known as the charterer for the carriage of goods
from one port to another port on being paid freight or to let his ship for a specified time
period, for which his remuneration is known as hire money3. The terms, conditions and
exceptions under which the goods are carried are set out in the charter party.

Charter Parties are of two kinds, and they differ from each other very widely in their nature as
well as in their terms and legal effect.

a. Demise or time charter parties-

It arises when the charterer takes over the control of the vessel and its operations and pays all
the expenses incurred for its maintenance and upkeep. Normally for a time charter, port dues
and fuel costs are paid by the charterer. The contract is thus one of letting the ship and the
liabilities of a ship owner and a charterer are to be determined by the law which relates to
hiring of chattels and not the ordinary liability of carriers and shippers 4. Here the possession
of the ship is with the charterer5.

The demise charter is subject to the general law of the contract and subject to common law
exceptions. The master of the ship is the servant of the charterer and not of the owner and the
owner thus is not liable to the shipper6. Bill of lading signed by the master of the ship binds
the charterer. The salvage amount goes to the charterer and wrongful acts of the master and

1
K Venkatmiah, Shipping Legislation in India with reference to Bills of Lading, available at
https://www.duo.uio.no/bitstream/handle/10852/22828/ThesisxKarnanxformatted.pdf?sequence=2
2
Wilson, Carriage of Goods by Sea, 7th Edition
3
A/s Tank Express v Compagnie FInanciere Belge des Petroles S.A. [1948] 2 All ER 939
4
Robertson v. Amazon Tug Co. (1881) 7 Q.B.D. 598; Reed v Dean (1949) 1 K.B. 628
5
Epoch Enterrepots v. M.V. Wou Fu (2003) 1 SCC 305; Sea and Land Securites v Dickinson (1942) 2 K.B. 65
6
Larrinaga Steamship Co. v. R [1945] 1 All ER 545

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the crew is barratry against the charterer and not the owner. The charterer is also generally
liable for statutory duties in the absence of a contract to that effect7.

b. Non-demise or Voyage Charter Parties

A non-demise charter arises when the ship owner provides the vessel and the crew while the
charterer supplies just the cargo. It may be a voyage charter for a particular voyage in which
the ship owner agrees to carry the cargo between specified ports for a prearranged freight.
The main distinction between demise and non demise charter party is that under a voyage or,
the owner supplies a vessel and crew to the charterer for a certain voyage or period of time.
Under such a charter, the possession and control of the vessel are not surrendered to the
charterer; the charterer has only the right to have its goods carried on the particular vessel.

However under the demise charter the ownership and control of the vessel is surrendered to
the charterer8.

7
H.K. Saharay, The Law of Carriage of Goods by sea and air, 1st Edition
8
Ibid.

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RIGHTS AND LIABILITIES UNDER CHARTER PARTY CONTRACTS

Since a charter party is a contract, it is subject for the most part to the general rules of
contract law9. A charter is formed as soon as the traditional elements of a contract are present,
such as consideration, mutual assent manifested by an offer and acceptance and parties of
contracting. The intent of the parties determines when the contract comes into existence.
Moreover, even though most charters are in written form, oral agreements are valid10.

The test for determining the liability to third parties in a charter party is the fact that who is to
be in charge of the vessel and in its possession11. It has been held by the U.S. Supreme Court
in the case of Reed v U.S.12 that Unless the ship herself is let to hire, and the owner parts
with the possession, command, and navigation of the same, the charterer or freighter is not to
be regarded as the owner for the voyage, as the master, while the owner retains the
possession, command, and navigation of the ship, is the agent of the general owner and the
mariners are regarded as in his employment and he is responsible for their conduct.

In short, the demise charterer is owner pro hac vice for that particular occasion or time period
or voyage where the master is subject to his orders and directions, though appointed to his
position as master by the general owner13. Control is the governing criterion: To create a
demise the owner of the vessel must completely and exclusively relinquish possession,
command, and navigation thereof to the demise.

As owner "pro hac vice," the demise charterer assumes most if not all of the burdens usually
assumed by the actual owner14. Unlike a time or voyage charterer, a demise charterer is
personally liable for damages to persons and property caused by an unseaworthy condition of
the demised vessel, although this may not be the case when the unseaworthy condition
preceded the demise15. In such cases the owner would be liable for the unseaworthy condition
of the vessel. Because of the burdens imposed upon a demise charterer and because of the

9
Great Circle Lines, Ltd. v. Matheson & Co., Ltd., 681 F.2d 121 (2d Cir. 1982)
10
Ibid.
11
Halsbury's Laws of England, Volume 43, 4th edition
12
Reed v. U.S., 78 U.S. 591, 20 L. Ed. 220 (1870)
13
Hills v. Leeds, 149 F. 878
14
Bergan v. International Freighting Corp, 254 F.2d 231 (2d Cir. 1958)
15
Ruiz Pichirilo v. Maysonet Guzman, 290 F.2d 812 (1st Cir. 1961)

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general policy against allowing the actual owner of a vessel to delegate or escape its
responsibilities, the owner has the burden of proving the existence of demise16.

A demise charterer, who is owner for the voyage or service stipulated, in other words, an
owner pro hac vice, assumes in a large measure the customary liabilities and rights of vessel
owners in relation to third persons who have dealt with him or her or with the ship17 .

Very simply put, a Contract of Affreightment is a contract of bailment, wherein the charterer
as bailee is liable to return the vessel to the owner in the same condition it was in when
received, less fair wear and tear18. The charterer of a demised vessel is responsible to the
owner for due care and diligence in the use and navigation of the vessel, and is liable for any
loss or damage to the ship from his or her negligence or the negligence of his or her agents19.

16
The Tampico, 286 F. 482 (C.C.A. 9th Cir. 1923)
17
Pendleton v. Benner Line, 246 U.S. 353, 38 S. Ct. 330
18
Reed v. S. S. Yaka, 373 U.S. 410
19
Ibid.

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BILL OF LADING

The bill of lading is an important document in international trade. The bill of lading probably
had its origins in the 14th century (although it has been asserted that a document similar to
the bill of lading had existed in Roman times20. It is interesting that for a document used so
frequently in international commerce, there has been little legislative attempt to define the bill
of lading..

Article 1(7) of the United Nations Convention on the Carriage of Goods by Sea, 1978,
defines Bill of Lading as:

A document that evidences a contract of carriage by sea and the taking over or loading of
goods by the carrier and by which the carrier undertakes to deliver the goods against the
surrender of the document. A provision in the document that the goods are to be delivered to
the order of a named person, or to the order, or to the bearer, constitutes such an
undertaking.

Thus a Bill of Lading is a document acknowledging the shipment of a consignor's goods for
carriage by sea. In this case, each consignor receives a bill issued (normally by the master of
the ship) on behalf of either the ship owner or a charterer under a Charter party. The bill
serves three functions:

a) it is a receipt for the goods;

b) it summarizes the terms of the contract of carriage; and
c) itacts as a document of title to the goods.

A bill of lading is also issued by a ship owner to a charterer who is using the ship for the
carriage of his own goods. In this case, the terms of the contract of carriage are in the Charter
party and the Bill serves only as a receipt and a document of title. During transit, ownership
of the goods may be transferred by delivering the Bill to another if it is drawn to bearer or by
endorsing it if it is drawn to order. lt is not, however, a negotiable instrument. As a document
of title, the Bill of Lading can be used by the consignee to take delivery of the goods from the
vessel21.

20
McLaughlin The Evolution of the Ocean Bill of Lading (1925-26) 35 Yale L.J. 548.
21
http://admiraltylawkochi.blogspot.in/2008/04/legal-status-of-dematerialized-bills-of.html

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The bill of lading must include, inter alia, the following particulars22 :

(a) The general nature of the goods, the leading marks necessary for identification of the
goods, an express statement, if applicable, as to the dangerous character of the goods, the
number of packages or pieces, and the weight of the goods or their quantity otherwise
expressed, all such particulars as furnished by the shipper;

(b) The apparent condition of the goods;

(c) The name and principal place of business of the carrier;

(d) The name of the shipper;

(e) The consignee if named by the shipper;

(f) The port of loading under the contract of carriage by sea and the date on which the goods

were taken over by the carrier at the port of loading;

(g) The port of discharge under the contract of carriage by sea;

(h) The number of originals of the bill of lading, if more than one;

(i) The place of issuance of the bill of lading;

(j) The signature of the carrier or a person acting on his behalf;

(k) The freight to the extent payable by the consignee or other indication that freight is
payable by him23

A Bill of Lading has a number of key functions:

It provides evidence that the cargo was received on board the ship at a certain date
and in a certain condition
It records the terms on which the goods are to be carried
It is a transferable document. It entitles the holder of the Bill to delivery of the cargo.
If the goods are sold during the voyage, the Bill of Lading therefore also changes

22
Article 15 of the United Nations Convention on the Carriage of Goods by Sea (commonly known as the
Hamburg Rules)
23
Ibid.

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 hands. Similarly, while it is usually the shipowner who signs the Bill of Lading and
agrees to act as a carrier, the Bill of Lading can be signed by a different party, who
then assumes responsibility for carriage
It is needed in order to clear goods at the port of destination

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RELATIONSHIP OF BILL OF LADING AND CHARTER PARTY

A bill of lading and a charter party are both contracts and as such regulate the rights and
liabilities of the vessel owner, the shipper, and the charterer. Because of the negotiability of
maritime bills, the rights of third parties not participating in the negotiation of the agreement
between the owner and shipper may be affected. This raises several questions where the
terms of the bill differ fom those of the charter party; thus, the owner may find itself subject
to two contracts regarding the same cargo, yet containing different terms: the charter
agreement between the shipper and owner, and the negotiable bill of lading in the hands of a
holder, which the owner is bound to honour.

Unlike a bill of lading, whose terms are to an extent governed by the Carriage of Goods by
Sea Acts of various countries and the United Nations Convention on the Carriage of Goods
by Sea 1978, and The Hague Visby Rules before that; there are no statutory provisions
governing the content of a charter party agreement24. The parties are given great leeway in
providing for the terms, conditions, and exceptions regulating the voyage or period of hire. It
has been suggested that the absence of legislative control is due to the fact that the charterer
is in a stronger bargaining position with the vessel owner than is the individual shipper.

24
U S v. Wessel, Duval & Co., 115 F. Supp. 678 (S.D. N.Y. 1953)
49 J. B. Effenson Co. v. Three Bays Corp., 238 F.2d 611 (5th Cir. 1956)

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CONFLICT BETWEEN BILL OF LADING AND CHARTER PARTY

When bills of lading are issued by a carrier covering goods shipped aboard a vessel under a
charter party, two closely related questions arise.

1. The first question is as regards the application of the Carriage of Goods by Sea Act of
that particular country, or if the country does not have such an Act, the application of
the Hamburg Rules, 1978 or the Hague Visby Rules, 1924.
2. The second question is what is the contract of carriage between the parties the
charter party, the bill of lading or a combination of the two?

As regards the first question there is a certain uniformity in all the above mentioned statutes.
The Indian Carriage of Goods by Sea Act, 1925 enacted a year after the Hague Visby Rules
clearly states in Article V that:

The provisions of these Rules shall not be applicable to charter parties, but if bills of lading
are issued in the case of a ship under a charter party they shall comply with the terms of
these Rules.

Similar is the provision in the United Nations Convention on the Carriage of Goods by Sea
Act, 1978 which states that:

The provisions of this Convention are not applicable to charter parties. However, where a
bill of lading is issued pursuant to a charter party the provisions of the convention apply to
such a bill of lading if it governs the relation between the carrier and the holder of the bill of
lading, not being the charterer.

Focusing on the functions of the bill of lading the courts have held that The rule is that where
there is a charter party the bill of lading operates as the receipt for the goods, and as a
document of title passing the property of the goods, but not as varying the contract between
the charterer and the ship owner25

The bill of lading is therefore only a receipt and not the contract of carriage. Therefore, if the
shipper charters the entire vessel, the charter party agreement and not the bill of lading is the

Associated Metals & Minerals Corp. v. S/S Jasmine, 983 F.2d 410, 1993 AMC 957 (2d Cir.1993); In re
25

Marine Sulphur Queen, 460 F.2d 89, 103, 1972 AMC 1122 (2d Cir.1972)

13
contract of carriage, unless the parties express an intent to the contrary.26 In Vanol USA, Inc.
v. M/T Coronado27, the goods were shipped under a voyage charter and the master issued a
bill of lading. The court held that the bill of lading was not the contract of carriage, but was a
mere receipt for the goods. Hence the only contract terms under which the shipper could have
a cause of action for shortage or damage to the cargo were those in the voyage charter party.

26
Shell Oil Co. v. M/T Gilda, 790 F.2d 1209, 1212 (5th Cir.1986);
27
Vanol USA, Inc. v. M/T Coronado, 663 F.Supp. 79, 1988 AMC 560 (S.D.N.Y.1987)

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INCORPORATION OF CHARTER PARTY TERMS IN BILL OF LADING OR VICE
VERSA

The above rule is a flexible one, however, and if the parties to a charter intend by the issuance
of the bill of lading to make a new contract which is part of the contract of carriage, the bill
of lading issued under the charter party will be the contract of carriage and the Carriage of
Goods by Sea Act will apply. Evidence that the parties intend the bill of lading to be part of
the contract of carriage and the Carriage of Goods by Sea Act to apply can be found in either
of two ways:

a. incorporation of the bill of lading in the charter party or other freight contract or
b. incorporation ofthe charter party by a clause in the bill of lading.

An express clause of incorporation should be included in either the charter or the bill of
lading to prevent confusion. On the other hand, if the parties wish to make absolutely certain
that the charter alone will control and that the Carriage of Goods by Sea Act will not apply,
they should stipulate the issuance of a bill of lading without prejudice to the charter party.28

The situation becomes more complicated, however, where the bill of lading issued under a
charter party is negotiated to a third party consignee or holder in due course. Then, as a
general rule, the bill, not the charter, becomes the governing instrument. However, even
against a consignee, the charter party may be incorporated into the bill of lading and, as the
carriage contract, will govern the relationship of the parties. Two conditionsare necessary for
this to occur:
(1) the bill must incorporate the charter by reference and
(2) the ultimate holder must have actual or constructive notice of that incorporation29
Two decisions by the District Court of New York provide insight into the issue of
incorporation of charter party provisions into a bill of lading transferred to a party not
previously subject to the charter.
In Production Steel Co. of Illinois v. SS Francois, L.D.30 the court held that the bill of
lading, not the charter, controlled in a suit by the purchaser/consignee of steel shipped from

28
President of India v. Metcalfe Shipping Co., Ltd., [1970] 1 Q.B. 289.
29
State Trading Corp. of India, Ltd. v. Grunstad Shipping Corp., 582 F.Supp. 1523 (S.D.N.Y.1984), Sandeman
v Scurr (1866) L.R. 2 Q.B. 86
30
294 F.Supp. 200 (S.D.N.Y.1968)

15
Wales to Chicago against the owners and charterers of the ship. The court reasoned as
follows:
The fatal difficulty with the ship owners contention, which requires that it be rejected, is its
failure to recognize that the charter party contract and the bill of lading are two separate and
distinct integrated contracts, and that the mere statement in the bill of lading that it was
subject to all terms, conditions of the charter party contract, even if it be treated as an
incorporation by reference (which is doubtful), could not have the effect of obligating the
plaintiff [purchaser/consignee] to perform the obligations of the parties to the charter party.
The obligations of plaintiff and the carrier are prescribed in the detailed provisions of the bill
of lading. Plaintiff was not a party to the charter party contract, which contained numerous
promises on the part of the parties thereto that were personal to them and not assumed by
the plaintiff.

However the same court in Midland Tar Distillers, Inc. v. M/T Lotos31, held that a consignee
was subject to the arbitration provision of a charter party which was incorporated in the bill
of lading issued to the consignee even though the provision referred only to appointment of
arbitrators by parties to the charter party. The court read the charter party and bill of lading
together to form the complete contract of carriage. In distinguishing Production Steel, the
Midland Tar court noted that the bill of lading in Production Steel was very detailed and was
found to fully and exclusively embody the obligations of the parties, thus operating to prevent
incorporation of the charter party terms. By contrast, the bill of lading in Midland Tar was
completely devoid of any detail and could not support an argument against the court's
application of the doctrine of incorporation by reference.

Despite many court rulings, the incorporation of charter party terms into bills of lading
remains an uncertain issue in many jurisdictions. In order to best protect their interests
Members are advised to ensure that:
a. the applicable charterparty is clearly identified on the face of the bill of lading, and
b. that the incorporation clause is appropriately worded.

Most litigated cases between third parties and carriers involving the issue of incorporation of
the charter party by the bill of lading involve attempts by the carrier to compel the third

31
Midland Tar Distillers, Inc. v. M/T Lotos, 362 F.Supp. 1311, 1973 AMC 1924 (S.D.N.Y.1973).

16
party/consignee to arbitrate the dispute as provided in the charter party. The reason for this is
that:

When on the ground that a contract is subject to an arbitration clause incorporated from a
charter-party, one party to a bill of lading applies to the court to stay an action brought
against him by the other party to the bill, he only rarely does so because he prefers to arbitrate
than to litigate. The usual reason is because, when the application is made, the time has
expired by which the other party must start any arbitration proceedings. Success in staying
the court proceedings thus means a complete defeat of the claim. It is for this reason, and not
because of any intrinsic merit in the process of arbitration, that disputes as to whether an
arbitration clause in a charter-party has or has not been incorporated into the bill of lading
arise with such regularity.32

When incorporation would defeat the consignee's claim or when there is a substantial conflict
between the charter party and the bill of lading, the courts should refrain from holding that
the charter party is incorporated; the bill is a contract of adhesion that should be construed
strictly against the issuer33. It is a well settled principle that the Bill of Lading represents the
goods and the transfer of the bill of lading means the transfer of goods 34. Thus when a bill of
lading was endorsed in favour of the Steel Authority of India while the consignment was still
at sea, it was still considered to be a sale in the course of import35.

32
Incorporation of Charter Party Terms, Lloyd's Mar. & Comm.L.Q. 19495 (1984)
33
Siderius, Inc. v. M.V. Ida Prima, 613 F.Supp. 916 (S.D.N.Y.1985)
34
J.V. Gokal and Co. Pvt. Ltd. v. Asst. Collector of Sales Tax AIR 1960 SC 595
35
Minerals and Metals Trading Corpn. of India Ltd. v. Sales Tax Officer (1998) 7 SCC 19

17
GOVERNING LAW: AS PER BILL OF LADING OR CHARTER PARTIES

Under the traditional rule of contract, the nature, the obligation, and the interpretation of a
contract are to be governed by the law of the place where it is made i.e. the lex loci contractus
or the lex loci solutionis which is the law of the place where the relevant performance of the
contract occurs, unless the parties at the time of making it have some other law in view36. A
charter party made in one country between citizens or residents thereof, and the performance
of which begins there, is governed by the law of that country, unless the parties, when
entering into the contract, clearly manifest a mutual intention that it is to be governed by the
law of some other country.37
A drafting party's claim that its choice of law in a charter contract is permissive, however,
should be subjected to very close scrutiny, particularly in a non negotiated form contract that
the charterer may never have even seen but which is simply adopted by reference. Generally,
the rights and liabilities arising under an alleged breach of a charter party of a seagoing vessel
depend on general rules of maritime law like the various conventions like the Hague Visby
Rules and the Hamburg Rules, not subject to material alterations by state enactments.
The rule is that the proper law of the contract is that by which the parties intended that their
rights should be determined either expressly or through implication. Therefore a clause in
their charter party providing for arbitration in a particular country is taken to be an indication
that the parties have submitted to the law of the seat of arbitration.38
However, when the parties do not expressly indicate a choice of law or there is no choice of
law clause in their contract, the court must impute a governing law from the contract itself.
Factors considered are the lex loci contractus39, the lex loci solutionis40 and the law of the
flag (of the country) which the ship is subject to41. However courts have also placed emphasis
on the intention of the parties i.e. both the subjective and the objective intent to be ascertained
in each case by the terms of the contract and the parties corresponding relations and
surrounding circumstances.42 Courts have given the latter more weight in interpretation of the
law governing the charter party agreement.

36
Dicey and Morris, Conflict of Laws, 2nd Edition
37
Liverpool & G.W. Steam Co. v. Phenix Ins. Co., 129 U.S. 397, 9 S. Ct. 469, 32 L. Ed. 788 (1889).
38
Hamlyn v Talisker Distillery [1894] A.C. 202
39
Peninsular and Oriental Co. v. Shand (1865) 3 Moo.P.C. (N.S.) 272; Lloyd v. Guibert L.R. 1 Q.B. 115
40
London Assurance v. Company de Moagens (1897) 167 U.S. 149; Chatenay v. Brazilian Co. (1891) 1 Q.B. 79
41
; Chartered Mercantile Bank of India v. Netherlands India S.N. Co. (1883) 9 Q.B.D. 118
42
Godhra Electricity Co. Ltd. v. State of Gujarat AIR 1975 SC 32; Mount Albert Borough Council v, Australaian
Temperance Assurance [1938] A.C. 224, 240 (P.C.)

18
The legal rule is that the proper law of the contract of Affreightment is is the law that the
parties had intended to apply to the contract43. For example, In the case of The Industrie44, a
charter party of a German vessel was held to be an English contract because it was
negotiated and made in London between English merchants for the German owner and it was
in ordinary plain English with peculiar English words like "Act of God" and "Queen's
Enemies". The Court of Appeal held that the intention of the parties was to make a contract to
be governed by English Law.
However, when a bill of lading is issued to a charterer, the rights of the holder are governed
by the Bill of Lading Act of the respective country. The proper law of the contract would
spring up from the construction of the bill of lading itself. But when the bill of lading
incorporates the law of the charter party it is assumed in the absence of anything to the
contrary that the bill of lading is the intention of the parties45. Also a party cannot escape the
consequence of law merely by describing an agreement in form though in essence it might be
a different transaction altogether46

43
R v. International Trustee for the Protection of Bondholders, [1937] A.C. 500
44
The Industrie [1894] P. 58
45
The Njegios (1936) P. 30
46
C.I.T. v. Panipat Woollen Co. Ltd. AIR 1976 SC 640

19
CONCLUSION

The charter party governs the relationship between the shipowner and the charterer. The bill
of lading governs the relationship between the shipper and the carrier (who will be either a
shipowner or a demise charterer). If the exporter (the shipper) is shipping a small amount of
cargo, he will arrange for a carrier to carry the goods for him, using a bill of lading. If the
exporter needs the whole (or a very substantial part) of the ship's cargo capacity, the exporter
may need to charter the vessel, and he will enter into a charter party agreement with the
shipowner.

If the charter party is a time or voyage charter party, the shipowner will still have control of
the ship and its crew. If there is a demise (or "bareboat") charter party, the charterer will
effectively have a long lease and will have full control of the vessel. If the master (the
captain) issues a B/L to a shipper, he will be acting as an agent for the carrier, who will be
either the shipowner (time or voyage) or the charterer (demise).

In a time-charter party or voyage-charter party, if the charterer is shipping his own cargo
(rather than the cargo of a third party) he will receive a bill of lading from the master, acting
as agent of the shipowner; but that B/L will serve solely as a receipt and document of title,
and its terms will (subject to contrary intent) be secondary to the terms of the charterparty,
which remains the dominant contract.

It is clear that in a contract for international sale of goods which involves maritime voyage,
bill of lading plays a significant role. It prima facie shows whether the seller has performed
his delivery obligation. Bill confers proprietorship over the goods represented therein to the
holder mentioned therein. The bill of lading allows the seller to be reimbursed by the bank
because it serves as an evidentiary document. The Charter Party lays down rights and
obligations of a ship owner and a charterer and if incorporated in the Bill of Lading would
serve as a reference when there is an ambiguity in the terms of the Bill of Lading. Thus we
see that the Bill of Lading will have an overriding effect since it is specialized for the contract
of shipping and all terms of the Charter party need to be compliant with it. Thus concluding,
one can say that even though both documents are absolutely paramount for maritime
contracts but no inconsistent Charter Party can be incorporated in a Bill of Lading.

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BIBLIOGRAPHY

BOOKS REFERRED:
Halsbury Laws Of England
Halsbury Law Of India
Course Material On Transport Law
Dicey And Morris, Conflict Of Laws
H.K. Saharay, The Law Of Carriage Of Goods By Sea And Air

ENACTMENTS REFERRED:

Indian Contract Act, 1872

Carriage of Goods by Sea Act, 1925

WEBSITES REFERRED

www.jstor.com
www.lexisnexisindia.com
www.heinonline.com

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