Amc Shipping Law and Business (1700) PDF

Learning
Resources
JND 311 – Shipping Law and

Business
Strictly for private use by students enrolled in

above courses internally at AMC.
National Centre for Ports and Shipping
- This book is not for sale – Australian Maritime College

2016
2016 – Sept
JND311-- – Shipping Law and Business i
National Centre for Ports and Shipping
Shipping Law and

Business
This Learner’s Guide is a compilation of selected sections from previous lecture notes of
Peter Klausen, David Wilcox and Darrel Silva
ii JND311 Shipping Law and Business

Section 1 - The Legal Framework
Contents
Section 1............................................................................................................................. 3
The Legal Framework ........................................................................................................ 3
The Background to Maritime Law ..................................................................................... 4
Discharging a Contract .................................................................................................... 12
Remedies When Breached ............................................................................................... 12
International Law ............................................................................................................. 13
The United Nations Convention on the Law of the Sea (UNCLOS) ............................... 25
Ship Registration .............................................................................................................. 27
Accident Investigations .................................................................................................... 28
Section 2........................................................................................................................... 33
Towage ............................................................................................................................. 33
Towage ............................................................................................................................. 34
Harbour Towage .............................................................................................................. 34
Ocean Towage ................................................................................................................. 36
Towage v Salvage ............................................................................................................ 37
Section 3........................................................................................................................... 40
Master/Pilot Relationship................................................................................................. 40
Master/Pilot Relationship................................................................................................. 41
Section 4........................................................................................................................... 45
Charter Parties .................................................................................................................. 45
Charter Parties .................................................................................................................. 46
Liner Trade Employment ................................................................................................. 47
Voyage Charters (Referred to as Tramps) ....................................................................... 47
Laytime ............................................................................................................................ 54
Methods of Computing Laytime ...................................................................................... 57
Section 5........................................................................................................................... 63
Bills of Lading ................................................................................................................. 63
Bills of Lading ................................................................................................................. 64
Types of Bills of Lading .................................................................................................. 66
Functions of Bills of Lading ............................................................................................ 69
Electronic Bill of Lading ................................................................................................. 71
Letter of Indemnity .......................................................................................................... 73
Financing International Trade .......................................................................................... 75
Section 6........................................................................................................................... 84
Salvage ............................................................................................................................. 84
JND 311 – Shipping Business and Law 1

Section 1 –The Legal Framework
Salvage ............................................................................................................................. 85
Conditions to be present for a salvage claim ................................................................... 85
Salvage Agreements......................................................................................................... 88
The Master’s decision ...................................................................................................... 89
Section 7........................................................................................................................... 94
Marine Insurance& General Average .............................................................................. 94
Marine Insurance ............................................................................................................. 95
Insurance Contracts .......................................................................................................... 95
The Three Basic Principles of Marine Insurance ............................................................. 96
Warranties ........................................................................................................................ 97
The Policy ........................................................................................................................ 98
Risk Covered by an Insurance Policy ............................................................................ 100
Risks Not Covered by Marine Insurance Policies ......................................................... 101
Important Clauses Contained in the Policy.................................................................... 101
Types of Losses.............................................................................................................. 106
Particular Average ......................................................................................................... 108
General Average ............................................................................................................ 109
Protection and Indemnity (P&I) Clubs .......................................................................... 112
Noting Protest ................................................................................................................ 113
Section 8......................................................................................................................... 118
Cargo Damage Liability Regimes .................................................................................. 118
Cargo Damage Liability Regimes .................................................................................. 119
The Hague and Hague Visby Rules ............................................................................... 119
The Hamburg Rules ....................................................................................................... 124
The Rotterdam Rules ..................................................................................................... 125
The Australian Rules...................................................................................................... 127
Contract of Sale on Shipment Terms ............................................................................. 128
Incoterms 2010............................................................................................................... 129
The Documentation of International Trade.................................................................... 129
Section 9......................................................................................................................... 136
Liens ............................................................................................................................... 136
Admiralty Jurisdiction ................................................................................................... 137
Liens and Ship Arrest..................................................................................................... 137
Possessory Liens ............................................................................................................ 138
Maritime Liens ............................................................................................................... 139
Bibliography .................................................................................................................. 142
2 JND 311 – Shipping Business and Law

Section 1
The Legal Framework

The Background to Maritime Law

In this unit, we are not looking at the law in general but at the law, which applies to the
commercial operation of ships and the carriage of cargo i.e. ‘maritime law’. The maritime
law we are to look at is based on the law of the United Kingdom because the pre-eminence
of the United Kingdom in Maritime trade in the nineteenth and early twentieth centuries gave
rise to great experience in maritime matters of all types legal, commercial and technical. This
legal experience gave the English Law an image of a stable and efficiently managed system,
which appeals to businesspersons who, as a whole, look for stability in their business and
commercial environment.
However as we will see in the next session the law associated with shipping is, by its nature,
more complex.
The legal Framework

All businesses operate under their own national laws, but in the maritime industry, we have
to operate under the national laws of flag state, the national laws of the port state in which the
ship is berthed, and international law especially in the form of the many conventions under
which shipping operates.
National Law
The English system which is known as the common law system is followed, with local
national variations in the old British Commonwealth countries and the USA as opposed to
the Civil Law which is the generic term used to describe the law of continental Europe; this
gradually giving way to European Union Law with the advent of the European Parliament.
English Law arises from two sources:
The Common Law: - This is judge made law, which arises from the decisions of the courts.
This is known as the “Doctrine of Precedent” under which the courts follow the decisions of
senior courts. In England, it is the House of Lords, in the USA, it is the Supreme Court and
in Australia the High Court, which is the highest, court in the country. The lower courts in
each hierarchy of courts must follow the Superior Courts.
Statute Law- The laws made by Parliament are known as statues and this law is statute law.
There is long, involved process under which statute laws are made. The important point in
terms of the national legal system is that statute law will always override the common law, so
if the government disagrees with the direction the decisions of the courts are taking, they can
be overruled by statute.
Delegated Legislation
In the exercise of many forms of statute law, it is not uncommon to find associated
regulations. These regulations, which are brought into being under the authority of an
overriding Act of Parliament, deals with administrative issues. It is unrealistic to expect the
fine administrative details in an Act, remembering that an Act of Parliament is debated in
parliament and the amount of barley sugar in a ship’s lifeboat stores is hardly the type of issue
parliament should be debating.

Civil Law and Criminal Law
There are two branches of the national law:

• Civil law
• Criminal law
The Civil Law
The term used in this context has nothing to do with the term used to describe
European Law as mentioned above. In this context, the civil law is the law, which governs
everyday activities. For a civilised society to function, it is necessary to have rules to
govern its activities and thus to provide a forum for the resolution of disputes before they
lead to aggression and conflict. This is the system which provides the rules and the courts
in which these disputes can be resolved against those rules. The courts, in this sense, are
a means for the resolutions of conflict. In this context when the parties present their cases
the judge is required to make the decision on 'the balance of probabilities'.
It should always be remembered that courts only provide a means for resolving a conflict
if resort is made to the court. The law is not a remedy of the problems of society and, as
said above, should always be the last resort; no matter how good a case appears; if one is
a betting person every court case is only even money bet. In a civil case the judge decides
on attest based on "the balance of probabilities". Arising from the evidence presented.
The Criminal Law

This is the term used to describe that branch of the national law which enforces the rules
of society. In the human interaction of any society there are types of behaviour that are
unacceptable, and society in effect says that if anyone should break these rules they will
be punished. One form of punishment is compulsory payment of money known as a fine.
It is the enforcement of these rules which give rise to the need for a police force.
In a criminal case it is society that is making the case in court against the person accused
of breaking the criminal law, which gives rise to practice in England and much of the old
British Commonwealth including Australia of identifying the case as “the Crown V
Jones” or in the various United States jurisdiction (which grew from the English Law),
the “People V Jones” or “the Sate V Jones”.
Because of the nature of criminal law, there is a higher burden of proof and the test on
which the judge must decide on the evidence is “beyond reasonable doubt”, a higher and
more demanding standard is applied that in civil cases described above.
The criminal law is not a large part of the life of a manager in transport, in our case a
shipmaster any more than any other business manager; however, the essence of its nature
should be understood against the time when it may arise.

Business Law
This is an enormously wide term but used here to indicate that here we are addressing
national legal issues regarding business in general; I have taken the liberty of putting the
following two legal categories under this heading and based on English law.
• The law of tort

• The law of contract
The Law of Tort
A tort is a civil wrong that is not a breach of contract. There need not be any contractual
obligation between the parties for there to be a tort.This is a branch of the law which,
quite separately from the criminal law, protects certain citizen's private rights, for
example:
Every citizen has the right to protect their good name, and should it be attacked they can
protect it in a civil case for the tort of defamation or slander.
Every citizen has the right to the quiet enjoyment of his property. This is often used to
decide the conflicting interests of neighbours. One party may believe he has the right to
use his land to hold parties (creating high noise levels), burn off rubbish (creating smoke
and smell), or run machinery (causing vibration), whereas his neighbour believes he has
the right to use his land in peace.
Should that right be broken the neighbour can protect themselves bringing claims in a
civil case for the tort of nuisance.
Every citizen has the right to privacy on their property, so if someone intrudes onto their
property they can protect it with a civil action for the tort of trespass. (This gives rise to
the lawyer's quip that the sign 'trespassers will be prosecuted' is technically wrong:
trespass is a civil action and 'prosecute' is a term reserved for the criminal law.)
Torts as discussed in a previous chapter include negligence, nuisance, trespass,

defamation, deceit, and passing-off, inducing a breach of contract, conspiracy or
intimidation. Negligence is the most important of these, and the one most likely to arise
in shipping, so will occupy most of this section.
Negligence
This is the right to pursue peaceful activities without the risk of interference or damage
from the careless actions of others.
This tort expanded in importance with industrialisation and the parallel increase in
density of population in towns and cities. The machinery associated with
industrialisation meant that the consequences of negligence in its use were more likely
to be severe. The density of populations meant that people were more likely to be injured
as a result.

For the tort of negligence to be established, four elements must be shown by the claimant.
1. A duty of care- The person who causes the damage must be shown to owe a duty of care
to the person injured or damaged. Everyone has an obligation to behave in a responsible
manner. The test for duty of care was defined by Lord Atkin when Donoghue v Stevenson
went to the House of Lords on appeal in 1932. Lord Atkin stated that ‘you must take
reasonable care to avoid acts or omissions which you can reasonably foresee would be
likely to injure your neighbour’, and neighbours are ‘persons who are so closely and
directly affected by my act that I ought reasonably to have them in contemplation as
being so affected when I am directing my mind to the acts or omissions which are called
in question’.
2. A breach of the duty of care in which the plaintiff was injured or their interests
damaged. Before deciding whether the duty of care has been breached it is necessary to
decide what standard of care the defendant is to be judged by, then whether the defendant
has fallen below that standard. Every defendant must be judged by the same standard –
that of the ‘reasonable man’.
3. Loss to the plaintiff arising from the breach of the duty of care. Before a defendant can
be found liable by the courts for the claimant’s loss, it must be satisfied that it was a
breach of care that was responsible for the loss, rather than some other circumstance over
which the defendant had no control.
4. A reasonable connection (Remoteness) between the action causing the loss and the loss
claimed.
The last element above refers to the compensation for the damage which will be done on
a cash basis in which the court tries to compensate the plaintiff, should the plaintiff win
the case. The compensation is subject to the 'remoteness of damage ‘test, best illustrated
by an example.
A man is on his way to a meeting to become a partner in a business which is later highly
successful. He misses the meeting and misses the partnership because, while crossing the
street, he is hit by a car. On these facts he could well sue for personal injury, medical and
associated expenses etc., but the claim for millions of dollars forth missed business
opportunity would probably fail under the doctrine of 'the remoteness of damage'.
The cash payment of compensation in cases of tort is an effort to compensate and known
as 'damages'. It has no relationship to the cash payment of a 'fine' under the criminal law
which is a punishment.
The Australian Court System
The courts in Australia follow a similar hierarchy as illustrated below. The High Court
of Australia is now the final court of appeal for decisions made by itself in its original
jurisdiction, other Federal Courts and State Supreme Courts

High Court of Australia
State/Territory Courts Commonwealth Courts
Supreme Court
Federal Court Family Court
Intermediate Courts
Federal Magistrates Court
Lower Courts
Whilst all states and territories have their own Supreme Courts, there is considerable
variation in the names of lower courts:
New South Wales District Court and Local Court
Victoria County Court and Magistrates’ Court
Queensland District Court and Magistrates’ Court
South Australia District Court and Magistrates’ Court
Western Australia Family Court, District Court and Magistrates’ Court
Tasmania Magistrates’ Court
Northern Territory Magistrates’ Court
ACT Magistrates’ Court
Norfolk Island Court of Petty sessions
Judicial Precedent
Common law is judge-made law. Since the 12th Century attempts have been made to ensure
that a similar level of justice was available to everyone throughout England and Wales.
Judges were appointed by the monarch and travelled throughout the kingdom to administer
justice. As these judges gained experience from the cases they heard, they were able to
share that experience with other judges when their paths crossed. Inevitably the decisions
of the judges were recorded and a set of legal principles that could be applied in common to
all people began to develop.
The court structure England has today only really started during the industrial revolution
when people began to congregate into towns and cities large enough to support permanent

courts and judges. It was at this time that some of the common legal principles developed
by the judges, particularly those relating to criminal cases, began to be translated into statute
by acts of parliament. For much of the body of law, and for civil law in particular, this never
happened and the common law remained.
To ensure that the common law was administered fairly a set of rules – a doctrine – was
established. In its simplest form this states that judges must stand by what has previously
been decided (stare decisis in Latin). Thus, if a judge is faced with a similar set of facts
as in a previous case, his/her decision must not conflict with previous decision. Since few
cases will ever be precisely the same as those that have gone before, a judge will have to
interpret previous judgements to decide which legal principles transfer to the new set of
facts. He/she first finds the relevant facts of the new case, then finds the relevant law from
previous cases, and finally applies the law to the new facts.
Since lawyers have access to the same case law as judges, this means they are able to
advise their clients on the probable outcome of a civil case – and possibly save clients from
expending time and money on cases they are unlikely to win.
In most cases precedent is binding (and therefore followed, approved or applied). Other
precedent may not be legally binding, but sufficiently persuasive to be applied in the
current case. If there is sufficient difference the judge may distinguish the precedent from
the current case.
Even in cases where there appears to be undoubted precedent to be followed the judge may
be able to avoid it. If a higher court has good reason not to agree with a previous finding
of a lower court it may not follow, doubt or disapprove the earlier decision (depending on
how serious the disagreement is). Disapproving would certainly send a strong warning to
lower courts to take great care before following that precedent. If the higher court
considers the earlier decision to be legally incorrect it may overrule it. This means it
should never thereafter be followed.
Precedent is therefore linked to the hierarchy of the courts. Decisions of a higher court
bind lower courts, and usually courts at the same level.
Contracts
Contracts are agreements between two or more persons, which may be legally enforced.
When a contract is entered into, it is always assumed that the parties to it were aware of
and made allowances for the legal consequences of any breach of conduct. If an agreement
is not a contract, there is no redress in the event that either party failing to carry it out. On
the other hand when there is a contract, any breach will give rise to legal remedy. Basically
“Promises” are what contracts are all about. A contract is made up of a promise of one
person to do a certain thing in exchange for a promise from another person to do another
thing. Contract law exists to make sure that people keep their promises and that if they do
not, the law will enforce it upon them.
It is imperative that you, as the Master of a vessel need to have a basic understanding of a
contract.

Crew Agreements, Charter Parties. Bills of Lading, Supply of Bunkers, Towage, and
Pilotage etc.; are a few examples of contracts.
There are 2 types of contracts
1. Expressed contracts
2. Implied contracts
Expressed Contracts
These may be in writing (some must be in writing). The terms and conditions are laid
down and agreed by all parties in the contract.
Example: an Insurance Policy
Implied Contracts
Terms and conditions may not be written down but is understood to exist. For example
when you purchase a bus ticket to travel from one halt to another, you come into a contract
with the bus company to carry you so far as you have paid him a fare. But you don’t get
a written condition as to the driver’s license, the roadworthiness of the bus, etc. these are
all IMPLIED not expressed.
Conditions for a Valid Contract

To make a contract within our legal system, except for contracts for the sale of land, it
does not have to be in writing; however, there are specific conditions.
There are certain requirements to fulfil so as to make a contract legally valid.
1. Offer
2. Acceptance
3. Genuineness
4. Consideration
5. Status
6. Legality
7. Possibility of performance
Offer
Somebody must OFFER something to someone else. It could be money for goods, money
for service or service for goods. Parties must be clear as to who is offering what and to
whom.
An offer must be a clear, unequivocal and direct approach to another party to contract. For
this reason, advertisements, catalogues or store flyers are not offers. Nor is a "for sale"
sign on a used car. The law calls these "invitations to treat"; essentially invitations to the
general public to make an offer on a particular item. But, even here, there have been
exceptions. For example, in an 1856 case, an advertisement of train rates was held to be a
valid offer. Much depends on the wording of the "invitation".

Acceptance
Acceptance validates the contract; it gives it life.
They must accept unconditionally all the terms and conditions.
The OFFERER can terminate his offer
1. Before it is accepted – this is called REVOCATION

2. After a given set period or after a reasonable time if dates are not set
If one side alters the terms of the contract in any way, the changes become another
OFFER and will have to be ACCEPTED
OFFER and ACCEPTANCE are described as AGREEMENT. It is not enough to say

that you find the offer to be "agreeable"; you must "accept" the offer.
Therefore, a contract requires an agreement between the parties. But not all agreements
are contracts because contracts have more features than an agreement.
Genuineness
It should be genuine. Contracts may be unenforceable if the parties have not genuinely
agreed to its terms by
 Mistake
A contract requires a meeting of the minds-in Roman law, a consensus ad idem. If one
or both parties have been mistaken about an element of the contract, then there is no
consensus ad idem. However, that does not necessarily mean that the contract is void.
Mistakes are of three kinds; common, unilateral or mutual.
 Misrepresentation
Misrepresentation is when one of the parties to a contract made a wrong statement about
some material element of the contract and, because of this statement, the other party
entered into the contract. Contract common law treats fraudulent misrepresentation
differently from innocent misrepresentation. A mispresentation could arise of
fraudulence, negligence or innocence.
 Undue influence or duress

A contract could be void if a party to contract enters it not to their own free will or due
to the power of influence of the other.
Consideration
You must receive something in return. Otherwise it will be a gift. What you receive
can be money, services but be capable of being valued and estimated in money. This
is called CONSIDERATION.
Status
Prisoners, drunken, bankrupt persons, enemies, insane persons and also fewer than 18s
are not allowed to undertake a contract

Legality
Illegal acts can’t be signed for a contract. Example gambling dens, when there are
embargos, brothel houses.
Possibility of Performance
If the contract is impossible to perform, you can’t just say the contract is impossible
because someone else may be able perform it.
Discharging a Contract
1. By agreement: If both parties agree to end the deal.
2. By performance: After performing, fulfilling the contract.
3. By breach: Breaching of a condition by any means by any party.
4. By impossibility: When there is frustration and impossible to perform.
No person can be held to a contract if, since acceptance, there has been a radical change
which makes performance impossible. Under certain conditions, a person can be relieved
of their duties under a contract under the common law heading of "frustration". For
example, an act of God may have destroyed the object of the contract.
There is no frustration if the event could be foreseen. There can be frustration if one party
died or the law changed.
5. By operation of law or Change in Law.
No person can be held to a contract if, since acceptance, there has been a radical change
which makes performance illegal.
Remedies When Breached
The first thing a lawyer will look for when faced with a possible breach of contract situation is
a clause in the contract that has already decided what happens if there is a breach.
The injured party can find redress from courts:
1. By equitable remedies – issued at the discretion of the court

i. the court may require to perform Specific Performance
This means a court order to the breaching party to perform his or her part of the bargain
rather than just pay damages. This is done generally where “substantial performances”
has taken place.

ii. by Injunction Order -

Apply for an injunction where a direct order is required to stop a party from continuing
an ongoing breach
2. By Claiming Damages
Claiming damages is to compensate loss. The sum of damages awarded is intended to
place the damaged party in the same position he would have been had the contract
completed successfully. But it is not to punish the other party. Damages, which are
not directly linked with the breach, are considered REMOTE and will not be
recoverable.
International Law
International law is not a big part of the daily thinking for the vast majority of business
people in any nation however, because of the international nature of the shipping
industry we are in contact with 'international law' on a daily basis.
This part of the course gives an outline of how international law comes into being and
some aspects which are important to the practising manager in a maritime transport
enterprise.
To the academic international lawyer there are several sources of international law
which are mentioned in the readings.
In practical terms and for the purposes of this paper International law have two
recognised bases
1. A variety of bases such as ancient practice, the writings of scholars, accepted long
standing practices etc. The various United Nations legal institutions (courts) do not
follow the doctrine of precedent although previous cases can offer strong evidence.
This is not of major influence in maritime business.
2. The international Conventions

International Conventions are a major factor in maritime business which we will
examine.
What might be considered international law is that administered by the International

Court of Justice in The Hague. This, however, applies only to conduct of states in
relation to other states, and not to individuals or companies in their international
dealings. It is also something of a toothless tiger – it can only hear disputes between
nation states when both consent to it, and decisions can only be enforced through the
cooperation of the international community – not through domestic courts. It comprises
15 senior judges from around the world. Because of the absence of any international
law governing international trade, parties to an international commercial contract
should agree, and specify in the contract, the law that is to apply. In many cases English

law is the law of choice because it has been well-tested by courts over a long period of
time.
The International Conventions

The main sources of international law pertaining to the operation of ships are the
international conventions which, in the case of shipping, mostly arise in the
International Maritime Organisation which is the United Nations organ charged with
responsibility for safety at sea and prevention of pollution.
With any international convention the important element is the question of enforcement,
passing legislation in any jurisdiction is easy, enforcing it can be more difficult.
Whilst the United Nations agencies, and in particular the IMO, use terms such as:"
The Convention will come into force, 'When XX% of the member countries which
control XX% of the world fleet have ratified the convention'," This statement has to be
seen against the facts of life in that whilst it is indeed technically in force the issue then
arises "enforced by whom?"
Since the IMO has no police force or enforcement machinery of its own, it relies on
national governments and agencies to enforce the conventions. As national agencies
only enforce their own laws, the convention has to be passed into national legislation
before any government enforces a convention.
When, in Australia for instance, The Australian Maritime Safety Authority

(AMSA)which is the national enforcement agency in matters maritime, holds up a ship
for contravention of The Safety of Life at Sea (SO LAS) requirements, technically it is
not enforcing SOLAS as such but the Australian Navigation Act which is the Australian
law which contains the terms of SOLAS. This applies to all other national enforcement
of International Conventions.
The shipping industry is regulated by an enormous number of international conventions.

In terms of safety there is the Convention on the Safety of Life at Sea; the international
nature of shipping requires this international type of regulation.
MARPOL Convention
The International Convention for the Prevention of Pollution from Ships (MARPOL) is
the main international convention concerning prevention of pollution of the marine
environment by ships. It encompasses both operational and accidental pollution.
The first international convention covering marine pollution originated in London in

1954 (OILPOL) and entered into force in 1958, by which time IMO had been
established and was able to manage it. At this time pollution of the marine environment
was not a major international concern (tankers still pumped their oily water tank
cleaning mixture into the sea, so long as they were sufficiently far offshore and clear of
special areas.

MARPOL was first adopted on 2 November 1973. The need for the stricter measures
enforced by MARPOL was triggered by the grounding of the Torrey Canyon in 1967
that resulted in the spillage of 120,000 tons of crude oil into the English Channel.
MARPOL 1973 covered pollution by oil, chemicals, and harmful substances in
packaged form, sewage and garbage.
The 1973 Convention required ratification by 15 States, with a combined merchant fleet
of not less than 50 percent of world shipping by gross tonnage, before entering into
force. Even though states were only required to ratify Annexes I & II, by 1976 only
three countries, representing less than one percent of the world's merchant shipping
fleet, had ratified it.
Before it came into force, a further series of tanker incidents in 1976/77 resulted in the
adoption of further measures at a Conference on Tanker Safety and Pollution Prevention
in February 1978. This was the Protocol of 1978 that adopted measures affecting tanker
design and operation – and MARPOL became MARPOL 73/78. In 1983 MARPOL
73/78 Annexes I and II entered into force – but with Annex II not becoming binding
until three years later. Note that the SOLAS protocol of 1978 adopted the same
measures.
Further developments have taken place so that MARPOL today comprises six Annexes:
Annex I Regulations for the Prevention of Pollution by Oil (in force from 2
October 1983)
Annex II Regulations for the Control of Pollution by Noxious Liquid Substances

in Bulk (in force from 2 October 1983)
Annex III Prevention of Pollution by Harmful Substances Carried by Sea in

Packaged Form (in force on 1 July 1992)
Annex IV Prevention of Pollution by Sewage from Ships (in force from 27

September 2003)
Annex V Prevention of Pollution by Garbage from Ships (in force from 31

December 1988)
Annex VI Prevention of Air Pollution from Ships (in force from 19 May 2005)
All parties to the Convention must accept Annexes I and II, but the other Annexes are
voluntary.

Annex I: Regulations for the Prevention of Pollution by Oil
Entry into force: 2 October 1983.
By far the most complex of the Annexes, comprising 7 chapters, 39 regulations, 3

appendices and 161 pages in the 2006 consolidated edition.
Chapter 1 General (includes definitions and application)

Chapter 2 Surveys and certification
Chapter 3 Requirements for machinery spaces of all ships
Chapter 4 Requirements for cargo areas of oil tankers
Chapter 5 Prevention of oil pollution arising from an oil pollution incident
Chapter 6 Reception facilities
Chapter 7 Special requirements for fixed or floating platforms
Annex II: Regulation for the Control of Pollution by Noxious Liquid Substances
in Bulk
Entry into force: 6 April 1987.
Although this annex contains 8 chapters, 18 regulations and 7 appendices, all are
contained within 76 pages of the 2006 edition.

Chapter 2 Categorisation of noxious liquid substances
Chapter 4 Design, construction, arrangement and equipment
Chapter 5 Operational discharges of residues of noxious liquid substances
Chapter 6 Measures of control by port states
Chapter 7 Prevention of pollution arising from an incident involving noxious liquid
substances
Annex III: Regulation for the Prevention of Pollution by Harmful Substances

Carried by Sea in Packaged Form
Entry into force: 1 July 1992.
A single chapter of 8 regulations and 1 appendix
It contains general requirements for the issuing of detailed standards on packing,

marking, labelling, documentation, stowage, quantity limitations, exceptions and

notifications for preventing pollution by harmful substances. The International

Maritime Dangerous Goods (IMDG) Code has, since 1991, included marine pollutants.
Annex IV: Prevention of Pollution by Sewage from Ships
Entry into force: 27 September 2003.
Comprises 4 chapters, 12 regulations and 1 appendix

Chapter 3 Equipment and control of discharge
Annex V: Prevention of Pollution by Garbage from Ships
Entry into force: 31 December 1988.
A single chapter, 9 regulations and an appendix
This deals with different types of garbage and specifies the distances from land and the
manner in which they may be disposed of. The requirements are much stricter in a
number of "special areas" but perhaps the most important feature of the Annex is the
complete ban imposed on the dumping into the sea of all forms of plastic.
Annex VI: Regulations for the Prevention of Air Pollution from Ships
Entry into force: 19 May 2005.
Contains only 3 chapters, but 19 regulations and 5 appendices over 40 pages

Chapter 2 Surveys, certification and means of control
Chapter 3 Equipment and control of discharge
Its emphasis is the control of ozone-depleting substances, nitrogen oxides and sulphur
oxides (NOX and SOX)
Enforcement
Any violation of the MARPOL 73/78 Convention is punishable either under the law of
the coastal/port state where it occurs, or under the law of the flag state.
All ships engaged on international voyages (except very small ones) must carry on
board valid international certificates which may be accepted at foreign ports as prima
facie evidence that the ship complies with the requirements of the Convention.

Where there are clear grounds for believing that the condition of the ship or its
equipment does not correspond substantially with the particulars of the certificate, or if
the ship does not carry a valid certificate, the authority carrying out the inspection may
detain the ship until it is satisfied that the ship can proceed to sea without presenting
unreasonable threat of harm to the marine environment.
Amendment Procedure
Amendments to the technical Annexes of MARPOL 73/78 can be adopted using the
"tacit acceptance" procedure, whereby the amendments enter into force on a specified
date unless an agreed number of parties object by an agreed date.
In practice, amendments are usually adopted either by IMO's Marine Environment

Protection Committee (MEPC) or by a Conference of Parties to MARPOL.
There are two Codes that have been made mandatory under MARPOL 73/78:
 International Code for the Construction and Equipment of Ships Carrying Dangerous
Chemicals in Bulk (IBC Code)
 IMO Code for the Construction and Equipment of Ships Carrying Dangerous
Chemicals in Bulk (BCH Code)
Whereas MARPOL is designed to prevent pollution from ships, there are further
conventions whose purpose is to ensure adequate compensation is available to those
suffering damage as a result of pollution incidents. A summary of these Conventions
follows.
The International Convention on Civil Liability for Oil Pollution Damage

(CLC) 1969 and 1992
CLC 1969 came into force in 1975. Changes were made to the basis for measuring
monetary liability in 1976 (entered into force in 1981), and further proposals for change
were made in 1984 but never came into force because of lack of support, chiefly from
the US.
A 1992 Protocol was able to come into force because of the reduced requirements for
its acceptance. It contained many of the proposals from 1984, including increased
limitation figures. The 1992 Protocol came into force in 1996 as CLC 1992. Further
amendments to increase the limitation amounts were adopted by tacit acceptance in
2003
This Convention placed the liability for pollution damage on the owner of the ship from
which the “persistent hydrocarbon” oil escaped or was discharged. It contains
provisions for limiting the total liability for any one incident so long as the owner has
not been guilty of actual fault.
It only covers damage caused by cargo and bunker oil from laden tankers, but not from
tankers in ballast, nor bunkers from non-tankers.
Liability is nominated in SDRs (Special Drawing Rights used by the IMF) but ranges
from approximately US$6 million for ships under 5000 gross tons, to US$115 million
for ships over 140,000 gross tons. Owners must maintain insurance or some other

financial security to the amount of their liability limit, together with a certificate of
compliance.
The International Convention on the Establishment of an International

Fund for Compensation for Oil Pollution Damage 1971 and 1992
This Convention has since been replaced by the 1992 Protocol to become known as the
1992 Fund Convention. The 1971 Fund ceased to be in force in 2002.
CLC 1992 places the burden for compensation solely on the ship-owner, even when not
guilty of actual fault. To redress this imbalance, and to meet the demands of some states
for greater, or even unlimited liability, the 1971 Fund Convention was established. It
came into force in 1978 and thereafter progressed through similar Protocols and
amendments to those of the CLC Convention (even to the extent that the 1984 Protocol
failed).
The 1992 Fund Convention provides a second tier of available funding when a pollution
incident occurs. Contributions to the Fund are made by all persons who receive oil by
sea in contracting states, to:
 provide compensation for pollution damage to the extent that the protection afforded
by the CLC is inadequate (under a 2000 amendment that entered into force in 2003
by tacit acceptance, the total combined figure available for any one incident is now
US$260 million – or US$386 million if three of the states contributing to the fund
receive more than 600 million tonnes of oil per annum);
 give relief to ship-owners in respect of the additional financial burden imposed on

them by the CLC Convention (it will indemnify the ship-owner for a proportion of
his liability under the CLC Convention, so long as the ship-owner is not at fault).
A 2003 Protocol entered into force in 2005. Its aim is to provide a third tier of
compensation by establishing an International Oil Pollution Supplementary Fund.
Contributions to the fund will be made by large oil importers in countries who receive
over 1 million tonnes of oil per annum.
The Protocol is open, on a voluntary basis, to all states who are party to the 1992 Fund
Convention. The combination of funding from all three tiers can amount to US$1,000
million.
The International Convention on Civil Liability for Bunker Oil Pollution

Damage 2001
It was noted above that the CLC Convention only applies to bunkers on loaded tankers.
Given that large ships today may carry as much bunker oil as small tankers carry as
cargo, there is obviously potential for severe pollution from bunker oil. Total world
sales of bunker fuel are approaching 150 million tonnes per annum.
To meet this need the Bunker Oil Pollution Damage Convention was adopted at the
IMO in 2001. It mirrors many of the provisions of the CLC Convention, except that
the definition of “ship-owner” is much broader and could encompass mortgagees and
salvos. The convention entered into force on21 November 2008.

The International Convention on Liability and Compensation for Damage

in Connection with the Carriage of Hazardous and Noxious Substances
by Sea 1996 (HNS)
When it enters into force, this Convention will make it possible for up to US$320
million (approx.) to be paid out in compensation to victims of accidents involving
hazardous and noxious substances, such as chemicals.
The HNS Convention is based on the two-tier system established under the CLC and
Fund Conventions. However, it goes further in that it covers not only pollution damage
but also the risks of fire and explosion, including loss of life or personal injury as well
as loss of or damage to property.
HNS are defined by reference to lists of substances included in various IMO

Conventions and Codes. These include oils; other liquid substances defined as noxious
or dangerous; liquefied gases; liquid substances with a flashpoint not exceeding 60°C;
dangerous, hazardous and harmful materials and substances carried in packaged form;
and solid bulk materials defined as possessing chemical hazards. The Convention also
covers residues left by the previous carriage of HNS, other than those carried in
packaged form.
The Convention defines damage as including loss of life or personal injury; loss of or
damage to property outside the ship; loss or damage by contamination of the
environment; the costs of preventative measures and further loss or damage caused by
them.
The Convention introduces strict liability for the ship-owner and a system of
compulsory insurance and insurance certificates.
As at 2 October 2009 the requirement for the number of contracting stated had been
met, but an insufficient number of them control the requisite shipping tonnage to bring
this convention into force.
The Oil Pollution Act 1990 (OPA90)

The reason that certain Protocols to the CLC and Fund Conventions failed was that the
US, despite indicating that it was to support them, failed to do so.
When the Exxon Valdez grounded in Alaska in 1989 it created widespread pollution and
associated environmental damage. It became apparent that relevant existing US federal
legislation, comprising the Clean Water Act, the Deep Water Act, the Outer Continental
Shelf Act and the Trans-Alaska Pipeline Authorisation Act, was inadequate to deal with
such a disaster. Although it is estimated that the final costs to Exxon Corporation was
in the region of 4.5 billion dollars, recovering claims of this magnitude would have been
difficult from a smaller company, or from one based outside the US.
The Federal Oil Pollution Act 1990 was the outcome. It covers both tankers and non-
tankers. The rights to limitation are lost if there is any infringement of federal safety
regulations – and given the mass of applicable legislation this means that there could
effectively be no right to limitation. Unfortunately the pre-existing acts were not
superseded by OPA90, and still exist, as do a whole range of state acts.

The result is that ship-owners trading to the US, and their insurers, face a great deal of
uncertainty about just how large their liability could be.
One positive aspect of the unilateral approach is that it allowed the legislation to take
immediate effect, rather than waiting for the more protracted process that must be
completed before an international convention can come into force.
There is probably only one IMO convention that is of more importance than MARPOL,
and that is the SOLAS Convention. Although it would appear to have little direct
impact on the commercial aspects of a ship’s voyage, failure to comply with its
requirements could certainly have an indirect one if such failure leads to delay or even
detention. An outline of SOLAS is therefore included in these notes.
SOLAS Convention
The SOLAS Convention is probably the most important of all international conventions
concerned with the safety of merchant ships. Its main objective is to specify minimum
standards for their construction, equipment and operation.
What follows is a summary of the history of the Convention, its contents, and
information about some of the more recent amendments. Together they illustrate the
importance and scope of the Convention, and demonstrate how it has adapted to meet
the needs of a changing industry and society.
Greater detail about SOLAS can be accessed on the IMO website at www.imo.org.
Although some information about recent amendments appears at the end of this section,
students should consult the website to make themselves aware of any further
amendments.
History of SOLAS
SOLAS has its origins in the public and political outcry that followed the sinking of the
Titanic in 1912. The first version was adopted in 1914, with further versions in 1929,
1948, 1960 and 1974.
The 1960 Convention was the first major task for IMO after the Organisation's creation,
and was a major step forward in bringing regulation of the shipping industry into line
with technical developments.
It was expected that the Convention could be kept up to date by regular amendments,
but it became apparent that the protracted process for having amendments accepted
made this impossible. Thus, in 1974, a new version was adopted, together with the
introduction of the ‘tacit acceptance’ procedure.
The tacit acceptance procedure means that, instead of requiring acceptance by a fixed
number/proportion of members before changes can be made, an amendment will enter
into force on a specified date unless objections are received from an agreed number of
Parties – they are presumed to have accepted the change unless they indicate otherwise.
The amendment procedures today follow one of two routes:

 Amendments can be proposed by a Contracting Government and circulated for at least

six months before consideration by the Maritime Safety Committee (MSC) of the IMO
(and/or one of its sub-committees). Amendments will then be adopted if there is a two-
thirds majority vote by Contracting Governments present and voting.
 Alternatively, a Conference to consider amendments will be held if requested by a

Contracting Government and agreed by one-third of all Contracting Governments.
Amendments can then be adopted by a two-thirds majority of Contracting Governments
present and voting.
The majority of amendments follow the MSC route. Those involving entire chapters
of SOLAS, or where action is required more quickly, are likely to follow the Conference
route.
Whichever method is used, the tacit acceptance procedure may then be followed. Even
though this accelerates the ‘old’ procedure, the minimum length of time it could take
(after the 1974 Convention) before entry into force was 2 years: 6 months for
circulation amongst Contracting Governments; 12 months before tacit acceptance can
be presumed; and a further 6 months to allow Contracting Governments to pass required
domestic legislation, before the Convention enters into force.
This minimum period has been reduced since a 1994 resolution allowed the tacit
acceptance period to be reduced to 6 months for amendments following the Conference
route.
Enforcing SOLAS Requirements
Flag States are responsible for ensuring that ships under their flag comply with SOLAS
requirements. Compliance is evidenced by issue of certificates as prescribed by the
Convention.
Contracting Governments are also allowed to inspect ships of other Contracting States
if there are clear grounds for believing that the ship and its equipment do not
substantially comply with the requirements of the Convention. This is Port State
control.
The Format of SOLAS
Chapter I - General Provisions

Chapter 1 includes regulations concerning the survey of the various types of ships and
the issuing of documents signifying that the ship meets the requirements of the
Convention. The Chapter also includes provisions for the control of ships in ports of
other Contracting Governments.
Chapter II-1 - Construction - Subdivision and stability, machinery and

electrical installations
Chapter II-2 - Fire protection, fire detection and fire extinction
Chapter III - Life-saving appliances and arrangements
Chapter IV - Radio communications
Chapter V - Safety of navigation
Chapter VI - Carriage of Cargoes

Chapter VII - Carriage of dangerous goods

Chapter VIII - Nuclear ships
Chapter IX - Management for the Safe Operation of Ships
Chapter X - Safety measures for high-speed craft
Chapter XI-1 - Special measures to enhance maritime safety
Chapter XI-2 - Special measures to enhance maritime security
Chapter XII - Additional safety measures for bulk carriers
Amendments to SOLAS 1974
Protocol of 1978 - Tanker safety and pollution prevention

1981 amendments -chapter II-1 and II-2 updated
1983 amendments -revised chapter III
1988 (April) amendments - post Herald of Free Enterprise
1988 (October) amendments - stability of passenger ships
1988 Protocol - HSSC
1988 amendments - GMDSS
1989 amendments - chapters II-1 and II-2
1990 amendments - subdivision and stability: probabilistic approach
1991 amendments - revised chapter VI
April 1992 amendments - measures for existing ro-ro passenger ships
December 1992 amendments -fire safety of new passenger ships
May 1994 amendments (Conference) - Accelerated amendment procedure
New Chapter IX - Management for the Safe Operation of Ships
New Chapter X - Safety measures for high-speed craft
New Chapter XI - Special measures to enhance maritime safety
May 1994 amendments (MSC) - emergency towing, ship reporting systems
December 1994 amendments - cargo code made mandatory
May 1995 amendments - ships routeing systems made mandatory
November 1995 amendments (Conference) - ro-ro safety post-Estonia
June 1996 amendments - revised chapter III
December 1996 amendments -new Fire Test Procedures Code
June 1997 amendments - Vessel Traffic Services regulation
November 1997 amendments (Conference) - New chapter XII bulk carrier safety
May 1998 amendments - amendments to chapters II-1, IV, VI
May 1999 amendments - INF Code made mandatory
May 2000 amendment - helicopter landing area
December 2000 amendments - VDRs, AIS made mandatory in revised chapter V,
revised chapter II-1
June 2001 amendments – chapters VII, IX
May 2002 amendments - IMDG Code made mandatory
December 2002 amendments (Conference) - measures to enhance maritime security
December 2002 amendments - bulk carrier new regulations
June 2003 amendments - chapter V
May 2004 amendments - persons in distress at sea, accidents with lifeboats
December 2004 amendments - bulk carriers, free-fall lifeboats, S-VDRs
May 2005 amendments - revised chapter II-1
May 2006 amendments - LRIT
May 2006 amendments - other issues
December 2006 amendments - passenger ship safety

October 2007 amendments - GMDSS providers

May 2008 - mandatory casualty investigation code
December 2008 - mandatory IS code
December 2008 - mandatory IMSBC code
June 2009 -ECDIS
Details of some amendments that are yet to come into force are given below. More
information about all other amendments can be found on the IMO website.
Other Major International Conventions from the IMO
International Convention on Load Lines, 1966 (LL 1966)
Convention on the International Regulations for Preventing Collisions at Sea, 1972, as

amended (COLREG)
International Convention for Safe Containers, 1972, as amended (CSC 1972)
Convention on the International Maritime Satellite Organisation (INMARSAT) 1976,

as amended (INMARSAT C)
International Convention on Maritime Search and Rescue, 1979 (SAR 1979)
United Nations Convention on the Law of the Sea, 1982 (UNCLOS 1982)
International Convention on Standards of Training, Certification and Watch keeping,

1995 (STCW-95)
The International Labor Organization (ILO) Conventions

We tend to think of the IMO as the major UN body whose instruments impact on the
maritime industry, but the ILO may also be a source of treaties relevant to the marine
sector. As with IMO instruments, those from the ILO must be ratified by member
states, then given statutory status through domestic legislation, before being
enforceable. The ILO thus relies on member states to enforce their instruments through
flag state powers (own shipping) and port state powers (foreign shipping).
Examples of relevant ILO instruments follow:
Merchant Shipping (Minimum Standards) Convention 1976 (ILO147) has direct impact
on a wide range of measures, including: means of access and safe movement on board
ship, standards of competency, hours of work, manning levels, conditions of
employment, living arrangements, and official enquiries into marine casualties.
Other conventions target more specific areas egg:
Seafarers’ Hours of Work and Manning of Ships Convention 1996 (ILO180);

Health Protection and Medical Care (Seafarers) Convention 1987 (ILO164);
Seafarers’ Annual Leave with Pay Convention 1976 (ILO146);
Prevention of Accidents (Seafarers) Convention 1970 (ILO134);
Seafarers’ Identity Documents Convention 1958 (ILO108);
Medical Examination (Seafarers) Convention 1946 (ILO73);
Seamen’s Articles of Agreement Convention 1929 (ILO22).

From July 2011 it is expected that a new ‘super’ Convention, the Maritime Labour
Convention, will enter into force. It will incorporate and update a large number of
existing Conventions. Its application is covered in more detail in the Shipmaster’s
Business Study Guide. International bodies like the World Health Organization
(WHO) and the International Telecommunications Union (ITU) also set standards
and produce regulations that have an impact on the maritime sector.
The United Nations Convention on the Law of the Sea (UNCLOS)

All shipmasters need to be aware that their rights and obligations - and the laws they
must comply with - vary as their ship moves around the globe. The zones through
which a ship passes, and the associated obligations, are defined by UNCLOS.
UNCLOS defines a number of coastal zones that a state may claim (none are obligatory)
and exercise some jurisdiction over. All zones are measured from a baseline which, in
its simplest form, is a line joining extreme limits of the land of the state. In Australia
there are three possible baselines, depending on the shape of the coastline in the area
concerned. When the coastline is deeply indented, has fringing islands or is highly
unstable, straight baselines may be used.
The United Nations Convention on the Law of the Sea (UNCLOS), also called the Law
of the Sea Convention or the Law of the Sea treaty, is the international agreement that
resulted from the third United Nations Conference on the Law of the Sea (UNCLOS
III); was first established in 1973, fully ratified in 1982 and came into force in 1994.
The Law of the Sea Convention defines

1. The rights and responsibilities of nations in their use of the world's oceans
2. Establishing guidelines for businesses
3. Establishing guidelines for the environment and
4. The management of marine natural resources.
Figure 1-1

Figure 1-2
Internal waters are all those enclosed within the baseline (landward side BL). They
are part of a state’s national waters and under its jurisdiction. Foreign vessels only have
the right of innocent passage (non-prejudicial to the peace, good order or security of
the coastal state) in limited circumstances such as distress, force of weather or break-
down. National laws may be enforced on foreign vessels within internal waters.
Territorial seas can extend from the baseline up to 12 miles to seaward (it only extends
for 3 miles around some Torres Strait islands). Territorial seas are also part of the state’s
national waters, so ships using them are subject to certain elements of local legislation,
but foreign flag vessels here have much broader rights of innocent passage.
Archipelagic waters an archipelago is a group of islands where there are several states
for whom a section of the state is very important. Such may be established by mid-
ocean archipelagic states, giving them status similar to that of territorial seas.
A contiguous zone may be claimed for a further 12 miles beyond the limits of the
territorial sea. Within this zone the coastal state may detain vessels which they have
reasonable grounds to suspect are about to breach customs, immigration or health
regulations. This includes suspected smugglers and ships carrying noxious or
dangerous substances/waste. It may be thought of as a buffer zone to protect territorial
seas. Australia has claimed a contiguous zone extending up to 24 miles from the
baseline.
An exclusive economic zone (non-geological) may also be claimed to extend up to 200

miles from the baseline. Within the EEZ the coastal state has natural resource
exploitation rights and duties. Australia’s EEZ is defined in the Seas and Submerged
Lands Act 1973, and generally extends the full 200 miles from the baseline, except
where there is agreed or potential delimitation with other countries.
A 12 mile inshore fisheries zone may be claimed, within which fishing rights are
exclusively restricted to the coastal state. Preferential fishing rights may be exercised

within an extended fisheries zone which may stretch to 200 miles. In Australia the
Fisheries Management Act 1991 defines the Australian Fishing Zone as contingent
with the EEZ, but does not include coastal waters of Australian States and Territories,
or some other excepted waters.
The continental shelf of a state is a geological feature that may extend to a maximum
of 350 miles. The coastal state has exclusive rights to the mineral resources within the
continental shelf. Within the continental shelf, 500 metre safety zones may be set up
around offshore installations etc. The limits of Australia’s Continental Shelf are
generally the same as the EEZ, except where it has submitted scientifically supported
details of an extended continental shelf to the UN Commission on the Limits of the
Continental Shelf.
Areas of the seas falling outside all the above categories are known as high seas.
Freedom of the high seas extends to all states (not just those with coastlines), and
includes freedom of navigation, freedom to fish and carry out scientific research, to lay
cables and pipelines, to build artificial islands and other installations. There is a duty
to render assistance to those in distress on the high seas.
Freedom of the high seas does not extend to trade in slaves or drugs, piracy, seizure of
ships or unauthorised broadcasting. Enforcement of UNCLOS provisions in these areas
is granted by the rights of visit, seizure, arrest and hot pursuit.
Legal action against a ship or individual on the high seas can only be brought on the
authority of the flag state or the state of the individual’s nationality.
In recent years the events attracting coastal state jurisdiction that have received most
attention are those that have involved pollution and fishing rights.
In addition to defining the above zones, UNCLOS also provides information about the
nationality and status of ships, and the duties of those states in which ships are
registered.
Ship Registration
Registration of a ship serves a number of important functions. It provides information
about the nationality, measurements and tonnage of a ship, evidence and control of
ownership, documented evidence of any mortgage secured by the ship, and accords the
ship certain privileges of the state where it is registered (the flag state). Since ports
generally require production of a certificate of registration before giving clearance for
a ship to enter, without registration a ship would be unable to trade.
According to UNCLOS all states (not just those with seaboards) have the right to have
ships fly their flag so long as:
 the conditions set down by the state for granting of its nationality and for registration
in the state are met;
 there is a genuine link between the ship and the state;

 the ship will fly one flag only;

 necessary documentation is complete.

A ship complying with all of the above can then be entered on the national register of
the state concerned. National registers may also be referred to as the first or closed
registers.
If beneficial ownership of the ship is not the same as the flag it flies, that flag is known
as a flag of convenience (FoC). Ship-owners may prefer to call it a flag of necessity.
The register on which it appears is then known as an open register.
Flags of convenience are thus named and listed by the International Transport Workers’
Federation (ITF).
Whatever the form the flag state takes, UNCLOS requires it to exercise flag state control
(although history suggests that FoCs are unlikely to be able, or wish, to do this
effectively). The duties of the flag state include ensuring:
 the safety of its ships in terms of construction, equipment and seaworthiness;

 the manning, welfare and training of its crews comply with international
agreements;
 the maintaining of communications and the prevention of collision;
 that appropriate security levels for ships flying its flag are set and complied with;
where another state reports that it has grounds to believe that the flag state is not
properly exercising its control over a ship or ships flying its flag, it will investigate the
matter and take any appropriate action – informing the reporting state and competent
international organisation (usually the IMO) of its action.
To meet these obligations the flag state must require ships to be surveyed by a qualified
surveyor before registration and at set intervals.
The task of regulating and enforcing flag state control usually rests with an agency (like
the USCG, AMSA) within the flag state, but some delegate this duty to commercial
organisations outside the state.
Accident Investigations
Within Australia, investigations into marine accidents (and accidents involving other
modes of transport) are required to be carried out under the provisions of the Transport
Safety Investigation Regulations 2003, amended on 1 July 2009. Part 3 of these
regulations concerns marine operations. Regulation 3.3 explains which incidents are
“immediately reportable matters”, Regulation 3.4 defines who is a “Responsible
Person” in relation to making the report (usually the master), and Regulation 3.5 lists
the information that must be contained within the written report.
The first step in reporting an incident comprises an “Incident Alert” that must be
forwarded to the Australian Maritime Safety Authority (AMSA) within 4 hours of the
incident’s occurrence. Marine Orders Part 31 provides the appropriate form. It can be
accessed on-line (by searching “MO31/14” or “Form AMSA 18”). The second step is
to provide (within 72 hours) an “Incident Report”, the form for which can be accessed
on-line at “MO31/15” or “Form AMSA 19”.

Although these forms are required by both AMSA and the Australian Transport Safety
Bureau (ATSB), AMSA will forward a copy to the second body on receipt, so the
master is only required to send them once. As we will see later, these two bodies have
different approaches to accident investigation.
Other maritime nations have similar arrangements. In the US the two bodies are the
US Coastguard and the National Transportation Safety Board (NTSB), and in the UK
the Maritime and Coastguard Agency (MCA) and the Marine Accident Investigation
Branch (MAIB).
From an international perspective, the IMO has issued a circular “Reports on Marine
Casualties and Incidents – revised harmonised reporting procedures – reports required
under SOLAS regulation I/21 and MARPOL 73/78 articles 8 and 12”. (MSC/Circ.953
– MEPC/circ.372). There is less urgency for these reports to be submitted. For very
serious and serious casualties (defined in the circulars), preliminary information will be
forwarded to the IMO by ATSB within 6 months of the casualty, with further
information following at the end of the investigation. For less serious casualties and
marine incidents, reports are not required, but may be provided if they illustrate
important lessons to be learned.
The Purpose of Investigations

There are two quite distinct purposes for carrying out investigation into marine
accidents (or incidents).
The first purpose is to determine whether there have been breaches of safety and/or anti-
pollution legislation and, if appropriate, to prosecute those responsible. It is this role
that has come under a considerable amount of criticism in recent times because of the
resultant criminalisation of those who it is most easy to identify when an incident occurs
– the ship’s master and officers – regardless of their culpability. Q In addition to any
prison sentence and/or fines imposed by the relevant court on those found guilty, there
is a real possibility that anyone found guilty will have his/her certificate of competency
suspended or cancelled.
In Australia this investigative role falls to the Australian Maritime Safety Authority
(AMSA), in the UK to the Maritime and Coastguard Agency (MCA), and to a variety
of bodies in other countries. It is in some of these other countries that the master and/or
ship’s officers have been targeted as convenient scapegoats. This criminalisation of
mariners will be examined in a little more detail later in the module.
The second purpose of investigation is “to determine (the marine accident or incident’s)
circumstances, identify any safety issues, and encourage relevant safety action. The
aim ....is to prevent the occurrence of other accidents and incidents, rather than to assign
blame or liability. This approach helps ensure the continued free flow of safety
information for the purposes of improving safety in the future” (www.atsb.gov.au).
In Australia this role is carried out by the Marine Safety Investigation Team, within the
Australian Transport Safety Bureau (ATSB), and in the UK by the Marine Accident
Investigation Branch (MAIB). Both these organisations conduct their investigations on
a no-blame basis, publishing the resulting reports. These reports are publicly available,

in printed form or on-line at the ATSB website, so that lessons may be learned, and the
probability of similar incidents occurring in the future reduced.
It is this second role of accident investigation that comprises the main body of this
module. The emphasis will be on the work of the ATSB.
The Work of the Australian Transport Safety Bureau

“The Australian Transport Safety Bureau is an independent Commonwealth
Government Statutory Agency and is entirely separate from transport policy makers,
industry operators, and transport regulators such as the Australian Maritime Safety
Authority.
The ATSB’s function is to maintain and improve safety and public confidence in the
marine, aviation and rail modes of transport through excellence in:
 Independent investigation of transport accidents and other safety occurrences;

 Safety data recording, analysis and research; and,
 Fostering safety awareness, knowledge and action.” (www.atsb.gov.au)
ATSB resources are such that it has to be selective about which incidents it investigates
fully. In general it limits itself to investigations involving overseas and interstate
shipping that are most likely to enhance maritime safety. This usually means
undertaking about ten full, on-site investigations each year. The majority involve
foreign flag vessels. In the event of an exceptionally serious accident, such as one
involving multiple passenger fatalities of severe pollution of a sensitive area, additional
funding would be made available.
On receipt of a report from a ship a decision will be made at team leader level, with
agreement at director level, what the ATSB response should be. Occurrences will
finally be placed in one of five categories, depending on their severity, with level 1
being the most serious. Level 1 is an accident involving one or more ships and large
scale fatalities. A level 5 incident will normally involve no fatalities or significant
pollution. All occurrences will initially be placed as level 4 until preliminary
investigation shows otherwise. The decision to upgrade, downgrade or discontinue an
investigation will be made at Director/Executive Director level, based on categorisation
in line with ATSB decision guidelines. These are, in order of importance:
1. On-board fatalities and/or serious passenger injuries;

2. Pollution of environmentally sensitive areas;
3. Ships having significant structural damage;
4. Disruptions, or potential to disrupt , major port operations;
5. Probable breaches of ISM Code.
Together with the following considerations:
1. Potential safety value of conducting an investigation;

2. International obligations;
3. IMO recommendations;
4. Public profile of the occurrence;
5. Whether part of identifiable trend;

6. Current and projected resource availability;

7. Risks associated with failure to investigate;
8. Requirements of the Transport Safety Investigation Act to publish reasons for
discontinuing an investigation.
The decision may then be made whether to conduct an on-site investigation, request
more information, or simply make an entry of accident/incident details into the ATSB
database.
On-site investigations require attendance of ATSB investigators, and could include

personal interviews, removal and retention of relevant documents and physical
evidence for examination and analysis. Given their underlying purpose, and limited
authority, investigators seek cooperation rather than confrontation. They keep
operational disruption to the minimum. Whilst investigators do liaise with owners,
operators, police, AMSA etc., sensitive information is classified as restricted,
confidentiality is assured under the Act, and those giving evidence are given immunity
from self-incrimination.
The form of the resulting report will usually comprise five parts:
Part 1 – The factual information assembled
Part 2 – Analysis of the information
Part 3 – Findings based on the analysis
Part 4 – Safety actions, including that already taken at the local (ship) level, and
recommended further actions to eliminate/mitigate identified safety issues
Part 5 – Appendices containing additional information in support of the findings.
Examples of reports can be found on the ATSB website.
Progress Check Questions
1. Explain what a contract is.
2. What are the essential requirements to make a contract valid?
3. How can one party be discharged of a contract?
4. You negotiate with a local supplier for the supply and fitting of new equipment
for the crew recreation room and gymnasium. You receive a quote for $36,000 on
20%deposit and balance on completion. You attempt to negotiate a 10% discount
but the supplier refuses. You therefore approach a second supplier who quotes
$45,000 for the job. As a result you return to the first supplier with a cheque for
$7,200 and tell him you have accepted his offer. He says that he is now very busy
and would have to employ additional staff to complete your job, so the price has
now increased to$39,000. You insist that he honours his first quote, but he
refuses. Discuss the legal position. (not for exams)
5. Explain the difference between express and implied terms of a contract, and
between conditions, warranties and innominate terms. Illustrate your answer with
examples.

6. Before the tort of negligence can be established, a claimant must be able to show
that four elements are present. Name and describe these elements, providing
illustrations of each.
7. Describe the circumstances and action possible in the enforcement of UNCLOS

provisions when breaching the freedom of high seas.
8. There are two quite distinct reasons for carrying out marine accident
investigations. Name these reasons, and describe how, and by which
organisations, these roles are performed in Australia.
9. Describe the process that is likely to be followed before a can be adopted by the
IMO and finally become enforceable in Australia. How would it happen in the
case of an urgent amendment?
10. Describe the international conventions that are designed to prevent pollution from
ships, and those that are designed to ensure adequate funds are available to clean
up the results of pollution and compensate those suffering damage from it. What
evidence must be carried aboard a ship to show that it complies with these
conventions?
11. Know the various terminology used in UNCLOS.
12. Know the broad scope covered by each Annex of MARPOL.
Page Left Blank

Section 2 – Towage
Section 2
Towage

Towage
This topic is divided into four separate areas. The first deals with harbour towage in
general; the second with recent decisions that impact on harbour towage in Australia;
the third with ocean towage; and the fourth considers the, often difficult, differentiation
between towage and salvage.
Towage will, in general, be undertaken under a contract – and often under the terms of
a standard form contract. All the usual laws of contract therefore apply to towage
contracts. If there is no written contract it may be left to the courts to imply certain
terms and conditions into it. Payment for the tow will only be made if there is an agreed
contract, except when that tow forms part of a salvage operation (when reward could
be received under the laws of salvage). Small vessels, and ships under the same
ownership, may offer towage without a contract or expectation of any payment.
Harbour Towage
Harbour towage will almost certainly be offered under a standard form contract.
Although it is possible for a unique contract to be entered into for each operation, this
is generally impractical. Each tug may perform several tows each day, and even the
name of the tug allocated to a particular job may not be known until shortly before the
tow commences. For this reason standard form contracts have been developed by the
towing industry. It is therefore not surprising that the terms and conditions contained
in these contracts are more favourable to the tug owner, and the contract most
commonly used in Australia (and many other countries), the UK Standard Conditions
for Towage and Other Services (UKSTC) is particularly so. This situation has been
able to continue because many port towing services are controlled by monopolies. As
we shall see, these monopolies have to take great care in formulating exclusion and
indemnity clauses because courts are likely to interpret them against the party who is
attempting to rely on them (contra preferentuem).
Included in the attempts by shipowners to avoid the impact of clauses unfavourable to

them are disputes over when towage (and therefore exclusions/indemnities) starts and
ends, whether the parties agreeing to the contracts actually have the authority to do so
(the port authority/terminal operator etc. may act on behalf of the tug owner), and if the
exclusions act contrary to relevant statutes. The section that follows this will consider
how Australian courts have ruled in favour of shipowners on some of these issues
involving UKSTC.
Given that harbour towage arrangements are often made at short notice, and sometimes
without direct contact with the tug owners, how may the terms of a standard form of
contract be incorporated into a specific contract? There are three options:
1. By express incorporation through prior communications (perhaps by facsimile);

2. On the basis of previous dealings;
3. Because it is known and expected that the standard conditions habitually apply
to these contracts
The question about when the towage operation actually starts becomes very important
in some cases (as we shall see). It might be thought that it begins as soon as the tug is
called to a job, at one extreme, or when a line is actually connected to the tow, at the

other. The answer is not that simple. Towing is defined in UKSTC 1(b)(i) as “any
operation in connection with the holding, moving, escorting or guiding of or standing
by the Hirer’s vessel, and the expression ‘to tow’, ‘being towed’ and ‘towage’ shall be
defined likewise.” UKSTC 1 (b)(iv) states that: “The expression ’whilst towing’ shall
cover the period commencing when the tug or tender is in a position to receive direct
orders from the Hirer’s vessel to commence holding, pushing, pulling, moving,
escorting, guiding or standing by the vessel to pick up ropes, wires or lines, or when the
towing line has been passed to or by the tug or tender, whichever is the sooner, and
ending when the final orders from the Hirer’s vessel to cease holding, pushing, pulling,
moving, escorting, guiding or standing by the vessel or to cast off ropes, wires or lines
has been carried out, or the towing line has been finally slipped, whichever is the later,
and the tug or tender is safely clear of the vessel.”
If more than one tug is contracted, the above applies to each tug individually.
The majority of the remaining clauses of UKSTC (2-8) cover the many and varied
exclusions which protect tug owners’ interests. Interestingly, the contract effectively
appoints the tug’s master and crew as servants of the hirer during the tow, making the
hirer vicariously liable for their acts or omissions!
Recent Australian Decisions
We have already stated that UKSTC, or towage contracts similarly favourable to tug
owners, are used in Australia and many other countries. Amongst the common law
countries the US has, until recently, been alone in failing to automatically recognise
exclusion terms in contracts that protect one party to the detriment of the other. This
applies to towage contracts.
An Australian court has now taken a step towards the US stance, by striking down
certain onerous terms in the UKSTC. Fuller details of the case that has achieved this
can be found at either of the two sites listed below. Note that the typographical error in
the second site (salwage instead of salvage) is not mine and must be used to access the
site. A brief summary of the case follows.
https://maritimejournal.murdoch.edu.au/index.php/maritimejournal/article/viewFile/3
8/59
http://www.infomar.org/English/towageandsalwage/1709.html
Two tugs were approaching to attend a bulk carrier arriving at the Dalrymple Bay Coal
Terminal in Queensland. The tug in question was approaching the ship from the port
bow when it received an order from the pilot to make fast on the starboard bow. The
tug therefore crossed the ship’s bow and started its approach. At this stage the tug had
a failure of its steering gear and it collided with the ship’s starboard side. Whilst the
tug was undamaged, the ship sustained sufficient damage to prevent it loading its
intended cargo and it had to proceed to Brisbane for repairs.
The steering gear failure occurred because of a generator failure. The case was made
that the engineer was negligent in that he had failed to immediately switch power to the
second generator, and the master in that he had to failed manoeuvre away from the ship
at the first sign of trouble (before the steering gear had actually failed), and that he had

not stopped the engines to reduce the impact. The case was also made that there was
breach of an implied warranty of the Commonwealth Trade Practices Act (TPA) that
the services would be rendered with due care and skill.
The defence was also two-fold. Firstly that towage had commenced, so the tugmaster
and engineer were no longer servants of the tug operator under the terms of the UKSTC;
and, secondly, that the TPA did not apply to “a contract for or in relation to the
transportation or storage of goods for the purpose of a business, trade, profession or
occupation .....” so there was no implied warranty.
The case was decided in favour of the bulk carrier. Reasons were given for rejecting
both defences (although only one was needed). The judge decided that the pilot’s
directions to the tug to move to the starboard side was merely preparatory and that the
tug was not at that time “in a position to receive orders ... to commence pushing” etc.
Thus the tow had not commenced, and the tug crew were not yet servants of the tow.
In any case towing was not the same as transportation or storage of goods, so the terms
of the TPA that “services would be rendered with due care and skill” was implied into
the towage agreement – and had not been met.
Although the above incident had occurred in 1995 it was not until 2007 that the case
was finally decided in the Queensland Supreme Court of Appeal. There could, of
course, be further appeals.
The final award was limited to 167,000 SDRs in accordance with the Commonwealth
Limitation of Liability for Maritime Claims Act 1989. This limit is based on the ship’s
(in this case the tug’s) tonnage, rather than its value. It is possible to add a clause to the
UKSTC that would limit liability to the costs of the service provided (in this case to
A$12,500) – but only if the service had actually commenced, and in this case it was
found that it had not.
Ocean Towage
UKSTC terms are not suitable for long towage, so the Baltic and International Maritime
Council (BIMCO) have developed two alternatives known as TOWHIRE and
TOWCON. These can be viewed in full on the BIMCO website or simply by entering
the terms into a search engine.
The essential difference between the two is that TOWHIRE is a daily hire contract (the
equivalent of a time charter) whereas TOWCON is an agreed lump sum contract
(although there may be provisions for ‘progress’ payments). TOWCON therefore
shares features with a voyage charter. Both contracts place an obligation on the tug
owner to exercise due diligence in providing a seaworthy tug at the start of the contract,
and on the tow owner to provide a tow-worthy tow. In the case of the tow this entails
the provision of a certificate from a surveyor stating that it is tow-worthy. Even when
this certificate is supplied, the tug owner may still inspect the tow and refuse to
commence the tow if not satisfied with the condition of the tow.
Certain damages will be allocated on a ‘knock for knock’ basis regardless of which
party might otherwise have been found liable. This has even been the case when one
party has been in breach of the sea/tow-worthy requirement. There is a two-way
indemnity for loss of life, injury and damage between the tug and tow whereby each

indemnifies the other against the consequences of such events i.e. the tug owner is
indemnified for such losses etc. that occur on the tow, and the tow owner for such losses
that occur on the tug. Where the lack of sea/tow-worthiness of one of the parties leads
to a loss which is not covered by the knock for knock or indemnity clauses, there may
be a case for damages under a breach of contract.
If the hirer is the charterer of the tow, rather than the owner, then the owner is a third
party and could sue the tug owner if the tow is lost through his negligence. To cover
this possibility the tug owner should obtain an indemnity from the charterer (the hirer).
Both these standard contracts provide for English law and jurisdiction, and also place a
requirement that a notification of any claim must be made within six months of the
delivery of the tow, and suit brought within twelve months of the cause of any action.
Although English law may create a lien on the tow for any outstanding payments, the
tow may end in a jurisdiction where the lien cannot be enforced. If the tug delays entry
to the final port so that the lien may be enforced, this could lead to an unreasonable
delay and a claim for damages against the tug!
The nature of the TOWCON contract means that there is an implied duty of reasonable
dispatch, even if it is not explicit. This should ensure that the tug uses available power
(the basis on which it was contracted), rather than attempting to improve fuel economy.
Conversely, if the tug loses time because of the unsuitability of the tow, an extra daily
“delay payment” as specified in the contract will be payable to the tug.
Before leaving this topic it is worth considering the treatment of a collision involving
tug and tow. If the collision involves only these two entities, then the solution regarding
damages will be found within the contract. When a third party is involved, however,
the towage contract is immaterial because the third party was not a party to it. So who
should the third party sue in the tort of negligence (if that was the issue)? The traditional
view is that the tug is the servant of the tow – a position that would appear to be the
case under UKSTC. This is not the general law, however. Who is in command, and
who is liable, will depend on the facts of each case. It is probable that the negligence
was based on one or more party’s failure to act in accordance with the practice of good
seamanship. Remembering that the Limitation of Liability for Maritime Claims Act is
based on tonnage, the third party would probably be best served by suing the both tug
and tow!
Towage v Salvage
Case history clearly shows that the distinction between towage and salvage is not
always clear. In legal terms towage is entirely contractual – if there is no contract there
will be no payment. In the event that payment is not forthcoming according to the terms
of the contract the provider of the towing service has an action in rem against the tow
(and vice-versa). But the claimant will not have superior rights to other claims against
the property (like mortgages).
Salvage rights do not depend on contract. Reward will be based on a number of criteria.
Even if a salvage contract actually exists in the terms, for example, of Lloyd’s Open
Form. The vessel salvaged must have been in danger, and there must have been a degree
of success. Perhaps most importantly, the in rem claim that the salvo has against the
vessel salved is a maritime claim that takes precedence over other claims (like a
mortgage) over the same property. The only bases for maritime claims today are

salvage, damage done by the ship, crew’s wages, and master’s wages and
disbursements.
The question therefore arises whether a vessel in danger can enter into a standard
towage contract. Given the freedom of contract that exists in common law countries
the answer is obviously yes. It would certainly be a preferred option from the ship-
owners point of view in many cases, in that the cost is a pre-determined amount. The
terms, however, would probably have to be very generous before a towing vessel would
accept them.
Can a contractual tow become salvage? According to the Salvage Convention (Article
17) only when “the services rendered exceed what can be reasonably considered as due
performance of a contract entered into before the danger arose”. Deteriorating weather
conditions, or re-connecting a tow after it had parted, would probably not be considered
sufficient, but the 2008 text from the Institute of Maritime Law (p.186) stated that the
effect of this Article was yet to be tested under English law.
If tow becomes salvage, is the towage contract abandoned or merely suspended? Once
the exceptional circumstances that led to the change come to an end it would probably
be the case that redelivery of the salvaged vessel would take place (to the same towing
vessel) and the remainder of the voyage would revert to the terms of the contracted tow.
This could create problems, as envisaged by the Institute of Maritime Law (p.187),
because of the special compensation provisions within the Salvage Convention. The
Institute’s suggested solution is “that the towage contract ends at the point where a
situation of salvage arises and that the towage contract can be reinstated by agreement
by both parties but subject to rights and obligations created by the 1989 Salvage
Convention.”

1. Describe the form of contract most commonly used in Australia for harbour
towage, and state the general liabilities and responsibilities of the parties
involved.
2. Compare and contrast a contract for towage and salvage. Can towage ever
become salvage? Explain.
3. Describe the two contracts that have been developed by BIMCO for use in ocean
towage.
4. During an ocean tow a collision takes place between the tug and tow. On what
basis will any claim for damages be settled? If the collision had involved another
ship, how does the situation regarding damages differ? Why might the third party
decide to sue the tow, or the tug and tow, rather than the tug alone?

Section 3 – Master/Pilot Relationship
Section 3
Master/Pilot Relationship

Master/Pilot Relationship
Definitions and guidance from authoritative sources would be the best to understand
this topic.
Section 6 of the Navigation Act 2012 (Cth) provides that “pilot means a person who
does not belong to, but has the conduct of, a ship”; and
Section 410B states that:
“(1) A pilot who has the conduct of a ship is subject to the authority of the master
of the ship and the master is not relieved from responsibility for the conduct and
navigation of the ship by reason only of the ship being under pilotage.
(2) Notwithstanding anything contained in a law of the Commonwealth or of a State
or Territory, the owner or master of a ship navigating under circumstances in
which pilotage is compulsory under a law of a State or Territory is answerable for
any loss or damage caused by the ship, or by a fault of the navigation of the ship,
in the same manner as the master or owner would if pilotage were not
compulsory.”
IMO resolution A.960 Annex 2 Duties of Master, Bridge Officers and Pilots provides
that:
1. “Every Pilot and Master should be trained in Bridge Resource Management

with an emphasis on the exchange of information that is essential to a safe transit.
This training should include a requirement for the Pilot to assess particular
situations and to conduct an exchange of information with the Master and/or
Officer in charge of navigational watch. Maintaining an effective working
relationship between the pilot and the bridge team in both routine and emergency
conditions should be covered in training.”
Regarding the roles of the master and the pilot, and the relationship that exists between
them, a publication from the Standard P&I Club, A Master’s Guide to Berthing, by
Murdoch and others, states:
“The pilot directs the navigation of the ship, but the master still retains overall command
and control. The freedom that the master gives to the pilot varies from master to master
but also depends upon the circumstances in which the pilotage takes place. The master
of a large foreign-going ship entering a difficult channel will tend to adopt a more
passive attitude to the pilot than a coastal master who knows the area intimately.”
It might be thought that it would be a relatively easy task for these two professionals to
establish a constructive working relationship out of mutual self-interest. The master
has detailed knowledge of those strengths and weaknesses of his ship and crew that the
pilot will know relatively little about, and the pilot supplies all the local knowledge of
the port and its operation that the master is unlikely to have. Between them they
therefore have all the skills and knowledge necessary to successfully complete the
pilotage and berthing operation.

The true position is that “A pilot while in charge of a ship supersedes the master, in so
far as the navigation of the vessel is concerned, but the master is at all times in
command, and may and should advise with the pilot, and can displace him in the case
of intoxication or manifest incompetence.
From the Bridge Procedure Guide:-

“The pilot, master and bridge personnel share a responsibility for good communications
and mutual understanding of the others' role for the safe conduct of the vessel in pilotage
waters. They should also clarify their respective roles and responsibilities so that the
pilot can work easily and successfully with the normal bridge management team.
The pilot's primary duty is to provide accurate information to ensure the safe navigation
of the ship. In practice, the pilot will often con the ship on the master's behalf. The
master retains the ultimate responsibility for the safety of his ship. He and his bridge
personnel have a duty to support the pilot and to monitor his actions. This should
include querying any actions or omissions by the pilot (or any other member of the
bridge management team) if inconsistent with the passage plan or if the safety of the
ship is in any doubt. ”
The pilot is responsible for, and should be left in charge of, navigation in terms of speed,
course, stopping and reversing and conning. The pilot is entitled to expect a well-
regulated and seaworthy ship that provides him with proper assistance and
information.”
Where there is injury or damage to the property of a third party caused by the pilot’s
negligence, the third party will naturally look to the shipowner for compensation. There
may be a possibility of a recourse action against the harbour authority, port commission
or canal company that employs the negligent pilot. If, however, the relevant body
merely acts as a licensing authority, it will not be liable for pilot error. Pilot associations
are also generally immune from liability for the actions of their members.
In terms of engagement, the master is only legally bound to employ a pilot in an area
of compulsory pilotage. However, the master may be found liable for not employing a
pilot where it can be shown that such failure caused or contributed to an accident.
Whilst the pilot may assume control of the navigation of the ship, this does not relieve
the master of his command of the ship. The master therefore retains both the right and
the responsibility to intervene in the actions of the pilot.
The question therefore arises as to the circumstances that must exist before the master
can take over control of the navigation of the ship, remembering that he may have to
justify his decision in a court of enquiry. The basis for that justification could be:
suspected intoxication or influence of narcotics, other incapacity, incompetence or lack
of judgment or perceives the threat of an imminent danger to the ship. In any case it
must be made clear to the pilot and the bridge team that the master has taken over the
navigation. If the pilotage is compulsory the master must engage the services of a
replacement pilot.

To understand the Navigation Act 2012 definition: “pilot means a person who does not
belong to, but has the conduct of, a ship” we need to know what conduct of a ship
means. A 1968 Canadian Royal Commission provides some guidance on this point:
“To ‘conduct a ship’ must not be confused with being ‘in command of a ship’. The first
expression refers to an action, a personal service being performed; the second to a
power. The question whether a pilot has control of navigation is a question of fact not
law. The fact that a pilot has been given control of a ship for navigational purposes
does not mean the pilot has superseded the master. The master is and remains in
command; he is the authority on board.”
For an excellent illustration of the need for clear communications between master and
pilot please read the following case: Braverus Maritime Inc v Port Kembla Coal
Terminal Ltd [2005] FCAFC 256.
In Fowles v Eastern and Australian Steamship Co Ltd (1913) a compulsory government

pilot negligently put a ship aground in Moreton Bay. On appeal to the High Court (and
upheld by the Judicial Committee) it was held that the Queensland Government only
owed a duty to licence and appoint duly qualified pilots and was not responsible for the
negligence of its agent (the pilot) who was an ‘independent professional man’.
In Oceanic Crest Shipping v Pilbara Harbour Services Pty Ltd (1986) it was similarly
found that the pilot was a public officer charged by law with a discretion and
responsibility in the execution of an independent legal duty and that officer is alone
responsible for any tortuous acts which he or she may commit and the body he or she
served was not vicariously responsible for such acts. The court additionally found that
the port authority was not liable because the provisions of s 410B(2) of the Navigation
Act impliedly excluded such liability by its very terms.
The above cases also illustrate how the pilot and the port corporation may be immune
from damages caused, at least in part, by the actions of the pilot. Although serving
mariners, and particularly masters, may consider this situation to be inequitable, the
opposing view has a lot to support it. This is stated admirably by George A Quick, Vice
President of the Pilot Membership Group of the International Organisation of Masters,
Mates and Pilots of Maryland, USA. His paper on Master/Pilot relationship can be
accessed at: (http://www.impahq.org/technology/article_1228231036.pdf).
For those who still have doubts about the wisdom of handing over the navigation of the
ship to a pilot, George Quick has found some appropriate words:
“It is in the public’s best interests for the pilot’s judgment to be absolutely free of
economic consideration to the shipowner when piloting his vessel”. The suggestion
appears to be that, as a direct employee of the shipowner, the master might give greater
weight to a consideration of shipowner’s profit than to safety if he was able to make
pilotage decisions alone.

1. In the course of a compulsory pilotage can the master intervene the conduct of
the pilot to avert an accident? Discuss the responsibility and liability of the pilot
and master in this case.
2. With reference to the relationship between the pilot and the master, and the
responsibilities of each, describe the difference between having the conduct of
the ship and being in command of the ship.

Section 4 –Charter Parties
Section 4
Charter Parties

Section 4 – Charter Parties
Charter Parties
To the uninitiated the term charter party has something of a mystique about it. In reality
a charter party is simply a document specifying the terms and conditions of a contract
between the owner of a ship and another party who wishes to make use of the entire
ship (charter), rather than simply pay for the use of space on that ship (contract of
carriage).
Anyone who has purchased or leased real estate property will be aware that the normal
practice is to base the contract on a standard form supplied by a real estate institute,
adding or deleting clauses as necessary. The advantage of using such a form is that the
wording and format of the contract has been tested over time by the courts, and any
potential ambiguity or lack of clarity has subsequently been removed.
The same approach has been developed within the shipping industry. There are three
basic types of charter party – demise (or bareboat), time and voyage – and within these
categories there exist a number of standard forms developed by shipping organisations.
These will all be discussed in some detail in this module. The big picture, however, is
illustrated below. It includes a selection of standard form charter parties.
Shipowner Charterparty Charterer

y
Demise Time Voyage
Barecon 89 Baltime NYPE Intertanktime Austwheat Orevoy Shellvoy
So a charter party is an agreement (contract) with regard to the employment of the ship
drawn between the person who rents the ship (charterer) and the owner of the ships
(S/owner).
A ship-owner wishing to obtain a guaranteed income for a certain vessel has the option
of chartering his vessel out for a specific length of time.
Each type of charter has advantages and disadvantages for both owner and charterer.
When market rates are low owners will want to fix their vessels for short periods only
whilst the converse applies for charterers. When market rates are high owners want to
fix their vessels for long periods and of course the converse applies for charterers.
Obviously the prevailing market conditions will play a large part in deciding which type
of charter to accept and consequently the content of charter parties is very much open
to commercial negotiation. The Master is supposed to obey the charters and safe guard
his interests whilst doing same for the S/O. His loyalty to the S/O how ever comes first.

The charter party is essentially a contract between the ship owner and charterer and as
such is subject to the laws of contract. The charter party must be signed by both parties,
or on behalf of both parties, and must also be witnessed. It is ESSENTIAL that the
master has a copy of the C/P as he will require knowledge of many of the conditions
laid down in order to satisfy the charterer.
An owner has the following choice of charters to choose from for employment of his
ships: Employment here means employment of ships as CARRIERS.
1. Employment of the ship by her owner in a LINER TRADE.

2. Ship fixed by her owners for a VOYAGE CHARTER
3. Employment of the ship by a Charterer under a single TIME CHARTER
4. Employment of the ship by a DEMISE CHARTERER
Liner Trade Employment

Normally this is done when there is a fleet of ships and is regularly engaged in a
particular trade.
Remuneration: Freight earnings which depends on the kind and quality of cargo.
Expenses: All operational expenses by S/O. He advertises sailing schedule which gives
ship’s name, ETA, Ports, closing Dates, Sailing to, ETD etc.
Voyage Charters (Referred to as Tramps)

A voyage charter party is potentially, and almost certainly will be in practice, the most
complex of the three general classes of charter party. It is not uncommon for a voyage
charter to be entered into between a time charterer and a shipper, which adds a further
level of complexity.
The vessel is hired to carry the charterers’ cargo between specified ports for one or more
voyages. Most commonly the contract will be for the carriage of a full cargo.
Sometimes when the charterer doesn’t know in advance the exact nature of cargo the
vessel is kept at berth and loaded. If the charterer fails to load full then he agrees to pay
dead freight for the balance. Ship owner pays all costs and receives the charter hire at
a specified rate per ton per cargo carried. The freight rate varies with the type of cargo
carried and duration and the length of the voyage to be performed. The loading &
discharging operations must be carried out within specified time periods. Both the
nautical and commercial aspects of operating the ship would be in hands of the ship
owner. Ship owner appoints Master and Crew. So he pays their costs as well as for
maintenance, bunkers and insurance.
The charterer uses the chartered capacity normally to transport his cargo, but may at
times arrange for other shippers to use the capacity that he has chartered. Thus the
charterer may or may not be the shipper. In both situations he may obtain a bill of
lading from the ship owner. If the charterer is the shipper, he may require a bill of

lading in order to facilitate delivery at the port of discharge or to sell the cargo. If the
charterer is not the shipper, the actual shipper would need a bill of lading from the ship
owner/carrier.
The Carrier is the Ship Owner.
The Ship Owners Obligations:

- To provide a seaworthy ship
- To bring the ship to the agreed loading port at the agreed time
- To load the agreed cargo
- To carry the cargo to the agreed discharge port
- To discharge the cargo
The Charterers Obligations:

- To provide the agreed cargo
- To load within the agreed time
- To pay the agreed freight at the agreed time
S/O Remuneration:
Freight earned in carrying the cargo
C/R Remuneration:
If he is also the shipper his profit is the difference between the price he pays for the
cargo and the price he sells less the expenses. If he is not the shipper then, the difference
between the chartered freight and the BL freight. Which is due to him from the S/owner
There should be an agreed tonnage that the ship is chartered to carry, so that if the
charterer is unable supply that amount the owner can claim dead freight for any
shortfall. Common law provides for freight to be paid following delivery of the cargo,
by which time the ship-owner will have had to meet all operating expenses, so the
agreement should make provision for a proportion of advance payment.
Some special arrangement for calculating freight is necessary in the case of oil cargo.
Such cargo may be sold and resold several times during a loaded voyage, with the ship
receiving changes in orders accordingly. Every time the discharge port is changed, so
are the distances to be covered and other associated costs. Since it would be very
difficult to nominate in the charterparty freight rates for every possible voyage, these
rates may be linked to Worldscale (New Worldwide Tanker Nominal Freight Scale) –
a scale controlled by a panel of London and New York brokers. The scale is based on
a standard ship with standard speed, fuel consumption, port turnaround time, etc. on
any of about 60,000 tanker routes. It takes into account port and canal fees, and a host
of other variables. The freight rates (in $US) for a particular ship can then be quoted
as a factor of Worldscale, where W100 represents the quoted Worldscale. Which types
of tanker would have the highest and lowest factors?
The voyage Charter Party will have details, which have to be clearly stated for example:
- The time of arrival at the loading port when the ship comes “on hire”
- The cancelling date if the ship is running so late that the charter will lapse
- The time for loading

- Who pays for the loading??

- How long for discharging
- Who arranges and pays for discharging
- Stevedoring Charges
There are many formats of voyage charter. The GENCON form is very popular.
Time Charterer
As the name suggests, this is an arrangement whereby a vessel hired to carry the
charterers’ cargo for a particular period of time. During this period the charterers trades
the vessel in the manner he requires (commercial operation).The S/owner has the
technical operation. This means that the ship can be let on voyage charter or even sub
charter.
Whilst on TC the Master, while managing the ship as a commercial venture is still
responsible for the safe operation of the ship and to the owner to see that the charterer
does not wish to use the vessel in a way that may damage or endanger the vessel.
The ship is to be used for the charterer’s trading so its size, speed, carrying capacity and
the fuel consumption are essential to this business. The ship-owner provides the ship
and the crew, therefore pays crews wages stores repairs and insurance, whilst the
charterer pays the fuel port and stevedoring charges. O/T is sometimes met by
charterer, sometimes S/O depending on the reason for O/T. E.g. ship on a T/C going to
Hamburg need to pay crew O/T for river passage. This will be paid by the S/O the same
crew might then work O/T connected with the cargo watch. This is paid by the
charterer.
The charterer provides the master with voyage/sailing directions (although he may
reject these if he believes they will compromise the safety/seaworthiness of the vessel),
and requires the master and chief engineer to keep logs, stevedoring damage reports etc.
The master therefore has a fine line to follow whereby he takes orders regarding
employment of the vessel from the charterer (within limits stated above) but not
regarding the navigation or safety of the vessel (if he did, and loss/damage resulted, the
owner would be liable).
The operating costs of the ship lie with the owner, the voyage cost lies with the
charterer.
The S/O receives charter hire at a specified daily, weekly or monthly rate or at a rate
per DWT ton. The charter rate is payable regardless how much cargo is carried. The
payment of hire is the charterer’s primary obligation and payable as per CP.
There will be a suspension of hire clause in the charterparty to protect the charterer if
the ship is out of service for longer than a stated time due to dry-docking, repairs,
breakdown, insufficient crew etc.
A summary of the master’s obligations in relation to a charter includes:

- Executing the voyage with the utmost despatch;
- rendering customary assistance to the charterer;

- following the charterer’s orders regarding the employment of the ship, dealing with
agents etc. but
The owners will be protected from:

- consequences of the master/officers/agent signing bills of lading etc. under the
charterers instructions (more on this in the next module);
- responsibility for cargo shortage or damage claims due to bad stowage; but
the owner will be obliged to investigate, and if necessary make changes, in response to
charterer’s complaints about the master, officers or engineers.
There are many formats of time charter. The NYPE form is very popular.
On and Off Hire Surveys

Before the charterer takes over the ship there must be an on hire survey or delivery
survey. Surveyors representing the owner and the charterer will examine the ship from
top to bottom, forward to stern, inside and outside making a list of all visible damage
and missing pieces of structure. They also measure and note the bunkers and any other
consumables that the charterer has agreed to pay for. The report will be dated and timed
and the Master will sign a copy of it. The charter would begin at some time after this
as stipulated by the charter party. (This is a little like the notice of readiness).
When the charter ends the above process will be repeated. The excess of the damage
of the off hire survey over the on hire survey will be for the charter to repair and pay
for. Fair wear and tear accepted.
To avoid any unpleasantness during the off hire survey the Master makes sure that any
damage done during the survey period is promptly reported to the charterer and
preferably repaired on spot. Such damage is commonly caused by stevedores under the
charterers’ control. Stevedores should be given a letter holding them responsible and
depending on the damage fixed they should sign receipts of such letter.
Sufficient time should be given to the stevedores to make good the damage. These
surveys will normally be done in a dry-dock.
Bare Boat and Demise Charters

Both are a form of time charter, but of long term generally 10 years plus. The S/O has
a ship built as an investment but does not want to manage it. He leases a bare ship to
the charterer often for the major part of the ship’s life. If building cost is high a S/O
with a berth commitment may resort to a Demise charter instead ordering new tonnage.
It may happen when a ship service is temporarily lost or laid up for repairs. But the
ship is not manned and at times not fully equipped. The ship owner in fact provides the
“bare boat”. He can even rename the ship. The charterer acts as if he owns the vessel
and pays the cost, remuneration being paid to the ship owner at negotiated intervals per
summer deadweight. The charters remuneration will be the freight and passenger hire
if any.
Occasionally the S/O reserves the right to appoint or approve the vessels senior officers
if not satisfied. He may also occasionally be responsible to the hull insurance and initial

delivery survey. Bare boat charterer takes all expenses but the S/O still has legal
responsibility of the vessel.
The Demise charterer effectively takes over ownership of the vessel including legal
responsibility. The charterer is responsible for the operating costs. He provides crew
and keeps the ship functioning. Although the terms demise and bareboat would appear
to be interchangeable, use of the term bareboat charter may additionally signify that
the ship has been fixed without the services of a master and crew. This leads to an
important factor when deciding if the charter is, in fact, a demise charter. “If the
control of master and crew in the navigation of the ship passes to the charterer he has
possession. If, on the other hand, he acquires only a right to the use of the ship—a
right to use her carrying capacity - there is no demise, but only a contract for services.
Thus the general test is "whose servants the master and crew were" (Fenton v. City of
Dublin Steam Packet Co). If the owner has the power of appointing and dismissing
the master and crew, he remains owner of the ship, while if, under the charter, the
charterer obtains that power, possession of the ship passes to him.” Australasian
United Steam Navigation Co Ltd v Shipping Control Board [1945] HCA 45; (1945)
71 CLR 508 (21 December 1945).
These charterers are often government departments or national industries.
Charter Party forms

A charter party being a contract may be biased towards one or the other of the person
signing the contract. For most conditions there are two basic forms of charter. One
favouring the ship owner and the other favouring the charterer. There are a number of
well-tried and accepted standard charter parties. These CP’s eliminate the necessity of
prolonged negotiations between owners and charterers or their brokers. It has also
being found that by adopting standard CPs the number of disputes between owners and
charterers has fallen, consequently there has been a reduction in arbitration costs. P and
I prefer to be associated with ships running with approved charter party forms. Some
of the better known CPs are as follows.
They are normally given a code name such as:
- NORGRAIN
- BeePee TANKVOY
- SHELLVOY
- CENTROCON
- GENCON
- BALTIME
- NYPE
- INTERTANKERTIME
- SUPPLYTIME
- AUSWHEAT
Charters are usually arranged by shipbrokers. They may be owners’ or charterers’

brokers, depending on whether they find employment for their (owner) principal’s
ships, or ships to meet the requirements of their (shipper) principals. Individual brokers
may work in a particular trade (tanker, bulk, coastal); firms of brokers may cover
multiple trades. Those representing owners circulate lists of available ships and their

details (position lists), whilst those representing cargo interests circulate their
requirements (cargo orders). Initial negotiations will settle on the main terms of the
charter (or look elsewhere if they fail), after which the details will be negotiated and
agreed, resulting in a fixture (the ship is fixed).
The Institute of Chartered Shipbrokers (ICS) is the international professional body for
brokers. Many brokers will also be members of the Baltic Exchange, whose code of
business practice is summed up in their motto ‘Our Word, Our Bond”. The Baltic
Exchange gathers information on rates from a number of major brokers internationally
and publishes their findings in three dry and two wet bulk cargo indices. The dry indices
relate to ship size (Capesize, Panamax and Handymax) and the wet to whether the
tankers carry dirty (crude) or clean (refined) liquids. Baltic Exchange members also
account for half the world’s sale/purchase of ships.
The brokers are supposed to know the actual contract of these different CP forms. The
main clauses are printed and all that remains for them is to fill in the blanks. Some CP
forms have no allowance for dispatch. Some have no allowance for demurrage. Most
are different regarding the beginning of the lay time. Most of the charters are in fact
verbal agreements, the C/P being produced afterwards.
Brief notes on some standard of CPs.
CENTROCON The Chamber of Shipping River Plate Charters; on

voyage basis for the carriage of wheat, barley, Oats
etc.
BALTIMORE Is the BALTIMORE grain charter on a voyage basis

for the carriage of Wheat, Soya beans, barley etc. From
the USA St. Lawrence and Great Lakes.
GENCON Is a uniform general charter on a voyage basis for the

carriage of cereals (Popularly used)
BALTIME It is a Baltic and International Maritime Conference

(BIMCO) Uniform time charter.
NYPE This is the New York produce exchange time charter

mainly used for T/C.
These are just a sample. It should be pointed out that there is no obligation on the part
of the S/O to use standard forms. They are free to do alterations or amendments as are
the charterers depending on the commercial condition prevailing.
It is quite common to incorporate various clauses into a charter party:
War Risk States that a B/L must not be signed for a blockaded port,
Clause but if the B/Ls have been signed and the discharge port
becomes blockaded then the charterer may send the
vessel to an unblocked port whilst the owner is required
in time of war, or prevented from entering a war zone by

the insures, then the owner is still entitled to his original

freight.
Ice Clauses These will lay down precisely what must be done in the
event of the loading or discharging port being, or
becoming, icebound.
e.g. 1. If the loading port is inaccessible the master is at
liberty to leave the cargo. The charter becomes null and
void.
Clause States that the Hague rules are to apply when considering
Paramount the rights and liabilities of the owners, carriers, shippers
and consignees. If it is not utilized then the exceptions
clauses should be inserted. Clause Paramount in a C/P
may also require a similar clause to be inserted in any
B/L’s issued.
Deviation States precisely for what purpose the V/L may deviate.
Clause E.g. To call at any port or ports on the way for fuel,
supplies or any other reasonable purpose, to tow and to
be towed and assist V/L’s in distress, all as a part of the
contracted voyage. It also gives the liberty to sail without
pilots. Ex Compass adjusting
Bunker Gives the V/L the liberty to deviate to any port to take
Clause bunkers as part of the contracted voyage or at owner’s
wish come to an agreement about the payments for
remaining fuel or coal by discharging party at delivery
and redelivery (Handing over and taking over).
Sublet Gives the C/R’s the right to sublet the V/L, but the
Clause original C/R is still responsible to the S/O for the
performance of the original charter.
Cesser The C/R’s liability for the cargo in a voyage charter

Clause ceases clauses as soon as the cargo is shipped and
advances freight, dead freight and demurrage are paid.
The S/O always has a lien on the cargo for freight,
demurrage and the general average. (Remember that the
charters liability is to find the cargo and load it by the
agreed time and to pay the agreed freight.)
Safe Port There must be safe access to the port free from permanent
obstruction. The particular ship can reach it, use it and
return from it without, in the absence of some abnormal
occurrence, being exposed to danger which cannot be
avoided by good navigation and seamanship”. The V/L
must be afloat at all tidal states unless it is customary or
safe to load or discharge whilst aground.

If a ship arrives at a port or berth which the master

believes to be unsafe but still presents Notice of
readiness, which is evidence does not reject the berth on
the ground of safety.
Always Inserted to prevent a V/L being sent to a berth where she

Afloat cannot load cargo without touching the bottom or which
cannot be reached at all states of tide.
Cancelling If a V/L is not delivered to start her charter by a specified

Date date and time then the C/R has the option of cancelling
the Charter party with effect from that date. The ship
owner will be in a difficult position because the charterer
does not have to cancel on the cancelling date and the
ship owner is still obliged to present the ship. Even if the
cancelling date has passed the S/O is still obliged to
present the ship and the decision whether to accept the
ship or not is with the Charterer which will depend on the
freight market. It is the final day of the laycan or
Laydays.
Off Hire The ship has to perform as specified in the CP. If it failed
Clause to do so the charterer can take it “Off Hire”. When the
ship is off hire the charterer does not have to pay the hire
money but the rest of the CP still applies and the
obligation of the charterer still exists.
Laytime
In the case of a vessel engaged on a voyage charter, the owner will receive freight, from
the charter, at an agreed rate per tonne. The tonnage to be transported is usually defined
within a set of limits, e.g., 15,000 tonnes +/- 3%. The purpose of this allowance is to
enable the master sufficient discretion regarding how much fuel, water, stores, etc.; he
may need to successfully complete the charter. When the vessel arrives at her loading
port the master will inform the charterer precisely how much cargo the vessel can load,
within the percentage allowance. This final quantity is the amount of tonnage on which
freight is earned and also the amount utilised in the computation of laytime.
In some cases it is possible that the charterer does not produce the quantity of cargo
which the master has stated the vessel can load. This means that the owner is going to
get a reduced income from the voyage as freight is only payable on the tonnage of cargo
transported. To counteract this most voyage charters will state that the tonnage shortfall
between the amount the vessel can transport and the amount actually presented for
shipment must be paid for, by the charterer, at a rate known as the dead freight rate.
The dead freight rate is normally lower that the actual freight rate, which of course will
include a profit element to make the voyage worthwhile.
As charter parties are commercially negotiated documents one of the most important
points of conflict will be the loading and / or discharging rates which must be achieved
so that penalties are not incurred. These penalties are incurred by either the charterer

or the owner if the vessel does not complete loading exactly at the time allowed by the
charter party.
Laytime: The time allowed to charterers for loading and/or discharging without
any payment additional to the freight. It should not be confused with laydays allowed
before a charter party is cancelled.
The ship-owner wants the ship to be loaded quickly. So the ship can proceed on the
voyage. So it is in the ship owner’s interest to have a short laytime.
There are two distinct ways that laytime can be ascertained:
1. The charter party gives a fixed number of days or hours

2. The charter party gives the basis of calculation by basing on a loading rate
If certain days are to be excluded under the charter the fact is in the terms of the charter
party sometimes expressed in Broker’s shorthand.
SHEX Sundays and Holidays Excluded

SSHEX Saturdays, Sundays and Holidays Excluded
FHEX Fridays and Holidays Excluded (Muslim
Countries)
UU Unless Used
SATPMSHEEXUU Saturday Afternoon, Sundays and Holidays
Unless Used
EIU Except of Used
Reversible Laytime
The Charter party provides for a single period for both loading and discharge ports
without stipulating either. What is lost or gained when loading can be used for
discharging and conversely.
Despatch
If loading or discharging is completed in less time than the stipulated lay time, then the
S/O pays despatch money to the C/R for all times saved. (So much per day and pro
rata)
Demurrage
If the charterer (or consignee) detains the ship beyond the agreed lay time the S/O is
entitled to; “damages for detention or demurrage”. Demurrage is an agreed some per
day (and normally pro rata for part of a day) paid by the C/R to the S/O.
When determining days on demurrage Sundays and holidays count, even though they
may not count for lay time.
Remember the principle” Once on demurrage always on demurrage”

Damages for Detention

A some of damages sued by the owners from the charterers' for detaining their ships
beyond a reasonable demurrage period
Although it is fairly common for the despatch rate to be only half the demurrage rate,
this area is yet another, which is left to the commercial negotiating of the interested
parties before the charter party is drawn up. The detention rate will normally be
sufficient to cover the daily cost of operating the vessel.
The Cargo
The quantity of cargo is often expressed to give the ship some discretion e.g. “20,000
MT 5% MOLOO (more or less owner’s option)”
Less common is to give the charter’s option (e.g. 20,000 MT 5% MOLCHOPT)
If the figure is fixed the abbreviation is 20,000 MT MINMAX.
Freight is payable in full without deduction, so any claims for damage to goods have to
be claimed in a spate action. We will look at this in detail in later topic.
Freight rates are usually agreed by weight or quantity based on the amount loaded not
the amount discharged unless the CP states otherwise.
There is less common form of lump sum freight which does not refer to the quantity.
Commencement of Laytime
Before the time allowed for loading and / or discharging can commence, a number of
conditions must be fulfilled.
1. Vessel must be an arrived ship.

2. Vessel must, in all respects, be ready to load.
3. Notice of readiness must be served on the charterer or his agents. (Sometimes it
has to be accepted and sometimes not needed)
1. The vessel must arrive before the cancellation date. If the c/p merely states the port
at which the vessel is to load/discharge, then she is an arrived ship as soon as she is
within the port limits and has completed entry formalities. If the c/p requires the
vessel to be on berth as ordered then she is an arrived ship when she has
completed entry formalities and is actually berthed.
2. To be ready to load, the ship’s cargo gear must be rigged and ready for use (if
required); holds must be clean, dry and dunnaged and ready to receive the cargo;
survey certificates (grain, reefer, etc.) must have been obtained; and any special
appliances must be in place (shifting boards, timber, lashings, etc.,)
3. When the vessel has arrived and is ready to load, the master can serve the charterer
(usually his agent) with the Notice of Readiness. This notice must be signed by the
charterer and the date and the precise time of signing must also be noted on the
document. The master must keep a duplicate of the signed and dated notice of

readiness. It is usual to notice on the notice of readiness the amount of cargo the
vessel can load (within the limits stated in the c/p) and in some cases, the cubic
capacity available is also recorded.
When these three steps have been taken the count for lay time will start as dictated by
the content of the c/p/.
In the event of the time of commencement of lay time not being mentioned (most
unlikely in practice), a justifiable assumption is that lay time commences when cargo
work commences (state this assumption in your answer).
Statement of Facts
An abstract from the port operations log signed by all parties concerned which has the
main events taken place with times.
Laytime Statement
A statement prepared showing the calculation of the despatch or demurrage based on
the “Statement of facts”
Methods of Computing Laytime

Three basic methods are utilised, namely:
1. Running days
2. Working days
3. Weather working days
Exceptions (for Sunday, holidays, time lost for rain, time used for bunkering and time
lost for machinery breakdowns) may be applied to the three basic methods.
Lay days may also be described as reversible (loading and discharging time calculated
together, or may be averaged (loading and discharging time calculated separately; any
time saved can be offset against time lost).
A c/p may state that if work actually proceeds during an excepted period then it must
count for the purpose of computing lay time.
Running days
Consecutive calendar days, midnight to midnight immaterial whether a holiday or not
and also immaterial of the number of hrs of work per day.
Working days – (Also called working day of 24 consecutive hrs)

A day on which work is normally done. Immaterial of the number of hours work is done
per day. The difference from the running day is that this system doesn’t count non-
working days (like holidays)
Working days of 24 hours

The calendar days taken to complete 24 of normal working hours. If a port works
normally only 4 hrs a day it will take 6 calendar days to make a “working day of 24
hrs”.
Weather working days

It is similar to working days but any interruption time due to bad weather is excluded if
it was within that normal working time.
Ex: Say a port works from 0900 – 1700 and it rain at 0500 – then the rain is
immaterial because it is not within the working time.
If it rained from 1000 – 1200 then the time of 2 hrs is it be considered and excluded
from the counting time.
Weather working day of 24 hrs – This is related to the WD of 24 hrs.

It is a working day of 24hrs. of good weather. If a port works from 0000 – 2400hrs
and it didn’t rain – then the whole day is taken as a “weather working day of 24hrs”. If
it rained for 2hrs then the time not to count as worked is 2 x 24= 2
24
Let’s say a port working hours is from 0800 – 1700 and it rained for 2 hrs in between.
Then the working time not to count is2 x 24
9
WIPON, WBON are also used
Loading the Cargo
The question arises as to who is to arrange for and pay for the cargo to be loaded and
discharged. This is agreed when the charter party is negotiated and the results fall
within well-known acronyms.
FIO Free in and out. The cargo interest whether the charterer, shipper
or receiver are the party that should bear responsibility for the
appointment and payment of stevedores
FIOS Free in and out and stowed
FIOST Free in and out and stowed and trimmed

Free means free of cost to the ship and the charterer is responsible
for the cost of stevedoring. The charterer is also responsible for any
stevedore’s damage done at the time

Laytime Calculations
(Extracted from- Business & Law F.N. Hopkins)
1. A C/P provides for 8,575 tonnes of cargo to be loaded at 1,250 tonnes per weather
working day (S. & H.E.) Lay days are to commence 24 hours after written notice has
been given by the master to the charterer’s agents during office hours on any day (S. &
H.E.) that the vessel is ready to receive cargo, whether in berth or not. Time is not to
count between 1 p.m. Saturday and 7 a.m. Monday, or between 1 p.m. on the last
working day preceding a holiday and 7 a.m. on the first working day after such holiday.
Demurrage, if incurred, is to be paid at £2,500 per day and pro rata, and despatch money
at £1,250 per day and pro rata for all time saved.
Notice was served at 1.30 p.m. on Wednesday, 4th November, and loading commenced
at 3 p.m. on the same day. Friday, 13th November, was declared a public holiday. Bad
weather prevented work being done from 9 a.m. to 11.30 a.m. on 10th November and
again from 2 p.m. to 4 p.m. on 18th November. Loading was complete and B’s/L were
signed at 11.10 a.m. on 19th November.
Give a statement of the laytime and the amount of demurrage or despatch money
payable.
2. Suppose exercises (1) to be modified as follows:

i. Loading rate 1000 tonnes per working day of 24 consecutive hours (S. & H.E.).
ii. 13th November not a holiday
iii. Lay days to being 24 hours after notice of readiness is given or when loading
beings, whichever is earlier.
iv. Loading completed, etc., at noon on 13th November.
3. A vessel of 3348 n.r.t. is chartered for a full cargo to be loaded and discharged in 14
running days, bunkering time excepted. Lay time is to commence when the vessel is in
the berth and ready to load and discharge respectively. Demurrage, if incurred is to be
paid at 30p per net registered ton per day and pro rata, and despatch money at half the
demurrage rate for all time saved.
The facts are as follows:
Thurs.27th Aug …… 1030 vessel arrived at loading port

1200 in berth and ready to load.
1345 loading commenced
Mon.31st Aug …… Declared a public holiday; no work done.
Wed.2nd Sept … 0600 left loading berth to proceed to oiling berth.
0830 commenced bunkering
1530 Completed bunkering
1945 made fast in loading berth and resumed loading.
Thur.3rd Sept …… 1630 completed loading; B’s/L signed.
1800 sailed from loading port.
Sun.20th Sept … 1115 arrived at discharging port.
Mon.21st Sept … 0500 berthed and ready to discharge.
0800 commenced discharging.

Fri.25th Sept ……… 1345 completed discharging.

1445 sailed from discharging port.
Draw up a statement of the lay days and calculate the amount of demurrage or despatch
money payable.
Charter Party Cases
Charter or Contract for Services
Australasian United Steam Navigation Co Ltd v Shipping Control Board [1945]

HCA 45; (1945) 71 CLR 508 (21 December 1945), was a case where the
Commonwealth requisitioned a ship which was subsequently lost. The sum of
compensation the owners were to receive depended in part on whether the contract
between the parties represented a time charter or a contract for services. In this case
the owner retained the power of appointing and dismissing the master and crew, and
therefore possession of the vessel. The shipping Control Board did not become
despondent owner.
Laytime
Glencore Grain Ltd v Flacker Shipping Ltd (‘The Happy Day’) (2002) 2 Lloyds Rep
487 in which the master issued a notice of readiness when delayed by the tide, and
before the ship entered port. A berth was available at the time, and it was a berth charter
party, so the notice of readiness was invalid. The ship subsequently berthed and started
discharging the cargo. The ship continued to discharge for the next three months, but
when the owners claimed demurrage the charterers refused to pay on the basis that
laytime had never commenced because there was no valid notice of readiness. The
court found that, by their actions in starting discharge, the charterers had waived their
reliance on the invalidity of the notice of readiness (the form of which was correct) and
laytime began with the commencement of discharge.
Transgrain Shipping BV v Global TransporteOceanico SA (1990) 1 Lloyds Rep

675.In which Mustill L. accepted that lay time commenced when discharge
commenced, but also stated that the parties agreed in the charter party to a tender of a
valid notice of readiness. If an invalid notice had been accepted as effective later, this
would have been contrary to the charter terms. This would have extinguished the right
and freedom of the parties to conclude a charter and its terms as they wanted.
He rightly said that the charterers often may not know when the vessel becomes ready
so that an inchoate notice becomes effective.
The parties had rights under the charter party, such as the giving of a notice of readiness,
but they could waive them. Waiver should be assumed to exist when discharge
commenced but this act alone was not enough. It had to be proved that by accepting

the commencement of discharge, the charterers had waived their right to a new notice
of readiness.
It may be suggested that discharging or loading should be construed as a waiver to a

valid notice of readiness. By allowing these acts the charterers may show that they have
knowledge of the vessel's arrival and readiness and they accept the invalid notice of
readiness. As persons with experience in the shipping business, they would have
complained immediately of the notice's invalidity and they would not have permitted
the beginning of loading or discharging.
Although the vessel's arrival can be acknowledged immediately and easily, this is not
the case for the vessel's readiness. Readiness is usually ascertained when the first steps
for loading or discharging start. This means that it is impossible to complain about the
invalidity as soon as a notice is tendered.

1. Compare and contrast the responsibilities of the owner and charterer under demise,
time and voyage charterparties.
2. Explain the reasons for inclusion of the Cesser Clause in a charterparty and the
consequences of the reality in implementing it.
3. Explain why it is important that the master understands the charterparty requirements
that relate to a ship being an arrived ship.
4. Laycan ends at 08:00 on July 20. The master calculates that his ship’s earliest
possible arrival time is 04:00 July 21. What action should the master take? Explain.
5. Explain the meaning and application of laytime, demurrage and despatch and the
reasons for a limit being placed on demurrage time. Describe the 3 essential
conditions that a vessel on a voyage charter party has to fulfil before laytime starts to
count.

Section 5 –Bills of Lading
Section 5
Bills of Lading

Bills of Lading
The subject of this topic is the relationship between parties to the sale of goods and the
carrier. In Australia it involves the Carriage of Goods by Sea Acts of 1991, with
amendments to 1997, and subject to the changes made by the Carriage of Goods by Sea
Regulations 1998 and the Carriage of Goods by Sea Regulations (No.2) 1998.
Carriers- A carrier is someone who agrees to carry goods or passengers from one place
to another on a business basis.
Carriers are classed as common carriers if they advertise themselves as ready to carry
goods or passengers for anyone within their trading area. With some common law
exceptions they are strictly liable for loss of, or damage to, what they carry. The
exceptions are acts of God or the Queen’s enemies, inherent vice in the goods,
negligence or fraud of the cargo owner/consignor, or jettison to preserve the maritime
adventure. These exceptions will not apply if the loss was caused by the carrier’s
negligence, having an unseaworthy vessel at the start of the voyage, or deviating
without justification.
Private carriers (which most ship-owners are) state their special terms of contract, thus
contracting out of their common law obligations. These special terms must be
reasonable and clearly stated. If they are not, the carrier will be placed in the same
position as a common carrier. A private carrier is Bailee of the goods carried and thus
only liable for damage or consequences of delay that result through his negligence.
Non-vessel owning (or operating) carriers (NVOCs) contract (as shippers) with ship-
owners to ‘buy’ a volume of cargo space on their ships at a lower rate than for other
shippers. They are then able to ‘sell’ that space to other shippers at a profit. The NVOC
issues bills of lading to his shippers, and in turn is issued bills of lading by the master
or his agent. In many ways NVOCs are similar to freight forwarders who arrange for
the export of other parties’ goods, perhaps including the packing, consolidating,
customs clearance etc.
In some form, bills of lading have been in use since the 13th century. They were issued
by the carrier (ship owner) to the merchant who was shipping goods on his vessel.
Initially they served only as evidence that the goods being shipped had, in fact, been
received on board the ship in good condition. They were little more than receipts for
the goods, so that if those goods were delivered at the end of the voyage in other than
good condition, the receivers (or shippers) could show that the goods must have been
damaged whilst in the custody of the carrier.
As international trade became more sophisticated, some buyers wished to sell the goods
on to a third party before the ship carrying them had actually arrived at the discharge
port. The bill of lading then became a document of title to the goods, so the bill (if it
could be delivered to the buyer before the ship arrived) could be sold to the third party.
It also served as evidence of the contract of carriage between the shipper and carrier.

Issuing Bills of Lading

When the cargo arrives at the dock, ship’s officers will, if possible, examine the goods
before they are loaded on board. As we shall see later, receiving damaged goods on
board can give rise to unnecessary complications, and an examination on the dock
provides the opportunity to reject damaged goods before they are loaded. When the
goods are actually received on board the ship will issue a mate’s receipt for them. If
the cargo arrived in a damaged condition the mate’s receipt, and subsequently the bill
of lading, would have to be claused accordingly. Since international trade commonly
involves some kind of financing arrangement (under documentary credits) in which
those financing the trade (usually banks) will only release funds on presentation of
‘clean’ bills of lading (those without clauses added because of damage), it is very
important to avoid loading damaged goods. If there is damage and the Master knows
of it, he commits a fraud if nothing is written. Some shipping companies allow nothing
to be written even when damage exists because a letter of indemnity will be supported.
Bills of lading will be prepared (usually in sets of three) on the basis of the mate’s
receipts, and exchanged for them. It is only the bills of lading that have the additional
functions of document of title and evidence of the contract of carriage. Traditionally
bills of lading were signed by the master, but may be signed by the ship owner or by an
agent authorised to do so on the ship owner’s behalf.
Whilst it used to be the practice that one bill was sent to the consignee, one retained by
the shipper, and the third was carried with the goods, it is unlikely today that one will
travel with the goods.
Since delivery of goods will be made by the ship against any one of the bills, at which
time all other bills in the set are rendered void, it is quite apparent that security of
shipping documents is very important. Where goods have been delivered by the ship
against a forged bill of lading, however, the genuine bill continues to be valid. To
overcome some of the opportunities for fraud, contracts involving documentary credits
now commonly require the full set of bills to be presented before cargo is released.
The face of a bill of lading contains most, or all, of the following information:
1. The shipper;
2. The consignee;
3. Notify party (party who is to be informed by the carrier of the goods arrival –
normally the buyer);
4. Ports of loading and discharge;
5. Weight and quantity;
6. Party signing the bill (master/owner/agent).
The reverse of the bill will contain a set of terms. These will always be evidence of the
contract of carriage and, in some circumstances, may be relied on as the actual contract.

Types of Bills of Lading
The Order This bill of lading is drawn to the order of the shipper, the
Bill of Lading consignee or the bank. This bill of lading contains the phrase
“to the order of ………” followed by the name of the
beneficiary (i.e. shipper etc.,) Identified in the box reserved for
the name of the consignee. The order relates to the notifying
address below. Sometimes there is a name of the consignee in
full. There are instructions to the carrier only to give the goods
to the named consignee or notify address.
To endorse this form of bill of lading, the beneficiary may write

on the reverse side of the bill of lading. “Deliver to the order
of …….” Followed by the name of the new beneficiary and
sign. This is called “endorsement in full”. The person to whom
it is endorsed may be the final receiver or an intermediate
beneficiary.
The bill of lading may also be “endorsed in blank”. In order to

do so, the beneficiary will simply sign and date the bill of
lading. In this event the bill of lading may pass from hand to
hand by mere delivery and holder may obtain delivery by
presenting it to the carrier. The bill of lading then in fact
amounts to a “Bearer bill of lading” described below: In
practice, most bills of lading are negotiated through the bank.
In the case of an order bill of lading, the shipper may endorse
the bill of lading in full or in blank, and hand it over to the bank.
The bank would endorse it to the consignee. As a result, when
the bill of lading is presented to the carrier for delivery of the
goods it contains an endorsement by the bank.
In the bearer bill of lading, the statement “to the order of

Bearer Bill of
……..” is replaced by the statement “To bearer”. Any holder
Lading
of the bill of lading can thus take delivery of the goods. The
bearer bill of lading may pose a risk to the shipper as anyone
who obtains the bill of lading through fraudulent means can
also obtain delivery of the goods. Not used anymore.
Straight Bill Names the consignee to whom the goods must be delivered, but
of Lading offers no option for assignment. It is therefore used only when
it is certain that the consignee will not sell the cargo before
(named)
delivery. A straight bill may therefore be used by
multinationals to ship goods to an overseas division.
The above types of bills require presentation of an original bill

before delivery can be made, and make the carrier liable to the

person who is the lawful holder of the bill if delivery is made

otherwise.
This form of bill of lading is normally used for non-commercial

shipments, such as cargo carried under bilateral agreements
between governments, shipments made by one branch of a
company to another or shipment of goods bought overseas and
shipped by the same company.
The legal consequences of the consignee being named is that
such a bill of lading cannot be endorsed to another and is thus
non- negotiable.
Does not meet all functions of the B/L. This is a Bill of Lading
Received for
issued to a shipper when he delivers goods into the custody of
Shipment (or
the ship owners or the latter’s Agent (i.e. A Wharfinger or
carriage) Bill
Dock Authority) before the carrying ship has arrived or it is
of Lading
ready to receive goods. It is sometimes called a custody Bill of
Lading.
Shipped Bill Or ‘on board’ bill may be bearer, order or straight bill that is
of Lading only issued when the goods have actually been received on
board the ship that is to carry them. The bill will be signed by
the master, owner or agent. A received for shipment bill may
be converted to a shipped bill by , surrendering it in exchange
for or completed shipped Bill of Lading by endorsing upon it
the name of ship into which the goods are loaded and the date
of shipment.
Buyers may demand shipped bills by specifying them in the

sales contract. Banks will almost certainly only accept shipped
bills under a letter of credit arrangement.
Charter Charterparties were discussed in the previous module. It

Party Bill of suffices here to say that a charterparty bill is one that is prepared
Lading by the charterer, but signed by the master on behalf of the
owners. This means that the charterer may be the contractual
carrier from the shipper’s point of view, but the ship-owner will
be the carrier on the bill of lading contract when in the hands
of a subsequent consignee (since he was not a party to the
original contract between shipper and charterer, and the
contract on the reverse of the bill of lading thus becomes the
contract).
Charterer’s Is issued by the charterer, who therefore becomes the carrier

Bill of Lading from the point of view of shipper, consignee and subsequent
endorsees of the bill.

Owner’s Bill Is one issued by the owner as the contractual carrier.

of Lading
Liner Bill Is issued by ship-owners who provided a regular, scheduled

service on a specified route.
Switched Bill It is a replacement bill, usually requested by a consignee who

of Lading does not want to reveal the name of the shipper to a subsequent
endorsee.
Combined Covers the whole of the transport of the goods, for example:
Transport (or road/rail to ship to road/rail. The issuer of the bill normally
multimodal) accepts responsibility for the carriage throughout.
Bill of Lading
Through Bill The term through Bill of Lading is a term that is loosely used
of Lading to refer to a document containing a contract of carriage that is
in stages. The separate stages would be performed by different
carriers by the process of transhipment. In practice, the through
Bill of Lading would usually have 2 characteristics, which may
distinguish it from other Bill of Lading.
i. Contain a clause giving the carrier the right to tranship

cargo.
ii. Contain a statement that the cargo would be transhipped

at a particular port e.g. loading port, Colombo,
transhipment port, Bombay, discharge port Rotterdam,
In this instance goods will be loaded at Colombo and

transferred to the second ship at Bombay and
discharged by the second ship at Rotterdam. The first
carrier is issued through Bill of Lading; receiver gets
delivery on through Bill of Lading.
Sea Waybills The most common alternative to a bill of lading is the sea
waybill which has two of the three qualities mentioned above:
1. It is a receipt for goods shipped.
2. It is evidence of the contract of affreightment.
It is it is not a document of title.

The seaway bill is used in short haul trades and in trades where
the shipper does not rely on it to finance or effect sale while the
cargo is at sea. It is very common in Australian coastal and
trans-Tasman trades. In fact if one enters the websites of
Australian Banks exporters are encouraged to use a seaway bill
rather than a Bill of Lading From the point of view of

International Trade the seaway bill is much simpler than the

Bill of lading, the security of evidence of delivery is not so strict
but the seaway bill cannot be used for documentary credit
financing. The popularity of waybills is spreading, particularly
in container shipping.
Clean and Claused bills

A clean bill is one that records the goods as having been loaded in
apparent good order and condition. If it contains any positive notation
concerning condition or quantity it becomes a claused bill (dirty bill or
fouled bill). Where the goods have not been sighted (as in a container),
or the weight or quantity has not been measured, the bill may be qualified
by adding ‘said to contain’, ‘weight unknown’, ‘shippers count’ etc.
without making the bill a claused bill.
Accomplished Bill of Lading

A bill whose purpose has ended because the goods have been delivered successfully. It
is now so much trash paper.
Ship Delivery Orders

In cases where there is only one shipment of goods, and therefore only one bill
of lading, but the seller wishes to divide the shipment between a number of
buyers, a cumbersome option would be to surrender the single bill of lading to
be replaced by the required number of bills for individual buyers. The better
option is usually to issue delivery orders – instructions by the shipper/consignor
to deliver the appropriate proportion of the cargo to named consignees (or
holders of the delivery orders). In this case the delivery order becomes a ship’s
delivery order (SDO). Not only does the holder of the SDO have the right to
claim the goods, he also has rights under the contract of carriage.
Whilst SDOs are normally used in relation to a bulk cargo, they may also be used
to ensure delivery of any goods when the bill of lading has not yet arrived with
the buyer.
Functions of Bills of Lading

The bill of lading has three basic purposes.
1. It is an evidence of a contract between the carrier and the shipper (not the contract
itself)
2. It is a document of title proving ownership of the goods
3. It is a receipt of goods by the carrier to the shipper.

Bill of Lading as an Evidence of Contract

The bill of lading acknowledges that the goods have been delivered to the carrier for
shipment to stated destination and repeats in detail or by reference the terms of the
contract concluded when the space for the goods was booked. The bill of lading is not
the contract of carriage itself – it is in law, however, the best available evidence of such
a contract.
Thus in Sewell v.Burdick, (1884) Lord Bramwell said: “To my mind there is no contract
in it. It is a receipt for the goods, stating the terms on which they were delivered to and
received by, the ship, and therefore excellent evidence of those terms, but it is not a
contract. That has been made before the bill of lading was given”. It is usual for the
shipper and ship-owner (or his agent) to agree the significant terms of the contract –
e.g. The cargo, the freight, the freight, the port of shipment, and destination before the
goods are loaded on board and the bill of lading is issued. As to the other terms and
conditions under which the goods are carried, it is the practice for shippers to accept,
without amendment, the standard clauses printed on the carrier’s (long form) bill of
lading. Where it can be proved that the bill of lading differs in terms from the contract
previously agreed (orally or in writing) between the shipper and the carrier, the earlier
terms will stand supreme.
Once the bill has been endorsed or transferred to a third party, however, that third party
is unlikely to be aware of any pre-shipment negotiations between shipper and carrier –
and even if he was aware of the negotiations he will not be party to them. The only
contract which he is a party to is therefore the one on the reverse of the bill of lading –
and that becomes the contract between him and the carrier.
Bill of Lading as Document of Title
Document representing the goods and entitling the holder in due course to receive the
goods from the carrier on arrival of the vessel. The bill of lading also entitles the holder
to make any claim against the carrier under the contract of carriage for loss or damage
to the goods. Possession of a Bill of Lading is equivalent in law to possession of the
goods. It enables the holder to obtain delivery of the goods at the port of destination
and during the transit, it enables him to ‘deliver’ the goods by merely transferring the
Bill of Lading. When the term ‘negotiable” is used in relation to a Bill of Lading, it
merely means transferable.
The Bill of Lading is like a cloakroom ticket- it is the ‘key to the goods’. The holder
must present it before delivery, and surrender it afterwards. The carrier has the
corresponding duty no to deliver without presentation and the right to get the Bill of
Lading in return as his receipt of having carried out his duty to deliver. The property
and the goods gets transferred to the owner or assignee or the endorsee named in the
bill of lading. The holder may further transfer the goods to someone else by another
endorsement at any stage during the voyage or obtain delivery himself at the port of
discharge. This facility afforded by the rules of bill of lading plays an important role
in international buying and selling, particularly in C.I.F. Contracts.

Bill of Lading as a Receipt for the Goods Shipped
Any statement in a bill of lading concerning quantity is not conclusive, even though the
master signs for quantity. However, the existence of a bill of lading created a legal
estoppel for the ship owner from denying that the cargo is on board. This document is
certainly a prima facie evidence of the quantity unless the contrary is proved by suitable
words in the bill of lading, such as “about 100 cases of clothing”. If the words “about”
or “weight and quantity unknown” are incorporated, the bill of lading is not even a
prima facie evidence of quantity. Of course, the law of contract does not prevent ship
owner and shipper from undertaking any lawful contractual obligation. Therefore, if
bill of lading stating ‘weight and quantity inclusive’ is issued, the ship owner is then
bound by it.
It is a receipt for the goods shipped. The Bill of Lading is a receipt signed by the carrier
or his representative (the Master or the Agent) given to the shipper on demand stating
that the goods described in it have been loaded on a certain ship for a certain destination.
Delivery against the Bill of Lading

If the carrier delivers the goods without production of a bill of lading – and the party he
delivers them to is the wrong party – he will not only be in breach of contract, but also
liable under the tort of conversion. The carrier may be liable for the full value of the
cargo to the real owner. Even if the carrier delivers to the real owner without production
of a bill of lading he will still be in breach of contract
There may, however, be an exception clause in the bill of lading that allows the ship-
owner to escape liability for delivering the goods without production of a bill of lading.
Such a clause, if properly constructed, may allow the ship-owner to escape liability. It
appears that such a clause cannot, however, require the master of a ship to deliver goods
to someone who has not produced a bill of lading – even when instructed to do so by a
charterer. If an exception clause is effective in allowing the ship-owner to escape
liability under the contract, the real owners of the cargo may still have cause of action
in conversion.
It is therefore apparent that, although exception clauses could be effective, it would be

very unwise for a ship-owner to sanction delivery of goods without presentation of an
original bill of lading. P&I clubs certainly take this view, because they exclude the
recovery of claims that result from the consequences of delivering cargo without
production of an original bill i.e. the ship-owner will be uninsured! The clubs
recommend that cargo should only be delivered without presentation of a bill of lading
if an indemnity against potential claims is given by a bank or entity of similar financial
standing.
Electronic Bill of Lading

From the above discussion of paper bills of lading, it should be apparent that their use
gives rise to a number of potential problems because: a) they are produced in sets, of
which only one is required for delivery, increasing the possibility of fraud; b) couriering

them internationally can involve considerable expense; and c) when they fail to arrive
before the cargo there arises the delay (and expense) of obtaining indemnities.
To overcome these problems an electronic data interchange (EDI) system has been
developed. Such a system can only be used with the agreement of the parties about the
procedures to be used. The first such system (SEADOCS), initiated in 1983 by
INTERTANKO and Chase Manhattan Bank, survived barely a year because of lack of
support.
CMI (introduced in the discussion of waybills) has also developed a set of procedures
– the CMI Rules on Electronic Bills of Lading (1990).
The system relies on encrypted security codes ‘private keys’ that are issued by the
carrier. The initial key is cancelled when the carrier is informed of a new endorsee, and
a new key (unique to the new endorsee) is issued by the carrier. This process may occur
again if the cargo is sold en-route. The carrier will inform the current holder of the
expected place and time of delivery. The new holder will then provide delivery
instruction using the private key.
Because of doubts about the security of the CMI system, and the unwillingness of
carriers to shoulder the additional responsibility that it places on them, it has not been
accepted in practice.
Building on the CMI system, but with some significant changes, a third system, Bills
of Lading in Europe (BOLERO) became available in 1999. The initiative came from
the ICC, and it is now a joint venture of the Society for Worldwide Interbank Financial
Telecommunications (SWIFT) and the Through Transport Club (TTC). It has
overcome the problem of the carriers’ resistance to additional responsibility by holding
title to the electronic bills at a central Bolero Title Registry. It relies on encryption and
digital signatures which ensure that a Bolero bill cannot be copied, forged and presented
without the knowledge of the rightful holder. The bill can only be viewed by the
intended recipient, and only amended using a digital signature. On transfer, the Title
Registry cancels the title of the ‘old’ holder and transfers it to the new, maintaining an
endorsement chain throughout. When the cargo is finally delivered the current holder
informs the Title Registry electronically, no further transfers are allowed and the carrier
is informed that the bill has been surrendered.
If, at some time during the chain of endorsements, a party who does not belong to the
scheme becomes an endorsee, there are facilities for switching back to a paper system
at that point.
Many cargo owners, but few carriers, have welcomed Bolero. Because Bolero’s
liability is limited to $100,000, and the International Group of P&I clubs exclude
liabilities resulting from the use of paperless bills, additional insurance must be taken
out. This, of course, overcomes (at least in part) the cost savings involved in using
Bolero Bills. There also remains some question as to whether an electronic bill legally
constitutes a document.
Given all these barriers to the universal adoption of paperless bills of lading, Paul Todd
(2003, p.836) stated:

So will electronic bills of lading catch on? They could allow all the original
functions of a bill of lading to be replicated, and offer far greater security in
addition. On the other hand, commercial parties have been putting up with a
system based on indemnities and personal liabilities for decades now which …
still clearly works. Given the infrastructure requirements, and critical mass
needed for any change, I suspect the paper bill of lading will not be replaced for
years yet, or even decades.
There are still questions raised as to whether the e-Bill of lading fulfil the 3 essential
requirements of the paper BL. The contract depends on the country who issued the BL
and therefore countries like USA do not still endorse the electronic BL system. The
most difficult requirement to overcome has been the 2nd one of the three due to
insecurity reasons.
Letter of Indemnity
This is provided by the shipper who promises to settle all outstanding cargo claims.
The ship owner is happy enough for him to do this. If the master is in any doubt he
should contact his owners and ask whether they will accept a letter of indemnity against
cargo he knows is damaged or shorts shipped. The office should give the approval
otherwise in writing. Also remember that it is prudent to get the banks endorsement on
the letter of Indemnity
Bill of Exchange
The primary object of a bill of exchange is to enable a creditor to obtain from his debtor
an instrument which is an acknowledgement of the latter’s liability, and which affords
a method of obtaining funds immediately or of discharging a liability of the creditor
himself by his negotiating the bill to a third party.
A bill of exchange is defined as an unconditional order in writing addressed by one

person to another, signed by the person giving it, requiring the person to whom it is
addressed to pay on demand or at a fixed time in the future, a specified sum of money,
to, or to the order of a specified person.
Bills Of Lading and Charter Parties

Charter parties were covered in detail elsewhere in this unit of study, bills of lading
issued under charter parties are, however, relevant here.
Complications may arise when bills of lading are issued for goods shipped on a vessel
that is chartered. This happens because there are then two contracts of carriage involved
– one within the charter party, the other on the reverse of the bill of lading – that may
contain conflicting terms. If the parties to the charter party intend the terms on the bill
of lading (the Amended Hague Rules in the case of Australian law) to also apply to the
charter party, they should incorporate them by using a ‘clause paramount’.
If the ship owner issues a bill of lading to the charterer, the bill of lading acts only as a
receipt for the goods and a document of title. The contract of carriage is contained in
the charter party. This applies even where the bill of lading arrives with the charterer

indirectly i.e. the bill is issued to the shipper who has sold goods to the party who has
chartered the vessel to carry the goods purchased. The shipper therefore transfers the
bill to the buyer (who is now the charterer).
If, on the same chartered vessel, the bill is issued to a shipper who endorses it to his
consignee, who is not the charterer, that consignee has no knowledge of the terms
contained in the charter party, so cannot be bound by them. His contract is therefore
contained only on the bill of lading.
When cargo suffers damage during the voyage, the cargo owner has a claim against the
carrier. If the vessel has been chartered – and perhaps sub-chartered – who should the
claimant sue? The Hague Rules offer little help because so far as they are concerned
either the ship owner or the charterer may be the carrier.
When the bill of lading is signed by (or on behalf of) the master, who is employed by
the owner, the carrier is generally assumed to be the ship owner when the vessel is on
a time or voyage charter – it is an ‘owner’s bill’. Under a bareboat or demise charter
the master will be acting as the agent of the charterer.
When, under a time charter, the bill of lading is not signed by, or on behalf of, the
owner, but, as in The Starsin(2003), is signed by the agent for the charterers, and the
bill of lading clearly bears the name of the charterers, Colman J took this to mean that
the charterers had accepted liability as carriers. This was despite contradictory clauses
on the back of the bill.
The possibility of incorporating bill of lading terms into charter parties was discussed
briefly above. Is it then possible to incorporate charter party terms into bills of lading?
In many cases this would add greater protection for the ship owner. The general answer
would appear to be that courts are reluctant to allow incorporation unless:
 it is clear, on the face of the bill that such terms are incorporated. It is a general rule
that the incorporation of external standard terms cannot be achieved by the use of
general words;
 the language used must be clear and effective;
 the terms intended to be incorporated should be consistent with the tenor of the bill of
lading contract, otherwise the provisions of the bill of lading contact will prevail.
The impact of the changes that have been made in Australia to the Hague/Hague-Visby
Rules are covered in greater detail in the next module when we consider the cargo
damage liability regimes. What is important in the context of this module is that the
Australian rules apply to ‘sea carriage documents’, which may include sea waybills and
ship’s delivery orders.
The importance of bills of lading to the operation of documentary credits (letters of

credit) has been stated above. To fully understand this issue, a fuller knowledge of
means of financing international trade, and in particular the operation of documentary
credits, is essential.

Financing International Trade

Consider a typical international trade in goods. A distributor in country A locates the
best supplier of the goods he normally distributes. That supplier is based in country B.
The supplier will probably wish to be guaranteed payment at (or soon after) the time
the goods leave his hands at the port of shipment. Since all his costs are probably in
the currency of the country of supply, he would also like to be paid in that currency.
The distributor would prefer not to pay for the goods until they are actually delivered
into his hands – or even later. Since he plans to sell the goods onwards at a price fixed
in the currency of the country of import, he wishes to pay for them in that currency to
guarantee his profit margin.
How the resultant issues are finally settled will depend largely on the relative strengths
of the bargaining positions of the two parties. In any case the solution will almost
always involve at least one third party.
The possible options for payment include:
Advance payment is the option most favourable to the exporter. To be able to demand
payment in advance the exporter has to be in a very strong negotiating position. This
may mean the goods in question are completely unavailable, or very difficult to acquire,
from any other source, alternative sources are less reliable, or the price difference is
sufficiently great to overcome the additional real or opportunity cost of funds to the
importer. Even then the importer is likely to require a performance guarantee backed
by a bank or guarantor of similar financial status.
Bill of exchange (draft) is “an unconditional order in writing, addressed by one person
to another, signed by the person giving it, requiring the person to whom it is addressed
to pay on demand or at a fixed or determinable future time a sum certain in money to
or to the order of a specified person, or bearer” (UK Bills of Exchange Act 1882). The
bill will then be signed (accepted) by the party liable for payment. On the face of it a
bill of exchange resembles an ordinary cheque, except that it is drawn up by the party
to whom payment is to be made, rather than the party making payment (who accepts
it).
Bills of exchange are widely used in international trade. In its simplest form, a bill will
be sent by the exporter’s bank, together with the shipping documents required under the
contract, to the foreign bank nominated by the buyer. If the bill is a sight bill, accepted
by the importer, the money is transferred to the exporter’s bank. If the bill is a time bill
it may be discounted (sold before maturity, probably to the exporter’s own bank, for a
discounted price).
If used on its own, such a bill exposes the exporter to the risk of non-acceptance by the
importer. It is therefore often backed by a letter of credit issued by the importer’s bank
(see below).
Goods on consignment strongly favour the importer. In this case the goods are sent,
without any payment, under an agreement whereby payment will be made when the
goods are sold by the importer, or, in the event they remain unsold after a stated period,
they will be returned to the exporter. This may be resorted to by an exporter who is

attempting to create a market for a new product in a country where none currently exists.
The exporter must be satisfied with the good business standing of the importer, and
ensure that there are no barriers to the re-export of the goods if not sold.
This is similar to other methods of deferred payment in which case the importer sells
the goods onwards even though title in them has not legally passed to him. It is likely
that most importers securing such generous terms will be government bodies, or semi-
government entities.
Open account may be used when the exporter has a long-term relationship with the
importer. In this case the importer will settle the account at an agreed future time or at
agreed intervals. To work, the exporter must have great trust in the importer, and there
should be no currency controls between the countries concerned that would make the
arrangement impractical.
Although there would appear to be many disadvantages to open account trading it has
recently been reported in GTNEWS newsletter (04 March 2008) that: “Today's buyers
and sellers fully recognise the efficiency benefits of open account trade. And they are
moving quickly to make it the dominant payment method in their cross-border supply
chain management. Open account is only expected to become even more prevalent,
thanks to its ability to streamline processes by eliminating the multiple parties involved
in the flows, while reducing the amount of documentation required in global trade
transactions.” The growth in open account trading (now accounting for 85% of inter-
trade payments) has been supported by 'enhanced open account trade' – a service offered
by some financial institutions.
The efficiency advantages offered by open account trading will become clear when the
chain (and cost) involved in using letters of credit is understood (see below).
Letter of Credit (Documentary Credit).None of the above payment options will meet
all of the requirements that were raised at the beginning of this topic.
International traders who have yet to develop a trusting relationship with their overseas
counterparts will therefore often select the safest means for settlement – the use of a
letter of credit. This method will usually involve a bill of exchange, but unlike the risk
of non-payment by the importer that attaches to the use of a bill in isolation, the addition
of a letter of credit ensures payment so long as the correct documentation is supplied
by the exporter.
This assurance is achieved by requiring the importer to provide a guarantee from a bank
that payment will be made (the letter of credit) - on the condition that all the documents
required by the sales contract are provided by the exporter. It therefore assures the
seller that, so long as he meets this condition, he will be paid. The buyer is assured that
payment will not be made until the documents proving, amongst other things, that goods
matching the description in the sales contract have been safely delivered on board, are
received.

Figure 3-1
The movement of goods, documents and payment, together with further explanation, is
illustrated on the left and below.
1. Exporter informs importer that a letter of credit is required.

2. Importer (applicant) applies for letter of credit from a bank in country of import (the
issuing bank). Banks dealing in international trade will have a standard, detailed request
form for applicants to complete.
3. So long as the issuing bank satisfies itself of the standing of the applicant, the requested
letter of credit will be transmitted to their correspondent bank (the advising bank) in the
country of export.
4. The advising bank establishes the (apparent) authenticity of the letter of credit and
advises the exporter. If the exporter still has doubts about the strength of the letter of
credit, he may request that it be confirmed by the advising bank. In this case the
confirming bank guarantees payment so long as it receives conforming documents from
the exporter (it receives further commission for this service).
5. The exporter now ships the goods in accordance with the agreed terms.
6. The exporter provides the advising/confirming bank with documents that conform to
the letter of credit.
7. So long as the documents presented to it fully conform with the letter of credit the bank
pays the exporter.
8. Documents are transmitted to the issuing bank for payment.
9. The issuing bank reimburses the advising/confirming bank.
10. The issuing bank passes the documents to the importer so that he may claim the goods
on arrival.
11. The importer pays the issuing bank in accordance with the terms previously negotiated.
Matching Documents
It is worth repeating that banks deal strictly in documents. The result is that even a
minor error or spelling mistake in any of the documents can lead to non-payment –
perhaps amounting to millions of dollars. To ensure the transactions flow smoothly, all
the documents must match the details contained in the letter of credit. Given that the
letter of credit or some other documents may be prepared in a country where English is

not the first language, errors frequently occur. According to Dykstra (2005 p.328): “It
is estimated that 50% to 75% of all L/C documents have discrepancies, that result in
delay and higher bank fees, and sometimes payment is not made at all. It is therefore
of paramount importance to prepare the L/C documents properly the first time.” This
may mean, for example, that where there is a spelling mistake in the letter of credit, it
is simpler to repeat that mistake on the shipping documents that are subsequently
produced rather than asking for an amended letter of credit!
The need for accurate matching of documents under common law is known as the
doctrine of strict compliance. Under UCP500 there is a slight relaxation of this
principal, but not so far as commercial invoices and the credit are concerned: “The
description of the goods in the Commercial Invoice must correspond with the
description in the credit. Wherever the goods are described in the remaining documents,
description in general terms will be acceptable”.
In Soproma Spa v Marine & Animal By-Products Corporation (1966) the difference in
the description of goods in the invoice ‘Chilean Fish Full Meal’ and that in the bill of
lading ‘Chilean Fishmeal’, meant that the sellers were unsuccessful when they sued the
buyers for non-acceptance.
If the documents are correct, the bank will pay, notwithstanding any dispute between
buyer and seller about quality of goods etc. The only occasions on which a bank will
refuse payment is if it has conclusive evidence that a) the underlying transaction is
illegal, or b) that documents are forged.
In United City Merchants (Investments) Ltd v Royal Bank of Canada (The American
Accord) (1983) machinery had been shipped after the contract date, but the bill of lading
was falsely dated according to the contracted date. The House of Lords held that
because the bank was unable to prove fraud on the part of the seller it was bound to pay
on the documents.
It is apparent from the above that, if the market in the goods underlying the contract
falls, it is to the advantage of the buyer to find some means by which the payment may
be avoided. Given the number of discrepancies in letter of credit documents noted
above, it might therefore be thought that litigation usually results. This is not the case,
because it is often in the interest of parties to settle the matter otherwise. Sir Thomas
Bingham MR commented in Glencore International AG v Bank of China (1966) that
parties to international transaction “are seasoned professionals …. and banks, rightly
jealous of their reputation in the international market place, are generally careful not to
refuse payment on grounds of non-conformity unless the non-conformity is clear”.
Who pays? One of the problems associated with international trade identified at the
beginning of this topic was the conflict between the desire of the seller to be paid
when he delivers the goods for shipment, and the buyer’s wish not to pay for them
until received (or later). Use of a sight bill suits the seller, but means the buyer, or his
bank, will be out of funds for the period from shipment until the goods arrive and are
available for resale (or value-adding in some other way). The normal solution will be
for the bank to accept a charge over the goods (represented by the documents) until
paid by the buyer – or to provide some other means of financing the buyer. The buyer
pays.

Under a time draft (bill) the buyer’s problem is solved. He has no need to pay until the
date of the draft. In this case the seller will be out of funds from the time of shipment
until the date of the draft. To overcome this he may discount the bill and receive a
lesser sum. The seller pays.
Figure 3-3: Sample Time Bill of Exchange
On acceptance, the accepting bank will apply its stamp and signature across the face of
the bill.

Figure 3-4: Example of a Bill of Lading (Page 1)


Cases for Bills of Lading

Bills of Lading – Receipt Function
Silver v Ocean Steamship Co (1930).
New Chinese Antimony Co Ltd v Ocean Steamship Co Ltd (1917)
The Atlas (Noble Resources Ltd v Cavalier Shipping Corp (1966)).
The River Gurara (1998)
Bills of Lading – Evidence of Contract of Carriage

The Ardennes (1951)
Leduc v Ward (1888)
Bills of Lading – Document of Title

Sanders v Maclean (1883).
Delivery against a Bill of Lading

Kuwait Petroleum Corp v I & D Oil Carriers Ltd (The Houda) (1994)
Bills of Lading and Charterparties

Adamastos Shipping Co v Anglo-Saxon Petroleum Co (1959).
Rodocanachi v Milburn (1886).
President of India v Metcalfe (1970).
Homburg Houtimport v Agrosin Private Ltd (The Starsin) (2003).
Miramar Maritime Corp v Holborn Oil Trading Ltd (The Miramar) (1984).
Federal Bulk Carriers Inc. v C Itoh & Co (The Federal Bulker) (1989).
Financing International Trade

Forestal Mimosa Ltd v Oriental Credit Ltd (1986).
Royal Bank of Scotland plc v Cassa di RisparmiodelleProvincie Lombard (1992).
Revocable Credits
Cape Asbestos Co Ltd v Lloyd’s Bank Ltd (1921).
Matching Documents
United City Merchants (Investments) Ltd v Royal Bank of Canada (The American
Accord) (1983).
Discount Records Ltd v Barclays Bank Ltd (1975).
Bolivinter Oil SA v Chase Manhattan Bank (1984).
Soproma Spa v Marine & Animal By-Products Corporation (1966)

1. Describe the three main functions of a bill of lading, and explain why sea waybills
cannot fulfil all of these functions.
2. Explain why the use of letters of credit is most likely to balance the conflicting needs
of sellers/exporters and buyers/importers. Include in your answer, an explanation of
the process from the instance a contract is established between the importer/exporter
until the successful completion of the transaction and the bill of lading has been
accomplished.
3. A “Common Carrier” to all intents and purposes has full responsibility for any goods
carried excepting only his common law immunities. What are they?
4. What is the purpose of the “Clause Paramount” in a bill of lading?
5. Explain the difference between order and bearer B/L. Why is the order B/L more
commonly used.
6. Briefly explain the distinguishing features of the following types of B/L:
i Clean
ii Foul
iii Received for shipment
iv Order
v Straight

Section 6 – Salvage
Section 6
Salvage

Salvage
By the tradition of the sea there has long been an obligation placed upon the master of
a vessel to render assistance to any person who is found at sea and is in danger of being
lost – so long as he can do so without serious danger to his ship, its crew (and
passengers). In many countries this traditional obligation has now been formalised by
statute – in Australia by the Navigation Act 2012 (as amended) – where failure to meet
this obligation could result in the master being imprisoned for up to ten years.
The salvage concept is very old, even ancient, but the modern treatment of salvage is
contained generally within the IMO International Convention on Salvage 1989. The
Convention largely mirrors the law as it already stood in England (and Australia),
except that it contains provisions for special compensation for actions that have
prevented or limited environmental damage when no award would otherwise be made.
The 1989 Convention did not enter into force internationally until 1996 – a year after
the required number of states (15) had consented. Australia’s accession was a little
later, and it entered into force here at the beginning of 1998. As with all IMO
Conventions it relies on domestic legislation to finally give its provisions the force of
law. In Australia this is achieved through Schedule VIII of the Navigation Act, and in
the UK initially through the Merchant Shipping (Salvage and Pollution) Act 1994, then
the Merchant Shipping Act 1995.
The expression salvage has at least two distinct meanings, namely:
a) The actual service performed by the salvo is called salvage.

b) The reward paid to the salvo, for his successful service is also called salvage.
The body who developed the Convention on behalf of the IMO, the Committee
Maritime International (CMI), considered it only to provide for some aspects of the
treatment of salvage, the basis of which remains with traditional maritime law. It is this
traditional law that defined the elements that must be present for there to be a successful
salvage claim:
1. The property or life saved must have been in danger;

2. The property or life saved must fall within the categories capable of being salved;
3. The service rendered must be volunteer in nature
4. The salvage must have resulted in some level of success.
These four elements are now considered in some detail.
Conditions to be present for a salvage claim
Property or Life must have been in Danger

Means that there must be a real danger but it does not have to be absolute or immediate,
only of such a kind that a prudent master would not hesitate to accept a salvo’s help.

It rests with the salvo to prove that danger existed. See The Troilus (1951) AC820 (HL) in
which the ship was disabled and towed to Aden (towage), but although the ship was
physically safe she could not be dry-docked and repaired in Aden because there were no
facilities for her cargo to be safely discharged ashore and stored. A second ship then towed
The Troilus to her destination. This second ship was awarded salvage because the other
options (drydocking the vessel with cargo still on board, or attempting to trim the ship
sufficiently to fit the spare propeller) would have been dangerous.
Property or Life Saved must fall within the Categories Capable of Being Salved
A right to a salvage reward can arise only with maritime property and this excludes objects
such as buoys or navigational markers.
A case that was appealed to the House of Lords (Wells v Owners of the Gas Float Whitton
(No.2)(1897) AC337) appears to have set the standard on this question when Lord Esher
concluded that “the only subjects in respect of the saving of which salvage reward could be
entertained in the Admiralty Court were the ship, her apparel and cargo, including flotsam,
jetsam and lagan, and the wreck of these and freight ”.
In that case the subject of the salvage claim was a light float which, although ship-shaped, was
a moored lighthouse and had not been constructed for the purpose of being navigated, nor for
the carriage of cargo or passengers. Today the Convention and the Australian Act both seem
to take the same view – that what is covered is any ship or craft, or any structure capable of
navigation. White (2000 p.245) concluded that a hovercraft, and an aircraft when on the water
are both capable of navigation, as are offshore oil and gas rigs when under way, but not when
operating on station.
Even prior to the Salvage Convention and associated changes in the Navigation Act, there were
statutory provisions for life to also be the subject of salvage in the UK, under the Merchant
Shipping Act, and in Australia, under the Navigation Act. Article 16 of the Convention states:
“No remuneration is due from persons whose lives are saved, but nothing in this article shall
effect the provisions of national law on the subject.” (So the state could make an award), If
one ship rescued the crew/passengers and kept them safely on board, whilst another towed the
disabled vessel from which they have been rescued to a place of safety, the first vessel, which
took no part in the actual salvage operation, would be entitled to a share of the award.
The Service Rendered must be Volunteer in Nature

If any party already has an agreement to provide the service then they cannot claim a salvage
award. Recall The Andora case where the tugs and pilot were already contracted to provide
harbour towage and pilotage, but not to proceed outside the port limits to rescue the vessel from
a sand bar. They were awarded salvage for the element of the action that was outside their
contracted duties.
Similarly the master and crew of a vessel have a pre-existing duty as employees to preserve the
ship and its cargo. Even in the case of The Albionic ((1942) P 81), where the master and part
of the crew abandoned the ship in heavy weather when a fire on board appeared to be out of
control, but the mate and some crew members remained on board to keep the fire under control
and assist in getting the ship into port, no salvage was awarded to those who remained behind.

A wartime case illustrates the exception to the above general rule. The San Demetrio (1941),
loaded with petrol and end route to the UK in convoy, was severely damaged when under
enemy fire. A number of other ships in the convoy were sunk or disabled. Under orders from
the master, the crew of the San Demetrio abandoned ship into three lifeboats. Two days later
the crew of one of the lifeboats, that had become separated from the others, sighted their ship
still afloat. They re-boarded it, extinguished the fire, and without any navigation instruments
took it to safety five days later (with some help from tugs). The cargo of 10,000 tons of vital
fuel survived. Salvage was awarded because of their actions, and the fact that the ship had
been properly abandoned.
Can tugs and pilots claim salvage?
So far as tugs are concerned the conditions under which a tug might be successful in a claim
for salvage were defined in The Homewood (1928) 31 LIL Rep 336. For a tug already under
contract to be able to claim salvage the service has to be changed to become "a wholly
different kind of service from that which was originally contemplated by the parties before
the danger arose.
For a pilot to support a claim for salvage the requirements are somewhat similar to those
applied to tugs. This means that the services must be outside those normally expected from
a pilot. In the case of The Sandefjord (1953) 2 Lloyds Rep 557, a vessel with a pilot on board
suffered a breakdown of its steering gear and ran aground on Goodwin Sands. Lifeboats and
tugs were available, but the pilot recommended that they should not be engaged, but rather
that the vessel could run out a kedge anchor and haul itself off. The plan succeeded and the
pilot was awarded (a small) sum in salvage. The judge felt that the pilot’s skills and local
knowledge, together with the encouragement and support he offered the master, warranted
the reward, but it was not so large as to encourage pilots to take undue risks.
There are a number of possible cases where the party subsequently claiming salvage might
be considered to have a statutory or official duty to provide assistance to the vessel salved.
The general rule would appear to be that such parties are not precluded from being awarded
salvage, but the circumstances must be exceptional before they can be successful. Examples
are:
 the duty of a vessel involved in a collision to stand by and render assistance as necessary. In
the highest UK court (the House of Lords) the situation was clarified as being that such duty
does not necessarily prevent a ship involved in a collision from claiming salvage, but such
service must be meritorious;
 when public authorities render assistance the outcome would seem to depend on whether their
actions go beyond their statutory duties. Thus if a vessel runs aground within the port and
obstructs traffic, the authority’s duty would be to clear the channel. That this simultaneously
provides a service to the ship-owner is immaterial, and no salvage would be awarded.
 whether or not a naval ship may claim salvage again depends on the law of the State. In the
UK, for example, since the 1947 Crown Proceedings Act, reinforced now by the Merchant
Shipping Act 1995, there is nothing to prevent salvage claims by or for the Royal Navy
(except that claims in rem cannot be made against the Crown!). The situation with the Royal
Australian Navy appears to be similar. In general the Convention does not apply to warships
or other state owned ships unless decided so by the State concerned.

Salvage must have resulted in some level of success

As the reward is payable out of the salved property success is obviously necessary in order
to obtain any benefit from undertaking the service. Where there are several salvos each is
entitled to a share provided that his services materially contributed to the ultimate success
of the operation.
Depending on the value of claim the award may be settled privately or in courts.
Liability is limited to the value of the property salvaged. The principle now adopted is that
if property and life are saved then life salvage is paid in priority to property salvage. If no
property is saved or it is of low value, the Ministry is empowered to pay such sum he
considers to be appropriate. The Convention states that “Except as otherwise provided, no
payment is due under this Convention if the salvage operations have had no useful result”.
This does not preclude special compensation for preventing/limiting damage to the
environment under Article 14 even if the salvage had been unsuccessful.
The traditional view was expressed by Lord Diplock in The TojoMaru (1972) AC242(HL):
“The first distinctive feature is that the person rendering the salvage services is not entitled
to any remuneration unless he saves the property in whole or in part. This is what is meant
by ‘success’ in cases about salvage”
If a ship rescues another from one danger, but then delivers that ship into another danger
(possibly because the towline parts and cannot be re-connected) then no salvage is due, even
though the ship in danger is ultimately saved by a third party. See The Melanie v The San
Anofre (1925) AC 246 (HL).
The Tower Bridge (1936) P30 illustrates circumstance under which simply standing by
another vessel may result in an award. The Tower Bridge was stuck within a field of pack
ice and sent out a distress call. Another ship, The Newfoundland, went to her assistance, but
by the time of arrival the Tower Bridge had managed to partially solve her dilemma unaided.
The Newfoundland stood by for a short time, but then left the Tower Bridge with advice on
how to proceed to clear water. Tower Bridge followed that advice and cleared the pack ice.
Salvage was awarded on the basis that the advice provided was valuable and could only
have been given by The Newfoundland as there were no other ships in the area.
Salvage Agreements
There is no need for a formal salvage agreement to be completed. If the four factors
discussed above are present then an award will be made.
Professional salvos usually offer their services on a “no cure-no pay” basis but occasionally,
where the situation is extremely grave, no professional salvos may be willing to offer their
services on a “no cure-no pay” arrangement. If this occurs the situation is almost certain to
develop into a total loss and this will then obviously mean the owner will claim against his
insurance.
As per the LOF 1995 the “No Cure No Pay” concept required that the service rendered
should be successful for a reward. The “No Cure No Pay” policy was introduced so that the
salvo will have to do his best to make his attempt successful. In other hand it also
discouraged a salvo because he gets nothing if unsuccessful. The LOF 2000 addressed this
problem by setting up a payment called “Special compensation” under a new clause Special

Compensation P&I Clause – SCOPIC Clause, for salvos who had been unsuccessful
provided that they prevented or minimized damage to the environment. What they get is
the expenses incurred in trying to salvage the vessel. This encouraged the salvo to salvage
a ship even if it finally became unsuccessful.
The SCOPIC clause and the appendices can also be found at www.lloyds.com
Advantages of using LOF:
a) Owner benefits from NO CURE NO PAY principle

b) Owner doesn’t prejudice his insurance because U/W’s liability cannot be more than
for a total loss.
c) The salvo benefits by being able to obtain very quickly an agreement which is
understood and accepted internationally.
d) The salvo has a maritime lien on the property saved.
e) All parties benefit from the provision in the agreement which refers any disputes
to independent arbitration.
It is not actually necessary to sign the Lloyd’s form of Salvage Agreement since
provided there is good evidence that both parties agreed to this form of agreement
that will suffice.
So far as cargo owners are concerned the master can act as an agent of necessity:
a) In an emergency;
b) If he is unable to contact cargo owners (or they fail to give him instruction);
c) If he acts for the interest of all parties; and
d) It is also reasonable for the master or ship-owner to enter into the agreement.
Should a master actually have to sign the form it is important that he signs it “for
and on behalf of” the owners –as Master of [name of vessel]”
The Master’s decision

From the point of view of the master of the vessel which requires salvage services a few
questions need to be answered.
In deciding whether to accept salvage assistance the following circumstances will be

taken into consideration.
1. Safety of Personal
2. Proximity to shore or shoal area
3. Weather and sea condition
4. Potential for safe anchorage
5. Availability of assistance
6. Damage sustained by the ship
7. Risk of further damage
8. Threat of pollution
9. Man power and material
Your decision in selecting a service will depend on:

1. The distance away of potential helpers

2. E.T.A. of potential helpers
3. Quality of help available professional or amateur.
4. Capability and power of helping V/L’s
Factors taken in account when you have to decide to salvo another ship.
Are you under obligation – NO Ships Masters are under statutory obligation only to
save human life and prevent harm to environment. Life/Environment/Ship is the order
of priority.
Factors:
1. Is it allowed by the B/L

2. Enough bunkers to continue voyage as per C/P
3. Will you miss a cancellation date
4. Can it create a problem to the cargo onboard
5. Do I have enough machinery power
6. Is the vessel plus cargo value less than the service value
Obligations of the Salvo

Under traditional maritime law there was no obligation on the salvo to continue with
his attempts at salvage. He was free to abandon the efforts at any time. Article 8, part
1 of the Convention, however, “The salvo shall owe a duty to the owner of the vessel
or other property in danger:
Salvos obligations towards Owners obligations towards

owner salvo
1. To carryout operation with care 1. To corporate with salvos
2. To prevent or minimize damage 2. To prevent or minimize

to the environment damage to the environment
3. Get other salvos assistance 3. To accept re delivery when

when requested brought to a safe place by
salvo
There has, in the past, been some discussion about the rights of a salvo to claim when
the vessel salved is under the same ownership. The Convention, in Article 12 part 3
removes any doubt by stating that the conditions for deciding reward apply
“notwithstanding that the salved vessel and the vessel undertaking the salvage
operations belong to the same owner”.
Factors taken into account when assessing rewards:
1. The value of the property salved.

2. Value of the property at risk.

3. The degree of danger which the property was saved.

4. The degree of risk to which the salvos property was exposed
5. The losses of life if any suffered by the salvo.
6. The extent of the labour cost incurred and the skill displayed by the salvos.
7. The enterprises of the salvos and the degree of risk to their own lives.
Place of Safety
The salvo has to bring the ship to a place of safety before he is discharged. This point is
communicated with the salvos prior to agreement.

1. Describe the four elements that must be present for there to be a successful claim
for salvage.
2. Describe the content and application of Lloyd’s Standard Form of Salvage

Agreement.
3. Describe how, the Salvage Convention make provisions for special compensation
to a salvo when there is a threat to the environment but little chance of securing an
award otherwise.
4. Describe the criteria that will be considered when assessing the size of a salvage
reward.


Section 8 – Cargo and Damage Liability Regimes
Section 7
Marine Insurance& General

Average

Section 8 –Cargo and Damage Liability Regimes
Marine Insurance
The marine insurance market is an international one, so this module tries to apply an
international perspective to the topic. It is, however, a fact that the London insurance
market remains the major international market in terms of both size, and the influence
it has elsewhere. This is partially due to the presence of Lloyds, major insurance
companies and P&I clubs, but also because relevant legislation in other legal systems
is often based on the English Marine Insurance Act of 1906. In Australia this means
the Marine Insurance Act 1909 (Cth).
As with much of English statute law, insurance law has its basis in the common law
decisions of judges prior to 1906, so the Act was not created to fill a vacuum, but to
codify what already existed. There have been surprisingly few changes to the Act
because it is sufficiently flexible to meet most industry needs, and its provisions can be
supplemented by the use of additional clauses. Since insurance involves contracts,
much of the common law of contract also applies.
Insurance Contracts
A contract of marine insurance is finally made in the form of a policy, but the contract
may be deemed to exist when the proposal from the insured is accepted by the
insurer(s). The majority of insurance is handled through brokers who prepare a slip
(either physically or electronically) outlining the insured requirements and offer it to
underwriters. An underwriter who accepts the risk signs the slip (indicating the
percentage of the risk he will cover if it is to be co-insured). The completed slip acts as
the policy until a full, signed policy is prepared. The general wording of the policy is
quite simple, but details of the particular terms and clauses are then added as required.
For example, the general wording of the International Underwriting Association Marine
Policy is: “We, the Insurers, hereby severally agree, in consideration of the payment to
us by or on behalf of the Insured of the premium specified in the Schedule, to insure
against loss, damage, liability or expense in the proportions and manner hereinafter
provided. Each Insurer shall be liable for its own respective proportion.”
Definitions
Insurance A promise to pay compensation (or indemnity) against

a loss or damage that may occur. (Ships do not have to
be insured).
Third Party An innocent bystander (or object) that becomes injured

by your actions.
Cover Some kind of insurance protection. E.g. fire, theft,

house contents, buildings, life etc. (Ships are covered
as far as the hull and machinery are concerned and also
on third party risks.

Premium The sum of money the assured pays to the insurer so

that the marine insurance contract remains in force is
referred to as the premium. A shipowners record, in
term of accidents to his ships, is taken into account
when deciding the rate of premium payable. Thus
owners of two identical ships, insured for the same
amount, may be paying different rates for their
insurance.
Premiums are usually returnable if the policy is
cancelled before the expiry date.
In the event of a vessel being laid up, safely, the rate of
premium is usually reduced (a laying-up returns clause
usually covers this aspect).
Risk The events insured against.
Slip A document that shows the risk that is to be covered.
Broker He who provides the link between the insured and the
insurer.
Underwriter He or she (who is the insurer) so called because the

names are written under the risk details on the slip.
The Three Basic Principles of Marine Insurance
1. Insurer must have an INSURABLE INTEREST
It is a criminal offence to get cover without an insurable interest. The assured

must have a legal relationship to the subject matter insured.
Definition of Insurable Interest: From the Marine Insurance Act

“Every person has an insurable interest who has as interest in a marine adventure”
In short if a mishap occurs to the venture the holder of the insurable interest will
incur a loss.
Examples of insurable interest in shipping
1. The owner of the thing insured (which could be ship or goods)

2. The underwriter him self
3. A mortgagee
4. The Charterer of the adventure
5. A trustee (an investor, guarantor of the adventure)
6. Crew
2. Contract is one of INDEMNITY

To indemnify is to make good a loss suffered, not by replacement of the subject matter
lost, but by a financial payment, i.e. to compensate.
The insured is not allowed to make a profit from the loss.
From the doctrine of indemnity two very basic rules are derived:
1. Where the insurer settles for a total loss the insured must abandon all rights to what
is left of the thing insured.
2. Subrogation: i.e. Where loss or damage is caused by a Third Party such that the
insured can claim against that party, then the insurer is entitled to take over such
rights from the insured on settling the loss.
3. Principle of UTMOST GOOD FAITH, e.g.
When a marine insurance contract is made by the insured the insurer must base his
judgment on the information given to him by the broker, acting on the owner’s behalf.
The MI Act places responsibility for observing ‘utmost good faith’ squarely on both
parties to the contract; hence if ‘utmost good faith’ is not observed by either party the
contract may be considered, to all intents and purposes, to be void from that point
onward.
This may be summarized: Utmost good faith means a full and truthful disclosure of all
known material facts by both parties likely to affect the insurance contract.
There are a number of other principles which apply to insurance in general, or marine
insurance in particular, namely:
1. The venture must be lawful

2. The assured must always act to minimize the loss. (The law of the minimize)
3. The V/L must be seaworthy.
We have considered that one of the three main principles of Marine Insurance is that of
‘Utmost good faith’, but it is more practical to ensure that an insurance contract is
adhered to by the attachment of warranties.
Warranties
In the (common) law of contract, a warranty is a less important term of a contract that
only gives rise to a claim for damages if breached. A warranty in insurance law has,
however, greater significance. It “is a condition which must be exactly complied with,
whether it be material to the risk or not. If it be not so complied with, then, subject to
any express condition in the policy, the insurer is discharged from liability as from the
date of the breach of warranty, but without prejudice to any liability incurred by him
before that date.”
This means that once there has been a breach of warranty, even if that breach is
remedied before a loss occurs, the insurer will be discharged from liability – unless the

insurer has waived the breach. Otherwise a breach of warranty may only be excused if
it is no longer applicable or compliance becomes unlawful because of a change in law.
Warranties are of two types, namely:
1. Expressed warranties
2. Implied warranties
Express Warranties are

1. Contained in the policy or in a document referred to by the policy
2. Written into the policy or attached to it.
Thus express warranties could be considered as including the Hull, Cargo, Ice, War,
Strikes, etc. clauses. A simple example of an express warranty could be
“WARRANTED NOT SOUTH OF 660 SOUTH”.
Implied Warranties
1. Do not appear in the policy
2. Are understood by law to exist
Two obvious examples of implied warranties are, that it is always implied a vessel is
seaworthy at the commencement of the risk (a voyage) and that it is always implied the
voyage is lawful. If cover begins whilst the ship is in port there is an implied warranty
that the ship is reasonably fit to encounter normal perils of the port. Where the voyage
involves a number of stages, and those stages require separate equipment/preparation,
there is an implied warranty that the ship will be seaworthy at the beginning of each
stage. Where the insurance covers the cargo there is also an implied warranty that the
ship will be cargo worthy – but not that the cargo is seaworthy.
The Policy
The Basic Policy:

1. Description of ship and voyage
2. The perils insured against
3. Premium, value, period of start and end
4. The sue and labour clause
5. The waiver clause
6. The franchise
7. The warranties
8. The name of the UW themselves and their faithful promise to pay.
Institute Clauses
The extra cover purchased in sets of clauses, all written by the Institute of London U/W’s
are called institute clauses. These help to meet constantly changing interests and
requirements. They are standard sets and include the following coverage.
1. Institute time clauses (hull)

2. Institute voyage clauses (hull)
3. Institute voyage clauses (free of P.A)

4. Institute cargo clauses (1,2 or 3)

5. Institute war clauses
6. Institute strike riots and civil commotions
7. Institute cargo clauses (air)
New System of Policies

It is a common practice for most insurers to use a marine policy form based on the SG
(Ships and goods) form which was adopted in 1779, as a standard policy.
Because of increasing customer dissatisfaction with a somewhat cumbersome SG

policy and in numerous sets of clauses Lloyds have come up with an alternative policy
type. If desired the mariner purchases this new policy which is a blank paper (MAR 91
forms) and then keep on buying individual clauses (Institute Hull and Machinery
clauses , Institute Cargo Clauses) to make up the cover to suit him. All that is changed
is the format of the policy and the wording of some of the clauses.
It is impracticable to print a policy to provide for every type of risk and every
contingency, so the practice is to amend the basic form as required.
The basic concept is that the printed word is over-ridden by impressed wording and that
both printed and impressed are over-ridden by handwriting.
Types of Marine Policies
Valued Policy Specifies the agreed value of the subject matter

insured. Need not be the true value.
Unvalued Policy Value of the subject matter left blank, but agreed
upon in the event of a claim. Max value is always
stated. This is used for freight insurance.
Voyage Policy A policy with cover of the subject matter from one
place to another. This type of policy is used mainly
for goods, although some ships E.g.: on delivery or
scraping voyages, may be insured for a single
voyage.
Time Policy A policy for a stated period of a cover. Most ships

use this for an agreed duration. A time policy cannot
exceed 12 months and would be extended until
arrival of destination.
Voyage and Covers subject matter from one place to the other and
Time (Rare) (or also for a definite period of time at both or either
Mixed) Policy place and for a time period there after all in one
policy.

Floating Policy Is used mainly for goods and also for ships. Covers
subject matter in general terms, leaving particulars to
be defined by subsequent, sequential declarations at
the time of shipment. Policy is for a ceiling round
sum. A dealer with several consignments of goods
make a declaration of it and its value each time which
is endorsed on the policy back and each shipment
reduces the U/W’s liability until the policy is fully
declared.
Construction Designed to cover the risk in building a V/L.

(or Builders)
Policy
Open Cover Similar to floating policy but no value mentioned.

(Normally for This is an agreement between the assured and his
Cargos) underwriters where the former declares, and the
latter accepts, all shipments coming within the scope
of the open cover during a stated time period.
The open cover is binding in honour only and is not
legally enforceable. Whenever a shipment is made
the assured notifies and gives the details to the
underwriters, who then issue the appropriate type of
policy. The maximum risk for a single voyage is set.
It should be noted that there are other types of policies, e.g. fleet, port, etc., and also
that it is possible to have a policy written for almost any set of circumstances with, of
course, appropriate levels of premiums.
Risk Covered by an Insurance Policy
Perils of the Sea Accidents and casualties of the sea which means
accidental losses only. E.g.: collisions, stranding etc.
But not the ordinary action of wind and waves. Bad
weather is covered.
Fire Caused by accident or negligence of the crew but not

by inherent vice. E.g. Spontaneous combustion of
subject matter.
Barratry Wrongful acts wilfully committed by the master or

crew to the prejudice of the owner or C/R.
Thieves Covers only theft with violence and excludes crew

and passengers.

Restraint of Covers losses caused only by political unrests and not

Princes restraints caused by rioting or judicial processes.
Pirates and Covers losses caused by marauders plundering

Rovers indiscriminately, includes crew and passenger
attacking the V/L and also rioters attacking from
ashore,
Rovers = considered to be sea going pirates.
Jettisons ‘Jettisons’ which is described as casting goods

overboard to lighten a vessel, or equipment thrown
overboard, deck cargo (if legitimately carried)
thereby preventing the sinking of the ship and the loss
of the entire adventure. This is the primary from of
general average and discussed as a separate topic
later.
P & I Cover (relating to damages not normally covered under Hull & Machinery)
 Damage to third party’s equipment and property;
 One fourth collision liability;
 Oil pollution
Risks Not Covered by Marine Insurance Policies

1. Loss due to wilful misconduct of the assured
2. Loss due delay. (unless specifically included)even if it is due to an insured peril
3. Ordinary ware & tare, leakage and breakage
4. Rat and worming damage
5. Machinery damage (such as developed latent defect) not caused by a marine peril.
Now overcome by the inclusion of the “INCHMARIE” clause.
Covers losses resulting from latent defect in hull and machinery of vessel and losses
resulting from errors in Navigation or Management of the vessel by Master or crew.
These five exclusions were specifically excluded from Marine Insurance policies by the
Marine Insurance Act . Since this time case law has modified the interpretation of the
above risks to the extent that some are now allowable under marine insurance.
Important Clauses Contained in the Policy
Sue and Labour In the event of a damage or loss the Master is bound to act to
Clause minimize loss. Any expenses incurred from such actions are
recoverable from the insurer. These expenses are called

“particular charges” and are an extra amount over the total

loss claim on the policy.
They are recoverable from the underwriters when,
1. They are incurred for the benefit of the subject matter
insured
2. They are reasonable
3. They are incurred by the insured himself or his
servants
4. They are incurred to avert or minimize a loss covered
by the policy
For example
a) A ship with cargo and earning freight, strands. The
Master hires a tug to re-float her and continue the
voyage after the necessary repairs, THE COST OF
THE TUG IS A GENERAL AVERAGE CHARGE.
b) Same circumstances as a) but the ship has no cargo,
it is ballast THE COST OF THE TUG IS A
PARTICULAR CHARGE UNDER SUE AND
LABOUR
c) The same circumstances as above except that the tug

arrives and ‘volunteers’ its help THE COST OF THE
TUG IS A SALVAGE CHARGE.
Waiver Clause In the case of a constructive total loss and the assured has
given notice of abandonment to the underwriters and they
have declined to accept it, any measure taken by the assured
to save the property is not to be taken as a waiver or
withdrawal of the notice of abandonment. Similarly any
action taken by the underwriters to save the property shall
not be regarded as acceptance by them of the notice
previously declined. The simple rule is that any action taken
by either party under this clause must be undertaken with a
view to protecting the interests of both parties.
Franchise This is a device to ensure that the insured takes some care of
Clause his property himself and does not become lax as he would if
there was 100% cover for all damages or losses. The
Franchise states that a claim must be more than 3% of the
total value of the policy to be considered by the underwriters.
Anything less and they will not pay, anymore and they will
PAY IT ALL.

Institute Hull Clauses (important clauses)

Running Down If the insured V/L collides with another V/L, and the insured
V/L is held wholly or partly to blame, the insured own
damage is covered by his own policy. This clause covers up
to ¾ of the liable damage suffered by the other ship. This
additional protection does not cover damage to piers,
pollution, removal of wrecks and personal injuries. They are
can be covered by the P & I club OR you can buy a full force
4/4 RDC.
Inchmaree The covers under the perils clauses.

(Negligence) Extends U/W’s liability to cover damage to hull and
Clause (covers machinery directly caused by:
accidents which
are not included (a) Accidents in handling cargo or fuel
in ordinary (b) Explosion on board or elsewhere including nuclear
marine perils)
(c) Break down of machinery, hull due to latent deflects.
(d) Negligence of master, crew or pilot provided damage
is not due to lack of diligence on the part of the
insured.
Tender Clause In the event of an accident giving rise to a claim notice must
be given to the U/W’s before repairs so that on U/W’s
surveyor can be appointed. U/W has the right to accept or
withhold any repair quote. U/W may take tenders or require
them to be taken. Failure of S/O to comply with this clause
results a reduction of any claim by 15%.
Voyage Clause Defines the term voyage.
Cancellation When a V/L is sold or handed over to new management; the
(Change of policy ceases unless the V/L is at sea in which case it ceases
Ownership) on arrival at port.
Clause
Valuation A V/L becomes a CTL when the cost of repairing the
Clause damage is more than the repaired value of the ship. To
eliminate arguments over the repaired value, this clause
states the insured value equals the repaired value.
Sister Ship Claims for damage or salvage between ships of the same
Clause owner are treated as if the vessels had separate owners.
Towage, etc. Vessel may sail with or without pilots, go on trial voyages,
Clause assist and tow vessels in distress. Vessel is not to be towed
except as is customary or when in need of assistance, neither
can the vessel undertake towage or salvage under a
previously arranged contract.
Continuation If the policy expires then, on payment of a monthly
Clause premium, the vessel remains covered until a newpolicy is

issued. (Time policies for the same ship invariably follow

one another immediately without a gap).
Breach of Provides that a vessel breaching a warranty remains covered,
Warranty provided notice of the breach is given to the u/w and any
Clause additional agreed premium is paid.
General G/A and salvage to be adjusted according to the law of the
Average Clause place where the adventure ends, unless the freight contract
states adjustment is to be according to the York-Antwerp
Rules. (e.g. C/P or B/L).
Average Clause State that average is payable on each valuation separately or
on the whole without deduction using the principle ‘new for
old’.
Grounding Provides that groundings in certain places are not considered
Clause as stranding, e.g. Panama, Suez and Manchester Canals,
River Plate, Danube River, etc.
Freight Provides that in the event of ATL or CTL to the hull, the
Abandonment U/W may not claim freight on cargo even if they forward it.
Clause
Institute Cargo Clauses
(This is in a Cargo Insurance not hull and machinery)Many of the cargo clauses are
similar to the equivalent hull clause with the exception that they refer to cargo insurance
rather than hull insurance.
Duration Clause Extends cover on goods to include shipments, warehouse to

warehouse, usually up to 60 days after discharge.
This defines the commencement and termination of the risk.
Craft etc. Clause Holds goods shipped in lighters at the loading and
discharging ports, to be covered whilst in transit to and from
the ship.
Seaworthiness Shipowner is bound to exercise due diligence to ensure a

Admitted Clause V/L is seaworthy. Between the cargo owner and his U/W
the V/L is considered seaworthy at the commencement of
the voyage. The cargo insurer is liable for cargo claims even
if the V/L is seaworthy or not provided that the cargo owner
was not party to a wrongful act causing loss to V/L or cargo.
Change of Should a change of voyage occur or an error in description

Voyage Clause of the goods then, on payment of an additional premium, the
cargo owner is held covered.

Constructive States a CTL occurs when the cost of recovering,

Total Loss reconditioning and forwarding goods to their insured
Clause destination exceeds their value on arrival – similar to hull
clause.
General Exactly the same as the ‘Hull’ clause.

Average Clause
Free of Strikes, Designed to remove loss caused by strikes, riots and civil
Riots and Civil commotion from the scope of the policy. If this clause is
Commotion’s deleted the relevant Institute Strikes, Riots and Civil
Clause (F.S.R. Commotion’s clause are deemed to be incorporated.
& C.C.)
When a ship leaves a port she will be destined to a specific destination. If the ship is
subject to deviate to another destination or return to the same port in an emergency,
then this action is known as putting into a Port of Refuge.
Insurance cover and validity of charter parties will remain in force for any deviation
from the customary root only if the deviation is JUSTIFIABLE. Such an action, being
reasonably and voluntarily taken to preserve the common adventure, which is allowable
as a general average act.
The following deviations are considered JUSTIFIABLE:
1. A deviation made to save or attempt to save life;

2. A deviation made to avoid imminent danger;
3. Deviation due to the default of the charter;
4. A deviation made to save property;
5. Going to a PORT OF REFUGE for a justifiable reason
6. A deviation due to force majeure.
Unjustifiable Deviations
1. Taking a uncustomary for private reasons;

2. To put into a port for stores/provisions which are not essential for safe completion
of voyage;
3. Putting for bunkering for a future voyage.
Under what circumstances will you make a justifiable deviation to a port of refuge?
1. When it becomes unsafe to continue the voyage for any reason;

2. Putting back into a port to effect necessary repairs (going back to same port);
3. Putting into a bunkering port when short of fuel, provided adequate supplies were
on board when leaving the last port.

General Procedure by Master/Owner

1. Inform the owner/charterer of intended actions, also
2. Inform ETA to owner’s agent at refuge port of damage and facilities required.
3. Obtain pratique, customs clearance and enter inwards and notify owner of safe
arrival.
4. Note protest and reserve the right to extend it.
5. Notify the administration of accident.
6. Notify the underwriters (owner should do this) or the nearest classification agent
of the accident and extent of the damage in order to comply with the Tender
Clause.
7. Employ a Classification Society surveyor to undertake a preliminary hull survey.
If a Classification Society surveyor is not available then consult the local Lloyds
agent who should recommend a reputable local surveyor.
8. If cargo damage is suspected or the cargo has to be moved to repair hull damage
call for a registered cargo surveyor to be on hand.
9. Where cargo has to be discharged have this done under survey and ship’s tally.
10. On completion of detailed surveys of the damage advertise for tenders to repair
the damage. This complies with the Tender clause, but bears in mind the
underwriter’s power of veto.
11. Seek the advice of the local Lloyds agent as to which tender to accept.
12. Draw up a contract for repair, ensure a completion date and penalty clauses are
included.
13. Have the repairs carried out under the scrutiny of a Classification Society
surveyor.
14. On satisfactory completion of repairs a Classification Society surveyor will return
the vessel to class either as a temporary measure or permanently. A Non-
Classification Society surveyor issues a Certificate of Seaworthiness.
15. Reload the cargo under survey and ship’s tally.
16. Pay all costs, e.g., port, survey, repair, etc., and obtains receipts.
17. Extend protest giving full details of damage, repair and all expenses incurred.
18. Clear outwards at the customs house and proceed on voyage.
Many of the costs incurred in utilizing a port of refuge are recoverable as general
average. Rules X to XIV of the York-Antwerp Rules 1974 specifies what is
allowable as general average in the case of a vessel utilizing a port of refuge.
Types of Losses
Losses in Marine Insurance are categorized into:
1. Total Loss
2. Partial Loss
Total Loss – is subcategorised to:

i. Actual total loss (ATL)

ii. A presumed total loss (PTL)

iii. A constructive total loss (CTL)
ATL -When the thing is destroyed or is so damaged as to cease to be a thing of a kind

insured, or when the assured is irretrievably deprived of it.
The ATL value is the value that is put on the policy.
PTL - When a ship is missing, her total loss may, after the lapse of a reasonable time
period, be presumed total loss. (Time period will be claused, usually 6 months)
If however the ship is last seen in “war zone” the presumption would be that it was lost
by warlike action and unless it carried her risk insurance it would not be covered. (The
trawler GAUL)
CTL -The assured is deprived of ship/goods by an insured peril and it is unlikely he

will be able to recover the insured property. (Ship trapped in Suez).
e.g.
 The assured is deprived of his ship by an insured peril and exceed its value when
repaired or recovered.
 The assured is deprived by his cargo by an insured peril and the cost of recovering
and forwarding the goods to their destination will exceed the value.
The assured has the right to abandon the property to the U/W in the event of a CTL, but
if he does not, his claim is treated as partial loss only. In the former case, the owner
abandons the property to the insurers who then are the owners, whilst in the latter case
the insured retains ownership of the property.
In a CTL the owner must issue NOA.
Notice of Abandonment (NOA)
If the assured suffers a CTL and elects to abandon his property he must serve a notice
of abandonment on the underwriters. The notice may be given in any form, but it must
indicate the intention of the assured to unconditionally abandon his interest in his
property to the insurers. Once the notice is accepted by the underwriters it cannot be
revoked and they become responsible for all assets and liabilities related to the subject
matter.
In most cases NOA is not accepted by U/W unless the U/W is very certain that they
could gain more profits after paying the loss to the insured.
It should be pointed out that the right of subrogation (see Marine Insurance, principles
and Definitions) extend to the freight in the course of being earned by a ship abandoned
to the underwriters, but in practice this right is relinquished in accordance with the
Marine Insurance Freight Abandonment Clause.
There is no obligation on the part of an underwriter to accept a notice of abandonment

once it has been offered by the assured. If this occurs then the assured, in order to
legalise his abandonment and enforce his claim, must take legal action against the

underwriters. The circumstances prevailing at the time when the writ is issued are those
which determine whether or not there has been a CTL.
If the U/W accepts abandonment, eventually he pays actual total loss & becomes
entitled to the wreck. If he rejects the abandonment he still pays for A/total loss but
leave the wreck to the ship owner.
Partial Loss – two types of partial loss are recognised:
i. Particular Average (PA)

ii. General Average (GA)
“Average” in insurance basically means “damage”
The term ‘average’ indicates partial loss and covers all damage which may be sustained
by a ship and/or cargo during a voyage, as well as any extraordinary expenses which
may be incurred.
The cost of raising wrecks not being covered by the policy is of course covered by P &
I insurance.
Particular Average
A particular average loss is a partial loss of the subject matter insured, caused by a peril
insured against and which is not a general average loss.In practical terms it is more
reasonable to describe particular average as a partial loss arising from any kind of
accident.
Summarise: (Partial damage is caused by any accident insured against).
Obviously general average sacrifices and expenditures, or salvage charges do not arise
by accident and consequently cannot be considered as particular average.
A particular average loss falls directly upon the owner of the insured property and it is
up to him to prove to his underwriters that the loss was caused by a peril insured against.
Examples of particular average:
1. Damage to the ship/cargo due to extra ordinary bad-weather

2. Damage to hull or machinery or cargo caused by fire
3. Damage to ship or cargo caused by grounding or stranding
In fact PA is the most common form of damage.
In the event of a particular average loss in respect to ship or cargo, protest should be
noted and the damage surveyed on behalf of the ship. If the vessel is damaged, the
underwriters or nearest Lloyd’s agent should be informed in order to comply with the
requirements of the Tender Clause. The payment of the claim is modified always by
the terms of the policy, by the franchise or policy deductible or excess.

The insurance co calls tenders for repairs and selects one of them before repairs begin.
(The Tender clause is applied)
General Average
The development of General Average has taken some 4000 years. Historically the
accepted principle has been that ‘all must contribute to that which has been sacrificed
for all’. This is a partial damage(loss) occurred by a General Average act.
There is a general average act when, and only when, any extraordinary sacrifice or
expenditure is intentionally and reasonably made or incurred for the common safety for
the purpose of preserving from peril the property involved in a common maritime
adventure. (York-Antwerp Rules 1974)
In considering general average the common interest, e.g. safety of ship, cargo or freight
is paramount. The sacrifices or expenditures are made or incurred for the benefit of the
common interests, consequently it is only reasonable that each interested party should
contribute to the general average loss in proportion to the value he has at stake.
Interested parties could include:
1. Ship owner
2. Cargo owner
3. Freight holder
4. Charterer with vessel under T-C.
The general average act must be intentional and reasonable, in other words the principle
of ‘utmost good faith’ must be beyond question.
There has already been some discussion about the master’s authority to act as an agent
of ship and cargo owner. In general it is the case that the master has the authority to
decide on the act that results in a general average claim (confirmed by a case that went
to the House of Lords in 1947). Does it have to be the master’s decision? In a more
recent case, Athel Line Ltd v Liverpool & London War Risks Ins Assn Ltd (1944) 1
KB 87, the judge considered that Rule A of the York-Antwerp Rules envisage “the
exercise by someone of his reasoning power and discretion applied to a particular
problem with freedom of choice to decide to act in one out of two or more possible
ways...” which obviously could apply to the master, or even another member of the
crew if the master is incapacitated – but could it apply to a third party? The
Representative of a Secretary of State (SOSREP) may direct a ship to a place of refuge,
for example. Does that constitute a general average act? The case of the MSC Napoli
would have provided a good test case, but general average was not declared.
Whoever has the authority to authorise a general average act, it has been well-
established that the following elements are required before it can classify as a general
average act (must comply with all below):
1. There must be a common maritime adventure (between 2 or more parties) e.g. A

ship in ballast is not a common maritime adventure
2. The venture must be in peril. (danger must be real and eminent)
3. There must be sacrifice of property or expenditure of money
4. Must have been reasonably and intentionally incurred for the common safety.

5. Must have been successful. E.g., the V/L must not be in peril any more after G.A
is done.
A simplistic example of how a general average contribution is calculated.
A vessel incurs a $10,000 fee for the hire of a tug to assist re-floating after a stranding.
General Average Expenditure
Value of ship $ 6,000,000
Value of cargo $ 3,000,000
Value of unpaid freight $ 1,000,000
$10,000,000
Contributions are therefore:

Shipowner 0.6 × $ 10,000 = $ 6,000
Cargo owner 0.3 × $ 10,000 = $ 3,000
Freight holder 0.1 × $ 10,000 = $ 1,000
Total = $ 10,000
In practice, the various interested parties will take out insurance to cover them for any
payment or general average contributions, for the ship owner this would probably be
with his P & I Club.
Practice regarding general average contributions

The cargo owner (or his U/W) deposit a sum of money with the ship owner (or his U/W)
known as a General Average Deposit.
Alternatively, they enter into a bond to be responsible for any general average charges,
often used is a Lloyds Average Bond. Also called GA guarantee. Any general average
claims are settled with this sum of money, excess contributions being returnable.
Modern practice when insured property suffers a general average loss is for the U/W to
make good the loss as particular average in the first place. The underwriters are then
reimbursed out of the general average pool, thus in effect all general average payments
are made between underwriters.
Examples of General Average
1. Going to Port of refuge for necessary repairs after an accident (act)

2. Jettison of cargo (sacrifice)
3. Slipping anchor to avoid an immediate peril (sacrifice)
4. Discharge of cargo to float a stranded ship to lighter (expenditure)
5. Hire of tugs to float a grounded laden V/L (expenditure)
6. Salvage charges if preserving the property from peril (expenditure)
7. Damage done in extinguishing a fire (expenditure)
8. Straining the engine to re-float after running aground (Act)
9. Stranding purposely to avoid sinking. (act)
Adjustment of General Average

Unless the contract of carriage provides otherwise the rule is that general average is
settled in accordance with the law and practice of the place where the cargo is

discharged. Most charter parties or bills of lading will state that ‘General Average is to
be settled according to York Antwerp Rules 1974’.
The York Antwerp rules are a self-contained code upon which average adjustment is
based and apart from the U.S.A. are almost universally adopted.
General Average Adjuster

The ship owner has the duty of appointing the Average Adjuster. The adjuster is a kind
of arbitrator, with an expert knowledge of the law and practice relating to insurance and
average. His task is to decide what is and what is not, by law or contract allowable as
general average. Using the York Antwerp Rules and documents such as manifests, bills
of lading, log books, extended protests, copies of accounts paid, survey reports, etc., the
adjustment of what is allowed as general average and how much each interested party
is required to contribute to make good the loss. The master is required to deliver the
cargo to the destination and discharge to the consignee’s hands. However if GA act has
taken place the consignee owes money to reimburse to other members of the Maritime
Adventure who lost their property because of the GA act. This contribution is worked
by the Arbitrator.
Preparing this Average Statement takes many months. This becomes a problem to the
cargo owner because the ship owner may not release the cargo and will keep it as lien
until such settlement. But this is overcome by the cargo owner by getting into an
agreement with the underwriter and the ship owner jointly- called the Average Bond or
Average Deposit
N.B. The parties that suffer losses make a contribution as well. They do not receive
100% of their loss. (It takes about one year for the adjuster to work out this)
The first step for the adjuster is to distribute forms to all the parties so that he may
commence gathering information and securing payments. The paperwork includes:
 Valuation forms to be completed by the receivers of cargo. They list value of the cargo,
and include details of any loss or damage;
 General average bonds also to be completed by cargo receivers. In addition to cargo
values these also require signed statements that prompt payment of sums due as a result
of the average adjustment that will be made;
 General average guarantees are to be completed by the cargo insurers. They also
provide such information as they have available about cargo value, and agree to make
prompt payment of assessed contributions;
 Non-separation agreements are used when cargo is transhipped to its destination. They
are designed to ensure that the rights and liabilities of the cargo owners are not avoided
i.e. that assessed contribution to general average is still made;
 An acceptable sum for the current market valuation of the ship will almost certainly
require the services of a ship valuer.
The parties have 12 months to supply the above information, and if they fail to do so
the adjuster may estimate the allowance or contribution due.
When all the above information has been collected, the adjuster will publish details of
the general average sacrifices and allowances, together with those which he has not

allowed. Payments will then be made to (or from) the various parties, usually through
the adjuster.
Protection and Indemnity (P&I) Clubs

Protection and Indemnity (P & I) clubs are mutual assurance associations which offer
shipowners insurance against liabilities which are normally outside the scope of Marine
Insurance Policies. It is a non-profit making organisation.
Protect - means protecting hull and machinery against the ¼ collision liability.
Indemnity - means covering expenses due to claims like cargo, pollution, personal
etc.
A group of ship owners pay a premium at the start as “Advance Calls". This will meet
the immediate needs of members. , It will be per ton for the amount of tonnage he has
entered with the club. The efficient ship owner does not have to subsidise the less
efficient, each ship owner is assessed for his calls on his past record.
In the event of claims exceeding calls it may be necessary for the club and perhaps to
make a “supplementary call” later during the year to balance the book. As with Marine
Insurance, London is the centre of P & I club activity and the dozen or so British Clubs
handle about 70% of the business. The clubs tend to work together in what is known
as the ‘London Pool’ and all individual claims of over 100,000 (1974) go into the pool
and are shared by them. The pool is in turn reinsured at Lloyd’s for any large
catastrophic claims. The organizing is such that the club now can offer a member over
US$ 17 billion for any one claim.
Originally when the clubs were first formed (1855+) the shipowner’s biggest worry was
the ¼ collision risk which was not covered by the M.I. policy. Now his biggest
financial liability is to his crew. A typical apportionment of claims paid out by one
general P &I club over a year is as follows:
Crew liability 49%

Cargo liability 28%
Stevedore liability 11.5%
¼ collision liability 4%
Damage to Fixed Objects 4%
Other 3.5%
A typical club will offer a shipowner protection indemnity against some or all of the
following:
1. Third party collision damage not covered by running down clause.

2. Damage to piers, wharves or other stationary objects.
3. Loss of life or personal injury claims.
4. Hospital, medical, funeral expenses arising injury claims.
5. Sickness and repatriation cost of distress seaman.
6. Cargo damage due to improper navigation
7. Claims regarding wrong delivery of cargo.
8. General are payments to cargo owners.
9. Cost of raising and/or removing a wreck.

10. The cost of administration marine enquiries and other legal costs.
11. Guaranties expenses.
12. Penalties imposed because of innocent breaches of custom, in abrasion or public
health regulations OR barratist acts of owner’s employees.
In addition to this ‘standard cover’ many clubs offer additional specialised cover, if the
shipowner requires it, which includes the following:
a) Freight, demurrage and defence (FD & D). Covers S/O’s for legal advice and
expenses relating to the problems that arise in the commercial operation of ships.
b) War risk insurance, an alternative to the institute war clauses.
c) Covers insurance against either strikes by the crew or strikes in any port the ship
visits.
The cover offered by the club appears in the Rule Book whose copy is normally kept
with the Master.
It should be noted that this insurance is voluntary but some countries (e.g. U.K., U.S.A.)
require, by law, that tanker owners are insured to cover the cost of cleaning up oil spills.
Other countries (e.g. Australia, Canada) require a levy to be paid to the Government by
all ships visiting that country in order to cover the potential costs incurred in cleaning
up any oil spills from vessels.
The Marine Insurance Policy, together with Protection and Indemnity Insurance, can
cover the owner of a vessel against practically every sort of risk. The general principle
applies that the more you pay the better cover you get.
Noting Protest
There are times when the master of a ship is required to “Note Protest” and then later
to “Extend Protest”
A note of protest is a solemn declaration made under oath by the shipmaster that the
ship has experienced conditions which constitute circumstances over which he had no
control which may conceivably caused damage to ship or cargo.
A Note Protest is simply a statement of fact. Protest is noted before a Notary Public, a
Solicitor who has been registered to take sworn oaths.
Protest has to be made as soon as possible after arrival in port and definitely within 24
hrs. Where it is regarding cargo – it has to be done before unloading starts.
How would you go about note protesting?
Take the official log book, deck or engine log book as appropriate and all other relevant
information surrounding the event being protested. Go to any authority that is registered
to take sworn oaths. (Notary Public, a Solicitor or Consul of the flag state) along with
one or more witness from the crew who has knowledge of the facts. Make a sworn
statement in the presence of the previously mentioned officials who will enter the
protest in the Register of Protests. Obtain at least 3 certified copies of the protest and

send two to ship owner and keep one as ship’s records. Pay fee and get the receipt.
Remember that all this is done by the Ship’s Master.
Personal Appearance Required
The master of a vessel who elects to make a marine note of protest is required to make
the protest in person before a consular officer unless the owner, agent, or the operators
have furnished the consular officer with a written statement authorizing the making of
the protest by an officer other than the master. Under no circumstances where the
owner, agent, operators, or master have elected to file a note of protest should a consular
officer waive a personal appearance by the master without the specific authorization of
the ship’s owner, operators, or agent.
If the protest is something to do with damage- remember to reserve the right to extend
it at a time and place convenient.
Sometimes according to the custom of the port you may have to note protest again at
the next port.
Why must you reserve the right to extend?

Since it may be impossible to ascertain the full extent of damage or loss when first
noting protest is done.
When will you extend the note protest?
When relevant facts are come to light e.g. when a survey report has been received. It
could be another port after the original Note Protest was lodged.
In some countries a Note Protest is the pre-condition to commence an action and hence
is important. Seek advice from your local agent or P&I Club correspondents.
In the Australian and British jurisdiction a Note of Protest has no particular magic
except it will be necessary in all cases of General Average and is useful as a basis of
the case against underwriters for ship or cargo damage.
Letter of Protest
A letter of protest is the documentary record of protest at some action which is
prejudicial to the legal and commercial interests of the ship. However letters of protest
can apply either way and in some cases the letter of protest may come from cargo
interests.
The purpose of the letter is to protect the owners interests by recording that a particular
situation was brought to the attention of the other party and the time and date.
If the ship receives a letter of protest from another party it should be signed "for receipt
only" NOT as recognition of the validity of the letter's contents.



1. An insurance contract is a contract of utmost good faith. Explain what this term
means, and why it is of such importance.
2. It is the general rule that in policies of marine insurance the insured must have an
insurable interest in the adventure or property to be insured. Explain what this term
means.
3. With reference to marine insurance, explain the meaning of a warranty, and

differentiate express and implied warranties, providing examples of the latter.
4. In relation to marine insurance, describe what is meant by deviation and change of

voyage, and state the consequences of them. Can deviation or change of voyage ever
be excused, and if so, under what circumstances?
5. List, and briefly describe, the range of risks that may be covered by P&I Club
insurance.
6. Explain what is meant by a General Average act, and differentiate between general
average from particular average. Illustrate your answer with two (2) examples of each
type of warranty.
7. Describe how parties to a maritime adventure can ensure that York-Antwerp Rules
will be applied if a general average act occurs.
8. Describe in detail the elements that must be present before an act can be classified as
a general average act.
9. The master has declared general average. Describe any action the shipowner should
now take, who will be involved, and the process that will be followed to arrive at
decisions concerning general average sacrifices and allowances. How will payment
be secured?

Section 8
Cargo Damage Liability Regimes

Cargo Damage Liability Regimes

Throughout the nineteenth century British shipowners had enjoyed a near monopoly
over the international carriage of goods. The common law doctrine protecting
freedom of contract is based on the premise that both parties have similar ability to
protect their own interests during negotiations. When one party enjoys monopoly
power, however, the other has little choice but to accept the terms specified by the
monopoly. The result was that shipowners were able to write very broad exclusion
clauses into their bill of lading contracts. The party who suffered most was not the
shipper (who at least had some input into the contract), but a subsequent holder of the
bill (who had none).
A bill of lading clause in 1890 that excluded damage to cargo caused by “the
negligence or default of pilot, master mariners, engineers or other persons whether in
navigating the ship or otherwise” allowed the shipowner to escape liability when
cargo was damaged due to the negligence of the crew (Norman v Binnington (1890)).
For some time cargo owners were justifiably upset at the abuse by British shipowners’
monopoly. The International Law Association had started to develop model bills of
lading and a set of rules that could be voluntarily incorporated. The United States
passed the Harter Act in 1893 that outlawed exclusion or limitation clauses covering
negligent failure to take care of the cargo or failure to exercise due diligence in respect
of seaworthiness. Other countries soon followed the US (Australia in 1904, Canada in
1910, and New Zealand progressively over a period of several years). The result was a
variety of national legislation that didn’t sit well with an international industry
The Hague and Hague Visby Rules

By 1921 CMI had developed a set of rules for voluntary inclusion in bills of lading.
Many of the rules were apparently based on those in the Harter Act, although written in
language more familiar to English law. These were adopted as the “International
Convention for the Unification of Certain Rules relating to Bills of Lading 1924”,
commonly known as the Hague Rules (The Hague being the location of the 1921
conference where they were first developed). They were accepted into UK law by the
Carriage of Goods by Sea Act 1924 (COGSA 24). Although the Rules gained
international acceptance quite quickly, the United Stated didn’t pass enabling
legislation until 1936. By 1939 the majority of world shipping was covered by the
Hague Rules.
The Hague Visby rules can be said to summarize to 2 parts.
1. They give the carrier certain specific obligations as to how the cargo should be
handled (in article 3)
2. They give the carrier defence to liability in case of damage to cargo. (in article 4)
Responsibilities and Liabilities of the Carrier Under Hague Visby Rules

(In other words this is Article 3 in the Schedule)
.1 Carrier must exercise due diligence before and at the beginning of the voyage to
make the ship sea worthy, properly manned, equip and supply the ship.
.2 Make all holds where goods are carried fit and safe for their reception, carriage and
preservation.
.3 Carrier must properly and carefully handle, load, stow, keep, carry, care for and
discharge the goods carried.

.4 After receiving goods the carrier, agent or master shall, on demand of the shipper,
issue to the shipper a bill of ladings.
Provide a seaworthy ship:

The carrier shall be bound before and at the beginning of the voyage to exercise due
diligence to provide a seaworthy ship.
Seaworthiness has three (3) aspects to it:

1. Re-ship the ship itself must be fit to encounter the perils of that voyage means
hull and fittings – (seaworthy)
2. Re-cargo the ship must be fit and ready to receive and carry the cargo safely on
that voyage. – (cargo worthy)
3. To be properly manned and equipped for the adventure. (Equip worthy)
Obligations to issue a bill of lading:

When goods are delivered to the ship owner, he must on demand, issue to the shipper
a bill of lading stating particulars of the goods and their apparent order or condition.
The particulars stated on the bill constitute a prima facie case that the goods as therein
described have been received into the custody of the carrier. It will be observed that
the obligations to issue the bill do not depend upon the goods having been loaded on
board the ship.
From this it would appear that the balance of power had shifted away from the ship-
owner, but Article 4 contains many of the exclusions that owners had previously
written into their bill of lading contracts. These are reproduced below:
Article 4- Rights and Immunities

1. Neither the carrier nor the ship shall be liable for loss or damage arising or
resulting from un-seaworthiness unless caused by want of due diligence on the
part of the carrier to make the ship seaworthy and to secure that the ship is
properly manned, equipped and supplied, and to make the holds, refrigerating
and cool chambers and all other parts of the ship fit and safe for their reception,
carriage and preservation in accordance with the provisions of paragraph 1 of
Article 3. Whenever loss or damage has resulted from un-seaworthiness the
burden of proving the exercise of due diligence shall be on the carrier or other
person claiming exemption under this article.
2. Neither the carrier nor the ship shall be responsible for loss or damage arising
or resulting from:
a) Act, neglect, or default of the master, mariner, pilot, or the servants of

the carrier in the navigation or in the management of the ship.
b) Fire, unless caused by the actual fault or privity of the carrier.
c) Perils, dangers and accidents of the sea or other navigable waters.
d) Act of God.
e) Act of War.

f) Act of public enemies.
g) Arrest or restraint of princes, rulers or people, or seizure under legal

process.
h) Quarantine restrictions.
i) Act or omission of the shipper or owner of the goods, his agent or

representative.
j) Strikes or lockouts or stoppage or restraint of labour from whatever

cause, whether partial or general.
k) Riots and civil commotions.
l) Saving or attempting to save life or property at sea.
m) Wastage in bulk or weight or any other loss or damage arising from

inherent defect, quality or vice of the goods.
n) Insufficiency of packing.
o) Insufficiency or inadequacy of marks.
p) Latent defects not discoverable by due diligence.
q) Any other cause arising without the actual fault of the carrier or the
agents or servants of the carrier that contributed to the loss or damage.
3. The shipper shall not be responsible for loss or damage sustained by the carrier
or the ship unless it is caused by its own negligence.
4. Any deviation in saving or attempting to save life or property at sea or any

reasonable deviation shall not be deemed to be an infringement or breach of this
Convention or of the contract of carriage, and the carrier shall not be liable for
any loss or damage resulting therefrom.
5. Neither the carrier nor the ship shall in any event be or become liable for any
loss or damage to or in connection with goods in any amount exceeding 100
pounds sterling per package or unit (limiting liability), or the equivalent of that
sum in other currency unless the nature and value of such goods have been
declared by the shipper before shipment and inserted in the bill of lading.
This declaration if embodied in the bill of lading shall be prima facie evidence,
but shall not be binding or conclusive on the carrier.
By agreement between the carrier, master or agent of the carrier and the shipper
another maximum amount than that mentioned in this paragraph may be fixed,
provided that such maximum shall not be less than the figure above named.

Neither the carrier nor the ship shall be responsible in any event for loss or
damage to, or in connexion with, goods if the nature or value thereof has been
knowingly misstated by the shipper in the bill of lading.
6. Goods of an inflammable, explosive or dangerous nature to the shipment

whereof the carrier, master or agent of the carrier has not consented with
knowledge of their nature and character, may at any time before discharge be
landed at any place, or destroyed or rendered innocuous by the carrier without
compensation and the shipper of such goods shall be liable for all damage and
expenses directly or indirectly arising out of or resulting from such shipment.
If any such goods shipped with such knowledge and consent shall become a
danger to the ship or cargo, they may in like manner be landed at any place, or
destroyed or rendered innocuous by the carrier without liability on the part of
the carrier except to general average, if any.
The carrier therefore still enjoys a great deal of protection. Paul Todd (2002) has
outlined the legal pathway by which the carrier may escape liability:
1. Cargo-owner proves loss;

2. Ship-owner proves excepted peril;
3. Cargo-owner proves un-seaworthiness;
4. Ship-owner proves due diligence.
Time Limit
The Hague Rules specify a time limit within which claims must be brought against
the carrier. An action must be brought in a Court of Law or an Arbitrator must be
appointed to look into the claim within one year after delivery of the goods or the date
when the goods should have been delivered. If the shipper/consignee fails to do this
the carrier will be discharged of all liability.
In practice, the consignee would request an extension of time before the lapse of a
year, and the carrier usually grants such an extension although he has no legal
obligation to do so. If the carrier refuses to grant an extension, the consignee would
have to immediately file an action in court.
Limitation of Liability
In the Hague Rules the limitation of liability in the UK was set at £100 per package
or unit – other countries set ‘equivalent’ limits at the time – USA $500, Australia
$200, Germany 1250 marks etc. What wasn’t clear was the definition of a
package/unit. This has become particularly important with the move to
containerisation, but courts, particularly in the US, have concluded that:
1. Any items listed separately on the bill of lading should be treated as individual
packages, so one container said to contain 500 cartons of stationery would be
treated as 500 packages;
2. Any item in a container that is sufficiently well-packed that it could be transported
individually is a package;
3. If the carrier has consolidated a number of individual items into a container for
his own purposes, the individual items will be packages.

The question also arises as to whether stevedores handling the cargo can also be
protected by the limitations of liability. If the bill of lading incorporating the Hague
Rules includes an express clause that stipulates any servant, agent or independent
contractor employed by the carrier is also protected by the limitations, it will normally
be effective. This method of inventing a contractual relationship is demonstrated in
New Zealand Shipping Co Ltd v A M Satterthwaite& Co (The Eurymedon) (1975).
It became known as a ‘Himalaya’ clause – after a case involving a ship of that name
(in Alder v Dickson (1954)) where the servant of the ship-owner was denied such
protection.
In an attempt to bring the Hague Rules up to date the CMI met at Visby in Sweden to
formulate amendments. The result was the Brussels Protocol to the Hague Rules in
1968 (The Hague-Visby Rules), accepted into English law by the Carriage of Goods
by Sea Act 1971 (COGSA 71). This increased the limitation amount, expressing it in
terms of Poincaré francs, and clarified the meaning of package so far as limitations of
liability were concerned:
“Where a container, pallet or similar article of transport is used to consolidate goods,

the number of packages or units enumerated in the bill of lading as packed in such
article of transport shall be deemed the number of packages or units for the purpose
of this paragraph as far as these packages or units are concerned. Except as aforesaid
such article of transport shall be considered the package or unit.”
The Hague-Visby Rules also provides the option of limiting the amount in terms of
packages or weights. It should be remembered that under either Rules the shipper is
able to declare a higher value than the limitations. This option is rarely taken up
because the additional freight charged is likely to be higher than the cost to the shipper
of paying for additional insurance.
Further amendments to the limitation amount were made in 1979 by the SDR Protocol,
using Special Drawing Rights (SDRs) – an artificial currency tied to a ‘basket’ of
major currencies - as the monetary measure.
Despite the apparent improvements offered by the Hague-Visby Rules, approximately

twice as many countries still apply the Hague Rules as do the Hague-Visby Rules.
Finally it must be clarified that the above Rules apply only where the contractual
document is a bill of lading or similar document of title, whether the bill of lading has
actually been issued or it is intended that it will be issued. The rules do not apply to
sea waybills, to charterparties or to the bills of lading issued under charterparties
whilst they remain in the hands of the charterers. When the bill is transferred to a
third party who is not party to the charterparty, the Rules will apply. The carriage of
goods under the Rules covers the period from the time the goods are loaded until the
time they are discharged (generally from ship’s rail to ship’s rail).
The Rules “apply to every bill of lading relating to the carriage of goods between ports
in different states if:
a) The bill of lading is issued in a contracting state; or

b) The carriage is from a port in a contracting state, or

c) The contract contained in or evidenced by the bill of lading provides that these
Rules or legislation of any state giving effect to them are to govern the contract
whatever may be the nationality of the ship, the carrier, the shipper, the consignee,
or any other interested person.”
Because the Rules also allow a Contracting State to apply the Rules to bills of
lading even when the above three conditions do not apply, it is possible to apply
them to coastal trade (as happens in the UK).
Hague rules do not apply to:
1. Charter parties (because a C/P is another form of contract)

2. The cargo before loading & after discharging
3. Deck cargo where it is identified as such on the bill of lading and actually carried
on deck;
4. Livestock
5. Interstate carriage of goods (within a state) (comes under separate state regs)
6. Special circumstances where no B/L is issued provided they are not ordinary
commercial systems (e.g. Military goods carried by govt. ships.)
The Hamburg Rules

From the cargo owners’ point of view, many of the inequities that existed before the
advent of The Hague and Hague-Visby Rules still existed after their broad acceptance.
In an attempt to finally reduce the exclusions that carriers could claim, an International
conference sponsored by the UN was held in Hamburg in 1978. This United Nations
Convention on the Carriage of Goods by Sea, known as the Hamburg Rules, entered
into force on the first of November 1992 following acceptance by 20 countries.
Although over 30 countries (mainly African) now follow the Hamburg Rules, no
major maritime nation has ratified them, and the signatories represent only
approximately 5% of world trade.
The rules adopted in the convention called the Hamburg go a long way in achieving a
fair balance of the rights and obligations of the carrier and the shipper. (Actually this
rule is more inclined away from the benefits to the ship owner and hence not popular).
The significant shift of responsibility towards the carrier can be observed from the
following provisions in the rules:
1. The period of the carrier’s liability has been extended to include the period during
which the carrier is in charge of the goods at the port of loading and port of
discharge. ( could be when the cargo is placed at the consignees disposal) (HVR
is only from tackle to tackle)
2. The carrier may be liable for fire, if the claimant proves that the fire arose from
the fault or neglect on the part of the carrier.
3. The receiver may treat the goods as lost if not delivered after a period of 60 days
from due date.
4. The monetary limit of the carrier’s liability has been increased (about 25% more
than HVR)
5. The time limit for bringing a claim against the carrier has been extended for two
years.
6. Applies to Live Animals and Deck Cargo

7. The carrier would be liable for delay in delivering goods as promised, except for
live animals provided he shows evidence that it was not to his fault.
8. The BL must show among other things the date of acceptance of cargo and the date
of delivery to destination.
9. There is also no list of exceptions as in the Hague Rules: “the carrier is liable for
loss resulting from loss of or damage to the goods, as well as from delay in delivery,
if the occurrence which caused the loss, damage, or delay took place whilst the
goods were in his charge, .....unless the carrier proves that he, his servants or agents,
took all measures that could reasonably be required to avoid the occurrence and its
consequences”.
It should be apparent that major opposition to the implementation of the Hamburg

Rules comes from ship owning interests. There is, however, a more general objection.
The Hague and Hague-Visby Rules have been well-tested in courts over a great
number of years, so parties to them can be reasonably certain of the outcome of their
application. By comparison, some provisions of the Hamburg Rules are considered
to be ambiguous and, as yet, incompletely tested in the courts.
Meanwhile, to complicate the picture further, a number of States, including China,

Japan, Australia and the Scandinavian States, have legislated for hybrids of Hague,
Hague-Visby and Hamburg Rules – and none of them are the same. A draft bill of the
same type is also before the US Senate.
The Rotterdam Rules

In July 2008 the 41st session of UNCITRAL approved the final text of a “Draft
Convention on Contracts for the International Carriage of Goods Wholly or Partly by
Sea” – The Rotterdam Rules.
The perceived outcome is that these rules will replace the Hague, Hague-Visby and
Hamburg Rules, but there remains some doubt about their effectiveness.
Comment from the Australian Government on the Rotterdam Rules: “Australia is of

the opinion that the current text is so different from current international law and so
complicated that the potential for lengthy and costly litigation is high. As this
litigation will be domestic, there remains the potential for the uniformity of the
international law to be undermined by having provisions interpreted differently in
different countries.”
Despite this apparent reluctance by Australia to consider ratification of the Rotterdam

Rules they are receiving some international support, and by mid-2011 there were 24
signatories to the treaty – but only one ratification. The Rules will not come into force
until 20 UN member nations have ratified it.
The following Australian perspective is provided by Australian lawyers HWL

Ebsworth:
“The Rotterdam Rules: move over Hague-Visby Rules, it’s a new international
carriage of goods regime
On 23 September 2009, a new international carriage of goods regime, the United

Nations Convention on Contracts for the International Carriage of Goods Wholly or

Partly by Sea, opened for signature. In accordance with tradition, the convention will
be known as the “Rotterdam Rules”. The Convention will come into force one year
after signature by the twentieth UN member state. Although support for the new
Convention has been relatively widespread, it is not anticipated that the Rotterdam
Rules will come into effect for some time.
The intention of the Rotterdam Rules is to overhaul the Hague-Visby rules, the current
near uniform convention governing sea carriage of goods which is now over 40 years
old. The Hague-Visby rules were developed to unify rules relating to bills of lading
and provides a compulsory, but basic, framework for an international contract of
carriage. The Rotterdam Rules were developed to address modern day issues of
containerisation, door-to-door multimodal transport and electronic commerce.
Australia is currently considering whether to ratify the Rotterdam Rules or retain its
modified version of the Hague Visby rules enacted in the Carriage of Goods by Sea
Act 1991 (Cth) (COGSA).
Jurisdiction
In the event that Australia ratifies the Rotterdam Rules, the jurisdiction of the
Australian courts to determine cargo claims will become significantly more limited.
Under COGSA, any provision in a contract seeking to oust Australian Court’s
jurisdiction to hear claims concerning the transportation of goods in and out of
Australia is void. Under the opt in provisions of the Rotterdam Rules, the claimant
can chose to sue a maritime performing party in any competent court (or agreed
arbitral tribunal) where the defendant is domicile, the place of receipt, place of
delivery, place of performance in the case of a maritime performing party, port where
the goods are initially loaded or finally discharged from the ship, or a court agreed
between the shipper and carrier. These provisions are likely to reduce the number of
cargo claims determined in Australian courts.
Change to Carrier’s Obligations

 Increasing time limit for commencing actions under the Rotterdam Rules from one
year under COGSA to two years. This will provide shippers/receivers with greater
flexibility, given that in practise many cargo claims are never pursued because many
shippers are simply unaware of the 12 month bar.
 Limitation of liability will be increased from two Special Drawing Rights (SDRs) per
kilo of damaged cargo or 666.67 SDRs per package (whichever is the highest) under
the Hague-Visby rules to the highest of 875 SDRs per package or 3SDRs per kilogram
of damaged cargo.
 Extension of the obligation to exercise due diligence to make the ship seaworthy
throughout the voyage instead of simply before and at the beginning of the voyage
 The controversial navigation defence has been deleted which is no longer historically
justified having regard to modern communication technologies.
 The Hague-Visby ‘catch-all’ has also been deleted from the list of exemptions and
transformed into the principal basis of liability for the carrier.
 Electronic carriage documents are encouraged, and the Rotterdam Rules require a far
more extended category of particulars to be included on the face of the transport
document than required by COGSA. This extension can benefit cargo interests who
gain prima facie (or non-refutable) evidence of receipt by the carrier of goods of that
description.

 The Rotterdam Rules also contain provisions requiring the identity of the carrier to be
named on the front of the transport document and extending the time for commencing
proceedings where this obligation is not complied with.
Conclusion
Australia is yet to declare its official position as to whether to ratify the Rotterdam
Convention. Given that the submissions presented by the Australian delegation to
UNCITAL working group were largely ignored, it appears likely that Australia will
defer consideration of this issue until such time as Australia’s major trading partners
have adopted the Convention.”
http://hwlebsworth.ensoconsultancy.com.au/maritime_trade_sept09/the-rotterdam-
rules.html
The Australian Rules

Australia adopted the original Hague Rules through the Sea-Carriage of Goods Act
1924. It did, however, link the limit of the carriers’ liability per package to the value
of gold current at the time of any claim. As we saw earlier, the carriers wanted it
limited to A$200, but with the link to gold it moved as high as A$12,000 – to the
dismay of the carriers.
It was not until 1991 that Australia adopted the Hague-Visby Rules through the
Carriage of Goods by Sea Act 1991 (they were referred to as the Amended Hague
Rules in the Australian Act) but also contained provision for adoption of the Hamburg
Rules within three to six years. From 1991 the amended Hague Rules therefore
applied to the interstate carriage of cargo, and to the export of cargo from Australia.
As with the other rules the Australian amended Hague Rules could also be
incorporated into other contracts of carriage, but it made ineffective any attempt to
incorporate arbitration clauses into bills of lading because they might effectively limit
the jurisdiction of Australian courts in deciding cargo claims.
Because Australian shippers believed their interests would be better served by

activating the provision for introducing the Hamburg Rules they lobbied for its
introduction – opposed (of course) by the carriers. In an attempt to arrive at an
acceptable compromise, a Cargo Liability Working Group was set up in 1995 (after
the first date for introduction of the Hamburg Rules had passed).
The outcome is minor amendments to the Act, but provision for other amendments to
be made by regulation. There has since been a set of 1998 regulations that modify the
1991 Act, moving some way towards mollifying cargo interests. They do not,
however, change the exclusions found in Article 4 of the Hague Rules. The changes
that have been made may be summarised:
 Introduction of a new Article 4A allowing liability for losses due to delay of up to 2.5
times freight payable on the goods delayed (as per the Hamburg Rules);
 Extending coverage to cargo shipped under any ‘sea carriage document’, which
includes bills of lading, non-negotiable bills of lading, sea waybills and ship’s delivery
orders;
 Removing the general exclusion of deck cargo, although it may still be excluded by
separate agreement if the character of the cargo justifies it;

 Extending coverage to the whole of the time goods are in the carrier’s care i.e. within
the terminal/wharf limits at both export and import ports;
 Permits Australian (but not foreign) arbitration for settling cargo claims outside the
courts;
 Having the Rules cover imported cargo if the contract of carriage does not incorporate
one of the other recognised regimes (Hague, Hague-Visby, Hamburg) either by
agreement or by law.
Although the trigger for adoption of the full Hamburg Rules has been removed from
the Act, there is still provision for periodic review. Given the poor acceptance of the
Hamburg Rules internationally it seems unlikely they will come into force in
Australia.
Meanwhile the Australian courts have little control over interpretation of the
Australian Rules, remembering that their application is limited largely to exported
cargo, and any dispute that arises only normally becomes evident at the discharge port,
the Australian Rules are more likely to be applied by non-Australian courts.
So far we have only considered the liability for damage that may fall on the carrier.
With any international sales contract that precedes the contract of carriage there must,
however, be some mechanism for the allocation of risk and liability. This is the
subject of the next section.
Contract of Sale on Shipment Terms

Because international contracts involve additional risks and contracts in addition to
the main sales contract, the parties arrange their sales on ‘shipment terms’. These are
a set of trade terms that clearly indicate what is included in the price of goods, and
define each party’s obligations under the contract. The International Chamber of
Commerce (ICC) publishes a set of International Rules for the Interpretation of Trade
Terms, known as Incoterms, which may have customary (or even statutory)
application in some cases, but which must be specified in English law. Note that the
ICC occasionally makes changes to Incoterms, so a contract should specify which
version is to be applied.
Incoterms apply only to parties’ rights and obligations relating to goods sold under a
contract of sale. The vast majority of international contracts of sale are on “FOB”,
CFR or “CIF” terms, and it is these that will be discussed in further detail. There are,
however, a considerable number of other terms, and these are briefly described below.
Note that the latest version of Incoterms (2010), which entered into force on January
1st 2011, has reduced the number of terms from 13 to 11 by substituting four of the
2000 terms with just two new ones.
Perhaps more importantly for sea transport is the change that applies to FOB, CFR
and CIF terms. Under previous versions the point of delivery for FOB, CFR and CIF
terms was considered to be the “ship’s rail”. Under the 2010 rules the goods are now
delivered when they are “on board” – a far more precise point in time for deciding
when risk passes from seller to buyer.

Incoterms 2010
The following are Incoterms that may be appropriate for sales contracts designed
specifically for sea and inland waterway transport only.
FAS Free Alongside Ship (named port). The seller clears export
formalities and delivers the goods alongside the vessel at the
loading port. The buyer is responsible for onward carriage
costs and clearing import formalities.
FOB Free on Board (named ship and port of loading). The seller is
responsible for all costs up to and including the delivery of
the goods on board (cleared for export). The seller delivers the
goods free on board the ship, paying all the expenses up to the
time of shipment. From then on the buyer takes
responsibility, pays the freight, insurance during transit, and
all subsequent expenses.There are some variations on the
FOB contract which will be discussed later in this topic.
CFR Cost and Freight (named port of destination). In this case the
seller’s responsibility ceases at ship’s rail at the discharge
port.
CIF Cost, Insurance & Freight (named port of destination). As

with CFR, but insurance costs are included. The seller must
ship the goods and pay freight together with all charges up to
the point where the goods are loaded on board, and insure
them whilst they are in transit. He must also supply the buyer
with all the documents required to enable the goods to be
imported. The buyer is responsible for any cost and charge
incurred to the goods after they have been delivered to the
carrier. This is the most commonly used term.
Note: the choice of the carrying ship is with the buyer under an F.O.B contract, but
with the seller under a C.I.F contract.
Because there have been a number of changes in Incoterms, and any version could be
agreed by the parties, contracts incorporating Incoterms must state which version
applies. They should also make it clear if they agree to ICC arbitration in the event of
a dispute.
The Documentation of International Trade

Any international trade in goods is likely to require the generation of a great deal of
paper work, a sample list of which is reproduced below. Although all may be
important it is the first three that have the greatest impact when considering contracts
of sale on shipment terms. As we will see when considering CIF and FOB contracts
in detail, all three must be proffered describing the goods in exactly the same terms as
the description in the CIF contracts, and the first two in FOB contracts. Non-

conforming documents could provide the buyer with the opportunity to reject them
and repudiate the contract – an option likely to be taken if market prices have moved
downwards!
Bills of The reason for their importance was covered in the

Lading previous section.
Commercial Are issued by the seller, describing the goods in the

Invoices same terms as the contract of sale. Although there is no
standard requirement, the form of the invoice was first
set out by Blackburn J in Ireland v Livingston. In a CIF
contract it will debit the buyer with the agreed price and
credit him with freight and any other charges he has to
pay the carrier on discharge.
Policies of Must leave no doubt that the goods described in the

Marine contract (and in the above two documents) are insured
Insurance for the entire period covered by the appropriate bill of
lading. Since the bill of lading may be assigned to a
new person one or more times during its term, the policy
of marine insurance must be assigned at the same time.
Certificate As further protection against fraud, the buyer may

of Quality, arrange a pre-shipment inspection by an independent
or Pre- PSI agent. This is now a requirement in some countries,
shipment and there now exists an International Federation of
Inspection Inspection Agencies (IFIA). Inspections may be
Certificate government or privately mandated. If a certificate of
(PSI) quality purporting to show the goods to be of inferior
quality is issued on discharge it cannot be included
amongst shipping documents (Gill &Duffus SA v
Berger & Co Inc (1984)).
Certificate It could be that the importing country has an embargo

of Origin or some restriction on imports of goods from certain
other countries. The requirement for a certificate of
origin should prevent evasion of such restrictions.
Standard Is designed to provide interested parties clear and

Shipping precise information on how the goods to which it refers
Note (SSN) should be handled. It should not be used for dangerous
goods.
Dangerous Is the equivalent of the SSN specifically relating to

Goods Note dangerous goods. It incorporates the dangerous goods
(DGN) declaration, shipping and stowage instructions, and
container/vehicle packing certificate.

Export and In countries like the UK there are controls on the export
Import and import of certain goods, including those of a
Licences military, technological, art, plant, animal, chemical and
medical nature. Licences may be required for their
export to and import from certain countries and for
certain uses.
Customs When goods are imported into some countries (like the
and Excise UK), certain duties (such as VAT or GST) become
Bonds payable. Customs and Excise bonds, or other form of
guarantee, may be used to ensure this payment against
default by the importer. A subsequent buyer would
want evidence that this duty would be paid.
CIF Contracts
A CIF contract (sometimes c.i.f.) places the responsibility for arranging the
commercial venture largely with the seller. Once the goods have been loaded on board
a notice of appropriation is normally transmitted to the buyer confirming that the
goods have been shipped. When clean bills of lading are acquired the seller can then
present all the documentation (bills of lading, insurance policy, invoice and anything
else required by the contract) to the buyer (or nominated bank) in return for payment.
If the documentation is correct the buyer cannot refuse payment – if he does it will be
a repudiatory breach. It could be said that on this transfer of documents for cash the
buyer has taken over the commercial venture in its entirety.
Refusal to accept conforming documents cannot be retrospectively justified when it

transpires that the goods themselves could have been rejected for non-conformity. In
Berger & Co Inc v Gill &Duffus SA (1984) it was firmly established by the House of
Lords that the very essence of a CIF contact required that the duties in respect of
acceptance of the documents and acceptance of the goods are distinct and separate.
The property in the goods therefore passes with the bill of lading. This is important
because it supports the financing of international trade in that the seller can present
(and pledge) the bill of lading to the bank in return for payment under the financing
arrangement. Although property in the goods will not pass until the documents are
exchanged for the price, risk passes on shipment. Any claims from that point onwards
must be made either against the carrier of against the insurance underwriter.
The above applies to a true CIF contract, normally based on a standard form. Parties
to an international sale of goods may, of course, add variation to suit their particular
requirements. In the introduction to Incoterms 2000 there is a warning about adding
too much complexity because it may then become very difficult to determine exactly
how the variations affect the parties’ obligations.
The following cases may be consulted to increase understanding of the CIF contract:
CFR Contracts
Its equivalent to CIF except the price paid does not include insurance.

FOB Contracts
In this case the seller’s responsibility is to place goods that meet the description in the
sales contract on board a ship at the agreed port of shipment. All subsequent charges,
including stowage on board, freight, marine insurance, import duties and other costs
at the discharge port are the responsibility of the buyer. Whereas there are no
generally accepted variants of a CIF contract, there are three relating to FOB contracts.
These were identified by Devlin J in Pyrene Co Ltd v Scindia Navigation Co Ltd
(1954). Each is briefly described below.
The strict FOB restricts the seller’s obligations to the minimum. All shipping
arrangements are made by the buyer. The seller puts the goods on board (but is not
responsible for their stowage). He needs only obtain a mate’s receipt (or standard
shipping note) which he hands to the buyer/forwarding agent who then obtains the bill
of lading.
The classic FOB entails the seller placing the goods on board a ship nominated by the
buyer and receiving a bill of lading. If the bill of lading shows the seller as consignee
it will normally be subsequently endorsed in favour of the buyer, but on the face of it,
it will appear that the seller has reserved title in the goods under the Sale of Goods
Act. Even when the goods are in the hands of the carrier the seller may intend to retain
constructive possession of them, allowing title to pass but subject to the seller’s right
of lien – and stoppage in transit (see next section). If the seller is shown as consignor,
and the bill of lading is made out to the buyer, there will be no apparent intent to retain
such rights. The responsibilities of the parties under a classic FOB contract are
summarised:
Seller must provide goods matching description in the contract of sale, deliver them
to the ship’s rail, pay costs to that point, and complete all customs declarations.
Buyer decides the date for shipment, obtains space on appropriate ship, gives that
information to seller in sufficient time for him to meet his obligations, and meets all
charges subsequent to the goods being delivered at the ship’s rail.
The extended FOB gives the seller additional responsibilities, including arranging for
the shipment of goods. The contract may require the seller to obtain the bill of lading
in his own name with the buyer as consignee. The seller will then transfer the bill of
lading and other documentation to the buyer in return for payment under the contract.
The seller may also be initially responsible for the payment of freight, but if he is not
and the carrier refuses to accept goods until freight is paid he need not proceed with
the loading unless put in funds by the buyer. The responsibilities that differ from the
classic FOB are:
If the seller acts as principal in the contract of carriage the buyer is not a party to that
contract until he becomes the lawful holder of the bill of lading. The seller also
nominates the ship, may be responsible (initially) for freight, and could be required to
acquire insurance. These costs will be invoiced separately, unlike the CIF contract
where they form part of the contracted price.
Under an FOB contract, property in the goods will pass as intended by the parties –
normally when the buyer pays on receipt of the documents. Risk will usually pass
on shipment, but the seller is required, under the Sale of Goods Act, to give sufficient

notice to the buyer as enables him to insure the goods for the sea transport. If the
seller fails to give the buyer this notice, risk will stay with him.
Cases for Cargo Damage Liability Regimes
Pre Hague Rules

Norman v Binnington (1890).
Himalaya Clause
New Zealand Shipping Co Ltd v A M Satterthwaite& Co (The Eurymedon) (1975)
Documentation
Ireland v Livingston (1871).
Gill & Duffus SA v Berger & Co Inc (1984).
CIF Contracts
Berger & Co Inc v Gill &Duffus SA (1984).
KweiTek Chao v British Traders (1954)
The Julia (Comptoired’Achatet de Ventedu Boerenbond Belge SA v Luis de
FOB Contracts
Pyrene Co Ltd v Scindia Navigation Co Ltd (1954).
Sotiros Shipping Inc and Aeco Maritime S.A.v SameietSolholt (The Solholt) (1983).
Retention of Title (Romalpa) Clause

Aluminium Industrie Vassen BV v Romalpa Aluminium Ltd (1976).
Rejecting Goods
Panchaud Frères SA v Etablissements General Grain Co (1970)
Specific Performance
Behnke v Bede Shipping Co Ltd (1927).
Damages arising directly and naturally

Hadley V Baxendale (1854).
Special Loss
Liquidated Damages
Dunlop Pneumatic Tyre Co v New Garage (1915).
Cenargo Ltd v Empresa National Bazan de ConstruccionesNavales (2002).
Recent Hague-Visby Case. For an interesting interpretation by the New Zealand

Supreme Court of the exemption of liability in Article 4 Rule 2 (a) of the Hague-Visby
Rules see Tasman Orient line CV v New Zealand China Clays Ltd & Ors (2010)
See: http://www.wilsonharle.com/the-supreme-court-rules-on-the-t

1. Compare and contrast the content and application of the “Hague Rules” and
“Hamburg Rules”, and as result of this comparison provide an argument as to
why the Hamburg Rules have gained limited acceptance particularly by major
maritime nations.
2. The ‘Amended Hague Rules as adopted by Australia through the Carriage of

Good by Sea Act 1991, have some significant differences from the Hague-Visby
Rules. Describe these differences, with emphasis on the potential advantages they
offer cargo interests.
3. Describe the two most commonly used Incoterms, CIF and FOB, and how buyers’
and sellers’ rights and obligations differ under each. Illustrate your answer with
examples as appropriate.
4. State the three (3) basic obligation of the carrier as required by Hague Visby rules?
5. Describe the carrier’s obligation in respect of seaworthiness as applicable to Hague

Visby rules.

Section 7– Marine Insurance and General Average

Section 9 – Liens
Section 9
Liens

Section 9 – Liens
Admiralty Jurisdiction
Shipping and Navigation is now largely regulated by the Navigation Act 2012 and by a
number of State Acts where the Navigation Act does not apply. Section 2 of the Act
has been replaced with a new section to clarify this division, and generally (unless
otherwise provided) excludes the provisions of the Navigation Act from trading ships
on intrastate voyages, Australian fishing vessels on all but overseas voyages, inland
waterways vessels and pleasure craft. These matters are therefore covered by State
legislation.
Delegated Legislation
The Navigation Act is the primary legislation on all maritime matters in Australia, but
it would be unreasonable for the Act to be amended every time changes in the maritime
industry required new provisions.
The Act provides that:
(1) The Minister may, either generally or as otherwise provided by the instrument of
delegation, by writing signed by him or her, delegate to a person any of his or her
powers or functions under this Act, other than this power of delegation.
(2) A power or function so delegated, when exercised or performed by the delegate,
shall, for the purposes of this Act, be deemed to have been exercised or performed
by the Minister.
(3) A delegation under this section does not prevent the exercise of a power or
performance of a function by the Minister.
In Australia the minister has currently delegated the power to introduce new regulation
to a body formed by the Australian Maritime Safety Act 1990. The Australian Maritime
Safety Authority issues this delegated legislation in the form of Marine Orders. Marine
Orders are regularly amended or repealed. Many of these amendments are in response
to technical amendments to international conventions made through the International
Maritime Organization.
Liens and Ship Arrest

Because of the special nature of the shipping industry, and in the absence of actions in
rem, enforcing a claim against a shipowner would often be difficult. The shipowner, if
he could be traced, would probably be resident and/or have his business base in another
jurisdiction. Securing the owner’s presence in court might thus be impossible. In such
circumstances, taking action in rem (against the thing, in this case the ship) could
provide a viable alternative. This leads us to the provision of liens.
A Lien is a right enjoyed by one party over the property of another in respect of a debt
or other legal obligation due from that other party.

Section 9 – Liens
Classes of Lien are:

Liens
Possessory liens Maritime liens
Particular lien General lien Contractual lien Damage lien
Possessory Liens
Particular
The right of a person in possession of goods to retain possession of them until payment
has been made by their owner of any sum due in respect of those goods. Under C/L the
person retaining the goods has no right to sell them he can keep it until his charges are
settled, but in certain circumstances the right was given to sell the goods where after 90
days, if the lien is not discharged. The goods may be auctioned.
The right of this lien is lost if actual or constructive possession of goods is not
retained.
Examples for particular possessory liens are:
1. Common Law lien of a carrier on the goods he carried (S/O’s lien on cargo for
freight).
2. Tradesman’s liens for labour expended for reward on goods. E.g. Ship repairs.
3. The lien of the unpaid seller of goods
4. Warehouseman’s lien on goods for their services for reward in connection with the
goods.
5. Cargo owners contribution to General Average
6. Salvage expenditure incurred for preservation of the Ship and Cargo lien on the
Cargo for its proportion provided Shipowners negligence has not caused the
salvage requirement.
General
The right which arises by custom in certain trades or professions, or by contract, to
retain goods not only until any sum due in respect of them is paid, but also in respect of
any sum which might be owing by the owner of the goods to the person in possession
of them. E.g. Solicitors lien over all papers of his client except his will.

Section 9 – Liens
Maritime Liens
A Maritime Lien is a claim or privilege upon a thing (right in Rem – against the thing
itself) in respect of service done to, or an injury caused by it (Not the right against the
person who owns it).
Such a lien does not require possession of the thing. A Maritime Lien travels with the
thing regardless of into whose possession it falls. The lien may attach to a Ship, Cargo,
or Freight or all three.
This is the right of a person who is owed money by a ship owner in respect of service
rendered to a ship, to demand that the ship be sold and his debts met from the money
realized by the sale. To this type of lien it is the ship that is security. The creditor
approaches the high court admiralty division to ask for the lien to be enforced. An
admiralty marshal is the person who then acts to do this. They could only do this if the
vessel is only within their jurisdiction this is essential. The creditors then await the sale
of the vessel and their paid when this is done. There is a priority order of the settlement
of maritime liens.
Maritime liens are of 2 classes:
1. Contractual liens
2. Damage liens (Tortious act)
Contractual liens
Are those which arise is respect of payment due under some contract.
e.g. Bottomry, Respondentia, Salvage, Seaman’s wages, Masters Wages, Towage and
Pilotage only if connected with a salvage effort.
By tradition seaman’s has a lien over the ship for his wages. The Master didn’t have
that right but it is now changed.
Salvage lien although is a contractual lien it must be noted that a salvage exercise must
be voluntary, so no contract can exist.
Damage liens (Tortious act)

They arise normally from collision damage. But the following is important.
1. Damage must be done by THE SHIP
2. Damage must be prove to be due to a wrongful act or neglect
3. Lien can be exercised only within 2 years of date of damage
In order of priority of settlement of debts maritime liens will come first
Order of priority of settlement of maritime liens

1. Salvage
2. Seaman’s wages
3. Masters wages
4. Bottomry and respondentia Bond holders

Section 9 – Liens
A Bottomry Bond:-
Is a document proving that a loan has been made to the Master of a ship to enable him
to complete the voyage. Such a loan would have been made at a way port or port of
refuge entered before the discharge port. Such a loan carries very high interest, is for a
short period and uses the ship as the collateral. The money borrowed can only be used
to pursue the voyage.
Respondentia Bond:-
This is leased on exactly the same principal as the bottomry bond but the cargo is
pledged as security.
Arrest of a Sister Ship

In certain cases, where the ship that is the target of a general maritime lien cannot be
arrested, it may be possible to arrest a ‘sister ship’. There are, however, severe
limitations that may make this action ineffective. In the first instance the ownership of
the sister ship must be identical to that of the first ship.
“Like an attachment, the sister ship arrest does not mean that the maritime lien against
the offending ship becomes enforceable against the sister ship. For example, a claimant
who may have a maritime lien for collision damage against the offending ship, does not
obtain an equal maritime lien against the sister ship. Only the offending ship is subject
to the maritime lien. The claimant who enforces his security against the sister ship
ranks after all the maritime liens extant against the sister ship, as is only proper,
because the rights of the lien holders against the sister ship must be respected. The
claimant against the offending ship really has only a statutory right in rem, or
something akin to an attachment, on the sister ship."

Section 9 – Liens
1. Compare and contrast the meaning and application of maritime and possessory liens.
In your answer, include examples of situations where each may exist.
2. Outline the procedure for securing a ship’s arrest.
3. Briefly describe “Bottomry” and “Respondentia” with reference to liens.
4. Under what circumstances may a sister ship be arrested? Describe any limitations
associated with such an action.

Bibliography
Bibliography
Alizadah A H, Nomikos N K, 2009, Shipping Derivatives and Risk Management, Palgrave

Macmillan Ltd, New York. (e-book available through UTAS library)
Anderson, Phil, 2005, ISM Code – A Practical Guide to the Legal and Insurance Implications
– 2nd edition, Informa Professional, London.
Baughen, Simon, 2004, Shipping Law – 3rd edition, Cavendish Publishing, London.
Beckwith, Silas; Neenan, Lesley, 2003, An Introduction to the English Legal System, London
Metropolitan University.
Bishop, Eric, 2004, Finance of International Trade, Elsevier Butterworth Heinemann,

Oxford.
Branch, Alan E, 1998, Maritime Economics Management and Marketing – 3rd edition,
Stanley Thornes, Cheltenham.
Buckley, James, 2008, The Business of Shipping – 8th edition, Cornell Maritime Press,
Maryland.
Dykstra, Don L, 2005, Commercial Management in Shipping, The Nautical Institute, London.
Ebsworth&Ebsworth, 1998, COGSA 98, Ebsworth&Ebsworth, Solicitors, Sydney.
Hill, Christopher, 2003, Maritime Law – 6th edition, Informa Professional, London.
Hill, Julian, 2003, Marine Insurance Law, London Metropolitan University.
Hodges, Susan, 1999, Cases and Materials on Marine Insurance Law, Routledge-Cavendish,
London.
ILO, 1976, Merchant Shipping (Minimum Standards) Convention 1976 (ILO147),

International Labour Organisation.
IMO, 2002, ISM Code, International Maritime Organisation, London.
IMO, 2002, MARPOL 73/78 – consolidated edition 2002, International Maritime

Organisation, London.
IMO, 2002, MARPOL – How to do it – 2002 edition, International Maritime Organisation,

London.
IMO, 2003, ISPS Code – 2003 edition, International Maritime Organisation, London.
IMO, 2004, SOLAS – consolidated edition 2004, International Maritime Organisation,

London.

Bibliography
IMO, 1969 & 1992, International Convention on Civil Liability for Oil Pollution Damage
(CLC), International Maritime Organisation, London.
IMO, 1971 & 1992, International Convention on the Establishment of an International Fund
for Compensation for Oil Pollution Damage, International Maritime Organisation,
London.
IMO, 2001, International Convention on Civil Liability for Bunker Oil Pollution Damage,
International Maritime Organisation, London.
IMO, 1996, International Convention on Liability and Compensation for Damage in

Connection with the Carriage of Hazardous and Noxious Substances by Sea,
International Maritime Organisation, London
IMO, 2002, MARPOL 73/78 – consolidated edition 2002, International Maritime

Organisation, London.
IMO, 2002, MARPOL – How to do it – 2002 edition, International Maritime Organisation,

London.
IMO, 2004, SOLAS – consolidated edition 2004, International Maritime Organisation,

London.
Institute of Maritime Law, 2008, Southampton on Shipping Law, Informa, London.
Ishikawa K, Tsujimoto A, 2009, Risk and Crisis Management – 101 Cases (revised edition),
World Scientific Publishing Co, Singapore.
Kavussanos, M G, Visvikas, I D, 2006, Derivatives and Risk Management in Shipping,

Witherby& Co Ltd, London.
Keenan, Denis, 2001, Smith and Keenan’s English Law, 13th edition, Pearson Education,
Harlow
Kristiansen, S, 2005, Maritime Transportation Safety Management and Risk Analysis,

Elsevier Butterworth-Heinemann, Oxford UK.
Kuo C, 2007, Safety Management and its Maritime Application, Nautical Institute, London.
Levi, Maurice D, 2005, International Finance, 4th edition, Routledge, Abingdon.
Maclachlan, Malcolm, 2004, The Shipmaster’s Business Companion, 4th edition, The
Nautical Institute, London.
Mandaraka-Sheppard, Aleka, 2001, Modern Admiralty Law, Cavendish Publishing, London.
Mandaraka-Sheppard, Aleka, 2007, Modern Maritime Law,2nd edition,Cavendish Publishing,

London.

Bibliography
Murdoch, Eric et al (date unknown), A Master’s Guide to Berthing, Standard P&I Club.
Murphy D, 2008, Understanding Risk – The Theory and Practice of Financial Risk
Management, Chapman & Hall/CRC, Boca Raton, Florida.
Nautical Institute, 1999, Managing Risk in Shipping – a Practical Guide, Nautical Institute,
London.
OPA, 1990, US Federal Oil Pollution Act.
Panayides, Photis, 2001, Professional Ship Management, Ashgate Publishing, Aldershot.
Pearson, Christine M; Clair, Judith A, 1998 Reframing Crisis Management, in Academy of

Management Review, 23(1) (1998): 59–76.
Quick, George A (date unknown), Master/Pilot Relationship – The Role of the Pilot in Risk
Management.
Ritchie, B W, 2009, Crisis and Disaster Management for Tourism, Channel View
Publications, Bristol UK.
Robinson R M, Francis G, Hersan A, Kanga M, Robinson J, Stoks F, Wallis J, 2008, Risk and
Reliability: an introductory text, 7th edition, Engineering Education Australia,
Melbourne.
Rodgers, Paul, 2003, Bills of Lading Contracts, Informa Maritime & Transport, London.
Samitas W, Tsakalos I, 2009, ‘Hedging Effectiveness in Shipping Industry during Financial

Crisis’, International Journal of Financial Markets and Derivatives, Vol. 1, No.2, pp.
196-212
Smith D, Elliot D (Eds), 2006, Key Readings in Crisis Management, Routledge, Abingdon
UK.
Tetley, William, 1998 at http://www.duhaime.org/legaldictionary/S/SisterShipArrest.aspx
Thomas, Rhidian, 2004, Oil and Chemical Pollution from Ships, London Metropolitan
University.
Todd, Paul, 2002, Cases and Material on International Trade Law, Sweet and Maxwell,
London.
UNCTAD, 2010, Review of Maritime Transport 2010, United Nations Publications, New
York and Geneva.
Viney C, 2000, McGrath’s Financial Institutions, Instruments and Markets, 3rd edition,
McGraw-Hill, Sydney.
White, Michael,(Ed.) 2000, Australian Maritime Law, The Federation Press, Sydney.

Bibliography
Wilcox D, 1996, International Shipping and Economics – Study Guide, Australian Maritime
College, Launceston.
Wilson, John F, 2007, Carriage of Goods by Sea, 6th edition, Pearson Education, Harlow.
Internet Sources
https://maritimejournal.murdoch.edu.au/index.php/maritimejournal/article/viewFile/38/59
http://ohs.anu.edu.au/publications/pdf/wp%207%20-%20Hopkins.pdf
http://politicsir.cass.anu.edu.au/staff/hart/pubs/40%20Rosenthal,%20t%20Hart%20&%20Ko
uzmin.pdf
weekly.news@intertanko.com – 12 Nov 2011
www.admiraltylaw.com/papers/TUG.htm
http://www.ag.gov.au/Legalsystemandjustice/Pages/TheCourts.aspx
www.amac.ca/Luckycharm3.htm
www.amsa.gov.au/marine_environment_protection/Protection_of_Pollution_from_Ships/Poll
ution_from_Fishing_Vessels.asp
www.atsb.gov.au
www.austlii.edu.au/au/journals/ANZMLJ/2008/11.html
www.comitemaritime.com
www.dmp.wa.gov.au/documents/Magazine/018_MineSafe.pdf
www.docep.wa.gov.au/worksafe/PDF/Forums/safety_culture-Jane_.pdf
www.em.gov.au/Documents/The_importance_of_communication_in_excellent_crisis_manag
ement.pdf
www.freightinvestorservices.com
www.impahq.org/technology/article_1228231036.pdf
www.infomar.org/English/towageandsalwage/1709.html
www.internalcommshub.com/open/managers/whatsworking/archive.shtml
www.lloyds.com
www.ohio.edu/people/piccard/entropy/perrow.html
www.pwsrcac.org/docs/d0028900.pdf

Bibliography
www.uio.no/studier/emner/jus/jus/JUR5401/h06/undervisningsmateriale/voylayrules93.pdf
www.usaverageadjusters.org
www.visualexpert.com/Resources/humanvsdesignerror.html.

Bibliography
List of amendments
Page Correction

Amc Shipping Law and Business (1700) PDF

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Amc Shipping Law and Business (1700) PDF

Caricato da

Copyright:

Formati disponibili

Learning

JND 311 – Shipping Law and

Strictly for private use by students enrolled in

- This book is not for sale – Australian Maritime College

Shipping Law and

ii JND311 Shipping Law and Business

JND 311 – Shipping Business and Law 1

2 JND 311 – Shipping Business and Law

The Legal Framework

JND 311 – Shipping Business and Law 3

The Background to Maritime Law

The legal Framework

English Law arises from two sources:

4 JND 311 – Shipping Business and Law

Civil Law and Criminal Law

There are two branches of the national law:

The Civil Law

The Criminal Law

JND 311 – Shipping Business and Law 5

• The law of tort

The Law of Tort

Torts as discussed in a previous chapter include negligence, nuisance, trespass,

6 JND 311 – Shipping Business and Law

The Australian Court System

JND 311 – Shipping Business and Law 7

High Court of Australia

State/Territory Courts Commonwealth Courts

New South Wales District Court and Local Court

Victoria County Court and Magistrates’ Court

Queensland District Court and Magistrates’ Court

South Australia District Court and Magistrates’ Court

Western Australia Family Court, District Court and Magistrates’ Court

Tasmania Magistrates’ Court

Northern Territory Magistrates’ Court

ACT Magistrates’ Court

Norfolk Island Court of Petty sessions

8 JND 311 – Shipping Business and Law

JND 311 – Shipping Business and Law 9

There are 2 types of contracts

Example: an Insurance Policy

Conditions for a Valid Contract

10 JND 311 – Shipping Business and Law

They must accept unconditionally all the terms and conditions.

The OFFERER can terminate his offer

1. Before it is accepted – this is called REVOCATION

OFFER and ACCEPTANCE are described as AGREEMENT. It is not enough to say

 Undue influence or duress

JND 311 – Shipping Business and Law 11

1. By agreement: If both parties agree to end the deal.

2. By performance: After performing, fulfilling the contract.

3. By breach: Breaching of a condition by any means by any party.

4. By impossibility: When there is frustration and impossible to perform.

5. By operation of law or Change in Law.

Remedies When Breached

The injured party can find redress from courts:

1. By equitable remedies – issued at the discretion of the court

12 JND 311 – Shipping Business and Law

ii. by Injunction Order -

This is not of major influence in maritime business.

2. The international Conventions

What might be considered international law is that administered by the International

JND 311 – Shipping Business and Law 13

The International Conventions