Chapter 21: Charterparty Bills

21.1

The charterer’s contractual relations with the shipowner will be regulated by the charterparty. 1 A bill of lading in a charterer’s hands will generally be relevant in so far as it is a receipt, 2 but it will not operate either as a new contract between charterer and shipowner, 3 or as in any way modifying the charterparty contract. 4 There may be circumstances where Z has a long-term contract of affreightment (or possibly a voyage charterparty) with X for the shipment of all Z’s goods. X in turn arranges for Y’s ship to perform a voyage under a voyage charter between X and Y. In this situation, although Z may be described as a charterer, it does not have any charterparty with the shipowner, Y. If Z is named as a shipper in a bill of lading signed by Y, it would seem that Z’s contract of carriage with Y would be contained in the bill of lading, albeit that the bill might incorporate terms from the contract between X and Y, or that between Z and X. 5

21.2

The position is slightly more complicated where the charterer is not the shipper, but a bill of lading later comes into its hands. A classic example would be where the charterer agrees to purchase goods FOB and a charterparty bill of lading (like Congenbill) is issued to the seller, who is named as a shipper. If the bill of lading is later indorsed to the charterer, as part of the sale contract, it seems that the relations between the shipowner and the charterer continue to be governed by the charterparty and not the bill of lading. 6 The issue is important because there may be differences between the bill and the charterparty, e.g. in relation to arbitration, 7 or demurrage liability. 8

21.3

In theory, the shipowner and charterer could agree that the bill of lading was to vary the charterparty. Many dry cargo voyage charters 9 will contain a cesser clause saying, e.g., that the charterer’s liability under the charter is to cease on cargo being shipped and that the vessel is to have a lien on the cargo for all freight, dead freight, demurrage or average. 10 The charterer will probably be a seller of goods and will hope to drop out of the picture once the cargo is aboard, any liabilities thereafter being transferred to the bill of lading holder. In general the courts have not treated the charterer’s obligations as totally at an end and have held that the cesser only applies in so far as the lien is effective. 11 The effectiveness of the remedy against the bill of lading holder will often depend on the attitude a court takes towards the incorporation clause. 12

21.4

Such a dry cargo voyage charter may also contain a superseding clause saying, e.g., “this contract shall be completed and superseded by the signing of bills of lading in the form customary for such voyages for grain cargoes, which bills of lading shall contain the following clauses...”, after which a list of detailed clauses will be set out. 13 In Oriental Maritime Pte Ltd v. Ministry of Food of the People’s Republic of Bangladesh (The Silva Plana), 14 a disponent owner agreed a sub-charter on a Baltimore Form C, but with the cesser clause deleted. There were different arbitration clauses in the sub-charterparty and the bill and the question arose whether the disponent owner’s claim for freight against the sub-charterer had been superseded, so that the only claim was under the bill. It was held that the concept of “completion” indicated that the contracts in the charter and bill had to be between the same parties. In that case the bills were evidence of a contract between shipowner and bill of lading holder, 15 but the charterparty in question was between the disponent owner and the sub-charterer. It was unlikely as a matter of interpretation that the disponent owner intended to give up valuable rights of freight against the sub-charterer without receiving in return any other enforceable rights against the sub-charterer. The sub-charter was not superseded by the bill, but it was assumed by Steyn J that the clause would have been effective on the signing of the bills if the parties had been the same (i.e. if the bills had been disponent owmer’s bills). Supersession meant that “rights and obligations under the [charterparty] are consensually terminated and replaced by rights and obligations under bills of lading”. 16

21.5

Most time and voyage charters contain some provision that the master’s power to issue bills of lading shall be “without prejudice to the charterparty”. 17 Such a provision may confirm that the master cannot alter the contractual position of the owners by purporting to agree bill of lading terms that differ from the charter. Disputes between owners and charterers about the content of charterparty bills are best solved by the inclusion of a term in the charterparty that all bills issued are to be in a particular form described in the charterparty itself. 18 In charters such as Gencon 1976 the charterer may be expressly allowed to present any bill of lading for signature by the master, provided that it is not manifestly inconsistent with the charterparty. 19 There is, here, fertile ground for disputes as between shipowner and charterer as to the terms to be included in the bill of lading. 20 However, these are disputes which will not directly concern the consignee or indorsee of the bill. Even so, there may still be (relatively rare) cases where the charterer claims on the basis of the bill of lading as opposed to the charterparty. In such cases it may well be that the bill governs. 21 It may not always be easy to determine whether the claim is based on the bill or the charter. It would seem that the charterparty is more likely to govern where, e.g., the charterparty was arranged for particular goods which are to be shipped for the benefit of the charterer and where the shipper holds the bill for a short space of time before indorsing it over to the charterer as obliged under the sale contract. 22 It would be different if the shipowners made, independently of the charterparty, a separate contract of carriage with the shipper under the bill of lading.

21.6

If the charterer decides to sell the goods represented by a bill of lading in its hands, the new holder of the bill will require its “contractual” function. There is a logical difficulty, for if the bill of lading is indorsed to a third party by the charterer it is difficult to say that any contract has been transferred by indorsement of the bill of lading - as the bill never represented any contract between charterer and shipowner when the bill was in the charterer’s hands. Where the Bills of Lading Act 1855 applied, it was generally assumed that the bill in the hands of an indorsee did contain the conclusive terms of the contract 23 and a contractual relationship is therefore said to have sprung into existence from the moment of indorsement and delivery. 24

21.7

In Rights of Suit, the Law Commissions 25 considered the difficulty in s. 1 of the Bills of Lading Act 1855 of transferring “the contract contained in the bill of lading” and recommended the present s.2(l) of the Carriage of Goods by Sea Act 1992. The holder of a bill indorsed from a charterer will have transferred the rights 26 under “the contract of carriage as if it had been a party to that contract”. Section 5(1) defines “contract of carriage”, in relation to a bill, as “the contract contained in or evidenced by that bill”. Accordingly, as between such a holder and the carrier 27 the bill of lading will govern the contract when the person becomes a lawful holder of the bill within s.5(2). Where the charterer is the shipper and indorses the bill, the 1992 Act does not remove any of the charterer’s rights to sue under the charterparty. Where the charterer is an indorsee from a shipper, the Carriage of Goods by Sea Act 1992 was not intended to alter the decision in The Dunelmia. 28 The courts will still have to construe the bill of lading and the charterparty in order to see which will prevail. The answer will depend on the relevant facts and the terms of the two documents. In one respect s.2(l) of the Act complicates the former position as it is clear that a charterer could become the “lawful holder” of a bill indorsed to it. It might be argued, therefore, that it could have transferred to it rights under the bill. However, it will be recalled that the rights transferred are those under the “contract of carriage” and that s.5(l) defines this, in relation to a bill, as the contract contained in or evidenced by that bill. The Act would be irrelevant where the charterer could argue, as in The Dunelmia, that there never was a contract in the bill.

21.8

Where the bill of lading holder (shipper or consignee) is not in a charterparty relationship with the shipowner, its rights and obligations will be determined by the bill, albeit that the bill may itself incorporate the charterparty by reference. 29 Thus, where there is a time charter and a sub voyage charter, the bill of lading may commonly be issued by the shipowner to the sub-charterer as shipper. In this example, their relationship is governed by the bill and the fact that the shipper has a charter with another person (here the time charterer, acting as disponent owner) is irrelevant for the purpose of deciding the contractual connection between shipper and shipowner. That sub-charter is, of course, relevant to the question of the terms of the bill of lading, as that bill may commonly incorporate the terms of the sub-charter-but only to govern the relationship between shipper and shipowner. Thus, if such a bill of lading incorporated the freight payment terms of the sub-charter, the shipowner should be entitled to investigate only whether freight has been paid in accordance with those terms. The shipowner does not have to be concerned, for example, with questions of set-off arrangements (or other post-fixture...