Lecture 11

1. Lecture 11 • TRANSPORTATION • Topics covered: • Trade Terms • Carriage of Goods by Sea

2. A. TRADE TERMS • Use of Trade Terms: sales contracts involving transportation customarily contain abbreviated terms to describe: • Time and for the buyer to take delivery. • Whether buyer or seller will arrange for transportation. • Additionally: • place of payment. • the price. • the time when the risk of loss shifts from the seller to the buyer. • the costs of freight and insurance.

3. A. TRADE TERMS • Trade Terms are Not Consistently Used • Many domestic laws define trade terms for both domestic and export sales. • Almost all domestic laws allow the parties to define the terms themselves. • This may be done by incorporating definitions from: • foreign legislation. • private rules. • The most widely used private trade terms are the "Incoterms" published by the International Chamber of Commerce.

4. A. TRADE TERMS • “Free” Terms • Several of the common trade terms begin with the word "free" (e.g., free on board, free alongside, free carrier). • “Free” means: the seller has an obligation to deliver the goods to a named place for transfer to a carrier.

5. A. TRADE TERMS • FOB - Free On Board Contracts • Free on board is normally a maritime trade term. • In most of the world its use remains limited to seaborne commerce. • The Incoterms uses it only in connection with the carriage of goods by sea. • In common law countries it is also used for inland carriage aboard any "vessel, car or other vehicle."

6. A. TRADE TERMS • FOB - Free On Board Contracts (continued) • FOB (port of shipment) contract: requires a seller to deliver goods on board a vessel that is to be designated by the buyer in a manner customary at the particular port. • “On board” means that the goods: • have been appropriated to the contracts. • have crossed rail.

7. A. TRADE TERMS • FAS - Free Alongside Contracts • Free Alongside or Free Alongside Ship: requires the seller to deliver goods to a named port alongside a vessel to be designated by the buyer and in a manner customary to the particular port. • “Alongside” has traditionally meant that the goods be within reach of a ship's lifting tackle.

8. A. TRADE TERMS • CIF - Cost, Insurance and Freight Contracts • Cost, Insurance and Freight (port of destination): requires the seller to arrange for the carriage of goods by sea to a port of destination and to turn over to the buyer the documents necessary to obtain the goods from the carrier or to assert a claim against an insurer if the goods are lost or damaged.

9. A. TRADE TERMS • CIF - Cost, Insurance and Freight Contracts (continued) • The three documents which the seller (as a minimum) has to provide are: • the invoice. • the insurance policy. • the bill of lading. • These documents represent the three elements of the contract: cost, insurance and freight. 

10. A. TRADE TERMS • CIF - Cost, Insurance and Freight Contracts (continued) • The seller's obligations are complete when the three documents are tendered to the buyer. • At that time, the buyer is obliged to pay the agreed price.

11. A. TRADE TERMS • CFR - Cost and Freight Contracts • Cost & Freight (port of destination) term is the same as the C.I.F. term, except that the seller does not have to procure marine insurance against the risk of loss or damage to the goods during transit.

12. A. TRADE TERMS • DES - Delivered Ex-Ship Contracts • Delivered Ex-Ship or arrival contract requires the seller to deliver goods to a buyer at an agreed port of destination. • The seller remains responsible for the goods until they are delivered. • The seller is not obliged to obtain insurance for the buyer's benefit.

13. A. TRADE TERMS • FCA - Free Carrier Contracts • Free Carrier or Free Carrier Alongside term requires the seller to deliver goods to a particular carrier at a named terminal, depot, airport or other place where the carrier operates. • The costs of transportation and the risks for loss shift to the buyer at that time.

14. A. TRADE TERMS • EXW - Ex-Works Contracts • An “Ex-Works” contract requires a seller to deliver the goods at his own place of business. • All the costs connected with transportation are the responsibility of the buyer.

15. B. CARRIAGE OF GOODS BY SEA • Common Carriage • Defined: a carrier that transports all goods or persons who apply and for which there is room. • The vessel is known as a general ship, or common carrier. • Common carriers are the subject of extensive municipal legislation and international conventions.

16. B. CARRIAGE OF GOODS BY SEA • Common Carriage (continued) • Three types of common carriers: • A conference line is an association of sea going carriers who have joined together to offer common freight rates over scheduled routes. • An independent line is a carrier with its own rate schedule the operates over scheduled routes. • A tramp vessel has its own rate schedule, but it does not operate on established routes.

17. B. CARRIAGE OF GOODS BY SEA • Common Carriage (continued) • In most countries the tariffs of ocean carriers are not regulated, so both conference and independent lines will commonly offer regular shippers substantial rebates. • Exception: the United States: • Ocean carriers have to file their tariffs with the Federal Maritime Commission. • Rebates are forbidden by American law.

18. B. CARRIAGE OF GOODS BY SEA • The Bill of Lading • Governing law • The International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading. • Originally adopted in 1924 and commonly known as the Hague Rules. • Extensively amended in 1968 and this version is known as the Hague-Visby Rules. • Most countries are parties to the 1924 Rules.

19. B. CARRIAGE OF GOODS BY SEA • The Bill of Lading (continued) • Governing law (continued) • The domestic legislation implementing these conventions are typically called Carriage of Goods by Sea Acts (COGSAs). • Many states have supplementary legislation that also governs bills of lading in both municipal and international settings.

20. B. CARRIAGE OF GOODS BY SEA • The Bill of Lading (continued) • “Bill of Lading” defined: an instrument issued by an ocean carrier and given to a shipper with whom the carrier has entered into a contract for the carriage of goods at the time the goods are delivered to the carrier. • A bill of lading serves three purposes: • It is the receipt given to the shipper for the goods. • It is evidence of a contract of carriage. • It is a document of title.

21. B. CARRIAGE OF GOODS BY SEA • The Bill of Lading (continued) • Receipt for goods • A bill of lading. • Describes the goods. • States their quantity. • States their condition.

22. B. CARRIAGE OF GOODS BY SEA • The Bill of Lading (continued) • Receipt for goods (continued) • Bills certifying that the goods have been properly loaded on board are known as "on board" bills of lading. • If there is a dispute: the statement on the bill is considered prima facie evidence that the goods were received by the carrier as described on the bill • As long as the bill has not been negotiated to a third party the carrier can introduce proof to rebut this evidence. a] The carrier is barred from introducing evidence to contradict the bill of lading once it has been negotiated.

23. B. CARRIAGE OF GOODS BY SEA • The Bill of Lading (continued) • Receipt for goods (continued) • If a discrepancy is noted on the face of the bill it is called a “claused” bill of lading. • Claused bills are normally unacceptable to third parties. • Note: a notation as to a discrepancy may only be made on the bill at the time the goods are loaded. • Later notations have no effect: the bill will be treated as if it were "clean."

24. B. CARRIAGE OF GOODS BY SEA • The Bill of Lading (continued) • Contract of Carriage • A bill of lading is evidence of the contract of carriage between the shipper and the carrier. • As long as the bill has not been negotiated to a third party either the shipper or the carrier can introduce proof to rebut this evidence.

25. B. CARRIAGE OF GOODS BY SEA • The Bill of Lading (continued) • Document of Title • A person rightfully in possession of a bill of lading has title and is entitled to possess, use, and dispose of the goods that the bill represents. • Two main kinds of bills of lading • Straight bills of lading • Order bills of lading

26. B. CARRIAGE OF GOODS BY SEA • The Bill of Lading (continued) • Document of Title(continued) • “Straight bills of lading”: issued to a named consignee and is non-negotiable. • The transfer of a straight bill gives the transferee no greater rights than those of his transferor.

27. B. CARRIAGE OF GOODS BY SEA • The Bill of Lading (continued) • Document of Title (continued) • “Order bills of lading”: issued to a named consignee and negotiable. • Consignee may transfer the bill to a third party by negotiation (i.e., by endorsement and delivery). • The third party holder of the bill has title and the right to take possession of the goods as described in the bill. • Must receive the bill in good faith through due negotiation. • Must surrender the bill to the carrier in order to take delivery of the goods.

28. B. CARRIAGE OF GOODS BY SEA • The Carrier’s Duties Under a Bill of Lading • A carrier transporting goods under a bill of lading is required to exercise “due diligence” in: • Making the ship seaworthy. • Properly manning, equipping and supplying the ship. • Making the holds, refrigerating and cool chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation. • Properly and carefully loading, handling, stowing, carrying, keeping, caring for, and discharging the goods carried. • This obligation is strictly enforced by most courts.

29. JUDGE JUDY READY TO RULE-- Case: Great China Metal Industries v. Malaysian International Shipping: +Court +Facts +Legal Significance +Parties +Rational +Issue +Result

30. B. CARRIAGE OF GOODS BY SEA • The Carrier’s Immunities Under a Bill of Lading • Carriers who issue a proper bill of lading are exempt from liability for damages that arise from various “perils,” such as: • 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; • Fire, unless caused by the actual fault or privity of the carrier; • Perils, dangers and accidents of the sea or other navigable water;

31. B. CARRIAGE OF GOODS BY SEA • The Carrier’s Immunities Under a Bill of Lading (continued) • These immunities are strictly construed. • A carrier will be responsible despite any listed exemption if it failed to exercise due diligence in carrying out its fundamental duties.

32. B. CARRIAGE OF GOODS BY SEA • Liability Limits of Carriers Under Bills of Lading • The limits. • Limits set by the Hague Rules of 1924 are: • $500 per package, or • $500 per unit when shipped in “customary freight units.”

33. B. CARRIAGE OF GOODS BY SEA • Liability Limits of Carriers Under Bills of Lading (continued) • The limits (continued) • Limits set by the Hague-Visby Rules are the higher of: • a) 10,000 gold francs per package or unit, • 30 gold francs per kilo of the gross weight of the goods lost or damaged, whichever is the higher.

34. B. CARRIAGE OF GOODS BY SEA • Liability Limits of Carriers Under Bills of Lading (continued) • The limits do not apply: • If the parties agree to higher amounts. • If the carrier acted either: • With intent to cause damage, or • Recklessly and with knowledge that damage would probably result.

35. JUDGE JUDY READY TO RULE-- Case: Croft & Security Co. v. M/V Skulptor Vuchetich et. al. : +Court +Facts +Legal Significance +Parties +Rational +Issue +Result

36. B. CARRIAGE OF GOODS BY SEA • Third Party Rights (Himalaya Clauses) • The liability limits established by the Hague Rules and Hague-Visby Rules apply to the carrier only. • Third parties who help in the transport of the goods, but who are not parties to the carriage of goods contract contained in the bill of lading, have no contractual right to claim the liability limits established by the Rules. Examples: • Officers and crew members. • Agents and brokers who work for a carrier. • Stevedores who commonly work for a unit of a shipping line.

37. B. CARRIAGE OF GOODS BY SEA • Third Party Rights (continued) • Carriers add Himalaya Clauses to their bills of lading to extend the protection of he Hague Rules or the Hague-Visby Rules to third parties. • The clauses are valid in the United States. • The clauses are generally unenforceable in most other countries. • Rationale: privity of contract.

38. JUDGE JUDY READY TO RULE-- Case: Abnett v. British Airways Plc.: +Court +Facts +Legal Significance +Parties +Rational +Issue +Result

39. Clause of the Week Non-Competition Clause