Contracts of carriage are fundamental to the transportation industry, serving as legally binding agreements between the carrier and the shipper. These contracts outline the rights, duties, and liabilities of both parties involved in the transportation of goods or passengers.
They typically cover aspects such as the nature of the goods or service, the route and mode of transportation, delivery times, and payment terms. Importantly, they also address contingencies such as delays, damages, or loss, often limiting the carrier’s liability under certain conditions.
Given their legal and practical significance, contracts of carriage must be drafted with precision and a thorough understanding of applicable laws and regulations. They are a critical tool for managing risk and ensuring smooth operations in the transportation sector.
Contracts of carriage can be evidenced through documents such as a bill of lading, a sea waybill, a multi – modal transport document, a delivery note or standard trading terms.
Central to any contract of carriage is the identification of the parties to it. The main actor is the carrier who ought to be properly and clearly identified in the contract (although this is not always the case). With regard to the party contracting with the carrier, this may well be an agent, a transport operator freight forwarder or some other party who does not own, or who has not purchased, the goods that are the subject matter of the carriage.
Given this situation, many standard form contracts (such as bills of lading, waybills and standard trading terms) almost inevitably refer to the contracting party as a “merchant”. However, this seemingly straightforward term encompasses a broad spectrum of stakeholders within the shipping domain.
The term “merchant” is always broadly defined. It usually includes not just the shipper and consignee but also the holder of the bill, the receiver of the goods, any person owning or entitled to the receipt or possession of the goods, and anyone acting on behalf of such persons. This broad definition is designed to include all potential stakeholders who might have a vested interest in the cargo’s journey.
The consequences of such a broad definition are significant. It allows carriers to potentially hold a variety of parties liable for various charges associated with the transportation of goods. These can include claims for freight, salvage, detention, and demurrage charges, and general average contributions.
The broad definition of “merchant” under a bill of lading has far-reaching implications for all parties involved in the shipping industry. Every party defined as “merchant” is jointly and severally liable towards the carrier for all the various undertakings, responsibilities, and liabilities of the merchant under or in connection with a bill of lading.
Liability of Non-Contracting Parties
The pivotal question then arises: Can a carrier claim these charges from a party who is not the shipper or owner of the goods?
The answer is nuanced. While the definition of a “merchant” is broad, the enforceability of such claims against third parties who have not entered into a contract with the carrier is contentious.
The carrier can usually protect itself by simply refusing to release the cargo. This creates significant commercial pressure on the owner or receiver of the goods who may not be a party specifically named in the contract but entitled to take delivery of the goods.
Most definitions of merchant make it clear that whoever contracts with the carrier (usually the named shipper or named consignee depending on the sale terms), is deemed to have the authority of the owner of the goods to enter into that contract and to bind the owner to perform the obligations of the shipper.
If the shipper or consignee does not pay freight, or demurrage or detention charges, then the carrier can then look to the cargo owner or the person entitled to take delivery of the cargo. For example:
- Freight: Carriers typically have a right to claim freight from the party it has contracted with. However, claiming freight from a non-contracting party who has not agreed to pay it is generally not enforceable, unless that party is the named shipper on a bill – and even where the sale was FOB (i.e. where the shipper generally has no obligation to make any arrangements for the carriage of the goods beyond the FOB point) – as the bill of lading terms contractually bind the shipper to pay freight in the event that the party contracting with the ship owner defaults.
- General Average Contributions: General average is a principle of maritime law where all parties in a sea venture proportionally share the loss resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency. The carrier can claim General Average contributions from anyone who has a beneficial interest in the voyage, which may include non-contracting parties. Usually, the contributions are guaranteed by the owner of the goods and secured by the relevant insurers. These claims are enforceable.
- Detention and Demurrage: Detention charges occur when the shipper or receiver holds the carrier’s container outside the port, terminal, or depot beyond the free time allowed. Demurrage charges accrue when the container is not cleared from the port within the allotted time. These charges are typically levied against the party responsible for the delay, which could be a non-contracting party if they have control over the cargo. Most contracts of carriage provide that any party defined as the merchant is obliged to compensate the carrier for dentition charges.
Despite the above, in many cases, the principle of privity of contract prevails, meaning that only parties who have entered into the contract (e.g. the bill of lading) can be held liable for obligations arising from it. Non-contracting parties who have not expressly or impliedly agreed to the terms of the bill of lading may successfully argue that they are not bound by its terms, including liability for charges.
The usual definition of “merchant” under a bill of lading is a testament to the complexity of maritime law. It reflects the multifaceted nature of shipping transactions and the multitude of relationships that can exist around a single shipment. While carriers may seek to cast a wide liability net, the enforceability of such claims against non-contracting parties remains a matter for the courts to decide, often based on the specific circumstances of each case.
The use of standard for carriage contracts is a typical and practical aspect of the carriage of goods. Whatever your role may be in the contract matrix, great care should be taken to make sure that you have covered off your risk of having to pay a carrier for freight, demurrage or detention charges – whether by making sure that your contract of sale provides you with the necessary rights of recourse against a buyer or seller, or, if you are a freight forwarder or freight operator, that your trading terms provides similar provisions regarding your customer – and by making sure that you have adequate insurance in place.