Maritime Law

Maritime law

Module 1 – Introduction to maritime law

1 1. What is the field of law described as ‘maritime law’?

The subject of maritime law attempts to give you a clear understanding of the legal principles applicable to commercial shipping operations. These are the legal principles that determine the obligations and regulate the relationships of the parties in the maritime transport chain.

2 2. What is the field of law described as ‘admiralty law’?

3. What is an ‘in rem legal claim’?

Claims in rem may only be brought before the Admiralty Court in the Queen’s Bench Division of the High Court. However, not all claims within the jurisdiction of the claim can be brought in rem. To consider whether a case can be brought in rem, a plaintiff will need to ask first whether its claim falls within the general jurisdiction of the Admiralty Court and if it does, whether it is the type of claim that may be brought in rem.

The in rem claim was originally founded on the notion of maritime liens. Enforcement of judgment was allowed against the property arrested, on the theory that a maritime lien attached to the property from the moment of the creation of such a claim. That is why it becomes known as an ‘action in rem’.

The entire in rem claims from the issue of the in rem claim form are registered in the Admiralty Registry. The procedural step of issuing the claim has the effect of crystallizing the in rem claim on the ship as a statutory lien in rem, which is very important as a form of security in case the ship is, in the meantime, sold even to a bona fide purchaser.

4. What is an ‘in personam legal claim’?

In personam claims are now governed by CPR Pt 58 and Practice Direction 58 (PD 58). An action in personam will be allowed for claims against the cargo belonging to the State, if the ship carrying it was used, or intended for use, for commercial purpose (s 10(4)(b). however, where the defendant would not be liable in personam, the defendant’s maximum exposure will be in respect of the res itself. The claimant will be entitled to enforce the full amount of any judgment in respect of the in personam liability of the ship owner. Where no such liability has been incurred, however, the judgment will still be limited to the value of the res.

Module 2 – National and International Law

1 Q1. What is ‘national law’?

National law is the law that governs Australian citizens in their daily life. National law is an invisible web that underpins life in a civil democratic society. The stuff of everyday life – driving a car, purchasing an appliance, signing up to a mobile phone contract – is underpinned by national law. National law regulates relations between the members of a society and imposes a certain code of behaviour. It provides a framework of rights and obligations within which economic, social, and political activities are carried out. National law is binding upon Australian people. In this sense, it is important to note that ‘people’ has an extended meeting. It applies, in its normal sense, to ‘natural’ people – flesh and blood. But it also (usually) applies to ‘corporate’ people. In the eyes of the law, corporations such as BHP Billiton Limited and Rio Tinto Limited are for most intents and purposes - ‘people’. National law is also known as domestic law.

2 2. What is ‘international law’?

International Law applies primarily to the relations between sovereign nations (also known as ‘states’). It is the law of nations governing the conduct of nations towards other nations. International law attempts to provide an orderly framework for international relations. Such a framework seeks to foster peace and harmony among nations and promotes world economic growth and the improvement of human conditions. Modern international law is an indispensable body of rules regulating the activities of states, without which it would have been difficult to have regular dealings.

In the absence of international law, the international community would find it difficult to enjoy the benefits of trade and commerce, exchange of ideas or even routine communications. Contrary to popular belief, international law does not deal with matters of high policy all the time. International practice and conventions are relevant in day to day dealings involving two or more nations on matters such as commerce, finance, aviation and shipping. Although international law applies to sovereign states in the first instance, it also filters down to nationals engaged in commercial activity. Shipping is a subject that is well regulated by international law. International law has no supreme source of authority.

For instant, there is no parliament. Law is thus formed by consensus regarding appropriate State behaviour. Furthermore, there is no central authority. Hence, compliance is essentially voluntary. Enforcement generally depends on diplomacy and the desire of countries to maintain their international standing and reputation. International law is also usually slow to develop. This is because no agencies cannot usually enact laws quickly as consensus is needed. But international law can be quick to develop where there is consensus. Example, opposition to slavery, need to ban ozone-depleting substances. UN cannot force countries to comply with the ‘collective will’ of nations as expressed through the UN.

3 3. Identify and fully describe the 2 different sources/types of ‘national law’.

In Australia, the two sources of law are common law and equity. Common law is the foundation of many branches of the law in Australia. The law of contract and the law of torts are based on the common law. The common law in Australia has its origin in the English common law. The courts, through the decisions of judges over a period of time, develop common law.

A principle of law established in one case would be binding on a judge examining a similar case, in a court of similar standing or in a lower court. It would be a binding precedent. This promotes certainty, consistency and the continuity of a particular legal rationale. The highest court in Australia, the High Court, is not bound by its own decisions, but certainty, consistency and continuity means that stare decisis will ordinarily apply. A binding precedent is created when a judge delivers judgement in a court case. At the time the judgement is delivered, the judge makes many statements on the law. Some of the comments will be reflections on a particular legal point. Others will be the application of legal principles to the facts at hand. All the statements will be important contributions to the law, particularly if they come from a learned judge.

However, what is binding on the next judge is the principle of law on which the decision in the case is based. This principle of law is referred to as the ratio decidendi. This is the principle on which the case is decided. Literally translated, the phrase means ‘reason for decision’ or the ‘reason for deciding’. The rest of the judge’s interpretation of the case, opinions upon matters not essential to the decision and therefore not binding in relation to future decisions, is referred to as obiter dictum.

The courts, over the years, have used this system of basing judgements on established precedents, or of creating new precedents based on recognised principles, with a great deal of flexibility and success, distinguishing one case from another and modifying and extending legal principles, often by analogy, to suit the particular needs of society. A binding precedent is created when a judge delivers judgement in a court case. At the time the judgement is delivered, the judge makes many statements on the law. Some of the comments will be reflections on a particular legal point. Others will be the application of legal principles to the facts at hand. All the statements will be important contributions to the law, particularly if they come from a learned judge.

However, what is binding on the next judge is the principle of law on which the decision in the case is based. However, common law develops slowly and often cannot keep pace with the needs of society. When common law is seen to be inadequate, the legislature or law making body of the country may step in and enact new legislation which may change the common law position or make provision for a situation not dealt with by the common law.

At the same time as the common law courts were developing common law there was a special jurisdiction in the English Court of Chancery. Equity can be described as that body of law developed by Chancery prior to 1873 and received into Australia at the same time as the common law. All superior courts in Australia now exercise an equitable jurisdiction. Equity offers a variety of remedies to claimants not available in the common law. Equitable relief may be available where a defendant has behaved unconscionably and the plaintiff has placed some reliance on the conscientious behavior of the defendant, to the eventual detriment of the plaintiff. It can operate ‘to soften and mollify the extremity of the [common] law’. Equity has its own rules which are separate and distinct from the common law. Unlike the common law, where breach of some right must always give entitlement to damages, equitable relief is only granted in the discretion of the court

4 4. Identify and fully describe the 5 different sources/types of ‘international law’.

The 5 sources of international law are Treaties, Customary international law, Resolutions of the UN, International tribunal decisions and Juristic works. Law making treaties or conventions are agreements adopted by a number of sovereign states. Adoption usually takes place through a conference of the participating states that draft the convention. The foundations of a convention are laid when states, meeting at an international forum, decide that the international community should study a particular subject and attempt to formulate uniform rules. The foundations of a convention are laid when states, meeting at an international forum, decide that the international community should study a particular subject and attempt to formulate uniform rules.

For example, the member states of the International Maritime Organisation periodically meet to examine problems relating to international shipping, particularly in the fields of safety of life at sea and marine pollution. It usually takes several years to draft a convention. The delegates of various states carry out the deliberations at an international forum. Once the convention is finalised, the delegates representing states may adopt the convention unanimously.

On the other hand, if there is no unanimity the convention may be subject to a vote. At this point, some states may vote in favour of the convention, some may oppose it, while others may abstain from voting. Once the convention is adopted by a majority of votes, it is then open for signature. States have the option of signing or not signing the convention.

Signing may at times be definitive, in which event the state signifies its immediate acceptance of the convention. Where the signature is not definitive, the signing state would have the opportunity of examining the implications of the convention at length and ratifying the convention at a later date. Signature to a convention at the time it is adopted may also depend on the constitutional position of the state concerned, prior parliamentary approval being required in some states before a convention is signed or ratified. A treaty is only binding on states that are contracting parties to it. There is usually a provision that indicates when the treaty will come into force. The requirement may be that a certain number of states must agree to adhere to the treaty or that, in conventions pertaining to shipping, ratifying states representing a minimum amount of tonnage.One major source of international law is international custom. A customary rule would have its origin in the practice of a sovereign state.
This practice could be adopted by other states and when a large majority of states adopted the same practice it would be recognised as a customary rule of international law. The practice could then be applied in a dispute between two states. Customary practice of countries which amounts to law needs to be uniform and constant usage practiced by countries; and recognition by countries that this practice is the result of a rule of international law. A country does not have to specifically accept a rule of customary international law before it is bound by it. However, a country is not bound by a new rule of customary international law if the country has consistently and expressly objected to it. Yet all countries are bound by jus cogens rules.

Another source of internal law is Resolutions of the United Nations. UN Security Council may make resolutions which are binding on all UN member countries. UN General Assembly resolutions are normally recommendatory only. Yet it may influence the development of customary international law. General Assembly resolutions usually require a simple majority to be resolved. However, if the General Assembly determines that the issue is an "important question" by a simple majority vote, then a two-thirds majority is required to pass. “Important questions" requiring the two thirds majority include ones dealing international peace and security and admission/expulsion of members to the United Nations.

Another major source of international law is the International Court of Justice (ICJ). The International Court of Justice is the only existing permanent international tribunal with general jurisdiction to hear international disputes. In practice, if two states have a dispute that they cannot resolve, one or both states may decide to take the dispute to the ICJ. The ICJ would hear the dispute and give a ruling. The ruling in one case is not necessarily binding on the judges hearing a similar dispute at a later date. However, even though there is no principle of binding precedent, the ruling in one case would have persuasive authority on a later case.

Juristic works are also another main source of international law. Juristic works refer to the writings of well-known academics and international lawyers. Article 38 of its charter directs the ICJ to apply the teaching of the most highly qualified jurists as a subsidiary means for determining rules of law. The works of such academics clarify and declare the customary international law on a particular topic. They also discuss the rules that are likely to be established in the future. They point the direction in which the law is moving.

5 5. How can international law become part of Australian national law?

A treaty does not have a direct effect in Australian law unless and until it is incorporated into that law by statute. It is well established that the provisions of an international treaty to which Australia is a party do not form part of Australian law unless those provisions have been validly incorporated into our municipal law by statute. This principle has its foundation in the proposition that in our constitutional system the making and ratification of treaties fall within the province of the Executive in the exercise of its prerogative power, whereas the making and alteration of the law fall within the province of Parliament, not the Executive. So, a treaty which has not been incorporated into our municipal law cannot operate as a direct source of individual rights and obligations under that law.

The need for legislative implementation arises when existing legislation be it at Commonwealth and/or State/Territory level does not provide the basis for Australia to meet its obligations under a treaty to which it wishes to become party.

As a general policy, the necessary legislation is put in place prior to the entry into force of a treaty for Australia. This ensures that Australia is able to meet its obligations under the treaty from the moment it becomes a party. Ratification of a treaty without the required legislation would risk Australia 'being left in breach of the treaty if the Parliament subsequently failed or refused, for whatever reason, to pass the legislation'. The lack of domestic legislation in such a case would be no defence to a claim under international law that Australia had breached its treaty obligation. Under international law, Australia has ’discretion’ in how it implements its treaty obligations. International law does not dictate that a particular approach be taken to implementing domestic legislation. That said the bottom line remains that States must ensure that their domestic law permits them to meet their treaty obligations.

As Australia has a federal system of government, with a division of powers between the Commonwealth and State Governments, the legislative approach to implementing treaties may well involve, at least in part, State legislation. At the Commonwealth level, there are a number of different ways of giving effect to international obligations in legislation. One method is to give the force of domestic law to the actual text of the treaty or the operative parts of the treaty. A prominent example of this is the Diplomatic Privileges and Immunities Act 1967. Another method of implementing treaties by statute is to include a fairly short provision along the lines that the statute is subject to Australia's obligations under international law, including those under treaties to which Australia is a party. A similar approach is to say that a particular organisation or person will exercise powers under a statute consistent with Australia's international obligations.

In summary, this short form manner of ensuring that an act is consistent, or administered consistently, with Australia's international obligations has the potential to lead to uncertainty in the administration of the act. That said there remains a place for stating that particular statutes or particular sections of statutes should be administered in accordance with Australia's international obligations. However, in order to avoid uncertainty, it may be best to identify particular international obligations which are relevant rather than making the legislation subject to all of Australia's international obligations.

The preferred method of giving effect to treaties is to translate the relevant provisions of the treaty into traditional legislative language. In so doing, a statute might refer to particular terms in a treaty but use the language of domestic law to give effect to the majority of obligations. Two examples of this approach in recent years are the Space Activities Act 1998, implementing several conventions dealing with space activities, and the Anti-Personnel Mines Convention Act 1998, which implements the convention of that name. This method introduces an element of certainty into the implementation of treaties which is perhaps lacking in simply giving the treaties the force of law or in stating that a statute is subject to Australia's international treaty obligations.

Regulations may also be used to implement Australia's treaty obligations. An important example in this regard is the Charter of the United Nations Act 1945, which permits regulations to be made to give effect to sanctions imposed by the UN Security Council under Chapter VII of the UN Charter. The reliance on regulations in this case reflects the need often to act urgently to give effect to sanctions. There is no doubt that entry into a treaty by Australia enables the Commonwealth to enact laws under the external affairs power to implement the provisions of a treaty. That said, entry into a treaty dealing with a particular subject matter does not mean that the Commonwealth assumes complete legislative power over that whole subject area.

Common law does not necessarily conform to international law, but international law is a legitimate and important influence on the development of the common law, especially when international law declares the existence of universal human rights.

A second area in which treaties may have an indirect influence is in the interpretation of statutes. This arises from the presumption that Parliament, in enacting legislation, intends to act consistently with Australia's obligations under international law. It follows that, as a matter of statutory interpretation, domestic statutes will be construed where the language permits, so that the statute conforms to Australia's obligations under international law. However, it remains clear that international obligations under a treaty cannot be used to override the plain words of a statute, even if those plain words are inconsistent with a treaty.

Module 3 – Maritime policy and the law

1 1. What is ‘policy’?

Policy can be seen as an authoritative response to a public issue or problem. It is a plan of action to tackle a public issue that is being put forward through parliament as a bill to be made law. Policies are theories about the world, some flourish while others wither. The better designed the theory, the more tested its assumptions, the greater he chances for success.

2 2. What is ‘private policy’ and ‘public policy’?

Public policy –The definition of public policy is the combination of basic decisions, commitments, and actions made by those who hold or influence government positions of authority. Public Policy is a concept (usually in a written document), whereby the government or a political party will determine decisions, actions and other matters that will prove advantageous to society in general’. In most instances, these arrangements result from interactions among those who demand change, those who make decisions, and those who are affected by the policy in question.

Public policies are developed by governmental bodies and officials. Policy issues can be split into two categories, those already on the public policy agenda, and those that are not. Those that are already on the public policy agenda have higher probability to go through formal process. The latter on the contrary, would have to depend on the stakeholders and community to raise awareness and get it on the agenda. For an idea to remain on the public policy agenda, it should meet three principles. They are, a significant amount of people should be affected, high impact magnitude, and have been issued for a long time.

Private policies often result from pressure from interest groups that can be independent of government. They are chosen by private parties without the command or sanction of government. For example, firms self-regulate in the hope of avoiding future government commands. Firms that are susceptible to activist campaigns and public pressure may also proactively change their policies in the hope of avoiding private politics.

Firms choose such private policies based on both internal and external considerations. Internal considerations include normative principles (as when a firm chooses to meet the same environmental standards in both developing and developed countries). Private policies also are motivated by external pressure that may be independent of government (This pressure may be spontaneous as in local NIMBY movements or it may reflect a strategy of an organized interest or activist group). Such activity and the responses to it represent private politics and the outcome of private politics is private policy.

3 3. What is the relationship between ‘policy’ and ‘law’?

A law is enforceable by the judicial system and its main purpose is to bring justice to the society. However, a policy is a set of rules usually set by organizations and corporations to achieve certain goals. Law focuses primarily on the legality of a particular course of action, while policy focuses primarily on the efficacy of a particular course of action. The work of ascertaining legality is primarily for the attorneys whereas the work of ascertaining efficacy is primarily for the policy makers and administrators. Every company can have its own policy so long as it complies with the law, however no company can make its own law. Besides that, policies also form the basis of many laws.

6 4. Identify and explain the steps in public policy development cycle broadly recognized within Australia.

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Begins with identifying issues – A new problem emerges in private discussions with interests groups, or in the media, with demands for government action. Sometimes an existing policy proves to be no longer effective and requires an overhaul- there is never a shortage of people telling government what it should be doing.

Policy analysis – This is when the issue manages to catch the attention of the government. Governments may be guided by their overall party philosophy and program for long standing issues whereas new issues on the contrary requires thorough research and reflection.

Policy instruments – Policy analysis leads to the identification of appropriate policy instruments. Some problems require legislation, some require the adjusment of the internal operations of government agencies. It is not sufficient to understand a problem, since little will be achieved if the likely policy response is not targeted and plausible. Hence analysis must be followed up with the recommendation of policy responses.

Consultation – It is a method to test the strength of the analysis and the feasibility of the proposed response. Major problems would draw in a wide range of players since many of the industries rely or complement each other.Not only that, it is also because the government would have to rely on the expertise of those working in specific fields that would benefit in tackling complex areas. Through consultation, policy proposals are improved, ideas tested and when appropriate, support gathered.

Coordination – Once a policy proposal is ready for consideration by the government, issues of coordination arise. This typically requires discussion with treasury about available funding for a policy and with other central agencies over the relation between a new proposal andoverall government direction. Coordination may also be necessary to resolve issues between agencies sharing an interest in a field; mechanisms such as interdepartmental committees bring together related agencies and work toward agreement on common policy strategy.

Decision- After a policy issue is identified, analysed, matched with appropriate instruments, discussed with relevant interests, and tested against central policy and financial considerations, it will be time for a decision. In the Australian setting, this means consideration by the cabinet. It is important here to practice good policy advice and that is to provide sufficient and concise information in a format that carries the reader through a logical sequence of steps toward options or a recommendation.

Implementation – Here, the policy is given expression through legislation or a program, in pursuit of the goals agreed by ministers.

Evaluation – Since no policies implemented are perfect, evaluation is the key to measuring the effects of a policy and adjust as appropriate. Such evaluation of course, starts the cycle afresh, with a new look at the problem, and a reconsideration of the recommended instruments and would go on continously as a cycle.

7 5. What is the importance of consultation as a step in the public policy development cycle broadly recognized within Australia?

Policy-makers have the opportunity to structure discussions about a policy proposal so as to gain useful and pertinent input from potentially affected parties. Furthermore, the consultative process improves the community’s understanding of a project, its objectives and likely impacts. Having access to relevant information as well as different social and cultural perspectives leads to improvements in the quality of government decision making.

The identification and resolution of issues before a final decision is made limit community anger, frustration and cynicism and thus prevent costly delays and mistakes. Moreover, taking into account the comments and interests of those with legitimate interests enhances policy acceptance and implementation.

The opportunity to participate and contribute enables the stakeholders to feel empowered; this sense of control over decisions that have an impact on their lives leads to ownership and hence support of the proposed policy.
Consultation also renders a perception of a more transparent and accountable policy process. This lends legitimacy and credibility not only to the policy in question, but also to the elected representatives or officers. In turn, public confidence in council decision making is improved and trust generated.

Module 4 – Sea Carriage Documents

1 1. How does the law (both domestic and international) support the carriage of goods by sea (and intermodal means)?

A carriage of contract is often or usually represented by a bill of lading, issued by the shipper or carrier. In whichever case the bill of lading is an international contract with International regimes governing the usage of conventional and intermodal bills of lading are for example, the Hague rules, Hague-Visby Rules or the Rotterdam rules and by virtue of the Carriage of Goods by Sea Act 1992. These are international conventions on contracts of carriage, which applicable conventions are often expressively indicated on the bill of lading itself.

Transport by sea at its simplest form could mean a single voyage charter to hire a ship to carry the required cargo to the desired discharge port. The contractual document that governs the hire of the ship is known as a voyage charterparty. The international law of the sea governs the ability of ships of any flags to ply international shipping routes and territorial waters controlled by foreign states.

Charterparties usually incorporate governance of domestic laws as a binding agreement to the hire of the vessel under paramount clauses, for example the English or U.S. law whichever is agreed and applicable. Claims or disputes are to be settled or raised in the court of law indicated or agreed.

In the present time, both international regimes and applicable country of domestic law would be stated on both the bill of lading and the voyage charterparty, to define the applicable jurisdiction of the carriage of goods either by sea or by intermodal legs.

2 2. What is a bill of lading? Describe the legal and commercial functions that a bill of lading performs.

The bill of lading serves as a written evidence of the contract of carriage. It can be viewed as a document of title to the goods carried, entitling the holder to possession of the goods, representing ownership of the goods. Although it is an excellent (though not conclusive) evidence of the terms of contract between the carrier and shipper, it is the ONLY evidence of the terms of the contract between the carrier and the SUBSEQUENT holder of the bill of lading…as it passes on from consignee to consignee.
However, the carrier and the consignee affected should abide strictly by what is stated on the terms written on the bill of lading. However for the purpose of the carrier, their liability is discharged when delivering the goods in good faith to the holder of the bill of lading. In summary, the bill of lading acts as a receipt of goods, an evidence of a contract of carriage between shipper and carrier, and a document of entitling the holder to possession of the goods.

Commercially, it serves as an international sale contract to which the only parties are the seller and the buyer. Payment of the goods is often in large amounts and a bank is usually involved in securing credit for payment on behalf of the buyer. For such a reimbursement, the stipulated documents required for presentation of title or receipt usually includes an original bill of lading, constituting a security to the confirming bank (paying bank). The contract of payment between an issuing bank and a confirming bank is called the “irrevocable document of credit” or sometimes referred to as the “letter of credit”. The lender, which is the buyer, in this case will issue a letter of credit via their issuing bank to a confirming bank advised by the seller, the beneficiary.

Once credit had been established, settlement of the contract takes place after the beneficiary sends stipulated carriage documents (incl. the bill of lading) to the confirming bank for payment to the seller and the confirming bank sends the same set of documents to the issuing bank for reimbursement. Hence the bill of lading serves as a critical evidence of carriage contract, for financial institutions involved in the payment process, upon completion of delivery.

3 3. What is the established practice of banker’s documentary of credit?

The documentary letter of credit is a contract between the buyer and an issuing bank as well as the seller and the their confirming bank, under which the issuing bank agrees to issue the letter of credit through the confirming bank of the seller, notifying the credit to the seller on the sale to the buyer for the cargo carried, evidenced under a bill of lading.

The procedure for establishing a confirmed letter of credit could be summarized as:

International sales contract agreed by payment via an irrevocable letter of credit.
Buyer instructs its bank (issuing bank) to issue credit in favour of the seller (beneficiary).
The issuing bank asks another bank (usually of the seller’s choice and in seller’s country) to add its confirmation to the issued letter of credit.
The confirming bank informs the seller that credit is in place and has been issued.

Upon completion of delivery or after credit was established, the seller would have to provide stipulated documents to receive payment under the sales contract as below:

Seller sends required carriage documents to their confirming bank for verification.
After checking that the documents are in place and meeting the requirements specified in the letter of credit, the confirming bank makes the payment to the seller in full.
The confirming bank then sends the same carriage documents to the issuing bank.
The issuing bank, after verifying that the documents meet stated requirements, reimburses the confirming bank in the same amount.
The issuing bank then sends the same documents to the buyer.
The buyer then reimburses their issuing bank the same amount of money that was paid to the seller up the chain.

4 4. What are the different types of sea carriage documents under the umbrella term of “contracts of affreightment”? Identify and describe each document.

Any contract for the carriage of goods is in fact a contract of affreightment. In specifics, a contract of carriage between a shipper and a carrier involves an agreement to ship a typical quantity of cargo over a period of time, leaving nomination of ships and other precise detail (sometimes even the freight rate) by the carrier until required.

Conventional bill of lading
This bill of lading is issued when cargo is shipped in breakbulk form – as cartons, crates, pallets, bales, liquid in bulk and so on. The carrier accepts responsibility for the cargo during the period from load to discharge, usually deemed to take place when the cargo crosses the ship rails.

Combined transport or intermodal bill of lading
This document makes provisions for the carriage of containerized cargo. When cargo is carried by a combined transport operator, the document issued is more appropriately called a combined transport document. Most intermodal bills of lading in use today are based on the ICC uniform rules (1975 revision).

Electronic bill of lading
Electronic data interchange (EDI) is the method of electronic communication of information (data) that is changing the documentary practices in the shipping industry. Electronic messages are also in the process of replacing paper documents in court for evidence. In replacing the paper bill of lading by an electronic version, it appears that the first 2 functions of the b/l (proof or receipt of shipment and evidence on the contract of carriage) can be carried out electronically. However it is the negotiable part of the bill that will prove to be difficult to achieve or verify i.e. re-endorsements, transferring to other consignees on a chain. Electronic deception of these processes is an unavoidable risk.

However, Comite Maritime International (CMI) developed a private key for preserving proof of title electronically. The holder of the private key given by the carrier is the only person who can either claim delivery or effect a transfer of title to the b/l. The private key is unique to each successful holder and not transferrable. However, electronic bills of lading have yet to be established or widely used as a commercial proof of document presently.

Straight bill of lading
This bill of lading is one that has a named consignee. It is not negotiable, not transferrable. Hence, the term “straight”.

Sea waybills
A sea waybill is a document used as an alternative to a title holding bill of lading. Waybills are most commonly used in the short-sea and coasting trades, between well-established and trusting commercial transactions. Since a large amount of trust is seen to be evident between the contract parties, since the bill of lading is not required to complete the transaction or delivery to the consignee, hence it could be in paper or in an electronic version.

A seaway bill performs 2 functions that a bill of lading performs, receipt of goods and evidence of contract of carriage. Hence it does not represent the 3rd function of a negotiable document, giving the holder a right to possess title to the goods carried. As a result, there is no need for the receiver to even present the original waybill to the carrier (or master of the ship) to effect delivery of the cargo.
They are also increasingly gaining acceptance on deep sea trades where there is no likelihood of cargo being sold in transit, hence no requirement of the carrier to hold title to the cargo in any case. A waybill is also similar to an airway bill or an air consignment note.

As a result, there is no need for the consignee to present the original sea waybill to the carrier to persuade delivery. Proof of identity is sufficient.

5 5. What are the 2 distinctive ways in which freight forwarder may enter into contracts of affreightment?

The freight forwarder or “Non-vessel operating cargo carrier” can enter into contracts either as a principal (on their own behalf as an NVOCC) or acting as an agent of the shipper/exporter, entering into contractual arrangements on behalf for shipping purposes. Liability of the freight forwarder acting as an agent are covered or mentioned on international regimes of rules such as The Hague or Hague-Visby rules or expressively mentioned on most bills of lading as well.

Module 5 – International maritime transport regimes

1 1. What are ‘INCOTERMS’ and what role do they play in supporting contracts of carriage of goods by sea?

When goods move from one country to another on the basis of a documentary credit sale, it is important to determine the division of responsibilities between the seller and the buyer in respect of the goods and the point at which the risk passes to the buyer. In order to promote certainty on these matters, particularly in documentary credit sales, the International Chamber of Commerce (ICC) has developed a set of rules known as Incoterms International Commerce Terms (Incoterms) which are an internationally recognised standard trade terms which set out buyer and seller responsibilities. Incoterms are maintained and developed by the International Chambers of Commerce (ICC).

Each Incoterms establishes who is responsible for costs and risks such as transport costs, insurance, duties payable and customs clearance. Incoterms are accepted by governments, legal authorities and businesses worldwide for the interpretation of most commonly used terms in international trade. This reduces or removes uncertainties and often costly misunderstandings arising from different interpretation of such terms in different countries. Incoterms apply to both domestic and international sale contracts. Before choosing to use an Incoterms, consider the country of the buyer. Some countries stipulate that set Incoterms are used, while others set chosen Incoterms as standard practice. Transport may also affect your choice as some Incoterms can only be used for transport by sea and inland waterways. It should be noted that INCOTERMS are not law. They are a convenient standard form of contractual trading conditions. Parties are free to use (or not use) and they if are used, they may use any edition.

Because Incoterms are standard definitions, it supporting contracts of carriage of goods by sea as they are used in contracts to reduce confusion and avoid traders having difficulty understanding the import requirements and shipping practice used in other countries. Such standardisation reduces, or removes altogether, uncertainties arising from different interpretation of such terms in different countries. However, the scope is limited to matters relating to the rights and obligations of the parties to a contract of sale with respect to the delivery of goods sold.

Incoterms are often used as a method of defining risk in transactions where goods are sold – that is, at which point does the risk of damage to the goods pass from the seller to the buyer. Just because title has transferred to the buyer – for example, in the case of payment against shipping documents (bills of lading) – it does not necessarily follow that, although title has passed to the buyer, the risk of damage has also passed to the buyer; that risk will only pass at the agreed point of delivery of the goods, which may be some time and some distance later. Incoterms, due to their standardised definitions, provide the parties to the contract clarity as to when risk passes from one party to the other.

2 2. What are ‘UCP’ and what role do they play in supporting contracts of carriage of goods by sea?

To standardise terms and procedures and avoid misunderstandings, a set of international rules for letters of credit have been developed by the International Chamber of Commerce (ICC).Most commercial letters of credit are governed by these rules, which are referred to as Uniform Customs and Practice for Documentary Credits (UCP). The Uniform Customs and Practice for Documentary Credits (UCP) is a set of rules on the issuance and use of letters of credit. The UCP is utilised by bankers and commercial parties in more than 175 countries in trade finance. Some 11-15% of international trade utilises letters of credit, totalling over a trillion dollars (US) each year.

Historically, the commercial parties, particularly banks, have developed the techniques and methods for handling letters of credit in international trade finance. This practice has been standardized by the ICC (International Chamber of Commerce) by publishing the UCP in 1933 and subsequently updating it throughout the years. The ICC has developed and moulded the UCP by regular revisions, the current version being the UCP600. The result is the most successful international attempt at unifying rules ever, as the UCP has substantially universal effect. This latest version, called the UCP600, formally commenced on 1 July 2007.

The UCP standards give definitions of important terms that are used in letters of credit. When referring to letters of credit, banks and others involved in international trade will generally use the UCP definitions of key terms and phrases.UCP also sets out general documentary requirements and standard practices for handling letters of credit. Since the significant function of the ICC is the preparation and promotion of its uniform rules of practice, the ICC’s aim is to provide a codification of international practice occasionally selecting the best practice after ample debate and consideration. The ICC rules of practice are designed by bankers and merchants and not by legislatures with political and local considerations. The rules accordingly demonstrate the needs, customs and practices of business.

Because the rules are incorporated voluntarily into contracts, the rules are flexible while providing a stable base for international review, including judicial scrutiny. International revision is thus facilitated permitting the incorporation of the changing practices of the commercial parties. ICC, which was established in 1919, had as its primary objective facilitating the flow of international trade at a time when nationalism and protectionism threatened the easing of world trade. It was in that spirit that the UCP were first introduced – to alleviate the confusion caused by individual countries’ promoting their own national rules on letter of credit practice. The aim was to create a set of contractual rules that would establish uniformity in practice, so that there would be less need to cope with often conflicting national regulations. The universal acceptance of the UCP by practitioners in countries with widely divergent economic and judicial systems is a testament to the rules’ success. Thus, this is how UCP support the contract of carriage of goods by sea.

3 3. Explain how the theory of ‘freedom of contract’ became illusory in practice in the liner trade. What were the responses to this effective loss of ‘freedom of contract’?

At common law, the carrier and the shipper had freedom of contract. That is, the contracting parties could have an express contract (verbal or written) that divided the risks of carriage of the goods in any manner they chose. Despite the common law freedom to contract, national statute law and international convention interfere with and constrain this freedom in the case of contracts of carriage evidenced by a bill of lading. Before statutory interference with freedom to contract the parties could insert what they wished in a bill of lading. In practice this meant the carrier could put in what she wished. It would be unlikely that a shipper could get a term to the shipper’s benefit in a bill of lading. After all, the bill of lading was largely a pre-printed document and the shipper generally only booked a relatively small part of a ship’s cargo space for a small amount of cargo. It was most often the case that a shipper was one of many on the same ship. This meant that the market power of the shipper was much less than the carrier.

This disparity in market power was exacerbated with shipping lines forming agreements on rates (Shipping Conferences) and with the major investment required of carriers to put vessels in the liner trades. It should appreciate the contrast with the relative equality of bargaining position which exists between charterer and ship owner in the charter market. While standard forms of documentation are used in the charter market, certain terms are variable at the will of the parties, with freight rates being market responsive in a highly competitive market. Historically, carriers in the liner trades took advantage of their market power to exclude liability for loss or damage to cargo. The law interprets terms excluding liability very strictly against the parties they are designed to protect (the contra proferentum rule). Therefore, when any exclusion clauses proved ineffective in the courts, carriers re-drafted them or added others in attempts to exclude liability for loss or damage completely. These clauses appeared on the back of the bill of lading. There were so many added that the bill of lading became a very long document. The carrier even attempted to exclude liability for her own negligence. She attempted to have no liability to the shipper at all.

In effect, there was a considerable contractual imbalance existing between carriers and shippers in the liner trades. This imbalance was highly favorable to the carrier. Contracts between carrier and shipper have been termed ‘contracts of adhesion’. So far as shippers were concerned they could take them or leave them, they could not alter them. A shipper’s only choice was not to ship at all.

Since the common law doctrine of freedom to contract largely failed to protect shippers under bills of lading, a consistent and comprehensive maritime transport regime was needed to remedy the imbalance and to promote certainty. In responses to this effective loss of ‘freedom of contract’ attempts were made to regulate bills of lading to offer some limited protection to shippers of cargo. Because shipping is international, attempts were made to obtain international agreement on the form of regulation of liner bills of lading. These attempts lead to the development of The Hague Rules, Hague-Visby Rules and Hamburg Rules to respond to this effective loss of ‘freedom of contract. The Hague Rules, Hague-Visby Rules and Hamburg Rules are marine cargo liability regimes. The functions of such regimes are to allocate risk between ship and cargo and to promote uniformity.

4 4. What are the 4 international regimes for marine cargo transport?

Deliberations over the years at international and national forums aimed at resolving the issue of carriers attempting to contract out of all liability to shippers and other related issues, have resulted in the development of four international regimes for marine cargo liability.The Hague Rules, Hague-Visby Rules, Hamburg Rules and the Rotterdam rule are 4 international regimes for marine cargo transport. However, the trend internationally is to move away from the Hague Rules to the Hague-Visby Rules or to a liability regime that is based on the Hague-Visby Rules. The Hamburg Rules have received little support

The International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading: Brussels 1924, referred to as the Hague Rules. The USA passed a Domestic piece of legislation (the Harter Act) that attempted to regulate shippers and carriers rights; a more equal balance. However, only had application in USA but lead to other nations making similar domestic legislation (Australia, New Zealand and Canada). Australian Act was Sea-Carriage of Goods Act 1904. UK was considering Harter type legislation. British shipping interests convened a meeting in London of the Maritime Law Committee of the International Law Association. In 1921, the Committee adopted draft model rules. The model rules were subsequently adopted by the International Law Association later that year. Draft rules further refined in 1922-3, before being adopted in Brussels in 1924. Most countries in then-expansive British Empire adopted the Hague rules, including Australia. The USA adopted in 1936, and very wide acceptance of the Hague rules was accomplished by 1938. Australia adopted the Hague rules in 1924 by passage of the Sea-Carriage of Goods Act 1924

The Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading: The Hague 1968, referred to as the Hague-Visby Rules. This was a protocol (a substantial amendment) to the original convention. Australia adopted this protocol. The Carriage of Goods by Sea Act 1991 [COGSA] has the convention repeated as Schedule 1 to COGSA.

The United Nations Convention on the Carriage of Goods by Sea, 1978, referred to as the Hamburg Rules. The Hamburg Rules were developed as an alternative to The Hague and Hague-Visby Rules, which were seen by developing nations as overly favourable to carriers.

It should be noted that by this time; Australia, NZ and USA had moved up to being part of the group of established maritime nations. An entirely different legal regime proposed under umbrella of the UN Commission on Trade and Development (UNCTAD) – more favourable to shippers/exporters/cargo interests.

The last international regime for marine cargo transport is the Rotterdam rule. The Working Group is currently considering a draft Convention on the carriage of goods. The draft Convention will introduce a new legal liability regime for the international carriage of goods where there is an international sea leg. The general aims of the draft Convention are to prepare a text which will end the multiplicity of regimes (i.e. the Hague Rules, the Hague-Visby Rules, the Hamburg Rules and the regional arrangements); receive widespread international support; reflect modern transport & shipping practices (e.g. e-commerce); and achieve a limited network liability regime or “maritime plus” regime.“

5 5. What are the 3 criteria by which regimes for marine cargo transport are evaluated?

The Hague Rules, Hague-Visby Rules and Hamburg Rules are marine cargo liability regimes. The functions of such regimes are to allocate risk between ship and cargo and to promote uniformity. There are three criteria by which marine cargo liability regimes are evaluated.

The first and foremost of these criteria is economic efficiency in the allocation of financial risk between ship and cargo. From the perspective of the carrier, economic efficiency includes protection from the ruinous financial consequences of a major maritime casualty that occurs through no fault or privet of the carrier. The second criterion is that the liability regime should promote uniformity of application.

The international community is concerned to ensure, as far as possible, that the same facts should give rise to the same consequences in all the different jurisdictions in which a matter may fall to be decided. The third criterion is that the principle of freedom of contract, which still remains an imperative for the success of international trade. It should be upheld as far as possible and that the intervention of governments in international commerce should be no greater than is necessary. To suggest that a liability regime should be judged on subjective perceptions of equity or fairness is to misunderstand the function of such a regime. Liability regimes are not concerned with morals or equity: they are concerned with the practical economics of international transport.

6 6. Why is uniformity and certainty critically important to the carriage of cargo by sea?

Uniformity promotes certainty. Certainty promotes predictability. Predictability promotes effective risk management. Effective risk management promotes economic efficiency in resource allocation. Economic efficiency in resource allocation promotes the wellbeing of society. Thus, it can be seen that uniformity and the principle of certainty are important in international commerce. They are especially important in maritime transport where the resources being allocated include vastly expensive ships and their cargoes. There is a cost associated with the inefficient allocation of those resources and that cost is eventually borne by the whole community.

7 7. What is the Australian marine cargo transport regime?

Australia currently has a non-uniform liability regime. Essentially it is the Hague-Visby Rules (plus SDR), amended by some ‘add-ons’ from the Hamburg Rules and elsewhere. The effect of the amendments may be summarised as follows.

1. The definition of ‘contract of carriage’ has been widened to extend coverage to a wider range of documents, including sea waybills, consignment notes, and electronic documents.

2. The period of carrier responsibility has been extended beyond ‘tackle to tackle’. That period now begins when the goods are delivered to the carrier (or its servant or agent) within the limits of a port or wharf and ceases when the goods are delivered to, or placed at the disposal of, the consignee within the limits of the port or wharf that is the intended destination of the goods.

3. The rules apply to deck cargo (other than live animals) provided that, if the shipper has specific stowage requirements, the shipper advises the carrier in writing of those requirements at or before the time of booking the cargo.

4. If the carrier carries goods on or above deck contrary to an express agreement with the shipper, the carrier is not entitled to rely on any exception or exception under the rules or on limitation of liability, should the goods suffer loss or damage resulting solely from being carried on or above deck.

5. The carrier is liable for loss, including economic loss, for delay unless it can establish (a) that the delay was ‘excusable’; and (b) that the carrier took all measures reasonably required to avoid the delay and its consequences. A delay is excusable only if it falls within the 8 categories set down in paragraph 3 of Article 4A. However, the carrier’s liability is limited to whichever is the least of: > The actual amount of the loss; > Two and a half times the sea freight payable for the goods delayed; or > The total amount payable as sea freight for all goods shipped by the shipper under the contract of carriage

6. Amended Article 10 provides that the rules shall apply to contracts for the carriage of goods from Australian ports to ports outside Australia, and also from ports outside Australia to ports in Australia, unless one of the three liability conventions (or a modification of such a convention by the law of a contracting state) applies.

7. The rules also apply to a contract for the carriage of goods by sea from a port in an Australian state or territory to a port in another Australian state or territory. However the rules do not apply to intrastate carriage.

8. The rules do not apply to carriage under a charter party unless a sea carriage document is issued and the rules only apply to such a document if it is a negotiable sea carriage document, and only while it regulates the relationship between the holder of it and the carrier of the goods. It is generally accepted that at least some of these amendments are improvements and worthy of general acceptance. However, liability regimes are about uniformity and many have queried the wisdom of Australia unilaterally amending the Hague-Visby Rules.

9. The geographic scope of our Rules extends the duration for which a carrier is responsible for goods to the limits of a port or wharf. This extended responsibility exists at both the port of loading and the port of discharge. The extension from the traditional 'tackle-to-tackle' locale to the broader 'port-to-port' region afforded by our Rules is important for cargo interests.”

8 8. What are ‘special drawing rights’ and how do they affect marine cargo transport regimes?

The Special Drawing Right (SDR) was created by the IMF in 1969 to support the Bretton Woods fixed exchange rate system. A country participating in this system needed official reserves—government or central bank holdings of gold and widely accepted foreign currencies—that could be used to purchase the domestic currency in world foreign exchange markets, as required to maintain its exchange rate. But the international supply of two key reserve assets— gold and the U.S. dollar—proved inadequate for supporting the expansion of world trade and financial development that was taking place. Therefore, the international community decided to create a new international reserve asset under the auspices of the IMF.

The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions.
In addition to its role as a supplementary reserve asset, the SDR serves as the unit of account of the IMF and some other international organizations.

SDRs affect marine cargo transport regime as the move away from the Poincare franc and towards SDRs was an attempt to address severe difficulties that the unit valuation under the original Hague-Visby Rules had presented. In the both the Hague Rules and Visby protocol, liability limits were expressed in units of account based upon a defined, physical quantity of gold. This had been a reasonable starting point when many national currencies had fixed values in relation to gold. But with the collapse of gold standard and fixed exchange rates in 1971, setting limits against a quantity of gold meant limitation limits fluctuating considerably in real currency terms. A recent use of SDRs in international maritime legislation is found in the United Nations convention on contracts for the international carriage of goods wholly or partly by sea 2008 (Rotterdam Rules).

Furthermore, SDR affect marine cargo transport regime as it enjoys a simple, well-established and widely understood valuation methodology, based on a basket of major currencies, provide stability which is a factor of how its values is calculated; wide applicable as the values of any non- basket currency can be calculated against the SDR, so long as the currency is quoted against the four basket currencies. Furthermore, it provides transparency as the IMF publishes a daily SDR exchange rate against all member currencies. Lastly it provide flexibility and relevance as the valuation basis of the SDR is periodically revised to account for changes in the relative importance of individual national currencies, its long term value in international law is assured. That is to say, if significant new currencies emerge in international trade, and hence become 'reserve' currencies, the basket of SDR currencies can be adjusted to reflect this development.

Module 6 – Operation of Australia’s Amended Hague Rules

1 1. What are the 3 common law obligations imposed upon the sea carrier?

There are three fundamental obligations imposed by the common law on the carrier:

The obligation to carry the cargo properly; At common law, the basic undertaking of the carrier is to carry the goods from the port of loading to the port of discharge and then deliver the goods in the same condition as it received them. COGSA provides that parties to sea carriage export from Australia are deemed to have chosen Australian law as the law governing any disputes relating to sea-carriage of cargo.

The obligation to provide a ship that is seaworthy at the beginning of the voyage; At common law, the carrier’s obligation to provide a seaworthy ship at the beginning of the voyage is absolute, unless excluded by express provision in the contract of carriage (under freedom of contract).

The obligation to proceed without unreasonable deviation; At common law the carrier is obliged to undertake the contractual voyage without unjustifiable deviation. The carrier must ensure that the ship proceeds on the voyage without departure from her proper course. If the route is not described in the charter party or bill of lading, it is presumed to be the ordinary trade route.

2 2. What are the 3 obligations on the carrier imposed by Australia’s amended Hague Rules?

The carrier's obligation under the amended Hague Rules is contained in Article 3 paragraphs 1, 2 and 3.

Article III r 1 imposes an obligation on the carrier before and at the beginning of the voyage to exercise due diligence to make the ship seaworthy, properly man, equip and supply it and make the holds, refrigerating and cool chambers, or other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation. The significant feature of Art III r 1 is that it derogates from the common law’s requirement of an absolute obligation on a ship owner to make the vessel seaworthy before she sailed. The authorities have interpreted Art III r 1 as requiring the ship owner to act to a relatively high standard, but recognize that it is to be relieved from situations where, for example, latent defects manifest themselves during the course of the voyage.

Article III r 2 imposes an obligation, made subject to the provisions of Art IV, on the carrier to properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried.

This is the first suggestion in Art III: that there is an inter-play between the obligations of the carrier in relation to the goods and its exceptions from liability which Art IV provides.

Art III r 3 requires the carrier to issue a bill of lading to the shipper. The bill of lading must contain statements of, among other things, a sufficient description of the goods as to enable them to be identified, the number of packages or pieces or quantity or weight of the goods and, critically, their apparent order and condition. This is important as it will be used as prima facie evidence by the carrier that the goods were accepted in accordance with the description in the bill of lading when the goods are transferred in the ordinary course of trade by delivery of the bill of lading to a third party acting in good faith. This also enables third parties to acquire ownership of the goods based on that representation of their condition.

3 3. What is a ‘liberty clauses’ and what is their effect?

A liberty clause or a deviation clause is an express clause in a bill of lading or charter party that gives the ship rights to deviate during the contract. The charter party or bill of lading may give the carrier the right to call at ports off the ordinary trade route. If the clause is clearly worded, it will allow the carrier to call at any port without such a call amounting to unjustifiable deviation. Although such clause may give a very wide scope of deviation to a ship owner, it must always be kept in mind that the contract of carriage may be frustrated by the deviation, in that the commercial purpose of the contract may be destroyed. In such a situation, the ship owner is likely to be liable for damages to the charterer. There are justifiable deviations. For example, it may be possible to deviate in order to prosecute the voyage with safety. A master is always under a duty to use reasonable care to ensure the success of the voyage, by protecting his ship and cargo from avoidable risks. In some circumstances, there may even be an obligation on the ship owner to deviate in order to protect the cargo interests. Deviation in order to save human life is always justified; but not to save property unless this is expressly provided for in the charter party.

4 4. What is the effect of a ‘defence’ or an ‘exception clause’ in a bill of lading?

An exception clause is a Clause in a Charter-Party or Bill of Lading that either excludes, limits or restricts a party’s liability for damage to cargo from certain named causes such as an act of God or negligence of the master. A complete exclusion of liability will generally relate to exclusion for specific types of loss only e.g. loss of profits. Exclusion clauses which purport to entirely exclude all types of loss will generally be unenforceable. Limiting liability to a certain maximum amount is another common type of exclusion clause, as are restrictions on the time within which a claim for breach of contract must be commenced. Exemption clauses also allow parties to allocate risk between them. Sometimes it is more efficient for one party to take on a certain risk, perhaps because he has insured against that risk or he wants the contract to be priced as low as possible, and an exemption clause can allocate the risk in this particular way. Freedom of contract theory insists that the choice is the parties’ and not that of the courts. Parties can bargain with or without exemption clauses but they must live with the consequences of their bargain.

5 5. Select 5 exemptions and explain their operation and effect. (Not too sure on whether to elaborate on 5 sub points on Article 4 (2) or just any major 5 points from Article 4)

Article 4, Rule 1 of COGSA 1991 - The obligation of seaworthiness upon the carrier is not an absolute one, it is to exercise due diligence to make the ship seaworthy in consideration of all the prevailing circumstances. Upon loss from unseaworthiness, the carrier can escape liability for it by proving that it had exercised due diligence to make the ship seaworthy.

Article 4, Rule 2 of the Schedule 1A Amended Hague Rules provides that neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from a list of 17 exceptions relating to circumstances which are beyond the control of the carrier and the carrier’s servants and agents. That is, they involve no fault or neglect by any of those parties. The 17 exceptions are:

(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 lock-outs 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 or privity of the carrier, or without the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.

Article 4 Rule 3 of COGSA 1991 – Here it is stated that the shipper is exempted from all losses or damages sustained by the carrier or the ship that has no relation to the act, fault or neglect of the shipper, his agents or his servants.
Article 4 Rule 4 of COGSA 1991 – An attempt to save life or property which results in a deviation is not considered as a breach of the contract of carriage. Hence, the carrier will not be held liable for any losses or damages that emerge due to the action.

Article 4 Rule 6 of COGSA 1991 – Goods that may pose danger to life or property that are not given notice in any form to the carrier, master or agent of the carrier can at anytime be unloaded or disposed and the carrier will by no means be responsible for any loss or damage for the cargo. The shipper on the contrary will have to bear all damages and expenses that directly or indirectly arise from it. However, if former notice is given regarding the dangerous nature of the goods, the carrier will not be able to claim compensation for general average.

6 6. What are ‘package limitations’? Explain their operation and effect. Taking into effect the catalogue of exceptions and package limitations; do you regard the sharing of risk and liability between the shipper and carrier to be fair?

Package limitations are included in a bill of lading to limit the maximum amount of loss or damage which may be adjudged against involved parties in the event of marine casualties. COGSA requires that the shipper be given a fair opportunity to declare the nature and value of the goods and to state the quantity and description on the bill of lading. Typically there are blank spaces in the columns on the front in which to do this and a notice to the shipper in fine print on the reverse side of its right to do so. The shipper is free to declare any value up to the actual value of the goods, but a higher value may mean a higher freight rate. If no value is stated, the carrier’s liability is limited to $500 “per package”. The shipper can either accept the $500 per package limit on the carrier’s liability in return for a lower rate or declare the higher value and pay an additional fee. In the case of “goods not shipped in packages,” the $500 limit applies to a customary freight unit for goods of that type. COGSA does not define the terms “package” or “customary freight unit.” One accepted definition of a “package” is that it is a “class of cargo, irrespective of size, shape or weight, to which some packaging preparation for transportation has been made which facilitates handling, but which does not necessarily conceal or completely enclose the goods. In Australia, the package or unit will be the container, pallet or similar aggregated item, if the number of individual packages or units is not enumerated on the sea carriage document in question.

Yes, in my opinion, the sharing of risk and liability is fair. After all, the freedom of contract theory mentions that involved parties are to discuss and come to an agreement on the terms. Furthermore, sometimes it is more efficient for one party to take on a certain risk, perhaps because he has insured against that risk or he wants the contract to be priced as low as possible.

Module 7 – Intermodalism

1) What is intermodal transport? What was the major revolution in technology and practice that allowed for the possibility of intermodal transport?

Intermodal transport involves the use of more than one mode of transport for a journey. Examples of different modes of transportation include train, truck or ship.

a) It covers combined transport on the international level.
b) It covers from a place in one country where the goods are taken in charge by the intermodal operator to a place designated for delivery in a different country.
c) It operates on the global market and variety of cultures, languages and commercial practices at both ends of a trade are involved. Thus, it is reasonable that one qualified and skilled operator (MTO – Multimodal Transport Operator) organizes and be responsible for the whole transport chain as principle on the base of one multimodal contract.

The concept has its roots in the container revolution and in the development of the science of logistics management. Electronic commerce has also facilitated the development of intermodal transport. One of the significant advantages of the ISO container is that it has facilitated the transfer of cargo between modes and has made ‘door to door’ transport a reality. With the increasing use of containers, new players have entered the industry, offering to use a combination of transport modes to provide a door to door service in international trade. Importers are not really interested in the marine leg of the journey. They just want speedy and reliable door to door delivery. Besides, modern transport is a customer-focused service that uses sophisticated techniques in logistics management and electronic commerce and that operates in a very competitive environment.

2) What are the uniform and network systems of liability for intermodal transport? What are their essential differences?

Under a uniform liability system of liability a contractual limitation of damages applies, irrespective of the transport mode. It is simplicity and transparency as the applicable liability rules are predictable from the outset and do not depend on identifying the modal stage where a loss occurs. Such a system exposes the carrier to the risk of incurring a greater liability than it can recover from its sub-carriers under mandatory conventions governing their mode of performance. For example, as the problem is presented where damage occurs on sea leg, the intermodal operator is liable to the cargo interest on the basis of a uniform level of liability which is higher than sub-contracted sea carrier’s liability under Hague-Visby Rules. And the intermodal operator will be unable to recover the difference in its recourse action against sea carrier.

In contrast with network liability system of liability, the cargo interest’s recovery will depend upon the transport mode that was being employed when the goods were damaged. Specific provision is made for liability for concealed damage; in practice, Hague or Hague-Visby limits are often applied. Most of the forms of intermodal transport documents in use have a liability system based on the network principle. For example, the ICC Uniform rules for a combined transport document (1975 revision), which are currently the basis of many carrier’s combined transport bills of lading, apply a modified network system.

3) What are the 2 very distinct legal circumstances that a freight forwarder may act on behalf of the shipper? Illustrate your understanding of these 2 circumstances with short hypothetical examples.

One of the circumstances is that freight forwarder acts as agent on behalf of the shipper as he negotiates with the various carriers involved in an intermodal movement. He acts as agent for the shipper of goods, arranging for carriage and delivery of the goods by others without contracting to carry and deliver the good itself. For example, he may enter into a contract of carriage with a sea-carrier on behalf of the shipper as an undisclosed principal, the sea- carriage document issued by sea-carrier naming the forwarder as shipper. Or he may issue to the shipper a document called a consignment note or a house bill of lading, but that document is not a true bill of lading .It is a receipt for the goods coupled with an authority to enter into a contract of carriage on behalf of the shipper.

Short hypothetical examples:
I will act carry or procure the carriage of your goods from ‘X’, an inland destination in country A, to ‘Y’, an inland destination in country B.

Another circumstance is that freight forwarder have been held to have contracted as carrier, where they provide a ‘door to door’ service involving carriage of cargo from the point of origin to the point of destination. In this role, he is an intermodal operator then as principle enters into individual sub-contracts with carriers and non-carrying intermediaries (Such as container terminal and depot operators) to carry and deliver goods. As principle, he is responsible for the satisfactory performance of his part of the contract. For example, he exercises due care and diligence as selecting sub-contractors and reminding them to arrange for sufficient liability insurance cover. And he also has to ensure correctness and accuracy of necessary documentation.

Short hypothetical examples:
I will act as a principal for the whole of carriage under a single intermodal transport contract with you. However, I will have the right to sub-contract the whole or any part of the carriage.

4) What is a Himalaya cause? How does it operate to protect independent contractors? Illustrate your answer with relevant cases and by reference to relevant legislation and international rules.

‘Himalaya clause’ is a clause commonly contained in sea-carriage documents, which extends the protection of the exclusions and limitations in the contract of carriage to employees, agents and independent contractors of the carrier. For example, this clause is commonly added to bill of lading, which the stevedores, the terminal operator and even a dry dock company may benefit by certain terms of the bill of lading.

It is effective to grant protection to third parties such as stevedores and terminal operators if (1) the terms of the clause make it clear that the third party is intended to be protected, (2) the terms of the clause make it clear that the carrier is contracting as agent for the third party, (3) the carrier has authority form the third party to do that and (4) the third party provides some form of consideration to the plaintiff.

Thus, if the sea –carriage document contains a Himalaya clause providing that the carrier is not responsible for any loss or damage occurring after discharge, even of caused by a fundamental breach of contract, then the independent contractors has no any liability whatever to the owner of the goods for loss or damage occurring after discharge.

For example, a bill of lading which contains a Himalaya clause may apply to Hague rules where the carrier (not being independent contractors) is not responsible for loss resulting from neglect of servants, master, pilot, etc in management of ship. The independent contractors are specific excluded from the ambit of this provision. By means of a Himalaya clause, contractors has also no any liability whatever to the owner of the goods for loss or damage resulting from neglect of servants, master, pilot, etc in management of ship.

5) Explain the significance of the ‘Himalaya clause’ and the circular indemnity in a maritime contract? Illustrate your answer by referring to appropriate cases and /or registration.

The Himalaya clause and circular indemnities are mechanisms designed to overcome the constraints of the privity doctrine. The principle of privity is that the parties to a contract are bound by its terms or protected by its terms. This means that third parties are not protected by any exclusion or exemption clauses of the contact. For example, the combined transport operator has a contract with the shipper and an entirely separate contract with the carrier by sea. In the contract with the carrier, the Hague- Visby Rules also limit liability of carrier to the operator and limit liability of the operator to the shipper. But, there is no contract between the exporter and the carrier they do not limit the carrier’s liability to the exporter in tort. Thus, the Himalaya clause and the circular indemnity are designed to fulfil intermodal operators ‘s desire to protect its sub-contractors from direct actions by the cargo interest is frustrated somewhat by the doctrine of privity of contract.

Himalaya clause’ is commonly contained in sea-carriage documents, which extends the protection of the exclusions and limitations in the contract of carriage to employees, agents and independent contractors of the carrier. And ‘circular indemnity clause’ is sometimes combined with bill of lading. It is used by carriers to protect their subcontractors. This consist of an undertaking by the bill of lading holder not to sue the carrier’s servants, agents and subcontractors, or else not to bring an action against them on terms more favorable than those available against the carrier. The bill of lading holder further agrees to indemnify the carrier against all consequences of breaking its undertaking not to sue such third parties.

Himalaya Clause‘s and circular indemnity’s significance can be explained through below examples:

In the case of Salmond & Spraggon LTd (Australia ) Pty Ltd V Joint Cargo Services Pty Ltd (The New York Star), the Privy Council held that that the clause protected the stevedores in respect of activities that took place outside the ‘tackle to tacke’ period to which the Hague and Hague-Visby Rules apply. The stevedores who had misdelivered the cargo were therefore able to rely on a clause in the bill of lading exempting the carrier in the event of misdelivery. As the stevedores ‘default occurred while the carrier was still contractually responsible for the goods, they were able to rely on this clause in the same way as the carrier could have, had it been sued instead of them.

Circular indemnity‘s significance can be explained through case of The Elbe Maru, where the carrier under a combined transport bill of lading obtained a perpetual stay of an action in tort brought by the cargo owner, in breach of the undertaking, against the subcontracted road carrier.

6) Why is the use of the ‘Himalaya clause’ and the circular indemnity important in the context of maritime trade?

Himalaya clause’ is a clause commonly contained in sea-carriage documents. The use of the ‘Himalaya clause’ is important in the context of maritime trade because it extends the protection of the exclusions and limitations in the contract of carriage to employees, agents and independent contractors of the carrier. It mainly relates to the maritime industry in relation to the liability of various parties regarding the shipment of goods. For example, if the sea–carriage document contains a Himalaya clause providing that the carrier is not responsible for any loss or damage occurring after discharge, even of caused by a fundamental breach of contract, then neither the carrier nor a stevedore or container terminal operator has any liability whatever to the owner of the goods for loss or damage occurring after discharge. Furthermore, the clause in particulars also allows third parties to enjoy one–year delay for suit of the Hague- Rules and the package limitation but the shipper and consignee must nevertheless be given chance to contract for a higher limit.

The ‘circular indemnity clause’ is sometimes combined with bill of lading. It is used by carriers to protect their subcontractors. In such a clause, the cargo owner stipulates that no claim will be made against the carrier’s agents, servants, stevedores, terminal operators and subcontractors and that if a claim is made, the cargo owner will indemnify the carrier against all consequences. Furthermore, the other half of the circular indemnity is (one always hopes) contained in the sub-contract between the intermodal operator and its sub-contractor. Under this other indemnity the intermodal operator agrees to indemnify the sub-contractor against any claim that may be made by the cargo interests directly against the sub-contractor. The circular indemnity, thus completed, produces the result that if the cargo interests bring an action against the sub-contractor, the sub-contractor is entitled to be indemnified by the intermodal operator who, in turn is entitled to be indemnified by the shipper (cargo interests). It may be thought of as the ‘belt’ to the Himalaya clause’s ‘braces’.

Under the Himalaya clause the sub-contractor seeks to set up, in answer to any claim brought directly against it by the cargo interests, the protective provisions of the intermodal operator’s transport contract with the shipper; particularly those provisions relating to exemptions and limits of liability. The sub-contractor establishes this defence on the basis that those protective provisions were made by the intermodal operator not only on its own behalf but also as agent and trustee for the sub-contractor.

7) To be effective a ‘Himalaya clause’ should contain certain elements- what are they?

Statement – Privity of contract
Acknowledgment – Principle of contract
Reference to regimes – HV Rules
Undertaking by merchant – damages
Undertaking by sub-contractors

Answer is around the above points~

Refer to ppt. pages 34-50.

Module 8 – Charter parties The charterer’s core rights and responsibilities

1 1. Define the 3 sub-species of charter party. What are their similarities? What are their differences?

Voyage Charters – Drawn up for a single voyage between a charterer and carrier (ship owner). Under a voyage charter, the vessel is let out to the charterer for a single specific voyage. The ship owner will be paid freight usually based on the size of cargo carried, which will cover its cost, including fuel and crewing as well as possibly generating possibly a profit from the remainder. The charterer does not have commercial control over the ship, only hiring the cargo space onboard for the purpose of carriage on the intended cargo. Instructions on the cargo carrying voyage are then passed to the ship owner who should then dutifully pass on the instructions to the ship’s master for compliance. Orders that fall outside of the scope of the charter party are illegitimate hence why the ship owner should check for irregularities on these orders before dissemination.

Time Charters – This charter is not constrained by a single geographical voyage but by an agreed period of time. Compensation to the ship owner is by means of a “hire”, calculated daily, but usually payable in advance. Hire will start to run when the vessel is “delivered” to the charterer at an agreed time (laycan) and will cease when she is ‘re-delivered back to the ship owner. The ship owner is still responsible for crewing and other ship owning costs (i.e. registry taxes, maintenances, repairs), but commercial costs (i.e. fuel, disbursements, taxes on cargo) will be passed on to the charterer, since the charterer is now fully responsible for the ship’s commercial operations. The time charterer in this instance will have a direct line of communication to the ship’s crew and master, where commercial instructions are involved.

Bareboat / Demise Charters – In this case, the charterer hires the entire ship devout of any crew and takes over full control of the ship along with the legal, financial, commercial and ownership responsibility of the ship. The charterer pays for all expenses including fuel, crew, port disbursements, all insurances (P&I, Hull, War Risk etc..). It can also be viewed as a hire purchase from the owners, who may well have been the shipbuilders themselves.

Similarities – In all cases the charterer takes commercial control of the ship and obtains no proprietary control on the vessel, although a bareboat charterer will obtain a possessory interest in the ship. They do not fall under international carriage regimes like The Hague or Hague-Visby rules and neither by the carriage of goods at sea act, which is binding only to the terms within a bill of lading. These charterparties are generally guided by acts of common law, usually stated on the paramount clauses within the charterparty terms.

Differences – Voyage charters lasts for a single specific voyage while period charters (time or bareboat) are for a specified period of time. Payment of voyage charter is by means of freight usually based on the weight of the cargo carried or by a lump sum pre-calculated and offered prior charter. The period charters compensate owners by a fixed daily hire, irregardless of the amount of cargo the ship had been ordered to carry throughout the charter, since commercial operations are in the hands of the charterer.

Delays on voyage charters are compensated by demurrage, at the rate set down in the charter after an expiry of a total laytime hours allowed in the charter, a payment by the Charterer. Since charterers are responsible for commercial operations on period charters, any delays suffered could be attributed to the ship’s performance and failure to proceed at due dispatch. Charterers in this case could deduct hire to owners as compensation to their loss in commercial time, defined as “off-hire”…in this case a payment by shipowners.

2. At common law, what are the 3 fundamental obligations of a carrier that a court will imply into every contract of carriage?

That the ship is seaworthy at the beginning of the voyage
That the ship will proceed with reasonable dispatch
That it will carry the goods in question without unjustifiable deviation

The first and third obligation are substantially modified by the international regime of Hague and Hague-Visby rules, which also impose on the carrier a fundamental obligation with respect to carriage of goods and additional obligations with respect to the ship. These obligations are implied on the issue of a bill of lading, which the shipowner (or servants or agents of the owner under authorization, i.e. the master) will hold title to the cargo loaded, under a contract of carriage.

3. Identify and describe the 4 successive and related stages within a typical voyage charter party.

Preliminary Voyage – Voyage charter parties contain an expressive or implied term that the ship will use convenient speed to get from its current position to the loading port. Common law imposes on the ship owner an obligation to proceed to the port of loading with reasonable dispatch. The ship owner is then said to have an implied obligation to arrive at the port of loading within a reasonable time, usually dictated by a laycan given by the charterer.

Failure to comply with this obligation may result in the charterer claiming damages or losses that they may have suffered, or by cancelling the charter if expressively stated on a clause within the charter party, if the ship had not arrived within the stipulated laycan. However on commercial discussions, the charterer may prefer to accept the late ship in a rising freight charter market, rather than pay more to obtain another, also considering the promptness of dates required for the next available ship to arrive at the load port.

Loading & Discharging – This is then the charterer’s obligation to procure the cargo, bring it alongside, provide a full / complete cargo for the ship to load wherever possible and to load and discharge within the time stipulated. Freight on voyage charter parties are based on the amount of cargo given, hence it is always advantageous for the ship owner to maximize the cargo intake. There is thus a fixed amount of profit due to the ship owner based on the cargo and all the time involved to complete this voyage. Hence, the quicker the ship loads and discharges, the more profitable the voyage could be.

Demurrage – The obligation that deals with loading and discharge within the stipulated time is the obligation that leads to demurrage compensation by the charterer. Voyage charters are estimated to consume a certain amount of commercial usage time to the ship and hence had been written in charter parties as “laytime” allowances. If the charterer cannot load or discharge within this time, then it must pay damages to the ship owner for delay caused to the ship. Demurrage calculated to exceed laytime if so, will be liquidated to owners at the end of the voyage (completion of discharge) and where all laytime in port have been made aware of to both ship owner and charterer.

3. Identify and describe the 4 successive and related stages within a typical voyage charter party. (Sui Pheng’s take – this is a 6m question in the 2010 paper)

(1) The loading voyage (sea passage to loading port)

This is the voyage of the chartered ship from wherever it is at the time the charter party is made to the place where the goods are to be loaded.

(2) The loading operation (loading itself)

This is the delivery of the goods to the ship at the place of loading and their stowage on board.

(3) The carrying voyage (sea passage to discharging port)

This is the voyage with the goods from the loading port to the place specified in the charter party as the place of delivery (the discharge port or berth).

(4) The discharging operation (discharging itself)

This is the delivery of the goods from the ship at the discharge port and their receipt there by the charterer or other consignee.

3 4. What are the 3 possible contractual positions in regard to the preliminary voyage under a voyage charter party? Describe the consequences of failure to comply with these obligations.

Reasonable Dispatch – With this ship owner’s obligation, they will require the ship to sail for the port of loading and arrive there within reasonable time. Failure to do so would result in the charterer being entitled to claim damages for losses suffered.

Arriving within Laycan – A standard voyage charter party usually contains an undertaking that the ship will arrive at the port of loading by a fixed date, defined as a “laycan”. It is then the ship owner’s absolute obligation to arrive within the specified date and time, unless the ship is late because of an occurrence where clauses in the charter party had expressively excluded the ship owner from liability. Failure to arrive with laycan may result in the charterer cancelling the charter.

Notice of Readiness – This notice must be an actual notice of the ship’s readiness of her cargo spaces, equipment and her position in port whilst being tendered. Failure to issue this notice on proper grounds could mean that the charterers could deny the ship’s arrival at the loadport, while waiting for the ship to ready itself or factually arrive at the loadport to the assigned berth for loading. Delays and losses suffered by the charterer could be directed towards the shipowner and in this instance, no demurrage will be awarded to the shipowner while waiting for the ship to clarify her state of readiness, as laytime does not begin to run until the ship is ready.

4 5. What are the typical obligations of a voyage charterer in respect to the loading operation stage of the voyage? Describe each of those obligations.

Procure a cargo – The shipowner is this case is merely responsible to bring the ship to the loadport and alongside the allocated berth ready for loading. The charterer in this essence would have already acquired the cargo to be carried prior hiring the ship for a charter. Failure to do so while the ship had been deemed to arrive under conditions satisfied, would cause demurrage compensations while the ship waits in port or alongside for the cargo to be ready for loading. In this instance, laytime spent while waiting would be deemed as valid, hence consequential compensation of demurrage once allowed laytime expires over time.

Bring the cargo alongside – The cargo to be loaded, should be brought alongside for the ship to load, hence enabling the cargo to pass through its rails. Liabilities for the cargo are then transferred to the shipowner. Transporting the cargo to where the ship transfer over its rails are beyond the control nor the responsibility of the shipowner, where their obligation is only to safely carry the cargo at sea to over her rails at the discharge port. It is the charterer’s absolute duty to transport the cargo by means or hiring labourers, inter-modal transport or securing pipelines for liquid bulk cargoes, for connection to the ship’s manifolds.

To load a full and complete cargo – The remuneration received by a shipowner in a voyage charter party is based on the amount of cargo delivered by the ship. If the charterer arranges for less than full capacity the ship owner stands to lose freight to be earned for full cargo. The danger of the charterer failing to load a complete cargo is often guarded against by one or more clauses in the charterparty, requiring charterers to make up in the financial shortfall or by a calculation of deadfreight suffered by the ship.

To load and discharge within the time stipulated – In a voyage charter, the shipowner must calculate the voyage costs in order to fix the negotiable freight rate offered to the market. In the estimations, the shipowner can estimate operating and daily running costs for the offered voyage but cannot estimate accurately the times spent in port for loading or discharge, matters such as port congestion, delays by the charterers (cargo readiness, transportation to the ship, terminal readiness, shore gang strikes etc..). In order to keep freight rates competitive in the volatile voyage charter market, the shipowner usually fixes an amount of laytime allowance. This is the running time allowed to be used in port for cargo operations and is deemed as the charterer’s time allowance for their cargo operations. Upon expiry, charterers would have to provide liquidated damages in the form of demurrage, at a rate specified in the charterparty prior hire.

5 6. What are the 3 requirements that must be satisfied before the charterer’s obligation to load or discharge begins? Describe each of these obligations.

The vessel must be an arrived ship – Whether a ship could be deemed as an arrived ship depends on the type of charterparty, a berth or a port charterparty. A berth charterparty gives the charterer the right to specify a berth allocated for the ship to call alongside and a port charterparty specifies a particular port in both load and discharge location. The ship becomes an arrived ship only when it reaches that designated berth or port. Once satisfied, the ship would then be legally at the disposition of the charterer if she were to be alongside the berth or at a waiting place where ships usually lie in a port charterparty, this means that the ship would have to be within port limits i.e. within administrative, legal and fiscal limits of the port.

The vessel must be ready to load / discharge – Once the vessel is to be deemed an arrived ship, laytime does not begin to run until the ship is ready to load or discharge cargo. The vessel must be able to give the charterer complete control of all cargo equipment and availability of her cargo spaces to commence cargo operations. If the ship is to complete quarantine prior cargo work, the ship is not considered ready but if quarantine is required on the cargo itself and not the ship, then the ship is still considered ready. Readiness on cargo spaces is also critical for consideration as there would usually be clauses on the charterparty to specify the shipowner’s obligation to provide cleaned holds or specific tank conditions for liquid bulk cargoes. If the ship arrives with cargo spaces contradictory for loading, then the ship will not be considered ready as well.

The shipowner must have given notice of readiness to the charterer – Laytime usually commences after the expiry of a specified time after giving notice of readiness (NOR) to load or discharge. The NOR must indicate that the ship is ready at that time and not at a future date. NOR tendered will not be considered valid when a delay is caused by the shipowner AFTER tendering of the NOR (i.e. leaves berth or stops cargo for bunkering), leaves port limits after NOR had been notified to charterers or suffers a delay due to a ship’s equipment failure (not caused by the charterer in the course of cargo work).

6 7. Why are the legal mechanisms of laytime, demurrage, despatch and deadfreight used in voyage charterparties so critically important to the business of shipping?

These mechanisms are critical to define compensations involved, safeguarding the complexities and obligations involved in a typical charter party. In order to qualify for such causes, various conditions would have to be met and it is both the obligation of the ship owner and charterer to impose on themselves to complete. In legal arguments, conditions involved would provide arbitrators with further proof of dispensation to parties involved such as conditions of arrival, readiness, leading to demurrage compensation.

These mechanisms provide contracting parties a fair approach to contracts of carriage or hire, clearly defining requirements and obligations on the ship owner and charterer, preventing miscarriage or the unethical intents of each party to provide for in the contract. In most cases, the ship owner or charterers are not at the scene of the commitments of their agents or servants who are again hired by both to act on the instructions given to service the charter.

These mechanisms could be seen as checks and balances to the legalities involved, to further substantiate fair compensations or rewards for the ship owner and charterer, at many times including separate parties who are usually involved in the many legs of transport and processes prior and after sea carriage. The shipping market, as one of most important sources of global transport would not have functioned as fairly and consistently, leaving propositions and financial compensations unchecked, making the industry unjustified for any prospector to enter and possibly creating a global economic void space, without the presence of long haul international shipping trades.

7 Identify, compare and contrast the concepts of ‘laytime’ and ‘demurrage’. (Sui Pheng’s take – exam question 2010 6 marks)

Laytime is the time allowed for the charterer to load or discharge the cargo. Demurrage is the liquidated damages that the charterer must pay to the ship owner if the cargo is not loaded or discharged within the allowed laytime. Demurrage arises when laytime has expired. It is therefore important to determine when laytime commenced; that is, when the charterer’s obligation to load or discharge began. The obligation that deals with loading and discharge within the stipulated time is the obligation that leads to demurrage compensation by the charterer. Voyage charters are estimated to consume a certain amount of commercial usage time to the ship and hence had been written in charter parties as “laytime” allowances. If the charterer cannot load or discharge within this time, then it must pay damages to the ship owner for delay caused to the ship. Demurrage calculated to exceed laytime if so, will be liquidated to owners at the end of the voyage (completion of discharge) and where all laytime in port have been made aware of to both ship owner and charterer.

Cant assure you guys that this answer is worth 6m, obviously it won’t be since the answer is so short, but I do believe this is worth at least 4m. ϑ

Module 9: International Law of the Sea

1 Q1. How does Australian law apply to areas of ocean and sea?

Australia is a signatory to the United Nations Convention on the Law of the Sea 1982 (UNCLOS). It is often known as the Constitution of the Sea and is part of the international law. Although it is applicable between nations, it can filter down to the nationals of a country with particular significance for those involved in administrative positions in government and those owning and operating commercial ships.

hey sweet thing
Report · 3:48am hey tanysha! wow you're still awake?
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Report · 3:48am yeah writing an assignment due today at 5pm
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Report · 3:49am oh dear~~ is it going well?
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Report · 3:49am it is actually only 800 words to go... i keep breaking it down into sections that answer each criteria [pic]
Report · 3:49am thats greattt! good to be in control!
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Report · 3:50am teacher qualities and planning to go... yeah maybe if id done the assignments weeks ago icould say i was in control darn boys are to distracting why are you awake?
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Report · 3:50am hahaha.. i was chatting with a friend just now

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Report · 3:50am oh ok cool are you ok?

2 Q2. More specifically, what about the application of Australian law to areas of ocean and sea that Australia shares with another nation (eg. the very narrow Torres Strait between Australia and Papua New Guinea)?

In many places, states are not able to claim the full extent of their maritime zones due to the proximity of neighboring states with their own claims to maritime zones. This is particularly so in respect of the EEZ and the continental shelf, which extend large distances seaward of the outer limit of the territorial sea. Where the zones of two states would otherwise overlap, it is necessary to delimit a maritime boundary between them.

3 Q3. Can Australia pass valid laws governing the ships of the world that visit Australian shores?

Yes. All waters that lie on the landward side of the baseline from which the maritime zones are measured will comprise internal waters. Internal waters are an integral part of the coastal state and they do not subject to detailed regulation in the Law of the Sea Convention. The coastal state has full sovereignty over these waters. Foreign vessels have no right to enter internal waters except in times of distress or when seeking safety. Waters enclosed by ports are often internal waters and foreign vessels enter ports as a privilege and with permission, and not as of right. A vessel that enters a port is therefore subject to all the laws of the coastal state. The coastal state can also exercise some jurisdiction over the vessel while in port.

4 Q4. Equally, can other nations pass valid laws governing Australian ships visiting the shores of that other nation?

Yes. All waters that lie on the landward side of the baseline from which the maritime zones are measured will comprise internal waters. Internal waters are an integral part of the coastal state and they do not subject to detailed regulation in the Law of the Sea Convention. The coastal state has full sovereignty over these waters. Foreign vessels have no right to enter internal waters except in times of distress or when seeking safety. Waters enclosed by ports are often internal waters and foreign vessels enter ports as a privilege and with permission, and not as of right. A vessel that enters a port is therefore subject to all the laws of the coastal state. The coastal state can also exercise some jurisdiction over the vessel while in port.

Module 10: Salvage & General Average

1 Q1. What are the 5 elements that must be proven to establish a salvage claim at common law? Explain each of the 5 elements in detail.

1. Salvaged property must be maritime property. Under the general law, only maritime property can be the subject of a valid salvage claim. ‘Maritime property’ means a ship, cargo or freight at risk.

‘Ship’ includes the ship’s gear and equipment (but not a fishing license attaching to the ship). It includes any kind of vessel used in navigation by water, however propelled or moved, and includes a barge, lighter or other floating vessel, an air-cushion vehicle, or other similar craft, used wholly or primarily in navigation by water, or an off-shore industry mobile unit, as defined in the Navigation Act 1912.

The salvage of a ship usually involves the salvage of the cargo, irrespective of whether it is owned by the ship owners or by a third party, or whether is it carried under a bill of lading. Cargo is also salvable separately, even though it may have sunk or been washed ashore. The term ‘cargo’ is not defined in the Act and the ordinary grammatical English meaning of the word should be applied when defining ‘cargo’.

Any freight that would have been earned by the carriage of the cargo to the destination would be salvable property. This is referred to as freight at risk or freight payable destination. When freight is payable at destination, the ship-owner earns the freight only if the cargo is carried to its destination. If the ship is lost, the cargo is lost and so, also, the freight. If the cargo is saved, the freight is saved for the ship-owner.

2. Salvable property must be appropriately located. Salvage services can only be performed with regard to property that is on, under or alongside the high seas.

3. Salvable property must be in danger. At the time assistance is given to a ship, the vessel and the cargo must either be in danger of damage or destruction or there must be a reasonable apprehension of such danger. The apprehension of danger must be based on some foundation of fact; if the vessel were actually safe or the risks to her were merely fanciful, there would be no ground for a salvage claim. It is up to the Master to decide if the vessel is in danger and in need of assistance from salvage services. It may happen at times that the Master believes that the ship is in danger and calls for help, but it is later found that the ship was actually in no danger. In such circumstances, the validity of the salvage then appears to depend on the reasonableness of the Master’s decision. If the decision were unreasonable, the services would not amount to salvage services. If the fear of danger were reasonable, it does not matter that it turned out to be unfounded.

4. Salvage assistance must be of a voluntary nature. The assistance given to the ship must be of a voluntary nature. There is no limit to the kinds of persons who may provide salvage services. However, the services must not be given as part of a specific legal duty – contractual or public. A salvor is one who, without any particular relation to a ship in distress, proffers useful service, and gives it as a volunteer adventurer, without any pre-existing covenant that connected him with the duty of employing himself for the preservation of that ship. Tugs, pilots, crew members and port authority, navy and coast guard may find it difficult to obtain salvage award.

(If you think the question requires you to give explain further, please include the below chunk of part 4 which states the reasons why it is difficult for them to obtain the salvage award.)

Tugs which have entered into an agreement to tow the vessel can only claim salvage reward if they act outside or beyond their contracts or if their contracts have for some reason come to an end without any fault on the part of the tug. Towage contracts may at times prohibit salvage claims.

Pilots who are bound by their contracts or by local regulations to ensure the safety of the vessel would find it difficult to establish salvage services. In order to succeed, a pilot would have to show that what he or she did was beyond the normal pilotage services that the pilot was already bound to give.

Crew members who, by their contract of employment, have a duty to work for the safety of the ship and cargo may be entitled to claim salvage only if they give services beyond their legal obligation. According to the law, the crew members’ obligation under the contract would need to have come to an end. This occurs when the vessel is finally abandoned by order of the Master.

Port authority, navy and coast guard, who have a public duty to give assistance to a vessel in distress, will have difficulties obtaining salvage claims. The requirement imposed on vessels that have been involved in a collision to stand by each other and render reasonable assistance does not prevent successful salvage claims.

5. The salvage must be successful. The salvable property must be saved in whole or in part for a successful salvage claim. The salvage reward is paid from a ‘fund’ constituted by the property saved and the amount of the reward depends on the value of the property saved. If there is no success, there is no reward; if there is no salved property, there is no fund, and there is no salvage reward. This principle is reflected in the statement associated with salvage – no cure, no pay. The contribution of acts of salvage to success is not always easy to work out in practice because many factors contribute to the final success and often more than one party is involved in the salvage service. For the courts, the question is whether any particular act materially assisted in the rescue of the ship or her cargo. The salvage award, which may be made to a number of parties, reflects the answer to this question.

2 Q2. Can salvage be claimed with respect to the saving of human life?

No. Under common law, the saving of life, though commendable, will not entitle the salvor to a reward unless some property has also been saved. In pure salvage, there is no ‘fund’ from which salvage reward might be paid. Some statutes, however, gives the salvor certain rights in relation to life salvage. Navigation Act 1912 section 317A states that the Master of a ship shall, so far as he or she can do so without serious danger to his or her ship, its crew and passengers (if any), render assistance to any person, even if such person be a subject of a foreign State at war with Australia, who is found at sea in danger of being lost. The Master of a ship who fails to comply with the provisions of this section shall be guilty of an offence punishable on conviction by imprisonment for a period not exceeding 10 years. Compliance by the Master of a ship with provisions of this section shall not affect his or her right, or the right of any other person, to make a claim in respect of a salvage operation.

3 Q3. What are the significant changes to the common law of salvage made by the 1989 Salvage Convention?

The 1989 Salvage Convention makes some significant changes to the general law principles of salvage:

Maritime property – ‘Property’ is defined to mean any property not permanently and intentionally attached to the shoreline, and including freight at risk (Article 1(c)). Thus, property capable of being salved has been extended beyond traditional ‘maritime property’, i.e. ship, cargo, and freight at risk, and would include, for example, The Gas Float Whitton.

Appropriately located – ‘Salvage operations’ is defined to mean any act or activity undertaken to assist a vessel or any other property in danger in navigable waters or in any other waters whatsoever (Article 1(a)). Thus salvage services could be rendered to a ship in danger on a lake or other inland waters, or on a river, whether tidal or non-tidal.

Success – Article 14.1 provides that a salvor who has carried out an unsuccessful salvage operation in circumstances where there was a threat of damage to the environment but who has nonetheless prevented or minimized this damage, is entitled to special compensation from the owner of the vessel to cover at least the salvor’s expenses, and if the court deems appropriate, up to twice this amount.

4 Q4. What is the effect of the Commonwealth Navigation Act 1912 in respect to claims for salvage?

5 Q5. Within Australian jurisdiction, what criteria may a court apply in calculating an appropriate reward for salvage?

The reward shall be fixed with a view to encouraging salvage operations, taking into account the following criteria without regard to the order in which they are presented below:
(a) the salved value of the vessel and other property;
(b) the skill and efforts of the salvors in preventing or minimizing damage to the environment
(c) the measure of success obtained by the salvor
(d) the nature and degree of the danger
(e) the skill and efforts of the salvors in salving the vessel, other property and life
(f) the time used and expenses and losses incurred by the salvors
(g) the risk of liability and other risks run by the salvors or their equipment
(h) the promptness of the services rendered;
(i) the availability and use of vessels or other equipment intended for salvage operations
(j) the state of readiness and efficiency of the salvor’s equipment and the value thereof.
The rewards, exclusive of any interest and recoverable legal costs that may be payable thereon, shall not exceed the salved value of the vessel and other property.

6 Q6. What is ‘particular average’ and ‘general average’? Use a hypothetical example to provide examples of each.

General average:

A general average act consists of any extraordinary sacrifice or expenditure 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. For example, the jettisoning of some of a ship's cargo to keep the ship afloat during a major storm is a general average act. The loss directly resulting from a general average act is called general average loss and is borne proportionately by all whose property has been saved. The owner of jettisoned cargo, for example, is entitled to a contribution from other cargo owners as well as the ship-owners; such a contribution is called general average contribution. General average sacrifices and expenditures shall be borne by the different contributing interests on the basis provided in the York-Antwerp Rules 2004.

Particular average:

By contrast, particular average consists of any partial loss that is not a general average loss. It is therefore borne purely by the person suffering it and is frequently covered by a policy only in limited circumstances. An example would be a scenario of a ship that runs aground in bad weather while carrying cargo. The grounding may cause damage to the ship and/or the cargo. The damage and subsequent loss to the ship or the cargo or both would be classified as particular average. The loss suffered by the ship would be borne by the ship-owner, thus known as the ship-owner’s particular loss. The loss suffered by the cargo would usually be borne by the cargo owner, known as the cargo owner’s particular loss.

7 Q7. What are the 5 elements that must be proven to establish a general average claim at common law? Explain each of the 5 elements in detail.

1. There must be a danger common to the whole adventure. The danger must be real and not imagined by the Master and the crew, however reasonable their fears. If the Master is mistaken as to the existence of a peril, losses sustained in consequence of his actions cannot amount to general average. The question as to whether the ship was really in physical danger at the time of the loss or when the expense was incurred may at times be debatable. The danger must be common to both the ship and the cargo. If, for example, the ship has to be put into a port of refuge because the refrigeration machinery breaks down and this affects only the refrigerated cargo, there would be no common danger.

2. The sacrifice or expense must be real and intentional. Sacrifices and expenses will not constitute general average unless they are made intentionally. Losses due to the actions of the elements will amount only to particular average, regardless of how abnormal its nature may be. For example, the use of water to extinguish a fire is an intentional act. Water damage may, therefore, be allowable in general average, whereas damage due to the fire itself remains particular average, having arisen by accident.

3. The sacrifice or expenditure must be reasonable or necessary. The right to decide whether a sacrifice is necessary lies with the Master of the vessel. The Master must act prudently, for his action may be subject to review if the cargo owners decide to contest the general average. The Master’s act will be reasonable if done in the interests of all concerned in the voyage, even if the act is inherently hazardous. Only losses or expenses that are the direct consequence of the general average act are allowable in general average.

4. The danger must not have arisen through the actionable fault of the person claiming general average contribution. ‘Actionable’ means actionable in a court of law. If the loss is caused by the fault of a party in the marine adventure, that party loses its rights to claim in general average. However, the loss does not lose its general average character and the other interests retain their rights of contribution against each other.

5. The property that was in danger must have benefited by the sacrifice or expense. This means that it is required that something must finally be saved, and only the property that benefited, for example, the cargo on board at the time of the sacrifice or expenditure, would contribute in general average.

Q8. What are the significant changes to the common law of salvage made by the York-Antwerp Rules 2004? Explain with reference to the rules

9 Q9. What categories of expenditure can be validly claimed as items of general average expenditure? Provide some examples of valid expenditure.

Temporary repairs
Wages and maintenance of crew and other expenses putting in to and at a port of refuge
Expenses at port of refuge, the towing of a stricken vessel into a port of refuge
Expenses lightening a ship when ashore and consequent damage
Damage to machinery and boilers
Cargo, ship’s materials and stores used for fuel
Salvage remuneration

E.g. 1 – A vessel that is in danger of sinking is intentionally grounded. The hull damage arising out of the grounding is general average. This will require contributions from the other parties to the marine adventure. Everyone must pay their fair share of the hull damage.
E.g. 2 – A distressed vessel may require the skill and efforts of professional salvors. The salvage award earned by the salvors is typically shared by all of the benefited parties to the marine adventure.
E.g. 3 – The ship owner incurs expenses in calling a port of refuge in order to avoid extremely heavy weather. All parties must contribute to the intentional expenditures incurred.

10 Q10. What is the effect of the New Jason clause commonly found in bills of lading?

The Merchant‘s contribution to General Average shall be payable even when such average is the result of a fault, neglect or error of the Vessel’s Master, crew or pilot. In the event of accident, danger, damage or disaster before or after the commencement of the voyage, resulting from any cause whatsoever, whether due to negligence or not, for which, or for the consequence of which, the Ocean Carrier is not responsible by statute, contract or otherwise, the Merchants, the cargoes, Shippers, Consignees or owners of the cargoes shall contribute with the Ocean Carrier in general average to the payment of any sacrifices, losses or expenses of a general average nature that may be made or incurred and shall pay salvage and special charges incurred in respect of the goods.

If a salving ship is owned or operated by the Ocean Carrier or the Ocean Carrier’s managers, salvage shall be paid for as fully as if the said salving ship or ships belonged to strangers. Such deposit as the Carrier or his agents may deem sufficient to cover the estimated contribution of the goods and any salvage and special charges thereon shall, if required, be made by the Merchants, cargoes, Shippers, Consignees or owners of the cargoes to the Ocean Carrier before delivery.

Module 11 – Collisions, maritime liens and Admiralty jurisdiction

1 1. What is an action in rem? What is an action in personam? How do these terms relate to maritime law?

A legal term describing the power a court may exercise over property (either real or personal). Jurisdiction in rem assumes the property or status is the primary object of the action. A right in rem or a judgment in rem binds the world as opposed to rights and judgments between parties which only bind those involved in their creation. In personam from Latin for “directed toward a particular person”. The normal instance, parties are sued – whether a natural person(s) or corporate person(s).

2. What are the 3 legal consequences of a collision at sea? Describe each of these consequences?

The three legal consequences are inquiry, criminal action and civil action.

Inquiry- An inquiry is established to investigate the collision at sea. Taking ATSB for instance, The ATSB performs its functions in accordance with the provisions of the Transport Safety Investigation Act 2003 (TSI Act). Section 7 of the TSI Act indicates that the object of the Act is to improve transport safety through, among other things, independent investigations of transport accidents and incidents and the making of safety action statements and recommendations that draw on the results of those investigations. It is not the purpose of ATSB investigations to lay blame or provide a means for determining liability. Marine investigations are conducted into accidents and serious incidents involving Australian registered ships anywhere in the world, foreign flag ships within Australian waters, or where evidence relating to an accident involving ships is found in Australia. Marine accidents and serious incidents may involve loss of life or serious injury aboard a ship, loss of a ship, fires, collisions and groundings, and serious damage to (or caused by) ships.

Criminal action- A person became liable to criminal penalties if their actions are prohibited by the statute, a breach of which is a crime. Penalties include periods of detention in prison and/or fines. Unlike most criminal offences the prosecution does not have to prove intent to commit the offence. For example, if the prosecution proves that you exceeded the speed limit you are guilty – it matters not whether you intended to breach the speed limit! Similar offences exist in the Navigation Act 1912 to regulate the navigation and operation of ships. Unlike criminal liability where the prosecution must prove the offence beyond reasonable doubt, the plaintiff in a civil matter only has the burden of proving a claim on the balance of probabilities. Similar civil liability arises in cases of collision at sea.

Civil action- Civil liability for collision would arise only in the event of an actual collision. A collision could be with another ship or any other property. The person who suffered loss would bring an action for collision damage. To succeed in an action in negligence, a claimant must establish five elements: duty of care, breach of duty, factual causation, (non) remoteness of damage (legal causation) and damages. The defendant’s responsibility may be removed totally or lessened if he/she proves a defense.

2 3. What is the role and functions of the Australian Transport Safety Bureau (ATSB) in relation to collision at sea?

The Australian Transport Safety Bureau (ATSB) is an operationally independent body within the Australian Government Department of Infrastructure, Transport, Regional Development and Local Government and is Australia’s prime agency for transport safety investigations. The bureau is entirely separate from transport regulators and service providers. The ATSBs objective is safe transport. Its mission is to maintain and improve transport safety and public confidence 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.

3 4. What is a ‘possessory lien’? What is a ‘maritime lien’? Describe their essential differences. Provide an example of each category of lien.

Maritime lien is a charge that arises over a ship or certain other property, irrespective of possession, in order to secure particular types of claims.

Possessory lien is the ordinary common law charge which entitles a person to retain possession of property until a debt incurred in relation to it has been paid.

Differences - With regard to a ship, a possessory lien would be available to a ship builder or a ship repairer who wants to secure the price of the ship or the repairs. The possessory lien, however, is dependent on the claimant having possession of the property. Thus, the repairer would lose the lien on the ship if it allowed the ship to leave the shipyard. On the other hand, a maritime lien is a privilege charge on a ship that may arise when services are given to a ship in very special situations, or when injury or damage is caused by the ship. This charge travels with the property and is not dependent on possession. The claimant may thus allow the ship to leave its custody secure in the knowledge that the claim can be pursued even into the hands of a bona fide purchaser.

Example (maritime lien) - When a ship is involved in a collision with another ship, or with other movable or fixed property, due to the negligence of the Master and/or crew and this collision results in loss or damage, the person who suffers the loss or damage has a charge on the ship. This charge is known as a maritime lien.

Example (possessory lien) - a possessory lien would be available to a ship builder or a ship repairer who want to secure the price of the ship or the repairs. The possessory lien, however, is dependent on the claimant having possession of the property. Thus, the repairer would lose the lien on the ship if it is allowed the ship to leave the shipyard.

5. Describe 3 categories of claims that may be supported by a maritime lien?

-where damage was done by the ship

-where salvage was given to a ship
-in relation to seamen’s wages

5 6. Describe the various claims that may be made under ss. 15-18 of the Admiralty Act 1988.

Under s.15 (Right to proceed in rem on maritime liens etc.), a ship may be sued to enforce a maritime lien or charge [no matter who the owner of the ship is]. The action is in rem, it travels with the ship. Maritime lien includes a reference to a lien for salvage, damage done by a ship, wages of the master, or of a member of the crew, of a ship, or master’s disbursement.

Under s.16 (Right to proceed in rem on proprietary maritime claims) certain maritime claims [that are very close to the ship] may be taken against the ship, no matter the owner. The action is in rem, it travels with the ship.

Under s.17 (Right to proceed in rem on owner’s liabilities) certain maritime claims [i.e. general maritime claims] may be brought in rem IF the ship’s owner is the same as when the cause of action arose.

Under s.18 (Right to proceed in rem on demise charterer’s liabilities) any maritime claims may be brought in rem IF the ship’s owner when the cause of action arose subsequently becomes the demise charterer of the vessel.

7. What is the right to claim against a surrogate ship under s.19 of the Admiralty Act 1988?

- a relevant person in relation to the claim was, when the cause of the action rose, the owner or charterer of, or in possession or control of, the first mentioned ship -That person is, when the proceeding is commenced, the owner of the second mentioned ship.

Module 12: Marine Insurance

1) What types of marine insurance do the shipowner and the shipper ordinarily obtain?

The shipowner customarily takes out the following 2 distinct and separate insurances, namely the hull and machinery and the P&I club cover.

Hull and machinery insurance: This insurance covers loss or damage to the ship, and navigational risks and liabilities, including collision damage. The insurance is effected with hull underwriters and the policy that issues is typically the marine policy (MAR), incorporating the Institute Time Clauses (Hulls). Hull insurance deals primarily with three issues: loss or damage to the ship insured, loss or damage to other ships – collision liability, general average contribution and salvage.

Protection and Indemnity (P&I) club cover: This covers the ship owner’s liability for loss or damage to cargo, compensation for injury or death of seafarers, port workers and others, pollution risks, special compensation to salvors, and various other liabilities and expenses.

The cover is effected with the ship owner’s P&I club and the certificate of entry in the club and the club rules constitute the ‘policy’. The P&I slub is made up of syndicates of ship owners that developed as a response to Lloyds not covering certain risks. It is a sharing or pooling of risk. 13 major clubs have 95% of world insurance coverage.

The shipper usually takes out marine cargo insurance on the goods being shipped. The marine policy (MAR) incorporates appropriate Institute Cargo Clauses. When cargo is lost or damaged while in the custody or control of the shipowner, the cargo owner gives notice of loss or damage to the shipowner and also to the marine cargo insurer. The marine cargo insurer usually pays the cargo owner’s claim promptly. The claim is then adjusted (settled) between the 2 insurance parties: For instant, the subrogated marine cargo insurer (ie. the insurer of the cargo) and the ship owner’s P&I club (ie. the insurer of the shipowner). The system generally works well. The cargo owner and the shipowner are left free to get on with their respective businesses, while the claim is adjusted between experienced insurers in accordance with marine cargo liability rules (Hague-Visby Rules) that the insurers work with daily and understand well.

2) What are the respective roles of the insurance underwriter and insurance?

Underwriters
The underwriters represent an insurance firm, providing policies written for marketable marine insurance coverage, assuming a percentage of risk in the marine adventure and in effect selling the insurance in the shipping business to ship owners and shippers. The underwriters represent syndicates of members from the general public who have significant assets which are placed at risk by accepting the risk of insuring vessels, cargo and freight. The underwriters and syndicate members eventually receive a portion of the insurance premium paid by a shipper or ship owner who has agreed to purchase a policy, as consideration for assuming the risk on behalf of the customer. In summary, the underwriters or the firm issuing the insurance coverage policy assumes the risk underwritten for the shipper or ship owner’s interest, hoping to make profits out of the premiums paid if there would be no losses claimed under the policy.

Insurance It is a policy of indemnity for the insured where the insurer agrees to compensate the insured to the extent of what he or she has lost as a result of an insured peril. Profiteering from making bogus claims are not allowed in this case. A marine insurance policy could cover at least one of each items as a voyage, time based, hull, valued, cargo or freight policies. It could also incorporate 2 or more of these items if demanded to be underwritten by the customer, a shipper or a shipowner.

In marine insurance, the insurer agrees to cover the insured against loss, damage or liability arising out of a marine adventure in consideration for the payment of a fee known as a premium. It is the consideration for a contract between the insurer and the insured. The marine insurance contract is embodied in a document known as the insurance policy but it cannot be admissible in evidence for an action of claim or recovery unless embodied in a policy under the marine insurance act as well.

The shipowner customarily takes out 2 distinct and separate policies. The hull and machinery insurance covers loss or damage to the ship, navigational risks and liabilities, including collision damage. The other is the Protection and Indemnity club cover, which covers the ship owner’s liabilities for loss or damage to cargo, compensation for injury or death of seafarers, port workers, port equipment, pollution risks, special compensation to salvors and various other liabilities. The cargo owner will usually take out a marine insurance on the goods being shipped, which is in custody of the shipowner under the sea carriage leg, covering any damages or losses to the cargo itself.

3) Explain the concept of ‘insurable interest’ as it applies to maritime insurance. Provide 3 examples of an ‘insurable interest’.

A person has an insurable interest in something when loss-of or damage-to that thing would cause the person to suffer a financial loss or other kind of loss. An insured who wants to recover under a marine insurance policy must show that he or she has suffered a financial loss by the non-completion of the voyage or the loss of property. To be a party to a valid contract of marine insurance the assured must have an insurable interest in the subject matter at risk. If the assured does not have an insurable interest in the subject matter, the contract of marine insurance is deemed to be a wagering or gaming contract and is void.

Examples:

In practice, contracts for carriage of goods by sea often provide for freight to be paid in advance. If advance freight is not repayable by the carrier on loss of the ship or cargo, the person advancing the freight has an insurable interest in it as it is the person who bears the loss of freight if the ship or cargo is lost.

The buyer of goods on FOB (Free On Board) terms has an insurable interest, before loading, in the profits it expects to earn from the safe arrival of the good; and it also has an insurable interest in the risk that it would pay in good faith for shipping documents relating to goods which had been stolen before loading, or would otherwise suffer loss because the shipping documents were forged or fraudulent.

Where a person requires the use of a complete vessel either for a voyage or a period of time he usually charter the vessel. This means he hires the vessel under either a voyage charter party or under a time charter party. He might even hire the vessel under a charter party by demise, in which case he leases the vessel. Under an ordinary charter party the charterer simply has the right to have his goods carried by the vessel, but he has no possession or control of the vessel, so has no insurable interest in it, the ship-owner remaining responsible for the ship. Under a charter party by demise, however, the charterer provides the stores, fuel, master and crew, and the possession and control of the ship are with the charterer. Here, the charterer has an insurable interest in so far as he is responsible for the loss of or damage to the vessel.

4) ‘A contract of insurance is a contract of indemnity.’ Explain this statement in the context of maritime insurance.

The insurer agrees to compensate the insured to the extent of what he or she has lost as a result of an insured peril. This means that the insured is not allowed to make a profit on the insurance. Not gaming or wagering. The doctrine of indemnity gives rise to two rules: abandonment and subrogation.

Abandonment:

In marine insurance, this is the rght of an insured to abandon lost or damaged property and still claim full settlement from an insurer subject to certain restrictions. Where there is a valid abandonment, the insurer is entitled to take over the interest of the insured in whatever may remain of the thing insured and all proprietary rights incidental to it.

Subrogation:

Where the insurer pays for a total loss, the insurer thereupon becomes entitled to take over the interest of the insured in whatever may remain of the thing insured. The insurer is thereby subrogated to all the rights and remedies of the insured in and in respect of the thing insured as from the time of the casualty causing the loss.

5) How do the rules as to abandonment and subrogation apply to the principle of indemnity?

Abandonment - Where there is a valid abandonment, the insurer is entitled to take over the interest of the insured in whatever may remain of the thing insured and all proprietary rights incidental to it.

Subrogation - Where the insurer pays for a total loss, the insurer thereupon becomes entitled to take over the interest of the insured in whatever may remain of the thing insured. The insurer is thereby subrogated to all the rights and remedies of the insured in and in respect of the thing insured as from the time of the casualty causing the loss.

6) Describe how Australia’s Marine Insurance Act 1909 (Cmth) attempt to ensure that those seeking marine insurance do so in good faith.

The Marine Insurance Act attempts to ensure good faith by a unique formula.

Disclosure of material circumstances
The insured must disclose to the insurer, before the contract is concluded, every material circumstances known to it. The insured is deemed to know every circumstance which, in the ordinary course of business, ought to be known by him. ’Circumstances’ includes any communication made to, or information received by, the assured. Where the insured acts through a broker, the broker must disclose all material circumstances that the assured is bound to disclose. It is because he is liable to make positive inquires of the insured to uncover information that might prove material. If the insured fails to make such disclosure, the insurer may avoid the contract. If the insurer elects to avoid the contact, it must return the premium to the insured, except in cases of fraud.

Representations must be true
Every material representation made by the assured or his agent to the insurer during the negotiations for the contract, and before the contract is concluded, must be true. If it be untrue, the insurer may avoid the contract. In addition, fraudulent misrepresentation of a non-material kind by the insured entitles the insurer to avoid the contract because of the insured‘s fraud, not because of the misrepresentation. The insurer is entitled to retain the premium.

Material circumstance and material representation
The question of what is a material circumstance and a material representation is dealt with in the Act in these terms: 1) [Every circumstance and every representation] is material, which would influence the judgement of a prudent insurer in fixing the premium, or determining whether he will take the risk. (ss. 24(2) and 26 (2)). The materiality of a representation is a question of fact determined in the same way as the materiality of the circumstances that must be disclosed by the insured, which is considered above. 2) The duty to disclose and the duty not to misrepresent are designed to ensure that the insurer can make a realistic assessment of the risk.

7) Explain the operation of P&I clubs and their critical role in marine insurance cover.

Almost all commercial ships are entered in a P & I (Protection and Indemnity) Club which is kind of club operating a mutual pool of club funds. The members of the Club share each other's liabilities and the insurer also being the assured. 13 major clubs have 95% of world insurance coverage. It operates on a mutual basis where risks are placed in the same portfolio and annual premiums are paid into a common fund according to the degree of exposure to risks and losses are indemnified out of common fund. The term of the liability cover provided to a ship entered in a P & I Club are defined by the club rules. It covers ship owners' liability to third parties for damage to their ship or cargo, as well as statutory liabilities such as pollution and wreck removal, but does not cover direct losses to the ship owner's own ship or cargo. P&I cover is often categorised into protection and indemnity classes, typically: 1) Class I: Arising from carriage of cargo
Shipowner’s liabilities for loss or damage to cargo, compensation for injury or death of crew, port workers or others, pollution damage, special compensation (under Art 14 of the Salvage international Convention 1989)
2) Class II: Defence
Shipowner’s liabilities for establishing or resisting claims for freight or dead freight, breach of charterparty and demurrage due.
3) Class III: Strikes
Reimbursement to members for delays due to strikes, lockouts other industrial action.
When incidents involving any of the above events occur, the P&I Club carrying the risk commonly sends down a lawyer to identify potential claims and possible defences and to advise the master. P&I clubs are a substantial service provider, as well as primarily being an insurer.

8) Explain the risks normally covered by a hull and machinery insurance policy.

Hull and machinery insurance policy covers loss or damage to the ship insured and navigational risks and liabilities, including collision damage and liability for general average contribution and salvage.

1) Loss or damage to the ship insured
Although the marine insurance contract is between the insured and the insurer, in practice the insured’s dealings are almost invariably with an insurance broker. When it comes to insuring a ship, no one insurer can afford to insure such valuable property. Therefore, the risk is spread amongst a large number of insurers, each taking a small percentage – at times only 5% of the risk. If the ship suffers loss or damage or is involved in a casualty, the insured shipowner contacts the broker and the loss adjuster (loss adjusters deal with general average claims and other claims). If the loss or liability were covered under the marine insurance policy, the adjusted claim would be presented to the underwriters who would pay the claim in consultation with the insurance brokers. Where the adjustment of a claim will take time, the broker will customarily receive an on account payment from the insurers. (A part payment)

2) Collision liability
The hull policy covers the ship owner’s liability arising from any loss or damage caused to any other vessel or property. The policy is commonly known as the three-quarters collision liability policy or, under the old marine insurance policy, the running down clause. The hull policy covered only three-quarters of the ship owner’s liability because it was thought initially that having to bear a significant proportion of the liability would induce the shipowner to navigate more carefully. The other one-quarter can be covered by the ship owners’ P&I club. Alternatively, hull underwriters will usually agree now to insure the one-quarter portion also for an additional premium. Besides, as the policy is under running down clause, the indemnity was also limited to not more than ¾ of the claim. And the other ¼ was insured through mutual insurance with other shipowner. However, marine insurance today commonly insures the other ¼ of potential third party claims for collision by an inclusion in the policy of a 4/4 Running Down Clause).

3) Liability for general average contribution and salvage
The hull policy covers the ship owner’s proportion of salvage and general average contribution. If salvage services were rendered to the ship and cargo, the cost of such services could form a major portion of the general average expenses arising from the casualty. Once the general average was adjusted, the expenses would be shared between the ship and the cargo benefited. The shipowner and the cargo owner would then look to their respective insurers to obtain the money. In most situations, the insurers would have already given guarantees to the salvor as provided for in the salvage agreement.

9) What are insurance warranties? In the context of marine insurance, what is the consequence of a shipowner breaching an insurance warranty?

Marine insurance warranties are one of key area of reform proposed by the ALRC (Australian Law Reform Commission) in its report entitled ‘Review of the Marine Insurance Act 1909’. In a warranty, the insured (shipowner) undertakes that something will be done or not done, that certain conditions will be fulfilled, or that a certain state of facts exists or does not exist. A warranty must be complied with exactly. If it is not, the insurer is automatically discharged from liability from the date of the breach although without any prejudice to any liability incurred by the insurer before that date. Besides, the discharge from liability does not require an election, express or implied, by the insurer. Furthermore, where a warranty is broken, the insured (Shipowner) can avail himself or herself of the defense that the breach has been remedied, and the warranty complied with before loss.

Besides, suggested and actual reforms in this area seek to soften this harshness by introducing notions of proportionality or causation. These require a causal link between the breach and the insurer’s discharge from liability, or limit the remedies available to the insurer to a degree that reflects the prejudice actually suffered by it as a result of the breach. In either case, a trivial breach or one irrelevant to an insured loss would result in no or minimal diminution of the insurer’s liability.”

A warranty may be express or implied:

An express warranty may require compliance of any kind on the part of the assured. It must be included in, or written on, the policy, or some document incorporated by reference into the policy. The ALRC recommended that breach of an express warranty should relieve an insurer of liability only where it is causative of loss.

Two types of warranty are implied by operation of Marine Insurance Act 1909 (CTH): Seaworthiness and legality. The Act expressly provides that there is no implied warranty nationality of a ship.

1) Seaworthiness
In a voyage policy, there is an implied warranty that the ship is seaworthy at the commencement of the voyage. A ship is deemed seaworthy when it is reasonably fit to encounter the ordinary perils of the adventure insured. Besides, there is no implied warranty of seaworthiness of goods in a policy on goods, but in a voyage policy on goods there is an implied warranty that the carrying ship is not only seaworthy as a ship, but is also reasonably fit into carry the goods. Although there is no warranty in a time policy that the ship is seaworthy at any stage of the adventure, the insurer is not liable for any loss attributable to unseaworthiness if, with the privity of the assured (shipowner), the ship is sent to sea in an unseaworthy state. However, where the unseaworthiness is not the proximate cause of the loss, the assured (shipowner) is entitled to an indemnity, even if it was privy to the ship being sent to sea in an unseaworthy state.

2) Legality
There is an implied warranty that the adventure insured is a lawful one and that so far as the assured (Shipowner) can control the matter, the adventure shall be carried out in a lawful manner.

10) What is it critical to establish the proximate cause of loss or damage to an insured ship?

The assured must prove that the loss was proximately caused by a peril insured against in order to be indemnified under a contract of maritime insurance. The insurance covers the ship against loss or damage arising from a peril named in the policy.

The Included and excluded losses can be showed as below:

Subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but, subject as aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against. In particular:

(a) the insurer is not liable for any loss attributable to the wilful misconduct of the assured, but, unless the policy otherwise provides, he is liable for any loss proximately caused by a peril insured against, even though the loss would not have happened but for the misconduct or negligence of the master or crew;

(b) unless the policy otherwise provides, the insurer on ship or goods is not liable for any loss proximately caused by delay, although the delay be caused by a peril insured against;

(c) unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of the subject-matter insured, or for any loss proximately caused by rats or vermin, or for any injury to machinery not proximately caused by maritime perils.