Law Of The Carriage Of Goods By Sea (PART 10)

Pursuant to the earlier topic of Introduction to Maritime Law in Malaysia, published on 22 February 2021, in the coming series, the basis and elements of the Law Of The Carriage Of Goods By Sea will be explored.

Employment And Indemnity

1. Orders as regards employment

   Employment refers to the employment of the ship (i.e. what voyages she is to undertake and what cargoes to carry). Time charterers are under the same obligations to nominate safe ports and to load non-dangerous cargo as voyage charterers.

   The charterer’s right to give orders and directions under the time charter party can be restricted by the parties’ agreement. However, any such contractual restriction should be specifically agreed and be clearly stated in the charter party, see The Wehr Trave.

   It is well-established that employment does not cover matters of navigation. For example, in Larrinaga v The King, the St Nazaire Sea Transport Officer gave directions for the ship to proceed to Quiberon Bay to join a convoy for escort on the off-survey voyage to Cardiff. The result was that the Crown, as deemed time charterer, was not liable for damage suffered in complying with the order since navigation is the sole responsibility of the owner.

   Until the decision in The Hill Harmony, the scope of the term ‘navigation’ was unclear, but in that case the House of Lords, reversing the Court of Appeal, held that navigation referred only to matters of seamanship and did not extend to choice of the route to be followed. The owners were not entitled to follow a slower and more expensive route than the one required by the charterers.

   The traditional references to ‘agency and arrangements’ in employment clauses are to such matters as appointment of ship’s agents in her ports of call and other matters ancillary to the charterers’ commercial use of the ship.

   1. Master’s duty of compliance
      The master has an overriding responsibility for the safety of the ship, crew and cargo. They would be neglecting their duty if they followed the charterers’ orders blindly and unthinkingly. Accordingly, if the master has doubts about the validity of the orders, they may take a reasonable time to consider the position. In The Houda, where it was initially unclear, following the Iraqi invasion of Kuwait, whether the body giving orders was legally entitled to do so. The same would apply if there are doubts about the safety of a nominated port, or a proposed cargo (Midwest Shipping v Jute).
   2. Owner’s right to indemnity
      Standard forms of time charter may provide that the charterers will indemnify the owners against the consequences of complying with the charterers’ directions: see BALTIME 1939 (as revised 2001), clause 9.

   Alternatively, as with NYPE 93, the express indemnity may be restricted to certain matters (NYPE 93, clauses 9(b), 13(b) and 30(b)). See also NYPE 2015, clauses 9, 13 and 31.

   It is now settled by The Island Archon that there will also be an implied right of indemnity against loss caused by carrying out the charterers’ orders, not only where the orders were improper, but also in cases where the charterers were entitled to give the orders in question.

   However, it is important to note the limits of the indemnities. The owners will not be indemnified against the cost of:

   1. heavy weather damage or other expenses of ordinary navigation, such as the cost of lightening to pass through the Panama Canal
      (The Aquacharm)
   2. a break in the chain of causation, as in The Nogar Marin, where the master’s failure to clause the mate’s receipt was the effective cause, not the charterers’ order. See The White Rose: there, a vessel was ordered to load at a US port under a time charter party. A stevedore arranged by the time charterers was injured when he fell into an unfenced hold.

   Consequently, the shipowners were exposed to substantial liabilities under Minnesota law. The shipowners were held not to have a right of indemnity, as they could not establish an unbroken chain of causation between compliance with the order and the loss suffered.

   Otherwise, the test is whether, on the true construction of the charter party, the risk is one that the owners have agreed to bear. In The Island Archon itself, the so-called ‘Iraqi system’ of bogus claims for cargo shortage and damage was not generally known when the charter was entered into, so that it could not be inferred that the owners had agreed to bear the loss. It would have been different if the ‘system’ had been notorious at that time. Consequently, the shipowners do not have a right of indemnity to recover their losses arising from the risks that they have assumed at the time of entry into the charter party (see The Greek Fighter). On the issue of assumption of risk, see also the Supreme Court decision in The Kos. There, it was held that the shipowner was entitled to indemnity in relation to its losses arising from the discharge of the cargo that was aboard the vessel when it lawfully withdrew the vessel for non-payment of hire by the time charterer. In support of this, the court further held that the shipowner had not expressly or impliedly agreed to bear such losses.

   Recently, Phillips J in The Coral Seas said, at para.15:

   “…as a general rule a shipowner has an implied right of indemnity against a time charterer in respect of the consequences of complying with the charterer’s orders as to the employment of the
   ship, even if the orders were ones the charterer was contractually entitled to give. However, such indemnity does not extend to the usual perils of the voyage in respect of which the owner must be taken to have accepted the risk.”

   As was pointed out in The Doric Pride, the scope for implied indemnity may be less in a single-trip time charter than in a traditional time charter for a longer period, since the trading range will be narrower.

   There, by agreeing to a trip charter from the US Gulf to South Korea the owners accepted the risk of being detained for inspection by the US authorities as ‘an ordinary incident of trading’ at that range of ports.

2. ‘Master to sign bills of lading as presented’

   It is for the charterer to draw up bills of lading as part of their commercial use of the ship. NYPE 2015, clause 31(a) provides that the master shall sign bills of lading or waybills for cargo as presented in conformity with mate’s or tally clerk’s receipts. Clause 31(b) states that bills of lading or waybills shall be without prejudice to the charter party and that the charterers shall indemnify the owners against the consequences of any inconsistency between the bills and the charter party.

   The indemnity would be implied in any event (Krüger v Moel Tryvan). The master may refuse to sign bills that are not in conformity with the charter party, or which contain unusual terms, but their failure to reject a non-conforming bill does not deprive the owners of the indemnity (ibid). In practice, bills of lading are often signed by others as agent for the master. Even the charterers may sign in this way, as NYPE 2015, clause 31(a) recognises.

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This article is written by our Principal Associate, Chakaravarthi