Commercial Law Lecture 2 - Impliedobligations Commercial Law Lecture 2 - Impliedobligations

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Commercial Law Lecture 2 - Impliedobligations
Commercial Law (King's College London)
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Commerical Law Lecture 2
Implied Obligations (Carriage of Goods):
-At Common Law 5 implied obligations are automatically incorporated into the contract, in the
absence of agreement to alter or exclude them
Sea duties:
1. Seaworthiness - -Absolute liability of S. Objective test: ‘the vessel must have that degree of
fitness which an ordinary careful and prudent owner would require his vessel to have at the
commencement of her voyage having regard to all the possible circumstances of it’
McFadden v Blue Star Line – Contract for shipping cargo which was safely loaded. The ship
sluice door was opened and it was not secured properly. Water perpulated through and
damaged the cargo. Held: that the closure of the door was defective but this occurred after
cargo was loaded so there was no breach of seaworthiness duty.
Twofold obligation:
 Suitably manned and equipped (enough crew members and suitably skilled.
Navigation works, enough fuel etc..).
-For Timed Charter Party needs to be seaworthy at time given to the charter
-Note difference between a seaworthy obligation and a maintenance clause
 ‘Cargoworthy’ (adequate storage, ship in a fit state to receive the goods)

-Cargoworthy for both Voyage and Time CPS is: during loading only
Timing: Not a continuing warranty (Must be seaworthy at the time of sailing, not necessarily
after). –Also depends on type of contract. (Timed or voyage charter party )
In Bills of Lading: Obligation to exercise ‘due diligence’ to provide a seaworthy ship (applies
to all voyages). According to Hague rules
Exclusion or Limiting:
-Can be excluded by clear wording in the contract (must be specific)
Nelson Line v Nelson [1908] – Ship owner tried to be exempted because of a clause saying
‘anmy damage to goods will not be our fault if capable of being covered by insurance’.
Clause held that this was ineffective
The Irbensky Proliv [2005] - a bill of lading contained a provision excluding liability for loss or
damage of any kind ‘arising or resulting from: unseaworthiness (whether or not due diligence
shall have been exercised by the carrier, his servants or agents or others to make the vessel
seaworthy).’ This was held to exclude the obligation
-Can also be excluded where covered by Hague/Visby rules or standard from contract
where:

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CL obligation replaced with a duty to exercise due diligence to make the ship seaworthy (not
longer absolutely liable, but still is in negligence)
Effect of the breach:
-Innominate term: Hong Kong Fir Shipping Co v Kawasaki [1962] – Depends on seriousness of
breach if the contract can be repudiated. Breach must have deprived him ‘of substantially
the whole benefit which it was intended that he should obtain from the contract’.
2. Obligation not to deviate from the agreed route:
 Subjective test ‘an intentional and unreasonable change in the geographic route of
the voyage as contracted’
 Presumption: take direct route. –May be modified for navigational or other reasons
–Evidence may always be given to show what the usual route is unless a specific
route be prescribed
 Presumption can be rebutted by evidence, could be customary practice( Reardon
Smith Line v Black Sea and Baltic [1939]- ship owner gave evidence that the deviated
because it was customary practice in that particular trade to go a certain way. HL
held that deviation was justified)
 Can avoid liability for deviation in 4 circumstances
1. For purpose of saving life...communicating with a ship in distress – Scaramanga v
Stamp (1880)
2. To Avoid danger to ship and cargo – The Teutonia (1872): Deviated in order to
avoid any kind of physical danger. ‘If master receives credible information that...
his ship will be exposed to some imminent peril.. he must be justified in
deviating’. –Kish v Taylor [1912] – Master got more cargo from other shippers
but loaded it so thjat ship became unseaworthy. Master deviated to avoid
danger resulting from this. Charterer sued that it was ship owners fault that
deviation was required in the first place. Held: C’s argument was rejected.
Cannot give the Master a choice that they may continue with the danger to
avoid liability
3. Covered by a liberty clause: This gives master permission to deviate for specific
reasons. Example of one in Gencon(standard contract). Contra prefrentum
applies. –Glynn v MArgetson [1893] – Liberty clause in contract gave S ‘liberty to
proceed and stay at any port or ports in any rotation’. Held: despite the breadth
of the clause it did not protect S on the facts. Could only include ports
substantially on the course/route.
4. Falls within Contract exception. –Pacific Basin v Bulkhandling [2011]:
5. Covered by Hague/Visby Rules if they apply: Art IV rule 4. ‘any reasonable
deviation
Effect of Breach:

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 Unjustified deviation =fundamental breach

-Cargo owner can: rescind and sue for damages or waive that right and sue
for damages
C duties:
3. Obligation to nominate a safe port

-‘A port will not be safe unless the particular ship can reach it, use it and return from it
without being exposed to danger which cannot be avoided by good navigation or
seamanship’ – The Eastern City [1958] – If abnormal occurrence then charter not at fault
-The Evia (no.2) [1982] – Ship arrived at port but had to wait for a month due to congestion,
it discharged cargo after another month and on that day when it was ready to sail war broke
out and the ship was stuck at the port. HL held: strict liability offence but on facts war
outbreak was ‘unexpected and abnormal’ so C not liable.
Effect of breach:
-Condition or warranty? Depends on contract type
4. Obligation not to ship dangerous goods

-At Common law C or shipper must not ship dangerous goods w/o first notifying S or carrier.
If they don’t then there will be strict liability.
-Unless ship owner already knew or ought reasonably have been aware of the dangerous
nature of the cargo
Merchant Shipping Regulations 1997:

R.1(2) – Dangerous goods = any goods classified in the Blue Book, the IMDG Code or any
other IMO publication specified below as dangerous.
-Details how to document, mark , package such goods
5. Reasonable Dispatch
-Ship will proceed with the voyage and load and unload within the time agreed or a
reasonable time
-Performance of this obligation is judged, not on a strictly objective basis, but in relation to
what can reasonably be expected from the shipowner under the actual circumstances
existing at the time of performance
-Relevant to both types of CP

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Notes:
-Obligations may depend on whether it is time charter party or voyage charter party
-If it is bill of laden it will come under Hague Bisby rules

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Commercial Law Lecture 3 09/10/15
Charterparties: Key concepts
1. Voyage CP
2. Time CP
Note: ‘Demise’ or ‘bareboat CP (strictly not a charter)
TIME CP VOYAGE CP DEMISE CP
TYPE of K K for a carrying K for a carrying C takes

service, not the service, not the possession and
boat itself. boat itself. complete control
of vessel.
S retains control S retains control
of vessel via of vessel via
Master. Master.
PURPOSE Ship at disposal of Ship transports For all practical

C for an agreed cargo for a purposes, C acts
period of hire specific voyage as owner of the
(‘time’). (‘distance’). vessel for the
period (‘lease’ or
C controls C takes no part in ‘hire-purchase’).
commercial running vessel.
function/running
of the vessel.
PRICE (‘FREIGHT’) Flat rate for the Fixed rate per ton Rental.
period that vessel of cargo.
is hired out (per
day OR lump
sum).
KEY LIABILITIES re C responsible for: S responsible for C responsible:

VESSEL running costs.
- running costs - for running costs
(fuel etc..)
- for crew,
- extra hire time equipping,
(due to delays insuring,
outside control of navigating.
parties).
- as a ‘carrier’ per
Hague/Visby

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Rules (Art I(a)).
Use of Standard Form Contracts
For Time CP: -Baltime –New York Produce Exchange (NYPE)
For Voyage CP: -Gencon
Note: Parties can vary standard form contracts/make their own contract using some standard terms
Voyage CP
1. Preliminary voyage(Sole responsibility is ship owners) 2. Loading(Joint responsibility,

mostly charterer) 3. Carrying voyage(Sole responsibility is ship owners) 4.
Unloading/discharging & delivery (Joint responsibility, predominantly charterer)
-Risk is generally borne by the party responsibility
-Implied obligations fit in
-Contract can transfer risk
-Important to establish: -Where one stage ends and the next –whether risk has been
transferred
Laytime:
Laytime is the time permitted for loading and unloading the cargo. If it runs over, C must
‘compensate’ S by paying ‘demurrage’(particular form of agreed damages)
-In negotiations the ship owner will want as short time as possible. The charterer will
want more time
 When Laytime starts to run:

The Happy Day [2002]
The Tres Flors [1974]
3 Pre conditions: -Arrived ship –Notice –Ready to load

1. Vessel has become an ‘arrived’ ship – Contract usually fixes date for
expected readiness to load. Coupled with a ‘laycan’ cancellation clause (C can
terminate the contract if the ship has not arrived by the fixed date). –If S

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anticipates a delay they can notify C with a new date. C can terminate the
contract or continue with a new date.
-Where does the vessel arrive to? Port charter; dock charter; berth charter.
The ship arrives when it hits that mark.
-Port charter is least certain:
Olendorff case – port charter to carry grain from US to Liverpool, reached
port but there was nowhere for it to put it itself. Port authorities ordered it to
dock somewhere away form the port but still withinin the administrative
ambit of the port authorities. There was 16 days until it could be admitted to
berth at the port. The S served notice to say laytime was running. The C
objected and said laytime was not running. Question is when it started
running, when it berthed at the dock or 16 days later in the port.
Held: that the ship had arrived at Mercy bar (16 days before being able to get
into port. Reid LJ: “Before a ship can be said to have arrived at a port she
must, if she cannot process immediately to a berth, have reached a position
w/in the port where she is at the immediate and effective disposition of the
charterer”. The ship was still within the administration ambit of the port
Maratha Envoy case – No berths available so ship was instructed to wait 25

miles away from the port which was the usual waiting place for big ships.
Even though that was the usual waiting place for those ships, it was
considered to be outside the ports administrative ambit. S argued that
laytime started on being held in the waiting place. Question was when the
ship was ‘arrived’
Held: HL applied Olendorff test which was not satisfied. Even though it was
the usual waiting place, laytime had not started and the ship was not arrived.
-Perhaps a better solution is to put a clear clause in the contract on whether

the laytime will start ay waiting place or in port
Shifting risk of delay:

 Time lost in waiting clause: Objective is to shift risk before vessel becomes
arrived. (For berth charter, covers period waiting in port until berth available. For
port charter, applies even while vessel waiting outside port)
-Is the reason for delay the unavailability of a berth?
The Darrah – Arrived in port but could not get in to berth due to congestion
and was waiting for several days. There was a clause in contract saying “Time
to commence at 2pm if notice of readiness to discharge is given before noon,

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and at 8am next working day if notice given during office hours after noon.
Time lost in waiting for berth to count as laytime…”
Held: Treated as if an arrived ship and was in to laytime
 Time to count whether in berth or not:

The Kyzikos case- could get in to port due to bad weather. Clause said “Time
lost in waiting for berth to count as loading time… time to count WIBON”
Interpretation of WIBON clause = “whether in berth (a berth being available)
or not in berth (a berth not being available)”
Held: on the facts, S could not rely on the clause. The House of Lords felt,
however, that these observations applied only if no berth was available for the vessel
on her arrival at the port and not if a berth was available but the vessel was prevented
from proceeding to it by bad weather.
2. S gives prescribed and effective notice of readiness to load

-Notice must be in a prescribed form(by the contract). If contract is silent
then it is prescribed as long as it is communicated (at common law)
-For notice to be effective: Must be more than C’s awareness of readiness to
load/unload. Notice must be valid, if it’s not it needs to be re-served.
-C can waive this step
The Happy Day [2002] – A berth charter party to carry grain from Odessa to
Kishin, the ship missed the tide and was unable to enter the port. The ship-
owner still gave notice(even though the ship had not arrived). Ship berthed
the next day and the charterer commenced unloading. Notice was premature
and invalid. Shipowner argued that C had become aware of the ship and the
notice and complied even though it was invalid, argued he should be
estopped.
CA: At common law S does not need to give notice of readiness to unload,
but in practice they do. The invalid notice was treated as accepted. (laytime
started when unloading commenced)
-Any waiver or estoppel is justified where C has knowledge of readiness and
also acted upon invalid notice without rejection or reservation
3. The ship is in fact ready to load

The Tres Flores [1974] – The ship was carrying maize and arrived in the port
and the master attended notice of readiness to load. It was discovered that
the hulls of the ship contained pests and the vessel had to be fumigated to
get rid of them. Did laytime start before or after fumigation?
Clause in contract syaing: “Before tendering notice master has to take
necessary measures for holds to be clean, dry, w/o smell and in every way
suitable to receive grain to shippers/charterers’ satisfaction”

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Held: The contract clause was a condition precedent to readiness. The ship
was not factually ready. Laytime did not start until fumigation finished. They
also gave a test: The vessel must be ready at the time the notice is given (not
at a future time).
-A ship can be ready even though there are some further preliminaries to be
done if they will not cause any delay (The fumigation caused delay in this
case and the cargo could not be received without it)
Loading/Unloading Division of responsibility

‘The alongside rule’:
• For loading:
– C (or shipper) brings cargo alongside the vessel & within reach of ship’s tackle
– S then loads it
• For discharging:
– S puts cargo over side free of ship’s tackle
– C (or consignee) receives cargo.
Provision of Cargo:
-Charterers absolute duty/liability. (They have no excuse if something such as
a delay, they load less cargo than agreed or they attempt to load a different
cargo)
 A delay or no show: Grant v Coverdale (1884) – Vessel chartered to go to Cardiff,

cargo was iron. Charterer was presented from moving cargo from storage
because the pathway(canal) was blocked with ice. There was clause saying C not
liable if “hands striking work, or frost or floods, or any other unavoidable
accidents prevent the loading”
Held: C was not protected by the exception. Very strict interpretation and
‘prevent the loading’ meant the actual loading process.
Effect of breach: Damages only. To be able to rescined S must: (i) wait until laytime
AND demurrage periods have expired; AND
(ii) be clear C has no intention of loading cargo (repudiation) OR
that delay is so long as to deprive parties of substantially benefit of K
(frustration).
 Different cargo: Trying to do this is a fundamental breach and S can repudiate.

But if S accepts different cargo they will have waived their right to repudiate
 Charterer loads less cargo: Breach of contract but only damages available. No
right to rescind.

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Calculation of laytime: suspension, completion
 Laytime is usually specified in the contract (Specific number of days/hours.)

(Can also be calculated as a daily rate of loading/unloading, e.g ‘120 tonnes
per weather working day’)
 If contrat is silence then it is a ‘reasonable time’ and interruptions outside C’s
control will suspend time
Defences for C:
Obstructions or delays are:
 covered by an exception ( Carboez SA v Lous Dreyfus Commodities

Suisse [2012] – shipowner entered into charter party for 10 ships. 4 out
of 10 were delayed due to congestion which prevented them from
entering port. This was due to a strike. Clause in the contract saying “In
case of strikes, lockouts, civil commotions or any other causes… beyond
the control of the charterers which prevent or delay the discharging, such
time is not to count unless the vessel is already on demurrage.”
Held: CA dismissed appeal of ship owner. Strict but literal interpretation
of the clause. Question of fact, if the strike was the effective cause of the
delay then the clause is effective and the time does not count against
laytime.
 due to the fault of the ship owner
Damages for detention:
-Given in 3 circumstances:
(a) K does not stipulate a demurrage period (rare!).
(b) K stipulates a demurrage period & it has expired.
(c) Once loading completed, C unnecessarily detains vessel even when laytime
not expired.
-Once loading completed, C must not unnecessarily detain vessel even when still
in laytime
-If C does then can be liable for damages for detention:

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Nolisement (Owners) v Bunge y Born [1971] – Loading was completed 19 days

before expiration of laytime. Charterer stayed in port a further 3 days as was
unable to decide where they were going to go next. The shipowner sued for
damages for detention was successful. Held: The charterer owed the ship-owner
2 days
Margaronis Navigation Agency v Peabody [1965] –
Contract said ‘load maize at an average rate of 1000 ton per weatherworking day
of 24 hours, Sunday and holidays excepted’ another term in contract said ‘Full
cargo reached at 12600 tons’. Charterer delayed vessel for 4 days
-Shipowner sued charterer for damages for detention for the extra 4 days
CA held: it wasn’t a full cargo; it wasn’t ‘commercially significant’. Charterer was
entitled to detain the vessel until the full cargo was attained.
Dispatch money:
-The contract may have a ‘dispatch money’ clause. –By shipowner to the
charterer for laydays saved. Dispatch rate is usually half the demurrage rate
• Days calculated?
At CL: ‘The presumption is that the object and intention of these dispatch clauses
is that the shipowners shall pay to the charterers for all time saved to the ship,
calculated in the way in which, in the converse case, demurrage would be
calculated; that is taking no account of the lay day exceptions’: Bailhache J in
Mawson SS Co v Beyer [1914]
Delivery:
Shipowner must give ‘personal delivery’ to a specified person (Usually the
charterer and or a consignee under a bill of lading)
-At Common Law, the shipowner must give the consignee a reasonable time to
collect the cargo
-Usually there will be a provision in the contract (esp. Bills of lading) which
provides remedies for no show etc...

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Commercial Law Lecture 4 16/10/15
Time Charter Parties:
• Time CPs differ radically from Voyage CPs due to their purpose and resulting
responsibilities/liabilities. (They are at disposal of charterer for an agreed period of time. The
charterer controls the commercial running of the vessel)
Essential terms:
 Period of hire
 Off-hire situations
 Payment & right to withdraw ship
 Employment, agency & indemnity
Period of hire
Charterer’s aim is to maximise use of the ship & income, to re-deliver on time
-If the ship is not re-delivered on time:
Underlap: means the vessel is returned early (The charterer is not entitled to any refund, must still
pay full hire price. –Also potential breach of contract if earlier than leeway period)
Overlap: means the vessel exceeds its time – By how much? –If it is redelivered within the leeway
period it will not be a breach but the charterer must pay for the extra hire time at the normal rate of
hire. –If the vessel is redelivered after the leeway period or the contract makes time of the essence
then it will be a breach and the charterer is liable to pay for extra time at current market rate
-Must C pay market rate? ‘Legitimate last voyage test’: C not in breach if, when ship departed on its
final voyage (prior to redelivery), it was reasonable to expect the voyage would be completed within
the period of hire plus leeway.
The Dione – There was a contract clause stating ship was to be charted for 6 months, 20 days, more
or less. That period expired on the 28th September, due to its final voyage, the ship was redlivered
on the 7th of October.
Held: Court applied Legitimate last voyage test. C could not reasonably have expected on-time
redelivery when set off on final journey. C liable to pay hire at contract rate up to 28 Sept & at
market rate thereafter.
“If this clause had said simply "six months time-charter" without any express margin or allowance, I
should have thought that there would be implied a reasonable margin or allowance. But this clause
expressly defines the margin as "20 days more or less". That leaves no room for any implied margin
or allowance.
It follows also that it was illegitimate for the charterers to send her on the third voyage, seeing that
they could not reasonably expect the vessel to complete it by the permitted margin”

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-The contract can have a clause for the charterer’s benefit such as:
• Shelltime 3, cl 18: “should the vessel be upon a voyage at the expiry of the period of this
charter, charterers shall have the use of the vessel at the same rate and conditions for such
an extended time as may be necessary for the completion of the round voyage on which she
is engaged”
World Symphony [1992] - Ct App held – such a clause saves C even if s/he knew they
would overrun the redelivery date.
Leeway periods (time is not of the essence):
1. There has been a reasonable allowance (the word ‘about’ is included or a flat period like 12
months or 2 years. There is inferred a reasonable margin of error, usually 4-5 %. So 12
month the grace period may be 2 weeks)
2. Minimum/Maximum period (Phrases such as ’12 months, 20 days more or less’ will be
deemed to be 12 months 20 days maximum. Phrase could also be ‘minimum 11/maximum
13 months’ –the period is defined)
Making time of the essence:
Watson v Merryweather (1913) – Clause said redliver between 20-31st October, the charterer
redelivered in November. Held: The specificity of the clause made time of the essence, the
charterer must redeliver at the them stated. Therefore the charterer breached the contract.
Off-Hire:
-Payment of hire is a continuing obligation.
-Off-Hire means: The charterer cannot use the ship due to a specified event, they can seek to
suspend payment for that period.
-However you need:
 An ‘off-hire’ clause in the contract

 The clause must expressly cover the event without exceptions
• The M/V Saldana [2010] EWHC 1340 – Cargo of coal being shipped form Indonesia going on
to Slovenia, it was seized by pirates on the way. The ship was detained for over 4 months
and the charterer refused to pay hire for that time. Contract Clause (NYPE) said: “in the
event of the loss of time from default and/or deficiency of men including strike of Officers
and/or crew or deficiency of... stores, fire, breakdown or damages to hull, machinery or

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equipment, grounding, detention by average accidents to ship or cargo, dry-docking for the
purpose of examination or painting bottom, or by any other cause preventing the full
working of the vessel, the payment of hire shall cease for the time thereby lost...”
Held: Charterer was still liable for the hire throughout the period of detention. This was
because the attack by pirates was not an ‘average accident to the ship or cargo’ or ‘default
and or deficiency of men’. The words ‘any other cause’ was construed in relation to the
context (words around it), all other named causes relate to physical condition/ efficiency of
the ship and crew and therefore this was similarly limited.
Effects of off hire: -Of narrow application –The charterer is only covered for the period in
which they were deprived of use of the ship –They are still liable for other expenses under
the CP –Off-hire does not extend the contract period, it simply suspends hire payments.
Payment & Right to Withdraw
-Hire payments are usually made in advance at monthly/30 day intervals
The Afovos [1983] –
-Payment on time is strict liability of the charterer
-Payment must be made by midnight on the due date
-Late payment is a breach of contract. (Does late payment give shipowner right to rescind?)
Right to Withdraw:
-At common law, time is not of the essence for payment
-So the shipowner cannot repudiate for late payment unless:
 The charterer shows a clear intention no longer to be bound by the contract (such as
repeated non-payments)
 The delay is so long as to deny parties the benefit of the contract (frustration)
Clause in contract modifying: Usually the contract gives the shipowner the right to withdraw their
vessel & terminate the contract upon default on payment. Clauses such as : NYPE cl. 11(a) “Failing
the punctual and regular payment of the hire…the Owners shall be at liberty to withdraw the Vessel
from the service of the Charterers”.
-But the contract can also include a grace period for the charterer. Clauses such as: NYPE cl. 11(b)
“the Charterers shall be given…written notice to rectify the failure [within X banking days]”
Waiver of Right to Withdraw Ship:
For a valid waiver or estoppel, you need:
 A clear and unequivocal act by the shipowner (the late payment is accepted)

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 Such a delay in the shipowner refusing late payment that the charterer reasonably believe it
has been accepted
-Acceptance of part payment is not waiver
- The shipowner has ‘reasonable time’ to make a decision: The Mihalios Xilas - The charterer
mistakenly paid less than they should have (due to claiming certain deductions). Payment was
due on 22nd of March, they communicated to shipowner they were going to pay less. On 20 th
of March the shipowner objected to that amount. The charter paid the lesser amount on the
21st of March. On 26th of March the shipowner withdrew ship and wanted to rescind contract.
C counter-sued with wrongful repudiation
Held: Acceptance of part-payment on 21 March did not amount to waiver(the time for full
payment had not even come yet so it could not be waived). The 4 days was a reasonable time for
the shipowner to make a decision. Lord diplock: “Waiver requires knowledge…the owners were
entitled to a reasonable time to make enquiries of the charterers and of the master..”
-Acceptance of late payments in the past is not an automatic waiver as to the future
-There is no equitable relief for the charterer: The Scaptrade – 16 out of 22 previous payments
had been late and the shipowner had not objected. On the 23rd the shipowner took their right to
withdraw. The charterer argued estoppel and in the alternative, equitable relief
Held: The shipowners had a reasonable time (which depends on the circumstances). But the
mere fact that late payments had been accepted in the past was not an ‘unequivocal
representation’ by the ship-owner not to exercise their strict legal right of withdrawal in the
future. Furthermore, courts have no jurisdiction to grant equitable relief
Effect of a Right to Withdraw:
 Withdrawal terminates the contract

 If the ship is at sea: -Charterer will need to discharge cargo at the nearest port
 If the ship has bills of lading to a third party: -Charterer will need to complete the voyage
but at a higher market rate
 If the ship is in port with the Charterers cargo: -Charterer will have to discharge & pay
the shipowner for expenses in doing so
Kos case [2012] UK SC 17 – The ship had been chartered for 3 years and the contract
had a standard form withdrawal clause but didn’t have an accompanying grace clause
for the charterer. 2 years into the 3 year charter, the charterer defaulted on one
payment and ship-owner exercised their right to withdraw. At time the ship was in port
and had loaded some cargo, when the notice of withdrawal came through the charterer
had to discharge the cargo and it took 2-3 days to do so. Charterer wanted money for
‘bunkers’ and for the 2-3 days
Held: SC Held that the Charterer was liable and had to pay damages and compensation
in bailment for detention of ship while unloading it. Also the charterer had to pay an
indemnity pursuant to a particular clause in the contract

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Employment & Agency – Indemnity
-Charterer to have full use of ship during the period (employment) and
-Charterers orders to be complied with by Master (agency)
-C usually undertakes to indemnify the shipowner for liability resulting from the above
two
-Shipowner will seek indemnity from the charterer for any liabilities incurred as a result of
the master:
 Complying with the charterer;s order

 Signing bills of lading at the charterer’s request
Limits on the Shipowners right to recover:
1. Under Time CPs, the shipowner is still responsible for navigation, management, crew etc..
(So the shipowner cannot recover if the loss is due to their own negligence or fault even if
incurred while following the charterer’s instructions)
2. The master is not entitled to act on orders that are clearly beyond the Charterer’s authority
(If the shipowner does they cannot recover if loss results)
3. The chain of causation must be unbroken:
Royal Creek Govt v Minister for Transport (no.2) (1949) – Charterer ordered coal to be
loaded while ship was being repaired. The coal gave off methane gas and sparks from the
welding equipment lighted the gas and there was explosion on the ship. Shipowners claimed
indemnity under indemnity clause, charterer’s claimed there was no causation.
Test: Whether loss to S was the inevitable result of complying w C’s orders?
Held: direct cause of loss was the explosion due to welding equipment, not C’s orders to
load coal.
Kos case (for liability unde indemnity clause): Majority held: Losses to S were caused by
complying with C’s orders to discharge.
Lord Mance dissenting: Loss caused by S’s decision to terminate K for own commercial
purposes.

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Commerical Law Lecture – Bills of Lading
• Bills of Lading (BLs) are used as the preferred Contract of Affreightment where goods require
only some space on vessel.
• Can be used by charterers and/or third parties
• Granted protection of statutory regimes in UK:
– Hague/Visby Rules - incorporated into UK law by the Carriage of Goods by Sea Act
1971/1992.
Key terms:
• Carrier (normally ship owner but can be charterer)
• Shipper (and Consignor) (Person who owns or supplies the goods)
• Consignee (party shown on bills of lading to whom goods is sent)
• Cost, Insurance and Freight (‘c.i.f.’) Sale of Goods K (Seller bears the risk and cost in selling
those goods right to the end)
• Free on Board (‘FOB’) Sale of Goods K (Then risk and costs go on to buyer for rest of journey.
Functions of BL:
1. Receipt of goods shipped
2. Evidence of carriage of goods
3. Title document for goods shipped
Receipt of goods
• -Important that carrier makes a clear and accurate statement on BL re:
– identification/ ‘leading marks’
– quantity
– condition
• Art III r 4 H/V Rules:
– BL = prima facie evidence of receipt by carrier of goods as described in BL regarding

leading marks necessary for identification, quantity, condition. (Essentially a
presumption, carrier will have to adduce other evidence to rebut this)

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– Once BL transferred to third party consignee/ indorsee acting in good faith BL

becomes conclusive evidence of same.
• Art III r 3 H/V Rules – shipper can demand BL contain specific info:
(a) Leading marks – only those necessary for identification of goods;
(b) Quantity; and
(c) Condition.
• BUT carrier:
– Is not obliged to issue a BL unless requested
– Can refuse a request once made
– Can make qualifying remarks on BL
• So watch for clauses on BL by master:
– “weight, quantity & condition unknown”
– “shipper’s count”
• Effect? Nullifies prima facie evidentiary effect of BL:
– New Chinese Antimony Co Lt v Ocean Steamship Co [1917] 2 KB 664. - Bill of Lading

stated that 937 tonnes of certain oxide had been shipped, clause had been added
before signing to BL that ‘weight content and value of contents unknown.’ Held the
BL did not provide prima facie evidence of the quantity shipped.
Court said although it was stated as 937 tonnes the shipper did not accept it as being that
weight.
-But qualifying statements as to condition treated strictly by the courts.
-BL can be issued as ‘clean if cargo in good order & condition
-Master can be estopped form denying pre-existing damage of so called ‘clean’ goods
– Compania Naviera Vascongada v Churchill [1906] 1 KB 237 – Timber sitting at port,

damage was apparent on reasonable inspection. Master signed off as a ‘clean’ BL.
The goods were sold on to third party, third party sued ship owner.
Held: S estopped from denying the true condition (due to detrimental reliance on
BL)
Contrast with: Canada and Dominion Sugar Co Ltd v Canadian National (West
Indies) Steamship Co Ltd [1947] AC 46. – Cargo of sugar was damaged. The shipper
assured the carrier that nothing was wrong with the cargo but there was evidence
that damage was apparent. The master signed off the BL as clean but there was a

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marginal endorsement on the face of the BL: ‘signed under guarantee to produce
ship’s clean receipt’
Held: No estoppel. The qualifying words were enough to protect the ship owner.
• Shipper, carrier or agents may include other statements of fact.
• But these are also capable of raising estoppel vis a vis future BL transferees.
• The Saudi Crown [1986] 1 Lloyd’s Rep 261. – The loading was delayed wasn’t completed
until 26th July. Nonetheless the master backdated to 15th July and signed BL at that date.
Goods arrived late and buyer had to get replacements because the goods weren’t there at
the required time. Held: could get damage for misrepresentation for putting wrong date
• In return, Shipper is deemed to guarantee accuracy of info provided by her/him for BL 

indemnify carrier
• Art III r 5 H/V Rules – carrier has statutory indemnity but ONLY regarding quantity or leading
marks NOT condition.
• Note: fraud will void any indemnity
– Brown, Jenkinson & Co Ltd v Percy Dalton [1957] 2 QB 621 – Shipper wanted clean
BL sp they could easily sell the cargo in transit. They promised to indemnify the
carrier for any loss if the carrier signed off the BL as clean. It actually wasn’t in good
condition and it went unsold. They sought to recover their loss from the carrier who
in turn argued that the shipper agreed to indemnify them.
Held: The indemnity was rendered illegal and void for fraud. The carrier had made a
representation that they knew to be false and intended for reliance by innocent third
parties.
Evidence of carriage of goods
• As btwn carrier & shipper, BL evidences the K of carriage; it is not the K itself.
(Parties can adduce oral evidence to show what is written on BL is not only terms in
the contract)
– The Ardennes [1951] 1 KB 55 – The carrier ( S) agrred with shipper that cargo
would be delivered to London by 1st December. After that oral contract was
made the BL contained a liberty clause entitling the ship owner to call at
intermediate ports on the way to London. He did so and asa result the ship
was delayed. He was sued

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Held: The BL was not itself the contract btu evidence of its terms. You can
adduce evidence form outside of this to show there were more terms. The
shipper was succesful
• BUT as btwn carrier & third party consignee/indorsee, the BL becomes conclusive
evidence of the terms of K of carriage.
– Leduc v Ward (1888) 20 QBD 475 - indorsees of a BL sought to recover

damages after their cargo had been lost at sea, they also argued that the ship
had made an unjustified deviation. The carrier (also ship owner) argued the
deviation was justified because charterers were aware and had given a
waiver and they argued this was binding on third party.
– Held: As between shipowner & charterer all terms of carriage K are in CP. BL is
merely a receipt.
– BUT once BL indorsed over, it is considered to be the K of carriage as btwn

shipowner & indorsee.
–  Oral agreements btwn S and C will not bind third party

consignee.
– If no CP, then BL remains as receipt for indorsee
Title document
-Needs to be ‘Order’ BL to be transferable document (rather than ‘straight’ BL)
-If the BL simply names a consignee or it does not use the word order then it will simply be a
receipt or evidence.
• Order BL can operate as a document of title & equivalence of possession for:
(1) On-selling goods during transit :

-Indorsement and delivery of the BL transfers ownership in the goods only if:
 BL is transferable on its face

 The goods are in transit at time of indorsement
 The Indorser actually has ownership to pass; and
 The parties intended to pass property
(2) Raising credit/finance:
 Documentary credits & UCP 600

 Important role of BLs

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(3) Delivery at port of discharge


(4) Suit under the carriage K.
 BL does not transfer automatically the rights & duties under the carriage
contract between shipper and carrier to the BL holder
 Carriage of Goods by Sea Act 1992 (COGSA)
S 2(1) lawful holder of BL can sue under the carriage K
S 5(2) “lawful holder” = in possession of BL in good faith AND:
(a) identified in BL as consignee; or
(b) indorsee of BL; or
(c) K’al arrangements made for (a) or (b) while BL still a title document
-Transfer of right to sue to BLH:

-is without prejudice ot existing liabilities of shipper and carrier (s.3(3))
– Releases any intermediate holders of BL from future liability;
– Will transfer liabilities under carriage K to her/him only IF they take delivery
of goods or make a claim under carriage K.
BLs and Third Parties
-Regarding BLH v carrier, 1992 Act resolved most of privity issues
-BLH v third parties?
-Commercial sense – carriage is undertaken on agreed terms of contract
-Privity of contract applies
• 2 specific issues here:
1. Can BLH sue carrier’s servants/agents or independent contractors for negligent damage to their
goods?
• - BLH may sue in tort if loss was due to negligence of carrier, servants/agents, or
independent contractors…
 BUT, at the time the tort was committed, BLH must be:
• the owner of the goods, or
• entitled to immediate possession.
– Margarine Union v Cambay Prince [1969] 1 QB 219 – Shipowner was carrier and
was negligent in having the ship holds fumigated before commencement of the
voyage. Due to that the holds had giant cockroaches which damaged the cargo. The
claimant was a BL holder under a CIF contract.

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Held: There was no remedy in negligence for the them because the property still
remained to the seller and had not yet passed to the claimant.
– The Aliakmon [1986] 2 Lloyd’s Rep 1. – Applied Margarine case. There was cargo of
steel damaged due to negligence by shipowner/ his people. Claimant had a CNF
(similar to CIF but he did not bear the risk but only the costs until the goods arrive).
Held: There was no remedy in negligence for claimant; the necessary ownership had
not passed to claimants yet even though the risk had.
-Not enough to have contractual rights over goods to sue in negligence, must also
have proprietary or possessory title
-Liability of carrier is already sufficiently covered at law, there was no need to

extend the range of negligence.
2. Can such third parties rely on BL terms for protection even though they are not parties to it?
-First check H/V rule apply
-The courts have permitted extending BL protections to third parties (for commercial reasons) in 3
main ways:
1. Bailment on terms
-Relationship where one party (bailee) undertakes to look after someone else’s goods (bailor) while
the goods are in his/her possession.
Kos case -
East West Corp v DKBS 1912 [2003] – carrier warehoused goods until they were to be picked up.
Had to look after those goods until the time of correct delivery
sub-bailment r/ship.
• Sub-bailee owes a duty (to care for goods) towards the intermediate bailor (carrier) AND
cargo-owner.
• R/ship btwn cargo-owner and third party (sub-bailee) is independent of K.
• So what are the parameters?
The Pioneer container [1994] – The carrier sub contracted part of voyage to ship owner and was
evidenced. Contained jurisdiction clause which specified that any litigation would be held in Taiwan.
Claimants goods were lost and claimant sought to recover their loss from the defendant ship owner
-Could the defendant ship owner rely on the jurisdiction clause in the sub contract as against the
claimants with whom they were not in contractual relationship with?

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• PC Held: the doctrine of bailment applied. Invoke doctrine of bailment on terms. It was said
in the original terms that they could sub-contract on any terms. Sub-bailee can utilise
exceptions/ limitations in sub-K with carrier (and as reinforced by H/V rules) against cargo-
owner IF:
– cargo-owner has consented to sub-bailment on the terms in question; and
– sub-bailee knows goods are ppty of another.
2. Vicarious immunity
-Employee can acces the immunity enjoyed by the employer
Elder Dempster & Co v Paterson Zochonis [1924] – Cargo on ship owners ship was damaged by bad
stowage. This was covered by an exception in the BL that the ship owner wasn’t liable for damage.
The BL was between the charterers( who were carriers). Ship owner was outside of the contract.
Shipowner sought to rely on the BL exception even though they were not party to the contract
• Held: S could rely on it. Principle of vicarious immunity applied. S deemed to be the
servant/agent of charterer. Thus, in their capacity as servant/agent, S can claim the same
protection as the charterer.
Note: Ct App refused to follow it in Gadsden v Australia Coastal Commission [1977] 1 NSWLR 575
3. Himalaya clause
Scruttons Ltd v Midland Silicones Ltd [1962] – The carrier engaged stevedores to discharge the
cargo. The contract provided the stevadores wit hthe same protection as the carriers under a
separate contract between shipowner and carrier. Stevedores damaged the cargo and were sued,
they sought to rely on a clause under the BL contract between carrier and shipowner.
Held: Privity prevents the stevedores being protected under the BL. Obiter Lord Reid: Bl would need
to make clear that stevedores are protected by the limitation provisions
The Eurymedon [1975] - There was BL for a ship, incorporated Hague rules and included a clause
saying that immunity to carrier was extended to carriers servants and agents including independent
contractors. Stevedores negligently damaged cargo, were sued, they sought to exercise the right
that they had been purported to be given which limited their liability.
• Held: stevedores could avail themselves of the time limitation clause in BL b/c:
(i) Carriers were acting not only for themselves but as agents of stevedores;

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(ii) K extended – as btwn shipper & stevedores (thru agency of carrier);
(iii) Extended K was unilateral & consideration = act of unloading goods in return for benefit of BL
limitation clause
• BUT – cannot extend to third party a wider immunity/limitation that that available to carrier
under H/V Rules (Art III r 8)
• Now - less need for Himalaya clauses since Contracts (Rights of Third Parties) Act 1999
Contracts (Rights of Third Parties) Act 1999 (UK)
• Generally - not applicable to Ks for carriage of goods by sea
 BUT s. 6(5) does permit a third party to access an exclusion or limitation clause in such a K in
certain circumstances:
 Third party is described in K (s 1(3)); and
 K contains an express term that third party can enforce K (s. 1(1)(a)); or
 K purports to confer a benefit on a third party AND it is clear a third party can
enforce such benefit
-Parties to the contract cannot remove such a provision or rescind the contract without Third party
consent if: -third party is waare of that provision and has accepted it or relied on it
-If not aware? –Scruttons v Midland Silicones

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Commercial Law Lecture – Hague/Visby Rules
-Hague/Visby Rules incorporated by Carriage of Goods by Sea Act (COGSA 1971, now 1992)
Application and Scope of Rules:
-Articles 1(I) and 10(X)
-COGSA
3 Requirements must be satisfied before the rules apply to a contract of carriage:
1. Contract must be covered by a BL (art I (B); s.1(4) COGSA) –Must be aware of to whom the
BL has been issued
-Does it apply to BL issued to a charterer under a CP? No unless: (i) BL is
assigned/endorsed from charterer to third party BLH; or
(ii) CP expressly incorporates H/V Rules.
2. K must satisfy an internationality test: BL must relate to the carriage of goods btwn ports in
different nations.
3. (a) In the case of a BL -
(i) BL is issued in a party State;
(ii) voyage is from a party State ie. outward shipments; or
(iii) BL expressly incorporates the Rules.
(B) In the case of a CP, H/V rules must be expressely incorporated
(If CP does incorporate HV rules then they apply to shipowner and charterer as they would
between carrier and shipper. Note change: seaworthiness, exceptions, time bar)
Arts II and I(B) and (E) taken together mean:
Rules apply from ‘tackle to tackle’: “from the time when the goods are loaded on to the time
when they are discharged from the ship.” (art I(e)).
-Carrier liability is subject to the rules during voyage and loading and discharging Note: Art VII,
parties can negotiate own terms outside of the ‘tackle’ rule
-Rules only cover sea voyage, but will also cover the intermediate transshipment where BL
covers the entire sea carriage through to ultimate destination. (Mayhew Foods – Argued the the
HV rules did not apply because they were not on the ship at that moment but the court held that
they were still covered by the rules)
Art I(C) – The Rules do not apply to:
 Carriage of live animals (they require special care)

 Cargo carried on deck (There is an increased risk of such cargo being swept away and can
increase the carriers responsibility)

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BUT re deck cargo:
 Goods must actually be stowed on deck; and

 BL must clearly state goods are stowed on deck
(If these two things are not present then the HV rules will apply)
-When the cargo is carried on deck, even if unauthorised by the BLH, it is no longer a fundamental
breach and the Carrier still have protection of the HV limitation of liability in Art IV(5) – The Kapitan
Petko Voivoda [2003] – Cargo was stoered on deck contrary to contract which was washed over
board due to bad weather. The cargo owner sued under HV rules and carrier sought to limit their
liability. The cargo owner instead called for fundamental breach. CA rejected cargo owners
argument
COGSA 1971:
-Extends scope of HV rules:
1. To include UK domestic/coastal sea trade (s.1(3))
2. To cover deck cargo (s.1(7))
3. To allow incorporation of Rules into non-BL contracts
Basic Provisions of H/V Rules:
• Art II – Regarding “loading, handling, stowage, carriage, custody, care and discharge” of
goods, Carrier has:
– responsibilities  liabilities (under Art III) and also
– rights  immunities (under Arts IV, IV bis).
These obligations of the carrier are:
• Seaworthiness
• Care of cargo
• No Deviation
• Dangerous cargo
• Obligation to issue BL
1. Seaworthiness: - McFadden - ‘the vessel must have that degree of fitness which an
ordinary careful and prudent owner would require his vessel to have at the commencement
of her voyage having regard to all the possible circumstances of it’.

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BUT Art III(1) Rules:

Carrier bound “before and at the beginning of the voyage” to “exercise due diligence” to:
(a) make ship seaworthy
(b) properly crew, equip and supply ship
(c) make holds “fit and safe” for goods
-s. 3 COGSA – No implied ‘absolute undertaking by the carrier of the goods to provide a
seaworthy ship
Core elements of seaworthiness:

-Content of duty (Reinforces CL obligation, carrier to prove they exercised due diligence as a
defence) –Extent of duty(At CL, absolute liability – McFadden. Exercise due diligence: Art
IV(1): carrier not liable “for loss or damage arising or resulting from unseaworthiness unless
caused by want of due diligence”) -Timing of duty (Depends on contract type, carriers
obligation to exercise due diligence covers ‘the period from at least the beginning of the
loading until the vessel starts on her voyage’
Maxine Footwear [1959] – Ice had to be cleared from 3 scupperholds under supervision of
master a lamp was used by the sailors to try clear it. The ships pipes caught fire and the
whole ship had to be deliberately sunk. Shipowner sought to rely onArt IV (2)(B): not
responsible for loss damage from ‘fire, unless caused by actual fault or privitty of the
carrier’.
Held: Breach of seaworthiness in Art III(1)  carrier could not be protected by exceptions in
Art IV
This means:
 Important! Exercising due diligence as to seaworthiness constitutes an overriding obligation
regarding liability under Rules.
 Any breach of Art III(1) deprives the carrier of access to the exceptions in Art IV in respect
of resulting loss or damage.
What is due diligence? Essentially a duty to take reasonable care. –The carrier will not be
liable unless the carrier or sservants are negligent( The Muncaster Castle [1961] 1 Lloyd’s
Rep 57 - Water entered cargo hold and damaged goods because the valves were loose
because of the repairers who were hired by the ship owner and the ship had not been
inspected properly. Carrier argued they were not laible cause it was not his negligence. HL
held: They were responsible for the work done by their servants or agents including
independent contractors.)
2. Care of Cargo:
Art III(2): Subject to Art IV, “the carrier shall properly and carefully load, handle, stow, carry,
keep, care for, and discharge the goods carried”.
• ‘Carefully’ = exercise of reasonable care.

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• ‘Properly’ = a sound system in relation to the general practice of carriage taking into account
carrier’s knowledge
Albacorg v Westcott and Lawrence – consignment of cargo of salted fish. There were crates
marked ‘keep away from engines’ but there were no other special instructions. It was later
shown that fish of that type needing refrigeration and the fish arrived spoilt. Action was brought
for breach of obligation to take care of cargo.
– Held: No breach of Art III(2). The carrier must adopt a system that is sound: “in
relation to the general practice of carriage of goods by sea” and “in light of all the
knowledge which the carrier has or ought to have about the nature of goods”
Timing of duty: from tackle to tackle
Burden of proof:
• Duty of reas care in Art III(2) is expressly subject to the exceptions in Art IV.
• T/f – 3 step process (per Wilson):
1. Cargo-owner brings action - prove goods were lost or damaged in transit (eg. produce clean BL
per Art III(4)) 2. Carrier then argues the cause of damage is within an exception in Art IV(2)(a)-
(q).
 If not, carrier will be held strictly liable.
3. If carrier succeeds, cargo-owner must then establish carrier breached duty of care under Art
III(2)
 If not, carrier escapes liability.
3.Reasonable Dispatch & No Deviation:
Two-fold obligation:
(1) Carrier must commence & complete voyage w reasonable despatch; and
(2) Follow contractual route – or, if none specified, usual and reasonable route - w/o
unjustifiable deviation.
• Art IV(4) - not a breach of K and carrier not liable for loss/damage if they:
– deviate to save/attempt to save life or ppty at sea;
– make “any reasonable deviation”.
– Reinforces C/L implied obligations
BUT strict (albeit uncertain) interpretation of “reasonable” by cts  rarely successful
Stag Line v Foscolo, Mango & Co [1932] AC 328 - Voyage from Swansea to Liverpool
with a slight deviation to St Ives to drop off some engineers. On leaving St Ives the

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ship ran aground and was lost. Carrier was sued for unjustified deviation. Carrier
argued it was reasonable
• Held: Not a reasonable deviation. “True test” = “what departure from the contract
voyage might a prudent person controlling the voyage at the time make and
maintain, having in mind all the relevant circumstances existing at the time, including
the terms of the contract and the interests of all parties concerned…”
4. Dangerous Cargo:
Art IV(6) reinforces C/L implied obligation not to ship dangerous goods w/o carrier’s consent
or knowledge.
If so:
a. Carrier has right to neutralise cargo at shipper’s expense;
b. Shipper is liable for any loss or damage resulting from their shipment.
5. Obligation to Issue BL:

• -Only upon demand, a carrier must issue a BL which is prima facie evidence of
receipt of goods. Art III(3)-(5): as per last lecture
Note: art III(7) gives shipper right to demand a “shipped” BL w relevant info from
carrier after goods are loaded  preferred by banks re getting credit
Contracting out of rules:

-You cannot contract out of rules
• S.1(2) COGSA: Rules have ‘force of law’
•  carriers cannot K out of their liability for loss of or damage to goods arising from
their negligence, fault or failure in duties under the Rules.
• Any K clause purporting to do so = void (Art III(8)).
The Morviken [1983] AC 565 – Shipped from Scotland to west indeis. BL clause
saying the contract was to be governed by law of the Netherlands. Cargo was
damaged and the issue was under which rules applied. Shipper wanted it to be heard
in the UK. In Netherlands the olds Hague rules applied and reduced the limit of
liability for carrier but in the UK it increased the liability
Held: HL said the jurisdiction clause did not abide by the HV rulesand was equivalent
to contracting out and was therefore void under Art III(8)
• BUT – parties may transfer responsibility for loading, handling, stowing, discharging –
which may not contravene Rules
– Jindal Iron & Steel Co v Islamic Solidarity Shipping Co [2005] 1 Lloyd’s Rep
57: The BL provided that the loading and discharging of cargo was to be
undertaken under the responsibility of the shipper. Goods were damaged
and shipper tried to sue carrier for breach of Art III(2) care of cargo

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– Held: Art III(2) does not oblige carrier to perform those obligations – but if
they do they must do so properly and carefully. Need clear words in K to
transfer responsibility.
– Transferral does not contravene Rules
– Even though doing so has the effect of excluding the operation of Art III(2)
from the K
Defences and Immunities for Carrier:
Art IV (2) - 2. Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from:
(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. (note: Due diligence in seaworthiness = overarching obligation (per Maxine Footwear). -Collision
btwn ships where both at fault – Goode  Merchant Shipping Act 1995 (UK), s. 187 )
(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. (Note: ‘Perils of the sea’ meaning hazards resulting
from the unique environment of the sea)
(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 lockouts 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 of 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.
Limitation of Liability:
• Financial liability of carrier is capped under Rules: Art IV(5)(a).

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• Shipper can seek full value of goods only if full value was declared prior to shipment &
recorded on the BL.
• Otherwise - maximum liability of carrier must be calculated. Maximum will be the higher of
either: “666.67 units of account per package or unit” or “2 units of account per kg of gross
weight of lost/damaged goods”
• Package/unit = containers or individual items? Art IV(5)(c): “…the number of packages or

units enumerated in the bill of lading as packed in such article of transport…”
• Meaning of “units of account”? -Art IV(5)(d): “special drawing right” as defined by the IMF
 converted into national currency on a date determined by court.
Scope of Limitations:
• Privity issues for third parties as per last lecture (eg. Scruttons)
• H/V Rules  Partial solution = Art IV bis (2):
– a “servant or agent of the carrier (…not being an independent contractor)” can

access the same defences and limits of liability in Rules as carrier.
– Who does this cover? Pretty much everyone except stevedors
• Possible avenues for independent contractors:
(1) Include a direct indemnity clause in work K w carrier;
(2) Require carrier to include them in carriage K w shipper/BLH – how?
(3) Access limitation provisions in carriage K via Contracts (Rights of Third Parties) Act
1999 – how?
Loss of protection:
• Shipper can bring action in K or tort: Art IV bis (1)  defences/limitations for carrier apply
regardless.
 BUT protections can be lost in certain circumstances:
Re carrier:
• Art IV(5)(e): act or omission “done w intent to cause damage” OR “recklessly and w
knowledge that damage would probably result”  loses benefit of limitation of liability
Re Third Parties: Art IV bis (4):  loses limitation provisions + defences/exceptions in Art IV.
Time Bar/ Limitation of Actions:
Art III(6):
• Shipper/BLH must bring suit w/in 1 year of delivery. O/wise loses right to make a claim.

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• Pick-up of goods at port of discharge by consignee/indorsee = prima facie evidence of

delivery by carrier of the goods as described in BL
• UNLESS give written notice of loss/damage to the carrier at delivery OR w/in 3 days if
damage not apparent at delivery.

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Commercial Law Lecture – Bills of Exchange
Bill of exchange = ‘negotiable’ instrument (Completely separate from the sale of goods contract)
Bills of Exchange Act 1882
• s3 Act – definition of BE:
“…an unconditional order in writing, addressed by one person to another, signed by the person
giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to or to the order of a specified person, or to
bearer”
-These documents have to be certain. They can’t be contingent (must be unconditional) and are
autonomous (stand alone)
Example:
£500 London 6 January 2015
On 6 July 2015 pay to Jemima Jones or order the sum of five hundred pounds, value received.
To
Basil Green, Leeds
Signed: William Brown
Accepted payable at Canon’s Bank, Henry Street, Leeds: Basil Green
William Brown = Drawer

Basil Green = Drawee & Acceptor
Jemima Jones = Payee & first Holder
• Drawer: William Brown - person ordering the payment.
• Payee and ‘first holder’: Jemima Jones - person in whose favour the bill is drawn.
• Drawee (and ‘acceptor’ when future dated): Basil Green – the person on whom the bill is
drawn
-If it says ‘pay to bearer’ the rights vest in whomever has possession of the BE. However this comes
with risks such as: -It could be obtained unlawfully
-If drawee refuses to accept BE: -he is only bound once he signs as acceptor –He does not incur
liability if he refuses but it will be ‘dishonoured by non-acceptance’

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-If dishonoured by non-acceptance then the payee immediately acquires a right of action against the
drawer (s.43(2)). Can recover damages (s.57)
-If the BE is payable ‘on demand’ (not at a future date): -Drawee must either pay on
presentation/delivery or refuse to pay
Date:
-For a future payment, the BE needs a date to ascertain maturity
-But the BE is still valid even if it is undated (s.3(4) or post-dated s.13(2))
-And any holder can insert the true date acting in good faith, even if they are mistaken (s.12)
Time of payment:
-If payable as to the future it is a ‘term bill’ (s.11)
-If payable on demand it is a ‘demand bill’ (s.10(1)): It is payable on demand if specified as such or no
time for payment is specified, or it is accepted when overdue.
-It is not a valid BE if it is expressed to be payable ‘by’ a particular date or payable upon a
contingency (s.3) (Must be certain )
Signatures:
-The signature of the drawer is essential. Although it can be signed as an agent for another but every
person signing a BE incurs liability
Transfer:
• s31(1): “A bill is negotiated when it is transferred from one person to another in such a
manner as to constitute the transferee the holder of the bill”
How to effect a negotation/ transfer? By Indorsing the bill.
Payee = first holder & first indorser
Her transferee = ‘first indorsee’
Special endorsement: this is when the indorsee is specifically named on the bill
Endorsement in blank = signature only > bearer bill
Holder:
-Only the ‘holder’ has the right to transfer BE or enforce payment

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-The holder is: s2: “the payee or indorsee of a bill or note who is in possession of it, or the bearer
thereof”
-To become a holder: Of a bearer bill needs an indorsement in blank and possession. Of an order bill
needs a special indorsement and possession
 Categories of holders:
-‘Mere holder’
-‘Holder for value’
-‘Holder in due course’
A mere holder is deemed prima facie to be a ‘holder in due course’ (s.30(1)). But this can be
rebutted if:
-If the BE is tainted with fraud, duress or illegality (s.30(2)) or
-The holder gave no value (s.27(1))
 BUT the value does not need to have been given by the holder themselves. It is sufficient
that value was given by an intervening party in the chain between the holder and the person
they seek to sue (s.27(2))
-Need to be a ‘holder in due course’ to get the full benefits of negotiability. They can acquire better
title than transferor. (s.38(2) - Where holder of bill is “‘holder in due course’, he holds the bill free
from any defect of title of prior parties, as well as from mere personal defences available to prior
parties amongst themselves, and may enforce payment against all parties liable on the bill”
-‘Holder in due course’ is essentially a bona fide purchaser for value without notice
-The HDC is someone who Took a Bill “complete and regular on the face of it” and
(a) became the holder before it was overdue, and w/o notice that it had been previously
dishonoured;
(b) in good faith and for value, and at the time the bill was negotiated to them they had no
notice of any defect in title of the person who negotiated it. (s. 29(1))
1. Complete and regular:
-A person cannot be a HDC if any material detail is omitted from the BE at the time it is negotiated to
the holder. These details include –payee, sum payable, the signatures of the chain of title.
-Regular: means in apparent good order. (Arab Bank Ltd v Ross [1952] – Ross made two promissory
notes (not BE but also negotiable instruments) and made payable to a foreign firm who were the
payees. A partner at the payee firm indorsed the notes, but they omitted the word ‘company’ from
their indorsement. Question was whether the arab bank was a HDC, specifically, was the note
complete and regular. If they were not were they still entitled to succeed?

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Held: ‘Complete & regular on the face of it’ = front and back. It is irregular when it “gives rise to
doubt whether it is the indorsement of the named payee”
On the facts: ‘company’ not merely descriptive, but part of the name itself. Therefore not including
that word meant the BE was not ‘complete’ w/in s29 meaning. Arab Bank were not a HDC. But they
could succeed in their claim as ‘holders for value’
-Distinction between regularity and validity, and regularity and liability.
2. No Overdue/No previous dishonor:
-A person cannot be a HDC if they are taking an overdue BE
-They cannot be a HDC if the BE was previously dishonored by non-payment
3. Good faith and No notice
s. 90 – Good faith is honesty in fact. Jones v Gordon (1877) – In order to defraud their creditors,
Gordon and his counterpart made a two party bill. Jones came and purchased two of those bills for
£200 even though the market value was £1727, Jones also knew that Gordon was in financial
difficulty but he refrained from contacting people who he knew would be able to clarify Gordon’s
position.
"honestly blundering and careless"
Vs.
“had a suspicion there was something wrong [but] refrained from asking questions, not because he
was an honest blunderer or a stupid man, but because he thought in his own secret mind - I suspect
there is something wrong, and if I ask questions and make farther inquiry, it will no longer be my
suspecting it, but my knowing it, and then I shall not be able to recover. I think that is dishonesty”.
Held: Jones was held to have known of the fraud because of willful blindness
4. No notice of Defect in title:
• s29(2): non-exhaustive list of ‘defects in title of the person who negotiated bill’:
– Fraud/ dishonesty
– Duress
– Illegal consideration
• s29(3): A transferee who derives title from a HDC receives the same status vis a vis all parties
to BE
Even if that transferee:
– gives no value; and/or

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– has notice of some prior fraud or illegality as long as not a party to it.
Liabilities of Parties:
-Everu signor to a BE incures liability (s.23)
-Once a party signs, they are: -liabile to subsequent parties for payment and they are also –
precluded or estopped from denying to a HDC the genuineness of prior parties signatures
Estoppels generated by signature:
• As against holder:
– Acceptor is precluded from denying the genuineness of drawer’s signature: s 54(2)
– Indorser is precluded from denying the genuineness of drawer’s signature and any
prior indorser: s55(2)
BUT only applies to prior parties
Chain of Rights and Liabilities:
Under the act: -Rights flow backwards (can only sue prior parties) –Liabilities flow forwards (incurred
only to subsequent parties)
Liability of the Drawee/Acceptor: s.54
• Drawee incurs no liability on BE until s/he accepts it: s53
• Acceptance 
• primary liability to pay BE (ss17, 54)
• principal debtor to whom other parties stand as sureties.
Acceptor is precluded/estopped from denying to HDC (only) s54:
– Re any bill – the drawer’s existence, genuineness of signature, or authority/capacity

to draw bill
– AND re bill payable to 3P’s order – existence of payee or their capacity to indorse
(but not the genuineness or validity of his indorsement)
Liability of the Drawer(or indorser): s.55(1)
• Secondary liability
• Drawer engages that:

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‘on due presentment it shall be accepted and paid according to its tenor, and that if it be
dishonoured he will compensate the holder or any indorser who is compelled to pay it,
provided that the requisite proceedings on dishonour be duly taken’
– On presentment for acceptance  BE shall be accepted & paid
– If BE dishonoured and holder takes prescribed steps  to compensate holder or any

indorser compelled to pay it.
• Estopped from denying to HDC (only) the existence or capacity of payee
Liability of Indorsers: s.55(2)
• Secondary liability
• Estopped from denying to HDC (only) genuineness of signatures of drawer and all prior
indorsements.
• Estopped from denying to any holder that bill was valid and s/he had good title to it at time
of indorsement.
Liability of Quasi-Indorsers: s.56
‘Where a person signs a bill otherwise than as drawer or acceptor, he thereby incurs the liabilities
of an indorser to a holder in due course.’
• Purpose of indorsement = transfer title to an order bill.
• T/f indorsement can only be made by the holder
• What is a quasi-indorser?
• Liable as indorsers only to HDC (under s56) not any other type of holder
Liability of the transferor of Bearer Bill: s.58
• Need not indorse bill – can negotiate/ transfer by mere delivery.
• Delivery 
– not liable on BE
– BUT warranty that BE = valid & has right to transfer it.
• If not true, can be sued for breach of warranty (s 58(3)).
Exclusion of Liability:
• Drawer & indorsers are sureties  only liable ‘on recourse’ ie. if bill dishonoured.
Can exclude liability: ‘sans recours’ when signing bill

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Enforcement:
• For demand bill:
Payee/holder simply presents bill w/in a reasonable time of issue/indorsement to drawee/

acceptor for payment: s45(2).
• For term bill:
(1) Presentment for acceptance:
Where Bill dishonoured by non-acceptance (s47):
• Holder must give notice to drawer & any prior indorser
– Can be in writing or oral: s49(5)
– Return of dishonoured bill = sufficient notice: s49(6).
• Strict time limits - s49(12):
– When holder & other party reside in the same place: notice must reach other party
day after dishonour;
– When they reside in different places: notice must be sent day after dishonour
• Once due notice given  holder can immediately enforce rights against drawer and any
prior indorser.
– BUT Failure to give due notice  drawer/indorser discharged: s48.
(2) Presentment for payment
• Holder must comply w s45 – o/wise drawer or indorsers discharged from liability
• Holder (or agent) to present bill for payment on day it falls due: s45(1)
• At the “proper place”: ss45(3)-(4)
– Usually acceptor’s place of business or bank
BUT s46(1):
• “Delay in making presentment for payment is excused when…caused by circumstances

beyond the control of the holder, and not imputable to his default, misconduct, or
negligence.”
• Presentment must then be made within reasonable time once cause of delay ceases.

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(3) Protest – if a foreign bill
• Only for foreign bills.
• Must formally establish its dishonour in 2 stages:
(1) Re-present bill by a notary to the acceptor:
• If again dishonoured – notary ‘notes’ it on bill
• Must ‘note the bill’ by day after re-dishonour s51(4)
(2) Notary then executes a formal declaration of protest in presence of witnesses

(‘extending the protest’)
Remedies for Dishonour:
• Non-payment = breach of K  damages per s57 Act.
• Holder can sue all/any signatories
•  party compelled to pay bill can recover from predecessors: s57(1)
• Measure of damages = s57(1)
– Amount of bill
– Interest
– Any expenses due to Noting
Key defences:
• Forged/ unauthorised signature - S24: “where a signature on a bill is forged or placed

thereon without the authority of the person whose signature it purports to be, the forged or
unauthorised signature is wholly inoperative”
BE Act, s25: principal only bound by agent’s signature when they act within the limits of
authority.
‘Forged’? Forgery and Counterfeiting Act 1981
s1: making a false instrument with intention of inducing someone to accept it as genuine
and thereby to act to their prejudice
Effect of forgery or unauthorised signature?
Signature is a nullity and no title can be derived from it, BUT bill can still be enforced against a party
estopped from denying its genuineness.

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• Signature in representative capacity
Signing bill as an agent/representative with authority  no personal liability of signator.

Only the principal is liable.
BUT s26: must be clear at time of signing o/wise signator will be bound.
• Fictitious or non-existent party
As payee, drawee or indorsees
• Bill treated as payable to bearer: ss7(3), 34(3)
• S55(1)-(2) – estoppels
• Effect? On this kind of bill an indorsee who pays in good faith will discharge their obligation
As drawer or indorsers
• Signing the bill even in an assumed name  personally liable (s23(1)).
Discharge of the Bill:
• 2 aspects of discharge:
1. Party discharged from liability; As soon as the amount due is payed then they are
discharged
2. Bill discharged. – When the acceptor pays in good faith then the bill is discharged
Discharged bill is = no party can sue or be sued on it.
Usual way = acceptor – by paying BE in good faith – discharges BE. (If anyone pays on
acceptors behalf then right to reimburse is still there)

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`Commercial Law Lecture – Documentary Credits
A documentary credit is the bill of exchange plus the shipping documents (bill of lading).
Paid against those documents = you need those documents to get paid
-‘Clean bill’ – BE solo (with no shipping documents attached).
Process of documentary bill collection?
(1) Nature & Function
• ‘Documentary Credit’ = ‘Commercial Letter of Credit’
• Specifically used re supply of goods
•  a bank’s assurance of payment to the Seller against specified documents.
• Sale K stipulates the method of payment ( needs to specifcy to be by documentary credit) 

Buyer (Applicant) gets their bank (Issuing bank) to issue credit in favour of Seller
(Beneficiary).
• Seller is then certain of payment under LC provided s/he can present ‘conforming
documents’ to bank.
The Specified documents:
– Transport documents – Bill of Lading
– Insurance policy
– Sales or Commercial Invoice
• Any other docs specified in Letter of Credit (whatever it asks for must be presented to it)
• All specified docs must comply with the terms of LC  honour presentation & make
payment.
(2) Contractual relations set up by a confirmed credit
5 Contracts are set up for a documentary credit:
1. The contract of sale (seller/buyer)

2. Contract between the buyer and the issuing bank (Buyer/Issuing bank)(This is the buyer
instructing the issuing bank to open the credit. It must comply with the sale contract
otherwise the seller can reject the credit. If the buyer gives different instructions then what
is in the sale of contract then this is a fundamental breach.)
3. Contract between the issuing bank and the confirming bank (The issuing bank authorizes
the confirming bank to confirm the credit.
- Usually the issuing bank will get a bank(Advising bank) in the sellers country to notify the
seller that they have a line of credit issued to them. The advising bank would not be liable
for anything under the documentary credit, Art 9(a).

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-To become liable they have to become a confirming bank, which happens when they are
authorized to confirm the credit by the issuing bank. They do this by giving their own
undertaking, this gives the seller more security because they are in the sellers country.)
4. Contract between the issuing bank and the seller (promising to pay the contract price. )
5. Contract between the confirming bank and the seller (promising to pay or negotiate forward
the bill of exchange and then seek reimbursement. )(Confirmed Irrevocable Credit)
(3) UCP 600
• ‘UCP 600’ = Int’al rules governing the use of DCs.
• No force of law SO parties need to expressly incorporate UCP 600 into DC (Art 1)  binding.
• Where there is no express exclusion, courts will try to interpret to incorporate the UCP 600
Definition and Types of Documentary Credit:
UCP 600, Art 2:
“Any arrangement, however named or described, that is irrevocable and thereby constitutes
a definite undertaking of the issuing bank to honour a complying presentation.”
• Issuing bank = ? (Art 2).
• Complying presentation =
“a presentation that is in accordance w the terms and conditions of the credit, the applicable
provisions of [UCP] and international standard banking practice” (Art 2).
• Irrevocable = cannot be taken back. Commits the issuing bank to honour the credit, provided
the seller fulfills the terms of it (conforming documents)
• to honour = 4 types of credit (Art 2):
1. Sight payment credit: collect payment on immediate presentation of documents.
2. Deferred payment credit: receive payment at a later date (usually after shipment of the
goods)
3. Acceptance credit: the bank accepts a bill of exchange drawn on it by the seller, payable at
a future date.
4. Negotiation credit: The seller can negotiate a bill of exchange and/or complying
documents to a nominated bank The bank then become the beneficiary (Arts 7(c), 8(c))
Confirmed (vs. unconfirmed) credit

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• Confirmed credit: Issuing bank’s undertaking under an irrevocable DC is reinforced or

confirmed by an advising bank
 advising bank becomes a ‘confirming bank’: arts 2, 8(a)-(c)
• C.f unconfirmed credit – advising bank takes on no liability to seller: arts 12(a), (c).
Fundamental Principles
(1) Doctrine of Strict Compliance
(2) Autonomy Rule
(3) Fraud exception
Doctrine of Strict Compliance:
Doctrine: The presented documents must strictly comply with the requirements of the DC.
Applies to all contracts arising from a DC transaction:
– Bank v Applicant
– Beneficiary v Bank
– Bank v Bank
• Strict compliance = no material discrepancy btwn DC and presenting docs.
• Exception to doctrine = insignificant or trivial discrepancies permitted
– eg Arts s14(e), 18(c) UCP 600
– NB: Art 2: consistent w international standard banking practice per International

Standard Banking Practice (ISBP)
(1) Bank v Applicant
Equitable Trust Co of New York v Dawson Partners Ltd (1927) – The appicatns Dc called for
payment against specified documents which included a certificate of quality issued by
experts. The certificate was only issued by one expert but nonetheless the issued bank paid
the seller, but when they gave to to the buyer for reimbursement hte buyer refused because
it had been a non compliant document. The shipper had shipped defective, standard goods.
Held: for the buyer. The document was not materially the same. per Viscount Sumner:
“[t]here is no room for documents which are almost the same, or which will do just as
well…If [the IB] does as it is told, it is safe; if it declines to do anything else, it is safe; if it

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departs from the conditions laid down, it acts at its own risk.” “Business could not proceed
securely on any other lines.”
(2) Beneficiary v Bank
JH Rayner & Co Ltd v Hambro’s Bank Ltd [1943] - The documentary credit referred to a
shipment of ‘ground nuts’, seller tended a bill of lading. But in the bill of lading it specified
slightly differing ‘ground nuts’. But it was well known in the trade that those type of nuts
were the same thing. The bank rejected the bill of lading for non-compliance and the seller
took them to court.
Held: it was impossible for bank to know the different customs. Banks deal with documents
not with facts and therefore the bank was correct ot reject it
Glencore International AG v Bank of China [1996] 1 Lloyd’s Rep 135 - Issuing bank refused
to honour the credit because the goods were described differently in the commercial invoice
against the documentary credit. In the packing list it was also slightly different to the
documentary credit. The bank refused to honour the credit
Held: The bank ought to have honoured the payment because: 1. Broad generic nature of
description in DC  commercial invoice fell w/in it.
2. Take tendered documents together, not in isolation
• Bulgrains & Co Limited v Shinhan Bank

[2013] EWHC 2498 – Bulgrains were sellers and entered into contract with people in china
for sale. LC: Beneficiary (seller) = “Bulgrains Co Limited”. Goods = “wheat bran pellets in
bulk”. Commercial Invoice: Beneficiary = “Bulgrains & Co Limited”. Goods = “Bulgarian wheat
grain pellets”
Bank rejected it. -Bulgrains argued that the first discrepancy was trivial and although the
discrepancy of the goods was a material one, the bank not correctly given notice.
-Question was whether the rejection was valid. Was the beneficiary’s name in invoice a
material discrepancy and did notification by the bank comply with UCP art 16.
Held: Any discrepancy other than typographical errors will entitle a bank to reject the
presented docs. Bank did not have to assume risk
(3) Bank v Bank
Seaconsar Far east Ltd v Bank Markazi Jomhouri Islami Iran [1993] 1 Lloyd’s Rep 236 -
There was a confirmed irrecovable credit, the DC said that all documents must have
something written in them. All the documents did have except one document, the bank
refused to pay.
Held: non-complying docs.
-Could not take docs as whole when LC itself clearly & expressly requires each doc to contain
specified particulars. ( Compare with Glenhore case)

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Kredietbank Antwerp v Midland Bank plc [1999] 1 All ER (Comm) 801 – DC specified: ‘draft
survey report issued by Griffith Inspectorate at port of loading’
Draft survey report: signed on behalf of ‘Daniel C Griffith, member of the worldwide
inspectorate group’. Bank accepted this and then sought reimbursement from Midland
Bank who said rejected this based on the discreprancy.
Held: They were conforming documents. Saying it is Not a test of “exact literal compliance”
in all circumstances for all documents.
Process re discrepancy: Art 16
• Art 16(b) UCP: Bank may consult its customer (buyer) to waive the discrepancy
OR
• Art 16(a) UCP: “when a nominated bank, confirming bank or issuing bank determines that a
presentation does not comply, it may refuse to honour or negotiate”
To reject the documents:
Must do so within 5 banking days (art 16(c)(ii)& (d)) must give notice to presenter specifying
(art 16(c)):
(i) refusal to accept
(ii) each discrepancy
(iii) what bank plans to do - art 16(c)(iii)(a)-(d)
(iii)(a), (b), (d) – Seller can remedy discrepancies & re-present before expiry of credit.
• Bulgrains [2013] - “Pls regard this msg as MT734. 77J discrepancies: beneficiary’s name on
the documents is different from LC. Description of goods on invoice is not correspond in the
credit. 77B disposal of documents notify/as per UCP 600 Article 16(c)(iii)(b)
-Bulgrains said this was not effective notice under UCP 600 art 16. (and this precluded the
bank from rejecting the documents)
Held: It was effective, the bank had given good notice. Banks must include:
• Must state refusing to honour or negotiate docs: art 16(c)(i).
– Did so here by “MT734” – industry term of art
• Must state option under UCP.
– Did so by “16(c)(iii)(b)”
• Even if notice defective, bank can amend it.

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– How? By serving a second notice within the timeframe (for the same reasons on
why they are rejecting it)
• Beneficiary does not have to receive notice sent: Art 35 UCP. –So as long as it is sent then
the bank has done their part.
The Autonomy Rule:
-The Documentary is separate from and Indepenent of the underlying sale contract between the
seller & buyer, and the contract between the issuing bank and buyer
-UCP 600 – Art 4, 5(banks deal with documents and not with goods, services..), and 34.
-Consequences of autonomy rule: Even if seller was to breach the contract then that is no
defence for a rejection by the issuing bank
Hamzeh Malas & Sons v British Imex Industries Ltd [1958] 2 QB 127 – The Buyers agreed to
buy steel rods, to be given in two installments to be paid by two letters of credit. First
installment was delivered and was paid for by the letter of credit, after the buyer
complained the goods were defective and sought to restrain the seller from delivering the
second.
Held: The second payment had to be paid. Jenkins LJ: “the opening of a confirmed letter of
credit constitutes a bargain btwn the banker and the vendor of the goods…irrespective of
any dispute…between the parties as to whether the goods are up to contract or not.”
The CLC is an “assurance that nothing will prevent [the vendor] from receiving the price”.
Fraud Exception:
-The only exception to the autonomy rule is fraud
• BUT must be fraud or knowledge of it on the part of beneficiary(seller) or agent at the time
of presentation of docs to the bank.
-ex turpi causa principle (Fraud unravels all) –Quite difficult to establish
United City Merchant (Investments) Ltd v Royal Bank of Canada, The American Accord
[1983] 1 AC 168 – sellers agreed to charge twice market price to help buyers avoid Peruvian
exchange control regulation. Payment was by confirmed irrevocable credit, confirming bank was
RBC. Carriers agent issued a bill of lading but fraudulently dated it earlier to come within the letter of
credit (terms were that it had to be shipped by the 15th). The sellers were unaware of that fraud. The
sellers presented the bill of lading and credit documents to confirming bank, but the bank refused to
pay because it had information to suggests the bill of lading date was misrepresented. The seller
sued the bank.
• Held: Affirmed the autonomy principle (The bank is still entitled to pay, they deal with
documents.) , but There is “one established exception: that is where the seller, for the

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purposes of drawing on the credit, fraudulently presents to the confirming bank documents
that contain, expressly or by implication, material representations of fact that to his [/her]
knowledge are untrue.”
-Here the seller had no knowledge. The BL was in apparent conformity with the terms of the
credit and the BL was a valid document despite the wrong date. –It was still a good receipt
and the confirming bank had to make payment
Montrod Ltd v Grundkotter Fleischvertriebs GmbH [2002] 1 All ER (Comm) 257 – There was a sale of
contract between German seller and Russian buyer. The letter of credit with the issuing bank
provided for payment with bill of exchange. One of those documents was to be an inspection
certificate signs by a finance company (Montrod) who also applied for a letter of credit on buyers
behalf. The buyer fraudulently asked the seller to sign the certificate, the seller knew it had to be
signed by Montrod but they honestly but mistakenly believed Montrod had given them permission
to sign it. They presented the documents and it was accepted. Montrod then disputed the sellers
right to payment.
Held: Reiterated fraud exception = fraud or knowledge of it on part of the beneficiary or other party
seeking payment under LC. The exception “should not be extended” by creating a general nullity
exception.
• “the courts have made clear how difficult it is to invoke the exception and have been at
pains to point out that banks deal in documents and questions of apparent conformity”
• “it is not for a bank to make its own enquiries about allegations of fraud brought to its
notice”
-Here the seller won
-If fraud is not obvious on the documents then they will have to pay. If the fraud is obvious then
they should not pay, if they do pay then they have precluded themselves from reimbursement. If
it doesn’t pay and is sued the bank will have to show that there was fraud on part of seller at the
time documents were presented.
• Important! Even in cases of fraud affecting a credit, the bank is obliged to pay the Holder in
Due Course of a Bill of Exchange which has been accepted by the bank under the terms of
credit.
• Why? -If you sign a BE you are liable (they also have autonomy). S. 3 BE Act

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Commercial Law Lecture 9 – Demand Guarantees
Nature & Function:
-Primary v Secondary obligations (Demand guarantees are secondary obligations – surety)
-Proof of default not required for demand guarantee. Like a documentary credit, a guarantors
concern is with documents not facts, they are not entitled to go behind the documents to see if
there has been a default.
-Bridging inherent tensions that may exist between parties to a sale contract.
-They are issued by the seller’s bank in the buyer’s favour. This is because the DG provides financial
security against the default of non-monetary obligations.
Note: ‘Stand-by credits’ - US equivalent of demand guarantees, although somewhat broader.
Uniform Rules for Demand Guarantees (URDG).
Latest version – URDG 758 (2010)
-URDG do not have the force of law – they must be incorporated into the DG contracts (art 1)
Note: UN Convention on Independent Guarantees and Stand by Letters of Credit 1995 (not widely
accepted, and not adopted in UK)
Definition:
• Art 2(a) URDG: A demand Guarantee is –
– given by a bank, insurance company or other body or person (the Guarantor)
– in writing
– for the payment of money on presentation in conformity with the terms of the
undertaking of a written demand for payment & such other documents as may be
specified in the Guarantee.
The undertaking is given in favour of a Beneficiary(in this case the buyer) at the request or on
instruction from:
• a Principal/Applicant; or A bank, insurance company or other body acting on

the Principal/Applicant’s instructions (Instructing Party).
Main Parties:
• Principal (1992)/ Applicant (2010) – requests the issue of the DG
• Beneficiary – in whose favour DG issued

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• Guarantor – bank or other entity issuing DG
Perhaps also:
• Instructing party
• Counter-guarantor
2 Types of structure: 1. Direct DG (3 parties) 2. Counter Guarantee (4 parties)
Direct: A (UK constructor) ------> B (Saudi Arabia employer)
Request to issue/
In return for counter indemnity DG
GB (UK Bank)
Counter Guarantee: A (UK constructor) ------> B (Saudi Arabia employer)
Request to issue/
In return for counter indemnity
GB (UK Bank) (Counter Guarantee) G Bank (Saudi Arabia)
Timing of DGs?
• For sale contract, usually a single DG.
• C.f. For construction Ks, DGs can cover different phases: Egs. Bid guarantee, Performance
guarantee
Fundamental Principles:
• Many of the fundamental principles that apply to DCs apply equally to DGs/ counter
guarantees. DGs are presumed to be irrevocable and based on principle of autonomy.
(1) Autonomy and the Fraud Exception:

Art 5 URDG: The essential characteristic of a demand guarantee is that it is independent of:
a. the underlying transaction between the applicant and the beneficiary; and
b. the instruction relationship between the applicant and the guarantor to issue the
guarantee in favor of the beneficiary.
 Guarantors deal with documents, not with goods, services or performance to which those
docs relate (Art 6 URDG).

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Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159 –
Construction contract case between UK supplier and Libyan customers. The contract was for
UK supplier to supply glasses to be paid by irrevocable confirmed credit by the buyers bank.
A demand guarantee was given from bank called another bank, payable upon first request.
They obtained a counter guarantee from Barclays bank, to pay on demand without proof or
conditions. Libyan customer breached the underlying contract by getting a letter of credit
which didn’t comply with sale contract, but nonetheless they called upon the bank to pay
the guarantee for which they were beneficiary for. That bank then called upon Barclays to
pay them the counter guarantee. The claimant seller sought an injunction to stop Barclays
making the payment.
Held: Despite the underling breach of contract, the banks must honour their undertakings
under the guarantees.
Lord Denning MR:
• Stated function & role of DGs
• Reiterated autonomy principle re LCs  application to DGs.  “So long as the Libyan
customers make an honest demand, the banks are bound to pay and the banks will rarely, if
ever be in a position to know whether the demand is honest or not… So they will have to
pay.”
Like DCs: In the absence of their own fraud, beneficiary is entitled to be paid.
Q = Were beneficiaries fraudulent?
• Bank would need to prove that B did not honestly believe they had the right to make
the demand AND the bank knew of it.
• Denning quote (Sealy & Hooley pp915-6).
Cargill International SA v Bangladesh Sugar and Food Industries Corp [1996] 4 All ER 563 –
Contract of sale case. Claimant sellers agreed to sell sugar to the buyers. Unconditional
demand guarantee issued by bank. Under the contract of sale it said the demand guarantee
could be forfeited if the contract was breached.
Argued that the buyer had not suffered any loss and so injunction should be granted
Held: Refused to grant injunction
• Commercial purpose of a DG: “When an allegation of breach of K is made (in good faith) the
beneficiary can call the bond and receive its value pending the resolution of the contractual
disputes.”
• “The bond is a ‘guarantee’ of due performance”  Not for the courts to frustrate that
commercial purpose.

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(2) Strict Compliance
• Similar logic to DCs
• Guarantor must pay against documents that appear on their face to conform to the
guarantee.
• Must be examined w/in 5 business days after presentation (art 10a 1992; art 20a 2010).
URDG art 19 2010:
• Data in a document –
– are examined in context with that document, the guarantee and the URDG, and
– must not conflict with data in that document or in another required document or in
the guarantee.
Formalities for Making a Valid Demand:
URDG Art 20(a) 1992; 15(a) 2010:
• In addition to a written demand plus any other docs specified in DG, the Beneficiary must
present:
– a statement that the principal is in breach; and
– nature of that breach
– Even if, in the DG, the only document specified to be presented is the demand.
• Effect? Incorporating the URDG imposes an additional documentary requirement
• Logic? A fetter on ‘unfair calling’ of the guarantee.
Counter Guarantees: URDG Art 20(b) 1992; 15(b) 2010
• When the Guarantor makes a demand under the counter-guarantee (given by instructing
party), it must specify:
– Guarantor has itself received a demand from beneficiary; and
– That demand conforms to DG’s terms AND art 20 URDG.
Extend or pay demands:
• A beneficiary may present an ‘extend or pay’ demand: URDG art 26 1992; art 23 2010.
Process:

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• Guarantor must w/o delay inform Applicant or Instructing Party
•  may suspend payment for 30 days while reaching agreement w beneficiary.
Outcomes:
• Applicant may agree to extend
• Or refuse to extend
• If a reasonable time elapses, Guarantor must pay.
Termination of Demand Guarantees:
-The demand guarantee expires
-The demand guarantees gets paid
-The beneficiary signs a release and cancels the demand guarantee

Commercial Law Lecture 2 - Impliedobligations Commercial Law Lecture 2 - Impliedobligations

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Commercial Law Lecture 2 - Impliedobligations

Commercial Law (King's College London)

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Commerical Law Lecture 2

Implied Obligations (Carriage of Goods):

 ‘Cargoworthy’ (adequate storage, ship in a fit state to receive the goods)

-Can be excluded by clear wording in the contract (must be specific)

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Effect of the breach:

2. Obligation not to deviate from the agreed route:

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 Unjustified deviation =fundamental breach

3. Obligation to nominate a safe port

-Condition or warranty? Depends on contract type

4. Obligation not to ship dangerous goods

Merchant Shipping Regulations 1997:

-Relevant to both types of CP

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-If it is bill of laden it will come under Hague Bisby rules

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Commercial Law Lecture 3 09/10/15

Charterparties: Key concepts

Note: ‘Demise’ or ‘bareboat CP (strictly not a charter)

TIME CP VOYAGE CP DEMISE CP

TYPE of K K for a carrying K for a carrying C takes

PURPOSE Ship at disposal of Ship transports For all practical

KEY LIABILITIES re C responsible for: S responsible for C responsible:

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Rules (Art I(a)).

Use of Standard Form Contracts

For Time CP: -Baltime –New York Produce Exchange (NYPE)

For Voyage CP: -Gencon

1. Preliminary voyage(Sole responsibility is ship owners) 2. Loading(Joint responsibility,

-Risk is generally borne by the party responsibility

-Implied obligations fit in

-Contract can transfer risk

 When Laytime starts to run:

3 Pre conditions: -Arrived ship –Notice –Ready to load

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Maratha Envoy case – No berths available so ship was instructed to wait 25

-Perhaps a better solution is to put a clear clause in the contract on whether

Shifting risk of delay:

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 Time to count whether in berth or not:

2. S gives prescribed and effective notice of readiness to load

3. The ship is in fact ready to load

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Loading/Unloading Division of responsibility

 A delay or no show: Grant v Coverdale (1884) – Vessel chartered to go to Cardiff,

 Different cargo: Trying to do this is a fundamental breach and S can repudiate.

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Calculation of laytime: suspension, completion

 Laytime is usually specified in the contract (Specific number of days/hours.)

Obstructions or delays are:

 covered by an exception ( Carboez SA v Lous Dreyfus Commodities

Damages for detention:

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Nolisement (Owners) v Bunge y Born [1971] – Loading was completed 19 days

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Commercial Law Lecture 4 16/10/15

Time Charter Parties: