chapter 1 the rights and duties of shipowners and charterers

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PART 1: THE RIGHTS AND DUTIES OF SHIPOWNERS AND CHARTERERS PLAN: I) SHIPOWNERS DUTIES: A) To provide a seaworthy ship which complies with the charter party description 1) Nature of obligation 2) Incidence of obligation 3) Hague-Visby: due diligence 4) Burden of proof 5) Effect of the breach B) To properly and carefully load, handle stow carry keep, care for, discharge and deliver the cargo 1) Introduction 2) Effect of breach: Cargo claims 3) Terms of the C/P and loading liability 4) Cargo operations during laden voyage C) To comply with the charterer’s legitimate employment instructions 1) Introduction 2) Right to indemnity 3) Delimitation of employment orders D) To prosecute voyages with reasonable dispatch/ not to deviate 1) Voyage charters 2) Time charters II) CHARTERER’S DUTIES A) To pay remuneration due to the owner 1) Time Charters: Hire 2) Voyage Charters: freight B) Voyage charters: the duty to provide cargo 1) The duty 2) Laytime and Demurrage C) Ensure that dangerous goods are not loaded without giving notice

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Page 1: Chapter 1 the Rights and Duties of Shipowners and Charterers

PART 1: THE RIGHTS AND DUTIES OF SHIPOWNERS AND CHARTERERS

PLAN:

I) SHIPOWNERS DUTIES:

A) To provide a seaworthy ship which complies with the charter party description1) Nature of obligation2) Incidence of obligation3) Hague-Visby: due diligence4) Burden of proof5) Effect of the breach

B) To properly and carefully load, handle stow carry keep, care for, discharge and deliver the cargo1) Introduction2) Effect of breach: Cargo claims3) Terms of the C/P and loading liability4) Cargo operations during laden voyage

C) To comply with the charterer’s legitimate employment instructions1) Introduction2) Right to indemnity3) Delimitation of employment orders

D) To prosecute voyages with reasonable dispatch/ not to deviate1) Voyage charters2) Time charters

II) CHARTERER’S DUTIESA) To pay remuneration due to the owner

1) Time Charters: Hire 2) Voyage Charters: freight

B) Voyage charters: the duty to provide cargo1) The duty2) Laytime and Demurrage

C) Ensure that dangerous goods are not loaded without giving noticeD) ports nominated must be safeE) Perform their duties without delayIII) HAGUE/VISBY RULES

INTRODUCTION

These duties are generally implied which means:- They constitute English common law in the absence of clauses in the C/P to the

contrary- Most of these duties may be departed through agreement

o Some not: the duty to provide a seaworthy vessel for eg.

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I) SHIPOWNERS DUTIES

A) THE DUTY TO PROVIDE A SEAWORTHY SHIP

In every contract of afreightment, there is an implied obligation to provide (the ship-owner)a sea worthy vessel « fit to meet and undergo the perils of the sea and other incidental risks to which of necessity she must be exposed in the course of a voyage »1Field J in Kopitoff v Wilson (1976) 1 QBD 377 at p 380

. This is generally reinforced by an express term such as the preamble to the NYPE form that eh vessel « be tight, staunch, strong and in every way fitted for the service ». This covers not only the vessel's physical appearance, but the competence of the crew and sufficiency of fuel and facilities appropriate for the cargo.

1) nature of the obligation

- The obligation is absolute at common law for the ship-owner and in the event of breach, liable irrespective of fault.

- The ship should really be fit: the undertaking by the ship-owner is irrelevant in this assessment.

- However the owner is not under the obligation to provide a perfect ship but one which is REASONABLY fit for the PURPOSE.

The standard required is not « an accident free, nor an obligation to provide ship or gear which might withstand all conceivable hazards. In the last analysis the obligation, though absolute means nothing more or less than the duty to furnish a ship and equipment reasonably suitable for the intended use or service2 » District Judge Kilkenny in President of India v West Coast Steamship Co (1963) 2 Lloyd's Rep 278 at p.281OBJECTIVE TEST: « the ship must have that degree of fitness which an ordinary careful and

prudent owner would require his vessel to have at commencement of her voyage having regard to all the possible circumstances of it » Channell J in McFadden v Blue Star Line (1905) 1 KB 697 at p.706 quoting

The Standard therefore will depend on the nature of the voyage, cargo and likely dangers.Express clauses may exclude this obligation, but restrictive interpretation by courts:

- Nelson Line v Nelson: such a clause was held as invalid for stipulating exemption off liability for the ship-owner for damages to goods capable of being covered by insurance. (Capable of too imprecise?)

- Rare example and a little strange: The Irbensky Proliv case; clause exempting the ship-owner of any damage resulting from sea unworthiness even if by negligence.

- If the contract is governed by the Hague-Visby rules, the obligation is that of due diligence to make the ship seaworthy. The carrier will no longer be strictly liable in the absence of

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fault, he will liable for his negligence and those of third parties, such as an independent contractor.

2) Incidence of obligation

Twofold obligation is comprised in the ship owner’s obligation to provide a seaworthy vessel

Suitably manned and equipped to meet the ordinary perils likely to be encountered while performing the services required of it.

Cargo worthy: fit to receive the specified cargo.

TIME OF OBLIGATION: In a voyage charter, the obligation attaches at the time of sailing on the charter voyage: defects during the preliminary voyage to the loading port are immaterial or even during the loading operation, provided they can be rectified by the time of sailing.

- Irrelevant as well the defects observed during the voyage or at an intermediate port.

- « The warranty is a warranty only as to the condition of a vessel at a particular time, namely, the time of sailing; it is not a continuing warranty in the sense of a warranty that she shall continue fit during the voyage. If anything happens whereby the goods are damaged during the voyage, the ship-owner is liable because he is an insurer, except in the event of the damage happening from some cause in respect in which he is protected by the exceptions... »Channell J in McFadden v Blue Line Star (1905) 1 KB 697 at p. 703

- Consecutive voyage charter: the obligation arises at the beginning of each voyage undertaken in performance of the charter.

- Charter divided into stages; the obligation is at the commencement of each stage of the journey.

- NB: Nype clause 93: maintenance clause under which the ship-owner is required « to keep the vessel in a thourouly efficient state in hull, machinery and equipment for and during the service ».

Cargo worthiness: operative from loading moment: « the warranty is that, at the time the goods are put on board, she is fit to receive them and encounter the ordinary perils that are likely to arise during the loading stage; but there is no continuing warranty after the goods are once on ship that shall continue to hold the goods during that stage and until she is ready to sea, notwithstanding any accident that may happen to her in the meantime.

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3) Obligation of due diligence under The Hague rules are applicable before and the beginning of the voyage, time charter each voyage: article III.

- The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to:

o Make the ship seaworthyo Properly man, equip and supply the shipo Make the holds, refrigerating and cool chambers, and all other parts of the

ship in which goods are carried fit and safe for their reception carriage and preservation

- Negligence of agents in imputed to him unless he has bought a new ship and said agents were not negligent: classification surveyors ( Angliss v P&O (1927))

- Due diligence: negligence is a lack of due diligence (The Amstelslot (1963), Lendoudis Evangelos (2001), Eurasian Dream (2002)

- The cargo must be specifically identified (the rules do not apply to a placing voyage when the ship is proceeding generally for order) (Marinor (1996)

4) burden of proof

Rest on the party alleging it (unseaworthiness). But inferences drawn by the court. Having established a breach of the undertaking, the party alleging must prove that the breach caused the loss, or the unseaworthiness caused the loss (cargo).

Example: International Packers v Ocean Steamship Co

He must prove that the ship was unseaworthy at the beginning of the voyage and that the loss or damage was caused by the unseaworthiness. If so then there is a presumption that the carrier did not exercise due diligence. The defendant must then prove that he was exercising due diligence (Minister of Food v Reardon Line (1951))

If they succeed in doing so they can rely upon the exceptions contained in Article IV rule 2.

5) effect of the breach

Unseaworthiness gives rise to a civil liability only if it actually causes loss or damage. If the damage or loss has been caused partly by another factor, the carrier can only rely on that defence if he proves exactly how much the damage caused (Smith Hogg v Black Sea)

Remedies: traditional approach by the courts of the distinction between warranties and conditions.

- If condition: a breach would entitle the seafarer to repudiate his obligations under the contract

- if warranty: damages- The Courts: neither is appropriate. In Hong Kong Fir Shipping Co v Kawasaki, it was

considered an intermediate term.

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- LJ Diplock: damages are always available but a repudiation of his obligations is only possible where the breach deprived him of « substantially the whole benefit which it was intended that he should obtain from the contract ».

- Everything would depend on the consequences of the breach, on the effect the unseaworthiness had on the cargo?

- The Hermosa (1982 ): identical test if substantially deprived the seafarer of the whole benefit of the contract and that of the doctrine of frustration.

So remedies depend on the situation:

where the breach is discovered before performance of the charter party has commenced:

- Completely discharged of duties if deprived of substantially the whole of the benefit and it is a breach which cannot be rectified within such time as would prevent the object of the contract from being frustrated.

o Example: Stanton v Richardson: new pumps could not be installed within a reasonable time.

o The permissible time allowance to remedy varies from voyage and time charter:

Hongkong Case: 5 months of repair sufficient for a 24 months timecharterparty. This may be expressed in clauses and modified: a charter party is able following provisions to escape obligations (repudiation) if the vessel is delivered after the specified time. Example of the Madeleine (1967)

Where the breach is discovered after setting sail: right to repudiate may be possible if the breach is sufficiently fundamental.

B) THE DUTY TO CARE FOR CARGO

1) Introduction

Duty of charterers or cargo owners: present the cargo at the rail and accept delivery of it at the port of discharge.Duty of Ship owners or carriers is to load, stow and discharge it.Harris v Best (1892)

- This principle can be departed through an agreement and the parties are free to decide who is to be responsible for the cost of such stevedoring operations and who is to be liable for loss or damage caused by such operations (The Jordan II (2005))

(SUPPLEMENT: **Nature of the charterers responsibility under TC

- Given clause 8 NYP 1993 form, the question remains whether the SO retain any responsibility for cargo operations

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- In Court Line, it was suggested that the master had a responsibility to act to preserve the seaworthiness of his ship where it is threatened by a method of stowage which he knows or ought to know, but which the stevedores do not, that affects her stability

- In the Imvros, Langley J rejected the argument that the O had an overriding responsibility for seaworthiness such such that once the C stowage put the ship at risk, liability for that stowage would shift back from them to the owners.

- This shift occurred only where the damage was caused by the master’s intervention or in the limited circumstances.

- The law is unsure: see Baughen (2007)o Competent stevedores employed by the Cs that take due care for the safety and

preservation of the cargo in question, other cargo, and the ship herself and persons likely to come in proximity with the cargo subsequently

o If such is the case, the Cs are discharged of Responsibility, not liable through transfer under clause 8

o If unsuitable stowage results from inadequate info from the ship, the So will be responsible for the losses)

2) Cargo Claims under the Voyage Charter

Cargo claims may be brought:a) Directly by the charterers under the VC if the Charterer is the cargo receiver and the CP

is the governing contract

- By cargo receiver against the SO under the B/L- The liability of the SO for claims brought by C under VC depends on whether

incorporation of H-V: if wide exceptions clauses article III rule 8 may render them void and null and of no effect.

The indemnity Claim

CARRIER

B/L C/P indemnity

CHARTERER RECEIVERSales Contract

b) If brought by receivers under the B/L he can do so

If the SO incurs more under the B/L than he would have if a similar claim were brought against him under the charter than he is normally entitled to an indemnity from the charterers in respect of such additional liability

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This right will be implied: Moel Tryvan v Kruger (1907)

Cargo Claims under the TC: generally the cargo owner is a third party. He will bring it under the B/L against the carrier.The owners and charterers may seek an indemnity inter se in respect of such liability: all will depend on who is liable under the terms of the TC

3) Terms of the C/P and loading liabilityIMPORTANT: A distinction is drawn between the cost and the liabilities for the operations. The Jordan II.

- The word “shall” is pretty conclusive- H-V: article III rule 2 provides that: “subject to the provisions of Article IV, the carrier

shall properly…. Any derivation from this rule will see rule 8- But under E law, the agreement is not precluded and rule III should not be construed

as intending that: it is addressed by asking 2 questions:o Which of the activities itemized in the Rule has the carrier assumed

responsibilityo Has the carrier performed that particular duty properly and carefullyo Renton v Palmyra o Jordan II

4) Cargo operations during the voyage

The cost and or liability of stevedoring operations applies only to contemplated operations at loading and discharge. If there is need during the voyage the carrier will bear the costs (Aquacharm (1982).

Exceptions to the liability of C for stevedoring:

- actual intervention of the master (Court Line v Canadian Transport (1940)- The master has a right to intervene in circumstances where the stevedoring

operations render the ship unseaworthy, and if he doesn’t the charterer remains liable for damage or loss caused by the unseaworthiness

- Imvros (1999 )- ER Hamburg (2006)

C) THE DUTY TO COMPLY WITH LEGITIMATE EMPLOYMENT ORDERS

1) Introduction

We are mainly concerned with time charters since under the VC the obligations of the parties are set out in the CP and the C has limited right to give detailed subsequent orders to the SO. In the VC no: he has the right to give the SO detailed employment instructions

- “It is important in this connection to have in mind that the present charters are time charters, the nature and purpose of which is to enable the C to use the vessel during

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the period of the CP for trading in whatever manner they deem fit”: Nanfri (1979) per Lord Wilberforce

- One of the most important rights is that of issuing b/lwhich the master is required to sign, and which can be enforced by a third party against the So even though the terms differ radically from the terms of the CP.

- right includes that of ship inspection (Silver Constellation (2008))- He is given the right to control the commercial operation of the ship (see BALTIME

clause 9, NYPE 1946 clause 8)

2) RIGHT TO INDEMNITY:

- The SO has a right to indemnity for performing the wishes of the C even if the loss incurred is the result of the shipowner having complied with which he was obliged to comply (Island Archon 1994)

- The justification : Devlin J in Royal Greek Govt v Ministry of Transport (N°2) (1950): “if the ship owner is to surrender his freedom of choice and puts his master under the orders of the charterer there is nothing unreasonable in stipulating for a complete indemnity in return”

- No implied indemnity if expressly contrary to the terms of the C: Berge Sund (1993), nor for usual or ordinary navigation risks (Aquacharm (1980))

- EXTENT (1) LOSS RECOVERABLE:o Physical damage resulting form nomination of unsafe porto Dangerous cargoo Financial liability ot third parties on releasing cargo, at the charterer’s

request, without requiring presentation of B/Lo Financial liability for cargo under B/l if the additional liability: the test is

whether the liability is higher than that under the charterparty, whether the bills impose more onerous terms on the SO than would gave arisen under the C/P (see McNair J in The Brabant (1965)

o This would occur when the terms fail to incorporate a C/P exception or where they automatically incorporate HV.

- They are however a number of limits:o He retains responsibility for all matters relating to navigation: negligent

navigation or unseaworthiness for eg even though incurred while performing the C employment orders

o In the words of Lloyd J in the Aquacharm (1980): “It is not every loss arising in the course of the voyage that can be recovered. For example, the owners cannot recover heavy weather damage merely because had the charterers ordered the vessel on a different voyage, the heavy weather would not have been encountered. The connection is too remote”

o To disqualify a claim for indemnity, an act must always involve “an element of turpitude” and it is not enough that “the actor (the master) has carelessly failed to make enquiries which would have revealed the true nature of the act, or …has culpably but not recklessly drawn the wrong inference from such enquiries as he has made”; per Mustill, L.J., in The Nogar Marin: the responsibility to refuse illegal orders

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- EXTENT (2): CAUSATION

2) Causation: the SO must prove the direct causation between having followed orders and the loss and damage.

3) Only loss which is proximate not too remote: a loss which would not be outside the reasonable contemplation of the parties at the time when the C was concluded.

4) Proof of an unbroken chain of causation between the charterer’s orders and the loss in respect of which the owners seek an indemnity may require consideration of how foreseeable it was that such loss would or might result from such an order.

5) It was suggested that the indemnity should cover losses that are foreseeiable when the C relevant order was given even if they unforeseeable when the parties signed the C. See Foxton: Legal Issues relating to TC Informa.

6) It is suggested that the basis and scope of the implied indemnity would benefit from definitive consideration by the House of Lords, but the end result seems right, namely that where it is found that loss, damage, or liability has resulted from following the charterers’ orders, the charterers must indemnify the owners unless they prove that the effective cause of the loss, damage or liability was a risk the owners had agreed by the charter to bear.

The Island Archon: Facts: the ship was ordered to carry cargo to ports in Iraq. Cargo claims were made and

enforced against local agents of the owner.. The owners claimed an indemnity against the cargo claims they had been forced to meet

Held: an indemnity was to be implied since the risk of incurring liability for dubious cargo claims was one whihch under the charter had not agreed to bear.

Case of liability incurred to third parties, there is no right to indemnity if the act of the master complying with orders is manifestly wrong or tortious (Nogar Marin)

3) Delimitation of employment orders

Conflicting requirements: seaworthiness or cargoworthiness

The interest of the vessel The interest of the cargo owners and charterers

Hill Harmony : “The charterers right to use the vessel must be given full and fair effect: but it cannot encroach on matters falling within the specialized professional maritime expertise of the master, particularly where the safety or security of the vessel, her crew and cargo are involved”

Ibid: “The master remains responsible for the safety of the vessel, her crew and cargo. If an order is given compliance with which exposes the vessel to a risk which the owners have not

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agreed to bear, the master is entitled to refuse to obey it: indeed, as the safe port cases show, in extreme cases the master is under an obligation not to obey the order”.

The C is thus not entitled to give instructions, and the owner must refuse to comply with orders which affect the safe navigation of the ship

In the Hill Harmony: “the choice of ocean route was in the absence of some overriding factor a matter of employment of the vessel, her scheduling, her trading so as to exploit her earning capacity”

The master is placed on the horns of the dilemma: the material question is whether he acted reasonably (The Stork):

o He may delay complying with the orders: The right of the owners or the master to delay for a reasonable time before complying with an order is not confined to specific categories of cases and the question to be determined in each case is how a person of reasonable prudence would have acted in the circumstances: see the judgments of the Court of Appeal in The Houda [1994] 2 Lloyd’s Rep. 541, below. Delay may, for instance, be justified in the face of orders which could expose the ship or the cargo to potential peril.

o The Houda was time chartered to Kuwaiti charterers on an amended Shelltime 4 form. The ship was given standing instructions that all voyage orders would be issued by the charterers in Kuwait. Following the invasion of Kuwait by Iraq the charterers’ office was moved to London and it was from London that voyage instructions were issued to the ship. The owners delayed compliance with the orders, questioning whether they were lawful, and subsequently refused to comply with the charterers’ further orders to discharge the cargo at Ain Sukhna without production of the bills of lading, which had disappeared following the invasion. It was held by the Court of Appeal, reversing Phillips, J., that:

1)While charterers’ orders ordinarily required immediate compliance, the circumstances in which an order was received, or the nature of it, might make it unreasonable for the master to comply without further consideration or enquiry. The question to be determined in each case was how a person of reasonable prudence would have acted in the circumstances and the circumstances of the case in question were capable of constituting reasonable grounds for some delay in compliance.

(2) In the absence of contractual provision—and the amended Shelltime 4 charter made no such provision—time charterers (like voyage charterers) were not entitled to require the owners or the master to discharge cargo without production of bills of lading, even though such discharge might not in fact infringe the rights of the parties entitled to possession of the cargo.

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a) Employment v Seaworthiness

Court Line v Canadian Transport. He has the right to intervene to prevent the ship from becoming unseaworthy but not a duty (Imvros) only if he knew but the C no that the proposed stowage would affect the ship’s safety.

If the master fails to refuse an order which he has a responsibility to refuse, the owner will not be entitled to an indemnity (Larrinaga v The King (1944))

b) Orders that the master must refuse: no right to indemnity illegal acts

o for eg: delivery to recipient without B/L: the SO does it at his own risk (Sze Hai Tong Bank v. Rambler Cycle Co. Ltd. [1959])

fraudulent

D) OBLIGATION OF REASONABLE DISPATCH

There is an obligation to perform the contract within a reasonable time.In a voyage charter, implied undertaking that the vessel will proceed to voyage, load and discharge at the agreed time or within a reasonable time.In timecharter, the master is expected to prosecute the journey with the « the utmost dispatch »1

The test: what can be reasonably expected from the shipowner under the actual circumstances existing at the time of performance.« When the language of the contract does not expressly, or by nexessary implication, fix any time for the performance of a contractual obligation, the law implied that it should be performed within a reasonable time. The rule of general application, and is not confined to contracts of CGS. In the case of other contracts the condition of reasonable time has been requently interpreted; and it has invariably been held that the party upon whom it is incumbent duty to fulfils his obligations notwithstanding protacted delay, so long as such delay is attributable to causes beyond his control, and he has acted neither negligently nor unreasonably »2

1) Voyage Charters

a) Proceeding to the load portThe shipowner must proceed to the loading port with due dispatch, i.e arrive at the load port at the time specified in the charterparty. Business interests of the C.CPgenerally include the following provisions:- That the sO will give an estimated ready to load date- That the vessel shall proceed to the load port with reasonable dispatch- Cancellation clause

The cancellation clause provides that if the vessel has not presented Notice of Readiness at 1 Baltime , clause 9; NYPE 46 clause 82 Lord Watson in Hick v Hammond (1893) ACC 22 at p 32. Modern exmaple: The Kriti rex (1996) 2 lloyd's

Rep 171.

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the agreed location by an agreed date, then the charterer shall have the option of cancelling the charterparty. The notice of readiness to load can thus only be given once the ship has arrived. The first question is: what is an arrived ship? The second question is: when is notice of readiness to load given?Thirdly what are the consequences of a breach?

i) The arrived ship?- Definition:

o Interest and relevance: for compliance with the due dispatch obligation, whether proceeding to the load port or the laden voyage/ determining whether an arrival is late or not/ difference between delay on the part of the SO or the C; demurrage/damages

o Voyage charters are of three types depending on whether the loading point is specified as a berth dock or a port

o Regarding berths and docks the solution is simple: the ship is arrived once it enters the dock or the berth (respectively, Stagline Ltd v Board of Trade (1950)

o More difficulties arise however in the case of the nomination of a port: Larger geographic area Variety of definitions of a port: administrative, geographic or

commercial standpoint? The definition was clarified by the House of Lord in Johanna

Oldendorff. The House rejected the commercial area approach The test was the following:

o The vessel must be within the geographic and legal area of the port in the sense commonly understood by its users. A ship is not considered to have arrived if the ports authorities ordered it to stay outside its area

o The decisive test is whether the ship is immediately and effectively at the disposal of the charterer in the sense that it can reach a berth quickly when informed that one is vacant. Given the speed of communication, this could be the case when the ship is anchored at some distance from a specified berth

o The ship is presumed to be effectively at the disposal of the charterer when anchored at a place where ships usually lie while waiting for a berth a that port, proof of the contrary provided by the C.

- How to avoid delay: provisions in the charterparty: the So is generally not prepared the risk of such loss and will take appropriate action:

o The SO will prefer the nominated port clause than the berth or dock since the ship may be arrived even if the port is congested

o Alternatively he will demand the inclusion in the charterparty of specific clauses shifting the risk of such losses:

Clauses designed for specific ports : when ports are renowned to be generally congested, clauses are included whch provide that laytime will run from the moment vessel reaches a specific point

The clause will operate even though the ship is not arrived

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the consideration of availability of ship for C disregarded (second limb of the HL test discarded)

Clauses requiring the charterer to nominate a reachable berth Angelos Lusis as a matter of construction; such a clause

transferred the risk of delay to the charterer if he could not nominate a vacant berth because of congestion in the port.

It will cover situations where the berth is available but not reachable due to bad weather or fog (The Fjordaas (1988))

All that is required is that the ship reached a point either inside or outside the port (difficult reread) where it would be held up in the absence of the nomination of a reachable berth

If however the ship is arrived ship at the point, with the result that laytime commences, then the charterer cannot be required to pay twice for the same time (The DElian Spirit (1971): it was held that once laytime began to run, the charterer could trade of time saved in loading against the intial time lost while he was prevented from nominating a reachable berth

Time lost waiting for a berth: o The object of this clause is to shift the risk before the

vessel becomes an arrived ship, ie from the time when it could have entered a berth had one been available

o Thus in the case of a berth charter, it will cover the period when the vessel is wainting inside the port in circumstances where, according to the Johanna criteria, it is not immediately and effectively at the disposal of the charterere. The crucial question is whether the basic reason for the delay is the unavailability of the berth

o The time lost is to be regarded as laytime: lord diplock in the Darrah (1977): “the vessel is to be treated as if during that period she were in fact in berth and at the disposition of the charterer for carrying out the loading or discharging operation…and..in the computation of the time lost in waiting for a berth there are to be excluded all period which would have been left out in the computationof permitted laytime used up if the vessel had actually been in berth”

Time to count whether in berth or not

ii) Notice of readiness to load- Before laytime begins, not only must the ship be an arrived ship but the owner must

have given the prescribed notice of readiness to load, and second the ship must in fact be ready to load

o Notice of readiness to load: use is to inform the charterer that loading may begin and provide a starting point for the calculation of laytime

o Notice of an anticipated readiness to load is ineffective even tough the vessel

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was in fact ready to load at the time the notice was giveno Mass Glory (2002): laytime will not commence in the absence of a valid notice

of readiness to load with the result that, not only will the owners have no claim for demurrage but they may also be obliged to pay the charterers dispatch money for the whole of the agreed laytime period.

o Notice is not obligatory for dischargeo Actual readiness to load: variety of factors: position of the vessel, physically

capable of receiving cargo, complied with ports health and documentary requirements

o Notice of readiness can be given validly even though the ship has not yet arrived for eg under a port nomination clause

iii) Obligation of due dispatch and effects of non compliance

The Charterers need to know when the ship arrives so that they can load the cargo: the cargo must be available for loading when the ship arrives: if not they may incur losses or even use of the ship

The SO must give an estimated ready to load date, that the ship will proceed to the laod port with due dispatch, that if not the C have a right to cancel the fixture: this is the CANCELLATION CLAUSE.

Cancellation: the Charterers can cancel the fixture for the delay whatever the reason of delay

A) It cannot be exercised before the cancellation date:1) It must be exercised within the time allowed by the contract2) If there is no such time, soon after the cancelling date or time3) If he does not do so, the right is lost (The Nikmary (2003)

B) The SO, when they know that the ship is to arrive late can give notice of the late arrival before the cancellation date in order either for the C to cancel the fixture or extend the cancellation time

C) The right to cancel bears no prejudice to a right in damages if the delay has been caused as a result of a breach of contract by the SO:

1) The C must prove that another duty was breached under the contract2) For eg an estimated to load clause given in bad faith and on

reasonable grounds If the charter contains a ready to load date, the ship is under an absolute obligation

that the vessel should start the voyage to the loadport wherever she may happen to be, by proceeding with reasonable dispatch, she will arrive at the port of loading by the expected date (Baleares (1993))

The journey to the loadport should be done with reasonable dispatch: generally express term

A) Limitation of liability clauses do not cover the period before the ship commences her approach voyage unless they are very clearly worded. (North Anglia)

B) Clause 1 Gencon: the duty of reasonable dispatch only starts after the ship has

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completed her prior engagements

b) Proceeding on the laden voyage: the duty not to deviate

i) RULE

A carrier of goods is under an implied duty if not express to prosecute the voyage: By the Usual customary route:

A) If the ship deviates unintentionally because of circumstances, it will not be deviation: deviation needs intention

B) If the ship deviates unintentionally because of unseaworthiness which was unknown prior to commencement of the voyage, there will be no deviation: if known unseaworthiness, there will be.

With reasonable dispatch In the same vessel And Under deck…

ii) EFFECT OF THE BREACH

The House of Lords held in 1936 in Hain v Tate&Lyle that a deviation was a form of “fundamental breach”. It abrogates the contract. The carrier is therefore treated as an ordinary carrier who cannot rely on the terms of the special contract yo which he is not entitled in any event by law (freight, etc..)He will have a defence to cargo claim:

if he can prove that the dqmage was caused by an act of the enemy of the queen or act of God.

The damage would have occurred even had there been no deviation

Cover is lost in case of deviation P&I clubs.

The House of Lords held in 1980 in Photo Productions v Securicor (1980) AC 827 that the doctrine of “fundamental breach” has been abolished from the “ordinary law of contract”

The contract can survive a very serious breach providing that the wording makes it clear that the parties intended it to be such, so a term providing limitation of liability in case of deviation can be held to be valid (ie the new trend)

A) The carrier can rely on the one year limit in Hague VisbyB) Package limitation rights of HV: article IV rule VC) Cases:

1) Antares (1997)2) Happy Ranger (2002)3) Kapitan Petko Voivoda (2003)

iii) WHAT JUSTIFIES DEVIATION

a) A custom

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To be custom a practice has to be more than merely common or usual:A) It Must be certainB) ReasonableC) Consistent with the contractD) Universally acquiesced E) And Not contrary to law

b) Implied justification Danger affecting the safety of the ship and crew and cargo Save life on board other ships but not property To pick up bunkersc) Statutory justification Dangerous goods (Imdg code) H and HV rules: Art 4 rule 4

o Any deviation is saving or attempting to save life or property or any reasonable deviation shall not be deemed an infringement of these rules or of a contract of carriage and the carrier shall not be liable for any loss resulting therefrom

d) Express The more general the liberty to divert the more strictly the less likely the courts will

enforce it This clause will not protect the carrier under the B/L unless the clause of the C is

included in it or itself has a similar clause. Revised order clauses are an option to charterers who change their minds (seminar)

A) Require the SO to commit deviation under B/L which have been issued prior to the change of orders

B) If the SO complies with new orders he may lose his P&I cover under the B/LC) Clause not resulting in deviation: ASBAII: charterers may change ports or vary

their rotation consistent the B/L

1) TIME CHARTERS

If the owners fail to to prosecute the voyage with utmost dispatch may entitle the charterers to put the vessel off hire if the off hire clause is wide enoughThe shipowners will not be able to rely on limitation of liability because these cover only limitation of damages and not off hire

II) THE DUTIES OF THE CHARTERER

A) TO PAY RENUMERATION DUE TO THE SHIP OWNER

1) TIME CHARTERS: HIRE

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a) Payment of hireIt is up to the parties in the charter to specify how they wish to pay hire

- By cash generally: what is cash? o When the owner’s account is irrevocably credited and the money is at the

free disposal of the ownero The Brimneso Payments not amounting to cash:

Egs: payment by uncleared check Banker payment slips (The Georgios C (1971)) Payment which cannot yet earn interest

- Payment in advance: o If payment falls due on a weekend or holiday, the C must pay on whoever

prior day will enable his payment to be in advance. He will be in breach if he pays after the oping of the bank (The Laconia (1977)

o He will have until midnight to pay even though the banks may have closed before hand and the money is cleared on the day the banks open again The AFovos (1983)

- Payment in full : Unless the Charter expressly says to the contrary the C must pay for the full period specified even if it is clear that redelivery will occur before the end of the stipulated period of hire Tonnelier v Smith (1897)

o However most charters provide that payment may be made only for estimated period of hire left

- Payment in full (2): DEDUCTIONS: o There is no right to make a deduction fgrom hire unless:

The charter expressly provides so (The Li Hai (2005)) Right to do so under off hire clause Equitable right of set off at law

When the charterers have a counter claim against the ship owners if:

o The cross claim arises from the same transaction or closely related to it

o The cross claim go directly to impeach the charterer’s demands or needs, ie his use of the vessel (The Nanfri (1978)

o Excessive deductions: The deductions will not be considered excessive even though there

were so long as the deduction was made: In good faith On a reasonable assessement (The Nanfri (1978)) The Kostas

Melas (1981))

b) EFFECT OF THE BREACH: Shipowners remedy for failure to pay hire: damages or termination of the charter

o Termination of the contract may arise:o When:

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There exists A right in law If the charterer deliberately fails to pay full on time and had

therefore repudiated the charterparty Or it can be shown that the charterer failed on numerous

occasions to pay hire A contractual right

o Incidence of right: The withdrawal of service does not terminate the contracts the SO has

with other parties (eg B/L) so the timing of withdrawal is crucial (ie when the ship is free of cargo)

He cannot simply suspend services: he must either withdraw or continue

Right to withdraw may be lost sometimes: By Waiver : an owner may be estopped from arguing that

payment was not made on time if it is established that the payment is in accordance with a practice between the parties (Tank Express v Cie Belge (1948)

The Scaptrade (1983): difficulty of finding waiver: silence will not amount to it.

Antitechnicality clauses: the purpose is to give the charterer a chance to remedy the situation of failure of payment within a specific period expressed by the clause. Such clauses oblige the owners to notify the charterers of the failure to pay hire on time and to require them to pay within an additional period of time (grace period)

Since suspension of services is not allowed unless expressly provided by the C, the SO provide for it under the CP: refuse to comply with the charterer’s employment orders until paid:

Usually used in conjunction with antitechnicality clauses: te right to suspend only operates after the end of the grace period under the AT clause. Therefore the SO must still comply with the C orders during the grace period

Benefits: right to suspend services allows the SO to refuse the loading of cargo and thus eventually withdraw from the fixture without facing liability under potential B/L

Solution by BIMCO : non payment of hire clauses: No need for notice (AT clause) Services can be suspended automatically Hire is earned during this period

c) Period of hire Difficult to plan exactly the date at which a vessel will arrive at the redelivery port:

o There may be problems of underlap or overlapo Litigation will arise when there are serious fluctuations in hire rates and is

encouraged by wide variations in the wording of overlap clauses. When market rates fall, the position is reversed

i) Specific clauses

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o When the clause provides for a stated flat period of time, the courts take the view that time is not of the essence and allow a reasonable and commercially acceptable margin of error, usually in the region of 4 to 5% (two weeks for year charter)

o US arbitrators give a choice to the C between overlap/underlap through the possibility of last voyage

o Parties however can change all this Normally, early redelivery does not give rise to refund (Reindeer SS Co v Forslind

(1908) If early redelivery is to regarded as a breach of contract, It is arguable that the owner

is under a duty to mitigate his loss by rehiring the vessel should this be commercially possible within the balance of the charter period: dangers as seen in the Zenovia (2009)

ii) Effect of overlap

In such an event the liability of the C’s will vary, depending on whether there was a breach of contract:

o If redelivery is made within the period of tolerance, then he will be required to pay hire for extra time

o Outside this period: damages will be assessed in relation to the current market rate of hire

In order to determine whether there has been breach of contract, the courts have applied a “legitimate last voyage” test in deciding whether a C is in breach of contract: the C is not in breach, if when the vessel dispatched on final voyage, he could have reasonably expected the voyage to be completed within the charter period plus permitted leeway:

o Legitimacy judged at the time of the vessel’s departure, not time of order (The Democritos (1976))

o Even though the order for the last voyage is legitimate, the C is still under obligation to reldeliver on time: if supervening events prevent him from doing so, he will be liable for breach of contract even though circumstances beyond his control (The Gregos (1992))(The Peonia (1991)

2) VOYAGE CHARTERS: FREIGHT

INTRODUCTION

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Freight is the consideration payable to the carrier for the carriage of goods from port of shipment to port agreed of destination.In the absence of contrary agreement, CL presumes that freight is payable only on delivery of the goods to the consignee at the port of discharge. The Carrier cannot demand freight if he has not fulfilled his obligations

The contract of AF is said to be entire and indivisible. Cannot demand freight if he hasn’t delivered the goods regarless of circumstances. Even if that occurance is covered by an exception since an exception is intended to protect the carrier against an action for non delivery and does not entitle him to freight which he has not earned (Hunter v Prinsep 1808)

Freight is only payable in case of non delivery where the failure to reach the port of discharge is due to some act or default on the part of the Cargo Owners.

However the Carrier can protect himself: Insure against loss of freight Stipulate portion of freight payable in advance Transship the goods and claim the full freight when they arrive at destination

When the cargo is damaged, the agreed freight is nevertheless payable in full and receiver has no right of set off even though the deterioration is so great that the cargo delivered is no longer worth the freight. (Dakin v Oxley 1864)Aries Tanker Corp v Total Transport (1977) per Lord Wilberforce

The consignee may bring a cross claim for compensation. The rationale of the rule of no freight deduction is doubtful: Lord Denning attempted to explain it in the Brede (1973): if this would be allowed it would enable cargo owners to refuse to pay on flimsy grounds.

Freight howver is not payable if the goods are so badly damaged on their arrivl that they are unmerchantable in the sense that they no longer answer their commercial description (Duthie v Hilton 1868)

1) ADVANCE FREIGHT

Once it is paid in advance, it cannot be recovered by the cargoowner even if it lost, provided that such loss is covered by an exception in the relevant chartyparty or bill of lading. (The Lorna 1 (1983)Not recoverable even if the contract of carriage is frustrated before arrival since there is no total failure of consideration within the rule established in the Fibrosa case (Fibrosa Spolka v Faibairn Lawson (1943)

Reasoning: distinction between the time when freight is payable and time when freight is earned (Lorna I): “ a liability to pay advance freight does not per se affect the time when freight is earned. It is simply an obligation to make a payment on account of freight at a time when it has not yet been earned”

Lorna I:

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Facts: terms of the contract provided that advance freight was to be paid five days of the master signing the B/L. The vessel and cargo was lost before the 5days expired.Held: The ca took the view that no freight was payable or earned before the expiry of 5 days, by which time the loss had frustrated the contract.

The Dominique (1987): same facts but concerning creditors who arrested the ship during performance of the contract: Held: freight was not recoverable

Problem with loan: can advance freight be identified as a loan to the SO for the ship’s disbursements and current expenses.The burden of proof lies with the SO to establish that it was intended as advance freight.

2) PAYMENT OF FREIGHT

a) Party from whom freight is dueGenerally either VCr or B/L

i) CP freight

He remains liable under a VC even though he subcharters the vessels or issues B/L to 3rd parties reserving under them a similar amount of freight as that due under the CP.The charterer may have no substantial interest in the CC once the cargo has been shipped: normally the C will include a “cesser clause” providing that the liability of the C for freight and other transport charges shall cease once the cargo has been loaded on the chartered vessel: it will be effective so long as the carrier has an effective lien on the goods in question (see p309). It will not however relieve him from liability as B/L holder

ii) B/L holder

The shipper will normally be liable for the freight on goods shipped under a B/L unless the carrier is informed at the time of shipment that he is merely acting as agent on behalf of another party

Can be relieved if express clause in the B Carrier giving credit to the consignee, by for example, accepting a B of exchange

drawn on the consignee for his own convenience

The law prior to 16 september 1992

Shipper The initial responsibility of the shipper for payment survives the subsequent endorsement of the bill to a consignee or other indorsee. Consignee becomes personally liable to pay freight as result of B/L Act 1855, s 2 reserves a right of recourse of the carrier against the shipper.

Consignees and endorsees: liable s 1

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Two problems: B/L A not applicable: when the party for eg did not intend ownership to pass to the

indorsee: solution but not really: person presenting B/L intends to pay freight. What about consideration?

Liability of consignee of advance freight outstanding at time of delivery: prima facie they should be liable since s 1 provides tha on endorsement of the B, such a party should be treated as “if the contract contained in the BL has been made by himself”. If the endorsee was the transferee of the bill for value, who took it in ignorance of outstanding payment, he would be estopped in his favour.

The law after 16 september 1992 ( COGBSA 1992 see p137)

Shipper Initial liability S 3(3): he remains liable as original party to the contract

ConsigneesThe obligations under the contract including that to pay freight attach themselves to him only once he seeks to enforce the contract: he has taking or is demanding delivery of the goods, making a claim under the CC or having taken or demanded delivery of the goods before acquiring title to sueLiability for advance freight: a subsequent consignee shall “become subject tot the same liabilities under that contract as if he been a party to that contract” (s 3(1)). Again the question of estoppeli

b) Party to whom freight payable

The Shipowner: payable to an agent: either broker on port of loading or master on port of delivery

The Master The Charterer: demise Purchaser of the ship Morgatgee of the ship Assignee of freight: the assignement must be in writing, absolute, unconditional, and

written notice must be given to the debtor. It is immedialty effective between the parties. The assignment will take priority over subsequent sale or mortgage

An underwriter

B) VOYAGE CHARTERER: THE DUTY TO PROVIDE CARGO

The charterer’s duty is an absolute duty to provide cargo. It will be no excuse that he is prevented from doing so by reasons which are entirely outside his control. It is non delegable. It is subject only to the doctrine of frustration or agreed exception clauses:

- The Aello (1961)- The Nikmary (2004)

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1) The duty to provide cargo

a) Frustration and effect

Reminder: definition of frustration: “frustration occurs whenever the law recognizes that without default of any party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it thing readically different from that which was undertaken by the contract” (Davis Contractors v Fareham UDC (1956)

- If a generically described cargo is destroyed before shipment there will no frustration of the fixture since it is normally possible for the charterer to obtain alternative cargo (The Aello (1961))

- If the fixture was for a specific cargo there may be frustration The Aaby’s Red v LEP (1948)

- Supervening illegality: if the performance of the contract is rendered illegal there is usually frustration Fibrosa v Fairburn Lawson (1943)

b) Exception clauses

Exception clauses protecting the charterer against liability for breaches of the duty to provide cargo are very strictly construed by the courts (contra preferentem). Bunge v Brightman (1925)Grant v Coverdale: the exception clause will be construed often as as limitation of liability for the loading process and not the duty to provide cargo

c) Timing of availability of cargo

If the availability of cargo is a prerequisite for the commencement of laytime, the charterers are required to have it when the ship arrives. If not the So can claim damages for detention. The Aello (1961)However if laytime is to commence regardless of the availability of cargo, the SO remedy is demurrage . The Ulianovsk (1990).The SO can only withdraw the vessel if it is clear that the charterer has no intention of loading a cargo or the delay is such as to frustrate the object of the charterparty (Universal Cargo Carriers v Citati (1957). Note that the So must still wait for the end of laytime.However he may do so before aforementioned date if by conduct or expressly the charterer refuses to load: the SO can treat this as an anticipatory breach:

o Should he do so, he will be required to take reasonable steps to mitigate his loss if cargoes are available at that port from other shippers

o If the charterer does not accept a refusal to load as final, then the contract will continue and he will have no claim if the charterer susbsequently accepts to load a cargo or a supervening event frustrates further performance of the contract (The Theraios (1977)

d) The type of cargo

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- If the charter party provides for a certain type of cargo, then the charterer must provide cargo which fits that type

- If the description is general, the cargo must fit within the description and must be in reasonable good condition for loading (The Atlantic Duchess (1957)

i) Alternative types of cargo

- Charters will frequently provide for alternative cargoo When the cargo is not available, do the charterers have the right or duty to

load one of the alternative cargo?:o Fi the C is considered to have an option, and once it has been exercised, the C

fdoes not have the right or duty to load any alternative cargo if the original cargo becomes unavailable. Reardon Smith v Minister of Agriculture (1963)

o Howver if the charterer is considered to have a mere right to select one of the cargo, then even though selection has been made, the charterer is under the duty to load one or more alternative cargo if the original cargo becomes unavailable (Bunge v Brightman 1925)

o In modern world more likely first hypothesis

e) Volume of cargo

- Unless stated otherwise the charterer must provide cargo which fills the entire proper stowage space of the ship

- The charter sometimes provides for an optional quantity: once the owners have chosen with a quantity within the option , the C must comply with the O wishes (The dominator (1960)

- If the charterer fails to provide cargo, the owners are entitled to claim damages equivalent to the freight which would have been earned had there been no breach less saved costs (deadfreight)

o Saved costs: if the voyage does not proceed at all, credit must be given to the charterers for saved voyage costs

2) Laytime and demurrage

a) Laytime

- The notion is to be studied because useful is understanding the date from which the charterer can load the cargo, and the date at which it can be said that he breached the duty to provide cargo.

- Period of time within which the loading or discharging operation is required to be completed will be prescribed and is known as laytime.

i) Suspension of laytime

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- To what extent will hindrances and obstructions encountered during the loading or discharging operations interrupt the running of laytime?

o Where no specific period of laytime is fixed or the charterer is required to load with customary dispatch, any obstruction which effectiviely interrupts the laoding will excuse the charterer:

Provided that outside his control Otherwise he has conducted the operation operation with reasonable

dispatch Eg: strikes of labourers (Hick v Raymond (1897), lack of availability of

berth due to congestion (Good v isaacs (1892), arrest of the vesselo When laytime is prescribed: strict obligation to load within such time and the

C must bear all risks unless covered by exceptions in the C/P or due to the fault of the SO.

Time will not run against the C if the delay is attributable to the fault of the SO or results from an action taken entirely in his own interest as for example

Eg: when a ship is removed form loading berth for bunkering purposes (Re Ropner Shipping Co (1927)

ii) Completion of loading

- Laytime is at the free disposal of the Charterers: all that matters to the owners is the actual time occupied by those operations. Salmon Lj in the The Theraios (1971)

- Margaronis Navigation Agency v Peabody (1965): if not full cargo loaded, the charterers can detain the vessel to complete full loading, even if the amount left to load seems insignificant: this amount must still be commercially significant.

- Howver once the loading is complete, the C has no right to detain further the ship, even though laytime has not expired: Nolisement (Owners) v Bunge y Born (1971)

- Note: loading is not complete until stowage is complete (Argonaut Navigation Co v Ministry of Food (1949)

c) Demurrage and damages for detention

i) Demurrage

If detention of the vessel beyond laytime, because loading ahs not been completed, C/P will include a clause providing that the charterer may retain the vessel for additional days in order to complete loading on payment of a fixed daily amount, known as demurrage

- A pure creation of contract and it is in nature an agreement on the payment of damages ( a bit like a clause pénale)

o It is recoverable regardless of proof of damageo Represents the maximum amount recoverable for loss resulting from

detentiono Such a clause may be struck down by the courts if the rate is fixed so high as

to be “extravagant and unconscionable” in comparison with the greatest possible loss that could flow from the breach ( Dunlop v New Garage (1915)

o The reverse does not seem to be applicable

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o Lets not forget the rule “once on demurrage, always on demurrage”

iii) Damages for detention- If no provision of demurrage, then damages fixed by the courts

iv) Dispatch money- At common law, the charterer is not entitled to money for time saved, ie when he

completes loading and stowing before the expiry of laytime.- Howver a clause may be included which provides that the charterer is entitled to

payment for time saved, generally at half the demurrage rate.- Practically: the periods for which demurrage and dispatch money are payable are

cacluated separately: it may inconvenient for the C to be liable for demurrage for one period and may recover dispatch at another:

o He would prefer to set off time saved in one against time lost in another: Do this by providing that laytime is “reversible”

The charterer is entitled to add together the time used at each port and deduct these periods from the overall laytime until the latter is exhausted

or that time for loading and discharge shall be “averaged” the amount of laytime used at each port is calculated

separately, after which time saved at one port is set off against excess time used at the other

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C) THE DUTY NOT TO SHIP DANGEROUS GOODS

D) THE DUTY NOT TO NOMINATE DANGEROUS PORTS

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i Cf. The Hamburg Rules art 15.1 (k) which requires the BL t indicate the amount of fregiht, if any payable by the consignee. Failure to do so amounts to conclusive evidence that no such freight is payable in favour of the consignee who in good faith, has acted in reliance on the absence in the BL of anysuch indication(art.16.4)