GUEST OPINION: John Weale on GENCON 2022 - Part 3 - Contract of Carriage or Contract for Carriage?

Published: 12 January 2022

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When we started work on GENCON, it came as something of a shock to realise just how much things have changed in the last 25 years or so. Shipowners now operate in an environment which is much more highly regulated, especially in terms of the environment and safety. And we have just seen the Supreme Court in London revisit the concept of seaworthiness. All this has caused us to rethink things to a greater extent than we had expected – and one of these things is CONGENBILL.

Although designed for use with GENCON, this bill of lading is often used in conjunction with other forms of charter – including, I have discovered, some of the oil trades – and so it has to be fit to stand alone. In general, CONGENBILL has worked well, at least in terms of acceptance. But some courts have been rather resourceful in working round what we used to think was pretty clear. As an obvious example, in certain jurisdictions – not all of them Hamburg Rules countries – the arbitration clause has been read in a permissive sense, as opposed to exclusive. “Yes,” say these foreign judges to their local claimants, “You are free to initiate arbitration; but you don’t have to go there if you don’t want to.”

We are proposing to strengthen CONGENBILL in three ways: (i) to incorporate in the document its own law and arbitration provision instead of just relying on potentially ambiguous incorporation by reference; (ii) to include, on the face of the bill itself, an express statement that the contract of carriage is subject to this law and arbitration clause; and (iii) to address the situation where, as so often happens, the face of the bill omits the date of the governing charter.

Our new clause states expressly that the law and arbitration clause of the charter is exclusive, and limits court access to security, compliance and enforcement. The purpose here is to make the document self-sufficient and, in that sense, independent of the governing charter. It also, incidentally, allows us to have the GENCON charter incorporate verbatim BIMCO’s new Law and Arbitration Clause 2020.

THE CONTRACT OF CARRIAGE: THE BILL OF LADING

The revised draft CONGENBILL retains BIMCO’s Clause Paramount. As a crude paraphrase, I will say that the general purpose is to make the contract of carriage subject to the Hague-Visby Rules. And that is clearly reflected in the Bills of Lading clause of our revised GENCON draft, which provides that the bill of lading is to be presented in terms no less favourable to the carrier than those of this revised CONGENBILL.

Like its 1994 version, the new GENCON contains an indemnity from the Charterers where the bill of lading imposes terms more onerous than those assumed by the carrier under CONGENBILL. And to this, we have added a second indemnity where the bill of lading holder fails to comply with CONGENBILL’s law and arbitration clause. The reason for this second indemnity is the tendency of receivers in some cargo-friendly states to take security by arrest and then sue the Owners in their local courts. With this undertaking, the Charterers will remain on the hook for any extra costs or liabilities where the Owners are improperly sued outside the stated arbitration regime.

THE CONTRACT OF CARRIAGE VERSUS THE CONTRACT FOR CARRIAGE

When you explain the distinction between the contract of carriage and a contract for carriage, most shipping people will say: “Of course, that’s just common sense.” Perhaps. But if that’s so, it’s rather surprising how little discussion you will find in the literature. I don’t want to bore you with legal quotations; but I do think this one may be helpful. It comes from an English judgment of about 40 years ago. (The Torenia [1983] 2 Lloyd’s Rep. 210):

“The contract here is a contract in a bill of lading; it is a contract of carriage - that is to say, a species of a contract of bailment. It is not, as [the owners’ counsel] at one stage argued, a mere contract for the carriage of goods. Charter-parties are typically contracts for the carriage of goods. They are executory. They are intended to give rise to bailments (not necessarily between the parties to the charter-party). They may include terms of an intended bailment, but they are not normally the contract of bailment itself. They cover other matters besides the bailor/bailee relationship.”

Why should this matter? In our GENCON context, it matters because shipowners readily agree to make their charter subject to a Clause Paramount – quite often, they even request it. And this is not discouraged by the P&I Clubs, simply because their main focus here is on the Hague / Hague-Visby Rules as their minimum covenant for cover. As the Standard Club has written: “[W]e often receive queries from our membership, predominantly owner members, as to whether a clause paramount should be included into the subject voyage or time charter. Our general answer is ‘yes’.” (Standard Club web alert 22 December 2014).

This is all very well in the context of liability for cargo claims, which is in any case not usually high on the agenda of the broker fixing a prompt ship on a Friday evening. But the fact remains: when you add a Clause Paramount to the 1994 and earlier versions of the GENCON charter, you might as well draw a thick black line through its unique Clause 2, the so-called Owners’ Responsibility Clause.

See Part 1 and Part 2 of this series.