Commercial Law-Law of Carriage By Sea

Book Name: Commercial Law and Industrial Law 26th Edition

Writer: Arun Kumar Sen, Jitendra Kumar Mitra


Carriage of goods by sea from any port in India to any other port, in or outside India is governed by the Carriage of Goods by Sea Act of 1925. This Act is based upon the recommendations of the International Conference on Maritime Law held in Brussels in 1922. The conference drew up a draft convention for adoption by the leading maritime nations of the world. The object was to secure uniformity of laws as regards the rights and liabilities of carriers by sea and the rules regarding bills of lading.

The Merchant Shipping Act of 1958 was passed with the object of amending and consolidating the Indian law relating to merchant shipping.


The contract to carry goods by sea is called the Contract of Affreightment. The consignor (or his agent) and the shipowner (or his agent), are the two parties to the contract. The consideration paid for the carriage is called the Freight.

The contract of affreightment may be incorporated in a formal document containing the terms of the agreement between the parties. Such a document is called a Charter-Party. Some times, there is no formal document; the shipowner merely gives a receipt for the goods and in the receipt (known as the Bill of Lading) some of the terms of the contract are written down.



A Charter-party may be defined as an agreement in writing for the purpose of hiring an entire ship or a part thereof for the purpose of carriage of goods. The person hiring the ship or a part of it is called the charterer.


The following types of charter-party are found :

l. A charter-party for a particular period of time is called a Time Charter.

2. A charter-party for a particular voyage is called a Voyage Charter.

3. The terms of the Charter-party may amount to a lease or demise of the whole ship to the charter for a stated period. In this case, the charterer becomes for the time being the owner of the vessel and the captain and the crew become his servants during- the charter period. If the terms of the Charter-party do not amount to a lease or demise, the charterer only gets the right to have his goods conveyed by the ship and the captain and the crew do not become his servants, although their services are at the disposal do the charterer for the purpose of carriage.

Terms of charter-party

A charter-party is deemed to contain all the terms of the contract between the charterer and the shipowner. The clauses in a charter-party usually deal with the following matters :

1. Name of the parties and of the ship.

2. Nationality of the ship:

3: The class of charter-party, and its rating in the Lloyd's Register.

4. A statement on the location of the ship and the place of  loading.,

5. The shipowner's guarantee of fitness.

6. The manner in which the voyage is to be conducted.

7. The duties of the Master or the Captain.

8. The carrying capacity of the ship.

9. The liabilities of the charterer regarding freight etc.

10. The excepted perils enumeration of the circumstances under which the shipowner will not be liable to pay compensation for loss or damage to goods.

11. The terms regarding loading, unloading, lay days and demurrage.

12. Circumstances under which the contract will be cancelled and the penalties to which the parties may be liable for non-fulfillment of the terms.



A Bill of Lading is a receipt for goods delivered to a ship for carriage. A bill of lading is used when the goods shipped form only a part of the cargo of the ship.


A bill of lading has the following characteristics

l. Signature : It is signed by the shipowner or his agent. Usually the captain of the ship, as the shipowner's agent signs the bill of lading.

2. Evidence : The bill of lading is evidence of the contract for the carriage of goods. Some of the terms may be written down on the bill of lading. The Carriage of Goods by Sea Act of 1925 provides that the following particulars must be incorporated in every bill of lading issued from an Indian port :

(i) The leading marks necessary for the identification of the goods (such marks being stamped or otherwise shown on the goods or on the cases or packages) :

(ii) the number of packages or pieces or the quantity or weight as furnished by the shipper; and

(iii) the apparent order and condition of the goods.

3. Acknowledgement : The bill of. lading is, prima facie evidence of the receipt of the goods by the carrier.

4. Document of title : The bill of lading .is a document of title to the goods covered by the bill. The ownership of the goods can be transferred by endorsement and delivery of the bill of lading. The shipowner is discharged from his liabilities by delivering the goods to the person who produces the bill of lading. But the shipowner is not bound to deliver the goods to the holder of the bill of lading if there is any payment due for the carriage of the goods or if the consignor, in exercise of the right of stoppage in transit, gives instructions not to deliver. (The Indian Bills of Lading Act, 1856).


A Bill of Lading, as explained above, has three important functions viz.,

(i) it is an evidence of the contract of carriage,

(ii) it is an acknowledgement of the goods from the carrier, and

(iii) it is a document of title to the goods.

Examples :

(i) A bill of lading was qualified by the words "weight or quality unknown". Held, it was not a prima facie evidence of the quantity shipped. New Chinese Antimony Co. Ltd. v. Ocean Steamship Co. Ltd. I

(ii) Orange juice in barrels was shipped. Some of the barrels were old and defective, yet the shipowner gave a "clean bill of lading". Held, the shipowner was estopped from denying that the barrels were not

in good order and condition'. Brown Jenkinson and Co. Ltd v. Percy Dalton Ltd.

(iii) A bill of lading contained a printed clause which stated that "Contents" weight and value of goods unknown". There were 499 packages of Indian Polyethylene- in six ply paper bags. There was

an admission by the Shipping Company that

(1) the goods shipped were polyethylene

(2) the quantity and weight was mentioned in the bill of lading, and

(3) freight was charged on the basis of the particulars supplied by the shipper, Held, the Company cannot disclaim the liability and the company was liable for short delivery. Union Carbide Ltd. v. Jayanti Shipping Co.

(iv) Where the bill of lading issued by a common carrier, owner of vessel, stated that a certain party consigned the goods to self or to its agent at destination Calcutta, that party so referred to would be deemed to have retained the possession and reserved the right of disposal of the goods till the completion of the voyage. Great India Trading Co PVT. LTD v Angus  Co. Ltd. and another.


A bill of lading possesses some of the characteristics of a negotiable instrument. It is a document of title and it can be transferred by endorsement and delivery. But it is not a true negotiable instrument because of the following reasons :

l. It is not included in the definition of the term negotiable instrument as given in the Negotiable Instruments Act.

2. The transferee of a bill of lading gets only the rights of the transferor of the instrument. If the title of the transferor is defective, the transferee gets a defective title. 'But in the case of a negotiable instrument a bonafide purchaser for value without notice of defect, becomes a holder in due course and gets a good title in cases where the title of the transferor is defective.


l. A Charter Party is a formal document by which the charterer enters into a contract. with the shipowner for the hire of the whole or part of the ship. A Bill of Lading is only a receipt for goods taken on board a ship.

2. In a Charter Party the ship can be hired for fixed period. The captain and the crew then become the servants of the charterer. In a bill of lading the cargo-owner is not the servant of the captain and the crew.

3. A Charter Party contains all the terms of the contract between the Charterer and the shipowner A Bill of Lading may not contain any of the terms. But it is evident that there is a contract for the carriage of goods by sea. (affreightment).

4. A Bill of Lading is a document of title (the ownership of the goods covered by the bill can be transferred by transferring the bill). A Charter Party is not a document of title to any goods.

5. A Bill of Lading possesses some of the features of a negotiable instrument. For example, it can be transferred by endorsement and delivery. A Charter Party does not possess any of the characteristics of a negotiable instrument.

6. The stamp to be affixed in a Bill of Lading is much lower than in a Charter Party.


English Law

Under English common law there are three implied under takings by the carrier in all contracts of affreightment :

1. The ship is seaworthy. It is the duty of the shipowner to make the ship fit for the contemplated voyage.

2. The ship shall be ready to proceed upon and complete the voyage with reasonable dispatched.

3. The ship shall complete the voyage in the usual customary manner and without any unnecessary deviation from the usual route.

Indian Law

The Marine Insurance Act, passed in India in 1963, contains provisions regarding the warranty of seaworthiness, permissible

deviations etc. and the effects of their breach. (See Book V[. Ch. 3. pp. 429-430)


The Carriage of Goods by Sea Act of 1925 imposes the following duties on the carrier of goods by sea. from an Indian port .

1. The carrier shall be bound, before and at the beginning of the voyage, to exercise due diligence to,

(a) make the ship seaworthy ;

(b) properly man, equip and supply the ship ;

(c) 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:

2. The carrier shall properly and carefully load, handle, stow, carry keep, care for, and discharge the goods carried.

3. After "receiving the goods in his charge, the carrier or the master of agent of the carrier shall, on demand of the shipper, issue to the shipper a bill of lading containing the prescribed particulars. The Merchant Shipping Act of 1958 provides for the adoption of various measures for the safety of_ life and cargo at sea. [n 1966, the Act has been amended so as to include therein the provisions of the International Convention for the Safety of Life at Sea signed in London in June, 1960. [Examples : Provision of radio telegraph ; special rules regarding nuclear. ships etc.]


The Carriage of Goods by Sea Act of 1925 lays down the following rules regarding the liabilities of a carrier of goods by sea from an Indian port :

1. Any clause in the contract of affreightment by which the carrier is relieved from the liability to pay compensation for loss or damage arising from negligence, fault or failure to perform the duties prescribed by the Act, is void and inoperative.

2. The shipowner is not liable for damage arising from unseaworthiness of the ship unless such damages ace due to a failure to perform the statutory duties of the shipowner. Thus in India the liability to keep the ship seaworthy is not absolute.Whenever damage is caused by unseaworthiness, the burden of proving the exercise of due diligence is on the shipowner.

3. The carrier is not responsible for loss or damage arising from the following causes : neglect or default of the servants of the carrier in the navigation and management of the ship ; fire, unless caused by the fault or Privity of the carrier ; perils, dangers and accidents of the sea or other navigable waters ; act of God ; act of war ; act of public enemies ; arrest or restraint of princes, rulers or people or seizure under legal process ; quarantine restrictions ; act or omission of the shipper or his agents ; strikes or lockouts ; riots or civil. commotion's ; saving or attempting to save life or property at sea ; inherent defect in the goods ; insufficiency in packing ; insufficiency or inadequacy in making; latent defects in the goods not discover-able by due diligence ; any other cause arising without the actual fault or Privity of the carrier.

4. The carrier is not responsible for any loss or damage to goods exceeding £ 100 or its equivalent unless the 'nature and value of such goods have been declared by the shipper and inserted  in the bill of lading.

5. A carrier is at liberty to surrender in whole or in part all or any of his rights, and to increase his responsibilities and liabilities, provided such surrender or increase is embodied in the bill of lading issued to the shipper.

6. The carrier and the ship shall be discharged from all liability for loss or damage unless suit is brought within one year of the delivery of the goods or the date when the goods should have been delivered.


The Shipowner's Lien

As a carrier, the shipowner has a lien on the goods carried for the freight and other charges. The lien can be enforced by not parting with the goods until his dues are paid. There is no lien when the freight has been paid in advance or when freight has been agreed to be paid after delivery of the goods.

Maritime Lien

A maritime lien is a right which, specifically binds a ship, including, its machinery, furniture, cargo and freight. for the payment of a claim based upon maritime law. Maritime lien is possessed by the following persons-seamen for their wages; the holder of a botfomry bond for his dues; claimants for damages in cases of collision with the ship concerned ; persons who rescue ships or property from the sea.

A maritime lien is not a possessory lien, e.g., it can be exercised even without possession by filing suit in the appropriate court. In cases of maritime lien the rule is that the last in time ranks first in payment.

Mate's Receipt

When goods are delivered to a ship for carriage, a receipt for it is sometimes given by the Mate, who is an officer of the ship under the captain. The Mate's 'receipt can be subsequently exchanged for a regular bill of lading.

Clean Bill of Lading

When it is stated in the bill of lading that the goods are in good order and condition, the bill is said to be a Clean Bill of Lading. When a clean bill of lading has been issued; the shipowner is estopped from claiming later on that the goods were in a bad condition: (See cases in p. 381)

Through Bill of Lading

Sometimes goods have to be carried partly by sea and partly by land. A bill of lading which covers both carriages is called a Through Bill of Lading.


Deviation means departure from the usual and customary route or from the route agreed upon in a charter-party. Deviation is permitted to avoid the perils of the sea. Under Indian law deviation is permitted for the purpose of saving life and property. Damages can be claimed for unnecessary or unauthorized deviation. Charter-parties usually contain a clause regarding deviation. (See under "Voyage" in Book VI, Ch. 3)

Perils of the Sea

This term includes the dangers (apart from the ordinary actions of the wind and waves) which have to be faced in course of a sea voyage.

Examples : storms; collision with a sunken rock or an iceberg ; entry of water through a hole made by rats or a sword fish etc. A shipowner is generally exempted from liability when damages are caused by Perils of the Sea.

Excepted Perils

A charter-party usually specifies the circumstances under which the shipowner is not liable for loss of, or damage to goods. These circumstances are known as the Excepted Perils.

Examples : acts of God; action of the enemies of the State ; perils of the sea, etc.


Barratry means willful act of damages done by the crew in course of a mutiny or fight with the captain and the shipowner or among themselves.


To jettison means to throw out. Goods may be jettisoned during a voyage in order to avoid the danger of the ship sinking or heeling during storms. Goods may also be jettisoned if they are dangerous.


When some persons save a ship or any of its appliances or cargo from shipwreck, capture (by enemies or pirate) or loss from any other cause, they become entitled to a reward. The reward is called Salvage. The Salvors, i.e., the persons saving the property, have a maritime lien on the ship, cargo and freight for the reward. The amount of salvage is  generally determined by the courts, but the parties may settle the amount among them selves. 


The charterer usually gives some extra remuneration to the captain of the ship, calculated at a fixed percentage of the regular freight. The extra remuneration*is a reward to the captain of the ship for his care and diligence. It is called primage.


Freight means the consideration paid to the carrier, by the shipper for the carriage of goods. Freight is payable only if the goods are delivered in accordance with the terms of the contract. When the goods are lost the carrier is not. entitled to recover the freight, even though the loss might have occurred under circumstances which exempt the carrier from liability for the loss. But delivery of the goods in a damaged condition does not prevent recovery of the freight, unless the damage is so great that the nature of the goods is completely altered.

By agreement the freight may be payable in advance. Advance Freight can be retained by the carrier if the goods are lost by an excepted peril.

When a charterer agrees to pay a lump sum for the use of a ship, irrespective of the amount of cargo loaded, it is called a Lump Sum Freight.

The shipper and the carrier may agree that if the cargo is delivered at a place other than the place agreed upon, the amount of freight will be charged in proportion to the distance actually covered. Such a freight is called a Pro Rata Freight. .

If a shipper fails to load the amount of cargo he promised, he is liable to pay damage to the shipowner.for the This is known as Dead Freight.

Freight is ordinarily payable by the person with whom the shipowner has entered into the contract of affreightment. But by agreement, freight may be payable by some other person, e.g., the consignee.


Dunnage is any light material wedged between the cargo to keep it from rolling when stored. Grass is a kind of Dunnage.Union of India v. Ratilal Jaddavji.

Lay Days

The term "lay days" means the days allowed for loading or unloading a ship. The number of days to be allowed as lay days is fixed-by agreement and is usually mentioned in the charter party where there is one. Where there is no agreement as regards lay days, a reasonable time is given for the purpose. Lay days begin from the time when the ship arrives at the place agreed upon and the shipper has notice of it.


If the loading or unloading is not completed within the lay days agreed upon, the carrier is entitled to damages. Such damages are called Demurrage. Demurrage is usually calculated upon the number of days the ship is detained beyond the agreed lay days or reasonable time. Railways in India charge demurrage if goods are not loaded or unloaded within the time mentioned in the Railway Receipt.

Bottomry and Respondentia Bonds

The shipowner or the captain of a ship may find it necessary to borrow money on the security of the ship or the cargo or the freight. A bond by which the cargo only is pledged for the repayment of the money, is called Respondentia. A bond by which the ship and the freight are pledged is called a Bottomry Bond. (The term `bottomry' comes from the word -,`bottom', which means the keel of the ship and therefore stands for the whole ship). The moneys due on a Bottomry or Respondentia Bond are payable only if the ship reaches its destination safely. The rate of interest is therefore very high generally. If there are more than one Bottomry Bonds, the later bondholders get priority over the earlier., bondholders.

Particular Average Loss and General Average Loss

Goods may be lost in course of a voyage (thrown overboard or destroyed ) by accident or by deliberate intent. In some cases the loss has to be borne by. the owner of the goods lost. In some cases the loss of the owner has to be made up by contributions from the owners of the remaining cargo. The first type of loss is called a Particular Average Loss. The second type of loss is called a General Average Loss.

Cases of Particular Average Loss : When a particular article is lost by accident, the owner must bear the toss. For example, if a .boat belonging to the ship is lost during a storm the loss falls on the shipowner and he cannot claim contribution from the cargo-owners. Similarly if an article is thrown overboard because -it is dangerous, the loss must be borne by the owner. These are cases of particular average loss.

Cases of General Average Loss : When goods are thrown overboard or destroyed in order to save the ship or protect the adventure undertaken, it is called a general average loss. Example : goods thrown overboard in order to make a ship lighter during a storm so that it will not sink. The loss of the owner of the goods in all such cases must be compensated by contributions from the other cargo-owners. The following conditions must be satisfied before a general average contribution can be claimed :

1. There must have been a common danger. The danger must be real and not an imagined danger.

2. The danger must not have been due to a fault of the goods destroyed. A horse which turns mad in course of the voyage is It common danger but if it is destroyed, its owner cannot claim contribution. .

3. The sacrifice of the property concerned was voluntary and responsible.

4. Owners of cargoes which are not saved, cannot be called upon to contribute.

The fixation of the amount to be contributed by each cargo owner is a complicated process. It is done by experts known as Average Adjusters. It is usually provided in the contract of affreightment that the adjustments of general average loss will be done according to a set of rules known as the York-Antwerp rules. These rules were drawn up in international conferences held in York, Antwerp and certain other places. If the contract of affreightment does not contain any such provision, the adjustment is done according to the law of the country where the adjustment is made.