Court, Judges, Date:

House of Lords, UK

Lord Diplock, Lord Scarman, Lord Roskill, Lord Brandon of Oakbrook and Lord Brightman

11 April 1984; 24 May 1984

Catchwords:

Charterparty – Bill of lading – Incorporation of charterparty terms into bill of lading – Demurrage – Liability of transferee of bill to pay demurrage

Case Report by:

ARUN KASI

Appeal from:

Court of Appeal

Facts Summary:

A charterparty (in Exxonvoy 1969 form) provided that “[c]harterer shall pay demurrage”. The bill of lading incorporated the charterparty with a general incorporation clause stating “[t]his shipment is carried under and pursuant to the terms of the charter … and all the terms whatsoever of the said charter except the rate and payment of freight specified therein apply …”

The charterer defaulted in payment to the shipowner. The shipowner sought to recover demurrage due under charterparty from an holder of bill of lading. The shipowner argued that the terms of the demurrage clause in the charterparty was incorporated into the bill of lading and the holder of the bill was liable to pay the demurrage, by virtue of the above said incorporation clause.

Court of Appeal held that the holder of the bill was not liable to pay the demurrage.

Hence, this appeal by shipowners against consignees.

Held:

1. Appeal is dismissed.

• The word ‘charterer’ in the demurrage clause in the charterparty should not be manipulated to refer to the ‘holder of the bill’ in the context of the bill of lading

• Hence, the holder of the bill is not liable for the demurrage.

• Courts should be reluctant to hold the transferee of the bill liable on the demurrage clause as that it would impose a ‘liability of an unknown extent’, as it would be contrary to good commercial sense for a transferee to take such liability in the absence of clear words to that effect in the bill of lading.

Observation:

A similar conclusion was arrived at by the Court of Appeal in Spiros C [2000] 2 Lloyd’s Rep 550 (CA), where the demurrage clause in the charterparty, incorporated into a bill of lading, specifically obliged the charterer to pay the demurrage, hence no liability on the transferee of the bill to pay.

Comparatively, when a charterparty says in neutral tone that ‘freight to be paid’, courts have held that a general incorporation clause would bind the transferee of the bill: The Constanza M [1980] 1 Lloyd’s Rep 505 (QB).

Counsels & Solicitors:

Johan Steyn Q.C. and M. G. Collins for Appellants.

Gordon Pollock Q.C. and Charles MacDonald for Respondents.

Holman, Fenwick & Willan for Appellants.

Waltons & Morse for Respondents.

Cases, Legislation, Convention referred to:

Gray v. Carr (1871) L.R. 6 Q.B. 522

Porteus v. Watney (1878) 3 Q.B.D. 534, C.A.

The Merak [1965] P. 223, C.A.

The Annefield [1971] P. 168, C.A.

Adamastos Shipping Co. Ltd. v. Anglo-Saxon Petroleum Co. Ltd. [1959] A.C. 133; [1958] 2 W.L.R. 688; [1958] 1 All E.R. 725, H.L.(E.)

Annefield, The [1971] P. 168; [1971] 2 W.L.R. 320; [1971] 1 All E.R. 394, Brandon J. and C.A.

Gray v. Carr (1871) L.R. 6 Q.B. 522

Merak, The [1965] P. 223; [1965] 2 W.L.R. 250; [1964] 3 All E.R. 638; [1965] 1 All E.R. 230; Scarman J. and C.A.

Porteus v. Watney (1978) 3 Q.B.D. 534, C.A.

Thomas (T. W.) & Co. Ltd. v. Portsea Steamship Co. Ltd. [1912] A.C. 1, H.L.(E.)

Judgement:

LORD DIPLOCK: My Lords, the question before your Lordships’ House in this appeal is a short and, in my view, very simple question of construction of a bill of lading issued pursuant to and in the form annexed to a tanker voyage charter-party in the standard form known as “Exxonvoy 1969” which is widely used in the tanker trade. More specifically the question is whether the provision in the bill of lading which purports to incorporate terms of the charter-party renders the respondents (“the consignees”) as holders of the bill of lading when the cargo was discharged, personally liable to the appellants (“the owners”) for demurrage payable under the terms of the charter-party to the owners by S.E.A. Petrochem Pte. Ltd., Singapore (“the charterers”) who are in liquidation and insolvent.

At the trial of the action before Mustill J., there were other issues between the parties with which neither the Court of Appeal nor your Lordships have been concerned. Although the amount of the demurrage in issue is of the order of U.S.$250,000, the principal purpose of the parties in pursuing the appeal from that part of Mustill J.’s judgment that held that the consignees were not liable to the owners for demurrage, was to obtain an authoritative ruling on the question whether the holder of a bill of lading in the form (“the Exxonvoy bill of lading”) annexed to a charter-party in the Exxonvoy 1969 standard form, if he were not himself the charterer, was nevertheless personally liable to the shipowner for the full amount of demurrage payable by the charterer under the terms of the charter-party. Neither party has contended either in the Court of Appeal or in this House that the answer to this question depended upon the particular fact that in the instant case there was only one bill of lading and this covered a complete cargo of petroleum products carried in the Miramar from Singapore to Trincomalee in 1980. Exxonvoy 1969 contemplates that, at charterer’s option, there may be more than one loading port and more than one discharging port and that separate bills of lading may be issued, and must be issued if the charterer so requests, for shipments forming parts of the complete cargo loaded, it may be, at different loading ports for carriage to different discharging ports. The words in the Exxonvoy bill of lading upon which this appeal turns are the same irrespective of whether it is issued in respect of a complete or a part of the cargo, received on board at the first or any subsequent loading port for carriage to and discharge at the last or any previous discharging port. There must be ascribed to the words a meaning that would make good commercial sense if the Exxonvoy bill of lading were issued in any of these situations, and not some meaning that imposed upon a transferee to whom the bill of lading for goods afloat was negotiated, a financial liability of unknown extent that no business man in his senses would be willing to incur.

The Court of Appeal [1984] 1 Lloyd’s Rep. 142 in a judgment delivered by Sir John Donaldson M.R., upheld Mustill J.’s rejection of the personal liability of the consignees to the owners for demurrage although the reasons preferred by him for so doing differed somewhat, at any rate in emphasis, from those of Mustill J.

Both judgments, however, took as their starting point what had been said by Russell L.J. in The Merak [1965] P. 223, 260, and restated by Lord Denning M.R. in The Annefield [1971] P. 168, 184. Those two cases were concerned with whether or not the presence of a clause expressed to incorporate the terms of the charter-party in the bill of lading annexed, in The Merak to a charter-party in the Newbaltwood standard form, and in The Annefield in the Centrocon standard form, was effective to make the arbitration clause in the charter-party binding upon a holder of the bill of lading other than the charterer himself. Although the incorporation clauses in the bills of lading used with the Newbaltwood, the Centrocon and the Exxonvoy 1969 charterparties respectively are not in identical words, there is no distinction to be drawn between them that is relevant to the instant appeal.

In strictness, what was said by Russell L.J. and Lord Denning M.R. in The Merak [1965] P. 223 and The Annefield [1971] P. 168 was obiter as respects the correct approach to the extent to which incorporation clauses in bills of lading issued in standard forms annexed to charterparties, are effective to impose upon the bill of lading holder personal liability for non-performance of obligations undertaken by the charterer that are contained in clauses of the charter-party, other than an arbitration clause. Nevertheless, those dicta drew a clear distinction as respects incorporation in the bill of lading between an arbitration clause in the charter-party and a clause therein “which is directly germane to the shipment, carriage and delivery of goods.” A clause that falls within this latter category, it was said, is to be treated as incorporated in the bill of lading even though it may involve a degree of “manipulation” of the words in order to fit exactly a bill of lading.

The manipulation in the instant case for which the owners argued was of the words “charterer” in the demurrage clause (clause 8) of Exxonvoy 1969, so as to substitute for it “consignee” or “bill of lading holder” when clause 8 was incorporated in the Exxonvoy bill of lading. Mustill J. and Sir John Donaldson M.R. were able to find reasons for holding such substitution impermissible notwithstanding that a demurrage clause is one which is germane to the shipment, carriage and delivery of goods.

The owners’ application for leave to appeal from the Court of Appeal’s judgment was refused by that court, but was subsequently granted by an appeal committee of this House. As was explained to the petitioners at the hearing of the petition, leave was granted not because their Lordships had, at that stage, reached a state of prima facie doubt as to the correctness of the result reached by the Court of Appeal, but in order to give this House an opportunity of dealing with the extent, if any, to which it is permissible to indulge in what in the dicta to which I have referred was described as “verbal manipulation” of clauses in charterparties in order, by means of an incorporation clause in a bill of lading, to impose upon the holder of the bill of lading personal liability for non-performance of obligations which under the express terms of the charter-party are undertaken by “the charterer” under that designation alone and are not therein referred to as being obligations of any other persons interested in the shipment.

The incorporation clause in the Exxonvoy bill of lading reads:

“This shipment is carried under and pursuant to the terms of the charter dated … between … and … charterer, and all the terms whatsoever of the said charter except the rate and payment of freight specified therein apply to and govern the rights of the parties concerned in this shipment.”

The effect of the clauses in Exxonvoy 1969, which deal with laytime, clause 5 “Lay days,” clause 6 “Notice of readiness” and clause 7 “Hours for loading and discharging,” is to provide a combined total of 72 running hours of laytime for loading and discharge at loading and discharging port or ports, starting at each port six hours after receipt by the charterer or his agent of notice of readiness to load or to discharge, as the case may be. Clause 8, “Demurrage,” should be set out in full:

“8. DEMURRAGE. Charterer shall pay demurrage per running hour and pro rata for a part thereof at the rate specified in Part I for all time that loading and discharging and used laytime as elsewhere herein provided exceeds the allowed laytime elsewhere herein specified. If, however, demurrage shall be incurred at ports of loading and/or discharge by reason of fire, explosion, storm or by a strike, lockout, stoppage or restraint of labor or by breakdown of machinery or equipment in or about the plant of the charterer, supplier, shipper or consignee of the cargo, the rate of demurrage shall be reduced one-half of the amount stated in Part I per running hour or pro rata for part of an hour for demurrage so incurred. The charterer shall not be liable for any demurrage for delay caused by strike, lock-out, stoppage or restraint of labor for master, officers and crew of the vessel or tugboat or pilots.”

The incorporation clause in the Exxonvoy bill of lading, it is argued for the owners, requires one to treat the bill of lading as if it included the provisions contained in clause 8 of Exxonvoy 1969, not verbatim as they appear in that clause itself, but with the substitution by verbal manipulation of “consignee under a bill of lading issued in respect of the whole or any part of the cargo” in place of the word “charterer.”

My Lords, before I come to any refinements of semantics, I draw attention to the various combinations of circumstances affecting the using up of laytime and the accrual of liability to pay demurrage in which a bill of lading for some part of the cargo may be issued by the master on behalf of the owners or after having been issued may be negotiated by the holder of the bill. Laytime may have been exhausted and the vessel may already be on demurrage before any cargo has been shipped at the first loading port, let alone subsequent loading ports if the charter-party gives an option for more than one. After completion of loading of the full cargo any unused laytime will start running again on arrival at the first discharging port and will continue to run until either (i) the cargo has been completely discharged there or at subsequent discharging ports if there be more than one, or (ii) the laytime is exhausted and liability for demurrage starts to accrue.

So if the owners are right in their contention as to the construction of the incorporation clause in the Exxonvoy bill of lading, clause 8 read in conjunction with clauses 5 to 7 of Exxonvoy 1969, has the effect that every consignee to whom a bill of lading covering any part of the cargo is negotiated, is not only accepting personal liability to pay to the owners freight, as stated in the bill of lading, but is also accepting blindfold a potential liability to pay an unknown and wholly unpredictable sum for demurrage which may, unknown to him, already have accrued or may subsequently accrue without any ability on his own part to prevent it, even though that sum may actually exceed the delivered value of the goods to which the bill of lading gives title.

My Lords, I venture to assert that no business man who had not taken leave of his senses would intentionally enter into a contract which exposed him to a potential liability of this kind; and this, in itself, I find to be an overwhelming reason for not indulging in verbal manipulation of the actual contractual words used in the charter-party so as to give to them this effect when they are treated as incorporated in the bill of lading. I may add that to do so would raise a whole host of questions as to how the liability is to operate as between different consignees of different parts of the cargo, to which questions no attempt has been made to vouchsafe any answer, let alone a plausible one. To give some examples: is any personal liability for demurrage incurred by consignees of cargo which has been discharged before the expiry of laytime? If the discharge of a consignee’s cargo takes place after the vessel is on demurrage is his liability to pay demurrage limited to the amount of demurrage accrued after the expiry of laytime and up to the time when the discharge of his part of the cargo is complete? Is each consignee liable for all demurrage accrued while his cargo remains on board? Is the liability of each consignee to pay demurrage several? If the shipowner chooses to sue one consignee of part of the cargo for the full amount of demurrage has that consignee any right of contribution against consignees of other parts of the cargo and, if so, against which of them and upon what basis?

My Lords, I bear in mind that in the 19th century case of Gray v. Carr (1871) L.R. 6 Q.B. 522, the argument based on business common sense although it appealed to those two outstanding nineteenth century jurists, Brett J. (later Lord Esher) and Willes J., did not prevent the other members of the Court of Exchequer Chamber from concluding that by the incorporation clause contained in a bill of lading issued for the complete cargo loaded under the particular form of charter-party in that case, there was incorporated in the bill of lading a clause appearing in the charter-party that provided for the payment of demurrage after expiry of agreed total laytime used at loading and discharging ports combined. The demurrage clause in the charter-party in question used the passive voice and thus did not expressly designate the person by whom such demurrage was to be paid; and the majority of the court (Kelly C.B., Bramwell, Channell and Cleasby BB.) held that by virtue of the incorporation clause in the bill of lading the consignee who was the holder of it was liable for demurrage that had accrued at the loading port before the cargo had been loaded and the bill of lading issued as well as demurrage that accrued at the discharging port thereafter.

The construction placed by the majority of the Court of Exchequer Chamber in Gray v. Carr upon the demurrage clause in the charter-party and the incorporation clause in the bill of lading was followed by the Court of Appeal in Porteus v. Watney (1878) 3 Q.B.D. 534, where it was applied to a bill of lading for part of the cargo only. Brett L.J., who was a member of the court, regarded the reasoning of the majority in the earlier case from which he had dissented, as incapable of leading to a different conclusion where the bill of lading was for part of the cargo only.

These two cases, however, were decided by applying a literalist construction to the actual words appearing in particular clauses in a charter-party and a bill of lading which were in very different terms from those with which your Lordships are concerned in this appeal. No “verbal manipulation” was called for, and your Lordships are not called upon to decide whether these decisions ought to be treated as formally overruled; but, for my part, I have little doubt that both those cases and some other relatively old cases that followed them would, by the application of reasons based upon commercial considerations to which I have already alluded, have been decided differently if they had been tried in the last two or three decades.

I turn now to the terms of Exxonvoy 1969 which it is provided by the incorporation clause in the Exxonvoy bill of lading, are to “apply to and govern the rights of the parties concerned in this shipment.” As there is no cesser clause in Exxonvoy 1969 such parties include the charterers until completion of discharge of the vessel, as well as the holders of the Exxonvoy bill of lading as consignees.

Exxonvoy 1969 comprises a preamble which states the parties, described as “owner” and “charterer” respectively, and the vessel’s name. This is followed by Part I in which particulars of the chartered voyage are to be inserted including, what is most directly relevant to the instant appeal, total laytime in running hours and the rate of demurrage. Part II, which is in standard printed form, consists of 26 numbered clauses to which there is annexed the Exxonvoy bill of lading.

The obligation on the master to sign bills of lading in this form is referred to in clause 1, and is expressly imposed by clause 20 “Issuance and terms of bills of lading,” which sets out in seven sub-paragraphs specific terms commonly included in bills of lading including the clause paramount. Clause 20 goes on to provide:

“(b) The carriage of goods under this charter-party and under all bills of lading issued for the cargo shall be subject to the statutory provisions and other terms specified in sub-paragraphs (i) through (vii) of this clause and such terms shall be incorporated verbatim or be deemed to be incorporated by reference in any such bill of lading.”

The seven sub-paragraphs comprise (i) a clause paramount; (ii) a Jason clause; (iii) a general average clause; (iv) a “both to blame” clause; (v) a limitation of liability clause; (vi) a war risks clause, and (vii) a deviation clause. There is nothing here to impose upon a consignee or bill of lading holder any personal liability for demurrage: and parenthetically I draw attention to the fact that the passage in paragraph (b) of clause 20, for which I have myself supplied the emphasis, draws a distinction between carriage under the charter-party and carriage under bills of lading. It recognises the co-existence of a plurality of contracts for the carriage of the same goods in the vessel; the charter-party is one, a bill of lading issued for those goods after it has been negotiated is the other.

My Lords, in 22 of the 26 clauses in Part II there are express references to contractual rights or obligations of “the charterer” under that designation. For my part, I can see no business reason for verbal manipulation of that designation in any of those clauses so as to substitute for the words “the charterer”, or to include within that expression, “the consignee” or “holder of a bill of lading” even if the whole of Part II of Exxonvoy 1969 were set out verbatim in the Exxonvoy bill of lading issued pursuant to clause 20.

I see no justification for resort to the maxim of construction falsa demonstratio non nocet cum de corpore constat, such as induced this House in Adamastos Shipping Co. Ltd. v. Anglo-Saxon Petroleum Co. Ltd. [1959] A.C. 133, to treat the words “This bill of lading” as if they were “This charter-party.” This part of the Adamastos case, upon which, unlike other issues in the same case the House was unanimous, provided as good an elementary text-book example of the application of this Latin maxim as the classic one in which the intended corpus which is “Blackacre” is, by an obvious mistake described as “Whiteacre.” In the instant case, however, every reference to “the charterer” by that designation in Exxonvoy 1969 although it would not necessarily affect directly legal obligations as between the owner and the consignee would nevertheless make perfectly good sense, when incorporated verbatim in the Exxonvoy bill of lading, if it meant the person designated as “the charterer” in the charter-party and no-one else.

If further reasons were needed (and for my part I do not think that any are) for treating “the charterer” as meaning only the person referred to in the preamble to Exxonvoy 1969 as the charterer and no-one else, a good semantic reason may be found in the fact that in four clauses in Part II, of which one is clause 8, the demurrage clause itself, and the other three are: clause 10 “Pumping in and out,” clause 14 “Ice,” and clause 19 “General exceptions clause,” there are specific references to “consignee” under that express designation in the very same sentence as a separate reference to “the charterer.”

Mustill J.’s main reason for rejecting the argument that the word “charterer” in the first sentence of clause 8 should be read as incorporated in the Exxonvoy bill of lading as meaning or including “bill of lading holders,” an expression which he took from clause 21 of Exxonvoy 1969, the lien clause, was the presence in the charter-party of the lien clause itself, which is in the following terms:

“21. LIEN. The owner shall have an absolute lien on the cargo for all freight, deadfreight, demurrage and costs, including attorney fees, of recovering the same, which lien shall continue after delivery of the cargo into the possession of the charterer, or of holders of any bills of lading covering the same or of any storageman.”

This clause he regarded as providing the owners with a sufficient remedy against loss resulting from failure of the charterers to pay demurrage and so rendered unnecessary any verbal manipulation of the word “charterer” in the first sentence of clause 8.

My Lords, I deliberately refrain from expressing any view upon the effect of this curiously drafted lien clause, except to say that the time may be ripe for this House to re-examine this and other standard forms of lien clauses around which there seems to have accumulated a mystique which cries out for clarification and simplification. But the question of a lien for demurrage under the Exxonvoy bill of lading in the instant case, although it arose at the trial, is not the subject of appeal to the Court of Appeal or to your Lordships’ House. So this does not afford the occasion for this House to embark upon this topic.

In the Court of Appeal, Sir John Donaldson M.R. relied more particularly upon the semantic argument based upon the presence of the express reference to “consignee” distinguishing him from “charterer” in the second sentence of clause 8 itself, under which the owners’ claim for demurrage was brought, and he relied also upon the inclusion of clause 20, issuance and terms of bills of lading, to which I have referred in some detail earlier in this speech. I agree, with respect, that both of these are convincing reasons for rejecting the owners’ argument based on the incorporation of clause 8 in the Exxonvoy bill of lading by means of the incorporation clause; I regard it, however, as more important that this House should take this opportunity of stating unequivocally that, where in a bill of lading there is included a clause which purports to incorporate the terms of a specified charter-party, there is not any rule of construction that clauses in that charter-party which are directly germane to the shipment, carriage or delivery of goods and impose obligations upon the “charterer” under that designation, are presumed to be incorporated in the bill of lading with the substitution of (where there is a cesser clause), or inclusion in (where there is no cesser clause), the designation “charterer,” the designation “consignee of the cargo” or “bill of lading holder.”

For the reasons that I have given I would dismiss this appeal.

LORD SCARMAN: My Lords, I have had the advantage of reading in draft the speech delivered by my noble and learned friend, Lord Diplock. I agree with it and for the reasons he gives I would dismiss the appeal.

LORD ROSKILL: My Lords, I have had the advantage of reading in draft the speech delivered by my noble and learned friend, Lord Diplock. For the reasons he gives I would dismiss this appeal.

LORD BRANDON OF OAKBROOK: My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Diplock. I agree with it, and for the reasons which he gives I would dismiss this appeal.

LORD BRIGHTMAN: My Lords, I agree that this appeal should be dismissed for the reasons given by my noble and learned friend, Lord Diplock.

Appeal dismissed.