Lesson 8 - Does the bill of lading or charterparty govern, if the bill is held by a charterer?  

Not infrequently, charterers end up holding bills of lading, either because they are CIF sellers; or because they bought cargo FOB and have chartered the entire vessel for a large cargo; or because they were a general charterer and incidentally decided to buy some of the cargo on one of their chartered vessels.  

In such circumstances the question arises, what document governs the charterer's relationship with the carrier for loss or damage to the cargo - the charterparty or the bill of lading? 

The answer is: (1) if the charterer obtained the bill of lading directly from the carrier then the charterparty governs; and (2) if indirectly, then it may depend on the facts.

This conundrum is complex! So we recommend taking a look at Chapter 8 of Debattista where there is a fuller discussion. 

This slide demonstrates that the charterparty governs, where the charterer obtains a bill of lading from the disponent owner/carrier directly. 

The rationale here is that both charterer and disponent owner/carrier intended their relationship to be governed by the charterparty, so any bill of lading here is incidental to that. It may be a document of title, but in the charterer's hands it is not a contract of carriage - it is just a receipt that the goods have been shipped. 

Charterer obtains bill from carrier directly

Alternatively, the charterer could be a general time-charterer who normally ships other people's goods. In that scenario, why should they be treated differently to a  third party if they happen to buy some of that cargo? They didn't hire the vessel to transport this cargo in question. In such circumstances the courts will look carefully at the facts to determine in what circumstances the bills of lading is supposed to govern, and in what circumstances the charterparty is supposed to govern. In these authors view, if the charter in question is a time-charter, rather than voyage charter, that suggests that the bill of lading is more likely to govern questions relating to the cargo.  

Alternatively, the charterer could obtain a bill from the disponent owner/carrier indirectly, by buying FOB from a shipper who themselves had already obtained the bill of lading and then passed it to the charterer (see case 1 on this slide). There is minimal difference here with Slide 1, where the charterer buys an entire cargo FOB but gets a mate's receipt from the shipper. This is particularly so where the charter is a voyage charter,  since the purpose of the charter is to carry the goods in question (See President of India v Metcalfe). In this instance the charterparty will likely govern issues to do with damage/loss to the cargo. 

Charterer obtains bill from owner indirectly

The views on this, slide 2, are not definitive and are subject to debate. For alternative views, see Scrutton and Carver. 

bill of lading in the hands of charterers

© 2020 by Francis Hornyold-Strickland.