Variation issues

Variation issues

Clause Paramount and Face clause distinguished

The origins of the Clause Paramount lie in the fact that some countries' national legislation requires that a Clause Paramount should appear in bills of lading expressly stating that the original Hague Rules of 1924 apply, where that is the case. This is akin to the requirement in the CMR road carriage convention for inclusion of a statement that CMR applies as that convention cuts down a shipper's rights in some areas. In most countries the Hague Rules would still be applied by the courts, even without a Clause Paramount, but this was not so in England where courts ruled that where there was no paramount clause the Rules would apply only by agreement and not compulsorily as a matter of law.

The adoption of the Hague-Visby Rules has, strictly speaking, made a Clause Paramount redundant in the UK, where a conventional bill of lading is used. However, many carriers still include one, not only to be on the safe side, but as a means to include some other provisions of a questionable validity, or to mask the fact that regimes other than the 1924 Hague Rules may in fact apply. In the UK the Hague-Visby Rules now apply under the specific authority of the Carriage of Goods by Sea Act 1971.

The Clause Paramount should be distinguished from the Face or Incorporation clause. The Face clause is the all important clause which seeks to incorporate the bill of lading terms which are on the back of the bill of lading (and sometimes the terms of the carrier's tariff) into the contract with the shipper evidenced by the details on the face of the bill of lading.

Variation of contract terms

It is vitally important to establish a clear mechanism for variation of contract terms particularly significant ones like the Face clause. Special care is also needed when the full nature of the contract can only be determined by considering several documents, each of which may have been amended. As more and more contracts with shippers will in future be made on an individual basis by sea carriers, this issue will have to be tackled in a much better way than it is at present. It will be apparent from the specimen clauses set out below that the present situation is heavily biased in favour of the sea carrier. In the UK, the courts have historically often failed to accept documents extraneous to the bill of lading as part of the contract where the bill of lading purports to contain all the terms of the contract, so care must be taken to incorporate variations effectively.

It is convenient to discuss the issue of variation in the same place as the Face or incorporation clause, but finding effective mechanisms for variation is relevant to amendment of any other bill of lading term and also other standard documents issued by the carrier, which may affect its relationship with the shipper.

Typical bill of lading terms concerning incorporation, variation and clauses paramount

Face clause

"Received by the Carrier from the shipper in apparent good order and condition unless otherwise indicated herein, the goods or the container(s) or package(s) said to contain the cargo herein mentioned , to be carried subject to all the terms and conditions provided for on the face and back of this Bill of Lading by the vessel named herein or any substitute at the carrier's option and/or other means of transport, from the place of receipt or the port of loading to the port of discharge or the place of delivery shown herein and there to be delivered unto order or assigns".

The reference to apparent good order and condition makes this a clean bill if nothing contrary appears on its face.

The possibility of substitution of the contracted vessel could have serious repercussions for the shipper. It could be coupled with a demise clause in the bill of lading terms absolving the carrier from all responsibility when it is not the owner of the vessel actually used to carry the goods.

"If required by the carrier, this bill of lading duly endorsed must be surrendered in exchange for the goods or delivery order".

This would be the normal requirement, but the carrier prepares the way for possible release against a letter of guarantee.

"In accepting this bill of lading, the merchant agrees to be bound by all the stipulations, exceptions, terms and conditions on the face and back hereof, [and the terms contained in the carrier's applicable tariff] whether written, typed, stamped or printed, as fully as if signed by the merchant, any local custom or privilege to the contrary notwithstanding and agrees that all [representations]agreements or freight engagements for and in connection with the carriage of the goods are superseded by this bill of lading".

This is another potentially seriously disadvantageous clause for the shipper. It seeks to make it impossible or exceedingly difficult for the shipper to rely on any terms and agreements which are not contained in the documents referred to. Sometimes even the carrier's tariff is excluded from consideration. However, such supercession clauses may sometimes be successfully challenged retrospectively and to avoid problems the clause may need to be altered at contract stage.

"None of the terms of this bill of lading can be waived by or for the carrier except by express waiver signed by the carrier or its duly authorised agent."

It is vital for a shipper to know, in advance, by written confirmation from the carrier, exactly who is entitled to vary the terms, if changes are agreed.

"On presentation of one or more originals of this bill of lading (duly endorsed) to the carrier by or on behalf of the holder, the rights and liabilities arising in accordance with the terms hereof shall (without prejudice to the terms of this bill of lading, or any rule of law or statute rendering them binding on the merchant become binding in all respects between carrier and holder as though the contract evidenced hereby or contained herein had been made between them."

This is designed to tie any subsequent holder of the bill of lading to the contract terms, overcoming problems of English law concerning consideration and privity of contract. If the contract terms have been altered from standard wordings, some mechanism may be needed to give notice of this to a subsequent holder.

Paramount Clause

Paramount clauses are in a state of flux with some major carriers no longer maintaining a specific paramount clause and others inserting quite divergent provisions in their clauses, particularly related to the application of other transport conventions, fire or US-specific terms. It is therefore difficult to set out any typical wording. One of the briefer versions mainly restricted to the original purpose of such clauses appears below:

"This bill of lading shall have effect subject to the provisions of the International Carriage of Goods by Sea Act of XXX unless it is adjudged that any other legislation of a nature similar to the International Convention for the Unification of Certain Rules relating to Bills of Lading signed at Brussels on 25th August 1924, or the amendments by the Protocol signed at Brussels on 23rd February 1968 or the amendments by the Protocol signed at Brussels on 21st December 1979, including without limitation, the Carriage of Goods by Sea Act 1936 of the United States (the similar legislation shall hereinafter be called "Hague Rules Legislation"), compulsorily applies to this bill of lading, in which case it shall have effect subject to the provisions of such Hague Rules Legislation."

"The Act or Hague Rules Legislation shall apply and govern before the goods are loaded on and after they are discharged from the vessel and throughout the entire time the goods are in the custody of the carrier, its agents, servants, representatives and sub-contractors of the carrier"

This could be in contradiction with other international conventions on road and rail transport, or indeed with the Hamburg Rules where applicable, in which case they would override the clause, as is stated in the continuation quoted below. In this carrier's version the carrier at least retains liability throughout the transit. Many sea carriers deny all liability for the goods beyond the "tackle to tackle" period of responsibility stipulated in the Hague and Hague-Visby Rules.

"The Act or Hague Rules Legislation shall be deemed to be incorporated herein. If any provision of this bill of lading is held to be repugnant to any extent to the Act or Hague Rules Legislation, or to any other statutes or regulations applicable to the contract evidenced by this bill of lading, such provision shall be null and void to that extent but no further."

This clause does little more than recognise the obvious. It may allow a court to prune out offending parts of a clause to leave the remainder operative, rather than disregarding the whole of a clause because of an unenforceable provision contained in it. A court might well proceed in this fashion anyway.

Variation clause

"No servant or agent of the carrier shall have the power to waive or vary any terms and conditions in this bill of lading unless such waiver or variation is in writing and is specifically authorised or ratified in writing by the carrier"

Variation provisions are commonly set out in the bill of lading terms on the reverse of the bill of lading, though they are sometimes included in the Face clause on the face of the bill. It is vital for a shipper to know, in advance, by written confirmation from the carrier, exactly who is entitled to vary the terms, if changes are agreed. It is not enough to rely on the oral assurance from a manager that he or she is authorised by the board of the company to agree changes in contract terms.

Position under international conventions

None of the types of clause are specifically dealt with in the international conventions. Some may contain provisions which are repugnant to the Hague, Hague-Visby or Hamburg Rules, or repugnant to national legislation on the making of contracts. The shipper is as well to be on its guard particularly with regard to attempts by certain carriers to exclude consideration of anything except the bill of lading clauses in interpreting the contract.

In civil law countries such as France, evidence of matters outside the bill of lading terms is often considered under the national law and the supercession clause ignored. In the UK, there is a potential problem of overcoming a rule of interpretation known as the parol evidence rule. It was historically often difficult to obtain the court's consideration of other documents alleged to be part of the contract. Even in the UK, a 1986 Law Commission report felt that the law was more flexible than sometimes alleged. It stated that evidence from other sources should not be ignored solely because a document such as a bill of lading looks like a complete contract: "whether it is a complete contract depends upon the intention of the parties, objectively judged, and not on any rule of law". The importance of the parol evidence rule has been diminishing and judges are now more inclined to consider all the evidence on issues of incorporation, but care is still advisable.

Practical measures by shippers

General guidance

The FTA took advice from leading Counsel on the issue of incorporation of agreed changes to bill of lading terms, as this issue is crucially important to making negotiations effective. Discussions raised the following major points.

It will always be preferable to set out references to any surrender or increase of rights by the carrier under the international conventions expressly in the bill of lading or waybill terms, for the avoidance of any doubt. Similarly, if it is intended that Hague or Hague Visby Rules should apply to Waybills by contract where they do not otherwise apply by statute it is preferable to incorporate the rules expressly.

Although there is considerable operational attraction in using waybills, they still do not give equivalent security to consignees as conventional bills of lading, even if the Carriage of Goods by Sea Act 1992 has greatly improved the situation.

The situation is also critical in relation to short form documents. Civil law jurisdictions often fail to import outside terms into bills of lading and waybills by reference so as to affect a subsequent third party holder of the document. Mostly the cases concern such holders contesting onerous terms rather than benefiting from improved terms, but the interests of consignees and banks need to be taken into particular account whenever short form documents are amended .

Counsel's advice was that the only wholly satisfactory method of incorporation was for all relevant carriage terms of the contract to appear within the bill of lading or waybill itself, with the prior assent of the carrier. This may involve printing bill of lading terms, which are unique to the contract, on the face and back of the bill of lading itself. All other solutions carry an element of legal risk, which needs to be given substantial weight against any other advantages of more risky attempts at incorporation. Thus:

Use of an over-stamp cannot be regarded as a reliable method to incorporate changes. There will never be any certainty that the individual employee at the carrier will accept it on the day of issue. In addition, there could be problems of interpretation as between the shipper term and the remaining unaltered carrier terms on the reverse.

Use of a shipper issued short form bill, and particularly waybill, runs the risk of certain problems vis a vis certain categories of consignee and/or banks and other persons in the trading chain. It is nevertheless preferable to a full form document containing carrier's terms on the reverse, which do not reflect the actual contract.

Use of a short form bill referring to a signed and dated master contract runs the risk that all terms (including commercially sensitive ones) may need to be pre-disclosed to other parties in the chain. Alternatively, there might need to be a contract in two parts with the carrier, one to be disclosed to the consignee, the other not. This may not be practical.

The remaining paragraphs needs to be considered in the light of these points.

Face Clause

Contract stage

The supercession wording in the Face clause should be deleted where appropriate as it can make it very difficult to refer to correspondence, advertising material etc forming part of the representations made by the carrier prior to contract or actually constituting part of the contract. The supercession clause will prevent both carrier and shipper relying on a lot of sensible information (in some cases even the tariff) so that it is by no means clear that the carrier benefits by including such a clause. If the supercession wording is not deleted, the shipper should be very wary of accepting/signing the bill of lading as this increases the risk that such wording will be applied by common law courts to the exclusion of other material which a layman would consider to be part of the contract.

Where any changes to standard bill of lading clauses have been agreed with the carrier, the Face clause should be altered to refer to such changes as being part of the contract. Other documents forming part of the contract should also be referred to. This may raise serious practical difficulties of how physically to record these important details on the bill of lading itself at the time of issue, so prior agreement on format with the carrier seems highly advisable.

Some major shippers already only allow bills of lading which they have devised themselves to go forward for signature by the carrier, following prior agreement of wordings, and Counsel retains this as among the most effective potential solutions. Shippers should bear in mind though that any ambiguities in a shipper produced wording will be interpreted in favour of the carrier. Alternatively, the carrier may issue a bill redrafted to reflect the agreement between shipper and carrier.

Claim stage

Where it has not been possible to improve the wording of Face clauses, there will nonetheless often be scope for retrospectively challenging some unsatisfactory aspects of them. Also, any matters in the Face clause which derogate from an applicable international sea transport convention will not be enforceable.

Paramount clause

Contract stage

The utility of paramount clauses is under some doubt even for the carrier and the simplest solution for outward shipments from the UK, under a conventional bill of lading, could be to seek deletion altogether. In many cases the clauses add nothing which is not covered by law anyway. In some cases, carriers use the clauses to cut down their responsibility for non-sea carriage or service. Again, the simplest route would be to seek deletion, but each situation must, as ever, be considered on its particular merits following appropriate advice, particularly if shipment is not from the UK.

Claim stage

Where such clauses are maintained and the carrier later seeks to rely on them, a shipper should carefully check their compatibility with international conventions or national law and will often find that they are not compatible and may be challenged.

Variation clause

Shippers agreeing changes to any standard printed terms put forward by the carrier need to ensure that the changes are recorded accurately and confirmed in writing by a person at the carrier having authority to do so and that the changes are physically reflected in the bill of lading as discussed above.

Part of the process of agreeing the changes should involve taking appropriate professional legal advice and also advice on the insurance implications of proposed changes. Both types of advice should ideally be taken prior to the commencement of negotiations, while negotiations proceed and prior to final agreement. The first thing a carrier's insurers are likely to do when faced with a claim is to seek to establish that the bill of lading terms prevail and that other matters apparently agreed with the shipper are of no effect. Ensuring effective incorporation of variations is therefore probably the single most important thing to get he first thing a carrier's insurers are likely to do when faced with a claim is to seek to establish that the bill of lading terms prevail and that other matters apparently agreed with the shipper are of no effect. Ensuring effective incorporation of variations is therefore probably the single most important thing to get right in any negotiations.

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