Selected Problems Under the Hague Rules *
William Tetley **
The Hague Rules have been adopted by approximately 100 states,
colonies and principalities throughout the world (Canada’s version
1936). The rules specifically
is the Water Carriage of Goods Act –
prohibit limitation of liability clauses in virtue of Article 3, 8), which
reads as follows:
“Any clause, covenant or agreement in a contract of carriage relieving
the carrier or the ship from liability for loss or damage to, or in connection
with, goods arising from negligence, fault or failure in the duties and
obligations provided in this Article or lessening such liability otherwise
than as provided in the Convention, shall be null and void and of no effect.
A benefit of insurance or similar clause shall be deemed to be a clause
relieving the carrier from liability.”
At times, Jurisdiction Clauses and Arbitration Clauses have been
held invalid because they result in the carrier’s liability being reduc-
ed. Letters of Indemnity have been another method of limiting
liability. Jurisdiction and Arbitration clauses as well as Letters of
Indemnity are discussed below.
JURISDICTION CLAUSES
Many bills of lading contain clauses stating that suit, if taken,
must be taken in a particular place. Such clauses are invalid in many
countries, and in Australia’ and Belgium they are invalid by the
terms of the local Hague Rules legislation. The Australia Sea Car-
riage of Goods Act 1924, Section 9, holds invalid any clauses ousting
Commonwealth of Australia or State courts. Section 9 reads as
follows:
“(1) All parties to any bill of lading or document relating to the
carriage of goods from any place in Australia to any place outside Australia
shall be deemed to have intended to contract according to the laws in force
at the place of shipment, and any stipulation or agreement to the contrary,
* The present article is taken from a book entitled “Marine Cargo Claims” to
be published simultaneously in Canada and Great Britain in April 1965 by
Carswell and Stevenson.
** Of the Bar of Montreal.
1 Wilson v. Corn pagnie des Messageries Maritimes (1954) 1 Lloyd’s 229; (1954)
2 Lloyd’s 544. A French bill of lading for a shipment from France to Australia
called for suit in France. The Supreme Court of New South Wales upheld by
the Australian High Court declared that a clause calling for actions to be tried
in a French court was invalid.
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or purporting to oust or lessen the jurisdiction of the Courts of the Com-
monwealth or of a State in respect of the bill of lading .or document, shall
be illegal, null and void, and of no effect.
(2) Any stipulation or agreement, whether made in the Commonwealth
or elsewhere, purporting to oust or lessen the jurisdiction of the Courts
of the Commonwealth or of a State in respect of any bill of lading or
document relating to the carriage of goods from any place in Australia
shall be illegal, null and void, and of no effect.”
The Canadian pre Hague Rules Act of 1910 contained a prohibi-
tion against certain foreign jurisdiction clauses 2 and its absence in
the Canadian Act of 1936 perhaps indicates that such clauses are not
contrary to the 1936 Act. Nevertheless, jurisdiction in Canada seems
to be a question over which each court has discretion.
Most nations give their courts the discretion to accept or refuse ju-
risdiction. The decision of the U.S. Court of Appeals in Mandu-Dende-
rah is a good example.3 It was held that an American Court may
exercise its discretion and take jurisdiction of a suit by German
cargo underwriters against a Brazilian vessel arising out of collision
in foreign waters with a German vessel. It was noted that the colli-
sion had not been litigated elsewhere and there was no forum
common to both parties; while the court having taken jurisdiction
should not relinquish it after the lapse of so much time that the
parties cannot sue elsewhere.
In some nations the court takes the position that its jurisdiction
was granted by law and that two contracting parties cannot contract
out of the law. For example, the courts of the Province of Quebec
are very reluctant to refuse jurisdiction.4
2 Section 5 of the Canadian Act of 1910 read in part: “…any stipulation or
agreement purporting to oust or lessen the jurisdiction of any court having
jurisdiction at the port of loading in Canada in respect of the bill of lading or…
document, shall be illegal, null and void, and of no effect.”
3 1939 A.M.C. 287.
4 Gordon & Gotch v. M.A.N.Z. Line Ltd. (1940) 68 B.R. 428. A shipment was
carried from the Province of Quebec to Australia by MANZ Line which has
its head office in the Province. The Court (upheld in appeal) declared it had
jurisdiction and would hear the case despite a bill of lading clause reading “any
dispute… shall be decided by the courts of the country of discharge”. National
Gypsum Company, Inc. v. Northern Sales Ltd. (1963) 2 Lloyd’s 499; 1964 S.C.R.
144. The Supreme Court of Canada agreed that the Exchequer Court (Quebec
Admiralty District) could insist on retaining jurisdiction even where arbitration
by two non-Canadians had been validly agreed upon in New York under New
York law in a New York Produce Exchange Charter. Fehmarn (1957) 2 Lloyd’s
551 at p. 552. Willmer (J.) upheld in appeal: “… it is well established that,
where there is a provision in a contract providing that disputes are to be referred
to a foreign tribunal, then, prima facie, this Court will stay proceeding, instituted
in this country in breach of such agreement, and will only allow them to proceed
when satisfied that it is just and proper to do so.”
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SELECTED PROBLEMS UNDER HAGUE RULES
21
Staying the action
Many courts often stay an action until it has been heard else-
where and thus reserve their right to review the foreign judgment or
even rehear the whole case. Staying an action, rather than dismissing
it, usually results in greater equity because the court which is given
jurisdiction by the jurisdiction clause may refuse jurisdiction, or
may declare the delay for suit has expired, etc. The original court
may then hear the case, because it has only been stayed and not dis-
missed.5
Reasonableness as a criterion
Reasonableness is usually the criterion for deciding whether or
not a jurisdiction clause should be honoured. What is reasonable is a
question of fact for the appreciation of the Court. The following are
some useful examples:
In Nieto v. S.S. Tinnum 1958 A.M.C. 2555, cargo was carried
from Mexico to Cuba on a West German vessel, and suit was taken
in the Southern District of New York by a Mexican merchant. A
jurisdiction clause in the bill of lading called for the deciding of all
disputes under German law in Hamburg. It was held that the clause
was reasonable because: Headnote-
“1) No factor connected the dispute with the U.S.A.
2) The parties had agreed to German law in Hamburg.
3) There is no allegation that Hamburg will not provide a fair
hearing.
4) Alleged greater expense of Hamburg over Southern District
of New York was unpersuasive”.
In the Vestris, (1932) 43 Lloyd’s 86, cargo was carried to South
America from New York. Suit was taken in New York but was dis-
continued, one gathers, because the lawyers for claimants did not
have authority from the claimants to institute suit. The bill of lading
called for proceedings in New York, but the carrier was domiciled in
London. Action was taken in London after long negotiations there.
The British court in its discretion refused to stay the action because
defendants were in Great Britain and discussions had taken place
there for two years.
In the Archsum, 1962 A.M.C. 999, a U.S. District Court noted
that it had jurisdiction over a shipment from Antwerp to the United
G Birk Crawford Ltd. v. S.S. Stromboli 1955 Ex. C.R. 1. Here an Admiralty
Court in Canada stayed an action in Canada so that it could be litigated at
Genoa, Italy, according to a jurisdiction clause in the bill of lading.
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States despite a clause that German law and Hamburg courts had
sole application and jurisdiction. However, the court went on to find
the clause reasonable, because German law was no more restrictive
than American law and because suit was not timebarred in Germany.
The Court therefore ordered suit in Hamburg.
In the Takemura & Co. v. Tsuneshima Maru 1962 A.M.C. 1217
suit was taken in New York despite a bill of lading clause calling for
suit in Japan. The carrier waived the time bar for suit in Japan and
so the New York court refused jurisdiction. Headnote :
“Reasonableness of bill of lading clauses requiring exclusive
resort to foreign courts depends upon factors similar to those involv-
ed in deciding forum non conveniens-availability of witnesses and
the ability of the foreign forum to adjudicate the matter fairly”.
The Court d’Appel d’Alger (Venezia, February 27, 1962) 1963
D.M.F. 156, held that when suit is possible against both the stevedore
and the carrier and the bill of lading (which does not apply to the
stevedore) has a jurisdiction clause then the clause does not apply
and suit can be taken where the two defendants can be joined.
In Jefferson Ins. Co. v. Cia Colonial de Nay, 1954 A.M.C. 1314,
a bill of lading was issued in Angola for carriage of coffee to New
York. There were transshipments en route at Luanda and Lisbon.
The first carrier was sued at New York and it was held that the
carrier could be sued at New York despite a bill of lading jurisdic-
tion clause calling for suit in Portugal and despite the fact that other
proceedings had been taken in Lisbon. “I do not find that any in-
justice will result thereby”. p. 1315.
Muller & Co. v. Swedish Amer. Line, Ltd., 1955 A.M.C. 1687
The U.S. Court of Appeals upheld a jurisdiction clause calling
for suit in Sweden. The Court noted that Cogsa did not prohibit
such a clause. “….
if Congress had intended to invalidate such agree-
ments, it would have done so in a forth-right manner as was done
in the Canadian Act of 1910.” p. 1688.
“Further, there is no contention that the Swedish courts are not
capable of adjudicating this case fairly and justly”. p. 1690.
In the Geisha, 1951 A.M.C. 630, the U.S. Court of Appeals denied
jurisdiction in New York- of a suit arising from a cargo claim with
attachment of a Norwegian credit in the hands of a New York ship
agency. A clause in a Peruvian bill of lading to the effect that disputes
in a shipment from Peru to Belgium be decided in Norway was held
valid. The bill of lading was signed by the shipper and was valid by
the law of Peru and Norway.
No.1] SELECTED PROBLEMS UNDER HAGUE RULES
23
Change of jurisdiction changing rights and responsibility
If a change in jurisdiction would increase or decrease the rights
of the claimant or of the carrier, then the courts are normally reluct-
ant to refuse jurisdiction. This was the position taken by a New York
District Court, upheld in Appeal, in Muller & Co. v. Swedish Amer.
Line Ltd.,6 when a Swedish vessel manned by a Swedish crew was
lost at sea on a voyage from Sweden towards Philadelphia. The bill
of lading called for Swedish law and jurisdiction. The court held
that the clause did not lessen or relieve the carrier’s liability and was
therefore valid. The principle was illustrated in two related but not
incompatible judgments rendered in the Southern District of New
York within 29 days of each other. In the first judgment Pakhuis-
meesteren S.A. v. “Gottingen” (No. 1) ” McLean D.J. declined juris-
diction to hear a case in the Southern District of New York because
the bill of lading called for suit according to German law in Hamburg
Courts. McLean D.J. held this to be reasonable. In the second judg-
ment, The “Gottingen”
(No. 2) 8 relating to claims by other cargo
interests against the same vessel on the same voyage under similar
bills of lading Feinberg D.J. accepted jurisdiction despite the juris-
diction clause because affidavits had been produced to the effect that
peril of the sea jurisprudence in Germany was different to Cogsa,
that the difference was in favour of the carrier and thus Sect. 3, 8)
of Cogsa would be violated.
In rem and personam
The courts seem extremely reluctant to refuse jurisdiction in an
in rem action. In Carbon Black Export v. Monrosa 9 a normal juris-
diction clause read “Clause 27 – Also, that no legal proceedings may
be brought against the Captain or shipowners or their agents in
respect to any loss of or damage to any goods herein specified, except
in Genoa, it being understood and agreed that every other Tribunal in
the place or places where the goods were shipped or landed is incom-
petent, notwithstanding that the ship may be legally represented
there.” The U.S. Court of Appeals held: “There is nothing in clause
27 which has any tendency to establish that the parties intended it
should be made applicable to an in rem proceeding against the ship
itself”. p. 1339.
61955 A.M.C. 1687.
7 1964 A.M.C. 757; (1964) 2 Lloyd’s 35.
8 (1964) 2 Lloyd’s 37.
91958 A.M.C. 1335; upheld by the U.S. Supreme Court, 1959 A.M.C. 1327.
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Aetna Insurance v. Satrustegui10 concerned a shipment from
Valencia, Spain, to Puerto Rico under a bill of lading which had a
clause calling for suit in Barcelona. The U.S. District Court exercised
its discretion and declined jurisdiction of the personam action because
a) the clause was voluntarily arrived at, b) it was not against public
policy, and c) it was reasonable, because all eyewitnesses of the load-
ing were in Spain. However, in virtue of the U.S. Supreme Court
decision in Carbon Black Export v. Monrosa 9 the in rem action was
not refused but retained by the U.S. District Court.
In Peugeot Inc. v. S.S. Honestas 11 a U.S. District Court retained
jurisdiction of a claim arising from the carriage of French cars on an
Italian ship from LeHavre to New York. The vessel was attached in
rem in Norfolk, although the English bill of lading contained clauses
invoking Italian law and courts. It was noted that the law of Italy
applied, but the Court retained jurisdiction in this case without try-
ing to create a general rule. The Court stated “… where there has
been an in rem process attaching the vessel, the Court in which the
process originated cannot be ousted of jurisdiction in the technical
sense by agreement of the parties. However, the mere fact that the
action is in rem does not command the Court to exercise jurisdiction.”
p. 1691
In Anglo-American Grain Co v. SIT Mina D’Amico 12 the vessel
was attached in rem, but a U.S. District Court declined jurisdiction,
exercising its discretion because, amongst other reasons, the ship-
ment was from Bombay to Hamburg, the collision took place off
Spain, and no American interests were involved.
The clause should be definite and clear
In many countries a jurisdiction clause is not valid unless it speci-
fies the actual court.
The Tribunal de Commerce d’Alger (Mercurius, Feb. 2, 1959) 18
held that a clause calling for suit in the country where the carrier
had its head office is not precise enough because the fact that the
carrier is called the Rotterdam Fruit Line is not sufficient to decide
with certainty that the head office is in Rotterdam.
Cour d’Appet de Rouen (Mirzan, July 20, 1960) 14 A bill of lading
referred to the long form bill of lading which in turn contained a
10 1960 A.M.C. 891.
111960 A.M.C. 1690.
12 1959 A.M.C. 511.
13 1959 D.M.F. 618.
14 1961 D.M.F. 724.
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SELECTED PROBLEMS UNDER HAGUE RULES
25
jurisdiction clause. Held that the vagueness of the bill of lading did
not permit the shipper to know the full effect of the jurisdiction
clause and consequently it was inapplicable.
Cour d’Appel de Rouen (Oris, March 3, 1961) 15
A bill of lading contained a jurisdiction clause but the bill of lad-
ing was not signed by the shipper. Nevertheless, the consignee used
the bill of lading to receive his goods and in consequence the jurisdic-
tion clause was held valid as against him.
In the Media 16 an action was stayed in England in virtue of a
clause calling for jurisdiction either in the United Kingdom or at
destination (Calcutta) at shipowners’ option. It is submitted that
such a clause with alternative jurisdictions subject to the whim of
one party is unreasonable and unclear and today would probably be
considered invalid by most courts.
Does a jurisdiction clause contradict
Article 3, 8) of the rules ?
In Maharani Woolen Mills Co. v. Anchor Line,17 Scrutton, L.J.
held that there was no contradiction in a clause reading “all claims
arising shall be determined at the port of destination according to
British laws”. However, the port of destination was Bombay, which
would have applied British law anyway. One gathers that if the
jurisdiction clause had resulted in a Court invoking different law
which lessened the carrier’s responsibility, then such a clause would
have contradicted Article 3, 8).
Burden of proof
If a court normally has jurisdiction and suit is taken there, then
one would expect that the burden of proof is on the person invoking
the jurisdiction clause. This was the position taken in Carbon Black
Export v. S.S. Monrosa’ lwhere the U.S. Supreme Court in Gulf Oil
Corp. v. Gilbert (1946, 330 U.S. 501 at 508) is cited “But unless the
balance is strongly in favour of the defendant, the plaintiff’s choice
of forum should rarely be disturbed.”
However, in Great Britain where the Courts seem to be much
more willing to recognize the rights of the parties to contract in
almost any way they please, the opposite view is taken. There, the
15 1961 D.M.F. 726.
16 (1931) 41 Lloyd’s 80.
17 (1927) 29 Lloyd’s 169.
1s 1958 A.M.C. 1335 at p. 1341.
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burden is on the person wishing to upset the jurisdiction clause. See
the Fehymarn 19 upheld in Appeal 20 where Willmer (J) stated “it is
well established that, where there is a provision in a contract provid-
ing that disputes are to be referred to a foreign tribunal, then, prima
facie, this Court will stay proceedings instituted in this country in
breach of such agreement and will only allow them to proceed when
satisfied that it is just and proper to do so.”
General conclusions concerning Jurisdiction clauses
The Hague Rules themselves (except for rare cases such as Bel-
gium, Australia and France’s internal act) are silent on the validity
of jurisdiction clauses. Whether a court will accept or refuse juris-
diction is usually a question of discretion. Some courts refuse to
recognize jurisdiction clauses in any case and always retain jurisdic-
tion, other courts will stay the action, and some courts will refuse
jurisdiction altogether.
1) Staying the action is often the most equitable solution because
the court which is given jurisdiction by the jurisdiction clause may
refuse jurisdiction.
2) Reasonableness is the usual criterion used by courts in decid-
ing whether a jurisdiction clause should be honoured.
3) A jurisdiction clause should designate as clearly as possible
the court given jurisdiction.
4) Jurisdiction clauses are rarely valid against a person not a
party to the bill of lading –
e.g., the stevedore or the charterer who
did not issue the bill of lading. Nor are jurisdiction clauses usually
valid if they result in a jurisdiction in which other parties who should
be party to the action cannot be joined.
5) If the court referred to in a jurisdiction clause is subject to
different law which latter will decrease the rights of the parties, the
jurisdiction clause is usually held invalid.
6) Jurisdiction clauses are rarely honoured in, in rem proceed-
ings.
7) It would seem that the burden of proof in America is on the
person wishing to alter the jurisdiction of the court, and in Great
Britain the burden of proof is on the person wishing to contravene
the jurisdiction clause.
19 (1957) 1 Lloyd’s 511 at p. 514.
20 (1957) 2 Lloyd’s 551.
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SELECTED PROBLEMS UNDER HAGUE RULES
27
ARBITRATION CLAUSES
The Hague Rules are silent as to the validity of arbitration
clauses. Generally, it can be said that arbitration clauses are valid
under the Rules providing they do not reduce the responsibilities of
the carrier under Article 3, 8). It is difficult to give general princi-
ples relating to the validity of arbitration clauses, but the following
are useful guideposts.
Only invoked against the parties to the agreement
The arbitration clause usually cannot be invoked against a person
not a party to the contract containing the arbitration clause. Thus, in
Instituto Cubano v. T/V Golden West 1, a time charter did not con-
tain an arbitration clause, but the time charterer entered into sub-
charter with the shipper and also issued a bill of lading to the shipper.
The bill of lading invoked the clauses of the sub-charter, and the
sub-charter contained an arbitration clause. It was held that the
shipper could not force the vessel owner to arbitrate because the
vessel owner “was not a party to any Charter incorporated in the
bills of lading that provided for submission of shortage claims to
arbitration”.
Arbitration must be clearly invoked
In Bernuth, Lembcke Co., Inc. v. S/S Acasta 7, a charter contain-
ed an arbitration clause. A sub-charter containing an identical arbi-
tration clause was entered into with a shipper, to whom was issued
a bill of lading which did not contain an arbitration clause although
the bills of lading invoked the conditions of the sub-charter. It was
held that the bills of lading were the only contract between the vessel
owner and the shipper, and as the bills of lading did not contain an
arbitration clause, the shipper was in no way bound to proceed to
arbitration. The general reference in the bills of lading “on payment
of freight and all other conditions as per charter party”, was insuf-
ficient to incorporate the arbitration clause in the charter into the
bills of lading.
In Son Shipping Co. v. De Fosse & Tanghe,3 the United States
Court of Appeals held that the shipper was obliged to arbitrate under
a bill of lading which invoked a charter party, which in turn contain-
ed an arbitration clause. The bill of lading clause invoking the charter
party clauses was, the court held, “in language so plain that its mean-
1 1957 A.M.C. 1481 at p. 1484.
2 1952 A.M.C. 1789.
31952 A.M.C. 1931 at p. 1932;
(1951 A.M.C. 286 in first instance).
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ing is unmistakable”. The bill of lading clause was as follows: “This
shipment is carried under and pursuant to the terms of the charter
dated Antwerp, June 29th, 1948, between Son Shipping Company and
De Fosse & Tanghe, 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 ship-
ment”.
Reasonableness is often the criterion
An arbitration clause will usually be valid if its effect is reason-
able.
In the Pine Hill 4, suit was taken against a charterer and a bill of
lading holder by the owner of a vessel. The charterer tried to invoke
the arbitration clause in the charter, which clause was not in the
bill of lading, but it was held by McNair (J) that to grant the right
of arbitration for the charterer would be to agree to two tribunals.
Thus the arbitration was refused.
In Uniao de Transportadores v. Acoreanos 1, an arbitration clause
calling for Lisbon arbitration in a New York bill of lading issued by
a Portuguese ocean carrier to a Portuguese shipper was held to be
valid. The New York court therefore stayed the action pending the
arbitration.
In Denny, Mott & Dickson Ltd. v. Lynn Shipping Co. Ltd6, an
arbitration clause read: “All claims must be made in writing and the
Claimant’s Arbitrator must be appointed within twelve months
of the date of final discharge otherwise the claim shall be deemed
waived and absolutely barred”. The twelve month delay was held to
be valid as concerns cargo falling under the Hague Rules, because the
carrier’s rights and immunities were unchanged. One gathers that
a three months delay would have been invalid and might have annull-
ed the whole arbitration clause because of the one year delay for suit
in the Hague Rules.
The Tribunal de Commerce de la Seine (Norma, May 9, 1950) 7,
held that a clause calling for arbitration in a foreign country is
proper, having no other consequence than to give jurisdiction to
foreign courts to examine the regularity of the arbitration proceeding.
4 (1958) 2 Lloyd’s 146.
5 1949 A.M.C. 1161.
6 (1963) 1 Lloyd’s 339.
71951 D.M.F. 129.
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SELECTED PROBLEMS UNDER HAGUE RULES
29
Arbitration can be waived
In the Elizabeth “H” 8, a clause in a charter party called for arbi-
tration in New York. The bill of lading invoked “all terms whatsoever
of the said charter…”. Endorsees of bills of lading claimed as cargo
owners and seized the vessel in England. The vessel was released
after the vessel owners P & I Club put up a letter of undertaking.
One year and a half later, the vessel owners tried to set aside the
writ on the grounds of an arbitration clause in the charter party.
One gathers the court would have upheld the arbitration clause here
if the owners had not provided the letter of undertaking. Instead, the
court denied the right to arbitrate. Hewson (J) stated:
“I think I have said enough to show that, in my view, this action of
defendants or their agents in this case was an agreement to accept this
Court’s jurisdiction and to vary the arbitration clause.”
Arbitration and procedure
An arbitration clause should not affect the law involved or the
rights of the parties. Arbitration should result only in a different and
usually quicker method of settlement of disputes. Some courts, how-
ever, are reluctant to recognize the right to arbitrate on the grounds
that it offends public order. National Gypsum Inc. v. Northern Sales 9
is an example where the Exchequer Court of Canada in Admiralty,
sitting in Montreal, Province of Quebec, refused to dismiss or even
stay an action arising from an obligation to present a vessel at
Montreal under a charter party entered into in New York between
two non-Canadian carrier affecting a non-Canadian vessel. The
charter party contained a normal New York Produce Exchange Arbi-
tration Clause, calling for arbitration in New York City. The grounds
were that proceeding before the courts of the Province of Quebec
was a matter of public order and could not be thwarted. The decision
was upheld by the Canadian Supreme Court 3-2.
It is submitted that this is an excessive use of jurisdiction, parti-
cularly because the parties, who were foreigners, had agreed validly
according to the law of the place where they contracted (New York)
to arbitrate in virtue of the law of that place (New York).
In France
The French courts have been reluctant to permit arbitration to
exclude their jurisdiction. Nevertheless, where the Hague Rules
apply, arbitration has been permitted if the parties have actually
8 (1962) 1 Lloyd’s 172 at p.179.
9 (1963) 2 Lloyd’s 499.
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consented to the arbitration and know the details and terms of the
arbitration clause.
The Cour d’Appe d’Aix (Massilia, December 9, 1960) 10 refused
to permit arbitration, but retained jurisdiction, because the bill of
lading invoking the charter party clause did not give the text of the
arbitration clause. The headnote succinctly sets out the effect of
the judgment:
“La clause compromissoire de la charte-partie n’est pas opposable au
porteur du connaissement bien que ce dernier porte la mention marginale,
dactylographi~e mais non approuv~e, de r~f6rence A ladite charte-partie,
lorsque le texte de celle-ci n’est pas annex6 au connaissement, lequel ne porte
aucune indication permettant i un tiers porteur de prendre connaissance de
ses clauses et qu’il n’a pas dt4 indiqu6 que les porteurs du connaissement
aient requ communication du texte de cette charte-partie.”‘l
The local French Act of April 2, 1936, which applies to local
carriage, contains particular restrictions as to arbitration at Article
10, as follows:
“La clause compromissoire ne pourra en aucun cas confirer aux arbitres
le pouvoir d’amiables compositeurs.”
“Est nulle et non avenue, en mati~re de navigation r~serv~e, toute clause,
y compris le cas de prdvision d’arbitrage, qui aurait pour effet de d6placer
le lieu oa doit 6tre jugd le litige selon les r~gles portes A la pr~sente loi.”
The effect of the foregoing is:
1. That the arbitrators must apply the law of April 2, 1936 in
their decision and, for example, cannot apply local customs or substi-
tute their own principles no matter how equitable.
2. As concerns reserved navigation (i.e. carriage from one port
in France to another port in France, which carriage must be in a
French vessel), the arbitration clause cannot result in the arbitration
taking place elsewhere than where suit must normally be taken.
LETTERS OF INDEMNITY
A letter of indemnity, in respect to carriage of goods, is a written
undertaking by a shipper to indemnify a carrier for any responsibility
that the carrier may incur for having issued a clean bill of lading
when in actual fact the goods received were not in apparent good order
10 1961 D.M.F. 163.
11 Translation: An arbitration clause in a charter party cannot be invoked
against a bill of lading holder although the bill of lading bears a marginal note,
typed but unapproved, referring to the said charter party, when the text of the
arbitration clause is not annexed to the bill of lading, which latter bears no
indication to a third party holder permitting him to take notice of the charter
clauses and when it was not shown that the holder of the bill of lading was
apprised of the text of the charter party.
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SELECTED PROBLEMS UNDER HAGUE RULES
31
and condition. Issue of such a bill of lading is contrary to Article 3,
3) (c) of the Hague Rules.
The letter of indemnity is an attempt by the carrier to satisfy its
client, the shipper, while the shipper’s purpose is to obtain payment
or immediate credit in virtue of a document which it knows to be
incorrect and misleading. The letter of indemnity is thus a fraud,
and has been treated as much by the courts of the world.
Thus in Tribunal de Commerce de la Seine (Thisde, March 10,
1958) 1 – Headnote:
“La ddlivrance d’un connaissement net, A la demande du chargeur, et
contre remise d’une lettre de garantie ddlivrde par ce dernier, malgr6 l’6tat
apparent de la marchandise qui n~cessitait des rdserves, constitue une fraude
qui engage la responsabilit6 du transporteur maritime A l’6gard du destina-
taire et de ses assureurs.”
The effect of a letter of indemnity
A carrier cannot use the letter of indemnity against the claim of a
consignee or other third party. This was pointed out in Continex
v. S.S. Flying Trader 2 where the Court stated:
“When a carrier issues a clean bill of lading for goods manifestly dam-
aged he is estopped to deny the assertion against a purchaser of the bill
of lading who has been misled to his damage by reliance on the repre-
sentation.”
In Copeo Steel and Eng. Co. v. SS Alwaki 3 a clean bill of lading
was given although the bundles of steel had “light atmospheric rust”.
A letter of indemnity was issued and the purchaser of the goods
recovered the cost of removing heavier flaking damage. One gathers
the Court was very unsympathetic to the carrier for the additional
damage because of the letter of indemnity.
In Empresa Central Mercantil v. Brasileiro 4 it was held – Head-
note:
“Ocean carrier having accepted rusty steel cargo on ‘clean’ bill of lading
in order to enable the shipper/seller to obtain payment for the goods under
confirmed credit terms at a bank, and having accepted a shipper’s letter
of indemnity against resulting claims (which was reported to the cargo
1 1958 D.M.F. 414. Translation: “The delivery of a clean bill of lading at
the request of the shipper, and against the provision of a letter of indemnity,
by this latter, despite the apparent condition of the merchandise which requires
notations, is a fraud which makes the ocean carrier responsible to the consignee
and his underwriters.”
2 1952 A.M.C. 1499 at p. 1501.
3 1955 A.M.C. 2001.
4 1957 A.M.C. 218.
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[Vol. 11
underwriters), the court, in a suit by the buyer/consignee, condemned the
carrier for practicing deception.”
Local legislation as well usually makes it clear that a letter of
indemnity cannot be used against a third party consignee. The Cana-
dian Bills of Lading Act 1952, R.S.C. Chapter 16, is typical. Article
4 reads as follows:
“Every Bill of Lading in the hands of a consignee or endorsee for
valuable consideration, representing goods to have been shipped on board
a vessel or train, is conclusive evidence of such shipment as against the
master or other person signing the Bill of Lading, notwithstanding that
such goods or some part thereof may not have been so shipped, unless such
holder of the Bill of Lading has actual notice, at the time of receiving it,
that the goods had not in fact been laden on board, or unless such Bill of
Lading has a stipulation to the contrary; but the master or other person so
signing may exonerate himself in respect of such misrepresentation by
showing that it was caused without any default on his part, and wholly
by the fault of the shipper or of the holder, or of some person under whom
the holder claims.”
The Civil Code of the Province of Quebec, Canada, Article 1212,
is also typical of internal legislation, and reads:
“Counter-letters have effect between the parties to them only; they do
not make proof against third persons.”
Carrier v. Shipper
Because of the fraud, one might conclude that the carrier has no
claim against the shipper because the whole contract is invalid. On
occasion the courts have allowed the recourse action, and on others
they have disallowed it.
In Brown, Jenkinson v. Percy Dalton,5 the court of first instance
held the shipper responsible to the carrier because, although the
parties had conspired to make a false statement on the bill of lading,
the parties had not sustained any loss as a result of such conspiracy.
In appeal, 6 however, the claim of the carrier against the shipper was
disallowed. The letter of indemnity, being a fraud, could not be relied
on even by the carrier as against the shipper.
In Ben Line v. Joseph Heureux,7 the carrier was permitted to sue
the shipper by the court of appeal. It was held, however, that the
exact terms of the letter of indemnity applied and no more. “Several
bundles dirty before shipment” does not include wet staining of the
whole shipment. The carrier could claim as against the shipper for
only a few dirty bundles and not for those which were wet.
5 (1957) 1 Lloyd’s 31.
6 (1957) 2 Lloyd’s 1.
7 (1935) 52 Lloyd’s 27.
No.1]
SELECTED PROBLEMS UNDER HAGUE RULES
33
In Tribunal de Commerce de Rouen (Capitaine Lacoley, June 24,
1952) 8 the court permitted the carrier to sue the shipper.
Delay for suit
The delay for suit between the carrier and shipper has been held
to be the one year 8, but in my opinion, the one year delay of the
Hague Rules should not apply. Rather the delay should be the normal
delay between merchants who make a contract, and in this case the
contract is the letter of indemnity. In most jurisdictions this delay is
five or seven years.
Special damages
The Tribunal de Commerce de Rouen (Nido, February 23, 1962)9
held: Headnote –
“Le transporteur maritime et le chargeur responsables d’actes fraudu-
leux dans la d~livrance d’un connaissement net et d’une lettre de garantie
doivent des dommages-int~rAts compl6mentaires au destinataire pour r4sis-
tance abusive A la demande en justice fortnme contre eux.”
Judgment was therefore given for damages of 425,061.69 NF (ap-
proximately $85,000.00 U.S.) and for special damages of 50,000 NF
(approx. $10,000.00 U.S.) because of the contestation by the carrier
of the claimant’s action after a letter of indemnity had been issued
by the carrier.
The view that the consignee is not sufficiently recompensed for
the loss under a letter of indemnity by ordinary damages obtained by
court action was expressed by Pearce L.J. in Brown, Jenkinson v.
Percy Dalton :10
“It
is not enough that the banks or the purchasers who may have been
misled by clean bills of lading may have recourse at a law against the
shipowner. They are intending to buy goods, not law suits.”
No special damages were, however, considered in case because the
action was between carrier and shipper.
8 1953 D.M.F. 34.
In this case the French Local Act of April 2, 1938 applied,
but the principle is the same here as in the Hague Rules.
9 1962 D.M.F. 294. Translation : “The ocean carrier and the shipper respon-
sible for fraudulent acts in the delivery of a clean bill of lading and a letter
of guaranty owe additional damages to the consignee for abusive resistance to
the claim in law against them.”
10 (1957) 2 Lloyd’s 1 at p. 13.
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When is a letter of indemnity permissible ?
A letter of indemnity is never permissible if it contravenes 3,
(c) and can never be invoked against an innocent third party but
3)
it is less reprehensible under certain circumstances.
In Tribunal de Commerce de la Seine (This6e, March 10,.1958) 1
it was held: Headnote –
“La pratique de la lettre de garantie se justifie seulement en effet lors-
qu’A raison de la rapidit6 des operations imposes par l’exploitation ration-
nelle des lignes r~guli~res, il n’est pas possible au capitaine de proc~der avec
une precision rigoureuse A la v6rification des indications fournies par le
chargeur avant l’embarquement.”
In Brown, Jenkinson v. Percy Dalton, it was held by Pierce L.J.:
“In trivial matters and in cases of bona fide dispute where the difficulty
of ascertaining the correct state of affairs is out of proportion to its im-
portance, no doubt the practice (of issuing a letter of indemnity) is useful.”
CONCLUSION
From a study of Jurisdiction and Arbitration Clauses as well as
Letters of Indemnity, it is apparent that the Courts of all countries
have been reluctant to permit carriers to limit their responsibility
beyond the degree of responsibility set out in the Rules. This reluct-
ance has existed whether Article 3, 8) of the Hague Rules has been
directly applied or whether the broad general principles of maritime
law have been relied on.
11 1958 D.M.F. 414. Translation: “The practice of issuing a letter of indem-
nity is only justified when by reason of the speed of the operations necessary
for the normal exploitation of regular oceanlines, it is impossible for the master
to verify with rigorous precision the information funrished by the carrier
before shipment.”
