Demise clause

Demise clause. This is commonly found in bills of lading issued by a charterer who enters into a contract of carriage of goods by sea with a shipper. A specimen clause is:

“If the ship is not owned by or chartered by demise to the company or line by whom the bill of lading is issued (as may be the case notwithstanding anything that appears to the contrary) this bill of lading shall take effect only as a contract with the owner or demise Charterer as the case may be as principal made through the agency of the said company or line who acts as agents only, and who shall be under no personal liability whatsoever in respect thereof.”

The above clause was used in the bills of lading issued by a time charterer of a vessel, on its own forms, in the case of The Antares. The vessel loaded machinery at Antwerp for carriage to Mombasa. The bills of lading were subject to the Hague Rules or the Hague-Visby Rules. When the cargo was discharged at Mombasa, it was discovered that part of the machinery had been loaded on deck and had been seriously damaged during the voyage. The holders of the bills of lading assumed that the charterers were the owners of the vessel. They overlooked the demise clause printed on the back of the bills of lading. A claim was made against the issuers of the bill of lading. More than 11 months after the discharge, the solicitors for the holders of the bills of lading appointed an arbitrator. Two days after a year after discharge had passed, the issuers advised the solicitors acting on behalf of the bill of lading holders that the former were not the owner of the vessel. When the solicitors finally made a claim against the owners about another three months had passed. The owner’s alleged that the claim against them was time-barred by the provisions in the Hague-Visby Rules or Hague Rules that require suit to be brought within one year of their delivery or the date when they should have been delivered.

In the English Court of Appeal it was argued for the holders of the bills of lading that the time charterparty between the shipowner and the charterer permitted the charterer to sign bills of lading as authorised agents of the shipowners and also to settle claims on behalf of the shipowner. This would make them “authorised agents” to receive service of the notice of arbitration on behalf of the owners. The judge did not agree with the argument that the charterers were authorised to settle all claims on behalf of the owners, but only those cargo claims, which were the liability of the charterers under the terms of the charterparty. The charterers were not agents to receive notices of arbitration.

Therefore the clause was valid, as such a similar clause was in the earlier case of The Berkshire, where the judge said:

“. . . I see no reason not to give effect to the demise clause in accordance with its terms . . . . It is not in dispute that the ship was not owned or chartered by demise to . . . (the company or line by whom the bill of lading was issued) . . . but was on the contrary owned by the shipowners. It follows that the bill of lading is, by its express terms, intended to take effect as a contract between the shippers and shipowners made on behalf of the shipowners by . . . as agents only.”

The demise clause may therefore be a disadvantage to the holders of bills of lading because they may be unaware who is the carrier against whom a cargo claim should be brought. The charterer can avoid liability also by using an “identity of carrier” clause in bills of lading he may issue, even on. his own forms. Such a clause may, however make it easier for the bill of lading to know the person against whom a cargo claim may be brought. Examples of such a clause can be found in standard-form bills of lading approved by BIMCO:

“The contract evidenced by this bill of lading is between the merchant and the owner of the vessel named herein (or substitute) and it therefore agreed that said shipowner only shall be liable for any damage or loss due to any breach or non-performance of any obligation arising out of the contract of carriage, whether or not relating to the vessel’s seaworthiness. If, despite the foregoing, it is adjudged that any other is the carrier and/or bailee of the goods ‘shipped hereunder, all limitations of and exonerations from, liability provided for by law or by this bill of lading shall be available to such other.

It is further understood and agreed that as the Line, Company or Agent who has executed this bill of lading for and on behalf of the master is not a principal in the ‘. transaction, said Line, Company or Agents shall not be under any liability arising out of the contract of carriage, nor as carrier nor bailee of the goods.”

“The contract evidenced hereby is between the merchant and owner or demise charterer of the vessel designated to carry the goods. No other person or legal entity shall be liable under this contract, and the protection of Article IV bis of the Hague-Visby Rules and any other statutory exemption from or limitation of liability shall inure also to the benefit of stevedores and other servants or agents of the carrier. For the purposes of this clause all such persons and legal entities are deemed to be parties to this contract, made on their behalf by the carrier.”

While the English courts (and other countries’ courts) consider a demise clause in favour of the time charterer, other jurisdictions are not so inclined. For example, in the Canadian Federal Court of Appeal, in the case of The Newfoundland Coast, it was held that a demise clause in a bill of lading did not exclude liability of a time charterer who had entered into a contract of carriage with the shipper. The bill was signed by an employee of the charterer on behalf of his employer by name. A space on the bill for the name of the vessel was left blank so there was evidence that the cargo would be carried other than in a vessel owned by the charterer.

Also in Germany, in February, the Federal Supreme Court denied validity to an “identity of carrier” clause identical to the CONLINEBILL clause above. The Supreme Court held that the printed name of the time charterers on the front of the bill of lading and the signature by the charterers’ agent evidenced a contract of carriage between the shippers and the charterers as the “carrier”. The shipowners were not a party to this contract.

There is acceptance of the clause in some countries, in favour of charterers and hostility in others, in favour of the shipowners. In the middle are the cargo interests who should know clearly who the carriers are under the bills of lading they receive.

The origin of the clause was during the Second World War when British vessels owned, chartered or requisitioned by the Government were assigned to liner companies to operate. The liner company would issue bills of lading on their own forms. If loss or damage occurred to the cargo, perhaps by unseaworthiness, the liner company issuing the bills of lading would be liable but would not be allowed to limit their liability because of a principle that limitation of liability was permitted but only by shipowners under the Merchant Shipping Acts then in force. Now, however, the clause is used for purposes very different to those for which the clause was designed.


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Written by Ship Inspection

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