The Carriage of Goods by SeaAct, known as Cogsa, provides that the carrier, to avoid liability, must properly load, handle, stow, carry, keep, care for and discharge the goods carried. The Act applies to every bill of lading evidencing a contract for ocean carriage of goods in foreign trade, to or from the United States.
Cogsa defines “carrier” as the owner or charterer who enters into a contract of carriage with a shipper. Although this simple definition is hallowed by usuage, its meaning is often unclear when bills of lading are issued on chartered vessels. As a result of this, courts have been struggling with the term for years when assessing liability in cargo damage cases.
By way of background, bills of lading often are used on time and voyage chartered vessels because masters must issue bills at the charterer’s request.
Between shipowners and charterers, the bills are receipts that do not modify charter party terms. However, when bills of lading are transferred for value to third parties, they become contracts of carriage. Cogsa then requires “the carrier, or the master or agent of the carrier,” to issue the bill to the shipper upon demand. Again, Cogsa fails to define “carrier.”
To determine carrier status on chartered vessels, most courts use agency principles to identify the issuer of the bill of lading. The issuer then will be considered the Cogsa carrier.
If the bill is issued by the owner, or by the master for the owner, the owner is the carrier. Where the bill is signed by the charterer on its own behalf or for the master or shipowner without authorization, the charterer will be considered the carrier. Some courts find all owners and charterers carriers if they in any way contributed to the cargo loss.
Regardless of carrier status, the owner’s vessel also will be liable for cargo damage, even if the damage was caused by the charterer. This is based upon the premise that the vessel ratifies the contract of carriage once the cargo is loaded and bills of lading are issued.
Vessel owners can avoid carrier liability, however, by utilizing demise, or bareboat, charters. Under a demise charter, the owner surrenders possession, management, navigation and control of the vessel for a fixed hire period to the charterer.
The bareboat charterer then succeeds to most of the rights and obligations of the owner. The owner’s vessel still may be liable for cargo damage; however, marine insurance coverage and indemnity agreements with the bareboat charterer can eliminate this risk.
Demise charters permit individuals and companies to invest capital in shipping, while avoiding potential carrier liability under Cogsa.
In the recently reported Otto Wolff case (1993 A.M.C. 406), the Federal Court for the Eastern District of Virginia reaffirmed the premise that demise charters can insulate vessel owners from Cogsa carrier liability.
The court found that the owner of an unmanned barge had no carrier liability to the owner of the cargo damaged on the barge.
The bareboat charterer had exclusive use and control of the barge during the term of the demise charter. The bill of lading was issued by the bareboat charterer on its own behalf. Furthermore, by definition, the barge owner did not qualify as a Cogsa carrier in that it never entered into a contract of carriage with the shipper.
The Otto Wolff case clearly illustrates that vessel owners can avoid carrier liability by utilizing demise charters. However, there is a trade-off: Vessel owners must relinquish possession, management and control of their vessels.