The article is written by Ansruta Debnath, a law student at National Law University Odisha. This article focuses on contracts of carriage, their importance and the provisions that must be included in a standard contract of carriage.
It has been published by Rachit Garg.
Table of Contents
What is a contract of carriage
A contract of carriage is a contract that is created between a carrier and a shipper for the transportation of goods or passengers. The carrier is the entity that transports goods or people for any person or company. The entity (person or company) for whom the carrier carries the cargo is called the shipper. The shipper is also known as the consignor, i.e., the person who sends the goods. In the case when the contract is being created between a carrier and the person receiving the goods, the latter is called the consignee. A contract of carriage may be due to shipment through air, water or road.
The legal responsibilities of the carrier and the user are defined in a carriage contract. The user is either the consignor or the consignee, and the carrier is either a freight trucking carrier, an air cargo carrier or an ocean carrier. International conventions have standardised the carrying of products in international freight shipments. These standards ensure that rules and laws are applied consistently.
The standardised contract of carriage, which is included in all carrier contracts and mentioned in freight forwarders contracts, establishes minimum standards for carrier liability and duty, such as in the event of loss or damage.
Importance of making a contract of carriage
The contract of carriage is important as it assigns rights and liabilities to the parties involved when certain cargo is being transported. These aspects of a contract of carriage of goods are significant because they help in the identification of the goods that are to be transported. Further, the contract of carriage gives detailed information about the consignor, the carrier, the consignee, and the mode of transportation. They also spell out all of the contract’s legal responsibilities. The contract of carriage contains the terms and conditions to which the carrier and shipper are legally bound. It takes effect once you, the shipper, sign the air waybill upon tendering your shipment.
Important clauses in a contract of carriage
Identification of parties involved
A contract of carriage will involve a carrier and a shipper. The identifying information about these two parties should be included in the agreement at the very beginning. Identifying information includes a person’s/firm’s name, office or home address, and contact information such as a cell phone number, office number and email address.
Scope of services or description of work
This clause should contain the nature of the goods or cargo being transported and should detail how the goods must be transported.
Timeline
The contract must specify the timeline in which the cargo would be delivered. Further, it should also specify the timeline in case of delay.
Rights, obligations and liabilities
The most important requirement of a contract of carriage is the enumeration of the rights and liabilities of the carrier and the shipper. There will be a need to ascertain who would be responsible for the goods which are being shipped. More often than not, the carrier assumes primary responsibility for the goods or passengers when they are in transit. The consignor or consignee assumes responsibility if it can be proved that any problem that had arisen during the process of transport was primarily their fault.
Payment schedules and compensation
The contract must contain the rates at which payment will be done. Further, the timeline for the payment or the payment schedule should be specified. For example, 30 per cent of the payment might be given in advance while the remaining can be given after the delivery is complete.
The contract should also specify whether the carrier would be compensated by the shipper for expenses incurred during the transportation process or whether those expenses would be included within the normal payment.
Act of God/ force majeure
In Black’s Law Dictionary, the term ‘force majeure’ is defined as
“an occurrence or effect that cannot be predicted or controlled. It is a contractual clause that allocates the risk of loss if performance becomes impossible or unfeasible, especially as a result of an unforeseen or uncontrollable incident.” While force majeure has not been defined or expressly addressed in Indian statutes, it is mentioned in Section 32 of the Indian Contract Act, 1872 (the Contract Act), which states that if a contract is dependent on the occurrence of an event that becomes impossible, the contract becomes void.
The Act of God clause or the force majeure clause is a clause that allows for parties to escape liability in case of breach of contract if the breach is due to circumstances beyond their control. E.g., during the 2020 lockdown due to COVID-19, many agreements including contracts of carriage had to be suspended due to the inability to continue work or payment by either party. Thus, even if the carrier is unable to commit to the predetermined work timeline, the contract is not breached but suspended until work can recommence. It is important to note that the performance of the contract must be impossible and not ‘difficult’ for this clause to take effect.
Insurance
The transportation of goods contains a number of risks against which insurance must be taken. The same must be thus specified within the contract of carriage itself to prevent ambiguities.
Dispute resolution
If a dispute arises, a good contract will always include a process for resolving it. While litigation is an age-old tradition, parties are urged to use alternative conflict resolution procedures such as arbitration, negotiation, conciliation, or mediation due to the increasing pressure on the judiciary and the ease with which they can be resolved.
Warranty
It is assumed that a service when done will be done with integrity and that it would be covered by some form of warranty. Most contracts of carriage should include a warranty clause, especially if the consignor/consignee refuses to proceed unless the consultants provide a warranty. Furthermore, violating a warranty will necessitate the payment of damages.
Signature and dateline
Signatures of the parties involved at the end of the agreement convert the latter into a legally binding contract and indicate the formal acceptance of the parties to its terms. The date is also important, which shows the time from when the contract started.
Pros of a contract of carriage
The following are the pros of a contract of carriage:
- It is always advisable to draw out the rights and obligations of parties in a contract beforehand.
- Calculation of the costs is done beforehand.
- If appropriate clauses are added and the contract of carriage is drafted in the right way, then it allows for clarity in the future, especially as the trade involved can be subject to multiple risks.
- The carriage of goods is a service of high requirements.
Cons of a contract of carriage
The following are the cons of a contract of carriage:
- Too much cost may be prescribed for the carriage of the goods. Further, the costs of risks might not be calculated in the most precise and efficient manner.
- Contracts of carriage may not be flexible, making it difficult in the future to make changes as the need may be.
- Contracts cost time and money to write and draft. The more comprehensive it is, the more resources it will consume.
- Language is always an issue in contracts. Legal jargon is often used in contracts, which might create an invisible barrier between the contract and the signing parties.
Bill of lading and how it is different from a contract of carriage
Bill of lading is a term which is commonly associated with a contract of carriage. While both are required for the transport of goods, they are not one and the same. A bill of lading is a legal document issued by a carrier to a shipper that details the type, quantity, and destination of the goods being carried. This document must accompany the shipped goods and must be signed by an authorised representative from the carrier, shipper, and receiver. The Hague Rules (1924) and its updated version, the Hague-Visby Rules (1968) provide international standards for bills of lading. Another important convention in this regard is the United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea, also known as the Rotterdam Rules, which was adopted by the United Nations General Assembly in 2008.
The bill of lading is thus proof that a contract of carriage exists. The contract of carriage will always precede the issuance of a bill of lading. The bill of lading serves the following purpose:
- It serves as proof of the carriage contract, which details the terms and conditions under which the items will be transported.
- It is a receipt that certifies that the carrier has received the cargo in accordance with the contract and that the products have arrived in excellent condition.
- It’s a title document that allows for the sale of goods in transit and the extension of credit.
- A bill of lading is not considered a document of title in most local and international systems. It gives the proprietor the right to have the item delivered to him.
A bill of lading contains the following details:
- The receiver’s and shipper’s full names and official addresses.
- Purchase orders, also known as special reference/invoice numbers, assist the shipper and consignee in releasing items for collection or acceptance at delivery.
- The date of pickup serves as a point of reference for tracking freight.
- The item’s specifications, such as the number of units being shipped, the product’s weight and dimensions, and the nature of the cargo being transported, such as dangerous products.
- If the products are hazardous, they are marked with a Department of Transportation hazardous material classification, and it is noted on the bill that additional rules and requirements must be followed when shipping them.
- Crates, palates, cartons, tablets, drums, and other types of packaging are described in depth.
A sample contract of carriage
Sample contracts of carriage are widely available for the benefit of everyone who wants to draft a contract of carriage. A point must be noted that these samples contain certain provisions which are a must for all contracts of carriage. Apart from those, the contracts can be amended and sub-clauses added or removed to cater to individual needs.
The following is the format of the sample of a standard contract of carriage by road-
ROAD CARRIAGE AGREEMENT
This Agreement is made on the __th day of ________ 20__.
BETWEEN
______(Name and address of Awardee)______a Non-Governmental Organization registered in __________(country)_____ (hereinafter referred to as the “Awardee” which term shall where the context admits include its duly appointed agents, its successors, and assigns) and whose principal place of business for the purposes of this Agreement is _______(physical address)_______________,
AND
______(Name and address of Service Provider)______a limited liability company incorporated in __________(country)_____ (hereinafter referred to as the “Service Provider” which term shall where the context admits include its successors and assigns) and whose registered office or principal place of business is at ______________(physical address)_______________.
WHEREAS
1. The Service Provider is being engaged by the Awardee as a clearing and forwarding agent for commodities/consignment specified, and it is the intention of the parties that the Service Provider shall solely be engaged as the transporter and offer transportation services for all the commodities/consignment where the Service Provider shall offer clearing and forwarding services.
2. The Service Provider, holding a valid operator’s licence and having complied with all statutory provisions and being of good repute, financial standing, and professional competence, and operating authorised motor vehicles with a suitable management and maintenance team, runs and operates a network of inland haulage services within ________(countries)____________, (hereinafter referred to as “the Territory”); and
3. The Service Provider shall at all times make and keep available sufficient motor vehicles over which the Service Provider holds due legal title or ownership or control; and at all times be fully compliant with all and any legislative requirements within the Territory; and
4. The Service Provider shall from time to time take delivery of or deliver consignments to and from the Awardee or as per directions from the Awardee for delivery of the said consignments to the Awardee’s final destination.
5. The Service Provider is prepared, ready, willing, and able to offer the Company, haulage services for the carriage of consignments within the specified area in the Territory, and the Awardee is prepared to make use of the Service Provider’s haulage services covering the specified area of the Territory; and
6. The Awardee and the Service Provider intend to give their cooperation and secure footing by executing this Agreement on the date aforementioned
WHEREBY IT IS AGREED EXPRESSLY AS FOLLOWS:
ARTICLE 1: DEFINITIONS
ARTICLE 2: OBLIGATIONS OF SERVICE PROVIDER
ARTICLE 3: OBLIGATIONS OF AWARDEE
ARTICLE 4: ASSIGNMENT OF CONTRACT
ARTICLE 5: CONSIGNMENT
ARTICLE 6: WAITING CHARGES
ARTICLE 7: INSURANCE
ARTICLE 8: FORCE MAJEURE
ARTICLE 9: ARBITRATION
ARTICLE 10: CONFIDENTIALITY
ARTICLE 11: WARRANTY
ARTICLE 12: LAW AND JURISDICTION
IN WITNESS WHEREOF, the Awardee has hereunto set his hand, and the Service Provider has caused these presents to be executed in its name and on its behalf, all as of the day and year first above written.
____________________ ___________________
(Awardee) (Service Provider)
Name: _________________ Represented By:
Designation: __________________
Conclusion
It is crucial to outline the rights and duties of the shipper and carrier through a contract of carriage. With the changing landscape of the shipping and carriage industry, there is a marked need to move from strict to much more flexible agreements. But these contracts should contain certain fundamental clauses, like those for rights and liabilities, force majeure, act of god, etc. for maximum efficiency. Care must be taken to ensure that the agreement is not too one-sided. A balance must be struck, ensuring that both parties are equally benefited from the agreement. Following these guidelines would lead to the creation of more cost-efficient and effective contracts of carriage.
References
- The Relation Between Contract Of Carriage By Sea And Bill Of Lading – Corporate/Commercial Law – Turkey
- What is Contract of Carriage: Meaning & its Usage in the Shipping Industry
- What is a Contract of Carriage? | Freightos
- ROAD CARRIAGE AGREEMENT
- Contract Carrier Transportation Agreement
- Bill Of Lading in Shipping: Importance, Purpose, And Types
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