Incorporation – incorporation clause not importing demurrage clause
The facts
High speed diesel oil was shipped from Singapore to Trincomalee, Sri Lanka under an Exxonvoy 1969 voyage charter party.
An Exxonvoy bill of lading was issued to cover the shipment which read:
“The shipment is carried under and pursuant to the terms of the charter…. and all the terms whatsoever of the said charter except the rate and payment of freight as specified therein apply to and govern the right of the parties concerned in this shipment.”
The charterers incurred liability for demurrage under the charterparty. The bill of lading was negotiated to a consignee.
The charterers became insolvent and the shipowners claimed demurrage for the consignees, arguing that the incorporation clause achieved the substitution of the bill of lading holders for the charterers with regard to liability for demurrage.
Alternatively, the owners argued that the bill of lading provided them with a lien over the cargo.
Findings
In an action in the Commercial Court, Mustill J held that notwithstanding the wide terms of incorporation, the parties did not intend the demurrage clause to apply to consignees. This result could only be achieved by substituting the word “bill of lading holder” for “charterer” in the demurrage clause.
Mustill J, however, upheld the shipowners on their lien point with the result that the consignees were obliged to pay the demurrage in order to obtain possession of the cargo.
The Court of Appeal (Sir John Donaldson MR, May and Dillon LJJ – judgment by Sir John Donaldson MR) upheld the Commercial Court.
The House of Lords (Lords Diplock, Scarman, Roskill, Brandon and Brightman – speech by Lord Diplock) held, distinguishing Gray v Carr and Porteus v Watney, that it made no commercial sense for consignees to assume liability for demurrage, being an issue entirely between the charterers and the shipowners.
Lord Diplock supported the reasoning of Mustill J and Sir John Donaldson MR based on the semantic approach. Reference in the same document to charterers and consignees by name indicated an intention that their rights and duties were different.
Commentary
Sir John Donaldson MR noted that “The exercise upon which we are engaged in the last resort is trying to divine the deemed intention of the parties to the bill of lading contract.”
Lord Diplock stated, without rejecting the rationale in Portsea, that arbitration clauses were excluded from incorporation in bills of lading because they were not germane to the rights and duties created by the bill of lading. The opposite, however, was not true. The fact that a clause in the charterparty was germane to rights and duties under a bill of lading did not automatically justify its incorporation. Something more was required ie specific intent to incorporate.
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