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Efficacy of the demise clause – liner bills of lading – fundamental breach

The facts

Bales of cotton were shipped aboard the vessel from Houston, Texas to Massawa, Ethiopia. The goods were sold CIF by the shippers. The vessel was time chartered by the owners to a Liberian company.

The charterparty on a NYPE form contained the usual employment and agency clause obliging the master to sign bills of lading binding on the owners.

The bill of lading under which the cargo was shipped contained a demise clause making the owners liable irrespective of the form of the bill describing the charterers as principals. The shippers were an immediate party to the bill. The receivers/endorsees were entitled to sue by virtue of section 1 of the Bills of Lading Act, 1855.

The bill of lading contained an exemption clause exempting the carrier from liability for damage occurring while the goods were not in its actual custody. A further clause gave the owners the right to trans-ship goods with no liability attaching to them for damage occurring after trans-shipment.

Without the consent of the shippers, the goods were trans-shipped with damage occurring to the cargo after the trans-shipment and prior to discharge at the final destination.


The owners argued that the demise clause inserted in the bill by the charterers was outside the scope of the employment and agency clause of the charterparty and therefore not binding on them. Brandon J found that, on the contrary, the time charter specifically authorized the charterers to bind the owners and dismissed the point.

The owner’s second argument was that the trans-shipment clause freed them from liability. Brandon J upheld the shippers’ argument that the trans-shipment clause applied only to trans-shipment which was envisaged at the outset and recorded on the bill of lading. It did not cover the situation arising here, where the owners (or rather the charterers on their behalf) unilaterally changed the course of the vessel resulting in a trans-shipment not agreed upon by the parties.

By deviating without consent, the owners fundamentally breached the agreement and were not entitled to rely on the exemption clause absolving them from liability for damage occurring while the cargo was not in their actual custody.

On the grounds of the doctrine of fundamental breach and because conduct giving rise to the damage was outside the “four corners of the contract” the owners were held not entitled to rely on the exemption clause.

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Charter Party Casebook