Third Party Protection in Shipping

Carlo Corcione

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CHAPTER 2 Third party protection in shipping: risk allocation and management

Limitation of liability in shipping

2.1 Even though, in terms of the parties involved, carriage is very complex business, the ‘official’ perspective is that there are still only two main parties to a carriage contract. First, the carrier, who is the party that offers to transport goods in exchange for a price.1 Second, the owner of the cargo being transported. 2.2 Shipping goods from one country to another always involves the risk of damaging the goods in transit. Thus, the law governing the carriage of goods by sea has always sought a satisfactory allocation of risk between carriers and cargo interests.2 Because the structure of these arrangements has evolved from a single category of participants performing the work (i.e., the carrier), to a multi-faceted group of participants, this bilateral scheme has now lost its clarity, especially as far as the carrier is concerned.3 2.3 Protection clauses in international contracts are essential for the allocation of risk between parties, serving as tools for establishing how risk inherent in international operations (including specific legal risks) should be divided amongst the parties.4 2.4 It is common knowledge that an international transaction typically involves different parties.5 The carriage of goods by sea, however, has not always been seen as part of this enterprise. There was a time when the shipowner was

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not only the carrier of the vessel6 but also the cargo owner, the captain, and its own insurer. There were no banks, nor were there any lenders. In this sense, there was little impetus for the law to be elaborate, and regulatory regimes were non-existent.7 Stevedores and port terminals were not worldwide organisations. The field was mainly labour-intensive, not capital-intensive. Nowadays, each transaction requires the involvement of many interests. Limitation and exculpatory clauses help these transactions to go smoothly. 2.5 Understanding how the limitation of liability in the carriage of goods by sea started and evolved is essential in introducing the concept of third parties. As Wyatt notes:

Under general maritime law, the ocean carrier was liable as an insurer of the goods; excused from cargo loss or damage only by an act of God, the shipper, public enemy, or by an exception in the contract of carriage.8

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