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Shipping contracts in France – Lexology

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Shipping contracts

i Shipbuilding

The French shipbuilding industry suffered a serious crisis in the early 1970s. Although still in decline, the sector is active and has proved increasingly promising in recent years. Built by the French shipbuilder STX, Harmony of the Seas, the biggest cruise ship in the world, was delivered to Royal Caribbean International in April 2016. The shipbuilder’s order book is currently full until 2023. Up to 14 cruise ships have been ordered by clients MSC and Royal Caribbean International for a total sum of US$14.2 billion. In 2017, STX Corporation avoided bankruptcy with the assistance of the French government and is now 50 per cent owned by the global leader in the shipbuilding industry, Fincantieri.

In 2017, the French Navy awarded a public procurement to the French shipyards CMN and Merré for the delivery of 29 12-metre tugs. In view of its prospective contracts (with Saudi Arabia and Angola, inter alia), CMN intends to extend its infrastructure.

CMN is also developing an activity in hydroelectric power. Its first marine turbine is under construction and will be installed in spring 2019 for a test period in Brittany on EDF’s demonstration site.

Shipbuilding contracts are governed by Articles L5113-1 to L5113-6 of the Transport Code, which provide for a ‘holistic approach’ to contractual freedom. Pursuant to Article L5113-2, the main requirement is for the contract to be in writing. The shipyard is moreover required to make a declaration to the competent maritime administration, to enable the administration to determine whether the safety conditions related to the construction are met.

The guiding principle is thus contractual freedom. Two types of sales coexist: the parties must choose between a sale that will be completed on delivery, or a sale in which the ownership is transferred during construction. This second type of sale aims to protect the owner if the shipyard goes bankrupt.

Regarding the actions that can be engaged against the shipyard for defects, Article L5113-4 of the Transport Code provides that ‘[t]he builder guarantees any hidden defect of the vessel, even if the buyer has accepted the delivery without reservation’. This action is time-barred one year after the defect is discovered. This provision sets out a strict liability regime, reinforced by the applicability of Article 1643 of the Civil Code, which imposes on the seller an obligation to reimburse the purchase price, or to compensate damages that may have occurred because of the defects. Clauses limiting or excluding the builder’s liability in the event of the existence of hidden defects are only valid in certain circumstances under French law.

ii Contracts of carriage

The Hague-Visby Rules are enforceable in France. France signed the Hamburg Rules but did not issue the decree necessary for its entry into force; thus, the Hamburg Rules have not been ratified and are not applied by the French courts unless the parties have inserted a paramount clause in the contract of carriage. The Rotterdam Rules have also been signed but not ratified by France. The Geneva Convention on international multimodal transport of goods has been ratified by France, but is not yet in force and probably never will be.

The French Transport Code also contain provisions related to contracts of carriage. Depending on the international nature of the contracts and other criteria, such as the port of departure or destination, an international convention or a French law will apply. When applicable under the conflict-of-law rules, French law also governs issues not addressed by the Hague-Visby Rules. For instance, Article L5422-1 of the Transport Code provides that the regime of the contract of carriage ‘shall apply from the taking over of the goods until the delivery’, which can occur after the period governed by the Hague Rules, ‘from the time when the goods are loaded on to the time they are discharged from the ship’.

The duties and obligations of shippers are addressed by French law: the shipper is in charge of the wrapping and packaging of the goods; it must present the goods properly packed, secured and identified at the time and place specified in the parties’ agreement. The shipper has an obligation to provide any relevant information about the goods and must indicate to the carrier the nature of the goods, and if it necessitates special requirements for transport by sea. Under Article L5422-10 of the Transport Code, the shipper is liable in the event of damages to the vessel or to any cargo owned by other cargo interests. Finally, the shipper owes the freight to the carrier. Under Article L5422-8, the carrier has a lien over the cargo until 15 days after its delivery, unless it has been sold to a third party. The carrier is also entitled to retain the cargo onshore.

As regards multimodal transports, French legislation does not contain specific provisions. Freedom of contract prevails, except in two cases where provisions on multimodal transport are set by an international convention: a rail–sea carriage is governed by the mandatory provisions of the Uniform Rules Concerning the Contract for International Carriage of Goods by Rail; and in the case of a road–sea carriage, provisions of the CMR Convention are applicable if the goods are not unloaded from the road vehicle. It must be highlighted that under French law, a party that organises a carriage (multimodal or otherwise), acting for the account of another party but in its own name, is considered to be a forwarding agent, governed by Article L132-3 et seq. of the French Commercial Code. A forwarding agent is liable for its own acts and omissions. Unlike a freight forwarder, it is also vicariously liable for the acts and omissions of its subcontractors, including the carrier. As such, it has a strict liability for loss or damage to the goods. A forwarding agent, moreover, has a general duty to advise and inform its customer.

Cabotage in France is reserved to French and European nationals: Article 257 of the Customs Code provides that transport between the ports of mainland France is reserved for vessels operated by shipowners who are nationals of and registered in EU or EEA Member States and are flying a flag of one or more of those states. Maritime cabotage is also governed by the Maritime Cabotage Regulation.

iii Cargo claims

As a contract of carriage will, most of the time, impose a strict liability on the carrier, cargo claimants will seek to file their claims on a contractual basis. Both the shipper and the consignee or endorsee will have a right of action against the carrier under the bill of lading provided they have personally suffered losses. In addition, parties whose names are not mentioned on the bill can also sue the carrier on a contractual basis if they can establish that they are the actual shipper or consignee of a cargo (for example, because a freight forwarder or a non-vessel operating common carrier (NVOCC) is named in lieu of them). Cargo underwriters can act personally before the French courts on a contractual basis if they establish that they have been subrogated to the rights of the insured.

A frequent issue concerns the identity of the carrier. Contractual claims can be pursued against the carrier named on the bill, even if it is not the actual carrier (NVOCC bills). Where the name of the carrier is not provided on the bill, a rule established since 1987 states that the registered owner of the vessel is deemed the carrier. Demise clauses cannot be invoked against shipowners in France.

Under French law, a party can claim full recovery of losses sustained – that is to say, not only resulting from the actual damage to the cargo but also as a consequence of, for example, the damage or loss and the extra costs incurred.

Both the Hague-Visby Rules and the Transport Code provide that action against the carrier for loss or damage is time-barred after one year. Pursuant to Article L5422-18 of the Transport Code, this period may be extended by agreement between the parties after the event that has given rise to the claim.

In contractual matters, French law attaches great importance to the parties’ consent. A clause cannot be invoked against a party who has not accepted it. As a consequence, French courts have decided that the terms of a charter party to which a bill of lading refers cannot be invoked against the consignee or endorsee unless it is proved that these terms were known and accepted by it. Where reference is made to an arbitration clause, however, the Kompetenz–Kompetenz principle prevents French courts from deciding by themselves whether this clause applies. A few years ago the French Supreme Court also moderated its position regarding jurisdiction clauses and considered that where the consignee, upon acquiring the bill of lading, succeeded to the shipper’s rights and obligations by virtue of the relevant national law, then a jurisdiction clause can be invoked against the consignee with no need to establish the specific agreement. A recent decision accepted the opposability to the consignee of a jurisdiction clause inserted in the bill of lading governed by French law, on the mere ground that it is part of the spirit of an international contract of carriage. By contrast, the French Supreme Court recently ruled that a jurisdiction clause could not be invoked by the carrier against the actual consignee whose name was not mentioned on the bill of lading and who was not an endorsee either.

iv Limitation of liability

France has ratified the LLMC Convention 1976 and the LLMC Protocol 1996 has been in force in France since 2007. This applies to vessels flying foreign flags (regardless of whether they are party to the LLMC Convention). French domestic law, which applies to vessels flying the French flag and subject to proceedings before the French courts, contains similar provisions to those of the LLMC Convention under Article L5121-1 et seq. of the Transport Code.

Constituting a limitation fund in France is relatively quick and simple. An ex parte application requesting the court’s permission to constitute a limitation fund can be presented to the president of a commercial court, who will appoint a liquidator and stipulate the way in which the fund can be constituted. Funds made up by way of a P&I club guarantee are generally accepted, especially when provided by a first-rank international club. Once the letter of undertaking or the cheque has been handed to the liquidator appointed by the court, a second application must be presented for the court to acknowledge the constitution of the fund.

France is known for being very strict with regard to shipowners seeking to limit their liability. The French courts have indeed adopted an objective approach of the conduct-barring limitation, considering that an inexcusable fault has been committed when the shipowner ‘should have known’ that the loss ‘may’ result from the conditions in which the voyage was undertaken. For instance, in The ‘Heidberg, a 25-year-old saga that constituted the first major case in France to examine the right to limit under the LLMC Convention, a court of appeal deprived a shipowner of limitation as he failed to ensure that there existed between the master and the crew ‘the confidence and cohesion indispensable to permit them to overcome difficulties which whilst unforeseen were not unforeseeable’. Recent decisions, however, suggest that the French courts are gradually overcoming their claimant-friendly approach. In The ‘Rosa Delmas’ and in the latest decision in The ‘Heidberg, the courts adopted a subjective approach in line with a strict application of the terms of the LLMC Convention.

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