All questions

Shipping contracts

i Shipbuilding

Local shipyards have grown significantly in the past five years, with a lot of carriers buying brand-new barges to increase their fleets as a result of the high demand for space on the Paraguay–Paraná waterway.

The contract to build a ship is neither a typical nor a nominate contract in Paraguayan law. In this sense, what the parties have specifically agreed, exercising their freedom of contract, together with the general principles of Book III of the Civil Code (which regulates the law of contracts) will rule shipbuilding contracts.

Law No. 928/1927 obliges carriers to notify and obtain permission from the General Naval Prefecture for the construction of any ship. The General Naval Prefecture is in charge of navigational safety and issues most of the statutory certificates that are needed to navigate, polices the rivers and is responsible for enforcing navigational rules. In that role, the General Naval Prefecture is competent to monitor the construction of a ship that is going to be incorporated into the local fleet.

ii Contracts of carriage

Paraguay has two sets of rules in force: one for international carriage of goods by sea and the other for the domestic carriage of goods by river.

Until 2005, the Hague Rules were in force in Paraguay by virtue of Law No. 1025/65. This was rather curious as Paraguay is clearly considered a cargo-owning country rather than a shipping force. In 2005, Congress adopted a radical change by approving the Hamburg Rules through Law No. 2614/2005. The Hamburg Rules, friendlier to cargo owners, are currently in force for international carriage of goods by sea. Besides the Hamburg Rules, the carriage of goods by river is governed by Book III of the Code of Commerce, which contains detailed provisions relating to contracts of carriage.

The Code of Commerce establishes a strict liability regime, with few exceptions in favour of the carrier. One could easily conclude that the legal framework of the Code of Commerce is less advantageous to the carrier than international conventions.

The carrier must transport the goods from the loading port to the port of discharge, and must discharge the goods in the same condition as they were in at the time of loading. The contract of carriage under the Code of Commerce does not envisage 'best-effort' obligations – namely, obligations to use diligence and to give one's best efforts to carry out an obligation – but end results. The carrier promises a specific result and not conduct aimed at producing a result that it is not possible to assure. Hence, when the goods are not returned in the same condition – the result promised – the fault of the carrier is presumed by the courts until the latter can demonstrate cause for exemption.

The carrier is liable for any damage or loss to the cargo during transport, unless it can prove (1) an inherent flaw in the goods, (2) force majeure, or (3) the fault of the shipper. These are the only exceptions established by law in favour of the carrier. Normally, the carrier will try to argue the case through the force majeure defence; under this domestic regime, there are no exceptions covering errors in navigation or in the management of the ship.

The Code of Commerce also recognises the liability of the shipper in Articles 1,068 and 1,069. The carrier might be entitled to claim against the shipper for unpaid freight, for damage to the ship caused by the cargo, for loading dangerous or prohibited goods damaging other cargo, or, for instance, for deposit charges where the consignee fails to collect the goods. This liability is also recognised in general terms in the Civil Code.

With regard to security for the freight, Article 958 of the Code of Commerce provides that the owner is entitled to exercise a lien on freight payable on delivery, general average contributions and costs of preserving the goods. Moreover, the contract of carriage will normally contain detailed provisions entitling the owner to retain the cargo until it has been paid the sums that the lien covers, and these provisions will normally be respected by courts.

As shown, the Code of Commerce and the Hamburg Rules have significantly different regimes regarding matters, including the liability of the carrier, time bars and limitation of liability. Accordingly, it is essential to establish from the outset which law applies. In this regard, when it is proven that the damage occurred during the river leg of the journey, Paraguayan jurisprudence says that the local rules, established by the old Code of Commerce, will apply rather than the international conventions on sea carriage.

In terms of charter parties, the Code of Commerce regulates the contract of carriage. Within that legal framework, the shipowner and charterer are otherwise free to negotiate their own terms.

As regards choice-of-law clauses (which usually opt for English or US law), it remains to be seen whether the Paraguayan courts will apply the legal regime established by the contract of carriage, superseding the regime established by local law. This appears to be banned by Article 1,901 of the Code of Commerce, although this interpretation is likely to be reviewed in the light of new Law No. 5,393/2015 on the Law Applicable to International Contracts.

iii Cargo claims

In the landlocked country of Paraguay, all cargo arrives in one of two ways: by sea or by river. As a consequence of the hydrological features of its rivers, seagoing ships are normally unable to navigate internal waters, which is why cargo is customarily transshipped in Argentina or Uruguay. For both means of transport, bills of lading are issued. Bills of lading can differ not only in their terms, but in the legal parties to the contract and the rules and legislation applicable. This peculiarity raises several questions relating to the identity of the carrier, title to sue and the terms of the contract of carriage.

The contractual parties to any bill of lading are the shipper, the carrier and the consignee. The only party that will normally remain unchanged in both bills of lading (ocean or river) is the consignee. The carrier will probably change, because in an ocean bill of lading, the carrier is the entity with which the shipper is contracted (ocean or sea carrier), while in a river bill of lading, the carrier is the ship that took the cargo from the transshipment port, normally known as a feeder (river carrier). As regards the shipper, in an ocean bill of lading it is the supplier of the cargo, whereas in a river bill of lading the shipper may be the ocean carrier. This is a normal scenario, which can, however, have another layer of complication if special agreements are made between carriers.

The consignee, as it normally appears in both bills of lading, is entitled to sue any of the carriers. The shipper also has title to sue; this is true under both the Hamburg Rules and the Code of Commerce. Finally, the question of who will be sued will depend on which carrier is liable, which in turn will normally depend on where the damage took place.

If the damage occurred during the river journey, the consignee prima facie will be entitled to sue the river carrier under the river bill of lading. The river carrier is only liable for this leg of the journey by virtue of the river bill of lading that it issues. The consignee might also be entitled to sue the ocean carrier, since under the ocean bill of lading, the ocean carrier undertakes to carry the cargo from the loading port to the port of discharge (Paraguay) notwithstanding the fact that, in reality, the ocean carrier only transports the goods to the transshipment port. The ocean carrier contractually promises to carry the cargo into Paraguay; in this scenario, the ocean carrier will normally have recourse against the river carrier.

If the damage took place during the sea leg, the consignee should only sue the ocean carrier, as the river carrier is not liable for the ocean leg of the journey: it neither carried out that leg of the journey nor issued a bill of lading promising to do so.

The Code of Commerce recognises the possibility of incorporating charter party terms in the bill of lading in Article 1,029.

iv Limitation of liability

When the Hamburg Rules apply, a carrier can limit its liability in cargo claims according to Article 6. Although highly unlikely to happen in practice, the right to limit can be lost under the circumstances cited in Article 8, which describes conduct barring limitation.

Under domestic law, Paraguay has not subscribed to any of the international conventions on limitation of liability – the LLMC Convention 1976 and its 1996 Protocol, the Brussels International Convention on the Limitation of Liability of Owners of Sea-going Ships 1957 and the 1924 Brussels Limitation Convention.

In this scenario, the only option that the carrier has to limit any kind of liability when domestic rules apply is the abandonment of the ship, which is legislated under Article 880 of the Code of Commerce.