Protection & Indemnity

Cargo LiabilityMaria Berndtsson

The Nordic Association of Marine Insurers1The Nordic Association of Marine Insurers

Session 5 - Purpose

present the legal back-ground for cargo liabilities

give you an understanding of the scope of the P&I cover related to cargo claims

cargo claims handling -workshop

The Nordic Association of Marine Insurers 3

Cargo claims 2004-2013

Bulker Container General Cargo

Roro Tanker0

5000

10000

15000

20000

25000

30000

35000

40000

0

0.05

0.1

0.15

0.2

0.25

0.3

Cost per vesselFrequencyU

SD

4

The Sea Carriers’ Cargo Liability

Some General Principles

Carrier – the person who undertakes, in return for payment, to provide transportation of goods for others (normally a ship owner or charterer)

Contract of carriage – the terms on which the goods are carried, usually evidenced by a bill of lading or a waybill

Consignor (shipper) – from whom the goods have been received

Consignee – to whom the goods are to be delivered

The Contract of Carriage

A charterparty is a contract to provide a ship to carry goods:can be for one voyage (voyage charter) or a period of time (time charter)

A bill of lading is a contract for the carriage of goods and an evidence of title to the goods described in the bill of lading

A waybill is evidence of a contract for the carriage of goods

Contract arrangement

SHIPOWNER

T/C

V/CB/L

The Nordic Association of Marine Insurers 8

The Nordic Association of Marine Insurers 9

Function of Bill of Lading

Characteristics: 1) evidence of a contract of carriage by sea and of

the carrier having received or loaded the goods2) sender’s receipt 3) entitling the holder to receive the cargo (named person, named person or order or to the holder)4) value as evidence: prima facie/conclusive evidence

of leading marks, number of packages or pieces, quantity, weight, apparent order and condition, reception of the goods etc.

The Nordic Association of Marine Insurers 11

Obligation to issue a bill of lading – statements in relation to cargo

Carrier is obliged to issue a bill of lading stating: Leading marks necessary for identification of goods Number of packages or pieces, or the quantity, or weight Apparent order and condition of the goods.

Carrier is NOT bound to state in the bill of lading number of packages/pieces, quantity or weight if he has reasonable grounds for suspecting not accurately

represent the goods actually received, or has had no reasonable means of checking.

12

Who is the carrier under the Bill of Lading?

The carrier = the party on whose behalf the B/L was signed. Could be Owners or Charterers.

Depends on if the B/L is a contract between the charterer and the shipper,

or the shipowner and the shipper

Jurisdiction and arbitration clauses

Where is a dispute tried?

Where the defendant has his principal office, or usual domicile

Where the contract of carriage was entered into provided the defendant has an office, branch or agency there through whose activity the contract was made

Where the agreed port of loading or the agreed or actual port of discharge is situated

The parties may agree by written contract that disputes shall be referred to settlement by arbitration

14

Inter-Club Agreement ”ICA”

(Inter-Club New York Produce Exchange Agreement)

Used to be an agreement between the P&I clubs to recommend members to settle claims on the terms of the ICA, now often included in the C/P (NYPE) as a term = binding on the parties

ICA is an agreement of allocation of responsibility between shipowners and time charterers for various types of cargo claimsThe apportionment of claims arising out of e.g.:Unseaworthiness = 100% ownersLoading, stowage, discharge = 100% charterer Shortage, overcarriage = 50/50 split

15

Cargo Liability Regimes

International legislation: Hague Rules 1924, Carriage of Goods by Sea Act (COGSA) Hague-Visby Rules 1968

Hamburg Rules 1978 (UNCITRAL Convention 2008 ”The Rotterdam Rules”, not yet in force) Domestic law:

eg Nordic Maritime Codes 1994 Paramount clauses

(used to implement H/V rules into the contract of carriage)

16

The purpose of the Cargo Liability Conventions

Create uniformity of rights and obligations of the carrier and cargo owner

Impose minimum obligations on the carrier Provide the carrier with some limited defences Entitle the carrier to limit its liability

Carrier’s obligation under the Hague/Visby Rules

Exercise due diligence in respect of:

making the vessel SEAWORTHY before and at the beginning of the voyage

properly man, equip and supply the vessel vessel fit for the safe receipt and carriage of cargo properly handle and care for the cargo throughout the voyage

The Hague/Visby Rules - key defencesThe carrier shall not be liable for any loss of or damage to cargo arising from, inter alia, Error in navigation or in the management of the

ship

Fire

Perils of the sea

Act of God

Act of war

Insufficiency of packing

Insufficiency or inadequacy of marks

Latent defect (vessel)

Hague Rules: GBP 100 (COGSA: USD 500) per package (time bar 1 year)

Hague-Visby Rules: 2 SDR per Kg or 666,67 SDR per package (time bar 1 year)

Hamburg Rules: 2,5 SDR per Kg or 835 SDR per package (time bar 2 years)

[Rotterdam Rules: 3 SDR per Kg or 875 SDR per package (time bar 2 years)]

1 SDR = 1,12 EUR 1,59 USD (17 March 2011)

Limitation of cargo liability:

1 SDR = 1,55 USD (March 2014)

20

Package limitation example

The cargo owner contracted for the carriage of a new gantry crane from Gothenburg to Sydney. The crane was to be carried onboard the M/V ”Heavy Lift”.

During the loading operation the gantry crane tipped over and was severely damaged. The carrier, owners of the ”Heavy Lift”, was found fully liable for the damage. The cargo had a weight of 200 mt and a sound market value of 15 MUSD.

What is the carrier’s maximum liability (H/V rules to apply)?

21

Burden of proof

Claimant must show: Title to sue Contract (tort) Responsible party (contractual carrier/bailee) Loss/damage occurred whilst cargo in Carrier’s/

bailee’s custody Physical and monetary extent of loss/damage

University of Lund 28 September 2010

22

Burden of proof

Carrier must show: Show absence of (causative) negligence Has exercised due diligence to make vessel

seaworthy The cause of loss/damage falls within one of

the excepted perils

University of Lund 28 September 2010

The Hague/Visby Rules - Summary

A regime regulating rights and liabilities under bill of lading contracts

Defines carrier, contract of carriage, goods etc. Outlines carrier’s responsibilities (Article 3) and

defences (Article 4) Period of responsibility – ‘tackle to tackle’ – freedom to

contract on shore Limit of liability: SDR 666.67 per package or SDR 2 per

kilogram of lost or damaged cargo, whichever is higher Time bar – one year

Limitation of liability

Who is entitled to limit liability?

The shipowner, charterer, manager, operator and the liability insurer are able to limit the liability according to the provisions in the Limitation Convention

International Convention on Limitation of Liability for Maritime Claims 1957 and 1976+1996 ProtocolThe Convention contents rules about the right to overall limitation at a maritime incident

Property claims0-2000 GT: 1 million SDR2001- 30.000 GT: 1 MSDR + 400 SDR per GT30.001-70.000 GT: As above + 300 SDR per GTHigher than 70.000 GT: As above + 200 SDR per GT

25

Limitation of liability

Global limitation

Package limitation

P&I Cover related to Sea Carriage of Cargo

27

Legal liability in respect of cargo: intended to be or being or having been carried on board the insured vessel

P&I cover - Cargo liability

Liability for loss, shortage, damage to cargo or other responsibility arising out of any breach by the Member or his servants or agents of his legal obligations in the carriage of cargo (properly load, stow, carry, keep, care for, discharge or deliver the cargo or out of unseaworthiness of the vessel)

List of exclusions, examples:• misdescription of goods in B/L, ante-dated or post-dated B/L • misdelivery (e.g. other port than stated in the B/L, other party

than B/L holder• voluntary assumption of liability, excess H/VR liability• failure to fulfil transport obligation, late arrival to load• deviation which deprives the carrier of defences or rights of

limitation• contractual delay (loss arise from a provision in the B/L or C/P)

P&I cover Cargo - claims

29

In handling and discharging cargo where the extra costs and expenses are necessarily consequent upon damage to the cargo or damage to the Ship

Cargo which has been rejected by the consignee

Exclusions: - Member has recourse to

recover from any other party

- daily running costs and expenses

P&I cover Cargo – extra handling costs

30

Unrecoverable General Average contributions

Cargo interests may not be legally obliged to pay their contribution in the GA due to Member’s breach of the contract of carriage (e.g. Member failed in their obligation to exercise due diligence in providing a seaworthy vessel before and at the beginning of the voyage).

In case a GA contribution is unrecoverable because the GA was caused by negligence for which the carrier is liable, the Member’s loss is covered by P&I

P&I cover Cargo – General Average

31

P&I cover Cargo - practical problems

Clean bills of lading

Misdescription, misdelivery, letters of indemnity – P&I cover implications

University of Lund 28 September 2010

Bill of Lading: Security - Evidence

The bank is checking the shipping documents to make sure they comply with the instructions under the sale contract.

B/L is security for money – demand delivery of the goods in discharge port, or sell the goods.

B/L is not the contract of carriage but provides evidence of the terms of the contract of carriage.

Complete set of shipping documents

B/L issued by Master or agent Cargo insurance policy Commercial invoice Certificate of quality Certificate of origin

Only B/L concern Master,

since only B/L is issued by the Master

Shipper pass to his buyer or to the shippers’ bank trigger payment under a Letter of Credit

Cargo claims handling - Workshop

The purpose of this session was:

to give you an understanding of the scope of the P&I cover related to cargo claims,

to present the legal background for cargo liabilities as well as handling various cargo claims in practice

36

Thanks for your attention!