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Container Issues – CY/CY & Detention

Jagan - June 15, 2022 - 0 comments

Although approx. 20%  of the seaborne cargo by tonnage is carried in container vessels, they constitute approx. 66% in value of the Global International Trade and employ a substantial number of workers. Container shipping, compared to Bulk shipping, is indeed complex given that there are a multitude of contractual issues. In our below article, we consider on a Container Carrier’s responsibility for CY/CY shipments and Intermediate Carriers / Forwarders exposure to Container Detention arising due to abandonment.

  1. CY/CY shipments
    1. Given the increase in size and costs of vessels, it would be uneconomical for the vessel to wait for the cargo and instead, preferable for the cargo to wait for the vesseli. This being the case, containers are gated in at the terminal prior to the arrival of the vessel and stored at a Container Yard and same is the case when the containers are discharged prior to delivery to the cargo interests.
    2. Container shipments are hence generally effected on CY/CY basis and which simply means Container Yard to Container Yardii. If there is a loss to the cargo whilst the container is stored at the Container Yard, the instinctive reaction would be to seek recovery from the Container Operator (“Carrier”) given that the cargo was under their care and custody. Would this be the correct approach to pursue for recovery?
    3. To consider the period of responsibility, we have considered the wordings of Maersk and MSC BsL. In particular, we consider Clause 5.1 of the Maersk BsLiii and Clause 5.1 (a) of the MSC Bills of Ladingiv&v (“Bs/L”) both of which deals with the Carrier’s responsibility. The crucial difference in the wordings is that in the case of Maersk, the period of responsibility incepts from the time of acceptance of the goods at the port of loading till the time of tendering the of goods for delivery (wider responsibility) where in the case of MSC, is from the moment the goods are loaded till the time discharged from the Vessel (narrower responsibilityvi).
    4. The question which follows is whether a Carrier is entitled to limit their period of responsibility as has been done by MSC.
      1. The Hague or the Hague Visby Rules generally apply either by the force of law or by contractual incorporation (say by the Clause Paramount). The period of responsibility provided in the Rules is stated in Art 1(e) i.e., when the goods are loaded on to the time they are discharged from the ship. This being the case, a Carrier may certainly restrict his responsibility only to the period as provided under the Rulesvii.
      2. The question would be then be who is responsible for this “before” and “after” period? In this regard, the MSC B/L Clause 4.1viii entitles it to sub-contract on any terms with any subcontractor. Hence any loss during the before and after period would be based on the terminal contract which may have been signed by MSC. This being the case, the correct party the cargo interests should  pursue would be the terminal and where the loss occurred.
    5. With respect to the liability of the Terminal Operator, they would generally contract on their General Conditions of Businessix. If these terms are held inapplicable (which we believe is remote), then the Himalaya Clausex  provided in MSC BsL would entitle the Terminal to the defences available under the MSC BsL.
    6. Final thoughts:
      1. absent any contractual provisions, the Carrier would generally be responsible for loss of or damage to cargo from the time the cargo is tendered for shipment  till delivery has been effected at CY.
      2. cargo interests should prior to initiating any recovery action, ascertain whether the Carrier has provided for any restricted period of responsibility and in which case, they should also consider other parties such as the Terminals for recovery.
      3. given the potential for recovery from terminals may be more difficult than pursuing the Carrier (due to either lower limits of liability and / or difficult jurisdiction), Cargo interests should take cargo insurance to cover this risk.
  1. Container Detention
    1. We recently had an opportunity to view a webinar conducted on 09th Sep 2020 by Association of Multimodal Transport Operators of India (“AMTOI)  on Liabilities to Logistics Service Providers for abandoned, misdelivered cargo and Electronic Bills of Lading. It was indeed a pleasure to hear from the various speakers including Mr Ashwin Shankarxi and who touched on Container Detentionxii/ Abandoned cargo with respect to Indian Law.
    2. The Indian position, as stated, by Mr Ashwin Shankar:
      1. while the Carrier may have provided for a detention tariff in their BsL, Liability under Indian Lawxiii will be based on the Indian Contract Act and which permits a party to only recover the actual loss they have suffered. Hence, the detention tariff would act as the capp to the maximum amount which a Carrier would be entitled to recover.
      2. the actual loss suffered by the Carrier should be the charges which the carrier would have incurred to lease a similar container.
      3. we however submit that the loss to the Carrier should more properly be the revenue they would have earned using the container. This is because not all Carriers can lease a containerxiv and furthermore, containers may not be available for immediate lease. In times of high demand such as during the recent past, a Carrier would be prevented from earning high freight revenues and therefore this, we submit, would more properly be the loss suffered by the Carrier.
    3. What was not discussed was on the application of foreign law to the contract of carriage i.e., say if the BsL provided for English or Singapore Law. If the courts hearing the matter do not bar actions based on foreign law contracts, then a Carrier would be entitled to recover container detention on the basis that the law of the contract (say English or Singapore law)xv allowed recovery.
    4. Additionally, if the Detention tariff is listed in the BsL, an argument could be made that it is a seperate collateral contract and should be treated on its own right (and not as a penalty).
  1. Our thoughts on the exposure to agents: We understand from the webinar the concern by the various Logistics Service Providers (“LSP”) on being saddled with enormous detention costs for no failure of theirs. We believe this would also be the case for the Container Operators / Carriers i.e., they would also be saddled with loss of revenue which they would have to forgo if containers are not returned within the time allowed. Our further comments on the exposure are as follows:
    1. if the LSP acts purely as an agent (booking agent), absent any contractual provisions providing for their (LSP) joint and several liability, they should not be liable for any detention. Instead, the only exposure, if any, would be under common law for the unpaid freight. However, if it is a condition of the booking contract that the LSP bears joint and several liability, it may be possible for the Carrier to impose liability on the LSPxvi.
    2. If the LSP is a contractual party (listed in the Carrier’s BsL as the Shipper and in turn  issued their Own BsL), we submit that the party who is closer to the cargo interests should bear the risks. This is because each contractual party should know their counter party and should bear the counter party risks i.e., the Carrier would only be aware of the LSP and not the actual Shipper and so on. Accordingly, this risk should be better dealt by the LSP and who could deal with it by:
      1. knowing their customer (“KYC”)
      2. cargo and whether it is susceptible to market changes, especially, if it is a low value cargo and in which case, it would be preferrable to seek security, say by  way of a Letter of Indemnity, from the Shipper to avoid this exposure.
      3. liability Insurance Cover to deal with this exposure: While commercial cover is available in the market, Liability insurers are wary of these risks and provide limited cover. Hence, in addition to the liability cover, LSP’s should actively manage the risks by keeping a tab on whether the cargo is being cleared and if not, the reasons for delay.
    3. LSP acting as delivery agent:
      1. if the Bs/L provides for either English or Singapore Law, then the Carriage of Goods by Sea Act 1992/ Bills of Lading Act 1992 would apply such that as and when the LSP comes forth to take delivery, they would, on the basis of Section 3xvii of the Act, become liable to the same liabilities as if they had been a party to the contract of carriage. We have not checked on the Indian position and would appreciate readers comments on the application of Indian Law to this aspect.
      2. if the LSP do become liable, given that there is no fault on the part of the LSP, they would be entitled to seek an indemnity from their principal. Whether the LSP can successfully pursue would depend on whether they have a sound counter party (Principal) in a jurisdiction which they could pursue at. Otherwise, it is more of a counterparty risk and therefore prior to any LSP’s agreeing to become a delivery agent, they should consider these exposures and their counterparty.
      3. again a LSP could seek Liability cover for this exposure (for uncleared cargo) but as mentioned in 3biii above, the limits available are not sufficient and therefore it is best if the LSP manages this risk by considering the points mentioned in 3bi & ii.
    4. Our final thoughts: It appears to us that an effective solution to this issue would be for the LSP’s to:
      1. work with counterparties (Cargo Interests, Principals, etc) they have vetted and comfortable with.
      2. know the cargo and be aware of the changing dynamics so as to consider risk mitigation as they arise.
      3. take appropriate cover to cater to these risks should the above measures not be successful.

i. The same is the case in the air industry where the passengers check in earlier to a holding area prior to boarding of an aircraft.
ii. See article in Shipping and Freight Resource on What is CY – CY in container shipping?

5.1 Where the Carriage is Ocean Transport, the Carrier undertakes to perform and/or in his own name to procure performance of the Carriage from the Port of Loading to the Port of Discharge. The liability of the Carrier for loss of or damage to the Goods occurring between the time of acceptance by the Carrier of custody of the Goods at the Port of Loading and the time of the Carrier tendering the Goods for delivery at the Port of Discharge shall be determined in accordance with Articles 1-8 of the Hague Rules save as is otherwise provided in these Terms and Conditions. These articles of the Hague Rules shall apply as a matter of contract.
5.1 (a) The period of responsibility of the Carrier for any loss of or damage to the Goods shall commence only at the moment that the Goods are loaded on board the Vessel and shall end when the Goods have been discharged from the Vessel.
We understand that TT Series 100 which is commonly used by NVOCC’s is generally more in line with the wordings used by MSC.
We have considered the top 10 container lines and note that the market is evenly distributed between wider and narrower responsibility.
The only possible barrier would be if the contractual provisions are below the mandatory provisions provided in the law of the contract.
4.1 The Carrier shall be entitled to sub-contract on any terms whatsoever the whole or any part of the carriage, including liberty to further sub-contract.
As an example, see Jurong Port General Conditions of Business Section 19 and North Port General Conditions of Business Part VI and VII which deals with exclusion and limitation of liability,
4.2 …. Without prejudice to the foregoing, every such servant, agent and Subcontractor shall have the benefit of all terms and conditions of whatsoever nature contained herein or otherwise benefiting the Carrier under this Bill of Lading, as if such terms and conditions were expressly for their benefit. In entering into this contract, the Carrier, to the extent of such terms and conditions, does so on its own behalf and also as agent and trustee for such servants, agents, and Subcontractors.
. Mr Ashwin Shankar is a well-known Indian shipping lawyer from the Chambers of George A Rebello
We had written earlier on similar topics i.e. Demurrage and Detention and Validity of Detention and Demurrage Clauses.
See S 74 of the ICA 1872
Leasing companies would only lease containers to companies to which they have a contractual relationship and which would include ascertaining if the company is able to service the payment of the lease rentals together with their business background.
It is our understanding that Singapore and English courts may bar recovery if the container detention clauses are considered penalty clauses. Going by the previous judgements, we submit that the courts in these jurisdictions would hold the prevailing container detention clauses valid.
See Singapore Logistics Association STC Clause 5 and 18(f)  which permits action against a forwarding agent.
3. Liabilities under shipping documents.

(1)Where subsection (1) of section 2 of this Act operates in relation to any document to which this Act applies and the person in whom rights are vested by virtue of that subsection—
(a)takes or demands delivery from the carrier of any of the goods to which the document relates;
(b)makes a claim under the contract of carriage against the carrier in respect of any of those goods; or
(c)is a person who, at a time before those rights were vested in him, took or demanded delivery from the carrier of any of those goods,
that person shall (by virtue of taking or demanding delivery or making the claim or, in a case falling within paragraph (c) above, of having the rights vested in him) become subject to the same liabilities under that contract as if he had been a party to that contract.
(2)Where the goods to which a ship’s delivery order relates form a part only of the goods to which the contract of carriage relates, the liabilities to which any person is subject by virtue of the operation of this section in relation to that order shall exclude liabilities in respect of any goods to which the order does not relate.
(3)This section, so far as it imposes liabilities under any contract on any person, shall be without prejudice to the liabilities under the contract of any person as an original party to the contract.

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