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Container Operators – Trading to Iran

Jagan - January 9, 2015 - 0 comments

There continues to be growing containerized trade between the Indian Sub-Continent/Middle East to Iran either for Iran or for other countries for which goods transit through Iran. While talks are on between the UN and other parties and Iran to resolve the issues relating to the sanctions imposed, the fact is that sanctions will be there for the foreseeable future. The purpose of this article is not to touch on the sanctions per se but to discuss various issues which may arise

  1. The Purpose of this article is to highlight on the responsibilities of the Container Operators (hereinafter known as “CO”) and whether the CO would be entitled to exclude them together with potential issues on Insurance coverage for both liability and equipment. This article does not touch on the sanctions per se, details of which could be easily retrieved from various sources.
  2. Liability of CO:
    1. The liability of CO with respect to carriage of goods would depend on either the laws compulsorily applicable and / or the terms of the contract of carriage. In this regard, most of the countries in the ISC/Middle East are either a party or have incorporated substantially The Hague or The Hague/Visby Rules in their laws such that they would be compulsorily applicable for shipments effected from their ports.
    2. Alternatively, the contractual document issued for the shipments may contain a Clause Paramount providing for the incorporation of The Hague or The Hague/Visby Rules in the absence of compulsory laws, and in this way The Hague Rules or The Hague/Visby Rules (as the case may be) would apply.
    3. The wordings of Art 1(b) of The Hague Rules states “… applies only to contracts of carriage covered by a bill of lading or any similar document of title…” (wordings are similar in The Hague/Visby Rules). Hence, The Hague or The Hague/Visby Rules would only apply to Bills of Lading or similar documents of title. The English House of Lords in The Rafaela S decided that a straight bill of lading comes within the class of documents to which The Hague/Visby rules apply.
    4. Waybills are defined in S1(3) of the English COGSA 1992 “as a receipt for goods as containers or evidences a contract for the carriage of goods by sea; and identifies the person to whom delivery of the goods is to be made by the carrier in accordance with that contract”. In waybills, the carriers deliver the goods to the party named in the consignee column and may only require proof of identity prior to delivery. This being the case, waybills are both, not negotiable, and not documents of title. Hence, The Hague Rules or The Hague/Visby Rules are not compulsorily applicable (see 1 c above) unless they are contractually incorporated to govern the contract of carriage.
    5. We understand that some CO issue Bills of Ladings for shipments to Iran with a clause stating they do not take responsibility for any loss or damage which may occur during the carriage and / or their period of responsibility (this clause is incorporated in the face of the B/L by the CO due to the difficulties in acquiring adequate liability coverage to movements into and out of Iran given the prevailing sanctions).
    6. Art III r(8) of The Hague Rules states “Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to, or in connection with, goods arising from negligence, fault, or failure in the duties and obligations provided in this article or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect…”.(the wordings are similar in The Hague/Visby Rules). This being the case, it is our understanding that such clauses would be of no effect if incorporated into a Bill of Lading (including a straight Bill of Lading). However, these clauses may hold good if incorporated into a Seaway bill given that The Hague Rules or The Hague/Visby Rules do not apply to them.
  3. Liability & Equipment Insurance: Most of the container operators are insured for both their liability and equipment risks. However, given that sanctions have been imposed by the UN, EU and US (As most of the trade is conducted in US$, the bite appears to be more from the US sanctions), some of the insurers decline to provide cover to any trade into and out of Iran. However, there are some Insurers who do provide cover subject to a sanction clause. Invariably, transport liability policies incorporate the UK Marine Insurance Act 1906 either contractually or by force of law, and therefore our comments are made on this basis.
    1. Sanction clause: The wordings of a sanction clause may be as follows:
      Sanction Limitation & Exclusion Clause:
      No insurer shall be deemed to provide cover and no insurer shall be liable to pay any claim or provide any benefit hereunder to the extent that the provision of such cover, payment of such claim or provision of such benefit would expose the insurer to any sanction, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws or regulations of the European Union, United Kingdom or United States of America. 

      By use of this sanction clause, the Insurers are advising the Insured that should a claim be made by / for a “sanctioned” entity and / or cargo, then the policy would not respond to the loss. The effect of this clause is that Insurers are clearly advising the Insured that there are limits to the cover being provided for shipments to and from Iran.

    2. No Sanction Clause: We have been recently advised that there is an insurer (probably there may be more) who is agreeable to provide liability cover without any express “sanction clause” in their policy documents (this is with respect to a different marine cover). We have not seen a copy of the policy and are therefore not aware as to whether the policy incorporates the UK Marine Insurance Act 1906, and the law and jurisdiction governing the contract. Assuming that the contract provides for the UK Marine Insurance Act 1906 and for English Law and Jurisdiction, our understanding is that there would be no actual advantage of having a contract without the sanction clause (and for that matter, no particular disadvantage). 

      S 41 of the UK Marine Insurance Act 1906 states “There is an implied warranty that the adventure insured is a lawful one, and that….”. As the word ‘adventure’ is used in this section, the warranty is imposed by law for both time and voyage policies. Accordingly, for the Insurance cover to engage, the loss/claim must be lawful i.e. it must not be against the laws of the state. 

      As our comments are based on English Law being the law of the contract, and as UK is a state party to the UN and the EU, the provision of any cover for a loss / claim from a sanctioned party or for a sanctioned cargo would be against English Laws. This being the case, it is our understanding, that even if the policy does not incorporate a sanction clause, the effect would be the same i.e. the policy would respond as if the policy incorporated a sanction clause.

  4. Conclusion:
    1. Every CO must consider the risks of doing business into and out of Iran given that there are sanctions in place against some entities and cargo.
    2. If the CO desires to avoid any liability during the contract of carriage by way of incorporation of a clause excluding liability, they should consider issuing a Seaway Bill instead of a Bill of Lading.
    3. With respect to liability and equipment insurance coverage, the CO must be aware of the potential issues arising due to the sanctions imposed and that they may be uninsured for some losses even though they had sought and have a cover in place.

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