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NVOCC / Contractual Carriers – Cargo Claims Defence (2nd Part)

Jagan - July 31, 2015 - 0 comments

This article discusses the issues faced by NVOCC’s in the defence of cargo claims. In the first part of the article, we had submitted that contractual carriers are entitled to i) Exclude Liability provided they could provide evidence that the Owners had fulfilled the requirements under Art III and IV of The Rules and/or ii) Limit liability as of right (except for reckless defence in the HV Rules)

We now consider the issues faced by NVOCC’s which arise due to the difference in the contractual terms between the NVOCC’s and cargo interests and the NVOCC’s and Owners (for the purpose of this article, Owners include overlying carriers who may or may not be the actual owners).

  1. As mentioned in our first part, NVOCC’s would either load with Owners (either on ‘use basis’ or on ‘slot charter basis’). We consider each separately below to highlight the possible issues which may arise.
    1. ‘Use basis’: NVOCC’s may load with the Owners on a ‘Use Basis’ and accordingly will be issued with Bills of Lading listing the NVOCC as the Shipper and / or Consignee. The Bills of Lading wordings of the NVOCC’s and Owners may vary and in particular, the important variance may be on
      1. Law and Jurisdiction
      2. Definition of a package for limitation 

        Considering that NVOCC’s are commercial organization and who have knowledge of the shipping practices and the contractual clauses, it is submitted that the Courts would well allow the provision of the Law and Jurisdiction Clause. However, with respect to Package Limitation Clause, unless there is a separate agreement akin to a charter party (in which case, the Charterparty would be the contract of carriage and the Bill of Lading would act as a receipt and a document of title), this would fall foul of Art 3 R 8 of The Rules (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) such that it would be of no effect.

    2. ‘Slot Chartered’ basis: In the case of charters, the function of a Bill of Lading is restricted to being a receipt and a document of title with the contract of carriage being governed by the charter terms. In the case of B/L’s issued to a NVOCC, generally, they would be straight Bills such that the B/L’s would not  be negotiated and would need to be delivered to the named party shown in the B/L (we are not touching on the common practice being followed in the industry and will save it for another day) 

      There are various slot charter parties commonly used and for the purpose of this article, we have considered the wordings of Slothire, a commonly used slot charter form endorsed by BIMCO. The relevant clauses are as follows:

      1. Clause 13 (a) of Slothire deals with Indemnity and Agency states ‘ The Charterers undertake that no claim or allegation shall be made against the Owners or any servant, agent or Sub-contractor of the Owners by any person whomsoever, other than the Charterers, which imposes or attempts to impose upon the Owners or any such servant, agent or Sub-contractor or any vessel owned by any of them any liability whatsoever in connection with Goods and Containers, or their carriage, (even if such liability arises wholly or in part by reason of the act, neglect or default of the Owners or of such servant, agent or Sub-contractor), and in the event of any such claim or allegation nevertheless being made, the Charterers shall indemnify the Owners and such servant, agent or Sub-contractor against all consequences whatsoever thereof.’…
      2. Clause 14 of the slot hire deals with Owners’ Responsibilities and Liabilities and sub clause (f) provides for the quantum of liability of the  Owners to be determined either on the basis of The Hague Visby Rules or  The Hague Rules as may be compulsory applicable. If The Hague Rules are contractually incorporated (if there is no compulsory application), then this clause provides that only Art 1 to VIII of The Hague Rules should apply so that the application of Art IX (the Gold Clause) is avoided and the limitation amount is restricted to GBP 100 sterling.
      3. Clause 23 deals with Law and Arbitration and provides for the application of English Law and the English Arbitration Act. 

        The effect of these clauses is that the slot charterers would have to deal with any cargo claims from their customers in the first instance. In the event, the cargo interests pursue the owners, then the slot charterers have a duty to indemnify the owners for the costs incurred by Owners in defending the claim. While slot charterers are entitled to pursue recovery against Owners once they have settled with the cargo interests, the issue would be as to whether owners would defend the claim on the basis of the exclusions or the limitations available under the Hague or the Hague Visby Rules.

  2. Given that the owners have no positive duty to assist charterers in dealing with the cargo claims in the first instance, it is submitted that more often than not, slot charterers will be dealing with the claim at a disadvantage in that they will generally be not aware of the complete circumstances of the loss and in particular, whether owners are entitled to exclude liability.  If the slot charterers are able to join the owners to any proceedings initiated, then they may be able to take benefit of the defences raised by the owners against the slot chartererst /cargo interests. However, as the overlying contract between the time charterers (NVOCC) and Owners may provide for a different law and jurisdiction and further for disputes to be resolved through Arbitration, Owners would well take issues on being joined to the action and instead apply to the courts to seek their removal from the action initiated.
  3. While NVOCC’s could defend the claim on limitation basis, this may not always be of assistance. Subsequently, when NVOCC’s pursue Owners, they (Owners) may deny liability on the basis of their entitlements under The Rules. If this evidence was provided to the NVOCC’s at the time they were being pursued by the cargo interests, this would have allowed them (NVOCC’s) to similarly deny the claim with the net effect being that the NVOCC’s would only incur costs for defending the claim.
  4. The contractual terms between Owners and Charterers depend on the bargaining position of the market. While the BIMCO Slothire form does appear to be more ‘Owner friendly’, it is quite possible for the NVOCC’s to seek amendments in the contract to have a balance (this will depend on the state of the market). In particular, NVOCC’s could require Owners to co-operate and provide evidence that they (Owners) had exercised ‘due diligence’ so that NVOCC’s could deny the claim on the basis of entitlements available under The Rules. Alternatively, NVOCC’s should ensure to seek appropriate liability insurance so that the gaps are appropriately covered.
  5. Insurance for NVOCC’s: We have considered the policy wordings of some insurers who provide cover to NVOCC’s and would comment as follows:
    1. Some insurers exclude cover to slot charterparties unless the specific extension (slot charterers extension) has been bought to provide cover. The wordings used in one of the policy wordings is ‘Charter of an aircraft or vessel except under Charterers’ liability Schedule effected’. Slot charterers would fall under charterparties and given that exclusions always override positive cover, this will prevent the NVOCC’s from the benefit of the Insurance unless they have taken the Charterers Liability Extension.
    2. Some policy wordings do provide cover on the basis ‘ charter the ship except under a slot or space charter ship under a slot or space charter unless you contract with the ship operator on terms which are no more adverse than Hague-Visby Rules or any compulsorily applicable transport law or convention …’ The effect of these wordings is that the coverage by Insurers is restricted to whatever would have been compulsorily applicable by law as if there was no charterparty in place. Hence,  if there are terms in the charterparty which provide for additional exposure to the Insured / NVOCC – this would not be covered by their liability insurers. 

      We would therefore suggest that NVOCC’s review both their slot charterparties and their Insurance coverage to ensure that they remain covered for their activity as a slot charterer.

  6. Conclusion:
    1. As mentioned in the first part of the article,  NVOCC’s are entitled to exclude and / or limit liability under The Rules. However, NVOCC’s would face difficulties in excluding liability, particularly, if Owners do not provide evidence to substantiate their entitlements to exclude liability.
    2. In the case of slot charterparties, NVOCC’s must consider negotiating with the Owners to ensure that they have a positive duty to provide complete details on the circumstances of a loss failing which they (Owners) would not be entitled to the defences under the Rules. While this may be scoffed by Owners, our view is that there is a positive benefit to all parties (Owners, NVOCC’s and their respective insurers) in that costs will be avoided in arguing on who is to blame following a loss.

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