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NVOCC – Contractual Issues


Jagan - March 4, 2019 - 0 comments

Specialisation has led parties in shipping also to focus on what they do best i.e. focus on their core competencies such as Ship Owning, Operation, Chartering, Feedering, etc. Accordingly, intermediaries would often act as Carriers even though they do not own any assets (Vessels, equipment) or limited assets (equipment such as containers). These intermediaries issue their Bills of Lading (“B/L”) to the cargo interests and would generally be known as a NVOCC (Non Vessel Operating Common Carrier – “NVO”). The NVO, in turn would sub-contract with an overlying carrier / slot charter (‘OC”) either on the basis of a Connecting Carrier Agreement/Slot Charter or on the basis of an overlying BL contract. This article will touch on the issues related to a NVO contracting with an OC on an overlying Bill of Lading contract.

  1. There would invariably be differences in the B/L terms of both the OC and the NVO such as jurisdiction and law, other contractual terms, etc. Hence, the NVO and the OC terms of carriage will never mirror each other. Even if they mirror the same wordings, given that the parties are different, there would be differences in risks (the OC may be a company of limited liability and therefore when the NVO wishes to pursue the OC, they may be unable to recover their exposure). In particular
    1. The Bills of Lading issued to the NVO by the OC would be to named parties i.e. NVO as the Shipper and NVO’s agent as the consignee. While this B/L may be considered as a non-negotiable document, if there is an attestation clausein this B/L, it would still be considered as a “document of title” such that the compulsorily applicable cargo conventions would apply.
    2. If the Bill of Lading issued by the OC to the NVO is a Seaway Bill, then this will not be a document of title such that the compulsorily applicable cargo conventions would not apply (unless they are incorporated by contract by way of the Clause Paramount). Instead, Seaway B/L’s2 generally incorporate the Hague Rules Art I to VIII through the Clause Paramount. In this case, you may have a situation where the NVO B/L issued to the underlying parties would be a document of Title whereas the OC B/L issued would be not considered as a document of Title. Accordingly, there are two possibilities:
      1. When both the OC B/L and the NVO B/L provide for the Hague Rules: Although it appears that there is no difference in terms, we would need to ascertain the actual wordings of the Clause Paramount of the B/L issued by the OC. Invariably, the Clause Paramount incorporate only Art I to VIII of the Hague Rules (for eg. see the wordings of TT Series 500 Seaway Bill of Lading). The issue would then be with respect to the interpretation of 100 pounds sterling per package stated in Art IV Rule 5. If Art IX of the Hague Rules applies, they provide for monetary units to be taken to be of gold value. This was considered in The “Rosa S” [1988] 2 LLR 574 in which the court held that the value should be basis the gold content of the pound sterling as provided in The Coinage Act. Accordingly, the value of 100 pound sterling provided under the NVO B/L would be much higher (due to the application of the Gold value provided in Art IX) than the 100 pound sterling under the OC Seaway bill issued to the NVO.
      2. When the OC B/L provides for the Hague Rules and the NVO B/L provides for the Hague Visby Rules:
        • The Hague Rules only provide for package limitation whereas the Hague Visby Rules provide for both package and weight limitation whichever is higher.
        • The amount of limitation provided for packages is different with 100 Pound Sterling provided in the Hague Rules and 666.67units of account provided in the Hague Visby Rules. However, as mentioned in 1bi above, given that the clause paramount in Seaway Bills of Lading do not incorporate Art IX, the value of 100 Pound Sterlingwould, if the contract provides for English law and jurisdiction, arguably be for a sum of GBP 100 per package.
      3. Bar to limit liability:
        • The Hague Rules: There is no provision in the Hague Rules which bars the Carrier from their entitlement to limit liability. This aspect was considered in the English Court of Appeal in the Kapitan Petko Voivoda where the Court held that “in any event” (as stated in Art IV R 5) meant “in every case” irrespective of whether the breach of the contract was serious or not.
        • The Hague Visby Rules: Art IV R 5(e) of the Hague Visby Rules states that the carrier would be dis-entitled to the benefit of limitation provided it is proved that the damage resulted from an act or omission of the carrier done withintent to cause damage, or recklessly and with knowledge that damage would probably result”. The onus would be on the claimants to provide evidence that the NVO was reckless. However, as the NVO sub-contracts with an OC (as this article is focussing on NVO’s), we do not believe anything turns on the point and instead submit that given that the NVO is not actually involved in the carriage, they would be entitled, as of right, to limit liability.
      4. Packages:
        • The Hague Rules: The English Court of Appeal in Nigerian National Shipping Line Ltd v Owners of Cargo lately on board shipRiver Gurara” [1997] WLR 1128 held that the description in the bill of lading was not decisive. Instead, the number of packages will be on the basis evidence of the packages actually loaded. Accordingly, the number of packages say in the Seaway Bill of Lading issued by the OC to the NVO will not be the determinative factor for the package limitation.
        • The Hague Visby Rules: Art IV R5(c) requires the number of packages to be enumerated in the bill of lading. The English Court of Appeal in AP Moller – Maersk A/S trading as Maersk Line v Kyokuyo Limited(The Maersk Tangier) held that as long as the packages were enumerated in the Bill of Lading (c/f with the Australian judgement of El Greco (Australia) Pty Ltd v Mediterranean Shipping Co SA [2004] 2 Lloyd’s Rep 537), they would be considered as a package for the purpose of limitation.
      5.  Weight:
        • The Hague Rules: As mentioned in bii above, the Hague Rules only provide for package limitation.
        • The Hague Visby Rules: There is no specific provision in the Hague Visby Rules requiring the Bills of Lading to state the weight of the cargo or containers in order to avail of the weight limitation. In any event the Vessel Owners would be aware of the weight of cargo being loaded given that the Shippers of the cargo have to declare the Verified Gross Massof the cargo prior to loading. Accordingly, it is submitted that even if the B/L does not state the weight of the cargo, this will not bar a party from seeking limitation on the basis of weight limitation should it exceed the limitation provided under the package limitation.
  2. Insurance:
    1. Transport Liability Insurance: While Insurance may not be an essential requirement to act as an NVO, the fact remains that any responsible NVO would seek insurance cover for their risks arising from their role as a NVO. We have considered various wordings and the relevant clauses for sub-contracting are as follows:
      1. The TT Club Transport and Logistics Operators 2018 wordings clearly state that they exclude coverage under T1 (Cl 2.1.3) for cargo liabilities for package/unit enumeration in your subcontractor’s bill of lading (or other contract of carriage or handling documentation) for sea carriage which fails to correspond with the enumeration in your bill of lading (or other contract of carriage or handling documentation). This being the case, it is submitted that the requirement under the TT wordings is to ensure that both the NVO’s Bills of Lading and the OC B/L state the same number of packages / units failing which the liability insurers would be able to exclude cover. However, these wordings do not provide any specific requirements on weight.
      2. Other Transport Liability Policies generally have a clause requiring the Insured to ensure that the sub-contractor accepts no-less liability for the cargo than the Insured’s own liability. This being the case, if there is a difference in liability exposures due to the application of different packages or different terms / conventions, then the NVO’s Liability may not engage or engage only for the amounts they would have been liable if they (NVO) had contracted on similar basis as the OC.
    2. Owners / Charterers P&I Policy: We have considered the UK P&I Club 2019 Rulesand in particular Rule 2 Section 17 and which deals with Cargo Liabilities. This section requires that their Members contract on Standard Terms of Contracts of Carriage and which are no wider than the Hague Visby Rules.   This being the case, provision of lesser terms in the OC’s B/L or Slot Charter Agreement / CCA are not a necessary requirement for cover. The Owners / Charterers could therefore voluntarily accede to contract on the basis of Hague Visby Rules (even if it is not compulsorily applicable) with the NVO without any prejudice to their liability cover.
  3. Claim Issues:
    1. Liability Policy wordings would generally require that any cargo claim exceeding the deductible should be dealt under the direction of the liability insurers. Accordingly, large cargo claims are invariably dealt by the liability insurers.
    2. If there is a difference in liability for the NVO (as stated in I b above) and the OC, liability insurers could either deny cover or alternatively agree to provide cover on the basis that the NVO had contracted on terms with the OC as provided in the policy wordings. The gap in the liability would then have to be borne by the Insured themselves (in this case the NVO).
  4. Conclusion:
    1. In order to avoid this “gap” in exposure, NVO’s should ensure that they contract with OC on similar terms either by ensuring to check the terms of the Bills of Lading issued by the OC. Accordingly, it would be best for the NVO to require the OC to issue a Bill of Lading instead of a Seaway Bill (as stated in 1 a, the compulsorily cargo conventions would apply subject to their being an attestation clause in the OC B/L).
    2. If the NVO is unable to contract on similar terms with the OC, they (NVO’s) should declare this gap to their Insurers and seek specific cover for this gap to avoid any rude surprises at a later date.

 

 

  1. See article by Steamship Mutual on straight Bills of Lading and which can be viewed at https://www.steamshipmutual.com/publications/Articles/Articles/RafaelaS0405.asp
  2. TT Series 500 Sea Way Bills of Lading Clause 6(1)(a) provides for the Hague Rules Art I to VIII only (excluding Art III R 8) to deal with the sea carriage.
  3. The value of SDR 666.67 on 27th Feb 2018 at www.xe.com is USD 931.54
  4. If the Seaway Bill of Lading provides for English Law and Jurisdiction, it is submitted that the 100 pound sterling would refer to 100 British pounds and which on 27thFeb 2019 is equivalent to USD 132.80 basis (again at xe.com).
  5. From 01 July 2016, SOLAS require the Shipper to declare the Verified Gross Mass to the Vessel Owners prior to loading.

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