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Set Off’s – Freight Forwarding Contracts

Jagan - March 28, 2019 - 0 comments

  1. The English Courts in the recent case of Globalink Transportation and Logistics Worldwide LLP v DHL Projects & Chartering Limited [2019] EWHC 225 (“Globalink v DHL”) denied Globalink the Rule against Set Off on the basis that this rule should not be extended for services provided by a freight forwarder. Various law firms1 have commented on this case and we do not wish to add anything further. By way of background various English cases2 had established that freight under voyage charterers and bills of lading is subject to special rules prohibiting any deduction of any claim for damages or otherwise.
  2. In our earlier article, Standard Trading Conditions and its importance to Transport Operators, we focused on the “before” and “after” problem faced by contractual carriers where cargo conventions may not apply. A “pure” freight forwarder acts as an agent and therefore would not be issuing any Bills of Lading / Air Way Bills but would facilitate the process (as appears to be the case in Globalink v DHL). In the case at hand, it appears to us that the parties did not incorporate any Standard Trading Conditions (either of their own or of freight forwarding / logistics associations such as BIFFA/SLA etc.).It may be that the absence of use of Standard Trading Conditions (“STC”) may have been deliberate. However, given that it is sound risk management practice and is often a requirement for cover from Transport Liability Insurers, we would wish to consider whether incorporation of STC’s would have made any difference?
  3. We consider the STC’s of British International Freight Association (“BIFA”) and Singapore Logistics Association (“SLA”) related to Set off and Limitation of Liability.
    1. Set off: Clause 21 of BIFA STC3 and Clause 19 of SLA STC4 deals with Set off. Both these clauses are widely worded such that they do not allow the counter-party to set off their claims. Accordingly, a forwarder would be contractually entitled to seek payment provided the above standard trading conditions are incorporated 5.
    2. Limitation of Liability:
      1. In Globalink V DHL, the court considered the limitation clause of Globalink (see Para 36-38 of the judgment). The relevant limitation clause was worded as “In case of the delayed delivery of cargo hereunder, the client may to charge to the Forwarding Agent penalty at a rate of 0.1% of the total cost of services under the appropriate Appendix for each calendar day of delayed delivery of cargo but not exceeding 5% of the total cost of services under the appropriate Appendix”. It appears to us that if the clause was worded to cover any and all claims whatsoever and howsoever arising (words underlined by us for emphasis) instead of delayed delivery, the limitation of liability clause may have been of assistance.
      2. Clause 26 A6 of the BIFA STC and Clause 297 of the SLA deal with Limitation of Liability. Both the STC’s are widely worded and accordingly, it would allow a freight forwarder to limit liability to either SDR 75,000 per incident / transaction (approx. USD 104,500) or SGD 100,000 (approx. USD 74,029) any one claim respectively.
  4. Insurance coverage: Unfortunately, no common policy wordings exist in the market8. Coverage provided by Insurers is either on bespoke wordings or wordings proposed by Brokers. While the market would indeed benefit from common wordings, this is a topic for another day. We have considered the coverage provided under the TT Club wordings for Transport and Logistics Operators 2018 and comment as follows:
    1. Cover for T1 – Cargo Liabilities: The cover provided under these wordings is for liability arising from physical loss or damage of cargo and resulting consequential loss9. The wordings also provide that this cover is only for liabilities10 under the provision of compulsorily applicable laws or conventions and which cannot be ousted by contract or on the basis of approved standard trading conditions. In the case at hand, there appears to be no physical damage to the cargo. Accordingly, the cover under this section will not engage to deal with the claim.
    2. Cover for T2 – Errors and Omissions: Cover is also provided for financial losses incurred by the Insured’s customer arising from the failure of the Insured to perform their contractual obligations11 or arising from delay12 in the Insured preforming their contractual obligations. However, the cover is qualified such that the Association can reduce or reject a claim arising from reckless behaviour13In Globalink v DHL, DHL claimed for a sum of USD 2,364,976.05 as a claim for damages for delay (see para 38 of the judgment). This claim would fall for consideration under T2 i.e. Errors and Omissions. Unless the cover is varied to provide for a higher indemnity, the limits available of USD 100,000 would be much below the claimed amounts and may not be of sufficient assistance. In any event, the policy does require that the Insured contract on the basis of either compulsorily applicable laws / conventions and / or on the basis of approved standard trading conditions. Any increase in liability arising from the failure to contract on such terms would be excluded from coverage provided by the policy.
    3. Cover for T 5 – Costs14: Cover is also provided for costs for investigation and defence of a claim arising under the policy. In addition, this section also provides for the costs of recovering a debt if the payment is withheld solely for a claim. Accordingly, if the Insured’s client holds any payment solely due to a claim which falls for coverage under the policy, the policy will respond to both defend the claim and recovery of the amounts held. While there is no application of a deductible for this section, the limits are included in the limits of the section where the claim would fall for consideration i.e. T1, T2,…. Unless separate limits have been agreed at inception of cover for T2, costs may easily eat up some of the portions of the USD 100,000 limit of T2 leading to underinsurance.  As the policy provides for English Law, the UK Marine Insurance Act 1906 would apply. In particular, S 7415 of the Act provides that the indemnity available to the Insured would be basis the amounts payable to the third party i.e. the crucial point which we would wish to make is the amount payable and not the initial claims made by the counterpart. 
    4. Freight Demurrage & Despatch (FD&D): Although the TT Club wordings do not provide any FD&D cover, we believe that it would be of assistance to Freight Forwarders to consider seeking this extension, if available, with their Insurers. A FD&D policy provides assistance to the Insured for the costs of legal representation and expert advice in relation to claims, disputes and other matters related to their trade which are not covered either under the terms of cover of the existing Transport Liability policy or some other policy in force. 
  5. Conclusion:
    1. A Freight Forwarder should always consider incorporating standard trading conditions which entitle him to
      • seek payment of his charges without any set off
      • entitle him to limit liability
    2. Transport Liability Policies invariably make it a condition that the Insured contract on the basis of compulsorily applicable laws / conventions and approved standard trading conditions. If a contract does not incorporate such terms, a freight forwarder should advise his Insurers and seek additional cover to avoid any coverage issues.
    3. Additionally, a Freight Forwarder should consider both the scope of cover and the limits available under the policy so that they are appropriately covered for their trading risks.

 The views expressed here together with all errors are entirely ours.

1  See Kennedys Law article “Forwarding charges and the rule against set off

See Dakin v Oakley (164) 143 ER 938, Aries Tanker Corp v Total Transport Ltd [1977] 1 Lloyd’s Rep 334

3 21 (A)The punctual receipt in full of sums falling due from the Customer to the Company is critical to the operation of the Company’s business and its performance of its obligations to the Customer. Accordingly the Customer shall pay to the Company in cash, or as otherwise agreed, all sums when due, immediately and without reduction or deferment on account of any claim, counterclaim or set-off. Time is of the essence of payment of all and any sums payable by the Customer to the Company”.
(B) In the event of any failure by the Customer to make full and punctual payment of any sum payable to the Company (in accordance with clause 21(A) above):
i) Any and all other sums properly earned by and/or otherwise due to the Company (but which, but for this clause 21(B), would otherwise not yet be payable by the Customer, whether by virtue of an agreed credit period or otherwise) shall become immediately payable in full; and
ii) Any sum thereby becoming immediately payable shall be paid to the Company in cash, or as otherwise agreed, and without reduction or deferment on account of any claim, counterclaim or set- off.
(C) No omission to seek compensation for breach of 21(A) and (B) above by the Company shall constitute a waiver or release to the Customer from any liability under 21(A) and (B) above during the application of these terms unless agreed in writing by authorised officers of the Company and Customer.

4  19 a. The Customer shall pay to the Company in cash or in such manner as the Company may agree all sums immediately when due without deduction or deferment on account of any claim, counterclaims or set-off and the Customer agrees to waive the right of set-off, if any, as against the company.
b. When the Company is instructed to collect freight, duties, charges or other expenses from any person other than the Customer, the Customer shall remain responsible and shall make payment of the same to the Company on receipt of evidence of demand and in the absence of evidence of payment for whatever reason by such other person.
c. On all amounts overdue to the Company, the Customer shall pay to the Company interest, calculated from the date such amounts are overdue until payment thereof, at the rate of two (2) per cent. per month.
d. Notwithstanding and without prejudice to Clause 19(c), in the event that the Customer fails to pay any sum due to the Company within five (5) days from the date any such sum is due, the Company shall be entitled at any time thereafter by written notice to the Customer declare that:
i) all credit terms in respect of all or any part of the Services rendered pursuant to these Conditions shall be cancelled, whereupon the same shall be cancelled; and
ii) all sums payable by the Customer to the Company in respect of all or any part of the Services rendered pursuant to these Conditions have become due and payable, whereupon the same shall immediately or in accordance with the terms of such notice become due and payable.
e. Any dispute as to the amount or accuracy of any invoice issued by the Company shall be raised by the Customer within 30 days from the date of the invoice, failing which, the Customer is deemed to have conclusively accepted that the invoice is complete and accurate.
f. Unless otherwise expressly agreed in writing, all invoices rendered by the Company are payable immediately on sight
g. Quotations are given on the basis of immediate acceptance and are subject to withdrawal or revision. Unless otherwise agreed in writing the Company shall be, after acceptance, at liberty to revise quotations or charges with or without notice in the event of changes outside the Company’s control including but not limited to charges in currency exchange rates, rates of freight, insurance premiums or any changes applicable to the “Goods”.

5 See article on the same issue at The Forwarder Law

26(A) Subject to clause 2(B) and 11(B) above and sub-clause (D) below, the Company’s liability howsoever arising and, notwithstanding that the cause of loss or damage be unexplained, shall not exceed:
(i) in the case of claims for loss or damage to Goods:
(a) the value of any loss or damage; or
(b) a sum at the rate of 2 SDR per kilo of the gross weight of any Goods lost or damaged whichever shall be the lesser.
(ii) subject to (iii) below, in the case of all other claims:
(a) the value of the subject Goods of the relevant transaction between the Company and its Customer; or
(b) where the weight can be defined, a sum calculated at the rate of 2 SDR per kilo of the gross weight of the subject Goods of the said transaction; or
(c) 75,000 SDR in respect of any one transaction, whichever shall be the lesser.
(iii) in the case of an error and/or omission, or a series of errors and/or omissions which are repetitions of or represent the continuation of an original error and/or omission:
(a) the loss incurred; or
(b) 75,000 SDR in the aggregate of any one trading year commencing from the time of the making of the original error and/or omission, whichever shall be the lesser.
For the purposes of clause 26(A), the value of the Goods shall be their value when they were, or should have been, shipped. The value of SDR shall be calculated as at the date when the claim is received by the Company in writing.
(B)  Subject to clause 2(B) above and sub-clause (D) below, the Company’s liability for loss or damage as a result of failure to deliver, or arrange delivery of goods, in a reasonable time, or (where there is a special arrangement under Clause 25) to adhere to agreed departure or arrival dates, shall not in any circumstances whatever exceed a sum equal to twice the amount of the Company’s charges in respect of the relevant contract.
(C)  Save in respect of such loss or damage as is referred to at sub-clause (B), and subject to clause 2(B) above and sub-clause (D) below, the Company shall not in any circumstances whatsoever be liable for indirect or consequential loss such as (but not limited to) loss of profit, loss of market, or the consequences of delay or deviation, however caused.

29. Except in so far as otherwise provided by these Conditions, the liability of the Company howsoever arising and notwithstanding that such liability shall have arisen from the neglect or default of the Company, shall not exceed:
a) in respect of all claims other than those subject to the provisions of Clause 31 below, the lesser of
i) the value of the Goods lost, damaged, misdirected, misdelivered or in respect of which a claim arises; or
ii) S$5.00 per gross kilogram of the said Goods,
and shall not exceed S$100,000.00 in any event whatsoever in respect of any one claim; and
b) in respect of claims for delay where not excluded by the provisions of these Conditions, the amount of the Company’s charges for the services in respect of the Goods delayed.

8 Hull Insurers use common forms such as the ITCH 1/1083, 1/11/95 and / or IHC 1/11/03. P&I Mutual provide cover on the basis of their own Rule books (which are generally similar), Institute P&I Clauses Time 20/07/87 is however available for the alternative markets. Containers can be covered under Institute Container Clauses – Time 1/1/87.

9 1. We insure you for your liability for physical loss and damage of cargo and resulting consequential loss.

10 3 Law, Conventions and Approved Contracts
3.1        We insure you only for liabilities under:
3.1.1 the provisions of a law or convention which apply compulsorily and cannot be avoided by contract.
3.1.2 your standard trading conditions as approved by the Managers, or other approved contract (subject to 3.3)
3.1.3 our model conditions

11 1. We insure you for your liability for
1.1 financial loss
 1.1.1  incurred by your customer arising from failure to perform your contractual obligations.
1.1.2 arising from delay in performing your contractual obligations

12 3. Intentional or Reckless Conduct: The Directors may in their discretion reduce or reject a claim if you or your employee has acted (or failed to act) intentionally or recklessly. In exercising this discretion the Directors may, among other things consider your corporate and compliance systems / procedures.

13 5. Limit: USD 100,000 each accident and in the aggregate each account year.

14 1.2 Investigation & Defence: Costs arising from investigating an accident which may give rise to a claim and protecting your interests in relation to it (including legal and survey fees) – including the costs of recovering a debt if payment is withheld solely because of a claim. 

15 S 74 of UK Marine Insurance Act 1906: Liabilities to third parties: Where the assured has effected an insurance in express terms against any liability to a third party, the measure of indemnity, subject to any express provision in the policy, is the amount paid or payable by him to such third party in respect of such liability.


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