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Standard Trading Conditions and its importance to Transport Operators

Jagan - August 18, 2014 - 3 comments

This article discusses on the importance of Standard Trading Conditions to International Transport Operators as it would assist them in dealing with the “before and after” problem which may arise.

  1. This article touches upon the importance of Standard Trading Conditions (“STC”) to Transport Operators (various parties involved in Transportation such as Container Operators, Hauliers, Shipping Agents, etc) in managing their risks. While the Bill of Lading contract goes some way to limiting the exposure of the Transport Operators, they are also exposed to other liabilities prior or after shipment (before and after problem). We are focussing on these exposures so that Transport Operators consider trading on the basis of Standard Trading Conditions which are properly incorporated into their contracts with their customers.
  2. Various Forwarding Associations such as the Singapore Logistics Association, British International Freight Association have established STC’s for their members to use in their contracts with their customers. Given that these STC’s were made considering the local conditions, we believe that the provisions provided in these STC’s would hold good should a challenge be made against them in the courts where they are located. However, this is something which we leave for another day and we will now focus on why STC’s should be incorporated.
  3. Transport Operators may contract either as Principals or as Agents and issue Transport Documents such as a Bills of Lading / Air Way Bills. These documents would either incorporate cargo conventions compulsorily applicable by law or by way of incorporation by the Clause Paramount (The Hague/Visby Rules for Sea Carriage or The Warsaw Convention as amended by the Hague Protocol and the Montreal Protocol No 4 for Air). These cargo conventions list the duties and responsibilities of each party together with the exclusions and limitations available to the Transport Operator. In effect, the exclusions and limitation of liability act to limit the exposure to the Transport Operators in that they (Transport Operators) are able to contract knowing that their liability is not indeterminate. However, while the contracts of the Transport Operator could incorporate the cargo conventions to apply for the period before and after the carriage of cargo is completed, more often than not, this is missed out. This being the case, the Transport Operator may not be able to use the provisions of the cargo conventions to deal with their exposure should a loss occur prior to or after the carriage of the cargo
  4. Some examples of the exposure to the Transport Operator are as follows:
    1. Agents:
      1. Shipping cargo to a wrong destination (due to an error made during the booking of the cargo).
      2. Not understanding the requirements of the customers and say effecting shipments without considering timelines
      3. Damage to cargo during local transportation either prior or after international movement
      4. Failure to obtain cargo insurance for the cargo
    2. Principal:
      1. Damage to cargo prior to loading or after discharge of the cargo
      2. Condition of equipment released prior to shipment.
  5. As mentioned in 4) above, while both the period of responsibility of the cargo conventions and the benefit of the contract (for agents) could be extended, this extension of responsibility must be by the Transport Operators prior and at the time of contracting with their clients either directly or through their agents. Furthermore, cargo conventions are designed to deal with the responsibilities and liabilities during the carriage by sea or air (we have not considered road or rail carriage given that in the Asian Region, International Transport is mainly by Sea or Air. In any event, we believe that the provisions in the conventions dealing with International Transport by Road – CMR and Rail – COTIF would be similar to that of Sea and Air) and may not be suited for the “before or after” carriage issues. The STC’s recommended by the various Associations would be more appropriate to deal with these issues.
  6. The English House of Lords (the highest court in UK at that time) had ruled in Photo Production Ltd v Securicor Transport Ltd [1980] UKHL 2 that there was no rule of law that liability could not be excluded or limited in respect of a deliberate breach (i.e. fundamental breach). Whether a clause in the contract applied to exclude or limit liability was solely a matter of construction.The UK Unfair Contract Terms Act 1977 (UCTA), however, does restrict the ability of parties to limit or exclude liability in certain circumstances and this will be subject to a test of reasonableness. We believe that the approach would be similar in other common law countries.

    With respect to the validity of the STC’s, as mentioned in 2 above, given that they would have been formulated by the associations after considering various issues where they are located, it would be difficult to make a successful challenge thus allowing the Transport Operators to manage their risks better.

  7.  Almost all Transport Liability Policies require a Transport Operator to contract on the basis of relevant cargo conventions and STC’s (if the cover includes the before or/after period) which have been seen and approved or deemed approved (some of the policies provide that if the Transport Operator uses Standard Trading Conditions of the National Forwarding Association, then these are deemed approved and the Insurers do not need to approve the wordings) by their Liability Insurers.The only exception for contracting on the basis of STC’s would be for “full value” contracts and for which the Insurers would factor premiums basis the value of cargo involved. In this case, the premium amounts would be significantly higher and the Transport Operator may have to, in turn, factor these additional costs in their price to their clients. The alternative would be to contract on the basis of STC and for which it would be appropriate for the cargo interests to effect cargo insurance to cover the risks of loss or damage to cargo during transportation (this we believe would be the most economical solution to all parties).
  8. In conclusion, it is important for Transport Operators:
    1. To determine the risks involved in their business.
    2. Ensure that their contracts cater to the “before and after” issues highlighted above.
    3. Consider contracting on the basis of STC’s and covering their liabilities by way of an appropriate Transport Liability Policy.
    4. If cargo interests seek to contract on the basis of “full value”, this in turn is declared to their Liability Insurers and cover sought accordingly.

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