- Standard Trading Conditions (“STC”)i,also known as General Conditions of Business, are standardized trading terms advocated by various professional associations for use by their members (Logistics Service Provider (“LSP”) and who may include Freight Forwarders/NVOCC’s). The reason for their development is that while large organizations would have considered the risks associated with trading and have taken appropriate measures, small and medium sized organizations often lack resources and therefore may not have considered their trading risks. This being the case, these organizations (SME’s) may face stresses and which sometimes may lead to challenge their very existence. As one of the aims of any professional organization is to ensure the wellbeing of their members, theyii invariably advocate use of STC’s by their members to deal with these risks.
- The development of STC’s in the Logistics services Industry has been due to the following:
- Awarding of the contract to the LSP is often primarily decided on the freight rates/service charges. As and when a dispute arises, issues do arise on the terms of engagement of the LSP. This being the case, the dispute would then center on what the terms of engagement were.
- Unequal bargaining power between the Cargo interests and the LSP, who in the majority are small and medium enterprises, leading to imposition of terms unrelated to the services provided such as:
- Funding of the Services: What we mean is that the LSP would, in the first instance, bear the charges or be liable to the overlying contractual party for the provision of services and if not paid promptly, would effectively be funding the transaction. If the funding period runs for some months, the LSP would then effectively be acting as the funder for the services provided and which certainly may not have been in their contemplation when they quoted to the cargo interests.
- Cargo risks: If cargo is damaged during carriage, cargo interests would expect LSP to make good their loss. However, liability to LSP would only arise if there was a fault/negligence on their part and in which case, their liability would be restricted to the quantum on what was foreseeableiii unless liability is restricted either on the basis of compulsorilyiv applicable law or contract.
- Time: Unless the contract expressly provides for any specific time for the provision of services, the general rule would be for the services to be provided within a reasonable period of time. However, delays may arise outside the control of the LSP such that they would be entitled to defend any claims arising out of the delay. However, cargo interests would often claim for production and delay related losses from the LSP.
- What should a STC cover? In our opinion, a well-crafted STC should dwell on:
- Scope of duties
- Payment obligations with provisions against Set-off.
- Interest payments for delayed payments
- Provisions for exiting the contract (say if payment is not forthcoming or if proper instructions are not provided by the cargo interests)
- Exemptions and Limitation of Liability
- Time bar
- Indemnity provisions entitling LSP to recover their expenses incurred whilst following the cargo interests instructions.
- Jurisdiction and Dispute Resolution Clause
- In the absence of a LSP contracting on terms, the only defence a LSP may have is when they act as Contractual Carriers and which would result in either the compulsory application of the Carriage Conventions (The Hague Visby Rules, Montreal Convention) or applicable laws such as the Indian Multimodal Transportation of Goods Act 1993 or the Singapore Multimodal Transport Act 2021 and which would entitle them (LSP) to either exclude or limit liability in certain circumstances. Otherwise, a LSP would only be entitled to defend a claim on the basis of the common law exceptions such as Act of God, Sovereign’s enemies, Inherent vice and Fault of the consignor failing which they (LSP) would be liable for at least the full value of the cargo they were dealing with.
- Professional Associations:
- The aim of all Professional Associations is not only to protect the interests of their members but also to ensure best practices are being followed in the industry. Ensuring parties contract on STC’s would not only allow parties to be aware of the risks (as this is basically an allocation of risk) but also lead parties to consider whether this should appropriately be insured. While a larger cargo interest can certainly impose liabilities for cargo damage to small and medium LSP’s, the fact is that if the amounts involved are large, it is quite possible that the very existence of the LSP is threatened such that there are no monies available with the LSP to compensate the cargo interests. If the cargo interests have not factored this, they would suffer a loss for at least the value of the cargo. This being the case, it would always be appropriate for cargo interests to insure their cargo for the risks involved instead of only pursuing the LSP. An important distinction to be made is that a LSP can only be successfully pursued on the basis of a fault or negligence whereas, cargo insurance policies are triggered to respond whenever there is a fortuitous loss or damage to the cargo. It is important that all the participants of the trade thrive such that there is healthy competetion between the LSP and which is of benefit to all including the cargo interests.
- While a Professional Association may propose STC’s for use by their members, there may be resistance from members who may believe that use of such STC’s would lead to loss of business or alternatively, trading without STC’s would allow them a competitive advantage to secure additional business. While the choice of whether a member wishes to trade with or without STC is best left to the LSP, we submit that a Professional Association has a duty to ensure best practices for the benefit of the trade in general and which would mean that they should ensure that their members are at least good for their liabilities, say by having appropriate Transport Liability Insurance cover. In this regard, Transport Liability policies invariably provide that the cover is on the basis that the LSP contract on national associations standard trading conditions or compulsorily applicable conventionsv. While it is certainly possible to seek a a full value policy (no STC), this would result in increased premium spends and which may make it cost prohibitive for LSP such that they would necessarily reconsider their position to trade on STC’s. Accordingly, at the very least, Professional Association should make it a pre-condition that their members have appropriate liability cover to maintain their membership with the Association.
- In conclusion, Professional Associations should
- Develop an appropriate STC for use by their members
- Update all stake holders of what the STC’s aim to do
- Ensure that their members have appropriate liability cover and which would force them to consider using the STC or take liability cover on full value basis leading to better risk management.
i. STC’s should be regularly updated to consider the developments in both law and trade practices.
ii.Associations which come to our mind are the British International Forwarders Association and Singapore Logistics Association.
iii. Losses which arise normally from the breach i.e. the first limb in the Rule of Hadley v Baxendale. See article by Clyde & Co and which discusses this issue at High Court interprets clause excluding liability for ‘consequential and special losses’ : Clyde & Co (clydeco.com)
iv. The compulsorily applicable law may be the application of The Hague or The Hague Visby Rules for Sea Carriage or The Montreal Convention for Air Carriage.
v. See Clause 3 – Qualifications of T1 – Cargo Liabilities Cover provided by TT Club under their Transport and Logistics Operators Wordings 2022 and which can be viewed at tt-club-wordings-2022—transport-and-logistics-operators.pdf (ttclub.com)
vi.A full value policy is not a complete solution given that in order for the policy to engage, there must be some fault/negligence on the part of the LSP. The better solution would be for a LSP to seek appropriate cargo cover for the value of the cargo and also seeking a waiver of subrogation and which may in turn reduce the liability premiums. The cargo premium spends should be billed to the cargo interests as this is more properly a cargo matter or alternatively included in the service charges.