DOSSIER

 

Mis-Declaration Of Cargoes - Penalties


We recently had an opportunity to share our thoughts on this subject at a seminar on “Resolving Disputes, Claims and other issues in Containerised Cargo Shipping, Multimodal Transport, Logistics” conducted at Mumbai, India by Hinode Events & Services Pte Ltd. The seminar was well attended, and it was indeed refreshing to hear from both speakers and participants on the various issues plaguing Container, Shipping, Multimodal Transport and Logistics. As reported in the trade papers (Splash247.com) various container lines have decided to impose penalties to cargo interests for any misdeclaration of hazardous cargo. This article will discuss the issues relating to the imposition of such penalties.   

As correctly pointed out by Stephen Harrisin one of the Linkedin posts, fines and penalties can only be imposed by the relevant government authorities or the courts. What Shipping Lines can impose are contractual penalties i.e. in order for Shipping Lines to impose any penalties, it should be expressly provided in the contract.

Cargo interests defence: This would obviously depend on whether the fines being imposed on cargo interests are as the original parties to the contract or parties down the chain.

Original parties: If the contract does provide for contractual fines / penalties, the Shipping Lines should be able to impose the same subject to there being mis-declaration.

Subsequent parties: Given that the cargo involved is dangerous / hazardous cargo, it does appear to us that parties down the chain (trader, consignee, etc.), should be aware of the characteristics of the cargo they trade in. Accordingly, if they (trader, consignee, etc.) should receive documents which do not mention these aspects, they should be on caution and ask their counter-parties to amend the documents so that the cargo is properly declared. It may be that some of the trader’s/consignee’s participate in such mis-declaration to avoid costs. In such cases, we believe that the Shipping Lines should be entitled to pursue the consignee for such contractual penalties, particularly, if the Bill of Lading provides for such contractual penalties and the consignee’s come forth to take delivery of such mis-declared cargoes.

Given the plethora of incidents which have occurred in the past, we believe that the Shipping Lines would be having sufficient data on the cargoes being mis-declared4, the port pairs where this cargo is being shipped from and to, the details of importers and exporters, etc. We are yet to see any successful pursuit of shippers of mis declared cargo and which leads us to wonder whether the imposition of such contractual fines / penalties would meet the same fate. Having said this, we are aware that evidence will be lost during a fire casualty such that it would be difficult to pinpoint with certainty on the cargo which caused the fire. 

The major difference in the present measures is that Shipping Lines would be inspecting cargoes5 in addition to other measures. Should the inspection reveal that the cargo was mis-declared, the Shipping Lines would then impose fines. Accordingly, the Shipping Lines would have to work out a process for inspecting cargoes prior to loading and / or discharge to both weed out mis-declared cargo and impose contractual fines. In order to facilitate inspections,data presently available on cargo movements should be shared across the industry to facilitate the process. If these measures are successful, this would obviously lead to safer shipping benefiting all involved in the movement of cargoes.

Insurance coverages: We now consider the application of the various covers to the participants and whether these covers would respond to any contractual penalties imposed by the Shipping Lines

Cargo: Cargo is generally insured under Institute Cargo Clauses 1/1/09(A, B or C form) or 1/1/82 (A, B or C form – the cover provided by both these forms is similar). The risks covered is stated in Clause 1 and which is “all risks of loss of or damage to the subject-matter insured except as excluded by the provisions of Clauses 4, 5, 6 and 7 below”. As the cover is restricted to the loss or damage to the cargo, these forms do not provide any cover for any contractual penalties which may be imposed on the cargo interests.

Transport Intermediaries: Cargo interests may make the bookings through Freight Forwarders (“FF”), and who, in turn contract with Shipping Lines. There are two possibilities, and which are as follows: FF acts as agents: In this case, the FF acts on behalf of the Shipper to facilitate the shipments. In such cases, the Shipping Lines would be issuing their Bills of Lading to the actual shipper. Absent any specific contractual provisions in the booking note, it is submitted that the FF would be entitled to deny any contractual liability given that they acted only as agents.
FF acting as a contractual parties: FF contracts with the cargo interests i.e. acts as contractual carrier/NVOCC, and in turn contracts with the Shipping Lines. If there is any mis-declaration of cargo, the Shipping Line is entitled to pursue through the contractual chain i.e. the FF and who in turn would be entitled to pursue the Shipper, provided they in turn impose similar contractual provisions as imposed by the Shipping Lines. Given that such mis-declarations are generally made by “canny” Shippers, it is likely that they would either cover their tracks or dis-appear upon becoming aware of such a claim leaving the FF to deal  with the contractual penalties imposed by the Shipping Lines.With respect to Insurance coverages, while there are no standard industry forms, the coverage provided is on “named perils” basis i.e. the risks must be expressly covered in the policy wordings. Some Transport Liabilities policies do provide cover for Fines and Penalties imposed by an authority. However, none of the policies sighted by us provide for an express cover for such contractual penalties. In addition, policy wordings generally exclude Punitive, exemplary or multiple damages. Accordingly, there is no cover available for such penalties.


Conclusion:

The imposition of a contractual penalty is a welcome step in combatting the widespread menace of mis declaration of hazardous cargo. However, it is still early days and we would have wait and watch whether it has the desired effect. Cargo interests and intermediaries involved in the trade must ensure that the cargo being loaded is properly declared to avoid any imposition of contractual penalties.

Any contractual penalty imposed on either cargo interests or an intermediary would have to be borne by themselves as no insurance cover exists.

1. Evergreen has decided to impose a fine of US$ 35,000 per container, Hapag Lloyd & HMM will impose a fine of US$ 15,000 per container.
2. Stephen Harris, Senior Vice President at Marsh JLT Specialty.
3. As reported in Splash247, on an average, a major fire breaks out on a boxship every 60 days.
4. The usual cargo suspect is generally Calcium Hypochlorite which is used for water treatment. London P&I in association with CINS have published Guidelines for the Carriage of Calcium Hypochlorite in Containersand which is of assistance if the cargo is properly declared.
5. The inspection could be both pre and post shipments.
6. See comparison of the ICC 1/1/09 and 1/1/82 Clauses provided by Richards Hogg Lindley
7. See TT Club Transport and Logistics Operators 2018 Wordings T4 Fines & Duty Source: NAU

 

 

 

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