“Paper loss” claims in Tunisia and Algeria
A control check on claims for shortage of grain cargoes in North Africa.
Recent forecasts of the International Grains Council1 underline problems in the global supply of grains and oilseeds, notably due to dry conditions impacting grain harvests in the northern hemisphere. While these droughts may result in a big contraction in grain cargoes and unprofitable rates for certain carriers, the demand for grain has not dropped, grain prices remain relatively high and vessels keep calling at certain grain ports where they face an increased risk of shortage claims, particularly in some North African countries. Shortages at these ports can be either real (physical losses caused by physical events such as theft, leakage from grabs, etc.) or apparent (“paper losses”, caused by measurement differences, many of which are customary, some of which occur due to poor procedures such as incorrect measurement, calculations, etc.). This article focuses particularly on the latter.
What type of claim scenario are we looking at? Sadly, it is a very common one. A diligent and cautious bulk carrier owner fixes a vessel to load grain at a South American port, arranges for a draft survey and proper sealing of the hatches. Before the vessel is allowed to sail, the Master is pressured to insert in the bill of lading shore scale figures, which are in excess of the draft survey figures. The voyage is then uneventful until the vessel starts discharging cargo at a Tunisian or Algerian port. After a few hours or days, and while the discharge is still under way, allegations of shortage are made by the receivers. Then the whole sad affair starts, with security request, threat of arrest, tense negotiations between the cargo interests and the P&I Club, correspondent and surveyor and ultimately the outcome is a familiar and frustrating one.
The fortunate owner will see his vessel sail without delay in exchange for a P&I letter of undertaking (LOU) and will hopefully manage to conclude the claim amicably. Quite often, however, the Club LOU is not accepted and a bank guarantee is demanded. In the worst case scenario, and in an attempt to avoid having to provide a costly bank guarantee, some owners may feel pressured to pay the claim on the spot in order to avoid detention of the vessel, when it appears obvious that the claimant will not agree to negotiate on fair terms. Owners often feel helpless and end up paying for what are probably paper losses when the vessel delivers all the cargo received on board.
Can owners expect the situation to change in the near future?
Shortage claims status in Algeria
Despite increased frustration among shipowners, reportedly the situation in Algeria regarding paper losses has stabilised and even generally improved to the extent that more and more local importers recognise a trade allowance. Some observers have noted a recent reduction in the number of paper loss claims.
However, shortage claims show no sign of disappearing, and occur mainly at the largest Algerian ports of Oran and Béjaïa. They generally concern cargoes of yellow corn, soya bean meal and wheat in bulk from Brazil, Argentina and Black Sea ports. Nevertheless, a trade allowance has been successfully applied to the majority of cases involving grain cargo imported in Algeria. Public companies, including the main local importer of cereals (5 to 6 million tons per year), tend to accept a trade allowance of 0.5 per cent of the total bill of lading figure and normally do not lodge any claim for shortages of less than 0.5 per cent.
On the other hand, private companies, often importing grain for animal feed (1.5 to 2 million tons per year), are less flexible, especially in difficult times, when prices for corn and soya bean meal are climbing. As a result, they rarely accept a trade allowance, and do not recognise the value of the vessel’s draft survey. This is the reign and supreme diktat of the sacred port weighbridge scale.
In such circumstances, on which basis can a carrier successfully defend a shortage claim and what can he do to avoid a claim in the first place?
Algeria has ratified the Hague Rules, but the Rules have never been effectively implemented into domestic law. The Algerian Maritime Code provides that the carrier is liable for loss or damage to cargo from the time it enters into his custody until the time it is delivered to the receiver.2 However, the carrier can be relieved from liability when the loss or damage to the cargo results from inherent vice of the cargo or from the so-called “freinte de route”, a French term referring to the normal loss, minor shrinkage, evaporation or deterioration of certain cargoes while in transit.3 In other words, although silent on the applicable percentage, the Algerian legislation recognises a trade allowance, but unfortunately the courts are not consistent in its application and there is no reference case law clarifying the meaning and application of the “freinte de route” defence.
Thus, in principle, a diligent carrier, backed by favourable draft surveys and certificates of sealing/unsealing of hatches and empty holds, could have a reasonably good case before an Algerian court based on the applicable law. The truth is, however, that the fear of an uncertain outcome and, most importantly, the reluctance to vest too much time and money in testing the Algerian courts’ willingness to apply the trade allowance may explain the absence to date of any significant judgment confirming the exoneration of the carrier’s liability based on it.
Loss prevention in Algeria
Checking the integrity of the hatches’ seals upon arrival at the discharge port is highly recommended, along with appointing an independent surveyor to monitor the discharge operations, perform an initial and final draft survey to be signed jointly by the receivers, and to issue empty holds certificates. Bearing in mind that shortage may result from spillage at discharge due to the use of leaky grabs, possible overloading of trucks and mishandling by stevedores, the above will not guarantee the absence of claims, but may nevertheless dissuade receivers from taking advantage and so keep alleged shortages in check. Appointing a court surveyor in addition can be worth considering, especially when receivers refuse to participate in a joint survey and claim an extent of shortage that is obviously outrageous.
The shore-side weighing phase can be crucial, as the accuracy of some shore scales may be questionable4 and as an extra precautionary measure the independent surveyor can be instructed to keep the weight tickets and ensure the weights are measured and recorded properly. A tally of the receivers’ trucks at the pier and at the weighing bridge for the purpose of keeping track of all loaded and weighed trucks is also advisable. Of course, the downside of such an extended survey, which may last many days, is that the survey costs greatly increase. Some owners in the trade feel it is better to use the money to pay the claim itself, but the drawback of that approach is that Algerian law may not consider the cargo delivered to the receiver until after shore weighing, which becomes open to abuse. It is a difficult balancing act that is best considered from experience in the trade.
Survey instructions can also extend to cross-checking on a daily basis the shore figures and the findings of intermediary draft surveys and investigating any important discrepancy. Drawing the receivers’ attention to any spillage evidenced by pictures and assisting the Master in drafting letters of protest as necessary should also be part of the instructions. Spilled quantities should be collected and re-loaded on consignees’ trucks, weighed at shore scale and added to final figures as being sound cargo discharged.
Shortage claims status in Tunisia
In contrast to the apparent stabilisation/decline in frequency of paper loss claims in Algeria, the rate of occurrence of such claims in Tunisia has developed in the opposite direction. The last few years have witnessed a steady rise of paper loss claims pertaining to bulk cargoes of grain in general and wheat in particular. While the situation is more or less the same at all Tunisian ports, local observers have reported that cargoes originating from Russia, Romania, Ukraine and Argentina are generally more prone to claims than cargoes originating from other countries.
One possible reason behind the increasing number of claims may be that the state-owned and single largest grain importer no longer recognises a trade allowance. Contrary to the situation in Algeria, however, trade allowance is accepted by a number of private importers, which are also generally more flexible than their state-run counterpart in terms of handling the aftermath of an alleged short-landing. Rather than requiring a bank guarantee to secure the alleged shortage, these private importers tend to be more pragmatic in terms of finding a solution which is acceptable to all parties. That being said, the probability of a shortage claim being lodged is still high even where the receivers are private companies.
Shortage claims show no sign of disappearing.
The diverging approaches to trade allowance adopted by public and private importers echoes the conflicting rules related to liability for the carriage of goods by sea under the Maritime Commercial Code of Tunisia (CCM) and the Hamburg Rules, which have been ratified by Tunisia. Since the CCM recognises a trade allowance and the Hamburg Rules do not, the legal position is far from clear. Notably, Tunisian case law contains some decisions where the CCM trade allowance is recognised and others where trade allowance is not recognised by virtue of application of the Hamburg Rules. In addition, some decisions appear to accept a trade allowance on the basis of a combined application of both regimes. Similar confusion surrounds the application of contractual terms inserted in a charterparty or bill of lading, as well as the level of trade allowance to apply, although in practice the general rule for grain cargoes is 0.5 per cent.
Loss prevention in Tunisia
Despite the above, the carrier may be relieved from liability if he can show that he, his agents or principals have taken all reasonable steps to avoid any shortage and consequences thereof, and that the shortage is not the result of the carrier’s, his agents’ or principals’ negligence, but is attributable to the nature of the cargo, the length of the voyage, and variations in temperature and humidity. Whether or not the carrier succeeds in showing that the shortage is not caused by negligence but rather results from the trade and cargo as such depends on the evidence available, so measures should be in place to ensure that appropriate precautionary measures are taken and properly documented.
Loss prevention measures, such as hatch sealing and surveys, similar to those stated previously for Algeria, equally apply for Tunisia. In addition, it is also recommended to insert in the bill of lading and/or charterparty a clause to the effect that the stevedores are the servants of the shipper or receiver, which is an option offered by the CCM.5 It is also worth trying to insert a minimum of 0.5 per cent trade allowance in these documents, considering that trade allowance can theoretically be used as a defence under the terms of the CCM when supported by sufficient evidence.6
Loss prevention at load ports
Certain measures should also be taken at load ports, particularly in more problematic areas, such as Argentina7 and Brazil8 and certain notorious ports, like Constantza in Romania.9
Understanding what is going on at the load port is a good starting point. In some places shippers and/or customs insist on bills of lading and sometimes mate’s receipts being issued based on the shore figures, whilst on the other hand diligent Masters know they have to issue mate’s receipts and bills of lading based on the quantity they reasonably believe to have been loaded on board. It should be remembered that shippers will often have an interest in receiving a bill of lading showing the highest measurement quantity, since that will often be the basis on which payment is made as between seller and buyer. There is great attraction to a shipper to getting paid for a quantity of cargo that has not in fact been shipped.
Sometimes a Master may have no ultimate control over the quantities entered in the bill of lading, for instance if authorisation to sign bills is given to another entity. In this case the Master’s Letter of Authority to the agents must be carefully drafted. Ideally authority to sign mate’s receipts should rest with the Master rather than the agents, and the charterparty should provide that the Master shall only issue, or permit to be issued on his behalf, bills which are in strict conformity with the mate’s receipts.
In practice the difficulty starts when shippers wish to insert in the bill of lading figures ascertained by shore scales and these are higher than the figures ascertained by a draft survey. A difference greater than 0.5 per cent (the normal accuracy for a well-conducted draft survey under reasonable prevailing conditions) will increase the risk of a shortage claim at the discharge port, especially since the quantity stated in the bill of lading is likely to be considered under the local law to be binding on the carrier. The shortage claim can then be exacerbated by the application of shore received figures at the discharge port. In essence, therefore, instead of comparing the ship’s loaded and discharged figures, shortage claims are often based on a comparison of shore-side shipped and received figures. The draft survey is often the only way for the carrier to control loaded quantities and, if the difference is greater than 0.5 per cent, mate’s receipts and bills of lading ought to be claused to reflect the draft survey figures and the possible physical short-loading. Doing otherwise may result in P&I cover being prejudiced.10
It seems less common that the ship’s draft survey exceeds the shore figure at loading, but this can happen and a clever shipper will then be happy to receive a bill of lading showing only the ship’s figure. Discrepancies should always be investigated first and if they remain large, i.e., over 0.5 per cent, caution should be exercised. Gard has seen a number of cases of incorrect measurements and/or calculations in respect of draft surveys and a difference of more than 0.5 per cent above the shore figure may well point to the latter being more accurate (and therefore the best figure for the bill of lading), especially if the draft survey was performed in a swell.11
As a minimum, precautionary steps at the load port should include a draft survey12 and sealing of hatches with relevant certificates issued. The shippers’ representative should be invited to both surveys and asked to counter-sign the survey report and certificates. If and when there is a normal discrepancy between shore and ship figures (i.e., within 0.5 per cent) which is not entered in the bill of lading, the Master should at least issue a letter of protest.
Bills of lading should include the terms “said to weigh” or “said to be” or “weight, measure, marks, numbers, quality, contents and value unknown”, which at least under English law can mean that the bill of lading is not even prima facie evidence of the quantity stated to have been shipped; the burden of proof being on the cargo claimant to prove the quantity which he says was shipped.
Ideally, the terms should be typed or hand written on the front of the bill of lading rather than (or in addition to) being printed on the back, but even then owners should be under no illusion that such terms are the answer to avoiding shortage claims in North Africa. They may assist negotiations, but may have questionable legal value in local courts.
Charterers and the charterparty
It is worth mentioning the relevance of charterers and the charterparty in relation to shortage claims. A trade allowance agreed in the charterparty is unlikely to be binding on a third party bill of lading holder, even if the charterparty terms are incorporated into the bill of lading. Owners should avoid agreeing in the charterparty to issue bills of lading based on shore figures and/or to accept a letter of indemnity in exchange for a bill of lading showing an inaccurate quantity. There is a great risk that the courts will take the view that such letters of indemnity are unenforceable, as they facilitate fraud. Even if the charterparty provides owners with an indemnity for signing bills of lading as presented, this offers limited protection. The owner must not have been at fault and the loss must not arise from a risk which the owner has agreed to bear. The issuing of an inaccurate bill of lading will therefore make an indemnity claim very difficult.
If the charterparty incorporates the Inter-Club New York Produce Exchange Agreement, there is some comfort for owners in the fact that shortage claims can be apportioned 50/50 between owners and charterers.13 If owners have a good negotiating position when it comes to agreeing the terms of a charter, they may even be able to negotiate a clause which places full responsibility on charterers for paper shortages, e.g., where the independent draft surveys and empty hold certificates evidence no physical loss of cargo. At least that way it may be possible to push the cost of paper shortage claims down the charter chain to the cargo interests that often create them.
Prevention is better than cure, but unfortunately protective measures are unlikely to totally remove the risk of a paper loss claim in Algeria and Tunisia. However, precautionary measures will provide a carrier with ammunition to better defend claims and minimise the exposure as much as possible. When claims do arise, the Club and its correspondents will be on hand to assist as best they can.
1 Press Release dated 7th December 2012, at www.igc.int/downloads/pr/prigcdec12.pdf.
2 Algerian Maritime Code Article 802.
3 Algerian Maritime Code Article 803 g.
4 This may not be better than +/- 2 per cent and worse if not properly calibrated.
5 Maritime Commercial Code Article 169.
6 Maritime Commercial Code Article 145.
7 See article “Shore scale measurements in Argentina” in Gard News issue No. 195. Under Argentine law, the cargo receivers are entitled to choose whether to use shore scales or a draft survey to ascertain outturn quantities of import cargoes; for export cargoes the shippers can choose.
8 See article “Cargoes of agricultural products – Short loadings at Paranaguá” in Gard News issue No. 148.
9 See article “Shortage of agricultural products loaded in Romania” in Gard News issue No. 190.
10 Rule 34.1.x excludes “liabilities, costs and expenses arising out of the issue of a Bill of Lading, waybill or other document containing or evidencing the contract of carriage, known by the Member or the master to contain an incorrect description of the cargo or its quantity or its condition”.
11 There are many aspects to a draft survey that can be in error, beyond draft marks being read incorrectly. Errors can occur in the lightweight, constant, deductibles (e.g., for ballast, fuel, etc.), corrections for trim and water density, etc., as well as in the draft calculations themselves.
12 See article “The importance of draft surveys in the defence of claims for shortage of bulk cargoes” in Gard News issue No. 153.
13 See P&I Member Circular No. 07-11, Inter-Club New York Produce Exchange Agreement 1996 (as amended September 2011).
Any comments on this article can be e-mailed to the Gard News Editorial Team.