liabilities arising out of the carriage of cargo, and (2) it offers claims handling services to the shipowner or charterer in respect of cargo claims. In addition, most Clubs are proactive and provide loss prevention advice on cargo issues, such as proper protective clauses to be inserted into bills of lading or charterparties, or pre-shipment surveys of steel products. Gard News has been and will continue to be an important channel for such advice.
Cargo is the reason for shipping. It is oxygen brought on very wide arteries of blue water to the many cells of the body called international trade. Carriage of cargo by sea is vital to trade because it is the most cost-effective transport solution when it comes to large volumes and long distances. Other modes of carriage, such as road, rail or air, play an increasingly important role when volumes are smaller and distances shorter, but carriage by sea is yet to be beaten on the heavy marathon legs.
Ocean carriage often involves a complex network of shippers, freight forwarders, traders, banks, carriers, insurers, receivers and other interests. In this context, the role and interest of the P&I Club is relatively modest: (1) it provides the shipowner or charterer with insurance in respect of third party
It is beyond the scope of this article to explain in detail the range of cargo liability cover afforded by standard P&I insurance or the additional covers developed by Gard, like for instance the Extended Cargo Cover. Readers interested in these issues may look up the Gard P&I Handbook, Gard Product Information as well as previous issues of Gard News on the Gard Services website at www.gard.no.
A CARGO CLAIM - WHAT IS IT?
A cargo claim is essentially a demand for monetary compensation in respect of financial loss sustained as a result of a breach of the contract of carriage or a failure by the carrier to fulfil certain extra-contractual obligations. However, the carrier will not be liable to compensate the claimant if the loss is caused by circumstances for which he is exonerated from liability by force of law or contract. Furthermore, even if the carrier is liable, he may have a right to limit liability. If so, the cargo claimant will be left with less than full compensation for his claim.
Both the commercial and legal context in which cargo claims arise are important. Virtually all commercial cargo that is carried by sea on a vessel is carried under some form of contract which sets out the rights and obligations of the parties. There are several forms of such contracts, like for instance voyage charterparties, bills of lading, waybills and contracts of affreightment, each with unique features. However, basic obligations of the carrier on any voyage are virtually the same in most jurisdictions, regardless of the terms of the contract. Normally the carrier must:
- load the agreed quantity of cargo at the agreed place at the agreed time;
- give the shipper a receipt showing that the carrier has taken custody of the cargo;
- give the shipper evidence of the contract of carriage, normally a bill of lading;
- proceed to and reach the agreed place of discharge/delivery;
- discharge the cargo in the same quantity and condition as received;
- deliver the cargo only to the party legally entitled to receive it.
These obligations are also reflected in international conventions applicable to carriage of goods by sea, notably the Hague Rules, Hague-Visby Rules and the Hamburg Rules, which have been ratified by most states around the world. However, as is illustrated by the fact that three international regimes exist, uniformity in this area of law has been difficult to achieve. Moreover, one should not assume that the application of similar rules of law in different countries will produce the same outcome simply because they arise out of the same convention.
THE FREQUENCY OF CARGO CLAIMS
Cargo claims represent one of the largest categories of P&I claims both in number and value. At the time of writing, Gard's records show more than 7,000 pending cargo claims, which represent more than 35 per cent of the number of all pending claims and about 30 per cent of the total value. About 80 per cent of the pending cargo claims are less than three years old, which shows that cargo claims are resolved relatively quickly. This is partly explained by the fact that in most jurisdictions a prescription period of one year will apply.
Because cargo claims are so important to Members, it is not surprising that the majority of claims handlers in most P&I Clubs deals with cargo claims. There are variations both in terms of types of cargo, methods of carriage, types of ship involved, operational aspects, causes of loss or damage, as well as legal aspects such as jurisdiction, applicable law, exoneration and limitation of liability issues, just to name a few. A container damaged during through transport requires different skills than a contaminated liquid cargo claim. The diversity brought about by these parameters makes cargo claims handling an area where particular skills and experience are needed.
THE CARGO CLAIMS HANDLING PROCESS
The cargo claims handling process usually starts before any claim is made and sometimes even before there is any incident that may lead to a claim, like for instance when arranging for a pre-shipment survey of steel cargo.
Usually, the claims handler receives notification about an incident from the Member, the port agent or the local P&I correspondent. A relatively common story is that there are signs of water ingress in one or more holds upon discharge and a cargo survey is required. Hence, the claims handler will contact the local P&I correspondent (if not already notified by the Master or the Member) and ask that a surveyor be appointed. The purpose of involving the surveyor is to establish the nature and extent of any loss or damage, secure evidence and check whether cargo interests are taking reasonable steps to mitigate losses. Whilst sometimes the cost of these services may appear high, there is little doubt that most cargo surveys yield a good return when claims are to be defended.
If there is apparent serious cargo damage involving large quantities of cargo - for example following a fire - one will probably also appoint lawyers and experts at an early stage. Lawyers will take statements from the Master and crew, collect copies of relevant ship documents, liase with other interested parties, and assist to avoid arrest or detention of the ship or to secure rapid release. Other important functions of lawyers are to provide early legal and tactical advice, as well as to advise the Master and crew when pressure is exerted on them by cargo interests, representatives of local authorities, media or other interested parties.
The claims handler will receive the cargo survey report with photographs and supporting ship and cargo discharge documents. The P&I correspondent or lawyer will normally also address issues relevant to the further handling of the matter, like local rules of law, previous experience with cargo interests, whether a Club letter of undertaking is likely to be accepted as security for claims, etc. The claims handler will use this information to assess the likely exposure and set an interim financial reserve for the claim taking into account also the future cost of legal and other services.
Eventually, cargo interests will present their claim. Often claims are presented by cargo recovery agents appointed by subrogated cargo underwriters. The claims handler will usually require documentary evidence of the right to claim, i.e., a subrogation or assignment letter from the person who had the original right to claim, as well as a letter of appointment from the cargo underwriter to the recovery agent. Moreover, the claims handler will require full documentation in support of the claim prior to commencing discussions or negotiations concerning substantive aspects. The type of documentation required will vary depending on the type of cargo, method of carriage and where the alleged loss or damage occurred. However, prima facie evidence that the alleged damage or loss occurred while the cargo was under the custody of the carrier and documentary evidence of the financial loss sustained are standard requirements.
What then, determines the outcome of a claim? A claim may be compared to a chess game. The rules that apply to the game are fixed and relatively well known to the parties. So is the law that applies to the claim. The result is less dependent on the rules than the factual circumstances. The quality and completeness of factual evidence represent both the chessmen and the positions in play. Sometimes the claims handler is provided with only few chessmen and the position may be quite cornered from the beginning. The claims handler may realise that the case is a loser and recommend an early settlement. Whilst this may come as a surprise and perhaps disappointment to the Member concerned, one should bear in mind that the claims handler may have experienced similar circumstances in previous cases and know that the defence arguments will not prevail. A typical example can be a hostile jurisdiction where political or commercial issues take precedence over legal justice, and where the shipowners may be up against a "home town claimant".
Handling cargo claims is not an exact science. Claims handlers know that reality is not black and white, and that out-of-court settlements are usually a far more economical avenue than the "Litigation Road". Hence, most cargo claims are discussed, negotiated and settled short of litigation, usually by way of written correspondence only. Nonetheless, claims handlers negotiate a fair proportion of cargo claims across the table with recovery agents or sometimes lawyers. This is particularly the case in London where some of the most frequently used recovery agencies are located. One benefit of such negotiations is that the parties usually know each other professionally, having dealt with each other on several previous occasions. This normally ensures that both sides adopt a reasonable approach and identify quickly the true merits of the claim.
IN SEARCH FOR EXCELLENCE
Which skills and experience are required in cargo claims handling? What knowledge must a skilled "chess player" possess? Efficient handling of cargo claims requires knowledge about ships, operational procedures, logistics (both in terms of goods and documents), cargo types, methods of carriage, contracts, applicable law and jurisdiction, etc.
The ships vary from small coasters to ULCCs and from older general cargo vessels to specialised, modern high-tech ships, like chemical tankers. Operational procedures also vary with type of ship and trade. In-depth understanding of what occurs on a ship during loading, stowage, carriage and discharge frequently makes it much easier to know the answers to the immediate questions: What happened? How? Why?
Physical logistics are different in the spot market-based, port-to-port bulk trade and the conference-based, containerised and multimodal liner trade. For the latter the shipowner may not even be the contractual carrier vis-à-vis cargo interests - a freight forwarder or non-vessel operating common carrier may have undertaken to arrange transportation of containers door-to-door from St. Louis, USA to Frankfurt, Germany, the ocean carrier being just a sub-contractor of the door-to-door carrier.
Knowledge about document logistics, including how and why a bill of lading is traded for money through letter of credit arrangements with banks, can be vital in certain cases. Who holds the bill of lading may determine, inter alia, who has the right to claim delivery of the goods and who has the right to file a cargo claim.
It is impossible to have detailed knowledge about all types of commodities traded. They vary from raw materials such as iron ore, timber logs and crude oil to refined products such as steel coils, sawn timber and gasoline. At the consumer end, one will find cars, clothes and consumer electronics. However, over time claims handlers get to know quite a bit of the most commonly traded dry and liquid cargoes. They also get to know that the likelihood of claims partly depends on whether the market for the commodity has gone up or down at the receiving end of the voyage.
The special features of various methods of carriage are also important. The claims handler needs to have a basic understanding of how a reefer container works in order to form a qualified opinion as to whether a carrier can be held liable for deterioration of perishable goods inside due to improper temperature. Did the rise in temperature occur on board the ship during transit, before the container was received for shipment or after it was discharged and delivered? Different but equally important carriage method issues may arise in all other trades, and in-depth knowledge may be crucial to the successful resolution of a claim.
Clearly, knowledge about common forms of contracts of carriage as well as relevant "cargo" clauses in charterparties is crucial. The contract of carriage, read in conjunction with the applicable law, defines the rights and obligations of the carrier, which are the starting point for the analysis of whether any breach has been committed.
In addition to knowledge in all these areas, efficient claims handling requires strategic and tactical skills, overview, patience, some clairvoyance, as well as the ability to communicate and negotiate effectively and professionally. And then comes the intangible asset: experience. The ability to apply lessons learned from previous claims to new incidents and thereby excel to reach better results.
This edition of Gard News contains the first round of presentations of the cargo claims handlers. Gard Services takes pride in its skilled and experienced staff, which comprises a healthy mix of backgrounds. Many claims handlers have had most of their professional career at Gard. The relatively low turnover means that Gard Services retains and can build on long-term knowledge and experience
Gard Services continues its efforts to provide Members with high quality claims handling services in a Club-like atmosphere.