Container demurrage: Agents beware

Posted in Transport Northern Africa Southern Africa Central Africa Western Africa Eastern Africa Blog post

Over the last few years we have seen an increase in the number of demurrage claims for containers that have been landed in various ports throughout Africa, which are either not cleared or not collected by the receivers. All too often agents who are shippers or consignees under the ocean bills of lading get caught up in the process. As they are a contracting party to the bill of lading, the agents become easy targets for the shipping lines to pursue – especially where the receiver has vanished or is incapable of collecting the goods for whatever reason. We have been struck by how little appreciation there is amongst many shipping agents as to their exposure to and liability for container demurrage.

Agents often believe that they are protected by simply “being agents” acting for a principal (who is usually not disclosed). Agents often prefer to be reflected as the shippers or receivers under the main bill of lading contracts with the shipping line (the so-called “ocean bill”) in order to protect the identity of their customers. But this can come at a (considerable) price – container demurrage claims can mount up very quickly.

When an agent is reflected as a shipper or consignee under a bill of lading or waybill it takes on all the responsibilities of the shipper or consignee – and one such responsibility is to receive, unpack and return a container within the free time, failing which the agent will become liable to pay demurrage.

The concept of demurrage has been a part of carriage contracts for centuries. The concept is a simple one – time is money – and a cargo interest is given a certain amount of “free” time to load or discharge a cargo – or collect and redeliver a container that has been discharged by the shipping line. If that time is exceeded, then, in the case of a container, the shipping line is entitled to claim damages for the non-use of that container. The damages are agreed up-front as a daily rate. The rates are usually set out in a tariff that is referred to in the bill of lading.

The recent case of MSC Mediterranean Shipping Co SA v Cotton Anstalt [2016] EWCA Civ 789 has highlighted how a dispute under the bill of lading or between carrier and shipper can cause container demurrage to increase significantly, causing huge losses for the party who is found to be liable.

The claimant carrier (MSC Mediterranean Shipping Co SA) had entered into a contract with the defendant shipper (Cottonex Anstalt) for the carriage of various parcels of cotton from Bandar Abbas and Jebel Ali to Chittagong under five bills of lading.

A particular clause in the bill of lading provided that the carrier would allow free time for the use of the containers and other equipment at the ports of loading and discharge. The free time was said to commence from the day the container and other equipment was collected by the shipper or was discharged from the vessel or was delivered to the place of delivery, as the case may be.

The bill of lading also required the shipper to redeliver the containers and equipment to a place nominated by the carrier and to take delivery of the goods within the time period allowed, failing which the carrier would be entitled, without any prior notice to the shipper, to unpack the goods in containers or store them ashore or afloat at the shipper’s sole risk.

The containers were subsequently discharged at Chittagong. During this time the price of raw cotton decreased significantly and a dispute ensued between the shipper and consignee regarding the bill of lading, resulting in the consignee refusing to take delivery of the goods. The shipper was able to present the bills to the bank and obtain payment. It thereafter alleged that it had no business in the goods anymore. This led to the odd result where neither the consignee nor the shipper nor anyone else for that matter, was willing to take delivery of the goods.

The carrier, on the other hand, was in the unfortunate position of being in possession unwanted containers. It then insisted that the containers be redelivered and that it would levy demurrage. Its subsequent offer to sell the containers to the shipper amounted to nothing. Eventually, the court allowed MSC, the carrier, demurrage in full up to the date when the contract ended, and thereafter to claim the value of the containers, holding that the container demurrage could only accrue until the contract between the shipper and MSC and ended (i.e., the shipper no longer had the obligation to re-deliver the empty containers).

In the circumstances:

  1. Agents who are reflected as shippers in a contract of carriage should be clear as to what their liabilities are under the contract of carriage – in particular the agent needs to be aware of the conditions contained in the carrier’s tariff;
  2. Where it appears that a large demurrage bill is in the offing, agents should act with alacrity in resolving the position – wherever possible the customer must be part of any discussions with the carrier;
  3. Agents must arrange their affairs so that they can claim back any amounts that they may have to pay the carrier;
  4. If any demurrage claim is settled with the carrier, the terms of that settlement must be made clear – it is not always easy to obtain the release of a container of goods from customs or the port authorities, and tight time limits will scupper many a decent settlement.

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