The Transport Document

If we look at what the consequences of the events described in Part I are, we need to consider relevant articles in the carrier’s Terms and Conditions which are included in every Transport Document (Bill of Lading or Sea Waybill). For this exercise, we will look at the Terms and Conditions of Maersk.

We start with the definition of “Merchant”. ““Merchant” includes the Shipper, Holder, Consignee, Receiver of the Goods, any Person owning or entitled to the possession of the Goods or of this bill of lading and anyone acting on behalf of such Person.”

Let us now look at Article 11.2, 11.3 and 11.4 of the T&C.

“11.2 The Carrier shall not be liable for loss of or damage to the contents and the Merchant shall indemnify the Carrier against any injury, loss, damage, liability or expense whatsoever incurred by the Carrier if such loss of or damage to the contents and/or such injury, loss, damage, liability or expense has been caused by any matter beyond his control including, inter alia, without prejudice to the generality of this exclusion:

(a) the manner in which the Container has been packed; or

(b) the unsuitability of the Goods for carriage in Containers; or

(c) the unsuitability or defective condition of the Container; or

(d) the incorrect setting of any thermostatic, ventilation, or other special controls thereof, provided that, if the Container has been supplied by the Carrier, this unsuitability or defective condition could have been apparent upon reasonable inspection by the Merchant at or prior to the time the Container was packed.

11.3 The Merchant is responsible for the packing and sealing of all shipper packed Containers and, if a shipper packed Container is delivered by the Carrier with any original seal intact, the Carrier shall not be liable for any shortage of Goods ascertained at delivery.

11.4 The Shipper shall inspect Containers before packing them and the use of Containers shall be prima facie evidence of their being sound and suitable for use.”

Next, we consider Article 14, specifically 14.1 and 14.3.

“14.1 This bill of lading shall be prima facie evidence of the receipt by the Carrier in apparent good order and condition, except as otherwise noted, of the total number of Containers or other packages or units indicated in the box entitled “Carrier’s Receipt” on the reverse side hereof.”

“14.3 The Shipper warrants to the Carrier that the particulars relating to the Goods as set out on the reverse hereof have been checked by the Shipper on receipt of this bill of lading and that such particulars, and any other particulars furnished by or on behalf of the Shipper, are adequate and correct. The Shipper also warrants that the Goods are lawful goods, and contain no contraband, drugs or other illegal substances or stowaways, and that the Goods will not cause loss, damage or expense to the Carrier, or to any other cargo.”

Finally, we consider Article 15, specifically 15.1 and 15.2.

“15.1 All of the Persons coming within the definition of Merchant in clause 1, including any principal of such Person, shall be jointly and severally liable to the Carrier for the due fulfilment of all obligations undertaken by the Merchant in this bill of lading.

15.2 The Merchant shall be liable for and shall indemnify the Carrier against all loss, damage, delay, fines, attorney fees and/or expenses arising from any breach of any of the warranties in clause 14.3 or elsewhere in this bill of lading and from any other cause whatsoever in connection with the Goods for which the Carrier is not responsible.”

What do we learn from reading this terms and conditions?

• The Carrier accepts from the Merchant a sealed container with all particulars as furnished by the Merchant, certified by the Merchant to be true and correct.
• The container is packed by the Merchant who takes full responsibility for the condition and safe stowage of the contents in the container.
• The Merchant further accepts full liability for and indemnifies the Carrier against any losses or damages to the ship or other cargo.
• The Merchant is jointly and severally liable to the Carrier.

Note: we have looked at the Terms and Conditions of Maersk. All Carriers will have similarly worded Terms and conditions with the language based on the Legal Jurisdiction within which the Terms and Conditions are incorporated.

Insurance

We posed the question earlier, “What if accident investigators are able to pinpoint the cause of the disaster or accident to a particular container or containers?” It is clear from the Carrier’s Terms and Conditions that the Merchant, as identified on the Transport Document, may be found liable and would then face a claim from the Carrier and/or the Carrier’s Insurers.

Marine Insurance Policies, specifically those including Institute Cargo Clause A (ICC A) will cover most risks but, there are also some very important exclusions. Importantly, we will consider Article 4.3 of the ICC A:

“4.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-matter insured to withstand the ordinary incidents of the insured transit where such packing or preparation is carried out by the Assured or their employees or prior to the attachment of this insurance (for the purpose of these Clauses “packing” shall be deemed to include stowage in a container and “employees” shall not include independent contractors)”.

What this tells us is that unless the Merchant (Shipper or Consignee, whoever is controlling the cargo movement and responsible for container packing) must work strictly to a detailed scope of work including packing specification. This is especially important when handling hazardous cargo. Any deficiency in packing, lashing, and securing of cargo leading to loss or damage to the ship or other cargo, could see the Merchant facing liability claims which Insurers may repudiate on the grounds of insufficiency or unsuitability of packing.

Risk Mitigation

Quoting from TT News dated 03 June 2021:Peregrine Storrs-Fox, TT Club’s Risk Management Director, says, “Holistic industry led initiatives are necessary. An understanding by all the actors in the supply chain of safe packaging, packing, loading, and unloading of containers, and of the need for detailed, accurate information of the cargo’s attributes and any potentially hazardous reactions to any eventuality occurring through the entire transit, is necessary. Above all truth, trust and transparency must guide all involved.”

“The TT Club has been campaigning for some time to reduce these life-threatening, cargo and ship damaging, environmentally impactful and highly costly events. This activity includes promoting awareness and wider use of the IMO/ILO/UNECE Code of Practice for Packing of Cargo Transport Units – the CTU Code – and seeking changes in regulatory requirements to improve the clarity, application, implementation and enforcement of mandatory regulations, including the International Maritime Dangerous Goods (IMDG) Code.”

And later, in the same article; “Fundamental framework guidance for cargo packing is found in the CTU Code, which TT is striving to have better understood and utilised, embarking with fellow members of the established Cargo Integrity Group in producing the ‘CTU Code – Quick Guide’ and ‘Container Packing Checklist’ to enable easier reference to the Code.”

The CTU Code – Quick Guide including the Container packing checklist, can be found here: https://www.ttclub.com/-/media/files/tt-club/cig/cigctu-code–a-quick-guide-sep-2020.pdf

In Conclusion

As supply chains become tighter it is becoming more important for all those involved in the supply chain to diligently follow safe operating procedures. It is equally important for the Buyer and the Seller when negotiating or modifying their Sales/Purchase Contracts, to ensure that all areas of potential risk are covered by a clear and unambiguous Scope of Work. The party responsible for container packing, lashing, and securing should be instructed to follow the CTU Code of Practice. Failure in any of these areas could see the Merchant (as defined on the Transport Document) facing unintended and potentially business-destroying liability claims.