Contractual Obligations to the Buyer - Essay Example

Carrier Liability Apparent from the facts of the case is that the seller may not have fulfilled his contractual obligations to the buyer. Rats were found clinging to the bagged rice, with it remaining indeterminate as to when and from where they came. Uncontested, however, are the facts which indicate that when loading and storing into the ship's hold, crew members did not report this and, as a result, a clean bill of lading was issued. As a direct outcome of the stated, therefore, and consequent to passage of risk, the seller's possible liability dissipated. The meaning of this is clear. In accordance with both SoGA and CIF, the risk passed from the seller to the carrier upon his delivery of the bagged rice to them and their subsequent failure to report the rats, culminating in the issuance and receipt of a a clean bill of lading. It is, however, necessary to refer to the Hague-Visby Rules (hereinafter referred to as HVR) and case law in order to investigate the carrier's liability. The HVR function to clarify the duties owed to, and responsibilities owed by, cargo liners, providing a comprehensive explication of the circumstances and types of damages to cargo which carriers are not liable for as well as those that they may be held liable for. Further, and as established by CoGSA (1971) and by national courts, HVR is applicable when either party to the dispute is a member of a Contracting State.1 With these points in mind, the issues to be investigated are, firstly, whether HVR is applicable in this instance and, secondly, in case of applicability, whether the carrier is liable for the damages to the rice. As determined by English law, and as further emphasised through CoGSA, HVR is enforceable upon carriers travelling from any port in Great Britain and Northern Ireland to any port within it.2 More relevant, however, is the fact that it is enforceable upon carriers that are travelling from a port or to any port which is party to HVR.3 The implication here is the HVR is enforceable as both the USA and Netherlands are parties to HVR. Within the context of the stated, it is important to note that Articles III, 1c and III, 2 of HVR establish the carrier as responsible for ensuring that its holds and chambers are well-suited for the storage of cargo, including their preservation and protection.4 These articles further emphasise that the carrier, including its personnel, are obligated to exercise all due caution to safely store and protect the goods.5 Furthermore, as stipulated in Article II, not only is the carrier responsible for the safe storage of the cargo but it is further liable for any damages which may befall the goods through loading and stowing.6 The above mentioned articles are immediately relevant to the question of the carrier's liability towards the damages which the rates may have wreaked upon the bagged rice. In brief, they establish liability as a direct outcome of the failure of the crew to exercise due care regarding the protection of the cargo from damages. The carrier's liability is established by HVR. HVR, Article IV, 2b states that the carrier is not liable for damages to cargo by "fire, unless caused by the actual fault or privity of the carrier." 7 This liability directly arises from Article IV, 1's assertion that the carrier and its personnel are obligated to exercise all "due diligence" to ensure that the ship is seaworthy and its crew fit.8 The crew did not exercise the requisite due diligence, as is evident from the failure to report the sighting of the rates and, the vessel was not seaworthy, a fact which takes on additional importance when considering liability for delay in delivery. Case law supports the argument pertaining to the carrier's liability, as in the matter of Papera Traders Co Ltd & Ors V (1) Hyundai Merchant Marine Co Ltd (2) Keihin Co Ltd Sub Nom Eurasian Dream (2002)9 In this case, the cargo owners sued the carrier following the occurrence of a fire which destroyed the cargo and rendered the vessel a total loss. As the owners of the cargo were able to prove that the fire was a consequence of the vessel's unseaworthiness and that it was unseaworthy prior to the commencement of the journey, the court found in favour of the cargo owners and the owners of Eurasia Dream were found liable for the loss under HVR Article III.1 and III.2.10 The matter of Parsons Corporation & Ors V (1) CV Scheepvaartonderneming Sub Nom "The Happy Ranger" (2002)11 is also relevant to this case. The cargo owners sued the carrier for damages to their cargo under HVR. The defendants argued that the carriage of goods contract signed had a limitation on HVR. They further argued that HVR did not apply. The court found that HVR were enforceable as goods had been shipped from a port of a Contracting State and that the attempt to impose limitations on HVR was void. The carrier was found liable under HVR, since the carrier was unseaworthy and the crew not fit.12 Similarly, the carrier in this case is liable. As argued in the above, therefore, case law, together with COSGA and HVR clearly establish the liability of Cargolines Ltd for the damage done to the bagged rice but, the time factor is yet to be determined. The facts of the case indicate that there are two reasons for the failure of the carrier to satisfy the contractually specified delivery date. The first is that it had to respond to a Mayday. Maritime law and IMO guidelines hold that in instances of distress calls, all vessels in the vicinity must respond for possible salvage and rescue operations. This is obligatory, irrespective of whether or not the responding vessel later participated in the salvage operations or not. From this perspective, therefore, the carrier is not liable for delivery delays which resulted from the mentioned response to a mayday/distress call. The fact that the carrier is not responsible for delays arising from its response to a distress call, however, does not mean that it is not liable for its failure to satisfy the contractually stipulated delivery time. This is because there was a second reason for the delay. As the facts of the case clearly indicate, the carrier was not in seaworthy condition, whereby, upon entry into the English Channel, experienced a steering malfunction which necessitated its being towed away. The carrier owners were aware of the potentialities of such an occurrence as an order for the necessary part had been made. This means that not only was the carrier unseaworthy but that the carrier owners and shipmaster were aware of this, making them liable for the delayed arrival and subsequent delivery of the cargo, irrespective of HVR exceptions. As based on the facts presented in the above, and as determined through reference to both law and case law, the carrier is liable for both the damage in question and the failure to meet the arrival time. Insurance An insurance policy functions to limit the financial loss incurred by the owner of goods consequent to a specific set of causes. An insurance policy stipulates and defines, both the types of losses and damages which would entitle the insurance policy holder to reimbursement for his/her losses and the causal factors of that loss.13 Therefore, an insurance policy defines both the types and causes of loss and damaged to the insured goods. Should the policy holder submit a claim which complies with both the types and causes of loss/damage covered by the policy, the insurance company is contractually obligated to make the necessary payments.14 Consequently, prior to determining insurance in regards to this case, it is necessary to discuss the question in relation to policies. As explicitly stated in the body of ICC B, policy holders are insured against damage to goods "reasonably attributed to fire or explosion."15 However, since the policy only insures goods against damages which occur during carriage by sea, the damage to the bagged rice had have to taken place during this specified period and, it apparently did.16 Nevertheless, the insurance does not cover "loss, damage or expense arising from unseaworthiness of vessel or craft, unfitness of vessel craft, conveyance container or liftvan for the safe carriage of the subject-matter insured, where the Assured or their servants are privy to such unseaworthiness or unfitness, at the time the subject-matter insured is loaded therein."17 The aforementioned exceptions suggest that insurance company in question is not legally obligated to cover the losses. According to the facts of the case, rats were found clinging to the bagged rice while it was being stored with the implication being that the damage was already in process prior to the cargo's being loaded on board. in accordance with ICC B, shipment which was damaged prior to actually being loaded on board is not covered by insurance policy. Furthermore, the fact that a clean bill of lading was issued nonetheless, is problematic. Insurance companies settle claims only following an investigation into cause. Should that investigation reveal that a clean bill of lading had been issued, despite the fact the presence of the rats, the insurance company can argue deceit.'18 If the intent to deceive is established and should the insurance company prove that the clean bill of lading is fraudulent, the policy may not be enforceable.19 As argued in Primetrade AG v Lythan Ltd (2005)20, the issuance of a clean bill of lading when the condition of the goods do not warrant it, evidences an intent to defraud with that intention functioning to relieve the insurance company of the obligation to cover the losses to goods.21 Proceeding from the above stated, it is evident that the insurance company is not liable because the clean bill of lading was erroneously issued as a direct outcome of negligence. Clearance Inward Procedure Clearance procedures within EU ports, as the Rotterdam Port, are dependant upon whether the entering goods are shipped from within or from without the EU.22 The facts of the case indicate that they were shipped from outside of the EU, specifically, the United States. In such a case, therefore, the clearance inward procedures specific to non-EU goods are observed. As per the stated procedures, the goods must be presented at the Customs office alongside an identifying summary declaration. The issuance of the summary declaration must be by the person who carried the goods into the EU, the person who is responsible for their onward carriage, the shipping company, or a person acting as a representative of any of the stated.23 The summary declaration, which accompanies the actual presentation of the goods, may assume the form of a number of acceptable official documentations. These include bills of lading, container manifests, loading lists and consignment records. It is necessary, however, to point out that the Customs office reserves the right to determine the documents it will accepted as summary declaration and those which it will not. The presentation of the goods and the summary declaration, however, do not imply the completion of the clearance procedure as, following from that, post-unloading restrictions on the movement of goods may apply. Indeed, following the lodging of the summary declaration and the presentation of the goods, the cargo in questioned by be assigned the status of temporary storage until such a time when they are awarded a Customs approved treatment, allowing their entry into free circulation.24 The above procedure for clearance is standard across the European union, as regards non-EU goods and, is applicable to the Port of Rotterdam. Lloyd's Open Form vs Daily Hire It is impossible to determine whether a Lloyds' Open Form or Daily Hire would have been preferable without first clarifying the meaning of each of these types of salvage contracts. The open form is a salvage contract whose main intent is to offset the negotiation process, often resulting in the wastage of valuable time, and the subsequent delay of the salvage operation. Within the context of this type of contract, financial terms are not discussed and compensation is settled either through an arbitration venue or the completion of the salvage operation. In cases of dispute, a substantial body of legal precedent is employed for resolution of disagreements.25 The most common form of the LOF is the Lloyds Standard Agreement NCNP. It is widely used and is the outcome of years of experience with both salvage operations and the realities which govern them. Within the context of this contract, the vessel owner may either pay the salvor the standard salvage fees, as established by common law or pay a standardised fee rate established by Salvage Compensation P&I Clause.26 Daily hire contracts are infinitely more complex. These types of contracts call upon salvors to survey the damages, develop a salvage plan and subsequently execute it. The salvor is reimbursed for expenses incurred during the operation in addition to a sum per day, with it being possible to stipulate a maximum number of days for the completion of the operation. Apart from the salvage payment, bonuses may be entered into the contract for the quicker completion of the operation.27 While the above stated outline may lead one to assume the LOF to be the more preferable of the two, the fact is that this is not the case. The LOF is not suited to situations where the value of the maritime property is indeterminate and in which the most critical factor is speed. In direct comparison, the daily hire contract is ideally suited for situations wherein the most important factor is time.28 Given the fact of the case in question, it is evident the daily hire contract is the referred option. The reason for the stated links directly back to the liabilities the carrier has potentially incurred consequent to failure to meet the stipulated date of arrival. Undue additional delay would not be in the best interest of the carrier and, hence, the daily hire contract is the preferable option. References Commission of the European Communities (2002) Guide to Custom Procedures. SEC (2002)632. http://www.shortsea.pl/onas/guide.doc Gutteridge, H.C. (1921)"The Limitation of the Liability of Shipowners," Economica, 2. Hague-Visby Rules, Admiralty Law. http://www.admiraltylaw.com/statutes/hague.html Institute Marine Cargo Clauses B, (1982) Lex Mercatoria. Karan, H. (2005) The Carrier's Liability Under International Maritime Conventions: The Hague, the Hague-Visby and Hamburg Rules. London: Edwin Mellen Press. 2 All ER (Comm) 24. AC0101682. 17 May 2002. Rhiadian, T. D. (1996) The Modern Law of Marine Insurance. London; LLP Ltd. Papera Traders Co Ltd & Ors V (1) Hyundai Merchant Marine Co Ltd (2) Keihin Co Ltd Sub Nom Eurasian Dream (2002) EWHC 118 (Comm). AC0102672. 2 July, 2002. Parsons Corporation & Ors V (1) CV Scheepvaartonderneming Sub Nom "The Happy Ranger" (2002) EWCA Civ 694. Primetrade AG v Ythan Ltd. [2005]. EWHC 2399 (Comm): 1 November 2005 Ubdenstock, Bob (2002) "Salvage Contracts: Why Terms Matter" Marcon international. http://www.marcon.com/marcon2c.cfmSectionGroupsID=44&SectionListsID=62&PageID=481 Read More