Recently, the association has received a number of reports of member ships being detained and stranded in Pakistan due to short-quantity disputes, mainly liquid bulk cargo (such as edible palm oil) and solid bulk cargo (such as wheat, fertilizer and seeds). Due to the different attributes of the goods, claimants have different means and requirements when claiming against the carrier for the above two types of short-volume cargo cases. However, the same is that claimants generally threaten shipowners with cash settlements by seizing or stranding ships, and do not accept credit guarantees issued by associations, which makes it quite difficult for shipowners and associations to handle such cases. Based on the author’s experience in handling short-quantity claims for the above two types of goods, this article hereby reminds member shipowners to have a certain sense of precautions when arranging ships to unload local goods.
1. Short-quantity analysis of liquid bulk cargo
For a long time, Pakistan has frequently experienced short-volume claims for liquid bulk cargo, especially palm oil short-volume cases. According to feedback from the association’s local representatives, about one-third of LC vessels in Pakistan may face short-term claims. Typically, when a ship is called at a Pakistani port of discharge, the carrier unloads the loaded goods into customs bonded shore tanks, from which the consignee picks up the goods. Due to the particularity of liquid bulk trade and transportation, the carrier may issue several sets of bills of lading to different consignees, and when the number of shore tanks is found to be less than the quantity stated in the bill of lading in the customs shore tank measurement, a short notice will be sent to each consignee, and then each consignee will file a claim against the carrier. Although the amount involved in a single case is usually small, the large number of cases has led to a sharp increase in the amount of claims, and the carrier needs to deal with different claimants, which also makes it more difficult to handle cases.
- Reasonable wear and tear
For short quantities of liquid cargo, it is understood that there are different standards for fuel and edible oil recognized in Pakistan for reasonable loss:
- For the reasonable loss of fuel products is 0.5%, the customs has the right to impose a fine if it is less than 0.5%;
- For edible oils (such as palm oil), 0.25% is the boundary. if the short proportion is less than 0.25%, the carrier will not be claimed or fined by the customs; However, if the shortage ratio exceeds 0.25%, the “reasonable loss” defense will not be supported by the local court, and the carrier may be required to bear the full short-term liability and will not deduct 0.25% of the reasonable loss. This is set out in the relevant cases in the Pakistan Domestic Business Law Case Series 2000.
- Short cause
Pakistan is based on shore tanks for liquid bulk cargo, and does not adopt the common cabin measurement, which is also the main reason for the frequent occurrence of short quantities of liquid bulk cargo. For the carrier’s responsibility period for carrying liquid bulk cargo, the industry generally recognizes the loading flange to the unloading flange. In this case, the carrier generally only needs to prove that the weight of the ship before unloading meets the quantity recorded in the bill of lading, and at the same time, it can be determined that it has fulfilled its delivery obligations by virtue of the dry container certificate issued by the commodity inspection after unloading.
However, since local courts in Pakistan usually use the weight quantity on the custom release certificate issued by the customs shore tank as the standard for adjudication, this extends the carrier’s liability to shore tanks. In fact, when the liquid cargo passes through the end of the flange connecting the oil pipeline of the unloading vessel and the shore tank oil pipeline, the cargo is objectively out of the control of the carrier. In other words, the carrier has no control over the transmission process between the hold and the shore tank and the shore tank itself, which in turn exposes it to a large number of short-volume claims for cargo locally.
In addition, differences in density data are also a significant cause of short-volume claims for liquid cargo. The density value measured by the inspector after sampling the shore tank and sending it to the laboratory will often deviate from the loading sample provided by the carrier or the density analysis value obtained by the shipper’s joint loading inspector.
2. Handling of short quantities of liquid bulk goods
Typically, shipowners take measures when faced with a Pakistani consignee’s claim for liquid bulk cargo, particularly short quantities of palm oil, include:
- Put something to the side
- Actively respond to lawsuits
- Settlement was reached
- Ignore it or refuse to compensate
Since short-term claims in Pakistan are usually small in a single amount, and it is unreasonable for shipowners to bear the short-term results obtained from shore tank measurement data, shipowners may refuse or ignore the claims when they receive them, which may bring certain hidden dangers. If the claimant files a lawsuit but the shipowner continues to act indifferently, once the court issues a default judgment against the shipowner, it may eventually lead to adverse consequences such as the detention of the vessel when it docks at a Pakistani port again.
At the same time, the claimant will apply for the seizure of other vessels associated with the vessel in question based on a wide range of connection points. In a recent case handled by the association, the registered owners of the joining ships A and B were both subsidiaries of a financial leasing company, but in fact the operating companies of the A and B ships had no relationship with the management company (not the same membership of the member), and the A was seized by the claimant due to the existence of an effective losing judgment in Pakistan.
- lawsuit
Normally, claimants sue shipowners in Pakistani courts in order to protect the statute of limitations or to ignore the owners. At this time, if the shipowner does not actively respond to the lawsuit, it is likely to bear the risk of losing the lawsuit. Even if the case is ultimately won, the shipowner may face higher legal fees and general fees due to the long litigation cycle. Because of the relatively high cost of litigation resolution, in practice, shipowners may prefer the last treatment – settlement after comprehensive consideration.
- reconciliation
Compared with the previous two methods, the advantage of settlement is that the claim is resolved at a lower cost and time cost. In general, the claimant will choose to accept about 30% of the claim amount to settle the outstanding and adjudicated short-term cases.
3. Short-term preventive measures for liquid bulk cargo
Shipowners should be anticipated and guard against the occurrence of short-volume claims when carrying out liquid bulk cargo shipments with Pakistan as a port of discharge. While we cannot expect a change in the local court’s view on such disputes or prevent claimants from making wrongful claims, we have summarized the following recommendations for LC owners:
- The shipowner may include relevant clauses in the charter agreement, or require the charterer to issue a corresponding unloading guarantee to clarify the short-term liability of the cargo. However, this method also has certain limitations, in the face of the consignee’s claim, the shipowner still needs to bear the liability for the short quantity of goods in the legal relationship of the bill of lading, and then recover from the lessee according to the legal relationship of the lease contract or letter of guarantee;
- If the charterer is the seller of the buyer and seller, and there is a good commercial cooperative relationship with the buyer, the shipowner can try to reduce the amount of the claim or withdraw the case through direct communication between the charterer and the consignee.
- Consider arranging inspectors to supervise and unload during the measurement of the empty distance of the unloading tank and the measurement of shore tanks, so as to prevent malicious collusion between the consignee and the inspector and the agent, and ensure the accuracy of the measurement data.
- It is recommended that the shipowner add relevant clauses to the bill of lading to clarify that the weight of the cargo is subject to the cabin clearance report, and the carrier is not responsible for the short quantity of cargo generated by shore tank measurement. While the local court may not recognize the validity of this clause, it can at least increase the leverage of the shipowner in negotiating a settlement with the claimant.
4. Short-term analysis of solid bulk cargo
In recent years, with the change of international trade policy, the import volume of solid bulk cargo in Pakistan has increased significantly, and the number of dry bulk ship owners or their charterers arranging ships to Pakistani ports for unloading has also increased. In addition to the above-mentioned short-volume claims for liquid bulk cargo such as palm oil, the association has also recently participated in the handling of a number of short-volume claims for solid bulk cargo, mainly wheat, fertilizer (diammonium phosphate), coal and seeds. These claims are mostly caused by “paper shortage”, that is, the consignee and the carrier have disputes due to the difference in the way the cargo is weighed and measured/the error of the weighing results, causing the consignee to claim the shortage of cargo from the carrier and threaten to stranded the ship. According to the introduction of local communication agents and the experience of the association in handling such cases, a complete claim system has been formed in Pakistan, and carriers have undoubtedly become the biggest victims. Carriers/shipowners face the following difficulties in dealing with such short-volume claims:
- It is difficult for the carrier to invoke the defense of reasonable wear and tear in its response. For solid bulk cargo, the local court usually uses the last completed water gauge weighing report data at the port of discharge as the criterion for judging whether the cargo is underdischarged or overloaded, and does not accept the carrier to invoke the reasonable loss of 0.5% in international practice as a reason for exemption.
- In practice, the consignee questioned the water gauge weight data and forced the shipowner to negotiate a settlement based on the shore weight. In the cases encountered by the association, although some water gauge weighing reports meet the requirements of the bill of lading, the consignee/agent will still ignore local judicial customs, detain the ship based on the short data of shore scale measurement, and force the shipowner to settle on the spot. More commonly, due to disputes between the ship and the cargo over the results of their respective water gauge inspections at the port of discharge, 2-3 water gauge inspections are usually carried out, and the results are difficult to be consistent. At this time, the consignee will question the accuracy of the water gauge report and ask the ship to use the results of the shore weight as the final basis, and the results of the shore weight can be easily controlled by the local stevedores.
- The consignee has a mature business team to support it in making short-volume claims. There are very few importers of local solid bulk cargo (especially DAP fertilizers), and these importers have a permanent inspection team and agent team to provide them with comprehensive support and services, and all short-volume claims will be followed up by their agency team.
- To avoid seizure of the ship, shipowners are likely to be in a vulnerable position in settlement negotiations. In the event of a disagreement between the ship and the cargo regarding the weighing method, quantity, and amount of the claim, the consignee will instruct the agent to hold the vessel until the vessel agrees to pay a settlement amount to its satisfaction. This approach will undoubtedly lead to shipowners choosing to settle with claimants on the spot under pressure from shipping schedules. Of course, the shipowner can choose to appoint a lawyer to send a legal notice to the agent of the illegal detention of the ship, even if the consignee cannot give up the detention of the ship, this practice can force the consignee to negotiate a settlement within a reasonable amount of money to a certain extent, but it cannot rule out the possibility that the consignee formally applies to the court for a detention order to seize the ship. In addition, when settling on the spot, the shipowner should also note that the association will still adhere to the principle of first-payment by members for compensation in such cases, and need to rely on the ship’s inspection report to determine the reasonable compensation amount.
5. Suggestions for the prevention of short-term solid bulk goods
1. In Pakistan, the cargo inspector usually adjusts the draft reading or seawater density measurement to make the water gauge weighing result unfavorable to the ship. Therefore, it is recommended to appoint a professional inspector to board the ship to assist the captain and first mate in conducting water gauge inspection, and if necessary, entrust a tally team to supervise and unload on shore, paying attention to the standardization and accuracy of shore weighing;
2. It is recommended to seal and open the cabin in strict accordance with the operating specifications at the loading and unloading ports, and appoint professional inspectors to keep evidence;
3. If the carrier has sufficient negotiating power, it can try to add unknown clauses to the bill of lading, such as “WEIGHT, QUALITY & QUANTITY UNKNOWN” or “SAID TO WEIGHT, QUALITY & QUANTITY UNKNOWN”, then the bill of lading is not preliminary evidence that the total quantity or quantity has been loaded TO the ship, so that THE CARRIER’s interests can be better protected in specific circumstances;
4. In the event of a short-quantity claim for goods, notify the tenant in time to jointly fight against the consignee. If an on-site settlement is finally adopted and the inter-club clause is incorporated into the lease contract, the tenant reserves the right to recover short-term liability from the tenant.
