UK: Carriage Of Goods: Consequences Of Mis-Declaration

Last Updated: 14 May 2008
Article by Emma Ross

Shippers, forwarders, charterers and liner operators, among others, face potentially unlimited liabilities for mis-declared cargoes. Emma Ross, a solicitor with Holman Fenwick Willan, examines the position under English law and looks at a recent Chinese case where a shipper and its surveyors were ordered to pay US$65 million for the constructive total loss of an aircraft.

A recent Chinese case highlights how important it is for shippers, forwarders and liner operators to make a correct declaration of goods for carriage.

CNCCC Dalian, a Chinese state-run company, has been ordered to pay a record US$ 65 million plus interest, to compensate the hull insurers of Malaysia Airlines for the destruction of a plane caused by the Chinese company's failure to declare correctly a cargo of chemicals. The cargo was declared as a non-toxic solid, when in fact it was a corrosive liquid. Canisters leaked during the voyage resulting in the constructive total loss of the aircraft.

Reports from the Beijing Court's website indicate that the Court found that the carrier, Malaysia Airlines, was not required to check whether the cargo corresponded with the descriptions given in the air waybill, nor was it responsible for verifying the cargo, packaging or documents presented by the shipper. Responsibility lay with the shipper, CNCCC Dalian, and DGM China Ltd, who had carried out a survey of the cargo at the request of the cargo handling company at Beijing Airport. The three other defendants, including the cargo handling company which relied on information given by DGM China Ltd and CNCCC Dalian, were exonerated.

This case is the latest in a series of dangerous goods cases, in various jurisdictions, where cargo has been mis-declared.

As the TT Club highlighted in the press recently, between 5 and 10 per cent of an average container ship's cargo is declared as hazardous goods. However, it is impossible to know how much dangerous cargo is not declared as being dangerous. And on average only 5 of the 166 IMO members report systematic inspections each year, which results in less than 0.5 per cent of the declared cargoes being actually inspected.

English law position [for carriage of goods by sea]:

  • The common law position is that shippers will be in breach of an implied undertaking if they load dangerous cargo without notifying the carrier of the dangerous nature of the goods, unless the carrier knew or ought reasonably to have known of the danger posed by the goods. Under a time charter, these obligations fall on the charterer.

  • A shipper's liability is strict, i.e. it does not depend on whether the shipper knew or ought to have known of the dangerous nature of the goods, (see the Athanasia Comninos [1990] and the Giannis NK [1996]).

  • The Hague-Visby Rules, Article IV rule 6, and US Carriage of Goods by Sea Act 1936, Section 4(6), allow a carrier to land, destroy or render innocuous any goods that are inflammable, explosive or dangerous, without liability (1) if he has not consented to their shipment with knowledge of their nature and character, or (2) if he consented, but the goods become a danger to the ship or cargo (in which case the carrier may be liable only to general average, if at all). The shipper (and probably charterer) is liable for all damages and expenses arising out of the shipment.

  • In the Kapitan Sakharov [2000], a slot charterer failed to declare the dangerous nature of goods tendered for shipment. The goods, which were stowed by the carrier in accordance with the description given by the charterer, subsequently exploded and caused a fire leading to extensive physical damage and losses. The vessel sank with loss of life and third party goods. The slot charterer was held liable under Article IV, rule 6 for all the losses attributable to the mis-declaration.

  • The Hague-Visby Rules overlap the common law position with regard to physically dangerous goods. The Hague-Visby Rules do not comment on the position where the goods are legally dangerous (i.e. goods which may cause delay to the ship or other cargoes) and the common law position is probably unaffected (see the Giannis NK [1996]).

Commercial impact:

  • Because of the potential for strict liabilities, and the existence of express indemnities in carriage documents (bills of lading, air waybills, slot charters, charterparties, standard trading conditions, etc.), forwarders, shippers and liner operators all face potentially unlimited liability for mis-declared cargoes.

  • Back-to-back indemnities from customers with weak balance sheets may not be worth more than the paper they are written on.

  • Insurance liability policies taken out by forwarders and NVOCs, shippers and slot charterers, and also charterers' liability policies taken out by liner operators, may have caps which fail to cover claims in full. Large uninsured claims may cause the bankruptcy of a company.

  • Even if no physical loss or damage occurs, mis-declaration of goods may invalidate an export licence or result in the declarant incurring customs fines or duty payments, CAA fines, and regulatory investigations.

HFW tips:

  • Know your customers and their goods. Only accept "risky" goods from clients with financial strength and after having properly checked their procedures.

  • Refer classification, packing, and labelling queries or errors back to your customer as the expert on the goods, and obtain clarification in writing.

  • As guided by your in-house dangerous goods' experts, undertake physical inspections of goods and/or thoroughly inspect customer documentation to validate suggested declarations.

  • Document a quality procedure and undertake regular audits of the procedure to make sure it is complied with.

  • Ensure that you are aware of the contractual risks to your company if it is named as a party to a contract of carriage, and make sure that your customer contract includes adequate back-to-back warranties or indemnities.

  • Check your insurance policy for limits on mis-declared cargoes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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