United Arab Emirates: Another Hanjin: Forewarned Is Forearmed

Last Updated: 17 July 2017
Article by Rania Tadros

The Hanjin crisis has been dominating the shipping news since 31 August 2016 when the company filed for court receivership in South Korea as part of what some have called "the biggest shipping bankruptcy in history." The cargo owners whose cargo is trapped on Hanjin's vessels are experiencing delays, difficulties with retrieving the containers and extra costs of having the containers released to them and/or of forwarding them to the final destination. 

For those who avoided being tangled up in Hanjin's aftermath, the initial sense of relief has been quickly replaced by the concerns about how to protect themselves from a similar situation in the future. As  many container lines face pressure on their finances, the analysts predict more disruptions. Whilst it may be difficult for shippers to assess financial health of each carrier thereby avoiding those who are likely to fail, the current Hanjin crisis provides useful lessons of what happens when a major carrier defaults and what preemptive steps can be taken.

One of the main problems faced by the cargo owners is getting their cargo released from Hanjin's vessels. Some ports are not allowing Hanjin's vessels to berth, deny port services and refuse to release containers/cargo to the receivers until the port fees are fully paid. It has been reported that in the UAE the port operator DP World has allowed Hanjin's ships to berth and unload the containers, but is charging premium handling charges and requesting a security deposit from the cargo receivers before releasing the containers to them to ensure that the empty containers are returned to the port. This practice is similar to the approach taken by ports in some other jurisdictions. Whether this practice is legitimate or not, will depend on each particular jurisdiction. In some jurisdictions, a receiver's right to possession of the goods may prevail over the port's interest in getting paid for its services. It is important therefore to explore the position in each relevant jurisdiction. 

In cases of late deliveries, cargo owners may be able to claim for damages and costs caused by the delay. The difficulty is that the carrier's terms of carriage often seek to exclude or to limit the carrier's liability for late deliveries. It is important to check the terms of the bill of lading and to structure the contractual chain factoring in the risks of the delays and additional costs caused by a carrier's insolvency. 

Another point to note is that after Hanjin filed for court receivership in its home jurisdiction, it has promptly taken preemptive actions in other jurisdictions seeking to obtain protection from legal proceedings and ship arrests elsewhere. These protective actions will not succeed in every jurisdiction. For example, in the UAE there is no option to apply to court with a view to obtaining protection from potential ship arrests. Therefore there would be an option to arrest a vessel of an insolvent carrier in the UAE and in other jurisdictions that take a similar approach. Accordingly it is important to check whether the defaulting carrier has received protection from legal proceedings and arrests in each relevant jurisdiction and to identify the best jurisdiction for bringing a claim. 

On a practical level it is advisable to have a plan in place for taking cargo to its destination by alternative means if the containers are stranded. 

Cargo insurance cover is another risk area. The "all risks" cover afforded under ICC(A) cargo insurance may not to protect cargo owners suffering loss due to the carrier's insolvency. Clause 4.6 of the ICC(A) stipulates that in no case shall the insurance cover "loss damage or expense arising from insolvency or financial default of the owners managers, charterers or operators of the vessel". Cargo owners may find themselves in a situation where they are unable to make insurance claims on their marine cargo policies should the cargo on board the affected vessels be damaged or lost as a result of what could potentially be a protracted delay. Therefore, additional insurance is another risk mitigating option that shippers will have to consider. 

These are just some of the risk areas that left the cargo interests exposed following the Hanjin crisis. Whether directly affected by the Hanjin situation or not, potentially affected parties would be wise to put a contingency plan in place to reduce practical and legal risks and to minimize the consequences of being caught up in a similar situation in the future.

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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