In this issue:
1. Firm and Industry News
2. Forwarder Rightly Refuses to Alter Bill of Lading Date on Ocean
Bill of Lading
3. Incoterms 2010: A Brave New Incoterm World in 2011
1. Firm and Industry News
- December 3rd, 2010 Montreal: Grunt Club Annual
- January 20th, 2011 Toronto: Fernandes Hearn Annual
- January 21st 2011 Toronto: CMLA Meeting
- January 21st 2011 Toronto: Marine Club Annual Dinner
- January 21st, 2011 Chicago: Transportation Lawyers
- February 2-3, 2011 Quebec City: Marine Oil Pollution
- May 11-14 Las Vegas: Transportation Lawyers Assoc.
- May 25-26 2011 Collingwood: CBMU Semi-Annual Dinner
- June 3rd 2011 Quebec City: CMLA Annual Meeting
Gordon Hearn will be speaking at the upcoming Transportation
Lawyers Association annual Chicago Regional Seminar on January 21,
Rui Fernandes will be speaking at the Institut maritime
du Quebec's conference on Marine Oil Pollution Prevention and Combating:
Where do we stand? being held February 2-3, 2011 in Quebec City.
On February 5th he will be participating on a panel on piracy at
the University of Toronto Law School's International Law Day.
Rightly Refuses to Alter Bill of Lading Date on Ocean Bill of Lading
Mr. Justice Sean Harrington continues to write judgments
in the Federal Court of Canada that showcase his knowledge of maritime
law from his days as a private practitioner in the field. In a recent
the recent decision of Kuehne & Nagel Ltd. v. Agrimax Ltd., 2010 FC 1301, he summarized a number of basic principles in the
Kuehne & Nagel brought a summary application for
payment of monies owed to it by Agrimax. Pursuant to its contract
with Agrimax, Kuehne & Nagel made arrangements with Blue Anchor
Line for the shipment of 22 containers of crude sulphur to be received
at Irricana, Alberta (some 50 kilometres north-east of Calgary).
The pre-carriage was by truck and rail to Vancouver where the cargo
was to be loaded on board the OOCL Kuala Lumpur for carriage to
and discharge at Haldia, India. Agrimax called for a combined transport
bill of lading consigned to the order of HDFC Bank Limited, Kolkata,
India, its purchaser's bank. The purchaser was Hindusthan Heavy
Chemicals Prop. who was to pay for the shipment by means of a HDFC
letter of credit. According to the evidence of Agrimax's former
treasurer, David Gaskin, it was a requirement of the contract that
an on board bill of lading be issued because Hindusthan Heavy Chemicals
had concerns that the containers might be left for some time before
loading at Vancouver. These instructions were passed on to Kuehne
& Nagel. "On board" means on board the carrying ship,
not the conveyance which brings the cargo to the carrying ship.
The bill of lading was dated August 25th 2008 in Calgary and the
containers were on board the vessel on September 4 2008.
The purchaser's bank reused to take up the bill of
lading and refused to honour the letter of credit on the grounds
that the shipment was to have commenced by 31 August 2008. As a
result of the refusal of anyone to take delivery, the containers
remained for some time in India running up demurrage charges.
As a result of the refusal by the bank, Agrimax wanted
Kuehne & Nagel to remove, from the bill of lading, the on board
date of September 4 2008. Kuehne & Nagel refused to do so on
the grounds that such removal would be illegal. Agrimax refused
to pay the freight.
Justice Harrington held that "Kuehne + Nagel
was absolutely right in its refusal to amend the bill of lading.
If, on behalf of the carrier, it issued a bill of lading showing
the cargo was both received for shipment and on board under a single
date, 25 August 2008, the only conclusion to draw would be that
the cargo was loaded on board the ship in Vancouver that very day.
That would be a lie."
Agrimax did not appear at the summary judgment hearing.
Instead it commenced an action in Alberta for US$235,000, interest
Justice Harrington held that even if there was some
merit to the Alberta action by Agrimax, the terms and conditions
of the contract between the parties incorporated the terms of the
Canadian International Freight Forwarders Association (CIFFA). Those
terms specifically provide that a claim with respect to cargo cannot
be used in the set off of a freight claim. His Lordship held that
"The contract simply incorporates the old admiralty rule that
cargo claims cannot be pleaded to set off a freight claim (Aries
Tanker Corporation v. Total Transport Ltd. (The "Aries"),
 1 All. E.R. 398, 1 Lloyd's Rep. 334 (H.L.))."
Judgment was rendered in favour of Kuehne & Nagel
against the defendant in the amount of $212,310.15 plus costs of
$10,159.40. Post-judgment interest on the judgment and costs was
awarded at the rate of 5 percent per annum.
As stated at the beginning of this article, Justice
Harrington used the decision to set out some basic principles in
the maritime area.
At paragraph 2 His Lordship stated:
Kuehne + Nagel is an international freight forwarder.
The traditional role of a freight forwarder is to arrange for
the carriage of goods on behalf of the shipper. It often has credit
facilities with the carrier and pays freight and related charges
on the shipper's behalf. That was done in this case. It frequently
happens that the freight forwarder also acts as agent for the
ocean carrier. In this case it held the pen of Transpac Container
System Ltd., carrying on business as Blue Anchor Line, and was
authorized to issue bills of lading on its behalf. Blue Anchor
Line is a NVOCC (non-vessel operating common carrier).
At paragraph 11 His Lordship teaches:
A bill of lading is a multi-faceted document. It
is not the contract of carriage, but may, and usually does, evidence
its terms. It may, or may not, be a negotiable instrument. It
contains various representations on behalf of the carrier, such
as the apparent order and condition of the goods, whether freight
was pre-paid or is owing, and the date when the cargo was "received
for shipment", or "shipped" on board as the case
may be. Under the Hague-Visby Rules, Schedule I to the Marine Liability Act, a shipper may simply demand a "received
for shipment" bill of lading. However, and irrespective of
whether or not it demanded a "received for shipment"
bill of lading, it may also demand a "shipped" bill
of lading once the cargo is loaded on board the carrying ship.
And at paragraphs 14 to 17 His Lordship reminds us:
Carriers are often pressured to issue false documents.
The document may be false with respect to its date, or with respect
to the apparent order and condition of the cargo. Some carriers
have, at their folly, issued such documents against letters of
As stated by Mr. Justice Wright, as he then was,
in United Baltic Corporation, Ltd. v. Dundee, Perth & London
Shipping Company, Ltd. (1928), 32 Ll. L.R. 272 at page 272:
"The practice of issuing clean bills of lading when goods
are damaged is very reprehensible. It leads to trouble, and the
people who do it ought to suffer trouble."
Kuehne + Nagel avoided trouble by doing the right
Such letters of indemnity are unenforceable. See Brown, Jenkinson & Co., Ltd. v. Percy Dolton (London),
Ltd.,  2 All E.R. 844, 2 Lloyd's Rep. 1, and H. Paulin
& Co. v. A Plus Freight Forwarder Co., 2009 FC 727, 349
Some of Kuehne & Nagel's damages were incurred
in foreign currency. Justice Harrington applied the breach day rule
(as opposed to the date of judgment) to the conversion of obligations
in foreign currency stating:
The breach day rule was again applied by the Federal
Court of Appeal in Schweizerische Metallwerke Selve & Co.,
Thun v. Atlantic Container Line Ltd. (1985), 63 N.R. 104,
 F.C.J. No. 1039 (QL), where Mr. Justice Hugessen stated
that until the Supreme Court overturns its earlier jurisprudence
the breach date rule shall continue to apply. This rule was applied
in Kruger Inc. v. Baltic Shipping Co. (The Mekhanik Tarasov),
 1 F.C. 262,  F.C.J. No. 422 (QL), affirmed by the
Federal Court of Appeal at (1989), 57 D.L.R. (4th) 498, 
F.C.J. No. 229 (QL), and in Holt Cargo Systems Inc. v. ABC
Container Line N.V. (Trustees of) (2000), 185 F.T.R. 1.
We continue to await further lessons from Justice
3. Incoterms 2010: A Brave New Incoterm World in
The International Chamber of Commerce ("the
ICC") promulgates internationally-recognized standard commercial
terms for the international sale of goods known more commonly as
Incoterms. This year the ICC released its latest revision, Incoterms
2010. Incoterms 2010 replaces Incoterms 2000 and comes into effect
on January 1, 2011.
The two major changes in Incoterms 2010 from Incoterms
2000 are the replacement of four "D" terms with two new
terms, and the reorganization of the sales terms into two groups
based on the mode of transportation. As well, Incoterms 2010 has
generally updated the commercial language of the sales terms from
Incoterms 2000 and attempted to make them more accessible, useable
and applicable to the modern international sales and transportation
1. New Sales Terms for Incoterms 2010
Incoterms 2010 substitutes two new terms in lieu of
four "D" terms from Incoterms 2000:
- DAP (delivery at place) replaces DAF (delivered
at frontier), DES (delivered ex-ship) and DDU (delivered duty
- DAT (delivery at terminal) replaces DEQ (delivery
Thus for "delivery" sales terms for container
traffic, the new options under Incoterms 2010 will be DAT where
delivery is at the container port or terminal, DAP where delivery
is at the buyer's premises but the goods are not cleared for import,
or DDP where delivery is at the buyer's premises and the goods are
cleared for import.
The new DAP sales term may be used for all modes of
transportation. The seller is deemed to deliver the goods when they
are placed at the buyer's disposal on the arriving means of transportation
and ready for unloading at the named destination (but not in fact
unloaded). The parties should be as specific as possible when agreeing
to the agreed place of destination, i.e. (for delivery to Fernandes
Hearn LLP) rather than DAP Toronto Incoterms 2010 the parties should
write DAP 155 University Avenue, Suite 700, M5H 3B7, Toronto, Ontario
Under DAP, the seller therefore bears the responsibility,
costs and risks of delivering the goods to the named place of destination,
and of clearing the goods for export. The seller is not entitled
to recover costs of unloading at the place of destination, unless
the parties agree otherwise. The importer is responsible for arranging
customs clearance and paying associated customs duties. If the seller
is responsible for clearing the goods through customs, the parties
should consider using DDP instead.
The second new sales term is DAT, which like DAP is
used for all modes of transportation. The seller is deemed to deliver
the goods when they are placed at the buyer's disposal at the named
port or terminal. "Terminal" includes a quay, warehouse,
container yard, road terminal, rail terminal, or air terminal. Both
parties should agree on the terminal and, if possible, a point within
that terminal at which risk will transfer from the seller to the
Under DAT, the seller is therefore responsible bears
the responsibilities, costs and risks of bringing the goods to the
location in the port or terminal specified in the contract. As with
DAP, the seller is responsible for the export clearance and the
importer is responsible for arranging customs clearance and paying
customs or import duties. If the seller is to bear the responsibilities,
costs and risks from the named terminal to a further destination,
DAP or DDP may be the more appropriate term.
2. Incoterms 2010 Reclassification
In addition to replacing DAF, DES, DDU and DEQ with
DAP and DAT, Incoterms 2010 reclassified the sales terms into two
groups from the previous four classes E, F, C and D which represented
increasing degrees of risk to the seller. Thus Incoterms 2010 classifies
the sales terms into those terms applicable to all modes of transportation,
and those applicable only to sea or inland waterway transportation.
The terms applicable to all modes of transport are:
- EXW (ex works)
- FCA (free carrier)
- CPT (carriage paid to)
- CIP (carriage and insurance paid to)
- DAT (delivered at terminal) (new)
- DAP (delivered at place) (new)
- DDP (delivered duty paid)
The terms applicable to sea and inland waterway transport
- FAS (free alongside ship)
- FOB (free on board)
- CFR (cost and freight)
- CIF (cost, insurance and freight)
The intention of the ICC in reclassifying the sales
terms in this manner was to eliminate confusion and inappropriate
use of sales terms that occurred under Incoterms 2000. For example,
under Incoterms 2000 the sales term FOB was often improperly used
in respect of non-waterway transportation.
3. Additional Changes to Incoterms 2010
In addition to the above major changes, Incoterms
2010 have generally updated the language used in Incoterms 2000
and address modern-day security concerns, the updated Institute
Cargo insurance clauses, double-charging of terminal handling fees,
and string sales.
Since the events of September 11, 2001, security has
become a pressing concern in international trade. Many countries
have implemented mandatory security regimes that affect the international
transport of goods. The new Incoterms 2010 do not directly impose
security standards, but rather recognize that security checks and
clearances are part of any import or export of goods and as such
impose obligations on the seller and buyer to provide information
needed by the other party for such security obligations. This level
of collaboration was not required by Incoterms 2000.
In 2009, the Institute Cargo clauses were revised
and the new Incoterms 2010 have been correspondingly changed to
reflect these revisions. For Incoterms 2010 that require a seller
to obtain insurance (CIP and CIF), the seller is only obligated
to provide the minimum cover under Clause C of the Institute Cargo
clauses. The seller must provide the buyer with information the
buyer needs to procure additional insurance, which insurance would
be at the buyer's request, risk and expense.
(c) Terminal Handling Charges
The ICC's attention was drawn to the fact that buyers
had often been double-charged for terminal handling clauses under
the previous sales terms. Under Incoterms 2000, where sellers were
required to arrange and pay for the carriage of goods to the agreed
destination (CPT, CIP, CFR, CIF, DAT, DAP and DDP), the costs of
unloading and handling at the import port or terminal were passed
on to the buyer. Some buyers reported being charged again for this
service by the port or terminal itself. Incoterms 2010 address this
issue by clearly stating which party is responsible for terminal
handling charges in articles A6/B6 of the above sales terms.
(d) Update for the 21st Century
Incoterms 2010 gives electronic means of communication
the same effect as paper communication. Any document may be replaced
with an electronic record or procedure if the parties agree or it
is customary. "Electronic communication" is given a broad
definition so these rules will keep pace with commercial parties'
reliance on and use of electronic communications.
Given the reliance on Incoterms 2000 by a broad spectrum
of users, the ICC attempted to make Incoterms 2010 accessible to
a wider audience. This was achieved by including more detailed guidance
notes for each sales term, which specify more clearly when any given
term should or should not be used. For example, the note for FOB
states that the tem should not be used for containerized shipments.
The reclassification of the sales terms into the two groups described
above was also done to attempt to make the Incoterms 2010 accessible
to a wider audience. Finally, the ICC has included pictures summarizing
the contents and applicability of each sales term.
(e) String Sales
Often for commodity sales, goods are sold several
times during transit. Incoterms 2000 did not reflect this reality
and imposed an obligation on the seller to contract for the carriage
of goods. Incoterms 2010 in contrast imposes an obligation on the
seller to "procure a contract for the carriage of goods".
(f) Domestic Use
Incoterms 2010 formally recognizes that the sales
terms can be used for both international and domestic contracts
for the sale of goods. This change was made to respond to the fact
that parties often used Incoterms for purely domestic sales, particularly
in the United States.
(g) "On Board" from "Ship's Rail"
For sales terms FOB, CFR and CIF under Incoterms 2000,
risk would pass at "ship's rail", meaning when the goods
passed a plane rising vertically from the ship's rail. This often
did not reflect the realities of 21st century shipping. As such
this concept has been replaced in Incoterms 2010 with the concept
"on board", meaning the transfer of risk occurs when the
goods have been set down on board the vessel.
A Brave New Incoterm World
The ICC has attempted to bring the sales terms into
the 21st century and reflect the realities of modern day international
commerce and transport. In the end, however, there have not been
substantial changes to the sales terms aside from the consolidation
and replacement of the four "D" terms with DAP and DAT.
The reorganization of the sales terms into two categories is intended
to clarify which terms are more appropriately used in which circumstances.
It is worth noting that although January 1, 2011 is
the effective date for Incoterms 2010, they are not automatically
applicable to new contracts. Parties must specifically incorporate
Incoterms 2010, and can in fact choose to use Incoterms 2000 instead
(or an even earlier version).
Only time will tell if Incoterms 2010 are adopted
as enthusiastically as Incoterms 2000!
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