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Newsletters 2010 > December 2010

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 Dinner
  • January 20th, 2011 Toronto: Fernandes Hearn Annual Seminar
  • January 21st 2011 Toronto: CMLA Meeting
  • January 21st 2011 Toronto: Marine Club Annual Dinner
  • January 21st, 2011 Chicago: Transportation Lawyers Assoc. Seminar
  • February 2-3, 2011 Quebec City: Marine Oil Pollution Seminar
  • May 11-14 Las Vegas: Transportation Lawyers Assoc. Annual Meeting
  • 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, 2011

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.

 

2. Forwarder 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 area.

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 and costs.

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"), [1977] 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 indemnity.

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 thing.

Such letters of indemnity are unenforceable. See Brown, Jenkinson & Co., Ltd. v. Percy Dolton (London), Ltd., [1957] 2 All E.R. 844, 2 Lloyd's Rep. 1, and H. Paulin & Co. v. A Plus Freight Forwarder Co., 2009 FC 727, 349 F.T.R. 192.

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, [1985] 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), [1988] 1 F.C. 262, [1987] F.C.J. No. 422 (QL), affirmed by the Federal Court of Appeal at (1989), 57 D.L.R. (4th) 498, [1989] 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 Harrington.

Rui Fernandes

 

3. Incoterms 2010: A Brave New Incoterm World in 2011

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 community.

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 unpaid)
  • DAT (delivery at terminal) replaces DEQ (delivery ex-quay)

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 Incoterms 2010.

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 buyer.

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 are:

  • 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.

(a) Security

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.

(b) Insurance

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!

Kimberly Newton




This newsletter is published to keep our clients and friends informed of new and important legal developments. It is intended for information purposes only and does not constitute legal advice. You should not act or fail to act on anything based on any of the material contained herein without first consulting with a lawyer. The reading, sending or receiving of information from or via the newsletter does not create a lawyer-client relationship. Unless otherwise noted, all content on this newsletter (the "Content") including images, illustrations, designs, icons, photographs, and written and other materials are copyrights, trade-marks and/or other intellectual properties owned, controlled or licensed by Fernandes Hearn LLP. The Content may not be otherwise used, reproduced, broadcast, published,or retransmitted without the prior written permission of Fernandes Hearn LLP.