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International Carriage of Goods by Sea Sample

Introduction of International carriage of Goods By Sea

Case (A)

The present essay depicts a situational study of a case that is concerned with a legal claim of company against the other on the damage of goods. The case begins with a legal contract with a charter party. The charter party is a contract between the owner of a vessel and the charter is one that takes over the vessel for a particular time period and an agreement exists to carry some goods or provide a ship for carrying the same in the form of a bill or charter party. Here, in the present case on 1st January 2012 a charter party on the NYPE 1993 hires a vessel from the owner “Ocean King” for a period of 12 months. The contract exists 15 days more or less in the charters option and delivery or redelivery of goods were to be at a safe point in the Antwerp Hamburg range.

The vessel was hired on a rate of US$ 17,500 per day on installment basis and according to Clause 11(a) the hired amount need to be paid by the charter party to the owner’s bankers in Mercantile & Commercial Bank, London. The contract exists with Clause 11 (a) and (b) – “Any liability for damage will be reduced by negligence on your part, that causes to the damage in accordance with the applicable law” and “Party will not be liable for damage to be checked or unchecked baggage unless damage is caused by own negligence and was within own control or custody”.  The “Ocean King” vessel was delivered into the services of charters on 29th January 2012 at GMT 21.30 hrs.

Further, on 28th April 2012, which was a Saturday it was found that the seventh installment became due, and one day prior to this i.e. on 27th April the charter instructed their bank in Singapore to remit the amount to owners account. Regrettably the bank sent the funds in error to the account of a third party because no funds were received in the owner’s bank account by 27th April. After this the owner sends a notice to the charters making them aware that no hire installment has been received and gave them a notice on 27th April to withdraw the vessel if outstanding amount has not been received by 2nd May.

All these message created confusion and on 2nd may the owner sent a further message to the charter that they are going to withdraw the vessel from their service by 4th may and as soon as the present cargo has been discharged. Ultimately, the owners withdrew the vessel and re-fixed to elsewhere.The charters insisted that the withdrawal was wrongful and substantial amount of damage the charter has suffered as goods were not placed properly and due to the damage they cannot sell the good in market and rates have been significantly increased due to withdrawal. In this situation the charter has framed a legal notice against the owner to provide the cost of loss of goods as the agreement was not yet void. In this situation as the agreement has been made for 12 months and the contract has not yet become void, a void contract is enforced from the time when it is made and becomes unenforceable on the completion of time duration. In a void contract the parties involved in agreement are entitled for restoration of benefits which they have agreed to exchange during the contract Patterson.

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As the situation has now been entirely changed and the owner need to prove him guilty free and also bear the additional charges of loss of goods of charter. Firstly, the owner has made a mistake when it send a notice on 27th April to charter to withdraw goods from vessel till 2nd of May, According to law the owner need to send a notice to charter for a 10 days duration during which charter party can take action. The owner provided a legal notice period of only 5 days i.e. unlawful and charter party can claim a legal notice against the owner easily. Other than this due to absence of Clause 45(b) that states during the time of contract any of the disputes arising from any of the side could be settled outside the court, in order to reduce the burden of law. As, this law is not present in owners and charter party contract hence in Clause 45(a) applies in which any of the dispute would be settled by the court.

Moving on ahead it has been found that the “Ocean King” vessel has been given on hire basis to the charter party. In The Hire Act Clause 27(2) it has been defined that the two parties involved in a legal contract of hire or rent could not break the term prior to completion of contract and any of the legal notice taken need to be in mutual consent of both the parties. Here, in the present case the owner did not inform the charter prior and took the immediate action within a very short span of time and due to which charter party is in a benefit where in it can claim for the loss of goods Schubert, A.F., 2011. Introduction to Law and the Legal System. 10th ed. Cengage Learning.

In present case the law of Carriage of Goods by Sea Act (COGSA) is applicable which is a United States Statue and mainly governs the rights and responsibilities between shippers of cargo and the owners of ship concerning ocean shipments to and from the US. This law is basically performance of international convention regarding the bills of lading, known as Hague Rule. This rule does not offer much of protection against the damage to cargo by ship owners, altered in a number of minor methods but in significant ways. It increases the amount that ship owners need to pay to cargo owners for damage in transportation in GBP 100 per package to USD 500 per package or for products not shipped in packages per customary freight unit .In the present situation when ample amount of charter party cargo has been lost and the owner have been given a notice to bear the charges of negligence during goods transportation.

Here the owner would be advised to recommend the charter party the other way through which it can bring out the cost of goods. For this, the owner should give advice to charter party to claim an insurance amount for the goods lost. In this context the charter party can claim for freight insurance which provides coverage against physical damage or loss of goods during the shipping process, may it be air, land or sea. Due to inherent dangers involved in shipping, most of the individuals and businesses select to insure their goods during the transit process Rave, T.D. and Tranchina, S., 1998. Marine Cargo Insurance. Journal of marine cargo, 66(1), pp.371-378. This insurance covers all the value of freight shipment and can be purchased directly from shipper or from a third party freight insurer. This insurance claim will provide benefit to the charter party with specific benefits that vary by providers and the amount of protection is decided according to the weight age or number of packets.

The benefits of integrated treatment of wastes for the production of energy. Energy.Freight insurance will also reduce the risk involved in receiving payments for the shipment than can raise a firms borrowing ability with a bank. This insurance is essential beacsue of numerous kinds of laws that sometimes limits the liability of carriers.The cost of Goods Sea Act limits the liability of owners of ship and vessels to $500 per unit and also reduces the liability of all owners in the occurrence of one of 17 events which basically includes war, strikes, riots, act of god, crew and attempts to safe guard life at sea. Other than this insurance acts as a backup and can make the shipment more stable financially and could minimize the risks involved[ Benefits of Shipping Insurance. 2010.The owner can also give in advice to the charter party for cargo insurance, which covers all the physical damage or loss of goods insured during the transit by air, sea or land and also provides considerable amount of opportunities and cost benefit if managed properly Basedow, J. and Wurmnest, W., 2005.

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Many of the traders not generally get involved in managing this type of insurance because they feel they possess lack of knowledge in this area and consider it as an unnecessary expense that involves additional administration[ Leith, C.K., 2000. The static welfare economics of a small developing countries. Journal of World Development. But enforcing cargo insurance can overcome the severe damage which a company has to bear due to unavoidable calamities and may sustain in the market during the time of damage as well in the market.

Presently, there is no as such legal obligation on owners of ship in United Kingdom to carry a general third party insurance cover or other financial security against any other party that is having liability Clarkson. Business Law: Text and Cases - Legal, Ethical, Global, and Corporate Environment. 12th ed. Cengage Learning.]. Risks for which there are no legal obligations to insure against others shattered during removal, dock damage, it is felt that there is inadequate protection for marine accidents and the EU directive and regulations of UK aims to address the insufficiency in the marine liability insurance provision and increases the responsibility of owners Rappaport.

In case the situation changes and if goods on the vessel are not insured then the charter party could not claim for any kind of insurance and need to bear the cost. In this condition the owner need to pay the amount that is pertinent to the level of their mistake Chen. A Study of U.S. Law, Chinese Law, and International Conventions. Martinus Nijhoff Publishers. Here, in the owner have to pay only the excise duty for cargo lost in vessel. In the present situation the excise duty will be exempted because the goods were damaged and were not received in proper quality, hence in no excise duty will be levied. In this case the owner has to pay only the amount that will be charged for damaged goods[ Burton, J.S., 2007. An introduction to law and legal reasoning. 3rd. Aspen Publishers. The charter party could not charge for the current market price because the goods are already damaged and cannot be sold in market. Therefore, it would be recommended that firstly the owner should advice the charter party to claim for freight or cargo insurance from which the charter party can acquire the loss of goods Roover.

Under the insurance directive it becomes the duty of charter party to maintain the insurance and is intended to cover the vast majority of claims specifically of the type that are explained in the LLMC 96 and as being subject to limitation under the LLMC 96 the limits of liability and should not be confused with any other kind of insurance that might be in place either in respect of carriage of goods or passengers Dyzenhaus, D., and et.al., 2007. Law and Morality: Readings in Legal Philosophy. 3rd ed. University of Toronto Press.It has been depicted that unless and until it is particularly excluded from the underlying contract of carriage and do not envisage any situation that would ultimately give rise to issues for passengers to claim for a loss as a outcome of delay following an incident and i.e.irrespective of number of perils that could have preceded to delay Twomey, P.D. and Jennings, M.M., 2010. Anderson's Business Law and the Legal Environment, Standard Volume. 21st ed. Cengage Learning.In case the goods are not insured then the owner need to pay only the amount of damaged goods, because in these goods no excise duty need to be paid which ultimately reduces the price of goods. Hence, the owner should pay only the price of damaged goods.

 Case (B)

The second case has noticed some of the changes in terms of notice and regulations as compared to the above case one. Here, in this case changes occurred from the date of legal notice i.e. it has been assumed that on 27th April Friday the owners has not sent any of the message and instead of this on 30th April i.e. Monday owner gave a notice under the Clause 11(a) for the due hire to be paid by charter party by no later than Thursday 4th May. Later, on the case describes till 4th May no hire amount was received to the owner, then the owner firstly checked with their bankers of Mercantile & Commercial Bank, London and found that amount was not deposited. After this the owner sent a message to the charterers on 5th May Friday at 12.00 BST saying that as the outstanding installment of hire had not been received the Vessel was immediately withdrawn from the service of charterers service and reserving the owners right to claim the costs of discharging the remaining of cargo.

After these twenty minutes later the owner received a very repentant call from their bank, conforming that the bank has received the hire amount around 2 am in the morning on Friday 5Th May but the bank failed to identify the allowance instantly because the transaction was not fully referenced and charter party did not informed about the remaining information and transferred the amount. But in spite of this the owner withdraws the vessel from charterers and even more refused to return the hire amount which has already been transferred by the charter party. The owner claimed that they have retained the amount for security for the cost that they had incurred in accomplishing the discharge of cargo from vessel and for the detention of the ship when the operation was performed. But, ultimately charter maintained that the withdrawal was illegal and claimed for the substantial amount of damage of cargos.

Here, in significant amount of changes have been made in the situation and procedure in withdrawal of vessel and prior notification have been given to charter against the amount that has not been received till date.  In the present situation there are some positive points that the owner has implemented before taking any action. The owner gave a prior and sufficient amount of time period for notification and also informed the charterers regarding the delay of hire amount. Before taking any step owner also took a confirmation call from the bank regarding the payment and when it was assured that no payment has been received then only took a legal action.

In the current situation some of the issues were raised from the charters as well as from the side of Bank. The Bank provided the information late to the owners and did not cleared the transaction on time, whereas, charterers is also guilty because they did not provided required amount of information to the  Bank due to which transaction got delayed and error occurred. The owner took actions when found that the hire amount is not received within the specified time period and also claimed that they did not returned the amount the charter because that amount has been used as labor charge for discharge of cargos and the additional seven days i.e. form 30th April to 5th May during which the vessel was kept without any work and loss of money as vessel could not be utilized for any purpose because unnecessarily cargos were kept on the vessel for seven days and assessing financial performance is important.

In the current situation there are some factors that the owner accompanied before taking any legal action, that gives a affirmative position to owner in which firstly the owner provided a sufficient amount of time period to the charters i.e. of seven days to pay the remaining installments of hire and on 5th may before taking any step the owner firstly conformed from the Bank regarding the amount and when found that amount has not been deposited then ultimately took a decision of withdrawal of cargos from the vessel. But there are certain amendments on the side of owner that could be considered as major flaws in legal terms.

The amendments that owner made were firstly, the owner did not returned the amount of charterers which they have already received as the seventh installments for hire amount of vessel and owner has already received a call from the Bank prior to withdrawal of cargos that payment has been transferred into the owners account, in spite of this owner went for withdrawal which is incorrect according to the contract agreement. The charter party and owner made a valid contract for twelve months under Clause 11(b), and the prior installments were duly made by charter party on date and it was the first time for charterers that payment were made in delay. In such case the owner can at least forgive for a single chance to the charterers for delay in payments.

The owner also made an amendment that they break the contract before its completion and declared it as void contract which is not exactly true. The contract agreement between the owner and charter party were made for a period of twelve months with Clause 11(b) applicable and in this situation declaring void a contract by owner is inapplicable and owner need to pay a charge for it. The owner also did not thought for any kind of mutual settlement between them and the charter party as the contract existed since a long duration and rest all the installments were made duly on time and only one hire amount got delayed and other than this the owner this is did not returned the amount of hire and claimed that as the vessel remained stagnant and could not be used for seven days the charges are settled on it.The static welfare economics of a small developing countries. Journal of World Development. Instead of this the owner could have gone for an additional interest charges from the charterers for vessels, in this case owner could have claimed for an additional interest amount at whatever applicable rate to the charterers for keeping the vessels sluggish for seven days and have not taken the step of withdrawal of cargos from the vessel. By considering some of the factors the owner could have resolved the issue and could have went for mutual settlement as the contract was twelve months period.

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One of the conditions which is in favor of owner is that they can claim that charter party has not provided any prior information from their side, in the entire case it has been found that owner duly and timely every time informed about the every action and decision they were taking against the charter on the other hand the charter did not provided any information anytime which ultimately created more confusion Right to information becomes law .In current situation the Right to Information act applies that states any of the parties involved in a mutual contract or agreement needs to inform the other party about each and every situation duly and should also provide every information regarding delay in any of the transactions. In present case the owner is guilt free because they have timely and every moment have informed the charter party regarding the legal steps that they were deciding to take and in these situation charterers becomes guilty and could be held liable for their unresponsivenes.

Moving on further in the case it has been found that charter has claimed for their discharge of cargos in a wrongful manner due to which damage occurred with cargos and for this demanded a substantial amount for damaged products. Here, in this situation the other thing that could be advised to the owner that as a mistake has been made already in this situation the owner can go for Doctrine of Frustration Act in their side. According to Doctrine of Frustration Act a contract could be discharged on the basis of frustration whenever something occurs after the formation of the contract that gives a physically or commercially unfeasible situation to fulfill the contract terms or transforms the requirements to perform in a complete different manner from the undertaken at the moment of entry into the contract.

 This concept has been evolved to reduce the arduous policy of complete contracts where performance of a contract is safeguarded by supervening events for which neither party to the contract is liable and loss distribution is needed. Frustration arises whenever the law recognizes that without default of either party a contractual compulsion can become incapable of being performed due to the situations in which performance is called for would provide it a thing fundamentally different from that which was undertaken by the contract. According to The Doctrine of Frustration Act 1872 under Section 56. the agreement to do impossible act in itself is void. Contract to do act sometimes becomes unlawful and after the contract is made it becomes impossible or by reason of some event that one of the party could not safeguard and becomes void when act becomes impossible The doctrine of frustration in English law.  

Section 56 of the act gives a positive emphasis and does not put down the topic of frustration to the court to be decided and there can be no contract on certain conditions and it has also been held that if consideration of terms of contract in light of situations when it was made reflects that both parties never agreed to be bound in a essentially diverse condition that unexpectedly arises when the contract ceases to unite at that point, not because the court in its prudence considers it just but on true construction it does not implies in particular situations. Frustration in a case signifies a certain set of situations arising after the formation of a contract and the occurrence of which is due to no fault of either of the party involved in it and which provides performance of the contract by one or both the parties physically or commercially impossible Maritime Law.In the present case owner can opt for Doctrine of Frustration Act in which the entire performance of a contract becomes substantial impossible without any mistake on either side or the entire contract is prima facie dissolved by the doctrine of frustration act. Here, in owner can claim for a doctrine of frustration act because this act clearly depicts that if any situation occurs that is unavoidable and any of the party takes an action that is ultimately for their own precaution and has taken due to dissatisfaction could be settled down in court and none of the charges need to be paid. The case could be settled by mutual consent of both the parties as the Clause 11(a) is applicable hence interference of judicial body becomes essential and would be resolved by court Steps towards a European legal framework.

 From the above two cases that has been described above it could be stated that both the situations are totally versatile form each other and in both the situations the owner need to act essential and smart step to manage the condition. From the first case information has been acquired that a contract was made between a vessel owner and a charter party for time duration of twelve months on an agreed hired amount which the charterer was required to pay on installment basis, the contract was made with applicable Clause 11(b), where in owner will not be liable for damaged to checked or unchecked goods until and unless damage is caused by due to their own negligence and such cargos are if in control or custody Classification of Goods and Rates of Excise Duty 2010. Further, in the case it was found that one of the installments became due to negligence of Bank and the owner provided a clear notification to empty the vessel within 5 days and when charter did not have any response then owner themselves cleared the vessel and removed the cargos from it, on this charterers claimed an amount against their loss of cargos during withdrawal by owner. In this situation the owner has been advised to recommend not used but in case when damage has occurred then the owner need to pay the cost of damaged cargos Freedom of Information Act 2000.

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