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This article is written by Nayantara Chawdhuri. Here she discusses the dispute resolution in the shipping industry in India.

Introduction

The maritime industry is a dynamic one, where the business does not progress in a linear manner and on account of damage, delays, and disasters, disputes come up thick and fast. Shipping law can be plainly divided into contentious and non-contentious spheres. The non-contentious aspects of shipping law would be contained within transactional work. Further, disputes can be classifiable either as wet disputes or dry disputes, as shall be looked into later in this essay.

What is the most preferred method of dispute resolution in the shipping industry? What might be the reason for such preference?

International arbitration is the often-chosen route for dispute resolution in the maritime industry. The foremost reason being, that more often than not the disputants are often based in different parts of the globe.

Further, maritime dispute settlements often entail huge sums of money and warrant sound decision-making on technical and rather arcane issues. Therefore, disputants would prefer to choose from a pool of experienced arbitrators, who would be able to fall back on their vast experience in this field and handle the matter with utmost precision.

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What is a wet shipping dispute?

A wet shipping dispute would be one which deals with mishaps or accidents whilst the ship is at sea, or with loss of freight goods that would bring about great losses, and those losses would need to be counterpoised and squared off against the guilty party’s liabilities.

  • Accidents involve serious questions. In the case of a collision, one can expect to have to untangle the situation in terms of which party’s vessel was responsible for the collision.
  • There are also situations where the cargo is found to be wet, and the recipients of the goods demand answers as to why the goods were not reached in a dry and perfect condition.
  • At other times, there might be damages caused not due to direct and purposeful neglect, but due to force majeure. This has to be dealt with. Force majeure would include random unpredictable and unforeseeable accidents, such as an environmental calamity or an explosion aboard a ship. Armed conflict or wartime strife is also included in the purview of force majeure. Russia’s recent illegal seizure of three Ukrainian ships and twenty odd crew members has invited strident criticism within the international community.
  • There are also international law and jurisdictional aspects, where a ship transgresses onto a foreign country’s territorial waters without necessary permission. There are also dangers out at sea, in the form of hijackings and looting carried out by pirates, whereby the rogue elements take control of the ship and negotiations to ensue.
  • Marine pollution is also a matter of great concern and owners of ships may be pulled up for polluting the seas.
  • Salvage disputes- Marine salvage is a procedure by which a ship and the cargo it carries is recovered after it has suffered a casualty out at sea. Legally speaking the “salvors” or the parties who are responsible for salvaging a ship are entitled to a proper amount by way of reward. Salvors are usually sea-men or engineers or and This concept was originally established by English Common Law and is now followed in most jurisdictions the world over.

What does dry shipping dispute entail?

Dry shipping litigation would generally originate from a contractual dispute, specifically cargo claims, and claims arising from the bill of lading, charter parties and every other claim which would result in the arrestment of a ship. There are disputes on the basis of the letter of credit, Free on Board ( FOB ) contracts; Cost Insurance and Freight Contracts ( CIF in short firm).

 Bill of lading 

A bill of lading, at the simplest level – is an agreement between the shipper and the transportation company in order to allow for transportation of goods. It is generally issued by the carrier company to the shipper.

Why is a bill of lading a document of significance?

A bill of lading serves as both a contract between a carrier and a shipper which governs the terms for transportation of goods, it is also a receipt which covers the full set of payments made between the parties.

What are the different types of bills of lading one might find?

Straight bill of lading (alternately alluded to as a consignment)

This is a non-negotiable bill and one which recognizes that the necessary payments have already been made. Via this bill, the goods are consigned to a particular individual and is free from any equities.

 Order bill of lading

Most of the bills of lading concerned with international trade are of this type. It may bear the name of a party who is an agent of the actual buyer and merely acts in the capacity of consignee or receiver.  A standard form bill of lading may bear the following words ad litteram – “ Consigned to the order of”.

 Bearer bill of lading

A bearer bill of lading is one which states that delivery shall be made to the holder of the bill. This bill might be explicitly created, or it might be a bill of order which does not duly nominate a consignee. The negotiation of this bill takes place by actual and proper delivery.

Surrender bill of lading.

A surrender bill of lading is a document which allows for importers to own the goods which have been sent in by importers. These are usually issued by exporters and entail a change of hands. On payment of the requisite sum of money by importers for the shipment concerned, these documents are issued. These are a way to ensure that there is no confusion is to the proper title, and no claims can then be made by the exporters on a future date as to the same These also go by the name of ‘import documentary credit.’

Clean bill of lading

This is a document which makes an explicit declaration that there was no damage to the goods before they underwent shipment. This is a clear opposite to a soiled bill of lading, which declares that the goods were not received in perfect condition.

What are some of the typical disputes that may crop up with regard to bills of lading?

The claims concerned with bills of lading may deal with the following- damage or loss on goods, the delivery of goods without furnishing a bill of lading and the incorporation or breach of terms and conditions.

What is the concept of Freight on Board?

This term was coined by the International Chamber of Commerce, to clearly mark out the point at which the seller is no longer personally liable for the shipped goods, and where the buyer becomes responsible for footing  transport costs- which is really an umbrella term covering loading and unloading of the ship, freight transport cost, insurance and all other costs connected with the transference of the goods from the port of arrival to the final destination.

Understanding Cost Insurance and Freight Contracts ( CIF) 

Cost, Insurance and Freight is one of the thirteen terms coined by the International Chamber of Commerce in order to guide the shipping policies and lineate rights and obligations between parties in an international shipping dispute.

Sellers’ obligations under the CIF contract 

The seller is responsible for the transport to the port. The risk, however, is transferred to the buyer when the goods have been taken on board. The seller also pays for insurance up until the pre-determined port. However, as a matter of practice, this is a nominal amount compared to the potential cover that might be recovered in case of a major mischance. There must be mention of a greater amount contained in an agreement.

How are claims as to CIF handled?

Where it comes to consideration of a claim, one would be mindful of the question as to who bore risk for the goods at the time that the loss occurred. As already explained in the explanation of CIF terms, the risk passes onto the buyer when the goods are loaded onto the vessel.

What is a charter party?

A charter party is a contract which really works for the purpose of a lease between the owner of a ship and the hirer or the charterer. The vessel is rented for one voyage, or more or for a predetermined and fixed period of time. How this arrangement usually works is that the vessel owner retains proper possession and control over the vehicle, but the charter possesses full latitude as to the port of call.

How is the charter party relevant from the dispute resolution angle?

Being at the focal point in shipping operations, there are various disputes which might spring from a charter party. These disputes might often lead to litigious action.

Arrestment of a ship and dispute resolution therein.

Under the purview of admiralty jurisdiction, arrestment of a ship can be on account of the following events- disputes as regards ownership and title, disputes as to the earnings that a ship might have gained. Under the Brussels Conventions or Geneva Convention ship, arrests are allowed if the ship strays on to foreign territory. There can be considerable difficulties which might arise from a ship straying into foreign territories…

What is the function of an admiralty court as regards arresting of the ship?

An admiralty court would endeavor to meet the following ends the close of a ship-arrest dispute-

 To place the ship within the possession of the claimant

To bring the rightful earning within the hands of the claimant

To look into a dispute as between co-owners, and

To ascertain the correct proportion of earnings between co-owners and ensure that the earnings find the deserving owner.

Is India a suitable destination for shipping disputes?

Choosing of an arbitral seat has definite tactical advantages for the parties involved in the dispute. While the future is definitely looking up for India as a preferred international arbitration center, there is a lot of groundwork to be done, before that is finally the case. Indian parties themselves look to foreign arbitral centers to have their disputes effectively resolved.

What are the popular jurisdictions for arbitration involving shipping disputes?

London has come to be recognized as the most frequented destination for resolution of shipping disputes in the word, by far. Between 70-80% of all shipping, disputes have been London-seated arbitrations. The reasons for this are several – the vast number of arbitration specialists present and operating out of the great world city, and the breadth of English case laws on this very arcane subject would be the two foremost reasons.

Paris is also a noteworthy jurisdiction for shipping dispute resolution and the presence of the ICC in this city has fortified its attractiveness as a highly respected destination for commercial disputes of every nature, naturally including shipping disputes, as well.

Singapore and Hong Kong have witnessed very impressive growth in the field of maritime arbitration, the former being of great prominence in the sphere of international commercial arbitration in recent years.

How easy/difficult is it to enforce an arbitral award related to shipping in India?

  • A foreign award, in order to be formally recognized as a foreign award, must fulfill certain preconditions. First, it must be one which has arisen from a legal relationship, contractual or otherwise which would fall under the prism of a commercial relationship, as specified by the New York Convention. The award must be pursuant to a written agreement for arbitration. The idea of a commercial relationship is one that has never been caged within a restrictive definition, as has been held by the Supreme Court in the case of R.M. Investments Trading Co. Pvt. Ltd. Vs. Boeing Co . and Anor. The definition is a broad one, which cannot be placed in a watertight compartment.

 

  • Second, the question of reciprocity must also be looked at. This condition outweighs the previous condition in terms of importance. In India, a domestic award does not require the application for enforcement, whereas a foreign award does. The country where the award has been issued must a New York Convention signatory, and further, must be notified in the Official Gazette of the Government of India.

A final award, which has been pronounced by a “competent court”  on the proper merits of the case, and not in contravention of any widely respected international law or public policy in India would be enforceable in India.

2 COMMENTS

  1. The article is good and tried to cover as many relevant points as possible. Thank you.

    I have a question regarding the change of “consignee” in a B/L.

    Suppose, there is a cargo coming to India with a straight B/L with a named “Consignee” mentioned therein. Now, once the cargo reached in India, the buyer (importer) refuses to clear the cargo from port siting an issue with the previous consignment’s quality. The buyer wants to press the “Shipper” and thereby bringing him to negotiation for a price discount. The buyer has not yet paid for the goods, so practically the ownership/title of the cargo vests with the “Shipper”.

    In this case, can “Shipper” request to change the “Consignee” in B/L? and, is it possible to change it without obtaining a NOC (no objection certificate) from the existing “Consignee”?

    Kindly explain the legal position and rights of a “Shipper” in reference to Indian Law since he would suffer a great loss if the consignee refuses to provide NOC. Please quote provisions and relevant citations, if possible.

    Thanking you,

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