Legal Spotlight: Buyer Beware

By Thomas Timlen

It is a challenge to identify any human activity that is completely free of crooks and conniving characters. The project cargo transport sector is no exception. Those unsavory characters are not confined to shippers and carriers either, but can also involve the many intermediaries and public servants seeking to profit from unsuspecting or ill-prepared prey.

“There are many dodgy practices we have seen in the project cargo transportation business,” said David Zhou Yi, a senior partner at Co-Effort Law Firm LLP in Shanghai. “In the past few years, we have been dealing with cases typically on attracting business at a low price and then requesting high amounts of additional fees/costs by holding the cargo, employees intercepting the freights/payments by hacking into the email system, misusing the company’s bill of lading for own business privately, replacing the goods with inferior ones, and similar ploys.

“We suggest that companies in the industry should set up a regular internal audit regime, enhance staff training on compliance issues and legal liabilities in violation, check payment routes by all means once suspicion arises, and keep improving supervision and security measures to avoid those pitfalls in the business flows,” Zhou suggested. “Whenever necessary, legal advice from local counsel should be sought in a timely fashion.”

Most stakeholders are hesitant to come forward and describe the situations in which they found themselves victimized by unprincipled business partners and other parties. The damage to corporate reputations in the age of branding is reason enough to accept defeat, take the lessons learned on board and then implement measures aimed at reducing the risk of repeating the same mistakes in future dealings, while keeping a low profile to minimize drawing unwanted attention to the missteps.

The remedies Zhou lists are ample and can be found in various forms. Raising awareness among employees can be achieved through training and by encouraging the use of open source information. With respect to the latter, indexes such as Transparency International’s Corruption Perceptions Index serves well as a benchmark of countries where public officials are likely to demand bribes, while it is reasonable to expect that the private sector in such countries also harbors unethical characters.Training Options Available

Companies seeking to implement Zhou’s recommendation to arrange for training of staff have a number of options available. Training related to best practices to prevent cyberattacks is available from several providers, including the International Maritime Organization and industry bodies.

Courses and seminars that highlight contractual deceptions are also widely available. Intentional manipulation of standard contract text or the inclusion of rider clauses favoring the unscrupulous party are practices which those properly trained can spot and avoid, potentially saving vast sums of money.

K. Murali Pany, managing partner at Joseph Tan Jude Benny LLP, sees vulnerabilities that duplicitous negotiators at times seek to exploit with dire consequences relating to the Notice of Readiness, or NOR, specifically in relation to the WIBON Clause and the “customary anchorage or waiting place” clause.

For background, Pany first establishes the often-unappreciated significance of the NOR. “The NOR is a key document in a voyage charter party. It is issued by the vessel and gives notice to the charterer, shipper, receiver or other person as required by the charter party that the vessel has arrived at the port or berth, as the case may be, and is ready to load or discharge.

“The NOR is important because it allows the owners to commence calculation of laytime. In turn, this allows the owner to claim for demurrage if there is delay in loading or discharging beyond the laytime.”

According to BIMCO, the organization that maintains the bulk of the world’s contracts of carriage, laytime and demurrage disputes constitute a substantial proportion of the cases that are tried by arbitrators and courts in many countries and which result in substantial legal costs to the parties concerned.

“A fundamental requirement to the issuing of the NOR is that the vessel must have arrived at the specified destination in the charter,” Pany said. “The vessel therefore reaches its ‘specified destination’ not when it reaches the geographical area named in the charter, but when it reaches the berth, dock or port named.

“Needless to say, the NOR cannot be given before it has in fact arrived at the specified destination.”Devil in the Detail

However, voyage charter parties can contain two seemingly innocuous clauses, usually buried in the standard terms, that can significantly alter that position. “The first clause is known as a WIBON Clause. In the case of a berth charter with such a clause, a charterer expecting the NOR to be issued only when the vessel reached the berth could be in for a nasty surprise, as the WIBCON Clause allows the vessel to give the NOR ‘whether in berth or not.’

“Thus, if a berth was not available when the vessel arrived at anchorage, NOR could be validly tendered and laytime would run.” Also, if a berth was available when the vessel arrived at anchorage but could not be reached because of congestion, NOR could be validly tendered and laytime would run.

The second clause is a “customary anchorage or waiting place” clause, which allows the vessel to give the NOR upon arrival at such a location. “A ‘customary anchorage’ is often a vague and undefined point that is not usually marked out in the charts. This is a fact-specific issue and it would differ from port to port. A waiting place may not necessarily always be within the fiscal or commercial limits of the port.”

These two terms have been given a wide interpretation in cases, according to Pany. “In an instance where the vessel was two hours away from the anchorage and outside of the legal limits of the jurisdiction of the port, it was determined that it was an ‘arrived vessel’ because it was in accordance with commercial practice and the port authorities exercised de facto control over the location.

“Both these clauses can advance the time when the NOR can be given and thereby, the commencement of laytime. As can be imagined, the impact on an unwary charterer could be considerable.”

Whether in the form of bold acts of extortion, or subtle contractual wordplay, there is no shortage of potential acts of deception posing costly consequences for project cargo carriers. Maintaining awareness of such vulnerabilities and implementing practical counter-measures can effectively reduce exposure to these ongoing risks.

Thomas Timlen is a Singapore-based freelance researcher, writer and spokesperson with 28 years of experience addressing the regulatory and operational issues that impact all sectors of the maritime industry.

Image: Shutterstock

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