An article published in Gard reports on the Supreme Court bench’s findings and decision in the case of The Chairman, Board of Trustees, Cochin v. M/s Arebee Star Maritime Agencies Private Ltd. & Ors (“Arebee”).
The judgment is a significant positive development for liner operators trading to India.
The Arebee judgement
The Arebee judgment confirms that Ports in India cannot hold shipowners, vessel agents or steamer agents liable for storage and demurrage fees once the Port has taken charge of the containers and cargo, and provided a receipt for them.
The issue of these potentially significant storage and related costs have long been disputed, and was referred to the Indian Supreme Court as part of a broader issue of interpretation of the provisions of the Major Port Trusts Act, 1963 (“the MPT Act”).
The terms of this reference included the question of the extent of liability, if any (whether statutory or contractual) of the Port Trust to destuff containers that are entrusted to it and return the empty containers to the shipping agent.
How it all started
The underlying dispute in Arebee concerned a containerized cargo of “old” synthetic woolen rags, which lay uncleared at the Cochin Port Trust premises from 1998.
The Cargo was destuffed from the container to enable Customs examination. On inspection, the Customs department alleged that the consignment in fact contained “brand new clothes” (and not the rags declared by the consignee).
This attracted high duties, penalties and other charges. This misdeclaration of cargo caused significant delays in clearing the goods.
The consignees subsequently refused to clear the cargo (largely due to the mounting storage costs).
Kerala High Court intervenes
The steamer agents/owners of the containers filed an action before the Kerala High Court, contending that they were not required to pay storage charges beyond the period of 75 days from the date of the landing of the abandoned cargo pursuant to the MPT Act and the Tariff Authority of Major Ports (“TAMP”).
In its first instance judgment, the Kerala High Court noted that agents had repeatedly requested the Port to destuff the abandoned containers.
The Port had however refused to do so, on the grounds of lack of space. It further noted that the exorbitant storage charges levied on shipowners and their agents accrued due to:
- the consignee’s failure to take delivery of the cargo; and
- the Port’s failure to destuff the containers.
The Kerala High Court found that the Port Trust was entitled to demand ground rent for a maximum of 75 days in line with the TAMP Orders.
The Kerala High Court’s judgment was appealed to the Supreme Court by the Port.The Supreme Court noted the conflicting precedents on this issue.
The Division Bench of the Supreme Court therefore referred the matter to a larger bench to finally determine the issue.
The Supreme Court bench’s findings
(a) Who is the Owner in relation to goods? Interpretation of Section 2(o) of the MPT Act
The MPT Act defines the “owner” of goods and an “owner” of a vessel separately, and makes clear that the services rendered to vessels for which dues have to be paid by vessels (i.e. agency fees) are entirely separate and distinct from services rendered insofar.
The definition for “owner” in relation to goods includes persons beneficially entitled to the goods such as the shipper, consignor, consignee and also agents for sale, custody or loading/unloading of such goods.
The Court also found that loading or unloading of goods could also be arranged by the steamer’s agent in which case such agents would also fall within the definition of “owner” under the MPT Act.
(b) Discharge of liability once the goods are handed over to the Port
The Court further noted that under the MPT Act, once goods were taken over by the Port and a receipt given for them, any person to whom a receipt has been given (including the shipowner and agents) could no longer be held liable for any loss or damage to the goods.
(c) Payment of storage costs
The Court further considered the MPT Act and observed that:
- Warehouse or storage charges on goods to be retained in the custody of the Port for discharge of a ship-owner’s liens are payable only by the party entitled to such goods.
- A Notice of Sale for goods in the Port’s custody need only be given to the consignee, or other persons who are beneficially entitled to the goods. These persons are then obliged to remove the said goods.
- The Court further noted that where goods in the custody of the Port are proposed to be removed or sold, a notice may also be served on the “agents of the vessel by which such goods were landed”.
These findings affirm the position that once the goods are delivered into the custody of the Port and a receipt is obtained from the Port, the Port cannot then look to the ship-owner/ vessel agent/steamer agent for any charges related to the goods.
(d) Is the Port obligated to dispose of goods placed in its custody within a certain period of time?
The Supreme Court disagreed with the first instance Court that the word “may” in Sections 61 and 62 of the MPT Act must be read as “shall”.
The Supreme Court found that the Port had the discretion to sell the goods in certain circumstances mentioned in Sections 61 and 62.
The Port however was not entitled to exercise its discretion arbitrarily, as it was constrained by the Constitution of India, being a State body.
If the Port is unable to sell the goods within four months from the date of landing of the goods, it must provide a reasonable explanation as to why not.
(e) Whether Containers in which goods are imported also form part of the goods?
The Court observed that both the Customs Act and the MPT Act contain parallel provisions for authorities under each respective Act to take charge of, store, and sell imported goods, and that these provisions should be read together.
The Court considered various judgements, and held that under the Customs Act, a container, being a receptacle in which goods are imported, cannot be said to be “goods” that are imported.
Once destuffing takes place, the container has to be returned either to the ship-owner’s agent, or to the person who owns such container.
(f) Legal effect of endorsement of a Bill of Lading different from endorsement on bill of lading by a Steamer Agent
The “endorsement” referred to in Section 1 of the Indian Bills of Lading Act, 1856, is the endorsement made by the consignor or owner of the goods in favour of such endorsee on the bill of lading, so that title to property is then transferred to the endorsee.
The Court confirmed that an endorsement on a bill of lading by a steamer agent indicating that goods have been delivered is not an endorsement under the Bills of Lading Act 1856.
Conclusion
The judgment in Arebee has conclusively determined that shipowners and agents are not liable for storage charges imposed by the Port in respect of abandoned/unclaimed cargo, where the cargo has been placed in the Port’s custody and a receipt for the same obtained.
The situation is further exacerbated in the scenario of the ongoing COVID-19 crisis, where as a knock on effect of businesses ceasing or scaling down operations, the Club has seen more instances of unclaimed or abandoned cargo, leading to exorbitant storage costs imposed.
The judgment is also significant in that it expressly places a strict burden upon Ports to dispose of abandoned/unclaimed cargo within a reasonable timeframe, and also to de-stuff and return the empty containers in a timely manner.
It is important to note that the judgment specifically applies to the 13 major ports in India.
While the judgment would apply in principle to such ports, the terms of the contract between the parties would take precedence as these ports are not governed by the MPT Act.
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Source: Gard
