The story that is published below is a true life story, culled from the SHIPPING GAZZETTE™. Although the import of the publication was to highlight the imperative of insuring international trade transactions, there was yet an alternative dispute resolution side to it that was lost on the author. This, we shall be point out after you enjoy the piece
[TRUE STORY] IS YOUR MARINE INSURANCE A WASTE OF MONEY?
‘’There are some harsh lessons sometimes handed out in business. A good case was reported in the Shipping Gazette™ of a cargo owner with a shipment on board the ill-fated cargo vessel Rena. To pay for the freight of a consignment of export timber from Napier port that gets as far as the Bay of Plenty and ends up on the sea floor, seems to incur a triple slap in the face. You don’t get paid by the buyer, you lose the cargo and you still have to pay the freight bill. Then comes the fourth kick in the guts —you have to pay the legal costs of the shipping company. To the layperson, that seems mightily unfair. It felt unfair to the shipper too — timber exporter Resources New Zealand Ltd held off paying the bill of $101,306.26 for more than a year before, finally, Mediterranean Shipping Company (MSC) the operator of the Rena, lost patience and initiated legal action to get its money.
How an “Ordinary” Voyage Turns Tragic
Resources NZ’s shipment of timber was loaded in Napier on October 3, 2011. The contract was based on MSC’s standard bill of lading which provided expressly for freight charges to be due when the carrier receives the goods. MSC issued invoices in the sum of $101,306.26 on October 3. By the early morning of October 5, the cargo was history. One can imagine the anger Resources NZ, facing the bill for cargo that was underneath the ocean within a day of loading. When the salvors were appointed, Resources NZ abandoned all interest in the cargo to them. However, the company did not settle the freight bill. MSC ‘pointed out that the grounding did not void the bill. Resources NZ queried that stance, MSC confirmed it was holding to its contract terms, and throughout 2012 the issue remained stalled, with MSC issuing reminders and Resources NZ not paying.
MSC decided the final straw was that if payment was not received by December 14, 2012, proceedings would be issued to recover its money. A director of Resources NZ responded, saying he was overseas and wished to discuss the matter on his return. For whatever reason, no such discussion happened and seven months later, in July last year, MSC had its lawyers serve a statutory demand. When it went to court, Resources NZ furnished a defence that I am sure engenders sympathy with some readers. The company argued that an implied term of the contract was the goods be delivered safely before MSC could claim to have legally earned its freight charges. However, the solid response from MSC’s solicitors was to point to the clause in the bill of lading dealing with freight and charges, which provided expressly that freight was due upon receipt of the goods, was payable in all circumstances (including where the ship or cargo were lost), and was to be paid “without set-off, counterclaim or deduction”. Resources NZ also argued for an alternative relief, being an extended time for compliance, given there was a dispute as to whether or not a debt was owing, due to the obvious non-delivery of the freight. This non-delivery, the company suggested via its lawyers, amounted to a repudiation of the contract. In layperson’s words, if the cargo gets lost and is not delivered, the original contract is null and void. However, Judge Abbott gave these arguments short shrift. He said the contract was “clear and unambiguous that MSC’s entitlement to the freight charges arose when it received the timber”. Importantly, he then went on to hand out a clear message to shippers: These were commercial parties, familiar with contracts of carriage such as this. It can be taken that they were aware of the risks inherent in these contracts, and how risks can be managed (for example, by taking appropriate marine insurance).’’
From the foregoing narrative it is apparent that Resources NZ frittered away all opportunities for a negotiated settlement. One year of continuous reminders to fulfill its contractual obligations was enough time to call for a meeting or mediation session to review respective positions. In mediation the unimaginable happens. There was no impossibility of MSC stepping down on its strict legal demand in view of the unfortunate outcome of the contracted service. It probably could have discounted a percentage of its claim. A further manifestation of MSC’s willingness to negotiate can be seen from the fact of its holding on for seven clear months after a Director of Resources NZ gave hint of desiring a meeting. That again was frittered. Resources NZ argument for an alternative relief of an extended time to comply with the contractually obligated payment is what it could easily have got from MSC at a negotiation or mediation session. In addition to paying the actual outstanding bill as pronounced in the court judgment, Resources NZ has the additional burden of paying the legal costs of the winning party. What a loss. TO BE CONTINUED