The Supreme Court of India issues judgement on long stay container cases

On 5 August, 2020, the Supreme Court of India handed down its judgement in the case of The Chairman, Board of Trustees, Cochin Port Trust v M/S Arebee Star Maritime Agencies Pvt. Ltd. & Ors. 

Cargo left uncollected at terminals, particularly during economic recessions when buyers walk away from unwanted purchases, has always been a big problem for the parties involved in the supply chain including the container terminals, the container lines, the lines’ local agents and cargo interests. We have seen an escalation in this problem during the current Covid-19 pandemic. The strain on ports’ ability to clear out the abandoned cargo and to return empty containers to the lines promptly has led to disputes over inter alia storage, demurrage and handling charges. The Supreme Court of India has now helpfully clarified several questions of law relating to the parties’ responsibilities, and hence liabilities for such charges.  

Brief Facts / Background

In 1998-99, several containers said to contain woollen rags, were discharged from different Container Lines’ vessels at  Cochin Port. On inspection by Customs prior to cargo clearance, the cargoes were found not to be woollen rags as declared, but woollen garments. Consequently, the cargoes became the subject of a Customs investigation during which time the cargoes remained uncleared. The Cochin Port Trust (“the Port Trust”) citing lack of space in the port premises refused to de-stuff the containers. Fearing that the Customs might permit the cargoes to be cleared before they could collect outstanding container detention charges and ground rent from the importers, the vessel agents cancelled the delivery orders they had previously issued for the cargoes.  
 
The Port Trust levied ground rent on the containers and deducted those charges from the vessel agents’ running account with the port. The vessel agents issued proceedings against the port in the Kerala High Court seeking inter alia the Court’s directions for the de-stuffing and return of the containers and for orders that the ground rent on containers should be recovered from the importers/consignees only.  

The Single Judge of the Kerala High Court did not find in favour of the vessel agents and the agents filed an appeal to the Division Bench of the High Court (“the Appellate Court”).  The Appelate Court however observed that the Tariff Authority for Major Ports (TAMP) had in its order of July 2000, held that Port Trusts were not permitted to charge any ground rent on abandoned containers beyond 75 days and therefore, the Port Trust was not entitled to levy any ground rent in excess of what had been decided by TAMP.  The Appellate Court did not look at the question of whether a vessel agent was liable for ground rent as the Supreme Court was already seized of that issue and a decision on the issue was pending. 
 
The Port Trust submitted a Special Leave Petition (SLP) to the Supreme Court against the order of the Appelate Court.  The SLP was heard over a series of hearings between 2015 -17 culminating in the Supreme Court’s observation that different Benches of the Supreme Court had in five previous cases before it passed different orders on similar issues of law. 

The following questions of law (abbreviated) were therefore referred to the Larger Bench of the Supreme Court for re-consideration:- 

  1. Whether in the interpretation of the provision of Section 2(o) of the Major Port Trust Act, the question of title of goods, and the point of time at which title passes to the consignee is relevant to determine the liability of the consignee or vessel agent in respect of charges to be paid to the Port Trust; 
  2. Whether a consignor or a vessel agent is absolved of the responsibility to pay charges due to a Port Trust for its services in respect of goods which are not cleared by the consignee, once the bill of lading is endorsed or the delivery order is issued;
  3. Whether a vessel agent can be made liable for payment of storage charges/demurrage, etc. in respect of goods which are not cleared by the consignee, where the vessel agent has not issued a delivery order; and if so, to what extent;
  4. What are the principles which determine whether a Port Trust is entitled to recover its dues, from the vessel agent or the consignee; and 
  5. While the Port Trust does have certain statutory obligations with regard to goods entrusted to it, whether there is any obligation, either statutory or contractual, that obliges the Port Trust to de-stuff every container that is entrusted to it and to return the empty containers to the vessel agent?

The Larger Bench of the Supreme Court discussed the previous five cases in detail. Below is a summary of the Court’s findings on the above questions of law referred to it:  

(1) The definition of “Owner” in section 2(o) of the Major Port Trusts Act, 1963 is an inclusive definition, and since loading or unloading of goods can take place by the vessel agents, such persons would be included within the definition of owner. The point of time at which title to the goods passes to the consignee is not relevant to determine the liability of the consignee or vessel agent in respect of charges to be paid to the Port Trust;

(2)&(3) The endorsement on the bill of lading by the consignor is distinct and discrete from the endorsement by a vessel agent. The endorsement by the consignor transfers the title in the goods covered by the bill of lading, to the endorsee/ consignee while the endorsement by the vessel agent merely advises the port to deliver the cargo to the endorsee. Both stages are irrelevant in determining who is to pay storage charges. Once custody of the goods has been given to the Port Trust, and a receipt for the goods is received from the port, the vessel owner/ vessel agent is no longer liable for storage charges.  

The port is required to deliver the cargo to the consignee or their agents and the Port has to look to the consignee or their agents for the collection of wharfage, demmurage and any cargo related expenses  including the deficit in sale proceeds when the cargo is auctioned. These are to be recovered from the consignee, not from the vessel agent, irrespective of whether the delivery order has been issued or not.

(4) In paragraph 24, the Court explained that until the stage of landing and removal of the goods to a place of storage, the vessel’s agent or the vessel itself may be made liable for rates payable by the vessel for services performed to the vessel. 

Post landing and removal to a place of storage, it is only the owner of the goods or other persons beneficially entitled to the goods that the Port Trust has to look to for payment of storage or demurrage charges.

(5) Where what is imported is the “goods” and the container – the container does not have to be de-stuffed and is cleared along with the goods. In such a case, the vessel agent is no longer liable. The importer is liable for the demurrage charges.

Where the goods do not include the container and the consignee does not come forward to take delivery of the cargo, the port is duty bound to de-stuff the containers and to deliver the empty containers to the consignor, vessel agent or other party to whom they belong within a reasonable time. The port cannot argue that they do not have the space to de-stuff the containers. The reasonable period could vary from case to case.  

Comments

This decision by the Larger Bench of the Supreme Court is highly relevant as it is now the definitive authority on the above questions of law, prevailing over all the previous conflicting decisions. 

Vessels and their agents can now be confident that once goods are landed at a Port, and pass into the Port’s custody in exchange for a receipt, the vessel and her agents are absolved from all liabilities towards the said cargo, including for payment of any storage charges and port charges.  Irrespective of whether delivery orders are issued or not, any charges accrued on the cargo once custody of the cargo has passed to the Port Trust, will be for the account of the cargo owner and not for the vessel and her agents.   

The UK P&I Club would like to thank Advocates Subramanian (Kumar) and S. Priya, of Venkis Law Offices, 114, Maker Chambers III, Nariman Point, MUMBAI 400021, INDIA, Email : vsubramanian@venkislaw.com, spriya@venkislaw.com for the above summary of this court judgement. Ms. S. Priya, Advocate, led by Mr. Prashant S. Pratap, Senior Advocate, appeared for the vessel agents, respondents in the matter.