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Sector Insights

Liability issues in cold chain transportation

29.05.2018 Shipping, Trade, Transport

Joanne Waters

Joanne Waters Senior Registered Foreign Lawyer (England & Wales)

Imagine the scenario: A shipper has arranged for a cargo of frozen food goods to be shipped from Europe to Asia by sea. 

On arrival in Asia, the goods are found to be defrosted and no longer fit for human consumption. On closer inspection, it becomes clear that the reefer container temperature was set at +10°C rather than -10°C as instructed to the Carrier in the booking note. 

The consignees claim under their cargo insurance and the cargo underwriters sue the Carrier under the sea waybill to recover the losses.

The Carrier wants to know what, if any, defences it has to the claim.

On a first reading, you might think that’s a tough one for the Carrier to escape from given that the booking note expressly gave instructions for the cargo to be carried at a minus temperature but the reefer was set at a positive temperature. But, as with all contracts, it’s important to look more closely at the terms and conditions to determine exactly where liability lies.

In this case, the standard terms and conditions incorporated into the sea waybill were clear: setting the temperature of the reefer container and ensuring that the temperature was correct was exclusively the shipper’s responsibility. Further evidence demonstrated that when the reefer was loaded by the shipper’s agents at the cold storage warehouse onto a truck for on-carriage to the load port, the loading supervisor had signed a declaration that the reefer temperature was set correctly. As a result, the carrier was able to achieve a nuisance level settlement with the cargo underwriters.

This example demonstrates the importance of contractual terms in managing the risks inherent in cold chain logistics. Drafting a contract or standard terms and conditions that clearly apportion liability for damage allows a logistics operator to more accurately assess its risk and in turn, price in that risk to its contract and / or obtain adequate insurance to mitigate that risk.

Some of the key contractual mechanisms that can help achieve this are as follows:

Form of contract

>  Consider using a form of contract which is not automatically subject to liability regimes giving you more freedom to incorporate limits or exclusions of liability.

>  Enter into back-to-back contracts with the customer and service provider where possible.  If not wholly possible at least seek to include back-to-back limits and exclusions of liability.  Seek to include indemnity provisions in both contracts to assist with pursuing recourse claims.

Include clauses that clearly define the periods and limits of responsibility, eg:

>  State which party is responsible for setting the temperature of a reefer container and liable for any damage occurring as a result of incorrect temperature setting.

>  State what level of responsibility you are accepting as regards shipper-packed containers.

>  State when your period of responsibility for caring for the goods begins and ends.

>  State which party is responsible for pre-cooling the container and cargo to avoid “hot stuffing”.

>  Expressly exclude liability for consequential losses.

>  Include list of defences / exceptions to liability in contracts not compulsorily subject to the Hague / Hague Visby Rules.

>  Exclude liability for inherent vice / inevitability of damage.  To assist in proving the existence of inherent vice, consider including a clause entitling you to inspection of the cargo and, if possible, a clause regarding a right to copies of certain key documents such as temptales data / the data logger records / any pre-shipment surveys.

Evidence of condition on loading

>  State that as regards shipper-packed and / or refrigerated goods, the bill of lading shall be a receipt only and the remarks “in apparent good order and condition” on the face of the bill do not constitute prima facie evidence that the cargo was loaded in good condition / at the required temperature.

>  Consider including an express warranty from the shipper that cargo is, upon handover into your custody, in a condition so as to withstand the ordinary incidents of the intended voyage.

Whilst it is not possible to exclude the risk of liability completely, it is possible to narrow the scope of liability or increase the scope for defences to a claim using contractual terms. 

Article authors:

Joanne Waters