Liability for demurrage lies on the owner of the goods: Supreme Court

Omprakash Jha, Roopadaksha Basu & Vrinda Tanna



IN A NUTSHELL


In the case of The Chairman, Board of Trustees, Cochin Port Trust v. M/S Arebee Star Maritime Agencies Pvt. Ltd., elements pertaining to the Major Port Trusts Act (MPT) and the Tariff Authority for Major Ports order (TAMP) were dealt with. This appeal lies before the Supreme Court following an order from the High Court of Kerala. The issue is based around the liability for demurrage being imposed on the owner and Port Trust’s duty to destuff and return empty containers.


The High Court was of the opinion that the Port Trust cannot claim ground rent beyond the 75 days period as provided for under the relevant TAMP order and further interpreted that Section 61 and 62 of the MPT Act had a binding effect on the Port Trust which made it mandatory for them to sell the goods within the prescribed time.

The Supreme Court held that in order to determine liability of the consignee or steamer agent to pay port dues, transfer of title of good to the consignee is irrelevant, further the steamer agent can only be held liable for dues in connection with services rendered to them (unloading charges etc.) and all other dues accrued thereafter, the liability falls on the importer, owner, consignee or its agents. The Court observed that giving due respect to the scheme of the MPT Act, post landing and removal to a place of storage, storage charges / demurrage payable thereon will be recoverable from the owner of the goods and finally held and clarified that irrespective of whether goods are carried in a container or not, the liability for demurrage would still lie on the owner of the goods, the Port Trust is under a duty to destuff the goods and handover the empty container to the concerned person. The time period for the completion of this activity may vary depending on a case to case basis, but the Port Trust is not absolved or avoid from carrying out this act completely. A detailed analysis of this judgement is given below.



ANALYSIS


I. Details:


  1. Case Number/Citation: Civil Appeal No. 2525 Of 2018

  2. Forum: Supreme Court

  3. Date of Judgement:05.08.2020

  4. Coram: R.F. Nariman, J., Navin Sinha, J. and Indira Bannerjee, J.

II. Background Facts/Challenge

The present batch of Appeals arose out of an order passed by the Kerala High Court. The question that was posed before the High Court was whether the liability of ground rent for containers not claimed by consignor and not destuffed by Port Authorities, can be fastened upon the Vessel Owner / Steamer Agents beyond 75 days. Since, the question posed before the High Court was limited to the liability period of 75 days, the High Court observed that the Port Trust cannot claim ground rent beyond 75 days period as mentioned in the relevant Tariff Authority for Major Ports (“TAMP”) order. While answering this question, the High Court also analysed the provisions of Sections 61 and 62 of the Major Port Trusts Act, 1963 (“MPT Act”) and observed that these provisions created a binding mandate upon the Port Trust to sell the goods within the prescribed period and the term “may” used in the said section has to be construed as “shall”.


When the matter was taken up before the Supreme Court, the Supreme Court observed that this issue regarding liability of Port dues and whether the same can be fastened upon vessel owners / steamer agents requires consideration of a larger bench in view of several conflicting decisions. The decisions which were conflicting in nature were Port of Madras v. K.P.V. Sheik Mohamed Rowther & Co. [“Rowther-I”]; Port of Madras v. K.P.V. Sheik Mohd. Rowther & Co. P. Ltd. [“Rowther-II”]; Port of Bombay v. Sriyanesh Knitters; Forbes Campbell & Co. v. Port of Bombay [“Forbes-II”] and Rasiklal Kantilal & Co. v. Port of Bombay /


III. Points of Reference


  1. Whether in the interpretation of the provision of Section 2(o) of the MPT 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 steamer agent in respect of charges to be paid to the Port Trust;

  2. Whether a consignor or a steamer 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 steamer 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 steamer agent has not issued a delivery order; if so, to what extent;

  4. What are the principles which determine whether a Port Trust is entitled to recover its dues, from the steamer agent or the consignee; and

  5. While the Port Trust does have certain statutory obligations with regard to the goods entrusted to it, whether there is any obligation, either statutory or contractual, that obliges the Port Trust to destuff every container that is entrusted to it and return the empty containers to the shipping agent.



IV. Findings


The relevant observations of the Supreme Court are summarised as under:

  • The first question that was answered by the Supreme Court was whether ship owners can be included in the definition of “Owners” under Section 2(o) of the MPT Act. The Supreme Court answered in the affirmative and held that the definition of “Owner” under MPT Act is inclusive in nature and can also include vessel owners within its sweep

  • However, merely because vessel owners are within the ambit of the term “Owner” does not imply that storing goods in the Port premises is a service rendered to the vessel owner. The moment the goods are landed and custody is taken over by the Port Trust, the liability of the vessel owner stands absolved. The Port Trust then assumes the role of a Bailee, the Bailor being the owner of the goods. Thus, the right to recover demurrage or storage charges have to recovered from such owner of goods, which under no circumstance can be the vessel owner

  • With regard to the question as to whether storage charges have to be paid by the vessel owner for destuffed containers, the Court after analysing various provisions of the Customs Act and judgements rendered under such Act observed that containers are distinct from goods. They are the receptacle that carries the goods and they have to be returned to the ship-owner after destuffing. Thus, charges for storing containers cannot be levied upon vessel owner.

  • On the observations made by the Kerala High Court that Sections 61 and 62 are mandatory in nature, the Supreme Court observed that such view is not correct and a discretion is vested with the Board to decide on the aspect of disposal / sale of unclaimed goods or in connection with unpaid freight charges. However, the Port Trust have to act fairly while exercising such power. Ordinarily, it has to be sold within 4 months as prescribed under Section 63 (1)(c) and proper reason has to be furnished by the Port Trust if such period is exceeded.

  • On the conflicting position taken by earlier judgements, the Supreme Court clarified that Rowther-I is a clear proposition on the point that endorsement of bill of lading does not amount to transfer in title of goods. Hence, the observations in Rowther-II to that extent is incorrect and the only binding ratio which can be culled out from Rowther-II is that since demurrage / storage charges are post-delivery of goods to the Port Trust, levying such charges upon the steamer agent would be unreasonable.

  • With regard to Sriyanesh Knitters, the Supreme Court clarified that the observations made in the judgement regarding the consignee being the bailor and the Port Trust being the bailee is incorrect and the same was consequently overruled. However, the observation in Sriyanesh Knitters regarding MPT Code not being an exhaustive code and reliance has to be placed on other codes like Customs Act, was correct and found concurrence of the Full Bench.

  • With regard to Forbes – II, the Supreme Court held that the ratio laid down therein is not correct as it seeks to fasten the liability of demurrage charges on vessel owners.

  • With regard to Rasiklal, the Court left the question open as to whether the Port Trust (as sub-bailee) can recover dues from the original bailor i.e. the consignor.

  • In view of the above, the Court answered the reference as follow:


  1. Answering the first question in negative the Hon’ble Court held that the point of transfer of title of goods to the consignee is not relevant to determine liability of the consignee or steamer agent to pay Port dues.

  2. The Court answered question number II and III together which dealt with the responsibility/liability of the consignor/streamer agents to pay charges/demurrage. The Court while interpreting the legal effect of the bill of lading observed that the bill of lading being endorsed by the steamer agent is different from the bill of lading being endorsed by the owner of the goods. In the first case, the endorsement leads to delivery; in the second case, the endorsement leads to the passing of title. However, none of these stages are relevant for affixing the liability. The Court conclusively decided that the steamer agent can only be held liable for dues in connection with services rendered to them like unloading charges etc. For all other dues accrued thereafter, the liability is on the importer, owner, consignee or its agents.

  3. While answering question IV, the Court reiterated that as per the scheme of MPT Act, until the stage of landing and removal to a place of storage, the steamer’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, storage charges / demurrage payable thereon will be recoverable from the owner of the goods.

  4. With regard to question V, the Court firstly clarified that irrespective of whether goods are carried in container or not, the liability for demurrage would still lie on the owner of the goods. The Court confirmed that the Port Trust is under a duty to destuff the goods and handover the empty container to the concerned person. The time period for completing such activity may vary depending on the facts of each case (number of vessels berthed, activities of port etc.) but the Port Trust cannot circumvent this act all together.


V. Conclusion


This judgement finally puts to rest the confusion created due to divergent views taken by the Supreme Court with regard to affixing the liability port dues. This judgement will provide required clarity to the Port Authorities to pursue the appropriate remedy against the appropriate person and will also come as a blessing for vessel owners who were being burdened with such liability through no fault of their own.

It is true that all efforts are to be taken to ensure recovery of statutory dues but it does not imply that it can be recovered even from a party who is not at fault. This judgement goes a long way in reiterating this principle.


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