Liability issues in cold chain transportation

News / / Beijing, Hong Kong, Shanghai, Singapore

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. 

Related sectors:

Related news & insights

Insights / Tribunal’s findings in commodities dispute result in substantial injustice

04-08-2021 / Commodities & Trade

PBO v. DONPRO & others [2021] EWHC 1951 (Comm)

Tribunal’s findings in commodities dispute result in substantial injustice

Insights / Where’s my crude oil? Court upholds claim for return of monies paid under FOB contract

24-06-2021 / Commodities & Trade

BP Oil International Limited v. (1) Vega Petroleum Limited & (2) Dover Investments Limited [2021] EWHC 1364 (Comm)

Where’s my crude oil? Court upholds claim for return of monies paid under FOB contract

Insights / The African Continental Free Trade Area: Africa speaks with one voice

25-05-2021 / Commodities & Trade

After years of preparation, negotiation and operational delays caused by the COVID-19 pandemic, 1 January 2021 marked the commencement of the long-awaited African Continental Free Trade Area (“AfCFTA”).

The African Continental Free Trade Area: Africa speaks with one voice

Insights / Court concludes parties had not agreed to arbitrate commodities dispute

01-03-2021 / Commodities & Trade

Black Sea Commodities Ltd v. Lemarc Agromond Pte Ltd [2021] EWHC 287 (Comm)

Court concludes parties had not agreed to arbitrate commodities dispute

News / Qatar sanctions January 2021

10-01-2021 / Commodities & Trade

In its first circular of 2021 the UAE Ministry of Energy and Infrastructure has announced the reopening of airspace and sea / land borders with Qatar.

Qatar sanctions January 2021

Insights / Adoption of the Chinese Civil Law Code: Key Takeaways for the Commodities Industry

30-12-2020 / Commodities & Trade

The new Chinese Civil Code (the “Code”) has been passed by the 13th National People’s Congress on 28 May 2020 and is due to come into force on 1 January 2021.

Adoption of the Chinese Civil Law Code: Key Takeaways for the Commodities Industry

Quick links

The Legal 500 2021

“Very available and responsive to company developments in real time. Frank, clear advice – not just the ‘easy’ answer.”

The Legal 500 2022

“The solicitors who have handled our employment related issues are of the highest quality in terms of their specialist area of expertise, their professionalism and their approach to us as clients and as people. Special mention has to be made of Laura Livingstone. Laura became a key member of our team and felt more like a colleague than an external adviser – a colleague you could rely upon. Laura’s attention to detail, professionalism and responsiveness was second to none. Laura has come to know and understand us as individuals and this has enabled her to personalise her advice and even sometimes to preempt our future requirements. We have a very special and extremely valuable relationship with her and the firm.”

- The Legal 500

The Legal 500 2022

“Ince are an excellent “fit” with our specific needs. The firm has consistently provided a broad range of personnel-related advice and in our experience that advice has been consistently of the very highest professional standard: it has been timely, comprehensive, accurate and at a cost which is commensurate with the budget of an organisation of our size.”

- The Legal 500

The Legal 500 2022

“The firm has an unusually high degree of insight into the practices and policies required by the Gambling Commission as regards compliance with its own requirements and conditions – particularly Andrew Tait, derived from his previous in-house experience.”

- The Legal 500