In this blog, I will discuss a judgment of the Rotterdam District Court. An important judgment for commercial (trading) companies and freight forwarders. This is because this judgment addresses, among other aspects, several aspects that are important for business practice:
- the question of whether the seller's goods transport insurer can claim damages at all since, according to the Incoterm CFR, the risk of damage lay with the buyer;
- the question of whether there was freight forwarding or transportation, and
- then the question of whether the freight forwarder breached its obligations.
In particular, I will discuss the first and last questions at greater length because they provide important insights.
This case involves the following parties: Vost NL (seller of goods), Vost China (buyer of goods) and LFS (a logistics service provider) engaged by Vost NL to transport (or arrange for the transport of) the goods in a container to Shanghai.
The movement consists of domestic road transport in the Netherlands, rail transport to China and domestic road transport in China. During transshipment at a Chinese rail terminal on the border with Kazakhstan, the container with goods falls out of the crane and lands on top of another container. This causes damage to the container and goods. To settle part of the cargo damage, Vost NL credits part of the purchase price to Vost China. Achmea is Vost NL's goods transport insurer and acts as plaintiff in these proceedings. LFS is the defendant. Can you deviate from an Incoterm afterwards?
LFS tries to defend itself in this case by arguing, among other things, that Vost NL does not qualify as the party who suffered the damages (and thus has no right of action) because Vost NL was not obliged to credit any part of the purchase price in favor of Vost China.
What was going on? In fact, Vost NL (seller) and Vost China (buyer) had declared the Incoterm (2010) CFR Shanghai applicable to their purchase agreement. Although this Incoterm is intended for transport by ship, the parties chose to do so. Under the Incoterm CFR, the seller bears the risk of loss or damage to the goods until the time he delivers the goods aboard the ship at the agreed port of shipment. So, in this case, in or near the truck at the agreed pick-up point or in or near the train at the agreed rail station.
These agreements entail that Vost NL as seller was in principle not obliged to compensate Vost China because of the cargo damage. After all, Vost China itself was, under the Incoterm CFR, the one who bore the risk of damage at the time of the incident.
However, the parties - the court concludes - chose to deviate from the chosen Incoterm in retrospect through the credit agreement. On this basis, therefore, the court finds that Vost NL is indeed the party whose assets have been damaged and thus has a right of action. After all, it did not receive its full purchase price through the credit.
This seems like a simple construction applied by the court, but it certainly is not. Plenty of examples can be found in case law where the case already broke down for the plaintiff on this aspect.
For a while, it seemed that seller Vost NL had no claim because it did not bear the risk at the time the damage occurred, while the buyer had no claim because, thanks to the buyer, it no longer had any damage. The court conveniently stepped over this problem by considering that the parties could decide a different allocation of the risk of damage even after the occurrence of the damage.
Freight forwarder's obligations
The court then considers, based on all the circumstances of the case, that LFS did not act as a (paper) carrier but as a freight forwarder. On this footing, therefore, Achmea's claim seems to break down, as LFS as freight forwarder is in principle not liable for cargo damage.
However, Achmea invokes the fact that it believes that LFS as freight forwarder has failed in its obligations to its client Vost NL.
Indeed, Achmea points to article 8:63 of the Dutch Civil Code, actually the freight forwarder's subsidiary obligations. Pursuant to this article of law, a freight forwarder is in fact obliged, among other aspects - as soon as cargo damage occurs - to immediately communicate to the principal (Vost NL) which transport agreements he has concluded for the performance of his activities. The freight forwarder is also obliged to make available to the principal all documents and information in his possession or which he can reasonably provide, insofar as these can at least serve to recover damages incurred. This concerns the first paragraph of article 8:63 of the Dutch Civil Code. Incidentally, this duty also applies if the forwarder is of the opinion that the claim has no chance of success.
It can be concluded from the judgment - relevant to practice - that deviating from an Incoterm afterwards, whereby the parties nevertheless opt for a different allocation of the risk of damage during transport, does not obstruct the claim entitlement of the initially non-risk-bearing party. This is favorable, because in practice this still occurs frequently due to commercial reasons.
In addition, this ruling teaches us that the shipper's (ancillary) obligations should definitely not be taken lightly, as he then runs the risk of still being liable for damages.
Want to know more?
Do you have questions about transport law or international trade? Or do you have questions about the obligations of a freight forwarder or about Incoterms? Please feel free to contact one of our lawyers.