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Supreme Court Judgement dated 5th August 2020 - Authors: Mr. V.Subramanian (Kumar) / Ms. S.Priya, Advocates

Supreme Court of India on Ship agent’s liability to pay port’s cargo related charges on uncleared / abandoned cargo / Long Stay Containers matters.

On 5th 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.

Brief Facts / Background: -

This case originally commenced when several containers said to contain (stc) woolen rags, carried by different vessels - APL, P&O Nedlloyd, Hanjin, YML, Greenways - were discharged and landed in the Cochin Port in the years 1998-1999.

During the Customs inspection prior to clearance of the cargo, the Customs found that the cargo in these several containers were not woolen rags as declared, but proper woolen garments; and consequently, the cargoes became the subject of Customs investigation. Disputes arose between the Customs authorities and Importers of the cargoes, and the cargoes remained uncleared. The Cochin Port Trust citing lack of space in the port premises refused to de-stuff the containers and the cargo continued to remain in the containers in which they were vacuum packed and imported. The Port Trust levied ground rent on the containers and deducted the Steamer Agents' running account with the Port for these charges. Meantime, fearing that the Customs may permit the cargo to be cleared without the steamer agents being permitted to collect the outstanding container detention charges and ground rent from the importers, the steamer agents cancelled the Delivery Orders which they had previously issued.

Since the containers were not being de-stuffed and returned to the Lines (Agents), and the charges were being debited to their running account by the Port, the steamer agents filed Writ Petitions to the Kerala High Court, inter alia, seeking the Courts directions for destuffing and return of the containers; and for orders that the ground rent on containers should be recovered from the importers/consignees only; and such other reliefs as the Court would permit in the nature and circumstances of the case/s. The Single Judge of the Kerala High Court (court of first instance) did not give reliefs to the steamer agents, leading to the Steamer Agents filing Appeals to the Division Bench of the High Court (Appellate Court). The Division Bench of the High Court observed that the Tariff Authority for Major Ports (TAMP) had inter alia, in its order of July 2000, held that the Port Trusts were not permitted to charge any ground rent on abandoned containers beyond 75 days and therefore, held that the Cochin Port Trust was not entitled to levy any ground rent in excess of what had been decided by TAMP. The Division Bench also did not go into the question of whether the steamer agent was liable for the ground rent as at that relevant time, the Supreme Court of India was seized of that issue in another matter and the same was pending hearing before the Supreme Court (the highest Court in India whose decisions binds all courts and tribunals in India).

The Cochin Port Trust preferred a Special Leave Petition (SLP) to the Supreme Court of India, against the order of the Division Bench of the Kerala High Court. The SLP was admitted by the Supreme Court, and was heard over a series of hearings between 2015 and 2017, culminating in the Supreme Court inter alia observing that different Benches of the Supreme Court had passed different orders on similar issues of law in previous cases of Rowther-1, Rowther-II, Sriyanesh Knitters, Forbes-II and Rasiklal; and in view of conflicting decisions, questions of law raised in the matter are required to be referred to a Larger Bench for authoritative decision on the issues.

The relevant portion of that Judgement reads:-

23.1. The decisions in Rowther-I, Rowther-II, Sriyanesh Knitters, Forbes-II and Rasiklal do not seem to follow a consistent line about whom the Port Trust has to fasten the liability for payment of its charges;

23.2. The Constitution Bench judgment in Rowther-I holds that when Port Trust takes charge of the goods from the shipowner, the shipowner is the bailor and the Port Trust is the bailee. While the Bench of two Judges in Sriyanesh Knitters holds that there comes into existence the relationship of bailor and bailee between the consignee and the Port Trust, the decision in Forbes-II disagrees with this view of Sriyanesh Knitters. Rasiklal opines that enquiry into such relationship is irrelevant in determining the right of a Port Trust to recover its dues;

23.3. While the decision in Sriyanesh Knitters was based on the interpretation of the term “owner” under Section 2(o) of the MPT ct, the judgments in Forbes-II and Rasiklal do not find the question of interpretation of the term “owner” to be relevant;

23.4. While Forbes-II relies upon the Constitution Bench decision in Rowther-I to come to its conclusions, Rasiklal does not find Rowther-I to be an authority for the proposition that until the title in goods is passed to the consignee, the liability to pay various charges payable to a Port Trust, for its services in respect of goods, falls exclusively on the steamer agent;

23.5. In Rowther-II, it was held that once the goods are handed over to the Port Trust by the steamer and the steamer agents have duly endorsed the bill of lading or issued the delivery order, their obligation to deliver the goods personally to the owner or the endorsee comes to an end. The decision in Rasiklal, which has been delivered after the reference of Forbes-I was disposed of, takes a contrary view that in cases where the consignee does not come to take delivery of goods, the position of law laid down by Rowther-II would result in a situation that the Port Trust would incur expenses without any legal right to recover such amount from the consignor, with whom there was no contractual obligation; and

23.6. The Bench of two Judges in Rasiklal opined that it agrees with the conclusions recorded in Rowther-II and Forbes-II that a Port Trust could recover the rates due, either from the steamer agent or the consignee. However, the holding in Rowther-II finds only the consignee to be liable. 

In view of the inconsistencies in the law on the subject in various decisions as above, the Supreme Court referred the following issues of law for reconsideration to a larger Bench of the Supreme Court: -

24.1. 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?

24.2. 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?

24.3. 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?

24.4. What are the principles which determine whether a Port Trust is entitled to recover its dues, from the steamer agent or the consignee? And 

24.5. 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?

The Court also observed in paragraph 25 of that Judgement, "the larger Bench may deal with any additional issues relevant to the context, as it deems necessary.”

The above is the background / genesis of the matter that led to the larger bench of the Supreme Court of India hearing the matter and handing down its judgement answering the above questions of law, on 5th August 2020.

The Supreme Court considered the 5 previous Judgements of the Court from which the questions of law had been referred to it, and the Court’s observations relating to those decisions are summarised as follows:

(i) Analysing the judgement of the Constitution Bench of the Supreme Court in Rowther-I , the Court found that in the facts of that case, services of the Port Trust in unloading of the cargo were indeed provided to the owner of the vessel and hence held that the Court, rightly, in the facts of that case, held that those port charges were payable by the agents of the owners of the vessel.

That ratio could not be applied where services were provided to the cargo interests, after the custody of the cargo passed to the Port Trust.

(ii) It found that the observation in Rowther-II that endorsement on the Bill of lading and issuance of delivery orders by the steamer agent conveys title to goods, to the consignee, is bad law.

(iii) The observations in Sriyanesh Knitters that the consignee is the bailor of the goods, with the Port Trust being the bailee thereof, does not state the law correctly, and that observation was overruled.

But the Court concurred with Sriyanesh Knitters where it correctly distinguishes Rowther-I. (iv) It held that the observation in Forbes -II on the liability to pay demurrage charges and port rent would accrue to the account of the steamer agent because of the statutory bailment that comes into existence under section 42(2) read with section 43(1)

(ii), was plainly incorrect, particularly in view of their finding that once the Port Trust takes charge of goods against a receipt, the vessel and/or its agent stands discharged of all liabilities.

(v) In relation to Rasiklal, the Court left open the issue as to whether the Port Trust, as sub-bailee, is entitled to recover its dues from the original bailor - the consignor, and persons claiming through it, as it observed that the facts in the Rasiklal case were different and that case did not involve either the vessel or its agent, and dealt with the issue whether a subsequent owner of the cargo was liable to pay demurrage on the goods.

The Court then went on to answer the issues / questions of law referred to it.

The notable points coming out of the Judgment dated 5th August 2020, are::

    The endorsement on the bill of lading by the consignor (shipper) is distinct and discrete from the endorsement by a Ship Agent on the Bill of Lading. The endorsement by the shipper transfers the title of goods covered by the bill of lading, to the endorsee i.e. consignee; while the endorsement by the ship agent, as recorded in the Sheikh Mohd. Rowther I judgement (1963) under the Madras Port Trust Regulations, merely advises the port to deliver the cargo to the endorsee. These endorsements by steamer agents on BLs which stems from the Rowther 1 case, which follows Madras Port Trust Regulations, was clarified by the Judgement.

    The definition of “Owner” in section 2(o) of the Major Port Trusts ct, 1963, is an inclusive definition, and since loading or unloading of goods can take place by the steamer agents, such persons would be included within the definition of owner.

    Once custody of the goods has been given to the Port Trust, and a receipt for the goods is received from the port, the Ship Owner/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 and not from the vessel’s agents irrespective of whether the delivery order is given or not.

    The port is duty bound to de-stuff the containers and to deliver the empty containers to the shipping agent / Lines or to release them to owners to whom they belong within a reasonable time. They cannot argue that they do not have the space to de-stuff the containers. The reasonable period could vary from case to case.

    Whilst analysing the various provisions of the Major Port Trusts Act, the Court recognized that there were several services provided to the vessel and its agents and for which services, they were entitled to look towards the vessel agents for payment. Simultaneously, various services are provided to the cargo that is landed from the vessel. In this context, the Court observed "This again indicates that goods that are stored on the premises of the Board have a nexus only with the owner or other persons entitled to those goods, and not with the agent of the vessel or the vessel itself."

    In paragraph 24, the Court observed “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, detention charges for goods that are stored, and demurrage payable thereon from this point on, i.e. when the Port Trust takes charge of the goods from the vessel, or from any other person who can be said to be owner as defined under section 2(o), it is only the owner of the goods or other persons entitled to the goods (who may be beneficially entitled as well) that the Port Trust has to look to for payment of storage or demurrage charges.

    Containers are not goods; that the port charges are intended to be levied on the goods imported and landed in the port premises and not on the containers themselves.

In summation, it is now clear as a matter of Indian law as held by the Supreme Court of India in its Judgement dated 5th August 2020:-

-    that once the goods are landed at a Port, and passes into the Port’s custody and/or agent obtains a receipt for the same from the Port, the vessel / steamer-agent is absolved of all liabilities towards the said cargo, including for payment of any any storage charges, port’s charges, etc. thereon the endorsement by an agent on the Bill of Lading does not convey any title in the cargo to the consignee/ endorsee of the Bill of Lading, but are only delivery instructions;

-    that irrespective of whether Delivery Instructions (D.O.) are issued or not, any charges accrued on the cargo once the custody of the cargo has passed onto the Port Trust, will be on the account of the owner of the cargo and not the vessel or its agent.

The Court did not go into the question as to whether the Port Trust can recover storage charges in relation to the cargo from the original bailors of the cargo - the owners of the cargo.

A few extracts from the Judgement to better understand the summations set out above, are as follows:-

A)     The SC in paragraphs 14 & 16 of its Judgement has held that the definition of “Owner” in section 2(o) of the Major Port Trusts Act, is an inclusive definition, and since loading or unloading of goods can take place by the steamer agents, such persons would be included within the definition. I am extracting the said paragraphs 14 & 16 of the Judgement hereunder for ready reference.

14.    A perusal of the relevant provisions of the MPT Act would show that when section 2(o) defines “owner”, it defines owner in relation to goods separately from owner in relation to any vessel. In sub-clause (i) of section 2(o), when owner is defined in relation to “goods”, the definition is an inclusive one. Secondly, it includes persons who are owners of the goods, or persons beneficially entitled to the goods, such as the consignor, consignee and the shipper and then also includes agents for sale, custody, loading or unloading of such goods. Ordinarily, agents for the sale or custody of goods would relate only to agents of the owner or persons beneficially entitled to such goods, which would certainly exclude the ship-owner and the ship-owner’s agent. However, considering the fact that the definition is an inclusive definition, and that loading or unloading of goods can take place by the steamer’s agent, as was held in Rowther-I (supra), it is difficult to accept the contention on behalf of the steamer’s agent that such persons would not be included within the definition of “owner” under the MPT Act.

16.    In the present case, we find no lack of clarity in the expression “agent for the...loading or unloading of such goods”, as including persons who may be the vessel’s agent involved in unloading goods. s the definition of “owner” is inclusive, as stated hereinabove, the non- mention of the ship-owner in the first part of the definition makes no difference, as it would be incongruous to hold that the shipowner’s agent is included in the latter part of the definition, but not the ship- owner itself, which would indicate that the maxim noscitur a sociis cannot apply.

B)     In paragraph 17 of the Judgement, the Court holds that once custody of the goods has been given to the Port Trust, then the Ship Owner/Agent is not liable for storage charges. The Court reiterates the position in paragraph 24, which I have extracted hereinbelow for ease of reference.

24.    The statutory scheme of the MPT Act now becomes crystal clear. 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, detention charges for goods that are stored, and demurrage payable thereon from this point on, i.e. when the Port Trust takes charge of the goods from the vessel, or from any other person who can be said to be owner as defined under section 2(o), it is only the owner of the goods or other persons entitled to the goods (who may be beneficially entitled as well) that the Port Trust has to look to for payment of storage or demurrage charges.

At paragraph 22 of the Judgement, whilst dealing with and analysing section 62 of the Act, the Court has held, "This again indicates that goods that are stored on the premises of the Board have a nexus only with the owner or other persons entitled to those goods, and not with the agent of the vessel or the vessel itself."

C)   I now extract as below the relevant paragraphs (59, 62 & 73) from the Judgement which deals with the endorsement of Bills of Lading / issuance of delivery order, and clearly holds after goods are removed and placed in the Port’s custody, the Steamer agents are not liable for payment of demurrage and storage charges on the goods, and that is the sole responsibility of the owner of the goods.

24   59. Rowther-I (supra) clearly lays down that the endorsement of the bill of lading by a steamer agent is for the purpose of delivery of the goods, and, accordingly, cannot be for the transfer of title to the goods. Rowther-II (supra) cannot, therefore, be said to be good in law when it speaks of endorsement on the bill of lading and issuance of delivery order by the steamer agent passing title of the goods to the consignee. Once this is made clear, the ratio of Rowther-II (supra) is to be understood thus: since charges for storage or demurrage are after goods are removed and placed in the custody of the Board, the steamer agent cannot be made to pay the same, as it would impose “a too onerous and unexpected responsibility on the steamer”, which is only a carrier, and not owner, of the goods.

62. Under this section, the “endorsement” referred to is the endorsement made by the consignor or owner of the goods in favour of such endorsee on the bill of lading, so that title to property is then transferred to the endorsee. This endorsement is very far removed, as has been correctly stated in Rowther-I (supra), from the endorsement on the bill of lading by a steamer agent indicating that the goods have been delivered. Therefore, shorn of the confusion that has arisen as a result of mixing-up the two types of endorsement, the ratio of Rowther-II (supra) that, after goods are taken charge of by the Port Trust and stored in its premises incurring demurrage charges thereon, the vessel or its agent cannot be made responsible, is unexceptionable.

73. Paragraph 12 of the said judgment contains the same confusion that is contained in Rowther-II (supra), and cannot therefore be said to lay down the law correctly. The correct position in law is, as has been stated hereinabove, that after the Port Trust takes charge of the goods, and issues a receipt therefor, and thereafter stores the goods in a place belonging to it, such storage charge cannot be to the account of the vessel or an agent of the vessel.

D)     At paragraph 71 of the Judgement, the Court has reiterated the position that the definition of owners under section 2(o) of the Act, includes ship-owner and his agent. Paragraph 71 extracted below, for ease of reference.

24.  71. Paragraph 10 of the judgment does hold that the language of section 2(o) read with other provisions of the MPT Act, especially section 42, would include a ship-owner or his agent. We have already pointed out that the principle of noscitur a sociiscannot be applied to this definition clause, both on its plain language, as also the fact that it is an inclusive definition clause, which shows that this statement of the law is correct. However, the statement in this paragraph that even de hors the above question, the liability to pay demurrage charges and port rent would accrue to the account of the steamer agent because of the statutory bailment that comes into existence under section 42(2) read with section 43(1)(ii), is plainly incorrect, in view of our finding that after the Port Trust takes charge of the goods and issues a receipt therefor (at which point of time the statutory bailment comes into force), the vessel or the steamer agent cannot be held liable. 

Trust this would be useful in understanding the Judgement and what it holds fully, as also the liability of the ship-owner/ steamer agent.


Authors:     

V. SUBRAMANIAN (Kumar) / S. PRIYA, Advocates
Venkis Law Offices,
114, Maker Chambers III,
Nariman Point,
MUMBAI 400021, INDIA
Email : vsubramanian@venkislaw.com, spriya@venkislaw.com