Pakistan: Shortage claims
We have recently seen an increase in shortage liquid claims in Pakistan, notably at Port Qasim. The individual claims are usually low in value but given the high number of bills of ladings for a single voyage and that shortage claims could arise for each single bill of lading, the total amount for one voyage could be significant. This is a long running problem at this port and suits are filed based on shore measurements which are nearly always less than the ullages on arrival. Some of the reasons provided for this are:
- Distortion in the tanks
- Inaccurate calibration
- Difference in density
- Leakage from the shore lines
- Tank transfer with potentially leaking valves
Historically these cases have never progressed from the lower courts but there is a High Court judgment which states that the carrier's liability ceases after the cargo leaves the vessel's manifold and therefore any shortage should be calculated by reference to the arrival ullages and empty tank certificates. Furthermore, the judgment stated that for edible cargoes a 0.25% tolerance allowance is applicable, and that a load port LOP will be taken into consideration when defending a claim. This judgment, however, is pending appeal and therefore there is no unified stance in the lower courts as to (a) when the vessel owner's liability ceases and (b) the 0.25% tolerance allowance. There is however a Lower Court financial limit of approximately USD 94k for any one claim.
Although the time limit for bringing a shortage claim is one year from the time the cargo is delivered, we have experience of summons being received well after this time. This is often in cases where suits have been subrogated and it is essentially a delay in service after being processed by the court. It cannot be assumed that after the one-year time limit has elapsed it is automatically time barred. Also due to excessive court workload we should expect claims to come in six months to one year after the one-year time limit. We are aware that receivers with negligible shortages do not file claims and so not all bills of lading issued on any one voyage will result in a claim. When bringing a shortage claim all parties named on the relevant bill of lading, including local agents, will be named as co-defendants.
Once shortage claims arise for a particular call to Pakistan the named defendants will have to consider how to proceed. Usually it is the shipowner who faces the most risk of later attachments/arrests of the vessel in question and sister vessels but outstanding and decreed claims may also create issues for charterers and sub-charterers when calling Pakistan on later voyages with different vessels.
First option – use local correspondents and/or lawyers
The first option is to use local correspondents and/or lawyers to seek to settle the claims directly with claimants. If settled at this early stage claims would normally be settled for a significantly lower amount.
Second option – defend the claims in court
The second option is to defend the claims in court. It would take years for the claim to progress through the court to judgment (at present we would estimate at least 10 years). Local lawyers and local correspondents would have to be instructed and paid throughout the life of the claim. Although the incurred costs would not be very high the costs may be disproportionate to the value of the claims in question. At present it is unlikely that the courts will find in favour of the defendants should shortage claims proceed to judgment.
Third option – ignore or reject the claims
The third option is to ignore or reject the claims. If left undefended, the risk is that the claims are decreed ex-parte against the defendants. To ensure you are notified should a claim be decreed against you it is prudent to instruct local correspondents to monitor the claims. If a suit is decreed it is done so jointly and severally against all defendants and an execution order can be granted against all defendants.
The execution order would then be used to attach/arrest a vessel and/or its bunkers. Legally only vessels with the same ownership as the vessel from which the shortage claims arise can be attached/arrested, however, we regularly see threats being made also to vessels with different ownership but same charterers and/or sub-charterers. If a vessel is attached/arrested or there is an imminent risk that it will be attached/arrested defendants will usually seek to settle all the suits en-bloc for any one voyage, rather than just the individual claim.
Also, in this situation claimants are likely to accept a substantially lower amount than the original claim but approximately 20% more than if settled at an earlier stage.
If the claims are not settled claimants are likely to demand provision of an undertaking/guarantees for all pending suits filed against a vessel owner in order to allow the vessel to sail. Should claims be decreed against you we would recommend that local lawyers are instructed to provide advice as well as local correspondents (if not already instructed).
More recently there have been instances whereby a charterer will request that a caveat be filed to prevent arrest of their currently chartered vessel in relation to decreed suits against a previous voyage/vessel, or when there has been a threat to arrest bunkers. In this regard it would be pertinent to distinguish between an arrest which can only be issued by the High Court in Pakistan and attachment which is obtained in the Lower Court. It follows that if the claims were filed in the Lower Court then filing a caveat in the High Court will be of no benefit.
Our recommendations for reducing the risk are to:
- Have a precautionary discharge survey carried out on arrival. Should you decide to defend a claim, a discharge survey will be the only evidence available. In addition, all stakeholders will know that a discharge survey has been carried out and to some extent will act as a deterrent.
- Attempt to include protective clauses in the CP whereby owners' right of recourse is maintained against charterers. If you are the time charterer of a vessel, we recommend remaining on back to back terms with your sub-charterer. Skuld can assist with reviewing potential CP clauses.
- If you will not be the party issuing bills of lading, ensure that the bills of lading do not have your name on them so that you are not named on the claim documentation/summons.
Skuld is grateful to Capt. S. Hashim Mujtaba of Indemnis and Aga Zafar Ahmed of Aga Faquir Mohammad & Co. for contributing to this article.