From 1 August 2012, several container shipping lines have reduced the “free” container time from 10 days to seven days. The CBFCA and the VTA have already expressed their significant concern regarding the move and the likely associated costs for the entire supply chain.
The move by the lines comes after their “winning” outcome in a recent decision (“Cosco Decision”) by the District Court of NSW in March 2012, whereby it was held that container detention fees charged by Cosco Shipping (“Cosco”) and its Australian agent, Five Star Shipping and Agency Company (“Five Star”) were enforceable as against a freight forwarding company. An article regarding the Cosco Decision was recently published in the Shipping Australia Journal for Winter 2012 (“Journal”). The editorial in the same edition of the Journal welcomed the Cosco Decision in a way which suggested that the issue of the enforceability of such container detention fees had been conclusively determined and would be welcomed by all parties.
However, to declare that the issue of container detention charges is now fully settled in Australia after this decision may not be entirely accurate. Indeed the substantive article on the Cosco Decision in the Journal acknowledged that the decision depended on the specific facts of the case and that whether certain fees will be enforceable depends on the individual contracts governing the relationship between the parties.
It must also be emphasised that the decision would not necessarily be welcomed by all parties in the industry – including those who pay such fees which represent significant and often unexpected additional costs in the supply chain. Such fees also represent a significant risk for freight forwarders and customs brokers who bear the fees in the first instance where the fees arise from the failure by their customers to return the containers in the permitted “free” time and where customers will not or cannot pay the fees. In those cases it is predominantly the freight forwarders and customs brokers (named as consignees on the Ocean Bill of Lading/Sea Waybills) who bear the fees pursuant to their shipping and other agreements with the shipping companies and their Australian agents. It needs also to be remembered that the prevailing practices and levels of the detention fees have yet to be subject to a specific independent review. Such a review of the practices and the fees would be intriguing. Australia’s biggest exports are empty containers being returned overseas and empty container parks are notoriously full – which suggests that there are readily available replacements for any that are returned “late”. At the same time, the availability and size of empty container parks, their ownership and relationship to their lines would also be relevant to any such inquiry. All of those factors feed into consideration whether the quantum of fees and their collection are reasonable (even if enforceable)
Whilst the Costco Decision was referred to in an earlier Update as well as discussed during recent CBFCA State Conventions, given the subsequent commentary and the recent development of the issue, it may be worth revisiting the Cosco Decision.
The background to the Cosco Decision is one which will be fairly common to those in industry. The freight forwarder had at some time earlier entered into an agreement (known as the “ImportNet Agreement”) with Cosco and Five Star governingthe loan and use of Cosco’s containers. The ImportNet Agreement incorporated the terms and conditions of Cosco’s standard Bill of Lading/Sea Waybill Agreement as well as its
Equipment Handover Agreement. Pursuant to the ImportNetAgreement, Cosco agreed to loan containers to the freight forwarder on terms which included the payment of container detention charges by the freight forwarder.
Facts of the Cosco decision
The specific facts behind the Cosco Decision arose in 2009. The freight forwarder was named as consignee in various Cosco Sea Waybills for a number of containers which were shipped from China to various Australian ports. The goods in the containers were destined for a customer of the freight forwarder who passed the electronic delivery orders for the goods to its customer which arranged for collection and unloading of the containers. The containers were not returned during the prescribed “free period” and attracted fees for their late return.
Cosco/Five Star sought to recover the fees against the freight forwarder which would normally have recovered the fees against its customer. However, the customer could not pay the fees and eventually went into liquidation. Accordingly, the freight forwarder remained primarily liable to Cosco/Five Star for the detention fees which moved to recover the fees from the freight forwarder pursuant to the ImportNet Agreement and the associated incorporated Agreements.
Facing the action by Cosco and Five Star, the freight forwarder defended by claiming that the detention fees were, in fact, payable for a breach of the contract with Cosco and Five Star and were a penalty and unenforceable given their quantum. Cosco and Five Star maintained that the fees were not payable as damages for a breach of contract but were payable for the loan of the containers for a period beyond the agreed free time and in accordance with the ImportNet Agreement and the associated other agreements implied by that ImportNet Agreement.
Ultimately, based on the terms of the ImportNet Agreement and the incorporated agreements, the Judge held that the container detention fees were not payable due to a breach of contract. The Judge held that although there was an obligation to return the containers in 10 “free” days, the parties had also agreed that in exchange for loaning the containers, the freight forwarder would hire them until return at agreed rates. The Judge characterised that this was a separate obligation not contingent upon any breach by the freight forwarder. As a result, the amount payable was not a penalty and the Judge did not need to consider whether the fee charged was a reasonable pre-estimate of the loss that was likely to be suffered by Cosco and Five Star.
This decision left the significant amount of detention fees charged by Cosco unexamined and unchallenged. However, this “non-intervening” approach appears to reflect the view of the Judge that, as an ordinary rule, the courts in Australia would generally enforce commercial agreements, unless to do so is against public policy.