The shortage claims under the Bills of Lading are made by the CFR and CIF buyers.
The CFR and CIF prices and the settlement of payment in the CFR and CIF sale contracts are based on the shipped weight figure ascertained at the time of shipment by shore scales, but if there is any difference between the Bill of Lading weight figure and the shore delivered weight figure, the sellers must reimburse to buyers the value of such quantity differences. Therefore, the sellers should pay for the quantity differences and not the carriers.
Nonetheless, the CFR and CIF buyers frequently claim the value of quantity differences from the carriers. The claims are based on the figures resulted from shore weighing on the grounds that the commodity prices and settlement of payment are based on these weight figures and therefore, the calculation of damages for the quantity shortages should also be based on these figures.
An example of such case was provided in London Maritime Arbitration Case No. 27/171.
A commodity trader chartered a vessel for the carriage of a cargo of wheat in bulk sold on CFR Alexandria, Egypt terms. The voyage charter party provided that the shipowners will not be responsible for cargo shortages resulting from the comparison of weight figures ascertained by shore scales at loading and discharge ports as long as the seals of hatch covers remained intact during the carriage.
Upon the completion of discharge, the Egyptian buyers made a shortage claim based on the difference between the Bill of Lading weight figure and the weight figure ascertained by Customs weighbridge at discharge port. The Egyptian buyers detained the vessel for 10 hours after the completion of discharge until the shipowners settled the shortage claim.
Then the shipowners started arbitration proceedings against the voyage charterers (CFR sellers) to recover the amount paid to CFR buyers and the charges for detention of vessel after the completion of discharge.
The charter party did not provide which party shall be responsible for the settlement of a shortage claim and for the time lost by the vessel at discharge port due to such claim.
After analysing the documentary evidence, the LMAA2 Tribunal held that since the seals of hatch covers were found intact upon the vessel`s arrival at discharge port, the alleged cargo shortage occurred due to the measurement errors at discharge port. Therefore, the charterers were bound to indemnify the shipowners for the settlement of shortage claim with cargo receivers and for the time lost thereby by the ship at discharge port.
The carriers of bulk grain cargoes contend that discrepancies between the Bill of Lading weight figure and the weight figure ascertained by Customs weighbridge at discharge port occur due to the use of different weighing devices which do not have the same measurement accuracy. Hence, such discrepancies are merely "paper shortages".
The carriers contend that according to Art.1(e) of the Hague-Visby Rules, the carrier`s responsibility for the goods begins from the time when the goods are loaded on board the ship and ends when the goods are discharged from the ship and therefore, the question of carrier`s liability should be determined by comparing the weight figures stated in the vessel`s draft survey reports issued at loading and discharge ports and analysing all other relevant evidence: i.e. hatch sealing certificate3, hatch unsealing certificate4 and empty holds certificate.
The shipowners include in their charterparties clauses that place the responsibility for "paper shortages" upon charterers when the draft survey reports, hatch sealing and unsealing certificates and empty holds certificates evidence no physical loss of cargo. These clauses require the charterers either to indemnify shipowners in the event of shortage claims settled by the latter5 or to settle themselves the shortage claims lodged by the cargo receivers, as in the following example:

"If the seals of hatch covers are found intact upon the vessel`s arrival at discharge port and the weight figure calculated based on the joint draft survey at discharge port is compatible with the weight figure calculated based on the joint draft survey at loading port, then the Owners shall not be responsible for any shortage claim which is to be settled directly between the Charterers and Receivers."

The shipowners can protect against claims for "paper shortages" also by including in the Bill of Lading`s Conditions of Carriage a clause stipulating that the carrier shall only be liable for the cargo shortage or loss to be determined as the difference between the weight figure ascertained by joint draft survey at loading port and the weight figure ascertained by joint draft survey at the port of discharge. Such a clause shall be opposable to the Bill of Lading holders.

by Vlad Cioarec, International Trade Consultant

This article has been published in Commoditylaw`s Grain Trade Review Edition No. 1.


Endnotes:

1. (2017) 987 LMLN 4
2. London Maritime Arbitrators Association
3. The certificate signed by shippers` representative confirming the sealing of hatch covers on completion of loading.
4. The certificate signed by receivers` representative confirming the integrity of seals upon the ship`s arrival at the port of discharge.
5. See the Award No. 1158 of Chambre Arbitrale Maritime de Paris published in Gazette de la Chambre Issue No.18/ 2008.