Abandonment of cargo is no defense to ocean freight owed

February 24, 2016

Types : Alerts

In Mediterranean Shipping Co. v. Best Tire Recycling Inc., 2015 WL 6695817 (D. P.R., 2015). the District Court of Puerto Rico held that the shipper was responsible for unpaid freight and demurrage charges on a “freight collect bill of lading even though the shipper did not have his signature on the bill of lading, nor had he provided express consent” for the damages.  Because the defendant was identified as the shipper on the bill of lading and the party who delivered the cargo to the ocean carrier, the shipper remained liable under the bill of lading to the ocean carrier for any unpaid charges, including freight, demurrage and storage charges incurred at destination.  The Court also awarded attorneys’ fees and costs.

The defendant argued that they could not be held responsible for the freight charges because it was not a party to the bill of lading, and only parties to a bill of lading can be held liable for freight charges.  While the defendant conceded that it was named the “shipper” on the face of the bill of lading, the defendant argued that it had booked the transportation through a forwarder, and that the parties intended only that the consignee should pay the freight under the “freight collect” arrangement.

The District Court disagreed, noting that the “Merchant” clause in the bill of lading clearly identified the named shipper as a party to the contract, that the defendant had been copied on emails concerning the rate quotes, and that the defendant did not dispute that it was the party who delivered the cargo of used tires to the carrier. The District Court went on to say that the defendant’s signature was not required under maritime law to bind the defendant to the maritime contract. The District Court also awarded attorneys’ fees because the bill of lading clearly provided that the carrier was entitled to recover its legal expenses for freight due. The one point not reached by the Court was whether an “agent” of the shipper, who was otherwise included in the definition of “Merchant” in a bill of lading, would be independently liable for the same charges.

In a somewhat similar case, with a different twist, the Federal Court in the Eastern District of Virginia held in CMA CGM S.A. v. Deckwell Sky (USA) Inc., 91 F. Supp. 3d 841 (2015) that an ocean carrier could recover its demurrage charges from an NVOCC whose consignee had abandoned the cargo of used tires at the discharge port in China. The NVOCC was also held liable for detention and destruction damages pursuant to the service contract it had with the carrier.

In particular, this matter was further complicated by the fact that the actual shipper of the cargo had mis-described the cargo as “auto parts” when in fact they were used tires.  This fact was unknown to the NVOCC.  However, the NVOCC did not challenge the additional freight cost of $8,820.

With respect to the demurrage expenses, the only defense raised by the NVOCC was that the ocean carrier should not have allowed the 13 containers to have remained at the discharge port terminal for nearly 7 months, and should have arranged for the destruction of the cargo so as to mitigate its damages.  The District Court noted that mitigation of damages is an affirmative defense which the party who breached the contract bears the burden of proving by a preponderance of the evidence.  While the District Court conceded that the ocean carrier had the right to empty the containers, it found that the “defendant [NVOCC] failed to meet its burden to prove how or if plaintiff’s failure to act on that right unnecessarily enhanced the overall cost.”

Significantly, the District Court adopted the ruling of the Ninth Circuit, and allowed demurrage damages to run only from the date of expiration of free time until the cargo was declared abandoned.  The District Court also applied the exchange rate for the demurrage and destruction expenses based upon the court-determined abandonment date.

In the end, whether in Puerto Rico or Virginia, the ocean carrier is entitled to freight and related expenses when cargo is abandoned at the port of discharge.



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