International trade laws: Delay in clearance of goods and demurrage charges

International trade transactions relate to the importation or exportation of goods or services from one country to another. Both on importation and exportation these transactions confront many problems and at times such issues are difficult to understand or deal with. One such issue is the payment of demurrage charges when clearance of goods is delayed at the port. The delay may be intentional or due to complicated customs procedure, the imports suffer an additional expense. May be the action of the port authority looks coercive but the fact is that these charges are the outcome of contractual obligations under maritime laws.

Since the issue is of public importance, hence an attempt has been made to:

(a) Explain the nature of demurrage charges;

(b) Explain (through example) the circumstances under which the charge of demurrage becomes legally enforceable;

(c) Who is responsible for delayed clearance in a given situation?

The strict meaning of “demurrage” is the agreed amount to be paid by the charterer of a ship for each day taken in loading or discharging beyond the respective times fixed for those operations; “the word ‘demurrage’ appears to be more applicable to delay in time after the expiration of a fixed time than to delay after the expiration of a reasonable time.1 The term cannot be easily applied to time after the expiration of a reasonable time”2 eg where the loading or discharge is to be “in the customary manner.” But sometimes where a cesser clause (exonerating the charterer) is accompanied by a lien on cargo for “freight, dead freight, demurrage, and average,” or such like – “demurrage” will include detention other than that which is technically demurrage.3 On the other hand, where the lien is not co-extensive with the charterer’s liability, the cesser clause will not, under “demurrage,” include damages for a detention not covered by the lien.4 The only condition which is to exist before the freighter is bound to pay demurrage is that the days allowed, that is, for the discharge of the cargo, should have commenced to run and should have run out.”5

Anything to excuse the freighter after the days have run out must be by way of confession and avoidance; and the freighter cannot avoid his liability unless he proves that the delay arose from the ship owner’s fault – ie fault by himself or his employees, or by circumstances over which he had control.6 That principle is applicable for determining what is a sufficient excuse to a contractor for the non-performance by him of his contractual obligation under every kind of contract.

“Demurrage” is usually applied to a stationary detention, but in a Railway Act it means giving traders “a reasonable sum by way of demurrage for any detention of trucks beyond a reasonable period,” “demurrage” includes detention during transit7 “demurrage,” means a “charge for damage directly occasioned by reason of a truck lying idle and unemployed.”8 Therefore, a claim for the equivalent of the damage indirectly resulting by reason of the detention of a truck is not one for “demurrage” within a clause making it compulsory to go to arbitration thereon.9

How goods are delayed and demurrage charges become applicable is evident from the facts and circumstances of the case of an import made by an importer X10 which was subject to Pre-shipment Inspection.

Importer X imported the goods and the job to file clearance documents for the release of goods was given to a clearing agent on 4th of August. The good declaration was filed on 15th of August. The customs issued a show cause notice on August 17 alleging that required transport documents were not found in the container.11

The declaration of the importer regarding imported goods too was not accepted by the customs and additional documents were demanded on August 19 for making assessment of the imported goods. The duty demand was finalised on August 20 and an additional customs duty was assessed apparently on the ground that goods did not conform to the description given in the goods declaration as reported by the customs examination staff.

This examination report was contested by the importer and on his insistence the sample of goods were sent for chemical examination, the examination confirmed that the importer’s declaration was correct, accordingly the additional customs duty demand was withdrawn on 7th of October.12 However on 13th October customs imposed a penalty of Rs 5000 for the violation of a customs rule, say rule 30. Since a penalty was imposed hence no delay and detention certificate could be issued. The importer had to pay an amount of Rs 29.9 million as demurrage charges.

The facts stated above lead to the following important questions:

(i) In the first instance why Pre-shipment Inspection Report (PSI),13 was not accepted by the customs and on what basis the goods were re-examined by disregarding the PSI report;14

(ii) Why show cause notice was issued to the importer say under rule 30 of the Customs Rules without determining that who was responsible for the violation relating to placement of transport documents;15

(iii) The role of customs agent particularly with reference to his professional competence.16

Let us now review the said questions in order to determine the circumstances under which delay was caused:

a) Why PSI report was not accepted by customs? In absence of any cause or explanation, it can only be inferred that both the importer as well as the clearing agent were not aware of the customs regulations. The customs cannot ignore a PSI report in a routine manner. The clearing agent simply failed to assert importer’s legal rights and the failure lead to the examination of the goods and the laboratory test and these steps delayed the clearance of goods.

b) The issuance of show notice to the importer in respect of transport documents was ab initio wrong and illegal under the relevant rule of customs rules as placement of transport documents in the container was the responsibility of the exporter or the shipping company. The clearing agent perhaps did not had the professional knowledge of custom’s law and procedure hence he failed to assert the legal rights of the importer. Furthermore the relevant rule of the Customs Rule did fail to conform to the statute itself as no enabling provision in the relevant statutes namely, did ever exist requiring for the placement of customs invoice in the container, hence the said rule stood repugnant to the Customs Act, and not enforceable.

c) The agent’s knowledge of customs laws and procedures was not up to date and he was ignorant about procedural requirements. He was not professionally motivated to defend the legal rights of his client, and even failed to challenge an illegal show cause notice.17

From the said facts and circumstance one may conclude that:

(i) The clearing agent contributed towards the delayed clearance as he failed to provide a quality service.

(ii) The importer himself was indolent and negligent.

The demurrage charges were accordingly payable by the importer since clearance of goods took an inordinate delay.

(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates. To see author’s other areas of interest visit Zafars Blog on International Studies http://blogoninternationalstudy.blogspot.com)

1. Lockhart v. Falk (L.R. 10 Ex. 132).

2. Free time and Demurrage: Port demurrage: A specified free-time is allowed to clear out the cargo by consignee(s) from Port premises. Thereafter, demurrage is applicable at the specified rate per day/gross tone (including container tare weight), which is charged and collected by the port authorities directly from consignee(s), without any influence and/or involvement of shipping lines/agents. Container deposit: A specified amount per dry container and per reefer container is collected from the consignee as cautionary amount. This amount is refunded once the empties are returned/delivered to our nominated depot, after deducting detention/damage charges (if any). Line detention: A specified time of free days from the date of vessel arrival is allowed by carrier to the consignees to take full boxes from port premises to their warehouse, devan the cargo and return the empty container(s) to depot. Thereafter, the detention charges are specified per day for dry container(s) as well as for reefer container(s). Plug-in charges at Port terminal: Specified amount per day per unit from 4th day onwards is charged directly to consignee(s) by port authorities. See also Dunlop v. Balfour [1892] 1 Q.B. 507.

3. Brett J., Kish v. Cory, L.R. 10 Q.B. 559, 560; per Bowen L.J. , Clink v. Radford [1891] 2 Q.B. 625.

4. Id.

5. Esher M.R., Budgett v. Binnington [1891] 1 Q.B. 35 ; see further Tiis v. Byers, 1 Q.B.D. 244; Porteus v. Watney, 3 Q.B.D. 543; Straker v. Kidd, 3 Q.B.D. 223.

6. Id n 5.

7. Charrington v. London & North Western Railway [1905] 2 K.B. 437; see this case as to what is a “reasonable period,” and what a “reasonable sum.”

8. Darling J., R. v. Marylebone County Court Judge, 75 L.J.K.B. 906.

9. 2 K.B. 664; Sutton v. Begley [1923] 2 K.B. 694.

10. Facts have been borrowed from a dispute which arose as a consequence of import of manganese made by a leading steel manufacturer.

11. It was stated by the customs that (say rule 30) of Customs Rules was violated.

12. This event gives a cause to the importer to seek damages.

13. At the relevant time, import of relevant goods was subject to Pre-shipment Inspection.

14. Had the customs accepted the PSI report, possibly the delay could have been avoided. The record shows that customs never intimated the importer that on what grounds PSI report was rejected.

15. The importer and agent must have been aware that the duty to place transport document was that of exporter and not of importer say under rule 33 of the customs rules. The inefficiency on the part of importer caused loss.

16. A custom agent is supposed to know the procedural requirements better than customs staff.

17. Say under rule 33, it was not the responsibility of the importer and thus the agent failed to display a required level of professional competence.