The Perils of Oral Commitment

Many a time the handling and carriage of goods are expected to be governed by the Standard Trading Conditions and terms of Bill of Lading issued by the NVOCC. One purpose of having such applicable terms would be to avoid certain liability by way of exemption clauses or where liability does arise, there would be limitation clauses to restrict the quantum of settlement. As such clauses work for the benefit of the carrier, it is not unexpected that the claimant would find way to challenge the application. One aspect that could lead to a challenge would be the conduct of business leading to the concluded agreement involving oral negotiation. Oral commitment could have an over-riding effect and thereby restricts the application of such exemption or limitation clauses, when the claim is determined in a court of law. The following case that was decided in Singapore court provides an insight into increased liability arising from an oral commitment.

In this particular case, the plaintiff secured a contract to provide (on rental) a party in Macau with thirteen sets of x-ray machines, which were to be used on 19-Dec 2000 in connection with the first anniversary hand-over celebration in Macau. In preparation for the celebration, these machines should be operational ready on 18-Dec 2000. Hence arrival at Macau on time would be crucial for such shipment.

The plaintiff's sister company negotiated orally with the defendant NVOCC for the shipment of these machines. The machines would be shipped from Brunei via Singapore for Macau . On 14-Dec 2000 the defendant fixed a draft bill of lading showing vessel Kota Perkasa as carrying vessel for Singapore/Macau leg with the plaintiff company indicated as shipper. On the same day the defendant faxed to the plaintiff's sister company providing the vessel ETA in Macau .

Two days later on 16 Dec 2000 (which was also two days before operational ready date), the plaintiff came to know that the machines were not onboard Kota Perkasa but were loaded into a different vessel, which was not scheduled to arrive Macau by 19 Dec 2000. In response to this development, the plaintiff with the concurrence of the customer in Macau immediately arranged for alternative machines available in Singapore , to be sent by air to Macau . Unfortunately the earliest available flight to meet the schedule in Macau was from Kuala Lumpur to Hong Kong . In the emergency of the situation, the machines were trucked from Singapore to Kuala Lumpur , unfortunately with some delay. While on the way to KL on 18 Dec 2000 the party in Macau cancelled the rental contract.

What followed was inevitable. A claim which was made against the defendant culminated into a legal suit. The plaintiff sued the defendant for breach of oral contract of carriage, in particular for the breach of an obligation to monitor the shipment. The defendant obviously denied such obligation and raised additional defence that any oral contract was between defendant and plaintiff's sister company. Not unexpectedly the defendant further invoked the relevant exemption and limitation clauses in its defence. Details in these aspects were as follows:

• The quotation from defendant contained in printed form that all transactions would be subject to the Singapore Freight Forwarders Association (SFFA) Standard Trading Conditions and that any carriage contract was subject to these conditions.

• Terms of the bill of lading were ruled to form part of the contract notwithstanding that the bill of lading was not issued at the time the oral agreement was made.

• In view of past services provided by defendant, it was considered that the plaintiff was aware that there were standard conditions in the bill of lading. Hence these conditions would apply to the shipment.

• The clauses that worked in favour of the defendants were the following:• SFFA Clause 6 – to exclude liability for loss or damage to property other than the goods themselves, indirect or consequential, loss of profit and consequence of delay or deviation.

• Clause 6 of the Bill of Lading in its sub-paragraph has a similar comparable exclusion.

• Two other separate clauses contain provisions to limit the liability of the carrier for claim relating to delay.

• Two other separate clauses contain provisions to limit the liability of the carrier for claim relating to delay.

Conclusion of the case: It was decided that:

• The defendant knew the plaintiff's sister company was acting as agent for the plaintiff and negotiated on its behalf.

• There were expressed and implied terms in the oral agreement that the defendant would monitor the shipment and kept the plaintiff informed of progress

• In speaking over the telephone on 15 Dec 2000, the defendant had negligently misrepresented (and in breach of obligation) that the machines were due to arrive Macau on 17 Dec 2000 on board Kota Perkasa.

• All the exemption clauses as raised above were ineffective and would not encompass liability for negligence and therefore would not apply to negligent misrepresentation.

• On the limitation clauses, it was similarly ruled that these could not apply to defendant's liability arising from their negligence in failing to properly monitor the shipment.

The defendant was directed to pay damages to the plaintiff for loss of income and cost of attempt to mitigate the loss by embarking on the air sending of alternative machines. The defendant appealed and failed.

While the underlying full details of this claim are likely to be unique in this case alone, there are certain observations which can be made for the group practice and these would be:

• The Bill of Lading under the Indian format provides a section on ETA. It is therefore essential that this information should never be stated, as the quantum of claim can be substantial if exemption and limitation clauses do not help in event of delay, which in any case is almost beyond the control of the NVOCC.

• Discussion with customer and telephone advice should be cautiously carried out in order not to increase the liability of the carrier.

Facing a claim of this nature, the carrier would have to depend on its policy covering Error and Omission. If the insurer determined that no error or omission had occurred, there would be no claim under the policy. In addition, where delivery date was agreed upon the specific instruction of customer and the carrier failed to deliver on time, such liability is likely excluded in the policy. Hence commitment on delivery date carries grave consequence for financial loss which may not be insured.

Disclaimer – Professional advice is not intended in this article. Case details summarized for general understanding only.