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Summary of Working Paper No. 72-1996

IV.3.3: Freezing Damage to Northern Sea Route Cargo: Liability and Insurance Considerations

By Aref Fakhry, Université de Montréal, Québec, Canada

One of the problems associated with shipping on the NSR is the potential frost damage to cargo subjected to very cold temperatures. Such damage raises questions of liability and insurance which I have endeavoured to answer in my paper.

The paper starts by analyzing the liabilities of charterer/carrier and shipper/consignee with respect to freezing damage under the contract of carriage by sea. The analysis covers both charter-parties and bills of lading. It appears that both parties to the contract of carriage have certain duties to guard against cargo damage such as frost. On the one hand, the charterer/carrier is bound to make the vessel "cargoworthy" and care for the cargo and must not deviate from the intended voyage. This could mean that the charterer/carrier must heat the ship's holds or supply power to heated containers throughout the voyage on the NSR. On the other hand, the shipper must provide a sufficient packing and generally prepare the cargo for the contemplated voyage. Loss due to inherent vice lies on the shipper/consignee. For the shipper, possible obligations will be to provide heated containers or select an appropriate type of cargo.

Insofar as the shipowner's liability insurance is concerned, protection and indemnity (P&I) club rules generally cover the shipowner's liability for breach of its obligation to care for cargo and for unfitness of the insured vessel. Liability for deviation is covered by particular rules. It is argued that these provisions are appropriate for the NSR. However, the P&I club should, in addition, exercise its powers under the rules of association to make by-laws regulating the system and method of carriage, storage, custody and handling of the cargo. This would ensure stringent conditions of cargoworthiness are complied with by shipowners.

Turning to the marine cargo policy, it is noted that the Institute Cargo Clauses (A) are the only ones that cover freezing damage to cargo under the all-risk provision. However, because of the exceptions found in these Clauses, it is argued that the latter offer insufficient protection against frost damage on the NSR. The paper proposes the adoption of new clauses, the so-called "Heated Cargo Clauses", closely modeled on the Institute "Frozen Food Clauses".

In summary, because of the higher freezing risks involved on the NSR as compared to regular shipping routes, a higher degree of care with respect to cargo is likely to be required from both the carrier and the shipper on NSR voyages; this should be reflected in stricter conditions of P&I and cargo policy coverage.