Awarding compensation for cargo claims

Mitigating loss
Filing a claim
Cargo Defence Fund
Protection and indemnity insurance

Every year, billions of dollars are lost by shippers carrying goods to and from Nigeria. The cause of such loss is attributed to loss or damage by the carrier, the use of independent contractors, a breach of international contracts of sale and, in recent years, hijacking by pirates off the Nigerian coast. Piracy alone costs the global shipping industry more than $9 billion a year.(1) This update looks at different ways in which shippers can mitigate their losses and claim compensation.

Mitigating loss

There are three ways in which a shipper can mitigate its loss. Cargo claims in Nigeria are governed by the Carriage of Goods by Sea Act 2004. This act embodies the Hague Rules of 1924. In JFS Investments Ltd v Brawal Line(2) the Supreme Court confirmed that the rules are applicable to all contracts of carriage of goods by sea covered by a bill of lading where such goods are inward-bound cargo, and parties will not be allowed to contract out of the obligations imposed.(3) Thus, actions arising from inward shipments must be instituted within one year of the cause of action arising – that is, one year after delivery of the goods or the date on which the goods should have been delivered.(4)

Shippers which have suffered loss or damage can claim compensation either from the carrier,(5) through their legal representatives, or through the Nigerian Shippers Council's Cargo Defence Fund. They can also claim compensation from their insurance companies.(6) In addition, shippers can claim compensation from negligent third parties such as independent contractors – for example, stevedores engaged by the carrier can be sued for damage done at the point of loading and unloading the cargo. Most insurers will pay out only if they are satisfied that the insured has taken steps to avert or minimise the loss by instituting claims against the carriers or any other responsible third party.(7)

Before a claim can be made against the carrier:

• it must be verified that the claim is a maritime claim covered by the Admiralty Jurisdiction Act;(8) and
• notice of the loss or damage must be put in writing and given to the carrier at the port of discharge or within three days after the damage is discovered if such damage could not be checked at the point of removal.(9) Such notice will not be required if the state of the goods were inspected by both parties at the point of receipt.(10)

Filing a claim

In order to file a claim against the carrier or a third party, the shipper must:

• give immediate notice of loss or damage to the carrier or negligent third party;
• insist on a joint survey of the goods and take photos of damaged goods;
• document all evidence of damage by taking statements and collecting proof of the condition of the goods;
• investigate the cause of the damage; and
• decide which carriage of goods by sea rules apply and whether a claim can be brought in Nigeria (according to the contract of carriage entered into between the parties).

The shipper can then institute a claim at the Federal High Court against the carrier or the negligent third party averring that cargo was received by the carrier in good order and condition but did not arrive as such. If the Hague Rules apply, the shipper can argue that the cause of the loss or damage was the carrier's lack of due diligence in either ensuring that the ship was seaworthy or properly manned, equipped and supplied, or in making the hold refrigeration and cool chambers safe for the receipt, carriage and preservation of the goods.(11)

The shipper must then prove the essential requirements for the loss on a balance of probability. If the shipper succeeds, the carrier may, on the balance of probability, prove its right to limit its liability to a lesser amount, provided that the loss was not a result of its personal act or omission.(12)

Alternative dispute resolution (ADR) mechanisms such as mediation or arbitration can be used in commercial dispute situations. In fact, it is advisable to explore these routes and to institute an action at the Federal High Court only if ADR fails. The limitation period for cargo claims is one year from the date on which the cause of action arose; thus, shippers engaged in ADR mechanisms must ensure that proceedings are concluded before the limitation period ends.

Cargo Defence Fund

The Cargo Defence Fund is a non-profit mutual scheme for shippers set up by the Nigerian Shippers Council (NSC) in pursuit of international commercial claims recovery.(13) The fund provides the mutual scheme beneficiary with legal advice, a loan to pursue a litigation or arbitration claim, payment for risk management services, foreign legal representation and cover for specified risks as agreed to by the fund.(14) Any registered Nigerian importer or exporter which has subscribed to the fund and paid the relevant registration fees can benefit from the fund.

The fund's claims procedure is as follows:

• The shipper must be a beneficiary of the fund by subscribing to the fund and paying the relevant registration fees.(15)
• The claim should be made in writing to the secretary of the fund, including the date, place and details of the transaction causing the loss, the amount of the claim and the efforts made by the shipper to remedy the situation.
• Claims are processed by the secretariat and presented before the board of trustees.
• Settlements are dealt with promptly and in accordance with the rules of procedure.(16)

The fund is available to all shippers, regardless of their nationality, provided that they are registered Nigerian shippers.

Protection and indemnity insurance

Over the past two years the level of piracy has doubled on the Gulf of Guinea. Nigerian protection and indemnity clubs and insurance companies (in conjunction with the Nigerian Insurers Association) offer indemnity cover for loss or damage to cargo, and war risk cover to vessels trading in areas prone to hostilities such as Nigeria, where piracy is on the rise. International protection and indemnity companies and insurance companies now offer coverage designed to deal with threats from pirates by including services such as ransom reimbursement(17) and loss of earnings cover in the case of contracts cancelled due to delay.(18) Thus, shippers which have suffered loss due to hijacking and cargo theft can claim compensation from their insurers.

To claim from an insurance company in the event of loss or damage,(19) a shipper should:

• give immediate notice in writing to the insurance company;
• insist on a cargo loss joint survey of the goods and take photographs of the damaged goods;
• provide full documents as stated on the back of the marine certificate (including the stamped copy of the bill of lading from the bank);
• provide a full estimate of the loss (after the joint survey);
• show the salvage amount if it is different from the total loss amount of cargo;
• surrender all correspondence with third parties to the insurer (eg, bank documents);
• claim against any negligent third party (eg, ship agents, master of the vessel and road transporters) and provide copies of such claim documents to the insurer; and
• ensure the proper follow-up of the claim with the insurer in writing, speak to the relevant officers of the insurance company and document every follow-up in writing.