Additional costs and expenses

When a sea carrier files for insolvency in the course of a sea carriage, considerable additional costs and expenses occur in the effort to deliver the cargo to the consignee. German law applies if a German freight forwarder is instructed with a multimodal carriage including a sea leg. This results in the general legal obligation for the forwarder to conduct the transport itself or with subcontractors in order to deliver the cargo to its destination for the fixed freight agreed.

If a sea carrier, instructed by the forwarder, fails to perform its obligation due to financial problems, the forwarder is generally liable for the sea carrier's non-performance as its vicarious agent. Additional costs (eg, transhipping the cargo onto another vessel, extra storage and terminal and freight charges) are part of the forwarder's economic risk regarding whether the amount of freight agreed with the sender covers the costs. The forwarder has agreed on a fixed freight to conduct the transport. Ideally, the internal cost calculation of the forwarder results in a profit; however, in some cases, the forwarder must face unexpected costs resulting in a financial loss for the particular assignment. This is the forwarder's sole economic risk and there are no legal means to assign that risk to the shipper unless specific arrangements have been agreed.

In cases where the shipper has paid the extra costs and expenses, there is significant opportunity for the shipper to seek compensation for those costs from the forwarder under the rules on agency of necessity.

If the non-performance of the sea carrier results in loss of the cargo, the forwarder is liable for the loss under German law. Whether German general transportation law applies to such multimodal carriages or whether German shipping law applies to the specific leg of a sea carriage has been much discussed and there are good reasons why shipping law should apply when the actual sea carrier has not accomplished the sea carriage.

Delay

In cases of delay, German shipping law does not provide for specific rules and civil law applies. According to Section 286 of the Civil Code, the obligor is in default when it fails to perform following a warning notice from the obligee after performance is due. However, there is no need for a warning notice when the obligor seriously and definitely refuses performance or when a warning notice is superfluous for special reasons. There has been much discussion regarding whether a warning notice is necessary. However, as general rule (based on a Hamburg Higher Regional Court judgment (January 13 2016)), the obligation to deliver the cargo is due after half of the designated time for the sea carriage has elapsed from the date of the estimated time of arrival – for example, if the sea carriage should last for 20 days, the obligation to deliver the cargo is due 10 days after the estimated time of arrival. If the shipper then sends a warning notice to the forwarder setting a time limit of one week to deliver the cargo, the prerequisites for delay are fulfilled because the forwarder has no possibility to exempt itself from liability, as the forwarder is liable for the non-performance of its vicarious agent. Even if no proper warning notice has been sent, there are good arguments that a warning notice is legally superfluous when the obligee has no actual capability to fulfil the duty to deliver within the time limit.

When a liability for delay is established due to the general civil law, there are no limitations of liability and the claim comprises pecuniary damages. However, according to the Freight Forwarders' Standard Terms and Conditions, liability might be limited.

Comment

According to German law, a forwarder is generally liable for loss, damage and delay caused by the subcontractors' failure to perform or lack of performance due to financial problems. The forwarder bears the risk for additional costs and expenses. An increase of the fixed freight can be demanded in addition to the agreement only under the strict requirements of Section 313 of the Civil Code, and only if the circumstances which have become the basis of the contract have changed significantly since the contract was entered into and if the parties would not have entered into the contract or would have entered into it with different conditions had they foreseen this change. Further, Section 313 demands that the forwarder cannot reasonably be expected to uphold the contract without alteration, taking into account all of the circumstances of the specific case, particularly the contractual or statutory distribution of risk. The prerequisites for an adjustment of the agreement include the strict strengthening of the general principle of sanctity of contracts. The forwarder is generally bound to its agreement with the shipper and is not entitled to a higher payment than the agreed freight when unexpected costs and expenses occur as a result of a bad or non-performance of one of the forwarder's subcontractors.

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For further information on this topic please contact Steffen Maelicke or Marco G Remiorz at Dabelstein & Passehl by telephone (+49 40 31 779 70) or email (s.maelicke@da-pa.com or m.remiorz@da-pa.com). The Dabelstein & Passehl website can be accessed at www.da-pa.com.