Due to the nature of bulk cargoes, it is not always possible to determine the exact quantity of the cargo because different measurement methods, taking different variables while calculating and sometimes a simple calculation error may result in unwanted outcomes.
Foreseeing the risks, acting prudent and taking preventive measurements are key when protecting the vessel interests in order to prevent the possible consequences.
There are two aspects of the cargo claims in the Turkish Jurisdiction; the problems with the cargo interests and the problems with the customs authorities.
Problems with the Cargo Interests
When we look at the cargo shortage claims that are raised by the cargo receivers; as the price of the cargo is usually calculated by B/L quantity, buyers/receivers are looking to have the full B/L figure in their warehouse in exchange of the amount that they have paid. Therefore, when a difference between figures is in question for the discharged cargo at the shore scale –sometimes even with the draft surveys- receivers tend to hold the vessel accountable for the shortage and ask for compensation from vessel interests.
As a precautionary measure in order to minimize ‘virtual losses’ that may arise due to the measurement methods (shore scale vs. draft survey) and measurement variables (shore scale calibration differences) is to add clauses such as “cargo quantity as per draft survey” or similar into the charter parties. It should also be noted that draft surveys are always a better option as they provide more consistent results compared to shore scale figures, and should be considered as a preventative measure in order to eliminate virtual losses. It is important to note that in situations where the receivers are not the charterers, it could be beneficial to incorporate the charter-party terms to the
B/L by making a reference to the charter-party in order to prevent the receivers who could possibly claim that they are not bound the ‘draft survey’ clause. Therefore, as per art. 1237 of the Turkish Commercial Code (“TCC”), incorporated charter-party terms can be applicable against the holder of the B/L provided that the copy of the charter-party is also given to the holder during the endorsement of the B/L. Accordingly, in order to get the full performance from the incorporations on the B/L, it is advisable to have the charter-parties submitted to the receivers during endorsements.
Regardless of the charter-party terms, in cases where the alleged cargo shortage claims are taken to court by the cargo receivers, draft survey results are deemed as strong evidence by the Turkish courts.
Another preventive measure to be taken against groundless cargo shortage claims is sealing of the holds after loading. Sealing and unsealing reports issued by respected survey companies are fruitful before courts to indicate that the vessel interests are not responsible for the alleged loss. Even though the approach of the courts may vary, there are precedent cases where the courts have rejected receivers’ shortage claims by pointing out the cargo receivers should prove vessel interests negligence for shortage since the holds were kept sealed during the voyage. Although the sealing-unsealing procedure may seem as a loss of time and as an extra expense, it surely pays off in disputed situations and it is highly advisable to consider sealing as preventative measure when trading with unknown or problematic parties.
The rate of wastage is also another factor that should be evaluated when shortage claims are in subject. Wastage is deemed as ‘the loss caused by the nature of the commodity’ as per art. 1182 of TCC where the carrier/owner cannot be held responsible for the losses within wastage limits. However, the limits of wastage are not defined within the Turkish legislation. Therefore, for disputes where the wastage is in question, pursuant to the precedents of the Court of Appeal, courts ask to various Chambers of Commerce in order to be informed about the wastage rates for the subject cargo. Unfortunately, it is not possible to say that there is a consensus on the wastage rates and even on the same types of cargo, the courts lack of consistency in practice. When looking at the precedents, there are cases where one court had accepted 3% as wastage and another courthad accepted 0.3% as wastage on coal cargo.
At this point it is necessary to emphasize that TCC is prepared in conformity with the International Convention on the Arrest of the Ships, Geneva, 1999. In this respect cargo shortages are evaluated as ‘loss or damage caused by the operation of the vessel’ under art. 1352 of TCC and thus shortage claims provide a Maritime claim for the vessel to be arrested. Therefore, consequences of cargo shortages are not only limited to the compensation claims, but the risk of arrest is also included.
Of course, it should always be remembered that each receiver is different and the approach is the key factor when defining the course of the situation. Some receivers may not overlook to %5 discrepancy and some may threaten to arrest the vessel even at a %0.5 discrepancy between B/L figure and draft survey results. With the serious risks that may be imposed by the receivers, in a situation where there is a potential cargo shortage, the most prudent way to handle the situation will be getting assistance from a local correspondent for services including but not limited to the appointment of a surveyor and negotiating with the receivers.
Problems with the Customs Authorities
According to Turkish law, if the cargo loaded on the vessel is found to be short or overloaded at the port of discharge, it must be proved that this shortage or overloading has been occured at the port of loading. In accordance with the Customs Law, the vessel's agent will be notified on behalf of the vessel.
When dealing with the Customs Authorities, agents act as a key player since they are to officially submit a declaration/statement that is called the “Summary Statement” informing the customs authorities about the type and the quantity of the cargo that is to be discharged.
Once the discharge is completed, The Authorities compare the declared quantity of cargo with the shore weighbridge figures in order to investigate if there is a cargo shortage or an overlanding problem. Even though in practice this usually is the only officially used and recognized method that the Customs prefer ,during the application for the cargo import formalities, the Agent can request to determine the quantity of the discharged cargo in accordance with the draft survey figures. It is important to note that for the countable cargoes, the vessel must discharge the exact pieces of cargo as declared in the statement and the quantities as in the cargo documents.
Art. 237/4 of Customs Code provides that ‘Discrepancies between the summary statement and the actual discharged amount up to %3 in bulk cargoes will not be subject to an investigation’. In other words, if the discharged cargo quantity is %3 more or less than the declared amount, the customs authorities initiate an investigation for the discrepancy.
Some cargoes such as derivatitives of crude oil (e.g. “Paraffin”, “Toluene”, “Benzol”, “Fuel Naptha”, “ Solvent Naphtha”, “Diesel Oil”: 0,5%, “Fuel Oil” : 0,4% , “Crude Oil from petroleum and bituminous minerals”: 1%) have special limits determined as per their assigned codes within the “Harmonized System” developed by the World Custom Organization (WCO).
In practice, when a discrepancy more than %3 is question (Please kindly be informed that customs authorities usually consider the shore scale figure for the discharged cargo quantity), customs authorities issue a notification declaring that an investigation is commenced for the discrepancy. The notification is firstly served to the party who have submitted the summary statement to the customs authorities which is the agent in general practice.
From the day that the notice is served the Authorities will grant a 3 month period to seek an explanation from the Owners/their agent to clarify the cause of the shortage/overlanding. If an extension to the 3 month period is needed, an additional 3 months can be given by the Customs. Before the expiry of the second 3 months, and additional one (1) month can be requested. However the granting of the extension periods are within the discretion of the Custom Authorities and the Authorities may ask for a satisfactory explanation and supporting documents for the cause of the extension may be asked for.
Article 237/7 of the Customs Law states that the fine is imposed on the person who has filed the “Summary Statement”, which is the local agent. However please kindly note that this does not mean that the Owners/Carriers are not liable for the fines and the reason for this practice is only to secure the state. Of course the fine paid by the agents are generally followed by a recourse action to be filed Owners/ Carriers. In practice the agents demand an LOU in order to secure their position.
In order to cancel the imposed fine, an explanation letter obtained from the load port which indicates and justifies the reasonable cause of the shortage/overlanding of the cargo should be submitted. The letter must confirm the corrected figures in accordance with the figures at the discharge port and should be certified by the Chamber of Commerce or in case of absence of the same by the Harbor Master. The Turkish Consulate or the Embassy must legalize the letter. Absence of a submission or non-acceptance of this document will result with a fine in relation to the shortage or the excessiveness of the landed cargo above the allowance limit.
An official letter could also be obtained from the port authorities in case a shortage is the matter at a port the vessel discharged her cargo whereas an excess is found for the continuity of the same cargo discharged at the next port where overlanding occurred in order to present same to the Customs authorities at the port where the shortage is the matter to justify the deficiency.
Calculation of the fine amount;
For the excess, only the quantity exceeding the specified trade allowance limit by the law shall be taken into consideration.
For the shortage; Customs tax+ VAT+ Special Consumption Tax which are generally equal to the import taxes.
Below you can find the articles regulating this matter and information on the legal procedure.
In Article 3/ç of the Circular dated 24.01.2012 and numbered 2012/2 of the General Directorate of Customs dated 24.01.2012 it has been stated that,
"The declarant shall prove the reason for the shortage or overstatement by submitting one of the following documents within the 3-month proceeding period;
1.An official document obtained from, the Port Authority of the port where the cargo has been laden, from the departure agency or, if the carrier is a public institution, from this public institution,
2. If the institutions and organizations specified in subparagraph (1) were absent during shipping, the document approved by; the highest administrative authority at the port where the cargo has been laden, customs administration, chambers of commerce and industry or port authority
In this respect, in accordance with the circulars mentioned above, the said shortage must be documented within 3 months from the da"te of notification. Otherwise, legal actions will be taken in accordance with Article 237 of the Customs Law No. 4458.”
According to Article 237 of the Customs Law No. 4458;
“In the default of demonstrating within the period prescribed by the customs administration, that the packages, proved to be deficient as a result of the amount registered in the summary declarations or the commercial or official papers used as summary declarations submitted in accordance with Articles 35/A to 35/C, have not been loaded from their provenance or have been unloaded in another port or lost or stolen due to any accident or average; and provided that the tariff classification of the goods kept within these deficient packages cannot be determined, a fine shall be charged on these goods, at an amount under their tariff classification or if tariff classification cannot be determined, under the highest dutiable classification of the chapter in accordance with the nature and the description of the goods. “
The procedures to be applied as a result of the application of this provision are as follows;
The payment period of the amount subject to this penalty decision is 1 month from the notification of the decision. The amount must be paid to the Accounting Office within 1 month. (Payment can also be made from Bank Branches and through Gümkart). In case the tax subject to the penalty will be paid within 1 month from the date of notification of the decision, a discount of 1/4 will be applied in accordance with Article 17/6 of the Misdemeanors Law No. 5326.
For the amount stated in the penalty decision, the right to request postponement and installment has been granted in accordance with Article 48 of the Law No. 6183 and the Customs General Communiqué on Collection Transactions No. 2. According to paragraph 4 of Article 6 of the Customs Reconciliation Regulation, if the said amount is related to the smuggling offenses included in Article 3 of the Anti-Smuggling Law No. 5607, no settlement request can be made.
An objection can be made to the Authorized Customs Directorate and Foreign Trade Regional Directorate within 15 days from the date of notification regarding this penalty decision. If the decision will not be objected within the time limit, if the objection will be rejected by Authorized Customs Directorate and International Trade Regional Directorate, if the judicial remedy will not be applied within the time limit after the notification of the rejection of the objection, or if the administrative judicial authorities decide in favor of the administration, the penalty decision will be finalized administratively.
Customs Reconciliation Regulation provides the right to request a settlement within 15 days from the date of notification of the penalty decision. If a settlement request will be made, the 15-day objection period will be suspended. In case of failure to settle, the period will start to run from where it has left off, and if there are less than 5 days left until the end of the period, the period will be completed to 5 days. The commission must grant their decision within 30 days from the application date and invite the applicant for a settlement meeting and the presence of legal counsel will facilitate the resolution process by providing expert representation in the matter of reconciliation. However, the fined party has the right to file an official objection to the “Customs Trade Directorate” within 15 days from the date of notification. If the objection is rejected then the fined party has the right to file before the Tax Court within 30 days from the date of rejection.
If the amount subject to the penalty decision will not be paid, objected, postponed, installed or if a settlement application will not be made regarding the amount or if the dispute will be concluded in favor of the administration, as a result of administrative proceedings, the said amount will be collected in accordance with Law No. 6183. If the fine will be paid within 1 month from the date of notification of the decision, a discount of 1/4 will be applied.
In the light of the mentioned, when taking into consideration that it will be much harder, even sometimes impossible, to solve the problems which may arise due to wrong documentation at the discharge port, acting prudent and assuring that B/L indicates the correct cargo quantity can protect vessel interests from facing serious consequences. As a precautionary measure, before the documentation are to be signed at the loading port, the quantity of the cargo should be checked carefully. In practice, even though surveys do not seem to be recognized by the Customs authorities, for the purpose of double checking the quantity figures and for possible future negotiations with the cargo interests, joint initial& final draft survey and tally survey could be carried out at the discharge port together with monitoring the shore weighbridge scale figures. When concerning liquid cargo, all measurements during loading/discharging should be closely monitored/conducted at the vessels and at the shore tanks (if possible) by a trusted surveyor on behalf of the owners to ensure correct measurements.
It is also important that the Masters of the vessel to monitor the “Boil-Off” ratio and keep the consumption of the vessel within the limit of %6 of the total B/Ls figure when LNG cargo discharges are the subject at Turkish Ports in order to avoid exorbitant fine enforcements and cargo shortages.
For further information and assistance please do not hesitate to contact us.
GUR LAW FIRM
Dila Gür, Esq., Melisa Kurter,Esq.