Turkey: Case Review: Istanbul Regional Court Of Justice Decided On The Collection Of Demurrage Fee Arisen From Non-Delivered Good

Last Updated: 15 February 2019
Article by Ekin Çinar

In a dispute, where the parties argue on the time bar applicable to the demurrage fee and who is responsible for such fee if the goods were not delivered, by shedding light on a highly debated matter, 13th Chamber of Istanbul Regional Court of Justice upheld Istanbul 17th Commercial Court's decision and rejected the Defendant's grounds for appeal1.

As for the facts of the case, Plaintiff, the carrier, and Respondent, the shipper, have agreed on an affreightment regarding the shipment of sunflower seed oil and corn oil from Istanbul, Turkey to Doha, Qatar. The freight has been paid by the Respondent. Despite all notifications made to the consignee, the goods have not been collected at the port of arrival in Doha. As the goods were perishable and their shelf-life was expired, Qatari competent authorities has decided to dispose the goods. The demurrage and disposal fees and landing charges accrued during the process at the port of arrival have all been absorbed by Plaintiff. In this case, Plaintiff has asked for the reimbursement of such fees and charges from the Defendant.

As to Defendant, it has requested the dismissal of the case by submitting that the demurrage and other fees were time barred and as the dispute concerns a CIF sale, its responsibility has ended, when the goods arrived at the port.

As a specialized court in maritime law, Istanbul 17th Commercial Court has ruled in favor of Plaintiff. The Court has decided that (i) in accordance with Article 1262 (5) of Turkish Commercial Code (ex-TCC), which was in force at the time of the dispute, the one-year prescription period has not expired and (ii) Defendant was responsible for demurrage and other fees, as the conditions stated under Article 1069 of ex-TCC have not been met.

Defendant had two main grounds for appeal. First, it has stated that the shipment was performed in line with a Bill of Lading dated 25 October 2010; however, demurrage and disposal fees and landing charges were paid to the third-party shipping agency company on 6 August 2012, approximately two years later. Second, Defendant was not responsible for the demurrage fee, because Turkish seller and Qatari buyer had agreed on a CIF sale.

For the first ground of appeal, Istanbul Regional Court of Justice referred to Article 1262 (5) of ex-TCC. It was stated that "all charges and collectables including the freight arising from sea freight agreements for carrying goods or passengers; or bill of lading, are subject to one-year time-bar". The Court concluded that the demurrage fee shall be evaluated with respect to this article. As to the initiation of the time bar, after stating that the clock starts when "the debts are collectable", the Court held that it was not the time when the demurrage occurred but the time when Plaintiff had paid the third-party company for the demurrage fee.

The Court also discussed if Defendant was responsible for the expenses made by Plaintiff, especially for the demurrage fee. The Court's decision referred to Article 1069 of ex TCC, where it was stated that "by delivering the goods, the consignee is obliged to pay the freight and expenses related thereto, as regards to the terms and conditions of the bill of lading or contract on which the delivery has been made". In parallel, it was stated in Article 1081 of ex TCC that if the consignee does not deliver the goods, the shipper shall not be acquitted of freight and related expenses. Having reviewed the facts of the case, it has been understood that, despite numerous notifications made to the consignee, the goods were not collected and therefore, the shipper remained responsible for the freight and expenses.

Finally, Istanbul Regional Court of Justice upheld Istanbul 17th Commercial Court's decision, where it was decided that the demurrage fee and expenses were not time barred and the shipper was obliged to reimburse such expenses; and Respondent's grounds for appeal were dismissed. With this decision, the Regional Court followed the Court of Appeal's approach in a similar dispute.3

We do not agree with the Court of First Instance's reasoning, where it has decided that the initiation of the time-bar was the demurrage invoice's date. The Regional Court pursued this reasoning by stating that "the one-year time bar starts when Plaintiff has paid to the third party" and ruled that the claim was not time-barred, in Plaintiff's favor. In our view, the demurrage fee should have been time barred after one year of its occurrence. Plaintiff has paid to the third-party service provider almost after two years from the date it has received the invoice. This payment may be considered as the fulfillment of an "imperfect obligation", meaning that the debtor pays a debt while he is not obliged to do so. Therefore, not examining the date of the occurrence of demurrage, rejecting the grounds for appeal and considering only the date of the demurrage invoice, is open to criticism.

In relation to the second ground for appeal, Article 1203 of current TCC, in parallel to Article 1069 of ex TCC, states that "where the goods are delivered to a person other than the shipper, when this person requests the delivery as to the terms and conditions of the freight or bill of lading or other bill of sea transportation, this person becomes responsible for all payments arising from the freight, bill of lading or other bill of sea transportation where it is designated as the consignee, reimburses customs duty and other expenses if they are made on behalf of him and fulfills all other obligations on his part". That means, for the carrier to request the demurrage fee from the consignee, the consignee should ask for the delivery of the goods and the consignee's payment obligation should be noted in the freight, bill of lading or other bill of sea transportation.

At this point, we would like to discuss the records on the bill of lading as well. During the appeal process, the CIF sale record on the bill of lading is not discussed in detail, as the goods were never delivered to the consignee. However, the Court of First Instance mentioned briefly that "CIF" is a term indicating the transfer of damage and risk and has no relation to the claimed amount in this case.

As a frequent INCOTERM in international trade, CIF sales have indeed a relation with the expenses incurred at the port of delivery, particularly with the demurrage. In this type of transportation (or delivery), the seller must contract for and pay the costs and freight necessary to bring the goods to the port of arrival. The seller also contracts for insurance cover against the buyer's risk of loss of or damage to the goods during the carriage. In return, the risk of loss of or damage to the goods passes to the buyer when the goods are on board the vessel.

To our way of thinking, if the CIF sale is indicated on the bill of lading, this record not only refers to the transfer of loss and damage; but also, it points out that the freight and related expenses occurred at the port of loading have been paid by the shipper; and therefore, the consignee shall bear the expenses that may occur at the port of arrival. Considering that Article 1203 of current TTC requests a contractual term (a record on the bill of lading as often see) for the consignee to be responsible for the expenses, we believe that a CIF record on a bill of lading meets this criterion. Therefore, following the delivery of the goods, in CIF sales as well, the demurrage as a related expense to the freight, should be requested from the consignee and not the shipper.

Footnotes

[1] Istanbul Regional Court of Justice, 13th Civil Chamber, Doc. No. 2018/127, Dec. No. 2018/622 Date: 26.7.2018

[2] Istanbul 17th Commercial Court, Doc. No. 2014/1134, Dec. No. 2017/302, Date: 5.10.2017

[3] See, 11th Civil Chamber of Courts of Appeal, Dec. No. 2014/17506, Dec. No. 2015/6002, Date: 29.4.2015

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