Legal implications of Hanjin Shipping's collapse

Mike Burns
23 September 2016

The early ramifications of the insolvency of Hanjin Shipping, which entered Korean administration on 31 August, have been startling, but in some ways unsurprising given Hanjin’s position as the world’s seventh largest container line operator.

Against the uncertainty is the consequence that goods are now being seriously delayed in getting to market,  a “double whammy” result of ships having to stand off ports for fear of arrest (or ports refusing entry), and port operators detaining boxes as security for Hanjin debts.  Accordingly the cargo supply chain has had to consider exposures and remedies opposite other parties in the logistics chain, or via insurance.

Detention of containers by ports

Unpaid port and container dues has led to some port terminals refusing to release Hanjin boxes. The right or otherwise of ports to refuse release of containers will usually be referable to lien provisions in their terms and conditions. Relevant considerations of challenge will include whether their contractual lien is sufficiently wide, and whether there is in fact debt due rather than an attempt to secure credit for future debt.

Also of relevance will be how widely “Customer” and “Goods” (or similar terminology) are defined in port operators’ terms, so as to capture not simply containers but also the goods inside belonging to  third parties. Although the shippers are blameless (save in the misfortune of having shipped with Hanjin), ports are likely to argue that the cargo owner has consented (perhaps unwittingly in its contract with the forwarder) to the terminal operator’s lien. 

Freight Forwarders’ exposure

Freight forwarders exposed to customer claims as a result of the situation will need to consider the effective incorporation of terms opposite their customer. For example under BIFA Conditions it may be unlikely that any liability could bite, since the withholding of boxes by Hanjin (or port) by reason of the insolvency might be considered an event that the forwarder or NVOCC was unable to prevent by the exercise of reasonable diligence under clause 24(B). There is also a factual issue of whether the forwarder was acting as principal or agent in carrying out the services.     

Insurance claims

Under many standard cargo policy wordings rights to indemnity will usually only arise where goods have been either lost or physically damaged, but not where they have been merely delayed, causing a purely financial loss of market, or if there is simply fear of loss. There is also devil in the detail of common exclusions, such as vessel operator insolvency where the insured was aware of the insolvency, or loss or damage proximately caused by delay.

Owners of perishable cargoes that stand to be affected by longer transit times will be expected to give prompt notification to insurers to be “held covered” in circumstances where the carriage has been interrupted due to circumstances beyond their control, subject possibly to payment of additional premium.  

More likely is that cargo owners will claim under their policies for recovery of forwarding or transshipment costs if there is termination of transit by reason of the insolvency, and arrangements needed to be made to ship containers with a substitute carrier. Such costs may in principle be recoverable under many standard policy wordings. 

Comment

The Hanjin insolvency situation and its consequences remain fluid and subject to almost daily developments. However, as between the logistics chain and their insurers, potential battle lines are already being drawn and tested.  

☛ Mike Burns is partner in marine at law firm Weightmans.

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