Landmark ruling mounts pressure on cargo owners to avoid deals with crooks
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| It is now more important than ever for cargo owners to check credentials of all parties involved in a deal |
Hong Kong, 12 September 2002 - The owner of a missing cargo of palm oil worth US$ 2.5 million has been defeated in his court battle to recover insurance for the loss. The ship carrying the cargo disappeared on the high seas along with its captain and crew.
The Pacifica left from a Malaysian port in 1998, but never reached her official destination, Beihai in China.
Investigations later revealed that neither the chartering nor ship owners' companies had ever existed, and that their official Manila address was false. The identity papers of captain and crew were also shown to be forged.
At the trial, the ICC's International Maritime Bureau (IMB) said the case showed all the signs of a phantom ship fraud, and gave expert evidence on what constitutes a phantom ship operation - when a vessel chartered by criminals is loaded with goods, and then given a complete identity change after leaving port. Instead of sailing to the contractual destination, phantom ship operators steal the cargo and discharge it illegally at a different port using fake identity papers for the vessel and cargo.
The court in Hong Kong heard how analysis of the evidence suggested the cargo of palmolein was the subject of a theft, well-planned and executed by the ship's fraudulent owners and operators.
In a ground-breaking move, the judge ruled that the cargo's insurers could not be held liable for the risks of the actual journey because it was different from the one described in the insurance policy.
The insurers' defence was based on a 100 year old maritime law, Section 44 of the Marine Insurance Act (MIA), which says a risk does not attach when a ship sets off for a destination other than that specified in the policy.
This is the first time that insurers have invoked Section 44 MIA to avoid paying up.
IMB Director Captain Pottengal Mukundan believes the Pacifica judgement will significantly increase the pressure on traders worldwide to avoid dealing with unscrupulous shipping companies whose actions could threaten the validity of insurance policies to protect the cargo.
"This decision places a clear responsibility on cargo owners to make sure they check the viability of the ship owner and vessel before putting any cargo on board," said Captain Mukundan.
"It i
s now more important than ever for the cargo owner to check the credentials of all parties involved in a deal. It is often the case that the sellers choose a vessel under a CIF or CFR* sale, but it is the buyers who hold title to the cargo, and face the financial loss after the vessel has. disappeared. It is vital that in these circumstances buyers ensure that the choice of the vessel is subject to their approval."
According to Captain Mukundan, although phantom ship fraud is a sophisticated form of cargo theft, it is easy to avoid. He said, "IMB's information department maintains a database of current phantom ships and has helped many cargo owners avoid loading cargo on these criminal vessels. Once loaded, the chances of recovering the cargo are minimal."
ICC's International Maritime Bureau runs a due diligence service to help its members check the identity of all parties and vessels before entering into a contract. IMB is based in London, and runs the IMB Piracy Reporting Centre in Kuala Lumpur.
* CIF is an ICC Incoterm, standing for Cost, Insurance and Freight. CFR means Cost and Fright. Incoterms are standard trade definitions.