Claims and Sanctions

A contract defines rights and obligations of the parties involved.

In case of breach of Contract the sufferer makes a claim on he party which fails to meet its contract obligations. It is more often the case that it is the Buyer who makes a claim on the Seller.

Most often the Buyer makes quality and quantity claims on the Seller. The cause for complaint may be poor quality, breakage, damage, short weight, leakage etc.

What is the claim procedure?

The Buyer must write a statement of claim and mail it to the Seller together with the supporting documents. Bill of Lading, Airway and Railway Bill, Survey Report, Quality Certificate nay serve as documentary evidence. If necessary, drawings, photos, samples are enclosed as proofs of claims. The date of a complaint is the date on which it is mailed.

Claims can be lodged during a certain period of time, which is usually fixed in a Contract.

During the claim period the Seller is to enquire into the case and communicate his reply. He either meets the claim or declines it.

The Seller declines liability if the B/L is "clean", that is the shipping company hasn't made any remarks about the quantity or condition of the cargo shipped.

The Seller has also a full right to decline a claim if the goods are disorderly stored, mishandled or misused by the Buyer. If a claim has a legitimate ground behind it the parties try to settle it amicably.

What are the ways of settling a claim?

In case of short-weight it is recompensed by a load sent se­parately or at the time of follow-up shipments. In case of damage or faults, the goods at the Buyer's option can be repaired or replaced, all at the Seller's expense.

Sometimes if deviation in quality is within certain limits the goods can be retained but with an allowance proportionate to the discrepancy in quality. This is usually the case with raw materials, foodstuffs or any other goods sent in bulk.

If the goods are missing the Seller must necessarily locate them. Sometimes it is quite a problem as consignments may be lost when transshipped at some intermediate port or if sent at a wrong address. If the goods are not recovered compensation must be paid by the party directly responsible for it.

What is the sanction against the Seller if he fails to deliver the goods by the date due?

The Seller is penalized. The rate of penalty is fixed in the Penalty Clause or in the Clause of Agreed and Liquidated Damages.

If the delay is longer than 2 months the Buyer has the option of cancelling the Contract altogether but the Seller is to compensate for the loss incurred.

What may be the grounds for complaint coming from the Seller and what are the ways of settlement?

The Seller in his turn is entitled to make a claim on his counterpart if the Buyer fails to meet his contractual obligations.

The Seller may inflict penalties on the Buyer if there is a default in payment.

In an f.o.b. transaction the Seller is entitled to compensation for extra storage expenses if the Buyer's vessel bound to pick up the goods fails to call at the port in time.

In a c.i.f. transaction the Seller may claim the demurrage if his own vessel stays idle at the port awaiting unloading.

The demurrage claims may emerge from the Buyer as well as Contract is signed on f.o.b. terms of delivery. If it is a c.i.f. соnract, the Buyer is liable to extra storage expenses when through the Seller's fault he cannot clear the goods from the customs within the allowable period.

Financially, legitimate claims are in large part settled by debit or credit notes.