TT Talk - Hong Kong: ‘HAFFA Form of Trading Conditions’ (December 2008 Edition)

HAFFA, the Hong Kong Association of Freight Forwarding and Logistics, revised its 1997 Standard Trading Conditions and has produced the ‘HAFFA Form of Trading Conditions’ (December 2008 Edition). The 1997 HAFFA Standard Trading Conditions have been widely used in practice, not only in Hong Kong, but also for commercial activities involving the People’s Republic of China (because the 1997 HAFFA Standard Trading Conditions were already well drafted, the TT Club would accept any continuous use of them by Club Members). This new 2008 ‘HAFFA Form of Trading Conditions’ will be of interest to all involved in drafting or using forwarding or logistics conditions.- Liability limits per (i) kg, (ii) cubic metre and (iii) event (clause 20.4). A HAFFA member who uses the 2008 ‘HAFFA Form of Trading Conditions’ without adding its name (in clause 1) and limits of liability (in clause 20) may well face unlimited liability. TT Club Members who intend to use the 2008 ‘HAFFA Form of Trading Conditions’ are requested to obtain the Club’s approval for their individual liability limits per kg, cubic metre and event (in clause 20.4). b) Valid incorporation What amounts to valid incorporation of standard trading conditions depends on the requirements of the applicable law. The comments in this paragraph ‘b)’ assume that Hong Kong law applies. If a law with stricter requirements on incorporation might apply (e.g. PRC law if the Member contracts with a customer based in China), the forwarder has to ensure that he complies with that law. Because the 2008 HAFFA ‘Form of Trading Conditions’ does not contain any liability limits, the following attempts of incorporation are unsafe: - ‘Company X conducts all business subject to the HAFFA Form of Trading Conditions (December 2008 Edition)’; or - ‘Company X conducts all business subject to the latest version of the HAFFA conditions’. Valid incorporation has to be considered separately depending on whether the forwarder (i) uses the 2008 ‘HAFFA Form of Trading Conditions’ and simply inserts the information in clauses 1.1, 11.6 and 20.4 as required, or (ii) drafts its own standard trading conditions based on the 2008 HAFFA ‘Form of trading conditions’. (i) ‘[Company name inserted] conducts all business subject to the HAFFA Form of trading conditions (December 2008 Edition), copy available on request. The liability of [Company name inserted] under clause 20.4 is limited as follows: limit per kilogramme: HK$ [amount inserted], limit per cubic metre: HK$ [amount inserted], limit per event (or series of events arising from or attributable to one common cause): HK$ [amount inserted].’ If a forwarder wants to incorporate the 2008 ‘HAFFA Form of Trading Conditions’ into a framework contract, it should be attached to the framework contract with all spaces completed as necessary. (ii) Conversely, a forwarder may draft its own standard trading conditions based on the 2008 ‘HAFFA Form of Trading Conditions’. Under this possibility, the forwarder does not refer to the ‘HAFFA Form of Trading Conditions (December 2008 Edition)’, but instead to his own standard trading conditions. TT Club Members who choose this approach are requested to submit their standard trading conditions to the Club for approval. The full text of the approved standard trading conditions should then be sent to all existing customers and to new customers at the latest when the first agreement is concluded. c) Logistics The HAFFA Memorandum notices that freight forwarders are now providing ‘a more comprehensive chain of logistics services’. Thus, the definition of ‘Services’ includes ‘inventory and management control’ and ‘tracking and tracing’ (clause 1.1) and, for services ‘on a continuing basis’, the customer is requested to provide a forecast of cargo throughput (clause 8.1(n)). Yet the 2008 ‘HAFFA Form of Trading Conditions’ is not a fully fledged set of logistics conditions, and Club Members who conclude complex long-term logistics agreements may want to include other forms such as the TT Club Series 600 Logistics Conditions. d) Operator’s role as agent or principal (carrier) Under the 1997 HAFFA Standard Trading Conditions the forwarder provided its services ‘as agents’ unless the forwarder issued a FIATA air waybill or FIATA FBL as ‘carrier’ or was held by a court to have acted as a carrier (a similar approach is taken for instance in the TT Club Series 400 Freight Forwarders’ Conditions and the Standard Trading Conditions of the Singapore Logistics Associations). The 2008 ‘HAFFA Form of Trading Conditions’ maintains the principle that ‘all Services to Customer are provided by Company as agent’ (clause 4.4), but (similar to clause 4(A) of the 2005 BIFA conditions) also states that ‘the Company reserves to itself the discretion to provide any services as a principal or to procure as an agent the provision of the required services by third party(ies)’ (clause 4.1). Arguably clause 4.1 somewhat weakens the presumption in clause 4.4 for the forwarder’s role as an agent. If the forwarder uses the 2008 ‘HAFFA Form of Trading Conditions’ and simply inserts the information in clauses 1.1, 11.6 and 20.4 as required,

Like the 1997 HAFFA Standard Trading Conditions, Clause 4.3 of the 2008 ‘HAFFA Form of Trading Conditions’ still list three factors each of which should not by itself indicate that the forwarder acts as a principal. Two of these factors, charge of an inclusive price (clause 4.3(a)) and consolidation with other goods (clause 4.3(c)) are conclusive indicators of the forwarder’s status as carrier under other legal systems (e.g. sections 459 and 460 of the German Commercial Code).

As the third such factor, the 2008 'HAFFA Form of Trading Conditions' substitutes 'the supply by the Company of its owned or leased equipment and/or facilities' for 'the company issuing its own transport document including house air waybill or air consignment note or house bill of lading or freight forwarder cargo receipt'. The 2008 'HAFFA Form of Trading Conditions' addresses in clauses 4.2(b) and 4.4(a) how the forwarder's involvement in issuing the carriage document determines his role.

Pursuant to clause 4.2(b), the forwarder will be liable as a principal, (i) if he issues his 'own bill of lading or waybill or cargo receipt as a carrier' or (ii) if he 'enters into a separate contract and under the Separate Terms company contracts as a principal'. Arguably, regarding (i), a mere 'cargo receipt' should not evidence a carriage contract hence the forwarder who issues the cargo receipt should not have to do so as a carrier. On (ii), it is not entirely clear whether the situation described in (ii) could be interpreted as meaning that the forwarder is liable as a principal beyond the scope of that 'separate contract', in which case situation (ii) is potentially unpredictable for the forwarder.

Clause 4.4(a), on the other hand, states that the forwarder provides services as an agent if he 'procures the issue of a third party bill of lading (air or sea or road) or other transport document (including but not limited to cargo receipts under the Montreal Convention) containing or evidencing a contract of carriage between a third party and Customer (whether or not the same is expressly signed/ issued by Company as agent of the third party'. It is not clear why the reference to 'cargo receipts' is qualified by the phrase 'cargo receipts under the Montreal Convention', i.e. does not apply to all cargo receipts the forwarder issues.

e) Further noteworthy new (or modified) provisions

Here is a brief selection of other notable changes in the 2008 'HAFFA Form of Trading Conditions':

- Uncollected cargo: the presumption that the goods are duly delivered and that the forwarder shall have no further liability in respect of the goods is extended from storage to situations where the forwarder sells, disposes of or abandons the goods (clause 16.8(b));

- Delivery of cargo again forged or fraudulent documents: delivery to a person who presenting a forged or fraudulent document purporting to be an original bill of lading shall be deemed due delivery of the goods, if the person who releases the goods had no actual knowledge (i) that the document was forged or fraudulent, and (ii) that the person presenting the forged or fraudulent document had no right to possess or dispose over the goods (clause 18.3);

- Limitation of maritime claims: where another party is able to rely on the 'applicable International Convention on the Limitation of Liability for Maritime Claims or applicable national law', the forwarder's liability 'shall be limited to that proportion of the limitation fund as allocated to the Goods concerned' (clause 6.6);

- Jurisdiction, indemnification provision: if the Customer (or Owner) does not bring proceedings against the forwarder in Hong Kong, the Customer (Owner) shall indemnify the forwarder 'from and against all consequences thereof including, without limitation, legal costs and expenses' incurred by the forwarder (clause 22.3); incidentally, after the decision by the European Court of Justice (ECJ) in 'The Front Comor' of 10 February 2009, some wonder whether London

Please use the following web link for the 'HAFFA Form of Trading Conditions' (December 2008 Edition) and the HAFFA 'Memorandum to members':

arbitration clauses should also provide for an indemnification if proceedings are commenced in breach of the arbitration clause.

a) 'Only' a 'Form of Trading Conditions' - each HAFFA member must enter its name and liability amounts

The HAFFA 2008 'Form of Trading Conditions' is not a set of ready-to-use standard trading conditions. HAFFA explains in a 'Memorandum to Members' that the 2008 'HAFFA Form of Trading Conditions' is prepared solely for the information and reference of HAFFA members. It is not binding on HAFFA members and HAFFA 'makes no recommendation as to its use or adoption'. It is believed the reason for HAFFA's cautious approach is that a Competition Ordinance is about to enter into force in Hong Kong. By offering merely a 'Form of Trading Conditions' without stipulating liability limits in the way the 1997 HAFFA Standard Trading Conditions did, HAFFA may aim to avoid any allegations that it might support anti-competitive practices. Thus, HAFFA members are free to make changes to the template that is this 2008 'HAFFA Form of trading conditions'.

In contrast to the 1997 HAFFA Standard Trading Conditions, the 2008 'HAFFA Form of Trading Conditions' contains spaces in important provisions. The following information will have to be added individually by each HAFFA Member:

- Name of HAFFA member company (clause 1.1);

- HAFFA member's rate of interest (clause 11.6); and

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TT Club