Demurrage in Philippine Shipping: Consignee Duties and Avoiding Penalties

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Importers who fail to claim cargo promptly can face significant demurrage charges—even if the shipping line moves the goods to a warehouse with Customs authorization. The Supreme Court case of Telengtan Brothers & Sons, Inc. v. United States Lines, Inc. clarifies the consignee's responsibility to act swiftly upon cargo arrival and the enforceability of demurrage clauses in bills of lading.

What Is Demurrage?

Demurrage is a penalty imposed on a consignee who fails to take delivery of goods within a specified free time period. It compensates the shipping line for the extended use of its containers and equipment, ensuring the smooth flow of maritime commerce. Philippine law recognizes the validity of demurrage charges, primarily based on the contract between the shipper and the carrier, typically embodied in the Bill of Lading (B/L).

A bill of lading serves three purposes: it is a receipt for goods shipped, a contract of carriage, and a document of title. Its terms govern the relationship between the carrier and the consignee, including responsibilities for cargo delivery and liabilities like demurrage.

The Legal Basis for Demurrage Clauses

Article 1306 of the Civil Code of the Philippines provides that contracting parties may establish stipulations as they deem convenient, provided these are not contrary to law, morals, good customs, public order, or public policy. Demurrage clauses in bills of lading, when reasonable, are generally upheld by Philippine courts.

The bill of lading in the Telengtan case contained a clause outlining the carrier's rights when cargo is not claimed promptly. The clause provided that if the consignee does not take possession or delivery of the goods as soon as they are at the consignee's disposal, the goods shall be at their own risk and expense. Delivery is considered complete, and the carrier may send the goods to store, warehouse, or otherwise dispose of them, always at the consignee's risk and expense. The shipper and consignee shall pay and indemnify the carrier for any loss, damage, fine, charge, or expense incurred in dealing with the goods or by reason of the consignee's delay.

The Case: Telengtan Brothers & Sons, Inc. v. United States Lines, Inc.

In 1981, United States Lines sued Telengtan Brothers, a cigarette factory, to recover P94,000 in demurrage charges accumulated between 1979 and 1980. U.S. Lines claimed Telengtan failed to retrieve goods from containers within the 10-day free period after arrival in Manila. Telengtan denied any contractual obligation to pay demurrage and counterclaimed, alleging improper warehousing and excessive release fees.

The Regional Trial Court ruled for U.S. Lines, ordering Telengtan to pay P99,408 in demurrage plus interest, attorney's fees, and exemplary damages. The court emphasized that Telengtan had previously paid demurrage charges, establishing a pattern of accepting the practice. The court held that Telengtan was estopped from claiming it did not know about demurrage, since its prior payments showed it knew of and effectively agreed to the collection.

The Court of Appeals affirmed the RTC decision, reasoning that Telengtan was at fault for not withdrawing the cargo within the free period, making warehousing necessary. The CA noted that sound business practice dictates a consignee, upon notification of arrival, should immediately get the cargo from the carrier.

The Supreme Court sided with the lower courts on the demurrage issue, finding the factual findings of the CA binding absent any arbitrariness. However, the Court partially granted Telengtan's petition by deleting the order for recomputation based on Article 1250 of the Civil Code. U.S. Lines failed to prove extraordinary inflation justifying an adjusted payment amount based on peso devaluation since 1981. Thus, while Telengtan was liable for demurrage, the amount was not subject to inflationary adjustments.

Key Lessons for Importers

The Telengtan case reinforces that consignees bear the risk of delay, even when goods are warehoused by the shipping line with Customs authority. The consignee's obligation to claim cargo promptly does not depend on explicit consent to demurrage terms when the bill of lading contains such clauses and prior dealings show acceptance.

Practical Takeaways

• Act immediately upon arrival notice. Delays, even if seemingly justified, can create demurrage liability.
• Read and understand bill of lading terms. Demurrage clauses are generally enforceable if reasonable and not contrary to law or public policy.
• Keep records of prior payments. Past payment of demurrage can be used as evidence of acceptance of the practice.
• Communicate proactively with shipping lines and freight forwarders. Stay informed about shipment status and potential issues.
• Know that warehousing by the carrier does not end liability. Goods moved to a warehouse with Customs authorization remain at the consignee's risk and expense.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.