Who Pays When Cargo Vanishes: Defining Responsibility in Shipping Losses

A shipment of silver nitrate worth over P1.8 million vanished from a Manila terminal in 1994. The consignee's insurer paid the claim, then sought reimbursement from the arrastre contractor. The contractor argued its liability was capped at P3,500 per package under a port authority regulation. The Supreme Court disagreed, and in International Container Terminal Services, Inc. v. FGU Insurance Corporation (G.R. No. 161539, June 27, 2008), clarified when an arrastre operator's liability limit applies—and when it does not.

The Facts

Hapag-Lloyd shipped 14 cartons of silver nitrate from Hamburg, Germany to Manila in July 1994, consigned to Republic Asahi Glass Corporation (RAGC). International Container Terminal Services, Inc. (ICTSI) acted as the arrastre contractor—the entity responsible for handling and safeguarding cargo at the port.

When RAGC's customs broker attempted to claim the shipment, ICTSI could not locate it. Both the National Bureau of Investigation and an independent marine surveyor concluded the cargo was lost while in ICTSI's custody.

FGU Insurance Corporation, which insured the shipment under a marine open policy, paid RAGC P1,835,068.88. As the insurer, FGU stepped into RAGC's shoes through subrogation and demanded reimbursement from ICTSI. When ICTSI refused, FGU sued.

The Issue

The central question: Was ICTSI's liability limited to P3,500 per package under Philippine Ports Authority Administrative Order No. 10-81, or should it pay the shipment's actual value?

The Ruling

The Supreme Court denied ICTSI's petition and affirmed its liability for the full value of the lost cargo.

The liability cap did not apply. PPA Administrative Order No. 10-81 limits an arrastre contractor's liability to P3,500 per package—but only when the cargo's value is not declared before discharge. The Court found that ICTSI's own admeasurer was shown the bill of lading and furnished copies of the processed shipping documents, which disclosed the shipment's value of DM94,960.00. Having actual knowledge of the declared value, ICTSI could not invoke the limitation.

The insurance policy was valid despite the cancellation issue. ICTSI argued that Marine Open Policy No. MOP-12763 was cancelled before the cargo was loaded. But FGU had already issued Marine Risk Note No. 9798 on May 26, 1994, covering the specific shipment, and RAGC had paid the premium. The Court explained that a marine risk note confirms coverage for a specific shipment under an open policy; the insurer had already undertaken to insure the goods before any cancellation took effect.

Failure to present the insurance policy was not fatal. While jurisprudence generally requires the insurer to present the policy in evidence, the Court recognized an exception: where the loss undoubtedly occurred while the cargo was in the arrastre's custody, and the policy's existence was admitted in open court, its absence from the record does not defeat the claim.

The interest rate was correct. The Court applied the rule from Eastern Shipping Lines, Inc. v. Court of Appeals: once a judgment becomes final and executory, the interim period is deemed a forbearance of credit, warranting 12% interest per annum until full satisfaction.

The Court also corrected a clerical error, reducing the award from P1,875,068.88 to the actual amount paid by FGU: P1,835,068.88.

Practical Takeaways

• Declare cargo value in writing. The P3,500-per-package limitation protects arrastre contractors only when they are not informed of a shipment's true worth. Consignees and brokers should ensure the declared value appears in the bill of lading, packing list, and related documents before discharge.
• Insurers can recover through subrogation. When an insurer pays a claim for lost cargo, it acquires the consignee's rights against the party at fault—including arrastre operators.
• A marine risk note can establish coverage. Even if an open policy is later cancelled, a risk note issued and premium paid before cancellation may still bind the insurer for that specific shipment.
• Documentation matters at every stage. The Court relied heavily on evidence showing ICTSI's personnel had seen the shipping documents. Clear records of what was presented, when, and to whom can determine liability.
• Interest accrues at 12% after judgment. From the time a money judgment becomes final until it is paid, the prevailing rate is 12% per annum.

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