Tuesday, August 28, 2012

Logistics Beware - Freight Forwarding and Bulk Cargo Chartering can be Legal Minefields

Several High Profile Cases Illustrate the Complexity of Transfer of Employment and Maritime Law
Shipping News Feature

UK – AUSTRALIA – WORLDWIDE - As with so many points of law interpretation is often the key to final resolution and, as an industry, logistics it seems is cursed as a sector destined to suffer from one particular set of anomalies. The common practice of dedicating staff to one particular cargo handling contract or even the act of chartering a bulk carrier should be looked at closely by all freight forwarding groups and others in the trade, in fact anyone who acts as a contractor or subcontractor in the supply chain. Recently several high profile, and one imagines correspondingly expensive, cases have wended their way to resolution via the various responsible authorities and the conclusions drawn are potentially worrying for employers and employees alike.

Major names in the industry, Ceva, Eddie Stobart et al have been forced into the legal route when changes of contract have occurred, usually through a customer changing to an in-house materials handling option and confusion arises over who actually becomes responsible for the further employment of the staff concerned. In the UK the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (TUPE) provides the metaphorical spanner in the works with regard to who becomes the employer at the end of such a contract.

Reading through the copious case notes of various litigants it becomes obvious that even the Courts suffer indecision regarding actual liabilities in these cases and that the reason for the confusion is the ad hoc nature of each occurrence. The law is worded using the phrase 'an organised grouping of employees which has as its principal purpose the carrying out of the activities concerned on behalf of the client'.

In the recent Ceva case the 3PL supplier acted as a receiving and storage facility for Seawell Ltd., transferring stock to and from offshore drilling platforms in the North Sea. The contract had lasted a year or so when Seawell opted to take the work back in-house and Ceva cited TUPE saying that one of the staff was employed full time on the work and therefore his employment automatically transferred to Seawell. An Employment Tribunal ruled that the one man formed an organised grouping under the terms of the Act and therefore Ceva were correct in their assertion.

The initial ruling stated that the Ceva service provided was ‘logistics coordination and freight-forwarding arrangements necessary to supply of goods and materials to the platforms’ and went on to say the single staff member comprised an organised grouping under the terms of the Act. Seawell immediately appealed and won after the Employment Appeal Tribunal ruled that the phrase ‘organised grouping of employees’ suggests the deliberate formation of a team just to work on that specific contract. The ruling was that even when an employee spends 100% of his or her time devoted to one contract this does not mean necessarily that they are part of one of these ‘organised groupings’.

This case echoed that of Eddie Stobart vs Moreman in which the thirty five staff who had worked on the multinational Vion Food Group contract, were told that their employment would transfer to the new holders of the contract, FJG Logistics as the Manton Wood plant where they were employed would close. Although it was never in dispute that Stobart’s assumption that all the employees worked virtually the whole time on the Vion contract as they were the night shift and all other works were generally handled by a separate day shift, once again the Employment Tribunal found against them as did the Appeal Tribunal.

When the problems of contracts ventures out onto the high seas the complexities simply multiply. The decision in the case of Argyll Coastal Services Ltd v Stirling and others were compounded by the fact in this case, running a supply vessel to and from the Falkland Isles for the Ministry of Defence with a crew of eight or more and an office staff of two, had several different players. The thirteen employees watched as the contract, when tendered for, went to a rival Dutch company who immediately negotiated a charter agreement with another vessel’s owners to hire a different ship. This after their own employment had been switched to another third party. If you really want to know just how complicated these matters can become you can read the case notes HERE.

If the basically British cases listed above aren’t enough to contend with then adding an international dimension can be even more confusing. The recently concluded case of Dampskibsselskabet Norden A/S v Beach Building & Civil Group Pty Ltd [2012] FCA 696 (29 June 2012) saw Danish group DS Norden and one of the most influential bulk cargo companies, witnessing Australia’s Federal Court ruling that two arbitration agreements, legitimately arrived at in London were void in Australia.

The agreement between the companies took the form of a voyage charterparty carrying coal from Queensland to China. Norden claimed a sum of almost $825,000 for demurrage charges as the Court deemed a voyage charterparty was a carriage of goods by sea contract unlike a time charterparty in which the agreement is simply the hire of a vessel for a certain time period.

The problem with this decision is that it contradicts a similar case (Jebsens International (Australia) Pty Ltd & Anor v Interfert Australia Pty Ltd & Ors) in which the Supreme Court of South Australia ruled this year that a voyage charterparty IS a ‘sea carriage document’ although at the time of the ruling the Supreme Court lacked the depth of submissions apparently available to the Federal Court and of course both cases may still presumably be appealed.

The conclusion therefore is that the uncertainty which naturally exists within contracts which by their nature are unique and thus subject to variable factors will always leave the individual cases liable to one time judgements leaving at least one party unhappy and probably out of pocket. Both the UK employment cases and that of the Australian/Chinese bulk charter could doubtless have been avoided had the various parties envisaged the problems to come.

No self respecting freight executive enters into these contracts in anything other than the jubilant mood that comes with the successful negotiation of a major deal but, as these cases indicate, even when business starts as a mutually agreeable deal it is wise for both parties to keep in mind the potential pitfalls which may lie ahead and ensure that no grey areas remain which may need an outside judgement to adjudicate on.