January 10, 2019

FMC Issues Final Rule on Carrier and Marine Terminal Practices for Receiving, Handling Cargo

Holland & Knight Alert
J. Michael Cavanaugh | Hwajeong Kim

HIGHLIGHTS:

  • The Federal Maritime Commission (FMC) has adopted an interpretive rule that tightens certain prohibitions under the 1984 Shipping Act. Specifically, the change tightens the Section 10(d)(a) prohibition against regulated entities acting unjustly or unreasonably in connection with the receiving, handling, storing or delivering of property.
  • Under the new rule, Section 10(d)(a) requires a showing that a regulated entity committed an unreasonable or unjust act on a normal, customary and continuous basis.
  • The FMC recognizes the possibility that the rule may preclude certain claims that were previously brought under Section 10(d)(a) of the Shipping Act. However, it believes that other laws, such as the Carriage of Goods by Sea Act (COGSA), as well as other provisions or regulations of the Shipping Act provide sufficient avenues for such claims to be addressed.

The Federal Maritime Commission (FMC) on Dec. 17, 2018, adopted an interpretive rule that tightens certain prohibitions under the 1984 Shipping Act. Specifically, the change tightens the Section 10(d)(a) prohibition against regulated entities acting unjustly or unreasonably in connection with the receiving, handling, storing or delivering of property. Under this new interpretive rule, Section 10(d)(a) requires a showing that a regulated entity committed an unreasonable or unjust act on a normal, customary and continuous basis. Thus, singular or isolated incidents that do not occur on a normal, customary and continuous basis appear to be outside the scope of Section 10(d)(a).

Section 10(d)(a) of the Shipping Act, codified in 46 U.S.C. §41102(c), provides that regulated entities "may not fail to establish, observe, and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing, or delivering property."

The Commission clarifies in 46 CFR 545.4 that, to establish a successful claim for reparations, each of the following elements must be met.

  • The offender must be a common carrier, marine terminal operator or ocean transportation intermediary.
  • The claimed acts or omissions of the regulated entity are occurring on a normal, customary and continuous basis.
  • The practice or regulation relates to or is connected with receiving, handling, storing or delivering property.
  • The practice or regulation is unjust or unreasonable.
  • The practice or regulation is the proximate cause of the claimed loss.

The Commission notes that this change is an alignment to its pre-2010 interpretations and meant to provide clarity to the industry. In implementing the new interpretive rule, the Commission highlighted that its decisions from 2010 to 2013 deviated from its pre-2010 application and penalized even discrete conduct with respect to a single shipment.

It is not clear to what extent the FMC would find precedent in the relevant decisions between 2010 and 2013, but the Commission plainly believes that those decisions are contrary to the intent of Congress and accepted rules of statutory construction. In explaining the new rule, the Commission reasoned that Congress' choice of word "practice" reflects its intent to punish only conduct committed on a continuous basis, rather than to use Section 10(d)(a) to resolve every dispute arising from the covered activities. The Commission expects the new rule, guided by its pre-2010 precedents, to bring its interpretation of Section 10(d)(a) in line with the congressional intent and rules of interpretation.

In adopting the rule, the Commission recognizes the possibility that the rule may preclude certain claims that were previously brought under Section 10(d)(a) of the Shipping Act. However, it believes that other laws, such as the Carriage of Goods by Sea Act (COGSA), and other provisions or regulations of the Shipping Act provide sufficient avenues in which such claims may be addressed.

Considerations and Takeaways

The FMC's interpretative rulemaking signals an important return to its prior position that Section 10(d)(a) is intended only to cover a regulated party's continuous exercise of unreasonable and unjust acts. The rulemaking overturns precedent from recent FMC decisions that applied Section 10(d)(a) to isolated unreasonable acts of regulated parties. In its rulemaking, the FMC was careful to point out that shippers and other entities suffering damage as a result of singular or isolated acts of regulated parties are not left without remedies. Rather, COGSA and other federal statutes and regulations still provide avenues of redress. This rulemaking continues the FMC's recent trend of clarifying its regulations.

Overall, this is an effort to provide regulated stakeholders with unambiguous compliance standards, but time will tell whether the change meets with the Commission's expectations.


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.


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