A Beirut in our own backyard?

What sparked the fire is not relevant. That there was a tinderbox in waiting, capable of having been ignited in the past seven years, makes the spark that led to its explosion, irrelevant.  On August 4, 2020, a large part of Beirut was laid waste in seconds, thanks to an explosion of a humongous consignment of ammonium nitrate stored at its port.

Facts reported at the time of writing this piece, paint a picture that suggests that the devastation could occur anywhere in the world – potentially, along the vast Indian coastline too, if lessons are not learnt quickly and policies are not framed to avert such a man-made disaster. In a nutshell, the consignment that exploded was 2,750 tonnes of ammonium nitrate, a chemical that fuels combustion and has applications in the agriculture fertiliser industry – and no marks for guessing – in explosives used in the mining and construction industries.

[1]Marginally varying accounts of how the cargo came to be stored at the Beirut port, substantially point to some converging facts [2]. In late 2013, a Russian vessel flying a Moldovan flag, carrying this consignment en route from Georgia to Mozambique, docked at Beirut due to some technical problems. The vessel was forbidden from leaving Beirut and was impounded after its owners could not pay the port dues.

The owners are reported to have abandoned the vessel. The ship’s crew, detained within the vessel, applied to the local court seeking permission to return home on grounds that included the danger posed by the nature of the cargo in the vessel. In 2014, the crew was allowed to leave the vessel and the cargo was shifted to a warehouse next to silos of foodgrains – Lebanon, already reeling under the refugee crisis, may even face an even more tragic food crisis.

The finger-pointing in the past few days points to the decision on disposal of this consignment having shuffled across desks of Customs officials, port authorities and the relevant local court. News reports point to six urgent applications between 2014 and 2017, highlighting the danger from the cargo not having been disposed of. The options for disposal proposed were threefold – export the consignment; hand it over to the Lebanese army; or sell it to a privately-owned explosives company. So far, there is no clarity on whether any applications were pursued between 2017 and August 4, 2020, when the consignment proved to be a devastating bomb killing in hundreds and hurting innocents citizens, already reeling under a horrible economic crisis.

If the pace of file-pushing sounds familiar to us in India, would it not follow that the risk of a potential repeat of a “perfect storm” cannot be ruled out along India’s vast coastline? Interestingly, even while the blast in Beirut took place, a three-judge bench of our Supreme Court would have been giving finishing touches to a judgement under reference for reconciling five past Supreme Court judgements and interpretations of these judgments by High Courts – precisely on issues that lie at the heart of what would had to be resolved by the courts in Lebanon since 2014.

The judgement delivered on August 5, 2020 by the three-judge bench has answered critical maritime law questions on when the risk and reward to a confiscated consignment would pass; when the consignor’s obligation to pay port dues ends and when the consignee’s obligations begin; whether a shipping agent can be liable for the dues, and what the port authorities’ obligations are in handling the cargo. Interestingly, the dispute in the specific case where these past judgments had to be analysed and applied, involved an import of synthetic rags effected way back in 1998-99, and involved contentions of Customs officials, port authorities, shipping agents, vessel owners, consignors and consignees.

The point of this piece is not to analyse the ratio laid down in this case. Indeed, the Court has ruled that the Port Trust, which is “State” under the Constitution, must act reasonably and attempt to sell the goods within a reasonable period from the date on which it assumed custody of such goods. The point of this piece is to emphasise the need for a clear stated policy on disposal of consignments taken over by Port authorities.

Timely disposal of uncleared cargo has become an absolute must, and the impact of a delay may go far beyond the parties to the dispute and could affect the safety and security of an entire city that houses the port, as is now established by the Beirut tragedy. The bigger framework of the economics and commerce of operating a Port are also at play.

Not all cargo imported by a consignee are meant for home consumption. Sometimes, the market value of the commodity drops below the purchase price making it commercially unviable for the importer to profit on the purchase, incentivising the importer to simply abandon the cargo. What then happens to such cargo languishing in Indian Ports? Do they languish for periods as long as ammonium nitrate stored in Beirut? Perhaps, longer.

Port authorities in India will tell you that when cargo is imported, the importer sometimes fail to clear them for varying reasons, economic or otherwise. Such uncleared abandoned cargo are allowed to remain in these storage yards of the port or the inland container depots until the port machinery wakes up and conducts an auction. Beirut was lucky that one part of the explosion was experienced by the sea – had the explosion been inland, the damage would have been even more severe.

The Major Port Trust Act, 1963 which governs the administration of all the major ports in India authorizes the Port Trust to auction and sell all the goods which remain uncleared for a month. For perishable and hazardous goods, this period could be smaller. The Customs Act,1962 has similar provisions. If, despite the bills of entry for home consumption having been filed, no one comes forward to clear the cargo, then the Customs are entitled to ask the custodian of the cargo (in most cases, the Ports) to auction the cargo and realise the sale proceeds towards the costs of sale, the Customs duty and so forth.

The law in its written form may be robust, but the State capacity to handle the process and to administer the law is lacking in will and speed.In most cases, the custodian of the cargo would initiate the process with a notice to the consignee to clear the cargo.More often than not, at least three such notices are sent before the notice for auction is issued.Auction notices, like every other government tender, are published in gazette and the custodian of cargo is required to wait for a bid to match the reserve price.The red tape takes over and the auction could take months on end.

By the time the abandoned cargo is actually auctioned, it is possible that it has little residual value with the sale proceeds often not being sufficient to meet either the costs of the auction or the Customs duty claimed, much less the charges for storage imposed on the cargo.

Beirut is a wake-up call for us too in India. If we are to be a robust maritime economy, we need State capacity to ensure that there are no perverse incentives to abandon cargo, or to delay disposal of cargo, and of course, to be mindful of the risks that cargo thought to be economically worthless, may pose to the wider society.

The authors are S. Priya, a maritime lawyer and Somasekhar Sundaresan, an advocate with focus on corporate and regulatory matters

[1]Al Jazeera suggests the vessel called at Beirut port in September 2013 while the BBC suggests that the vessel did so in November 2013

[2]An October 2015 edition of Arrest News, an industry newsletter featured an article by Lebanese lawyers describing the arrest and is published on shippingarrested.com