FREIGHT FORWARDERS: DETERMINATION OF THE ROLE AND LIABILITY

FREIGHT FORWARDERS:

DETERMINATION OF THE ROLE AND LIABILITY
Authors:Shubham Mishra,Shruti Jaju,
IVth year, RGNUL, Punjab.

Role and liability of freight forwarders

Abstract


According to the World Trade Organization, global trade in 2015 reached to USD 16 trillion[1] and the share of logistics industry in this global trade is USD 4.3 trillion in 2018.[2] The international shipping industry is responsible for the carriage of around 90% of world trade.[3] There are over 50,000 merchant ships trading internationally, transporting every kind of cargo. The world fleet is registered in over 150 nations, and manned by over a million seafarers of virtually every nationality.[4]

However, with the global trade so humongous in size, the incidents of damage, loss, fraud and abandonment to cargo are a frequent phenomenon. Whenever such incidents happen, the freight forwarder is invariably the first one to go to by the customers, regulatory bodies (custom authorities, port authorities, etc.) and shippers. They expect from freight forwarder either to sort it out or hold the freight forwarder liable for these incidents.

Who Are Freight Forwarders?


    A freight forwarder may be an individual or a company who set up the transportation of the goods of others from one place to intended place and charges fee for it. The services of a freight forwarder typically involves coordinating between different modes of transportation such as truck, rail, air, ship due to the fact that the transportation of goods between two locations often involves multiple modes of transportation where different carriers are required for different portions of the journey. A freight forwarder, in the normal course of trade only coordinates between these multiple modes of transportation and may not necessarily be indulged in the actual carriage of the goods or handling of the freight and may not even issue a bill of lading. The service of coordination only absolves the liability of a freight forwarder most of the times in cases of damage, loss or fraud to the goods.

    However, the Freight forwarders may still be held liable. Generally, a freight forwarder assumes the role of an agent while entering into a contract with the shipper. Nevertheless, in certain cases they also act as the Principal Contractor. The Courts of Canada, Australia, New Zealand and India have held that the liability of a freight forwarder will depend on which role they assumed when agreeing to make the shipping arrangements. However, a careful factual analysis must be done by the courts while digging into the liability of the forwarder.

    Definition Of ‘Freight’

       The term freight includes:[5]
      • goods or cargo
      • mail
      • documents
      • unaccompanied vehicles
      • vehicles transported on ships, which are charged at a ‘driver accompanied’ rate


      Meaning Of ‘Freight Transport Services[6]


        Freight transport services are supplied when a vehicle, ship or aircraft is provided together with a driver or crew for the carriage of goods.

        If you hire a vehicle, ship or aircraft without a driver or crew, you’re supplying a means of transport, not freight transport services. If you hire a vehicle, ship or aircraft with a driver but do not transport anything anywhere, you are not supplying a transport service.

        Role Of A Freight Forwarder In Logistics Industry


        The notable task for which a freight forwarder is known in the logistics industry is to arrange and coordinate between the multiple modes of transportation ranging from roadways to railways and ultimately the seaways or other sub-carriers, for the goods beginning from the pick-up place to the delivery location.  A freight forwarder makes the whole task of transportation easy and more viable due to the experience and regular interaction with other jurisdictions making forwarder familiar with the laws of other countries or specific requirements of the country with respect to the freight forwarding. Besides, an experienced freight forwarder may contact less expensive mode of transportation and might be aware of information concerning the credibility of the different carriers.

        A freight forwarders services are not limited to providing transportation only but may be extended to other areas such as:
        – Providing packaging and labeling specifications and advising on the same; 
        -Advising on insurance of the goods to the shipper; 
        – Providing warehouse facilities; and
        – Arranging for other modes of transportation the event of failure of one. 

        Freight Forwarder: Agent Or Principal


          A freight forwarder typically acts as an agent to the shipper or in other words performs the role of an intermediary between the owner of the goods and the different carriers. However, there are cases where the forwarder also assumes the role of the principal contractor such as where the forwarder has its own means of transportation. Hence, a freight forwarder assumes the role depending upon the various situations in the particular transaction. This assumption of the role by the forwarder becomes important due to the fa
          ct the role defines the rights and liabilities of the individual parties involved in the transaction.


          A freight forwarder whenever acts as an agent of the shipper or owner of the goods has a very limited liability due to the fact that the freight forwarder acting in the capacity of an agent makes contracts in the name of the shipper and does not enter in it by its own name. They only arrange the transportation services, sub-carriers and merely coordinate among them.

          Notwithstanding the fact that the liability of the freight forwarder acting in the capacity of an agent is almost nil, the freight forwarder may still be held liable to the owner of the goods where it fails:
          • To exercise reasonable prudence;
          • To act with due skill and care in selecting sub-carriers;
          • To follow the shipper’s instructions;[7] 
          • To extend the shipper’s terms and conditions to the sub-carrier(s); or
          • To safeguard the interest of the shipper.

            The above provided list is not exhaustive and generally depends on case to case basis as the liability is often carved out of the transaction in which such loss or damage occurred. If the freight forwarder exercises due care and caution whilst performing the duties then liability would not fall upon his shoulders.

            As discussed above, a freight forwarder acting in the capacity of the principal contractor makes sub-contracts with the sub-carriers in its own name and shipper has no control over the selection of the sub-carriers or in other words the shipper is in no direct contractual relationship with any of the sub-carriers. Here, the forwarder a freight forwarder accepts accountability for the carriage whether or not it really takes the possession of the cargo as the freight forwarder represents itself as the original or actual carrier of the freight.

            Notwithstanding the obligations on the freight forwarder under the contract, when a freight forwarder enters into a contract as a principal, the law imposes certain other liabilities which make the forwarder responsible in case of damage or loss to the goods even if such liabilities were not contemplated in the contract itself. It can be easily concluded here that in the cases of freight forwarder acting as a principal, the law benefits the shipper and lays more burdensome obligations on the forwarder. For instance- the freight forwarder has to deliver the goods in the same conditions and state in which it received the goods from the shipper and any difference in the conditions could be claimed as loss or damage by the shipper, though, it will be open for the courts to decide the same.  

            The threshold for escaping the liability whenever there is a loss is very high in case of principal forwarder. The quantum of liability was explained in the case of Melnick in Nabob Food Ltd. v. Harry W. Hamacher Spediteur GmbH &Co:
            A freight forwarder who acts as a principal or freight forwarder contractor is, like a common   carrier, responsible for the goods he ships.  He is in effect an insurer of the goods, quite apart from any negligence on his part.  This is a very onerous standard. …[8]

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            Although the duties of a freight forwarder’s does not differ substantially in cases of acting as an agent or principal, however, the liability and legal ramifications may differ considerably for the parties.

            How To Determine Role Of The Freight Forwarder


              There are no firm principles in deciding if a freight forwarder is going about as agent or principal. The Courts worldwide have recognized the fact that the determination rests entirely on the facts of each case and thorough examination of the contract and other situations surroundi
              ng the facts. Nonetheless, the courts have also laid down certain factors which may be considered while determining the capacity of the freight forwarder, which incorporates however are not restricted to:
              • The manner in which the transportation service performed- through own employees or shippers employees or hired ones;
              • The liabilities mentioned in the contract;
              • The past transactions between the parties, if any;
              • Who issued the bill of lading- carrier or freight forwarder;
              • The knowledge of other sub-contracts to the shipper;
              • The role played by the shipper in selection of the sub-carriers, if any; and
              • The manner in which forwarder was paid mode of payment.[9]

              These elements only offer the Courts some broad rules in the appraisal of the question of the determination of the capacity of the forwarder and no single factor could be considered as determiner of the question.

              The Indian Courts, particularly, Delhi High Court in the case of Vipin Kumar Jain vs. M/S Freight Lines India Pvt. Ltd. observed the characteristics of a freight forwarding agent and opined that it could prove handy while determining the capacity of the forwarder. The Court in the paragraph 26 observed that
              “A forwarding agent is one who carries on the business of arranging for the carriage of goods for other people; his task is to arrange carriage rather than to affect it. A forwarding agent is not, in general, a carrier. He does not ordinarily obtain possession of the goods and he does not ordinarily undertake the delivery of them at their destination. In normal circumstances his function is merely to act as agent for the goods owner to make arrangements with those contractors who do carry (such as ship owners, road haulers, railway authorities and air carriers) and to make whatever arrangements are necessary for the intermediate steps between the ship and the rail, the customs or anything else.”[10]

              Need To Characterize The Role Of A Freight Forwarder As Principal Or Agent


                The importance of the determination of the capacity of the freight forwarder as an agent or as principal comes to the fore whenever the good gets lost or damaged in the transportation or where the amount against the services is not been paid. This exercise of characterization sometimes proves handy while outlining the liabilities of sub-carriers too.

                Damage or Loss To Freight During Transportation


                As for the damage to the goods, the shipper’s cure lies in the very legally binding contract between the parties. Notwithstanding whether the freight forwarder went ahead as principal or as an agent, the sub-carrier is often held liable to pay for the damages since it had the ownership of the cargo when the loss occurred. The circumstance turns out to be somewhat increasingly confounded where the sub-carrier:
                1. Lacks insurance;
                2. Has inadequate insurance; or
                3. Has gone bankrupt.

                These situations make the shipper make claims only against other parties such as freight forwarder and not the sub-carrier. However, in cases where the freight forwarder acted as an agent of the shipper and entered into the contracts with the sub-carriers in the name of the shipper only and performed the duties of agency with due care and caution, then the shipper claim will rise only against the sub-carriers in the event of a loss or damage to the goods and where the sub-carriers have gone bankrupt or have no insurance or insufficient insurance then the shipper claims may be left hanging in uncertainty.

                In other situations where the freight forwarder acted in the capacity of a principal, then irrespective of who was in the possession of the goods at the time of loss or damage to the goods, the shipper can rightfully and legally claim the damages against the freight forwarder. The principle of strict liability comes into play in this situation.  It is not as if the freight forwarder is left with no remedy in case of a loss or damage to the goods of the shipper, the forwarder being in a direct contractual relationship with the sub-carrier can make the sub-carrier indemnify for the loss.

                The need to characterize the role of the forwarder is highlighted in the case of Bertex Fashions Inc. v. Cargonaut Canada. This Canadian Federal Court judgment is still considered as the most pertinent ruling on the importance of determining the capacity of the forwarder. The brief facts of the case are- the plaintiff, Bertex Fashions Inc. imported blazers from a manufacturer in Bulgaria. The plaintiff made arrangements with the defendant, a freight forwarder, to transport the goods to Quebec.  The defendant issued a bill of lading to the plaintiff.  The defendant then engaged the services of road and ocean carriers to perform the carriage without the plaintiff being privy to those contractual arrangements.  Upon arrival in Quebec, the plaintiff discovered that many of the blazers were either missing or damaged and the plaintiff commenced an action against the defendant.[11] 

                The Court had to decide whether, Cargonaut Canada Inc., the defendant acted as agent for the plaintiff or as principal contractor.

                After a careful consideration of the agreement between the parties and other surrounding factors, the Court concluded that the defendant had acted in the capacity of a carrier or principal contractor and hence liable for the loss of the goods to the plaintiff. The facts which led the Court to reach on above mentioned conclusion are following:
                • Rather than charging commissions, the amount charged by the defendant was an aggregate of the total freight;
                • The bill of lading was issued by the defendant only as opposed to by sub-carrier in usual circumstance which gave the shipper the impression that defendant is the in charge of the cargo;
                • None of the documents presented before the court including bill of lading suggested that the defendant was acting in the capacity of an agent;
                • The shipper was not privy to the contracts of carriage between forwarder and sub-carriers; and
                • The defendant failed to provide any document to the plaintiff which mentions the capacity of the defendant as an agent.[12]
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                Misappropriation of Carrier Freight By The Forwarder


                    The need to determine the role of the freight forwarder as principal or agent ends up significant in circumstances where the shipper has paid the sub-carriers cargo charges to the freight forwarder and the freight forwarder neglects to transmit the amount to the sub-carrier, for example where the freight forwarder abuses the amount or where the freight forwarder ends up bankrupt. There, the sub-carrier will normally seek the shipper for the amount. However, the subcarrier may seek the shipper for the amount due of its cargo on the off chance that it has a legally binding agreement with the shipper (that is possible only if the freight forwarder has acted in the capacity of an agent). Where the forwarder has acted otherwise then subcarrier has no claim against the shipper due to the absence of a legally binding agreement between them.

                    The Canadian Court in the case of C.P. Ships v. Les Industries Lyon Corduroys Ltée[13], put the frequently occurring issue of non-payment of freight charges and onus of payment- whether on shipper or forwarder, to rest by laying down certain conditions.

                     The court held that that the debtor/shipper must pay the creditor/carrier his freight charges unless the shipper establishes either:[14]
                    • That the carrier authorized the third party/forwarder to receive the money on his behalf, or,
                    • That the carrier held the third party/forwarder out as being so authorized, or
                    • That the carrier by his conduct or otherwise induced the shipper to come to that conclusion, or
                    • That a custom of the trade exists to the effect that both carrier and shipper would expect payment to be made to the third party/forwarder.

                      In light of this test, where the freight forwarder is working in the capacity of an agent, the shipper remains legally or contractually liable to pay for the sub-carriers cargo, notwithstanding any previous arrangement between the forwarder and the shipper.

                      The four above- mentioned exceptions from C.P. Ships come into picture only when the freight forwarder has acted in the capacity of the principal. This is on the grounds that there happens to be no contract between the shipper and the sub-carrier.

                      Limitation Of Liability For Carriers


                      Contingent upon how a freight forwarder is characterized, a sub-carrier might be able to evade the liability by relying on the contractual arrangements between the forwarder and the shipper in case of loss of or harm to freight, or postponement in its conveyance. These assurances emerge as a “Himalaya” clause found in the forwarder’s legally binding documents, regardless of whether mentioned in the bill of lading or not.

                      In short, a Himalaya clause safeguards the sub-carrier from the liability by extending the advantages of carrier’s contractual limitations to them or other outsiders hired by the carrier to aid in the transportation of goods. However, the courts have always been diffident in enforcing this clause due to third parties not being parties to the original agreement or lack of privity between the third party or sub-carriers and the shipper.

                      The turning point for the enforcement of this ouster clause came in year 1974 in the leading case of New Zealand Shipping Co. v. A.M. Satterthwaite & Co[15] decided by the Judicial Committee of the Privy Council. Brief facts of the case are, a contract for the carriage of a machine by ship to New Zealand provided that the owners of the goods could not sue the carriers or stevedores unless any claim was brought within one year of the action giving rise to the cause of action. The stevedores were independent contractors who were engaged to load and unload the ship by the ship owner. A stevedore damaged the machine whilst unloading it. The owner of the machine brought an action against the stevedore after the limitation period specified in the contract. The stevedore sought to rely upon the clause in order to escape liability. The owner of the machine argued that the stevedores could not rely on the clause as they were not privy to the contract and had not provided them with any consideration.[16] 

                      The Committee concurred with the view that a Himalaya (exclusion) clause may be effective against third parties on the basis that the contracting party was acting as agent for the third parties in respect of the limitations. The Court also held that both the parties were aware that services of third parties would be taken and that this was a standard practice in the industry. The Court concluded that it would not be unreasonable to hold that the contracting party was acting as agent for the third parties for the purposes of the contract. Himalaya clauses are now been incorporated in the contract across jurisdictions.[17]

                      5. Conclusion


                      Exporters, importers and other companies often require efficient, safe and cost-effective transportation of their merchandise. However, most of them do not have access to private shipping arrangements, and have to hire freight forwarding services. The freight forwarding industry provides companies with a quicker and easier solution to the shipping process. Freight forwarders handle everything related to the shipping of your goods; they thus act as intermediaries between your firm and the transport company.[18] Therefore, the capacity in which the freight forwarder act becomes important and cannot be overlooked. A pre-determined capacity aids the process of the transportation and also helps the shipper to manage the legal affairs between the various parties involved in the process.  


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                      [1] Trade growth remain subdued in 2016 as uncertainties weigh on global demand, WORLD TRADE ORGANIZATION (Sep. 20, 2019, 03:05 PM),   https://www.wto.org/english/news_e/pres16_e/pr768_e.htm. 
                      [2] From Parts to Products: Why Trade Logistics Matter, THE WORLD BANK (Sep. 20, 2019, 03:30 PM), https://www.worldbank.org/en/news/feature/2018/07/24/from-parts-to-products-why-trade-logistics-matter.
                      [3] Shipping and World Trade, INTERNATIONAL CHAMBER OF SHIPPING (Sep. 20, 2019, 04:30 PM), https://www.ics-shipping.org/shipping-facts/shipping-and-world-trade.
                      [4] Id.
                      [5] Freight transport and associated services (VAT Notice 744B), GOV.UK (Sep. 25, 2019, 02:05 PM) https://www.gov.uk/guidance/vat-on-freight-transport-and-associated-services-notice-744b. 
                      [6] Id.
                      [7] Vipin Kumar Jain v. M/S. Freight Lines India Pvt. Ltd.2012 SCC OnLine Del 5255.
                      [8] Nabob Food Ltd. v. Harry W. Hamacher Spediteur GmbH & Co, [1988] B.C.J. No. 250 (Co. Ct.).
                      [9] Bertex Fashions Inc. v. Cargonaut Canada Inc., [1995] F.C.J. No. 827, (Federal Court of Canada). ¶ 24 and 25.
                      [10] Vipin Kumar Jain vs M/S. Freight Lines India Pvt. Ltd, 2012 SCC OnLine Del 5255. ¶ 26.
                      [11] Bertex Fashions Inc. v. Cargonaut Canada Inc., [1995] F.C.J. No. 827, (Federal Court of Canada).
                      [12] Id. ¶ 27-32.
                      [13] C.P. Ships v. Les Industries Lyon Corduroys Ltée, [1983] 1 F.C. 736 (Supreme Court of Canada).
                      [14] Morlines Maritime Agency Ltd. v.  IKO Industries Ltd., ADMIRALITYLAW.COM (Oct 01, 2019, 04:25 PM), http://www.admiraltylaw.com/summary.php?case_id=297.
                      [15] New Zealand Shipping Co. v. A.M. Satterthwaite & Co, [1975] A.C. 154 (1974, Privy Council.)
                      [16] New Zealand Shipping v. Satterthwaite & Co., E-LAWRESOURCES.CO.UK (Oct 05, 2019, 05:14 PM), http://www.e-lawresources.co.uk/New-Zealand-Shipping-v-Satterthwaite.php.
                      [17] ITO-Int’l Terminal Operators v. Miida Electronics, [1986] 1 S.C.R. 752 (Supreme Court of Canada).
                      [18] Importance of the Freight Forwarding Industry, hisspedition.sk (Oct 05, 2019, 07:18 PM),  http://hisspedition.sk/en/importance-freight-forwarding-industry/.

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