11th Circuit Holds That Transportation Intermediary Added To Bill Of Lading As Consignee Without Its Knowledge Is Not Liable For Demurrage (Dec. 22, 2009)

The 11th Circuit recently held that a freight re-loader named on bills of lading in connection with multiple shipments, but which had no actual knowledge that it appeared on the bills, was not responsible to a rail carrier for container demurrage. In Norfolk Southern Railway Co. v. Savannah Re-Load, 586 F.3d 1273 (Nov. 2, 2009), the court was presented with a situation where the defendant freight re-loader received containers via rail and re-loaded the cargo for export, but where the forwarder only occasionally named it as consignee on bills of lading in connection with shipments, whereas an ultimate consignee was always identified. Additionally, and somewhat astonishingly, the re-loader was never provided with a copy of the actual bill of lading. In short, the re-loader accepted freight where it appeared as a consignee on the bills that the forwarder and carrier relied upon, but it accepted the cargo without knowing that it was identified on the bills as a party to the transaction. Certain rail cars were detained while at the re-loader’s facility, and demurrage accrued, leading to the lawsuit.

The 11th Circuit began by reiterating the default rule that most intermediaries should know: that demurrage charges are properly assessed even if the cause for the delay is beyond a party’s control. Courts enforce this basic rule because demurrage is perceived insofar that it secures compensation for use of the car and the track and because it promotes efficiency by providing a deterrent against undue detention of equipment. A claim for demurrage, however, must be grounded by either statute, contract or prevailing custom. Here, the plaintiff presented bills of lading naming the re-loader as a consignee, and the consignee had in fact accepted delivery and handled the cargo. If the re-loader in this case was found to be a party to the transportation contract embodied in the bill of lading, it seems clear that the court would have not hesitated to award the demurrage that the plaintiff sought.

However, what likely began as a fairly straightforward demurrage collection case for the plaintiff soon hit a snag. The plaintiff was constrained to withdraw claims for approximately $60,000 because sometimes the plaintiff did not include the re-loader’s name on the bill of lading as a consignee, although other times it did. It was clear to the plaintiff that its claim for demurrage would fail if the defendant was not even identified on the bill of lading. Then, the defendant re-loader pointed out that it had never received a copy of the bills, and as a result had no notice of the fact that the plaintiff had unilaterally made it a party to the transportation contract. Because the plaintiff had not obtained proof through discovery that the defendant knew it appeared as consignee, the record accepted as true the defendant re-loader’s contention that the plaintiff had named it as a consignee without its consent or knowledge. This would prove ultimately prove fatal to the plaintiff’s claim for demurrage.

The court noted that federal courts of appeal are split on whether one unilaterally listed by another on a bill of lading can be considered a consignee that is a party to be bound by the contract. One prior case had held that a party cannot become a consignee simply because another unilaterally identifies it as such on a bill of lading. Another prior case held that one named as the sole consignee on a bill is “presumptively liable” for demurrage fees, and held that a party may rebut that presumption by refusing to accept delivery or providing the carrier with written notice of the fact that it is serving as an agent for a disclosed principal. (For more on disclosed agency in the context of OTIs, see the blog post on the Landstar ruling recently issued by the FMC.)

Here, the record showed that the re-loader was simply not a party to any of the bill of lading transportation contracts because it did not agree to be named as a consignee and was not aware of its designation as such. Because it could not be made a party to the transportation contract without its consent or knowledge, the court held that the re-loader was not liable for demurrage.

What can be taken from this case? First, the defendant re-loader in this case was lucky. Had it been provided with one bill of lading identifying it as a consignee, it is possible that the court would have found it acquiesced to being a party to the contract, and then inferred a course of dealing making it liable for demurrage on all shipments thereafter. The court indicated that the plaintiff’s attorneys had not done a good job of developing the facts as to the issue of notice. Had they done so, and through discovery found that the re-loader had constructive or actual knowledge that it was identified as a party to a bill or bills, the outcome likely would have been different.

Second, the case serves as a cautionary tale. The law allows an intermediary named as a consignee to disclaim its role as a party to the contract by advising a carrier that it is acting as an agent for a disclosed principal. The case presented a situation where the same forwarder and re-loader were performing the same functions repeatedly. In hindsight, had the re-loader given such notice at the outset, the case would not even have gotten as far as it did, and its outcome would have been far more certain. Why expose oneself to demurrage when a simple email or fax advising as to one’s role as an agent and disclosing one’s principal would derail a future claim for demurrage? It is likely the recipient of such a note in the office of a carrier would not realize its legal import and think nothing of it. Imagine the surprise when, some time later, proof that such a missive was transmitted serves to deprive the carrier of a claim against the intermediary for demurrage, or any other contract claim premised upon the terms and conditions of the bill of lading.

Something to think about.