Freight forwarders customarily make bookings with ocean carriers on behalf of their clients, and often they are listed as forwarding agents on the carriers’ bills of lading. Occasionally, forwarders are sued by carriers for unpaid freight or other charges such as demurrage. The question is, “How often are forwarders legally liable for the carriers’ charges?” The answer depends on how the booking is made, as well as how the carrier’s B/L terms and conditions are written.
Booking
The booking forms a contract between someone and the carrier (including NVOCC). The forwarder is acting as an agent of a shipper when booking occurs. Legally, if an agent executes a contract on behalf of its principal, and the principal has been properly disclosed, then the agent itself is not a party to the contract. Therefore, the agent is not liable for claims arising out of the contract. [1] To avoid liability, “[t]he agent must disclose his principal at or before the time when the contractual agreement is made final.”[2] Essentially, if a forwarder discloses all necessary information to its principal prior to booking with a carrier, then the forwarder is acting as a non-liable agent. On the other hand, if a freight forwarder makes a booking for an undisclosed principal, then he may be bound to the booking contract. The same holds true if the forwarder applies for credit in its own name, rather than that of the shipper.
Bill of Lading Terms and Conditions
Carriers often make “merchants”, as defined in the B/L, liable for freight and other charges via booking confirmations and/or B/L terms and conditions. For example, in CMA-CGM v. World Shippers[3], the freight forwarder made bookings with CMA-CGM. The booking confirmation stated that it was subject to CMA-CGM’s terms and conditions. As a result, the Court found the freight forwarder liable for unpaid freight.
On the contrary, if the booking only refers to terms and conditions of the principal and not the forwarder, then the terms and conditions do not become the final contract between a freight forwarder and a carrier. In Mediterranean Shipping Company (USA) Inc. v. American Cargo Shipping Lines, Inc.[4], American Cargo made several bookings with MSC. For every booking confirmation, American Cargo was identified as the shipper. The booking confirmations all stated “Please be informed that MSC has implemented the use of a new bill of lading format. We suggest that you read the T&C since the clauses have been changed.” For these bookings, American Cargo was identified as the agent of the shipper on the bills of lading. The terms and conditions did not specifically define the “merchant” to include the forwarding agent, and as a result American Cargo was not liable to MSC for the demurrage. Under the bills of lading, American Cargo was merely acting as an agent of a disclosed principal. MSC still sought to hold American Cargo liable though, because at the time of booking American Cargo had not disclosed the identity of the shipper. The Court found that at the time of booking, the terms and conditions were not incorporated into the contract; MSC simply “suggested” that American Cargo read the terms and conditions, as opposed to using operative language to make the terms and conditions binding on the shipper.
The key take-away here is that carriers usually make “merchants” liable for freight and other charges, so it is important to be able to distinguish who the responsible merchant is. If the merchant is specifically defined to include the freight forwarding agent, then the courts can find the forwarder liable for all applicable charges. This is true even if the forwarder is acting as an agent for the disclosed principal. By accepting the bills of lading, the forwarder becomes bound to the terms and conditions within. This is why it is important for the forwarder to know whether each carrier’s B/L or booking terms and conditions include the freight forwarder as merchant.
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[1] See Seguros Banvenez, S.A. v. S/S Oliver Drescher, 761 F.2d 855, 860 (2d Cir.1985) (citing Restatement (Second) of Agency §§ 320, 328 (1958) and Leather’s Best, Inc. v. S.S. Mormaclynx, 451 F.2d 800, 808 (2d Cir.1971)).
[2] Orient Mid–East Lines v. Albert E. Bowen, Inc., 458 F.2d 572, 576 (2d Cir.1972) (quoting Cleary Bros v. Christie Scow Corp., 215 F.2d 740, 743 (2d Cir.1954)) (internal quotation mark omitted).
[3] (CMA-CGM (Canada), Inc. v. World Shippers Consultants, Ltd., 921 F. Supp. 2d 1, 2 (E.D.N.Y. 2013)
[4] 2014 WL 449796 (S.D.N.Y. 2014)
