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The Carrier Must Get Paid – Fact Or Fiction

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The Carrier Must Get Paid – Fact Or Fiction The Carrier Must Get Paid—FACT OR FICTION M. Gordon Hearn* Jeff Simmons** Michael Tauscher*** Introduction • When and where can these it to bill Cab directly. Cab stopped “The bedrock rule of carriage freight charge actions be filed? paying and CSX was owed almost cases is that … the carrier gets paid.”1 • What affect does bankruptcy $300,000 in shipping charges. CSX’s This article explores whether that filing have on a carrier’s right to tariff made the shipper, consignee and owner of the goods jointly and sever- rule is absolute, or whether the right collect from others? ally liable for payment. to recover freight charges and the • How does the law compare in obligation to pay are not black and Canada for carriers? Relying on CSX’s tariff, the court white. When seeking payment of found: (1) Marriott was not released freight charges, the carrier poten- The General Rule: from liability when CSX started bill- tially has three sources from which to Carrier Gets Paid ing Cab directly; (2) CSX’s delay in seek payment: (1) the consignor who A frequently cited case for the notifying Excel of Cab’s mispayments shipped the goods, (2) the consignee general rule is Excel Transportation was not a representation that Cab’s who received the goods, and/or (3) a Services, Inc. v. CSX Lines, LLC.2 payments were satisfactory; (3) the bill “bill to” third-party, such as a broker. There, the court declared: “[t]he bed- of lading and CSX’s tariff made the The right to recover freight charges rock of rule of carriage cases is that, shipper and consignee liable even if against these parties involves compet- absent malfeasance, the carrier gets no privity of contract; and (4) Excel, Marriott and Cab were jointly and ing interests and potent defenses such paid.”3 as estoppel. As a result, the carrier severally liable for the charges. The Excel case involves a typical does not always get paid. Besides the court’s bold declara- scenario: shipper pays intermediary, tion that the “carrier gets paid,” the This article will help practitioners but intermediary does not pay the court explained the policy reasons find their way through this chal- carrier. Specifically, the shipper, supporting this common law rule: lenging maze of competing interests Marriott International, hired Excel, a and, at times, inconsistent case law. freight forwarder, to arrange multiple It is superficially unfair that Specifically, this article will address: cargo shipments to Hawaii for a hotel Excel and Marriott must • The general rule (i.e., the car- renovation. Excel then contracted pay for the shipments twice. rier gets paid). with a second freight forwarder, Cab However, allowing them the • If a carrier does not get paid, Logistics, which hired CSX Lines to benefit of the carriage with- who is liable? transport the cargo. Excel paid Cab, out compensating the carrier • What defenses exist to the car- but Cab did not forward payments to would eventually cripple rier’s claim for payment? the carrier, CSX. CSX billed Marriott the shipping industry, and the economy generally, as • Who wins in double payment directly until Marriott complained to carriers devoted their time scenarios? Excel, which contacted CSX and told investigating potential cus- *Fernandes Hearn, LLP, Toronto, Ontario, Canada tomers. The entire point of **Ryley Carlock & Applewhite, Phoenix, Arizona the tariff regime—promot- ***Scopelitis Garvin Light Hanson & Feary, PLC, Detroit, Michigan ing commerce by removing TTL April 2012, Vol. 13, No. 5 14 shippers’ credit-worthiness are marked. In Jones Motor Co. v. The parties are free to assign liability from a carrier’s list of con- Tel edyn e,9 the court found the ship- for payment of freight charges through cerns—would be eviscerated.4 per liable in that situation. There, a contract separate and different from For carrier’s counsel, Excel’s favor- the court held that a bill of lading the bill of lading.17 Such a contract able language—both as to the general marked both “prepaid” and “non- may provide: (1) only the shipper is rule and policy reasons supporting it— recourse” binds the shipper to pay liable, (2) the shipper pays only if should be included in any brief seeking for the “line haul” freight charges consignee does not pay, (3) only the collection of freight charges. but not to pay for the accessorial consignee is liable, or (4) both shipper charges.10 The court relied on the car- and consignee are liable.18 Who is Liable? rier’s tariff to resolve the conflict. The Any contract to modify a bill of applicable tariff required the shipper lading must be between the shipper Generally, the bill of lading deter- to guarantee payment of the shipping mines who is liable.5 A party’s bill and carrier. A contract with a bro- charges if the third party failed to do ker (who is not a party to the bill of of lading, however, can be modified so.11 Therefore, the tariff prohibited a by a prior written contract between lading) cannot modify the liability third-party billing situation because provisions of a bill of lading.19 the shipper and the carrier. If parties the shipper signed the nonrecourse enter into a contract before preparing provision (which was the case there). 2. Estoppel a bill of lading, and there is an irrec- The court reached a different oncilable difference between the two It is far too common where a ship- result in Gaines Motor Lines, Inc. v. per or consignee pays another party agreements, the prior written agree- Klaussner Furniture Industries, Inc.12 ment controls.6 (such as an intermediary) and that There, the court looked beyond the party fails to pay the carrier for the If the bill of lading controls, the bill of lading to determine the respon- freight charges. In those cases, the courts look to the abbreviated nota- sible party because of the conflicting carrier looks to the shipper and/or the tions found on uniform bills of lading notations. In Gaines, the plaintiff car- consignee for payment, despite the to determine who is liable: riers had been advised by shipper fact they may have already paid the • “Prepaid” means the shipper/ that the third-party logistics company third party. Shippers or consignees 13 consignor is obligated to pay the would be the third-party payer. In argue they are an “innocent party” carrier. fact, the most recent course of deal- and should not be required to pay • “Collect” means the consignee ing showed that plaintiff carriers sent twice. Shippers and consignees, where is obligated to pay the carrier. invoices to, and were paid by, the they have already paid, raise estoppel • “Nonrecourse” (also referred to third-party logistics company, not the as a defense.20 Double payment alone shipper.14 In reaching its decision that as “section 7” language) means a is not enough to establish estoppel. the shipper was not liable, the court consignor must sign the “nonre- Specifically, estoppel applies where: (1) distinguished its case from Jones Motor course” box to be free of liability the carrier’s misrepresentation exists, Co., because plaintiff carriers did not for freight charges. such as a false assertion of prepayment contend a tariff similar to the one • “Bill to Third Party” notation on the bill of lading, and (2) detri- in Jones Motor Co. applied to their mental reliance.21 The battleground is notifies a carrier that a third action.15 party will be paying but does proving detrimental reliance. The common law rule of carriage not relieve the consignor from Based on case law, it appears ship- liability applies even if no contract liability unless the consignor pers, as compared to consignees, have of carriage exists.16 In other words, has also signed the “nonre- a more difficult time proving estoppel. the uniform bill of lading terms are course” box. Courts find a shipper should bear the consistent with common law rules Under the uniform bill of lading risk of double payment because it is (i.e., while the consignor is primarily generally not “an innocent party.” As terms, the shipper/consignor is liable liable for payment of freight charges, a unless the bill of lading is marked a court aptly noted: 7 consignee who accepts delivery is also “nonrecourse.” In contrast, the con- liable for freight charges). [T]he shipper, and not the signee is liable for freight charges carrier, is in the best position unless the bill of lading is marked Defenses to avoid liability for double “prepaid” and the consignee has payment by dealing with a already paid its bill to the consignor.8 1. Contract Modification reputable freight forwarder, Occasionally, courts are faced The shipper or consignee may by contracting with the car- with interpreting inconsistent nota- raise the defense that the bill of lading rier to eliminate the shipper’s tions on bills of lading, such as when terms do not apply because they have a liability, or by simply paying both the “prepaid” and “nonrecourse” prior written contract with the carrier. the carrier directly.22 TTL April 2012, Vol. 13, No. 5 15 On the other hand, it appears Jurisdiction U.S.C. § 13702(a), motor carriers (not easier for consignees to show estoppel In which court does a carrier file a involved in noncontiguous domestic when they have previously paid. For deliveries and/or household goods) claim to recover unpaid freight charges: example, in C.F. Arrowhead Services, must now “provide to the shipper, on state or federal? Unfortunately, the Inc. v. AMCEC Corporation,23 the the request of the shipper, a written or answer is not so black and white—a Court held that the consignee does electronic copy of the rate, classifica- split of authority exists as to whether not have to make payment to the tion, rules and practices, upon which federal jurisdiction exists for recovery consignor after delivery to prove det- any rate applicable to its shipment of freight charges for general freight.31 rimental reliance.
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