by Michael Boltz
Boltz Law
Bills
of Lading When a shipper hires a
carrier to deliver its cargo, one of them creates a Bill of Lading, which is the
basic contract of carriage in
the transportation industry. The
industry’s need for a uniform, universally understandable, basic and
predictably enforceable carriage contract resulted in the Bills of
Lading Act, 49 USC 80110. Therefore the Bill of Lading defines the
obligations, rights, and duties of the parties, which vary by the terms of each
Bill of Lading. So whoever prepares the Bill
of Lading gets to set the rules, subject of course, to the other party’s
objections and negotiations. However,
many times a Bill of Lading is issued by one company and the other party’s
employees do not notice key provisions.
For example, the standard rule is that the Bill of Lading requires that the
owner of the goods or the consignee/customer must pay the freight and all other
lawful charges for the transportation and the seller/consignor remains liable
to the carrier for all lawful charges.
However, suppose your company is the seller/shipper/consignor or the
customer/consignee and your company prepares the Bill of Lading, by simply
checking the box that says “Non-recourse” and “Pre-paid” on the Bill of Lading you
prevent the transportation company from suing either the shipper or consignee
for freight charges. By preparing the Bill
of Lading the shipper can also avoid tariff charges. If your company is operating under a through Bill
of Lading as an intermediary, it is also controlled by the same terms in the
Bill of Lading.
Getting Paid Except for the exceptions discussed and other
exceptions, the principal rule is that if you are a carrier by truck or
air or a warehouseman you will get paid for your services by the consignee or
the consignor if the consignee fails to pay.
The US Fifth Circuit Court of Appeals stated in the Exel Transportation Services case, “The bedrock rule of carriage is
that, absent malfeasance, the carrier gets paid”. What if the carrier is hired by a logistics
company, freight forwarder or broker who does not pay the freight charges? The rule is that the seller of the goods, or
consignee, still must pay. This applies
even if the seller has already paid the logistics company, freight forwarder or
broker, who then goes into bankruptcy or fails to pay.
Leverage For Collecting
Freight Charges Rather than just calling for payment, the
carrier can write a letter to the logistics company or broker that hired them
and state that, pursuant to federal and state laws, if payment is not received
in ten days that demand will be made upon the shipper and the consignee who
will be prosecuted along with you for non-payment. The leverage is of course that now the customer
relations and the future business of important clients of the logistics company
or broker becomes in jeopardy, unless the Bill of Lading had the “Non-recourse”
and “Pre-paid” boxes checked or other arrangements were made. This was the holding in the Oak Harbor Freight Lines case and all others that followed.
Holding Your Cargo Hostage Both
the carrier and warehousemen have a statutory possessory lien on the freight in
their possession under UCC 7.209 and 7.307.
However the lien only applies to cargo in their possession. So they lose the right to hold the cargo in
exchange for payment when they let it out their possession or when they
unjustifiably refuse to deliver it. They
can also collect costs incurred in preserving the freight, in selling the
freight, tariffs and other reasonable expenses under their possessory lien.
Holding Your Cargo For Ransom Unfortunately
it is not uncommon for a carrier or a warehouseman to hold onto a later
shipment until the shipper or freight forwarder pays for earlier freight
shipments that are unpaid. One of the
essential characteristics of Bill of Lading is that it is a bailment contract,
which means that the parties agreed for the carrier or the warehouseman to be
in lawful possession of the cargo in the transportation process, but upon
payment they must return the goods in the same condition as they were received,
less normal wear and tear. Here’s the
cure: offer the carrier or the warehouseman full payment for the current
shipment and it must release the cargo.
If the bailee/warehouseman does not release the cargo upon offer of
payment, they are guilty of conversion (civil theft). Then you go to court and get an order
releasing the freight, or you get a judgment for the value of the cargo,
consequential damages and attorney’s fees for breaking the contract.
The Himalaya Clause The
Himalaya Clause takes its name from the English case of Adler v Dickson. Mrs. Adler
was a passenger on the cruise ship, the SS Himalaya. She was seriously injured when the gangway
she was walking down collapsed. The
passenger ticket contained a non-responsibility clause exempting the owner of
the Himalaya from liability. A Himalaya Clause can be made part of a
contract of carriage such as a bill of lading.
As mentioned, intermediary carriers and other service providers are
governed by the Bill of Lading. Therefore,
the effect of adding this clause is to exempt, as far as possible, the
servants, agents and independent contractors employed by the contractual
carrier from liability to other parties to the contract, such as the shipper,
consignee or holder of a bill of lading.
So, the clause may say the agreement limits the claims to $500.00 and it
is FOB Destination. With this, the motor
freight carriers, warehousemen and intermediaries can claim protection of
$500.00 in total liability.
Bills
of Lading Training Very often the Bill of
Lading is not looked at until the cargo is on the move or after the deal is
made, or after the a problem has developed, or it is looked at by untrained
employees. Experience is not
training. We all have had the experience
of confidently practicing our misunderstandings. Train the first, second, and third persons
who will see or deal with a Bill of Lading on the responsibilities and
consequences of the shipping contract.
Have your company issue the Bill of Lading so it is not surprised by its
effects and takes the advantages available through a Bill of Lading.
Service Agreements The sweep of "deregulation” and the effect
of the ICCTA, which virtually eliminated the statutory distinction between
"common" and "contract" carriage, has left the carrier
without the ICC's regulatory oversight. That makes it advisable to create Carrier Contracts or Service
Agreements to put in place protection against unilateral rate increases, surprise
charges, unrecoverable transit losses and dispute resolution provisions.
Michael Boltz of Boltz Law provides legal services
to a wide range of business, transportation, commercial litigation and real
estate clients in the Houston, Texas area. He is licensed
in Texas, New Mexico and Illinois in their state courts, their federal courts
and in US Courts of Appeal in Louisiana, Colorado and Illinois. Mr. Boltz’
office has represented national and international companies in business and
commercial litigation. Mr. Boltz can be reached at (832) 381-3070 or boltz@boltzlaw.com.
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