Cargo Claims: Exercise Caution when Paying Claims on Brokered Loads

This post was written prior to our January 2017 merger, under our previous firm name, Aikins, MacAulay & Thorvaldson LLP.

A recent decision by the Ontario Divisional Court sounds a note of caution for any carrier faced with a cargo claim from a customer on a load brokered to another carrier.

Under the federal  Motor Vehicle Transport Act, the conditions of carriage and limitations of liability that apply to transport by an interprovincial trucking company are those set out in the laws of the province in which the transport originates. Most Canadian provinces have adopted some form of the “Uniform Conditions of Carriage” which include provisions dealing with liability for cargo claims where a shipment is accepted for carriage by more than one carrier. As a general rule, the originating carrier and the delivering carrier are liable to the shipper for any loss or damage that occurs while the goods are in the possession of any other carrier involved in the transportation. They are then entitled to recover from that other carrier any amount they are required to pay to the shipper for the loss or damage.

These provisions are designed to address true interline arrangements involving successive carriage by different carriers. It should not be assumed that they apply where a carrier has agreed to transport goods for a customer but subcontracts the entire movement to another trucking company.

In March of this year, the Ontario Divisional Court dismissed an appeal from a small claims judgment which dealt with this issue. The case involved a carrier who had brokered a load of produce belonging to one of its regular customers to a second carrier. The goods were spoiled in transit. The first carrier settled its customer’s freight claim and sought to set off the amount against the second carrier’s invoice for outstanding freight charges.

The small claims judge found that the first carrier had brokered the load to the second carrier because at the time it did not have the equipment or the capacity to transport the load itself and that only the second carrier had signed the bill of lading.

On the basis of these facts, he concluded that in relation to the spoiled shipment the first carrier’s role was really that of a load broker whose only obligation to its customer was to arrange for carriage of the load by someone else. It had fulfilled that obligation by selecting a competent carrier. Therefore, the court reasoned, the first carrier was not a party to the contract of carriage and had no legal obligation to compensate the shipper for the value of the spoiled produce.

In the result, the small claims judge concluded that when the first carrier settled its customer’s cargo claim to maintain good customer relations the payment was purely voluntary. It did not give rise to a right to claim recovery from the second carrier. This decision was upheld on appeal.

The case suggests some practical measures to keep in mind when brokering loads or dealing with freight claims on brokered loads, particularly in relation to business from regular customers:

  • Contract of Carriage: Had the first carrier issued a bill of lading to its customer, the court might have reached a different conclusion with respect to whether it was a party bound by the contract of carriage. Similarly, appropriate language in a general “umbrella” contract governing multiple shipments for the same customer may support a finding of a legal obligation to pay the shipper.
  • Load Confirmation: The terms and conditions under which a load is brokered to a second carrier are typically set out in a load confirmation or similar document. Consider including explicit language in your load confirmations which entitles you to settle cargo claims with your customer and to recover amounts paid from the handling carrier.
  • Assignment: When paying a customer’s freight claim on a brokered load, consider obtaining a simple assignment of any legal claim the customer may have against the handling carrier in respect of the loss or damage.

This article was originally published in Western Canada Highway NewsFall 2015 issue.

Lucia Stuhldreier is a partner with Aikins Law and practices in the area of transportation law. 

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that this article is not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.