By Brian Dunn

Are freight forwarders merchants and if so, what are their liabilities?

That was one of the topics presented at Borden Ladner Gervais’ 25th Annual Law Seminar in Montreal on December 6.

Since carriers, particularly those in the liner trade, deal with a number of parties who have an interest in cargo, including shippers, consignees, receivers and freight forwarders, who is bound by the Bill of Lading? asked BLG Partner Jean-Marie Fontaine. More specifically, what is the position of the freight forwarder who plays a number of roles such as ship agent, logistics provider and customer of the line, potentially leading to conflicting interests, he pointed out.

Carriers will attempt to bind as many parties as possible to the Bill of Lading via a “Merchant Clause,” said Mr. Fontaine, which typically includes the shipper, consignee, owner of the goods, holder of the Bill of Lading and anyone acting on behalf of such a party (like a freight forwarder). And all parties considered “Merchants” are jointly liable for freight, demurrage, storage charges, damage caused by cargo and penalties.

“Freight forwarders often respond that they act solely as agents, are not a party to the Bill of Lading and incur no direct liability towards the Line,” said Mr. Fontaine, who gave the following example of a problem that occurred in a recent Canadian case.

DHL had booked with CMA CGM’s Canadian agent the carriage of 68 containers between Montreal and Ho Chi Minh City. Booking confirmations were issued by CMA CGM to DHL. In its Bill of Lading Instructions, DHL named its client, HSB, as the shipper, Tan Mai as consignee and itself as a “Forwarding Agent.” The Bills of Lading were issued and released to DHL. DHL paid the freight to CMA CGM and the 68 containers were carried to destination where they were discharged. Unfortunately, the shipper did not pay DHL. DHL, in turn, invoked a freight forwarder’s lien and refused to release the CMA CGM Bills of Lading to the shipper without payment. As a result, the containers sat in Vietnam accumulating demurrage and storage charges.

CMA CGM took proceedings in France against the shipper, consignee and DHL (as “Forwarding Agent”). DHL responded with an action in Canada seeking a declaration of non-liability. In the context of a motion for a stay of the Canadian proceedings in favour of the French proceedings, the Court had to determine whether DHL was a party to the CMA CGM Bills of Lading and thus bound by the jurisdiction clause in that contract.

The Court considered both the terms of the Booking Confirmations and the definitions of “Merchant” and “Holder” under the CMA CGM Bills of Lading, as well as the fact that it held the Bill of Lading, and that it acted “on behalf of the shipper”. Accordingly, the Court concluded that DHL was bound by the terms of the CMA CGM Bills of Lading.

The Court decision means that freight forwarders are more likely (though not in all cases) to be held jointly liable with the shipper and consignee for all the liabilities of the Merchant, such as freight, demurrage and storage charges, particularly if the costs are directly related to their behaviour (such as refusing to release a Bill of Lading).

While the above matter was settled between the parties, “whether you’re the shipping line or freight forwarder, you should look closely at the terms of the booking confirmation,” suggested Mr, Fontaine as a way to avoid any confusion. “If you want to clarify potential exposure, a long-term contract might be the solution.”

Responding to the risks inherent in increased tanker traffic

Ottawa has developed a number of initiatives to improve present regulations concerning the transportation of oil by ship, Gillian Grant, Senior Counsel, Transport Canada, said in another presentation.

She outlined two major initiatives in her presentation entitled “Update on International and Canadian Maritime Law Initiatives.” They are the proposed World Class Tanker Safety System and legislation introduced in Parliament in October that amends portions of the Canada Shipping Act in Bill C-3 that deals with preparedness and response for oil spills as well as to the Marine Liability Act.

On the World Class Tanker Safety System, Ottawa has been working on a strategy that includes three components, namely prevention, preparedness and response and liability and compensation. It has proposed measures to improve Canada’s performance under each of these three areas. These include enhanced requirements for planning and reporting on oil handling facilities or marine terminals, increased inspections to ensure all foreign tankers are inspected on their first visit to Canadta and annually thereafter, while funding will be boosted for the National Aerial Surveillance Program that conducts monitoring of ships in Canadian waters to ensure they do not pollute or if they do, takes enforced action against them.

On the Preparedness and Response side, the Canadian Coast Guard will adopt an Incident Command System for oil spill response in order to integrate its operations with key partners and respond more effectively.

Another component of the World Class Tanker Safety strategy relates to liability and compensation in the event that there is a spill. The government is committed to maintaining the principles of polluter pays, international uniformity and shared financial responsibility between shipowners and cargo interests.

The second major development on the marine front is the introduction in Parliament of Bill C-3 also known as the Safeguarding Canada’s Seas and Skies Act. Bill C-3 includes amendments to the Maritime Liability Act to compensate for damages caused by hazardous and noxious substances carried by sea.

On the international scene, it has been a relatively quiet year, although there are three things that are worth mentioning, said Ms. Grant. First, the Marine Safety and Marine Environmental Protection Committees of the International Maritime Organization (IMO) and their subcommittees have been trying to negotiate a Polar Code that would set mandatory ship construction, equipment, crewing and environmental protection requirements for ships operating in polar regions. The negotiations are almost finished and the Code is expected to be finalized in 2015.

In terms of the International Oil Pollution Compensation Funds, the IMO has decided to wind up the 1971 Fund which was superseded by the 1992 Fund in 2002. There are currently five ongoing claims that in principle should be resolved before the 1971 Fund can be formally closed. This work is difficult because of the nature of some of the claims and also because there are few, if any, precedents for ending the existence of an international body, said Ms. Grant.

Finally, the IMO Legal Committee had its 100th session in April 2013. The principal accomplishment from the meeting was the development of Guidelines on Preservation and Collection of Evidence following a serious crime on board a Ship or following a report of a missing person from a ship.

The world’s most expensive salvage operation to date.

The 150 who attended the seminar were also given a glimpse into the salvage industry and the challenges of refloating the Costa Concordia, one of the biggest and most complicated wreck removal operations ever, with a price tag that could top $1 billion by the time it’s refloated this summer.

Prior to 1969 in the salvage business, the owner’s liability was limited to the value of a shipwreck, according to Lindsay Malen, Director, Business Development, Titan Salvage/Marine Response Alliance, Houston, TX, which, alongside Italian partner Micoperi, are leading the Costa Concordia recovery operation. But the business changed following the wreck of the Torrey Canyon in 1967 with 120,000 tons of oil spilled, the largest wreck at the time. That casualty led to the creation of the Civil Liability Convention which increased the liability of the shipowner, resulting in higher insurance premiums, but making more funds available for wreck removals.

“The environmental risk in wreck removal is very high which adds to the costs,” said Ms. Malen during her presentation entitled “The escalating costs of wreck removals and why it’s not the salvors fault…most of the time.” Other factors contributing to escalating costs include the vessel’s size and technical characteristics of a wreck, location of the wreck, depth of water, weather, media pressure and an increasing requirement for a successful removal by third-party stakeholders, added Ms. Malen.

While the Costa Concordia is relatively small at 290 metres, compared to the biggest ship at sea, the 396 m Marco Polo, it contains hundreds of rooms on13 decks versus regular cargo holds, adding to the complexity and cost of the salvage operation. It capsized on January 13, 2012.

Because of its structure and location lying on two rock ridges, the salvors had to use 31,000 tonnes of steel structures and 11 anchor blocks each weighing 18 tonnes to stabilize and prepare the vessel for refloating. “We are utilizing a combination of engineering techniques never utilized before on such a large project. Along with the University of Rome, the salvage team is documenting the entire process which will be referenced as a huge learning experience for the future,” Ms. Malen pointed out. Wreck removal costs are covered by the P&I clubs and in cases this large, by the reinsurance market as well. The total work crew numbered over 500 salvors and 25 different nationalities, with divers performing over 13,000 individual dives. There was a proposal to make the ship a dive site instead of removing it, but pending lawsuits prevented that, said Ms. Malen.

The seminar opened with a panel discussion on the Direct Right of Action against P&I Clubs moderated by Jeremy Bolger, Partner, BLG. The panellists were Leanne O’Loughlin, Claims Executive, Charles Taylors P&I Management (Americas), New York, Ronny Larsen, Sr. Vice-President, Head of Syndicate 1, Assuranceforeningen Skuld (Gjeensidig), Norway and Charles De Leo, Partner, De Leo and Kuylenstierna P.A., Miami.