Liability of international freight forwarders- Principles for imposion of liability and ways of minimizing damages

Preface

What are the limits of liability for international freight forwarders?
What is the exposure and what are the risks a freight forwarder takes upon itself when handling a cargo consignment, upon export or import?
How can these risks be reduced and limited?

In this article we will try to outline the principles for imposing liability on international freight forwarders in light of many judgments having differing consequences but where the principles arising from such are clear. Later on, and based on the presentation of the principles for the imposition of liability, we will try to suggest ways and means of action which may be taken in order to limit and minimize the risks.

Principles for the Imposition of Liability on an International Freight Forwarder

The non arrival of a cargo, the later arrival of a cargo or the arrival of damaged cargo, usually entails legal claims against the entities in the logistics chain including the international freight forwarder.

Many judgments handed down in such claims against international freight forwarders do not have uniform results. There are those which impose legal liability on the international freight forwarder, there are those which exempt the international freight forwarder from any liability and there are those which impose partial liability on the freight international forwarder. An analysis of the judgments shows that despite the conflicting results, a general, principle can be determined which, when implanted, under various circumstances leads to different results:

The international freight forwarder’s liability is derived from the contents of the undertakings it has assumed in each particular case and from the manner such have been fulfilled (or have not been fulfilled) by it.

Consequentially, an international freight forwarder who has assumed far reaching, unconditional liability towards a customer regarding the date of arrival for the cargo in Israel or its date of delivery to its destination abroad, will bear the liability for the fulfilment of its undertaking. In comparison, an international freight forwarder who has only assumed the ordering and coordinating operations with the carriers, and has refrained from taking upon itself an independent undertaking to transport the cargo, bears liability for the order and coordination alone, and if it executed the order and coordination in accordance with reasonable standards of measure, customary in the international freight forwarding sector, no liability cannot be imposed upon it for the failure of the cargo to reach its destination at the planned time.
The said undertakings of the international freight forwarder may be given by any means whatsoever, in writing, by the issuing of a Bill of Lading, a letter of undertaking, a quotation, and so on – or verbally.

We will demonstrate these principles in a number of judgments:

In a claim instituted by a manufacturer and exporter of plastic goods sent to Germany and spoiled, partially due the goods having been left exposed to the rain, the court was required to rule on the question of the international freight forwarding company’s liability for the alleged damages. The freight forwarding company argued, inter alia, that in its position as an international freight forwarder, it has no control, nor can it have any control, on the cargo. The court did not contradict this factual claim, but added and found that “on the contractual level (the forwarding company) assumed liability towards (the customer) which is not conditional on the actual control of the cargo.” The Bill of Lading it issued held that it took upon itself to perform, or to ensure the performance, of the transportation of the cargo from the port of origin to the port of destination. Furthermore, within the framework of the same Bill of Lading, the freight forwarding company assumed the liability for any act or omission of any person in its service for the purposes of the performance of the contract. The freight forwarding company explicitly undertook liability for any damage to goods occurring up until the delivery of the goods. The court emphasizes these explicit undertakings, according to which “despite the lack of control over the goods, for the duration of the journey”, (the freight forwarding company) takes the goods under its full responsibility.”

Based on the undertakings of the international freight forwarding company, the court rejects the claims of exemption and holds that the exemption in the Bill of Lading must not be interpreted as “intending to the actions or omissions of that party whose services have been employed for the performing of the forwarding contract. The Defendant 1 (the freight forwarding company) assumed liability for these acts and omissions and it is these acts which cause the damage in this case.” The judgment and its consequences which finds the international freight forwarding company liable for the damages to the cargo, is not based on the negligence of the freight forwarding company (as it did not control the cargo whilst it was left out to the “mercies of the heavens” in the language of the court) but rather for its explicit undertaking for liability to the cargo, for any damage to be sustained and for the acts or omissions of anyone in its service for the purpose of executing the forwarding and transportation of the cargo up to its destination. It must be assumed that the result of the judgment would have been completely different if that freight forwarding company had not given such far reaching undertakings.

In another matter, a consignment of clothing products from China was deliberated upon. The importer needed, inter alia, international freight forwarding services and to this end approached an international freight forwarding company, emphasizing to it that the clothing was destined for the forthcoming winter and that it needed to come to Israel within 23 days of being loaded. The importer received a quotation from the freight forwarding company in which the following was noted: “departure date from the Kasiaman Port: Approximately 21 days.” The goods finally arrived after considerable delay and the importer sued the freight forwarding company for the damages it alleged it had sustained, due to the delay. Similar to the previous case, the freight forwarding company’s claim “that it had not given any undertaking that the goods would reach Israel at a certain time”. It claimed that it never undertakes, nor can it undertake, to commit to an exact date of arrival because this is something which is dependant upon the shipping company.

It is the defendant’s view that it does not effectively deal in the transport of cargoes, but rather only in co-ordinating the details of the transport. The defendant does not have its own ship, it has no control over shipping companies or over sailing dates and dates of arrival at the destinations. The claims of the freight forwarding company were supported by an expert opinion of an expert in the international freight forwarding sector. In this case also the courts were required to look into the nature and contents of the undertakings made by the freight forwarding company, and in this matter it held as follows: “In my view, the quotation provided by the defendant (the freight forwarding company) constitutes an undertaking of the defendant regarding the date of arrival for the cargo in Israel.” The following further quote of the court in this regard is worthy of citation: “The question is not whether the defendant can or cannot make such an undertaking. Neither is the question whether this is under his control or not. The question is did the defendant make an undertaking for such in this specific case. In the case before us, the following was stated in the quotation: Departure date: Approximately 21 days.” The letter (in Hebrew – in English – word) “approximately” does not mean that there is no undertaking here. It means that there might be some deviation, within reasonable limitations, from the stipulated time. However, an unreasonable deviation constitutes a breach … it will be noted that the defendant could have qualified its liability or indicated “in no uncertain terms” that it is not making any representation or undertaking regarding the date of arrival for the cargo in Israel … however the quotation in this case has no such reservation.” In other words, the international freight forwarding company is liable for the contractual undertakings provided by it, regardless of whether such were reasonable undertakings relating to the operations of the freight forwarding company with which the freight forwarding company could comply, or whether they were undertakings within the framework of which, in effect, the freight forwarding company assumed unreserved liability for the operations of the transportation entities.

Further on the court also examines the conduct of the freight forwarding company acting as a common freight forwarder and not as an actual carrier. That is to say, as co-ordinating between the various entities (the consignor, the carriers, etc.). Acting in this position the freight forwarding company does not bear liability for damage caused during the course of the transportation or for the actions and failures of the carrier, however it is liable for damages due to its own acts and omissions, on the basis of culpability. The court reaches the conclusion that on this basis also (and not only on the basis of the contractual undertakings) the freight forwarding company is liable for the importer’s damages because ensuring that the cargo would arrive and be loaded on the ship in time is the duty and liability of the common freight forwarder (see the judgment in the case of Prima v. Panalpina).

The failure of the freight forwarding company not to ensure that the cargo is loaded on the ship, sailing by the agreed date, was one of the factors for the considerable delay in the cargo arriving in Israel. (It will be noted that, in the same judgment, despite the imposition of liability in principle on the common freight forwarder, the importer’s claim, in effect, was dismissed, because he did not prove that he had sustained financial damage).

In another case, of the same freight forwarding company, the court came to the opposite result, exempting the freight forwarding companies from any liability. In that case, the court upheld the arguments of the freight forwarding companies that “they are common forwarders and not the transporters, providing various co-ordination services, including, inter alia, transportation and that this is the representation made to the plaintiff. It will be emphasized that, at no stage, did defendants 1 and 2 (the forwarding companies) assume liability for loss or damage to the cargo …” This finding of the court in this case is that the freight forwarding companies “do not engage in the providing of transportation services and their operations are limited to the co-ordination of the various cargoes, locating transporters and releasing cargoes”, was based, inter alia, also on the fact that in that case the freight forwarding companies had not issued a Bill of Lading for the transportation.

In a judgment given a few months ago the case was heard of an importer who had contracted with an international freight forwarder to carry out a consignment of wine refrigerators from Canada to Israel. The said consignment was supposed to have sailed directly from Canada to Israel. Due to a problem with the ship which was supposed to transport the consignment to Israel, the Canadian freight forwarder moved the consignment to an alternative ship, setting sail for the port of Hamburg in Germany and not directly to Israel. At the time of the storage of the cargo in the Hamburg port, within the framework of the transshipment process a fire broke out and a considerable part of the consignment was lost. Only after the ship arrived in Israel, after having left the Hamburg port, did it transpire that the consignment of refrigerators had not arrived and that it had been burnt before the loading of the ship in the Hamburg port.
The importer sued the international freight forwarder on the grounds of negligence in tort, referring to the handling of the consignment, the transfer of the consignment from direct voyage to transportation via Hamburg, Germany, refraining from air transportation for the consignment or as a single cargo in a container and in the matter of forwarding incorrect reports to the importer. The importer evaluated its damages in the sum of NIS 336,566.

The court rejected the claim against the international freight forwarder, relying, as a central motif in the judgment, on the expert opinion and professional testimony of the managing director of the general organization of customs and excise agents and international freight forwarders, Barry Pintow, who testified in favour of the international freight forwarder in the matter of its proper professional conduct in that case.

The court quotes part of the opinion in its judgment: “The defendant (the international freight forwarder) acted in this case in accordance with reasonable standards of measure, customary in the international freight forwarding sector and forwarded the order to the international freight forwarder in Canada who saw to the undertaking of all the required actions for the transportation of the consignment, including co-ordination with the shipping companies, arranging release from export customs, etc., and all at the request of the plaintiff and with the plaintiff’s knowledge. It should be noted at this point that the defendant, as an international freight forwarder and not as a ship owner, does not and could not have had any control on the logistic chain from the delivery date of the cargo to the shipping company and therefore logistic problems can sometimes arise in various areas, such as: Ports, back terminals, customs, shipping companies and so on.

The international freight forwarding company neither has nor could have had any direct or indirect control on the following operations: The loading of the goods onto the deck of the ship; the sailing dates determined by the shipping companies in accordance with and subject to internal and external determining factors over which the freight forwarding company has no control; problems which are considered as force majeure causing the cancellation of departures or the postponement thereof. Problems preventing departures sometimes occur and prevent compliance with departure timetables which were determined in advance; supervision and guarding of a cargo whilst in port, at back terminals and on the deck of the ship; on offloading dates for cargoes.

The work assumption is that the storerooms are under the supervision of the customs and excise authorities in the country in which the cargo is situated and therefore there is an assumption that the customs and excise authorities have taken all precautions needed for the safekeeping of the cargoes. However, sometimes exceptional events occur such as mid sea collision, storeroom fires, flooding, etc., over which the international freight forwarder neither has nor can have any control.”

It would appear that the result of this judgment would have been different had the freight forwarding company provided an independent, absolute undertaking for the arrival of the wine refrigerators at a defined date, as was done in the judgments in the matter of the consignment of the clothing products from China and in the matter of the plastic sheeting. As no such undertaking was given, the behavior of the international freight forwarder could be measured in accordance with reasonable standards of behaviour in the international freight forwarder sector. The international freight forwarder stood by this test and based on the professional expert opinion the court held that its behaviour was professional and proper and conformed with the accepted professional norms. All of the above said would have been of no assistance if it had issued an absolute undertaking for the arrival of the cargo at the planned time.

In a judgment dealing with the consignment of computer components imported into Israel and lost by the land transporter whilst still in Holland, the court rejected the claim against the international freight forwarder and in this case also the judgment is based on the contents of the undertakings assumed by the international freight forwarder. Once it was proven that “the defendant (the freight forwarding company) did not assume any undertaking for the transportation of the cargo to Israel, but rather only assumed an undertaking for the co-ordination with transporters to transport the cargo to Israel”, and this undertaking was meticulously fulfilled, the claim against it was dismissed.

In a judgment handed down very recently, a claim was instituted against an international freight forwarding company for the total loss of 55,000 bottles of wine which had frozen whilst waiting on the quays at the port of Odessa to be loaded onto a ship which was late in arrival, was rejected. This claim also was decided on the basis of the contractual ties between the parties and in this case, the absence of contractual ties between the importer and the freight forwarding company. Based on the evidence and the documents presented by the parties, the court came to the conclusion that no contractual ties had existed between the importer and the Israeli freight forwarding company in the matter of the arranging of the cargo transportation and that another international freight forwarder, from the Ukraine, to whom the Israeli freight forwarding company had referred the importer, and it was the Ukrainian company which had taken upon itself the handling of the cargo and the arranging of its transportation to Israel.

A summary of the above detailed principles was given within the framework of the judgment from last December in the claim of an international freight forwarding company against an importer for customs and excise services which had not been paid. One of the claims raised by the importer was its right to setoff its debt due to the damages caused to it by the freight forwarding company as a result of the delays in the dispatch of the goods. The court rejected the claim of setoff, this time also based on the nature of the undertakings between the parties as learned by the court from the customer ledger as conducted by the forwarding company.

“The question in issue is whether the plaintiff (the freight forwarding company) is liable for the sustained damages. In this matter the nature of the undertakings between the parties must be examined as well as the nature of the undertakings assumed by the plaintiff in all matters relating to the service provided to defendant 1 (the importer). In this matter the customer ledger, describing the nature of the plaintiff’s work, must be relied upon as a principal source … It was recorded in the customer’s ledger that the defendant empowers the plaintiff to act in its name before various authorities … This concerns the granting of power to the plaintiff to act on behalf of the defendant for the undertaking of anything required with the relevant authorities in order to release the goods under conveyance (import or export).

The plaintiff, under the agreement of work, assumed no liability for the acts or omissions of any one of the authorities mentioned in the agreement and with which it is acting on behalf of the defendant. There is good cause in the defendants’ claim that the plaintiff is in a more convenient position to prevent the fault which occurred (the failure to put the cargo onto a plane). The plaintiff is a relatively large economic body, which handles the matters of various traders. Therefore, it is in direct and regular contact with the aviation company, it has greater experience in the dispatch of consignments, it is able to choose a preferred carrier and also to “press” to prevent problems and delays. However, the question is whether the plaintiff indeed did assume, towards its customer, liability for the transportation. I have no evidence before me that it did so.” In this regard the court cites the words of the freight forwarding company’s director that the profit left with the freight forwarding company for its international freight forwarding services does not justify the assumption of liability for consequential damages due to delays in the dispatch of the cargo

.
The Conclusions:

The central conclusion from these judgments is that considerable weight is given to the contractual undertakings of the international freight forwarding companies towards its customers. Those freight forwarding companies who have assumed undertakings which are similar to those of the actual carrier or any other unreserved undertakings in the matter of the date of arrival of a cargo in Israel or a delivery date to a destination overseas, will bear the consequences of these undertakings.
In comparison, international freight forwarding companies who have assumed only the ordering and coordinating operations with the carriers, and who have refrained from taking upon themselves independent undertakings to transport the cargo, shall bear liability for the order and coordination alone, and if they have executed the order and coordination in accordance with reasonable standards of measure, customary in the international freight forwarding sector, no liability cannot be imposed upon them for the failure of the cargo to reach its destination at the planned time.

It will be emphasised that the said undertakings of the international freight forwarder may be given by any means whatsoever, in writing, by the issuing of a Bill of Lading, a letter of undertaking, a quotation, and so on – or verbally.

It would appear that to some extent there is a blurring in the case law of the “traditional” distinction between an international freight forwarder acting as a common forwarder (an “Agent”) and serving as the proxy of the cargo owner for the purpose of transportation arrangements, and between an international freight forwarder acting as an independent contractor (a “Contractual Carrier/Principal”) and taking upon itself the liabilities of a actual carrier.

For the purpose of examining the liability of an international freight forwarder, the courts do not necessarily categorise the freight forwarder into one of the two categories, but rather examine each case on a case by case basis, examining the nature and substance of the contractual ties between the freight forwarder and the customer and the nature of the undertakings assumed by the freight forwarder towards its customer. Even an international freight forwarder who has not issued a Bill of Lading but who has made an undertaking towards his customer, whether orally or in writing (in an agreement, quotation, exchange of e-mails or so on) for the arrival date of a cargo at its destination, will bear liability for the assuming of such an undertaking.

How to Prepare Oneself
Case law requires that international freight forwarding companies prepare themselves on a number of levels:

With its Customers
An international freight forwarder who does not issue a Bill of Lading must define the nature of the undertaking with the customer and the scope of its liability whilst clearly determining the reservations to its liability. Within this framework it must be determined, inter alia, that the actual execution of the transportation, including the loading of the cargo, is by the shipping/aviation company and the freight forwarding company is not liable for their operations or for changes dependant upon them and on other logistic factors, including changes to the loading dates, flight/sailing dates, the transportation route or date of arrival. The dates provided are estimated dates based on information received from the shipping/aviation company and changes may occur which are not dependant on the international freight forwarding company.

Under the rules of international conventions, an international freight forwarder issuing a Bill of Lading cannot exempt itself from the duty to provide the cargo to its receivers in a good and whole condition. Nevertheless, in light of the case law which compares the status of an international freight forwarder with that of the actual carriers (the Transclal case) the international freight forwarder will enjoy the protections and exemptions vested in it, in effect under the transporters’ conventions under the Bills of Lading issued by them: Limitations of liability, a short period of prescription (statute of limitations), the duty to provide notice on time regarding the occurrence of damages, etc.

In a number of judgments the main claim made against the international freight forwarder referred to faulty communications between it and the customer: Failure to make current reports to the customer regarding an expected problem or delay in the arrival of the cargo, for damages which occurred to the cargo during the course of the transportation, for expected changes to schedules or transportation routes, etc. Claims are made that, had the freight forwarder reported to the customer in real time about the changes or problems which occurred, it would have been provided with instructions by the customer which could have minimized the damage, such as air consignment of the cargo instead of by sea. Claims of this sort can be prevented by being meticulous about immediately reporting to the customer regarding every exceptional event connected with the consignment of the cargo, immediately upon such becoming known to the forwarder. Through these reports the freight forwarder can conduct consultations with the customer as to what measures are to be taken in the light of the occurrence of the exceptional incident and to receive instructions from the customer.

With Sub Contractors
Care must be taken to choose worthy carriers and sub contractors both in order to prevent claims by the customer in this matter and also in the matter of indemnification from such entities. A written indemnification arrangement is preferable. It is preferable, if possible, to have the sub contractor approved by the customer or to have a sub contractor known to the customer.

Insurance
One of the most common claims against international freight forwarders upon the occurrence of damage to cargoes relates to the non procuring of proper insurance for the transportation of the cargo. In a number of claims against freight forwarders the main claim raised against them was that they were negligent in not organising insurance for the cargo. The legal debate turns on the bone of contention whether the international freight forwarder took upon itself to arrange for the insurance of the cargo. In order to avoid such needless litigation, the freight forwarder should see to it that it is made clear to the customer, in writing, who is to handle the matter of the insurance for the cargo, whether this task is to be imposed upon the freight forwarder or on the customer. If the customer decides, for whatever reason, not to insure the cargo, such is its legitimate decision, but this decision must be verified and documented by the freight forwarder. Needless to say, arranging insurance for the cargo for the customer is no substitute for professional liability insurance of an international freight forwarder.

Shmuel Grossman, Adv
Roy Gilad. Adv