11111

FIATA warns against Carrier LOUs

According to FIATA, freight forwarders have been reporting attempts by carriers to extend forwarder and NVOC liability for charges through demands for execution by the forwarder of a Letter of Understanding (LOU) in order to make bookings. 

The language of these LoUs clearly intend to blur the distinction between principals and agents, and impose on the agent full liability for all charges, jointly and severally with the actual cargo interests. Predominantly, these LoUs specify they are made under English law. 

Of course, many readers will be familiar with carrier “Merchant Clauses”, which similarly purport to impose full liability on the widest possible range of parties, including forwarding agents and those identified as “notify parties” on the bill of lading, and in practical terms the LoUs appear designed to impose the same kind of liability.

That does not mean the LoUs have no practical effect, however, and both the author and FIATA discourage forwarders from executing such agreements.  

First, it is up for debate (and for litigation) whether or not the Merchant Clauses can be enforced to have the effect carriers intend those clauses to have. They are very different from “Himalaya clauses”, which are designed to extend bill of lading protections to those parties performing part of the carriage or providing ancillary services. Himalaya clauses extend a benefit to performing parties, commercially reasonable restrictions on their liability that have been tested and have long formed part of the common law (in Canada see Kuehne & Nagel v. London Drugs, [1992] 3 SCR 299.) These performing parties may ratify those terms subsequent to performance. 

The Merchant clause, by contrast, extends liabilities to a wide range of parties who are not performing parties and have no direct interest in the cargo, liabilities which they clearly would not accept in the usual course and which they cannot later chose to ratify or deny. In the author’s view, this attempt to extend liability to non-performing parties through a non-negotiable contract of adhesion may be contrary to the common law or to public policy, and may not be enforceable in all jurisdictions. 

Second, it comes as no surprise to this author that these LoUs have surfaced following the US FMC’s publication of its Interpretive Rule no Detention and Demurrage, which became effective in May 2020. Carrier billing practices which contravene the direction might constitute a violation of 46 USC 41102(c), according to the FMC. 

The extension of these same liabilities and obligations by way of a separate LoU reserving jurisdiction to the UK may therefore reflect a specific attempt to enforce terms and liabilities that have been determined to be improper or unlawful by the FMC and to remove any dispute over those terms to a jurisdiction where the FMC’s opinions are not binding. 

The FMC has also announced that it will be issuing information demands to carriers to determine their compliance with the new Interpretive Rule. Stay tuned! 

This entry was posted in Maritime + Transport Law. Bookmark the permalink.