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Liability of a consignee for unpaid charges for the carriage of goods.

by Peter Jones (PMLAW)

When is a consignee named in a bill of lading liable for unpaid charges owing the carrier?

The question needs to be further refined: unpaid charges can be

1. freight owing for the transport, or
2. demurrage owing for delay in discharging the goods from the means of transport, or
3. storage charges for the goods pending delivery.

The balance of this commentary deals with freight and demurrage claims by the carrier against the consignee.

1. Freight Owing

The answer to the question frequently depends upon the terms of the consignee’s contract with the vendor of the goods, who may be the shipper of the goods and/or the consignor named in the bill of lading. If the contract is FCA (free carrier) and in the normal course of business the consignee takes delivery from the carrier, a consignee is liable for freight. If the contract is CPT (carriage paid to) the consignee is not liable unless the carrier can also show that the consignee gave its own independent undertaking to pay freight.

A consignee expects the vendor to pay freight as required by the terms of a CPT contract, and rarely – if ever- agrees to pay freight to the carrier. However, courts may find an implied undertaking if the consignee requests delivery, or exercises rights over the goods based on its possession of a transport document. As a carrier who delivers goods loses its right of lien, imposing a separate obligation to pay freight on the consignee who exercises control over the goods is commercially reasonable.

2. Demurrage

Demurrage is a charge by a carrier for use of its transportation equipment (railcars, trailers, containers) after the transport has been completed and the free time set for the return of that equipment to the carrier has expired. As few shippers are concerned about demurrage, the subject is only occasionally a matter of direct negotiation between the shipper/consignor and the carrier, as, for example, where a large shipper enters into a volume contract with an ocean carrier. For that practical reason carriers generally use a tariff to fix the applicable rate of demurrage and the length of free time allowed.

A recent US case decided that Port Erie Plastics, a consignee who received goods, did not become responsible for unpaid demurrage on rail cars used to carry the goods.

The claimant CSX, a rail carrier, relied upon its published tariff, which provided that a consignee was liable for demurrage from the time it received the carrier’s constructive delivery notice. As instructed by Port Erie Plastics, CSX sent these notices to a terminal who received railcars at its siding, and discharged the goods for pick up by a trucker for local delivery to Port Erie Plastics.

Port Erie Plastics was not aware of the contents of the CSX’s tariff, and had never received a copy of the bill of lading for any of the numerous shipments that attracted demurrage over approximately sixteen months’ time frame. So Port Erie Plastics was unaware that it had been named consignee in the bill of lading.

CSX did not send invoices for demurrage to Port Erie Plastics. Port Erie's ignorance of potential liabilities as consignee for charges relating to a time prior to delivery of the goods to its factory was understandable: under the sales contract title to the goods did not pass until Port Erie Plastics took possession of the goods.

The vendor/consignor went bankrupt, and the rail carrier did not submit a claim in the bankruptcy. CSX did not claim demurrage charges in excess of $127, 000 US against the actual shipper, who was the supplier of the goods.

Port Erie Plastics moved for summary judgment in its favour. Previous cases had allowed rail carriers to successfully collect from a consignee whose conduct in accepting delivery was evidence of an independent contract to pay demurrage. had no application. The trial judge held that the designation of Port Erie Plastics in the bills of lading as consignee was without its knowledge and consent, and so these cases had no application. The trial judge dismissed the claim, but CSX has appealed from this judgment.

January 3, 2007

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