- Created: Tuesday, 25 August 2015 08:15
A recent ruling by the Ontario Superior Court of Justice on carrier liability has significant implications for shippers and carriers alike of the shifting legal interpretation regarding declared value on bills of lading, as well as the potential impact on shipper/carrier relationships. Fernandes Hearn LLP, one of Canada’s foremost legal firms specializing in transportation law, reported on this case in its April 2015 newsletter. This case is significant for several reasons, not the least of which is the impact it will have on carriers and relationships with their insurers, but also how transportation service providers in general should educate their employees regarding the pitfalls associated with declared value procedures.
The case, and the positions of the litigants, are a matter of public record so I’ll paraphrase the event, and identify the potential fallout for Ontario buyers and sellers of transportation services, as I interpret it, from a risk management perspective. In brief, a shipper asked a carrier for a rate quotation to move a shipment valued at $263,520.00 from Toronto to Calgary. At that time the carrier was also asked if it could provide sufficient insurance, which it allegedly agreed to do, and was awarded the move. When the carrier’s driver subsequently arrived to pick up the shipment, the shipper offered a bill of lading with its invoice attached. The carrier’s driver then prepared his own bill of lading, referencing the same invoice number. The shipper did not declare a value for the shipment on either bill of lading. Sometime later the shipment was unfortunately stolen, and the shipper sued the carrier for the full value of the shipment, claiming the carrier was aware of the value based on their earlier communication and the value shown on its invoice, which had been referenced on the carrier’s bill of lading.
The court ruled in favour of the shipper in this case, basing its reasoning, in part, on the fact that Ontario’s Carriage of Goods Act (Section 10, Declared Value) refers to a “contract of carriage” rather than a “bill of lading”. In other words, because the shipper’s invoice was accepted by the carrier’s driver, and the invoice number was written on the front of the carrier’s bill of lading, the court reasoned that the invoice formed part of the contract of carriage, and the carrier was therefore liable, even though a declared value related to the shipment was not written in the space provided on the front of the bill of lading.
The fact that the shipper routinely attached its customer invoices to bills of lading became one of the determining factors in this case, and is perhaps one that carriers should review. In my experience, carriers don’t object to shippers attaching copies of their invoices to bills of lading, but this acceptance is performed as a customer service gesture, not an acknowledgement of the invoice value (or whatever else may be included in the invoice terms and conditions). I would submit that the place for a commercial invoice is in the packing slip envelope attached to the goods, but if shippers feel that by attaching the invoice to the bill of lading it will somehow improve the likelihood of their being paid on time, carriers have simply obliged out of a desire to accommodate, not an admission (or acceptance) of liability.
Notwithstanding any future appeal, this court ruling has important implications for carriers in Ontario and how they manage information from their customers. To begin with, carriers are not in business to sell cargo insurance, they are in business to help their customers improve competitive advantage by delivering their shipments in a timely manner, in the same condition they were picked up (subsequent to the shipper’s responsibilities for notification and to package goods suitably for transport, among other things). When carriers perform these services well, they improve their own enterprise by building strong relationships with shippers and earn repeat business as reliable, consistent, trusted suppliers.
Cargo insurance is a value added service-offering that carriers make available to shippers when, and if, they need it. To my recollection, the primary caveats surrounding the process of securing cargo insurance have been that the shipper notify the carrier by indicating a declared value in the space provided on the front of the bill of lading and, related to that notification, obtain pre-authorization from the carrier if the amount to be requested will exceed the threshold limit indicated in the terms and conditions included in the carrier’s bill of lading (for example, “… shipper must obtain advance pre-authorization from the carrier if the amount of insurance required will exceed $50,000.00”). This process has worked well for many years and carriers have designed their internal processes accordingly, i.e. shipper requirements for insurance can be quickly identified when incoming bills of lading are examined by the driver, or the carrier’s loading dock employees, and any amounts exceeding the threshold limit can be verified with operations personnel.
The ruling by the Ontario Superior Court of Justice in this case recognizes a broad definition of “contract of carriage” as outlined in Ontario’s Carriage of Goods Act, but it may also have opened a proverbial Pandora’s Box in terms of its impact on shipper-carrier relationships. Imagine a scenario where a shipper engages a carrier in e-mail communication regarding service capabilities and freight rate negotiations over a period of days, weeks, or even months. If the carrier subsequently wins the business, someone may have to be responsible for examining all previous correspondence to ensure there wasn’t even the slightest hint of value mentioned. And what constitutes an intention to request cargo insurance, a mere mention of “a specified value”, a comment that the shipment could be worth “at least” a certain amount, or that someone in the shipper’s (or end customer’s) organization “might want insurance”?
And how will carriers adjust their processes to ensure their customers’ interests, as well as their own, are protected? Should drivers and loading dock personnel be instructed to examine all commercial documents attached to, or referenced on, bills of lading, or included in packing slip envelopes attached to shipments, to determine if they reflect a value? And if a value is identified, should the carrier automatically apply insurance and charge the shipper accordingly? And what recourse will the carrier have if the shipper then refuses to pay for insurance coverage on the grounds that it didn’t specifically request it, or indicate a declared value on the front of the bill of lading? If the carrier delivers the shipper’s invoice, attached to the bill of lading, and the end-customer takes advantage of the shipper’s early payment terms, should the carrier request a percentage of the savings as a commission for providing that service?
Another unknown factor is how this legal interpretation will affect freight forwarders who assign carriage of goods responsibilities to asset-owning carriers who were not party to any of the initial conversations (electronic or otherwise) between the shipper and the forwarder. Forwarders will have to make their suppliers a party to this information and ensure their willingness to acknowledge any implied liability.
The ruling in this case has revealed some insight into how the courts will interpret the meaning of “contract of carriage” as it is used in the Ontario Carriage of Goods Act, even if it did come at significant cost, both in terms of time and litigation. But there is also a potential cost related to carrier-shipper relationships. Regardless of how this particular case turned out, it is doubtful the carrier-shipper relationship would have survived. If the parties had invested considerable time and effort in establishing that relationship, and if it was one that both parties valued (prior to this incident), there is the added impact on the shipper’s ability to continue servicing its customers by finding another acceptable supplier. Perhaps the most significant aspect of this ruling is that it has exposed a need for carriers and shippers to ensure our business processes, including educating our employees regarding legal developments in logistics, are effective and continue to add value to our mutual efforts to provide service to our customers.
Posted by: Laurie Turnbull, CITT, P.MM – Supply Chain Consultant, Cole International