Freight-forwarder liability at a glance
In modern practice, the organisation of the transport process often necessitates direct international multimodal transportation, in which case the freight forwarder carries out the contract of carriage as a multimodal transport operator, even if it does not directly own any vehicles. However, a trend has arisen in which the functions of the carrier and forwarder are combined. Under this model, traditional carriers diversify their activities by creating a forwarding unit within their companies, or forwarding agents acquire vehicles or create dependent carriers. Furthermore, forwarders often hire subcontractors to undertake the shipment; as a result, cases of loss or shortage of goods and claims against forwarding agents can become quite complicated.
Ukrainian legislation does not provide detailed rules governing freight-forwarding activities. The Law on Freight-Forwarding Activities, the Civil Code and the Economic Code stipulate only the general regulations of freight forwarding.
In accordance with Clause 1 of the Law on Freight Forwarding Activities, the contract of freight forwarding is a contract in which the freight forwarder agrees, at the client's behest, to perform or arrange for the performance of certain contract work related to the transportation of goods. The forwarding agent is entitled to engage other parties for the execution of certain work under the contract (eg, transportation, storage, loading and unloading).
The law includes only general provisions under which the freight forwarder may be held liable to the customer (unless provided otherwise in the contract) for:
the number of packages;
the weight of the packages (if the weighing was conducted in the presence of the carrier and confirmed with its signature); and
packaging requirements under the related shipping documents (signed by a representative of the carrier).
Issues regarding the forwarder's liability are also governed by the general provisions of the Civil Code, which provides for liability for breach of obligations under the contract. Thus, Article 623 of the code provides that a debtor in breach of its obligations must compensate the creditor for losses caused.
Where the freight forwarder engages third parties to fulfil its obligations under the contract of freight forwarding, the forwarding agent will be held fully responsible for the actions and omissions of the third parties.
Ukrainian law lacks specific rules that directly limit the freight forwarder's liability to the client. Detailed rules governing the forwarding agent's liability to the customer, as well as grounds and limitations of such liability, are fixed by the parties in the contract of freight forwarding.
At the same time, Ukrainian legislation contains general rules that allow for the release of the freight forwarder from liability. In accordance with Clause 614 of the Civil Code, a party that has violated its obligations will be held responsible only if found guilty (intently or negligently), unless otherwise agreed in the contract. Disputes in connection with claims against freight forwarders for loss of cargo in transit are common in Ukraine, so there is ample case law in the area. However, since Ukrainian legislation provides only general provisions on the freight forwarder's liability, court practice for such disputes is often ambiguous and contradictory. In particular, there have been separate cases with similar circumstances in which the court variously found the freight forwarder both liable and not liable for cargo loss in transit.
In most cases, the court's decision regarding the freight forwarder's liability for damages depends on several basic factors.
Nature of forwarder's obligations to client and engagement of carrier
When considering liability disputes, courts give great importance to the question of how relationships have been built between the freight forwarder and the carrier. If under the contract of carriage a forwarder acts on its own behalf, the liability to the customer (ie, cargo owner) for the loss of cargo in transit will rest with the freight forwarder. If the contract of carriage is made by a forwarding agent on behalf and in the interests of the client, the responsibility for the loss of cargo, according to the courts, will rest directly with the carrier. In such cases, the courts will conclude that the forwarding agent bears no liability, as it properly fulfilled its obligation to arrange the shipment (ie, it chose the carrier, agreed on the route and, on behalf and in the interests of the client, concluded a contract of carriage).
Degree of freight forwarder's liability under contract
The legislation provides that the forwarding agent is responsible for the number, weight and packing of packages in accordance with the shipping documents signed by a representative of the carrier, unless provided otherwise in the contract of freight forwarding. In practice, when using this provision in the contract, the parties may both reinforce the forwarder's liability and impose restrictions.
In particular, contracts commonly include the following provisions:
"Forwarder is fully liable for the safety of cargo from the moment of taking the same under his control up to the delivery of the cargo to the receiver.
"From the moment of loading the goods on the vehicle and to release of the same to the consignee the forwarder is fully liable for the safety of the cargo, its shortage or loss and indemnifies the customer for all or part of the value of the damaged goods, or the amount by which the value of goods decreased."
If any such provisions are included in the contract and the transport documents verify the transfer of the goods to the freight forwarder (or the carrier engaged by the forwarder), the courts will usually come to a conclusion more easily regarding the freight forwarder's liability for loss or damage of cargo.
Elements required for civil liability
When considering disputes related to the loss of goods in transit, the courts often highlight that in order for a decision on recovery of damages to be made, the court must be provided with proof of the following elements considered necessary to constitute a violation:
the presence of losses, the occurrence and size of which must be proved by the creditor/plaintiff;
illegal actions in the form of the freight forwarder's improper performance of its obligations;
a cause-and-effect relationship between the incurred losses and the forwarder's improper performance of its obligations; and
fault (under Ukrainian law, the absence of guilt is grounds for exemption from liability; the alleged guilty party bears the burden of proof).
The absence of even one of these basic elements of civil offence will be sufficient grounds for the court to refuse consideration of the claim against the freight forwarder.
The lack of clear legislation governing freight-forwarder liability has lead to multiple court interpretations of the applicable rules. Nevertheless, the courts apply standard definitions to the provisions of the freight forwarding contract in determining such factors as:
whether the freight forwarder's liability is limited;
whether the freight forwarder has a commitment to the safety of the goods in transit; and
the carrier's involvement.
In the past few years, it has become common practice for the courts to refuse consideration of claims against forwarders on the basis that forwarders usually accept liability only for the arrangement of the transportation of cargo. This position is reinforced by the fact that the contracts for transportation are concluded by the freight forwarder not on its own behalf, but on behalf of the client cargo owner. However, in most recent cases the courts have taken the side of the cargo owner and accorded the forwarder full responsibility for the losses caused to the client.
When claiming against a forwarding agent, the cargo owner must prove:
the existence of the contractual relationship with the freight forwarder;
the freight forwarder's acceptance of the cargo;
the freight forwarder's engagement of the carrier; and
that the damages to the cargo occurred in transit.
Analysis of recent case law shows that even where a contract includes the standard conditions (ie, without increasing the freight forwarder's responsibility), the courts have often found that liability rests with the forwarder. This is because freight forwarders have increasingly issued their own transport documents to their clients (eg, a bill of lading or invoice, such as the International Federation of Freight Forwarders Associations bill of lading). In this case, the freight forwarder acts independently as a principal, thus assuming the carrier's responsibility for the entire transportation process, including in the event of loss of goods in transit (regardless of where the loss occurred).
Alexander Chebotarenko for internationallawoffice.comAuthor: Alexander Chebotarenko