Carriers’ and forwarders’ responsibility. Why you should keep an eye on it in Ukrainian business realia?

• Investment & transactions

Cargo transportation is quite a complex business. Lack of experience and inability to manage risks in this industry may have a negative impact on making business and often entails disappointment with the results of transaction both for the client and service provider. If the forwarder or the carrier fails to fulfill properly its obligations on rendering services it may result in losses, caused by delay or damages or loss of the cargo.

Differences between responsibility of carrier and forwarder
Differentiation in responsibility of carrier and forwarder is of vital practical importance. International transport conventions make out actual and contractual carriers. Such differentiation is also important in Ukrainian law. Meantime there is no unified global approach to this issue: for example, according to the English transport law the forwarder is not a carrier (Schmitthoff’s 7th Ed. P. 180; Marston Excelsior Ltd. V. Arbuckle, Smith & Co. Ltd (1971) 2 Lloyd’s Rep. 306). According to legislation of Ukraine, in particular the Law of Ukraine on Transportation and Forwarding dd. 01.07.2004, a forwarder, at the request and at the expense of the client, shall render or organize rendering of forwarding services set forth in the forwarding contract.

In the process of making and performing forwarding contracts the forwarder’s status may vary respective of its functions and the scope of responsibilities. It may act as actual or contractual carrier or make and perform a contract on behalf of the client.

Contractual carrier is a person making contract with a client on cargo transportation from one place to another. It shall transport cargo by means of contracting an actual carrier on its own behalf, i.e. in relationship with the direct carrier it will act as a consignor.

The forwarder acting on behalf of the client actually acts as the agent acquiring rights and obligations for the client (its principal) under the contract of carriage.
Payments for the forwarder’s services may also be treated as commission or freight depending on the forwarders functional and contractual status.

Aspects of responsibility:

Contractual carrier’s responsibility

The legislation of Ukraine provides only general principles of the carrier’s responsibility while all special requirements are stipulated by the carriage, forwarding and logistic service contracts.
In particular, according to Article 920 of the Civil Code of Ukraine, in case of violation of obligations arising from the carriage contract the Parties shall bear responsibility agreed between them, unless otherwise provided by the present Code, other laws and transportation codes (statutes).
According to Article 924, the carrier shall bear responsibility for safety of cargo, luggage, and mail from the moment of its acceptance for carriage until the moment of its delivery to the purchaser unless it proves that loss, shortage, spoilage or damage of cargo, luggage, mail was caused by circumstances the carrier could not avoid or was unable to eliminate. Similar provision is set forth in Article 314 of the Commercial Code of Ukraine: the carrier shall bear responsibility for loss, shortage, spoilage or damage of cargo accepted for carriage unless it proves that such loss, shortage, spoilage or damage of cargo occurred not due to its fault.
Pursuant to legislation of Ukraine, civil liability for damage is not limited. The current legislation states general grounds for release of the party from its obligation to reimburse damages. One of them is force majeure. In each particular case this situation may be treated in different way.

International transportation conventions on the contrary stipulate some limitations of the carrier’s responsibility, for example:

The forwarder’s responsibility (as the client’s agent)

Forwarder’s activity including release or limitation of its responsibility in contractual relationship is not duly governed by the law of Ukraine. The forwarder shall bear the same responsibility for actions and omissions of third persons involved in performance of forwarding contract as for its own actions. Therefore limits of the forwarder’s responsibility can be governed only by the contract.

Regarding the clear concept of the forwarder’s role (actual carrier or mediator), we recommend, first of all, to interpret the agreement clearly in respect of the forwarders rights and obligations to act: a) on its own behalf; b) for and on behalf of the customer ant to comply strictly with either variant at each certain stage of transportation.

Since lately the transportation service market has been developed rapidly in Ukraine, we see more demands in complex services rendered by large NVOCC (non-vessel operating common carriers) having a good market reputation. The term of NVOCC is unfamiliar to the Ukrainian legislation. Another specific term for the law of Ukraine is a so-called House Bill of Lading existing in-parallel with line bills of lading.

Some recommendations for NVOCC and their clients in compliance with peculiarities of the Ukrainian law:

a) stipulate clearly and unambiguously in the contracts the limits of the executor’s responsibility at all the cargo movement stages, jointly with standard provisions for service terms and costs;
b)  accept/transfer the cargo in the presence of both parties and/or surveyor appointed by the parties;
c)  check your partners by means of preliminary due diligence (including contractors);
d)  insure cargo and/or its own responsibility at the reputable insurers’.

Lately there have been some cases of fraud with fictitious carriers. Both cargo owners and forwarders face such problems, especially when made with each other standard agreements on forwarding services.

For example, the forwarder acting as NVOCC enters the contract on transportation of a big lot of alcohol from Europe to one of the Middle East countries. It involves several carriers into the carriage process, chooses the most profitable proposals but fails to check all of them. Further, at one of the transport stages one of the carriers disappears along with the cargo (mainly it happens with road carriers due to fraud schemes). Due to the forwarder’s negligence in choosing the carrier, its unlimited liability, ambiguous contract provisions on the scope of the forwarder’s rights and powers etc., it is the forwarder who bears full responsibility. And it well may be the last transportation for the forwarder if there is no reliable insurance policy at hand. 

Due to the high competition at the market of forwarders and carriers, it is necessary to keep the balance between proposals for your clients and your own risks. Develop a thorough approach to your own contractual basis and do not forget about insurance – and your company will have large chances for longstanding market niche and good reputation being untypical for the Ukrainian market.

Published on forwaderlaw.com

Alexey Remeslo

remeslo@interlegal.com.ua