Forwarding charges and the rule against set-off

Globalink Transportation and Logistics Worldwide LLP v DHL Project & Chartering Limited [19.02.19]

That a claim in respect of cargo cannot be asserted by way of deduction from the freight, is a long established rule in English law

Lord Wilberforce in The Aries [1977]

This “long established rule” has served carriers since at least the beginning of the 19th century and has been approved by the courts since then. More recently, it has been extended to modes of transport other than ocean carriage. This includes international road haulage (RH&D International Ltd v IAS Animal Air Services Ltd [1984]); domestic road haulage and courier services (United Carriers v Heritage Food Group (UK) Ltd [1996]); and recently to air carriage (Schenker Ltd v Negocios Europa Ltd [2018]).

The rule has also extended to freight forwarding agents where those agents are seeking to recover freight for which they are liable to the carriers - Britannia Distribution v Factor Pace [1998]. Hegarty J considered that the rule was well established in the freight forwarding and mercantile community and that parties would contract on that basis. He accepted that a forwarding agent would often be directly and personally responsible to the carrier for the payment of freight. As such, he considered it important that forwarding agents could pass on such liability without the risk of set-off.

The rule has proved very useful for forwarders in managing cash flow. Many a claim for loss or damage to cargo has been used to delay payment of freight. It is interesting to note how many of those claims fall away when the forwarder successfully applies for summary judgment.

However, the extent of this rule has been called into question in the decision in Globalink v DHL.

The issues between Globalink v DHL

The case concerned the movement of project cargo between China and Novorossiysk. By a contract entitled “Freight-Forwarding Services Contract” DHL employed Globalink to arrange the carriage of the goods. Within the contract, Globalink was described as the “Forwarding Agent”.

The cargo was delayed during the course of carriage for a number of reasons and various disputes arose as to whether Globalink was responsible for such delays. DHL incurred a number of losses due to those delays, including increased carriage and storage costs. DHL sought to set these losses off against their admitted liability to Globalink for unpaid charges. Indeed, the net result of the set-off was, DHL argued, to extinguish Globalink’s claim in its entirety. Globalink applied for summary judgment, relying on the “long established rule” applicable to unpaid freight.

The decision

Judge Nicholas Vineall QC considered:

In my view the rule in The Aires does not extend, and should not be extended, to cover the services provided by a freight forwarding agent when those services are to arrange the carriage of goods.

His decision appears to rely on the description of Globalink as a freight forwarding agent and the description of the services as “arranging” carriage.

Discussion

It is not entirely clear why the description as “freight forwarding agent” distinguishes the role of Globalink from the role of the freight forwarding agent in Britannia distribution v Factor Pace; a decision which was acknowledged and seemingly accepted in the current case. The judge suggested that the fact that Globalink had not yet paid charges to the performing carriers was relevant - however, it is unclear why a forwarder who has incurred a liability for charges but not yet paid those charges should be distinguished from a forwarder who has paid the charges.

When the contract is considered as a whole, it must also be questioned whether Globalink was properly described as a “Forwarding Agent”.

The use of labels such as “forwarder” must be treated with considerable caution. In Elektronska Industrija Oour TVA v Transped Oour Kintinentalna Spedicna [1986], Hobhouse J said of a contract describing a party as a forwarder:

In the present case the description which the defendants chose to give themselves certainly did not carry any implication, let alone a clear one, that they were not prepared to make contracts for carriage as principals.

Of course, Globalink was described as a “Forwarding Agent” in the contract but the substance of the contract is more important than the label chosen by the parties. If Globalink was indeed a principal, then it is difficult to see why its charges would not be considered “freight” and covered by The Aries.

A distinction based on the use of the word “arrange” should also be treated with caution. In Tetroc Ltd v Cross-Con (International) Ltd [1981] Martin J considered that the expression “will you kindly arrange onward transport” did not prevent the forwarder from acting as a principal. Indeed, in the present case, the Judge acknowledged that Globalink could carry the goods themselves or arrange for other parties to do so.

Furthermore, the charges agreed between Globalink and DHL were “all-in” charges which did not set out Globalink’s profit in clear terms. This is another factor which Martin J, in the Tetroc case, considered to indicate an intention to contract as a principal.

Although, Judge Nicholas Vineall QC may have explained his decision as arising from a reluctance to extend the rule in The Aries, the decision may, in fact, establish an exception to the rule. When this exception is considered against the authorities discussed above, it may be difficult to tell when the “long established rule” is to apply to forwarders or when the exception might apply.

What can be done

This decision highlights the dangers of assuming that the courts will allow a forwarder to rely on the rule against set-off. This rule is something of an exception to the general position in commercial contracts and judges have often expressed concern and reluctance to apply the rule.

The decision in Globalink acknowledges that if parties to a contract wish to extend the rule against set-off, they are able to do so contractually. Most industry standard trading terms contain a prohibition of set-off which extends to all charges, not just freight.

The rule described in The Aries can, therefore, be extended to agency and other charges. Where the role of forwarders is uncertain and the services provided extend beyond simple carriage of goods, such contractual extensions will prove useful. In view of the difficulties highlighted by the decision in Globalink, it is recommended that parties to a forwarding contract set out their position on this point, one way or the other, clearly in that contract. A failure to do so is likely to end up with a difficult argument about the services provided and role of the parties.

Read other items in London Market Brief - April 2019

Read other items in Marine Brief - May 2019