Can unpaid carriers sell a shipper’s load?

James Manson

Selling a load of cargo can seem like an option when a shipper doesn’t pay its bill, but the process is not always as straightforward as it might appear.

Imagine that same shipper has become insolvent and is now taking advantage of the various mechanisms available under Canadian bankruptcy law.

A contract provision that grants a “general carrier’s lien” over any goods in the carrier’s possession, seemingly allowing such goods to be sold to recover outstanding freight charges, may not be enough.

The problem? Because the shipper has initiated the bankruptcy process, the shipper is now “in the system” and under the protection of a court-mandated “stay of proceedings”. This generally means no creditor can sue the insolvent shipper or take other steps to help itself — including exercising its carrier’s lien over the shipment.

It might be possible to achieve a different legal result, however. Despite the “stay of proceedings”, it’s still possible for a carrier to exercise a carrier’s lien over goods in its possession.

Are you a secured creditor?

Whether this can happen will, among other things, depend whether the carrier is a “secured creditor”. Under Canadian bankruptcy law this would include a person holding a lien “on or against the property of the debtor”.

A carrier can be named a secured creditor if they have a carrier’s lien over some cargo and that cargo still belongs to the insolvent shipper.

Conversely, if the consignee has already paid for the cargo — and taken ownership of the goods by the time the goods are in the carrier’s possession – it is unlikely the carrier would be seen as a secured creditor.

It’s not impossible for a carrier to be able to assert its lien in a situation where a shipper is now insolvent and seeking bankruptcy protection. But it’s complicated.

A much more straightforward strategy would be for the carrier to simply begin a lawsuit against the consignee for the unpaid freight charges. The federal Bills of Lading Act allows a carrier to maintain an action for breach of contract against a consignee, even if the contract was actually made with the shipper. The Bills of Lading Act is meant to protect carriers against the risk that a shipper won’t pay the freight and give the carrier a remedy against the consignee.

Of course, nothing takes the place of sound legal advice tailored to the precise situation at hand. Carriers who find themselves in this type of scenario should consult a good transportation lawyer to discuss whether options are available.

 

 

 

 

 

 

 

James Manson

James Manson of Fernandes Hearn LLP can be reached 416-203-9820, or jmanson@fernandeshearn.com. This column is intended for information purposes only and does not constitute legal advice.

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