Carriers expect to be paid for the freight they move. There’s no surprise there. But the businesses that broker or sub-broker loads might be surprised to learn they can be held liable for ensuring freight-related payments get to carriers that turn the wheels.
Canadian courts take breaches of this responsibility seriously, and in some cases will hold corporate officers and directors personally liable when carriers are not paid.
Under the federal Bills of Lading Act and provincial legislation such as Ontario’s Mercantile Law Amendment Act, unpaid carriers can sue shippers, consignees, or both. These carriers can even file lawsuits when someone has actually paid a freight bill. The latter situation might occur if a vendor or shipper has gone bankrupt and the consignee doesn’t want to pay again, or if a shipper has paid an intermediary such as a freight forwarder or another carrier that hasn’t distributed the funds.
In these situations, the law will protect the carrier that performed the work — not the aggrieved shipper or consignee.
In many cases, the law will even help carriers collect fees that have been paid to someone else who has been involved in transporting the freight.
In Ontario, the Highway Traffic Act technically requires freight-related payments to be held in a designated trust account for carriers that perform the work. Prior to 2006, brokers actually had to obtain a surety bond to comply with the trust-related obligations.
The current Ontario law is not limited to registered load brokers. It applies to everyone.
However, the parameters are not well defined and there is little in the way of case law to help interpret the rules. For example, the legislation does not specifically say whether you can maintain a single bank account as a type of holding account, or whether payments can co-mingle with the money collected for other jobs. Presumably a single account is allowed, otherwise the obligation could become unwieldy for freight forwarders that deal with large volumes of business.
Another uncertainty is whether a contract could include language to sidestep the obligation. For example, a freight forwarder might require a carrier to sign an umbrella agreement that recognizes the money will not be held in trust – despite the Ontario statute’s wording.
The contract might also say the freight forwarder is entitled to deduct chargebacks because of claims or other reasons. The courts have yet to weigh in on this issue.
The situation is even more complicated in other provinces.
While those jurisdictions may not have statutes that require money to be held in trust, their courts might impose such an obligation because of an existing contractual relationship. The courts might also find that someone was negligent in the way the collected freight was handled.
Given all of these factors, it’s a good idea to set up a separate trust account for brokered or sub-brokered work, and to ensure everyone involved sets up a system to ensure compliance. This is particularly true for anyone conducting business in Ontario.
Forwarders and brokers might also consider addressing the issue in any standard form agreements with carriers.
— Alan S. Cofman is an associate with Fernandes Hearn LLP in Toronto, and can be reached at 416-203-9500. This article is intended for information purposes only and does not constitute legal advice.
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