For most carriers, it's not at all hard to imagine not getting paid by a load broker. Many claim it happens all the time. But getting a manufacturer to pay the bill when he's already paid the broker?...
For most carriers, it’s not at all hard to imagine not getting paid by a load broker. Many claim it happens all the time. But getting a manufacturer to pay the bill when he’s already paid the broker? Not possible right?
Wrong. Believe it or not, it’s already happened, right here in Canada, and thanks to a certain lawyer who literally wrote the book on Motor Carrier Cargo Claims.
John S. McNeil, Q.C., author of Motor Carrier Cargo Claims, now in its fourth edition, won just such a case back in the late eighties, when a manufacturer that hired a broker was held liable when said broker didn’t pay the carrier. This even though the manufacturer had already paid the broker.
It happened like this: on May 26, 1988, an Ontario judge ruled Hinspergers Poly Industries (manufacturer of pool covers and patio furniture) was liable to pay Algocen Transport for the transport of its goods to various points in the U.S. This after the manufacturer had already paid the broker, a certain Neil P. Westgarth, operating under the company name of Westmor Marketing Services, to arrange transport of the goods with the carrier.
The broker did not pay the carrier. But the judge made the manufacturer pay the carrier anyway, “First because the defendant (Hinspergers) is the shipper of the cargoes described in the bills of lading filed.”
It just goes to show you how important a bill of lading can be when it comes to getting paid.
“The outcome of such a case is normally highly unlikely,” admits McNeil. “Because a judge is unlikely to make an innocent defendant pay twice. But what worked in our favour was our documentation, and that documentation consisted of a bill of lading that was signed by the manufacturer which added to the factual perception thereby created that the load broker was the shipper’s agent, even though the judge did not specifically decide that point.”
Oftentimes carriers avoid issuing bills of lading or having them signed, whether because they don’t think it’s important, because they lack time, or because they think that somehow signing a contract will increase their risk of liability when it comes to things like damages or late arrivals, says McNeil.
But the opposite is true, he insists.
“Your chances of getting paid by the shipper, even if you don’t get paid by the broker, increase if you get the bill of lading signed on pick up,” he says.
“But a lot of carriers, especially smaller ones, do all their transactions on the web via a broker and leave it at that. Some of them don’t even know they’re obliged to fill out a bill of lading under the law. And in my experience this makes it very difficult to get paid if the broker disappears.”
Indeed the fly-by-night reputation that clings to brokers (even though many have proved themselves to be reliable and honest business people) has not been unearned.
Brokers have proliferated since deregulation in the eighties, some would say to the detriment of carriers. Of course, others would say the opposite, citing larger load volumes.
Notwithstanding, without the existence of a bill of lading with someone’s name on it, the chances of getting paid in a dispute of any kind are close to nil.
“For your own protection why not do it?” McNeil asks. “How to get paid comes down to the documents you have from the very beginning. If you go to court without one it’s just a question of ‘he said, she said.'”
McNeil admits that the water does get somewhat muddier when the contract is with the broker and the shipper goes unnamed or does not sign.
“It is pretty common for carriers and brokers to avoid showing shippers their contract, mainly because the brokers don’t want the shipper to know how much they’re charging and the carrier wants to keep the load broker happy,” says McNeil.
That’s when a carrier who goes to court over getting paid will have to prove the broker was an agent of the shipper – not always possible when oftentimes it’s the carrier contacting the broker and not vice-versa.
An option would be to fax the shipper a copy of the bill of lading for the total amount for transporting the load – brokers’ price included, before the load is taken.
“At least that way you’ve indicated the shipper is at least partially responsible for payment,” explains McNeil.
Still, getting paid is more often than not resolved out of court, or the carrier simply eats the loss. The latter happens especially in cases where the shipper or broker goes bankrupt, says Charlie Chang, LL.B, in his fourth year of practice with Thompson, MacColl and Stacy.
In cases such as these, it’s worth considering whether the owners of the company can be held personally liable for payment, especially in those cases where the funds due to the carrier are considered to be held in trust.
Chang points to a case against Varga Trucking by Sager Transport (in which summary judgment was granted in 2004), where the judge ruled the owners of Varga, which was a load broker that had already received payment from the shipper, were personally liable for payment to Sager. The judge in the Sager Transport case cited the Truck Transportation Act of Ontario, Regulation 556/92 of which states: “Every load broker shall hold in trust, for the benefit of the carriers to whom the load broker is liable to pay carriage charges, all the money the load broker receives from consignors and consignees in respect of the carriage of goods by carriers except,(a) money in excess of the carriage charges; and (b) interest on money held by the load broker for less than thirty days.”
The judge held the directors/owners of Varga personally liable for the money owed to Sager because of the existence of the trust relationship between Sager and Varga under Regulation 556/92 and their knowledge of this trust relationship with the carrier, which had been going on for some time. The directors/owners of Varga had a duty to see that these trust funds (the money they had received from the shipper) were used for the agreed upon purpose, i.e. payment to the carrier. In short, Varga’s owners were ordered to give Sager its money.
Chang also points to the case of GMAC Commercial Credit Corp. v. TCT Logistics, where his firm represents a number of carriers. In that case, the load broker, the TCT Logistics group of companies, went into receivership and bankruptcy, but the judge held that the trust still survived and, not only that, that the carriers’ claims ranked ahead of the secured creditor, GMAC. The judge ordered that the carriers be paid their full claims ahead of GMAC. That decision was appealed by GMAC and the interim receiver and a decision from the Ontario Court of Appeal is still pending. “It’s a question of determining whether the money due to the carriers is held ‘in trust,'” explains Chang. “Under Ontario’s load broker regulation, Regulation 556/92, the relationship between the load broker and the carrier is a ‘trust’ relationship, but it still remains to be determined by three judges of the Court of Appeal in the TCT Logistics case whether they will agree with the lower court that this trust relationship survives bankruptcy and/or receivership.”
The carriers and Chang are hoping that the Court of Appeal will agree and that the money owed to the carriers in that case will eventually be directed their way. In the meantime, carriers continue to eat their losses.
One way of avoiding the kind of situation where unpaid invoices pile up is to insist on payment on arrival, says Chang. “That way you can assert a lien on the cargo.” Even so, the cash on arrival strategy isn’t popular among carriers who want to cultivate regular business, he admits.
Also, this strategy doesn’t always work, points out Chang. He points to incidents in the TCT Logistics case where a number of carriers tried to assert their lien rights by refusing to deliver loads in their possession and/or confirm delivery. A judge held that this interfered with the “due administration of the receivership” and ordered the loads be delivered and confirmation of delivering be given, despite the carriers’ lien rights.
Another way to avoid non-payment is to do your homework on the shipper and the load broker before you accept work from them, he adds.
“Make sure the broker has set up the appropriate trust accounts – any good broker worth his or her salt will have and will be happy to advise you that they have. Are they registered, are they licensed? Do they come with good references?”
Of course, many carriers don’t think to do this, mainly because they’re afraid to lose loads. Still, carrying a load for nothing costs more than not carrying one at all, points out Chang. “You have to remember, in effect, all you need to become a load broker is to have a cell phone and a palm pilot. That means you should at least know something about your load broker before you extend credit.”
It also wouldn’t hurt to know who your load broker is working for when he contracts your load, adds Chang. “This will give you an idea of who you might look to for payment if your broker doesn’t”.
Also, be clear about how long you expect to wait for payment and invoice accordingly, says Chang. “Make it clear on your invoices what the payment terms are.” And if the bills don’t get paid on those terms, don’t let it slide. “Don’t extend credit forever,” says Chang. “If they miss a payment, let them know in writing.” Again good documentation is key to winning a court case, if you end up having to go down that road, Chang says. The end result of good documentation, from beginning to end, is that you set yourself up to win a potential court case as quickly and inexpensively as possible.