Navigating transportation contracts can be a daunting task. "Aping language from the Cretaceous period,"1 many cite to the nowdefunct ICC or other outdated laws or regulatory schemes. Several reference "filed" tariffs that are no longer required, are hundreds of pages long, or are impossible to find. They often use language so ambiguous or antiquated that it is impossible to know the drafter's true intention. Some are completely indecipherable. The Gordian knot is figuring out which of the competing terms and conditions--many of which are hidden within the shipping document abyss of rate confirmations, credit agreements, lading documents, rules publications, amendments, rate schedules or exhibits-- controls. Some recent industry cases reveal the benefit of clear and precise contract drafting and some pitfalls to avoid.
Getting Out of the Fog
Basic contract provisions often get lost in the contractual chaos that all too often unfolds in this industry. The importance of clearly stating who is to pay for what is highlighted in In re Couture Hotel Corporation,2 where Primary Freight, the delivery agent for several shipments of furniture to Couture, the purchaser, paid $54,425 in demurrage and other charges to the steamship line that transported the goods. Primary Freight, in turn, invoiced those charges to Couture, which refused to pay them. Unfortunately for Primary Freight, Couture never "signed a written contract where it agreed to pay the [demurrage]."3 Primary Freight conveyed the demurrage costs to Couture in a series of emails. However, Couture orally told Primary Freight that it would not pay the charges and emailed Primary Freight that additional charges were unacceptable per the original agreement. The court could not find a clear understanding of who was responsible for demurrage, either in the form of a formal contract or email correspondence (which can be the basis for a contract). Therefore, Primary Freight was left holding the bag with regard to paying the demurrage fees.
Likewise, clearly identifying how disputes are resolved would have made Pittsburgh Logistics' life easier in Pittsburgh Logistics Systems, Inc. v. B. Keppel Trucking, LLC.4 There, Pittsburgh Logistics complained that an arbitration award obtained by B. Keppel Trucking was invalid because the parties never executed a contract containing an arbitration provision. The court thought otherwise. While Pittsburgh Logistics' online carrier terms and conditions did not contain an arbitration provision, its Motor Carrier Service Contract (MCSC) did. Despite that the MCSC was not executed, the parties acted as though they intended to be bound by it, not the online terms. Therefore, its arbitration provision was enforceable.
Dazed and Confused
Just because a contract term is clear to one party does not mean it is clear to others. Deciphering what "RVNX $2.40" meant was the hurdle in Exel, Inc., F/U B/O Sandoz, Inc. v. Southern Refrigerated Transport, Inc.5 There, the Master Transportation Service Agreement (MTSA) between SRT, the carrier, and Exel, the broker, measured loss by the replacement value of the commodity, but did not contain a limitation of liability provision. The bill of lading, on the other hand, stated "RVNX $2.40." After the cargo was stolen, SRT attempted to limit its liability to $2.40 per pound, arguing that RVNX means "Released Value Not to Exceed." Excel disagreed, arguing that RVNX was a freight classification that was programmed in its computer. In the end, the court sent the case back to the lower court to decide whether SRT had provided the shipper with the opportunity to choose between two or more levels of liability, what "RVNX $2.40" meant, and if SRT could limit its liability.
Similarly, the court in Hisense USA Corp. v. Central Transport, LLC6 had to decipher what the parties intended when they stated "NMFC 100, CTII Rules Tariff, 49 USC 14706 and 49 CFR 370." There, Hisense engaged Central Transport to carry damaged computer tablets back from its Wal-Mart distribution center destination. When a pallet went missing, the question became whether Central Transport had adequately limited its liability.
Unfortunately for Central Transport, the answer was no. Wal-Mart had prepared the bill of lading, which stated "[a]ll shipments are hereby released to the value at which the lowest freight charges apply." However, at pick-up, Central Transport's driver slapped a sticker on the bill of lading stating "[s]ubject to NMFC 100, CTII Rules Tariff, 49 USC 14706 and 49 CFR 370." Wal-Mart then signed the bill of lading, sticker and all. While Central Transport's online tariff was found by the court to be adequately incorporated into the contract, merely referencing the tariff, without describing any limitation of liability in the bill of lading, did not demonstrate Wal-Mart's awareness of or assent to limiting Central Transport's liability.
Lost in Translation
Persistent inclusion of outdated and confusing terms cost M/V PAC ALTAIR and the other carrier defendants in Atwood Oceanics, Inc. v. M/V PAC ALTAIR, et al.7 There, the carrier-prepared bill of lading contained the phrase "shipped on deck at shipper[']s risk & expense." The carrier's intention in including that phrase was to inform the shipper that the cargo would be on the deck and subject to the elements as it was crossing the ocean. Thus, when a rogue wave swept away a chunk of the cargo, the shipper should not have been surprised--it took the risk. Unfortunate for the carriers was that this phrase actually eliminated the $500 per package liability limitation afforded carriers by the Carriage of Goods by Sea Act (COGSA), thus subjecting the carriers to full liability. COGSA excludes goods shipped "on deck" from its definition of goods. "As such COGSA does not apply--by its terms--to cargo carried on the deck of a vessel when the bill of lading states that cargo will be carried on deck." Accordingly, the ironic effect of the carriers' inclusion of this ancient phrase was to expose them, not the shipper, to the full risk.
The Contractual Quagmire
How many times have you read "the terms and conditions contained in X are hereby fully incorporated in Y?" Determining whether X applies to a particular transaction is a recurring problem in the industry. Indeed, it was the root of the problems in In re Couture Hotel, Pittsburgh Logistics, Exel and Hisense, discussed above.
It also caused problems in Complete Distribution Services, Inc. v. All States Transport, LLC,8 where the broker, CDS, argued that the carrier, AST, was subject to the 2012 version of CDS's contract, as opposed to the 2010 version that AST had signed. CDS's argument was that its 2012 load confirmations alerted AST to the change and that AST had received and signed nineteen (19) such confirmations. According to CDS, the new load confirmations "looked different" from prior versions and contained new language. The court found, however, that the rate confirmations were not sufficiently specific in incorporating the 2012 contract, meaning the decision on which contract governed was one for the jury to decide. If you are looking for certainty in your dealings, leaving the applicable contract to the whim of a jury is certainly not what you had in mind.
Bring It On Home!
The transportation industry is dynamic and fast-paced. It is nave to think that business is going to slow down so that clearer contracts can be negotiated. That being said, the following are a handful of simple takeaways that you can implement that ought to make contracts more readable, understandable and, most importantly, enforceable.
- Specify the Basics. Who is responsible for paying what? Who are parties? This will save a lot of legal fees down the road.
- Understand the Impact of All Clauses. The carriers in M/V PAC ALTAIR undoubtedly included the phrase "shipped on deck at shipper[']s risk & expense" without even thinking about it. Do you understand what every provision in your contract means? If the answer is no, then you may inadvertently be hurting your end goals.
- Revise Your Form Agreements. Has it been a few years since you took a look at your form agreements? If so, it may be time to update them. What are the provisions that your contractors always balk at? Are they realistic to expect? What types of claims keep coming up? Have you accounted for changes in the law and technology? Most importantly, use it as an opportunity to bring your contracts into the 21st century. Be clear about expectations and risk allocation. Eliminate unnecessary words.
- Keep the Rules of Contract Interpretation in Mind. The court will do everything in its power to give meaning to every word in the contract. Do your contracts use the phrases "including" and "including, but not limited to" interchangeably? Those two phrases undoubtedly are both intended to mean the same thing--that the following is a nonexhaustive list of examples of the thing just described. But if you use both expressions, they must have different meanings, meaning the court may not construe your contract the way you hoped it would.9
- Be Able to Prove the Other Party Has Notice of Terms. This is essential to increasing the likelihood that online and other terms and conditions (especially limitations of liability provisions for freight loss or damage) that are incorporated by reference in contracts, email quotations, signature lines and TMS-generated rate quotes, and any changes to those terms, will be enforceable.
- Be Aware of What Makes Pro Stickers Stick. Pro stickers are more likely to "stick" and allow carriers to limit their liability when they: (1) reference the carrier's governing tariff, and, if applicable, its website, indicating where the tariff can be viewed; (2) describe the limitation of liability, with specificity; and (3) after affixation of the pro sticker, the shipper, with knowledge and full disclosure, signs the bill of lading to which the pro sticker had been affixed.10
contributing author: JOHN RAPP is In-House Counsel for Traffic Tech Incorporated.