In answer to the question of who is obliged to pay in cases where the bill of lading is marked “freight collect”, the Supreme People’s Court once replied that if no one picks up the goods at the port of destination or if the consignee refuses to pick up the goods, the shipper must pay the freight. This is because the consignee is regarded as the third party of the carriage contract. However, the situation changes when the consignee chooses to pick up the cargoes.
Hired by buyer CAG, the defendant (the shipper) successively sent eight booking orders to the plaintiff (the carrier) and entrusted the plaintiff with shipping eight batches of goods. The two parties then communicated on booking, trailer and other matters. The defendant informed the plaintiff about when the goods were prepared, the trailer loading address, who to contact and other information.
Later, the defendant sent a telex release application to the plaintiff. The plaintiff then successively issued seven telex release bills of lading, which were titled with the name of the plaintiff and marked “freight collect”, stating that the shipper was the defendant, CAG was the consignee and notify party, and NCL was the delivery agent.
The plaintiff then placed an order with the shipping company. The goods involved were shipped successively in January and February 2019. The ocean bill of lading stated that the shipper was the plaintiff and the consignee was NCL. According to the container circulation information, all the containers loaded with the goods involved were returned empty in February and March 2019.
During the trial, the plaintiff confirmed that for the seven batches of goods, it had mailed seven sets of original ocean bills of lading to NCL without receiving the freight, and NCL had released the goods to the consignee at the port of destination. For another batch of goods, the plaintiff still held the original ocean bill of lading. The defendant confirmed that the plaintiff had taken charge of packing, trailing and customs declaration of the goods at the loading port, and that the goods had been picked up by the consignee at the port of destination.
The plaintiff requested that the defendant pay the freight as the consignee refused to do so.
The Shanghai Maritime Court first confirmed the contractual relationship of carriage of goods by sea between the plaintiff and the defendant.
Then, the Court held that where the billing of lading had been marked “freight collect” and the consignee had picked up the goods, the plaintiff was not entitled to request that the shipper pay the freight for the following reasons.
Consignee listed on bill of lading must undertake contractual obligations when it is spontaneously involved in contract
Firstly, the Court held that the consignee listed on the billing of lading shall undertake obligations under the carriage contract of goods by sea conditionally.
The Court held that where the consignee becomes spontaneously involved in the carriage contract by picking up the goods from the carrier, claiming cargo damages or exercising other rights under the contracts, the consignee shall bear the contractual obligations.
Once the consignee exercises its rights under the contract spontaneously, its legal status transfers from a third party with the right to pick up the goods to the contracting party that shall undertake obligations stipulated in the bill of lading.
In the pending case, the consignee chose to pick up the goods and thus its status changed from the third party to the contracting party under the billing of lading. Therefore, it was obliged to pay the relevant freight accordingly.
Telex release did not affect consignee’s obligation status
The Court did not hold that the telex release affected the consignee’s obligation status under the bill of lading marked “freight collect”.
The Court explained that, like the aforementioned billing of lading, the telex release bill of lading still functioned as proof of the carriage contract and receipt of goods, though it had two distinctive features.
The first feature was that it was a straight bill of lading and, as other straight bills of lading, it was non-neotiable. According to article 78 of the Maritime Law of PRC, the rights and obligations of the consignee are determined by the bill of lading. Article 78 does not distinguish between a straight bill of lading or a negotiable bill of lading. Therefore, where there is a non-negotiable straight bill of lading, the rights and obligations of the consignee are also determined by that bill of lading.
The second feature is that the consignee could only pick up the goods with an identity certificate. This did not affect the consignee’s obligation to pay under the “freight collect” term.
On one hand, the Court reasoned that when the consignee picked up the goods or claimed rights under the bill of lading in other ways, it assumed its obligations set by the bill of lading, and the consignee was obliged to learn the contents of the bill of lading from the shipper and the carrier.
On the other hand, since the carrier was aware that the bill of lading had been marked “freight collect”, it was presumed to be willing to bear the corresponding freight collection risk. When the consignee claimed the right under the bill of lading, the carrier had the obligation to:
- inform the consignee in a timely manner of its obligation to pay the freight;
- actively collect the freight from the consignee before the cargoes were released; and
- reduce the freight collection risk through actual control over transport documents and goods circulation.
In this case, the plaintiff, a non-vessel owning common carrier (NVOCC), issued a telex release bill of lading marked “freight collect”. Meanwhile, the actual carrier issued the original ocean bill of lading to the plaintiff. For seven batches of goods, the plaintiff sent the original ocean bill of lading to the consignee’s agent, NCL, without receiving the freight from the consignee, and therefore lost control over the goods. The losses caused by the plaintiff’s failure to collect freight had to be borne by the plaintiff itself.
Lack of complete control over goods did not affect obligation to pay
Thirdly, the court held that the fact that NVOCC lacked complete control over the goods did not affect the consignee’s obligation to pay the freight under the “freight collect” term for three reasons:
- The “freight collect” term increased the carrier’s risk when collecting the freight from the consignee and indicated that the carrier was willing to bear the corresponding risk.
- From the perspective of the contract, once the consignee picked up the goods, the obligation to pay the freight at the destination, according to the bill of lading, was borne by the consignee. This obligation was not affected by whether the carrier could collect the freight from the consignee or whether the carrier was at fault in its collection of the freight.
- Where the actual carrier released the goods without a bill of lading, resulting in the NVOCC’s failure to collect the freight, the NVOCC could recover its damages against the actual carrier.
In this case, for another batch of goods, even if the goods were released without a bill of lading at the port of destination, the plaintiff had to bear the risk caused by its failure to effectively control the goods, and the plaintiff could choose to claim against the actual carrier for the corresponding damages, instead of requesting the shipper to pay the freight.
Based on the above, where the consignee gets involved spontaneously in the carriage contract of goods by sea, the consignee shall bear the obligations set for it in the bill of lading, including paying the freight as per the terms in the bill of lading. Neither the telex release bill of lading nor the identity of NVOCC will affect the consignee’s obligations. As the Court stated in its reasoning, it is better for an NVOCC to carefully choose the freight collecting method, and reduce the corresponding risk by controlling the transport documents and the circulation of the goods as much as possible.
For further information on this topic please contact Jin Yu-Lai at KaiRong Law Firm by telephone (+86 21 5396 1065) or email (firstname.lastname@example.org). The KaiRong Law Firm website can be accessed at www.skrlf.com.