Proving the existence of a freight forwarding contract - International Law Office

Facts
Issues
Agreement
Comment

Facts

Between March 2003 and June 2003 Shanghai Pudong Import and Export Co Ltd signed an export agency agreement and sales confirmation with Shanghai Weixun Trading Co Ltd and another three parties (which were not involved in the subsequent litigation). It was agreed that Pudong would export plastic hosepipes to Integrity Holding Ltd, a US company. Pudong would also handle the export bookings and customs clearance with the freight forwarder and be responsible for the relevant advance expenses.

Pudong prepared declarations, invoices, packing lists and other shipping documents. Acting either indirectly (through members of Weixun's staff) or directly, it entrusted the Shanghai branch of Suzhou Industrial Park Xinyun Freight Transportation Co Ltd to arrange door-to-door transportation of the goods to Integrity Holding.

After accepting the commission, Xinyun exported large quantities of goods in 22 consignments. It made advance payment of ocean freight charges, extra movement charges for land transport in the United States and customs clearance fees. These fees and charges totalled over $643,000. Together with a door-to-door lump sum of Rmb116,780, the total cost to Xinyun was over Rmb5.44 million. Despite being repeatedly dunned for these expenses, Pudong refused to pay, arguing that it had not received the freight from the overseas client.

In February 2004 Xinyun took legal action against Pudong, claiming for reimbursement of moneys paid on Pudong's behalf. However, Pudong argued at trial that it was merely the agent of the second defendant, Weixun, and three other companies. Xinyun was unable to prove that Pudong was the only client in respect of the goods in question. Therefore, Pudong asked the court to dismiss the plaintiff's claim and Xinyun was compelled to abandon the action. However, after compiling the necessary evidence, Xinyun filed a new claim against Pudong and Weixun before the Shanghai Maritime Court in March 2005.

Issues

In essence, this was an ordinary dispute over freight forwarding contract arrears. However, the difficulty was that the plaintiff and the defendant had not entered into a freight forwarding contract. Moreover, the defendant had not given the plaintiff a freight forwarding order or instructions to telex the release of the bill of lading. Thus, the defendant denied any legal relationship with the plaintiff.

It was argued that although the defendant had handed over the orders with detailed shipping information for each consignment, the plaintiff had issued the booking documents and handled matters relating to cabin booking with the carrier in accordance with the shipping documents (including invoices, packing lists and declarations), which had been provided and stamped by the defendant. The plaintiff produced freight forwarding invoices and payment slips as proof that the defendant had already made partial payments for freight and other expenses at the plaintiff's request. On this basis, the plaintiff contended that it had acted as the defendant's agent and that a de facto contractual relationship existed between them.

The defendant asked the plaintiff to submit payment slips in respect of the expenses that it claimed to have paid. The plaintiff provided written certificates issued by the carrier and shipping agent; these confirmed receipt of the ocean freight and proved that payment had been made. The plaintiff argued that the defendant bore the burden of proof in relation to its objection and was not entitled to require the plaintiff to provide further evidence.

Agreement

The plaintiff and the defendant reached an agreement through court-supervised mediation. The defendant voluntarily paid a lump sum of Rmb2.15 million for loss of freight. The plaintiff abandoned its action against Weixun.

Comment

Before accepting a commission from cargo owners, freight forwarding companies should conclude written commission contracts or ask the owners for written freight forwarding orders before each business operation. These will not only confirm the shipping requirements and standards of business operations, but also prove the establishment of a freight forwarding commission relationship and define both parties' rights and obligations.

If the urgency of operations makes it impossible for freight forwarders to reach a written agreement with the cargo owners, it is particularly important to preserve a full set of the relevant documents, including freight invoices, packing lists and declarations, which can be used to demonstrate the existence of a freight forwarding commission relationship. In the event of future disputes, such documents can protect a freight forwarder's legitimate rights and interests.

For further information on this topic please contact Jin Yu-Lai at Shanghai Kai-Rong Law Firm by telephone (+86 21 5396 1065), fax (+86 21 5396 1204) or email (jinyulai@skrlf.com).