Motivated by claims experience and changes in Chinese law and practice, TT Club has added to its range of model conditions an International Freight Forwarding Agency Agreement, produced in both Chinese and English. This is freely available to TT Club Members.

Not for the first time, TT Club has perceived the need to emphasise the importance of contractual terms. Medium and small sized forwarders may tend to receive bookings directly from customers, without specifically asking the customers to sign a forwarding service agreement in advance. In part this reflects market practice, particularly in developing countries, where the concept of contracts is not yet established and negotiating contractual terms may be resisted by customers.

The absence of formal contractual terms is certainly risky. From the operational liability perspective, having no written contract in place exposes the forwarder to an unlimited liability in certain circumstances. Inevitably, at the very least, it is difficult and potentially costly to establish the nature of agreed terms in the event of a dispute.

'The absence of formal contractual terms is certainly risky'

Even where a formal service contract has been agreed, it is apparent that the quality of drafting can be a weakness. It may simply not be prudent to adopt another forwarders' terms or use an old template, without careful scrutiny by professional maritime lawyers. Furthermore, it is necessary in China to take account of the Provisions on Certain Issues concerning the Trial of Sea Freight Forwarding Disputes, announced by the Supreme Court of PRC in 2012 ('Provisions').

The Provisions require that there needs to be clear incorporation into service contracts for forwarders to avail themselves of certain rights. In the absence of written and signed contracts, these rights will be unenforceable and courts will refuse to recognise them. Such rights include sub-entrustment and detention of their customer's documents as a lien when the client fails to pay freight.

It is a common practice in forwarding to sub-contract execution of parts of the activity required by the principal. Inevitable, where things go wrong, this can lead to disputes as to which party is ultimately liable to the principal - the forwarder who accepted the tasks or the sub-forwarder who committed the mistake? The Provisions regulate that unless the scope of sub-entrustment is clearly agreed by parties or the principal's actions indicate that the sub-entrustment has been accepted, the courts will not uphold the freight forwarder's case. It is insufficient to argue that the principal knew of the sub-entrustment and made no objection to it.

In Chinese judicial practice, there has been a longstanding controversy whether a freight forwarder is entitled to detain documents, such as bill of lading, customs clearance sheet and foreign exchange verification sheet, as a lien if the principal fails to pay sums due. The Provisions confirm the freight forwarder's right of detention for 'all documents', only when such detention has been agreed by parties. In the absence of such agreement concerning detention between the parties, then only documents such as customs clearance sheet and foreign exchange verification sheet can be held. The inability to hold onto the bill of lading, sea waybill or other transport documents may render the forwarder's lien ineffective.

We have therefore included in the recommended Agency Agreement a clause specifying the forwarder's right to detention, which offers a practical tool for forwarders to ensure their service and freights are earned and received.

In drafting this recommended wording for an agency agreement, TT Club has taken advice from leading maritime lawyers in China. The terms also take account of the Club's claims experience and input from the industry in order to present simple and unambiguous terms specifying the respective rights and obligations between forwarders and their customers.

Key features of TT Club International Freight Forwarding Agency Agreement are that it:

• maps to the Provisions to ensure that it provides protection for the full scope of forwarding activities 
• incorporates all modes of transport, including sea, air, rail, road, river and coastal trade
• is applicable whether a forwarder acts as an agent or as a principal (ie. as a carrier)
• sets out limitations of liability which correspond to national laws and international conventions, making it more acceptable to customers
• states clearly the obligations for both parties to the agreement
• includes exemption clauses which correspond to the Chinese Maritime Law and forwarding market practice

This Agreement is particularly useful in the Chinese market as it has taken into consideration Chinese law and regulations and most up-dated judicial provisions issued by the Supreme Court of PRC regarding the forwarding operation. It is available to TT Club Members, in both Chinese and English, from their usual contact.

We hope that you have found the above interesting. If you would like further information, or have any comments, please email us, or take this opportunity to forward to any colleagues who you may feel would be interested.

We look forward to hearing from you.

Peregrine Storrs-Fox

Risk Management Director, TT Club