TT Talk - Contractual 101 for transport
The transport supply chain is designed to bring together one party that requires a service with another who offers to provide that service – generally many times over. In all scenarios, there is some form of contract that ensues (whether written or oral), which not only outlines the nature of what will be done but also defines the obligations between the parties. Such contracts are essential and at least a basic understanding is required by all.
Whenever an operator, whether a forwarder or terminal operator, provides a service to a customer, a contract is formed. Under English law – and many jurisdictions have adopted a similar approach – all that is needed for this to happen is for goods or services to be provided, or promised, in exchange for ‘consideration’ (the English law term). In the usual course, this consideration is represented by money.
“The terms of the contract which has been formed are clearly crucial if any dispute arises”
The terms of the contract which has been formed are clearly crucial if any dispute arises, because any Court judgement will depend on what the parties are found to have agreed. Contracts terms can be formulated basically in three ways:
• by national or international law or convention which applies compulsorily, and cannot be varied by the parties
• by implication, where no express contract is made and the court has to infer the contract from the conduct of the parties and the general law
• by express agreement recorded between the parties before the services are provided
There may be nothing much that can be done to avoid the application of compulsory law, but its operation may be able to be limited or varied within certain parameters. The second option, allowing the terms for service arrangements to be inferred, can produce unintended and unpredictable results, and should be avoided. As a result, it is fairly clear that express agreement is the best approach.
Forming contracts can be both time-consuming and hazardous. Inevitably, many of the more sophisticated logistics arrangements require such a level of attention. It is often the case that the basis of the agreement emanates from the customer side and the service provider may be presented not just with complex practical tender requirements, but also terms that could be aligned to general ‘supply’ and highly unsuitable for ‘supply chain’.
A preferred way to avoid some of the pitfalls of bespoke contracting, enabling a standardised offer to customers in general, is to create or adopt standard trading conditions (STCs). Adoption of relevant trading association terms – such as available from a national forwarding association – can be appropriate. Such conditions will generally be well-constructed and acceptable to a broad marketplace, providing relative certainty and insurability. The TT Club also offers various model conditions for use by its Members. Issues concerning STCs are covered in a parallel article.
“The essential nature of business requires thoughtful application of contractual terms, whether standard or bespoke”
The essential nature of business requires thoughtful application of contractual terms, whether standard or bespoke. An operator may need to consider different STCs for different services. For example, the appropriate obligations where a forwarder undertakes carriage may differ from those involved in warehousing. Similarly, a terminal operator undertaking stevedoring activities will require different terms when carrying out customs clearance. In such cases it must be made clear which STCs it is intended to incorporate for any given service or activity. Also, where STCs are updated, it is important to ensure that the current edition is incorporated. STCs in these circumstances should be sufficiently distinguished, perhaps by use of references such as "2014/1".
Certainty of terms
Of course, an operator will be lucky if its STCs are accepted unamended for all deals. If a variation to the STCs has to be agreed, this should be written formally and the extent to which the STCs are varied should be stated – or at least there should be a statement such as: "all other terms and conditions in the STCs are unchanged". Variations should be signed by both parties. The STCs themselves should include a clause, stating who within the operator's company is authorised to agree variations. If this is not done, variations by unauthorised members of the operator's staff are likely to be binding, as long as the customer can show reasonably that the staff member was acting within "apparent authority".
A further contractual hazard may be where services are outside the strict confines of a particular contract. For example, where a forwarder, having issued a bill of lading, provides services outside the scope of the bill, such as customs clearance and onward delivery. It is best to maintain underlying STCs for such ancillary services. This requires care – and probably legal advice – in order to create a hierarchy of documents which will apply in the case of conflicts between the STC and any other applicable contractual document. If no hierarchy is specified a court may regard the second document as varying the first one, leading to result that differs from the intention of losing party.
Further, be specific. One operator used incorporate terms with the words, 'All business undertaken on its standard trading conditions (BIFA, RHA, UKWA or CMR, whichever is applicable), copies available on request'. When goods were damaged during warehousing and distribution services the customer argued that it was unclear as to which set of terms would be incorporated since all four could arguably apply on the facts. A judge gave the parties a strong indication that he agreed with the customer's submission and invited the parties to settle the claim without the need for a hearing. Subject to a small discount, the operator ended up settling the entire claim on an unlimited basis because he probably had no limitation clause or defences to defend the claims.
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.
Risk Management Director, TT Club