Steve Block, Foster Pepper PLLC, USA
Remotely located contract terms: incorporated tariffs, rules, terms and conditions, and other documents
Agreements governing transportation relationships can be as complex as the myriad service details, issues, risks, business terms and other factors the process necessarily comprises. The tiny words on a bill of lading’s reverse side, if enlarged to a 12-point font, can amount to 30 pages of text! And those are just the boilerplate provisions culled from centuries of industry and legal evolution.
Given modern-day transportation’s complexities, volumes, urgency, and remote locations, service providers can’t practically negotiate individualized contracts with each customer. Thus, law and industry have developed procedures that include adoption of extensive contract terms through incorporation by a shipping document, typically a bill of lading, of other documents containing detailed terms. The roots of this practice are partially in the Filed Rate Doctrine by which service providers, for many decades, were required to file tariffs with government agencies that specified routes, services and rates equally available to any requesting shipper. Tariffs were expanded to include additional terms, such as limitation of liability, attorney fee clauses, liquidated damages provisions, shipper obligations in the event of certain contingencies, etc. Incorporation of such tariff terms became the legally enforceable norm.
With deregulation of the various modes of transportation in the 1990s, tariff filing became largely obsolete. But to the extent common carriage is an element of remaining regulation and industry practice, tariffs still provide mandatory terms, as well as whatever else their publishers might stick in them. Bills of lading and other agreements can also incorporate separately written terms as stated in other documents, such as specified “long form bills of lading,” classifications, “terms and conditions,” “rules,” and the like. All of these documents might be stored in file cabinets or websites, made available only on request, and provide terms in addition to those within a signed paper. They also can be modified with changing circumstances.
But, as most folks realize, these incorporated contract terms rarely get requested and read. Statistically, most shippers don’t even go over the terms written in bold on a bill of lading’s front side, at least not very carefully. Of course the general takeaway is that they should, maybe with the assistance of an experienced professional when beginning new carrier relationships. But considering the magnitude and complexity of contract provisions, it might be a bit overoptimistic to expect consumers to go through every point.
Yes, the law has taken cognizance of that reality. Carriers are able to limit their liability for damaged/destroyed/lost/delayed freight on the condition they offer their shippers alternative liability arrangements, usually full liability in exchange for a much higher freight charge. The key is the carrier’s ability to demonstrate the shipper received and knowingly declined the alternate liability offer. If it could bury the language in an incorporated document its shippers aren’t likely to ask for and review, then the law’s intended effect would be easy enough to avoid. When mandatory common carriage and tariff filing still applied, some admiralty courts put the kibosh on that practice by recognizing as incorporated into shipping documents only those tariff terms that federal law required be filed with the Federal Maritime Commission. Courts addressing other modes have gone in different directions, but some, most notably those addressing motor carrier limitation of liability, have enforced referenced limitation of liability clauses.
Marine terminal operators, or “MTOs,” which are legal entities that provide dockside services to ocean carriers, are regulated players in the ocean transportation industry. As such, they maintain schedules of the services they offer that usually include costs, fees and surcharges that apply in circumstances not contemplated by their contracts. Those MTO schedules are incorporated into their contracts, and are enforceable as contract terms.
Just ask Absolute Rigging & Mill Wrights, which dismantles, rigs and arranges ocean transportation of heavy machinery cargo. Absolute, an ocean shipping newbie, had contracts with a Chinese company to prepare two large automotive stamping presses from Ohio to China. It broke the cargo down into 132 pieces, hired an ocean freight forwarder to book transit, and MTO Federal Marine Terminals (“FMT”) to provide stevedore handling services prior to vessel loading. FMT’s web-based MTO schedule included a host of costs and fees that apply in various circumstances, such as miscalculated weights and dimensions, detention charges, and unanticipated charges to address issues not known at the time FMT issues pro forma invoices for estimated charges.
Charges for many such unforeseen circumstances came to pass, and Absolute wasn’t happy with FMT’s bill for 153 grand (on top of the prepaid 100 grand pro forma). When it didn’t pay, FMT sued Absolute in the U.S. District Court for the Northern District of Ohio. Bottom line, even though the charges to Absolute were over twice the original estimate, Absolute had to pony up. Absolute argued it never actually signed FMT’s pro forma invoice, but the court noted that “performance itself acts as an acceptance, thereby binding the parties to the contract.”
The circumstances are a bit more compelling here because MTO schedules, if properly published, can be binding by the Ocean Shipping Reform Act of 1998. Unless there is a firm pre-agreement about charges, incorporated MTO schedules apply and can effectively impose additional costs. Most of the court’s analysis would equally apply to terms incorporated by ocean carriers in their bills of lading.
Ref: Fed. Marine Terminals, Inc. v. Dimond Rigging Co. LLC, 2015 WL 3457474 (N.D. Ohio 2015).