Avoiding the Pinch on Cross-Border Shipments Between Canada and the US

Gordon Hearn | Fernandes Hearn LLP

American and Canadian motor carrier cargo liability rules are similar in most respects. But one fundamental difference concerns motor carrier limitation of liability for cargo loss or damage. The scenario addressed below reveals how an unwary “cross border” freight broker might inadvertently be left “holding the bag” for the difference between the amount of cargo loss or damage indemnity payable to its shipper customer relative to what they might be able to recover from a carrier.

The freight broker intermediary should be deliberate on its terms of engagement for a shipper customer. Is the broker assuming liability for cargo loss or damage while in transit as a “contracting carrier,” or is the broker intending to act in a conventional agency role and merely arranging for the transportation of cargo by a third-party carrier without assuming legal liability for cargo loss or damage? Where the broker assumes liability for cargo loss or damage, it must be deliberate in how it manages that risk. Will the broker pass that exposure down to the asset-based performing carrier, or is the broker suitably insured or in a position to, in effect, “self-insure?”

There are, of course, other critical elements at play that call for contracting equilibrium – the broker being in the middle – concerning shipper-broker contracts on the one hand and broker-carrier contracts on the other. Examples of some other key contracting considerations relate to indemnity obligations, a description of what the broker does do and does not do (i.e. it does not operate or manage the equipment and assets used to haul the cargo, the same being left to an independent carrier contractor) and safety-related representations and warranties to be secured from the third-party carrier, to name a few.

The need for contracting equilibrium comes into even sharper relief when the broker assumes liability for cargo loss or damage for goods being carried between the United States and Canada (or for that matter, strictly within Canada).

The need for contracting equilibrium comes into even sharper relief when the broker assumes liability for cargo loss or damage for goods being carried between the United States and Canada (or for that matter, strictly within Canada).

We’re Not in Kansas Anymore: The Canadian “Uniform Bill of Lading”

The reader may be familiar with the presumptive rule in the U.S. Carmack Amendment regime that a motor carrier hauling freight across state lines (or into Canada or Mexico under a “through” bill of lading) will be liable for cargo loss or damage up to the full actual value of the goods carried. There are mechanisms whereby “Carmack carriers” might contract with shippers or brokers on a more limited “released rate” exposure basis; however, this will be subject to certain pre-conditions being satisfied by way of the carrier offering the shipper different freight rates commensurate with different levels of liability. The purpose of this article is not to delve into what these conditions or precedents might be, or how a “Carmack carrier” might limit liability to something less than full actual value of the cargo carried. The point here is that typically, the default assumption is that the carrier will be liable for up to the full value of the goods carried in the event of loss or damage.

This is not the case in Canada. Most Canadian provinces, (with the exception of Newfoundland and Prince Edward Island) regulate the field of motor carrier liability in the enactment of the so-called “Uniform Bill of Lading.” This Uniform Bill of Lading deems by force of law the existence of certain contract terms and conditions into every transportation contract. One of these terms provides that a carrier will be able to limit liability to $2 per pound of the weight of the goods carried (subject to the maximum liability being equal to the value of the cargo) unless a shipper declares a value for the shipment. Most Canadian provinces call for this declaration of value to be made by the shipper on the face of the bill of lading issued at the point of origin by the carrier. Ontario in turn calls for this declaration of value to be made by the shipper in the “contract of carriage.” Shippers, brokers and carriers have the ability to contract out of these deemed bill of lading terms and the $2 per pound limit of liability.

However, the default scenario – where there is no declared value – is that carriers can thus limit liability, even for losses caused by their negligence. The trend is for shippers to not declare values in Canada. The reasons are many: declarations may attract a freight surcharge from the carrier, the shipper may have first-party cargo insurance, or for that matter there may be a load security risk perception with the declaration of a high value on a document being introduced into the transportation ‘pipeline.’ Declarations of value are rare in the Canadian experience.

The Potential Cross-Border Conflict

As mentioned, under the Carmack Amendment carriers are typically liable for “full value.” Under Canadian law, carriers are typically liable for up to the lesser of the value of the goods or “$2 per pound.” If a broker assumes cargo loss or damage liability for full value with a shipper, there is seemingly no disconnect in terms of it engaging a carrier with that same liability exposure. What though of the case where a carrier’s engagement might be subject to the Canadian Uniform Bill of Lading? Might that carrier cite or rely on the default $2 per pound limit of liability? This situation may also arise where the broker engages a Canadian-based carrier off a Canadian load-matching board – the carrier likewise coming to the assignment assuming that the “Canadian limit”
will apply.

The situation may arise in respect of U.S. points of origin should the carrier be Canadian-based and/or issue a Canadian form of bill of lading. The situation would, however, seem to be even more acute where the place of origin is in Canada. Under time tested “conflicts of law” principles, the law in effect at the place of origin of a shipment – where the bill of lading was issued – has often been regarded to be the governing law of the contract of carriage. As such, it may come to pass that the unwary broker may be seen to have agreed to let a carrier limit liability to $2 per pound while promising full value indemnity to the shipper customer for cargo loss or damage.

Where a broker assumes full value cargo loss or damage liability to a shipper for a shipment with a Canadian component, an important “work around” or risk management tool might be for the broker and carrier to expressly agree in a written contract for the application of the Carmack Amendment, or, as alternative wording, for full value liability, also stipulating that the terms of their written contract are to govern over anything inconsistent otherwise appearing in any carrier bill of lading, tariff, or in “any terms and conditions deemed applicable at law.”

Conclusion – the Main Take Aways

  1. There are, of course, many considerations and due diligence aspects to contracting with shippers and carriers. This article simply lists one acute potential “sore point,” or specific item of consideration, where the broker assumes cargo loss or damage liability and where there is a Canadian component to the carriage mandate.
  2. The “cross border” freight broker must be aware of the chance that a carrier might seek to limit liability to $2 per pound under Canadian law, which might apply by default. The broker will not want to inadvertently be left “holding the bag” for the difference between this and any amount it has to pay to the shipper.
  3. The premium – as always – remains on being deliberate and clear on what the broker is contracting for on both sides of the equation, ensuring equilibrium between its obligations to the shipper customer relative to those owed to it by the carrier.

Gordon Hearn practices transportation and logistics law at Fernandes Hearn LLP in Toronto, Canada. He may be reached at gord@fernandeshearn.com.