My cargo is damaged so I won't pay! Customers right to set-off damage claims against unpaid freight owing forwarder.
The plaintiffs, an NVOCC and a freight forwarder, brought an action to recover freight ($134, 513.40) and ancillary charges totalling $144,037.98 plus interest owing by the customer. The customer defended on the ground that damage to cargos and financial losses attributed to alleged breaches of contract by the plaintiffs give it a right to set-off against the claim. The customer claimed paying $144,000. plus interest and costs would cause them a serious disadvantage considering that the time frame for litigating these damages would likely be more than 18 months.
One stop shopping for Logistics Services
The customer claimed that the plaintiffs were offering much more than brokerage services to arrange for the carriage of goods from Italy to Canada, but were selling themselves as distributors of goods to the defendant's customers. In effect, the plaintiffs were providing a service to carry, store, and distribute their goods. It was, as the defendant's counsel stated, one stop shopping. It was a fundamental term of this relationship that the plaintiffs would
a. use reasonable care in the transport, storage and handling of the defendant's goods; and
b. not terminate their relationship with the defendant, including credit arrangements in place between the two parties, without giving the customer reasonable notice.
The customer claimed that contrary, to this fundamental term, its agreement to pay freight charges was made under duress and coercion, because the plaintiffs refused to release certain containers of Christmas goods without an undertaking to pay the claim without deduction.
The Right to Set-off
The plaintiffs claimed they were entitled to summary judgment that they could enforce immediately. The terms and conditions in the transportation documents; and in the Canadian International Freight Forwarders Association in its Standard Terms and Conditions, governed the obligations of the parties. Under these conditions, freight and charges ancillary to the transport were to be paid without deduction when due.
Expeditors International - summary judgement stayed at request of customer
The customer relied on a decision of Mr. Justice Rothstein of the Federal Court in Expeditors International Freight Forwarding v. Propak Systems Ltd.,  F.C.J. No 376 (herein Expeditors).
In the Expeditors case, the plaintiff, a freight carrier, claimed unpaid freight and the customer claimed damages for late delivery by way of set-off and counterclaim. The plaintiff had delivered gas equipment in a damaged condition which required 139 days to restore into working condition. The contract between the parties included a Transit Time Guarantee which specified that the penalty for late delivery was $100. a day The customer sought to have this amount deducted from the freight charges.
The judgment was stayed (meaning the plaintiff could not collect on the judgment) until the outcome of the defendant's set-off and counterclaim on the grounds that the set-off and counterclaim arose out of the same transaction and the plaintiff had not demonstrated that it would suffer any serious prejudice by the stay.
Factors Distinguishing Expeditors case
Counsel for the plaintiffs argued that the present case was distinguishable from Expeditors, supra, on the ground that the customer has presented a "smorgasbord" of claims which had never been pursued until raised by way of counterclaim in an action to enforce the claim for freight. In contrast, the defendant's claim in Expeditors arose out of the very shipment which generated the freight which led to the damages and the quantification of those damages.
Reasons for Granting Judgment but Refusing to Stay Collection until Court determines Customer's claim for damage.
"I am of the view that there is nothing in the terms and conditions set out by the parties to suggest that the old English rule that freight must be paid without deduction is not applicable, and therefore, I find that the customer is owing the amount of $144,037.98 to the plaintiffs. But that is not the issue raised by this motion. The main issue in contention here is whether the execution of the judgment in favour of the plaintiffs should be stayed pending the outcome of the counterclaim.
The facts of the present case . . . are different from those [of] the Expeditor case. As I said . . . the general rule is that freight must be paid without deduction unless the parties have agreed otherwise. The parties in this case have not agreed otherwise. I see no reason why the customer should not pay what is owing for the freight costs."
Use the search engine to read the full report of this case.