DOING BUSINESS AS A FREIGHT BROKER IN CANADA · 2016-10-05 · DOING BUSINESS AS A FREIGHT BROKER IN CANADA CIFFA M2M Webinar October 5, 2016 Gordon Hearn ... •interlining is caught

DOING BUSINESS AS A FREIGHT

BROKER IN CANADA

CIFFA M2M Webinar

October 5, 2016

Gordon Hearn

Fernandes Hearn LLP

Toronto

Defining the Players

• Freight Brokers }

• Load Brokers } Highway Traffic Act

• Freight Forwarders }

Defining the Players

• Freight Brokers }

• Load Brokers } Highway Traffic Act

• Freight Forwarders }

“A person who arranges with an operator to carry the goods

of another person, for compensation and by commercial

motor vehicle…”

A Largely Unregulated Industry

Simple, historical “one off” setting:

• Shipper approaches broker for a freight quote




• Broker provides a quote from a carrier





• (prearranged / specific solicitation / Loadlink message

board)






board)

• Broker provides quote to Shipper






board)


• Shipper confirms






board)



• Broker provides Carrier Confirmation Sheet to Carrier






board)



• Broker provides Carrier Confirmation Sheet to Carrier

• Carrier attends at Origin, issues bill of lading

Contracting Terms

“Freedom of Contract” – shipper/broker and broker/carrier contracts

Key consideration: identifying your business model:

• what is your shipper expecting of you?

• “Arranger” (agent) vs. “Performer” (principal)?

• obligations for cargo loss, damage or delay?

• have you identifying and in turn provided for this risk?

Contract terms / insurance / “pushing the liability downwards”

“But I don’t even own a truck!”

• Do you face the risk that a court might impose carrier

terms on you that you did not intend?

• Whether deliberately or inadvertently, freight brokers often

run the risk of ‘crossing the line’ into assuming carrier

responsibility


There are no hard rules for determining whether the freight

forwarder is acting as agent or as principal contractor. The

forwarder's role will depend on the facts of each case.

There are, however, several useful criteria which can assist

in making that determination:

• (a) the manner in which the forwarder characterizes its obligations in

the contract documents / describes services on website etc.

• (b) the manner in which the parties have dealt with each other in the

past;

• (c) whether a bill of lading was issued;

• (d) whether the shipper knew which carrier would actually carry the

goods


Whether the freight forwarder is an agent or a principal

contractor will depend on the facts of each case and on the

law in the particular jurisdiction in question. The court must

look at all the circumstances of the arrangements between

the freight forwarder and the client, the contract, the

telephone calls, the correspondence, the tariff, any bill of

lading issued, previous dealings, etc.

“Choosing your Poison”

No implied broker terms by legislation

vs.

Most provinces deem carrier terms of liability

• Different standards of liability …

• But will the broker be able to enjoy the defences readily

available to a carrier?

“Choosing your Poison”

No implied broker terms by legislation

vs.

Most provinces deem carrier terms of liability

• Different standards of liability …

• But will the broker be able to enjoy the defences readily

available to a carrier?

• e.g. $2 per pound; 60 days notice period for claims

The Regulation of Freight Brokers in

Canada

“Freedom of Contract” --- with a few exceptions

• if you are a carrier your bill of lading often has to conform

• trust fund requirement in Ontario

• registration requirement in the province of Quebec

• ‘creep’ of MAP 21 from US into Canadian operations?


Canada

Freight brokers may be regulated incidentally, as a function

of a specific undertaking i.e. dangerous goods,

warehousing, customs brokering, indirect air carriage

(cargo screening), selling insurance


Canada

Freight brokers may be regulated incidentally, as a function

of a specific undertaking i.e. dangerous goods,

warehousing, customs brokering, indirect air carriage

(cargo screening), selling insurance

Once a freight broker is seen to have carrier-like liability as

a principal it will be affected by specific modal rules

governing carriers - or will it?

• i.e. Ontario Uniform Bill of Lading


Canada

“The uniform conditions of carriage … are deemed to be

the terms and conditions of every contract of carriage to

which this section applies”

“1. Liability of Carrier

The carrier of the goods described in this contract is liable

for any loss of or damage to goods accepted by the carrier

or the carrier’s agent except as provided in this Schedule.

The Ontario Trust Obligation

• Section 191.0.1(3) of the Ontario Highway Traffic Act

R.S.O. c. H-8 provides as follows:

•

• A person who arranges with an operator to carry the

goods of another person, for compensation and by

commercial motor vehicle, shall hold any money received

from the consignor or consignee of the goods in respect

of the compensation owed to the operator in a trust

account in trust for the operator until the money is paid to

the operator.

The Ontario Trust Obligation

• Must be followed – can be personal liability

• knowingly assisting in the breach of trust

• knowingly receiving trust property

• based in Ontario?

• regardless of routing

• if in doubt – comply

• interlining is caught

The Quebec Registration Requirement

“An Act Respecting Owners, Operators and Drivers of Heavy Vehicles” CQLR c P-30.3.

15. The Commission shall establish and maintain a list oftransport service intermediaries carrying on business in Québec.The list is public. The Commission shall also establish a file oneach transport service intermediary who applies for registration.

The expression “transport service intermediary” means anyperson who, for remuneration, acts directly or indirectly as anintermediary in a transaction between third persons, the object ofwhich is the transportation of persons or property by a heavyvehicle.

•

The Quebec Registration Requirement

• 16. Every transport service intermediary must register or

renew registration by filing an application with the

Commission, in the form and tenor determined by the

Commission, together with payment of the fees fixed by

regulation of the Government.

• Where such a person fails to register or renew

registration, any contract entered into by the person

becomes without effect.

• When in doubt, comply.

Defining and Managing Liability Risks

“Freedom of Contract”

Be deliberate with your scope and terms of engagement

Contract terms (TIA / NTBA sample contracts), web site

“Service Conditions” or incorporation of terms

i.e. CIFFA terms – agent vs. principal, and respective roles

/ obligations

Avoiding the Pinch

The Responsible carrier might hurry up and cut a cheque for $2 a pound, but are you liable to underwrite the difference to your shipper customer?

As an agent:

• Maintaining your agency function to extent possible

• are you fulfilling your role as an “agent”: the ambiguous statusof the Carrier Confirmation Sheet

• uniform procedures in dealing with, and taking instructions fromcustomers, if nothing else

Avoiding the Pinch

As a principal:

- Contract terms at the front end (with shipper) and at the

back end (with carrier) – ensuring balance and equilibrium

What Exactly is Expected of the Freight Broker

as Agent?

• competent and timely conveyance of instructions to

carrier

• knowledge of industry

• clarity of mandate of what it is undertaking and

responsible for

• surprising lack of case law (versus United States)

What Exactly is Expected of the Freight Broker

as Agent?

• Ensure carrier being dispatched is licensed to perform the

move

• Avoid appearances of involvement in the running of the

carrier – the general aim is to maintain the independent

contractor status in both form and substance

• If advised of the value of the cargo, ensuring that the

carrier has adequate road hauler liability insurance

• Regulate as necessary “double brokering” by selected

carrier

• Safety rating – CVOR in Ontario, NIR in Quebec

The Identity Theft Scenario

• The Transportation Intermediaries Association (TIA)

Carrier Selection Framework and the Framework to

Combat Fraud

• While each case involves its own criteria for due diligence

and risk management, the following are a non-exhaustive

list of considerations when working with new motor

carriers:


Call the published phone number for the carrier. Is it

different than the number contact person has provided? If

so, ask the carrier to explain the difference.

Be leery of the “we are moving offices; so we are using

personal cell phones for the time being” explanation. Check

if the number(s) are landlines or cell phones. Prepaid cell

phones can easily be obtained with cash and no credit

check.


Call the head office of the carrier to ensure that the person you are speaking with represents the carrier.

Do not solely accept insurance documents from the carrier, or limit yourself to contacting insurance individuals whose contact information is provided by the carrier. Follow up with the insurance agent.

Look for gaps in carrier authority history

Require the operative bill of lading to identify the attending carrier, with number to call if “anyone else attends to receive the cargo.”


Advise the shipper of who the carrier will be at the point of pick-

up, and ask the shipper to check the identification of the carrier.

If they are not comfortable, then they should not release cargo.

Fraudulent carriers tend to offer lower rates to move freight. If

the freight rate looks too good to be true, it very well may be.

Check company addresses using Google Maps or a similar

service. Verify that it exists. If you are using a load board,

confirm membership and verify contact names and phone

numbers.

If you do not see the company on there, or the numbers do not

match, contact the load board officials.


Review the paperwork you receive from a carrier to ensure

its validity. Check that the documents are clear and that

there are no variations in font types or any other obvious

signs of tampering.

If a company claims that they are a secondary office of a

US-based company (or other large company), call the

primary office to confirm the phone numbers and location of

the secondary office. If it is a US-based carrier, ensure you

receive their Canadian authorities.


Talk to your shippers. Ensure they write down the licenseplate of both the tractor and trailer and possibly the driver’slicense when a carrier arrives to pick up a shipment.Ensure they do not simply write down the name from thedoor of the truck.

Ask for carrier references and check them. Ensure youknow who the references are and that they are legitimatecompanies. (In other words, the broker might not just relyon the standard “Carrier Information Package” of pre-selected documents)

If you have been a victim of fraud or theft, report it.

Third Party Claims Arising from Transit

CasualtiesNo clear case law footprint of a claimant ‘going up the supply chain’

But the footing exists for a finding that the employer was negligent in hiring the contractor – even where an independent contractor

- ensuring carrier has safety profile – best practice: get a confirmation that a carrier has a sufficient safety rating in its home or base plate jurisdiction

- ensuring carrier has adequate / customary liability insurance

remember, you may have given an indemnity to the customer for the sins of the carrier

- indemnities are not, strictly speaking, covered by insurance policies

Contractual Considerations: Shipper - Broker

Getting assignments from shippers before paying for lost

damage or cargo

“We are not liable for cargo loss” vs. “we are not

responsible but we will facilitated your claim” vs. “we are

liable at $2 per pound” vs. “we are liable on a full value

Carmack standard”





Carmack standard”

• indemnity provisions: for your own negligence vs. the

negligence of the carrier





Carmack standard”

• indemnity provisions: for your own negligence vs. the

negligence of the carrier

• shipper seeking warranty that you will actually include

certain terms in your contract with the carrier


• insurance

• cargo claims offset provision

• no lien provisions

• double brokering prohibitions

• “entire agreement” clauses

• applicable law and forum for disputes

• possibly language as to the steps to be taken when

shipper wishes to declare a value

Contractual Considerations: Broker - Carrier

• the other side of ‘avoiding the pinch’

• the use of, and effect, of Carrier Confirmation Sheets

• exclusivity, termination clauses

• representations and warranties on equipment, ratings,

compliance with laws

• broker will not have a monitoring function

• cargo loss and presentation of claim provisions

• insurance

Contractual Considerations: Broker - Carrier

• indemnity provisions

• flow of invoicing and payment of freight bill and payment

• prohibitions on double brokering, solicitation of shipper

customer

• preservation of independent contractor relationship

• “entire agreement” clauses

• applicable law and dispute resolution clauses

Cross Border Considerations

• MAP 21 in the United States

• “Conflicts of Law”

• this may result in a “pinch” / disconnect with shipper

customer expectations

• effect on freight rate

Documents

DOING BUSINESS AS A FREIGHT BROKER IN CANADA · 2016-10-05 · DOING BUSINESS AS A FREIGHT BROKER IN CANADA CIFFA M2M Webinar October 5, 2016 Gordon Hearn ... •interlining is caught