When ocean freight remains unpaid or detention/demurrage charges are due and owing, ocean carriers typically claim against every party identified in the Bill of Lading based on two main terms in the Bill of Lading – 1) ‘joint and several liability’ clause, and 2) a broadly construed definition of ‘Merchant.’ Many container carriers have a similarly broad definition for ‘Merchant: includes the Shipper, Consignee, holder of this Bill of Lading, the receiver of the Goods and any Person owning, entitled to or claiming the possession of the Goods or of this Bill of Lading or anyone acting on behalf of this Person.’ (www.msc.com/lbr/contract-of-carriage). And, yes, this definition does include categories of parties that might not necessarily be identified by company name within the four corners of the Bill of Lading.
From personal experience, I know carriers rely on this broad definition of Merchant to recover damages against anyone who can reasonably be identified as a ‘Merchant’ regardless of their cargo ownership interest or the degree of their respective physical contribution to the shipping transaction. Some responded with objections such as lack of consent, lack of notice, or lack of privity. However, in the end, the failure of a booking person to expressly name the cargo interest or other involved entities in the relevant shipping document was no limitation to carrier’s recovery claim. And often, the on-going business dynamics between shippers, NVOCCs, and forwarding agents (the latter two parties having their own transportation documents with the similar Bill of Lading terms) required that they adhere to the ocean carrier’s bill of ladings terms and/or relevant tariff terms, which are also readily available to them and the public. And, depending on the circumstances, one could argue unjust enrichment, among other equitable principles, against the owner of the cargo even if that entity is not the named consignee in the Bill of Lading.
In the recent case Mediterranean Shipping Co., S.A. v. Best Tire Recycling, Inc., 848 F. 3d 50 (1st Cir. 2017), a company named Armstrong hired Best Tire as a sourcing agent for shipping scrap tires to a consignee in Vietnam. Armstrong is the entity that directly communicated with the ocean carrier for booking and other shipping instructions, and is also the one that prepaid some of the ocean freight. While Best Tire argued that it never agreed to be the shipper of record, it admitted to having received the carrier’s booking confirmation and the relevant Bills of Lading. The lower court held, and appellate court affirmed that Best Tire was liable for the charges accrued in the Bills of Lading since “even if [Best Tire] never signed any document with the carrier, it made no objection to being designated as shipper until it received invoices for the charges.” It is notable that the Court suggested that “Armstrong could also be held liable” when it did not appear in anywhere in the relevant Bill of Lading. So, one of the takeaways from this case is that the industry (and the Courts) should continue to apply the definition of Merchant so long as the merchant knew or should have known (or had access to) the shipping transaction and the related terms, and directly enjoyed the benefits at the same time.
So, what is the implication of the continued application of the definition of ‘Merchant’ in the modern day shipping industry?
A few ocean carriers have already launched, or will soon implement, “blockchain technology” to provide a more efficient, secure, automated, and the real-time management of any given shipping transaction. Initially, blockchain technology was created to facilitate a safe bitcoin trade market based on the concept of open source software – the management of a given transactions is done collectively and securely by the responsible parties. In the shipping context, the “blockchain” would hold together the details of the several smaller ‘blocks’ of information and transactional input made by certain participants who are given a limited access from booking stage to actual the carriage stage as well as to the delivery stage. Meaning, various parties facilitating the transportation of cargo will need the access to the various blocks of information chain to provide basic shipping data (eg. shipper/consignee/cargo description). Other parties will need to access to add the necessary information to address regulatory requirements (eg. Verified Gross Mass, OFAC, or Hazmat clearance), say as agent for the ultimate shipper. Of course, there may be other parties with access that are just monitoring and verifying the shipping transactions to track the shipment (eg. for Customs clearance, or door delivery preparation). So, with the possibility of increased accessibility to the Bill of Lading and/or other critical shipping information (eg. cargo description, booking status, shipment tracking, and rates information), it is entirely possible that more entities can fit within the definition of Merchant.
Many experts already recognize that blockchain technology will bring billions of dollars-worth of benefits to the shipping industry, and that this new supply chain solution will transform the shipping industry for the better. And as the definition of “Merchant” continues to be imposed by ocean carriers and still gets challenged by others, carriers would be well served by clearly understanding their blockchain processes, and by reviewing their respective definitions of “Merchant”, so that potentially liable parties are clearly defined not just from the documentation point of view, but also from the technology and network point of view as well. Of course, the possibility of various cyber-risks and legal and insurance issues associated with the blockchain technology remain as concerns… for me to discuss another day.