National Shipping Company of Saudi Arabia (NSCSA) appealed a district court judgment favoring Omni Lines, Inc. (Omni) following a bench trial. NSCSA, a freight carrier, contended that when a shipper pays freight charges to a freight forwarder, who fails to pay the carrier, the shipper remains liable for the unpaid charges. The district court rejected this argument. On appeal, the Eleventh Circuit reviewed the lower court's factual findings for clear error and legal conclusions de novo, ultimately reversing the district court's decision.
The case involved the transport of newsprint from Canada to Saudi Arabia under a bill of lading that listed Omni as the shipper and marked 'Freight Prepaid' with a total charge of $67,794.62. Although Omni paid the freight forwarder, Exchange Transportation International (Exchange), for the charges, Exchange did not forward these payments to NSCSA and instead used them to settle its own debts before going out of business. NSCSA sought to hold Omni liable for the unpaid freight.
The court noted that both parties acted as expected in the transaction, creating an equitable dilemma: either Omni pays twice or NSCSA receives no payment. Different legal approaches exist regarding liability in cases with 'freight prepaid' bills when the carrier has not been paid. Some courts consider whether the prepaid designation indicated credit extended to the forwarder or the shipper. In a previous case, Naviera Neptuno S.A. v. All International Freight Forwarders, Inc., the Eleventh Circuit held that local custom could determine shipper liability. NSCSA argued that it had provided unrefuted evidence of such a local custom to support its claim. However, the appellate court disagreed, suggesting that the evidence did not sufficiently establish that 'freight prepaid' constituted an extension of credit to the shipper in this instance.
NSCSA's trial evidence did not clarify whether the term 'freight prepaid' on the bill of lading assigned the risk of loss from the forwarder's non-payment to either NSCSA or Omni. Saniisha Williams, NSCSA's revenue controller, testified that 'freight prepaid' indicates that payment occurs when the cargo is loaded, not upon delivery. Thus, the court determined that previous case law was not applicable. It examined liability doctrines from other courts regarding situations with unproven local customs. Some courts apply equitable estoppel, preventing carriers from claiming freight charges if shippers reasonably believed the carriers had already been compensated. Conversely, other rulings suggest a semi-strict liability, maintaining that unless the carrier explicitly releases the shipper from payment obligations in the bill of lading, the shipper remains liable regardless of payments made to the freight forwarder. This perspective aligns with prior case law that emphasizes the enforceability of carrier tariffs. The Fifth Circuit's position—favoring shipper liability unless demonstrated otherwise—was deemed the most appropriate. The district court's finding that NSCSA extended credit to Exchange and not Omni was deemed erroneous, as the carrier retains a contractual right to expect payment from the shipper under the bill of lading.
To avoid liability for double payment, shippers must engage reputable freight forwarders or contract directly with carriers to secure release. The Fifth Circuit supports a rebuttable presumption favoring shipper liability, highlighting that freight forwarders rely on their service fees and often lack substantial assets, making shippers the primary source of payment despite potential credit arrangements with forwarders. There is no compelling reason for carriers to release shippers from liability, as multiple liable parties enhance payment assurance. The current case presents ambiguity regarding whether NSCSA has released Omni from payment obligations, as indicated by the term "freight prepaid" and NSCSA's initial collection efforts targeting Exchange. However, similar circumstances in prior cases did not result in release. NSCSA asserts that local custom interprets "freight prepaid" as credit to the shipper. The bill of lading states that freight is earned upon receipt of goods, indicating that carriers are entitled to retain all freight charges regardless of payment status. Consequently, a factual issue remains for the trial court to resolve. The judgment of the district court is reversed and remanded for further proceedings, with the trial court also tasked with determining Omni's liability amount, noting a discrepancy between negotiated and billed freight charges.
