Morlines Maritime Agency Ltd. v. IKO Industries Ltd.

In Carriage of Goods by Sea on (Updated )

The issue in this case was whether the shipper was liable for the ocean carrier’s freight charges when it had already paid the freight forwarder who went bankrupt without paying the carrier. The court relied upon the decision in C.P. Ships v Les Industries Lyons Corduroys Lte., [1983] 1 F.C. 736, where it was held that the debtor/shipper must pay the creditor/carrier his freight charges unless the shipper establishes either:

1. that the carrier authorized the third party/forwarder to receive the money on his behalf, or,

2. that the carrier held the third party/forwarder out as being so authorized, or

3. that the carrier by his conduct or otherwise induced the shipper to come to that conclusion, or

4. that a custom of the trade exists to the effect that both carrier and shipper would expect payment to be made to the third party/forwarder.

The court held that the third and fourth branches of this test had been met. The court relied upon the fact that the carrier never dealt directly with the shipper and never advised the shipper that it expected payment from them. Even after the forwarder began to have financial difficulties the carrier never contacted the shipper. This was conduct, the court held, that induced the shipper to believe that the forwarder was authorized to receive payments on behalf of the carrier. With respect to the fourth branch of the test, the court was satisfied that both the carrier and shipper expected the shipper to make payment to the forwarder and the forwarder to make payment to the carrier.