Unfortunately this issue has been coming up a lot lately so it’s time for a quick reminder. Suppose a business sends goods by shipment (truck, rail, air, bus, etc.), the business pays the shipper and the goods are delivered. Then someone comes knocking on the door of the sender and asking for payment. “What? We’ve already paid for the shipping so go away and have a nice day,” is the response from the sender. The response is “sorry, you have to pay me.” And the response is correct.
Normally there is something called “privity of contract”. Suppose that you agree to pay me $10 to paint your fence. I then hire a teenager to actually paint the fence and I agree to pay him $5. The teenager paints the fence and you are happy with the result, so you pay me the $10. I then don’t pay the teenager. Normally, the teenager cannot go after you for his $5 because his contract was with me, not with you. That’s the concept of “privity of contract”. You and I have privity of contract – that is, we are the parties to a contract – and the teenager and I have privity of contract, but you and the teenager are complete strangers for contract purposes.
The concept of privity of contract can create real problems when it comes to shipping because often the actual truck or vehicle used to physically move the goods is done by a sub-contractor. When we’re talking $5 and $10 it’s not a big deal, but when we’re talking about thousands of dollars in freight costs – especially for truckers who might not make a lot of money from their loads to begin with – it can be a huge problem when it comes to the shipper getting paid but then not passing on the trucker’s portion. To the rescue (of the actual carrier, but not of the sender) comes Section 2 of the federal Bills of Lading Act and Section 7 of the Ontario Mercantile Law Amendment Act. Both of these do away with the concept of privity of contract in shipping cases.
The result is that even if you pay the shipping company, if they turn around and don’t pay the actual carrier (eg. trucker), you could end up paying twice and then having to chase after the shipping company to get a refund on what you had to pay to the carrier. How can you avoid this? Make sure that the shipper you use owns the vehicles and doesn’t use sub-contractors. Will they charge you more than the smaller operations? Probably. But the question is one of risk – which will cost you more: paying the higher cost now or potentially having to pay twice later on.
Something to think about.