DISCOUNTS

CAN A CARRIER COLLECT TARIFF-BASED PENALTIES FOR NON-PAYMENT OF FREIGHT CHARGES WHERE IT HAS DENIED THE SHIPPERS CLAIM FOR LOST OR DAMAGED FREIGHT?

Reproduced with the Permission of Miles L. Kavaller

It is not unusual for a shipper to refuse to pay a carriers freight bill or accumulated freight bills where the carrier has either failed to process or denied its claim for freight loss and damage. This method of self-help was the subject of an ICC administrative ruling which held that in order to prevent discriminatory treatment shippers must pay the carriers freight charges before the carrier was required to process a claim. Thus, at least until the adoption of TIRRA on August 26, 1994, the venerable filed rate doctrine prohibited this practice. However, once either the carrier brought suit for its freight charges or the shipper went to court to collect damages for lost or damaged freight, court procedural rules took precedence; the shipper is permitted to off-set its claim against the carriers freight charges and the carrier can off-set its unpaid freight charges against the shippers loss or damage claim. Of course, the parties are required to prove their respective claims in accordance with the applicable laws.

When the shipper chooses this course, however, it may well be subject to the provisions of the carriers tariff which often contains rules imposing various charges for either late, or non-payment of its freight bill. Enforcement of those tariff rules depends on when the shipments were transported. A recent decision of 5th U.S. Circuit Court of Appeals in New Orleans in Accura Systems, Inc. v. Watkins Motor Lines, Inc. addressed this precise issue and ruled in favor of the carrier requiring the shipper to pay the undiscounted tariff charges which were almost twice the amount of the discounted rate for the shipment which was damaged in transit. This result was required by the filed rate doctrine because the shipment was transported in July of 1994 and Watkins tariff rule, like that of many other carriers, provided for payment of the discounted rate within a specific period of time. Late, or non-payment violated the rule and obligated the shipper to pay the higher freight rate, even though the shipper prevailed on its damage claim against the carrier.

It is not likely that the same result would be reached for shipments transported after the enactment of TIRRA on August 26, 1994. This statute for all intents and purposes repealed the filed rate doctrine. Absent this legal requirement courts will apply the law of contracts which is implicated because of the bill of lading, the transportation contract between the shipper and the carrier. And, even though the carriers tariff may be incorporated into the bill of lading as is often the case, because its enforcement is no longer required by statute, strict application of the tariff to prevent discrimination is also no longer required.

Contract law often forbids the imposition of penalties which may be found in contracts that provide for liquidated damages. That was the issue before the federal district court for the Eastern District of Pennsylvania in Philadelphia in the suit for the collection of unpaid freight charges in Robins Motor Transportation v. Associated Rigging and Hauling Corp. decided on October 31, 1996. In a remarkable exercise of judicial conscientiousness, the federal judge ordered the carrier to justify and provide legal authority for its tariff-based charge of 50% of the outstanding freight charges, in addition to the unpaid freight charges, in its request for the entry of a default judgment. A familiar tariff item provided for this in the event it becomes necessary to employ the use of a collection agency and/or attorney in the collection of freight charges.

Because the shipments for which the carrier sought collection of its freight charges were transported after TIRRA the filed rate doctrine was inapplicable. The court took pains to examine the Interstate Commerce Act and the ICC (now the Surface Transportation Board) credit regulations requiring such provisions to be reasonable and also employed traditional contract law principles in finding that 50% was simply unconscionable. The carrier was awarded attorneys fees it proved it had incurred but they were far less than 50% of the outstanding freight charges of $60,000.