The Merchant Clause

1. Bills of Lading (“Bs/L”) issued by Container Carriers/NVOCC’s invariably contain a definition clauseⁱ in which a Merchant is defined as “including the Shipper, Holder, Consignee, Receiver of the Goods, any person owning or entitled to the possession or of the Bs/L and anyone action on behalf such Person”. The intention of this clause is to hold 3^rd parties such as Freight Forwarders (“FF”) who may be involved in assisting the Shipper and/or Consignee, also liable for the acts of the Shipper and/or Consignee.
2. The reason why Carriers wish to pursue the FF is understandable is that they may be a better target for pursuit rather than the Shipper or Consignee who may have limited means or seated at a jurisdiction not conducive to pursuit or recovery. The issue is whether the Merchant who may be a 3^rd party, such as a FF could be correctly pursued by the Carrier when the FF is not listed in the BL issued and/or has no knowledge of the provisions of the Bs/L. 
3. Our research (limited to web searches and newsletters) does reveal that in common law jurisdictions
   1. if the Merchant is a holder of the BL, courts will generally give effect to the Merchant Clause (see MSC Mediterranean Shipping Company S.A. & Others v Interglobal Technologies Ltd & Others and an article by Hill Dickinson).
   2. If the Merchant is a third party, the courts will generally deny that they are party to the terms of the Bs/L irrespective of the presence of the Merchant Clause (see an article on “Who is the liable “merchant” under a contract of carriage?” by Norton Rose Fulbright and “The Merchant Clause – Who is a “Merchant”?” published in ForwarderLaw).
   3. With respect to outstanding freight, there is an Australian court judgement, Australian Tallow & Agri Commodities Pty Ltd v Malaysian International Shipping Company [2001] NSWCA 16 (2 March 2001), holding the FF liable jointly and severally under the Merchant Clauseⁱⁱ. If there is a practice to invoice the FF (instead of the Shipper) for the payment of freight (as is the case in most jurisdictions), then this may be considered as an implied agreement by the FF to be responsible for the payment of the outstanding freight (we believe that this would be the better way to pursue instead on the basis of the Tallow commodities case).
   4. We had earlier seen a newsletter published by Sechang & Co, lawyers in South Korea, in which they discussed a case of Carriers pursuing Shippers who contracted on EX Works basis with their counterparts. The Consignee did not take delivery of the cargoes and which resulted in costs being accrued. The Carrier pursued the Shipper/Exporter for recovery on the basis of the Merchant Clause and was unsuccessful in the Court of First Instance. We understand that this case has been appealed, and we await developments.
4. The Hague or Hague Visby Rules generally apply to the Bs/L issued (either by force of law or due to the incorporation of the Clause Paramount). In this regard,
   1. Art III Rule 8 of the Hague Visby Rules states “Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to, or in connection with, goods arising, from negligence, fault, or failure in the duties and obligations provided in this Article or lessening such liability otherwise than as provided in this Convention, shall be null and void and of no effect. A benefit of insurance in favour of the carrier or similar clause shall be deemed to be a clause relieving the carrier from liability”.
   2. Art IV Rule 3 of the Hague Visby Rules states “The shipper shall not be responsible for loss or damage sustained by the carrier or the ship arising or resulting from any cause without the act, fault or neglect of the shipper, his agents or his servants”. Arguably, this clause (Art IV R 3) should only apply to the Shipper and not to other parties defined in the Merchant Clause. However, it remains to be seen whether a court would purposively define the Merchant as also being a Shipper so that the Merchant is entitled to defend claims in the absence of any fault or negligence. 
5. Our view is that parties such as the FF who purely act as agents, if pursued on the basis of the Merchant Clause, should be entitled to deny liability given that they (FF) were not a party to the Bs/L contract and further may have had no knowledge of the terms of the Bs/L. One way for Carriers to get around this is to only accept bookings from FF, who voluntarily agree (either explicitly or by implication) to their (FF) joint and several liability arising from the fault or negligence of their clients / cargo interests. 
6. Conclusion:
   1. The Merchant Clause serves an important purpose in cautioning parties for the potential of the imposition of liabilities due to the acts of others on third parties, such as the FF, for no fault of theirs.
   2. It would however be difficult to pursue a third party such as a FF in the absence of any fault unless they contractually agreed for the imposition of such joint and several liability. 

^i. See Clause 1 of the Maersk Bills of Lading Terms and Conditions & TT Series 100 BL.
^ii. See FMC’s decision given against Mediterranean Shipping Company S.A.
See also article by Wotton Kearney which discusses the Tallow Commodities case.