What is a “Cancellation”?

The cancellation of a transport order is one of those concepts (or rather events) that does not require explanation for professionals in the TSL industry, as almost everyone has encountered it at least once. For those less familiar with the subject, the situation usually looks as follows: a carrier informs the customer that it will not perform the transport, or a freight forwarder cancels the shipment. Shortly afterwards, a file containing the original transport order appears in the chat, but with the freight amount reduced to zero and an annotation stating “cancelled”. Sometimes the term “storno” is used instead.

The problem is that none of these terms is a legally defined concept. More importantly, the word “cancellation” may describe completely different legal events, each producing different legal consequences.

Most commonly, we are dealing with a traditional withdrawal from a contract. With the mutual agreement of both parties, it may also be assumed that the contract has been terminated by mutual consent, without any further legal consequences. There are also situations where neither of these occurred, and one party merely informed the other that it does not intend to perform its contractual obligation.

Therefore, it cannot be assumed that every use of the word “cancellation” automatically means that a party has exercised a contractual right of withdrawal. In practice, the situation is often much simpler: one party informs the other that it will not perform the transport. The contract continues to exist, but it will not be performed.

In such circumstances, the issue is no longer one of withdrawal from the contract, but rather liability for failure to perform a contractual obligation.

It is easy to see why, from an operational transport perspective, all three scenarios appear almost identical. Their economic consequence is the same: the cargo will not be transported for the agreed remuneration under the terms of the contract.

However, this approach becomes problematic in the long term, particularly when a dispute reaches court. If we assume that a valid withdrawal from the contract occurred, the first question should be: what was the legal basis for that withdrawal – statutory law or the contract itself?

Apart from the fact that a contract effectively withdrawn from is treated as if it had never been concluded, the legal basis for withdrawal is crucial when determining whether the parties have any mutual claims – or whether such claims do not exist at all.

From the perspective of the customer ordering the transport

Let us assume that the carrier refused to perform the transport, using the aforementioned “cancellation”. The subsequent course of events is usually similar.

The sender arranges substitute transport, pays a higher freight rate, and then issues a debit note against the carrier covering the difference between the original agreed freight and the cost of the replacement transport.

Such a solution appears logical. After all, if the carrier had performed the contract, the additional cost would never have arisen.

This is where many practitioners stop their analysis – although this is precisely where the greatest risks appear.

The mere failure to perform the transport does not automatically establish an obligation to pay compensation. The fact that the replacement carrier charged a higher rate does not necessarily mean that the entire difference (or, as is sometimes incorrectly claimed, the entire freight amount) constitutes damage remaining in a normal causal relationship with the first carrier’s actions.

Each case requires an individual assessment, taking into account the specific circumstances.

The best way for the customer to protect its interests is to include a contractual penalty for failure to perform the obligation. In some cases, this may be structured in a specific way, for example for failure to appear for loading on the date specified in the transport order.

This approach allows the customer to avoid disputes concerning the adequacy of the causal relationship and whether the replacement freight rate reflected market conditions. In the case of a contractual penalty, it is sufficient to prove that the circumstances triggering the penalty have occurred.

Nevertheless, the sender remains in a significantly better position than the carrier, because the carrier generally does not have a broad statutory right to withdraw from a transport contract, for example under Article 53(1) of the Polish Transport Law.

If no contractual penalty has been agreed, the sender may still rely on statutory remedies, including the right to withdraw from the contract in certain circumstances and, in the event of non-performance, to arrange performance at the debtor’s expense.

Łukasz Strzelczyk

Legal Counsel at Trans Lawyers Law Firm

www.translawyers.eu