Should the trustee obtain the principal's consent before advancing necessary expenses in logistics cases

The issue of the trustee advancing necessary expenses has been a matter of concern, and different opinions have emerged in judicial practice. The first view holds that, except in cases of emergency where the principal cannot be contacted, the trustee should obtain the principal's consent in advance for the act of advancement. The second view, on the other hand, argues that since the trustee is acting on behalf of the principal in handling freight matters, when the trustee knows that certain expenses will inevitably have to be advanced, the trustee should make such prepayment as long as it is reasonable and in the interest of the principal, without differentiating by "emergency circumstances".

In maritime judicial practice, some cases have involved this issue. For example, in the dispute over maritime cargo agency contracts between Wei Hang Ji Yun (Shenzhen) Co., Ltd. and Shenzhen Zhongyi Freight Forwarding Co., Ltd. [Supreme People's Court (2017) Min Zai No. 104], although there were differences in the determination of specific facts and circumstances between the Shanghai High People's Court and the Supreme People's Court, their opinions on how to handle the expenses advanced by the trustee were consistent. That is, "In a cargo agency contract, the principal shall prepay the expenses for handling the entrusted matters. In the absence of prepayment by the principal, the expenses advanced by the trustee must be for the benefit of the principal and necessary for the performance of the entrusted matters. The expenses advanced by the freight forwarder must be limited to the reasonable expenses incurred in handling import and export of goods. For abnormal expenses and additional expenses, the freight forwarder should obtain the consent of the principal before making the advance payment, otherwise the principal has the right to refuse." Therefore, in relation to the two disputes mentioned in the first paragraph, judicial practice tends to respect and adopt the second view.

The author believes that although the maritime judicial practice widely adopts the second viewpoint, the first viewpoint should also be given enough attention because it is the most prudent approach. In other words, if the trustee can meet the requirements of the first viewpoint, we do not recommend that they take the second route. On the one hand, it is difficult for the trustee to grasp what is reasonable. Although the court theoretically supports the second viewpoint, we need to be aware that the most important premise for doing so is that the trustee should be very clear about what is "reasonable" and what is "unreasonable." If he is unclear, it means that the costs he advances are unnecessary (let alone urgent), and it will be difficult to obtain support from the court. Therefore, we recommend obtaining the consent of the principal before making advances. On the other hand, the trustee also has a significant burden of proof issue. Since the trustee has advanced the costs, he must provide explanations, either by providing evidence to prove that the principal has consented, or by proving as much as possible that such advances are reasonable. The author believes that the difficulty of proving these two types of evidence is significantly different, as there are many direct ways to prove the consent of the principal, while it is difficult to reach a solid conclusion on what costs are "reasonable." In conclusion, based on these two aspects, we hope that freight forwarders will act in accordance with the first viewpoint as much as possible to avoid further disputes. However, in practice, especially in maritime cargo transportation, due to the dominant position of the actual carrier, which is the shipping company, they often require the freight forwarding companies as agents to advance related costs, even if some of the cost standards are unreasonable, the freight forwarding companies have to pay in order to maintain a good cooperative relationship. In disputes and controversies over advance payment of costs, the most common one is demurrage fees for containers exceeding the allowed usage period. Due to the tiered charging method for demurrage fees by the actual carrier, once disputes arise and containers are stuck at the port for a long time, the demurrage fees for containers exceeding the usage period are astonishingly high, and the actual carrier often prefers to collect these fees from the directly cooperating freight forwarding companies as agents. At this time, if the freight forwarding companies act as agents for the consignor, they also have to pay high demurrage fees for containers exceeding the usage period. Since demurrage fees are charged on a tiered basis, they often exceed the costs of "resetting new containers" by a large margin, even multiple times. However, in judicial practice, demurrage fees for containers exceeding the usage period are mostly capped at the cost of "resetting new containers." This means that if the freight forwarding companies pay the related costs on behalf of the consignor, they cannot fully claim compensation from the consignor, which is more of a commercial risk that is difficult to avoid than a legal imperfection. To solve this unfair and unreasonable dilemma, in addition to the freight forwarding companies continuously improving their legal awareness and daring to firmly refuse unreasonable demands, the actual carriers, as the dominant party, also need to be sincere in their business dealings and no longer use their commercial status as leverage to force others to submit to unreasonable demands. Only in this way can all parties enter into a positive and mutually beneficial cycle of cooperation.