Freight forwarders may have access to shipping documents, but carriers may not have goods because they generally provide cargo transport services. For freight forwarders, withholding shipping documents is more feasible than other practices in their industry.

Let’s look at risks in the practice of freight forwarders withholding goods and documents.

I. Do freight forwarders have liens on clients’ goods?

Creditors may only exercise their liens on movable property in their possession. Article 447 of Civil Code expressly states that “creditors may retain movable property in their legal possession that belongs to people with debts due but unpaid to them and have the right of first refusal to receive damages from such property”.

However, freight forwarding services generally include accommodation booking, arrangements for land transport and customs and inspection declaration. Only a few freight forwarders control clients’ goods. Most freight forwarders do not have or possess and therefore have no liens on clients’ goods.

This does not mean freight forwarders are hopeless in the face of clients’ refusal to pay service fees or reimbursements. They can actually exercise the right to refuse to perform their obligations under a contract until the other party to the contract perform its obligations under the contract. Therefore, freight forwarders may refuse to deliver relevant documents to clients who refuse to pay amounts owed. This is a legal practice of granting freight forwarders special “liens on relevant documents”.

II. Legal provisions relating to “withholding relevant documents”

“If a sea freight forwarding contract states that documents obtained by the sea freight forwarder handling relevant matters are not delivered until the client has paid relevant amounts, or if the above is not agreed or expressly agreed, the court should support the freight forwarder’s refusal to deliver relevant documents (except bills of lading, sea waybills and other shipping documents) on the ground that the client has not paid relevant amounts. (Article 7 of Regulations on Several Issues Concerning Hearing Sea Freight Forwarding Cases by Supreme People’s Court (Amended in 2020) (“Freight Forwarding Regulations”))

According to Freight Forwarding Regulations, if the client refuses to pay relevant amounts which under a contract are payable before delivery of shipping documents, the forwarder may refuse to deliver shipping documents as agreed; and if the above is not agreed or expressly agreed, when the client refuses to pay relevant amounts, the forwarder may withhold relevant documents except shipping documents.

In the 24th issue of Guidelines on Hearing and Deciding Business and Maritime Cases Involving Foreigners, Court IV of the Supreme People’s Court states that if the client refuses to pay relevant amounts, freight forwarders may protect their legal rights by withholding verification and custom declaration forms without expressly or clearly agreeing this in contract, but will be responsible and pay for breach arising from refusal to deliver shipping documents such as bills of lading.

According to Freight Forwarding Regulations and Legal Opinions of Court IV of the Supreme Court, whether shipping documents such as bills of lading may be withheld depends on relevant clauses expressly agreed in contract. If shipping documents such as bills of lading are included in documents that may be withheld as agreed in contract, the freight forwarder can certainly refuse to deliver shipping documents until the client pays relevant amounts.

Freight Forwarding Regulations is a legal interpretation of sea freight forwarding related issues and a good guideline for air freight forwarders. In fact, in cases of withholding air freight forwarding documents, relevant issues are resolved by referring to this legal interpretation.

In (2016) L72MC630 case, Dalian Maritime Court held that “delivery lists” are not “shipping documents” defined in Article 2 of Freight Forwarding Regulations because delivery lists are used to collect goods based on bills of lading and could not be used as shipping documents such as bills of lading and sea waybills.

III. Amounts on the ground of which freight forwarder may refuse to deliver relevant documents

Article 7 of Freight Forwarding Regulations states that “the sea freight forwarding agreement sets out relevant documents obtained by the freight forwarder dealing with sea freight forwarding related matters could not be delivered until the client has paid relevant amounts, .....”. In fact, most courts accept that without this agreement, “relevant amounts” in this clause refer to freight forwarding fees.

In (2021) HMZ195 case, Shanghai High People’s Court held that “relevant amounts” mentioned in Article 7.2 of Freight Forwarding Regulations should be limited to the freight forwarding fee and if the client refuses to pay reimbursements, the freight forwarder can refuse to deliver relevant documents by exercising the right to refuse to perform its obligations until the other party performs its obligations under the same contract.

For freight forwarders, unless otherwise explicitly agreed, extra and third party expenses and costs arising from freight forwarding, such as port, delay and container charges are not included in “relevant amounts” in Article 7.2 of Freight Forwarding Regulations.

IV. Document withholding compliance

In sum, it is most advisable for freight forwarders to make an explicit agreement containing a clause as described below to ensure that they can exercise the right to claim in a defense that the parties should perform the contract at the same time and have the freedom to withhold documents including shipping documents when their clients refuse to pay relevant amounts. As declaration and verification forms are completed electronically, withholding these documents is not recommended.

Document withholding clause:

If the client has delayed payment for over 15 days, the consignee is entitled to withhold any goods, documents and bills (including not limited to bills of lading, sea and air waybills and other shipping documents, declaration documents and manuals) and stop dealing with commissioned matters until the client has paid all amounts, with all expenses, costs, risks and losses arising from delayed delivery of goods, documents or bills borne by the client.