The Liability of International Air Carriers and the Carriage of Goods by Sea

Business Law
Raffles International College Mr.Jose Roberto del Rosario Jr
Su Thiri Khin (Cynthia) 11/23/2009

THE LIABILITY OF INTERNATIONAL AIR CARRIERS

THE WARSAW CONVENTION The original Warsaw Convention dates back to the infancy of air freight in 1929. A protocol was agreed to amend the Convention at The Hague in 1955 and is generally in force, though by no means universally so. A supplementary Convention which currently binds the UK and several dozen other states was agreed at Guadalajara in 1961. Further protocols have been agreed but are not yet in force. All references in the text are to the Warsaw Convention as modified by The Hague and Guadalajara amendments. In practice, the air liability regime is extremely complex as it is necessary to examine the precise itinerary the cargo is to take in order to establish whether the original, or some modification of the original Convention, governs the transit. The law as it affects the UK is largely to be found in the Carriage by Air Act 1961, available from HMSO, but probably of greater benefit is the very useful booklet published by IATA entitled "Principal Instruments of the Warsaw System" which enables a shipper or forwarder to identify the status of the variants of the Warsaw Convention against lists of states which have ratified. This latter booklet is an essential source, and is available from IATA in Geneva. The Convention applies to international carriage of goods by aircraft for hire and reward when according to the agreement the place of departure and place of destination (whether or not there is intermediate transhipment) are both situated in the territory of states which are parties to the Convention. However, the Convention does not apply to mail or postal packages. The carriage by air only extends to the period while goods are in the charge of the carrier in an airport or on board an aircraft and the Convention, unlike the CMR, does not apply to any part-carriage by land, sea or river. However, where loading, delivery or transhipment takes place by such other modes in the performance of the contract, it will be presumed, unless the contrary is proven by the carrier, that any loss or damage took place during the air carriage governed by the Convention.

Documentary requirements: the air waybill The Convention states that the exporter must make out an air waybill (even if in practice this is often done by the carrier or a forwarder). However, as with the CMR, the absence, irregularity or loss of the air waybill will not prevent the Convention provisions from being applied. The Convention states that the air waybill must be made out in three original copies. The first, signed by the exporter, is for the carrier, the second, signed by exporter and carrier is for the consignee and will travel with the goods, while the third, signed by the carrier, is retained by the exporter. Copies should ideally be kept for at least two years as evidence of the contract. The air waybill is prima facie evidence of the contract, weight dimensions, packing and number of packages, but evidence as to the quantity, volume and condition of goods only if the particulars have been checked by the carrier and this is stated in the air waybill, or there is merely a statement of the apparent condition of goods. Responsibilities of the exporter/importer The exporter will be responsible for: The correctness of the particulars and statements relating to the goods in the air waybill. There is an indemnity to the carrier in the case of inaccuracies. Making available any documents required by Customs. There is an indemnity to the carrier if he fails to do so. So much of any loss or damage as has been contributed to by his own negligence. Making claims within set time-limits. In the case of damage to cargo or potential loss, notice in writing must be given immediately the damage or loss is discovered and in any case within 14 days from the date of receipt. There is no statutory timelimit within which total loss must be notified. So it is necessary to check whether one appears in the carrier's own trading conditions. In the case of delay, notice in writing must be given within 21 days. There is a time bar of two years for a legal claim.

Liabilities of the air carrier under the Warsaw Convention The carrier is liable for loss, damage or delay to the goods while they are in his charge in an airport or on board an aircraft. The carrier has one basic defence, that he and his agents took all necessary measures to avoid the damage or that it was impossible for him or them to take such measures. This comes very close to strict liability. It is, however, permissible for the carrier to make special liability provisions where loss or damage results from inherent defect, quality or vice of the goods, and most do so in a manner unfavourable to the exporter or importer. Compensation payable under the Warsaw Convention Compensation is limited to 250 gold francs of 651 milligrammes of gold of millesimal fineness 900. Pending the introduction of an SDR basis for calculation, this gold franc has caused immense problems in foreign jurisdictions where it has been variously interpreted. In the UK its value is fixed by a statutory instrument from time to time in the form of the Carriage by Air (Sterling Equivalent) Orders. These currently give a value of £15.89 per kilo. The Convention makes no reference to values and it must be presumed that all losses, including freight costs and customs duties, may be recovered, subject to the aggregate limit of £15.89 per kilo. In addition, a claimant's legal costs may be ordered if the claim is dealt with through the courts. The compensation limit may be increased if the exporter makes a declaration of a special interest in delivery against a surcharge in the freight rate. The carrier cannot rely on the limits if it is proved that loss or damage resulted from an act or omission of the carrier, his servants, or agents, done with intent to cause damage or recklessly and with knowledge that damage would probably result. Aspects of the Warsaw Convention of particular concern to freight forwarders A freight forwarder who acts as an air consolidator offering his own rates but subcontracting air carriage to an airline is almost certain to be regarded as a contracting carrier under the Guadalajara Convention amendments to the Warsaw Convention. This puts him in much the same position as a first carrier under the CMR, i.e. he takes on all the responsibilities of an air carrier under the Convention and may be sued by the exporter or importer even though the actual airline may have been responsible for the loss.

Many freight forwarders issue their own house air waybills to clients whose traffic they consolidate under an airline master air waybill. It is vitally important that a forwarder's house bill should contain the information set out under "documentary requirements" above and contain a prominent statement that carriage is or may be subject to the Convention. If these precautions are not taken, the forwarder may find himself unable to rely on any of the compensation limits in the Convention. IATA has introduced new rules on the conditions of contract and notices which had to be included in air waybills after October 1995. In relation to claims, a notice of loss given to the forwarder as principal is deemed to be effective but so is a notice to the actual carrier. The forwarder should, therefore, make proper arrangements for the rapid exchange of information between himself and the actual carrier. Unlike the CMR, which precisely defines the responsibilities of successive carriers to one another, this is left vague under the Guadalajara Convention, and it is vitally important that the forwarder protects his interests vis-àvis the airline by obtaining adequate indemnities from the air carrier. If this is not possible, as will usually be the case, deficiency must be covered by insurance.

THE LIABILITY OF THE CARRIAGE OF GOODS BY SEA

THE HAGUE RULES as amended by the Visby Protocol of 1968 became effective in the UK on 23 June 1977 under the Carriage of Goods by Sea Act 1971. Liabilities of the sea carrier under the Hague-Visby Rules The sea carrier must properly and carefully load, handle, stow, carry and discharge the goods. The carrier will thus in the first instance be regarded liable if cargo is received in good condition but discharged in bad condition. There are, however, a whole battery of exceptions which the carrier can rely on to deny liability. He must first establish cause of the loss, and show that the vessel was made seaworthy at the commencement of the voyage. Subsequent unseaworthiness is not material. In order to be seaworthy a vessel must be structurally and mechanically sound, equipped with navigational charts, properly crewed, and its holds must have been made fit and safe to receive cargo. Having shown the cause of the loss and that the vessel was initially seaworthy, the carrier can go on to show that the cause falls within one of the excepted perils set out below: Act, neglect or default of the master, mariner, pilot or the servants of the carrier in the navigation or in the management of the ship. It should be noted that this much criticised defence requires that the error should be in the management of the ship and that errors in management of the cargo cannot benefit. Fire, unless caused by the actual fault or privity of the carrier. In the case of British ships this amounts to a virtually absolute defence. Note that the defence still applies if there has been fault on the part of the carrier's employees. Perils, dangers and accidents of the sea or other navigable waters. This phrase has been given a narrow judicial interpretation as incidents which would not be expected in the area of the voyage in question at the particular time of year and which could not be reasonably guarded against by the ordinary exertions of human skill or prudence. Winter gales on the Atlantic would therefore definitely not amount to a "peril" in this context.

Act of God. Act of war. Act of public enemies, including pirates. Arrest or restraint of princes, rulers or people or seizure under legal process. Quarantine restrictions. Act or omission of the shipper or owner of the goods, his agent or representative. Strikes or Lockouts or stoppage or restraint of labour from whatever cause whether partial or general. Riots and civil commotions. Saving or attempting to save life or property at sea. Wastage in bulk or weight or any other loss or damage arising from inherent defect quality or vice of the goods. Wastage in bulk or weight, sometimes known as "normal" or "ordinary" loss is recoverable neither from the carrier nor from underwriters. It typically occurs with liquids where a minute quantity always remains in the tank. Inherent vice occurs when certain goods such as perishables deteriorate. Other products may have a tendency to rust, or to take in moisture. Even where there is a prima facie case of inherent vice, the shipper can produce evidence that the goods were loaded in good condition and that the damage has some other cause, for example, lack of proper care for the cargo. Insufficient packing. It should be noted that losses from insufficiency of packing are recoverable neither from the carrier nor from the underwriter under any cargo policy. If the carrier fails to clause the bill of lading, this defence cannot be pleaded against a transferee of the bill. Insufficiency of marks. Latent defects not discoverable by due diligence. Any other cause arising without the actual fault or privity of the carrier or without the fault or neglect of the agents or servants of the carrier.

Compensation payable under the Hague-Visby Rules Unlike the CMR where it is the time and place of collection which counts, under the Hague-Visby Rules compensation is calculated in relation to the value of the goods at the time and place at which the goods are discharged from the ship, or should have been so discharged. The valuation basis is the same as the CMR. This means that if the market price has been falling during transit, the maximum value of the goods for compensation purposes will also fall. Under the Hague-Visby Rules, the shipper can opt for compensation either on a perpackage basis or per-kilo of gross weight. The per-package option is only exercisable if the shipper had enumerated the number of packages in the bill of lading. It is particularly important to do so in the case of an ISO container as otherwise the container itself will be taken to be one package including all the individual packages which may be within it. In February 1984 an SDR basis of calculating the limit of liability came into force in the UK and in several other European countries. Compensation is fixed at 666.67 SDRs per package (approximately £625 or two SDRs per kilo (approximately £1.90)). It should be noted that as the world value of sterling increases so does the compensation translated from SDRs tend to fall. Where packages are relatively small, the package option is worth taking as it produces higher limits. Above 333.33 kilo package size it is preferable to exercise the per-kilo option. There is no clear right to compensation for delay under the Hague-Visby Rules, but it is possible to make a declaration of value against which a higher limit of liability than that shown above will apply. The option is almost never used because carriers seek such high freight rates for value-declared cargo. The carrier loses the benefits of the limits of liability if it can be proved that the loss or damage resulted from an act or omission of the carrier done with intent to cause damage, or recklessly and with knowledge that damage would probably result.

CARRIAGE OF GOODS BY SEA ACT The Carriage of Goods by Sea Act ("COGSA") is a United States statute governing the rights and responsibilities between shippers of cargo and ship-owners regarding ocean shipments to and from the United States. It is the U.S. enactment of the International Convention Regarding Bills of Lading, commonly known as the "Hague Rules". It was found in Title 46 Appendix of the United States Code, starting at Section 1301, but has been moved to a note in 46 United States Code 30701. The United States Congress, concerned that the Hague Rules did not offer shippers enough protection against damage to cargo by ship owners, amended the Hague Rules in a number of minor, but important, ways. It increased the amount that ship owners would have to pay cargo owners for damage in transit from GBP100 per package to US$500 per package or, for goods not shipped in packages, per customary freight unit. This "package limitation" has become one of the most contentious and litigious areas in the field of cargo damage, particularly as it relates to the transportation of goods by ocean shipping containers.

History of Limitation of Liability for Cargo Damage At the time of the passage of COGSA most cargo was shipped in boxes, crates, and bags. Shortly after its passage, cargo owners determined that cargo could be handled more efficiently if placed on pallets, a process that results in numerous boxes or bags of cargo being consolidated on a single pallet. Shipowners, seeing an opportunity to reduce their liability for cargo damage, argued to the courts that the pallets were now "packages" and that they were entitled to limit their liability to $500 per pallet. Some courts agreed. Later, shipowners began offering cargo owners the opportunity to ship their cargoes in large ocean shipping containers. The containers came in two sizes — 8 feet (2.4 m) high x 8 feet (2.4 m) wide x 20 feet (6.1 m) long (2.4 m x 2.4 m x 6 m) or 8 x 8 x 40 feet (12 m) long. The term "Twenty-foot equivalent unit" or TEU derived from this size - a TEU was a space aboard a ship that was 8 feet (2.4 m) wide by 8 feet (2.4 m) high by 20 feet (6.1 m) long.

Shipowners, again seeing an opportunity to limit their liability, began arguing that the containers were "packages" and that they could limit their liability to $500 per container, even though the contents of a container may be valued at over $500,000. Again, some courts agreed. It is this imbalance, both in the relative bargaining power of cargo owners, and the superior bargaining power of shipowners, and the imbalance between $500 per container and the true value of a shipment which has led to countless lawsuits and judicial opinions over the "package limitation" problem. The rest of world, seeing this as an attempt by shipowners to free themselves from responsibility for protecting cargo, amended the Hague Rules in 1968 with the Visby Amendments which eliminated the "per package" limitation and substituted a limitation per kilogram. In so doing, litigation concerning limitations on liability became virtually non-existent outside of the United States. However, Congress failed to pass the Visby Amendments to the Hague Rules.

Limitation of Liability for Cargo not shipped in Packages Many types of cargo are not shipped in packages such as automobiles, yachts, cranes, and heavy construction equipment. For those cargoes, Congress had intended the limitation on liability for shipowners to be $500 per 100 cubic feet (3.7 m3). At the time of the passage of COGSA the customary freight unit for most cargo was the "revenue ton" - the number of long tons (2240 lb, 1017 kg) or measurement tons (100 cubic feet) that would produce the most revenue for the shipowner. For example, a cargo of aluminium ingots, which were not packaged for shipment, would be heavy and dense, so the customary freight unit for aluminum ingots would be the long ton, a measurement of weight. By comparison, a shipment of canoes, which were not packaged for shipment, would be light but would take up a large volume, ensuring the customary freight unit would be the measurement ton of 100 cubic feet (2.8 m3). If a canoe were 2 feet (0.61 m) wide by 2 feet (0.61 m) high by 10 feet (3.0 m) long (0.6 m x 0.6 m x 3 m), its measurement would be 40 cubic feet (2 x 2 x 10) which would be one measurement ton (anything less than 100 would be 1 by default) and hence the limitation would be $500 per canoe.

The courts, possibly believing that Congress' approach was too cumbersome, jettisoned the word "customary" from the phrase "customary freight unit" and decided that whatever freight unit the shipowner applied would be the freight unit for determining the limitation on liability. Again, seeing an opportunity to limit their liability for cargo damage, shipowners began freighting all cargo by unit, rather than by units of weight or measurement. Consequently an automobile which might have a volume of 400 cubic feet (15 m3), or 4 measurement tons, which would previously entitle the carrier to a limitation of $2000, was now freighted as "one automobile" thereby reducing the shiponwer's liability from $2000 per automobile to $500.

REFERENCES
The Warsaw Convention - the treaty text http://cargolaw.com/presentations_warsaw_conve.html Overview of the Warsaw Convention and the Montreal Protocol 4; Int'l cargo loss & damage rules - cargo & personal injury http://www.cargolaw.com/guides_new_law.html The U.S. Carriage Of Goods By Sea Act – text http://cargolaw.com/cogsa.html The Hague Visby Rules; The Hague Rules as Amended by the Brussels Protocol 1968text http://www.cargolaw.com/navigator.hague-visby.html

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