The Carriage of Goods and the Liability of Air and Sea Carriers Chapter 6 1 © 2002 West/Thomson Learning

Bailments & Common Carriers Bailment: legal concept where owner of property transfers possession to bailee, but retains ownership Shipper is bailor Carrier is bailee Common Carrier: carrier contracting with public for transport services Contract of Carriage: contract btwn shipper and carrier – in transport documents

Bailment Law Bailee (Carrier) must return property to bailor in same condition as it was received Carriers liable for damage or loss to cargo, except caused by: Acts of God Acts of public enemy or terrorist Acts of govt. intervention or court order Acts of shipper Inherent characteristics of cargo that cause its destruction Carrier may use disclaimers, but legal limitations on use

Liability of International Air Carriers: Warsaw Convention General Principle: Air Carrier is presumptively liable for all damage to cargo UNLESS the airline shows: Not at fault or negligent Shipper was negligent Air Carrier liable for death or bodily injury resulting from accident aboard aircraft or in boarding or disembarking Accident: event that is peculiar risk of air travel and “external” to passenger – Olympic Airways v. Husain Warsaw Convention is exclusive remedy – El Al Israel Airlines v Tseng 2

Warsaw Convention Provisions (As Amended) Limits liability of Air Carrier For death or bodily injury, 1999 Montreal Convention abolished $75K limit; carrier strictly liable for 100K SDR (Subject to contributory negligence) Carrier liable for damages beyond 100K SDR unless unless: Not due to negligence of airline, employees or agents Due to negligence or wrongful acts of 3rd parties 3

Warsaw Convention Provisions (As Amended) Liability for Cargo Loss or Damage Protocol 4 of 1999: Carrier liable unless due to: Inherent defect, quality or vice of cargo Defective packaging not by carrier Act of war or armed conflict Act of public authority Contributory negligence of shipper Cargo: Liability limited to 17 SDR per Kg unless shipper declares higher value ( and pays additional fee if required) Limitation doesn’t apply if damage due to intentional act or act done recklessly Baggage: Liability limited to 1000 SDR per passenger unless has declared higher value; can’t recover more than actual value

Enforcing Warsaw Convention Suits can only be brought in countries that are signatories Where ticket purchased, final destination or where carrier has principal place of business Montreal Convention: suits for death or injury in passenger’s principal residence if carrier operates there Time Limits Must file notice: Cargo or baggage damage: notify within 7 days of receipt of checked luggage, 14 days from receipt of cargo Delay of baggage or cargo: notify in writing no later than 21 days from date of actual delivery Must file suit against air carrier within 2 years

Liability for Carriage of Goods by Sea Historically, carrier absolutely liable Carriers used exculpatory clauses Legal limitations on such clauses Hague Rules – 1924 Convention defines liability for ocean carriers US Carriage of Goods by Sea Act codifies Hague Rules Covers liability from loading to unloading (“tackle to tackle”) Parties can extend application beyond “tackle to tackle” by provisions in Bill of Lading (B/L) Invalidates all exculpatory clauses in B/L Forum selection and arbitration clause in B/L valid – Vimar Seguros y Reaseguros S.A. v M/V Sky Reefer (USSC 1995) 4

COGSA Principles Carrier must use due diligence in providing seaworthy vessel at beginning of voyage Carrier liable for failure to use due diligence But carrier not liable for damage due to fire, storms, and negligence in navigating or managing ship 6

COGSA Principles Delivery of damaged cargo: shipper must give written notice to carrier at port of discharge For visible damage: give notice before or at time goods taken from carrier’s custody If damage not apparent or visible, give written notice within 3 days of delivery Failure to give notice creates presumption goods delivered in good condition Suit must be brought within 1 year P must show goods loaded in good condition and lost or unloaded in damaged condition Clean B/L establishes presumption goods delivered to carrier in good condition – shifts burden to carrier Problem with sealed containers: clean B/L only establishes outer condition of container 7

COGSA Exceptions to Liability Errors in ship navigation or management Fire (unless carrier’s fault) Perils of the sea Act of God Act of war Acts of public enemies Legal seizure Quarantine Acts of shipper Labor strikes Riots Saving life or property at sea Insufficient packing Inherent defect in goods Inadequate marking of goods Latent (hidden) defects in ship 8

COGSA: Defenses to Liability “Warranty of Seaworthiness”: ship reasonably fit to carry cargo undertaken on intended journey Competence of crew, suitability of equipment, etc. Carrier responsibility for proper loading, storing and carrying, and unloading goods May presume unseaworthy if breaks down shortly after departure Errors in Navigation or Management of ship: carrier not liable for errors of master, mariner, pilot or crew member Depends on severity of storm and how cargo damaged Negligence of crew may void defense 10

COGSA: Defenses to Liability Fire: carrier not liable unless negligence of carrier caused fire Liable for inadequate equipment or inadequately trained crew Asbestos Corp. Ltd. v. Comapgnie de Navigation (2nd Cir. 1973): carrier negligent when firefighting equipment stored in engine room, couldn’t be used for fire in engine room Perils of Sea: “fortuitous action of sea or weather of sufficient force to overcome strength of seaworthy ship or diligence and skill of good crew” Look to severity of storm

COGSA: Defenses to Liability Q-Clause Defense: general exception holding carrier not liable if carrier can prove it wasn’t at fault and show what was the cause of loss Shipper Liability for Hazardous Cargo: shipper strictly liable for shipping inherently dangerous goods when neither shipper nor carrier had actual knowledge or danger, Senator Linie GmbH & Co. Kg. V. Sunway Line, Inc. (2nd Cir. 2002) 11

The Cargo Shortage Problem Carrier may be responsible unless can use Q clause defense P must establish that shortage occurred while goods in carrier’s custody: P can show weight or quantity at destination less than that listed on B/L Disclaimer – “shipper’s weight”- on B/L not recognized by court Westway Coffee Corp. v. M.V. Netuno (SDNY ’81) But Plastique Tags, Inc. v. Asia Trans Line, Inc. (11th Cir. 1996) 12

COGSA “Package” Limitation Limits carrier liability to $500 per package or customary freight unit unless shipper declares (and pays for) higher value Container not package under COGSA if contents and number of units disclosed on B/L Z.K. Marine v. M/V Archigetis (SDFl 1991): is yacht a “package”? COGSA limitations generally don’t apply to goods carried above deck – but parties can provide for coverage in B/L (clause paramount) 13

Other COGSA Provisions COGSA holds carrier liable for a material deviation unless necessary to save lives or property at sea Material deviation from terms of B/L causes carrier to lose protection under COGSA Stowage of cargo above deck unless B/L so provides is material deviation – but not for sealed container Himalaya Clauses: clause in B/L extending Hague Rules protection to agents, indpt. contractors, etc. Recognized in US Not recognized in UK and Canada 14

Amendments to Hague Rules Hamburg Rules: 1978 Convention Not adopted by US Would hold carrier liable for negligence and errors of navigation or management of ship Rules opposed by insurance companies and carriers So far, most of endorsing states have been developing countries Visby Amendments to Hague Rules Raised liability per package to approx. $1000 Carrier liable for losses from recklessness in operation and navigation Adopted by UK, Canada, Singapore, Japan, Western European Countries 15

Rotterdam Rules: 2009 UN Convention on Contracts for the Int. carriage of Goods Wholly or Partly by Sea Replaces the international regime of Hague Rules (& Visby & Hamburg Rules) Adopted by the UN on Dec. 11, 2008 US signed Rotterdam Rules on Sept. 23, 2009 Now signed by 20 nations – must be ratified by signatories; comes into effect 1 year after ratified by 20 members Will change COGSA on international shipments to & from US Carrier Liability: Focuses on Carrier fault or negligence Carrier responsible for goods “door to door” Carrier must exercise due diligence as to seaworthy vessel both at beginning and during voyage at sea Carrier liable for errors in navigation Liability limited to 875 SDRs per package (up from COGSA $500 limit)

Liability of Transport Intermediaries Freight Forwarders: act as agent of shippers US: must be licensed to operate; regulated by US Fed. Maritime Comm. and Int. Air Transport Assoc. May also act as Customs Brokers Must post bond and have power of attorney Prima US Inc. v. Panalpina, Inc. (2nd Cir. 2000): FF not liable for cargo during shipment Non-Vessel Operating Common Carriers: act as freight consolidators for smaller shippers Issue B/L Liable for loss or damage to goods during transport

Ocean Shipping Reform Act 1998 Amends Shipping Act of 1984 to allow carriers greater flexibility in contracting Carriers can enter “service contracts”: confidential bargained freight rates instead of posted tariff schedules Service contracts function as contracts of carriage – no need to issue B/L Carriers not acting as common carriers, so not subject to COGSA; can negotiate own liability terms Ocean carriers exempted from antitrust laws Carriers must treat FF’s and NVOCC’s as shippers Carriers may not unreasonably refuse to deal or negotiate with shippers or intermediaries

Marine Cargo Insurance Large volume shippers maintain open cargo policies Exporter authorized by insurer to issue certificate of insurance Used under CIF contracts US: certificate of insurance acceptable substitute for insurance policy; incorporated in UCC UK: certificate of insurance not substitute General average ( average means loss): loss that results when extraordinary expenses or losses result in saving the cargo or vessel at sea 17

Insurance Losses and Coverage Policies cover total loss of all or part of shipment General average loss: incur loss or extraordinary expenses in saving vessel or cargo from real and substantial danger at sea York-Antwerp Rules of 1950: accepted principles of general average – incorporated into B/L’s Particular average loss: partial loss to cargo Depends on policy provisions: “free of particular average” (FPA) means no coverage for partial losses Coverage: Perils Clause: covers basic risks of ocean voyage; fortuitous losses only All Risks Coverage: covers risks except those particularly excluded War Risks: typically not covered but available for ocean shipments Shaver Trans. Co. v. The Travelers Indemnity Co. (S. Ore. 1979): FPA and standard perils coverage, shore coverage clause, Inchmaree clause 19

Web Sites http://www.cargolaw.com http://www.joc.com http://www.jus.uio.no/lm/index.html http://www.iata.org/cargo/protocol14.htm