Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. CHAPTER 6 The Carriage of Goods and the Liability of Air and Sea Carriers

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 2 Liability of International Carriers Liability of international carriers is governed by many international treaties and laws. Issues of jurisdiction turn on whether: –The passenger was ticketed as domestic or international, –The accident occurred over land or sea, –The accident occurred within 12 miles of the U.S. shoreline, –The accident occurred over the high seas.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 3 Warsaw Convention & Montreal Convention Warsaw Convention (Protocol 4 of 1999). Montreal Convention 1999 (US ratified in 2003). Represents a movement from protection of the airlines to protection of travelers.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 4 Note -There is a limitation on liability. –Damage to cargo at about $10 per pound. –$75,000 death, personal injury limit. –May be exceeded if airline reckless. So if shipper wants protection must declare and pay higher value. Warsaw Convention

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 5 Montreal Convention Replaces the Warsaw Convention where ratified (not adopted in United States). Only applies to passengers ticketed for international travel, if approved by all countries involved in the legs of the journey. Will not have to prove airline at fault in case of personal injury or death.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 6 Montreal Convention – Application to International Carriage Strictly liable for all damages up to $146,000 approximately Carrier is liable for damages above that UNLESS not due to its negligence or was the sole result of negligence or wrongful acts of third parties

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 7 El Al Israel Airlines Ltd. V. Tseng Tseng was subjected to a search before boarding an EL Al plane in NYC. She sued for assault and false imprisonment. The District Court dismissed based on the Warsaw Convention that no accident had occurred. The Court of Appeals ruled that national law could provide a remedy where the Convention did not apply.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 8 El Al Israel Airlines Ltd. V. Tseng Issue: Did the Warsaw Convention preclude an action under local law for the alleged torts? Holding: Yes. The Supreme Court ruled that a passenger is precluded from bringing this action under local law because the Convention was intended to provide uniformity.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 9 El Al Israel Airlines Ltd. V. Tseng Compare this case with Olympic Airways v. Husain (a 2004 Supreme Court decision). Why was failure to move an asthmatic doctor to a non smoking area an accident? An unusual and unexpected event external to the passenger

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 10 Air Carriers Liability for Death or Bodily Injury Article 17 of the Montreal Convention gives three elements for liability: –Death or bodily injury, –Resulting from an Accident, –On board the aircraft or while embarking or disembarking.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 11 What is an Accident? Generally requires the injury be caused by some event peculiar to air travel and external to the passenger. Sometimes it is not clear: –In Air France v. Saks (1985) a passengers ear injury was held to not be an accident. –But see Olympic Airways v. Husain (2004) in which an asthmatic patient died from allergic reaction to secondhand smoke aboard an aircraft.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 12 Embarking or Disembarking A carrier is only responsible for accidents that occur on board the aircraft. Whether a passenger is embarking or disembarking is a factual question, whether the passenger is under the control of airline employees.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 13 Limitations on Liability for Death or Bodily Injury Damages now measured in Special Drawing Rights (SDR), a mix of different currencies. Montreal Convention sets up a two-tiered liability system: –Airline is strictly liable for up to 100,000 SDRs. –Also, airline is presumed negligently liable for damages over 100,000 SDRs, unless it can prove it was not negligent.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 14 Limitations on Liability for Death or Bodily Injury Comparative Negligence (of the Passenger or Shipper) is a valid defense under the convention. Compensable Damages. –The convention does not specify what damages can be collected by plaintiff. –See Zicherman v. Korean Air Lines Co..

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 15 Death on the High Seas Act Federal admiralty statute. Applies to wrongful death cases occurring past the 12 mile territorial limit of the U.S. waters. Punitive Damages. Damages for Mental or Psychological Harm can be awarded if they were caused by the injury. –No emotional distress for lost baggage, evacuation, etc.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 16 Death on the High Seas Act Jurisdiction: particular conditions. The Multiparty, Multiforum Trial Jurisdiction Act of 2002 gives federal courts original jurisdiction of disasters. Time limitations: 2 years.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 17 Liability for Air Cargo and Baggage Losses Cargo losses: air carrier is liable for damages sustained to cargo under its control, up to 17 SDRs per kilo, unless the shipper has declared a higher value on the waybill. Baggage losses: limited to 1,000 SDRs for each passenger, unless higher value. Delay: airlines may be liable for delays, up to 4,150 SDRs per passenger.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 18 History- a codification of The Hague Rules ; great liability for the carrier. Carriers try to insert exculpatory clauses. Carriage of Goods by Sea Act (COGSA) carries this tradition in invalidating clauses that try to limit liability. COGSA allows a forum selection clause. Liability of Carriage of Goods by Sea (COGSA)

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 19 CARRIER MUST USE DUE DILIGENCE AT THE BEGINNING OF THE VOYAGE. But carrier is protected from certain claims from fire, storm, navigation and ship management Shipper has the burden of proving that the goods were loaded in good condition and delivered in damaged condition. COGSA Principles

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 20 COGSA Principles Written notice of the damage must be given to the carrier before or at the time of taking the goods or if the damage is not visible then within 3 days of delivery. A claim must be filed within one year. Failure to give notice creates a rebuttable presumption that the goods were in good condition.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 21 Burden shifts to the carrier. Carrier is liable for damage to the cargo from failure to use due diligence to make the ship seaworthy at its departure. Warranty of seaworthiness.COGSA

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 22 Errors in navigation or management. Fire unless the fault is shippers, e.g. cigarette. Perils of the Sea. Act of God. Exceptions to Liability under COGSA

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 23 Act of war. Act of public enemies. Legal seizure. Quarantine Exceptions to Liability under COGSA

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 24 Labor strikes. Riots. Saving life or property at sea. Insufficient packing. Inherent defect in goods. Inadequate marking of goods. Latent (hidden) defects in ship. Exceptions to Liability under COGSA

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 25 In this case the cargo was damaged en route to Delaware. The ship ran into very heavy seas. Issue: Is the Sabine protected from liability by the exception to COGSA, the perils of the sea clause? Yes, the Sabine met its burden of proof that the ship was of the sea. seaworthy and damage resulted from a peril of the sea J.Gerber & Co. v. S.S. Sabine Howaldt

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 26 Basically a general exception as long as the carrier can prove it wasnt his fault and can show what was the cause of the loss. The 17 th Exception: the Q-Clause

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 27 Carrier may be responsible unless can use Q clause defense. WestWay Coffee v. Netuno : What could the carrier do differently? Carriers Liability for Cargo Shortages

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 28 But see Plastique tags v. Asia Trans. Where carrier was not liable for shortages. Why the different result? Because in Plastique bill of lading only referenced the number of boxes and bags and the carrier could not verify the shippers. Carriers Liability for Cargo Shortages

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 29 Shipper must be given a fair opportunity to declare the nature and value of the goods. $500 per package, limitation unless shipper declared and paid for higher value. Z.K. Marine v. Archigetis: Court found that each yacht was a package and thus the carrier was limited to liability of $500 per yacht. How to solve this problem in the future? COGSA Per Package Limitation

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 30Limitation What if the number of packages is not shown on the Bill of Lading? COGSA requires carrier become a virtual insurer of the cargo. –If material deviation occurs, carrier cannot claim protection of $500 per package. Himalaya Clauses. Exculpatory clauses that protect independent contractors (like stevedores). COGSA Per Package Limitation

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 31 Would find the carriers liable for errors in navigation drafted. Rules opposed by insurance companies and carriers. Mostly developing countries have indorsed. But many countries including the US will not sign. The Hamburg Rules

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 32 Visby amendments raise per package limitation to $ Carrier liable for losses from Recklessness in the operation and navigation of the ship. Not adopted in the US. Visby Amendments

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 33 Liabilibility of Ocean Transportation Intermediaries Freight Forwarders: is not a carrier and is not liable for the cargo during shipment. See Prima U.S. V. Panalpina. Non-vessel Operating Common Carriers (NVOCC): is a common carrier which does not operate the vessel but assumes liability for goods during transport.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 34 Prima U.S. Inc v. Panalpina W contracts with P, a fright forwarder, paying $21,785. P did not issue a bill of lading. The contract required reasonable care and liability was limited $50 per shipment. W & P contracted about 1000 times. P hired an Italian customs broker that hired CSM (stevedores). CSM improperly lashed the transformer on the ship which broke loose and crushed a laser cutting machine owned by Prima.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 35 Prima U.S. Inc v. Panalpina Prima sued the owner of the ship, W & P. The Dist. Ct. found P liable and P appeals. Is a freight forwarder (P) liable for damage to goods in transit? No, P was not a carrier (nor a vessel operating as a common carrier). FF must use due diligence and reasonable care.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 36 Proposals for major revisions to COGSA (COGSA II) Door to door coverage not just tackle to to tackle- the reality of multimodal transport Eliminate exclusion of carriers liability for errors in navigation and management Increase limits, define package as in bill of lading

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 37 Ocean Shipping Reform Act 1998 Service contracts govern- no posted tariff schedules. Large shipper may gain lower rates. COGSA not apply because not common carrier Negotiable.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 38 Total loss. General average. Particular average- partial loss free of particular average = no coverage for partial losses. READ POLICY CAREFULLY. Perils clause- definition see case. The York-Antwerp rules. What about Real and Substantial Danger? General Average and FPA Losses

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 39 Open cargo policies: covers all shipments of certain goods to certain destination over a period of time and exporter can issue a certificate of insurance. Total loss of all or part. General average (average means loss): loss that results when extraordinary expenses or losses result in saving the cargo or vessel at sea. Particular Average Losses

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 40 Shaver, a barge co. arranged a policy with Travelers to cover shipment. Buyer refuses delivery because shipment has been contaminated by barge lines. Travelers refuses payment because contamination was not a coverable loss. Was the loss covered by any provision of the policy? Shaver Transportation Co. v. Travelers Indemnity Co.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 41 No, it was not covered under: –Perils. –Free from particular average. –Shore clause. –Inchmaree clause or –negligence clause. Shaver Transportation Co. v. Travelers Indemnity Co.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 42 Read contract carefully. Identify risks and insure coverage. Sometimes self insurance may make sense. How do you stay aware of problems?Conclusion