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

1. The Carriage of Goods and the Liability of Air and Sea Carriers Chapter 6 © 2005 West Legal Studies in Business/Thomson Learning

2. Misdelivery of Goods - Responsibility? • Carrier is liable for misdelivery of goods

3. Allied Chemical International v. Companhia De Navegacao • Facts: Banylsa, a buyer of goods, presented a carta declatoria (saying import fees had been paid) and retrieved his goods from a state warehouse without paying for the bill of lading. Banylsa became insolvent. The seller, Allied, sued the carrier Lloyd for misdelivery. • Issue: Is the carrier liable for misdelievry even though it was the state warehouse that released the goods?

4. Allied Chemical International v. Companhia De Navegacao • Holding: Yes. The carrier was liable for the misdelivery of the goods. But be careful of practices in countries – like the state warehouse releasing the goods without a bill of lading.

5. 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

6. Warsaw Convention • Note -There is a limitation on liability • so shipper if wants protection must declare and pay higher value • Williams Dental v. Air Express: plaintiff who declared higher value of shipment entitled to collect.

7. Protocol 4 - Adopted in 1999 • Damage to cargo at about $10 per pound • $75,000 death, personal injury limit • May be exceeded if airline “reckless”

8. Montreal Convention- 1999 • Must be ratified by 30 nations • Will not have to prove airline at fault in case of personal injury or death • 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

9. Montreal Convention- 1999 • But no punitive damages • Contributory negligence may be a defense

10. 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.

11. 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.

12. 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”

13. COGSA • History- a codification of The Hague Rules; great liability for the carrier • Carriers try to insert exculpatory clauses • COGSA carries this tradition in invalidating clauses that try to limit liability • It is allowable under COGSA to have a forum selection clause.

14. COGSA Principles • 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

15. 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

16. COGSA • 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

17. Exceptions to liability under COGSA • Errors in navigation or management • Fire unless the fault e.g. cigarette • Perils of the sea • Act of God • Act of war • Act of public enemies • Legal seizure • Quarantine

18. Exceptions • Labor strikes • Riots • Saving life or property at sea • Insufficient packing • Inherent defect in goods • Inadequate marking of goods • Latent (hidden) defects in ship

19. Example:Perils of the Sea Defense • Gerber v. Sabine Howaldt: cargo 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

20. The other exception: The Q clause defense in COGSA • Basically a general exception as long as the carrier can prove it wasn’t his fault and can show what was the cause of the loss.

21. The Cargo Shortage Problem • Carrier may be responsible unless can use Q clause defense • WestWay Coffee v. Netuno • What could the carrier do differently? • 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 shipper’s

22. COGSA “Package” Limitation • $500 pr package limitation unless declare and pay 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?

23. Other concepts affecting the carrier’s liability • Carrier is liable for a material deviation

24. New Treaty: Hamburg Rules • Would find the carriers liable for errors in navigation • 1978 drafted • Rules opposed by insurance companies and carriers • Mostly developing countries have indorsed • But many countries including the US will not sign

25. Visby Amendments • Visby amendments raise per package limitation to $ 1000 • Carrier liable for losses from “Recklessness” in the operation and navigation of the ship • Not adopted in the US

26. Liabilibility of Ocean Transportation Intermediaries • Freight Forwarder: 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

27. 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.

28. 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.

29. 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 carrier’s liability for errors in navigation and management • Increase limits, define package as in bill of lading

30. Proposals for major revisions to COGSA (COGSA II) • Carrier not liable for shortages under certain conditions • Forum selection clauses may not always control- may be heard in the U.S • Not liable if deviation is reasonable

31. 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

32. Insurance • 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

33. Insurance • 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

34. Shaver v. Travelers Indemnity • 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?

35. Shaver v. Travelers Indemnity • No, it was not covered under • perils • free from particular average • shore clause • Inchmaree clause or • negligence clause.

36. Insurance • All risks coverage but still exclusions • War risks- separate purchase

37. Summary • Read contract carefully • Identify risks and insure coverage • Sometimes self insurance may make sense • How do you stay aware of problems?