CHAPTER 6 The Carriage of Goods and the Liability of Air and Sea Carriers

1. CHAPTER 6 The Carriage of Goods and the Liability of Air and Sea Carriers

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.”

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.

4. Warsaw Convention • 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.

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.

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

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.

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.

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”

10. Air Carrier’s 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.

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 passenger’s 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.

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.

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 SDR’s. • Also, airline is presumed negligently liable for damages over 100,000 SDR’s, unless it can prove it was not negligent.

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..

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.

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.

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 SDR’s per kilo, unless the shipper has declared a higher value on the waybill. • Baggage losses: limited to 1,000 SDR’s for each passenger, unless higher value. • Delay: airlines may be liable for delays, up to 4,150 SDR’s per passenger.

18. Liability of Carriage of Goods by Sea (COGSA) • 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.

19. 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.

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.

21. 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.

22. Exceptions to Liability under COGSA • Errors in navigation or management. • Fire unless the fault is shippers, e.g. cigarette. • Perils of the Sea. • Act of God.

23. Exceptions to Liability under COGSA • Act of war. • Act of public enemies. • Legal seizure. • Quarantine

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

25. J.Gerber & Co. v. S.S. Sabine Howaldt • 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

26. The 17th Exception: the “Q-Clause” • 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.

27. Carrier’s Liability for Cargo Shortages • Carrier may be responsible unless can use Q clause defense. • WestWay Coffee v. Netuno : What could the carrier do differently?

28. Carrier’s Liability for Cargo Shortages • 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.

29. COGSA “Per Package” Limitation • 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?

30. Limitation COGSA “Per Package” Limitation • 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).

31. The 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.

32. 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.

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.

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.

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.

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

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.

38. General Average and FPA Losses • 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?

39. Particular Average Losses • 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.

40. Shaver Transportation Co. v. Travelers Indemnity Co. • 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?

41. Shaver Transportation Co. v. Travelers Indemnity Co. • No, it was not covered under: • Perils. • Free from particular average. • Shore clause. • Inchmaree clause or • negligence clause.

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