Warsaw Convention and Limitation of Liability

By John Levingston

This paper was originally published by the International Commercial Law site, commissioning editor John Levingston

CONTENTS INTRODUCTION CARRIERS' LIABILITY GOLD VALUE APPROACH CONTRACTUAL TERM ARGUMENT UNLIMITED LIABILITY SHIPPERS OBLIGATIONS

INTRODUCTION

This paper considers the liability of air carriers for loss and damage to international air cargo carried under the Warsaw Convention [1], and the obligations on shippers who wish to make a claim. In relation to liability this paper argues that in addition to the minimum package limitation in the Warsaw Convention, carriers have, perhaps unwittingly, included a more generous contractual term in their air waybills giving shippers a more generous package limitation. This contractual term argument has not, to my knowledge, been argued before a court to date.

CARRIERS' LIABILITY

Carriers' liability is concerned with the package limitation regime contained in the Warsaw Convention. This issue has been considered by a number of judges in Australia, Polatex Trading Co Pty Ltd v Scandinavian Airlines System and Singapore Airlines Ltd [2], SS Pharmaceutical Co Ltd and Anor v Qantas Airways Ltd before a single judge [3], and on appeal [4]. The SS Pharmaceutical case reviewed the approach taken internationally by a number of other courts. There are two possibilities for a carrier's liability:

  • the minimum liability set out in the Warsaw Convention is 250 French gold francs per kg [5], the gold value approach;
  • the carrier can agree in its air waybill to a higher amount, but not to a lower amount [6], the contractual term argument;
  •  

    GOLD VALUE APPROACH

    The market gold value approach has been adopted in Australia [7]. Rogers CJ considered a number of different international approaches:

    • Unenforceability and the doctrine of res sic stantibus [8] adopted by Transworld Airlines Inc v Franklin Mint Corporation [9];
    • Special Drawing Rights (SDR's) set out in the Montreal Additional Protocol No 4 [10]
    • Last official price of gold [11];
    • Conversion from the current French franc [12];
    • Market price of gold [13]:

    Accordingly, I am left with the final alternative of the market price. The argument in favour is quite simple. The only gold price that can be used is the only price currently in existence, the free market price. A number of courts have adopted this method: Cosida SpA v BEA (No 2796/77 Court of Appeal Milan, 9 June 1981, unreported); Kuwait Airways Corporation v Sanghi (Court of the Principal Civil Judge Bangalore, 11 August 1978, unreported); Balkan Bulgarian Airlines v Tammaro, Court of Milan, Italy (1982) 17 Eur Tr L 330; Florencia, Cia Argentina de Seguros SA v Varig SA, Federal Court of Appeal Buenos Aires, Argentina, [1977] Uniform L Rev 198; Zakoupolos v Olympic Airways Corp, Court of Appeal, 3d Dep't, Athens (1975) 29 RFDA 138. Nor does the viewpoint lack academic support: cf Heller,

    "The Warsaw Convention and the Two tier Gold Market", 7 World Trade L 126 (1973); "The Value of the Gold Franc - A Different Point of View" 6 J May L & Comm 73 (1974); "Franklin Mint Corporation v Trans World Airlines; Resolution of the Warsaw Convention Gold Based Liability Limits" Issue [18] Geo Was J I'nt L & Econ 393 (1984). The value of 250 gold francs is determined by the market value of gold, and can be ascertained by a formula, for example, if the value of gold is US$392.40 per ounce, the package limitation is US$185.92 per kg [14], see the decisions in Polatex Trading and SS Pharmaceutical.

    CONTRACTUAL TERM ARGUMENT

    This approach has not been argued before a court to my knowledge, however, the argument is based on the wording which appears on the reverse side of the standard air waybill is use by carriers: THE LIABILITY LIMIT OF 250 FRENCH GOLD FRANCS PER KILOGRAMME IS APPROXIMATELY US$20 PER KILOGRAMME ON THE BASIS OF US$42.22 PER OUNCE OF GOLD. By simple arithmetic this gives a package limitation of US$195.13 per kg based on a gold market value of US$392.40 per ounce of gold.

    UNLIMITED LIABILITY

    A further issue for shippers and carriers is whether the carrier's conduct in the circumstances surrounding the loss or damage to cargo makes the carrier fully liable for the whole of the loss. The SS Pharmaceutical case considered this issue. The Warsaw Convention states [15]: The limits of liability specified in Article 22 shall not apply if it is proved that the 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; provided that, in the case of such act or omission of a servant or agent, it is also proved that he was acting within the scope of his employment. The facts in this case were that 5 cartons of pharmaceutical products with a value of A$101,670.64 were carried by air from Melbourne to Tokyo and arrived in an unsaleable condition. The cartons were stencilled with umbrellas which were intended to denote that, in accordance with international practice, the goods would be damaged if they were exposed to water. However, the goods were damaged when left on the tarmac in Sydney for about 8 hours at a time when Sydney experienced a severe rain storm of 43mm.

    The interpretation of Art 25 was considered in SS Pharmaceutical [16]: For present purposes, what is required to be considered is the phrase "recklessly and with knowledge that damage would probably result". There is a divergence between national courts as to whether the test of knowledge is objective or subjective. The French courts have opted for the objective test. By the objective test, a carrier will be liable without limitation if he "could not fail to be aware of the risk" (Emery v Sabena (1968) 22 RFDA 184; Lambert v Guiron (1966) 20 RFDA 448) or if "he must have been aware" (Air France v Moinot (1976) 30 RFDA 105). In other countries the subjective test holds sway and actual knowledge is required. This was the view of the Belgian Supreme Court (Tondriau v Air India (1977) 31 RFDA 193) and the Swiss Supreme Court (Lacroix Baartmans Callens Und Van Tichelen v Swissair (1974) 28 RFDA 75). many leading textbook writers take the same view: cf Cheka "Conduct Barring Limitation" (1987) 18 J Mar L and Comm 482 at 497, fn53. Article 25 has been subjected to critical examination by the English Court of Appeal in Goldman v Thai Airways International Ltd [1983] 1 WLR 1186; [1983] 3 All ER 693...The Court of Appeal held that the applicable test was subjective. As Shawcross and Beaumont say (vol II at 132): "It is undeniable that the actor himself must actually have knowledge that damage would probably result. It is not enough to show that some other person had that knowledge, or that he would have had it if only he had applied his mind to the matter."

    The construction of Art 25 was also considered by the NSW Court of Appeal [17] which adopted the approach in Goldman v Thai Airways Ltd 18: The "damage" that the reckless party must know "would probably result" from the act or omission need not be the actual damage to the particular cargo in question. It is sufficient if "the damage complained of is the kind of damage known to be the probable result" (p.1194). Recklessness goes beyond mere carelessness (p.1191) and acts or omissions are done or omitted recklessly when the person concerned: ...acts in a manner which indicates a decision to run the risk or a mental attitude of indifference to its existence [p.1194].

    Finally, the requirement of knowledge involves: ...the proof of actual knowledge in the mind of the [actor] at the moment at which the omission occurs, that the omission is taking place and that it does involve probable damage of the sort contemplated in the article [p.1202]. The meaning of 'recklessly and with knowledge' was discussed by Kirby P in SS Pharmaceutical in his minority judgment [19]: In Goldman, above at p.1191, Lord Justice Evleigh cited the words of Lord Hailsham of St, Marylebone, L.C. in R v Lawrence [1982] AC 510 at p520: Unlike most English words reckless has been in the English language as a word in general use since at least the 8th century AD almost always with the same meaning, applied to a person or conduct evincing a state of mind stopping short of deliberate intention, and going beyond mere inadvertence or its modern, though not its etymological and original sense, mere carelessness.

    SHIPPERS OBLIGATIONS

    In order to make a claim for compensation against the carrier, the consignee entitled to delivery must strictly comply with Art 26 which requires written notice to the carrier. Art 26 provides: . Receipt by the person entitled to delivery of baggage or cargo without complaint is prima facie evidence that the same has been delivered in good condition and in accordance with the document of carriage; . In the case of damage, the person entitled to delivery must complain to the carrier forthwith after the discovery of the damage, and, at the latest, within 7 days of the date of receipt in the case of baggage and 14 days from the date of receipt in the case of cargo. In the case of delay the complaint must be made at the latest within [21] days from the date on which the baggage or cargo have been placed at his disposal; .

    Every complaint must be made in writing upon the document of carriage or by separate notice in writing and dispatched within the times aforesaid; 4. Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the case of fraud on his part. Also, after the written claim is made, recovery proceedings must be commenced in a court before the time bar expires. If these conditions are not met, as a general rule all recovery rights are extinguished when that time expires. A curious exception to the requirement for written notice arises in a limited number of cases, such as those involving the shipment of live animals which die during transit. These can be reconciled on the basis that the goods are not damaged but "destroyed". This includes goods which may still physically exist but which have lost all economic value and utility.

    In cases where goods are "destroyed" it appears that Notice of Complaint to the carrier in accordance with Art 26 is not required, as the carrier is deemed to have actual notice of the facts other than in writing. A number of cases demonstrate this point: In Dalton v Delta Airlines, greyhounds that had been alive when handed over the carrier, died in transit. Because the dogs were dead on arrival the Court held that they had been destroyed, not damaged. In holding that Notice of Complaint to the carrier was not required the Court observed that the dead dogs were "not at all the things shipped" and had lost all economic value beyond scrap value. In Hughes, Gibb & Co v Flying Tiger Inc., a cargo of pigs were air transported from Chicago to Manila. The pigs were loaded in apparent good order and condition but a proportion of them were found dead on arrival. A number of other pigs died soon thereafter.

    The Court held that the pigs that were dead on arrival were "destroyed" and that therefore notice was not required. However, Notice of Complaint was required in relation to that proportion of pigs which were not dead on arrival but died later as they were considered to be damaged only. Apparently, however, this argument does not apply to missing goods. In Parke David v BOAC, 185 out of a consignment of 900 live monkeys were missing on arrival and the Court held that notice in that instance was required. Indeed, if damage to cargo was to be categorised under the Heads of:

    • Destruction;
    • Loss; and

    Damage, then it has been observed that "destruction" and "loss" occur where there is a non-delivery and that accordingly Art 26 does not require notice for undelivered goods (except it would appear for partial delivery). However in the case of damaged cargo, delivery is anticipated and occurs and that therefore notice is required in accordance with the Convention. A shipper's claim must be brought in the territory of a High Contracting Party, either where the carrier is ordinarily resident or has its principal place of business [20]. But, where the air carriage involves successive carriers an action for damages can be brought in one of the following places 21:

    • the consignor can bring an action against the first carrier;
    • the consignee who is entitled to take delivery can bring an action against the last carrier; or
    • the consignor or the consignee can bring an action against the actual carrier who caused the loss.

    Footnotes

    [1] The Convention for the Unification of Certain Rules Relating to International Transportation by Air set out as schedules to the Civil Aviation (Carriers Liability) Act 1959 (Cth). S8 gives approval to ratification by Australia of the Hague Protocol, and s11 provides that the Warsaw Convention as amended by the Hague Protocol is part of the municipal law of Australia. Return to text

    [2] Unreported: District Court of NSW proceedings No 23603/81, Thorley DCJ, 11 December 1984. Return to text

    [3] (1988) 22 NSWLR 734, [1985] 1 Lloyds Rep 319, Supreme Court of NSW, Commercial Division per Rogers CJ. Return to text

    [4] SS Pharmaceutical Co Ltd and Anor v Qantas Airways Ltd [1991] 1 Lloyds Rep 288, NSW Court of Appeal per Gleeson CJ, Kirby P and Handley JA. Return to text

    [5] Art 22. Return to text [6] Art 23. Return to text [7] Polatex Trading Co Pty Ltd v Scandinavian Airlines System and Singapore Airlines Ltd op cit at p14ff, and SS Pharmaceutical Co Ltd and Anor v Qantas Airways Ltd op cit, per Rogers at p747, approved by the Court of Appeal. Return to text



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