The Carriage of Goods and
the Liability of Air and Sea
Carriers
Chapter 6
© 2005 West Legal Studies in Business/Thomson Learning
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Misdelivery of Goods Responsibility?
• Carrier is liable for misdelivery of goods
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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
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that released the goods?
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.
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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
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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.
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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”
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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
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Montreal Convention- 1999
• But no punitive damages
• Contributory negligence may be a defense
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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.
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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.
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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”
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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.
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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
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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
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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
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Exceptions to liability under
COGSA
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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
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Exceptions
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Labor strikes
Riots
Saving life or property at sea
Insufficient packing
Inherent defect in goods
Inadequate marking of goods
Latent (hidden) defects in ship
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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
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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.
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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
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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?
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Other concepts affecting the
carrier’s liability
• Carrier is liable for a material deviation
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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
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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
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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
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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. 27
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.
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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
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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
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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
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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
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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
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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?
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Shaver v. Travelers Indemnity
• No, it was not covered under
– perils
– free from particular average
– shore clause
– Inchmaree clause or
– negligence clause.
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Insurance
• All risks coverage but still exclusions
• War risks- separate purchase
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Summary
• Read contract carefully
• Identify risks and insure coverage
• Sometimes self insurance may make
sense
• How do you stay aware of problems?
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