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Know your limits: claims for international carriage of goods

Feature Articles

Cite as: (2005) 79(7) LIJ, p. 46

Claims for damage to cargo carried by sea or air are affected by liability and time limits under international conventions that may substantially reduce the claim.

By Nick Luxton & Matthew Harvey

As an island nation, all goods enter Australia by sea or air. Most enter by sea. Cases in relation to damaged cargoes are relatively rare and when they do arise a number of rules apply with which most practitioners are unfamiliar. The purpose of this article is to draw practitioners’ attention to the limits that may affect or even extinguish a cargo owner’s claim against a carrier.

Application of international conventions

The international carriage of goods by sea or air is largely governed by international conventions. These conventions have been incorporated wholly or partly into Australian law.

In relation to goods that have been damaged during sea carriage, Australia has acceded to the Hague-Visby Rules and has incorporated into law an amended version of these Rules, known as the amended Hague Rules.[1] There are a number of different versions of the Hague Rules that may be relevant to a sea carriage claim, depending on the version of the Rules applicable at the port of loading.

In relation to goods that have been damaged during air carriage, any of a number of international conventions may be applicable, e.g. the Warsaw Convention, the Warsaw Convention as amended at the Hague, the Guadalajara Convention etc.[2]

Determining the particular convention that applies to a contract of international carriage is an issue that needs to be carefully considered if an Australian client has received damaged goods from overseas. This is because the method of calculating the limit of liability varies in different versions of the international conventions.

Package limitations for sea carriage

The amended Hague Rules limit a claimant’s entitlement to recover compensation for lost or damaged cargo, based on the weight or number of packages of the cargo. Article 4 r5 of the amended Hague Rules provides:

“ ... neither the carrier nor the ship shall ... be or become liable for any loss or damage to or in connection with the goods in an amount exceeding 666.67 units of account per package or unit or 2 units of account per kilogramme of gross weight of the goods lost or damaged, whichever is the higher”.

A unit is defined to be a Special Drawing Right (SDR).[3] The SDR is a standardised monetary unit created by the International Monetary Fund, calculated on the basis of a weighted basket of four currencies: the US dollar, the euro, the Japanese yen and the UK pound. The value of one SDR at the time of writing is approximately A$1.96. The current value of an SDR can be checked at the Reserve Bank’s website http://www.rba.gov.au.

For the purpose of calculating the package limitation, it is initially necessary to determine the weight of the cargo. This weight is usually specified on the face of the bill of lading issued by the carrier in relation to the shipment. However, the calculation of the package limitation may be further restricted if the goods that are lost or damaged do not constitute the entire shipment. This is because the package limitation is calculated only with respect to those goods that are lost or damaged.[4]

In relation to sea carriage, a further issue is what constitutes a “package” or “unit”. This is a particularly significant issue if cargo is packed in a container which may constitute a package itself, rather than the individual items of cargo within the container. The number of packages will be determined by reference to the enumeration on the face of the bill of lading,[5] usually under the headings “Number of packages” or “Description of goods”.

In the recent case of El Greco v Mediterranean Shipping Co,[6] the Full Federal Court held that the container itself was the package or unit, rather than the individual posters packed in the container, thereby significantly restricting the claimant’s recovery for cargo damage. Justice Allsop acknowledged that individual items within a container may constitute packages or units in certain circumstances, although the items must be clearly specified as such in the bill of lading.[7]

It is possible for a claimant to avoid the package limitation if cargo loss or damage resulted from the carrier’s own acts or omissions done recklessly or with intent to cause damage. This is a difficult test for a claimant to satisfy, because it relates to the carrier’s own actions and subjective intentions.[8]

The amended Hague Rules do not apply to all segments of international carriage. This is particularly relevant where a claimant has contracted with a freight forwarder who performs a door to door service for customers, involving segments of road carriage in addition to sea carriage. The amended Hague Rules apply from terminal to terminal, being the period from when the goods are delivered to the carrier at the port of loading until the goods are delivered to the consignee at the port of discharge.[9] Therefore, if cargo is damaged as a result of acts or omissions outside this period, then contractual limits of liability may apply under the bill of lading or other conditions of carriage.

This is also a relevant issue in relation to air carriage. In the High Court decision of Siemens v Schenker International, [10] it was held that damage to cargo which occurred outside the airport was subject to contractual limits of liability specified in the air waybill, rather than limits of liability under the Warsaw Convention.

Time limitation for sea carriage

As to any time limitation, Art 3 r6 of the amended Hague Rules provides:

“ ... the carrier and the ship shall in any event be discharged from all liability whatsoever in respect of the goods, unless suit is brought within one year of their delivery or of the date when they should have been delivered”.

From time to time, parties agree in practice to extend the one year limitation provided in the amended Hague Rules. Article 3 r6 sanctions this process by providing:

“This period may, however, be extended if the parties so agree after the cause of action has arisen”.

Any clause in a contract of carriage which purports to provide for a limitation period of less than a year is null and void: Art 3 r8. Notwithstanding this provision, contracts of carriage frequently contain nine month limitation clauses. This can be a trap for the unwary cargo owner if the amended Hague Rules (or another version of them) do not apply to the contract of carriage.

Unlike some limitation provisions, e.g. s5 of the Limitation of Actions Act 1958 (Vic) and s82(2) of the Trade Practices Act 1974 (Cth), Art 3 r6 extinguishes a claim rather than barring a remedy.

Article 3 r6 applies only to the carrier or the ship. It does not extend to a cargo owner’s claim against a third party who may have had some role in relation to loading, carrying or stowing the cargo in the course of its sea carriage. However, a carrier may seek to prevent a cargo owner making a claim directly against its sub-contractors (such as stevedores) by inserting an “undertaking not to sue” clause in the terms and conditions of the bill of lading.

Claims relating to damage to cargo are frequently based on breach of contract, breach of bailment and negligence. By use of the word “whatsoever”, the amended Hague Rules make it clear that these types of claims are all affected by the one year limitation.

Under Art 3 r6, the limitation period ceases on the commencement of a “suit”. This means initiating proceedings and not their subsequent service.[11] Accordingly, in practice a cargo owner who does not have sufficient information to prepare a statement of claim may initiate proceedings in a state court by filing a writ and general endorsement. The plaintiff then has one year to serve the originating process on the defendant.[12] By doing this, a plaintiff is able to collect the information it needs to properly formulate its claim against the defendant and it overcomes the effect of the one year limitation period.

By engaging in this practice, a plaintiff should not be complacent. By failing to serve the initiating process within a year of its filing or by not prosecuting its action promptly, it may have its proceeding dismissed. If the proceeding is dismissed after the one year time limitation has expired, then the plaintiff may well be without any remedy.

Sometimes a dispute under a contract of carriage is agreed to be determined by arbitration. In this situation, “suit” includes the commencement of an arbitration.[13]

If the plaintiff commences proceedings against the wrong party, this may lead to its claim being time barred against the correct party. However, if the plaintiff has made a mistake as to the correct name of the defendant, then substitution of the correct name may be made.[14]

Time begins to run on the delivery of the goods or on the date when they should have been delivered. The second alternative takes into account situations where goods have been lost at sea. The first alternative raises the question of when and where delivery occurs. Under the amended Hague Rules, delivery occurs at the time the goods are delivered to, or placed at the disposal of, the consignee within the limits of the port or wharf that is the intended destination of the goods: Art 1 r3(b).

Frequently, contracts of carriage of goods contain indemnities passing from a contracting party to a non-party under the contract. The one year limitation period does not apply to such indemnities. Article 3 r6 bis provides that:

“An action for indemnity against a third person may be brought even after the expiration of the year provided for in [Art 3 r6] if brought within the time allowed by the law of the court seized of the case. However, the time allowed shall be not less than three months, commencing from the day when the person bringing such action for indemnity has settled the claim or has been served with process in the action against himself”.

The time limit under the amended Hague Rules is very short compared to the usual six years limitation period one finds in relation to contractual or tortious claims in this state. Lawyers acting for aggrieved cargo owners should carefully calculate when the limitation period becomes effective and issue proceedings before that date.

Limitations for air carriage

In the space provided, it is not possible to give an exhaustive description of the package and time limitations which apply to the carriage of goods by air. In Australia there are a number of versions of the Warsaw Convention which may govern the contract of carriage. The particular convention which applies is determined by whether the country of loading and the country of discharge are both parties to the relevant convention. In order to provide some illustration of the limitations, we have focused only on the Warsaw Convention as amended by the Hague Protocol and the Montreal Protocol No 4 (the amended Warsaw Convention), which has been incorporated into Australian law under the Civil Aviation (Carriers’ Liability) Act 1959 (Cth).

As to package limitations, the position under the amended Warsaw Convention is that an owner of damaged cargo is entitled to 17 SDRs per kilogram of goods lost or damaged, unless the consignor gives special notice to the carrier of a particular value of the cargo.[15] By comparison, other versions of the Warsaw Convention calculate limits of liability on the basis of “francs”, which is a currency unit based on the value of gold.[16]

As to the time limitation, there are two points of which practitioners should be aware. First, a person must complain in writing to the carrier within 14 days of receipt of the damaged cargo.[17] Receipt of cargo without complaint is prima facie evidence that the cargo has been delivered in good condition.[18] Secondly, the right to damages is extinguished if an action is not brought within two years from the arrival of the cargo at its destination or the date on which the aircraft ought to have arrived.[19]

Conclusion

The complex time and package limit issues that exist for both air and sea carriage mean that importers and exporters need to be aware of the potential difficulties in pursuing cargo claims against carriers. If a cargo owner intends to make a claim in relation to air or sea carriage, a practitioner should first determine the convention which applies and then consider the limitations (both time and package) which affect the claim. These may differ, depending on the applicable convention.


NICK LUXTON is a senior associate at Middletons Lawyers, practising in shipping and international trade law. MATTHEW HARVEY is a member of the Victorian Bar, practising in commercial and international trade law.


[1] Carriage of Goods by Sea Act 1991 (Cth), s8.

[2] Civil Aviation (Carriers’ Liability) Act 1959 (Cth).

[3] Amended Hague Rules, Art 4 r5(d).

[4] Amended Hague Rules, Art 4 r5(a).

[5] Amended Hague Rules, Art 4, r5(c).

[6] (2004) 209 ALR 448.

[7] Note 6 above, at 513.

[8] See Davies & Dickey, Shipping Law (3rd ed), 2004, Lawbook, p229.

[9] Amended Hague Rules, Art I r1(e).

[10] (2004) 205 ALR 232.

[11] Van Leer Australia Pty Ltd v Palace Shopping KK (1981) 180 CLR 337.

[12] Supreme Court Rules, r5.12(1).

[13] Australian Shipping Commission v Kooragang Cement Pty Ltd [1988] VR 29.

[14] Bridge Shipping Pty Ltd v Grand Shipping SA (1991) 173 CLR 231.

[15] Amended Warsaw Convention, Art 22 r2.

[16] See SS Pharmaceutical Co Ltd v Qantas Airways Ltd [1991] 1 Lloyd’s Rep 288.

[17] Amended Warsaw Convention, Art 26, rls 2 and 3.

[18] Amended Warsaw Convention, Art 26, r1.

[19] Amended Warsaw Convention, Art 29, r1.

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