The Fine Print

Copyright 2003, Traffic World, Inc.

Shippers of international air cargo will be pleased to know that the Senate has ratified the Hague Protocol on international air shipments. President Bush is expected to sign the protocol and it will go into effect sometime after Nov. 1. This will end a conflict in the courts as to whether or not the United States ratified the Hague Protocol of 1955 when it adopted the Montreal Protocol No. 4, effective March 4, 1999.

Why should international air shippers be concerned with this treaty? First, because the Hague Protocol extended the time limits for giving notice of damage from seven to 14 days, and for delay to cargo from 14 to 21 days. In a recent California District Court decision, involving a movement of G.D. Searle''s Verapamil, notice of damage was given to FedEx promptly, but the originating air freight forwarder claimed that it did not receive notice within 14 days as required by the Warsaw Convention. The court held that under the terms of the air waybill, notice to either the first or last air carrier is notice to the performing carrier, and therefore, the notice was timely.

Secondly, whether the Warsaw Convention or the Hague Protocol governs also will determine whether a claimant is entitled to recover the full value of cargo (rather than the airline''s limit of 17 SDRs per kilo) lost or damaged as a result of the airline''s intentional or reckless misconduct with knowledge that damage would probably result, commonly referred to as "willful misconduct" or "gross negligence." (SDR, for Special Drawing Rights, is a monetary standard set daily by the International Monetary Fund. The value of one SDR is posted at www.imf.org. In its case, Searle argued that since Federal Express''s gross negligence caused the loss of its product, worth $850,000, it was entitled to recover the full value under the Warsaw Convention as amended by the Hague Protocol.

Federal Express argued that it was liable only for $50,300 (based on $9.07 per pound). The court held that the United States'' ratification of the Montreal Protocol No. 4 made the Hague Protocol applicable in the United States. The court then denied the defendants'' motion to limit their liability to $9.07 per pound as there was sufficient evidence upon which a jury could find that "Federal Express acted recklessly and with knowledge that damage would probably result."

If this shipment had been governed by the Montreal Protocol No. 4, the willful misconduct provision would not have been applicable because it was repealed, and Searle would have lost $800,000 on this claim. However, Montreal did not apply because Germany had not ratified Montreal at the time of movement.

Ocean shippers are now the only claimants that may allege that a carrier''s gross negligence was responsible for a loss in transit and recover the full value of the goods. Under the Carriage of Goods by Sea Act, the $500-per-package limitation may be voided if the ocean carrier was guilty of an "unreasonable deviation." The best example of this provision was illustrated in a recent court decision involving the hoisting of two large vehicles aboard a ship. To prevent damage to the sides of the vehicles, the longshoremen are supposed to place a "spreader" under the vehicles to keep the cables from touching the sides of the cargo. On the first vehicle, no spreader was attached, and damage was noted when the vehicle was hoisted into the hold. However, no action was taken to protect the second vehicle from the same damage. The court held that the $500 per shipping unit was the limit of liability on the first vehicle, but that it was liable for the full value on the second vehicle due to willful misconduct or gross negligence.

It is unfortunate for American shippers that this rule of law is not applicable on truck or rail domestic transportation, particularly in light of the fact that virtually every LTL motor carrier has limited its liability in some manner after the demise of the Interstate Commerce Commission, and in ways that the ICC never would have permitted.

As a result, claimants today rarely recover full value of goods lost or damaged, unless the shipment moved under the terms of a contract drafted by the shipper, which overrides the carrier''s tariff limitations. Perhaps some day shipper organizations will press Congress to modify the Carmack Amendment by incorporating a "willful misconduct" provision or a "material deviation" provision that will award claimants full value despite a carrier''s tariff limitation to a lower amount. Claimants should not complain about limitations if they knowingly enter into released rates, but they have a legitimate complaint when they were not informed of a limitation before they shipped.

Carriers will complain about destroying "uniformity" and "predictability" of their liability exposure. It is true that Congress'' original intent was to avoid application of the different states'' liability laws, but that was when Carmack made carriers liable for "full actual loss" unless the shipper gave its written consent to a lower liability in exchange for a choice of a lower rate proportioned to the risk, and the ICC was empowered to judge the reasonableness of "released rates."

Times have changed because of the 1995 amendment to the Carmack Amendment. LTL motor carriers are burying liability limitations in their tariffs that deprive claimants of the full value of their goods. Furthermore, no independent government body is judging the reasonableness of the alternative rates being offered in return for limited liability. The railroad industry learned from the ocean carriers how to peg their "alternative-to-Carmack" rates so high that no rail shipper can afford to ship at full value. Ocean carriers have for decades provided "ad valorum" rates that are so high that no ocean shipper has ever elected to ship at those rates. LTL motor carriers appear to be headed in the same direction and will be in a better position to dictate rates and liability levels, unless, of course, shippers protect themselves with contracts.



-- Transportation attorney, professor and author William J. Augello of Augello, Pezold & Hirschmann PC is executive director of the Transportation Consumer Protection Council.







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