U.S. courts wrestle over whether the Montreal Convention’s liability provisions apply to air cargo damaged while in a warehouse near the Miami airport.
An expensive machine packed in 10 crates was damaged while being shipped from South Korea to a semiconductor manufacturer in Orlando, Fla.
The crates did not fly directly to Orlando, but to Miami, and then were trucked to Orlando.
The maker of the machine and shipper, Cybortrack Solutions of South Korea, hired Expeditors Korea Ltd. to transport the machine, and Expeditors Korea hired Forward Air for a portion of the move by truck.
Two crates were damaged during the shipment, one of which held a robotic arm. Without the arm, the machine was inoperable. The replacement arm was not received for five months.
The owner of the shipment, TriQuint Semiconductor, filed a claim with its insurer, Lloyds, which paid it $918,000 in compensation for the damage.
Lloyds then filed a lawsuit in U.S. District Court seeking $920,000 in damages against Expeditors Korea and Forward Air.
The Montreal Convention, which was ratified by both the United States and South Korea, caps an air carrier’s liability for cargo damaged during international transport at 19 Special Drawing Rights (SDRs) per kilogram of cargo shipped. The SDR is an artificial currency, published daily by the International Monetary Fund, which fluctuates based on a basket of global currencies. In late March, an SDR was worth $1.45, but its value has been as low as $1.34 within the past five years.
Article 22 of the Montreal Convention provides that if only part of the cargo is damaged, then only the weight of the damaged package or packages is used to calculate liability. But, if damage to some packages affects the value of other undamaged packages, then the weight of the undamaged packages will be included in the calculation.
The district court found Article 22’s limitation of liability applied only to cargo damaged during “carriage by air.” After a trial, the court ruled that the Montreal Convention governed the transporters’ liability, finding TriQuint’s machine was damaged either while in the custody of Forward Air at its warehouse facility in Miami or in transit to its Orlando facility. As Forward Air was acting as an agent for Expeditors Korea while the cargo was in its custody, it concluded the damage occurred during the carriage by air.
Applying the convention’s liability limitation, the district court entered judgment in favor of Lloyds against the transporters in the amount of $195,882 (plus interest), calculating the transporters’ liability based on the weight of the entire shipment, not merely the crate containing the damaged robotic arm.
On appeal, the transporters did not contest their liability to Lloyds or the amount that Lloyds paid to TriQuint, but only the limitation of liability that governs the calculation of damages.
In its decision (Underwriters At Lloyds Subscribing To Cover Note B0753pc1308275000, v. Expeditors Korea Ltd., Forward Air, Inc. 11th Circuit. No. 16-10985. Feb. 16, 2018), the appellate court said, “Both the convention and the waybill cap the transporters’ liability at 19 SDRs multiplied by the weight of the damaged cargo, but they may differ as to whether the weight of the undamaged parts of the shipment rendered less valuable by the damage to the robotic arm should be included as cargo.
“The district court applied the Montreal Convention, but we conclude, based on the district court’s own factual findings, that it should have looked to the waybill instead,” the appellate court added.
The 11th Circuit said while Article 18 of the convention does not define carriage by land, it concluded that it unambiguously applied in this case: “Indeed, if an intercity, multi-hour journey over land does not qualify as carriage by land, the term essentially would be meaningless.”
The court said a second issue was whether the cargo was in carriage by land during storage at Forward Air’s Miami warehouse before the journey to Orlando.
The 11th Circuit concluded that “the treaty is ambiguous with respect to this question.”
“Each party urges us to construe the Montreal Convention as establishing a bright line rule governing the storage of cargo in a warehouse. The transporters urge us to read carriage by air as ceasing at the airport’s boundary, meaning that any time the cargo is stored at a warehouse outside an airport’s border qualifies as carriage by land. And Lloyds interprets carriage by land literally to refer only to the movement of the cargo over land, meaning that any time when the cargo is stored in a warehouse qualifies as carriage by air,” the 11th Circuit said.
The court concluded, “Forward Air’s storage of the cargo in Miami reflect that the storage was incident to the cargo’s transportation by truck. Thus, the robotic arm was damaged during carriage by land, and the convention does not apply.”
However, the court said the waybill’s damages provision was “ambiguous as to whether the weight of only the packages actually lost, damaged, or delayed may be considered or whether the weight of packages that are diminished in value due to the loss, damage, or delay of related packages also may be considered.”
It remanded the case to the district court for further fact-finding and interpretation of this provision.
In its conclusion, it quoted the late Supreme Court Justice Anthony Scalia, who said about another air transport agreement, the Warsaw Convention: “How many smart people from how many countries came up with this – with this formulation? You think they … could have said it more clearly.”
Shippers’ Law: Damaged entirely or in part?
