Countryman & McDaniel
The Freight Forwarder - Customs Broker Attorneys
"Overlooking Runway 25 - Right, at Los Angeles International Airport"
Monreal Protocol 4 To The Warsaw ConventionA Courtesy Reference from .........
Countryman & McDaniel
The Freight Forwarder - Customs Broker Attorneys
"Overlooking Runway 25 - Right, at Los Angeles International Airport"
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TRANS
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The Presentation of Michael S. McDaniel, Esq.
26 October 1999 at Miami, Florida
to 24 national delegates of the
V Air Cargo Americas International Congress
_
A Presentation of Montreal Protocol 4
To The Warsaw Convention
_
The First Change In U.S. Air Cargo Law For International Use In 70 Years
INTRODUCTIONTHE WARSAW CONVENTION: HISTORY BACKGROUND - POLICY & GOALS
MONTREAL PROTOCOL 4 POLICY GOALS
THE FIRST CHANGE: WILFUL MISCONDUCT
LEGAL TECHNICALITIES ARE DISMISSED
IT IS A POLICY OF LIBERALIZATION TO ADVANCE ORIGINAL GOALS
COMPARATIVE FAULT CONCEPT TO BE UNIVERSAL
ANOTHER CHANGE - THE DUTY TO PROVIDE EVIDENCE
THE PROBLEM OF ARTICLE 22 - The Shipment As A Whole
THE DAMAGE LIMITS ARE AGAIN UNIFORM
THE WRITTEN NOTICE OF CLAIM REQUIREMENTS HAVE NOT CHANGED
ARTICLE 5: THE RUNWAY IS CLEAR FOR ELECTRONIC AIR WAYBILLS
CAVEAT TO USE OF MP4 - Where Does It Apply?
NEWS OF So Called "MP5" - The Montreal Convention of 1999
-- On Other Pages --
Study Guide >> Full Text of The Warsaw Convention of 1929
Study Guide >> Full Text of Montreal Protocol 4
Study Guide >> A DEATAILED PRESENTATION OF MONTREAL PROTOCOL 4 - the current air cargo rules you need to understand
Study Guide >> Breif Overview of MP4
Study Guide >> The Currency Values In Terms of "Special Drawing Rights." - to current date
Study Guide >> The Countryman & McDaniel Practice Guide To Montreal Protocol 4
Study Guide >> Presentation of The Montreal Convention By Michael S. McDaniel to the FIATA World Congress At Rotterdam
Study Guide >> The Proposed "Montreal Convention of 1999 - Overview by President Clinton - History of Int'l Air Treaties
Good morning, delegates to the Air Cargo Americas International Congress at Miami.
I bring greetings from that other gateway to the Americas, the number one final destination for air cargo in the United States and gateway to the Pacific Rim . . . our officers at at Los Angeles International Airport.
Having a lawyer speak at these industry conventions has become a standard feature over the years. Unfortunately, usually all we can tell you is about some new decision of a local court and then remind about the "do's" and "don'ts" of our industry which have existed for many years. Seldom do we have anything to tell you that is really new.
While the international air cargo industry is rapidly changing and technologically driven, the same certainly cannot be said about the legal machinery which supports it.
For this reason, it gives me great pleasure to have the distinct honor today of presenting the first change to international air cargo law involving the United States in seventy years. That's not five years, not fifty years, but almost three quarters of a century since change now brings us Montreal Protocol 4.
Indeed, there hasn't been a change in our international air law involving the United States, and most of your home countries, since the Warsaw Convention was originally written in 1929.
Even international ocean law for the United States is just about as old, under the Carriage of Goods by Sea Act which was written in 1936. A new version of "COGSA" remains pending before the U.S. Congress. Perhaps we'll see a change in the ocean mode next year.
THE WARSAW CONVENTION: HISTORY BACKGROUND - POLICY & GOALS:
Before discussing these new changes to the Warsaw Convention, let's review its original purpose. Where the venerable, old Warsaw Convention is concerned, I have had people try to tell me over the years that it does everything from regulate international borders to make rules for the fair treatment of prisoners of war.
To set the record straight, the Warsaw Convention is no more and no less than a treaty among nations which acts as an international bill of rights for passenger and cargo claims.
It is the product of two international conventions, the first at Paris in 1925 and the second at Warsaw in 1929, which sought three goals:
1. To establish international claims uniformity among nations with different legal systems and philosophical points of view;2. To set fair limitations of liability for the encouragement of industry growth, promoting investment and the taking of financial risks; and
3. To provide a definite basis upon which insurance rates could be calculated for our industry.
There are those both inside and outside our industry - even judges - who demonstrate ignorance when referring to cargo damage limitations as some shameful "technicality". The argument is made that anything short of claims payment at the rate of 100 cents on the dollar represents a service failure or breach of faith with the customer.
In the face of these arguments, we must always bear three things in mind:
1. The Warsaw Convention rules were not cooked up by TWA, Pan Am or any other for profit corporation. These longstanding rules reflect the considered public policy of nations.2. The Warsaw Convention rules encouraged shippers to either declare value or buy insurance for the protection of their goods; and
3. Those of you with P & L (Profit & Loss) responsibility understand quite clearly that the Warsaw Convention rules allow our industry to offer economical service and expand its capability by spreading the risk of loss among carriers and insurance companies. Without the Warsaw Convention rules, your service rates would hardly be economical. We might not even be gathered here today.
The Warsaw Convention principles are lofty, but needless to say, our industry has changed quite a bit since 1929 . . . to the extent that a true air cargo industry even existed at that time.
In the ensuing seventy years, there have been many calls for change.
Read The Original Warsaw Convention CLICK HERE
The nations gathered on several occasions over the years to amend the Warsaw Convention. In treaty terms, an amendment means to create a "protocol".
For our purposes, there was first the Hague Protocol in 1955. This was signed by the United States but never ratified by the U.S. Senate as is required for any treaty to become law.
In 1975, the nations met again at Montreal to debate need for changes to the Warsaw Convention.
In keeping with the lightning speed of our lawmakers, my presentation today of "Montreal Protocol 4" is merely the explanation of that document they drafted Montreal more than 24 years ago.
Representatives of over forty nations worked on the draft of Montreal Protocol 4 or "MP4", which contains portions of the existing Warsaw Convention along with a combination of new rules and certain of those found in the Hague Protocol of 1955.
Although the U.S. signed MP4 in 1975, it was not ratified by the U.S. Senate until last September. Even then, it did not become effective law for the U.S. until being deposited with the Polish government. This is because all changes to an international treaty must be deposited with the country where the treaty was originally drafted.
Thus, after 70 years, we have a new international cargo claims law as of 4 March 1999. Fifty-four nations are now pledged to follow MP4.
End of the history lesson. What does MP4 do?
Quite a bit! I believe you will be pleased.
MONTREAL PROTOCOL 4 POLICY GOALS:
The public policy goals for MP4 are identical to those of the 1929 drafters. The major changes have been made to internally strengthen the law and halt legal attempts to circumvent the original purposes of the Warsaw Convention. The tide appears to have turned, and it's in favor of fundamental fairness and certainty where the ability to accurately forecast cargo claims outcome is concerned.
MP4 changes also reflect an attempt by the law to catch up with industry technology and get us back to uniformity in claims handling from one country to another.
Inconsistent court rulings around the world and attempts by lawyers to avoid mandated damage limits based on meaningless technicalities have not merely led to change, but a new legal environment which will be far more friendly to air carriers and forwarders.
THE FIRST CHANGE: WILFUL MISCONDUCT:
MP4 makes a major break with the legal tradition that a wrongdoer should be more severely punished depending upon the degree of his misconduct. the drafters of MP4 have completely eliminated the concept of "wilful misconduct" where air cargo is concerned. Under the original Warsaw Convention, a carrier stood to lose its US$20.00 per kilo damage limitation if found responsible for such things as fraud, misrepresentation or intentional misconduct. The drafters of MP4 removed all such considerations.
My colleagues and I agree to a potential moral risk of there being no consequences whatsoever for intentional misconduct. Sadly, we should expect times when Montreal Protocol 4 could be simply hidden behind as an unassailable shield to distasteful or oppressive conduct. I do not advise this practice, but to illustrate the point, it seems clear that even setting fire to cargo intentionally would not result in a loss of the damage limitation protection under Montreal Protocol 4.
After years of seeing the damage limitation provisions of our Warsaw Convention eroded by clever legal arguments, the drafters at Montreal have sent a message. Shippers are well advised to buy cargo insurance because from now on the Warsaw Convention damage limitation as amended by MP4 will stand. There will be no exceptions. There will be no point to the making of clever arguments.
I can conceive of no stronger language than that used by MP4 when making clear that the damage limitation is unassailable:
"The limit may not be exceeded whatever the circumstances which gave rise to liability".
Note Carefully: The concept of "wilful misconduct" will still apply to the handling of passengers and baggage under MP4.
LEGAL TECHNICALITIES ARE DISMISSED: Another feature of MP4 is to eliminate Warsaw Convention vulnerability to the effects of outdated, meaningless and often silly legal technicalities.
For example, MP4 addresses the legal foolishness seen in the infamous court decisions under Article 8 of the Warsaw Convention.
Article 8 of the Warsaw Convention has required that the air waybill contain a virtual laundry list of information which the 1929 drafters viewed as mandatory. This information included such things as the following:
* Names and addresses of shipper and consignee
* Number of packages
* Weight - dimensions
* Nature of goods being shipped
* Type of packaging
* Marks and numbers
If any of this required information was left off the air waybill, there was no damage limitation available to the carrier.
One particularly sacred requirement of Article 8 was that all stopping places for the flight be listed in addition to its origin and destination. In 1929, this information was believed important because it would allow shippers to track their cargo from one country to another over an extended period of time until final destination was reached. The listing of stopping places would also let a shipper know if its cargo might pass through some hostile, enemy state.
How many of you track cargo these days based on a statement of "stopping places" in the air waybill? [No hands are raised in the audience.]
No, we all know that freight is tracked nowadays by use of the master air waybill number. By phone or Internet, the process is both instant and electronic.
The entire concept of Article 8 became obsolete long ago. There is no commercial reality to the listing of "stopping places" on an air waybill. There is only a very technical opportunity for lawyers to disregard the international intent of nations.
But obsolete or not, our industry has paid a high price for sloppy document preparation and Article 8 air waybill defects. Still, nothing could be done to correct this situation because the Warsaw Convention is a treaty which must be strictly interpreted. The treaty says exactly what the treaty says. As a treaty, the Warsaw Convention could only be changed by an Act of Nations.
>>> Read the full text of Article 8. CLICK HERE
An example of just how silly things became in the past couple of decades is seen in the fairly recent case of Tai Ping Insurance Company v. Northwest Airlines. <<< Click on case name for a full copy of the U.S. court decision. Please read this court opinion to fully understand the full extent to which our industry has been distrupted by
That case involved the movement of a high value shipment of aircraft parts on 10 December from Chicago to Hong Kong via Anchorage and Narita. Unfortunately, a clerk failed to insert Anchorage and Narita as "stopping places" on the air waybill. Then, as luck would have it, the shipment was lost.
Perhaps the only sensible aspect of this entire case was foresight on the part of the shipper in obtaining cargo insurance which resulted in full payment of the claim by the fine folks at Tai Ping Insurance Company. Following the payment, Tai Ping Insurance Company sought to recover its loss with a lawsuit against Northwest Airlines. Such an action is known as "subrogation", when a cargo insurance company sues to obtain reimbursement for claim payments to the cargo interests. Most of all cargo claims litigation today is in "subrogation" by insurance companies against air forwarders and carriers.
In the lawsuit, Northwest Airlines immediately offered compensation under the Warsaw Convention limit of US$1,320.00. Tai Ping Insurance Company rejected the offer, claiming that Northwest Airline should not have benefit of its damage limitation because Anchorage and Narita had been omitted as "stopping places" on the bill of lading in violation of Article 8.
Creatively, Northwest argued that the language in its bill of lading validly incorporated the company's published timetables which clearly identified scheduled stops at Anchorage and Narita for all trans-Pacific freighter flights on 10 December. Northwest also pointed out that it did not guarantee any particular flight or time for the commencement of carriage as provided in the bill of lading. The New York court disagreed.
The court accepted Northwest's creativity in having a clause in the air waybill incorporating the flight timetables by reference. However, the court pointed out that this particular freight had departed on 15 December, not 10 December as originally scheduled when the air waybill was originally cut. Thus, although the waybill referred to readily available timetables, the timetables did not apply to the particular shipment insured by Tai Ping Insurace Company.
Northwest lost this case, but do you see why? Is it very clear that the entire case was decided on the basis of information that no one cared about? Not the shipper. Not the consignee. Not the forwarder. Not the customs broker. Absolutely no one in the world cared about this "stopping places" information except Tai Ping Insurance Company. No one had ever checked the "stopping places" or even attempted to track the freight.
The failure to type airport codes for Anchorage and Narita in the air waybill was simply disastrous for Northwest. Instead of paying the Warsaw Convention damage limitation of US$1,320.00, Northwest was hit with a judgment in the amount of US$231,000.00 plus interest.
We informally calculated the revenue for this shipment on the basis of US$2.50 per kilo for 66 kilos. The result was shipment revenue for Northwest of US$165.00. If Northwest's cost for the shipment on a net/net basis is subtracted, the result would have been a profit for Northwest in the approximate amount of US$40.00.
Northwest would need to make 5,803 identical shipments to get back its original US$40.00 in profit because of a typographic error on the air waybill that absolutely no one really cared about.
To correct this injustice and end the games, MP4 makes your damage limitation uniform and rock solid.
Under MP4, the new Article 8 requires only that the air waybill evidence receipt of the cargo and state its origin, destination and weight.
Even if you don't list the information or forget to issue a bill of lading, the limit still applies.
Again, the language of MP4 is clear:
"The damage limit may not be exceeded whatever the circumstances which gave rise to liability."
IT IS A POLICY OF LIBERALIZATION TO ADVANCE ORIGINAL GOALS:
The Protocol adopts traditional defenses to carrier liability. These include provisions that neither a carrier nor an air forwarder will be held responsible for damages caused by:
(a) inherent vice or defect of cargo
(b) defective packaging of the cargo
(c) act of war, and
(d) the act of a public authority with regard to the entry or exit of cargo, such as where Customs may cause damage during the course of an inspection.
COMPARATIVE FAULT CONCEPT TO BE UNIVERSAL:
Another term used to define the legal doctrine of "comparative fault" is "contributory negligence". The concept here is where some act of the shipper combines with an act of the carrier to cause cargo damage or loss. A sliding scale is used to judge the conduct of (a) the shipper, and (b) the air forwarder, and/or (c) the air carrier to determine the degree to which fault on the part of one party has contributed to the cargo loss. For example, imagine that a jury has found that some typographical error on the shipper's label is 30% responsible for cargo misdelivery which resulted in a US$1,000.00 loss. In such event, the carrier's liability would be reduced by 30% to US$700.00.
The Warsaw Convention originally acknowledged this concept or shared fault, providing that an air carrier could be exonerated wholly or partially from liability, if there were contributory negligence on the part of the shipper. The catch was that the doctrine could be applied only if the court hearing the case recognized the "contributory negligence" as a part of its national law. Indeed, many civil law nations such as those in Latin America do not recognize the concept of "contributory negligence". Thus, in violation of a central Warsaw Convention goal, results from one country to another have not been uniform where the doctrine of "comparative fault" is concerned.
MP4 changes this provision to provide carrier and air forwarders with a defense of "contributory negligence" regardless of whether that legal doctrine is recognized in your home country. It is now a matter of treaty that cannot be changed by a court.
ANOTHER CHANGE - THE DUTY TO PROVIDE EVIDENCE:
I don't want to get too technical here, but in the past you were subjected to a legal presumption (or assumption) that cargo had been received in good order and condition, just because the air waybill said so. You were charged with the "assumption" of cargo receipt in good order and condition even though the freight may have come off the roller bed truck in a sealed unit-loading device, with no opportunity for you to inspect contents. Under these circumstances, it was the carrier's obligation to prove it did not damage the cargo.
Under MP4, the rule is reversed.
MP4 provides that statements in the air waybill "relating to quantity, volume and condition of the cargo" may not be used as legal presumptions or assumptions against you. The only exception to this rule is where the air waybill specifically says that the freight has been "CHECKED BY THE CARRIER IN THE PRESENCE OF THE CONSIGNOR" or with regard to an outwardly apparent condition of the cargo.
This will mean that air carriers and forwarders who receive sealed ULD's "said to contain" certain goods which then arrive "short" at destination without any obvious record of tampering. . . will not automatically be your responsibility. The carrier will still be responsible for the stated weight and outwardly apparent condition of the cargo, but as to all other liabilities, it will be the obligation of the claimant to prove that the cargo was actually delivered to you in good order and condition.
This is a significant change in reversing the legal obligation to provide primary evidence.
The only part of Montreal Protocol 4 you might not actually like deals with the question of whether the weight of undamaged cargo in a particular shipment can be added to the damaged portion of the shipment for purposes of calculating the limitation.
As you know, the traditional rule is that only the damaged portion of a particular shipment may be used to calculate the value of a particular claim. Thus, if two of four boxes are damaged, only the two boxes can be used to calculate the claim. This said, subrogation lawyers have successfully argued that the weight of an entire shipment should be considered if injury to one component might have diminished the value or operability of an entire system being shipped. Thus, if only a 1 kilo component to a 5,000 kilo computer system were damaged, there would be a US$100,000.00 damage limitation for the single kilo device, not US$20.00 as would be the normal rule for damage to a single kilo.
We do not think this reasoning fair, especially when the 1 kilo component device can be easily replaced and reinstalled in the particular computer system.
Unfortunately, MP4 adopts this same approach in Article 22. The exact language is:
". . . when the loss, damage or delay of a part of the registered baggage or cargo, or of an object contained therein, affects the value of the other packages covered by the same . . . air waybill, the total weight of such package or packages shall also be taken into consideration in determining the limit of liability."
Unfortunately, I fear we will be in court for years attempting to find out what the ambiguous words "affects the value of the other packages" might actually mean.
THE DAMAGE LIMITS ARE AGAIN UNIFORM:
As we know, the cargo damage limitations observed under the Warsaw Convention are based on weight.
How many of you believe that the current Warsaw damage limitation is US$20.00 per kilo or US$9.07 per pound? [Many hands are raised in the audience.]
This certainly is the value observed by the United States and most other nations. It is based on a calculation of gold value from 1929 as described in the Warsaw Convention.
Unfortunately, other countries such as Australia have used the modern value of gold as the guide for determining a limit which came to around US$400.00 a kilo. In direct violation of one of the original 1929 treaty goals, recent years have seen the outcome of a particular claim dependent upon the question of in which country the lawsuit happened to be filed.
For example, if freight were damaged on a move from Sydney to Los Angeles, the claimant would always be well served to pursue recovery in Australia where a US$400.00 per kilo limitation would yield recovery far in excess of that available to citizens in Los Angeles.
To correct this situation, the new MP4 limit will be 17 special drawing rights per kilo, or about US$23.40 presently.
How many of you know what an SDR is? [A few hands are up in the audience.]
An SDR is a unit of the International Monetary Fund and fluctuates daily along with all international currencies. Currently, an SDR is valued at approximately US$1.37. So now your claims departments will need to read the daily financial page in addition to their other duties.
THE WRITTEN NOTICE OF CLAIM REQUIREMENTS HAVE NOT CHANGED:
Just as for the original Warsaw Covention, written notice of claim must be given within the specified periods, and a lawsuit filed within two years, or the claim for cargo damage of delay will be void.
ARTICLE 5: THE RUNWAY IS CLEAR FOR ELECTRONIC AIR WAYBILLS:
By all accounts, the most awaited provision of MP4 is a revised Article 5 of the Warsaw Convention.
This article used to require that the air waybill be "made out" and "handed" to the consignor . . . this was something that can only be physically done with a piece of paper.
IATA currently estimates the cost of each such paper air waybill to be US$5.00 or US$6.00 each. Thus, as a matter aside from the question of technology, the issue of electronic air waybills is economically significant.
Taking us into the new millennium, MP4 only requires that the air waybill be "delivered" by "any means that would preserve a record of the carriage".
Initially there was some controversy about whether this provision actually allowed for electronic air waybills. The critics argued that Article 5 couldn't possibly refer to electronic air waybills since when MP4 was drafted in 1975 there were no personal computers, no Internet and no fax machines.
Regardless, the critics were reminded of specific language in MP4 that allowed for air waybill delivery specifically by "any means that would preserve a record of the carriage." The critics were finally silenced when it was realized that the language of Article 5 is so broad as to allow an air waybill to be sent via smoke signal, just so long as there is a photographic record of it.
Yes, the age of electronic air waybills is at hand. The 1975 drafters wisely chose not to impose any restrictions on their construction and use.
CAVEAT TO USE OF MP4 - Where Does It Apply?:
Let me now give you the exception to everything you have heard this morning. Indeed, there is a rule that the lawyer must always give you an exception to any good news! While MP4 will certainly simplify your life where claims are concerned, don't fire the bill of lading printer (or your lawyer) quite so fast.
Generally speaking, MP4 only applies where both the origin and destination countries have adopted it.
Thus, on a claim involving cargo from Germany to the U.S., the old Warsaw would apply because America has adopted MP4, but Germany has not. In that circumstance, a failure by the air carrier to issue a paper air waybill, complete with listed "stopping places" would result in loss of the damage limitation.
In fact, the U.S. Ninth Circuit Court of Appeal has recently held that even the old Warsaw Convention itself does not apply on flights from the U.S. to Taiwan because the Republic of China (Taiwan) has yet to ratify the Convention independent of the People's Republic of China.
At the www.cargolaw.com Web site is a list of countries which have ratified MP4 (<<< Click here for list). I'm quite proud that a full 21% of the 54 nations adopting MP4 are here in the Americas. As of June, the list was Argentina, Barbados, Brazil, Canada, Chile, Columbia, Ecuador, Guatemala, Honduras, the United States and Venezuela. On these routes, you may go electronic today.
So we have a new law, but you must be very cautious in relying on it where much of the world is concerned. IATA joins in this warning and urges caution. IATA is currently studying potential language changes for the standard IATA air waybill to accommodate MP4.
NEWS OF "MP5" - The Montreal Convention of 1999:
And now the surprise: today is our 2 for 1 offer on new laws. What you probably didn't know is that the nations have been at it again.
In May 1999, 52 nations met at Montreal for a little more debating and drafting on the subject of cargo law. MP5? We've been calling it that, but the proposal is actually an entirely new creature intended to replace the entire Warsaw Convention. It would be known as the "Montreal Convention".
Don't panic. There is not much in the proposed "Montreal Convention of 1999" that would change what you have learned here today.
The nations turned down an increase on the new 17 SDR per kilo damage limitation since it would only benefit subrogating insurance companies.
MP5 would raise the limit for lost baggage from 340 SDRs per passenger under MP4 to 1000 SDRs per passenger and also create some interesting new passenger death limits.
* In the event of a passenger's death, the survivors automatically receive US$135,000.00 regardless of fault by the carrier;
* To recover any sun in excess of US$135,000.00, there would need to be proof the carrier was at fault.
There are some other modernization provisions of MP5 we can discuss next time, but most of the 30 nations required to ratify MP5 are waiting to see what the U.S. will do.
In this regard, I certainly wouldn't worry. If it takes the U.S. Senate as long to consider a new Montreal Convention as long as it did to ratify Montreal Protocol 4 ...........Well ............ mark your calendars for the year 2023!
Thank you for your attention to my remarks this morning.
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