Think Recoveries: The Potholes In CMR Limitation

The Convention on the Contract for the International Carriage of Goods by Road ("CMR"), provides a liability regime for international road carriage claims, akin to the Hague and Hague-Visby Rules in sea carriage.  However, whereas it is rare for cargo claimants to recover more than limitation in sea carriage claims, reliance on limitation as set out in the CMR Convention is not always a given and the provisions of the CMR have caught many an unsuspecting carrier off guard. 

Pursuant to Articles 23(1) and (2) of the CMR Convention, compensation in respect of total or partial loss of the goods is calculated with reference to the value of the goods at the place and time they were accepted for carriage.  This value is based on the commodity exchange price, current market value or the normal value of goods of the same kind and quality

Whilst compensation may be limited to 8.33 SDRs per kilogram of gross weight (Article 23(3)), there is also provision to recover carriage charges, customs duties and other charges incurred (Article 23(4)). The additional amounts that can be claimed in this respect, such as in relation to duties are often substantial, particularly in respect of cargo such as alcohol or cigarettes.  It is well-established that duties are recoverable in English law (see the House of Lords case of James Buchanan and Co Ltd v Babco Forwarding and Shipping (UK) Ltd 1978). Following Brexit, there are likely to be many more claims arising in respect of customs duties, as goods will attract further tariffs and import duties now that the UK has left the single market. 

As with the BIFA and RHA Conditions, it is also possible for the parties to agree to depart from the limitation provisions by declaring a higher value in the CMR Consignment Note (Articles 23(6), 24 and 26).

We are also seeing increasingly that there is the ability to break CMR limitation due to wilful misconduct on the part of the carrier.

Wilful Misconduct

Article 29 of the CMR Convention specifically provides that a carrier may not exclude, limit or otherwise shift the burden of proof under the CMR Convention, if the damage has been caused by his wilful misconduct or default on his part which is considered to be equivalent to wilful misconduct in the eyes of the Court seized (Article 29).  This also applies if the wilful misconduct or default has been committed by the carrier's agents or servants (Article 29).

The English Courts (see Thomas Cook v. Air Malta (1997)) have held that the test when considering wilful misconduct is:

1. Whether the acts or omissions of a person entrusted with the goods amounted to wilful misconduct based on the conduct ordinarily to be expected in the particular circumstances.
2. Whether the acts or omissions of the carrier were so far outside the range of such conduct as to be properly regarded as "misconduct".
3. Whether the misconduct was wilful.  The Court in the case of Rolls Royce v Heavylift-Volga (2000) held that, "The person must know that he is misconducting himself when he does (or fails to do) the acts complained of and does them intentionally or recklessly as to the consequences. …”.  In TNT v Denfleet (2008), the Court held that the actor must know that his conduct was wrong or was recklessly indifferent as to whether or not it was right or wrong.
4. Whether the wilful misconduct alleged caused the damage.

In essence, "A person wilfully misconducts himself if he knows and appreciates that it is misconduct on his part in the circumstances to do or to fail or omit to do something and yet (a) intentionally does or fails or omits to do it or (b) persists in the act, failure or omission regardless of the consequences or (c) acts with reckless carelessness, not caring what the results of his carelessness may be. (A person acts with reckless carelessness if, aware of a risk that goods in his care may be lost or damaged, he deliberately goes ahead and takes the risk, when it is unreasonable in all the circumstances for him to do so.)" (per Creswell J. Thomas Cook v. Air Malta (1997)). 

The most common scenarios in which we see wilful misconduct occur are when instructions have been specified by cargo interests or forwarders, but have not been followed by drivers, for example:

• A carrier may have been given express instructions to park in secure parking areas only and the driver has failed to do so when the goods are stolen from the vehicle.   This often happens when drivers arrive at delivery destinations outside of an agreed stipulated time and the goods are subsequently stolen whilst parked up waiting on a public road or lay-by.  In such instances, poor route planning will not necessarily relieve a carrier from their express contractual obligations not to park in unsecure areas.
• A carrier may have been given express security instructions in respect of routes, stopping points and reporting in to "head office", which they fail to follow.  We are likely to see an increasing number of cases of this nature following Brexit, particularly given that many vehicles will be delayed obtaining customs clearances at ports.  Goods are often stolen when drivers are met outside the delivery destination, by thieves masquerading as employees of the consignee, who give instructions to deliver the goods to a different address or vehicle nearby and contrary to previous instructions.
• The driver leaves his vehicle unattended in an "unsafe" area whilst taking a break in breach of agreed security protocols.  It is important to note that if a driver notifies his control office that he considers the area to be unsafe and is instructed to leave the vehicle there in any event, the "instructing mind", i.e. the carrying company, can be found guilty of wilful misconduct.

Wilful misconduct may also be established in cases of deliberate reckless driving, or falling asleep at the wheel when driving time limits have been exceeded or if there is evidence that the driver had prior warning of sleepiness, for example, by hitting the side of the road.

It would also be possible to establish wilful misconduct, and hence break limitation, in cases where there is clear evidence that the employees of the carrier have taken goods, or provided assistance to thieves. This may even involve assistance with hacking and falsified delivery instructions.

Damages for Loss of Market

Whilst limitation may be broken if wilful misconduct or equivalent default on the part of the carrier can be proven, the Courts will ordinarily award losses based on the sound market value of the goods at the time of collection in accordance with Article 23 (1). 

However, the English Courts have gone one step further and have determined that damages in excess of the sound market value of the goods at the time of collection, for example, the full RRP price, is recoverable if the goods were to be sold on a finite, special or limited available market. 

For example, in the cases of Lacey's Footwear (Wholesale) Ltd v Bowler International Freight Ltd (1997)) and Panalpina Int’l Transport Ltd v Densil Underwear Ltd (1981), the goods were to be sold at Christmas markets.   The Courts held that the correct measure of damages was the lost opportunity to sell goods in those particular markets.  Damages were, therefore, awarded in excess of the sound market value at the time of collection.  In fact, in the Lacey's Footwear case, the Court awarded damages based on the full RRP price.

Damages calculated on this method of loss can make a dramatic difference to the litigation exposure faced by a carrier, particularly in relation to certain commodities such as designer goods.  Losses on this basis may not be within the contemplation of the carrier, but their lack of knowledge may not necessarily reduce their litigation exposure. 

On numerous occasions, we have successfully recovered losses on behalf of cargo interests for sums in excess of the sound market value of the goods on this basis. 

Forum shopping

It is crucial to understand any jurisdictional advantages early on.  This is particularly prevalent in CMR matters where choice of jurisdiction may be based on agreement between the parties (i.e. a jurisdiction clause in a contract), where the defendant is based, where the goods were taken over by the carrier, or where the goods were to be delivered (Article 31). 

It is advisable for cargo interests to act fast to seize jurisdiction before carriers move to seize jurisdiction where it best suits them.  It is a well-known tactic for carriers to commence declaratory proceedings in carrier friendly jurisdictions such as the Netherlands, if available, to prevent proceedings elsewhere when there is a risk of limitation being broken, or where duties are recoverable.

Conclusion

It is important to ascertain how the Courts in the potential jurisdictions will interpret the facts of the case giving rise to an allegation of wilful misconduct.  In doing so, consideration should be given to whether there is the option to recover damages based on a loss of opportunity/market over and above the sound market value of the goods at collection. The recoverability of additional charges, such as customs duties is also an important factor to consider when forum shopping.  A swift and thorough assessment of these points can make a staggering difference to the potential recovery by cargo interests.