Australia: "Breaking The Limit" Under The Warsaw Convention

Last Updated: 26 October 2006
Article by Frazer Hunt and Alex Keen

“Breaking the limit” is used in trade and transport parlance to refer to circumstances where the cargo interests are able to recover from carriers the full expense for consignments that have suffered loss or damage, and are therefore entitled to “break“ the limitation provisions of the applicable convention. Trade and Transport partner Frazer Hunt and lawyer Alex Keen discuss two recent decisions, one in Hong Kong and one in England, both with similar circumstances but very different outcomes.

In December 2005 the High Court of Hong Kong handed down its decision in Ericsson Limited, v KLM Royal Dutch Airlines.

This case involved thefts of Ericsson mobile phones exported from Stockholm to Hong Kong. The carriage of the goods was performed by KLM Airlines, subject to the Amended Warsaw Convention. At the time of both thefts the cargo was in transit at Hong Kong Air Cargo Terminals (HACTL).

The Amended Warsaw Convention places a statutory limit on recovery of 250 Francs per kilogram. However, this limitation will not apply if proven that the damage resulted from "an act or omission of the carrier, his servants or agents, done with intent to cause damage or recklessly with knowledge that damage would probably result … and he was acting within the scope of his employment". (Article 25 of the Amended Warsaw Convention).

On both occasions the goods were stolen when fraudulent documentation was provided to the HACTL allowing thieves to take delivery of goods. The Court found that both thefts resulted from intentional conduct by HACTL employees. The first theft was an inside job and the second involved the thief impersonating an HACTL employee. The Court inferred, based on the level of familiarity the thief had of HACTL protocols and procedures, that HACTL staff were involved.

The Hong Kong Court’s decision may be contrasted with the English High Court’s judgment in Micro Anvika Limited and Ors v TNT Express Worldwide (Euro Hub) NV and Ors.

This case involved the theft of electronic goods. At the time of the theft, the goods were being carried by TNT. Under CMR, (the convention applicable in the European Union for road carriages across States), there is a similar provision to that of the Warsaw Convention.

The goods were being delivered to the consignee’s warehouse when the truck driver was told by an employee of the consignee to wait out on the street whilst they unloaded another delivery. Whilst waiting on the street the truck driver was directed by a man, whom he thought was an employee of the consignee, to another warehouse a few blocks away.

Upon arrival at the second warehouse the goods were unloaded by the truck driver. The driver was unaware that the premises he had been directed to were not actually those of the consignee as the warehouse staff appeared to know their way around and were dressed in "uniform". The warehouse was not operated by the consignee, but rather by thieves, who subsequently made off with the consignment.

The Plaintiff argued that in order to break the limit under the CMR on these facts the evidence needed to establish that:

  • there was misconduct by the truck driver;
  • the truck driver was aware of the risk the cargo may be stolen but intentionally and unreasonably took the risk;
  • that the misconduct caused the loss of the cargo.

Justice Morison approved the above approach but held that there was not any misconduct on behalf of the driver, as the thieves approached the driver outside the consignee’s warehouse in front of security guards and informed him that it needed to be taken to a different depot. Furthermore, TNT had not given the truck driver specific instructions to alert him to this type of scam nor suggested that the truck driver should check the identity of anyone purporting to represent the consignee.

The consignee had been the victim of a "round the corner" scam and had been a victim of them previously and so should have exercised more care and skill in utilising the security guard they employed to ensure that trucks were dealt with swiftly and promptly and given instructions upon arrival. Justice Morison found that the driver’s behaviour fell well short of what could be described as misconduct, as he was deceived into believing he was making a lawful delivery. Accordingly, TNT was entitled to limit its liability for the loss of the consignment.

A comparison of these two cases illustrates the evidential barriers cargo owners face when arguing that a carrier’s entitlement to limit its liability for loss of cargo is broken. These cases suggest the misconduct of the carrier must be more than mere foolish or innocent participation in a scam and involves deliberate complicity in the theft of the cargo.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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