Australia: Who is liable for what? Transport contracts under the microscope

Last Updated: 7 March 2019
Article by Geoff Farnsworth
Most Read Contributor in Australia, February 2019

It is a truth universally acknowledged that transport operators will have no liability for any loss or damage to the goods they carry (unless they are ocean carriers in which case different rules may apply much to the chagrin of the said ocean carriers). 

This Golden Rule is not contained in any statute, though it is worth making the point that under the Australian Consumer Law as it applies to small business, it is likely that non-negotiable exclusion clauses in standard form contracts may be considered to be unfair and therefore unenforceable. 

The exemptions from liability are to be found in transport contracts themselves, often in what is known as the fine print. The clause will usually say (in effect) that the carrier is not liable for anything, ever. It may go on to say that if the carrier is sued by anyone claiming loss or damage (a third party negligence claim, for example) the contracting party will indemnify the carrier. 

The exclusion clause often begins with the mysterious incantation: “The Carrier is not a Common Carrier and will have no liability as such.” Despite the fact that the incantation is repeated (figuratively) every time a transport contract is entered into, it is doubtful that either party knows what it means. 

To understand the status and meaning of Common Carrier, one must go back in time, around 200 years, to the days of horse and carriage, and before the railroads. 

At that time carriers, usually illiterate, operated on usual routes. Let’s say London to Bristol, and return. In those days, if you wanted your chest to go to Bristol, you would approach a Common Carrier who worked that route, and ask him (it would almost invariably have been a man) to take your chest to Bristol. You would probably agree on a price, and that was basically that. 

Because there was no written contract the common law described the obligations of the Common Carrier (the word common in this context referring to the fact that the carrier carried goods for many different people, rather than his social class). 

Despite the fact that written contract terms will generally prevail over any common law duties as a Common Carrier, the phrase continues to be used. 

A large part of the significance of the law of Common Carrier related to his or her liability for loss of or damage to the goods carried. Despite its antiquity, it was considered in a recent decision of the UK Supreme Court (formerly known as the House of Lords, the UK’s highest court), in the case of Volcafe v Compania Sud Americana De Vapores SA [2018] UKSC 61. 

That case concerned carriage of goods by sea, so the facts are not relevant here. However Lord Sumption traversed liability regimes for bailees of goods, which includes the common carrier. 

He said:

The characteristic feature of a common carrier was that he held himself out as accepting for carriage the goods of all comers on a given route, subject to capacity limits. As such, he was strictly liable at common law for loss of or damage to the cargo subject only to exceptions for acts of God and the Queen’s enemies. The absence of negligence was irrelevant. But although the position of common carriers is commonly referred to by way of background in the case law, as it was in the judgments below, it is no longer a useful paradigm for the common law liability of a shipowner. Common carriers have for many years been an almost extinct category. For all practical legal purposes, the common law liability of a carrier, unless modified by contract, is the same as that of bailees for reward generally.

The UK Supreme Court has helpfully restated that:

  • a common carrier is strictly liable for loss and damage (unless caused by an Act of God or Queen’s Enemies)
  • a bailee for reward is not an insurer and his or her obligation extends only to taking reasonable care of the goods (though he or she must also prove the absence of negligence)
  • in any event, the terms of written contracts of carriage will modify and prevail over these common law relationships. 

Some common issues

While claims under transport contracts might be relatively straightforward (ie the carrier has no liability, for anything, ever), this might be a little more complicated when a third party is involved. 

A common example is where third party asks a Freight Forwarder to arrange for the delivery of goods from the wharf or warehouse to the third party’s premises. The Forwarder will often contract with a Carrier (a transport company or courier). If the goods are damaged while in the care of the Carrier, the third party may make a claim in bailment (as per the second point above) on the basis that the third party is not bound by the terms of the contract between the Forwarder and the Carrier. This can give rise to complicated legal issues relating to Himalaya Clauses and Sub-Bailment on Terms, but also (as mentioned above) the terms of the contract may require the Forwarder to indemnify the Carrier in relation to any claims. 

The other complicating factor can be insurance. Transit insurance is common but there may be issues around who’s policy applies (someone has to pay for the policy, plus wear any deductible that might apply to any claim). 

It is also common for Carriers to give an assurance that they have insurance. While this is almost always true, it is potentially misleading and will depend on what form of insurance the Carrier has. While the Carrier may indeed have liability insurance (for example), if the Carrier’s terms and conditions exclude liability, the insurer has no obligation to pay because the Carrier has no liability.

And if the Carrier has transit insurance, there may be an issue as to whether the Carrier has an insurable interest in the goods.  

Conclusion

Transport contracts are all about clearly defining the parties’ obligations and liabilities, who does what, and who is liable for what. Once that is clear the parties can manage the relationship appropriately, through pricing and/or insurance. 

While it is tempting to leave “barnacle” clauses in contracts (such as reference to Common Carrier) because they’ve always been there, they have the potential to confuse relationships and potentially lead to avoidable disputes. 

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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