Schenkers - Appeal

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Note: this decision was upheld on appeal to the High Court of Australia, by a majority of 3-2, in a judgment rendered on 9 March 2004. For a note of the High Court decision, click here

Schenker International (Australia) Pty Ltd v. Siemens Ltd
New South Wales Supreme Court, Court of Appeal: Meagher, Sheller and Stein JA: [2002] NSWCA 172: June 2002
A Meagher SC and R Darke SC, instructed by Blake Dawson Waldron, for Schenker
C Needham SC and J Roberts, instructed by O’Reilly Sever & Co, for Siemens

A consignment of electronic equipment, carried under an ‘umbrella contract’ from factory in the country of origin to Customs warehouse in the country of destination, was damaged by the negligence of the carriers en route from the airport of destination to the Customs warehouse. In these circumstances, the terms of the Warsaw Convention did not apply, since the damage did not take place ‘in an aerodrome’ within the meaning of Article 18. The carriers were therefore unable to limit their liability under Article 22 of the Convention.

The judge at first instance had, however, been wrong in holding that Schenkers could not limit their liability to the amount of US$20 per kilo as provided by clause 4 of the house air waybill covering the consignment. It was not correct to interpret the waybill as providing that either the carriage as a whole would be subject to the Convention or the carriage as a whole would not be subject to it - there being no half measures. The correct view was that the carriage under the waybill was divisible into segments, some consisting of carriage subject to the Convention and some not. Carriage in the latter sense was governed by the terms of the air waybill itself.

DMC Category Rating: Reversed


The claimants, Siemens, were the Australian subsidiary of the German electronics company, Siemens AG. Schenker Australia were a subsidiary of Schenker Deutschland, a German transportation company. In December 1996, Siemens AG engaged Schenker Deutschland to undertake the carriage of a consignment consisting of two pallets of electronic equipment from Germany to Schenker Australia’s Melbourne warehouse, for delivery to Siemens Australia. The consignment was sent by air from Berlin airport to Melbourne by Singapore Airways. On arrival in Melbourne, Schenker Australia collected the consignment from Singapore Airlines for carriage by truck to Schenker Australia’s warehouse situated outside the airport boundary, about 4 kilometers from the airport’s main gate.

En route to the warehouse, one of the pallets fell from the truck and its contents were damaged beyond repair. The cause of the pallet falling was that the strap by which the driver had attempted to secure the load was either defective or inadequate for the purpose.

The Arguments
The liability of either Schenker Deutschland or Schenker Australia for the damage was not in dispute but two issues remained in contention. The first related to the availability to the Schenker interests of the limitation of liability provided under the Warsaw Convention, as amended by the Hague protocol of 1955, which had the force of law in Australia by virtue of the Civil Aviation (Carrier’s Liability) Act of 1959. The second related to the applicability of a limitation of liability provision contained in the Schenker house air waybill.

Article18 of the Warsaw Convention reads as follows:
"1. The carrier is liable for damages sustained in the event of the destruction or loss of, or of damage to, ….. any cargo, if the occurrence which caused the damage so sustained took place during the carriage by air.
2. The carriage by air within the meaning of the preceding paragraph comprises the period during which the… cargo is in charge of the carrier, whether in an aerodrome or on board an aircraft……
3. The period of carriage by air does not extend to any carriage by land, by sea or by river performed outside an aerodrome. If, however, such a carriage takes place in the performance of a contract for carriage by air, for the purpose of loading, delivery, or trans-shipment, any damage is presumed, subject to the proof to the contrary, to have been the result of an event which took place during the carriage by air."

Article 22.2 of the Convention limits the carrier’s liability to a sum of two hundred and fifty francs per kilogramme.

The relevant provisions of the House air waybill were as follows:
"1. As used in this contract, ‘carrier’ means all air carriers that carry or undertake to carry
the goods hereunder or perform any other services incidental to such air carriage.
2.1 Carriage hereunder is subject to the rules relating to liability established by the
Warsaw Convention unless such carriage is not ‘international carriage’ as defined by that Convention.
4.1 …….in carriage to which the Warsaw Convention does not apply, carrier’s liability
shall not exceed US$20.00 ….. per kilogram of goods lost, damaged or delayed….."

Clause 11 provided for delivery to be made at the place of destination to or in accordance with the instructions of the consignee.


The Judgment at first instance
On the first issue, whether or not the Warsaw Convention applied, the judge held that the presumption in Article 18.3 did not apply, because the damage had clearly taken place on the road between Melbourne airport and the Schenker warehouse. That left the central question ‘whether it can properly be said that the point at which [the] pallet fell to the roadway was ‘in an aerodrome’ or, more precisely, in the Melbourne airport.’ After referring to the Airports Act of 1996 and the Airports Regulations of 1997, the judge concluded that the boundaries of the airport were to be fixed according to the ordinary concepts of the land law of the state of Victoria, in which Melbourne is situated. The judge held accordingly that the roadway on which the accident occurred was not within the airport boundaries and therefore the incident in which the damage arose did not occur ‘in an aerodrome’ for the purposes of the Convention. Therefore the liability regime created by the Convention did not apply and the Schenker interests could not limit their liability by reference to Article 22.2 of the Convention.

For the purposes of applying Article 18, the judge had to consider the proper interpretation of the phrase ‘in an aerodrome’. The judge, applying the decision in an United States case of Victoria Sales Corporation v. Emery Air Freight Inc. in 1990, adopted the literal construction of the phrase, rather than the ‘functional approach’ advocated by the minority opinion in that case..

On the second issue, the judge had to consider the terms of the contract of carriage between the Siemens and the Schenker interests. The cargo had been carried under an ‘umbrella’ arrangement of long standing between the Siemens and the Schenker interests, known as the ‘Richtungsverkehr’ (direct traffic). The Richtungsverkehr applied to each individual consignment and when, in accordance with practice, a house air waybill was issued in respect of a particular transportation, its terms supplemented those of the standing agreement. He held accordingly that Schenker (Deutschland) became a bailee of the cargo for Siemens (Australia) at the point at which title and risk passed from Siemens AG to Siemens (Australia) at the Berlin airport and undertook an obligation to transport that cargo to the Schenker (Australia) warehouse in Melbourne. A sub-bailment or sub-contract then arose when Schenker (Australia) took possession of the cargo from Singapore Airlines at the Melbourne Airport, for delivery to Siemens (Australia) at the Schenker customs bonded warehouse.

There was no dispute that the provisions of the air waybill were operative, as a part of or as an adjunct to the overall contract. The parties had, however, taken different views as to the applicability of the provisions of the air waybill. Siemens had contended that the air waybill provisions did not extend to the segment of the total transportation involving movement from the Melbourne airport to the Schenker (Australia) warehouse, even though that segment was part of the overall contract. The Schenker companies regarded that segment as covered by the waybill.

The judge held that Siemens were correct. In his view, the air waybill did not extend to the Melbourne airport/Schenker warehouse leg of the overall journey. His decision was based on the terms of the air waybill itself. The judge regarded it as confined to air carriage and, except where land transportation became a substitute for air carriage, it did not purport to cover any land element. He found, in clauses 2.1 and 4, the clear assumption that the carriage as a whole would or would not be within the Convention’s definition of ‘international carriage’ and that the carriage as a whole would or would not be carriage to which the Convention applied. He said: ‘No half measures are contemplated. The carriage is not regarded as consisting of segments, with some being ‘international carriage’ for the purposes of the Convention and others not, or with the Convention applying to some but not to others. It is all or nothing.’

Consequently, the judge found that Clause 4 did not apply unless the whole of the carriage was carriage to which the Warsaw Convention did not apply. In other words, if the Convention applied, clause 4 did not. In this case, the Convention clearly did apply to the carriage, up to the point where the cargo crossed the boundary of the Melbourne airport en route to the Schenker warehouse. If followed that the carriage was not of the description in clause 4 of the air waybill. The substitute liability limitation provision in that clause therefore did not operate at all. Accordingly, the Schenker interests could not limit their liability to US$20.00 per kilo.

Judgment was accordingly given in Siemens’ favour in the amount of Aus$ 1.7 million, approximately.


Judgment of the Court of Appeal
The Court of Appeal agreed with the judgment of first instance on the first point, regarding the application of the Warsaw Convention, but unanimously overruled it on the second point, relating to the application of clause 4 of the air waybill.

In the leading judgment, Meagher JA had no difficulty in applying the literal interpretation of the word ‘aerodrome’ adopted in the US case of Victoria Sales Corporation v. Emery Air Freight, a view which he noted had been followed in many other jurisdictions worldwide. On that basis, the Schenker warehouse and the place where the accident occurred were clearly outside the boundaries of the Tullamarine airport in Melbourne and therefore beyond the geographical scope of the Convention.

On the second point, he regarded Schenker (Australia) as clearly within the definition of ‘carrier’ under clause 1 of the air waybill, since they were performing a service (transport of the cargo from Tullamarine to their bonded warehouse for delivery there to Siemens) ‘incidental to such air carriage’. By clause 8 of the air waybill, the carrier remained liable for the goods during the period that they were in its charge or that of its agent.

In these circumstances, he said that he was quite unable to understand the ‘all or nothing ‘ approach of the judge at first instance. In Meagher JA’s view, the Schenker companies were transferring cargo under two regimes, one covering the route from Berlin airport to Melbourne airport and the other the route from Siemen’s Berlin factory to Schenker’s Melbourne bondstore. "If the latter, contractual, regime is different from the former, statutory, one" he said, "it still operates to the extent it can. It thus covers the short trip from Melbourne airport to the bondstore."

Sheller JA delivered a supporting judgment. In setting out the terms of the air waybill, he emphasised that, under clause 2, "carriage under the house air waybill and services performed by each carrier [as defined in clause 1] were subject to the provisions of the house air waybill". As regards clause 4, he noted that it spoke of ‘carriage’ and not of ‘air carriage’ and read it as providing that, in any carriage under the waybill to which the Warsaw Convention did not apply, liability was limited in accordance with the clause’s provisions. He noted clause 7, the Himalaya’ clause, and held that Schenker (Australia) were entitled to its benefits. He then quoted from clause 11, to the effect that ‘on arrival of the goods at the place of destination….delivery will be made to, or in accordance with the instructions of the consignee.’

He agreed with Meagher JA that the Convention did not apply to the carriage between Melbourne airport and the Schenker warehouse. The literal interpretation of the word ‘aerodrome’ in Articles 2 and 3 of the Convention was the correct one.

On the application of clause 4 of the air waybill, Sheller JA, like Meagher JA, did not agree with the judgment at first instance on this point. He noted that "to effect delivery in accordance with the house air waybill and the instructions of the shipper, the carrier was bound to arrange for the goods to be carried to the under bond warehouse and therefore bound, within the meaning of clause 1, to perform a service incidental to the air carriage. That was part of the contract evidenced by the house air waybill…there is no sound basis for treating the house air waybill as evidencing a contract which terminated before delivery to the consignee at the point where the goods crossed the boundary at Melbourne airport." Clause 2.1 of the air waybill was "consistent with part of the carriage to be performed under the house air waybill being subject to the rules relating to liability established by the Convention and part of it not being so subject because it is carriage performed outside an aerodrome."

Sheller JA also quoted with approval the recent decision of the English Court of Appeal in the case of Quantum Corporation Inc. v. Plane Trucking Limited and Air France [2002] EWCA Civ 350, noting that if CMR had not applied to the road leg in that case, the conditions of the Air France air waybill would have been applied to that segment of the transport.

He also relied on the wording of Article 18.3 of the Convention. The fact that such proof to the contrary is available does not mean that the carriage did not take place "in the performance of a contract for carriage by air". In his view, the house air waybill remained the contract for carriage that governed the road transportation from the airport to the bonded warehouse. "Since it was carriage to which the Convention did not apply, clause 4 of the air waybill did."

Stein JA did not deliver a judgment of his of own. He agreed with both Meagher and Sheller JA.

Judgment was according given in Siemen’s favour, but only for the limitation amount under clause 4 of the air waybill, in the sum of US$74,700 approx.



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