Note: this decision was overruled by the New South Wales Court of Appeal on 11 June 2002. For a note on the Court of Appeal decision, see
Schenkers Appeal

DMC/S&T/12/01
Siemens Ltd v. Schenker International (Australia) Pty Ltd and Schenker International Deutschland GmbH
New South Wales Supreme Court: Barrett J.
[2001] NSWSC 658: August 2001
AVIATION: CARRIAGE BY AIR: DAMAGE TO CARGO BETWEEN AIRPORT OF DESTINATION AND BONDED WAREHOUSE: WARSAW CONVENTION, ARTICLES 18 AND 22: MEANING OF ‘IN AN AERODROME’: DEFINITION OF AIRPORT SITE: WHETHER WAREHOUSE OUTSIDE AIRPORT BOUNDARY: CONSTRUCTION OF HOUSE AIR WAYBILL: WHETHER LIMITATION OF LIABILITY CLAUSE APPLIES TO TRANSPORTATION AFTER AIR CARRIAGE COMPLETE: COMMON LAW LIABILITY FOR BREACH OF CONTRACT
Summary
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.

Facts
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 second pallet remained on the vehicle. 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 three 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. The third related to the amount of loss that Siemens had sustained, namely whether the whole or some part of the undamaged pallet was to be taken into account, in addition to the value of the pallet that was damaged.

The Judgment
On the first issue, the judge referred in particular to Article18 of the Warsaw Convention, which 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."

Given that the damage took place in this case on the road between Melbourne airport and the Schenker warehouse, the presumption in Article 18.3 did not apply. 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 are 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 that ‘the appropriate course is .. to regard the incident in which [the] pallet fell from the Schenker Australia vehicle as having taken place outside the Melbourne airport, even though the cargo had not received customs clearance at that time.’

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. But he did so not ‘without an element of hesitation’. He recognised that ‘such strict literalism is not altogether consistent with the purposive approach to the construction of the Warsaw Convention preferred in some countries’ – he referred to the decision of the House of Lords in the UK case of Fothergill v. Monarch Airlines [1981] AC 251. In the end, however, he considered ‘the black letter construction to be more in line with decisions of the [New South Wales] Court of Appeal on other aspects of the Convention. It followed that ‘the incident in which [the] pallet fell to the roadway did not occur ‘in an aerodrome’ for the purposes of the Convention and that the liability regime created by the Convention and made part of the law of Australia…. has no application in this case. The contention of [the Schenker interests] that liability is limited by reference to Article 22.2 of the Convention also fails.’

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. Accordingly, ‘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 arose when Schenker Australia took possession of the cargo from Singapore Airlines at the Melbourne Airport.’

The relevant provisions of the waybill provided:
"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….. The judge held that these provisions, taken together with other terms of the waybill ‘indicate quite unmistakeably that the document is concerned with the transportation of cargo by air, whether or not that transportation is ‘international carriage’ as defined by the Convention and whether or not the Convention applies.

Given that ‘a continuum of services was… provided for in what might be called the ‘umbrella’ contract [the Richtungsverkehr], with individual contractual relationships arising between different parties in relation to different aspects of the transportation of any given consignment between Germany and Australia, which part or parts of that continuum was covered and governed by the air waybill. Although that question presents particular difficulties, [the judge concluded] that the waybill did not extend to the part of the overall journey consisting of transportation from the Melbourne airport to the Schenker Australia warehouse, even though, under the umbrella contract, that element was clearly placed within the responsibility of Schenker [Deutschland] and was to be physically undertaken by Schenker Australia’

The factors that caused the judge to reach this conclusion ‘are found in the air waybill itself… It is, by its terms, confined to air carriage and, except where land transportation becomes a substitute for air carriage…. it does not purport to cover any land element… Particularly compelling are… the provisions which refer to the relationship between the waybill and the the Warsaw Convention, being clauses 2.1 and 4….The clear assumption in each of these provisions is that the carriage as a whole will or will not be within the Convention’s definition of ‘international carriage’ and that the carriage as a whole will or will not be carriage to which the Convention applies. 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.’

The judge continued: 
‘Clause 4 does not apply unless the whole of the carriage is ‘carriage to which the Warsaw Convention does not apply’. In other words, if the Convention does apply, clause 4 does not…. On any view of the matter, the Convention did apply to this carriage. It applied in such a way that its liability regime extended up to the point where the cargo crossed the boundary of the Melbourne airport en route to the Schenker warehouse. If follows 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.

On the third point, concerning the amount which Siemens could properly claim, the judge accepted expert evidence to the effect that the contents of the undamaged pallet had been rendered valueless once the contents of the first pallet had been damaged to the extent they had.

Judgment was accordingly given in Siemens’ favour for the full value of the two pallets, amounting to DM1.6 million approximately.