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.

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.

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 usual 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 of New South Wales
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 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."

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."

Judgment was accordingly given in Siemens’ favour, but only for the limitation amount under clause 4 of the air waybill, in the sum of US$74,700 approx. Siemens appealed to the High Court of Australia, the ultimate court of appeal.

Judgment of the High Court of Australia
The majority judgment of Gummow, Callinan and Heydon JJ. upheld the decision of the Court of Appeal and dismissed Siemens’ appeal.

The majority agreed with the Court of Appeal that the limitation provisions of the Warsaw Convention itself did not apply, by reason of Art.18.3. Indeed, Schenker did not contest this point before the High Court. As regards the interpretation of cl.4 of the air waybill, the majority held that the word "carriage" in that clause was not limited, as Siemens had argued, to air carriage, but included carriage by other means of transport. Their reasoning was as follows:

1. Cl.4 operated only in respect of carriage to which the Warsaw Convention did not apply. The air waybill therefore contemplated a disjunction between carriage to which the Convention applied (air carriage) and carriage which was governed solely by the terms of the waybill itself. It must follow that "carriage" in cl.4 had a meaning different from that in Art.18 of the Warsaw Convention.
2. The definition of carrier in the waybill referred to the carriage of goods "hereunder", and the terms of the waybill provided, in cl.11, for example, for the transportation of goods other than through carriage by air. Further, the Richtungsverkehr required Schenker to transport the goods to the point of deconsolidation in Australia.
3. The statutory regime in force at Melbourne airport at the time permitted no other possibility. Under the Customs Act, Schenker was prohibited from delivering the consignment to Siemens (Australia) at any stage prior to the consignment’s arrival at Schenker’s bonded warehouse and inspection there by Customs officers.

The result was that "on the proper construction of the waybill, the damage sustained to the consignment in the course of complying with requirements necessary in order to effect delivery of that consignment fell within the terms of cl.4 of the waybill."

The Dissenting Judgments
In the first of the dissenting judgments, McHugh ACJ. favoured the approach of Barrett J. at first instance, to the effect that a combined reading of cl.2.1 and cl.4 of the air waybill indicated that the liability regimes of the Convention and that of the waybill operated exclusively of one another. Which liability regime applied was determined by reference to whether or not the carriage in question was "international carriage". The reference to "international carriage" in cl.2.1 confirmed that "whether or not the carriage is ‘carriage to which the Convention does not apply’ is determined by reference to the criteria in Art.1 of the Convention*. Cl.4 does not refer to carriage to which ‘the liability provisions in’ the Convention do not apply." Accordingly, cl.4 of the waybill was inapplicable to the present case.

As for the meaning of "carriage" in cl.4 of the waybill, McHugh ACJ agreed with Barrett J. at first instance that it meant "air carriage". He placed reliance on the reference in cl.1 of the waybill to "air carriers" and "other services incidental to such air carriage". Accordingly, for the liability provisions of the waybill to apply, the "carriage hereunder" in that clause had to be air carriage. In this case, air carriage had ceased before the accident occurred. He found support for his view in the interpretation of cl.2.1 of the waybill, which provided that "carriage hereunder is subject to the liability provisions in the [Convention]". "However," he continued, "a conflict arises if "carriage hereunder" means any carriage, including that which comprises both air and road segments. In such a case, cl.2.1 would render such carriage (including the road segment) "subject to the rules relating to liability established by [that] Convention". This would contradict Art.31 of the [Convention], which provides that the provisions of the Convention apply only to air carriage. The FIATA standard form air waybill is intended to supplement, not contradict, the [Convention]. Accordingly, for the liability provisions in the air waybill to apply, the "carriage hereunder" must be air carriage.

Furthermore, McHugh ACJ accepted Siemens’ argument that the provisions of the air waybill did not apply beyond the "Airport of Destination" stated on the front of the waybill, the carriage from Tullamarine to the Schenker bonded warehouse being effected under the umbrella contract of the Richtungsverkehr, which did not contain any provisions limiting the liability of the carrier. In this regard, he relied on cl.11 of the waybill, which provided 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." The place of destination was, he said, clearly the Airport of Destination given on the front of the waybill. "The word ‘to’ in the phrase ‘delivery will be made to’ indicates," he continued, "that the issue is how and to whom delivery is to be made at the place of destination, not where the delivery is to be made…. If the parties had intended that the terms of the air waybill were to extend to the delivery to the warehouse, clear words would surely have been used in the air waybill…"

The second dissenting judgment was delivered by Kirby J. He found that the purpose of the air waybill was "to apply to all situations of carriage by air", including both those cases where the Warsaw Convention applied and those where it did not. He said "As befitted its integration with the Warsaw Convention, the air waybill was not, therefore, designed to govern transport or other arrangements not carried out by air. On the contrary, the IATA air waybill…was intended to provide uniformity of liability and conditions for all forms of carriage by air…In such circumstances, it would be unsurprising to conclude that a standard form air waybill, designed to provide for air carriage of cargo, was limited in its purpose and application and generally inapt for operation to a wider range of services happening between the parties".

He turned next to an analysis of the terms of the air waybill. Cl.1 established in his view, that "the carriage with which the air waybill is concerned is, and is only, air carriage". He then stated that cl.2.1 gave a definition (Editor’s emphasis) of "carriage", and in consequence, wherever the term "carriage" was used in the waybill, it was to take the meaning of carriage subject to the Warsaw Convention. "The distinction," he said, "in cl.2.1 between carriage subject to the Warsaw Convention and otherwise is not between air carriage and carriage by truck, car, ship, horse, camel or donkey. It is between "international carriage" by air as defined in the Warsaw Convention and other "carriage" by air which, by the terms of the Convention, is outside its application." He notes further that the statement in cl.2.1 of the waybill that "carriage hereunder" is subject to the Warsaw Convention is obviously a reflection of Art.8(q) of the Convention, which requires that the air waybill contain such a statement. "In such a context", he continues, "the word "carriage" in the air waybill could only mean air carriage by reason of Art.31 of the Convention. It follows that cl.2.1 in the air waybill, by its reference to "carriage", refers, and refers only, to air carriage. If it were intended to refer to other forms of carriage by the many alternatives that are possible, or to other activities in the vast range of potential interaction between a carrier and its customers, a different, clearer and supplementary condition would have been included in the air waybill."

Once this definition of carriage were adopted, Kirby J found that the meaning of "carriage" in the limitation clause, cl.4, of the waybill became clear. It was concerned with, and only concerned with, air carriage to which the Warsaw Convention did not apply, namely, air carriage outside the category of "international carriage" as defined. Barnett J at first instance had been correct in so concluding.

Finally, Kirby J. was prepared to rely upon the rule of construction that where there is ambiguity in a printed document, that ambiguity should be construed against the party seeking to rely on it. "In Australia", he concluded, "those who wish to reduce the entitlements of others to prosecute their legal rights to recover damages for conceded negligence must do so clearly. The Schenker companies did not."

Comment
Whilst the majority judgment is clearly helpful to carriers, given the increasing tendency of air carriers to become involved in off-airport carriage and other services, its importance may diminish over time, as the 1999 Montreal Convention, which is already in force in a number of countries becomes more widely adopted. That Convention extends the definition of "carriage by air" to the period during which the cargo is in the care of the carrier. This, perhaps together with some revision to cl.4 itself, should remove any uncertainty in other jurisdictions about the validity of cl.4 of the standard IATA air waybill.

Furthermore, the Editor understands that IATA is currently reviewing the conditions of its air waybill, to which it refers as its "recommended Neutral Air Waybill", in the light of the decision in this case and also to take into account the effect of the new Convention.

*Art.1 reads: "the expression "international carriage" means any carriage in which…. the place of departure and the place of destination…. are situated either within the territories of two High Contracting Parties or within the territory of a single High Contracting Party if there is an agreed stopping place within the territory of another state….