April 2003

The Warsaw Convention Limitation of Liability:
Canadian Court Forecloses Extra-Contractual Remedies,
and Adopts Subjective Test: Case Comment

The limit of liability of an air carrier under the Warsaw Convention, which has been incorporated into the Carriage By Air Act in Canada, has received little judicial consideration in Canada. So much so that the question of whether a court should apply a subjective test or an objective test when determining a carrier's entitlement to limit liability under Arts. 22 and 25 of the Convention has been decided at the trial level only recently. Two notable cases were litigated against air carriers in the last two years: Connaught Laboratories v. British Airways (2002), 61 O.R. (3d) 204 (Ont. S.C.J.) and Nuvo Electronics v. London Assurance (2000), 19 C.C.L.I. (3d) 195 (Ont. S.C.J.).

In Connaught Laboratories the plaintiff sought to recover its losses when the defendant air carrier failed to keep a shipment of vaccines under refrigeration, during the flight from Toronto to Melbourne, as stipulated in the air waybill and as indicated on the shipping cartons. Due to a number of flight delays and exposure to temperatures outside the permitted range, the vaccines were not acceptable to the customer and had to be destroyed.

British Airways sought to limit its liability to about $2,500 under Art. 22 of the Convention. Connaught argued that the carrier could not rely on the limit because:

1. The carrier had no available refrigeration facilities in Toronto, London and Melbourne. By agreeing to refrigerate the cargo, the carrier, by its silence, negligently misrepresented to the plaintiff that it had refrigeration facilities. Thus, there was a breach of an independent duty of care prior to the contract of carriage which was not subject to the Convention.

2. The damage resulted from an act or omission of the carrier's servant or agent done with intent to cause damage or recklessly and with knowledge that damage would probably result. Thus Art. 25 of the Convention deprived the carrier of this defence.

No Cause of Action Outside the Convention

As a question of law, the court held that the Warsaw Convention would not be ousted by a claim that there was an independent duty to advise the shipper of the lack of refrigeration. The goods were damaged in the course of transit between countries. There is a remedy for that damage provided for in the Warsaw Convention. That being the case, the Warsaw Convention applied regardless of whether there might be other remedies available as a matter of domestic law. The Warsaw Convention is meant to be an exhaustive source of remedies for damage sustained as a result of international carriage by air. It does not matter that the plaintiff might also be able to recover more substantial damages based on a cause of action not covered by the Convention but relating to the same harm. As long as there is a remedy for the damage available under the Convention, that remedy is exclusive.

Subjective Test Applied

The court found that the cargo was damaged as a result of the failure of British Airways to refrigerate the cargo in London. The British Airways staff involved were acting within the scope of their employment. There was no evidence that their handling of the cargo was done deliberately "with an intent to cause damage". The key issue was whether the act or omission was done "recklessly with knowledge that damage would probably result".

The court observed that there has been considerable controversy as to whether the words "recklessly with knowledge that damage would probably result" in Art. 25 call for a subjective or objective test in determining whether the reckless actor had knowledge that damage would probably result. If the test is purely subjective, it is an extremely difficult one to meet.

The court surveyed a number of Canadian decisions which were not conclusive on the issue. The court commented that the interpretation of an international convention, the purpose of which is the unification of the law, cannot be done by reference to the domestic law of one of the contracting States. The purpose of drawing up an international convention designed to become a species of international legislation would be wholly frustrated if the courts of each State were to interpret it in accordance with concepts that are specific to their own legal system. The court therefore adopted an approach favouring consistency of interpretation among nations, rather than one in which each country applies its own domestic principles.

After reviewing decisions from the U.K., the U.S., Belgium and Switzerland Justice Molloy held that the subjective test has been adopted by virtually all courts of nations that are parties to the Convention. France was a notable exception, adopting the objective test. Therefore, the court applied a subjective test in this case to determine whether British Airways acted recklessly in failing to refrigerate Connaught's cartons and that British Airways knew that the shipment would probably be damaged as a result.

Proof of Subjective Elements and Adverse Inferences

The court noted that:

Connaught gave notice of its claim to British Airways within a matter of days. British Airways took no steps to investigate or preserve evidence until two years later when the statement of claim in this action was delivered. Given the large volume of cargo that moves through London's Heathrow airport, it is perhaps not surprising that British Airways was unable to find the relevant information two years after the fact. Connaught gave timely notice. If British Airways had made the appropriate inquiries in a timely manner, there is good reason to believe that directly relevant information as to what happened would have been forthcoming.

The court then went on to state:

[I]t is appropriate in these circumstances to draw an adverse inference from the failure of British Airways to call any evidence as to why the cargo came to be stored in the manner it was. This was information solely within the power of British Airways to obtain, and it has not put forward any acceptable reason to explain its absence. The protection afforded to air carriers under Article 25 of the Convention is considerable. In the face of prompt notice of a claim in respect of this cargo, and bearing in mind the provisions of Article 25, it is not acceptable for British Airways to have done nothing to obtain the information relevant to Article 25 and then take the position that the plaintiff has failed to meet the Article 25 test.

The court observed that it is very difficult for a shipper to prove subjective intent, since the evidence is usually solely in the possession of the carrier. However, the requirement of proving actual knowledge under a subjective test does not carry with it a requirement that the knowledge be proven by direct evidence. In some cases, the risk of damage is so obvious that it can be inferred.

Following the approach taken in S.S. Pharmaceutical Co. Ltd. v. Qantas (1988), 22 N.S.W.L.R. 734 (Comm. Div.), Justice Molly held:

In the case before me, there is no direct evidence available as to the state of mind of the persons who handled the cargo in London. However, the requirement of refrigeration was clearly marked on the packages and on the waybills, and they were labeled as perishable. Refrigeration was available in London but not used. It is obvious that perishable goods requiring refrigeration will probably be damaged if they are not refrigerated. In my view, this gives rise to the inference that British Airways personnel deliberately took the risk of the damage. At the very least, it gives rise to circumstances requiring some response from British Airways and no explanation has been provided. This supports the drawing of an adverse inference against British Airways.

As a result, British Airways could not limit its liability under Art. 22 of the Convention. The result here was similar to an earlier decision in Nuvo Electronics v. London Assurance (2000), 19 C.C.L.I. (3d) 195 (Ont. S.C.J.) where the court, in the absence of any direct evidence that the cargo had been stolen by the carrier's employees, applied the civil burden of proof and drew the inference from all the evidence that it was more likely than not that the carrier's employees committed theft. There, the court considered the fact that the missing shipment of computer chips required a forklift to move, there were previous instances of similar shipments going missing at the same terminal, only the carrier's employees were authorized to enter the cargo area, and the location of the cargo in the warehouse was close to the supervisor's desk.

R.A.