October 2004

Canadian International Freight Forwarders Association Submission to Transport Canada on the Draft UNCITRAL Transport Law Convention

"The Canadian International Freight Forwarders Association [CIFFA], representing 162 of Canada's warehousing, logistics and international freight forwarding (NVOCC) stakeholders wishes to submit its views on marine liability reform and the UNCITRAL draft convention for the consideration of Transport Canada further to the discussion held at Ottawa on October 7, 2004.

1. National Law and Maritime Performing Party CIFFA supports both the concept of maritime performing party proposed by the United States as well as the national law concept proposed by Canada. The definition of the maritime performing party should remain strictly limited to port service providers such as stevedores and other maritime performers and not inland terminal operators such as rail or truck terminal and warehouse operators, whose liability should continue to be governed by existing national laws. In this regard, CIFFA strongly supports the concept of network liability that gives effect to national laws over the non-maritime segments of transport, as put forward by Transport Canada's Option 2 in its proposal to UNCITRAL. It should be noted that there is no national law as far as we know that governs the liability of port stevedores, in Example 2 (page 12 of the Consultation Paper.) As such, we believe stevedores should fall under the category of maritime performing party, as a way of enshrining Himalaya as well as making them responsible for their negligence directly to the shipper. We believe the burden of proof as to which national law is applicable should be upon the contracting carrier as it is envisaged that claims would be made on the basis of non-localized loss by the claimant under a default uniform liability limitation. With regards to whether the phrase undertakes to perform should be included in the definition of performing party, we believe that it should not. If the definition of performing party is any party that physically performs any of the contracting carrier's responsibilities without having any direct contractual relationship with the shipper (as in the distinction of actual carrier versus contracting carrier in the Hamburg rules), we believe the concept of performing party is founded in the principle of tort liability as a physical bailee of the goods, whose liability has been established by the Himalaya jurisprudence, of which we understand the intent is to incorporate it into the convention. As such, the mere undertaking to perform could be an undertaking as the carrier's agent and any failure on the part of the physical performer should not result in liability on the part of the agent who undertook to carry out the carrier's obligations. If the argument of the United States is that physically performs is too restrictive in terms of dealing with the tort liability of a performing party that failed to perform, i.e.: failed to carry out the sub-contracted work, then for the sake of clarity, we feel that the phrase should read: undertakes to physically perform, as adopted by the UNCITRAL Working Group (A/CN.9/WG.III/WP.36)

2. Freedom of Contract and Liability Limitation There has been much deregulation of the transportation industry in the United States since the ë80s, notably with the ICC Termination Act, which granted freedom to negotiate rates and released the carrier from mandatory liability limits in interstate trucking and rail. There is a general sentiment towards the reduction of the volume of litigation in the courts and the legal costs associated with them and we believe the U.S. proposal of freedom of contract fits this trend. Why are maritime claims being settled through the process of litigation in the first place? We believe the problem is inherent in the antiquated sea carriage convention of the Hague rules, which places the presumption of fault upon the carrier while granting exculpatory exemptions, creating a system conducive to litigation. On one hand, the insurance industry insures the carrier while on the other, it insures the cargo. Both shipper and carrier pay a premium and the fight is between the liability insurer and the cargo insurer for recovery, or between the shipper and the carrier if there was no cargo insurance, often resulting in settlements that do not even add up to the legal costs of the claimant or anything near the value of the goods lost. At best, it ensures to damage an otherwise good business relationship between the carrier and its client, who thought he did not need cargo insurance on account of the liability limitations. We believe a reform of this antiquated system would make good sense. The desire of the shipper and his service provider, the carrier, is for commercial certainty. Loss and damages occur in spite of the best care and due diligence. At the time when the Hague rules were drafted, maritime carriage was a risky venture both for the shipowner and the shipper. Cargo often was not properly handled at the piers or properly stowed on board a ship. Shipping was not nearly as sophisticated as it is today. Hence the per package limitation was a way to induce better cargo handling on the part of the shipowner, while compensating the cargo underwriter, should the shipowner or his servants be at fault. Today, the per package limitation is about $1,200 under the Hague-Visby rules and may go as high as $1,500 under the Hamburg rules. Some even say that given the change in the value of the dollar since the $500 per package limitation set in U.S. COGSA 1936, this amount ought to be US$6,000 per package in today's dollar. Meanwhile, the amount of packaging material and the size of the packages for most consumer goods have gradually diminished over the years to the point, where a package today could be one piece of garment among thousands in a hanging garment container or one cell phone or a lap-top computer occupying the space of one cubic foot inside a container. A 45 ft. container could conceivably contain 2,500 packages of high value merchandise. At a liability limitation of $1,200 per package, such a container would expose the contracting carrier to a potential liability of $3 million, should the container become a total loss. Such a high per package liability limitation may also lead the shipper to mistakenly believe that the purchase of cargo insurance is not necessary as the value of his goods may be within the per package limitation. In fact, for some large shippers, it is more economical for them to create a risk fund and to use their own lawyers to sue for recovery than to purchase cargo insurance from underwriters. Others find that it is more economical to have a lower freight rate that releases the carrier from liability than to pay a higher freight rate that includes a liability limitation. It is a matter of economics, practicality and, above all, business certainty.

The old argument that applied to the days of the Harter Act and the Hague rules that if there were no financial consequences, carriers would not act responsibly, is no longer relevant today. Given intermodal containerization, the advancement in shipping technology and the modern system of partnerships between the shipper and his logistics service provider, and in turn, between the logistics service provider and his performing parties, maritime carriage is far less risky today than in the days of conventional shipping. Yet accidents can happen and the relationship between the shipper and service providers in the transport chain ought not to be adversarial on account of the regime of the convention. This is why we applaud the world's largest shipper and shipowner organizations, the NIT-League and the World Shipping Council, for joining forces in promoting freedom of contract as proposed by the U.S. government and why we are in support of its basic principle. The U.S. freedom of contract proposal is that the contracting parties can derogate from all or parts of the convention by private agreement through ocean liner service agreements [OLSA]. Although we are in support of the freedom to negotiate liability limitations in consideration of freight rates, we, however, do not believe that the freedom to derogate from all or parts of the convention is the right approach. Such freedom would undermine the integrity of the convention and disrupt the very harmony the UNCITRAL seeks to achieve. There ought to be certainty and uniformity in the rules relating to the document of title, transfer of title, right of control, electronic commerce protocols, obligations of the carrier, obligations of the shipper, etc., that are not at the heart of freedom of contract, which to us, is really about the ability to derogate from the prescribed monetary liability limitation (an insurance matter) and the freedom to specify a forum for arbitration or litigation. The danger that the OLSA approach poses is that a third party in possession of the document of title will not be aware from the face of the transport document that there is an overriding OLSA prescribing a different liability limitation to which the third party is not bound and therefore, the carrier or maritime performing party would likely include an indemnification clause going back to the shipper in the OLSA against suits from third parties, in effect, shifting liability costs squarely back to the shipper. Therefore, we believe that the freedom of contract concept should not be by way of treating an OLSA as if it were a charter party, rendering the convention void only for those who are parties to the OLSA and not for others but by allowing the freedom to mutually agree upon the liability limitation and the forum for arbitration or litigation right on the contract of carriage, in the transport document itself, so that there is certainty and clarity among all the parties, direct and indirect, to the contract of carriage. This can be achieved by simply changing Article 88 of the draft instrument in A/CN.9/WG.III/WP.32. We believe it is an opportune time for a reform of maritime carriage liability in the same way automobile collision insurance has been reformed. There ought to be an option for a no-fault, no-liability and no-litigation contract of carriage between consenting parties and the risk for loss or damage would simply be a matter of obtaining a no-subrogation cargo insurance, to be procured either by the shipper or supplied by the carrier.