Alberta Court says Air Cargo Liability Limits can be Broken

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Cargo airlines operating in Alberta may soon find themselves training their front-line staff to ask more questions when dealing with individual consumers. Last month, the Provincial Court of Alberta released a decision in which it held that the Montreal Convention does not dispense with the notice requirements applicable at common law, extending the reading the same court took seven years earlier in a case involving a baggage claim to cases involving air cargo.  For airlines, this means that limits on carrier liability under the Montreal Convention can be broken if their staff fail to bring the Montreal Convention limits to a non-commercial shipper’s attention. What is more, a simple verbal declaration of a shipment value that exceeds the Montreal Convention coverage may now be enough to circumvent the limits that were previously considered unbreakable.

The Facts

The decision, reported as Durunna v Air Canada, 2013 ABPC 31, involved a Plaintiff who shipped ten laptops worth approximately $4,600.00 to Nigeria through Air Canada. The Plaintiff visited Air Canada’s Air Freight Offices, and a waybill was started. The desk agent asked the Plaintiff about the value of the goods, and the Plaintiff replied that it was $4,000.00. The Plaintiff was then told that he would need to complete an Export Declaration Form.

When the Plaintiff returned with the completed form, the waybill had already been prepared. The completed waybill made no reference to the value of the goods. The face of the waybill contained a square box with a warning in capital letters stating that the shipper’s attention was being drawn to the notice concerning the carrier’s limitation of liability under the Montreal Convention. Further in the same box, the waybill stated that the shipper could increase the limit on liability by “declaring a higher value for carriage and paying supplemental charge if required.” The reverse of the waybill specifically referenced the Montreal Convention and the limits of liability imposed by it.

The Plaintiff paid the shipping fee and was given a copy of the waybill, which he had not signed. He was not asked to sign the waybill nor given an opportunity to read it. The Plaintiff was never offered to purchase additional insurance in excess of the standard Montreal Convention coverage. As bad luck would have it, the goods eventually disappeared en route to Nigeria.

Air Canada sought to rely on the Montreal Convention to limit the compensation payable to the Plaintiff. The Montreal Convention is an international treaty which limits a carrier’s liability for loss or damage to cargo to 17 Special Drawing Rights per kilogram of cargo. If the Convention applied, at today’s exchange rates, the Plaintiff would have only been able to recover approximately $975.00, less than 25% of the actual value of the lost shipment.

The Decision

Judge Skitsko rejected Air Canada’s argument that the Montreal Convention intended to dispense with any requirement on carriers to provide notice of the limitations of liability. As a starting point, the Court observed that at common law a defendant who wishes to rely on a limitation of liability clause must do what is “reasonably sufficient” to bring the limiting condition to the plaintiff’s attention. The Court then held that mere absence of a notice requirement in the text of the Convention did not oust the application of the common law.  Although it is an international treaty, the Montreal Convention must nonetheless be interpreted in light of the common law governing common carriers and bailment. The Convention would have had to contain something more, such as an express statement of intention to disclaim the notice requirement and override the common law, to dispense with the common law requirement to provide notice. As a result, Air Canada was required to give “reasonably sufficient” notice of the limits of liability applicable under the Montreal Convention.

The Court held that despite boxed warnings on the front of the waybill, the Plaintiff was not given sufficient notice of the limitation of liability imposed by the Montreal Convention. When the Plaintiff received the completed waybill, it did not contain any reference to the value of the package, except for acronyms NCV (meaning No Custom Value) and NVD (meaning No Value Declared), which were inserted by Air Canada’s agent. The latter acronym meant that the Plaintiff had made no declaration of the value of goods and thus the default Montreal Convention coverage would apply. The two acronyms were never defined anywhere on the waybill. Since the Plaintiff was asked about and stated the value of the shipment but was never offered to purchase additional insurance, the Court held that the Plaintiff would have had no way of knowing that he had agreed to the liability limits under the Montreal Convention, even if he were given the opportunity to read the waybill.

Finally, the Court considered Article 22(3) of the Montreal Convention, which provides that the liability limits do not apply if, when handing the package over to the carrier, the shipper (i) makes a special declaration of interest in delivery at destination and (ii) pays a supplementary sum if the case so requires. Judge Skitsko held that a simple statement regarding the contents and the value of the cargo is sufficient to be considered a “special declaration” within the meaning of Article 22(3).  With respect to payment of a supplementary sum, the Court held that there is an onus on the carrier to request an additional payment if such special declaration has been made. If the carrier fails to request additional payment, the supplementary sum cannot be considered “so required”, and component (ii) above does not apply. Since the Plaintiff in this case had verbally mentioned the value of the shipment and was never offered to purchase additional insurance, the Court held that Article 22(3) was satisfied and the Convention limits did not apply.

In the end, the Court went as far as to say that enforcing the Montreal Convention liability limits would be unconscionable in the circumstances. As a result, it awarded damages of $4,000.00, equal to the value of the lost goods as verbally declared by the Plaintiff. Additionally, the Plaintiff was entitled to recover the shipping fee.

Conclusion

The decision in Durunna v Air Canada appears to depart from what seems to be the consensus among aviation law experts: that the Montreal Convention limits are unbreakable when it comes to cargo. Indeed, the word “unbreakable” is somewhat of a constant refrain, appearing throughout books, articles, and other publications on the subject. In taking a restrictive reading of the Montreal Convention, the Court followed the reading of the Montreal Convention it took seven years earlier in Foord v United Air Lines Inc, 2006 ABPC 103, a case that dealt with damage to passenger baggage. While it may seem trivial, this is an important distinguishing feature, as the limitations of liability applicable to baggage have not been widely described as “unbreakable”.

Durunna now, in effect, extends the restrictive interpretation of the Montreal Convention in Foord to cases involving air cargo.While it may be seen as a positive development from the consumer protection standpoint, such step represents a departure from the traditional reading of the Convention as it pertains to cargo, and air carriers should be aware that the protections they may have regarded as “unbreakable” may no longer be absolute when it to consumer shipping contracts made in Alberta.

The use of the word “consumer” above is no accident. While relying on precedent in reaching its ultimate conclusion, the Court expressly distinguished a decision that dealt with a shipper who was a commercial entity, observing that “commercial parties are generally deemed to be sophisticated parties who intend to be bound by all the terms of the contract.” Accordingly, it appears that the impact of the Court’s decision will be restricted to transactions involving individual consumers. Commercial shipping will likely remain unaffected by the ratio in Durunna.

Although Durunna may still be appealed to higher courts, it remains binding law in Alberta until it is overturned. Accordingly, cargo airlines are advised to train their Alberta front desk personnel to expressly point out the limitations on carrier liability under the Montreal Convention when dealing with individual consumers. Air carriers should also create procedures and checklists to ensure that their staff (i) ascertain package value, (ii) accurately record that value on the waybill, and (iii) ask the customer if they would like to purchase additional insurance. Forms, whether paper or electronic, should contain a place where the customer’s answers can be recorded, in case there is any litigation in the future.

Given the consensus on the unbreakable nature of the Montreal Convention limits as they apply to cargo, the decision in Durunna may well be appealed within the coming months. Until then, however, caution will be the airlines’ best companion.

Topics:  Air Cargo, Canada, Liability Insurance, Notice Requirements, Valuation

Published In: Civil Remedies Updates, General Business Updates, International Trade Updates, Transportation Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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