July 24, 2018

No Recovery for Inspection Costs of Undamaged Cargo Under the Montreal Convention

Holland & Knight Aviation Law Blog
Caitlin L. Stachon

The U.S. District Court for the Southern District of New York recently addressed a novel question concerning inspection costs under the Montreal Convention (MC). In Indemnity Ins. Co. of N. Am. v. Agility Logistics Corp.,1 plaintiff, the insurer-subrogee, sued defendant to recover the cost of an aircraft engine inspection that ultimately revealed no transport-related physical damage to the engine.2 The case involved the international transport of a jet engine, which was loaded on the wrong type of truck for the final leg of its journey to Frankfurt Airport. The error required the recipient to undertake an inspection. Because the engine was not destroyed, lost, or damaged, the court determined the plain text of the Montreal Convention barred recovery and granted the defendant's motion for summary judgment.

Transport of the Jet Engine

The engine refurbisher contacted defendant to arrange for the engine's transport from a company that was storing the engine in Florida to an aircraft maintenance provider in Germany. The air waybill instructed: "All ground transportation must be full air ride." Thus, the truck used to carry the engine was required to have air-ride suspension on every axle.

At Frankfurt Airport, the engine was loaded onto a tractor-trailer that did not comply with the waybill's specifications (i.e., while the trailer had the required air-ride suspension, the truck did not). At its destination, the air carrier noticed the noncompliant transport, performed an inspection, and thereafter billed the engine refurbisher $177,450.07 for the inspection, which the plaintiff-insurer paid. Two key facts were undisputed: (1) the engine was improperly transported, but (2) it sustained no transport-related damage.

Subject Matter Jurisdiction and Standing

The court recognized that, like the ultimate issue of liability under the MC, its jurisdiction turned on whether Article 18 of the MC covered the alleged loss (i.e., the cost of inspection of undamaged cargo).3 Although defendant argued that the MC did not apply because the problem was improper road transport, the court found "it best to assume" for liability purposes that the event which caused the damage occurred when the engine was loaded on an improper truck at Frankfurt Airport and thus the MC "might apply."4

The court then determined that plaintiff, as insurer-subrogee, had standing to bring the suit because its insured—although not named on the air waybill—had a legal relationship with defendant such that it was the real party in interest.

No Article 18 Liability for Undamaged Cargo

In addressing liability, the court analyzed the text of the treaty, noting that Article 18 delineates three types of events that trigger carrier liability for cargo: (i) "destruction," (ii) "loss," and (iii) "damage." Although inspection costs are not specifically addressed, the MC's plain language limits recovery for cargo damage to that resulting from one of these three categories. Because the cargo was not destroyed, damaged or lost, the court held that "Article 18 imposes no liability."

The court supported its reasoning by referencing Article 18's counterpart—Article 17. Like Article 18 and cargo-related liability, Article 17 sets forth, inter alia, the only cause of action that a passenger may bring against a carrier for bodily injury. Similarly, both provisions restrict recovery to "damage" caused by the specific events listed therein: "death or bodily injury of a passenger" in Article 17 and "the destruction or loss of, or damage to, cargo" in Article 18. Courts have read such language in Article 17 to impose a clear prerequisite of bodily harm for passenger recovery—without physical injury, a carrier will not be liable for a passenger's mental injury. Finding that "[t]hese Article 17 cases can be analogized to Article 18 cases," the court concluded that Article 18 similarly precludes recovery for inspection costs unless caused by physical destruction, loss, or damage to the cargo.

Recognizing this result as "harsh" and "discomfiting," the court nevertheless concluded that "there is no way around the Convention's clear text."


Notes:

1 No. 16-CV-9731 (JPO), 2018 WL 3084060 (S.D.N.Y. June 21, 2018), appeal filed, No. 18-2131 (2d Cir. July 20, 2018).

2 The Convention for the Unification of Certain Rules for International Carriage by Air, concluded at Montreal, Canada, is a multinational treaty that covers all claims arising out of the "international carriage of persons, baggage or cargo performed by aircraft for reward." MC, art. 1, ¶ 1, May 28, 1999, reprinted in S. Treaty Doc. No. 106-45, 1999 WL 33292734.

3 Article 18 imposes liability on carriers for "the destruction or loss of, or damage to, cargo upon condition," so long as "the event which caused the damage . . . took place during the carriage by air." MC, art. 18, ¶ 1. "Carriage by air" is defined as "the period during which the cargo is in the charge of the carrier." MC, art. 18, ¶ 3.

4 Citing Victoria Sales Corp. v. Emery Air Freight, Inc., 917 F.2d 705, 707 (2d Cir. 1990) ("'transportation by air'" would include a loss occurring while the cargo was in the air or on the ground within the confines of the airport's boundaries).

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