CMR: Contracts for the international carriage of goods by road

Andrew Messent and David A Glass

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CHAPTER 9 Compensation

9.1 This chapter is concerned with the quantum of the carrier’s liability to the cargo interests, which is dealt with by Articles 23 to 29 of the Convention. Article 23 contains the basic provisions as to the extent of that liability, but before turning to a detailed consideration of those provisions, some general explanation is required concerning Article 23(3), which contains the general limit of that liability. In its original form1 that limit was defined in terms of the gold franc. That formula was conceived in a world financial system whereby the price of gold remained stable, as a way of establishing a uniform fixed unit of account which would not vary from country to country despite fluctuations in the exchange rates of individual currencies. This system, however, was dependent on the artificial device of declared official gold parities by members of the International Monetary Fund (IMF), but since 1971 the price of gold has fluctuated freely, producing a situation where there were in effect two gold values: the artificial official rate,2 and the free market rate, the latter being considerably higher than the former and, moreover, constantly fluctuating. 9.2 Neither the Convention itself nor the Carriage of Goods by Road Act 1965 provided any mechanism for the conversion of the gold franc into the national currency, and it therefore became a matter of considerable controversy as to whether the official rate or the market rate was to be used in establishing the upper level of compensation under Article 23(3). As a result of these uncertainties, the Inland Transport Committee of the E.C.E. adopted a protocol to CMR3 which has been ratified by this country, and the necessary amending legislation, contained in the Carriage by Air and Road Act 1979, is now in force.4 That Act, in accordance with the provisions of the Protocol, substitutes a new para. (3) and adds a new para. (7) to Article 23, the general aim of which is to substitute reference to the Special Drawing Right (SDR) as defined by the IMF for the gold franc for the purposes of calculating the upper level of liability. These changes are considered in detail later in this Chapter,5 but for present purposes it is important to note that Article 23 is set out here in its amended form. Article 23 therefore now provides as follows:

1. When, under the provisions of this Convention, a carrier is liable for compensation in respect of total or partial loss of goods, such compensation shall be calculated by

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reference to the value of the goods at the place and time at which they were accepted for carriage.
2. The value of the goods shall be fixed accordingly to the commodity exchange price or, if there is no such price, according to the current market price or, if there is no commodity exchange price or current market price, by reference to the normal value of goods of the same kind and quality.
3. Compensation shall not however, exceed 8.33 units of account per kilogram of gross weight short.6
4. In addition, the carriage charges, Customs duties and other charges incurred in respect of the carriage of the goods shall be refunded in full in case of total loss and in proportion to the loss sustained in case of partial loss, but no further damages shall be payable.
5. In the case of delay, if the claimant proves that damage has resulted therefrom the carrier shall pay compensation for such damage not exceeding the carriage charges.
6. Higher compensation may only be claimed where the value of the goods or a special interest in delivery has been declared in accordance with articles 24 and 26.
7. The unit of account mentioned in this Convention is the Special Drawing Right as defined by the International Monetary Fund. The amount mentioned in paragraph 3 of this article shall be converted into the national currency of the State of the Court seised of the case on the basis of the value of that currency on the date of the judgment or the date agreed upon by the Parties.7

The basis of calculation

9.3 Where under the Convention a carrier is held liable for total or partial loss8 of goods, the measure of damages payable will be calculated by reference to the value of the goods at the place and time at which they were accepted for carriage.9 This provision is diametrically opposed to the English common law rules for assessing damages for loss or damage to goods in transit.10 It was stated in the Court of Appeal that at common law “you look at the value at the end of the intended journey and subtract savings from that value. Under the Convention you look at the value at the beginning of the intended journey and then add to that value any extra losses suffered which properly fall within para. 4 of Article 23, or in special cases within Article 24 or Article 26.”11 9.4 There is some authority that these rules, and the limitations imposed by them, cease to be relevant in circumstances where the claim is not one involving loss, damage or

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delay to the goods but involves a claim for loss based on the contract of carriage or some applicable rule of national law which is not restricted by CMR.12 Thus in Shell Chemicals U. K. Ltd. v P. & O. Roadtanks Ltd.,13 a tank carrier instructed to deliver chemicals to a refinery mistakenly delivered detergent, which was inadvertently pumped into the refinery, causing loss and expense. This was recoverable without limitation by reference to the provisions of CMR.14 In a French decision, the failure of the goods to reach their destination was classified not as loss, damage or delay, but a failure by the carrier in the execution of the contract of carriage entitling the court to award damages on the basis of the law applicable to the contract rather than CMR.15 However, a different approach was adopted in Gefco (U.K.) Ltd. v Mason (No. 2),16 in which, as explained above,17 the judge distinguished the Shell Chemicals case and took the view that if a head of damage is not recoverable under the Convention then it is not recoverable at all. This apparent divergence of view remains to be explored further by the English courts. Another difficulty which emerges from the case law is the conflicting analyses of facts adopted by the individual courts. Whereas one court may see a particular set of facts as being within the scope of the concepts of loss,18 damage19 or delay,20 another court may see similar facts as outside their scope and so properly referable to national law.21 Thus

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the French decision just noted can be contrasted with a German decision where goods which had partly deteriorated were refused an entry visa to France and had to be returned to the sender, who sold them to another buyer. According to the court, this amounted, in effect, to a total loss justifying the recovery of costs of return freight and other charges on the basis of Article 23(4).22 9.5 However, assuming the application of Article 23, the value of the goods for the purposes of Article 23(1) is determined by reference to the commodity exchange price23 if there is such a price or, if not, the current market price,24 or, failing this, the normal value of goods of the same kind and quality.25 9.6 In practice the sale price indicated on the invoice will normally be used as the basis of calculation26 unless it can be argued that this is not the true value of the goods at the place where they were accepted for carriage within the meaning of the Convention.27 Such

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an argument can apply, for example, where the goods have been sold some time before the carriage has commenced, and the value of the goods has increased in the meantime.28 9.7 The question of establishing the value of goods for the purposes of Article 23(1) was discussed at length in James Buchanan & Co. Ltd. v Babco Forwarding & Shipping (U. K.) Ltd. both by the Court of Appeal and the House of Lords.29 In that case the plaintiffs, who were whisky distillers, agreed to sell a shipment of whisky to Iranian buyers. The whisky was sold on f.o.b. terms. It was loaded into a container, ex-bonded warehouse in Glasgow, on a box trailer belonging to the defendants for onward carriage to a North Sea port, and ultimately by road to Teheran. The whisky was stolen while left unattended in London. The carrier’s liability was not disputed, nor was it disputed that the contract was subject to the Convention, and the sole question before the court was the quantum of damage. As the whisky had been stolen in the United Kingdom, the Revenue authorities claimed excise duty from the plaintiffs, which the latter paid as they were bound by law to do. This they claimed in turn from the carrier under Article 23. If the whisky had been successfully exported no such duty would have been payable. The f.o.b. Felixstowe value of the whisky was approximately £7,000 and the excise duty was almost £30,000. Although the House of Lords, by a majority, decided in favour of the plaintiffs,30 it was held that the value of whisky at the time and place at which it was accepted for carriage was to be fixed by reference to its current market price, which was held to be its current export market price, as evidenced by the plaintiff’s invoices and by the evidence of the plaintiff’s financial director to the effect that “the export market is a definite market and that this transaction was a normal piece of business”.31 It therefore did not include the excise duty as claimed by the plaintiffs.32 Further, since the invoice

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price was f.o.b. it included an element in respect of carriage charges, which was also to be deducted for the purposes of Article 23(1) and (2). 9.8 Hardingham33 is of the view that it was inappropriate to use the second limb of Article 23(2) (current market price) and that the third limb (normal value of goods of the same kind and quality) should have been used, on the basis that such goods normally purchased at that time and place would bear duty, the full amount therefore being recoverable. It seems unlikely that reliance on the third limb would on its own have made any difference to the result, since all three judges in the Court of Appeal considered the third limb and reached the same conclusion as under the second limb. However, Lord Denning, M.R., and Roskill, L.J., in the Court of Appeal, and Lord Wilberforce (with whose reasoning in this respect Lord Salmon agreed) in the House of Lords, were much concerned that if the market price or normal value were to include the excise duty, the plaintiffs would obtain a windfall in the event of the whisky having disappeared in circumstances such that the duty did not have to be paid. Hardingham argues that such a result would not follow, since it is provided only that compensation is to be calculated by reference to the value of the goods, not that such sum is recoverable in any event. Some support for such a view can be drawn from the comments on the wording of Article IV, Rule 5(b) of the Schedule to the Carriage of Goods by Sea Act 1971 in Scrutton on Charterparties and Bills of Lading.34 It is there argued that the use of the same words may indicate an intention that the value of the goods is intended only as a yardstick, thus admitting the possibility that more, or less, might be recoverable in the circumstances of a particular case. On the other hand, the use of the word “fixed” in Article 23(2) (which also appears in the same context in Rule 5(b)) perhaps suggests the contrary, but it can equally be argued that the word “fixed” in this context means no more than “assessed”.

The limit of liability

9.9 As has already been explained,35 in relation to those countries which have ratified the Protocol,36 the position is now considerably simplified.37 The carrier’s maximum liability for the purposes of Article 23(1) and (2) is now fixed by Article 23(3) in its amended form at 8.33 units of account per kilogram of gross weight short.38 “Unit of account” is explained by the new Article 23(7) as being the SDR as defined by the IMF. The SDR represents a notional unit of account, calculated on the basis of a “basket” of 16 currencies, which accordingly does not fluctuate in value to the same extent as any one currency within the basket. In essence, therefore, its object is to produce a unit of account free of the fluctuations of individual currencies.39 Although doubts have been

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expressed as to the suitability of the SDR, based mainly on its failure adequately to take account of inflation,40 such doubts can, it is hoped, be met by periodic reviews of the limit set. In this connection, Article 10 of the Protocol provides that any party to the Protocol can, after it has been in force for three years, request a conference for the review of the Protocol, such conference to be held if one-quarter of the parties concur. A new section 8A, introduced into the 1965 Act by section 3(3) of the 1979 Act, gives power for any resulting amendment to be made by Order in Council. 9.10 Further, whatever doubts there may be as to the suitability of the new SDR limit, it does have the great advantage of producing a readily ascertainable41 maximum figure in an area previously the subject of much controversy. Another major difficulty is also resolved by the Protocol, namely the date at which the rate is to be calculated. The new Article 23(7) removes all doubt in this respect by providing that the SDR amount is to be converted into the national currency of the court on the date of judgment42 or the date agreed by the parties.43 9.11 The previous uncertainties in relation in Article 23(3) will, of course, continue in claims brought in jurisdictions which have not ratified the Protocol, and the choice of jurisdiction in relation to a CMR claim may well be influenced by having regard to which States have ratified it and which have not. For this reason, some consideration of the position under the Convention in its original form is required. 9.12 Article 23(3) in its original form provided:

3. Compensation shall not, however, exceed 25 francs per kilogram of gross weight44 short. “Franc” means the gold franc weighing 10/31 of a gramme and being of millesimal fineness 900.

As already indicated, the major controversy in relation to this provision was as to whether, in valuing the franc, regard was to be had to the official value or the market value of gold,45 the latter producing a considerably increased possible maximum liability. This question never arose before the courts of this country, but cases in Continental jurisdictions have produced contrasting results,46 so that Loewe was only able to describe the question as an open one.47

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