Yu-Lai Jin October 5 2022 Precious stones worth ¥350,000 damaged during air transport: who is liable? KaiRong Law Firm | Aviation - China Yu-Lai Jin Aviation FactsDecisionCommentShippers must comply with various package and information disclosure requirements in order to transport cargo, especially valuable cargo. Such requirements might affect the liability of air carrier and the amount of compensation that must be paid if the cargo is damaged. A recent judgment concerning domestic air cargo transport provides some insight into the Chinese courts' views on this matter.FactsThe plaintiff, an individual, owned two pieces of original jade, which looked like common stones. He entrusted company A to transport the jade from Yiwu, Zhejiang province to Urumqi, Xinjiang province. The plaintiff packed the jade in burlap sacks and did not pay any additional freight costs for their transport. Company A charged 1,365 yuan for the freight and issued an air waybill which showed that:the cargo was described as "stones";the cargo was comprised of two pieces;the cargo was packaged in a burlap sack; andthe weight of the cargo was 113 kilograms.The jade was carried by a domestic airline (company B). However, when the flight arrived at the destination, it was discovered that one of the stones had broken into two pieces.The plaintiff applied for the value of the jade to be appraised. It was concluded that the jade had originally been worth around 350,000 yuan, but was worth only around 80,000 yuan after the damage.The plaintiff brought a lawsuit against company A and company B for the loss he had suffered as a result of the damage to the cargo.DecisionParty liable for cargo damageThe court considered the following aspects to determine the liability in this case.PackageAccording to the Contract Law and the Aviation Law, the consignor is responsible for cargo packages. However, article 10(2) of the Civil Aviation Cargo Domestic Transport Rules of China stipulates that:The carrier shall inspect the package of the consignor's cargo. If the package of the cargo does not meet the requirements of air transport, the package shall be improved by the consignor before transportation conducts. The carrier may not be responsible for inspecting whether the inner package of the consignor's cargo meets the requirements.The court held that the consignor may not have been clear about the package requirements formulated by the carrier for the cargo. While it was true that the plaintiff had not packed the cargo properly, company A and company B should have inspected the package to decide whether it was suitable for transport.However, the plaintiff himself was responsible for the validity and accuracy of the declaration of the description and value of the cargo. As the plaintiff's declaration was not correct or truthful, the carriers were not able to identify a suitable package for the cargo. Therefore, the consignor also contributed to the improper packing and the damage of the cargo.Value insuredAccording to the Civil Aviation Law, the consignor is responsible for the accuracy of the cargo description on the air waybill. In this case, the plaintiff declared the cargo to be normal "stones" to company A, and failed to indicate the actual value on the waybill. It could thus be presumed that the plaintiff failed to comply with the duty of truthful declaration.However, article 60(2) of the Contract Law provides that:Parties shall observe the principles of honesty and trustworthiness, and shall perform all notification, assistance and confidentiality obligations, etc, in accordance with the nature and purpose of the contract and in accordance with business practices.Therefore, the court held that, as a carrier, company A had been obliged to inform the consignor of the negative consequences that may result from an untruthful declaration. The consignor should have paid the full specified amount of the freight or got the high-value cargo insured.Furthermore, as the last and actual carrier, company B, was also obliged to check whether company A had fulfilled the information obligation.Who was at fault?In sum, the plaintiff and the two defendants were all at fault for the cargo damage. Article 136(3) of the Civil Aviation Law stipulates:In case of destruction, loss, damage or delay in respect of the consigned luggage or cargo, passengers and consignors have the right to sue the first carrier and passengers and consignees have the right to sue the last carrier. Passengers, consignors and consignees all have the right to sue the carrier responsible for the specified transport zone where the destruction, loss, damage or delay occurred. The carriers mentioned above must bear joint liability to passengers, consignors or consignees.In this case, the damages happened during the air transport period. Therefore, company A and company B had to bear joint and several liability to the plaintiff as they were the first and last carriers.Limit of liabilityArticle 132 of the Civil Aviation Law provides that:If it is proved that the loss incurred during the air transport is caused deliberately by the carrier or by an employee or agent of the carrier, or caused by their reckless actions or their failure to take actions when they are fully aware of the possibility of causing such losses, the carrier will have no right to invoke the provisions of Articles 128 and 129 of this Law concerning limits on liability for compensation. Evidence used to prove those reckless actions or a failure to take actions by an employee or agent of the carrier must also prove the fact that the employee or the agent acted within the scope of his or her employment or agency.The court held that the defendants had failed to submit any evidence to reasonably explain the cause of the cargo damage, nor had they proved that the cargo damage had not been caused by the carrier or the reckless handling of the cargo by the carrier's employees or agents. Therefore, the carriers were not entitled to the enjoy the liability limitation for domestic air carriers. Instead, the compensation liability of the carriers had to be determined by the actual losses of the cargo.Value of cargoThe court decided the plaintiff's loss should be 270,000 yuan under article 312 of the Contract Law:If the parties have agreed on the total amount of compensation to be paid for damage to or loss of goods, they shall act according to their agreement. If there has been no agreement or no clear agreement, and the issue cannot be determined by reference to the provisions of Article 61 of this Law, compensation shall be calculated in accordance with the market price of the goods at their intended destination at the time when they were delivered or ought to have been delivered.Given that both the plaintiff and the defendants had contributed to the cargo damage, the court decided the defendants had bear 50% joint liability for the cargo damage, while the plaintiff himself also had to bear the negative consequence of not truthfully declaring the nature as well as the value of the cargo.CommentFor cargo damage disputes arising from the international air transport of cargo – for example, where the air carriage is governed by the Convention for the Unification of Certain Rules for International Carriage by Air (the Montreal Convention), improper packaging would constitute an exception for the carrier. Moreover, the liability limitation for the air carrier under the Montreal Convention is unbreakable, even if the carrier has committed gross negligence or recklessness. However, when it comes to the domestic air carriage of cargos, things might be very different – the carrier has the obligation to check the outer package of the cargo to ensure it is sufficient for the air carriage. If the shipper's packaging does not meet the relevant requirements, the carrier must ask the shipper in a timely manner to replace and improve it.In addition, it is worth noting that domestic air carriers might be also required to inform or remind the shipper of the insurance matters out of the principle of fairness. Airlines are deemed to be the dominant parties in a contract, as opposed to customers.However, with regard to the limitation of liability, the court required the carriers in this case to bear the burden of proof to prove that there was no recklessness or intention causing the cargo damage in the transport period. This may be deemed unfair because the purpose of the limitation of liability is designed to protect the air carrier from undertaking excessively high responsibility that might be harmful to the continuous prosperous development of the aviation industry. It appears to be rather difficult for airlines to prove a negative fact without a clearer stipulation saying that the burden of proof should be transferred to the airline in such circumstances.For further information on this topic please contact Jin Yu-Lai at KaiRong Law Firm by telephone (+86 21 5396 1065) or email ([email protected]). The KaiRong Law Firm website can be accessed at www.skrlf.com.