Defining the limits of a carrier's liability, especially in international transportation, is one of the most important aspects of structuring the relationship between the insured (which may be the consignor or the consignee under the contract of carriage), the insurer and the carrier.
Once the insurer has paid compensation to the insured, it has a subrogated claim under Article 965 of the Civil Code against the person responsible for causing the damage (ie, the carrier). In practice, sensitive issues arise in determining the scope of the carrier's liability for full or partial loss of freight, especially in international carriage, where the rules of the Geneva Convention on the Contract for the International Carriage of Goods by Road (CMR) apply.
When concluding a freight insurance contract, the insurer and the insured agree on the amount of insurance compensation, which is usually calculated on the basis of the invoice or other value documents provided by the insured; the amount may also cover custom duties and value-added tax.
However, when terms governing the amount of insurance compensation are negotiated, insufficient attention tends to be paid to the question of how much compensation the insurer can subsequently recover from the carrier. As a rule, insurance contracts do not regulate details such as the need to specify the value of the goods on delivery under the CMR. Therefore, it is not uncommon for an insurer, having paid compensation, to be unpleasantly surprised that it cannot recover the full amount from the carrier due to the latter's limited liability.
In order for consignors to cut costs, a contract of carriage often imposes no obligation on the parties to indicate the value of the goods in the CMR consignment note. This has negative consequences for the insurer of the goods (but not for the parties to the contract of carriage) if an insured event occurs.
Under Article 23 of the CMR, in the event of a total or partial loss of goods, the carrier is liable for compensation - in this case, payable to the insurer - to the value of the goods at the place and time at which they were accepted for carriage. The value of the goods is determined according to the commodity exchange price or, if there is no such price, according to the market price of the goods. However, Article 24 limits the carrier's liability to 25 francs a kilogram of gross weight short. In accordance with Article 2 of the protocol to the CMR, Article 23 was amended to replace francs with special drawing rights (SDR), so that the limit of liability is now "8.33 units of account per kilogram of gross weight short".
This amount (ie, 8.33 SDR) is converted into the national currency of the state in which the court is considering the dispute in question, on the basis of the value of such national currency as of the date of the decision or another date agreed between the parties. In insurance disputes, courts and parties usually effect settlements as of the date of the insured event.(1)
In accordance with Article 317 of the Civil Code, the amount expressed in SDR is determined according to the official exchange rate of conventional monetary units as of the day of payment, unless another exchange rate or date of determination is set by law or agreed by the parties.(2) This seems logical for the transportation of ordinary freight, but where the goods consist of expensive equipment, machinery or vehicles - or any cargo whose price is disproportionate to its weight - the carrier's liability is considerably limited.
Article 23(6) of the CMR stipulates an exception for such cases. A higher amount of compensation can be required from the carrier if the value of the freight was indicated when the contract of carriage was made - this freight value is the limit of the carrier's liability. In addition, the carrier has a right to extra freight (to pay for the escort). Adverse effects of carriage without declared value fall to be dealt with by the insurer if an insured event occurs. In such cases the insurance company may find itself in a situation in which only a small amount of insurance indemnity paid to the insured can be recovered from the carrier.
This state of affairs considerably impairs the insurer's property interests, particularly when the insured goods consist of expensive high-tech equipment, the cost of which significantly exceeds its weight, even when multiplied by 8.33 SDR.
As the insurer is not party to the contract of carriage and such contract is outside its control, it seems that the only way for an insurer to protect itself is to include in the insurance contract a clause that exempts it from liability for carriage of goods without a declared value, or a condition which limits the compensation payable to the amount established in Article 24 of the CMR.
For further information on this topic please contact Yulia Babkina at Clyde & Co (CIS) LLP by telephone (+7 495 728 99 55), fax (+7 495 926 49 40) or email ([email protected]).
(1) Neither Russia nor the Soviet Union is or was party to the protocol. However, when considering the protocol, Russian courts proceed from the fact that the Soviet Union joined the CMR in 1983, when the CMR was already effective, along with the protocol. Decree 9763-x of the presidium of the Supreme Soviet, on the Soviet Union's accession to the CMR, contains no provisions on non-accession to the protocol. (See, for instance, the ruling of the Thirteenth Arbitrazh Court of Appeal in Case А21-4030/2002). The limit of carrier's liability is calculated by multiplying the gross weight of the freight in kilograms by 8.33 SDR.
(2) The exchange rate is set by the Central Bank of Russia under Article 4(15) of Federal Law on the Central Bank of the Russian Federation (86-ФЗ).