Sea carrier's inspection obligations
Sea carrier's obligations when defects in container are discovered
Product liability for container damage
Comment
This article is part of a series that describes some of the issues that the Danish Merchant Shipping Act's various liability regimes raise in practice, including issues in relation to the extent of liability for subcontractors and product liability for these types of damages.(1) In particular, this article focuses on obligations and product liability for container damage.
Sea carrier's inspection obligations
In addition to the carrier's obligation to examine the container itself for defects under section 262 of the Danish Merchant Shipping Act, it is also the responsibility of the sea carrier as per section 256(1) the Danish Merchant Shipping Act, to a reasonable extent, to check whether the goods are packed in the container in such a way that they are not damaged during transport. However, the carrier is not obliged to inspect the interior of the container for goods packed in containers unless there is reason to believe that the goods are defectively packed in the container.
This provision alone prescribes an inspection obligation and thus does not relieve the consignor of responsibility for the goods being adequately packaged.(2) These provisions provide the opportunity to examine the following questions with a view to uncovering the extent of the sea carrier's liability:
- What is included in the definition of "reasonable extent"?
- To what extent does the sea carrier's duty to investigate apply?
- When does the sea carrier have "reason to believe" that the container is inadequately packed?
The first two questions are explained in a judgment issued by the Danish High Court in 2018.(3) The case concerned the question of whether a shipping company was liable for damages for moisture damage to goods, due to the type of container used for the transport.
Facts
The defendant was a shipping company that carried out sea transport of goods between Denmark and Greenland. The shipping company was hired by a Danish forwarding company to carry out the transport of a prepackaged "flatrack container" (a container that is open at the top and on two sides). The flatrack container was packed with building materials consisting of plywood and rockwool. Before the goods were transported, the shipping company's employees noticed that the container was only partially covered by a thin tarpaulin and that the bottom 30 to 40 centimetres of the plywood was uncovered. Despite this, the container was transported by the shipping company on the ship's deck with no further measures. Upon receipt of the goods in Greenland, it was found that the goods had been damaged.
Danish City Court
In the Danish City Court found the shipping company liable for the damage that occurred.
The Danish City Court stated:
When it could thus be established by an immediate and visual external inspection that sensitive goods were unprotected, the defendant should have initiated a closer investigation of whether the goods were satisfactorily packed for deck transport to Greenland at the given time of the year, before choosing this placement of the goods. By failing to do so, the defendant is found to have disregarded its duty to investigate, noting that in this context it is irrelevant who packed the goods.
Danish High Court
The shipping company appealed the judgment to the Danish High Court, which, with dissent, upheld the Danish City Court's judgment. The Danish High Court reasoned that:
Under to Section 256 (1) of the Danish Merchant Shipping Act, the carrier shall, to a reasonable extent, examine whether the goods are packed in such a way that they cannot be damaged, and under subsection 2, the carrier must notify the consignor if they are missing, the latter has discovered, but is not obliged to transport the goods, unless the carrier can make it suitable for transport by reasonable means. The fact that the [Forwarding Company], which has packed the goods on behalf of the cargo owner, has made a mistake by failing to book below deck, cannot, according to the wording of these provisions, change the [Shipping Company's] obligations towards the cargo owner.
. . .
After [X's] explanation that the goods were not packed for transport on tires, that the goods alone were partially covered by a thin tarpaulin, and that the bottom 30-40 cm of the plywood was uncovered, combined with [Y's] explanation about how building materials are normally packed, the High Court must assume that an external inspection of the flat rack should have given the staff at the [Shipping Company] reason to suspect that the packaging was not suitable for transport on deck.
Comment
This judgment clarifies the circumstances in which a sea carrier is expected to react to visible defects prior to the performance of the transport.
Based on the judgment, the sea carrier will only be liable if it is clear to the carrier that the goods will be damaged if the container is used to carry out transport. In the case in question, the Court did not rule on the sea carrier's investigation obligations in relation to defects in the container. The Court instead added the chosen type of container and its suitability as the basis for its decision.
Sea carrier's obligations when defects in container are discovered
In cases where the sea carrier discovers defects in a container prior to the performance of a sea transport, it follows from section 256(2) of the Danish Merchant Shipping Act that the sea carrier has a duty to inform the consignor of such defects.
If the carrier discovers a visible defect in a container delivered by the consignor, the sea carrier will be entitled to refrain from carrying out the transport unless the container can be made suitable for transport by reasonable means.
The sea carrier is not released from its transport promise if the defective container has been delivered by the sea carrier itself. In such cases, it must be assumed that the sea carrier will still be obliged to carry out the transport and must, therefore, before carrying out the transport, make the necessary dispositions with a view to taking due care of the goods. Otherwise, the carrier will be liable under section 262(2) of the Danish Merchant Shipping Act if the defects in the container result in damage to the goods.
Product liability for container damage
In addition to the sea carrier's liability for container damage, clarification of the liability also gives rise to a closer examination of the manufacturer's responsibility for the container's liability for loss, which may occur as a result of the use of defective containers for transport.
A manufacturer of containers will, in principle, be liable for damage caused by a defect in a product that has been produced or delivered.
Under the Danish product liability rules, the container manufacturer is subject to strict culpa liability, which, according to case law, tends towards a strict liability.(4) It is the responsibility of the party that incurred a loss to prove that the product was defective and that the specific defect caused the damage in question.
The product liability rules apply to services and thus also to transport services. In the cases referred to here, such services can be characterised as "combined services", which include the delivery of a product. If damage occurs as a result of defects in the container, for which the sea carrier is liable, the sea carrier will be able to make a recourse claim against the container manufacturer in accordance with the provisions of the Danish Product Liability Act.
In addition to the sea carrier's interest in being able to make a recourse claim against the container manufacturer for damage to goods caused by defects in the container, the interest in the goods may also be an incentive to make a product liability claim directly against the container manufacturer. The advantage of such a direct claim against the manufacturer is that the Danish Product Liability Act contains no provisions regarding limitation of the manufacturer's product liability, in contrast with the Danish Merchant Shipping Act, under which the sea carrier has the right to limitation of liability.
As a starting point, liability under general transport law will relate to damage to the transported goods and will not include consequential damage. However, it is debated as to what extent section 279 of the Danish Merchant Shipping Act cuts off the interest in goods from being covered for consequential loss or other consequential damages.(5) This legal position can create an incentive from the interests of the goods to make a direct claim against the container manufacturer based on product liability legal rules, as it is clear that product liability includes consequential loss. However, no decision has been taken in Danish case law as to whether a direct claim under the product liability rules will be limited by the transport law rules and thus there is uncertainty as to whether it is possible to succeed with a direct product liability claim against the manufacturer.(6) Furthermore, there is uncertainty as to whether the Danish Merchant Shipping Act's limitation of liability rules will "cut through" product liability in cases where, by its nature, product liability damage is covered by the Danish Merchant Shipping Act's scope of application.
The sea carrier's liability for container damage is constituted by two different liability regimes in the Danish Merchant Shipping Act. Which liability regime applies to container damage that occurs depends on whether it is a visible or hidden defect and whether the defect in the container occurred before or after the start of transport.
When assessing the sea carrier's liability for container damage, particular attention must be drawn to the sea carrier's increased duty to carry out due diligence of the container prior to carrying out the transport.
The duty to exercise due diligence means that the sea carrier will be liable on a stricter basis under section 262 of the Danish Merchant Shipping Act if damage occurs to goods that is due to visible defects on the container – and that can be ascertained by an immediate external inspection of the container.
For hidden defects on containers, the sea carrier is subject to the Danish Merchant Shipping Act's transport law based liability norm under section 275, under which the sea carrier is free from liability if it can prove that the damage is not due to the sea carrier's mistakes or negligence.
The sea carrier is subject to extensive liability for the carrier's subcontractors, in connection with the performance of work that can be characterised as "shipping operations". It cannot be ruled out that the carrier is liable for errors and omissions committed by the manufacturer of a container used by the shipping company as well as consequential damages.
The sea carrier's liability for container damage gives rise to a number of product liability legal issues, including the possibility of succeeding in direct product liability claims as well as recourse claims against container manufacturers.
For further information on this topic please contact Kasper Hedegaard Jepsen at WSCO Advokatpartnerselskab by telephone (+45 3525 3800) or email ([email protected]). The WSCO Advokatpartnerselskab website can be accessed at www.wsco.dk.
Endnotes
(1) Act No. 1505 of 17 December 2018.
(2) Karnov note 499 to the Danish Merchant Shipping Act.
(4) Comments on the legislative proposal for the Product Liability Act, cf Folketingstidende 1988-89, appendix A, page 1601.
(5) Karnov note 567 to the Danish Merchant Shipping Act.
(6) Ulfbeck, Vibe, Areas of liability law, 2nd edition (2010), page 168 etc,.