Decision ?evens playing field? for forwarders

Decision æevens playing fieldÆ for forwarders    A recent Ninth Circuit Court of Appeals decision over an air cargo shipment 'has evened the playing field for air freight forwarders when it comes to third party indemnity claims,' says Peter D. Clark, a partner at Clark, Atcheson & Reisert.
   Clark has written a detailed article about the decision in Chubb Insurance Co. of Europe S.A. vs. Menlo Worldwide Forwarding Inc., which is posted on the Sea Law section of his law firm’s Web site.
   He said the decision could have important implications across the United States and beyond the border of the United States.
   Clark said a 'most unusual move' in the case was for the judges to solicit friend of the court briefs after hearing attorneys' arguments in the case. Aviation law scholars and practitioners, and trade associations filed briefs, he said.
   The case grows out of the shipment of a turbine aircraft engine by Air New Zealand Engineering. On Nov. 14, 2004 the company hired Menlo Worldwide Forwarding (which was acquired by UPS one month later) to arrange the shipment. Menlo, in turn, contracted with Qantas Airways to move the engine from New Zealand to Los Angeles.
   The engine was damaged when it arrived in Los Angeles and the owner filed a claim with its insurer, Chubb, which paid the owner $119,666.62.
   On Nov. 14, 2006, Chubb brought a lawsuit against UPS seeking to recover the money it had paid to the engine’s owner. Chubb argued UPS was liable for the damage to the engine under the Montreal Convention, a treaty that governs international air carriage of cargo as well as passengers and baggage.
   UPS in a settlement agreed to pay Chubb $80,000, and then UPS sued Qantas in U.S. District Court, seeking indemnification and contribution for the sums it had paid Chubb. UPS said it was “in no way responsible for the damage.”
   But the district court dismissed UPS’s suit, reasoning that under Article 35 of the Montreal Convention, it was not timely because it was not brought within two years of the damaged engine’s arrival in Los Angeles — even though UPS itself was not sued until two years after the delivery.
   The Ninth Circuit said Chubb's suit against UPS was asserted under a provision that gives the right to sue for 'damage sustained in the event of the destruction or loss of, or damage to, cargo. And under Article 35 of the treaty that 'right to damages' is extinguished after two years.
   But UPS's action was predicated on a different right, the Ninth Circuit found.
   'UPS does not seek compensation for damage sustained to the engine; rather UPS as a contracting carrier, seeks indemnification (and contribution) from Qantas, as an actual carrier, for compensation it has already paid Chubb,' the court said.
   And while the Montreal Convention does not create a cause for indemnification or contribution among carriers, neither does it preclude local law actions, which the convention refers to as 'right of recourse,' the appellate court said. It pointed out that Article 37 of the convention said nothing in it 'shall prejudice the question whether a person liable for damage in accordance with its provisions has a right of recourse against any other person.'
   Since UPS's action against Qantas was premised on that 'right of recourse' and not the 'right of damages,' the Ninth Circuit found the two-year bar did not apply, and it overturned the lower court and remanded the case or trial.
   Clark said one of the arguments advanced by UPS 'against the inequity accepted by the lower federal district court was to apply admiralty law concepts to the Montreal Convention.'
   While the Carriage of Goods of Sea Act has a one-year, instead of two-year limitation period for bringing suits, 'admiralty law decisions interpreting COGSA consistently do not apply its one-year statute of limitation provision to third party actions. In admiralty law, indemnity does not arise until the indemnitee has to make payment for loss,' Clark noted.
   When that happens, 'the maritime doctrine of laches applies.' He said 'unlike an absolute time bar provisions in statutes of limitation, the application of laches to maritime non-statutory claims, requires considering the prejudice to defendants resulting from inexcusable delays by plaintiffs for not bringing suits more promptly.'
   Clark said the Ninth Circuit's opinion does not mention admiralty law and it is impossible to know if admiralty law principles argued by UPS had any bearing on the decision.
   But as a result of the decision he said, 'aviation law is now on an even keel with admiralty law in this area.' ' Chris Dupin