Anatomy is basic to medicine.  The human body is comprised of bones, muscles, joints and organs.  But the relationship between the parts is as important as the parts themselves.  One cannot cure disease if one does not know the relationship of the parts to the whole.

Similarly, litigation is made up of many interlocking parts.  Each part must be carefully fitted with each other part.  Each step is linked to the next.  One cannot succeed in a cargo claim unless one knows its anatomy.

Let me therefore be the anatomy professor, and demonstrate, in general outline, how to construct a cargo claim – step by step.

A.        First Step:        Survey and Notice

Cargo damage is often first discovered only by the ultimate consignee of the cargo.  The problem may be noticed upon arrival or initial unstuffing of a container, or in the case of bulk cargo, when it is unloaded from the train or ship, and transferred to a truck.  However, particularly in the case of containerized and palletized cargo, more careful examination at the consignee's warehouse often reveals previously unseen damage.

As soon as the damage is noticed, steps should be taken to survey the cargo.  If the cargo is insured, and the insurer is notified of the damage, the insurer will often arrange for a survey.  If the cargo is not insured, or if no survey is arranged quickly by the insurer, the consignee should retain a surveyor directly.  Ideally, the surveyor will examine the cargo even before it is fully unloaded.

The surveyor will examine the cargo, the container (if any), and the relevant documents, and will verify the nature and extent of the damage.  The surveyor will also speak to the persons involved in order to investigate the cause of the loss.  The surveyor's report is a key piece of evidence in any cargo claim.  The earlier the surveyor arrives on the scene, the more comprehensive his examination will be.

A surveyor may also be involved in salvage efforts, which will be more fully described below.

At the same time, or as soon as possible after a surveyor has been retained, notice of intent to claim should be provided.  Since most statutes and contracts which govern cargo transport have mandatory notice provisions, it is crucial that all relevant parties be notified.  Many consignees will notify their insurer and their freight forwarder, and will rely on them to provide notice of claim to others.  The safer course, however, is to notify the carrier or carriers directly.  One always ensures that all possible liable parties have been notified.  This comprehensive approach applies throughout the life of a cargo claim.  At a minimum, notice of claim should be given to the freight forwarder, the truck carrier (if any), the train carrier (if any), and the ship carrier (if any), that is, to any entity that was involved in the transportation of the goods.  That will prevent any possibility that the claim will be barred against a responsible party by failure to give notice.

The contents of the notice can be very simple.  The notice can be sent by mail, fax or e-mail.  It need only identify the transportation contract (by bill of lading number and issuer), the cargo, the general nature of the damage, the date of arrival of the cargo and, where there is a difference, the date the damage was noticed.  It should state that the consignee intends to claim against the recipient for all loss and damage suffered.

A carrier may elect to retain a surveyor upon receipt of notice, or to take other steps to investigate the claim.  That is fine.  The cargo claimant should co-operate in any effort to resolve the matter.

B.         Second Step:          Salvage

The cargo claimant has an obligation to mitigate, or in other words, to reduce, the damages suffered.  Accordingly, every reasonable step must be taken to this end.

If the damage can be repaired, repairs should be effected.  It is helpful if the carrier or other party likely to be responsible agrees to repairs, especially if an expenditure of funds is required in order to rectify the damage.  However, if agreement cannot be reached, or the responsible party is unidentified or unresponsive, the consignee must nevertheless attempt to reduce its loss, and reasonable repairs may be part of that process.  It is crucial that the steps taken and expenses incurred be properly documented, as repair costs will form part of the claim, and must be provable.  If a surveyor is involved, he can help to document the necessity for repairs, and the reasonableness of the out-of-pocket expenditures connected to them.

In the case of cargo consisting of trade goods which are intended for resale, or raw material for use in manufacturing, a careful inventory should be taken, and the damaged goods should be separated from undamaged goods.  The damaged portion of the cargo should then be sold, if possible, through a salvage service.  The surveyor is likely to be of assistance in locating a salvage service.  Where possible, more than one quote should be obtained, to ensure that the price obtained for the damaged goods is fair and cannot be subsequently challenged by the carrier or other responsible party.

C.        Third Step:    Assemble Documents

Litigation is a very document intensive process.  The sooner a potential litigant assembles the documents, the easier the process will be.

Here again, the surveyor may be of assistance.  He is likely to have obtained the core documents, including the commercial invoice and the bill of lading or other transport documents.

However, the cargo claimant should not rely entirely on the surveyor.  Work should commence on assembling a claims file.  It should contain all the documents that could possibly be relevant.  This would include the original purchase order, if any, the contract with the freight forwarder, all bills of lading and interchange receipts, packing slips, invoices, customs documents, quality reports, packing and storage instructions, and any correspondence or electronic mail relevant to the cargo purchase and its transportation.  If not already done by the surveyor, photographs should be taken showing the nature and extent of the damage to the cargo, and these should be placed in the cargo claim file, accompanied by information as to the identity of the photographer and the date and details of the photographs.  Finally, where relevant, samples of packaging should be preserved and maintained.

If steps are taken right away to create and preserve a claims file, any litigation that ensues will be simpler.  We often find that crucial documents, if not assembled at the earliest stages, get irretrievably misplaced or accidentally destroyed.  It's much easier, and ultimately cheaper, to do it right in the first place.

 

D.        Fourth Step:    Hire a Lawyer

While it may not be necessary to hire a lawyer every time damaged cargo is encountered, if the matter is not resolved very quickly, a lawyer should be retained so immediate steps can be taken to ensure that the claim is not time-barred.

If the cargo is insured, the insurer will take the necessary steps to attempt to collect the loss from the responsible parties (after paying you, of course).  Alternatively, the surveyor or an appropriate person (such as the credit manager) can attempt to resolve matters with the carrier.  However, care should be taken to ensure that negotiations do not drag on beyond the time limit for commencing an action – it is always better to hire a lawyer too soon, rather than too late.

Once counsel has been retained, the necessary documents should be provided to him or her, so that an initial investigation can be undertaken to assess the strengths and weaknesses of the case.  As well, counsel can ensure that notice has been given to the proper parties.

You may wish counsel to engage in some negotiations and to attempt to resolve the matter without litigation.  Whether this makes sense will depend upon the extent of negotiations that have taken place already, whether all responsible parties have been involved, how much time has passed etc.  Your counsel can advise you as to what steps can and should be taken short of litigation.

If negotiations fail, the next step is the lawsuit.

 

 

E.         Fifth Step:      Starting an Action

Transportation litigation is fraught with technicalities and traps for the unwary.  Different statutory regimes apply to different modes of transportation.  Each has different time limits and different liability limitations.   Where cargo has been moved by multi-modal transit, more than one statutory regime may apply, thus multiplying the complexities of any litigation.  In addition, there may be (and in multi-modal transit, there are likely are) different bills of lading, each containing different suit time, choice of law and choice of jurisdiction clauses.

For example, a truck bill of lading is likely to limit liability to $2.00 per pound.  Under the Warsaw Convention, as amended by Montreal Protocol No. 4, liability for damage to cargo carried by air is generally a maximum of 17 Special Drawing Rights (SDRs)[1] per kilogram.  So a consignee's rights may depend on where, and how, the loss occurred, which may not be obvious at the outset of litigation.  Even a clean bill of lading is not conclusive on this issue, as evidence as to the cause of the loss can be submitted during the litigation.

The key questions for counsel at the outset of transportation litigation are the following:

(a)       Who Should be Sued?

While it is usually best to use the "shotgun" approach (sue everyone in sight), this may occasionally be impossible (if, for example there is an exclusive jurisdiction clause that requires one of the carriers to be sued in a distant or obscure jurisdiction), or may create excessive complexity.  Every effort should be made, however, to name all the parties who may bear legal responsibility, including a freight forwarder who has made inappropriate arrangements or has issued a house bill of lading, the persons who packed or stowed the cargo, (if there is a packing or stowage problem), and the carrier or carriers who may have caused the damage.  As the action progresses, those clearly not liable may be dropped from the action with probably little risk of liability for that party's attorney's fees.   In a case of ours which involved a cargo of chocolate, for example, only two of four defendants remained by the time the matter got to trial.

(b)       When Should the Action be Commenced?

The issue here is that it may take time to ascertain the identity and whereabouts of all the responsible parties.  However, as previously noted, there will likely be a time bar to litigation.[2]  Accordingly, if necessary, action can be commenced against known parties at an earlier stage, and other parties added later (if possible) once their involvement becomes known.

(c)       Where Should Action be Commenced?

In Canada, a choice must generally be made between the courts of the province (in Ontario, the Ontario Superior Court), and Federal Court.  Because of recent amendments to the Canadian Federal Court rules of procedure that impose onerous requirements on plaintiffs, we usually prefer to sue in Ontario Superior Court.  However, if a special remedy such as a ship arrest is required, or there are defendants in several provinces, an action in Federal Court might be preferable.  Care should be taken to ensure that the chosen court has jurisdiction over the parties and the subject matter of the suit.  This process requires regard to be had to any exclusive jurisdiction clauses in any bills of lading, and to the relevant statutes.

(d)       Who Should be Named as Plaintiff?

Counsel must ensure that the owner of the cargo is named.  Where it is not clear whether title has passed to the consignee, both the shipper and consignee should be named.

(e)       How Much Should be Claimed?

The amount claimed should be sufficient to cover 100% of the loss and damage.  It is usual to quantify the cost, then add an additional 10-20% to cover unanticipated recoverable out-of-pocket expenses.

F.         Sixth Step(s):     Pre-Trial Processes

Litigation involves a large number of processes, from the institution of action, through service of the claim on defendants, the defendants' initial response (which is usually a statement of defence, but may take other forms), motions, productions, discovery, the marshalling of evidence through the pre-trial and finally to trial.

The three major stages in litigation are:  the institution of the action (including initial investigation); production and discovery; and the trial itself. 

After the claim is served and all defences are filed, the next major step in litigation is production and discovery.

If the claimant has properly assembled all the relevant documents in the claims file, and it has been turned over to its counsel, the document production process will be quicker.  However it is important that a thorough check be done after the litigation is commenced, because oftentimes new documents come into existence, or relevant documents are found that were previously overlooked.  As well, since production obligations extend to data files, a thorough check should be made for any relevant e-mails or other electronic documents.  All named defendants must similarly produce any relevant documents in their possession, power or control.  The production process may be time consuming, especially if a party has conveyed all its documents to a distant location.

Once the documents are exchanged, a representative of each party in the lawsuit must be produced for examination under oath.  This process is called "discovery".  In my experience, a discovery is indeed what it is.  It is amazing what information and admissions can be obtained by persistent questioning.   Many cases can be won by careful and thorough questioning on discovery.   As well, it is important to follow up, and to ensure that additional inquiries are made by the witness if relevant information is not available on the initial examination.

It is at the production and discovery stage, as well, that decisions can usefully be made as to the witnesses who will testify, including expert witnesses, if required.

Once production and discovery, including all re-attendances and follow-up are completed, and assuming no unusual circumstances (such as a summary judgment motion), or other challenges to the process, the parties will complete the remaining pre-trial processes, and the matter is set down for trial.

G.        Seventh Step:          The Trial

We have all watched television.  Non-lawyers think they know what a trial is like.   The litigants show up, they say exciting things, and it's all over in an hour, including commercial breaks.

A real trial is much more complicated, and much more boring, than television.

Most trials in Canada today are conducted in front of a judge – juries are very rare.

The involvement of the plaintiff and its personnel at trial will be extensive and time-consuming.  All the elements of the action must be properly proved.  The surveyor will likely be an important witness.  In a complex case, the trial judge may reserve judgment.  If the case was meritorious, and all the steps described above were properly taken, however, the result should be judgment in your favour.

H.        Eighth Step:     Collect Your Money

Congratulations!  You won the case!  Now all you have to do is hope there is no appeal, and then collect the judgment – assuming the defendants are solvent, or better yet, are insured.