Contracts on international sales of goods by air
An international business transaction requires a precise and detailed underlying contract. However, it can be expensive and time-consuming to draft such a contract oneself. The International Chamber of Commerce, the world business organization, has responded to the market’s need for a reliable and equitable model with the ICC Model International Sale Contract, which provides a solution in presenting a set of clear and concise standard contractual conditions for the most basic international trade agreement.
Although this Model is denominated a ‘sale’ contract, it is equally appropriate for use by buyers as it balances the interests of exporters (sellers) and importers (buyers). It may thus also be used for a so-called ‘purchase’ agreement.
Not only this standard conditions are the ones that are going to be applied in cases of breach of contract, there are certain conventions specifically related to the international carriage of goods by air as the Warsaw Convention 1929, The Hague Protocol 1955 and the Montreal Convention 1999 that mention conditions related to obligations, liabilities, documents, etc.
It is important to mention that the most important document in a transaction made by two parties in different contracting states using the air carriage is the Air waybill, being this topic the most important on this academic article.
This academic article is divided into 6 parts, beginning with the international contract carriage by air and topics related to this; The legal regime of international contracts for sales of goods by air, being mentioned the conventions; The Air Waybill; and finally a case study, conclusions and references.
1. The International Contract Carriage by Air
The international contract carriage by air is an agreement between the consignor or owner of the goods, and a carrier in which the last is obligated and must send the goods to a consignor in the place of destination. The carrier can be an airline company or international carriage company.
The contract of carriage includes the acceptance of the cargo terminal of the airline cargo at the place of departure, the physical movement of the goods, the scales performed by the flight during your trip, as well as delivery of the cargo to recipient in a cargo terminal located in the country of destination.
- Consensual: The contract of carriage of goods is formed by the mere agreement of wills. As soon as there is consent and agreement between the parties, it is required to perform the contract, making the transport according to the conditions specified therein.
- Principal: Totally independent from other existing air transport agreements.
- Accession: Formal acceptance from de user to the transport conditions made by the carrier. The user cannot change these conditions due to the accession nature of the contract.
1.3. Key Concepts
The consignor or the seller (owner of the goods) is the person or firm who delivers a consignment to a carrier for transporting goods to a consignee.
The consignee or the buyer (future owner of the goods after payment) is a party named by the consignor in transportation documents (as the AWB) to whose order a consignment will be delivered at the port of destination.
1.3.3. Goods or Merchandise
An inherent useful and relatively scarce tangible item (article, commodity, material merchandise, wares) produced from manufacturing activities that are going to be traded between parties whose places of business are in different countries. According to the CISG the term “goods” does not include (a) goods bought for personal use […], (b) by auction, (c) on execution […], (d) stocks, shares, […], (e) ships, vessels, hovercraft or aircraft, (f) electricity. (Convention on Contract for International Sales of Goods, Art. 2).
Dangerous goods; they are articles or substances which are potentially dangerous characteristics are defined as substances whose danger is obvious, such as acids, alcohols, fuels, explosives, radioactive materials, etc. Also other items and substances used daily in the home, such as clothing products for spotting, aerosols, thermometers, etc. (Warsaw Convention, 1929).
The carrier is the person that undertakes to move something from one place to another in exchange for a price called freight.
1.4. Obligations of the Parties to the Contract of Carriage by air
1.4.1. Obligations of the Carrier
Under the contract of carriage by air, the carrier has the fundamental obligation to receive goods and transport them by air to an agreed place and at the agreed time, in addition to deliver the goods to the consignee in the same condition they were received.
This implies two basic services:
a. The physical movement of the goods; which involves providing a suitable vehicle, carry out the transport within the agreed time or, failing agreement on the reasonable period and the use of reasonably direct route.
In air transport is very little chance that the sender and the carrier agree to a specific time for delivery of the goods. This does not mean, however, that time is not a critical factor driving the sender to choose air travel instead of going to other modes of transport. Usually the goods for air transport are particularly sensitive to delivery time, either because it is perishable goods (flowers, pharmaceuticals, etc.), or because the case of parts or spare parts that need to be replaced with urgency. Therefore, the air carrier is expected to take into account these characteristics of air cargo, when running the transport, so that an excessive delay in the transport of the goods to their destination be held liable to the carrier for delay delivery.
Regarding reasonably direct route is also expected running conveyor contracted through direct flight path, that is, without scales. Nevertheless, it must review the terms of the contract, which is often the carrier insert clauses that give wide latitude to make scales and even for misusing.
b. The care and preservation of the goods in transportation; to accomplish this fundamental obligation, the carrier has to have knowledge of the nature of the goods, being this information delivered and mentioned by the consignor in all the related documents when transferring the goods to the carrier.
If the goods requires special care, it is the obligation of the consignor express to the carrier and provide the necessary instructions for the carrier to fulfill its duty of care and conservation of cargo. It is logical to assume, of course, in respect of the goods that deserves special care the value of freight may increase.
1.4.2. Obligations of the Consignor
The obligation of the consignor is to provide the required information in respect to the precautions needed for the care and preservation of the goods being delivered, in addition to all the documents related to the cargo needed to accomplish the local customs requirements, health permits (if needed), etc. “The carrier is under no obligation to enquire into the correctness or sufficiency of such information or documents” (Warsaw Convention 1929, Art. 16 (2)).
2. Legal Regime on Contracts for International Sales of Goods By Air
1.1. Warsaw Convention 1929
The basic rules of international carriage of goods by air, passengers and luggage, is contained in the Warsaw Convention of 1929.
The first international air convention, the «Convention for the Unification of Certain Rules relating to International Carriage by Air», was signed in Warsaw in 1929. The convention is aimed at unifying the rules on international carriage by air.
This convention entered into force on 13 February 1933 and has been adopted by 151 States. To date, it is the most adopted international convention. (UNCTAD, Carriage of Goods by Air, 2006)
This convention «Applies to all international carriage of persons, luggage or goods performed by aircraft for reward. It applies equally to gratuitous carriage by aircraft performed by an air transport company.» (Warsaw Convention 1929)
The Warsaw Convention 1929 provides a comprehensive structure of a unified liability regime applicable to claims of international air transport.
The main areas in this convention may be summarized as follows:
- Standardizes particulars to be included in the documents of carriage;
- Creates a penalty for non-compliance with the particulars to be included in the documents of carriage, (carrier loses monetary cap limiting his liability);
- Sets out rules whereby the claimant does not need to prove the fault of the carrier, or his agents, in respect of a loss;
- Specifies a limited number of defenses to liability for the benefit of the air carrier;
- Fixes a monetary cap limiting the liability of the air carrier. The monetary cap is 125,000 gold francs (about US$ 5,000 at the rates of exchange prevailing in 1929) for passenger injury or death, 250 gold francs (about US$ 10) per kilogram for loss or damage to cargo or registered baggage and 5,000 gold francs (about US$ 200) per passenger for unregistered baggage.
- Defines the circumstances in which the carrier may lose the benefit of the monetary cap limiting his liability;
- Sets out rules as to time limitation and jurisdiction;
Provides for the exclusive application and mandatory effect of the rules laid down.
The provisions of the Warsaw Convention 1929 are of exclusive application and have mandatory effect. This means that in circumstances where the Warsaw Convention 1929 applies to a particular claim, a claimant can only rely on the liability rules of the Warsaw Convention 1929.
1.2. Hague Protocol 1955
The Hague Protocol 1955 modifies the Warsaw Convention 1929. The Hague Protocol 1955 doubles the monetary cap on the carrier’s liability in respect of passenger injury or death from 125,000 gold francs (about US$ 5000) to 250,000 gold francs (about US$10,000). However, the Hague Protocol 1955 does not change the financial limitation of the carrier’s liability in respect of cargo and registered baggage (which remains at 250 gold francs, about US$ 10), or in respect of unregistered baggage (which remains at 5,000 gold francs per passenger, about US$ 200). Some other innovations of the Hague Protocol 1955 include the following. (UNCTAD, Carriage of Goods by Air, 2006)
- Simplifies the particulars to be included in the documents of carriage, however, maintains the penalty for non-compliance with the particulars to be included in the documents of carriage (carrier loses monetary cap limiting his liability);
- Specifies that legal costs are excluded from a claimant’s award of damages;
- Introduces an incentive for out of court settlements.
The Hague Protocol 1955 provides that if a State becomes a Contracting State to the Hague Protocol 1955, but is not a Contracting State to the Warsaw Convention 1929, this «should have the effect of adherence» to the Warsaw Convention 1929 modified by The Hague 1955 called now «Warsaw-Hague Convention 1955». (UNCTAD, carriage of goods by air, 2006)
The Hague Protocol 1955 entered into force on 1 August 1963 and has been adopted by 136 States.
1.3. Montreal Convention 1999
The Montreal Convention 1999 provides that it «shall prevail over any rules which apply to international carriage by air», according to Art. 55 Montreal Convention 1999, as between Contracting States to the Montreal Convention 1999, which are also Contracting States to one or more of the Warsaw-system conventions. Thus, as between States, which are Contracting States to any one of the Warsaw system conventions, and the Montreal Convention 1999, the Montreal Convention 1999 takes precedence.
The Montreal Convention 1999 entered into force on 4 November 2003 and has, to date, been adopted by 70 States. The fact that such a large number of states have adopted the Montreal Convention1999 in a relatively short period of time illustrates the need for greater uniformity in the field of air law; it also suggest that the Convention has achieved the right balance between the conflicting interests of the different parties involved in air transportation.
2. Determining the applicable international air convention.
As is evident from the above overview, there are different legal regimes which may be applicable to a claim arising from the international carriage of goods by air. Whether the Warsaw Convention 1929 or the Montreal Convention 1999, is often a complicated question.
In all cases, the trigger for the application of any of those international air conventions and its corresponding legal regime is the concept “international carriage”. There is a single definition of international carriage, which has not been changed by the various amendments to the original Warsaw Convention 1929. To determine whether a specific contract is international carriage, making one of the two international conventions applicable, there is a two-stage inquiry, which is complex and in practice often creates considerable difficulty.
First, is necessary to determine whether the carriage comes within the technical concept of international carriage defined as (by the two conventions):
(i) The agreed place of departure and the place of destination are situated within the territories of two Contracting States, whether or not there is a break in the carriage or a transhipment;
(ii) The agreed place of departure and the place of destination are situated within the territory of a single Contracting State, if there is an agreed stopping place within the territory of another State, whether or not this is a Contracting State. (UNCTAD, Carriage of Goods by Air, 2006).
Secondly, it is necessary to check that the states of departure and destination are contracting states to the same version of either the Warsaw Convention 1929 or the Montreal Convention 1999. Therefore, it is imperative to study the Airway Bill closely to ascertain the agreed places of departure and destination, as well as any agreed stopping place, and to determine whether these meet the requirements set out in i) or ii) above. In cases where the requirements for international carriage do not apply, then none of the international conventions is applicable. Therefore, national law or the terms of the contract (i.e. terms and conditions printed on the air waybill) will be applicable.
The term High Contracting States or, changed later by the Montreal Convention, Contracting States has induced a conflict in respect to the meaning of this concepts. Tapia Salinas indicates that the logical way to consider two parties as contracting states, are not only those who signed the convention, but also the ones that later on rectified it or adhere to the conventions.
3. Air Waybill
The contract for air transport is concluded between a user and an airline, which the airline commits to move from one place to another by air, certain goods for delivery to the addressee or consignee, after complying with the provisions of the Act General of Customs and its Regulation.
The air transportation contract includes from acceptance of cargo at a terminal designated by the airline at the point of origin to delivery to the user or his representative in a terminal also designated by the airline to the destination. In any case the charge is delivered on the platform or ramp maneuvers airports (DS No. 050-2001-MTC, Regulations of the Civil Aeronautics Law No. 27261 of Peru).
International air transport is regulated by the Convention for the Unification of Certain Rules for International Carriage by Air 1999 (Montreal Convention), the Convention on International Civil Aviation of 1944 (Chicago Convention), the Convention for the Unification of Certain Rules International Air Transport 1929 (Warsaw Convention), approved by res. Leg. No. 24819; Civil Aeronautics Law of Peru and its Regulations, the General Customs Law and its Regulations, and as noted in the RAP 112.
The air waybill is by far the most essential document issued in respect of the international carriage of cargo. It evidences the contract or agreement of international carriage between the parties and plays a central role in the liability regime. In current practice, air waybills are usually not negotiable. This is explained by the speed of air transport, which means that there is normally no need for a document, which enables sale of goods in transit. (UNCTAD, Carriage of Goods by Air, 2006).
The Air waybill can be defined as a document made out by or on behalf of the shipper, which evidences the contract between the shipper and the carriers for carriage of goods, by air and specific goods between places and conditions expressly determined.
(1) According to the classification Carrier Name
(a) Airline Air Waybill
Printed plane ticket (emission carrier) name and logo (emblem aircraft, code, etc.) of the air waybill.
(b) Neutral Air Waybill
Without preprinted name and logo of any company in the consignment the consignment. AWB constitutes neither an airline is neutral letters bearing.
(2) According to the classification of different roles
(a) Air Master Air Waybill (MAWB)
When the delivery note issued by the air transport company called Master Air Waybill.
(b) House Air Waybill HAWB
Company of transportation of goods by aircraft Published a roadmap of each carrier for operates businesses.
3.4. Functions performed by the Airway Bill
Besides being a document, which accredits the contract of carriage, the air waybill serves in turn to perform the following functions:
- It is a Proof of receipt of goods
- Contains the list of shipment, in which all the documents accompanying the shipment
- It is the invoice for freight and fees charged by the airline.
- It is a commercial document required for customs clearance.
- It is a commercial document required by the payment of the letter of credit or documentary collections.
- Used to accredit direct shipment of the goods and, that way, comply the rules of origin to be subject to tariff preferences.
3.5. Requirements of the Airway Bill
It is a document that certifies the international air transport agreement, in which all registered information must be complete and valid; it is composed of the following requirements:
- Shipper or exporter.
- Name of consignee.
- Number of flight and destination.
- Airport departure and arrival.
- Details of cargo: weight, volume, quantity, price and description.
- Indicate if the freight is paid at origin or destination.
- Amount of freight.
- Number of air waybill.
- Date of issue.
It should be contain information required by the aeronautical technical regulations and standards, In the sending of the air cargo and issued the corresponding letter Porte that protects must be documents which originate as a result of it, for example commercial invoice, certificate of origin, packing list etc. and these are delivered to importer in the country of destination together with the original Porte Charter The consignment, unless proven otherwise, the receipt of the cargo by the airline and transport conditions; can replace the document by other electronic means,
The absence, irregularity or loss of the consignment note, or a breach of contract does not invalidate the existence of the contract of carriage, which may be credited with any other evidence, under the responsibility of the carrier.
International air transport is regulated by the Convention for the Unification of Certain Rules for International Carriage by Air 1999 «Montreal Convention» means the Convention on International Civil Aviation 1944 «Chicago Convention» means the Convention for the Unification of Certain Rules International Air Transport 1929 «Warsaw Convention», approved by Legislative Resolution 24819; Civil Aeronautics Act of Peru and its Regulations, the Customs Act and its Regulations, and as noted in the Aviation Regulation No. 112 of Peru, known as RAP 112. In our country, the Air Charter has the Porte scope of a Title value, remains applicable Law 27287.
3.6. Structure of the Airway Bill
The air waybill consists of a series of standard forms of green, pink, blue, yellow, and numbered forms with the same content. Pages 1, 3 and 4 are considered original and the back of each contract terms are specified, this is distributed to other operators engaged in air transport in the following way:
The «original 1 (green)» is for the airline issuing the air waybill.
The «original 2 (pink)» is for the consignee.
The «original 3 (blue)» is for the consignor.
The «Copy 4 (yellow)» is the certification of cargo delivery to the consignee.
Additionally, there white copies required for transport. The relevant provisions are set out in the Montreal Convention and on the conditions of the contract.
The AWB is not a document of title to the goods; it does means that not transfer any property rights over the goods. Therefore, the airway cannot be issued «to order» and declare the consigned by name and exact address.
The contract of carriage evidenced by the AWB, has no legal force until it has been signed by the user (or his agent) and the carrier (or its agent) and ends with the delivery of the goods to the consignee at the point of destination.
18.104.22.168limits on the carrier’s liability for loss, damage or delay of goods, including fragile or perishable goods; must file a claim or bring an action against the carrier for its acts or omissions or those of its agents;
22.214.171.124 Rights of the carrier and limitations concerning delay or failure to perform service, including schedule changes, sub-stitution of alternate carrier or aircraft and rerouting.
3.The agreed stopping places (which may be altered by carrier in case of necessity) are those places, except the place of departure and place of destination, set forth on the face hereof or shown in carrier’s timetables as scheduled stopping places for the route. Carriage to be performed here under by several successive carriers is regarded as a single operation.
4. For carriage to which neither the Warsaw convention nor the Montreal convention applies, carrier’s liability limitation shall not be less than the per kilogram monetary limit set out in carrier’s tariffs or general conditions of carriage for cargo lost, damaged or delayed, provided that any such limitation of liability in an amount less that 17SDR (Standard Dimension Ratio) per kilogram will not apply for carriage to or from the united states.
5.2. When no part of the consignment is delivered, a claim with respect to such consignment will be considered even though transportation charges thereon are unpaid.
7. 7.1 in cases of loss of damage or delay to part of the cargo, the weight to be taken into account in determining carrier’s limit of liability shall be only the weight of the package or packages concerned.
7.2. Notwithstanding any other provisions, for “foreign air transportation” as defined by the U.S transportation code:
7.2.1. In the case of loss of damage or delay to a shipment, the weight to be used in determining carrier’s limit of liability shall be the weight which is used to determine the charge for carriage of such shipment and;
7.2.2 In the case of loss of damage or delay to a part of a shipment, the shipment weight in 7.2.1. shall be prorated to the packages covered by the same air waybill in whose value is affected by the loss, damage or delay. The weight applicable in the case of loss or damage to one or more articles in a package shall be the weight of the entire package.
10. Receipt by the person entitled to delivery of the cargo without complaint shall be prima facie evidence that the cargo has been delivered in good condition and in accordance with the contract of carriage.
10.1.1 in the case of damage to the cargo, immediately after discovery of the damage and at the latest within 14 days from the date of receipt of the cargo.
10.1.2 In the case of delay, within 21 days from the date on which the cargo was placed at the disposal of the person entitled to delivery.
10.1.3 In the case of non-delivery of the cargo, within 120 days from the date of issue of the air waybill, or if an air waybill has not been issued, within 120 days from the date of receipt of the cargo for transportation by the carrier.
10.2 such complaint may be made to the carrier hose air waybill was used or to the first carrier or to the last carrier or to the carrier, which performed the carriage during which the loss, damage or delay took place.
10.3 Unless a written complaint is made within the time limits specified in 10.1 not action may be brought against carrier.
10.4 Any rights to damages against carrier shall be extinguished unless an action is brought within two years from the date of arrival at the destination or from the date on which the aircraft ought to have arrived or from the date on which the carriage stopped.
4. Case Study
The following case is a supposition about what would do “ROSATEL” company (located in Lima, Peru) if had a problem with the import of flowers by air, in this case delay of delivery of roses by “FLYINGFLOWERS” company (located in Watergate, UK). Mainly this case going to show the following phases: the realization of the international contract, how affect this problem to the contract, what is the solution of the problem.
Phase 1: Realization of the international contract
Request of the product (roses):
The logistics area of «ROSATEL» company requires 80 boxes of 12 red roses each one, by air cargo. The logistics area makes a requisition Nº 5672015 to the “FLYINGFLOWERS” company; in this application, the characteristics of the roses as variety, color, steam length, size button, and vase life are emphasized. “FLYINGFLOWERS” company receives the requisition and sends back to “ROSATEL” company a quote with the characteristics below which serial number is FMQ-2015629. Finally, “ROSATEL” company accepts quotation.
- Variety: Freedom
- Color: Red
- Steam Length: 50-60 cm.
- Size button: 5.0 – 6.0 cm.
- Vase life: 10 days
Purchase order/ contract
“ROSATEL” company sends an e-mail to “FLYINGFLOWERS” company the acceptation of the quote, attaching a purchase order. So “FLYINGFLOWERS” sends the international sale contract with the terms and conditions (annex 1), in addition, in the contract specify the following points:
- Port : “Jorge Chávez” Airport, Lima , Peru
- Place if delivery: ROSATEL´s warehouse
- Transportation: air transport – LAN airlines
- Incoterm: DDP
- Price: $7,500.00
- Date: February 6th
- Delivery date: February 13th at 12:00 hours
Both parties signed the contract on Saturday, February 13, 2015. All the documents mentioned before were realized electronically. In addition, all the information above is printed on the air waybill.
Phase 2: The problem
Origin of the problem
LAN Airlines, which services were contracted by “FLYINGFLOWERS” company, provided the transport of the merchandise. So when the merchandise arrived to Lima, on Saturday, February 13, at 11:00 hours, was in perfect conditions, the problem was the warehousing; it was just a couple of hours that the merchandise was not under the correct temperature because the necessary documentation of the merchandise wasn´t ready yet.
Effect of the problem over the contract
So finally the merchandise arrived at ROSATEL´s warehouse as was agreed on the contract (incoterm DDP), on February 13th, at 14:00 hours, obviously the delay of the merchandise was not longer, but affect to the merchandise, because the roses were almost 2 hours without the correct temperature, suffered damaged, in this case the wilting, which is practically a lost for “ROSATEL” company. So “ROSATEL” company gets in contact with “FLYINGFLOWERS” company and informs about the problem and request compensation and the avoidance of the contract. “ROSATEL” lost its merchandise because of the delay of the delivery and wants avoid the contract and claim compensation because lost the sale of a lot of orders in a date where Rosatel´s products were highly demanded, Valentine´s Day, which is a lost for the company.
Phase 3: Solution of the problem
The ruling resolved married in due course: “First ´FLYINGFLOWERS´ Company has to pay compensation for damages to “ROSATEL” company the same amount plus the 50% of the amount printed in the commercial invoice; and the avoidance of the contract. According to articles 30 and 35 of Vienna Convention obligating the seller to guarantee timely delivery of goods and documents related to them, all in accordance with the contract; and the transfer of ownership, free of any claim by third parties on the same. But, according to article 18.2.of Warsaw Convention, the carrier is liable for damage sustained in consequence of destruction, loss or damage to the goods, provided that the cause event has occurred during air transport. The period during which the cargo is in the custody of the carrier, whether in an aerodrome or on board an aircraft or in any place for a landing outside the aerodrome. So ´FLYINGFLOWERS´ Company has to claim compensation to the carrier, LAN airlines, for damages. Also according to article 13.3 and 52 of Montreal Convention, ´FLYINGFLOWERS´ Company can reject the charge that it has an abnormality or simple will; you can claim compensation for delay in delivery for more than 7 calendar days.
- Warsaw Convention 1929.
- Montreal Convention 1999.
- United Nations Conference on trade And Development (2006) “Carriage of goods by air: A Guide to the International Legal Framework” Retrieved from http://unctad.org/en/Docs/sdtetlb20061_en.pdf
- United Parcel Service UPS. Air Waybill. Retrieved from http://www.ups.com/aircargo/using/services/supplies/airwaybill.html
- Ministerio de Comercio Exterior y Turismo (2009). “Guía de Orientación al usuario del transporte aéreo”. Retrieved from http://www2.congreso.gob.pe/sicr/cendocbib/con4_uibd.nsf/22853E566072CB2F05257DE2007925C0/$FILE/Gu%C3%ADa_Orientaci%C3%B3n_UsuarioTransporteA%C3%A9reo.pdf
- International Air Transport Association-IATA. Retrieved from https://www.iata.org/whatwedo/cargo/pages/air_waybill.aspx
- Vicente Guzmán, J. (2003). “Aspectos Generales del Contrato de transporte aéreo Internacional de Mercancías”. Retrieved from http://www.emercatoria.edu.co/paginas/volumen2/pdf01/aspectos.pdf
- Uribe Calderón, D. (2011). “El contrato de Transporte Aéreo Internacional: Análisis Comparado”. Retrieved from http://www.academia.edu/975178/El_Contrato_de_Transporte_A%C3%A9reo_Internacional_An%C3%A1lisis_Comparado