Siemens v Schenker

The Warsaw Convention 6 It is appropriate to consider first the applicability of relevant treaty provisions since, for reasons to be explained in due course, those provisions, if they apply, will govern not only the limitation question but also the basis of liability. It was common ground that, of the treaty provisions made relevant by the Civil Aviation (Carriers' Liability) Act 1959, only those of the Warsaw Convention as amended at The Hague are applicable. Part II of the Act (ss.10 to 19) is headed "Carriage to which the Warsaw Convention and the Hague Protocol apply". Section 10 defines "the Convention", for the purposes of Part II, as "the Warsaw Convention as amended at The Hague", an expression which is, by s.5, defined, for the purposes of the Act as a whole, as the Convention known by that title under art XIX of the protocol to amend the Warsaw Convention opened for signature at The Hague on 28 September 1955. In the present case (where no inconsistency between French and English texts has been suggested), the provisions in schedule 2 to the Act may, by virtue of s.8(1), be taken to be the applicable provisions of the Convention. 7 The status of the Convention provisions in Australian domestic law is specified in s.11(1) which is within Part II of the Act. That section is as follows: "The provisions of the Convention have, subject to this Part, the force of law in Australia in relation to any carriage by air to which the Convention applies, irrespective of the nationality of the aircraft performing that carriage". 8 The qualification "subject to this Part" may, except in one respect, be ignored. For the most part, the additional rules imposed by Part II are concerned with liability in cases of death of and personal injury to passengers and with the application of contributory negligence rules. The one provision which may usefully be noticed is s.19 which states that, for the purposes of the Judiciary Act 1903 (Cth), an action under the Convention shall be deemed not to be a matter arising under a treaty, thus excluding such actions from the exclusive jurisdiction of the High Court of Australia and ensuring that State courts may be seised of them. 9 Chapter III of the Convention is headed "Liability of the Carrier" which was Schenker GmbH in this case. Provisions of that chapter limit a carrier's liability in respect of the destruction or loss of, or damage to, cargo. The limit upon the carrier's liability is imposed by art.22.2: "(a) In the carriage of registered baggage and of cargo, the liability of the carrier is limited to a sum of two hundred and fifty franks per kilogramme, unless the passenger or consignor has made, at the time when the package was handed over to the carrier, a special declaration of interest in delivery at destination and has paid a supplementary sum if the case so requires. In that case the carrier will be liable to pay a sum not exceeding the declared sum, unless he proves that the sum is greater than the passenger's or consignor's actual interest in delivery at destination. (b) In the case of loss, damage or delay of part of registered baggage or cargo, or of any object contained therein, the weight to be taken into consideration in determining the amount to which the carrier's liability is limited shall be only the total weight of the package or packages concerned. Nevertheless, when the loss, damage or delay of a part of the registered baggage or cargo, or of an object contained therein, affects the value of other packages covered by the same baggage check or the same air waybill, the total weight of such package or packages shall also be taken into consideration in determining the limit of liability." 10 The limit thus created operates in relation to the liability referred to in art.18: "1. The carrier is liable for damages sustained in the event of the destruction or loss of, or of damage to, any registered baggage or any cargo, if the occurrence which caused the damage so sustained took place during the carriage by air. 2. The carriage by air within the meaning of the preceding paragraph comprises the period during which the baggage or cargo is in charge of the carrier, whether in an aerodrome or on board an aircraft, or, in the case of a landing outside an aerodrome, in any place whatsoever. 3. The period of the carriage by air does not extend to any carriage by land, by sea or by river performed outside an aerodrome. If, however, such a carriage takes place in the performance of a contract for carriage by air, for the purpose of loading, delivery or trans-shipment, any damage is presumed, subject to proof to the contrary, to have been the result of an event which took place during the carriage by air." 11 Article 18 creates liability. Article 22 then imposes a limit upon the amount recoverable in the cases with which it deals. The liability thus provided for and regulated is defined by reference to the phrase "during the carriage by air" and that phrase itself is to some extent explained by arts.18.2 and 18.3. In a case where landing occurs in an aerodrome, the end of "carriage by air" generally occurs at the earlier of the time when the cargo ceases to be in charge of the carrier and the time when it ceases to be "in an aerodrome". Article 18.3 deals with carriage by land, sea or river performed outside an aerodrome. That carriage is not included in "carriage by air" unless it takes place "in the performance of" a contract for carriage by air for the purpose of loading, delivery or transhipment and it cannot be proved that damage sustained occurred in that non-air carriage. In the present case, "the contrary" referred to in art.18.3 is accepted as having been proved, with the result that the damage which occurred on the public road outside the Melbourne airport is not presumed to have been the result of an event which took place during "carriage by air". That leaves, as the central question, whether it can properly be said that the point at which Pallet A fell to the roadway was "in an aerodrome" or, more precisely, in the Melbourne airport.

Commonwealth law as to airport site 12 The location and limits of the Melbourne airport at Tullamarine are matters dealt with in some detail by Commonwealth law. The combined effect of the definition of "airport site" in s.7 of the Airports Act 1996 (Cth), reg. 1.02 of the Airports Regulations 1997 (Cth) and part 1.12 of Schedule 1 to those regulations is to fix the boundaries of that airport according to ordinary concepts of the land law of Victoria. The site of the airport is defined by reference to one general law title memorial and thirty five certificates of title under the Transfer of Land Act 1958 (Vic) covering various parcels of land further identified by plan locations in the Parishes of Tullamarine and Bulla Bulla in the County of Bourke. This definition of the airport site plays a clear part in domestic law. For example, s.112 of the Airports Act excludes the operation of certain State laws in relation to that site. I have no hesitation in accepting that these territorial attributes define the Melbourne airport for all purposes unless, of course, a particular statutory provision provides some other result for a particular purpose. 13 It was suggested by counsel for the defendant that the status of Schenker Australia's premises outside the airport boundary as a warehouse recognised as such under customs legislation might warrant some extended notion of "aerodrome" for the purposes of art.18. There were in evidence notifications from the Australian Customs Service establishing the status of the relevant Schenker Australia premises as a "warehouse" licensed as such under Part V of the Customs Act 1901 (Cth). 14 While it is true that the cargo concerned was still subject to the jurisdiction of the Australian Customs Service during its journey from the airport to the Schenker Australia warehouse, it cannot be said that it was, under customs laws, still treated as if in the airport. Section 68 of the Customs Act makes it clear that goods imported into Australia may be entered for home consumption, for warehousing or for transhipment. Warehousing involves holding of goods in a warehouse licensed pursuant to Part V of the Act. Warehoused goods may be entered for home consumption or for export (s.99). Such goods may not be entered for home consumption unless Customs clearance has been give under s.71B. It is thus clear that warehouses are viewed by the customs legislation as places separate from airports so designated under s.15 of the Customs Act. There is accordingly nothing in that legislation to support a view that a warehouse is some form of constructive extension of a port or airport or that cargo en route from a port or airport to a warehouse should somehow be regarded as remaining within the airport. 15 From the viewpoint of our domestic law, construed without reference to the Convention provisions which form part of it, the appropriate course is therefore to regard the incident in which Pallet A fell from the Schenker Australia vehicle as having taken place outside the Melbourne airport even though the cargo had not received customs clearance at that time. It is against that background that I must construe and apply arts.18 and 22 of the Convention as they apply as part of Australian law, noting that the particular question which arises here as to the meaning of "in an aerodrome" in art.18.2 has apparently not previously been the subject of judicial attention in this country.

Construing art.18 of the Warsaw Convention 16 Two guiding principles must be borne in mind in interpreting Convention provisions. The first is that, because the Convention is a multipartite treaty, this Court should in general accept any "settled meaning and effect" of its terms as authoritatively declared in courts of other contracting States: Shipping Corporation of India Ltd v Gamlen Chemical Co Australasia Pty Ltd (1980) 147 CLR 142 per Mason and Wilson JJ, Gibbs and Aickin JJ concurring. In Emery Air Freight Corporation v Merck Sharpe & Dohme (Australia) Pty Ltd (1999) 47 NSWLR 696, Mason P (with whom Sheller JA agreed) said: "It is obviously appropriate that the Supreme Court of New South Wales should follow these international decisions unless clearly convinced of error." 17 To the same effect are comments by Kirby P in SS Pharmaceutical Co Ltd v Qantas Airways Ltd which is not reported in the New South Wales Law Reports but may be found at [1991] 1 Lloyd's Rep 288: "First, it is essential to approach the construction of the international instruments attached to the Australian statute keeping in mind their international character and the desirability (so far as possible) that they should be given a consistent construction by the courts of the several contracting parties." 18 The second guiding principle arises by application of the first. The clear preponderance of opinion in foreign courts is that the Convention's liability regime (art.17 as to death and injury and art.18 as to loss of and damage to baggage and cargo) is exclusive, in the sense that the applicable article defines liability, in cases where it operates, regardless of and to the exclusion of normal domestic law rules. A liability limitation article, if it applies, then limits that liability. This view of the operation of the treaty provisions in domestic law has been adopted by appellate courts in the United Kingdom (Sidhu v British Airways plc [1997] AC 430), the United States (El Al Israel Airlines Ltd v Tseng 525 US 155 (1999)), Canada (Gal v Northern Mountain Helicopters Inc (1999) 54 BCLR 87), New Zealand (Emery Air Freight Corporation v Nerine Nurseries Ltd [1997] 3 NZLR 723) and Singapore (Seagate Technology International v Changi Airport Services Pty Ltd [1997] 3 SLR 9); see also L. Brown, "Carriage by Air: Only One Cause of Action" [1997] NZLJ 241. The idea that the Convention liability regime should be exclusive is, in any event, consistent with s. 11(1) of the Civil Aviation (Carriers' Liability) Act. 19 The present question has been the subject of foreign judicial decisions to which the comity referred to by Mason P in Emery Air Freight v Merck Sharpe & Dohme (above) and by Kirby P in SS Pharmaceutical v Qantas Airways (above) requires respect to be afforded. The equivalent words "in an airport" appearing in art.18.2 of the version of the Convention applying as part of the law of the United States were considered in Victoria Sales Corporation v Emery Air Freight Inc 917 F2d 705 (2nd Cir 1990), a decision of the United States Court of Appeals, Second Circuit, the court described by Mason P in Emery Air Freight v Merck Sharpe & Dohme as the source of most of the case law on the Convention provisions as they apply in the United States. Victoria Sales involved loss of pharmaceutical products transported from Frankfurt to New York. After arrival at John F. Kennedy Airport in New York, the cargo was taken to Emery's warehouse located less than a quarter of a mile outside the airport. It was lost at the warehouse. Applying the Warsaw Convention provisions as they operate in the United States, the court was called upon to decide whether the loss occurred during "transportation by air", a phrase defined as "the period during which the baggage or goods are in charge of the carrier, whether in an airport or on board an aircraft". 20 Van Graafeiland J, in a dissenting opinion, preferred a functional, rather than "metes and bounds", approach to the definition of "airport": "Because of the tremendous growth in air cargo transportation and the virtual impossibility of crowding all the unloading and delivery facilities of every carrier into the geographical confines of busy airports, we ought to interpret the term 'airport' in a manner that will carry out the general intent of the Convention's framers. See Reed v Wiser , 555 F.2d 1079, 1090 (2d Cir.), cert. Denied , 434 U.S. 922, 98 S.Ct. 399, 54 L.Ed.2d 279 (1977); Eck v United Arab Airlines , 360 F.2d 804, 812-15 (2d Cir. 1966). If, for example, a carrier's unloading facilities were partially within and partially without an airport's geographical boundaries, it would border on the absurd to determine Convention coverage by where in the carrier's building the goods were located, particularly if they were lying athwart the airport's geographical boundary line. I suggest that if a carrier is performing the normal functions of an airport facility in its handling of cargo, the general intent of the framers would be to bring it within the 'transportation by air' provisions of the Convention. 'The term "airport" is in more common use than "aerodrome", as signifying the whole undertaking involved in the use of an organized permanent place for landing and departure of aircraft, and the embarking and disembarking of passengers, rather than the piece of land used for that purpose'. 1P. Martin, et al., Shawcross & Beaumont : Air Law III(2) (4th ed. 1985). 21 The majority opinion of Meskill and Walker JJ based itself squarely on the literal construction: "The plain language of Article 18 draws the line at the airport's border. The Convention's coverage excludes any transportation by land outside the airport. Although Article 18 creates a presumption that any damage or loss occurring during the performance of a contract for air transportation was the result of an event during transportation by air, that is, on board an aircraft or within an airport, the presumption may be rebutted by evidence demonstrating that the loss occurred on land outside the airport. Our interpretation of Article 18, contrary to the suggestion of the dissenting opinion, does not limit the meaning of 'transportation by air' to 'actual' air transportation. Rather, as the plain language of Article 18 directs, 'transportation by air' would include a loss occurring while the cargo was in the air or on the ground but within the confines of the airport's boundaries. Under the dissenter's view, even if there is undisputed evidence, as here, that the loss occurred outside of the airport during transportation by land, the Convention governs as long as the land transportation was part of the carriage contract. This interpretation would effectively render nugatory Article 18's command that '[t]he period of the transportation by air shall not extent to any transportation by land … performed outside an airport.' This cannot be the result intended by the Convention's drafters. Because the shipment of coumadin was admittedly lost at Emery's warehouse outside the airport, the presumption favoring Warsaw Convention coverage has been rebutted and the Convention does not govern. A different interpretation might be more 'sensible', as appellees suggest, but to engraft such an interpretation onto the plain language of Article 18 would require an impermissible judicial amendment of the Convention." 22 This literal interpretation of the expression "in an airport" has since been adopted by other United States Courts: General Electric Co v Harper Robinson & Co 818 F Supp 31 (EDNY 1993), Hitachi Data System Corp v Nippon Cargo Airlines Co (unreported, ND Cal, 6 January 1995), Igudesman v Aircargo Handling Services (unreported, ND Cal, 3 February 1995), Read-Rite Corp v Burlington Air Express Ltd 186 F 3d 190 (9th Cir Cal 1999) and Aerofloral Inc v Rodricargo Express Corp 756 So 2d 234 (Fla Dist Ct App 3d Dist 2000). It has also been approved by a Master of the High Court of New Zealand: International Cargo Express Ltd v U-Jin Enterprises Inc [1997] 2 NZLR 712. To the same effect is the observation of Morison J in the Queen's Bench Division in Rolls Royce plc v Heavylift-Volga DNEPR Ltd [2000] 1 Lloyd's Rep 653 that "[i]t is difficult to think that defining the aerodrome as anywhere within the actual boundary of the airport would cause any absurdity".

Decision on liability under the Warsaw Convention 23 In the light of these foreign judicial statements, a first instance judge of this Court should adopt the "metes and bounds" view of "in an aerodrome" in art.18.2 of the Convention, rather than any functional approach, including such functional approaches as may be constructed by reference to customs clearance. I therefore intend to proceed on that basis, although not without an element of hesitation. The majority opinion in Victoria Sales has the virtue of simplicity and certainty. But it is the product of a strict view of treaty interpretation which was re-emphasised by the Supreme Court of the United States in Chan v Korean Airlines 490 US 122 (1989) and proceeds from an observation of Story J in The Amiable Isabella 6 Wheat 1 (1821) which reflects a particular United States view of the judicial function: "To alter, amend, or add to any treaty, by inserting any clause, whether small or great, important or trivial, would be on our part an usurpation of power, and not an exercise of judicial functions. It would be to make, and not to construe a treaty". 24 Such strict literalism is not altogether consistent with the purposive approach to the construction of the Warsaw Convention preferred in some countries (see, for example, the speeches of Lord Diplock and Lord Wilberforce in Fothergill v Monarch Airlines Ltd [1981] AC 251). In the end, however, I consider the black letter construction to be more in line with the decisions of the Court of Appeal of this Court on other aspects of the Convention in both Kotsambasis v Singapore Airlines Ltd (1997) 42 NSWLR 110 and American Airlines Inc v Georgeopoulos (No 2) (unreported, NSWCA, 5 August 1998). 25 Adopting the Victoria Sales approach, I regard the site of the Melbourne airport at Tullamarine as defined, for the purposes of the Convention as it applies as part of the law of Australia, by the provisions of the Airports Act and the Airports Regulations to which I have already referred. It follows that the incident in which Pallet A fell to the roadway did not occur "in an aerodrome" for the purposes of the Convention and that the liability regime created by the Convention and made part of Australian law by the Civil Aviation (Carriers' Liability) Act has no application in this case. The contention of Schenker Australia and Schenker GmbH that liability is limited by reference to art. 22.2 of the Convention therefore fails.

The parties' contract 26 I now turn to the question whether a limitation of liability arises as a matter of contract. It is accepted that the only potential source of any such limit is clause 4 of the house air waybill issued in respect of the particular carriage. That clause is as follows: "Except as otherwise provided in carrier's tariffs or conditions of carriage, in carriage to which the Warsaw Convention does not apply carrier's liability shall not exceed USD 20.00 or the equivalent per kilogram of goods lost, damaged or delayed, unless a higher value is declared by the shipper and a supplementary charge paid". 27 The contractual framework within which the carriage occurred was of long standing. The Siemens Group and the Schenker Group had a commercial relationship extending back to the nineteenth century, at least at the level of the German parent companies. In 1991, negotiations between those parent companies in Germany produced a new agreed basis for the carriage of goods by the Schenker Group for the Siemens Group between Germany and Australia. This was revised periodically by further negotiations. Although the relevant discussions and correspondence were between the German companies, their respective Australian subsidiaries were consulted and may be taken to have acquiesced in the results. The framework thus developed became known as "Richtungsverkehr" (literally, "Direct Traffic"). 28 It must be accepted that the "Richtungsverkehr" arrangements, as in force from time to time, had contractual effect among the parties in relation to each individual consignment and its transportation according to the roles they played in that consignment and transportation. It must also be accepted that when, in accordance with practice, a house air waybill was issued in respect of particular transportation, its terms supplemented those of the standing arrangement. I approach this part of the case on the footing (which I do not understand to be controversial) that, according to the composite contract thus applicable to the transportation now in question, Schenker GmbH became a bailee of the cargo for Siemens Ltd at the point at which title and risk passed from Siemens AG to Siemens Ltd at the Berlin airport and undertook an obligation to transport that cargo to the Schenker Australia warehouse in Melbourne; and that a sub-bailment or sub-contract arose when Schenker Australia took possession of the cargo from Singapore Airlines at the Melbourne airport. 29 The parties take different views as to the applicability of the provisions of the air waybill. There is no dispute that those provisions were operative, as a part of or adjunct to the overall contract. Siemens Ltd contends, however, that the air waybill provisions did not extend to the segment of the total transportation involving movement from the Melbourne airport to the Schenker Australia warehouse, even though that segment was part of the overall contract. The Schenker companies regard that segment as covered by the waybill. 30 The waybill governs and relates to "carriage" or "carriage hereunder". It refers extensively to "carrier", an expression defined as follows in clause 1: "As used in this contract 'carrier' means all air carriers that carry or undertake to carry the goods hereunder or perform any other services incidental to such air carriage." 31 Clause 3 refers to the possibility that "[c]arriage to be performed hereunder" may be performed "by several successive carriers". Clause 2.1 deals with the situation where the carriage in question "is not 'international carriage' as defined by" the Warsaw Convention, while clause 4 is concerned with "carriage to which the Warsaw Convention does not apply". Clause 8.1 contemplates the possible use of "alternate carriers or aircraft", as well as the possible need for "other means of transportation". 32 Taken together, these references indicate quite unmistakably that the document is concerned with the transportation of cargo by air, whether or not that transportation is "international carriage" as defined by the Convention and whether or not the Convention applies. The reference to "other means of transportation" stands in contrast to alternate "carriers" (being "air carriers") and alternate "aircraft", thus indicating that the principal and expected means is transportation by air. Furthermore, it is contemplated that a "carrier" (that is, an "air carrier") may have, in the context of the relationship with which the document is concerned, "agents, servants and representatives" and that goods entrusted to a "carrier" may be in "the charge of its agent", thus recognising that the carrier may perform part of its function through some other person. 33 This last aspect is particularly relevant in the case of a corporate carrier where the carriage begins in one country and ends in another. A corporation must, of necessity, act through human intermediation and, in a case where it is required to act in some foreign country, the human intermediation may be that of an officer or employee of another corporation which is engaged by contract to perform the relevant act. It must be presumed in the present case that Schenker Australia was, through its employees, performing such a function for Schenker GmbH in relation to the Melbourne end of the carriage from Berlin to Melbourne for the account of Siemens Ltd. 34 A fundamental question posed by the circumstances of this case is as to the point at which the carriage referred to in the air waybill concluded. That question is not one in which definitive words such as the Convention's "in an aerodrome" play a part. The determinant is, rather, the usual one in contract construction cases of the parties' intention objectively manifested. In discovering that intention, it must be borne in mind that the air waybill was created and employed in the context of the wider "Richtungsverkehr" arrangements which had resulted from the 1991 negotiations and subsequent revisions. While the respective German parents had been the immediate participants in relevant negotiations, the evidence leaves me in no doubt that Siemens Ltd and Schenker Australia were also parties to the resultant contracts and that those contracts, as in force at the relevant time, were intended to bind and did bind all four companies with respect to the various roles they were foreseen as playing in subsequent instances of carriage. I also entertain no doubt that, according to the understandings at the root of the contractual relationship, it was foreseen that Schenker GmbH and Schenker Australia would together provide all services required to transport goods to Australia for Siemens Ltd, with Schenker GmbH being responsible for the elements commencing at the German airport and ending upon unloading of the aircraft in Australia and with Schenker Australia then having responsibility for the elements from the aircraft unloading point to, at the least, customs clearance at its own store. That the segment from the airport of arrival to the Schenker Australia store was within the Schenker responsibilities is fully borne out by the letter of 17 January 1991 to Siemens AG from Schenker GmbH which, in its agreed English translation, lists among elements covered by the "Richtungsverkehr" arrangement between the two groups "Transit to customs controlled warehouse", "Break bulk, physical and documentation" and "Hand over in Australia to customs agent". All these are consistent with the idea that the Schenker Australia warehouse would, in the case of each individual consignment, be the end point of the transportation provided by the Schenker Group. 35 To the same effect, but even more explicit, is the agreed English translation of a letter of 5 May 1994 from Schenker Australia to Siemens Ltd outlining the essence of the "Richtungsverkehr": "The key issue is the fact that 'Richtungsverkehr' must encompass a variety of services from the origin city in Germany to hand-over of the goods from Schenker stores in Australia at a flat rate, which cannot be compared to other services we and others offer." (Emphasis added.)

An enclosure which accompanied that Schenker Australia letter explained the position in more detail by reference to transport from Frankfurt: "The system allows for despatch of goods from a large number of Siemens factories to Schenker whilst instructions are received from central offices e.g., Erlangen. The rate is struck on a compromise to allow the Siemens factories to despatch to the closes Schenker freight office including offices with no airports. The subsequent transport to the gateway airport Frankfurt is included in the "Richtungsverkehr" rate and the system even allows for instructions to be received at Frankfurt. Schenker Frankfurt assemble airline pallet based consolidations at Schenker Kelsterbach which travel sealed from Schenker Frankfurt to Schenker Melbourne/Sydney. We in return disassemble the airline pallets without airline labour involvement, which has reduced short landing to an insignificant level. Last but not least, goods are held at our store free of charge, accessible to you for clearance and redirection/consolidation to carlous [sic] destinations, in which we also play an active part."

Decision on contractual limitation of liability 36 A continuum of services was thus provided for in what might be termed the "umbrella" contract, with individual contractual relationships arising between different parties in relation to different aspects of the transportation of any individual consignment between Germany and Australia. Which part or parts of that continuum was covered and governed by the air waybill? Although that question presents particular difficulties, I have concluded that the waybill did not extend to the part of the overall journey consisting of transportation from the Melbourne airport to the Schenker Australia warehouse, even though, under the umbrella contract, that element was clearly placed within the responsibility of Schenker GmbH and was to be physically undertaken by Schenker Australia. 37 The factors that have caused me to reach this conclusion are found in the air waybill itself. As I have said, it is, by its terms, confined to air carriage and, except where land transportation becomes a substitute for air carriage (being some "other means of transportation" referred to in clause 8.1), it does not purport to cover any land element. (I should say here that, to the extent that the definition of "carrier" refers to "other services incidental to such air carriage" and may thus contemplate movement on land, I consider it to be confined to land elements such as loading, unloading, transhipment or other aspects intimately related to transportation by air). Particularly compelling, however, are the provisions which refer to the relationship between the waybill and the Warsaw Convention, being clauses 2.1 and 4. 38 Clause 4 is set out in full above. The limitation of liability it effects is expressed to apply "in carriage to which the Warsaw Convention does not apply". Clause 2.1 reads: "Carriage hereunder is subject to the rules relating to liability established by the Warsaw Convention unless such carriage is not 'international carriage' as defined by that Convention."

39 The clear assumption in each of these provisions is that the carriage as a whole will or will not be within the Convention's definition of "international carriage" and that the carriage as a whole will or will not be carriage to which the Convention applies. No half measures are contemplated. The carriage is not regarded as consisting of segments, with some being "international carriage" for the purposes of the Convention and others not, or with the Convention applying to some but not to others. It is all or nothing. This, to my mind, indicates that the concept of "carriage" adopted by the waybill is intended to correspond, and does correspond, with the concept of "carriage" under the Convention. 40 Clause 4 does not apply unless the whole of the relevant carriage is "carriage to which the Warsaw Convention does not apply". In other words, if the Convention does apply, clause 4 does not: one or the other operates exclusively. On any view of matters, the Convention did apply to this carriage. It applied in such a way that its liability and liability limitation regime extended up to the point where the cargo crossed the boundary of the Melbourne airport en route to the Schenker Australia warehouse. It follows that the carriage was not of the description in clause 4 of the air waybill. The substitute liability limitation provision in that clause therefore did not operate at all. It did not operate in relation to the carriage as I have just described it because clause 4 so dictated. It did not operate in relation to the transportation from the Melbourne airport to the Schenker Australia warehouse because that was not part of any carriage. 41 The defendants' contention based on a contractual limitation of liability accordingly fails and it is unnecessary to consider the question whether Schenker Australia has the benefit of the limitation clause either directly or by derivative means of the kind discussed by the Court of Appeal in Life Savers (Australasia) Ltd v Frigmobile Pty Ltd [1983] 1 NSWLR 431.

Common law liability - one pallet or two? 42 Because the Convention's liability regime does not apply and there is no room for the operation of clause 4 of the air waybill, the liability of the defendants falls to be determined according to ordinary common law principles. The contentions of Siemens Ltd are that Schenker GmbH is liable for breach of the contract of carriage, that Schenker Australia is liable in negligence and that both those companies are liable for breach of bailment as bailees for reward. I do not understand any of these contentions to be disputed. Furthermore, I do not think that, in a case such as this, the measure of damages will differ according to the different ways in which the basis of liability is framed: see N.E. Palmer "Bailment", 2nd ed (1991), at 78-80. The central question is as to the value of that which was lost. That emphasises the question whether the loss suffered by Siemens Ltd extended to the content of Pallet B as well as that of Pallet A. 43 Under the Warsaw Convention, a negative value impact upon a part of a cargo not directly involved in loss, damage or delay may be compensated along with the negative impact upon the part which is lost, damaged or delayed: see, for example, Allied Implants Technology Ltd v Lufthansa Cargo AG [2000] 1 All ER (Comm) 958. But that is a result of the specific words of the liability code contained in the Convention. The principle does not extend in the same automatic way to damages claims at common law. 44 In approaching the question of the extent of the loss suffered by Siemens Ltd, it would be wrong to attribute too much importance to the fact that different parts of the single digital cross connection system (or DXC) were conveyed on separate pallets and that one suffered physical damage (effectively destruction) while the other was not physically harmed. Given that the two parts would have operated as a single unit when assembled together, there is something of a parallel with the kind of situation in which the engine of a car is stolen or destroyed but the remainder is perfectly intact. Unless it is both possible and practicable to obtain and install a replacement engine so that that remainder is again made into a fully operative car, the remainder may properly be regarded as having suffered the fate of the engine, except to the extent that it has any intrinsic value in its own incomplete state. 45 It is therefore necessary to confront the central question whether the destruction of the content of Pallet A had the effect of rendering the content of Pallet B effectively useless and of salvage value only. The answer to that question depends in large measure on the answer to two further questions, both of them scientific or technical: first, whether the content of Pallet B was capable of being joined only with the content of Pallet A (in the sense that joining of it with a replica or equivalent of the content of Pallet A would not have produced an equivalent result); and, if so, second, whether the content of Pallet B could have withstood the rigours of a journey back to the Siemens AG factory in Germany, given that, on any view of matters, that is the only place at which it could have been made to work in the way it was intended to work. That leads to further consideration of the nature of the digital cross connection system. 46 The DXC is, in essence, a switching system which converts optical signals into electronic pulses. It utilises synchronous digital hierarchy (or "SDH") technology. Its synchronous nature means that it works according to clock pulses in such a way that the system as a whole must be compatible throughout, with all relevant aspects finely tuned so as to be exactly synchronised. In physical appearance, a DXC consists of racks and subracks which resemble cabinets or cupboards (being racks) containing a series of shelves (the subracks). Cards sit on the shelves or subracks and can be slotted into and out of connections at the back by levering tabs at the front. They are therefore modular, in the sense that there are discrete detachable sections. 47 Evidence about technical matters was given by three witnesses: Mr Bodeit, a communications and electronics engineer employed by Siemens AG in Munich; Dr Binh who holds the degree of Doctor of Engineering from the University of Western Australia and has been a Reader in the Department of Electrical and Computer Systems Engineering at Monash University, Melbourne, since 1981; and Mr Harwood, a senior consultant with Conultel IT&T Pty Ltd since early 1999 and previously for some five years telecommunications manager at Swinburne University, Melbourne. 48 Mr Bodeit said that rudimentary testing of a completely built DXC (or either of its two component parts) is possible but not sufficient to provide assurances of necessary quality. He was further of the opinion that, once manufacture and assembly are complete, the type of testing that would provide assurances of required quality would necessarily destroy the DXC. This is why Siemens AG routinely performs extensive testing on the parts of the DXC progressively during the manufacturing process and then tests the whole DXC on completion of manufacture. Dr Binh's opinion on that aspect corresponded with that of Mr Bodeit. 49 Mr Harwood said that post-manufacture testing could be sufficient to establish the integrity of an already constructed and integrated DXC. However, he agreed that at the relevant time the only Siemens facility capable of testing the DXC to determine it was of sufficient quality was located in Germany. 50 Mr Bodeit and Dr Binh both emphasised that the DXC is extremely sensitive to vibration. In their opinion, therefore, the rigours of further transportation would potentially, with a reasonable degree of probability, affect the operating life of the DXC. Mr Harwood was of the opinion that the DXC is not especially sensitive and is reasonably rugged, so that additional travel is not likely to affect the operating life of the DXC or impact on quality. In support of his opinion, Mr Harwood said that the vibration testing performed by Siemens AG during research and development before releasing the product on the market indicates that the DXC can withstand reasonable levels of vibrations involved in transportation. 51 Dr Binh was at particular pains to emphasise the significance of the synchronous nature of the DXC. He pointed out that every part of the DXC has to be calibrated otherwise it will develop "jittering" and fail. Mr Harwood conceded that the synchronous nature of the DXC is important but said that the DXC is basically modular and replacement components can be used in it without affecting synchronicity. He noted, in this connection, that Siemens AG had provided Siemens Ltd with a credit in relation to cables and connectors used in the damaged DXC. Mr Harwood also asserted that there are testing procedures and calibration devices (such as PROM) available which enable calibration of replacement parts with the rest of the system. 52 Dr Binh very firmly denied that there are any testing procedures available that can give assurance that replacement parts are appropriately synchronised with the rest of the DXC. His opinion is based on two factors: first, the clock speed of the DXC is so high and the DXC is so sensitive that even the slightest difference in calibration between parts will produce adverse results; and, second, calibration devices such as PROM are used on software or firmware and relevantly not on hardware. Furthermore, he was of the view that, despite the modular construction, dangers are presented by removal and replacement of cards. 53 It is thus clear that there are some differences between Dr Binh and Mr Harwood, particularly in the general area of extreme sensitivity versus reasonable resilience. Ultimately, I consider the appropriate course to be to prefer the evidence of Dr Binh in that area. He has close first hand familiarity with both the relevant theoretical body of knowledge concerning synchronous digital hierarchy technology and practical application of the particular technology in the field of optical electronics and opto-electronics. Mr Harwood's experience has centred upon analogous but slower and, I think, technologically less sophisticated switching systems from which he drew conclusions which he assumed to be equally applicable to the DXC system, but without any first-hand experience of that system. 54 Because of Dr Binh's particular first-hand knowledge, I accept his evidence rather than Mr Harwood's in those areas where they differ on matters such as the dangers of multiple removal and re-insertion of cards and, in general, the dangers of disruption to the synchronous function, the general sensitivity of the DXC and consequent concerns about the reliability of the Pallet B content after return to Germany, even if subjected to testing which appeared to be satisfactory. 55 On that footing, I find that the content of Pallet B was effectively rendered inoperative and irreparable by the destruction of the content of Pallett A and was thereby reduced to salvage value only.

Decision on common law liability 56 It follows that Siemens Ltd is entitled to damages the main component of which is the value of the total DXC (being the content of Pallet A and Pallet B together), less any salvage value. There are also incidental items. Counsel informed me that it was agreed that, in the result as to liability which I have now reached, the loss of Siemens Ltd was: DXC cost DM 1,708,489 . 00 Freight Berlin to Melbourne DM 19,416 . 80 Survey fees A$ 1,275 . 00 It was also agreed that there should be an allowance or deduction of DM128,022.00 for salvage. There is, in addition, a claim by Siemens Ltd for the inclusion of DM16,736.75 for return freight charge from Melbourne to Berlin but, in view of Siemens Ltd's contention (which I have accepted) that the Pallet B content was effectively lost when the Pallet A content was destroyed, that is not a proper component of Siemens AG's loss. There was no evidence before me that the German factory was the only place at which pieces of the Pallet B content suitable for re-use in other connections could be salvaged. 57 Siemens Ltd is entitled to recover as damages, first, the aggregate of the Deutschmark sums referred to above (that aggregate being DM1,727,905.80) less the allowance for salvage (DM128,022.00), being a nett sum of DM1,599,883.80, and, second, $1,275.00 in Australian dollars. It is also entitled to interest to the date of judgment. Before entering judgment, I wish to have further submissions from counsel on the question whether the component which is not in Australian currency should, for the purposes of the judgment, be converted into Australian currency (and, if so, as to the appropriate rate and date of exchange) or whether judgment should, as to that component, be entered in German currency. As there has been no submission to the contrary, interest will be at the rate prescribed by Schedule J to the Supreme Court Rules, computed from the date of loss, being 15 December 1996. The further submissions should also address the interest calculation, as well as the concurrent liability of the two defendants. If the parties are able to agree all these matters and bring in appropriate short minutes of order, so much the better. 58 The defendants must pay the plaintiff's costs. **********

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