Part 3: Multimodal Transport Solutions

In Part 1 of this article, Introduction and background, we provided an overview of the international Conventions applicable to the multimodal trade.  This was followed by Part 2, in which we looked at the legal issues under the current unimodal Conventions system.

In this Part 3, the final part of our article, we will look at some possible solutions to the legal issues discussed in Part 2. 

Multimodal transport solutions

As we have seen, the current legal framework governing multimodal transport is fragmented and complicated.  It comprises of a complex web of international unimodal transport conventions designed to regulate the carriage of goods by sea, air and road respectively. The consequence of having a network of unimodal transport conventions is that there are several mandatory regulations which could concurrently apply to any one incidence of multimodal transport. Nevertheless, there are arguments for preserving the current system, though not surprisingly, also arguments for replacing it. 

In this part of our article, we will specifically be looking at three alternative frameworks -  the Uniform Liability System, the Network Liability System and the Modified-Limited System - as potential replacements for the current legal framework.

i. Preserving the status quo

The main argument for keeping the current legal framework is that it represents the freedom of contract approach. 

Such an approach is however contractual in nature and does not have the force of law. The approach is subject to any applicable mandatory international or national laws which would apply to the multimodal transport contract. Consequently, if there is a conflict with any mandatorily applicable Convention or national laws, the freedom of contract approach would give precedence to the relevant mandatory international Convention or laws.

Further, it must allow for existing unimodal rules established by international Conventions in countries where they are applied. Even where no such rules or Conventions apply, there is still likely to be mandatory national law in place. As such, the freedom of contract approach has limited application.

ii. The Uniform Liability System

The Uniform Liability system subjects the entire multimodal transport contract to the same rules of liability, irrespective of the modes of transport that are used to perform the carriage of the goods  from A to B. There is no difference between cases where loss can or cannot be localised.

As the Uniform Liability system provides a specific set of rules, the applicable liability rules are predictable from the outset and this affords the system a great deal of simplicity and transparency. This eliminates unnecessary litigations associated with the need to identify (i) the place where the loss occurred, (ii) the applicable liability regime, and/or (iii) the limitation of liability rules.

What complicates matters however is the direct applicability of the unimodal transport Conventions to separate legs of the multimodal journey. The multimodal transport system clearly supports this possibility even if a multimodal transport contract is classified as a standalone contract, as opposed to a chain of separate contracts.
 

In addition, there is no liability under back-to-back terms under the Uniform Liability system. This means there may be cases where the MTO will not be able to recover losses incurred by it from its sub-contractor. In such cases, the sub-contractor may be entitled to rely on an excepted peril that is only provided in the relevant unimodal transport rules applicable as between the MTO and itself.

iii)  The Network Liability System

The Network Liability system determines the liability of the MTO (under the multimodal transport contract) on the basis of the international or national unimodal liability rules relevant to the stage of the transport to which a particular loss can be attributed. 

Under a Network Liability system, the applicable liability rules will depend on the identification of the particular unimodal stage where the loss, damage or delay to goods occurs. As such, different liabilities apply to the separate legs of the multimodal transport contract as if the parties had drawn up separate contracts for each of them. There is also an ‘alternative’ or ‘fall-back’ set of rules for cases where the location of the loss, damage or delay to goods cannot in fact be established.

The main advantage of the Network Liability system is that liability is based on back-to-back terms and by its automatic adaptation to the relevant mode of transport. The system does not interfere with any of the existing unimodal regimes i.e. through applying rules which are specifically designed for the specific mode of transport.

A major disadvantage of the Network Liability system however is that the applicable liability rules that govern the extent of the MTO’s liability are not predictable but vary depending on numerous factors. For example, it may depend on whether a loss can be attributed to a particular stage and mode of transport, and on whether a considerable number of potentially applicable rules and/or regulations are to be considered relevant by a court or arbitral tribunal in a given forum.

1. The  Modified-Limited System

The Modified-Limited system is a compromise between the Uniform Liability system and the Network Liability system. Under the Modified-Limited system, some rules apply irrespective of the unimodal stage of transport during which the loss, damage or delay to goods occurs. However, what complicates matters is the application of other rules which depend upon the unimodal stage of the transport during which the loss, damage or delay occurs.

One of the key features of the Modified-Limited system is its limitation of liability regime. Limitation of liability can cause a lot of problems since limits vary from transport mode to mode. Both the Multimodal Convention and the UNCTAD/ICC Rules operate a Modified-Limited system under which in cases of localised loss only, the limits of liability may be determined by reference to mandatory unimodal regimes.

It is suggested that the Modified-Limited system is effective in taking into account the advantages and disadvantages of both the Network Liability system and the Uniform Liability system.  It provides a workable consensus which takes into account conflicting positions and interests. The Modified-Limited system resolves controversial issues such as limitation of liability and time-bars by adopting the solution under the Network Liability system. The Network Liability system, as we saw above, provides legal certainty by providing the rest of the regulations with a uniform validity.

More importantly, the Modified-Limited system usually provides that where loss is not capable of being localised, liability is to be determined by a fall-back uniform rule. The system therefore offers a solution to the liability gap as it takes into account the necessity to adapt the existing unimodal Conventions. The Modified-Limited system may however fail to appeal widely due to its complexity and to the fact that it provides neither the full benefits of a Uniform Liability system, nor fully alleviates the concerns of those who favour a Network Liability  system.

It is to be noted that while the Modified-Limited system provides a solution to the ‘liability gap’ between the application of the unimodal Conventions, the solution does not assist if the loss occurs gradually over the journey. In such circumstances, the carrier would be left without recourse. As such, the Modified-Limited system does not assist in mitigating the dangers of unpredictability which are inherent in multimodal transport.

Conclusion

It is clear that an international uniform Convention would assist in bringing in some much needed clarity to the multimodal transport industry. The introduction of any international Convention would however necessarily involve a large number of parties, all with  conflicting and competing interests. This poses a huge challenge for obtaining consensus.

While the Uniform Liability system best addresses the needs of cargo interests, it has been met with resistance by the transport industry due to the problem of achieving a satisfactory recourse solution. Therefore, it would be very difficult to achieve the necessary ratifications for such a Convention.

The current legal framework most closely resembles a Network Liability system in that it is characterised by a significant degree of uncertainty. The Network Liability system, as discussed above, is very fragmented and complicated making it neither a satisfactory nor a cost-effective option for replacing the current legal framework.

If however the Network Liability system were to be considered as a possible solution for an international uniform Convention, the following two issues will need to be addressed.  Firstly, confusion on the applicability of relevant regimes needs to be avoided. It is suggested that this could be achieved through adjusting the scope of application provisions in each unimodal Convention to clarify that the Convention applies to a certain mode of transport, and not to a certain type of contract.  Secondly, it would be necessary to eliminate the multimodal scope of some of the unimodal Conventions in order to avoid any conflict of laws issues.

Some countries may however view the above suggestion as too radical, and would instead settle for the preservation of the status quo.  Others may simply take the view that the multimodal provisions within the unimodal transport Conventions are working adequately well and are not in need of reform. 

It is clear that there is an urgent need for a more harmonised international legal regime in the multimodal transport trade. Of the options discussed above, the Modified-Limited system appears to be the approach that is most capable of achieving this goal. The UNCTAD/ICC Rules for Multimodal Transport Documents and the United Nations Convention on International Multimodal Transport of Goods (Geneva, 24 May 1980) are good examples of successful Modified-Limited systems, in spite of the fact that the latter failed to achieve the necessary ratifications to come into force. The key features of the Modified-Limited system are already widely used in standard forms of contracts and national rules.

Report by the UNCTAD Secretariat, ‘Multimodal transport: the feasibility of an international legal

instrument’, UNCTAD/SDTE/TLB/2003/1 (2003), paras 45-46.

Theodora Nikaki, Bringing Multimodal Transport Law into the New Century: Is the Uniform Liability System the Way Forward, 78 J. Air L. & Com. 69 (2013).

These Rules came into force in January 1992 but do not have the force of law. They are standard contract terms for incorporation into multimodal transport documents. The rules, being contractual in nature, will have no effect in the event of conflict with mandatory law.