Time for a change to the SGHA

posted on 6th June 2018
Transport law specialist Tommy Pilarp discusses issues of liability, arguing that IATA’s Standard Ground Handling Agreement needs to be revised, to bring greater clarity and better protection for carriers and handlers

As a practising lawyer and former legal counsel of an airline, I quite often get to handle issues and questions that touch upon the application of the IATA Standard Ground Handling Agreement − SGHA. Quite often I sense a growing discontent with the document, both from the perspective of air carriers and their customers, and from terminal operators.  The air carrier, having been able to introduce liability for the terminal operator in the SGHA via article 8.6, finds that terminal operators quite often are able to negotiate an exclusion of said article − and the terminal operators are equally concerned that this possibility will be restricted in the future.

For the purposes of clarity, this article aims exclusively to deal with matters of liability where damage, loss or delay is caused to cargo carried, or to be carried, by the airline, thus concentrating on the applicability of articles 8.1 c) and 8.6 of the current 2008 version of the IATA SGHA.

When discussing the current version of Article 8, I have quite often been told that “when analyzed from all vantage points, it becomes clear that the current version of Article 8 is ‘as good as it gets’ and should not be changed nor modified”.  But is that really the case when so many terminal operators exclude article 8.6, the very article the air carriers successfully managed to introduce in the last version of the SGHA?

Would it not be more advantageous from the perspective of both the air carrier and the terminal operator to introduce a new, revised version of article 8.1 c) and 8.6 that both parties can agree upon? This would certainly allow carriers to more accurately and properly assess the risk exposure of a ground handling agreement, and at the same time allow the terminal operator to equally assess their risk exposure without having to exclude article 8.6 all the time.

When I introduce the notion of some kind of liability for the terminal operator for damage to, loss of, or delay to cargo [of the carrier], I am quite often met by the argument that damage claims affect not only insurance costs, but also the profitability of the terminal operator. Quite often it is also further stated that introducing a liability for the terminal operator will not reduce damage from cargo handling.

These arguments seem to be based on some kind of notion that the number of damages will be unchanged if a liability regime is introduced, but is that really a certainty? Might not the introduction of a liability regime for the terminal operator rather encourage the terminal operator to introduce procedures with the intention to reduce current damage statistics? And also to improve procedures such as acceptance checks, to accurately establish if the damage had already occurred prior to coming into the custody of the terminal operator?

If the introduction of a liability regime will have such an effect, the profitability of the terminal operator is likely to increase, not decrease, since damages and claims will be likely to occur less often. However, an increase in manpower in order to secure and apply procedures and an increase in labour costs for terminal operators may well make up for the reduced claims, unless these higher additional costs are transferred to the carrier via an increase in handling fees.

Of course, the terminal operator must procure and maintain adequate insurance coverage for any liability regime involving cargo claims. But do these insurance schemes not already exist? Or is that the simple reason why article 8.6 is so often excluded? It would make sense to exclude article 8.6 on the notion that the terminal operator lacks adequate and proper insurance covering the risk under article 8.6. If, however, a proper insurance scheme already exists that covers the risk exposure of a terminal operator under article 8.6 then the introduction of liability should be easy to handle. But if not, let’s look at the issue from that perspective and ask ourselves exactly how the current risk insurance of the typical terminal operator would be affected by a liability regime.

If the terminal operator also handles aircraft and passengers, the adding-on of a cargo liability to the overall policy is not likely to increase the premiums to any significant extent. This, of course, is likely to be the case if the handling agent is a larger agent. If so, including article 8.6 might actually be advantageous to the terminal operator or handling agent. If the terminal operator exclusively handles cargo, the same cannot be said, but the possibility to jointly ‘pool’ insurance coverage in order to decrease premiums should not be overlooked, nor the fact that an increase in premiums might result in an increase in handling fees by the operator.  If a joint industry insurance scheme open to all operators is achievable, participating operators would pay a premium based on their proportion of the total business activities/risk exposure among all participating operators.

Overall, I find the arguments for not having any liability regime whatsoever for the terminal operator, for damage to, loss of, or delay of cargo, rather unrealistic. That said, I am equally dissatisfied with the current article 8.6 and ask myself why a terminal operator who stands to gain only a small percentage of the freight charges in handling fees should be exposed to the whole liability of the air carrier. An introduction of a ‘shared liability’ based on the general proportion that handling fees account for within the freight charges might be more ‘fair’ and would, in my opinion, be more acceptable to all parties, including insurers.

We need not look far in order to see examples of ‘shared liability’ on a proportional basis in other fields of Transport Law. For instance, Article 50 § 1 c) (‘Right of recourse’) of the Uniform Rules Concerning the Contract of International Carriage of Goods by Rail (CIM – Appendix B to the Convention) states as a general principle that where several carriers have been involved in the transport and it cannot be established which one of them caused the loss or damage, all carriers involved in the transport shall assume liability based upon their share of the carriage charge − except those who prove that the loss or damage was not caused by them.

So it would be possible to allow for a liability regime where the carrier and the handling agent or terminal operator simply share the liability based upon their proportional share of the freight charges.

What would then the legal implications be for not introducing such a ‘fair’ and commonly agreed liability regime, as well as for introducing such a regime?

Well, by not introducing a ‘fair’ liability regime to replace the current articles 8.1 c) and 8.6 would mean that terminal operators will continue to exclude article 8.6 in t

heir ground handling agreements. This leaves the carrier with only one option if he elects to pursue his damage claim, which is to argue intent (which is nearly impossible) or that the terminal operator acted recklessly and with knowledge that damage would probably occur. Arguing recklessness (and knowledge of said consequences) will undoubtedly lead to the parties assuming certain facts of the other, such as, but not limited to, accusations relating to employee performance. Having a strict but ‘fair’ pure negligence liability will certainly reduce such tensions and efforts on behalf of carriers. Furthermore, terminal operators should be aware of the time limits of claims by the carrier in article 8.6, which, if the carrier must resort to arguing recklessness under Article 8.1 c) will not apply, since the terminal operator has excluded article 8.6, and article 8.1 c) does not contain any similar statute of limitation.

So by introducing a fair liability regime, the terminal operator could maintain the coverage of the present article 8.6 by keeping the wording on statute of limitation and, quite importantly, by also keeping the wording that the liability of the terminal operator never is to exceed that of the carrier.

Another aspect of introducing a new ‘fair’ liability regime, which is to replace not only article 8.6 but also article 8.1 c), is that under the current regime terminal operators might actually be exposed for unlimited liability if the carrier or any third party, such as the customer of the carrier, can prove intent on behalf of the terminal operator − while at the same time the indemnification of the carrier to the handling agent is limited to the applicable liability limits of the carrier. Thus, if article 8.6 is excluded and the terminal operator is found to have caused the damage with intent (or recklessly and with knowledge that damage would probably result), then the operator faces unlimited liability and may only be indemnified by the carrier with 19SDR/kg, since the carrier’s liability under the Montreal Convention (1999) may not be higher, even if intent is established. The wording under article 8.6 that the liability of the handling agent shall never exceed that of the carrier has been excluded (since article 8.6 is excluded), and while the indemnification of the carrier to the operator, should intent be proven, was unlimited under the old Warsaw Convention, with the introduction of the Montreal Convention this ‘loophole’ needs to be covered.

Any ‘fair’ liability regime introduced cannot maintain a scenario where the operator may be subject to unlimited liability and at the same time the liability of the carrier is fixed and may not be unlimited even under intent.

So where do we go from here? First, allow me to express the opinion that for the 2013 edition of the SGHA, the industry has two ways to go: forwards or backwards. Equally, going nowhere but rather adopting a status quo position on article 8 will be similar to going backwards.

While it is true that damage claims affect the profitability of the terminal operator, a reduction of these damage claims will equally affect the profitability in a positive sense and an increase in liability might actually reduce damage claims. However, if the majority of cost, both for premiums as well as labour costs, are indeed absorbed by cargo insurances procured by the customers, this might actually be the reason why the industry as a whole has not really properly dealt with the issue of cargo liability.

The way to go forward should, in my opinion, be to redraft article 8.1 c) and 8.6 into one new article for the liability of the terminal operator for damage to, loss of or delay of cargo. One ‘fair’ level based on the generally agreed upon industry average between freight charges collected by the carrier and the handling fees charged by the terminal operator, and with a level equal to that of the carrier under the Montreal Convention (1999) for damages caused with gross negligence or willful misconduct. And furthermore, maintaining the time bar for claims by the carrier against the terminal operator, which were properly introduced in article 8.6.

Having accomplished this, the terminal operators need to be aware of the fact that the SGHA does not regulate all liability risk exposure of the terminal operators and it is highly recommended for each terminal operator to draft their own general conditions as a fall-back guarantee should the SGHA not cover the occurred situation.

The terminal operator needs to be aware of the fact that the SGHA regulates liability against and/or liability claims by the carrier, and not third-party claims. Although the new edition to article 8.1 may allow some indemnity for third-party claims by the carrier, although limited, the same cannot be said for third-party claims lodged for damage, loss or delay occurring after the performance of the agreement has been concluded. If, for instance, the carrier, through its ground handling agent the terminal operator, notifies the consignee of the arrival of cargo and the consignee acknowledges receipt of such notification – but instead of taking delivery of the cargo instructs the terminal operator to arrange for storage of the cargo and a damage or loss after such instructions occur – the terminal operator is likely to be regarded as having acted in its own name and account while arranging said storage. Subsequently the performance of the agreement has been concluded and any legal relationship between the terminal operator and the consignee for storage cannot be regulated by the SGHA. In the absence of any general conditions or other contract terms agreed upon by the terminal operator and the consignee for the storage, the liability of the terminal operator will be determined by the applicable national laws

Tommy Pilarp

LL M

Pilarp Law

+46 70 372 37 04

Tommy@pilarplaw.se

Tommy Pilarp (LL M) has run his own legal firm, Pilarp Law, since 2006, specialising in transport law, with particular expertise in aviation. Prior to that, he was in-house legal counsel at SAS Cargo from 1994 to 2006, during which time he spent four years as chairman for the IATA Cargo Legal Working Group, working extensively on the revision of the IATA Standard Ground Handling Agreement, Article 8 of Annex B, in close co-operation with the IATA Ground Handling Council.

Pilarp Law recently drafted the 2011 General Conditions for Terminal Handling on behalf of the Swedish International Freight Association and is currently actively involved in the drafting and negotiating procedure for the updating of the General Conditions of the Nordic Association of Freight Forwarders (NSAB2000).

Tommy Pilarp lectures in ‘air law’ (both passenger and cargo) at the University of Stockholm as well as advising on Transport Law to various companies and organisations in Sweden. He is also actively involved in air cargo security matters, including representing the Swedish International Freight Association in CLECATs Security Institute, in issues relating to air cargo security.