Liability of railway companies has been in grey zone for a long time. It has been an area understood only by its experts or those involved in legal battles over it. Recently China has pushed its efforts to renew Silk road and first regular trains have started going between Being and London. It gives one more reason to understand risks and different liability regimes that are hiding behind this initiative.

Speaking about railway routes that connect Being and London, it is important to understand that a non-uniform legal regime is being applied which defines not only different procedures but also different set of documents.

The legal regulation of goods shipped by railroad is unique due to its dualistic system. It is being set by two main organizations:

1. Organization for co-operation between railways (OSJD) which has 27 members from Central and East European as well as Asian countries.
2. International organization for International Carriage by Rail (OTIF) which has 50 members from Europe, Asia and Africa.

It`s worth to remember that Lithuania is on a cross road between West and East and is a member of both organizations. The applicable legal regime depends on the direction. When commodities are brought by railroad in countries which are members of:

1. OSJD organization, then The Agreement on International Goods Transport by Rail (SMGS) applies.
2. OTIF organization, then The Convention concerning International Carriage by Rail (COTIF) and its amendments (CIM) applies.
3. Both of these organizations, then a common regulation on CIM/SMGS documentation and procedures comes in to force.

Basics of liability

Fundamental rules set in CIM terms and SMGS agreement don’t change when a common regulation of CIM/SMGS is applied. It is noted that:

The main principles which are applied to calculate the settlement as per COTIF-CIM terms are set as following:

In case of total or partial loss of the goods, the carrier must pay, to the exclusion of all other damages, compensation calculated according to the commodity exchange quotation or, if there is no such quotation, according to the current market price, or if there is neither such quotation nor such price, according to the usual value of goods of the same kind and quality on the day and at the place where the goods were taken over (The Convention concerning International Carriage by Rail (COTIF) CIM (B) amendment (2008, No. 1-1), 30 art. 1 p.)

Like many other conventions that regulate transport operators liability, the COTIF-CIM terms establish presumption of carrier`s liability according to which the sub-contractor is automatically being held liable for any goods that have been damaged while being at his disposition. In addition to that, article 30 paragraph 2 names liability limit which is expressed in SDR and as per standard terms “compensation shall not exceed 17 units of account per kilogramme of gross mass short”. It should be noted that such liability limit is the highest among other means of transportation.

SMGS agreement says that:

“Railway company is liable as per terms established in this chapter for breach of cargo delivery date and loss as a result of totally or partly lost cargo, shortage of weight, spoiling of goods, malfunction or deterioration of quality during the time since the acceptance of cargo for voyage and till its release in the final railway station or if the cargo is being sent to countries which are not members of this agreement, then till waybill is being issued.”( The Agreement on International Goods Transport by Rail (2002, No. 88-3773), 23 art. 1 p.)

It is important to remember the unique article which tells that “railway company must compensate for totally or partly lost cargo to shipper or consignee, such settlement is calculated according to the price established in the invoice of foreign suppliers or confirmed in the order appropriate to the country where it has been issued” (The Agreement on International Goods Transport by Rail (2002, No. 88-3773), 25 art. 1 p.). This leads to conclusion that unless the limit of liability has been separately agreed, the liability of railway company is unlimited if the cargo is partly or totally lost and its owner is able to prove losses. Furthermore, article 23 paragraph 1 of SMGS agreements expands that railway company`s liability is limited only when losses are incurred due to shipped household items and the shipper hasn’t declared their value. Then railway company`s liability is limited by 6 Swiss francs for every weight kilogram of lost cargo. Besides this SMGS agreement article 25 paragraph 2 mentions that railway company has to return freight and custom fees and other expenses that are related to lost goods but haven’t been included in invoice. These expenses can be included in final settlement without any liability limits.

Claim invoices

The following provisions are being followed when dealing with claim invoices due to lost, damaged or spoiled cargo when the losses were incurred while commodities were being shipped using CIM/SMGS waybill. The CIM terms set guidelines in articles 43 – 45 (implementation of the rights) and SMGS agreement speaks about that in article 29 (Claim invoices)

Investigation of demands to settle the loss as per CIM/SMGS waybill in CIM application are:

• If competent carrier established that loss has occurred in all or partly in CIM application area, the decision to apply CIM terms is being made and the authorized person is informed about it.
• Further investigation in SMGS application area is continued after the competent carrier forwards claim invoice with all accompanied documents to authorized person in first or last railway station in SMGS application area and the claimant is informed about that.
• The respective railway station investigates claim and informs the competent carrier about the result of such investigation.
• The competent carrier informs claimant about the result of accident investigation.
• The suspension of the limitation period is canceled when the competent carrier responds to claimant.

The investigation of claims as per CIM/SMGS invoice in SMGS application area:

• If the first or the last railway comes to the decision that loss has occurred during the leg of voyage when SMGS has not been or has been only partly applicable, the claimant is informed about the decision to investigate demands.
• Further investigation is continued after the competent railway station forwards claim with all accompanied documents to the contracted or last carrier and informs about it the claimant.
• The claim is being investigated by contracted of last carrier and the competent carrier is informed about the decision.
• The competent railway station informs claimant about the results of investigation.

Conclusion

The settlement scheme is established but effectiveness of individual COTIF-CIM and SMGS provisions and common principles is limited. On one hand, the liability is unlimited in countries which apply SMGS agreement and is limited with 17 SDR/kg in area where CIM terms are applicable. On the other hand, the whole procedure of proving and establishing carrier`s liability can be lengthy. It is not enough to showcase the apparent loss but also the claimant has to prove circumstance that led to loss and have been in disposition of carrier. In addition to that, it’s worth to remember that both terms and agreements outline force majeure situation when the carrier is allowed to escape liability. In such situation the owner of the cargo will be left without any settlement. That’s just a few reasons to shift the risk or burden of loss recovery to insurer and avoid being dragged into inefficient procedures.