Country of origin affects liability

Updated Jan 6, 2010

Q:I am confused about laws concerning the country of origin. I have seen the issue come up twice in customer contracts in the last six months. We were asked to sign contracts with wording something like this: “Limitations of liability for cargo loss or damage as well as other liabilities arising out of the transportation of the shipment which originates outside the United States of America may be subject to the laws of the country of origination.” Both times I refused to agree to this. It seems to me we have fought enough wars to not be beholden to another nation’s laws and that I should not waive our rights under U.S. law. What is your opinion?

A:Your question is a little more complicated than you might think. Under the North American Free Trade Agreement, transborder shipments between the United States, Canada and Mexico were intended to be subject to the cargo liability regime of the nation of origin, recognizing the intent of the treaty in this regard may be the aim of the drafter of the logistics contracts you mention.

The laws of origin for cargo loss or damage in practice means that shipments that originate in Canada have a maximum cargo loss or damage value of $2C per pound. Shipments that originate in Mexico have a maximum cargo loss value of just pennies per pound because under Mexican statute the liability is tied to a wage earner’s rate in pesos. For shipments originating in the United States, Carmack applies, and unless you otherwise have limited your cargo exposure lawfully, you could be liable for a $1 million cargo loss if an expensive machine originating in the United States was damaged beyond repair.

At first blush, a carrier might say that “the law of origin” benefits U.S. carriers involved in North American trade because cargo loss or damage is limited reasonably in Canada and negligible in Mexico. But beware – there is a trap for the unsuspecting. If you originate shipments in the United States on a through bill destined to Mexico, you could become liable for the full actual value of the shipment when it is lost or stolen south of the border. In turn, you may have little recourse against the Mexican delivery carrier because (1) it can assert the limitations of the Mexican statute, (2) it is not subject to suit in the United States, and/or (3) it has no effective insurance with appropriate limits. As a result, most sophisticated carriers are careful to limit liability to the Mexican national limit of liability while the cargo is in transit there, or to treat the movement as a domestic move with U.S. cargo liability ending at the border interchange point.

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Embedded in your question is another troubling issue involving international multimodal and all North American transnational movements. Often, when shippers are overseas, their transportation service agreement with the steamship line, NVOCC or international forwarder may have a homer provision requiring adjudication of disputes in Asia, Europe or South America under foreign laws and in languages neither you nor I understand. I am concerned that agreeing to the laws of an alien forum for “other liability arising out of transportation” of international shipments could subject an unwary trucker to an unwelcome and unintended lawsuit as a result.

In sum, your response to the proffered “country of origin language” should be to (1) accept the lower limits of liability afforded on shipments originating in Canada and Mexico, (2) limit your liability properly to the extent of your cargo insurance on shipments originating in the United States, and (3) exercise extreme care before agreeing to U.S. cargo limits on shipments to Mexico. Otherwise, consistent with your instinct, avoid any contractual language that would subject you to overseas litigation.

– Henry Seaton is a transportation lawyer who represents carriers.