Theft of Pharmaceuticals in Brazil Governed by American Law

IADC member Michael J. Holland is a partner at Condon & Forsyth LLP and has specialized in aviation law for the past thirty-three years. He is a frequent contributor to Flying Typers on cases of interest in the field of air cargo. This article originally appeared in the February, 2006 Aviation and Space Law Committee newsletter. ********** In the international transportation of goods by air, it is commonly recognized that, until the Montreal Convention came into effect in the United States in November of 2003, the Warsaw Convention was the exclusive remedy for shippers or consignees suing for the value of lost, damaged, or delayed goods. The Montreal Convention is a replacement for the Warsaw Convention, although some of the substantive law provisions relating to cargo in the Warsaw Convention and Montreal Convention are similar. One well known exception to the application of the Warsaw Convention is when the loss, damage, or delay to the goods occurs outside the premises of an airport. In Victoria Sales Corp. v. Emery Air Freight, Inc., 917 F.2d 705 (2d Cir. 1990), the Second Circuit Court of Appeals held that an air carrier could not limit its liability when the theft of the goods occurred outside the airport premises. The same theme of non-applicability of the Warsaw Convention to international transportation was discussed in a recent decision from the United States for the Southern District of New York in Eli Lilly v. Federal Express Corporation, --F. Supp. 2d--, Docket 04 Civ. 5285 (S.D.N.Y. Sept. 21, 2005). Eli Lilly sued FedEx when a shipment of its pharmaceuticals was stolen en route to a customer in Japan from Eli Lilly's factory in Sao Paolo, Brazil. The truck containing the cargo was hijacked while en route to Sao Paolo airport. The district court found that, based on Victoria Sales, the Warsaw Convention was inapplicable since the loss occurred outside the airport premises. The issue then became what law was applicable, with FedEx arguing that federal common law should apply and Eli Lilly arguing that Brazilian law was applicable. The answer to that question determined the liability of FedEx for the lost shipment: if federal common law applied, the carrier's liability was limited to $20.00 per kilo pursuant to the conditions of contract printed on the reverse side of the air waybill. If Brazilian law, which prohibited a limitation of liability in a case where the carrier was found liable for gross negligence, was applicable, FedEx faced potential responsibility for approximately $800,000 in damages. The FedEx air waybill provided that if the Warsaw Convention was not applicable, then the airline's liability was limited to $20.00 per kilo for goods lost, damaged, or delayed unless a higher value had been declared. All parties conceded that the limitation provision of the air waybill was enforceable, thus making Eli Lilly's liability limit $28,863. In examining both Brazilian and United States law, the court found that the policies of both the United States and Brazil would be furthered by the application of their respective rules on liability. The interest of the United States in permitting federally certified air carriers like FedEx to limit their liability for lost goods is a strong one, but it was equally evident that Brazil had an interest in regulating the liability of the carriers transporting goods within the borders of Brazil. …

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