This article was originally published in Insurance Day.
A haulage company which argued that it should not be responsible for reimbursing the cargo owners for excise duty on a stolen load of cigarettes has lost its case in the Supreme Court.
The case of JTI POLSKA Sp. Z o.o. and others (Respondents) v Jakubowski and others (Appellants) will have been followed with interest by cargo insurers as well as the carriers and their liability insurers, with many awaiting the outcome before settling what are typically sizable claims. Duty on a container of cigarettes or alcohol, for example, can run into millions of Euros.
Despite academic and judicial criticism, the Supreme Court upheld the 45-year-old precedent on the grounds that it had not given rise to substantial concern, prejudice or commercial difficulty in the logistics or insurance industries. The judgment also provided useful clarification on the extent to which ‘charges’ can be recovered under Article 23.4 of the Convention on the Contract for the International Carriage of Goods by Road (CMR).
The CMR sets out the damages recoverable in the event of a claim for loss or damage to goods. Article 23.4 allows the cargo owner to recover certain further losses in addition to the limit of liability, stating: “the carriage charges, customs duties and other charges incurred in respect of the carriage of the goods shall be refunded in full in case of total loss and in proportion to the loss sustained in case of partial loss, but no further damages shall be payable.”
In James Buchanan & Co. Ltd v Babco Forwarding & Shipping (UK) Ltd  the House of Lords held (by a majority of three to two) that “other charges” included excise duty, which may be suspended until goods reach the point they are to be distributed. As such, excise duty was recoverable in full from carriers under English law. However, other jurisdictions are divided on this question.
The position seemed to be settled until criticism from the Court of Appeal in Sandeman Coprimar S.A. v Transitos Y Transportes Integrales S.L. and Others .
Lord Phillips MR expressed concerns that it opened up the possibility of claims for remote consequential losses being pursued against carriers. He was of the view that this gave rise to the risk of double insurance and contractual uncertainty and that Buchanan should be limited in application as far as possible.
The JTI Polska questions
Against this background, the Supreme Court was asked to consider the position in the JTI Polska appeal, another case of cigarettes stolen in transit.
Lord Hamblen, giving the leading speech (with whom the other six Supreme Court Justices unanimously agreed) explained that it is not enough to show a preference for an alternative interpretation of the legislation.
Lord Hamblen considered the 1966 Practice Statement and the circumstances in which the Supreme Court might invoke it to overturn an earlier decision. He concluded that it is only really appropriate where the earlier decision has created uncertainty or injustice, given rise to results contrary to public policy or where there has been a material change of circumstance.
It could not be said that the Buchanan decision was contrary to a uniform body of authority in other jurisdictions. Indeed, the lack of unity in other jurisprudence is probably greater now than when Buchanan was decided.
Further, the academic criticism was muted and not unanimous, highlighting theoretical concerns about the extent of damages recoverable rather than addressing any practical issues or real examples.
There was no evidence of substantial concern, prejudice or commercial difficulty in either the logistics or insurance industries. Given the nature of the liability regime within the CMR, and the differing interpretations amongst member states, an element of double insurance was inevitable. Liability is a recognised risk for both parties and insurers manage the position accordingly.
It is the Sandeman decision, not the Buchanan decision, which should be disregarded, Lord Hamblen found, adding that the CMR supports the wide view, and this seems to accord with natural justice.
The Supreme Court’s decision reintroduces certainty into the English courts’ approach to Article 23.4 of the CMR. Whilst there are very persuasive arguments for the narrow view of the Buchanan decision, it did not consider that such a longstanding precedent should be disturbed without very good reason.
The decision also addressed one of the main criticisms of the Buchanan decision by clarifying that the word “charge” should be restrictively interpreted so as to avoid losses which might otherwise be considered as unforeseeable or too remote. Whilst a charge for excise duty is clearly a “charge”, liability for liquidated damages or a guarantee on tax seals does not fall within the meaning of the word.
Chris Chatfield and Sara Askew for Kennedys represented the successful respondent, with Stewart Buckingham KC and Ben Gardner of Quadrant Chambers.