Damage to goods in transit – who is responsible for the loss?

21 June 2018

Transporting goods by road can be a risky and expensive process.

The risk of damage to or loss of goods transported by road is a real concern for not only the seller and buyer of those goods but also the private carrier responsible for transporting the goods.

In order to avoid disputes if loss or damage does occur, it is important for all parties involved to have a clear understanding of their rights and obligations in relation to any loss or damage. Such an understanding is relevant for the risk management purposes of the buyer, seller and private carrier of the goods.

Damage, loss and the risks to the buyer or seller

In order to avoid disputes in relation to loss or damage during transport it is necessary for the parties to a contract of sale of goods to be clear on which party carries the risk and when that risk is passed on.

In Victoria, the starting position is found in section 25 of the Goods Act 1958 (Vic) (Act) which provides that:

“Unless otherwise agreed the goods remain at the seller’s risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer the goods are at the buyer’s risk whether delivery has been made or not…”

That is, when ownership of the goods is transferred to the buyer, that buyer carries the risk of loss or damage to those goods even if the goods have not been delivered. This position is replicated across legislation in other states.

The parties to a contract of sale of goods can, however, by agreement nominate the point at which ownership and risk will pass from the seller to the buyer to override the position under section 25 of the Act.

It should be noted that in circumstances where the seller or buyer of the goods is overseas, the contract for sale of goods may include Incoterms Rules 2010 (Incoterms). Incoterms often prescribe when ownership, risk and the responsibility to insure the goods passes from one party to another. For example, goods transported by sea are commonly shipped as ‘Free on Board’. Generally this means that once the goods ‘pass the ship’s rail’, that is are loaded on the ship at the overseas point of departure, ownership and so risk in the goods passes from the international party to the party in Australia.

Parties to international contracts of sale of goods should be aware of the impact of Incoterms on their rights and obligations for goods in transit.

Damage, loss and the risks to the private carrier

Private carriers in Australia can also be held liable for loss caused as a result of damage to goods during transport. The rights and obligations of a private carrier are determined by the relevant contractual terms which have been entered into with the private carrier as well as the common law principle known as the laws of bailment.

Bailment occurs when possession of the goods is transferred by the owner to another party (known as the bailee) to be dealt with in a particular way. While possession of the goods is transferred, ownership of those goods is not. For example, private carriers are generally considered bailees when possession in the goods is transferred to them by the owner for the purpose of transporting the goods.

Private carriers have a responsibility to take reasonable care for the safety of the goods they are transporting and to take reasonable care to deliver those goods to their destination. Private carriers can therefore be liable for loss or damage resulting from any deliberate act or a failure to take reasonable care in transporting and delivering the goods. Private carriers can also be liable for acts of their employees which are undertaken in the course of their employment, including in certain cases of theft by the employee.

Private carriers are able to limit their liability through exclusion and limitation clauses in the relevant contract for the transport of the goods. However, these terms will be subject to standard contracting law and in particular, laws relating to unfair contract terms. Further, the use of limitation and exclusion clauses has limitations and generally cannot be used to avoid liability for negligence, deliberate acts of misconduct or misleading and deceptive conduct.

Other issues to consider

This article seeks to address damage to goods while being transported domestically by road.

However, sellers, buyers and private carriers should also be aware of other potential liabilities including:

  • potential liability under international conventions or treaties governing international carriage of goods by air or sea such as the Warsaw Convention which can apply to some road transport
  • potential liability if the goods being transported are subject to Customs control
  • obligations pursuant to the amendments to the chain of responsibility provisions under the Heavy Vehicle National Law to be introduced on 1 October 2018. (Readers are referred to our recent article on those obligations available here)

How to reduce your risk

The risk of loss or damage to goods in transit is a significant concern for sellers, buyers and private carriers of those goods. Having a clear understanding of which party carries the risk of that loss or damage is vital in avoiding disputes and in appropriately managing risk.

Sellers and buyers of goods should ensure clear contractual terms are in place which set out:

  • the responsibilities of each party
  • when ownership in the goods passes
  • when risk for loss or damage to the goods passes
  • that both parties acknowledge and are aware of those terms

Private carriers of goods should be aware of their contractual obligations and their overarching obligations in relation to the goods they are transporting. In particular private carriers should be aware of their:

  • obligation to take reasonable care in the transport of the goods
  • obligation to take reasonable care in the delivery of the goods to their destination
  • responsibility for certain deliberate or negligent actions of their employees

All parties should, of course, ensure that appropriate and comprehensive insurance is in place to mitigate any loss that may be incurred as a result of damage to the goods.

Clarity in contractual terms and awareness of the parties’ rights and obligations is fundamental to ensure that each party fulfils those obligations and that appropriate risk management processes are in place.