Schenker Ltd v Negocios Europa Ltd

The common law freight rule prevents a claim relating to cargo from being deducted from freight due. The rule extends beyond carriage by sea to carriage by air where the evidence shows that the freight market contracts on that basis. Cash-flow protection alone does not justify extending an anomalous rule into a new field. Relevant considerations include the established application of the rule to other forms of carriage, market practice, and the absence of a sensible distinction between transport modes. The rule also applies to claims based on delay unless authority or established market practice supports a distinction. The rule does not prevent the customer from bringing a separate claim or counterclaim for breach of the carriage contract.

Schenker Ltd claimed approximately $58,000 under an invoice for the air carriage of chia seeds by Negocios Europa Ltd. The goods arrived later than the defendant said had been agreed. The defendant disputed the freight and sought to rely on a deduction or set-off reflecting the alleged delay and the difference between air and sea freight.

The claimant alternatively relied on a common law rule that freight cannot be reduced by claims relating to the cargo. Following an earlier summary judgment hearing, the court ordered a preliminary determination of whether that rule extended to air freight and whether it applied where the complaint concerned delay.

The court decided the preliminary issue in favour of Schenker Ltd. The common law freight rule, which prevents set-off against freight, extends to carriage by air.

1. The rule was firmly established in carriage by sea and had been applied to international and domestic road haulage. The reasoning in The Aries supported caution against altering an established rule merely to harmonise it with rules applicable to other contracts.
2. The English authorities had not expressly decided the air-freight question. However, the road-haulage decisions were persuasive, and the Hong Kong decisions in Emery Airfreight Corporation v Equus Tricots Limited and RAF Forwarding (HK) Ltd v Wong Angela supplied reasoning with which the court agreed. There was no logical or sensible distinction between carriage by sea, road and air for this purpose.
3. The rationale of protecting the freight carrier’s cash flow was relevant but insufficient by itself to justify extending the rule. The decisive consideration was the unchallenged expert evidence that the rule formed the basis on which the freight market, including air-freight contracts, operated. Excluding air carriage would create anomalous uncertainty, particularly in multimodal contracts.
4. The court rejected a separate distinction for delay. The authority of The Alpha Nord indicated that the rule applied to delay in shipping, and no sufficient reason existed to adopt a different approach for air freight.
5. The rule affected the mode of recovery only. It did not prevent Negocios Europa Ltd from bringing a separate claim or counterclaim for the alleged failures in performance.