Even before there were business contracts as we know them now, the question of ‘who is responsible for the damage?’ regarding goods in transit was a well contested one. There are various factors that determine where liability falls in the event of damage or loss of goods in transit. Contractual obligations, determining when the goods officially change possession between buyer and seller (and private carrier, if required), as well as possible negligence and the understanding of common law are all factors to consider. In order to mitigate potential losses from damage of goods during transit, it is important to ensure you have a comprehensive transport insurance policy in place, and all involved parties are aware of their responsibilities during the transit of the goods. 

Change of ownership

It is paramount for all parties involved to know when it is that the goods change ownership – whether it is when the goods are delivered, when they are first sent out for delivery, or some time in between. Determining this will help ascertain who is responsible for loss or damages along the track. Whichever party is responsible for the goods at any given time also carries the risk associated with damage or loss. When ownership of the goods is officially transferred from seller to buyer, so is the liability – but this doesn’t necessarily occur when the goods are delivered. The parties to the sale can nominate when the ownership passes from seller to buyer – and it is in the best interest of all parties that this is made clear in the contract.

Private carriers 

A third party private carrier may be employed to deliver goods from the seller to the buyer, or for part of the transit journey. Though the private carrier will not be transferred ownership of the goods, there is still a risk to them should damage or loss occur when they have possession of the goods. As a private carrier, it is important to determine what you may be liable for while the goods are under your care. The rules of the common law principle known as laws of bailment apply here, as do any terms outlined in the contractual agreement between the private carrier and the other parties. The laws of bailment mean that in the event that there are no contractual terms that say otherwise, the private carrier will be liable for any damages to the goods while they are in their possession in some situations – that is, damage due to a lack of reasonable care, or of a deliberate act leading to damage. It is particularly important as a private carrier that you have a clear understanding with the buyer/seller around your responsibility to the goods – as insurance may not cover losses if it is determined the private carrier doesn’t have an insurable interest in the goods. 

Negligence and reasonable care

As mentioned, private carriers have a responsibility to take reasonable care of the goods while they are in transit under their possession. This means any loss or damage to the goods deemed to be from negligence or misconduct will be seen as the responsibility of the private carrier – and in these cases, it is unlikely that the loss will be covered by insurance. Similarly, in the case of theft by an employee of the private carrier, the private carrier will be found responsible – and unlikely to be covered under their insurance policy. If damage occurs while the goods are in the possession of the private carrier but it is not due to misconduct or negligence, it may be covered under the insurance policy. 

Contractual terms

As with any aspect of business agreements, it is important to have a comprehensive contract in place when transporting goods between the buyer and seller, with or without the use of a third party private carrier. Ensuring each party understands their responsibility, and outlining these agreements in the contract, will make the settling of potential disputes straight-forward and hopefully unnecessary. Barring contract terms that are seen as breaking contracting law – such as unfair contract terms – contractual stipulations prevail over the terms of the common laws of bailment. 

Reducing risks – buyers and sellers 

It is the responsibility of both the buyer and the seller involved to outline and understand the contract terms, and to understand when ownership of the goods is transferred to them. Ensure a sound contract is in place, outlining liability at each given stage of the transport process, and make sure all involved parties understand and acknowledge these terms. Both parties should have appropriate and comprehensive insurance policies to mitigate any potential damages or losses that may occur. 

Reducing risks – private carriers

The contract between the buyer and seller may not apply to private carriers. It is the obligation of the private carrier to take reasonable care in the transport of the goods, and in the delivery of the goods to their destination. This includes taking responsibility for deliberate misconduct or negligence that occurs as a result of their employees. Private carriers should also have appropriate and comprehensive insurance policies to mitigate any potential damages or losses that may occur. 

Transfer of goods via sea or air

In general, the terms outlined here refer to transfer of goods via road. For goods in transit via sea or air, for example the transport of goods internationally, different rules and liabilities may apply. 

Check your contracts and insurance policy

Clarity of contractual terms, as well as defining transference of ownership, are paramount to each party taking responsibility for any damages that may occur when they are liable for the goods in transit. Each party should be prepared to fulfil their obligations, and should have the appropriate insurance cover and risk management in place to deal with any losses to goods in transit. If you have concerns about what your insurance policy covers, check with your GSK Insurance broker today. 

March 30, 2021

By Graham Knight

Founder and Managing Director of GSK Insurance (established in 1981). Graham draws upon more than 50 years’ experience in the insurance industry, working in both insurance and broking across various private, public and government sectors in Australia.

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