By Mark Andrews
[Editor’s note: This posting is an update of a report prepared in June 2008 for the leadership of the ABA Section of International Law by a working group within the Section’s International Transportation Committee. The update is authored by Mark Andrews of Strasburger’s Washington, DC office, who headed the working group and is a co-chair of the International Transportation Committee.]
Introduction and Summary: In 2003, the American Law Institute (“ALI”, of which I am a member) and the National Conference of Commissioners on Uniform State Laws (“NCCUSL”) adopted the first revisions in 52 years to Article 7 of the Uniform Commercial Code (“UCC”). Article 7 originally was entitled “Warehouse Receipts, Bills of Lading and Other Documents of Title,” but this was simplified to “Documents of Title” in the 1993 revision (hereafter, “New UCC-7”). The UCC, of course, has been highly successful in creating a harmonized legal environment for commercial transactions in all fifty States of the U.S. At this writing, New UCC-7 already has been adopted by 31 States and is pending in one other. A complete list of these States can be found at http://www.nccusl.org/Update/uniformact_factsheets/uniformacts-fs-ucc7.asp.
The main focus of New UCC-7 is on the functions of negotiable bills of lading and warehouse receipts as documents of title. As described in an excellent NCCUSL summary of New UCC-7, “[t]he great addition to Article 7 … is the new rules” for creation, transmission, and negotiation of “electronic documents of title.” Secondarily, New UCC-7 recognizes recent trends toward reduced governmental regulation of transportation services when it eliminates various outdated “references to tariffs and regulations.” See discussions on pages 2 and 4 of document found at
http://www.nccusl.org/Update/uniformact_summaries/uniformacts-s-ucc7.asp. Not mentioned by NCCUSL is a related innovation in New UCC-7: its explicit recognition that the UCC – which remains state law even though adopted by every U.S. jurisdiction – is subject to preemption by U.S. federal laws and ratified treaties. See New UCC-7, sec. 7-103(a). Although New UCC-7 also briefly covers liability standards for transportation providers and warehouse operators with regard to goods entrusted to them, these standards would apply only in the absence of more specific standards in other law at the federal or state level. See id. and secs. 7-204, 7-209.
By contrast, carrier liability under contracts of carriage is the primary concern of the “Draft convention on contracts for the international carriage of goods wholly or partly by sea.” While not yet a ratified treaty, this draft is the product of years of work and consensus-building by the United Nations Commission on International Trade Law (“UNCITRAL”) and its Working Group III on Transport Law. The primary thrust of the draft convention (recently renamed the “Rotterdam Convention”) is to resolve longstanding issues between shippers and carriers over the appropriate extent of carrier liability for loss of, or delay or damage to, international cargo moving by sea, while also establishing more uniform rules for extending that liability to related inland cargo movements. See, generally, Sturley, “Major Aspects of the UNCITRAL Draft Convention” (paper delivered at spring meeting of ABA Section of International Law, April 4, 2008). Secondarily, however, the Rotterdam Convention does parallel New UCC-7 by establishing (principally in Articles 8 through 10) a hospitable legal framework for creation, transmission and negotiation of electronic transportation documents.
At this writing, the United Nations General Assembly appears likely to approve the Rotterdam Convention within the next few months, and a signing ceremony in Rotterdam, The Netherlands, has been tentatively scheduled for the autumn of 2009. U.S. shipper and carrier interests appear sufficiently unified on this issue that ratification by Congress is believed to be a strong possibility shortly after the signing ceremony. Consequently, now is not too soon to examine whether anything in the Rotterdam Convention (if it becomes a treaty ratified by the U.S.) would conflict with the provisions of New UCC-7 that have made such gratifying headway through state legislatures in the past five years. Although the primary objectives of these two instruments are different as noted above, there is enough overlap in such areas as cargo liability and electronic documentation of title to make such an examination worthwhile.
For the reasons detailed in the remainder of this posting, I have concluded preliminarily that U.S. ratification of the Rotterdam Convention would not necessitate amendments to the black letter text of New UCC-7, principally because (i) its section 7-103(a) already recognizes the primacy of U.S. federal statutes and ratified treaties, (ii) most of its transportation-related subject matter is already covered by U.S. federal statutes with expressly preemptive effect, and (iii) most of its warehousing-related subject matter is not addressed either in Rotterdam or in preemptive U.S. federal law. True, there are limited areas where highlighting of inconsistencies between the Rotterdam Convention and New UCC-7 would be useful to transportation users and providers. For example, it might be useful to flag certain non-traditional terminology defined in Article 1 of the Rotterdam Convention, and to alert port warehouse operators that they might come under federal law for the first time by reason of being considered “maritime performing parties” under Article 20 of that instrument. These alerts, however, need not be inserted in the black-letter text of New UCC-7. They could be provided either through amended Comments to New UCC-7 (in States where the Comments do not form part of the enacted UCC text), or through pre-planned floor colloquies when Congress takes up ratification of the Rotterdam Convention.
Discussion: As a commentary on the lengthy gestation period of the Rotterdam Convention, it is interesting to note that earlier drafts of that convention are mentioned in at least four places within the 2003 drafts approved by NCCUSL and ALI for New UCC-7 and for conforming amendments to UCC Article 1. See reference to “other relevant law” following sec. 7-105; see “purposes” following sec. 7-302, and see respective revised definitions of “document of title” in paragraphs 15 and 16 of the Official Comments to Alternatives A and B for amendment of sec. 1-201. Without doubt, numerous potential conflicts were avoided by the fact that the drafters of New UCC-7 were proceeding in general awareness of the UNCITRAL project.
Despite this awareness and despite the differing primary objectives of the two instruments, my review of the respective texts and commentary has revealed at least the following areas of possible overlap:
Section references in New UCC-7
- 7-101(2): definition of “carrier” as “a person that issues a bill of lading.”
- 7-105: reissuance of an electronic document of title (“EDT”) in paper form, and vice versa.
- 7-106: “control” of an EDT, as a counterpart to endorsement and possession of a paper document of title (“PDT”).
- 7-301: misdescription of cargo; “said to contain”; “shipper’s load and count.”
- 7-302: through bills of lading; “performing” carriers.
- 7-303: diversion and reconsignment.
- 7-304: tangible bills of lading in a set (exception allowing same in “international transportation”).
- 7-307: carrier liens.
- 7-309: duty of care; contractual limitation of carrier’s liability.
- 7-403: carrier’s obligation to deliver; when excused.
Article references in Rotterdam Convention
- 1: definitions of “contract of carriage,” “carrier,” “performing party,” “maritime performing party,” “holder,” “transport document,” “electronic transport record” and “issuance” of such a record; no definition of “bill of lading.”
- 8-10: use and effect of electronic transport records; interchangeability with paper transport documents if negotiable.
- 11: general obligation of carrier to transport and deliver goods. Subsequent detailed articles defining carrier liability for loss, damage or delay – and limitations on same -- go far beyond anything in New UCC-7.
- 20: maritime performing parties (which could include warehouses in port areas) assume same obligations and can invoke same defenses as Rotterdam Convention provides for carriers.
- 47-49: carrier’s delivery obligations for goods covered by negotiable or non-negotiable transport documents or electronic transport records.
- 51: Convention does not derogate from carrier liens under Contracting States’ laws.
- 52-56: Diversion and reconsignment on instructions of a “controlling party.”
- 59-60: Transfer of negotiable transport documents or negotiable electronic transport records.
Although these areas of overlap may seem extensive at first glance, actual conflict is minimized by the fact that the UCC, wherever enacted, is a state statute rather than a federal one. Even as matters stand currently, the impact of New UCC-7 (or its predecessor where still in force) is extremely limited in the transportation sector because of express preemption under federal law. See, generally, 49 U.S.C. §§ 10501(a), (b) (as to railroads), 14501(c) (as to motor carriers, transportation brokers and surface freight forwarders), and 41713(b) (as to direct and indirect air carriers). See also Article III, section 2, clause 1 of the United States Constitution, which establishes the exclusive jurisdiction of federal courts over admiralty and maritime cases. Far from being a mere allocation of jurisdiction, this “maritime grant” endows federal courts with substantive “authority to make decisional law for the interpretation of maritime contracts.” See, e.g., Norfolk Southern Ry. v. Kirby, 543 U.S. 14, 22 (2004). Should the Rotterdam Convention be ratified by Congress, of course, it too will become part of the “supreme law of the land” to which the UCC must yield under Article VI, section 2 of the Constitution.
As to transportation, therefore, the deferential language of sec. 7-203(a) in New UCC-7 merely expresses what would be the case even in its absence: “This article is subject to any treaty or statute of the United States …” It is true that warehousing, unlike transportation, historically has been regulated almost exclusively by state law and is not within the scope of the preemptive federal statutes cited previously. Ratification of the Rotterdam Convention, however, would not change this fact because its provisions would have only peripheral impact on warehousing – with the possible exception of warehousing in port areas as discussed below.
For the foregoing reasons, I conclude that amending the black-letter text of New UCC-7 to acknowledge the primacy of a ratified Rotterdam Convention would be a mere exercise in surplusage. The same conclusion, however, does not necessarily follow as to the commentaries that accompany the black-letter text. (At least in Texas, Maryland, Virginia and the District of Columbia – the States with which I am most familiar – the commentaries are not part of the enacted statutory text, and therefore should be capable of amendment without formal legislative action.)
For example, an expanded commentary to sec. 7-102 of New UCC-7 could include comparisons of the definitions of “shipper” there and in the Rotterdam Convention; an explanation that the Rotterdam Convention dispenses with the term “bill of lading” in favor of the terms “contract of carriage” and “transport document,“ and an analysis of how the terms “performing party” and “maritime performing party” as defined in the Rotterdam Convention relate to the term “carrier” used throughout New UCC-7. Similarly, the commentary to sec. 7-302 of New UCC-7 should be amended to explain that the “performing carrier” referenced but not defined in the black letter text of sec. 7-302 is the same as a “performing party” under the Rotterdam Convention. Of course, all commentaries to New UCC-7 that currently refer to earlier UNCITRAL drafts should be amended with updated references, preferably including article numbers from the ratified instrument.
As a final example of a potentially useful amendment to the commentaries accompanying New UCC-7, I would point to numbered paragraph 2 of the “Purposes of Changes” commentary for sec. 7-204. That paragraph currently contains a blanket statement that “a warehouse may limit its liability for damages … to the goods by a term in the warehouse receipt or storage agreement.” Under article 20 of the Rotterdam Convention, however, this would not be true for a warehouse falling within the definition of a “maritime performing party” by reason of rendering services entirely within a port area (see article 1(7)). Article 20 makes a maritime performing party and the carrier equally liable to the shipper, and this Rotterdam-prescribed liability can be reduced only in the narrow range of circumstances described in Articles 81 through 83. In this particular instance, therefore, the rights of a warehouse under sec. 7-204 of New UCC-7 would be limited by overriding federal law for the first time if the Rotterdam Convention were ratified.
There may be other instances in which revised commentaries to New UCC-7 would play a useful role by highlighting differences in substance and terminology between that instrument and the Rotterdam Convention. The examples I have cited are products of my experience with cargo liability disputes and transportation contract negotiations; others dealing primarily with commercial transactions under New UCC-7 may be able to adduce additional suggestions from that perspective. At present, however, I would venture to suggest that the areas of disharmony between New UCC-7 and the Rotterdam Convention are surprisingly few and far between – which is a tribute to the foresight of the drafters of both instruments.
Editor’s note: Mark Andrews (mark.andrews@strasburger.com ) is the Partner-in-Charge of Strasburger’s Washington, D.C. office, a co-leader of the firm’s Transportation & Logistics practice team, and a member of the firm’s International practice team. He can be reached at 202.742.8601.
