TT Talk - Sea carrier's liability when cargo temporarily off-loaded


  • Date: 06/05/2004
  • Source: TT Talk 47

A carrier can rely on the terms of the US Carriage of Goods by Sea Act (US-COGSA) to limit liability for damage while the cargo was temporarily on shore during restowing operations at an intermediate port, the US Court of Appeals for the fourth circuit, sitting in Norfolk Virginia, has decided.

The case arose from the movement of a drilling rig from Baltimore, Maryland, to Arica, Chile. The seller, Schramm, engaged the services of Shipco, an NVOCC, to arrange transport of the rig, which was loaded on a 40' flatrack. Shipco subcontracted the actual sea carriage to CAVN. On its way south, the vessel called at Charleston, SC, where the master decided that the flatrack should be moved to a better position, to protect the cargo against pilferage. The unit was landed and placed on a chassis. While it was being moved along the quay, the rig fell off and was severely damaged. Cargo insurers paid USD 176,750 and then sought recovery from Shipco. Shipco sought to rely on US COGSA which applies to all foreign-bound shipments carried under bills of lading from US ports; alternatively it maintained that the clause paramount in the bill of lading conditions, which extended the application of COGSA to periods on the terminals at ports of loading and discharge, also applied to this landing at an intermediate port. As the drilling rig was a single unit, the carrier's liability was limited to USD 500. Unsurprisingly, the cargo insurers disagreed; they sued Shipco and a number of other parties involved in the movement.

After some initial hesitation, the first instance judge agreed with Shipco and awarded damages of USD 500 to the claimants, who appealed. Having examined the facts, the court of appeal noted that COGSA applied from the port of loading to the port of discharge. It held that "port of discharge" meant effectively the port of destination, at which the cargo was finally discharged and handed over to the consignee. It also pointed out that temporary landing of containers at intermediate ports, to facilitate handling of other units or for restowing, was a normal part of modern shipping operations. If the claimants' view were correct, it would mean that there would be gaps in the operation of COGSA during the course of a single journey. The court could not agree with this.

Claimants also contended that the clause paramount in the bill did not protect Shipco, as it was not in physical control of the cargo during the restowing. The court gave this argument short shrift, saying that the claimants had got it completely back to front. There was no doubt that Shipco was legally in control of the cargo during the (planned) journey from Baltimore to Arica and the purpose of the clause paramount was to extend, not restrict, the operations of US COGSA.

The court agreed with the lower court's decision and dismissed the appeal.

Harry Higham from the Club's office in New Jersey comments that this is the latest in a line of unsuccessful attempts by cargo interests to break the package limitations under COGSA where containers have been off-loaded and re-stowed at an interim port, as in this instance. The courts have upheld the package limitation, even on behalf of the intermediate stevedore who damaged the goods during such a re-stowing operation. Harry notes that for this defense to be successful the bill of lading must contain a properly-drafted clause paramount and a proper Himalaya clause. He also points out that in some cases, cargo interests have tried to argue that the discharge portion of the operation, during which the damage occurred, constituted an unreasonable deviation due to the goods being off-loaded at a port other than the one noted on the bill of lading, thus abrogating US COGSA. To date, they too have been unsuccessful.

The full decision can be obtained from the court's website at http://pacer.ca4.uscourts.gov/opinion.pdf/031075.P.pdf   

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