December 2001
(Sea Venture Volume 20)
With the unintended help of carriers and some courts, shippers have found an easy way to get around the COGSA $500 package limitation. Many shippers, or their underwriters, are managing to recover 100%, for cargo losses without declaring full value or paying the extra charges.
The loophole opened when some courts decided that the limitation for containerized cargo should be applied to the number of items listed by the shipper that qualified as any sort of package, regardless of its small size and regardless of the fact that such items may have been palletized or shipped in master cartons or crates.
The legal theory is that by permitting such listing in the "Shippers Particulars," the carrier is deemed to have agreed with the shipper that the number of inner cartons listed are the "intended" COGSA packages. The basis for this is that COGSA, like the Hague Rules, provides that the carrier need not allow any description except marks and the number of packages that it can reasonably check. Thus, when a sealed container is shipped, the Carrier can legally cross out the number of packages that the shipper claims are in the sealed container. The carrier could give a receipt only for the number of containers and their serial numbers.
There have been cases in which the shipper did not disclose that the listed cartons were palletized or were the inner cartons packed in large master boxes, which would obviously be the "shipping packages" if not hidden in a sealed container. In every such case, the shipper recovered full value because the $500 limitation was applied to the inner cartons, despite the fact that it had not declared the excess value of the real shipping packages: the pallet or master carton. In every case, the small cartons were each worth well under $500.
The carriers can only blame themselves for creating the loophole. Small changes in bill of lading forms can probably put an end to this costly evasion of ad valorem rates.
The courts are also at fault for not having asked whether the small inner cartons, e.g., cartons of orange juice, could have been shipped separately in ocean transportation or whether the listed shipping "packages" were marked and numbered.
Sometimes, shippers have even described as "packages" items of cargo that are shipped without any kind of packaging. Some courts, however, are beginning to realize what is going on.
Judge Haight, a distinguished admiralty judge, ruled recently1 that where unpackaged auto engines were shipped on customized racks in a sealed container, the container itself was the $500 COGSA package. The fact that at one point the "Particulars Furnished by the Shipper" described the engines as "packages," could not turn naked engines into COGSA packages. "The form of a bill of lading’s wording cannot be exacted over the substance of the cargo."
The judge noted that if the shipper had disclosed that the engines were stowed on racks, each rack would have been counted as the COGSA package, but the Shipper’s Particulars made no mention of the rack.
Moreover, even if the container was not treated as the COGSA "package," it availed the shipper nothing, as the freight had been charged per container. Thus, if the engines were "goods not shipped in packages," the customary freight unit led to the same recovery: $500 per container.
The suit was brought by a slot charterer, who paid its customer $500 per engine, or $52,000 for 104 engines. It’s indemnity against the shipowner who caused the loss was limited to $500.
The Eleventh Circuit Court of Appeals subsequently turned down an application by cargo interests for a re-hearing of the decision.2
With thanks to De Orchis, Walker & Corsa, LLP, New York, for supplying this article.
1 OOCL, UK Ltd. v. Sea-Land Service, Inc, 122 F. Supp. 2d 481 (S.D.N.Y. 2000). M.E. De Orchis represented the shipowner.
2 Group Chegaray v. P&O Containers and Sea-Land Service, 09/04/01
