U.S. COGSA Burdens Of Proof And The Importance Of Comprehensive Discharge Surveys

June 2003

The Fifth Circuit Court of Appeals in U.S. v. Ocean Bulk Ships, Inc., et al. issued a helpful decision that described in detail the "system of shifting burdens and accompanying presumptions of liability" established by U.S. COGSA which, it had previously noted, shift "more frequently than the winds on a stormy sea."

Between 1994 and 1996 the U.S. Government sent famine relief shipments to various African countries. The shipments were carried by the defendants under bills of lading made subject to U.S. COGSA provisions pursuant to a clause paramount. Some of the cargo never arrived while other cargo was damaged during transportation. The U.S. Government sued the carrier for the damages for the full value of their loss amounting to over $200,000. The District Court limited damages under U.S. COGSA to $7,300. The U.S. Government appealed this decision.

The Fifth Circuit Court of Appeals explained that there are four stages of burden shifting:

1. The first stage of COGSA's statutory framework requires that the shipper establish a prima facie case of loss or damage by "proving that the cargo for which the B/L was issued was loaded in an undamaged condition and discharged in a damaged condition." A clean B/L issued by the carrier is prima facie evidence that the goods were received in an undamaged condition. Damage upon discharge may be established by the report of an independent cargo surveyor attending the discharge. A shipper's prima facie case creates a presumption of liability, the first shift.

2. Upon the burden shifting, the defendant-carrier must then prove that a) it exercised due diligence to prevent loss or damage to the cargo or b) that the loss or damage was the result of one of COGSA's "uncontrollable causes of loss" (there are 17 statutory exceptions under COGSA, including acts of God and a "catch-all" exception: "any other cause arising without the actual fault and privity of the carrier or its agents"). If the defendant-carrier successfully rebuts the shipper's prima facie case the burden shifts back.

3. The shipper must then prove that the carrier's negligence is at least a concurrent cause of the loss or damage thereby shifting the burden again.

4. The carrier must now prove what portion of the loss was caused by other factors; if it cannot so apportion the loss, it will be held liable in full.

The Fifth Circuit considered that the District Court had erred: The reliability of the survey to established "loss or damage" was not in question and yet the District Court had held that the defendants were not liable, either because damage during discharge could have been caused by third parties (such as the Port Authority or its agents) or because the United States failed to rebut the defendant's suggestion that improper packaging, an excepted cause, played a role in the loss. The Fifth Circuit stated that both these findings were wrong. Following the burden-shifting stages set out above:

1. The Fifth Circuit held that the U.S. Government had established a prima facie case of loss or damage under COGSA by producing clean onboard bills of lading along with an unambiguous record documenting that the cargo was discharged, missing or damaged.

2. The Court then turned to whether the carrier could rebut that prima facie case. The Court reviewed the catch-all exception to avoid liability for "any other cause arising without the actual fault and privity of the carrier or its agents." It conducted an extensive review of the Supreme Court and Circuit decisions on this exception concluding that "at this time there does not appear to be any consensus among the circuits, or even in this circuit, concerning which COGSA party bears the burden of persuasion (and the risk of non-persuasion) with respect to the applicability of the statutory exceptions codified [in COGSA] once the shipper makes out a prima facie case." It stated, however, that whether the burden was one of production (evidence to refute or explain the loss) or persuasion (evidence of all necessary elements to establish the defense) "the law is absolutely clear that the carrier must do more than offer mere speculation as to the cause of the lost or damaged cargo." In this case, in order to satisfy the burden the defendants had relied solely upon the five discharge surveys, three of which had failed to provide even a "speculative" assessment as to the possible cause of loss. Accordingly, the Court concluded that the defendants failed to offer any probative evidence, at least as to the "improper packaging" exception.

3. With respect to the two surveys that had made a suggestion of improper packaging, the loss associated with such improper packaging amounted to one-third of the loss claimed by the U.S. Government. However, even if the surveys were "sufficient to satisfy the burden of production" the U.S. Government would have been entitled to recover as carrier negligence was at least a concurrent cause of loss and

4. It was therefore for the carriers to establish which portion of the loss was not attributable to their negligence, which they had failed to do.

As to the catch all exception (stage 2), the Court held that defendants bore not only the burden of production but also the burden of persuasion. Although the carriers had produced exhibits showing the likelihood of pilferage such exhibits did not establish that the carriers had no control over either the stevedores or the discharge process. At trial, the carriers had not developed the arguments and testimonies relating to the exhibits evidencing pilferage. The Court further noted that even if the carriers had been able to establish this defense, it was equally undermined by their failure to make any attempt to apportion or separate the loss attributable to their own negligence, as compared to the loss attributable to pilferage or some other cause (stage 4).

The Court then held that the U.S. Government's declared value of the cargo in the bills of lading was prima facie evidence and, in the absence of any rebuttal evidence from the carriers, was adequate to set the value of the cargo for damage calculation purposes.

Accordingly, the Fifth Circuit reversed the District Court decision and awarded the U.S. government its claim for damages plus pre-judgment interest from the date of loss at discharge.

This case shows the intricacies of the COGSA burden shifting rules and the particular attention that carriers should pay, even in dealing with potentially minor cargo claims, to raising and documenting the COGSA exceptions, both in respect of discharge surveys and at the time of discovery and trial. Too often an owner's cargo surveys take place without any attempt to provide even "speculative" reasons for loss. As carriers know, loss of cargo is all too often beyond their control, especially at a discharge port receiving aid cargo.

 

With thanks to Jeremy Harwood of Healy & Baillie for preparing this article.