U.S. COGSA - Dangerous Goods - Strict Liability For Shipper

July 2002

The United States Second Circuit Court of Appeals holds that shipper is strictly liable under COGSA, 46 U.S.C. § 1304(6), for damages and expenses arising out of shipment of inherently dangerous cargo where neither shipper nor carrier had actual or constructive pre-shipment knowledge of the inherently dangerous nature of the shipped goods. Senator Lines GmbH & Co. KG v. Sunway Line, Inc. et al., 2002 U.S. App. 9551 (2d Cir. May 17, 2002).

Facts and Lower Court Decision

On April 28, 1994, a fire broke out in the forward hold of the M/V TOKYO SENATOR as she was bound for Norfolk, Virginia. She was carrying a cargo of 300 drums of thiourea dioxide ("TDO") which she had loaded in Pusan, Republic of Korea. The cargo originated in the People's Republic of China. At the time of the shipment, TDO was considered to be a stable compound under normal circumstances and was not listed as a hazardous or dangerous cargo in the International Maritime Dangerous Goods Code ("IMDGC") nor in the Code of Federal Regulations ("CFR").

The carrier sued the cargo-shipping interests for resulting damage to the vessel and for related expenses. After a trial, the district court concluded that the fire resulted from an exothermic (or heat releasing) reaction within the container holding the TDO drums, although it held that the plaintiff carrier had failed to establish the actual cause of the reaction. The district court also concluded that the evidence failed to establish that any particular party was responsible for the loss or that the defendant shippers had been aware at the time of the shipment of the hazardous nature of the cargo. On the basis of those holdings, the district court denied plaintiff's claim, holding that the Carriage of Goods by Sea Act, 46 U.S.C. § 1304(6), does not impose liability on a shipper of inherently dangerous goods unless it can be shown that the shipper actually or constructively knew of the dangerous nature of the goods prior to shipment and failed to disclose that nature to the carrier.

The Second Circuit Reverses

The Second Circuit reversed the district court's ruling. In so doing, the Court began with the language of Section 1304(6) itself, which provides in relevant part as follows:

Goods of an inflammable, explosive, or dangerous nature to the shipment whereof the carrier, master or agent of the carrier, has not consented with knowledge of their nature and character, may at any time before discharge be landed at any place or destroyed or rendered innocuous by the carrier without compensation, and the shipper of such goods shall be liable for all damages and expenses directly or indirectly arising out of or resulting from such shipments.

In construing the wording of § 1304(b), the Court noted that "the only reference to 'knowledge' in this provision implicates the carrier. A plain meaning approach would suggest that it is the carrier's knowledge of the goods' dangerous nature, not the shipper's, that conditions shipper liability." The Court acknowledged that such a rule would be inconsistent with the general rule of Section 1304(3) that "a shipper shall not be responsible for loss or damage sustained by the carrier or the ship . . . without the act, fault, or neglect of the shipper." But far from being surprising, reasoned the Second Circuit, this fact merely confirms that the two sections contemplate different kinds of liability:

Inasmuch as § 1304(3) already provides for liability based on "the act, fault, or neglect of the shipper," § 1304(6) would appear to be carrying coals to Newcastle if its purpose were simply to specify that shipper liability in the dangerous-goods context requires knowledge on the shipper's part of the danger to which it is exposing the ship and other cargo. In sum, the foregoing analysis of the plain meaning of §1304(6) and its relationship to §1304(3) strongly suggest that the two provisions have separate and distinct roles to play in COGSA's allocation of risk between shippers and carriers, and that § 1304(6) sets forth a rule of strict liability for a shipper of inherently dangerous goods where neither shipper nor carrier had actual or constructive preshipment knowledge of the cargo's dangerous nature.

The Court noted that this interpretation was directly in line with that reached by the British House of Lords in Effort Shipping Co. v. Linden Mgmt, S.A., [1998] A.C. 605 (H.L. 1998). In conforming its construction of § 1304(b) to that by the English court of the identically worded provision in the Hague Rules, the Second Circuit noted that it was "furthering another broad purpose of COGSA and the Hague Rules: international uniformity in the law of carriage of goods by sea."  In this respect, the Court rejected the shippers' argument that one of the principal purposes of COGSA had been to codify the pre-existing general maritime law of the United States, upon which the shippers sought to rely in support of their position that pre-shipment knowledge should be a prerequisite to liability. In considering Congress' intent in enacting COGSA, the Court observed that:

. . . COGSA legislators appear to have been more intent on preserving the international consensus embodied in the language of the Hague Rules, and getting carriers and shippers to agree to that language, than on codifying particular rules of general maritime law as expressed in U.S. case law.

In any event, the Court concluded, "the nature of a shipper's dangerous-goods liability under general maritime law in the United States was not firmly settled in 1936," i.e., at the time of COGSA's enactment. Thus, COGSA cannot have been intended simply to codify pre-existing law on this point since the decisions at that time were inconsistent. Moreover, the Court held, to the extent pre-COGSA decisions are inconsistent with the provisions of COGSA, such decisions are pre-empted to the extent a claim is governed by COGSA. 

Conclusion

Thus, the Second Circuit reversed the district court's holding and found that a shipper is strictly liable under COGSA, 46 U.S.C. § 1304(6), for damages and expenses arising out of the shipment of inherently dangerous cargo where neither the shipper nor the carrier had actual or constructive pre-shipment knowledge of the inherently dangerous nature of the shipped goods.

 

With thanks to Thomas H. Belknap, Jr. of Healy & Baillie, LLP, New York, for preparing this article.