Cargo Claims – Developments in the United States

June 1999

(Sea Venture Volume 18)

U.S. Forum Selection Clause

This subject has previously been discussed in "Sea Venture" Vol. 12 page 99 (Vol. 19 page 33 and Vol. 17 page 55). In the "Export Freedom" case in late 1997, the U.S. District Court in the Southern District of New York were asked to consider the validity of a U.S. forum selection clause. The U.S. plaintiff shipowners issued a bill of lading for the carriage of one container, containing a printing press, from Italy to Norfolk, Virginia. The bill of lading contained a clause paramount incorporating U.S. COGSA and a clause providing that its terms should be construed in accordance with U.S. law and that any suits against the carrier should be brought in the U.S. District Court for the Southern District of New York.

The cargo was discharged at Norfolk Virginia. The ship’s stevedore off-loaded a container and lashed it to a chassis. The driver of the chassis made a sharp turn from the pier onto the main roadway causing the container to tip over and hit the ground. The cargo sustained damage quantified at approximately US$ 800,000. The cargo insurers paid the cargo owners under the insurance policy and being fully subrogated to the cargo owner’s rights, sought recovery from the shipowner. However, the shipowner brought proceedings against the cargo owners, the cargo insurers and the stevedores for declarations that (1) the forum selection clause in the bill of lading was enforceable, (2) the plaintiff’s liability to the defendants for damage to the cargo was limited to $500, pursuant to U.S. COGSA and (3) that the stevedores had to indemnify the plaintiifs for any liability they sustained in respect of damage to the cargo.

The cargo interests argued that the Hague-Visby Rules (adopted in Italy) governed the shipowner’s liability and that the shipowners were liable for losses much greater than $500 limit under US COGSA. The cargo interests further claimed that the forum selection clause was invalid under Italian law and had, in fact, sued the shipowners in Italy after the New York proceedings had been commenced. The shipowners argued that the forum selection clause was binding and that any suit concerning the cargo had to be brought in the Southern District of New York.

The court held that the parties and the transaction had a substantial relationship with the US. The shipowners were incorporated in the United States, with their principal place of business in New York, the vessel was registered in the U.S., the cargo was being shipped to the U.S., the recipient of the cargo and the stevedoring company were U.S. corporations and the accident had taken place in the U.S. It was also held that the choice of U.S. law did not conflict with the fundamental purposes of U.S. maritime law and, therefore, U.S. law should determine the validity of the forum selection clause. Under Federal law, the forum selection clause was enforceable unless it was shown that to enforce it would be unreasonable and unjust or that some invalidity, such as fraud or over-reaching, was attached to it. The cargo interests failed to overcome that burden. There was no evidence of fraud and the clause had been reasonably communicated to the cargo interests. It would not have been unreasonable or unjust for the defendants to litigate in New York, given that New York had a substantial connection to the dispute.

Accordingly, the court upheld the forum selection clause and deemed it to be enforceable. Therefore the shipowner’s liability for damage to the cargo was governed by U.S. COGSA and they were entitled to limit their liability to US$ 500 per package.

Economic Loss

The traditional view concerning the possibility of recovery for economic loss was set down by the U.S. Supreme Court decision in Robbins Dry Dock and Repair Company v Flint¹ which held that, unless a plaintiff has a proprietary interest in the damaged property, he will be denied recovery for economic loss.

The validity of the Robbins Dry Dock rule was recently upheld in a claim arising out of the allision of the "Bright Field" with a shore-based shopping complex in New Orleans. In Re: complaint of Clear Sky Shipping mv "Bright Field"² where limitation proceedings were brought by the shipowner, a restaurant leaseholder sought damages for the value of lost inventory and personal property, the value of certain leaseholding improvements, the cost of winding up operations after the allision, and lost profits from the date of the allision to the end of the lease.

The shipowner sought partial summary judgment dismissing the claims associated with the damage to the leasehold improvements as the claimant was not the owner of the improvements. The court agreed, holding that the lease for the property specified that title to the improvements remained with the owner at the expiration of the lease. With regard to the claims associated with business interruption, the court held that the claimant was denied recovery for economic loss: Based upon the rule in Robbins Dry Dock, the court held that the claimant had no proprietary interest in the damaged property. The Court further stated that the Fifth Circuit’s formulation of the Robbins Dry Dock rule was correct and that the test was a requirement that physical damage to a proprietary interest was a pre-requisite of recovery for economic losses in cases of unintentional maritime tort.

The court relied upon three factors to establish proprietary interest; (1) actual possession or control, (2) responsibility for repair and (3) responsibility for maintenance. The court concluded that while the claimant may have had possession of the premises, it had questionable control due to the lease provisions dealing with improvements. Additionally, the court gave great weight to the fact that the claimant did not have any obligation to repair the damage caused by the "Bright Field". The court held that the claimant had not produced sufficient evidence to establish a proprietary interest and therefore, could not recover for economic loss.

Container Shortages

In accordance with U.S. COGSA, a carrier is obliged to issue the shipper with a bill of lading showing the weight/quantity of the cargo received for carriage. Such details are to be furnished in writing by the shipper, although in cases where the carrier has reasonable grounds for suspecting that these are not an accurate description of the goods actually received, or where he has no reasonable means of checking, he will not be bound by this obligation.

This position is also reflected, to a certain extent, within the Association’s rules which specify that, except at the Director’s discretion, there shall be no recovery by a Member in respect of liability or expenses arising out of a bill of lading issued with the knowledge of the Member or his Master with an incorrect description of the quantity of cargo (Rule 25xxiv i (iv)).

Unfortunately, the advent of shipper-sealed containers makes the practice of checking the weight/quantity of cargo within each individual container generally unfeasible. However, the U.S. Courts initially seemed slow to recognise this, even in cases where the bill of lading contained a qualifying clause such as "shipper load and count" (as in Westway Coffee³). In subsequent cases the courts seem to have adopted a more practical approach as illustrated in Bally, Inc. –vs- "Zim America" et al. ⁴

In this instance a container was packed and sealed by the shippers agents in Italy and weighed prior to loading on board the vessel. The carrier subsequently delivered the container to the receiver’s trucker with the seal still intact. However, when the consignees later broke the seal, it immediately became apparent that cargo was missing.

The Court found that the claimant consignees could not make a case against the carrier based either on a difference in weight or on a difference in count. In this instance the carrier had confirmed that the loaded weight of the container was correct, and it was, therefore, bound by the weight recorded in the bill of lading. As to the cargo count, the Court concluded that the claimants could not rely upon the number of packages declared by the shipper, given that the carrier was unable to observe and verify the quantity of cargo loaded into the container. The real issue was whether claimants could prove a shortage on outturn. The Court rejected previous District Court decisions which had allowed claimants to recover merely by proving that a shortage occurred at the receivers premises. Instead, it was held that the plaintiff had to establish that a shortage existed at the point of delivery by the carrier which, in this instance, was at the port of discharge. As the claimants were unable to establish this, their case was dismissed.

Accordingly, potential claimants are now expected either to open the container at the pier and count the contents, or arrange to have the container weighed then. Without these checks they will fail to establish a prima facie case.

It is worth mentioning that a revised version of U.S. COGSA is currently being put before congress which, if enacted, will hopefully assist in clarifying this area of the law. Whilst the carrier will still be obliged to issue a bill of lading (as before), there are now sections in the draft Act dealing with statements in the draft that may be inserted into the bill of lading where the goods are carried within containers.

Although there are still certain exceptions, the general rule now seems to be that in circumstances where the carrier cannot verify the contents/weight before the contract of carriage is issued, he is permitted to qualify the bill of lading to that effect (e.g. "said to contain" etc.). If the carrier subsequently delivers the container undamaged and with seal intact then the bill of lading will not be deemed to be prima facie evidence that the carrier received the specified quantity/weight of goods from the shipper as described in the bill.

¹ 275 US 303 (1927)
² 96-4099 E.D. LA. 3rd November 1998
³ U.S. Second Circuit Court of Appeals 675S.2d30;1982
⁴ U.S. Second Circuit Court of Appeal 22S.3d65;1994