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No Bill of Lading and U.S. COGSA Package Limitation

Tom Kavanagh

Tom Kavanagh

Published: September 01, 2014

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In a recent decision in the case of OOO Garant-S v Empire United Lines Co, 5 February 2014, the U.S. Second Circuit upheld a lower court’s summary judgement applying the U.S. COGSA package limitation of $500 per package to a loss that occurred prior to loading and before a bill of lading had been issued.

Cargo interests OOO Garant-S (Garant-S) brought a claim against Empire United Lines Co., Inc. (Empire), a non-vessel owning contractual carrier, for breach of contract and various tort claims under New Jersey state law, arising from the theft of motor vehicles from a storage facility utilised by Empire. The cars had been delivered by Garant-S to the facility where they were to be loaded into containers and then carried by Empire to Europe. In March 2013, the District Court for the Eastern District of New York granted a motion for summary judgement brought by Empire to limit their liability to $500 for each car under the U.S. COGSA package limitation. Garant-S appealed the district court’s decision, contending that (i) U.S. COGSA should not apply because no bill of lading had been issued; (ii) that Empire’s unreasonable actions should deprive them of the benefit of limitation; and (iii) U.S. COGSA package limitation was not applicable because Garant-S had been denied fair opportunity to declare a value in excess of the limitation amount. However, the Court of Appeals for the Second Circuit upheld the district court’s decision, allowing Empire to limit their liability to a total of $1,000, in part due to the established customs and practices of the longstanding business relationship between the two parties.

No bill of lading had been issued

At the time of the loss, Empire had not issued a bill of lading. Garant-S therefore argued that, in the absence of a bill of lading, U.S. COGSA should not apply. However, based on the facts of many previous shipments involving the two parties, the only reason that a bill of lading had not been issued by the time the loss occurred was that it was prior to the stage at which Empire customarily issued them to Garant-S. As such, the appeal court concluded that Empire’s house bill of lading would have been issued at a later stage, and was therefore the governing contract of the relationship. Empire’s bill of lading expressly incorporated U.S. COGSA for the duration of the carrier’s period of responsibility, which the bill of lading defined as being from the ‘place of receipt’ through to delivery as opposed to the normal more limited period of responsibility under US COGSA – “the period from the time when the goods are loaded on to the time when they are discharged from the ship” (COGSA §1(e)). As the vehicles were stolen after they had been delivered to the place of receipt, U.S. COGSA applied at the time the loss occurred.

Unreasonable actions of Empire

Garant-S contended that the unreasonable actions of Empire deprived them of the benefit of limiting their liability under U.S. COGSA on the basis that there had been an “unreasonable deviation” from the contract. Garant-S alleged that Empire had ‘participated in or facilitated’ the theft of the cars and argued that Empire should therefore be deprived of the package limitation defence available under U.S. COGSA. The appeal court rejected this argument on the basis that only the specific acts that fall under the doctrine of ‘unreasonable deviation’ would deprive Empire of the U.S. COGSA limitation defence. In previous cases, the Second Circuit had established these specific acts to be (i) unjustifiably departing from the vessel’s scheduled and anticipated route, (ii) stowing cargo on-deck without authorisation or (iii) issuing bills of lading incorrectly stating that goods had been received onboard. Any of these can deprive a carrier of the defences available under U.S. COGSA. However, affirming earlier Second Circuit decisions, the court declined to extend the doctrine of unreasonable deviation beyond the foregoing, because to do so ‘would require inquiry into the carrier’s culpability and thereby defeat COGSA’s purpose of establishing clear and administrable rules for allocating loss’. That being the case, U.S. COGSA applies even when a carrier is alleged to have engaged in conduct prohibited by U.S. criminal law, meaning the allegation against Empire was irrelevant to the validity of their package limitation defence.

Denial of a fair opportunity to declare a cargo value

Garant-S argued that if U.S. COGSA was applicable, the package limitation defence was not available to Empire because Garant-S had been denied fair opportunity to declare a value in excess of the U.S. COGSA package limitation amount. The argument was in part based on the fact that there was no designated space on Empire’s house bill of lading for such a value to be inserted. However, Empire’s house bill of lading did include a provision stating that the carrier would not be liable for amounts exceeding the U.S. COGSA package limitation unless the nature and value of the goods had been declared before shipment and that consent had been given by the carrier to insert the value on to the bill of lading. The appeal court stated that the provision ‘unambiguously notifies the shipper both that COGSA applies to limit liability and that a higher value may be declared’. Furthermore, although they had not done so on this occasion, Garant-S, by their own admission, had previously declared cargo values in compliance with the bill of lading provision, demonstrating an awareness of the opportunity available to them. The appeal court stated that whilst it may be best practice for such a provision to be accompanied by a designated space where a value can be inserted, this was not necessarily required when the bill of lading contained a separate provision notifying the shipper that a higher value may be declared.

The appeal court’s decision on each of the arguments made by Garant-S is e encouraging, but it should be noted that the outcome may have been different if there had not been an established custom and practice governing the relationship between the two parties. In particular, if it could not have been shown that specific bill of lading terms were to apply, either through customary practice or preferably through express agreement, it is doubtful that the carrier would have been able to rely on the U.S. COGSA package limitation.

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