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FEBRUARY 2017
LEGALBRIEFINGSharing the Club’s legal expertise and experience
Cargo claimsunder US law
LEGAL BRIEFING
2 Legal Briefing February 2017
Sharing expertiseThis briefing is one of a continuing serieswhich aims to share the legal expertise withinthe Club with our Members.
A significant proportion of the expertise in theManagers’ offices around the world consistsof lawyers who can advise Members ongeneral P&I related legal, contractual anddocumentary issues.
These lawyers participate in a virtual team,writing on topical and relevant legal issuesunder the leadership of our Legal Director,Chao Wu.
If you have any comments or queries on thisbriefing, please contact the author, Susan Lee([email protected] or+1201557 7338) and she will be pleasedto respond to your query.
The team also welcomes editorial suggestionsfrom Members on P&I related legal topicsand problems. Please contact Jacqueline Tan([email protected] or+44 20 7204 2118) or Chao Wu
([email protected] +44 20 7204 2157)
Previous issuesCopies of previousbriefings are available todownload as pdfs fromour website. Visitwww.ukpandi.com/publications. �
THE AUTHOR
Susan LeeClaims Executive
Susan Lee is a ClaimsExecutive for P&I andFD&D. Susan is anattorney and came toTMA from a New Yorkmaritime law firm. She
handles cargo claims, arbitrations andcharter party disputes.
Direct +1 201 557 [email protected]
LEGAL BRIEFINGS TEAM
Jacqueline TanSenior Claims Executive
Jacqueline is a qualifiedbarrister and solicitor.She handles FDD andP&I cases. Jacquelinespeaks Malay, Frenchand Hokkien. She is a
member of the Club’s environmentalteam, which informs and updatesMembers on changes to legislationsand their implications.
Direct +44 20 7204 [email protected]
Dr Chao WuLegal Director
Chao has a PHD in lawfrom Paris University(Sorbonne). She isresponsible for thelegal aspects of Clubdocumentation and
cover for Members’ contractualarrangements, the Club’s Rules andBye-Laws and general legal advice.Chao is a recognised authority oninternational marine pollution law andUS environmental law.
Direct +44 20 7204 [email protected]
February 2017 Legal Briefing 3
COGSA
AMember’s guide to cargoclaims under US lawThe law governing ocean carriage of cargo being shipped to and from US ports isgenerally the US Carriage of Goods by Sea Act (COGSA) 1936. This is simply theUS enactment of the 1924 Hague Rules but with one or two important differences.
Other relevant local laws include therelated but now little-used Harter Actfor shipping, the rather onerousCarmack Amendment for inlandtransport, the Federal Bills of LadingAct and individual US state laws.
Being subject to COGSA
COGSA applies by force of US law to,‘every bill of lading or similar documentof title which is evidence of a contractof carriage of goods by sea to or fromports of the United States, in foreigntrade.’The Act governs the carrier’sliability to cargo interests whenever abill of lading or similar document oftitle is the contract of carriage.
Under COGSA, the ‘carrier’ is definedas including,‘the owner or the chartererwho enters into a contract of carriagewith a shipper.’ In practice it caninclude all owners and charterersinvolved with carrying the cargo.
Like the Hague and later, the Hague-Visby Rules, COGSA applies only fromthe time the goods are loaded on boardto the time they are discharged fromthe vessel. Parties often contractuallyagree to extend the Act’s applicationbeyond this to avoid other US transportlaws applying.
This can be done by:
• Extending the defences andlimitations available under COGSAto third parties engaged by the oceancarrier, such as inland carriers,stevedores, terminals and otheragents, using a ‘Himalaya clause’ inthe bill of lading.This is usuallyaccompanied by a ‘clause paramount’
specifying US law and extendingCOGSA’s application beyond loadingand unloading.
• Extending COGSA’s application toprivate carriage (e.g. where thecharterparty is the contract ofcarriage) or a non-negotiable/straightbill of lading or waybill by includinga clause paramount or similar choice-of-law provision in the applicablecharterparty, bill of lading, waybill orcontract of affreightment.
Carrier’s limits on liability
The carrier’s duties under COGSA areidentical to the duties imposed underthe Hague/Hague-Visby Rules.TheAct also exempts the carrier fromliability for loss or damage to cargo dueto the same set of excepted causes.
But uniquely, COGSA limits a carrier’sliability for cargo loss or damage toUS$500 ‘per package… or in case ofgoods not shipped in packages, per
4 Legal Briefing February 2017
DEVIATION
customary freight unit’. For the US$500package limitation to apply, the shippermust have been given sufficient noticeof the limitation and a fair opportunityto opt out of it by declaring a highervalue for the cargo in exchange forpaying a higher freight rate.
Not surprisingly, the question of whatconstitutes a COGSA package andcustomary freight unit has been thesubject of much litigation in the USA.
A ‘package’ for the purposes ofCOGSA has been defined by oneleading US court as ‘a class of cargo,irrespective of size, shape or weight, towhich some packaging preparation fortransportation has been made whichfacilitates handling, but which does notnecessarily conceal or completelyenclose the goods’.
Thus, boxes, crates, pallets, skids andsometimes shipping containers canconstitute packages. Project cargo –such as a power plant, a fire engine or ayacht – may also be considered a
package if it is shipped on a rack, cradleor other type of support.
US courts generally look at the‘Number of Packages/Containers’column and then the ‘Description ofGoods’ column in a bill of lading todetermine the applicable package. If thetype of unit identified in the Numbercolumn qualifies as a package, this isheld to be the number packages.However, if the Number column doesnot identify a number of units or if itonly identifies a number of containers,the courts will refer to the Descriptioncolumn to determine what unitconstitutes the COGSA package.
Failing that, the courts will look outsidethe bill of lading to secondary evidencesuch as invoices, packing lists,communications, survey reports and howthe cargo was consolidated for shipment.US courts generally hold ambiguitieson a bill of lading against the carrier, socareful attention should be given to theway in which units of cargo aredescribed on each bill of lading.
For cargo not shipped in packages, suchas bulk or unenclosed cargo, most UScourts consider the unit by whichfreight was calculated – typicallyweight or volume – as the applicablecustomary freight unit. But if the bill oflading clearly states that freight ischarged on a ‘lump-sum’ or ‘per-item’basis, this may be deemed to be theapplicable customary freight unitregardless of whether it was actuallypaid for on that basis.
Deviation and other breaches
Like the Hague/Hague-Visby Rules,COGSA allows ‘reasonable’ deviationbut adds,‘if the deviation is for thepurpose of loading or unloading cargoor passengers it shall…be regarded asunreasonable.’
If a deviation is found to beunreasonable, the carrier will be infundamental breach of the Act.As suchit will most likely lose its limitations anddefences, and be held liable for the actual
February 2017 Legal Briefing 5
TIME BARS
damage proved by the cargo interest.Also, bills of lading clauses that allowdeviation from the direct or customaryroute will probably be held by the UScourts to give no more rights to deviatethan allowed for in the Act.
The question of whether a deviation isunreasonable will turn on industrypractice and custom, prior dealingsbetween the parties, descriptions of theroute on the bill of lading and whatwas known or should have beenknown to the shipper at the time thecargo was booked.
Most US courts restrict the definition ofan unreasonable deviation to geographicdeviations and the ‘quasi-deviation’ ofunauthorised deck stowage of cargo. Inpractice, any action that would expose acargo to a substantially greater risk ofloss or damage will make the carrierliable for the full cost.
Ensuring proper delivery
Under US law, carriers are required to
receive the original bills of ladingbefore delivering the cargo when thebill of lading:
• is issued in the US, so is subject tothe US Federal Bills of Lading Act,and is a negotiable bill of lading
• expressly requires the presentation ofthe original bill of lading prior todelivery
• contains a choice-of-law clauseproviding for it to be governed byUS law.
However, the carrier’s duty of properdelivery may be modified by industrypractice, local law, regulation andcustom at the destination port. In suchinstances, the carrier’ duty can often bedischarged by delivering the cargo to agovernment entity, which is charged bylocal law or custom with the exclusiveduty to receive and distribute cargo tothe consignee.
In the event of a mis-delivery claim andthe carrier is held liable to the
consignee or subsequent holder of thebill of lading, the carrier may be able tosue the shipper for any inaccurate ormisleading information which led toimproper release of the cargo.
Time bars for cargo andindemnity claims
As in the Hague/Hague-Visby Rules,COGSA has a one-year time barprovision from when goods aredelivered, or should have beendelivered, to bring claims for loss,damage or mis-delivery of cargo.
The Act’s time bar does not, however,apply to a carrier’s indemnity claimagainst third parties for recoveringamounts paid to cargo interests for lossor damage.The timing for this under USlaw is generally governed by the legalprinciple of ‘laches’ – an unreasonabledelay in asserting a claim – the timeperiod for which starts on payment ofthe cargo claim by the carrier.
However, contracts with US road and
February 2017 Legal Briefing 7
THE HARTER ACT
rail carriers and warehouses maycontain contractual notice or time-barprovisions that are relatively short. It isimportant to comply with these topreserve any indemnity claim thecarrier may have.
Shifting nature of burden of proof
Similar to the Hague/Hague-VisbyRules, the cargo interest underCOGSA bears the initial burden ofestablishing a case for cargo loss ordamage against a carrier, by showingthat the cargo was loaded onto thevessel in good condition and deliveredby the vessel in damaged condition.
The burden then shifts to the carrier toexonerate itself by proving the harmresulted from an excepted cause or thatthere was no negligence. However, thisdoes not necessarily end the inquiry.For example, if the shipper can showthat despite the excepted cause of anerror in navigation, the damage wasalso partly due to the vessel’sunseaworthy condition or the cargo’simproper stowage, the burden shiftsback to the carrier.
The carrier must in turn respond for alldamage caused, apportioning thedamage to the excepted cause andother causes. If it is unable to do so,then, under US law, it will be heldresponsible for all the damage.
The Harter Act
The 1893 US Harter Act still applies bystatute to cargo shipped under a bill oflading between two or more US ports,and between a US port and a non-USport.The Act is effectively codified byCOGSA but it applies from the time ofreceipt of the cargo by the carrier tothe time of delivery to the consignee.
In practice, most carriers involved inUS trade include a US clauseparamount or similar provision in thebill of lading to extend COGSAbeyond the loading to discharge period.As such, the Harter Act is almost alwaysreplaced by COGSA.
Carmack Amendment
US road and rail transportation isgenerally governed by a 1935 US lawcalled the Carmack Amendment. Itdiffers from COGSA in a number ofimportant ways.
Carmack imposes almost strict liabilityupon carriers,‘for the actual loss orinjury to the property’. A carrier is onlyrelieved from that liability if it canprove both lack of negligence and thatthe damage was due to an act of God,public enemy or public authority; act oromission of the shipper; or the inherentnature of the goods.The law requiresuse of US courts only, and the time barfor cargo interests to submit claims tocarriers is nine months followed by anadditional two years to sue.
Because COGSA affords much greaterprotections to carriers, both inland andocean carriers share a common interestin ensuring Carmack does not apply.
Accordingly, multi-modal through billsof lading involving a shipment to orfrom US ports typically contain a USclause paramount and a Himalayaclause, contractually extending thebenefits of COGSA to all inland andocean legs of the shipment, and to allinland and ocean participants acting forthe ocean carrier.This is generallysupported by the US courts.
US state law and foreign lawoptions
In the event of loss or damage to oceancargo or multi-modal through cargo inthe US prior to loading or afterdischarge from a vessel, US state laws oreven foreign laws may also apply.
Moreover, if the bill of lading is subjectto COGSA either by statute orcontract, but provides for disputesbetween the parties to be resolved in anon-US forum, there is a risk ofconflicts of law. A non-US court ortribunal may not feel bound to applyUS law, and apply the local law instead.
Summary
All cargo shipped in or out of the USAunder a bill of lading is subject toCOGSA. It is the US enactment of theHague Rules for ocean carriage, and assuch, should provide no major concernsto Members trading with the USA.
While US cargo damage litigationfrequently focuses on what constitutes‘packages’ or ‘customary freight units’for COGSA’s US$500 liability limit,provided these units are clearly set outin the bills of lading – or higher liabilitylimits are agreed – this should not bean issue.
The US courts take a somewhat stricterview of what constitutes ‘unreasonabledeviation’, so Members should takeextra care to avoid any action whichwould expose a cargo to a substantiallygreater risk of loss or damage.
Members also need to be careful whenusing US bills of lading or those subjectto US law to ensure proper delivery,either by receiving the original bills oflading before releasing the cargo, or bydelivering the cargo to a governmententity charged with the duty to receiveand distribute cargo to the consignee.
With regard to inland carriage by roadand rail, the governing US CarmackAmendment imposes far stricterliability on carriers than COGSA.Assuch,Members would be wise toensure that multi-modal through billsof lading involving US shipmentsstipulate that COGSA shall applythroughout the carriage andtransportation or include a Himalayaclause and a paramount clause toextend COGSA’s defences andlimitations to all parts of the cargojourney.
As elsewhere,Members are free tomake indemnity claims against US thirdparties who damage the cargo, forwhich there is no fixed time bar.
If you have any questions on the above,please do not hesitate to contact yourusual contact at the Club.�
New Jersey
Thomas Miller (Americas) IncT +1 201 557 7300F +1 201 946 0167
London
Thomas Miller P&I LtdT+44 20 7283 4646F +44 20 7283 5614
Piraeus
Thomas Miller (Hellas) LtdT +30 210 42 91 200F +30 210 42 91 207/8
Hong Kong
Thomas Miller (Hong Kong) LtdT + 852 2832 9301F + 852 2574 5025
www.ukpandi.com / www.ukdefence.com
