February 29, 2016 Practice Points

The COGSA $500 Package Limit Does Not Apply to On-Deck Cargo

Practitioners should be aware of the specific wording of the ocean carrier’s bill of lading.

By David Y. Loh

The U.S. Carriage of Goods by Sea Act of the United States of America (COGSA) governs all goods traveling to or from a port of the United States ex proprio vigore (“by its own force”). 46 U.S.C. § 30701 Note §§1, 13.

To put COGSA in perspective, it might be helpful to explain briefly the history of COGSA. COGSA was enacted by Congress in 1936 as the United States version of the “Hague Rules,” an international maritime convention for unification of certain laws relating to bills of lading signed in Brussels in 1925. (Former sections 46 U.S.C. §1300 et seq. were recodified in the Note of 46 U.S.C. §30701 in 2006). The Hague Rules have been adopted by most of the major maritime nations of the world. Vimar Seguros Y Reaseguros S.A. v. M/V Sky Reefer, 515 U.S. 528, 536 (1995). COGSA establishes a comprehensive framework of the rights and liabilities by which shippers, vessels and carriers are governed for cargo damage. Id. at 536.

Under most circumstances, COGSA permits an ocean carrier to limit its liability to $500 per package, which can substantially reduce a carrier’s liability exposure to pennies on the dollar. The COGSA package limit is usually valid and enforceable, which is one of the reasons why ocean carriers often attempt to extend the reach of COGSA to their subcontractors and beyond the scope of its usual “tackle to tackle” application. “Tackle to tackle” is a term of art which means, by its own force, COGSA applies once the goods pass over the rail of the receiving vessel at loadport and cease once the goods pass over the rail of the discharging vessel at disport.

The purpose of this article is to explain the ins and outs of one little-known exception of the application of the COGSA package limit. When applicable, this exception is a game changer.

By its own terms, COGSA excludes from the definition of “goods” that cargo which is stated in the bill of lading to be carried on deck and is so carried. 46 U.S.C. §30701, Note §1(c) (Both the Hague and Hague-Visby Rules exclude on-deck cargo from their respective definitions of goods).

Where COGSA does not apply by the force of its own terms, the parties to a bill of lading may contractually extend COGSA beyond its normal parameters, including to on-deck cargo. See Institute of London Underwriters v. Sea-Land Serv., Inc., 881 F.2d 761, 763-64 (9th Cir. 1989) (applying COGSA to yacht carried on deck that was dropped during discharge because the bill of lading stated [COGSA] shall apply to goods whether carried on or under deck.” Id. at 764.) and Pannell v. United States Lines, 263 F.2d 497 (2d Cir. 1959) (the bill of lading provided in relevant part that in respect of goods carried on deck, the carrier shall have the benefit of the COGSA, “notwithstanding Section 1(c) thereof”. Id. at 498); see also SNC S.L.B. v. M/V Newark Bay, 111 F.3d 243, 245 (2d Cir. 1997) and Colgate Palmolive Co. v. S/S Dart Canada, 724 F.2d 313, 315 (2d Cir. 1983), cert. denied, 466 U.S. 963 (1984).

The distinction between on-deck and below-deck stowage does not apply to containerized cargo because 20-foot or 40-foot containers are likened to the hold of a vessel and are typically deemed to be stowed below deck. With respect to bulk or specialized cargo, shippers may request to stow their cargo on deck when ocean carriers charge less freight for on-deck stowage. Because on-deck cargo may face increased exposure to weather and sea-spray during ocean transit, ocean carriers will often clause their bills of lading to reflect the greater risk for physical damage during ocean transit. The ocean carriers typically will insert language such as “stowed on deck at shipper’s risk” on the face side of their bills of lading.

Ocean carriers have, with limited success, attempted to argue this additional language on the face side of the bill of lading is sufficient to incorporate by reference the benefit of the COGSA $500 per package limitation of liability. For example, in Deltamax Freight System v. M/V Aristotelis,1998 WL 1110395, 1999 A.M.C. 1789 (C.D.Cal. 1998), a shipment of airplane parts were damaged during ocean transit due to adverse weather. The bill of lading contained the phrase “stowed on deck at shipper’s risk and expense” in the routing instructions box and, on the back side, the bill of lading stated, “The [U.S. Carriage of Goods by Sea Act] COGSA U.S. $500 limitation as set forth in § 1304(5) of said Act shall apply to all goods shipped to and from the United States hereunder. (emphasis added).” In this case, the court reasoned that the language on the face side, in conjunction, with the language on the back side of the bill of lading was sufficient to provide notice of the COGSA package limit and found the $500 per package limitation to be valid and enforceable.

By comparison, in Saudi Pearl Ins. Co. Ltd. v. M.V. Aditya Khanti, 1997 U.S. Dist. LEXIS 7663 (S.D.N.Y. 1997), 72 of 1,455 wooden telephone poles were stowed on deck and fell overboard during ocean transit. The face side of the bill of lading stated: “LOADED ON DECK AT SHIPPER’S RISK” whereas the clause paramount simply incorporated COGSA into the contract of carriage without further elaboration on its application or whether COGSA would apply to on-deck cargo. In Saudi Pearl, the court found that the ocean carrier could not rely on the COGSA package limit.

Similarly, in Columbia Machine, Inc. v. DFDS Transport (US), Inc., 2008 A.M.C. 640 (C.D.Cal. 2007), five pieces of a shipment of concrete-block-making equipment suffered damaged while stowed on deck. The bill of lading was claused on the front side with “LOADED ON DECK AT CARGO OWNERS RISK,” but the back side contained the following additional language concerning cargo stowage:

(2) Goods, whether or not packed in Containers, may be carried on deck or under deck ... without notice to the Merchant. All such Goods, whether carried on deck or under deck ... shall be deemed to be within the definition of goods for the purposes of the Hague Rules and shall be carried subject to those Rules.

(3) Notwithstanding Clause 15(2), in the case of Goods which are stated on the face hereof as being carried on deck and which are so carried the Hague Rules shall not apply and the Carrier shall be under no liability whatsoever for loss, damage or delay, howsoever arising.

The bill of lading further contained a U.S. clause paramount:

(1) If Carriage includes carriage to, from or through a port in the United States of America, this Bill of Lading shall be subject to the United States Carriage of Goods by Sea Act 1936 (U.S. COGSA), the terms of which are incorporated herein and shall be paramount throughout Carriage by sea and the entire time that the Goods are in the actual custody of the Carrier or his Sub-Contractor ...

* * *

(3) If U.S. COGSA applies the liability of the Carrier and/or the Vessel shall not exceed US$500 per package or customary freight unit (in accordance with Section 1304(5) thereof), unless the value of the Goods has been declared on the face hereof, in which case Clause 7(4) shall apply.

In evaluating the bill of lading’s language as a whole, the court analyzed the initial clause relating to on-deck cargo and concluded that it related to the Hague Rules, which was sufficient to invoke COGSA. However, with respect to whether the carrier was entitled to the COGSA package limit, the court concluded that the U.S. clause paramount merely incorporated the “terms” of COGSA, which included COGSA’s normal exclusion of on-deck cargo from its package limit, and there was no intent to apply any limitation of liability to on-deck cargo. As a result, the court found the carrier could not rely on the COGSA limit, thereby exposing the carrier to full liability.

Although COGSA has been the law of the United States since 1936, there are surprisingly few cases analyzing the application of on-deck cargo with respect to the package limitation. As the three cases outlined in this article demonstrate, the application of COGSA limits on claims involving on-deck cargo depends on the specific wording of the ocean carrier’s bill of lading. Because this exception has not been widely litigated, many shippers and carriers are unaware of this potential gap in the application of the COGSA package limit. This situation is emblematic of the continuing need for shippers and ocean carriers to carefully and regularly review the terms and conditions of the bills of lading regularly used in day-to-day business so that they can make an informed decision on how to assess their risks arising from the transit of their goods to and from the United States.

David Y. Loh is with Cozen O'Connor, New York City, New York.

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