14 June 2004

The TT Club is drawing attention to the significant reductions in damage liability during restowing operations afforded by the package limitations under the US Carriage of Goods by Sea Act (US COGSA). But, says the mutual insurer, much will depend on the careful wording of two important bill of lading clauses.

The Club has been closely monitoring a case that recently came before the US Court of Appeals for the fourth circuit, sitting in Norfolk, Virginia. In a significant ruling, the court decided that a carrier can rely on US COGSA to limit liability for damage while the cargo is temporarily on shore during restowing operations at an intermediate port.

Writing in its newsletter TT Talk, Harry Higham from the Club's New Jersey office commented: "This is the latest in a line of unsuccessful attempts by cargo interests to break the package limitations under US COGSA where containers have been off-loaded and restowed at an interim port, as in this instance. The courts have upheld the package limitation, even on behalf of the intermediate stevedore who damaged the goods during such a restowing operation."

However, Mr Higham noted that for this defence to be successful the bill of lading must contain a properly drafted clause paramount and a proper Himalaya clause. He also pointed out that in some cases, cargo interests have tried to argue that the discharge portion of the operation, during which the damage occurred, constituted an unreasonable deviation due to the goods being off-loaded at a port other than the one noted on the bill of lading, thus abrogating US COGSA. To date, they too have been unsuccessful.

The case arose from the movement of drilling rig equipment from Baltimore, Maryland, to Arica, Chile. During the voyage the vessel called at Charleston, SC, where the master decided that the flatrack should be moved to a better position, to protect the cargo against pilferage. The unit was landed and placed on a chassis but while it was being moved along the quay, the drilling equipment fell off and was severely damaged. Cargo insurers paid USD 176,750 and then sought recovery from the NVOCC that had arranged the shipment.

The NVOCC sought to rely on US COGSA which applies to all foreign-bound shipments carried under bills of lading from US ports; alternatively it maintained that the clause paramount in the bill of lading conditions, which extended the application of US COGSA to periods on the terminals at ports of loading and discharge, also applied to this landing at an intermediate port. As the drilling rig equipment was a single unit, the carrier's liability was limited to USD 500. Disagreeing, the cargo insurers sued the NVOCC and a number of other parties involved in the movement.

After some initial hesitation, the first instance judge agreed with the NVOCC and awarded damages of USD 500 to the claimants, who appealed. Having examined the facts, the court of appeal noted that US COGSA applied from the port of loading to the port of discharge. It held that "port of discharge" meant effectively the port of destination, at which the cargo was finally discharged and handed over to the consignee.

It also pointed out that temporary landing of containers at intermediate ports, to facilitate handling of other units or for restowing, was a normal part of modern shipping operations. If the claimants' view was correct, it would mean that there would be gaps in the operation of US COGSA during the course of a single journey. The court could not agree with this.

Claimants also contended that the clause paramount in the bill did not protect the NVOCC, as it was not in physical control of the cargo during the restowing. The court rejected this argument, saying that the claimants had got it completely back to front. There was no doubt that the NVOCC was legally in control of the cargo during the (planned) journey from Baltimore to Arica and the purpose of the clause paramount was to extend, not restrict, the operations of US COGSA.

The court agreed with the lower court's decision and dismissed the appeal.

The full decision can be obtained from the court's website at

http://pacer.ca4.uscourts.gov/opinion.pdf/031075.P.pdf

ENDS

For further information please contact:

Ian Lush, Marketing Director, TT Club

Tel: +44 (0)20 7204 2642

E-mail:

ian.lush@thomasmiller.comwww.ttclub.com

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Peter Owen, ISIS Communications

Tel: +44 (0)1737 248300

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info@isiscomms.comwww.isiscomms.comA full archive of all TT Club news releases and photographs is available from the ISIS Communications Press Room at www.isiscomms.com