MacSteel International USA Corp. v. M/V IBN Abdoun

Citations: 154 F. Supp. 2d 826; 2001 A.M.C. 2841; 2001 U.S. Dist. LEXIS 11151; 2001 WL 882989Docket: 99 CIV. 4562(CBM)

Court: District Court, S.D. New York; August 3, 2001; Federal District Court

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Plaintiff Macsteel International USA Corp. filed a lawsuit against multiple defendants, including United Arab Shipping Company and Cargill Marine and Terminal Inc., in the United States District Court for the Southern District of New York, alleging damage to steel products shipped from Durban, South Africa, to various U.S. ports. The damages were claimed to exceed $1 million due to water exposure resulting in rust and physical damage during transit. 

Plaintiff moved to strike United Arab's defense concerning a $500 per package liability limitation under the Carriage of Goods by Sea Act (COGSA) and sought summary judgment on liability. United Arab responded with a cross-motion regarding the same liability limitation. The court found that United Arab did not provide prima facie evidence that the plaintiff had a fair opportunity to opt out of the COGSA limitation and conceded liability for part of the damages. Consequently, the court granted the plaintiff's motion to strike the liability limitation defense and awarded summary judgment on liability.

The facts are largely undisputed: the steel shipment was loaded onto the vessel IBN Abdoun, which was deemed unseaworthy due to leaky hatches that caused seawater exposure. United Arab acknowledged the vessel's unseaworthiness contributed to the damage. The contractual agreements presented included a bill of lading that did not mention a liability limitation but referenced the Hague Rules, indicating that applicable international conventions would govern liability issues.

South Africa has implemented the Hague Rules, which limit collectible damages to two Special Drawing Rights (SDRs) per kilogram, approximately $2.66 per kilogram, exceeding the damages claimed in this case. If the Hague Rules apply, the limitation on damages becomes irrelevant. United Arab presents a charter party, referred to as the "Charter Party," which it claims represents the entire contract of carriage with the plaintiff. The Bill of Lading indicates that it is to be used with charter parties, specifically naming "Cogenbill." The Charter Party is a 15-page document, with boilerplate terms on pages 3 to 5 that lack a choice of governing rules. The "Rider Clauses," starting on page 9 and ending on page 15, include two "Clauses Paramount" that outline applicable rules. Notably, paragraph 35 affirms that the Charter Party incorporates the Hague Rules, stating that any conflicting provisions will be void. Additionally, an unnumbered clause on page 13 indicates the Bill of Lading is governed by the U.S. Carriage of Goods by Sea Act, which imposes a $500 per package limitation on damages. The plaintiff disputes the authenticity of the Charter Party, noting it lacks their signature. United Arab claims the document was provided by the plaintiff's representative during discovery in a related case.

Plaintiff seeks to strike United Arab's defense of a $500 per package liability limitation under COGSA and requests summary judgment on United Arab's liability. United Arab cross-moves for summary judgment to enforce COGSA's limitation. The court reiterates that the standard for summary judgment requires the movant to show the absence of a genuine issue of material fact; if met, the burden shifts to the non-moving party to provide evidence of such an issue. The court must interpret facts favorably for the non-movant without weighing evidence. United Arab does not dispute the unseaworthiness of the vessel Abdoun or its contribution to the damage of steel products, establishing liability. However, United Arab contends that some damage was caused by freshwater, outside the vessel, and argues that plaintiff's damage estimates are exaggerated. The court grants summary judgment to the plaintiff regarding United Arab's liability but reserves the damage issue for trial.

Both parties’ motions regarding COGSA's liability limitation hinge on the contracts governing the shipment. United Arab claims COGSA applies, limiting liability to $500 per package, while the plaintiff argues that the Hague-Visby Rules govern, making COGSA’s limitation irrelevant. Plaintiff asserts that the Bill of Lading, which cites the Hague and Hague-Visby Rules, is the controlling document and that the Charter Party was not incorporated into it. Even if incorporated, the references suggest a mutual intent to adopt a higher liability limit. Additionally, plaintiff asserts that South African law mandates the application of the Hague-Visby Rules, and argues that the Charter Party did not provide a fair opportunity to opt out of COGSA's limitation.

Plaintiff asserts that the fair opportunity doctrine exempts this transaction from the limitations of liability typically imposed by COGSA. Even if the Charter Party is deemed to govern under COGSA, its $500 per package liability limit would not apply without the shipper being properly notified and given a fair opportunity to declare a higher cargo value. COGSA stipulates that liability is limited unless the shipper declares a higher value in the Bill of Lading or both parties agree otherwise (46 U.S.C.App. 1304(5)). To enforce the $500 limit, the carrier must show prima facie that the shipper received notice of the limitation and had the opportunity to opt out, a requirement satisfied only through bill of lading language. If the carrier meets this initial burden, the shipper must then demonstrate that such an opportunity did not exist. The court may consider additional evidence of notice and opportunity only after the carrier establishes its prima facie case. The Second Circuit has determined that a carrier can satisfy the prima facie requirement by demonstrating explicit incorporation of COGSA in the bills of lading and providing a space for declaring higher values or mentioning the $500 limitation. In this case, while the Charter Party may have incorporated COGSA, there was no provision for declaring a higher value, nor was there a specific mention of liability limitations. The Second Circuit has yet to clarify if mere references to COGSA suffice to impose its liability limits, but subsequent lower court rulings have eased the burden on carriers, allowing them to establish prima facie evidence by showing explicit mention of COGSA’s limitation or requirements for declaring excess liability in the bill of lading.

Clear and unambiguous incorporation of the Carriage of Goods by Sea Act (COGSA) by name in a bill of lading is deemed sufficient to establish that a shipper had a fair opportunity to understand liability limitations. Case law supports this, indicating that explicit incorporation allows shippers to declare excess cargo value to avoid limitations. Conversely, references to COGSA that are indirect or contingent do not provide a fair opportunity, as seen in cases where shippers must navigate complex or unclear references to different legal frameworks. Ambiguity arising from poorly drafted bills of lading is construed against the drafter.

In the current case, the court found that the bill of lading and charter party did not clearly indicate that COGSA's liability limitation applied. There was no provision for declaring a higher cargo value, nor did either document specifically mention COGSA's $500 per package limitation. The bill of lading incorporated multiple "Clauses Paramount" with conflicting provisions, including the Hague Rules as adopted by South Africa, and did not clarify whether COGSA governed the shipment. As a result, the court concluded that the plaintiff lacked a fair opportunity to opt out of COGSA’s liability limitations, given the ambiguity in the contractual documents.

Plaintiff's motion to strike the affirmative defense of limitation of liability and for summary judgment on liability has been granted, while defendant United Arab's cross-motion for summary judgment is denied. Liability issues for defendant Cargill and the determination of damages for each defendant will be resolved at trial. Claims related to the shipment destined for San Juan were settled in a separate lawsuit, and this case pertains only to the remaining shipment discharged in Tampa, New Orleans, and Houston. Cargill has not filed a motion for summary judgment, and its liability will also be addressed at trial.

The Hague-Visby Rules, which include amendments affecting liability limits based on "special drawing rights" (SDRs), have been enacted by South Africa, a fact not contested by United Arab. COGSA, the U.S. version of the Hague Rules, limits carrier liability to $500 per package unless the shipper declares a higher value, and parties may agree to a higher limit but not a lower one. The Second Circuit interprets contractual adoption of the Hague or Hague-Visby Rules as an intent to contract out of COGSA's limits. United Arab argues against the fair opportunity doctrine followed in the Second Circuit, which allows defendants to present evidence of a plaintiff’s knowledge of liability limitations only after establishing a prima facie case of fair opportunity, a position not supported by United Arab with relevant case law.