Amoco Transport Company v. S/s Mason Lykes, Etc. v. Cumberland Marketing International, Inc., Intervenors-Appellants. Northwestern National Insurance Company v. Amoco Transport Co., Etc., Third-Party Lykes Bros. Steamship Co., Inc., Third-Party China Steel Corporation v. M/v Mason Lykes, Etc.

Citations: 768 F.2d 659; 1986 A.M.C. 563; 1985 U.S. App. LEXIS 21253Docket: 83-2219

Court: Court of Appeals for the Third Circuit; August 16, 1985; Federal Appellate Court

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The United States Court of Appeals, Fifth Circuit, reviewed the case involving Amoco Transport Company and the S/S MASON LYKES, where cargo owners sought recovery for duplicate freight charges resulting from a collision between the two vessels. The collision occurred on April 1, 1980, when the MASON LYKES, navigating in dense fog, collided with the outbound AMOCO CREMONA. The trial court attributed 90% fault to the MASON LYKES and 10% to the AMOCO CREMONA, with both vessels suffering significant damage.

Following the incident, Lykes Bros. Steamship Co. Inc. unilaterally decided to abandon the voyage, deeming a 60-day repair estimate unreasonable for cargo interests, despite the cargo not being physically damaged. Consequently, the full freight was charged for the original route to the Far East, and cargo owners incurred a second freight charge to ship their goods from Galveston to their intended destination. They filed suit against both vessel owners for recovery of this extra charge, and their claims were consolidated with the ongoing litigation between Amoco and Lykes, which ultimately settled, leaving only the cargo owners' claims for trial. The district court ruled against the cargo interests, leading to this appeal, where the appellate court determined that valid claims had been asserted against both Lykes Bros. and Amoco, resulting in a reversal and remand of the case.

One of the core tenets of American maritime law is that freight charges for ocean carriers are only considered earned if the goods are delivered to their destination. However, parties may agree that freight is earned upon loading, irrespective of delivery. Even with such agreements, carriers do not possess an unconditional right to abandon a voyage and still retain the freight. When deciding to abandon a voyage, carriers must exercise sound judgment, considering the interests of both the ship and the cargo, and must maintain a balance when these interests conflict.

The evaluation of whether a carrier's decision to abandon a voyage is reasonable involves several factors: (1) the information available at the time of the decision; (2) efforts to gather additional reliable information; (3) attempts to consult shippers for guidance; (4) the existence of any shipper instructions; (5) whether the circumstances prompting abandonment were due to the carrier's fault; and (6) the feasibility of completing the voyage on the current or an alternate vessel, despite potential additional costs.

In the case of Lykes Bros., the trial judge found that their decision to abandon the MASON LYKES voyage was reasonable, allowing them to retain the freight as earned. This determination is a mixed question of fact and law, subject to broad appellate review. Following a collision with the AMOCO CREMONA, the MASON LYKES, loaded with 2,352 tons of cargo, was unable to continue without repairs. It was towed to Galveston, where extensive damage was reported, including significant structural issues. The vice president of maintenance estimated that repairs would take approximately 60 days, prompting management discussions about the voyage's future while a formal damage survey and shipyard inquiries were initiated.

On April 5, Lykes began unloading cargo from the MASON LYKES, and by April 8, decided to abandon the voyage and issued a letter to cargo owners offering to rebook their cargo on the HOWELL LYKES for an additional freight charge. This letter was the first communication post-collision and did not explore the cargo owners' views on the estimated 60-day repair timeline or seek their instructions regarding the cargo before unloading. Although one cargo owner inquired about leaving the cargo on the MASON LYKES for delivery after repairs, Lykes clarified that the letter constituted a formal abandonment, precluding this option without an additional freight payment. Cargo unloading finished on April 10, with storage in Galveston at the cargo owners' risk and expense.

On April 10, Lykes completed a field survey and distributed bid specifications, receiving three bids by April 12 for the necessary repairs. All bids projected completion by mid-June, coinciding with Lykes' obligation to deliver the MASON LYKES to the Military Sea Lift Command under a prior charter. The bids included completion by June 16 at costs of approximately $2,149,000 and $2,859,000, and a third bid from Newport News offering completion in 28 days for $1,806,249 or in 50 days for $1,668,000. Lykes opted for the $1,668,000 bid, sending the vessel to Newport News, where repairs were ultimately completed by June 14. Testimony indicated that timely completion could have been achieved by May 29 had Lykes insisted, and that the quicker 28-day option was feasible if selected.

Most cargo owners accepted the reshipment offer on the HOWELL LYKES, while others used different vessels to ship their cargo. All were required to pay full freight for both the MASON LYKES voyage and the subsequent delivery to the Far East. 

Lykes' unilateral decision to abandon the voyage and retain the freight was deemed lacking in reasoned judgment and not adequately balanced between ship and cargo interests. At the time of the abandonment decision, Lykes had limited information, including an oral damage report and the estimated repair time. Additional days would have provided more detailed repair information and allowed for meaningful input from cargo owners. The bids indicated that repairs could have been completed in 28 days for a slightly higher cost than the chosen 50-day option.

Lykes was required to consult cargo interests regarding the reasonableness of a 30-to-60-day delay, rather than assuming it would be deemed unreasonable. This assumption led to nearly $700,000 in costs for the cargo owners. Lykes should have focused on delays for cargo already loaded, as cargo not yet lifted could have been shipped on other vessels without liability to Lykes. To meet its obligation to balance interests between ship and cargo, Lykes could have transferred the cargo to the HOWELL LYKES without imposing a full second freight charge. The decision to abandon the voyage was driven more by Lykes' financial interests—retaining full freight and avoiding charter breaches—than by concern for the cargo owners. Continuing the voyage with the HOWELL LYKES would not have increased delays or costs. The district court attributed 90% fault for the collision to the MASON LYKES, which undermines the reasonableness of Lykes' abandonment decision. Lykes failed to contact shippers to discuss their preference between delay and additional costs, demonstrating a disregard for cargo interests.

Regarding recovery from Amoco, the district court found that the AMOCO CREMONA was 10% at fault but ruled that the cargo interests could not recover freight damages due to the Robins Dry Dock precedent, which limits recovery to cases involving physical damage. This decision is disputed, as the current case aligns more closely with The TOLUMA than with Robins Dry Dock, suggesting the cargo interests may have a viable claim for recovery.

In *Robins Dry Dock*, a vessel suffered negligent damage during maintenance, delaying its return to service. Although the vessel was chartered and the charter hire was suspended, the time charterer sued the dry dock for damages related to the loss of use. Justice Holmes, for a unanimous court, denied recovery, establishing that a tort against one party does not automatically create liability to another party with a contractual relationship to the injured party. This principle has been interpreted to mean that economic losses from unintentional maritime torts are unrecoverable unless there is physical damage to property in which the claimant has a proprietary interest, as reaffirmed in *State of Louisiana ex rel. Guste v. M/V TESTBANK*.

In *The TOLUMA*, a collision between the TOLUMA and SUCARSECO resulted in damages to both vessels, but only the TOLUMA required repairs. Despite the TOLUMA's partial fault, a bill of lading allowed its owners to charge cargo interests for unloading and storage costs incurred due to the collision. The Supreme Court upheld the cargo interests' right to recover these costs from the negligent vessel's owners, emphasizing the shared nature of the maritime adventure and that the expenses directly stemmed from the collision. The Court clarified that such expenses, while subject to general average sharing, were caused by the collision and constituted damages suffered by the cargo owners, thus entitling them to recovery. The inclusion of these costs in the damages for division between the vessels was also affirmed, indicating that the claim of the cargo owners was not derivative but rooted in their own participation in the common adventure.

Chief Justice Hughes, writing for a unanimous court, clarified that this case differs from Robins Dry Dock, emphasizing that it does not involve making a tortfeasor liable to a party merely because of a contractual relationship with an injured person. The case involves both cargo and the ship being endangered due to the negligence of the vessel in question. The court noted that under the 'Jason clause', both the vessel and cargo share expenses incurred due to the tort, which Sucarseco cannot contest as being unrelated to the tort itself.

The concept of a common adventure is well-established, as noted in Benedict on Admiralty, indicating that the cargo and vessel are bound together in the venture. The bills of lading for the MASON LYKES confirm a common adventure between the vessel and cargo owners, similar to the TOLUMA case, as they contain a 'Jason clause' that allocates unloading, loading, and storage expenses among participants. The freight earned clause further underscores this shared risk.

The court concluded that the MASON LYKES and its cargo owners were engaged in a common venture, with damages from the collision with the AMOCO CREMONA arising directly from that incident. Lost freight is akin to other costs associated with the TOLUMA case, as it represents damages directly linked to the collision. The court argued that Robins Dry Dock is not applicable here; without the freight earned clause, Lykes would not have retained the freight. A vessel can recover lost freight from a negligent party if a collision obstructs cargo delivery, classifying the loss as an economic harm of the damaged vessel’s owner.

The court acknowledged concerns about unlimited recovery in negligence cases, referencing legal scholars who argue that while physical harm has limited repercussions, economic harm can trigger extensive financial consequences best managed through insurance or business planning.

The cargo owners' claim against Amoco is characterized as an equitable subrogation of Lykes' rights, ensuring no double recovery occurs. Subrogation limits recoveries to one loss, eliminating the risk of multiple recoveries. The cargo owners seek compensation solely for actual out-of-pocket expenses directly linked to the collision, not for speculative or remote losses. The freight earned clause shifts liability from Amoco to the cargo owners, allowing them to assert their claim based on this equitable principle as supported by relevant case law.

The cargo interests can pursue damages from both Lykes and Amoco, as they have valid claims against each. Due to Lykes' unreasonable decision to abandon the voyage, the cargo interests are entitled to recover the full amount of retained freight from Lykes. They may also recover the forfeited freight but can only do so once. If they recover full damages from Amoco, Amoco can seek to apportion these costs between the vessels. Conversely, if damages are collected from Lykes, Lykes can factor the lost freight into the damage apportionment. The court reverses and remands the case to determine the actual freight paid by the cargo interests for the aborted voyage and to enter judgment for the appellants, including any appropriate interest and costs.

Clause 10 of the bill of lading grants the Carrier extensive authority in situations that may pose risks such as capture, seizure, or damage to the ship or cargo. The Carrier can require the shipper to take delivery of goods at the port of shipment; if the shipper fails, the Carrier may warehouse the goods at the shipper's risk and expense or discharge them at any safe location. The Carrier has the discretion to change the voyage route, including the right to discharge goods at any place and retain them until deemed advisable. Such actions, including discharge and forwarding of goods, do not require prior notice and constitute complete delivery, releasing the Carrier from further responsibility. Any additional services provided by the Carrier may incur reasonable extra compensation, and if the voyage duration increases, the shipper or consignee must pay additional freight, which will be a lien on the goods. The Carrier can also transfer goods to other vessels or arrange alternative transportation without notice, and these actions are considered part of the contract voyage, not deviations. Additionally, most cargo was reshipped aboard the HOWELL LYKES on May 5, while cargo from two bills of lading was reshipped on the RUTH LYKES and ZOELLA LYKES, departing Galveston on June 6.

Clause 16 of the bill of lading stipulates that freight charges are based on the actual gross intake or discharge weight, or alternatively, on the shipper's provided details, subject to the Carrier's right to verify those details through examination of the goods. If discrepancies are found, the shipper is responsible for any related costs. Full freight is required for damaged goods, and freight is considered fully earned upon shipment regardless of payment status or circumstances affecting the voyage. In cases of voyage interruption, forwarding costs fall to the goods. All charges must be settled in the specified currency without deductions, and the Carrier retains a lien on the goods for unpaid charges, enforceable through sale without notice. Both the shipper and consignee are jointly and severally liable for all freight charges and obligations under this clause.

A carrier cannot invoke a freight-earned clause if the abandonment of a voyage is due to its own fault. This principle is supported by multiple cases, including Schirmer Stevedoring Co. Ltd. v. Seaboard Stevedoring Corp. and Mitsubishi Shoji Kaisha Ltd. v. Societe Purfina Maritime. Courts have differentiated these instances from others where the fault was not navigational negligence, arguing that barring freight collection in cases of navigational negligence would contradict the Carriage of Goods by Sea Act (COGSA), which generally limits a carrier's liability for such negligence. However, it is established that without a specific contractual provision, a carrier cannot collect freight if it fails to deliver goods, a rule that COGSA does not alter. COGSA allows carriers to limit liability for their negligence only as permitted by the Act. Therefore, any clause in a bill of lading that permits freight collection despite the carrier's failure to deliver due to its negligence is an impermissible limitation of responsibility. The document also notes that fault from the carrier is relevant in evaluating the reasonableness of abandoning a voyage. Additional factual details include the timeline of events regarding the voyage and the financial aspects related to cargo shipment, repair costs, and charges related to the bill of lading. Clause 15 of the bill outlines the shared responsibility for losses or expenses in the event of an accident, regardless of the carrier's liability.