Statutes and Conventions on Carriers' Defenses to Cargo Liability By Jeffrey A. Weiss The Present Regime The Hague Rules/COGSA Between 1921 and 1924, representatives of the shipping world convened in order to arrive at a compromise between cargo and shipowning interests that were suitable for uniform worldwide treatment of the shipper/carrier relationship embodied in an ocean bill of lading. The result was the 1924 International Convention on the Unification of Certain Rules of Law Relating to Bills of Lading (hereinafter the Hague Rules). The United States, as well as most of the seafaring world, became parties to the Hague Rules. The U.S. Carriage of Goods by Sea Act (hereinafter COGSA), enacted by Congress in 1936, incorporated the Hague Rules into the laws of the United States, which with minor differences follow the Hague Rules verbatim. At the heart of COGSA, are 17 causes of cargo damage for which the carrier is exonerated. Most are well known to all. For example, the carrier is not responsible for cargo damage arising out of acts of God, perils, dangers and accidents of the seas, the inherent vice of the goods, fire, insufficiency of packaging, acts of war, strikes and lockouts, among others. In exchange for these defenses, the carrier promises before and at the beginning of the voyage to exercise due diligence to make the ship seaworthy, to properly man, equip and supply the ship, and make cargo spaces fit for the safe carriage and protection of cargo. The carrier must also properly and carefully “load, handle, stow, carry, keep, care for, and discharge the goods carried" ﷓ that is to say, the carrier, through its employees and agents, must work cargo in a non﷓negligent manner. Error in Management Defense One of the most controversial of the 17 defenses is the exoneration for cargo damage arising out of an error in the management of the vessel, even if it is demonstrated that the shipowner's agents, chiefly the master and the crew, were negligent. A famous case that demonstrates this defense to cargo liability is the TITANIA, a 1956 decision of the Fifth Circuit Court of Appeals. In that case, the Master ordered the Mate to go forward to fill slack deep tanks with ballast in order to give the vessel better trim during typhoon season. The manhole was left open during ballasting in order to monitor the amount of water in the tank. The seawater overflowed the open manhole at the top of the deep tank and damaged cargo within the hold. Cargo interests brought a claim against the carrier for damage to the cargo. The carrier argued that it was not responsible for the cargo damage because it arose out of an error in the management of the vessel. Cargo alleged that the damage was due to the carrier's failure to care for the cargo. The Court rejected cargo's allegation and exonerated the carrier under the error in management defense. The Court explained that: "the act of ba1lasting to trim had as its main and principal aim the general care and safety of the whole vessel to protect ship, crew and cargo” In other words, the Mate's actions were not directly aimed at preserving and protecting the cargo. If that were the case, then the carrier would have been liable for the cargo damage because of its failure to care for the cargo. The Mate aboard the TITANIA directed his actions toward the safe management of the entire vessel, a measure that even though performed in a negligent manner, gives rise to COGSA protection. Thus, even though the Mate was negligent, the carrier was not vicariously responsible for the cargo damage. Error in Navigation Defense An error in navigation is another defense that has always been contentious. Under provisions of the Hague Rules and COGSA, the carrier is not liable for loss or damage to cargo caused by the operational negligence of a competent crew in navigating the vessel, so long as the seaworthiness prerequisite is met. An incompetent crew will usually defeat the defense because the vessel is presumed unseaworthy. However, simple operational negligence, such as an accidental collision, will not establish liability for cargo damage arising out of the negligence. Historically, the grant of immunity for errors in management or navigation of the vessel was justified by the policy that once the ship is underway, the shipowner has no further control over the vessel. Do you believe that this rationale is justifiable today? The logic is sometimes criticized as anachronistic. Liability Limits Another aspect of the Hague Rules/COGSA regime that undergoes constant denunciation is the carrier's ability to limit its liability for cargo damage to $500 per package or $500 per customary freight unit for goods not shipped in packages. Years ago I represented an ocean carrier that was sued for $400,000 for damage to a helicopter shipped on board one if its vessels. The helicopter was carried from Charleston to Shanghai on a flat rack container, under a bill of lading subject to COGSA. Freight for the shipment was a lump sum $2500. It was conceded that the helicopter was damaged due to the negligence of the carrier and/or its servants during discharging operations. However, we successfully argued that the carrier was entitled to COGSA protection, specifically the right to limit its liability to $500, because the helicopter was freight rated on a lump sum basis of $2500, which constituted one “customary freight, unit" for purposes of COGSA's limitation. We also argued that the flat rack container was a package within the meaning of COGSA. However, the judge found it unnecessary to rule on that issue. Needless to say our client's P and I Club was quite pleased when a $400,000 cargo claim resulted in only $500 liability. The $500 package limitation was established in 1936 when that sum of money meant a great deal more than today. This limitation has not been increased by Congress. "Himalaya Clauses" Another controversial subject is the extension of COGSA protection to companies not a party to the bill of lading. Bills of lading will usually contain so-called 'Himalaya Clauses" which, if clearly drafted, will extend a carrier's defenses and liability limitations to certain third parties performing services on the carrier's behalf (for example, stevedores). A sample Himalaya Clause follows: "The carrier shall be entitled to subcontract on any terms the whole or any part of the handling, storage or carriage of the goods and any and all duties whatsoever undertaken by the carrier . . . every such servant, agent and subcontractor shall have the benefit of all provisions herein for the benefit of the carrier as if such provisions were expressly for their benefit ... Thus, an independent contractor, such as a stevedore, will enjoy the protections of COGSA through a Himalaya Clause set forth in the carrier's bill of lading. Why will a carrier insist on the inclusion of a Himalaya Clause in its bill of lading? Himalaya Clauses protect the carrier against indemnity claims that would be brought against them by independent contractors that were held directly responsible to cargo interests for cargo damage that occurred while performing services on behalf of the carrier. The Visby Amendments The Visby Amendments to the Hague Rules were established in 1968 to address two main problems of the original Hague Rules. These problems were: ·        the effect of inflation upon the $500 package limitation, and ·        a better definition of the term “package" given the advent of intermodal transport. The Visby Amendments, which were the subject of a 1979 protocol, provide for a package limitation of 666.67 SDR per package or unit (approximately $840 per package or unit) or 2.0 SDR per kilogram of weight, whichever is the higher (an SDR – Special Drawing Right ﷓ is a unit of account that is based upon the weighted average of a group of key currencies). The Visby Amendments also provide that where a bill of lading states the number of packages packed in a container, pallet or similar article used to consolidate goods, the number of packages ﷓ rather than the number of articles of transport ﷓ shall be considered packages for purposes of liability limitation. Arguments over what is the package for limitation purposes (for example, the 40foot container or each box within the container) are more prevalent under the original Hague Rules. Visby also eliminates the extension of limitations and defenses by Himalaya Clauses to independent contractors. Many maritime nations have ratified the Visby Amendments, including the United Kingdom. The United States is one of the more notable economic powers that has not submitted the Visby Amendments for adoption. The Hamburg Rules Many nations, including those of the lesser developed world, have historically expressed dissatisfaction with the generous protection afforded the carrier under the above regimes. . The Hague Rules and the Visby Amendments were established by the industrialized nations. Since then, the developing nations of the world have become increasingly active in their participation in international trade and transport. These countries have historically taken a skeptical attitude toward international law established without their participation. Additionally, it was the shipowner of the western nations that for the longest time, dominated the carnage of cargo to and from the developing nations. Therefore, it is not surprising that many developing nations perceived the established legal regimes as granting undue privileges upon shipowners. In 1978, under sponsorship by UNCTAD and UNCITRAL, the United Nations promoted the United Nations Convention on the Carriage of Goods By Sea. These rules are commonly referred to as the Hamburg Rules. Following the twentieth ratification in November, 1991, the Hamburg Rules went into effect. The Hamburg Rules are the first truly comprehensive codification of the allocation of risks between vessel and cargo interests since 1924. While the present list of contracting states consists principally of the less substantial maritime nations (principally African and Eastern European nations), indications are that other ratifications by major trading nations are forthcoming. Furthermore, the Hamburg Rules provide for mandatory application to bills of lading for cargo bound to or from a signatory nation. Thus, the Hamburg Rules will have some impact on most ocean carriers. Very important differences exist between the Hamburg Rules and the original Hague Rules, COGSA, and the Hague Rules as amended by Visby. Carriers that trade substantially to and from the contracting states are altering their shipping documents to reflect these differences. Perhaps the most dramatic difference is the elimination of most of the Hague Rules' defenses to cargo liability. This includes the elimination of the defenses for errors in navigation and management of the vessel. The Hamburg Rules provide an overall increase in carrier liability for lost or damaged cargo by substituting the complex legal regime described in its predecessor regimes with a presumption that cargo lost or damaged while the carrier is in charge of the goods is the carrier's responsibility. The presumption is rebuttable. However, the carrier must demonstrate that it took all measures that could "reasonably be required to avoid the occurrences and consequences." It is not entirely clear what this means and the provision is ripe for judicial interpretation. However, it is clear that burdens, above and beyond what is required by its predecessor regimes, are imposed upon the carrier by the Hamburg Rules. There are other noteworthy changes. The Hamburg Rules cover the entire time the carrier is "in change of the goods" (Hague /Visby/COGSA apply only from vessel loading to discharge with possible extensions by contractual agreement). The Hamburg Rules: ·        eliminate the extension of defenses and limitation to independent contractors under Himalaya Clauses; ·        further increase the per package limitation above what the Hague Rules, as amended by Visby, establishes (935 SDR per package or other shipping unit or 2.5 SDR per kilogram of gross weight of goods, whichever is higher); ·        provides for a two﷓year time bar for cargo claims (Hague/Visby/COGSA have a brief one﷓year statute of limitations); ·        and establishes carrier liability for delays to the delivery of the cargo. A complete discussion of all of the changes established by the Hamburg Rules is well beyond the scope of this article. However, suffice it to say that the Hamburg Rules represents a dramatic change to carrier liability. Questions arise concerning the consequences of this change in loss allocation on marine insurance rates. Supporters of the Hamburg Rules argue that total insurance costs will decrease if most of the maritime nations of the world adopt the Hamburg Rules. They argue that imposing greater liability on carriers will lead to higher standards of care, which will reduce overall cargo damage and insurance costs. Opponents reject that logic and claim that overall insurance rates will be higher under Hamburg because it is more confusing than Hague/Visby/ COOSA, less certain in its application and will lead to unnecessary and expensive litigation. The battle lines are drawn, those for change and those for status quo. Some countries are exploring the possibilities of another body of rules, that is, a compromise between the unacceptable aspects of Hague/Visby and the offensive aspects of the Hamburg Rules. China has already proposed such a solution. Certain members of our federal judiciary have asked Congress to act, and have condemned COOSA in their judicial opinions as being outmoded and unfair. What is certain is that resolution of this question will have a forcible impact on carriers, shippers and underwriters.