Steel Coils, Inc. v. M/V Lake Marion

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES
COURT OF APPEALS May 13, 2003
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
Clerk
No. 02-30006
STEEL COILS, INC.,
Plaintiff-Appellee–Cross-Appellant,
versus
M/V LAKE MARION, her engines, boilers, etc., in rem; LAKE MARION,
INC.; and BAY OCEAN MANAGEMENT, INC., in personam,
Defendants-Appellants-Cross-Appellees,
versus
WESTERN BULK CARRIERS K/S OSLO,
Defendant-Third Party Plaintiff-Appellant-Cross-
Appellee,
versus
ITOCHU INTERNATIONAL, INC.,
Third Party Defendant-Appellee.
Appeals from the United States District Court
for the Eastern District of Louisiana
Before HIGGINBOTHAM, EMILIO M. GARZA, and DENNIS, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
This is a Carriage of Goods by Sea Act1 claim for rust damage
to steel coils which their owner alleges was caused by seawater
when shipped from Latvia to the United States on the M/V Lake
Marion. The district court awarded damages against the vessel, its
owner, Lake Marion, Inc., its manager, Bay Ocean Management, Inc.,
collectively the “vessel interests,” and the time charterer,
Western Bulk Carriers K/S Oslo. Finding no error, we affirm.
I.
The plaintiff, Steel Coils, Inc., is an importer of steel
products with its principal office in Deerfield, Illinois. It
ordered flat-rolled steel from a steel mill in Russia. Itochu,
which then owned ninety percent of the stock of Steel Coils,
purchased the steel and entered into a voyage charter with Western
Bulk for the M/V Lake Marion to import the steel to the United
States.2 Western Bulk had time chartered the vessel from Lake
Marion, Inc.3 As Lake Marion, Inc.’s manager, Bay Ocean employed
the master and crew of the vessel.
1
46 U.S.C. § 1300 et seq.
2
“A voyage charter is a contract for the hire of a vessel for
one or a series of voyages....” Citrus Mktg. Bd. of Israel v. J.
Lauritzen A/S, 943 F.2d 220, 221 n.3 (2d Cir. 1991) (internal
quotation marks omitted).
3
“A time charter is a contract to use a vessel for a
particular period of time, although the vessel owner retains
possession and control.” Id. at 221 n.2 (internal quotation marks
omitted).
2
The Lake Marion took on the steel coils at the Latvian port of
Riga between February 26 and March 2, 1997. The steel had traveled
to port by rail from the Severstal steel mill 400 miles north of
Moscow. At Riga, the hot rolled coils were stored outside, while
the cold rolled and galvanized coils were encased in protective
steel wrappers and stored in a warehouse at the port.4
After departing Riga, the vessel stopped at another Latvian
port, Ventspils, where it took on more steel coils.5 The ship
departed Ventspils on March 7, 1997 and arrived at Camden, New
Jersey, on March 28, 1997. After Camden, the ship stopped at New
Orleans and Houston. Steel Coils alleged that the coils unloaded
at New Orleans and Houston were damaged by saltwater, which
required Steel Coils to have the cargo cleaned and recoated.
II.
Steel Coils filed suit under COGSA6 against the M/V Lake
Marion in rem and against Lake Marion, Inc., Bay Ocean Management,
and Western Bulk Carriers in personam, requesting $550,000 in
damages, with a separate claim of negligence against Bay Ocean.
The vessel interests and Western Bulk filed cross-claims against
4
Evidence at trial showed that cold rolled and galvanized
coils are susceptible to corrosion if exposed to any type of
moisture, while hot rolled coils corrode only if exposed to
saltwater.
5
These coils are not the subject of the present suit.
6
46 U.S.C. § 1300 et seq.
3
each other for indemnification, and Western Bulk filed a third
party complaint for indemnification against Itochu.
After a bench trial, the district court held the defendants
jointly and severally liable to Steel Coils for $262,000, and Bay
Ocean liable for an additional $243,358.94. The court further
found that Western Bulk was entitled to indemnity from Lake Marion,
Inc. for any amount it pays to Steel Coils. It dismissed with
prejudice Lake Marion’s cross-claim against Western Bulk and
Western Bulk’s third party complaint against Itochu. From this
judgment the vessel interests appeal, and Steel Coils and Western
Bulk cross-appeal. Steel Coils’s and Western Bulk’s cross-appeals
become relevant only if we find the vessel interests’ points of
error meritorious.
III.
Defendants M/V Lake Marion, Lake Marion, Inc., and Bay Ocean
contend that the district court improperly shifted the burden to
them to prove that the steel cargo was not in good condition prior
to loading or was in undamaged condition at discharge, that it
erred in finding that they failed to exercise due diligence to
ensure that the vessel was seaworthy at the commencement of the
voyage, and that it was wrong in disregarding their defenses to
COGSA liability of peril of the sea and latent defect. They also
assert the district court should not have held Bay Ocean liable to
Steel Coils in tort separate from the COGSA claim, depriving Bay
4
Ocean of the COGSA $500-per-package limitation on damages. We find
these arguments unavailing.
IV.
In admiralty cases tried by the district court without a jury,
we review the district court’s legal conclusions de novo, and its
factual findings under the clearly erroneous standard.7 “The
clearly erroneous standard of review does not apply to decisions
made by district court judges when they apply legal principles to
essentially undisputed facts.”8
COGSA provides a complex burden-shifting procedure.
Initially, the plaintiff must establish a prima facie case by
demonstrating that the cargo was loaded in an undamaged condition
and discharged in a damaged condition.9 “For the purpose of
determining the condition of the goods at the time of receipt by
the carrier, the bill of lading serves as prima facie evidence that
the goods were loaded in the condition therein described.”10 If the
plaintiff presents a prima facie case, the burden shifts to the
defendants to prove that they exercised due diligence to prevent
the damage or that the damage was caused by one of the exceptions
7
Sabah Shipyard Sdn. Bhd. v. M/V Harbel Tapper, 178 F.3d 400,
404 (5th Cir. 1999).
8
Id. (internal quotation marks omitted).
9
Tubacex, Inc. v. M/V Risan, 45 F.3d 951, 954 (5th Cir.
1995).
10
Id.5
set forth in section 1304(2) of COGSA, including “[p]erils,
dangers, and accidents of the sea or other navigable waters” and
“[l]atent defects not discoverable by due diligence.”11 If the
defendants show that the loss was caused by one of these
exceptions, the burden returns to the shipper to establish that the
defendants’ negligence contributed to the damage.12 Finally, “if
the shipper is able to establish that the [defendants’] negligence
was a contributory cause of the damage, the burden switches back to
the [defendants] to segregate the portion of the damage due to the
excepted cause from that portion resulting from the carrier’s own
negligence.”13
A.
The vessel interests first assert that the district court
reversed the burden of proof, requiring them to demonstrate that
the goods were loaded in a damaged condition or were unloaded in an
undamaged condition instead of requiring Steel Coils to prove that
the coils were loaded undamaged and discharged damaged. These
defendants mischaracterize the district court’s decision. The
11
46 U.S.C. § 1304(2).
12
Tubacex, 45 F.3d at 954. This is true except for defendants
who argue the peril of the sea defense under section 1304(2)(c) of
COGSA. “[I]n order to establish an exception under this clause,
the ship would have to establish freedom from negligence” as well
as prove that rough weather encountered on the voyage was a sea
peril. J. Gerber & Co. v. S.S. Sabine Howaldt, 437 F.2d 580, 588-
89 (2d Cir. 1971) (internal quotation marks omitted).
13
Tubacex, 45 F.3d at 954.
6
district court properly explained that under COGSA a plaintiff must
establish a prima facie case by “proving that the cargo for which
the bills of lading were issued was loaded in an undamaged
condition, and discharged in a damaged condition.” Applying this
law the trial court determined that Steel Coils demonstrated its
prima facie case by proving that “the cargo was delivered to the
LAKE MARION in good order and condition” and “was unloaded at the
ports of New Orleans and Houston in a damaged condition.”
The district court cited specific evidence proffered by Steel
Coils to support these conclusions. In determining that the coils
were loaded in good condition, it examined “mates receipts, bills
of lading containing comments on the condition of the cargo, and a
cargo survey taken at the load port in Riga that contained
commentary about and photographs of the cargo.” It explained that
although some of these documents contained notations regarding
“atmospheric rust on the hot rolled coils and damage to the
wrapping of the cold rolled and galvanized coils,” the evidence
showed that “these conditions did not damage the coils” and were
not the result of exposure to seawater prior to embarkation.
In looking at the evidence of the coils’ unloading, the court
found that “[a]ll of the surveyors at the discharge ports testified
that the cargo was damaged when it was discharged ... and their
survey reports support their testimony.” Moreover, relying on
these surveyors’ reports, as well as those of chemists who tested
the rust on the coils, the court concluded that the rust damage was
7
a result of seawater contamination. The trial court affirmatively
rejected the testimony of the defendants’ expert, Sanchez, who
testified that the cargo was not contaminated by seawater.
The trial court correctly placed the burden upon Steel Coils
to prove a prima facie case and examined the evidence to determine
whether in fact this had been done. Although the vessel interests
couch their complained-of error as improper burden shifting, their
argument attacks the district court’s factual findings that the
cargo was undamaged before loading and damaged at unloading. They
assert that the district court wrongly determined the coils were
undamaged at loading because the bills of lading noted that the hot
rolled coils were rust stained and wet and noted that the condition
of the cold rolled and galvanized steel coils, which were encased
in steel wrappers, was unknown. They also argue that the district
court did not rely on competent evidence in determining that the
cargo was damaged at discharge.
The district court found from the evidence presented that the
notations on the bills of lading indicating rust staining and
moisture on the hot rolled coils did not affect their good
condition prior to loading. Evidence in the record supports this
conclusion. Captain Sparks, Steel Coils’s expert on carriage of
steel cargo by sea, explained that the notations regarding rust on
the bills of lading were “non-restrictive clause[s] indicating that
the goods [were] undamaged but affected by a form of atmospheric
rust normal on all mild steel surfaces which are untreated against
8
oxidation.” This atmospheric rust, which he also termed “fresh
water rust,” is caused by the storage of hot rolled coils in open
air prior to loading onto the vessel. Sparks stated that this type
of rust does not result in harmful deterioration of the material,
and only if the hot rolled coils come into contact with “an
electrolyte more aggressive than fresh water[,] e.g. saltwater,”
does permanent damage to the plating occur. Moreover, he explained
that “[i]t is not unusual for the goods to be shipped in an
apparent rusty condition and wet,” and despite the notations on the
bills of lading, all of the bills of lading were signed clean, and
therefore “all cargo when shipped was in apparent good order and
condition.”
Despite this evidence, the vessel interests argue that the
rust found on the hot rolled coils prior to loading was probably
caused by exposure to saltwater, because the coils were stored
outdoors for an indefinite amount of time in a “marine
environment.” They maintain that saltwater could have been carried
by the wind from the sea to the place at which the coils were
stored. However, as the district court noted, the hot rolled coils
loaded at Ventspils, which were also noted as being rust stained on
their bills of lading and, in accordance with custom, had likely
also been transported and stored outdoors, tested negative for
exposure to saltwater when subjected to silver nitrate tests prior
to loading. The vessel interests argue that these silver nitrate
tests are irrelevant because they were conducted at Ventspils, not
9
Riga. Nevertheless, that the hot rolled coils at Ventspils had the
same notations on their bills of lading and tested negative for
saltwater exposure prior to loading clearly bears on the
plausibility of the defendants’ theory that the pre-loading rust on
the Riga hot rolled coils was seawater rust caused by the marine
environment.
In Thyssen, Inc. v. S/S Eurounity,14 the Second Circuit
confronted similar facts. The shipper sued the carriers for rust
damage to hot rolled steel coils. However, the bills of lading
contained notations such as “rust stained,” “partly rust stained,”
and “wet before shipment.”15 The defendants urged that these
notations prohibited a finding that the coils were in good
condition upon loading. The Second Circuit disagreed, finding
“ample evidence that the steel was in good condition.”16 For
instance, experts the district court found credible testified that
the clauses on the bills of lading indicated steel of good
condition. One expert testified that “[t]he Port ... had used
these standardized notations for approximately thirty years to
refer to nondamaging, atmospheric rust that does not affect the
value of steel. [The expert further] testified that steel is
considered to be in ‘prime’ condition when the bills of lading
14
21 F.3d 533 (2d Cir. 1994).
15
Id. at 536.
16
Id. at 538.
10
include these standardized notations.”17 On the basis of this
evidence, the Second Circuit affirmed the district court’s
determination that the shipper had made out a prima facie case.18
We conclude that the district court in this case did not
clearly err in finding that the hot rolled coils were in good
condition prior to loading. That the rust noted on the coils was
atmospheric and nondamaging in nature, and that the moisture on the
coils also did not affect their good condition is supported by the
evidence.
As for the cold rolled and galvanized coils, the vessel
interests argue that the bill of lading notation that the condition
of these coils was unknown fatally undermined Steel Coils’s attempt
to prove a prima facie case of good condition. For this argument
they rely on Caemint Food, Inc. v. Lloyd Brasileiro Companhia de
Navegacao, in which the Second Circuit reasoned:
Although a clean bill of lading normally constitutes
prima facie evidence that cargo was in good condition at
17
Id.18
Id. Similarly, in Couthino, Caro & Co. v. M/V Sava, 849
F.2d 166 (5th Cir. 1988), cold rolled and galvanized steel coils
were damaged, allegedly by seawater. Although we did not take up
the question of whether the plaintiff had presented a prima facie
case that the coils were in good condition upon loading, we did
summarize the district court’s findings on this issue. Id. at 168.
We explained that although the bills of lading contained numerous
exceptions noting rust and packaging damage, the district court
nonetheless found the coils to have been in good condition prior to
shipment, because the shipper’s expert opined that the coils were
loaded in mill condition and the bills of lading described only
“light atmospheric rust,” not “a problem affecting the coils.” Id.11
the time of shipment ... it does not have this probative
force where ... the shipper seeks to recover for damage
to goods shipped in packages that would have prevented
the carrier from observing the damaged condition had it
existed when the goods were loaded.19
Caemint held that a plaintiff could not recover for corned beef it
claimed was ruined during the voyage because it could not present
evidence as to the condition of the corned beef, which was inside
metal containers, before shipment.20
We have similarly stated that “[w]here because of the
perishable or intrinsic nature of the commodity, the internal
condition is not adequately revealed by external appearances, cargo
may have a considerable burden of going further to prove actual
condition.”21 That is not the case here. Captain Sparks testified
that although the wrappers of the cold rolled and galvanized coils
loaded at Riga were wet due to condensation, there was no evidence
of “drip-down” or “run-down” of moisture to the coils and no
mention in the bills of lading of “white rust or white oxidation
marks,” which are normal preshipment clauses indicating possible
rust damage to the coils. He concluded that “[t]he amount of
moisture on those coils must have been negligible” and “[t]here was
no damage to those coils.”
19
647 F.2d 347, 352 (2d Cir. 1981).
20
Id. at 355.
21
United States v. Lykes Bros. S.S. Co., 511 F.2d 218, 223
(5th Cir. 1975) (internal quotation marks omitted).
12
The evidence at trial showed that, had the cold rolled or
galvanized coils been damaged by rust, their outer wrappers would
have revealed it. Because the wrappers had no indication of rust,
and the moisture on the outside of the wrappers was not dripping
down into the coils, it was not clearly erroneous for the district
court to conclude that the cold rolled and galvanized coils were in
an undamaged state prior to loading.
The vessel interests further assert clear error in the finding
that the steel coils were damaged upon unloading. The contention
is that seawater could not have entered through the hatches because
the top-stowed cargo unloaded at Camden had no seawater damage, and
that perhaps the steel coils rusted on the way from the ship to
their ultimate inland destinations.
The vessel interests’ arguments are belied by a wealth of
evidence relied upon by the district court that at unloading the
cargo was damaged by seawater rust. For instance, the McLarens
Toplis survey conducted in New Orleans noted “rust stains to coils
to varying extents,” and “[r]andom tests on the rust stained areas
with a solution of silver nitrate proved positive” with respect to
chlorides, “indicating water ingress.” The McLarens Toplis survey
in Houston similarly stated that “[t]he cargo was examined and
found to be extremely rusty,” and that “[e]xtensive silver nitrate
tests were conducted with strong positive results. It is our
opinion [that] the ... cargo came into contact with sea water, most
likely through the poorly maintained hatch covers....”
13
The vessel interests have not cited any evidence in the record
that disputes these conclusions. Their argument that the district
court “simply accepted plaintiff’s survey reports and testimony en
masse as setting forth the proper measure of damages, and that the
damage was proven at discharge” implicitly acknowledges that
substantial evidence in the record supports the district court’s
conclusions as to the damage evident at unloading.
B.
Facing a prima facie case, a defendant may escape liability if
it shows that it exercised “due diligence ... to make the ship
seaworthy, and to secure that the ship is properly manned,
equipped, and supplied, and to make the holds ... and all other
parts of the ship in which goods are carried fit and safe for their
reception, carriage, and preservation.”22 The vessel interests urge
that even if Steel Coils carried its initial burden, they exercised
due diligence in making the vessel seaworthy and thus should have
escaped liability.
In making its determination that the defendants did not
exercise due diligence, the district court correctly noted that
seaworthiness is defined as “reasonable fitness to perform or do
the work at hand,”23 and explained that, under COGSA, the carrier’s
22
46 U.S.C. § 1304.
23
See Farrell Lines, Inc. v. Jones, 530 F.2d 7, 10 n.2 (5th
Cir. 1976) (internal quotation marks omitted).
14
duty to exercise due diligence in making the vessel seaworthy is
nondelegable.24 It concluded that the ship was not reasonably fit
to perform the work at hand – shipping steel coils – because the
hatches were not maintained in good condition and had not been
tested for watertightness before embarkation, which had resulted in
an ingress of seawater during the voyage, and because the holds,
which had previously carried a cargo of rock salt, had not been
washed out with fresh water before the steel was loaded.
The vessel interests dispute these findings, arguing that the
surveys done prior to embarkation show that the hatches were in
watertight condition. They further deny any obligation to test the
watertightness of the hatch covers prior to the voyage, because by
the voyage charter that obligation belonged to Itochu. Finally,
they deny any contractual obligation to wash the holds with fresh
water instead of Baltic Sea water.
Although preload surveys conducted at Riga found the hatches
sufficient, one of the surveys also noted deficiencies in the hatch
covers. The SKS International Cargo Service survey found that
“[t]he hatch-cover tightening rubbers are deformed (pressed inside)
more or less everywhere. Also[,] the ends of these rubbers are
pressed out or glued out on the extremes of hatch-covers.” The
report further detailed that “[t]he condition of hatch trackways
24
See Jamaica Nutrition Holdings, Ltd. v. United Shipping Co.,
643 F.2d 376, 379 (5th Cir. 1981) (“COGSA ... imposed a
nondelegable duty on [the carrier] to exercise due diligence to
make the vessel fit for carriage of the cargo shipment.”).
15
and coamings [was] found as satisfactory but rusty and with the
traces of corrosion. The compression bar is partly bent (deformed)
... due to wear and tear.”
Captain Sparks explained that the description of the hatches
found in the SKS survey “indicates that the required maintenance
was not performed.” Moreover, he opined that the preload
surveyors’ conclusion that despite these deficiencies the hatches
were watertight is not reliable because the “watertight integrity
of the hatches was not determined [by a hose test or ultrasound
test], as is customary with steel cargoes in the industry prior to
commencement of the sea voyage.”
That the hatches were insufficiently maintained is further
supported by the observations of the Seaspan Marine Consultants
surveyor who inspected the hatches after the vessel docked in
Camden. He noted that the rubber gaskets of the hatch panels had
deep grooves in them, were worn out in several places, were heavily
rusted and bent or waved in certain areas, and that parts of the
gaskets were missing or cut in some places.
In line with these observations, the McLarens Toplis surveyor
in Houston reported after inspection of the vessel:
The vessel appeared to be very poorly maintained. Our
inspection of the hatch covers noted them to be in
extremely poor condition. We noted large amounts of rust
flaking off at the slightest of touches. We noted the
compression bars, channel bars, and general areas around
the hatch coaming to be severely dented, gouged, and
holed to varying degrees. We noted the hatch packings to
be gouged, missing, and the general area around the hatch
packings to be wasted severely. We also noted the
16
channel areas to be bent. Severe drip downs were noted
in all hatches.
It is our opinion [that] the cargo hatches were
poorly maintained and appeared to have severe sea water
ingress in all cargo hatches that were of concern at this
port.
Captain Sparks concluded from these descriptions that “when
the vessel commenced the voyage from the Baltic Sea to Camden the
hatches were defective owing to lack of maintenance,” and as a
result they “were not weather tight.” Although the vessel
interests take issue with the competency of this evidence and argue
that the preload survey reports should have been given more weight
than Captain Sparks’ “hindsight” opinions, there was sufficient
evidence to support the district court’s conclusion that the
hatches were inadequately maintained and it was not clearly
erroneous.
The vessel interests also argue that they were not responsible
for conducting a watertightness test on the hatch covers prior to
embarkation, because pursuant to the voyage charter Itochu was
supposed to “make an inspection of holds and test watertightness of
hatches.” This argument ignores the COGSA carrier’s nondelegable
duty to ensure that the vessel is reasonably fit to carry steel
cargo.
In Jamaica Nutrition Holdings, Ltd. v. United Shipping Co.,
Ltd., we rejected a similar argument.25 There the trial court had
25
643 F.2d 376 (5th Cir. 1981).
17
found the defendant carrier liable for failing to adequately clean
out the pipes of the vessel before loading its cargo of soybean
oil.26 The ship’s previous cargo had been molasses. Prior to
loading the oil, a surveyor had visually inspected the ship’s pipes
and tanks and determined that they were suitable for carrying the
oil.27 After the ship reached its destination, another surveyor
examined the oil and found it contaminated with molasses.28 Based
on this evidence, the district court concluded that the defendant’s
failure to clean adequately the vessel’s tanks, pipes, and pumps
rendered the vessel unseaworthy.29
On appeal, the defendant argued it should escape liability
because the voyage charter party provided: “Vessel to clean tanks,
lines and pumps to Charterer’s surveyor’s satisfaction.”30 It
contended that because the charterer’s surveyor had inspected the
vessel’s tanks and found them suitable, the carrier’s obligation to
26
Id. at 377-78.
27
Id. at 378.
28
Id.29
Id.30
Id. at 379 (emphasis added).
18
the shipper was fulfilled.31 However, we concluded otherwise,
reasoning:
COGSA, whether applicable by its own force or by virtue
of the clause paramount, imposed a nondelegable duty on
[the carrier] to exercise due diligence to make the
vessel fit for carriage of the cargo shipment. This duty
was not abrogated by its covenant also to clean the
vessel to the charterer’s satisfaction. By permitting
molasses residue to remain in the system, [the carrier]
violated its duty.32
Because the duty to exercise due diligence to ensure the
seaworthiness of a vessel is nondelegable, the district court here
did not reversibly err in concluding that the vessel interests
failed to exercise due diligence in part because they did not test
the watertightness of the hatches.
Finally, the vessel interests maintain that they had no
contractual duty to rinse out the holds with fresh water. Again we
remind that the vessel interests need not be contractually bound to
perform a task for its omission to be a lack of due diligence.
They do not dispute that before transporting the steel coils the
vessel had transported coal, and before that, rock salt. They also
do not deny that before loading the coils onto the ship the holds
were washed out with Baltic Sea water, which has a higher salt
content than fresh water. When asked whether the holds should have
31
Id.; see also id. at 379 n.4 (“COGSA allows a freedom of
contracting out of its terms, but only in the direction of
increasing the shipowner’s liabilities, and never in the direction
of diminishing them.” (internal quotation marks omitted)).
32
Id. (internal citations and footnote omitted).
19
been washed out with fresh water before loading the steel cargo,
Captain Sparks explained, “as chlorides are, even in a reduced
form, so devastating to steel surfaces, ... we always advocate that
after washing out the holds, the final wash-down should be done
with fresh water.”
The district court’s finding is supported not only by Captain
Sparks’s opinions but also by silver nitrate tests conducted both
at Riga and Ventspils after the holds were washed out that revealed
the presence of chlorides in the holds. Even after these tests
proved positive for salt, the crew did not wash the holds out with
fresh water. The results of the silver nitrate tests show not only
that the crew should have washed the holds out with fresh water to
begin with but also that the crew did not take the necessary
precautions to protect the cargo even after they knew salt was in
the holds. We therefore can find no error in the district court’s
determination that the crew’s failure to wash out the holds with
fresh water was a lack of due diligence.
C.
The vessel interests contend that even if the district court’s
finding on due diligence can be sustained, the coils became damaged
due to causes for which COGSA liability is excepted.
1.
Under section 1304(2) of COGSA, “[n]either the carrier nor the
ship shall be responsible for loss or damage arising or resulting
from ... [p]erils, dangers, and accidents of the sea or other
20
navigable waters.”33 At trial the defendants argued that a storm
encountered by the M/V Lake Marion on its transatlantic voyage
constituted a “peril of the sea” and caused the saltwater to enter
the holds. The ship’s captain testified that he encountered very
rough weather during the journey, with strong winds that
occasionally reached Beaufort Scale Force 10 and, at their peak,
reached force 11 to 12 for approximately two hours on March 26.
The trial judge rejected the peril of the sea defense for two
reasons. First, such weather conditions were foreseeable in the
North Atlantic during the late winter months. Second, no damage to
the vessel resulted from the voyage, and the only conditions noted
in the surveys at the discharge ports indicated preexisting damage
as a result of prolonged neglect.
The vessel interests contend that it is irrelevant that the
conditions encountered by the M/V Lake Marion were foreseeable,
because with their force 12 winds they were severe enough as to
have been unpreventable even if foreseeable, like hurricane
weather. They claim these conditions resulted in significantly
more movement of the hatch covers than is normal.
The vessel interests rely upon J. Gerber & Co. v. S.S. Sabine
Howaldt, a case from the Second Circuit which concluded that
similarly rough conditions were a peril of the sea.34 The shipper
33
46 U.S.C. § 1304(2)(c).
34
437 F.2d 580, 588 (2d Cir. 1971).
21
had chartered the vessel to carry steel products across the
Atlantic.35 Upon unloading, the steel showed extensive signs of
rust damage from exposure to seawater.36 The defendants claimed the
peril of the sea defense.37 The district court found the weather
conditions through which the ship sailed were not a peril of the
sea, and awarded damages to the shipper.38 The Second Circuit
reversed, finding that the conditions were sufficiently perilous.39
The vessel in J. Gerber faced days of force 9 and 10 winds,
and over ten hours in which the winds reached force 11 and 12.40
It had to heave to and remain in that state for twelve hours.
These fierce winds twisted the ship’s hull and caused her to roll
violently and shudder and vibrate “as she was pounded and wrenched
by the heavy seas.”41 After the storm abated, the crew found damage
to the ship in several areas: a piece of equipment was torn off the
deck, leaving a hole; a porthole in the galley was smashed; a
35
Id. at 583.
36
Id.37
Id.38
Id. at 583-84.
39
Id. at 584.
40
Id. at 584-86.
41
Id. at 586.
22
gangway was destroyed; two winch covers were ripped off; and the
vessel had several dents.42
In determining whether the storm constituted a peril of the
sea, the court found of great importance “the wind velocity in
terms of the Beaufort Scale.”43 Although it explained that “[n]o
exact Beaufort Scale wind force can be referred to as the dividing
line which will determine those cases in which a peril of the sea
is present and those, below that mark, in which it is not,” it
found “few cases in which the winds are force 9 or below ... in
which there has been found to have been a peril of the sea, whereas
there are many where the force has been 11 or above.”44
It also cautioned that wind velocity is “a rough measure at
best and not sufficient standing by itself.”45 There are other
indicia.46 Assuming a seaworthy ship, they include the “nature and
extent of the damage to the ship itself, [or] whether or not the
ship was buffeted by cross-seas which wrenched and wracked the hull
and set up unusual stresses in it.”47 Looking to these other
considerations, the court concluded that the damage to the cargo
42
Id.43
Id. at 596.
44
Id.45
Id.46
Id.47
Id.23
was caused by a violent peril of the sea that, “through wrenching
and twisting the vessel, set up torsions within the hull which
forced up the hatch covers and admitted sea water to the holds.”48
The vessel interests argue that we should reach the same conclusion
as the J. Gerber court, because the wind force encountered by the
ship in that case was in line with that faced by the Lake Marion.
Although the conditions experienced by both vessels contain
some parallels, they were not identical. In J. Gerber the ship
faced force 11 to 12 winds for approximately ten hours;49 the Lake
Marion only encountered such winds for two hours. Captain Sparks
testified that because the ship’s exposure to those winds was
short, the wave height likely did not build up to that normally
encountered with force 11 to 12 winds. He explained, “[s]ea
condition builds up slowly as the wind increases” and therefore
“the wind force is way ahead of it.” As a result “it’ll take three
to four hours to build up to what it should be.” Although with
force 12 winds the accompanying sea height is typically fourteen
meters, Sparks opined that the highest it reached with the Lake
48
Id. at 597.
49
Id. at 584-85 (“By 0200 on December 23rd [the wind force]
went up to force 11 with gusts at force 12 in ‘hurricane-like rain
squalls.’ By 0500, due to the criss-cross running swells and high
breaking seas, the ship was badly strained in her seams and sea
water was breaking over forecastle deck, hatches and upper works.
It was necessary for the vessel to heave to and she so remained for
12 hours. At 0900 the force 11 wind with gusts in squalls of force
12 steadied at a constant hurricane force of 11/12 or about 63
knots, which continued to a time between 1200 and 1300.”).
24
Marion was eleven and a half to twelve meters before the wind force
started to reduce.
The vessel interests also overlook the fact that the strength
of the wind is but one among several factors that should be
considered in determining the applicability of the peril of the sea
defense. As emphasized by J. Gerber, the extent of damage to the
vessel is also important. The vessel in that case sustained a
great deal of damage, while the captain of the Lake Marion reported
none. Captain Sparks confirmed that the ship was not damaged by
the weather, as the only problems noted in the discharge surveys
referred to preexisting damage as a result of prolonged neglect.
We, like the district court here, find telling that the ship
sustained no reported damage as a result of the stormy conditions.
As one court has noted,
[t]he absence of damage to the vessel itself is always an
important consideration. Indeed, the courts have often
required that the structural damage be substantial....
[I]f there was no structural damage or if the damage was
limited to one fitting, such as a hatchway or a
ventilator cowl, which led to damage to the cargo, courts
will find with reluctance that the damage resulted from
a peril of the sea.50
We sustain the district court’s refusal to find the rough
weather encountered by the M/V Lake Marion to have been a peril of
the sea given the ship’s lack of injury. We cannot conclude on
50
Kane Int’l Corp. v. MV Hellenic Wave, 468 F. Supp. 1282,
1286 (S.D.N.Y. 1979) (internal quotation marks and citations
omitted).
25
this record that the noted storm, even with its force 12 winds,
constituted a peril “of an extraordinary nature or aris[ing] from
irresistible force or overwhelming power” which could not “be
guarded against by the ordinary exertions of human skill and
prudence.”51
2.
The vessel interests also urge another exception to COGSA
liability. COGSA exempts any damage caused by “[l]atent defects
not discoverable by due diligence.”52 Defendants argued at trial
that a crack found in Hold No. 1 while the vessel was docked in New
Orleans, which ruined 123 coils in that hold, was a latent defect
that could not have been discovered through due diligence. The
trial judge rejected the contention that the fracture was a latent
defect.
“A true latent defect is a flaw in the metal and is not caused
by the use of the metallic object” or by “gradual deterioration.”53
Such a defect “is one that could not be discovered by any known and
51
J. Gerber & Co., 437 F.2d at 588 (internal quotation marks
omitted).
52
46 U.S.C. § 1304(2)(p).
53
Waterman S.S. v. U.S. Smelting, Ref. & Mining Co., 155 F.2d
687, 691 (5th Cir. 1946).
26
customary test.”54 The ship owner has the burden to demonstrate
that the defect was not discoverable.55
The vessel interests posit that since a latent defect is one
not discoverable in the ordinary course of surveys or inspections,
and the M/V Lake Marion’s holds were inspected during the loading
process, the crack was by definition a latent defect. However,
Marine surveyor Captain Rasaretnam inspected the crack and
determined that it was old, and had existed in some form since
crews installed a doubling plate at the fracture site. The
district court concluded that the crack was an extension of an old
crack, and at least part of it had been present since the doubling
plate had been put in place. Moreover, Captain Sparks hypothesized
that the crack was caused by gradual deterioration, not by a defect
in the metal. We cannot conclude that the district court clearly
erred in finding that the fracture was old and in rejecting the
latent defect defense.
V.
In addition to its COGSA claims, Steel Coils asserted a
general maritime negligence claim against Lake Marion, Inc.’s
managing agent, Bay Ocean. The claim is that Bay Ocean, as vessel
manager, hired the crew and was responsible for maintaining the
vessel’s condition, and that it was negligent in maintaining and
54
Id.55
Id.27
testing the hatch covers, failing to repair the crack in Hold No.
1, and in washing the holds with seawater. Bay Ocean contended at
trial that Steel Coils could not assert a negligence claim against
it outside of COGSA.
The district court disagreed, holding Bay Ocean liable in tort
for its negligence separate from the COGSA claim, and finding Bay
Ocean liable for the entire amount requested by Steel Coils because
Bay Ocean was not entitled to claim the $500-per-package limitation
on liability found in COGSA. These are conclusions of law and we
conduct a de novo review.
“One of COGSA’s most important provisions limits a [vessel or]
carrier’s liability to five hundred dollars ... per package unless
a higher value is declared by the shipper.”56 The term “carrier”
includes “the owner or the charterer who enters into a contract of
carriage with a shipper.”57 We have held that as long as an entity
is a party to the contract of carriage, it is a carrier. In Sabah
56
Mannesman Demag Corp. v. M/V Concert Express, 225 F.3d 587,
589 (5th Cir. 2000); see 46 U.S.C. § 1304(5) (“Neither the carrier
nor the ship shall in any event be or become liable for any loss or
damage to or in connection with the transportation of goods in an
amount exceeding $500 per package lawful money of the United
States, or in case of goods not shipped in packages, per customary
freight unit, or the equivalent of that sum in other currency,
unless the nature and value of such goods have been declared by the
shipper before shipment and inserted in the bill of lading. This
declaration, if embodied in the bill of lading, shall be prima
facie evidence, but shall not be conclusive on the carrier.”).
57
§ 1301(a).
28
Shipyard Sdn. Bhd. v. M/V Harbel Tapper,58 we stated, “[t]o
determine whether a party is a COGSA carrier, we have followed
COGSA’s plain language, focusing on whether the party entered into
a contract of carriage with a shipper.... [A] party is considered
a carrier under COGSA if that party ‘executed a contract of
carriage.’”59
It is undisputed that Bay Ocean is not explicitly named in the
applicable contract of carriage, the voyage charter between Western
Bulk and Itochu.60 Nevertheless, Bay Ocean maintains that it was
a party to the time charter between Lake Marion, Inc. and Western
Bulk, and therefore Western Bulk acted as Bay Ocean’s agent, as
well as Lake Marion’s, in entering into the voyage charter with
Itochu. The district court rightly concluded that Bay Ocean was
not a carrier.
58
178 F.3d 400 (5th Cir. 1999).
59
Id. at 405 (internal quotation marks omitted).
60
The district court concluded that the voyage charter party,
rather than the bill of lading, was the applicable contract of
carriage because if a bill of lading is held by the same shipper
that executed the voyage charter party, the charter party governs
the transaction. See In re Marine Sulphur Queen, 460 F.2d 89, 103
(2d Cir. 1972). The trial court found that Itochu, in entering
into the voyage charter, acted as Steel Coils’s agent. Since Steel
Coils was the shipper that held the bills of lading and was a party
to the voyage charter by virtue of its agency relationship with
Itochu, the voyage charter party was the contract of carriage.
Steel Coils did not argue in its original brief that Itochu was not
its agent, and thus waived the argument. See Peavy v. WFAA-TV,
Inc., 221 F.3d 158, 179 (5th Cir. 2000).
29
The time charter states that it is between “Lake Marion, Inc.
– Managers: Bay Ocean Management, Inc.” and Western Bulk. However,
the charter party only recites the duties and rights of the time
charterer, Western Bulk, and the owner, Lake Marion, Inc. It does
not bind Bay Ocean in any way. Bay Ocean’s presence in the
contract is simply as a signing agent of the owner, as evidenced by
the signature line, which provides that Bay Ocean signed the time
charter for Lake Marion Inc. “As Agents Only.” Because the time
charter party was solely between Western Bulk and Lake Marion,
Western Bulk did not enter into the voyage charter party with
Itochu on Bay Ocean’s behalf, but rather only on Lake Marion’s, and
Bay Ocean’s only status in this case is as an agent of the carrier,
Lake Marion, Inc.
In Robert C. Herd & Co. v. Krawill Machinery Corp.,61 the
Supreme Court clarified that agents of a carrier do not qualify for
the $500-per-package limitation. The precise question presented
was whether the limitation “also appl[ied] to and likewise
limit[ed] the liability of a negligent stevedore.”62 The
stevedore’s employees had, while loading the plaintiff’s cargo onto
the vessel, dropped one of the cases, which contained a press
weighing nineteen tons, into the harbor. After the plaintiff filed
suit against the stevedore, the stevedore asserted that its
61
359 U.S. 297 (1959).
62
Id. at 298.
30
liability was limited to $500 by COGSA.63 In determining whether
the package limitation applied, the Supreme Court first looked to
the language and legislative history of COGSA to determine whether
Congress intended to limit the liability of “negligent agents of a
carrier.”64 It observed:
The Act is clearly phrased. It defines the term
“carrier” to include “the owner or the charterer who
enters into a contract of carriage with the shipper.” It
imposes particularized duties and obligations upon, and
grants stated immunities to, the “carrier.” Respecting
limitation of the amount of liability for loss of or
damage to goods, it says that “neither the carrier nor
the ship” shall be liable for more than $500 per package.
It makes no reference whatever to stevedores or agents.65
Moreover, “[t]he legislative history of the Act shows that it was
lifted almost bodily from the Hague Rules of 1921,” which “do not
advert to stevedores or agents of a carrier,” and “[t]he debates
and Committee Reports in the Senate and the House upon the bill
that became the Carriage of Goods by Sea Act likewise do not
mention stevedores or agents.”66 The Court concluded that nothing
in the language or the legislative history of the Act either
“expressly or impliedly indicates any intention of Congress to
regulate stevedores or other agents of a carrier, or to limit the
63
Id. at 298-99.
64
Id. at 301.
65
Id. (citations omitted).
66
Id.31
amount of their liability for damages caused by their negligence.”67
Despite this language in Herd, Bay Ocean argues that even if
it is nothing more than an agent of the carrier it may avoid
liability altogether on Steel Coils’s separate negligence claim
because COGSA is the exclusive remedy for suits for damage to
cargo. However, in a similar case, Citrus Marketing Board of
Israel v. J. Lauritzen A/S,68 the Second Circuit held that a
plaintiff may sue a ship’s manager in tort for damage to cargo and
that COGSA does not govern such an action. The Citrus Marketing
court rejected the manager’s argument and the district court’s
holding that COGSA controlled the claim, explaining that COGSA only
applied to disputes between shippers and carriers.69 Relying on
Herd, the court concluded that COGSA did not preclude a separate
action against the manager.70 It explained, however, that a
Himalaya Clause,71 which extends a carrier’s rights under COGSA to
67
Id. at 301-02.
68
943 F.2d 220 (2d Cir. 1991).
69
Id. at 222.
70
Id. at 222-23.
71
The Himalaya Clause included in the bill of lading in Citrus
Marketing provided:
Benefit to Third Parties. Every agent or employee of the
Carrier or Shipowner and every independent contractor who
performs any part of the services provided by the Carrier
or Shipowner, including the vessel’s officers and crew,
stevedores, shore side employees, draymen, crane and
other machinery operators, shall have the same rights,
32
agents of the carrier, might apply to save the manager from
liability and remanded that issue for the district court to
consider at trial.72 In finding that COGSA did not prohibit Steel
Coils’s negligence claim against Bay Ocean, the trial judge relied
upon Citrus Marketing.73
privileges, limitations of liability[,] immunities and
powers provided for the Carrier by this contract, by
[COGSA], or by any other statute or regulation, the
foregoing contract provisions being made by the Carrier
and Shipowner for the benefit of all other persons and
parties performing services in respect of loading,
handling, stowing, carrying, keeping, caring for,
discharging, and delivering the Goods or otherwise.
Id. at 221.
72
Id. at 223-24; see also Cerro Sales Corp. v. Atl. Marine
Ent., 403 F. Supp. 562, 568 (S.D.N.Y. 1975) (holding that a
vessel’s manager was “not covered by the limitations of COGSA
available to a carrier, and ... may be fully liable for its acts of
negligence”).
73
The trial judge also relied upon Associated Metals and
Minerals Corp. v. Alexander’s Unity MV, 41 F.3d 1007 (5th Cir.
1995). In that case, we explained that while “COGSA governs
certain aspects of claims for damages to cargo and provides
carriers with certain defenses,” it does not “preclude claims in
tort for negligent damage to cargo.” Id. at 1017. The district
court here interpreted Alexander’s Unity as holding that COGSA does
not prohibit separate negligence claims. However, whether a
noncarrier may be sued in tort outside of COGSA was not broached by
the Alexander’s Unity court, which instead dealt with the question
whether a shipper’s cause of action under COGSA against the vessel
in rem for damage to steel cargo was properly categorized as
sounding in tort or contract. Id. at 1014-17. If the claim was
“for damage arising out of maritime tort,” it was entitled to
preferred maritime lien status. Id. at 1011-12. The defendant
argued that COGSA provided the plaintiff’s exclusive remedy for
damage to cargo, and that, under COGSA, a plaintiff’s claims sound
only in contract. Id. at 1013. We rejected the defendants’
argument, explaining that although COGSA certainly applied to the
claim at issue, which was between a shipper and a vessel, “the Act
33
Bay Ocean charges that the district court’s ruling that Bay
Ocean cannot take advantage of the $500-per-package limitation
“ignores the reality of maritime commerce,” because it is common
for one-vessel corporations such as Lake Marion, Inc., who have no
employees, to act solely through their managing agents. It also
argues that this result will “allow shippers to circumvent not only
the package limitation, but all of COGSA, when contracting with a
vessel with a separate managing agent.” However, Bay Ocean chose
to separate itself from Lake Marion by binding only Lake Marion to
the time charter. In doing so Bay Ocean chose that only Lake
Marion would become a carrier for purposes of COGSA.74
does not abrogate the long-standing rule of admiralty allowing
certain cargo claims to sound both in tort and in contract.” Id.
at 1016. Therefore, the court discussed only the proper
categorization of the plaintiff’s COGSA claim, not whether tort
claims against noncarriers for damage to cargo could fall outside
of COGSA.
However, Alexander’s Unity also does not hold, as Bay Ocean
contends, that a shipper can never set forth a tort claim for
damage to cargo against a noncarrier outside of COGSA. Although it
quotes a statement from St. Paul Fire & Marine Insurance Co. v.
Marine Transportation Services Sea-Barge Group, Inc., 727 F. Supp.
1438, 1439 (S.D. Fla. 1989), that COGSA provides an “exclusive
remedy, barring all other theories of liability, including theories
of negligence,” it quotes it in the context of discussing a claim
for cargo damage against a vessel, not against a noncarrier.
Alexander’s Unity, 41 F.3d at 1017. Moreover, a plain reading of
St. Paul makes clear that it was only explaining that, when COGSA
applies, which is in the context of a shipper’s suit against a
carrier or vessel for cargo damage, it provides the exclusive
remedy. See St. Paul, 727 F. Supp. at 1442. It did not reason
that a shipper cannot sue a noncarrier outside of COGSA.
74
Bay Ocean also ignores the availability of a Himalaya
Clause.
34
We agree with the Second Circuit that a noncarrier can be held
liable in tort outside of COGSA.75 Steel Coils’s negligence action
against Bay Ocean was not subject to the COGSA package limitation.
VI.
For these reasons, we AFFIRM the district court’s judgment.76
75
Neutax, S.A. v. Global Freight Services, Inc., 2002 A.M.C.
2576 (S.D. Fla. 2002), does not change our conclusion. Although
Bay Ocean submitted this case after oral argument on the basis that
it constituted further pertinent authority with regard to this
issue, it does not address whether COGSA is the exclusive remedy
for a shipper who wishes to sue a noncarrier for damage to cargo.
See id.76
We do not take up the issues presented in either Steel
Coils’s or Western Bulk’s cross-appeals. Both Steel Coils and
Western Bulk wished the court to address their cross-appeals only
if we found the vessel interests’ points of error meritorious.
35