The U.S. District Court for the Southern District of New York recently issued an opinion that shows us how the complexity of ocean shipping arrangements can complicate the determination not only of who’s liable for lost/damaged freight, but what liability regime actually governs a claim. The transaction at issue – take out your pen and pad –involved the M/V AKILI; owned by Akela Navigation Co. and managed by Almi Marine Management; which was time chartered to Seyang Shipping; which sub-chartered her to SM China Co.; which, in turn, voyage chartered the vessel to shipper MAN Ferrostaal. Ferrostaal is in the steel import business, and required ocean transit to the U.S. of a cargo of thin-walled steel pipes manufactured in China.
Survey reports demonstrated that the freight was in good order and condition when loaded and stowed on the vessel. However, Ferrostaal’s surveyor expressed concern about the stowage plan, which provided for heavier cargo to be situated on top of the thin-walled pipes in a hold not best suited for pipes. SM China had retained authority over loading and stowage issues, although it charged Ferrostaal for the privilege, and its rep dismissed the surveyor’s concerns. The freight arrived with compression damage to the tune of some 313 grand.
Ferrostaal filed suit against the AKILI, Akela and Almi (Seyang was dismissed out because of a process serving problem). Vessel arrest was avoided by Akela’s posting a letter of undertaking with the court. First question: what law governs the claim?
The U.S. Carriage of Goods by Sea Act (COGSA) imposes a duty on carriers to properly load cargo. However, COGSA applies only to common, and not private, carriage (unless contractually adopted by the parties, which frequently is the case). The concept of “private carriage” encompasses charter parties that govern an entire voyage. The defendants, urging that COGSA didn’t apply, pointed out that, hey, the AKILI was indeed under a full-voyage time charter to Seyang at all times material.
The court didn’t buy it. Neither Ferrostaal nor any of the participating defendants were signatories to the Akela-Seyang charter party. In other words, none of the parties were parties to the charter party (sorry). SM China held itself out as a common carrier to Ferrostaal, and only voyage chartered a portion (22%) of the vessel to its shipper. And because COGSA governs, the vessel is liable in rem.
Second question: could SM China be liable for this variety of cargo damage under the voyage charter party? It argued it couldn’t be, as its contract with Ferrostaal provided that the shipper had to pay for loading and stowage. Put differently, loading and stowage, which caused the loss, weren’t part of the charter agreement; rather, they were a separately contracted service. But an agreement that the shipper has to pay for a service doesn’t nix COGSA’s provisions holding the carrier responsible for providing that service improperly. Also, it wasn’t the loading and stowage of Ferrostaal’s pipes that caused the damage; the culprit was heavier cargo placed on top of it. That was SM China’s doing alone.
Third question: what about Akela and Almi? They fared better. Neither authorized SM China to issue a bill of lading on its behalf; neither was under a statutory duty to provide safe transit of freight; and neither was in contractual privity with Ferrostaal. Also, the shipper had no basis in law or fact to assume the vessel owner and manager were parties to the shipping contract. True, an action for bailment can coexist with one under COGSA, but a maritime bailment is created only when a vessel owner has exclusive possession of a shipper’s freight. Here, it could not be said that Akela was in sole possession of Ferrostaal’s cargo.
Thus, SM China, as the voyage charterer, and the AKILI, as a vessel statutorily liable in rem, are on the hook. To proceed under COGSA, a shipper must only demonstrate a prima facie case by submitting evidence that it tendered its cargo in good order and condition, and received it in damaged or short condition upon outturn. Once that prima facie case is established, the burden of proof is shifted to the defendant (an anomaly in law) to prove it can avail itself of one or more of COGSA’s specific defenses to cargo liability. Here, the remaining defendants offered no proof of any such defense at all. Under those circumstances, summary judgment in Ferrostaal’s favor was indicated.
This factual scenario shows how multi-party shipping arrangements can produce unexpected and unintended results regarding liability. To ensure adequate marine insurance is obtained, and to avoid potential disruptions in business relationships, shipping industry participants should consider the implications of complex charter party arrangements with counsel at the outset.
Ref: MAN Ferrostaal, Inc. v. M/V AKILI, et al., 2011 WL 207968 (SDNY 2011); and COGSA, 46 USC §§1300-1315
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