Carriage of Goods by Sea Act

Under traditional admiralty common law, ocean common carriers were held strictly liable for cargo placed in their custody. Ocean common carriers have only limited defenses, so ocean common carriers began including in their Bills of Lading (B/L) exculpatory clauses. Bills of Lading (B/L) exculpatory clauses tended to completely reverse the common law. Exculpatory clauses make it difficult for shippers to hold a carrier responsible for cargo loss or damage. Like many maritime nations, United States governments attempted to impose a balance between carriers’ and shippers’ rights through the enactment of:

  • Harter Act 1893
  • Carriage of Goods by Sea Act (COGSA) 1937
  • Federal Bills of Lading Act 1916 (Pomerene Act)

Under Carriage of Goods by Sea Act (COGSA), carrier cannot impose exculpatory clauses on a shipper. According to Carriage of Goods by Sea Act (COGSA), carrier cannot escape its statutory liabilities and responsibilities for ocean transportation of a movement by requiring shippers to agree to exculpatory clauses in Bills of Lading (B/L). Nevertheless, Carriage of Goods by Sea Act (COGSA) reserves to carriers and shippers the right to contract for certain specific conditions, reservations, or exemptions with respect to liability for custody, care, and handling of goods prior to loading on a ship and subsequent to discharge from ship. According to Carriage of Goods by Sea Act (COGSA), carrier cannot require a shipper to obtain cargo-related insurance. Carriage of Goods by Sea Act (COGSA) provides that a carrier cannot require a shipper to procure insurance for the benefit of the carrier. On the other hand, nothing in Carriage of Goods by Sea Act (COGSA) prohibits shipper from procuring insurance for its own benefit. Practically, prudent shippers always make sure that their goods are properly insured.

Under Carriage of Goods by Sea Act (COGSA), ocean carrier is not strictly liable for loss or damage to cargo. Ocean Carrier must be found to have been negligent to be held liable for such losses. Ocean Carrier can be liable for mis-delivery of goods, if ocean carrier delivers the goods to a person not entitled to receive the goods, such as a person who is not listed as the consignee on a non-negotiable bill of lading.

Ocean carrier cannot delegate its duty to load and stow the cargo on the ship. Under Carriage of Goods by Sea Act (COGSA), ocean carrier’s duty to load and stow the cargo is non-delegable. On the other hand, ocean carrier can make a contract for the charterer to pay for the cost of stevedores.

Under Carriage of Goods by Sea Act (COGSA), ocean carriers have a number of recognized defenses in the event of the loss or damage to cargo entrusted to their care:

  • defenses relating to unseaworthiness of the ship and the negligence of the ship’s crew
  • defenses relating to Acts of God like hurricanes, natural disasters and manmade events like act of war or strike
  • defenses where the shipper was at fault
  • defenses where the loss occurs despite carrier’s exercise of due care

According to Carriage of Goods by Sea Act (COGSA), ocean carrier is only liable for unseaworthiness of ship if the unseaworthiness was caused by lack of due diligence to make the ship seaworthy by the carrier before and at the beginning of the voyage. If ship has a defect which could not have been discovered through due diligence which leads to the loss or damage to cargo, carrier is not liable. Carrier is not liable:

  • when unseaworthy condition is not reasonably discoverable
  • when unseaworthy condition comes about during course of the voyage.

As with seaworthiness, carrier’s responsibility is to exercise due diligence in properly manning, equipping, and supplying the ship. However, carrier has a defense against liability if the crew members are negligent and causes a loss or damage to cargo which carrier could not have prevented through the exercise of due diligence. If ship collides with another ship due to crew member’s fault and wrong decisions in navigating, then carrier would not be liable. But, if carrier hired crew members who were improperly trained, carrier should have known that with exercise of due diligence and lack of training caused loss or damage, then carrier may be liable.

Defense of due diligence against a claim of ship unseaworthiness is available to the carrier as a matter of course. Shipper bears the initial burden of proving that loss or damage to the cargo was the result of ship’s unseaworthiness. If shipper proves the ship’s unseaworthiness, then carrier bears the burden of proving that he exercised due diligence to make the ship seaworthy before and at the beginning of the voyage. According to Carriage of Goods by Sea Act (COGSA), carrier is responsible for properly caring for the cargo on board the ship. Carriage of Goods by Sea Act (COGSA) imposes duty on the carrier to properly care for the cargo while on board the ship. Carrier is responsible to preparing holds, refrigerating and cooling chambers and all other parts of the ship in which goods are carried, fit and safe for cargo reception, carriage, and preservation. Carrier may be liable for loss or damage to cargo if it can be shown that his duty was violated, despite the availability of seaworthiness and other defenses to the carrier.

According to Carriage of Goods by Sea Act (COGSA), carrier is has a defense in the event of a ship fire. Ship owner is not liable for loss or damage to cargo on ship caused by fire, unless fire resulted from the design or neglect of ship owner.

According to Carriage of Goods by Sea Act (COGSA), carrier is has a defense if cargo is lost or damaged as a result of perils, dangers, and accidents of the sea or other navigable water. But, not every storm is peril of the sea, as courts have concluded that carriers bear a responsibility to ensure their ships are prepared for the weather conditions that might reasonably be expected during sea voyage. In order to be considered as peril of the sea, storm or wind measured on a scale known as Beaufort Scale. Beaufort Scale provides a commonly understood measure of wind force based on observed sea conditions. Beaufort Scale was developed by the English Royal Navy. Beaufort Scale ranges from Force 0 to Force 12.

According to Carriage of Goods by Sea Act (COGSA), carrier is not responsible if goods themselves have inherent defects. Carriers have defense against inherent defects known as inherent vice. Carriage of Goods by Sea Act (COGSA) provides that carrier is not responsible when damage to cargo results from wastage in bulk or weight or any other loss or damage arising from inherent defect, quality, or vice of the goods. Hence, shipper is generally responsible for insuring that the goods that require special packaging have been packed for such purposes. According to Carriage of Goods by Sea Act (COGSA), when cargo requires special conditions like refrigeration, it is the shipper’s responsibility in general to make sure that the carrier is aware of those conditions and responsibility for ensuring that the conditions are maintained generally falls on the shoulders of the carrier.

According to Carriage of Goods by Sea Act (COGSA), catch all defense is available to ocean carriers.  Carriage of Goods by Sea Act (COGSA) provides defense, known as Q Clause which grants ocean carriers a defense when the loss or damage is due to “any other cause arising without the actual fault and privity of the carrier and without the fault or neglect of the agents or servants of the carrier . . . .”

According to Carriage of Goods by Sea Act (COGSA), ocean carrier can contract away its Carriage of Goods by Sea Act (COGSA defenses. Ocean carrier can agree to take on increased responsibilities and liabilities by contract with shipper.

According to Carriage of Goods by Sea Act (COGSA), ocean carrier may lose its defenses, if the ship deviates from route. Deviation is an intentional and unreasonable change in the geographic route contracted. Deviation deprives the carrier of its defenses, if deviation is the cause of the damage or loss. If deviation in route is reasonable, like to avoid storm or to assist another ship in distress, then ship would not have engaged in deviation. Quasi-Deviation is a breach of shipping agreements other than change in geographic route to be deviations.

If cargo loss or damage is caused by multiple causes of accident, carrier bears the burden of showing that the cause of loss or damage was an aspect to which it has a defense. According to Carriage of Goods by Sea Act (COGSA), once shipper satisfies its burden of showing that the cargo was loaded in an undamaged condition and discharged in a damaged condition, carrier must show that it has a defense under Carriage of Goods by Sea Act (COGSA). If shipper can show that carrier’s negligence was contributing cause of the damage, carrier can attempt to segregate out portion of the damage due to causes for which it is not liable, from those resulting from its own negligence.

Traditionally, calculation of cargo damages is based on the loss measured against market value of the goods at the cargo’s destination.

Carriage of Goods by Sea Act (COGSA) limits carrier liability to $500 per package or customary freight unit. Generally, Bills of Lading (B/L) controls with respect to defining what constitutes package. If Bills of Lading (B/L) discloses contents of container, then container is not Carriage of Goods by Sea Act (COGSA) package. Carrier is not permitted under Carriage of Goods by Sea Act (COGSA) to seek a lower package limitation. Shipper is only permitted to recover its actual damages with $500 per package limitation is a limit, not a minimum recovery amount. Carriers are permitted to take on by contract damage limitations greater than $500 per package.

According to Carriage of Goods by Sea Act (COGSA), shipper is not stuck with According to Carriage of Goods by Sea Act (COGSA) limits of liability. Carriage of Goods by Sea Act (COGSA) requires that ocean carrier offer shipper the opportunity to be able to claim a higher limit of liability. Ocean carriers are permitted to agree to contractual provisions for damage limitations greater than $500 per package. Ocean carriers may charge more for greater liability limits, in order to cover the cost of insuring against that risk. As a result, shipper can obtain higher limits of liability, shipper bears costs of ocean carrier’s insurance for those higher limits. On the other hand, shipper can also obtain his own insurance against risks of loss and damage that would not be covered by the carrier. Hence, if shipper insists on higher liability limits, shipper ends up paying more for insurance than if shipper agreed to accept the lower limits on liability. Under Carriage of Goods by Sea Act (COGSA), modest recovery for damaged goods may appear to be unfair to the shipper, in reality it is an economically efficient way to allocate the risk of loss or damage for the cargo, with the remaining potential liability of the carrier serving as a token incentive to the carrier to exercise due care over the cargo.

According to Carriage of Goods by Sea Act (COGSA), shipper may recover damages for Delayed Delivery.

If Delayed Delivery of the cargo is due to:

  • a cause that is either permitted under Bills of Lading (B/L) like loading another cargo at intermediate ports
  • reasons beyond control of the carrier

shipper may not be able to recover for Delayed Delivery. On the other hand, if contract of carriage required delivery by certain date, or if the delayed delivery was due to an unreasonable deviation in the voyage  that exposed the cargo to additional risks, and resulting delays caused damages to the shipper, then shipper could recover, not only the $500 per package amount generally provided in Carriage of Goods by Sea Act (COGSA), but shipper’s actual losses. Furthermore, carrier and shipper can agree to provide for payment by carrier to the shipper in the event of specified delay.

Shipper establishes a prima facie case for recovery if it has evidence of damage to its goods and can present Clean Bills of Lading (B/L). Afterwards, it is up to ocean carrier to set forth one of its defenses or show that the damage was due to unseaworthiness of ship despite exercise of due diligence. Shipper can attempt to rebut claim of due diligence and the assertion of defenses or show negligence of the carrier.

Carriage of Goods by Sea Act (COGSA) imposes duty on the consignee to inspect goods for damage before taking custody and carrying them away. If delivered goods are damaged, consignee must give the carrier prompt notice that the goods have been damaged. Carriage of Goods by Sea Act (COGSA) provides that unless notice of the loss or damage is given to the carrier or its agent at the port of discharge before or at the time of the removal of the goods into the custody of the consignee, then the removal of the goods is prima facie evidence that carrier delivered the goods as described in Bills of Lading (B/L). Consignee’s notice of the loss or damage does not have to be overly specific, notice of the loss or damage only has to state the general nature of the damage or loss. If loss of damage of delivered cargo is not immediately apparent, notice of the loss or damage must be given within 3 days of the delivery. Most of the shippers hire cargo surveyors who will examine shipments on arrival for obvious damage. For example, cargo surveyors inspect agricultural cargoes and check for water damage or mold. Also, cargo surveyors carefully check amounts discharged. Failure on the part of the consignee to inspect and give notice of damage is not fatal to the shipper’s claim. Carriage of Goods by Sea Act (COGSA) states that such a failure does not affect or prejudice the right of the shipper to bring suit. But, failure to inspect and give notice of damage can make case more difficult for shipper. Carrier may be able to point to the lack of notice as evidence that the cargo was in good condition when cargo left the carrier’s custody. If shipper could introduce evidence to the contrary, shipper would need to prove that damage observed had to come from the time the cargo was in the carrier’s custody and control.

According to Carriage of Goods by Sea Act (COGSA) provides that a law case for recovery of damages to goods must be brought within 12 months of the delivery of the goods. There are two interpretations of cargo delivery:

  • Some courts interpret delivery to mean when cargo is taken off the ship, regardless of when (the consignee receives cargo
  • Some courts interpret delivery occurs only when the consignee has had a reasonable chance to inspect

According to Fifth Circuit Court of Appeals, delivery occurs when ocean carrier places cargo into the custody of whomever is legally entitled to receive cargo from the carrier. If cargo is never actually delivered, limitation period begins when cargo should have been delivered. If shipment is delayed but then delivered late and damaged, limitation period still starts when goods should have been delivered.