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LAW OF ADMIRALTY.

Updated: Aug 16

CARGO DAMAGE LAW: HISTORICAL BACKGROUND

General Background


Special protection should be afforded by a cargo owner who shipped his goods by a marine carrier, it was believed at common law; he was prevented, by geographic remoteness, from closely supervising the passage of his goods and he was particularly susceptible to collusion between dishonest carriers and thieves. A harsh rule evolved for the protection of cargo owner: the carrier was held strictly liable for cargo damage or loss which occurred in the course of the conveyance. Only damage or loss caused by acts of Gods, acts of enemies of the State, or defects or infirmities in the goods themselves was exempted from the purview of this rule.

For avoiding liability and to minimize this role of insurers for cargo damage or loss, carriage began to use the bill of lading as a vehicle. By virtue of their superior bargaining power, carriers were able to force cargo owners to accept bills of lading containing exculpatory clauses which essentially negated the carriers’ responsibility for cargo. Parties who handled the documents were unable to ascertain their rights and liabilities because of the lengthy and cumbersome bills of lading; “bankers were in doubt as to their security when discounting drafts drawn against bills of lading, cargo underwriters had not known the risks which they covered when insuring goods, and carriers and shippers were in constant litigation.” Even after carefully scrutinising a clause in the bill of lading by a cargo owner, he could be shocked by the judicial interpretation of the language of the clause.

Members of large British shipping interests initiated this practice of inserting innumerable broad clauses exculpating carriers from liability for cargo damage or loss. As a result, neither British law makers nor courts were particularly concerned with the troubles of the cargo owners. This influence was felt in the United States where a large percentage of the export business was in British hands.


The United States legislature had a slow pace in attempting to restore this situation by relieving cargo owners of some of their disproportionate responsibility for goods shipped by sea. The Harter Act of 1893 was the first legislative response to this problem. Although, the Harter Act seemed to be an adequate solution but practically it did not perform well. Ocean bills of lading continued to contain many onerous exceptions from liability. Nearly every kind of damage or loss could be circumscribed by some well-drafted clause. Judicial interpretation encompassed the remedial effect of the Harter Act. It was not until the 1936 passage of the Carriage of Goods by Sea Act (COGSA), COGSA rendered ocean bills of lading more uniformly, that an effective legislative solution to the problem of inequitable division of risk-bearing between shipper and carrier was affected.


The Harter Act: General Provisions


The Harter Act was essentially a compromise between the conflicting interests of the carriers and shippers. Some of the common law obligations were recognized by the Harter Act and made it unlawful for an ocean bill of lading to depreciate these specific obligations: a carrier could not contract out of its duty to put vessel in seaworthy condition or to use care with respect to the cargo. On the contrary, the carrier which had fulfilled these duties was exempted from liability for damage or loss caused by faults or errors in navigation or in the management of the vessel, perils of the sea or other navigable waters, acts of God, act of public enemies, inherent defect of the goods carried, acts or omissions of the cargo owner, saving or attempting to save life or property at sea, and seizure under legal process.


Harter Act: Duty to provide Seaworthy Vessel-Causation; Due Diligence; Burden of proof.


Causation. Section 3 of the Harter Act provides in part:


“If the owner of any vessel transporting merchandise or property to or from any port of the United States shall exercise due diligence to make said vessel in all respects seaworthy and property manned, her owner or owners, agent, or charterers, shall become or be held responsible for damage or loss resulting from faults or errors in navigation or in the management of said vessels.”


This section, read literally, states that the carrier may claim exemption from liability for damage or loss occasioned by “faults or errors in navigation or in management” of the vessel if the carrier has used “due diligence” to make the vessel seaworthy; seemingly, no casual connection between the cargo damage or loss and the ship’s unseaworthiness need be demonstrated.


The 1933 Supreme Court decision in The Isis provides support for the contention that the exoneration clause of the Harter Act is not operative unless due diligence has been exercised to make the carrier’s ship seaworthy in all respects. On the basis of a finding of unseaworthiness at the inception of the voyage, the Court exempted the cargo owner from contributing to general average expense, as required by a Jason Clause in the bill of lading. The carrier was not permitted to invoke the protection of Section 3 of the Harter Act. Although a bent rudder was the cause of the unseaworthiness, and no casual connection was demonstrated between this defect in the ship and the disaster occasioning the necessity for a general average sacrifice, the Court staunchly defended the placing of such an onerous burden on the carrier: a uniform rule eliminating the need for proving causation would put an end to controversy when the casual relationship as uncertain or disputed. The Court further buttressed its position by drawing parallels to marine insurance law which made any unseaworthiness grounds for forfeiture of a contract.


Due Diligence. The Harter Act did not establish an exacting standard by which the due diligence to make a vessel seaworthy was to be measured; the detailing of the scope of the duty to make seaworthy was left to judicial decision. The Court of Appeals for the Second Circuit, for example, determined that after a ship collided with a wall, the mere visual inspection of a cargo port by the carrier without moving the cargo constituted a failure to use due diligence to make the vessel seaworthy. This breach of statutory duty prevented the carrier from claiming the Harter Act exemption for an error in management which caused cargo damage. In Erie & St. Lawrence Corp. v. Barnes-Ames Co., the carrier had neglected to test a steering mechanism in the manner prescribed by the manufacturer’s instructions, and consequently the ship stranded. The District Court for the western District of New York ruled that conduct amounted to a failure to exercise due diligence to make the vessel seaworthy.

From the examples cited above, and from other more recent cases, it can clearly be deduced that the duty to exercise due diligence was not pro forma; the carrier was held to an extremely high standard of care. Such a stringent standard was necessary in light of the latitude of the exoneration for errors in management and navigation permitted the carrier by the Harter Act; a lesser standard would work too strongly to the disadvantage of the shipper, a party who had no control over the seaworthiness of the vessel.

As per the Harter Act, the duty of exercising due diligence to make vessel seaworthy related specifically to the inception of the voyage; events causing unseaworthiness and occurring after the ship left port were classified as errors in navigation for management and, as such, did not prevent the carrier from claiming exemption from liability related or unrelated cargo damage or loss. On the other hand, the Supreme Court ruled in International Navigation Co. v. Farr & Bailey Mfg. Co. that the term “management” could not be applied to the voyage: no statutory exemption from liability would be granted for an event which occurred before the ship left port; such event would be classified as a failure to exercise due diligence to make the ship seaworthy. In Ralli v. New York & T. S. S. Co., a subsequent similar case, the same reasoning led the Court of Appeals for the Second Circuit to conclude that Section 3 of the Harter Act, the exemptions section, “applies only to a vessel after the voyage has commenced, and cannot be invoked by an owner to relieve him from liability for loss of cargo through the careening and sinking of a vessel at the pier before she was fully loaded.”


Again, it was ruled that the cause of the loss- a watchman’s failure to adjust the vessel’s lines to permit her to drop with the tide- amounted to a failure to use due diligence to make the vessel seaworthy.

Burden of Proof. It has been established, in The Wildcroft, that the Harter Act places an affirmative burden of proving due diligence to make the ship seaworthy on the carrier; seaworthiness will not be found as a presumption of law. While agreeing with the Court of Appeals that the vessel Wildcroft had been seaworthy at the inception of the voyage in question, the Supreme Court reversed the lower court on the issue of presumptions, nothing that in Harter Act cases there is neither “the necessity nor the propriety of resorting to presumptions.” It was reasoned by the court that existence of seaworthiness is a matter peculiarly within the carrier’s knowledge and because the Harter Act imposes an affirmative duty to furnish a seaworthy vessel, proof of seaworthiness must be offered by the carrier.

In some respects the burden of proof rules under the Harter Act proved particularly burdensome for the shipper. As noted above, the burden of proving that the vessel was seaworthy at the inception of the voyage (or that due diligence was exercised to make the vessel seaworthy) was borne by the carrier who was claiming the benefit of a Harter act exemption from liability. It was established as a general rule, however, that if the type of cargo damage or loss suffered was within a bill of lading exception, it was the shipper’s burden to establish that the damage resulted from unseaworthiness by reason of lack of due diligence, negligence in the care and custody of the cargo, or another of the statutory prohibitions of Sections 1 and 2 of the Harter Act. For the vast majority of shippers, those who did not have personal representatives on board the ship, the burden of proof was often difficult, and sometimes impossible, to sustain.


Harter Act: Present Day Applicability


The Carriage of Goods by Sea Act (COGSA) has superseded the Harter Act but the latter is still applicable to coastwise trade unless the parties stipulated for COGSA. For the time period following discharge of cargo from the ship and prior to its delivery, the Harter Act is presently applicable; this coverage during the unloading period continues until proper delivery has been made. Unless port customs or regulations exist, it has been held that proper delivery is a delivery at a fit and customary wharf. In Isthmian Steamship Co. v. California Spray Chemical Corp., for example, proper delivery was not completed as soon as the cargo left the ship’s tackle and was received by a lighterman. Thus, the Harter Act controlled while the cargo was in the hands of the lighterman.


From the Harter Act to the Carriage of Goods by Sea Act


The Harter Act was a useful compromise between the intersects of the carrier and those of the shipper: it required the carrier to exercise great care to make his vessel seaworthy and, in return, rewarded the carrier who maintained a seaworthy vessel by exempting him from liability for certain cargo damage and loss. One of the major deficiencies of the Act was the conditional nature of the exceptions clause; “it never operated to exonerate the carrier unless due diligence had been used to make the ship seaworthy in all respects, regardless of casual connection.” The Act also was not an effective solution to the problem of burdensome exculpatory clauses in bills of lading. Although the Act enumerated clauses that could not be inserted into bills of lading, it did not establish any positive rules of law. Carriers were still free to write exculpatory clauses governing those areas not expressly forbidden by the Harter Act.


The first draft of the Hague rules was promulgated by the International Law Association in 1921 in an effort to bring uniformity to ocean bills of lading. A draft of these rules was further developed at the International Maritime Conference held in Brussels in October of 1922. In 1923 the work of this conference was completed and the final draft of the Hague Rules was formulated. The Hague Rules were incorporated into the bills of lading of countries which adopted the Rules of Law.


American influence on the formulation of the Hague Rules was significant; Judge Charles M. Hough of the United States Court of appeals for the Second Circuit chaired the committee which drew up the first draft to the international convention. as noted in congressional testimony , the Hague Rules are “commonly accepted as having been the American law put into code form by [America’s] leading maritime admiralty lawyer and sold to other people of the world by [the United States] delegation.


Despite this United States involvement in the promulgation of the Hague Rules, and despite the fact that the Hague Rules were well-received by the international community, it was not until the 1936 enactment of the Carriage of Goods by Sea Act (COGSA) that the terms of these rules, in a revised form, became American statutory law, A number of bills intended to serve the same purpose as COGSA were introduced in Congress at earlier dates, but the competing interests of parties to be affected by the legislation- carriers, shippers, insurers and bankers- prevented agreement on any bill. Each concern wished to obtain legislation which would be beneficial to its own interest and which would, at the same time, preserve any advantages that existed at the common law.


The enactment of COGSA was catalysed by three events:


1) The 1933 Supreme Court decision in the Isis which put an onerous burden of proof in the shipper in cases in which the cargo damage or loss was within the scope of a bill of lading exception;

2) The United States Chamber of Commerce meeting which was well-attended by parties interested in the proposed legislation (except ship owners) and at which clarifying amendments to the Hague Rules resolving most of the prior disagreements were drafted; and

3) The 1935 decision by the Senate to ratify the Hague Rules bereft of the compromise provisions which had been hammered out by negotiating with the competing interests involved.

This proposed treaty was awaiting final ratification during the Senate and House hearing on COGSA, and members of Congress believed that it was imperative that COGSA be on the statute books to supplement the treaty when it took effect. The strong support for COGSA in 1935 can also be attributed to its success as a compromise between the competing interests of carriers, shippers, insurers and bankers.


Basic Difference between the Harter Act and the Carriage of Goods by Sea Act


COGSA differs from and improves on the Harter Act and the common law in several important respects. COGSA has not, however, completely superseded the Harter Act. As noted in Section 14, the Harter Act is applicable to coastwise trade unless the parties otherwise stipulate and to the time periods before loading and after discharge of cargo.

The “exceptions” clause constitutes the chief difference between the Harter Act and COGSA. Under the Harter Act the carrier is never exempted from liability for cargo loss unless he has exercised due diligence to put and maintain the ship in a completely seaworthy constitution if unseaworthiness is found the carrier cannot invoke the Harter Act exoneration clause, even if no connection exists between the event causing the damage or loss and the unseaworthiness. On the other hand, if the cause of the cargo damage or loss is one enumerated in the exceptions clause, COGSA “always operates to exonerate the carrier unless due diligence has not been used in some respect proximately causing or contributing the [damage or] loss”


Thus, COGSA provides a positive rule of law and eliminates the rigid Harter Act-Isis rule which required no casual connection between the failure to exercise due diligence and the damage for which the carrier sought exemption from liability.


The list of exemptions has been greatly expanded by COGSA from liability designated in the Harter Act. Under COGSA a carrier can be exonerated from liability for damage or loss occasioned by, for example, acts of war, fire, quarantine restrictions, strikes or lockouts, riots, latent defects not discoverable by due diligence, and any cause “arising without the actual fault or privity of the carrier.” No such exemptions appear in the Harter Act.


COGSA explicitly abolished the Harter Act burden of proof rule established by the Supreme Court in the Isis decision. Under COGSA the burden of providing freedom from fault is always “on the person claiming the benefit of [an] exception;” in other words, the carrier must bear the burden of proof and no bill of lading clause can operate to shift this burden to the shipper.


Another important difference between COGSA and the Harter Act was COGSA’s effect on ocean bills of lading. While the Harter Act permitted carriers to include many differing exculpatory clauses in bills of lading, COGSA required substantial uniformity. The uniformity led, in turn, to simplification of these documents, thus realising one of the purposes of the original Hague Rules. The net result of this simplification was improved business conditions; shippers were better able to determine their rights, and carriers, their liabilities.


COGSA also established positive rules of law in other areas where varying bill of lading clauses had set the standard under the Harter Act. For example, $500 was established as the minimum valuation for “packages” or “customary freight units” of cargo; previously, amounts as low as $100 had been approved in bill of lading clauses. Bill of lading exculpatory clauses had therefore been drafted to permit the carrier to deviate widely from its itinerary without incurring any liabilities to the shipper; COGSA, however, made any deviation for the purpose of loading or unloading cargo or passengers prima facie unreasonable.


Finally, COGSA permitted a one-year period in which a shipper could bring suit. Pre-COGSA decisions had accepted substantially shorter limitation periods, periods as short as 60 days. Carriers considered this extension of the limitations period their greatest compromise on COGSA, contending that discovery of evidence to support an exemption from liability concerning an event which had occurred one year before the initiation of suit would be extremely difficult.



Author: Navin Kumar Jaggi

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