Ocean Bills of Lading: Past, Present and Future
by John M. Daley, Esq. (November 2009)
Note: Part V. of this article has been superseded by the U.S. Supreme Court's Decision in Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp., 130 S. Ct. 2433 (2010)
In this article, I shall--
• set forth a very brief overview of how the modern day ocean bill of lading came to be;
• describe the sources of existing law upon which all of us must rely in representing our clients in disputes arising out of ocean bills of lading;
• discuss a few of the major areas of dispute in litigation arising out of ocean bills of lading;
• describe two recent decisions which illustrate the ongoing dispute over the effectiveness of a Himalaya clause in a claim arising out of a loss arising in the course of inland carriage under a multimodal ocean bill of lading; and
• highlight a few provisions of the UNCITRAL’s recently adopted "Rotterdam Rules," which constitute an attempt to "modernize" the legal regime which applies to ocean bills of lading.
II. A Very Brief History of the Modern Ocean Bill of Lading
Although "bills of lading" were in general use by the 16th century, these bills were merely an appendage of the charter party and contract of carriage until the mid- to latter part of the 18th century. See Kozolchyk, Evolution and Present State Of The Ocean Bill of Lading From a Banking Law Perspective, § 3, 3.2, The Sea Waybill and the Straight Bill of Lading, 23 J. Mar. L. & Com. 215 (Apr. 1992).
At that point, however, the ocean bill of lading was finally recognized as document of title and negotiable instrument. The recognition of the bill of lading as a negotiable document enabled sellers to ensure collection of the purchase price from the buyer by sending the original bill lading to a bank in or near the destination for collection of the purchase price. Upon payment of the purchase price, the bank would endorse the original bill of lading and provide it to the buyer, who could then present the bill to the carrier to collect his goods. See BII Finance Co. v. U-States Forwarding Servs. Corp., 95 Cal. App. 4th 111, 118-119, 115 Cal. Rptr. 2d 312, 317 (2d Dist. 2002).
Until the 1960’s, most ocean bills were issued as "negotiable" bills of lading. By the 1960’s however, the container revolution had began, and an increasing percentage of goods were being transported as "consolidated" shipments which were being handled by freight forwarders and non-vessel owning common carriers. In part for this reason, and probably also because of the increasing use of electronic communications (including facsimiles), the use of the ocean bill of lading as a negotiable document of title began to decrease. By the 1990’s the majority of ocean bills of lading were issued as non-negotiable "straight" bills of lading.
The use of terminology with respect to ocean bills of lading confusing. Depending upon the country, law, treaty, or context, a negotiable ocean bill of lading can be referred to as an "Ocean Bill of Lading," a "Marine Bill of Lading," or an "Order Bill of Lading." Non-negotiable ocean bills of lading are sometimes referred to as a "Sea Waybills," and sometimes as a "straight" ocean bills of lading.
Although the term "document of title" is often used to refer only to a negotiable bill of lading, it can also properly be used to describe a non-negotiable ocean bill of lading for some purposes (e.g., under COGSA, discussed below).
In this article, I shall use the term "ocean bill of lading" to refer to both types of bills of lading.
III. Existing Statutes and Treaties Relevant to the Content, Interpretation and Enforceability of Ocean Bills of Lading in the United States.
Under the common law, common carriers, including ocean carriers, were held liable for all loss of or damage to the goods except those resulting from an Act of God or the public enemy. By the late 19th century, however, ocean carriers were attempting to limit their liability by inserting stipulations in the bills of lading against losses resulting from unseaworthiness, bad stowage, and negligence.
Accordingly, in 1893, Congress enacted the Harter Act (46 U.S.C. § 190 et seq.)., which (1) required owners or masters of vessels transporting merchandise from or between ports of the United States and foreign ports to issue a bill of lading or shipping document describing the goods its quantity and apparent condition and (2) made unlawful clauses which relieved the master or owner from liability for (a) negligence or fault or (b) the obligation to make the vessel seaworthy or for careful handling and stowage.
In 1936, the Harter Act was, for the most part, replaced by the Carriage of Goods by Sea Act (COGSA), which is the United States’ version of the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading (the Hague Rules), which was adopted in Brussels in 1924. COGSA is currently set forth at 46 USC § 30701 note. However, the Harter Act still applies to (1) domestic ocean carriage (e.g., from port to port in the mainland U.S. or between Alaska, Hawaii, Puerto Rico to the mainland U.S.) and (2) the duties, responsibilities and liabilities of ocean carriers "prior to the time when the goods are loaded on or after the time they are discharged from the ship."
In 1916, Congress passed the Bills of Lading Act (also known as the Pomerene Act). Act of Aug. 29, 1916, Ch. 415, 39 Stat. 538. In 1994, this law was repealed and replaced by a new Bills of Lading Act. See 49 USC § 80101 et seq. The Bills of Lading Act applies to bills of lading issued by any common carrier for the transportation of goods between states or between a state and a foreign country or between places in the same state if it is through another state or foreign country. The Bills of Lading Act does not apply to intrastate shipments, nor does it apply to import shipments. 49 USC § 80102.
The Bills of Lading Act specifies the difference between a negotiable and non-negotiable bills of lading, prescribes the form and requirements for the negotiation and transfer of negotiable bills of lading, and gives carriers the right to eliminate liability for misdescription and/or the alleged non-receipt of a specified kind, quantity, number or weight of goods by using phrases such as "shippers load and count," "said to contain" and "said to weigh" in the bill. See 49 USC § 80113(b).
Although the Bills of Lading Act does not apply to import shipments, COGSA provides that the bill of lading is "prima facie" evidence of the receipt by the carrier of the number of packages or quantity or weight and apparent order and condition of the goods described on the bill of lading.
The Shipping Act of 1984 required common carriers of cargo between the United States and a foreign country by water to file tariffs with the Federal Maritime Commission (FMC). However, the Ocean Shipping Reform Act of 1998 (OSRA), which amended the Shipping Act of 1984, eliminated the requirement to file tariffs with the FMC. The Shipping Act, as amended, is published 46 USC §§ 40101-41309.
Under OSRA common carriers (including NVOCC’s, which are Non-Vessel Operating Common Carriers) are required to publish their tariffs, including a sample of their bills of lading or contract of affreightment, in an automated system which is available for viewing by interested parties.
The FMC maintains separate lists of licensed VOCC’s (Vessel Operating Common Carriers) (at http://www.fmc.gov/home/VesselOperatingCommonCarriers.asp) and OTI’s (Ocean Transportation Intermediaries, which includes both NVOCC’s and ocean freight forwarders) (at http://www2.fmc.gov/oti/) on its web site. The FMC web site also includes a page which provides the web site addresses at which the published tariffs of VOCC’s and NVOCC’s may be found.
OSRA also permits both VOCC’s and NVOCC’s (since 2005) to enter into private service contracts and arrangements with shippers. Although the these contracts and agreements are required to be provided to the FMC, most of the terms are not published on the FMC’s web site and remain confidential. If the shipments in issue are covered by such an agreement, the bill of lading may serve solely as a receipt for the goods, and not as a contract of carriage.
IV. Common Issues in Litigation Arising Under Ocean Bills of Lading.
In this section, I shall describe a few of the issues that arise frequently in litigation arising under ocean bills of lading. A more thorough discussion concerning these and other issues may be found in Goods in Transit. Although it is a bit out of date, I also recommend a 1997 article entitled "An Overview of the Considerations Involved in Handing a Cargo Case," by Professor Michael A. Sturley, 21 Mar. Law. 263 (Summer 1997).
A. What is The Proper Forum for Filing an Action Under a Bill of Lading?
This is a question every plaintiff counsel should ask before filing an action, and this is one of the first questions defense counsel should ask when he or she is called upon to defend a lawsuit arising under an ocean bill of lading. The answer to this question requires asking several other questions.
1. Does the Bill Have a forum selection clause?
In some cases, this question can be answered by looking at the terms of the bill of lading, which may specify one or more forums in which the action must be filed. Although there was once a split of authority on this issue in the federal courts, the U.S. Supreme Court, in Vimar Seguros Y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 115 S. Ct. 2322, 1995 AMC 1817 (1995) upheld the validity of a clause which required that the dispute over the bill of lading be arbitrated in Japan.
Although the Sky Reefer decision did not explicitly discuss the enforceability of a forum selection clause for litigation of disputes, it seems clear that Sky Reefer makes forum selection clauses enforceable as well. See, e.g., Pasztory v. Croatia Line, 918 F. Supp. 961, 1996 AMC 1189 (E.D. Va. 1996).
In a rare case, it might be possible to persuade a Court not to enforce a foreign arbitration or forum selection clause if can establish that the clause(s) in issue effectively serves as a "a prospective waiver of a party’s right to pursue statutory remedies," since such a showing would justify a holding that the clauses are contrary to the public policy of the United States. See Sky Reefer, supra, 515 U.S. at p. 540-541, 115 S.Ct. at p. 2229-2230.
2. Would a foreign forum be better?
If the bill of lading does not have an arbitration/forum selection clause, you should consider the possibility of filing or recommending to your client that the action be filed in a foreign forum.
This might be a very good option, for example, if you represent a client whose earth mover or other large, heavy piece of equipment was damaged while in transit, and there were a possibility of filing the action in foreign jurisdiction which would enforce the Hague-Visby Rules to the shipment. Under COGSA, your claim would be worth only $500 under COGSA, whereas under the Hague Visby Rules, the claim would be worth 2.5 SDR’s per kilogram.
3. Which is the best federal forum?
If the claim arises under an ocean bill of lading, even if the loss occurred during the inland portion of the carriage under a through ocean bill of lading, a plaintiff can now file the lawsuit in federal court under that Court’s admiralty jurisdiction. See Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 23-29 (2004).
If you are seeking a maritime attachment and there is no vessel to attach, you might consider filing an admiralty attachment claim under Rule B of the Supplemental Rules for Admiralty and Maritime Claims of the Federal Rules of Civil Procedure in the U.S. District Court for the Southern District of New York, since most foreign bank electronic funds transfers being paid for in dollars are routed through New York banks. See Winter Storm Shipping Ltd v. TPI, 310 F.3d 263, 2002 AMC 2705 (2d Cir. 2003) (holding that funds transferred by an individual or a company, by means of an electronic funds transfer, may be attached pursuant to Rule B when they are in the hands of an intermediary bank); J. Hohenstein and F. Morris, Maritime Attachment of a Company’s Money in New York, Pratt’s Journal of Bankruptcy Law (Summer 2998). However, this remedy is available only if the defendant cannot be "found" in the district, i.e., if the defendant is not doing regular or systematic business in the district.
Your choice of forum might also be influenced by other issues in the case, such as the manner in which the bill of lading describes the applicable limitation of liability, or the manner in which the goods are described on the face of the bill of lading. As is discussed below, the Circuit Courts of Appeal have different rules regarding the so-called "fair opportunity" requirement, and the Third Circuit believes that there is no "fair opportunity" requirement at all. There is perhaps even greater variation on the "package or customary freight unit" issue, as is discussed below.
There are also other issues not discussed in this article which should be considered in choosing the federal forum in which the case should be brought. See "An Overview of the Considerations Involved in Handing a Cargo Case," by Professor Michael A. Sturley, 21 Mar. Law. 263 (Summer 1997).
4. Should the action be brought in State court?
If the loss damage or other breach of contract occurred during the ocean leg of carriage (at any time prior to delivery), and perhaps if the loss occurred in the course of inland carriage and the bill of lading clearly provides that the ocean bill of lading governs the loss, plaintiff’s counsel might also consider filing an action in State court.1
Although a lawsuit which is governed by COGSA, the Harter Act or federal maritime law falls within the admiralty jurisdiction of the federal courts (28 USC § 1337), the "savings to suitors" clause (28 USC § 1337 (c)) gives plaintiff the right to bring and maintain an admiralty action in State court. See Baris v. Sulpicio Lines, Inc., 932 F.2d 1540, 1543 (5th Cir. 1991); Pierpoint v. Barnes, 94 F.3d 813, 816 (2d Cir. 1996); Zoila-Ortego v. B J-Titan Servs. Co., 751 F. Supp. 633, 637 (1990). Thus, the action is removed solely on the basis of admiralty jurisdiction, the action will be remanded if a motion to remand is filed within the required 30 day period.
But defendants, take heart! If you remove the action, and plaintiff does not file a motion for remand, or fails to do so within the required 30 day period, it waives the right to remand.
For example, in Joe Boxer Corp. v. Fritz Transp. Int'l, 33 F. Supp. 2d 851, 854 (C.D. Cal. 1998), the plaintiff filed the action in State court, alleging only State-law based claims. The plaintiff filed a motion to remand, but only after the mandatory 30 day period. Although the Court opined that COGSA "complete pre-empts" State-law based claims, it held that the particular claim in issue did not arise under COGSA because the goods were merely trans-shipped in the U.S. Nevertheless, the Court held that the action was removable under the Court’s admiralty jurisdiction, and that the plaintiff waived its right to remand the action because it failed to file its motion to remand within the mandatory 30 day period. See also National Automotive Publications, Inc. v. United States Lines, Inc., 486 F. Supp. 1094 (S.D.N.Y. 1980) (action held to be removable under the Court’s admiralty jurisdiction; since no motion to remand was filed, jurisdiction of the federal court was upheld).
In some cases, the Courts have held that actions filed in State court are removable, without explicitly discussing either the "complete pre-emption" requirement or the "savings to suitors" clause of 28 USC § 1337 (c), even when faced with a motion to remand. See B.F. McKernin & Co., Inc. v. United States Lines, Inc., 416 F. Supp. 1068 (S.D.N.Y. 1976); Uncle Ben's Int'l Div. of Uncle Ben's, Inc. v. Hapag-Lloyd Aktiengesellschaft, 855 F.2d 215, 216 (5th Cir. 1988)(Harter Act case); Puerto Rico v. Sea-Land Serv., Inc., 349 F. Supp. 964, 975 (D.P.R. 1970) (COGSA case).
If a defendant is confronted with a motion to remand, it must be prepared to argue not only that COGSA governs the claim, but also that COGSA Act "completely pre-empts" all State law-based claims. There is support for this proposition. Polo Ralph Lauren, L.P. v. Tropical Shipping & Constr. Co., 215 F.3d 1217, 1220 (11th Cir. 2000) ("We therefore conclude that COGSA affords one cause of action for lost or damaged goods which, depending on the underlying circumstances, may sound louder in either contract or tort"); Pasztory v. Croatia Line, 918 F. Supp. 961, 969 (E.D. Va. 1996) (COGSA preempts state common law claims relating to goods subject to a bill of lading which are lost or damaged prior to delivery).
However, several courts have held to the contrary. See Associated Metals and Minerals Corp. v. Alexander Unity MV, 41 F.3d 1007, 1017 (5th Cir.1995)("COGSA does not preclude claims for cargo damages that sound in tort"); Funeral Fin. Sys. v. Solex Express, Inc., 2002 U.S. Dist. LEXIS 6829 (E.D.N.Y. 2002) (COGSA does not pre-empt a State-law based claim for breach of contract).
B. Can the Plaintiff Establish a Prima Facie case?
This aspect of a cargo loss or damage case is sometimes overlooked by defense counsel, in part because it is a relatively easy matter for a plaintiff to establish a prima facie case. All a plaintiff needs to do is show that (1) the cargo was delivered to the carrier in good order and condition and (2) the carrier failed to deliver the cargo to the consignee in good order and condition, or at all, or that the goods were damaged when delivered. Once this burden is satisfied, the burden shifts to the carrier either to rebut the plaintiff’s case or to show that it has a defense to liability.
Although a carrier’s bill of lading can sometimes be used to establish that the goods were delivered in good order and condition, carriers often limit or qualify the description of the goods by terms such as "said to contain" or "shipper’s weight, load and count." These qualifications are particularly appropriate in the case of containerized cargo, since the only way that a carrier could assure itself that the goods are as described and in good condition would be to break the seal and count and examine the packages.
Consequently, plaintiff’s counsel should always be prepared to show that the goods were in fact delivered to the carrier in good order and condition, and defense counsel should always be prepared to attack the sufficiency of plaintiff’s showing.
The plaintiff has a special burden on this issue in cases involving fruit or other perishable commodities, since these goods naturally decompose and otherwise change their condition during the course of an ocean voyage, even when refrigerated. In this type of case, a plaintiff probably needs to support its case with expert testimony unless some other cause (e.g., the failure of the refrigeration unit on a carrier-supplied container) is the obvious cause of the loss.
C. Is the Limitation of Liability in the Bill of Lading Enforceable?
Most of the Federal Circuit Courts of Appeal have adopted a requirement that, in order to enforce the COSGA $500 per package limitation, a carrier must give the shipper a "fair opportunity" to select a higher level of liability, in exchange for a higher rate. See, e.g., In re Isbrandtsen Co., 201 F.2d 281, 285, 1953 AMC 86, 91 (2d Cir. 1953); Tessler Brothers (B.C.) v. Italpacific Line, 494 F.2d 438, 443, 1974 AMC 937, 942 (9th Cir. 1974).
Some Courts of Appeal, however, have refused to graft a "fair opportunity" requirement onto COGSA, pointing out that doing so is repugnant to the international treaty upon which COGSA is based. See Ferrostaal, Inc. v. MV Sea Phoenix, 447 F.3d 212 (3d Cir. 2006); Henley Drilling Co. v. McGee, 36 F.3d 143, 146 n.5, 1995 AMC 173, 177 n.5 (1st Cir. 1994).
Obviously, this issue should be a major consideration in the plaintiff’s decision where to file a lawsuit, depending upon the content of the bill of lading, especially if the plaintiff is the actual owner of the goods. In some courts, however, and especially in the Ninth Circuit, insurance companies will not find the Court to be accommodating on this issue, since they look upon to the shipper’s purchase of cargo insurance as an agreement to the carrier’s limitation of liability.
D. What Constitutes the Package or Customary Freight Unit?
A carrier’s default limitation of liability under COGSA is $500 per "package or customary freight unit." Since these terms are not otherwise defined in COGSA, the issue of what constitutes a "package or customary freight unit" is a much litigated issue in cargo loss and damage cases.
There are too many different situations which arise in this area to discuss them all in this article. However, it is worth noting that there is a split of authority on how much weight should be accorded to the number shown on the face of a bill of lading under the "no. of pkgs" column.
In Seguros "Illimani," S.A. v. M/V Popi P., 929 F.2d 89, 1991 AMC 1521 (2d Cir. 1991), the Second Circuit Court of Appeal held that, if the goods described in the column qualify as "packages," the number shown in the column is not only the starting point of the inquiry concerning the limitation, but also the ending point, "unless the significance of that number is plainly contradicted by contrary evidence of the parties’ intent . . .."
Other courts consider the number shown in the "Pkgs" column as only one of several factors to be considered in determining the limit of liability. See Tamini v. Salen Dry Cargo AB, 866 F.2d 741, 743, 1989 AMC 892, 894 (5th Cir. 1989)(a drilling rig which was not enclosed in a container, the freight charges for which were determined based upon weight, was not considered to be a "package" for the purpose of COGSA liability, even though the number "1" appeared in the package column).
The bottom line is that, if the COGSA "package or customary freight unit" is either the primary or one of the primary issues in dispute, the venue chosen for the lawsuit could be critical, and the issue should be thoroughly researched before the lawsuit is filed in order to determine the best forum in which to bring the lawsuit, and immediately after receipt of the complaint by the defendant to determine if would be worthwhile to bring a motion to challenge or change venue, a claim of improper venue is waived if not raised in the first responsive pleading.
E. Can the Ocean or Inland Carrier Enforce the Himalaya Clause of the Bill of Lading With Respect to Inland Carriage?
Ocean bills of lading typically include "Clause Paramount" by which they seek to extend a particular law to the entire course of carriage and a "Himalaya" clause2 by which the carriers seek to extend the limitations of liability and other defenses of the bill of lading to other parties who perform the obligations the carriers owe under the contract.
These clauses were originally intended to protect stevedores, terminal facilities and others who perform services relate directly to the maritime carriage duties which are owed by the ocean carrier, including the duty to load the ship, unlade the cargo, and make the cargo available for pickup by the consignee.
With the advent of containerization, however, ocean carriers are undertaking to perform "through" carriage of goods under their bills of lading, and the "Clause Paramount" and "Himalaya" clauses are often drafted so that they both to the ocean carrier during the inland portion of the carriage and to the agents, contractors and subcontractors who perform this portion of the carriage. Prior to 2004, some Courts found that these provisions were unenforceable by inland carriers for various reasons, including a lack of specificity and the absence of "privity."
In Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 2004 AMC 2405 (2004), however, the U.S. Supreme Court explicitly held that inland carriers were entitled to enforce the limitation of liability which was extended to them under such a Himalaya clause. The decision did not, however, find that inland carriers were entitled to enforce all of the defenses the ocean carrier might have under its ocean bill of lading, such as the right to have the action heard in its forum of choice or the one year period of limitations for the filing of an action.
Two years later, however, the Second Circuit Court of Appeal, in Sompo Japan Ins. Co. of Am. v. Union Pac. R.R., 456 F.3d 54, 2006 AMC 1817 (11th Cir. 2006), held that the extension of the COGSA limitation of liability an inland carrier could not be enforced by the inland carrier under circumstances which were virtually identical to those presented in the Kirby case, based upon the Court’s finding that the extension of the COGSA limitation of liability to inland carriage was contrary to the Carmack Amendment, which clearly applies to the inland carriage of the goods.
One month later, Altadis USA, Inc. v. Sea Star Line, LLC, 458 F.3d 1288, 2006 AMC 1846 (2d Cir. 2006), the Eleventh Circuit Court of Appeal held, based in part upon the Supreme Court’s decision in Kirby, that both the ocean carrier and the inland carrier who performed a portion of the carriage covered under the ocean carrier’s bill were entitled to enforce the one year period of limitations of an ocean carrier’s bill of lading.
In my opinion, Sompo was wrongly decided, since (1) the Supreme Court decision clearly and explicitly held that inland carriers are entitled to enforce the limitation of liability in an ocean carrier’s through bill of lading and (2) the Second Circuit is bound by the doctrine of stare decisis to follow the Supreme Court’s decision on the issue. See also Royal Ins. Co. of Am. v. Orient Overseas Container Line Ltd., 514 F.3d 621 (S.D.N.Y. 2008) (in which the Hon. Alvin K. Hellerstein refused to follow the Second Circuit’s decision in Sompo because the facts of that case were "indistinguishable" from the facts presented in Kirby).
I also believe that Altadis decision was wrongly decided because (1) the Carmack Amendment, which provides a minimum two year period for filing a lawsuit, applied by its terms to the inland carriage of goods in issue, (2) the Kirby decision does not support a holding that an express provision of the Carmack Amendment may be trumped by a provision in an ocean carrier’s through bill of lading and (3) COGSA itself provides that it should not be construed to supersede any other law which would apply in the absence of COGSA, and the Carmack Amendment is such a law. See also Regal-Beloit Corp. v. Kawasaki Kisen Kaisha LTD, 2009 U.S. App. LEXIS 3597 (9th Cir. 2009) (discussed below).3
V. The Continuing Debate Over the Proper Legal Framework Which Should be Applied to the Inland Carriage of Goods Under a Through Ocean Bill of Lading.
The Courts are still struggling with issues which arise when a loss occurs in the course of inland carriage under a through ocean bill of lading.
In Rexroth Hydraudyne B.V. v. Ocean World Lines, Inc., 547 F.3d 351, 2008 AMC 2705 (2d. Cir. 2008), in what can only be described as a convoluted decision, the Second Circuit Court of Appeal found that an ocean carrier itself was entitled to limit its liability to the COGSA $500 per package amount, even though its subcontracting railroad upon which the loss occurred could not do so, on the grounds that the ocean carrier was not a "railroad" under the Carmack Amendment because it did not own or operate the railroad equipment or tracks, and was therefore not subject to regulation under the statute. Incredibly, in footnote 16 of its opinion, the Court explicitly ignored the fact that the ocean carrier qualified, at least, as a "freight forwarder" with respect to the inland carriage on the grounds that the argument was not raised by the parties.
The Second Circuit’s reasoning in the Rexroth decision was criticized by the Ninth Circuit Court of Appeal in Regal-Beloit Corp. v. Kawasaki Kisen Kaisha LTD, 2009 U.S. App. LEXIS 3597 (9th Cir. 2009). In Regal-Beloit, the plaintiff sought to recover damages which resulted from a derailment in the course of inland carriage under a through ocean bill of lading which included a clause requiring that any litigation against the ocean carrier be filed in Japan. The lower court had dismissed the action on the grounds that the Carmack Amendment did not apply to the inland portion of the carriage because it was governed by the terms of a through ocean bill of lading, and that the foreign forum selection clause of the ocean bill of lading was therefore enforceable.
On appeal, the Ninth Circuit held, correctly, that the Carmack Amendment did apply to the inland carriage of the goods, and that the forum selection clause was unenforceable under the Carmack Amendment, since the Carmack Amendment explicitly provides that the plaintiff was entitled to bring it action in the forum chosen. Accordingly, the Court reversed and remanded the case to the lower Court with directions to determine whether the contract was or was not exempt from the Carmack Amendment under 49 USC § 10502.
As these cases illustrate, there is still widespread disagreement among the Courts about the enforceability of provisions of through ocean bills of lading when the loss or damage occurred in the course of inland carriage. As I explain in the article cited in footnote 3, I believe that the provisions in a through ocean bill of lading should be upheld unless they are repugnant to a particular provision of the Carmack Amendment.
For example, contrary to the Second Circuit Court of Appeal’s conclusion in the Sompo case, I believe that the extension of an ocean carrier’s limitation of liability to the inland leg of the transportation ought to be upheld so long as the ocean carrier gives the shipper a "fair opportunity" to select a higher valuation in exchange for a higher rate, which is all the Carmack Amendment requires.
On the other hand, any defense to liability which is repugnant to an explicit provision of the Carmack Amendment, such as a foreign forum selection clause or a provision which requires a shipper to file a lawsuit in less than the two year period prescribed by the Carmack Amendment, should be held to be completely unenforceable with respect to the inland carriage of the goods, both as to the ocean carrier and as to its subcontractors.
VI. The Future of Ocean Bills: Will the Rotterdam Rules be adopted?
On December 11, 2008, the United Nations General Assembly adopted the United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea, which is now known as the "Rotterdam Rules."
On September 23, 2009, representatives of fifteen countries, including the United States, signed these Rules on behalf of the countries they represent. However, the signing of the rules was entirely ceremonial, since the Rotterdam Rules will not become effective until they have by twenty countries, which may or may not ever occur. Even if the Rules become effective, they will be as useless as the almost entirely disregarded Hamburg Rules unless the major maritime countries adopt the Rules.
The Rotterdam Rules are intended to replace the UN Convention on the Carriage of Goods by Sea (commonly known as the Hamburg Rules), the International Convention for the Unification of Certain Rules of Law Relating to Bill of Lading, 1924 (commonly known as the Hague Rules) and Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, 1968 (commonly known as the Hague Visby Rules). If the Rotterdam Rules are adopted, they will completely supersede all three of these liability regimes.
A. Selected Differences Between the Existing Regime and the Rotterdam Rules.
If the Rotterdam Rules become effective and are adopted by the United States, the Rules supersede COGSA, the Harter Act to the extent that it applies to international ocean carriage, and the Bills of Lading Act to the extent that it applies to international ocean carriage.
If effective, the Rules will change the existing U.S. law as it applies to international ocean carriage in several respects, including the following:
• The terms "contract of carriage" and "transport document" will replace the word "bill of lading" as that term is presently used in COGSA and the Harter Act, and the Rules themselves, rather than "bill of lading," and the Rules themselves (not the Bills of Lading Act) will distinguish between negotiable and non-negotiable "transport documents" (Art. 1, ¶¶ 1, 15, Art. 45 and Art. 46);
• Many provisions of the Rules will not apply to "volume contracts," which is defined as a "contract of carriage that provides for the carriage of a specified quantity of goods in a series of shipments during an agreed period of time" (see Art. 1, ¶ 2, Art. 67, Art. 75 and Art. 80); there is no counterpart to this provision under existing U.S. law;
• The Rules automatically govern carriage from the point of receipt to the point of delivery, rather than from tackle-to-tackle as is the case under COGSA, although the parties may agree to tackle-to-tackle coverage (Art. 12);
• "Maritime performing parties" (which does not include inland carriers) are jointly and severally liable for loss or damage which occurs during the period that the goods are in their custody up to the limitation of liability of carrier which is set forth in the Rules; however, the carrier cannot increase these parties’ liability without notice and consent by agreeing to a higher amount (Art. 19 and Art. 20); the carrier’s limitation of liability was previously passed along to these parties through the "Himalaya clause," and there was no provision which prohibits these parties from limiting their liability to the parties to whom they provided services;
• "Deviation" will not result in a loss of the liability limitation (Art. 24), as it does under existing law;
• If the carrier assumes liability for the inland portion of carriage, the Rules supersede those of any contrary law of the jurisdiction where the loss occurred unless the law is part of an international instrument (Art. 36); in the U.S., this means that any contrary provision of the Carmack Amendment will be superseded, since the Carmack Amendment is not an international instrument, at least as to the ocean carrier;
• The carrier’s ability to qualify the description of the goods, particularly when not tendered to the carrier or its agent in a closed container or vehicle, is limited (Art. 40); this provision will change existing law in some cases;
• The default liability limits are set at "875 units of account [defined as a Special Drawing Right as defined by the International Monetary Fund] per package or other shipping unit, or 3 units of account per kilogram of the gross weight of the goods" (Art. 59); this provision substantially exceeds the current limitation in some cases, particularly with respect to large, heavy equipment such as that involved in the Kirby case; moreover, if the Rules become law in the United States, I believe it is clear that there is no basis for arguing that ocean carrier’s are required to provide shippers with a "fair opportunity" to choose a higher limit of liability;
• The carrier’s liability for delay is limited to two and one-half times the freight payable on the goods delayed (Art.60); current law does not distinguish between delay damages and other types of damages;
• The period of time for filing a lawsuit is extended to two years, and the time for bringing an action for indemnity for 90 days beyond (Art. 62 and 64); the current period is one year, and there is no comparable indemnity provision;
• If the country in which the action is filed "opts in" to these provisions, carriers will be unable to force parties to litigate or arbitrate issues in a court or other forum of their choice, except in the case of a volume contract (Art. 66 , Art. 67, Art. 75); however, the rules limiting forum selection must be specifically endorsed by the "Contracting State" which adopts the rules in order to become effective; moreover, even if adopted, these rules will not apply to "volume contracts;" and
• Although the Rules extend the limitations of liability and other defenses of the Rules to the carrier for the entire course of the carriage, and to "maritime parties" (i.e., defined as parties who work in the port area), there is no provision which extends the carrier’s limit of liability to inland carriers or subcontractors for either the incoming (i.e., place of receipt to the port) or outgoing (i.e., from the port to the place of destination) portions of the carriage; consequently, these parties will be protected only if the "contract of carriage" or "transport document" includes a "Himalaya clause."
B. Prospects for Adoption of the Rotterdam Rules.
The adoption of the Rotterdam Rules by the United States, either as a self-executing treaty or could have a salutarry effect on U.S. maritime law. See The Impact of the Rotterdam Rules in the United States, 44 Texas Law Journal 728 (2009). At this point, however, it is too early to predict whether the Convention will ever come into force and, if so, to what extent it will apply to international maritime commerce.
By their terms, the Rotterdam Rules will not come into force until "the first day of the month following the expiration of one year after the date of deposit of the twentieth instrument of ratification, acceptance, approval or accession." Although the Rules were signed by representatives of the United States and fourteen other countries on September 23, 2009, followed by France shortly thereafter, this was ceremonial only, since the Rules must actually be ratified or adopted by the states which have signed the Rules in order to become effective.
Moreover, several major maritime countries have held off on signing the rules, including the United Kingdom, China, Japan, Singapore, New Canada, Zealand, Belgium, Germany, Finland, Australia and Chile. Although some of these countries have withheld their signature because of concerns expressed by interested parties (e.g., Belgium and Canada), others may simply be waiting to see whether or not the United States adopts the Rules.
Although there is strong support for the Rules among several interested parties, there is also strong opposition. For example, many shipper interests, including the ICC (International Chamber of Commerce) and the NITL (National Transportation League), an organization of large U.S. shippers, and the MLA (the U.S. Maritime Law Association) support adoption of the rules, others, including the European Shippers Council (ESC), are strongly opposed to the adoption of the Rules.
The shipping industry is also divided on the issue. For example, the World Shipping Council, which represents container carriers, the Baltic and International Maritime Council (BIMCO), which represents shipping industry interests, and Kuehne + Nagel, one of the largest non-asset based ocean carriers, all support adoption of the rules.
On the other hand, the IARU (International Road Transport Union), FIATA (International Federation of Freight Forwarders Associations), and CLECAT (an organization of European Freight Forwarders, logistics service providers, and Customs brokers), strongly oppose the adoption of the rules.
Some of the more frequently voiced concerns about the Rules are as follows:
• Many opponents argue that the complexity and indefinite nature of the rules will result in increased litigation, with differing results, thereby resulting in less uniformity, not more;
• Small to mid-sized to shippers, freight forwarders (including NVOCC’s) and others are concerned that the broad definition of term "volume contracts" will enable large ocean carriers to force them to accept otherwise unacceptable limitations of liability and forum selection provisions, which in the case of freight forwarders could leave them "holding the bag" for the losses for which the carriers should be held liable.
• Stevedores, cargo terminals and others parties who fall within the definition of "maritime performing parties" are concerned about the Rules because they will force them to accept higher levels of liability than they currently enjoy, thereby leading to higher and perhaps unaffordable insurance expense;
• Some shippers (particularly European shippers) are concerned that the application of the Rules to inland carriage will lead to lower levels of liability for losses occurring during inland carriage than is currently the case;
• Several groups and some academics are concerned that the "opt in" requirements of the forum selection articles (Articles 74 and 78) will render these provisions ineffective, since many countries will not make the required election.
• Professor William Tetley of McGill University has pointed out several drafting problems with the rules. See A Summary of General Criticisms of the UNCITRAL Convention (The Rotterdam Rules), by William Tetley (December 20, 2008), published at http://www.mcgill.ca/maritimelaw.
• In the United States, questions have been raised about whether the treaty is self-executing (in which case it may be submitted to the Senate for approval) or whether the Rules should or must be submitted to Congress so that enabling legislation may be adopted.
At this point, however, it seems that most of the organized opposition to the Rotterdam Rules comes from outside of the United States, and it is not clear that the organizations which have announced their opposition will have any effect on whether or not the Rules are adopted in the U.S.
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