This appeal involved an action in rem brought by Associated Metals & Minerals Corp (AMM) against the MV Arktis Sky, its operator, Erhversinvestering K/S, and its owner Elite Shipping I/S (the respondents). Altos Hornos De Vizcaya SA (Altos Hornos) chartered the vessel to ship a cargo of galvanised steel sheets in 398 coils from Bilbao, Spain, to Port Elizabeth, New Jersey. Altos Hornos sold the coils to AMM. Altos Hornos contracted with its stevedore, Maritime Candida, to load and stow the coils on the vessel in Spain. After the cargo was loaded, the chief mate of the MV Arktis Sky signed a lashing statement that the lashing had been 'performed under chief mate instructions and satisfactory'.

Some of the cargo shifted during the voyage, and the coils suffered damage of USD 249,629.76.

AMM moved for summary judgment against the vessel and the respondents. All parties agreed that the Carriage of Goods by Sea Act, 46 USC ss 1300 ff (COGSA), applied to the liability questions raised in this case. The District Court found that the respondents established as a matter of law two of the exceptions under COGSA, and were therefore exonerated from any damage. The Court granted summary judgment in favour of the respondents. AMM appealed.

Held: Appeal allowed.

The District Court started with the assumption that AMM had established a prima facie case against the vessel under s 1303(2) of COGSA, which obligates a carrier to 'properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried'. Although this Court has held that s 1303(2) creates a non-delegable duty on behalf of the vessel, the District Court still found that these statements were dicta and that the better-reasoned cases had held that a 'FIOS' or 'free in and out, stowed' clause in a bill of lading, binding on the parties, shifts liability to the shipper for improper stowage or discharge without violating COGSA. According to the respondents, the 'FIOS' terms shift both the risk and expense of loading, stowing, and discharging cargo to the shipper and the consignee. The District Court thus concluded that the carrier's duty to load and stow cargo properly and carefully under s 1303(2) is not genuinely non-delegable. Based on Sigri Carbon Corp v Lykes Bros SS Co 655 F Supp 1435 (WD Ky 1987) and Sumitomo Corp of America v MV Sie Kim 632 F Supp 824 (SDNY 1985), the District Court held that 'a carrier is not responsible for the consequences of improper storage by agents of the shipper pursuant to a FIOS bill of lading'.

However, this Court finds this reasoning directly contrary to s 1303(8) of COGSA, which states that '[a]ny clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to or in connection with the goods arising from negligence, fault, or failure in the duties and obligations provided in this section, or lessening such liability otherwise than as provided in this chapter, shall be null and void and of no effect'. This Court previously held in Demsey & Assoc Inc v SS Sea Star 461 F 2d 1009, 1014-15 (2d Cir 1972) that:

Under §1303(1) and (2) of COGSA, the carrier is bound to exercise due diligence to make the ship seaworthy, to make the ship fit and safe for the reception, carriage and preservation of the cargo, and to load properly, handle, stow and discharge the goods being shipped. Every claim for cargo damage creates a maritime lien against the ship, which may be enforced by a libel in rem. Section 1303(8) of COGSA prohibits a shipowner from contracting out of this liability. The fact that the [vessel] was operated under charter to [the charterer] does not affect the liability of the vessel.

Similarly, in Nichimen Co v MV Farland 462 F 2d 319, 330 (2d Cir 1972), this Court stated that 'under §1303(2) of COGSA, the carrier's duty to "properly and carefully load ... [and] stow ... the goods carried" is non-delegable'. Nichimen and Demsey's statutory analysis is persuasive. Under the District Court's enforcement of the 'FIOS' clause, s 1303(8) of COGSA would have no meaning. The plain language of s 1303(8) forbids enforcement of agreements to relieve carriers of liability for negligence in carrying out the duties set forth in s 3 of COGSA. One of the duties assigned to carriers is that of properly and carefully loading cargo. An agreement such as this is 'null and void' under the statute because it purports to relieve a carrier of liability for negligence in one of its duties, the stowing of cargo.

The respondents suggest an alternative reading of the statute. They suggest that s 1303(8) 'specifically permits a carrier to limit its liability for its statutory duties, so long as such a limitation is consistent with other provisions of COGSA'. This argument is girded on the portion of s 1303(8) of COGSA which states that carriers may not contractually lessen their liability 'otherwise than as provided in this chapter'. The respondents contend that this language suggests that the duties of s 1303 are limited by the immunities of s 1304(2). A more accurate reading of the phrase suggests that 'otherwise than as provided in this chapter' modifies the damage limitations (lessening such liability) set forth in COGSA, which provides a USD 500 per package ceiling on damages (s 1304(5) of COGSA). However, the phrase does not affect the statute's prohibition on agreements relieving carriers of liability for negligence in carrying out their duties under the Act.

Another argument is that the vessel has also established a second defence by meeting its burden of proof under s 1304(2)(i), which explicitly provides that a carrier shall not be liable for an act or omission of a shipper or owner of goods, its agent or representative. The District Court reasoned that its holding under the 'FIOS' clause was consistent with this second defence. The result may be consistent, but the analysis cannot be the same. The liability provisions set forth in s 1303(2) of COGSA create a prima facie case against the vessel when a plaintiff (here a non-party to the charter agreement) establishes that the carrier receives the cargo in good condition and that the cargo arrives at its destination in a damaged condition. Once a prima facie case is created, the burden shifts to the carrier to show, under ss 1304(2)(i) and 1304(2)(q), that the cargo loss or damage results from an act or omission of the shipper or owner of goods, its agent or representative; or that the loss or damage results from 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. This burden cannot be carried by contract terms or language of 'FIOS' contained in a bill of lading. Both are barred by the non-delegable provisions of COGSA under s 1303(8). The purpose of COGSA is to place primary responsibility for the safety of the cargo upon the vessel, its operators, and owners. The parties cannot by private agreement circumvent the legislative purpose of the Act.

The vessel may exonerate its responsibility by carrying its burden of proof that the damage did not occur because of its own acts. However, this creates a genuine dispute of material fact. The respondents are not entitled at this stage of the proceeding to a judgment as a matter of law. The District Court erred in granting summary judgment in favour of the respondents.