During the 1989 monsoon season in Visakhapatam, India, Associated Metals & Minerals Corp (AMM) chartered the J Jasmine from owners Jollister Shipping Corp SA (Jollister) to carry AMM's cargo for 13,500 mt of hot-rolled steel plates from India to the United States. Before AMM purchased the steel plates, they had been stored in an outdoor storage yard at the Steel Authority of India, where they were exposed for two months to monsoon rain and air laden with industrial pollutants. Under the voyage charterparty, AMM was responsible as charterer for the risk and expense of loading. Jollister’s responsibilities did not commence until the J Jasmine was loaded. Loading of the plates took nine days in heavy rain.

Upon loading, Jollister issued bills of lading to AMM's agents. AMM's agents signed the bills in which AMM acknowledged that the steel plates had been loaded bearing 'Superficial/Atmospheric/Surface rust', with 'Edges rusty'. When the J Jasmine reached the United States, surveyors determined that many of the steel plates had suffered, not surface rust, but heavy seawater rust. The plates were so damaged they had to be sold as salvage. AMM then sued Jollister as carrier and the J Jasmine in rem for USD 214,982.46.

AMM successfully argued that the rust had developed from seawater intrusion into the J Jasmine’s poorly ventilated, unseaworthy, holds. Jollister and the J Jasmine (the defendants) appealed. The defendants' primary argument that the District Court erred when it determined that the Carriage of Goods by Sea Act, 46 USCA ss 1300 ff (COGSA) governed the parties’ rights and responsibilities under the voyage charterparty, and that this error led to the misapplication of COGSA's burden of proof rules.

Held: Appeal allowed. The District Court's decision is reversed and remanded for further proceedings.

COGSA was enacted to guard against perceived abuses by public carriers who exempted themselves from a high standard of liability using elaborately claused bills of lading. Charterparties were not so regulated, due to the perceived equivalency of the negotiating parties' bargaining power. COGSA does not apply to charterparties unless the parties have clearly indicated that it is to be incorporated into the charter. When a bill of lading is issued, while it remains in the hands of the charterer, it is usually a mere receipt and not the contract of carriage of goods. In this case, the charterparty required that COGSA be incorporated into all bills of lading issued under the charterparty by a clause paramount:

44. USA CLAUSE PARAMOUNT. Bills of Lading are to include the following clause: 'This bill of lading shall have effect subject to the provisions of [COGSA], which shall be deemed to be incorporated herein, and nothing herein contained shall be deemed a surrender by the carrier of any of its rights or immunities or an increase of any of its responsibilities or liabilities under said Act. If any term of this bill of lading be repugnant to said Act to any extent, such term shall be void to that extent, but no further.' (emphasis added).

The District Court erred in holding the above language was sufficient to establish an express incorporation of COGSA into the charterparty based on the standard found in the case law.

In a charterparty arrangement (unlike COGSA) the burden of proving damage as well as the cause of the damage remains with the plaintiff. Therefore, the charterer must prove that the cargo damage was proximately caused by the carrier’s breach of a specific obligation container in the contract of carriage which, here, is the voyage charterparty.

By contract, under COGSA (and the Hague Rules), the plaintiff need only establish a prima facie case, at which time, the defendant has the burden to show that the damage did not result from its negligence. Since the voyage charterparty did not incorporate COGSA, it follows that the District Court erred in placing the COGSA burden of proving that they were not negligent on the defendants. Rather, it was AMM’s burden under the general maritime rules to prove that Jollister had breached the contract of carriage.

Therefore the decision of the District Court is reversed and the case remanded for further proceedings, which shall include a redetermination of liability by applying the common law burden of proof established for private carriage shipping contracts.