General Electric Co (GE) shipped 26 equipment items, including a generator auxiliary compartment cab, shipped 'as is', and a 10-ton control cab (10 ft long and 18 ft high) on the MV Nedlloyd Rouen from Portsmouth, Virginia, to Yenbu, Saudi Arabia, for the building of an electric generating plant. A day or two after the vessel sailed from New York, it encountered gale winds and stormy winter weather in the North Atlantic. It began rolling and heaving. The two cabs broke free from their lashings and fell from the flatbed trailer onto the deck. The fall damaged the equipment. Attempts to repair the damaged equipment proved unsuccessful. The damaged equipment was later replaced by two new units.

The shipment was made pursuant to a bill of lading. The front side had the customary space for declaring excess value. The language in this space referred to a clause on the reverse side that purported to limit Nedlloyd's liability to GBP 100 per package or unit of weight. GE did not declare an excess value. The reverse side also contained a 'USA Clause' which stated that the Carriage of Goods by Sea Act, 46 USC § 1300 ff (COGSA) would govern if the bill of lading 'cover[ed] the transportation of goods ... from ports of United States of America.' The USA clause incorporated various provisions of COGSA, including § 1304(5), by reference.

A year later, GE sued Nedlloyd Lijnen BV for damage to goods and claimed USD 1 million in damages. It made three contentions. First, Nedlloyd's ad valorem rate was unreasonably high compared to Nedlloyd's cost of obtaining additional insurance, which would have been sufficient to cover the greater risk to Nedlloyd if GE had declared an excess value. Second, the bill of lading should have explicitly mentioned the COGSA's USD 500 limitation, rather than merely incorporating it by reference. Third, the USA clause was illegible because the print on the back of the bill of lading was too small to read. Nedlloyd argued that COGSA's USD 500 limitation applied and sought partial summary judgment.

The District Court for the Southern District of New York granted Nedlloyd's motion and rejected GE's three contentions, with the latter two dismissed summarily. It was not the ad valorem rate but the economics of insuring the cargo that prevented GE from declaring excess value - GE had no intention of declaring an excess value for its cargo. The bill of lading contained a space for declaring excess value, and provided sufficient notice that the COGSA limitation applied. The print size was irrelevant in determining whether GE received adequate notice of its right to declare excess value.

Nedlloyd consented to a judgment entered against it for a sum of USD 28,500 plus interest. GE appealed, challenging the rulings that Nedlloyd's ad valorem rate was reasonable, and that the bill of lading provided adequate notice of the COGSA limitation.

Held: The judgment of the District Court is affirmed.

Historically, a carrier's liability for cargo damage had swung from one extreme to the other, from absolute liability to one where liability was predicated only on a showing of fault. Under 18th century law, the absolute liability on a carrier of goods by sea made it, in effect, an insurer of the cargo's safe transit, save for several exceptions. During the 19th century, bills of lading were increasingly used, partly because carriers could limit their liability under them. However, a carrier could not limit liability when it failed to use due care resulting in cargo loss - contracts exonerating carriers from liability would violate public policy (First Pennsylvania Bank v Eastern Airlines Inc 731 F 2d 1113, 1116 (3d Cir 1984)). In 1921, the Hague Rules adopted this view on carrier liability. In 1937, the United States began adhering to these rules, as amended by the Brussels Convention of 1924; in the previous year, Congress passed the Carriage of Goods by Sea Act ch 229, 49 Stat 1207, codified in COGSA 46 USC §§ 1300-15. In regulating ocean bills of lading under COGSA, Congress created federal law governing the terms of transport of goods by sea. Since COGSA statutorily imposed the obligation to use due care, a carrier could no longer by contract exculpate itself from this duty in providing a seaworthy vessel or in handling or shipping cargo (46 USC §§ 1303(1) and (2)).

COGSA allows freedom of contract outside its provisions only if a carrier's liability is increased but not reduced. Section 1304(5) establishes a limit of USD 500 'per package ... or ... customary freight unit' as the minimum floor of a carrier's liability, but a ceiling for a shipper to recover damages in the event of cargo loss or damage. Hence, COGSA restricts a carrier's ability to limit its liability under the bill of lading and a shipper may not recover an amount greater than USD 500 per package, unless it declares a higher value for the goods.

A carrier is entitled to charge more for its carriage when the shipper declares a value greater than USD 500 - the so-called 'excess value' or 'declared value' - because the declaration increases the carrier's liability. This additional charge is called the 'ad valorem rate'.

A carrier must provide a shipper with a 'fair opportunity' to declare the excess value, and so the front of a bill of lading usually provides a space for the shipper to make a declaration. Only by granting shippers a fair opportunity to choose between paying a greater or lesser charge to obtain correspondingly more or less protection for its goods may a carrier limit its liability to an amount less than the loss actually sustained (New York, New Haven & Hartford Railroad Co v Nothnagle 346 US 128, 135, 73 S Ct 986, 990, 97 L Ed 1500 (1953)). In the absence of a fair opportunity, a carrier loses the benefit of any limitation of liability to which it may otherwise be entitled (Komatsu Ltd v States Steamship Co 674 F 2d 806 (9th Cir 1982)).

The doctrine of fair opportunity comprises several different elements, including: (1) whether the carrier has given adequate notice of the limitation of its liability to the shipper, thereby affording the shipper means of avoiding such limitation; and (2) the reasonableness of the ad valorem charge. A carrier must offer the shipper an ad valorem charge that is reasonable (Hart v Pennsylvania Railroad Co 112 US 331, 341-42, 5 S Ct 151, 156, 28 L Ed 717 (1884)). The reasonableness of the ad valorem rate is measured by the amount of risk assumed ie the declared value of the goods. The principle is that 'the charge should bear some reasonable relationship to the responsibility, and that the care to be exercised shall be in some degree measured by the bulk, weight, character and value of the property carried' (Adams Express Co v Croninger 226 US 491, 510, 33 S Ct 148, 153-154, 57 L Ed 314 (1913)).

The carrier bore the initial burden of proving that it provided the shipper with a fair opportunity to declare the excess value and the language contained in the bill of lading can be gleaned to establish prima facie evidence of this opportunity. If the carrier succeeds in demonstrating fair opportunity, the burden of proof shifts to the shipper to demonstrate that a fair opportunity did not in fact exist.

Nedlloyd's bill of lading furnished GE with adequate notice and fair opportunity. The language on the reverse of the bill incorporating COGSA's provisions and the space for declaring excess value on the front are adequate notice of the USD 500 limitation and the means of avoiding it (Binladen BSB Landscaping v MV Nedlloyd Rotterdam 759 F 2d 1006, 1017 (2d Cir 1985), 1985 AMC 2113 (CMI1621)).

Nedlloyd's ad valorem rate was 10% of the total declared value. GE stated that the total declared value of the cargo was USD 750,000, but only after its cargo was damaged. A 10% ad valorem rate applied on USD 750,000 would be a charge of USD 75,000. GE argued that this USD 75,000 charge, in addition to the USD 9,700 freight charge paid to Nedlloyd, prevented it from declaring cargo's value.

GE's attempt to avoid COGSA's USD 500 limitation consisted principally of an attack on the reasonableness of Nedlloyd's ad valorem 10% rate on the total declared value. GE's argument was novel, as there were no earlier cases where an ad valorem rate had been indicted as constituting a prohibited means by which a carrier attempted to limit its liability. Nevertheless, GE could not challenge the ad valorem rate as being unreasonable. GE neither inquired about making such a declaration nor took steps towards declaring the value of its cargo. The lack of evidence with respect to GE's investigation of Nedlloyd's ad valorem charge strongly suggested that '[t]hey made a business judgment ... not to explore the possibility of obtaining greater protection ... at [a] higher rate'. GE was not denied a fair opportunity to declare value by the alleged excessiveness of Nedlloyd's ad valorem charge. It was GE's own cost-benefit analysis that prevented it from taking such a step. Accordingly, GE was estopped from arguing that an excessive ad valorem charge prevented it from declaring the cargo value in the bill of lading.