Cargo owned by ITT Rayonier Co (ITT, the plaintiff) was damaged while en route from Savannah, Georgia, in the US, to Rotterdam in the Netherlands, on the M/S Sylvo, a vessel owned by EB Aabys. Southeastern Maritime Co (SM, the defendant in the main action and the plaintiff in the third-party action), a stevedoring company, had loaded the cargo.

The cargo was discharged in Rotterdam on 14 September 1976. More than a year later, ITT sued SM. ITT did not sue the M/S Sylvo, EB Aabys, or Sylvan Shipping Co (the third-party defendants). Ten days later, SM filed a third-party complaint against the third-party defendants seeking recovery for indemnity and contribution.

ITT's contract with the third-party defendants was governed by the US Carriage of Goods by Sea Act (COGSA). Section 1303(6) of COGSA states, in relevant part, that 'the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered'.

In contrast, SM's stevedoring contract with the third-party defendants contained no COGSA provisions. SM was not a party to the contract between ITT and the third-party defendants.

The third-party defendants argued that SM's claim against them was governed by the COGSA one-year limitation period and thus time-barred. Their application for summary judgment was allowed at first instance, where the District Court based its ruling largely on a decision of the Court of Appeals for the Fifth Circuit: Grace Lines Inc v Central Gulf Steamship Corp 416 F 2d 977 (5th Cir 1969) (Grace Lines).

SM appealed, and argued that the often-criticised Grace Lines decision should not be followed.

Held: Judgment reversed. Case remanded.

Grace Lines is the law of the Court of Appeals for the Fifth Circuit, and must be followed, whether or not it was correctly decided. However, on the facts of this case, Grace Lines is distinguishable. This case is not controlled by Grace Lines. Instead, the well-established general rule with respect to third-party indemnity and contribution claims applies: time will not run against SM (the third-party plaintiff) and in favour of the third-party defendant until judgment has been entered against SM, or until SM has paid the judgment. See United States Lines Inc v United States 470 F 2d 487 (5th Cir 1972); United States v Farr & Co 342 F 2d 383 (2d Cir 1965); States Steamship Co v American Smelting & Refining Co 339 F 2d 66 (9th Cir 1964); Chicago, Rock Island & Pacific Railway v United States 220 F 2d 939 (7th Cir 1955).

Due to the operation of COGSA, Grace Lines carved out an exception to this general rule. In Grace Lines, the charterparty between the shipowner and the charterer incorporated COGSA. The charterer, as carrier, issued a bill of lading governed by COGSA. Thus, both the charterparty and the bill of lading were subject to the one-year COGSA time bar. The cargo owner, upon discovering damage to the cargo, filed suit against the vessel, the shipowner, and the charterer. After the one-year period had run, the charterer filed a third-party indemnity claim against the shipowner. Since the right to indemnity arose from the charterparty, which was subject to COGSA, the Court in Grace Lines found that charterer's claim was time-barred.

In contrast, whatever rights SM might have in this case to indemnity and contribution from the third-party defendants do not arise through an agreement subject to COGSA. The only relationship governed by COGSA, ie the relationship between ITT and the third-party defendants, does not affect SM's claim. Given that COGSA has no application between SM and ITT, or between SM and the third-party defendants, Grace Lines is distinguishable and cannot be used to decide this case.

Furthermore, the application of COGSA to indemnification claims might thwart the purpose of R 14 of the Federal Rules of Civil Procedure by denying the defendant a rightful claim for indemnity: Francosteel Corp v SS Tien Cheung 375 F Supp 794 (SDNY 1973) (Francosteel). While such risks may be tolerated when, as in Grace Lines, the relative rights of the parties are governed by COGSA, application of COGSA where the rights and liabilities of the parties are not based on COGSA cannot be justified.

Thus, COGSA does not bar SM's third-party claim for indemnity and contribution. The general rule applies and SM's third-party claim is not time-barred.

Finally, in the absence of agreement, a stevedore is neither bound by the terms of a bill of lading nor regulated by the provisions of COGSA: Robert C Herd & Co v Krawill Machinery Corp 359 US 297, 301-02 (1959) (CMI1735); Stein Hall & Co v SS Concordia Viking 494 F 2d 287, 291 (2d Cir 1974).

Separately, Tate Cir J wrote a special but concurring opinion to state that Grace Lines should have been decided differently. Francosteel should have applied to prevent the application of the COGSA time bar to any action for indemnity or contribution not founded solely on subrogation. Otherwise, a cargo claimant has the ability to manipulate the time limitation in order to favour one possible tortfeasor over another. Policy dictates that even in the COGSA context, the general rule on actions for indemnity or contribution should apply. Admittedly, contrary policy reasons have some weight. The COGSA time bar on bringing cargo damage claims might have been designed to bar not only claims for cargo damage, but also claims for indemnity or contribution arising out of such cargo damage claims such as those by charterers or stevedores for cargo damage for which they are held liable to the cargo owner, but for which, as between the shipowner and themselves, the shipowner is primarily or partially liable. A defendant's delayed claim for indemnity or contribution, in this latter instance, presents problems and policy issues similar to those that arise when suit for the cargo damage itself is unduly delayed. Nevertheless, the weight of policy reasons favours indemnity claims in such situations, without regard to COGSA's time bar. As between potential defendants, an opportunity to hold liable the party primarily responsible should not be foreclosed by plaintiff choice.