On 28 February 1995, Caterpillar Inc (Caterpillar) delivered 15 items of construction equipment to the M/V Seijin at Antwerp, Belgium, for carriage to Baltimore, Maryland, USA. Wallenius Lines (Wallenius Lines North America Inc), the vessel's charterer, was the carrier. The carrier gave Caterpillar a Datafreight Receipt (DFR, or Antwerp DFR), which was prominently marked as non-negotiable. The DFR stated that it:

is not a document of title to the goods [but] is deemed to be a contract of carriage which is subject to the exceptions, limitations, conditions and liberties ... set out in the Carrier's standard Terms and Conditions applicable to the voyage covered by this Datafreight Receipt and operative on its date of issue. Every reference in the Carrier's Standard Conditions of Carriage to the words 'Bill of Lading' shall be read and construed as a reference to the words 'Non-Negotiable Datafreight Receipt' and the terms and conditions thereof shall be read and construed accordingly.

Among the excerpts from the carrier's standard terms and conditions of carriage reproduced on the DFR was the following:

RESPONSIBILITY

11. Clause Paramount

(1) .... During any periods of carriage by water under this [DFR] the carriage shall be subject at all such times to

(a) The Hague Rules (meaning the provisions of the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924) as enacted in the country of shipment, or if no such enactment is in force, as enacted in the country of destination, but in respect of shipments to which no such enactments are compulsorily applicable, the terms of the U.S. Carriage of Goods by Sea Act ... shall be considered incorporated herein as if set forth at length; or

(b) The Hague Visby Rules (meaning the Hague Rules as amended by the Protocol signed at Brussels on 23rd February 1968) in courts where they apply compulsorily.

After taking on Caterpillar's cargo, the vessel sailed to Southampton in the UK, where the carrier and Caterpillar contracted to ship 24 additional items of construction equipment to Baltimore. The carrier issued a second DFR (the Southampton DFR), the terms of which are substantially the same as those of the Antwerp DFR. The Southampton DFR also stated that it was non-negotiable and incorporated the 'Carrier's Standard Conditions of Carriage applicable to the voyage', but recited from those standard conditions the following clause:

2. responsibility.

The Hague Rules contained in the international convention for the unification of certain rules relating to bills of lading, dated Brussels the 25th August, 1924 as enacted in the country of shipment shall apply to this Contract. When no such enactment is in force in the country of shipment, the corresponding legislation of the country of destination shall apply, but in respect of shipments to which no such enactments are compulsory [sic] applicable, the terms of the said convention shall apply.

The Southampton DFR also provided that the:

Carrier's Standard Conditions of Carriage incorporate the Hague Rules contained in the Brussels Convention dated 25th August 1924 and any compulsorily applicable national enactment of these rules.

At Southampton, the vessel also took on for carriage to Baltimore 81 pieces of construction equipment from JCB Sales Ltd (JCB) for which it issued a DFR identical to Caterpillar's Southampton DFR. After a stopover in Halifax, Canada, the vessel delivered the bulk of the cargo at Baltimore in a seriously damaged condition.

The cargo interests (JCB, Caterpillar, and Land Rover Exports Ltd) sued (in two subsequently consolidated suits) the carrier, the vessel in rem, and the owner of the vessel, San Clemente Shipping SA.

The defendants, in an attempt to avoid the higher limits of liability under the Hague Rules as amended by the subsequent Protocols, sought unsuccessfully to limit their liability to USD 500 per package pursuant to the US Carriage of Goods by Sea Act (COGSA). The dispute was primarily whether the language in the DFRs expressing an intent to apply the 'Hague Rules ... as enacted in the country of shipment' includes the Hague Rules as amended by the subsequent Protocols.

At first instance, the District Court for the Southern District of New York ruled that the only contracts of carriage to which COGSA applies are those 'covered by a bill of lading or any similar document of title': 46 USC App § 1301(b). COGSA did not apply to the claims because the DFRs were not documents of title, and therefore could not be bills of lading. The District Court held that the 'as enacted' language of the DFRs indicated an intent to apply the Hague Rules that were in force in the countries of shipment, ie the Hague Rules as amended by the Protocols: see JCB Sales Ltd v M/V Seijin 921 F Supp 1168 (SD NY 1996), 1996 WL 183017, 1996 US Dist LEXIS 4941, 1996 AMC 1507.

The defendants appealed, contending that the District Court made a number of errors.

Their first contention was that the District Court erred in holding COGSA inapplicable on the ground that a DFR is not a 'bill of lading or similar document of title' within the meaning of COGSA. While conceding that the DFRs were not documents of title, the defendants argued that the DFRs were forms of sea waybills and, as such, were the functional equivalents of non-negotiable straight bills of lading.

Their second contention was that the Harter Act applied.

Their third contention was that the District Court's interpretation of the DFRs contravened Indussa Corp v SS Ranborg 377 F 2d 200, 203 (2d Cir 1967) (Indussa).

Held: Judgments affirmed.

COGSA represents the codification of the United States' obligations under the Hague Rules.

The Hague Rules was the culmination of a multinational effort 'to establish uniform ocean bills of lading to govern the rights and liabilities of carriers and shippers inter se in international trade': Robert C Herd & Co v Krawill Machinery Corp 359 US 297, 301 (1959) (CMI1735).

A prominent feature of COGSA is its limitation of liability in the event of damage to or loss of cargo to '$500 per package ... or ... per customary freight unit ... unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading': 46 USC App § 1304(5).

The Hague Rules, as enacted in COGSA, have remained the law in the US since 1936 notwithstanding dramatic changes in the shipping industry which led to the adoption of the Visby Protocol in 1968. The Visby Protocol increased the limitation on the carrier's liability to the higher of 'the equivalent of 10,000 francs per package or unit or 30 francs per kilo of gross weight of the goods lost or damaged'. A subsequent 1979 Protocol (the SDR Protocol) further amended the limitation to provide for its calculation based on 'special drawing rights' (SDRs). The SDR is a fluctuating unit of account determined by the International Monetary Fund.

Because the United States ratified neither the Visby Protocol nor the SDR Protocol, the USD 500 liability limitation controls in cases where COGSA applies. In contrast, both Belgium and the UK employ the higher limitation set out in the SDR Protocol. If the USD 500 limitation of COGSA had been applied, the defendants' liability to JCB would have been USD 18,061.84, rather than USD 648,662.35 under the SDR Protocol. Similarly, the defendants' liability to Caterpillar would have been USD 5,094.06, rather than USD 128,141.36.

COGSA applies to 'all contracts for carriage of goods by sea to or from ports of the United States in foreign trade': 46 USC App § 1312. However, the enacting clause of COGSA provides that it regulates rights and liabilities under '[e]very bill of lading or similar document of title which is evidence of a contract for the carriage of goods by sea to or from ports of the United States, in foreign trade': 46 USC App § 1300. Section 1301(b) defines 'contract of carriage' as applying 'only to contracts of carriage covered by a bill of lading or any similar document of title, insofar as such document relates to the carriage of goods by sea'.

The defendants' first contention is irrelevant. If the parties intended to incorporate higher liability limitations into their contracts of carriage, whether the DFRs are bills of lading covered by COGSA is immaterial for the issue of damages. COGSA, under 46 USC App § 1305, allows parties to contract out of the terms of COGSA, but only in the direction of increasing the shipowner's liabilities: see for example Leather's Best Inc v SS Mormaclynx 451 F 2d 800, 815 (2d Cir 1971). COGSA provides in 46 USC App § 1305:

A carrier shall be at liberty to surrender in whole or in part all or any of his rights and immunities or to increase any of his responsibilities and liabilities under this chapter, provided such surrender or increase shall be embodied in the bill of lading issued to the shipper.

In particular, the parties can agree for a higher limitation of liability under 46 USC App § 1304(5), which contains the USD 500 maximum per package limitation, states in relevant part:

By agreement between the carrier, master, or agent of the carrier, and the shipper another maximum amount than that mentioned in this paragraph may be fixed: Provided, That such maximum shall not be less than the figure above named. In no event shall the carrier be liable for more than the amount of damage actually sustained.

The incorporation of the Hague Rules as modified by the Visby Protocol into the contract of carriage is an agreement with the meaning of 46 USC App § 1304(5): Francosteel Corp v M/V Deppe Europe No 90 Civ 1442, 1990 WL 121683 *2 (SD NY, 10 August 1990).

Further, the defendants' argument that a DFR, while not being a document of title, is at the same time the functional equivalent of a non-negotiable straight bill of lading (which is, by definition, a document of title: see Associated Metals & Minerals Corp v S/S Jasmine 983 F 2d 410, 413 (2d Cir 1993) (CMI1615)) is somewhat of an oxymoron.

As to the defendants' second contention, because COGSA continues to exist, the Harter Act does not govern the provisions at issue. With the enactment of COGSA, the Harter Act's coverage for damage occurring at sea was 'superseded' or 'repealed'. Assuming for the sake of argument that the parties could restore the application of the Harter Act by agreement, on the evidence, the parties did not intend to do so.

The District Court's holding that the 'as enacted' language of the DFRs indicated an intent to apply the Hague Rules that were in force in the countries of shipment, ie the Hague Rules as amended by the Protocols, is correct. Three other decisions have held that a document incorporating the law of the country of shipment, as in the instant case, adopted that country's interpretation of the Hague Rules, which treated the Rules and the Protocol together: Ilva USA Inc v M/V Botic No 92-717, 1992 WL 296562 *2 (ED Pa, 6 October 1992); Associated Metals & Minerals Corp v M/V Arktis Sky No 90 Civ 4562, 1991 WL 51087 *3 (SD NY, 3 April 1991); ATICAM v Cast Europe (1983) Ltd 662 F Supp 1443, 1448 (ND Ill 1987). Despite decisions to the contrary, eg Sunds Defibrator Inc v M/V Atlantic Star 1986 AMC 368 (SD NY 1983), the Court found the reasoning in these three decisions to be more persuasive. Further, the Visby Protocol is drafted in such a way as to supplement the Hague Rules, rather than to supplant them. The Court also noted that the Carriage of Goods by Sea Act 1971 (UK) reads as an amendment to existing law, ie the Hague Rules, and not as an independent statute.

As to the defendants' third contention, the District Court's interpretation of the DFRs does not contravene Indussa. Indussa was recently overruled by Vimar Seguros y Reaseguros SA v M/V Sky Reefer 515 US 528 (1995) (Sky Reefer) (CMI1456). Indussa held that forum selection clauses were invalid under COGSA because requiring 'an American plaintiff to assert his claim only in a distant court lessens the liability of the carrier' in contravention of 46 USC App 1303(8): Indussa 203. This was true not only because of the added expense of litigating abroad, but also because trial 'in a foreign court would almost certainly lessen liability if the law which the court would apply was neither [COGSA] nor the Hague Rules': Indussa 203. While application of the Visby Protocol might lessen a carrier's liability under COGSA in a general sense, hypothetical examples are irrelevant. The sole issue in the instant case is whether the parties intended to apply the higher liability limitation of the Hague Rules as enacted in the countries of shipment. Giving effect to that intent does not offend § 1303(8) of COGSA.