Komatsu Ltd contracted with States Steamship Co (States) to ship a tractor on the SS Colorado from Kobe, Japan, to Seattle, Washington, USA.

States issued its regular form ocean bill of lading for the carriage of the tractor, which contained a paramount clause providing:

1. (a) As far as this bill of lading covers the carriage of goods by water, this bill of lading shall have effect subject to the Carriage of Goods by Sea Act of the United States, 1936, (COGSA), (or any other enactment of Hague Rules where applicable) to the extent, but only to the extent, required by such Act, and to that extent is deemed to be incorporated herein. During any time when COGSA is not applicable by its own terms and the carrier has any responsibility by law or otherwise with respect to cargo, such responsibility shall be governed by, and limited to, that prescribed by Subsections ... (5) and (6) of Section 4, ... which subsections ... are incorporated herein by reference and made a part hereof.

Clause 18 of the bill of lading stated:

18. Reference is hereby made specifically to value limitations (46 U.S.Code 1304(5)) and time limitations for filing claim and bringing suit (46 U.S.Code 1303(6)) which shall apply and are incorporated herein by reference.

Komatsu Ltd endorsed the bill and sent it to Komatsu America Corp (Komatsu America) for negotiation when the tractor arrived. Before Komatsu America could present the bill to States, the tractor was damaged while being unloaded at Seattle by the stevedore, American President Lines Ltd (APL). The tractor was declared a constructive total loss and later sold for salvage at one-fourth of its invoice value.

Alleging that APL had caused damage to the tractor in excess of USD 16,500, Komatsu Ltd, Komatsu America, and the cargo insurance underwriter, Nippon Fire & Marine Insurance Co Ltd (collectively, Komatsu) sued States for breach of the contract of carriage and sued APL for negligence.

States and APL (the defendants) claimed that liability, if any, was limited to USD 500 under § 4(5) of the US Carriage of Goods by Sea Act (COGSA), 46 USC § 1304(5), and under the terms of the bill of lading. COGSA § 4(5) provides:

Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be prima facie evidence, but shall not be conclusive on the carrier.

On cross-motions for summary judgment, the District Court for the Western District of Washington entered partial summary judgment for Komatsu, holding the defendants liable for the damage to the tractor, and denying the defendants the benefit of the COGSA § 4(5) damage limitation.

The defendants appealed.

Two issues were raised on appeal: first, whether an ocean carrier is entitled to the damage limitation in COGSA § 4(5) if it incorporates COGSA by reference into its bill of lading; and, second, whether the filing of a carrier's tariff with the Federal Maritime Commission constitutes constructive notice and fair opportunity to the shipper to avoid the package limitation.

In this regard, the defendants argued that they had given fair opportunity because the bill of lading included the paramount clause, and therefore Komatsu was placed on constructive notice of the option to declare a higher value.

Second, the defendants contended that Komatsu had constructive notice of the opportunity to declare a higher value because its tariff, filed with the Federal Maritime Commission pursuant to the Shipping Act, 46 USC § 817(b), includes such a provision. Rule 26 of the tariff states:

The liability of the carrier as to the value of shipments at the rates herein provided shall be determined in accordance with the clauses of the respective carrier's regular Bill of Lading form. If the shippers desire to be covered for a valuation in excess of that allowed by the carrier's regular Bill of Lading form, the shippers must so stipulate in carrier's Bill of Lading covering such shipments and such additional liability only will be assumed to be the carrier's at the request of the shippers and upon payment of an additional charge of 5.2% ad valorem of the total declared valuation in addition to the stipulated rate on the commodities shipped as specified herein.

The shippers who have elected to show value of the goods on the Bill of Lading shall be deemed to have desired to be covered for the value in excess of that allowed by the carrier's regular Bill of Lading form, and must be assessed the above-mentioned additional charge.

In response, Komatsu argued that, even if it could be charged with knowledge of the tariff's terms, the applicability of Rule 26 was dependent upon the bill of lading expressly limiting the carrier's damage liability. It contended that the bill of lading did not satisfy this pre-condition, because it failed to give Komatsu effective notice that a package limitation existed. Without such notice, it could not be charged with knowledge of the tariff's option to declare a higher value.

Held: Judgment affirmed.

The defendants presented no evidence to indicate, prima facie, that Komatsu had a 'fair opportunity' to declare a higher value.

COGSA applies to this contract on its own strength with respect to the shipper and carrier because it is a contract for carriage between a foreign port and a port of the United States: 46 USC §§ 1300, 1312. It also applies contractually because the terms of the bill of lading make the transaction subject to COGSA: 46 USC § 1312. The bill of lading also contains a Himalaya clause, which extends COGSA's provisions to the stevedore APL on the same terms and availability as the carrier: Tessler Brothers (BC) Ltd v Italpacific Line 494 F 2d 438, 445-46 (9th Cir 1974) (Tessler).

Section 4(5) of COGSA limits a carrier's liability to USD 500 unless the nature and value of the shipped goods is declared by the shipper and inserted in the bill of lading. To guarantee that carriers respect the statutory option to declare a higher value and as a contract principle used in interpreting damage limitations authored by carriers, carriers are permitted to limit liability to an amount less than the actual loss only if the carrier gives the shipper 'a fair opportunity to choose between a higher or lower liability by paying a correspondingly greater or lesser charge ....': Tessler 443. The 'fair opportunity' rule reflects both the US courts' historic reluctance to enforce carrier damage limitation provisions (The Kensington 183 US 263 (1902)), and the judicial recognition that Congress enacted COGSA and the Harter Act to counteract the persistent efforts of carriers to insert all-embracing exceptions to liability in bills of lading: Tessler 444. The burden of proving the existence of 'fair opportunity' is initially upon the carrier.

Express recitation in a bill of lading of the language contained in COGSA § 4(5) is prima facie evidence that the carrier gave the shipper that opportunity and places the burden on the shipper to prove that such an opportunity did not exist in fact: Tessler 443; Isbrandtsen Co v United States 201 F 2d 281, 285 (2d Cir 1953).

The defendants claimed that they met their evidentiary burden by including in the bill of lading the paramount clause, which indicated that COGSA's provisions governed the parties' contractual relations. The defendants reasoned that Komatsu would have discovered the damage limitation contained in COGSA § 4(5) and the section's statement that a shipper may raise the damage limitation by declaring a higher value if it had read COGSA's provisions. The defendants argued that Komatsu should be charged with constructive notice of the option to declare a higher value as the paramount clause incorporated all of COGSA's provisions into the bill of lading by reference. However, the defendants' arguments are contrary to Pan American World Airways Inc v California Stevedore & Ballast Co 559 F 2d 1173 (9th Cir 1977) (CMI1798) (Pan Am). The result in Pan Am is premised on the principle that a shipper is not to be charged with constructive notice of the damage liability limitation in COGSA.

The defendants also relied on cl 18 of the bill of lading as prima facie evidence that it gave Komatsu a 'fair opportunity' to declare a higher value. However, cl 18 does not meet the Pan Am requirement that the 'opportunity' to declare a higher value must 'present itself on the face of the bill of lading' to constitute prima facie evidence: Pan Am 1177. Clause 18 contains only an oblique reference to the contents of a statutory section. Shippers are not to be charged with constructive notice of the minute details of COGSA. Therefore, the defendants did not give Komatsu a 'fair opportunity'.

As to the tariff issue, Komatsu's argument has merit. The tariff does not constitute prima facie evidence that Komatsu had a 'fair opportunity' to declare a higher value.

Separately, the defendants' contention that COGSA § 13, 46 USC § 1312, requires carriers to employ incorporation by reference was rejected as meritless because that section leaves a carrier free to quote the language of § 4(5) in full. The fact that reprinting § 4(5) in full would lengthen shipping forms is not a reason to disregard case law precedent.

Finally, the defendants requested that the case be remanded to the District Court to determine whether Komatsu in fact was aware of the option to declare a higher value. However, the defendants failed to raise this issue at first instance and did not provide any reason for this failure. Remand is therefore inappropriate.