MC Machinery Systems Inc (the plaintiff) shipped a cargo of plastic injection moulding machine from Japan to Illinois, USA, on one of Hapag-Lloyd America Inc's vessels, the California Saturn. The shipment was covered by a bill of lading containing a Himalaya clause. The plaintiff did not declare the value of the goods in the bill of lading. Maher Terminals Inc (the defendant) discharged the cargo at Port Elizabeth, New Jersey, placed the cargo on a MAFI low bed trailer, and hauled it to the marine terminal for storage until the plaintiff's trucker arrived to pick it up.

The cargo was available for pickup during the six days after discharge from the California Saturn. The plaintiff was notified to retrieve the cargo and made the arrangements to do so. As the defendant prepared the cargo for the plaintiff's collection, its crane lifted the cargo from the MAFI to place it on the ground, but a cable slipped. The cargo fell to the ground and was damaged. The plaintiff claimed USD 369,932 in damages, and the defendant sought to limit its liability under the bill of lading.

The Law Division of the Superior Court limited the defendant's liability to USD 500. The plaintiff did not declare the value of the cargo in the bill of lading. The Harter Act, 46 USC §§ 190 ff, extended the period by which the bill of lading governed, so that any third parties enjoying the protection of the Himalaya clause would continue to be protected until the 'proper delivery' of the goods. The defendant's stringpiece was not a 'fit and customary wharf'. Stripping cargo from the MAFI occurred before 'proper delivery' under the Harter Act. The Law Division's decision was affirmed by the Appellate Division of the Superior Court.

The plaintiff appealed to the New Jersey Supreme Court.

Held (Poritz CJ, Garibaldi, Coleman, Verniero, O'Hern JJ): The judgment of the Appellate Division is affirmed.

The majority of the Court held that the defendant's liability for damage caused to the machine was limited to USD 500 under the Carriage of Goods by Sea Act, 46 USC § 1300 ff (COGSA), and pursuant to the bill of lading's Himalaya clause. The Himalaya clause extended all the benefits available to Hapag-Lloyd to the defendant, as a sub-contractor, including the USD 500 liability limitation. The Harter Act did not invalidate the bill of lading's protection, because 'proper delivery' of the machine did not occur.

The majority opinion surveyed the relevant history of maritime law and the events that led to the enactment of the Harter Act and COGSA. By the end of the 19th century, carriers began including broad exculpatory clauses in bills of lading. As a result, bills of lading became 'so unreasonable and unjust in their terms as to exempt [the carrier] from almost every conceivable risk and responsibility as carrier of the goods' (Hearings before the Committee on Merchant Marine and Fisheries House of Representatives, 74th Cong, 2d Sess 8 (1936)). Bills of lading were so long and complex that it became impossible for shippers to read them in the ordinary course of business. The carriers' continual addition of newer and stricter conditions in the bills of lading aggravated this problem. To redress the inequitable bargaining positions, US courts invalidated many of these conditions on public policy grounds. Congress enacted the Harter Act in 1893 to counteract the carriers' superior bargaining power. In other countries, however, such as the United Kingdom, courts upheld many of the carriers' terms. Since the law governing shipments from the United States differed from most parts of the world, a movement for international uniformity developed, using 'Harter Act theory'.

COGSA provided international uniformity and balanced the power between shippers and owners. In 1924, 26 nations adopted the international Convention, the Hague Rules, which established bases for shipowner liability for cargo loss or damage. The Hague Rules provided shipowners with 17 defences, and limited liability to USD 500 per package or customary freight unit. The United States domestically implemented the Hague Rules by enacting COGSA in 1936 and ratifying the Convention in the following year. The most important change introduced by COGSA was the liability limitation of USD 500 per package for the carrier and the ship in the event of damage to cargo (46 USC § 1304(5)), which applied unless the shipper declared the value of the cargo in the bill of lading. The Harter Act did not contain a provision that limited the carrier's responsibility for negligence to a specific dollar amount.

COGSA governs 'all contracts for the carriage of goods by sea to or from ports of the United States and foreign trade', provided that the contract of carriage is evidenced by a bill of lading or similar document of title (46 USC § 1312; Mendes Junior International Co v M/V Sokai Maru 43 F 3d 153, 155 (5th Cir 1995)). COGSA requires the carrier to 'properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried' (46 USC § 1303(2)). COGSA applies from 'tackle to tackle' ie the time from the loading of the goods until their discharge from the ship (46 USC § 1301(e)). The parties may, however, contractually extend the coverage of COGSA after discharge until delivery occurs, at which point the contract of carriage will terminate (B Elliott (Canada) Ltd v John T Clark & Son 704 F 2d 1305, 1307 (4th Cir 1983); Leather's Best v Mormaclynx 451 F 2d 800, 807 (2d Cir 1971)). COGSA allows an ocean carrier and shipper to enter into a special agreement concerning 'responsibility and liability', that extends the coverage of COGSA to the periods before loading and after discharge of the goods (46 USC § 1307). In the absence of such an agreement, the Harter Act applies to damage that occurs prior to loading or after discharge of cargo until proper delivery is made, because those periods are not covered by COGSA.

Proper delivery had not occurred in this case, even though the plaintiff had notice of the cargo's arrival. When the goods were damaged, the plaintiff had not taken physical control of the property. The defendant had neither finished preparing the goods for loading onto the plaintiff's vehicles, nor loaded the goods onto the plaintiff's vehicles for inland transport. The bill of lading was still in effect, and the COGSA extensions and Himalaya clause applied at the time the damage occurred, thereby limiting the defendant marine terminal's liability to USD 500 per package. If the plaintiff had declared the goods to be USD 370,000, the defendant would have been obligated to pay that sum if at fault. The freight charges would have been higher, but perhaps the insurance premiums would have been lower.

Dissenting opinion (Stein and Long JJ): The judgment of the Appellate Division should be reversed and the case remanded to the Law Division for trial to determine the amount of damages the defendant is liable for as bailee of the cargo.

The Harter Act was enacted in 1893 in response to the practices of ocean carriers that inserted exclusion clauses into their bills of lading in an attempt to limit their liability as carriers of goods. Under the Harter Act, carriers could no longer relieve themselves 'from liability for loss or damage arising from negligence, fault or failure in proper loading, stowage, custody, care, or proper delivery of any and all lawful merchandise or property committed to ... their charge' by adding broad protective language into the carriage contract. The Harter Act encompassed the vessel owner's entire period of liability, beginning from the time when the carrier or its agent accepted custody of the goods before loading, through the unloading of the goods from the vessel and continuing until the delivery to a common carrier. The Harter Act successfully struck a balance between the dominant British merchant marine, which sought to avoid responsibility for any claims based on negligent handling of cargo, and shippers that sought to hold ocean carriers liable for all damages resulting from negligence during the transport of the goods.

COGSA superseded most, but not all, of the Harter Act (Wemhoener Pressen v Ceres Marine Terminals Inc 5 F 3d 734, 741 (4th Cir 1993) (CMI1578)). The purpose of the Harter Act, COGSA, and the Hague Rules was to achieve a 'fair balancing of the interests' between ocean carriers and shippers, and also 'to effectuate a standard and uniform set of provisions for ocean bills of lading': Encyclopaedia Britannica Inc v SS Hong Kong Producer 422 F 2d 7, 11 (2d Cir 1969) (CMI1649). COGSA's goal was to 'achieve international uniformity and to redress the edge in bargaining power enjoyed by carriers over shipper and cargo interests by setting out certain duties and responsibilities of carriers that cannot be avoided even by express contractual provision' (Thomas J Schoenbaum, Admiralty and Maritime Law (2nd edn, West Pub Co 1994) 75, § 10-15). To effectuate that balance, COGSA limited liability for cargo damage to USD 500 if the damage occurred between the time cargo was loaded onto the ship to the time it was discharged, unless the shipper declared the value of the cargo in the bill of lading (46 USC § 1304(5)).

COGSA deferred to the Harter Act in dealing with questions of liability that pertain to post-discharge negligence. The Harter Act required the carrier to provide 'proper delivery'. However, the Harter Act does not define 'proper delivery'. The term has been judicially defined to mean discharge of the cargo upon a 'fit and customary wharf' (Metropolitan Wholesale Supply Inc v M/V Royal Rainbow 12 F 3d 58, 61 (5th Cir 1994)), and interpreted to include both actual and constructive delivery:

Actual delivery consists [of] completely transferring the possession and control of goods from the vessel to the consignee or his agent. Constructive delivery occurs where the goods are discharged from the ship upon a fit wharf and the consignee receives due and reasonable notice that the goods have been discharged and has a reasonable opportunity to remove the goods to put them under proper care and custody (Orient Overseas Line v Globemaster Baltimore Inc 33 Md App 372 (1976); 365 A 2d 325, 335).

Proper delivery may also be modified by the customs and usage of the port: Tapco Nigeria Ltd v M/V Westwind, 702 F 2d 1252, 1256 (5th Cir 1983) (citing Allstate Ins Co v Imparca Lines 646 F 2d 166, 168 (5th Cir 1981)).

Upon 'proper delivery', the Harter Act ceased to govern the relationship between the parties. A sea carrier's strict liability was, therefore, terminated. Thereafter, the carrier's responsibilities were those of a bailee or warehouse keeper - to take ordinary care of the property and not to abandon it or negligently expose it to injury.

The majority was correct to say that the COGSA and the Harter Act would govern the defendant's liability if the goods had been damaged during discharge but before delivery. The defendant was a sub-contractor as defined in the bill of lading, and the bill of lading extended COGSA so that its provisions applied 'while the Goods are in the custody of the Carrier or his Sub-contractor at the sea-terminal in the United States of America before loading onto the Vessel or after discharge therefrom as the case may be'.

Once proper delivery occurred, the applicability of the Harter Act and COGSA ceased, and the stevedore became responsible for the goods under the law of bailment. The majority's decision extended the definition of 'proper delivery' unnecessarily beyond the intended scope of these statutes, and was incongruent with the purpose of the Harter Act and of COGSA. While the majority correctly noted that the plaintiff had not assumed actual physical control of the goods when they were damaged, the assumption of physical control of the machinery by the plaintiff was not a requirement for determining whether proper delivery had, or had not, occurred.