Mori Seiki USA Inc (the plaintiff–appellant) was the consignee of a precision lathe that was being transported from Nagoya, Japan, to Houston, Texas. The shipper was Mori Seiki Japan Inc. The lathe was damaged after it was unloaded from an ocean vessel at the Port of Los Angeles, but before it was released from the seaport. The plaintiff filed suit in the District Court for the Central District of California seeking damages from the defendants. The defendants were Mitsui OSK Lines Ltd (the ocean carrier), the MV Alligator Triumph, Camellia Container Carrier SA Panama (the charterer or operator of the vessel), Trans Pacific Container Service Corp (the seaport operator), and Marine Terminals Corp (the stevedore services firm) which unloaded and handled the lathe.

Section 7(2)(i) of the bill of lading read:

[W]ith respect to loss or damage occurring during the period from the time when the Goods arrived at the sea terminal at the port of loading to the time when they left the sea terminal at the port of discharge ... [the carrier shall be responsible for such loss or damage] to the extent prescribed by the applicable Hague Rules Legislation ...

It was undisputed that the Carriage of Goods by Sea Act (COGSA) constitutes the 'Hague Rules Legislation' which is applicable to this case.

After partial summary judgment and trial, the District Court held that the carrier's bill of lading limited the cumulative liability of all parties to USD 500 by contractually extending the liability limits already applicable under COGSA.

Dissatisfied, the plaintiff appealed. The plaintiff contended that COGSA's liability limitation was not extended under the bill of lading. The plaintiff argued that under 'section 2' of the bill of lading, COGSA applied to the contract only to the extent that it applied by its own terms. Section 2 of the bill of lading read:

As far as this Bill of Lading covers the carriage of the Goods by water, this Bill of Lading shall have effect subject to the provisions of the International Carriage of Goods by Sea Act, 1957 of Japan, unless it is adjudged that any other legislation of a nature similar to the International Convention for the Unification of Certain Rules relating to Bills of Lading signed at Brussels on August 25, 1924 compulsorily applies to this Bill of Lading, in which case it shall have effect subject to the provisions of such legislation, and the said Act or legislation (hereinafter called Hague Rules Legislation) shall be deemed to be incorporated herein.

The plaintiff argued that Japan's International Carriage of Goods by Sea Act (JCOGSA) governed the bill of lading, unless some other Hague Rules Legislation applied. Where some other country's legislation applied, it only applied to the extent that it applied 'compulsorily', that is, to the extent of its own terms. The plaintiff's conclusion was that because COGSA, which applied here, applied by its own terms only from tackle to tackle under 46 USC § 1301(e), the apparent extension of the limitation period in s 7(2)(i) of the bill of lading was ineffective. In the alternative, the plaintiff argued that the bill of lading was ambiguous and should be construed in the plaintiff's favour. The plaintiff also argued that the shipper was not afforded a 'fair opportunity' to declare a higher value for the lathe. Finally, the plaintiff appealed against the District Court's holding that the stevedore services firm was covered by the Himalaya clause in the bill of lading and was therefore entitled to enjoy the USD 500 package liability limit.

Held: Judgment affirmed.

The Court held that the bill of lading effectively extended the application of COGSA (and its USD 500 package liability limit) beyond the tackles, and that the shipper was given a fair opportunity to opt for a higher liability limit. The Court also held that the Himalaya clause extended the ocean carrier's COGSA defences to the stevedore services firm.

COGSA applies to all cargo shipments which are carried by sea, to or from the United States: see 46 USC §§ 1300-1315. By its own terms, COGSA limits liability for cargo damage to USD 500, if the damage occurs between the time the cargo is loaded on to the ship and the time it is discharged from the ship (ie the tackle to tackle period): see 46 USC §§ 1301(e), 1304(5). COGSA permits parties to contractually extend this time period: see 46 USC § 1307.

Section 7(2)(i) of the bill of lading extended COGSA's liability limitation to the period after the lathe was discharged from the ship, but before it was released from the sea terminal. 46 USC § 1307 contemplates and authorises such an extension. At least two cases have read substantially similar language in the same way: see BMA Industries Ltd v Nigerian Star Line Ltd 786 F 2d 90, 91 (2d Cir 1986) (CMI1622); GAF (Osterreich) GmbH v Dart Containerline Co Ltd 541 F Supp 9, 11 (D NJ 1981) (CMI1472).

The plaintiff misconstrued s 2 of the bill of lading. Though the language states that JCOGSA will apply unless another statute applies 'compulsorily', it does not state that such a statute will apply only to the extent it applies by its own terms. Where another statute is applicable, s 2 clearly states that 'it shall have effect subject to the provisions of such legislation, and ... shall be deemed to be incorporated herein'. Under its own terms, the statute which is compulsorily applicable to the bill of lading in this case, COGSA, permits the extension of the liability limitation period. Accordingly, the extension under s 7(2)(i) is not undermined by s 2. The plaintiff's reliance on Allstate Insurance Co v International Shipping Corp 703 F 2d 497 (11th Cir 1983) was misplaced because the bill of lading in Allstate did not include a provision like s 7(2)(i).

The Court did not find any ambiguity in the bill of lading.

The shipper was given a fair opportunity to opt for a higher liability limit.

Under Ninth Circuit law, a carrier may take advantage of COGSA's USD 500 liability limit only if it gives the shipper a 'fair opportunity' to opt for a higher liability by paying a correspondingly higher freight rate. Carman Tool & Abrasives Inc v Evergreen Lines 871 F 2d 897, 899 (9th Cir 1989) (CMI1625); Komatsu Ltd v States SS Co 674 F 2d 806, 809 (9th Cir 1982); Tessler Bros (BC) Ltd v Italpacific Line 494 F 2d 438, 443 (9th Cir 1974). The purpose of this requirement is 'to give the shipper notice of the legal consequences of failing to opt for an ad valorem freight rate': Carman Tool 899.

In a dispute over 'fair opportunity', the carrier bears an initial burden of producing prima facie evidence which demonstrates that it provided such notice to the shipper. Carman Tool 899. The carrier can normally 'meet this initial burden by showing that the language of COGSA Section 4(5) [liability limitation] is contained in the bill of lading': Nemeth v General SS Corp Ltd 694 F 2d 609, 611 (9th Cir 1982). Language in the bill of lading 'to the same effect' as the statute is adequate: Pan American World Airways Inc v California Stevedore & Ballast Co 559 F 2d 1173, 1176 (9th Cir 1977) (CMI1798). On the other hand, the mere incorporation of COGSA by reference is not adequate: Komatsu 809-10. Once the carrier meets this initial burden, 'the burden of disproving fair opportunity [shifts] to the shipper': Carman Tool 899.

The plaintiff did not challenge the adequacy of the language contained in the bill of lading, which (according to the District Court) tracked the language of the statute and therefore satisfied the carrier's initial burden of proving 'fair opportunity'. The plaintiff offered three other reasons why the bill of lading did not satisfy the carrier's initial burden: (1) the warning of the liability limitation did not appear on the front page of the bill of lading; (2) there was no space on the bill of lading to insert a higher value for the shipment; and (3) the language was printed in illegibly small print.

The Court found none of these reasons persuasive.

As to reason (1), the plaintiff did not cite any Ninth Circuit case which requires that a warning regarding COGSA's liability limitation appear on the front page of a bill of lading. The Court agreed with the District Court's observation that although some cases have referred to the 'face of the bill of lading', 'no technical rule of law is established by this convenient turn of phrase'. The carrier's initial burden is satisfied if the appropriate language appears 'in the bill of lading': Carman Tool 899; Komatsu 809.

As to reason (2), the plaintiff conceded that there was no Ninth Circuit case law requiring that a bill of lading include a space for the shipper to declare a higher liability limit. The Court declined the plaintiff's invitation to hold that such a space is mandatory. There was at least one case where the carrier's burden was found to be met without reference to whether such a space had been provided: Tessler 443.

As to reason (3), the Court agreed with the District Court that the print of the bill of lading, though 'fine', could be read with the naked eye, and was therefore adequate for the purposes of fair opportunity. In contrast, an 'illegible recitation' of the COGSA liability limitation would not provide adequate notice and therefore would not constitute prima facie evidence of a fair opportunity: Nemeth 611-12, which had a bill of lading that was 'microscopic and blurry' and 'illegible to the unaided eye'. The plaintiff cited a recent Second Circuit case that compared the precise size of standard typeface, in lines per inch, with the size of typeface used in a bill of lading: Monica Textile Corp v SS Tana 952 F 2d 636, 641 (2d Cir 1991). The Court rejected the plaintiff's suggestion to adopt such a strict and technical approach to assessing legibility.

Accordingly, the Court rejected the plaintiff's argument that reasons (1)-(3), considered cumulatively, disqualify the bill of lading as prima facie evidence establishing fair opportunity. The Court found that the carrier met its initial burden by establishing prima facie evidence of fair opportunity. The burden having shifted, the Court found that the plaintiff had failed to provide any specific evidence that it was denied such an opportunity.