In March 1995, Project Asia Line Inc (PAL) agreed to carry 6,800 mt of bagged tapioca starch for National Starch & Chemical Co (National Starch) under a charterparty on the M/V Monchegorsk from Sriracha-Siam Seaport Terminal, Thailand, to Portland, Maine. The liberty and deviation clause in the charterparty stated: 'The vessel has the liberty to sail at any port or ports in any order, for any purpose ... and also to deviate for the purpose of saving life and/or property.'

On 22 July 1995, PAL was loading the starch of assorted grades, when two grades became soaked with water because the crew was unable to close the ship's hatches in time to prevent a tropical downpour from pooling on some bags and seeping into the cargo. A test of several samples revealed unacceptable moisture content, indicating possible microbiological growth. National Starch's Thai representatives suggested offloading the cargo for a full inspection. The vessel's captain refused, and the vessel left. The vessel stopped at Masinloc in the Philippines en route to load a shipment of bulk chrome ore. The tapioca cargo was shifted to different holds to accommodate the chrome ore cargo. This operation revealed significant water damage to the tapioca cargo and the vessel's dunnage. The bill of lading identified Portland as the port of discharge. At some point, the destination was changed to Montreal, where the ore was discharged. The Montreal detour entailed an extra 1,500 miles and approximately nine extra days of travel time before docking at Portland.

On arrival in Portland, National Starch detected high levels of mould in the starch, determined that none of it could be sold to its customers, and therefore sold it to a foreign company for animal consumption at a significant discount. National Starch sued PAL for the difference between its mitigated costs and the cargo's fair market value.

The District Court for the Southern District of New York entered judgment for National Starch. The Court rejected PAL's construction that the liberty and deviation clause conferred complete discretion or power to stop 'in any order for any purpose'. The clause meant that the vessel could stop at any port along its route without deviating, and that only deviations for the purpose of saving life and/or property were reasonable. The deviation to Montreal would be 'unreasonable' under the US Carriage of Goods by Sea Act, 46 USC § 1300 ff (COGSA). The liberty and deviation clause did not contractually alter the presumption of unreasonableness under COGSA.

PAL appealed, challenging the District Court's findings that:

1. The starch was in good condition at the time of delivery to the ship in Thailand;
2. The ship's discharge at Montreal was an unreasonable geographic deviation which caused additional damage to the cargo; and
3. An award of damages could be made for the fair market value of the cargo without requiring National Starch to prove its damage bag by bag.

Held: The judgment of the District Court is affirmed.

There was no error with the District Court's finding of good pre-shipment condition.

COGSA limits a carrier's liability to USD 500 per package, but only if there was no unreasonable deviation (COGSA § 1304(5)). More particularly, COGSA § 1304(4) provides in part:

Any deviation in saving or attempting to save life or property at sea, or any reasonable deviation shall not be deemed to be an infringement or breach of this chapter or of the contract of carriage ... . Provided, however, that if the deviation is for the purpose of loading or unloading cargo or passengers it shall, prima facie, be regarded as unreasonable.

The deviation part of the charterparty clause could refer to deviations to ships and persons in distress at sea, in which case the deviation might be reasonable under these circumstances. The Court of Appeals did not need to definitively resolve this issue to decide the appeal.

PAL could not take advantage of COGSA's USD 500 per package limitation on liability, regardless of whether PAL's conduct was a breach of the charterparty. PAL did not show that the deviation was reasonable under COGSA, as required by General Electric Company International Sales Division v SS Nancy Lykes 706 F 2d 80, 87 (2d Cir 1983):

It follows that a deviation which unjustifiably exposes cargo to unanticipated risks is such a serious breach of the contract of carriage that the carrier must be deprived of the protection of the § 4(5) liability limitation ... . Indeed, exposing carriers which engage in unreasonable deviations to the risk of full liability has the salutary effect of discouraging such deviations. On the other hand, to allow carriers to limit their liability when an unreasonable deviation causes damage to cargo not only would weaken the carrier’s primary duty of care to cargo under § 3(2) of COGSA ... , but would render meaningless the § 4(4) distinction between reasonable and unreasonable deviations ... .

The bill of lading stated that '[COGSA] shall govern before loading and after discharge and throughout the entire time the goods are in the Carrier's custody'. Similar wording appeared in the bill of lading construed in General Electric.

PAL was not entitled to the USD 500 limitation of liability. The District Court found that 'any delay in time will cause increased bacterial growth, and more damage to the product', based in part on the testimony of several National Starch employees. There was no reason to overturn this finding. The Court of Appeals also upheld the District Court's finding that the extra mileage and time entailed by the Montreal deviation significantly enhanced the damage.

The District Court did not improperly relieve National Starch of the burden of proving its damages after the discharge. A bag by bag survey of the entire cargo would have been financially impracticable. Such an accounting could have been performed at less expense to National Starch before the M/V Monchegorsk left port at Thailand, but the '[s]hip's captain chose not to do it' and '[n]o satisfactory explanation was given for not doing it'. In any event, causation was presumed if the deviation was unreasonable (Hellenic Lines Ltd v United States 512 F 2d 1196, 1209 (2d Cir 1975)).