In 1992, the MV Alexander's Unity loaded steel plates at Visakhapatnam, India, for transport to the US pursuant to a charterparty between Alexander's Unity Shipping Co Ltd Valletta (AUS) and Associated Metals & Minerals Corp (AMM). During the journey to the United States, the ship encountered rough weather and seas.

Upon its arrival in New Orleans, the MV Alexander's Unity was arrested. The vessel owed debts to numerous groups, including Banque Internationale A Luxembourg SA (BIL), which held two mortgages over the MV Alexander's Unity. BIL initiated an in rem action against the ship. AMM also initiated an in rem action against the ship and in personam actions against Aus and Alexco Shipmanagement (Hellas) Ltd (Alexco), the vessel's operator. On 29 October 1992, the Marshal sold the vessel, and the proceeds of USD 4,615,000 were placed in the Court's registry. From these funds, outstanding debts owed to the master and crew of the ship and to domestically based suppliers were paid.

AMM sought a default judgment against the ship, AUS, and Alexco for USD 736,873 for seawater rust damage to the steel plates, and USD 181,340.97 for expenses resulting from the forced discharge of the steel in New Orleans instead of in Houston and Mobile, the cargo's original destinations. AMM also argued that it was entitled to interest and that the full amount of its claim constituted a preferred maritime tort lien. Finally, AMM asserted that its costs from the forced discharge of the cargo were custodia legis expenses.

The District Court granted a default judgment in favour of AMM in the amounts requested. The Court found that the MV Alexander's Unity was engaged in the common carriage of cargo, and that AMM's cargo aboard the ship was 'damaged not only from the breach of contract of carriage by the vessel but also from the physical and financial unseaworthiness of the vessel and the negligence of her owner and/or operator'. The Court also determined that 'under admiralty law, the plaintiff rightfully has a claim in tort for negligence and such a claim is a preferred maritime tort lien against the vessel, ... [and AMM's] preferred maritime tort lien against the vessel encompasses both the seawater rust damage to the cargo and the forced discharge expenses'. The Court later modified the judgment to include an additional USD 70,889.95 in forwarding expenses. This sum was not added to the custodia legis expenses, but was added to the preferred maritime tort lien, because the Court concluded that 'the financial unseaworthiness of the MV Alexander's Unity was the proximate cause of these unanticipated forwarding expenses'.

BIL appealed the District Court's findings that: (1) the plaintiff's claims were tort claims and therefore entitled to preferred maritime lien status; and (2) the plaintiff's costs surrounding the removal of the cargo were custodia legis expenses.

Held: Appeal dismissed.

BIL argues that the Carriage of Goods by Sea Act, 46 USC ss 1300 ff (COGSA) governs the contract of shipping and that Congress pre-empted the possibility of tort actions for the damages of cargo to which COGSA applies. However, this contention has no merit. It is true that COGSA is applicable to all contracts of carriage of goods by sea, and that claims surrounding the contract of carriage are governed by the rights and immunities of COGSA (s 1302 of COGSA). However, it does not follow from this that in enacting COGSA, Congress means to provide only contractual remedies for damage to cargo carried by sea.

COGSA was enacted in 1936 as part of an international effort to allocate the risks of loss or damage to cargo transported internationally. Prior to the enactment of COGSA and its international analogue, the Hague Rules, a carrier was strictly liable for damage to cargo unless it could show both that its negligence had not contributed to the loss and that the loss was caused by either an act of God, the fault of the shipper, the inherent vice of the goods, or the acts of public enemies: Wirth Ltd v S/S Acadia Forest 537 F 2d 1272, 1276 (5th Cir 1976). In response to this system, carriers began to contract around the common law rules under which they had such broad liability. These liability-limiting provisions, while generally accepted in England and other European countries, were not readily embraced in the United States. Thus, the US courts permitted carriers to limit their liability in some instances, but did not allow carriers to contract around their own negligence or their failure to provide a seaworthy ship. The disparity between domestic and foreign law regarding the permissible allocation of risks placed American shipowners at a competitive disadvantage, and left American shippers of goods at the mercy of the foreign shippers and their contracts. To remedy this situation, Congress passed the Harter Act.

The Harter Act sought to balance the interests of shipowners, who wished to contractually avoid liability for negligent damage to cargo, and shippers, who wished to hold shipowners fully responsible for negligent damage to cargo. Thus, under the Harter Act, a carrier still could not avoid liability for its failure to 'exercise due diligence' in furnishing a seaworthy vessel or for its negligent care of cargo. Yet, on the other hand, a carrier who exercised the required due diligence would not be responsible for damage caused by negligence in the navigation or management of the ship. Although the Harter Act protected the interest of domestic shippers, in most of the rest of the world, shippers remained subject to the stringent exculpatory clauses inserted into bills of lading.

In response to commercial banking and underwriting interests and after years of international wrangling, the Harter Act's compromise was adapted for international use in the Hague Rules, which were promulgated at the Brussels Convention of 25 August 1924. Twelve years later, COGSA was adopted by the US as the nation's statutory codification of the Hague Rules.

COGSA vests shipowners with certain defences in cargo cases. For example, like the Harter Act, COGSA absolves carriers and shipowners for liability for cargo damaged by an unseaworthy vessel, if the owner or carrier exercised due diligence in making the ship seaworthy (s 1304(1) of COGSA) and for losses caused by an act of God, fire, an act of a public enemy, or other specified causes (s 1304(2) of COGSA). COGSA also grants shippers freedom from cargo damage caused 'without the act, fault, or neglect of the shipper his agents, or his servants' (s 1304(3) of COGSA). Also, similar to the Harter Act, COGSA regulates shippers' ability to further limit their liability by providing that 'any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to or in connection with the goods, arising from negligence, fault, or failure in the duties and obligations provided in this section, or lessening such liability ... shall be null and void and of no effect' (s 1303(8) of COGSA). This limiting clause is the codification of the United States' common law rule preventing contractual clauses absolving shipowners for their negligence; it in no way abrogates a negligence action for the damage to cargo.

As noted above, when COGSA was enacted, it was well established that in certain situations, a claim for cargo damage could sound in tort as well as in contract, and 'we assume that Congress is aware of existing law when it passes legislation': see Miles v Apex Marine Corp 498 US 19 32 111 S Ct 317, 325, 112 L Ed 2d 275 (1990). Congress could have eliminated the negligence cause of action for damage to cargo through COGSA, but it did not. It was held in Miles that the Jones Act did not eliminate the well-established maritime cause of action for wrongful death. Thus, while COGSA provides certain parameters under which any claim for cargo must operate, the Act does not abrogate the long-standing rule of admiralty allowing certain cargo claims to sound both in tort and in a contract.

In the more than half-century that COGSA has existed, no circuit has indicated that, through COGSA, Congress intends to eliminate the tort cause of action for damage to cargo. Nor does the legislative history of COGSA manifest such an intent. Thus, it is not surprising that BIL brings neither circuit court precedent nor statutory history to the attention of this Court.

In Barretto Peat Inc v Luis Ayala Colon Sucrs Inc 896 F 2d 656 (1st Cir 1990) and Reisman v Medafrica Lines USA 592 F Supp 50 (SDNY 1984), the courts, relying on Miller Export Corp v Hellenic Lines Ltd 534 F Supp 707, 710-11 (SDNY 1982), held that COGSA's one-year statute of limitations barred claims of negligence. These cases, however, do not hold that COGSA does not allow negligence claims generally. This fact is underscored by the Second Circuit's recent statement in the MV Amolyntos 11 F 3d at 367, noting that 'an action under COGSA is a maritime action in the nature of a mixed tort, contract and bailment cause of action'.

In St Paul Fire & Marine Insurance Co v Marine Transportation Services Sea-Barge Group Inc 727 F Supp 1438, 1439 (SD Fla 1989), the Court did indicate that COGSA provided the 'exclusive remedy, barring all other theories of liability, including theories of negligence'. Nevertheless, this case merely holds that COGSA's provisions cannot be circumvented by pleading a claim in tort. Neither St Paul Fire, nor any of the other cases cited by BIL, stand for the proposition that in proper circumstances, a claim subject to COGSA cannot be a tort claim and therefore should not be afforded preferred maritime lien status.

COGSA governs certain aspects of claims for damage to cargo and provides carriers with certain defences. It does not, however, preclude claims in tort for negligent damage to cargo. In the instant case, there is no dispute that the plaintiff's cargo was damaged, not only by the breach of contract of carriage by the vessel, but also by the physical and financial unseaworthiness of the vessel and the negligence of her owners and/or operators. COGSA does not convert this hybrid action into a mere contract claim.

This is not to denigrate the importance, application, or defences of COGSA. This Court only holds that COGSA does not preclude claims for cargo damages that sound in tort.