This case arose from cargo damage to 1,300 cartons of encyclopaedias transported from New York, United States, to Yokohama, Japan. The damaged cartons were part of a shipment of 4,080 cartons. The plaintiff shipper brought an action against the defendant carrier. The damaged cargo was in containers which were stowed on the weather deck and were spoiled by sea water. The bills of lading stated that the cargo was received in ‘apparent good order and condition’. The short form bill of lading, which was provided to the shipper after loading, incorporated terms of the carrier's regular form bill of lading. The regular form bill of loading included a clause (cl 13) providing the carrier the option to stow on deck, as well as providing the carrier with immunity from any claims of loss or damage. The District Court accepted the defence of the carrier that it was immune due to cl 13. The shipper appealed.

Held (Kennedy Cir J delivering the opinion of the Court): Reversed and remanded for determination of damages.

The central issue of this case is the shipper's claim that the carrier issued to it a clean bill of lading which imported below-deck stowage and that the carrier deviated therefrom by stowing six of the containers on deck. The District Court held in support of the carrier’s contention that it did not issue a clean bill, because cl 13 of the bill of lading itself 'specifically addresses itself to the question of on-deck stowage, stating that ... it is agreed it is proper to and they (the goods) may be stowed on deck …’. In terms of cl 13, the carrier had the option to stow the containers above or below deck, unless the shipper notified the carrier in writing that under-deck stowage was required. This notification was to be made before delivery of the goods to the carrier. The District Court concluded that the issue was a simple matter of contract, and since the shipper did not give written notice to the carrier that under-deck stowage was required, the carrier had the right to stow the goods on deck if it elected to do so.

The Court of Appeals disagreed with the District Court that the contractual relationship between the parties was a simple matter of contract. It stated that the purpose behind the Harter Act, the Hague Rules, and COGSA was to achieve a fair balancing of the interests of the carrier and the shipper. It was also to effectuate a standard and uniform set of provisions for ocean bills of lading: see Robert C Herd & Co v Krawill Machinery Corp 359 US 297, 79 S Ct 766 (1959) (CMI1735). COGSA, 46 USC § 1303(8) was an attempt by the drafters to prevent carriers escaping liability by willy-nilly contractual incorporations in the bills of lading. COGSA allows freedom of contracting out of its terms, but only in order to increase the shipowner’s liabilities.

Clause 13 of the bill of lading is a new and ingenious way which brings with it the strong likelihood of not only lessening the liabilities of the carrier, but also of stripping the shipper of all the protection afforded to it by COGSA. Clause 13 places the burden of inquiry on the shipper, in circumstances in which it is highly unlikely that such an inquiry would be made. Clause 13 has the effect of rendering COGSA ineffective, since if the shipper never made any actual representation that the goods need not be stowed under deck, and never agreed that they might be stowed on deck while it did not have any notice or knowledge of the provisions of cl 13, it would, nevertheless, by default lose the right to have its goods stowed below deck. Once the shipper has by default lost the right to under-deck stowage, the concept behind cl 13 assumes that the carrier is thereafter in a position to claim that the shipper has lost all its rights under COGSA, because § 1301 by definition eliminates deck cargo from the provisions of the Act. This leaves the carrier free to write into the bill of lading its own rules as to liability and burden of proof, just as the carrier did in the third paragraph of the clause. Clause 13 in its final sentence places the entire burden of proof of showing that loss or damage to cargo resulted from lack of due diligence or fault or neglect of the carrier on the shipper, and goes on to reiterate the provision of § 1304(2)(a) that in no event will the carrier be liable for any neglect or default in the navigation or the management of the ship. Clause 13’s attempted transfer of burden of proof to the shipper creates such a lessening of the carrier’s liability as to be impermissible under § 1303(8).

What adds to its unfairness is the context in which the ocean bill of lading functions. In accepting the short form, the shipper relies upon the fact that the long form, which is incorporated by reference, contains only the usual provisions which closely follow COGSA, unless there is some warning on the face of the short form of special terms or exceptions which differ from the COGSA provisions. If there is no definite agreement, the shipper is entitled to expect below-deck stowage. It is impractical for a shipper to be compelled to make a detailed study of all of the fine print clauses of the carrier's regular bill on each occasion before it ships out a package. One of the principal purposes of COGSA was to obviate the necessity for doing so: see the House Report H R Rep 2218 74th Cong 2d Sess 7 (1936).

There was nothing whatever on the face of the carrier's short bill of lading to indicate that the containers were deck cargo. The shipper properly assumed it was receiving a clean bill of lading, and the carrier also considered that the short form meant a clean bill. This was not, as the District Court suggested, a case of confusion between broad and narrow meanings of a 'clean bill' as described: see Givaudan Delawanna Inc v The Blijdendijk 91 F Supp 663 (SDNY 1950). Rather, a 'clean bill' was understood by the parties as importing under-deck stowage. It seems fairly clear that what happened was that the two containers were stowed, as understood, below deck, but that there was no hold space to take the remaining six containers, and they were arbitrarily stowed on deck. Even though it gave no written notice as required in cl 13, the shipper nevertheless did not lose its protections under COGSA. COGSA § 1301(c) gives the definition of 'goods'. The bill of lading (short form and regular form combined) did not state that the cargo is being carried 'on deck' as required by the definition in § 1301(c), thus covering the goods in question. The Supreme Court has held that it is the bill of lading that governs and determines how the cargo is to be stowed, not the carrier’s actions or the terms of a separate freight agreement: see St Johns N F Corp v Companhia Geral 263 US 119 (1923). Here, the bill of lading stated the option, but contained no information or declaration whatever as to how it was to be exercised. As in the St Johns case, the option could not be left to be exercised by the actual placing of the cargo on deck or below deck.

It was not disputed that the damage to the cargo was caused by sea water to which it was exposed by being stowed on deck. The carrier was liable for the full amount of damages sustained, without the benefit of the USD 500 limitation per package of COGSA: see Jones v The Flying Clipper 116 F Supp 386 (SDNY 1953). The measure of damages is the fair market value at Yokohama of the damaged sets in the condition they were in when shipped, less any salvage: see St Johns.

Hays Cir J, dissenting: The issue pivoted upon the question of whether the shipper agreed that the carrier could, if it so chose, stow the cargo on deck. The shipper should not be given protection since it 'regularly ship books to all parts of the world, but in the present instance it hired an agent, the sole business of which consists of assembling and shipping cargo and which conducts this business everyday with many different shipping lines'. It was the duty of the shipper’s agent, as an ordinary prudent business person regularly engaged in the shipping business, to examine the conditions under which the carrier accepted the cargo. The shipping agent was familiar with the almost universal practice of delivering the bill of lading after receipt of the goods. If the agent had been interested in the terms of the contract, it could have requested a copy of the form in advance of delivery. The shipper cannot now complain of those terms if its agent elected to not to see the terms of the contract. The Judge also dissented on the limitation of liability, stating that the case was covered by the package limitation in 46 USC § 1304(5). It is difficult to understand how the majority opinion can take the position that it is so important to protect an experienced shipper from losing the benefits of COGSA by agreeing to on deck stowage, and yet can adopt the view that a breach of the contract of carriage nullifies the carefully balanced provisions of the Act. Each of the containers should be treated as the relevant package based on the fact that the containers were delivered to the carrier by the shipper’s agent and were already packed with the individual cartons of encyclopedias. Additionally, the bill of lading delivered to the agent stated the 'No of Pkgs' and the 'Description of Packages and Goods' as '(1) One metal container No UCC-5330 said to contain: 536 ctns bound books'.