Puerto Rico Electric Power Authority (PREPA) and Henley Drilling Co (Henley) contracted to conduct petroleum drilling operations in Puerto Rico. Marine Transportation Services-Sea Barge Group Inc (Sea Barge) agreed to transport Henley's oil drilling rig from Houston to Puerto Rico and back. Henley's oil drilling rig was valued at USD 629,000. PREPA obtained marine cargo insurance for the drilling rig through William H McGee & Co (McGee) and CNA Casualty of Puerto Rico (CNA). The southbound voyage was uneventful. Sea Barge retained Luis A Ayala Colón Sucrs Inc (Ayacol) as its stevedoring contractor to stow the drilling rig on the barge for the return trip to Houston. When the barge arrived in Houston, Henley's drilling rig was missing, reportedly 'lost overboard'.

Henley sued Sea Barge, Ayacol, McGee, CNA, and PREPA in the District Court for the District of Puerto Rico. Under the terms of their settlement agreement, the rights of McGee, CNA and PREPA were subrogated to Henley, leaving Sea Barge and Ayacol as the only defendants. The central question was whether the USD 500 per package or customary freight unit limit on ocean carriage liability imposed by the Carriage of Goods by Sea Act, 46 USC § 1300 ff (COGSA), was applicable to an oil drilling rig. Sea Barge and Ayacol contended that their liability, if any, could not exceed the limit imposed by s 4(5) of COGSA, and moved for partial summary judgment. Sea Barge and Ayacol also moved for summary judgment contemporaneously. They argued that the marine surveyor retained by PREPA supervised the stowage improperly, exonerating Sea Barge and Ayacol from liability.

A Magistrate Judge recommended partial summary judgment in favour of Sea Barge and Ayacol, based on a finding that the drilling rig constituted a 'package' within the meaning of s 4(5). The Magistrate Judge did not rule on the summary judgment application for exoneration. The District Judge adopted the Magistrate Judge's report and recommendation, and dismissed McGee, CNA and PREPA's objections.

McGee and CNA appealed. McGee contended that Sea Barge did not demonstrate that its supposed entitlement to the summary judgment complied with the 'fair opportunity' requirement. There was competent evidence that Sea Barge failed to offer PREPA ad valorem rates based on the true value of the cargo. Specifically, Sea Barge failed to show that published tariffs were available for a drilling rig on this voyage. Sea Barge and Ayacol cross-appealed, arguing that the District Court did not exonerate them from all liability and did not include an attorney fee award against McGee. Sea Barge and Ayacol sought to challenge this ruling.

Held: The judgment of the District Court is affirmed in part and remanded in part.

The bill of lading indisputably provided both actual and constructive notice of the COGSA s 4(5) liability limitation. The issue was whether that notice, without more, afforded the shipper a 'fair opportunity' to avoid the liability limitation.

The courts have generally required the carrier to afford the shipper a 'fair opportunity' to avoid the liability limitation through adequate advance notice (see eg Carman Tool & Abrasives Inc v Evergreen Lines 871 F 2d 897, 899 n 3 (9th Cir 1989) (CMI1625)). However, this Court had not adopted the COGSA 'fair opportunity' doctrine (see Granite State Insurance Co v M/V Caraibe 825 F Supp 1113, 1118-24 (D Puerto Rico 1993) (CMI1473). Nevertheless, Sea Barge's bill of lading afforded a 'fair opportunity' notice sufficient to satisfy whatever other courts imposed as essential requirements.

All courts which have addressed the matter require the carrier to provide the shipper some notice of the COGSA liability limitation, differing only as to the type of notice. The Second, Fourth, Fifth, and Eleventh Circuits simply require the bill of lading to include a 'clause paramount', incorporating COGSA by reference (see eg Insurance Co of North America v M/V Ocean Lynx 901 F 2d 934, 939 (11th Cir 1990) (CMI1438); General Electric Co v Nedlloyd Lijnen BV 817 F 2d 1022, 1029 (2d Cir 1987) (CMI1668); Cincinnati Milacron Ltd v M/V American Legend 804 F 2d 837, 837 (4th Cir 1986); Brown & Root Inc v M/V Peisander 648 F 2d 415, 424 (5th Cir 1981) (CMI1469). The Ninth Circuit has a more demanding notice requirement, mandating that the carrier must provide the shipper with legible written notice of the liability limitation in the bill of lading, employing language substantially similar to s 4(5) (see eg Nemeth v General SS Corp 694 F 2d 609, 611 (9th Cir 1982).

Sea Barge's bill of lading, which has a clause paramount and valuation clause, would meet these requirements. Its clause paramount reads: 'This bill of lading shall have effect subject to the provisions of the Carriage of Goods by Sea Act, approved April 16, 1936.' Its valuation clause reads:

20. VALUATION. Carrier shall not be liable in any event for any loss, damage, misdelivery or delay with respect to the goods in an amount exceeding $500.00 lawful money of the United States per package, or in the case of goods not shipped in packages, per customary freight unit, unless the nature of the goods and a valuation thereof higher than $500.00 is declared in writing by Shipper on delivery of the goods to Carrier and inserted in the Bill of Lading and extra freight is paid thereon as required by the applicable tariff to obtain the benefit of such higher valuation.

The Court of Appeals clarified that while the bill of lading met whatever 'fair opportunity' notice requirements were imposed by other Circuits, it would refrain from embracing the 'fair opportunity' doctrine itself in any form.

The drilling rig constituted one unit. It was, strictly speaking, not a 'package'. A cargo that is shipped without any packaging is generally treated as 'not shipped in packages' (Ellen Flynn and Gina A Raduazzo, Benedict on Admiralty (1993) § 167, 16-35). A printing press shipped 'in open view, unboxed, [which] was not wrapped or crated ... was not a package as defined by COGSA' (Hanover Ins Co v Shulman Transport Enterprises Inc 581 F 2d 268, 275 (1st Cir 1978), 1979 AMC 520 (CMI1716). A free-standing portable drilling rig, which was 'for the most part' fully exposed and not enclosed in a container, was not a COGSA 'package' (Tamini v Salen Dry Cargo AB 866 F 2d 741, 743 (5th Cir 1989). An uncrated locomotive was not a COGSA 'package' (Petition of Isbrandtsen Co 201 F 2d 281, 286 (2d Cir 1953)).

Although the drilling rig was labelled as a 'package', it should be more correctly described as a 'customary freight unit'. The customary freight unit is 'generally the unit on which the freight charge is based for the shipment at issue' (Binladen BSB Landscaping v MV Nedlloyd Rotterdam 759 F 2d 1006, 1016 (2d Cir 1985), 1985 AMC 2113 (CMI1621); Granite State Insurance Co v M/V Caraibe 825 F Supp 1113, 1126 (D Puerto Rico 1993) (CMI1473)). In determining the customary freight unit, the 'District Court should examine the bill of lading, which expresses the contractual relationship in which the intent of the parties is the overarching standard' (FMC Corp v SS Marjorie Lykes 851 F 2d 78, 80 (2d Cir 1988)). The unit upon which freight was charged is determined by looking 'to the parties' intent, as expressed in the Bill of Lading, applicable tariff, and perhaps elsewhere' (Croft & Scully Co v MV Skulptor Vuchetich 664 F 2d 1277, 1282 (5th Cir 1982) (CMI1646). However, there was no evidence that Sea Barge's freight charge was based on anything other than a lump sum.

There had been no appellate case which requires a valid tariff - in addition to actual or constructive notice - as an element of the 'fair opportunity' doctrine. The Fifth Circuit has reserved judgment on this matter (see Couthino Caro & Co v M/V Sava 849 F 2d 166, 170 n 6 (5th Cir 1988)). Other Courts of Appeals either directly hold that a tariff is not required if notice of the COGSA liability limitation has been given (see eg Ocean Lynx 901 F 2d 939), or clearly imply such a rule (see eg Carman Tool 871 F 2d 901; cp Komatsu 674 F 2d 811). In Aetna Ins Co v M/V Lash Italia 858 F 2d 190, 193 (4th Cir 1988), the Fourth Circuit held that: 'In this case [language reciting the COGSA liability limitation in the] bill of lading establishes prima facie evidence of fair opportunity by clearly outlining the limitation of liability and explaining the shipper’s opportunity to avoid the limitation by declaring a higher value.' The Ninth Circuit in Carman Tool 871 F 2d 900 observed in a similar context:

We decline to expand the fair opportunity requirement as suggested by [shipper]. The requirement is not found in the language of COGSA; it is a judicial encrustation, designed to avoid what courts felt were harsh or unfair results. The requirement has been criticised for introducing uncertainty into commercial transactions that should be governed by certain and uniform rules.

This uncertainty is contrary to the intentions of COGSA. In Vimar Seguros y Reaseguros SA v M/V Sky Reefer 29 F 3d 727, 728 (1st Cir 1994), the First Circuit held that 'COGSA was ... intended to reduce uncertainty concerning the responsibilities and liabilities of carriers, responsibilities and rights of shippers, and liabilities of insurers'.

Accordingly, the Court eschews McGee's implicit invitation to augment the 'fair opportunity' doctrine.