In February 2003, Ford Motor Co (Ford) and Orient Overseas Container Line Ltd (OOCL) entered into a 'Transportation Services Main Agreement' (TSM) for the multimodal transport of Ford's auto-transmission units from Blanquefort, France, to various cities in the United States. The TSM provided for transportation of the goods by land from the inland city of Blanquefort to the French port of Le Havre; by sea to Montreal, Canada; and by land to inland cities in the United States including Louisville, Kentucky; Hazelwood, Missouri; New Hope, Minnesota; and Westland, Michigan. Pursuant to the TSM, in March 2003, Ford delivered to OOCL thousands of auto transmissions units held in racks within containers. OOCL loaded the cargoes onto the MV Canmar Pride at Le Havre. OOCL issued bills of lading for the cargoes, showing Blanquefort as the 'Place of Receipt', Le Havre as the 'Port of Loading', Montreal as the 'Port of Discharge', and multiple inland cities in the United States as the 'Place of Delivery'.

During the voyage, the vessel encountered stormy weather that washed some of the containers overboard and flooded others. Ford alleged that the storm resulted in the loss of 4,387, and damage to 840 transmission units. Royal Insurance Co of America (Royal) subsequently reimbursed Ford for the lost and damaged transmission units, pursuant to Ford’s marine insurance policy, in the amount of USD 5,700,299.20.

The District Court granted partial summary judgment for OOCL, ruling that Ford’s claims were subject to the USD 500 package limitation prescribed by the Carriage of Goods by Sea Act 46 USC § 30701 (COGSA).

Held: The District Court’s judgment is reversed, and the case is remanded for further investigation.

The ocean voyage was from Le Havre, France, to Montreal, Canada. The Hague-Visby Rules apply ex proprio vigore to the voyage because the carriage was from a port, Le Havre, in the contracting State of France. This still left open the question of COGSA applying to the ocean voyage. This question turned on whether COGSA is read according to the plain language of the statute or according to an 'ultimate destination' theory. Ford and Royal argued that COGSA did not apply as a matter of law to the carriage of goods between Le Havre and Montreal because neither is a port of the United States. In contrast, OOCL argued that COGSA applied ex proprio vigore because although Montreal served as the point of discharge, the cargo was ultimately destined for cities in the United States.

To hold that COGSA applied by its own terms to the ocean voyage between Le Havre and Montreal would contradict the plain language of the statute, the plain language being 'for the carriage of goods by sea to or from ports of the United States': see Foster Wheeler Energy Corp v An Ning Jiang MV 383 F 3d 349 (5th Cir 2004) (CMI1428), where it was held that COGSA only applied compulsorily during the tackle-to-tackle period to contracts for the carriage of goods to or from US ports in foreign trade; Schramm Inc v Shipco Transp Inc 364 F 3d 560 (4th Cir 2004) (CMI1541), where it was held that a discharge of goods occurred under COGSA when the goods were removed from the ship at the final port of destination; Nippon Fire & Marine Ins Co v MV Tourcoing 167 F 3d 99 (2d Cir 1999) (CMI1503), where it was held that COGSA applied because cargo was shipped from Japan to the United States; Pan Am World Airways Inc v California Stevedore & Ballast Co 559 F 2d 1173 (9th Cir 1977) (CMI1798), where it was observed that COGSA had been continuously interpreted as being applicable from the time the ship's tackle was hooked onto the cargo at the port of loading until the time when cargo was released from the tackle at the port of discharge; and Firestone Tire & Rubber Co v Almacenes Miramar Inc 452 F Supp 670 (D PR 1978), where it was held that COGSA applied only to goods in shipment 'between the United States and a foreign port ... and only while the goods were on board the ship'.

However, the District Court's opinion relied heavily on Tarnawski v Schenker Inc 2003 WL 22721987 (WD Wash 2003). Tarnawski held that COGSA applied as a matter of law to the carriage of goods from Hamburg, Germany, to Montreal, Canada, as part of a shipment originating in Poland with the ultimate destination of Seattle, Washington. The Tarnawski opinion provided little explanation as to why an ultimate-destination theory rather than the plain language of the statute should apply, except for citing another case, Joe Boxer Corp v Fritz Transport International 33 F Supp 2d 851 (CD Cal 1998). Joe Boxer held that COGSA did not apply as a matter of law to a contract for the carriage of goods from China to Guatemala via Long Beach, California. Joe Boxer, in turn, relied on People’s Insurance Co of China v MV Damodar Tanabe 903 F 2d 675 (9th Cir 1990) which held that a distress discharge in Hawaii during a shipment of goods between ports in Chile and China was insufficient to invoke COGSA ex proprio vigore. On their own, these cases were not enough to adopt an ultimate-destination theory. Joe Boxer and People’s Insurance Co of China involved goods shipped by sea to and from foreign ports, with intermediate stops at US ports. In the present case, the contract provided for the transmissions to be carried to US over land and not by sea. The ocean voyage did not extend from France to a US port, with an intermediate stop in Montreal. Rather, the ocean voyage ended in Montreal. There is nothing in the Joe Boxer or People’s Insurance Co of China opinions alone to hold that a port of discharge, the last stage of a shipment by sea, belongs in the category of 'mere intermediate stops signalling no change in applicable maritime law'. Distinguishing Norfolk Southern Railway Co v Kirby 543 US 14 (2004) (CMI1454), the Court said that a conceptual approach to admiralty does not mean that COGSA now applied ex proprio vigore to an ocean voyage between two foreign ports if the ultimate destination of a through bill of lading is a city in the United States.

Neither COGSA nor any other United States federal statute applied by its own terms to the ocean voyage between Le Havre and Montreal; and whether federal common law applied needed to be checked. The particular geography of a cargo’s transport across various oceans, railways, and highways should not be used to determine the applicable maritime law. The question was whether, if the stop in Montreal marked the end of the shipping stage and the beginning of the land stage of transport, that fact should trigger the application of the Hague-Visby Rules, rather than COGSA, as a matter of law. An intermediate stop, pursuant to a multimodal contract with an ultimate destination in the United States, regardless of whether the stop was during the sea stage of transport or between the sea and land legs, should not prevent the application of COGSA liability rules as a matter of federal common law. This decision effects Congress’s intent, when it passed COGSA in 1936, to promote uniformity in shipping. Applying COGSA's liability rules to all carriage of goods by sea, in contracts for transportation with ultimate destinations in the United States, effects Congress's intent, in a context that Congress could never have predicted, one in which containerised transport and 'through' bills of lading prevail. The choice of law clause in the bill of lading (cl 30), being specific to the agreement for the carriage of goods (in the bills of lading instead of the TSM), governed the contract, and it stated that United States law should be applied. From the above, it was clear that COGSA applied as a matter of federal common law to this case.

COGSA allowed parties to contract for higher liability limits: 46 USC § 30701(4)(5). The TSM and the bill of lading were extremely poorly drafted. The terms of the bill of lading were confusing, conflicting, and opaque. The problem was that while the contract at issue was far from clear. The parties had simply made legal arguments and had not produced any evidence as to their contractual intent. In the absence of sufficient evidence to establish a genuine issue of material fact regarding the parties' intent, and because the parties had not averred that they would provide further evidence at trial, the rule of contra proferentem in construing ambiguous terms of the contract applied: see Francosteel Corp v MV Pal Marinos 885 F Supp 86 (SD NY 1995).

As both parties agreed that the loss and damage to Ford’s auto transmission units occurred at sea somewhere between Le Havre and Montreal, cl 4(C) governed the interpretation of OOCL’s liability. However, the parties contested the meaning of the clause. Clause 4(C), the clause paramount, stated:

All carriage under this bill of lading ... shall have effect subject to any legislation enacted in any country making the Hague or Hague-Visby rules compulsorily applicable and in the absence of any such legislation in accordance with the Hague rules or COGSA in the case of carriage to or from the United States of America.

The most reasonable interpretation of cl 4(C) is that it anticipated three distinct situations: (1) carriage to and from two countries other than the United States subject to legislation in at least one of those countries making the Hague Rules or Hague-Visby Rules compulsorily applicable; (2) carriage to and from countries that made neither applicable, in which case the Hague Rules would apply as a default; and (3) carriage between the United States and a foreign country, whereby COGSA would apply as a matter of law. This interpretation of cl 4(C) explains the function of the language 'in the absence of any such legislation' by recognising the clause's intention to make the Hague Rules the default liability scheme, absent effective legislation raising liability in accordance with the Hague-Visby amendments. This interpretation of cl 4(C) also explains why some redundancy of language exists when the carriage is to the United States. This interpretation of cl 4(C) yields the initial conclusion that the ocean carriage between Le Havre and Montreal exemplifies the first anticipated situation, because both France and Canada make the Hague-Visby Rules compulsorily applicable.

However, the United States was the ultimate destination of the goods, despite the ocean carriage ending in Montreal. If the language in cl 4(C) was read narrowly, it was easy to reach the conclusion that the carriage of goods by sea from Le Havre to Montreal did not involve carriage to the United States. Accordingly, the Hague-Visby Rules would apply because France was a contracting State, and, under the first portion of cl 4(C), the carriage would be subject to France's legislation making those rules compulsorily applicable. If, however, the language 'to or from the United States' was read broadly, an internal conflict in cl 4(C) would arise. The first portion of the clause would make the Hague-Visby Rules applicable and the last portion of the clause would make COGSA applicable.

Since the doctrine of contra proferentem applied against OOCL, as the drafter, the conclusion reached is that cl 4(C) makes OOCL’s liability subject to the Hague-Visby Rules and not to COGSA. This conclusion is in keeping with other lower federal court cases that treat the mention of the Hague-Visby Rules in clauses paramount, that are similar but not identical to the one at issue in the present case, as demonstrating an agreement by the carrier to accept the Hague-Visby liability limits: see Itel Container Corp v MV Titan Scan 139 F 3d 1450 (11th Cir 1998) (CMI1721), where a bill of lading was construed against the carrier to find that the contract incorporated the Hague-Visby Rules; Associated Metals v MV Star Skarven 1995 AMC 505 (SD Fla 1994) (CMI1386) where the Hague-Visby Rules were applied keeping in mind a 'Visby Paragraph' of the general clause paramount in respect of shipment from the contracting state of Finland; Ilva USA Inc v MV Botic 1992 WL 296562 (ED Pa 1992), where it was found that the first paragraph of the general clause paramount incorporated the Hague-Visby Rules into the bill of lading and the second paragraph made them compulsorily applicable; Associated Metals & Minerals Corp v MV Arktis Sky 1991 WL 51087 (SDNY 1991) (CMI1603), where it was held that the carriage of goods from Spain, which adopted the Visby amendments, came under the scope of the second paragraph of the general clause paramount covering actions where the Hague-Visby Rules apply; Daval Steel Prods v MV Acadia Forest 683 F Supp 444 (SD NY 1988) where it was held that the bill of lading calls for the incorporation of the higher liability limits provided by the Hague-Visby Rules when issued in a jurisdiction where those rules apply; Francosteel Corp v MV Deppe Europe 1990 WL 121683 (SD NY 1990), where it was held that Daval Steel would be controlling but for the presence of a carrier option preserving the benefits of COGSA for the carriers; and Acciai Speciali Terni USA Inc v MV Berane 182 F Supp 2d 503 (D Md 2002), where it was held that the language of the general clause paramount is insufficient to demonstrate an agreement by a carrier to accept the Hague-Visby liability limits absent further evidence of this intent.

Clause 4(D), the USA Clause Paramount, stated:

If carriage includes carriage to, from or through a port in the United States of America this bill of lading shall be subject to COGSA, the terms of which are incorporated herein and shall be paramount throughout carriage by sea and the entire time that the goods are in the actual custody of the Carrier or its sub-contractor at the sea-terminal in the United States of America before loading onto the Vessel or after discharge therefrom as the case may be.

Clause 4(D)(4) stated:

Except as provided herein in cl 4(D)(1) and (2), and where COGSA does not apply by operation of law, carrier’s liability will be governed by COGSA unless its liability under some other body of law applicable to the particular stage of the transport where the loss occurred is more favourable to the carrier (with regards to defences and limitations), in which case that other body of law will apply.

Here COGSA applied to the sea carriage of goods between Le Havre and Montreal as a matter of federal common law. Clause 4(D)(4) standing alone therefore does suggest that there exists no exception to COGSA's applicability under the bill of lading. But the cl 4(D)(4) provision for COGSA liability limitations conflicts with the cl 4(C) provision for the Hague-Visby Rules. Applying the doctrine of contra proferentem, it is cl 4(C), ie the Hague-Visby Rules, that will apply. Given the ambiguity as to whether cl 4(C) or cl 4(D)(4) applied, the burden was on OOCL, as the drafter of the bill of lading, to explicitly and clearly state its own liability limits.

Article 2 of the Visby amendments replaced art 4.5 of the Hague Rules and set forth new rules for liability limits. Article 4.5.a of the Hague-Visby Rules states that when the shipper has not inserted the value of goods into the bill of lading, the carrier’s liability is limited to 'the equivalent of 10,000 francs per package or unit or 30 francs per kilo of gross weight of the goods lost or damaged, whichever is higher'. It further states:

Where a container, pallet or similar article of transport is used to consolidate goods, the number of packages or units enumerated in the bill of lading as packed in such article of transport shall be deemed the number of packages or units for the purpose of limitation of liability.

Thus, when the Hague-Visby Rules were applicable, as in this case, the carrier's liability is limited to 10,000 francs per package or unit listed in the bill of lading. OOCL argued that, under COGSA liability limits, each rack within the container rather than each auto transmission unit constituted one COGSA package. But the bill of lading bound OOCL to the Hague-Visby, and not COGSA, liability limits. Accordingly, the bill of lading was the basis of assessment of the number of units. As a matter of law, the total number of units so listed in the bill of lading constituted the number of packages or units to be used to assess the limits to OOCL's liability set by the Hague-Visby Rules.

Himalaya clauses in OOCL's bill of lading make the Hague-Visby’s liability limitations that are applicable to OOCL similarly applicable to the actual carriers. Such clauses extend liability limitations to downstream parties expected to take part in the contract: see Norfolk 20 n 2. Clause 1 of OOCL's bill of lading extends 'the benefit of all the rights and defenses provided for' in the bill of lading to entities 'including without limitation, the vessel, her owner, operator, demise, time, slot and space charterer' who are also denominated a 'carrier/bailee'. Clause 25(c) provides that 'the Vessel and every subcontractor of the Carrier of any nature whatsoever ... shall have the benefit of every right, defence, limitation and liberty of whatsoever nature herein contained or otherwise available to the Carrier as if such provisions were expressly for its benefit'. Therefore, because the Hague-Visby Rules govern OOCL's liability, they also govern that of the actual carriers.