Steel Coils Inc ordered flat-rolled steel coils from a steel mill in Russia. The coils were transported on the MV Lake Marion from Riga and Ventspils, Latvia, to New Jersey and Houston, United States. The coils had been transported to Riga by rail, covering a journey of 400 miles. At Riga, the coils were stored outside. In the suit against the ship and ship interests, collectively the defendants, the District Court found that the plaintiff was entitled to damages. The defendants had not been able to escape the burden of proving that the steel cargo was not in good condition prior to loading, or that it was in undamaged condition at discharge. The carrier had not been able to prove due diligence to ensure the seaworthiness of the vessel. The vessel manager was separately held liable in tort.

Held: The District Court judgment is affirmed.

The Carriage of Goods by Sea Act (COGSA), 46 USC § 1304(2), provides a complex burden-shifting procedure. Initially, the plaintiff must establish a prima facie case by demonstrating that the cargo was loaded in an undamaged condition and discharged in a damaged condition. For the purpose of determining the condition of the goods at the time of receipt by the carrier, the bill of lading serves as prima facie evidence that the goods were loaded in the condition described in it. If the plaintiff presents a prima facie case, the burden shifts to the defendants to prove that they exercised due diligence to prevent the damage, or that the damage was caused by one of the exceptions set forth in § 1304(2) of COGSA, including perils, dangers, and accidents of the sea or other navigable waters, and latent defects not discoverable by due diligence. If the defendants show that the loss was caused by one of these exceptions, the burden returns to the shipper to establish that the defendants' negligence contributed to the damage. Finally, if the shipper is able to establish that the carrier's negligence was a contributory cause of the damage, the burden switches back to the carrier to segregate the portion of the damage due to the excepted cause, from the portion resulting from the carrier’s own negligence: see Tubacex Inc v MV Risan 45 F 3d 951 (5th Cir 1995).

The District Court properly determined that the plaintiff had demonstrated its prima facie case by proving that the cargo was delivered to MV Lake Marion in good order and condition, and was unloaded at the ports of New Orleans and Houston in a damaged condition. In finding that the coils were loaded in good condition, the Court examined the mates' receipts, bills of lading containing comments on the condition of the cargo, and a cargo survey taken at the load port in Riga that contained commentary about, and photographs of, the cargo. The Court explained that some of the documents contained notations regarding 'atmospheric rust on the hot-rolled coils and damage to the wrapping of the cold-rolled and galvanised coils'. The evidence showed that these conditions did not damage the coils, and were not the result of exposure to seawater prior to embarkation. In looking at the evidence of the coils' unloading, the Court found that 'all of the surveyors at the discharge ports testified that the cargo was damaged when it was discharged ... and their survey reports support their testimony'. Moreover, relying on these surveyors’ reports, as well as those of chemists who tested the rust on the coils, the Court concluded that the rust damage was a result of seawater contamination. The Court correctly placed the burden upon the plaintiff to prove a prima facie case and examined the evidence to determine whether in fact this had been done. Despite the notations on the bills of lading, all of the bills of lading were signed clean, and therefore 'all cargo when shipped was in apparent good order and condition'.

Similarly, in Thyssen Inc v SS Eurounity 21 F 3d 533 (2d Cir 1994), the shipper sued the carriers for rust damage to hot-rolled steel coils. However, the bills of lading contained notations such as 'rust stained', 'partly rust stained', and 'wet before shipment'. The carriers argued that these notations prohibited a finding that the coils were in good condition upon loading. The Court disagreed, finding 'ample evidence that the steel was in good condition'. For instance, experts testified that the clauses on the bills of lading indicated that the steel was of good condition. One expert testified that the port 'had used these standardised notations for approximately thirty years to refer to non-damaging, atmospheric rust that does not affect the value of steel'. The expert further testified that 'steel is considered to be in "prime" condition when the bills of lading include these standardised notations'.

Thus, the District Court in this case did not clearly err in finding that the hot-rolled coils were in good condition prior to loading. The rust noted on the coils was atmospheric, non-damaging in nature, and the moisture on the coils did not affect their good condition.

The defendants relied upon Caemint Food Inc v Lloyd Brasileiro Companhia de Navegacao 647 F 2d 347 (2d Cir 1981) to argue that the 'unknown' condition of the cold-rolled coils fatally undermined the plaintiff's attempt to prove a prima facie case of good condition prior to loading. Caemint held that a plaintiff could not recover for corned beef which it claimed was ruined during the voyage because it could not present evidence as to the condition of the corned beef, which was inside metal containers, before shipment. Where because of the perishable or intrinsic nature of the commodity, the internal condition is not adequately revealed by external appearances, cargo interests may have a considerable burden of going further to prove actual condition: see United States v Lykes Bros SS Co 511 F 2d 218 (5th Cir 1975). That was not the case here. Normal pre-shipment clauses that indicate possible rust damage such as 'white rust or white oxidation marks' were not present on the bill of lading, and there was no evidence of 'drip-down' or 'run-down' of moisture to the coils.

The defendants further asserted that the District Court had made a clear error in finding that the steel coils were damaged upon unloading. The defendants' arguments are belied by a wealth of evidence relied upon by the District Court that at unloading the cargo was damaged by seawater rust.

In making its determination that the defendants did not exercise due diligence to make the vessel seaworthy, the District Court correctly noted that seaworthiness is defined as 'reasonable fitness to perform or do the work at hand': see Farrell Lines Inc v Jones 530 F 2d 7 (5th Cir 1976). Under COGSA, the carrier's duty to exercise due diligence in making the vessel seaworthy is non-delegable: see Jamaica Nutrition Holdings Ltd v United Shipping Co 643 F 2d 376 (5th Cir 1981). The Court concluded that the ship was not reasonably fit to perform the work at hand, of shipping steel coils, because the hatches were not maintained in good condition and had not been tested for water-tightness before embarkation. This had resulted in an ingress of seawater during the voyage. The Court also found that the holds had previously carried a cargo of rock salt, and had not been washed out with fresh water before the steel was loaded.

The defendants argued that they were not responsible for conducting a water-tightness test on the hatch covers prior to embarkation, because pursuant to the voyage charter, the charterer was supposed to 'make an inspection of holds and test water-tightness of hatches'. This argument ignored the carrier’s non-delegable duty to ensure that the vessel is reasonably fit to carry cargo under COGSA.

The peril of the sea defence was not sustained by the District Court for two reasons. First, such weather conditions were foreseeable in the North Atlantic during the late winter months. Second, no damage to the vessel resulted from the voyage, and the only conditions noted in the surveys at the discharge ports indicated pre-existing damage as a result of prolonged neglect. The defendants contend that it is irrelevant that the conditions encountered by the vessel were foreseeable, because force 12 winds were severe enough as to have been unpreventable, even if foreseeable, just like hurricane weather. They claim these conditions resulted in significantly more movement of the hatch covers than is normal: see J Gerber Co v SS Sabine Howaldt 437 F 2d 580 (2d Cir 1971). Gerber is distinguishable, however, because in that case the vessel had faced fierce winds for many days, not just a few hours. The defendants failed to realise that the peril of the sea defence factored in several factors, of which wind strength was merely one. The extent of damage to the vessel was also important. The District Court was correct in refusing to find that the rough weather encountered by the vessel was a peril of the sea, given the ship’s lack of injury.

Defendants argued that a crack found in hold no 1 while the vessel was docked in New Orleans was a latent defect that could not have been discovered through due diligence. A true latent defect is one that cannot be discovered by any known and customary test. The shipowner has the burden to demonstrate that the defect was not discoverable: see Waterman SS v US Smelting Ref Mining Co 155 F 2d 687 (5th Cir 1946). The crack in question was inspected by a marine surveyor who determined that it was old, and had existed in some form since the crew had installed a doubling plate at the fracture site. The District Court concluded that the crack was an extension of an old crack, and at least part of it had been present since the doubling plate had been put in place. The District Court did not err in finding that the fracture was old, and in rejecting the latent defect defence.

One of COGSA’s most important provisions limits a carrier’s liability to USD 500 per package unless a higher value is declared by the shipper. The term 'carrier' includes 'the owner or the charterer who enters into a contract of carriage with a shipper'. As long as an entity is a party to the contract of carriage, it is a carrier. To determine whether a party is a COGSA carrier, a party is considered a carrier under COGSA if that party ‘executed a contract of carriage': see Mannesman Demag Corp v MV Concert Express 225 F 3d 587 (5th Cir 2000). It is undisputed that the manager was not explicitly named in the applicable contract of carriage, the voyage charter. The District Court rightly concluded that it was not a carrier. In Robert C Herd Co v Krawill Machinery Corp 359 US 297 (1959) (CMI1735), the Supreme Court clarified that agents of a carrier do not qualify for the USD 500 package limitation. The Court observed:

The Act is clearly phrased. It defines the term 'carrier' to include 'the owner or the charterer who enters into a contract of carriage with the shipper'. It imposes particularised duties and obligations upon, and grants stated immunities to, the 'carrier'. Respecting limitation of the amount of liability for loss of or damage to goods, it says that 'neither the carrier nor the ship' shall be liable for more than USD 500 per package. It makes no reference whatever to stevedores or agents.

Moreover, 'the legislative history of the Act shows that it was lifted almost bodily from the Hague Rules of 1921', which do not advert to stevedores or agents of a carrier', and 'the debates and Committee Reports in the Senate and the House upon the bill that became the Carriage of Goods by Sea Act likewise do not mention stevedores or agents'. The Court concluded that nothing in the language or the legislative history of the Act either 'expressly or impliedly indicates any intention of Congress to regulate stevedores or other agents of a carrier, or to limit the amount of their liability for damages caused by their negligence'.

In a similar case, Citrus Marketing Board of Israel v J Lauritzen AS 943 F 2d 220 (2d Cir 1991) (CMI1631), the Court held that a plaintiff may sue a ship’s manager in tort for damage to cargo, and that COGSA does not govern such an action. The Court in that case rejected the manager’s argument and the District Court’s holding that COGSA controlled the claim, explaining that COGSA only applied to disputes between shippers and carriers. Relying on Herd, the Court concluded that COGSA did not preclude a separate action against the manager. The Court explained, however, that a Himalaya clause, which extends a carrier’s rights under COGSA to agents of the carrier, might apply to save the manager from liability, and remanded that issue for the District Court to consider at trial. Here, the manager chose to separate itself from the carrier. Thus, the plaintiff's negligence action against the manager was not subject to the COGSA package limitation.