American Trading Industries Inc (the shipper) contracted with the defendant/appellant Sea-Land Services Inc (Sea-Land/carrier) to transport a yacht, Cover Girls, from Port Everglades, Florida, US, to Marseilles, France.

The yacht was delivered to Sea-Land in good condition, loaded onto Sea-Land's M/V Newark Bay, and carried to Felixstowe, England. There it was transferred to a Sea-Land 'feeder vessel', the M/V Sea Eagle, for shipment to Marseilles. Sea-Land employed a 'feeder system' to transport cargo. Cargo was loaded onto a long-haul or 'mother' vessel, which was used for trans-oceanic voyages to 'feeder ports', where the cargo was either 'transhipped' (if it was 'break-bulk', or non-containerised, cargo) or 'relayed' (if it was containerised cargo) onto smaller, 'feeder vessels' for short-haul voyages to smaller or less frequented ports. In this case, the yacht was placed on a 'flat-rack container', and relayed in its container. During this period, Sea-Land was reorganising its services and routes to provide service, at a charge, to the US Government in support of Operation Desert Shield, the military deployment of US armed forces in the Persian Gulf in response to the 1990 Iraqi invasion of Kuwait. Sea-Land thus ordered the Sea Eagle to transfer the yacht to another feeder vessel at Lisbon, Portugal, for carriage to Marseilles. Sea-Land vessels rarely used Lisbon, where, unlike the nearby port of Algeciras, Spain, there were no separate Sea-Land facilities. On 3 January 1991, during an attempted transfer at Lisbon, the yacht was dropped and damaged.

The bill of lading for the yacht contained a clause paramount incorporating by reference all of the provisions of the US Carriage of Goods by Sea Act, 46 USC ss 1300 ff (COGSA). Paragraph 1 of the bill of lading provided:

CLAUSE PARAMOUNT. This bill of lading shall have effect subject to all the provisions of the Carriage of Goods by Sea Act ... as if set forth herein. The defenses and limitations of said act shall apply to goods whether carried on or under deck, to carriage of goods between U.S. ports or between non-U.S. ports, before the goods are loaded on or after they are discharged from the vessel....

COGSA itself requires that all outbound bills of lading include a clause paramount stating that the contract is governed by the provisions of COGSA: 46 USC s 1312.

Because COGSA applies only to goods stowed between decks or in the hold (46 USC s 1301(c)), the bill of lading also included a separate clause applying COGSA specifically to goods carried above deck (see Royal Insurance Co v Sea-Land Service Inc 50 F 3d 723, 727 (9th Cir 1995)). Paragraph 9 of the bill of lading provided:

STOWAGE ON DECK. Goods stowed in any covered-in space or loaded in a container, van or trailer carried on deck shall be deemed to be stowed under deck for all purposes, including ... the Carriage of Goods by Sea Act.

The yacht was stowed on the Sea Eagle's deck.

Paragraph 3 of the bill of lading provided:

SCOPE OF VOYAGE. The voyage herein contracted for shall include ports in and out of the advertised geographical usual or ordinary route or order. 

The plaintiff/appellee SNC SLB (SNC) was the consignee named in the yacht's bill of lading. SNC had insured the yacht with the Institute of London Underwriters. Gilles Bentin (another plaintiff/appellee) was the manager of SNC SLB in Marseilles, France. SNC was the subrogor, and the Institute of London Underwriters was the subrogee, of the claim at issue.

In April 1992, SNC and Bentin sued to recover the cost of the damaged yacht, claiming that the Sea Eagle had unreasonably deviated from the contract of carriage by unloading the yacht at Lisbon (a port Sea-Land did not usually use) and the defendants (Sea-Land, M/V Newark Bay, and M/V Sea Eagle) were therefore strictly liable for the damage to the yacht. The shipper claimed that the COGSA limitation of liability does not apply because the carrier's conduct - its 'unreasonable deviation' from the projected route - constituted a 'fundamental' breach of the contract. See General Electric Co International Sales Division v SS Nancy Lykes 706 F 2d 80, 86–87 (2d Cir 1983); Jones v The Flying Clipper 116 F Supp 386, 390 (SD NY 1953) (Jones).

Sea-Land did not dispute that the yacht was delivered in a good condition or that it was discharged in a damaged condition. The defendants denied that they had unreasonably deviated from the contract of carriage, and that the maximum liability of the defendants, if any, was USD 500 per package as agreed to in the provisions of the bill of lading and under COGSA. They asserted that COGSA's USD 500 limitation of liability was incorporated into the contract of carriage by its terms. Sea-Land also argued that the plaintiffs were on notice that Sea-Land's feeder vessels called at various ports on the way to Marseilles, usually at Algeciras, but sometimes Lisbon, and that cargo was often transferred onto other feeder vessels at those intermediate ports. Sea-Land therefore argued that the unloading of the yacht at Lisbon was not a deviation. Sea-Land also argued that, as a US-flag carrier, it was required to assist the Government in a national security emergency. Thus, the defendants argued that any resulting so-called deviation was appropriate and necessary, and ought not to be a basis for depriving the carrier of the USD 500 limitation of liability provided for in the contract and under COGSA. COGSA s 4(5) provides that

[n]either the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package ... or ... per customary freight unit ... unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be prima facie evidence, but shall not be conclusive on the carrier.

At first instance, the District Court for the Southern District of New York found for the plaintiffs (SNC SLB v M/V Newark Bay No 92 Civ 2375, 1996 WL 82384 (SD NY 27 February 1996). The Court found that Sea-Land had not informed the plaintiffs of the possibility that the yacht could be transferred from one feeder vessel to another in Lisbon; that Sea-Land knew that the port facilities in Lisbon were inadequate for that task and would place the yacht at foreseeable risk during the transfer; and therefore that Sea-Land had 'unreasonably deviated', thereby abrogating the contract of carriage and its USD 500 limitation of liability and making it liable for the full damages sustained by the plaintiff. The District Court found that because Lisbon is not a customary port of call for Sea-Land vessels, and 'the [p]laintiffs were not aware that the Cover Girls would be carried to Lisbon or discharged and restowed there', Sea-Land had deviated.

On appeal, Sea-Land did not contest the District Court's finding that the transfer at Lisbon was a 'deviation', but contested the finding that the deviation was 'unreasonable'. Alternatively, Sea-Land argued that the general maritime law doctrine of 'unreasonable deviation' is an outmoded and unjustified exception to the plain requirements of COGSA, and should be overturned. Sea-Land argued that its liability was limited to the USD 500 limit established in COGSA s 4(5). Because the shipper chose not to declare the value of the yacht in the bill of lading, Sea-Land asserted that its liability was limited to USD 500.

The plaintiffs conceded that they did not insert a value in the relevant part of the bill of lading, but argued that the general maritime law doctrine of 'unreasonable deviation' deprived the carrier of the COGSA limitation of liability because the carrier unreasonably deviated from the contract of carriage and placed the cargo at risk.

Held: Judgment vacated. Case remanded with instructions to enter judgment for the plaintiffs limiting recovery to USD 500.

The District Court was wrong to find that the attempt to transfer the yacht at Lisbon placed the yacht at unforeseeable risk, and to conclude that the deviation was 'unreasonable'. The finding of the District Court that the carrier deviated unreasonably, and was thereby barred from invoking the otherwise-applicable COGSA limitation of liability, was not supported by the evidence. Thus, the plaintiff's recovery is limited to USD 500 provided by the provisions of the contract of carriage that incorporates COGSA.

The general maritime law is 'a species of judge-made federal common law': Yamaha Motor Corp USA v Calhoun 516 US 199 (1996). Under the general maritime law, a vessel is said to 'deviate' when it leaves its planned or customary course or itinerary: Hostetter v Park 137 US 30, 40 (1890); Nancy Lykes 84. Courts will deprive a carrier of the benefit of contractual limitations of liability for damage to goods only when a vessel unreasonably deviates, usually in a geographic sense, from the terms of the contract: Italia Di Navigazione SpA v MV Hermes I 724 F 2d 21, 22 (2d Cir 1983); The Propeller Niagara v Cordes 62 US (21 How) 7, 28 (1858). The general maritime law of deviation was partially codified in 1936 when Congress enacted COGSA, the domestic implementation of the International Convention for the Unification of Certain Rules Relating to Bills of Lading (the Hague Rules), 25 August 1924, 51 Stat 233, 120 LNTS 155, an international agreement to which the United States became a party in 1936: Spartus Corp v SS Yafo 590 F 2d 1310, 1313, 1315-16 (5th Cir 1979). The text of the Hague Rules and COGSA are not identical because, in drafting COGSA, Congress chose to add language to the Hague Rules. Section 4(4) of COGSA (46 USC s 1304(4)), the statute's only provision on deviation, provides that:

[a]ny deviation in saving or attempting to save life or property at sea, or any reasonable deviation shall not be deemed to be an infringement or breach of this chapter or of the contract of carriage, and the carrier shall not be liable for any loss or damage resulting therefrom: Provided, however, That if the deviation is for the purpose of loading or unloading cargo or passengers it shall, prima facie, be regarded as unreasonable.

(emphasis in original).

When Congress adopted the Hague Rules, it added the last part of COGSA s 4(4), ie the text from the proviso onward. The intention was to provide that a deviation solely to increase the profit of the carrier would not be considered a reasonable deviation, even if the deviation were 'reasonable' as far as the carrier was concerned.

COGSA does not explicitly state the consequences, if any, of an unreasonable deviation on COGSA's USD 500 limitation of carrier liability. The language in COGSA s 4(4) did not eliminate the pre-COGSA doctrine of 'unreasonable' or 'unjustifiable' deviation, thus the USD 500 limitation did not apply in the event of an unreasonable or unjustifiable deviation: Jones 391. Moreover, absent an exception to COGSA's liability limitation in cases of unreasonable deviation, a carrier would be free to 'reckless[ly] ... violate the terms of [a] bill of lading, knowing that it cannot be called upon to pay more than $500 per package': Jones 390.

Subsequent cases have followed Jones in holding that an unreasonable or unjustifiable deviation 'so change[s] the essence of the agreement as to effect its abrogation' (Jones 390), thereby depriving the carrier of the benefits of the USD 500 package limitation contained in COGSA and in the contract of carriage and permitting the plaintiff to recover in full: Jones 391. See eg Encyclopaedia Britannica Inc v SS Hong Kong Producer 422 F 2d 7, 18 (2d Cir 1969) (CMI1649); Nancy Lykes 83, which held that COGSA s 4(4) clearly implied that any unreasonable deviation is to be treated as a breach of COGSA and the contract of carriage; Aetna Insurance Co v MV Lash Italia 858 F 2d 190, 192 (4th Cir 1988); CA La Seguridad v Delta SS Lines 721 F 2d 322, 324 (11th Cir 1983); Nemeth v General SS Corp 694 F 2d 609, 612-13 (9th Cir 1982) (CMI1787); Searoad Shipping Co v EI duPont de Nemours & Co 361 F 2d 833, 835-36 (5th Cir 1966). But see Atlantic Mutual Insurance Co v Poseidon Schiffahrt GmbH 313 F 2d 872, 874 (7th Cir 1963) which held that an unreasonable deviation does not deprive the carrier of the USD 500 package limitation.

The reasonableness of a deviation will depend 'on an assessment of all the surrounding circumstances' (Nancy Lykes 85), and 'a deviation is unreasonable ... when, in the absence of significant countervailing factors, the deviation substantially increases the exposure of cargo to foreseeable dangers that would have been avoided had no deviation occurred' (Nancy Lykes 86).

In this case, the District Court's conclusion that the deviation to Lisbon was unreasonable was based 'on the substantial evidence that the deviation subjected the cargo to foreseeable dangers that would have been avoided if no deviation from the regular relay port of Algeciras had occurred' (SNC SLB, 1996 WL 82384, at *8). The District Court's finding that the yacht needed 'skilled handling' when transferred from one vessel to another is undisputed. However, the evidence relied upon by the District Court does not support the District Court's finding that the yacht was placed in foreseeable and avoidable danger by being transferred from one feeder vessel to another at Lisbon instead of at Algeciras. The evidence on which the District Court relied did not support the finding that a transfer at Lisbon placed the cargo at undue risk. Besides, yachts are regularly dropped at ports throughout the world. For example, see Royal Insurance Co v Sea-Land Service Inc 50 F 3d 723, 725 (9th Cir 1995) (CMI1823); Institute of London Underwriters v Sea-Land Service Inc 881 F 2d 761, 763 (9th Cir 1989) (CMI1437); Pearson v Black King Shipping Co 769 F Supp 940, 942 (ED Va 1991); Miller Yacht Sales Inc v MV Vishva Shobha 494 F Supp 1005, 1007 (SD NY 1980); New Hampshire Insurance Co v Seaboard Marine Ltd No 89-0255, 1992 WL 33861 (SD Fla 2 January 1992); Jumbo Navigation NV v Melchior No 89-0314, 1991 WL 133552 (SD Fla 12 March 1991).

Accordingly, the deviation was not unreasonable. It is therefore unnecessary to deal with Sea-Land's alternative argument that, as a US-flag carrier, it had no choice but to deviate due to its Desert Shield obligations. It is also unnecessary to consider Sea-Land's argument that the general maritime law doctrine of unreasonable deviation should be overturned. Besides, it has been recently held that 'exposing carriers which engage in unreasonable deviations to the risk of full liability has the salutary effect of discouraging such deviations' and there is no reason 'to abandon a rule the ultimate effect of which is to preserve and enforce the underlying policies of COGSA': Nancy Lykes 87-88. See also Encyclopaedia Britannica 18; Lash Italia 192; La Seguridad 324; Nemeth 612-13; Searoad Shipping 835-36; Jones 389-90.

Two points were noted separately. First, although para 3 of the bill of lading would appear to make any geographical deviation virtually impossible, such a clause must be construed or limited only to authorise reasonable departure from the normal route: Grant Gilmore and Charles L Black Jr, The Law of Admiralty (2nd edn, Foundation Press 1975) 178. Second, COGSA s 3(2) imposes a duty on a carrier to properly load, carry, and discharge shipped goods. To bring itself within the terms of COGSA s 3, the plaintiff has the burden of proving that the goods were damaged while in the carrier's custody; once proven, a prima facie case for recovery is established and the plaintiff is entitled to prevail unless the carrier brings itself within one of the exceptions' of COGSA s 4: Caemint Food Inc v Brasileiro 647 F 2d 347, 351-52 (2d Cir 1981).