This appeal arose from a claim in respect of damage to an aircraft scissors lift being transported from Alameda, California, United States, to Balboa, Canal Zone, Panama, on the Tugela. At this time, the Panama Canal Zone was an unincorporated territory of the United States. California Stevedore & Ballast Co, the stevedores, dropped the lift while loading it on the vessel. The shipper, Pan American World Airways Inc (Pan Am) sued for damages. The stevedores relied on the package limitation, but the District Court found that Pan Am was not given a fair opportunity to obtain a higher liability upon payment of freight, and thus the package limitation did not apply.

Held: Order of the District Court was affirmed. Damages to be paid in full.

COGSA did not apply to the bill of lading in question because it was a contract for carriage covering a voyage between a port in the continental United States and a port in the possession of United States. However, the parties, by expressly making the contract subject to the provisions of COGSA, made COGSA apply 'as fully as if subject [thereto] by the express provisions of [the Act]': 46 USC s 1312. Therefore, if any of the provisions of the bill of lading were in conflict with COGSA, those provisions were invalid.

It was a settled proposition that where a shipper had been given a reciprocal benefit of choice to adjust freight rates and chose not to use it, the carrier was permitted to limit liability to agreed values: Union Pacific Railroad Co v Burke 255 US 317 (1921). This choice cannot be evinced by arguing that the shipper was an experienced entity and should be deemed to have knowledge of an opportunity to secure an alternate freight rate. The bill of lading is usually a boilerplate form drafted by the carrier and presented for acceptance, as a matter of routine business practice, to a relatively low-level employee of the shipper. The opportunity to make the choice should present itself on the face of the bill of lading. Imputing knowledge of COGSA applicability and provisions to such an employee is an assumption that may well go beyond the bounds of commercial realism.

The bill of lading in question did not have a 'space for an excess valuation declaration'. There was a paramount clause that purported to incorporate the provisions of COGSA into the bill of lading. The stevedores argued that Pan Am and its freight forwarder were sophisticated and professional entities who should not have been ignorant of COGSA and the terms of the bill of lading. They argued that Pan Am had never attempted to declare a higher valuation. Rejecting this argument, the Court of Appeals affirmed the District Court’s reliance on Tessler Bros (BC) Ltd v Italpacific Line 494 F 2d 438 (9th Cir 1974).

The Court in Tessler held that the language of COGSA s 4(5) regarding a declaration of a higher value for goods and language in a bill of lading to the same effect constituted prima facie evidence of an opportunity to avoid the limitation. The Court also held that the burden to prove otherwise was on the shipper. However, in the instant case, the relevant clause (cl 18) was narrower than COGSA s 4(5).

The limitation in cl 18 did not provide any opportunity for the shipper to declare a higher value. For this reason, it was so inconsistent with COGSA s 4(5) that it: (1) rendered the bill of lading provision null and void; (2) distinguished the instant action from Tessler; and (3) placed on the defendant the burden of proving that an opportunity did in fact exist for the shipper to avoid the limitation. The stevedores could not shirk this burden and thus were not entitled to limit liability.

The Court declined to accept an argument made by the stevedores based on Mamiye Bros v Barber Steamship Lines Inc 385 US 835 (1966). The argument was that COGSA s 4(5) was a term of the contract by virtue of the clause paramount. Therefore, it canceled cl 18 and gave the shipper an opportunity to declare higher limits. However, Mamiye was in the context of a natural calamity that gave rise to the 'Act of God' defence under COGSA. In that case, the District Court stated that where provisions of the bills of lading were contradictory, confusing, and ambiguous, to the extent they purported to incorporate COGSA, and at the same time provided that during some periods the carrier should be liable merely as bailee, COGSA would apply fully to inbound and outbound goods. The stevedores' reliance on Mamiye was out of context and thus declined.