This claim arose from damage to a yacht, which was supposed to be carried by Sea-Land Service Inc (Sea-Land) from Taiwan to Oakland, California, United States. The yacht was owned by Vantare International Inc (Vantare) and insured by Royal Insurance Co (Royal). Sea-Land was part of a group of carriers who had entered into an agreement called the Asian North American Eastbound Rate Agreement (ANERA), with yacht importers like Vantare. Under the ANERA, Vantare was entitled to a reduced freight rate when it shipped on an ANERA carrier. It also specified that the individual carrier’s bill of lading would determine the terms and conditions of shipment. The tariff governing ANERA provided that the carrier’s liability would be determined by the carrier’s bill of lading. A shipper who desired a higher level of coverage had to state the value of the goods on the carrier’s bill of lading; pay an extra shipping charge; and a rate higher than that specified under ANERA. After the yacht was loaded on board, Sea-Land issued a bill of lading to Vantare.

The stevedore unloading the yacht, Container Stevedoring Co (CS), dropped it on the dock in Oakland. The District Court found that Vantare’s recovery was limited to USD 500 under a loss limitation clause in the bill of lading. Royal and Vantare appealed.

Held: The District Court’s judgment is affirmed.

The Carriage of Goods by Sea Act 46 USC ss 1300-1315 (COGSA), regulates the terms of international ocean carriage covered by bills of lading. Section 1304(5) of COGSA provides that a carrier’s liability is limited to USD 500 per package. However, the shipper may increase the carrier’s liability by declaring on the bill of lading the nature and value of the goods shipped and paying a higher freight rate: see Travelers Indem Co v Vessel Sam Houston 26 F 3d 895 (9th Cir 1994). Sea-Land could rely on the USD 500 package limitation only if Vantare had a fair opportunity to escape the limitation by paying a higher charge. The carrier had the initial burden of producing prima facie evidence to show that it provided notice to the shipper that it could pay a higher rate, and opt for a higher liability. This initial burden is met if the language of s 1304(5) is printed legibly on the bill of lading, either by recitation or in language to the same effect. It is not enough merely to incorporate COGSA by reference. While the USD 500 package limitation may be unrealistic, if the shipper pays the customarily lower freight rate for goods of undeclared value, it cannot seek an exception to its obligation under s 1304(5).

Although COGSA by its own terms did not apply to deck cargo, the clause paramount of the bill of lading incorporating COGSA made its terms applicable to the contract: see Institute of London Underwriters v Sea-Land Service Inc 881 F 2d 761 (9th Cir 1989) (CMI1437). Item 23 on the face of the bill of lading gave the shipper the opportunity to declare a higher value for the cargo, and cl 17 on the reverse recited the USD 500 limitation and the means to avoid it. The bill of lading constituted prima facie evidence that the shipper had the opportunity to avoid the package limitation. The shipping of a yacht in a 'cradle' was included in the bill of lading’s definition of 'package'. Thus, COGSA applied to the shipment of the yacht. Sea-Land had made a prima facie case that its bill of lading gave Vantare an opportunity to avoid the USD 500 limitation under COGSA. In construing a limitation clause in a bill of lading, which also referred to an applicable tariff, the absence of a published tariff rate did not deny the shipper a fair opportunity. The bill of lading itself provided that opportunity: Henley Drilling Co v McGee 36 F 3d 143, 146 (1st Cir 1994). As long as the bill of lading expressly stated the USD 500 package limitation, reference to the tariff was unnecessary.

Actual possession of the bill of lading is not required before a party, with an economic interest in the shipped goods, can be held to the limitation: see Carman Tool & Abrasives Inc v Evergreen Lines 871 F 2d 897 (9th Cir 1989) (CMI1625). Carman Tool did not address a situation in which the bill of lading was issued after the goods were loaded onto the vessel. But the Court in that case refused the requirement of actual notice of the package limitation to be given to the shipper. This is especially appropriate when there had been a course of dealing between the parties using identical bills of lading. A bill of lading mailed to the shipper after the ship reached its destination afforded notice of the COGSA package limitation and 'ample opportunity to declare excess value': see Unimac Co v CF Ocean Serv Inc 43 F 3d 1434 (11th Cir 1995). COGSA's limitations applied even though the bill of lading, whose clause paramount incorporated COGSA, was accepted after the loading of the shipment but before the damage occurred: see Gamma-10 Plastics Inc v American President Lines Ltd 32 F 3d 1244 (8th Cir 1994) (CMI1667). Other courts have found that the package limitation still applies even when the bill of lading is issued much later: see Luckenbach SS Co v American Mills Co 24 F 2d 704 (5th Cir 1928); Eastern Outfitting Co v Pacific Mail SS Co 26 F 2d 270 (ND Cal 1928); Garnay Inc v MV Lindo Maersk 816 F Supp 888 (SD NY 1993); Cera Tech SA v SS Allison Lykes 1992 AMC 2089; New Hampshire Ins Co v Seaboard Marine Ltd 1992 AMC 279. The requirement of actual notice has been interpreted as the bill of lading clearly stating the USD 500 limitation and the method for avoiding it: Henley Drilling.

Vantare argued that because the bill of lading was issued on board, after the yacht was loaded for shipment, it had insufficient notice. That kind of extension of the notice requirement would invalidate the liability provisions of every on-board bill of lading, even when, there were prior dealings between the parties and the terms of purchase required that the bill be issued on-board. Nothing prevented Vantare from enquiring and securing a copy of the bill of lading form before shipping. The package limitation of the bill of lading was applied. The bill of lading’s clear language extended the COGSA package limitation to CS and hence it could also limit.