SNTFLI Gonrand (Gonrand) delivered an industrial dry cleaning machine to Italpacific Lines (Italpacific) in Italy. The cargo was destined for Vancouver, British Columbia. There were labour troubles there, and the cargo was discharged at Tacoma, Washington, instead.

Italpacific issued a bill of lading to Gonrand for the shipment. At the time of the discharge, Tessler Brothers (BC) Ltd (Tessler) was the holder of the bill of lading. The bill of lading was made subject to s 4(5) of the Carriage of Goods by Sea Act, 46 USC § 1300 ff (COGSA) (cl 1), and contained a Himalaya clause (cl 21), and a clause limiting the liability of goods to USD 500 (cl 18).

Matson Terminals Inc (Matson) unloaded the cargo at Tacoma. Tessler alleged that Matson damaged the machine in excess of USD 14,000. Tessler sued Italpacific for breach of the contract of carriage and Matson for negligence.

The District Court for the Northern District of California granted summary judgment in favour of Matson. It limited Matson's liability as a stevedore to a maximum of USD 500.

Tessler appealed.

Held: The judgment of the District Court is affirmed. The case is remanded for further proceedings.

Congress passed the Harter Act and COGSA to counteract the persistent efforts of carriers to insert all-embracing exceptions to liability (Encyclopedia Britannica Inc v SS Hong Kong Producer 422 F 2d 7, 11 (2d Cir 1969) (CMI1649)). COGSA sought to obviate the necessity for a shipper to make a detailed study of the fine print clauses of a carrier's regular bill of lading on each occasion before shipping a package (ibid 14).

COGSA and the applicable bill of lading provisions only limited the liability of the carrier and the ship, making no reference to agents or independent contractors of the carrier. Section 1(a) of COGSA defines the term 'carrier' to include 'the owner or the charterer who enters into a contract of carriage with a shipper'. Neither the language, the legislative history, nor the environment of COGSA showed any intent by Congress to regulate stevedores (Robert C Herd & Co Inc v Krawill Machinery Corp 359 US 297, 302 (CMI1735)).

The unlimited liability of an agent for its own negligence has long been embedded in the law, and any derogation of this principle, whether by statute or contract, must be strictly construed. Under certain circumstances, parties to a contract of carriage may limit a stevedore's liability, but only if the intent to do so is clearly expressed (Herd 308).

A carrier cannot immunise itself from responsibility for its own negligence. It may limit the amount of its liability if the limitation is tied to an agreed value of goods, subject to carriage at a specific freight rate, with the cargo owner having the option of declaring and recovering a higher value if it pays a higher rate (s 4(5) of COGSA). However, it must give the shipper 'a fair opportunity to choose between higher or lower liability by paying a correspondingly greater or lesser charge' (New York, New Haven & Hartford Railroad Co v Nothnagle 346 US 128, 135, 73 S Ct 986, 990, 97 L Ed 1500 (1953); Sommer Corp v Panama Canal Co 475 F 2d 292, 298 (5th Cir 1973)).

The distinction between a limitation of liability and an exemption from liability is crucial. A limitation, unlike an exemption, does not induce negligence. Compensation for carriage is based on the value of the cargo agreed between the carrier and the cargo owner. A carrier who negligently damages a cargo must respond with compensation of this value, unless it is immunised by an act of Congress.

Section 6 of COGSA concerns private, as opposed to common, carriage of goods by sea. The section allows carriers and shippers to agree to any terms as to liability and immunity. It even authorises a total exemption from liability, but s 3(8) of COGSA will void such an exemption in an ordinary transaction. The context of s 6 does not support an inference that a carrier cannot, in ordinary cases, extend a statutory limitation of liability to its agents, merely because it can totally exempt itself and possibly its agents from liability in special situations.

The bill of lading extended the limitation of liability to Matson. Clause 21 extended the limitation of liability to 'independent contractors'. This clause will protect stevedores, even though the word 'stevedores' was not specifically mentioned. To exclude 'stevedores' from the scope of the more inclusive term 'independent contractors' would, in effect, be holding that the parties, by using the more inclusive term, intended to accomplish the opposite result.