High Performance Motors Inc (High Performance) sold automobiles and used automobile parts to Cedars of the Euphrates Trading Co. High performance arranged with Transworld Logistics Group Inc (Transworld), a non-vessel operating common carrier (NVOCC), to transport the goods in 30 containers. As Transworld did not have vessels capable of transporting containers, it contracted with United Arab Shipping Co (United Arab) to carry them from Norfolk, USA, to Umm Qasr, Iraq, between June and September 2008. United Arab issued 23 bills of lading which indicated Transworld as the shipper and made no reference to High Performance. Transworld neither issued a bill of lading nor transferred the original bills to High Performance. The containers were delivered at the destination without presentation of the original bills of lading. However, Transworld contended that United Arab failed to deliver 12 containers. United Arab alleged that all the containers were delivered on the instructions and permission of the cargo's beneficial owner, High Performance. United Arab issued a bill for the shipping charges. Transworld did not pay.

On 26 August 2010, United Arab commenced proceedings against Transworld. On 16 October 2010, Transworld filed a counterclaim seeking damages for the 12 misdelivered containers. United Arab filed a motion for summary judgment seeking the dismissal of the entire counterclaim as time-barred. The Law Division granted the motion, stating that where there is a loss, it must be reported within three days, and the lawsuit must be filed within one year, which did not occur here. United Arab filed a second motion for summary judgment seeking payment against Transworld. The Law Division also granted this motion, stating that United Arab had unequivocally earned the right to be paid once the containers arrived at the destination. Transworld appealed against both decisions.

Held: The dismissal of Transworld's counterclaim is affirmed. The grant of summary judgment in favour of United Arab is reversed, and the case is remanded for further proceedings.

The Carriage of Goods by Sea Act (COGSA) governs the claim. 'COGSA governs the terms of bills of lading issued by ocean carriers engaged in foreign trade': Kawasaki Kisen Kaisha Ltd v Regal–Beloit Corp 130 S Ct 2433, 2440, 177 L Ed 2d 424, 434 (2010) (CMI1455). Section 29 of United Arab's bills of lading also provided for the application of COGSA when the carriage is performed to, from or through a port in the United States, and applied COGSA terms beyond the carriage by sea to the entire time the goods are in the actual custody of the carrier. COGSA governs the carriage of goods 'from the time when the goods are loaded on to the time when they are discharged from the ship': Norfolk S Rwy Co v Kirby 543 US 14, 29, 125 S Ct 385, 396, 160 L Ed 2d 283, 298 (2004) (CMI1454). It applies when there is a contract for carriage of goods by sea performed between a foreign port and a port of the United States: Barretto Peat Inc v Luis Ayala Colón Sucrs Inc 896 F 2d 656, 659 (1st Cir 1990); but only during the interval when the cargo is at sea, also referred to as the 'tackle to tackle' period: Greenpack of PR Inc v Am President Lines 684 F3d 20, 23 (1st Cir 2012) (CMI1486). However, the parties to a shipping contract may agree to extend the COGSA's scope of application to the period before loading or after unloading the goods to cover the entire period in which the goods are under the carrier's responsibility: Ins Co of N Am v PR Marine Mgmt Inc 768 F2d 470, 475 (1st Cir 1985).

COGSA provides a notice-of-loss provision in § 3(6). This advance notice allows the carrier to investigate promptly any claim for damage while witnesses are available, or before it is otherwise too late in order to defend itself against claims. It also raises the presumption of good delivery by the carrier, which the claimant must overcome. However, when sufficient evidence indicates that the cargo was damaged before its discharge, the prima facie evidence under § 3(6) COGSA has no special weight beyond other evidence concerning where the damage occurred: Associated Metals & Minerals Corp v Etelae Suomin Laiva 858 F2d 674, 677-678 (11th Cir 1988). Therefore, once Transworld submitted sufficient evidence to suggest that the cargo was misdelivered, a factual issue is created that must be resolved by the triers of fact: Socony Mobil Oil Co v Tex Coastal & Int'l 559 F2d 1008, 1012 (5th Cir 1977). COGSA provides for a one-year time limitation. Although the records did not prove the exact date of actual delivery, it is not disputed that it was completed no later than 1 October 2008. As the counterclaim was not filed until 16 October 2010, the one-year limitation provision applies, and the Law Division properly dismissed the counterclaim.

When a carrier files a suit against a shipper for breach of contract, a counterclaim for damages to cargo (on the basis of recoupment or set-off) is not time-barred, even if it is filed after one year. Recoupment is in nature a defence, so it is never barred by the statute of limitation, provided that the plaintiff's main action is filed in time: Distribution Servs Ltd v Eddie Parker Interests Inc 897 F 2d 811, 813 (5th Cir 1990). However, a recoupment defence is brought to reduce a plaintiff's recovery by all just allowances or demands accruing to the defendant concerning the same contract. It is a purely defensive procedure, not an affirmative cause of action.

Regarding the summary judgment in favour of United Arab for the shipping charges, there is no competent evidence of the proper delivery of the 12 containers that were allegedly missing. Without this critical information, it cannot be asserted that United Arab performed the contract. A common carrier must deliver the goods to a person in possession of a negotiable bill if the goods are deliverable to the order of that person, or the bill has been indorsed to that person or in blank by the consignee or another indorsee. The permission granted by High Performance, as it was not mentioned in the bills of lading, was unconventional. Therefore, summary judgement should not have been granted in favour of United Arab.

United Arab had also alleged that Transworld's damages were limited by COGSA. COGSA attempts to 'limit liability of common carriers for damage to cargo where the value of the cargo is not known to the carrier': Gen Motors Corp v Moore-McCormack Lines Inc 451 F 2d 24, 26 (2d Cir 1971). COGSA § 4(5) limits the liability of common carriers to USD 500 per package or, in the case of goods not shipped in packages, per customary freight unit, unless the nature and value of the goods have been declared by the shipper before the shipment and inserted in the bill of lading. Transworld did not make this declaration, and on remand, it has the burden of demonstrating the quantum of its loss, if any, to damages under the application of the USD 500 per package or CFU limitation.