Gamma-10 Plastics Inc (G-10) contracted with American President Lines Ltd (APL) to carry plastic resins from the United States to various ports in China. G-10 packed the resins in bags, and APL placed the bags into large sealed containers for shipment. Four shipments were mired in controversy.

The first involved five containers to Whampoa, China, in August 1988. They were lost on the Whampoa docks. The bill of lading for this shipment was not issued until after G-10's resin was loaded for shipment to China.

The second involved five containers which were supposed to have gone directly to Shanghai, China, in October 1988. However, the shipment was unloaded in Hong Kong before being reshipped to Shanghai. There was confusion as to the whereabouts of the resin prior to its reappearance in Shanghai on 10 November 1988. The bill of lading for this shipment was not issued until the ship had left the United States and arrived in Hong Kong.

G-10 conducted an investigation to find these first two shipments. G-10 eventually located them, but resin was found to have been removed from the sealed containers. Many of the resin bags were ripped.

The third involved six containers to Hong Kong in October 1988. It was unclear whether the bill of lading that was issued for the third shipment was delivered to G-10.

The fourth involved four containers that did not proceed to China. APL held the containers in Los Angeles after G-10 and APL disputed the previous shipments. G-10 alleged that APL deliberately halted this shipment, among other instances of misconduct.

G-10 brought an action against APL in a Minnesota State Court, complaining that APL failed to deliver the goods and damaged other goods, and attributing this to APL's negligence. APL removed the case to the Federal Court. G-10 filed an amended complaint, seeking USD 3,536,000 in damages for negligence and negligent or intentional misrepresentation. APL submitted defences under the Carriage of Goods by Sea Act, 46 USC § 1300 ff (COGSA), including the statute of limitations defence, which sets out a one-year time limit on actions against the carrier. APL claimed that G-10 did not file the suit until more than one-and-a-half years after the last shipment of the goods. APL also contended that G-10 had actual and constructive notice of the incorporated COGSA provisions requiring suit to be commenced within one year.

The District Court for the District of Minnesota entered judgment in favour of G-10 and awarded G-10 pre-judgment interest. The Court also granted partial summary judgment on G-10's motion for APL's defences. Although the Court accepted that APL could extend COGSA contractually by inserting appropriate language in a bill of lading, APL's limitation defence was struck out. The Court reasoned that APL only delivered the bill of lading to G-10 after the goods were shipped and that G-10, as an inexperienced shipper, was unaware of the contractual extension of COGSA in APL's bill of lading. APL appealed.

Held: The judgment of the District Court is affirmed in part and reversed in part. The case is remanded for a new trial and such further proceedings as required.

APL inserted a clause paramount into the bills of lading which stated that:

[t]he receipt, custody, carriage and delivery of the Goods are governed by the provisions of the transportation agreement evidenced hereby and incorporated by reference, including ... the provisions of the US Carriage of Goods by Sea Act, 1936, ('COGSA') ... [which] shall be extended to apply ... before the Goods are loaded on and after they are discharged from the vessel, and throughout the entire time during which the Carrier is responsible for the Goods under the transportation agreement.

The critical question in this case was whether G-10 agreed to extend COGSA's provisions, including the one-year limitation period, to the post-discharge stage. A further question was whether G-10 had a 'fair opportunity' to object to APL's attempt to extend the limitation provision to the post-delivery stage.

The Harter Act, 46 USC §§ 190 ff, and COGSA are two federal statutes that set forth the rights, duties and obligations of shippers and carriers of cargo by sea. Congress enacted the Harter Act in 1893. It governs shipments between 'ports of the United States and foreign ports' and applies to the entire period that a carrier has possession of a shipper's goods from prior to loading until after discharge. The Harter Act contains no limitation period and specifically prohibits a carrier from inserting a general release from negligence into its bill of lading. However, carriers may 'impose a limitations period on all claims against them for negligence, without violating the Act, so long as the time period specified is reasonable.' (Ins Co of North America v Puerto Rico Marine Management Inc 768 F 2d 470, 473 (1st Cir 1985)).

In 1936, Congress enacted COGSA, which also defines rights, responsibilities and liabilities of carriers of goods by sea. COGSA represented the American enactment of the Hague Rules, which resulted from efforts in the 1920s to bring about uniformity and simplification of bills of lading used in international trade (Union Ins Society of Canton v SS Elikon 642 F 2d 721, 723 (4th Cir 1981)). Unlike the Harter Act, COGSA contains a one-year statute of limitations for 'all liability in respect of loss or damage' to goods shipped internationally (COGSA § 1303(6)). COGSA supersedes the Harter Act only with regard to the time a shipper's goods are on board a carrier's ship (COGSA § 1311). If COGSA only applied to the period between loading and discharge, it would not apply to a situation like the present case, which arose after APL unloaded it in China, and the Harter Act would apply.

COGSA only applies to the post-discharge stage if the parties contractually agree to allow it to do so. COGSA did not apply to the present situation by its own strength because the events which were the subject of G-10's claims occurred after the resin was unloaded from APL's ship. However, the terms of COGSA may be contractually extended by a carrier's bill of lading (COGSA § 1307) (Colgate Palmolive Co v S/S Dart Canada 724 F 2d 313, 315 (2d Cir 1983)). APL could therefore by an agreement with G-10 extend COGSA's one-year statute of limitations to the period after discharge of goods, which would supersede the Harter Act and prevent G-10 from suing more than a year after injury (Ins Co of North America 475; Firestone Tire & Rubber Co v Almacenes Miramar Inc 452 F Supp 670 (DPR), aff'd, 588 F 2d 817 (1st Cir 1978)).

One purpose of COGSA is 'to protect shippers from the overreaching of carriers through contracts of adhesion and to provide incentive for careful transport and delivery of cargo' (Cameco Inc v SS American Legion 514 F 2d 1291, 1300 (2d Cir 1974)). A bill of lading is a contract of adhesion that is strictly enforced against the carrier (Mori Seiki USA Inc v MV Alligator Triumph 990 F 2d 444, 448 (9th Cir 1993) (CMI1502)). When COGSA is inserted into a carrier's bill of lading, it becomes a contractual term, subject to the same interpretive rules to which any contractual clause is susceptible (Colgate 315).

The parties centre their attention on Encyclopedia Britannica Inc v SS Hong Kong Producer 422 F 2d 7 (2d Cir 1969) (CMI1649). In Britannica, the Court of Appeals found that the bill of lading was not binding on Britannica. The Court noted that COGSA was meant to alleviate the problems associated with hidden bill of lading terms and that 'it is impractical for a shipper to be compelled to make a detailed study of all of the fine print clauses of the carrier's regular bill on each occasion before it ships out a package'. The Court found that the carrier was estopped from asserting its rights under the bill of lading because it was not issued until after the goods were loaded, making it impossible for Britannica to notify the carrier prior to delivery of a desire to have the goods stored beneath the deck. While Britannica was correctly decided under its facts, it does not stand for the proposition that a bill of lading sent to a shipper after the shipper's goods are loaded is never effective to delineate the terms and conditions of the passage of goods.

G-10 also places heavy reliance on Allstate Ins Co v International Shipping Corp 703 F 2d 497 (11th Cir 1983), where the carrier relied on the fact that the short form bill incorporated by reference both COGSA and the carrier's long form bill of lading that was on file with the Federal Maritime Commission (FMC). The long form bill of lading contained a specific provision requiring the shipper to bring suit within one year of the delivery of the goods (COGSA's limitation provision did not apply because the injury to the goods occurred before shipment, and there was nothing in the bill to extend this provision to the preloading and post-delivery stages). The Court rejected the carrier's claim of constructive notice and found that the shipper did not have actual knowledge of the terms contained in the long form bill. There are several obvious differences between the present case and Allstate. First and most important is the fact that the only document ever given to the shipper in Allstate was the short form bill of lading, which contained no reference to limitation. The carrier never supplied the long form bill, which specifically set forth the requirement that suit be brought within one year.

In the present case, APL did deliver the bill of lading for the first shipment within a few days after loading, and that bill not only adopted COGSA and extended its provisions to the post-delivery period, but also contained a separate paragraph, titled 'TIME FOR SUIT', which stated unequivocally that the carrier would be relieved of all liability unless suits were brought within one year after delivery of the goods, or after the time they should have been delivered. Second, the carrier in Allstate did not deliver even the short form bill until after the ship had sailed. The situation was similar to that in Britannica. By the time the short form bill was delivered the goods had already suffered injury and the shipper had no knowledge that they had been removed from the sealed containers and left exposed to the elements.

Britannica and Allstate were correctly decided, but provide guidance on the effect of incorporating COGSA into bills of lading delivered after goods are loaded only for those cases in which the damage to goods occurs before the shipper has knowledge of an act of the carrier resulting in the damage and no fair opportunity to protest, cancel the agreement, or otherwise protect itself from the consequences of the carrier's acts.

The Court in Mori Seiki at 449 describes the Ninth Circuit's treatment of the fair opportunity issue as follows:

In a dispute over 'fair opportunity' such as this one, the carrier bears an initial burden of producing prima facie evidence which demonstrates that it provided such notice to the shipper. ... Normally, the carrier can meet this initial burden by showing that the language of COGSA Section 4(5) [liability limitation] is contained in the bill of lading. ... Language in the bill of lading 'to the same effect' as the statute is adequate. ... On the other hand, the mere incorporation of COGSA by reference is not adequate. ... Once the carrier meets this initial burden, the burden of disproving fair opportunity [shifts] to the shipper.

For the first shipment, APL discharged its initial burden of proof, and G-10 failed to discharge its burden of disproving fair opportunity. G-10 knew of APL's alleged derelictions with respect to this shipment, and in fact knew the extent of its injury at a time when it had received and accepted the bill of lading. Yet, it waited until after the limitation period described in the bill had expired before bringing suit. This is not a case where the bill of lading was delivered too late for the shipper to take action to avoid detriment arising from conditions first disclosed by the contents of the bill.

The second shipment was quite different. There was no signature or other indication that anyone accepted or negotiated the bill of lading on behalf of G-10. The bill of lading was also not prepared until after APL's ship carrying the resin had reached Hong Kong, and was silent as to when the bill was delivered to G-10. Hence, APL failed to discharge its burden of proving that G-10 had notice and a fair opportunity to avoid the consequences of the attempted inclusion of a statute of limitations for claims arising from post-delivery damage to the goods. The District Court properly denied APL's limitation defence for the second shipment.

For the third shipment, it was unclear when, if ever, the bill of lading was delivered to G-10. APL failed to discharge its burden of showing that G-10 had notice of the provisions incorporating and extending COGSA's statute of limitations, or that G-10 ever accepted those terms. The District Court also correctly denied APL's defence of limitation for the third shipment.

There was no bill of lading for the fourth shipment. APL held the last four containers and never shipped them. Since COGSA only applied 'tackle to tackle' and these containers were never loaded on a ship, G-10 could proceed with its negligence and negligent or intentional misrepresentation claims in relation to the APL's alleged mishandling of these four containers.