MacSteel International USA Corp (the plaintiff), a shipper, shipped steel products from Durban, South Africa, to various ports in the United States on the Ibn Abdoun. On 24 June 1999, the plaintiff filed suit, claiming that the cargo was damaged en route by exposure to water, resulting in damage in excess of USD 1,000,000.

Apart from the vessel, the defendants were: (1) United Arab Shipping Co (United Arab), the carrier responsible for transporting the cargo - United Arab was sued for sweat contamination, physical damage caused during the voyage, and rust damage caused by sea water; (2) Cargill Marine and Terminal Inc (Cargill), the carrier hired to transport the goods from New Orleans to Chicago. Cargill was sued for rust damage caused by fresh water.

In January 2001, the plaintiff filed a motion to strike United Arab's defence of a USD 500 per package liability limitation imposed by the United States Carriage of Goods by Sea Act (COGSA) and for summary judgment as to United Arab's liability. United Arab responded with a cross-motion for summary judgment enforcing COGSA's liability limitation and opposed the plaintiff's motion for summary judgment.

It was undisputed that during the voyage, the cargo was exposed to sea water because of leaky hatches. The cargo suffered rust damage as a result. United Arab did not dispute that the vessel was unseaworthy. United Arab also admitted that the unseaworthiness of the vessel was responsible for at least part of the damage.

The bill of lading bore no explicit reference to any liability limitation, but contained only the following clause regarding liability:

(2) General Paramount Clause

The Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment shall apply, but in respect of shipments to which no such enactments are compulsorily applicable, the terms of said Convention shall apply.

Trades where Hague-Visby Rules apply.

In trades where the International Brussels Convention 1924 as amended by the Protocol signed at Brussels on February 23rd 1968 -- The Hague-Visby Rules -- apply compulsorily, the provisions of the respective legislation shall apply.

The bill of lading stated on its face 'TO BE USED WITH CHARTER-PARTIES / CODE NAME: CO[N]GENBILL'. United Arab claimed that the standard form Congenbill charterparty, read in conjunction with the bill of lading, reflected the totality of its contract of carriage with the plaintiff.

The rider clauses in the charterparty contain two clauses paramount purporting to incorporate a choice of rules governing the transaction:

35. VOYAGE CHARTER PARTY CLAUSE PARAMOUNT

(Carriers [sic] Rights and Immunities)

... It is expressly agreed that the Owners shall have the benefit of the 'Rights and Immunities' in favour of the carrier or ship and shall assume the 'Responsibilities and Liabilities' contained in the enactment of the country of shipment giving effect to the rules set in the International convention for the unification of certain rules relating to the Bills of Lading dated Brussels the 25th August 1924 (The Hague Rules) ... . If any provision of the Charter Party shall be repugnant to the said rules to any extent, such provision shall be void to the [sic] extent, but no further. Any Bills of Lading issued pursuant to this Charter Party shall contain a Clause Paramount incorporating the Hague rules whether they are compulsorily applicable or not.

In addition, in an unnumbered para on p 13, the rider clauses contain a clause which states:

USA CLAUSE PARAMOUNT

This Bill of Lading shall have effect to the provisions of the Carriage of Goods [by Sea] Act of the United States, approved April 16th 1936, which shall be deemed to be incorporated herein and nothing herein, contained shall be deemed a surrender by the carrier of any of it's [sic] rights or immunities or an increase of any of it's [sic] responsibilities or liabilities under said Act. If any term of this Bill of Lading be repugnant to said Act to any extent, such term shall be void to that extent, but no further.

The plaintiff contested the authenticity of the charterparty, which was not signed by the plaintiff. 

United Arab argued that COGSA applied and that it was liable for only USD 500 per package. United Arab claimed that: (1) the charterparty was incorporated into the bill of lading; and (2) the USA clause paramount incorporating COGSA invalidated any reference to the Hague or Hague-Visby Rules.

The plaintiff argued that the Hague-Visby Rules applied. The plaintiff's case was that the bill of lading citing the Hague and Hague-Visby Rules was the governing document and that the charterparty was not incorporated into the bill of lading. Second, the plaintiff argued that even if the charterparty was incorporated, the references to the Hague and/or Hague-Visby Rules in the bill of lading and charterparty indicated the intent of the parties to contract out of COGSA and adopt a higher liability limitation. Third, the plaintiff claimed that, according to South African law, the Hague-Visby Rules applied compulsorily to this transaction and, therefore, the Hague-Visby Rules as referenced in the bill of lading governed liability. Finally, the plaintiff argued that even if COGSA, as incorporated by the charterparty, governed this transaction, the charterparty did not give the plaintiff a fair opportunity to opt out of COGSA's USD 500 per package limitation. Therefore, the plaintiff claimed that under the fair opportunity doctrine, the limit did not apply to this transaction.

Held: Limitation of liability defence struck. Plaintiff's motion for summary judgment on liability granted. Defendant's cross-motion denied. Cargill's liability and the amount of damages for which each defendant is responsible will be determined at trial.

COGSA's USD 500 per package liability limitation does not apply to this shipment. United Arab did not present prima facie evidence that the plaintiff had a fair opportunity to opt out of COGSA's USD 500 per package limitation on damages incurred during shipping.

COGSA provides that a carrier's liability is limited to USD 500 per package unless a higher value is declared by the shipper and inserted in the bill of lading or the parties agree to a higher limit (46 USC § 1304(5)). However, by operation of the fair opportunity doctrine, for a carrier to enforce COGSA's USD 500 per package liability limitation, a shipper must have: (1) notice of COGSA's liability limitation; and (2) fair opportunity to declare a higher value for the cargo: see Nippon Fire & Marine Insurance Co v MV Tourcoing 167 F 3d 99, 101 (2nd Cir 1999) (Nippon Fire). In general, therefore, a carrier seeking to enforce the USD 500 per package limitation must establish prima facie that notice of the limitation was given to the shipper, and thus that the shipper was given an opportunity to opt out of the limitation. This prima facie showing is made only through language contained in the bill of lading. If the carrier succeeds in establishing its prima facie case, the burden shifts to the shipper to demonstrate that a fair opportunity did not exist. See General Electric Co v MV Nedlloyd 817 F 2d 1022, 1024, 1029 (2d Cir 1987). Only after the carrier has established a prima facie case of fair opportunity may the Court examine other evidence that notice and fair opportunity existed, for example, the procurement of additional insurance by the shipper or the experience of the shipper: see Nippon Fire 102.

United Arab argued that the First, Ninth and Eleventh Circuits of the Court of Appeals have held that an analysis focused on fair opportunity to declare a higher value is faulty because experienced shippers are aware of liability limitations and purchase cargo insurance. However, the fair opportunity doctrine is followed by the Second Circuit. In the Second Circuit, a defendant may present evidence that plaintiff had cargo insurance and thus was aware of COGSA's liability limitation, only after defendant has established a prima facie showing of fair opportunity.

Second Circuit case law has held that a carrier may prove a prima facie case of fair opportunity by showing the following two elements: (1) the bills of lading explicitly incorporate COGSA; and (2) the bills of lading contain a space for the shipper to declare a higher value for the shipment or make explicit mention of the USD 500 per package liability limitation. See eg Nippon Fire 101; Binladen BSB Landscaping v MV Nedlloyd Rotterdam 759 F 2d 1006, 1017 (2d Cir 1985) (CMI1621). In contrast, case law from the Southern and Eastern Districts of New York have reduced the carrier's burden and allowed carriers to just show either of the two abovementioned elements, or to show that the bills of lading specifically state that the shipper will have to declare excess liability to avoid the limitation: see Insurance Co of North America v M/V Xiang He 1993 AMC 342, 345 (SDNY 1990); EMS Industrie SA v Polskie 608 F Supp 1133, 1135 (EDNY 1985); Royal Insurance Co v MV ACX Ruby 1998 WL 524899 (SDNY 1998); Cross Machinery Group v M/V Alligator Independence 1992 WL 47557 (SDNY 1992).

United Arab argued that the mere reference to COGSA in the charterparty establishes prima facie evidence of fair opportunity in this case. However, the Court observed that when the bill of lading requires the shipper to follow a 'circuitous' route to discover what set of rules establishes the liability limitation on a shipment, the carrier fails to establish a prima face case of fair opportunity: see Royal Insurance v M/V ACX Ruby 1998 WL 524899 (SDNY 1998). Finally, the Court highlighted the principle that ambiguity because of poor drafting of a bill of lading will be construed against the drafter (in this case, United Arab): see Transatlantic Marine Claims Agency Inc v M/V OOCL Inspiration 137 F 3d 94, 104 (2d Cir 1998); Navieros Oceanikos SA v ST Mobil Trader 554 F 2d 43, 47 (2d Cir 1977).

The Court then turned to examine the evidence. The Court assumed (for the sake of argument) that the charterparty was incorporated into the bill of lading: ie element (1), explicit incorporation of COGSA, was satisfied. The Court observed that no space was provided for the plaintiff to declare a higher value for its shipment and there was no specific mention made of any limitation of liability.

The Court found that it was not clear from the face of the contract of carriage that COGSA's liability limitation applied. United Arab did not dispute that neither the charterparty nor the bill of lading provided a space for the plaintiff to declare a higher value for the cargo. In addition, neither document specifically referred to COGSA's USD 500 per package limitation or the requirement that the plaintiff declare a higher value for the goods to opt out of the limitation. COGSA was not mentioned in the bill of lading itself. Rather, this contract of carriage incorporated a total of three clauses paramount purporting to govern liability, all with differing provisions. The bill of lading incorporated the Hague Rules as adopted by the country of shipment, in this case, South Africa. The bill of lading also noted that if the Hague-Visby Rules applied compulsorily, then that legislation, rather than the Hague Rules or COGSA, would be deemed incorporated in the bill of lading. Finally, the charterparty itself, in what appeared to be either conflicting paragraphs or an attempt to contract out of COGSA's liability limitation, incorporated both the Hague Rules as adopted by the country of shipment and COGSA.

Because it was not clear from the face of the bill of lading and the charterparty, examined in conjunction, that COGSA governed this shipment, the Court found that the plaintiff did not have a fair opportunity to opt out of COGSA's liability limitation.

The Court therefore found it unnecessary to address the other arguments. Given the lack of fair opportunity, COGSA's liability limitation would not apply even if United Arab could establish that the charterparty incorporating COGSA governed this transaction.

The Court found United Arab to be liable. United Arab did not contest liability for a portion of the damage to the steel shipment. There was no genuine issue of material fact as to United Arab's liability for the damage, apart from United Arab's claim that some of the damage to the cargo was caused by fresh water and, therefore, did not occur on board the vessel.