Sabah Shipyard Sdn Bhd (the plaintiff) contracted to sell electrical power generation equipment, including a gas turbine engine, to the National Power Company of the Philippines (NAPOCOR). Industrial Maritime Carriers (Bahamas) Inc (IMB) successfully bid to transport the equipment from Houston, Texas, to the plaintiff's facilities in Labuan, Malaysia. Accordingly, two booking notes were issued. Each provided for shipment of the plaintiff’s equipment from Houston to Labuan via Singapore. IMB, through its agent, Intermarine Inc (Intermarine), issued a bill of lading to the plaintiff's agent, Rohde & Liesenfeld Inc. The bill of lading provided for shipment on the MV Harbel Tapper, owned by L&C III Ltd (L&C). When the MV Harbel Tapper arrived in Singapore, the cargo was temporarily discharged to a barge. Later, the barge took on water and developed a list, causing several packages, including the turbine, to slide off the barge and into the harbour. The turbine was recovered, but could no longer be used for the plaintiff’s project with NAPOCOR.

The plaintiff filed an action against IMB, Intermarine, and L&C (the defendants) under the general maritime law and 46 USC ss 1300 ff (COGSA). The defendants responded that, among other things, COGSA limited their liability to USD 500 per package.

The District Court declined to apply COGSA's USD 500 per package limit on liability. As to IMB's and Intermarine's liability as forwarders, the Court held that COGSA's USD 500 limit did not apply to forwarders. Regarding the defendants' liability under the Harter Act, the District Court held that the Harter Act did not provide any limitations on liability, and that carriers may not limit their liability under the Harter Act. Finally, the District Court held that, even if it applied, a carrier may not invoke the USD 500 package liability limit if it failed to exercise due diligence to provide a seaworthy vessel.

The defendants appealed. The defendants argued that the District Court erred by denying them the USD 500 per package limit on liability afforded to carriers under COGSA. First, the defendants argued that the District Court erred in holding them liable as forwarders not covered by COGSA. Second, the defendants argued that the Harter Act did not prevent the application of the USD 500 liability limit in this case. Third, the defendants argued that COGSA’s USD 500 limit applied even to carriers who fail to exercise due diligence to provide a seaworthy vessel.

Held: Appeal allowed.

The first issue is whether the District Court erred by holding IMB and Intermarine liable as forwarding agents. They contend that under COGSA they are carriers and not forwarding agents. Whether IMB and Intermarine are carriers or forwarders is crucial, because COGSA’s liability limit applies only to 'carriers'. Under COGSA, the term 'carrier' includes the owner or the charterer who enters into a contract of carriage with a shipper. A contract of carriage is one that is 'covered by a bill of lading or any similar document of title, insofar as such document relates to the carriage of goods by sea...'. To determine whether a party is a COGSA carrier, this Court follows COGSA's plain language, focusing on whether the party enters into a carriage contract with a shipper. In this case, IMB and Intermarine clearly entered into a contract of carriage with the plaintiff. They agreed to carry the plaintiff's goods by sea, and they issued a bill of lading. Hence, under the plain language of COGSA and relevant case law, IMB and Intermarine are carriers. Accordingly, the District Court erred in refusing to apply COGSA’s USD 500 liability limit on the ground that IMB and Intermarine acted as forwarders.

The defendants also argue that the District Court erred in finding that the Harter Act prevented them from invoking COGSA’s USD 500 liability limitation. In 1936, Congress enacted COGSA, which superseded much of the Harter Act. However, COGSA expressly provides that it does not supersede the Harter Act as to 'the duties, responsibilities, and liabilities of the ship or carrier prior to the time when the goods are loaded on or after the time they are discharged from the ship'. Hence, 'COGSA ... does not apply either before loading or after discharge of the cargo'. During those periods, the Harter Act governs.

The plaintiff argues that, because its cargo was damaged after discharge from the MV Harbel Tapper, the Harter Act governs. Thus, according to the plaintiff, COGSA's USD 500 liability limit does not apply. The defendants respond that the bill of lading contractually extended COGSA's USD 500 limit to the period after discharge. The bill of lading provides that COGSA shall govern before loading, after discharge, and during the entire time when the cargo is in the carrier’s possession. The plaintiff does not contest that the bill of lading purports to extend COGSA to the period after discharge. Rather, it asserts that the Harter Act prohibits a carrier from contractually extending COGSA's liability limit to the periods covered by the Harter Act.

Parties may contractually incorporate COGSA's provisions to the periods of a voyage ordinarily covered by the Harter Act. In this case, the key issue is whether the contractual incorporation of COGSA's USD 500 per package limit on liability is inconsistent with the Harter Act. The Court has not found, nor has the plaintiff cited, any case holding that COGSA’s USD 500 limit is inconsistent with the Harter Act. Accordingly, the Court holds that the contractual incorporation of COGSA’s USD 500 per package limit on liability is not inconsistent with the Harter Act and is enforceable. The District Court erred in holding that the Harter Act prevented the defendants from invoking COGSA's limitation on liability.

Finally, the District Court also erred in holding that a carrier is barred from invoking COGSA's USD 500 liability limitation whenever it fails to exercise due diligence to provide a seaworthy vessel. Nothing in the text of COGSA suggests that the USD 500 limit on liability is available only to carriers who exercise due diligence to ensure a seaworthy vessel. To the contrary, COGSA provides: 'Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package ... or ... per customary freight unit ...': 46 U.S.C. app. § 1304(5). Furthermore, to hold that a carrier is never entitled to the USD 500 limitation on liability if it fails to exercise due diligence would render the limitation a nullity. Under COGSA, a carrier may not be held liable in the first place unless it fails to exercise due diligence to make the ship seaworthy: see 46 USC § 1304(1): 'Neither the carrier nor the ship shall be liable for loss or damage arising or resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make the ship seaworthy ...'.