Sedco Inc (Sedco) contracted to sell 18 packages of oil drilling equipment to a buyer in Texas, who purchased it for USD 350,000. The cargo was loaded on the Strathewe, for carriage from Dubai, UAE, to Houston, Texas. Shortly after the Strathewe departed from Dubai, the British Government requisitioned it for use in the Falkland Islands War, and requested it to discharge present cargo at a convenient port and proceed to Southampton with minimal delay.

The Strathewe was owned by the Peninsular & Oriental Steam Navigation Co, the Peninsular & Oriental Steam Navigation Co Ltd, and Strick Line Ltd (P&O). Another P&O vessel, the Strathesk, was scheduled to sail towards Malta at a later date en route to the United States. Malta was on the way to Southampton, and P&O arranged to have the Strathewe detour to Malta to offload Sedco's cargo for transhipment on the Strathesk to the United States. P&O did not inform Sedco of this arrangement.

Only 16 of 18 pieces of cargo arrived in Houston on the Strathesk. The remaining two pieces were left on a pier in Malta. When the two missing boxes were finally found, they only had salvage value to Sedco, who sued P&O to recover the decrease in value of this temporarily lost cargo.

The District Court for the Southern District of New York determined that Sedco could recover USD 182,637.48 in damages. It found that P&O's conduct constituted an unreasonable deviation within the meaning of the Carriage of Goods by Sea Act, 46 USC ss 1300 ff (COGSA), voiding the statutory USD 500 per package limitation of liability. The District Court also rejected P&O's argument that it was immune from liability under COGSA's 'restraint of princes' defence (s 4(2)(g)). P&O appealed.

Held: The judgment of the District Court is reversed and remanded with directions to enter judgment for P&O's liability to be limited to USD 1,000.

COGSA, which expresses adherence to the Hague Rules of 1921, the Brussels Convention of 1924, and the earlier Harter Act of 1893, was enacted to carry the uniform liability rules governing domestic voyages found in the Harter Act over into the international sphere. COGSA strove to achieve this uniformity, in part, by mitigating the common law liability of carriers as insurers. Under s 4(5) of COGSA, neither the carrier nor the ship may be liable for any loss of or damage to goods in an amount exceeding USD 500 per package, unless the nature and value of the goods have been declared by the shipper and inserted in the bill of lading: see Robert C Herd & Co v Krawill Machinery Corp 359 US 297, 301 (1959) (CMI1735). However, s 4(4) of COGSA provides:

Any deviation in saving or attempting to save life or property at sea, or any reasonable deviation shall not be deemed to be an infringement or breach of this chapter or of the contract of carriage, and the carrier shall not be liable for any loss or damage resulting therefrom: Provided, however, that if the deviation is for the purpose of loading or unloading cargo or passengers it shall, prima facie, be regarded as unreasonable.

The Court of Appeals held that the COGSA USD 500 per package limitation of liability was applicable. Strathewe's deviation to Malta to transship the US-bound cargo was reasonable, and P&O's post-discharge conduct was not a deviation.

Strathewe's excursion to Malta appeared to constitute a deviation. The excursion was a departure from its agreed or usual route. However, a deviation does not occur unless the ship voluntarily and unjustifiably departs from its agreed or usual course: The Willdomino v Citro Chemical Co 272 US 718, 47 S Ct 261, 71 L Ed 491 (1927); American Tobacco Co v The Katingo Hadjipatera 81 F Supp 438, 449 (SDNY 1948).

There was some doubt as to whether the Strathewe's detour to Malta was 'voluntary'. The excursion to Malta was, to some extent, not voluntary as the British Government commanded that the Strathewe to discharge its cargo at a convenient port and proceed to Southampton. However, the British Government only required the Strathewe to offload its cargo somewhere convenient and so P&O was given some discretion in determining where to accomplish the offloading.

The Malta stop was prima facie unreasonable as it was 'for the purpose of ... unloading cargo': Dow Chemical Pacific Ltd v Rascator Maritime SA 782 F 2d 329, 338 (2d Cir 1986). An unreasonable deviation bars a carrier from invoking COGSA's USD 500 per package limitation of liability (eg, Iligan Integrated Steel Mills Inc v SS John Weyerhaeuser 507 F 2d 68, 70-73 (2d Cir 1974); Encyclopedia Britannica Inc v SS Hong Kong Producer 422 F 2d 7, 18 (2d Cir 1969) (CMI1649); Jones v The Flying Clipper 116 F Supp 386, 387-91 (SD NY 1953)). This rule was re-affirmed in BMA Industries Ltd v Nigerian Star Line Ltd 786 F 2d 90, 91 (2d Cir 1986). Nevertheless, Strathewe's departure from its agreed or usual route, resulting in offloading of the cargo at Malta after it was requisitioned by British Government under its war powers, constituted a reasonable deviation that did not preclude the carrier from relying upon statutory limitation of liability.

The doctrine of deviation is applicable only to 'the carrier's voluntary action in unjustifiably deviating' when the deviation has 'so changed the essence of the agreement as to effect its abrogation' (The Flying Clipper 389). The doctrine of deviation in the law of carriage may be traced to the pre-COGSA law of marine insurance. The insurer was deemed to only have accepted the risk that was reasonably contemplated in voyage policies. Where the vessel, without excuse, voluntarily and unjustifiably departed from the usual commercial or contractual route, the policy was voided. In order to protect shippers in the event cargo was lost, the carrier was placed in the position of an insurer for liability purposes. COGSA abolished the harsh doctrine that casts a carrier as an insurer after deviation and prevented it from invoking either a contractual or statutory limitation on liability (BMA Industries 91; Thyssen 63-65; Iligan 70-73).

P&O was negligent in its post-discharge conduct. P&O's agents in Malta failed to reload two of the 18 pieces of cargo owned by Sedco and incorrectly indicated on the manifest that all 18 pieces of cargo had been reloaded aboard the Strathesk. P&O, in responding to Sedco's inquiries, erroneously stated that the cargo was still aboard the Strathewe. P&O failed to locate the misplaced cargo within a reasonable period of time. The post-discharge conduct violates s 3(2), but does not void the USD 500 per package limitation of liability.

The deviation doctrine is limited to two situations: geographic deviation and unauthorised on-deck stowage (or 'quasi-deviation') (BMA Industries 91-92; Italia di Navigazione; Iligan 71-72). As stated in BMA Industries 92 (quoting Iligan 72), '[t]he principle of quasi-deviation is arguably inconsistent with COGSA, and is "not one to be extended"'.

P&O was not entitled to full immunity under the 'restraint of princes' defence (s 4(2)(g)), which refers to a Sovereign's exercise of its power controlling and divesting the dominion or authority of an owner over its ship (Baker Castor Oil Co v Insurance Co of America 157 F 2d 3, 4-5 (2d Cir 1946)). The requisition of Strathewe did not excuse P&O's subsequent failure to properly and carefully handle and care for goods after they were unloaded at Malta. P&O's negligent handling of Sedco's cargo was an intervening event which broke the chain of causation between the restraint of the Strathewe by the British Government and the ultimate injury. Accordingly, the requisition of the Strathewe was not the proximate cause of the loss suffered by Sedco, and the restraint of princes defence could not shield P&O from liability (cp The Malcolm Baxter Jr 277 US 323).