This appeal arose from a claim for damage caused to clock movements shipped from Ashod, Israel, to New Orleans, Louisiana, United States, on the SS Yafo. The clock movements were packed into 385 cartons, which were sealed into a container by Spartus Corp. On the Government of Israel's instructions, the vessel had to deviate and discharge the cargo at Mobile, Alabama, United States. For more than a month, the container was in the custody of the carrier, Zim Israel Navigation Co Ltd (Zim), and/or its agents. During that time, the cargo suffered water damage due to rainfall. The District Court held that there was an unreasonable deviation, and that the carrier was liable for damages.

Held: The District Court's judgment is affirmed.

To deviate means to stray, to wander. As applied in admiralty law, the term 'deviation' was originally and generally employed to express the wandering or straying of a vessel from the customary course of the voyage. In course of time, it has come to mean any variation in the conduct of a ship, in the carriage of goods, whereby the risk incident to the shipment is increased - for example, carrying the cargo on the deck of the ship contrary to custom and without the consent of the shipper; delay in carrying the goods; failure to deliver the goods at the port named in the bill of lading; carrying them further to another port; bringing them back to the port of original shipment; and reshipping them. Such conduct has been held to be a departure from the course of agreed transit and to constitute a 'deviation'. It has further been held that where due to deviation the cargo is lost or damaged, clauses that limit liability cease to apply. The Carriage of Goods by Sea Act (COGSA), 46 USC § 1304(4), provides the law to determine whether a carrier’s deviation for the purpose of unloading cargo is unreasonable: see GW Sheldon Co v Hamburg Amerikanische Packetfahrt AG 28 F 2d 249 (3d Cir 1928).

There was no war-like situation in Israel. The carrier was motivated by 'moral pressure' exerted by the Government of Israel to deviate. Congress decided that a deviation for the purpose of unloading cargo is prima facie unreasonable. It is against the interests of the shipper, who has contracted to have its cargo delivered to its destination, in good condition, for the carrier to alter the contract by offloading the cargo elsewhere. Thus, Congress had declared that a shipper can make out a case of unreasonable deviation simply by proving that its cargo was offloaded at a place other than the stipulated destination.

Zim cited no authorities that proved that a carrier could overcome the prima facie case of unreasonableness by showing that the deviation was motivated by patriotism. Zim cited Foscolo, Mango Co v Stag Line Ltd (1931) 41 Lloyd’s Rep 165, as support for its defence, particularly Lord Atkin’s statement that a deviation 'may be reasonable even though it is made solely in the interests of the ship or solely in the interest of the cargo or indeed in the direct interest of neither'. Zim’s argument assumed that the term 'interests of the ship' was broad enough to include the patriotic motivations of the ship's owner. It further assumed that a trial court is entitled to find that even where the deviation is solely in response to this interest, the deviation is reasonable. Nothing in Lord Atkin's opinion suggests that the term 'interests of the ship' should be construed to embrace an interest such as the one Zim proposed.

Even if Zim’s diversion of the vessel to Mobile was treated as having been motivated by a desire to enhance Zim’s financial stability, and its corporate survival in Israel, it is no defence against the prima facie case of unreasonableness. G Gilmore and C Black, The Law of Admiralty (2d edn, 1975) 179 states that:

The rationale of [COGSA’s prima facie] rule ... seems to be that the carrier ought not be allowed to deviate with no other motive than the increase of his own revenues; thus, the proof required to overcome the prima facie unreasonableness of such a deviation would have to show something more than mere reasonableness from the point of view of the carrier ... . The carrier, throughout the performance of the voyage, is always subject to [COGSA’s] Section 3(2) duty to care for and carry the goods properly, and his decision on a route would seem to be improper and unreasonable whenever it is made in disregard of that duty.

The District Court read § 1304(5) as allowing the USD 500 limitation, regardless of the cause or circumstances of the loss. In its cross appeal, the shipper contended that the unreasonable geographic deviation of the vessel breached the contract of carriage between the carrier and the shipper, thereby rendering COGSA’s package limitation inapplicable. Prior to the passage of COGSA, a geographic deviation had the effect of ousting the contract of carriage and imposing a harsh insurer’s liability upon the carrier for damage resulting to the shipper’s cargo: see The Willdomino v Citro Chemical Co of America 272 US 718 (1927). However, with the passage of COGSA considerable debate ensued as to the effect on the principle of liability that Congress intended in employing the language in § 1304(5).

COGSA wrote into law, with some modifications, the Hague Rules, which operate as model standards governing the carriage of goods by sea under bills of lading. The original draft of the Hague Rules was written in 1921. It was the product of discussions between shippers, cargo underwriters, bankers, steamship owners, and other interested parties. Their intent was to strike a bargain between the interests of cargo and the interests of the carriers for the division of risks incidental to the transportation of goods. All of them recognised the need for international uniformity in ocean bills of lading, particularly the establishment of an irreducible minimum of immunity of the carrier. The original draft was refined by the International Maritime Conference and became the International Convention for the Unification of Certain Rules of Law relating to Bills of Lading, which was signed by the United States and other nations in 1923. The United Kingdom enacted its Carriage of Goods by Sea Act in 1924, adopting, in toto, the Convention as its domestic legislation. The United States adopted its version of the Convention in 1937. Perhaps the major impetus to COGSA's enactment was the seemingly insufferable condition imposed upon shippers (and, in turn, upon their insurers) by clauses in bills of lading limiting the carriers' liability to very low amounts. These clauses were thought to be the natural result of the carriers' superior bargaining position vis-à-vis shippers.

For several years after the enactment of COGSA, many sectors of the maritime world continued to operate under the assumption that COGSA had effected no change in the law of deviation-based carrier liability. This Circuit, and others, continued to apply insurer’s liability to a carrier guilty of an unjustifiable deviation, in spite of the USD 500 package limitation that seemingly applied to every loss: see Romano v West India Fruit Steamship Co 151 F 2d 727 (5th Cir 1945); The Lafcomo 64 F Supp 529 (SD NY 1946).

How a carrier could be held liable for a sum in excess of USD 500 in a case of unreasonable deviation, when COGSA provides that its loss cannot exceed USD 500 'in any event', was first addressed in Jones v The Flying Clipper 116 F Supp 386 (SD NY 1953). Faced with the seemingly unequivocal statutory language, the Court nevertheless seized upon its perception of Congress’s intent and found that Congress did not intend to supplant the existing law of deviation. The enactment of COGSA’s package limitation was viewed merely as a means of ensuring that no lesser amount of liability could be stipulated. The Court explained:

Except for this change in amount, the provision of the Act did not represent any basic departure from existing law. Neither the Convention nor the Act contains any provision concerning the legal result of an unjustifiable deviation. There is nothing in the history of the Act to indicate that Congress by fixing the limitation at USD 500 intended to displace the doctrine of unjustifiable deviation which was so firmly entrenched in maritime law. Such a drastic change in the existing law, with its far-reaching consequences in the commercial and financial world would have been expressed in clear and unmistakable terms.

In reaching its holding, the Court quoted Senator White, one of the major proponents of COGSA, to the effect that the Act worked only four changes in the existing law: 'Four principal changes in the law will be worked by the legislation: the first one has reference to the limit of liability. Under this provision, I should say generally that the limit of liability of the carrier is substantially increased.'

The Court also relied on Foscolo. There, the House of Lords after having found an unreasonable deviation went on to reject the contention that the carrier was entitled to limit its liability. Their reasoning was based on the notion that an unreasonable deviation breaches the contract of carriage, thereby making the voyage different from the one stated in the original bill of lading (to which the UK COGSA applied). The holding of The Flying Clipper has been consistently reaffirmed by courts in the Second Circuit: see Rosenbruch v American Export Isbrandtsen Lines Inc 543 F 2d 967 (2d Cir 1976); Iligan Integrated Steel Mills Inc v SS John Weyerhaeuser 507 F 2d 68 (2d Cir 1974); Du Pont de Nemours International SA v SS Mormacvega 493 F 2d 97 (2d Cir 1974); Encyclopaedia Britannica Inc v SS Hong Kong Producer 422 F 2d 7 (2d Cir 1969) (CMI1649); Mitsubishi International Corp v SS Glyfada Spirit 1978 AMC 480 (SD NY 1978). Cerro Sales Corp v Atlantic Marine Enterprises Inc 403 F Supp 562 (SD NY 1975) held that unreasonable deviation deprives the carrier of the benefit of the one-year statute of limitations.

Searoad Shipping Co v EI du Pont de Nemours Co 361 F 2d 833 (5th Cir 1966) considered whether an unreasonable deviation in the form of on-deck stowage, in the face of a clean bill of lading, has the effect of nullifying COGSA's per-package limitation. The Court held that such a non-geographic (quasi) deviation ousts the COGSA limitation and restores the carrier's full insurer liability. This makes a strong implication that insurer consequences necessarily flow from geographic deviations. Subsequent cases have also declined to apply the COGSA limitation in cases of unreasonable deviations, whether geographic or non-geographic (quasi-deviation): see Siderurgica Del Orinoco CA v MV North Empress 1977 AMC 1140 (ED LA 1976), and International Drilling Co NV v The MV Doriefs 291 F Supp 479 (SD Tex 1968). Baker Oil Tools Inc v Delta Steamship Lines Inc 562 F 2d 938 (5th Cir 1977) held that the carrier's unilateral cancellation of the port of call terminates the contractually incorporated COGSA USD 500 limitation as to pre-loaded goods, thus rendering the carrier 'a fully liable common law bailee'.

Zim urged that Searoad should not be treated as controlling the issue at hand. It relied on Atlantic Mutual Insurance Co v Poseidon Schiffahrt GmbH 313 F 2d 872 (7th Cir 1963). There the Court declined to follow the Flying Clipper doctrine and held that the COGSA limitation applied, notwithstanding the presence of an unreasonable geographic deviation. The Court viewed the COGSA words 'in any event' as an explicit Congressional command that the package limitation should apply to any loss, regardless of the cause. While this view was not altogether untenable, the holding in Searoad forecloses the application of the Flying Clipper doctrine in this case. Zim’s offloading of the clock movements in Mobile breached the contract of carriage and rendered the package limitation void.