United States District Court, Northern District of Illinois, E.D
August 30, 1984
DB TRADE INTERNATIONAL, INC., PLAINTIFF,
ASTRAMAR, MITSUI ENGINEERING & SHIPBUILDING CO., LTD., A/K/A MITSUI ZOSEN K.K., ET AL., DEFENDANTS.
The opinion of the court was delivered by: William T. Hart, District Judge.
MEMORANDUM OPINION AND ORDER
In this action DB Trade International, Inc. ("DB Trade")
seeks to recover approximately $99,000, plus costs and fees,
for loss sustained when a shipment of steel from Argentina
arrived in damaged condition. DB Trade's claim is an
admirality claim within this Court's jurisdiction pursuant to
28 U.S.C. § 1333, and also 28 U.S.C. § 1337. Plaintiff and two
of the defendants have filed cross-motions for partial summary
judgment on the issue of damages, the matters currently before
In connection with these motions, the parties have submitted
a stipulation of uncontested facts. The defendants maintain
that plaintiff's recovery is limited to the $11,500 by the
Carriage of Goods by Sea Act ("COGSA"). 46 U.S.C. § 1304(5).
For the reasons set forth below, the defendants are not
entitled to the protection of the COGSA limitation of liability
provision. Accordingly, the defendants' motion is denied and
the plaintiff's motion is granted.
Since January, 1980, plaintiff DB Trade has been engaged in
the business of importing steel and other products from
overseas. On September 10, 1981, DB Trade contracted to
purchase cold rolled steel from Columbia International
Investments and also contracted to resell the steel to
National Material Corporation in Illinois. Propulsora
Siderurgica SAIC ("Propulsora") manufactured the steel in
Argentina and made arrangements for its shipment from
Argentina to Chicago. Propulsora arranged for shipment by
engaging Fletamar S.A.C., a local broker and shipping agent.
The steel was loaded on board the ocean going vessel
Scandinavia Maru at Ensenda, Argentina between October 16 and
1981. The Scandinavia Maru is owned by defendants Mitsui
Engineering & Shipbuilding Co., Ltd. ("Mitsui") and Showa
Aircraft Industry Co., Ltd. ("Showa") who had chartered the
vessel to Fuji Marine Co., Ltd. ("Fuji"). Fuji, in turn,
subchartered the vessel to its vessel managing subsidiary Fuji
Kisen Kaisha, Ltd. ("Fuju-Kisen"), who subchartered the vessel
to Carl Bulk Carriers, A.P.S. of Copenhagen, Denmark, who, in
turn, subchartered the vessel to defendant Astramar CIA
Argentina de Navegacion S.A.C. ("Astramar") for the voyage
from Argentina to Chicago.
After loading the steel on board, the ship's mate (an
employee of Fuji) prepared and signed receipts for the goods.
Based on these receipts, Fletamar then prepared a cargo
manifest and signed the bills of lading issued by Astramar.
Under the customary practice, the carrier (Astramar) provides
the shipper (Fletamar) with blank form bills of lading. The
shipper completes the forms with the requested information,
signs the bills and returns them to the carrier. The parties
have stipulated that Fletamar and Astramar followed this
customary practice Although Astramar's bill of lading form
does not contain a specific space labelled "valuation" in
which the shipper may insert the actual value of the shipment,
the form also has no restriction prohibiting the shipper from
including such a valuation in its description of the goods.
The forms used here contain the following provision on their
This Bill of Lading shall have effect subject to
the provisions of any legislation relating to the
carriage of goods by sea which incorporates the
rules relating to Bills of Lading contained in
the International Convention, dated Brussels 25th
August, 1924, and any modification thereof which
is compulsorily applicable to the contract of
carriage herein contained.
The COGSA is the legislation in this country which
incorporates these treaty provisions. It contains the
following section on limitations of liability:
(5) 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
lawful money of the United States, or in case of
goods not shipped in packages, per customary
freight unit, or the equivalent of that sum in
other currency, unless the nature and value of such
goods have been declared by the shipper before
shipment and inserted in the bill of lading. This
declaration, if embodied in the bill of lading,
shall be prima facie evidence, but shall not be
conclusive on the carrier.
By agreement between the carrier, master, or
agent of the carrier, and the shipper another
maximum amount than that mentioned in this
paragraph may be fixed: Provided, that such
maximum shall not be less than the figure above
named. In no event shall the carrier be liable
for more than the amount of damage actually
Neither the carrier nor the ship shall be
responsible in any event for loss or damage to or
in connection with the transportation of the
goods if the nature or value thereof has been
knowingly and fraudulently misstated by the
shipper in the bill of lading.
46 U.S.C. § 1304(5) (emphasis added). Neither DB Trade,
Propulsora nor Fletamar requested that a declaration of actual
value be inserted in the bills of lading. DB Trade's marine
cargo insurer, Employers Insurance of Wausau, and the
underwriter, American Marine Underwriters, Inc. also failed to
request a declaration of actual value. DB Trade brought this
action after twenty-three of the steel coils arrived in Chicago
in damaged condition.
If applicable, the COGSA limitation of liability provision
would cap DB Trade's recovery at $11,500 (23 x $500), as the
parties do not dispute that each coil is a "package" as
defined in § 1304(5). Defendants Showa and Mitsui contend that
§ 1304(5) limitation applies, since the shipper failed to
include a declaration of actual value in the bills of lading.
On its face, the statute appears to mandate this result.
However, the courts have added a gloss to the statute,
requiring a carrier who seeks the COGSA's protection to provide
its shipper "a fair opportunity to chose between a higher or
lower liability by paying a correspondingly greater or lesser
charge." Komatsu, Ltd. v. States S.S. Co., 674 F.2d 806, 809
(9th Cir. 1982) (citations omitted). Accordingly, the issue
presented here is whether Astramar afforded DB Trade and its
shipper, Fletamar, a "fair opportunity" to avoid the COGSA
The Seventh Circuit has not spoken to the issue of what
constitutes such a fair opportunity. In addition, the Fifth
and Ninth Circuits have taken conflicting views of the meaning
of "fair opportunity." In a recent line of cases, the Ninth
Circuit has adopted the following view:
The carrier bears the initial burden of proving
`fair opportunity.' Normally, the carrier can
meet this initial burden by showing that the
language of COGSA Section 4(5)
[42 U.S.C. § 1304(5)] is contained in the bill of lading. Such
an express recitation of section 4(5) is prima
facie evidence that the shipper was given a fair
opportunity to choose a higher liability. The
burden of disproving `fair opportunity' is then
shifted to the shipper. (citations omitted).
Nemeth v. General S.S. Corp., Ltd., 694 F.2d 609
, 611 (9th Cir.
1982). See also Komatsu, 674 F.2d at 809; Pan American World
Airways, Inc. v. California Stevedore & Ballast Co.,
559 F.2d 1173
(9th Cir. 1977). However, under the Ninth Circuit's view
mere incorporation by reference of the terms of section
1304(5), as in Astramar's form bill of lading, does not
constitute a prima facie showing by the carrier of "fair
opportunity." Komatsu, 674 F.2d at 810. Nor does a published
tariff which includes increased freight charges for shipments
where actual values are declared, constitute evidence that the
carrier afforded the shipper a "fair opportunity" to declare
actual value. 674 F.2d at 811.
The Fifth Circuit has expressly rejected the Ninth Circuit's
position, holding that such a published tariff, when combined
with a paramount clause as is present here, gives the shipper
constructive notice of the COGSA loss limitation and its right
to declare actual value. Wuerttembergische v. M/V Stuttgart
Express, 711 F.2d 621 (5th Cir. 1983) (per curiam); Brown &
Root, Inc. v. M/V Peisander, 648 F.2d 415, 423-25 (5th Cir.
1981). While, as DB Trade notes, no published tariff is
involved in this action, the Fifth Circuit position on
constructive notice may also extend to a paramount clause which
incorporates the COGSA by reference.
Nevertheless, the Ninth Circuit's reasoning is more
persuasive. Neither of the Fifth Circuit's decisions
adequately address the key issue in determining whether the
shipper has had a "fair opportunity" to declare the actual
value of its shipment. "The issue is whether this reference
[the paramount clause] is sufficiently explicit to make a
shipper aware that a package limitation exists. Komatsu, 674
F.2d at 811 (emphasis added). Unless the bill of lading
expressly states that the $500 limitation of liability applies,
the shipper is aware only of the fact that the COGSA applies,
not that some limitation of liability lurks somewhere in the
statute. Under a bill of lading which merely incorporates the
Hague Convention by reference, the shipper must determine what,
if any, statute has been enacted then, search the statute for
any limitation of liability, steps that are avoided by setting
forth notice of a limitation of liability in the bill of
lading. General Electric Co. v. M.V. Lady Sophie, 458 F. Supp. 620,
622 (S.D.N.Y. 1978).
As the Second Circuit has noted in two somewhat different
contexts, "In interpreting § 4(5), courts must therefore take a
critical look at any proposed construction of that section that
would reduce a carrier's liability below reasonable limits."
Mitsui & Co., Ltd. v. American Export Lines, Inc.,
636 F.2d 807, 815 (2nd Cir. 1981) (Friendly, J., discussing the
"package" in § 1304(5)). See also General Electric Co. v. S.S.
Nancy Lykes, 706 F.2d 80, 87 (2nd Cir. 1983) (discussing
whether or not § 1304(4) limitation applies to loss occasioned
by carrier's unreasonable deviation). Requiring the carrier to
indicate explicitly that a $500 per package limitation of
liability applies unless the shipper takes some action is
consistent with this general skepticism of the carrier's
entitlement to § 1304(5) protection.
To make a prima facie showing of "fair opportunity," the
carrier need only put the shipper on notice of § 1304(5) by
including some express statement that a liability limitation
operates unless the shipper requests otherwise. Since Showa and
Mitsui cannot carry their initial burden of demonstrating that
Astramar afforded Fletamar a fair opportunity to declare the
actual value of the shipment they cannot utilize § 1304(5) to
limit their liability.
IT IS THEREFORE ORDERED that
(1) Plaintiff's motion for partial summary judgment is
granted and the defendants' cross-motion for partial summary
judgment is denied.
(2) A status hearing is set for September 14, 1984 at 9:00
a.m., at which time a date for the close of discovery and
submission of the pretrial order will be set.
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