Steel Coils Inc. v. M/V Lake Marion

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Steel Coils, Inc. v. M/v. Lake Marion
United States Court of Appeals for the Fifth Circuit: Circuit Judge Patrick E. Higginbotton: 2003 U.S. App. LEXIS 9193 (not yet officially reported): May 13, 2003
US Carriage of goods by sea act (1936) ("COGSA"): Burden of Proof: Due Diligence: Non-delegable Duties: Perils of the Sea:Latent Defect: Per Package Limitation: Carrier: Whether a Party Can Contractually Delegate a Duty and Still Remain Liable for Failure to Exercise Due Diligence: Whether a Non-carrier Can Be Liable in Tort Outside of COGSA
In this case, the Fifth Circuit Court of Appeals affirmed a decision of the Eastern District of Louisiana which held a vessel, its owner, its managing agent and the time charterer (collectively the "vessel interests"), jointly and severally liable for rust damage to steel coils caused by seawater during a voyage from Latvia to the United States on the m/v Lake Marion. The Court of Appeals also affirmed the finding of the District Court that the managing agent was independently liable on a theory of negligence, without
the protection of the COGSA US$500-per-package limitation

DMC Category Rating: Developed

Case Note contributed by Brian Tretter, attorney at Healy & Baillie, LLP, International Contributors for the United States.

On appeal to the Fifth Circuit, the vessel interests argued that the District Court improperly reversed the burden of proof, requiring them to demonstrate that the goods were loaded in a damaged condition or were unloaded in an undamaged condition. The Court of Appeals, relying in part on Thyssen, Inc. v. S/S Eurounity, 21 F.3d 533 (2d Cir. 1994) (holding a cargo of hot rolled steel coils to be in good condition upon loading despite notations on the bill of lading indicating the presence of atmospheric rust), and on expert testimony, held that the District Court properly had found that the hot rolled steel coils were loaded on board the m/v Lake Marion in good condition and that notations on the bills of lading indicating atmospheric rust on the coils did not indicate that the coils were in any way damaged.

The Fifth Circuit affirmed the District Courtís finding that the cold rolled and galvanized coils were in good condition on loading based upon expert testimony stating that the steel coils showed no signs of rust nor did the steel wrappers containing the coils show any indication that moisture was dripping down into the coils. The vessel interests relied on Caemint Food, Inc. v. Lloyd Brasileiro Companhia de Navegacao, 647 F.2d 347 (2d Cir. 1981), in which the Second Circuit held that a plaintiff could not recover for a damaged cargo of corned beef packed inside metal containers before shipment because it could not present any evidence as to the condition of the corned beef. Similarly, the Fifth Circuit in United States v. Lykes Bros. S.S. Co., 511 F.2d 218 (5th Cir. 1975) held that if the internal condition of a perishable commodity is not adequately revealed by external appearances, the cargo interest may have a considerable burden to prove the actual condition of the goods. The Court of Appeals distinguished these two cases stating there was ample evidence that the cold rolled and galvanized steel coils were loaded onto the m/v Lake Marion in good condition.

The Court also affirmed the District Courtís findings that the vessel interests did not exercise due diligence, based upon expert testimony and a preload survey indicating that the hatches were insufficiently maintained. In response to the vessel interestsí argument that it had delegated its duty to test the water tightness of the hatch covers to plaintiffís parent (who purchased the steel and signed the voyage charter) under the terms of the voyage charter, the Fifth Circuit, relying upon Jamaica Nutrition Holdings, Ltd. v. United Shipping Co., Ltd., 643 F.2d 376 (5th Cir. 1981) (holding that COGSA, whether applicable by its own force or by virtue of the clause paramount, imposes a non-delegable duty on the carrier to exercise due diligence), stated: "Again we remind that the vessel interests need not be contractually bound to perform a task for its omission to be a lack of due diligence."

Responding to the vessel interests "perils of the sea" defense, the Fifth Circuit distinguished J. Gerber & Co. v. S.S. Sabine Howaldt, 437 F.2d 580 (2d Cir. 1971) (holding that damage to steel products when a vessel encountered Force 12 winds for ten hours causing a twist in the hull and considerable other damage to the vessel and cargo was caused by a peril of the sea), by stating that high winds alone were insufficient to establish the perils of the sea exception as the m/v Lake Marion only encountered these high winds for only two hours and the ship itself was undamaged.

Finally, noting that the managing agent was not a party to the voyage charter and that it signed the time charter, which did not contain a Himalaya clause, only on behalf of the owners "as agent only", the Fifth Circuit affirmed the District Courtís holding that the agent was not a carrier within the meaning of COGSA and therefore its liability was not capped by the $500-per-package limitation. Adopting the rule of the Second Circuit in Citrus Marketing Board of Israel v. J. Lauritzen A/S, 943 F.2d 220 (2d Cir. 1991), that a plaintiff may sue a shipís manager in tort for damage to cargo and that COGSA does not govern such an action, the Fifth Circuit held that a non-carrier can be held liable in tort outside of COGSA. Consequently the Fifth Circuit affirmed the District Courtís finding that the managing agent was negligent in its hiring of the crew, its maintenance and testing of the hatch covers, its failing to repair a crack in the hold and in washing the holds with seawater instead of fresh water.

This decision outlines the complex shifting of the burden of proof in suits involving COGSA claims, and confirms that a party cannot relieve itself from liability for failing to exercise due diligence by contractually delegating a duty to another party, if the failure to perform that duty renders the vessel unseaworthy. This decision also stands for the rule that a non-carrier, such as the shipís managing agents, can be held liable in tort outside of COGSA.


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