In re M/V "DG Harmony"

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Note: the Court of Appeals for the Second Circuit, in a judgment delivered on 3 March 2008, has overruled the judgment at first instance on the issue of strict liability under s.4(6) of US Carriage of Goods by Sea Act 1936 and remitted the case to the first instance court for further findings of fact. For a note on the Appeals Court decision, click here

DMC/SandT/05/54
In re M/V DG Harmony and Consolidated Cases
United States: Federal Court for the Southern District of New York: Chin DJ.: No. 98 Civ. 8394 (DC), 2005 U.S. Dist. LEXIS 23874: 18 October 2005
CARRIAGE OF GOODS BY SEA: CALCIUM HYPOCHLORITE IN CONTAINERS: EXPLOSION AND FIRE: LOSS OF SHIP AND CARGO: SHIPPER’S LIABILITY UNDER US COGSA: STRICT LIABILITY: PRIVITY OF CONTRACT: LIABILITY IN NEGLIGENCE: LIABILITY FOR FAILURE TO WARN
Summary
In this case, the Court held the shipper of a consignment of Calcium Hypochlorite responsible for a fire which broke out on board the carrying vessel and led to the loss of ship and cargo. Although it did not have actual notice of the product’s true volatility, the Court held the shipper strictly liable under the U.S. Carriage of Goods by Sea Act ("COGSA") - even though the claimants were not parties to the bill of lading contract - on the ground that it was in the best position to determine the product’s true properties. The Court further held that the shipper was negligent in failing to determine the true nature of the risk in handling this cargo and for failing to warn the vessel about this danger

DMC Rating Category: Confirmed

Case Note contributed by Steven J. Hollander of Healy & Baillie, LLP in New York. Healy & Baillie are the international contributors to the website for the United States.

Background
On a voyage from U.S. ports to Brazil, the M/V DG Harmony carried among its cargo ten containers of Calcium Hypochlorite. During the voyage, this product, which is commonly used as a bactericide, began to decompose, generating heat and smoke. The rise in temperature caused further decomposition, which ultimately caused the relatively unstable chemical to explode, blowing the doors off the containers, embedding them into the adjacent containers, and causing a fire so immense that the crew was forced to abandon ship after a grueling eighteen-hour unsuccessful attempt to stifle it. The fire lasted three weeks and, as a result, the US$16 million vessel was declared a constructive total loss and virtually all her cargo was destroyed.

The M/V DG Harmony stowed the containers in accordance with the International Maritime Dangerous Goods Code ("IMDG Code"). Neither the manufacturer/shipper, PPG Industries Inc.of Natrium, West Virginia, nor the carrier knew the true risks and dangers of storing and shipping this chemical in the manner utilized by the shipper. Testing subsequent to the casualty revealed, however, that the chemicals should have been stored at a lower temperature than provided for by the IMDG Code.

Numerous lawsuits ensued, including claims by the vessel interests and the owners of other cargo carried aboard the vessel against the chemical manufacturer/shipper. Ultimately, all claims were settled except for the claims against the manufacturer/shipper.

In defending the claims, the shipper claimed that it should not be held strictly liable for the damage to the vessel and the other cargo because it did not have actual or constructive pre-shipment knowledge of the danger presented. Further, the shipper claimed, it should not be liable to the other cargo interests because they were not parties to the bill of lading issued to it by the carrier – the "privity of contract" argument.

Judgment
The District Court found that the cause of the fire was a "thermal runaway" in one of the containers of Calcium Hypochlorite. The size of the drums, the tightness of the stow within the container and the fact that the container was neither ventilated or refrigerated all contributed to the consignment having a Critical Ambient Temperature in the region of 41º Celsius, which was much lower than anyone had previously thought. Although the cargo had been stowed below deck and in the vicinity of one of the vessel’s bunker tanks – which was heated when fuel was to be drawn from it – the stowage conformed to the IMDG Code which simply required that the cargo not "be exposed to temperatures in excess of 55º Celsius for more than 24 hours". The judge found in this case that the ambient temperature in the hold never exceeded 55º Celsius, "let alone for 24 hours".

The District Court, describing the case as "essentially a products liability case in the maritime context", rejected the shipper/manufacturer’s claims and held that the shipper was strictly liable because it was in the best position to protect people from goods of an inflammable, explosive or dangerous nature. The reasoning behind this holding was that the shipper can conduct tests and ascertain the true character of the shipped goods before sendoff, whereas the carrier could not reasonably be expected to do so for every kind of cargo it carried. The Court quoted with approval from the judgment in the case of Senator Linie GmbH & Co. KG v. Sunway Line Inc. 291 F.3d 145 (Second Circuit) the passage reading "If an unwitting party must suffer, it should be the one that is in a better position to ascertain ahead of time the dangerous nature of the shipped goods. That party in many cases will be the shipper." In the present case, the Court held, "the rationale for applying strict liability is even more compelling… because PPG was not just the shipper but also the manufacturer."

As regards the privity of contract argument, the Court held that it was the clear intention of Congress, in enacting the US COGSA, "not to limit liability under the section to any particular class of entities, nor did Congress impose a requirement of privity. It would make no sense to read [the section] to protect only the issuer of the bill of lading, as often such an issuer… merely charters space on a ship with no physical property interest at stake. It is the vessel and the [other] cargo interests who require protection." The Court quoted here from that part of the judgment in the Senator Linie case which read:

"In determining that [the section]’s strict liability rule displaces otherwise inconsistent general maritime law, we have been mindful of COGSA’s overarching purpose to allocate risk of loss and create predictable liability rules on which not only carriers but other can rely."

The carrier, further, could not have given consent to transport this dangerous chemical, and thus negate a strict liability claim, because it was unaware of the true risks involved in this particular chemical.

The District Court agreed also with the plaintiffs’ further argument that the shipper was negligent in allowing an unreasonably dangerous product to leave its control without sufficient warning about the potential hazards. A product is unreasonably dangerous even if there is no manufacturing or design defect if the seller or manufacturer fails to give an adequate warning as to foreseeable risks. In finding the shipper negligent the District Court acknowledged that the shipper was not actually aware of the full risks of shipping the product in the manner in which it was shipped in this case. "Red flags," however, did exist, such as the fact that the product was known to be unstable and liable to decompose on exposure to heat; that the manner in which it was stored and packed were known to be important to the risk of accelerating decomposition; that a large quantity was being shipped here, when it was known that the risk of accelerating decomposition increases as the mass of the product increases; that there had been previous explosions involving the same chemical; that the containers being used were not ventilated or refrigerated, and there was a published suggestion that the chemical should be stored at a lower temperature than stated in the IMDG Code. Because of the magnitude of the risks involved, the court reasoned that the shipper should have investigated the product further in view of the "red flags."

Along the same reasoning, the District Court opined that the shipper’s warnings were inadequate because they did not mention that the chemical should be stored at a lower temperature than that published in the IMDG Code.

The Court ruled accordingly that PPG was liable to the vessel and other cargo interests on the strict liability, negligence and failure-to-warn claims.

Comment
COGSA puts the onus on the shipper to determine its cargo’s true properties and potential to cause harm. Shippers may not blindly rely on the IMDG Code to create a figurative safe harbor, and they must pay close attention to "red flags" that may raise doubt as to whether the prescribed method of handling and carrying a particular cargo is in fact safe. If evidence exists which raises a question about a product’s defective design or possible hazard then the shipper must follow through and investigate thoroughly, and warn the carrier of the harms, or face potential costly consequences. Furthermore, a shipper’s liability will be upheld even vis-à-vis third parties with whom it is not in privity of contract via the bill of lading, through COGSA’s statutory protections.

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