DMC/SandT/08/04
In re M/V DG HARMONY
United States of America: United States Court of Appeals for the Second Circuit;
2008 U.S. App. LEXIS 4483; Sack, Parkes and Hall JJ.: March 3, 2008
SHIPPING: CARRIAGE OF DANGEROUS CARGO: US CARRIAGE OF GOODS BY SEA ACT 1936
s.4(6): STRICT LIABILITY: DUTY TO WARN: NEGLIGENCE
Summary
In this important decision, the United States Court of Appeals for the Second
Circuit held that a shipper will not be held strictly liable for damage caused
by hazardous goods if both the shipper and the carrier had pre-shipment
knowledge of the dangerous nature of the cargo, even if the carrier lacked
information about the precise characteristics of the cargo and its hazards.
Instead, in such a case the shipper’s liability will be determined on
negligence principles. In particular, where the carrier alleges that the shipper
failed adequately to warn the carrier about the characteristics of the
particular shipment, the carrier must show (1) that the shipper had a duty to
warn because the cargo presented dangers of which the carrier could not
reasonably have been expected to be aware, (2) that the shipper failed to
provide the adequate warning, and (3) that this failure caused the damage
complained of. The case was remitted to the District Court (the court of first
instance) to make findings on the issue of whether an adequate warning would
have affected how the carrier stowed the calhypo.
DMC Category Rating: Developed
Case note submitted by Thomas H. Belknap, LeRoy Lambert, and
Brian S. Tretter, attorneys with the firm Blank
Rome LLP, in New York. Blank Rome are International Contributors to the
website for the United States.
Fact and Procedural History
On November 9, 1998, the M/V DG HARMONY caught fire off the coast of Brazil
as a result of an explosion in its third hold. The fire burned for three weeks,
rendering the vessel and its cargo a constructive total loss. On board the
vessel were ten containers, each packed with 16,000 kilograms of calcium
hypochlorite (hydrated) ("calhypo") which was manufactured and shipped
by PPG Industries, Inc. ("PPG"). Calhypo is an industrial bactericide
which is likely to combust when it reaches its critical ambient temperature
("CAT"), a figure which is dependent on the manner in which the
calhypo is packed and is inversely proportional to the quantum of calhypo in a
given drum or other container. Calhypo is listed in the International Maritime
Dangerous Goods Code ("IMDG Code"), which recommends that calhypo not
be exposed to a heat source in excess of 55° C for longer than a 24-hour
period. PPG provided the carrier with documentation identifying the cargo by its
IMDG code, declaring the containers had been packed in accordance with the
requirements of the IMDG Code, cautioning that the containers should be stored
in a cool, dry well-ventilated place away from sources of radiant heat. PPG also
warned the carrier that the cargo would become unstable above a certain
temperature, but it omitted specific information about what effect the way in
which the product was packed might have on the calhypo’s CAT. PPG’s
containers were stowed in the vessel’s hold no.3. Three of the containers were
placed adjacent to the heated port side bunker tank with two of these containers
also sitting directly atop the bunker tank. The fire aboard the M/V DG HARMONY
was caused when PPG’s calhypo exploded.
Litigation ensued in the United States District Court for the
Southern District of New York. All claims were resolved except the claims of the
ship-owning and cargo interests against PPG. The ship-owning and cargo interests
alleged that PPG was liable for the constructive total loss of the vessel based
upon theories of general negligence, negligent failure to warn and strict
liability under s.4(6) of the US Carriage of Goods by Sea Act, 1936. This
section provides that the shipper of inflammable, explosive, or dangerous cargo
"shall be liable for all damages and expenses directly or indirectly
arising out of or resulting from such shipment."
The district court found PPG solely liable, based upon the
theories of strict liability and negligent failure to warn. PPG appealed to the
Second Circuit.
The Appeals Court’s Decision
The Second Circuit reversed the judgment of the district court that PPG was
strictly liable pursuant to COGSA § 4(6). The district court’s finding of
strict liability was based on the Second Circuit’s holding in Senator Linie
GMBH & Co. KG v. Sunway Line, Inc., 291 F.3d 145 (2d Cir. 2002), where a
shipper was held strictly liable for damage caused by the spontaneous combustion
of hazardous goods being shipped from Korea to the United States. The DG
Harmony Court emphasized that the application of the Senator Linie
decision was limited to the situation where neither the shipper nor the carrier
knew of the dangerous nature of the cargo.
Here, however, both the shipper and carrier knew that calhypo
was dangerous. Relying on its prior decision in Contship Containerlines, Ltd.
V. PPG Indus., Inc., 442 F.3d 74 (2d Cir. 2006), cert. denied, 127
S.Ct. 565 (2006), the Second Circuit held that a shipper cannot be held strictly
liable for damage caused during the shipment of hazardous cargo in circumstances
where the carrier was generally aware that the cargo’s dangerous nature
requires careful handling or stowage, as the carrier was in this case, and it
nevertheless exposes the cargo to conditions which could trigger a known danger,
as the carrier did in this case. In such a case, liability must be determined
under negligence principles and not strict liability principles.
The Second Circuit then turned to the district court’s holding
that PPG was liable because it failed to adequately warn of the dangers posed in
shipping the calhypo. The court affirmed the district court’s finding that PPG
had a duty to warn and that PPG breached this duty by failing to adequately warn
the carrier of the potential dangers posed by the specific manner in which PPG
had packed the containers containing the calhypo, and it further affirmed the
finding that the calhypo caused the explosion resulting in the constructive
total loss of the vessel. The court nevertheless vacated (set aside) the
district court’s judgment, on the grounds of its failure to address whether
the carrier would have stowed the cargo differently if PPG had provided an
adequate warning. It remanded the case to the district court with instructions
to make findings on the issue of whether an adequate warning would have affected
how the carrier stowed the calhypo.
Conclusion
Where the carrier is generally aware of the hazardous nature of cargo,
even if it is not aware of the precise nature of the risk, and the carrier
nevertheless exposes it to potentially dangerous conditions, it will not be able
to rely on the strict liability provisions of COGSA but will be required to show
that the shipper acted negligently with respect to the cargo and/or its
obligation to warn the carrier of the specific nature of the cargo’s risks.
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