Indemnity Insurance v. Hanjin Shipping

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Indemnity Insurance Company of North America v. Hanjin Shipping Company
United States Court of Appeals for the Seventh Circuit: Circuit Judge Diane P. Wood: 348 F.3d 628: October 31 2003
The Seventh Circuit Court of Appeals, in reversing a decision of the Northern District of Illinois, held that a carrier under an intermodal waybill subject to US Carriage of Goods by Sea Act 1936, was not liable for the loss of a container that disappeared from a customs yard after the carrier had relinquished possession of the container for customs inspection. The carrier had received no instructions from the consignee regarding its onward carriage. The Appeals Court remitted to the District Court the issue whether the companies responsible for the Customs inspection were liable for the loss as bailees.

DMC Category Rating: Confirmed

Case note submitted by Brian Tretter, an attorney with Healy & Baillie, LLP in New York. Healy & Baillie are the International Contributors to the website for the United States

L.G Sourcing, a subsidiary of Lowe’s Companies, Inc. (collectively "Lowe’s") contracted with Appellant, Hanjin, to transport a container of power tools from China to Lowe’s warehouses in Indiana. The parties signed an intermodal waybill. The waybill specified Lowe's warehouse in Indiana as the place of delivery, but also specified that Lowe's agent could specify in writing a new place of delivery. 

The container was shipped to Long Beach in California without incident and transported by rail to Chicago, where it was to be picked up by motor carrier for delivery to Lowe’s Indiana warehouse. Prior to its arrival in Chicago, Lowe’s agent and customs broker was notified by the United States Customs Service that the container was selected for an intensive customs examination. Lowe’s agent notified Hanjin that the container was to be delivered to O’Hare Services ("O’Hare"), and Channel Distribution ("Channel"), the company operating a Centralized Customs Examination Station in the Chicago area and its subcontractor hired to inspect the contents of containers, respectively. Upon receipt of the container, O’Hare turned it over to Channel, who performed the inspection. The container was then moved from the bonded customs area to an open yard. Lowe’s agent was notified that the container was released and ready to be picked up. Lowe’s agent did not issue a delivery order and the container remained in the open yard, from where it was later discovered to be missing. The empty container was found a few days later in Calumet City, Indiana. The power tools were never recovered.

At trial, the District Court for the Northern District of Illinois held Hanjin - but neither O’Hare nor Channel - liable for the loss of the container.

On appeal, Indemnity Insurance Company of North America ("Indemnity"), who was subrogated to Lowe’s claims, asserted that Hanjin was still obligated to deliver the container to its Indiana warehouse and that O’Hare and Channel were presumptively negligent as bailees under the general law of bailments.

Hanjin argued that a) under the Hague Rules and the alternative delivery terms of the waybill, it had validly delivered the goods when it turned the container over for Customs inspection in accordance with Lowe’s agent’s instructions, and b) this completed delivery under the waybill unless it received further written instructions from Lowe's agent regarding the on-carriage.

The Court of Appeals first took up the issue of what law to apply to the action. Applying Illinois and Indiana choice of law rules, the Court of Appeals held that the parties’ choice of the Hague Rules, codified in the United States in COGSA, should apply to the dispute. Further, the Court of Appeals held that under the clause paramount in the waybill, the Hague rules applied to all aspects of the shipment of the container (both the ocean and inland portions of shipment).

The Court of Appeals then held that Hanjin, upon receipt of written instructions from the consignee’s customs broker (who was also the "Notify Party" in the waybill), was both entitled to and required to turn the container over for customs inspection. The Court of Appeals further held that Hanjin could not be liable for the missing container because it received no further written instructions from either the consignee or its agent regarding pick-up of the container. Hanjin had made valid delivery under the Hague Rules and the waybill and therefore had not breached its contract of carriage. The Court of Appeals consequently reversed the judgment against Hanjin.

The Court of Appeals then turned its attention to the District Court’s holding that O’Hare and Channel were not liable for the loss of the container as a matter of law. O’Hare and Channel argued that as bailees of the container, they handled it in accordance with Customs rules and industry standards, and therefore were not negligent in the handling of the container. The record revealed that the container was left in an unsecured yard with unlocked gates. Citing a lack of evidence in the record as to whether such treatment of containers was in accordance with industry standards, the Court of Appeals reversed the District Court and remanded (remitted) the case to the District Court for further factual findings.


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