A case recently decided in the Federal Court for the Southern District of New York raises a point of importance to those who are engaged in international shipping between Western Europe and the United States, and who are concerned about the enforceability of liability in contracts of carriage.

A central issue in this case was whether a U.S. court should apply the higher damage limitations of the Hague-Visby Amendments to a shipment from Europe to the United States, rather than $500 package limitation of the Carriage of Goods by Sea Act (Cogsa).

To appreciate the complexity of this case, it is necessary to examine the background of Cogsa and the Hague-Visby Amendments. Today's shipping industry is generally governed by the Hague Rules and the Hague-Visby Amendments. The Hague Rules, a popular name for an international convention made at Brussels in 1924, were part of an effort to achieve uniformity in ocean bills of lading in order to provide a degree of predictability required for international shipping. Congress enacted Cogsa in 1936 as the U.S. version of the Hague Rules. Before this enactment, shipowners often thwarted cargo damage claims by inserting low limits in bills of lading (e.g., $10 a package). Congress, therefore, enacted Cogsa to protect shippers from this practice by establishing a $500 package limitation.

Over the years, many shippers found the $500 limit inadequate compensation for cargo losses. Consequently, in 1968, the Hague-Visby Amendments were drafted to update the Hague Rules of 1924. The amendments are in effect in most of the major European trading partners of the United States. However, this nation has not adopted the Visby Amendments.

England initially enacted the Hague Rules in 1924, but denounced them in 1977 and enacted in their place the Hague Rules with Visby Amendments.

Circumventing Cogsa in some instances
In the United States, Cogsa statutorily applies to all contracts of carriage of goods by sea to or from the United States that are covered by bills of lading or similar documents of title. However, Section 1306 of Cogsa states that, in certain circumstances, parties may structure their contracts to circumvent Cogsa. Section 1306 applies when a bill of lading is not issued, and the terms of the transportation agreement take the form of a receipt (which also must be marked as a nonnegotiable document).

In the case of M/V Seijin (1996 AMC 1507), four cargo owners sued the vessel's interests for damage to cargo carried from England to the United States under contracts written on non-negotiable datafreight receipts. The receipts expressly asserted that they were not documents of title, but rather contracts for carriage from England to the United States. The face of the receipts incorporated the Hague Rules of 1924 and any compulsory, applicable national enactment of these rules. The reverse side of the receipts states that the 1924 Rules, as enacted in the country of shipment, would apply to the contracts.

Interests argue that Cogsa limits apply
At trial, vessel interests argued that the Cogsa $500 limitation statutorily applied to the contract of carriage, rather than the higher limitation provided by the Visby Amendments. the court, relying partly on Section 1306 of Cogsa, rejected the argument and found that the laws of the country of origin (England), with its Visby Amendments, were intended by the parties to be applicable.

The court said, "By specifically stating that the datafreight receipts are not documents of title and cannot therefore be bills of lading, Cogsa is effectively removed from consideration herein..."

Vessel interests engaged in European-U.S. trade should be aware that Section 1306 of Cogsa may play a significant role in their cargo damage liability exposure, if datafreight receipts are used as contracts of carriage rather than traditional bills of lading. The Seijin case is now on appeal.