The 2nd U.S. Circuit Court of Appeals has reversed a lower court decision in a cargo case having to do with customary freight units (Edso Exporting v. Atlantic Container Line. 2nd Circuit. No. 11-1467. March 20).
Edso owned a crane made by Grove and hired Atlantic Container Line (ACL) to ship it from Baltimore to Tripoli via Hamburg.
ACL operates a fleet of multipurpose ships that carry both containers and roll-on/roll-off cargo across the Atlantic. As part of the Grimaldi Group, ACL offers through Hamburg connecting services to many destinations in the Mediterranean and West Africa.
Edso said the crane sustained $154,064 in damage and sued ACL in district court.
The Carriage of Goods by Sea Act (COGSA) limits a carrier’s liability for damage in connection with the transportation of goods to $500 per package, “or in case of goods not shipped in packages, per customary freight unit… unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.”
The 2nd Circuit said in a summary order it was undisputed that both the crane was unpackaged and Edso failed to declare its value in the bill of lading. As a result, the court said Edso’s damages are therefore limited under COGSA to $500 “per customary freight unit.”
Before the trial court (the U.S. District Court for the Southern District of New York), Edso had successfully argued the customary freight unit was each cubic meter of the crane. Edso said numerous federal admiralty courts have shown a general reluctance to classify the customary freight unit for a shipment as a “lump sum” for limitation purposes under COGSA. The company also noted that it did not carry cargo insurance for the claimed loss.
The trial court granted Edso’s motion for partial summary judgment that the maximum amount of the plaintiff’s damages amounted to $61,000 — $500 multiplied by 122 cubic meters — plus applicable interest and costs.
ACL decided in the interest of economy and efficiency to waive any defenses it might have as to its liability and have the issue of what constitutes the customary freight unit under the circumstances of the case reviewed by the 2nd Circuit. The carrier argued that each item shipped was the customary unit, so that the $500 limit would apply to the entire crane.
The 2nd Circuit agreed. It quoted from an earlier decision, FMC Corp. v. S.S. Marjorie Lykes, 851 F.2d 78, 80 (2d Cir. 1988), which held that while some courts have held the customary freight unit is the measurement used to calculate the rate to be charged, in the 2nd Circuit “the customary freight unit is not the standard unit of measure used in the industry, but the actual freight unit used by the parties to calculate freight for the shipment at issue.”
In that 1988 decision, the 2nd Circuit said to determine the customary freight unit for a particular shipment, the district court should examine the bill of lading, which expresses the contractual relationship in which the intent of the parties is the overarching standard. It also said the district court could consider the tariff required to be filed with the U.S. Federal Maritime Commission, which also sets forth the freight rate.
That 1988 decision held where the bill of lading and filed tariff are unambiguous as to the freight unit used to calculate freight for the shipment at issue, “the inquiry is ended,” and a court may not consider extrinsic evidence of the parties’ intent, including negotiations.
The 2nd Circuit said if, in particular, the bill of lading and tariff unambiguously establish that freight is charged on a lump-sum basis, or based on the number of items shipped, then it is irrelevant that the parties may, as a practical matter, have calculated freight based on the weight or volume measurements of the goods.
In its memorandum of law for the district court, the attorneys for Edso pointed to the service contract entered into by ACL and Edso, saying it had clearly established the intent of the parties to book the shipment on the basis of “$60 per W/M” ($60 per metric ton or cubic meter). They noted the freight was adjusted upward (from $6,480 to $7,320) when it was discovered the crane was 122.09 cubic meters at the pier, compared to 108.35 meters when the freight rate was originally quoted.
But ACL told the district court at all times throughout the negotiations, the parties discussed the freight rate on the basis of an all-in bottom line number and not on a per-cubic-meter basis.
The 2nd Circuit said based on the facts before it, “we conclude that the bill of lading and tariff, when read together, unambiguously establish that freight was charged on a per-item, rather than per-cubic meter, basis. The bill of lading does not on its face state that freight is calculated based on the cubic volume of the crane; instead, it describes the basis of the $7,320 freight charge as ‘AA’, or ‘As Agreed.’”
It added that “any ambiguity as to the meaning of this phrase is resolved by the tariff, which is expressly incorporated by reference in the bill of lading. The tariff identifies a Base Freight of $7,320 and the Basis as ‘Each (EA).’ In the context of the $7,320 figure immediately above, ‘Each (EA)’ can only refer to each crane. Because the bill of lading, as supplemented by the tariff, unambiguously establishes that the customary freight unit in this case was each crane shipped, the district court erred by considering extrinsic evidence as to how the parties calculated the $7,320 figure.”
Edso argued the quote confirmation, which indicated the crane was “rated at $60w/m,” was incorporated in the bill of lading. But the 2nd Circuit said the bill of lading “merely references the confirmation, without any elaboration.”
By contrast, the court said the bill of lading “expressly incorporates by reference the tariff. If the parties had intended to also incorporate the terms of the quote confirmation, they would have done so explicitly.”
It said since it found no ambiguity in the governing documents concerning the basis on which freight was charged, ACL was entitled to partial summary judgment limiting its damages to $500.
The judgment of the district court was reversed.
Freight sold by the piece
