While the amount in dispute was small ' an estimate said the damaged pipe could be reconditioned for $31,067 ' a recent decision is important because it can provide guidance in a type of cargo dispute seen 'over and over again in our industry,' said Richard L. Gorman, a Houston attorney whose firm, Cohen, Gorman and Putnam, represented several defendants in this case (QT Trading LP v. Saga Morus, et al. 5th Circuit. No. 10-20524. May 11).
Saga Morus was a Hong Kong-flagged general cargo ship owned by Attic Forest AS and chartered to Saga Forest Carriers under a long-term charter.
QT hired Daewoo to move the pipe, and QT alleged damage to the shipment, discovered when it arrived in Houston, had occurred during transport.
The cargo was inspected before loading in Dalian by an inspector from Beacon Marine Consultant Ltd. on behalf of the Skuld P&I Club. The report to the ship's master noted broken pipes, scratched coatings, and oil and rust stains. The same inspector also said the hold where the pipe was being loaded appeared dry, and random testing using silver nitrate found no positive reaction that the cargo had seawater rust. (Silver nitrate will react with chlorides to form a cloudy white precipitate.)
The mate's receipts for the two bills of lading stated the goods were 'clean on board,' but contained additional handwritten notations that the cargo condition was 'as per P&I report.'
But when the bills of lading were issued for the cargo, they did not reflect any defect in the cargo or reference the mate's receipts or preloading survey. The bills of lading stated the carrier was Daewoo, the consignee was QT Trading and the goods were 'clean on board.'
When the ship arrived in Houston, another inspection was done on behalf of QT and the survey noted damage to cargo in one of the holds.
It found scattered pipes had gouged bevels, flat ends, and were bent along the length 'indicative of rough, careless and/or improper handling during loading as well as faulty stowage,' and that pipes had moderate to heavy surface rust. A chemical analysis concluded the cargo had been in contact with a foreign substance and possibly with seawater.
In 2009, QT Trading sued Saga Forest; Pratt, Manfield & Co., technical manager of the ship; and Daewoo Logistics Corp., which had subchartered the ship for two years (but Daewoo declared bankruptcy and never appeared or filed an answer in this action).
In 2010, QT seized the Saga Morus when it was docked in Los Angeles, but last November, defendants were granted summary judgment because a forum selection clause gave Hong Kong as the venue for resolving disputes with the ship.
QT brought a claim under the Carriage of Goods at Sea Act, but the remaining defendants argued that none of them were liable because they were not 'COGSA carriers.'
Recovery under COGSA is only available from the carrier ' and carrier is defined as the owner or charterer of the vessel who enters into the contract of carriage with the cargo owner.
In this case, the trial court said, the contacts of carriage were the two bills of lading, and in both cases they were signed by Daewoo.
However, a charterer such as Daewoo may be authorized to sign a bill of lading on behalf of the master or the owner of a vessel and a charterer's signature can be binding on the vessel owner if the owner has authorized the charterer to sign on its behalf.
Gorman said in these sorts of shipments, there is often a tension between what he calls the 'operational side' of the ship owner and the 'commercial side' of the time charterer who is booking the cargo.
The time charter normally has a banking requirement for issuance of a clean bill of lading in order to move the cargo.
The owner, on the other hand, has limited interest in the condition of the cargo that is loaded on the vessel, unless loading the cargo is a danger to the ship or crew or if it cannot be loaded safely. It makes little difference to the ship owner if the cargo is scratched or rusted or if end caps are missing from pipe. If the cargo can be loaded safely on the ship, his interest is that any damage be carefully noted so that he is not found liable for it when the cargo arrives at the port.
In this instance, the charter party agreement between the subcharterer Daewoo and Saga Forest expressly limited Daewoo's authority to sign bills of lading. Authorization was granted 'in accordance with mate's or tally clerk's receipts,' and if Daewoo signed bills that did not conform to the mate's receipts Daewoo would 'accept all consequences that might result.'
The trial court granted summary judgment to the defendants.
On appeal, QT contended the district court erred when it found none of the defendants were COGSA 'carriers' and thus could not be liable for damages under the statute.
While the defendants were not named parties to the bills of lading, it argued Daewoo had the authority to bind them as COGSA 'carriers' because the master gave Daewoo authority to sign bills of lading on its behalf, and because the charter party gave the master authority to sign bills of lading on behalf of defendants.
The appeals court said the claims against Attic and Pratt were easily dismissed because QT failed to present evidence that either firm authorized Daewoo to sign on its behalf.
With Saga, the 5th Circuit said though Daewoo's agent had authority to sign bills of lading for Saga, it failed to do so because the agent signed on behalf of Daewoo, not the master.
Furthermore, the court said Saga was 'not a COGSA carrier because Daewoo's agent exceeded the authority granted to it by the master by failing to sign the bills of lading in conformity with the mate's receipts.'
Gorman said because his clients 'are looking at the long haul in the business' they decided to incur the expense of defending the case on appeal.
Gorman said his clients 'got a decision that they have always thought was the law and which has been the law in certain districts such as the Eastern District of Louisiana and the Southern District of New York,' but has not been ruled on elsewhere.
'It became a matter of principle for the clients and this was a good case for them,' he said, the first time to his knowledge an appellate court has ruled on a dispute where 'clean' bills of lading were issued and the authority granted to the charterer was for bills of lading to be issued in accordance with the mate's or tally clerk receipt or a survey by a protection and indemnity club.
