General Elec. Co. v. MV Nedlloyd, 90

• Decision Date: 06 May 1987
• Docket Number: No. 90,D,90
• Citation: 817 F.2d 1022
• Parties: GENERAL ELECTRIC COMPANY, Plaintiff-Appellant, v. MV NEDLLOYD, her engines, boilers, Nedlloyd Lijnen B.V. (Nedlloyd Lines), Defendant-Appellees. ocket 86-7376.
• Court: U.S. Court of Appeals — Second Circuit

Page 1022

817 F.2d 1022

1987 A.M.C. 1817

GENERAL ELECTRIC COMPANY, Plaintiff-Appellant, v. MV NEDLLOYD, her engines, boilers, Nedlloyd Lijnen B.V (Nedlloyd Lines), Defendant-Appellees.

No. 90, Docket 86-7376.

United States Court of Appeals Second Circuit.

Argued Oct. 8, 1986.

Decided May 6, 1987.

John E. Cone, Jr., New York City (Douglas A. Jacobsen, William R. Connor III, Bigham, Englar, Jones & Houston, of counsel), for plaintiff-appellant.

J. Scot Provan, New York City (Arthur E. Hoffmann, Jr., Kirlin Campbell & Keating, of counsel), for defendant-appellee.

Before LUMBARD, CARDAMONE and PIERCE, Circuit Judges.

CARDAMONE, Circuit Judge:

This appeal presents a unique challenge to an ocean carrier's limitation of liability under its bill of lading. Guiding our analysis are centuries old maritime principles of carriage, derived from the customs of the law merchant, the resilient strands of which were woven into the cloth of the common law where these principles survive today. General Electric (GE) appeals from a judgment entered on May 1, 1986 in the United States District Court for the Southern District of New York (Duffy, J.). That judgment was a disappointing victory for GE because though the district court held Nedlloyd Lijnen B.V. (Nedlloyd) liable for damage to GE's cargo, it limited that liability pursuant to a provision in Nedlloyd's bill of lading. We affirm.

BACKGROUND

A. Historical Overview

It is helpful to the discussion that follows to put in context the law that limits a In 1921 the Hague Rules adopted this view of a carrier's liability. These Rules--as amended by the Brussels Convention of 1924--were adhered to by the United States in 1937. In the previous year Congress had passed the Carriage of Goods by Sea Act (COGSA) ch. 229, 49 Stat. 1207 (codified at 46 U.S.C. Secs. 1300-15 (1982)), which adopted the Hague Rules. COGSA allows freedom of contract outside its provisions only if a carrier's liability is increased, not reduced. Gilmore & Black, supra, Sec. 3-25 at 145. Consequently, a carrier's liability for cargo damage today has gone from one extreme to the other--from absolute liability to liability predicated only on a showing of fault.

                carrier's liability and the opportunity for a shipper like GE to avoid those limitations.  The absolute liability of a carrier of goods by sea under 18th century law--save for several exceptions--made it, in effect, an insurer of the cargo's safe transit.  See G. Gilmore & C. Black, The Law of Admiralty Sec. 3-22 at 139-40 (2d ed. 1975).  The increasing use of bills of lading during the 19th century occurred, in part, because under these instruments carriers could limit their liability.  But such attempts to limit liability were unavailing when loss of cargo arose from a failure of the carrier to use due care since contracts exonerating carriers from liability were held to violate public policy.   First Pennsylvania Bank v. Eastern Airlines, Inc., 731 F.2d 1113, 1116 (3d Cir.1984).  The obligation to use due care is now imposed by statute, 46 U.S.C. Secs. 1303(1) and (2) (1982), so that a carrier cannot by contract exculpate itself from this duty in providing a seaworthy vessel or in handling or shipping cargo
                

In regulating ocean bills of lading under COGSA, Congress created federal law governing the terms of transport of goods by sea. COGSA restricts a carrier's ability to limit its liability under its bill of lading. Section 1304(5) of that statute establishes a minimum floor of a carrier's liability: $500 "per package ... or ... customary freight unit." From the standpoint of a shipper the $500 also acts as a ceiling for its recovery in the event of damage or loss of its cargo. Unless the shipper declares a higher value for its goods, it may not recover an amount greater than $500 per package. As discussed more fully below, common law principles require a carrier to provide a shipper with a fair opportunity to declare a value greater than $500--the so-called "excess value" or "declared value". For this purpose a space is usually provided on the front of a bill of lading for a shipper to use in declaring excess value. Because such a declaration increases a carrier's liability, it is entitled to charge more for its carriage. This additional charge--called an ad valorem rate--is the subject of this appeal.

B. Facts

The facts may be stated briefly. In 1983, during the course of building an electric generating plant in Saudi Arabia, GE needed certain equipment to be shipped from America and booked space for its transport with Nedlloyd, an ocean carrier. GE's Manager for Export Ocean Transportation did not inquire about declaring an excess value, nor did Nedlloyd apprise GE that it could declare excess value although the bill of lading contained a box for excess valuation. Had GE declared such excess, it would have been required to pay a 10% charge on the total value of the goods shipped in addition to the customary freight charge. GE states that its cargo had a value of $750,000--thus the 10% ad valorem rate would have resulted in a $75,000 charge--in addition to the $9,700 freight charge paid to Nedlloyd. This excess or ad valorem charge was contained in a tariff filed by Nedlloyd with the Federal Maritime Commission.

The cargo consisted of 26 items of equipment being shipped from Portsmouth, Virginia to Yenbu, Saudi Arabia. The two damaged items that prompted this suit were loaded on a flatbed trailer equipped with wheels and rolled aboard the M.V. NEDLLOYD ROUEN. One of the items was a Generator Auxiliary Compartment cab shipped "as is" and the other was a 10-ton control cab, ten feet long and 18 feet high. On February 16, 1983 Nedlloyd issued a bill of lading, the front of which had the customary space for declaring excess The NEDLLOYD ROUEN sailed from New York on February 18, 1983 and a day or two later encountered gale winds and stormy winter weather in the North Atlantic. When the NEDLLOYD ROUEN began rolling and heaving, GE's two cabs broke free from their lashings, fell onto the deck from the flatbed trailer, and were damaged. Following unsuccessful repair attempts, the damaged equipment was later replaced by two new units.

                value.  Language in this space referred to a clause on the back of the bill of lading.  That clause purported to limit Nedlloyd's liability to L 100 sterling per package or unit of weight.  But another clause on the back of the bill of lading--entitled the "U.S.A. Clause"--stated that COGSA governed if the bill of lading "cover[ed] the transportation of goods ... from ports of United States of America."    That clause incorporated by reference various provisions of COGSA, including Sec. 1304(5)
                

C. Proceedings Below

A year later GE sued Nedlloyd for one million dollars. Nedlloyd answered and moved for partial summary judgment claiming that COGSA's $500 limitation applied. GE responded that Nedlloyd's ad valorem rate was unreasonably high compared to Nedlloyd's cost of obtaining additional insurance sufficient to cover the greater risk to Nedlloyd had GE declared excess value. GE also argued that the bill of lading should have mentioned explicitly COGSA's $500 limitation, rather than merely incorporating it by reference. Finally, GE urged that the print on the back of the bill of lading--where the "U.S.A. Clause" was located--was illegible because it was too small to read.

The district court granted Nedlloyd's motion and summarily rejected GE's latter two contentions. It found that Nedlloyd bill of lading "clearly contained" a space for declaring excess value and provided sufficient notice that COGSA's limitation applied. It further held that the issue of the print size was irrelevant to the question of whether GE received adequate notice of its right to declare excess value.

The district court also rejected GE's first contention that Nedlloyd's rate was unconscionably high for two reasons. First, it was unconvinced that the ad valorem rate prevented GE from declaring excess value. Citing Diplock, Conventions and Morals--Limitation Clauses in International Maritime Conventions, 1 Journal of Maritime Law and Commerce, 525, 529-30 (1970) (Diplock), the court stated that if it were actually more economical for carriers rather than shippers to insure the excess value, then ad valorem rates would reflect this fact and, as a consequence, be lower than they are. Thus, because Nedlloyd's ad valorem rate exceeded what it cost GE to insure its cargo, it was not the ad valorem rate but the economics of insuring the cargo that prevented GE from declaring excess value. Judge Duffy additionally found that GE had no intention of declaring an excess value for its cargo. For this finding, the district court relied on GE's Export Ocean Transportation Manager's statement that in 43 years of working in the transportation department he had never known GE to declare excess value.

Following the district court's disposition of its motion, Nedlloyd consented to an entry of judgment against it for $28,500 plus interest. ¹ GE appeals challenging the rulings that Nedlloyd's ad valorem rate was reasonable and that its bill of lading provided adequate notice of the COGSA limitation. Before discussing these issues, we consider the threshold question of jurisdiction.

DISCUSSION

I The Jurisdictional Issue

A. Primary Jurisdiction Generally

Nedlloyd argues that GE's challenge to its ad valorem rate essentially involves an Primary jurisdiction is a doctrine that is used to determine whether a given issue should be passed on first in a judicial or administrative forum. In other words, it fixes priority for passing on a given issue. While administrative expertise is a factor that a court considers in deciding whether it should take initial jurisdiction, United States v. Western Pacific Railroad Co., 352 U.S. 59, 64, 77 S.Ct. 161, 165, 1 L.Ed.2d 126 (1956), the principal reason why such a doctrine exists is to encourage a court and agency...