GTS Industries SA v. S/S HAVTJELD

• Decision Date: 01 November 1995
• Docket Number: No. 1146,Docket 94-7885.,1146
• Citation: 68 F.3d 1531
• Parties: GTS INDUSTRIES S.A., Plaintiff-Appellee, v. S/S "HAVTJELD", her engines, tackle, boilers etc., in rem, Defendant, K/S Havtjeld, A/S Havtor Management, A/S Bulkhandling, in personam, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

68 F.3d 1531

GTS INDUSTRIES S.A., Plaintiff-Appellee, v. S/S "HAVTJELD", her engines, tackle, boilers etc., in rem, Defendant K/S Havtjeld, A/S Havtor Management, A/S Bulkhandling, in personam, Defendants-Appellants.

No. 1146, Docket 94-7885.

United States Court of Appeals, Second Circuit.

Argued February 6, 1995.

Decided November 1, 1995.

Chester D. Hooper, New York City (A. Andrew Tsukamoto, Haight, Gardner, Poor & Havens, New York City, of counsel), for Defendants-Appellants.

David L. Mazaroli, New York City, for Plaintiff-Appellee.

Before: KEARSE, CARDAMONE, and MAHONEY, Circuit Judges.

CARDAMONE, Circuit Judge:

We have before us a dispute between a shipper and a shipowner regarding cargo which, after reaching its destination and upon being unloaded from the ship, was discovered to be damaged. Total repair costs for the damages and survey fees amounted to $212,827.12, for which amount the shipper brought suit. After a bench trial held in the United States District Court for the Southern District of New York (Carter, J.), the shipper obtained a decision awarding it $188,526.76 plus interest against the shipowner which, when reduced to a judgment dated August 4, 1994, totaled $244,542.37. From this judgment, the shipowner appeals. For the following reasons, we affirm.

FACTS

The cargo in question consisted of 1,660 pieces of steel pipe sheathed in an external polyethylene coating and ten externally bare pipes. Each of the pipes was 40 feet long, 36 inches in diameter, and weighed between three and six tons. The pipes were manufactured in Germany by the plaintiff shipper GTS Industries S.A., (GTS, plaintiff or shipper), a French corporation engaged in the business of manufacturing and selling steel pipe. The pipes were purchased by Transcontinental Gas Pipe Line Corporation (Transco) to be laid as part of a natural gas pipeline in Texas. Because the pipe was to be laid in the ground it was sheathed in a three-layer coating to protect it from corrosion that could cause it to break down. The first layer applied against the bare metal was an epoxy fusion bond, over which was placed a layer of adhesion material, and the third layer, on the surface of the pipe, was a polyethylene wrap. The pipes had beveled ends to facilitate welding when they were installed. Before being shipped they were tested and inspected, at which time the coating and bevels were found to be in good condition and in compliance with contractual specifications.

As shipper, GTS had chartered the S/S Havtjeld from defendants, the ship's owners, K/S Havtjeld, A/S Havtor Management, and A/S Bulkhandling (collectively shipowner or defendant) to carry the steel pipe from Dunkirk, France to Philadelphia, Pennsylvania. The shipper paid $452,270 to defendant to carry and deliver the cargo in April 1991. The parties executed a charter party March 14, 1991 that described the cargo as coated steel pipe. The shipowner warranted the S/S Havtjeld was suitable to load, transport and discharge the cargo and warranted further that its ship was "in every respect fitted to perform the voyage." The terms of Clause 2 of the charter party made the shipowner responsible for cargo damage caused by negligent or improper stowage and for failure to exercise due diligence to make the vessel seaworthy in all respects.

Shipment was tendered to defendant on April 2, 1991 at Dunkirk. GTS had agreed in Clause 5(b) of the charter party to load, stow and secure the pipe aboard the Havtjeld "free of any risk, liability and expense whatsoever to the Owners." GTS and Transco had five surveyors at Dunkirk for the loading. It was their job to inspect the cargo prior to and during that process. The pipes were stowed aboard without any protective covers or wrapping. Defendant's chartering manager and Port Captain, Ingar Aakerman, who was in charge of the pipe shipment, was also present at the loading. Only those damages to the coating of the pipes that equalled or exceeded three millimeters in depth were repaired in Dunkirk. Defendant's officers found the cargo in good condition, except for 17 pieces that were damaged. Defendant issued a bill of lading that reflected these facts.

Although there was evidence that the vessel pitched and rolled heavily during the ocean voyage, the trip was uneventful. None of the cargo shifted and no hatch leaked. GTS had agreed to sell the coated pipe and to transfer title and risk of damage to the cargo after Transco had inspected and accepted the pipe upon its arrival in Philadelphia. In accordance with the terms of the charter party, discharge was performed by the shipowner using the S/S Havtjeld's cranes and employing hired stevedores. Transco determined after the pipes were offloaded that over 80 percent of them were so damaged as to require repair.

Those persons present at the unloading noticed pieces of rust scale that had fallen on the pipe, apparently from the overheads of the cargo holds during the voyage. The cargo surveyor reported that the largest percentage of coating damage came from this rust scale as the pipes moved with the ship's pitching and rolling during its voyage. Some of the pieces of rust sifted into lower tiers of the stow and gouged the pipe as it was moved upon unloading. Further damage to the coated steel pipes was caused when wooden saddles used by the stevedores in Philadelphia to support the pipes during off-loading — so-called "Napoleon Hats" — turned out to have protruding nails. A number of the beveled pipe ends were also injured when the stevedores banged them about during offloading. Additional damage was caused by loose nails and glass that had been left in the cargo hold after loading.

As a result plaintiff GTS was required to expend $172,300.36 to repair the coating damage, of which $130,000 was attributable to rust scale and $26,000 to the faulty "Napoleon Hats." Damage to the pipes' beveled ends due to the stevedores' rough handling on discharge came to $28,896. Survey fees and other costs brought GTS' total claim to $212,827.12, the amount sued for in the instant action.

The trial court held the shipowner liable for the amounts expended by GTS to repair the pipes, discounting the repairs necessitated by damage from loose nails and glass in the holds, which was not attributable to the defendant. Noting that the shipper bears the burden of establishing that the damage to the goods was proximately caused by the defendant's breach of the charter party, the trial court determined that the cargo left Dunkirk in good condition but needed extensive repairs upon its arrival in Philadelphia. To determine the amount of repairs attributable to the various causes, it relied on the testimony of one Carney, a surveyor working on behalf of the cargo underwriters. Defendant appeals from the judgment entered by the district court in favor of GTS.

DISCUSSION

The vessel owner contends the trial court erred in two respects. First, the shipowner argues that the district court misanalyzed the owner's duty to ensure the seaworthiness of the vessel. Clause 4 of the charter party provided that the vessel's holds are to be "properly swept, cleaned and dried at Owners' expense to Charterers' satisfaction." Clause 4 also stated that the S/S Havtjeld was "in every respect suitable for the loading transportation and discharge of the cargo" and "in every respect fitted to perform the voyage."

According to the shipowner, the district court seized on the words in Clause 2, "to make the vessel in all respects seaworthy," and ruled that this amounted to an express warranty by the shipowner to provide a seaworthy ship. While the trial court recognized an owner may delegate the duty to load, stow and secure cargo, the shipowner's argument continues, it failed to realize that under a charter party the duty to furnish a seaworthy ship can also be delegated. It points to language in the district court's opinion that states: "the duty to provide a seaworthy ship is a duty the shipowner cannot delegate," as support for this argument.

Moreover, the owner maintains, the district court refused to acknowledge that the owner had delegated to the shipper the duty to examine and determine the suitability of the S/S Havtjeld's holds that carried the steel pipe. The district court concluded such a delegation was prohibited, the owner continues, by applying principles of the Carriage of Goods by Sea Act (COGSA), see 46 U.S.C. app. § 1300 et seq. (1988), rather than ordinary contract law principles, although it and the parties agree that the governing contract of carriage in this case was the charter party, not COGSA.

The second error, the shipowner asserts, is that the burden of proof to show the cargo's condition at loading and the cause of damage to the cargo was improperly placed on the owner. We address the shipowner's contentions in turn.

I Delegation to Shipper

A. Warranty of Seaworthiness in Maritime Law

Some historical background will help put the legal issues before us in context. Over 100 years ago, before the passage of the Harter Act of 1893, 27 Stat. 445 (codified at 46 U.S.C. app. § 190 et seq. (1988)), a shipowner warranted that its ship was seaworthy when her voyage began. At that time such warranty was absolute. Over the years owners had attempted to limit their own and their vessel's liability by inserting provisions in bills of lading limiting losses arising from their ships' unseaworthiness. The Harter Act was passed to bring a halt to the relaxation of responsibility imposed on shipowners. Section 2 of that Act made it unlawful to lessen an owner's obligation to use due diligence to equip and outfit a vessel properly or to make it seaworthy and capable of performing her intended voyage. Section 3 of the same Act provided that if the owner exercised due diligence to make a vessel seaworthy, it would not be liable for latent defects not discoverable by diligent examination. See The Southwark, 191 U.S. 1, 6-8, 24...