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M.C. Machinery Systems, Inc. v. Maher Terminals

June 29, 2000

M.C. MACHINERY SYSTEMS, INC.,
PLAINTIFF-APPELLANT,
V.
MAHER TERMINALS, INC.,
DEFENDANT-RESPONDENT.



The opinion of the court was delivered by: O'Hern, J.

Argued January 18, 2000

On certification to the Superior Court, Appellate Division.

If a strained metaphor may be forgiven, we hesitate to dip our toes into the waters of admiralty law. Fortunately, we need not deal here with such quaint notions as that a ship is a person, The Osceola, 189 U.S. 158, 23 S. Ct. 483, 47 L. Ed. 760 (1903), or that when cargo and vessel come together, they are "married at transport." Farrell Ocean Services, Inc. v. United States, 524 F. Supp. 211, 214 (1981). These subtleties have appealed to ones such as Messrs. Gilbert and Sullivan who described this law as the "monarch of the sea." De Sole v. United States, 947 F.2d 1169, 1176 n.11 (4th Cir. 1991). And rightly so. The law of the sea, with other institutions of antiquity, helped to shape the civilizations with which we are most familiar. Its unifying principles are as necessary to the world of commerce today as then. The issue in this case is a recurring one -- when ceases the liability of a ship owner for the goods of a merchant consigned to the vessel?

A cursory review of history helps to put the issue in perspective. For this purpose, we draw on Samuel Robert Mandelbaum, International Ocean Shipping and Risk Allocation for Cargo Loss, Damage, and Delay: A U.S. Approach to COGSA, Hague-Visby, Hamburg, and the Multimodal Rules, 5 J. Transnat'l L. & Pol'y 1 (1995). For convenience, we shall eliminate formal citations to the various laws mentioned therein, referring to the laws or conventions by their familiar names. *fn1

The rights and liabilities of the carrier and shipper in maritime law predate the present era. Under Roman law, the carrier insured the safety of the goods delivered and therefore was liable for all loss or damage. In time, losses due to shipwreck and piracy were excepted from this strict liability rule. By the 1500s, European carriers were legally excused for the non-delivery or damage to cargo, resulting from bad weather, perils of the sea, or robbery. Bills of lading *fn2 of that time included those defenses, while still holding the carrier liable for any loss due to its negligence. As of the early nineteenth century, a marine carrier was described as an "insurer of the goods." Unless the carrier could prove one of four excepted causes or that its negligence had not contributed to the loss of goods, the carrier was held strictly liable.

By the end of the century, however, carriers promoted a different risk allocation. To avoid liability for any cargo damage and loss, carriers began to include broad exculpatory clauses in the bills of lading. As a result, the carriers' bills of lading became "so unreasonable and unjust in their terms as to exempt [the carrier] from almost every conceivable risk and responsibility as carrier of the goods." Hearings before the Committee on Merchant Marine and Fisheries House of Representatives, 74th Cong., 2d Sess. 8 (1936), reprinted in 3 The Legislative History of the Carriage of Goods by Sea Act (Michael F. Sturley ed. & Caroline Boyer trans., 1990) Bills of lading also were so long and complex that it became impossible for shippers to read the bills of lading in the ordinary course of business. The carriers' continual addition of newer and stricter conditions in the bills of lading aggravated this problem. To redress the inequitable bargaining positions, American courts invalidated many of these conditions on public policy grounds. Furthermore, Congress enacted the Harter Act in 1893 to counteract the carriers' superior bargaining power. In other countries however, such as the United Kingdom, courts upheld many of the carriers' terms. Because the law governing shipments from the United States differed from most parts of the world, a movement for international uniformity developed using Harter Act theory.

In 1924, twenty-six nations adopted an international convention, commonly called the Hague Rules, which established bases for shipowner liability for cargo loss or damage. Among its many provisions, the Hague Rules provide shipowners with seventeen defenses and limited liability to $500 per package or customary freight unit. The United States domestically implemented the Hague Rules by enacting the Carriage of Goods by Sea Act (COGSA), 46 U.S.C. §§ 1300 to -15, in 1936 and ratifying the convention in the following year.

COGSA provides international uniformity and balances the power between shippers and owners. The Act applies from "tackle to tackle," i.e., the time from loading of the goods until their discharge from the ship. 46 U.S.C. § 1301(e). However, the parties may contractually extend the coverage of COGSA after discharge until delivery occurs, at which point the contract of carriage terminates. B. Elliott (Canada) Ltd. v. John T. Clark & Son, 704 F.2d 1305, 1307 (4th Cir. 1983); see also Leather's Best v. Mormaclynx, 451 F.2d 800, 807 (2d Cir. 1971) ("[T]he contract continues to govern the relationship between a shipper and a carrier after discharge but before delivery."). Although COGSA did not completely supersede the Harter Act, it does contain significant changes. *fn3 Most importantly, COGSA provides the carrier and the ship a $500 per package liability limitation in the event of damage to cargo. 46 U.S.C. § 1304(5). This limitation applies unless the shipper declares the value of the cargo in the bill of lading. Ibid.

This appeal requires the Court to decide the amount of a marine terminal operator's liability for damage caused to a shipper's plastic injection molding machine while it was being stored in a marine terminal following carriage overseas. The Court must resolve whether defendant's liability is limited to $500 pursuant to an alleged extension of COGSA contained in the bill of lading, or whether defendant is liable for approximately $370,000, the full amount of damages claimed by plaintiff, pursuant to New Jersey bailment law.

II.

Plaintiff is an insurance company suing in subrogation in the name of its policy holder, M.C. Machinery Systems, Inc., a shipper ("M.C. Machinery" or "Shipper"). M.C. Machinery hired Dia International Traffic Co., Ltd. ("Dia International"), a non-vessel owning common carrier, to transport a 42,000 kilogram (41.3 English tons) plastic injection molding machine from Nagoya, Japan to Glendale Heights, Illinois. Dia International arranged with an ocean carrier, Hapag-Lloyd America, Inc. ("Hapag-Lloyd" or "Carrier"), to carry the cargo overseas to the Port of New York-New Jersey, located at Port Elizabeth, N.J. Hapag-Lloyd issued a bill of lading for the cargo to be shipped aboard its ocean vessel, "California Saturn."

Defendant Maher Terminals, Inc. ("Maher" or "terminal operator") was hired by Hapag-Lloyd to discharge the cargo from the vessel when it docked at Port Elizabeth, and to store the machine in its terminal until a freight forwarder hired by plaintiff arrived to pick it up. Maher had a terminal operating and stevedoring contract with Hapag-Lloyd pursuant to which it agreed to discharge cargo from Hapag-Lloyd's vessels, including the California Saturn, and provide storage for the cargo until the consignee came to retrieve it.

On November 7, 1995, the California Saturn docked at Port Elizabeth, and Maher discharged the cargo from the vessel by a crane to the stringpiece, a section of the pier extending alongside the vessel. The machinery was then placed onto a low-bed trailer, known as a mafi, and hauled from the stringpiece to a storage area in Maher's terminal, called the Breakbulk/Ro-Ro yard, where the cargo was stored until plaintiff's trucker arrived. The storage area was on property leased from the Port Authority of New York and New Jersey and was several hundred yards from the pier. Six days after the cargo arrived, one of Maher's crane operators was lifting the molding machine off the mafi to place it on the ground in preparation for plaintiff's trucker's pickup, when a cable slipped, causing the cargo to fall to the ground.

On August 1, 1996, plaintiff filed a complaint against defendant in the Law Division for damages to the machinery in the amount of $369,932. Maher raised defenses under the bill of lading, including a limitation on liability. Plaintiff moved to strike the defense on summary judgment, and defendant made a cross motion for partial summary judgment to limit its liability to $500 under COGSA. The parties stipulated that if the court found that liability was limited to $500 per package, then judgment was to be entered in that amount. The Law Division denied plaintiff's motion for summary judgment and granted defendant's motion limiting its liability to $500. In its written opinion, the Law Division reasoned that the $500 limitation applied because M.C. Machinery did not declare the value of the cargo in the bill of lading. Additionally, the court ruled that the Harter Act extended the period by which the bill of lading governs so that any third parties enjoying protection of the Himalaya clause *fn4 would continue to be protected until proper delivery of the goods. The court found that defendant's stringpiece was not "a fit and customary wharf" and that stripping cargo from the mafi occurs before proper delivery under the Harter Act. In an unreported opinion, the Appellate Division affirmed the Law Division's decision for essentially the same reasons stated in the Law Division's opinion. This Court granted plaintiff's petition for certification. 161 N.J. 334 (1999).

III.

A. Does State or Federal Law Govern the Liability of a Marine Terminal Operator's Handling of Cargo that has been Discharged from an Ocean Vessel?

Plaintiff has a straight-forward argument. This case has nothing to do with maritime or admiralty law. The goods were damaged while on dry land, having been removed from the vessel. Therefore, Maher should be responsible as would any other bailee of goods in New Jersey.

Unfortunately, it is not quite that simple. As noted, the marine terminal was located on the Port Authority's property. The marine terminal appears to be a functional part of the complex system of ocean carriage of goods. The stringpiece, as its name implies, is often or normally a narrow pier immediately alongside the vessel. If the vessel were to stack all the discharged goods on the stringpiece until delivery were accomplished, a bottleneck would be inevitable. Because a merchant cannot always be immediately present to remove the goods from the pier, a workable system has evolved under which the carrier arranges with another (the stevedore) to hold the cargo in a secure place (the marine terminal) for a reasonable time. The carrier pays the stevedore to carry out this function on its behalf until the merchant picks up the cargo at the specified time. If the merchant does not pick up the goods by the specified time, the stevedore may impose demurrage charges (a charge or rent for the storage of the cargo).

Because of this integral relationship between the carrier and stevedore, federal courts have determined that federal law should govern the rights and liabilities of the parties in cases arising from disputes between the shipper and stevedore.

The Fourth and Eleventh Circuits have held that an action against a marine terminal operator for damage to cargo is within federal maritime jurisdiction, not state law. Wemhoener Pressen v. Ceres Marine Terminals, Inc., 5 F.3d 734 (4th Cir. 1993); B. Elliott, supra, 704 F.2d at 1307 (applying federal law to suit in district court against stevedore/terminal operator when provisions of COGSA contractually extended to post-discharge period); Koppers Co., Inc. v. S/S Defiance, 704 F.2d 1309, 1312 (4th Cir. 1983). Wemhoener stated: "so long as the bill of lading is still covered by COGSA or the Harter Act, which includes the period after the discharge of the goods but prior to delivery, the rights and obligations of third party beneficiaries under a Himalaya clause, should be determined with reference to the bill of lading, not state law, even if state law is inconsistent." Id. at 740. The court reasoned that a contract of carriage embodied by a bill of lading represents the parties' intentions at the time the contract was made, and therefore should be interpreted according to its terms, "without reference to the varying state laws of this nation's many ports." Ibid.

The Eleventh Circuit has also upheld the application of federal law to claims against third-party agents of the carrier for damage to cargo. See Hiram Walker & Sons v. Kirk Line, 877 F.2d 1508, 1516 (11th Cir. 1989), cert. denied, 514 U.S. 1018 (1995) (holding that stevedore would be protected by contractual COGSA provision against suit by the owner for damage to cargo occurring two days after discharge but during storage at the terminal); Generali v. D'Amico, 766 F.2d 485 (11th Cir. 1985) (affirming the district court's exercise of admiralty jurisdiction over a suit against the carrier and stevedore for cargo damage at the terminal eighteen days after discharge from the vessel); Certain Underwriters of Lloyd's v. Barber Blue Sea Line, 675 F.2d 266, 268 (11th Cir. 1982) (affirming decision of district court sitting in admiralty that terminal operator was protected by contractual COGSA limitation).

In Jagenberg, Inc. v. Georgia Ports Authority, 882 F. Supp. 1065, 1071 (S.D.Ga. 1995), the court held that federal maritime law, not state law, applies to the shipper's claims against the terminal operator for damage to the goods while in storage. The Jagenberg Court recognized the importance reviewing the overall context of a carriage of goods contract:

Admittedly, in the instant case, there was simply damage to property "that happened to occur on a dock," but that damage occurred in the context of fulfilling a contract for the delivery of goods. COGSA and the Harter Act were thus implicated, and these bodies of law pre-empt state law whenever they are applicable. [Ibid. (quoting Wemhoener Pressen, supra, 5 F.3d at 740).]

So long as COGSA or the Harter Act applies to the bill of lading, the claim against the carrier or its agent is governed by federal maritime law. The other side of the coin is that a claim for conversion must be brought under state law when delivery of the cargo was in accordance with COGSA and the Harter Act. Metropolitan Wholesale Supply, Inc. v. M/V Royal Rainbow, 12 ...


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