The new United States COGSA proposal

Facts and fallacies

Vincent De Orchis, of De Orchis, Walker & Corsa in New York, explains key elements of the proposed new Carriage of Goods by Sea Act and allays some misconceptions

NEARLY eight years have gone by since a special steering group of the United States Maritime Law Association (MLAUS) began drafting a revised Carriage of Goods by Sea Act. The latest indications from Senator Hutchinson's office in the US Congress is that the proposal will finally be introduced on the floor of the Senate within the next few months. After going through a series of hearings and reviews in both houses of Congress, the proposal will, it is hoped, be enacted as law before the end of this calendar year.

Since I was appointed Chairman of the Carriage of Goods Committee of the MLAUS in 1985, there has been a continuous effort to evaluate and refine the proposal. The new COGSA is not absolutely perfect, especially since it was the result of a compromise reached amongst the various interest groups in the maritime field. However, because it is a compromise, it has gained increasing support from all sectors of industry that recognise the urgent need for the US to modernise its laws on carriage of goods in foreign trade.

This required that bold steps be taken in regard to other proposals, like the Hague-Visby and Hamburg Rules, which are already out of date with today's technological advances, such as containerisation. The intense interest in the new COGSA proposal has sparked comments based upon both fact and fiction. It is important that the critical aspects of the proposal be clearly understood. Let us look at these comments in turn.

The COGSA proposal does not generate uniformity of laws

The COGSA proposal before Congress is certainly not a replica of either Hague-Visby or Hamburg Rules, and is indeed a hybrid with its own twist. This should hardly be surprising since the US Congress never copied the Hague Rules in their entirety either. More importantly, Congress has already rejected efforts by the MLAUS in 1977, 1985 and 1988 to adopt Hague-Visby. The Department of Transportation and the Department of State have focused on the need for a multimodal convention. They have made it clear that any new COGSA for the United States must (1) omit the error in navigation or management defence, (2) include some portion of multimodal carriage, and (3) provide coverage for other entities like stevedores and terminal operators who assist in the carriage process.

On the other hand, the proposal does bring many aspects of the present cargo law in the United States closer to the Hague-Visby concept by removing domestic general maritime law doctrines such as the doctrine of deviation (which makes the carrier an insurer of the goods), the fair opportunity to declare value doctrine (which allows shippers to feign ignorance of the package limitation), and the doctrine which disregards the notation 'shippers load stow and count' on bills of lading. The proposal also puts an end to the Valescura rule which prevents courts from apportioning damages where there are multiple causes of loss.

These judge-made doctrines in the US have created endless litigation. The proposal also adopts the Hague-Visby limitation of liability scheme and therefore should also avoid the endless litigation of what is a package and which limitation should apply to import shipments.

The defence of Error in Navigation and Management will be removed.

This is correct, and its abandonment is necessary to obtain the consent of both the US government and the American Bar Association, as well as the strong lobbying influence of United States cargo interests. While the defence has some historical significance, it is usually unsuccessful in today's modern technological world, where a shipowner can be in instant contact with his vessel and crew. Moreover, in cases of collisions, it does not prevent cargo interests from pursuing the other vessel owner.

Indeed, this defence is tantamount to an admission of guilt by the non-carrying vessel. It is seldom successful today as the courts find it hard to accept an argument that a shipowner should be absolved because his master or crew was negligent. At best, the archaic defence has some settlement value. The fact remains that no other sector of the transportation industry can avoid liability by alleging that the loss resulted from the act, neglect or default of its servant.

The proposal will also cover participating and land carriers

There is no doubt that, today, much of the transport of goods into the United States involves 'through' bills of lading that also provide for land carriage. Increasingly, as claims arise concerning intermodal shipments, the courts are confronted with a hodgepodge of laws, both federal, state and local, which do not meld at the seams.

Burdens of proof, defences, limitations and procedural issues arise in nearly every one of these cases, and cargo interests often sue everyone involved in the chain of custody rather than to try to determine where the loss occurred. The rights to indemnification and contribution are clouded by the conflicting laws, not to mention different limitations and time bar dates.

An indemnity claim by a shipowner against a shoreside handler can often be time-barred before the carrier has even received the cargo claim. Moreover, cargo interests often pursue those participating in the land carriage by pleading the claim in tort, since cargo interests are not in direct privity of contract with the subcontractors selected by the ocean carrier to perform different aspects of the through carriage.

The new COGSA is not absolutely perfect, especially since it was the result of a compromise reached amongst the various interest groups in the maritime field.

While COGSA may provide seventeen defences, common carriers in the US have only three or four defences, and no statutory limitation of liability. Hence, the new proposal attempts to provide for the ocean carrier a seamless extension of COGSA from door to door where the contracting ocean carrier engages other participants to assist in the overall transport.

Unfortunately, at present, both foreign and interstate rail and road carriers have asked to be excluded. Freight forwarders and others engaged not by ocean carriers but by the shipper or receiver are not governed by the law either.

Under the US proposal, cargo interests must sue in the United States

This is incorrect. Indeed, the proposal has been rewritten along the lines of a similar proposal by the Canadian Maritime Law Association. The MLAUS proposal allows cargo interests, at their option, to file suit or demand arbitration in the United States if one of several conditions exist, such as if the place of receipt, or loading, or discharge or delivery occurs in the United States. The proposal does not prohibit any cargo interest from electing to sue abroad, or in the forum provided in the ocean carrier's bill of lading. The proposal was drafted to avoid forcing an American shipper or receiver from having to go abroad and sue in a foreign country, while the ocean carrier receives the benefit of doing business in the United States.

Service contracts, charter parties, contracts of affreightment and towage contracts are excluded

This is correct, although bills of lading issued under any of these private contracts will be governed by the proposal. With service contracts the parties may agree on a limitation of liability that is less that that allowed by the proposal, which is the same as the Hague-Visby limits. However, the truth of the matter is that service contacts being negotiated today often call for limits of liability that are generally higher than Hague-Visby.

The proposal goes beyond applying to just bills of lading

This is also true. In recognition of the developing complexity of maritime transportation and the emergence of electronic documents, the proposal applies to all contracts of carriage, not just bills of lading. This will avoid problems created by decisions such as the recent one that held that COGSA does not apply to sea waybills, because they are not documents of title.

The Pomerene Act will apply in both directions

This is correct. The US Bills of Lading (Pomerene) Act is a wonderful piece of legislation regulating the mechanics and use of bills of lading. For whatever reason, Congress chose in 1916 to apply the Pomerene Act only to outbound shipments, while the 1936 COGSA was made applicable to both outbound and inbound shipments. The result has been confusion and conflicting decisions depending on which direction cargo is travelling. The new proposal incorporates the Pomerene Act and applies it in both directions.

The proposal will apply to both inbound and outbound shipments

Just as the present COGSA from 1936 applies in both directions, so will the new proposal. Congress felt that the law had to be applied in both directions to avoid discrimination amongst shippers, which is a section specifically added to the present US COGSA and not found in the Hague Rules. Several other countries have begun applying their COGSA to outbound shipments, including Australia, Germany and Korea. However, given the fact that the new proposal will only be domestic legislation in the US, the effect of the outbound application on foreign laws should be minimal.

The COGSA proposal is an interim situation until CMI/UNCITRAL can develop a new convention. The MLAUS has pledged to worked closely with the CMI on its efforts to develop a new convention and hopes to be able to support that convention when it is ready to be adopted. It is to be hoped that the new COGSA proposal can serve as some form of template which can be used by the CMI to create its own draft of a new international convention, just as the US Harter Act of 1893 served as a basis for the 1924 Hague Rules.

The most significant point of the COGSA proposal is that it was initiated by the maritime industry. Compromises were agreed upon by various parts of the industry, and today the proposal is being spearheaded in Congress by the same industry as a solid front. More than fifteen organisations, representing carriers, forwarders and intermediaries, terminal and inland carriers, shippers and receivers, as well as marine underwriters, have joined together to press for a new law which will serve them better as a whole.

The outcome for maritime lawyers is perhaps uncertain. While there is always litigation in the shakedown period of any new legislation, litigation in areas like package limitation, deviation, and sealed containers should greatly diminish. US COGSA, when it was enacted in 1936, was intended to cut down litigation, just as the 1924 Hague Rules did in Europe. Instead, COGSA litigation has increased with the passing years, causing an expensive drain on an industry that can ill afford it. The proposal may not be perfect, but it does accomplish a lot of what industry wants to see in modern legislation that will serve technological advances.

The members of the MLAUS took a courageous stand when they endorsed the proposal in 1996. The hope now, at the turn of the millennium, is that the MLAUS will shortly be able to look proudly upon its achievement in having a new COGSA enacted.