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What
constitutes 'loss or damage' under COGSA?
(September
22, 2003)
Under the Carriage of Goods By Sea Act (COGSA),
"loss" refers to the deterioration or
disappearance of the goods. Here is a story that
illustrates the concept.
Sometime
in July 1991, Lav Manufacturing Corporation entered
into a contract of carriage with MOSK Lines through
an international freight forwarder to transport
its goods from Manila to France. MOSK Lines undertook
to deliver the goods to France within 28 days
from loading.
But
in Taiwan, the goods were not transshipped immediately
and the goods arrived in France beyond the 28-day
delivery period. The consignee allegedly paid
only fifty percent (50%) of the value as the goods
arrived during the "off season" in France.
Thus, Lav Manufacturing Corporation demanded payment
of the unpaid fifty percent (50%) from MOSK Lines.
As
MOSK Lines denied the claim of Lav Manufacturing
Corporation, the latter filed a case with the
trial court. MOSK Lines filed a motion to dismiss
alleging that the claim has been prescribed under
the COGSA.
The
trial court denied the motion to dismiss. And
the Court of Appeals sustained the trial court's
ruling.
In
the Supreme Court, MOSK Lines contented that although
it agrees that there are places in the section
(Article III COGSA) in which the phrase need have
no broader meaning than loss or physical damage
to the goods, it disagrees with the conclusion
that it must so be limited wherever it is used.
But
the Supreme Court, ruled in the following tenor:
"In
the case at bar, there is neither deterioration
nor disappearance nor destruction of goods caused
by the carrier's breach of contract. Whatever
reduction there may have been in the value of
the goods is not due to their deterioration or
disappearance because they have not been damaged
in transit.
x
x x
Indeed,
what is in issue in this petition is not the liability
of the petitioner (MOSK Lines) for its handling
of goods as provided by $3(6) of the COGSA, but
its liability under its contract of carriage with
the private respondent as covered by laws of more
general application.
Precisely,
the question before the trial court is not the
particular sense of "damages" as it
refers to the physical loss or damage of a shipper's
goods as specifically covered by $3(6) of COGSA
but petitioner's potential liability for the damages
it has caused in the general sense x x x"
Thus,
it may happen that a case can still be filed by
the shipper even beyond the prescriptive period
provided by the COGSA if the "damages"
claimed do not refer to the physical loss or damage
of the goods.
For
comments or questions, the author may be emailed
at jtb@pac-atlantic.com.ph.
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Is
the payment of premium to an insurance agent valid?
(August 25,2003)
YES.
And this is the story.
On
16 January 1984, Victory Hardwood entered into
an agreement with the Owners of the M/V "SEVEN
SEAS" for the transport of its round logs
at the port of Maconacon, Isabela to Manila.
On
20 January 1984, Victory Hardwood insured its
shipment against loss or damage with South Insurance
Co. And South Insurance Co. issued the marine
cargo insurance policy.
Four
days later or on 24 January 1984, Victory Hardwood
gave the check payment of the premium on the insurance
policy to the agent of South Insurance Co. But
unfortunately, the M/V "SEVEN SEAS"
sank on the next day resulting in the loss of
the insured logs.
Victory
Hardwood demanded from South Insurance Co. the
payment of the proceeds of the policy but the
latter denied liability allegedly due to the non-payment
of premium.
Victory
Hardwood filed a complaint with the trial court
for the recovery of the value of the lost logs
and freight to the extent of its insurance cover
with South Insurance Co. In its decision, the
trial court rendered judgment in favor of Victory
Hardwood.
The
Court of Appeals affirmed the judgment of the
trial court.
In
the Supreme Court, South Insurance Co. argued
that it cannot be held liable due to the non-payment
of premium as the person who received the check
in payment of the premium was not its authorized
representative.
The
Supreme Court ruled in the following manner:
"
No attempt to becloud the issues can disguise
the fact that the sole question raised in the
instant petition is really evidentiary in nature,
i.e., whether or not x x x, in receiving the check
for the insurance premium prior to the occurrence
of the risk insured against has so acted as an
agent of petitioner (South Insurance Co.).
x x x
On
cross-examination in behalf of South Insurance,
Mr. X testified that the marine cargo insurance
policy for the plaintiff's (Victory Hardwood)
logs was delivered to him on 21 January 1984 at
his office to be delivered to the plaintiff.
When
South Insurance Co. delivered to Mr. X the marine
cargo insurance policy for the plaintiff's logs,
he is deemed to have been authorized to receive
the premium which is due on its behalf.
When
therefore the insured logs were lost, the insured
had already paid the premium to an agent of South
Insurance, which is consequently liable to pay
the insurance proceeds under the policy it issued
to the insured."
Let us bear in mind that an insurer which delivers
to an insurance agent or insurance broker an insurance
policy shall be deemed to have authorized such
agent to receive on its behalf payment of any
premium which is due on such policy.
For
comments or inquiries, contact the author at jtb@pac-atlantic.com.ph.
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Is
the arbitration clause in the sales contract and/or
bill of lading valid? (August 11, 2003)
Yes.
And this is the story.
Sometime
in June of 1988, Puro Trading entered into a contract
with Prime Oceanic, Inc. for the sale of prilled
urea in bulk. The sales contract provided, among
others an arbitration clause which states:
"9.
Arbitration
"Any dispute arising under this contract
shall be settled by arbitration in London in accordance
with the Arbitration Act 1950 and any statutory
amendment or modification thereof. Each party
is to appoint an Arbitrator, and should they be
unable to agree, the decision of an Umpire appointed
by them shall be final. The Arbitrators and Umpire
are all to be commercial men and residents in
London. This submission may be made a rule of
the High Court of Justice in England by either
party."
Subsequently,
the M/V "LILIAN" loaded on board at
Yuzhny, USSR, a shipment of 15,500 metric tons
of prilled urea in bulk complete and in good order
condition for transport to Iloilo and Manila,
to be delivered to Puro Trading. Three (3) bills
of lading were issued by the ship-agent in the
Philippines.
The
shipment bound for Manila upon discharge was found
to be in bad order condition, caked, hardened
and lumpy, discolored and contaminated with rust
and dirt. Puro Trading filed a claim in the amount
of PHP683,056.29 against Prime Oceanic, Inc. But
the latter denied the claim.
Puro
Trading filed a complaint with the trial court
for breach of contract of carriage against the
ship-agent and Prime Oceanic, Inc. as the charterer.
The
charterer filed a motion to dismiss by invoking
the arbitration clause of the sales contract.
The trial court denied the motion to dismiss.
But on appeal, the Court of Appeals dismissed
the complaint. The appellate court ruled that
the arbitration provision in the sales contract
and/or the bills of lading is applicable to the
case.
In
the Supreme Court, Puro Trading argued that the
sales contract does not include the contract of
carriage which is a different contract entered
into by the carrier with the cargo owners. Moreover,
it alleged that since the arbitration provision
in the bills of lading was not raised as an issue
by Prime Oceanic, Inc., it was an error for the
appellate court to consider it.
But
the Supreme Court ruled in the following tenor:
"We
agree with the court a quo that the sales contract
is comprehensive enough to include claims for
damages arising from carriage and delivery of
goods. As a general rule, the seller has the obligation
to transmit the goods to the buyer, and comcomitant
thereto, the contracting carrier to deliver the
same. x x x
In
any case, whether the liability of respondent
(Prime Oceanic, Inc.) should be based on the sales
contract or that of the bill of lading, the parties
are nevertheless obligated to respect the arbitration
provisions on the sales contract and/or bill of
lading. Petitioner (Puro Trading) being a signatory
and party to the sales contract cannot escape
from his obligation under the arbitration clause
as stated herein.
Neither
can petitioner contend that the arbitration provision
in the bills of lading should not have been discussed
as an issue in the decision of the Court of Appeals
since it was not raised as a special or affirmative
defense. The three bills of lading were attached
to the complaint as Annexes "A", "B"
and "C", and are therefore parts thereof
and may be considered as evidence although not
introduced as such. Hence, it was then proper
for the court a quo to discuss the contents of
the bills of lading, having been made part of
the record."
Therefore,
let us always remember that if there is an arbitration
clause in the sales contract and/or bill of lading,
arbitration should take its course. In fact, the
settlement of disputes through arbitration is
highly encouraged.
For
inquiries or comments, email the author at
jtb@pac-atlantic.com.ph.
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The
Limited Liability Rule (July
28, 2003)
Can the ship owner invoke the Limited Liability
Rule if it was concurrently at fault and/or negligent
with the master and the crew of the vessel?
YES.
And this is the story.
The
M/V "ABOT" left Hong Kong for Manila
on the evening of 29 October 1980. Her departure
was delayed for two hours as the Master had to
observe the direction of a storm that was crossing
the Bicol Region. But when the Master was informed
that the storm had abated, he proceeded with the
voyage. After navigating for more than 12 hours,
they encountered rough seas with waves of about
15 to 20 feet high. The Chief Engineer found that
sea water had entered cargo hold numbers 1 and
2. But they were initially successful in pumping
out the water.
On
31 October 1980 at about 6:00 a.m., they found
out that the water level in the cargo holds was
rapidly rising. And despite diligent efforts by
the officers and crew, the MV "ABOT"
began to list on starboard side at 27 degrees.
By 12:00 noon, the cargo holds were already flooded
with sea water. At about 7:00 p.m. of the same
day, the MV "ABOT" sank.
Various
shippers, their successors-in-interest and the
cargo insurers filed separate suits against the
owner of the MV "ABOT" before the trial
courts. The ship owner rejected responsibility
for the claims on the ground that the sinking
of the vessel was due to force majeure or an act
of God.
The
trial courts ruled in favor of the cargo insurers.
In the Court of Appeals, the ship owner invoked
the real and hypothecary nature of liability in
maritime law. It also alleged that the execution
of the judgments for the full indemnification
of the claimants should not proceed since its
liability is limited to the value of the vessel
which was insufficient to satisfy the aggregate
claims of all claimants. Otherwise, it would prejudice
the other claimants.
These
cases eventually reached the highest court of
the land. The Supreme Court ruled in the following
tenor:
"No
vessel, no liability", expresses in a nutshell
the limited liability rule. The ship owner's or
agent's liability is merely co-extensive with
his interest in the vessel such that a total loss
thereof results in its extinction. The total destruction
of the vessel extinguishes maritime liens because
there is no longer any res to which it can attach.
This doctrine is based on the real and hypothecary
nature of maritime law which has its origin in
the prevailing conditions of the maritime trade
and sea voyages during the medieval ages, attended
by innumerable hazards and perils. To offset against
these adverse conditions and to encourage shipbuilding
and maritime commerce, it was deemed necessary
to confine the liability of the owner or agent
arising from the operation of a ship to the vessel,
equipment, and freight or insurance, if any.
x x x That the ship owner failed to discharge
the burden of proving that the unseaworthiness
of its vessel was not due to its fault and/or
negligence should not however mean that the limited
liability rule will not be applied to the present
cases. The peculiar circumstances here demand
that there should be no strict adherence to procedural
rules on evidence lest the just claims of shippers/insurers
be frustrated. The rule on limited liability should
be applied x x x that claimants be treated as
"creditors in an insolvent corporation whose
assets are not enough to satisfy the totality
against it".
Thus,
let us bear in mind that even if the ship owner
was concurrently at fault and/or negligent with
the Master and crew of the vessel, the limited
liability rule may still apply. But it would be
better for the ship owner to file the appropriate
action to consolidate all claims for settlement
and deposit in trust the insurance proceeds and
freightage earned.
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For
comments or inquiries, contact the author at jtb@pac-atlantic.com.ph.
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Narrow Channel Archive
: 2003 Q3
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