| 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. Back
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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. Back
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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. Back
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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. For
comments or inquiries, contact the author at jtb@pac-atlantic.com.ph.
2005
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2003
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