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UNITED STATES v. THE ESSO BELGIUM

May 9, 1950

UNITED STATES
v.
THE ESSO BELGIUM (ATLANTIC MUT. INS. CO. et al., Interveners). BELGIAN OVERSEAS TRANSPORT, S.A. v. UNITED STATES et al. THE NATHANIEL BACON



The opinion of the court was delivered by: MEDINA

This litigation arises out of a collision which occurred in New York Harbor on November 24, 1942, between the S.S. Nathaniel Bacon and the M/V Esso Belgium. As a result of the collision both the vessels and the cargo aboard the Nathaniel Bacon sustained damage.

The first action was instituted by libellant United States of America, as owner of the Nathaniel Bacon and as bailee of her cargo, against the Esso Belgium seeking to recover for the damage done to the Nathaniel Bacon and to her cargo. Certain insurance companies which had paid the cargo owners their losses intervened as libellants to assert the subrogated rights of the cargo owners against the Esso Belgium.

 The second action is a cross-libel filed by the owner of the Esso Belgium seeking to recover from the United States as owner of the Nathaniel Bacon for the damage suffered by the Esso Belgium, including the amount it might be held liable to pay for damage to the cargo aboard the Nathaniel Bacon. The United States then impleaded the owners of the cargo aboard the Nathaniel Bacon, only two of whom have appeared, seeking indemnity from them pursuant to the provisions of the so-called 'Both-to-Blame' clause contained in the bills of lading issued by the Nathaniel Bacon to them. The clause is commonly used in ocean carriers' bills of lading and was designed to correct a curious anomaly resulting from the inter-relation of certain rules of Admiralty Law.

 By virtue of the provisions of Sec. 3 of the Harter Act, 46 U.S.C.A. 192, and Sec. 4(2)(a) of the Carriage of Goods by Sea Act, 46 U.S.C.A. 1304(2)(a), the carrier is not liable to the owner of cargo laden aboard her for damage to cargo resulting from negligence of the carrier's servants in the management of the ship. The risk of loss due to such damage must be borne by the cargo owner. However, if the damage to cargo results from the concurrent negligence in navigation of the carrier and of some other ship, that is where two ships are to blame, the owner of the cargo may recover his entire damages from the other ship. The New York, 1899, 175 U.S. 187, 20 S. Ct. 67, 44 L. Ed. 126; The Atlas, 1876, 93 U.S. 302, 23 L. Ed. 863; see The Chattahoochee, 1899, 173 U.S. 540, 549, 19 S. Ct. 491, 43 L. Ed. 801.

 In addition, each ship has a right of action against the other in admiralty for negligence. In such an action the damages suffered by the two ships are equalized. Each ship is liable for one-half of the total damages: a balance is struck by requiring the ship suffering the least damages to pay to the other ship one-half the difference between the amount of its damages and the amount of the other ship's damages. In striking this balance, the amount paid by the non-carrying vessel to the owners of the cargo aboard the carrier is included as part of the non-carrier's damages. Erie Railroad Co. v. Erie & Western Transportation Co., 1907, 204 U.S. 220, 27 S. Ct. 246, 51 L. Ed. 450; The Chattahoochee, supra.

 The carrier is thus indirectly liable for one-half of the damage suffered by the cargo owners as a result of the negligence of the carrier's servants in the navigation of the ship, despite the immunities of Sec. 3 of the Harter Act and Sec. 4(2)(a) of the Carriage of Goods by Sea Act, supra, but only when the carrier is partly to blame for the damage. When the carrier is entirely to blame then, with respect to damage to cargo, the carrier, by virtue of the statutory provisions above referred to, need pay nothing at all.

 To correct this anomalous result, the Both-to-Blame clause provides, in substance, that in a both-to-blame collision, the owners of the goods will indemnify the carrier against all loss or liability to the other ship, in so far as such loss or liability represents loss of, or damage to, or any claim of the cargo owners, paid to them by the other ship, and set-off, recouped or recovered by the other ship's owners as part of her claim against the carrier. The clause is set forth verbatim in the footnote. *fn1"

 This is the first time that the question of the validity of the contractual provision in its present form has been before the courts. One case, The W.W. Bruce, D.C.E.D.N.Y. 1936, 14 F.Supp. 894, sustained the validity of an earlier version of the clause, but was reversed on other grounds, 2d Cir., 1938, 94 F.2d 834.

 The parties have stipulated that the collision occurred 'by reason of negligence and fault in navigation on the part of both vessels,' and without 'the act, fault, or neglect of the shipper, consignees, owners or insurers of the cargo.' It is also stipulated that the decision as to the two impleaded cargo owners who have appeared will be determinative of the issue as to the other cargo owners.

 Finally, it is stipulated that the intervening insurance companies are entitled to recover 100% of the provable damage of their assureds from the Esso Belgium and that the Esso Belgium is entitled to include in its claim against the Nathaniel Bacon the amounts of $ 15,981.18 and $ 287.68 for which it is liable to the intervening insurers. The only issue is whether the United States, as owner of the Nathaniel Bacon, is entitled to indemnity from the two impleaded cargo owners. Those two owners deny liability to indemnify on the ground that the provisions of the Both-to-Blame clause are 'invalid, illegal, contrary to the statutes of the United States and contrary to public policy, and are therefore void.'

 The validity of the clause is thus squarely in issue.

 Despite the maze of intricate and complicated arguments pro and con, which have covered a wide area and a multiplicity of details too numerous for specific reference, the basic problem is a simple one and in its solution will be found an underlying principle which governs the determination of the hose of subordinate questions. Prior to the Harter Act it was settled American law that any agreement absolving the shipowner from liability for negligent navigation or negligence in the management and operation of the vessel was void as against public policy. Liverpool & G.W. Steam Co. v. Phenix Insurance Co., 1889, 129 U.S. 397, 9 S. Ct. 469, 32 L. Ed. 788; Railway Co. v. Stevens, 1877, 95 U.S. 655, 24 L. Ed. 535; Railroad Co. v. Pratt, 1874, 22 Wall. 123, 22 L. Ed. 827. This public policy was changed by Sec. 3 of the Harter Act, to the effect that, providing there was 'due diligence to make the said vessel in all respects seaworthy and properly manned, equipped, and supplied, neither the vessel, her owner or owners, agent, or charterers, shall become or be held responsible for damage or loss resulting from faults or errors in navigation or in the management of said vessel.' While the language of Sec. 4(2)(a) of the later and here controlling Carriage of Goods by Sea Act eliminated the prerequisite of due diligence to make the vessel in all respects seaworthy and substituted language which exonerated the shipowner from responsibility unless it failed to use diligence to make the vessel seaworthy in some respect proximately causing or contributing to the loss, Knauth, The American Law of Ocean Bills of Lading 135 (3d ed. 1947), the change of public policy proclaimed by the Harter Act was continued. As the shipowner was thus relieved of liability to the cargo owner for negligent navigation, and irrespective of whether this be termed an 'exemption' or an 'immunity,' it seems clear to me that there could no longer continue to be any public policy nullifying an agreement absolving the shipowner from liability for negligent navigation. But that is exactly what the Both-to-Blame clause in substance purports to do.

 The Congress having spoken in such unequivocal manner in Sec. 4(2)(a), on the fundamental question of non-liability of the shipowner generally for negligent operation, it is natural to expect that nothing to be found in the balance of the statutory scheme shall purport to lay down principles inconsistent with Sec. 4(2)(a) and designed to prevent the shipowner from implementing the public policy thus declared wherever, for procedural or other reasons, the policy of the statute is not self executing. Nor can I, after the most careful and painstaking investigation of the entire matter, find any such inconsistency in the portions of the Carriage of Goods by Sea Act urged upon me by the cargo owners, and discussed below. Ingenious as are some of their arguments, I am unable to find that the Both-to-Blame clause offends any provision of the Carriage of Goods by Sea Act or any existing public policy, nor does it seem to me to be in any way unreasonable.

 The bills of lading provide that they are drawn pursuant to the provisions of the Carriage of Goods by Sea Act, supra, a stipulation authorized by the statute. Two specific sections thereof are relied on by the cargo owners as invalidating the clause: Sec. 4(3), and Sec. 3(8), 46 U.S.C.A. 1304(3), 1303(8). Sec. 4(3) provides: 'The shipper shall not be responsible for loss or damage sustained by the carrier or the ship arising ...


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