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Iligan Integrated Steel Mills Inc. v. SS John Weyerhaeuser

decided: December 3, 1974.

ILIGAN INTEGRATED STEEL MILLS, INC., CONTINENTAL INSURANCE COMPANY, STANDARD MARINE INSURANCE COMPANY LTD., ROYAL INSURANCE COMPANY, LTD., FIREMAN'S FUND INSURANCE COMPANY, COMMERCIAL UNION INSURANCE COMPANY OF NEW YORK, EMPLOYERS COMMERCIAL UNION INSURANCE COMPANY AND AETNA INSURANCE COMPANY, PLAINTIFFS-APPELLANTS,
v.
SS JOHN WEYERHAEUSER, HER ENGINES, BOILERS, ETC., WEYERHAEUSER COMPANY, AND NEW YORK NAVIGATION COMPANY, INC., DEFENDANTS-APPELLEES-APPELLANTS



Appeals from a judgment of the District Court for the Southern District of New York, Robert J. Ward, Judge, 372 F. Supp. 859 (1974), in an action by cargo against a ship, its owner and the time charterer. Cargo appeals from so much of the judgment as allowed defendants to limit their liability to $500 per package under the Carriage of Goods by Sea Act. The ship and the owner appeal from so much of the judgment as accorded the time charterer indemnity for all expenses incurred in resisting cargo's claim. Affirmed.

Friendly, Feinberg and Gurfein, Circuit Judges.

Author: Friendly

FRIENDLY, Circuit Judge:

In this action for cargo damage in the District Court for the Southern District of New York, cargo appeals from that part of the judgment which limited its claim against the ship, its owner, and the time charterer to $500 per package pursuant to § 4(5) of the Carriage of Goods by Sea Act, 46 U.S.C. § 1304(5), perhaps only some $94,000, as against approximately $2,200,000 which represents the full amount of damage to cargo. The ship and its owner appeal from so much of the judgment as awarded the time charterer indemnity for all of its attorneys' fees incurred in resisting cargo's claims. The action, tried before the late Judge McLean, was disposed of in a thorough opinion by Judge Ward, 372 F. Supp. 859 (S.D.N.Y. 1974), whose statement of the facts we incorporate by reference. Since we are substantially in agreement with Judge Ward's opinion, we shall limit ourselves to a few observations.

It is not disputed that the cause of the virtual destruction of plaintiff's shipment of 188 pieces of valuable machinery and parts for a steel mill was "a massive entry of seawater into the [ship's] #3 hold, which slowly permeated the fertilizer [stowed in that hold], formed a slurry, and finally burst through the [temporary] non-watertight bulkhead into the #2 hold, inundating and destroying the Iligan cargo." 372 F. Supp. at 863. The entry of seawater was due to a defect which had developed in "a pipe called a sanitary or soil line which drains from the crew's toilets, exits the ship through an opening in the hull, and permits waste to be discharged outside the ship", id. at 862. Resting on lugs over the opening of the pipe was a cover plate, called a clapper valve, which was below the level of the sea when the vessel was fully loaded; the plate was designed to swing open to allow the discharge of waste but then to close and, resisting the pressure of the ocean, prevent the entry of seawater. A damage survey after the vessel's arrival in the Far East showed that the lugs were "completely corroded with rust, so that the valve was frozen in an open position, and the sanitary line pipe was corroded through, with a hole approximately 2 inch by 1/4 inch, " 372 F. Supp. at 863, through which water entered the #3 hold. The district judge found that the ship and its owner had not sustained their burden of proving the exercise of due diligence to make the ship seaworthy under § 4(1) of COGSA, 46 U.S.C. § 1304(1), and that New York Navigation Company, the time charterer, had breached a contractual warranty to furnish a seaworthy ship -- rulings from which these parties have not appealed. However, he limited the liability of the defendants to $500 per package under § 4(5).

Plaintiff's principal contention in the trial court and on appeal, for the award of full damages against the ship and its owner, is based on what the judge called "a novel theory", 372 F. Supp. at 865. It is premised on a factual claim that the owner was on notice of the defect before the voyage began. Building on this, plaintiff contends that the owner's conduct constituted such gross negligence or wilful and wanton misconduct as to constitute an "unreasonable deviation" from the contract of carriage, and that such a deviation should "oust" the contract and deprive the carrier of the protection afforded by § 4(5). Since Judge Ward found that "plaintiff has not proved that Weyerhaeuser knew or must have known of the unseaworthy condition of the ship" prior to the trans-Pacific voyage, 372 F. Supp. at 865, he did not decide what result a contrary conclusion would have demanded. Although we do not consider the judge's conclusions to be in error, even under this circuit's standard for review, Mamiye Bros. v. Barber SS Lines, Inc., 360 F.2d 774, 776-78 (2 Cir.), cert. denied, 385 U.S. 835, 17 L. Ed. 2d 70, 87 S. Ct. 80 (1966); Esso Standard Oil Co. v. S.S. Gasbras Sul, 387 F.2d 573 (2 Cir. 1967), cert. denied, 391 U.S. 914, 20 L. Ed. 2d 653, 88 S. Ct. 1808 (1968); Cleary v. United States Lines Co., 411 F.2d 1009, 1010 (2 Cir. 1969), the question is likely to arise again. Since it has been thoroughly argued, we think it desirable, as an alternative ground of decision, to reject the legal theory advanced by the plaintiff.

Plaintiff's argument, rearranged and supplemented to give it greater forcefulness, is essentially as follows: The cornerstone of the argument is The Willdomino, 272 U.S. 718, 725, 71 L. Ed. 491, 47 S. Ct. 261 (1927), a pre-COGSA case in which a ship left port with a grossly inadequate supply of coal, known to be so by the carrier, which necessitated a departure from her course. During the deviation the ship struck a reef or a submerged object which caused water to enter and damage the cargo. The Supreme Court held, speaking through Mr. Justice McReynolds, that when a loss occurred during an unreasonable deviation from the agreed course of the voyage, the ship "became liable as an insurer for any damage suffered by the cargo" and could not avail itself of the Harter Act, 27 Stat. 445 (1893), exception "for damage or loss resulting from faults or errors in navigation or in the management" of the vessel. A prior English case, Joseph Thorley, Ltd. v. Ortus S.S. Co., Ltd., [1907] 1 K.B. 660, 668 (C.A.), had similarly held that an unreasonable deviation from the intended path of the voyage deprived the ship of the benefit of exceptions in the bill of lading. Subsequently, after adoption of the English Carriage of Goods by Sea Act, 1924, which like COGSA was derived from the Hague Rules and the Brussels Convention, the House of Lords held in Stag Line, Ltd. v. Foscolo Mango & Co., Ltd., [1932] A.C. 328 (1931), that the Thorley principle continued to prevail despite the fact that Art. IV-5 of the English statute, the equivalent of § 4(5) of COGSA, on its face contained no exception for losses due to unreasonable deviation. Lord Atkin there stated:

I pause here to say that I find no substance in the contention faintly made by the defendants that an unauthorized deviation would not displace the statutory exceptions contained in the Carriage of Goods by Sea Act. I am satisfied that the general principles of English law are still applicable to the carriage of goods by sea except as modified by the Act: and I can find nothing in the Act which makes its statutory exceptions apply to a voyage which is not the voyage the subject of "the contract of carriage of goods by sea" to which the Act applies.

Id. at 340. Reaching the same conclusion, Lord Russell of Killowen said:

It was well settled before the Act that an unjustifiable deviation deprived a ship of the protection of exceptions. They only applied to the contract voyage. If it had been the intention of the legislature to make so drastic a change in the law relating to contracts of carriage of goods by sea, the change should and would have been enacted in clear terms.

Id. at 347.

Plaintiff's next building stone is St. Johns N.F. Shipping Corp. v. S.A. Companhia Geral Commercial, 263 U.S. 119, 68 L. Ed. 201, 44 S. Ct. 30 (1923), which, like The Willdomino, preceded COGSA. Unlike the cases of geographical deviation discussed up to this point, here the vessel had breached its agreement to stow a cargo of barrels containing rosin under deck and they had to be jettisoned during a storm. The Court, again speaking through Mr. Justice McReynolds, said:

By stowing the goods on deck the vessel broke her contract, exposed them to greater risk than had been agreed and thereby directly caused the loss. She accordingly became liable as for a deviation, cannot escape by reason of the relieving clauses inserted in the bill of ...


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