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UNITED STATES FIRE INS. CO. v. M.V. ASIA FRIENDSHI

August 16, 1980

UNITED STATES FIRE INSURANCE CO., Plaintiff,
v.
M.V. ASIA FRIENDSHIP, and the M.V. Queen's Way Bridge, their engines, boilers, etc., and Kawasaki Kisen Kaisha Ltd., (K. Line), Defendants



The opinion of the court was delivered by: SOFAER

This is an admiralty cargo action, brought pursuant to FRCP Rule 9(h), to recover damages arising out of a shipment of acrylic sweaters manufactured in mainland China.

During October 1976, Wessex International Ltd. (Wessex) purchased from a Chinese manufacturer, China National Textile Import and Export Corp. (CNT), an agency of the Chinese Government, *fn1" two orders of 2,000 dozen acrylic sweaters. (Tr. 97; PX 2) After manufacture, the goods were packaged in 400 master cartons lined with wax paper and stuffed with twenty thin cardboard cartons each of which contained six sweaters individually wrapped in unsealed plastic bags. (Tr. 35, 112-13) The 400 packed cartons were shipped to China National Foreign Transportation Corp.'s Shanghai warehouse and stored there from June 3, 1977 through June 11, 1977. (Tr. 219)

 On June 10, 1977, the Chinese Overseas Shipping Agency (COSA), defendant's agent in charge of preparing all shipping documents and handling all the financial aspects of defendant K Line's freight transportation operation in China, issued, in accordance with the payment terms of two letters of credit, two clean-on-board bills of lading. (Tr. 170, 181; PX 7) The bills of lading were numbered "CS 204" and "CS 207." Each bill represented two hundred cartons of acrylic sweaters and was made to the order of the consignee Wessex. (Tr. 219; PX 1) The cargo was thereupon containerized, at defendant's request, and for defendant's convenience. (Tr. 206, 226)

 On June 11, 1977 the cargo was loaded on board K Line's ship, Asia Friendship, for transshipment at Kobe, Japan. (Tr. 186) The Asia Friendship departed from Shanghai on June 14, 1977, arrived in Kobe on June 17, 1977, and on the same day discharged the cargo subject to bills of lading CS 204 and CS 207. Upon discharge, the cargo was stowed near the berth of the Asia Friendship until June 27, at which time it was loaded on board another K Line vessel, the Queensway Bridge, for shipment to California. (Tr. 190, 202; DX-P) The Queensway Bridge left Kobe on June 28, 1977 and arrived at Oakland, California on July 9, 1977. (Tr. 94)

 Once unloaded at Oakland the cargo was trucked at K Line's expense to Wilmington and Long Beach, California, delivered into the custody of two K Line agents, International Transportation Services, Inc., and California Cartage Co., and stored at their container stations. (Tr. 47-48) On August 11, Royal Transportation Co., truckers for Wessex, picked up the merchandise, which was packed in 4 containers and 56 loose cartons, and delivered them to plaintiff's warehouse. (Tr. 47, 91) Mr. Montalvo, head of Wessex's shipping department, signed a set of receipts for the goods. *fn2" Montalvo noted on the receipts that 18 of the 56 loose cartons were still wet, and that all 56 of the cartons had been wet at some time. (Tr. 97, 111; DX-D) Montalvo told Mr. Philips, the Vice-President of Wessex, of the damage, and Philips went to the Wessex warehouse on August 11th or 12th to inspect the merchandise. (Tr. 9-10) At the inspection Philips noted the water damage but made no comment as to the physical condition of the goods. (Tr. 10-11) A few days later, Philips conducted a second inspection at which time he noted that, although the physical condition of the merchandise was good, a terrible odor emanated from both the wet and dry cartons. (Tr. 11, 13)

 In an attempt to determine the extent of the damage, Wessex employees opened some of the cartons that were not obviously wet to dry out some of the sweaters and possibly dissipate the smell. (Tr. 12) The smell would dissipate on exposure to the air, but returned after the sweaters were repacked. Wessex shipped some of the sweaters to their customers, but they were rejected and returned to Wessex because of the foul odor. (Tr. 12, 16) Wessex concluded they would be unable to sell the sweaters, so on September 20, 1977, they contacted their insurer to recover their losses. (Tr. 11; DX-A)

 Plaintiff and defendant agreed that a joint survey be conducted to determine the nature of the damage to the sweaters. On September 30, a joint survey was performed by Mr. Evans of Kelly Hunter and Co., Inc. for plaintiff, and Mr. DePont of Murray Fenton-Cullen, Inc., for defendant. (Tr. 15, 25, 26; Stip. P 14) In their reports both Evans and DePont concluded that an obnoxious odor emanated from all of the sweaters. Evans reported that, upon examination of the visible cartons, it was apparent that approximately 100 of them had been exposed to fresh water and that a random selection and examination of a number of water stained cartons led to findings that their contents were wet. He also reported that, on examining a number of apparently sound cartons, he found the inner boxes affected by mold, and giving off an objectionable odor. (PX-12) Defendant's surveyor reported that in the four containers received by Wessex there were "numerous cartons showing minor to moderate wet staining," black mold, and an unexplained odor which did not permanently disappear even after the sweaters were left to air out for three hours and were then repackaged in new plastic sleeves. (DX-E) DePont determined that 52 cartons were exposed to humid weather conditions and an additional 30% of the remaining cartons sustained minor exterior wet damage. (DX-E, at 4)

 Plaintiff's surveyor concluded that the damage resulted from fresh water wetting, with consequent staining of the merchandise by water and mold. Those sweaters not damaged by direct contact with water were contaminated, he felt, by the odor generated by mold, as a result of being confined with the affected cartons. (Tr. 37, 52-53; PX 12) K Line's surveyor determined that, although a large number of cartons were exposed to some sort of fresh water damage, the odor in the garments was not caused by wetting but by a defect at some stage of the manufacturing process. (Tr. 64, 65; DX-E) Both parties agreed that the best course of action, given the nature of the damage, was to sell the merchandise for salvage. This was done. United indemnified Wessex for its loss and then brought this action as plaintiff, pursuant to FRCP Rule 17.

 The legal principles governing the issues in this case are well established. Upon issuance of the bills of lading by defendant's Chinese agent at Shanghai, COSA, the parties became subject to the Carriage of Goods by Sea Act of 1936 (COGSA), 46 U.S.C. § 1300 et seq. (1977). Demsey & Associates, Inc. v. S.S. Sea Star, 461 F.2d 1009, 1014 (2d Cir. 1972). When a party proves the merchandise was in good condition at the time of delivery to the carrier, it establishes a prima facie case against the carrier for damage to the cargo prior to redelivery. See Daido Line v. Thomas P. Gonzalez Corp., 299 F.2d 669, 671 (9th Cir. 1962). Cf. Schnell v. Vallescura, 293 U.S. 296, 304, 55 S. Ct. 194, 196, 79 L. Ed. 373 (1934). The burden of proof thereafter rests with the carrier to establish that it received the goods in a damaged condition, or that one of the COGSA exceptions applies. 46 U.S.C. § 1304(2) (1977); see Schnell, supra; Vana Trading Co., Inc. v. S.S. "Mette Skou", 556 F.2d 100, 105 (2d Cir. 1977), cert. denied, 434 U.S. 892, 98 S. Ct. 267, 54 L. Ed. 2d 177 (1977); J. Gerber & Co. v. S.S. Sabine Howaldt, 437 F.2d 580 (2d Cir. 1971); McAllister Lighterage Line, Inc. v. S.S. Steel Age, 306 F. Supp. 19, 27 (S.D.N.Y.1968). Under COGSA, issuance of a clean-on-board bill of lading constitutes prima facie evidence as to the condition of the goods when delivered. 46 U.S.C. § 1303(4) (1977); Demsey, supra at 1014; Metalimport of Romania v. S.S. Turkia, 443 F. Supp. 656, 659-60 (S.D.N.Y.1977), aff'd, 580 F.2d 1045 (2d Cir. 1978); S.M. Sartori, Inc. v. S.S. Kastav, 412 F. Supp. 1181 (S.D.N.Y.1976); Baby Togs, Inc. v. S.S. American Ming, 1975 A.M.C. 2012, 2016 (S.D.N.Y.1975).

 The ability of parties to rely on representations made in bills of lading is an integral element in maintaining continuity in international commerce. The importance of being able to rely on such representations has been extolled by numerous courts. See, e.g., Daido Line v. Thomas P. Gonzalez Corp., 299 F.2d at 673 n. 9; Kupfermann v. United States, 227 F.2d 348, 350 (2d Cir. 1955); The Carso, 53 F.2d 374, 378 (2d Cir. 1931), cert. denied, 284 U.S. 679, 52 S. Ct. 140, 76 L. Ed. 574 (1931).

 In this case it is uncontroverted that defendant's agent COSA issued two clean-on-board bills of lading utilized to effectuate payment for the sweaters pursuant to the terms of the letters of credit issued by Israel Discount Bank. The two bills of lading reflect that K Line received, by its agent COSA, 400 cartons containing 4,000 dozen acrylic sweaters, and the failure to note any exception on the bills attests to the good condition of the merchandise at the time of its receipt by K Line.

 Defendant seeks to avoid the estoppel effect normally resulting from the issuance of these bills of lading by contending that they evidence receipt of containers not cartons. Defendant claims that the Chinese Government, which supervises and regulates all aspects of the Chinese shipping industry, does not allow bills of lading to indicate containerization with any designation other than "CS," and this with reluctance. Therefore, defendant contends, the designation "CS" constitutes an established usage in Chinese-American trade, and bills of lading entitled "CS" evidence receipt of containers not cartons.

 The mere appearance of the letters "CS" on the bills of lading provides no notice to anyone that the bills of lading were somehow conditional or represented a containerized shipment, particularly bills of lading that expressly refer to "cartons" having been delivered in good condition to the carrier. Furthermore, "CS" is an ambiguous term, and not an accepted device registered by K Line in its tariffs. (Tr. 215-16) It has no commercial meaning outside of China. (Tr. 238) Thus, despite the "CS" designation, both plaintiff's and defendant's surveyors assumed that the goods had been containerized at the point of transshipment, not in China. (See D's Post-Trial Memo., p. 11) To allow defendant to avoid the normal effects of clean bills of lading issued by its agent and shift the burden of loss to plaintiff when K Line has failed to show that Wessex was aware of the special, non-commercial meaning attached to the designation "CS", or that it alerted plaintiff to that meaning, would be unfair. (Tr. 238) Cf. Flower City Painting, etc. v. Gumina Const. Co., 591 F.2d 162, 165 (2d Cir. 1979). City Savings & Loan Ass'n v. General Ins. Co. of America, 386 F. Supp. 1210, 1219-20 (N.D.Cal.1974).

 Furthermore, defendant's argument concerning Chinese trade usage and law rests entirely on the testimony of Mr. Muira, an employee of K Line, whose testimony is questionable and far from authoritative. It is the testimony of the agent of an interested party, and unconvincing to the extent he contends that the Chinese Government is not subject to some degree of influence by carriers. Muira was not present in China at the time the events of this case occurred, and he is not qualified as an expert in Chinese law. (Tr. 207, 225) Defendant has failed, therefore, to establish that the Chinese Government in fact allows only the designation "CS," or that "CS" means that the ...


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