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BLACK SEA & BALTIC GEN. INS. CO. v. SS HELLENIC DE

October 28, 1980

BLACK SEA & BALTIC GENERAL INSURANCE COMPANY, LTD., Al Nisr Insurance Company, Arabia Insurance Company, Ltd., and The Taisho Marine & Fire Insurance Co., Ltd., and National Insurance and Reinsurance Co., American International Underwriters Mediterranean, Inc., Maritime Insurance Co., Ltd., and Omar Ahmed al Subei, Plaintiffs,
v.
SS HELLENIC DESTINY et al., Defendants



The opinion of the court was delivered by: LASKER

Plaintiffs are underwriters of various cargo shipments that were allegedly short-landed, damaged on delivery, or both. The cargo was delivered by defendants (collectively the "carrier") to Saudi Arabian ports. Plaintiffs move for partial summary judgment that the Certificates of Imported Goods (the "Certificates," Exhibits 3 through 10, Appendix to Donegan deposition) issued by Saudi Arabian Customs officials, together with the ships' Bills of Lading, establish the carrier's prima facie liability for the missing and damaged goods noted by the Certificates. *fn1"

The rights of the parties are governed by the Harter Act, 46 U.S.C. § 190, which provides that the carrier's liability does not end until "proper delivery" of the cargo has been made. *fn2" A prima facie case of liability for damaged or missing cargo is made by showing that the carrier issued a clean bill of lading and that the cargo was damaged or missing upon proper delivery. Cf. Demsey and Associates v. S/S Sea Star, 461 F.2d 1009, 1014 (2d Cir. 1972) (decided under Carriage of Goods by Sea Act). *fn3"

There is no dispute here that clean bills of lading were issued for all the cargo in question. The critical issue is whether the Certificates which note damage and shortage reflect the condition of the goods at the time of "proper delivery." While the term "proper delivery" is not statutorily defined, the parties do not dispute that under the Harter Act it is to be determined according to "port customs and regulations." David Crystal, Inc. v. Cunard Steam-Ship Company, 223 F. Supp. 273, 282 (D.C.N.Y.), aff'd, 339 F.2d 295 (2d Cir. 1963), cert. denied, 380 U.S. 976, 85 S. Ct. 1339, 14 L. Ed. 2d 271 (1965); Tan Hi v. United States, 94 F. Supp. 432, 433 (N.D.Cal.1950). Thus, this case turns on the interpretation to be given to Saudi Arabian Customs regulations *fn4" as to when, within the meaning of the Harter Act, "proper delivery" occurred at the Saudi Arabian ports.

 The parties agree that Article 124 of the "Customs Regulations and Rules for Implementation" of Saudi Arabia (Exhibit 1, Appendix to Donegan deposition) sets out the relevant law. It provides that:

 
"Actual receipt of the goods by Customs takes place only when the goods arrive at the gates of (Customs) warehouses or at the places assigned for storage, and when a careful inspection of the external condition of the package has been made. Consequently, goods that have been unloaded remain under the control and responsibility of the shipping companies until they are actually received by the Customs warehouseman."

 Thus, "proper delivery" occurs only when "a careful inspection" is made. The parties disagree as to when this inspection occurs and whether the Certificates reflect this inspection. The carrier, argues that the "careful inspection" which would constitute "proper delivery" takes place as the first act in the handling of the goods after the landing at the dock. It maintains that the Certificates which the plaintiffs have presented in this case do not reflect this inspection. The plaintiffs contend that the inspection made at the time referred to by the carrier is preliminary only and that proper delivery does not occur until a later inspection which is more thorough and which is reflected in the Certificates when issued.

 Plaintiffs rely on the deposition testimony of Anthony Donegan, who became familiar with the Customs regulations and their practical application as a Lloyd's Agent in the relevant Saudi Arabian ports from 1965-1970. *fn5" In summary, Donegan testified that the inspection under Article 124 does not take place until the customs clearance procedures begin. Upon physical delivery only a quick examination is conducted to segregate damaged packages, not the "careful inspection" contemplated by Article 124. Furthermore, he testified that the Certificates reflect the "careful inspection" conducted in accordance with the clearance procedures.

 The carrier relies on the affidavit of J. Edward Richardson, who has become familiar with the Customs regulations as a ship's agent employee and Line Representative in Saudi Arabia since 1973. *fn6" Richardson indicated that two inspections of the goods occur at the relevant Saudi Arabian ports. The first inspection is conducted soon after the cargo is physically delivered; at that time damaged cargo is segregated. This is the "inspection of the external condition of the packages" which ends carrier liability under Article 124, the carrier argues. A period of time follows that inspection before the clearance procedures begin during which the owner is liable according to Article 131, which provides that "while they (the goods) are in Customs, whether in the warehouse or the yards, the goods remain there on the responsibility of the owner." At clearance, a more rigorous inspection is conducted and, according to Richardson, this later inspection is the inspection reflected in the Certificate.

 The expert evidence submitted by the parties is inconclusive; not only do Donegan and Richardson disagree on the major points in issue, but they rely in large part on hearsay information in reaching their conclusions. If it were necessary to depend solely on this evidence, the issue could not be disposed of on a motion for summary judgment. However, in addition to the deposition of Donegan and the affidavit of Richardson, the record contains the Saudi Arabian Customs regulations themselves and the Certificates issued by Saudi Arabian Customs officials. Careful scrutiny of this evidence is convincing that the Certificates reflect the condition of the cargo at the time of the careful inspection referred to in Article 124, as plaintiffs contend.

 We begin with the fact that, under Article 124, proper delivery by the carrier to Customs cannot occur until a "careful inspection of the external condition" of the cargo has been made. Article 131, however, contemplates a period while the goods are "in Customs" and the owner is liable. The carrier argues with some force that, under Donegan's view of the procedures, the goods would never be "in Customs" because they would be properly delivered to Customs (by virtue of the careful inspection done during clearance) at the very same time as they were being cleared out of Customs. Be that as it may, the view presented by the carrier is itself not compatible with the regulations as we read them; under its scenario, the "careful inspection" of Article 124 would consist merely of a segregation of damaged goods with no inventory of the quantity of packages.

 Defendants rely on Article 127 to show that, upon physical delivery to the warehouse, some inspection is made. Article 127 requires that damaged goods be segregated, inventoried and weighed. Yet, if the requirements of the Articles immediately following Article 124 are to be looked to in order to give content to the "careful inspection" of Article 124, as the carrier suggests, it becomes clear that such inspection includes a full inventory of all cargo as well as segregation of damaged goods. Article 125 requires the warehouseman assigned to receive the goods to keep records of goods received and to compare with a shipping company representative the packages received with the packages listed on the manifest. This would appear to include an inventory of all packages physically delivered. Furthermore, Article 130 states that after receipt of the cargo, the Customs warehouseman shall give the shipping company a receipt showing the total number of packages received; in case of a shortage, the Customs Director may ask the shipping company to submit an explanation. It is only at this point that the next Article, Article 131, refers to a period of owner liability while the goods are "in Customs." Thus, reading these regulations together, the carrier's liability extends until completion of a careful inspection consisting of both a segregation and weighing of damaged goods and an inventory of all packages received.

 This reading of the regulations comports with general experience. The carrier's liability does not end until a "careful inspection" has been conducted to determine not only whether any of the cargo has been delivered damaged, but also whether some of the cargo has not been delivered at all. At that point, according to Article 130, the carrier is entitled to a receipt showing what he has properly delivered, and is asked to account for any shortages. When the cargo has been so inspected, the official Customs records kept pursuant to these articles show the condition of the cargo at the point when the carrier's liability ends.

 This analysis of the procedures is also supported by Article 215 of the Rules for Implementation, (renumbered Article 207 in 1970) which states that "shipping and transport companies shall be responsible for effecting actual delivery of all packages shown on the manifest... If the packages received are short, they shall be registered on the books of receipt ..." The shipping companies are then given time to locate the missing packages, a practice which would only make sense if the carrier were held responsible for not delivering the packages discovered to be missing at the time an inventory of all cargo is taken.

 Moreover, Article 215 indicates that the Certificates refer to the inventory which, together with the examination to segregate damaged goods, constitutes the official receipt by Customs. "Customs shall give to those concerned, upon their request, certificates confirming the shortage ... given on the basis of official records, without any responsibility on the part of the Government in connection with the issuance of such Certificates." And most importantly, Article 215 states that "it is understood that Article 215 deals with whole packages which prove to be missing when the shipment is received. In this case the shipping companies shall be accountable for the missing packages." (emphasis added)

 Finally, the Certificates presented by plaintiffs on their face correspond with the provisions of Article 215. Each Certificate recites official records upon which it is based, disclaims Custom's liability resulting from the issuance of the certificate, and either describes missing goods in terms of the ship having "arrived" with the cargo missing or refers to damaged goods in terms of a "weighing statement", corresponding to the requirements of Article 127. While defendants contend that the language of the Certificates does not necessarily reflect the actual facts, we find no plausible reason to question these plain statements.

 In sum, we find that proper delivery according to the law governing Saudi Arabian ports occurs when a "careful inspection of the external condition of the packages" is made. That inspection includes both an inventory of the total delivery and a segregation and weighing of the damaged cargo. The Certificate of Imported Goods reflects this inspection.

 It is unnecessary, for the purpose of disposing of this motion, to determine when this inspection actually takes place. While a reading of the applicable regulations leaves the impression that the segregation and weighing of damaged cargo and the inventory of all the cargo occur simultaneously and soon after physical delivery, the evidence of both parties in this case indicates that the inventory, at least, is not generally conducted until clearance procedures begin. To be sure, when such delay occurs it renders Article 131 meaningless, for the goods would be cleared out of Customs just as they are officially received in Customs. Nevertheless, the determination of the factual question of when the inspection actually occurs cannot change the fact that it is this inspection which ends the carrier's liability and which is reflected in the Certificates. *fn7"

 Plaintiff's motion for partial summary judgment on the issue of defendants' prima facie liability is granted.

 It is so ordered.

 APPENDIX

 C. Receiving and Storing ...


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