I.S. Derrick Independent Surveyors, did report positive silver nitrate tests from certain 8' by 8' timbers on which the rail was stacked at the Maher Terminal. The timbers belonged to the terminal and were not dunnage from the holds of the WILGUARD. Based upon those results, Luard then changed its survey report.
The court declines to follow Luard's example and places no reliance upon the Bowes report. Any probative value of Bowes' tests is immediately cast in doubt when one considers that they occurred several months after discharge. Furthermore, such positive results as were obtained were confined to areas of the rail that were tangent to the timbers; similar positive results were obtained from the lumber itself. Record at 82-3. The dubious weight of Bowes' silver nitrate results is further diminished in the light of laboratory testing by Dixie Services, Inc. Concerning the rust samples, the Dixie Services report of August 21, 1990 concluded that the rail had come into contact with either freshwater or substances "of other than seawater origin," probably calcium chloride. Rust scrapings taken by Bowes from the dunnage yielded inconclusive results, but indicated a foreign substance other than seawater. As to the timbers, the lab results disclaimed a conclusive finding of seawater contamination, suggesting only the possibility that the timbers had been contacted either by brackish water or seawater that had been washed away by freshwater.
Whatever value Luard may have attached to the Bowes report, it does not make the case for seawater; nor even if it did, could the report sustain a finding that the contamination took place in the holds of the WILGUARD. A careful reading of the Dixie Services reports leads to the conclusion that it is at least as likely as not that the timbers were contaminated by chlorides other than sodium chloride on the pier prior to the arrival of the rail, and that the timbers thus contaminated thereafter impregnated those portions of the rail that were stacked upon them. See Defendants' Exhibit "DD". It is likewise possible that chemical agents other than saltwater washed onto the rail and the lumber together, long after discharge and stacking. In either case, it is clearly impossible to determine, predicated upon results so attenuated in time from the date of outturn, that the rail was more likely contaminated while in the custody of the carrier than at a later date.
The remaining scientific evidence is of little value and may be disposed of quickly. Subsequent to Bowes' inspection, Ferrostaal engaged a metallurgist, Lucius Pitkin & Co., to examine the rail. The Pitkin report does not indicate seawater damage, and concludes that the corrosion was probably cosmetic, with no adverse structural consequences. See Defendants' Exhibit "OOOO." Importantly, several months separate the time of Pitkin's examination from the time of discharge. Another report by Robert Lyon & Co., engaged by Luard, made a qualified conclusion of seawater damage based upon Luard's photographs, which had been taken some three weeks after discharge. The Lyon report also left open the possibility of other causes such as freshwater and potash. The Lyon report was not based upon laboratory testing and is not accorded any weight by the court.
Finally, a series of tests conducted by Calima and Dixie Services were submitted into evidence by Ferrostaal; Calima's tests were performed after discharge at later ports, and concentrated on cargo other than the rail. Dixie Services also failed to give a conclusive pronouncement of seawater even as to these tests. See Plaintiff's Exhibit 87. The court similarly attaches no weight to this evidence.
In summary: the court observes that the cargo in the case at bar was the subject of exhaustive chemical and metallurgical examination over a period of more than twelve months. Virtually all of the results of such testing pronounced the rail to be free of chlorides. The only positive silver nitrate tests that were reported cannot be given any weight. Fowley's results are tainted by deviation from standard procedure and the failure to confirm his results through laboratory testing. Bowes' results are too attenuated in time from discharge and were unconfirmed by the Dixie Services report.
Additionally, in light of the considerable number of contrary results obtained by the other surveyors, the validity of which is unchallenged, the court finds that the aggregate of silver nitrate tests taken in this case does not support a finding of seawater contamination to Ferrostaal's rail. More, the various laboratory reports either ruled out seawater altogether or provided no more than qualified statements as to the possible presence of either seawater or other contaminants. The short of the matter is that no single chemical analysis conclusively identified traces of seawater in any rust sample. Therefore, the court determines that the preponderance of the laboratory and metallurgical evidence--much of which was generated for Ferrostaal and NYCTA--decisively favors defendants.
The ultimate issue of fact in the case at bar is whether upon discharge at Port Newark the cargo was in good condition or bad. The only remaining evidence to consider is the visual appearance of the rail itself, as demonstrated by photographic evidence taken close in time to the discharge of the rail, as well as the expert testimony.
Both sides offered a large number of photographs of the rail at each stage of the journey from Antwerp to Port Newark. The photographs establish plainly that the rail was covered with light to moderate atmospheric rust at loading, and that some of the rail had developed an accelerated stage of moderate and flaky surface rust at discharge. Ferrostaal places considerable emphasis on a number of photographs taken by Luard & Co. in particular, which photographs are appended to the Luard survey report. Plaintiff's Exhibit 56, photographs 5, 6, & 7. For the reasons that follow, the court determines that the photographs display no more than the effects of normal atmospheric corrosion, possibly accelerated by acid rain in Northern Europe, the ambient humidity in the cargo hold and whatever rainfall that took place during the three weeks of storage at the Maher Terminal that preceded the taking of the photographs.
The court found the testimony of Howard Sabin, the corrosion engineer, particularly helpful. Sabin acknowledged that the appearance of the rail in the photographs appended to the Luard report indicated severe atmospheric corrosion. However, Sabin refuted the conclusion of Ferrostaal's metallurgist, Klaus Wick, that the corrosion was the result of an aggressive agent, i.e., saltwater. Rather, the substance of Sabin's testimony was that the corrosion appearing on the WILGUARD's rail cargo was a combination of galvanic and ordinary atmospheric corrosion, accelerated due to the presence of mill scale, heavy condensation in the cargo hold and possibly acid rain. Record at 578, 603. It was Sabin's view that the rail was not damaged beneath the surface and that the rail could be easily returned to a commercially acceptable condition by wire brushing or sandblasting. Id. at 596.
The issue as to whether the rail was pitted was also sharply in contention. Pitting would reduce the "fatigue life" of the rail and render it unsuitable for prolonged service as subway track. To prove its contention, Ferrostaal offered first Fowley's testimony that pitting could be determined visually, by scraping the rail and running his hand over the surface of the rail. Dr. Wick stated that he could not see pitting, but extrapolated that the rail was pitted based upon the surface rust condition. Tellingly, however, none of Ferrostaal's witnesses had undertaken to determine the existence and depth of the alleged pitting scientifically, through the use of a pit gauge or of a micrograph, although such testing is the standard method for detecting pitting on steel surfaces.
Finally, Laudermilch testified on behalf of the carrier that he removed areas of corrosion by wire brush and inspected the metal in the same manner as Fowley; but Laudermilch observed no signs of pitting. Record at 376-77. Having considered and weighed the testimony, the court finds that Ferrostaal has not proved that the rail was pitted.
NYCTA had cited rust as the reason for rejection. Even accepting NYCTA's stated reason at face value, however, the evidence does not establish that the rail was damaged. The record shows that NYCTA accepted a portion of the rejected rail following sandblasting, although it was reluctant to authorize further sandblasting on the grounds that it was not in the market for refurbished rail. It should further be recalled that NYCTA's own lab report yielded negative results for seawater contamination. Finally, the balance of the rail was later inspected for PATH, pronounced acceptable, sandblasted, and purchased by PATH for use in its system,
thereby confirming Sabin's view of the true condition of the rail.
In view of the foregoing, the court finds that the rail was in good condition on outturn.
CONCLUSIONS OF LAW
The court first addresses a threshold matter concerning Ferrostaal's failure to provide timely notice of damage to the carrier. The record establishes that Ferrostaal waited until three weeks after discharge to provide notice to defendants, which was two weeks after NYCTA had rejected the shipment. Defendants contend that Ferrostaal's claim is, therefore, defeated by operation of statute, namely, section 3(6) of the COGSA, which provides in relevant part:
Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery.
46 U.S.C. § 1303(6)(1988).
As holder of the bills of lading, Ferrostaal was the "person entitled to delivery." Since the rust condition was readily apparent, and the possibility of saltwater contamination was discoverable at discharge through silver nitrate testing, Ferrostaal was required to give notice of the damage as of the time the rails were delivered to its custody. Consequently, the failure to give such notice for three weeks would defeat Ferrostaal's claim altogether, absent any contrary evidence concerning the condition of the cargo on outturn. See, e.g., M.W. Zack Metal Co. v. The S.S. Birmingham City, 291 F.2d 451, 453 (2d Cir. 1961); Leather's Best Intern., Inc. v. MV Lloyd Sergipe, 760 F. Supp. 301, 309-10 (S.D.N.Y. 1991). Any such presumption of good condition on delivery falls, however, once the plaintiff adduces any credible evidence tending to show that the cargo was damaged prior to delivery. See Pacific Employers Ins. Co. v. M/V Gloria, 767 F.2d 229, 238 (5th Cir. 1985). The record does, indeed, show that Ferrostaal has produced some evidence suggesting that the corrosion was more than superficial and took place while the rail was in the care, custody and control of the carrier. The prima facie defense of good delivery under section 3(6), therefore, does not end the court's inquiry.
That Ferrostaal has overcome the presumption of good delivery does not, of course, mean that Ferrostaal has necessarily prevailed on the ultimate issue by the preponderance of the evidence. To recover from defendants under COOSA, Ferrostaal must meet its burden of proof as to each of the two statutory elements of a prima facie case, namely, delivery of the cargo to the carrier in good order and condition and outturn in a short or damaged condition. See 46 U.S.C. § 1303(3), 1304 (1988). See also, Raphaely Intern. Inc. v. Waterman S.S. Corp., 972 F.2d 498, 501 (2d Cir. 1992), cert. denied, 122 L. Ed. 2d 666, 113 S. Ct. 1271 (1993); Insurance Co. of N. Am. v. S.S. "Globe Nova" 820 F.2d 546, 548 (2d Cir.), cert. denied, 484 U.S. 965 (1987); M. Golodetz Export Corp. v. S/S Lake Anja, 751 F.2d 1103, 1109 (2d Cir.), cert. denied, 471 U.S. 1117, 86 L. Ed. 2d 261, 105 S. Ct. 2361 (1985).
The court first considers Ferrostaal's initial burden of showing good condition of the cargo at loading. It is fundamental that a bill of lading constitutes prima facie evidence of receipt by the carrier of cargo as it is described therein. 46 U.S.C. § 1303(4). Thus, a bill of lading containing no clauses or notations of damage is considered a "clean on board bill of lading," and is prima facie evidence of the good condition of the cargo at loading. See Westway Coffee Corp. v. M.V. Netuno, 675 F.2d 30, 32 (2d Cir. 1982); Caemint Food, Inc. v. Brasileiro, 647 F.2d 347, 352 (2d Cir. 1981); Blommer Chocolate Co. v. Nosira Sharon Ltd., 776 F. Supp. 760 (S.D.N.Y. 1991). Where the defendant fails to adduce evidence tending to controvert the contents of a clean on board bill of lading, production of the bill satisfies the plaintiff's burden of proving the good condition of the cargo at loading. See Caemint Food, 647 F.2d at 352.
It is undisputed that the rail was covered with a light layer of atmospheric rust on the docks at Antwerp. It is also undisputed that the cargo was wet from freshwater and that mill scale was observable along the length of the rail. Hence, the court must address whether "rust clauses" such as those described above and appearing in the mates receipts and the two bills of lading constitute notations of damage, such that the bills of lading fail to establish the good order and condition of the rail on delivery.
Defendants cite authority for the proposition that similar rust clauses establish damage to the cargo at loading. See Acwoo Int'l v. Hosei Maru, 736 F. Supp. 1452, 1989 AMC 2894 (E.D. Mich. 1989). The court disagrees. In Acwoo, the commodity at issue was a shipment of cold rolled steel. This precedent is of little value to the issue of the instant cargo, which required none of the packaging and other precautions associated with cold rolled steel and is undamaged by atmospheric rust. Moreover, as Capt. Sparks stated at trial, most cargos of hot rolled steel are shipped under bills of lading containing rust clauses similar to the one described here. Further, the definition of the relevant rust clauses in the Sparks & Co. Preshipment Survey Report recites that the insertion of such clauses does not contradict the good condition of the cargo. Since the development of surface atmospheric rust is a normal characteristic of hot rolled steel, the court finds that the instant cargo was shipped pursuant to clean bills of lading.
In the alternative, defendants posit that the bills of lading do not suffice to establish the good order and condition of the cargo because the existence of mill scale on the surface of the cargo constituted an inherent vice. See The Niel Maersk, 91 F.2d 932, 934 (2d Cir.) (A. Hand, J.), cert. denied 302 U.S. 753, 82 L. Ed. 582, 58 S. Ct. 281 (1937).
When a defendant adduces evidence tending to show that damage occurred due to internal defects in the cargo, i.e., defects that are not externally observable by the carrier, the burden shifts to the shipper to disprove such a defect as part of its prima facie case. See Caemint Food, 647 F.2d at 356 n.9 (citing Hecht, Levis & Kahn, Inc. v. The S.S. President Buchanan, 236 F.2d 627, 631 (2d Cir. 1956); American Tobacco Co. et. al. v. The Katingo Hadjipatera et. al., 81 F. Supp. 438, 446 (S.D.N.Y 1948), modified, 194 F.2d 449 (2d Cir. 1951), cert. denied, 343 U.S. 978 (1952)).
An "inherent vice" is defined as "any existing defects, diseases, decay or the inherent nature of the commodity which will cause it to deteriorate with a lapse of time." Raphaely, supra, 972 F.2d at 504 (citing Vana Trading Co. v. S.S. Mette Skou, 556 F.2d 100, 104 (2d Cir.), cert. denied, 434 U.S. 892 (1977)). In the case at bar, the testimony established that mill scale is an ordinary by-product of the steel manufacturing process. The interaction of ordinary freshwater with mill scale necessarily produces a surface layer of atmospheric rust, with corrosion cells surrounding areas of mill scale. Such rust is harmless and in no way reduces the useful life of the rail. Indeed, as already noted, the cargo in question was intended for outdoor use, where it would be permanently exposed to the elements. Additionally, both mill scale and the accompanying corrosion cells are readily observable by the naked eye and would noticeable at loading by the carrier. Consequently, the court determines that mill scale does not constitute an inherent vice within the meaning of section 1304(2)(m), and finds that Ferrostaal has proved the good condition of the cargo at loading.
Nevertheless, Ferrostaal's cause of action fails on the second prong of its prima facie case. It is the essence of this case that hot rolled rail track is not considered damaged by the development of rust caused by freshwater. Thus, if the instant cargo was not damaged at loading, its discharge in substantially the same rusty condition at outturn defeats a COGSA claim. No credible scientific reports support a finding of saltwater contamination. In point of fact, the survey reports, as well as expert testimony on metallurgy and rust corrosion, established nothing more than a finding of normal atmospheric corrosion, exacerbated by heavy condensation in the cargo hold and conceivably by acid rain. More, the rejected rail was ultimately sandblasted and accepted by either PATH or NYCTA. The court agrees with defendants: whatever NYCTA communicated to Ferrostaal when it rejected the cargo, the rail was not actually damaged for NYCTA's purposes or PATH's, and was certainly not contaminated by seawater. Thus, Ferrostaal has failed to establish a prima facie case.
Since it is definitively determined that the rail was not damaged, the court does not reach the issue of the shipowner's due diligence.
The court orders that the complaint be, and it hereby is, DISMISSED. The Clerk of the Court is directed to enter judgment accordingly.
Dated: November 12, 1993
New York, New York
Bernard Newman, U.S.D.J. by designation