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FERROSTAAL CORP. v. M.V. SINGA WILGUARD

November 12, 1993

FERROSTAAL CORPORATION, Plaintiff,
v.
M.V. SINGA WILGUARD, her engines, boilers, tackle, etc., WILGUARD SHIPPING CORP., ANDERS WILHELMSEN & CO., and ATLANTIC LINES, S.A., Defendants.


Newman


The opinion of the court was delivered by: BERNARD NEWMAN

OPINION, FINDINGS OF FACT AND CONCLUSIONS OF LAW

 NEWMAN, Senior Judge:1

 Ferrostaal Corporation, the consignee of a shipment of hot rolled steel rail from Duisburg, Germany, brings this action against defendants pursuant to the Carriage of Goods by Sea Act ("COGSA"), 46 U.S.C. §§ 1300 et. seq. (1988). The cargo had been ordered from Ferrostaal by the New York City Transit Authority ("NYCTA"), and was shipped aboard the M/V SINGA WILGUARD, departing Antwerp, Belgium on September 16, 1989 and arriving at Newark, New Jersey on October 5, 1989. Ferrostaal seeks to recover $ 159,680.15, plus interest and costs, representing the expenses and loss incurred in connection with the rejection of the rail by NYCTA and subsequent salvage sale to the Port Authority Trans-Hudson ("PATH").

 CONTENTIONS OF THE PARTIES

 Initially, it is uncontested that hot rolled steel products will form a surface layer of atmospheric rust following exposure to ambient humidity or rain, and such corrosion does not damage the steel. The chlorides present in seawater, by contrast, are aggressive agents that penetrate below the surface and will proceed to destroy the steel unless removed soon after contamination.

 Ferrostaal asserts that the WILGUARD was unseaworthy due to defendants' failure to maintain a watertight hatch. It is contended that seawater entered through the hatch cover and poured into hold #1 on the WILGUARD during a storm in the North Atlantic, thereby contaminating the stacked cargo of rails. Ferrostaal's claim is predicated entirely upon the contention that the rail suffered from seawater corrosion and pitting.

 Defendants concede that upon discharge the rail was covered with a layer of atmospheric rust, but argue that the cargo was in fact undamaged for the purposes of its intended use. Although NYCTA cited the rusty condition of the rail as the reason for rejection, defendants urge that the rail was entirely usable and that the true reason for NYCTA's reluctance to accept the rail stemmed from unrelated commercial disputes between Ferrostaal and NYCTA.

 The court has admiralty and maritime jurisdiction of this matter pursuant to 28 U.S.C. § 1333 (1988). A bench trial was conducted by the writer from April 19 to 22, 1993. The following constitutes the court's findings of fact and conclusions of law in accordance with Fed. R. Civ. P. 52(a).

 THE RECORD

 The record in this case consists of, among other things, the transcript of the live testimony of five witnesses for Ferrostaal and six witnesses for defendants, as well as 407 exhibits. Additionally, the parties referred to the deposition transcripts of several persons who were not produced at trial.

 Ferrostaal presented the testimony of the following five witnesses: Dietrich Seraphin, an officer of Ferrostaal; Hugh Fowley, a surveyor who observed some of the rail at Newark; Severo Calima, an employee of I.S. Derrick Independent Ship and Cargo Surveying, Inc. who examined the tank tops and other cargo after the rail was discharged; Dr. Klaus Wick, a metallurgist employed by Thyssen, Inc., which manufactured the rail for Ferrostaal; and Capt. John Alder, as an expert on marine surveying.

 Defendants produced the following six witnesses: George Farrell, a surveyor who tested the cargo at Providence, R.I. and Newark, N.J.; J. W. Laudermilch, president of Steel Services Company, Inc.; Capt. Arthur Sparks, a leading authority on marine surveying; *fn2" Rey Ortiz, a surveyor who tested the cargo at Newark on behalf of Ferrostaal; Dr. John Francis Molina, a chemist at New York Testing Laboratories; and Howard Sabin, a corrosion engineer with impressive credentials, to whose testimony the court gave considerable weight.

 Ferrostaal Corporation is organized and existing under the laws of the State of New York and is the American subsidiary of Ferrostaal AG, a large German trading company. Ferrostaal is engaged in, among other things, the import and export of rail and railroad products. At all times relevant to this action defendants Wilguard Shipping Corp. and Anders Wilhelmsen & Co. were foreign corporations with offices and a place of business in Oslo, Norway, and were the owners of the WILGUARD. Defendant Atlantic Lines, S.A., with an office and place of business in New Jersey, was the charterer of the WILGUARD during the voyage. All defendants were engaged in business as common carriers of merchandise by water for hire.

 The rail which forms the basis of the instant case was manufactured at Thyssen's plant in Duisburg, Germany pursuant to an order placed by NYCTA with Ferrostaal in December 1988. The rail was covered with mill scale, an oxide that forms as a natural and inevitable by-product of the manufacturing process of any hot rolled steel product. After manufacture, the subject rail was not shipped immediately; rather, it was stored outside Thyssen's plant for approximately two months due to a series of disputes between Ferrostaal and NYCTA relating to Thyssen's noncompliance with NYCTA's manufacturing specifications. During this period, the rail was stored outdoors on the piers of the mill port in Duisburg, where it was exposed to the weather.

 Duisburg is located in the Ruhr industrial region of Germany, within 40 miles of Dusseldorf. Although Germany has strong restrictions on industrial pollutants, the area is heavily industrialized, and certain amounts of sulfur emissions are to be found due to the presence of a coke battery in Duisburg. All of Northern Europe is susceptible, moreover, to acid rain, which can accelerate the process of normal atmospheric corrosion on hot rolled steel surfaces.

 The problems associated first with the manufacture and then the shipment of the rail appear to have been legion. Before the rails were even loaded on board the WILGUARD, Dietrich Seraphin, an officer of Ferrostaal who was in charge of the order, wrote to Ferrostaal's German parent in Essen, "nothing seems to go right with this order." Defendants' Exhibit "D." Initially, Ferrostaal failed to deliver the rail to NYCTA on time, prompting a threat by NYCTA that it would cancel the order. More important, however, was the failure of Thyssen and Ferrostaal to provide rail according to NYCTA's specifications. Seraphin explained that NYCTA's requirements differed from those of most other urban mass transit systems in a number of respects, particularly with regard to the size and composition of its tracks.

 Specifically, NYCTA required 100 lb. rails, a portion of which were to be drilled. Some of the rail was not drilled. The rails were to be "end hardened," apparently in order to allow the rail to withstand the heavy stress of subway trains running over the connections. Thyssen, however, did not end harden the rail. Additionally, the manganese content of the Thyssen product exceeded that of 100 lb. rail. The specifications further called for the rail to be chamfered; the rail was not chamfered, although NYCTA later waived that specification. Ferrostaal negotiated discounts and ultimately persuaded NYCTA to accept shipment of the nonconforming goods.

 Following NYCTA's agreement to take delivery, the rail was transported in open barges from Duisburg to Antwerp. The trip to Antwerp took 24 hours. On the piers in Antwerp, the rail was re-sorted and loaded into two different cargo holds. The cargo was shipped pursuant to two bills of lading, *fn3" containing the clauses, "rust stained" and "wet before shipment," which were inserted pursuant to the Pre-Shipment Survey Report by the shipowner's surveyor, Sparks & Co., N.V. The survey report defines the relevant clauses as follows:

 
Metal surface completely covered with a fine film of rust which has not resulted in deterioration, or impaired in any way the good condition of the cargo involved.
 
"Wet before shipment"
 
This clause is applied to all steel products, which show signs of wetness prior to shipment. This wetness is considered to promote a rust condition or accelerate the further development of any existing rust visible on the goods.

 Plaintiff's Exhibit 53 at 3-4.

 Photographic and testimonial evidence further confirm that upon loading at Antwerp the cargo was generally soaked by rainwater and was already covered with a uniform layer of light to moderate atmospheric rust. See, e.g., Plaintiff's Exhibit 253, Report of Capt. G. Van Leeuwen.

 The WILGUARD departed Antwerp on September 16, 1989. During the transatlantic passage, the WILGUARD experienced storms measuring up to force 8 on the Beaufort Scale. The record demonstrates that ventilation of the ship's holds could not be undertaken for much of the voyage, and any attempt to do so would likely have resulted in the entry of seawater into the holds and damage to the cargo. *fn4"

 WILGUARD arrived at Brenton Reef, Rhode Island on or about September 29, 1989, where it remained at anchor for several days, during which time the holds were ventilated. The hatch covers were not opened at this time. See Deposition of Captain Joscelyn Colacao, Plaintiff's Exhibit 237, at 124, ln. 20, et seq.; Logbook, Defendants' Exhibit "XXXX" at September 29, 1989 to October 2, 1989. The WILGUARD arrived at Providence on October 3, 1989, where discharge operations took place on at least three of the hatches. At that time, the first of several stateside surveys of Ferrostaal's rail cargo took place.

 Inspection and testing.

 The survey at Providence was conducted by George Farrell, who represented the shipowner's Protection and Indemnity Club and testified for defendants. As Farrell's Providence survey report indicated, heavy condensation was discovered within all of the hatches and on the cargo, apparently as a ...


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