The Basis For The Settlement Of Claims For Metal Cargoes Lost Overboard
The metal cargoes are carried by sea packed in containers. The container ships are designed to carry containers both under and on deck. Given the high value of metal cargoes and the risk that that containers stowed on deck could be lost overboard during a storm, the cargo insurers who will ultimately bear the loss should ask the shippers to request the stowage of containers loaded with metal cargoes under deck when booking the freight space.
If the stowage below deck is not possible, then in case of loss of containers with metal cargoes overboard the cargo insurers will only be able to recover the value resulting from the multiplication of packages stated in the Bill(s) of Lading.
The enumeration of bundles in the Bill(s) of Lading and their description as "packages" will make the carrier liable for each bundle stuffed in the container up to the limit stipulated in the applicable law. However, the shipper`s failure to enumerate the bundles in the Bill of Lading and to provide evidence that the bundles were separately strapped with bands will mean that in case of loss of cargo the cargo insurer will recover a much lower value than in case where the bundles are deemed to be the packages for the purpose of determining the limit of the carrier`s liability.
In the US case Mitsui & Co. Ltd. v. American Export Lines1, a cargo of 1,834 tin ingots loaded in 5 containers was lost overboard during a storm. The shipper`s description of cargo in one of the Bills of Lading was in the following terms:
"Two 20` Containers Said To Contain as follows: Gross Weight
OMLU 122590 30 Bundles of 438 pcs (pieces) 33,703
NICB 4327 30 Bundles of 438 pcs (pieces) 33,540
HOUSE TO HOUSE
GRADE "A" TIN INGOTS"
The cargo was stuffed in containers by the shipper.
The buyer brought evidence that the bundles referred to in the Bills of Lading were in fact stacks of 15 ingots that had not been strapped together with metal bands. The metal ingots are normally strapped together in bundles to secure them.
The buyer claimed that the tin ingots were not shipped in packages and therefore, each tin ingot constituted a "package". This would have allowed the buyer and ultimately, the cargo insurer to recover the full value of cargo.
The dispute was whether each container or each stack of ingots or each individual ingot constituted a "package" for the purpose of calculating the limit of the carrier`s liability.
The US Court of Appeals for the Second Circuit held that:
"The stacks of ingots, though described as "bundles", did not conform to the ordinary meaning of that term. The shipper had done nothing to hold them together … We do not see how these stacks could be regarded as packages …
However, it does not at all follow, as urged by AEL [carrier] that the containers become the packages. If the ingots were not shipped in packages, and we hold they were not, then … the $500 limit would apply "per customary freight unit". Nothing in §4(5) suggests that simply because the goods were not sufficiently wrapped, bundled or tied to be COGSA packages, the container inexorably becomes the package."
The Court held that in that case the customary freight unit was the long ton on the basis of which the freight was calculated. The shipper was able to recover only half of the sum that would have recovered if the claim would have been made on the basis that the bundles enumerated in the Bills of Lading were the "packages".
The question what should be the basis for the settlement of claims for the loss of metal cargoes was again addressed in the US case Seguros Illimani SA v. M/V POPI P2. In that case, two containers containing 1,005 tin ingots packaged into 67 steel-strapped bundles were stolen from the container terminal of the port of discharge.
The buyers and cargo insurers claimed that each tin ingot constituted a "package". This would have allowed the buyers and ultimately, the cargo insurers to recover the full value of cargo.
The dispute was whether each bundle of ingots or each individual ingot constituted a "package" for the purpose of calculating the limit of the carrier`s liability.
In that case the cargo was stuffed in containers by the carrier`s agent at loading port and the evidence showed that the tin ingots were indeed strapped together in bundles.
The US Court of Appeals for the Second Circuit held that the bundles were the packages not only because they were enumerated in the Bills of Lading but because the evidence showed that the tin ingots were indeed strapped together in bundles and thereby packaged. The Court held that an ingot cannot be considered a "package".
Therefore, in case of claims made in US jurisdiction for the loss of metal cargoes transported in containers, the claimants should take into consideration the following rules:
- in case where the metal ingots are strapped in bundles and the bundles are enumerated in the Bill of Lading, the bundles will be considered the packages based on which limit of the carrier`s liability has to be determined;
- if the Bills of Lading fail to enumerate the bundles, then the cargo insurer`s recovery will be based on the "customary freight unit" whatever that might be, the long ton or the container itself.
The point is that in the latter case the cargo insurer will recover a much lower value than in case where the metal ingots are strapped in bundles and the bundles are enumerated in the Bill of Lading.
by Vlad Cioarec, International Trade Consultant
This article has been published in Commoditylaw`s Metals & Minerals Legal Brief Edition No. 1.
Endnotes:
1. 636 F.2d 807 (2nd Cir. 1981)
2. 735 F. Supp. 108 (S.D.N.Y. 1990); 929 F.2d 89 (2nd Cir. 1991)