This case clarifies the liability standards for common carriers when goods are damaged during transit. The Supreme Court held that proof of delivery of goods in good condition to a carrier, followed by their arrival in damaged condition, establishes a prima facie case of negligence against the carrier. Unless the carrier provides an adequate explanation for the damage, or proves it exercised extraordinary diligence, it will be held liable. The ruling underscores the high standard of care required of common carriers under Philippine law, ensuring protection for shippers and consignees.

Steel Coils and Shifting Blame: Who Pays When Cargo Arrives Damaged?

This case, Belgian Overseas Chartering and Shipping N.V. and Jardine Davies Transport Services, Inc. v. Philippine First Insurance Co., Inc., revolves around a shipment of steel coils from Germany to the Philippines. The Philippine Steel Trading Corporation received four of the coils in a damaged state and declared them a total loss. The Philippine First Insurance Co., Inc., having insured the shipment, paid the consignee and then sought to recover from the shipping companies, Belgian Overseas Chartering and Shipping N.V. and Jardine Davies Transport Services, Inc. The central legal question is whether the shipping companies were liable for the damage, or if they could successfully argue that the damage resulted from pre-shipment conditions or other factors beyond their control.

The core of the dispute lies in establishing negligence on the part of the common carrier. Philippine law, particularly Article 1733 of the Civil Code, imposes a high standard: “Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence and vigilance with respect to the safety of the goods and the passengers they transport.” This extraordinary diligence demands that carriers exercise the greatest skill and foresight in handling and stowing goods, taking all reasonable measures to ensure their safe arrival. The responsibility for this diligence extends from the moment the goods are unconditionally placed in the carrier’s possession until they are delivered to the consignee.

Building on this principle, Article 1735 of the Civil Code creates a presumption of fault or negligence against common carriers if goods are lost, destroyed, or deteriorated during transport. This presumption places the burden of proof squarely on the carrier to demonstrate that it observed extraordinary diligence. The Court has consistently held that carriers must provide compelling evidence to overcome this presumption, demonstrating that they took all reasonable precautions to prevent damage to the goods. However, this presumption does not arise under certain specific circumstances outlined in Article 1734 of the Civil Code.

Article 1734 lists exceptions where the presumption of negligence does not apply, including events such as natural disasters, acts of war, actions by the shipper, the inherent nature of the goods, or orders from public authorities. The list is exhaustive, meaning that if the cause of the damage falls outside these enumerated exceptions, the carrier remains liable. Here’s the list:

• Flood, storm, earthquake, lightning, or other natural disaster or calamity;
• An act of the public enemy in war, whether international or civil;
• An act or omission of the shipper or owner of the goods;
• The character of the goods or defects in the packing or the container; or
• An order or act of competent public authority.

In this case, the Court examined the evidence presented by both parties to determine whether the shipping companies had successfully rebutted the presumption of negligence. The Court noted several key pieces of evidence that supported the finding of negligence. First, the Bill of Lading indicated that the shipping companies received the steel coils in good order in Germany. Second, an Inspection Report prepared before unloading the cargo revealed that the steel bands were broken, the metal envelopes were rust-stained, and the contents were exposed. Third, a Bad Order Tally Sheet confirmed the damaged condition of the coils upon arrival. Fourth, a Certificate of Analysis indicated that the steel sheets were wet with fresh water.

Critically, the Court emphasized that the shipping companies admitted awareness of the damaged condition of the coils in a letter to the Philippine Steel Coating Corporation. This admission, coupled with the other evidence, strengthened the conclusion that the damage occurred while the coils were in the possession of the shipping companies. The testimony of Ruperto Esmerio, the head checker of BM Santos Checkers Agency, further corroborated these findings, describing the broken scrap and dented sides of the cargo.

The shipping companies attempted to argue that a notation on the Bill of Lading stating “metal envelopes rust stained and slightly dented” demonstrated pre-shipment damage, thereby exempting them from liability under Article 1734(4) of the Civil Code. The Court rejected this argument, emphasizing that the evidence did not conclusively establish that this pre-existing condition was the proximate cause of the damage. Furthermore, the Court pointed out that even if the shipping companies were aware of the improper packing, they were not relieved of liability once they accepted the goods in that condition.

Turning to the issue of notice of loss, the Court referenced Section 3, paragraph 6 of the Carriage of Goods by Sea Act (COGSA), which requires the filing of a notice of loss within three days of delivery. However, the Court clarified that this requirement is waived if a joint inspection or survey of the goods has been conducted. In this case, the Inspection Report prepared by representatives of both parties served as such a joint inspection. Moreover, the Court emphasized that even if the three-day notice requirement was not met, COGSA allows for a one-year prescriptive period for filing a claim, which the insurance company satisfied in this case.

Finally, the Court addressed the issue of package limitation under COGSA, which typically limits a carrier’s liability to US$500 per package unless the shipper declares a higher value. While the Bill of Lading did not contain a specific declaration of value, the insurance company argued that the insertion of the Letter of Credit number (“L/C No. 90/02447”) constituted such a declaration. The Court disagreed, reasoning that the notation of the Letter of Credit was merely for the convenience of the shipper and the bank processing the transaction, and did not serve as a declaration of the goods’ value.

The Court emphasized that the Bill of Lading serves as both a receipt for the goods and a contract between the shipper, carrier, and consignee. While stipulations limiting liability are permissible, they must be reasonable and freely agreed upon. In the absence of a specific liability limitation or a declared higher valuation, the provisions of COGSA apply. Citing its previous ruling in Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, the Court clarified that when multiple units are shipped in a container, each unit, rather than the container itself, constitutes the “package” for the purpose of the liability limitation. Consequently, the Court limited the shipping companies’ liability to US$500 per damaged coil.

FAQs

What is the main principle established in this case?	The case affirms that a common carrier is presumed negligent if goods are delivered in damaged condition, unless the carrier proves extraordinary diligence or the damage falls under specific exceptions.
What evidence can be used to prove a shipment was damaged in transit?	Evidence such as the Bill of Lading showing receipt of goods in good order, inspection reports detailing the damage upon arrival, and testimony from witnesses who observed the condition of the goods are relevant.
What is the effect of a “clean” Bill of Lading?	A “clean” Bill of Lading, indicating that goods were received in apparent good order, creates a presumption that any subsequent damage occurred while in the carrier’s possession.
What is COGSA, and how does it relate to this case?	COGSA (Carriage of Goods by Sea Act) is a law that governs the liability of carriers for goods transported by sea, supplementing the Civil Code by establishing a statutory limit to carrier liability in the absence of a higher declared value.
What is the “package limitation” under COGSA?	The package limitation restricts the carrier’s liability to $500 per package unless the shipper declares a higher value and includes it in the Bill of Lading.
Does a notation of a Letter of Credit in the Bill of Lading constitute a declaration of value?	No, the Court held that merely noting the Letter of Credit amount in the Bill of Lading is not equivalent to declaring the value of the goods for liability purposes.
What if the goods were already partially damaged before shipment?	The carrier is still liable if they accept the goods despite knowing the pre-existing damage, and they must exercise due diligence to prevent further damage during transport.
What is the time limit for filing a claim for damaged goods under COGSA?	While notice of loss should ideally be given within three days of delivery, a lawsuit can still be filed within one year of the delivery date.

The Belgian Overseas Chartering case offers crucial guidance on the responsibilities and potential liabilities of common carriers. By clarifying the burden of proof and the factors considered in determining negligence, the decision ensures that carriers are held accountable for the safe transport of goods. This promotes diligence and vigilance in the shipping industry, fostering greater trust and security for shippers and consignees.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Belgian Overseas Chartering and Shipping N.V. vs. Philippine First Insurance Co., Inc., G.R. No. 143133, June 05, 2002