In a complex maritime shipping dispute, the Supreme Court clarified the responsibilities of common carriers and the application of the Carriage of Goods by Sea Act (COGSA). The Court affirmed that a carrier is liable for damages to goods during transit if negligence is proven, even when a slot charter agreement exists. Additionally, the Court upheld the application of COGSA’s package limitation liability, capping the carrier’s responsibility at US$500 per package in the absence of a declared value in the bill of lading. This decision reinforces the importance of due diligence for carriers and the need for shippers to properly declare cargo value to ensure adequate protection.

When Seawater Meets Cargo: Charting the Course of Carrier Accountability

This case originated from the shipment of Ovaltine Power 18 G laminated plastic packaging material from South Korea to the Philippines. Novartis Consumer Health Philippines, Inc. (NOVARTIS) contracted Jinsuk Trading Co. Ltd. (JINSUK) to supply the goods. JINSUK then engaged Protop Shipping Corporation (PROTOP) as a freight forwarder. The cargo was shipped via Dongnama Shipping Co. Ltd. (DONGNAMA) on the vessel M/V Heung-A Bangkok V-019, owned by Heung-A Shipping Corporation (HEUNG-A). Wallem Philippines Shipping, Inc. (WALLEM) acted as HEUNG-A’s ship agent in the Philippines. NOVARTIS insured the shipment with Philam Insurance Company, Inc. (PHILAM).

Upon arrival, the shipment was found to be damaged by seawater. NOVARTIS rejected the shipment, and PHILAM, having paid the insurance claim, sought to recover damages from the various parties involved. This led to a legal battle to determine who was responsible for the damage. The central legal question was whether HEUNG-A, as the carrier, was liable for the damage, and if so, whether its liability could be limited under the COGSA.

The Regional Trial Court (RTC) ruled that the damage occurred onboard the vessel, holding HEUNG-A, WALLEM, and PROTOP solidarily liable. The Court of Appeals (CA) affirmed this decision but limited the liability to US$8,500.00 under COGSA. Both PHILAM, HEUNG-A, and WALLEM appealed to the Supreme Court. The Supreme Court affirmed the CA’s decision, emphasizing the factual findings of the lower courts that the damage occurred while the shipment was in HEUNG-A’s possession. It reiterated the principle that factual findings, if supported by evidence, are generally binding on the Court.

The Court highlighted the surveyor’s report indicating seawater seepage into the container van and the chemist’s confirmation of saltwater damage to the cargo. This evidence supported the conclusion that the damage occurred during transit under HEUNG-A’s care. The Court emphasized that as the carrier, HEUNG-A had a duty to exercise extraordinary diligence in transporting the goods. Even with a slot charter agreement with DONGNAMA, HEUNG-A remained responsible for the safety of the shipment.

A crucial aspect of the case involved the nature of the charter party between HEUNG-A and DONGNAMA. The Court clarified that it was a contract of affreightment, not a bareboat charter. In a contract of affreightment, the shipowner retains control and responsibility for the vessel’s operation and the cargo’s safety. The Court cited Planters Products, Inc. v. Court of Appeals, defining a charter party as:

[A] contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a specified time or use; a contract of affreightment by which the owner of a ship or other vessel lets the whole or a part of her to a merchant or other person for the conveyance of goods, on a particular voyage, in consideration of the payment of freight.

The Court contrasted this with a bareboat charter, where the charterer assumes control of the vessel and is responsible for its operation. Since HEUNG-A retained control, it remained liable as the carrier. The Supreme Court reiterated the high standard of care required of common carriers, stating, “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.”

The Court also addressed the application of the COGSA, particularly the package limitation liability. Article 1753 of the Civil Code dictates that the law of the destination country governs liability for loss or damage. In this case, Philippine law applied, which incorporates the Code of Commerce and special laws like COGSA. Article 372 of the Code of Commerce states:

The value of the goods which the carrier must pay in cases if loss or misplacement shall be determined in accordance with that declared in the bill of lading, the shipper not being allowed to present proof that among the goods declared therein there were articles of greater value and money.

However, when the shipper fails to declare the value, Section 4(5) of COGSA limits the carrier’s liability:

Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.

Because NOVARTIS did not declare the value of the shipment in the bill of lading, the Court upheld the CA’s decision to limit HEUNG-A, WALLEM, and PROTOP’s liability to $500 per pallet. The Court also addressed the issue of timely claims. HEUNG-A and WALLEM argued that NOVARTIS failed to file a timely claim under Article 366 of the Code of Commerce. However, the Court clarified that the prescriptive period for filing a claim is governed by paragraph 6, Section 3 of COGSA:

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. In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.

The Court noted that while NOVARTIS did not comply with the three-day notice requirement, PHILAM, as NOVARTIS’s subrogee, filed claims against PROTOP, WALLEM, and HEUNG-A within the one-year prescriptive period. Therefore, the claims were deemed timely. This ruling underscores the importance of understanding the applicable laws and regulations governing maritime transport, particularly the COGSA and its implications for liability and claims procedures.

FAQs

What was the key issue in this case?	The key issue was determining the liability of the carrier (HEUNG-A) for damages to a shipment of goods and whether that liability was limited by the Carriage of Goods by Sea Act (COGSA). The court needed to decide if the damage occurred while in the carrier’s possession and if the COGSA’s package limitation applied.
What is a slot charter agreement?	A slot charter agreement is a contract where a vessel owner reserves space on their vessel for another party to transport goods. In this case, HEUNG-A had a slot charter agreement with DONGNAMA, but the court ruled that this did not absolve HEUNG-A of its responsibilities as a common carrier.
What is the significance of “Shipper’s Load and Count”?	“Shipper’s Load and Count” means that the shipper is responsible for the quantity, description, and condition of the cargo packed in the container. The carrier is not required to verify the contents, and therefore, is not liable for discrepancies between the bill of lading and the actual contents, unless negligence can be proven.
What is the COGSA, and why is it important in this case?	The Carriage of Goods by Sea Act (COGSA) is a U.S. law that governs the liability of carriers for loss or damage to goods during maritime transport. In this case, COGSA was important because it set a limit on the carrier’s liability to $500 per package, since the shipper did not declare the value of the goods in the bill of lading.
What is a contract of affreightment?	A contract of affreightment is an agreement where a shipowner leases shipping space to another party for the carriage of goods. Unlike a bareboat charter, the shipowner retains control of the vessel and responsibility for the cargo’s safety.
What is the effect of not declaring the value of goods in the bill of lading?	If the shipper does not declare the value of the goods in the bill of lading, the carrier’s liability is limited to $500 per package under COGSA. Declaring the value allows the shipper to recover the full value of the goods in case of loss or damage, provided negligence is proven.
What is the prescriptive period for filing a claim for damaged goods under COGSA?	Under COGSA, a notice of loss or damage must be given to the carrier or its agent at the port of discharge. If the damage is not apparent, the notice must be given within three days of delivery. However, suit must be brought within one year after delivery of the goods.
What does extraordinary diligence mean for common carriers?	Extraordinary diligence means that common carriers must exercise a very high degree of care and vigilance to ensure the safety of goods and passengers. This includes using all reasonable means to ascertain the nature of the goods, exercising due care in handling and stowage, and taking measures to prevent loss or damage.

In conclusion, the Supreme Court’s decision in this case provides valuable guidance on the responsibilities of common carriers in maritime transport and the application of COGSA. It underscores the importance of due diligence, proper cargo handling, and the need for shippers to declare the value of their goods. This ruling serves as a reminder for all parties involved in maritime shipping to understand and adhere to the applicable laws and regulations.

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: PHILAM INSURANCE COMPANY, INC. vs. HEUNG-A SHIPPING CORPORATION, G.R. NO. 187812, July 23, 2014