Section 1304(5) of the Carriage of Goods by Sea Act (Cogsa) reads in part:
“Neither the carrier nor the ship shall . . . become liable for any loss or damage . . . in connection with the transportation of goods in an amount exceeding $500 per package . . . or in case of goods not shipped in packages, per customary freight unit . . . unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.”
By declaring a higher cargo value in excess of $500, the shipper can recover up to the declared value in the event of loss or damage during ocean transit. However, the ocean carrier will charge a higher freight rate in order to cover its additional liability exposure.
In recent years, shippers have successfully argued that, as a prerequisite to raising a $500 limitation defense, ocean carriers must comply with implied Cogsa “fair opportunity” requirements. Under this approach, carriers must give shippers notice of the $500 limitation and their right to avoid limitation by paying higher freight rates.
Courts generally have required the carrier to provide some evidence that it was prepared to accept liability in excess of $500. This may consist of a specific bill of lading clause or a tariff showing different freight rates for varying degrees of liability.
The carrier must also appraise the shipper through adequate advance notice that the choice exists. This may consist of actual or constructive notice. Federal circuit courts have expressed divergent views as to whether the shipper, in the first instance, has a duty to declare the cargoes’ value or whether the carrier has a duty to ask the shipper if it wants to declare the higher value.
The Ninth Circuit Court of Appeals has the most demanding notice requirements, mandating that ocean carriers provide the shipper with legible written notice of the $500 limit in the bill of lading, employing language similar to Section 4(5) of Cogsa. Other circuits simply require that the bill include a clause incorporating Cogsa by reference (clause paramount) or a clause referring to a tariff filed with the Federal Maritime Commission. Courts are in general agreement that the carrier bears the burden of proving that it afforded the shipper a “fair opportunity” notice.
The First Circuit Court of Appeals recently considered, for the first time, the “fair opportunity” doctrine in the Henley Drilling case (36 F.3d 143). In this case, a shipper’s drilling rig washed overboard during ocean transit. The bill of lading expressly stated that the shipper could circumvent the Cogsa $500 limitation by declaring a higher value and paying additional freight. The shipper failed to declare the value of the cargo even though it admittedly had actual and constructive notice of the limitation provision.
The shipper attempted to avoid the $500 Cogsa limitation by arguing that the ocean carrier violated the “fair opportunity” doctrine by failing to prove that published tariffs were available for the cargo in question. As a consequence, the carrier should not be entitled to the $500 limitation.
The Court rejected the argument and declined to expand the “fair opportunity” requirements. “Careful examination of the [law] has disclosed no appellate case which requires a valid tariff – in addition to actual or constructive notice – as an element of the fair opportunity doctrine.”
The Henley case makes it patently clear that the “fair opportunity” doctrine can play an important role when courts determine if an ocean carrier has the right to limit liability under Cogsa. However, a published tariff will not be considered a prerequisite for the application of the doctrine if notice of the $500 limitation provision has been given to the shipper.