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A Seal’s Story – The Importance of Noting Your Remarks at Outturn

February 28, 2017

By Kaspar Kielland

In Affiliated FM Ins. Co. v. M/V Maersk Visby, the New York district court found in favor of an ocean carrier facing claims for alleged shortage brought by the shipper/consignee (“Plaintiff”) of the cargo.  The seals affixed on the containers at the time of loading did not match the seals affixed on the containers at the time of delivery to the consignee’s warehouse.  However, the failure of the consignee’s agent to provide prompt notice of the discrepancy left open the possibility that the loss occurred after the containers were delivered by the ocean carrier.

Plaintiff, the shipper and consignee of the cargo under the bill of lading, shipped two containers from Durban, South Africa to Huntsville, Alabama. Aside from shipping each container roughly 4 months apart, the transportation movements of both containers were basically identical.  Both containers where stuffed and sealed at the Plaintiff’s warehouse in Lesotho, South Africa; trucked to the port of Durban; loaded on board of ocean going vessels; and unloaded at the port of Charleston, South Carolina. From Charleston the two containers were transported by rail to Huntsville, Alabama.  It is undisputed that, up until their arrival at the rail yard at Huntsville, Alabama, the two containers were under the custody and control of the ocean carrier and its agent.  From the Huntsville rail yard, both containers were picked up by a Plaintiff’s appointed trucker, and subsequently delivered to the Plaintiff’s place of business in the same town. Once on the premises, the Plaintiff noted that the seals affixed on the two container did not match the respective original seals affixed when the containers where closed in Durban. The cargo in both containers was allegedly short.

Plaintiff’s shortage argument with respect to both shipments rested on the proposition that the ocean carrier took possession of both containers after they had been closed and sealed; delivered each container bearing different seals; and that the cargo received was less that the cargo listed on the bills of lading.  In the Plaintiff’s eyes this argument was sufficient to prove that the cargo went missing while in the custody of the ocean carrier.

The district court noted that, under US COGSA, a bill of lading provides prima facie evidence of receipt of the goods described on the bill of lading.  However, the district court also agreed with the ocean carrier’s counter argument, based on the precedent in Bally v. M.V. Zim America, 22 F.3d 65 (2d Cir. 1994), that a clean bill of lading for a sealed container is not sufficient, as a matter of law, to establish a prima facie case of delivery of the cargo to the carrier in good order because the contents of a shipment are not visible.  The district court, discussing Bally, pointed out that the Second Circuit appellate court found that “the intact seals provided evidence that the goods did not go missing in the carrier’s custody, and [that] where there existed a possibility that the goods went missing between delivery at the port and the point of inventory, plaintiff had failed to meet its COGSA burden of proof”.Affiliated at 2241.

In this case, the district court held that “the false seals notwithstanding, Plaintiff has failed to establish loss at outturn consistent with Bally and COGSA.  Plaintiff alleges that it ‘has shown that [the containers] arrived at its facility with a shortage’… However, outturn occurs upon delivery by the carrier”.  Affiliated at 2241 (citations omitted).  Here, the outturn of the containers occurred upon delivery by the ocean carrier to the representative of the Plaintiff for trucking to the Plaintiff’s warehouse, not at the Plaintiff’s warehouse.  In other words, outturn was at the rail yard at Huntsville.

It is undisputed that Plaintiff’s appointed trucker transported the containers on behalf of the Plaintiff from the Huntsville, rail yard to Plaintiff’s warehouse.  It is also undisputed and worth noting that Plaintiff’s appointed trucker did not weigh the containers or open the containers and inspect the cargo at the Huntsville’s rail yard, i.e. at the outturn.

The Court concluded that “the necessity of establishing loss at outturn, as reasoned in Bally, is clear: it diminishes or eliminates the possibility that loss occurred when the goods were not yet or no longer in the carrier’s custody. Had false seals in direct contradiction of the seals on the Bills of Lading been present and exceptional at outturn, Plaintiff needed to note and object at the point the goods were transferred from the ocean carrier custody to Plaintiff’s. Even assuming Plaintiff’s factual allegations with respect to the false seal as true and that this condition existed at the moment custody was transferred in Huntsville, this fact alone does not demonstrate loss at outturn sufficient to meet Plaintiff’s burden under COGSA….Regardless of the presence of true or ‘false’ seals, Plaintiff has failed to establish loss of cargo at outturn, i.e., loss at Huntsville.”  Affiliated at 2241-42.

What to take away? Shippers and receivers should make sure that appropriate remarks, e.g. missing or differently numbered seals, are noted as soon as the shipment passes into their custody and control.  Carriers should, on the other hand, make sure to maintain appropriate documentation evidencing the presence or lack of remarks at outrun.