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Gard News 191, August/October 2008

 
 


US Second Circuit Court of Appeals considers a shipper’s liability for damage caused to ship and cargo by a hazardous cargo.

Under what circumstances and theories of liability will a shipper of hazardous cargo be liable to a shipowner and cargo interests for damage caused to ship and cargo by the hazardous cargo? This is a question that the Second Circuit Court of Appeals has recently addressed in its decision in In Re M/V DG HARMONY.1

Gard News has been following this case since reporting2 on the trial that resulted in holding PPG Industries, Inc. (PPG), the manufacturer and shipper of a cargo of calcium hypochlorite hydrated (cal-hypo), strictly liable to the shipowner and cargo interests for the constructive total loss of the vessel and her cargo following a fire aboard the vessel. The trial court found that the fire had been caused by a “thermal runaway” reaction of the cal-hypo, which had been packed in 136-kilo drums placed on pallets stacked three-high in unventilated, non-refrigerated containers. PPG had also been the shipper of a cargo of cal-hypo on the CONTSHIP FRANCE the previous year that caused a similar devastating shipboard explosion and fire.3

The trial court ruled that PPG was strictly liable to both vessel and cargo interests under Section 4(6) of the US Carriage of Goods by Sea Act, which imposes liability on a shipper for all damages arising out of a shipment of inflammable, explosive or dangerous goods to which the ship owner “has not consented with knowledge of their nature and character”. The trial court also found that PPG was negligent for failing to warn the shipowner that the manner in which the cargo had been packed – both the number and placement of the drums in the containers – meant that the cargo would be vulnerable to decomposition at temperatures lower than those stated in the applicable IMDG Code stowage instructions.

Strict liability
The Second Circuit Court of Appeals reversed the trial court’s ruling that PPG should be strictly liable for the loss. The court ruled that strict liability was not appropriate because the shipowner was aware of the general condition (exposure of the cargo to heat) that could trigger the hazardous reaction, despite the fact that the shipowner was unaware of the specific hazard (decomposition of the cargo at temperatures lower than specified in the IMDG Code) created by the manner in which the cargo had been packed. It seems clear that the Court of Appeals, in this case as well as in the earlier CONTSHIP FRANCE, was influenced by the fact that in both cases the cargo had been stowed in close proximity to heated bunker tanks.

Negligent failure to warn
While the court declined to hold PPG strictly liable, it did affirm the trial court’s finding that PPG had breached its duty to warn the vessel owner of the particular hazard and vulnerability to heat caused by the manner in which the cargo was packed.4 However, the Court of Appeals remanded the case for further findings on the question of whether PPG’s negligent failure to warn was causally related to the loss; that is, the vessel owner must prove that “the absent warning, if given, would have affected the carrier’s stowage decision and thus prevented the explosion”.5 Again, it is difficult to avoid the conclusion that the court was influenced by the facts in the CONTSHIP FRANCE case where the decision as to where to stow the cargo seemed to have been made without any reference to temperature whatsoever.

The court also ruled that the trial court had not made a more general finding of negligence for which PPG could be held liable or, alternatively, that there was no basis for the trial court to have made such a finding.6

PPG, vessel interests and cargo interests have petitioned to have the case re-heard by the court. If this application is denied, the case will be sent back to the district court for findings on the causation issue of PPG’s negligent failure to warn.

Conclusion
In practical terms, this decision places more responsibility on the shipowner to ensure that it utilises its general knowledge of the characteristics of hazardous cargoes in determining how such cargoes can be safely carried. A shipper will only be found to be strictly liable to the shipowner if the shipowner is actually or constructively unaware of the general risk or hazard that ultimately causes the loss. While a shipowner may nevertheless still have recourse against the shipper for negligent failure to warn of a specific risk of which the shipowner was not aware and could not reasonably be expected to know, the shipowner will still have the burden of establishing that the warning would have been heeded and action taken to avoid the particular risk.

Footnotes
1 518 F. 3d 106 (2d Cir. 2008)
2 See article “US Law – Carriage of calcium hypochlorite” in Gard News issue No. 181,
3 The owners of the CONTSHIP FRANCE also sued PPG in the Southern District of New York. In that case, the trial court ruled that PPG was not strictly liable or negligent for failing to warn the shipowner of the hazards of carrying the cargo adjacent to heated bunker tanks. As reported in Gard News Issue183 (see article “US Law – Carriage of calcium hypochlorite revisited”), the Second Circuit Court of Appeals affirmed that decision in March 2007.
4 In affirming the negligent failure to warn basis of liability, the Court of Appeals relied on Section 4(3) of COGSA which frames the shipper’s liability in negative terms: “The shipper shall not be responsible for loss or damage sustained by the carrier of the ship arising or resulting from any cause without the act, fault, or neglect of the shipper…” The trial court did not mention this provision in its opinion, relying instead on the more general Restatement on Torts (394 F. Supp. 2d 649 at 673 ).
5 518 F. 3d 106 at 119.
6 While it is correct that the trial court’s opinion did not clearly distinguish between general negligence and negligent failure to warn, there was ample factual record to support a finding of general negligence against PPG. As the trial court noted, PPG had performed no testing on the safety of shipping the cargo in the 136-kilo containers packed 120 per container and had not even performed these tests immediately after the fire on the CONTSHIP FRANCE (394 F. Supp. 2d 649 at 674).

 

Gard News 191, August/October 2008

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Gard News is published quarterly by Gard AS, Arendal, Norway.