In this day and age, with containers pervasive and new and ever-developing chemicals, compounds, and materials being developed and shipped at a rapid pace, the risk is ever-increasing of significant or even catastrophic loss or damage resulting from the carriage of dangerous goods. But when is the shipper liable for loss or damage resulting from such an incident?

The Shipper’s Obligations Under the General Maritime Law

A number of early court decisions held that the shipper had a duty to advise the carrier of any dangers in the cargo of which it is or ought to be aware and which the carrier is not and cannot reasonably be expected to be aware. Wm Quillan, 180 F. 681 (2d Cir. 1910). Other cases held that a shipper gave an implied warranty that a shipment is reasonably fit and safe for carriage and thus is strictly liable for damage resulting from breach of the warranty. Pierce v. Winsor, F. Cas. Nos 11,150 and 11,151 (D.C.D. Mass., C.C.D. Mass 1861).

Ironically, both lines of cases referred back to the English case Brass v. Maitland, [1856] 6 El. & Bl. 470 (Q.B. 1856)— then the leading decision on this issue—and expressed the aim of bringing U.S. law into harmony with English law. In 1998, however, the English House of Lords decided Effort Shipping v. Linden Mgmt, [1998] A.C. 605 (H.L. 1998), clarifying that both the decision in Brass and in Section 4(6) of the Hague Rules impose strict liability on a shipper of dangerous goods where the carrier did not give informed consent to the shipment, whether or not the shipper knew of the danger posed by the cargo.  

What Are Dangerous Goods?

The International Maritime Organization (IMO) maintains a schedule of dangerous materials known as the International Maritime Dangerous Goods Code, or IMDG Code. It is incorporated into the Safety of Life at Sea Convention (SOLAS), which has been widely adopted among maritime states, including the United States. The stated goal of the IMDG Code is to regulate the transport of dangerous goods by sea, “in order reasonably to prevent injury to persons, or damage to the ship or the marine environment.” On the other hand, the IMDG Code expressly acknowledges that “any regulation should be so framed as not to impede unnecessarily the movement of such goods.”

The IMDG Code classifies thousands of substances into different categories of dangerousness—such as explosive, flammable, or poisonous, etc.—and provides details about how such cargos should be packaged and handled. In essence, they present the collective public knowledge about the characteristics of different cargos and how they can be safely transported.

Additionally, the United States has its own laws and regulations governing the transportation of dangerous cargos, most notably the Hazardous Materials Transportation Act, amended by Hazardous Materials Transportation Authorization Act of 1994. Under that Act, the U.S. Department of Transportation has promulgated U.S. Regulations relating to the safe handling and transportation of dangerous cargos, 49 C.F.R. § 105- 180, including creating its own Hazardous Materials Table, 49 C.F.R. § 172.101. These Regulations have a similar aim to the IMDG Code, but they extend to domestic shipments, as well. Fortunately for international shippers, however, the IMDG Code is expressly incorporated into the U.S. Regulations such that cargo that complies with the IMDG Code may be offered and accepted for transportation within the U.S.

COGSA/Hague Rules

The United States Carriage of Goods by Sea Act (COGSA) is the 1936 U.S. enactment of the Hague Rules, and commentators have often observed that COGSA was enacted with the specific goal of establishing uniformity in the legal regime governing the international transportation of goods. In 2002—a mere 65 or so years after its enactment—the Second Circuit Court of Appeals held that COGSA preempted pre-1936 maritime law on the subject of shipper liability and established the standards for when a shipper would be liable for shipment of dangerous cargo. Senator Linie v. Sunway Line, 291 F.3d 145 (2d Cir. 2002). Still, COGSA only applies by force of law from ship’s rail to ship’s rail on international carriage by sea evidenced by a bill of lading, and the Senator Linie court left open the question of where the general maritime law stood on these issues for other carriages of goods, such as in domestic trade or under charter parties which are not governed by COGSA.  

There are two sections in the Hague Rules/COGSA relevant to shipper’s liability:

  1. Section 4(3): “A shipper shall not be responsible for loss or damage sustained by the carrier or the ship… without the act, fault, or neglect of the shipper, his agents, or servants.”
  2. Section 4(6): Inflammable, explosive, or dangerous goods which the carrier has not consented, with knowledge of their nature and character, to carry, may be landed or destroyed or rendered innocuous by the carrier, without compensation, and the shipper shall be liable for all damages and expenses arising out of such shipment.

Shipper’s Liability Under COGSA

WHERE DANGEROUS NATURE OF CARGO IS UNKNOWN

It will come as no surprise to learn that the IMDG Code is not perfect, and it has happened in a number of cases where injury or damage results from a cause that neither the shipper nor the carrier anticipated or reasonably could have been expected to anticipate. Who bears the risk in these circumstances? This very question was addressed in Senator Linie. There, the shipper loaded a container with 300 drums of thiourea dioxide (TDO) in China, bound for Norfolk, Virginia. At the time of the shipment, TDO was not listed as a dangerous cargo in the IMDG Code, and the published literature about TDO gave no indication that it was subject to exothermic reaction as a result of decomposition.

During the voyage, the crew observed smoke coming from the hold where the container was stored. The TDO container was found to be emitting heat, smoke, and chemical residue. The fire was suppressed, and the proof at trial was that the fire had originated in the TDO container and had resulted from an exothermic (heat releasing) reaction in the TDO.  

Thus, the court was faced with the dilemma of who should be liable for the damage to the vessel and surrounding cargo when neither the shipper nor the carrier was at fault. The shipper pointed to Article 4(3) of COGSA—which corresponds to the same provision of the Hague Rules—and provides that the shipper will not be liable for damage to the vessel without proof of fault or neglect. The vessel owner contended, on the other hand, that Section 4(6) governed and imposed strict liability on the shipper for damage caused by dangerous cargo.  

The Senator Linie court conducted an exhaustive review of COGSA, pre-COGSA maritime law, and the leading English cases construing these two provisions of the Hague Rules, particularly including the House of Lords’ decision in Effort Shipping mentioned above. Ultimately, the court held that Section 4(6) carves out a specific exception to the fault/neglect requirement of Section 4(3) and imposes strict liability for a shipper of inherently dangerous cargo where neither the shipper nor the carrier had actual or constructive knowledge of the cargo’s dangerous nature.  

Apart from interpreting the wording and intent of the statute, the court noted that such a rule is “just and expedient” in that it recognizes that whereas carriers are tasked with handling a large quantity of different kinds of cargos under pressures of complex logistics and short time, the shipper can be expected to have greater access to and familiarity with the goods it is shipping before they are placed into maritime commerce. “If an unwitting party must suffer, it should be the one that is in a better position to ascertain ahead of time the dangerous nature of shipped goods.”

WHERE CARGO IS KNOWN DANGEROUS IN CERTAIN CIRCUMSTANCES

But what about the case where the cargo is known to have potentially dangerous characteristics, but the precise nature of the risk is unknown? A U.S. Appeals Court considered this issue in Contship Containerlines v. PPG Industries, 442 F.3d 74 (2d Cir. 2006), which involved a cargo of calcium hypochlorite (cal-hypo) stored in drums loaded in containers. At the time of the shipment, cal-hypo was listed on the IMDG Code as an oxidizing substance, meaning that although it was not itself considered combustible, it was known to increase the risk and intensity of fire in other materials because it tended to yield oxygen when heated. The IMDG Code required that cal-hypo be stored away from sources of heat where temperatures in excess of 55ºC will be encountered for periods of 24 hours or longer, and recommends generally that cargos be stored in conditions at least 10ºC cooler than their critical temperature.

In the event, the cargo was stowed in a hold directly above the bottom center fuel tank, which was a heated tank. Moreover, the court found that during the voyage the crew heated the fuel to abnormally high temperatures. These two factors exposed the cargo to temperatures in excess of 47ºC for a period of 18 days. The court found that this caused the calhypo to suffer thermal runaway, which occurs when the cargo generates heat more quickly than it can dissipate. As a result, the cargo spontaneously combusted, causing a major fire.

The court framed the legal question this way: “Is a strict liability claim available to a carrier that knew the cargo was flammable but had reason to think that it was safe enough under the conditions of stowage?” The court ruled no, finding that a carrier cannot invoke strict liability if it “knows that a cargo poses a danger and requires gingerly handling or stowage, and nevertheless exposes the cargo to the general condition that triggers the known danger, regardless of whether the carrier is aware of the precise characteristics of the cargo.”

WHERE DANGEROUS NATURE OF CARGO IS KNOWN ONLY TO THE SHIPPER

Working from the rule that the shipper is strictly liable where neither the shipper nor the carrier is aware of the dangerous nature of the cargo, it is no stretch to conclude that the shipper is also strictly liable where it alone knows the dangerous nature of the cargo but fails to give proper notice to the carrier. Indeed, this would be the outcome whether considered under Section 4(6) or 4(3) of the Hague Rules.

But what about the case where the generally dangerous nature of the cargo is known to both parties, but the shipper is uniquely aware of some additional factor that would render the cargo even more dangerous than normal? This was the ques- Dangerous Cargo (continued from page 11) tion posed in the case of the DG HARMONY, 533 F.3d 83 (2d Cir. 2008), which also involved a cargo of cal-hypo, on similar facts to those in Contship.

The particular cargo of cal-hypo at issue in DG HARMONY, however, had been packaged in drums within 36 hours after manufacture in a way that inhibited the ventilation of the cargo, thereby preventing the cargo from cooling down. Thus, the evidence was that the safe storage temperature for this particular cargo was closer to 40ºC, rather than the 55ºC listed in the IMDG Code. On the other hand, as in Contship, the cargo was stowed in close proximity to the vessel’s heated bunker tanks, though the evidence was that the temperature never exceeded 40ºC.

On these facts, the court found that—as in Contship—the carrier was on general notice that cal-hypo had dangerous qualities, even if it did not know of the specific risk that led to the fire. Consequently, the shipper could not be strictly liable under Section 4(6).

Because of the manner in which the cal-hypo had been packaged, however, the shipper had created an additional danger about which the carrier could not reasonably be expected to know. Consequently, the shipper had a duty to warn the carrier of this heightened risk. By failing to give proper warning, the shipper had breached its duty to the carrier.

The court had to consider the further issue of causation because the shipper contended that the actual cause of the casualty was the proximity of the cargo to the heated bunker tanks. The court rejected this argument, however, finding that the temperature in the hold had never exceeded 40ºC, which was well within the requirements and recommendations of the IMDG Code.

CONSIGNEE’S LIABILITY UNDER BILL OF LADING

In the scenario where cargo damages the carrying vessel due to a dangerous condition known to neither the shipper nor the carrier, can the consignee be strictly liable under the bill of lading? A New York court had occasion recently to consider this question in M/V RIKMERS GENOA, 622 F. Supp. 2d 56 (S.D.N.Y. 2009). The court considered various theories of liability, including negligent failure to warn, common law strict liability, and COGSA strict liability under section 4(6). Ultimately, the court concluded that even though the consignee was technically a party to—and had rights under—the bill of lading, it did not contract with the shipper and had not packaged, handled, or controlled the cargo. Thus, the court declined to extend the shipper’s liability to the consignee in those circumstances. This analysis should hinge on the facts of any given case, however, and particularly on the role that the consignee played in the specific shipment at issue.  

Conclusion

In the end, liability for damage caused by dangerous cargo will turn on who knew—or should have known—what at the time of shipment. The shipper is obliged to know its cargo, but equally the carrier cannot stick its head in the sand. Given the potentially calamitous consequences of a casualty, both parties must take their responsibilities in this regard equally seriously.