A practical review of the proposed amendments to U.S. COGSA

Ship agents and brokers must interface on a daily basis with shipowners and operators. As such, they must have a working knowledge of the laws that govern the rights and liabilities of carriers and cargo owners.

The primary United States legislation in this area is the Carriage of Goods by Sea Act (“COGSA”) which was enacted in 1936. It is expected that later this year the United States Congress will enact major revisions to COGSA. This article will provide a brief synopsis of the major proposed changes to COGSA under the new legislation. The present COGSA applies to shipments to and from the United States in foreign trade (46 U.S.C. §1300) and governs a carrier’s obligations from the time when the goods are loaded until the time the goods are discharged (46 U.S.C. §1301(e)).

Essentially, COGSA applies to foreign shipments to and from the United States from what has been colloquially called “tackle to tackle.” Under the revised regime, COGSA’s scope will be expanded. The new statute will apply to “any contract of carriage covering transportation to or from the United States” (proposed COGSA § 3(a)) from the time goods are received by a carrier up to the time they are delivered to a person authorised to receive them (proposed COGSA §2(a)(8)). Furthermore, a contract of carriage is defined, in part, as “a contract for the carriage of goods either by sea or partially by sea, by one or more other modes of transportation, including a bill of lading…” (proposed COGSA §(2)(5)(a)(i)).

However, domestic transportation contracts and charterparties are not contracts of carriage, as defined by the new COGSA. Consistent with the expanded scope of the proposed statute is the new definition of who is considered a “carrier” under the statute. Presently, a “carrier” includes the owner or charterer who enters into a contract of carriage with a shipper (46 U.S.C. §1301(a)). The new COGSA defines the term “carrier” to include contracting carriers, performing carriers and ocean carriers (proposed COGSA §2(a)(1-4)). The contracting carrier is self-explanatory and the ocean carrier is, quite simply, the owner, operator or charterer of a ship used to carry goods. However, under the new statute, “inland carriers, stevedores, terminal operators, consolidators, packers and warehouses,” will, for the first time, be recognised as COGSA carriers under the definition of performing carrier” (proposed COGSA §2(a)(3)(B)). In addition to the parties defined above, a performing carrier will include “a party... who performs, or undertakes to perform, any of a contracting carriers responsibilities under a contract of carriage, including any party that performs or undertakes to perform, or procures to be performed, any incidental service to facilitate the carriage of goods, regardless of whether it is a party to, identified in, or has legal capacity under the contract of carriage...”. Intermediaries, such as agents or managers, must pay particular attention to this language in the statute in order to guard against involving themselves in scenarios that will trigger their status as a COGSA “carrier”.

Presently, the time in which a lawsuit may be commenced under COGSA is one year from the time of delivery or the date the delivery should have taken place (46 U.S.C. § 1303(6)). Under the proposed COGSA, the one-year statute of limitations will remain in effect. However, the proposed COGSA codifies the carrier’s time to bring an action for contribution or indemnity to three months after a judgement against a carrier or a settlement is reached with the carrier. Brokers should be particularly aware of the revision in the new COGSA that invalidates foreign forum selection clauses and foreign arbitration clauses if the goods are loaded or discharged in a U.S. port, or if the carrier receives or delivers the goods in the United States. This section of the statute overrules the Supreme Court case of Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528 (1995) which found forum selection clauses to be presumptively valid.

Another major change in the revised COGSA proposes an increase in the aggregate liability of arriers from $500 to 666.67 Special Drawing Rights (adopted from Hague- Visby Rules) per package (proposed COGSA §9(h)(1)(A)).

Also of particular significance to carriers is proposed section 9(h)(3)(i and ii) which, for the first time, negates by statute, the carrier’s right to limit its liability if an act, within the privity or knowledge of the carrier, is done recklessly or intentionally or, if there is an unreasonable deviation in the contract of carriage, which the carrier knew or should have known would result in damage.

The foregoing synopsis highlights some of the significant changes to COGSA, which are being proposed in the U.S. Congress. Intermediaries, such as brokers or agents, should familiarise themselves with these changes in order to understand and better serve the large number of principals, who will be impacted by the new COGSA.

This article was contributed by Stephan Skoufalos of Skoufalos & Llorca of Stamford, CT and George Chalos of the Chalos Law Firm, New York.