American Home Assurance Co. v. Sletter M/V

United States Court of Appeals,

Fifth Circuit.

No. 94-30131.

AMERICAN HOME ASSURANCE COMPANY, Plaintiff,

v.

SLETTER M/V, her engines, tackle, radios, furniture, fixtures,
gear, apparel, appurtenances, etc., in rem, et al., and Tweendeck,
VI K/S and Karlander Shipping Services A/S, Defendants-Cross-
Plaintiffs-Cross-Defendants-Appellees,

v.

BRAZILIAN OVERSEAS SHIPPING SERVICES, LTD., Defendant-Cross-
Defendant-Cross-Plaintiff-Appellant.

The West of England Ship Owners Mutual Insurance Association
(London) Limited, Movant-Appellant.

Feb. 3, 1995.

Appeal from the United States District Court for the Eastern
District of Louisiana.

Before SMITH and EMILIO M. GARZA, Circuit Judges, and BERRIGAN,
District Judge.*

BERRIGAN, District Judge:

The issue in this case is to determine who is responsible—as

between a vessel owner or the time charterer of a vessel—for damage

to that vessel's cargo caused by stowaways. The District Court

determined that the time charterer was solely responsible,

absolving the vessel owner of any liability. We affirm.

Factual and Procedural History

Tardivat International (NY) Coffee Corporation ("Tardivat")

purchased a consignment of coffee to be imported from South America

*
District Judge of the Eastern District of Louisiana,
sitting by designation.

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to the United States. Tardivat entered into a charter agreement

with Brazilian Overseas Shipping Services, Inc. ("Boss Lines") to

transport the coffee cargo. Boss Lines in turn entered into a time

charter for the use of the vessel M/V SLETTER, owned by Tweendeck

VI K/S ("Tweendeck") and brokered by Karlander Shipping Services

A/S ("Karlander").

The vessel was delivered to Santos, Brazil, in proper

condition to carry the cargo. The coffee was loaded without

incident. The vessel subsequently stopped at Puerto Cabello,

Venezuela, to discharge some cargo then travelled on to New

Orleans, a trip of well over a week. It is uncontroverted that

nine stowaways surreptitiously boarded the ship, apparently at

Puerto Cabello. Upon arrival in New Orleans, the stowaways were

discovered. Likewise discovered were numerous bags of coffee

contaminated by the stowaways' urine and excrement. Some 800-plus

bags of coffee had to be destroyed.

American Home Assurance Company ("American Home"), the insurer

of the cargo, paid Tardivat for the damage. As the subrogated

insurer, American Home in turn sued the charterer Boss Lines, and

the owners Tweendeck/Karlander for reimbursement. By consent

judgment, the defendants agreed to a total settlement amount of

$75,983.17, but could not agree as to which defendant was liable

for what portion. The defendants submitted the matter for trial

court resolution through affidavits, exhibits and argument.

The trial court concluded that the charterer Boss Lines was

solely responsible for the damage to the cargo. The court reasoned

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that (1) the charter agreement between Boss Lines and

Tweendeck/Karlander placed responsibility for overseeing the cargo

operations upon Boss Lines, including the loading and discharging

of the cargo; (2) the charter agreement likewise placed the

captain of the ship and his crew, employed by the owners, under the

orders and direction of Boss Lines; (3) Boss Lines chose the ports

of call, which included Puerto Cabello, well known for problems

with stowaways; (4) Boss Lines employed the stevedores at each

port who had full access to and control of the cargo holds and

decks during the loading/discharging of the cargo; and (5) the

stowaways had to have been aided in hiding amidst the cargo, that

aid most likely rendered by the stevedores employed by Boss Lines.

The court found that the captain and crew made every effort at

Puerto Cabello to limit access to the ship solely to crewmembers,

authorized personnel and individuals identified as stevedores and

likewise made a diligent search for possible stowaways prior to

leaving port. The court likewise found that the captain supervised

the loading operations at Puerto Cabello. The court found no

negligence on the part of the captain and crew in these

responsibilities, but also concluded that even if they were

negligent, their negligence was attributable to Boss Lines since

the captain and crew were under the direction of Boss Lines

pursuant to the charter agreement.

Boss Lines has appealed, arguing that (1) the trial court

erred in ruling that the charter agreement attributed any

negligence on the part of the captain in allowing stowaways on

3
board to Boss Lines rather than the vessel owner; (2) the trial

court erred in attributing the acts of the stevedores to Boss Lines

as Boss Lines contends the stevedores were independent contractors,

not Boss Lines' agents and further contends the evidence failed to

establish that the stevedores smuggled the stowaways on board; and

(3) the trial court erred in admitting an affidavit from the ship

captain; Boss Lines asserts the affidavit contained inadmissible

hearsay and it was not timely provided to counsel.

We find it only necessary to discuss the first issue, as our

decision there renders the other issues moot.

Discussion

Preliminary to discussing the substantive issue raised by

Boss Lines, we must deal with a dispute as to the nature of the

district court proceeding and the standards of review on appeal.

Boss Lines implies that the lower court decision was akin to a

motion for summary judgment which calls for de novo review of all

issues; alternatively, Boss Lines characterizes all the disputed

issues as matters of law rather than questions of fact, again

calling for de novo review. Tweendeck/Karlander understandably

argues that the lower court decision rested largely on findings of

fact that are not to be disturbed unless "clearly erroneous." Rule

52(a) of the Federal Rules of Civil Procedure. We conclude that

the interpretation of the charter agreement is subject to de novo

review as a matter of law but that the trial judge's factual

findings are to be upheld unless clearly erroneous.

The Charter Agreement

4
 Boss Lines asserts that the trial court erred in concluding

that any negligence or fault of the captain in preventing the

boarding by the stowaways was attributable to the charterers rather

than the vessel owners by virtue of the charter agreement. Boss

Lines cites D/S OVE SKOU v. Herbert, 365 F.2d 341 (5th Cir.1966),

cert. denied, 400 U.S. 902, 91 S.Ct. 139, 27 L.Ed.2d 139 (1970),

and Woods v. Sammisa Co., Ltd., 873 F.2d 842 (5th Cir.1989), cert.

denied, 493 U.S. 1050, 110 S.Ct. 853, 107 L.Ed.2d 847 (1990), as

primary support for its argument. Both of those cases dealt with

the same standard charter party agreement that exists in this case

and both cases discuss Clause 8, a clause of particular importance

to the trial judge here in holding Boss Lines liable for the cargo

damage. Clause 8 here states as follows:

The Captain shall prosecute his voyages with the utmost
dispatch, and shall render all customary assistance with
ship's crew and boats. The Captain (although appointed by the
Owners), shall be under the orders and directions of the
Charterers as regards employment and agency; and Charterers
are to load, stow, trim and discharge the cargo at their
expense under the supervision of the Captain, who is to sign
the Bills of Lading.

The trial court relied on this clause in determining that the

vessel and its crew were at all relevant times entirely at the

disposal of the charterer Boss Lines. Therefore, even if the

captain and crew had somehow been at fault in the stowaways coming

on board, that fault was attributable to the charterer and not the

vessel owner.

Both Ove Skou and Woods concerned longshoremen on stevedoring

crews who claimed they were injured by conditions on board vessels.

In Ove Skou, the plaintiff was hurt when he fell into a hatch

5
opening after an allegedly misfit hatch board upended; in Woods,

the longshoreman was injured when a bundle of pipe, allegedly

dangerously stowed at the originating port, swung out and struck

him while being unloaded. In both cases, an issue was the effect

of Clause 8 on the liability of the time charterer vis-a-vis the

vessel owner. We held in Ove Skou that Clause 8 did not give "any

operational control" to the charterers regarding "employment and

agency" nor over the "load(ing), stow(ing) and trim(ming)" of the

cargo. Rather, Clause 8 was simply a "specification of the

party—owner or charterer—upon whom the ultimate financial cost

rests for any one or more of the activities." 365 F.2d at 351. In

Woods, we reaffirmed the holding of Ove Skou, again in the context

of liability for personal injury to a longshoreman.

This case does not involve injury to a person but rather

injury to cargo, a distinction that is crucial. Clause 8 has

travelled a different jurisprudential route when cargo damage was

at issue. In Horn v. Cia de Navegacion Fruco, S.A., 404 F.2d 422

(5th Cir.1968), cert. denied, 394 U.S. 943, 89 S.Ct. 1272, 22

L.Ed.2d 477 (1969), a vessel load of bananas was damaged primarily

because of poor stowage. The vessel owner argued that the

charterer was responsible, apparently citing Clause 8 of the

charter agreement. We acknowledged that Clause 8 imposes upon the

charterer the responsibility of stowing the cargo but concluded

that the captain still retained the ultimate discretion and

decision regarding that stowage. Significantly, however, we held

that in making those decisions, the captain occupies a dual

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capacity:

He acts for the shipowner where his stowage decisions are made
with regard to the seaworthiness and safety of the vessel; he
acts for the cargo owner where his decisions do not affect the
seaworthiness or safety of the vessel, but affect the safety
of the cargo only.

404 F.2d at 433. No mention was made of Ove Skou.1

In Nitram, Inc. v. Cretan Life, 599 F.2d 1359 (5th Cir.1979),

a cargo was damaged due to improper stowage. The time charterer

claimed the vessel owner was responsible because the captain acted

negligently in supervising the loading of the cargo. The charter

agreement included Clause 8. Citing Horn, we concluded that even

if the Captain was negligent, he was acting on behalf of the

charterer at the time since his decision related only to the safety

of the cargo and not the seaworthiness or safety of the ship.

Again, Ove Skou was not mentioned.

In Woods, supra, we acknowledged Horn and Nitram and

reconciled them with Ove Skou as Horn/Nitram involved "questions

regarding responsibility for damage to the cargo rather than for

injuries to persons covering by the LHWCA ..." 873 F.2d at 857,

fte. 18.

Our sister circuit, in a cogent concurring opinion, well

explains the distinction between owner and charterer liability for

cargo damage as compared to personal injury. Hayes v. Wilh

Wilhelmsen Enterprises, Ltd., 818 F.2d 1557 (11th Cir.1987). The

opinion includes a helpful history. In the early days of shipping,

1
Under the facts in Horn, we concluded that the faulty
stowage affected the seaworthiness of the vessel, so the
responsibility for the cargo damage was upon the vessel owner.

7
when vessels and cargos were small, the shipowner through his crew

loaded and unloaded cargo and was responsible for any damage. With

larger ships and heavier cargos, it wasn't practical for the crew

to undertake that task, so stevedores came into being.

Because it was hoped that both the shipowner and time
charterer would benefit from the vessel's earnings, the
parties apportioned the responsibilities to the cargo by
special agreements. Those agreements evolved, in part, into
Clause 8. As to how the responsibilities were divided, we
look to the often quoted passage from The Santona, 152 F. 516,
518 (S.D.N.Y.1907): "The ship is the owner's ship and the
master and crew his servants for all details in navigation and
care of the vessel; but for all matters relating to the
receipt and delivery of cargo, and to those earnings of the
vessel which flow into the pockets of the charterers, the
master and crew are the servants of the charterer."

818 F.2d at 1563.

The concurrence opines that Clause 8 was intended to transfer

ultimate financial responsibility for cargo damage to time

charterers, unless the damage results from unseaworthiness of the

vessel or intervention by the captain that affects the

seaworthiness and safety of ship. This obligation is wholly

separate and distinct from a claim of indemnity for personal injury

to a longshoreman. That sort of claim is not encompassed,

contractually or historically, within Clause 8.

In short, what the D/S Ove Skou Court said is that the
charterer did not contract in Clause 8 to indemnify the
shipowner when a longshoreman has prevailed against the
shipowner on a personal injury unseaworthiness claim. It did
not repudiate the long recognized division of
responsibilities—as between shipowner and charterer—to the
cargo, as expressed in The Santona.

818 F.2d at 1565.

Before the trial court, Boss Lines argued that the stowaways

did render the ship "unseaworthy." They cited no legal authority

8
nor any facts to support the allegation. The district court

rejected the contention, finding that the "mere presence" of the

stowaways did not render the vessel unseaworthy. This is a factual

finding by the trial court that is not only not "clearly erroneous"

but is clearly supported by the record.

Boss Lines also cites United States v. M.V. ISLA PLAZA, 1994

W.L. 114825 (S.D.N.Y.), an unpublished district court decision from

New York, asserting that it is on all fours with the present case.

It is not. In Isla Plaza, several stowaways hid in a cargo hold

and started a fire, destroying cargo and also damaging the vessel.

Of significance is that the claim for cargo damage was settled out

of court, the terms of which are undisclosed by the opinion. The

decision deals only with the suit for damage to the vessel.

Additionally, the agreement in Isla Plaza specifically required the

ship owner, not the charterer, to provide gangway and other

security for the vessel. Since the litigation was over damage to

the vessel and since the shipowner specifically contracted to

provide security for its vessel, the charterer was not held

responsible.

Finally, Boss Lines argues that the pertinent issue is not

who is responsible for damage to cargo, but who is responsible for

preventing stowaways from boarding a ship2. We do not agree. This

2
Boss Lines contends that this responsibility has
traditionally belonged to the shipowner but provides inadequate
authority for its proposition. Boss Lines cites Wilhelmensen,
blithely and irrelevantly analogizing stowaways to ship
equipment. Wilhelmensen had nothing to do with stowaways but
dealt with a longshoreman injured when he slipped on fluid
leaking from the cargo doors. Boss Lines also cites a case that

9
case involves recovery for damage to cargo. While our circuit has

not previously dealt with the specific issue of damage caused by

stowaways, we see no reason to make a distinction between that and

other sources of cargo damage.

The crux of Boss Lines' appeal is that the vessel owners are

liable because the cargo damage at issue resulted from the captain

and crew of the M/V SLETTER negligently allowing stowaways to

successfully board the vessel at Puerto Cabello. Since the captain

was supervising the unloading of the cargo at the time of the

alleged transgression and since the damage caused by the stowaways

was to cargo only and since the stowaways did not affect the

seaworthiness or safety of the vessel, any negligence or fault by

the captain and crew was attributable to the charterer and not the

vessel owner. Consequently, even if Boss Lines' factual

allegations were correct with respect to the negligence of the

captain and crew, they cannot legally prevail as the captain and

crew were acting on their behalf.

Having sustained the district court for the reasons stated

above, it is not necessary to determine whether the charterer was

also responsible for the actions or negligence of the stevedores.

Nor is it necessary to decide whether the affidavit of Captain W.

references the Immigration and Nationality Act of 1952, which
requires that a vessel owner be responsible for the cost of
detaining and transporting a stowaway back to the source country.
That is obviously not the issue here. Medina v. O'Neill, 589
F.Supp. 1028 (S.D.Tex.1984), reversed in part, vacated in part,
838 F.2d 800 (5th Cir.1988).

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Toennessen was admissible.3

The judgment of the district court is AFFIRMED.

3
Toennessen's affidavit dealt with the steps that he and his
crew took to limit access to the ship during the unloading at
Puerto Cabello. Since we have concluded that Boss Lines is
liable for the cargo damage even if the captain and crew were
negligent, it is unnecessary to pass on the admissibility of the
affidavit.

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