Prof. William Tetley, Q.C.

CHAPTER 13

MEASURE OF DAMAGES

INDEX I. Restitutio in Integrum II The Common Law Hadley v. Baxendale

1) The two rules of Hadley v. Baxendale 2) Damages the new evolving tripartite theory

III. The Civil Law IV. Arrived Sound Market Value (A.S.M.V.)

1) Rule of thumb 2) As the day cargo arrived or should have arrived 3) Calculating A.S.M.V. 4) Profits and expenses 5) Quick calculations for settlement 6) Less normal deterioration (freinte de route) 7) Customs duties 8) Measure when responsibility divided 9) Actual loss COGSA

V. Invoice Value & C.I.F. Clauses etc.

1) Relieve or lessen 2) Per package and restitutio in integrum

VI. Delay and Consequential Damages

1) Introduction a) Economic loss tort and delict b) Consequential loss contract

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2) Consequential loss a) A.S.M.V. includes profit b) A.S.M.V. plus consequential loss c) A.S.M.V. plus consequential loss Hague Rules d) Consequential loss and COGSA e) A.S.M.V. plus consequential loss Visby Rules f) Cargo delay and deterioration g) Delay and loss of market h) Delay and loss of business and reputation i) Delay and Hamburg Rules j) Delay Australia k) Delay China l) Delay Nordic countries

3) Recapitulation 4) Consequential damages must be actual damages 5) Cargo on the carrying ship

VII. Punitive or Exemplary Damages

1) Introduction 2) Punitive damages prohibited by law 3) Punitive damages prohibited by law 4) Punitive damages the U.K. 5) Punitive damages Canada 6) Punitive damages the U.S. 7) Punitive damages civil law

VIII. The Visby Rules Measure of Damages IX. Damages From Deviation Fundamental Breach X. Inflation XI. Interest as damages

1) Introduction 2) Interest common law/civil law 3) Rate of interest Admiralty Court U.K. 4) Rate of interest Commercial Court U.K. 5) Conflict of currencies conflict of interest rates 6) Pre-judgment interest Canada 7) From what date Canada

a) Cargo damage interest runs from delivery

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b) Cargo short delivered interest runs from when cargo should have been delivered

c) Cargo totally lost interest runs from the date of the loss 8) At what rate Canada 9) Post-judgment interest - Canada 10) Interest against the Crown Canada 11) Pre-judgment interest United States 12) As from what date United States 13) At what rate United States 14) Cargo damage claims against vessels owned by the United States

interest 15) Post-judgment interest United States 16) Underwriters and interest

XII. Foreign Currency and the Rate of Exchange

1) Introduction 2) The common law 3) Canada 4) United States 5) Civil law

XIII. Court Costs XIV. Mitigation of Damages and Legitimate Expenses XV. Surveyors Fees XVI. Conclusion

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CHAPTER 13

MEASURE OF DAMAGES

I. Restitutio in integrum

Once a claimant has proven the physical damage to cargo or the delay in bringing cargo to destination,1 he must then prove:2

a) that the resulting losses, including incidental expenses, are direct and foreseeable;

b) the value of those losses in monetary terms.

The fixing of the direct and foreseeable loss and the transposing of its value into money is called the measure of damages3. Measure of damages has also been defined as the basis for calculating damages to be awarded to someone who has suffered an injury.4

The purpose of awarding damages, of course, is to put the offended party into the same position as he would have been had the contract been performed.5 This is restitutio in integrum. The restitutio in integrum principle is perhaps best encapsulated in that seminal document of international commercial law, the UNIDROIT Principles of International Commercial Contracts 19946 an internationally respected restatement of basic and 1 See Chap. 12, Loss or Damage to Cargo, supra. 2 See Chap. 6, The Burden and Order of Proof, supra, particularly at sect. III, The Order of Proof in a Marine Cargo Claim and its Defence. 3 See Halsburys Laws, 4 Ed., Vol. 12(1) Reissue, Butterworths, London, 1998 at para. 804, refers to measure of damage(s) as being concerned with the legal principles governing recoverability, as opposed to quantum of damages, which concerns the amount of damages to be awarded. 4 Blacks Law Dictionary, 7 Ed., (B.A. Garner, ed.-in-chief), West Group, St. Paul, Minn., 1999 at p. 995. 5 See the classic statement to this effect in Robinson v. Harman (1848) 1 Exch. 850 at p. 855: The rule in the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation with respect to damages as if the contract had been performed. See also Sally Wertheim v. Chicoutimi Pulp Co. [1911] A.C. 301 at p. 307 (P.C.); British Westinghouse Electric and Manufacturing Co. Ltd. v. Underground Electric Railway Co. of London Ltd. [1912] A.C. 673 at pp. 688-689 (H.L.); Johnson v. Agnew [1980] A.C. 367 at p. 400 (H.L.); Ruxley Electronics & Construction Ltd. v. Forsyth [1996] A.C. 344 at pp. 355 and 365-366 (H.L.). For a maritime decision, referring expressly to the restitutio in integrum principle, see The Unique Mariner (No. 2) [1979] 1 Lloyds Rep. 37 at p. 54. See also Halsburys Laws, supra, at para. 941. For the U.S., see the oft-cited decision of Holmes, J. in Chicago, Milwaukee & St. Paul Railway. V. McCaull-Dinsmore Co 253 U.S. 97 at p. 100 (1920), as well as many more recent decisions, such as Garshman Co, Ltd. v. General Electric Co. 176 F.3d 1 at p. 5 (1 Cir. 1999). For Canada, see Haack v. Martin [1927] S.C.R. 413 at p. 416; Asamera Oil Corp. v. Sea Oil & General Corp. [1979] 1 S.C.R. 633 at p. 645. 6 For the English text with commentary, see J.M Perillo, "UNIDROIT Principles of International Commercial Contracts: The Black Letter Text and a Review" (1994) 63 Fordham L. Rev. 281. For an incisive study of the Principles and their effects in practice, see Michael J. Bonell, "The UNIDROIT

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generally accepted norms governing transnational business in the modern world (the modern lex mercatoria), which was prepared over a fourteen-year period by eminent scholars of the civilian, common law and Socialist legal traditions, and adopted in 1994 by the International Institute for the Unification of Private Law,7 based in Rome. Art. 7.4.2(1) of the UNIDROIT Principles provides:

(1) The aggrieved party is entitled to full compensation for harm sustained as a result of the non-performance. Such harm includes both any loss which it suffered and any gain of which it was deprived, taking into account any gain to the aggrieved party resulting from its avoidance of cost or harm.8

Not all damages, however, are recoverable in breach of contract cases; unless

there has been a special agreement, only those damages which are direct and foreseeable will be awarded.9

It is noteworthy that carriage of goods decisions have often set the standard for the measure of damages in other types of breach of contract claims.10 II. The Common Law Hadley v. Baxendale 1) The two rules of Hadley v. Baxendale

In 1854, two basic common law rules for the measure of damages in all breach of contract claims were enunciated in the landmark decision of Hadley v. Baxendale:11 Principles in Practice: The Experience of the First Two Years" 1997-2 Unif. L. Rev. 34. See also W. Tetley, Uniformity of International Private Maritime law The Pros, Cons, and Alternatives to International Conventions How to Adopt an International Convention (2000) 24 Tul. Mar. L.J. 775-856 at pp. 793-795 and http://tetley.law.mcgill.ca/maritime/uniformarlaw.htm. 7 For the text of the UNIDROIT Principles and related material, see the UNIDROIT website, http://www.unidroit.org/. 8 The Principles of European Contract Law 1998, prepared and revised by the Commission on European Contract Law chaired by Prof. Ole Lando, similarly provides at art. 9:502: The general measure of damages is such sum as will put the aggrieved party as nearly as possible into the position in which it would have been if the contract had been duly performed. Such damages cover the loss which the aggrieved party has suffered and the gain of which it has been deprived. For the text of the Principles of European Contract Law, see http://www.ufsia.ac.be/~estorme/PECL2en.html. 9 Modern common law decisions such as Wagon Mound (No. 1) [1961] A.C. 388, [1961] 1 Lloyds Rep. 1 (H.L.), in reference to tort, stipulate that foreseeability is the criterion and that the damage need not be direct. Moreover, since the third edition of this work, a stronger emphasis has been given in tort law to two other factors; viz., proximity and reasonableness. In The Nicholas H. [1996] A.C. 211, [1995] 2 Lloyds Rep. 299 (H.L.), for example, the House of Lords held that in determining liability for negligence, in both physical damage and economic loss cases, the court must consider, not only foreseeability and proximity, but also whether it is "fair, just and reasonable" to impose a duty of care on the defendant. These same considerations can affect the measure of damages awarded by courts in tort cases. See also the Principles of European Contract Law 1998 at art. 9:503. 10 See, for example, Bacardi v. THP [2002] 2 Lloyds Rep. 379 (C.A.), where various maritime decisions were cited in a judgment relating to liability in contract and tort and the measure of damages in a case involving the manufacture and recall of a contaminated beverage.

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(i) Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. (ii) Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, if those special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract.

The two rules of Hadley v. Baxendale have been followed by the courts of many

nations12 and may be summarized that damages for breach of a contract of carriage are as follows:

11 (1854) 9 Ex. C. 341 at pp. 354-5, 156 E.R. 145 at p. 151. See also The Heron II (Koufos v. C. Czarnikow) [1969] 1 A.C. 350 (H.L.). See Lord Reid in particular, at pp. 389-390, who examines Hadley v. Baxendale and, according to many commentators, proposes a more restrictive rule of foreseeability for contract law as opposed to tort law. It is interesting therefore that to practitioners, The Heron II stood for, and still stands for, an enlarging of contractual damages and, in particular, the award of damages for loss of market due to delay. On the Hadley and subsequent landmark decisions on measure of damages in English common law of contract, see H. McGregor, McGregor on Damages, 16 Ed., Sweet & Maxwell, London, 1997 at paras. 247-281. 12 Among many other English authorities, see: Gee v. The Lancashire and Yorkshire R.R. Co. (1860) 6 H. & N. 211 at pp. 217-220, 158 E.R. 87 at pp. 90-91 (Exch.); British Columbia Saw-Mill Co. v. Nettleship (1868) L.R. 3 C.P. 499; London, Chatham and Dover Railway Co. v. South Eastern Railway Co. [1893] A.C. 429 (H.L.); R. & H. Hall, Ltd. v. W.H. Pim, Junr., & Co., Ltd. (1928) 30 Ll. L. Rep. 159 (H.L.); Monarch Steamship Co., Ltd. v. A/B Karlshamns Oljefabriker [1949] A.C. 196 (H.L.); Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd. [1949] 2 K.B.528 (C.A.); The Heron II (Koufos v. C. Czarnikow) [1969] 1 A.C. 350 (H.L.); Wadsworth v. Lydall [1981] 1 W.L.R. 598 (C.A.); La Pintada [1985] 1 A.C. 104, [1984] 2 Lloyds Rep. 9 (H.L.); The Lips [1988] A.C. 395, [1987] 2 Lloyds Rep. 311 (H.L.). American decisions considering or applying Hadley v. Baxendale include, inter alia: Santiago v. Sea-Land Services Inc. 366 F. Supp. 1309 at p. 1319, 1974 AMC 673 at p. 687 (D.P.R. 1973); B.F. McKernin & Co. Inc. v. U.S. Lines 416 F. Supp. 1068 at p. 1072, 1976 AMC 1527 at p. 1531 (S.D. N.Y. 1976); East River Steamship Corp. v. Transamerica Delaval Inc. 476 U.S. 858 at p. 874, 1986 AMC 2027 at p. 2040 (1986);Affiliated Foods v. Puerto Rico Marine Management, Inc. 645 F. Supp. 838 at pp. 840-844 (D. P.R. 1986) and numerous other U.S. authorities cited there; Anyangwe v. Nedlloyd Lines 909 F. Supp. 315 at p. 323, 1996 AMC 1083 at p. 1092 (D. Md. 1995); Coastal Power Intl Ltd. v. Transcontinental Capital Corp. 10 F.Supp.2d 345 at p. 364 (S.D.N.Y. 1998); Project Hope v. M/V Ibn Sina 2002 AMC 371 at p. 373 (S.D. N.Y. 2001). For Canada, see, inter alia, Mondor v. Willits [1923] S.C.R. 433 at p. 440; B.D.C. Ltd. v. Hofstrand Farms Ltd. [1986] 1 S.C.R. 228 at pp. 244-246; Keneric Tractor Sales Ltd. v. Langille [1987] 2 S.C.R. 440 at pp. 456-457; Vorvis v. Insurance Corp. of British Columbia [1989] 1 S.C.R. 1085 at pp.

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(i) damages which arise naturally i.e., damages which arise naturally from the breach and which the carrier therefore must or ought to have foreseen as its likely consequence.

(i) damages which arise from special circumstances i.e., damages which arise from special circumstances communicated to the carrier at the time of making the contract, which damages the carrier, so informed, could reasonably be expected to have foreseen as probable consequences of the breach.13

Hadley v. Baxendale is often regarded today, not as two rules, but as a single rule or principle,14 with two limbs or branches. It has also been said that: the test in Hadley v. Baxendale under both branches of the rule,.. is that recovery is dependent upon foreseeability, tested objectively under the first branch and subjectively under the second branch in the sense that it deals with actual knowledge.15

An example of damages under the first rule (or first branch), is the cost of repairing cargo found to be damaged upon arrival. An example under the second rule (or second branch) would be the cost of closing a factory for five days, the salaries of employees, etc., and the loss of profits, when a mill shaft was delivered five days late and yet the carrier had been informed at the time of the contract that delay would result in the closing of the factory.16 Courts must often apply both Hadley rules in the same judgment.17 1116, 1118-1119, 1121 and 1122-1123; Bank of America Canada v. Mutual Trust Co. (2002) 211 D.L.R.(4th) 385 at pp. 399-400 (Supr. Ct. Can.). 13 The English courts have required a higher degree of probability of loss or damage in breach of contract than in tort cases. See The Heron II (Koufos v. C. Czarnikow) [1969] 1 A.C. 350 at p. 388, where Lord Reid referred to a very substantial degree of probability, while Lords Pearce and Uphohn preferred a real danger (p. 415) or a serious possibility (p. 425). The latter two terms were repeated by the House of Lords in its decision in Bank of Nova Scotia v. Hellenic Mutual Ltd. [1992] 1 A.C. 233 at p. 267 (H.L.). 14 In Satef-Huttenes v. Paloma Tercera Shipping [1981] 1 Lloyds Rep. 175 at pp. 182-183, Goff J. commented that the principle in Hadley v. Baxendale is no longer stated in terms of two rules, but rather in terms of a single principlethough it is recognized that the application of the principle may depend on the degree of relevant knowledge held by the defendant at the time of the contract in the particular casethe test appears to be: have the facts in a question come to the defendants knowledge in such circumstances that a reasonable person in the shoes of the defendant would, if he had considered the matter at the time of making the contract, have contemplated that, in the event of a breach by him, such facts were to be taken into account when considering his responsibility for loss suffered by the plaintiff as a result of such breach. See also Scrutton, 20 Ed., 1996 at art. 192, p. 386. 15 Fraser Shipyard v. Expedient (1999) 170 F.T.R. 1 at p. 40, 2000 AMC 543 at p. 585 (Fed. C. Can. per Hargrave, P.), varied on other grounds, (1999) 170 F.T.R. 57, 2000 AMC 28 (Fed. C. Can. per Rouleau, J.), See, however, the conclusion of the Federal Court as to the imputed (objective) knowledge of the carrier, who must have been aware of the effect of excessive delay on the need to obtain a replacement cargo, ibid., (1999) 170 F.T.R. at p. 41, 2000 AMC at p. 586. 16 It would seem that in the case of Hadley v. Baxendale, supra, 9 Ex. C. at pp. 341 and 344, E.R. at pp. 145 and 147, some notice was given but strangely was not considered sufficient: The plaintiffs servant told the clerk that the mill was stopped, and that the shaft must be sent immediately Alderson B., on the contrary, declared, supra, 9 Ex C. at p. 355, E.R. at p. 511: Now, in the present case, if we are to apply the principles above laid down, we find that the only circumstances here communicated by the plaintiffs to the

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In the United States, the Restatement (Second) of the Law of Contracts18 expresses the Hadley principle as follows at sect. 351(1) and (2):

351(1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made. (2) Loss may be foreseeable as a probable result of a breach because it follows from the breach (a) in the ordinary course of events, or (b) as a result of special circumstances, beyond the ordinary course of

events, that the party in breach had reason to know. 2) Damages the new evolving tripartite theory

If the two rules of Hadley v. Baxendale19 are generally relied upon by the courts, an analysis of contract damages as falling into three kinds has become almost universally accepted in the law schools of common law jurisdictions.

The three theoretical types of loss

At common law, the primary remedy for breach of contract is a money award. In an action for damages, an injured party may claim compensation for three types of losses:20 defendants at the time the contract was made, were, that the article to be carried was the broken shaft of a mill, and that the plaintiffs were the millers of that mill. In any event, Alderson B. sent the case back to the trial court where the true facts would come before the jury and justice was presumably done according to the two rules as enunciated and the facts as fully proven. 17 In Anyangwe v. Nedlloyd Lines, 909 F. Supp. 315, 1996 AMC 1083 (D. Md. 1995), for example, because of a carriers failure to deliver supplies in time for a wedding, the plaintiff claimed against both the carrier and the freight forwarder for emotional distress and the premature birth of her baby. The claim failed as against the carrier, which had no special knowledge of the circumstances making it reasonable to contemplate that such harm would result, and as against the freight forwarder, which, although knowing that the goods were for a wedding, could not be held liable for damages such as the plaintiffs emotional pain and premature delivery, which were not natural and foreseeable consequences of its failure to secure the timely delivery of the goods. 18 Adopted by the American Law Institute at Washington, D.C., May 17, 1979, American law Institute Publishers, St. Paul., Minn., 1981 (hereinafter cited as the Restatement (Second) of the Law of Contracts). For an application of these provisions in a Carmack Amendment case, see Project Hope v. M/V Ibn Sina 2002 AMC 371 at p. 372 (S.D. N.Y. 2001). 19 Supra note 8. 20 Fuller and Perdue, The Reliance Interest in Contract Damages (1936) 46 Yale L.J. 52 and 373. For the U.S., see also S.J. Burton, Principles of Contract Law, 2 Ed., West Group, St. Paul, Minn., 2001 at p. 286, who considers losses resulting from breach to be harms to the interests protected by the law of contracts, which consist of expectation, reliance and restitution interests. See also Williston on Contracts (R.A. Lord, ed.), 4 Ed., vol. 24, West Group, St. Paul., Minn., 2002 at para. 64.2. For the U.K., see Sir G.H. Treitel, The Law of Contract, 10 Ed., Sweet & Maxwell, London, 1999 at pp. 873-879. For Canada, see S.M. Waddams, The Law of Contracts, 4 Ed., Canada Law Book Inc., Toronto, 1999 at paras. 711-727 at pp. 526-535. For judicial recognition of these distinctions, see The Alecos M [1990] 1 Lloyds Rep. 82 at p. 84, revd on other grounds, [1991] 1 Lloyds Rep. 120 (C.A.), where with respect to the sale of a vessel, it was

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a) Expectation loss: Here, the plaintiff is compensated for the loss of his bargain. The object is to put the plaintiff in the same position he would have occupied had the contract been fully performed.21 The compensation ordinarily includes the value of the promised performance of which the plaintiff has been deprived, as well as any related loss of profits.22 Writers also refer to this type of loss as performance loss.23 b) Reliance loss: Here, the plaintiff is compensated for expenses incurred (losses covered) or opportunities lost (gains prevented) in reliance on the contract.24 The object is to put the plaintiff in the same position he would have occupied had the contract never been made, i.e. to prevent his unjust impoverishment.

c) Restitution: Here, the plaintiff has conferred a benefit on the defendant, which, in view of the defendants failure to perform, it would be unfair to allow him to retain.25 Accordingly, the defendant is deprived of the benefit. The object is to put both parties in the same position they would have occupied had the contract never been made. The effect is the prevention of the plaintiffs unjust impoverishment and the defendants unjust enrichment.

The reliance and restitution claims are normally co-extensive, except in those

cases where the plaintiff has incurred expenses in reliance on the contract without thereby enriching the defendant.

The foregoing tripartite division of damages is still evolving and restitution in particular as a concept has not been accepted by all courts. On the one hand, these damages may overlap. Thus it has been remarked that restitution often forms a

held that [i]n relation to recovery of damages the law recognizes various interests, viz. expectation, reliance and restitution. 21 See Robinson v. Harman (1848) Exch. 848 at p. 855; Lord Atkinson in Sally Wertheim v. Chicoutimi Pulp Co. [1911] A.C. 301 at p. 307 (P.C.). Compensation for expectation losses requires a clear determination of exactly what the bargain was which the defendant breached (i.e. the scope of the contractual duty). See Banque Bruxelles Lambert S.A. v. Eagle Star Ins. Co. Ltd. [1997] A.C. 191 (H.L.); Bank of America Canada v. Mutual Trust Co. (2002) 211 D.L.R.(4th) 385 at p. 393 (Supr. Ct. Can.). See generally S.M. Waddams, The Law of Damages, 3 Ed., Canada Law Book Co., Aurora, Ontario, 1997 at p. 267. 22 The damages for loss of profits must not be too remote, however. See Treitel, supra, at p. 875. See UNIDROIT Principles of International Commercial Contracts 1994 at art. 7.4.2; Principles of European Contract Law 1998, art. 9:502. 23 J. Beatson, Ansons Law of Contract, 27 Ed., Oxford University Press, Oxford and New York, 1998 at p. 564. 24 Anglia Television Ltd. v. Reed [1972] 1 Q.B. 60 is the authority for saying that pre-contract expenditure may be recoverable if it is incurred in reliance on a contract. 25 See generally S.M. Waddams, The Law of Damages, 3 Ed., Canada Law Book Co., Aurora, Ontario, 1997 at p. 474. See also Bank of America Canada v. Mutual Trust Co. (2002) 211 D.L.R.(4th) 385 at p. 394 (Supr. Ct. Can.). See also UNIDROIT Principles of International Commercial Contracts 1994, at art. 7.3.6; Principles of European Contract Law 1998 at arts. 9:307-9:309.

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component of reliance or expectation damages for breach of contract.26 On the other hand, certain damages fall into none of the foregoing categories. For example, Treitel has treated incidental and consequential loss as an additional category.27 The statutes as well, particularly COGSA28 and the Visby Rules,29 seem to exclude recovery of certain types of damages, especially restitution.

For this reason, the above tripartite division of damages, although deemed useful as a means of analysis, is not used in this chapter as the basis for explaining the measure of damages for breaches of contract in the carriage of goods by sea. III. The Civil Law

The civil law of contractual damages is not really different from the two rules in Hadley v. Baxendale; in fact both parties in Hadley v. Baxendale cited the civil law as laid down in France.30

The rule in respect of damages for breach of contract is found at art. 1150 c.c. (France):31

(translation) The debtor is liable only for the damages and interests which have been foreseen or might have been foreseen at the time of the contract, when his fraud was not the cause of the failure to perform his obligation.

Damages in cases of delict or fraud or bad faith need only be direct and

immediate; foreseeability is no longer necessary. Thus art. 1151 c.c. France reads:32

26 Beatson, supra, at p. 599 notes that the remedies of damages for breach of contract under the common law overlaps with various restitutionary remedies. 27 Treitel, supra note 19, at p. 879. Treitel defines incidental loss as expenses incurred after the breach has come to the notice of the non-breaching party (e.g. the administrative costs a buyer incurs of sending back defective goods to the seller). By consequential loss, he means further harm arising following the breach, such as personal injury or damage to property sustained as a result of the breach. He admits, however, that consequential loss is also used to refer to: a) loss of profits in breach of contract cases, which is an element of expectation loss, or to b) reliance losses (e.g. expenses wasted by a seller in delivering goods which the buyer wrongfully refuses to accept). 28 46 U.S. Code at sect. 1304 (5), third paragraph, last sentence, reads: In no event shall the carrier be liable for more than the amount of damages actually sustained (Emphasis added). See Caterpillar Overseas v. Farrell Lines 1988 AMC 2894 (E.D. Va. 1988) and P & E Boat Rentals, 872 F.2d 642, 1989 AMC 2447 (5 Cir. 1989), where lost profits were not recoverable in respect of a vessel that had become a total loss. In Valerina Fashions 897 F. Supp. 138, 1996 AMC 1201 (S.D. N.Y. 1995), however, lost profits were held recoverable in certain circumstances. 29 See Visby, new art. 4(5)(b), which reads: The total amount recoverable shall be calculated by reference (Emphasis added). It should be noted that the limitation provisions of this paragraph apply to damages not arising from fundamental breach. 30 (1854) 9 Ex. C. 341 at pp. 345-6, 156 E.R. 145 at p. 147. 31 The Civil Code was adopted in 1804 under the aegis of Napoleon Bonaparte. See also art. 1613 c.c. (Qubec, 1994) (adopted in 1991) and art. 1996 c.c. (Louisiana). This latter provision came into effect on January 1, 1985. See also art. 1225 c.c. (Italy) and art. 1107 c.c. (Spain) and the UNIDROIT Principles of International Commercial Contracts 1994, art. 7.4.4.

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(translation) In the case where failure to perform the agreement results from the fraud of the debtor, the damages and interests must only comprise, in respect to the loss suffered by the creditor and to the profit of which he was deprived, that which is an immediate and direct consequence of the failure to perform the agreement.

The Principles of European Contract Law 1998 similarly provide at art. 9:503:

The non-performing party is liable only for loss which it foresaw or could reasonably have foreseen at the time of conclusion of the contract as a likely result of its non-performance, unless the non-performance was intentional or grossly negligent.

This rule can also be applied to the circumstances where damages arise from fundamental breach of the contract of carriage. III. Arrived Sound Market Value (A.S.M.V.) 1) Rule of thumb The parties to a contract of carriage know, and are expected to know, that, if the cargo is damaged or lost, the claimant should be recompensed for the value of the damaged or lost cargo at the time and place of its delivery or when it should have been delivered.33

32 Arts. 1607 and 1613 c.c. (Qubec, 1994) and art. 1997 c.c. (Louisiana) are to the same effect. See also art. 1225 c.c. (Italy) and art. 1107 c.c. (Spain). For an interesting comparison between the civil law and the common law in respect to foreseeability, see Baudouin, Droit civil de la Province de Qubec, 1953 at pp. 581-583. Art. 1151 c.c. (France) is drawn from Pothier, Trait des Obligations, Part I, c. 2, s. 159: Damages and interests are the loss which a person has sustained or the gain which he has been deprived. Thus, according to Pothier, in the case of a house rented to a tradesman for a shop or to an inn keeper for an inn, the tenants damages for eviction will not be confined to the expense of removal and rents paid in advance: The loss of custom, if he cannot meet with any other suitable house in the neighbourhood, ought also in some degree to be taken in the account; for, having let my house for the purpose of a shop or an inn, this kind of damage is one whereof the risk is foreseen, and to which I am considered as having tacitly submitted. This passage was cited in British Columbia Saw-Mill v. Nettleship (1868) L.R. 3 C.P. 499 at p. 503. 33 Seguros Banvenez S.A. v. Oliver Drescher 761 F.2d 855 at pp. 860-61, 1985 AMC 2168 at p. 2175 (2 Cir. N.Y. 1985): The correct measure of damages, however, is the amount necessary to put the injured parties in the exact position they would have been in had there been no breach. In loss of cargo cases, this generally means the market value of the goods at the time and place they were to have been delivered. In Cour dAppel de Rennes, February 17, 1960, DMF 1961, 281 arrived sound market value was calculated as of the actual day of arrival rather than the expected day of arrival. On arrived sound market value generally in English carriage of goods by sea law, see H. McGregor, McGregor on Damages, 16 Ed., Sweet & Maxwell, London, 1997 at para. 1160 and decisions cited there.

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The above rule is known as Arrived Sound Market Value (A.S.M.V.) less Arrived Damaged Market Value (A.D.M.V.)34 and such restitutio in integrum requires no special circumstances, being obviously in the reasonable contemplation of the parties at the time of contracting.

A.S.M.V. less A.D.M.V. is only a rule of thumb,35 however, and is subject to many exceptions in order to bring it within the basic principle of restitutio in integrum. One obvious exception is where the cargo, on arrival, has suffered no loss of market value despite the damage it has sustained.36 Another obvious exception is where the cargo is never delivered (e.g. where it is totally lost or destroyed at sea) and therefore has no A.D.M.V., but only a notional A.S.M.V. (i.e. the market value the goods would have had at the time and place of delivery had the contract been performed).37 Another exception may arise where the claimant prefers to recondition or replace the goods lost or damaged and retain them for inventory, rather than to seek a buyer immediately after delivery.

34 In ETS Gustave Brunet, S.A. v. M.V. Nedlloyd Rosario 929 F. Supp. 694 at p. 710, 1997 AMC 803 at p. 828 (S.D. N.Y. 1996), it was affirmed that: "[g]enerally, the measure of damages is the difference between the fair market value of the goods at their destination in the condition in which they should have arrived and the fair market value in the condition in which they actually did arrive." See also Empresa Central Mercantil v. Brasileiro 147 F. Supp. 778 at p. 780, 1957 AMC 218 at p. 220 (S.D. N.Y. 1957), affd 257 F.2d 747, 1958 AMC 1809 (2 Cir. 1958). See an important pre-COGSA case: The Ansaldo San Giorgio I v. Rheinstrom Co. 294 U.S. 494, 55 S. Ct. 483, 1935 AMC 419 (1935). See also R.T. Jones Lumber Co. v. Roen SS. Co. 270 F.2d 456, 1960 AMC 46 (2 Cir. 1959); Encyclopaedia Britannica, Inc. v. S.S. Hong Kong Producer 422 F.2d 7 at p. 18, 1969 AMC 1741 at p. 1757 (2 Cir. 1969), cert. denied, 397 U.S. 964, 1971 AMC 813 (1970); Kanematsu-Gosho Ltd. v. M/T Messiniaki Aigli 814 F.2d 115 at p. 118, 1987 AMC 1427 at p. 1431 (2 Cir. 1987); Texport Oil Co. v. M/V Amolyntos 11 F.3d 361 at p. 365, 1994 AMC 815 at p. 819 (2 Cir. 1993); Tribunal de Commerce de Rouen, February 23, 1962, DMF 1962, 294; Tribunal de Commerce de Marseille, March 17, 1950, DMF 1950, 598; Hof van Beroep te Antwerpen, June 15, 1967. 35. In Illinois Central R.R. Co. v. Crail 281 U.S. 57 at pp. 64-65 (1930), the U.S. Supreme Court held that: The test of market value is at best but a convenient means of getting at the loss suffered. It may be discarded and other more accurate means resorted to, if, for special reasons, it is not exact or otherwise not applicable. See also Texport Oil Co. v. M/V Amolyntos 11 F.3d 361 at p. 365, 1994 AMC 815 at p. 819 (2 Cir. 1993); Dessert Service, Inc. v. M/V MSC Jamie/Rafaela 219 F.Supp.2d 504 at p. 507, 2002 AMC 2358 at p. 2361 (S.D. N.Y. 2002). 36 For example, in Kanematsu-Gosho v. M/T Messiniaki Aigli 814 F.2d 115 at p. 118, 1987 AMC 1427 at p. 1431 (2 Cir. 1987), the seawater contamination of a cargo of jet fuel was found to have caused no diminution of its arrived sound market value, and the claim for the cost of restoring the cargo was therefore disallowed. 37 See The Texaco Melbourne [1993] 1 Lloyds Rep. 471 at p. 475 (C.A per Leggatt, L.J.), application for leave to appeal to House of Lords refused: In circumstances such as these the Court approaches the assessment of damages for non-delivery in accordance with the first rule in Hadley v. Baxendale Thus the measure of damages for non-delivery of a cargo under a bill of lading contract is the estimated loss directly and naturally resulting, in the ordinary course of events, from the non-delivery. The market value is to be taken at the time and place of due delivery. In Goldco Imports Ltd. v. The Meitoku Maru [1966] Ex. C. R. 498 at pp. 503-504, it was found that: a) the market value could be the appropriate measure of loss, in the event of non-delivery of goods that had been destroyed; b) where goods were delivered after the contract date, the measure of damages might, at least in some cases, be the difference between the market value of the goods on the day they should have been delivered and their value on the date of their actual delivery; and c) in cases of delivery of goods in a damaged state, the recoverable damages were the difference between the net amount which could be realized if the goods were sound and the net amount which could in fact be realized in the open market.

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Damages in such cases tend to be based on the costs of reconditioning, together with related handling expenses, rather than on the A.S.M.V. minus A.D.M.V. rule of thumb38 The Swedish Maritime Code 199439 codifies the A.S.M.V. minus A.D.M.V. principle.40 The Chinese Maritime Code 199341 seemingly rejects A.S.M.V. minus A.D.M.V., however, because, although it provides for indemnification for lost goods on the basis of their actual value, and for damage to goods on the basis of the difference between their values before and after the damage, it defines actual value as the value of the goods at the time of shipment plus insurance and freight, rather than by reference to their sound or damaged market values at the place of destination.42 The Code also specifies that compensation for damage to the goods may also be calculated on the basis of the expenses for the repair.43

Setting aside exceptions, however, Lord Wright, in The Liesbosch v. The Edison44 (a collision case) also cited in A/B Karlshamns Oljefabriker v. Monarch S.S. Co.45 (a carriage of goods case) stated the basic principle clearly:

38 In Redpath v. Cisco [1994] 2 F.C. 279, 1994 AMC 1484 (Fed. C.A.), leave to appeal dismissed without reasons, October 13, 1994, [1994] S.C.C.A. No. 80 (Supr. Ct. of Can.), the claimant never contemplated selling the cargo of raw sugar that had been wetted in transit, but preferred to keep it for its own use after delivery. Accordingly, the Arrived Damaged Market Value was not a suitable mode of damage computation. Instead of A.S.M.V. minus A.D.M.V., the Court therefore awarded only the extra costs incurred by the claimant in refining the wet sugar and blending it with undamaged sugar until it became sound again, plus the extra costs of discharging it from the ship. In Caltex Refining v. BHP Transport [1994] 1 Lloyds Rep. 335 (N.S.W. S.C.), the cost of reprocessing a contaminated cargo of automotive diesel oil was considered to be the appropriate measure of damages. In Texport v. Amolyntos 11 F. 3d 361, 1994 AMC 815 (2 Cir. 1993), where the Court declared that the fair market value test was not a hard and fast rule and could yield to other criteria. In this case, the incidental damages resulting from the costs of reconditioning contaminated gasoline by blending it with clean gasoline, were found to provide the most accurate measure of damages, instead of the usual rule of thumb. Nonetheless, in Derby Resources v. Blue Corinth (The Athenian Harmony) [1998] 2 Lloyds Rep. 410, the reduction in the A.S.M.V. of contaminated jet kerosene was the appropriate measure, where reconditioning would have been inconvenient, and establishing the measure of damages on the basis of reinstatement costs would have been unrealistic under the circumstances. 39 The Nordic countries (Denmark, Norway, Finland and Sweden) adopted a common maritime code, which came into force on October 1, 1994. The numbering of the Swedish and Finnish versions differs, however, from that of the Danish and Norwegian versions. References to the Code in this chapter are to the Swedish version, being the Swedish Maritime Code, 2 Ed., Stockholm, 2001. This Code is referred to here as the Swedish Maritime Code 1994. 40 Swedish Maritime Code 1994, ch. 13, sect. 29, first para. 41 The Maritime Code of the Peoples Republic of China was adopted at the 28th Meeting of the Standing Committee of the Seventh National Peoples Congress of the Peoples Republic of China on November 7, 1992 and was promulgated and entered into force as of July 1, 1993, by virtue of Order No. 64 of the President of the Peoples Republic of China. The Code is referred to hereafter as the Chinese Maritime Code 1993. 42 Chinese Maritime Code 1993, art. 55, first and second paras. 43 Chinese Maritime Code 1993, art. 55, first para. 44 [1933] A.C. 449 at p. 463, (1933) 45 Ll. L. Rep. 123 at p. 130 (H.L.). 45 (1949) 82 Ll. L. Rep. 137 at p. 154 (H.L.). Lord Sumner in The Chekiang [1926] A.C. 637 at p. 643, (1926) 25 Ll. L. Rep. 173 at p. 175 (H.L.), referred to as a rule of thumb and added: The measures of damages ought never to be governed by mere rules of practice, nor can such rules override the principles of the law on this subject.

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...the dominant rule of law is the principle of restitutio in integrum, and subsidiary rules can only be justified if they give effect to that rule.

Canadian judges as well have held that: The principle of restitutio in integrum should be given its full effect.46 In American law too, the A.S.M.V. minus A.D.M.V. rule of thumb ordinarily yields an appropriate measure of the actual loss sustained by the cargo claimant (and therefore complies with the restitutio in integrum principle), particularly as it affords the claimant compensation for loss of expected profit.47 But where the market value on which the rule of thumb is based is not exact or not otherwise available, U.S. courts have held that some other measure of damages may be applied, such as replacement cost. The onus is on the carrier to show that special reasons exist which render the market value rule unjust as a measure of the plaintiffs loss .48 2) As of the day arrived or should have arrived

Arrived sound market value is calculated as of the day the cargo arrived,49 and in case of non-delivery, when it should have arrived.50 In J.M. Rodriquez & Co. v. Moore-McCormack Lines,51 a vessel was held in port and was unable to discharge a cargo of cloves for 57 days because of a strike. When the vessel finally discharged, the cloves were missing. The value of the cargo was $19,980 on the date of arrival and $41,070 at the end of the strike and the New York State Appellate Division (4-1) ordered $41,070 in damages.

46 Redpath Industries Ltd. v. The Cisco [1994] 2 F.C. 279 at p 294, 1994 AMC 1484 at p. 1491 (Fed. C.A.), leave to appeal dismissed without reasons, October 13, 1994, [1994] S.C.C.A. No. 80 (Supr. Ct. Can.). See also Redpath Industries Ltd. v. Fednav Ltd. (1993) 63 F.T.R. 131 at p. 140 (Fed. C. Can.), citing with approval the third edition of this book. 47 See Dessert Service, Inc. v. M/V MSC Jamie/Rafaela 219 F.Supp.2d 504 at p. 507, 2002 AMC 2358 at p. 2361 (S.D. N.Y. 2002), citing Polaroid Corp. v. Schusters Express, Inc. 484 F.2d 349 at p. 351 (1 Cir. 1973). 48 Dessert Service, Inc., ibid.; Eastman Kodak Co. v. Westway Motor Freight, Inc. 949 F.2d 317 at p. 319 (10 Cir. 1991). Such special reasons have been found to exist where the shipper can replace the shipment at cost and suffers no loss of profit. See Philips Consumer Elecs. Co. v. Arrow Carrier Corp. 785 F. Supp. 436 at p. 441 (S.D. N.Y. 1992). 49 In Canastrand Industries v. The Lara S [1993] 2 F.C. 553 at p. 616, (1993) 60 F.T.R. 1 at p. 43 (Fed. C. Can.), subsequent changes in market value several years after discharge were not deemed relevant for calculating A.S.M.V. See also Minerais U.S. Inc. v. M/V Moslavina 46 F.3d 501 at p. 502, 1995 AMC 1209 at p. 1211 (5 Cir. 1995); BP N. Amer. v. Solar 250 F.3d 307 at p. 312, 2001 AMC 1844 at 1848 (5 Cir. 2001), where the market value rule was found to be settled law in the Fifth Circuit, requiring that damages be calculated based on market values at the time the cargo was discharged. 50 This principle adopted by Hague Rules jurisprudence has been codified into the Visby Rules at art. 4(5)(b) para one. On non-delivery of cargo generally in English law, see H. McGregor, McGregor on Damages, 16 Ed., Sweet & Maxwell, London, 1997 at paras. 1161-1167. 51 38 A.D. 2d 341 at p. 343, 329 N.Y. Supp. 2d 388 at p. 390, 1972 AMC 965 at p. 967 (N.Y. App. Div., 1972).

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In order to complete its contract, by effecting delivery, the carrier was required to discharge its cargo to a fit and safe place on a pier or wharf, furnish notice to the consignee of its availability and afford the consignee a reasonable opportunity to take the goods away.

Since the plaintiffs cause of action accrued, and the period of limitation began to run from the date the goods should have been delivered the measure of damages must also be applied as of that date...

3) Calculating A.S.M.V.

Arrived sound market value is difficult to calculate unless there is a market with published listings at the place of discharge, as is sometimes the case with widely traded commodities such as grain, rubber and sugar.52 In Levatino v. American President Lines,53 it was held in respect to a shipment of chestnuts that:

Under the long established law the applicable values are those which prevail on the dates of the ships arrival...

As there were no sales published in the New York Daily Report for that day, the nearest sales dates govern.

In The Arpad Greer L.J. held:54

If there is a market at the time when the goods should be delivered in which goods of a kind fit to implement the contract made by the owner of the bill of landing at the time of breach can be bought or sold, the measure of damage is the value of the goods ascertained by the market price of identically similar goods. When there is no such market, the value must be otherwise ascertained, and the price at which the holder of the bill of landing has in fact sold them five months before is not very satisfactory evidence of their value at the time of the breach. 55

52 See, for example, Minerais U.S. Inc. v. M/V Moslavina 46 F.3d 501 at p. 503, 1995 AMC 1209 at p. 1211 (5 Cir. 1995): Published market quotations of bulk commodities provide simple proof of market value and damages so as to support application of the market-value rule. See also the Hague/Visby Rules, art. 4(5)(b), second para., which similarly provides that the value of the goods shall be fixed according to the commodity exchange price. Only if there is no such price, is the value determined by the current market price or, in the absence of both those prices, by the normal value of goods of the same kind and quality. 53 1965 AMC 2386 at p. 2393 (S.D.N.Y. 1965). Consumer Distributing v. Dart Container Line (1980) 31 N.R. 181 (Can. Fed. C.A.); The Juno [1986] 1 Lloyds Rep. 190 at p. 194. 54 (1934) 49 Ll. L. Rep. 313 at p. 320. The Visby Rules at new art. 4(5)(b) give in effect the same rule. See The Kefalonia Wind [1986] 1 Lloyds Rep. 273 at pp. 289-90. See also the decision in Neptune Orient Lines, Ltd. v. Burlington Northern R.R. Co. 213 F.3d 1118, 2000 AMC 1785 (9 Cir. 2000), affirming the market value of goods at destination as the proper criterion. 55 The Texaco Melbourne [1993] 1 Lloyds Rep. 471 at pp. 488-489 (C.A.), upheld [1994] 1 Lloyds Rep. 473 (H.L.).

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In The Texaco Melbourne, the House of Lords reiterated the point.56

It has long been established that, in claims by a goods owner against a carrier for non-delivery of the goods, the damages recoverable by the goods owner are such as will put him into the position he would have been in if the goods had been duly delivered, and are therefore the value of the goods at the time when, and the place where, they should have been delivered. The question arises: how is that value to be ascertained? This depends on whether there is an available market for the goods in question. If there is an available market for the goods, the prima facie rule is that the value is assessed by reference to the market price on the date when the goods should have been delivered. If there is no available market, then the value of the goods at the relevant time and place has to be ascertained as best it can on the available evidence;

Courts have sometimes made the calculation of A.S.M.V. less A.D.M.V. by

deciding by what percentage representative samples of the cargo have depreciated and then applying that percentage to the arrived sound market value.57 If the shipment is a large shipment, the arrived sound market value of the shipment must be taken as a single unit, and the closest practical measure of this value is wholesale value.58

In Esso Nederland v. Trade Fortitude,59 it was held that the measure of damages should not be based on the price of the cargo sold to an affiliate but should be based on prices established in arms length agreements.60 Similarly, the value at which goods were 56 [1994] 1 Lloyds Rep. 473 at p. 479 (H.L.). 57 The S.S. Sweepstakes 87 F. Supp. 913 at p. 915, 1950 AMC 209 at p. 211 (W.D. Wash. 1949). See also U.S. v. Central Gulf Lines 575 F. Supp. 1430, 1985 AMC 595 (E.D. La 1983). In Trade Arbed v. Swallow 688 F. Supp. 1095, 1989 AMC 2218 (E.D. La. 1988), the court awarded a lodestar factor of 10% for rusted steel. This additional 10% was added to the amount of the discounts of the invoice value of the damaged steel negotiated by the parties in respect of particular bills of lading, in order to reflect the likelihood that other cargo in addition to the damaged sample surveyed might have been damaged by sea water as well. See also Redpath Industries Ltd. v. Fednav Ltd. (1993) 63 F.T.R. 131 at pp. 142-143 (Fed. C. Can.), where the depreciation in the A.S.M.V. of a cargo of raw sugar which had been wetted in transit was calculated according to the degree of its reduced polarity (i.e. the diminution of its sucrose content) below the generally recognized norm of 96% established by the Rules of the London Sugar Association. A similar method of assessing the true damages in this situation was endorsed in Redpath Industries Ltd. v. The Cisco [1994] 2 F.C. 279 at pp. 307-308, 1994 AMC 1484 at pp. 1502-1504 (Fed. C.A.), leave to appeal dismissed without reasons, October 13, 1994, [1994] S.C.C.A. No. 80. 58 The Trade Wind v. David McNair & Co. [1956] Ex. C.R. 228 at p. 234, affirmed [1954] Ex. C.R. 450 that the claimant was entitled to recover from the carrier the difference between the sound wholesale market value of the cargo and the damaged wholesale market value at the place and date of the breach. See also Neptune Orient Lines, Ltd. v. Burlington Northern R.R. Co. 213 F.3d 1118, 2000 AMC 1785 (9 Cir. 2000), where the market value at destination of a lost container of shoes was held to be the wholesale price of the shoes, rather than the price paid to their manufacturer. The wholesale value was found to be the appropriate measure of damages, particularly as the shoes could not be replaced, so that replacement value could not be used to mitigate the loss. In Minerais U.S. Inc. v. M/V Moslavina 46 F.3d 501, 1995 AMC 1209 (5 Cir. 1995), however, the wholesale price was not seen as appropriate. 59 1977 AMC 2144 (S.D. N.Y. 1977). 60 See also Cour de Cassation, November 28, 1995, DMF 565, 1025; the Belgian Cour de Cassation; January 17, 1992, [1992] ETL 456, where market value itself might at times be a distortion.

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pre-sold (i.e. resold by the buyer before their actual or expected delivery to him) has not been considered a reliable indicator of their A.S.M.V. at the time and place of delivery.61

If the goods never arrive, the measure of damages should be arrived sound market value less freight,62 if (of course) freight is unpaid and due. Alternatively, the cost to the buyer of the undelivered goods of replacing them with goods of the same kind and quality is sometimes taken as the proper measure of their notional arrived sound market value. 63 The measure of damages is then computed by deducting from that replacement cost the sum of: a) any residual value of the goods at the place of loading; b) the amount of the freight; and c) the amount of the insurance on them.64

The essence of the foregoing principles of calculating A.S.M.V. has been codified in the Visby Rules at art. 4(5)(b), para. two. That provision requires the value of the goods to be fixed according to: a) the commodity exchange price, or absent such price, b) the current market price, or, where neither of such prices exists, c) the normal value of goods of the same kind and quality.65 4) Profits and expenses

Reconstructing arrived sound market value is difficult. Although C.I.F. (cost-insurance-freight) value is easier to calculate, it is not a true measure of damages, because arrived sound market value will include not only cost, insurance and freight, but also customs duties (which may be refunded, however), administrative expenses (for arranging the purchase and shipment) and a fair margin of profit. 61 See The Texaco Melbourne [1993] 1 Lloyds Rep. 471 at p. 488 (C.A.), upheld [1994] 1 Lloyds Rep. 473 (H.L.) If there is evidence of a market price, the price at which goods have been pre-sold is irrelevant. See also Rodocanachi v. Milburn (1887) 18 Q.B.D. 67 at p. 76 (C.A.). In Neptune Orient Lines, Ltd. v. Burlington Northern R.R. Co. 213 F.3d 1118, 2000 AMC 1785 (9 Cir. 2000), however, the wholesale price of shoes in a lost container, based on pre-sale figures for such shoes, was the basic evidence relied upon as to the market value of the shoes at destination, in awarding damages to the plaintiff carrier in its indemnity action against the railway responsible for the loss. 62 Goltzman v. Rougeot 122 F. Supp. 700, 1955 AMC 361 (W.D. La. 1954).; Rodocanachi v. Milburn (1886) 10 Q.B.D. 67 at p. 76 (C.A.), cited with approval in the Texaco Melbourne [1993] 1 Lloyds Rep. 471 at p.475 (C.A.), upheld [1994] 1 Lloyds Rep. 473 (H.L.). See also Scrutton, 20 Ed., 1996, art. 195 at pp. 397-398. Where the carrier breaches the contract by loading and delivering only part of the cargo, the shipper, if he can charter space on a substitute vessel, may claim the difference between the market rate of freight (the freight payable for carrying that remaining cargo aboard the substitute ship) and the contract rate (the freight that would have been payable for carrying it under the original contract of carriage). See Scrutton, 20 Ed., 1996, art. 194 at p. 396. 63 See Williams Brothers v. E.T. Agius Ltd. [1914] A.C. 510 at pp. 530-531 (H.L.). There is, however, no obligation on the buyer to replace the undelivered cargo. Nor may be measure of damages necessarily be determined by reference to the replacement cost of the goods in any market other than the market of their original destination. See The Texaco Melbourne [1993] 1 Lloyds Rep. 471 at pp. 475 and 489 (C.A.), upheld [1994] 1 Lloyds Rep. 473 (H.L.). 64 The Kriti Rex [1996] 2 Lloyds Rep. 171 at pp. 193 and 194. 65 The Belgian Cour de Cassation, January 17, 1992, [1992] ETL 456, in calculating the normal value of goods of the same kind and quality, refused to take account of the purchase price of the goods concerned, which it held was artificially inflated by EEC subsidies. See also the Swedish Maritime Code 1994, ch. 13, sect. 29, second para., which repeats the Hague/Visby provision almost verbatim.

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Compensating profit losses is generally accepted in marine cargo claims, under

the restitutio in integrum principle.66 Calculating a fair margin of profit to add to costs is difficult, however. There is no rule of thumb and the facts of each case must be weighed and conclusions drawn individually. The plaintiff must adduce sufficient evidence to establish a) that it has been deprived of expected profits as a result of the causative fault or negligence of the defendant; and b) the quantum of that loss.67 Contracts for the resale of the lost or damaged merchandise may prove lost profits, but evidence of similar sales of equivalent goods in the relevant time period has also been held sufficient in some cases.68

15% profit was added to C.I.F. value in Crelinsten Fruit Co. v. The Mormacsaga.69 In Dixie Plywoood Co. v. S.S. Federal Lakes,70 15% profit was awarded.

The civil law is specific about profits:

1149 c.c (France). Les dommages et intrts dus aus crancier sont, en gnral, de la perte faite et du gain dont il a t priv, sauf les exceptions et modifications ci-aprs.

(translation). Damages due to a creditor are in general the loss which he has sustained and of the profit of which he has been deprived, subject to the following exceptions and modifications.

Equivalent articles of the civil codes of Quebec,71 Louisiana72 and other civil law

jurisdictions73 are to the same effect. 66 See, for example, Vallerina Fashions, Inc. v. Hellman International Forwarders, Inc. 879 F. Supp. 138 at p. 140, 1996 AMC 1201 at p. 1205 (S.D. N.Y. 1995): if Plaintiff can offer sufficient evidence tending to prove its loss, lost profits are indeed recoverable. COGSA was not meant to abrogate common law contract remedies. Quite the contrary, in keeping with the common law, the primary object in awarding damages under COGSA is to indemnify the plaintiff for the loss sustained by reason of the carriers fault. See also Standard Commercial Tobacco Co., Inc. v. M/V Recife 827 F. Supp. 990 at p. 1003, 1994 AMC 1208 (sum.) (S.D. N.Y. 1983). 67 In Goldenberg v. World Wide Shippers & Movers, Inc. 236 F.2d 198 at p. 202 (7 Cir. 1956), it was held: The breach of contract having prevented such profits from being made, conclusive proof is impossible. The injured party is permitted to introduce evidence tending to establish the damage and no greater degree of certainty of proof is required than for any other fact essential to be established in a civil action.. 68 See Vallerina Fashions, Inc. v. Hellman International Forwarders, Inc., supra, where the plaintiff succeeded in proving loss of profits by showing sales figures for two types of jeans comparable to those damaged or lost in the shipment concerned, but failed to prove lost profits on a third type of jeans included in the same shipment which the plaintiff had never before marketed or sold and for which it therefore had no comparable sales figures. 69 [1968] 2 Lloyds Rep. 184 at p. 192, 1969 AMC 202 at p. 206 (Ex. C. Can.). 70 404 F. Supp. 461, 1976 AMC 439 (S.D. Ga. 1975), affd without opinion, 525 F.2d 691 (5 Cir. 1975), cert. denied, 425 U.S. 974, 1976 AMC 1498 (1976). 71 Art. 1611 c.c. (Quebec, 1994). 72 1995 c.c. (Louisiana). Damages are measured by the loss sustained by the obligee and the profit of which he has been deprived. See also Tribunal de Commerce de Rouen, February 23, 1962, DMF 1962, 294 at p. 297:

(translation)

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Claims for lost profits are not always allowed in practice, however. For example,

if the shipper whose cargo has been destroyed or harmed at or before loading purchases, or could easily purchase, replacement goods (i.e. goods of the equivalent kind and quality) in the place of shipment, he may be able to realize the equivalent profit on their resale in the place of destination to the profit he would have made had the original goods been shipped there undamaged. In this case, courts will often restrict the claimants award to the replacement cost of such substituted goods, plus related administrative expenses, less any salvage value realized on the damaged goods.74 The claimant will not be indemnified for profits lost on the original shipment, unless such loss could not have been averted by reasonable measures.75

The Chinese Maritime Code 1993 also appears to rule out loss of profits, by rigidly limiting the actual value of the goods lost or damaged to the value of the goods at the time of shipment plus insurance and freight (i.e. CIF value), less deductions for expenses reduced or avoided as a result of the casualty.76 5) Quick calculations for settlements

The practice of taking invoice value or C.I.F. value and then deducting salvage, although giving an immediate figure unjustifiably favours the carrier, because C.I.F. is not arrived sound market value,77 while salvage is arrived damaged market value. It would be fairer to deduct from C.I.F. value the salvage value at the place of shipment. (It is, of course, unlikely that such a salvage figure is obtainable).

Claimants usually claim insured value in any event, which is C.I.F. or invoice value plus 10%, 15% or 20%, etc.78 Although insured value is often close to arrived sound market value, it is not evidence of true value. One practical compromise is to settle

the carrier is responsible for all the damage suffered by the consignee, such damage including both the loss suffered and the profit lost, those two elements together being the value of the merchandise at destination on the day of discharge

73 Art. 1223 c.c. Italy and art. 1106 c.c. (Spain). 74 See, for example, Caterpillar Overseas, S.A. v. Farrell Lines, Inc. 1988 AMC 2894 at pp. 2904-2905 (E.D. Va. 1988), where a tractor, damaged prior to loading, was sold for its salvage value. Because the plaintiff shipper could have procured another similar tractor, shipped it and realized an equivalent profit on its resale in the country of destination, there was held to be no actual loss justifying an award of damages for loss of profits. The shipper was therefore compensated only for the replacement cost of a similar tractor, less the salvage value realized on the damaged one, plus expenses incurred in transporting the damaged tractor to be surveyed and costs of the salvage sale. 75 See also Vallerina Fashions, Inc. v. Hellman International Forwarders, Inc. 897 F. Supp. 138 at p. 140, 1996 AMC 1201 at p. 1204 (S.D. N.Y. 1995): Accordingly, courts award anticipated profits where the plaintiff satisfactorily shows that profits [were] in fact lost and [were] not realizable by substitution of other goods. See also other authorities cited there. In that case, lost profits were awarded, because there were no comparable goods available in the market which could have been substituted for the damaged ones so as to mitigate the loss, and because the quantum of the loss of profits claimed was sufficiently proven. 76 Chinese Maritime Code, art. 55, second and third paras. 77 See Yeramex International v. S.S. Tendo 1977 AMC 1807 at p. 1837 (E.D. Va. 1977). 78 Cour dAppel dAix, March 6, 1980, DMF 1980, 652, where the insured value was awarded rather than the invoice value.

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for a sum halfway between C.I.F. value and insured value, but this compromise is valuable only for settlements out of court. In court, the measure is arrived sound market value, less arrived damaged market value where this can be ascertained.79

If, of course, damaged goods sell for the same sum as undamaged goods, then there is no claim. In Instituto Cubano v. Star Line,80 however, where the damaged cargo was transported to destination for storage and not for sale in the foreseeable future, the measure of damages was held to be the purchase price at embarkation plus freight and custom duties. C.I.F. value is sometimes awarded, rather than market value, where owing to special circumstances, it is better able to compensate the claimant for his full loss.81 6) Less normal deterioration (freinte de route)

Certain cargoes normally shrink, evaporate or deteriorate with time and such loss is expected no matter how careful the carrier has been. This in transit deterioration or freinte de route cannot be included in the claim.82 Where, however, there is complete non-delivery, the freinte de route is not normally taken into consideration. There has been confusion over what is to be attributed to freinte de route as opposed to imprecise measurements of some goods83. Under the Hague and Hague/Visby Rules and U.S. COGSA 1936, the carrier and the ship benefit from the freinte de route defence, because they are exempt from

79 In Swallow, the court took invoice value in a soft market as fair market value. 80 1958 AMC 166 (Arb. N.Y. 1957). 81 See, for example, Roco Carriers v. Nurnberg Express 1991 AMC 398 (S.D. N.Y. 1990), where cigarette lighters were stolen while in the custody of a warehouseman prior to loading for Germany. The plaintiff shipper, after repaying the German consignee/buyer the C.I.F. value of the stolen lighters, sued the warehouseman in an indemnity action. Because the C.I.F. value of the lighters was higher than their market value at the time and place of the conversion (the normal measure of damages for conversion under the applicable New York state law), C.I.F. value was awarded, so as to fully indemnify the shipper for what it had paid the buyer. 82 See Chap. 12, Loss or Damage to Cargo. See Sun Oil Co. v. Carisle 771 F.2d 805, 1986 AMC 305 (3 Cir. 1985). See also Instituto Cubano v. Star Line 1958 AMC 166 (Arb. N.Y. 1957) ibid., where the damages awarded by arbitrators for the loss to molasses were based on the short delivery less 1% customary innage. See also Thyssen v. Fortune Star F.2d 57, 1986 AMC 1318 (2 Cir. 1985), where compensatory damages based on a depreciation allowance was allowed even in the absence of proof that this depreciation was in fact reflected in the sale price received from the consignees customers. 83 There has been much contention over the measurement of liquids, especially oil: Kerr McGee Refining Corp. v. La Libertad [1988] ETL 325 (S.D.N.Y. 1981); Sun Oil Co. v. Mercedes Maria [1988] ETL 336 (S.D.N.Y. 1982); Sun Oil Co. v. Carisle Ore Transport [1988] ETL 345 (S.D.N.Y. 1985); Palmco Inc. v. American President Lines 1978 AMC 1715 (D. Oreg. 1978); Amoco Oil Co. v. Parpada Shipping [1988] ETL 361 (Q.B. 1986); Indian Oil Corp. v. Greenstone [1988] ETL 373 (Q.B. 1987); Rechtbank van Koophandel te Antwerpen, September 8, 1987, [1988] ETL 299; Ins. Cy North America v. S.S. Globe Nova, May 19, 1986, [1987] ETL 391 (S.D.N.Y. 1987); Sentenza Arbitrale, March 20, 1987, [1987] ETL 703; Cour dAppel de Paris, January 16, 1985, [1988] ETL 283; Rechtbank van Koophandel te Antwerpen, April 7, 1982, [1988] ETL 289.

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liability for cargo loss or damage caused by wastage in bulk or weight (freinte en volume ou en poids).84 7) Customs duties

Customs duties, where not refunded or refundable, are a valid constituent of arrived sound market value.85 8) Measure when responsibility divided

Where the damage is caused in part by an act or fault for which the carrier is responsible and in part by an act or fault for which the carrier is not responsible, the carrier must be able to make proof sufficient to separate the damage resulting from one cause from the damage resulting from the other, or in the alternative be held responsible for the whole claim. This is known as the Vallescura Rule.86

The earliest application of this rule by a court of high authority to a case involving the Hague Rules was in 1928 in Gosse Millerd Ltd. v. Canadian Government Merchant Marine.87 The rule was restated by Hobhouse J. in The Torenia.88 More recently, Judge Diamond, relying on both Gosse Millerd and The Torenia, repeated the principle very clearly in The Fiona:89

84 Hague and Hague/Visby Rules, art. 4(2)(m) and U.S. COGSA 1936, 46 U.S.C. Appx. 1304(m). See, for example, National Distillers Products Corp. v. Companhia Nacional de Navegacao and Reading Co. 1952 AMC 1613 (E. D. Pa. 1952) (2% normal shrinkage of port wine); Schroeder Bros, Inc. v. M/V Saturnia 1958 AMC 1785 (S.D. N.Y. 1958) (normal shrinkage of 2% of unrefrigerated chestnuts); Shui Fa Oil Mill Co., Ltd. v. M/S Norma 1976 AMC 936 (S.D. N.Y. 1976) (natural shrinkage of 1.73% in a soybean cargo); Amoco Oil Co. v. M/V Lorenzo Halcoussi 1984 AMC 1608 at p. 1616 (E.D. La. 1983) (0.225% held to be normal industry-recognized los allowance resulting from evaporation and clinging to ships cargo hold of Saharan mlange crude oil carried from Algeria to Louisiana). See also Gatoil International Inc. v. Tradax Petroleum Ltd. [1985] 1 Lloyds Rep. 350; Shell International Petroleum Co. v. Seabridge Shipping Ltd. [1977] 2 Lloyds Rep. 436; Spencer Kellogg v. S.S. Mormacsea 703 F.2d 44 at p. 45, note 2, 1983 AMC 1524 at p. 1526 (2 Cir. 1983) (0.5% normal trade allowance for oil). 85 Variety Textile Manufacturers v. The City of Columbo [1977] 2 F.C. 127, 1977 AMC 1148 (Fed. C. Can.), upheld in appeal (1978) 83 D.L.R. (3d), [1978] 2 F.C. 551 (Fed. C.A). See also The Ocean Dynamic [1982] 2 Lloyds Rep. 88 at p. 93; Club Coffee Co. Ltd. v. Moore McCormack Lines [1968] 2 Ex. C.R. 365, 1968 AMC 1749, [1968] 2 Lloyds Rep. 103. 86 Vallescura (Schnell v. Vallescura) 293 U.S. 296 at p 306, 1934 AMC 1573 at pp. 1577-1578 (1934); Vana Tradg. Co. v. S.S. Mette Skou 556 F.2d 100, 1977 AMC 702 (2 Cir. 1977); Commonwealth v. Burns Philip & Co. Ltd. (1946) 46 S.R. (N.S.W.) 307; 63 W.N. 211 (N.S.W. Sup. Ct.); Trade Arbed v. Lagada Bay 1985 AMC 1766 (S.D. Ga. 1982); C. Itol & Co. (America) Inc. v. M/V Hans Leonhardt 719 F. Supp. 479 at p. 502, 1990 AMC 733 at p. 740 (E.D. La. 1989) (a Harter Act case); Thyssen, Inc. v. S/S Eurounity 1994 AMC 393 at p. 399 (S.D. N.Y. 1993), affd 21 F.3d 533, 1994 ASMC 1638 (2 Cir. 1994) (see in particular Chap. 12, Loss or Damage to Cargo, supra). 87 (1928) 32 Ll. L. Rep. 91 at p.98, [1929] A.C. 223 at p. 241 (H.L.). This dictum was said to be obiter dictum in Government of Ceylon v. Chandris [1965] 2 Lloyds Rep. 204 at p. 216 but was followed nevertheless. 88 [1983] 2 Lloyds Rep. 210 at p. 218. 89 [1993] 1 Lloyds Rep. 257 at p. 288.

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It has long been held in construing exceptions clauses in contracts for the carriage of goods by sea, both at common law and in the context of the Hague and Hague-Visby Rules, that where the facts disclose that the loss was caused by the concurrent causative effects of an excepted and a non-excepted peril, the carrier remains liable. He only escapes liability to the extent that he can prove that the loss or damage was caused by the excepted peril alone;

Thus, for example, if a peril of the sea (as understood in art. 4(2)(c) of the Hague or Hague/Visby Rules) and failure to care for the cargo (contrary to art. 3(2) of the same Rules) are determined to be concurrent causes of the damage, the carrier is responsible for the entire loss unless he shows what portion of the damages was due to the peril.

The evidence required of the carrier to distinguish the two types of damage need not be overwhelming but reasonable proof or even a rough and ready estimate.90 The rule has been codified at art. 5(7) of the Hamburg Rules.91 Art. 5(7) provides:

Where fault or neglect on the part of the carrier, his servants or agents combines with another cause to produce loss, damage or delay in delivery the carrier is liable only to the extent that the loss, damage or delay in delivery is attributable to such fault or neglect, provided that the carrier proves the amount of the loss, damage or delay in delivery not attributable thereto.

The Chinese Maritime Code 1993 also contains a codification of the Vallescura Rule,92 as does the Swedish Maritime Code 1994.93 France has taken a slightly different approach to the problem of mixed causation of cargo loss or damage. Where one of the causes of the loss or damage is the fault of the carrier, and the other is one of the excepted perils under the Rules that is within the sphere of diligence94 of the shipper (e.g. defective packing, inherent defect of the goods, fault of the shipper or owner of the goods), French courts have held the carrier only partially responsible.95 In cases where the carriers fault is combined with another 90 Silver v. Ocean S.S. Co. (1929) 35 Lloyds Rep. 47 at p. 54. See also The Aliakmon [1983] 1 Lloyds Rep. 203 at p. 210. 91 United Nations Convention on the Carriage of Goods by Sea, 1978, in force November 1, 1992. 92 Chinese Maritime Code 1993, art. 54, which makes the Vallescura principle applicable to the carriers liability for delay in delivery, as well as his liability for loss or damage to the goods. The carriers excepted perils under the Code (art. 51) are generally similar to those of the Hague and Hague/Visby Rules, art. 4(2). 93 Swedish Maritime Code 1994, ch. 13, sect. 25, third para. 94 The term sphere of diligence and the related theory of mixed causation derive from the writings of Alain Sriaux in his work, La faute du transporteur, 2 Ed., Economica, Paris, 1998 at paras. 209 et seq. See generally W. Tetley, International Maritime and Admiralty Law, 2002 at p. 100. 95 See Cour de Cassation, March 5, 1996 (The Diego and the Aquitania), DMF 1996, 507, commentary by P. Bonassies, DMF Hors srie no. 1, 1997, no. 71 at p. 56; Cour de Cassation, November 26, 1996 (The World Navigator), DMF 1997, 798, note R. Achard; Cour de Cassation, January 20, 1998 (The Red-Sea-Elbe), DMF 1998, 578, note P. Delebecque.

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contributory causes falling outside the shippers sphere of diligence, however (e.g. peril of the seas or restraint of princes), the carrier has been held liable for the whole of the damage, provided that the carriers fault is found to have constituted a continuing, proximate cause of the loss when it was sustained (i.e. that but for that fault, the loss or damage would not have occurred).96 9) Actual loss COGSA

COGSA contains an additional sentence at sect. 1304(5), third para., as follows:

In no event shall the carrier be liable for more than the amount of damage actually sustained.

The provision probably excludes only punitive damages and in any event sect.

1305 would permit any damages, even punitive damages, by agreement in the bill of lading. Nevertheless sect. 1304(5), third para., last sentence, has influenced U.S. decisions.

In Internatio v. Taimyr,97 the cargo owner admitted that, if the whole shipment of coffee had been delivered intact, it would have resulted in a price of $0.91 per lb., rather than the price of $2.01 per lb. realized for the smaller undamaged portion of the shipment. The Court properly fixed A.S.M.V. at $0.91 per lb. and sect. 1304(5), third para., was specifically referred to.98 The peculiar decision in A.L. Holden v. S.S. Kendall Fish99, however, is an example of misinterpreting sect. 1304(5) third. para., last sentence, and ignoring sect. 1305.

The principle of damage actually sustained is part of the philosophy of American courts, which are more concerned with equities than technicalities.100 Thus U.S. courts have ruled that, as long as damage has actually been incurred, it is immaterial whether it was sustained by the shipper or the consignee or some other interested party. In this spirit, the U.S. Court of Appeals, in Salzman Tobacco v. Mormacwind,101 rejected

96 Chambre Arbitrale Maritime de Paris, Sentence no. 971, October 24, 1997, DMF 1998, 706, commentary by P. Bonassies, DMF Hors srie o. 2, 1998, no. 111 at p. 72; Cour de Cassation, July 7, 1998 (The Atlantic Island), DMF 1998, 826, note P. Bonassies. 97 602 F.2d 49, 1979 AMC 2249 (2 Cir. 1979). See Trade Arbed v. Lagada Bay 1985 AMC 1766. 98 Ibid., 602 F.2d at p. 50, 1979 AMC at p. 2250. See also Fireman's Fund v. Vigsnes 1986 AMC 1899 (N.D. Fla. 1985). 99 362 F. Supp. 862, 1967 AMC 327 (E.D. La. 1966); 395 F.2d 910, 1968 AMC 200 (5 Circ. 1968). See discussion re invoice clauses infra. 100 See also U.S. Carmack Amendment, 49 U.S.C. sect. 11706(a) whereby damages are to be measured by the actual loss or injury to the property. See also Holden v. S.S. Kendall Fish 395 F.2d 910 at p. 913, 1968 AMC 2080 at p. 2083 (5 Cir. 1968), where, in upholding the district courts decision that the proper measure of damages was the market value at the port of destination of the damaged goods, rather than their (higher) invoice value, the Fifth Circuit held: We, therefore, find that the district court exercised its abundance of discretion in consonance with the conscience of equity. (Emphasis added). 101 371 F.2d at p. 540, 1967 AMC 277 at p. 281 (2 Cir. 1967). See also Kukje American v. Sanko Maple 1986 AMC 2901 (5 Cir. 1986), where, although the cargo owner had been able to sell the damaged pipe without reconditioning for 100% of its insured market value, the Court permitted the cargo owner to

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the shipowner's argument that the consignee should not be permitted to recover for cargo damage because the 5% loss in market value was not suffered by him but was passed along to the shipper with whom the consignee had a close business relationship. The Court explained:

'amount of damage actually sustained' refers to the actual reduction in the value of the cargo, and that section 4(5) was not intended to alter the long-established rule that an owner or consignee may recover for damage to cargo, and that, being protected against double recovery, the carrier has no concern with any equities between the owner or consignee and others.

In Dixie Plywood Co. v. S.S. Federal Lakes et al.,102 it was held that:

market value is only one method of ascertaining the loss to the shipper.

the measure of recovery for breach of a contract of affreightment is the actual damage sustained.

The court awarded invoice price plus costs of transportation, import duties, and

profit of 5% less salvage. The shipper had sold at only 5% profit despite the fact that at the time of discharge there was a wholesale mark-up of 15% plus a retail markup of 25%. As the shipper did not have to buy at retail to comply with his commitments, he was therefore awarded only 5% profit. The damages actually sustained restriction has been used in various ways, depending on the facts of each case, for example, to preclude compensation for lost profits where they had not yet actually been lost,103 and sometimes to limit damages to market value at destination, thus ruling out even higher sums sought by the plaintiff for repairs of the damage sustained.104 IV. Invoice Value & C.I.F. Clauses etc. 1) Relieve or lessen recover additional damages based on a depreciation allowance, because it was proved that ultimate buyers often demand rebates as long as five years after the shipment of pipe has been received at the warehouse. 102 404 F. Supp. 461 at pp. 465 & 466, 1976 AMC 439 at pp. 444 & 445 (S.D. Ga 1975); see also Samincorp. v. Rivadeluna, 276 F. Supp. 251, 1968 AMC 1062 (D. Del 1967). 103 In Caterpillar Overseas v. Farrell Lines 1988 AMC 2894 at pp. 2904-2905 (E.D. Va. 1988), loss of profits was refused where there had been no actual loss, because a replacement machine could have been purchased by the plaintiff shipper in the port of loading and the profits lost on the damaged machine made up on subsequent resale of the substituted machine in the country of destination. 104 In ETS Gustave Brunet, S.A. v. M.V. Nedlloyd Rosario 929 F. Supp. 694 at pp. 710-711, 1997 AMC 804 at pp. 827-829 (S.D. N.Y. 1996), the loss of fair market value on three damaged lace-making machines was awarded, rather than the sum sought by the plaintiff to cover the costs of their complete repair, reconditioning and parts replacement, which sum amounted to over six times the original purchase price of the machines.

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Art. 3(8) of the Hague Rules invalidates clauses relieving the carrier from liability or lessening such liability otherwise than as provided in the Rules (emphasis added). The Hague Rules do not define what measure of damages should apply in quantifying liability, but one must conclude that restitutio in integrum governs. The Visby Rules at art. 4(5) have fixed the value as Arrived Sound Market Value (A.S.M.V.).

The courts have held that invoice value clauses in bills of lading105 are null and void under the Hague Rules and the Harter Act, the leading decision being Nabob Foods Ltd. v. The Cape Corso,106 where Sidney Smith J. cut clearly through old decisions under the Harter Act (sect. 1 of which refers only to being relieved from liability) and concluded that any clause which relieved or lessened liability for arrived sound market value was invalid. Many other decisions are to the same effect,107 although certain judgments have upheld this kind of provision in specific cases.108 In Club Coffee Co. Ltd. v. Moore McCormack Lines,109 a C.I.F. value clause would have been held invalid under COGSA had it applied. The shipment was from Brazil (which has not adopted the Hague Rules) to Canada (whose law only applies outward) so that no Hague Rules legislation was applicable of its own force.

Art. 4(5) of Visby is such that an invoice value clause or any other clause imposing liability of less than Arrived Sound Market Value would be void.110 Courts tend, at any rate, to construe such clauses narrowly.111

105 The following is an example of an invoice value clause: Any claim for which the Carrier may be responsible shall be adjusted and settled on the basis of the Merchant's net invoice cost plus freight and insurance premium, if paid, and in no event shall the Carrier be responsible for any loss of profit or consequential loss. 106 [1954] Ex. C.R. 335, [1954] 2 Lloyds Rep. 40 (Ex. C. Can.). 107 The Steel Inventor 35 F. Supp. 986, 1941 AMC (D. Md. 1940). Pan-Am Trade & Credit Corp. v. The Campfire 1946 AMC 644 at p. 652 (S.D.N.Y. 1945), aff'd 156 F.2d 603 at p.606 (2 Cir 1946): The Harry Culbreath 1952 AMC 1170 (S.D.N.Y. 1951); Otis McAllister v. Skibs 260 F.2d 181, 1958 AMC 2432 (9 Cir. 1958); Holden v. S.S. Kendall Fish 262 F. Supp. 862 at pp. 864-865, 1967 AMC 327 at p. 329 (E.D. La. 1966), affd 395 F.2d 910, 1968 AMC 2080 (5 Cir. 1968); Tribunal de Commerce de Marseille, March 17, 1950, DMF 1950, 598; Foy & Gibson v. Holyman & Sons (1946) 79 Ll. L. Rep. 339. 108 See, for example, Plywood Panels Inc. v. M/V Sun Valley 804 F. Supp. 804 at p. 812, 1993 AMC 516 at p. 527 (E.D. Va. 1992), affd without discussion of this point, 4 F.3d 986, 1994 AMC 304 (4 Cir. 1993), enforcing a CIF value (settlement of claim) clause, particularly where the parties concerned had consistently accepted CIF value as the measure of damages in previous marine cargo claims over a course of dealing of some fourteen years. See also New York Marine & General Ins. Co. v. S/S Ming Prosperity 1996 AMC 1161 at p. 1171 (S.D. N.Y. 1996), where a similar clause was upheld under New York law, which the Court deemed applicable, rather than COGSA. 109 [1968] 2 Ex. C.R. 365, 1968 AMC 1749, [1968] 2 Lloyd's Rep. 103. See also Variety Textile Manufacturers Ltd. v. The City of Colombo [1977] 2 F.C. 127, 1977 AMC 1148 (Fed. C. Can.), where, however, the defendants had already settled the claim on the basis of the invoice value without raising any question as to the market value, the real dispute relating rather to the refund of the customs duties paid on the lost cargo. 110 See N. Gaskell, R. Asariotis & Y. Baatz, Bills of Lading: Law and Contracts, LLP Professional Publishing, London,, 2000 at para. 16.3, note 4, with reference to the clause of the P. & O. Nedlloyd Bill of Lading, cl. 7, which purports to limit the carriers liability for loss or delay to the sound value of the goods, defined as the FOB/FCA invoice value plus freight and insurance if paid. See also ibid., at para. 16.20, citing the third edition of this book on this point.

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A clause limiting damages to Arrived Sound Market Value (A.S.M.V.) less

Arrived Damaged Value (A.D.M.V.) would be valid under the Hague/Visby Rules because consequential damages are excluded under the Hague/Visby Rules at art. 4(5)(b). An A.S.M.V. less A.D.M.V. clause, however, would be invalid under the Hague Rules and the Hamburg Rules at art. 5(2) and art. 6(1)(b) respectively, which provisions specifically permit damages for delay.112

Other said to be clauses and reservations on the bill of lading can at times also be seen to be invalid in their implementation.113 2) Per package and restitutio in integrum

Of course the carrier is not ordinarily responsible for more than the package limitation, even if application of the restitutio in integrum principle would produce a higher recovery.114 In Shackman v. Cunard White Star,115 the bill of lading contained both a paramount clause invoking COGSA and a clause providing that, in the event of short delivery, the value of the goods should be market price at the port of destination. The market value of two packages was $18,707, but the Court held that the liability was only $500 per package, because the carrier, by including the paramount clause in the bill of lading, had intended to benefit from the COGSA limitation.

A bill of lading clause specifically permitting the value of the claim to be in excess of restitutio in integrum or A.S.M.V. less A.D.M.V. would be valid under art. 4(5)(g) of the Hague/Visby Rules or under art. 6(4) of the Hamburg Rules. Such a clause, however, would have to be properly drafted to overcome the per package limitation specified under the Rules (Hague at art. 4(5), or Visby at art. 4(5)(a) or Hamburg at art. 6(1)). 111 See The Ines [1995] 2 Lloyds Rep. 144 at p. 158, where Clarke, J. found that a bill of lading clause limiting the carriers liability for loss or damage to the goods to the lesser of: a) the net invoice cost of the goods and disbursements, plus freight and insurance, or b) the certified market price at the port of discharge on the day of the vessel's reporting at the Custom House, less all charges saved, was limited to cases of physical loss of or damage to the goods, and therefore did not apply to liability for their misdelivery to a third party without presentation of an original bill of lading. 112 Even though art. 6(1)(b) specifies that the carrier's liability for delay is limited to two and a half times the freight payable for the goods delayed (as long as that amount does not exceed the total freight payable under the contract of carriage), and even though art. 6(1)(c) specifies that the carrier's liability in any case cannot exceed the amount described in art. 6(1)(a), the parties can by agreement fix the limit of liability at a higher amount (art. 6(4)). 113 Cour de Cassation de France, February 22, 1983, ETL 1988, 277; Rechtbank van Koophandel te Antwerpen, April 7, 1982, [1988] ETL 1988; Rechtbank van Koophandel te Antwerpen, September 8, 1987, [1988] ETL 299; Hof van Beroep te Antwerpen, January 20, 1988, [1988] ETL 305. Some reservation clauses qualifying the apparent good order and condition of the goods have been upheld, however. See The GF Company v. Pan Ocean Shipping Company23 F.3d 1498, 1994 AMC 1739 (9 Cir. 1994), revg 795 F. Supp. 1001, 1992 AMC 2298 (C.D. Cal. 1992), Rechtbank van Koophandel te Antwerpen, February 16, 1993, [1993] ETL 903. 114 See Chap. 41, Package or Kilo Limitation , infra. 115 31 F. Supp. 948, 1940 AMC 971 (S.D.N.Y. 1940).

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A.L. Holden v. S.S. Kendall Fish116 raised an interesting question. The arrived sound market value of a shipment from North Africa to New Orleans was $7,656.84 and the bill of lading to which COGSA applied contained an invoice value clause. The invoice value of the loss was $20,027.13, but the district court and the Fifth Circuit limited the recovery to only $7,656.84 because the carrier was held not liable for more than the amount of damage actually sustained, as per 46 U.S. Code sect. 1304(5) (sect. 4(5) para. 2 of COGSA). Ignored by the Fifth Circuit and not prop