Eastern Shipping Lines, Inc. vs. BPI/MS Insurance Corp.

A common carrier may not limit its liability to US$500 per package under Section 4(5) of the Carriage of Goods by Sea Act when the shipper has declared the nature and value of the goods and paid freight based on that declared value. The statutory declaration requirement is satisfied even if the value and freight details are contained in an invoice referred to in the bill of lading, rather than written on the face of the bill of lading itself, provided the carrier judicially admits the invoice’s genuineness and due execution.

On 2 February 2004 and 12 May 2004, Sumitomo Corporation shipped two consignments of steel coils from Yokohama and Kashima, Japan, to Manila aboard vessels owned by ESLI. The cargo was consigned to Calamba Steel Center, Inc. and insured under all-risk marine policies issued by BPI/MS Insurance Corporation and Mitsui Sumitomo Insurance Company, Limited. After discharge, portions of both shipments were found dented and crumpled, rendering the coils unfit for their intended purpose. Calamba Steel rejected the damaged goods, filed claims against the carrier and the arrastre operator ATI, and subsequently collected from the insurers, who became subrogated to the consignee’s rights. The insurers then brought an action for damages against ESLI and ATI. The central factual dispute was whether the damage occurred while the steel coils were still in ESLI’s custody or during stevedoring operations by ATI.

• The First Shipment: On 2 February 2004, Sumitomo Corporation shipped 22 coils of steel sheet (159,534 kg) from Yokohama, Japan, to Manila aboard ESLI’s vessel M/V “Eastern Venus 22,” consigned to Calamba Steel Center, Inc. The shipment was covered by Bill of Lading No. ESLIYMA001 and Invoice No. KJGE-03-1228-NT/KE3, with a declared value of US$83,857.59, and insured under Marine Policy No. 103-GG03448834.

• The Second Shipment: On 12 May 2004, Sumitomo Corporation shipped 50 coils of steel sheet (383,532 kg) from Kashima, Japan, aboard M/V “Eastern Venus 25,” consigned to the same consignee, covered by Bill of Lading No. ESLIKSMA002 and Invoice No. KJGE-04-1327-NT/KE2, with a declared value of US$221,455.58, and insured under Marine Policy No. 104-GG04457785.

• Arrival and Damage: The first shipment arrived at the Port of Manila on 11 February 2004; the second on 21 May 2004. Upon discharge, it was discovered that part of both shipments was damaged—coils were dented and crumpled. The consignee’s representative requested a Bad Order Survey, and the consignee ultimately rejected the damaged goods as unfit for their intended purpose.

• Turnover Surveys: Signed Turn Over Survey of Bad Order Cargoes showed that for the first shipment, four coils and one skid were already partly dented and crumpled prior to turnover by ESLI to ATI; for the second shipment, a total of eleven coils were in damaged condition before turnover. These surveys were signed by representatives of both ESLI (including its surveyor Rodrigo) and ATI.

• Insurance Claim and Subrogation: Calamba Steel filed an insurance claim with BPI/MS and Mitsui for the total loss. After payment, the insurers became subrogated to the consignee’s rights and filed a complaint for damages against ESLI and ATI.

• Pre-Trial Stipulations: The parties admitted the capacity to sue and be sued, the existence and due execution of the bills of lading, the invoices, the marine cargo policies, the Requests for Bad Order Survey, and the Turn Over Surveys of Bad Order Cargoes. ESLI admitted the existence and due execution of the second shipment’s invoice (No. KJGE-04-1327-NT/KE2) and admitted the existence of the first shipment’s invoice (No. KJGE-03-1228-NT/KE3).

• Liability for the Damage: Petitioner maintained that the damage was caused exclusively by the rough handling of ATI’s stevedores during discharge and loading operations, as shown by the survey report of its own cargo surveyor, Rodrigo, and even the plaintiffs’ surveyor, Manuel; ESLI itself exercised due diligence and had no part in causing the damage.

• Limitation of Liability under COGSA: Petitioner invoked the US$500 per package limitation in Section 4(5) of COGSA, arguing that the bills of lading did not incorporate any declaration of a higher value; the mere reference to invoices in the bills of lading did not satisfy the statutory requirement that the shipper’s declaration be inserted in the bill of lading; petitioner had no actual knowledge of the value stated in the invoices; its admission of the invoices at pre-trial extended only to their existence, not their contents; and the notations “Freight Prepaid” and “As Arranged” did not prove an actual written declaration of value and payment of the corresponding extra freight.

• Finality of ATI’s Absolution: Petitioner argued that it was not obligated to implead ATI in the petition, asserting that it was respondents’ responsibility to seek reconsideration of the Court of Appeals’ absolution of ATI; the result was that ATI’s non-liability had become final.

• ESLI’s Negligence: Respondents countered that the cargo surveyor Manuel’s affidavit expressly stated that employees and forklift operators of both ESLI and ATI were negligent during discharge, precluding any claim that ESLI was faultless.

• Inapplicability of COGSA Limitation: Respondents argued that the limitation was unavailable because the shipper had declared the nature and value of the goods and paid freight based on that value; the bills of lading incorporated the invoices by reference, satisfying the declaration requirement; ESLI’s judicial admission of the invoices’ due execution barred any denial of knowledge of the declared value; it would be unjust for a carrier that accepted higher freight based on the declared value to later invoke the package limitation to reduce its liability.

• Finality of ATI’s Non-Liability: Respondents pointed out that ESLI failed to implead ATI in the petition, and because respondents did not appeal the CA’s ruling absolving ATI, that portion of the decision had become final and ATI was not an indispensable party to the present review.

• Carrier’s Liability: Whether ESLI is liable for the damage to the steel coils despite evidence that the damage may have been caused by the rough handling of ATI’s stevedores during discharge.
• Limitation of Liability: Whether ESLI may limit its liability to US$500 per package under Section 4(5) of COGSA given that the bills of lading referred to invoices stating the cargo’s value and freight payment but the value was not inserted in the bills of lading themselves.

• Carrier’s Liability: ESLI’s liability was sustained. The signed Turn Over Survey of Bad Order Cargoes established that several coils in both shipments were already partly dented and crumpled before they were turned over to ATI. A clean bill of lading constitutes prima facie evidence that the goods were received in good order; proof that the goods arrived in damaged condition raises a prima facie presumption of fault against the carrier, shifting the burden to the carrier to prove an exculpatory cause. ESLI offered no adequate explanation to rebut this presumption. The affidavit of plaintiffs’ surveyor Manuel additionally attributed negligence to ESLI’s own employees. The damage having occurred while the cargo remained in ESLI’s custody, the carrier was liable regardless of any subsequent mishandling by ATI.

• Limitation of Liability: The COGSA package limitation was not applicable. The statutory requirement that the nature and value of the goods be declared by the shipper and inserted in the bill of lading does not mandate that every detail be written on the face of the bill; incorporation of a detailed invoice by reference suffices. For the second shipment, the bill of lading described “various steel sheet in coil” with a weight of 383,532 kilograms, and the corresponding invoice—whose existence and due execution ESLI admitted at pre-trial—declared a value of US$186,906.35 and a freight payment of US$32,736.06. That admission constituted a binding judicial admission that could not be contradicted. For the first shipment, ESLI’s admission of the invoice’s existence, coupled with the bill of lading’s reference, produced the same effect. Where the shipper paid freight based on a declared higher value, it would be unjust to permit the carrier to reduce its liability to US$500 per package; the carrier that accepted value-based freight is estopped from invoking the limitation.

• Common Carrier’s Extraordinary Diligence and Prima Facie Presumption of Fault — Under Articles 1733 and 1734 of the Civil Code, common carriers are bound to observe extraordinary diligence over goods transported. Proof that goods were delivered in good order and arrived in damaged condition raises a prima facie case of fault, shifting the burden to the carrier to prove that the loss was due to one of the excepted causes. (Citing Belgian Overseas Chartering and Shipping N.V. v. Philippine First Insurance Co., Inc.)

• Clean Bill of Lading as Prima Facie Evidence — A bill of lading that contains no notation of defect is a “clean bill of lading” and constitutes prima facie evidence that the carrier received the goods as therein described. (Citing Lorenzo Shipping Corp. v. Chubb and Sons, Inc.)

• Judicial Admissions at Pre-Trial — Stipulations of fact made at pre-trial and embodied in the pre-trial order are judicial admissions that bind the parties, control the subsequent course of the action, and require no further proof. A party may not later take a position contrary to its admissions. (Rule 18, Sec. 7; Rule 129, Sec. 4, Rules of Court; Bayas v. Sandiganbayan; Alfelor v. Halasan)

• Satisfaction of COGSA Declaration Requirement by Reference to Invoice — The proviso in COGSA Section 4(5) that the shipper’s declaration of value be inserted in the bill of lading is satisfied when the bill of lading incorporates by reference a detailed invoice containing the value and freight paid, and the carrier admits the invoice’s genuineness and due execution.

• Estoppel Against Carrier Claiming Limitation After Accepting Value-Based Freight — A carrier that accepts payment of freight calculated on the shipper’s declared higher value is estopped from later invoking the US$500 per package limitation. The principle mirrors the rule that a shipper who understates value to obtain a lower rate cannot recover a larger sum in case of loss; conversely, the carrier may not benefit from the higher freight and simultaneously rely on the package limitation. (Adams Express Co. v. Croninger; H.E. Heacock Co. v. Macondray & Co., Inc.)

• “A clean bill of lading constitutes prima facie evidence of the receipt by the carrier of the goods as therein described.” — Distills the evidentiary consequence of issuing a clean bill of lading.
• “Mere proof of delivery of the goods in good order to a common carrier and of their arrival in bad order at their destination constitutes a prima facie case of fault or negligence against the carrier. If no adequate explanation is given as to how the deterioration, loss, or destruction of the goods happened, the transporter shall be held responsible.” — Articulates the burden-shifting rule in common carrier liability.
• “A party who judicially admits a fact cannot later challenge that fact as judicial admissions are a waiver of proof; production of evidence is dispensed with. … The allegations, statements or admissions contained in a pleading are conclusive as against the pleader.” (Alfelor v. Halasan) — Emphasizes the conclusive character of judicial admissions.
• “Neither is it conformable to plain principles of justice that a shipper may understate the value of his property for the purpose of reducing the rate, and then recover a larger value in case of loss. … Conversely, but for the same reason, it is unjust for ESLI to invoke the limitation when it is informed that the shipper paid the freight charges corresponding to the value of the goods.” — Applies the mutuality principle from Adams Express Co. v. Croninger to defeat the carrier’s limitation defense.

• Asian Terminals, Inc. v. Philam Insurance Co., Inc. (now Chartis Philippines Insurance, Inc.), G.R. No. 181163, 24 July 2013 — Followed. The Court relied on the same approach: a Bad Order Cargo notation that damage existed before turnover to the arrastre established that the loss occurred while in the carrier’s custody.
• Lorenzo Shipping Corp. v. Chubb and Sons, Inc., G.R. No. 147724, 8 June 2004 — Followed. Defined a clean bill of lading and its prima facie evidentiary effect.
• Belgian Overseas Chartering and Shipping N.V. v. Philippine First Insurance Co., Inc., 432 Phil. 567 (2002) — Followed. Stated the prima facie rule that arrival in bad order raises a presumption of carrier fault.
• Unsworth Transport International (Phils.), Inc. v. Court of Appeals, G.R. No. 166250, 26 July 2010 — Distinguished. In Unsworth, the mere insertion of an invoice number in the bill of lading, without more, was insufficient to prove the carrier’s knowledge of the cargo’s value; here, the carrier admitted the invoice’s due execution, and the invoice disclosed the full value and freight paid.
• Adams Express Company v. Croninger, 226 U.S. 491 (1913) — Followed. Applied the dual principle that a limitation on liability based on an agreed value for freight purposes is consistent with public policy, but it is unjust for a carrier to invoke the limitation after accepting freight calculated on a higher declared value.
• Bayas v. Sandiganbayan, 440 Phil. 54 (2002) — Cited for the rule that pre-trial stipulations are binding judicial admissions.
• Alfelor v. Halasan, 520 Phil. 982 (2006) — Cited for the conclusiveness of judicial admissions and the prohibition against the admitting party taking a contrary position.

• Articles 1733, 1734, 1749, 1750, 1753, and 1766, Civil Code of the Philippines — Article 1733 imposes extraordinary diligence on common carriers; Article 1734 enumerates the exclusive causes that exonerate a carrier; Article 1749 allows a stipulation limiting liability to the value stated in the bill of lading unless a greater value is declared; Article 1750 validates a reasonable agreement fixing the sum recoverable; Article 1753 provides that the law of the country of destination governs the carrier’s liability; Article 1766 makes the Code of Commerce and special laws suppletory. The Court applied these provisions to hold that the carrier’s liability was governed by the Civil Code and that the COGSA limitation was not triggered because a higher value had been declared and freight paid accordingly.
• Section 4(5), Carriage of Goods by Sea Act (Commonwealth Act No. 65) — Establishes the US$500 per package limitation unless the shipper declares the nature and value of the goods before shipment and inserts the declaration in the bill of lading. The requirement was satisfied by the bills of lading’s reference to detailed invoices, and the carrier’s knowledge of the higher value and receipt of corresponding freight precluded reliance on the limitation.
• Rule 18, Section 7, Rules of Court — The contents of the pre-trial order control the subsequent course of the action. ESLI’s stipulations therein were treated as conclusive judicial admissions.
• Rule 129, Section 4, Rules of Court — A judicial admission requires no proof. Applied to ESLI’s admission of the invoices’ existence and due execution.

SERENO, C.J. (Chairperson), LEONARDO-DE CASTRO, PERALTA, and REYES, JJ.