Carriers Must Act Reasonably To Prevent The Loss Of Abandoned Perishable Cargo (Jan. 18, 2010)
Our last Trade Blog post concerned whether an cargo re-loader could be made a party to a bill of lading by being named a consignee without its knowledge. Last week, another cargo case was handed down by the Second Circuit, APL Co. Pte Ltd. v. American President Lines, Ltd., that also merits attention. Discussion of this case here is especially appropriate as its subject matter, demurrage, is of interest to many readers.
APL dealt with whether a carrier had a duty to mitigate damages for a shipper who had 29 reefers of garlic rot on its wharf. The garlic was to be picked up from the wharf and delivered to the ultimate consignee by the defendant. However, due to numerous regulatory holds placed on the cargo – including antidumping duties levied by CBP – the goods fell to the general order. Demurrage mounted and eventually the ultimate consignee opted to abandon the shipment.
APL, stuck with 29 reefers of garlic, contacted CBP to learn more about how to quickly auction the goods in a short sale. Due to miscommunication, APL became of the belief that an auction would take six months to occur due to administrative requirements. Some days later, APL learned that it could go forward more quickly if the proper formalities were attended to, including an FDA inspection, and APL notified the warehouseman to make the appropriate arrangements. The warehouseman, however, took weeks to put the plan into action, and the FDA ultimately pronounced the garlic adulterated and unfit for sale.
The saga led to a demurrage claim of $184,910. The defendant objected to the amount by arguing that APL could have done more to dispose of the cargo promptly to prevent the accrual of damages. In legal parlance, this is “mitigation.” The rationale behind the rule is that a party that has been wronged due to breach of contract may recover damages, but it must take steps to prevent damages from unnecessarily accumulating. As the court observed, a party must take steps within the “range of reason” to stop the unnecessary accumulation of damages. But what does this mean in practice?
The court observed that an injured party need not actually succeed in mitigating damages in order to fulfill its duty – it only must attempt to mitigate. If the attempt at mitigation fails, it is of no matter. However, to do nothing at all in an instance such as that at issue in the APL case, where reefers of garlic were rotting on the dock, would be an unreasonable failure to mitigate damages, and an injured party’s recovery would be lessened by the monetary amount that could have been saved through mitigation.
What steps must be taken? The answer differs in every scenario. They are, generally speaking, the steps that “reason requires.” Conducting a short sale to dispose of the cargo in the APL case, for example, was a step that reason required. APL and its warehouseman, however, delayed too long, leading to the total loss of the goods. The appellate court opined that, upon remand to the trial court, the court must consider not only the steps that APL took as against the rule of reason, but also whether the defendant itself could have intervened with CBP to facilitate the sale. In other words, when examining mitigation, it is clear that an injured party need not shoulder 100% of the burden in mitigating damages when another party can just as easily do the same.
Because what is “reasonable” mitigation changes according to the facts of a particular case, a party that is thrust into the role of unwilling custodian of cargo must examine the situation carefully to plan its actions. Failure to act reasonably to mitigate damages can result in unexpected liability. As the saying goes, two wrongs do not make a right, and an injured party is considered to be in the wrong if it allows cargo to perish when quick action could save its value.