Philam Insurance Company, Inc. vs. Heung-A Shipping Corporation

In a contract of carriage by sea from a foreign port to a Philippine port, where the shipper fails to declare the value of the goods in the bill of lading, the carrier’s liability for loss or damage is capped at US$500 per package under Section 4(5) of the Carriage of Goods by Sea Act (COGSA). The prescriptive period for filing suit is one year from delivery under Section 3(6) of COGSA, and the 24-hour notice requirement under Article 366 of the Code of Commerce does not apply to foreign trade. A shipowner operating under a slot charter agreement (contract of affreightment) remains the common carrier and retains responsibility for the cargo.

Novartis Consumer Health Philippines, Inc. imported 19 pallets of packaging material from South Korea through freight forwarder Protop Shipping Corporation. The goods were loaded onto a vessel owned by Heung-A Shipping Corporation under a slot charter agreement with Dongnama Shipping Co. Ltd. The shipment was insured by Philam Insurance under an all-risk marine open policy. Upon arrival at Novartis’ premises, the container was found to have admitted seawater; the entire shipment was rejected as unfit. Philam paid the insurance claim and, as subrogee, sought recovery against multiple parties, including Heung-A, its Philippine agent Wallem, and Protop.

• Parties and shipment: Novartis imported from Jinsuk Trading Co. in South Korea 19 pallets (200 rolls) of Ovaltine Power 18 Glaminated plastic packaging material. Jinsuk engaged freight forwarder Protop Shipping Corporation to forward the goods. Protop issued Bill of Lading No. PROTAS 200387 on a “freight prepaid” and “shipper’s load and count” basis, designating Sagawa Express Phils., Inc. as the delivery-contact entity in the Philippines.
• Vessel and charter arrangement: Protop shipped through Dongnama Shipping Co. Ltd., which loaded the container onto M/V Heung-A Bangkok V-019 — a vessel owned and operated by Heung-A Shipping Corporation — under a slot charter agreement. Wallem Philippines Shipping, Inc. acted as Heung-A’s ship agent in the Philippines.
• Insurance: Novartis insured the shipment with Philam Insurance under All Risk Marine Open Insurance Policy No. MOP-0801011828, covering the cargo until complete delivery to the consignee’s premises.
• Discharge and delivery: The vessel arrived at Manila’s South Harbor on December 27, 2000, and the container was discharged without exception to Asian Terminals, Inc., the arrastre operator. On January 4, 2001, Novartis’ broker, Stephanie Customs Brokerage, withdrew the container from ATI’s yard and delivered it to Novartis on January 5, 2001.
• Inspection and damage: Novartis’ Senior Laboratory Technician opened the locked container. The cartons on one side were in disarray; all boxes were wet and damp; portions of the container van were dented, corroded, and had minute holes; water droplets clung to the roof and the floor was wet. The entire shipment was rejected.
• Survey and laboratory findings: Adjusters from Manila Adjusters and Surveyors Company confirmed the wetting and noted that sea water had entered through the damaged roof. Samples submitted to Precision Analytical Services, Inc. tested positive for salt water. The survey report attributed the damage to water seepage gaining entry through the container’s damaged roof during transit.
• Demand and subrogation: Novartis sought indemnification from Protop, Sagawa, ATI, and Stephanie, but was denied. Philam paid the adjusted insured amount of ₱1,904,613.20 and claimed subrogation.

Philam Insurance (G.R. No. 187701):

• Inapplicability of COGSA limitation: Philam argued that the CA erred in applying the package limitation of liability under Section 4(5) of COGSA because Heung-A and Wallem committed fundamental breaches of their contractual and legal obligations, which should preclude them from invoking the limitation.
• Loss of limitation privilege: Philam maintained that the carrier’s negligence and failure to exercise extraordinary diligence amounted to a deviation or fundamental breach that stripped the carrier of the right to limit liability.

Heung-A Shipping and Wallem Philippines Shipping (G.R. No. 187812):

• Application of Article 366, Code of Commerce: Petitioners contended that the CA erred in ruling that the Code of Commerce, specifically Article 366’s requirement of a claim within 24 hours from receipt, does not apply.
• Paramount clause exclusion: They argued that the CA mistakenly concluded that the “Paramount Clause” in the bill of lading adopting COGSA resulted in the exclusion or inapplicability of the Code of Commerce.
• Lack of timely claim: Petitioners asserted that Philam had no right of action against them because no timely claim was filed under Article 366 of the Code of Commerce or the provisions of the bill of lading.
• Damage not proven during carrier’s custody: They maintained that the CA gravely abused its discretion in finding that the containerized cargo was damaged while in the possession of the vessel Heung-A Bangkok.

In G.R. No. 187701, Heung-A and Wallem as respondents: Their arguments mirrored those raised in their own petition (G.R. No. 187812) — that Philam failed to file a timely claim under the Code of Commerce and that the damage was not proven to have occurred during their custody.

In G.R. No. 187812, Philam as respondent: Philam countered that the factual finding of damage during transit was conclusive and that COGSA, not the Code of Commerce, governed; it further insisted that the carrier could not limit its liability due to gross negligence.

• Factual basis of liability: Whether the shipment sustained damage while in Heung-A’s possession and custody.
• Limitation of liability: Whether Heung-A’s liability could be limited to US$500 per package under Section 4(5) of the COGSA.
• Prescriptive period / notice of claim: Whether Novartis/Philam failed to file a timely claim against Heung-A and/or Wallem under applicable law.

• Factual basis of liability: The factual finding that the damage occurred while the goods were in Heung-A’s custody was upheld. The Supreme Court, recognizing the uniform conclusions of the RTC and CA, found that none of the recognized exceptions warranting a review of factual findings was present. The survey and laboratory evidence showed salt water seepage through the container van’s roof, and the carrier failed to rebut the presumption of negligence by demonstrating extraordinary diligence in handling and preserving the shipment. The slot charter agreement between Heung-A and Dongnama was a contract of affreightment, not a bareboat or demise charter; Heung-A thus remained the common carrier responsible to the consignee.
• Limitation of liability: Liability was correctly capped at US$500 per package under Section 4(5) of the COGSA. Because the shipper did not declare the value of the goods in the bill of lading, the COGSA package limitation — not Article 372 of the Code of Commerce — applied to the foreign carriage. Each of the 17 actual damaged pallets was treated as one COGSA package, yielding an aggregate limit of US$8,500.00. No fundamental breach precluding limitation was established.
• Prescriptive period / notice of claim: The suit was timely. For carriage by sea in foreign trade, the prescriptive period is governed by COGSA Section 3(6), which requires notice within three days of delivery for concealed damage but preserves the right to sue within one year regardless of failure to give notice. Philam demanded payment from all liable parties within one year from delivery on January 5, 2001. The 24-hour claim rule under Article 366 of the Code of Commerce applies only to inter-island domestic shipments.

• Contract of affreightment (slot charter) does not divest the shipowner of its character as common carrier — When the charter party merely leases shipping space (a contract of affreightment), the shipowner retains possession and control of the vessel, supplies the master and crew, and remains the responsible common carrier answerable for loss or damage to the cargo.
• COGSA package limitation applies when no value is declared — Under Article 1753 of the Civil Code, the law of the country of destination governs liability for loss, and the COGSA supplements the Civil Code for foreign carriage. When the shipper fails to declare the value of goods in the bill of lading, the carrier’s liability is limited to US$500 per package under COGSA Section 4(5).
• COGSA Section 3(6) governs notice and prescriptive period in foreign carriage — Failure to give written notice of loss within three days of delivery does not bar suit if the action is filed within one year from the date of delivery or the date the goods should have been delivered.
• Presumption of carrier negligence and extraordinary diligence — Common carriers are presumed negligent if goods are lost, destroyed, or deteriorated during transport, and they bear the burden of proving they exercised extraordinary diligence. Even if the container was defective, the carrier must show it took all reasonable measures to forestall or lessen the loss, as required by Article 1742 of the Civil Code.

• “[C]ommon carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence and vigilance with respect to the safety of the goods and the passengers they transport. Thus, common carriers are required to render service with the greatest skill and foresight and ‘to use all reasonable means to ascertain the nature and characteristics of the goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods as their nature requires.’”
• “[C]ommon carriers, as a general rule, are presumed to have been at fault or negligent if the goods they transported deteriorated or got lost or destroyed. That is, unless they prove that they exercised extraordinary diligence in transporting the goods. In order to avoid responsibility for any loss or damage, therefore, they have the burden of proving that they observed such diligence.”
• “In case, however, of the shipper’s failure to declare the value of the goods in the bill of lading, Section 4, paragraph 5 of the COGSA provides: x x x.”
• “[F]ailure to comply with the notice requirement shall not affect or prejudice the right of the shipper to bring suit within one year after delivery of the goods.”

• Asian Terminals, Inc. v. Philam Insurance Co., Inc., G.R. No. 181319, July 24, 2013 — Followed. Established that for foreign carriage by sea, the prescriptive period is one year under COGSA Section 3(6), and failure to give the three-day notice does not bar suit.
• Planters Products, Inc. v. Court of Appeals, G.R. No. 101503, September 15, 1993 — Followed. Defined a charter party and distinguished between a contract of affreightment and a bareboat/demise charter.
• Belgian Overseas Chartering and Shipping N.V. v. Philippine First Insurance Co., Inc., 432 Phil. 567 (2002) — Followed. Reiterated the standard of extraordinary diligence required of common carriers and the presumption of fault.
• Unsworth Transport International (Phils.), Inc. v. Court of Appeals, G.R. No. 166250, July 26, 2010 — Followed. Defined the nature and function of a bill of lading as both a receipt and a contract.
• Nacar v. Gallery Frames, G.R. No. 189871, August 13, 2013 — Applied. Modified the interest rate to six percent per annum from finality.

• Article 1753, Civil Code — Applied; the law of the country of destination (Philippines) governs the liability of the common carrier for loss, destruction, or deterioration of goods transported from a foreign port to a Philippine port.
• Article 1742, Civil Code — Applied; a common carrier must exercise due diligence to forestall or lessen loss even if the loss is caused by the faulty nature of the containers.
• Article 1766, Civil Code — Applied; in matters not regulated by the Civil Code, the rights and obligations of common carriers are governed by the Code of Commerce and special laws like COGSA.
• Article 372, Code of Commerce — Distinguished; provides for valuation based on the bill of lading, but yields to COGSA when no value is declared.
• Article 366, Code of Commerce — Held inapplicable to foreign trade; its 24-hour claim rule applies only to inter-island domestic shipments.
• Section 4(5), Carriage of Goods by Sea Act — Applied; limits carrier liability to US$500 per package when no value is declared in the bill of lading.
• Section 3(6), Carriage of Goods by Sea Act — Applied; prescribes a one-year period to file suit and provides that failure to give notice of loss or damage does not prejudice the right to sue within that period.

Chief Justice Maria Lourdes P. A. Sereno, Associate Justice Teresita J. Leonardo-De Castro, Associate Justice Lucas P. Bersamin, and Associate Justice Martin S. Villarama, Jr.