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“It’s just not fair”: the doctrine of Unjust Enrichment under maritime law

by Steve Block (Foster Pepper PLLC)

U.S. maritime law, as interpreted and applied under federal admiralty jurisdiction, often tracks (and in many instances, gave birth to) land-based legal concepts. Of course, shipping-specific peculiarities; ancient precepts embedded within the overlap of law and waterborne carriage; and the benefits of international consistency have created and perpetuated principles not seen in general common law. These dynamics produce the notion that maritime law is somehow obscure, perhaps mystic, in ways that landlubbers who couldn’t distinguish bow from stern in a courtroom just can’t understand.

But in many ways, maritime law isn’t so esoteric. After all, the primary mission of any legal system is uniform justice and fairness – whatever the context. The English-based infrastructure of common law, which is the genesis of those of the U.S. and most British Commonwealth countries, theoretically is comprised of a series of doctrinal rights and obligations as defined by dogmatic legal concepts with straightforward applicability. It doesn’t always work out so smoothly, to be sure, but that’s the theory.

Unwavering, black-and-white application of law would frequently produce unfair, or “unequitable,” results. Through complex historical circumstances, England developed a parallel system of courts, with one addressing “law” and the other “equity.” The latter wasn’t subject to the same rigid adherence to clear-cut legal principles as were courts of law. The U.S. had separate courts as well, but our state and federal systems merged the two at various times during the last century (a few states actually still have separate courts of equity). Usually, plaintiffs may seek relief in law and/or in equity simply by pleading applicable theories in their complaints.

Equity consists of a number of doctrines and theories of recovery whose most pronounced difference from those in law are the available remedies. Put perhaps too simply, the remedy for claims in law is monetary; and in equity it’s an order compelling action or inaction, or otherwise proclaiming parties’ rights and obligations. Law gets higher billing: one proviso of equity is that its remedies aren’t available if there’s an adequate theory in law.

Maritime law concepts usually sound exclusively in law, largely because most issues are governed by contracts, statutes or treaties. But not always. Certain equitable theories are sometimes pleaded in marine cases as supplemental or alternative causes of action, or to avoid a potential harm in the future by way of injunction.

The Fourth Circuit Court of Appeals recently took a look at the equitable doctrine of “unjust enrichment” in a case involving complicated admiralty procedural issues. Importer Commercial Metals Company (CMC) booked shipment of steel products into a series of U.S. ports. The Spanish seller engaged its sister company, Barna Conshipping, as a forwarder to arrange transportation through an ocean carrier. Dispute arose as to whether the cargo was in good order and condition when tendered to the carrier; whether the carrier issued a fraudulently clean bill of lading (not denoting preexisting damage); whether a bank should honor CMC’s letter of credit; and whether admiralty jurisdiction governed various aspects of the claim. The court addressed the concept of “collateral estoppel,” which is law-speak for the general prohibition against a party relitigating in one court an identical issue it earlier lost in another.

When CMC refused delivery of the cargo, Barna filed suit against it in federal courts sitting in each of the ports of entry, alleging that declining market rates, and not the cargo’s condition, prompted the rejection. Barna named the steel cargo as defendants in each action, a procedure in maritime law essentially empowering plaintiffs to secure payment of a potential judgment in an inherently transient industry. However, the claims were dismissed in those courts for lack of admiralty jurisdiction. As a forwarder, Barna wasn’t a party to the maritime contracts at issue. No maritime contract, no admiralty jurisdiction.

But somehow that’s just not fair, is it? If Barna’s allegations prove accurate, then it’s out of pocket for costs incurred in storing, returning and maybe disposing of the freight. CMC would escape liability for improperly refusing delivery of and payment for cargo, all because it wasn’t commercially expedient to accept it. Barna would be helpless to seek relief in admiralty because it wasn’t a contract partner with CMC.

In its action before the Eastern District of Virginia (Norfolk), Barna invoked the equitable concept of “quasi contract,” literally “as-if contract” in Latin, but applied to mean an “implied contract” courts will enforce to avoid “unjust enrichment” of an entity that wasn’t strictly in privity of contract with the plaintiff. A significant feature of unjust enrichment is that it doesn’t require a showing of wrongdoing on the defendant’s part. Rather, the plaintiff must demonstrate only that it would be morally, ethically, conscionably – however you might phrase it – wrong for the defendant to benefit at the plaintiff’s expense. The doctrine isn’t applied based on breach of a duty, violation of a contract obligation or other wrongdoing. Still, the defendant’s enrichment must be “unjust,” an often nebulous concept given that there’s no contract or other terms defining a bargain someone should get the benefit of.

Barna urged that because it hadn’t argued unjust enrichment in the other court proceedings (which had been dismissed), it shouldn’t be collaterally estopped from asserting it in Norfolk. Reversing that trial court, the Fourth Circuit agreed, and found admiralty jurisdiction governs Barna’s unjust enrichment claim. Now, Barna could prevail by showing that CMC shouldn’t be allowed to avoid the costs of its allegedly wrongful rejection of freight. That would constitute an unjust enrichment at Barna’s expense.

Again, maritime claims not governed by a contract, statute or treaty which render them subject to law are rare. However, admiralty’s application of equitable principles enlarges the circumstances in which aggrieved players in the shipping industry might find a remedy. Just because you don’t have a contract doesn’t mean you’re out of luck.

Ref: Barna Conshipping, S.L. v. 2,000 Metric Tons, More or Less, of Abandoned Steel, et al., 2011 WL 468260 (4th Cir. 2011).

March 1, 2011

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