Common Carriers vs Arrastre Operators: Who Bears Liability for Cargo Damage?

Westwind Shipping Corporation v. UCPB General Insurance Co., Inc. and Asian Terminals, Inc., G.R. Nos. 200289 and 200314, November 25, 2013, is a consolidated decision that clarifies two recurring questions in cargo damage claims: (1) whether the vessel owner or the arrastre operator is liable for damage during unloading, and (2) whether a customs broker that arranges delivery is itself a common carrier. The ruling is significant for insurers exercising subrogation rights, shippers, and logistics providers.

The Facts of the Case

In August 1993, Kinsho-Mataichi Corporation shipped 197 containers of tin-free steel from Kobe, Japan, to consignee San Miguel Corporation (SMC) aboard a vessel owned by Westwind Shipping Corporation. The cargo was insured by UCPB General Insurance Co., Inc. Upon arrival in Manila, the shipment was discharged into the custody of Asian Terminals, Inc. (ATI), the arrastre operator. During unloading, six containers were damaged by forklifts operated by ATI's stevedores.

SMC's customs broker, Orient Freight International, Inc. (OFII), withdrew the cargo from ATI and arranged its trucking to SMC's warehouse. Upon delivery, nine more containers were found damaged. UCPB paid SMC's claim and, exercising its right of subrogation, sued Westwind, ATI, and OFII.

The trial court dismissed the complaint, holding that the claim against ATI had prescribed and that neither Westwind nor OFII was liable. The Court of Appeals reversed, holding Westwind liable for the six containers damaged during discharge and OFII liable for the nine damaged during delivery. The Supreme Court affirmed.

When Does a Carrier's Custody End?

The central issue was whether Westwind remained responsible for the cargo at the time of damage. Westwind argued that its liability ceased once the goods were delivered to ATI's custody. The Supreme Court disagreed.

Under Section 3(2) of the Carriage of Goods by Sea Act (COGSA), the carrier must "properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried." Article 619 of the Code of Commerce likewise holds the ship captain liable for the cargo until delivery at the port of unloading.

The Court applied the doctrine from Philippines First Insurance Co., Inc. v. Wallem Phils. Shipping, Inc.: cargoes while being unloaded generally remain under the custody of the carrier. Because the discharging of the containers had not yet been completed when the damage occurred, there was no actual or constructive delivery to ATI. The carrier's extraordinary responsibility lasts until the goods are actually or constructively delivered to the consignee or the person entitled to receive them.

The Arrastre Operator's Role

The Court clarified that an arrastre operator is the custodian of goods discharged from a vessel, akin to a warehouseman. Its duty is to take good care of the goods and turn them over to the party entitled to possession. However, the arrastre operator and the carrier are not always solidarily liable; the facts of each case determine which entity had custody at the time of damage.

When a Customs Broker Becomes a Common Carrier

The Court also rejected OFII's argument that it was merely a customs broker, not a common carrier. Under Article 1732 of the Civil Code, common carriers are persons or entities engaged in the business of transporting goods for compensation, offering their services to the public. The law does not distinguish between one whose principal business is carrying goods and one who does so only as an ancillary activity.

Because OFII's own witness testified that cargo forwarding—including delivery to the consignee—was part of its services, OFII was a common carrier. It was therefore bound to observe extraordinary diligence under Article 1733 and, under Article 1735, presumed negligent upon proof of delivery in good order and arrival in bad order. OFII failed to rebut this presumption.

Practical Takeaways

• Carriers remain liable during discharge. A vessel owner or operator cannot shift liability to the arrastre operator merely because the latter's employees physically handle the cargo during unloading. Custody transfers only upon completed delivery.
• Arrastre operators are not automatically liable. Their liability depends on when custody passes, which varies with the facts. Insurers should determine whether damage occurred before or after discharge was completed.
• Customs brokers may be common carriers. A broker that undertakes delivery of goods for compensation is treated as a common carrier, regardless of whether it owns the trucks or hires a third party.
• Proof of good order and bad order is enough. A prima facie case arises when goods are delivered in good order to the carrier and arrive damaged. The carrier must then prove extraordinary diligence.
• Subrogation claims require careful timing. The Court noted that claims against arrastre operators may prescribe per contractual stipulations, so insurers must act promptly.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.