A cargo of screws, bolts, nuts, studs, and washers was shipped on the vessel SS Yang Ming to be delivered to the plaintiff, the purchaser of the cargo. The goods were packed onto two pallets, one containing nine cartons and the other holding ten drums.

The cargo was never delivered, for which the defendant, the owner and operator of the vessel, conceded liability. The parties disagreed on the proper damage limitation. The defendant contended that the pallets should be packages within the meaning of the USD 500 slimitation in s 4(5) of the Carriage of Goods by Sea Act (COGSA). The plaintiff argued that each carton and drum should be considered a package. The District Court for the Southern District of New York made findings of fact and conclusions of law in the plaintiff's favour. Accordingly, the defendant was held liable for the loss of 19 packages, which were valued at USD 8500.

Held: Judgment reversed.

The bill of lading, under the heading 'No. of Containers or P'kgs.' listed 18 pallets, two cases, and ten drums, with a total listed as '30 Packages'. Under the heading 'Description of Packages and Goods', there was a parenthetical listing of the number of cartons, cases and drums on each pallet, as well as the point of origin and a general legend reading 'Screw, Bolts, Nuts, Studs'. Below this information, a printed line requires the parties to fill in the 'Total Number of Packages or Units (in words)', after which was typed 'Thirty (30) Packages Only'. Even if, as the District Court found, the parenthetical description came under the heading 'No. of Containers or P'kgs.', the case was controlled by the explicit statements in the bill of lading that the total number of packages was thirty. In order to reach a total of thirty, one must count the pallets as packages.

Beyond the common-sense application of the term, package, the liability limitation must be interpreted in light of s 4(5)'s dual purposes: to limit liability, but to make null and void any agreement reducing the carrier's liability below that level. COGSA sought to remedy the inadequate coverage often found in carriers' contracts of adhesion, while establishing a contractual setting which would ensure uniformity in the basic rights and responsibilities arising out of bills of lading.

Relying on Mitsui & Co Ltd v American Export Lines Inc 636 F 2d 807 (2d Cir 1981), the plaintiff argued that notice of the content of a container automatically makes the carrier liable for each package within the container, and by extension, notice of the contents of a pallet makes the carrier liable for each package on the pallet. There were two problems with this analysis. First, the bill of lading expresses a contractual relationship, in which the intent of the parties is the overarching standard. In this contractual setting, the word 'package' has great importance as a term of art because of its use in s 4(5). Second, the container cases involve factors not found in pallet cases. Because of their size and their function in the shipping industry, containers are ordinarily not considered packages. But when the bill of lading expressly refers to the container as one package, or when the parties fail to specify an alternative measure of the packages shipped, the courts have no choice but to respect their express or implied understanding and to treat the container as a single package. In such a situation, the carrier's lack of notice of the container's contents indicates that the parties agreed upon no meaning for package other than the container as a whole. With regard to pallets, the contract analysis was not replaced with notice analysis. Written notice of the number of containers on a pallet, even in the bill of lading, is not binding on the carrier if, elsewhere in the bill of lading, the parties express agreement upon a number of packages which counts only the pallets.

The plaintiff argued that the defendant listed some cases and drums as packages; thus, it would be against common sense to apply the package limitation to a carton in one instance and to a pallet containing the very same type of carton in the other. While this inconsistent terminology may pose a problem of logic, it presented no legal problem where the discovery of the parties' agreement is sought.

In interpreting s 4(5), courts must take a critical look at any proposed construction of that section that would reduce a carrier's liability below reasonable limits. But this caveat does not warrant ignoring the parties' stated agreement. The bill of lading clearly counts each pallet as one package when totalling up the cargo. Because a pallet may appropriately be considered a package, the agreement will be enforced according to its terms.

The parties disagreed about who prepared the bill of lading. On this point, the Court was more influenced by the terms of the bill of lading than by the fact that the defendant's agent executed the document or by the fact that the carrier's agent may have entered the pertinent information on the contract. The bill of lading stated, among other things, 'Particulars furnished by Shipper'. In addition, the statements and agreements led to the conclusion that the plaintiff must be bound by the information on the bill of lading even if the defendant's agent actually typed in the total number of packages as 30.

The plaintiff suggested that the pallets were not considered packages because the appellant did not charge freight for the weight of the pallets, and the freight rate was discounted because of the shipper's use of the pallets. Who chose the pallets was less important than how the parties agreed to view those pallets for purposes of liability limitation.

The plaintiff argued that the Visby Protocol 1968 reinforces its position that each carton or drum should be considered a package. The Protocol states that where a container, pallet or similar 'article of transport' is used to consolidate goods, the number of packages or units enumerated in the bill of lading as packed in such article of transport shall be deemed to be the number of packages or units; if, on the other hand, the bill of lading does not show how many separate packages there are, then each 'article of transport' shall be deemed a package or unit. The Protocol did not replace COGSA and did not supplant contract analysis with notice analysis. Even though the contents of the pallets in this case were enumerated in the bill of lading, the cases and drums were not individually counted in arriving at the agreed-upon total number of packages, as represented in several places on the bill of lading.

Section 4(5) should be revised to take into account developments in shipping since 1934. Until then, the parties must abide by the contracts expressed in the bill of lading, and the shippers and their consignees must negotiate with the carriers if they wish to increase the number of packages to be covered by the liability limitation.