Binladen BSB Landscaping (Binladen) shipped 10 refrigerated containers of live plants on the MV Nedlloyd Rotterdam from the United States to Saudi Arabia. The containers were opened and inspected by a Binladen employee in Jeddah on arrival. Although the plants in eight of the 10 containers arrived in Saudi Arabia mostly intact and healthy, the plants in the remaining two containers were brittle and lifeless.

The bills of lading were based on a Nedlloyd Lijnen BV (Nedlloyd) standard form. There was a 'USA Clause' on the reverse side of each bill. Although this clause expressly incorporated the provisions of the Carriage of Goods by Sea Act, 46 USC § 1300 ff (COGSA), it did not explicitly recite the USD 500 package limit in § 1304(5). On the front side of each bill, there was a blank space labelled 'Excess Valuation', which referred to a clause on the reverse side that set out a GBP 100 liability limit per package or unit. There was also another provision that limited Nedlloyd's liability to USD 2 per kilo gross weight.

Binladen brought an action in the Southern District of New York against Nedlloyd and the MV Nedlloyd Rotterdam to claim damages for the loss.

Nedlloyd denied responsibility for the loss, and claimed that any liability was limited to USD 500 per container. Nedlloyd argued that neither of the two containers carried 'packages'. Instead, each container was a 'package' in which the plants were shipped. In the alternative, the plants were 'goods not shipped in packages' and, accordingly, its liability must be limited to USD 500 per customary freight unit, which it contended was the container.

Binladen counter-argued that the plants were individually prepared for shipping and, therefore, each plant counted as a package under COGSA. It also argued that the deficiencies in Nedlloyd's bill of lading stripped Nedlloyd of the benefit of COGSA's liability limits.

The District Court found Nedlloyd liable for the loss. Nedlloyd failed to ensure that the proper temperatures, humidity, and ventilation conditions were maintained in the containers during the voyage. The Court also found that the two containers were not 'packages' under COGSA. First, the 'bills of lading disclose the contents of the containers'. Second, the 'parties did not unambiguously agree on a definition of package'. The Judge rejected Nedlloyd's argument that its liability should be limited to USD 500 per container because '[e]ach plant in the two reefers was individually wrapped, potted or separated [and] some were individually boxed'. He did not mention or make any findings concerning Binladen's claim that the COGSA limit on liability was wholly inapplicable. Accordingly, the District Court awarded USD 80,332 in damages against Nedlloyd.

Nedlloyd appealed to the Court of Appeals. Nedlloyd did not dispute the Judge's conclusion on liability, but argued that the Judge incorrectly awarded damages in excess of those permitted by § 1304(5).

Held: The judgment of the District Court is reversed. The plants are 'goods not shipped in packages' within the meaning of COGSA. The case is remanded for a determination of damages limited to USD 500 'per customary freight unit' used in shipments of this type.

Since the enactment of COGSA half a century ago, the courts have struggled to interpret § 1304(5) of COGSA, which drastically limited the liability of carriers and ships. With the advent of containerised shipping, the dichotomy that arises is when does a container provided by a carrier to a shipper constitute a 'package' under COGSA, to which the USD 500 limit must be applied, and when must each item within a container be treated separately as a package? In resolving disputes between shippers and carriers over the consequences of the USD 500 per package limit on carrier liability, the principal difficulty had been in defining the meaning and scope of the word 'package', a term left undefined by Congress. This problem had been exacerbated by the adoption of new methods of preparing and assembling goods for shipment: Allied International American Eagle Trading Corp v SS 'Yang Ming' 672 F 2d 1055, 1064 (2d Cir 1982). In order to determine what units, if any, constitute 'packages' under COGSA, the Court of Appeals evaluated diverse and occasionally idiosyncratic items shipped in various forms, eg bundles, boxes, cartons, bales, coils, crates, rolls, skids, pallets, and containers.

The Court of Appeals applied four basic principles that have been judicially developed for the resolution of issues involving the interpretation of § 1304(5):

1. The contractual agreement between the parties, as set out in a bill of lading, is a touchstone for the analysis - see Yang Ming 672 F 2d 1061, where 'pallets' are counted on bill of lading as the number of 'packages' shipped, they, rather than the cartons on each pallet, constitute 'packages' within the meaning of § 1304(5). A declaration on a bill may bind a shipper even when the contents of shipment diverge from the description on the bill. The entries on the bill are important evidence of the parties' intention with regard to the applicability of § 1304(5) - Aluminios Pozuelo Ltd v SS Navigator 407 F 2d 152, 156 (2d Cir 1968): '[h]aving specified that the press was 'ONE (1)' package, they must abide by its meaning as a word of liability limitation'.
2. No controlling definition of the term 'package' had been judicially developed, other than the requirement that it was the result of some 'preparation [of the cargo item] for transportation ... which facilitates handling, but which does not necessarily conceal or completely enclose the goods': Aluminios Pozuelo Ltd v SS Navigator 407 F 2d 155. Although this definition excluded certain types of cargo (eg loose liquids and potatoes: Watermill Export Inc v MV 'Ponce' 506 F Supp 612, 617 (SDNY 1981) or fish: Bumble Bee Seafoods v SS Kiku Maru 1978 AMC 1586 (D Md)), it was still broad enough to include a wide range of other items, such as a boxed roll of steel weighing 32.5 tons: Mitsubishi International Corp v SS Palmetto State 311 F 2d 382 (2d Cir 1962), or materials lashed to skids or pallets: Aluminios Pozuelo Ltd v SS Navigator 407 F 2d 156.
3. When a bill of lading discloses not only the number of containers, but also the number of cartons within them, it is the cartons, and not the containers, that will be treated as COGSA packages. Since the prevalent large metal shipping container furnished by a carrier is 'functionally part of the ship': Leather's Best Inc v SS Mormaclynx 451 F 2d 800, 815 (2d Cir 1971) and classifying it as a 'package' would violate the purpose of § 1304(5) by permitting the carrier to limit its liability unduly, the shipping container would not be a COGSA package in the absence of a clear agreement between the parties to that effect, at least so long as 'its contents and the number of packages or units are disclosed': Mitsui & Co Ltd v American Export Lines Inc 636 F 2d 807, 821 (2d Cir 1981); Smythgreyhound v M/V 'Eurygenes' 666 F 2d 746, 753 (2d Cir 1981) (CMI1838). The Court of Appeals left open the question of whether a container might be deemed a COGSA package when the bill of lading 'does not show how many separate packages or units there are': Mitsui & Co Ltd 636 F 2d 821. Nevertheless, in Mitsui & Co Ltd, Judge Friendly noted that the Hague-Visby Rules, which had been agreed to by some 17 countries, provided that in such a case the 'article of transport' ie the container shall be deemed to be the package.
4. In the absence of an agreement in the bill of lading as to the packaging of the cargo, goods placed in containers and described as not separately packaged will be classified as 'goods not shipped in packages', for which the USD 500 liability limit would be per 'customary freight unit': Watermill Export Inc v MV 'Ponce' 506 F Supp 617.

The Court of Appeals applied these four principles to make three findings.

First, a reference in the bill of lading to the number of plants did not qualify each plant as a separate COGSA package. The description in the bills of lading that the container was filled with a certain number of live plants could not reasonably infer a conclusion that each plant had been 'packaged' for transport. The number of plants did not qualify each plant as a separate 'package'. The column 'No of Pkgs' in the bill of lading only listed the number of containers shipped and revealed the total number of plants in the containers, but did not indicate whether or how the plants were packaged. The phytosanitary certificate accompanying the shipment, which listed the plants involved as 'packed loose in pot within sea wheel trailers', could not substitute for disclosure in each bill of lading of the number of packages being shipped.

Second, the plants were deemed to be 'goods not shipped in packages' within the meaning of § 1304(5). Notwithstanding a traditional reluctance to treat a container as a COGSA package, the terms of the bill of lading should govern. If the bill of lading listed the container as a package and failed to describe objects that could reasonably be understood from the description as being packages, the container must be deemed to be a COGSA package. This rule would not only accord with the Hague-Visby Rules, but had the virtue of certainty: Aluminios Pozuelo Ltd v SS Navigator 407 F 2d 156. When a bill of lading specified the number of containers but did not reveal the number of packages inside, the only certain figure known to both parties would be the number of containers being shipped. In such an event, the carrier could not be charged with knowledge of whether the container was filled with packages, with unpackaged goods, or with some combination. The carrier should not be expected to assume the risk inherent in such uncertainty, facing liability that might vary by orders of magnitude depending on the exact packaging of goods inside a sealed container, even though this information was not revealed to it by the bill of lading. In the present case, since the plants described on the bills of lading were clearly not packages, they would be deemed to be 'goods not shipped in packages' within the meaning of COGSA, which limits the carrier's liability in such a case to USD 500 per 'customary freight unit', which was generally the unit on which the freight charge was based for the shipment at issue: see General Motors Corp v Moore-McCormack Lines Inc 451 F 2d 24, 25-26 (2d Cir 1971); Eaton Corp v SS 'Galeona' 474 F Supp 819, 823 (SDNY 1979)).

Third, the deficiencies in the bill of lading did not deprive Nedlloyd of the benefit of COGSA's liability limits. Mere attempts to limit liability at a lower level than that permitted by COGSA did not serve to strip Nedlloyd of COGSA's liability limit. The 'USA Clause', which explicitly incorporated COGSA's provisions in international voyages involving United States ports, would contemplate that COGSA would supersede any conflicting provisions in the bill of lading, including lower liability limits than those imposed by COGSA. Moreover, the bills of lading had space providing the opportunity for the declaration of excess value.