This case arose from damage to an electronic transformer that was being transported from Baltimore, Maryland, to San Juan, Puerto Rico, on the SS Puerto Rico. The electronic transformer was bolted to an iron skid and then loaded, with a second transformer, on a special flat-bed trailer for the land journey from Rome, Georgia, to Baltimore. The iron skids were in turn bolted to the trailer, and the transformers were further fixed in place with heavy chains. When it arrived in Baltimore, the trailer was loaded onto the SS Puerto Rico. One of the transformers was damaged during the voyage to San Juan.

The shipper claimed and the carrier admitted liability. The only issue was what the measure of damages should be. The carrier sought to limit recovery under the contractually incorporated Carriage of Goods by Sea Act 46 USC §§ 1300 ff (COGSA). The transformer was defined as being one package in the long form bill of lading which was incorporated by reference into the short form bill given to the shippers. The District Court refused to give effect to this definition and held the carrier liable for the full amount of the damage to the transformer. The carrier appealed.

Held: Reversed and remanded for entry of judgment in favour of the plaintiffs in the amount of USD 500.

When COGSA does not apply of its own force, but is incorporated into a maritime contract by reference, it does not have ‘statute rank’; rather, it is merely part of the contract, a term like any other: see United States v MV Marilena P 433 F 2d 164 (4th Cir 1969). When COGSA does not apply by force of law, effect should be given to the parties’ definition of package, even if that definition is contrary to that which would control if COGSA was applicable by force of law: see Pannell v United States Lines Co 263 F 2d 497 (2d Cir 1959) (CMI1799). In the space in the bill of lading titled 'number of packages', each transformer is designated as a separate package.

Congress has twice legislated comprehensively with respect to the relative rights and liabilities of ocean-going carriers and shippers. The first enactment, the Harter Act 46 USC §§ 190-196, was passed in the late 1800s, and originally covered all contracts of ocean carriage to or from the ports of the United States, but the subsequent enactment of COGSA in 1936 narrowed its scope. COGSA is the US version of an international Convention commonly called the Hague Rules, which was based in large part on the Harter Act. When Congress enacted COGSA, it felt that the problems of domestic and foreign commerce required distinct treatment, the need for uniformity being greater in international trade. Therefore, it limited COGSA's applicability to voyages in foreign commerce, expressly preserving the Harter Act for domestic trade. It did not, however, stop there, for it permitted the parties to domestic contracts of carriage to elect to subject their agreement to COGSA, rather than to the Harter Act, by expressly incorporating COGSA. This was the present case.

The Court of Appeals states that this seems to simply be an application of a principle of construction applicable to ocean bills of lading, which states that, as between a general and a specific provision, effect is to be given to the specific provision. The term 'package' is not defined in COGSA, except in cases where it has been a matter of adjudication. That construction, furthermore, is not uniform with partially encased items such as the transformer involved here. Under this principle, the COGSA usage would be deemed to be the general provision and the specific contractual usage therefore would be deemed as controlling the relation between parties. The bill of lading mentioned each transformer as a separate package, and thus each transformer would be regarded as a package.

The plaintiff argued that public policy precluded enforcement of a clause in a long form bill of lading when only the short form is actually given to the shipper, and the clause is one that is not typically found in bills of lading. The Court, relying on Pannell, found against this argument. The use of a long form bill of lading that is incorporated by reference into the short form given to the shipper is specifically provided for in the Intercoastal Shipping Act 46 USC §§ 844, 845b. The long form must be posted in certain places and be available upon request. Several courts, however, have refused to give effect to provisions included in the long form when the provision was such that the shipper could not be expected to have anticipated its existence: see Encyclopaedia Brittanica Inc v SS Hong Kong Producer 422 F 2d 7 (2d Cir 1969) (CMI1649); Caribbean Produce Exchange Inc v Sea Land Service Inc 415 F Supp 88 (DPR 1976).

The plaintiff suggested that the definition of ‘package’ contained in the bill of lading was ambiguous, pointing to other places in the bill where the definition may not easily be transposed for the word it defines. The Court found that the definition is unambiguous in the context of the clause in which it was included. It should be enforced according to its plainly intended meaning there.