This case arose from damage to a cargo of 1,755 cases of soft drinks carried from Houston, Texas, to Kuwait. The plaintiff shipper, Croft & Scully Co, had arranged for the cargo to be carried on the defendant vessel MV Skulptor Vuchetich. The cargo was containerised at the shipper’s facility and thereafter taken to Goodpasture’s yard near the Houston Ship Channel for loading. Here, the carrier’s stevedores took over control of the container. As one of the stevedore's employees was lifting the container with the use of a forklift, he dropped it, causing damage to the cargo.

Plaintiff sued Goodpasture, the stevedores, the carrier and the vessel. The District Court dismissed the suit against Goodpasture because it had no agency relationship with the stevedores. Relying on a Himalaya clause in the bill of lading, the Court granted the remaining defendants' motion for summary judgment. The Court also found that the container constituted a package within the meaning of the Carriage of Goods by Sea Act (COGSA), 46 USC § 1304(5), and therefore limited the stevedores' liability to USD 500. The plaintiff appealed.

Held: Affirmed in part, reversed in part (on summary judgment and container as package) and remanded for further orders.

The Court of Appeals denied the plaintiff's argument that the Himalaya clause was against public policy: see Brown & Root v MV Peisander 648 F 2d 415 (5th Cir 1981) (CMI1469). Clause 17 of the bill of lading clearly provided for an increased valuation at a higher freight rate. This was an unequivocal declaration. The District Court was correct in ruling that the Himalaya clause applied since the plaintiff could have availed itself of extra loss or damage protection, but chose not to.

The plaintiff correctly argued that the cardboard cases of soft drinks, rather than the 20-foot container, should constitute the relevant package. The Court of Appeals relied on the decision in Allstate Insurance Co v Inversiones Navieras Imparca 646 F 2d 169 (5th Cir 1981). Since the incident occurred in the yard and not on the vessel, COGSA did not apply by its own force and effect. Thus, its provisions were merely terms of the contract of carriage which, like any other contractual terms, called out for judicial interpretation in case of dispute: see Commonwealth Petrochemicals Inc v SS Puerto Rico 607 F 2d 322 (4th Cir 1979) (CMI1632). While there was no precedent determining what constitutes a package under COGSA at the time that the case was being heard by the District Court, the Court of Appeals had since established this test in Allstate Insurance Co. That case involved the loss of 341 cartons of stereo equipment. The shipper loaded the cartons inside a container, sealed it, and had its agent deliver it to the carrier. The carrier issued a bill of lading which described the contents both in number and in kind. When the container arrived in Venezuela, it was empty. In that case, the Court found that each stereo carton was a discrete package. Thus, the Court of Appeals held that each carton here was a package.

The District Court had not considered the alternate argument that the container was a customary freight unit, since it had concluded that the container was the package. The Court of Appeals had to address this issue, since it concluded the opposite. Following the precedent in General Motors Corp v SS Mormacoak 327 F Supp 666 (SDNY 1971), which stated that 'the authorities are conclusive that this phrase refers to the unit upon which the charge for freight is computed and not to the physical shipping unit', the Court concluded that the customary freight unit is a question of fact that will vary from contract to contract. The parties' intent is important in any contractual dispute. The plaintiff admitted that the freight charge was USD 2,200, calculated on a 'flat container rate'. It would need to be investigated how the parties came to that rate vis-à-vis the contents, weight, value, custom of the trade, applicable tariffs, or other factors. This issue was therefore remanded to the District Court to make a finding on the facts.

The Court of Appeals also affirmed the District Court's dismissal of the claim against Goodpasture.