In 1992, Parfums & Beaute International & Cie shipped four containers on the Nedlloyd Holland, a ship operated by P&O Containers Ltd (the carrier). On 10 December 1992, the containers were handed over to the carrier. On 12 December 1992, the containers were loaded onto a feeder vessel. On 14 December 1992, the containers were loaded onto the Nedlloyd Holland headed for Florida. The carrier's bill of lading was dated 14 December 1992. The carrier was contracted to deliver the shipment from Le Havre, France, to Parbel Inc's warehouse in Miami, Florida. Parbel Inc (Parbel) is a Florida company that imports L'Oreal products from France. After the Nedlloyd Holland arrived at Florida, the containers were offloaded and stored in a container yard operated by Sea-Land Service Inc (the port terminal operator) pending delivery to the consignee in Miami. Sometime between 26 and 28 December 1992, one of the containers disappeared.

The perfumes and cosmetics in the missing eight-ton, 40-foot container were packed into a total of 2,270 shoebox-sized corrugated cardboard cartons. These small cartons were then consolidated into 42 larger units, which were bound together with plastic wrap and packed onto 42 pallets, with two cartons remaining.

The carrier had altered the pro-forma bill of lading that Parbel's shipping agent, Ocetra, submitted to the carrier along with the containers. Specifically, what Ocetra's pro-forma bill of lading referred to as 'pallets', the rider to the carrier's 'ON BOARD' bill of lading referred to as 'packages'. Ocetra received the carrier’s revised bill of lading when the cargo was put aboard the Nedlloyd Holland. When Ocetra did receive the carrier's bill of lading, Ocetra did not object to the changed language.

Clause 26(1) of the carrier's bill of lading states in pertinent part:

This Bill of Lading shall be subject to COGSA, the terms of which are incorporated herein and shall be paramount throughout Carriaged [sic] by sea and the entire time that the Goods are in the actual custody of the Carrier or his sub-contractor at the sea terminal in the United States of America before loading onto the vessel or after discharge therefrom, as the case may be. As thus applied other than at sea, U.S. COGSA is applied to determine the liability of the Carrier who shall be entitled to the benefits of the defences and limitations therein, notwithstanding that loss did not occur at sea.

Groupe Chegaray/ V De Chalus (formerly known as Zurich Compagnie D'Assurances SA) (the plaintiff), Parbel's subrogated insurer, paid for the loss under a cargo insurance policy and brought a subrogation action against the carrier, the port terminal operator, and Wells Fargo Guard Service Inc (the port security provider). The carrier and the terminal operator each brought cross-claims against the port security provider for indemnity and contribution.

The District Court for the Southern District of Florida found in an omnibus summary judgment order that the number of packages under § 1304(5) of COGSA was 2,270 (ie each carton was deemed a package), and that the carrier and the port terminal operator were jointly and severally liable to the plaintiff for damages up to USD 1,134,000. After a bench trial, all claims and cross-claims made by the three parties against the port security provider were dismissed. The carrier and port terminal operator appealed.

The issue on appeal was the meaning of 'package' under the United States Carriage of Goods by Sea Act (COGSA), ie § 1304(5) of COGSA. The appellants argued that the number of COGSA packages was four because '4' was listed in the bill of lading under the heading 'NO. OF PKGS'. Alternatively, they argued that the 42 pallets plus two cartons were the COGSA packages because they were described as such in the bill of lading. In contrast, the plaintiff argued that, because the bill of lading was ambiguous regarding the number of COGSA packages, the ambiguity was to be resolved in favour of the plaintiff (ie the district court's finding that the 2,270 cartons constitute the COGSA packages was to be affirmed).

A key sub-issue was whether the carrier's bill of lading was enforceable as to the description of the pallets as 'packages'. The plaintiff argued that the carrier's revised bill of lading should not be accepted as the manifestation of the parties' contract because, by the time the shipper received a copy of the revision, the goods were already aboard the Nedlloyd Holland, thus giving the shipper no means by which to reject the change. The plaintiff also contended that the revision violated § 1303(3) of COGSA, which requires, in certain circumstances, that carriers issue bills of lading reflecting the shipper's stated representations of the number of shipped packages. In response, the appellants argued that it is not only customary for a carrier to issue the final bill of lading, but that, in this case, Ocetra had specifically requested a 'CLEAN ON BOARD' bill of lading and voiced no objection when it received the final bill of lading with the altered language.

Another sub-issue was whether 'package' was to be given a legal definition under COGSA, or to be defined by principles of contractual interpretation. The appellants argued that, because the container was lost after it was discharged from the vessel, COGSA does not apply by its own force to the facts of this case, but only as a contractual term. The appellants cited § 1301(e) of COGSA, which defines 'carriage of goods' to cover the period of time when the goods are loaded onto the ship to when they are discharged from the ship. They argued that the trial Court should not have applied the legal definition of 'package' under COGSA, and should instead have applied the principles of contract interpretation to determine the meaning of 'package'.

Held: Judgment vacated in part and remanded; judgment affirmed in all other respects.

The Court found that the carrier's on-board bill of lading was enforceable as to the description of the pallets as 'packages'. To determine what constitutes the COGSA package, the Court began by examining the bill of lading.

Ocetra could not have believed that its pro-forma bill of lading represented the final manifestation of the parties' contract. Ocetra conceded to the changed language through its silence and inaction, coupled with the parties' expectation that the carrier would be issuing a final bill of lading. Although the record is unclear whether Ocetra could have retrieved the containers before the Nedlloyd Holland set sail, at the very least it could have registered opposition. The plaintiff is estopped from now claiming that the revision was unacceptable to the shipper at the time.

Moreover, the carrier preserved and detailed all of the relevant information that Ocetra had submitted, including the number of cartons contained in the pallets. In light of Ocetra's failure to furnish a proper 'Description of Packages', it was perfectly reasonable for the carrier to interpret a 'pallet' as a 'package'.

The carrier did not violate § 1303(3) of COGSA, as it was not obliged to list the number of cartons in the bill of lading. Under § 1303(3)(c), a carrier is not bound to state upon its bill of lading any quantity which it 'has had no reasonable means of checking'. On the facts, there was no reasonable way for the carrier to check that the number of cartons Ocetra listed on its pro-forma bill of lading was correct.  

Disagreeing with the appellants on the contractual interpretation sub-issue, the Court found that the bill of lading is fully subject to the provisions of COGSA, as cl 26(1) of the carrier's bill of lading explicitly incorporates COGSA as 'paramount throughout' the time the goods are in the custody of the carrier or its subcontractor at the sea terminal, and until they are delivered to the consignee in Miami. In any case, the appellants had previously and explicitly stipulated the application of COGSA to the facts of this case.

COGSA's lineage dates back to 1893 with the Harter Act, upon which the Hague Rules relied. In 1936, Congress adopted the language of COGSA almost in its entirety. However, liability under § 1304(5) of COGSA was changed in one significant respect. The Hague Rules limit liability 'per package or unit', whereas § 1304(5) limits it 'per package … or in the case of goods not shipped in packages, per customary freight unit'. Arguably, this change underscores the emphasis that Congress placed on the 'package' as the elemental unit of liability for § 1304(5) purposes. Despite this emphasis, Congress neither defined the term in the statute nor left behind any legislative history to help courts do so.

In addition to the lack of statutory guidance, unforeseeable technological strides in the shipping industry since 1936 have contributed to the frustration of many courts attempting to define a COGSA package. Traditionally, shipments were made by 'breakbulk', whereby goods were packaged into parcels which could be hand-loaded into a vessel's cargo hold. The advent of the container in the 1960s revolutionised the shipping industry by enabling the shipment of massive metal boxes filled with goods that were often concealed and/or not divided into breakbulk size. Modern containers are able to hold hundreds of 'packages', as the term was probably understood in 1936. The very concept of a cargo hold was transformed when vessels were retrofitted to hold containers, which functionally became part of the ship itself. The container turned the meaning of a 'package' into a puzzle.

A further consideration is the decreased value of the limitation amount between 1936, when COGSA set the USD 500 amount, and the present. COGSA's liability limitation was originally enacted to restrain the superior bargaining power wielded by carriers over shippers. However, the bulk of modern litigation under § 1304(5) consists of subrogation actions because cargo shippers, instead of paying increased freight by declaring the value of what is shipped, buy insurance from cargo insurers. In this case, Parbel bought full value insurance coverage and under-declared the value of its shipment to obtain the lowest freight rate, which was approximately USD 19,000 less in freight than it would have paid had it declared the containers' actual value.

Rejecting the principal argument of the appellants, the Court held that the 42 pallets, described as 'packages' in the bill of lading, plus the two cartons, represent the accurate number of COGSA packages. The Court stated that any attempt to treat a container as a COGSA package will be treated with 'great reluctance'. Any inquiry into the issue of COGSA packages does not end 'at a quick glance at the "number of packages" column on the bill of lading'. The two basic rules for determining the number of COGSA packages in container cases were set out in the case of Hayes-Leger Associates Inc v M/V Oriental Knight 765 F 2d 1076 (11th Cir 1985) as follows:

(1) when a bill of lading discloses the number of COGSA packages in a container, the liability limitation of section 4(5) applies to those packages; but (2) when a bill of lading lists the number of containers as the number of packages, and fails to disclose the number of COGSA packages within each container, the liability limitation of section 4(5) applies to the containers themselves.

According to Hayes-Leger, the proper definition of a COGSA package is:

a class of cargo, irrespective of size, shape or weight, to which some packaging preparation for transportation has been made which facilitates handling, but which does not necessarily conceal or completely enclose the goods.

Because neither COGSA nor its legislative history is helpful in defining a COGSA package, the Court adopted the following principles: first, assume 'that Congress intended to vest the word with its plain, ordinary meaning'. Second, look to the parties' contractual agreement in the bill of lading. Third, a COGSA package is the result of some amount of preparation for the purpose of transportation, which also facilitates handling. Fourth, a container can be considered a COGSA package only in light of a clear agreement to that effect. Fifth, when goods are placed in containers without being described as separately packaged, they are classified as 'goods not shipped in packages' for COGSA purposes, absent an agreement otherwise. Sixth, when a bill of lading is ambiguous regarding what constitutes the COGSA package, then, in light of the widely accepted understanding that the original purpose of § 1304(5) was to protect shippers against carriers, the ambiguity is resolved against the carrier.

Applying these principles, the Court found that the district Court was correct to find that the container did not constitute the COGSA package, and that the bill of lading was not ambiguous. However, the district Court failed to accord greater weight both to the description of the pallets as packages in the bill of lading, and to the fact that the shipper chose to package and wrap the 2,270 carton boxes onto 42 separately numbered pallets. The district Court was also incorrect to the extent that it based its decision on a rule requiring the smallest unit enumerated in the bill of lading to constitute the COGSA package. The smallest enumerated unit of transport does not always constitute the number of COGSA packages, as not every case involves ambiguous bills of lading that are resolved against the carrier in so far as the ambiguity is concerned.

The bill of lading clearly described the pallets as 'packages'. There was no ambiguity to justify using the larger number of 2,270 as the number of COGSA packages. The 42 pallets of plastic-wrapped cartons facilitated safe and efficient transport and handling of the goods. The fact that Parbel chose to package the 2,270 shoebox-sized cartons in these manageable pallets, instead of shipping them loose, supported the Court's conclusion that the pallet is the COGSA package.

The Court rejected the plaintiff's argument that there cannot be consistently 44 COGSA packages comprising 42 pallets plus two cartons: ie that if two cartons can be packages, then all cartons must be packages. The Court reasoned that the shipper went to the trouble of packaging the cartons onto pallets. The fact that it may have been inconvenient to package two outstanding cartons onto a pallet does not prove that the pallets were themselves not packages. If anything, it supported the argument that the shipper intended for the pallets to constitute a COGSA package by bundling together loose cartons for ease of transport and handling. The Court also remarked that there was some evidence that the words 'pallet' and 'package' were used interchangeably, including that 'palettes' were referred to in the shipper's packing slip as 'colis', which is the French word for 'package'.