The Tindefjell carried 316 cartons of shoes in two containers from Bilbao, Spain, to Montreal, Quebec. Some shoes discharged at Montreal were damaged, and their owner, JA Johnston Co Ltd (the plaintiff), sued the owners and charterers of the Tindefjell (the defendants) for the damage. The plaintiff claimed CAD 10,000 for the loss.

The bill of lading contained cll 1 and 17. Clause 1 provided for English law if the carriage did not cover a shipment to or from a port in the United States, unless it was subject to a compulsory enactment giving effect to the Hague Rules. Clause 17 allowed for limitation to be calculated as per the 'customary freight unit'.

Canadian law was to be applied in this case. Article 4.5 of the Schedule to the Carriage of Goods by Water Act (COGWA), RSC 1970, C-15, provides:

Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with goods in an amount exceeding five hundred dollars per package or unit, or the equivalent of that sum in other currency unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.

The value of the cargo was not declared and inserted in the bill of lading.

The defendants sought to limit their liability to CAD 1,000. Their main submission was that the two containers were two 'packages or units'. Their alternative submission was to limit liability to an amount based on the customary freight unit. The weight of the two containers packed with the shoe cartons was 10.07 mt. Applying the CAD 500 per unit calculation in art 4.5 to the customary freight unit of 1 mt, they estimated a limit of between CAD 5,000 and CAD 5,500 for the cargo damage.

The plaintiff contended that the number of 'packages' for the calculation was 316 cartons of shoes. Applying art 4.5, the total available limitation was 316 × CAD 500 and not 2 × CAD 500. The limit with practical monetary effect was CAD 10,000, and not CAD 158,000, as the plaintiff's claim was only for CAD 10,000.

Held: Judgment for the plaintiff of CAD 10,000 with interest.

The goods were shipped in 'packages'. The 'packages' referred to the 316 cartons and not the two containers.

Containerisation was relatively new in shipping circles. In 1970, the COGWA, which gave effect to the Hague Rules, was passed but standardised containers were not commercially used yet. Containers are now in widespread use. The problem required an international solution, precipitating diplomatic discussions. Meanwhile, the Courts had to wrestle with a statutory provision that had become ill-suited to present conditions.

The drafters of the Hague Rules selected the word 'package' without envisaging containers and their use in the carriage of goods (see Leather's Best v Mormaclynx [1971] 2 Lloyd's Rep 476, 485 (Friendly CJ); Standard Electrica SA v Hamburg Sudamerikanische Dampfschifffahrts-Gesellschaft 375 F 2d 943, 945 (2d Cir 1967) (Lumbard CJ); see also Lucchese v Malabe Shipping Co Inc 351 F Supp 588, 595 (DPR 1972) (Cancio CJ)).

In this case, the containers were not 'packages' for calculating monetary limitation (distinguishing Royal Typewriter Co v M/V Kulmerland [1972] AMC 1995; Rosenbruch v American Isbrandtsen Lines Inc (1973) 357 F Supp 982).

Each container was also neither a 'unit of goods' nor an 'item of cargo' (see Falconbridge Nickel Mines Ltd v Chimo Shipping Ltd [1973] CanLII 160 (SCC) (CMI942)). It was appropriate to characterise one complete, integrated piece of equipment or machinery as a 'unit' in Falconbridge as it could not be 'packaged'. However, it was inappropriate to characterise a shipment of shoes placed in cartons or packages as a 'unit', as the containers were merely a modern method of carrying the packages.

The Court can properly determine if the cargo owner and the carrier intended for the container or the packages inside the container to constitute a package for limitation purposes. The parties will intend for the number of cartons specified to be the number of 'packages' for the purposes of liability limitation where the shipper knows that its goods are to be shipped by container, specifies the type of goods and the number of cartons carried in the container in the contract of carriage, and the carrier accepts that description and that count. If the cargo owner wishes to avoid the limitation, it will only need to describe the nature of the goods and their value. It will probably pay higher rates.

The plaintiff and the defendants agreed to a package limitation per carton when the defendants accepted the description and number of cartons given. The defendants could have refused to issue the bill with such a description, insisted on a count, and, in any event, adjusted its charges to meet the situation. The Court did not accept the plaintiff's argument that one container equals one package because the defendant would have incurred time and cost in counting cartons. The defendants could increase its rates as an ultimate solution.

The parties' intention is not ascertained merely by the words used in the bill of lading. The Court needs to ascertain the parties' intention by considering all facts from the particular facts of each case. Relevant factors that can determine the parties' intention include the type of container, who supplied it, who sealed it if it was sealed on delivery to the carrier, any opportunity for counting by the carrier, and the previous course of dealings.

The plaintiff's intention was to benefit from the minimum monetary responsibility under the Hague Rules by putting the carrier on notice as to the number of packages being carried, even though, for convenience and other reasons, they were grouped in one large receptacle. The plaintiff had no reason to declare a higher value in the bill of lading than CAD 500 per package as each carton of shoes did not exceed CAD 500 in value.

Clause 17 was drafted with the words of the US Carriage of Goods by Sea Act (COGSA) in mind. The 'customary freight unit', as used in cl 17, can only come into play if the goods are not shipped in packages. However, the concept of 'customary freight unit' has no place in COGWA. Such a method of calculating the limitation is not permissible under Canadian law.