Toray Carbon Fibers America Inc (Toray) bought approximately 330 bobbins of acrylic yarn from its Japanese affiliate, Toray International, for its manufacturing plant in Decatur, Alabama. The bobbins were packed onto large steel pallets, which held three bobbins each, and then loaded into five intermodal containers for shipping. The bobbins were insured by Mitsui Marine & Fire Insurance Company Ltd (Mitsui).

Toray International contracted with a freight forwarder, Mitsui-Soko Co Ltd (Soko), to act as an intermediary to arrange for the cargo's carriage to Alabama. Soko in turn contracted with Hanjin Shipping Co Ltd (Hanjin) to transport the cargo by ship from Japan to Savannah. Hanjin hired Norfolk Southern Railway Co (Norfolk) to transport the cargo by train from Savannah to an Alabama rail facility. The bobbins reached Savannah unharmed. During the inland leg of the journey, however, 89 of the 267 bobbins were damaged, allegedly by Norfolk.

Toray filed an insurance claim with Mitsui to recover USD 267,710.07 in losses. Mitsui paid the claim and, as subrogee, sued Hanjin and Norfolk. Hanjin sought a partial summary judgment, with Norfolk seeking a summary judgment on similar grounds. Hanjin and Norfolk submitted that the language in Hanjin's three bills of lading with Soko contained terms limiting the liability of Hanjin, its agents and subcontractors 'at all stages of carriage' to USD 500 per package. Both parties relied on Norfolk Southern Railway Co v Kirby 543 US 14 (2004), 125 S Ct 385 (CMI1454), which held that 'an intermediary binds a cargo owner to the liability limitations it negotiates with downstream carriers'. Mitsui contended that it should not be bound by the limitation in the Hanjin bills, because Toray was not a party to those bills.

Hanjin, Norfolk and Mitsui differed on what the word 'package' referred to for the purposes of the liability limitation. Hanjin submitted that it was the pallets. Norfolk argued that it was the intermodal containers. Mitsui contended that it was the bobbins, or alternatively, the pallets.

The trial Court held that the liability limitation of USD 500 per package applied, each pallet packed within the large intermodal containers constituted a 'package', and ruled that Kirby applied. Mitsui and Norfolk appealed to the Court of Appeals.

Held: The trial Court judgment is affirmed.

The Carriage of Goods by Sea Act, 46 USC § 1300 ff (COGSA), governed bills of lading for the carriage of goods 'from the time when the goods are loaded on to the time when they are discharged from the ship' (46 USC § 1301(e)). During that period, COGSA limited the carrier's liability for any damage to the goods to a maximum of USD 500 'per package' unless the shipper declared a higher value on the bill of lading (COGSA 1304(5)). COGSA also permitted the contractual extension of this default liability limitation to the entire period during which the goods would be under the carrier's control, including during any land leg of the journey, and the extension applied to agents or independent contractors of the carrier, including the so-called 'downstream' inland carriers such as Norfolk (46 USC § 1307). The Court of Appeals agreed with the trial Court that Kirby applied to this case.

COGSA and its legislative history did not provide any clue as to the meaning of 'package'. In construing COGSA § 1304(5), courts are 'called [upon] to evaluate diverse and occasionally idiosyncratic items shipped in various forms - bundles, boxes, cartons, bales, coils, crates, rolls, skids, pallets, and containers - in order to determine what units, if any, constitute COGSA "packages"' (See, eg, Monica Textile Corp v SS Tana 952 F 2d 636, 638 (2d Cir 1991); Groupe Chegaray/ V De Chalus v P & O Containers 251 F 3d 1359, 1368 (11th Cir 2001) (CMI1487); Hayes-Leger Assos v M/V Oriental Knight 765 F 2d 1076 (11th Cir 1985)).

Federal courts, particularly the Eleventh Circuit, have held that a large intermodal container was not a COGSA package unless the bill of lading clearly stated otherwise. In Hayes-Leger, the Eleventh Circuit articulated two rules for interpreting bills of lading:

(1) when a bill of lading disclosed the number of COGSA packages in a container, the liability limitation of § 1304(5) applied to those packages; and

(2) when a bill of lading listed the number of containers as the number of packages, but failed to disclose the number of COGSA packages within each container, the liability limitation of § 1304(5) applied to the containers themselves (765 F 2d, 1080(II)).

The Court applied these rules and rejected Norfolk's argument that the relevant package was the large intermodal container. The 'no of packages or containers' columns on the Hanjin bills listed containers, but also disclosed the number of pallets and bobbins therein. Under the second Hayes-Leger rule, the Hanjin bills' references to smaller units meant that the containers were not COGSA packages.

The relevant package was each pallet. Toray prepared the bobbins for transportation by securing them to specially made steel pallets. The bill of lading defined 'package' as the single largest unit of goods delivered to the carrier. Moreover, the Eleventh Circuit had held that the term 'package' means 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.