In August 1973, M/V Eurygenes (the vessel) loaded cargo in Japan for carriage to New York, USA, and European ports. The vessel loaded additional cargo in New York. After sailing from New York, some cargo was destroyed or damaged by a fire on board.

A settlement formula was agreed on. However, agreement could not be reached with respect to the stereo equipment as to whether the 'package' limitation should apply to the containers or to the cartons within the containers. The term 'package' is used in s 4(5) of the United States Carriage of Goods by Sea Act (COGSA), 46 USC s 1304(5), which provides in pertinent part:

Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit, ... unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.

The District Court referred that issue to a Magistrate. The hearing before the Magistrate revealed that the vessel could carry both containerised and break-bulk (ie non-containerised) cargo. Universal chose to use containers due to a history of pilferage losses. The containers were supplied by the carrier, but were loaded and sealed by Universal's freight forwarder, who delivered them to the vessel.

The bills of lading specified both the number of containers (eg '8' containers) and the number of cartons (eg '1500' cartons). Clause 1 of the bills of lading incorporated the terms of COGSA by reference, and cl 20 specified that the bills of lading would be construed according to the laws of the United States. Clause 1 of the bill of lading provided in pertinent part:

This bill of lading shall have effect subject to the provisions of the Carriage of Goods by Sea Act of the United States of America, approved April 16, 1936, which shall be deemed to be incorporated herein, and nothing herein contained shall be deemed a surrender by the Carrier of any of its rights, immunities or limitations or an increase of any of its responsibilities or liabilities under said Act.

Clause 20 of the bill of lading provided that:

This bill of lading shall be construed and the rights of the parties thereunder determined according to the law of the United States.

The Magistrate applied the 'functional economics' test of Royal Typewriter Co v M/V Kulmerland 483 F 2d 645 (2d Cir 1973). He found that the cartons in which the stereo equipment was packed were functional and capable of being shipped without being containerised, giving rise to a rebuttable presumption that the parties intended that the cartons should constitute the 'package'. The Magistrate then proceeded to examine other relevant factors and concluded that there was a 'subjective intent' that the containers, not the cartons, should constitute the 'packages'. These factors included: the container being sealed, preventing the carrier from verifying its contents; the bill of lading referring several times to 'containers' and only once to 'cartons'; and testimony indicating that Universal preferred to ship in containers to reduce pilferage. He concluded that these factors rebutted the presumption that the parties had agreed on the cartons as COGSA packages.

However, the District Court rejected the Magistrate's finding of 'subjective intent', concluding that the parties had not agreed on the definition of the term 'package' for purposes of ascertaining liability. The District Court recognised that no shipper ever actually intends that its recovery will be limited to USD 500 per container, or that any carrier, in the absence of an express agreement, intends that the recovery should exceed USD 500 per container. However, the District Court applied the USD 500 limitation to the containers, reasoning that the 'shipper had the option to ship its goods either break-bulk or by container' and it chose to containerise. The District Court effectively held that the shipper's choice of containers instead of break-bulk shipment indicated its acquiescence in the definition of the container as the COGSA 'package'.

The appeal against the District Court's decision was heard by the Court of Appeals for the Second Circuit, which had decided Mitsui & Co Ltd v American Export Lines 636 F 2d 807 (2d Cir 1981) after the District Court's decision. The question on appeal was whether the District Court's decision limiting recovery to USD 500 per container should be upheld in light of Mitsui.

Mitsui held that 'generally a container supplied by the carrier is not a COGSA package if its contents and the number of packages or units are disclosed' in the bill of lading: Mitsui 821. Further, for 'container shipping, where the bill of lading specifies the contents, the ship's container should not be deemed a package–even presumptively only–irrespective of how the goods within it are packed': Mitsui 825. The Court in Mitsui reviewed the congressional policy reflected in COGSA s 4(5), the problems with the Kulmerland 'functional economics' test, and the rationale of Leather's Best Inc v SS Mormaclynx 451 F 2d 800 (2d Cir 1971).

The plaintiffs/appellants included Smythgreyhound (a division of Golden Cycle Transportation Corp), Transatlantic Marine Claims Agency Inc, Vittoria Assicurazioni SpA, Agricurazioni Assicurazioni, and Compahnia Italiana di Sicurata la Pace Assicurazioni e Riassicurazioni SpA.

The defendants/appellees were the vessel, Compania Maritima San Basilio SA, PD Marchessini & Co (New York) Inc, and Marchessini Lines (the appellees).

Held: Judgment reversed. Matter remanded to the District Court for calculation of damages.

Given that the bills of lading incorporate COGSA and specifically make provision for interpretation according to the laws of the United States, 'package' should be interpreted according to the case law prevailing in the Second Circuit. While the appellees argued that 'package' should be defined as parties intended, parties' intent is unclear. The bills of lading on their face reflect the lack of agreement, referring to both 'containers' and 'cartons'. The definition of 'package' must be found elsewhere.

Mitsui is applicable. The rationale of Mitsui is not limited to cases where the shipper is 'forced' to use containers. The appellees' argument that Mitsui should be distinguished because the shipper in the instant case chose to use containers is rejected. The appellees implied that the non-existence of a choice to use containers was a critical factor in Mitsui. They contended that the existence of such a choice negates the possibility that the carrier, through its superior bargaining power, coerced the shipper into utilizing containers to reduce carrier liability, and that absent such coercion, the general rule of Mitsui does not apply. While there is some language in Leather's Best (815) and Mitsui which indicated a concern with the equality of bargaining strength between the shipper and the carrier, neither of those cases relied solely or even primarily on that ground. In those cases, the ships carried only containers, but this fact was not stressed nor specifically relied on in the holdings. Contrary to the appellees' contention, Mitsui did not rely on the existence of an unequal bargaining relationship or coercion for its holding. Substantial discussion of this point is absent in Mitsui, there being only one reference to bargaining power, where it was observed that one purpose of COGSA s 4(5) was to fix a 'minimum level of liability ... to prevent carriers from using their superior bargaining power to compel shippers to agree to provisions reducing their liability to insignificant amounts': Mitsui 815. This observation does not support the appellees' argument that Mitsui relied on the existence of an unequal bargaining relationship for its holding. There is a conspicuous absence of findings or discussion of the 'choice' issue (ie bargaining strength) in other previous decisions (eg Kulmerland). The appellees argued that such findings were unnecessary because in the context of a container-only ship, a coerced choice could be assumed, since it was the only choice. However, such an argument misses the point. Were a finding of an unequal bargaining relationship necessary for previous decisions, there would have been, in previous decisions, an inquiry into the question of whether the shipper freely chose the all-container ship in the first instance. No such inquiry took place. This indicates that previous decisions did not consider the existence of unequal bargaining power to be determinative of the meaning to be ascribed to the term 'package'. Thus, previous decisions do not rely on a finding of coercion or lack of choice.

The attempt to distinguish the instant case based on the shipper's 'choice' is unsound. Shippers can choose to ship their cargo break-bulk by contracting with a ship which handled cargo in that manner. The choice of containers in the context of a mixed-cargo carrier (break-bulk and containers) is no different from the initial choice to ship, via an all-container ship. Both choices may reflect the shipper's desire to utilise containers for a variety of reasons. Alternatively, they may reflect a lack of concern about whether the cargo was shipped break-bulk or containerised and a desire to ship as expeditiously as possible. The appellees' argument implies that whenever a shipper affirmatively prefers to use containers for its own convenience, then it must be held to have agreed that the container will be the COGSA 'package'. Because Mitsui and other previous decisions clearly do not support such a proposition, the appellees' argument is rejected.

Mitsui and its predecessors were not primarily concerned with the actual or potential inequality of bargaining power between shippers and carriers. They were concerned with interpreting COGSA s 4(5) to give effect to the congressional purpose of establishing a reasonable minimum level of liability: Mitsui 815; Leather's Best 815. To give effect to this purpose, the courts must 'take a critical look at any proposed construction of [s 4(5)] that would reduce a carrier's liability below reasonable limits': Mitsui 815.

The appellees argued that the instant case is distinguishable from Mitsui in two further ways. First, the appellees argued that where the shipper loaded and sealed the container, the carrier should not be held to the shipper's self-serving description of its contents for the purposes of the package limitation. This argument is rejected. The same situation was present in Mitsui and was not considered to be significant. In Leather's Best a truck driver did watch the loading of the container and issued a receipt (Leather's Best 804 n 2), but no special significance was attached to that fact. The appellees' suggestion to construct a rule that the contents of the container cannot be the COGSA package where the carrier (or its agent) has not verified the contents of the container is rejected. Such a rule is not supported by Mitsui. The appellees' second argument is that because the shipper can protect itself by declaring the full value of the goods and paying a higher tariff, the limitation clause should not be strictly construed against the carrier. However, this argument was rejected in Mitsui 815-16 n 9.

While Mitsui did not cover the situation in which the bill of lading does not show how many separate packages there are (Mitsui 821 n 18), Mitsui adopted a general rule that where the bill of lading discloses the contents of the container, the container is not the COGSA package. This general rule both adheres to the congressional purpose behind COGSA and meets the goal of international uniformity: Mitsui 821. However, the appellees instead suggested the application of something similar to the twelve criteria analysis employed in Complaint of Norfolk, Baltimore & Carolina Line Inc 478 F Supp 383 (ED Va 1979) 392. The twelve criteria are:

(1) Whether the carrier actually possesses superior bargaining strength sufficient to coerce the shipper's agreement to adhesion contract;

(2) Whether the parties treated the container as a single unit in their negotiations, on the documents of contract, and in determining the shipping rate;

(3) Whether the shipper, or at least one other than the carrier, chose to ship the goods in containers;

(4) Whether the shipper or carrier procured the container;

(5) Whether the goods were delivered to the carrier previously loaded into the container;

(6) Whether the goods were loaded by the shipper or by the carrier;

(7) Whether the carrier actually observed the contents of the container before it was sealed for shipment;

(8) Whether the container was loaded with the shipper's goods only, and not those of any other shipper;

(9) Whether the markings on the container provided a complete and accurate indication of the contents and their value;

(10) Whether the bill of lading contained any declaration of the nature of the container's contents and their value;

(11) Whether the bill of lading provided the shipper with an adequate opportunity to declare the value of the container and its contents, and to obtain financial protection for any excess value;

(12) Whether the shipper took advantage of this opportunity.

This analysis should not be adopted. It is not a 'common sense test' which will help 'avoid the pains of litigation': Kulmerland 649. This analysis is essentially another means for arriving at the intent of the parties where such intent is not clear from the bill of lading. Mitsui and Leather's Best rejected a complex intent analysis in favour of a clear rule that where the contents of the container are disclosed in the bill of lading, the container is not the COGSA package. The clear rule has the advantage of 'certainty' while not being 'at the expense of legislative policy and equity': Mitsui 825. The holding in Mitsui is consistent with the Congressional purpose of establishing a reasonable minimum level of liability.

Mitsui and the decision in this instant case will put carrier interests on notice that the container will not be considered the COGSA 'package' where the bill of lading discloses the contents of the container. This does not mean that the parties cannot agree between themselves that the container will be the COGSA 'package'. In the absence of clear and unambiguous language indicating agreement on the definition of 'package', the court will conclusively presume that the container is not the package where the bill of lading discloses the container's contents.

Mitsui's general rule does not resolve all the questions in these 'package' cases. It merely resolves the question of whether the container is the COGSA 'package'. In this case it is not. The next question is whether this is a 'case of goods not shipped in packages'. If so, then the USD 500 limit applies to the 'customary freight unit': COGSA s 4(5). See Mitsui 818. In the instant case, there is no evidence that the cartons are not 'packages' for COGSA purposes. These same cartons were shipped break-bulk. The carrier has not argued that the cartons are not 'packages', nor that some other customary freight unit is more appropriate. Thus the USD 500 package limitation on liability applies to the cartons.