This appeal arose from a cargo claim by Sony Magnetic Products Inc of America (Sony) against the MV Finnhawk and associated parties (collectively the defendants). In March 1982, Sony contracted for the transportation of a container of its video cassettes from Mobile, Alabama, United States, to the United Kingdom. The cassettes were placed into 1,320 cardboard cartons, the cartons were strapped onto 52 wooden pallets, and the pallets were placed into the container. While loading, the vessel's deck crane malfunctioned and dropped the container onto the ground with such force that all the cassettes were damaged. The District Court found the defendants liable for the entire value of the cargo.

Held: The judgment of the District Court is affirmed.

The defendants argued that they were not liable for the damage since it was caused by a latent defect in the crane, which was exempted under § 1304(2) of the Carriage of Goods by Sea Act (COGSA), 46 USC §§ 1300 ff. A shipper establishes a prima facie case under COGSA by proving that the carrier received the cargo in good condition but unloaded it in a damaged condition: see Terman Foods Inc v Omega Lines 707 F 2d 1225 (11th Cir 1983). A carrier can rebut a shipper's prima facie case by establishing that it exercised due diligence to prevent the damage to the cargo by properly handling, stowing, and caring for it, in a seaworthy ship: 46 USC §§ 1303(1) and 1303(2). The carrier can also rebut the shipper's case by proving that the harm resulted from one of the excepted causes listed in § 1304(2). If the carrier is able to rebut the shipper’s prima facie case, the burden shifts back to the shipper to show that the carrier’s negligence was, at least, a concurrent cause of the loss. The defendants did nothing more than point out inconsistencies and weaknesses in the testimony of Sony’s expert in an attempt to discredit Sony’s theory of the cause of the accident. This argument, however, ignored the allocation of the burden of proof outlined in COGSA. Sony did not have to prove that the accident was not caused by a latent defect in the crane. Instead, to rebut Sony’s prima facie case under COGSA, the defendants bore the burden of proving that the accident was the result of a latent defect in the crane. The District Court made it clear that the defendants' evidence failed to establish this crucial fact. The Court explicitly rejected the defendants' theory that the accident was caused by cracks in the motor's pistons and noted the inconclusiveness of the defendants' evidence that the crane was working properly.

Next, the defendants argued that the package limitation under § 1304(5) of COGSA was misapplied. The bill of lading did not reserve space for designating the value of the cargo, but the attached export certificate showed a value of USD 424,765.44. The District Court concluded that Sony did not declare the value of the cargo on the bill of lading and thus the package limitation had to be applied. The 1,320 cartons, rather than the 52 pallets, were to be construed as the relevant number of packages.

In Vegas v Compania Anonima Venezolana de Navegacion 720 F 2d 629 (11th Cir 1983), the shipment consisted of 109 cartons of auto brake parts consolidated onto two pallets. Noting that Congress had not defined the word 'package' in COGSA, the Court recognised that both the individual and master cartons could fit within the ordinary definition of 'package'. The Court concluded that the package limitation applied to the 109 smaller cartons. The COGSA limitation was enacted in 1936 to restrain the superior bargaining power wielded by carriers over shippers. Its purpose was to set a reasonable limitation on liability by law that carriers could not reduce by contract: see Allstate Ins Co v Inversiones Navieras Imparca CA 646 F 2d 169 (5th Cir 1981). The Court concluded that 'given the congressional purpose to limit agreements restricting carriers' liability ... we doubt justification exists for restricting liability on the basis of consolidation into master cartons of packages to each of which, except for such consolidation, the five hundred dollar limitation would apply'. In effect, the Court decided that ambiguity on a bill of lading regarding the number of COGSA packages should be resolved in favour of the shipper: see Allied Chemical International Corp v Companhia de Navegacao Lloyd Brasileiro 775 F 2d 476 (2d Cir 1985). Like the shipper in Vegas, Sony consolidated the cartons of goods onto pallets and informed the carrier, on the bill of lading, of the number of the individual cartons. Unlike the shipper in Vegas, however, Sony did not disclose, on the bill of lading, that it had consolidated the cartons into pallets. Thus, in this case, there was no ambiguity on the bill of lading concerning the number of COGSA packages. It followed that since there was no ambiguity, the District Court was correct in applying COGSA’s package limitation to the 1,320 cartons instead of the 52 pallets.

The defendants' reliance on Hayes-Leger Associates Inc v MV Oriental Knight 765 F 2d 1076 (11th Cir 1985) to support their argument was misplaced. In Hayes-Leger, the plaintiff's five containers of woven baskets and rattan goods were damaged. Four of the five bills of lading listed the individual pieces of woven baskets and rattan goods as the number of packages, instead of the number of bundles into which the goods had been consolidated. It was held that despite the designation on the bills of lading, it was the bundles and not the individual pieces that were the packages. Where the shipper overstates the number of packages in a container, the COGSA liability limitation should be applied to the actual number of packages in the container. The defendants interpret Hayes-Leger as standing for the proposition that the largest units into which goods are consolidated for transport should be considered the COGSA packages, regardless of what the bill of lading says. Taken to its logical extreme, this interpretation of Hayes-Leger would mean that the container itself should be considered the COGSA package for all shipments. Hayes-Leger never held that the bundles constituted the COGSA packages because they were the largest consolidation of goods. Instead, it looked outside the bill of lading to determine the number of COGSA packages because the bill of lading listed the individual pieces of rattan goods as the number of packages. That description was insufficient to indicate to the carrier that the goods were packaged. In this case, there was no need to look outside the bill of lading to determine the number of COGSA packages because the bill of lading disclosed that Sony was shipping 1,320 cartons, a description sufficient to inform the defendants that Sony's goods were packaged.