Monsanto International Sales Co (Monsanto) obtained five 20-foot insulated stainless steel containers from Stolt Tank Containers Inc (Stolt) to ship chemicals by sea. With Stolt's knowledge, Monsanto contracted with Evergreen Marine Corp Ltd (Evergreen) for the carriage of the containers and their contents from St Louis, Missouri, United States, to Hakata, Japan. Two ships carried the containers.

Stolt claimed that the containers were undamaged when they were delivered to Evergreen, and all of the containers arrived in Japan in a damaged condition. Stolt claimed that Evergreen was liable in bailment and negligence.

Evergreen issued Monsanto three identical, preprinted bills of lading, none of which made any reference to Stolt. Evergreen argued that any damages due to Stolt were limited by the USD 500 per package liability caps imposed by the Carriage of Goods by Sea Act (COGSA), 46 USC ss 1300 ff, and that the bills of lading governing the shipments showed Evergreen’s intent to limit liability to USD 500 per container. Specifically, cl 2 incorporated Evergreen's tariff and provided notice that it was willing to supply copies of the tariff on request. Evergreen's Tariff Rule No 52 stated: '[e]ach tank container and its contents shall be transported by the carrier as a single package and carrier liability is limited to USD 500.00 per container and its contents'.

Clauses 5(a) and 7(2) of the bills of lading made it clear that COGSA applied. COGSA s 1304(5) limits carrier and ship liability to USD 500 per package unless the shipper has declared a higher value:

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 USD 500 per package ... unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.

Clause 9 of the bills of lading provided that the 'limits of liability ... apply in any action against the Carrier for loss or damage to the Goods whether the action be founded in contract or in tort'.

In the District Court for the Southern District of New York, Stolt argued that the limitation of liability in the bills of lading and COGSA did not apply to it. It argued that a contract to which it was not a party could not bind it, and that COGSA by its own terms was inapplicable, despite Stolt having known that the containers were to be shipped by sea from a US port to Japan on Evergreen vessels. The District Court rejected these arguments, ruling that Stolt had constructive notice of the liability limitations and was bound both by COGSA and the bills of lading. Stolt appealed.

Held: Appeal dismissed. The decision of the District Court is affirmed.

COGSA is the United States' enactment of the Hague Rules and allocates the risk of loss for cargo damaged during international transport under contracts evidenced by bills of lading. Section 4(5) limits a carrier's liability 'in any event' for loss or damage to 'goods' up to USD 500 per package, unless the shipper has declared the nature and value of the package. This is a default rule. If the shipper does nothing, the liability is limited to USD 500 per package. The shipper can increase this limitation by declaring a higher value and ensuring that it is inserted in the bill of lading. The shipper would pay an additional amount for the carrier’s potential liability. The carrier need only provide notice that a reasonable ad valorem charge is available in order to invoke COGSA's liability limitation as a defence. Stolt does not argue that it received inadequate notice; instead, it claims that a bill of lading is insufficient to apply COGSA to a non-party.

Once a party issues a bill of lading, goods covered by that bill of lading become subject to s 4(5). A contrary interpretation would defeat COGSA's intended purpose of allocating risk of loss and creating predictable liability rules, on which not only carriers but others can rely. An object of the Hague Rules was to make litigation unnecessary. If COGSA intended a more narrow limitation of liability, it is doubtful that the statute would have provided that the USD 500 applied 'in any event'.

If Stolt's argument were upheld, a carrier, to avoid expanded liability, would have to contract to limit liability not only with the party with whom it actually dealt, but also with all others who might possess an interest in the shipped goods. This would impose far too heavy a burden on the carriers and might even delay shipment, as the carrier attempts to identify and notify parties. Such a result would undermine COGSA's purpose. Where a party is aware that another is shipping its packages on a vessel and has at least constructive notice that liability limitations may apply, that party is bound by the liability limitations agreed to by the shipper.

Stolt claims that even if COGSA’s liability limitation determines the rights of those who are non-parties to bills of lading, it does not apply in this case because the containers were the functional equivalent of a part of the ship and did not constitute 'goods' or 'packages'. This is not correct.

Although COGSA s 4(5) limits liability for all goods to USD 500 per package, it does not state whether containers fall within its protection. Mitsui & Co Ltd v America Export Lines 636 F 2d 807 (2d Cir 1981) held that when a bill of lading discloses on its face what is inside the container and those contents may reasonably be considered COGSA packages, then the container is not the COGSA package.

Here, Evergreen received five containers holding liquid chemicals that could not have been shipped overseas without some sort of container. The chemicals were not stored in smaller units or drums within each container, and cannot reasonably be considered COGSA packages. The containers were a necessary component of the packages of liquid chemical delivered to Evergreen. The common-sense definition of the packages delivered to Evergreen included the containers. To decide otherwise would frustrate COGSA's purpose of creating predictable liability for carriers. Therefore, each container and its contents constituted a COGSA package.