Universal Leaf Tobacco Company Inc (Universal) contracted with Companhia De Navegacao Maritima Netumar (Netumar) to ship a consignment of tobacco from Brazil to Norfolk, Virginia. The tobacco was packed inside fibreglass cases, which were stuffed into 40 ft containers. Each container held 90-99 cases of tobacco. Altogether, about 1,200 cases of tobacco were stuffed into 12 containers.

The contracts were evidenced by eight bills of lading issued by Netumar and completed by Universal's shipping agent. Some bills covered a single container, while others covered multiple containers. These bills had common features, two which were significant for the suit. First, cl 23 stated that '[w]here a Container is not stuffed by the Carrier, each individual such Container, including in each instance its contents, shall be deemed a single package and Carrier's liability limited to USD 500 with respect to each such package'. Although Netumar provided the containers, it was Universal who stuffed and loaded the cases into the containers. Second, Universal's agent did not declare the value of the cargo in the bills of lading.

The containers were loaded in the holds of the M/V Olivia. On the first leg of the trip, between Rio Grande and Rio de Janeiro, there was water ingress into the holds. Universal was, however, only notified 17 days later, when the M/V Olivia reached Norfolk. All 568 cases of tobacco in six of the containers were a total loss. In five of the remaining six containers, the tobacco was partially damaged. The total damage was estimated to be USD 600,000-700,000.

Universal brought an admiralty action and claimed damages. Netumar admitted liability but sought limitation under the Carriage of Goods by Sea Act, 46 USC §§ 1300 ff (COGSA). Netumar argued that the USD 500 limit applied to each container as a unit (§ 1304(5)). Universal contended that Netumar was not entitled to invoke this statutory limitation, as it had failed to notify Universal of the damage in a timely fashion. Such a failure constituted an 'unreasonable deviation' from accepted shipping practices, notwithstanding that much of the cargo was salvageable. Even if COGSA's package limitation applied, the applicable units would refer to the individual tobacco cases, and not the containers.

The District Court for the Eastern District of Virginia entered judgment against Netumar in Universal's action on damages occurring during the maritime shipment of goods. The District Court held that Netumar was negligent in failing to notify Universal of the water damage promptly, but that this negligence did not amount to the sort of 'unreasonable deviation' from the shipping contract that would deprive the carrier of package limitation. The District Court held that if the face of the bill of lading disclosed the number of packages inside a container, those packages should normally be considered COGSA units. The District Court awarded damages of USD 391,000.09. Netumar appealed against the portion of the judgment that awarded damages based on the application of the COGSA limitation to each case rather than each container. Universal cross-appealed against the ruling that Netumar was entitled to invoke package limitation.

Held: The judgment of the District Court is affirmed. The COGSA's USD 500 package limitation applies to the cases and not the containers. Netumar's argument for a pro rata reduction of the non-freight damages is rejected, and Universal's invitation to extend the 'unreasonable deviation' doctrine beyond its current boundaries is declined.

Since Universal did not declare the cargo value, the Court had to determine to what the undefined term 'package' applied. Netumar submitted that the containers were 'packages' for COGSA purposes, in accordance with cl 23 on the reverse of the bill of lading. Universal submitted that a package referred to each case, because the front of the bill of lading disclosed the number of cases that was found inside each container: 'Containers [said to contain] 180 cases of [tobacco]' and 'QTY/CASES-90.'

The Court adopted the 'container rule' established by Monica Textile Corp v SS Tana 952 F 2d 636 (2d Cir 1991): a bill of lading that refers to both containers and other units susceptible of being COGSA packages is inherently ambiguous. Unless parties have clearly and explicitly agreed to treat a container as a COGSA package, this ambiguity should be resolved against the carrier. Earlier iterations of the container rule had emerged since 1971. In Leather's Best v Mormaclynx 451 F 2d 800, 815 (2d Cir 1971)), the Second Circuit had held that large shipping containers were not the type of unit to which COGSA's limitation of liability was intended to apply:

[W]e cannot escape the belief that the purpose of § 4(5) of COGSA was to set a reasonable figure below which the carrier should not be permitted to limit his liability and that 'package' is thus more sensibly related to the unit in which the shipper packed the goods and described them than to a large metal object, functionally a part of the ship, in which the carrier caused them to be 'contained'.

The container rule waned in adherence in later years, but was reaffirmed in Mitsui & Co Ltd v American Export Lines Inc 636 F 2d 807 (1981). Mitsui held that where a bill of lading disclosed on its face what is inside the container, and those contents might reasonably be considered COGSA packages, the container was not the COGSA package.

In Monica, the bill of lading provided that a COGSA package was 'each container where the container is stuffed by the Merchant or on his behalf'. The Appeals Court noted that 'such agreements run against the grain of COGSA', and concluded that such a clause was an 'unbargained-for boilerplate' that would not be used to determine the COGSA package in the face of other evidence describing the contents of the containers. That other evidence was found on the face of the bill of lading, wherein it was disclosed that 76 bales of cloth were stowed in the container.

Here, each of the eight bills of lading, including the multiple-container bills, completed by Universal contained the overall number of cases covered by that particular contract, as well as the number of cases in each container. Under the Mitsui-Monica rule, this specific reference to the quantity of cases trumps the more general 'no of pkgs' designation, which was also completed by Universal's agent, and the boilerplate language in small text size in cl 23 on the reverse of the bill. To defeat it, the parties must agree to define a container as a 'package' for COGSA purposes 'in terms that are explicit and unequivocal'. However, here the boilerplate language was not nearly explicit enough.