The Basis For The Settlement Of Claims For Loss Of Containerised Goods
In claims for loss of containerised goods, the basis for the calculation of the carrier`s liability limit is the number of packages stated in the Bills of Lading to have been loaded in the container(s).
The question often arise what constitutes the "package" for the purpose of calculating the limit of the carrier`s liability.
The US Courts decide the package limitation claims on the basis of section 4(5) of US COGSA 1936 which provides that in case of goods shipped in packages the carrier`s maximum potential liability is limited to $500 per package, while in case of goods not shipped in packages the carrier`s maximum potential liability is limited to $500 per customary freight unit.
In determining what constitutes the "package" for the purpose of calculating the limit of the carrier`s liability, the Courts look to the way in which the goods were described in the Bills of Lading.
The US Courts distinguish between the Bills of Lading that state the number of packages within the container and the Bills of Lading that do not describe the goods "in terms of items that can reasonably be understood as packages1".
In case of the former, the US Courts2 calculate the carrier`s liability limit by reference to the number of packages stated in the Bill of Lading to have been loaded in the container(s)3 and thereby the cargo insurers will recover the amount resulting from the multiplication of the number of packages by $500.
In case of the latter, either the container is deemed the package4 on the basis of which the carrier`s liability limit has to be determined or the goods are considered "goods not shipped in packages" in which case the calculation of carrier`s liability limit must be made "per customary freight unit"5. Since the ocean freight for the Full Container Loads is usually charged as a flat rate per container, the "customary freight unit" is often the container itself6. Thus, when the container is deemed the "package" or the "customary freight unit", the claimant`s recovery is limited to $500 per container.
In cases where the Bills of Lading state that more than one unit of packing has been used, e.g. bundles stowed on pallets, the question of what constitutes the "package" for the purpose of calculating the limit of the carrier`s liability will depend on which of the packing units, e.g. the pallets or bundles, are counted as "packages" in the Bills of Lading.
In the US law case Allied International American Eagle Trading Corp. v. SS Yang Ming7, a cargo of screws, bolts, nuts, studs and washers was packaged on two pallets, one holding nine cartons, the other holding ten drums of cargo. Each pallet was counted as one package in the Bill of Lading.
The question in dispute was whether the cartons and drums or the pallets should be considered the "packages". The US Court of Appeals for the Second Circuit held that even though the contents of the pallets were enumerated in the Bill of Lading, the cases and drums were not individually counted in arriving at the agreed upon total number of "packages" stated in the Bill of Lading. Since each pallet was counted as one package in the Bill of Lading, the pallets should be considered the "packages" for the purpose of calculating the limit of the carrier`s liability.
This case set the rule in US jurisprudence that the pallets shall be considered the "packages" if they are individually counted as "packages" in the Bill of Lading. The rule was upheld in Groupe Chegaray/V. De Chalus v. P&O Containers8. In that case 2268 cartons containing perfumes and cosmetics were bound together with plastic wrap onto 42 units that were stowed on pallets.
The description of goods in the Bill of Lading was:
1 X 40` DRY VAN S.T.C. [said to contain]
31 PACKAGES NOS. 43/73 ORDER 70187 X COSMETICS
11 PACKAGES + 2 CTNS ORDER 70188A COSMETICS
UNIT TOTALS
42 PACKAGES STC 2268 CARTONS + 2 CTNS
In fact, the shipper`s description of goods stated:
31 PALLETS NOS. 43/73 ORDER 70187 X COSMETICS
11 PALLETS + 2 CTNS ORDER 70188A COSMETICS
The shippers made no objection to the carrier`s description of pallets as "packages".
The US Court of Appeals for the Eleventh Circuit held that since the 42 pallets were individually counted and described as "packages" in the Bill of Lading, the carrier`s liability limitation had to be calculated by reference to the 42 pallets.
Therefore, the smallest unit of packing enumerated in the Bills of Lading will not always be deemed the appropriate package. The Court decision will depend on which of the packing units are counted as "packages" in the Bills of Lading.
One question raised by the carriers was that in case of goods stuffed in container by the shipper, the carrier cannot be bound by the shipper`s description of goods in the Bill of Lading because it did not packed the container and did not have a reasonable opportunity to check its contents. Therefore, the container should be considered the "package" for the purpose of the carrier`s limitation of liability.
An example of such case was Center Optical (Hong Kong) Ltd. v. Jardine Transport Services (China) Ltd.9. The relevant passage of the judgment is quoted below:
"It is said by the defendant that there is a special definition of packing limit provided by cl.6(4) (D), and that if the carrier does not stuff the container itself, the container is the packing unit for the U.S. $500 COGSA limit. Clause 6(4)(D) reads, in relevant part, as follows:
(D) Definition of Package or Shipping Unit
Where a Container is used to consolidate Goods and such Container is stuffed by the Carrier, the number of packages or shipping units stated on the face of this Bill of Lading in the box provided shall be deemed the number of packages or shipping units for the purpose of any limit of liability per package or shipping unit provided in any international convention or national law relating to the carriage of Goods by sea. Except as aforesaid the Container shall be considered the packaging or shipping unit ..."
In the US case St. Paul Fire & Marine Ins. v. Sea-Land Service10, the US District Court held that:
"The scope of the $500 limitation does not turn upon whether the shipper or the carrier loaded the goods into the container, but rather, as the Second Circuit has ruled, on whether the carrier has been put on notice of the contents of the container."
The English and Australian Courts decide the package limitation claims on the basis of the provisions of Article IV, Rule 5(c) of the Hague-Visby Rules which stipulate that:
"Where a container, pallet or similar article of transport is used to consolidate goods, the number of packages or units enumerated in the Bill of Lading as packed in such article of transport shall be deemed the number of packages or units for the purpose of this paragraph as far as these packages or units are concerned. Except as aforesaid such article of transport shall be considered the package or unit."
In the English case The "River Gurara"11, the Colman J. said that:
"[U]nder the scheme prescribed by the Hague Rules a package is no less a package for the purposes of art. IV, r.5 where the carrier has been unable to verify its existence as such at the time when he received it for shipment."
In the Australian case El Greco (Australia) Pty Ltd. v. Mediterranean Shipping Co. S.A.12, the Federal Court of Australia held that:
"Article IV, r.5(c) applies both to the carrier`s packed containers and shipper`s packed containers...
What was "enumerated" on the bill shall be considered an "enumeration" irrespective of whether the carrier or shipper packed the container.
There is no requirement in the art. IV, r.5(c) that the enumeration must be contractually agreed to be binding. Article IV, r.5(c) is not a provision dealing with binding representations; it concerns the form of a bill, the identification on it … of the number of packages or units. The enumeration will not bind the carrier under art.III, r.4 if it is made clear that the carrier does not represent it. However, the enumeration will still stand for limitation purposes under art. IV, r.5(c)13."
The Courts rejected the Bills of Lading clauses providing that the shipper-packed containers should be considered "packages"14 and limiting carrier`s liability to $500 per container15. Such clauses were considered an attempt to lessen the carrier`s liability below the limit established by the international convention and national law and consequently, were deemed invalid.
Article 6, Rule 2(a) of the Hamburg Rules16 and Article 59, Rule 2 of the Rotterdam Rules17 have similar provisions to Article IV, Rule 5(c) of the Hague-Visby Rules so that it can be argued that the rules adopted by the English and Australian Courts and their comments based on Article IV, Rule 5(c) of the Hague-Visby Rules would be equally applicable to package limitation cases to be decided based on Article 6, Rule 2(a) of the Hamburg Rules and Article 59, Rule 2 of the Rotterdam Rules.
by Vlad Cioarec, International Trade Consultant
This article has been published in Commoditylaw`s Metals & Minerals Legal Brief Edition No. 1.
Endnotes:
1. See Binladen BSB Landscaping v. M/V Nedlloyd Rotterdam, 759 F.2d 1006 (2nd Cir. 1985).
2. In Hayes-Leger Associates v. M/V Oriental Knight, 765 F.2d 1076 (11th Cir. 1985) the Court adopted the following two rules: "(1) when a bill of lading discloses the number of COGSA packages in a container, the liability limitation of section 4(5) applies to those packages; but (2) when a bill of lading lists the number of containers as the number of packages, and fails to disclose the number of COGSA packages within each container, the liability limitation of section 4(5) applies to the containers themselves." As to the meaning of the term "package", the US jurisprudence adopted the definition given in Aluminios Pozuelo, Ltd. v. S.S. Navigator, 407 F.2d 152, 155 (2nd Cir. 1968) where the term "package" was defined as "a class of cargo, irrespective of size, shape or weight, to which some packaging preparation for transportation has been made, which facilitates handling but which does not necessarily conceal or completely enclose the goods".
3. In Mitsui & Co., Ltd. v. American Export Lines, 636 F.2d 807 (2nd Cir. 1981) the Court held that: "[A]t least when what would ordinarily be considered packages are shipped in a container supplied by the carrier and the number of such units is disclosed in the shipping documents, each of those units and not the container constitutes the "package" referred to in §4(5) [of COGSA]." In Binladen BSB Landscaping v. M/V Nedlloyd Rotterdam, 759 F.2d 1006 (2nd Cir. 1985) the Court held that: "[W]hen the bill of lading discloses not only the number of containers but the number of cartons within each, the cartons, not the containers, will be treated as COGSA packages." In Hayes-Leger Associates v. M/V Oriental Knight, 765 F.2d 1076 (11th Cir. 1985) the Court held that: "[I]f a shipper places its packages of goods in a container furnished by the carrier and discloses the number of packages in the container to the carrier in the bill of lading or otherwise, each package or unit within the container constitutes one package for purposes of COGSA`s five hundred dollar limitation of liability." In Leather`s Best, Inc. v. SS Mormaclynx, 451 F.2d 800 (2nd Cir. 1971) the Bill of Lading described the shipment as one container said to contain 99 bales of leather. The Court held that each bale constituted a "package". In Matsushita Electric Corporation v. SS Aegis Spirit, 414 F. Supp. 894 (Washington District Court 1976) the Bill of Lading described the shipment as "2 containers said to contain 601 cartons". The Court held that each of the 601 cartons constituted a "package". In Allstate Ins. Co. v. Inversiones Navieras Imparca, 646 F.2d 169 (5th Cir. 1981) the Bill of Lading described the shipment as "One 20` Ft. Container With 341 Cartons". The Court held that each of the 341 cartons constituted a "package" for purposes of COGSA`s $500 limitation of liability. In Smythgreyhound v. M/V Eurygenes, 666 F.2d 746 (2nd Cir. 1981) the Bill of Lading described the goods stuffed in containers as 1,500 cartons of stereo equipment. The Court held that each of the 1500 cartons constituted a "package". In Monica Textile Corp. v. SS Tana, 952 F.2d 636 (2nd Cir. 1991) the Bill of Lading described the goods stuffed in containers as 76 bales of cotton cloth. The Court held that each of the 76 bales of cotton cloth constituted a "package". In International Adjusters, Inc. v. Korean Wonis-Son, 682 F. Supp. 383 (ND Illinois 1988) the Bill of Lading described the goods stuffed in containers as 9 cases and 42 cartons. The Court held that ""package", as it is used in §1304(5), refers to the individual cartons and cases contained in a large container, and not to the large container itself, when the number of individual cartons and cases is disclosed. [...] The Brussels Protocol of 1968 also adopted this approach, specifically stating that the number of packages or units shall refer to the number of packages or units held in a large container or pallet." In Sony Magnetic Products v. Merivienti O/Y, 863 F.2d 1537 (11th Cir. 1989) the Bill of Lading described the shipment as: "1x40 foot container STC [said to contain]: 1320 Ctns. Magnetic Tapes (blank)." The Court held that each of the 1320 cartons constituted a "package". In St. Paul Fire & Marine Ins. v. Sea-Land Service, 735 F. Supp.129 (S.D.N.Y. 1990), the Bill of Lading described the shipment as: "40 FT. CONTAINER … S.T.C. [Said To Contain] 150 PKGS." The Court held that each of the 150 packages constituted a "package". In Universal Leaf Tobacco v. Companhia de Navegacao Maritima Netumar, 993 F.2d 414 (4th Cir. 1993), eight Bills of Lading were issued for a shipment of 1200 cases of tobacco stuffed into 12 containers. The Bills of Lading stated that each 40 foot container held 90-99 cases of tobacco. The Court held that each of the 568 cases that were lost during the carriage constituted a "package". In Tokio Marine and Fire Ins. Co. v. Nippon Express, 155 F. Supp. 2d 1167 (CD California 2000) the Bill of Lading described the goods stuffed into container as 33 skids containing 177 pieces. The Court held that each of the 33 skids constituted a "package". In Fishman & Tobin v. Tropical Shipping & Const. Co., 240 F.3d 956 (11th Cir. 2001) the Bill of Lading described the goods stuffed into container as "39 Big Packs Containing 27,908 units boy`s pants". The Court held that each of the 39 big packs constituted a "package".
4. In Sperry Rand Corp. v. Norddeutscher Lloyd (S.D.N.Y. 1973) the Bill of Lading described the goods stuffed into container as 9,500 electric shavers. The Court held that the container constituted the "package". In Rosenbruch v. American Export Isbrandtsen Lines, Inc., 543 F.2d 967 (2nd Cir. 1976) the Bill of Lading described the goods stuffed into container as "used household goods". The Court held that the container constituted the "package". In Binladen BSB Landscaping v. M/V Nedlloyd Rotterdam, 759 F.2d 1006 (2nd Cir. 1985) the Bill of Lading described the goods stuffed into container as live plants. The Court held that: "when a bill of lading lists only the number of containers under "No. of Pkgs." and does not describe the cargo in terms of items that can reasonably be understood as packages, … each container constitutes a COGSA package. […] Maximum damages in such a situation then are $500 per container, irrespective of the contents." In DWE Corp. v. TFL Freedom, 704 F. Supp. 380 (S.D.N.Y. 1989) the Bill of Lading described the shipment as follows: "No. of Packages: One (1)", "Description of Package and Goods: 40` Container house to house said to contain dry goods, merchandise divers". The Court held that: "This Bill of Lading expressly refers to the container as a package – it lists "One(1)" container in the column which asks for the number of packages. It fails to specify an alternative measure of the number of "packages" shipped … The entry in the column on the Bill of Lading which asks for a description of package and goods merely states "40` Container … said to contain dry goods, merchandise divers," without further itemization. I conclude that the container is the "package" envisioned by the contract of carriage." In Orient Overseas Container Line v. Sea-Land Service, 122 F. Supp. 2d 481 (S.D.N.Y. 2000) the Bill of Lading described the goods stuffed in containers as automobile engines. The Court held that the container constituted the "package". In the Australian case El Greco (Australia) Pty Ltd. v. Mediterranean Shipping Co. S.A., [2004] FCAFC 202; [2004] 2 Lloyd`s Rep. 537, the Bill of Lading described the goods stuffed in container as "200,945 pieces posters and prints". The description of goods in the Bill of Lading did not indicate how they were packaged. The Federal Court of Australia held that this was not an enumeration of packages pursuant to the liability limitation provisions of Article IV, Rule 5(c) of the Hague-Visby Rules. The Court held that: "since there was no enumeration of packages for the puposes of art.4, r.5(c), it followed that the container itself was the only package or unit for limitation purposes.[…] the bill had to use words which made clear the number of packages or units separately packed for transportation; if it was not clear from the face of the bill what numbers of packages or units were packed as such, there would only be one package or unit – the container."
5. In Binladen BSB Landscaping v. M/V Nedlloyd Rotterdam, 759 F.2d 1006 (2nd Cir. 1985) the Court adopted the rule that "goods placed in containers and described as not separately packaged will be classified as "goods not shipped in packages" for which the $500 liability limit would be per "customary freight unit"." The rule was upheld in Hayes-Leger Associates v. M/V Oriental Knight, 765 F.2d 1076 (11 th Cir. 1985), DWE Corp. v. TFL Freedom, 704 F. Supp. 380 (S.D.N.Y. 1989) and Norwich Union Fire Ins. v. Lykes Bros. SS Co., 741 F. Supp. 1051 (S.D.N.Y. 1990). In Hayes-Leger Associates v. M/V Oriental Knight, 765 F.2d 1076 (11 th Cir. 1985) one of the Bills of Lading described the shipment as "1 CONTAINER SAID TO CONTAIN: 3,542 PCS. WOVEN BASKETS AND RATTAN FURNITURES". The Court held that: "This description was insufficient to indicate to the carrier that the goods were "packaged"... [I]f the shipper intends to rely on the description portion of the bill of lading to disclose to the carrier the number of COGSA "packages", that description must indicate "the number of items qualifying as packages (i.e., connoting preparation in some way for transport), such as "bundles", "cartons", or the like." "Because the bill of lading listed "ONE CONTAINER ONLY" as the number of packages, and did not otherwise disclose to the carrier the number of packages within the container, the shipment must be treated as one of "goods not shipped in packages"."
6. See DWE Corp. v. TFL Freedom, 704 F. Supp. 380 (S.D.N.Y. 1989); Norwich Union Fire Ins. v. Lykes Bros. SS Co., 741 F. Supp. 1051 (S.D.N.Y. 1990); Orient Overseas Container Line v. Sea-Land Service, 122 F. Supp. 2d 481 (S.D.N.Y. 2000). The US Courts determine what is the "customary freight unit" based on the relevant information stated in the carrier`s tariff and Bill of Lading.
7. 672 F.2d 1055 (2nd Cir. 1982)
8. 251 F.3d 1359 (11th Cir. 2001)
9. [2001] 2 Lloyd`s Rep. 678
10. 735 F. Supp.129 (S.D.N.Y. 1990)
11. Owners of Cargo Lately Laden on Board the River Gurara v. Nigerian National Shipping Line Ltd., [1996] 2 Lloyd`s Rep. 53
12. [2004] FCAFC 202; [2004] 2 Lloyd`s Rep. 537
13. The Federal Court of Australia held that if the packages are identified in the Bill of Lading, art.IV rule 5(c) of the Hague-Visby Rules applies even if the shipper`s description of goods is qualified by the statements "said to contain" and "shipper`s load, stow and count".
14. In Matsushita Electric Corporation v. SS Aegis Spirit, 414 F. Supp. 894 (Washington District Court 1976) and All Pacific Trading, Inc. v. M/V Hanjin Yosu, 7 F.3d 1427 (9th Cir. 1993), the Bills of Lading contained the following clause: "where the cargo has been either packed into container(s) or unitized into similar article(s) of transport by or on behalf of the Merchant, it is expressly agreed that the number of such container(s) or similar article(s) of transport shown on the face hereof shall be considered as the number of package(s) or units for the purpose of the application of the limitation of liability provided for herein." In The River Gurara, [1998] 1 Lloyd`s Rep. 225, the Clause 9 (B) of the Bills of Lading had the following provisions: "Shipper-packed containers. If a container has not been packed or filled by or on behalf of the carrier … (B) notwithstanding any provision of law to the contrary the container shall be considered a package or unit even though it has been used to consolidate the goods, the number of packages or units constituting which have been enumerated on the face hereof as having been packed therein by or on behalf of the merchant and the liability of the carrier (if any) shall be calculated accordingly." In El Greco (Australia) Pty Ltd. v. Mediterranean Shipping Co. S.A., [2004] FCAFC 202 the Clause 21 of the Bill of Lading had the following provisions: "Where the goods have been packed into containers by or on behalf of the merchant, it is expressly agreed, that each container shall constitute one package for the purpose of application of limitation of the carrier`s liability." In Rossetti v. Charleston Freight Station, Inc., 354 F. Supp. 2d 612 (District Court of South Carolina 2005) the Bill of Lading had on its face the following clause: "TOTAL NO. OF CONTAINERS/PACKAGES RECEIVED & ACKNOWLEDGED BY CARRIER FOR THE PURPOSE OF CALCULATION OF PACKAGE LIMITATION (IF APPLICABLE): 1 CONTAINER(S)/ PACKAGE(S)." The carrier argued that the clause is an explicit agreement to treat the container as the package for purposes of COGSA`s limitation. The Court held that: "In the Court`s opinion, the language Charleston Freight relies on is simply non-bargained for boilerplate that courts have repeatedly refused to consider in applying COGSA`s package limitation." Another relevant commentary was made by the District Court of New York in St. Paul Fire & Marine Ins. v. Sea-Land Service, 735 F. Supp. 129 (SDNY 1990): "Allowing the carrier, in this case Sea-Land, to insert an essentially unbargained-for definition of "package" in the bill of lading would effectively eliminate the protection COGSA was meant to afford shippers. ... [T]he Second Circuit on a number of occasions has consistently held that a container is not a COGSA package when the carrier has been put on notice of the contents of the container. There is little sense in saying that carriers can sidestep this rulings by adding boilerplate language to their bills of lading to the effect that containers are always packages, regardless of what the shipper puts on the front of the bill of lading."
15. In Leather`s Best, Inc. v. SS Mormaclynx, 451 F.2d 800 (2nd Cir. 1971) the Bill of Lading had on its face the following clause: "SHIPPER HEREBY AGREES THAT CARRIER`S LIABILITY IS LIMITED TO $500 WITH RESPECT TO THE ENTIRE CONTENTS OF EACH CONTAINER ..." The US Court of Appeals for the Second Circuit held that: "we 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". We therefore hold that, under the circumstances of this case, the legend in the lower-left hand corner of the bill of lading was an invalid limitation of liability under COGSA." See also Monica Textile Corp. v. SS Tana, 952 F.2d 636 (2nd Cir. 1991) and Universal Leaf Tobacco Co. v. Companhia de Navegacao Maritima Netumar, 993 F.2d 414 (4th Cir. 1993).
16. Article 6, Rule 2(a) of Hamburg Rules has the following provisions: "Where a container, pallet or similar article of transport is used to consolidate goods, the package or other shipping units enumerated in the bill of lading, if issued, or otherwise in any other document evidencing the contract of carriage of goods by sea, as packed in such article of transport are deemed packages or shipping units. Except as aforesaid the goods in such article of transport are deemed one shipping unit."
17. Article 59, Rule 2 of Rotterdam Rules has the following provisions: "When goods are carried in or on a container, pallet or similar article of transport used to consolidate goods, or in or on a vehicle, the packages or shipping units enumerated in the contract particulars as packed in or on such article of transport or vehicle are deemed packages or shipping units. If not so enumerated, the goods in or on such article of transport or vehicle are deemed one shipping unit."