19781
COMMENTS – COMMENTAIRES
The Unworkable Per-Package Limitation of the Carrier’s
Liability under the Hague (or Hamburg) Rules
I. Introduction
The purpose of the agreements reached at the Brussels Con-
vention for the Unification of Certain Rules Relating to Bills of
Lading in 1924 (the Hague Rules)’ was to establish international
uniformity taking into consideration the interests of ocean carriers,
cargo owners, insurers and bankers. The Hague Rules modified
the existing law, allegedly to protect shippers from the overreach-
ing of carriers who were presumed to be in superior bargaining
positions, to prevent carriers from contracting out of liability for
cargo loss or damage through adhesion contracts, and to provide
an incentive for careful transport and delivery2
The language of the Hague Rules was incorporated almost
verbatim into the United States Carriage of Goods by Sea Act3
of 1936 more than a decade after the principles embodied in the
Act were agreed upon and ratified by the United States at the
Convention in Brussels. Under Article 4(5) of the Hague Rules4
the shipper’s recovery for any loss or damage in connection with
1 120 L.N.T.S. 155.
2 See, e.g., Yeramex International v. S.S. Tendo [1977] A.M.C. 1807, 1829 (E.D.
Va 1977); Matsushita Electric Corp. v. S.S. Aegis Spirit [1976] A.M.C. 779, 796, 414
F.Supp. 894 (W.D. Wash. 1976); Shinko Boeki Co. v. S.S. Pioneer Moon [1975]
A.M.C. 49, 51, 507 F. 2d 342 (2 Cir. 1974); Hartford Fire Insurance Co. v.
Pacific Far East Line, Inc. [1974] A.M.C. 1475, 1477, 491 F.2d 960 (9 Cir. 1974);
Cameco, Inc. v. S.S. American Legion [1974] A.M.C. 2568, 514 F.2d 1291, [1975]
1 Lloyd’s Rep. 295, 304 (2 Cir. 1974); Rosenbruch v. American Export Isbrandt-
sen Lines, Inc. [1973] A.M.C. 1160, 357 F.Supp. 982, 983
Standard Electrica, S.A. v. Hamburg Siidamerikanische Dampfschiffahrts-
gesellschaft [1967] A.M.C. 881, 883, 375 F2d 943 (2 Cir. 1967); Leather’s Best,
Inc. v. S.S. Mormaclynx [1971] A.M.C. 2383, 451 F.2d 800, [1971] 2 Lloyd’s Rep.
476, 486 (2 Cir. 1971); Caterpillar Overseas, S.A. v. S.S. Expeditor [1963] A.M.C.
1662, 318 F2d 720, 722 (2 Cir. 1963); Jones v. Flying Clipper [1954] A.M.C. 259,
116 F.Supp. 386, 388 (S.D. N.Y. 1953). See also Gilmore & Black, The Law of
Admiralty 2d ed. (1975), 143.
(S.D. N.Y. 1973);
3 46 U.S.C. 1300 (1970) (hereinafter referred to as COGSA).
4 Art.4(5) states: “Neither the carrier nor the ship shall in any event be
or become liable for any loss or damage to or in connection with goods
in an amount exceeding 100 pounds sterling per package or unit or the
equivalent of that sum in other currency unless the nature and value of
such goods have been declared by the shipper before shipment and in-
serted in the bill of lading….”
McGILL LAW JOURNAL
[Vol. 24
transportation of goods is limited to a fixed amount per “package”.
The same concept is embodied in Section 4(5) of COGSA but
emphasis is laid, in the American statute, on the distinction be-
tween “package” and “customary freight unit”. In Stirnimann v.
The San Diego, Clark J. explained that the purpose of Section 4(5)
of COGSA was to prevent excessive claims in respect of small
packages of great value but not to permit carriers to escape
liability for just cause.0 Several subsequent cases have adopted
this view.7
The $500 per-package limitation was enacted long before the
advent of modern container shipping. At that time the minimum
per-package amount imposed accurately reflected the worth of an
average parcel shipped. Today, as .a result of the widespread use of
containers and other methods of carrying single parcels, the “pack-
The same or equivalent wording is employed in the statutes and laws
of England (The Carriage of Goods by Sea Act, 1924, 14 & 15 Geo.V, c.22),
Canada (Carriage of Goods by Water Act, R.S.C. 1970, c.S-9), France (Loi du 18
juin 1966, art.28), and The Netherlands (W.v.K., artA69(5)). The Italian Nay.
Code (C.N., art.423) uses the expression “ciascuna unith di carico”, i.e.,
each freight unit” (author’s translation). The Merchant Shipping Code
of the U.S.S.R. (1968) in art.165 provides for limitation of the carrier’s liability
according to “parcel or customary freight unit”. (Trans. & ed., Butler &
Quigley, The Merchant Shipping Code of the U.S.S.R. (1968) (1970), 86-87. See
further examples and references
in Selvig, Unit Limitation of Carrier’s
Liability (1961), 35 et seq.
5 46 U.S.C. 1304(5) (1970) provides: “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, or the equivalent of that sum in
otfher currency, unless the nature and value of such goods have been declared
by the shipper before shipment and inserted in the bill of lading. This de-
claration, if embodied in the bill of lading, shall be prima facie evidence, but
shall not be conclusive on the carrier.” On the legislative history see Selvig,
supra, note 4, 35 et seq. See also Hearings on S. 1152 before the Senate
Committee on Commerce, 74th Cong., 1st Sess. 15(1935) on a bill relating
to the carriage of goods by sea; Knauth, The American Law of Ocean Bills of
Lading 4th ed. (1953) 115 et seq.
6 Stirnimann v. The San Diego [1945] A.M.C. 436, 148 F.2d 141, 143 (2 Cir. 1945).
7 Mitsubishi International Corp. v. S.S. Palmetto State [1963] A.M.C. 958,
311 F2d 382 (2 Cir. 1962); Pannell v. S.S. American Flyer [1958] A.M.C. 1428,
1433-34, 157 F.Supp. 422 (S.D. N.Y. 1957); Brazil Oiticica, Ltd v. The Bill
[1944] A.M.C. 883, 55 F.Supp. 780, 782 (D. Md 1944); Gerling-Konzern All.
gemeine Vers. AG v. Hapag-Lloyd AG [1976] A.M.C. 629, 632 (Hans. OLG
Bremen 1975). See also De Orchis, The Container and the Package Limitation
– The Search for Predictability (1974) 5 J.Mar.L. & Comm. 251.
19781
COMMENTS – COMMENTAIRES
age” concept of 1924 is outdated and “utterly meaningless”.” Thus,
courts have frequently had to pass judgment on the question of
what constitutes a package for purposes of the amount limitation.
Furthermore, they had to adapt this limitation to today’s policy
considerations with respect to the practice of shipping in large
containersY The decisions reached and tests applied, however, are
far from harmonious in approach and result.10
II. What is a package?
No -definition of “package” is included in the statute. The Oxford
English Dictionary defines the word as “[t]he whole or mass of
things packed together; a cargo… . A bundle of things packed up,
whether in a box or other receptacle, or merely compactly tied
up”.11 Webster’s New Twentieth Century Dictionary includes within
the meaning of “package” both “a wrapped or boxed thing or group
of things; a parcel; a bundle” and “a box, case, etc. in which things
are packed”.’2 Black’s Law Dictionary defines “package” as “[a]
bundle put up for transportation or commercial handling; a thing in
form to become, as such, an article of merchandise or delivery from
hand to hand. … As ordinarily understood in the commercial world,
it means a shipping package”.?
As early as 1874 the term “package” was considered in the
context of a statute limiting a carrier’s liability. In Whaite v.
Lancashire & Yorkshire Railway Co. a large open top wagon was
held to be a package: “It would be absurd to say that the waggon
was too large to be a package; plainly, size cannot be a criterion.”‘4
Since that date no standards which might provide a reliable guide
as to what constitutes a package have been forthcoming. A review
of the recent cases illustrates the following:
8 Aluminios Pozuelo, Ltd v. S.S. Navigator [1968] A.M.C. 2532, 2534, 407
F.2d 152 (2 Cir. 1968) per Moore J.
9 See Yeramex International v. S.S. Tendo, supra, note 2; Shinko Boeki Co. v.
S.S. Pioneer Moon, supra, note 2; Cameco, Inc. v. S.S. American Legion, supra,
note 2; Leather’s Best, Inc. v. S.S. Mormaclynx, supra, note 2; Royal Type-
writer Co. v. M.V. Kulmerland [1973] A.M.C. 1784, 483 F.2d 645 (2 Cir. 1973);
Nichimen Co. v. M.V. Farland [1972] A.M.C. 1573, 462 F.2d 319 (2 Cir. 1972).
‘0 Matsushita Electric Corp. v. S.S. Aegis Spirit, supra, note 2, 788. See also,
the cases reviewed in Benedict, On Admiralty 7th ed. (1977), vol2A, para.167-70.
11The Oxford English Dictionary (1961), vol.VII, 363.
12 Webster’s New Twentieth Century Dictionary 2d ed. (1975), 1283.
1’ Black’s Law Dictionary rev. 4th ed. (1968), 1262-
14 (1874) 9 L.R. 67, 70 (Ex.), per Cleasby B.
McGILL LAW JOURNAL
[Vol. 24
a) Goods shipped without any packaging preparation are not
packages within the meaning of Section 4(5). 1 i
b) Fufly crated or boxed cargo satisfies the COGSA package
meaning, regardless of size.”‘
c) Little consistency is shown in cases of items partially packag-
ed.’17
d) Whether an item is a package may depend on the intention of
the parties, their dealings with each other and the nature of
their contractual relationship.18
e) The question “when is a ‘package’ not a package?” has proven
to be extremely difficult in container and pallet cases.’ 9
151ndia Supply Mission v. S.S. Overseas Joyce [1966] A.M.C. 66, 246 F.Supp.
536 (S.D. N.Y. 1965); Caterpillar Americas Co. v. Sea Roads [1964] A.M.C.
2646, 231 F.Supp. 647 (S.D. Fla 1964); Freedman & Stater, Inc. v. Tofevo
[1963] A.M.C. 1525, 222 F.Supp. 964 (S.D. N.Y. 1963); The Edmund Fanning
[1953] A.M.C. 86, 201 F.2d 281 (2 Cir. 1953); Middle East Agency v. The John
B. Waterman [1949] A.M.C. 1403, 86 F.Supp. 487 (S.D. N.Y. 1949); Waterman
S S. Corp. v. U.S. Smelting, Refining & Mining Co. [1946] A.M.C. 997, 155 F.2d
687 (5 Cir. 1946); Brazil Oiticica, Ltd v. The Bill [1945] A.M.C. 108, 145 F.2d
470 (4 Cir. 1945); Stirnimann v. The San Diego, supra, note 6.
16 Mitsubishi International Corp. v. S.S. Palmetto State, supra, note 7; Herd
& Co. v. Krawill Machinery Corp. 359 U.S. 297 (1959), [1959] A.M.C. 879; John
Deere & Co. v. Mississippi Shipping Co. [1959] A.M.C. 480, 170 F.Supp. 479 (E.D.
La 1959); Middle East Agency v. The John B. Waterman, supra, note 15; Stir-
nimann v. The San Diego, supra, note 6.
17 Gulf Italia Co. v. S.S. Exiria [1958] A.M.C. 439, 160 F.Supp. 956 (S.D. N.Y.
1958), aff’d [1959] A.M.C. 930, 263 F,2d 135 (2 Cir. 1959); Pannell v. U.S.
Lines Co. [1959] A.M.C. 935, 263 F.2d 497 (2 Cir. 1959); Middle East Agency v.
The John B. Waterman, supra, note 15.
‘s8 Acushnet Sales Co. v. S.S. American Legacy (unreported) (S.D. N.Y. 1974)
cited in International Factory Sales v. The Ship Alexandr Serafimovich [1975]
A.M.C. 1453, 1462; Nichimen Co. v. M.V. Farland, supra, note 9; Standard Elec-
trica, S.A. v. Hamburg Sfidamerikanische Dampfschiffahrtsgesellschaft, supra,
note 2, 885.
19 Containers and pallets have been held to be packages within the meaning
of Sec.4(5) COGSA in: Sperry Rand Corp. v. Norddeutscher Lloyd [1973] A.M.C.
1392 (S.D. N.Y. 1973); Rosenbruch v. American Export Isbrandtsen Lines, Inc.,
supra, note 2 (household goods); Royal Typewriter Co. v. M.V. Kulmerland,
supra, note 9; Encyclopaedia Britannia, Inc. v. Hong Kong Producer [1969]
A.M.C. 1741, 422 F.2d 7 (2 Cir. 1969); Maison Perrigault v. Capitaine du Breitens-
tein, Trib.Comm. du Havre 19 oct. 1973 (1974) D.M.F. 304; Sarkis v. Compagnie
gdnjral transatlantique, Rouen 16 mars 1973, D.1973.1.591 [containers]; Menley
& James v. M.V. Hellenic Splendor [1977] A.M.C. 1782, F.Supp. 252 (S.D. N.Y.
1977); Omark Industries, Inc. v. Associated Container Transportation (Austra-
lia), Ltd [1977] A.M.C. 230, 420 F.Supp. 139 (D. Ore. 1976); Primacy Industries
Corp. v. Barber Lines [1974] A.M.C. 1444 (Civ.Ct N.Y. 1974); Nichimen Co. v.
1978]
COMMENTS – COMMENTAIRES
Moore 1. remarked in Aluminios Pozuelo, Ltd v. S.S. Navigator:
The meaning of “package” which has evolved from the cases can there-
fore be said to define 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. 20
In Omark Industries, Inc. v. Associated Container Transportation
(Australia)”‘ Berks J. observed that the COGSA package will generally
be the largest individuated unit of package made up by the shipper,
not the smallest packaged unit incorporated into a shipment.
No specialized or technical meaning is ascribed to the word
“package”. Therefore this word must be given its plain ordinary
meaning.
It is not a term of art. The parties’ characterization of
the word is immaterial: an article will not become a package merely
because the parties have chosen to call it one.4 If the parties to a
carriage contract were permitted to define the COGSA package then
the carrier’s minimum liability under Section 4(5) would become
“illusory and negotiable”. Thus no legal effect can be given to the
M.V. Farland, supra, note 9; Standard Electrica, S.A. v. Hamburg Sildameri-
kanische Dampfschiffahrtsgesellschaft, supra, note 2 [pallets].
Containers and pallets have not been held to be packages within the mean-
ing of Sec.4(5) COGSA in: Yeramex International v. S.S. Tendo, supra, note 2;
Cia. Panamena de Seguros, S.A. v. Prudential Lines, Inc. 416 F.Supp. 641 (D.C.Z.
1976); Matsushita Electric Corp. v. S.S. Aegis Spirit, supra, note 2; Shinko
Boeki Co. v. S.S. Pioneer Moon, supra, note 2; Cameco, Inc. v. S.S. American
Legion, supra, note 2; Leather’s Best, Inc. v. S.S. Mormaclynx, supra, note 2
[containers]; Acushnet Sales Co. v. S.S. American Legacy, supra, note 18;
International Factory Sales v. The Ship Alexandr Serafimovich, supra, note 18
[pallets].
2 0 Supra, note 8, 2535. See also Yeramex International v. S.S. Tendo, supra,
note 2, 1831; Primary Industries Corp. v. Barber Lines, supra, note 19, 1447;
Shinko Boeki Co. v. S.S. Pioneer Moon, supra, note 2, 51; Sperry Rand Corp. v.
Norddeutscher Lloyd, supra, note 19, 1397; Leather’s Best, Inc. v. S.S. Morma-
clynx, supra, note 2, 485; Standard Electrica, S.A. v. Hamburg Siidamerikanische
Dampfschiffahrtsgesellschaft, supra, note 2, 883; Gerling-Konzern Allgemeine
Vers. AG v. Hapag-Lloyd AG, supra, note 7, 631-32; Cie ggndrate transatlantique
v. The Marine Insurance Co. Paris 24 oct. 1966, (1967) D.M.F. 23, 28.
21 Supra, note 19, 234.
22 Matsushita Electric Corp. v. S.S. Aegis Spirit, supra, note 2, 791; Hartford
Fire Insurance Co. v. Pacific Far East Line, Inc., supra, note 2, 1478.
2 3 Omark Industries, Inc. v. Associated Container Transportation (Australia),
Ltd, supra, note 19, 233; contra: Aluminios Pozuelo, Ltd v. S.S. Navigator, supra,
note 8, 2537 (not followed).
24 Standard Electrica, S.A. v. Hamburg Siidamerikanische Dampfschiffahrts-
gesellschaft, supra, note 2, 893; Pannell v. S.S. American Flyer, supra, note 7,
1436.
25 Matsushita Electric Corp. v. S.S. Aegis Spirit, supra, note 2, 793.
McGILL LAW JOURNAL
[Vol. 24
parties’ private intentions or characterizations regarding the COGSA
package2 6 The use of the word “package” in the bill of lading is not
conclusive; indeed, the nature of the shipment is in no way depend-
ent on the parties’ description.
In some recent decisions it has been
held that clauses in bills of lading stating that a container is a package
for the purpose of limiting the carrier’s liability under Section 4(5)
of COGSA is null and void since it constitutes a lessening of the
carrier’s liability which is contrary to Section 3(8) of COGSA.2 8 In
Tessler Brothers, Ltd v. Italpacific Line, the Court explained:
A significant restriction on a carrier’s right to limit liability to an
amount less than the actual loss sustained is that the carrier must give
the shipper “a fair opportunity to choose between higher or lower
liability by paying a correspondingly greater or lesser charge”.29
It has frequently been said that selection by the shipper of a
particular mode of packaging, such as a container, establishes a
presumption of what the COGSA package will be, thus transferring
to the shipper the burden to show by other evidence that the con-
tainer should not constitute a package within the meaning of Section
4(5) o Another approach is the “functional economics
test” as
26 Omark Industries, Inc. v. Associated Container Transportation (Australia),
Ltd, supra, note 19, 236. A certain relevance is nevertheless attributed to the
parties’ characterization in order to ascertain their contractual relation:
Yeramex International v. S.S. Tendo, supra, note 2, 1832; Royal Typewriter Co.
v. M.V. Kulmerland, supra, note 9, 1790. See also Pannell v. U.S. Lines Co.,
supra, note 17, 937; Tidewater Venice, Inc. v. M.V. Schwarzenfels [1972]
A.M.C. 1775 (E.D. La 1972).
27Standard Electrica, S.A. v. Hamburg Siidamerikanische Dampfschiffahrts-
gesellschaft, supra, note 2, 888; Caterpillar Overseas, S.A. v. S.S. Expeditor,
supra, note 2, 722; Gerlong-Kinzern Allgemeine Vers. AG, v. Hapag-Tloyd AG,
supra, note 7.
28 Yeramex International v. S.S. Tendo, supra, note 2, 1834; Cia. Panamena de
Seguros, S.A. v. Prudential Lines, Inc., supra, note 19, 643; Siderurgica del
Orinoco C.A. v. M.V. North Empress [1977] A.M.C. 1140, 1146 (E.D. La 1976);
Matsushita Electric Corp. v. S.S. Aegis Spirit, supra, note 2, 794-95; Tessler
Brothers, Ltd v. Italpacific Line [1974] A.M.C. 937, 494 F.2d 438 (9 Cir. 1974)
distinguished; Leather’s Best, Inc. v. S.S. Mormaclynx, supra, note 2, 486. See
also Shinko Boeki Co. v. S.S. Pioneer Moon, supra, note 2, 52.
2 9 Supra, note 28, 942. See also: Siderurgica del Orinoco v. M.V..North Em-
press, supra, note 28, 1145; Sommer Corp. v. Panama Canal Co. [1973] A.M.C.
2053, 475 F2d 292, 298 (5 Cir. 1973); New York, New Haven & Hartford Rail-
road Co. v. Nothnagle 346 U.S. 128 (1953),
30 Menley & James v. M.V. Hellenic Splendor, supra, note 19, 1783; Yeramex
International v. S.S. Tendo, supra, note 2, 1833; Omark Industries, Inc. v.
Associated Container Transportation (Australia), Ltd, supra, note 19, 233-35;
Insurance Co. of North America v. S.S. Brooklyn Maru [1974] A.M.C. 2443,
[1975] 2 Lloyd’s Rep. .12, 515 (S.D. N.Y. 1974); Sperry Rand Corp. v. Norddeut-
scher Lloyd, supra, note 19, 1398; Rosenbruch v. American Export Isbrandtsen
[1953] A.M.C. 1228, 1233.
19781
COMMENTS – COMMENTAIRES
envisaged in Royal Typewriter Co. v. M.V. Kulmerland.31 According
to this doctrine the shipper’s own carton or crate, rather than the
container, is deemed to be the COGSA package if “the contents of the
container could have feasibly been shipped overseas in the individual
packages or cartons in which they were packed by the shipper”.32
Oakes J. explained in Cameco, Inc. v. S.S. American Legion3 2 that the
test was not to be conclusive for the purpose of defining a COGSA
package, but was simpfy set forth to establish the burden of proof.
Where the shipment is not a functional packing unit the burden
shifts to the shipper (or consignee) to show that the units are by
themselves packages.4
III. Containers and pallets –
review of cases
A. A container is a “package”
1. Royal Typewriter Co. v. M.V. Kulmerland35
In that case the bill of lading described the parcel as “1 Container
said to contain Maohinery”. 6 This was fatal to the shipper in the
lower Court and the Court of Appeals of the Second Circuit affirmed
the decision applying the “functional economics test”. The Court
stated that in the days before containers, adding machines were
shipped in wooden crates or cases. The metal containers in which
the cartons of adding machines were shipped in lots of 350 per
container should essentially be likened to the wooden cases of days
past. The individual cartons containing one adding machine each
were not packing units suitable for overseas shipment. Thus, the
Lines, Inc., supra, note 2, 984; Royal Typewriter Co. v. M.V. Kumberland, supra,
note 9, 1790; Truck Insurance Exchange v. American Export Freight [1972]
A.M.C. 2509, 2510, 357 F.Supp. 982, [1974] 1 Lloyd’s Rep. 119 (N.D. I 11. 1972);
Standard Electrica, S.A. v. Hamburg Siidamerikanische Dampfschiffahrts-
gesellschaft, supra, note 2, 885.
31Supra, note 9, 1789.
32Ibid.
33Supra, note 2, 303.
34 See the discussion in Omark Industries, Inc. v. Associate Container Trans-
portation (Australia), Ltd, supra, note 19, 235, and in Insurance Co. of North
America v. S.S. Brooklyn Maru, supra, note 30, 514-15. See also Maison Perri-
gault v. Capitaine du Breitenstein, supra, note 19, 308-9.
The “functional economics test” has been repudiated in Yeramex Inter-
national v. S.S. Tendo, supra, note 2, 1834 and in Matsushita Electric Corp. v.
S.S. Aegis Spirit, supra, note 2, 795.
-35 Supra, note 9.
36 Ibid., 1786.
McGILL LAW JOURNAL
(Vol. 24
burden was on the shipper to show that his units were themselves
packages –
something he was unable to do”
B. A container is not a “package”
1. Cameco, Inc. v. S.S. American Legion 3s
Tins of ham packed in corrugated cartons and pallets were
shipped in a refrigerated container which disappeared in New York.
The bill of lading specified the number of cartons with tins and
weight per tin. The Court of Appeals of the Second Circuit applied
the “functional economics test” and decided that cases and pallets of
tinned ham met the functional package unit test. Accordingly, the
burden of proof was on the carrier to show that the parties intended
to treat the container as a “package”. Oakes J. pointed out that a
container is as much for the benefit of the carrier as for the shipper
and to hold in all cases that a container is a package would defeat
the purpose of COGSA, that is, to protect shippers from the use of
adhesion contracts by carriers and to provide an incentive for care-
ful transport and delivery of cargo. Feinberg J. wisely observed:
“There are many problems arising out of the ‘package’ test announ-
ced in Royal Typewriter Co. v. M.V. Kulmerland”.3 9
2. Leather’s Best, Inc. v. S.S. MormaclynX4 0
The shipper loaded 99 leather bales (cartons with steel straps
around them) in a container obtained from the carrier, and procured
a receipt from the carrier’s truck driver who was present during the
loading. Under the heading “[nJumber and kind of packages; descrip-
tion of goods”, the bill of lading recorded “1 container [said to con-
tain] 99 bales of leather”4 1 In the left-hand corner of the bill of lading
a clause stated that the shipper agreed to limit the carrier’s liability
to $500 with respect to the entire contents of each container. The
container was unloaded at the New York terminal and placed in a
storage area from which it disappeared. The Court of Appeals of the
Second Circuit held that the container was not a package, that the
limitation of liability should be calculated on the basis of 99 packages
and that the stamped clause purporting to limit liability to $500 for
the whole container was void.
37 Simon, Latest Developments in the Law of Shipping Container (1973)
4 J.Mar.L & Comm. 441; note in (1974) 5 J.Mar.L. & Comm. 507. See also De
Orchis, supra, note 7.
3 8 Supra, note 2.
39 Ibid., 2582.
4o Supra, note 2.
4′ Ibid., 2386.
19781
COMMENTS – COMMENTAIRES
3. Matsushita Electric Corp. v. S.S. Aegis Spirit42
Two containers holding 601 cartons of color television sets were
shipped from Japan to the United States on the S.S. Aegis Spirit.
The shipment arrived at Tacoma, Washington, with the contents of
the containers deteriorated, apparently due to concussive forces and
the entry of sea water into the containers during the voyage. The
containers themselves had sustained material damage en route. The
bill of lading clearly specified the quantity of cartons and their
weight.4 3 The merchandise was wrapped in plastic bags, fitted with
styrofoam padding and finally packed into heavy, double-walled
cardboard cartons. The evidence showed that packaging materials
of a strength and quality comparable to the -above were currently
used ‘by the ‘shipper in its “break bulk” transoceanic shipments.
Beeks J. commented that the utility of container transport lies in its
efficiency in handling, loading, stowing and discharging of cargo. He
also noted that ,containers offer ‘greater protection from pilferage
and rough handling and that they permit the use of ‘lighter, more
economical packaging materials without inoreased risk to the cargo.
The shipper can thus insure a ‘ight stowage and the carrier enjoys
tremendous savings in labor and in claim payments by reason of
reduced cargo loss -and damage. The learned Judge pointed out that
the “functional economics test” was .unsatisfactory, since it -did not
conform either to the sense of Section 4(5) of COGSA or to the
practical economics of container shipping. The language of the
statute distinguished only between goods shipped in packages and
goods not shipped in packages. There was no indication either in
the Hague Rules or in COGSA, or its -legislative history, that goods
shipped in some ‘sort of receptacle should be disqualified from
being treated as packaged goods whenever the packaging provided
by the shipper was below some “later to be established standards of
strength and durability”.4″ Mr Justice Beeks -said further:
42 Supra, note 2.
4 3 Clause 26 of the bill of lading contained the following terms: “In case
the declared value is markedly higher than the actual value, the Carrier shall
in no event be liable to pay any compensation, and (ii) 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 the package(s) or unit(s)
for the purpose of the application of the limitation of liability provided for
herein.” Supra, note 2, 783.
44 See Simon, The Law of Shipping Containers (1974) 5 J.Mar.L. & Comm.
507, 521.
45 Supra, note 2, 792.
McGILL LAW JOURNAL
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The undoubted objective of 46 U.S. Code sec.1304(5) was to establish a
minimum floor below which carriers subject to the act could not reduce
their liability for cargo damage. If carriers alone, or even carriers and
shippers together, are allowed to chris’ten something a “package” which
distorts or belies the plain meaning of this word as used in the statute,
then the liability floor becomes illusory and negotiable. The package
limitation provision serves no purpose whatsoever if the courts’ function
in applying it is to merely identify and uphold the parties’ private
definition of COGSA package. Of course, the parties’ characterization
may often be wholly reasonable and cbnsistent with the language and
purpose of the statute, but the point to be made is that it is not the
parties’ characterization of the shipment, but the court’s interpretation
of the statute, that controls.46
He viewed the parties’ attempt to define the package as likely to be
a violation of the Shipping Act, 1916, 1 since it might constitute an
illegal and invalid preference. 4s
4. Johnston Company v. The Ship Tindefje1 49
Cargo was shipped in two standard metal containers. The bills of
lading stated: “1 container which is said to contain shoes” –
“143
cartons” and “1 container which is said to contain shoes” –
“173
cartons”. 0 The vessel encountered heavy weather and some of the
shipment was -damaged. According to Mr Justice Collier of the
Federal Court of Canada, it seemed -logical that the plaintiff in-
tended to have the benefit of the minimum monetary responsibility,
as laid down in the Hague Rules, by notifying the carrier as to the
number of packages being carried, although, for reasons of con-
venience, they were grouped together in one large receptacle. The
carrier could refuse to issue the bill of lading with that description,
or insist on a count or increase the rate. The difference between this
and the Kulmerland5l and Rosenbruch5 2 cases seems to be clear;
indeed, in those cases there was no indication of the number of
cartons and the description was too vague. The learned Judge found
in the case at ‘bar that the containers were not packages for the
purpose of the $500 limitation of liability. They were merely a
modern method of carrying the packages.
46 Ibid., 792-93.
47 46 U.S.C. 801, 815 (1970).
48 Supra, note 2, 794.
49 [1973] F.C. 1003, [1973] A.M.C. 2119 (F.C.T.D. 1973).
50 Ibid., 2122.
51 Supra, note 9.
52 Supra, note 2.
1978]
COMMENTS – COMMENTAIRES
C. A pallet is a “package”
1. Standard Electrica, S.A. v. Hamburg Siidamerikanische
Dampfschiffahrtsgesellschaft53
The Court of Appeals of the Second Circuit held that a shipment
of six cardboard cartons, each containing forty television tuners,
all strapped to one pallet constituted one package. The majority
disregarded the plaintiff’s contention that a pallet is merely a
mechanical device to be used in conjunction with a forklift in order
to facilitate loading. The bill of lading and other documents indicat-
ed that the parties regarded each pallet as a package, that it was
the shipper who chose to make up the cartons into a pallet for his
convenience, and that the shipper could have declared a higher value
if he wanted to avoid the outdated per-package limitation. The Court
felt that if the statutory limitation was inadequate, revision ought to
come from Congress, not from the courts. With respect to the
majority’s opinion, Mr Justice Feinberg had the following to say:
I do not understand why we should add to the inequity. The call for
congressional revision may be sound, but in the meantime we should
construe the existing statutory term as applied to the facts before us in
consonance with its legislative purpose. That judicial function we ought
. [C]ertainty at the expense of legislative policy and
not abdicate…
equity is undesirable… 54
His dissent expressed the view that it was within normal expectation
to intend the word “package” to mean something which completely
enclosed the packed goods. The strapping together of six cartons on
a platform with a board on top to prevent other cargo and the four
metal straps from cutting into the top two cartons did not make a
“package” out of the six cartons. He pointed out that on the facts
it was ambiguous whether the parties themselves considered the
pallet a package since the carrier’s agent himself referred to. “the
loss if 42 cartons” and not to “the loss of seven pallets of six
cartons each”. He also said that the shipper’s subjective purpose in
choosing a particular mode of packaging was irrelevant.
2. Omark Industries, Inc. v. Associated Container Transportation
(Australia) Ltd.5
The shipper prepared pallet bundles, each of which con-
sisted of 20 to 26 cardboard cartons arranged in layers and tiers to
form a large almost cubical mass, entirely enclosed by heavy double-
3 Supra, note 2.
54 Ibid., 889.
55 Supra, note 19.
McGILL LAW JOURNAL
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walled corrugated cardboard. Beeks 3. complained that the case law
presented itself as a confusing array of formulas and criteria for
the determination of the COGSA package, which very often obscured
the fact that Congress never intended to employ the word “package”
as a sophisticated term of -art. He further pointed out that pallet
cargo can easily be distinguished fTom container cargo for package
limitation purposes. On the facts, he found that the cardboard wrap
did not extend across the bottom of the bundles but that the cartons
within each- bundle were effectively concealed. The judge said, after
having emphasized the -importance of the physical configuration of
the bundles:
I hold the palletized units, rather than the inner cartons, to be the
“packages” to which the COGSA limitation applies. It is evident from
the visual appearance of the units as well as from their physical cons-
truction that the heavy outer cardboard shell served to consolidate,
protect and restrain the smaller, thinner cartons and their contents –
thus creating a concededly compound but nonetheless bona fide “pack-
age”. It matters not that in other circumstances of carriage the inner
cartons might be deemed COGSA packages. 6
D. A pallet is not a “package”
1. Acushnet Sales Co. v. S.S. American Legacy57
This case involved a shipment of 134 cartons of golf balls strap-
ped to nine disposable pallets. The New York District Court held
that the existence of a package depended not only on the physical
description of the manner in which the goods were presented for
shipment but also on the previous dealings and contractual relation-
ship of the parties. On the facts, the Court held that the parties were
dealing with a shipment consisting of 134 cartons, and that accord-
ingly, the carrier was liable for the loss of part of them. The dispos-
able pallets were held to be simply a device for trucking and hand-
ling convenience. The judgment placed some emphasis on the fact
that the pallets were disposable and never intended for re-use. Each
carton was separately strapped and numbered. Thus, it seemed to
be clear to the Court that the individual visible cartons were self-
contained shipping units irrespective of the pallets. Moreover, they
were functional shipping units, as manifestly intended by the consis-
tent conduct of the parties.
56 Ibid., 142.
57 Supra, note 18.
19781
COMMENTS –
COMMENTAIRES
2.
International Factory Sales v. The Ship Alexandr Serafimovich5 8
The bill of lading described the shipment as consisting of “3
Pallets (… 150 cartons) ”5 9 of sewing machine heads. Smith J. re-
marked that the pallets were not used for transportation when
Canada enacted the Carriage of Goods by Water Act.f’1 Furthermore,
he felt that the subsequent monetary depreciation would make the
$500 per-package limitation unfair today. The learned Judge stated
that the palletizing of 50 cartons was simply a matter of shipping
convenience which might have reduced the risks of damage and
the cost of freight, and which allowed more rapid loading and un-
loading operations to the benefit of both cargo owner and carrier.
On the question of whether a pallet was a package within the mean-
ing of the Hague Rules, Mr Justice Smith said that it depended, in
particular, “upon the intention of the parties as indicated by what
is stated in the shipping documents, things said by the parties and
the course of dealing between them”.8′ On the facts, the numbering
of the cartons and their visibility from outside the pallet permitted
the Court to infer that the intention of the parties was to ship 150
sewing machine heads, each packed in a separate protective carton,
rather than three wooden pallets, each containing 50 sewing ma-
chine heads stacked and strapped to a pallet.
IV. Third party rights
Stevedores and independent contractors were long considered
complete strangers to the contract of carriage. It was said that they
were bound contractually oily to the carrier (or shipowner) and that
there was no possibility for the carrier to extend the contractual
benefits stipulated (for example, in a bill of lading) to these third
parties.
In 1954, the case of Adler v. Dickson expressed a new
doctrine:
[I]n the carriage of passengers as well as of goods, the law permits a
carrier to stipulate for exemption from liability not only for himself
but also for those whom he engages to carry out the contract: and
5 8 Ibid.
59 Ibid., 1468.
60 R.S.C. 1970, c.C-15.
11 Supra, note 18, 1468.
62 A.M. Satterthwaite & Co. v. New Zealand Shipping Co. (The Eurymedon)
[1971] 2 Lloyd’s Rep. 399 (N.Z.S.C.); Scruttons, Ltd v. Midland Silicones, Ltd
[1962] A.C. 446, [1962] 2 W.L.R. 186, [1962] 1 All E.R. 1 (HL.); Wilson v.
Darling Island Stevedoring and Lighterage Co. [1956] 1 Lloyd’s Rep. 346 (Austl.
H.C.). But see New Zealand Shipping Co. v. A.M. Satterthwaite & Co. [1975]
A.C. 154 (P.C.).
McGILL LAW JOURNAL
[Vol. 24
this can be done by necessary implication as well as by express words.
When such a stipulation is made, it is effective to protect those who
render services under the contract, although
they were not parties
to it.3
The American view for a long time had been that if the damage
was caused by the stevedores’ negligence, the limitation-of-liability
provisions in the bill of lading would not apply to the stevedores.p
In Herd & Co. v. Krawill Machinery Corp. the United States Su-
preme Court held that:
Under the common law as declared by this Court, petitioner [that is, the
stevedore company] was liable for all damages caused by its negligence un-
less exonerated therefrom, in whole or in part, by a constitutional rule of
law. No statute has limited its liability, and it was not a party to nor
a beneficiary of the contract of carriage between the shipper and the
carrier, and hence its liability was not limited by the contract. It
follows that petitioner’s common-law liability for damages caused by
its negligence was in no way limited.65
This view has been explained and qualified in Carle & Montanari,
Inc. v. American Export Isbrandtsen Lines, Inc.6″ where Bonsal J.
said that the parties to a bill of lading may extend the contractual
benefit to stevedores and other third parties, provided they use
clear words to express their intention. The contract purporting to
grant the immunity from liability must be strictly construed and
must be limited to the unambiguously intended beneficiaries in
order to insure that no broader effect than contemplated by the
parties is given to the clause limiting liability 7
63 [1955] 1 Q.B. 158, [1954] 3 W.L.R. 696, [1954] 3 All E.R. 397, [1954] 2 Lloyd’s
Rep. 267, 272 per Lord Denning.
64 Krawill Machinery Corp. v. Herd & Co. [1956] A.M.C. 2217, 145 F.Supp. 554
(D. Md 1956); aff’d [1958] A.M.C. 1265, 256 F.2d 946 (4 Cir. 1958). Contra, Collins
& Co. v. Panama R. Co. 197 F.2d 893 (5 Cir. 1952). See also Brady v. Roosevelt
Steamship Co. 317 U.S. 575 (1943), [1943] A.M.C. 1.
65 Supra, note 16, 888 per Whittaker J.
66 [1967] A.M.C. 1637, 275 F.Supp. 76, [1968] 1 Lloyd’s Rep. 260, 262; aff’d
[1967] A.M.C. 2529, 386 F2d 839 (2 Cir. 1967); cert.denied 390 U.S. 1013 (1968).
67 Mitsubishi International Corl. v. S.S. Eurymedon [1977] A.M.C. 2370, 2377;
Toyomenka Inc. v. S.S. Tosaharu Maru [1975] A.M.C. 1820, 1823-24, 523 F.2d 518
(2 Cir. 1975); Rupp v. International Terminal Operating Co. [1973] A.M.C. 1093,
479 F.2d 674, 676-77 (2 Cir. 1973); Bernard Screen Printing Corp. v. Meyer Line
[1972] A.M.C. 1919, 1922, 464 F.2d 934 (2 Cir. 1972); Cabot Corp. v. S.S. Mormacs-
can [1971] A.M.C. 1130, 441 F,2d 476, [1971] 2 Lloyd’s Rep. 351, 353 (2 Cir. 1970);
Secrest Machine Corp. v. S.S. Tiber [1971] A.M.C. 2332, 324 F.Supp. 671, [1972]
1 floyd’s Rep. 352 (S.D.Ga 1971); Cosa Export Co. v. Transamerican Freight
Lines, Inc. [1968] A.M.C. 1351, 1355; Virgin Island Corp. v. Merwin Lighterage
Co. [1959] A.M.C. 2133, 2135, 177 F.Supp. 810 (D.VI, 1959); Herd & Co. v.
Krawill Machinery Cqrp. supra, note 16, 885; Boston Metals Co. v. S.S. Winding
Gulf 349 U.S. 122, 123-24, [1955] A.M.C. 927.
1978]
COMMENTS – COMMENTAIRES
The doctrine of privity was still applied by the Supreme Court
of Canada in Canadian General Electric Co. v. The Lake Bosom-
twe”8 but the Quebec Court of Appeal in Eisen und Metall AG v.
Ceres Stevedoring Co. 9 held that terminal operators, even if not
privy to the contract, are in principle entitled to the benefit of
exemption clauses in the bill of lading.:”
V. Conclusion
The history of the relations between shipper and carrier has
centered around a constant adjustment of two irreconcilable com-
peting interests: the shipper asks for high security at the lowest
freight rate, the carrier for exemption of liability if for any reason
he becomes unable to fulfil his obligation to deliver the goods en-
trusted to him for carriage to their destination. As a matter of
practical politics some limitation, not based on outdated notions
of fault, must ‘be placed upon the rights and duties of both. The
task is to delineate the boundary beyond which the shipper must
shoulder the loss himself and the carrier must assume liability.
At this stage both will seek reparation and protection from another
source: the insurer.
As pointed out by Lord Diplock,7 ‘ the contest in cargo cases is
actually between the cargo underwriters and the protection and
indemnity underwriters. The task is how to allocate the loss be-
tween insurers. Shipper and carrier become the nominal parties
through whom this process of distribution starts to flow.
The carrier’s insurance cost, of course, will be incoporated into
the freight rate. One of the functions of the per-package limitation
is to permit a calculation of freight -rates economically acceptable
168 [1971] S.C.R. 41, [1970] 2 Lloyd’s Rep. 81, 84.
09 [1977] 1 Lloyd’s Rep. 665 (The Cleveland), followed by Miles International
Corp. v. Federal Commerce & Navigation (The Federal Schelde) [1978] 1 Lloyd’s
Rep. 285 and aff’d, in principle, in Circle Sales & Import Ltd v. The Tarantel,
[1978] 1 F.C. 269. See the discussion of The Cleveland by Harrington, Liability
for pre-loading and after discharge losses in Quebec (1977) 12 Eur. Transp.
Law 483.
70 But contracting out of liability resulting from gross negligence is illegal
under Quebec law, see, e.g., The Cleveland, supra, note 69, 672. See, for B.C., The
Suleyman Stalskiy [1976] 2 Lloyd’s Rep. 609 where the Court held that exemp-
tion olauses would not avail the stevedores since they were not privy to the
contract.
7’ Lord Diplock, Conventions and Morals –
Limitation Clauses in Inter-
national Maritime Conventions (1970) 1 J.Mar.L. & Comm. 525, 530. See also
Selvig, supra, note 4, 32, 202.
McGILL LAW JOURNAL
[Vol. 24
to both parties. Protection and indemnity is quite different in
nature from cargo insurance. The latter spreads the cost among
the cargo interests basing the risk upon known values, the former
spreads the cost by passing it over the freight rate on an estimate
maximum exposure. 2
In container transport, the carriers have tried to limit their
liability by applying the per-package amount to the whole con-
tainer. This was, apparently, the only way to obtain a reliable
estimate of maximum exposure. If the container is not a package,
the carrier must approximate the value in order to insure. The rate-
reducing factor becomes hypothetical: How much insurance should
he take out, in these situations, for the whole container? Obviously,
a system of fudl insurance cannot be the answer: the impact would
render freight rates unaffordable (provided that coverage could be
purchased, given the size of modern containerships).
What is needed is a compromise (other than the unworkable
per-package limitation of liability) which respects the fundamental
notion that equity should favour the innocent party in the residual
non-insurance cases. A most dramatic illustration of this has been
given in the Kulmerland case. 3 Fortunately, the recent American
and Canadian cases have exhibited a greater respect for the spirit of
the legislation. Indeed, the weighing of conflicting policy values
could not go so far as to radically change the statutory provisions.
To say that a container is a package within Article 4(5) of the Hague
Rules is unacceptable. 4 It is interesting to note with what ingenuity
carriers attempted to characterize the containers as packages in the
clauses of bills of lading, clauses which are void by express provision
of the statute (Section 3(8) of COGSA). Furthermore, the “func-
tional economics test” is framed in language which is unmistakably
arbitrary if read against the wording (and the spirit) of the 1924
Hague Rules. The convincing reason for the adoption of a per-
package limitation of liability is that it was intended primarily to
curb abuses by the carriers. The doctrine which equates a container
with a package leads to the opposite result. It has been condemned
by most writers and finds small favour with the courts. However,
its complete elimination can only be accomplished by legislation.
72De Orchis, supra, note 7, 277 et seq.
73 Supra, note 9.
74A pallet may itself be a package if it is not made up of boxes, crates or
other packages. See considerations on policy, e.g., in Gulf Italia Co. v. S.S.
Exiria, supra, note 17, 444.
19783
COMMENTS – COMMENTAIRES
The United Nations Convention on the Carriage of Goods by
Sea, 1978″‘ (the Hamburg Rules) adopted on March 30, 1978, ‘has
brought about important changes on the topic of the limitation of
liability. Article 6(2) (a) states:
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 evidenc-
ing the contract of carriage by sea, as packed in such article of trans-
port are deemed packages or shipping units. Except as aforesaid the
goods in such article of transport are deemed one shipping unit.
Articles 7(1) and (2) provide:
The defences and limits of liability provided for in this Convention
apply in any action against the carrier in respect of loss or damages to
the goods covered by the contract of carriage by sea, as well as of delay
in delivery whether the action is founded in contract, in tort or other-
wise.
If such an action is brought against a servant or agent of the carrier,
such servant or agent, if he proves that he acted within the scope of his
employment, is entitled to avail himself of the defences and limits of
liability which the carrier is entitled to invoke under this Convention.
The “container-package” issue, the alternative characterization
in contract or tort of concurrent claims and the non-privity of steve-
dores, as well as the accompanying problems which have invited so
much speculation and occasioned so much controversy, confusion
and perplexity under the Hague Rules, will now be resolved by
statutory force under the Hamburg Rlules’ 6
Recent container cases7 already provided the indication that
courts were in the process of adopting a less ambiguous applica-
tion of the law. Contractual -terms clearly excluding or limiting
liability had been given effect whether the claim was laid in contract
or in tort.78 Carle & Montanari, Inc.9 and a series of following
cases had shown that American courts were quite resourceful in
their “assault upon the -citadel” of privity. 80
715 U.N.Doc.A/Conf. 89/13, Mar. 30, 1978, Annex I.
76 Annex III.
77 Matsushita Electric Corp. v. Aegis Spirit, supra, note 2; see also, e.g., the
discussion of this case in Yeramex International v. S.S. Tendo, supra, note 2.
78 See Fridman, The Interaction of Tort and Contract (1977) 93 L.Q.R. 422 for
further references.
79 Supra, note 66.
8 0 Ultramares Corp. v. Touche 255 N.Y. 170, 174 N.E. 441, 445 (Ct App. 1931)
per Cardozo J. The skilful manipulation of the concepts of offer and acceptance
and of consideration announced by the Privy Council in New Zealand Shipping
Co. v. A.M. Satterthwaite & Co., supra, note 62, is logically unacceptable. Lord
Denning’s suggestion (Scruttons, Ltd v. Midland Silicones, Ltd, supra, note 62,
McGILL LAW JOURNAL
[‘Vol. 24
The Hamburg Rules provide a useful palliative. There are, how-
ever, still areas of uncertainty and incoherence. The divergent
theories of liability –
one based on the immediate contractual
relationship of the -parties, the other representing the cdosing
of the gap based on the standard of negligence – may cause further
problems. The hybrid per-package limitation of liability has little
appeal and will certainly be litigated further. A more satisfactory
and predictable solution could be to require the shipper to declare
the value of cargo and to limit the carrier’s -liability to a statutory
percentage of the declared value.”‘ It would be simple to apply and,
allowing for certain possible anomalies, theoretically satisfactory.
N. W. Palmieri Egger*
488-89) to examine the issue in terms of assumption of risk (instead of contract)
has not been followed, perhaps because it would have confused the distinction
between contract and tort. See also Fridman, supra, note 78, 441.
81 The idea of proportionality of compensation had already been advanced
by the time the Hague Rules were discussed. See, e.g., Selvig, supra, note 4,
29 and Fraikin, Traitg de la responsabilitd du transporteur maritime (1957),
283.
– LL.M. (McGill), of the Bar of Milan.
