Judicial Approach to the Hague Rules and Cognate Legislation
226 It is instructive to examine in a little more detail how courts dealt with the issue of containers, packages and units under the Hague Rules and US COGSA, both before and after 1968. These approaches illuminate, to a degree, the attempted solution and the search for simplicity in the 1968 Protocol.
227 The role of Article III rule 3 of the Hague Rules should not be ignored as part of this background. By Article III rule 3 the carrier was obliged (if demand was made by the shipper) to issue a bill showing, amongst other things, the "number of packages or pieces, or the quantity, or weight, as the case may be, as furnished in writing by the shipper", but only, relevantly, if the carrier "has had a reasonable means of checking" same.
228 Notwithstanding that Article IV rule 5 of the Hague Rules did not expressly direct itself to the bill, courts had recourse to the face of the bill to identify the packages or units in a containerised shipment for the purpose of Article IV rule 5. The Cour de Cassation so held in 1965: Tetley, Marine Cargo Claims, (3rd edn) p 641 ftnt 7 and p 643 ftnt 18. Some courts in applying Article IV rule 5 permitted recourse not only to the face of the bill, but also to associated shipping documents: Tetley op cit p 643 and Vegas Compania Anonima Venezolana 720 F.2d 629 (11th CCA, 1983).
229 Thus, if the bill of lading only referred to the container without identifying packages, the limit was in respect of one package: Rosenbruch v American Export Isbrandtsen Lines Inc 543 F.2d 967 (2nd CCA, 1976); and Binladen BSB Landscaping v M.V. 'Nedlloyd Rotterdam' 759 F.2d 1006 (2nd CCA, 1985). This was so irrespective of how many packages there may in fact have been inside the container. On the other hand, if the bill referred to the container and its contents by reference to a number of packages contained (or said to be contained (s.t.c.) if packed otherwise than by the carrier) the packages within, generally as identified on the bill, were the packages (though the plaintiff had to prove its loss): see the decisions of the French Courts referred to by Tetley op cit pp 641 ftnt 7 and 643 ftnt 18 and of the Dutch courts referred to by Colman J in the The 'River Gurara' [1996] 2 Lloyd's Rep 53, 61; Standard Electrica SA v Hamburg Sudamerikanische Dampfschiffahrts - Gesellschaft 375 F.2d 943 (2nd CCA, 1967) where 9 pallets were packages, not the boxes thereon, the pallets being identified as the packages on the bill; Leather's Best Inc v The 'Mormaclynx' 451 F.2d 800 (2nd CCA, 1971), [1971] 2 Lloyd's Rep 476 where "1 container stc 99 bales of leather" was found to be 99 packages; Chellaram & Co Ltd v China Ocean Shipping Co [1989] 1 Lloyd's Rep 413 (Carruthers J, New South Wales Supreme Court) "1 Container … shipper's load count & seal said to contain 900 CTNS. Blank cassette tapes." was 900 packages; The 'Tindefjell' [1973] 2 Lloyd's Rep 253 (Collier J, Federal Court of Canada) "1 container containing [number] cartons of shoes" was the number of cartons identified; Haverkate v Toronto Harbour Commissioners (1986) 30 DLR (4th) 125 (Rosenberg J - Ontario High Court of Justice) "1 x 40' cont. … said to contain 417 packages personal effects" was 417 packages.
230 For a time in the United States, a "functional economics test" was employed, linking the new technology and methods of containers to past practices. In Royal Typewriter Co v M.V. 'Kulmerland' 483 F.2d 645 (2nd CCA, 1973), [1973] 2 Lloyd's Rep 428, the United States Court of Appeals for the Second Circuit said at 431:
…the first question in any container case is whether 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. Here it is plain that they could not feasibly have been shipped in those individual cartons; adding machines are a delicate product - their little cardboard cartons, stapled and paper-taped, had never been shipped as such; in the days before containers they were shipped in wooden crates or cases containing 12 to 24 each. The metal containers in which the cartons were shipped in lots of 350 per container are essentially to be likened to the wooden crates or cases of days past; the use of the metal container of convenience to shipper and carrier alike was selected by the shipper and used without carrier objection. This court, in a different factual context in Nichimen Co v M V Farland, 462 F. 2d 319, 334 (2d Cir. 1972), referred to Black's Law Dictionary 1262 (4th ed. 1951), which defines a package as a "bundle put up for transportation or commercial handling … a thing in form suitable for transportation or handling." Until the adding machine cartons were packed in the container in question they were not suitable for ocean transportation or handling.
If the goods inside the container were not in a suitable form for breakbulk shipment the container was the package: see the explanation of the test in Matsushita Electric Corp of America v SS Aegis Spirit 414 F.Supp 894, 902 (1976), per Judge Beeks. The Court in Kulmerland explained Leather's Best by noting that "bales" could have been shipped individually. It should be noted also that the bill in Kulmerland simply stated: "1 Container said to contain machinery"; thus, the case could have been decided on the lack of identification of any packages, other than the container: Mitsui & Co Ltd v American Export Lines 636 F.2d 807, 817 (2nd CCA, 1981).
231 The functional economics test was heavily criticised, and swiftly abandoned, in the United States, including by the Second Circuit Court of Appeals where the test had originated: Matsushita v SS Aegis Spirit and Mitsui v American Export Lines; Monica Textile Corp v SS Tana 952 F. 2d 636 (2nd CCA, 1991).
232 This rejection of the functional economics test reflected, in part, a predilection of United States courts to treat containers, at least those supplied by the carrier, as part of the ship: Matsushita v SS Aegis Spirit at 907, where Judge Beeks referred to them as detachable stowage compartments. Further, and importantly for one of the arguments of the cross-appellant and cross-respondents in this case, the Court of Appeals in Mitsui v American Export Lines recognised the inappropriateness in modern usage (especially in circumstances where the shipper provides its own container) of expecting the shipper to pack or unitise cargo within the container in the same way it would have done so in a by-gone era before the use of containers. The Court said at 818:
As the lower courts and commentators recognized, the clear holding of Leather's Best was that carrier-furnished containers whose contents are fully disclosed are not COGSA packages. Under the functional economics test, however, many such containers would be COGSA packages, since few shippers would incur the wasteful expense of supplying packaging unnecessary for container shipments simply to avoid having the container deemed the package. (This is especially so since in most cases they would already have fully insured.)
233 (I leave aside the question, which might be posited in defence of the approach in Kulmerland, whether the need to identify a "package" by reference to earlier cargo handling practice may not have been embedded within US COGSA as a matter of statutory construction as the adoption of a word ("package") from the 1924 Hague Rules which was agreed upon over thirty years before the advent of containers. Though, in this respect, see what was said by Judge Beeks in Matsushita v SS Aegis Spirit at 907.)
234 The general international unanimity of the importance of the terms of the bill (or, in some cases, other shipping documents) to the ascertainment of the package (or unit) under Article IV rule 5 of the Hague Rules (notwithstanding the fact that the rule did not in terms make the bill relevant) was broken by the views of a majority of the English Court of Appeal in the appeal from Colman J in River Gurara (Owners of Cargo Lately Laden on Board) v Nigerian National Shipping Line Ltd [1998] QB 610. There, Phillips LJ (as he then was), with whom Mummery LJ agreed, rejected the parties' capacity under the Hague Rules to agree upon the package by identification in the bill. Rather, Phillips LJ said it was the packages or units that were in fact in, or able to be proved to be in, the container which were the packages. Hirst LJ agreed with Colman J.
235 Before leaving these cases on the Hague Rules and cognate legislation it is appropriate to note one caveat in respect of the above American jurisprudence and one related aspect of the judgments in The 'River Gurara'. The United States cases concern packages, not units. To the extent (as he did) that Colman J found United States decisions (in particular Leathers' Best, Matsushita v SS Aegis Spirit, Mitsui v American Export Lines and Binladen BSB) persuasive, it should be recognised that these cases dealt with packages (not units) being described on the face of the bill. Thus, in Binladen BSB, where the bill stated: "Reefer Container said to contain: 7990 live plants", the Court of Appeals for the Second Circuit rejected the cargo interest's claim that there were as many packages as plants. To be a reference to a package on the bill, it was held that there needed to be a word connoting preparation, in some way, of the goods for transport, for example by use of such words as "packages", "bundles", "cartons" or the like: Binladen BSB at 1013. The Court said that whilst some of the plants had been prepared for transport such that, if properly described in the bill of lading, they could have been treated as packages, there had been no such terminology used in the bill. The consequences of language on the bill being inapt to connote a package can be seen from the following extracts from the Binladen BSB judgment at 1014, 1015 and 1016:
But the word "plant," standing alone in a bill of lading, does not describe an item that has been packaged for transport. Nor can a carrier that has agreed to transport a container described in the bill of lading as filled with a certain number of "live plants" reasonably infer from this description that each plant has been so packaged. Some plants may be simply stowed or stacked without potting, tying, wrapping or other preparation for shipping, in which event they are not individual packages but rather "goods not shipped in packages." Cf. Watermill Export, Inc. v MV "Ponce," supra 506 F. Supp at 617 (loose potatoes shipped in trailers); see also Mitsui & Co, Ltd v American Export Lines, supra, 636 F.2d at 821-22 (stacks of ingots). Indeed, the testimony of Ramirez, the owner of the nursery and the person who loaded the Houston container, amply documents that some plants can be transported without packaging, or packaged singly or in groups of up to 25 or more. According to the bills of lading in the present case, which constitute the agreements between the parties, each of the "plants," as so described, cannot be viewed as an individual COGSA package. This case is therefore analogous to Sperry Rand Corp. v Norddeutscher Lloyd, 1973 A.M.C. 1392, 1398-99 (S.D.N.Y.), in which Judge Lumbard was confronted with a bill of lading that listed the "number and kind of packages" as "1 container" and described the contents as 9,500 electric shavers. Although it was shown at trial that there were actually 190 cartons packed with 50 shavers each, Judge Lumbard correctly refused to hold the cartons (and the shavers) to be packages under COGSA and instead held the container to be the package.
…
Upon balancing these conflicting considerations we are satisfied, notwithstanding our traditional reluctance to treat a container as a COGSA package, that the terms of the bill of lading should govern; if the bill of lading lists the container as a package and fails to describe objects that can reasonably be understood from the description as being packages, the container must be deemed a COGSA package. This rule not only accords with the 1968 Brussels Protocol, supra, but has the virtue of certainty. As we have noted, "only when the meaning of package is predictable will the parties concerned know when there is a need to place the risk of additional loss on one or the other accordingly." Aluminios Pozuelo, Ltd v SS Navigator, supra, 407 F.2d at 156.
When a bill of lading specifies the number of containers but does not reveal the number of packages, inside, the only certain figure known to both parties is the number of containers being shipped. In such event the carrier cannot be charged with knowledge of whether the container is filled with packages, with unpackaged goods, or with some combination. The carrier should not be expected to assume the risk inherent in such uncertainty facing liability that might vary by orders of magnitude depending on the exact packaging of goods inside a sealed container, even though this information was not revealed to it by the bill of lading.
We accordingly hold that, when the bill of lading does not clearly indicate an alternative number of packages the container must be treated as a COGSA package if it is listed as a package on the bill of lading and if the parties have not specified that the shipment is one of "goods not shipped in packages." Maximum damages in such a situation then are $500 per container, irrespective of the contents. Although this rule could drastically reduce the damages available to shippers in some situations, it does not depart from the principle that the limited liability clause in COGSA was designed to "'set a reasonable figure below which the carrier should not be permitted to limit his liability,'" Mitsui, supra, 636 F.2d at 817 (quoting Leather's Best, supra 451 F.2d at 815). It simply recognizes that within the constraints of the lower limit on liability set by COGSA, the allocation of risk in shipping is a matter governed by contract, and one best determined by the explicit agreement of the parties. The ability of the shipper and carrier to contract fairly for the division of liability between themselves depends in turn on disclosure of the relevant information about the packaging of the goods being shipped. The shipper retains the power to protect itself by stating in plain terms on the bill of lading the number of COGSA packages being shipped. Any other interpretation would prevent the carrier from accurately assessing its potential liability at the time it contracts to transport the goods.
[emphasis added]
236 These are influential passages for the cross-appeal. They emphasise that under US COGSA it is necessary to identify objects to be reasonably understood to be packages made up for transport. If the same were required of units, it would be necessary to identify the units in which the goods are packed in the container for transport, whether they are packed in the container as articles or in or by crates, ties etc.
237 The passages in Binladen BSB also emphasise that the focus upon the face of the bill permits the parties to have control over the limitation regime: if the shipper wants to have an extended limitation amount it can ensure that the bill identifies the packages in which the goods are packed or arranged, or declare a higher value.
238 The Court in Binladen BSB was of the view that its approach was in accordance with the 1968 Protocol. This view was echoed in Hayes-Leger Associates Inc v M/V Oriental Knight 765 F.2d 1076, 1080 (11th CCA, 1985).
239 (For recent decisions reflecting the approach in Binladen BSB and also reflecting the importance under US COGSA of packaging, see Alternative Glass Supplies v M/V Nomzi 1999 AMC 1080 (SDNY); Orient Overseas Container Line (UK) Ltd v Sea-Land Service Inc (The Sealand Quality) 122 F Supp 2d 481 (SDNY); and American Home Assurance Co v M/V Crowley Ambassador 2003 AMC 510 (SDNY).)
240 Colman J in The 'River Gurara', in dealing with the unamended Hague Rules, did not specifically refer to the word "unit"; but his views were clearly intended to apply to both "package" and "unit". His views are contrary to treating unit as meaning an individual article or piece beyond an item described on the bill as shipped as such, or as contained in some described shipping unit. Colman J said the following at 62-3:
For these reasons I have no hesitation in concluding that the construction of art. IV, r. 5 of the Hague Rules which the English Courts should now adopt is that which has been reached by the American, Canadian, Australian, French and Netherlands Courts. The reasoning supporting those judgments shows that the conclusion is consistent not only with the language but also with the policy of the Hague Rules.
I therefore hold that where: (i) separately packed items have been loaded into a container by the shipper or his agents and the carrier has had no opportunity to tally or verify the contents of the container; and (ii) the carrier or his agent signs a bill of lading which, as here, describes under the heading "container No.s" the identification numbers of the various containers received and states under the heading "Number and Kind of Packages; Description of Goods" words such as "1 x 20΄ container stc: 8 cases" of goods there are for the purposes of art. IV, r. 5, eight packages and not one.
Moreover, if the contents of the container are described by words which leave it unclear whether they are separately packed for transportation, the container will be the package and not the individual items.
If the contents of the container are described in the bill of lading as said to contain so many separately packed items which in turn are said to contain a specified number of separately packed items, the number of packages will be the smallest category of separately packed items so described. For example, in the present case, typical of several bills of lading is one (interest 32) which bears the words "1x20' container STC: 8 pallets STC": 1855 bundles Ghana Makore and Sapele Veneer". The correct approach is clearly to treat the bundles and not the pallets as the packages under art. IV, r. 5. Once the verification principle has been rejected and it is accepted, following the authorities to which I have referred, that it is the intention of the parties as expressed in the bill of lading which is the main determinant of what is to be treated as a package, there is no logical justification for confining consideration as packages, to the larger separately-packed items identified in the bill of lading. The insertion in the bill of lading of the lesser separately-packed items, although they are bound together on pallets or in similar consolidated groups, is a clear indication that those lesser items are to be treated as the unit of measurement for limitation purposes.
[emphasis added]
241 That Colman J's views applied to both package and unit is clearly revealed by his reference to, and approval of, the judgment of Leggatt J in Bekol BV v Terracina Shipping Corporation 13 July 1988, unreported. Colman J set out the description of that case as follows at p 59:
There was in that case an issue whether shipowners were entitled to limit their liability under art. IV, r. 5 in respect of the loss of nine bundles of timber. The plaintiffs receivers' argument was that each of the individual pieces of timber within each of the bundles represented a "unit" for the purpose of art. IV, r. 5. The bundles were not enclosed in packing but merely banded with steel straps. The bills of lading described the goods under the heading "Number and kind of packages, description of goods" as "X bundles stc (said to contain) Y pieces". Mr Justice Leggatt held that each bundle was a separate package.
242 In Bekol Leggatt J at p 3 set out the respective arguments:
The plaintiffs contend that the individual pieces of wood represented units within the meaning of the Rule, with the result that the limitation of liability is to $100 per piece of wood. The defendants, on the other hand, contend that those bundles into which the pieces of wood were made up, each constituted a package within the meaning of the Rule. The pieces of meranti were collected together in bundles and secured by means of steel straps as appears most graphically from a photograph put in evidence. Save for the steel straps, there was no other covering upon any of the bundles.
243 Leggatt J then said at p 3:
In my judgment, a piece of meranti such as is the subject of the present dispute, of a quality known as "Select and better", measuring typically two or three inches by four or five inches in cross-section and many feet in length, viewed by itself is a single item and therefore capable when considered in isolation of being called a unit. If pieces of this kind were carried loose, each of them might be said to constitute a unit; but when, as here, a number of pieces are fastened together with steel straps they become a composite shipping unit. In the bills of lading the timber was entered under the heading "Number and kind of packages, description of goods" in the form "x bundles stc (standing for 'said to contain') y pieces." The actual number of pieces which made up the gross tonnage in each bundle shipped was of no moment. The Oxford English Dictionary defines "package" as "a bundle of things packed up, whether in a box or receptacle, or merely compactly tied up." It would be difficult to devise a more accurate or apt description of the bundles of wood here in question.
In my judgment, therefore, each bundle was a package or unit of goods within the meaning of Article 4, Rule 5 of the Hague Rules. The limitation of liability to Ł100 applies to each of the nine missing bundles, resulting in an award in favour of the plaintiffs under this head of the sum of Ł900 instead of the sum of 13,019.56 Dutch florins claimed.
[emphasis added]
244 The following passage in the reasons of Phillips LJ in The 'River Gurara' v Nigerian National Shipping Line sets out his Lordship's reasons for refusing to follow the jurisprudence referred to by Colman J. It illuminates what might be said to be the important consequences of allowing the face of the bill to determine the question. Indeed it is a passage strongly relied upon by the cross-appellant in the cross-appeal to underpin its arguments as to the primacy of the freedom of contract. Phillips LJ said at 624:
While I appreciate the desirability of international uniformity, I am unable to accept that the basis of limitation under the unamended Hague Rules depends upon the agreement of the parties as to what constitute the relevant "packages", as represented by the description of the cargo on the face of the bill of lading. In according to the unamended Hague Rules the same effect as the Protocol the American courts were, in effect, legislating, as was recognised by the remarkable decision of the Second and Eleventh Circuits to apply their interpretation prospectively only. I do not believe that it is an interpretation that can properly be given to the unamended Hague Rules. My reasons echo those of Judge Beeks in The Aegis Spirit [1977] 1 Lloyd's Rep 93 (1) The Hague Rules limitation provisions were designed to prevent shipowners imposing on shippers unrealistically low limits of liability. If the parties are permitted to agree their own definition of "packages", shipowners will, by applying that definition to containers, succeed in evading the minimum limit of liability that the Hague Rules aimed to secure. The American courts repeatedly held that so-called "boilerplate" clauses in bills of lading, stating that containers were to be deemed to be "packages", were ineffective as being in conflict with the C.O.G.S.A. limit. I find it illogical that they held that shipowners could achieve the same result by ensuring that the number of containers, but not of the packages within them, should appear on the face of the bill of lading. (2) Statements in a bill of lading describing the cargo shipped do not constitute an agreement between the parties as to the identity of that cargo.