All Packages Are Not Created Equal

March 11, 2010

All Packages Are Not Created Equal
By Eric Lenck
P&I International, July 1992

US courts have completed yet another round of litigation in the difficult area of what constitutes a "package" for limitation purposes under the United States Carriage of Goods by Sea Act, 1936 (COGSA). The United States Court of Appeals for the Second Circuit recently rendered an opinion of particular significance to container carriers, reversing a lower court decision which held the 20' shipping container to be the package for purposes of the $500 package limitation under COGSA. This decision, Monica Textile Corp. v. SS Tana, decided 23 December, 1991, is significant in that it firmly rejected the applicability of a newly developing package limitation rule where containers are concerned, distinguishing between the containers and other types of packages.

The Second Circuit Court of Appeals, which reviews decisions from the lower federal courts in New York and surrounding areas, is often a leader in developing the United States maritime case law. An earlier decision by this same Court of Appeals entitled Seguros "Illirnani" S.A. v. MV Popi P, 929 F.2d 89 (2d Cir. 1991), raised considerable hope among container carriers operating in the United States that a new rule was developing which would permit the application of the $500 COGSA package limitation to the container itself under much broader circumstances than before. While the MV Popi P dispute involved non-containerised ingots which were strapped into bundles, the general rule stated by the court held great potential. Focusing upon the parties' intent, the court stated that if the number reflected in the "No. of Pkgs" column of the bill of lading referred to items which qualified as a COGSA "package", that number would determine the per package limitation, absent plain evidence of a contrary intention. This analysis was later termed the "bright-line" rule, referring to the line on the typical bill of lading which separates the "No. of Pkgs" column from the "Description" column.

It wasn't long before a container carrier sought to have this rule applied in the container context. The lower court in Monica Textile had initially declined to hold the 20' container to be the COGSA package because the bill of lading also disclosed on its face that there were 76 bales of cotton cloth within the container. However, on re-argument after the issuance of the MV Popi P decision by the Court of Appeals, the lower court in Monica Textile reversed itself.

In arriving at this new decision, which came to be known as Monica II, the lower court held that the 20' container, rather than each of the 76 bales, was the COGSA package. The lower court adopted the "bright-line" rule in relation to the container, stating that the number appearing in the "No. of Pkgs" column of the bill of lading, in this case 1, was determinative of the number of packages unless other evidence of the parties' intent plainly contradicted that number, or unless the item to which that number referred was incapable of qualifying as a COGSA package. Therefore, the carrier's liability was limited to $500 for the loss rather than $38,000, as had earlier been the case. The court noted that the bill of lading also had a line labeled "Total Number of Packages or- 'Units in Words" where the number entered was 1 and a definition clause on its reverse side which specifically defined a container to be a package.

Monica II represented a tremendous potential boon to container carriers and their P & I Clubs. As all concerned in the trade know, it is not uncommon for the governing bill of lading to list only the number of containers in the "No. of Pkgs" column, with the interior packages often listed in the "Description" column only. Moreover, most container liner service bills of lading on their reverse side specifically define a container to be a package. The potential saving to ocean carriers and their P & I underwriters on container cargo losses was in the millions.

This euphoria on the carrier defense side was to be very short lived, however. In reversing the Monica II lower court decision, the Court of Appeals accepted the cargo claimant's argument that container cases and non-container cases should be analyzed separately for package limitation purposes. Citing a number of its prior holdings, the Second Circuit Court of Appeals stated that containers raised unique issues which must be separately considered in the package limitation context. The Court of Appeals reaffirmed its leading container case Mitsui & Co. v. American Export Lines, Inc., 636 F.2d 807 (2d Cir. 1981), holding that when the bill of lading discloses on its face what is inside the container, and when those contents qualify as COGSA packages, the $500 limit will apply to each such package and not to the container itself. Since the MV Popi P bill of lading identified the interior packages to be 76 bales of cloth, the package limitation should therefore be $38,000 rather than $500, even though the 76 bales were entered in the "Description" column rather than the "No. of Pkgs" column.

The conclusion in the Monica Textile Court of Appeals decision is worth noting:

"Seguros provides a bright-line rule in non-container cases that `the more consistently it is followed, the more it should minimize disputes'. Seguros, 929 F.2d at 94. Similarly, Mitsui and its progeny continue to provide a simple rule in container cases, a rule that is easily administered by the courts and readily amenable to ex ante application by contracting parties. Together, these rules foster predictability in this nettlesome area of the law. Applied faithfully and consistently, they should assist carriers, shippers and the courts to `avoid the pains of litigation'. Standard Electrica, 375 F.2d at 945."

The next round of package limitation litigation will reveal whether these rules have in fact simplified the package limitation analysis under United States law. While the time for appeal of this latest Monica Textile decision to the United States Supreme Court has not yet expired, it is not likely that the US Supreme Court will rule on the issue. It will be most interesting to see, however, how the other US courts will react to the Second Circuit's "bright-line" rule and its reaffirmed special treatment of containers for package limitation purposes.