Box Use Tests Liability Law

The U.S. Congress enacted the Carriage of Goods By Sea Act (Cogsa) in 1936, attempting to protect shippers from carriers’ superior bargaining power by establishing a minimum liability that could not be contracted away.

The act limited the carrier’s liability to $500 a “package” or “customary freight unit.” Unfortunately, Congress failed to define these terms. Consequently, hundreds of court decisions have attempted to explain their meaning.

A recent New York case, DWE Corp. vs. TFL Freedom, (704 F. Supp 380), held that a container was both a “package” and a “customary freight unit” for limitation purposes. The carrier limited its $90,000 liability to $500 based upon these two concepts. This case illustrates the difficulty that courts have in defining these terms.

Under Cogsa there is a significant difference between a “package” and a “customary freight unit.”

A package requires some preparation for transportation that facilitates handling, but that does not necessarily conceal or completely enclose the goods. Courts have found packages to include items such as bales, boxes, bundles, cartons, coils, crates, pallets, rolls and skids. A customary freight unit is not a package. It is the unit on which the freight charge is based for the shipment. If, for example, freight is paid on a cubic foot freight unit, liability is calculated by multiplying the cubic feet of cargo by $500. If unpackaged cargo is shipped on a lump sum basis, the entire cargo is considered one freight unit. An unpackaged locomotive has been held to be one freight unit, with liability limited to $500.

The shipping industry began using containers during the 1960s. Carriers began amending bills of lading to define containers as packages under Cogsa. Before the advent of sealed containers, carriers could identify shippers’ packages by inspecting the cargo. With the arrival of containers, carriers began arguing that they should not be liable for that which they could not see and, therefore, the $500 package limit should be applicable to containers.

When Congress enacted Cogsa, containers did not exist. Courts were forced to search for criteria to determine if containers were packages. The criteria include information obtained from bills of lading, the nature of the goods and the ownership of the container.

The package concept was first extended to containers based upon a “functional economics test.” If goods could be shipped in packages, these parcels were considered functional packages. If not, the container was deemed the package. The test was abandoned in 1981. Now carrier furnished containers with disclosed contents are not packages, regardless of their contents’ packaging.

However, if the bill of lading gives no description of the contents, then the container might be considered a package. If the bill lists the container as a package and fails to describe its contents as objects that can reasonably be understood to be packages, the container is then deemed the Cogsa package. The declaration on the bill may bind the shipper even when the contents differ from the description.

Goods shipped in containers and described as not separately packaged will be classified as goods not shipped in packages. This limits the carrier’s liability to $500 a “customary freight unit.” The parties’ intent is determined by examining the bill of lading and the filed tariff. Absent any ambiguity, the parties are bound to the freight unit adopted. If the freight charge is based on a lump-sum container rate, the container is the freight unit and liability is limited to $500.

In DWE Corp. vs. TFL Freedom, the court addressed both package and customary freight unit issues. Rolls and cartons were loaded by the shipper into a container and sealed. The carrier was not provided with any documents that reflected the amount of cargo in the container. The shipper paid a lump-sum freight rate for the container and claimed each roll and carton a package. The bill of lading expressly referred to the container as a package, and the court held it to be so. The court then held that even if the contents were deemed goods not shipped in packages, the liability was still $500 based on the container customary freight unit.

Smuggling on ocean vessels continues to be a primary method of importing contraband, including narcotics, into the United States. In past, for this reason, Customs laws require listing on the manifest of all cargo landed in the country so that proper duties are paid.

The case also illustrates that a misdescription on the bill of lading can be a very costly mistake.