Nichimen Co Inc (New York) purchased 280 steel coils from its parent company, Nichimen Co Ltd (Tokyo). Nichimen Co Inc had arranged to sell 219 of those coils to the Eastern Steel & Metal Co (Eastern) for USD 182,632.80. The coils were to arrive at New Haven, Connecticut, from Wakayama, Japan, on the MV Farland. The voyage had a scheduled stop at Vancouver, British Columbia, to load lumber owned by Seaboard Lumber Sales Co Ltd, an affiliate of Seaboard Shipping Co Ltd (Seaboard). Seaboard had chartered the MV Farland from A/S Vigra (Vigra) under a time charter.

Under a 'freight contract', Seaboard agreed to supply a minimum of two holds for the coils. They were loaded on 14-15 December 1964. Aall & Co Ltd (Aall & Co), Seaboard's port agent, hired a specialist who supervised the stowage and lashing of the coils at Wakayama. The 'freight contract' was subject to a bill of lading that Seaboard's port agent issued on behalf of the master for the consignment. The bill of lading, on Aall & Co's form, contained a typewritten paramount clause on the reverse side of the bill of lading.

The MV Farland arrived in New Haven on 1 March 1965. On 2 March 1965, after the remaining lumber cargo had been discharged from the MV Farland, marine surveyors inspected the coils. They found that 142 coils were damaged. Of these, 87 coils were wrapped in burlap and 55 coils were rolled, strapped, and tied with steel bands. Eastern accepted the damaged coils at a discount. Nichimen Co Inc's resulting loss was USD 85,180.57.

Nichimen Co Inc sued the MV Farland, Vigra, and Seaboard to recover its loss. The District Court for the Southern District of New York entered a judgment awarding cargo damage. Seaboard appealed from the portion of the judgment awarding owner indemnity against Nichimen Co Inc.

Held: The judgment of the District Court is modified and, as so modified, affirmed.

Nichimen Co Inc may recover two-thirds of its costs, and Vigra all its costs, against Seaboard. Seaboard was bound to indemnify Vigra's liability to Nichimen Co Inc for the cargo damage and to pay it withheld charter hire. The time charter required Seaboard to load, stow and trim cargo under the supervision of the Captain. Seaboard's agent stowed the cargo improperly, and the Captain did not supervise the operation. The US Carriage of Goods By Sea Act (COGSA) governed the liability of Seaboard and Vigra. Seaboard and Vigra could limit their liability to USD 500 per package.

Since bills of lading were introduced as documents of title, public carriers had increasingly used bills of lading to contractually expand the narrow set of common law 'exceptions' to their otherwise absolute liability. The English courts honoured bill of lading provisions excepting public carriers from liability for loss due to their own negligence and that of their employees. The courts of the United States did not share the English approach.

The Harter Act was enacted in 1893 to respond to these developments. The enactment was meant to protect those shipping cargo 'from or between ports of the United States and foreign ports' against inserting any provisions 'in any bill of lading or shipping document' that relieved the vessel or its owners 'from liability for loss or damage arising from negligence, fault, or failure in proper loading, stowage, custody, care, or proper delivery' of the cargo, or lessening or abrogating their 'obligations … to exercise due diligence [sic] properly equip, man, provision, and outfit' the vessel, 'and to make [it] seaworthy'.

COGSA was adopted in 1936, and its enacting clause provides that it shall regulate rights and liabilities under '[e]very bill of lading or similar document of title which is evidence of a contract for the carriage of goods by sea to or from ports of the United States, in foreign trade'.

Section 1(b) of COGSA defines 'contract of carriage' as applying

only to contracts of carriage covered by a bill of lading or any similar document of title, insofar as such document relates to the carriage of goods by sea, including any bill of lading or similar document of title as aforesaid issued under or pursuant to a charter party from the moment at which such bill of lading or similar document of title regulates the relations between a carrier and a holder of same.

The Courts, in determining the applicability of COGSA, have on occasion resorted to the public-private carriage distinction (see eg Pacific Vegetable Oil Corp v M/S Norse Commander 264 F Supp 625, 627 (SD Tex 1966); J Gerber & Co v SS Sabine Howaldt 310 F Supp 343, 350 (SD NY 1969), reversed on other grounds, 437 F 2d 580 (2d Cir 1971). COGSA may be applicable in particular instances of private carriage, even if there was an exact correlation between private carriage and carriage pursuant to a charterparty.

Section 5 of COGSA provides that 'the Act shall not be applicable to charter parties'. This reference to charterparties must be read in light of the common understanding. The Court in The New York 93 F 495, 497 (ED NY 1899), aff'd 113 F 810 (2d Cir 1902) expressed this point as follows:

A charter party is a specific contract, by which the owners of a vessel let the entire vessel, or some principal part thereof, to another person, to be used by the latter in transportation for his own account, either under their charge or his (see also, Vandewater v Mills 60 US (19 How) 82, 91, 15 L Ed 554 (1857)).

COGSA applied to the bill of lading by the force of its terms. Bills of lading are commonly issued in the context of charterparties. Section 5 adds that 'if bills of lading are issued in the case of a ship under a charter party they shall comply with the terms of the Act'.

The parties' agreement with respect to bills of lading may trigger the applicability of COGSA, even though the carriage is of a private nature under a charterparty. A bill of lading issued to the charterer-shipper under a time charter is usually a mere receipt as between the parties to the charter and does not perform the additional function of a contract for the carriage of goods (The Marine Sulphur Queen 460 F 2d 89, 103 (2d Cir 1972)).

Seaboard did not limit itself to the 'freight contract'. The 'freight contract' was subject to the bill of lading. In a traditional voyage charter, parties may agree that the bill of lading shall 'regulate the relations' (s 1(b)) between the charterer-owner and the charterer-shipper. However, this 'freight contract' was a hybrid document. Since the parties made the bill of lading an integral part of the 'freight contract,' COGSA applied and any inconsistent provision in the contract of carriage would be void (s 3(8)). If Nichimen Co Inc had done nothing more than enter into the 'freight contract' and had received no bill of lading or similar document of title, COGSA would not have applied here by its very terms, notwithstanding if there were other shippers or whether such a contract was deemed to be a charterparty. A loophole in COGSA is that it may not apply to a 'bill of lading or similar document of title' issued under a 'freight contract', unlike traditional charterparties, even in the absence of a 'subject' clause.

If the Court had not concluded that COGSA was applicable, it would have considered the paramount clause. Japan, the 'country of shipment', enacted legislation 'very similar to the Hague Rules' on 1 January 1958. The Japanese legislation applies to shipments from Japan to a foreign port. The Court of Appeals would also have considered the Japanese 'package' limitation of JPY 100,000, which is lower than COGSA's limitation of USD 500. Separately, the 'corresponding legislation of the country of destination' (the USA) refers to COGSA.

Nichimen Co Inc established its prima facie case, and Seaboard and Vigra failed to carry the burden of showing freedom from negligence in the stowage of the cargo (s 4(2)(q)). Section 4(2)(q) imposes on the carrier no mere burden of going forward with the evidence, but a real burden of persuasion, with the attendant risk of non-persuasion. Section 4(2)(q), rather than s 4(2)(a), is the controlling provision.The stowage was done by Seaboard, rather than by Nichimen Co Inc's agent. The expert evidence was sufficient to overcome the expressed satisfaction of Nichimen Co Inc's marine surveyors. In any event, the carrier's duty to 'properly and carefully load … [and] stow … the goods carried' is non-delegable (s 3(2)). Seaboard and Vigra were thus responsible for the damage to the cargo, notwithstanding the perils of the sea exceptions to liability in COGSA (s 4(2)(c)). As held in Clark v Barnwell 53 US (12 How) 272, 280, 13 L Ed 985 (1851): 'Although the loss occurs by a peril of the sea, yet if it might have been avoided by skill and diligence at the time, the carrier is liable (See also, J Gerber & Co v SS Sabine Howaldt 437 F 2d 580, 588-589 (2d Cir 1971)'.

This appeal vindicates the prediction in Leather's Best Inc v SS Mormaclynx 451 F 2d 800, 814 (2d Cir 1971) that the problem of what constitutes a 'package' within s 4(5) of COGSA would 'hardly be the last' case. Each coil, whether wrapped or unwrapped, was a 'package'. The dictionary meaning of packages refer to both '[a] bundle made up for transportation' and '[t]hat in which anything is packed' (Webster's New International Dictionary (2nd edn, 1960)). Black's Law Dictionary (4th edn, 1951) 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' and 'a thing in form suitable for transportation or handling.' In Aluminios Pozuelo Ltd v SS Navigator 407 F 2d 152, 155 (2d Cir 1968), Judge Moore concluded:

The meaning of 'package' which has evolved from the cases can … 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.

There had been 'some packaging preparation for transportation … which facilitates handling'. The unwrapped coils were as much packages as those the customer desired to have enclosed in burlap. Each of the coils consisted of a thin steel sheet which had been rolled, strapped, and tied with steel bands. The act of rolling and banding facilitating storage does not necessarily negate the possibility that it is also packaging preparation made to facilitate handling in transportation. Under the dictionary definitions, a 'bundle' is a package. The bill of lading stated '280 coils' under the heading 'Number of Packages'. The description on the bill of lading is not controlling (Middle East Agency Inc v The John B Waterman 86 F Supp 487, 491 (SD NY 1949)), but it is important evidence of the parties' understanding (see Standard Electrica SA v Hamburg Sudamerikanische Dampfschifffahrts-Gesellschaft 375 F 2d 943, 946 (2d Cir 1967)).

Stirnimann v The San Diego 148 F 2d 141, 143 (2d Cir 1945) explained that the purpose of s 4(5) is 'to prevent "excessive claims in respect of small packages of great value", but not to permit carriers to escape liability for just claims'. The purpose of s 4(5) is to describe

a unit that would be fairly uniform and predictable in size, and one that would provide a common sense standard so that the parties would easily ascertain at the time of contract when additional coverage was needed, place the risk of additional loss upon one or the other, and thus avoid the pains of litigation (Standard Electrica SA 945).

If Nichimen Co Inc wanted coverage over USD 500 per coil, it could either use the statutory alternative of declaring a higher value, or cover itself by insurance. Most cargo damage actions are really battles between insurers (Leather's Best Inc 815).