DMC Category: Developed

Case note contributed by Thomas H. Belknap, Jr., partner at Healy & Baillie, LLP in New York. Healy & Baillie are the International Contributors to the site for the USA.

Facts
As Justice O’Connor aptly observed in the Court’s opinion, "this is a maritime case about a train wreck." Kirby, an Australian manufacturing company, sold ten containers of machinery to a General Motors plant located outside Huntsville, Alabama. Kirby hired International Cargo Control (ICC) to arrange for delivery. ICC issued a through bill of lading to Kirby designating Sydney, Australia as the port of loading, Savannah, Georgia as the port of discharge, and Huntsville, Alabama as the place of delivery. The ICC bill incorporated the COGSA package limitation in respect of the sea leg and, for the land portions of the carriage, adopted the Hague-Visby limitation of liability.

ICC in turn arranged for carriage through Hamburg Süd, and Hamburg Süd issued a bill of lading to ICC which also designated Sydney as the port of loading, Savannah as the port of discharge, and Huntsville as the ultimate delivery destination. The Hamburg Süd bill also incorporated COGSA’s package limitation and extended the application of that limitation to all portions of the carriage, whether at sea or on land.

Both bills of lading contained Himalaya Clauses. The ICC bill provided that the limitations of liability in the bill would apply in respect of claims against "any servant, agent or other person (including any independent contractor) whose services have been used in order to perform the contract." The Hamburg Süd bill was worded slightly differently and extended the benefit of its liability limitation to "all agents … (including inland) carriers … and all independent contractors whatsoever."

Hamburg Süd contracted with Norfolk Southern Railroad to transport the machinery from Savannah to Huntsville. During this leg of the carriage, the train derailed causing US$1.5 million in damages. Kirby sued Norfolk Southern in the District Court for the Northern District of Georgia, and Norfolk Southern subsequently applied to the court to limit its liability to US$500 per container pursuant to the Hamburg Süd bill or, alternatively, to the somewhat higher Hague-Visby limitation in the ICC bill. The District Court granted the motion, but the Eleventh Circuit Court of Appeals reversed the District Court decision, holding that the Himalaya Clause in the ICC bill did not extend to parties, such as Norfolk Southern, who were not in privity of contract with ICC and that, in any event, the clause was not broad enough to cover inland carriers. The Eleventh Circuit further concluded that the Hamburg Süd bill’s Himalaya Clause was not binding on Kirby because ICC could not be construed as having been acting as an agent for Kirby when it obtained the Hamburg Süd bill.

Judgment
The Supreme Court first considered the issue, raised by Kirby, of whether the claim was governed by Federal maritime law or by state law. The Court concluded that the bills of lading were maritime contracts "because their primary objective is to accomplish the transportation of goods by sea from Australia to the eastern coast of the United States." The court acknowledged that the bills called for some performance on land but concluded that "under a conceptual rather than spatial approach, this fact does not alter the essentially maritime nature of the contract." In sum, the Supreme Court concluded that only where a bill of lading’s sea components are "insubstantial" will it not be considered a maritime contract.

The Court further considered whether the case was "inherently local" such that state law should nevertheless apply. In concluding that the Federal maritime law should apply, the Court observed "our touchstone is a concern for the uniform meaning of maritime contracts like the ICC and Hamburg Süd bills."

Turning to the merits of the dispute, the Supreme Court first considered the ICC bill of lading. Rejecting the Eleventh Circuit’s strict construction of the ICC Himalaya Clause, the Court concluded that the natural meaning of the language in this bill was to extend the limitations of liability to "any" party whose services contributed to the performing of the contract. Given that the contract called for delivery of the cargo at Huntsville, an inland city, the Court concluded that the parties must have anticipated that an over-land carrier’s services would be necessary for the contract’s performance. Thus, the Court concluded, it was clear that a railroad such as Norfolk Southern must have been an intended beneficiary of the ICC bill’s "broadly written Himalaya Clause."

Turning to the Hamburg Süd bill, which extended COGSA’s limitation of liability to the land portion of the carriage, the Supreme Court rejected the Eleventh Circuit’s strict reliance on agency law principles to determine the question of whether Kirby should be subject to the limitation of liability in the Hamburg Süd bill issued to ICC. The court acknowledged that "the traditional indicia of agency, a fiduciary relationship and effective control by the principal, did not exist between Kirby and ICC." Nevertheless, the Court concluded, for the narrow purpose of contracting for liability limitations with carriers downstream, it was appropriate to hold that an intermediary binds a cargo owner to limitations of liability contained in contracts between the intermediary and the ultimate carrier. This was appropriate, the Court held, for three reasons: (1) a limited agency rule tracks industry practice; (2) if liability limitations negotiated directly with cargo owners were reliable whereas limitations negotiated with intermediaries were not, carriers likely would charge higher rates to intermediaries; and (3) the result is equitable because Kirby retains the right to sue ICC for any loss that exceeds the liability limitation to which they agreed (i.e., here the difference between the COGSA package limitation and the somewhat higher Hague-Visby limitation contained in the ICC bill). Thus, the Court held, Norfolk Southern was entitled to limit its liability to US$500 per package (which in this case was the container) pursuant to the Hamburg Süd bill of lading.

Comment
This decision is significant for at least three reasons: (1) it broadens and clarifies the application of the Federal maritime law to all bills of lading involving multi-modal transportation which includes a "substantial" maritime leg; (2) it makes clear that Himalaya Clauses in bills of lading are subject to the same rules of construction as other contract terms and should be enforced if a plain reading of the language indicates that it was intended to apply in a given situation; and (3) it makes clear that an intermediate carrier or NVOCC can bind the shipper to the actual carrier’s limitation of liability contained in its bill of lading.