U.S. Fifth Circuit Affirms Application of Himalaya Clause
Fifth Circuit affirms Summary Judgment in favor of Firm’s client dismissing lawsuit based on Himalaya Clause
Royal SMIT tried to ship a few of its transformers from the Netherlands to Louisiana. It contracted with an intermediary to arrange the transport. The transformers were allegedly damaged along the way, so Royal SMIT and its insurers tried to sue the actual carriers with whom the intermediary had contracted. The district court concluded they were precluded from doing so because of a Himalaya Clause in the through bill of lading, and granted summary judgment in favor of the carriers. That decision was appealed, and on 2 August 2018, the United States Fifth Circuit Court of Appeal affirmed and upheld the enforceability of the "covenant not to sue" contained in the Himalaya Clause of the through bill of lading that governed the shipment.
The case involved the shipment of three large electrical transformers and related accessory parts from Rotterdam to an inland destination in the United States (St. Gabriel, Louisiana). After a multimodal shipment by ocean vessel, railroad and truck, upon arrival at the final destination, the Shipper alleged that the three transformers had sustained damage in excess of $1.6 million due to "excessive vibration." Suit was filed by the Shipper against the Non-Vessel Operating Common Carrier (NVOCC), Central Oceans, with whom the Shipper had contracted to transport the cargo, as well as against Central Oceans' subcontractors who actually moved the cargo, the ocean carrier, the railroad carrier and the trucking carrier. Each of the actual carriers had entered into contracts directly with Central Oceans; none were in direct contractual privity with Royal SMIT.
In connection with the shipment, Central Oceans issued a through bill of lading to the Shipper governing the transportation of the transformers from Rotterdam all of the way to St. Gabriel. The Himalaya Clause of the Central Oceans bill of lading contained an express waiver of all claims against the subcontractors of Central Oceans, with the net result that claims could only be brought against the NVOCC, who was identified as the carrier under the through bill of lading. The ocean carrier and other actual carriers sought refuge under the through bill's covenant not to sue the NVOCC's subcontractors, and filed a Motion for Summary Judgment, requesting dismissal of plaintiff's claim. The Shipper argued that it did not intend to enter into a covenant not to sue the NVOCC's subcontractors and that the covenant in the bill of lading should not be binding on it, based upon an earlier contract with Central Oceans. The district court disagreed, granted the Motion for Summary Judgment, and dismissed with prejudice the claims against the firm's client, based upon the Himalaya Clause, holding that the Shipper's only claim was against the NVOCC. The Fifth Circuit rejected the same arguments on appeal, and affirmed, ruling for the first time that such covenants not to sue were enforceable under COGSA, thereby aligning itself with earlier decisions of the Second and Ninth Circuits.
The case is significant to the extent that similar clauses exist in many multimodal through bills of lading and provide protection to the individual carriers who subcontract with an NVOCC to perform the actual carriage. Obviously, this decision does not protect an actual carrier from a later claim for indemnity by the NVOCC who contracted with it directly. However, any such claims will be subject to the statute of limitations and other protections contained in the underlying contract between the NVOCC and the actual carrier. Moreover, the NVOCC will have the burden to establish when the alleged damage to the subject cargo occurred and apportion responsibility to each respective carrier, which can often be difficult to do in a multimodal situation.
If you have any questions concerning this case, or any other aspect of multimodal transportation, please do not hesitate to contact John Musser or Tarryn Walsh.