Carriage of Goods by Sea Act

By Stephen C. Hanemann

In matters of international trade, a bill of lading often serves as the contract of carriage between a shipper and carrier for transportation of goods. A Himalaya clause is a provision contained in certain bills of lading protecting carrier’s servants, agents, and independent contractors from third-party claims by limiting shipper’s rights to bring suit against carrier only. When courts enforce the Himalaya clause contained in such a bill of lading, carrier’s agents, servants, and independent contractors are generally immune from legal actions brought by the shipper. Global Oil Tools, Inc. v. Expeditors International of Washington, Inc., et al, a recent case out of the Eastern District of Louisiana, illustrates the concept of claim preclusion secondary to Himalaya clause enforcement.

Global Oil Tools, Inc., (“Shipper”) contracted with Expeditors International of Washington, Inc. (“Carrier”) to arrange for the transatlantic shipment of two containers from New Orleans, Louisiana to Constanta, Romania. Carrier booked carriage for the containers aboard the M/V BAVARIA, a ship operated by Hapag-Lloyd. Ports America, a stevedoring company, loaded the containers onto the M/V BAVARIA.

Shipper twice delayed the shipment of goods, but ultimately, due to a miscommunication between Hapag-Lloyd and Ports America, the ship set sail on March 28, 2016 with Shipper’s containers. The containers arrived at Constanta, Romania, on April 23, 2016. On May 27, 2016 Shipper approved Carrier’s issued bill of lading dated March 28, 2016. Shipper had intended to sell its cargo on arrival in Romania, but the sale was never consummated. Shipper filed suit against Carrier, Hapag-Lloyd, and Ports America seeking damages for the allegedly erroneous shipment of goods.

Hapag-Lloyd and Ports America filed motions for summary judgment invoking the application of the Himalaya clause in the bill of lading. While bills of lading are customarily construed against a carrier, the issuing party, contracts for carriage of goods by sea must be interpreted by their terms, consistent with the intent of the parties. In this transaction Carrier’s bill of lading, by inclusion of a clause paramount, incorporated the provisions of COGSA (“Carriage of Goods by Sea Act”). 46 U.S.C. § 30701 note sec., 13. Although COGSA applies of its own force from the time when the goods are loaded on to the ship until the time when they are discharged from the ship, the clause paramount provides that COGSA shall govern before loading as well.

The Himalaya clause in Carrier’s bill of lading stated that Shipper shall make no claim or allegation against any person other than Carrier, including Carrier’s servants, agents, or independent contractors. By approving the bill of lading terms, Shipper entered a covenant not to sue any party involved in the transportation of its containers except for Carrier. Under the simple language of the bill of lading itself, Shipper contractually relinquished any rights it may have had to sue either Hapag-Lloyd or Ports America.

Despite Shipper’s arguments attacking the enforceability of the bill of lading, there exists significant custom under general maritime law in favor of enforcing bills of lading even when executed after the shipment of goods is complete. In holding that the bill of lading and its terms, including the Himalaya clause, applied to Shipper’s shipment, the Court found that the Shipper had sufficient notice of the bill of lading, and that Shipper explicitly approved the bill of lading after the goods arrived in Romania. Following in line with the jurisprudential precedent of the Second Circuit, Fifth Circuit, Ninth Circuit, and U.S. Supreme Court, the Eastern District held that the Himalaya clause in the bill of lading, containing a covenant not to sue Carrier’s subcontractors, was enforceable.  Notwithstanding the inclusion of the Himalaya clause, the Bill of Lading preserved Shipper’s right to sue Carrier, as well as Carrier’s right to sue its subcontractors. Thus, the bill of lading did not violate public policy or any fairness doctrine. Shipper’s covenant not to sue parties other than Carrier precluded Shipper’s right to sue Hapag-Lloyd and Ports America. Thus, Hapag-Lloyd and Ports America were entitled to summary judgment dismissing Shipper’s claims.

By Stephen C. Hanemann

The Carriage of Goods by Sea Act (“COGSA”) provides that it shall “apply to all contracts for carriage of goods by sea to or from ports of the United States in foreign trade.” In matters involving international trade, contracts for carriage – involving goods shipped to or from the United States via a foreign seaport – are those covered by a bill of lading or any similar document of title. In GIC Services, LLC v. Freightplus (USA), Inc., 120 F. Supp. 3d 572 (E.D. La. July 29, 2015); rev’d in part 866 F. 3d 649 (5th Cir. August 8, 2017), the EDLA recently held that a shipment of cargo from Texas to Nigeria, covered by a bill of lading, constituted a contract of carriage subject to COGSA.

GIC Services, LLC contracted with Freightplus (USA), Inc. to ship a tugboat, the M/V REBEL, to Lagos, Nigeria. Freightplus contracted with Industrial Maritime Carriers to provide a vessel on which the REBEL was to be carried. When GIC learned that the REBEL was actually delivered to Warri, Nigeria rather than Lagos, it instituted an action for damages against Freightplus.

In addition to the myriad of disputed issues arising out of the shipment of the tugboat, the carrier and shipper disputed the carrier’s right under COGSA to limit its liability to the $500 per package limitation. Freightplus maintained that its actions did not cause GIC’s losses, but even if they did, the carriage was governed by COGSA and Freightplus’ liability should be capped at $500, the COGSA per-package-damages limitation.

Freightplus filed a third-party complaint against IMC claiming that IMC was liable for losses and damages sustained by GIC. Although GIC paid Freightplus the full amount for freight, the payment was never remitted to IMC. Consequently, IMC claimed entitlement to a maritime lien against the REBEL, in rem, for unpaid freight charges for its carriage.

Evaluating the COGSA limitation issue first, the district court ruled that the per-package limitation under COGSA is rendered ineffective if the carrier is responsible for an unreasonable deviation from the contract of carriage. Finding that Freightplus did, in fact, cause or contribute to an unreasonable deviation from the contract of carriage, the Court held that Freightplus was not entitled to the COGSA per package limitation, and that it would answer in damages for all losses incurred by GIC due to the transportation errors. The Court considered, among other factors, Freightplus’ failure to deliver the goods at the port named in the Bill of Lading. The Court found that GIC made a prima facie case against Freightplus for committing an unreasonable deviation under COGSA not only because the tugboat was delivered to the wrong destination port, Warri, Nigeria, and not Lagos, but also secondary to Freightplus issuing an erroneous bill of lading.

The district court assessed $1,860,985 in damages against Freightplus in favor of GIC, but also found that IMC was responsible to pay 30% of that amount due to its contributory fault. But the trial court denied IMC’s claim of lien against the REBEL, in rem. The U.S. 5th Circuit affirmed the amount of damages awarded to GIC, as well as the allocation of fault between IMC and Freightplus.  However the 5th Circuit disagreed with the district court’s finding that IMC was not entitled to assert a maritime lien against the REBEL, in rem.

The 5th Circuit set out the well-settled maritime legal principal that that a maritime lien exists in favor of a ship owner over cargo for charges incurred during the course of that cargo’s carriage. Further, the 5th Circuit explained that maritime law permits an action in rem against the cargo itself and, therefore, IMC was entitled to obtain a maritime lien against the REBEL. Despite arguments to the contrary, the lien remained valid because the ocean carrier (IMC) took no action to release any source liable for unpaid freight from liability. The district court indicated that a different standard might apply concerning a carrier’s intent to release a liable source for unpaid freight from liability in the context of an in personam action and an in rem action, but the 5th Circuit disagreed and concluded that the district court erred in barring IMC’s maritime lien against the REBEL.