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Firm successfully defends charterer in cargo case

On 31 May 2017, the United States District Court for the Eastern District of Louisiana upheld the enforceability of a "covenant not to sue" contained in the Himalaya Clause of a through bill of lading that governed the multimodal shipment of cargo from the Netherlands to the United States.

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 and its customer alleged that the three transformers had sustained damage in excess of $6 million due to "excessive vibration." Suit was filed by the Shipper and its insurers 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 multimodal 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 case is significant to the extent that similar clauses exist in many multimodal through bills of lading and could provide protection to the individual carriers who subcontract with an NVOCC to perform the actual carriage. Obviously, this decision does not protect an ocean 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 ocean 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.

Link to case

If you have any questions concerning this case, or any other aspect of multimodal transportation, please do not hesitate to contact John Musser at jmusser@mrsnola.com.