The Maritime Case About a Train Wreck: How it Changed the Legal Landscape and our Practices by Marc S. Blubaugh Benesch, Friedlander, Coplan & Aronoff LLP 41 South High Street, Suite 2600 Columbus, Ohio 43215 Direct Telephone: (614) 223-9382 Facsimile: (614) 223-9330 e-mail: mblubaugh@beneschlaw.com On November 9, 2004, the United States Supreme Court issued a unanimous decision in Norfolk Southern Railway Company v. James N. Kirby, Pty Ltd., 543 U.S. 14 (2004) that appeared to provide much needed certainty to both the providers and commercial users of international ocean shipping services. The case generated voluminous analysis and extensive discussions among members of the transportation bar as well as intermodal industry stakeholders. Most significantly, the Court found that ocean carriers as well as ocean transportation intermediaries may limit an inland surface carrier’s liability for cargo claims by way of a Himalaya Clause contained in a through bill of lading. In addition, the Court recognized that admiralty jurisdiction governs disputes where the transportation in question is substantially by ocean. Perhaps most notably, however, the Court acknowledged that practical, real-world considerations affecting the ocean shipping industry help drive the outcome of this seminal decision. Factual Background James N. Kirby, Pty Ltd. (“Kirby”), the shipper, sold ten (10) ocean containers of high-value machinery (the “Machinery”), worth in excess of $1.5 million, to a General Motors plant located near Huntsville, Alabama. Kirby hired International Cargo Control (“ICC”), an ocean transportation intermediary, to arrange for the transportation of the Machinery from Australia to Alabama. Kirby and ICC did not have an existing master transportation agreement in place. As a result, the parties’ relationship was memorialized in a through bill of lading (the “ICC Bill of Lading”) issued by ICC, naming Sydney, Australia as the point of origin, Savannah, Georgia as the port of discharge, and Huntsville, Alabama as the ultimate destination. Kirby had the opportunity on the ICC Bill of Lading to declare the value of the ten (10) containers of machinery. However, Kirby declined to do so. As a result, pursuant to the terms of the ICC Bill of Lading, Kirby would be subject to a $500 per package limitation of liability authorized by the Carriage of Goods by Sea Act (“COGSA”). Naturally, the fee charged by ICC to Kirby was lower because ICC’s liability exposure was limited. As is the case with many shippers, Kirby’s interest in obtaining cost- effective transportation likely trumped any concern about ICC’s limitations of liability, particularly since Kirby had insured the Machinery up to its true, full value through Allianz Australia Insurance Ltd. (“Allianz”). The ICC Bill of Lading also contained a marginally more generous limitation of liability for inland transportation equivalent to 666.67 Special Drawing Rights per package or unit or two Special Drawing Rights per kilogram of gross weight of the goods lost or damaged, whichever is higher. Finally, the ICC Bill of Lading also contained a Himalaya Clause that read:
These conditions [for limitations on liability] apply whenever claims relating to the performance of the contract evidenced by this [bill of lading] are made against any servant, agent or other person (including any independent contractor) whose services have been used in order to perform the contract. ICC then proceeded to select Hamburg Südamerikanische Dampfschiflahrts-Gesellschafft Eggert & Amsinck (“Hamburg Sud”) to serve as the ocean carrier that would perform the actual ocean transportation of the Machinery. The relationship between ICC and Hamburg Sud was memorialized by an ocean bill of lading issued by Hamburg Sud to ICC (the “HS Bill of Lading”). Like the ICC Bill of Lading, the HS Bill of Lading named Sydney, Australia as the point of origin, Savannah, Georgia as the port of discharge, and Huntsville, Alabama as the ultimate destination. The HS Bill of Lading also contained the $500 per package limitation of liability authorized by COGSA and included a Himalaya Clause extending the benefit of the Hamburg Sud limitation of liability to “all agents . . . (including inland) carriers . . . and all independent contractors whatsoever.” Hamburg Sud retained Norfolk Southern Railroad (“Norfolk Southern”) to transport the containers holding the Machinery from the port in Savannah, Georgia, to final destination in Huntsville, Alabama. Unfortunately, while the Norfolk Southern was transporting the Machinery, the train derailed en route to destination, causing significant damage to the Machinery. Procedural Background Upon learning of the accident, Kirby made a claim with its own insurer, Allianz, and was eventually reimbursed in the amount of $1.5 million. Kirby and Allianz then sued Norfolk Southern in the United States District Court for the Northern District of Georgia on various tort and contract theories. Norfolk Southern defended the action by, among other things, claiming that the plaintiffs could not recover in excess of the limitations of liability contained in the ICC Bill of Lading and the HS Bill of Lading. The District Court eventually entered summary judgment in favor of Norfolk Southern on this issue, finding that Norfolk Southern’s liability was in fact limited to $500 per container. Kirby and Allianz appealed to the United States Court of Appeals for the Eleventh Circuit, where a divided panel reversed the District Court. The Court of Appeals narrowly construed the two bills of lading and also concluded that ICC had not been acting as Kirby’s agent when Hamburg Sud issued the HS Bill of Lading. The U.S. Supreme Court accepted certiorari and unanimously reversed the Court of Appeals—finding that Norfolk Southern’s maximum exposure for the $1.5 million loss was $5,000 ( i.e ., $500 per container). Himalaya Clauses Need Not Be Strictly Construed The Court began its analysis of the two bills of lading by noting that federal law would control the contract interpretation due to the “more genuinely salty flavor” of the transaction. In other words, because the transportation was substantially by ocean, and the dispute was not inherently local, federal law applied. The Court determined that both the ICC Bill of Lading and the HS Bill of Lading were maritime contracts because their primary purpose was to accomplish ocean transportation of the Machinery. Local interests in Australia or Alabama, while present, were not adequately articulated by Kirby. Moreover, the Court placed significant weight on the need for uniformity. As the Court noted, the rules and limits of maritime law should not be determined by the fifty states. Otherwise, international, intermodal commerce is subject to confusion and inefficiency.
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