Himalaya Clause Supersedes Prior Agreements in Fifth Circuit Decision
Royal SMIT Transformers BV v. Onego Shipping & Chartering, BV, 2018 U.S. App. LEXIS 21466, 2018 WL 3669875 (5th Cir. 2018)
By: Blair Boyd
In Royal SMIT Transformers B.V. v. Onego Shipping & Chartering, B.V., No. 17-30543 (5th Cir. 2018), the Fifth Circuit Court of Appeals affirmed summary judgment based on a Himalaya Clause in a multimodal through bill of lading. In 2015, Royal SMIT Transformers (“Royal”) contracted with Central Oceans, USA, LLC (“Central Oceans”) to facilitate the transportation of electrical transformers from the Netherlands to St. Gabriel, Louisiana. The agreement created a multimodal through bill of lading comprised of sea, train and land transportation.[1] Central Oceans, in turn, negotiated separate independent contracts with actual carriers to facilitate the three-leg journey. The bill of lading contained a Himalaya Clause which stated in pertinent part:
[Royal] undertakes that no claim shall be made against any servant, agent, or other persons whose services [Central Oceans] has used in order to perform the Multimodal Transport Contract and if any claim should nevertheless be made, to indemnify [Central Oceans] against all consequences thereof.
Notably, the carriers were not involved in the bill of lading negotiations, and Royal was not involved in the agreements between Central Oceans and the actual carriers. In 2016, Royal and its insurer, sued the actual carriers for $1.6 million in damages to the transformers caused by “excessive vibration” during the transportation. Relying on two Supreme Court opinions[2], the district court granted summary judgment in favor of the actual carriers concluding that “actual carriers who fall within the scope of Himalaya Clauses can rely on those clauses to limit their liability.” Royal appealed.For the first time the Fifth Circuit determined the enforceability of this specific type of Himalaya Clause.[3] Affirming the district court’s decision. The court concluded that the Himalaya Clause did not bar Royal from recovering damages, nor did it prohibit Central Oceans from suing the actual carriers to recover its losses from Royal. Rather, the Himalaya Clause provided an “ordering mechanism” that “regulate[d] who will be responsible to whom.” As a result, the court noted that the Himalaya Clause coincided with COGSA 46 U.S.C. § 30701.Royal argued that it neither negotiated nor agreed to be bound by the Himalaya Clause in the through bill of lading. The Fifth Circuit rejected this argument because Royal accepted all terms of the bill including unnegotiated clauses when the company based its claim on the bill of lading in its complaint. The court also rejected Royal’s argument that other agreements superseded the bill of lading because “the contracts between [actual] carriers and an intermediary do not impact the protections negotiated by that intermediary with the cargo owner.” Furthermore, “the existence of such agreements does not weaken the binding effect of a Himalaya Clause.”Thus, the Himalaya Clause was enforceable, and all claims brought by the cargo owners against the actual carriers were dismissed.[1] A “through bill of lading” refers to a document that entails the terms of a shipping agreement that allows cargo owners to contract with a common carrier for a multimodal transportation in a single transaction. The common carrier, in turn, arranges for the transportation with several actual carriers. See Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14, 125 S. Ct. 385, 160 L. Ed. 2d 283 (2004).[2] Id.; Kawasaki Kisen Kaisha, Ltd. v. Regal-Beloit Corp., 561 U.S. 89 (2010)[3] Royal did not argue the enforceability of the Himalaya Clause, rather Royal argued that the Himalaya Clause was never meant to be enforced. However, for the very first time, the Fifth Circuit addressed whether the Himalaya clause should be enforced anyway.
