Don t Sail Too Close to the Wind: Understanding the Interplay of Shipping Documents in Multimodal Transactions. Stephanie S.

Transcription

1 Don t Sail Too Close to the Wind: Understanding the Interplay of Shipping Documents in Multimodal Transactions Stephanie S. Penninger

2 Introduction In intermodal freight transportation, multiple shipping documents can and often do govern a single shipment These documents may allow third parties to bring claims against carriers, and carriers to assert defenses against nonparties Companies need to know how the terms within those documents might affect their liability in the event of a cargo calamity

3 Why is this topic important? Companies can minimize exposure or dispose of an opposing party s cargo claim by strategically using certain provisions in various governing bills of lading: Limitation of liability Covenants not to sue Forum selection clauses Statutes of limitation On the flip side, being unaware could result in unexpected exposure to liability

4 Determining Liability The extent of liability is determined by governing contracts and which federal statutes apply Carmack Amendment Carriage of Goods by Sea Act (COGSA) Court cases illustrate the need for intermodal transportation companies to understand all of the shipping documents governing a particular shipment

5 Governing Statutes: Carmack 49 U.S.C (rail) and (motor carrier) Applies to interstate rail and motor carriers Places full liability on the receiving carrier, or initial carrier; this initial carrier must issue a bill of lading accepting responsibility for the entire trip Liable for actual loss or injury Statute of limitations at least 2 years 1 day and claims period at least 9 mos. (more liberal) Venue is where loss or damage occurred

6 Governing Statutes: COGSA Carriage of Goods by Sea Act, 46 U.S.C note Applies to ocean carriers from loading to discharge Limits liability to $500/package or customary freight unit unless the shipper declares the nature and value of the goods and inserts that in the bill of lading Statute of limitations 1 year with presumptive claim at time of delivery or 3 days after Benefits of the liability limit can be extended to inland carriers through Himalaya Clauses and beyond tackle to tackle period via a Clause Paramount

7 Key Case Holdings Ocean carriers and NVOCCs can bind shippers to lower liability for subcontractors Forum selection clauses, covenants not to sue and statutes of limitation may be enforceable against third party claims COGSA applies to domestic portions of international shipments where: The ocean component of the transportation is substantial There is an inbound (overseas import) multimodal shipment under a through B/L There is an outbound (overseas export) multimodal shipment under a through B/L beginning with a Carmack-defined receiving carrier plus a substantial sea component

8 Norfolk Southern R.R. v. James N. Kirby, Pty Ltd., 543 U.S. 14 (2004). Can transportation intermediaries bind shippers to lower liability for subcontractors?

9 Norfolk Southern R.R. v. James N. Kirby, Pty Ltd. Kirby (shipper) shipped 10 containers of machinery from Australia to GM in Huntsville, Alabama Kirby contracted with ICC (an OTI) to arrange for delivery. ICC issued a bill of lading to Kirby ICC contracted with Hamburg Sud as ocean carrier to transport the cargo. Hamburg Sud issued its own bill of lading to OTI Hamburg Sud contracted with Norfolk Southern to transport the goods from the Savannah port to Huntsville (no B/L). The train derailed en route, causing $1.5 million in damage Kirby sued Norfolk Southern for the damage to the equipment Norfolk Southern responded that its liability was limited by Himalaya Clauses in both bills of lading

10 Himalaya Clauses in the B/Ls ICC s Himalaya Clause extended COGSA s $500/package limitation for sea carriers in the B/L to downstream subcontractors: any servant, agent, or other person (including any independent contractor) whose services have been used in order to perform the contract. Hamburg Sud s Himalaya Clause extended the lower $500/package limitation downstream to inland carriers: all agents... (including inland) carriers... and all independent contractors whatsoever.

11 Lessons Learned Shipper s recovery from rail carrier for cargo damage during inland segment of inbound multimodal shipment was limited to $500 per pkg. by the Himalaya Clause in both B/Ls Even though Shipper was not a party to ocean bill of lading B/Ls called for substantial carriage of goods by sea and were essentially maritime contracts Intermediary is a limited agent of the shipper who can negotiate reliable and enforceable limitations of liability with downstream carriers that are binding on the shipper. Promotes efficient and uniform maritime contracting by upholding through B/L terms

12 Are forum selection clauses and covenants not to sue enforceable against third parties claims?

13 Kawasaki Kisen Kaisha Ltd. v. Regal Beloit Corp., 130 S. Ct (2010) Regal-Beloit (shipper) hired K-Line (ocean carrier) to transport its cargo from China to U.S. K-Line issued 4 through B/Ls covering entire shipment that: Contained Himalaya clauses extending defenses and limitations of liability to K-Line s subcontractors Specified that COGSA governs entire journey Forum selection clause requiring suit to be brought in Tokyo K-Line hired Union Pacific railroad for the land leg Derailment occurs in Oklahoma and destroys cargo Regal-Beloit sues UP and K-Line in U.S. federal Court UP and K-Line move to dismiss based on venue Regal-Beloit argues Carmack Amendment Trial Court agrees with UP but 9th Circuit reverses split in circuit authority

14 Lessons Learned Carmack does not apply to a shipment originating overseas under a through B/L Carmack applies only to a receiving surface carrier Receiving carrier means carrier that accepts tender from the shipper Promotes Carmack goal of giving shippers comfort in knowing a single surface carrier is responsible for safe delivery of its cargo irrespective of whether delivering or connecting carriers handle some of the carriage UP did not receive the cargo directly from Regal-Beloit (and K-Line is not a surface carrier) Regal-Beloit must litigate in Japan

15 Fubon Ins. Co. LTD. v. OHL Int l, 2014 AMC 1078 (S.D.N.Y. 2014) Lite-On companies (Shipper) engaged OHL Xiamen, an OHL International company (NVOCC), to assist with booking a shipment of optical devices from China to Buffalo, New York under OHL Xiamen s House B/L OHL Xiamen engaged COSCO to transport the shipment by container ship pursuant to COSCO s B/L COSCO sub-contracted with Evans, a trucking company, for the inland transport of the cargo from the Port of New York to Buffalo During the inland portion of the transport, the goods were stolen from a parking lot in New Jersey Lite-On and its subrogated underwriters sued OHL International under OHL International s House B/L for breach of contract Lite-On and its subrogated underwriters sued Evans, as COSCO s subcontractor, for breach of contract, premised on COSCO s bill of lading OHL International, not a party to COSCO s B/L, sued Evans for negligence, indemnity and contribution

16 The merchants agree to be bound by the terms and conditions of this Bill of Lading as if each had personally signed this Bill of Lading.

17 "Merchant" includes the consignor, the shipper, the receiver, the consignee, the owner of the Goods, the lawful holder or endorsee of this Bill of Lading, or any other person having any present or future interest in the Goods or this Bill of Lading, or anyone authorized to act on behalf of any of the foregoing. (2) The Merchant undertakes that no claim or legal action whatsoever shall be made or brought against any person by whom the carriage is performed or undertaken (including, but not limited to, the Carrier's servants, agents or Sub-contractors), other than the Carrier, which imposes or attempts to impose upon any such person, or any vessel owned or operated by such person, any liability whatsoever in connection with the Goods or the carriage thereof whether or not arising out of negligence on the part of such person.

18 (1) This Bill of Lading is governed by the laws of the People's Republic of China. All disputes arising under or in connection with this Bill of Lading shall be determined by the laws of the People's Republic of China and any action against the Carrier shall be brought before the Shanghai Maritime Court or other maritime courts in the People's Republic of China, as the case may be.

19 Lessons Learned Lite-On and its subrogated insurers were bound by COSCO s B/L as merchants. Thus, the covenant not to sue, also set forth in COSCO s bill of lading, barred Lite-On and its insurers from suing Evans trucking as COSCO s subcontractor Although it did not contract with COSCO, OHL International fell within the definition of merchant in COSCO s B/L as the shipper s agent and, therefore was precluded from suing Evans because of the covenant not to sue Court dismissed OHL International s claims against COSCO because the forum selection clause in the COSCO B/L, to which OHL International was bound, required the suit to be brought in the maritime courts in the PRC

20 Clevo Co. v. Hecny Transp., Inc., 715 F.3d 1189 (9 th Cir. 2013) Are statutes of limitation enforceable against third parties claims?

21 Clevo Co. v. Hecny Transp., Inc. Clevo contracted with Amazon to ship computer parts to Brazil using Hecny Shipping Group to arrange the multimodal shipments Contracts between Clevo and Amazon and Clevo and Hecny Shipping Group did not contain a statute limiting the time for filing suit B/Ls issued by NVOCC contained 1 year SOL and Himalaya Clause extending it to: Every... servant, agent and sub contractor Computer parts were misdelivered before Amazon had paid Clevo, so Clevo sued Hecny Shipping Group for payment Under Kirby, court extended benefit of the 1 year SOL in B/Ls to freight forwarder as agent of the NVOCC, barring Clevo s claims

22 CNA Ins. Co. v. Hyundai Merch. Marine Co., 747 F.3d 339 (6 th Cir. 2014) Can independent rail carriers invoke the benefit of the covenant not to sue in a service contract to which they are not a party? Does COGSA apply where cargo is damaged on the inland segment of an outbound multimodal shipment under a through B/L?

23 CNA Ins. Co. v. Hyundai Merch. Marine Co., Ltd. Glass used in LCD flat-screen televisions and computer monitors was damaged during the rail portion of its intermodal transport from Kentucky to Taiwan The transport originated with a land movement under a straight bill of lading by truck between Harrodsburg and Louisville CNA, the shipper s subrogated insurer, filed a breach of contract suit against two of the rail carriers involved in the inland portion of the transport: Norfolk Southern and BNSF Both rail carriers were subcontractors of ocean carrier, Hyundai, and governed by an Intermodal Transportation Agreement between Hyundai and the railroads, which incorporated the railroads tariffs containing an option to select Carmack-based liability Neither rail carrier had negotiated or signed the service contract between the shipper and Hyundai

24 Hyundai s Service Contract Hyundai s service contract contained a covenant not to sue prohibiting suit against its subcontractors, including rail carriers [N]o claim shall be made against any of [Hyundai] s Subcontractors or any Subcontractor s Subcontractor. Another provision specifically provided for Hyundai s liability for cargo damage by a subcontractor

25 Lessons Learned The two rail carriers were third party beneficiaries of the service contract because transporting the glass involved substantial overland carriage, and CNA and Hyundai must have anticipated that the rail carriers services would be required The rail carriers could invoke the benefit of the covenant not to sue in the service contract, precluding suit against them as Hyundai s subcontractors Although intended beneficiaries of the service contract, the court decided that the two rail carriers were not required to perform any of the obligations owed to CNA or Hyundai in the service contract Thus, CNA could not maintain breach of contract claims against the two rail carriers

26 COGSA Considerations Court found that Carmack Amendment did not apply to the road or rail leg of an intermodal overseas export shipped under a single through B/L (prevailing trend) Applied Clause Paramount in the service contract, which extended COGSA inland, but, by its terms, only when in Hyundai s possession. Thus, ended up applying Carmack to rail carriers anyway under the service contract and not COGSA because goods damaged while in rail carriers possession (not Hyundai s) When the shipment begins with a Carmack-defined receiving carrier, Carmack still may not apply to a multimodal through bill shipment with a substantial sea component

27 Practical Takeaways Considerations for shippers: Refuse to limit liability or accept Himalaya clauses Understand extent to which you are bound by an ocean carrier s B/L Act quickly when making claims and filing suit (assume shortest SOL applies) Negotiate low transportation rates and buy separate insurance on the market to cover any gaps in coverage Considerations for intermediaries: Carefully limit liability to shipper Select carriers with liability limitations no greater than your own Understand extent to which shipper is bound by an ocean carrier s B/L Considerations for inland carriers In some jurisdictions you may be able to enjoy the benefit of COGSA s 1 year statute of limitations in the ocean B/L (do not concede 2 year SOL applies) In some jurisdictions you may have benefits of COGSA $500 per pkg. limitation, covenants not to sue and forum selection clauses in ocean B/L Consider contracting directly with shipper to control applicable limitation of liability and offer full value liability protection

28 Thank You Stephanie S. Penninger Benesch, Friedlander, Coplan & Aronoff LLP One American Square, Suite 2300 Indianapolis, Indiana