ATLP Highlights Blog—Maritime

The Clause Paramount and Himalaya Clause in Two Through Bills of Lading Extend COGSA Limitations to the Ocean Carrier and Inland Rail Carriers

            Recently, in Siemens Energy, Inc. and Progressive Rail, Inc. v. CSX Transp., Inc., __ F. Supp. 3d __ (E.D. Ky. 2020), a district court held that the through bills of lading for an international shipment extended the limitation of liability provisions of the Carriage of Goods by Sea Act (COGSA), 46 U.S.C. § 30701, Note § 1(a), to the rail carrier for the inland leg of the transportation of cargo.  The district court further held that the Covenant Not to Sue contained in the through bills of lading prohibited the Shipper from asserting a claim for cargo damage against the inland rail carrier.

            The Freight Forwarder Issues Two Through Bills of Lading

            Siemens Energy, an affiliate of Siemens AG in the U.S. (Siemens) agreed to sell two electrical transformer to Gallatin Steel (Gallatin) located in Ghent, Kentucky.  The transformers were manufactured in Germany.  Siemens hired Keuhne + Nagel, AG & Co. (K+N) as a freight forwarder to arrange the international shipment of the transformers.  Blue Anchor, a division of K+N, issued two identical bills of lading, providing that Siemens AG was the Shipper and Siemens Energy was the Consignee.  Gallatin was reflected as the Notify Party and Ghent, Kentucky was listed as the Place of Delivery on both bills of lading.  There was a notation “Multimodal Transport only.”

            There were three crucial provisions in both identical bills of lading:

      1. The “Carrier’s Liability” section contained a Clause Paramount providing that COGSA would apply to the entire shipment “so long as the goods remain in the custody of the Carrier or its Subcontractor.”
      2. Second, each bill of lading included a Himalaya Clause providing that COGSA’s limitation of liability provisions would be applicable to the ocean carrier and all subcontracting parties performing services.
      3. Third, each bill of lading incorporated a “Covenant Not to Sue” providing that a Merchant—which would include Siemens AG and Siemens Energy—agreed that “no claim or allegation shall be made against any Sub-Contractor whatsoever” arising out of the transportation of the transformers.

K+N arranged the ocean carriage of the transformers with K-Line aboard the M/V CALIFORNIA HIGHWAY from Germany to Baltimore, Maryland. K+N arranged the land transportation from Baltimore to Ghent, Kentucky with CSX as facilitated by K+N and Progressive Rail.   Afterward, Progressive Rail prepared a bill of lading covering only the rail transport, identifying Progressive as the Shipper and Gallatin Steel as the consignee.

            The Cargo Suffers Damage During the Inland Rail Shipment from Maryland to Kentucky—Siemens Asserts a Claim.

            Siemens asserted that the transformers were in good order and condition when they arrived in Baltimore, but sustained damage during the rail transport to Ghent.   Siemen’s asserted a claim for more than $1.5 million. Siemens and Progressive filed suit against CSX in Kentucky federal court.

            CSX Filed a Motion for Summary Judgment that the Identical Bills of Lading were Through Bills Limiting Liability of CSX as a Subcontracting Carrier for Cargo Damage.

             In the landmark decision of Norfolk S. Ry. Co. v Kirby, 543 U.S. 14, 25-56 (2004), (“Kirby”) the Supreme Court defined a “through bill of lading” as a shipping contract where a shipper “can contract for transportation across oceans and to inland destination in a single transaction.” CSX, also relying upon Supreme Court precedent in Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp., 561 U.S. 89 (2010), (“Regal-Beloit”)  filed a motion for summary judgment against Siemens and Progressive, contending that the two identical K+N bills of lading were through bills, entitling CSX to avail itself of the COGSA limitation of liability provisions.

            The district court acknowledged that the pivotal question of whether CSX was entitled to limit its liability under the bills of lading was whether the bills were “through bills.” The district court examined three factors in its analysis whether the identical bills of lading were through bills of lading.  The factors considered were (i) the final destination on the bill of lading; (ii) the conduct of the parties; and (iii) the method of compensation.   First, the court found that the bills of lading expressly stated that they were for “multimodal transport.”  Second, the court held that it was clear from the documentary evidence that the parties intended to contract for both sea and inland transport to the final Kentucky destination in the bills of lading.  Finally, the court found that the transaction satisfied the third factor and that the bills of lading were unquestionably through bills.

            CSX is Entitled to Limit its Liability Because the Bills of Lading Were Through Bills.

            The court, in reliance on the analysis in Kirby and Regal-Beloit, held that CSX the limitation provisions in the through bills of lading that were not limited to the ocean shipment.  Accordingly, CSX was entitled to the limitation provisions in the bills of lading. The court granted CSX summary judgment, holding that the Covenant Not to Sue provision barred Siemens and Progressive for suing CSX for cargo damage.  The court also held that the Clause Paramount and Himalaya Clause extended the limitation provisions of COGSA to all carriers for the shipment.  Finally, the court denied summary judgment filed by Siemens and Progressive arguing that the bills of lading were not “through” bills.

            The Decision has Been Appealed to the Sixth Circuit.

            On April 10, 2020, Progressive appealed the district court’s decision to the Sixth Circuit.
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