Industry Issues

U.S. Supreme Court Case

Early in 2004, a U.S. Court of Appeals issued a decision regarding cargo liability in the Kirby v. Norfolk Southern case. This case involved a shipment by a non-vessel operating common carrier (NVOCC), which is an entity that is licensed in the U.S. to issue ocean bills of lading but that does not operate any ships (as the name implies.) Instead, the NVOCC purchases space from vessel operating common carriers (VOCC) and acts as the shipper of record to the VOCC, who enters into a contract of carriage with the NVOCC. In the Kirby case, Kirby made arrangements with and received a bill of lading from an NVOCC for transportation from Australia to an interior point in the U.S. The equipment was damaged while being transported by rail in the U.S. and Kirby sued the railroad (Norfolk Southern). The Court found that the ocean carrier's bill of lading was ineffective in applying the normal cargo liability limits to the Norfolk Southern railroad. Further, that the NVOCC's bill of lading was similarly ineffective because Kirby had no contractual relationship with the railroad.

This ruling, if upheld, would have meant that the liability limits in an ocean carrier's bill of lading would not protect the ocean carrier, or its subcontractors, when an NVOCC's customer's cargo is damaged. The case also raised the issue of whether there would be uniform federal maritime law in the U.S. covering such cargo claims or whether there could be a profusion of different state laws being applied. This case was appealed by the railroad to the U.S. Supreme Court.

On March 24, 2004 the World Shipping Council filed an amicus curiae brief with the U.S. Supreme Court in support of Norfolk Southern arguing:

  1. that NVOCCs do act as agents of the shipper for the purpose of binding their shipper customers to the liability limits and terms of the ocean carrier's bill of lading; and,
  2. that the performing carriers are also covered by the limits in the NVOCC's bill of lading.

The Supreme Court of the United States unanimously ruled in favor of both arguments supported by the WSC. Read WSC's brief.

In summary, the Court ruled that:

  • A properly worded Himalaya Clause in an ocean carrier's bill of lading, issued to an NVOCC, protects the ocean carrier's subcontractors from liability to the NVOCC's customer to the same extent that the bill of lading protects the ocean carrier, regardless of the terms of the NVOCC's contract with its customer.
  • An NVOCC acts as an agent for a shipper for the purpose of accepting limitation of liability provisions in an ocean carrier's bill of lading, thereby binding the NVOCC's shipper to the limitations in the ocean carrier's bill of lading.

In its decision, the Court noted the amicus briefs filed by industry, and recognized their importance in helping the Court bring needed clarity and uniformity to this inconsistent area of law and to determine the practical implications of the issues in question.