Who''s Liable Now?

Who''s Liable Now?

Copyright 2004, Traffic World, Inc.

A cargo liability lawsuit that could have far-reaching implications for nonvessel operating common carriers moved a step closer to the U.S. Supreme Court last week as attorneys for Kirby Engineering filed briefs in Norfolk Southern vs. Kirby.

The case, which involves liability for equipment shipped by Kirby and damaged in an August 1997 train derailment, is one of the few in recent years that raised questions of carrier liability under the Carriage of Goods by Sea Act.

After attorneys completed filing briefs, the issues appear to be less clear-cut. "It''s a case that gets more complicated with each round of briefing," said David C. Frederick, one of the attorneys representing Kirby. Cargo liability may be overshadowed by contract interpretation, something the high court usually leaves to lower courts.

Kirby and its insurance company want to collect $1.5 million from Norfolk Southern after an August 1997 derailment damaged 10 containers of machinery that Kirby was shipping to a General Motors plant in Huntville, Ala. Kirby contracted with International Cargo Control, an Australian non-vessel-operating common carrier, to ship the containers. International Cargo contracted with ocean carrier Hamburg Sud.

The railroad argued that it was Hamburg Sud''s subcontractor for inland transportation from Savannah to Huntsville. Its liability for damages is $500 per package, the COGSA limitation in Hamburg Sud''s bill of lading. The ocean carrier extended that liability protection to the railroad under the bill''s "Himalaya clause."

The U.S. Solicitor General asked the Supreme Court to take the case because of conflicting opinions about the status of NVOs from two appellate courts. In a different case, the 9th U.S. Circuit Court of Appeals in San Francisco ruled that a cargo owner is bound to the terms of an ocean carrier''s bill of lading because the NVO was acting as the shipper''s agent.

On the other hand, the 11th Circuit in Atlanta ruled that Kirby could sue Norfolk Southern because it was not bound by the terms of Hamburg Sud''s bill of lading.

"The NVOCC has entered into a contract much like surface freight forwarders have done for the last century," said Stephen B. Kinnaird, one of the attorneys representing the railroad.

Limits of liability are critical in the carrier''s ability to set rates. One of the questions that Norfolk Southern is asking the court to resolve is whether cargo owners that contract with freight forwarders - or NVOs - are bound by the intermediaries'' contracts with the carriers that actually transport the owners'' goods. Kinnaird said there are cases to support that position stretching back to the mid-1800s.

Kirby''s attorneys argue that the Supreme Court should uphold the 11th Circuit''s ruling that the manufacturer was not bound by the terms of Hamburg Sud''s contract. Frederick said that when Norfolk Southern first asked the Supreme Court to take the case, it argued that Kirby was bound to Hamburg Sud''s bill of lading because International Cargo was an agent. Now the railroad has changed its position: Hamburg Sud is the "actual carrier," so it doesn''t matter if the NVO issued a bill of lading or not.

But there is an error in Norfolk Southern''s theory, Frederick says. Hamburg Sud is not the actual carrier. A ship of Blue Star Line, now part of Royal P&O Nedlloyd, carried Kirby''s containers to Savannah under a slot-charter arrangement with Hamburg Sud, but Blue Star never issued a bill of lading. Frederick said that in arranging transportation from Australia to the United States, Hamburg Sud was acting as an intermediary as much as International Cargo was.

"Their position now is that the actual carrier''s bill of lading is the one that really matters. It turns out that the actual carrier in our situation didn''t issue a bill of lading," Frederick said.

No one will predict how the Supreme Court will unravel the competing claims in the case. Kinnaird said that a ruling could have far-reaching implications for NVOs. "I think this is going to be a big deal. It does affect every shipment by a freight forwarder, any one where the intermediary has a carrier liability but is not the actual carrier. That''s a lot of goods."

"It''s difficult to predict how the court''s ruling one way or the other would affect NVOCCs although if the court reverses it, it raises questions about the documents that NVOCCs issue to their customers," Frederick said.

The Supreme Court may take as long as a year to rule in the case, but it is already clear that chains of contractual obligations are as complex as the supply chains they support.