Whitesea v. El Paso Rio Clara

by Peter F. M. Jones (Paterson, MacDougall LLP)

Owners of a vessel issued bills of lading for cargo loaded in Brazil for discharge in the United States and the Dominican Republic. The bills of lading contained a Himalaya Clause, a paramount clause that applied US COGSA (shipments to the US) and the Hague Rules (the shipment to the Dominican Republic), and an exclusive English jurisdiction and law clause. Following a grounding off the Dominican Republic, owners of the vessel declared general average. Subsequently a general average adjustment was delivered. Brazilian cargo interests and their subrogated insurers commenced action against owners in Brazil, which is not a party to the Hague Rules. The charterers, the vessel’s manager, and other third parties engaged by the charterers to provide services in connection with the carriage were also named as defendants. The claim alleged that services for the carriage of the cargo were subject to Brazilian consumer protection legislation that imposed strict liability on the defendants. (For a previous decision by the Brazilian courts on the primacy of Brazilian consumer protection legislation over the provisions of an international convention for the carriage of goods. See:
http://www.forwarderlaw.com/library/view.php?article_id=171 )

Owners brought an action in the English courts for an anti-suit injunction against the cargo interests and their subrogated insurers (the defendants) on the ground that the Brazilian action was a breach of the exclusive jurisdiction clause. The defendants admitted that owners were entitled to an anti-suit injunction against the Brazil action, but disputed that the injunction should extend to the Brazilian claims against the third parties.

The defendants claimed that whenever a third party under the Himalaya contract performs carriage functions, the Himalaya contract is a "contract of carriage" within the meaning of the Hague Rules. In their submission the Himalaya Clause could not protect the third parties as the blanket immunity conferred by the covenant not to sue in the Himalaya Clause was contrary to the provisions of Article III Rule 8 of the Hague Rules. This Rule provides:

8 . Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to, or in connection with, goods arising from negligence, fault, or failure in the duties and obligations provided in this article or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect. (emphasis added)

According to the defendants, once a third party is performing "carriage" obligations then, even though the third party is not actually a party to the bill of lading contract, the Himalaya contract is in itself a contract of carriage subject to the Hague Rules. The covenant not to sue that is part of in the first part of the Himalaya clause, and which confers a blanket immunity upon third parties, is contrary to the Hague Rules to which the Himalaya contract is subject.

The trial judge rejected this argument, holding that the covenant not to sue granted an exceptional right, not granted to any other party, to enforce a complete prohibition on any suit by holders of the bill against third parties within the clause. The trial judge relied upon comments by another English judge that the function of the Himalaya clause was:
"to prevent cargo owners from avoiding the contractual defences available to the carrier (typically the exceptions and limitations in the Hague-Visby Rules) by suing in tort persons who perform the contractual services on the carrier's behalf."

The trial judge referred to a decision of the House of Lords (the highest court in England) in the case of the STARSIN that held a Himalaya clause did confer a blanket immunity on a third party who was not directly a party to the contract and that as a result the provision was contrary to Article III rule 8. The trial judge distinguished the STARSIN case as the Himalaya Clause was worded differently, the difference being that the Clause “deemed” all parties supplying services to the carrier to be parties to the contract in the bill of lading. As parties to the bill of lading contract their rights were limited by Article III Rule 8.

So the result in Whitesea v. El Paso Rio Clara confirms that a covenant not to sue in the Himalaya clause still serves a useful purpose under the Hague Visby Rules. But, if the Rotterdam Rules come into force it will not be effective to protect maritime performing parties. The Rotterdam Rules entitle these parties to the protections of the Rules, but they also prohibit any clause that lessens their liabilities under the Rules. Presumably it would be effective to protect other performing parties, such as an inland carrier.

For more a comprehensive commentary on the Rotterdam Rules see other Forwarderlaw articles:
...by the author here;
...by Steve Block here;
... and by Gavin Magrath here and here.
For more on their interaction with the Himalaya Clause click here.

January 21, 2010