The case of Kirby: ‘a maritime case about a train wreck’

727 Sturley, ‘An Overview of the Considerations Involved in Handling the Cargo Case’ (n 109).

728 Charles S Donovan and Jill M Haley, ‘Who Done It and Who’s Gonna Pay? Rights of Shippers and Consignees against Non-Ocean Carriers Performing Part of a Contract of Carriage Covered by a Through Bill of Lading’ (1998) 7 Journal of International Law and Practice 415.

729 Gebr. Bellmer KG v Terminal Services Houston Inc. (1983) 711 F.2d 622.

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The question in Norfolk Southern Railway Company v James N. Kirby was: can a train company rely on a Himalaya clause if participating in a multimodal carriage of goods? In the Kirby case, there were two bills of lading issued. Both contained a Himalaya clause. The train company was not a party to both bills of lading. The court allowed the train company to benefit from the exclusion in the bill of lading. The facts are as follows:

 The parties were Kirby, a manufacturer from Australia and ICC, a freight-forwarder;

 the scope of the contract was transporting ten packages of machinery;

 the port of loading was Sidney, Australia;

 the port of unloading was Savannah, Georgia, United States;

 the place of delivery was an inland city in Alabama;

 two bills of lading were issued, one by the freight forwarder, ICC, to the shipper, Kirby, and one by the carrier, Hamburg Sud, to ICC. Both bills extended “beyond the tackles”, and included both sea and land leg. The two bills included provisions limiting the liability of the freight forwarder and carrier respectively, as well as other parties assisting in the performance of the contract of carriage;

 the train involved in the land leg derailed causing $1.5 million of damages. Consequently, Kirby sued the Railway (Norfolk), who claimed coverage under the limitations of liability in both the ICC and Hamburg Sud bills of lading.

The Eleventh Circuit held that Norfolk could not claim protection under the Himalaya clause in the first contract, the ICC bill. They excluded from the protection parties such as Norfolk that had not been in privity with ICC. The Court confirmed that “a special degree of linguistic specificity is required to extend the benefits of a Himalaya clause to an inland carrier”.⁷³⁰ The eleventh circuit strictly followed the route set by the Herd case.

The case went to the Supreme Court, who held that contracts for the carriage of goods by sea must be construed like any other contracts: by their terms and consistent with the intent of the parties.⁷³¹ The court had to address two different problems. The first regarded Admiralty jurisdiction and the second the attribution of liability. The second problem is of immediate interest for this thesis.

The Court’s reasoning rested on three grounds. First, the need for the parties involved

730 Kirby (n 7).

731 De la Mare (n 120).

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in the carriage contracts to be able to rely on their contracts. Second, the need to retain a structure of interaction in this area that is consistent with the statutory and decisional law promoting non-discrimination in common carriage is necessary. Third, for equitable reasons, the shipper should be allowed, in cases such as Kirby, to sue the forwarder for any loss that exceeds the liability limitation they agreed upon.⁷³² As Costabel states:

Answering in the positive, the Kirby Court announced three rules. First, the land segments of multimodal transports fall under admiralty jurisdiction unless the ocean segment is ‘insubstantial’ (the ‘Jurisdiction Rule’) Second, Himalaya clauses, properly drafted, extend downstream to all sub-carriers, because the contemplation of various modes of transport means that the parties must have anticipated that a land carrier’s services would be necessary in performing the contract (the ‘Beneficiary Rule’). Third, Himalaya clauses extend upstream to the shipper (not party to a sub-carrier’s bill of lading) only as far as limitations of liability are concerned”. For anything else, there is no relation of agency between the shipper and the carrier (the

‘Agency Rule’).⁷³³

Before the Kirby case, the law considered an intermodal contract to be a mixed contract where part was maritime and therefore governed by maritime law and part was land (involving inland carriers) governed by land law. However, the Kirby case changed the legal approach towards intermodal contracts in cases were a bill of lading issued by the carriers is involved. The Kirby case holds that if there is a bill of lading governing a maritime leg, the contract also requires a land leg so the contract has to be considered maritime as a whole. As stated by the Court regarding the case:

The conceptual approach vindicates that interest by focusing the Court’s inquiry on whether the principal objective of a contract is maritime commerce. While it may once have seemed natural to think that only contracts embodying commercial obligations between the "tackles" (i.e., from port to port) have maritime objectives, the shore is now an artificial place to draw a line. Maritime commerce has evolved along with the nature of transportation and is often inseparable from some land-based obligations.

The international transportation industry has moved into a new era, in which cargo

732 Ibid.

733 Attilio M. Costabel ‘Himalaya Strain?: A Forensic Examination of Norfolk Southern Railway Co. v James N Kirby, Pty Ltd and Doe v Celebrity Cruises, Inc.’ 29 Tul. Mar. L.J. 217 2004–2005.

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owners can contract for transportation across oceans and to inland destinations in a single transaction. The popularity of an efficient choice, to assimilate land legs into international ocean bills of lading, should not render bills for ocean carriage non-maritime contracts. Lower court cases that appear to have depended solely on geography in fashioning a rule for identifying maritime contracts are inconsistent with the conceptual approach required by this Court’s precedent.⁷³⁴

In this case, the United States Supreme Court took a significant step forward in third party protection making clear that the maritime nature of the bill of lading cannot be altered by multimodal element. Kirby express the concept that

The Kirby Court’s decision made it clear that the maritime character of an ocean bill of lading is not altered by multimodal components … The maritime ‘nature and character’ of the bill of lading contract was a preeminent consideration in Kirby … The lesson of Kirby is that geography has no place in the maritime contract analysis, because that analysis must be conceptual, not spatial.⁷³⁵

The conceptual approach articulated by the Court in this case focuses upon the purpose of the contract and mandates if that “purpose” is to “effectuate maritime commerce”, it is a maritime contract.⁷³⁶ In Kirby, the judges stated:

We recognise that our decision does no more than provide a legal backdrop against which future bills of lading will be negotiated. It is not, of course, this court’s task to structure the international shipping industry. Future parties remain free to adapt their contracts to the rules set forth here, only now with the benefit of greater predictability concerning the rules for which their contracts might compensate.⁷³⁷

It is believed that Kirby authority will go much further than the Court had anticipated.

Kirby did indeed create a new, modern structure for the international shipping future. The case

734 Kirby (n 7). As shown by Carl R Neil, ‘Maritime Contract Law Moves Inland: The Kirby Decision’ (Lindsay, Hart, Neil & Weigler LLP, 2011) <http://lindsayhart.com/wp-content/uploads/2010/10/Neil_Martime-Contract-Law.pdf> Accessed 3 September 2014.

735 Wyatt (n 81)

736 Ibid.

737 Sweeney (n 17).

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also changed the way of evaluating third party protection (as discussed previously in Chapter 2), and introduced the idea of substantial carriage of goods by sea.⁷³⁸

Gurley contends that prior to Kirby, the general principle was “parties may benefit when properly described, even when not specifically listed in the clause, provided that they at least belong to a readily-identifiable class of beneficiaries”.⁷³⁹ Kirby expanded Himalaya clause coverage for pragmatic reasons. If the language of the Himalaya clause is plain, and if it extends to anyone whose services contribute to the performance of the contract, and the contract clearly contemplates more than ocean carriage, the terms of the bill of lading may be extended.⁷⁴⁰ Justice O’Connor shrewdly noted that, after Kirby, drawing a line at the shore is essentially artificial.

Therefore, accepting that, as Kirby states, drawing distinctions at the shoreline is somehow artificial, then the same must be said for the legal implications and protection that follow. Kirby looks at the problem from multimodal perspective, and this work extends it to a supply chain perspective. It is believed that, although Kirby is a good foundation, the conceptual reason to extend the protection has to go even further accepting that the international transportation industry has indeed moved into a new era. (i.e. the multilateral common enterprise).