Tuesday, December 31, 2013

Norfolk Southern Railway Company v James N. Kirby case brief

Norfolk Southern Railway Company v James N. Kirby case brief summary
US, 2004

Kirby and his insured are the claimants.
ICC: non-vessel operating carriers, intermediaries
Hamburg: Carrier
Norfolk: Railway

Kirby → ICC → H → N

Kirby has contracts with ICC in a bill of lading form.
ICC contracts with H through another bill of lading.
H contracts with N

  • Kirby, an Australian manufacturer, hired International Cargo Control (ICC) to arrange for delivery of machinery from Australia to Huntsville, Alabama through end-to-end transportation.
  • Limitation clause: bill of lading (contract) that ICC issued to Kirby designated Savannah, Ga. As the discharge port and Huntsville as the ultimate destination, and set ICC’s liability limitation lower than the cargo’s true value, using the default liability rule in the Carriage of Goods by Sea Act (COGSA) for the sea leg and a higher amount for the land leg.
  • Himalaya clause: the bill of lading also included this clause which extends liability limitations to downstream parties.
  • Kirby separately insured the cargo for its true value with Allianz Inc.
  • ICC hired a German shipping company (Hamburg Sud) to transport the containers which issued its own bill of lading to ICC designating Savannah as the discharge port and Huntsville as the ultimate destination. This also adopted the default rule.
  • Hamburg hired Norfolk Railway to transport the machinery from Savannah to Huntsville.
  • The train derailed causing an alleged $1.5 million in damages.

Procedural Posture
  • Allianz reimbursed Kirby and then joined Kirby in suing Norfolk in a Georgia Federal District.
  • Norfolk argued that Kirby’s recovery could not exceed the liability limitation in the 2 BOL. The district court agreed and granted Norfolk partial summary judgment.
  • Kirby appealed.
  • The court reversed saying that Norfolk could not claim protection under the ICC’s Himalaya clause because it had not been in privity with ICC when that bill was issued and because linguistic specifity was required to extend the clause’s benefits to an inland carrier. It also held that Hamburg was not bound by the Hamburg Sud bill’s liability limitation because ICC was not acting as Kirby’s agent when it received that bill.

  • Whether federal law governs the BOL.
  • Whether Norfolk is entitled to the liability limitation of both BOLs from the Himalaya clause.
  • Whether traditional agency law rather than the Great Northern rule should govern here.

  • Federal law governs the interpretation of the ICC and Hamburg Sud bills.
  • Norfolk is entitled to the protection of the liability limitations in both BOL. The court of appeals erred in concluding that the Himalaya clause requires such linguistic specificity or privity rules. The Herd case simply says that contracts for carriage of goods by sea must be construed like any other contracts: by their terms and consistent with the intent of the parties.
  • The Great Northern rule should rule. There was no traditional indicia of agency between Kirby and ICC.

  • When a contract is a maritime one and the dispute is not inherently local, federal law controls the contract interpretation.
The bills are maritime contracts:
  • To ascertain a contract’s maritime nature, the court looks at the “nature and character of the contract”. The true criterion is whether it has reference to maritime service or maritime transactions.
  • Fundamental interest of maritime jurisdiction is the protection of maritime commerce.
    • The fact that the bills call for the journey’s final leg to be by land does not alter the contracts’ essentially maritime nature. The shore is now an artificial place to draw the line. Cargo owners can contract for transportation across oceans and to inland destinations in a single transaction. The assimilation of land legs into international BOL should not render bills for ocean carriage nonmaritime contracts.
    • According to Kossick, so longs as a bol requires substantial carriage of goods by sea, its purpose is to effectuate maritime commerce, and thus it is a maritime contract.
  • The body of law governing the BOL provides a limitation of liability.
    • The Hamburg and ICC bills are maritime contracts because their primary objective is to accomplish the transportation of goods by sea from Australia to US.
  • Kossick: “fringe benefit”.
  • Through bills of lading: cargo owners can contract for transportation across oceans and to inland destinations in a single transaction.

  • The case is not inherently local.
    • Kossick: When state interest cannot be accommodated without defeating a federal interest, as is the case here, then federal substantive law should govern.
    • The touchstone here is a concern for the uniform meaning of maritime contracts. Applying state law to cases such as this one would undermine the uniformity of general maritime law.
    • Confusion and inefficiency will inevitably result if more than one body of law governs a given contract’s meaning.
ICC bol liability limitation:
  • Himalaya clause: these clauses extend the benefit of its liability limitation to all agents, carriers and all independent contractors whatsoever. These conditions for limitations on liability apply whenever claims relating to the performance of the contract evidenced by this BOL are made against any servant, agent or other person including any independent contractor whose services have been used in order to perform the contract.
    • COAGSA package limitation operates as a default rule, but it also give the option of extending its rule by contract.
    • the plain language of the Himalaya clause indicates an intent to extend the liability limitation broadly and corresponds to the fact that various modes of transportation would be involved in performing the contract. Because it is clear that a railroad was an intended beneficiary of the ICC bill’s broadly written clause, Norfolk’s liability is limited by the clause’s terms.
    • The same liability limitation in a single BOL for international intermodal transportation often applies both to sea and to land. A single Himalaya clause can cover both sea and land carriers downstream.

Hamburg bol libility limitation:
  • Great Northern rule: when an intermediary contracts with a carrier to transport goods, the cargo owner’s recovery against the carrier is limited by the liability limitation to which the intermediary and carrier agreed. The intermediary is not the cargo owner’s agent in every sense, but it can negotiate reliable and enforceable liability limitations with carriers it engages. This is a limited agency rule.
    • Great Northern rule requisite: The Great Northern rule only requires treating ICC as Kirby’s agent for a single, limited purpose: when ICC contracts with subsequent carriers for liability limitations.
    • Limited agency rule rationale:
1) tracks industry practices
2) if liability limitations negotiated with cargo owners were reliable while those negotiated with intermediaries were not, carriers would likely want to charge the latter higher rates, resulting gin discrimination in common carriage,
3) this decision produces an equitable result, since Kirby retains the right to sue ICC for any loss exceeding the liability limitation to which they agreed.

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