Victory for carriers
A divided U.S. Supreme Court ruled 6-3 and reversed a 9th Circuit Court of Appeals finding that a shipment originating overseas under a through bill of lading is moving under an 'essentially maritime' contract, and as such is subject to the Carriage of Goods at Sea Act (COGSA). (Kawasaki Kisen Kaisha Ltd., et al. v. Regal-Beloit Corp. et al., No. 08-1553, June 21)
Over a dissent written by Justice Sonia Sotomayor and joined by Justices John Paul Stevens and Ruth Bader Ginsburg, the court held the so-called Carmack Amendment, which governs domestic shipments by railroads and motor carriers, does not apply to losses in such instances, even if the damages occur during the inland leg of a through move ' in this case because of a train derailment in Oklahoma.
In a memo to clients, the law firm DeOrchis & Partners noted this means railroads and truckers 'can escape the more expansive liability under Carmack, and so can the ocean carrier. Because the new Supreme Court ruling allows COGSA to trump Carmack, claimants for damage or loss caused by a land carrier during land carriage would nonetheless be limited by the ocean carrier's bill of lading, including the $500 package limitation, the one-year suit time of the COGSA, and, under this latest ruling, the forum selection clause,' DeOrchis wrote.
For example, in this case, the 'K' Line bill of lading specified Tokyo as the forum where disputes would be heard.
The decision resolves a split between the 2nd and 9th circuits and the 4th, 6th, 7th and 11th circuits, noted Chester D. Hooper, an attorney with Holland and Knight, 'allowing uniformity and predictability in the law.'
Reaction to the decision was divided as was the court.
'I'm very disappointed. I think the decision, overall, is bad for shippers,' said George Pezold, attorney and executive director of the Transportation & Logistics Council.
'Most of the loss and damage that occurs on these long, multimodal movements is not on the ship, it is on the inland portion, either on a truck or a railroad' from incidents such as derailments, fires, trucking accidents, thefts and hijackings, he said.
'The effect of this decision is to make it difficult or impossible for many shippers to get redress against the people who are actually causing the loss and damage,' he said. 'I don't think the Supreme Court realizes the public policy aspects of what they are doing.'
But John Kimball of Blank Rome, who was part of the team that represented 'K' Line, said the decision is a welcome one for liner companies and railroads. If the lower court decision had been affirmed it would have resulted in a big change in how they do business, requiring revising bills of lading and insurance coverage, he said.
Kimball did not believe the case was detrimental to cargo interests, saying it 'leaves things where we thought they were' before the 9th Circuit decision.
If the Carmack Amendment were to apply, foreign forum selection clauses forcing a shipper to have a cargo dispute heard overseas would not be enforceable. But Kimball said, 'it's in the bill of lading and it is not like it is a huge surprise. They've agreed to it.'
He said that by having COGSA apply, a carrier's liability is limited, whereas the Carmack amendment has no limit of liability.
'From the carrier point of view, that's a very important thing because the carrier is typically insured based on the application of COGSA and based on the package limit.' Had that changed, it probably would have resulted in increased insurance cost for carriers because they would have had greater exposure.
Hooper said when a shipper enters into an intermodal contract of carriage with a steamship line or non-vessel-operating common carrier, the carrier usually contracts with a railroad or trucker to perform the inland carriage.
It's difficult or impossible for the carrier, he said, to offer the shipper, on behalf of a U.S. railroad or trucking company, full Carmack liability and to provide alternative contractual terms agreed between the carrier and the railroad or trucking company.
'Even the identity of the railroad or trucking company would not be known when the ocean carrier printed its bills of lading. It certainly would not be known by an NVOCC,' he explained. The majority opinion in Regal-Beloit removed the obligation to make a full Carmack Amendment offer to the shipper of cargo in multimodal carriage into the United States.
Federal Maritime Commission Chairman Richard A. Lidinsky Jr. said he was 'pleased to see the court recognize the importance of intermodalism for our nation's transportation system.'
DeOrchis said, 'Ocean carriers should now be in a better position to negotiate for low rates with rail and other surface carriers.'
Pezold said the decision means it will be more difficult for insurers to subrogate claims.'It is not going to be practical at all or realistic to expect people to go to Hong Kong or Shanghai or Barcelona, Spain, to bring a lawsuit, and you are going to be subject to different legal regimes that may or may not be acceptable or favorable in terms of our jurisprudence,' he said.
He believes shippers will see their insurance premiums go up because 'it will be prohibitively expensive or impossible to take on smaller cargo losses, and basically the insurance company is going to have to eat it and it is going to have to go into the premiums.'
Big shippers might be able to get forum selection clauses to their liking, but Pezold said for small importers 'with the capacity situation in the ocean markets right now, many ocean carriers are handing you their own boiler plate and saying take it or leave it, and a lot of these things are not negotiable.'
Sotomayor, in her dissent, suggested the decision was at odds with the proposed international cargo convention called the Rotterdam Rules.
The decade-long drafting process for the convention provided an opportunity for the international community to adopt rules for multimodal shipments that would be uniform for both the ocean and inland legs. 'Instead, the final version of the Rotterdam Rules retained the current system in which the inland leg may be governed by a different legal regime than the ocean leg,' she said. 'Thus, the court's mistaken interpretation not only upsets domestic law but also disregards industry practice as evidenced by carefully calibrated international negotiations.'
Kimball noted the decision only applied to cargo originating outside the United States, and the court did not say how it might decide a case with a through bill of lading originating in the United States. But he said, 'It seems to me a logical extension of the decision to say you would get the same outcome.'