Containerized shipping is the product, in part, of a vision shared by shipping industry professionals from three modes. The operational and administrative advantages of freight that is pre-situated, pre-packaged, and often pre-consolidated are enormous from a variety of perspectives, not the least of which is the ease and convenience of intermodal operations.
With modern-day volumes and shipping practices, it is now difficult to imagine a shipping world limited to bulk and break-bulk processing. Years in the current environment have demonstrated many advantages probably not predicted even by those who first contemplated it. In the 1950s, few were aware of the enormous role ocean transportation intermediaries would play in an increasingly complex and option-oriented shipping infrastructure. The challenging but essential tasks of surface and ocean freight forwarders, non-vessel operating common carriers (“NVOCCs”), surface transportation brokers, shipper associations and other transportation facilitator species would be significantly more difficult – if not impossible – absent containerization. While transportation security requirements of the post-9/11 era have imposed trying circumstances on all transportation service providers, the cost and efforts would be dramatically higher were freight not segregated into organizable and traceable subunits.
Containerization’s primary benefit, manifested in terms of cost savings, expedience, and convenience, is the foundation of intermodalism. The shipping world is becoming (some would argue has fully become) a vastly intertwined complex of shippers, intermediaries, carriers, numerous service providers and, yes, lawyers. This seamless web is founded on new premises which should define various participants’ rights, obligations and expectations.
While containerization has reduced the level of risk inherent in all modes of transportation, the movement of freight will never be peril free. The time has come for federal transportation liability law to modernize compatibly with the industry it governs. The time has come for a uniform American principle regarding connecting surface carrier liability that will predictably apply to international and interstate transit. The U.S. Supreme Court’s November 2004 decision in Norfolk Southern Railway Co. v. James N. Kirby, PTY Ltd., d/b/a Kirby Engineering, and Allianz Australia Insurance Limited pronounces that new principle.
This paper analyzes Kirby in the context of its likely impact on intermodal shipping relationships, including pre-existing law governing the same. It reviews Kirby’s particulars with a focus on how containerization’s impacts created industry ambiguities which federal law properly clarified, and concludes with forecasts as to how the decision might affect international shipping as a whole.
Kirby’s fact pattern is conveniently simple for purposes of creating and explaining significant new law. Shipper Kirby purchased and arranged for transit of ten containers of industrial equipment to be shipped from its point of manufacture in Australia to Huntsville, Alabama. Kirby engaged Australian freight forwarder International Cargo Control (“ICC”) to arrange transit. ICC issued to Kirby a through bill of lading naming ICC as carrier of record. The ICC bill of lading, in accordance with the U.S. Carriage of Goods by Sea Act, 46 USC App. §1303 et seq (“COGSA”), limited ICC’s liability for freight lost or damaged at sea to $500.00 per package, and to a slightly higher amount, 666.67 Special Drawing Rights, for loss/damage incurred during surface transit. It also contained a standard Himalaya Clause whereby that limitation of liability was extended to “any servant, agent or other person (including any independent contractor) whose services have been used in order to perform the contract [i.e., the bill of lading].”
In turn, ICC engaged ocean carrier Hamburg Süd to effect the ocean transit. Hamburg Süd issued its own through bill of lading to ICC, naming itself as carrier and ICC as shipper of record. Kirby was not a party to the Hamburg Süd/ICC bill of lading. Indeed, Kirby may not even have known which steamship line ICC had engaged, or the contractual terms which would govern transit of Kirby’s freight.
The Hamburg Süd bill of lading also contained a Himalaya Clause and limitation of liability provision. It is procedurally significant that Hamburg Süd’s limitation of liability was consistently $500.00/package regardless of the point (or mode) when a loss occurs.
Hamburg Süd engaged the Norfolk Southern Railroad to transport Kirby’s freight from the Port of Savannah (where the steamship line discharged it after successful ocean transit) to Huntsville. A train derailment caused approximately $1.5 million in damage to the freight en route to its final destination.
Kirby’s insurer, Allianz Australia, paid Kirby the freight’s full value, and sued the railroad in subrogation. The U.S. District Court for the Northern District of Georgia granted the Norfolk Southern’s motion for partial summary judgment, holding that the railroad’s liability was limited to $500.00 per package. A divided panel of the Eleventh Circuit reversed on the ground that the shipper and surface carrier were not in privity of contract. Moreover, the Court of Appeals found that “a special degree of linguistic specificity is required to extend the benefits of a Himalaya Clause to an inland carrier.” Lastly, the Eleventh Circuit concluded that Hamburg Süd’s limitation of liability provision could apply to Kirby “only if ICC was acting as Kirby’s agent when it received Hamburg Süd’s bill.”
Recognizing a split in the circuits on this issue, the high court granted Norfolk Southern’s petition for certiorari.
In the few months since its issuance, Kirby has garnered enormous attention and generated considerable debate in transportation law and industry circles. However, most consideration is devoted primarily, if not exclusively, to the opinion’s conclusions regarding extension of limitation of liability provisions to connecting carriers. To ignore or dismiss as dicta Kirby’s statements regarding admiralty jurisdiction is to risk losing sight of a major component of the Supreme Court’s orientation in this case. True, the case’s principal impact regards applicability of Himalaya Clause protection to connecting surface carriers. However, points made in the lengthy explanation of the court’s basis of jurisdiction directs, at least in part, how future federal courts will consider and decide intermodal issues.
The Kirby opinion opens with the seemingly paradoxical statement: “This is a maritime case about a train wreck.” That the case pointedly is an admiralty decision at the Supreme Court’s sua sponte instance is significant because it demonstrates jurisprudential recognition of international transportation’s evolving nature. Kirby’s jurisdictional pronouncements uncover the apparent illogic of a land-based accident giving rise to admiralty jurisdiction that is intended to be precedential.
The parties did not place admiralty jurisdiction at issue in the trial or appellate courts, the matter clearly being subject to federal diversity jurisdiction. However, Kirby objected to federal admiralty law in the Supreme Court proceedings, urging that common law under federal diversity jurisdiction should govern. The court found diversity jurisdiction appropriate. However, citing the maritime contracts involved, the court concurrently ruled that “for federal common law to apply in these circumstances, this suit must also be sustainable under the admiralty jurisdiction [emphasis in the original].” Maritime contracts are not easily defined, the court noted, their hallmarks long being viewed as “being conceptual rather than spatial.”
Departing from, or perhaps enhancing and augmenting, this jurisprudential precept, the court proceeded to explain why maritime contracts’ definitional ambiguities, when scrutinized as sources of admiralty jurisdiction, must be considered in the context of transportation’s evolving nature. The primary objectives of both maritime contracts at issue (i.e., both bills of lading) were “to accomplish the transportation of goods by sea from Australia to the eastern coast of the United States.” Conceding that both contracts contemplated surface transit, the court proclaimed that “under a conceptual rather than spatial approach, this fact does not alter the essentially maritime nature of the contracts.”
Analysis of this issue a few decades ago might have centered around COGSA’s “tackle to tackle” jurisdictional boundary; the changing nature of operations and obligations when different transportation modes are deployed; technological limitations which clearly define when transport is maritime, and when it is railroad or motor carrier; and mode-specific shipping documentation. Citing the primary mission of admiralty jurisdiction as “the protection of maritime commerce [emphasis in the original],” the court essentially concluded that ocean transport must be viewed in a contemporary multimodal context. The fact that a maritime contract provides for non-maritime services – perhaps substantially so – does not alter a bill of lading’s principal objective.
Containerization, the court ruled, is at the heart of the new perspective, as this technological advancement has made the modes largely interchangeable. Maritime contracts “reflect the new technology,” primarily by way of now popular through bills of lading. Observing that it is to a shipper’s advantage to have a single bill of lading issued by an intermediary which encompasses both ocean and surface transit (as opposed to assembling piecemeal the various service components itself), the court rejected a spatial analysis of admiralty jurisdiction. The court even downplayed the concept of surface transportation being merely “incidental” to ocean carriage in through bills of lading as a basis of the entire contract being subject to admiralty jurisdiction (“realistically, each leg of the journey is essential to accomplishing the contract’s purpose”). Rather, the court concluded:
Conceptually, so long as a bill of lading requires substantial carriage of goods by sea, its purpose is to effectuate maritime commerce--and thus it is a maritime contract. Its character as a maritime contract is not defeated simply because it also provides for some land carriage. Geography, then, is useful in a conceptual inquiry only in a limited sense: If a bill’s sea components are insubstantial, then the bill is not a maritime contract.
Thus, a presumption in favor of admiralty jurisdiction is essentially created when transoceanic carriage is involved. Because the Kirby shipment was substantially an ocean voyage, it conceptually should be subject to admiralty jurisdiction.
Kirby explains the axiom that federal admiralty jurisdiction is designed to formulate and apply a uniform body of law to maritime disputes. However, maritime contracts may implicate state law, and federal uniformity does not contemplate adoption of a maritime principle for every legal concept conceivably includable in a shipping agreement. While Kirby did not articulate any Australian or state interest at stake, the court felt compelled to address local interest as a potential challenge to admiralty jurisdiction.
A single uniform body of law governing interpretation of a Himalaya Clause would avoid “confusion and inefficiency.” Citing an earlier Supreme Court decision, the court noted “when ‘a [maritime] contract . . . may well have been made anywhere in the world,’ it ‘should be judged by one law wherever it was made. . .’ Here, that one law is federal.”
Moreover, COGSA, whose purpose is “to facilitate efficient contracting in contracts for carriage by sea,” contains a provision specifically empowering ocean carriers to extend limitation of liability terms to their subcontractors. The court noted that Hamburg Süd might not be able to enjoy the benefit of this provision absent uniformity of law governing the contract by which it exercised this right.
As presented below, one of Kirby’s premises in extending a through ocean bill of lading’s limitation of liability terms to connecting surface carriers is the notion that a shipper should reasonably contemplate surface carriage when its freight originates overseas and is finally destined for a point in the interior of the United States. Any reasonable shipper should understand that the transportation services it wishes to purchase must include elements that may not be itemized in the documentation it has received. Transportation has become intermodalized as a result of technology, business practices, and industry demand. Kirby represents the Supreme Court’s recognition that prevailing law should be modernized accordingly.
Kirby addresses extension of limitation of liability to surface carriers in two interrelated contexts, i.e., by way of two separately issued bills of lading. While both reduced the Norfolk Southern’s exposure to a de minimis amount relative to the loss’s size, the two amounts were different (ICC’s bill of lading extended liability for loss during surface transit to 666.67 SDRs per package, which is slightly higher than Hamburg Süd’s $500.00 per package blanket limitation regardless of mode). On that basis, the court addressed both an intermediary’s and an ocean carrier’s capacity to limit a railroad’s liability by way of Himalaya Clauses in through bills of lading.
The court views the Norfolk Southern as ICC’s “subcontractor” in analyzing the capacity of ICC’s bill of lading to extend limitation of liability to the railroad. Perhaps better referred to as ICC’s “sub-sub-contractor” to underscore how a term can bind service providers remotely positioned down a chain of contractual relationships, Kirby found that the Norfolk Southern need not be in privity of contract with ICC’s shipper customer to enjoy the limitation of liability the intermediary’s contract imposes. This ruling provides uniformity on an issue various circuit courts of appeal have disagreed over the past decade.
In proclaiming that “[t]his is a simple question of contract interpretation,” the court based its decision on the Eleventh Circuit’s misconstruction of Robert C. Herd & Co. v. Krawill Machinery Corp. The Court of Appeals had ruled that Herd requires privity of contract between a service provider seeking to avail itself of limitation of liability, and that the limitation of liability term must be cast with adequate “linguistic specificity.” The Supreme Court found that interpretation of Herd to be too expansive:
But nothing in Herd requires the linguistic specificity or privity rules that the Eleventh Circuit attributes to it. The decision 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. If anything, Herd stands for the proposition that there is no special rule for Himalaya Clauses.
The Court of Appeals’ ruling is not true to the contract language or to the intent of the parties. The plain language of the Himalaya Clause indicates an intent to extend the liability limitation broadly--to “any servant, agent or other person (including any independent contractor)” whose services contribute to performing the contract.
At this point, the Supreme Court interprets the term “any” in the context of contemporary transportation practices. In contracting for through international transit of freight originating overseas, all concerned, including Kirby, must have anticipated that surface transit would be implicated. On that simple basis, the ICC bill of lading’s Himalaya Clause extends to intended beneficiary the Norfolk Southern.
Recognizing that interpretation of the steamship line’s limitation of liability provision is more difficult because it requires the court “to set an efficient default rule,” the court first addressed the complicated concept of agency in ocean transportation contracts. Unfortunately, it is unclear whether the court intended to issue a definitive ruling regarding the extent to which ocean transportation intermediaries are agents of shippers and/or carriers. Disagreement and confusion in various contexts has been abundant on this issue.
Without disavowing, affirming or otherwise analyzing decisions that put agency at issue in intermediary relationships, the court ruled: “Likewise, here we hold that intermediaries, entrusted with goods, are ‘agents’ only in their ability to contract for liability limitations with carriers downstream.” While this statement appears encompassing, it is at least questionable whether the court intended to categorically dispose of all intermediary agency questions without considering their far-reaching implications, the various contexts in which courts have reached conflicting conclusions, and the fact that Kirby presents only a narrow agency issue.
Regarding agency in the context of extension of limitation of liability, the court concluded:
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 certainly not automatically empowered to be the cargo owner’s agent in every sense. That would be unsustainable. But when it comes to liability limitations for negligence resulting in damage, an intermediary can negotiate reliable and enforceable agreements with the carriers it engages.
Amicus briefs from numerous transportation industry sectors and government agencies were filed in Kirby. This alone speaks to the enormity of the issue, and how various participants disagree about the direction transportation relationships are, or should be, taking. Recognizing, but not individually addressing, the various views presented, the Supreme Court ruled that a steamship line’s Himalaya Clause extends to connecting surface carriers. This recognition is cast in public policy terms designed to accommodate the court’s perception of evolving transportation relationships. The court pronounced three policy principles at the heart of its decision:
On these grounds, the court concluded that the Norfolk Southern also enjoys the benefit of Hamburg Süd’s Himalaya Clause, thereby limiting the railroad’s ultimate liability to $500.00 per package.
The Supreme Court appears somewhat ill at ease with its decision in Kirby, recognizing it is ill-equipped to forecast the precedent’s potential impact on a conceptually and operationally abstruse industry. Having issued new law governing a central aspect of international transportation’s evolving nature, the court attempts to contextualize its decision as follows:
Having undertaken this analysis, we recognize 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.
Just what leeway do parties to international shipping contracts enjoy post-Kirby? That question cannot be answered by reference to the revised legal environment alone. Shippers, carriers and intermediaries remain free to enter into only those contractual terms they find suitable (containing or avoiding limitation of liability). However, a number of factors are equally significant. The following examples of points which contribute to the nature and specifics of shipping relationships illustrate the issue’s complexity:
In other words, the Supreme Court is uneasy about its potentially excessive meddling in transportation’s unique and byzantine infrastructure, and seeks to defer to participants’ ability to attend to their own concerns. However, the “default rule” the court creates may inherently be more than a minimized “legal backdrop.” The industry’s nature does not pragmatically allow for individualized attention to each contractual relationship which shippers, carriers and intermediaries – all seeking the most economical and efficient approach to complex and risk-laden transports – might conceivably obtain. The default rule may de facto be the only rule in many instances.
History has demonstrated that business positions and bargaining power, often driven by volumes needed or offered, can influence or dictate the result of liability disputes more than controlling law. In this regard, the state of the law may be irrelevant. Perhaps the court was mindful of this in using the vague term “legal backdrop” to describe its opinion. Nonetheless, it is important, indeed crucial, that the law’s role as governing protocol not be diminished. In that sense, Kirby is vastly significant as an expression of the law’s concurrence with transportation’s evolution and industry trends.
That said, Kirby’s importance and impact regarding Himalaya Clause enforcement may be short lived. Negotiations are now pending before the United Nations toward a uniform ocean cargo liability regime may produce an international treaty which provides for connecting surface carrier limitation of liability. An instrument could be proposed as early as 2006. Even so, Kirby will remain significant as a judicial recognition of transportation’s evolving nature (spawned largely by containerization), and the resulting influence transportation’s contemporary infrastructure should have on admiralty jurisdiction.
 543 US ___, 125 S. Ct. 385, 160 L.Ed.2d 283, 2004 AMC 2705 (2004).
 ICC was designated a “freight forwarder” under Australian law and industry custom. However, it served the function of an NVOCC per the American concept, inasmuch as it issued a bill of lading and was the carrier of record in its relationship with Kirby. See 46 CFR 515.2(l).
 Note that COGSA applies only to international water transit. The provision addressing package limitation of liability is at 46 USC App. §1304(5).
 A “package” for purposes of ocean freight limitation of liability is defined as the “customary unit of freight” for the commodity at issue. See, e.g., Travelers Indem. Co. v. Vessel Sam Houston, 26 F.3d 895 (9th Cir. 1994).
 A special Drawing Right is an artificial value unit set by the International Monetary Fund (“IMF”) whose value is based on the fluctuating values of various currencies. See the IMF’s website, http://www.imf.org/external/np/exr/facts/sdr.htm, for additional information.
 Himalaya Clauses, named for the ship in a 1955 English case that first recognized them, are standard in bills of lading worldwide.
 300 F.3d 1300, 1308-09 (2002).
 Id. at 1310.
 Id. at 1305.
 Kirby’s jurisdictional analysis comprises approximately two thirds of the opinion’s length.
 Kirby 125 S.Ct. at 385. All citations to Kirby are to the Supreme Court Reporter.
 Id. at 392, citing Stewart Organization, Inc. v. Ricoh Corp., 487 US 22, 28 (1988).
 Id. at 393.
 Id. at 394, citing Exxon Corp. v. Central Gulf Lines, Inc., 500 US 603, 608 (1991).
 Id. at 394.
 Id. at 394-95.
 Id. at 395.
 Id. at 395-96.
 Id. at 396.
 Id. at 397.
 359 US 297, 79 S.Ct. 766, 3 L.Ed.2d 820 (1959).
 Kirby at 397.
 Id. at 398.
 See, e.g., points made and conclusions reached in Kukje Hwajae Ins. Co., Ltd. v. M/V Hyundai Liberty, 294 F.3d 1171 (9th Cir. 2002); SPM Corp. v. M/V Ming Moon, 22 F.3d 523 (3rd Cir. 1994); Pearson v. Leif Hoegh & Co., 953 F.2d 638 (4th Cir 1992); Constructores Tecnicos, S. de R.L. v. Sea-Land Service, Inc. 945 F.2d 841 (5th Cir. 1991); Insurance Co. of North America v. M/V Ocean Lynx, 901 F.2d 934 (11th Cir. 1990); and Insurance Co. of North America v. S/S American Argosy, 732 F.2d 299 (C.A.N.Y.,1984).
 Kirby at 399.
 Id. at 398.
 Id. at 399-400.
 Id. at 400.
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