This case arose from damage and loss to a shipment of oranges and grapefruit carried on the MV Ecuadorian Reefer. KS Ecuadorian Reefer chartered the vessel to Lauritzen Reefers AS, which then time chartered it to Chiquita Brands Inc. Chiquita entered into a voyage charter with the plaintiff/shipper, Citrus Marketing Board of Israel. The plaintiff alleged that the defendant, J Lauritzen AS, managed the vessel and was responsible for damage and loss to the cargo received in Massachusetts.

The Chiquita voyage charter provided for London arbitration. It also incorporated a bill of lading that named the plaintiff as shipper and Agrexco (USA) Ltd as consignee. This bill of lading included a clause paramount incorporating the Carriage of Goods by Sea Act 46 USC §§ 1300 ff (COGSA). In addition, cl 16 of the bill of lading was a Himalaya clause. The defendant moved for a stay of this action pursuant to the Federal Arbitration Act 9 USC § 3, claiming that the suit was barred pending arbitration in London. This section provides a court the power to stay a proceeding which may be referred to arbitration under a pre-existing agreement between the parties.  

The District Court dismissed the plaintiff’s complaint, stating that the plaintiff’s only cause of action could be a contract action governed by COGSA. The plaintiff appealed. The defendant cross-appealed against the portion of the judgment which denied its motion to stay the action pending arbitration.

Held: Judgment for dismissal reversed, denial of stay affirmed and remanded.

The plaintiff argued that the defendant was negligent in employing and supervising the crew. The defendant argued that, even if it could be sued, it was covered by the Himalaya clause.

The Court of Appeals held that a non-contractual negligent party could be sued for damages and loss to cargo: see Robert C Herd & Co v Krawill Machinery Corp 359 US 297 (1959) (CMI1735). It follows that the District Court erred in dismissing the complaint on the basis that COGSA precluded a separate action against the defendant. Parties may contractually extend COGSA's application beyond its normal parameters: Colgate Palmolive Co v S/S Dart Canada 724 F 2d 313, 315 (2d Cir 1983). For example, in Bernard Screen Printing Corp v Meyer Line 464 F 2d 934 (2d Cir 1972), the Second Circuit approved contractual provisions in a bill of lading that extended to stevedores the USD 500 per-package liability limitation conferred upon carriers by COGSA § 1304(5) (1988). When contracting parties use a Himalaya clause to extend the application of COGSA’s liability limitations, COGSA does not apply of its own force, but does apply as a contractual term: see Colgate Palmolive Co 724 F 2d 313. In addition, such contractual limitations are to be strictly construed against the party whom they are claimed to benefit: see Schiess Froriep Corp v SS Finnsailor 574 F 2d 123 (2d Cir 1978). However, contractually incorporated COGSA provisions will not survive a conflict with state law: see Grace Line Inc v Todd Shipyards Corp 500 F 2d 361 (9th Cir 1974) (CMI1737).  

As to the Himalaya clause, it is appropriate for the District Court to consider in the first instance whether the defendant is an 'agent or employee of the carrier or shipowner' or an 'independent contractor who performs any of the services provided by the carrier or shipowner' within the meaning of the Himalaya clause. The Court stated that if the defendant is ultimately deemed to be a beneficiary of the Himalaya clause, it will be necessary to decide whether a contract which purports wholly to immunise a non-carrier from liability for its negligence is repugnant to traditional law and to sound policy. Here, not enough was on record to establish the relationship of the defendant to the carrier or the shipowner.

On the defendant’s motion to stay, the Court affirmed the District Court's ruling that the defendant, being a non-party to the voyage charter which provided for arbitration, was not entitled to a stay. However, the Court deemed it appropriate to point out that the District Court had inherent power to grant the requested stay. This follows from 'the power inherent in every court to control the disposition of the cases on its docket with economy of time and effort for itself, for counsel, and for litigants': see Landis v North America Co 299 US 248 (1936).