Pursuant to a sales agreement for three electrical transformers manufactured in the Netherlands, the shipper was obliged to deliver the cargo to the consignee in St Gabriel, Louisiana. The shipper contracted with a transportation intermediary to transport the cargo from Rotterdam to St Gabriel. The intermediary issued a through bill of lading to the shipper and entered into separate contracts with three actual carriers to perform ocean carriage, rail carriage, and motor carriage to the final destination.  The shipper itself was not a party to any of the transportation contracts with the actual carriers.

Upon delivery, it was determined that the cargo was damaged while in transit. Subrogated to the shipper’s claims, the shipper’s insurers filed suit against the transportation intermediary and the three actual carriers. The actual carriers moved for summary judgment on the basis that the through bill of lading issued by the intermediary contained a covenant not to sue that read, ‘no claim shall be made against any servant, agent or other persons the [intermediary] has used in order to perform the Multimodal Transport Contract … ’. The through bill of lading also contained a Himalaya clause granting the subcontracting carriers the right to seek protection under its terms.

The plaintiff argued that the actual carriers could not rely on the through bill of lading because none of them were parties to that contract and that the covenant not to sue was not permissible under the US Carriage of Goods by Sea Act (COGSA), which is the US domestic implementation of the Hague Rules.

The issues before the court were:

(1) Whether the actual carriers could rely on the covenant not to sue contained in the intermediary’s through bill of lading even though they were not parties to that contract;

(2) Whether the covenant not to sue was permissible under COGSA / Hague Rules.

Held: The carriers could invoke the covenant not to sue contained in the intermediary’s through bill of lading even though they were not parties to that contract because they fell within the scope of the Himalaya clause.

Although limitations of liability in bills of lading that conflict with COGSA / Hague Rules are unenforceable, it is permissible for a carrier to accept exclusive liability for the negligence of its subcontractors under a covenant not to sue.