Rate this article:  

By Cynthia Anne Wegmann, Terriberry, Carroll & Yancey L.L.P., New Orleans

Recent decisions in the United States District Courts have increased the risk that liability may be imposed on a manager deemed to be responsible for the operation or seaworthiness of a vessel.

In cargo damage cases litigated in the United States where the Carriage of Goods by Sea Act is applicable either by operation of law or by incorporation into the contract of carriage, it generally was thought that the carrier's COGSA defences and the limitation of liability (the package or customary-freight-unit limitation) would be available not only to the vessel, her owners and charterers, but also to the vessel manager, which as agent performed the essential functions necessary for the vessel's service as a carrier. What was thought to be the general rule followed naturally from a basic principle of agency law: "An agent who is acting in pursuance of his authority has such immunities of the principal as are not personal to the principal". As a result, although it was not unusual for the manager to be named as a joint defendant with the vessel, owners, and carriers, not much thought was given by cargo interests to the pursuit of a separate cause of action against the manager because of the belief that any negligence of the manager would be imputed to its principal, the owner, and that the owner's COGSA defences and limitations would, therefore, be available to the manager for any fault in the performance of these duties.

Readers may recall that shortly after the adoption of the Hague Rules, the English and US courts recognised an independent action in tort against a stevedore for negligent handling of cargo and that the stevedore, although performing an essential function of the vessel as an agent of the carrier, was not automatically immunised by the carrier's statutory or contractual limitations from liability for the stevedore's wrongful acts. The courts found that the stevedore owed an independent duty of care to the cargo and that the contractual and statutory immunities granted to the carrier must be construed narrowly and not extended automatically to the stevedore. The Himalaya Clause was developed in response. The balance between the vessel and cargo interests returned.

Ever anxious to increase recovery, cargo interests began to plead various theories of liability against the vessel interests in attempts to avoid the package limitation, alleging causes of action against the owner, manager and charterer in contract (COGSA), bailment, and tort (negligence). Only a few courts allowed a separate tort or bailment claim to proceed against a vessel owner or manager, and then only after a determination that COGSA liability did not lie against that party. Indeed, in Polo v. Tropical Shipping,1 where cargo sued the owners, managers, and charterers on various theories, the United States Court of Appeals for the Eleventh Circuit (Florida) held that there could not be a separate cause of action for negligence or bailment against the manager where COGSA applies.

Recently, however, a separate and independent cause of action against a vessel's manager for negligent damage to cargo has been recognised. In at least two cases, the courts found the manager responsible for the operation, maintenance, manning and seaworthiness of the vessel to be directly liable to cargo for any fault in the vessel that caused damage and that the owner's COGSA limitation of liability and defences do not run in favour of the manager, the carrier's agent. These cases dealt not with a separate or independent act of fault, such as dropping of cargo by stevedores, but with deficient hatch maintenance and other issues of vessel suitability. The courts held that while the owner was responsible for the acts of its manager and could limit its liability by the package limitation, the manager, although acting pursuant to its authority and solely on behalf of the owner, could not take advantage of the owner's limitation provision where there was no specific contractual extension of that limitation to the manager, such as is often provided to stevedores now via a Himalaya Clause. Judgment was rendered limiting cargo's recovery to the package limitation as against owner and the vessel, but the manager was found liable for the full amount without benefit of the limitation.

The cases to which this article refers are Steel Coils, Inc. v. M/V LAKE MARION, her owners, managers, and Western Bulk Carriers K/S Oslo2 and Steel Coils, Inc. v. M/V CAPTAIN NICHOLAS I, her owners, managers, and Western Bulk Carriers K/S.3 The CAPTAIN NICHOLAS I was settled by owners and managers before a trial on the merits. LAKE MARION is on appeal to the Fifth Circuit Court of Appeals. If the district court's decision in LAKE MARION is not reversed by the Fifth Circuit, a conflict between the circuits courts of appeal may well be the result.

Insofar as managers and operators are routinely listed as additional assureds, it is important to members to realise that despite the presence of a USA Clause Paramount (or any Paramount Clause) or incorporation of the COGSA defences and limitations, the manager is at risk for damage to cargo and the manager's exposure will not be limited automatically by the applicability or incorporation of COGSA (or other Rules) defences and limitation. Members may want to consider including in their contracts of carriage, whether these are charterparties or bills of lading, a provision extending the contractual immunities and limitations (COGSA or otherwise) to their managers, operators or other agents. It may be that this can be accomplished simply by the insertion or incorporation by reference of a Himalaya Clause4 into each charterparty and bill of lading in which the member is involved. The standard language of a Himalaya Clause refers only to agents or independent contractors, but managers when acting as agents for owners, should be considered within this clause. To eliminate any doubt, the following phrase should be included as part of a Himalaya Clause in any charterparty and bill of lading: "The term 'agent' shall be deemed to include vessel managers and vessel operators". If there is any uncertainty in this, members are encouraged to contact the Club.

1  215 F. 3d 1217, 2000 AMC 2129.
2  USDC, EDLA, decided 29th November 2001, 2001 WL1518302.
3  USDC EDLA, decided 14th February 2002, 197 F.Supp. 560.
4  The standard language of a Himalaya Clause reads: "It is hereby expressly agreed that no servant or agent of the Carrier (including every independent contractor from time to time employed by the Carrier) shall in any circumstances whatsoever be under any liability whatsoever to the Shipper, Consignee or Owner of the goods or to any holder of this Bill of Lading for any loss, damage or delay of whatsoever kind arising or resulting directly or indirectly from any act, neglect or default on his part while acting in the course of or in connection with his employment and, but without prejudice to the generality of the foregoing provisions in this Clause, every exemption, limitation, condition and liberty herein contained and every right, exemption from liability, defence and immunity of whatsoever nature applicable to the Carrier or to which the Carrier is entitled hereunder shall also be available and shall extend to protect every such servant or agent of the Carrier acting as aforesaid and for the purpose of all the foregoing provisions of this Clause the Carrier is or shall be deemed to be acting as agent or trustee on behalf of and for the benefit of all persons who are or might be his servants or agents from time to time (including independent contractors as afore-said) and all such persons shall to this extent be or be deemed to be parties to the contract in or evidenced by this Bill of Lading".

Any comments to this article can be e-mailed to the Gard News Editorial Team.

Gard News is published quarterly by Gard Services AS, Arendal, Norway.