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Ince & Co : Enforcing covenant not to sue in Himalaya clause did not fall foul of Article III rule 8 of the Hague Rules
Whitesea Shipping and Trading Corporation & Anr v El Paso Rio Clara LTDA & Ors (The Marielle Bolten) [2009] EWHC 2552 (Comm)
In October 2009, Ince & Co successfully obtained an interim anti-suit injunction on behalf of Whitesea Shipping (owners), restraining cargo interests and their insurers from suing third parties to the bills of lading outside of the English courts, in breach of the covenant not to sue third parties and the exclusive English law and jurisdiction clause in the bills.
Brief facts
The Marielle Bolten grounded off Puerto Plata, Dominican Republic in January 2006, laden with cargo carried under a number of bills of lading. General average was declared and cargo interests put up average bonds and guarantees. The GA adjustment was published in June 2009, following which owners sought to recover GA contributions from cargo interests.
However, prior to the publication of the adjustment, cargo interests under a number of bills of lading commenced proceedings against owners in Brazil (most notably), claiming damages on a number of different grounds. These actions were in breach of exclusive English law and jurisdiction clauses contained in the bills of lading, average bonds and average guarantees.
Cargo interests admitted that they intended to circumvent the Hague Rules (which applied to the bills on account of a clause paramount), in circumstances where owners argued that they were entitled to recover GA contributions because the grounding was caused by negligent navigation and/or perils of the sea, which gave rise to defences under the Hague Rules. As the Hague Rules do not apply in Brazil, the Hague Rules defences would not be available to owners before the Brazilian court.
Mr Justice Flaux had little difficulty in finding that owners were entitled to an anti-suit injunction to prevent cargo interests from suing them abroad. The more difficult question, and the one which this judgment addresses, is whether cargo interests could also be injuncted from suing third parties outside of England. This question arose because the Brazilian action was also filed against owners' managers, P&I insurers, charterers and sub-charterers.
Owners' case for an Injunction
In asking the High Court to grant an anti-suit injunction restraining proceedings against third parties, owners relied on clause 3(b) of the bill of lading which stated:
1. that the merchant undertook not to bring any claims against any servant, agent, stevedore or subcontractor of the carrier (the covenant not to sue);
2. if it did, the merchant further undertook to indemnify the carrier against all consequences (the circular indemnity clause); and
3. that every servant, agent, stevedore or subcontractor of the carrier nevertheless had the benefit of all the provisions in the bills benefiting the carrier, including all limitations of and exonerations from liability provided to the carrier by law (the Himalaya clause).
Owners argued that the third parties sued in Brazil were all either owners' servants, agents or sub-contractors (within the definition in the bills of lading) and that the cargo interests were bound by their covenant not to sue, and owners were entitled to an injunction to enforce the covenant.
The defence based on Art III r 8 and the Court's decision
The cargo interests contended that the covenant not to sue in clause 3(b) was null and void because it amounted to conferring on the third parties a blanket immunity from liability, which would be contrary to Art. III r. 8 of the Hague Rules. Art. III r. 8 states:
"Any clause, covenant or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to or in connection with the goods, arising from negligence, fault, or failure in the duties and obligations provided in this section, or lessening such liability otherwise than as provided in this chapter, shall be null and void and of no effect."
The cargo interests argued that the covenant not to sue, as it appeared in the bills, was enforceable not just by the contractual carrier, but also by those third parties who were protected by clause 3(b) under the so-called "Himalaya contract". However, as soon as a third party performed "carriage" obligations, the Himalaya contract itself became a contract of carriage to which the Hague Rules, including Article III r.8, applied. The judge disagreed. He carefully considered the decision of Lord Justice Rix in the Court of Appeal in The Starsin, and applied his reasoning that a similarly worded covenant not to sue was only enforceable by the contractual carrier to prevent the shipper from suing third parties. The third party was only intended to have the benefit of such defences and immunities as were available to the carrier to defend itself from incurring liability.
The cargo interests further argued that even if the covenant not to sue could only be enforced on behalf of a third party, if a third party had performed "carriage" obligations, any attempt to grant that third party total protection from being sued contravened Art. III r.8, again because the Himalaya contract itself became a contract of carriage to which the Hague Rules applied. The cargo interests said that this argument was supported by the decision on this point of the House of Lords in The Starsin. Again, the judge disagreed. After analysing each of the five judgments given by the Lords in The Starsin, Mr Justice Flaux held that the real reason the Court in that case found that the Himalaya contract was a contract of carriage was not because the third party had performed "carriage functions", but because the Himalaya clause in the particular bill of lading included a "deeming" provision. This said that to the extent that parties were protected by the Himalaya clause, they should be deemed to be parties to the bill of lading contract. There was no such deeming provision in the bill of lading issued for cargo shipped onboard The Marielle Bolten.
Finally, the cargo interests submitted that even if both of the previous propositions were wrong, the contractual carrier should not be allowed to enforce the covenant not to sue because this would have the effect of circumventing Art. III r.8. The judge held that there was no authority in support of this submission. Having considered the functions which the relevant third parties were in fact performing, he was firmly of the view that although the managers, P&I insurers, charterers and sub charterers all performed services incidental to the carriage of goods, none of them had actually undertaken the carriage of the goods.
Furthermore, the judge was persuaded that on the facts, by commencing proceedings in Brazil, in breach of the exclusive English Court jurisdiction clause, it was the cargo interests, and not owners, who were seeking to circumvent the application of the Hague Rules.
Consequently, the anti-suit injunction restraining proceedings from being commenced or continued against the third parties was granted.
http://www.incelaw.com/ourpeople/michael-volikas
About the Author
Ince & Co is an international commercial law firm with offices in Dubai, Hamburg, Hong Kong, Le Havre, London, Paris, Piraeus, Shanghai and Singapore.
Our clients range from major international corporations to smaller companies, sole traders and private individuals. We practise English, French, German, Greek and Hong Kong law and advise on Singapore law in arbitrations.
We have seven core business areas: aviation, business & finance, commercial disputes, energy & offshore, insurance & reinsurance, international trade and shipping.
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