Ship Manager is held liable for a cargo claim in tort in the USA

A compelling reason to have a Himalaya clause in your contract.

A recent decision in the United States District Court, the Lady Marian, has increased the risk that liability may be imposed on the manager deemed to be responsible for the operation or seaworthiness of a vessel. The case concerned the alleged sea water wetting of steel coils loaded in Latvia for discharge at US East Coast and Gulf ports. The receiver sued the owners and managers and also alleged a separate negligence claim against the managers as well. It was thought that the carrier’s defences and limitation of liability (package or freight unit limitation) would be available not only to the vessel, her owners and charterers but also to the ship manager, who was acting as agent.

It is not unusual for a manager to be named separately as joint defendant with the owners on a writ. However, in this recent case in the United States, the separate action against the ship manager for negligent damage to cargo was recognised. The court found the manager was responsible for the operation, maintenance, manning and seaworthiness of the vessel and to be directly liable to cargo for any fault in the vessel that caused damage. Furthermore the owner’s COGSA limitation of liability and defences cannot be used by the manager even though he was the owners’ agent. This particular case is specifically related to deficient hatch maintenance. The court accepted that the owner was responsible for the acts of its manager and could limit its liability by package limitation. However, the manager, even though acting on the authority of the owner, could not take advantage of the owner’s limitation where there was no specific contractual extension of that limitation to the manager. Such extension is often provided by a Himalaya clause (the wording of which is given at the end of this article). The owner was able to limit but the manager was found liable for the full amount of the claim without benefit of limitation. If the manager is fully co-assured on the owner’s P&I policy, they will be covered as if the manager has cover in his own right.

The Managers of ITIC are often asked when they review contracts on behalf of managers whether the principal’s request to drop the Himalaya clause is a reasonable one. This case is a perfect example of why the Himalaya clause is vital to not only the ship management contract but also a bill of lading and a charterparty. Furthermore, it’s also vital that the owners include in their contracts of carriage, whether these are charterparties or bills of lading, a provision extending the contractual indemnities and limitations (i.e. COGSA or similar) to the managers, operators or other agents. In some circumstances this can be accomplished simply by reference or incorporation of a Himalaya clause into the charterparty and bill of lading in which the carriers are involved. Usually the Himalaya clause refers only to agents or independent contractors but as the manager is acting as agent for the owners they are usually considered to be within the interpretation of this clause.

The advice from P&I Clubs (one being Gard in their website), is to recommend that the following phrase should be included as part of the Himalaya clause in any charterparty or bill of lading.

“The term ‘agent’ shall be deemed to include the ship manager and ship operators”.

It is worth considering an additional provision in your ship management agreement that the owner will incorporate the wording of a Himalaya clause in any bill of lading or charterparty. This is to protect the manager from claims in tort, such as cargo claims in the USA. If the owner then fails to include the Himalaya clause, he is in breach of the ship management contract. It is also necessary to incorporate a Himalaya clause in the ship management agreement not only to extend any limitations available to the manager to his sub-agent or contractor but also to protect the owner against attempts to breach limitation by only suing the manager. By having such a clause in the ship management contract the owner is also protected as the manager will not have to seek an indemnity under the ship management contract because no Himalaya clause was in place.

The wording of a Himalaya clause will alter slightly depending on whether it is incorporated into a bill of lading, charterparty or ship management agreement. Where it relates to a bill of lading rather than a ship management contract, the alternative wording is in brackets.

The 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) owner 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 in every right, exemption from liability, defence and immunity of whatsoever nature applicable to the (Carrier or to which the Carrier) Managers is entitled hereunder shall be available and extend to protect every such (servant) employee or agent of the (Carrier) Managers acting as aforesaid and for the purpose of all the foregoing provisions of this Clause the (Carrier) Managers are 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 aforesaid) 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/Charterparty – delete as appropriate) to this agreement.