House of Lords strictly applied the privity rule in Scruttons v Midland Silicones in refusing to allow stevedores, engaged as independent contractors, to invoke the protection of a limitation clause in the contract of carriage, Lord Reid threw out a lifeline by suggesting that an agency relationship might provide the answer to such a problem. In his view such a relationship might have been created on the facts of that case if four basic requirements were satisfied:
Firstly, the bill of lading makes it clear that the stevedore is intended to be protected by the provisions in it which limit liability
Secondly, the bill of lading makes it clear that the carrier in addition to contracting for those provisions on his own behalf, is also contracting as agent for the stevedore that those provisions should apply to the stevedore
Thirdly, the carrier has authority from the stevedore to do that or perhaps later ratification by the stevedore would suffice
Fourthly, that any difficulties about consideration moving from the stevedore were overcome.’
This invitation was gladly accepted by the draftsman of the bill of lading which came up for consideration by the Privy Council in The Eurymedon. A drilling machine had been shipped from Liverpool to New Zealand under a bill of lading which incorporated the Hague Rules. The bill included an express clause stipulating that any servant, agent or independent contractor employed by the carrier should be entitled to the protection of every exemption available to the carrier and that, in respect of this clause, the carrier was contracting not only on his own behalf but also as agent or trustee on behalf of the parties named.
When a stevedore was later sued in negligence for damage caused to the drilling machine during discharge, he sought to rely on the Hague Rules, Art III rule 6, which barred any action brought more than 12 months after the damage occurred.
The Privy Council with two members dissenting, held that the stevedore was entitled to do so since the carrier, in concluding the contract of carriage, had been acting as agent on his behalf. Overall the terms of the contract were considered to fulfil the four criteria suggested by Lord Reid
Once the validity of the agency device had been confirmed, its potential was quickly recognized. Not only could it be used to extend the protection afforded by the carriage contract to employees of a contractual carrier, and to independent contractors engaged in its performance, but it could also provide similar protection for an actual carrier where performance of the carriage itself had been delegated to a sub-contractor or where it formed part of a combined transport operation. Clauses incorporating this formula soon began to appear in many standard forms of bill of lading. Its usefulness depended, of course, on the foresight of the contracting parties and their mutual consent to its incorporation into their agreement.
As with all such stratagems, the use of the Himalaya Clause has its limitations, as was exemplified in the recent case of The Starsin. Charterers’ bills had been issued which included a Himalaya clause purporting to exclude the independent contractor from any liability to the shipper resulting from, inter-alia, negligent damage to the goods. The majority of the Court of Appeal held that, in so far as the clause sought to extend to the independent contractor a wider exemption than that available to the contractual carrier under the Hague Rules, it was rendered void by Art III rule 8.
Again in The Mahkutai the relevant charterer’s bills had been issued which included both a Himalaya clause and an Indonesian choice of jurisdiction clause. When sued for cargo damage by the cargo owners, the shipowner unsuccessfully sought to rely on the jurisdiction clause in the bill of lading.
In the view of the Privy Council, the accepted function of a Himalaya Clause was to prevent cargo owners from avoiding the effect of contractual defences available to the carrier by suing the actual tortfeasor in negligence. Such defences were designed to benefit only one party whereas, in contrast, jurisdiction clauses were intended to create mutual rights and obligations.
In expressing regret in reaching this conclusion, Lord Goff noted that ‘it is inevitable that technical points of contract and agency law will continue to be invoked by cargo owners seeking to enforce tortious remedies against stevedores and others uninhibited by the exceptions and limitations in the relevant bill of lading contract’. In so far as this decision turns on the precise wording of the Himalaya clause, its effect can presumably be nullified by appropriate draftsmanship