What is Himalaya Clause?

 

What is a Himalaya Clause in Charter Party?

A “Himalaya Clause” in a charter party or other types of shipping contracts is a legal provision designed to extend the limitation of liability that is usually granted to the carrier of goods to other parties involved in the transportation process. This typically includes sub-contractors, agents, and employees of the carrier.

In the context of maritime law, a charter party is a contract between the shipowner and the charterer for the use of a ship or part of its cargo capacity. The Himalaya Clause is named after the English court case “Admiralty Commissioners v. SS Amerika” (also known as the “Himalaya case”), which established the precedent for such clauses.

The primary function of the Himalaya Clause is to protect these third parties from direct claims by the shipper or consignee, effectively ensuring that they benefit from the same limitations of liability that the carrier enjoys under the contract or applicable law. It helps in avoiding situations where these third parties would otherwise be exposed to potentially unlimited liability, which the carrier itself does not face.

It’s important in international shipping as it adds a layer of legal protection for various parties involved in the complex process of transporting goods, especially in cases where multiple subcontractors and agents are involved in handling the cargo.

 

Importance of Himalaya Clause in the Shipping and Maritime Industry

Himalaya Clause, it’s important to understand its broader implications in the shipping and maritime industry:

1. Prevents “Circumvention” of Liability Limits: Without a Himalaya Clause, third parties involved in the shipment could be sued directly by the shipper or consignee, potentially for full value damages, circumventing the carrier’s contractual limitations of liability. This clause effectively closes that loophole.
2. Standardization and Predictability: The inclusion of the Himalaya Clause in charter parties and other shipping contracts helps standardize the terms under which different parties operate. This standardization provides predictability in an industry where multiple jurisdictions and legal systems may otherwise create a complex legal landscape.
3. Risk Management: For third parties such as stevedores, terminal operators, and agents, the Himalaya Clause is a critical risk management tool. It allows these parties to engage in the business of shipping without the fear of facing unlimited liability, which might otherwise be commercially untenable.
4. Insurance Implications: The clause has implications for insurance in the shipping industry. By limiting the liability of third parties, it can affect the type and extent of insurance coverage that these parties need to secure, potentially leading to lower insurance costs.
5. Legal Challenges and Interpretation: The application of the Himalaya Clause can vary depending on the jurisdiction and the specific wording of the contract. Courts in different countries might interpret the clause differently, affecting its enforceability and the extent of liability protection offered to third parties.
6. Impact on Shippers and Consignees: While beneficial for carriers and third parties, some argue that the Himalaya Clause can be disadvantageous for shippers and consignees, as it limits their ability to recover losses from parties other than the carrier.
7. International Conventions: The effectiveness and scope of Himalaya Clauses can also be influenced by international maritime conventions like the Hague-Visby Rules or the Hamburg Rules, which set out certain standards and limitations for international carriage of goods by sea.

Himalaya Clause plays a significant role in the legal landscape of international shipping, balancing the interests and liabilities of various parties involved in the transport of goods across the seas. Its presence in a charter party or shipping contract reflects the complex nature of maritime operations and the need for a legal framework that accommodates the multiple entities involved in this global industry.

 

What is the purpose of the Himalaya Clause?

The purpose of the Himalaya Clause in maritime law, particularly within charter party agreements and other shipping contracts, is multifaceted and aims to address several key issues:

1. Extension of Liability Protection: The primary purpose is to extend the liability limitations that apply to the carrier to other parties involved in the transportation of goods. These parties can include sub-contractors, agents, stevedores, and employees of the carrier.
2. Uniform Liability Framework: By extending the carrier’s liability limitations to these third parties, the Himalaya Clause creates a more uniform and predictable framework for liability across all parties involved in the shipping process. This helps in managing expectations and risks for all parties.
3. Prevention of Legal Loopholes: It prevents shippers and consignees from circumventing the carrier’s contractual limitations of liability by suing third parties who might not have the same protection under the contract. Without the Himalaya Clause, these third parties could be exposed to greater risks and potentially unlimited liability.
4. Risk Management and Reduction: For third parties like subcontractors, the clause is essential for risk management. It reassures them that they won’t face liabilities beyond what the carrier itself would face, encouraging their participation and cooperation in the shipping process.
5. Enhancing Operational Efficiency: By providing a clear legal framework and reducing the risk of litigation against multiple parties, the Himalaya Clause can contribute to more efficient operations in the shipping industry.
6. Insurance Cost Implications: The clause can also influence the insurance policies and costs for third parties, as their exposure to risk is limited, potentially leading to more favorable insurance terms.

Himalaya Clause serves to create a more cohesive, predictable, and fair legal environment in the shipping industry. It balances the interests of carriers, third parties, and customers by setting clear boundaries on liability, thereby facilitating smoother and more secure maritime commercial transactions.

 

Why is it called Himalaya?

The Himalaya clause derives its name from the legal precedent set in the Adler v Dickson case. In this case, Mrs. Adler suffered severe injuries when the gangway she was walking on collapsed while she was a passenger on the P&O liner named “Himalaya.” The passenger ticket she held contained a provision that exempted P&O from liability. Consequently, Mrs. Adler filed a compensation lawsuit against Captain Dickson, the master of the ship, and the boatswain. The Court of Appeal ruled that Captain Dickson was indeed liable and awarded damages to Mrs. Adler. Importantly, the Court determined that P&O had the possibility to include a clause in its ticket conditions that would exempt its employees from liability, but it had failed to do so.

The “Himalaya” case had a notable impact on the development of contract clauses in transportation agreements, whether for passengers or cargo. These clauses aimed to ensure that liability primarily fell on the carrier, and in the absence of such liability, the carrier’s employees, agents, and subcontractors could benefit from any limitations, exemptions, or defenses afforded to the carrier. Consequently, claims were typically directed at the carrier itself rather than its employees, agents, subcontractors (e.g., stevedores), or other independent subcontractors such as railroad companies.

 

Himalaya Clause and other Warranty and Indemnity Clauses

In common law countries like the UK, conferring benefits on third parties to a contract, such as subcontractors, has long been a challenge due to complex legal rules surrounding consideration and privity of contract. To address these issues, various approaches have been attempted, including the creation of theoretical agency relationships between the carrier and its subcontractors. This has led to the development of what is known as the “Himalaya Clause,” which has been upheld to varying degrees in UK courts. In the UK, Himalaya clauses have been given legal standing within specific limits by the Contracts (Rights of Third Parties) Act 1999. In civil law countries, some aspects of Himalaya clauses may also be recognized, particularly to prevent subcontractors from being held liable beyond the carrier’s limits of liability.

The primary purpose of the Himalaya clause is to prevent shippers from pursuing claims against the servants, agents, and subcontractors of the carrier. Another related clause, known as the circular indemnity, may require the shipper to compensate the carrier for any claims made by third parties that fall outside the bill of lading terms but ultimately affect the carrier due to separate contracts with its subcontractors.

The acceptability of such clauses depends on whether reasonable recourse is available against the carrier under the bill of lading and whether the indemnity covers claims exceeding what could typically be recovered from the carrier directly. While such clauses may be considered reasonable in certain circumstances, they can sometimes extend beyond what is fair. Any indemnity that a shipper cannot negotiate away contractually creates a potential liability, which ideally should be covered by insurance, although obtaining coverage can be challenging.

It’s worth noting that bill of lading terms often contain other warranties and indemnities, such as those regarding the accuracy of information provided by the shipper. These can also create potential liabilities that should be covered by appropriate insurance when possible.

Typically, bill of lading terms that incorporate Himalaya and circular indemnity clauses can take different forms. Some clauses may seek to broadly exempt any claims against the carrier’s servants, agents, or subcontractors, with an indemnity provision. Others may limit the application of the carrier’s terms and conditions to these parties and include an indemnity in case of a breach of this agreement. The second type of provision, as exemplified by the North Sea Standard Conditions of Carriage in Scandinavian countries, is generally more reasonable and aligns with the principles outlined in the 1999 UK Act.

Regarding international conventions, they do not explicitly address Himalaya and circular indemnity clauses. However, Himalaya clauses have primarily emerged as a response to the limitations of the Hague and Hague-Visby Rules, where carriers are not liable beyond the “tackle to tackle” point, yet they often engage subcontractors for loading and unloading. The clauses have been effective in blocking claims against shore-based subcontractors in such cases.

Under the Hamburg Rules, the circumstances in which a carrier can legitimately incorporate a Himalaya clause are minimized. The carrier’s liability extends to port-to-port shipment, including stevedoring activities, and both the contractual and actual carriers can be held liable, potentially affecting stevedores and terminal operators.

In the UK, the Contracts (Rights of Third Parties) Act 1999 validates properly drafted Himalaya clauses within specific restrictions. However, it does not grant third parties any benefits beyond exclusion or limitation clauses.

Practically, shippers with significant bargaining power can consider seeking the removal of Himalaya and circular indemnity clauses from contracts. Alternatively, they may negotiate for a clause that does not prevent recovery from the carrier for services it undertakes and limits the indemnity to any excess beyond what can be claimed directly from the carrier under the bill of lading terms. Careful scrutiny of the circumstances of loss is essential when a carrier seeks to rely on such clauses, as ambiguities or limitations in the clauses may work against the carrier in legal proceedings.

Himalaya Clause and circular indemnity clauses are complex contractual provisions that have evolved to address issues in maritime contracts, particularly in common law jurisdictions. Their enforceability and scope can vary, and shippers should carefully consider their implications and seek legal advice when negotiating such clauses in contracts.

In conclusion, it’s worth highlighting how the scope of the Rotterdam Rules, encompassing both the carrier’s extended period of liability and the broader application of the carrier’s defenses to a wider range of third parties, has significantly reduced the need for Himalaya clauses. Many scholars have argued this point. However, it’s essential to understand the primary purpose of the Himalaya Clause in this context. Its objective goes beyond merely extending the benefits of the carrier to third parties; it primarily seeks to regulate the third party’s liability by providing them with a complete exclusion of liability. This intention is explicitly stated in the first sub-paragraph of the clause and should not be underestimated, especially considering that, while uniform rules do not explicitly address the liability of servants, agents (in the case of the Hague-Visby and Hamburg Rules), or employees of maritime performing parties, as well as the master and the crew of the vessel (under the Rotterdam Rules), some national legislations may endorse the first sub-paragraph of the clause by allowing waivers of tortious liability concerning third parties.

 

What are the Limitations of Himalaya Clause?

Himalaya Clause Limitations:

The Himalaya Clause, while providing significant benefits in maritime law, does come with certain limitations and considerations:

1. Jurisdictional Variability: The enforceability and interpretation of the Himalaya Clause can vary significantly depending on the legal jurisdiction. Different countries may interpret the clause differently based on their own legal principles and maritime laws, leading to inconsistencies in how the clause is applied.
2. Scope of Protection: The extent of protection offered to third parties by the Himalaya Clause depends on the specific wording of the clause and the contract. In some instances, the clause might not cover all potential liabilities or all third parties involved in the shipping process.
3. Conflict with International Conventions: The Himalaya Clause can sometimes conflict with international shipping conventions like the Hague-Visby Rules or the Hamburg Rules. These conventions set standards for the international carriage of goods by sea, including liability provisions, and may limit the applicability of certain aspects of the Himalaya Clause.
4. Limitation to Contractual Parties: The clause generally extends liability protection only to those parties mentioned or implied in the contract. This can be a limitation if a party involved in the shipping process is not adequately covered or mentioned in the contract.
5. Legal Challenges: The Himalaya Clause can be subject to legal challenges, particularly in cases where its application might be seen as unjust or overly broad. Courts may scrutinize the clause to ensure it does not grant unreasonable immunity from liability.
6. Potential Disadvantages for Shippers and Consignees: While the clause protects carriers and third parties, it may be seen as disadvantageous to shippers and consignees, as it limits their ability to seek full compensation from these third parties in the event of loss or damage to the cargo.
7. Complexity in Claims Processing: The inclusion of the Himalaya Clause can complicate the process of claims and litigation, as it adds an additional layer of legal consideration, potentially prolonging dispute resolution.
8. Reliance on Specific Contractual Language: The effectiveness of the Himalaya Clause hinges on the specific language used in the contract. Poorly drafted clauses may not provide the intended protection, leading to legal disputes and ambiguity.

These limitations highlight the need for careful drafting and consideration of the Himalaya Clause in shipping contracts and underscore the importance of understanding its implications within the broader framework of international maritime law.

 

Himalaya Clause and Hague Rules

The recent judgment in the English Commercial Court case of Whitesea Shipping v. El Paso is of significant importance concerning the operation of Himalaya clauses. It is considered the most significant decision on this matter since the House of Lords’ ruling in the “Starsin” case and provides clarity in navigating the sometimes conflicting reasoning of the Lords in that prior case.

To provide some context, a Himalaya clause is a contractual provision designed to extend the same legal protections enjoyed by a carrier by sea to its servants, agents, and subcontractors. The term “Himalaya clause” derives from a decision in the English Court of Appeal in the case of Adler v. Dickson (The “Himalaya”) [1954] 2 Lloyd’s Rep 267. In this case, a passenger aboard the S.S. Himalaya was injured when a gangway collapsed during the voyage. The passenger ticket contained a clause exempting the carrier from liabilities to guests. Consequently, the injured passenger sued the Master of the ship and the boatswain. The Court of Appeal ruled that, just as in the carriage of goods, a carrier could stipulate contract terms not only for themselves but also for those they engaged to carry out the contract. This stipulation could be express or implied.

Ironically, in the “Himalaya” case itself, it was determined that the passenger ticket did not explicitly or implicitly benefit servants or agents, so the defendants couldn’t rely on the exemption clause. However, this decision led to the inclusion of specially drafted “Himalaya clauses” benefiting stevedores and others in bills of lading.

Subsequently, these clauses have been upheld by the Judicial Committee of the Privy Council and are now generally accepted as settled law in most common law countries.

The primary purpose of a Himalaya clause is to prevent cargo owners from bypassing the carrier’s contractual defenses (typically exceptions and limitations outlined in the Hague-Visby Rules) by suing third parties who perform contractual services on the carrier’s behalf. It also protects servants, agents, and independent contractors of the contractual carrier from being sued outside the scope of the Hague Rules.

In the Whitesea Shipping v. El Paso case, cargo claimants sought to bring a tort claim in Brazil against various parties, including owners, vessel managers, charterers, and the owners’ P&I Club, to avoid the owners’ Hague Rules defenses. The owners had issued bills of lading specifying English law, subject to the Hague Rules, and included a Himalaya clause that featured a covenant not to sue in its first paragraph.

The cargo interests argued that enforcing the covenant not to sue would violate Article III Rule 8 of the Hague Rules, which renders null and void any clause, covenant, or agreement in a contract of carriage that relieves the carrier or the ship from liability for loss or damage arising from negligence or fault. They contended that enforcing the clause would be in conflict with Article III to which the Himalaya contract is subject.

The key points addressed by Mr. Justice Flaux in his ruling were whether the claimants had a sufficient practical interest in enforcing the covenant not to sue, whether the third parties not involved in the carriage could be considered parties to the contract, and whether the Himalaya clause was part of the contract of carriage.

Flaux J concluded that the claimants had shown sufficient practical interest because, if the defendants proceeded against the third parties and obtained judgments in Brazil, the claimants might face an indemnity claim from one of these third parties.

Regarding whether the Himalaya contract was a “contract of carriage” under the Hague Rules, the judge determined that it was not a contract of carriage but rather a contract of exemption ancillary to other contractual arrangements. The collateral contract between the shipper and independent contractor did not qualify as a contract of carriage, and the independent contractor was only deemed a party for the purpose of benefiting from the exemption clause against the shipper and any transferee of the bill of lading.

Concerning the third parties not directly involved in the carriage, Flaux J noted that they performed services incidental to the goods or the carriage but did not undertake the actual carriage of goods. He emphasized that merely benefiting from the Himalaya clause did not automatically make a party a carrier within the meaning of the Hague Rules.

Flaux J concluded that enforcing the covenant not to sue was not contrary to Article III Rule 8 because none of the third parties undertook the sea carriage or qualified as the carrier within the Hague Rules. This was in contrast to the situation in the “Starsin” case where the owners themselves were considered carriers.

The judge also highlighted that the insurer-defendant’s motivation for pursuing third parties was to circumvent the limitations on remedies set out in the R.H.A. conditions of haulage. They did not sue the claimants because it would have resulted in the owners presenting limitation of liability and time-bar defenses. Therefore, the effect of a successful claim against the hauliers would have shifted liabilities to the owners that should not have applied under the Hague Rules.

In conclusion, the judge ruled in favor of the claimants, granting them an anti-suit injunction restraining the defendants from continuing proceedings in Brazil against all the parties being sued there. This decision provides clarity regarding the application of Himalaya clauses and their compatibility with the Hague Rules, particularly in cases involving third parties not directly involved in the carriage.

 

Key Features of Himalaya Clause

Himalaya Clauses are inherently intricate, and it is unfeasible to create a clause that universally operates effectively in all situations and across all legal jurisdictions. The goal of BIMCO (Baltic and International Maritime Council) has been to craft a clause that is likely to be acknowledged and enforced in numerous major jurisdictions, including the United States and the United Kingdom. To achieve this, guidance was sought from prominent legal counsel in the UK and US during the drafting process.

Primarily, the Himalaya Clause is intended for inclusion in bills of lading, although with careful adaptation, it can be applied to charter parties and other maritime contracts. Parties incorporating the Himalaya Clause must exercise caution to ensure that it serves its intended purpose when applied to various types of contracts. For example, when employed in bills of lading or other documents that form or evidence contracts of carriage, the terms “Carrier” and “Merchant” must be defined, and these definitions should align with the specific intentions of the parties, which can vary from contract to contract. Where necessary, BIMCO (Baltic and International Maritime Council) recommend that any modifications to the Clause be made following appropriate legal advice. Members are encouraged to reach out to their respective Clubs for assistance in this regard.

Himalaya Clause is designed, where feasible, to achieve the following objectives:

1. Fully exempt the servants, agents, or subcontractors of a contractual carrier or other contracting party from liability under a contract (with the understanding that a relevant court may interpret the Clause in a manner that provides such complete exemption), or to grant these servants, agents, and subcontractors all the rights, limits, defenses, and liability exemptions that the contractual carrier enjoys under that contract.
2. Impose on the other party to the contract, defined in the Clause as the “Merchant” (which encompasses a shipper, consignee, or bill of lading holder), an obligation not to sue any servant, agent, or subcontractor of the contractual carrier. Additionally, it requires the Merchant to indemnify the contractual carrier if the Merchant makes a claim, whether under the contract or in tort, bailment, or any other legal basis, against the servants, agents, or subcontractors of the contractual carrier involved in contract performance.
3. Ensure that the Clause operates as effectively as possible for the protection of its intended beneficiaries by stipulating that the contractual carrier or other contracting party acts as an agent or trustee for its servants, agents, or subcontractors in relation to the contract. It also deems these servants, agents, or subcontractors as parties to the contract.
4. Provide protection in scenarios related to the transportation of goods that may not necessarily occur on board a ship. This includes operations before loading, after discharge from a vessel, or those associated with multi-modal carriage.

However, it is crucial to acknowledge that depending on the jurisdiction where liability arises, the Clause’s protection may not always be guaranteed.

We kindly suggest that you visit the web page of BIMCO (Baltic and International Maritime Council) to learn more about Himalaya Clause and to obtain the original Charter Party forms and documents. www.bimco.org