AUTHORED BY – JAYANTH

Thus the issue of flow of consideration was resolved by the court by describing bill of lading as bargain. This case in effect can be regarded as the confirmation that commercial practices do eventually translate into binding legal principles. The final confirmation that the Himalaya clause replaced the privity rule can be attributed to the Privy Council judgment in The New York Star[10].

The facts of the case were that Schick Safety Razor Co. shipped a cargo of razor blades at New Brunswick in Canada for carriage to Sydney on the New York Star. The respondent was named as consignee in the bill of lading. The bill of lading was issued to the shipper and transmitted to and accepted by the consignee. The carrier was the Blue Star Line, which owned 40% of the capital of the appellant stevedores in the Port of Sydney. It was common for the appellant to act as stevedore for the Blue Star Line, and in fact the appellant had for a number of years enjoyed a monopoly of the carrier's business in that port. The New York Star arrived in Sydney port. The goods were discharged from the ship, and were placed by the stevedores in a shed on the wharf under their control. It was found that because of their carelessness, a fraudulent third party was able to make away with the consignment. However, the bill of lading contained a Himalaya clause which purported to extend the benefit of defence and immunities conferred upon the carrier to any independent contractor employed by the carrier "while acting in the course of or in connection with his employment”.

The Board unanimously reaffirmed the correctness of the decision in The Eurymedon. It was felt that any stevedores employed by the carrier would normally come within the phrase "servant or agent of the carrier" in the Himalayan clause of the bill of lading, and it was irrelevant that the stevedores of the carrier, as in The Eurymedon, or that they were partially owned by the carrier, as in The New York Star. The normal situation was that stevedores enjoyed the benefit of any arrangement between a carrier and a shipper, where it was understood that the carrier would employ stevedores to perform work in connection with the goods, and where the intention was clearly expressed that the stevedores should benefit from the terms contained in the bill of lading.

The other issue in the case was whether the bill of lading containing the exemption clause was still operative after the goods crossed the ship’s rails. The court took into consideration that consignee rarely take delivery directly from the ship’s rail but after some time of discharge near or at the wharf as it is commercially unreal for a carrier just to dump the goods and hence he has responsibility after the goods leave the ship’s tackle and therefore this action is still contemplated by the bill of lading. This explains how judges in England are aware of commercial customary realities which are never far away when interpreting terms in the bill of lading containing a Himalaya clause[11].

As cargo owners seek door-to-door transport solutions, they often employ third-party experts to help them capitalise on modern multimodal processes. Instead of directly hiring carriers, cargo owners regularly contract with transport intermediaries under multimodal bills of lading designed to cover the entire carriage over both sea and land. These intermediaries, who typically do not operate transportation assets themselves, then sub-contract downstream performance across the multimodal chain to ocean, rail and motor carriers. While this arrangement can reduce costs and enhance efficiency, it removes the privity of contract between the cargo owners and the entities physically handling the cargo. If a dispute arises between the cargo owners and the actual carriers, this missing privity may create a barrier for downstream entities to rely on the terms reflected in their standard contract forms. This scenario raises doubts as to whether the sub-contractors are adequately protected by contract vis-à-vis the cargo owner. One possible solution for the sub- contractor is to rely on a so-called "Himalaya" clause in the lead contract made with the cargo owner. A Himalaya clause could protect classes of sub-contractors by extending to them the right to invoke the terms of the upstream contract to which they are not a party. But Himalaya clauses have limitations that might deprive a sub-contractor from achieving adequate protection. While a sub-contractor may be able to invoke contractual rights and defences via a Himalaya clause, this will only satisfy the sub-contractor if the provisions in the upstream contract are identical to (or more favourable than) the sub-contractor’s standard terms. The scope of the protection offered to the downstream sub-contractor is limited to the specific terms included in the contract containing the Himalaya clause. A Himalaya clause does not operate to bind the cargo owner to terms negotiated downstream. Recognising that the privity barrier is only partially remedied by Himalaya clauses, courts have contemplated whether there may be an alternative basis for sub-contractors to invoke terms negotiated further downstream. Addressing this question, English courts and their Commonwealth brethren have taken the approach of sub-bailment of terms[12].

This approach has its origins in a case involving the stole of a mink fur coat. In Morris v CW Martin & Sons[13], the central legal question was whether a coat cleaning company could invoke an exoneration clause against the owner of the stole who had employed an intermediary to secure its cleaning. The Court found that the question of the cleaners’ liability was most appropriately answered under principles of bailment and sub-bailment. It reasoned that, after the owner of goods tenders those goods to a bailee, the bailee owes the bailor a duty to take all reasonable precautions to protect the goods entrusted to him. If the goods are further sub-bailed by the bailee, the sub- bailee owes the owner of the goods the same duties as the original bailee. As a result, the owner of the goods "can sue the sub-bailee direct" for any loss of or damage to those goods, and in return the sub-bailee can protect themselves on invocation of exculpatory terms against the bailor.

More than 30 years later, the Privy Council applied this sub-bailment on terms framework in a seminal carriage of goods by sea case: the Pioneer Container[14]. The claimant was a cargo owner who contracted with a carrier to ship the cargo. As per the bills of lading, the claimant granted the carrier authority to sub-contract their duties ‘on any terms’, in part or in whole. Subsequently, the carrier sub-contracted a third party, the defendant, using a secondary bills of lading which stipulated that the legal jurisdiction in the event of dispute would be Taiwan. During the chartered voyage from Taiwan to Hong Kong, the ship carrying the cargo sank, and the goods were lost. The claimants initially attempted to bring an action via the Hong Kong judicial system, whilst the ship owners asserted that the case ought be considered in Taiwan, as per the terms of the exclusive jurisdiction clause of the secondary bills of lading.

Ruling for the defendant, the Privy Council held that the doctrine of "sub-bailment on terms" allowed enforcement of the forum selection clause against claimants. Through the bailment lens, the Privy Council described the claimants as the bailors, the carrier as the head bailee, and the defendant sub-contracted third party as the sub-bailee. The Court here held that the bailment framework "does not depend for its efficacy either on the doctrine of privity of contract or the doctrine of consideration", and that a downstream carrier’s ability to invoke provisions of the upstream bill of lading through a Himalaya clause does not bar it from invoking the terms of its own bill of lading. The Pioneer Container sub-bailment on terms framework remains pivotal authority when a multimodal sub-contractor seeks to invoke downstream terms against an upstream cargo interest who has not invoked the contract for its own benefit.

India is a jurisdiction where there is a mix of both common law and civilian laws, which provides ample scope for the accommodation of the Himalayan clause. Indian law, unlike English law, has been more liberal with the application of privity doctrine wherein it has allowed third parties to benefit from the contract[15]. Also, the Indian contract Act, 1872 is more liberal with the question of consideration where in unlike English law, past consideration[16] and inadequate considerations[17] are valid. Further, the Act fully recognizes the customary practices and the Indian Courts, like their US counterparts, have upheld reasonable usage of trade, customs and practice[18].

Hence, the validity of the Himalayan clause with respect to the rules of privity and consideration seem uncontested in the Indian scenario.

Further with respect to multimodal transport, the English principle of sub-bailment on terms was reiterated by the Supreme Court of India in N R Srinivasa Iyer v New India Assurance Co. ltd[19], wherein the Court stated that,

“If the sub-bailee accepts the possession of the goods, he assumes the obligations of a bailee towards the original bailor. The bailor has a right of action against the sub- bailee for breach of any of his duties”.

Hence applying this precedent the Indian Courts should not have any hesitation to allow the sub-contractors to invoke the terms of its own bill of lading against the shipper even though the latter is not privy to this bill of lading.

The US Supreme Court, in Norfolk Southern Railway Co v James N Kirby[20], took a different approach while according protection to the downstream entities in a multimodal transport of cargo. On the question of whether the carrier acts as an agent of the shipper when it negotiates terms with the downstream entities, the Court stated that, although an intermediary could not be considered the cargo owner’s agent for purposes of negotiating all downstream contracts, it could still bind a cargo owner to certain terms within those contracts. Instead of finding a traditional agency relationship, the Supreme Court announced a "limited agency" rule in which intermediaries are presumed to be a cargo owner’s agent for the narrow purpose of negotiating limitations of liability provisions downstream. The Supreme Court explained that the intermediary should not be considered an agent "in the classic sense" where effective control and a fiduciary relationship are required. It determined that such a broad rule would be "unsustainable" in practice. Instead, under the limited agency rule, the intermediary automatically acts as the agent of the cargo owner for the "single, limited purpose" of negotiating limitations of liability with downstream carriers. Again the Court here based its reasoning on the sustainability of the enterprise and recognized the commercial realities in the sector[21]. The limited agency principle seems valid with respect to the agency principle outlined in section 204 of the Indian contracts Act, 1872 wherein it recognizes the partly exercised authority by the agent and prohibits the principal to revoke it.

It is thus safe to conclude that the principles derived by the courts of UK and USA in upholding the validity of the Himalayan clause are valid in the Indian context as well and the Indian Courts must have no hesitation in upholding the same. The Himalaya clause is not only an expression of customary practices and knowledge but it now a transnational law which has been held valid by Courts in major shipping countries. Indian courts by upholding it, will contribute to the growth and diversification of Indian maritime trade.