A purchaser whose employees personally intervene in negotiations between shipping intermediaries can be bound by the terms of the bill of lading. The United States Court of Appeals for the Seventh Circuit came to this conclusion in Kawasaki Kisen Kaisha, Ltd. v. Plano Molding Co., 2012 WL 3711873 (7th Cir. Aug. 29, 2012), a case concerning the carriers' claims for indemnity against the purchaser of molds for plastic storage boxes. The Kawasaki decision cautions importers who use freight forwarders and brokers to rely on their agents and not intermeddle with the arrangements for their cargo. Otherwise, purchasers can be held liable under the shipping documents where packing defects may have led to the cargo loss.
In Kawasaki, the appellate court found evidence both supporting and contradicting the carriers' position that the purchaser had actually been involved in the negotiation of the shipment terms. Based on this conclusion, the Seventh Circuit sent the case back to the trial judge, presumably for a full trial on this issue.
The Kawasaki saga began in April of 2005 when thirty train cars were overturned during a derailment outside Tyrone, Oklahoma. The cargo aboard the train, primarily from China and destined for points in the Midwest, suffered heavy damage. Twelve lawsuits were filed by cargo owners and their insurers in the Southern District of New York, a federal court with extensive maritime expertise. After consolidating these suits into a single action, the federal district judge in New York dismissed them all in 2008, since the bills of lading designated courts in Tokyo and Hong Kong for all disputes. Four other cargo claims from the same derailment were also filed in California, against the rail carrier, Union Pacific, which resulted in the landmark 2010 United States Supreme Court decision in Kawasaki Kisen Kaisha, Ltd. v. Regal-Beloit Corp. In the high court's Kawasaki opinion, the court held that the forum selection clause of the ocean carrier's master bill of lading controlled disputes between the cargo owners and the ocean carrier's sub-contracting rail carrier. This was because the bills of lading issued by Kawasaki contained a "Himalaya clause," which gave all sub-contractors the same protections as the ocean carrier itself. Effectively, the Supreme Court's 2010 ruling in Kawasaki foreclosed all lawsuits against the carriers – both ocean carriers and the domestic rail carrier – in the United States.
In the more recent Seventh Circuit case, Kawasaki and Union Pacific sought indemnity against the purchaser of certain cargo. Effectively, the carriers were seeking reimbursement of damages paid to cargo owners in settlement of the New York litigation. The federal trial judge denied the carriers' indemnity claim by entering summary judgment on all counts. However, on appeal, the Seventh Circuit refused to apply the flexible agency principles of intermodal transportation law to hold the purchaser liable under the ocean carrier's bill of lading. The appellate court ruled that such imputed agency (allowed under the Supreme Court's 2004 Kirby decision) applies only to defenses, and not to offensive claims. The court also refused to recognize tort liability against the purchaser. Ultimately, however, the court concluded that there was evidence in the record that the purchaser might have directly negotiated the terms of shipment in the domestic non-vessel operating common carrier's (NVOCC) bill. The Court also found that if the carriers prove that the purchaser was directly involved in the arrangements for the cargo's transportation, the purchaser could be held to the indemnity provision of the NVOCC's bill of lading, and forced to reimburse the carriers for defending the cargo owners' suits.
This latest appellate decision to emerge from the Kawasaki derailment reminds us that purchasers who use transportation intermediaries to move goods should not sideline those intermediaries during negotiations with custodial carriers. The failure to heed this cautionary tale may lead to more purchasers being held liable under terms in bills of lading to which they otherwise would not have been parties.