United States: Recent Developments In U.S. Carrier Liability Law—In Re Complaint Of Murmansk

The liability of the carrier is one of the most important issues in maritime collision law. This article considers an oft-overlooked but nonetheless important aspect of collision liability: Both-to-blame clauses and their operation when collisions occur on United States territorial waters, and, in particular, the issues that confronted the federal district court in considering such a clause’s application in In re Complaint of Murmansk Shipping Co., 2001 WL 699530 (E.D. La. 2001).

The both-to-blame clause found in most ocean bills of lading comes into play when two vessels, both at fault, collide and cargo on one of the vessels is damaged, as in this case:

On August 6, 2000 the M/V Anangel Endeavor ("Anangel") collided with the M/V IVAN SUSANIN (owned by "Murmansk Shipping," hereinafter "Murmansk") on the Southwest Pass of the Mississippi River. Both vessels were at fault in causing the collision. The M/V Anangel carried a cargo of corn pursuant to a charter party and bill of lading—both of which contained a both-to-blame clause. The corn was owned by M/S Tareem Poultry Co. Ltd., and Al Zhaheri Poultry Farms ("cargo claimants"). As a result of the collision, the voyage was abandoned.

Following the collision, Anangel, relying on the both-to-blame clause in the bill of lading and charter party, filed a complaint seeking limitation of liability and indemnity from cargo interests. Murmansk and cargo claimants both entered the limitation proceeding. Cargo claimants asserted a claim for damages against Murmansk, which in its turn asserted a claim against Anangel seeking both the cost of hull repair and indemnity and contribution for any amounts that Murmansk owes cargo claimants.

Anangel’s argument was that the cargo claimants must indemnify Anangel for any damages it must pay the owners of the non-carrying vessel, Murmansk for cargo claims. To enforce its rights against cargo, Anangel filed a motion to attach the discharged cargo pursuant to Supplemental Admiralty Rule B(1) of the Federal Rules of Civil Procedure. The motion was granted. Cargo claimants then filed a motion to vacate the attachment, alleging that Anangel did not have a claim against them as a matter of law. A hearing ensued to consider the validity of cargo’s position. The court found for the Anangel and ruled that the both-to-blame clause was valid between the parties, that the both-to-blame clause applied to the dispute at hand, and that the clause provided reasonable grounds for upholding the attachment over the motion to vacate.

Before discussing the importance of the court’s decision, it is helpful to examine the history and current status of both-to-blame clauses under U.S. law.

Under U.S. maritime law, cargo damaged as a result of a collision may recover 100% of its loss from the non-carrying vessel.¹ In other words, in a mutual fault (both to blame) collision, U.S. maritime law holds a non-carrying vessel liable to cargo on the carrying vessel for 100% of its loss under the theory of joint and several liability.² The non-carrying vessel, however, may seek contribution from the carrying vessel for any amount paid to cargo from the carrying vessel to mitigate the harshness of the joint and several liability rule.³

Permitting cargo on the carrying vessel to recover 100% from the colliding vessel, however, results in a conflict with Carriage of Goods by Sea Act (COGSA), which enacted the Hague Rules in the U.S.⁴ Under COGSA, the carrier and its owners are typically insulated from liability to cargo due to negligence in the management or navigation of the vessel⁵; but when cargo owners claim against the colliding vessel and obtain a recovery, the non-carrier may recover a proportion back from the carrier which has the effect of making the carrier indirectly responsible to its own cargo in contradiction to the Hague Rules and COGSA.

To prevent this anomalous result of carriers being held indirectly responsible to cargo by way of contribution to the non-carrying vessel, carriers began to insert both-to-blame clauses into either the charter party or the bill of lading, or both. However, many of such both-to-blame clauses were declared invalid in the U.S. Supreme Court opinion, U.S. v. Atlantic Mutual Ins. Co.⁶ The Atlantic Mutual decision held that common carriers could not escape liability to cargo interests because "there is a general rule of law that common carriers cannot stipulate for immunity from their own or their agents’ negligence."⁷ While this rule for common carriers has been well-observed for quite some time, its application to the situation of private carriers has been somewhat more uncertain until recently.

It is with this previous uncertainty in mind that one might understand the importance of decisions such as the one in Murmansk⁸ in revitalizing and preserving both-to-blame clauses in private carriage arrangements within the U.S.

Three aspects of the court’s decision in Murmansk are particularly significant to carrier liability in U.S. maritime collisions. First, while Atlantic Mutual was considered by cargo interests in Murmansk to be a stumbling block for Anangel when it requested the court to enforce the both-to-blame clause, the District Court agreed with Anangel that such clauses are valid in private contracts of carriage. Second, the court further agreed with the Anangel that attachment of cargo’s interest is reasonable to secure contingent claims against the carrier that might be filed by the non-carrier for its liability to cargo. Finally, the court in Murmansk identified and resolved an important problem in interpreting popular North American Grain Bill of Lading forms’ ("Norgrain") both-to-blame provisions which were determined to have a misprint which might affect their application in maritime collision cases that occur in the territorial waters of the U.S.

The court’s determination that both-to-blame clauses are valid in private contracts of carriage is significant and is consistent with the great weight of authority on U.S. maritime law that respects the freedom of private entities to allocate risks among themselves.⁹ Unlike the common carrier, the shipowner engaged in private carriage is not meant to be an insurer of the cargo’s interests; and private business entities have long been willing and able to adjust risk allocation in contracts.¹⁰ In applying these principles and legal authorities, the court in Murmansk helped to ensure the continuing viability of such both-to-blame clauses which allow cargo and carriers to make effective and lucrative arrangements for carriage of goods.

The second significant aspect of Murmansk is that the court went even further in recognizing the validity of both-to-blame clauses by allowing carriers to use such clauses as reasonable grounds to attach cargo property as security for possible claims by the non-carrier against the carrier for total collision loss. The court in Murmansk agreed with the Anangel that a carrier only needs to show that such an attachment is reasonable under the circumstances to secure a contingent claim against it by the non-carrier—the carrier is not required to prove that a claim already exists. A valid both-to-blame clause that can serve as a basis for attaching cargo potentially goes a long way in ensuring that the carrier is not held indirectly liable to cargo interests and, thus, prevents potential anomalies that might otherwise arise.

The Murmansk court also may have identified and resolved an important problem in interpreting and applying the provisions of the both-to-blame clause found in a commonly used form known as the "Norgrain" bill. Cargo claimants in Murmansk argued that the clause only applied when U.S. law does not apply and, since the collision occurred in U.S. territorial waters, the clause was simply inapplicable. To support this argument, cargo claimants pointed out that the word "fails" is used in the portion of the clause which refers to applicable law.¹¹ The court agreed with the Anangel, however, that the word "fails" in the form is a misprint that should be read/replaced as "falls". In addition to several treatises which support the argument¹² the court found Anangel’s argument persuasive that there would be no need for a both-to-blame clause if U.S. law did not apply to the collision because the American rule allowing cargo to recover 100% from the non-carrying vessel is contrary to the international practice of the Brussels Convention which limits cargo’s recovery against the non-carrying vessel to the proportion of that vessel’s contributory fault.¹³ Consequently, under U.S. maritime law, the Murmansk decision may indicate that the Norgrain form misprint will be interpreted as though the parties intended the both-to-blame clause to apply to the carriage contract which "falls" under U.S. law. Such a determination may have far-reaching implications for any parties who use the Norgrain form and may herald claims based on such both-to-blame agreements that might have previously been overlooked due to the misprint.

Both the history of both-to-blame clauses and the recent ruling in Murmansk indicate that despite the controversial and complicated issues regarding the applicability of both-to-blame clauses in collision cases in the U.S., such clauses are likely enforceable by private carriers against shippers. The enforcement of both-to-blame clauses is desirable to ensure that carriers are not indirectly liable to cargo claimants despite assurances to the contrary in COGSA and is desirable from a policy standpoint which encourages freedom of contract in risk allocation among businesses. Beyond clarifying that such clauses are valid between cargo and private carriers, the decision in Murmansk serves to underscore the usefulness and sustainability of attachment proceedings against cargo as a means of ensuring that carriers are not liable for cargo losses. Finally, parties using Norgrain forms may wish to consider the implications of the misprint and the likelihood that a court will interpret the both-to-blame clause as applying in situations where U.S. law also applies.