U.S. Supreme Court Clarifies Liability Standard Applicable to Inland Leg of International Ocean Transportation of Goods
In a decision issued last week, Kawasaki Kisen Kaisha Ltd. v. Regal Beloit Corp., the U.S. Supreme Court clarified the liability standard that applies to the loss of an international shipment that moves to the U.S. by ocean carrier and to its final destination by railroad. The Court held that the terms of the ocean carrier’s through bill of lading govern liability, and that a federal statute, known as the Carmack Amendment, does not apply. In a larger context, the Court’s opinion can be viewed as facilitating international commerce by alleviating uncertainty arising from potentially conflicting liability standards existing under U.S. law. The Court recognized that federal laws for mode-specific liability clash with modern, multimodal international commerce. Indeed, discussions are taking place at the international level to resolve similar issues arising from global transportation of freight.
In 2005, shippers in the U.S. contracted with an ocean liner, Kawasaki Kisen Kaisha Ltd., and its agent (collectively “K Line”) to transport four containers of freight from China to various destinations in the Midwest. K Line issued a through bill of lading for each container, which covered transportation from the overseas origin to each domestic destination. The through bill of lading provided that K Lines’ liability for loss would be governed by the Carriage of Goods by Sea Act (“COGSA”), and that COGSA would also apply to any carrier hired by K Line to provide a portion of the transportation service. The through bills of lading also contained a forum selection clause mandating that disputes were to be brought in Tokyo. After the containers arrived in the U.S., they were transported inland by Union Pacific Railroad (“UPRR”). UPRR’s train derailed in Oklahoma, causing damage to the freight. The shippers (and their insurers) filed suit against UPRR and K Line under the Carmack Amendment, which creates a cause of action against railroads for loss of freight. Compared to COGSA, the Carmack liability regime is more favorable to shippers, and it would have nullified the forum selection clause.
Examining the statute and relying on precedent, the Court held that the Carmack Amendment does not apply when an ocean carrier receives a shipment at a foreign location and issues a through bill of lading covering the movement from
its origin to its inland destination. In this situation, the Court determined that there is no “receiving rail carrier” within the meaning of the Carmack Amendment and no obligation on the part the initial rail
carrier to issue its own bill of lading. In the absence of a bill of lading requirement, the Carmack liability framework does not spring to life.
Bolstering this result, the Court observed that if a railroad were required to issue a bill of lading as a “receiving rail carrier” then the same shipment would be subject to two different bills of lading and two competing
liability regimes. In this instance, COGSA would have conflicted with the Carmack Amendment. The Court asserted that this result undermines the international, multimodal transportation of goods. Accordingly, the
Court decided that Tokyo was the proper forum for resolving the dispute and that COGSA was the substantive liability framework.
The Court’s decision resolves a split among the federal appellate courts, and provides a measure of certainty to both carriers and shippers as to the liability regime that applies to loss of international, intermodal shipments. The Court drew heavily on a 2004 decision, Norfolk Southern R. Co. v. James N. Kirby, Pty Ltd., which involved similar circumstances. In that opinion, the Court reasoned that the ocean bill of lading prevailed over contrary state law.