Louisiana Record

Thursday, August 22, 2019

Transformer maker's bid to collect for shipping damage shut down by appeals court


By Megan Sims | Aug 14, 2018

NEW ORLEANS – A Netherlands-based power transformer manufacturer that filed a lawsuit after three of its transformers were damaged en route to St. Gabriel, Louisiana, recently lost its bid to collect damages in the 5th U.S. Circuit Court of Appeals. 

Plaintiff Royal SMIT Transformers had filed suit against defendants Central Oceans LLC, whom they contracted to deliver three high powered transformers to Entergy Louisiana LLC. Central Oceans used co-defendants Onego Shipping and Chartering, Illinois Central Railroad Company and Berard Transportation Inc., as subcontractors to transport the transformers from the Netherlands to St. Gabriel. 

In the original complaint that was filed on Sept. 12, 2016, claimed the transformers had been damaged by “excessive vibration” and were insured by co-plaintiffs AXA Versicherung AG, HDI-Gerling Industrie Versicherung AG, Basler Sachversicherung AG and Ergo Versicherung AG.   

Royal sought to collect over $1.6 million in damages for breach of contract, fault and negligence. Yet, the Himalayan Clause, which Royal attempted to use in its suit against the defendants, actually protects the subcontractors from being sued for damages. The clause also limits how much Royal would be able to recover. 

The defendants filed a motion for summary judgment in the case on April 21, 2017, and their motion was granted in the U.S. District Court for the Eastern District of Louisiana. 

Royal appealed that decision to the 5th U.S. Circuit Court of Appeals. In an Aug. 2 decision, U.S. Circuit Judges Patrick E. Higginbotham, Jerry E. Smith and Edith Brown Clement upheld the district court ruling. 

“Royal must abide by the terms it negotiated with Central Oceans,” Higginbotham, Smith and Brown said in the judgment. “The court also concluded that the claims against the defendants could not be transferred because they were not bond by the clause.” 

Royal and Central Oceans had entered into an agreement in which Central Oceans would be liable for any damages, and Royal did anticipate Central Oceans would subcontract other companies to transport the transformers via ship, rail and truck. Since the journey required a combination of land and sea travel, Royal had to bond Central Oceans by a bill of lading which contained the Himalayan Clause.  

Royal argued they did not agree to the clause and contend the clause was not meant to be enforced. The court found their inconsistencies to be problematic, which contributed to the upholding of the original judgment. 

“Royal seeks to override the plain text of its own through bill of lading based on private intentions and agreements between Royal and Central Oceans,” the appeals court ruling said. “By Royal’s logic, downstream carriers should not be able to rely on plain text of a bill of lading to which the cargo owner agreed.” 

The court noted that even though the subcontractors were protected from being sued by Royal, it does not “preclude Central Oceans from suing the defendants to recoup its losses from Royal.” 

5th U.S. Circuit Court of Appeals case number 17-30543

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