50. (The “Mahkutai”) [1994] 1 H.K.L.R. 212; [1996] 2 Lloyd’s Rep 1

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Himalaya clause – exclusive jurisdiction provision in bill of lading not available to sub-contractor

The facts

Plywood was shipped from Indonesia via Shantou to Hong Kong under a bill of lading issued by the time charterers with the shippers who in turn negotiated the bill of lading by endorsement.

The cargo was damaged by sea water and the endorsees caused the vessel to be arrested in Hong Kong.

The arrest was made on the erroneous basis that the time charterers were the owners of the vessel. The owners nevertheless put up security for the claim and the vessel was allowed to sail.

The bill of lading contained a Himalaya clause affording every servant, agent and sub-contractor of the carrier the benefit of “all exceptions limitations, provisions, conditions and liberties herein benefiting the carrier”.

The bill of lading reserved jurisdiction and choice of law to Indonesia.

Owners applied for a stay of execution in Hong Kong claiming to be entitled to the benefit of the exclusive jurisdiction clause by virtue of being the sub-contractors of the carriers.

Findings

Sears J held that owners were entitled to invoke the exclusive jurisdiction clause and granted a stay.

The Hong Kong Court of Appeal (Litton, JA and Mayo, J, concurring, Bokhari, JA dissenting) held that owners did not qualify as sub-contractors for the purposes of the Himalaya clause and upheld the appeal.

The majority held, in any event, that even if owners were entitled to the benefit of the exclusive jurisdiction clause, that it would have exercised its discretion against them in granting a stay. One of the main reasons was that there was existing security for the claim in Hong Kong which the endorsees would lose if proceedings were commenced in Indonesia.

Bokhari JA agreed with the court of first instance and held that owners were in possession of the goods as bailees on the same terms as the bill of lading. This entitled owners to the benefit of the exclusive jurisdiction clause.

Bokhari JA agreed with the court of first instance that this was not a case in which to exercise the general discretion to refuse a stay in favour of the forum.

The Privy Council, (Lords Goff, Jauncey, Nicholls, Hoffmann and Sir Michael Hardie Boys) decided in favour of the endorsees/cargo owners on a different point. The unanimous opinion of the Board was delivered by Lord Goff.

The exclusive jurisdiction clause was there for the benefit of both parties. The Himalaya clause referred to benefits of owners alone.

Lord Goff viewed the Eurymedon solution as artificial and suggested that it was opportune to make an exception to the strict requirement of privity of contract.

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