Lloyd's Maritime and Commercial Law Quarterly
“PRIVITY FUNDAMENTALISM” AND THE CIRCULAR INDEMNITY CLAUSE
Robert Newell*
Since 1954, when the High Court found that Mrs Adler, a passenger on board the vessel Himalaya, was entitled (notwithstanding a non-responsibility clause in the relevant contract of carriage exempting the carrier) to bring proceedings against the master of that vessel, carriers have sought to insulate themselves from the consequences of that decision.1 The first line of defence was the now familiar “Himalaya” clause. The chequered judicial response to the Himalaya clause highlights the necessary tension between, on the one hand, the perceived commercial need to provide third party protection and, on the other hand, a “classical” application of the privity of contract doctrine.
Uncertainty about the effectiveness of the Himalaya clause led to the development of another clause for the protection of carrier interests, namely the “Circular Indemnity Clause”. By that clause the cargo owner promises that he will make no claim against agents, stevedores, terminal operators or sub-contractors of the carrier. He further stipulates that, if, contrary to his promise, such a claim is made, then he will indemnify the carrier against all the consequences. A typical circular indemnity clause may read as follows:
The Merchant undertakes that no claim or allegation shall be made against any servant, agent or sub-contractor of the carrier which imposes or attempts to impose upon any of them or any vessel owned by any of them any liability whatsoever in connection with the goods, and if any such claim or allegation should nevertheless be made to indemnify the carrier against all consequences thereof.
The clause has been upheld in a number of decisions. It is frequently relied upon by charterers to pre-empt action against a shipowner who might otherwise be liable to cargo interests for breach of duty. However, I shall contend that the clause is ineffective to the extent that it purports to exclude the liability of performing carriers during the period of liability governed by the Hague Rules. In examining the question whether the circular indemnity clause is properly supported by authority, it is not sufficient to ask whether a particular case may have given some effect to a similar stipulation. The question is, rather, whether the clause was held to be effective under circumstances that it purported to protect a performing carrier during the period of responsibility governed by the Hague Rules. With that constraint in mind, the authority in favour of the clause is more sparse than may appear.
The first reported instance of the clause being “upheld” appears to be the
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