Forum selection - Recognises the presumptive validity

Forum selection

RECENT US court decisions have refused to enforce forum selection clauses in bills of lading in circumstances where the foreign forum does not recognise the concept of an in rem claim against a vessel. This has resulted in the court retaining the in rem claim against the vessel while dismissing the in personam claim against the carrier.

US maritime law recognises the presumptive validity of forum selection clauses in bills of lading governed by COGSA. The presumption of validity of forum selection clauses is rebuttable, however, and may be overcome:-

(1) by "clearly demonstrating that it is unreasonable or invalid"; or
(2) if the " . . . substantive law to be applied [by the chosen forum] would reduce the carrier's obligations to the cargo on or below what COGSA guarantees"; or,
(3) if the forum selection clause has been waived by the party seeking to enforce it. The burden of proving the invalidity of the forum selection clause is on the party seeking to block its enforcement.

Enforcement of forum selection clauses in bills of lading has come under scrutiny in the context of in rem claims against vessels. Cargo interests have argued, and successfully in a growing number of cases, that forum selection clauses should not be enforced, as they violate Section 1303(8) of COGSA, in circumstances where a foreign forum does not recognise an in rem claim against the vessel. The basic premise for this argument is that US maritime law provides for the independent legal liability of a vessel in rem separate and apart from the legal liability of a carrier in personam.

If the foreign forum identified in the bill of lading does not provide for in rem liability of a vessel, then cargo interests' rights under COGSA will be "lessened" in the event the forum selection clause is enforced. In these decisions, the claims against carriers in personam were dismissed based on the Korean forum selection clause in the bills of lading, while the claims against the vessel in rem were not dismissed. As a result, the claims against the vessel in rem remained to be litigated in the US.

This issue is, however, by no means settled. The only Court of Appeals that has addressed the issue has landed on the side of enforcement of a forum selection clause even as to an in rem claim against the vessel. In Fireman's Fund Ins Co v M/V DSR Atlantic, the Ninth Circuit found that the Korean forum selection clause in the bill of lading did not violate Section 1303(8) of COGSA in the context of an in rem claim against the vessel. As a result, the entire lawsuit was dismissed, including the in rem claim. The Fireman's Fund decision has been followed by a number of district courts in the US.

Does the existence of a foreign forum selection clause serve as a ground to vacate a Rule C arrest or Rule B attachment proceeding in the US under a theory that, by virtue of the forum selection clause in the bill of lading, the parties have agreed that all claims arising under the bill of lading should be litigated in a foreign forum?

The brief answer is probably 'no', based on the few cases that have addressed this issue. For example, the District of South Carolina has refused to vacate a vessel's Rule C arrest since it found that enforcement of the Korean forum selection clause would lessen the vessel's in rem liability in violation of Section1303(8) of COGSA. Thus, the letter of undertaking given as a substitute for the vessel remained in place to secure the in rem claim.

In the context of a Rule B attachment, the Ninth Circuit Court of Appeals and the Southern District of New York have refused to vacate an attachment on this ground. These courts have found that the attachment was essentially for purposes of security, and the existence of a foreign forum selection clause in the governing contract should not deprive the claimant of the ability to obtain security for the claim.

In summary, US law governing enforcement of a forum selection clause in the context of an in rem claim against a vessel is in a state of flux. It remains to be seen how this issue will be addressed by other courts of appeal. (Lyons, Skoufalos, Proios & Flood, New York)

Without guarantee

A RECENT UK commercial court ruling in a case involving alleged under-performance of a vessel has produced an important ruling centred on the use of the phrase 'without guarantee' in a charter party clause.

The case concerned the Finnish-built ro-ro Lipa, and the commercial court ruled on an appeal arising from an arbitration. The charter party contained a clause on consumption that provided "all details given in good faith but without guarantee." The arbitrators held that this phrase lessened - but did not completely remove - the owner's obligation to meet the consumption provisions. But this finding was overruled by the commercial court, which found that, in the context of performance, a charter party provision qualified by the words 'without guarantee' was not a warranty.

Ken Littlejohn, a claims executive with the Swedish Club's London office, says, "This interpretation means that a charterer has no basis for bringing an action alleging under-performance unless it can prove bad faith on the owner's part. Bad faith is notoriously difficult to prove. The charterer would need to demonstrate that the owner knowingly made a false statement on vessel performance. In the majority of cases, it is virtually impossible to show that the other party acted in bad faith."

While the commercial court decision in The Lipa underlines the fact that the use of the term "without guarantee" works in the owner's favour in relation to performance, it is the charterer who has the upper hand when 'without guarantee' is used in connection with the duration of a charter party." (2 Lloyd's Rep 17)

Timed out

A RECENT decision of the court of cassation in Dubai has upheld the decision of the country's lower courts that, in contracts of carriage by sea, the carrier is liable for cargo loss or damage vis-à-vis the consignee or any party taking the place of the consignee by law or by agreement.

A consignment of electronic components shipped under a bill of lading from India to Jebel Ali was found to be damaged on arrival. The carrier settled the amount of the claim by paying the cargo interests, and obtained a letter of subrogation in order to have recourse action against the shipowner. The shipowner argued that the claim was time-barred under the UAE Maritime Code as one year had elapsed since delivery of the goods.

After the court of first instance and the court of appeal had held that the claim was time-barred, the carrier argued before the court of cassation that the claim should be described as a recourse action against the party causing the damage, in which case it would not be time-barred. But the court of cassation disagreed, holding that this was a claim for compensation for damaged goods as carried under a contract of carriage governed by a bill of lading, and as such was time-barred under the UAE Maritime Code.

Antonios Dimitracopoulos and Abdul Wahid Al Ulama of UAE law firm Al Tamimi note that this judgment "confirms the rather confusing position that the UAE courts take towards recourse actions arising out of bill of lading/carriage of goods claims.

"A cargo owner can bring an action against the carrier under the carrier's bill of lading, and the carrier at the same time, or shortly thereafter, can bring an action against the owner of the carrying vessel under its bill of lading. In all probability, the carrier will, in this scenario, lose its right to claim against the owner due to the fact that it would not have been able to quantify its loss unless and until a judgment had been issued against it in favour of the cargo owner in the first action.

"If, alternatively, the carrier brings an action against the owner after it has obtained a judgment in favour of the cargo owner - as the facts of this case indicate - then the carrier's claim against the owner can be time-barred if brought after the one-year time limit. This is clearly an unfair and frustrating position for the carrier." (Al Tamimi, Dubai - www.tamimi.com)