Cargo claims under Venezualan jurisdiction

A REVIEW of court decisions related to cargo claims in Venezuela reveals that there has been not a uniform criteria followed by judges when dealing with jurisdiction issues. In fact, the recent decision in the Jans case (Seguros Avila, C A -v- Thos & Jas Harrison Ltd, and Others - Court File No 12,379, Ruling No 815) raises concern about the ability of carriers to effectively invoke foreign jurisdiction clauses inserted in their bills of lading, as a way to avoid lengthy proceedings before domestic courts, particularly in the case of claims brought against them for loss or damage to cargo.

General principles on jurisdiction over foreigners

Venezuelan courts can exercise jurisdiction over entities not domiciled in the country by virtue of Article 53 of the Code for Civil Procedure (CCP), concerning Procedural International Competence (De la Competencia Procesal Internacional), according to which courts of the republic will be competent to hear claims against individuals or entities not domiciled in the republic, when:

1. It is a claim upon property located in the territory of the republic.
2. It is related to obligations derived from contracts or activities performed in the territory of the republic, or when such contracts or activities must be executed within it.
3. The parties submit themselves expressly or tacitly to the jurisdiction of the republic.

Nevertheless, where terms and conditions used by the parties in their contract include clauses which call for arbitration in a different country (e.g., in New York) as well as the application of the law of that country to the contract and to any disputes which might arise, it could be argued that Venezuelan courts should be prevented from dealing with any dispute arising from the contract.

Thus, in Interamericana de Aviaci¢n, C A -v- Agro Air Associates Inc (30 March 1995) it was held by the Supreme Court that, if it is true that Venezuelan courts can exercise jurisdiction over claims against individuals or entities not domiciled in the republic of Venezuela, when a) suits are made upon property located in the territory of the republic and b) suits are made in respect of obligations derived from activities performed in the territory of the republic, these rules have two exceptions, according to which Venezuelan courts do not have jurisdiction when a) suits are made upon overseas property and b) the contracting parties have expressly agreed upon the jurisdiction of the courts to which they will submit their conflicts.

Therefore, where a lawsuit is brought in Venezuela and the contract provides for arbitration elsewhere, the likelihood would be that the Venezuelan court will decide this point upon request of the defendant, who will have to file a motion asking for the lack of jurisdiction of the Venezuelan court in view of the existence of an arbitration clause.

To illustrate this point, in Merril Lynch and others -v- Felipe Penfold and others (21 March 1996), the Supreme Court had to decide upon the application of a clause stating an express submission of any controversy or conflict to a foreign court, in particular, "The Federal and State Courts of New York", in view of which the defendants filed a motion claiming lack of jurisdiction of the Venezuelan courts (Cuestión Previa de Falta de Jurisdicción).

It was held that, by inserting such a clause, the parties had contractually agreed to submit their controversies in respect of the contract to the jurisdiction of New York courts. Therefore, the Supreme Court declared lack of jurisdiction.

Despite the jurisprudence of the Supreme Court in upholding foreign jurisdiction/arbitration clauses within non-maritime contractual agreements, the situation has been rather different regarding foreign jurisdiction as well as arbitration clauses inserted in bills of lading, where little guidance can be found due to the changing criteria used by the courts. It may be said that the lack of uniformity in this regard following the decision in the Jans case will not be improved at all. So it seems appropriate to analyse the implications of the case for shipowners/charterers and other vessel operators

The connecting factor test

This case involved an action by Seguros Avila as subrogated cargo insurer against CGM, Harrison Line and Royal Mail Line, in connection with the sinking of the Jans at the port of La Guaira. The three carriers contended that the Venezuelan courts lacked jurisdiction based on the existence of a foreign jurisdiction clause in each of the bills of lading, providing that claims under the contract of carriage had to be brought in France and the UK.

The Supreme Court of Justice then argued that, in those circumstances where there are connecting factors involving Venezuela - for instance, a Venezuelan receiver or an agent acting on behalf of a carrier - the so-called gravity centre theory should apply. Therefore, the court ruled that, unless there has been an express Venezuelan jurisdiction waiver in the bill of lading, claims against the carrier can be brought before the Venezuelan courts, despite the existence of a foreign jurisdiction clause.

The implications of this decision are rather worrying for foreign shipping operators and their P&I clubs, taking into consideration the lack of experience of local courts insofar as maritime affairs are concerned, as well as in respect of time-consuming judicial proceedings. It might be expected, on the other hand, that this decision could encourage local cargo receivers and insurers to bring legal actions before domestic courts.

However, the relevant point to be underlined from this decision is the reasoning applied by the Supreme Court when considering the so-called gravity centre theory. After considering the function of the bill of lading as well as its value as a contract of carriage in liner traffic, the court went on to analyse the jurisdiction issue, stating that it "should be the subject of detailed study as this is inherent to territorial sovereignty of each state.

"In consequence, the Venezuelan state is enabled to determine, absolutely and unilaterally - disregarding any similar, foreign judicial dispositions or body of laws - and to establish, the limits of its own jurisdiction; and only when the special case in consideration can be subject to foreign codes of law or regulations without prejudice to said sovereignty, may the state decline. By virtue of above, each dispute should be analysed in respect of all elements involved and each connecting factor such as domicile, place, place of execution, nationality, should not be assessed by judges independently but as a whole, or as a group of particular circumstances by judges, in order to decide accordingly and to the best interest of justice. If, at completion of study, it is determined that jurisdiction corresponds to a different state to that specified in contract-bill of lading, the clause of selection of forum is irrelevant and unacceptable; which in legal doctrine is known as gravity centre theory, a theory specially enforced by courts deciding maritime cases".

When a lawsuit is brought in Venezuela and the contract provides for arbitration elsewhere, the likelihood is that the Venezuelan court will decide this point upon request of the defendant.

The court found that, in the given case, there was a marked connection with Venezuelan territory, among other things, because the obligations derived from the contract of carriage should have been performed in Venezuela. The location where loss occurred was a Venezuelan port and, with regard to the effect of legal proceedings, there was a company acting as a ship agency as representative of carriers.

Regarding the existence of the jurisdiction clauses inserted in the bills of lading, attributing jurisdiction to foreign courts, the court stated, "It is the judgement of this court that, even though Article 47 of the Code for Civil Procedure ... authorises the parties to choose a "Special Domicile", this selection is concurrent but not exclusive, unless parties decide in the contrary.

"Therefore, in order that this special domicile is to be considered exclusive, a clause must be written in such a form that the parties expressly waive to any other domicile that, by connection, might be qualified to hear the dispute. In the present case, even though it is true that the parties selected the figure known as "law of autonomy" in the sense that they do not choose the contract law but locate the contract in a chosen country thus inferring applicable law, it is no less true that in said clauses there appears no waiver to Venezuelan jurisdiction; therefore, considering the connecting factors that this case maintains with Venezuelan territory, this present case shall be tried and decided upon by the Venezuelan courts and so it is declared".

There was a dissenting opinion from one of the judges regarding this decision on the basis that the court was invading the "contractual freedom" of the parties, but it was not binding.

The conclusion to be drawn from this decision is that, for carriers to be able to avoid local jurisdiction by virtue of this ruling, they are advised to include in their bills of lading, if possible, an express Venezuelan jurisdiction waiver. It is true that in future decisions the court may or may not apply the connecting factor test as stated in the Jans case, but the use of this express waiver seems to be the safest way to tackle the matter.

In the meantime, there is no doubt that the this ruling will encourage cargo receivers and insurers to bring actions against foreign carriers in the Venezuelan forum, in which case carriers and their P&I clubs should consider taking advantage of the new Law for Commercial Arbitration, passed in 1998, as a way to resolve quickly and cost-effectively certain controversies in cases involving cargo claims.