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Editor: Rod Sullivan
Profession: Maritime Attorney

Category: Supreme Court Rulings

It took maritime shipping interests decades to come to an international convention protecting shippers and consignees of cargo from over reaching by ocean carriers. Congress saw the convention, called the Hague Rule on Bills of Lading, and thought it didn't protect cargo owners enough so it enacted the U.S. Carriage of Goods by Sea Act which contained higher limits on liability (100 pounds Sterling under the Hague Rules, $500 per package under COGSA), and which applied to bills of lading both to and from the United States.

COGSA says in clause 3(8):

(8) Limitation of liability for negligence. Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to or in connection with the goods, arising from negligence, fault, or failure in the duties and obligations provided in this section, or lessening such liability otherwise than as provided in this Act, shall be null and void and of no effect. A benefit of insurance in favor of the carrier, or similar clause, shall be deemed to be a clause relieving the carrier from liability.

In 1967 the Second Circuit said that forum selection clauses lessened the carrier's liability under COGSA in Indussa Corp. v. S. S. Ranborg, 377 F.2d 200 (CA2 1967), and for many years that was the law. Then in 1995 the Supreme Court in Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 537 (U.S. 1995) said that foreign arbitration clauses are valid and should be enforced. The Court was balancing the interests expressed by Congress in the Federal Arbitration Act with those expressed in the Carriage of Goods by Sea Act.

The Sky Reefer case arose under a charter party, meaning that the owner of the cargo chartered the entire ship in a private contract, negotiated the contract with the ocean carrier at arms length, and was not dealing with a common carrier which is required, by law, to treat all of its customers the same. The Supreme Court reasoned that a big shipper contracting with a big shipowner could look after itself and could have negotiated for the litigation to take place in New York instead of Tokyo. But what about the little guys? What about those shippers who contract with common carriers, where there is no room for negotiation? What happens to them?

So how did we get from foreign arbitration of cargo damages cases to foreign courts?

What happened is that lower courts took the ruling in the Sky Reefer case and started applying it to all cases. Now, foreign forum selection clauses are enforced for India, Japan, Korea, and the People's Republic of China.