A U.S. Perspective On Charter Party Issues   By David A. Nourse, Esq.

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Contents

• Introduction

  I. MEETING ENVIRONMENTAL REQUIREMENTS

  • A. Meeting the Requirements of OPA '90
    B.  Other Environmental Requirements
    C. The Requirements of Oil Companies
  II.  MEETING OPERATIONAL REQUIREMENTS
  • (A)  Lightening Operations
    (B)  Letters of Indemnity for Delivery of Cargoes Without Presentation of Original Bills of Lading
  III.  CHOOSING A FORUM FOR DISPUTE RESOLUTION
  • (A)  The Bremen Decision
    (B)  The Sky Reefer Decision
    (C)  Post Sky Reefer Decisions
  ENDNOTES

Introduction

Charter parties are an important device in facilitating world trade. On the one hand, charter parties permit the vessel owner, who has devoted his capital to the building, manning, maintaining and operating of an efficient ocean-going vessel, to employ that vessel in the carriage of goods by sea, earning a return on his investment. On the other hand, they permit the producer of raw materials, agricultural products or manufactured goods to acquire the means of transporting his production to a distant market for sale to consumers. Charter parties also permit the world's traders, through the mechanism of the worldwide charter market, to match the supply of cargo-carrying vessels with the demand for cargoes to be carried, by chartering in from those who own or control vessels and by chartering out to those who need transportation. Accordingly, charter parties are a very appropriate subject for discussion by international lawyers at functions such as this International Bar Association meeting.¹

As charter parties are a vehicle for world trade, it is axiomatic that new issues relating to charter parties will arise as a result of changes affecting trade. Those changes may be new laws or regulations, new trade patterns or indeed new decisions of courts or arbitrators. This paper will address issues arising from three such changes, namely (1) the enactment of stricter environmental laws and regulations in the United States, (2) the development of an extensive lightering trade for tankers in the U.S. Gulf and, (3) the decision of the U.S. Supreme Court in The SKY REEFER respecting forum selection clauses.

I. MEETING ENVIRONMENTAL REQUIREMENTS

Many vessels are chartered for trade involving the United States because it is one of the world's major exporters of raw materials, agricultural commodities and manufactured goods. It is also a major importer of such materials, commodities and goods. While these factors make the U.S. one of the world's great markets, and thus a profitable place to trade, it is also a complex trading forum. For vessel owners and charterers alike, one of the principal complexities arises from the country's strong environmental policies. These policies are multifaceted, affecting air, land and sea. The policies affecting the marine environment have been inspired in recent years by public concerns about damage resulting from oil pollution, particularly the massive oil pollutions caused by the TORREY CANYON grounding off the coast of France in 1967 and the EXXON VALDEZ grounding in Prince William Sound, Alaska, in 1989. The Oil Pollution Act of 1990, called OPA '90,² was Congress's response to the public concerns about the marine environment.

A. Meeting the Requirements of OPA '90

OPA '90 greatly increased the liability of vessel owners for maritime oil pollution.³ It also required the U.S. Coast Guard, in implementing the statute, to set standards for response by vessels to oil pollution and for providing evidence that vessel owners would be financially responsible for the consequences of oil pollution. As a result, the Coast Guard published regulations relating to Vessel Response Plans ("VRP's")⁴ and Certificates of Financial Responsibility ("COFR's").⁵ Compliance with these regulations by their effective dates became a prerequisite to vessels' being permitted into U.S. ports and waters. Various aspects of the regulations, such as the requirement that a vessel's VRP name a qualified individual ("QI") who is authorized to commit the vessel owner to potentially very large expenditures for oil pollution cleanup, were distasteful to some vessel owners. Also, not surprisingly, there were significant financial costs associated with meeting the Coast Guard's regulations relating to both VRP's and COFR's.⁶ As a result, some vessel owners opted not to comply with the regulations and traded their vessels to other parts of the world. For many owners, however, particularly those with vessels on long-term time charter parties, staying away from the United States has not been an option.

It should be noted that laws and regulations restricting discharges from vessels are not new and for many years charter parties of vessels trading to the U.S. have contained warranties that the vessel owner will comply with all U.S. Coast Guard regulations and/or international conventions in effect during the life of the contract. Many charter parties have also contained provisions allocating the cost of compliance with changed regulations or statutes.⁷ As the vessel owners have generally been required by their charter contracts to take all necessary measures to maintain eligibility to trade to the U.S., the enactment of OPA '90 and the issuance of Coast Guard regulations implementing it have not resulted in a great number of disputes. The recently concluded New York arbitration between Iino Kaiun Kaisha ("Iino") and Duke Petroleum Transport Corp. ("Duke"),⁸ however, illustrates both the complexity of the disputes which may arise in the context of OPA '90 and the need for great care in drafting charter party provisions relating to compliance and cost sharing.

Iino had chartered the tankers RICH DUKE and RICH DUCHESS to Duke under TEXACOTIME 2 forms of time charter in October 1984 for 12-year terms. Both charter parties, in Clause 39, required that Iino was to comply with financial responsibility laws and regulations with respect to oil pollution and provided:

In addition, the charters contained warranties, in typewritten Clause 57, that the vessels "shall carry on board a Certificate of Financial Responsibility meeting the requirements of the U.S. Federal Maritime Commission promulgated pursuant to the U.S. Water Quality Improvement Act of 1970".⁹ Further, in an Addendum No. 1 to the charters, dated January 22, 1992, it was agreed that, if the vessels were to be traded to the U.S., Iino would take out supplemental oil pollution insurance (currently $500 million of coverage) and excess oil pollution insurance (currently $200 million of coverage), with the cost of both the supplemental and excess insurance coverages being for Duke's account and that Iino was not obliged to take out any extra oil pollution insurance unless Duke agreed to bear the cost, or "unless otherwise expressly provided for in the Charter".

In 1994, nearly ten years after the making of these charters, the U.S. Coast Guard required vessels trading to the U.S. to obtain Certificates of Financial Responsibility conforming to the requirements of OPA '90, which were more stringent than those of the prior statute. Iino contended that this requirement was not within the contemplation of the parties at the time the charters were made and that the cost of obtaining COFR's for the vessels (some $346,026 spent for obtaining a Shoreline "insurance guarantee") should be for Duke's account. With respect to this dispute, the New York arbitrators concluded that the Clause 39 undertaking by Iino to comply with "all financial capability, responsibility, security or like laws, regulations and/or requirements of whatsoever kind with respect to oil or other pollution damage" for the duration of the charters controlled the dispute. They held that this undertaking was not affected by either Clause 57 or Addendum No. 1 and that the cost of obtaining COFR's was thus for Iino's account.

A dispute also arose between Iino and Duke concerning the cost of complying with the Coast Guard's regulations respecting Vessel Response Plans. Clause 61 of the charters, while requiring the vessels to comply with all Coast Guard regulations, provided for the sharing between owners and charterers of the costs of complying with changes in those regulations "during years 6 through 12". In resolving this dispute, the New York arbitrators concluded that the cost-sharing agreement in Clause 61 of the charters should be measured (a) by the dates of delivery of the vessels for performance under the charters (rather than by the dates of the charter), and (b) by the dates on which certification of compliance with the regulations was required (rather than the dates on which the regulations were promulgated). On this basis the arbitrators concluded that the VRP regulations were effective during the seventh year of the charters and that the cost of compliance (some $270,000) must be shared equally by Iino and Duke.

B. Other Environmental Requirements

While OPA '90 has received most of the public attention, other environmental concerns have prompted legislation and regulations which impact on the operations of vessels, particularly tankers, in U.S. ports. This is illustrated by a third dispute between Iino and Duke, in the recently concluded New York arbitration discussed above, relating to the cost of installing vapor emissions controls, or VEC systems, on the vessels. The regulation concerning VEC systems was promulgated by the Coast Guard on June 21, 1990. This stemmed not from OPA '90 but from the Clean Air Act of 1990¹⁰ which permitted the states to enact statutes aimed at reducing air pollution. VEC systems, required by California and a few other states, sought to prevent petroleum vapors from entering the atmosphere during oil or gasoline transfer operations. Negotiations between Iino and Duke resulted in an agreement that the costs of installing the systems on the vessels would be split between owners and charterers. Subsequently, however, after the VEC systems had been installed at a cost of over $500,000, Duke asserted that the entire cost should be for Iino's account. Duke argued that it had been fraudulently induced into entering into the cost-sharing agreement. It also argued that the VEC installation had been required during the first six years of the charters and therefore, under Clause 61, which provided for sharing of costs in connection with compliance with Coast Guard regulations only during the 6th through 12th years of the contracts, the work should be entirely for Iino's account.

The arbitrators held that there was no basis for Duke's claim of fraudulent inducement, that there were no grounds for disturbing the parties' prior agreement to share the costs, that Clause 61 was not applicable in that the Coast Guard's regulations had altered the VEC standards for vessels already equipped with VEC (which the RICH DUKE and RICH DUCHESS were not) but that, if it had been applicable, the effective date of the requirement would have fallen within the 6th year of the charters, bringing the sharing agreement into play. Duke's claim for recovery of its one half share of the VEC system installation cost was therefore denied.

As it has been a number of years since OPA '90 was enacted and the various VRP and COFR regulations were issued, presumably most of the initial disputes about compliance and cost sharing under existing charter parties have been worked out between vessel owners and charterers. While there is no indication that additional U.S. requirements are coming, so also there is no indication that existing requirements will be rolled back. Also, it seems possible that other countries may follow the U.S. lead respecting environmental requirements of this sort. Accordingly, this is an area in which your clients who are owners and charterers should exercise considerable caution when negotiating new charters.

C. The Requirements of Oil Companies

The AMOCO CADIZ and EXXON VALDEZ casualties which gave rise to OPA '90 were huge public relations disasters for Amoco and Exxon. One result of those disasters was a movement by many oil companies away from the ownership of tankers. While the major oil companies are still involved in the transportation of oil, it is now largely through use of chartered vessels rather than owned vessels. However, the potential for public relations embarrassment remains for the majors even with chartered vessels. This has resulted in a more intensive pre-chartering scrutiny or "vetting" of vessels by all oil companies and a sharing of data (among oil companies) respecting vessels through the Oil Company International Marine Forum, or OCIMF.

Given that the major oil companies are the principal source for oil cargoes, it is not surprising that "oil company approval" warranties have been developed for tanker charter parties. As with any charter clauses, these "approval" warranties require careful review to prevent possibly unintended consequences. For example, in a 1995 arbitration involving the AMERICAN ENERGY, New York arbitrators were obliged to construe a warranty that "the vessel will be kept in a standard acceptable to all major chemical producers and all major oil companies (e.g. BP, Shell, Exxon, etc.)". Owners had submitted the vessel for inspection by some of the major oil companies and had obtained some approvals. However, the arbitrators held that, on this wording, substantial compliance was not enough and that actual vetting of the vessel by all of the majors was required.¹¹ In contrast, in a 1996 arbitration involving the STELLAR HOPE, the "Vetting Inspection Clause" provided that "Owners warrant that the vessel will be in all respects able to pass safety vetting inspections conducted by Charterer and cargo interests such as - not limited to - Shell, Mobil, Exxon, BP, Texaco, etc.". The New York arbitrators distinguished this language from that used in the AMERICAN ENERGY charter and concluded that there was no basis to hold that the vessel was not "able to pass safety vetting inspections" at the time in question.¹²

While the oil companies have "checkoff lists" for their vetting inspections, which provide an objective standard for the inspection, it appears that subjective considerations may come into play. Recently, both the owner and charterer of a new tanker were perplexed when Exxon, which was a major customer of the charterer, refused to schedule an inspection of the chartered vessel, stating that it did not have any present requirements for the vessel. The vessel was just out of the builder's yard and had been approved by two other major oil companies but the charter party warranty required approval from Exxon. Fortunately, alternative business was found for the vessel and it was not necessary for the parties to wrestle with the question as to whether the charter party's "approval" warranty had been breached. Several months later Exxon agreed to inspect the vessel and it was passed, to the relief of both owners and charterers. While a full explanation of the delay in scheduling an inspection was never given, it is possible that Exxon may have wanted to assess the quality of the vessel's management as another vessel in the same management, also a new building, had previously been involved in a small oil spill. However, the actual reason for the delay probably will never be known, except to Exxon.

It is submitted that "oil company approval" warranties are a troubling development. It is one thing for a vessel owner to warrant that his vessel is classed by Lloyd's or the American Bureau of Shipping; those are organizations which are in the business of setting standards for vessel construction and maintenance and certifying that vessel owners have met those standards. However, the major oil companies are not like classification societies. While generally they may act in an objective and cooperative manner, it is dangerous for owners and charterers to assume that they will always do so, particularly if the majors' own interests may somehow be involved. Accordingly, when negotiating such warranties, great care should be taken to ensure that the warranty is precisely defined and that any refusal of an oil company, upon reasonable notice and without cause, to schedule an approval inspection shall not constitute a breach.

II. MEETING OPERATIONAL REQUIREMENTS

While national or state laws and regulations, such as those environmental measures discussed above, may create problems for owners and charterers, other problems are presented by the nature of the operations in which the chartered vessel is engaged. Lightening operations, for example, in which oil cargoes from large vessels with drafts too deep for coastal discharging ports are transshipped into smaller vessels, may greatly increase the use of cargo pumps or gear on the lightening vessel and thus create maintenance problems for the vessel's owners. On the other hand, the quick transit times between loading areas and discharging ports may make it impossible for the charterers or cargo interests to present an original negotiable bill of lading in order to take delivery of the cargo. Lightening operations and short voyage trades are not, of course, unique to the United States. However, the extensive oil lightening trade which has developed in recent years in the U.S. Gulf has focused attention on the operational problems presented by the frequent short voyages which are usual in this trade.

(A) Lightening Operations

As U.S. imports of oil continue to increase, due to increased demand and decreased national production of oil, and the navigable depth of U.S. ports continues to decrease, due to lack of dredging caused by concerns about where to deposit possibly contaminated dredge spoil, lightening operations have become more and more usual in the U.S. Gulf. Most tanker charter parties specifically permit lightening or "transshipment" operations, as did the time charters of the RICH DUKE and RICH DUCHESS discussed above. When those charters were made in 1984, lightening was not as well developed as now and it appears that Iino, as owner of the vessels, did not anticipate that they might be extensively employed as lightening vessels. In the New York arbitration referred to above, Iino complained that the almost continuous lightening operations in which the vessels were involved made maintenance difficult and requested that they be sent on at least one ocean voyage each month to facilitate maintenance. The arbitrators denied this request, noting that Duke had a clear right to use the vessels in the lightening trade and that Iino was obliged by the charters to maintain the vessels to carry crude oil and keep them "in every way fit for service".

Another problem arising out of the vessels' service in the lightening trade related to their crews. The U.S. immigration authorities had decided that crew members of foreign flag vessels could not remain in U.S. waters more than 164 days, after which either the crews or the vessels had to depart for a foreign destination. Iino did not wish to repatriate the entire crews of the vessels, which would have been very expensive, and instead sailed the vessels to Tampico, Mexico, for an otherwise pointless short voyage before returning to the lightening service. Duke contended that the vessels were off-hire for these short voyages. The New York arbitrators held (one arbitrator dissenting) that Iino had provided a full and efficient crew, as required by the charter parties, and that the loss of time resulting from the voyages to Tampico was for Duke's account, stating:

On this basis, Duke's claim for off-hire was denied.

(B) Letters of Indemnity for Delivery of Cargoes Without Presentation of Original Bills of Lading

If a vessel arrives at its discharge port before the bill of lading for its cargo has been negotiated by all interested parties and received by the cargo's consignee, the vessel owner is not obliged to release the cargo to the consignee. However, the parties may agree upon a release of the cargo without the presentation of the original bill of lading provided that the consignee gives written authority to make the release and also provides a satisfactory indemnity to the vessel owner for all consequences of the release of cargo. This indemnity is usually set out in a Letter of Indemnity ("LOI"), reciting that the issuer will indemnify and hold the vessel owner harmless from all losses resulting from delivery of the cargo without presentation of an original bill of lading, will arrange for the release of the vessel from arrest, and will pay any costs or legal expenses that the vessel owner may incur in that connection. Given the likelihood that the vessel will travel faster than the bill of lading on short voyages, and the possibility that it will do so even on long voyages, it is common for vessel owners and charterers to incorporate an agreed form of indemnity in their charter party contracts. This is a useful exercise as it prevents controversy later on as to what constitutes a satisfactory indemnity.

The issue of what constituted a satisfactory indemnity for delivery of cargo without presentation of an original bill of lading was yet another dispute resolved by the New York arbitrators in the recently concluded arbitration between Iino and Duke under the RICH DUKE and RICH DUCHESS charters. Although those charters did not provide for delivery of cargoes in exchange for an LOI, for the first seven years of performance under the charters Iino had consented to discharge cargoes in consideration for an LOI issued by the charterer, Duke. In 1993, Iino negotiated with Duke's principals to purchase a share in Duke. After Iino's proposals were rejected, Iino advised Duke that henceforth it would deliver cargoes against LOI's only where it was demonstrated that the issuer of the LOI had the financial ability to cover Iino's exposure to liability in the event of a misdelivery.

Because of the fast "turnarounds" in the lightening trade in which the vessels were engaged and the frequent selling or "swapping" of cargoes while they were still afloat, Duke found it difficult to provide timely information to Iino about the financial ability of the party which was ultimately to receive the cargo. As a result, in early 1995 Duke took the position that Iino should discharge cargoes against only a Duke LOI in the event that an original bill of lading was not presented.

Iino considered that Duke's LOI was not sufficient security. While Duke had provided Iino with an Arthur Andersen & Co. report showing that it had a net worth of some $23 million, Iino noted that Duke had cash of only some $100,000. Duke's net worth depended chiefly upon the market value of its rights to purchase the two vessel, upon completion of the charters, for $2 million each under Memoranda of Agreement which had been made at the same time the charters were negotiated. Iino contended that the contingent right to purchase the vessels was inadequate support for an LOI, principally because it did not enable Duke to pay on demand in the event that a misdelivery occurred and a vessel was arrested.

In resolving this dispute, the arbitrators were unanimous that there was no obligation on Iino's part to accept an LOI in place of an original bill of lading. As Iino had agreed to deliver against LOI's where there was a showing of financial ability to secure any liability for misdelivery, the issue was whether Iino's agreement obliged it to accept Duke's LOI, as it had done for the prior seven years, on the basis of the showing made by the Arthur Andersen report. The majority concluded that, although Iino had waived its right to receive a bill of lading during the first seven years of performance under the charters, it had given proper notice of its intention to require strict performance. Further, under New York law Iino was entitled to retract its prior waiver of a right unless the retraction would be unjust in view of a material change of position in reliance upon the waiver and there was no showing by Duke of any such change in position. Finally, Duke had not established that it had provided satisfactory security in an amount sufficient to cover Iino's exposure on a misdelivery claim. In this connection the majority arbitrators stated:

The dissenting arbitrator would have required Iino to deliver against Duke's LOI, in part because of the course of conduct between the parties and in part because Duke's purchase option respecting the vessels, effective in 1998, was relatively close at hand and provided meaningful security for its undertaking.

III. CHOOSING A FORUM FOR DISPUTE RESOLUTION

Given the complexities of international trade and the difficulties in creating charter party contracts which clearly delineate the rights and obligations of the parties in all possible circumstances, it is inevitable that disputes concerning these contracts will arise. For this reason dispute resolution clauses in charter parties are common and generally the parties agree to submit all disputes arising under the contract to arbitration in a designated forum and in accordance with a designated procedure.

It is well known that arbitration procedures differ from one forum to another and there is lively and long-standing debate between New York and London as to which of those forums may offer the best arbitration services for resolution of charter party disputes. However, disputes also arise under the bills of lading which are issued for the carriage of cargoes under the charter parties. These disputes usually involve the vessels' owners. They may also involve the charterers, who frequently are named as co-defendants by cargo interests and, depending on the extent of their contracts with the plaintiffs' chosen forum, may be required to appear and defend the claim. The recent decision of the U.S. Supreme Court in The SKY REEFER,¹³ upholding a choice of forum clause in a bill of lading, suggests that owners and charterers would be well advised to provide in their charter parties for the designation, in any bills of lading which may be issued under the charter party, of an appropriate forum for resolution of bill of lading disputes.

(1) The Bremen Decision

Traditionally, American courts held the view that forum selection clauses were unenforceable on public policy grounds as "agreements in advance of controversy to oust the jurisdiction of the courts".¹⁴ However, in The Bremen v. Zapata Off-Shore Co.,¹⁵ decided by the U.S. Supreme Court in 1972, a forum selection clause in a towage contract was held to be prima facie valid unless a party could show that (1) the contract was induced by misrepresentation or overwhelming bargaining power, (2) enforcement would be unreasonable, or (3) enforcement would contravene a strong public policy of the U.S. In that case, involving the towage of a deep-sea oil rig from the U.S. Gulf to Italy, the parties had agreed to submit any dispute to "the London Court of Justice". The Court, noting the expansion of overseas commercial activities by American companies for nearly two decades and Zapata's special expertise, observed that "[t]he expansion of American business and industry will hardly be encouraged if, notwithstanding solemn contracts, we insist on a parochial concept that all disputes must be resolved under our laws and in our courts".¹⁶ It also noted that the choice of the courts of England, a respected neutral forum with long experience in admiralty litigation, was made in an arm's length transaction by experienced and sophisticated businessmen and, absent some compelling and countervailing reason, "it should be honored by the parties and enforced by the courts".¹⁷ In reaching its decision in The Bremen, the Supreme Court noted that the Carriage of Goods by Sea Act of the United States ("COGSA")¹⁸ was not applicable, thus distinguishing a forum selection clause in a towage contract from one in a bill of lading. This preserved the prior ruling by the Second Circuit Court of Appeals in Indussa Corp. v. S.S. RANBORG¹⁹ that a forum selection clause in a bill of lading subject to COGSA was in violation of Section 3(8), which provides that any agreement in a contract of carriage which has the effect of lessening the liability of the carrier otherwise than as set out in COGSA "shall be null and void and of no effect".²⁰ The theory of Indussa Corp., a case involving a cargo consignee's suit for $2,600 against a Norwegian vessel arrested in the Southern District of New York, was that "from a practical standpoint, to require an American plaintiff to assert his claim only in a distant court lessens the liability of the carrier quite substantially, particularly when the claim is small. Such a clause puts a `high hurdle' in the way of enforcing liability and thus is an effective means for carriers to secure settlements lower than if cargo could sue in a convenient forum".²¹ There also would be no assurance that the foreign court would apply COGSA in the same way as an American court "subject to the uniform control of the Supreme Court".²²

(B) The Sky Reefer Decision

In Vimar Seguros Y Reaseguros S.A. v. M/V SKY REEFER, ²³ a New York fruit distributor brought suit in the U.S. District Court of Massachusetts for damage to a shipment of oranges moving from Morocco to Boston. The vessel owner moved to stay the suit under Section 3 of the U.S. Arbitration Act²⁴ pending arbitration in Japan pursuant to clauses in the bill of lading issued for the oranges which provided that the bill of lading was governed by Japanese law and that any dispute arising from the bill of lading "shall be referred to arbitration in Tokyo by the Tokyo Maritime Commission (TOMAC) of The Japan Shipping Exchange, Inc., in accordance with the rules of TOMAC . . .". ²⁵ The District Court rejected plaintiff's argument that the bill of lading provision for Tokyo arbitration was unenforceable under the Arbitration Act because it was a contract of adhesion and because it violated Section 3(8) of COGSA and granted the owners' motion for a stay, retaining jurisdiction pending the arbitration. This decision was affirmed by the First Circuit Court of Appeals on the ground that, although the Tokyo arbitration clause was assumed to be invalid under COGSA, the Arbitration Act, as a more recent and more specific statute, governed the situation.²⁶

On appeal, the U.S. Supreme Court avoided the question as to whether COGSA or the Arbitration Act had priority and considered instead whether COGSA, by its own terms, nullified a foreign arbitration clause. The Court concluded, on analysis of Section 3(8), that the liability which may not be lessened is the "liability for loss or damage" and that the means of enforcing that liability was a separate question, not addressed by the statute.²⁷ On this basis the Court rejected the cargo plaintiff's argument that the Tokyo arbitration clause was a lessening of the carrier's liabilities, concluding that nothing in the Section prevented the parties from agreeing to enforce the carrier's COGSA obligations in a particular forum. It also noted that it would be out of keeping with the objects of the Hague Rules, on which COGSA was modeled, "to disparage the authority or competence of international forums for dispute resolution" and that "skepticism over the ability of foreign arbitrators to apply COGSA or the Hague Rules . . . must give way to contemporary principles of international comity and commercial practice".²⁸

With respect to the plaintiff's argument that the Japanese arbitrators might not apply COGSA, the Court noted that the District Court had retained jurisdiction over the case and thus would have an opportunity, at the award enforcement stage, to ensure that COGSA had been properly enforced. Accordingly, the Court affirmed the judgment below staying the suit and referring the parties to Tokyo arbitration.

(C) Post Sky Reefer Decisions

The decisions of the lower federal courts which have considered forum selection clauses since The SKY REEFER have generally enforced the clauses irrespective of whether they provided for foreign courts or foreign arbitrations.

A bill of lading clause providing for London arbitration was enforced in Kanematsu Corp. v. M/V GRETCHEN W²⁹ (suit in Oregon respecting alleged damage to corn shipped from Louisiana to Japan).

In Great American Insurance Co. v. M/V KAPITAN BYANKIN,³⁰ a clause in a bill of lading issued by a freight forwarder, providing for litigation in Australia, was enforced and the claim against the freight forwarder was dismissed on grounds of improper venue even though the plaintiff's claim would have been time-barred in Australia. (However, the freight forwarder was held in the case by a cross claim which had been made against it by the owner of the carrying vessel). More recently, in Mitsui & Co. (USA), Inc. v. M/V MIRA, ³¹ the Fifth Circuit Court of Appeals affirmed the lower court's dismissal of a suit in favor of litigation in London, holding that the U.S. Supreme Court's decision in The SKY REEFER was not restricted to foreign arbitration clauses.

To date only one court has refused to enforce a bill of lading forum selection clause. In Fireman's Fund Insurance Co. v. DSR ATLANTIC, ³² the subrogated underwriter filed suit in California respecting alleged damage to cargo shipped from France to Oakland. The district court held that the bill of lading clause providing for application of the law of Korea with litigation in Seoul "and no other courts" impermissibly lessened the carrier's liability under COGSA because "Korea does not recognize the American maritime action in rem".³³ An appeal from this decision is pending before the Ninth Circuit Court of Appeals.

While it may take some time for the scope of The SKY REEFER decision to be finally determined, it is clear that henceforth American courts are obliged to take a much more favorable view of forum selection clauses in bills of lading. In these circumstances, it appears that vessel owners and charterers now have the ability to select an appropriate forum for bill of lading disputes, whether for arbitration or litigation, with the expectation that, at least in the United States, their choice will be enforced.

ENDNOTES

^* Mr. Nourse wishes to thank his associates S. Nina Gellert and Rahul Wanchoo for their assistance in preparing this paper.

¹ For a general discussion of charter parties in world trade, see generally G. Gilmore & C. Black, The Law of Admiralty ch. IV (2d ed. 1975) and 2A Benedict on Admiralty ch. XVII-XIX (7th ed. 1997).
² 33 U.S.C. Sec. Sec. 2701-64.
³ Id. at 881. For a summary of the reaction by P&I Clubs to OPA '90 and the oil pollution insurance regime which was created to provide coverage for OPA '90 liabilities, see Metropolitan World Maritime Corp. v. Conoco Shipping Co., The METEORA/The METSOVAN, S.M.A. No. 2955 (Arb. at New York 1993).
⁴ Vessels carrying oil in bulk as cargo in U.S. waters must carry an approved VRP which contains the vessel's plan for responding, to the maximum extent practicable, to a worst-case discharge, or substantial threat of discharge, of oil or a hazardous substance. 33 C.F.R. Part 155 (Promulgated on February 5, 1993). Oil is defined very broadly for the purpose of these regulations. 33 U.S.C. Sec. 1321(a)(1). The VRP requirement applies to most tank vessels with a few minor exceptions.
⁵ Most vessels must obtain and maintain a federal COFR as evidence of sufficient financial responsibility to meet the potential liability of the owner, operator and demise charterer under OPA '90, 33 U.S.C. Sec. 2702. 33 C.F.R. Part 138. (Promulgated on July 1, 1994, effective after December 28, 1994.)
⁶ Other regulations issued under the mandate of OPA '90 have also entailed significant expenditures for vessel owners, such as the double hull requirement for tank vessels, OPA '90, 33 U.S.C. Sec. 3703a, pursuant to which all tank vessels are required to be equipped with double hulls by January 1, 2015. Additionally, tank vessels not yet equipped with double hulls must comply with numerous structural and operational requirements (e.g., emergency lightering equipment, enhanced survey programs, maneuvering performance capability tests) which were established to reduce oil spills from single-hulled vessels. See 33 C.F.R. Part 157; 46 C.F.R. Parts 31 and 35.
⁷ Although some vessel owners have argued that, in the absence of cost allocation provisions, their charter contracts were commercially frustrated by changes in laws or situations which required them to incur additional expenses during the term of the charter, they have not been permitted to walk away from the contracts under such situations. See, e.g., The ULTRAMAR/The ULTRASEA, S.M.A. No. 1555 (1981) (expense of structural changes required by Port and Tanker Safety Act of 1978 insufficient to permit owner to declare charter frustrated).
⁸ The RICH DUKE/RICH DUCHESS award, dated September 9, 1997 and authored by Raymond A. Connell, Lloyd C. Nelson and Jack Berg, will be published by the Society of Maritime Arbitrators of New York, Inc. ("S.M.A.") in its next issue of awards and will also be available for review in LEXIS in the ADMRTY;USAWDS file.
⁹ The Water Quality Improvement Act of 1970, PL 91-224 Sec. 11, contained the financial responsibility provisions in effect when the charters were made.
¹⁰ PL 101-549, codified at 42 U.S.C. Sec. Sec. 7401-7671q.
^{11 Sunrise Shipping Limited v. Stainless Navigation Co., Ltd. (The AMERICAN ENERGY)}, S.M.A. 3141 (1995); see also Sunrise Shipping Limited v. Oceanic Mars Maritime Co. Ltd. (The AMERICAN CHEMIST), S.M.A. No. 3189 (1995).
¹² Iino Kauin Kaisha, Ltd. v. Chembulk Trading Inc. (The STELLAR HOPE), S.M.A. No. 3248 (1996).
¹³ Vimar Seguros y Reaseguros S.A. v. M/V SKY REEFER, 115 S. Ct. 2322 (1995).
^{14 Carbon Black Export, Inc. v. S/S MONROSA, 254 F.2d 297, 300-301 (5th Cir. 1958).
15 92 S. Ct. 1907 (1972).
16 Id. at 1912.
17 Id. at 1914.
18 46 U.S.C. Sec. Sec. 1300-15.
19 377 F.2d 200 (2d Cir. 1967) (en banc).
20 46 U.S.C.Sec. 1303(8).
21 Indussa, 377 F.2d at 203 (citation omitted).
22 Id. at 204.
23 Sky Reefer, 115 S. Ct. at 2322.
24 9 U.S.C. Sec. Sec. 1 et seq.
25 115 S. Ct. 2325.
26 Id. at 2325-26.
27 Id. at 2327.
28 Id. at 2328.
29 1995 A.M.C. 2957 (D. Ore. 1995).
30 1996 A.M.C. 2754 (N.D. Cal. 1996).
31 111 F.3d 33 (5th Cir. 1997).
32 1996 A.M.C. 878 (N.D. Cal. 1995), appeal docketed, No. 96-15734 (9th Cir. Apr. 26, 1996).
33 Id. at 881.}