Recent decisions by the U.S. District Court for the Southern District of New York in the case of the M.V.CARLA (97 Civ. 9052, S.D.N.Y., Owen, J.) find that policy concerns embodied in the U.S. Limitation Act, 46 U.S.C. §§ 181 et seq. favoring concursus of claims in a single proceeding outweigh and preclude enforcement of otherwise valid foreign forum selection clauses found in bills of lading and other maritime contracts. The decisions are noteworthy in that they represent a lower court curbing what some have seen as a developing trend towards enforcement of foreign forum selection clauses.

In the SKY REEFER, 515 U.S. 528 (1995) , the U.S. Supreme Court roiled settled waters of U.S. maritime law, and the sensibilities of not a few maritime practitioners, by rejecting a quarter century's worth of appellate level decisions which had uniformly held, on policy grounds, that foreign forum selection clauses, including but not limited to foreign arbitration clauses, were invalid in bills of lading subject to the United States Carriage of Goods by Sea Act, 1936, 46 U.S.C §§ 1399 et seq. ("COGSA"). In SKY REEFER, the Supreme Court ruled that henceforth foreign arbitration clauses, at the least, would be enforced in bills of lading, even though subject to COGSA. The opinion of the majority in SKY REEFER was sufficiently broad in its reasoning and language that it provoked a concurring opinion by Justice O'Conner which argued that the decision should be limited to the issue of foreign arbitration only, as opposed to clauses which purport to oust U.S. jurisdiction entirely. The majority opinion also provoked a strongly worded and well reasoned dissent by Justice Stevens which argued that the law should be left as it was. Not surprisingly, SKY REEFER has engendered a vigorous debate among the maritime bar and bench as to how and when foreign forum selection clauses in maritime contracts should be enforced, if at all. The recent decisions in the CARLA suggest that the debate is far from over.

The decisions in the CARLA were handed down in January 1999 in the context of a limitation proceeding filed in New York by the vessel's owner and operator after the vessel broke in two off the Azores on a westbound voyage to the United States in November 1997. The vessel's operator at the time of the casualty was MSC. MSC was itself then a member of a Vessel Sharing Agreement ("VSA") with three other slot charterers. MSC and the other slot charterers were all parties in the limitation proceeding. The Court was presented with two motions: (1) by one slot charterer to enforce a Korean law and jurisdiction forum selection clause in its bills against cargo interests which had sought to press their claims against the slot charterer in the U.S., and (2) by MSC which sought to stay cross claims made in a related proceeding by two of the slot charterers in favor of arbitration in London under the VSA.

The CARLA court expressly rejected the slot charterer’s argument that SKY REEFER should be read broadly to require enforcement of foreign forum selection clauses of every type, choosing instead to read SKY REEFER in the more limited terms of the concurring opinion, which limited the decision to foreign arbitration clauses only. The Court went on to emphasize the impracticality of piecemeal enforcement of various forum selection clauses in the context of a multiclaimant case, such as that presented by the CARLA limitation proceeding and stressed the overriding policy in favor of concursus underlying limitation procedure. On that ground, as well as the fact that Hyundai had itself filed a claim in the limitation, the Court declined to enforce Hyundai's Korean forum selection clause.

Turning to the motion of MSC, the Court again stressed the policy in favor of concursus in limitation and declined to enforce the VSA London arbitration clause at this stage of the proceeding, SKY REEFER’s specific endorsement of enforcement of such arbitration clauses notwithstanding.

Whether the CARLA represents the first step in a new trend towards limiting the application of SKY REEFER whenever possible on such policy grounds as may present themselves in any given case, or simply an isolated decision grounded in the unique concerns of limitation procedure, remains to be seen.

---

back to the home page