U.S. - Are Forum Selection Clauses Enforceable In In Rem Claims?

January 2002

Recent court decisions have refused to enforce forum selection clauses in bills of lading in circumstances where the foreign forum does not recognize 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.

Forum Selection Clauses

United States maritime law recognizes the presumptive validity of mandatoryforum selection clauses in bills of lading governed by COGSA.1 The presumptive validity of mandatory forum selection clauses is rebuttable, however, and may be overcome:- (1) by "clearly demonstrating that it is unreasonable or invalid;" 2 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;"3or, (3) if the forum selection clause has been waived by the party seeking to enforce it.4 The burden of proving the invalidity of the mandatory forum selection clause is on the party seeking to block its enforcement.

In Rem Claims Against Vessels

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 violative of § 1303(8) of COGSA, in circumstances where a foreign forum does not recognize an in rem claim against the vessel.5 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.6 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,7 the Ninth Circuit found that the Korean forum selection clause in the bill of lading did not violate § 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.8

Security Issues

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 § 1303(8) of COGSA. Thus, the Letter of Undertaking given as a substitute for the vessel remained in place to secure the in rem claim.9

In the context of a Rule B attachment, the Ninth Circuit Court of Appeals and 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.10

In sum, the 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.

With thanks to Kirk Lyons of Lyons, Skoufalos, Proios & Flood, LLP New York for preparing this article

1. United States Carriage of Goods at Sea Act, 46 USC § 1300 et seq. ("COGSA"); Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528 (1995). Only a mandatory forum selection clause, as opposed to a permissive one, will be enforced by the courts. This predicate for enforcement has recently been confirmed by the Southern District of New York which found that a forum selection clause, stating that "[a]ny dispute arising under . . . this Bill of Lading shall be . . . determined by the Courts of Bremen," was not mandatory since it did not specifically provide that the Bremen courts were the exclusive jurisdiction for any disputes. Hartford Fire Insurance Co. v. M/V Pacific Senator, 01 Civ. 94 (WHP) (S.D.N.Y. January 2, 2002). , 407 U.S. 1, 15 (1972). at 515 U.S. 539. , 1999 WL 6364 (S.D.N.Y. 1999).
2. M/S Bremen v. Zapata Off-Shore Co.
3. Sky Reefer, supra
4. In re Rationis Enterprises, Inc. of Panama
5. Section 1303(8) of COGSA provides that:- "[a]ny clause . . . in a contract of carriage relieving the carrier or ship from liability for loss or damage to . . . goods, . . . or lessening such liability . . . shall be null and void and of no effect." (Emphasis added). , 2001 AMC 1692 (D.S.C. 2001); Allianz Ins. Co. of Canada v. Cho Yang Shipping Co., 131 F.Supp.2d 787 (E.D.Va. 2000); International Marine Underwriters v. M/V Kasif Kalkavan, 1998 AMC 765 (S.D.N.Y. 1998). Dismissal of the in personam claim would apply equally whether the carrier were the vessel owner, charterer, or NVOCC.
6. Tokio Marine & Fire Ins. Co. v. M/V Turquoise
7. 131 F.3d 1336 (9^th Cir. 1997). , 2000 U.S. Dist. Lexis 9764 (S.D.N.Y. 2001); Kelso Enterprises, Inc. v. M/V Wisida Frost, 8 F. Supp 2d 1197 (C.D. Cal 1998); Abrar Surgery Ltd. v. M/V Lolly Oro, 1999 U.S. Dist. Lexis 6768 (S.D.N.Y. 1999); Tradebed, Inc. v. M/V Agia Sofia, 1997 U.S. Dist. Lexis 23001 (D.N.J. 1997). in endnote 6. , 680 F.2d 627 (9^th Cir. 1982); Staronset Shipping Ltd. v. North Star Navigation, Inc., 659 F.Supp 189 (S.D.N.Y. 1987). There is an important distinction between foreign litigation clauses and foreign arbitration clauses. Specific statutory authority allows a party to seek security in aid of arbitration, 9 USC § 4; whereas, there is no such specific statutory authority for security in aid of foreign litigation.
8. See, e.g., Thyssen Inc. v. M/V Markos N
9. See Tokio Marine
10. Polar Shipping Ltd. v. Oriental Shipping Corp.