U.S. - Enforcement of Arbitration Clauses in Crew Contracts
There has been a good deal of activity in the United States concerning the enforceability of arbitration clauses in crew contracts. This has culminated in a ruling from the Eleventh Circuit Court of Appeals in the case of Pineda Lindo v Norwegian Cruise Lines (No. 09-cv-22926-DLG (Graham, 1.) (S.D. Fla. Dec. 18,2009)) which affirmed the district court’s order that compelled the case to arbitration.
By way of some background, Lindo alleged that whilst acting in the scope of his employment he injured his back after he was ordered to transport heavy trash bags to the ship. He later underwent surgery to correct the injury. NCL, his employers, had their base of operations in the United States and this is where Lindo wanted to pursue his claim.
Lindo’s employment was governed by (1) a collective bargaining agreement (CBA) negotiated by NCL and the Norwegian Seafarers’ Union and (2) an employment contract. The contract specified that all Jones Act claims would be resolved by binding arbitration pursuant to the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards (the Convention). The place of arbitration was specified as the seaman’s country of citizenship and the choice of law would be the law of the vessel’s flag state. The effect of that clause in this case was that Lindo’s claim would be arbitrated in Nicaragua under Bahamian law.
The district court had upheld the arbitration provision in the employment contract. Lindo appealed.
Lindo did not challenge the place of arbitration but rather he challenged having to arbitrate at all because Bahamian negligence law, rather than U.S. statutory negligence law under the Jones Act, would have applied to the arbitration. He opposed NCL’s motion to dismiss the claim from U.S. state court arguing that the arbitration provision in his contract was void as it was contrary to public policy; it operated as a prospective waiver of his Jones Act claim. (In Thomas v Carnival Corporation 573 F.3d 1113 (11th Cir. 2009), a decision of the U.S. Court of Appeals for the Eleventh Circuit, a claimant had successfully used a similar public policy argument to avoid the application of an arbitration provision.)
After reviewing the Convention and Supreme Court and Circuit precedents, such as the case of Bautista v. Star Cruises 396 F.3d 1289 (11th Cir. 2005), the Appeal Court concluded that the District Court had properly enforced the arbitration agreement in Lindo’s contract. The rationale was as follows:
- Under the Convention and Supreme Court and Circuit precedent there is a strong presumption in favour of freely-negotiated contractual choice of law and forum selection provisions and this presumption applies with special force in the field of international commerce.
- U.S. statutory claims are capable of being heard under arbitration. The precedents have clearly held that contracts providing for arbitration of U.S. statutory claims are enforceable. The fact that Lindo asserted a statutory Jones Act claim does not affect the strong presumption in favour of enforcement of the choice clauses in his contract. In essence, the Court held that even where a crewmember has a valid Jones Act claim this will not act as a bar to arbitration.
- U.S. courts must recognise arbitration agreements as long as:
(a) the four jurisdictional prerequisites are met. These are:
1. There must be an agreement in writing within the meaning of the Convention
2. The agreement must provide for arbitration in the territory of a Convention signatory state
3. The agreement arises out of a commercial legal relationship; and
4. There must be a party to the agreement that is not an American citizen, or the commercial relationship must have some reasonable connection with one or more foreign states
and
(b) no available defence under the Convention applies: Lindo had argued that the arbitration provision was unconscionable, maintaining that he signed the contract on a “take it or leave the ship” basis, but the Court rejected this argument.
- The Court further cited the case of Lipcon v Underwriters at Lloyd’s London 148 F.3d 1285 (11th Cir. 1998) where it was ruled that they would declare choice clauses unenforceable only when the remedies available in the chosen forum are so inadequate that enforcement would be fundamentally unfair; NCL provided evidence from a Bahamian attorney who stated that under Bahamian law a plaintiff seaman may sue in negligence and recover damages for pain and suffering, loss of wages, future earnings and medical expenses.
- Lindo maintained that his arbitration agreement was void as being contrary to public policy because he could not assert his U.S. statutory rights under Bahamian law. By this logic, courts in other nations could likewise refuse to recognise valid, mutually agreed arbitration provisions if they contemplated the application of American law, in derogation of home based statutory remedies. If every country refused to recognise arbitration agreements that contemplate the application of foreign law, the multilateral commitment of the Convention would be defeated.
- The Court also ruled that you cannot render void an arbitration clause based on a public policy defence prior to an arbitration taking place (in contrast to the decision in Thomas). Instead, the Court is to look at the end result of the arbitration to see if the minimum requirements for the injured party have been met. That is the point at which a public policy defence can be made and the arbitration award set aside, if appropriate.
In reality a Court is highly unlikely to want to overrule an award because their inclination is to respect the foreign arbitration award unless there is good reason not to do so. Even if it is the case that a tribunal has awarded a claimant compensation which is clearly inadequate and the award is appealed, a negotiated settlement is likely to follow so that the award may never ultimately be reviewed by a Court on appeal.
The Eleventh Circuit Court of Appeals recently reaffirmed its holding in Lindo v NCL in Maxwell v NCL (Bahamas), Ltd., d.b.a. NCL in reversing the district court’s order remanding and denying NCL’s motion to compel arbitration. The Court followed the ruling in Lindo and held that Bautista takes precedence over Thomas.
This ruling is a very favourable one for the cruise industry and provides much needed uniformity in this keenly disputed and litigated area.