Commentary: Carrier’s forum choice does not violate COGSA

Liberty Woods International filed a lawsuit in personam against Dalia Ship Holding and in rem against Dalia’s ship, the Ocean Quartz, seeking $1.4 million for damage it said occurred to shipments of plywood.

   Liberty Woods International (LWI) recently filed a lawsuit seeking more than $1.4 million for damage it said occurred to shipments of plywood.
   In its complaint, LWI said the nature of the loss included physical damage such as crushing, breakage, scarring, abrasion, splintering, shortage, water damage, staining, breakage and destruction of packaging, as well as associated extraordinary expenses.
   The defendants filed a motion to dismiss the suit based on a forum selection clause in the bills of lading for the plywood. The motion was granted. (See: Liberty Woods International, Inc. v. The Motor Vessel “Ocean Quartz,” et al. U.S. District Court, N.J. No. 15-08843. Nov. 19, 2016.)
   The plywood was loaded in December 2012 at three ports – Tanjung Manis and Bintulu in Malaysia and Samarinda, Indonesia – and discharged in Camden, N.J. between Feb. 14 and Feb. 21, 2013.
   LWI was the receiver, consignee, and owner of the cargo pursuant to the bills of lading and contracts of carriage. Its lawsuit was filed in personam against Dalia Ship Holding and in rem against Dalia’s ship the Ocean Quartz. The decision in this case quoted an earlier ruling that noted, “The right to proceed in rem – based on the legal fiction of vessel as wrongdoer – certainly has a long and important history” in admiralty law. The source of the concept has its origin “in the commercial usages and jurisprudence of the middle ages.”
   The bills of lading in the suit were issued by SK Shipping Co., which at the time, was the charterer of the Ocean Quartz.
   When the ship was again bound for Camden in April 2013, LWI notified counsel for the vessel that it intended to arrest the Ocean Quartz to recover for its damaged cargo, unless the vessel’s protection and indemnity insurer posted a letter of undertaking. (A letter of undertaking is a substitute for the physical arrest of a vessel. The owner agrees to appear in and defend an action in rem, and pay any judgment up to an agreed amount. In exchange, the vessel is permitted to continue to operate.)
   After filing its complaint, LWI became aware that Dalia had bareboat chartered the Ocean Quartz to another company, Star Bulk Carrier, Co., S.A.
   Dalia, therefore, had no liability for the damaged cargo because an owner that bareboat charters a vessel retains title to the vessel, but relinquishes all control and responsibility for the vessel to the bareboat charterer.
   LWI did not file suit against Star Bulk Carrier or the time charterer, SK Shipping, so its only claim in the lawsuit was its in rem action against the Ocean Quartz.
   Counsel for the Ocean Quartz moved to dismiss LWI’s claim on the grounds that a forum selection clause in the bills of lading would not permit LWI’s in rem claim to proceed.
   The forum selection clause stated, “Any claim, dispute, suit or action concerning goods carried under this Bill of Lading, whether based upon breach of contract, tort, or otherwise shall be brought before the Seoul District Court in Korea.”
   LWI countered that the forum selection clause was invalid because Korean law does not allow for in rem actions against vessels, and that inability to bring an action in rem against the vessel violated the Carriage of Goods at Sea Act (COGSA).
   According to the court, “the exact same position” as LWI’s was advanced by a plaintiff in a case nearly two decades ago, but was rejected by the 9th Circuit (Fireman’s Fund Ins. Co. v. M.V. DSR Atlantic, 131F.3d 1336 (9th Cir. 1997), cert. denied, 525 U.S. 921 (1998)).
   Ocean Quartz’s lawyers argued that the court should follow the precedent set by the Fireman’s Fund case and its progeny, as opposed to the three “outlier” cases cited by LWI.
   In the Fireman’s Fund decision, the 9th Circuit said a forum selection clause is “prima facie valid and should be enforced, unless enforcement is shown by the resisting party to be unreasonable under the circumstances, and that enforcement is unreasonable where it would contravene a strong public policy of the forum in which suit is brought.”
   In doing so, the 9th Circuit rejected Fireman’s Fund’s arguments, finding the insurer had not met its heavy burden of proof by showing that litigating in Korea might represent a serious inconvenience, and that depriving Fireman’s Fund of its right to proceed in rem was insufficient to invalidate the forum clause on public policy grounds.
   It also said the forum selection clause should not be invalidated even if the bill of lading was considered a contract of adhesion, and that the forum selection clause did not violate the COGSA selection clause because the Supreme Court in a 1995 decision (Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer) found nothing in COGSA that “suggests that the statute prevents the parties from agreeing to enforce (the requirements of COGSA) in a particular forum.”
   The 9th Circuit held mere unavailability of in rem proceedings does not constitute a “lessening of the specific liability imposed by [COGSA];” rather, it presents a “question of the means…of enforcing that liability.”
   The court hearing LWI’s complaint said it did not feel “compelled to depart from the reasoning of the Fireman’s Fund line of cases and read into COGSA a provision that prohibits a shipper from choosing a forum for disputes that does not recognize in rem actions.”
   It agreed with the Ocean Quartz’s attorneys and found the forum selection clause in its dispute with LWI was valid and enforceable.