Court of Appeals upholds cargo suit dismissal in case of damaged plywood shipped from Malaysia and Indonesia to New Jersey in 2013.
Liberty Woods International (LWI) purchased plywood, which was shipped from Malaysia and Indonesia to Camden, N.J., on the ship Ocean Quartz.
LWI said the cargo — 9,439 crates weighing 8,592 metric tons — was delivered to the ports in Asia in good condition. But when the shipments arrived in Camden in February 2013, the wood had suffered damage including crushing, breakage, scarring, abrasion, splintering and staining, according to LWI, which said there also were shortages and destruction of packages. LWI said the loss exceeded $1.4 million.
The ship was owned by Dalia Ship Holding, but there was a chain of companies that chartered it: Dalia bareboat chartered the ship to Star Bulk, which in turn time chartered it to Daiichi, which in turn time chartered it to SK Shipping. (Bareboat chartering transfers complete control and operation of the vessel from the owner to the bareboat charterer without imposing liability for the acts of the charterer.)
SK Shipping issued a bill of lading that specified any claim, dispute, suit or action under the bill of lading “shall be brought before the Seoul District Court in Korea.”
Believing the damage was caused by improper stowage, LWI threatened to arrest the vessel. In lieu of an arrest, the Japan Ship Owners’ Mutual Protection & Indemnity Association issued to LWI and its insurers a letter of undertaking (LOU) on behalf of the vessel, which could be used to satisfy any judgment against the vessel in rem up to and including $2.75 million.
On Dec. 23, 2015, LWI filed a lawsuit in the U.S. District Court in New Jersey naming Ocean Quartz as a defendant in rem and the shipowner, Dalia, as a defendant in personam.
LWI learned it could not recover in personam against Dalia because of the bareboat charter and the district court dismissed the in rem lawsuit.
LWI appealed, but the 3rd Circuit Court of Appeals upheld the dismissal. (Liberty Woods International Inc. v. MV Ocean Quartz. 3rd Circuit. No. 16-4195. May 4.)
In his concurring opinion, Judge Thomas Ambro explained, “For a maritime creditor an action in rem is a procedure for obtaining prejudgment security and post-judgment enforcement. In the global shipping business the debtor’s ship is typically the main asset on which a judgment creditor can rely to collect from a defendant located perhaps on the other side of the world. A court can easier locate, bring within its jurisdiction and arrest the ship than a defendant’s other foreign assets.
“It is no surprise then that maritime law supplies in rem liability against a ship, that is, permits an action naming the ship as though it were the defendant,” he added. “As is relevant here, in the United States a ship can be liable in rem for cargo damage, the idea being that the ship impliedly ratified the shipping contract when the carrier loaded the cargo onboard.
“The Carriage of Goods by Sea Act, or COGSA, assumes the availability of an action against the ship,” he said. But “an action in rem is only one way to impose liability on a ship” and South Korean law does not allow in rem suits.
In its main opinion, the 3rd Circuit Court said LWI could have filed an in personam suit against S.K. Shipping in South Korea, but chose not to. “At argument, counsel admitted that this was a strategic move on its part because LWI felt that its suit would not be successful in South Korea.”
LWI argued that enforcing the forum selection clause would violate section 3(8) of COGSA which says in part, “Any clause, covenant or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to or in connection with the goods, arising from negligence, fault or failure in the duties and obligations … or lessening such liability … shall be null and void and of no effect.”
LWI argued that this provision invalidated the foreign forum selection clause because South Korea does not recognize in rem suits.
But the 3rd Circuit said, “While foreign forum selection clauses were originally disfavored under COGSA, the Supreme Court later adopted a policy that better reflected the need to respect the competence of foreign forums to resolve disputes.”
In its 1995 decision, Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, the Supreme Court wrote, “The historical judicial resistance to foreign forum selection clauses has little place in an era when … businesses … now operate in world markets.”
The 3rd Circuit said, “COGSA protects ship liability, not any particular vehicle for imposing it. The text does not mention in rem suits, nor require any specific remedy for enforcing ship liability.”
The court noted countries such as Greece, Poland and Germany do not recognize in rem suits, adding the United States “is one of the few countries that do recognize in rem suits. Imposing this idiosyncratic procedural requirement on other countries would be needlessly parochial.”
LWI also contended that even if in rem suits are not a substantive right, the forum selection clause in COGSA “effectively relieves or lessens ship liability by not recognizing in rem actions, in violation of COGSA.” The 3rd Circuit also rejected this argument.
“While in rem suits might appear to be an obvious way to impose ship liability, courts have recognized other avenues for imposing liability in situations where in rem suits are prohibited.”
The court said LWI could have obtained an LOU that would provide security for an in personam suit in South Korea.
“LWI’s inability to recover seems to be a consequence of its own deliberate inaction: First, it refused to file an in personam suit against S.K. Shipping in South Korea. Second, it did not obtain an LOU that would be applicable to an in personam suit. LWI’s own willful limitation of alternatives, not the forum selection clause, has eliminated its ability to recover. For this reason, we hold that the forum selection clause did not effectively lessen or eliminate the vessel’s liability and that it is valid under COGSA.”
LWI said the cargo — 9,439 crates weighing 8,592 metric tons — was delivered to the ports in Asia in good condition. But when the shipments arrived in Camden in February 2013, the wood had suffered damage including crushing, breakage, scarring, abrasion, splintering and staining, according to LWI, which said there also were shortages and destruction of packages. LWI said the loss exceeded $1.4 million.
The ship was owned by Dalia Ship Holding, but there was a chain of companies that chartered it: Dalia bareboat chartered the ship to Star Bulk, which in turn time chartered it to Daiichi, which in turn time chartered it to SK Shipping. (Bareboat chartering transfers complete control and operation of the vessel from the owner to the bareboat charterer without imposing liability for the acts of the charterer.)
SK Shipping issued a bill of lading that specified any claim, dispute, suit or action under the bill of lading “shall be brought before the Seoul District Court in Korea.”
Believing the damage was caused by improper stowage, LWI threatened to arrest the vessel. In lieu of an arrest, the Japan Ship Owners’ Mutual Protection & Indemnity Association issued to LWI and its insurers a letter of undertaking (LOU) on behalf of the vessel, which could be used to satisfy any judgment against the vessel in rem up to and including $2.75 million.
On Dec. 23, 2015, LWI filed a lawsuit in the U.S. District Court in New Jersey naming Ocean Quartz as a defendant in rem and the shipowner, Dalia, as a defendant in personam.
LWI learned it could not recover in personam against Dalia because of the bareboat charter and the district court dismissed the in rem lawsuit.
LWI appealed, but the 3rd Circuit Court of Appeals upheld the dismissal. (Liberty Woods International Inc. v. MV Ocean Quartz. 3rd Circuit. No. 16-4195. May 4.)
In his concurring opinion, Judge Thomas Ambro explained, “For a maritime creditor an action in rem is a procedure for obtaining prejudgment security and post-judgment enforcement. In the global shipping business the debtor’s ship is typically the main asset on which a judgment creditor can rely to collect from a defendant located perhaps on the other side of the world. A court can easier locate, bring within its jurisdiction and arrest the ship than a defendant’s other foreign assets.
“It is no surprise then that maritime law supplies in rem liability against a ship, that is, permits an action naming the ship as though it were the defendant,” he added. “As is relevant here, in the United States a ship can be liable in rem for cargo damage, the idea being that the ship impliedly ratified the shipping contract when the carrier loaded the cargo onboard.
“The Carriage of Goods by Sea Act, or COGSA, assumes the availability of an action against the ship,” he said. But “an action in rem is only one way to impose liability on a ship” and South Korean law does not allow in rem suits.
In its main opinion, the 3rd Circuit Court said LWI could have filed an in personam suit against S.K. Shipping in South Korea, but chose not to. “At argument, counsel admitted that this was a strategic move on its part because LWI felt that its suit would not be successful in South Korea.”
LWI argued that enforcing the forum selection clause would violate section 3(8) of COGSA which says in part, “Any clause, covenant or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to or in connection with the goods, arising from negligence, fault or failure in the duties and obligations … or lessening such liability … shall be null and void and of no effect.”
LWI argued that this provision invalidated the foreign forum selection clause because South Korea does not recognize in rem suits.
But the 3rd Circuit said, “While foreign forum selection clauses were originally disfavored under COGSA, the Supreme Court later adopted a policy that better reflected the need to respect the competence of foreign forums to resolve disputes.”
In its 1995 decision, Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, the Supreme Court wrote, “The historical judicial resistance to foreign forum selection clauses has little place in an era when … businesses … now operate in world markets.”
The 3rd Circuit said, “COGSA protects ship liability, not any particular vehicle for imposing it. The text does not mention in rem suits, nor require any specific remedy for enforcing ship liability.”
The court noted countries such as Greece, Poland and Germany do not recognize in rem suits, adding the United States “is one of the few countries that do recognize in rem suits. Imposing this idiosyncratic procedural requirement on other countries would be needlessly parochial.”
LWI also contended that even if in rem suits are not a substantive right, the forum selection clause in COGSA “effectively relieves or lessens ship liability by not recognizing in rem actions, in violation of COGSA.” The 3rd Circuit also rejected this argument.
“While in rem suits might appear to be an obvious way to impose ship liability, courts have recognized other avenues for imposing liability in situations where in rem suits are prohibited.”
The court said LWI could have obtained an LOU that would provide security for an in personam suit in South Korea.
“LWI’s inability to recover seems to be a consequence of its own deliberate inaction: First, it refused to file an in personam suit against S.K. Shipping in South Korea. Second, it did not obtain an LOU that would be applicable to an in personam suit. LWI’s own willful limitation of alternatives, not the forum selection clause, has eliminated its ability to recover. For this reason, we hold that the forum selection clause did not effectively lessen or eliminate the vessel’s liability and that it is valid under COGSA.”
