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Pasztory v. Malte Cross Shipping

In Gard News Issue 139 we reported the United States Supreme Court’s decision on the "SKY REEFER" in which a foreign Arbitration Clause in a bill of lading was found to be enforceable.

It has been brought to our attention that the Club’s correspondents in Norfolk, Virginia, Hunton & Williams, quite recently succeeded on a motion to dismiss a case on the grounds that the bill of lading contained a foreign Law and Jurisdiction Clause.

The case concerned damage to USD 80,000 worth of furniture and personal effects shipped from Genoa, Italy to Norfolk in the autumn of 1994. The sea carriage was performed by a vessel operated and managed by Croatia Line. The owner of the goods had contracted separately with a truck company to take the goods from Norfolk to an inland destination in Virginia.
(1) The plaintiff filed suit in personam in the United States District Court for the Eastern District of Virginia against the following defendants:
(a)The truck company, with a principal place of business in Norfolk;
(b)The Shipowner, with a principal place of business in Malta;
(c)Croatia Line, with a principal place of business in Croatia.
None of the defendants were entered in the Gard Association.

In a joint motion the shipowner and Croatia Line claimed that a forum selection clause in the bill of lading required the plaintiff to pursue his claims in the District Commercial Court in Rijeka, Croatia. The bill of lading provided:
"LAW AND JURISDICTION – Insofar as anything has not been dealt with by terms and conditions of this Bill of Lading, Croatian law shall apply. Croatian Law shall also be applied in interpreting the terms and conditions hereof. All actions arising under this Bill of Lading shall be brought before the District Commercial Court in Rijeka to the exclusion of the jurisdiction of the courts of any other place, unless the Carrier appeals to another jurisdiction or voluntarily submits himself thereto."

Furthermore, in a different clause the bill of lading provided:
"CLAUSE PARAMOUNT - If the Carriage covered by this Bill of Lading includes carriage to, from or through a port or place in the USA and any action is brought in the USA then this Bill of Lading shall be subject to the United States Carriage of Goods by Sea Act of 1936, the terms of which are incorporated herein and shall be paramount throughout Carriage by Sea..."

The Plaintiff argued inter alia that the Clause Paramount in the bill of lading must override the forum selection clause in the same document and that the court should refuse to enforce the forum selection clause in any event because Croatia would not be a reasonable forum for the litigation of his claims. The Court did not agree.

In the "SKY REEFER" decision the majority of the Supreme Court unequivocally concluded that a forum selection clause did not lessen the liability of a carrier under the US Carriage of Goods by Sea Act 1936 (COGSA) so as to be nullified by section 3(8) of that Act. In its decision The Supreme Court reasoned that: "[Section 3(8) of COGSA] ...addresses the lessening of the specific liability imposed by the Act, without addressing the separate question of the means and costs of enforcing that liability. The difference is that between explicit statutory guarantees and the procedure for enforcing them, between applicable liability principles and the forum in which they are to be vindicated. ... Nothing in this section ... suggests that the statute prevents the parties from agreeing to enforce these obligations in a particular forum. By its terms, it establishes certain duties and obligations, separate and apart from the mechanisms for their enforcement".

In its recent ruling the US District Court for the Eastern District of Virginia felt compelled to follow the directives of the "SKY REEFER" decision. The defendants had identified persuasive legal authority which suggested that Croatia recognises and enforces the Hague Rules upon which the US COGSA was modelled, whereas the plaintiff had failed to demonstrate that the substantive law to be applied by the foreign tribunal would be less than US COGSA guarantees.

Finally, the District Court also found the Plaintiff’s contention that Croatia was not a reasonable forum for the resolution of the present dispute was not persuasive.The fact that two of the parties to the lawsuit and a number of witnesses reside in the United States was no sufficient to demonstrate that it would be seriously inconvenient for the plaintiff to litigate the claim in Croatia.Reference was again made to the "SKY REEFER" decision where the court held that increased cost and inconvenience were not enough to defeat the operation of a forum selection clause in an Admiralty suit.

In view of this recent decision we believe that it has become increasingly clear that US Courts will now respect choice of forum clauses in bills of lading. However, the plaintiff has filed an appeal before the 4th circuit Court of Appeals. Readers will be informed of the Court of Appeals decision, in due course.