ENFORCEMENT OF FOREIGN ARBITRATION
CLAUSES IN BILLS OF LADING
By:
Georges R. Delaume
Washington, D.C.
In Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 115 S.Ct. 2322 (1995), the United States Supreme Court upheld the validity of a foreign arbitration clause (in Japan) in a bill of lading relating to a shipment of oranges from Morocco to Boston. This is the latest contribution made by the Court to the liberalization of American rules relating to the effectiveness of choice of forum and arbitration clauses in transnational contracts.
In retrospect, this is a process which started some twenty years ago with the Court's decision in M/S Bremen and Unterweser Reederi GmbH v. Zapata Offshore Company, 407 U.S.1 (1972), which concerned the enforceability of a choice of an English forum in a contract between an American corporation and a German company for the towage of an ocean-going drilling rig from Louisiana to Italy. Zapata was soon followed by Scherk v. Alberto-Culver Company, 417 U.S. 506 (1974), which involved an arbitration clause providing for the arbitration in Paris, under the auspices of the International Chamber of Commerce, of disputes relating to a transaction between an American manufacturer and a German citizen.
Notwithstanding these progressive decisions, there remained over the years a pocket of resistance which concerned the validity of choice of forum and arbitration clauses in bills of lading providing for the submission of disputes to foreign judicial or arbitral determination. Beginning with Indussa Corp. v. S.S. Ranborg, 322 F.2d 200 (2d. Cir. 1967), an uninterrupted line of cases invalidated contractual submissions to foreign adjudication in bills of lading subject to the Carriage of Goods by Sea Act (COGSA). These cases relied on the consideration that the cost and inconvenience of litigating abroad would put "a high hurdle" in the way of enforcing the carrier's liability and would thus contribute to lessen its liability contrary to the prohibition set forth in Section 3(8) of COGSA.
This "economic" view of the problem was in sharp contrast with the "legal" approach followed by foreign (and especially European) courts in the implementation of their own statutes which, like COGSA, are based on the 1924 Brussels Convention for the Unification of Certain Rules Relating to Bills of Lading (the "Hague Rules"). For those courts, foreign adjudication is not objectionable, unless it leads to the application of substantive rules more favorable to the carrier than those prevailing in the ousted forum. In other words, in those cases, the relevant test is one of substance, not jurisdiction.
This is, in effect, the solution endorsed by the Supreme Court in M/V Sky Reefer. Clearly repudiating the Indussa reasoning, the Court emphasized that if the issue of lessened liability were to be answered by reference to the cost and inconvenience to the cargo owner, "there would be no principled basis for distinguishing national from foreign arbitration clauses." Taking an example, the Court noted: "Requiring a Seattle cargo owner to arbitrate in New York likely imposes more costs and burdens than a foreign arbitration clause requiring it to arbitrate in Vancouver."
In addition, the Court emphasized the need for U.S. courts not "to interpret our version of the Hague Rules in a manner contrary to every other nation to have addressed the issue." Consequently, the Court held that the lessening of liability prohibition in COGSA should be limited to issues of substance and excluded "increases in the transaction costs of litigation."
Having thus refocused the issue, the Court pointed out that enforcing the arbitration agreement is only an interlocutory stage and that the compatibility of the results reached by the arbitrators with those that would obtain under COGSA may be reviewed at the time recognition of the award is sought in the United States. Quoting from its earlier decision in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), the Court recalled: "The district court has retained jurisdiction over the case and will have the opportunity at the award enforcement stage to ensure that the legitimate interest in the enforcement of the... laws has been addressed." (Mitsubishi, 473 U.S. at 638.)
This clearly is a landmark decision. Although it is directly relevant to foreign arbitration, there is no reason to doubt that it would be equally pertinent in regard to foreign choice of forum clauses. In effect, the point is made by the Court when it recalls its own construction of a statutory provision similar to COGSA in the Carnival Cruise Lines case (Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991)). The validity of this proposition is not altered by the fact that this decision was rendered in a domestic rather that in an international context.
