As we know quite well by now, those forum designation clauses ocean carriers stick in their standard bills of lading, service contracts and incorporated terms and conditions have been enforceable since the U.S. Supreme Court’s 1995 decision in Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer. As part of a trend and process that ultimately led to ocean shipping deregulation, Sky Reefer was founded on the notion that parties to contracts should be free to select their own terms, including where they will resolve dispute. Most typically, Sky Reefer’s effect is to give U.S. trial courts grounds to dismiss cargo lawsuits in favor of courts or arbitration tribunals specified in shipping documentation.
However, the Southern District of New York recently issued a decision that shows shippers and their lawyers how forum selection clauses can be far more than procedural inconveniences, and that courts sitting in admiralty have limited patience for abuse of process.
Shipper Quality Print arranged through a pair of forwarders shipment of a container of printing machinery from Milwaukee to Guatemala with ocean carrier Maersk. Maersk’s bill of lading contained a forum selection clause mandating that litigation against it take place in New York City. The port of departure was New Orleans. Hurricane Katrina intervened, and the container was surveyed for damage. A maritime surveyor found none, but prompt testing of the equipment was recommended. If the shipper did any such testing, it wasn’t reported to Maersk.
The shipper brought suit against Maersk in the Second Maritime Court of Panama, claiming replacement value (not invoice costs, which probably is the correct measure of damages) of the freight, plus a variety of consequential damages totaling some $10 million. To avoid an order of arrest of its vessel out of Panama, Maersk was forced to post a $10 million cash bond, as Quality Print refused to accept a “letter of undertaking” customarily submitting by steamship lines’ insuring entities. A second suit in Guatemala ensued, and the court there, on the shipper’s motion, appointed an “intervenor” to occupy and oversee Maersk’s Guatemala City office. This caused significant disruption to the office’s operations.
The shipper’s machinations then came to light. On further proceedings, a frustrated Panama court subsequently knocked down the claim to less than 800 grand, finding no evidence supporting Quality Print’s original claim amount. Needless to say, the whole mess cost Maersk a bundle. The carrier’s lawyers then went to work.
Maersk filed suit in the Southern District of New York seeking to enforce the forum selection clause and to recover an array of damages and sanctions based on the shipper’s disregard of the forum selection clause. Quality Print’s motion to dismiss the suit was denied, whereupon its counsel withdrew from representation, and the shipper defaulted on all subsequent proceedings.
Concluding that Quality Print’s actions were a well-orchestrated attempt to milk Maersk, the U.S. federal took off its gloves. It dismissed Quality Print’s damaged cargo claim against Maersk, and found the shipper liable to Maersk for huge damages based on abuse of process, breach of contract (by violating the forum selection clause), and contempt of court. Maersk should be able to recover all of its losses, including attorneys’ fees, if there’s anything left of Quality Print to pay the judgment (which is uncertain, as defaulting defendants whose counsel withdraw midstream don’t make good judgment debtors).
Forum shopping, and foreign carriers reserving a home-court advantage by mandating that litigation against them take place in their own countries, were major concerns expressed in the Sky Reefer litigation. In practice, smaller shippers often don’t focus on forum selection clauses at all, or don’t have the business clout to insist on more convenient litigation locales. Larger shippers sometimes include jurisdiction in terms they negotiate with ocean carriers in their service contracts, but litigation in distant places isn’t as onerous for them.
Reactions like the Southern District of New York’s against Quality Printing aren’t typical. However, U.S. federal courts have never been keen to tolerate violations of forum selection clauses, especially when they involve the kind of abuse shown here. If your bill of lading contains a forum selection clause, don’t ignore it.
Ref: A.P. Moller-Maersk d/b/a/ Maersk Sea-Land v. Ocean Express Miami, et al., 648 F.Supp.2d 490 (SDNY 2009); Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528 (1995)
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