Jurisdiction Clauses Are Enforced

Types : Alerts

A recent case from the federal court in New York confirms that jurisdiction clauses are difficult to overcome. In ThyssenKrupp Materials NA, Inc. v. M/V Kacey, et al, 236 F. Supp. 3d 835 (SDNY 2017), the shipowner field a motion to dismiss for foreign non conveniens because the applicable  bills of lading contained a clause that “any dispute …shall be decided in the country where the owner has a principle place of business. While the owner of the ship was apparently a Marshall Island registered company, the defendant Owner argued that its principle place of business was still in Greece. The court accepted that statement for purposes of the motion, and then turned to the Plaintiff as to why the motion should not be granted because when there is a valid selection clause the court is obligated to give the clause controlling weight. The only exception is if enforcement of the clause would be unreasonable or unjust, or the clause was unreasonable for such reasons as fraud or overreaching.

Plaintiff argued that the clause was unreasonable because if the case were transferred to Greece, the plaintiff would be unable to maintain an in rem claim against the vessel as Greece does not recognize in rem rights. The district court stated that the loss of the in rem right was not enough to defeat the jurisdiction clause given that the in rem claim “does not confer any other benefit than providing an additional mechanism for enforcement”.  The court went on to say that it was not persuaded in any event that Greece does not recognize in rem action as Greece had adopted the Hague Visby rules as a Convention, and the Hague Visby rules specifically recognizes in rem actions. See Art. 3(8).  [The author of this summary notes that this may be an oversimplification, since the mere adoption of a convention does not necessarily create in rem rights, and more importantly the Convention does not provide the mechanism to exercise the in rem claim.]  The court then determined that other decisions in the Second Circuit have held that the inability to enforce in rem actions does not establish that substantive rights will be reduced if the case is transferred abroad.

Plaintiff then argued that transfer to Greece would prejudice the plaintiff because one of the named defendants was the technical manager of the ship, and under the “identity of carrier” clause, the manager would not be subject to suit in Greece, although he would be subject to suit in the US as the identify of carrier clause is not enforceable. The federal judge responded that clauses which channel all responsibility to one party are still enforceable, as the Second Circuit has characterized these clauses as “simply an ordering mechanism that regulates who will be responsible for whom rather than lessening any substantive rights”.

That left plaintiff with only one last argument: that the identity of carrier clause is valid under the Harter Act, and plaintiff’s rights under the Harter act would be violated if the case were transferred to Greece. The court agreed that the Harter act definition of carrier is more expansive than the bills of lading, and includes the manager of the vessel. However, the court disagreed that Harter Act prohibited transfer of the case, as that act prohibits clauses that “absolve” the carrier of liability -but does not prohibit limiting a carrier’s liability. Since the identity of carrier clause only limits who you can sue and does not provide for a general absolution of the carrier, the Plaintiff failed to meet its burden to establish the enforcement of the forum section clause would be unreasonable or unjust, or against any public interest factors.

As a final parting, the federal judge refused to maintain jurisdiction over the case while it was decided in Greece.  This is contrary to what the Supreme Court permitted in the famous Sky Reefer case. The district court noted that unlike Sky Reefer, where there were several possible applicable laws, in the subject case the parties agreed that the Hague Visby rules would be applied, and “thus, Plaintiff’s substantive rights will not be impaired or diminished”. Indeed, given that the cargo consisted of steel pipe, and assuming it was bundled, Plaintiff might have been facing a $500 package limit in the US. On the other hand, under Hague Visby it is doubtful there would be any limitation as the “per kilo” limitation would have exceeded the package limit.

The lesson learned is that federal judges are not going to ignore jurisdiction clauses. From the court’s perspective, in a commercial world, if the parties want to have another court resolve the dispute, then such agreements are enforced.