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ENFORCEABILITY OF FOREIGN FORUM SELECTION CLAUSES IN MARITIME BILLS OF LADING UNDER AMERICAN LAW FERNANDO MELO INSTITUTE OF COMPARATIVE LAW McGlLL UNIVERSITY, MONTREAL NOVEMBER, 1996 A thesis subrnitted to the Faculty of Graduate Studies and Research in partial fulfilment of the requirements of the degree of Master of Laws O Fernando Melo, 1996

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ENFORCEABILITY OF FOREIGN

FORUM SELECTION CLAUSES IN MARITIME BILLS OF LADING UNDER AMERICAN LAW

FERNANDO MELO

INSTITUTE OF COMPARATIVE LAW

McGlLL UNIVERSITY, MONTREAL

NOVEMBER, 1996

A thesis subrnitted to the Faculty of Graduate Studies and Research

in partial fulfilment of the requirements of the degree of Master of Laws

O Fernando Melo, 1996

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ABSTRACT

Traditionally, American cou* refused to enforce foreign forum selection clauses

as against public policy.

This doctrine was abandoned in 1972 in the Bremen, where the United States

Supreme Court established the presumption of validity of foreign forum selection

clauses. However, the enforceability of such clauses is subject to certain

exceptions which relate to particular applications of the general pinciples of

contract law .

The Bremen anaiysis was modified in 1991, when the Supreme Court decided

Carnival Cmise, which limited the scope of such exceptions and strengthened

the presumption of validity of forum selection clauses.

In 1995, the Supreme Court decided Sky Reefer, overruling the lower court

decision in Indussa, and extending the presumption of validity of foreign forum

selection clauses to maritime bills of lading subject to the Carriage of Goods by

Sea Act (COGSA).

Invoquant leur atteinte à l'ordre publique, les tribunaux américains ont

traditionnellment refusé de donner effet aux clauses d'election de forum étranger.

Cette doctrine a été abandonnée en 1972 avec I'affaire Bremen. lorsque la Cour

Suprême des États-unis a établi que les clauses d'election de forum étranger

seraient dorénavant présumées valides. Cepedant, la force exécutoire de telles

clauses demeure sujette à certaines exceptions relatives aux applications

particulières des principes généraux en matiere des obligatoires contractuelles.

L'analyse issue de I'affaire Bremen a été modifiée en 1991 par I'affaire Camival

Cruise, une décision de la Cour Suprême des États-unis. a limité la portée de

ces exceptions et a renforcé la présomption de la validité des clauses d'election

de forum.

En 1995, la Cour Suprême des États-unis a rendu la décision Sky Reefer

infirmant la décision rendue par un tribunal d'instance inférieure dans I'affaire

lndussa et étendant la presomption de la validité des clauses d'election de forum

étranger aux connaissements maritimes sujets à la loi intitulée Caniage of Goods

by Sea Act.

TABLE OF CONTENTS

............................................................................................ INTRODUCTION 1

CHAPTER 1: THE HISTORY OF FORUM SELECTION CLAUSES IN AMERICAN LAW 5 ....

A Evolution Under the Early Common Law ................................................ 5 .

B Evolution Under American Law 10 .............................................................. .

The Ouster Doctrine 10 .......................................................................

The Decline of the Ouster Doctrine ................................................. 13

......................................................... The Reversal from the Courts 15

.............................................. The Bremen v . Zapata Off Shore Co 17

.................................................................. Post-Bremen Decisions 23

....................................................... Carnival Cruise Lines v . Shute 28

.................. . Vimar Seguros y Reaseguros, S.A. v M N Sky Reefer 30

................................................................................ a . The Facts 30

............................... . b The Judgment from the Court of Appeals 31

c . The Judgment from the Supreme Court ................................. 32

................................................................................. Recent Cases 33

Concluding Remarks ...................................................................... 35

CHAPTER II: CHOICE OF FORUM AND GENERAL CONTRACT LAW .............................. 37

A . Introduction ............................................................................................. 37

B . Description and Functions of the Bill of Lading .......................................

. C Applicable Law ........................................................................................

D . The Law of Standardized Contracts .......................................................

E . Avoidance of Contractual Stipulations ....................................................

. ............................................................................................ 1 Duress

2 . Undue Infiuence ..............................................................................

........................................................................... 3 . Misrepresentation

................................................. .................................. . 4 Mistake ,....

5 . Unconscionability ............................................................................

a . Introduction .............................................................................

b . The Concept of Unconscionability ..................... .... ..........

c . Procedural and Substantive Unconscionability ......................

d . Factors for Determining Unconscionability ..............................

...... e . Scope of Section 2-302 of the Uniform Commercial Code

(1) Application Beyond the Contract of Sale ........................

................. (2) Application to Contracts between Merchants

......................... f . Procedure for Determining Unconscionability

g . Remedies for Unconscionability .............................................

6 . Public Policy ...................................................................................

CHAPTER III: CHOICE OF FORUM IN MARITIME BILLS OF LADING ............................ .,. 69

A . The Bremen Test .................................................................................... 69

1 . Exceptions to the Enforceability of Forum Selection Clauses ......... 70

a . Fraud ..................................................................................... 70

............................................. b . Overweening Bargaining Power 71

c . Public Policy ......................... ... .......................................... 73

d . lnconvenience of the Selected Forum ....................... ....... 75

2 . The Bremen Test and the Principles of Contract Law ..................... 76

3 . The Bremen Test after Camivai Cruise ........................ .... ........ 79

B . Forum Selection Clauses in Maritime Bills of Lading ..............................

Presumption of Validity .......................... ... .................................

The indussa Rule ...........................................................................

indussa and Brernen ......................................................................

lndussa and Camival Cruise ..........................................................

The Law after Sky Reefer ..............................................................

Foreign Forum Selection Clauses and Section 3(8) of ...................... ..................................... COGSA t..

............................... (1) Meaning of Section 3(8) of COGSA

(2) Lessening of Carrier's Liability by lncreasing the Costs of Pursuing the Action ........................................................

(3) Lessening of Carrier's Liability by Eliminating the ................................ Assurance of COGSA's Application 103

Foreign Forum Selection Clauses and lnequality of Economic Power ..................................................................................... 109

.................................. The Environment of the New Rationale 114

.............................................................. Concluding Remarks 117

iii

............................................................................................. CONCLUSIONS 120

TABLE OF CASES ..........................,......................................................... 125

............................................................................................ BIBLIOGRAPHY 129

INTRODUCTION

The parties to commercial contracts frequently stipulate the forum for the

resolution of potential disputes. This is usually accomplished either through a

stipulation specifying the forum with jurisdiction to resolve the disputes or through

an arbitration clause.

In international and interstate contracts, it is difficult to predict the court in which

the parties would file a suit;' this produce uncertainty in the contractual

relationship. In order to avoid this situation, the parties usually try to find those

devices that ensure certainty and predictability as to the forum of resolution of

potential disputes. Along with arbitration clauses, choice of forum clauses are

one of the most important tools for achieving this goaL2

Other reasons may lead the parties to select a particular forum: the chosen

forum or the arbitral tribunal is though? to have expertise on the subject matter or

is convenient or neutral for both parties.3

In the international context, forum selection clauses are even more important

because not only procedural and substantive rules, but also cultural and political

backgrounds differ from country to country far more than they do in the United

States from state to tat te.^ In international contracts, forum selection clauses

1 L. Ledeman, 'llnra Zapata!: Toward a Rational System of Forum-Selection Clause Enforcement in Diversity Cases" (1 991 ) 66 N. Y. U. L. Rev. 422 at 422. 2 See e.g. M. Gruson. "ForumSelection Clauses in International and lntentate Commercial Agreements" (1982) U. III. L. Rev. 133 at 134. 3

4 E.F. Scoles 8 P. Hay. Conffict of Laws. 2d ed. (St. Paul. Minn.: West. 1992) at 361. G.B.Born & 0. Westin, International Civil Litigation in United States Courts (Deventer, The

Netherlands: Kluwer, 1989) at 171.

tend to foster trade because they eliminate the fear of the vagaries of unfamiliar

and fortuitous foreig n forum .5 A commentator has arg ued that "[aldvance

determination of the forum is the best method of avoiding jurisdictional

controversies in an age which has not yet developed a tnily international

jurisdiction.'"

Under American law, the vaiidity of a foreign forum selection clause is

controversial. and traditionally the American courts were reluctant to enforce

them.' However. in 1972, the United States Supreme Court in M/S Bremen v.

Zapata Off Shore CO! upheld a forum selection clause in a contract involving

international trade. More recently, important decisions of the United States

Supreme Court have followed the same trend.g The decision in Bremen,

although a maritime case, upheld the general presumption of validity of forum

selection clauses.

international maritime transactions usually involve more than one jurisdiction.

Therefore, jurisdiction clauses, stipulating an exclusive forum for the settlement

of disputes, are often incorporated into bills of lading. Thus, the purpose of this

thesis is to detemine the conditions of validity of foreign forum selection clauses

in maritime bills of lading.

5 J.T. Gilbert, "Choice of Forum Clauses in lnternational and Interstate Contracts" (7976) 65 Ky. L. J. 1 at3. 6 A. Lenhoff, "The Parties' Choice Forum: 'Prorogation Agreements' " (1 961 ) 15 Rutgers L. Rev. 41 4. 7 See e.g. P. J. Barrett, "Choice of Forum Provisions and the lntrastate Dilernrna: Is Ouster Ousted?" (1980) 48 Fordham L. Rev. 568 at 569; G.R. Delaume, "Choice of Forum Clauses and the American Forum Patriae; Something Happened on the Way to the Forum: Zapata and Silver", 1973) 4 3. Marit. L. & Comrn. 295 at 295; Lederman, supra note 1 at 427.

'407 US. 1, 32 L. Ed. 2d 51 3, 92 S. Ct. 1907 (1 972). 9 Carnival Cnrr'se tines v. Shute, 499 U.S. 585, 1 1 3 t. Ed. 2d 622, 1 1 1 S. Ct. 1 522 (1 991 ); Vimar Seguros y Reaseguros, S.A. v. M N Sky Reefer, 515 U.S. , 132 L. Ed. 2d 462, 11 5 S. Ct. 2322 (1 995).

With regard to the scope of the analysis, first it must be noted that forum

selection clauses have two effects.l0 The first effect is affirmative and it refers to

the parties' consent to the exercise of junsdiction by the chosen court with

respect to future disputes." This is known as the prorogation effect.12 The

second effect is negative such that the court not chosen should not exercise its

jurisdiction in violation of the forum selection agreement.l3 This is called the

derog atory effect of forum selection agreements. l4

The prorogation effect of the forum selection agreements has been accepted

traditionally by the c o u d 5 However, the derogatory effect has created

significant cont ro~ers~ '~ and this thesis focuses on this aspect of the

effectiveness of forum selection agreements in maritime bills of lading.

Under this framework, the first chapter of the thesis deals with the evolution of

the different approaches followed by the courts with regard to the enforceability

of forum selection clauses. The first chapter covers the historical evolution of the

case law, placing ernphasis on the Adrniralty cases.

The second chapter covers the general doctrines of contract law that are

considered to be relevant for the analysis of enforceability of foreign forum

selection clauses in maritime bills of lading.

1 W.L.M. Reese. 'The Supreme Court Supports Enforcement of Choice-of-Forum Clauses" (1973) 7 Int'l Lawyer 530, 534 [hereinafter "The Supreme Court"]. See also, Gilbert, supra note 5 at 5. "M. "~ilbert. supra note 5 at 5. '"The Supreme Court1'. supra note 10 at 534. 14 Gilbert, supm note 5 at 5. ' 'lbid. 161bid. at 6.

Following from the context set out in the first two chapters, the third chapter

develops a theoretical framework for the evaluation of the validity of foreign

forum selection clauses. ARer describing the general law on the subject. the third

chapter focuses on the specific field of Admiralty in order to discuss the

conditions of enforceability of the choice of foreign forum provisions in maritime

bills of lading.

CHAPTER i

THE HISTORY OF FORUM SELECTION

CLAUSES IN AMERICAN LAW

Chapter I is concerned with the evolution of the case law with regard to the

enforceability of forum selection clauses. An emphasis is placed on Admiralty

cases.

A. Evolution Under the Early Common Law

The first significant case concerning forum selection clauses was Gienar v.

/Weyert7 decided in 1796. A Dutch seaman brought an action in England against

the master of a Dutch vessel in order to obtain his wages. During a voyage

between Barcelona and Rotterdam, the vessel was arrested by an English

warship and brought into port, where it was detained for a considerable amount

of time and then sold. The agreement had been made in Holland and included a

clause providing for the exclusive jurisdiction of the courts of Holland. The Court

of Common Pleas favored foreign forum selection agreements when the parties

were foreigners and the contract had been concluded abroad:

Although no persons in this country can by an agreement between themselves exclude themselves from the jurisdiction of the king's courts, and though it must be admitted that contracts are transitory, and that a personal action follows the person, and that the contract in question is of such a nature as to be agreeable to Our laws, yet

17(1 796). 2 H. BI. 603, 126 ER. 728 (C.P.).

when the parties, who are foreigners. bind themselves in their own country not to sue in any other, and when by suing here they put the Defendant under an intolerable hardship, I think we ought to look into the contract, in order to see what effect it would have, and how it could be enforced in the country where 1 was made. that we may not do any thing here unjust or contrary to the laws of that country.''

Following the above reasoning, the Court upheld the forum selection clause: "[ilt

seems therefore to me more reasonable to send the parties to their own country.

there to pursue their r e r ~ ~ e d ~ . " ' ~

In 181 1, in Johnson v. ~ a c h i e l s n e . ~ ~ although the same conclusion was reached

in a case of another seaman claiming his wages, the Court clarified that "[tlhe

parties by their private agreement could not oust the jurisdiction of our courts.""

These decisions were the beginning of the acceptance of foreign forum selection

agreements by the English courts, "at least where the parties were foreigners

and the agreement was made outside the juri~diction."~~

In 1854, the Common Law Procedure provided for a stay of proceedings

when the parties contractually agree to submit existing or future controvenies to

arbi t rat i~n.~~ At the same time, a landmark decision favoring the enforceability of

arbitration agreements was rendered in 1856 in Scott v. ver^.^' where it was

- . - ppp-

"lbid. at 607. 126 E.R. a! 730-731. lglbid. at 608. 126 E R . at 731. 20(1811). 3 Camp. 44, 170 E.R. 1300 (K.B.). 2'lbid. at 45, 170 ER. at 1300. 22 S.M. Denning, "Choice of Forum Clauses in Bills of Lading" (1970) 2 J. Marit. L. & Comrn. 17 at 18. "17 8 18 Wct., c. 125. 241bid. art. XI. 25(i8s6), 5 H.L.C. 811, 10 E R . 1121.

held that courts would not entertain any action until after the arbitration award

had been made. In Scott v. Avery, Lord Campbell reiterated the principle that

"Courts are not to be ousted of their j~risdiction,"~~ but noted that this principle

was not to be questioned by the enforcement of arbitration agreements because

"[tlhat is not ousting the courts of their jurisdiction, because they have no

jurisdiction whatsoever, and no cause of action accrues until the arbitration have

[sic] deter~nined."~' He then concluded that "in this case. where it is expressly,

directly. and unequivocally agreed upon between the parties that there shall be

no right of action whatever till the arbitrators have decided, it is a bar to the action

that there has been no such arbitrati~n."~~

It rnust be noted that in Cook v. ~ o o k . ~ ~ the Court held that section 11 of the

Common Law Procedure Act does not operate to oust the courts' jurisdiction

because "the jurisdiction of one of the higher Courts. if it exists. cannot be

ousted , except by express ena~trnent."~'

These developments had a significant influence on the landmark decision taken

in Law v. ~arret ,~ ' where enforcement was granted for a clause in a partnership

contract between British parties providing that any disputes would be submitted

to the St. Petersburg Commercial Court in Russia. Applying section 11 of the

Common Law Procedure Act, the Court ordered to stay proceedings until the

decision from the Russian court," and emphasized that the statutory provision

26/bid. at 853. 10 ER. at 1 138. 271bid. at 854. 10 ER. at 1 138-1 139. 28/bid. at 854. 10 E.R. at 1 139. 29(1867). 4 Eq. 77. "(1 867). 4 Eq. 77 at 87. "(1878) 8 Ch. D. 26 (C.A.). 321bid. at 38.

does not mean to oust the courts fmm their juri~diction.~~ In other words, in Law

v. Gamt. the order to stay proceedings was a matter of judicial discretion and

not a case of lack of jurisdiction."

The same rationale for enforcing forum selection clauses by relying on the

arbitration statute was followed in Austnan Lloyd Steamship Co. v. Gresham Life

~ s s u r a n c e , ~ ~ which held valid a clause in an insurance policy providing for the

exclusive jurisdiction of the courts of Budapest. The Court relied on the

Arbitration Act of 188936 and assimilated forum selection clauses to arbitration

agreements."

This trend of favoring the enforceability of forum selection clauses was also

followed in Kirchner & Co. v. nib ban.^^ which held valid a contractual provision

requiring litigation before the courts of Leipzig, Germany. The Court affirmed:

[AIS a general rule, that these agreements to refer are often entered into without a full appreciation by the parties of the dificulties which may adse in the contractual relationship brought about by the very contract in which is incorporated the agreement to refer, and without full consideration of the circumstances or the possible circumstances, which may arise and render the reference necessary. But at the same time it is part of the agreement of the parties, and prima facie it is an agreement by which the parties are bound and upon which the Court must act. unless for some good cause there is reason to think that the matter ought to be determined othenivise than by the tribunal to which the parties have deliberately agreed to submit their dif~erences.~'

--- --

331bid. at 37 'A.J. Aballi, Jr.. "Comparative Developments in the Law of Choice of Forum" (1968) 1 N.Y.U.J. Int'l L. & Pol. 178 at 183. )5[1 9031 1 K.B. 249 (C.A.). 3652 8 53 Vict., c.49. 37[1 9031 1 K. B. 249 at 252 (C.A.). 36[1909] 1 Ch. 413. 3glbid at 41 8.

The above ruling favofing the validity of forum selection clauses was applied in

maritime cases. For example, in The Cap ~ / a n c o ~ ~ the Court ordered to stay

proceedings pursuant to a clause in the bill of lading providing that any dispute

would be decided by the courts of Germany. As in previous decisions. in The

Cap Blanco, the Court treated the choice of forum clause as an agreement to

submit to arbitration within the meaning of the arbitration ~tatute.~'

The principle of enforceability of forum selection clauses in maritime bills of

lading was not affected by the adoption of the Hague ~ u l e s ~ ~ by the United

Kingdorn. through the Carriage of Goods by Sea Act of 1924.~~ The statute was

considered in Maharani Woollen Mi//s Co. v. Anchor ~ine," where the validity of

choice of forum clauses in bills of lading received definitive support. The case

involved a shipment carried between Liverpool and Bombay and the bill of lading

incorporated a clause providing that any dispute would be tned at the port of

destination. The plaintiff argued that the clause violated article III, section 8 of

the Carriage of Goods by Sea Act that declares void any clause in the bill of

lading lessening the carrier's liability. lt was held that ''the liability of the carrier

appears to me to remain exactly the same under the clause. The only difference

is a question of procedure -where shall the law be enforced- and I do not read

any clause as to procedure as lessening liabi~ity."~~

-

Q[l 91 31 P. 130 (C.A.). 4'/bid. at 185. 42 International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, signed at Brussels, August 25, 1924 [hereinafter Hague Rules]. U14 8 15 Geo. 5, c. 22. U(l 927) 29 LI. L.Rep. 169 (C.A.). %id.

B. Evolution Under American Law

1. The Ouster Doctrine

The traditional approach of the American courts was to consider forum selection

agreements as void and not enforceable principaliy on three grounds: "(1) that

the parties cannot by their agreement oust a court's jurisdiction, or (2) that to

allow the parties to change the rules relating to the place where suit may be

brought would 'disturb the symmetry of the law' and lead to inconvenience, or (3)

simply that choice of forum provisions are against public policy.t'46

- As pointed out by the same commentator, however, these reasons do not explain

the judicial hostility toward forum selection clauses.47

The reasons for the hostility were: first, that the courts were reluctant to force a

local plaintiff to litigate in a foreign country;48 second, the judges were paid

according to the number of cases de~ided;~' and third, in many of the cases the

forum selection clause had been inserted in a contract of adhesion and the

courts denied enforcernent in order to protect the non-clrafting

The fint significant, and for a long period, leading case on the issue was Nute v.

51 Hamilton Mutual Insurance Co.. where the Supreme Judicial Court of

%/.LM. Reese, 'The Contractual Forum: Situation in the United States" (1964) 13 Am. J. Comp. L. 187 at 188 [hereinafter "The Contractual Forum"]. 471bid. 48 Ibid.; Gilbert, supra note 5 at 9; A.A. Ehrenzweig, A Treatise on the Connict of Laws (St. Paul, Minn.: West, 1962) at 1 50. 'lbid. at 189; Gilbert. supra note 5 at 9. W Ehrenzweig, supra note 48 at 150; "The Contractual Forum", supra note 46 at 188; Gilbert, supra note 5 at 9. 5172 Mass. (6 Gray) 174 (1 856).

Massachusetts refused to enforce a clause on an insurance policy providing that

any action would be commenced only in the Country of Essex. Massachusetts,

whereas the plaintiff had filed a suit in the County of Suffolk. The Court held that

parties cannot modify the rules concerning jurisdiction because "[tlhe rules to

detemine in what courts and counties actions may be brought are fixed, upon

considerations of general convenience and expediency. by general law; to allow

them to be changed by the agreement of parties would disturb the symmetry of

the law, and interfere with such convenien~e."~~

The ouster doctrine was also supported by the courts under the premise that

access to competent jurisdiction is a basic right protected by the Constitution:

There were various justifications for the ouster concept and the resultant judicial il1 will toward choice of forum provisions. Paramount was the idea that an individual should be perrnitted to seek redress of his rights in any competent court. It is well established that access to the state courts is a basic right. Similarly, the jurisdiction of the federal courts extends to "al1 Cases ... arising under this Constitution [and] the Laws of the United States .. . ; [and] to Controversies . . . between Citizens of different States." To carry this constitutional mandate, Congress, by statute, has vested diversity and federal question jurisdiction in the federal

Following this reasoning. in 1874, the United States Supreme Court in Insurance

Co. v. Adorse" held unconstitutional a Wisconsin statute prohibiting removal of a

suit from state courts to federal courts and refused to enforce an agreement

made in accordance with such statute. The Court argued that removal was a

521bid. at 184. 5 3 ~ . J. 6a~ett. "Choice of Forum Provisions and the lntrastate Dilemma: Is Ouster Ousted?" 1980) 48 Fordharn L. Rev. 568 at 570-571 [footnotes omitted].

'87 U S . 445.22 L. Ed. 365, 20 Wall. 445 (1874).

substantial right protected under the ~ons t i tu t ion~~ and stated that "[elvery citizen

is entitled to resort to al1 the courts of the country, and to invoke the protection

which al1 the laws or ail those courts may afford him. A man may not barter away

his life or his freedom, or his substantial r Q h t ~ . " ~ ~ The Court also affinneci that

"agreements in advance to oust the courts of the jurisdiction conferred by law are

illegal and v ~ i d . " ' ~

The same criteria were followed in early maritime cases, such as in Prince

Steam-Shipping Co. v. ~ehrnan," where the District Court for the Southern

District of New York held invalid a clause of the charterparty providing that any

disputes would be settled at port of discharge only. The Court held that this

contractual provision "is in legal effect an agreement ousting the jurisdiction of al1

courts, except those in the port of Philadeiphia ... [and] ... [sluch agreements

have repeatedly been held to be against public policy, and v~id."~ '

In Mutual Resenle Fund Life Association v . Cleveland Woolen ~ i l l s , ~ ~ the Court

of Appeals for the Sixth Circuit held unenforceable a clause in an insurance

policy stipulating that no suit should be brought upon it except in a circuit court of

the United States. such that the clause excluded al1 state courts from having

jurisdiction. The Court held that "[alny stipulation between contracting parties

distinguishing between the different courts of the country is contrary to public

policy, and should not be enforced.'"'

- -

551bid. at 370. 561bid. at 368. 571bid. "39 F. 704 (S.D.N.Y. 1889). ''lbid. at 704. "82 F. 508 (6th Cir. 1897). 6'lbid. at 51 0.

The rule of non-enforceability of forum selection clauses had some exceptions,

such as cases like Mittemhal v. ~ a s c a ~ n i , ~ ~ where the Supreme Court of

Massachusetts upheld a contractual clause providing exclusive jurisdiction of

ltalian courts in respect of any dispute arising from a contract between ltalian

citizens for a musical tour partly to be performed in ltaly and partly in the United

States.

Another exception to the rule can be found in Gitler v. Russian Co.,63 where a

New York court upheld an agreement providing that an existing dispute would be

submitted to the Russian courts. The Court distinguished between choice of

forum of a future dispute and choice of forum of an existing dispute in order to

consider the latter type valid and enf~rceable.~~

These exceptions were of a very narrow scope and the general principle of non-

enforceability of forum selection clauses prevailed in the Arnerican courts during

the first decades of this century, as can be seen in Nashua River Paper v.

Hamrnemill ~ a ~ e r , ~ ~ which reviews the early cases.

2. The Decline of the Ouster Doctrine

It was only as of 1949 that the ouster doctrine began to decline. First. in Krenger

v. ~ e n n s ~ l v a n i a , ~ ~ where an employee sued the Railroad claiming injuries, and

the contract contained a forum selection clause. Although the Court of Appeals

'*66 N.E. 425 (Mass. 1903). "1 08 N.Y.S. 793 (1 903). 641bid. at 794-795. 65223 Mass. 8. 1 1 1 N.E. 678 (1 91 6). =174 F.2d 556 (2d Cir. 1949).

for the Second Circuit refused to enforce the clause because it violated the

Federal Employers' Liability Act, Judge Hand affimed in his concurring opinion:

In truth, 1 do not believe that, today at least, there is an absolute taboo against such contracts at all; in the words of the Restatement, they are invalid only when unreasonable; and Mittenthal v. Mascagni, is a notable instance in which a contract in futuro was held "reasonable". What remains of the doctrine is apparently no more than a general hostili , which can be Y overcome, but which nevertheless does persist.6

In the same way, in 1951, the Court of Appeals for the Second Circuit decided

Cern de Pasco Corp. v. Knut ~ n u t s e n , ~ ~ a case involving a shipment from Peru

to Norway. The Court upheld a forum selection clause in a bill of lading providing

for the exclusive jurisdiction of Nowegian courts. The Court found that the

clause was not unreasonab~e.~~

In 1955, the Court of Appeals for the Second Circuit decided W. M. Muller & Co.

v. Swedish Amencan Line ~td." The consignee filed a suit in admiralty against a

foreign shipping Company in order to recover for lost cargo during a voyage from

Sweden to the United States. The Court held valid a clause in the bill of lading

providing for the exclusive jurisdiction of the Swedish courts for any controversy.

The Court held that forum selection clauses are not contrary to section 3(8) of the

United States Carriage of Goods by Sea Act (COGSA),~' which declares void

any clause in the bill of lading lessening the carrier's liability. The Court in Muller

held that section 3(8) of COGSA does not expressly invalidate choice of forum

6 7 ~ . at 561 [footnotes omitted]. 68187 F.2d 990 (2d Cir. 1951). 691bid. at 991. ?O224 F.2d 806, cert denied, 350 U.S. 903 (1955). ?'46 U.S.C. App. §SI 300-1 31 5 (1 988).

provisions72 and argued that "if Congress had intended ta invalidate such

agreements, it would have done so in a forthright manner ... 1173 However the

Court clarified that the enforceability of a forum selection clause "depends upon

its reasonab~eness"~~ and further stated that:

mhe parties by agreement cannot oust a court of jurisdiction otherwise obtaining; notwithstanding the agreement. the court has jurisdiction. But if in the proper exercise of its jurisdiction, by a prelirninary ruling the court finds that the agreement is not unreasonable in the setting of the particular case, it may properly decline jurisdiction and relegate a litigant to the forum to which he assented .75

It is also noteworthy that the Muller approach was followed in the Restatement

Second: "The parties' agreement as to the place of the action cannot oust a

state of judicial jurisdiction, but such an agreement will be given effect unless it is

unfair or unreasonab~e."~~

3. The Reversal from the Courts

Some years later. in 1958. a different position was taken by the Fifth Circuit in

Carbon Biack Export v. The S.S. onr rosa,^' a case involving a bill of lading

covering a voyage from Houston and New Orleans to various ltalian ports.

"224 F.2d 806 at 807. cert. denied, 350 US. 903 (1 955). 731bid. 741bid. at 808. 751bid. '%estatement (Second) of Conflict of Laws 5 80 (1969). '7254 F.2d 297 (5th Cir. 1958). cert. dismissed 359 U.S. IBO. 3 L. Ed. 2d 723. 79 S. Ct. 710 (1 959).

The shipper filed a suit in Admiralty, in rem against the vesse1 and in personam

against its owner, for damage sustained to a shipment of carbon black during the

ocean voyage. In view of a provision in the fom bill of lading that no legal

proceedings could be brought in respect of any cargo loss or damage, except in

Genoa. Italy. the Southern District Court of Texas declined jurisdiction.

The Court of Appeals for the Filth Circuit reversed this decision, finding the

provision in the bill of lading ta be inapplicable to suits in rem and declining to

enforce its ternis to require a dismissal of the libel in personam. The Court of

Appeals commented that "[alny consideration of such a question starts with the

universally accepted rule that agreements in advance of controversy whose

object is to oust the jurisdiction of the courts are contrary to public policy and will

not be enf~rced."~~

In 1967, the Second Circuit decided lndussa Cop. v. S.S. ~ a n b o r ~ , ~ ~ overruling

Muller. The Court held invalid a forum selection clause in a bill of lading

providing that any dispute arising under the contract would be decided by the

courts of Nonnray. The Court considered such a clause to violate section 3(8) of

COGSA, which in turn prohibits any agreement intended to lessen the carrier's

~iability.~' The Court in lndussa concluded:

We think that Congress meant to invalidate any contractual provision in a bill of lading for a shipment to or from the United States that would prevent cargo able to obtain jurisdiction over a carrier in an American court from having that court entertain the suit and apply the substantive rules Congress had prescribed. In so deciding we do not "outlaw any other tribunal than Our own" as our

781bid. "377 F.2d 200 (26 Cir. 1967). 801bid at 203-204.

brother Moore suggests; we hold merely that Congress outlawed clauses prohibiting American courts from deciding causes otherwise properly before themg'

This case initiated a line of cases rejecting forum selection clauses in maritime

bills of ladingma2

4. The Bremen v. Zapata Off Shore Co.

The traditional ouster doctrine was overruled in 1972 by the United States

Supreme Court in MIS Bremen v. Zapata OF Shore CO.,'^ where the Court

approved a forum selection clause in a contract involving international trade.84

"lbid. at 204. 82 See e.g. MG. Chernical Corp. v. M N Sun Castor, 1978 A.M.C. 1756 (D.Alas.1977); Northem Assurance v. M N Caspian Career, 1977 A.M.C. 421 (N.D.Ca1.1977); Mitsui & Co., Ltd. v. MN Glory River. 464 F.Supp. 1004 (W.D.Wash.1978); Pacfic Lumber & Shipping Company, Inc. v. Star Shipping, 464 F.Supp. 1314 (W.D.Wash. 1979): Union lnsurance Society of Canton, Ltd. v. S.S. Elikon, 642 F.2d. 721 (4th Cir. 1981); Conklin & Ganet v. M N Finnmse, 826 F.2d 1441 (5th Cir. 1 987); Hughes Dnlling Fluids v. M N Luo Fu Shan, 852 F.2d 840 (5th Cir. 1 988). "407 US. 1. 32 L. Ed. 26 51 3, 92 S. Ct. 1907 (1 972). 0 i'here is extensive commentary discussing the Bremen case. See for example: C. L. Black Jr.. "The Brernen, COGSA and the Problem of Confiicting Interpretation" (1973) 6 Vand. J. Transnat'l L. 365; F.W. Costello, Note, "The Enforcement of Forum Selection Provisions in international Commercial Agreements" (1972) 11 Colum. J. Transnat'l L. 449; L. Collins, Note, "Choice of Forum and the Exercise of Judicial Discretion - The Resolution of an Anglo-Amencan Conflict" (1973) 22 Int'l 8 Comp. L.Q. 332; L. Collins, Note, "Forum Selection and an Anglo-Arnerican Conflict - The Sad Case of The Chaparral' (1971) 20 Int'l & Comp L.Q. 550; Delaume, supra note 7; Note, "Choice of Forum" (1 973) 14 Harv. Int'l L. J. 145; L.L. Grifiin, Note, "Choice of Forum Clauses in Contractual Agreements" (1983) 10 S.U. L. Rev. 147; Gruson, supra note 2; F. Juenger, "Supreme Court Validation of Forum-Selection Clauses" (1972) Wayne L. Rev. 49; H.G. Maier, "The Three Faces of Zapata: Maritime Law, Federal Cornmon Law, Federal Courts Law" (1 973) 6 Vand. J. Transnat'l L. 387; R.A. Leflar, L.L. McDougal 111, 8 R.L. Felix, American Connicf of Laws, 4th ed. (Charlottesville: Michie, 1986); S.C. Muther, "Forum Selection Clauses in Contracts are Prima Facie Valid Unless Shown to be Unreasonable, Unjust, or Unfair Under the Circumstances" (1972) 13 Va. J. Int'l L. 272; K.H. Nadelman, "Choice-of-Court Clauses in the United States: The Road to Zapata" (1973) 21 Am. J. Comp. L. 123; Note, "Forum Selection Clauses in Contracts Governing Multinational Transactions" (1972) 86 Harv. L. Rev. 52; '@The Supreme Court", supra note 10.

Zapata, an American corporation, contracted with Unterweser, a German

corporation, to tow an off-shore drilling rig fiom Louisiana to Ravenna, Italy. The

contract contained a clause providing that any dispute between the parties would

be adjudicated before the London Court of Justice. While the flotilla was in

international waters in the middle of the Gulf of Mexico, the rig was seriously

damaged in a severe stom, and was towed to Tampa, Florida. Zapata sued

Unterweser and Unterweser's vesse1 (the Bremen) in the United States District

Court at Tampa. Unterweser opposed the forum selection clause and moved to

dismiss or stay the action on grounds of either lack of jurisdiction or forum non

conveniens. Before the District Court had decided the motion, Unteweser sued

Zapata in the High Court of Justice in London, pursuing damages for breach of

the towage contract. Zapata responded to that action by alleging lack of

jurisdiction. but the English court rejected the motion, thus holding that the forum

selection clause conferred jurisdiction.

The District Court denied Unterweser's motion to dismiss the action or stay

proceedings pending detemination of the London suit. On appeai, a divided

panel of the Court of Appeals affirmed the decision.

On certioran, the United States Supreme Court vacated the judgment of the

Court of Appeals and it was held that forum selection clauses "are prima facie

valid and should be enforced unless enforcement is shown by the resisting part'

to be 'unreasonable' under the circum~tances."~~

In support of its decision, the United States Supreme Court affinned in Bremen:

85407 U.S. 1 at 10, 32 L. Ed. 26 513, 92 S.Ct 1907 (1972) [footnote omitted].

We hold. with the six dissenting members of the Court of Appeals, that far too little weight and effect were given to the forum clause in resolving this controversy. For at least two decades we have witnessed an expansion of overseas commercial activlies by business enterprises based in the United States. The barrier of distance that once tended to confine a business concern to a modest territory no longer does so. Here we see an American Company with special expertise contracting with a foreign Company to tow a complex machine thousands of miles across seas and oceans. The expansion of American business and industry will hardly be encouraged if, notwithstanding solemn contracts, we insist on a parochial concept that al1 disputes must be resolved under our laws and in Our courts. Absent a contract forum, the considerations relied on by the Court of Appeals wouid be persuasive for holding an American forum convenient in the traditional sense, but in and era of expanding world trade and commerce, the absolute aspects of the doctrine of the Carbon Black case have little place and would be a heavy hand indeed on the future development of international commercial dealings by Americans. We cannot have trade and commerce in world markets and international waters exclusively on our ternis, governed by our laws, and resolved in Our courts.B6

The Court criticized the traditional ouster doctrine by describing it as a "vestigial

legal fictionw8' and commenting as follows:

The argument that such clauses are improper because they tend to "oust" a court of jurisdiction is hardly more than a vestigiai legal fiction. It appears to rest at core on historical judicial resistance to any attempt to reduce the power and business of a particular court and has little place in an era when al1 courts are overloaded and when businesses once essentially local now operate in world markets. It refiects something of a provincial attitude regarding the fairness of other tribuna~s.~~

-

86 Ibid. at 8-9. 87 Ibid. at 12. 9bid.

The Court stated8' that this proposition is merely the other side of the proposition

recog nized in National Equipment Rental v. ~ z u k h e n t , ~ ~ where the Supreme

Court recognized "that parties to a contract rnay agree in advance to submit to

the jurisdiction of a given court.""

The Court noted that "[tlhis approach is substantially that followed in other

comrnon-law countries including ~ n ~ l a n d . " ~ ' Furthemore, the Court affirmed

that this view is that adopted by the Restatement of the Conflict of Laws and "[iP

accords with ancient concepts of freedom of contract . . . . ii93

The Court also indicated that this is "the view advanced by noted scholars ... ,194

citing among them Professor ~eese.'' It is interesting to note that the Bremen

approach closely coincides with the opinion of Professor Reese:

Choice of forum clauses should prima fade be valid and enforceable. The burden should be upon the party who brings suit elsewhere than in the selected state to persuade the court that enforcement of the choice of forum clause would be unjust. Among the factors the court should consider are the circumstances attending the negotiation and execution of the contract. A choice of forum should not be enforced if its insertion in the contract was obtained by fraud or other unfair means. Relevant, but not necessarily controlling, in this connection is whether the contract was one between parties of unequal bargaining power, whether it was an adhesion, or "take-it-or-leave-it," contract or whether, on the other hand, its ternis were the product of free negotiation between the parties. A choice of forum clause should be enforced if it has been inserted into the contract unless the court finds that the selected state would be an inappropriate, or manifestly

-

89/bid. at 10. "375 U.S. 31 1, 11 L. Ed. 2d 354. 84 S. Ct. 41 1 (1964). "lbid. at 316. *407 U.S. 1 at 11. 32 L. Ed. 2d 51 3. 92 S. Ct. 1907 (1 972). 931bid. ?bid. "'The Contractual Forum". supra note 46.

inconvenient, place for the suit. So effect should be denied the clause if there is reason to believe that the courts of the selected state would deal unfairly with the plaintiff or would deny him relief to which he was entitled, or if, for reasons beyond the plaintifs control. the statute of limitations of the selected state had nin against his claim. Likewise. effect should be denied the clause if the selected state is a seriously inconvenient one for the trial of the action, as might be true in a situation where the occurrence sued upon took place in a distant place from which, if the trial were to be held in the selected state, it would be necessary to transport large numbers of witnesses. It would appear that the selected state is less likely to be held an inconvenient forum if it is declared in the contract to be the state of the governing law. This is because it is easier both for judge and counsel if the local law of the forum can be applied to determine the issues invo~ved.~~

The Court in Bremen described the exceptions of enforceability of forum

selection clauses and they are known as the Brernen test. The basic rule is that

a forum selection clause should be enforced "unless [the plaintiffl could clearly

show that enforcement would be unreasonable and unjust, or that the clause was

invalid for such reasons as fraud and over rea~h in~ . "~~

The Bremen approach has been interpreted by some courts as establishing a

two-pronged test under which the validity of a forum selection clause can be

contested: first, the clause can be held unenforceable as a result of the

application of the general principles of contract law in cases of such as fraud or

overreaching; and second, the clause can be held invalid when the selected

forum is seriously inconvenient. This is the rationale of Gaskin v. Stumm

an de/.^* where the District Court for the Southern District of New York explained

as follows:

- --

961bid. at 1 89- 1 90 [footnotes omitted]. "407 US. 1 at 15, 32 L. Ed. 2d 51 3. 92 S. C t 1907 (1 972). =390 FSupp. 361 (S. D.N.Y. 1975).

While the standard prornulgated in Bremen. continues to place pnmary emphasis upon a detemination of "reasonableness" vis-a- vis enforcement. two clearly discemible alternatives under which the resisting party can challenge the enforcement of a choice-of- forum clause are suggested by the Court. First, he may invoke the ordinary principles of contract law in an effort to obtain a ruling from the court that the involved contract or the forum clause at bar is void or voidable, hence unenforceable. This approach involves the allegation of "fraud or overreaching" suggested by the Court, as well as the invocation of such contract doctrines as mistake, coercion. want of consideration, unconscionability and the like. . . . In short form, this rnay be referred to as the "invalidity" test. Second, the resisting party rnay prove that under the particular circurnstances then extant deference to the contractually chosen forum would be "unreasonable and unjust." Such proof will, in most instances, go to the equities of the matter and, as the Court suggested in Bremen, "it should be incurnbent on the party seeking to escape his contract to show that trial in the contractual forum will be so gravely difficult and inconvenient that he will for al1 practical purposes be deprived of his day in court. Absent that, there is no basis for concluding that it would be unfair, unjust. or unreasonable to hoid that party to his bargain."''

Although a similar two-pronged test has been applied in other cases,100 a careful

examination of the Bremen test can lead to a different conclusion. According to

the Supreme Court, a choice of forum agreement is unenforceable in four

circumstances: when it is affected by fraud, when it is the result of oveniveening

bargaining power, when it is against public policy or when the selected forum is

seriously inconvenient for the trial of the action. These exceptions are discussed

in detail in the third ~ h a ~ t e r , ' ~ ' where it is explained that al1 of them are similar to

the exceptions applied under the principles of contract law."* Therefore,

99 Ibid. at 364-365 [footnotes omitted]. 100 See e.g. Tai Kien lndustry Co., Ltd. v . M N Hamburg, 528 F.2d 835 (9th Cir. 1976); Roach v. Hapag-Uoyd, A.G., 358 F. Supp. 481 (N.D. Cal. 1973); Republic International Corp. v. Amco Engineers, Inc., 516 F.2d 161 (9th Cir. 1975); Taylor v. Titan Midwest Const Corp., 474 F. Supp. 145 (ND. Tex. 1979). 701 See Section Ill-A. 102 See Section t Il-A-2.

contract law is applied not only in the first three types of exceptions, but also

when the resisting party is claiming the inconvenience of the selected forum,

because in that situation it becornes a case of substantive uncon~cionabilit~.'~

Beanng in mind that the ordinary principles of contract law must be applied when

evaluating the enforceability of forum selection clauses, the second chapter

presents a brief summary of relevant contract law principles.

On the other hand, even though Bremen was an adrniralty case, its holding has

been applied by the federal courts to forum selection clauses generally.'04

Similarly, the state courts have also followed the Bremen approach.'05

Finally, it must be noted that the Court in Bremen distinguished its holding from

indussa and noted that COGSA was not applicable in ~rernen."~

5. Post-Bremen Decisions

Since Bremen, some very important decisions have shaped the law of forum

selection clauses.

In 1974, the Supreme Court decided Scherk v. Alberto-Culver CO.,'^^ a case

involving international arbitration. The plaintiff, an American corporation, - -

lo3/bid. 'O"~ruson, supra note 2 at 149; M. R. Cutler, "Comparative Conflict of Law: Effectiveness of Contractual Choice of Forum" (1985) 20 Tex. Int'l L.J. 97 at 105; P. J. Banett, supra note 53 at 578; A.E. Covey 8 M.S. Morris. "The Enforceability of Agreements Providing for Forum and Choice of Law Selection" (1984) 61 Den. L. J. 837 at 839; Lederman, supra note 1 at 431. 105 Cutler, supra note 104 at 105; N. Fernandez, "Enforcement of Forum Selection Clauses in Transnational Contracts - Is Agreement Possible between the United States and the European Economic Community?" (1988) 3 Fla. Int'l L. J. 265; Lederman, supra note 1 at 431. lS407 U.S. 1 at 10 n. 11, 32 L. Ed. 2d 51 3,92 S. Ct. 1907 (1 972). '07417 US. 506-41 L. Ed. 2d 270, 94 S. Ct. 2449 (1974).

purchased from the defendant. a Geman citizen, three interrelated business

enterprises, organized under the laws of Germany and Liechtenstein. along with

al1 rights held by these enterprises to trademarks in cosmetic goods

manufactured by them. The contract contained an arbitration clause providing

that any controversy or daim arising under the contract would be referred to

arbitration before the International Chamber of Commerce in Paris, France.

The Supreme Court in Scherk held that the agreement of the parties to arbitrate

any dispute arising out of the international commercial transaction was to be

respected and enforced by the federal courts in accord with the provisions of the

Arbitration Act of 1925."~ The Court relied on Bremen in order to decide the

validity of the arbitration clause because "[aln agreement to arbitrate before a

specified tribunal is, in effect. a specialized kind of forum-selection clause that

posits not only the situs of suit but also the procedure to be used in resolving the

dispute."'0g The Supreme Court in Scherk explained as follows:

A contractual provision specifying in advance the forum in which disputes shall be litigated and the law to be applied is, therefore, an almost indispensable precondition to achievement of the orderliness and predictability essential to any international business transaction. Furthemore, such a provision obviates the danger that a dispute under the agreement might be submitted to a forum hostile to the interests of one of the parties or unfamiliar with the problem area involved.

A parochial refusal by the courts of one country to enforce an international arbitration agreement would not only frustrate these purposes. but would invite unseemly and mutually destructive jockeying by the parties to secure tactical litigation advantages."'

'089 U.S.C. §el-14 (1987). loglbid. at 519. 110 Ibid. at 5 16-5 17 [footnotes omitted].

In 1975, the District Court for the Southern District of New York in Gaskin v.

Stumm ande el"' upheld a forum selection clause in an employrnent contract

requiring the litigation of any dispute to take place in the courts of West

Gemany. As pointed out a b ~ v e , " ~ the Court in Gaskin applied the Bremen

rationale, interpreting the Supreme Court's decision as establishing a two-

pronged test for the evaluation of enforceability of forum selection clauses.

In 1988, the Supreme Court decided Stewart Organization v. Ricoh Corp., 113

holding that the federal law. specifically 28 U.S.C. §1404(a), governs a Federal

District Court's decision, when sitting in diversity, whether to gant a motion to

transfer an action to a venue stipulated in a contractual forum selection

provisi~n."~

Although Stewart has been subject to extensive c~rnrnentar~,"~ it is noteworthy

that it has no incidence in Admiralty. Given that federal district courts have

exclusive jurisdiction over admiralty cases, ' l6 the courts have held that Federal

"'390 FSupp. 361 (S.D.N.Y. 1975). " ' ~ e e Section 1-B4. '13487 U.S. 22, 101 L. Ed. 22, 1 O8 S. Ct. 2239 (1 988). '141bid. at 32. 115 See e.g. S.R. Buckingham, "Stewart Organization v. Ricoh Corp.: Judicial Discretion in Forum Selection" (1989) 41 Rutgers L. Rev. 1379; R.A. De By, "Forum Selection Clauses: Substantive or Procedural for Erie Purpuses" (1989) 89 Colum. L. Rev. 1068; J.L. Erickson. "Forum selection clauses in light of the Erie doctrine and federal cornmon law: Stewart Organization v. Ricoh Corporation" (1 988) 72 Minn. 1. Rev. 1090; E. Fahlman, "Forum-Selection Clauses: Should State or Federai Law Determine Validity in Diverçity Actions?" (1989) 64 Wash. L. Rev. 439; W.W. Heiser, "Forum Selection Clauses in Federal Courts: Limitations on Enforcement after Stewart and Camival Cniise" (1993) 45 Fla. L. Rev. 553; W.W. Heiser, "Forum Selection Clauses in State Courts: Limitations on Enforcement after Stewart and Camival Cruise" (1 993) 45 Fla. L. Rev. 361 ; P. Kornfeld, ''The Enforceability of Forum-Selection Clauses after Stewart Organization, Inc. v. Ricoh Corporation" (1989) 6 Alaska L. Rev.175; M.W. Lampe, "Forum Selection Clauses Designating Foreign Courts: Does Federal or State Law Govem Enforceability in Divenity Cases? A Question Left Open by Stewart Organization, Inc. v. Ricoh Corp." (1989) 22 Cornell Int'l L. J. 307; Lederman, supra note 1; L.S. Mullenix, "Another Choice of Forum, Another Choice of Law: Consensual Adjudicatory Procedure in Federal Court" (1988) 57 Fordham L. R. 291. "'u.s. Const. art. III. 5 2 and 28 U.S.C. 5 1333 (1) (1986).

courts are authorized to create federal common law goveming adrniralty

rnatters. ' l7

Wth respect to the field of Admiralty, it is noteworthy that after Bremen the courts

continued to apply the Indussa rationale in order to deny enforcement of forum

selection clauses in cases involving maritime bills of adi in^."^

Among the post-Bremen cases Union lnsurance Society of Canton, Ltd. v. S/S

~ l i k o n " ~ from the Fourth Circuit must be mentioned. The Court refused to

enforce a forum selection clause in a bill of lading because it was the result of a

contract of adhesion. The Court stated that the general policy in Bremen. of

up holding forum selection clauses, must recede to the specific policy enunciated

by COGSA.'~*

Another example of the post-Bremen transition is Conklin & Gamet, Lfd. v. M N

~innrose,'~' where the Fifth Circuit, applying Indussa. held invalid a clause in a

bill of lading providing that any disputes were to be resolved in Finland.

In Hughes Drilling Fluids v. M N Luo Fu shan,lu the Court of Appeals for the

Fifth Circuit refused to enforce a forum selection clause in a bill of lading that

required litigation in the Republic of China in the context of a controversy relating

117 See e.g. Northwest Airiines, Inc. v. Transport Workers Union of America, 45 1 U .S. 77 at 95-96, 67 L. Ed. 2d 750, 101 S. Ct. 1571 (1981). 118 See supra note 82. l t 9 642 F.2d 721 (4th Cir. 1981). For a commentary on this case see W.H. Gateley, "The Carriage of Goods by Sea Act and Forum Selection Clauses" (1981) 10 Denv. J. Int'l L. & Pol'y 593. 1201bid. at 725. 121 826 f. 2d 1441 (5th Cir. 1987). For a commentary on this case see J.M. Donovan, "Choice of Forum Clauses and the Camage of Goods by Sea Act" (1989) 12 Suffolk Transnat'l L. J. 41 1. '"852 F.2d 840 (5th Cir. 1988).

to general average. Relying on Finnrose, the Court concluded that the forum

selection clause tended to lessen the carrier's ~ i a b i l i t ~ . ' ~ ~

Other admiralty cases have, on occasion, enforced forum selection clauses by

applying Bremen. However, in such situations the courts have not questioned

the lndussa rationale.

For example, in Roach v. Hapag-Lloyd, A.G.,"~ the District Court for the

Northern District of California held valid a forum selection clause and dismissed a

suit brought by a longshoreman for personal injuries sustained while unloading

cargo at an Arnerican port. The Court in this case also held that the case was

not subject to COGSA and lndussa was not applicable because the

considerations were different in this s i t~at ion. '~~ The Court found the clause

reasonable under the Bremen test.'26

In f ireman's Fund American lnsurance Cos. v. Puerto Rican Forwarding Co., 1 27

the First Circuit held that a clause contained on a bill of lading providing that any

action was to be brought only in a court located in New York City was not invalid

under COGSA. The Court ruled that lndussa was not applicable because it

invalidated choice of forum clauses which restricted adjudication to foreign

courts, but not to American courts.128 The Court also stated that the forum

selection clause was not unreasonable under the Bremen test, and therefore it

should be enforced. 12'

- - -

1231bid. at 842. IZ4358 F . Supp. 481 (N.D. Cal. 1973). '251bid. at 484. 12"lbid. '27492 F.2d 1294 (1st Cir. 1974). '*'lbid. at 7296. '2g1bid. at 1297.

In North River Ins. Co. v. Federal Pacific ~ h e s , ' ~ ~ the Court of Appeals for the

Ninth Circuit held valid a foreign forum selection clause in a bill of lading, without

questioning the lndussa holding. The Court distinguished the case from Indossa

by the fact that lndussa held a foreign junsdiction clause unenforceable in a case

where COGSA applied by its own force.13' The Court held that forum selection

clauses are enforceable when COGSA is incorporated only contractually

because the "parties may contract for ternis inconsistent with COGSA while at

the same time agreeing to incorporate the Act into the contract of carriage. n i 1 32

In Sun World Lines, Ltd. v. March Shipping COI^.,'^^ the Court of Appeals for the

Eighth Circuit upheld a forum selection clause in a charterparty providing that any

disputes were to be resolved by the courts of Gemany. The Court applied the

Bremen test for deciding the enforceabiiity of the contractual provision.

In Amencan International Knitters v. ~ a w a s a k i , ' ~ ~ a case where the bill of lading

was subject to COGSA, a foreign forum selection clause was held enforceable by

applying Bremen.

6. Camival Cruise Lines v . Shute

In 1991, the United States

~ h u t e . ' ~ ~ and declared valid

Supreme Court decided

a forum selection clause

Camival Cruise Lines v .

located on the back of a

'30647 F.2d 985 (9th Cir. 1981). 13'1bid. at 988. t321bid. [the ruiing in North River was applied in Ampac Trading Co. v. M N Ming Sommer, 566 FSupp. 104 (W.D.Wash. 1983) a similar case where COGSA did not apply ex proprio vigore]. '%O? F .2d 1066 (8th Cir. 1986). '"1 988 A.M.C. 434 (N.M.I. 1987). '%499 U.S. 585, 1 13 L.Ed. 2d 622, 11 1 S. Ct. 1522 (1 991).

m i s e Iine passenger's ticket, which required al1 suits to be brought in the State

of Florida.

The plaintiff, Eulala Shute, filed suit against Carnival Cruise Lines, Inc. in the

United States District Court for the Western District of Washington clairning

darnages as a result of the injuries suffered when she slipped on a deck mat on

board The Tropicale, during transit between Puerto Vallarta, Mexico and Los

Angeles.

According to the Supreme Court, the analysis of Bremen had to be refined "to

account for the realities of f om passage contracts. The Court indicated that

the absence of bargaining inherent to fom ticket contracts does not itself prevent

enforceability of the forum selection clause, because it is reasonable that such

clauses be included in this type of ~0n t rac t . l ~~

The Court also stated that there was no evidence proving that the selected forum

was seriously inconvenient for the plaintiff.l 38

The Court also held that the Limitation of Vessel Owners Liability ~ c t ' ~ ' does not

prevent the enforceability of forum selection clauses in passage con tract^.'^^

The implications of this decision with respect to the Bremen analysis are

analyzed in the third ~hapter.'~'

1361bid. at 593. 13'1bid. at 593-594. 138/bid. at 594-595. j3'46 U.S.C. App. § 18% (1987). "'499 U.S. 585 at 596-597. 1 13 L . M . 26 622, 1 1 1 S. Ct. 1522 (1 991). 141 See Section Ill-A-3.

On the other hand, it must be noted that Camival Cmise has been vety

controvenia~.'"

7. Vhar Seguros y Reaseguros, S.A. v. M N Sky Reefer

In 1994, the United States Supreme Court in Vimar Seguros y Reaseguros, S.A.

v. M N Sky ~ e e f e r , ' ~ ~ held valid an arbitration clause in a bill of lading and

overruled Indussa.

a. The Facts

Bacchus Associates (Bacchus), a New York partnership distributing fruits

throughout the Northeastern United States, contracted with Galaxie Negoce. S.A.

(Galaxie), a Moroccan fruit supplier, to purchase a shipload of oranges and

lemons. Bacchus chartered a ship to transport the cargo from Morocco to

Massachusetts. The ship was the M N Sky Reefer, a refrigerated cargo ship

142 The case has been heavily criticized; see e.g. E.P. Gilbert, 'We're al1 in the Sarne Boat: Camival Cuise Lines, Inc. v. Shute" (1992) 18 Brook. J. Int'l L., 597; J.M. Kirby, "Consumer's Right to Sue at Home Jeopardized Through Forum Sefection Clauses in Camival Cruise Lines v. Shute" (1992) 70 N. C. L. Rev. 887; M.E. Levine, Note, "Read the Fine Print; The Only Way to Know your Final Destination" (1993) 24 U. West L.A. L. Rev. 251; J.A. Liesemer, "Carnival's Got the Fun ... and the Forum: A New Look at Choice-of-Forum Clauses and the Unconscionability Doctrine after Camival Cuise Lines, Inc. v. Shute" (1992) 53 U. Pitt. L. Rev. 1025; L.S. Muilenix, "Another Easy Case, Some More Bad Law: Camival Cruise tines and Contractual Persona1 Jurisdiction" (1 992) 27 Tex. Int'l L.J. 323; J.H. Bruch, "Forum Selection Clauses in Consumer Contracts: An Unconscionable Thing Happened on the Way to the Forum" (1992) 23 Lo. CI. Ch. L. 3. 329; R.A. Gantner, "Absent Bad Faith, Fraud or Overreaching, a Reasonable Forum Selection Clause in a Commercial Cniise F o m Contract is Enforceable" (1992) 22 Seton Hall L. Rev. 505; L. Goidman, "My Way and the Highway: The Law and Economics of Choice of Forum Clauses in Consumer Fom Contracts" (1992) 86 Nw. U. C. Rev. 700; €.A. Purcell, Jr., "Geography as a Litigation Weapon: Consuiners, Forum-Sefection Clauses, and the Rehnquist Court" (1992) 40 UCLA L. Rev. 423. '%IS U.S. -, 1 32 L. Ed. 26 462, 1 15 S. Ct. 2322 (1 995).

owned by M.H. Maritima, S.A., a Panamanian Company, and time-chartered to

Nichiro Gyogyo Kaisha, Ltd., a Japanese Company. Stevedores hired by Galaxie

loaded and stowed the cargo.

At the time of discharge, thousands of boxes of oranges had shifted in the cargo

holds, resulting in over US$1 million damage. Bacchus received US$733.442.90

compensation from Vimar Seguros y Reaseguros (Virnar Seguros), Bacchus'

marine cargo insurer who was subrogated pro tanto to Bacchus' rights. Virnar

Seguros and Bacchus then brought suit under the bill of lading against Maritima

in personam and MN Sky Reefer in rem in the District Court for the District of

Massachusetts. The defendants moved to stay the action and cornpel arbitration

in Tokyo under clause 3 of the bill of lading and section 3 of the Federal

Arbitration Act (FAA).'" Vimar Seguros and Bacchus opposed the motion,

arguing that the arbitration clause was unenforceable under the FAA, both

because it was a contract of adhesion and because it violated section 3(8) of

COGSA.

b. The Judgment from the Court of Appeals

In the first stage of legal proceedings, the District Court granted the motion to

stay judicial proceedings and to compel arbitration; it retained jurïsdiction pending

arbitrati0r1.l~~ The First Circuit affirmed the order to arbit~ate.'~~

The Court of Appeals stated "that the Supreme Court's recent decision in

Carnival Cruise Lines, Inc. v. Shute, ... casts some doubt upon Indussa's

IU9 U.S.C. §SI-14 (1987). '"1 993 WL 1 37483 (O-Mats. 1993). "29 F.3d 727 (1 st Cir. 1994).

wntinuing viability."'" However, the Court assumed "arguendo" that foreign

forum selection ciauses are invalid under section 3(8) of COGSA for the reasons

set forth in ~ndussa . '~~

After acknowledging the holding of State Establishment for Agflculturai Products

v. MN ese en nu de,'^^ denying enforcement of a foreign arbitration clause in a

bill of lading, the Court explained that many federal courts had upheld these

clauses and the Court would take this latter position.'50

The Court affrmed that the Federal Arbitration Act governed the case and

prevailed over COGSA as a result of its reenactrnent in 1947, eleven years after

COGSA was enacted."' According to the Court, ''the strong federal policy

favoring arbitration supports the primacy of the FAA over COGSA where

arbitration agreements are ~oncerned."'~~

c. The Judgrnent from the Supreme Court

The United States Supreme Court granted cedioran to resolve a split between

the First and the Eleventh Circuits on the enforceability of foreign arbitration

clauses in maritime bills of lading.

The Supreme Court held that COGSA does not nullify foreign arbitration clauses

contained in maritime bills of lading.

1471bid. at 730. '*1bid. "'838 F.2d 1576 ( 1 1 th Cir. 1988). lS29 F.3d 727 at 731 ( 1 st Cir. 1994). '5'lbid. at 732. lS2/bid.

The Court stated that it could not "endorse the reasoning or the conclusion of the

lndussa nile i tse~f ." '~~ According to the Court, COGSA §3(8) did not support the

lndussa reasoning that a foreign arbitration clause lessens COGSA iiability by

increasing the transaction costs of obtaining relief?

The Court also rejected the plaintiffs argument that the arbitration clause should

not be enforced because there was no guarantee that foreign arbitrators would

apply COGSA. According to the Supreme Court. this daim was premature.'55

As a result of the foregoing, the Supreme Court held that foreign arbitration

clauses in bills of lading are not invalid under COGSA in al1 circurnstances, both

the Arbitration Act and COGSA may be given full e f f e ~ t . ' ~ ~

Sky Reefer has substantial implications with respect to the enforceabiiity of

foreign forum seiection clauses in maritime bills of lading, and also, certain

implications with regard to the Bremen test. These implications are discussed

with more detail in the third chapter.lS7

8. RecentCases

The holding in Sky Reefer has been relied upon by only a small nurnber of

American decisions because it is so recent.

lU51 5 U S . -, 132 L. Ed. 26 462 at 471, 1 15 S. Ct. 2322 (1 995). lS1bid. at 471 -475. '551bid. at 475. ?bid. at 476. 157 See Section 111-8-5.

In Blaise G.A. Pasztory v. Croatia iaine,lS8 for example, the District Court for the

Eastern District of Virginia enforced a foreign forum selection clause in a bill of

lading covering a shipment of fumiture and personal effects carried from Genoa.

Italy, to Norfolk, Virginia. The plaintiff was claiming damage to the goods and the

bill of lading included a clause providing that Croatian law would apply and any

action should be brought before the District Commercial Court in Rijeka, Croatia.

The Court concluded that even though Sky Reefer refers to a foreign arbitration

clause, the same holding is applicable to forum selection clauses in maritime bills

of ladinc~. '~~

Following the rationale of Sky Reefer, the Court pointed out that foreign selection

clauses were unenforceable only where the substantive law to be applied by the

foreign tribunal would be less than what COGSA guarantees.'60

Another recent decision referring to Sky Reefer is Fireman's Fund v. DSR

~t lant ic , '~ ' where the District Court for the Northern District of California refused

to enforce a foreign forum selection clause in a bill of lading by applying a similar

rationale. The bill of lading contained a clause providing that any dispute should

be resolved by the courts in Seoul, Korea.

The Court admitted that the Sky Reefer rationale applies to both forum selection

and arbitration clauses.'62 However, the Court held that according to Sky Reefer

'"1 996 A.M.C. 1 189 (E.D. Va. 1996). 15'/bid. at 1 1 96. '661bid. 16'1996 A.M.C. 878 (ND. Cal. 1995). 16'1bid. at 881 .

foreign selection clauses are not enforceable whenever the foreign tribunal would

apply a substantive law which would reduce the carrier's liability below what

COGSA estab~ishes?~ According to the Court, the application of Korean law

would lessen the carrier's liability because Korea does not recognize actions in

rem and they constitute a significant rernedy?"

9. Concluding Remarks

The traditional approach of the American courts was to find that the parties could

not by their agreement oust the court's jurisdiction; therefore, choice of forum

provisions were held to be unenforceable as against public policy.

This approach was abandoned in Brernen, where the United States Supreme

Court held that forum selection clauses are prima facie valid and should be

enforced unless such enforcement is unrea~onable.'~~ The Supreme Court set

guidelines conceming the evaluation of the reasonableness of forum selection

clauses. Basically, the Supreme Court indicated the circumstances that make a

forum selection clause unenforceable, and they are known as the Bremen test.

However. the Bremen analysis has been subject to modification by Camival

Cniise Lines and Sky Reefer.

At present, there is a presumption of validity of foreign forum selection clauses.

even in maritime contracts. The exceptions were articulated in Bmmen, but their

extent has been refined and perhaps narrowed by the decisions taken in Camival - - - - - - -

' 631bid. lMlbid. at 881 -082. '65407 U.S. 1 at 10. 32 L. Ed. 2d 51 3, 92 S.Ct. 1907 ( 1 972).

Cmise Lines and Sky Reefer. These exceptions are explained in the third

chapter together with the analysis of particular aspects of Adrniralty law and

p factice.

On the other hand, the exceptions established through the Bremen test are very

similar to the exceptions applied under the ordinary principles of contract law. As

a result, the second chapter is devoted to the study of those principles of contract

law which are relevant to the evaluation of enforceability of forum selection

clauses.

CHAPTER Il

CHOICE OF FORUM AND GENERAL CONTRACT LAVV

A. Introduction

In the previous chapter attention focused on the evolution of the case law

regarding the enforceability of foreign forum selection clauses.

The landmark decision taken by the United States Supreme Court in M E

Bremen v. Zapata Off Shore ~ 0 . l ~ ~ was explained. In this case. the Court

established the presumption of validity of forum selection clauses and described

the exceptions to this presumption which are known as the Bremen test. It was

noted that these exceptions are similar to the exceptions applied under the

general principles of contract law. Before analyzing the Bremen test in the third

~ h a p t e r , ' ~ ~ it is necessary to devote this chapter to a brief study of those

principles of contract law which are relevant for the evaluation of enforceability of

forum selection clauses.

Basically. contract law has developed a criterion for evaluating the enforceability

of contractual stipulations. For example, a contract, or some part of it. may be

void or voidable when it is affected by duress, undue influence,

misrepresentation, mistake or unconscionability, or when it is against public

lm407 U.S. 1, 32 L. Ed. 26 513. 92 S.Ct 1907 (1972). 167 See Section Ill-A.

policy. Therefore. the main purpose of this chapter is to describe the exceptions

to the enforceability of contractual stipulations.

First. however, it is necessary to consider some other aspects of foreign forum

selection clauses in maritime bills of lading. For example. the next section deals

with the contract of cardage of goods by sea and its characteristics Next, a

reference is made to the law applicable to maritime bills of lading as a way of

setîing the normative framework for the contract. Finally, the legal aspects of

standardized contracts are studied, because the typical bill of lading is a standard

fom contract.

B. Description and Functions of the Bill of Lading

Basically, a bill of lading "is a document which is signed by the carrier or his

agent acknowledging that goods have been shipped on board a specific vessel

that is bound for a particular destination and stating the t e n s on which the

goods are to be carried."16'

The bill of lading contains the names of the shipper and consignee and the

description of the goods as provided by section 3(3) of COGSA:

After receiving the goods into his charge the carrier, or the master or agent of the carrier, shall, on demand of the shipper, issue to the shipper a bill of lading showing among other things:

'-T. J. Schoenbaurn, Admira& and Maritime Law, 2d ed. (St Paul, Minn.: West, 1 994) vol. 2 at 44.

(a) The leading marks necessary for identification the goods as the same are fumished in writing by the shipper before the loading of such goods starts, provided such marks are stamped or otherwise shown clearly upon the goods if uncovered, or on the cases or coverings in which goods are contained. in such a manner as should ordinarily remain legible until the end of the voyage.

(b) Either the number of packages or pieces, or the quantity or weight, as the case may be, as fumished in writing by the shipper.

(c) The apparent order and condition of the goods: Provided, That no camer, master, or agent of the carrier, shall be bound to state or show in the bill of lading any marks, number, quantity. or weight which he has reasonable ground for suspecting not accurately to represent the goods actually received, or which he has had no reasonable means of c h e ~ k i n ~ . ' ~ ~

In common carriage, the bill of lading is not only a receipt. but also evidence of

the contract of carriage.'" However, the bill of lading is not the only evidence of

the contract because "[tlhe real contract of carriage is the offer, the

arrangements for shipment. the advertisernents for the carrier, the booking note,

the acceptance of the shipper, the staternents of agents, etc., as well as the bill

of lading itself, al1 taken t~~ether . " '~ '

The typical bill of lading is a standard contract because the terrns are usually

fixed by the carrier with no participation by the shipper. However, because it is

often the shipper who specifies the description of the goods, bills of lading are

not properly contracts of adhesion and are better described as standard form

c~ntracts. '~~

- - - -

16'46 U.S.C. App. 91303 (3) (1987). "O/bid. at 46 citing the following cases: Amerada Hess Corp. v. S. S. PhiMips Oklahoma. 558 F. Supp. 1 164 (S.D.N.Y. 1983); B. Elliot (Canada) Ltd. v. John T. Clark & Son of Maryland, Inc.. 704 F.2d 1305 (4th Cir. 1983); West India Industries, Inc. v. Amstar Corp., 690 F.Supp. 246 (S.D.N.Y.1988); Luckenbach S.S. Co. v. Amencan Mills Co., 24 F.2d 704 (5th Cir. 1928). 171 W. TetIey, Manne Cargo Claims, 3rd ed. (Montreal: Blais, 1988) at 216. '721bid. at 217.

International bills of lading are subject to the provisions the Carriage of Goods by

Sea Act (coGsA).'~~

The basic rule is that COGSA applies to "[elvery bill of lading or similar document

of title which is evidence of a contract for the carriage of goods by sea to or from

ports of the United States, in foreign trade ... . 1,174

Choice of forum clauses, however. have not been subject to explicit regulation

under this statute and are therefore subject to the rules developed by the courts.

Although the courts have created a particular doctrine for admiralty cases, the

general doctrines of contract law are relevant because, as explained above, the

holding of the Supreme Court in Bremen implicitly calls for the application of such

doctrines.

First, a brief surnrnary of the legal aspects of standardized contracts is presented

in the next section ta determine those rules also applicable to maritime

agreements.

This is followed by a description of the exceptions to the enforceability of

contractual stipulations.

ln46 U.S.C. App. §si 300-1 315 (1 987). '''lbid. at s1300.

D. The Law of Standardized Contracts

In modem life, most transactions take place without a process of negotiation and

the terrns of the contract are contained in a standard printed fom prepared by

one of the parties.

This type of contract has some advantages:

As with goods, standardization and mass production of contracts may serve the interest of both parties. Since standard forms can be tailored to fit office routines and mechanical equipment, they simplify operations and reduce costs. The product of the skilled drafter becomes available throughout the enterprise and frees sales and offce personnel from responsibility for contract tems. Because a judicial interpretation of one standard form serves as an interpretation of similar forms, standardization facilitates the accumulation of experience. It helps to make risks calculable and "increases that real security which is the necessary basis of initiative and the assumption of tolerable r i s k ~ " . ' ~ ~

However, some disadvantages are inherent in these agreements. Basically, it is

normal for one of the parties to impose its ternis on the 0tI1er.l~~ For example,

the party that prepares the form is generally well aware of the tems of the

contract while the other party may not be familiar with thern and may not have

read the f o n , especially when it is in fine print.'n Another negative aspect is the

absence of any bargaining on the ternis of the contracts, often due to the fact

that there is a gross disparity of economic power betv~een.'~~

- - -- - - -

175 E. A. Famsworth, Contracts, 2nd ed. (Boston: Little, Brown and Company, 1990) at 31 1 [quoting Cohen, "The Basis of Contract" (1933) 46 Harv. L. Rev. 553 at 5881. '76/bid.

The general principle applicable to standardized agreements provides that a

party who signs a document is bound by its ternis, even if he neither read the

contract nor understood its content^,"^ because "the law presumes that a person

knows the contents of a document that he executes and understands at ieast the

literal meaning of its This rule is known as the duty to read and it has

been applied by the court^.'^' On this point, the Supreme Court of Alabama

explains:

It is well settled in this state that where a party, having the ability to read and undentand an instrument, fails to do so, and signs it without reading 1, he is bound unless fraud was practiced on him; he cannot avoid the obligations embodied in the instrument by pleading ignorance of its contents ... In such a case, ignorance of the contents is attributable to the party's own negligence.la2

However, the courts have developed certain rules to prevent an unfair result from

affecting the non-drafting party.

First, it has been held that a party cannot be bound by a document that would not

reasonably appear to contain the ternis of a ~on t rac t . '~~

'791bid. at 295. D. Calamari & J. M. Periilo, The Law of Contracts, 3rd ed. (St. Paul: West, 1987) at 41 0. 180 Ment Music Senlice, lnc. v . Sonnebom, 245 Md. 21 3 at 221 -222,225 A.2d 470 at 474 (1 967). 181 See e.g. Merit Music Service, 1nc.v. Sonnebom, 245 Md. 21 3, 225 A.2d 470 (1 967); National Bank of Washington v . Equity Inv., 81 Wash.2d 886, 506 P.2d 20 (1 973); Rodesch v. Kirkpatrick Coal Co., 41 F.2d 518 (6th Cir. 1930); Smith v. Standard Oil Company, 227 Ga. 268, 80 S.E.2d 691 (1 971); PNdential Insurance Co. of Amenca v . Holiday. 191 Neb 144, 214 N.W.2d 273 (1 974); Pioneer Cmdit Co. v. Medalen. 326 N. W.2d 71 7 (N.D. 1 982); Lien v. Pitts, 1 74 N . W.2d 462 7970); Mercury Coal & Coke v. Mannesmann and Steel, 696 F.2d 31 5 (4th Cir. 1982).

'a2C~Ibom v. Mid-State Homes, Inc., 289 Ala. 255, 260, 266 So.2d 865, 868 (1972). 183 Famsworth, supra note 175 at 313.

Second, at times, courts have held that a party is not bound by the contract when

the tems are in fine print or inadequate.jW

Third, standardized contracts are subject to the general rule of interpretation of

contracts called contra proferentum, according to which the terms of the

agreement must be interpreted against the drafter.'85 It is noteworthy that this

rule has been applied in cases involving maritime bills of adi in^.'^^

Related to the previous rule, the courts have held that separate negotiated terms

take precedence over printed tens, and handwritten or typed ternis prevail over

standardized ~nes. '~ '

Having briefly explained the rules governing particular aspects of standardized

contracts. the following sections are devoted to the general rules concerning the

u nenforceability of contractual stipulations.

E. Avoidance of Contractual Stipulations

Given that a contract is supported by consideration

capacity. the agreement may be void or voidable when

and the parties have

it is affected by duress,

'%id. at 297. Calamari. supra note 186 at 41 1. See for example: Lisi v. Alitalia-LKiee Aeree Italiane, S.P.A. 370 F.2d 508 (26 Cir. 1966). '851bid. at 298. 18 vetley, supra note 171 at 84. Schoenbaum. supra note 168 at 46, citing The Caledonia. 157 U.S. 124 at 137, 15 S.Ct 537 at 543, 39 L.Ed. 644 (1 895); Mitsui & Co., Ltd. v . American Export Lines, Inc., 636 F.2d 807 at 822-23 (2d Cir.198 1 ); Toyo Kisen Kaisha v . W.R. Grace & Co., 53 F.2d 740, 744 (9th Cir. 1931); E. Gerli & Co. v. Cunard S. S. Co., 48 F.2d 1 15 at 1 16 (2d Cir. 1931 ); Baltimore & O. R. R. Co. v. Doyle, 142 Fed. 669 at 673 (C.C.A. 3 7906); Tessier Bros. (8. C.) Ltd. v . ltalpacitic Line, 494 F.2d 438 at 44445 (9th Cir. 1974); Encyclopaedia Britannica, Inc. v . S.S. Hong Kong Pmducer, 422 F. 2d 7 at 15 (2d Cir. 1969); United States v. Stnckland Transp. Co., 200 F.2d 234 at 235 (5th Cir. 1952). 107~amsworth. supra note 175 at 51 7; Tetley. supra note 171 at 85.

undue influence, rnisrepresentation, mistake or unconscionability. Also, a

contract or part of it, cannot be enforced when it is against public policy. As

these elements are discussed below, the emphasis is placed on the issue of

unconscionability because this is especially relevant with respect to standardized

contracts.

1. Duress

Duress can be described as "any wrongful act or threat which overcomes the free

will of a party."18* The modem doctrine applies a subjective standard which

means that for a case of duress only the will of the particular victim has to be

overcorne and not the will of a person of ordinary fi mines^.'^^

Duress can be exercised through two types of acts: physical compulsion and

threat.lgO In the case of physical compulsion, a promise cannot be considered

enforceable and the result is no contract at a11.'~'

Coercive acts may also be exercised through a threat that is defined as "a

manifestation of an intent to inflict some loss or harrn on anott~er." '~~ Three

requirements are necessary for the threat to vitiate the contract: first. it must be

188 Calamari, supra note 186 at 337. '"lbid. See for example Kaplan v. Kaplan, 25 111.2d 181, 182 N.E.2d 706 (1962); Silsbee v. Webber, 171 Mass. 378, 50 N.E. 555 (1898); Rubenstein v. Rubenstein, 20 N.J. 359, 120 A.2d 1 1 (1 956). 190 Famsworth, supra note 175 at 272. lgl lbid. lg21bid.

improper; second, it must induce the victim to express his consent; and third, it

must be grave enough to justify the victirn's assent.lg3

When duress is exercised by threat, it makes the contract voidable at the election

of the victim.lg4 The coerced party can either ratify the contract. raise duress as

a defense to an action pursuing the enforcement of the agreement, or start an

action in order to obtain the rescission of the ~ontract."~

2. Undue Influence

The doctrine of undue influence provides a remedy for those situations where the

consent of a party has been induced by improper persuasion.196 The theory has

been developed to protect a weak party against irnproper persuasion by a

stronger party in cases where the contract is not vitiated by incapacity,

misrepresentation or duress.lg7

Undue influence was explained in Odonzzi v. BloomfieId School ~ i s t r i c t ' ~ ~

In essence undue influence involves the use of excessive pressure to persuade one vulnerable to such pressure, pressure applied by a dominant subject to a servient object. In combination, the elements of undue susceptibility in the servient penon and excessive pressure by the dorninating person make the latter's

Is3/bid. lg"/bid. at 267. Calamari, supra note 186 at 349. 195 Famsworth, supra note f 75 at 282-1 83. 196/bid. at 268. '971bld. lss246 Cal.App.2d 123 at 131, 54 CaLRptr. 533 at 540 (1 966).

influence undue, for 1 results in the apparent will of the servient person being in fact the will of the dominant person.'99

In the case of undue influence, the resulting contract is voidable and the victim

may raise it as a defense or as the basis of a daim in restitution.2oo

To apply undue influence, a special relation between the victim and the stronger

party is necessary. Generally it must be a relation of trust or confidence by virtue

of which one "is justified in assuming that person [the other party] will not act in a

manner inconsistent with his we~fare."~~' However, relief under this doctrine has

been extended to relations other than relations of trust and confidence and it can

be applied to relations where the victim "is under domination of the penon

exercising the persuasion. 1,202

Most of the cases of undue influence involve unfair persuasion exercised before

the death of a person in order to obtain his assent for an inter vivos transfer or a

wi11.*03

3. Misrepresentation

The concept of misrepresentation has been developed in order to protect a

penon who is fraudulently induced into entering a ~ontract .~ '~

'991bid. at 1 3 1 . 200 Fansworth, supra note 175 at 284. ZO'~estatement (Second) of Contracts 51 77 (1 979). *021bid. 203 Calamari, supra note 186 at 352. 2Wlbid. at 356.

The doctrine distinguishes two foms of misrepresentation. The first one goes to

"inducementt'. such as the case when the seller misrepresents the quality of the

goods; this form of misrepresentation renders the contract voidable at the

election of the v i ~ t i r n . ~ ~ ~ The second form of misrepresentation goes to the

"factum" or the "execution" and refers ta those cases where the

rnisrepresentation affects the character of the contract itself, such as when the

victim's assent is induced by falsely stating that the contract has no legal

effectS2O6 In this second form of misrepresentation, when the other party neither

knows nor has reason to know of the character of the contract, the result is that

there is no contract at

4. Mistake

A mistake has been defined as "a belief that is not in accord with the facts.""'

Certain kinds of mistake can vitiate the transaction. The law of contracts

disting uishes between unilateral and bilateral mistake. The traditional rule states

that a bilateral mistake can make the contract voidable while a unilateral rnistake

does not affect the transaction.'Og This rule is not completely accurate, but is still

Bilateral mistake occurs when both parties share the same mistaken "basic

assumption on which the contract was The contract is voidable if the

Z05~amsworth, supra note 175 at 249. 2061bid. 2071bid. ZW~estatement (Second) of Contracts 5 1 S I (1 979). 209 Calamari, supra note 186 at 379. 2'0~estatement (Second) of Contracts 51 52 (1 979).

mistake has "a material effect on the agreed exchange of performances ... 021 1

unless the affected party "bean the rïsk of the rnistake.~"'~

Wth regard to the unilateral mistake. the courts have been abandoning the

traditional rule, such that under certain conditions the contract rnay now be

voidab~e.*'~

According to the Restatement Second, whenever the requirements for a bilateral

mistake are met with respect to the mistake of only one party, the contract is

voidable in the following cases: first. when '"the effect of the mistake is such that

enforcement of the contract would be uncon~cionable,"~'~ or second, when "the

other party had reason to know of the mistake or his fault causes the rn i~take."~ '~

5. Unconscionability

a. Introduction

One of the most innovative aspects of the Uniform Commercial Code is the

incorporation of the doctrine of unconscionability under Section 2-302. This

doctrine is continually gaining importance and it has become one of the most

significant remedies protecting consumen.

'" lbid. 2121bid. 2'3~arnsworth. supra note 175 at 694. 'l4~estaternent (second) of Contracts 61 53 ( 1 979). 21 ?bid-

Extensive literature has been produced by legal scholan on the topic of

uncon~cionabi l i t~~~~ and its inclusion into the Uniform Commercial Code has

generated more controversy and discussion than any other section of the

ode.^'^

Situated under the title "Unconscionable Contract or Clause" and incorporated

into the article conceming the contract of sale, section 2-302 of the Unifom

Commercial Code establishes the general rule on the doctrine of

unconscionability:

(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it rnay enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

(2) When it is clairned or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial settin purpose and effect to aid the court in making

?i s the determination.

21 6 See generally: R. Braucher, "The Unconscionable Contract or Term" (1969) 31 U. Pitt. L. Rev. 337; M.P. Ellinghaus, "ln Defense of Unconscionability" (1969) 78 Yale L.J. 757; R.A. Epstein, "Unconscionability: A Critical Reappraisai" (1975) 18 J.L. & €con. 293; J.C. Fort, "Understanding Unconscionability: Defining the Principle" (1978) Loy. U. Chi. L.J. 765; R.L. Hernsbergen, "Unconscionability: The Approach of the Louisiana Civil Code" (1 983) 43 La. L-Rev. 1315; R.A. Hiilman, "Debunking some Myths about Unconscionability: A New Framework for U.C.C. Section 2-302" (1981) 67 Cornell L. Rev 1; A.A. Leff, "Unconscionability and the Code - The Emperofs New Clause" (1967) Il 5 U. Pa. L. Rev. 485 [hereinafter "Unconscionability and the Code"]; A.A. Leff, "Unconscionability and the Crowd - Consumers and the Cornmon Law Tradition" (1969) 31 U. Pitt. L. Rev. 349; J.E. Murray, "Unconscionability: Unconscionability", (1969) 31 U. Pitt. L. Rev. 1; A. Schwartz, "A Reexamination of Nonsubstantive Unconscionability" (1977) 63 Va. L. Rev. 1053; R.E. Speidel, "Unconscionability, Assent and Consumer Protection" (1969) 31 U. Pitt. L. Rev. 359; J.A. Spanogle, Jr., "Analyzing Unconscionability Problems" (1 969) 11 7 U. Pa. L. Rev. 931. 2'7~alamaril supra note 186 at 398: Famsworth, supra note 175 at 324; H.G. Prince, "Unconscionability in California: A Need for Restraint and Consistency" (1995) 46 Hastings L.J. 459 at 461. 2 ' 8 ~ . ~ . ~ . 3 2-302.

The origin of the unconscionability doctrine in common law is not clear, but a

frequently cited definition is found in Eari of Chestefield v. anss sen,^" where an

unconscionable contract is described as one "such as no man in his senses and

not under delusion would make on the one hand. and as no honest and fair man

would accept on the other.'"" This passage was quoted by the U.S. Suprerne

Court in Hume v. United ~ t a t e s , " b r ~ u a b l ~ the first definition of the doctrine in

American law.

According to some authors, the origin of the doctrine of unconscionability is

obscure because both equity and law courts employed the term frequently

without formulating an explicit rule?

The official comrnents on section 2-302 confirm that before the Uniform

Commercial Code the doctrine of unconscionability was not specifically

articulated and remedies were applied under other doctrines:

This section is intended to make it possible for the courts to police explicitly against the contracts or clauses which they find to be unconscionable. In the past such policing has been accomplished by adverse construction of language. by manipulation of the rules of offer and acceptance or by determinations that the clause is contrary to public policy or to the dominant purpose of the contract. This section is intended to allow the court to pass directly on the unconscionability of the contract or particular clause therein and to make a conclusion of law as to its unconsc i~nabi l i t~ .~~

2'928 Eng. Rep. 82, 100 (Ch. 1750). 22010id. 132 U.S. 406 (1889).

=~panogle. supra note 216 at 937. m ~ . ~ . ~ . § 2302, Comment 1.

It must be clarified that the historical development of this doctrine took place

mainly in the courts of equity. in two ways. First, through the refusal to enforce

oppressive bargains on the grounds of so-called substantive uncons~ionabi l i t~ .~~~

Second, through the refusal to enforce contracts affected by undue influence,

misrepresentation, unilateral mistake and other grounds of sa-called procedural

unconscionabi~ity.~~~

In courts of law, the refusal to enforce contracts on grounds of unconscionability

was rare. The courts opted, however to apply "imaginative flanking devices to

defeat the ofiending ~ontract,""~ such as "failure of consideration, lack of mutual

assent, duress or fraud, inadequacy of pleading, lack of integration in a written

contract, or a strained interpretation after finding ambiguity where little or no

ambiguity existed ."227

Before the promulgation of the Unifom Commercial Code, the leading case was

Campbell Soup Co. v. ~ e n b , ~ ~ where the buyer under a contract of sale of

canots commenced an action against the seller to obtain delivery of the carrots

which the seller was refusing to proceed with because of a substantial increase

in the market price. The Court denied relief on the grounds of equity because it

found the contract '"too hard a bargain and too-one sided an agreement to entitle

the plaintiff to relief in a court of con~c ience."~~ The Court also stated that "[flor

each individual grower the agreement is made by filling in names on a printed

224 Calamari, supra note 186 at 400. "51bid. 2261bid. at 401 . *7ibid.

72 F.2d 80 (3d. Cir. 1948). 2291bid. at 83.

form furnished by the buyer. This fom has quite obviously been drawn by skillful

draftsmen with the buyer's interests in mind.'1230

b. The Concept of Unconscionability

The Uniforni Commercial Code does not contain a definition of unconscionability.

Some authors consider this lack of a definition to be an important failure:

"If reading this section makes anything clear it is that reading this section alone makes nothing clear about the meaning of 'unconscionable' except perhaps that it is pejorative ... mhe draftsmen failed fully to appreciate the significance of the unconscionability concept's necessary procedure-substance dichotomy and that such failure is one of the primary reasons for section 2-302's final amorphous unintelligibility and its accompanying commentary's final irre~evance.'"~'

However. other authon have a different point of view: "One of the strengths of

the unconscionability doctrine is its flexibility, an attribute much needed because

it is difficult to identiv in advance ail of the kinds of situations to which it might in

principle apply."232 Sirnilarly:

To define the doctrine of unconscionability is to limit its application. To limit its application is to defeat the purpose for which the doctrine was founded ... To insist on a concrete definition would lirnit the effectiveness of the doctrine's policing power by providing a skilled draftsman with an opportunity to avoid its policing function. The doctrine of unconscionability should operate with flexibility

-

2301bid* 23'"~nconscionability and the Code". supra note 216 at 487-488 [footnotes omitted]. 232 Epstain, supra note 216 at 304.

sufficient to deter a skilled draftsman fiom drafting to the "absolute limit of what the law can conceivably bear. 9,233

It must be noted that this same criterion was applied in M e v. Southwestern

Telephone ~ o r n p a n ~ . * ~ ~

The absence of a definition of unconscionability can be observed in the Second

Restatement as well.

With regard to this controversy, it seems to be desirable to provide the courts

with those tools necessary to allow the doctrine of unconscionability to evolve in

accordance with the changing circurnstances of social life. The practices

employed for the negotiation and performance of contracts are constantly subject

to change as a result of the rapid progress of technology in modem life.

Therefore. it becomes necessary that judicial discretion adapt the concept to the

new circumstances surrounding commercial transactions. In other words. the

absence of a definition cannot be considered to be a failure of the drafters of the

Code.

Wth regard to the meaning of the tem unconscionability. fint, it can be affirrned

that it is true that "'[u]nconscionable' is a word that defies lawyer-like

de f in i t i~n . "~~~

The offcial comments of section 2302 of the Code, however. provide some

ideas about the meaning of the terni:

233 C. A. Stunbeck, "The Doctrine of Unconscionability" (1967) 19 Me. L. Rev. 81 at 85. 2w549 P.2d 903 at 906 (Kan. 1976). 23s~alamari, supra note 186 at 406.

The basic test is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circurnstances existing at the time of the making of the contract. Subsection (2) rnakes it clear that it is proper for the court to hear evidence upon these questions. The principle is one of the prevention of oppression and unfair surprise ... and not of disturbance of allocation of risks because of superior bargaining power.236

Perhaps the most valuable statement on unconscionabitity was made by the

Supreme Court of Indiana in Weaver v. Amencan Oil where the

Court declared:

When a party can show that the contract, which is sought to be enforced, was in fact an unconscionable one. due to a prodigious amount of bargaining power on behalf of the stronger party, which is used to the stronger party's advantage and is unknown to the lesser, Party, causing a great hardship and risk on the lesser part, the contract provision, or the contract as a whole, if the provision is not separable, should not be enforceable on the grounds that the provision is contrary to public policy. The party seeking to enforce such a contract has the burden of showing that the provisions were explained to the other party and came to his knowledge and there was in fact a real and voluntary meeting of the mincis and not merely an objective meeting. 238

These concepts are very illustrative but it must be recognized that "tilt is not

possible to define unconscionability ... [since] ... [i]t is not a concept, but a

detemination to be made in light of a variety of factors not unifiable into a

-

z J s ~ . ~ . ~ . § 2-302, Comment 1. ='257 Ind. 458, 276 N.E.2d 144 (1971). '%id. at 148.

formula."239 Following the words of the Supreme Court of Washington,

"numerous factors enter into consideration. No one element is contro~ling."~~~

Without attempting to provide a definition, it can be affirmed that the general idea

of the doctrine of unconscionability is to grant remedy in cases of "oppression"

and "unfair surprise," as mentioned by the cornmentators. but covering other

similar situations and without restricting its application to the specific cases

involved in a definition. In other words, the concept is flexible and can be

adjusted depending on the circumstances of the particular case. However, in

order to develop this idea it is necessary to make reference to the distinction

between procedural and substantive unconscionability and also to the factors for

determining unconscionability. These are the topics for the two following

sections.

c. Procedural and Substantive Unconscionability

The officiai comments cited earlier identify two purposes of the doctrine of

unconscionability: to prevent oppression and to prevent unfair surprise. These

basic goals of the doctrine have led rnost authors to make the distinction

between substantive unconsciona bility (corresponding to the case of oppression)

and procedural unconscionability (corresponding to the case of unfair surprise).

This distinction was first introduced by Professor Leff, who divides the defenses

involved with the doctrine of unconscionability into two groups: some refer to the -

='J.J. White 8 R.S. Summen, Unifom Commercial Code, 4th ed. (St. Paul. Minn.: West, 1995) at 21 3. *%eske v. Bartell Dmg Co.. 92 Wash.2d 40, 593 P.2d 1308 (1979).

process of contracting and others refer to the contract itself."' The same author

describes the first group, procedural unconscionability, as involving cases of

bargainng naughtiness, whi le the second g roup , substantive unconscionabilily.

involves cases of evils in the resulting c o n t r a ~ t . ~ ~ ~

With respect to procedural unconscionability, some authors prefer to replace the

term "procedural" with the terni "nonsubstantive," because the latter, unlike the

former, "includes factors that rnay militate against enforcing an agreement even

though the parties negotiated the agreement fair^^.''^^^

On the other hand, some authon suggest that the distinction between procedural

and substantive unconscionability is immaterial because the court's

detemination of the unconscionability defense is based on a totality of

c i rcum~tances.~~~

With respect to this controveny it must be emphasized that this distinction is

necessary for analytical purposes because of the lack of a legislated d e f i n i t i ~ n . ~ ~ ~

In order to reach the best understanding of the circumstances covered by this

doctrine, the first step is to make the distinction, even if it is not absolutely

accurate because of the natural complexity of the situations that the doctrine of

unconscionability pretends to govern.

24111 Unconscionability and the Code", supra note 216 at 487. 2421bid. 243 Schwartz, supra note 216 at 1054. See also Calamari, supra note 186 at 399. 244 D.L. Nelson 8 J.L. Howicz, Wl'linston on Sales, 5th ed. (Deerfield: Clark, Boardman Callaghan, 1 994) at 531 . 245 Hernsbergen, supra note 216 at 1401.

On this point, it must be clafied that most of the successful daims involve a

combination of both types of unconscionabiiity and it is controvenial whether

both elements must be present.246 However, in the majority of the cases the

courts hold contract terms unconscionable when both procedural and substantive

unconscionability are present.247 Actually, "[mlost cases of unconscionability

involve a combination of the two types of unconscionability; and it is generally

agreed that if more of one is present, then less of the other is required. "248 on

the other hand, many courts are still applying the distinction between procedural

and substantive uncons~ionabi l i t~.~~~

As mentioned above, the distinction between procedural and substantive

unconscionability is based on the terminology employed by the official

commentators that distinguishes between the ternis "unfair surprise" and

"oppression". Therefore, it is necessary to make reference to these two

concepts.

The terrn "unfair surprise" has been described by Spanogle as implying "some

sort of deception by artifice."25o The same author provides more details about

this term:

"Unfair surprise" is a relatively easy concept to visualize. Hiding a clause in a mass of fine print trivia is one method of surprising the non-drafting party with unknown terms. Another method is to phrase the clause in language that is incomprehensibie to a layman

246~rincel supra note 21 7 at 472. '4"ort. supra note 216 at 771. 2 ' B ~ a m s w o ~ . supra note 175 at 334. 249 Ibid. The author cites the following cases: WXON-TV, Inc. v. A.C. Nielsen Co., 740 F. Supp. 1261 (E.D. Mich. I W O ) ; Master Lease Corp. v. Manhattan Limousine, Ltd., 580 N.Y.S.2d 952 (App.Div. 1992); Rite Coior Chem. Co. v . Veivet Textile Co., 41 1 S.E.2d 645 (N.C.Ct.App. 1992); Collins v. Click Camera & Video, Inc., 621 N.E.2d 1294 (Ohio Ct.App. 1993). '%panogle. supra note 216 at 943.

or that diverts his attention from problems raised or rights lost. A variety of deceptive sales practices and other tactics might be catalogued, but the foregoing should suffice to indicate the type of problem covered by "unfair surprise". Although there are overtones of fraud in such conduct, "unfair surprise" does not require a particular source of surprise, such as misrepresentation of fact. Instead, "unfair surprise" focuses on the effect of abuses on the nondrafting party, and upon the "fairness" of whatever event caused the surprise. The causal event might be active conduct by the drafting party, or it rnight be inaction, but it is often difficult to distinguish the Wo. as in the use of language designed to minimize attention to a clause. Thus the most productive criterion for determining whether the procedural abuse of surprise is present is the reasonableness of the nondrafting party's reaction to the clause, rather than the culpability of the drafting party.

An abuse in the process of forming the contract is not sutfident by itself to create unconscionability. The principle of preventing, not merely "surprise," but "unfair surprise," suggests not only that there rnust be abuses in forming the contract, but also that such abuses have allowed the drafting party to take unfair advantage of the non- drafting party. Not al1 deceptively worded clauses in fine print are unconscionable. Such a clause in a security agreement, giving the creditor the right to repossess collateral after default, need not be considered unconscionable. The concept of "unfair surprise" involves both procedural and substantive abuses of the complaining

With regard to the term "oppression", its meaning is illustrated by Mallor:

The word "oppression" indicates either a situation in which a contract term works great hardship on a party or one in which a stronger party is able to oppress a weaker one by imposing unfavorable tenns on him. The gravamen of oppression is not that the weaker party did not know what he was signing, but that he had no realistic choice about the terms. Oppression implies the absence of voluntary consent. Courts may find oppression when one party has exploited the other party's necessitous circurnstances to drive too hard a bargain. Oppression may exist in the classic contract of adhesion, in which one party dictates the terms of a contract on a take-it-or-leave-it basis. Courts might also

"' lbid.

find oppression in high pressure tactics or in a bargaining situation fraught with haste or pressure.252

The dichotomy between procedural and substantive unconscionability can be

better understood by making reference to Wiliams v. Walker-Thomas

~urni ture , *~~ one of the most important cases on the doctrine.

During the period from 1 957 to 1962, the appellant, Mrs. Williams. purchased a

number of household items from Walket-Thomas Furniture Company (a retail

furniture store operating in the District of Columbia) for which payment was to be

made in installments. The contract for each purchase was contained in a printed

forrn. providing that in the event of a default in the payment of any monthly

installment, Walker-Thomas would repossess the item. The contract further

provided that al1 payrnents would be credited pro rata on al1 outstanding

accounts. The effect of this clause was to keep a balance due on every item

purchased until the balance due on all items, whenever purchased. was

liquidated. The last purchase from Mrs. Williams was a stereo for the price of

US$514.95. Shortly thereafter, she defaulted and Walker-Thomas filed an action

to replevy al1 the items purchased by Mrs. Williams. The trial court granted the

judgment. and it was affirmed by the Municipal Court of Appeals. The Circuit

Court of Appeals reversed the decision and remanded for findings on the issue of

unconscionability.

The Court held that unconscionability includes two basic elements: the absence

of meaningful choice on the part of one of the parties and contract t e n s which

2 5 2 ~ . ~ . ~ a l l o r , "Unconscionability in Contracts between Merchants" (1986) 40 Sw-L-J. 1065 at 1072. 253350 F.2d 445 (OC. Cir. 1965).

unreasonably favor the other Wth respect to these two elements, the

former has been designated "procedural" and the latter "substantive"

unconsci~nabi l i t~.~~~

In addition to these useful comments, it is necessary to reiterate that the variety

of situations involving unconscionability cannot be reduced to these two

categories of "unfair surprise" and "oppression". The spectrum of situations

covered by the doctrine of unconscionability is very wide, as described in the

next section.

d . Factors for Determining Unconscionability

To best describe the extent of the application of the doctrine of unconscionability

it is necessary to mention some of the possible events that could lead a court to

find an unconscionable clause or contract.

For example, in the case of Wile v. Southwestern Bell Telephone ~ o r n ~ a n ? ' ~

the Supreme Court of Kansas, summarizing the case law, enumerated the

following set of factors for determining the applicability of the doctrine:

(1) The use of prhted form or boilerplate contracts drawn skillfuily by the party in the strongest economic position, which establish industry wide standards offered on a take it or leave it basis to the party in a weaker economic position;

(2) a significant cost-price disparity or excessive price;

. . - -

2541bid. at 449. 255~amsworth, supra note 175 at 332. 256549 P.2d 903 (Kan. S.C. 1976).

(3) a denial of basic rights and remedies to a buyer of consumer goods;

(4) the inclusion of penalty clauses; (5) the circumstances surrounding the execution of the contract.

including its commercial seth'ng, its purpose and actual effect; (6) the hiding of clauses which are disadvantageous to one party in a

mass of fine print trivia or in places which are inconspicuous to the party signing the contract;

(7) phrasing clauses in language that is incomprehensible to a layman or that diverts attention from the problems raised by them or the rights given up through them;

(8) an overall imbalance in the obligations and rights imposed by the bargain;

(9) exploitation of the underprivileged, unsophisticated. uneducated and the illiterate; and

(1 0) inequality of bargaining or economic power.2"

This list of examples illustrates the wide variety of situations covered by the

doctrine of unconscionability. Therefore it is difficult to specify an exact rule for

the application of the doctrine. In effect, courts must evaluate al1 the facts and

circumstances of the particular case in order to provide a fair detemination.

e. Scope of Section 2-302 of the Uniform Commercial Code

Having considered the key issues pertaining to the meaning of unconscionability,

it is now possible to study some complementary aspects of the rules governing

this doctrine.

One of these aspects is the extent of the application of the doctrine of

unconscionability. The two issues to consider here are: first. whether or not the

doctrine can be applied to contracts different from sale. and second. whether or

not the remedy is available to protect merchants. These are the questions

answered in the next two sections.

(1) Application Beyond the Contract of Sale

Although section 2-302 of the Code is part of the sales article, the courts have

considered this provision applicable to other kinds of contracts, either by analogy

or as a general doctrine.258 The principie has been extended to home

improvement con tract^,'^^ estate brokerage con tract^,^^^ hiring a hall for a Bar

~ i t z v a h , ~ ~ ' a franchise a contract to construct asphalt plants, 263 , contract to promote a concert a contract opening a checking a c c ~ u n t , ~ ~ ~

an equipment ~ease , '~~ an apartment house ~ e a s e , ~ ~ ~ a gas station ~ e a s e , ' ~ ~ and

secured ~ o a n s . ~ ~ '

-- . - - - -

258 Farnsworth, supra note 175 at 325; R.J. Hunter Jr. "Unconscionability revisited: a comparative approach" (1 992) 68 N.D.L. Rev. 145 at 150. See also J.D. Calarnari 8 J.M. Perillo, supra note 186 at 403. Z59~mencan Home Improvement, Inc. v. Maclver, 201 A.2d 886 (N.H. 1964). z *~ l l s~o r t h Oobbs, lnc. v. Johnson, 50 N.J. 528, 236 A. 2d 843 (N. J. 1967). 261 Lazan v. Huntington Town House, Inc., 69 Misc.2d 1017, 332 N.Y.S.2d 270 (Dist.Ct.1969), a r d 330 N.Y.S.2d 751 (App.Terrn 1969). "2apatha v. Dairy Mart, 381, Mass. 284,408 N. €.Pd 1370 (1 980). 263

264 County Asphalt, lnc. v. Lewis Welding & Engineenhg Corp, 444 F.2d 372 (2d Cir. 1971 ). Graham v. Scissor-Tail, 28 Cal. 3d 807, 623 P.2d 165 (1981).

265~av id v. Manufacturers Hanover Trust Co.. 59 Misc.2d 248, 298 N.Y.S. 2d 847 (App.Term 1 972). 2BB~aifield Lease Corp. v. Pratt, 278 A.2d 154 (Conn.Cir.Ct. 1971 ). 267 Seabrooke v . Cornmuter Housing Co., 72 Misc.2d 6, 338 N.Y.S.2d 67 (Civ.Ct.1972). ' "~eaverv. American Oil Co., 257 Ind. 458,276 N.E.2d 144 (1971). 269~ekins Bar V Ranch v. Hutch, 664 P.2d 455 (Utah 1983).

Some courts, however, have refused to apply the doctrine to contracts different

from sale on the ground that section 2-302 is not part of the general provisions of

the

(2) Application to Contracts between Merchants

The doctrine of unconscionability is intended rnainly to protect consumers. As

such. the courts have not been generally welcomed to business persons in the

name of this doctrine.271

In some cases, the courts have given protection to disadvantaged business

parties, particularly small businesses, based on such considerations as business

experience and educational 1eve1.*~'

For example, in Weaver v. American Oil ~ o r n ~ a n ~ . ' ~ ~ the Supreme Court of

Indiana decided a dispute between an oil company and a station operator. The

Court held unconscionable and unenforceable a clause in a service station lease

exculpating the oil company from liability for its negligence and obligating the

lessee to indemnify the lessor for any damage or loss incurred as a result of

lessor's negligence. The Court explained as follows:

The facts reveal that Weaver had left high school after one and a half years and spent his time, prior to leasing the service station. working at various skilled and unskilled jobs. He was not one who should be expected to know the law or understand the meaning of

- ----

Z70~arnsworth. supra note 175 at 325. See: In re Advance Pnnting & Litho Co., 277 F.Supp. 101 (W.D. Pa.), affd, 387 F.2d 952 (3d Cir. 1967); Hemandez v. S.1.C. Finance Co., 79 N.M. 673, 448 P. 2d 474 (1 968). hite, te, supra note 240 at 237. 272~rince, supra note 21 7 at 480; Calamari, supra note 186 at 40; Hunter. supra note 258 at 150. 273276 N.E.2d 144 (Ind. S.Ct 1972).

technical tenns ... The evidence showed that Weaver had never read the lease prior to signing and that the clauses in the lease were never explained to him in a matter from which he could grasp their legal significance.

The evidence also reveals that the clause was in fine pnnt and confained no little heading which would have identified it as an indemnity clause. It seems a deplorable abuse of justice to hold a man of poor education, to a contract prepared by the attorneys of Arnerican Oil, for the benefit of Amencan Oil which was presented

i r 274 to Weaver on a "take it or leave it basis .

Another example is Johnson v. Mobil Oil Corp.,"' where the District Court for the

Eastern District Court of Michigan held unenforceable a clause in a service

station retail dealer contract excluding the oil company's liability for consequential

damages. The retailer dealer had a low level of education; he was practically

illiterate, he did not read the contract and no one read or explained it to him. The

Court declared: "[wlhile it is true that the notion of unconscionability is most

frequently employed to shield disadvantaged and uneducated consumers from

overreaching merchants ... and that 'findings of unconscionability should be rare

in commercial settings' ... even commercial contracts have been held

unconscionable under certain circurn~tances."~~~

The principle behind the rationale applied in contracts between sophisticated

business parties is that "[mlere disparity of bargaining power is not enough in

itself to establish unconscionability, though its does suggest danger for

2741bid. at 145-147. 27541 5 F.Supp.264 (E.D. Mich. 1976). 2761bid. at 266.

abuse."2n Thus, the sophistication of the parties may prevent the application of

the doctrine of unconscionability as explained by a cornmentator:

A precise description of the relationship of unconscionability to situations involving disparate bargaining power must take the status, or relative sophistication of the parties into account, as well as their econornic muscle. Without the cornpetence to use one's bargaining power efiectively. that power is meaningless. Further. when the courts note the relative economic strength of the parties, they also are recognizing. eïther expressly or implicitly, the parties' relative sophistication. Sophistication, or status, pertains directly to a person's ability to negotiate and appreciate the significance of contractiing, questions intirnately connected with the notion of contract. Ultimately, though. whether there is a relative equilibrium of econornic power is irrelevant to whether the parties' knowingly. intelligently, and voluntarily allocated the nsks and burdens of a transaction. Thus, the principle is not simply one of disparate bargaining p ~ w e r . ~ ~ ~

f. Procedure for Determining Unconscionability

Another complementary aspect of the rules governing unconscionability is the

procedure to be followed for its determination.

According to section 2-302 of the Unifonn Commercial Code, the determination

of unconscionability by the courts must be decided as a matter of law. As

explained in County Asphalt, Inc. v. Lewis Welding 8 Engineering corp. ,279 there

is no constitutional right to a jury trial on the issue of unconscionability on the

basis that it is an equitable issue.

277 Fort, supra note 216 at 808. 278 1bici. 279444 F.2d 372 at 379 (2d Cir. 1971).

Thus, it has been held to be an error to grant a motion of summary judgment in

cases where one of the parties has not been given the opportunity to present

evidence of unconscionabi~ity.~~~

With regard to the burden of proof, it corresponds to the party alleging the

defense of uncon~cionabi l i t~.~~

g. Remedies for Unconscionability

A final and basic aspect of the law of unconscionability to consider is the

available rernedies for such cases.

Section 2-302 of the Code allows the courts to apply a variety of rernedies in the

case of unconscionability: it may refuse to enforce the entire contract or it may

refuse or limit the enforcement of the unconscionable clause.

In most of the cases. the courts have refused to enforce or have limited the

application of the unconscionable clause and only occasionally have they

refused to enforce the entire c o n t r a ~ t . ~ ~ ~ With most cases of unconscionability

deriving out of a contract of sale, the usual result is that courts have refused to

enforce the obligation of payment of the contract pri~e.283

280~uick v. Gmyûar Elec. Co., 43 F.2d 1360 (8th Cir. 1973); Haugen v. Ford Motor Co.. 219 N.W.2d 462 (N.D. 1974); Scheroeder v. Fageol Motors, 86 Wash. 2d 256, 544 P.2d 20 (1975). See also Famsworth, supra note 175 at 326. 281 Zapatha v. Daky Mart, 381 Mass. 284, 408 N.E. 2d 1370 (1 980); Guaranteed Foods of Neb. v. Rison, 207 Neb. 400,299 N.W.2d 507 (1980). See also famsworth. supra note 175 at 326. 2 8 2 ~ . ~ . Calamari & J.M. Perillo, supra note 186 at 405; Famsworth, supra note 175 at 327. Z83White. supra note 240 at 232.

However, the courts also have ordered reductions in a prince or interest rate, or

an increase in the duration of a

6. Public Policy

While contract law is based primarily on the principle of freedom of contract, the

principle is not absolute because the law does not provide for the enforcement of

agreements that violate public policy. Consequently, in some cases the courts

refuse to enforce promises when the substance of the agreement is against the

public welfare.

According to the cornmentators of the Restatement Second, two considerations

can lead the courts to refuse to enforce a contract on the grounds of public

policy:

First, a refusal to enforce the promise may be an appropriate sanction to discourage undesirable conduct. either by the parties themselves or by others. Second, enforcement of the promise rnay be an inappropriate use of the judicial process in carrying out an unsavory transaction. The decision in a particular case will often turn on a delicate balancing of these considerations against those that favor supporting transactions freely entered into by the parties.285

Some public policies have been developed by the courts, while others are

expressed in ~e~is la t ion.*~~ The Restatement Second provides guidelines for

establishing when a contract or a part of it is unenforceable on the grounds of

2w~alamari. supra note 186 at 405. 285~estatement (Second) of Contacts. Chapter 8. lntroductory Note (1 979). 286 /&id

public policy. First, the factors that must be taken into account in order to weigh

the interest in the enforcement of a contract terni are: the justified expectations

of the parties, any forfeiture that would result if enforcernent is denied, and any

special public interest in the enf~rcernent.~~' Second, the factors that must be

taken into account in order to weigh the public policy against the enforcement of

a contract terni are: the strength of that policy, the likelihood that a refusai of

enforcernent will further that policy, the senousness of any misconduct involved

and the extent to which 1 was deliberate, and the directness of the connection

between that misconduct and the contract

CHAPTER III

CHOICE OF FORUM IN MARITIME BILLS OF LADING

In Chapter II, a summary of the general principles of contract law relevant to the

analysis of the enforceability of forum selection clauses was presented.

The effediveness of the choice of forum in maritime bills of lading dealt with in

Chapter III. First. the Bremen test is explained together with the modifications

introduced by later decisions from the United States Supreme Court. Chapter III

then focuses on the particular issues that arise in the context of maritime bills of

lading .

A. The Bremen Test

The Supreme Court held in Bremen that forum selection clauses are prima facie

ali id^'^ and should be enforced unless such "enforcement would be

unreasonable and unjust, or that the clause was invalid for such reasons as fraud

and overrea~hing."~~~ As mentioned in Chapter 1,"' the Supreme Court indicated

the circumstances that make a forum selection clause unenforceable, and they

are known as the Bremen test.

*''407 U.S. 1 at 10. 32 L. Ed. 2d 51 3. 92 S. Ct. 1907 (1 972). 2901bid. at 15. 291~ee Section 1-84

The following subsections describe each exception to the enforceability of forum

selection clauses. Thereafter, the Bremen test is compared with the doctrines of

contract law. as described in Chapter II.

1. Exceptions to the Enforceability of Forum Selection Clauses

a. Fraud

The Supreme Court in Bremen included fraud as one of the exceptions to the

enforceability of a forum selection clause.292

However, the Supreme Court, in Scherk v. Albetto-Culver CO.,^'^ clarified this

defense: "[tlhis qualification does not mean that any time a dispute arising out of

a transaction is based upon an allegation of fraud ... the clause is unenforceabie.

Rather it means that an arbitration or forum-selection clause in a contract is not

enforceable if the inclusion of that clause in the contract was the product of fraud

or c o e r ~ i o n . " ~ ~ ~

However, in Famland lndustnes v. Frazier-Parrot ~ornrnodities,'~~ the Court of

Appeals for the Eighth Circuit, in a case involving a fiduciary relationship, held

that fraud vitiates a forum selection clause even if the inclusion of that clause

was not the product of fraud, because otherwise it would be grossly unfair to

- - - - - -

292407 U.S. 1 at 12, 32 L. Ed. 26 513. 92 S. C t 1907 (1972). 2934~f US. 506,41 LEd. 2d 270, 94 S. Ct. 2449 (t974). '%lbid. at 519 n.14 (1974). =806 F.2d 848 (8th Cir. 1986).

force the victim "to comply with an agreement which never would have been

made had the existence of the fraud been k n ~ w n . " ~ ~

In other cases, the courts have followed the Scherk ruling that fraud vitiates a

forum selection clause only when it is connected to the inclusion of the clause in

the contra~t.~'~

In order to avoid this contradiction, one can conclude that the message from

Scherk is that "a party should not be pemitted to escape a forum-selection

clause by merely calling the validity of the entire contract into question."2g8

b. Oveweening Bargaining Power

The Supreme Court in Bremen held that "a freely negotiated private international

agreement, unaffected by ... undue influence, or overweening bargaining power

. . . should be given full e f f e ~ t . " ~ ~ ~

The Court in Bremen upheld the forum selection clause stating that "[tlhe choice

of that forum was made in an arrns' length negotiation by experienced and

sophisticated businessmen . .. . "300 The Court also indicated that "it would be

unrealistic to think that the parties did not conduct their negotiations, including

2961bid. at 85 1 -852. 297 See e.g. Stephens v. Entre Cornputer Centers. lnc., 696 F. Supp. 636 at 641 (N.D.Ga. 1988); Ritchie v. Cawel Corp., 714 F. Supp. 700 at 703 (S.D.N.Y. 1989). 2w~ruson. supra note 2 at 165. '''407 US. 1 at 12-13 , 32 L. Ed. 2d 51 3. 92 S.Ct 1907 (1972). 300 Ibid. at 12.

fixing the manetary ternis, with the consequences of the forum clause figuring

ii 301 prominently in their calculations .

However, the courts have not required equal economic strength of the parties as

a condition for enfor~ement .~~~

This exception to the enforceability of forum selection clauses constitutes an

application of the doctrine of unconscionability, which is one of the grounds for

the invalidation of contractual provisions under contract Gilbert described

this principle:

The fear of the courts in this context is that the absence of equal bargaining power might indicate that the weaker party did not freely consent to the choice of forum clause. If he wanted the goods or services, or whatever the economically superior party offered, he was compelled to accept the ternis dictated by the other party. Consequently, there was no real agreement and the presumption of due consideration is shaken. The commentators are in general agreement that choice of forum provisions contained in contracts of adhesion may constitute the requisite unreasonableness and justify a court's refusa1 to ghe effect to the choice. Furthemore in Zapata the Supreme Court felt constrained to emphasize the equal bargaining position of the parties, the "amis-length negotiation by experienced and sophisticated business men," to negative the ad hesion contract argumentm304

This principle has been applied to hold unenforceable forum selection clauses in

adhesion contracts. For example, the Court of Appeals for the Fourth Circuit in

30'lbid. at 14. Sm~ruson. supra note 2 at 167; Cutter, supra note 104 at 106; see also Kea@ v. Freeport Idonesia, Inc., 503 F.2d 955, 957 (5th Cit. 1974); Gaskin v. Stumm Handel GmbH, 390 F. Supp. 361, 367 (S. D.N.Y. 1 975); Dorizos v. Lemos & Pateras, Ltd., 437 F. Supp. 1 20 (S. D. Aia. 1 977). = ~ e e Section Il-E-5. 304 Gilbert, supra note 5 at 36-37 [footnotes omitted].

Union lnsurance Society of Canton, Ltd. v. S B ~ l i k o n ~ ~ ' refused to enforce a

forum selection clause in a bill of lading and affimed that "[tlhe ternis of the bill

were not agreed to through hard bargaining, but rather represent the form

clauses of adhesion contracts ... Congress intended COGSA to ameliorate this

very difficulty of bills of lading with one-sided fom provisions."306

Generally, however, the courts require inequality of bargaining power in order to

set aside the agreement. The rnere circumstance of being an adhesion contract

does not invalidate the choice of forum.3o7

c. Public Policy

The Supreme Court in Bremen held that "[a] contractual choice-of-forum clause

should be held unenforceable if enforcernent would contravene a strong public

policy of the forum in which the suit is brought, whether declared by statute or by

judicial decision ."308

The Court provided an example:

[Slelection of a remote forum to apply differing foreign law to an essentially American controversy might contravene an impmtant public policy of the forum. For example. so long as Bisso governs American courts with respect to the towage business in American waters, it would quite arguably be improper to permit an American

'05642 F.2d 721 (4th Cir. 198 1 ). =/bide at 724. 307 Covey, supra note 104 at 844. "'407 U.S. 1 at 15. 32 L. Ed. 2d 5t 3, 92 S.Ct 1907 (1 972).

tower to avoid that policy by providing a foreign forum for resolution of his disputes with an American

This means that the forum selection clause is not enforceable when the selected

forum will apply statutes containing niles that violate an important public policy of

the excluded Therefore, the court of the excluded forum must

investigate the applicable law at the selected forum. It must be emphasized that

"[u]nless the foreign law violates some important public policy of the excluded

forum, the mere fact that the chosen foreign court would apply a different law and

resolve a legal issue differently than under United States law will not be a

sufficient defense.""

Some examples of Arnerican statutes that establish important public policies

prohibiting the contractual choice of forum are the Federal Employers' Liability

and the Miller ~ c t . ~ ' ~

Anothcr example of a statute that establishes a public policy against the

enforceability of forum selection clauses is COGSA. Under Indussa Corp. v. S. S.

~ a n b o r g , ~ ' ~ forum selection clauses in maritime bills of lading were perse invalid

as a violation of section 3(8) of COGSA. which prohibits any agreement intended

to lessen the carrier's ~ iab i l i t - . ~ '~ However. as mentioned above, lndussa was

%id. at 17. 310 Gruson, supra note 2 at 170. 311~utler, supra note 104 at 108. See also Piper Aima# Co. v. Reyno, 454 US. 235 at 247 (1 981); Hoes of Arne-, lnc. v. Hoes, 493 F. Supp. 1205 at 1209 (CD. 111 1979). 31 2 Boyd v. Grand Tiunk Western RR., 338 U.S. 263 (1 949). 31340 U.S.C. Sg270a-270f (1 994). 3'4377 F.2d 200 (2d Cir. 1967). 3' '/&id.

ovemled in V h a r Seguros y Reasegums, S.A. v. MN Sky ~ e e f e r , ~ ' ~ a case

discussed later in this ~ h a ~ t e r . " ~

d. lnconvenience of the Selected Forum

The Supreme Court in Bremen indicated that a forum selection clause may be

"'unreasonable' and unenforceable if the chosen forum is senousiy inconvenient

for the trial of the

The Court provided an example of an inconvenient forum, such as a "remote

alien" court:

Of course, where it can be said with reasonable assurance that at the time they entered the contract, the parties to a freely negotiated private international commercial agreement contemplated the claimed inconvenience, it is difficult to see why any such daim of inconvenience should be heard to render the forum cfause unenforceable. We are not here dealing with an agreement between two Americans to resolve their essentially local disputes in a rernote alien forum. In such a case, the serious inconvenience of the contractual forum to one or both of the parties might cary greater weight in detenining the reasonableness of the forum clause. The rernoteness of the forum might suggest that the agreement was an adhesive one, or that the parties did not have the particular controversy in mind when they made their agreement; yet even thete the party claiming should bear a heavy burden of p r~o f .~ "

"%15 U.S. -, 132 L. Ed. 26 462, 115 S. Ct. 2322 (1995). '17see Section 11 1-8-5. 3'8407 US. 1 at 16. 32 L. Ed. 2d 513. 92 S.Ct 1907 (1972). 3191bid. at 16-17.

It is noteworthy that the seriousness of the inconvenience is integral to the

efficacy of this defense. Therefore, the party claiming the inconvenience of the

selected forum bears a heavy burden of proof because that party must "show

that trial in the contractual forum will be so gravely difficult and inconvenient that

he will for al1 practical purposes be deprived of his day in ~ o u r t . ' ' ~ ~ ~

Furtherrnore, the Court in Bremen indicated another requirement, the

foreseeability of the inconvenience: "where it can be said with reasonable

assurance that, at the time they entered the contract, the parties ... contemplated

the claimed inconvenience, it is difficult to see why any such daim of

inconvenience should be heard to render the forum clause ~nenforceable.'"~'

2. The B m e n Test and the Principles of Contract Law

From a theoretical standpoint, the Brernen test is substantially similar to the

general principles of contract law described in Chapter II.

The fraud exception in the Bremen test can be considered a case of

rnisrepresentation, which is one of the circumstances that affects the validity of

contractual provisions.322

The exception of overweening bargaining power is one of the factors that may

prevent the enforcement of contract terms on grounds of unconscionabi~ity.~~~

- - -- - - -

"Olbid. at 18. 321 Ibid. at 16. 322~ee section Il-E-3. 323~ee Section il-€4.

More specifically, gross inequality of economic power may involve procedural

unconscionability whenever 1 is connected with a situation of oppression

exercised by the stronger party.

The exception of public policy described in the Bremen test corresponds to the

same notion as applied in contract ~ a w . ~ ' ~

The exception of inconvenience usually involves a situation of substantive

uncon~cionability.~~~ A forum selection clause in which the selected forum is

considered seriously inconvenient for the trial of the action is usually a clause

incorporated in standardized or adhesion contracts. The provision is nonnally

one-sided, unreasonably favoring the drafting party and it could be held

inconvenient if the selected forum implies a great hardship to the non-drafting

party for the trial of the action (e-g. the case of a remote alien forum).

J.A. Liesemer made the point as follows:

The Bremen standard adopts a two part approach that confoms with this description of procedural and substantive unconscionability. Under Bremen, a forum clause is not enforceable when a party proves that the clause is invalid for "such reasons as fraud or overreaching." Fraud and overreaching are faults in the contract-making process. Fraud typically involves one party's rnisrepresentation that is intended to induce the other party into accepting the contract. Overreaching, according to one court. is something that "results from an inequality of bargaining power or other circumstances in which there is an absence of rneaningful choice on the part of the second party." Because fraud and overreaching occur in the contract-making process, the Bremen standard has a procedural element.

324~ee Section Il-€4. 325 See Section Il-E-5.

The Bremen standard also has a substantive unconscionability elernent. According to the Bremen Court, a forum clause is invalid when "enforcement would be unreasonable and unjust." This would occur if trial in the contractual forum would be "so gravely diffïcult and inconvenient that the [resisting party] will ... be deprived of his day in court." The deprivation of a party's "day in court" is the "evil" that results frorn enforcing the clause. Thus, the Bremen standard has a substantive element. Because the Bremen standard encompasses both procedural and substantive unconscionability, it c m be called the unconscionability standard. In essence, Bremen holds that forum-selection clauses are valid unless they are unconsciona ble. 326

In sumrnary. the Bremen test can be considered to be a particular application of

the general doctrines of contract law. Only one major difference can be found

between these two approaches. Under the Bremen test, a choice of forum

clause is unenforceable in cases of either inconven ience or overween ing

bargaining power and it is not required that both elements be present in order to

set aside the agreement. Thus, the party pursuing the unenforceability of a

forum selection is not required to show the presence of both substantive and

procedural unconscionability. One of the elements is sufficient. Under the

unconscionability doctrine, however, both substantive and procedural

unconscionability must be present in most casesm3"

On the other hand, it is important to note that there are other exceptions to the

enforceability of forum selection clauses in addition to the exceptions indicated in

the Bremen. The ruling from the Supreme Court does not prevent the application

of the doctrines of contract law, and consequently, a forum selection clause is

unenforceable when the transaction is affected by duress, undue influence or

326~.~. Liesemer, "Carnival's Got the Fun ... and the Forum: A New Look at Choice-of-Forum Clauses and the Unconscionability Doctrine after Camival Cnrise Lines, lnc. v. Shute" (1992) 53 tl. Pitt. L. Rev. 1025 at 2039 [footnotes omitted]. 327~ee Section t 1-E-5-c.

mistake. Although the Court in Bremen did not mention these exceptions. the

application of the principles of contract law to the particular case of forum

selection agreements derives from the rationale of the Supreme Court's decision.

3. The Bremen Test after Camival Crur'se

In 1991, the United States Supreme decided Camival Cruise Lines v.

~ h u t e , ~ ~ ' declaring valid a forum selection clause located on the back of a cruise

line passenger's ticket requiring al1 suits to be brought in the State of Florida.

The Supreme Court in Camival Cmise refined the Bremen analysis and held that

the absence of bargaining with respect to the form ticket contract does not in

itself prevent the enforceability of the forum selection clause:

In evaluating the reasonableness of the forum clause at issue in this case, we must refine the analysis of The Bremen to account for the realities of form passage contracts. As an initial matter, we do not adopt the Court of Appeals' determination that a nonnegotiated forum-selection clause in a fom ticket contract is never enforceable simply because it is not the subject of bargaining. lncluding a reasonable forum clause in a form contract of this kind well may be permissible for several reasons: F M , a cruise line has a special interest in limiting the fora in which it potentially could be subject to suit. Because a cruise ship typically carries passengers from many locales, it is not unlikely that a mishap on a cruise could subject the cruise line to litigation in several different fora. ... Additionally, a clause establishing ex ante the forum for dispute resolution has the salutaiy effect of dispelling any confusion about where suits arising from the contract must be brought and defended. sparing litigants the time and expense of pretrial motions to detemine the correct forum and conserving judicial resources that othewise would be

328 See Section 1-8-6. 329499 U.S. 585, 1 1 1 S. Ct 1 522, 1 13 L . M . 2d 622 (1 991 ).

devoted to deciding those motions. ... Finally. it stands to reason that passengers who purchase tickets containing a forum clause like that at issue in this case benefit in the fom of reduced fares reflecting the savings that the cruise line enjoys by limiting the fora in which it may be ~ u e d . ~ ~ '

The Court also stated that there was no evidence proving that the selected forum

was seriously inconvenient for the plaintiff. The Court noted that there was no

evidence indicating that the Shutes were physically and financially incapable of

pursuing the case in lorid da.^^' The Court declared that the plaintifs daim of

inconvenience of the selected forum did not satisfy the heavy burden of proof

required by the Bremen test to set aside the clause because "Florida is not a

'remote alien forum,' nor ... is this dispute an essentially local one inherently more

suited to resolution in the State of Washington than in t lori da.""^

P.J. Borchen has pointed out that one of the implications of Camival Cmise with

respect to the Bremen test is that forum selection clauses cannot be held invalid

in cases of overweening bargaining power:

Another basis for invalidating a forum selection agreement under the Bremen principles is the lack of actual negotiation and the existence of "oveiweening bargaining power". Camival Cmise, however, rejected this as defense altogether. From the standpoint of showing inequality of bargaining power and a lack of actual negotiation, Camival CNise offers appealing facts for setting aside the agreement. ... Moreover the factors substituted for analysis of the bargaining strength of the parties are sure to result in validation of nearly every conceivable agreement. The Supreme Court's refusal to invalidate the Camival C ~ i s e agreement, therefore,

signalled that the adhesive nature of a contract is no longer a defense to enforcement of a forum selection agreementu3

It is useful to further refine the analysis of the above commentator. The Supreme

Court in Camival Cmise clearly stated that the absence of bargaining between

the parties is not sumcient to set aside a forum selection clause. This does not

mean that the Court is rejecting such a defense. Rather, the Court is implying

that the absence of bargaining or the inequality of bargaining power between the

parties must be accompanied by another element, which is the serious

inconvenience of the selected forum. The Court discussed this second allegation

and found that there was no evidence of serious inconvenience of the selected

forum. With this elernent missing, the Court reached the conclusion that the

clause was valid and enforceable. Although the Court's conclusion about the

evidence of inconvenience is questionable, the reasoning behind this conclusion

is coherent and should be interpreted as requiring a heavy burden of proof on the

party seeking to set aside the choice of forum clause.

In other words, under the Camival Cmise rationale, both substantive and

procedural unconscionability must be present in order to set aside a forum

selection clause, whiie under the Bremen test, only one of the elements was

sufficient to render the clause unenforceable. Therefore, the Supreme Court in

Camival Cmise is narrowing the Bremen test and is strengthening the

presumption of validity of forum selection clauses, as pointed out by a

commentatoc

Reasonable people can differ on the desirabiiity of enforcing choice of forum clauses. A plaintiff has a legitimate interest in bringing suit

333 P.J. Borchers, "Forum Selection Agreements in the Federal Courts after Carnival Cruise: A Proposal for Congressional Reform" (1992) 67 Wash. L. Rev. 55 at 90 [footnotes omitted].

in a convenient forum, and a defendant has a legitimate interest in seeking the predictability and convenience of a choice of forum clause. The line between these two interests could be drawn rationally in a number of different places. The Supreme Court has now drawn that Iine in a different place than it did in The Bremen. As a result, it will be easier to enforce a choice of forum clause and far more difficult to show that such a clause is unjust and unreasonab~e.~~

B. Forum Selection Clauses in Maritime Bills of Lading

The preceding sections described the principles that must be considered in

evaluating the enforceability of forum selection clauses. Basically. the main

characteristics of the Bremen test, together with the modifications introduced by

Camival Cruise were examined. Obviously, such a theoretical framework is

applicable to maritime bills of lading to the extent it is compatible with the

particular statutes regulating the carriage of goods by sea. As such, the purpose

of the following subsections is to discuss particular aspects of the enforceability

of foreign forum selection clauses in maritime bills of lading. These include the

implications of Sky Reefer, the most recent decision from the United States

Supreme Court on this issue.

1. Presumption of Validity

Before Sky Reefer, the courts followed the holding of Indussa, according to which

forum selection clauses in maritime bills of lading were invalid perse.

3 Y ~ . ~ . Sturley, "Strengthening the Presumption of Validity for Choice of Forum Clauses" (1992) 23 J. Marit. C. & Comm. 131 at 147 [hereinafter "Strengthening the Presumption of Validity"].

Although the Supreme Court in Bremen incorporated the presumption of validity

of forum selection clauses in 1971, the lower courts, in the rnajority of cases,

refused to enforce such clauses in maritime bills of lading, instead following the

lndussa reason i ng . 335

The Court in Sky Reefer expressly ovemled lndussa by declaring that it coulc

not "endone the reasoning or the conclusion of the lndussa nile itself. 1,336

Consequently, there is currently a presumption of validity of forum selection

clauses in maritime bills of lading.

This presumption is not absolute. The limitations to the enforceability of these

clauses, as articulated in Bremen, still apply, but only according to the

modifications introduced by the rationale of Camival CNise Lines and Sky

Reefer. These exceptions constitute an instrument of judicial control intended to

avoid abusive practices by carriers.

To continue with the analysis, it is necessary to study with more detail the issues

addressed in Sky Reefer and Indussa, both of which deal with the particular case

of maritime bills of lading.

2. The lndussa Rule

As noted above, the Second Circuit in lndussa ruled that forum selection clauses

are perse invalid whenever COGSA is applicable.

33s~ee cases cited in supa note 82. 336515 U.S. -, 132 L. Ed. 2d 462 at 471, 115 S. Ct. 2322 (1995).

According to lndussa, forum selection clauses violate section 3(8) of COGSA,

which declares void any clause in a bill of lading lessening the carrier's liability.

The Court held that forum selection clauses lessen the carrier's liability because

litigation in a foreign country substantially increases the costs of obtaining a

remed y:

From a practical standpoint, to require an American plaintiff to assert his daim only in a distant court lessens the liability of the carier quite substantially, particularly when the daim is srnall. Such a clause puts "a high hurdle" in the way of enforcing liabili ty,.... and thus is an effective means for carriers to secure settlernents lower than if cargo could sue in a convenient

In addition, the Court in lndussa found that forum selection clauses lessen the

carrier's liability because the foreign forum probably would not apply COGSA or

at least not in the same way it would be applied by an American court.338

3. lndussa and Bremen

It is interesting to explore the implications of the Bremen decision with respect of

the lndussa line of reasoning.

Although the iower courts continued applying lndussa after ~ r e r n e n , ~ ~ ' the two

decisions were not completely compatible with each other.

337 377 F.2d 200 at 203 (2d Cir. 1967) [quoting G. Gilmore & C.L. Black Jr., The Law of Admlialty New York: Foundation Press, 1957) at 125 n. 231.

'Ibid. at 203-204. 33s~ee the cases cited in supra note 82.

The Supreme Court in the Bremen specifically mentioned lndussa as overruling

Muller and clarified that COGSA was not applicable in reme en.^^* The Court did

not ovenule lndussa because the facts in the case referred to a towage contract

to which section 3(8) of COGSA was not applicable.

Bremen, however, cannot be considered to be a confirmation of the lndussa

reasoning, because the Court did not have to decide whether a forum selection

clause "lessens" the carrier's liability in the sense of section 3(8) of COGSA.

This aspect of the controversy falls beyond the scope of the Bremen facts.

On the contrary, it should be noted that the lndussa holding was not completely

compatible with the Bremen reasoning, as pointed out by the Court of Appeals

for the First Circuit:

Although the Supreme Court has acknowledged the lndussa decision and has not fonnally rejected it ... several passages in The Bremen opinion cast some doubt on the underlying rationale of Indussa, ... ("The expansion of American business and industry will hardly be encouraged if, notwithstanding solemn contracts, we insist on a parochial concept that al1 disputes must be resolved under our laws and in our courts")."'

In other words, the lndussa decision contained a "parochial" interpretation of

section 3(8) of COGSA, which extended the scope of the provision. The section

establishes the prohibition of any clause lessening the carrier's liability, but it

- - - - - -

Y0407 US. 1 at 10 n. 11, 32 L. Ed. 2d 513, 92 S.Ct 1907 (1972). 341 Flieman's Fund Amencan Insurance Cos. v. Puerto Rican Forwarding Co., 492 F.2d 1294 at 1296 n. 2 (1st Cir. 1974) [quoting M/S Bremen v. Zapata Off Shore Co., 407 U.S. 1 at 9, 32 L. Ed. 2d 51 3,92 S. Ct. 1907 (1 972)].

does not refer to the costs of enforcing such liabil-Ry, as pointed out in Sky

~eefer. "'

A similar criticism was expressed by J.L.Williams:

No court opinion could have expressed a more parochial attitude toward protecting the interests of United States citizens. The lndussa court either ignored the ability of the foreign tribunal and the workings of the foreign forum's laws or simply found them inferior to its own. Simple research would have found that Nonnray is a signatory country to the Hague Rules. The court did not stop at this snub of foreign tribunals but held that parties who have bound thernselves by contract may absolve themselves of their responsibilities not by showing that the laws of the foreign tribunal "are" repugnant to COGSA or by demonstrating that there is a lessening of liability, but by only showing that they "might" be. The lessening of liability need only be shown. according to the indussa court, by the foreign court "possibly deciding differently than a United States Court. This is directly contrary to t rem en."^

In spite of the contradiction, the lndussa rule was followed by a majority of

decisions after Bremen and before Sky ~eefer? If one accepts the lower courts'

direction, the appropriate way to hamonize lndussa with Bremen is by

concluding that forum selection clauses are unenforceable on the grounds of a

public policy declared by both statute and judicial decision. The relevant statute

is COGSA, which does not explicitly forbid forum selection clauses in maritime

bills of lading. Thus, a judicial decision, that is lndussa, became an active

element in the recognition of a public policy against choice of forum agreements.

342 SI 5 US. - 4 32 L. Ed. 24 462 at 471 -475, 1 15 S. Ct. 2322 (1 995). =J. L. Williams, "Forum Selection Clauses: Where they Are - Where they Are Going" (1983) 6 Hous. J. Int'l L. 1 at 14-15 [footnotes omittedl. 344 See supra note 82 and accompanying text.

4. indussa and Camival Cruise

In 1991, the United States Supreme Court decided Camival Cruise Lines v.

shutetY5 declaring valid a forum selection clause located on the back of a cruise

line passengets ticket.

Even though Camival Cmise does not refer to a contract subject to COGSA, the

reasoning applied by the Court has some implications with regard to the lndussa

holding.

The Court in Camival Cmise analyzed whether the Limitation of Vessel Owners

Liability Act prevents the enforceabiiity of forum selection clauses in passage

contracts.

Section 183c of the Limitation of Vessel Ownen Liability Act provides:

It shall be unlawful for the manager, agent, master, or owner of any vesse1 transporting passengers between ports of the United States or between any such port and a foreign port to insert in any rule. regulation, contract, or agreement any provision or limitation (1) purporting, in the event of loss of life or bodily injury arising from the negligence or fault of such owner or his servants, to relieve such owner, master, or agent from liability, or from liability beyond any stipulated amount, for such loss or injury, or (2) purporting in such event to lessen, weaken. or avoid the right of any claimant to a trial by court of competent jurisdiction on the question of liability for such loss or injury, or the measure of damages therefor. All such provisions or limitations contained in any such rule, regulation, contract, or agreement are hereby declared to be against public policy and shall be nuIl and void and of no effect?

=499 U.S. 585, 1 1 1 S. Ct. 1522, 1 1 3 L.Ed. 2d 622 (1 991 ). =46 U.S.C. App. 1 1 8 3 ~ (1987).

The Court argued that the forum selection clause included in a cruise line ticket

did not violate section 183c of the Limitation of Vessel Ownen Liability Act

because such a clause did not take away the passenger's nght to a trial in a

competent jurisdiction and the Court considered that a court in the State of

Florida to be "a 'court of competent jurisdiction' within the meaning of the

statute. t 1347

The Court also afirmed that section 183c of the statute was not enacted with the

intention of prohibiting the enforceability of forum selection clauses in passage

contracts:

Respondents appear to acknowledge this by asserting that although the forum clause does not directly prevent the determination of claims against the m i s e line, it causes plaintiffs unreasonable hardship in asserting their rights and therefore violates Congress' intended goal in enacting 5 183c. Significantly. however. respondents cite no authority for their contention that Congress' intent in enacting 5 1 8 3 ~ was to avoid having a plaintiff travel to a distant forum in order to litigate. The legislative history of S183c suggests instead that this provision was enacted in response to passenger-ticket conditions purporting to limit the shipownef s Iiability for negligence or to remove the issue of liability from the scrutiny of any court by means of a clause providing that "the question of liability and the rneasure of damages shall be detemined by arbitration." ... There was no prohibition of a forum- selection clause. Because the clause before us allows for judicial resolution of claims against petitioner and does not purport to limit petjtionerts liability for negligence, it does not violate § 1 8 3 ~ . ~ ~ ~

As a result, Camival Cruise "implicitly ovemled lndussa and its p r ~ g e n ~ , " " ~

because of the similarity between COGSA and the Limitation of Vessel Owners

Liability AC^.^^' A similar conclusion was reached by Professor Sturley:

COGSA § 3(8), however, is very sirnilar to the Limitation of Vessel Owner's Liability Act. Now that the Supreme Court has held a choice of forum clause in a passenger ticket does not lessen or weaken the Shutes' rights, it is difficult to justify the indussa rationale in the bill of lading cases. There are. of course, potential distinctions. It may even make sense to distinguish between consumer and commercial suits. But it would be a bizarre policy to subject injured consumers to choice of forum clauses while protecting sophisticated businesses and their insurance companies in analogous cases.35'

With respect to the reaction from the courts on this point, the decisions were not

For example, in Fabnca de Tejidos la Bellota S.A. v. MN ~ a r , ~ ~ ' the reasoning

described above was followed: "the Supreme Court's view enunciated in

Carnival calls into question earlier judicial views that forum selection clauses

invariably tend to lessen a carrier's liability so as to violate Article 3(8)."353

However, in Undenmiters at Uoyd's of London v. MN SteirIa the District Court

for the District of Puerto Rico refused to uphold a foreign forum selection clause

in a bill of lading. The Court discussed Camival Cruise and concluded that it

does not affect the lndussa reasoning. The Court distinguished its holding from

349 Borchers, supra note 345 at 77 350ibid. 35111 Strengthening the Presumption of Validity", supra note 334 at 14243. %'799 F.Supp. 546 (DM. 1992). 353 Ibid. at 564. This passage was quoted with approval in Japan Sun OiI Co., Ltd. v. M N Maasdijk, 864 F.Supp. 561 at 567 (E.D.La. 1994). '%773 F.Supp. 523 (D.P.R. 1991).

Camival Cniise by the fact that in the Supreme Court's case, the selected forum

was an American court, while in lndussa and in the case being decided, the

alternative judicial forum was a non-Amencan court.* The Court concluded as

follows:

DN]e are faced with the same situation as that found by the courts in lndussa and its progeny who interpreted the language of section 3(8) as invalidating choice of forum clauses because they run afoul of Congressional intent. Under the facts of this case. we find that Camival has not overruled or signifïcantly diminished the underlying rationale for prior case law and, therefore, follow the rule of l n d u ~ s a . ~

Relying on Indussa, the Court held that foreign forum selection clauses lessen

the carrier's liability by increasing the costs of pursuing the action?' The Court

also stated that the choice of forum clause was not freely bargained and its

inclusion in the bill of lading was the result of a unilateral decision of the carrier.358

The same view was adopted in Ceramic Corporation of Arnenca v. lnka Maritime

Corp., l n ~ . ~ ~

Although the courts have not followed the same trend. the discussion has corne

to a standstill with Sky Reefer, where the United States Supreme Court overruled

Indussa. The following sections discuss some of the issues involved in Sky

Reefer, including its implications for the enforceability of foreign forum selection

clauses in maritime bills of lading.

3551bid. at 527. =lbid. 357/bid. ?bid. 3591 994 A.M.C. 1 O76 (C.D.Cal. 1993).

5. The Law after Sky Reefer

In 1994, t h e Supreme Court in Vimar Seguros y Reaseguros, S.A. v. M N Sky

~eefe?~' held valid a foreign arbitration clause in a bill of lading.

The fact that Sky Reefer concerns t h e enforceability of a foreign arbitration

clause must be taken into account. Given that arbitration is subject to the rules

of the Federal Arbitration AC^.^^' the question is whether the Sky Reefer rationale

can be extended to forum selection clauses.362

The answer is clearly in the affirmative because the Court explicitly overruled

lndussa by holding that it could not "endorse the reasoning or the conclusion of

the lndussa rule i t s e l ~ ' ~ ~ ~ Furthemore, the Supreme Court affimed that

"[nlothing in [section 3(8) of COGSA] ... suggests tha t the statute prevents the

parties from agreeing to enforce these obligations in a particular forum."364 This

conclusion was recognized in Blaise G A . Pasztory v. Croatia ~ i n e , ~ ~ ~ where the

District Court for the Eastern District of Virginia enforced a foreign forum

selection clause in a bill of lading subject to COGSA:

The majority of the Supreme Court unequivocally concluded in Sky Reefer that a foreign forum selection clause does not lessen the liability of the carrier under COGSA so as to be nullified by §3(8) of

3 * ~ 1 5 U.S. -, 132 L. Ed. 26 462. 1 15 S. Ct. 2322 (1 995). ='9 U.S.C. 551-14 (1987). 3 6 2 ~ t h regard to foreign arbitration clauses. the courts have enforced them based on Sky Reefer ; see e.g. Kanematsu Corp. v. M N Gretchen W, 897 F. Supp. 1314 (D.Or. 1995); Lucky Metals Corp. v. MN Ave, 1996 A.M.C. 265 (S.D.N.Y. 1995); Duferco Steel /ne. v. M N Kalisti. No. 95 C 6438, 1996 U.S. Dist. LENS 7908 (N. D. III 1996). *515 US. -. 132 L. Ed. 2d 462 at 47l.1lS S. Ct. 2322 (1995). 364 Ibid. at 472. '"1996 A.M.C. 1189 (E.D.Va. 1996).

that Act. It is true that Sky Reefer addressed the enforceability of a foreign arbitration clause -as opposed to a foreign forum selection clause- in the COGSA context. Nonetheless, the rnajority opinion in that case expressly stated: "Nothing in [section 3(8) of COGSA] ... suggests that the statute prevents the parties from agreeing to enforce these obligations in a particular forum" ... This language sweeps broadly enough to encompass foreign forum selection clauses as well as foreign arbitration clauses. Indeed, the two separate opinions in the case read the rnajority opinion to apply with equal force ta foreign forum selection clauses and foreign arbitration clauses ... The Court therefore concludes that the forum selection clause at issue in this case is not void because of COGSA §3(8) .366

In the same way, in Fireman's Fund v. DSR ~ t l a n t i c . ~ ~ ~ the District Court for the

Northern District of California held that the Sky Reefer rationale applies to both

forum selection and arbitration clauses.368

In Mitsui 8 Co. v. MN ira.^^' the District Court for the Eastern District of

Louisiana relied on Sky Reefer in order to enforce a clause in a bill of lading

providing that any dispute arising out of the shipment was to be adjudicated in

London, England.

Another reason to extend the Sky Reefer rationale to forum selection clauses is

that "[aln agreement to arbitrate before a specified tribunal is, in effect. a

specialized kind of forum-selection clause that posits not only the situs of suit but

also the procedure to be used in resolving the dispute."370

=lbid. at 1 1 95- 1 1 96. s71 996 A.M.C. 878 (N.D.Cal. 1995). 3681bid. at 881. %'NO. CIV. A. 954224. 1996 WL 4441 93 (E.D.La. 1996). "~cherkv . Alberto-Culver Co.. 417 U.S. 506 at 519.41 L.M. 2d 270, 94 S. Ct. 2449 (1974).

The following subsections focus on the various issues involved in Sky Reefer that

are related to particular aspects of foreign selection clauses in maritime bills of

lading.

a. Foreign Forum Selection Clauses and Section 3(8) of COGSA

One of the crucial points of discussion with respect the enforceability of foreign

forum selection clauses is whether these provisions violate section 3(8) of

COGSA on the grounds of lessening the carrier's liability.

Section §3(8) of COGSA forbids any clause in the bill of lading that lessens the

carrier's Iiability:

Any clause. convenant, 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, arking from negligence, fault. or failure in the duties and obligations provided in this chapter, shall be nuIl and void and of no e f f e ~ t . ~ ~ '

The Court of Appeals for the Second Circuit in lndussa considered that foreign

forum selection clauses in maritime bills of lading lessen the carrier's liability on

two grounds: first, choice of forum clauses substantially increase the cost of

obtaining relief; and second, the foreign court probably would not apply COGSA,

or at least not in the same way that it would be applied by an American court.

These two issues are separately addressed in the following subsections.

"'46 U.S.C. App. 91303 (8) (1987).

However, before making reference to these issues, it is necessary to analyze the

purpose of section 3(8) of COGSA.

(1) Meaning of Section 3(8) of COGSA

According to Indussa, in section 3(8) of COGSA, Congress meant to invalidate

any contractual provision in a bill of lading requiring litigation ab r~ad .~ '~ The

Court therefore relied on Congressional intention when enacting COGSA.

That section 3(8) of COGSA prohibits the enforcement of forum selection clauses

has been questioned. Judge Moore, in his concurring opinion in lndussa,

explains:

Moreover, if Congress had really intended to outlaw every agreement in a bill of lading as to choice of forum for litigation, understandingly and voluntarily entered into, it could, and undoubtedly would. have easily drafted such a clause. The forbidding of a clause "lessening" liability in COGSA is scarcely the equivalent of a rejection of the rights of the parties to agree upon a forum. I find it singularly inappropriate for our courts to Say, in effect. that the courts of al1 other nations are so unable to dispense justice that, as a matter of public policy, we must protect Our citizens by outlawing any other tribunal than Our o ~ n . ~ ' ~

It has also been claimed that COGSA was not intended to prevent the

enforceability of foreign forum selection clauses:

lndussa said that Congress meant to invalidate choice of forum clauses. Yet if so, Congress went about the rnatter in a curious way. In 1936, Congress could have seen that the courts had not regarded the Harter Act as avoiding choice of forum clauses. It

"'377 F.2d 200 at 204 (2d Cir. 1967). 3f31bid. at 205

could have seen that Australian and Canadian Acts found it necessary to deal expressly with the point. By 1936, it had already been held in England that the language of the Hague Rules was not sufficient to avoid choice of forum clauses. Moreover the avoidance of choice of forum clauses was not generally accepted in other countries: in agreeing to the Hague Rules, it would seem reasonable that most countries were acting on the assumption that they did not affect choice of forum clauses. Yet Indussa held that Congress adopted the language of the Hague Rules with the intention of avoiding choice of forum clauses. It does perhaps seem a little unusual that some thirty yean after an international convention has been implemented by Congress, a US court suddenly sees in the words a secret intention of Congress which had somehow escaped the makers of the Convention and the courts of other lands. It is well known that legislatures often employ inappropriate language to achieve their goals. But it is difficult to think of more inappropriate language than the language of an international convention which is generally accepted as not having the effect which the legislature is allegedly trying to achieve. lndeed the court in lndussa made little pretense of considering what Congress has been trying to achieve. lnstead lndussa considered whether choice of forum agreements were desirable in ternis of policy. Having decided that the were undesirable, lndussa then Y found a meaning to the statuteS3

During the nineteenth century, the incorporation of liability exception clauses in

maritime contracts was a cornmon practice among British ~ h i ~ o w n e r s . ~ ~ ~ As a

result of the application of the principle of freedom of contract, most European

and Commonwealth courts enforced such contract ~tipulations.~" This practice

led to the enactment of the Harter AC^^^ by the United States ~ o n ~ r e s s , ~ ' ~

prohibiting carriers from using exoneration clauses. Similar statutes were

374 S.M. Denning, "Choice of Forum Clauses in Bills of Lading" (1970) 2 J. Marit. L. & Comm. 17 at 33-34. [footnotes omitted]. This article was responded to by in A.I. Mendelsohn, "Liberalism, Choice of Forum Clauses and the Hague Rules" (1971) 2 J. Marit. L. & Comm. 661. 3 7 5 ~ . ~ . Sturley, "The History of COGSA and the Hague Rules" (1 981) 22 J. Mant. L. & Comm. 1 at 5 [hereinafter "The History of COGSA]. See also T.J. Schoenbaurn, Admiralty and Maritime Law, 2d ed. (St. Paul, Minri.: West, 1994) vol. 2 at 62. 3761bid- 3n46-~.~.~. App. §§l9O-l96 (1 987). 3 7 8 ~ . ~ . Klemm, "Forum Selection in Maritime Bills of Lading under COGSA" (1989) 12 Fordham Int'l L. J. 459 at 461.

adopted by other cuuntries, such as New Zealand, Australia and

Thereafter, the increased need for international unifonnity led to the adoption in

1924 of the Hague Rules, which have been assented to by the majority of the

world's maritime c o ~ n t r i e s . ~ ~ ~ In 1936. with minor changes, the United States

Congress incorporated the Hague Rules into the domestic legislation through the

Carriage of Goods by Sea Act (COGSA)~" and in 1937, the nation ratified the

Brussels convention .382

It must be noted that section 3(8) of COGSA has the same wording as article

3(8) of the Hague Rules, which was inspired on the Harter Act and similar

legislation. The purpose of section 3(8) of COGSA was to prevent the operation

of those clauses incorporated in a bill of lading excepting or limiting the carrier's

liability in violation of the standard provided by the s t a t ~ t e . ~ ~ ~ This specific

purpose of section 3(8) of COGSA indicates that the provision was not intended

to regulate matters related to jurisdictional controversies.

Section 3(8) of COGSA basically prohibits any clause in a bill of lading that

relieves or lessens the carrier's liability. This liability was established in section 3

of the statute, which also sets out the obligation of the carrier to properly load,

handle, stow, carry, care and discharge the goods, as well as to provide a

seaworthy and properly equipped vessel.

37''~he History of COGSA", supra note 375 at 15-16. 3801bid. at 56. M'46 U.S.C. App. §§l3OO-l3f 5 (1 988). M2'The History of COGSA, supra note 375 at 55. 383 See Vimar Seguros y Reaseguros, S.A. v. MN Sky Reefer, 51 5 U.S. , 132 L. Ed. 24 462.11 5 S. Ct 2322 (1995).

The language of the provision is clear and highlights an intention to prevent the

operation of the principle of freedorn of contract to favor the validity of clauses

violating the provisions establishing the carrier's obligations. As such, section

3(8) of COGSA was the natural complernent to the provisions regarding the

carrier's duties, othewise, such duties would be ineffective and merely

contractual.

The ruling from the statute is based on the premise that a typical bill of lading is a

standard contract not subject to bargaining. Thus it becomes necessary to deny

the operation of exoneration clauses incorporated unilaterally by the carrier.

However, in the particular case of forum selection clauses it is quite

unreasonable to interpret the carrier's choice as an intention to lessen his liability.

Usually, the selected forum corresponds to either the main place of business of

the shipowner or to the port of discharge, and the purpose of the clause is to limit

the risk of litigation occurring in many different fora.

Therefore, understanding forum selection clauses as a device incorporated by

the carrier with the intention of escaping from liability, is a presumption that does

not find support neither in the language of COGSA nor in the usual practice of

international carriage of goods by sea.

(2) Lessening of Carrier's Liability by lncreasing the Costs of Pursuing the Action

The Suprerne Court in Sky Reefer rejected the lndussa reasoning whereby forum

selection clauses lessen the carrier's liability because litigation in a foreign

country substantially increases the costs of enforcing such liability.

This particular issue is very controversial and some obsewen have followed the

lndussa reasoning. For example, Professor Black has pointed out that foreign

forum selection clauses clearly offend COGSA:

[O]n the level of sheer practicality, it is hard to see how it can be looked on as other than a "lessening" of the carrier's liability under COGSA to remit the bill of lading holder to a distant foreign court. It is quite true that the difficulty imposed would Vary with circumstances; Canada is not Pakistan. But there is always some palpable "lessening," for if the choice-of-forum clause is ever enforced, the result must be to dismiss the litigant out of the United States court he has chosen to sue in. On most moderate-sized claims, remission to the foreign forum is a practical immunization of the carrier from liability. I hope we have not relapsed into such arid conceptualism as to make anything of the classification of this practical "lessening" as "procedural" rather than "s~bstantive."~~~

The same position can be found in the last edition of the landmark textbook by

Gilmore and Black: "it is entirely unrealistic to look on an obligation to sue

overseas as not 'lessening' the liability of the carrier. It puts a high hurdle in the

way of enforcing that liability. And section 5 of COGSA makes it plain that no

provisions directly or indirectly disadvantaging the shipper were to be

pemitted. 19385

Before Sky Reefer, the District Court for the District of Puerto Rico in

Unde~vdters at Lloyd's of London v. IWV ~tei?" refused to uphold a forum

selection clause in a bill of lading requiring litigation in France. The Court

5 M ~ l a ~ k , supra note 84 at 368-369. 385 G. Gilmore & C.L. Black Jr., The Law of Admiralty, 2d ed. (New York: Foundation Press, 1975) at 146. "6773 F.Supp. 523 (D.P.R. 1991).

emphasized that forum selection clauses lessen the carrier's liability, especially

when the claim is small:

The petition represents a recumng fantasy of shipowners and cargo defense lawyers. Ideally, if a choice of forum clause in a bill of lading would narne the place for the resolution of the controversy, for example, Timbuktu or Byelorussia, then the expense and discornfort of pursuing the matter there would, of course, affect the exercise of the rights of the othewise innocent cargo owner. Certain daims, because of the arnount involved or other considerations regarding evidence and witnesses would not be pursued. These days, an $82,639.44 clairn like the present one could not be pursued in an econornically-feasible manner in France under the circumstances related here. That much would be spent in attorney's fees, witness fees, and travel e ~ ~ e n s e s . ~ ~ ~

In Sky Reefer, however, this line of reasoning was rejected, as it was held that

under section 3(8) of COGSA the liability that may not be lessened is the liability

imposed by the statute, without reference to the means and costs of enforcing

such liability:

The liability that may nat be lessened is "liability for loss or damage ... arising from negligence, fault, or failure in the duties or obligations provided in this section". The statute thus 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.

The liability imposed on carrien under COGSA 53 is defined by explicit standards of conduct, and it is designed to correct specific

i I abuses by camers. In the 19th century it was common carriers to insert clauses in bills themselves from liability fcr damage or loss,

prevalent practice for of lading exempting lirniting the period in

which plaintiffs had to present their notice of clairn or brÏng suit. and capping any damages awards per package.388

In order ta support the conclusion. the Court also stated that section 3(8) of

COGSA is very similar to section 183c of the Limitation of Vessel Owner's

Liability Act, which the Court in Camival CNise found did not prevent the

enforceability of forum selection clauses.389

The Court ruled that section 3(8) of COGSA does not provide grounds for

distinguishing between foreign and national arbitration clauses:

If the question whether a provision lessens liability were answered by reference to the costs and inconvenience to the cargo owner. there would be no principled basis for distinguishing national from foreign arbitration clauses. Even if it were reasonable to read §3(8) to make a distinction based on travel time, air fare. and hotel bills, these factors are not susceptible of a simple and enforceable distinction between domestic and foreign forums. 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 anc couver.^^^

An interesting aspect of Sky Reefer is that the Supreme Court held that section

3(8) of COGSA does not provide a basis for the courts to estimate the costs of

pursuing the action overseas in order to decide the enforceability of an arbitration

clause: "lt would be unwieldy and unsupported by the terms or policy of the

statute to require courts to proceed case by case to tally the costs and burdens

to particular plaintiffç in light of their rneans, the size of their daims, and the

relative butden on the ~arrier."~"

M851 5 U.S. -, 132 L. Ed. 2d 462 at 472. 1 15 S. Ct. 2322 (1 995). 38?bid. at 472-473. 3901bid. at 473. 391 lbid.

The Court also found support for its reasoning in the goals of the Brussels

Convention for the Unification of Certain Rules Relating to Bills of Lading (Hague

Rules), on which COGSA is modeled, as well as in the pertinent decisions and

statutes of other c~untr ies.~'~

Having made the above reference to the Sky Reefer reasoning, it is now possible

to address the implications of the Supreme Court decision. Basically, the Court

substantially modified the considerations which must be taken into account in

order to decide the enforceability of forum selection clauses in maritime bills of

lading .

The costs involved in pursuing the action are no longer a defense against the

enforcement of choice of forum provisions. This means that Sky Reefer almost

excluded the possibility of setting aside an agreement on the grounds of

inconvenience. Most factors that are usually taken into account by the courts in

order to judge the convenience of the selected forum are factors such as location

of the parties. location of witnesses, accessibility of evidence, and place of

execution of the contract. These factors are considered to the extent that they

are associated with the costs of pursuing the action. If the plaintiffs burden in

ternis of these factors is considered too heavy, it is usually because the costs

involved may impose serious difficulties for punuing the action or may

discourage the shipper from trying the case at all.

The above conclusion seems to be confimed by the declaration of the Supreme

Court that it refused to approve any consideration of the size of the

Most cases after Sky Reefer seem to follow the above interpretation. For

example, in Blaise G.A. Pasztory v. Croatia ~ i n e , ~ ' ~ in Fireman's Fund v. DSR

~ t l a n t i c ~ ' ~ and in Mitsui & Co. v. M N ira,^^ the courts did not discuss factors

relating to the convenience of the selected forum in order to decide on the

enforceability of a choice of forum clause. In Blaise, the District Court for the

Eastern District of Virginia noted that "[tlhe Supreme Court has twice in the last

five yean rejected similar claims of inconvenience. In both Sky Reefer and

Camival Cnrise Lines the Court held that increased cost and inconvenience were

not enough to defeat the operation of a forum selection clause in an admiralty

suit."397 However. in Bison Pulp & Paper v . M N ~ ~ r ~ a r n i n o s . ~ ~ ~ the District Court

for the Southern District of New York applied the original test set in Bremen and

discussed the convenience of the selected forum.

It seems that courts will apply a very narrow test when considering the

enforceability of forum selection clauses.

Wth respect to small claims, the ruling from the Supreme Court could lead the

shipper not to pursue any action against the carrier, considering the costs

involved in having to litigate abroad. At the outset, this result does not seem to

be desirable. However, it can be seen that the ruling is reasonable because

393515 U.S. -, 132 L. Ed. 2d 462 at 473. 115 S. Ct. 2322 (1995). '9 996 A. M.C. 1 189 (E. D.Va. 1996). "'1 996 A.M.C. 878 (N. D.Cal. 1995). 3 s s ~ o . CIV. A. 954224, 1996 WL 444193 (E.D.La. 1996). 3971996 A.M.C. 1189 at 1198 (E.D.Va. 1996). '"1996A.M.C. 2022 (S.D.N.Y. 1995).

most shipping transactions take place in a commercial setting, where the shipper

is expected to foresee litigation in a particular forum according to the provisions

of the bill of lading. This issue is discussed be10w.~~~

In summav, the exception of inconvenience of the selected forum now has a

narrow scope. It will not be applied when the grounds are based on the costs of

purçuing the action. As a result, its application becomes very exceptional.

(3) Lessening of Carrier's Liability by Eliminating the Assurance of COGSA's Application

Under Indussa, a second ground on which foreign forum selection clauses in

maritime bills of lading lessen the carrier's liability is that the foreign court might

not apply COGSA, or at least not in the same way it would be applied by an

American court.

The Court in lndussa expressed its rationale as follows:

A clause making a daim triable only in a foreign court would almost certainly lessen liability if the law which the court would apply was neither the Carriage of Goods by Sea Act nor the Hague Rules. Even when the foreign court would apply one or the other of these regimes, requiring trial abroad might lessen the carrier's liability since there could be no assurance that it would apply them in the same way as would an American tribunal subject to the uniform control of the Supreme Court, and sec. 3(8) can well be read as coverin a potential and not simply a demonstrable lessening of liability. %O

-

399 See section Ill-6-5-b. 400377 F.2d 200 at 203-204 (2d Cir. 1967).

According to Indussa, the absence of certainty about the law to be applied in the

selected forum prevents the enforceability of such contractual stipulations:

Pretrial litigation over the place of trial, always to a certain degree undesirable. becomes especially so when the court is required to make a forecast as to the merits on the basis of conflicting affidavits of experts conceming what a foreign court would decide both as to choice of law and as to substantive law and there can be no real assurance that the prophecy will be validated by the resu~t.~~'

The enforceability of foreign forum selection clauses has been generally explored

by commentators, without extensive study of or reference to the enforceability of

choice of law agreements. Choice of law and choice of forum are topics closely

interconnected and the legal response to each issue necessarily affects the

other. Based on this prernise, Professor Black argued that "[tlhe right answer for

choice-of-forum clauses very much depends on the answer for choice-of-law

clauses.'Ro2 Furthemore, he is of the opinion that choice of law clauses are not

valid because al1 international bills of lading, inbound or outbound. are subject to

the provisions of COGSA, as literally established by that ~ c t . ~ ' ~ Professor Black

notes that this same conclusion was reached by the Supreme Court in 1 9 0 0 ~ ~ in

Knoft v. Botany ~ i l l s . ~ * ~

Based on the above, Professor Black further argues that choice of forum clauses

are per se invalid:

441~biû. at 202. %ack Jr., supra note 84 at 365. 4031bid. at 365-366. */bid. at 367. =179 U.S. 69 (1900).

If the choice-of-law clause is invalid, the double way to invalidity of the choiœ-of-forum clauses is clear. First, to force a shipper to sue in a foreign court is to take away from him al1 assurance that he will enjoy the protection of any provision of the American COGSA. The conflicts norm stated in our COGSA is not binding on any foreign court, ... A Swedish court. for example, may respect a choice-of-law clause stipulating for Swedish law; indeed, it will very likely do so in a case involving shipment from or to Sweden. Even without a choice-of-law clause. the Swedish court's own conflicts rules may quite properly lead to a choice of Swedish law; the American Congress's choice-of-law norm, Iike the "common law" choice-of- law nom of an American court, cannot bind the Swedish judiciary. ... a choice-of-forum clause, in a bill covered by Our COGSA, must be held, in an American court, directly to violate our COGSA's enacting clause, since the enforcement of the choice-of-forum clause. by dismissai of the American suit. puts the litigant into the power of a court which may or rnay not see to it that the command of Our COGSA is followed, or that any garticuiar provision or interpretation of Our COGSA is given effect4

This argument has been subject to some criticisrn:

Seen against the background of the Convention of 1924, the hostility shown here is inappropriate. If there were deep irrevocabie conflicts between nations as to the substantive law governing bills of lading. if the anarchy which gave birth to the Harter Act and eventually to the Convention of 1924 still prevailed, if the suspicious about foreign law which still persists in American courts were common in other jurisdictions. then the hostility manifested in lndussa might be explicable. One of the aims of the Convention of 1924 was to standardize the substantive law governing bills of lading. By and large the aim has been fulfilled. Most nations have adopted the Hague Rules. It is no doubt possible to speculate about marginal differences in interpretation ... But such differences can anse between different circuits of the one jurisdiction, or even within the same circuit. It is probably correct that none of the framers of the Article 3 rule 8 of the Hague Rules imagined that it would be directed toward such minute differences, which are in the end an unavoidable concomitant of the judicial process and which could not be removed even if al1 the cases in the world were heard in the one jurisdiction. The lndussa hostility to foreign courts and

406 Black, supra note 84 at 368 [footnotes omitted].

foreign law might have been appropriate in the bad old days before the Hague Convention when the substantive law on bills of lading in Amerka differed radically from most other countries. The hostility is difficult to understand, now that the law in most countries is substantially the ~arne."~

With regard to the above point, the Court in Sky Reefer also rejected the

argument that the arbitration clause should not be enforced because there was

no guarantee that foreign arbitrators would apply COGSA. According to the

Supreme Court, the plaintiff s daim was premature:

At this interlocutory stage it is not established what law the arbitraton will apply or that petitioner's will receive diminished protection as a result. 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 enforcernent of the iaws has been addre~sed.~'~

Following Sky Reefer, in Blaise G A . Pasztory v. Croatia ~ine,~" the District

Court for the Eastern District of Virginia pointed out that foreign selection clauses

cannot be enforced just in cases where the substantive law to be applied by the

foreign tribunal would be less than what COGSA g~arantees.~" Applying this

rationale to the facts under consideration, the Court deciared:

mhe Plaintiff has failed to present any evidence, other than a conclusory allegation that Croatia is politically unstable and jurisprudentially immature, which indicates that the designated forum in this case would apply anything less than what COGSA guarantees. On the other hand, the Defendants have identified persuasive legal authority which suggests that Croatia recognizes and enforces the Hague Rules upon which COGSA was modeled ... Under these circumstances, the Court finds that the Plaintiff has

" '~ennin~, supra note 22 at 35-36 [footnotes omitted]. 4085 15 US. -, 132 L. Ed. 2d 462 at 475, 1 15 S. Ct. 2322 (1 995) a91996 A.M.C. 1189 (E.D.Va. 1996). 4101bid. at 1 195.

failed to overcome the presumption of enforceability which attaches to forum selection c~auses.~"

In Fireman's Fund v. DSR ~ t l a n t i c . ~ ' ~ the District Court for the Northern District of

California refused to enforce a foreign forum selection clause in a bill of lading by

applying a sirnilar rationale. The bill of lading contained a clause providing that

any dispute should be resolved by the courts in Seoul. Korea.

The Court in Fireman's Fund held that, according to Sky Reefer, foreign selection

clauses are not enforceable whenever the foreign tribunal would apply a

substantive law which would reduce the carrier's liability below the CQGSA

leveL4I3 According to the Court, the application of Korean law would lessen the

carrier's liability because Korea does not recognize actions in rem and they are a

significant r e r n e ~ i ~ . ~ ' ~

These hnro post-Sky Reefer cases give some indication of the direction in which

courts are moving with their reasoning. It can be seen in each case that the

court's application of Sky Reefer requires an examination of the law of the

selected forum.

In Sky Reefer, however, such an examination was considerd premature in light

of the uncertainty about the law to be applied by the arbitrat~rs.~" The Court

also found unnecessary any review of foreign law with respect to the decision

from the district court of retaining jur isd i~ t ion.~~~ Although that decision was taken

41'lbid. at 1 796. "*1996 A.M.C. 878 (N.D.Cal. 1995) 413/bid. at 881. 4'41bid. at 881 -882. "'515 U S . , 132 L. Ed. 26 462 at 475.115 S. Ct. 2322 (1995). 4161bid.

by applying the Federal Arbitration Act, it would be analogous to an order to stay

proceedings. which could be taken upon request of enforcement of a forum

selection clause.417 Furthemore, as pointed out in Sky I?eeferl4l8 the foreign

decision can be subject to review by the American courts according ta section

482 of the Restatement (Third) of Foreign Relations Law: "(2) A court in the

United States need not recognize a judgment of the court of a foreign state if: ...

(d) the cause of action on which the judgment was based, or the judgment itself,

is repugnant to the public policy of the United States or of the State where the

a * 419 recognition is sought .

The Sky Reefer solution does not seem to contradict a dismissal of the action

upon examination of the foreign law, as is the case in Blaise G.A. Pasztogi v.

Cmatia ~ine.~* ' This mechanism pursues the same goal as the Sky Reefer

rationale, which is no other than to preserve the application of COGSA's

standard of carrier liability.

The situation becomes problematic in a case where the court of the excluded

forum fin& that the law of the foreign forum contains provisions limiting the

carrier's liability to a level lower than what COGSA provides. As mentioned

above, in Fireman's Fund v. DSR ~t lan t i c~~' the Court decided to entertain the

action on this ground.4* This alternative seems to contradict the ruling in Sky

Reefer that objects to a review of foreign law. However, it must be noted that the

4'7~ee e.g. Hues of Amenca, Inc. v. Klaus-Gerd Uoes, 493 F. Supp. 1205 at 121 0 (C. D. I I I . 1 979). 4'851 5 U.S. -, 132 L. Ed. 2d 462 at 476-477. 1 15 S. Ct. 2322 (1 995). 4'9~estatement (Third) of Foreign Relations Law. §482(2)(d) (1 986). 4201 996 A.M.C. 1 189 (E. D-Va. 1996). 42"1 996 A.M.C. 878 (N.D.Cal. 1995). ?%e conclusion in Fimman's Fund that the absence of a in rem action in the foreign country lessens the carrier's liability is questionable because the matter relates to procedural law rather than substantive.

Court in Sky Reefer refused to proceed with such a review bearing in mind the

absence of certainty about the law to be applied by the arbitrators. Under the

opposite hypothesis, when no uncertainty is present. the conclusion must be

different and the examination of the foreign law is admissible. In other words.

whenever the excluded court is certain about the law to be applied by the foreign

court, it must proceed wlh its examination in order to determine whether it

contains any provision lessening the carrier's liability below the standard

established by COGSA. Furthemore, if courts follow this path. the resuk will be

consistent with the Supreme Court's intention of protecting the party's right to

pursue a statutory rernedy.423

In summary. under Sky Reefer, a foreign forum selection clause in a maritime bill

of lading is unenforceable whenever the foreign court would apply substantive

law that limits the carrier's liability below the standard established by COGSA.

b. Foreign Forum Selection Clauses and Inequality of Economic Power.

In this subsection, the analysis focuses on the implications of Sky Reefer with

respect to one of the exceptions of enforceability of forum selection clauses

under the Bremen test: the case of overweening bargaining power.

On this subject, it must be noted that the issue of inequality of bargaining power

was not raised before the Supreme Court. This allegation was rejected in the

42351 5 U.S. , 132 L. Ed. 26 462 at 476. 1 15 S. Ct 2322 (1 995) [quoting Mitsubishi Motors Corp. v. Soler-Chrysler-Plymouth inc., 473 U.S. 614 at 637 n.19, 87 L. Ed. 2d 444, 105 S.Ct 3346 (1 985)].

first instance where the District Court held that the plaintiff was "neither

unsophisticated and unfamiliar with the negotiation of maritime shipping

transactions, nor a party of relatively weak bargaining power." 424

Hypothetically, perhaps the Supreme Court's decision would have been different

given a situation of overweening bargaining power. As a matter of mere

speculation, perhaps the Supreme Court would have supported the application of

the unconscionability test to decide the enforceability of forum selection clauses.

Two key difficulties can be found with this conclusion.

Fint, it must be noted that the Supreme Court in Camival Cmise affirmed "..that

a nonnegotiated forum-selection clause ... is never enforceable simply because it

is not the subject of bargaining.lM5 As noted ab~ve."~ under Camival Cmise,

both substantive and procedural unconscionability must be present in order to set

aside a forum selection clause.

Second, as mentioned above, the Supreme Court in Sky Reefer rejects the

defense of inconvenience, thus removing the possibility of using it as a basis

upon which to apply the substantive unconscionability standard.

These two limitations do not leave much space for the application of the

unconscionability doctrine to cases of gross inequality of bargaining power in

maritime bills of lading, regardless of whether the claimant is a consumer or a

- - - -

4Z4~imar Segurus y Reaseguros, S.A. v. M N Sky Reefer, No. CIV. A. 91-1 3345 WF. 1993 WL 137483 at 3 (D-Mass. 1 993). '*'499 U.S. 585 at593. 113 L.Ed. 2d622. 111 S. Ct. 1522(1991). 426~ee Section l Il-A-3.

disadvantaged business party. A serious imbalance in the contractual

relationship together with other factors of unconscionability should lead

theoretically to the unenforceability of a forum selection clause. However, the

rulings tom the Supreme Court in both Camival CNise and Sky Reefer reduces

the scope of the law to provide such protection.

This situation may seem to be undesirable, especially when the daim is small.

However, situations of serious imbalance of economic power in international

carriage of goods are highly exceptional. Even the entrepreneurs with little

experience and consumers arranging for the carriage of personal efFects have

rnany options in the market. Given that situations of imposition of exclusive use

of the service of a certain shipping line are rare, practically speaking, this

negative implication from the Supreme Court is not wide enough to challenge the

new rationale.

On this point, it is necessary to make a distinction between the case where the

claimant is a consumer and the case where the clairnant is a commercial party.

The customary situation in international trade is that only a small percentage of

the shippers and consignees are considered to be ordinary consumen. Carriage

of goods by sea involves a contract that usually takes place between

commercially experienced companies. Often shippers and consignees have

equal, or even more, bargaining power than the shipping Company. Even if the

daim is srnall, in a commercial setting the shipper is expected to evaluate the

options available in the market in order to choose the most convenient carrier,

taking into consideration many factors, including the forum of resolution of

potential disputes.

The relevance of the distinction between consumers and commercial parties for

the analysis of forum selection agreements has been recognized:

Commercial cases easily are distinguished from consumer transactions. The fundamental premise for government intervention -a defective market for information- generally is not valid in the commercial context. Commercial exchanges typically are larger in size than consumer transactions. Wth more money at stake, the parties more often will hire an attorney to negotiate or review the terms of the contract. Many larger companies even have professional buyers whose sole function is to search the marketplace for the most favorable contract terrns. Furthemore, with larger transactions, the relative cosk of litigation in a foreign forum dirninish. and the fear that enforcement of the parties' bargain will effectively deprive one of them of their day in court virtually disappears. Commercial parties typically are more mobile than consumers and have less need for government protection. To the extent commercial parties participate in a greater number of similar transactions, they are fully capable of "diversifying" their risk of foreign litigation.

Additionally, parties to a commercial transaction more often are engaged in an ongoing relationship. In such circumstances, market forces provide assurance of minimal levels of fairness. Government intervention is unnecessary (and inefficient). Thus, nonenforcement of forum selection clauses in consumer forrn contracts should not disturb the years of precedents under Bremen and its progeny.427

As a result of the above analysis, the ruling of Sky Reefer does not produce a

serious imbalance in the maritime context. In the current operation of

international shipping businesses, most of shippen and consignees require

transportation services on a permanent basis. This commercial demand usually

leads shippers and consignees to do an evaluation of the different options

available. The market provides American entrepreneurs with a wide variety of

4 2 7 ~ . Goldman. "My Way and the Highway: The Law and Econornics of Choice of Forum Clauses in Consumer Fom Contracts" (1992) 86 Nw, U. L. Rev. 700 at 734.

carriers from which they can select the one that offers the best conditions.

Furthemore, there is no obstacle to examining and cornparing the contract terms

used by many different shipowners. One element which is expected to be found

in international bills of lading is the provision pertaining to the jurisdiction for the

settlement of controversies. The contract of international carriage of goods by

sea is executed in more than one country so that some certainty about the forum

of resolution of potential disputes is convenient to both parties. This certainty

can be obtained through the incorporation in the bill of lading of a clause

stipulating in advance the court with exclusive jurisdiction with respect to the

actions deriving frorn the contract.

Under the customary operation of international carriage of goods, shippers and

consignees have access to information conceming the risk allocation, in terms of

the forum of litigation of potential disputes. They can manipulate this risk

allocation by either selecting the shipowner with the most convenient choice of

forum selection, or by using private carriage when available.

On the other hand, the new rationale from the Supreme Court is coherent with

the line of reasoning begun in Bremen, which recognized the subordination of

domestic law to the needs of international commerce. This approach

encourages American courts to abandon the parochial attitude inherent in their

traditional distrust of foreign courts. Now in the nineties, the Supreme Court in

Sky Reefer has strengthened this rationale by extending its scope to encompass

maritime bills of lading subject to COGSA. Considering the importance of this

particular issue, the next section discusses the context surrounding the approach

followed by the Supreme Court.

On the basis of the preceding ideas, it can be concluded that the Supreme

Court's decision is reasonable and its minor negative implications can be

corrected through the ordinary prïnciples of contract law. For example. when the

claimant is a consumer or a disadvantaged business party and the totality of

circumstances of the case provides strong evidence of unconscionability, the

particular court should deny the enforcement of a forum selection clause.

However, this option must be applied only in exceptional circumstances, so as to

avoid any contradiction with the ruling from the Supreme Court. Thus, denial of

enforcement of forum selection clauses in maritime bills of lading on grounds of

unconscionability should proceed only when such enforcement would render to a

grossly unfair situation.

c. The Environment of the New Rationale

Having explained the main legal aspects related to the new framework

established in Sky Reefer, this final section provides some concluding remarks

by discussing the context surrounding the Supreme Court's decision.

At the end of the twentieth century, nations are experiencing an increasing

interdependence on one another as the world proceeds rapidly towards

globalization. International trade is growing with each passing day and

businesses are increasingly developing to cover markets in more than one

country. American corporations have been rapidly expanding overseas during

the last few decades and now they often operate, and even have offices in

remote countries.

The growing economic integration between countries is one of the major factors

that are contributing to this process of globalkation. With most countries

enthusiastically engaged in fostering international trade liberalization, the world

market will continue experiencing such trends in the future.

This new environment has considerably changed social interaction. and law

cannot escape from its influence. On the contrary, law has been experiencing a

process of adiustment to the new conditions of international trade.

Among the variety of legal aspects experiencing adjustment, the effectiveness of

international contracts is a basic demand of the world market. Under the

customary operation of international trade, such effectiveness is one of the

prerequisites for success in business transactions.

The stipulation in international contracts providing for the forum of resolution of

potential disputes between the parties is especially important. Its effectiveness

can be considered one of the basic elements to be encouraged because it

provides the parties with the required certainty concerning the court with

jurisdiction to decide any controveny . Over twenty years ago, the enforceability

of forum selection clauses in international contracts received enthusiastic support

from the United States Supreme Court in Bremen. However, this important

adjustment did not go deep enough to cover al1 international contracts: bills of

lading were excluded from the new rationale. Fortunately, the adjustment spread

to encornpass al1 maritime contracts in 1995, when the Supreme Court decided

Sky Reefer, thus including international maritime bills of lading within the

rationale.

The Supreme Court is now strengthening the line of reasoning begun in Bremen

towards a new law for international contracts. The Court rejected the traditional

parochial approach according to which maritime litigation can take place only

before the American courts and recognized the subordination of domestic law to

the needs of international trade.

According to the Supreme Court's approach, the interpretation of statutes and

contract ternis must be in accordance with the new circurnstances of

international trade. This explains the new interpretation of section 3(8) of

COGSA, which prohibits the inclusion in maritime bills of lading of any clause

lessening the carrier's liability. The Supreme Court overruled a very strict

interpretation of this provision by bearing in mind the radical changes occurring in

the world market. The previous interpretation of this provision was so narrow

that it crossed the natural boundaries of its wording when extended to cover the

clauses providing the forum of dispute resolution. Now, the Supreme Court has

held that COGSA does not prohibit the incorporation of forum selection clauses

in maritime bills of lading.

In the future, the Arnerican courts will apply the Supreme Court's view, perhaps

refining the analysis according to the particular circumstances of the cases under

consideration, but keeping safe the philosophy behind the decision, which is the

pursuit of protection of the international trade order.

6. Concluding remarks

This section is devoted to present a brief summary of the main conclusions

previously explained with regard to the enforceability of foreign forum selection

clauses in maritime bills of lading.

The basic rule under the American law is that choice of forum provisions

incorporated in maritime bills of lading are prima facie valid and enforceable.

subject to certain limitations. Section 3(8) of COGSA that declares void any

clause lessening the carrier's liability, does not prevent the enforceability of

foreign forum selection clauses. The purpose of section 3(8) of COGSA is to

deny efficacy to those clauses incorporated in the bill of lading excepting or

lirniting carrier's liability in violation of the standard provided by the statute,

without reference to the means and costs of enforcing such liability.

However the presumption of validity of foreign forum selection clauses is not

absolute because there are certain exceptions.

First, a forum selection clause is not enforceable in case of fraud. However. it

must be noted that the scope of this exception is broader since the agreement

cannot be enforced whenever the transaction is affected by misrepresentation,

as a result of the application of the principles of contract law.

Second, a forum selection clause is void or voidable when the contract is vitiated

by duress, undue influence and mistake. These are some of the circumstances

that prevent the enforceability of contractual stipulations the under general

doctrines of contract law.

Third, a foreign forum selection clause is unenforceable when the selected forum

is seriously inconvenient for the trial of the action. However this exception has a

very narrow scope since it operates only when the allegation of inconvenience is

not related with the costs of pursuing the action.

Fourth, a forum selection clause incorporated in a maritime bill of lading is

unenforceable whenever the foreign court would apply substantive law that limits

carrier's liability below the standard established by COGSA. This exception

results from the application of section 3(8) of COGSA that declares voici any

clause in the bill of lading lessening carrier's liability.

Fifth, even though the Supreme Court in Camival Cruise and Sky Reefer

narrowed the applying the unconscionability doctrine to forum selection clauses,

it remains applicable for exceptional cases. For example. when the claimant is a

consumer or a disadvantaged business party and the totality of circumstances of

the case provides strong grounds of unconscionability, the courts should deny

enforcement to a forum selection clause. However, this option can be applied

very exceptionally, in order to avoid any contradiction with the ruling from the

Supreme Court. Thus, denial of enforcement of forum selection clauses in

maritime bills of lading on grounds of unconscionability should proceed only

when such enforcement would render to a grossly unfair situation.

The above framework results principally from the ruling established by the

Supreme Court in Sky Reefer, a decision that radically changed the previous

judicial view on the matter. The new approach is coherent with the line started in

the Bremen recognizing the subordination of domestic law to the needs of the

international commerce. This view encourages Amencan courts to abandon the

parochial attitude inherent in the traditional distrust toward foreign courts. Now in

the nineties the Supreme Court in Sky Reefer is strengthening this rationale by

extending its scope to encompass international maritime bills of lading.

CONCLUSIONS

The traditional approach of the Amencan courts was to maintain that the parties

could not by their agreement oust the court's jurisdiction. As such, choice of

forum provisions were considered not enforceable as against public policy.

This approach was abandoned in 1972 in the Bremen case, where the United

States Supreme Court established the presumption of validity of forum selection

clauses. However, this presumption is not absolute, because the enforceability

of these clauses is subject to certain exceptions that are known as the Bremen

test. According to the Supreme Court, a choice of forum agreement is

unenforceable when it is affected by fraud, when it is the result of overweening

bargaining power, when it is against public policy or when the selected forum is

seriously inconvenient for the trial of the action.

Under the general principles of contract law, a contract, or some part of it. rnay

be void or voidable when it is affected by duress, undue influence,

rnisrepresentation, rnistake and unconscionability, or when it is against public

policy.

Upon comparison of the Bremen test with the principles of contract law, many

similarities can be noted. The exception of fraud set out in Bremen can be

considered a case of misrepresentation. The exception of overweening

bargaining power is one of the factors that may prevent the enforcernent of

contract ternis on grounds of procedural unconscionability. The exception of

public policy described in Bremen corresponds to the same notion appiied in

contract law. The exception of inconvenience usually involves a situation of

substantive unconscionability.

Only one major difference can be found between the Bremen analysis and the

principles of contract law. Under the Bremen test, a choice of forum clause is

unenforceable in case of either inconvenience or oveniveening bargaining power

and it is not required that both elements be present in order to set aside the

agreement. Thus, the party pursuing the unenforceability of a forum selection is

not required to show the presence of both substantive and procedural

unconscionability. One of the elements is sufficient. Under the unconscionability

doctrine. however, both substantive and procedural unconscionability must be

present in most cases.

It must be noted that there are other exceptions to the enforceability of forum

selection clauses in addition to the exceptions indicated in the Bremen. The

ruling from the Supreme Court does not prevent the application of the doctrines

of contract law. and consequently, a forum selection clause is unenforceable

when the transaction is affected by duress, undue influence or mistake.

Although the Court in Bremen did not mention these exceptions, the application

of the principles of contract law to the particular case of forum selection

agreements derives frorn the rationale of the Supreme Court's decision.

The presumption of validity of foreign forum selection clauses established in

Bremen was not applied to maritime bills of lading subject to the Carriage of

Goods by Sea Act (COGSA). After Bremen. the courts continued applying the

decision from the Court of Appeals for the Second Circuit in Indussa, decided in

1967, according to which such clauses increase the costs of pursuing the action.

This was in violation of an important public palicy established by section 3(8) of

COGSA that declares void any clause lessening the carrier's liability.

The Bremen analysis has been subject to modification by subsequent decisions

from the Supreme Court in Camival Cmise Lines and Sky Reefer.

The Supreme Court in Camival Cmise held that the absence of bargaining

between the parties is not sufficient to set aside a forum selection clause. It must

be accompanied by another element: the serious inconvenience of the selected

forum. Thus, both substantive and procedural unconscionability must be present

in order to set aside a forum selection clause, while under the Bremen test only

one of the elements was sufficient. Therefore, the Supreme Court in Camival

CNise narrowed the Bremen test and strengthened the presumption of validity of

forum selection clauses.

More recently, the Supreme Court in Sky Reefer held enforceable an arbïtration

clause in a maritime contract. Overruling indussa, the Supreme Court in Sky

Reefer established a presumption of validity of foreign forum selection clauses in

maritime bills of lading.

Sky Reefer expressly rejected the reasoning from the Second Circuit in indussa

and held that under section 3(8) of COGSA the liability that may not be lessened

is the liability imposed by the statute, without reference to the means and costs of

enforcing such liability.

As a result of this reasoning, Sky Reefer implicitly modified the Bremen test.

Given that increasing the costs of pursuing the action ceased to be a defense

against the enforcement of choice of forum provisions, the Supreme Court

narrowed the possibility of setting aside the agreement on grounds of the

inconvenience of the selected forum. This exception can be applied only when

the allegation is not related to the costs of pursuing the action. Therefore, its

application becomes highly exceptional.

On the other hand, the Supreme Court recognized an exception to the

enforceability of foreign forum selection clauses in maritime bills of lading under

section 3(8) of COGSA. The Court held that a choice of forum clause is

unenforceable whenever the foreign court would apply substantive law that limits

the carrier's liability below the standard established by COGSA.

Another important implication of Sky Reefer is that it narrowed the possibility of

denying enforcement of a forum selection clause on grounds of unconscionability

for cases of gross disparity of bargainhg power. With the near elimination of the

defense of inconvenience, no defense is available on grounds of substantive

unconscionability, one of the elements often required to set aside a choice of

forum clause. Although this situation see.ms to be undesirable. the

circumstances required for the application of unconscionability is very unusual in

international carriage of goods. On the contrary, most shipping transactions take

place in a commercial setting where the courts have recognized that the doctrine

of unconscionability is not applicable. Therefore, the Supreme Court's decision is

reasonable and its minor negative implications can be corrected through the

application of the ordinary principles of contract law upon consideration of the

particular facts of each case.

Behind the Suprerne Court's decision in Sky Reefer, it is the general pressure of

the international trade order which is demanding the enforceability of forum

selection clauses. This rationale was recognized in 1972 by the Supreme Court

in Bremen and now is strengthened in Sky Reefer, which extended its scope to

encompass ail international maritime transactions.

TABLE OF CASES

Amerada Hess Cotp . v . SS Phillips Oklahoma. 558 F . Supp . 1 164 (S . D.N.Y. .............................................................. 1983) .................................. .... 39

American Home Improvement. Inc . v . Maclver. 201 A.2d 886 (N.H. 1 964) ... 62 American International Knitters v . Kawasaki. 1 988 A.M.C. 434 (N . M . I . 1 987) 28 Ampac Trading Co . v . MN Ming Sumrner. 566 F.Supp. 104 (W.D.Wash.

.......................................................................................................... 1983) 28 Austrian Lloyd Steamship Co . v . Gresham Life Assurance. [1903] 1 K . B .

........................................................... ..................................... 249 (C.A.) ... 8 8 . Elliot (Canada) Ltd . v . John T . Clark & Son of Maryland. lnc .. 704 F.2d

................................................................................... . 1 305 (4th Cir 1983) 39 . . Baltimore & O . R R Co . v . Doyle. 142 Fed . 669. 673 (C . C.A. 3 1 906) .......... 43

Bekins Bar V Ranch v . Hufch. 664 P.2d 455 (Utah 1983) ............................. 62 Bison Pulp & Paper v . MA/ Pergaminos, 1996 A.M.C. 2022 (S.D.N.Y. 1995) 102 Blaise G A . Pasztory v . Croatia Line. 1996 A.M.C. 1 189 (E.D. Va . Blaise G.A. Pasztory v . Croatia Line. 1996 A.M.C. 1 189 (E.D. Va . 1996) ......

.......................................................................................... 34.91. 102. 106. 107 . ............................. Boyd v . Grand Trunk Western R.R.. 338 U S. 263 (1 949) 74

. ............................ Campbell Soup Co . v . Wentz. 1 72 F.2d 80 (3d Cir . 1 948) 51 Carbon Black Export v . The S.S. Monrosa. 254 F.2d 297 (5th Cir . 1958). cert .

dismissed359U.S.180.3L.Ed.2d723.79S.Ct.710(1959) ................. 15 Camival Cnrise Lines v . Shute, 499 U.S . 585. 7 13 L.Ed. 2d 622. 1 1 1

S . Ct . 1522 (1 991) ................ 2, 28-30. 35-36, 79-82. 87-90. 1 10. 1 1 1. 1 18. 122 Cerarnic Corporation of America v . lnka Maritime Corp., Inc., 1 994 A.M.C.

.................................................................................. 1 076 (C.D.Cal. 1993) 90 . ........... Cern de Pasco Corp . v . Knut Knutsen. 187 F.2d 990 (2d Cir 195 1 ) 14

Colbum v . Mid-State Homes . Inc.. 289 Ala . 255 . 266 So.2d 865 (1972) ....... 42 Collins v . Click Camera 8 Video, Inc., 621 N.E.2d 1294 (Ohio Ct.App. 1993) ........................................................................................................... 57

Conklin & Garret, Ltd . v . M N Finnrose. 826 F . 2d 1441 (5th Cir . 1987) ........ 17 Cook v . Cook. (1 867) . 4 Eq . 77 ..................................................................... 7 County Asphalt. lnc . v . Lewis Welding & Engineering Corp., 444 F.2d 372

(2d Cir . 1971) ........................................................................................ 62. 65 David v . Manufacturers Hanover Trust Co., 59 Misc.2d 248. 298 N.Y.S

2d847(App.Terrn1972) ............................................................................ 62 . . .......... Dorizos v . Lemos & Pateras, M.. 437 F Supp . 120 (S.D. Ala 1 977) 72

Duferco Steel Inc . v . MN Kalisti. No . 95 C 6438. 1996 U.S. Dist . LEXIS .................................................................................... 7908 (N . 0 . 111 1996) 91

E.Gerli&Co.v.CunardS.S.Co..48Ç.2d115(2dCir.1931) ..................... 43 . ........................ Earl of Chestefield v Janssen, 28 Eng . Rep . 82 (Ch . 1750) 50

Ellsworth Dobbs. Inc . v . Johnson. 50 N.J. 528. 236 A . 2d 843 (N.J 1967) .... 62 Encyclopaedia Bdtannica, Inc . v . S.S. Hong Kong Producer, 422 2 . 2d 7

(2d Cir . 1969) ............................................................................................. 43

Fabrica de Tejidos la Bellota S.A. v . M N Mar. 799 F.Supp . 546 (D.V.I. 1992) .......................................................................................................... 89

................ F airfield Lease Corp . v . Pratt, 278 A.2d 1 54 (Conn . Cir . Ct . 1 97 1 ) 62 Farmland Industries v . Frazier-Parot Commodities, 806 F.2d 848 (8th

................................................................................................... Cir . 1986) 70 Fireman's Fund American lnsurance Cos . v . Puerto Rican Fowarding Co.,

492 F.2d 1294 (1st Cir . 1974) ................................................................... 27 . 85 Fireman's Fund v . DSR Atlantic, 1 996 A.M . C. 878 (N . D . Cal . 1 995) ..........

......................................................................................... 34. 92. 102. 107. 108 Gaskin v . Stumm Handel . 390 F.Supp. 361 (S.D.N.Y. 1975) ................ 20 . 25 . 72 Gienarv.Meyer1(1796),2H.BI.603.126E.R.728(C.P.) ........................ ... 5 Giterv.RussianCo .. 108N.Y.S.793(1903) ............................................... 13

...................... Graham v . Scissor-Tail, 28 Cal . 3d 807 . 623 P.2d 165 (1 98 1) 62 Guaranteed Foods of Neb . v . Rison. 207 Neb . 400, 299 N.W.2d 507 (1980) 66

.............................. Haugen v . Ford Motor Co.. 2 1 9 N . W.2d 462 (N . D . 1 974) 66 .......... Hernandez v . S.I.C. Finance Co.. 79 N.M. 673. 448 P . 2d 474 (1 968) 63

Hoes of America. Inc . v . Hoes, 493 F . Supp . 1205 (C.D. 111 1979) ................ 74 Hughes Drilling Fluids v . M N Loo Fu Shan. 852 F.2d 840 (5th Cir . 1988) ... 17. 26

................................................ Hume v . United States. 1 32 U . S . 406 (1 889) 50 In re Advance Printing & Litho Co., 277 F.Supp. 101 (W.D. Pa.), aWd. 387 F.2d 952 (3d Cir . 1967) ....................................................................... 63

lndussa Corp . v . S . S . Ranborg, 377 F.2d 200 (2d Cir . 1967 ......................... ............................................................ 16, 23. 26, 27 . 74, 82 . 83-90, 93-95, 103

insurance Co . v . Morse. 87 U.S. 445 . 22 L . Ed . 365, 20 Wall . 445 (1 874) .... 11 . ... Japan Sun Oil Co., Ltd . v . M N Maasdlk, 864 F Su pp . 56 1 (E . D . La . 1 994) 89

. ............. Johnson v . Machielsne, (1 8 1 1 ). 3 Camp . 44. 170 . E. R 1 300 (K . B . ) 6 .................... Johnson v . Mobil Oil Corp .. 41 5 F.Supp.264 (E.D. Mich . 1976) 64

Kanematsu Corp . v . M N Gretchen W. 897 F . Supp . 1314 (D.Or. 1995) ....... 91 ............................... Kaplan v . Kaplan. 25 111.2d 181 . 182 N.E.2d 706 (1 962) 44

...................................... Kjrchner & Co . v . Gruban (1 908) , [ I 9091 1 Ch . 41 3 8 .................................................... . Knott v Botany Mills . 179 U S . 69 (1 900) 104

................................. . . Krenger v Pennsylvania. 1 74 F 2d 556 (2d Cir . 1 949) 13 Lawv.Garret1(1878)8Ch.D.26(C.A.) ...................................................... 7 Lazan v . Huntington Town House, lnc., 69 Misc.2d 10 17. 332 N.Y . S.2d 270

.... (Dist.Ct.1969). aff'd 69 Misc.2d 591. 330 N.Y.S.2d 751 (App.Term 1969) 62 Lienv . Pitts, 174N.W.2d462(1970) ............................................................ 42

...... . Lisi v . Alitalia-Linee Aeree Italiane, S.P.A., 370 F.2d 508 (2d Cir 1 966) 43 . . ..... Luckenbach S.S. Co . v . American Mills Co., 24 F 2d 704 (5th Cir 1928) 39

Luick v . Graybar Elec . Co., 43 F.2d 1360 (8th Cir . 1 973) .............................. 66 .............. LuckyMetalsCorp . v . MNAve, 1996A.M.C.265(S.D.N.Y. 1995) 91

M . G . Chemical Corp . v . M N Sun Castor. 1978 A.M.C. 1756 (D.Alas. 1977) .. 17 M/S Bremen v . Zapata Off Shore Co., 407 U.S . I, 32 L . Ed . 2d 51 3.

...................... 92 S . Ct . 1907 (1 972) 2, 17-23, 35-36, 37, 69-82, 84-86, 120-1 22 Maharani Woollen Mills Co . v . Anchor Line, (1927) 29 LI . L . Rep . 169 (C.A.). 9

Master Lease Corp . v . Manhattan Limousine. Ltd., 580 N.Y.S.2d 952 (AppDiv . 1992) ............................................................................................. 57

Mercury Coal8 Coke v . Mannesmann and Steel. 696 F.2d 31 5 (4th Cir . 1982) .......................................................................................................... 42

Ment Music Service. 1nc.v. Sonnebom, 245 Md . 21 3. 225 A.2d 470 (1 967) . 42 Mieske v . Bartell Dmg Co .. 92 Wash.2d 40 . 593 P.2d 1 308 (1 979) ............. 55 Mitsubishi Motors Corp . v . Soler-Chrysier-Plymouth Inc .. 473 U . S . 6 1 4 . 87 L . Ed . 2d444 . 105 S.Ct. 3346 (1985) .................................................... 109

Mitsui & Co., Ltd . v . American Export Lines. Inc .. 636 F.2d 807 (2d Cir . 1981) ............................... .. ...................................................................... 43

Mitsui & Co., Ud . v . M N Glory River . 464 F . Supp . 1 004 (W . D . Wash . 1 978) . . 1 7 Mitsui & Co . v . M N Mira, NO . CIV . A . 954224. 1996 WL 444193

(E.D.La. 1996) ....................................................................................... 92. 102 Mittemhal v . Mascagni, 66 N.E. 425 (Mass . 1 903) ....................................... 13 Mutual Reserve Fund Life Association v . Cleveland Wooien Mills.

82 F . 508 (6th Cir . 1897) ........................................................................... 12 Nashua River Paper v . Hammemill Paper, 223 Mass . 8 . 1 1 1 N . E . 678

(1916) ........................... ... ...................................................................... 13 National Bank of Washington v . Equify Inv .. 81 Wash.2d 886 . 506 P.2d 20

(1 973) ......................................................................................................... 42 National Equ~pment Rental v . Szukhent. 375 U . S. 31 1 . 1 1 L . Ed . 2d 354.

................................................................................... 84S.Ct.411(1964) 20 North River Ins . Co . v . Federal Pacific Lines. 647 F.2d 985 (9th Cir . 1 98 1 ) . . 28 Northem Assurance v . M N Caspian Career . 1 977 A.M.C. 421

. ............................................................................*.............. (N D.Ca1.1977) 17 Northwest Airiines, Inc . v . Transport Workers Union of America. 45 1 U .S. 77.

.................................................. 67L.Ed.2d750.101S.Ct.1571 (1981) 26 ........ Note v . Hamilton Mutual Insurance Co.. 72 Mass . (6 Gray) 174 (1 856) 10

Odonzzi v . Bloomfield School District. 246 Cal.App.2d 123, 54 Cal . Rptr . 533 (1 966) ......................................................................................... 45

Pacifie Lumber & ShippMlg Company, Inc . v . Star Shipping . 464 F . Su pp . 1314 (W.D.Wash. 1979) ............................................................................. 17

. . . ...................... Pioneer Credit Co . v . Medalen, 326 N W.2d 7 1 7 (N D 1 982) 42 P ipe rA i~ ra t iCo .~ . Reyno1454U.S.235(1981) ......................................... 74

.............. Pdnce Steam-Shipping Co . v . Lehman. 39 F . 704 (S.D.N . Y . 1889) 12 Pmdential Insurance Co . of America v . Holiday, 1 91 Neb 144 . 2 14

..................................................................................... N.W.2d 273 (1 974) 42 Republic international Corp . v . Arnco Engineers, Inc., 51 6 F.2d 16 1 (9th Cir .

1975) .......................................................................................................... 22 .......................... Ritchiev.Can/elCorp.,714F.Supp.700(S.D.N.Y. 1989) 71

Rite Color Chem . Co . v . Velvet Textile Co., 4 1 1 S . E.2d 645 ..................................................................................... (N.C.Ct.App.1992) 57

............... . . . . . Roach v Hapag-Lloyd, A.G., 358 F Supp 481 (N.D. Cal 1973) 22 27 . ....................... . Rodesch v Kirkpatn'ck Coal Co., 4 1 F . 2d 5 1 8 (6th Cir 1 930) 42

....................... . . . Rubenstein v Rubenstein, 20 N J 359, 120 A.2d 1 1 (1 956) 44

Scherk v . Albedo-Culver Co., 417 U.S . 506. 41 L.M. 2d 270. 94 S . Ct . 2449 ..............................................................*............~................ . (1 974) 23-24. 70 92

Scheroeder v . Fageol Motors . 86 Wash . 2d 256. 544 P.2d 20 (1 975) .......... Scottv.Avery, (1856) . 5 H.L.C.811. 10E.R. 1121 ...................................... Seabmoke v . Commuter Housing Co., 72 Misc.2d 6, 338 N.Y S.2d 67

............................................................................................... (Civ . Ct . 1 972) ................................ Siisbee v . Webber, 171 Mass . 378, 50 N.E. 555 (1 898)

Smith v . Standard Oil Company . 227 Ga . 268, 80 S.E.2d 691 (1 971) ........... State Establjshrnent for Agricoltural Products v . M N Wesermude,

................................................................. 838 F.2d 1 576 ( I I th Cir . 1988) Stephens v . Entre Computer Centers, Inc., 696 F . Supp . 636 (N.D.Ga.

........................................................................................................... 1988) Stewart Organization v . Ricoh Corp., 487 U.S . 22, 101 L . Ed . 22,

108 S . Ct . 2239 (1 988) ............................................................................... Sun WoM Lines, Ltd . v . March Shipping Corp., 801 F.2d 1 066

(8th Cir . 1986) ............................................................................................ .... Tai Kien lndustry Co.. Ltd . v . M N Hamburg . 528 F.2d 835 (9th Cir . 1976)

. . ..-- Taylor v . Titan Midwest Const . Corp.. 474 F Supp . 145 (N . D Tex . 1979) ...... Tessler Bros . (8 . C.) Ltd . v . ltalpacifc Line. 494 F.2d 438 (9th Cir . 1 974)

................ The Caledonia. 157 U.S. 124. 15 S.Ct. 537. 39 L.M. 644 (1 895) The Cap Blanco, [I9131 P . 130 (C.A.) ...........................................................

... . . Tayo Kisen Kaisha v W.R. Grace & Co.. 53 F.2d 740, 744 (9th Cir 1931) Underwriters at Lloyd's of London v . M N Steir, 773 F.Supp . 523

(D.P.R. 1991) .......................................................................................... 89. 98 Union Insurance Society of Canton. Lt d. v . S/S Elikon. 642 F.2d 72 1 (4th Cir .

1981) .................................................................................................. 17,26, 73 United States v . Strickland Tramp . Co., 200 F.2d 234 (5th Cir . 1 952) ......... 43 Vimar Segums y Reasegums, S.A. v . IWV Sky Reefer, No . CIV . A . 91-1 3345

........................................................ WF . 1993 WL 1 37483 (D.Mass. 1993) 31 Vimar Seguros y Reaseguros, S.A. v . MN Sky Reefer, 29 F.3d 727 (I st Cir .

1994) ......................................................................................................... 31-32 Vimar Seguros y Reaseguros, S.A. v . M N Sky Reefer, 5 1 5 U . S . -, 1 32

L . Ed . 2d 462, 115 S . Ct . 2322 (1995) .......... 2, 30-33, 35-36, 75, 82-83, 91-124 W . M . Mulier & Co . v . Swedish American Line Ltd., 224 F.2d 806,

cert.denied,350U.S.903(1955) .............................................................. 14 . ...... Weaver v American Oil Co., 257 lnd . 458, 276 N.E.2d 144 (1 971) 54, 62. 63

West lndia industries, inc . v . Amstar Corp., 690 F.Supp. 246 (S . D . N . Y. 1 988) . 39 W l e v . Southwestern Be11 Telephone Company, 549 P.2d 903 (Kan . S.C.

1976) ........................................................................................................ 53, 60 . ........ . W a m s v . Walker-Thomas Furniture, 350 F.2d 445 (D C Cir . 1 965) 59-60

W O N - N , lnc . v . A.C. Nielsen Co., 740 F . Supp . 1261 (E.D. Mich . 1990) . 57 ............... Zapatha v . Dairy Mart, 381 Mass . 284, 408 N.E. 2d 1 370 (1 980) 62, 66

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