North River Ins. Co. v. Fed Sea/Fed Pac Line

• Decision Date: 12 June 1981
• Docket Number: No. 79-3348,79-3348
• Citation: 647 F.2d 985
• Parties: NORTH RIVER INSURANCE CO., and Northwestern National Insurance Co., Plaintiffs/Appellants, v. FED SEA/FED PAC LINE, Federal Commerce and Navigation, Ltd., Pan American Bulk Carriers, Inc., and the S. S. Pacific Defender, Defendants/Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 985

647 F.2d 985

NORTH RIVER INSURANCE CO., and Northwestern National

Insurance Co., Plaintiffs/Appellants, v. FED SEA/FED PAC LINE, Federal Commerce and Navigation, Ltd.,

Pan American Bulk Carriers, Inc., and the S. S.

Pacific Defender, Defendants/Appellees.

No. 79-3348.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 6, 1981.

Decided June 12, 1981.

Lee H. Cliff, Hall, Henry, Oliver & McReavy, San Francisco, Cal., for plaintiffs-appellants.

Alan Nakazawa, Los Angeles, Cal., argued for defendants-appellees; Charles W. Cappel, Lillick, McHose & Charles, Los Angeles, Cal., on brief.

Appeal from the United States District Court for the Central District of California.

Before ALARCON, FERGUSON and REINHARDT, Circuit Judges.

FERGUSON, Circuit Judge:

North River Insurance Co. and Northwestern National Insurance Co. ("Insurers") appeal a district court decision which refused to exercise jurisdiction over an action involving damage to goods transported on behalf of a company insured by Insurers. The district court refused to exercise jurisdiction because of a foreign forum clause incorporated in the bill of lading. Insurers assert that the district court has jurisdiction because foreign forum clauses are invalid when, as in this case, the United States Carriage of Goods by Sea Act ("COGSA") applies. Defendant charterer, Federal Commerce and Navigation, Ltd. ("Fed. Com."), counters that such foreign forum clauses are valid contract terms when COGSA applies by contract rather than of its own force. We hold that such clauses are enforceable in foreign trade when COGSA is incorporated only contractually, and affirm the decision of the district court.

I.

American Marine, Ltd., shipped four yachts on the S. S. PACIFIC DEFENDER, a bulk carrier. The four were sent from Hong Kong, three to Milwaukee and one to Toronto. Carriage of each yacht was booked with a separate bill of lading. Each bill of lading contained a forum jurisdiction clause providing that disputes arising from carriage would be heard in the "Exchequer Court of Canada, Quebec Admiralty District, Montreal Registry." Each also contained a paramount clause providing that United States maritime law would apply to cargo destined for this country and that Canadian law would govern Canada-bound cargo. Finally, the contracts provided that the carriage of deck cargo was to be governed by the terms of the bill of lading.

By agreement, the yachts were strapped to the deck of the PACIFIC DEFENDER. All four were damaged en route from Hong Kong to Los Angeles, where the ship stopped to refuel. Shipper and charterer discussed off-loading the cargo in Los Angeles, but all yachts were taken to their original destinations after inspection of damages.

The shipper's insurers and assignees in interest, North River Insurance Co. and Northwestern National Insurance Co., compensated the shipper. They then filed suit in the Central District of California to recover losses from the charterer. Fed Com, ¹ a Montreal corporation, moved to dismiss on the basis of the forum jurisdiction clause in the bill of lading. ² Insurers opposed dismissal, arguing that jurisdiction over the disputed stemming from damage to the Milwaukee-bound yachts was proper under American maritime law. It claimed that jurisdiction over the dispute involving the Toronto-bound cargo was proper because the shipper and charterer allegedly agreed that Fed Com would off-load that yacht in Los Angeles. The charterer's refusal to do so, Insurers claimed, constituted a deviation from the contract, thereby nullifying the forum provisions in the bill of lading.

The district court dismissed the action on the basis of the foreign forum clause. This appeal followed.

II.

In 1893, Congress passed the Harter Act, 46 U.S.C. § 190 et seq. (1893), to invalidate bill of lading clauses that relieved vessel owners from liability for damage due to their negligent actions in transporting cargo. Pan American World Airways v. California Stevedore & Ballast, 559 F.2d 1173, 1175 n.1. (9th Cir. 1977). To the extent that the Harter Act governed international trade leaving from or entering American ports, it was superseded in 1936 by the Carriage of Goods by Sea Act, 46 U.S.C. § 1300, et seq. (1936). The Harter Act therefore only governs domestic trade. COGSA was passed to further and to strengthen the purposes served by the Harter Act. See Tessler Brothers (B.C.) Ltd. v. Italpacific Line, 494 F.2d 438, 444-45 (9th Cir. 1979).

We have held that COGSA may be incorporated by contract to govern situations normally outside its scope, Grace Line, Inc. v. Todd Shipyards Corp., 500 F.2d 361, 371 (9th Cir. 1974) (parties may contractually provide for COGSA coverage of carrier's agent). Thus, parties may contractually choose to apply the provisions of the Act to individuals otherwise exempted from maritime law. Id. They may also incorporate COGSA where the Harter Act would otherwise apply. 46 U.S.C. §§ 1311, 1312. See Pan American World Airways v. California Stevedore & Ballast, supra, at 1175 (contractual adoption of COGSA to domestic shipping valid). When COGSA is incorporated by contract, it, rather than the Harter Act, controls. Id.

In the instant case, the parties agreed that the yachts would be carried on the deck of the PACIFIC DEFENDER. COGSA does not apply ex proprio vigore to cargo carried on deck, 46 U.S.C. § 1301(c). The parties, however, incorporated COGSA contractually with respect to cargo destined for American ports, even though carried on deck. COGSA thus applies with respect to the Milwaukee-bound yachts. ³ The parties further agreed that Canadian maritime law would control litigation concerning the Toronto-bound cargo.

III.

A. The Foreign Jurisdiction Clause.

Insurers claim that the district court has jurisdiction over cases governed by COGSA and, consequently, over the Milwaukee-bound cargo. Relying upon Indussa Corp. v. S.S. RANBORG, 377 F.2d 200 (2d Cir. 1967), Insurers assert that foreign jurisdiction clauses are invalid when COGSA governs. Indussa held a foreign jurisdiction clause inapplicable in a situation when COGSA applied of its own force. Id. at 204. District courts in this circuit have followed Indussa in cases in which COGSA applied ex proprio vigore. Mitsui & Co. Ltd. v. M/V GLORY RIVER, 464 F.Supp. 1004, 1004 (W.D.Wash.1978); Northern Assurance Co., Ltd. v. M/V CASPIAN CAREER, (1977) A.M.C. 421 (N.D.Cal.1977). But cf. Roach v. Hapag-Lloyd, A. G., 358 F.Supp. 481, 484 (N.D.Cal.1973).

Fed Com counters that Indussa does not address a situation in which COGSA is incorporated only by contract into a bill of lading. When COGSA does not apply of its own force, Fed Com asserts, a foreign forum clause is a contract term entitled to as much respect as the provision incorporating COGSA. It argues that, in these circumstances, the rule of BREMEN v. Zapata Offshore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), should apply. The parties in BREMEN, a non-COGSA case, had provided that all claims would be heard in a foreign forum. One party sought to avoid that arrangement. The court determined that the parties' mutual agreement to litigate in that forum was a valid and enforceable contract term. ⁴ Id. at 15, 92 S.Ct. at 1916.

Circuits take differing approaches regarding the operation of COGSA when incorporated by contract. Pan American World Airways, supra, at 1175 n.3, held that when the parties contracted for the application of COGSA to domestic carriage, all terms inconsistent with the Act were invalid. We reached that result in Pan American World Airways by relying on § 1312 of COGSA, which states that COGSA shall have the same effect when incorporated into a contract for domestic carriage as it does when it operates of its own force. See Burdines, Inc. v. Pan-Atlantic Steamship Corp., 199 F.2d 571, 573 (5th Cir. 1952).

Section 1312 applies only when COGSA is incorporated into domestic carriage contracts otherwise governed by the Harter Act, unlike the instant case. ⁵ Nonetheless, the Second, Third, and Fourth Circuits have held that even under the language of § 1312 parties may contract for terms inconsistent with COGSA while at the same time agreeing to incorporate the Act into the contract of carriage. See Commonwealth Petrochemicals, Inc. v. S/S PUERTO RICO, 607 F.2d 322 (4th Cir. 1979); PPG Industries, Inc. v. Ashland Oil Co.-Thomas Petroleum Transit Division, 527 F.2d 502, 507 (3d Cir. 1975); Ralston Purina Co. v. Barge Juneau & Gulf Caribbean Marine Lines, Inc., 619 F.2d 374, 375 (5th Cir. 1980).

The Fourth Circuit provides a clear distinction between contracts in which COGSA applies of its own force and those in which the statute would have no application absent a contractual term. In Commonwealth Petrochemicals, Inc., supra, at 325, the court held that even when COGSA is incorporated under the language of § 1312, it does not have "statute rank" but rather is a contractual term like any other. Hence, a contractual term otherwise inconsistent with COGSA remains enforceable. In Union Insurance Society of Canton, Ltd. v. S. S. ELIKON, 642 F.2d 721 (4th Cir. 1981), the court held a forum selection clause invalid where COGSA was referred to as governing law in the bill of lading, but also applied ex proprio vigore under 46 U.S.C. § 1300.

In circumstances indistinguishable from the case before this court, the Second Circuit has ruled that parties may contractually incorporate terms inconsistent with COGSA. Pannell v. United States Lines Co., 263 F.2d 497 (2d Cir.), cert. denied, 359 U.S. 1013, 79 S.Ct. 1151, 3 L.Ed.2d 1037 (1959), involved carriage of goods between an American and a foreign port. As in the instant case, the contract provided for on-deck carriage so that the bill of lading was removed from the ex proprio vigore coverage of COGSA under 46 U.S.C. § 1301(c). Section 1312 did not apply to render the transactions fully subject to the statute. Because ...