Vinmar Seguros Y Reaseguros v. M/V Sky Reefer

• Decision Date: 19 June 1995
• Docket Number: 94623
• Court: U.S. Supreme Court
• Parties: VIMAR SEGUROS Y REASEGUROS, S.A., Petitioner, v. M/V SKY REEFER, her Engines, etc., et al

515 U.S. 528

115 S.Ct. 2322

132 L.Ed.2d 462

VIMAR SEGUROS Y REASEGUROS, S.A., Petitioner,

v M/V SKY REEFER, her Engines, etc., et al.

No. 94-623.

Supreme Court of the United States

Argued March 20, 1995.

Decided June 19, 1995.

Syllabus ^*

After a New York fruit distributor's produce was damaged in transit from Morocco to Massachusetts aboard respondent vessel, which was owned by respondent Panamanian company and chartered to a Japanese carrier, petitioner insurer paid the distributor's claim, and they both sued respondents under the standard form bill of lading tendered to the distributor by its Moroccan supplier. Respondents moved to stay the action and compel arbitration in Tokyo under the bill of lading's foreign arbitration clause and the Federal Arbitration Act (FAA). The District Court granted the motion, rejecting the argument of petitioner and the distributor that the arbitration clause was unenforceable under the FAA because, inter alia, it violated § 3(8) of the Carriage of Goods by Sea Act (COGSA) in that the inconvenience and costs of proceeding in Japan would "lesse[n] . . . liability" in the sense that COGSA prohibits. However, the court certified for interlocutory appeal its ruling to compel arbitration, stating that the controlling question of law was "whether [§ 3(8) ] nullifies an arbitration clause contained in a bill of lading governed by COGSA." In affirming the order to arbitrate, the First Circuit expressed grave doubt whether a foreign arbitration clause lessened liability under § 3(8), but assumed the clause was invalid under COGSA and resolved the conflict between the statutes in the FAA's favor.

Held: COGSA does not nullify foreign arbitration clauses contained in maritime bills of lading. Pp. ____.

(a) Examined with care, § 3(8) does not support petitioner's argument that a foreign arbitration clause lessens COGSA liability by increasing the transaction costs of obtaining relief. Because it requires that the "liability" that may not be "lessen[ed]" "aris[e] from . . . failure in the duties or obligations provided in this section," § 3(8) is concerned with the liability imposed elsewhere in § 3, which defines that liability by explicit obligations and procedures designed to correct certain abuses by carriers, but does not address the separate question of the particular forum or other procedural enforcement mechanisms. Petitioner's contrary reading of § 3(8) is undermined by Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595-596, 111 S.Ct. 1522, 1528-1529, 113 L.Ed.2d 622, whereas the Court's reading finds support in the goals of the so-called Hague Rules, the international convention on which COGSA is modeled, and in the pertinent decisions and statutes of other nations. It would be out of keeping with such goals and with contemporary principles of international comity and commercial practice to interpret COGSA to disparage the authority or competence of international forums for dispute resolution. The irony of petitioner's argument in favor of such an interpretation is heightened by the fact that the forum here is arbitration, for the FAA is also based in part on an international convention. For the United States to be able to gain the benefits of international accords, its courts must not construe COGSA to nullify foreign arbitration clauses because of inconvenience to the plaintiff or insular distrust of the ability of foreign arbitrators to apply the law. Pp. ____.

(b) Also rejected is petitioner's argument that the arbitration clause should not be enforced because there is no guarantee foreign arbitrators will apply COGSA. According to petitioner, the arbitrators will follow the Japanese Hague Rules, which significantly lessen respondents' liability by providing carriers with a defense based on the acts or omissions of the stevedores hired by the shipper, rather than COGSA, which makes nondelegable the carrier's obligation to properly and carefully stow the goods carried. Whatever the merits of this comparative reading, petitioner's claim is premature because, at this interlocutory stage, it is not established what law the arbitrators will apply or that petitioner 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 enforcement of the laws has been addressed. Pp. ____.

(c) In light of the foregoing, the relevant provisions of COGSA and the FAA are in accord, and both Acts may be given full effect. It is therefore unnecessary to resolve the further question whether the FAA would override COGSA were COGSA interpreted otherwise. P. ____.

29 F.3d 727 (CA1 1994), affirmed and remanded.

KENNEDY, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and SCALIA, SOUTER, THOMAS, and GINSBURG, JJ., joined. O'CONNOR, J., filed an opinion concurring in the judgment. STEVENS, J., filed a dissenting opinion. BREYER, J., took no part in the consideration or decision of the case.

Stanley McDermott, III, New York City, for petitioner.

Thomas H. Walsh, Jr., Boston, MA, for respondents.

Justice KENNEDY delivered the opinion of the Court.

This case requires us to interpret the Carriage of Goods by Sea Act (COGSA), 46 U.S.C.App. § 1300 et seq., as it relates to a contract containing a clause requiring arbitration in a foreign country. The question is whether a foreign arbitration clause in a bill of lading is invalid under COGSA because it lessens liability in the sense that COGSA prohibits. Our holding that COGSA does not forbid selection of the foreign forum makes it unnecessary to resolve the further question whether the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. (1988 ed. and Supp. V), would override COGSA were it interpreted otherwise. In our view, the relevant provisions of COGSA and the FAA are in accord, not in conflict.

I

The contract at issue in this case is a standard form bill of lading to evidence the purchase of a shipload of Moroccan oranges and lemons. The purchaser was Bacchus Associates (Bacchus), a New York partnership that distributes fruit at wholesale throughout the Northeastern United States. Bacchus dealt with Galaxie Negoce, S.A. (Galaxie), a Moroccan fruit supplier. Bacchus contracted with Galaxie to purchase the shipload of fruit and chartered a ship to transport it from Morocco to Massachusetts. The ship was the M/V Sky Reefer, a refrigerated cargo ship 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. As is customary in these types of transactions, when it received the cargo from Galaxie, Nichiro as carrier issued a form bill of lading to Galaxie as shipper and consignee. Once the ship set sail from Morocco, Galaxie tendered the bill of lading to Bacchus according to the terms of a letter of credit posted in Galaxie's favor.

Among the rights and responsibilities set out in the bill of lading were arbitration and choice-of-law clauses. Clause 3, entitled "Governing Law and Arbitration," provided:

"(1) The contract evidenced by or contained in this Bill of Lading shall be governed by the Japanese law.

"(2) Any dispute arising from this Bill of Lading shall be referred to arbitration in Tokyo by the Tokyo Maritime Arbitration Commission (TOMAC) of The Japan Shipping Exchange, Inc., in accordance with the rules of TOMAC and any amendment thereto, and the award given by the arbitrators shall be final and binding on both parties." App. 49.

When the vessel's hatches were opened for discharge in Massachusetts, Bacchus discovered that thousands of boxes of oranges had shifted in the cargo holds, resulting in over $1 million damage. Bacchus received $733,442.90 compensation from petitioner Vimar Seguros y Reaseguros (Vimar Seguros), Bacchus' marine cargo insurer that became subrogated pro tanto to Bacchus' rights. Petitioner and Bacchus then brought suit against Maritima in personam and M/V Sky Reefer in rem in the District Court for the District of Massachusetts under the bill of lading. These defendants, respondents here, moved to stay the action and compel arbitration in Tokyo under clause 3 of the bill of lading and § 3 of the FAA, which requires courts to stay proceedings and enforce arbitration agreements covered by the Act. Petitioner and Bacchus opposed the motion, arguing the arbitration clause was unenforceable under the FAA both because it was a contract of adhesion and because it violated COGSA § 3(8). The premise of the latter argument was that the inconvenience and costs of proceeding in Japan would "lesse[n] . . . liability" as those terms are used in COGSA.

The District Court rejected the adhesion argument, observing that Congress defined the arbitration agreements enforceable under the FAA to include maritime bills of lading, 9 U.S.C. § 1, and that petitioner was a sophisticated party familiar with the negotiation of maritime shipping transactions. It also rejected the argument that requiring the parties to submit to arbitration would lessen respondents' liability under COGSA § 3(8). The court granted the motion to stay judicial proceedings and to compel arbitration; it retained jurisdiction pending arbitration; and at petitioner's request, it certified for interlocutory appeal under 28 U.S.C. § 1292(b) its ruling to compel arbitration, stating that the controlling question of law was "whether [COGSA § 3(8) ] nullifies an arbitration clause contained in a bill of lading governed by COGSA." Pet. for Cert. 30a.

The First Circuit affirmed the order to arbitrate. 29 F.3d 727 (1994). Although it expressed grave doubt whether a foreign arbitration clause lessened liability under COGSA § 3(8), 29 F.3d, at 730, the Court of Appeals assumed the clause was invalid under COGSA and resolved the conflict between the statutes in favor of...