Lumbering Under a Misconception

Lesson Learned on Forum Selection

By Greg Borossay

The Stakeholders:

• U.S.-based global importer of wood flooring and prefabricated wood for cabinets, furniture, lamination, general woodworking and manufacturing.
• Ocean Quartz, a bulk carrier manufactured in Japan in 2010 sailing under the Panama flag.
• SK Shipping Co. Ltd.
• Dalia Ship Holding SA.
• Star Bulk Carrier SA.
• U.S. District Court, New Jersey.
• U.S. Ninth Circuit Court covering 11 western states.

The Scene:

In December 2011 Liberty Woods International, or LWI, imported various shipments of bulk lumber, finished (laminated) and unfinished, from Tanjung Manis, Malaysia, Bintulu Malaysia, and Samarinda, Indonesia, to Camden, New Jersey. The crates of plywood that discharged the Ocean Quartz Feb. 14-21, 2013 arrived in a damaged condition due to improper blocking and bracing within the vessel. There was water damage to the laminated cargo as well, due to failure to guard against weather during the vessel transit. The cargo was determined to be a total loss with damages in excess of US$375,000.

The Facts:

LWI, a manufacturer and importer of various hardwoods, ships using a mix of bulk carrier and container carrier vessels. The shipment in question was shipped breakbulk with the bill of lading issued by the vessel time charterer SK Shipping Co. Ltd. LWI filed suit against the bareboat charterer Dalia Ship Holding SA., in personam, and against the vessel Ocean Quartz in rem. An action in rem dates to the Middle Ages, and is a legal fiction that treats the vessel as a wrongdoer.

Because LWI had failed to file in a timely fashion against the bareboat charterer or the time charterer, the only remaining cause of action was against the Ocean Quartz in rem.

When the Ocean Quartz was bound for Camden, New Jersey, again in April 2013, LWI attempted to arrest the vessel. However, by that time Dalia Ship Holding had chartered the vessel to Star Bulk SA, not a party to the action. Thus, LWI could only bring their cause of action against the Ocean Quartz in rem.

The sales contract between LWI and SK Shipping Co. Ltd. contained a forum selection clause that named The District Court in Seoul Korea as only court authorized to settle any claim, suit or action under the bill of lading in question. However, the Seoul District Court does not recognize actions in rem against vessel owners. As such, the U.S. District Court in New Jersey, lacking enough case law, relied in this case on the U.S. Ninth Circuit Court decision in Fireman’s Fund Ins. Co. v. M.V. DSR Atlantic, 131 F.3d 1336 (1977). Fireman’s and its progeny found that lack of in rem jurisdiction by an international court is not necessarily a violation of the intent of the Carriage of Goods at Sea Act, or COGSA. As such, the U.S. District Court in New Jersey, finding no jurisdiction, dismissed the case leaving LWI without recourse.

The Law:

LWI argued that the bill of lading issued by SK Shipping, a Korean company, was a contract of adhesion with a forum selection clause that violated COGSA because it eliminated the opportunity to bring an action against the Ocean Quartz in rem because Korean courts do not recognize such actions. Following Fireman’s, the U.S. District Court in New Jersey found the following:

“Forum Selection Clauses in international contracts are prima facie valid and should be enforced unless the circumstances are unreasonable. Merely being inconvenient is not unreasonable and parties engaged in international trade are expected to read and understand the implications of the contracts they sign.”

There is no strong public policy basis for finding the forum selection clause to be invalid merely because the Korean court did not recognize actions in rem. In fact, the U.S. District Court in New Jersey argued that parties contracting to bring a suit abroad must be cognizant of their status as members of a global community and respect the competence of other jurisdictions to adjudicate claims.

The forum selection clause should not be invalidated even if the bill of lading was considered a contract of adhesion. Given that the clause in the contract was unambiguous, there is no reason to invalidate the clause as there did not appear to be unequal bargaining power between the parties.

The forum selection clause did not violate COGSA. G iven that “carrier” under COGSA could be the owner, manager, charterer, agent, master of a vessel or the vessel itself, the court found that COGSA does not mandate how the parties choose to contract.

Lessons Learned:

Liberty Wood International learned an expensive lesson through this case, and perhaps will select legal counsel willing and able to more promptly and effectively handle its claims in the future.

I’d like to give a few words to the wise regarding forum selection clauses for global breakbulk parties contracting in this space:

• Read the details of the bill of lading or retain competent legal counsel in advance to review the terms and conditions of the contract. Choose a venue that makes sense based upon the routing of the cargo instead of the ownership of the vessel itself.

• Another approach is to choose a neutral site not involved in the transaction where the courts have considerable experience with maritime issues. The UK Courts, The Hague, and Singapore are good choices. Check with your insurance provider for suggestions.

• Don’t expect U.S. courts to always step in to contravene in international maritime affairs, especially in the present tariff environment.

• Consider reducing the likelihood of litigation by using a reciprocal forum selection clause that requires that the plaintiff bring suit in the court system of the defendant in all actions. This tends to discourage litigation from the get-go.  

Greg Borossay is an attorney specializing in admiralty and transportation and is principal, marine business development, at the Port of San Diego. He can be contacted on, +1 949 633 9158.

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