1 Shipping Act of 1984, 46 U.S.C. app et seq. at

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1 Recent Developments in Maritime Law in The United States by Chester D. Hooper This paper will describe a sampling of recent developments in the United States. The sampling includes: bill of lading choice of forum clauses; a project to amend the United States Carriage of Goods by Sea Act (COGSA); a recent Supreme Court decision on Admiralty jurisqiction; the Supreme Court's grant of certiorari to determine whether admiralty or state law should govern the death of a recreational boater; an attempt, apparently by the U.S. Immigration and Naturalization Service (INS) to give INS the authority to force carriers to guard, house and feed stowaways while their applications for political asylum are pending; attempts by the United States Coast Guard, perhaps without authority, to allow ships' documents to be filed by facsimile; and an attempt by the U.S. Coast Guard to limit the use of Coast Guard accident reports in evidence and to remove the authority to subpoena Coast Guard personnel to testify in accident cases. Choice of Forum Bill of Lading Clauses; At the time of the Halifax seminar, June 2 and 3, 1995, VIMAR SEGUROS Y REASEGURQS, s. A. v. M/v SKY REEFER, et al.,no , 1995 U.S. LEXIS 4067, (June 19, 1995) had not been decided. We discussed the transcript of the oral argument, which indicated that the Supreme Court would uphold the stay of a bill of lading case pending arbitration in Tokyo. The Supreme Court has now affirmed and has indicated that it may be willing to uphold choice of forum clauses which call for litigation in foreign countries as well. The SKY REEFER concerned a cargo of oranges shipped aboard that vessel from Morocco to Boston. The oranges shifted stow during the voyage and sustained considerable damage as a result. The consignee filed suit in the United States District Court for the District of Massachusetts, and the vessel interests moved to stay that suit pending arbitration in Tokyo. The bill of lading contained a clause which called for Tokyo arbitration. - The vessel interest opposed the motion, relying on the rule, which had been set forth in the landmark case of Indussa v. SS Ranborg, 377 F.2d 200, 1967 AMC 589 (2d Cir. 1967) (en banc) (Friendly, C.J.). Indussa had involved a small, $2,600, cargo suit which had been filed in New York. The bill of lading included a clause, which chose courts in the country of the vessel's flag as the exclusive forum. The vessel interests moved the court to dismiss the lawsuit in favor of the country of the ship's flag, Norway. In an ~ ~ decision of the United States Court of Appeals for the Second Circuit, Judge Friendly 1

2 held that the choice of forum clause violated COGSA. He looked to COGSA 3(8) which prohibited a Carrier from reducing his liability beneath the minimum established by COGSA. Judge Friendly recognized that a plaintiff would be willing to accept an unreasonably low settlement to avoid the expense of travelling to Norway to recover $2,600. The Supreme Court may have overruled Indussa. The majority SKY REEFER opinion, authored by Justice Kennedy, declined to impose on the courts the burden of examining and comparing various expenses imposed by litigating in various fora to determine whether a choice of forum clause was reasonable. Justice Kennedy did not think that the courts should concern themselves with the details of travel fees, hotel expenses, etc. As an example, he suggested that the Indussa rule would invalidate a clause which chose Vancouver, even if the cargo interests were from Seattle, Washington and jurisdiction could only be obtained over the Carrier in New York. The majority did, however, state that the substantive law to be applied by the chosen forum was relevant. They explained that, because the District of Massachusetts retained jurisdiction over the case which was stayed pending arbitration, the District of Massachusetts could, when it was asked to confirm an arbitration award, correct the award if the arbitrators applied a standard of liability less than the COGSA minimum. It is not known what effect, if any, this decision will have. Carriers wishing to take advantage of the low, $500, COGSA package limitation may not want to avoid United States courts. Some carriers might want to relegate claims against them to some hard to reach forum, which might take an extremely long time to decide cases. Reputable carriers realize that prompt handling of claims is simply good business and will not use this new found freedom as a means of avoiding claims. Shippers may also demand bills of lading without choice of forum clauses. If a carrier agrees to avoid choice of forum clauses for good shippers, the carrier must avoid choice of forum clauses for all shippers. Shipping Act of 1984 prohibits discriminatory treatment of shippers.l 1 Shipping Act of 1984, 46 U.S.C. app et seq. at 1709 provides in part as follows: (b) COMMON CARRIERS - No common carrier, either alone or in conjunction with any other person, directly or indirectly, may - (6) except for service contract, engage in any unfair or unjustly discriminatory practice in the matter of - (A) rates; (B) cargo classifications; (C) cargo space accomodations ; 2

3 This decision may tell cargo plaintiffs, who stand to receive a better recovery under u.s. COGSA than the forum chosen in the bill of lading, to start suit in the United States. The Carrier may move to stay pending foreign arbitration or to dismiss in favor of the chosen foreign litigation. If the United States suit is stayed pending foreign litigation, the plaintiff may wish to have the United States court redecide the case according to U.S. COGSA if the arbitrators award the cargo plaintiff less than U.S. COGSA would allow. If the choice of forum clause calls for foreign litigation, cargo plaintiff might have to bring experts on the law of the chosen forum to testify that that forum would award less than U.S. COGSA. A Proposal to Amend the United States Carriage of Goods by Sea ~ The SKY REEFER opinion may focus attention on efforts by the Committee on the Carriage of Goods of the Maritime Law Association of the United States to amend COGSA. The current draft of the proposal prohibits choice of forum clauses in bills of lading for cargo carried to or from the United States if the choice of forum clause attempts to send a dispute to another country. The clause prohibits such choice of forum clauses if they choose foreign litigation or arbitration. If a clause chooses foreign arbitration, the proposal will permit either party to demand arbitration in the United States. The COGSA amendment project is an effort to break a stalemate which has existed between pro-hague/visby and pro Hamburg interests in the United States. It is presently being discussed in depth in a series of meetings which will beheld until the draft is voted on at the MLAUS meeting in New York on May 3, The present draft is the product of a drafting committee of the Committee on the Carriage of Goods of MLAUS. The reporter and principle drafter is Professor Michael Sturley.2 The proposed amendment would make the following changes, inter~: 1. Extend the tackle to tackle period to the entire mul timodal carriage. The Hague Rules and the Hague/Visby Rules presently (D) loading and landing of freight; or (E) the adjustment and settlement of claims; 2 A copy of the latest report of the project by Professor Michael Sturley together with the proposed COGSA as amended and a redline comparison of the present COGSA and the proposed amended COGSA is enclosed. 3

4 govern only the tackle to tackle period of cargo carriage. Thus, if the cargo were damaged after it was discharged from the ship, COGSA would not govern with the force of law. If the cargo were damaged while on a truck or a railroad, liability might be governed by the stricter Carmack Amendment to the Interstate Commerce Commission Act. The proposed amended COGSA would extend COGSA throughout the entire multimodal period of carriage. The ocean carrier and cargo interests could negotiate a settlement without litigating whether COGSA or the Carmack Amendment governed and without determining precisely where the damage occurred. Once the carrier settled with cargo interests, it could seek indemnity pursuant to its own contract with the responsible inland carrier. 2. Himalaya Clause would not be needed. The multimodal nature of COGSA would also eliminate the need for a Himalaya Clause. The protection of COGSA would be extended under this scheme, to all persons performing part of the contract of carriage. 3. Limitation. The COGSA limitation would be changed to the present Hague/Visby weight or package limitation for the sake of uniformity. 4. Error of Navigation or Management. The defenses of error of navigation or management would be deleted, but cargo interests would be assigned the burden to prove the error of navigation or management. 5. Proportionate Pault. At the present time, if two events combine to cause damage, and if COGSA would excuse the carrier for damage caused by one event, but ~buld not excuse the carrier for damage caused by the other event, the carrier would bear the burden to prove the precise amount of damage caused by the event for which it was not liable. As an example, if cargo were damaged by a combination of insufficient packaging and improper stowage, the carrier would bear the burden to prove the precise amount of damage caused by insufficient packaging. If the carrier were unable to meet that "insuperable burden," the carrier would be liable to pay 100% to cargo interests. The proposed amended COGSA would adopt the proportionate liability scheme which has been used in collision cases since the case of U.S.A. v. Reliable Transfer Co., 421 U.S. 397, 1975 AMC 541 (1975). Under this proposal, both the carrier interests and cargo interests would bear the same burden to prove 4

5 the percentage of fault caused by each event. If the judge were convinced that 75% of the damage was caused by insufficient packaging and 25% was caused by improper stowage, cargo interests would be awarded 25% of their damages -- the percentage caused by improper stowage. If the trier of fact were unable to determine the proportion of fault caused by each event, but were able to determine that the two events combined to cause the damage, the court would award cargo 50% of its damages. We feel that this rule would cause many cases to be settled for 50%. 6. Shipper's Load and Count. The courts in the United States have, erroneously I think, treated shipper's load and count clauses as null and void in many respects. Our courts have reasoned that a carrier does not have to state the quantity or weight of cargo received in a bill of lading if the carrier has reason to suspect its accuracy or has no reasonable means to check its accuracy. The courts have considered the deletion of quantity or weight from the bill of lading to be the exclusive remedy available to the carrier. They have not permitted carriers to escape the prima facie effect of quantity descriptions by clearly clausing the bill of lading with "shipper's weight, load and count," or words of like effect. The amendment will specifically permit a carrier to avoid the prima facie quantity or weight effect of the bill of lading by use of such clauses if the carrier receives a sealed container or if the carrier has no reasonable means to check the quantity or weight of the cargo. 7. On Deck Carriage. The proposed amendment to COGS A will apply to deck carriage with the force of law. Thus, a carrier will be entitled to the COGSA defenses for cargo carried on deck as well as under deck. 8. Se~ce Contracts. The proposed COGSA will permit the carrier to lower its liability below the COGSA limits in any dispute between parties to a service contract. This provision will not apply to claims brought by a holder in due course of a bill of lading who is not a party to the service contract, even if a service contract existed between the shipper and the carrier. law. 9. Contracts to which COGSA applies with a force of COGSA will apply to contracts of carriage evidenced by bills of lading or similar contracts rather than to bills of lading or similar documents of title. The present similar 5

6 private ocean carriers to assume the police powers of the state to guard, house and feed applicants for political asylum 3, who had stowed away on the carriers' ships. Carriers, without detention facilities of the state, resorted to placing stowaways in shackles to prevent their escape from motel rooms not equipped to detain them. The following emphasized provision of S.7S4 contains language which would give INS the authority to return to that flawed policy: It shall be the duty of the owner, charterer, agent consignee, commanding officer, or master of any vessel or aircraft arriving at the United States from any place outside the United States to detain on board or at such other place as may be designated by an immigration officer any alien stowaway until such stowaway has been inspected by an immigration officer. Upon inspection. the AttOrney General. pursuant to regulation. may take immediate custody of any stowaway and shall charge the owner. charterer. agent. consignee. commanding officer. or master of the vessel or aircraft on which the stowaway has arrived the costs of detaining the stowaway. This Association respectfully suggests that the above emphasized language be replaced with the following language: "Upon inspection, the Attorney General, pursuant to regulation, shall take immediate custody of any stowaway." The wide spread criticism of the former policy was justified. It subjected the stowaways, seeking freedom in our country, to the very opposite. The carriers, without the facilities of the state, were left to their own devices to guard, house, and feed the stowaways while the stowaways' applications for political asylum were pending. It has not been unusual for final determination of a political asylum application to take between a few months to a year. The stowaways might spend that time shackled in a dingy motel room, while the carriers spend thousands of dollars to feed, house, and prevent the stowaways from 3 An alien who is in the United States, even illegally, is entitled to constitutional protections, Mathews v. Diaz, 426 U.S. 67. INS, who makes the decision provisionally to retain a stowaway in this country should provide for and protect such person. Individual private carriers have neither the obligation, nor the capacity, to provide constitutional protections. 7

7 documents of title language leaves some question as to whether COGSA would apply with the force of law to sea waybills. 10. Choice of Porum clauses. COGSA will treat the choice of a court or an arbitration proceeding outside the United States as null and void if the cargo were shipped to or from the United States. Should Admiralty Law or State Law Govern an action for the Wrongful Death of a Recreational Boater? The Supreme Court of the United States has agreed to decide this question in the case of Yamaha. et al. v. Calhoun. et ~, , 1995 WL (U.S. May 22, 1995) (cert. granted). Calhoun concerns the death of a twelve year old girl, who rented a jet ski while on vacation with her parents in Puerto Rico. The United States Court of Appeals for the Third Circuit, while deciding a question certified to it from the district court before trial, held that state law rather than federal Admiralty law should apply. The Third Circuit relied heavily on the much criticized decision of Wilburn Boat, which held that state law rather than the general maritime law should govern the interpretation of admiralty insurance issues which have not been clearly defined by Admiralty law. The Supreme Court has decided to hear Calhoun and the MLAUS has filed a brief amicus curiae urging the application of admiralty law for the sake of uniformity. Stowaways: Until October 1994, the United States Immigration and Naturalization Service forced Carrier to house, guard, and feed stowaways until their applications for political asylum were decided. The application process quite often consumed one year. During this time, the Carriers were responsible for the stowaways and might spend up to $100,000 for each stowaway_ Congress changed the law in October 1994 to require INS to assume responsibility for those stowaways who sought political asylum. A bill now pending before Congress would reverse that reform and again force the Carriers to assume responsibility for political asylum applicants. MLAUS wrote a letter including the following quote to several United States senators urging the bill not be passed: We write to urge the Congress not to reverse recent reforms made by Congress to the law governing stowaways. The reform of October 25, 1994 in P.L , 216, which amended 8 U.S.C. 1323(d), stopped a much criticized policy of the Immigration and Naturalization Service (INS). That policy forced 6

8 escaping. The INS directives were anything but uniform. INS offices in certain locations required carriers to guard, house, and feed stowaways, while other INS offices in other locations assumed custody of the stowaways and placed them in detention facilities. Still other INS officers entertained, and in some instances granted, requests by stowaways to be released into the custody of a responsible person or organization. The former policy also unduly burdened oceans carriers without regard to the care which the ocean carrier had exercised to prevent persons from stowing away on their vessels. Most carriers use their best efforts to prevent stowaways from boarding their vessels, but are simply not able to prevent all stowaway attempts. Sealed containers are loaded onboard vessels from foreign sovereign states over which the carrier has no control. If stowaways secrete themselves into sealed containers before the stevedores load the containers onboard vessels, the vessel interests are simply unable to detect and dismiss the stowaways from the ship before the ship sails. Similarly, terminal stevedores at foreign ports who are sympathetic to a stowaway's plight will assist the stowaway to board the vessel without being detected by the vessel crew and/or independent security guard employed by the vessel owners to specifically stop stowaway activities. In addition to stowaways, ships also encounter, on occasion, people in peril on the seas. Those persons, often referred to as "boat people," may have intentionally placed themselves in peril. Nevertheless,' the ship is obligated to rescue those in peril on the sea. 46 U.S.C Carriers have been forced to assume control even of persons its ships have rescued at sea. The results of the heavy burden placed on carriers has been disastrous. The officers and crew of a vessel, not destined for the United States, but apparently fearful of imposition of similar burden by another nation, beat 8 stowaways almost to death and threw them into the sea. Carriers have been forced to pay thousands of dollars to guard, house, and feed stowaways while their applications for political asylum have been pending. 8

9 This Association does not object to requiring ocean carriers to bear liability for breach of their duties. If a carrier does not properly search its ship for stowaways before sailing or does not take other proper and reasonable precautions to prevent stowaways from boarding its ship, the carrier should bear responsibility and liability for its failure. If, on the other hand, the carrier has taken all proper actions and stowaways nevertheless board the vessel, the carrier should not be punished. Carriers should certainly not be punished for rescuing persons in peril on the seas. If INS decides to entertain applications for political asylum, carriers should not be forced to bear the expense of that INS decision. That expense is caused not by the carrier failing to prevent the person from stowing away, but by entertaining the application for political asylum. U.S. Coast Guard Authorization Bill: MLAUS is also asking Congress not to pass, or at least to hold hearings on, two parts of this year's Coast Guard Authorization Bill. The Coast has promulgated a regulation which allows filing certain ship financing documents by facsimile transmission. The Marine Financing Committee of MLAUS doubts that the Coast Guard has received statutory authority to allow this method of filing. The Committee fears that facsimile filed documents may be challenged sometime in the future on the grounds that the regulation was not authorized and therefore the documents were not properly file. MLAUS urged the Coast Guard to delay promulgating the regulation until it has received statutory authority to do so. A portion of the letter from the chair of the Marine Financing Committee, David Mel. Williams, follows: Finally, our Committee's suggestion regarding Section 403 relates to the fact that the consolidation of the Coast Guard's offices of vessel documentation is already underway and the Coast Guard has already issued a Notice of Proposed Rulemaking (NPR) for regulations to permit the filing of instruments at the new consolidated office by facsimile. 60 Fed. Reg ). In a letter of comment to the Coast Guard on the NPR, we have noted that some practitioners have serious doubt whether the new regulations in the NPR have statutory authority under present law. Accordingly, we believe it would be helpful if this legislative authority in Section 403 for facsimile filing were to have a stated effective date that coincides with the effectiveness of the regulations on this subject now proposed by the Coast Guard - even if that date were in effect retroactive -- as to eliminate, 9

10 any doubts about the validity of the Coast Guard's regulations as applied to the period prior to the effectiveness of this Bill. The Coast Guard authorization bill also severely limits the use of Coast Guard accident reports and the testimony of Coast Guard personnel in civil litigation. MLAUS has filed objections to this proposal and has requested hearings on it. MLAUS thinks that the parties to a civil litigation should be able to subpoena a Coast Guard person who may have unique knowledge of the facts of a marine casualty. A portion of the letter from the chair of the Practice and Procedure Committee of MLAUS, Robert Zapf, follows: I write in my capacity as Chair of the Practice and Procedure Committee of the Maritime Law Association of the United States. At our annual Spring Meeting held this week, we were first advised of the inclusion in House Bill H.R. 1361, the proposed Coast Guard Authorization Act of 1995, of Section 414, a provision which seeks to limit the admissibility of marine casualty investigation reports issued by the United States Coast Guard, and to limit the availability of Coast Guard personnel as witnesses in civil litigation. It is our understanding that the Coast Guard and the Department of Justice are concerned over the use to which Coast Guard investigation reports are put in civil litigation, and the potential for disruption of operational procedures involved in responding to subpoenas requiring the attendance of Coast Guard personnel at trials or depositions in civil litigations arising out of marine casualties. While we share these concerns, and are very sympathetic to them, we believe that the proposed legislation is not the balanced response which can be achieved if more time for consideration of alternatives is allowed, and therefore that this provision should be deleted from the Bill. We note that Section 414 of H.R is not mentioned in the markup of the bill, the March 13, 1995 Memorandum from Chairman Howard Coble and James Traficant, Ranking Minority Member, addressed to the Members of the Subcommittee on Coast Guard and Marine Transportation. This suggests that the Section is a recently proposed addition to the draft legislation. While there are many very good provisions in H.R. 1361, indeed, some which the Maritime Law Association 10

11 itself has long supported and sought, it is the view of the Practice and Procedure Committee that this particular provision, Section 414 dealing with admissibility of Coast Guard investigation reports and availability of Coast Guard personnel, is not good law, and creates evidentiary and constitutional concerns over due process in civil litigation. We respectfully request that this section be deleted from the pending bill so that further opportunity can be had for consideration of alternatives. To that end, we would be more than happy to discuss legislation to achieve protection of all interests on this issue with the Committee Staff, Coast Guard personnel, and representatives of the Department of Justice. We believe that we will be successful in achieving a satisfactory resolution of the problem if more time is given to do so. This sampling of the current activity of MLAUS is a sampling of the many projects now underway. We hope that we may be of some assistance in our efforts to bring some uniformity to maritime law. We are honored to be able to work closely with the Canadian Maritime Law Association. l 11