Court of Appeals upholds cargo suit dismissal in case of damaged plywood shipped from Malaysia and Indonesia to New Jersey in 2013.    Liberty Woods International (LWI) purchased plywood,

which was shipped from Malaysia and Indonesia to Camden, N.J., on the ship _Ocean Quartz_.    LWI said the cargo — 9,439 crates weighing 8,592 metric tons — was delivered to the ports in

Asia in good condition. But when the shipments arrived in Camden in February 2013, the wood had suffered damage including crushing, breakage, scarring, abrasion, splintering and staining,

according to LWI, which said there also were shortages and destruction of packages. LWI said the loss exceeded $1.4 million.    The ship was owned by Dalia Ship Holding, but there was a

bill of lading that specified any claim, dispute, suit or action under the bill of lading “shall be brought before the Seoul District Court in Korea.”    Believing the damage was caused by

improper stowage, LWI threatened to arrest the vessel. In lieu of an arrest, the Japan Ship Owners’ Mutual Protection & Indemnity Association issued to LWI and its insurers a letter of

undertaking (LOU) on behalf of the vessel, which could be used to satisfy any judgment against the vessel in rem up to and including $2.75 million.    On Dec. 23, 2015, LWI filed a lawsuit

in the U.S. District Court in New Jersey naming _Ocean Quartz _as a defendant _in rem_ and the shipowner, Dalia, as a defendant i_n personam_.     LWI learned it could not recover _in

personam_ against Dalia because of the bareboat charter and the district court dismissed the _in rem_ lawsuit.     LWI appealed, but the 3rd Circuit Court of Appeals upheld the dismissal.

_(Liberty Woods International Inc. v. MV Ocean Quartz. 3rd Circuit. No. 16-4195. May 4.)_    In his concurring opinion, Judge Thomas Ambro explained, “For a maritime creditor an action _in

rem_ is a procedure for obtaining prejudgment security and post-judgment enforcement. In the global shipping business the debtor’s ship is typically the main asset on which a judgment

creditor can rely to collect from a defendant located perhaps on the other side of the world. A court can easier locate, bring within its jurisdiction and arrest the ship than a defendant’s

other foreign assets.     “It is no surprise then that maritime law supplies_ in rem_ liability against a ship, that is, permits an action naming the ship as though it were the defendant,”

he added. “As is relevant here, in the United States a ship can be liable _in rem_ for cargo damage, the idea being that the ship impliedly ratified the shipping contract when the carrier

loaded the cargo onboard.    “The Carriage of Goods by Sea Act, or COGSA, assumes the availability of an action against the ship,” he said. But “an action _in rem_ is only one way to impose

liability on a ship” and South Korean law does not allow _in rem_ suits.    In its main opinion, the 3rd Circuit Court said LWI could have filed an _in_ _personam_ suit against S.K. Shipping

in South Korea, but chose not to. “At argument, counsel admitted that this was a strategic move on its part because LWI felt that its suit would not be successful in South Korea.”     LWI

argued that enforcing the forum selection clause would violate section 3(8) of COGSA which says in part, “Any clause, covenant 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, arising from negligence, fault or failure in the duties and obligations … or lessening such liability … shall

be null and void and of no effect.”    LWI argued that this provision invalidated the foreign forum selection clause because South Korea does not recognize in rem suits.     But the 3rd

Circuit said, “While foreign forum selection clauses were originally disfavored under COGSA, the Supreme Court later adopted a policy that better reflected the need to respect the competence

of foreign forums to resolve disputes.”    In its 1995 decision, Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, the Supreme Court wrote, “The historical judicial resistance to foreign

forum selection clauses has little place in an era when ... businesses ... now operate in world markets.”     The 3rd Circuit said, “COGSA protects ship liability, not any particular vehicle

for imposing it. The text does not mention _in rem_ suits, nor require any specific remedy for enforcing ship liability.”     The court noted countries such as Greece, Poland and Germany do

not recognize _in rem _suits, adding the United States “is one of the few countries that do recognize _in rem_ suits. Imposing this idiosyncratic procedural requirement on other countries

would be needlessly parochial.”    LWI also contended that even if _in rem_ suits are not a substantive right, the forum selection clause in COGSA “effectively relieves or lessens ship

liability by not recognizing _in rem_ actions, in violation of COGSA.” The 3rd Circuit also rejected this argument.     “While _in rem_ suits might appear to be an obvious way to impose ship

liability, courts have recognized other avenues for imposing liability in situations where _in_ _rem_ suits are prohibited.”    The court said LWI could have obtained an LOU that would

provide security for an in personam suit in South Korea.    “LWI’s inability to recover seems to be a consequence of its own deliberate inaction: First, it refused to file an _in personam_

suit against S.K. Shipping in South Korea. Second, it did not obtain an LOU that would be applicable to an _in_ _personam_ suit. LWI’s own willful limitation of alternatives, not the forum

selection clause, has eliminated its ability to recover. For this reason, we hold that the forum selection clause did not effectively lessen or eliminate the vessel’s liability and that it

is valid under COGSA.” TO CONTINUE READING THIS ARTICLE... ALREADY HAVE AN ACCOUNT? SIGN IN CREATE A FREE ACCOUNT No payment required NEED HELP? CONTACT US