Vimar Seguros Y Reaseguros, S. A. v. M/V Sky Reefer

1995-06-19

Headline: Court upholds enforcement of a foreign arbitration clause in a ship’s bill of lading, ruling federal shipping law (COGSA) does not automatically bar arbitration abroad and allowing arbitration in Tokyo to proceed.

Holding: The Court held that a clause requiring arbitration in a foreign forum in a ship’s bill of lading does not automatically violate federal shipping law (COGSA) and may be enforced, with courts later reviewing awards if needed.

Real World Impact:

Allows courts to enforce foreign arbitration clauses in shipping contracts.
Increases the likelihood that cargo disputes will be resolved abroad instead of in U.S. courts.
Leaves choice-of-law questions to arbitrators and later court review of awards.

Topics: international shipping, maritime contracts, arbitration abroad, cargo damage

Summary

Background

A New York fruit wholesaler bought a shipload of oranges and lemons from a Moroccan supplier. The carrier issued a standard bill of lading that said Japanese law would govern and that disputes would be arbitrated in Tokyo. When the cargo was damaged on arrival in Massachusetts, the wholesaler’s insurer paid part of the loss, then sued the ship and vessel in a U.S. court. The carrier asked the court to force arbitration in Tokyo under the contract and the Federal Arbitration Act (FAA).

Reasoning

The Court asked whether the Carriage of Goods by Sea Act (COGSA) makes a foreign arbitration clause invalid because it “lessens” a carrier’s liability. The majority said COGSA protects the substantive duties and limits on carrier liability, but it does not by its own terms forbid choosing a foreign forum or increase in litigation costs. Concerns that foreign arbitrators might not apply COGSA were called premature because the arbitrators may apply COGSA and the U.S. court retained jurisdiction to review enforcement of any award. The Court therefore held COGSA does not automatically nullify foreign arbitration clauses and found the FAA and COGSA can operate together.

Real world impact

As a result, courts may compel arbitration abroad under bills of lading of this kind, while keeping the door open to later judicial review of awards or any actual weakening of COGSA protections. Shippers, carriers, and insurers should expect more international arbitration to be enforced in maritime shipping disputes, though choice-of-law questions remain for arbitrators and later court consideration.

Dissents or concurrances

Justice O’Connor agreed only with the judgment and stressed limits; Justice Stevens dissented, warning the decision departs from decades of precedent protecting shippers from costly foreign forums and undermines bill-of-lading negotiability.