In 1990, Itel Container Corp (Itel) purchased 198 refrigerated containers in Japan for use in international commerce. Subsequently, Itel negotiated with a representative from Sky Shipping Ltd, formerly known as Candyline Ltd (Candyline), for the shipment of the containers from Japan to Savannah, Georgia. Candyline operated as a NVOCC. After negotiating the contract, Itel received a signed copy of a Conline booking note evidencing the terms and conditions of the shipment. Along with the boilerplate terms, the booking note contained an addendum with additional typewritten terms, including cl 10, which stated 'English law to apply'. Candyline's agent in Japan then prepared and delivered to Itel's Japanese agent a liner bill of lading. The bill of lading incorporated the booking note by reference. The bill of lading contained a general paramount clause providing for the application of the Hague Rules in some situations and for the incorporation of the Hague-Visby Rules in others. Clause 3 of the bill of lading was a forum selection clause providing for any disputes arising under the bill of lading to be decided in the country where the carrier had its principal place of business, under that country's laws. Candyline’s principal place of business was in England.

Candyline then contracted with Mammoet for the actual carriage of the containers. Mammoet managed the MV Titan Scan, which was owned by Modul Carriers AG & Co (Modul). Candyline and Mammoet executed a Conline booking note and bill of lading containing terms identical to those found in the Itel/Candyline agreement with the sole exception of the cost of the freight. The bill of lading was issued in Japan.

The containers were transported from Japan to Panama without incident. In Panama, the ship made an unscheduled stop and the containers were restowed. During the trip from Panama to Savannah, the containers came loose during heavy weather. Twenty were lost overboard and six others were severely damaged.

Itel sued the vessel in rem, and Candyline, Modul, Mammoet, and Autoridad Portuaria Nacional in personam, seeking to recover damages for the lost and physically damaged containers. Candyline filed a cross-claim for indemnity against Mammoet. The District Court held that Itel was entitled to recover damages from Candyline, and that Candyline’s liability was determined by the Hague-Visby Rules. The District Court also held that Candyline was entitled to indemnification from Mammoet, but that Mammoet’s liability was limited by the lower package limit in US COGSA.

Candyline appealed, arguing that there was no legal basis for distinguishing between the Itel/Candyline and Candyline/Mammoet agreements, and that they were intentionally created as 'back to back' contracts to be governed in all aspects by the same statutory regime. Candyline maintained that, while the District Court correctly found that the parties intended that English law be used to govern the Itel/Candyline contract, the District Court incorrectly concluded that English law called for an application of the Hague-Visby Rules. Instead, under English law, the liability limits of the Japanese COGSA, which applied the Hague Rules, should apply.

Itel maintained that Candyline's liability under the Itel/Candyline agreement was governed by the Hague-Visby Rules, as incorporated in English law, arguing that cl 10 of the booking note and cl 3 of the bill of lading mandated the application of English law. Itel also contended that its contract with Candyline fell within the purview of art 10.c of the Hague-Visby Rules, calling for the application of those Rules when the contract contained in or evidenced by the bill of lading so provided.

Mammoet argued that Candyline failed to include, in its agreement with Mammoet, any language suggesting the existence of a 'pass through' liability scheme or 'back to back' agreement. The Candyline/Mammoet agreement did not evidence a clear intent to abrogate the liability limits of the US COGSA in favour of a higher liability limit.

Held: The District Court's determination that the Itel/Candyline contract was governed by the Hague-Visby Rules is affirmed. The District Court's conclusion that the Candyline/Mammoet agreement is subject to US COGSA is reversed. The case is remanded to the District Court to determine the amount of indemnification to which Candyline was entitled under the Hague-Visby Rules.

The Itel/Candyline and Candyline/Mammoet contracts have to be evaluated as two separate transactions. The evidence is that Itel and Mammoet had no communication during the negotiation of the respective contracts of carriage. Furthermore, while Candyline insisted that its intent, in structuring the contracts identically, was to create a 'pass through' system of liability, Candyline failed to include language to that effect in the Candyline/Mammoet agreement.

The general paramount clause provided as follows:

The Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading ... as enacted in the country of shipment shall apply to this contract. When no such enactment is in force in the country of shipment, the corresponding legislation of the country of destination shall apply, but in respect of shipments to which no such enactments are compulsorily applicable the terms of the said Convention shall apply.

Trades where Hague-Visby Rules apply.

In trades where ... the Hague-Visby Rules apply compulsorily, the provisions of the respective legislation shall be considered incorporated in this Bill of Lading. The Carrier takes all reservations possible under such applicable legislation, relating to the period before loading and after discharging and while the goods are in charge of another Carrier, and to deck cargo and live animals.

Clause 3 of the bill of lading provided as follows:

Any dispute arising under the Bill of Lading shall be decided in the country where the carrier has his principal place of business, and the laws of such country shall apply except as provided elsewhere herein.

The District Court noted that in the past general paramount clauses identical to the one above had been interpreted as an agreement between the parties to have a liability limit higher than that provided under US COGSA: Associated Metals & Minerals Corp v MV Arktis Sky 1991 AMC 1499 (SD NY 1991) (see CMI1603 for the 2d Circuit appeal judgment); Pyropower Corp v MV Alps Maru 1993 AMC 1562 (ED Pa 1993). However, those cases stand for the proposition that where the Hague-Visby Rules were enacted in the country of shipment, para 2 of the general paramount clause was implicated, and the Hague-Visby Rules are therefore incorporated into the bill of lading. In the present case, the country of shipment was Japan, which had not enacted the Hague-Visby Rules at the time of the contract. Thus, para 2 of the general paramount clause was not implicated. According to para 1 of the general paramount clause, the Hague Rules as enacted by Japan would have been incorporated into the bill of lading.

While the general paramount clause suggested the application of Japanese COGSA, the District Court was right in concluding that the liability limits of the Hague-Visby Rules, as enacted in England, apply to the Itel/Candyline agreement: 1) cl 3 in the bill of lading stated that any dispute arising under the bill of lading shall be decided in the country of the carrier's place of business. The carrier for the purposes of the Itel/Candyline agreement was Candyline, whose principal place of business was London. Thus, cl 3 pointed towards the application of English law; and 2) cl 10, which was contained in the typewritten addendum to the booking note, called for the application of English law.

Forum selection clauses such as the one above used to be unenforceable as a violation of US COGSA. However, the Supreme Court overruled the line of cases invalidating forum selection clauses in COGSA cases as contrary to s 3(8) of US COGSA, instead holding that US COGSA does not nullify foreign arbitration clauses contained in maritime bills of lading: Vimar Seguros y Reaseguros SA v MV Sky Reefer 515 US 528 (1995) (CMI1456). A foreign forum selection clause is enforceable unless the substantive law that the foreign forum would apply makes provision for a liability less than US COGSA guarantees: Blaise GA Pasztory v Croatia Line 918 F Supp 961 (ED Va 1996). In the present case, the foreign forum selection clause calls for the application of English law which, under the Hague-Visby Rules, contains a higher liability limit than that under the US COGSA. Thus, under a Sky Reefer type analysis, the forum selection clause is to be enforced.

Furthermore, under generally accepted principles of contract construction, specific clauses take precedence over general ones, and clauses that had been added by the parties pre-empt form provisions: Insurance Co of N Am v SS Sealand Developer 1990 AMC 2967. Clause 10 of the addendum to the booking note is a specific clause that was added by the parties and therefore pre-empts the boilerplate general clause paramount. Additionally, while cl 3 of the bill of lading was not added by the parties, it is more specific than the general paramount clause, and it too, calls for the application of English law.

As to Candyline’s argument that, under English law, the liability scheme contained in the Japanese COGSA would apply, the District Court was correct in holding that the language of cl 10, together with that of cl 3, satisfied art 10.c of the Hague-Visby Rules, which provides that the Hague-Visby Rules apply if 'the contract contained in or evidenced by the bill of lading provides that these Rules or legislation of any State giving effect to them are to govern the contract'.

The Candyline/Mammoet contract and the Itel/Candyline contract are nearly identical. While the Candyline/Mammoet situation is marginally different from the Itel/Candyline situation, the differences between the two situations do not constitute adequate grounds upon which to distinguish the statutory schemes applicable to the liability limits of the respective contracts. The factors that counselled in favour of applying the higher liability limits of the Hague-Visby Rules to the Itel/Candyline contract are also present in the Candyline/Mammoet contract.

As with the Itel/Candyline contract, the bill of lading was issued in Japan, and the country of shipment was Japan; both of these facts suggested, as they did in the Itel/Candyline contract, the application of the Japanese COGSA liability scheme, which did not include the Hague-Visby Rules. However, the Candyline/Mammoet agreement, like the Itel/Candyline agreement, also contained cl 10, the typewritten term added by the parties. Therefore, the only ground for distinguishing between the Itel/Candyline situation and the Candyline/Mammoet situation was cl 3, the forum selection clause, which provided for the application of the law of the carrier's principal place of business. The carrier for purposes of the Candyline/Mammoet agreement is Mammoet, whose principal place of business is Amsterdam instead of London. Thus, cl 3 calls for the application of Dutch law. Clause 3, however, is an inadequate ground upon which to distinguish the Itel/Candyline contract from the Candyline/Mammoet contract, for two reasons. First, cl 3 specifies that 'any dispute ... shall be decided in the country where the carrier has his principal place of business, and the laws of such country shall apply except as provided elsewhere herein'. Clause 10, a typewritten phrase added by the parties, specifically provided for the application of English law. Second, even if cl 10 is eliminated, the Netherlands, like England, has adopted the Hague-Visby Rules. Thus, even if the liability limits of the contract are governed by Dutch law, the higher liability limits contained in the Hague-Visby Rules will nevertheless apply. Therefore, cl 3 is not an appropriate ground upon which to distinguish the Itel/Candyline agreement from the Candyline/Mammoet agreement. If anything, cl 3 evidences an intent to abrogate the liability limits of US COGSA in favour of a foreign statutory scheme with higher liability limits.