Nippon Steel Corp sold 232 wrapped spring wire rod coils to Okaya (USA) Inc (Okaya). The coils were carried from Muroran, Japan, to New Orleans, Louisiana, by the M/V Coral Halo. In New Orleans, the coils were discharged and stored at Transocean Terminal Operators Inc (TTO)'s facility. TTO reloaded the coils onto the Barge AT-641B, which carried the coils upriver from New Orleans to Cincinnati, Ohio.

The M/V Coral Halo was owned by Mars Shipping and managed by Daiichi Chuo Kisen Kaisha, Daiichi Chuo Kisen, KK and Daiichi Kosan Kaisha (Mars Shipping and Daiichi). Daiichi issued clean onboard bills of lading containing clauses on governing (Japanese) law (cl 2), (Japanese) forum selection (cl 3), validity (cl 4), description of goods (cl 8), and a Himalaya clause (cl 34).

The Barge AT-641B was owned by American River Transportation Company (ARTCO). Combined Transport Systems Inc (CTS) contracted with ARTCO to use the barge. Okaya contracted with CTS for the barge transport.

At Cincinnati, the coils were found to have sustained extensive damage, including torn covers, scrapes, and rust. Okaya sued the M/V Coral Halo, the Barge AT-641B, TTO, CTS, Mars Shipping and Daiichi, and ARTCO (together, the defendants). The insurer of the coils, Nippon Fire & Marine Insurance Co (Nippon), paid damages to Okaya and became subrogated to its claims against the defendants. ARTCO also filed cross-claims against Mars Shipping and Daiichi.

Mars Shipping and Daiichi applied to the Court to dismiss Nippon's complaint against them. They submitted that the foreign forum selection clause in the bill of lading in favour of the Japanese courts meant that the Court did not have jurisdiction to hear the complaint.

Held: The motion to dismiss Nippon's complaint is granted.

The United States enacted COGSA in 1936 and, in doing so, incorporated the Hague Rules governing the carriage of goods into domestic law. The purpose of COGSA was to achieve international uniformity. Congress enacted § 3(8) to redress the unequal bargaining power enjoyed by carriers over shippers and cargo interests:

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 provided in this section, or as lessening such liability otherwise than as provided in this chapter, shall be null and void and of no effect.

Other countries, including Japan, have enacted the Hague Rules. When the Hague Rules were amended in 1967 and 1968, they became known as the Hague-Visby Rules. The United States did not adopt the Hague-Visby Rules, but Japan incorporated the Visby changes into its own version of COGSA (JCOGSA) in 1992.

Article 15(l) of JCOGSA, the Japanese equivalent of § 3(8), prevents the carrier from limiting its liability beyond that permissible under the law of each respective forum and accomplishes the same purpose as § 3(8) of COGSA:

Any special agreement which is contrary to the provisions of Articles 3 to 5, Article 8, Article 95 or Articles 12 to 146 and is not in favour of the shipper, receiver or holder of the bill of lading, shall be null and void.

Certain aspects of a carrier's liability may be limited under Japanese law. It is possible for a plaintiff to recover less damages in Japan than it would in the US, with the USD 500 per package limitation. Under US COGSA § 4(5), a carrier may not contract to lessen its liability to below USD 500 per package. By contrast, art 13 of JCOGSA provides that the carrier's liability for loss of or damage to goods shall be the higher of:

1) An amount equivalent to 666.67 units of account;
2) An amount equivalent to 2 units of account per kilo of gross weight of the goods lost, damaged, or delayed ...

The Chinese Maritime Code contains a provision identical to art 13 of JCOGSA. The Court in Jewel Seafoods Ltd v M/V Peace River 39 F Supp 2d 628, 632 (D SC 1999) determined that this provision benefitted the plaintiff, rather than diminishing its rights under COGSA. Nevertheless, the case is only illustrative, and this Court is unable to make the same determination on the facts before it.

Daiichi's bill of lading does not evidence an attempt to ensure that the law to be applied will relieve it of COGSA liability. To the contrary, Daiichi selected Japan to ensure a convenient forum. A Japanese court will not lessen the liability of Daiichi and Mars Shipping by enforcing cl 8.

JCOGSA apparently permits the carrier to contract against liability for its failure to report errors in the description of goods. Under COGSA, the carrier is not responsible for the shipper's errors in the bill of lading which it reasonably could, or should, not have discovered. The carrier is responsible for issuing a bill of lading to the shipper showing

[t]he apparent order and condition of the goods: Provided, That no carrier, master, or agent of the carrier, shall be bound to state or show in the bill of lading any marks, number, quantity, or weight which he has reasonable ground for suspecting not accurately to represent the goods actually received, or which he has no reasonable means of checking (COGSA, § 3(3)(c)).

The enforcement of the clause on description of goods will not lessen the liability of Daiichi and Mars Shipping in a Japanese forum. Nippon had not alleged that any loss was due to an inaccurate description of the goods.

The Himalaya clause will not relieve Daiichi or Mars Shipping of liability. A Himalaya clause purports to limit the liability of agents and servants of the carrier and to entitle the agent and servant to any defences and immunities available to the carrier under the bill of lading. However, Daiichi agreed to waive the demise clause and was subject to liability as the carrier.

The forum selection clause here does not relieve Daiichi or Mars Shipping of liability. Generally, a forum selection clause is entitled to a presumption of validity and will be upheld unless the opponent can show that the clause is 'unreasonable under the circumstances' (M/S Bremen v Zapata Off-Shore Co 407 US 1, 10 (1972)). Nippon bears the burden of demonstrating that the carrier's liability in Japan will be lessened in such a way that the forum selection clause becomes 'unreasonable under the circumstances' (Mitsui & Co (USA) Inc v Mira M/V 111 F 3d 33, 35 (5th Cir 1997)). Nippon has not persuaded this Court that the carrier's liability will be lessened at all if the matter were adjudicated in Japan.

Until 1995, nearly 30 years of jurisprudence dictated that a forum selection clause in a bill of lading was, in itself, invalid if the forum selected was a country other than the United States (Indussa Corp v SS Ranborg 377 F 2d 200 (2d Cir 1967)). The Second Circuit viewed s 3(8) of COGSA as 'covering a potential and not simply a demonstrable lessening of liability' and held that Congress had 'outlawed clauses prohibiting [US] courts from deciding cases otherwise properly before them' (204).

After Indussa, the Courts of Appeals invalidated foreign forum selection clauses under COGSA without exception, until the Supreme Court decision of Vimar Seguros y Reaseguros SA v M/V Sky Reefer 515 US 528, 533 (1995) (CMI1456). The Supreme Court held (541) that foreign arbitration clauses are not invalid under COGSA in all circumstances. Although Sky Reefer dealt with an arbitration clause, Courts have almost universally found that the Sky Reefer rule is equally applicable to foreign selection clauses.

The Court in Union Steel America Co v M/V Sanko Spruce 14 F Supp 2d 682, 691 (D NJ 1998) concluded that the rule of Indussa is no longer viable, although Sky Reefer did not entirely overrule the case. The Sanko Spruce Court recognised that 'district court statements about how a foreign law might operate to reduce a carrier's COGSA liability always will be mere predictions'.

Although the Sky Reefer decision did not render Indussa a dead letter in all regards, this Court will not breathe new life into the rule that foreign forum/law selection clauses are in themselves invalid. The better view is that such clauses are presumptively valid, and that the burden is on the party seeking to avoid enforcement of the clause to show that there is a likelihood that 'the substantive law to be applied will reduce the carrier's obligations to the cargo owner below what COGSA guarantees' (Sanko Spruce 691).