This case involved a fire that broke out on a container ship, the M/V Yantian Express, owned by the petitioner, Hapag-Lloyd Aktiengesellschaft aka Hapag-Lloyd AG (Hapag). The ship was in transit from Sri Lanka to Halifax, Nova Scotia, and ports along the US East Coast, including the Port of New York. Following the blaze, Hapag commenced this action seeking exoneration from, or limitation of, liability pursuant to the Limitation of Liability Act 1851, 46 USC §§ 30501 ff (the Limitation Act), and Rule F of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions, Federal Rules Of Civil Procedure (Rule F). Hapag's filing sparked numerous third-party claims and counterclaims from the cargo owners and insurers, and the non-vessel-operating common carriers (NVOCCs) who were responsible to their customers for shipping containers on the ship. These parties filed claims for damages, indemnity, and/or contribution against Hapag and the third-party defendants, Ocean Network Express Pte Ltd (ONE), and Yang Ming Marine Transport Corp (Yang Ming).

On 30 June 2021, Judge Robert W Lehrburger issued a Report and Recommendation (R&R) denying ONE's bellwether motion to dismiss four test claims based on a forum selection clause in ONE's bill of lading terms: see Re Hapag-Lloyd Aktiengesellschaft (CMI1464). ONE brought a further motion to this Court to dismiss the claims.

Held: The Court agrees with, and adopts the R&R in its entirety. ONE's motion to dismiss is denied.

In the R&R, Judge Lehrburger found that the forum clause, which would have required the parties to litigate in the Singapore High Court, was unenforceable 'because it [was] rendered null and void by the Carriage of Goods by Sea Act' 46 USC § 30701 (COGSA), and that 'the public interest weigh[ed] against its enforcement'. The Judge's conclusion rests on an analysis of § 3(8) of COGSA, which voids contractual provisions that limit liability beyond the limitations set by § 4 of COGSA. The Judge found that the Singapore High Court would apply its own law, which would limit defendants' liability to a greater extent than that permitted by COGSA. Because the clause effectively imposed a limitation on liability greater than that permitted by COGSA, COGSA mandated that the clause be treated as null and void.

ONE objects to the R&R's conclusion that the clause violates COGSA, arguing that in Vimar Seguros y Reaseguros v M/V Sky Reefer 515 US 528 (1995) (CMI1456), the Supreme Court held that purely procedural provisions of contracts that limit recovery are not rendered void by COGSA. ONE also objects to the conclusion of the R&R by arguing that it improperly considered private interest factors, as opposed to public policy factors, in violation of the Supreme Court's holding in Atlantic Marine Const Co v US Dist Ct for W Dist of Texas 571 US 49 (2013).

The Court appreciates the serious concerns raised by these objections. The law recognises the significant value in permitting parties to a contract to litigate in their contractually preselected forum. And certainty is beneficial in commercial contracts. The conclusion in this case - in which a privately negotiated forum selection clause is voided by a court - is in tension with those important principles. But the result in this unusual situation is mandated by federal statute and clear Supreme Court precedent.

In essence, ONE's objection is based on a misreading of the R&R. The Judge found that the clause satisfied the first three steps outlined in Phillips v Audio Active Ltd 494 F 3d 378 (2d Cir 2007):

Determining whether to dismiss a claim based on a forum selection clause involves a four-part analysis. The first inquiry is whether the clause was reasonably communicated to the party resisting enforcement. The second step requires [the court] to classify the clause as mandatory or permissive .... Part three asks whether the claims and parties involved in the suit are subject to the forum selection clause. If the forum selection clause was communicated to the resisting party, has mandatory force and covers the claims and parties involved in the dispute, it is presumptively enforceable. ... The fourth, and final, step is to ascertain whether the resisting party has rebutted the presumption of enforceability by making a sufficiently strong showing that enforcement would be unreasonable or unjust, or that the clause was invalid for such reasons as fraud or overreaching.

The clause was, therefore, presumptively enforceable. Nevertheless, the Judge found that that the clause was 'unenforceable in this action because it is rendered null and void by [COGSA] and the public interest weighs against its enforcement'. The Judge's conclusion is consistent with the Phillips framework. Fundamentally, Congress's will, as enacted by statute in COGSA, reflects public policy. If a contractual provision, such as the clause, is anathema under COGSA, it is proper to conclude that the public interest weighs against its enforcement.

ONE objects to the substance of the R&R's conclusion regarding the application of COGSA, arguing that the Judge misinterpreted § 3(8) of COGSA and the Supreme Court's decision in Sky Reefer. In the R&R, the Judge found that the clause was rendered null and void by § 3(8) of COGSA. Specifically, the Judge reasoned that if the clause were enforced, and the dispute was heard in the courts of Singapore, the Singapore High Court would apply a Singapore law that would limit ONE's liability beyond the limitations permitted by COGSA. Because the clause had the effect of limiting liability beyond the scope permitted under COGSA, § 3(8) of COGSA rendered it void. ONE argues that this conclusion was incorrect because, as a forum selection provision, the clause is merely procedural, not substantive. ONE argues that, in Sky Reefer, the Supreme Court distinguished between substantive and procedural limitations on liability - holding that substantive limitations were against public policy while merely procedural limitations were not. Based on this interpretation, ONE argues that, because the law the Singapore High Court would use to limit liability is nominally procedural, the clause is not voided by COGSA. However, ONE misinterprets Sky Reefer. Indeed, in Sky Reefer the Supreme Court considered a hypothetical forum selection clause with substantive effect equivalent to the one here. The Supreme Court concluded that such a forum selection clause would be void under COGSA.

COGSA limits liability for certain parties while expressly voiding any provisions in a contract that would further limit liability. Section 4(5) of COGSA creates the following liability limitation:

Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted into the bill of lading.

Section 3(8) of COGSA renders null and void any terms of a contract that eliminate or lessen a carrier's liability. It states:

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

The parties agree that if the clause were enforced, the Singapore High Court would apply the LLMC 1976, a Convention to which Singapore, but not the United States, is a party. The Singapore High Court would still apply COGSA as substantive law, but would overlay the LLMC 1976 - nominally as a matter of procedure. The effect of the application of the Convention is significant - using COGSA's limitation on liability, the plaintiffs' recovery could be approximately USD 75 million, while application of the LLMC 1976 would limit plaintiffs' recovery to approximately USD 16.4 million.

Because the Singapore High Court would indisputably apply the Convention, the effect of the clause is to reduce ONE's liability below that which is permitted under COGSA, and by a substantial amount. The clause is, therefore, voided pursuant to § 3(8) of COGSA, despite the fact that the clause on its face deals with a 'procedural' matter - namely, forum. ONE's arguments to the contrary based on Sky Reefer are misplaced. That the clause is nominally procedural does not remove it from the ambit of § 3(8). The text of the statute does not distinguish amongst the means by which a contractual provision limits liability. Sky Reefer did not draw a line between substantive and procedural contractual provisions. Instead, the Court distinguished between provisions that lessened the specific liability imposed by COGSA from 'the separate question of the means and costs of enforcing that liability': Sky Reefer 515 US 534. That the clause falls into the category of provisions that lessen specific liability imposed by COGSA, rather than merely the means and costs of enforcing liability, is confirmed by the Court's analysis in Sky Reefer. The Court considered (at 540) a situation precisely of this nature and concluded that such a clause would be void under COGSA:

Were there no subsequent opportunity to review and were we persuaded that the choice-of-forum and choice-of-law clauses operated in tandem as a prospective waiver of a party's right to pursue statutory remedies ..., we would have little hesitation in condemning the agreement as against public policy.

So, in Sky Reefer the Supreme Court made clear that a choice of forum clause that functioned, together with the applicable choice of law, as a prospective waiver of a party's rights to pursue statutory remedies would not be permitted. That the choice of forum clause is 'procedural' in nature, rather than an express limitation on liability, did not figure in the Court's analysis - what mattered was that it functioned as a prospective waiver of the party's rights to pursue statutory remedies.

Here, under the terms of the clause, the applicable substantive law and the procedural law applied due to the clause operate in tandem to limit the litigants' ability to recover to a greater degree than permitted under COGSA. While nominally procedural, the clause, which brings with it the limitation on liability established in the LLMC 1976, functions as a substantive limitation on recovery - precisely of the type that the Supreme Court 'would have little hesitation in condemning'. Because the clause is an effective limitation on liability, the Judge correctly found that it was rendered void by § 3(8) of COGSA.