Shippers and Buyers Beware – American Courts Continue to Enforce Tokyo Forum Selection Clauses!

February 25, 2016

Two United States District Courts, one in Florida and another in Pennsylvania, recently ordered parties seeking to recover damages from NYK Line and its related entities to take their claims to Japan based on the forum selection clauses in the corresponding bills of lading.

In N. Am. Auto Sales, LLC v. Nippon Yusen Kaisha, 2015 WL 5521919 (M.D. Fla. Sept. 16, 2015), plaintiff North America Auto Sales, LLC (“North America”) filed a complaint against defendants Nippon Yusen Kaisha and NYK Line (N.A.), Inc. (“NYK Line”) for conversion and breach of contract under the Carriage of Goods by Sea Act (“COGSA”), 46 U.S.C. § 30701.  The bills of lading (“BOL”) between the parties contained a Tokyo forum selection clause and provided that Japanese law governed.

NYK Line moved to enforce the forum selection clause in the BOLs and dismiss the action for forum non conveniens.  The District Court found for NYK Line.  In reaching its decision, the District Court recognized that forum selection clauses are presumptively valid and enforceable unless the plaintiff makes a strong showing that enforcement would be unfair or unreasonable.  More specifically, a forum-selection clause is invalidated only when: “(1) its formation was induced by fraud or overreaching; (2) the plaintiff would be deprived of its day in court because of inconvenience or unfairness; (3) the chosen law would deprive the plaintiff of a remedy; or (4) enforcement of the clause would contravene public policy.”

While North America acknowledged that the forum selection clause was mandatory and presumptively valid, it made a vague argument that the clause might lessen the carrier’s liability below what COGSA guarantees and was therefore void under COGSA. The District Court rejected this argument.  First, it noted that the test for whether a foreign forum selection clause is valid under Section 3(8) of COGSA is whether “the substantive law to be applied [by the chosen forum] will reduce the carrier’s obligations to the cargo owner below what COGSA guarantees.”  Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 537-39, 1995 AMC 1817, 1824-25 (1995).  Second, the Supreme Court and other courts in the US have enforced Tokyo forum selection clauses since Sky Reefer.  Third, North America failed to present any evidence that the law of Japan, if applied to this case, would lessen the carrier’s responsibility.  The Court therefore concluded that North America did not show that the forum selection clause violated COGSA, and it was enforceable.

It is important to note that this dismissal was conditional.  In particular, the Court granted NYK Line’s motion to dismiss subject to NYK: (1) agreeing to accept service of process in Japan and submit to the jurisdiction of the courts of Japan, (2) agreeing to treat North America’s re-filing of the action in Japan as though the action had been filed on December 29, 2014, the day North America filed in the United States, and (3) agreeing to be bound by any final judgment, after appeal, entered by the Tokyo District Court.

In Amazon Produce Network, LLC v. NYK Line, 2015 WL 5568386 (E.D. Pa. Sept. 21, 2015), which consolidated three actions, plaintiff Amazon Produce Network, LLC (“Amazon”), a fruit importer, sought to recover losses for damaged mango shipments from defendant-charterer NYK Line a/k/a Nippon Yusen Kaisha a/k/a NYK Line (North America) (“NYK Line”) in federal court in Pennsylvania.

NYK Line again moved to dismiss all three actions based on Tokyo forum selection clauses contained in the parties’ BOLs.  The District Court analyzed the motions under the doctrine of forum non conveniens.  It noted that under this doctrine, the court could only consider public interest factors when determining whether to enforce the forum selection clauses at issue.

In opposition to NYK’s motions, Amazon argued that the forum selection clauses should not be honored because, under Japanese law, NYK Line would owe less than the $500 per package maximum limitation under COGSA.

Like the Florida court, the Pennsylvania District Court recognized that the relevant question under COGSA was whether the substantive law to be applied will reduce the carrier’s obligations to the cargo owner below what COGSA guarantees. Here, the Court found that NYK Line’s expert correctly calculated that under Japanese law a successful cargo owner or consignee would be awarded more than COGSA’s $500 per package limitation. Japanese law was more favorable to plaintiff than COGSA, and Amazon failed to present any public interest factors that would override the parties’ forum selection clauses.  Therefore, the Court granted NYK Line’s motion to dismiss. Unlike the Florida matter, there were no terms or conditions imposed upon NYK for dismissal.

District Courts in the US have consistently enforced foreign forum selection and law clauses as long as the laws of the selected forum offer the same or better protection to cargo interests as COGSA.  NYK bill of lading clauses requiring Tokyo forum and Japanese law meet this criteria.