VIMAR SEGUROS Y REASEGUROS, S. A., PETITIONER v. M/V SKY REEFER,
HER ENGINES, ETC., ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT
Argued March 20, 1995
Decided June 19, 1995
After a New York fruit distributor's produce was damaged in transit from Morocco to Massachusetts aboard respondent vessel, which was owned by respondent Panamanian company and chartered to a Japanese carrier, petitioner insurer paid the distributor's claim, and they both sued respondents under the standard form bill of lading tendered to the distributor by its Moroccan supplier. Respondents moved to stay the action and compel arbitration in Tokyo under the bill of lading's foreign arbitration clause and the Federal Arbitration Act (FAA). The District Court granted the motion, rejecting the argument of petitioner and the distributor that the arbitration clause was unenforceable under the FAA because, inter alia, it violated 3(8) of the Carriage of Goods by Sea Act (COGSA) in that the inconvenience and costs of proceeding in Japan would "lesse[n] . . . liability" in the sense that COGSA prohibits. However, the court certified for interlocutory appeal its ruling to compel arbitration, stating that the controlling question of law was "whether [ 3(8)] nullifies an arbitration clause contained in a bill of lading governed by COGSA." In affirming the order to arbitrate, the First Circuit expressed grave doubt whether a foreign arbitration clause lessened liability under 3(8), but assumed the clause was invalid under COGSA and resolved the conflict between the statutes in the FAA's favor.
COGSA does not nullify foreign arbitration clauses contained in maritime bills of lading. Pp. 4-13.
KENNEDY, J., delivered the opinion of the Court, in which REHNQUIST, C. J., and SCALIA, SOUTER, THOMAS, and GINSBURG, JJ., joined. O'CONNOR, J., filed an opinion concurring in the judgment. STEVENS, J., filed a dissenting opinion. BREYER, J., took no part in the consideration or decision of the case. [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 1]
JUSTICE KENNEDY delivered the opinion of the Court.
This case requires us to interpret the Carriage of Goods by Sea Act (COGSA), 46 U.S.C. App. 1300 et seq., as it relates to a contract containing a clause requiring arbitration in a foreign country. The question is whether a foreign arbitration clause in a bill of lading is invalid under COGSA because it lessens liability in the sense that COGSA prohibits. Our holding that COGSA does not forbid selection of the foreign forum makes it unnecessary to resolve the further question whether the Federal Arbitration Act (FAA), 9 U.S.C. 1 et seq. (1988 ed. and Supp. V), would override COGSA were it interpreted otherwise. In our view, the relevant provisions of COGSA and the FAA are in accord, not in conflict.
The contract at issue in this case is a standard form bill of lading to evidence the purchase of a shipload of Moroccan oranges and lemons. The purchaser was Bacchus Associates (Bacchus), a New York partnership that distributes fruit at wholesale throughout the Northeastern United States. Bacchus dealt with Galaxie Negoce, S. A. (Galaxie), a Moroccan fruit supplier. [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 2] Bacchus contracted with Galaxie to purchase the shipload of fruit and chartered a ship to transport it from Morocco to Massachusetts. The ship was the M/V Sky Reefer, a refrigerated cargo ship owned by M. H. Maritima, S. A., a Panamanian company, and time-chartered to Nichiro Gyogyo Kaisha, Ltd., a Japanese company. Stevedores hired by Galaxie loaded and stowed the cargo. As is customary in these types of transactions, when it received the cargo from Galaxie, Nichiro as carrier issued a form bill of lading to Galaxie as shipper and consignee. Once the ship set sail from Morocco, Galaxie tendered the bill of lading to Bacchus according to the terms of a letter of credit posted in Galaxie's favor.
Among the rights and responsibilities set out in the bill of lading were arbitration and choice-of-law clauses. Clause 3, entitled "Governing Law and Arbitration," provided:
The District Court rejected the adhesion argument, observing that Congress defined the arbitration agreements enforceable under the FAA to include maritime bills of lading, 9 U.S.C. 1, and that petitioner was a sophisticated party familiar with the negotiation of maritime shipping transactions. It also rejected the argument that requiring the parties to submit to arbitration would lessen respondents' liability under COGSA 3(8). The court granted the motion to stay judicial proceedings and to compel arbitration; it retained jurisdiction pending arbitration; and at petitioner's request, it certified for interlocutory appeal under 28 U.S.C. 1292(b) its ruling to compel arbitration, stating that the controlling question of law was "whether [COGSA 3(8)] nullifies an arbitration clause contained in a bill of lading governed by COGSA." Pet. for Cert. 30a.
The First Circuit affirmed the order to arbitrate. 29 F.3d 727 (1994). Although it expressed grave doubt whether a foreign arbitration clause lessened liability under COGSA 3(8), 29 F.3d, at 730, the Court of Appeals assumed the clause was invalid under COGSA and resolved the conflict between the statutes in favor [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 4] of the FAA, which it considered to be the later enacted and more specific statute, id., at 731-733. We granted certiorari, 513 U.S. ___ (1995), to resolve a Circuit split on the enforceability of foreign arbitration clauses in maritime bills of lading. Compare the case below (enforcing foreign arbitration clause assuming arguendo it violated COGSA), with State Establishment for Agricultural Product Trading v. M/V Wesermunde, 838 F.2d 1576 (CA11) (declining to enforce foreign arbitration clause because that would violate COGSA), cert. denied, 488 U.S. 916 (1988). We now affirm.
The parties devote much of their argument to the question whether COGSA or the FAA has priority. "[W]hen two statutes are capable of co-existence," however, "it is the duty of the courts, absent a clearly expressed congressional intention to the contrary, to regard each as effective." Morton v. Mancari, 417 U.S. 535, 551 (1974); Pittsburgh & Lake Erie R. Co. v. Railway Labor Executives' Assn., 491 U.S. 490, 510 (1989). There is no conflict unless COGSA by its own terms nullifies a foreign arbitration clause, and we choose to address that issue rather than assume nullification arguendo, as the Court of Appeals did. We consider the two arguments made by petitioner. The first is that a foreign arbitration clause lessens COGSA liability by increasing the transaction costs of obtaining relief. The second is that there is a risk foreign arbitrators will not apply COGSA.
The leading case for invalidation of a foreign forum selection clause is the opinion of the Court of Appeals for the Second Circuit in Indussa Corp. v. S. S. Ranborg, 377 F.2d 200 (1967) (en banc). The court there found that COGSA invalidated a clause designating a foreign judicial forum because it "puts `a high hurdle' in [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 5] the way of enforcing liability, and thus is an effective means for carriers to secure settlements lower than if cargo [owners] could sue in a convenient forum," id., at 203 (citation omitted). The court observed "there could be no assurance that [the foreign court] would apply [COGSA] in the same way as would an American tribunal subject to the uniform control of the Supreme Court," id., at 203-204. Following Indussa, the Courts of Appeals without exception have invalidated foreign forum selection clauses under 3(8). See Union Ins. Soc. of Canton, Ltd. v. S. S. Elikon, 642 F.2d 721, 723-725 (CA4 1981); Conklin & Garrett, Ltd v. M/V Finnrose, 826 F.2d 1441, 1442-1444 (CA5 1987); see also G. Gilmore & C. Black, Law of Admiralty 145-146, n. 23 (2d ed. 1975) (approving Indussa rule). As foreign arbitration clauses are but a subset of foreign forum selection clauses in general, Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 (1974), the Indussa holding has been extended to foreign arbitration clauses as well. See State Establishment for Agricultural Product Trading, supra, at 1580-1581; cf. Vimar Seguros y Reaseguros, supra, at 730 (assuming arguendo Indussa applies). The logic of that extension would be quite defensible, but we cannot endorse the reasoning or the conclusion of the Indussa rule itself.
The determinative provision in COGSA, examined with care, does not support the arguments advanced first in Indussa and now by the petitioner. Section 3(8) of COGSA provides as follows:
The liability imposed on carriers under COGSA 3 is defined by explicit standards of conduct, and it is designed to correct specific abuses by carriers. In the 19th century it was a prevalent practice for common carriers to insert clauses in bills of lading exempting themselves from liability for damage or loss, limiting the period in which plaintiffs had to present their notice of claim or bring suit, and capping any damages awards per package. See 2A M. Sturley, Benedict on Admiralty 11, pp. 2-2 to 2-3 (1995); 2 T. Schoenbaum, Admiralty and Maritime Law 10-13 (2d ed. 1994); Yancey, The Carriage of Goods: Hague, COGSA, Visby, and Hamburg, 57 Tulane L. Rev. 1238, 1239-1240 (1983). Thus, 3, entitled "Responsibilities and liabilities of carrier and ship," requires that the carrier "exercise due diligence to . . . [m]ake the ship seaworthy" and "[p]roperly man, equip, and supply the ship" before and at the beginning of the voyage, 3(1), "properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried," 3(2), and issue a bill of lading with specified contents, 3(3). 46 U.S.C. App. 1303 (1), (2), and (3). Section 3(6) allows the cargo owner to provide notice of loss or damage within three days and to bring suit within one year. These are the substantive obligations and particular procedures that 3(8) prohibits a carrier from altering to its advantage in a bill of lading. Nothing in this section, however, suggests that the [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 7] statute prevents the parties from agreeing to enforce these obligations in a particular forum. By its terms, it establishes certain duties and obligations, separate and apart from the mechanisms for their enforcement.
Petitioner's contrary reading of 3(8) is undermined by the Court's construction of a similar statutory provision in Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991). There a number of Washington residents argued that a Florida forum selection clause contained in a cruise ticket should not be enforced because the expense and inconvenience of litigation in Florida would "caus[e] plaintiffs unreasonable hardship in asserting their rights," id., at 596, and therefore "`lessen, weaken, or avoid the right of any claimant to a trial by court of competent jurisdiction on the question of liability for . . . loss or injury, or the measure of damages therefor'" in violation of the Limitation of Vessel Owner's Liability Act, 499 U.S., at 595 -596 (quoting 46 U.S.C. App. 183c). We observed that the clause "does not purport to limit petitioner's liability for negligence," id., at 596-597, and enforced the agreement over the dissent's argument, based in part on the Indussa line of cases, that the cost and inconvenience of traveling thousands of miles "lessens or weakens [plaintiffs'] ability to recover." 499 U.S., at 603 (STEVENS, J., dissenting).
If the question whether a provision lessens liability were answered by reference to the costs and inconvenience to the cargo owner, there would be no principled basis for distinguishing national from foreign arbitration clauses. Even if it were reasonable to read 3(8) to make a distinction based on travel time, airfare, and hotels bills, these factors are not susceptible of a simple and enforceable distinction between domestic and foreign forums. Requiring a Seattle cargo owner to arbitrate in New York likely imposes more costs and burdens than a foreign arbitration clause requiring it to arbitrate in Vancouver. It would be unwieldy and unsupported by [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 8] the terms or policy of the statute to require courts to proceed case by case to tally the costs and burdens to particular plaintiffs in light of their means, the size of their claims, and the relative burden on the carrier.
Our reading of "lessening such liability" to exclude increases in the transaction costs of litigation also finds support in the goals of the Brussels Convention for the Unification of Certain Rules Relating to Bills of Lading, 51 Stat. 233 (1924) (Hague Rules), on which COGSA is modeled. Sixty-six countries, including the United States and Japan, are now parties to the Convention, see Department of State, Office of the Legal Adviser, Treaties in Force: A List of Treaties and Other International Agreements of the United States in Force on January 1, 1994, p. 367 (June 1994), and it appears that none has interpreted its enactment of 3(8) of the Hague Rules to prohibit foreign forum selection clauses, see Sturley, International Uniform Laws in National Courts: The Influence of Domestic Law in Conflicts of Interpretation, 27 Va. J. Int'l L. 729, 776-796 (1987). The English courts long ago rejected the reasoning later adopted by the Indussa court. See Maharani Woollen Mills Co. v. Anchor Line, 1927. 29 Lloyd's List L. Rep. 169 (C. A.) (Scrutton, L. J.) ("[T]he liability of the carrier appears to me to remain exactly the same under the clause. The only difference is a question of procedure - where shall the law be enforced? - and I do not read any clause as to procedure as lessening liability"). And other countries that do not recognize foreign forum selection clauses rely on specific provisions to that effect in their domestic versions of the Hague Rules, see, e.g., Sea-Carriage of Goods Act 1924, 9(2) (Australia); Carriage of Goods by Sea Act, No. 1 of 1986, 3 (South Africa). In light of the fact that COGSA is the culmination of a multilateral effort "to establish uniform ocean bills of lading to govern the rights and liabilities of carriers and shippers inter se in international trade," [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 9] Robert C. Herd & Co. v. Krawill Machinery Corp., 359 U.S. 297, 301 (1959), we decline to interpret our version of the Hague Rules in a manner contrary to every other nation to have addressed this issue. See Sturley, supra, at 736 (conflicts in the interpretation of the Hague Rules not only destroy aesthetic symmetry in the international legal order but impose real costs on the commercial system the Rules govern).
It would also be out of keeping with the objects of the Convention for the courts of this country to interpret COGSA to disparage the authority or competence of international forums for dispute resolution. Petitioner's skepticism over the ability of foreign arbitrators to apply COGSA or the Hague Rules, and its reliance on this aspect of Indussa, supra, must give way to contemporary principles of international comity and commercial practice. As the Court observed in The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), when it enforced a foreign forum selection clause, the historical judicial resistance to foreign forum selection clauses "has little place in an era when . . . businesses once essentially local now operate in world markets." Id., at 12. "The expansion of American business and industry will hardly be encouraged," we explained, "if, notwithstanding solemn contracts, we insist on a parochial concept that all disputes must be resolved under our laws and in our courts." Id., at 9. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 638 (1985) (if international arbitral institutions "are to take a central place in the international legal order, national courts will need to `shake off the old judicial hostility to arbitration,' and also their customary and understandable unwillingness to cede jurisdiction of a claim arising under domestic law to a foreign or transnational tribunal") (citation omitted); Scherk v. Alberto-Culver Co., 417 U.S., at 516 ("A parochial refusal by the courts of one country to enforce an international arbitration agreement" [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 10] would frustrate "the orderliness and predictability essential to any international business transaction"); see also Allison, Arbitration of Private Antitrust Claims in International Trade: A Study in the Subordination of National Interests to the Demands of a World Market, 18 N. Y. U. J. Int'l Law & Politics 361, 439 (1986).
That the forum here is arbitration only heightens the irony of petitioner's argument, for the FAA is also based in part on an international convention, 9 U.S.C. 201 et seq. (codifying the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 1970. 21 U.S. T. 2517), T. I. A. S. No. 6997, intended "to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries," Scherk, supra, at 520, n. 15. The FAA requires enforcement of arbitration agreements in contracts that involve interstate commerce, see Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. ___ (1995), and in maritime transactions, including bills of lading, see 9 U.S.C. 1, 2, 201, 202, where there is no independent basis in law or equity for revocation. Cf. Carnival Cruise Lines, 499 U.S., at 595 ("forum-selection clauses contained in form passage contracts are subject to judicial scrutiny for fundamental fairness"). If the United States is to be able to gain the benefits of international accords and have a role as a trusted partner in multilateral endeavors, its courts should be most cautious before interpreting its domestic legislation in such manner as to violate international agreements. That concern counsels against construing COGSA to nullify foreign arbitration clauses because of inconvenience to the plaintiff or insular distrust of the ability of foreign arbitrators to apply the law. [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 11]
Petitioner's second argument against enforcement of the Japanese arbitration clause is that there is no guarantee foreign arbitrators will apply COGSA. This objection raises a concern of substance. The central guarantee of 3(8) is that the terms of a bill of lading may not relieve the carrier of the obligations or diminish the legal duties specified by the Act. The relevant question, therefore, is whether the substantive law to be applied will reduce the carrier's obligations to the cargo owner below what COGSA guarantees. See Mitsubishi Motors, supra, at 637, n. 19.
Petitioner argues that the arbitrators will follow the Japanese Hague Rules, which, petitioner contends, lessen respondents' liability in at least one significant respect. The Japanese version of the Hague Rules, it is said, provides the carrier with a defense based on the acts or omissions of the stevedores hired by the shipper, Galaxie, see App. 112, Article 3(1), (carrier liable "when he or the persons employed by him" fail to take due care), while COGSA, according to petitioner, makes nondelegable the carrier's obligation to "properly and carefully . . . stow . . . the goods carried," COGSA 3(2), 46 U.S.C. App. 1303(2); see Associated Metals & Minerals Corp. v. M/V Arktis Sky, 978 F.2d 47, 50 (CA2 1992). But see COGSA 4(2)(i), 46 U.S.C. 1304(2)(i) ("[N]either the carrier nor the ship shall be responsible for loss or damage arising or resulting from . . . [a]ct or omission of the shipper or owner of the goods, his agent or representative"); COGSA 3(8), 46 U.S.C. App. 1303(8) (agreement may not relieve or lessen liability "otherwise than as provided in this chapter"); Hegarty, A COGSA Carrier's Duty to Load and Stow Cargo is Nondelegable, or Is It?: Associated Metals & Minerals Corp. v. M/V Arktis Sky, 18 Tulane Mar. L. J. 125 (1993).
Whatever the merits of petitioner's comparative [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 12] reading of COGSA and its Japanese counterpart, its claim is premature. At this interlocutory stage it is not established what law the arbitrators will apply to petitioner's claims or that petitioner will receive diminished protection as a result. The arbitrators may conclude that COGSA applies of its own force or that Japanese law does not apply so that, under another clause of the bill of lading, COGSA controls. Respondents seek only to enforce the arbitration agreement. The district court has retained jurisdiction over the case and "will have the opportunity at the award-enforcement stage to ensure that the legitimate interest in the enforcement of the . . . laws has been addressed." Mitsubishi Motors, 473 U.S., at 638 ; cf. 1 Restatement (Third) of Foreign Relations Law of the United States 482(2)(d) (1986) ("A court in the United States need not recognize a judgment of the court of a foreign state if . . . the judgment itself, is repugnant to the public policy of the United States"). Were there no subsequent opportunity for 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." Mitsubishi Motors, supra, at 637, n. 19. Cf. Knott v. Botany Mills, 179 U.S. 69 (1900) (nullifying choice-of-law provision under the Harter Act, the statutory precursor to COGSA, where British law would give effect to provision in bill of lading that purported to exempt carrier from liability for damage to goods caused by carrier's negligence in loading and stowage of cargo); The Hollandia, 1983. A. C. 565, 574-575 (H. L. 1982) (noting choice of forum clause "does not ex facie offend against article III, paragraph 8," but holding clause unenforceable where "the foreign court chosen as the exclusive forum would apply a domestic substantive law which would result in limiting the carrier's liability [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 13] to a sum lower than that to which he would be entitled if [English COGSA] applied"). Under the circumstances of this case, however, the First Circuit was correct to reserve judgment on the choice-of-law question, 29 F.3d, at 729, n. 3, as it must be decided in the first instance by the arbitrator, cf. Mitsubishi Motors, supra, at 637, n. 19. As the District Court has retained jurisdiction, mere speculation that the foreign arbitrators might apply Japanese law which, depending on the proper construction of COGSA, might reduce respondents' legal obligations, does not in and of itself lessen liability under COGSA 3(8).
Because we hold that foreign arbitration clauses in bills of lading are not invalid under COGSA in all circumstances, both the FAA and COGSA may be given full effect. The judgment of the Court of Appeals is affirmed, and the case is remanded for further proceedings consistent with this opinion.
JUSTICE O'CONNOR, concurring in the judgment.
I agree with what I understand to be the two basic points made in the Court's opinion. First, I agree that the language of the Carriage of Goods by Sea Act (COGSA), 46 U.S.C. App. 1300 et seq., and our decision in Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991), preclude a holding that the increased cost of litigating in a distant forum, without more, can lessen liability within the meaning of COGSA 3(8). Ante, at 6-8. Second, I agree that, because the District Court has retained jurisdiction over this case while the arbitration proceeds, any claim of lessening of liability that might arise out of the arbitrators' interpretation of the bill of lading's choice of law clause, or out of their application of COGSA, is premature. Ante, at 11-13. Those two points suffice to affirm the decision below.
Because the Court's opinion appears to do more, however, I concur only in the judgment. Foreign arbitration clauses of the kind presented here do not divest domestic courts of jurisdiction, unlike true foreign forum selection clauses such as that considered in Indussa Corp. v. S. S. Ranborg, 377 F.2d 200 (CA2 1967) (en banc). That difference is an important one it is, after all, what leads the Court to dismiss much of [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 2] petitioner's argument as premature - and we need not decide today whether Indussa, insofar as it relied on considerations other than the increased cost of litigating in a distant forum, retains any vitality in the context of true foreign forum selection clauses. Accordingly, I would not, without qualification, reject "the reasoning [and] the conclusion of the Indussa rule itself," ante, at 5, nor would I wholeheartedly approve an English decision that "long ago rejected the reasoning later adopted by the Indussa court," ante, at 8. As the Court notes, "[f]ollowing Indussa, the Courts of Appeals without exception have invalidated foreign forum selection clauses under 3(8)," ante, at 5. I would prefer to disturb that unbroken line of authority only to the extent necessary to decide this case. [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 1]
JUSTICE STEVENS, dissenting.
The Carriage of Goods by Sea Act (COGSA), 1 enacted in 1936 as a supplement to the 1893 Harter Act, 2 regulates the terms of bills of lading issued by ocean carriers transporting cargo to or from ports of the United States. Section 3(8) of COGSA provides:
In the 19th century it was common practice for ship owners to issue bills of lading that included stipulations exempting themselves from liability for losses occasioned by the negligence of their employees. Because a bill of lading was (and is) a contract of adhesion, which a shipper must accept or else find another means to transport his goods, shippers were in no position to bargain around these no-liability clauses. Although the English courts enforced the stipulations, see Compania de Navigacion la Flecha v. Brauer, 168 U.S. 104, 117-118 (1897), citing Peck v. North Staffordshire Railway, 10 H. L. Cas. 473, 493, 494 (1863), this Court concluded, even prior to the 1893 enactment of the Harter Act, that they were "contrary to public policy, and consequently void." Liverpool & Great Western Steam Co. v. Phenix Ins. Co., 129 U.S. 397, 442 (1889). 3 As we noted in Brauer, several District Courts [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 3] had held that such a stipulation was invalid even when the bill of lading also contained a choice-of-law clause providing that "the contract should be governed by the law of England." 168 U.S., at 118. The question whether such a choice-of-law clause was itself valid remained open in this Court until the Harter Act was passed in 1893.
Section 1 of the Harter Act makes it unlawful for the master or owner of any vessel transporting cargo between ports of the United States and foreign ports to insert in any bill of lading any clause whereby the carrier "shall be relieved from liability for loss or damage arising from negligence." 4 In Knott v. Botany Mills, 179 U.S. 69 (1900), we were presented with the question whether that prohibition applied to a bill of lading containing a choice-of-law clause designating British law as controlling. The Court held: [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 4]
In the 1957 edition of their treatise on the Law of Admiralty, Gilmore and Black had criticized not only the choice-of-law holding in Muller, but also its enforcement of a foreign choice-of-forum clause. They wrote:
The foreign arbitration clause imposes potentially prohibitive costs on the shipper, who must travel - and bring his lawyers, witnesses and exhibits to a distant country in order to seek redress. The shipper will therefore be inclined either to settle the claim at a discount or to forgo bringing the claim at all. The foreign-law clause leaves the shipper who does pursue his claim open to the application of unfamiliar and potentially disadvantageous legal standards, until he can obtain review (perhaps years later) in a domestic forum under the high standard applicable to vacation of arbitration awards. 8 See Wilko v. Swan, 346 U.S. 427 , [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 8] 436-437 (1953). Accordingly, courts have always held that such clauses "lessen" or "relieve" the carrier's liability, see, e.g., State Establishment for Agricultural Product Trading v. M/V Wesermunde, 838 F.2d 1576, 1580-1582 (CA11), cert. denied, 488 U.S. 916 (1988), and even the Court of Appeals in this case assumed as much, 29 F.3d 727, 730, 732, n. 5 (CA1 1994). 9 Yet this Court today holds that carriers may insert foreign-arbitration clauses into bills of lading, and it leaves in doubt the validity of choice-of-law clauses.
Although the policy undergirding the doctrine of stare decisis has its greatest value in preserving rules governing commercial transactions, particularly when their meaning is well understood and has been accepted for long periods of time, 10 the Court nevertheless has concluded that a change must be made. Its law-changing decision is supported by three arguments: (1) the statutory reference to "lessening such liability" has been misconstrued; (2) the prior understanding of the meaning of the statute has been "undermined" by the Carnival Cruise case; and (3) the new rule is supported by our [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 9] obligation to honor the 1924 "Hague Rules." None of these arguments is persuasive.
The Court assumes that the words "lessening such liability" must be narrowly construed to refer only to the substantive rules that define the carrier's legal obligations. Ante, at 6. Under this view, contractual provisions that lessen the amount of the consignee's net recovery, or that lessen the likelihood that it will make any recovery at all, are beyond the scope of the statute.
In my opinion, this view is flatly inconsistent with the purpose of COGSA 3(8). That section responds to the inequality of bargaining power inherent in bills of lading and to carriers' historic tendency to exploit that inequality whenever possible to immunize themselves from liability for their own fault. A bill of lading is a form document prepared by the carrier, who presents it to the shipper on a take-it-or-leave-it basis. See Black, The Bremen, COGSA and the Problem of Conflicting Interpretation, 6 Vand. J. Transnat'l L. 365, 368 (1973); Liverpool Steam, 129 U.S., at 441. Characteristically, there is no arms-length negotiation over the bill's terms; the shipper must agree to the carrier's standard-form language, or else refrain from using the carrier's services. Accordingly, if courts were to enforce bills of lading as written, a carrier could slip in a clause relieving itself of all liability for fault, or limiting that liability to a fraction of the shipper's damages, and the shipper would have no recourse. 11 COGSA represents [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 10] Congress' most recent attempt to respond to this problem. By its terms, it invalidates any clause in a bill of lading "relieving" or "lessening" the "liability" of the carrier for negligence, fault, or dereliction of duty.
When one reads the statutory language in light of the policies behind COGSA's enactment, it is perfectly clear that a foreign forum selection or arbitration clause "relieves" or "lessens" the carrier's liability. The transaction costs associated with an arbitration in Japan will obviously exceed the potential recovery in a great many cargo disputes. As a practical matter, therefore, in such a case no matter how clear the carrier's formal legal liability may be, it would make no sense for the consignee or its subrogee to enforce that liability. It seems to me that a contractual provision that entirely protects the shipper from being held liable for anything should be construed either to have "lessened" its liability or to have "relieved" it of liability.
Even if the value of the shipper's claim is large enough to justify litigation in Asia, 12 contractual provisions that impose unnecessary and unreasonable costs on the consignee will inevitably lessen its net recovery. If, as under the Court's reasoning, such provisions do not [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 11] affect the carrier's legal liability, it would appear to be permissible to require the consignee to pay the costs of the arbitration, or perhaps the travel expenses and fees of the expert witnesses, interpreters, and lawyers employed by both parties. Judge Friendly and the many other wise judges who shared his opinion were surely correct in concluding that Congress could not have intended such a perverse reading of the statutory text.
More is at stake here than the allocation of rights and duties between shippers and carriers. A bill of lading, besides being a contract of carriage, is a negotiable instrument that controls possession of the goods being shipped. Accordingly, the bill of lading can be sold, traded, or used to obtain credit as though the bill were the cargo itself. Disuniformity in the interpretation of bills of lading will impair their negotiability. See Union Ins. Soc. of Canton, Ltd. v. S. S. Elikon, 642 F.2d ___, at 723, Gilmore & Black, Law of Admiralty 146-147 (2d ed. 1975). Thus, if the security interests in some bills of lading are enforceable only through the courts of Japan, while others may be enforceable only in Liechtenstein, the negotiability of bills of lading will suffer from the uncertainty. COGSA recognizes that this negotiability depends in part upon the financial community's capacity to rely on the enforceability, in an accessible forum, of the bills' terms. Today's decision destroys that capacity.
The Court's reliance on its decision in Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991), is misplaced. That case held that a domestic forum selection clause in a passenger ticket was enforceable. As no carriage of goods was at issue, COGSA did not apply to the parties' dispute. Accordingly, the enforceability of the ticket's terms did not implicate the commercial interests in uniformity and negotiability that are served by the statutory regulation of bills of lading. Moreover, the Carnival Cruise holding is limited to the enforceability [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 12] of domestic forum-selection clauses. The Court in that case pointedly refused to respond to the concern expressed in my dissent that a wooden application of its reasoning might extend its holding to the selection of a forum outside of the United States. See id., at 604. The wooden reasoning that the Court adopts today does make that extension, but it is surely not compelled by the holding in Carnival Cruise. 13
Finally, I am simply baffled by the Court's implicit suggestion that our interpretation of the Harter Act (which preceded the Hague Rules), and the federal courts' consistent interpretation of COGSA since Indussa was decided in 1967, has somehow been unfaithful to our international commitments. See ante, at 8-10. The concerns about invalidating freely negotiated forum selection clauses that this Court expressed in The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), have no bearing on the validity of the provisions in bills of lading that are commonly recognized as contracts of adhesion. Our international obligations do not require us to enforce a contractual term that was not freely negotiated by the parties. Much less do they require us to ignore the clear meaning of COGSA itself the product of international negotiations - which forbids enforcement [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 13] of clauses lessening the carrier's liability. Indeed, discussing The Bremen's impact on COGSA, Professor Black observed:
Lurking in the background of the Court's decision today is another possible reason for holding, despite the clear meaning of COGSA and decades of precedent, that a foreign arbitration clause does not lessen liability. It may be that the Court does violence to COGSA in order to avoid a perceived conflict with another federal statute, the Federal Arbitration Act (FAA), 9 U.S.C. 1 et seq. (1988 ed. and Supp. V). The FAA requires that courts enforce arbitration clauses in contracts - including those requiring arbitration in foreign countries - the same way they would enforce any other contractual clause. See, e.g., Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478 (1989). This statute was designed to overturn the traditional common-law hostility to arbitration clauses. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. ___, ___ (1995) (slip op., at 3); Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. ___, ___ (1995) (slip op., at 4). According to the Court of Appeals, reading COGSA to invalidate foreign arbitration clauses would conflict directly with the terms and policy of the FAA. [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 15]
Unfortunately, in adopting a contrary reading to avoid this conflict, the Court has today deprived COGSA 3(8) of much of its force. Its narrow reading of "lessening [of] liability" excludes more than arbitration; it apparently covers only formal, legal liability. See supra, at 9-11. Although I agree with the Court that it is important to read potentially conflicting statutes so as to give effect to both wherever possible, I think the majority has ignored a much less damaging way to harmonize COGSA with the FAA.
Section 2 of the FAA reads:
The correctness of this construction becomes even more apparent when one considers the policies of the two statutes. COGSA seeks to ameliorate the inequality in bargaining power that comes from a particular form of adhesion contract. The FAA seeks to ensure enforcement of freely-negotiated agreements to arbitrate. Volt, 489 U.S., at 478 -479. As I have discussed, supra, at 2, 9-10, foreign arbitration clauses in bills of lading are not freely-negotiated. COGSA's policy is thus directly served by making these clauses illegal; and the FAA's policy is not disserved thereby. In contrast, allowing such adhesionary clauses to stand serves the goals of neither statute.
The Court's decision in this case is an excellent example of overzealous formalism. By eschewing a commonsense reading of "lessening [of] liability," the Court has drained those words of much of their potency. The result compounds, rather than contains, the Court's unfortunate mistake in the Carnival Cruise case.
I respectfully dissent.
[ Footnote 2 ] 27 Stat. 445, 46 U.S.C. App. 190-196.
[ Footnote 3 ] In support of its holding in Liverpool Steam, the Court observed:
[ Footnote 4 ] The first section of the Harter Act provides:
[ Footnote 5 ] G. Gilmore & C. Black, Law of Admiralty 125, n. 23 (1st ed. (1957).
[ Footnote 6 ] The bill of lading contained the following provision:
[ Footnote 7 ] Of course, the objectionable feature in the instant bill of lading is a foreign arbitration clause, not a foreign forum selection clause. But this distinction is of little importance; in relevant respects, there is no difference between the two. Both impose substantial costs on shippers, and both should be held to lessen liability under COGSA. The majority's reasoning to the contrary thus presumably covers forum selection as well as arbitration. See ante, at 5; ante, at 1-2 (O'CONNOR, J., concurring in judgment). The only ground on which one might distinguish the two types of clauses is that another federal statute, the Federal Arbitration Act, makes arbitration clauses enforceable, whereas no analogous federal statute exists for forum selection clauses. For the reasons expressed infra, at 14-16, this distinction is unpersuasive.
[ Footnote 8 ] I am assuming that the majority would not actually uphold the application of disadvantageous legal standards - these, even under the narrowest reading of COGSA, surely lessen liability. See ante, at 11-13. Nonetheless, the majority is apparently willing to allow arbitration to proceed under foreign law, and to determine afterwards whether application of that law has actually lessened the [ VIMAR SEGUROS Y REASEG. v. M/V SKY REEFER, ___ U.S. ___ (1995) , 8] carrier's formal liability. As I have discussed above, this regime creates serious problems of delay and uncertainty. Because the majority's holding in this case is limited to the enforceability of the foreign arbitration clause - it does not actually pass upon the validity of the foreign law clause - I will not discuss the foreign law clause further except to say that it is an unenforceable lessening of liability to the extent it gives an advantage to the carrier at the expense of the shipper.
[ Footnote 9 ] The Court of Appeals enforced the arbitration clause, despite its concession that the clause might violate COGSA, because of its perception that COGSA must give way to the conflicting dictate of the Federal Arbitration Act. 29 F.3d, at 731-733. I consider, and reject, this argument infra, at 14-16.
[ Footnote 10 ] See Eskridge & Frickey, The Supreme Court 1993 Term - Foreword: Law as Equilibrium, 108 Harv. L. Rev. 26, 81 (1994).
[ Footnote 12 ] The majority's reasoning is not, of course, limited to foreign fora as accessible as Tokyo. A carrier who truly wished to relieve itself of liability might select an outpost in Antarctica as the setting for arbitration of all claims. Under the Court's reasoning, such a clause presumably would be enforceable.
[ Footnote 13 ] Nor is it compelled by logic. It is true that some domestic fora are more distant than some foreign fora - a citizen of Maine may have less trouble arbitrating in Canada than in Arizona. But that is no reason to eschew any distinction between foreign and domestic fora. If it is to adhere to Carnival Cruise and yet avoid an outrageous result, the Court must draw a line somewhere. The most sensible line, it seems to me, is at the United States border. Transaction costs generally, though not always, increase when that line is crossed. Passports usually must be obtained, language barriers often present themselves, and distances are usually greater when litigants are forced to cross that boundary. I think Carnival Cruise was wrongly decided, but adherence to the holding in that case does not require the result the majority reaches today.
[ Footnote 14 ] The majority's puzzling reference to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, ante, at 10, strikes me as irrelevant. Nothing in that treaty even remotely suggests an intent to enforce arbitration clauses that constitute a "lessening" of liability under COGSA or the Hague Rules. Page I