515 U.S. 528 (1995)
In 1995 the Supreme Court reviewed a dispute over a shipment of Moroccan oranges and lemons purchased by Bacchus Associates, a New York partnership that distributes fruit wholesale in the Northeastern United States, from Galaxie Negoce, S.A., a Moroccan supplier.1 Bacchus chartered the refrigerated cargo vessel M/V Sky Reefer, owned by the Panamanian company M. H. Maritima, S.A. and time-chartered to the Japanese company Nichiro Gyogyo Kaisha, Ltd., to carry the cargo from Morocco to Massachusetts.2 Stevedores hired by Galaxie loaded and stowed the fruit, after which Nichiro issued a standard form bill of lading to Galaxie as shipper and consignee; Galaxie later tendered the bill to Bacchus under a letter of credit.3
Clause 3 of the bill of lading provided that the contract would be governed by Japanese law and that any dispute would be referred to arbitration in Tokyo before the Tokyo Maritime Arbitration Commission of The Japan Shipping Exchange, Inc., with the award to be final and binding.4 When the vessel's hatches were opened for discharge in Massachusetts, thousands of boxes of oranges had shifted, causing more than $1 million in damage.5 Bacchus received $733,442.90 from its marine cargo insurer, petitioner Vimar Seguros y Reaseguros, S.A., which became subrogated pro tanto to Bacchus's rights.6
Vimar Seguros and Bacchus then sued Maritima in personam and the M/V Sky Reefer in rem in the United States District Court for the District of Massachusetts.7 The defendants moved to stay the action and compel arbitration in Tokyo under the bill of lading clause and section 3 of the Federal Arbitration Act.8 The plaintiffs opposed the motion, arguing that the arbitration clause was unenforceable both as a contract of adhesion and because the inconvenience and costs of proceeding in Japan would lessen liability under COGSA section 3(8).9
The district court rejected both arguments, granted the motion to stay proceedings and compel arbitration, retained jurisdiction pending arbitration, and certified the controlling question of law for interlocutory appeal under 28 U.S.C. section 1292(b).10 The Court of Appeals for the First Circuit affirmed the order to arbitrate.1112 The Supreme Court granted certiorari to resolve a circuit split on the enforceability of foreign arbitration clauses in maritime bills of lading.13
Whether a foreign arbitration clause in a bill of lading is invalid under COGSA because it lessens liability in the sense that COGSA prohibits?14
Section 3(8) of the Carriage of Goods by Sea Act provides that any clause in a contract of carriage relieving the carrier or the ship from liability for loss or damage arising from negligence, fault, or failure in the duties and obligations provided in the section, or lessening such liability otherwise than as provided in the chapter, shall be null and void and of no effect.15 The provision addresses the lessening of the specific liability imposed by the Act itself, which is defined by explicit standards of conduct designed to correct abuses by carriers, without addressing the separate question of the means and costs of enforcing that liability.16 The difference is that between explicit statutory guarantees and the procedure for enforcing them, between applicable liability principles and the forum in which they are to be vindicated.17
No. The bill of lading issued by Nichiro Gyogyo Kaisha, Ltd. to Galaxie Negoce, S.A. contained clause 3 requiring arbitration in Tokyo under Japanese law.18 Yet this clause does not alter the substantive duties imposed on the carrier under COGSA sections 3(1), 3(2), and 3(3) to exercise due diligence to make the ship seaworthy, properly man and equip the ship, and properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods.19
The arbitration clause addresses only the forum for resolving disputes and does not relieve the carrier of the obligations or diminish the legal duties specified by the Act.20
The transaction began when Bacchus Associates contracted with Galaxie to purchase the shipload of fruit and chartered the M/V Sky Reefer, owned by M. H. Maritima, S.A. and time-chartered to Nichiro, to transport it from Morocco to Massachusetts.21 Stevedores hired by Galaxie loaded and stowed the cargo, after which Nichiro issued the form bill of lading to Galaxie as shipper and consignee.22 Galaxie then tendered the bill to Bacchus under a letter of credit.23
When the vessel's hatches were opened for discharge, over one million dollars in damage had occurred, leading Bacchus to receive $733,442.90 from Vimar Seguros y Reaseguros, S.A., which became subrogated pro tanto to Bacchus's rights.24 Vimar Seguros and Bacchus sued Maritima in personam and the M/V Sky Reefer in rem in the District Court for the District of Massachusetts.25
The defendants moved to stay the action and compel arbitration in Tokyo under the bill of lading clause and section 3 of the Federal Arbitration Act. The plaintiffs opposed on the ground that the inconvenience and costs of proceeding in Japan would lessen liability under COGSA section 3(8).26 The district court rejected the arguments, granted the motion, retained jurisdiction pending arbitration, and certified the controlling question for interlocutory appeal.27 The First Circuit affirmed the order to arbitrate.
Applying the rule to these facts, the arbitration clause does not lessen the carrier's liability because it leaves the substantive obligations unchanged and merely selects the forum.28 The costs and inconvenience of litigating in a distant forum do not lessen liability within the meaning of COGSA section 3(8).29 The district court's retention of jurisdiction further ensures that any later claim of diminished protection can be reviewed at the award-enforcement stage.30
The foreign arbitration clause in the bill of lading is not invalid under COGSA section 3(8).31
Related opinions on this issue
Justice O'Connor agreed that the language of COGSA and the decision in Carnival Cruise Lines preclude holding that increased cost of litigating in a distant forum lessens liability within the meaning of section 3(8).32 Any claim of lessening arising from the arbitrators' interpretation of the choice-of-law clause is premature because the district court retained jurisdiction.33 She concurred only in the judgment, however, because foreign arbitration clauses do not divest domestic courts of jurisdiction unlike true foreign forum selection clauses.34
She would not reject the Indussa rule in full or approve without qualification the English decision that rejected its reasoning.35 She preferred to disturb the unbroken line of authority invalidating foreign forum selection clauses only to the extent necessary to decide this case.36
Justice Stevens dissented on the ground that the foreign arbitration clause coupled with the choice-of-foreign-law clause lessens the carrier's liability under the uniform construction of COGSA section 3(8) followed by the courts of appeals for decades.37 He explained that the clause imposes potentially prohibitive costs on the shipper who must travel to Tokyo with lawyers, witnesses, and exhibits, thereby encouraging settlement at a discount or forgoing the claim altogether.38 The clause leaves the shipper open to unfamiliar legal standards until review years later under the high standard for vacating arbitration awards.39
In his view the clauses would have been held invalid under COGSA prior to this decision.40 The majority's narrow reading of lessening liability drains the statutory words of much of their potency while serving the goals of neither COGSA nor the Federal Arbitration Act.41
Whether the Federal Arbitration Act would override COGSA if the arbitration clause were interpreted to violate COGSA?42
No. The Court held 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. There is no need to decide which statute would prevail in the event of conflict.45 The arbitration agreement appears in a maritime bill of lading, a category expressly covered by the FAA.46
Yet the absence of any lessening of liability under COGSA section 3(8) eliminates the premise for an override analysis.47
The question whether the Federal Arbitration Act would override COGSA is unnecessary to resolve.48
Related opinions on this issue
Justice Stevens addressed the potential conflict between COGSA and the FAA.49 He noted that section 2 of the FAA renders arbitration clauses enforceable save upon such grounds as exist at law or in equity for the revocation of any contract.50 Illegality under COGSA section 3(8) constitutes an independent ground for revocation that does not single out arbitration clauses for disfavored treatment.51 Therefore it creates no conflict with the FAA.52
The policy of COGSA to redress inequality of bargaining power in adhesion contracts is directly served by invalidating foreign arbitration clauses while the policy of the FAA favoring freely negotiated agreements is not disserved.53