In the United States, parties to contracts having multistate contacts may stipulate to the applicable law by utilizing a choice of law clause. The selected law will be enforced unless it violates public policy or has no relationship to the contract.
Theoretically, there is a difference between choice of law and forum selection clauses. The former prescribes the contract law to be applied, while the latter sets forth the site where disputes will be heard.
Oddly enough, most vessel charter party contracts involving multistate performance seldom contain choice of law clauses. Instead, they usually contain forum selection provisions.
The recent New York arbitration of the “Reliant” (S.M.A. 3077) suggests that, as a practical matter, a charter party forum selection clause equates to a choice of law provision, if there is a conflict between federal circuit courts in interpreting multistate maritime contracts.
A charter party contract is subject to the general maritime law of the United States. This body of substantive law is international in scope and often described a s a common law of the seas adopted by this nation at the time the Constitution and modified by Congress and court decisions.
Maritime Law Not Always Uniform
General maritime law should be uniform throughout the country. Unfortunately, this is not always true. Conflicts among federal circuits in interpreting this law do occur. Rarely will the Supreme Court settle the conflicts. The circuit courts usually resolve these problems under conflict of law principles. This law choosing process pertains only to substantive issues. Each circuit follows its own procedural law.
Federal courts deciding choice of law issues focus on contacts each state has with the contract (interest analysis approach). Restatement Second of Conflicts lists factors that are considered:
- Needs of interstate and international system
- Relevant policies of other interested states.
- Protection of justified expectations
- Basic policies underlying the particular field of law
- Certainty, predictability and uniformity of result
Ease in determination of the applicable law
In the case of the “Reliant,” New York arbitrators were requested to decide on what law governed a charter party dispute. The vessel owner was seeking indemnity under clause 8 of a NYPE charter for settling Texas personal injury claims filed in a Texas federal court (5th Circuit) by Texas longshoremen hired by the charterer. The charter was silent as to the applicable law. It only stated that arbitration should take place in New York (2nd Circuit).
Conflicts Snarl Resolutions
The arbitration panel agreed that the dispute should be resolved under the general maritime law. Unfortunately, there was a conflict between the 2nd and 5th Circuits in interpreting this law.
The law of the 2nd Circuit shifts responsibility for cargo operations and injuries to the charterer. In the 5th Circuit, only stevedoring expenses shift to the charterer.
The vessel owner argued that New York arbitrators traditionally apply New York law as interpreted by the 2nd Circuit in maritime disputes arising from charters with New York forum selection clauses and that an interest analysis approach supports this result. The charterer contended the law of the 5th Circuit, where the injuries occurred, should prevail.
Two of the three arbitrators agreed with the vessel owner.
“The parties freely chose to negotiate and conclude the charter in New York and in doing so, despite consequences in numerous parts of the world, accepted resolution as seen through the eyes of a New York panel,” they said.
The dissenting arbitrator concluded that the 5th Circuit had a paramount interest in the substantive disposition of the dispute that originated in its jurisdiction.
Realistically, the “Reliant” arbitration suggest that both choice of law and forum selection clauses should be utilized in charter parties. This should eliminate inconsistencies associated with applying an interest analysis approach.