Maritime Contracts Choice-of-Law

Generally, many maritime cases arise from international disputes. Hence, law applied on maritime cases must be consistent and coherent with international justice standards. Even some domestic maritime matters may be properly subject to uniform federal maritime law while others domestic maritime matters may be more amenable to the relevant state law.

In maritime matters, deciding applicable law that applies is difficult and critical. For example, collision in Atlantic Ocean between bulk carrier and passenger ship. Bulk carrier is damaged and has injured crew and lost cargo. Passenger ship is damaged and has injured passengers. Bulk carrier may be registered under the flag of Panama with officers from Ukraine and rest of the crew from Romania. Bulk carrier is carrying cargo from China to the United States. Bulk carrier is owned by companies from around the globe with insurance on the bulk carrier is provided by a Shipowner’s Mutual Assurance Protection and Indemnity Association based in United Kingdom. Bulk carrier hull insurer is based in Switzerland. Passenger ship may be registered under the flag of Malta with officers from Turkey. Passenger ship’s crew members, staff, and entertainers from multiple Asian nations, Korea, Japan and the United Kingdom. Passenger ship is financed by a group of banks from Holland, United States. Passenger ship has Protection and Indemnity Association based in Sweden. Passenger ship’s hull insurance syndicate based in the United Kingdom. Passenger ship’s passengers mostly from United States, Canada, Mexico, Colombia, Venezuela and Brazil. Maritime case is brought in New York. Maritime law is similar around the world, many maritime nations have different standards, different procedures and different rules that can easily affect the outcome of any given case.

In the United States, federal maritime law co-exists and coherent with a range of state laws. Maritime law is being federal law but maritime law may preempt some state laws, preemption is not automatic. Many maritime cases involve in an interaction between federal law, state laws and international laws. In order to decide which law to apply in maritime cases, in other words for the choice of law, courts have developed certain standards and rules

Law applies to Maritime Contracts (Charter-parties):

Generally, disputes involving maritime contracts are governed by federal maritime law, except:

  1. Maritime dispute is one that is inherently local
  2. Absence of a uniform federal rule. There is no maritime law on the point at issue

Maritime Contracts (Charter-parties) are within the federal maritime jurisdiction. Maritime contract cases can therefore be brought in federal court, but they can also be brought in state court under the Saving to Suitors clause. Either the maritime contract case is brought to federal court or state court, case is a maritime contract case. Maritime cases are subject to the maritime law, unless maritime contract case:

  • inherently local
  • there is no maritime law on the point at issue.

In United States, in order to decide whether case is inherently local, courts assess local state interests against federal interests. If a contract involves parties from same state or dispute involves contract that only involves a single state, then state’s interest would be strong and states have traditionally regulated contractual relations within their borders. Court would likely view those kinds of matters as being inherently local. On the other hand, if a contract involves interstate commerce or international commerce, federal interest in a uniform maritime law is strong and the court should apply the federal maritime law.

In United States, federal maritime interest in applying maritime law to maritime cases is usually summarized as federal interest in having a uniform maritime law throughout country. Federal maritime interest is ultimately based on the United States Constitution’s grant of maritime jurisdiction to the federal courts. United States Supreme Court has noted that United States Constitution’s reference to all cases of admiralty and maritime jurisdiction must have referred to a system of law coextensive with, and operating uniformly in United States. United States Supreme Court reasoned that the framers of the United States Constitution would not have put the cases of maritime and admiralty jurisdiction in the federal courts if they had intended to put the rules and standards of maritime law under the control of the various state courts, since that would necessarily undo United States Constitutional interest in providing uniform and consistent laws on matters involving interstate or international commerce.

Maritime law can be derived from congressional action or by judges interpreting the maritime law. But, in many cases courts are unable to find relevant maritime precedents for the particular points in maritime dispute. Court will look to the most relevant previous case or state law for guidance.

Marine insurance contracts are not governed by federal maritime law. 1955 United States Supreme Court case had the effect of carving out marine insurance cases as a type of case particularly well-suited to the use of applicable state law. Marine insurance policies are heavily regulated. United States Congress has left the regulation of insurance to states. United States Supreme Court decided that the best course was to look to state law when interpreting marine insurance policies.

United States Supreme Court noted the strong state interest in regulating insurance policies and held that maritime law did not have any settled law of marine insurance. Hence, the state law would apply on marine insurance policies. Application of state law to marine insurance policies has become well-established. Exception to that general rule is with regard to the maritime doctrine of Uberrimae Fidei which means absolute good faith. Most circuits have held maritime doctrine of Uberrimae Fidei is settled principle of maritime law and applies regardless of any contrary state law. Federal law preempts conflicting state law due to the supremacy of federal law over state law. In most tort cases, applicable maritime law will govern and state law will not apply.

In United States, number of states have some form of contributory negligence rule in which the fault of a plaintiff in an accident may bar a claim against the defendant. On the other hand, in some states like Maryland and Virginia, regardless of how much each party is at fault, any fault at all on the part of the plaintiff is enough to prevent the plaintiff from successfully suing the defendant. Maritime law applies a comparative fault rule in which the liability of the defendant is based on the defendant’s fault in the accident. So, even a plaintiff who is mostly at fault can successfully sue a defendant who is also at fault.  Some maritime disputes are governed by state law and not maritime law:

  1. inherently local matters
  2. many aspects of marine insurance
  3. no controlling principle of maritime law

In United States, if state law claim does not conflict with the federal maritime law, state law claims can be brought in a maritime tort case.

Some tort cases are subject to a comprehensive federal scheme, such as personal injury cases involving professional seamen, or death cases occurring on the high seas. However, some cases, such as a wrongful death case not involving a professional seaman, not occurring on the high seas, may permit the application of state law remedies, even though the substantive law for determining liability will be maritime law

Maritime operations can be subject to both state regulations and federal regulations. Federal regulations are supreme under United States Constitution’s supremacy clause. Federal regulations may preempt state regulations, but only if the regulations actually conflict. Preemptions:

  1. Express Preemption: state law is expressly preempted by federal statute or other law like conflict between state contributory negligence rules and maritime comparative fault rules
  2. Implied Field Preemption: federal law so occupies the particular field of law that to accept a specific state law would upset the federal scheme like rules governing crew qualifications
  3. Implied Conflict Preemption: state law is in actual conflict with the federal law. For example, when state rules of the road may not match the federal rules.

Generally, courts are reluctant to disregard an applicable state law, but will find the law to be preempted if the court determines that a person can’t comply with both the federal law and the state law.

In United States, lines between federal law and state law are not always clear. Practically, there is an interplay between federal maritime law and law of the relevant state.

When multiple states are involved in a maritime case, courts determine which state’s law applies to maritime contracts by weighing the significance of the contacts of the states whose laws may be involved. Courts typically analyze such choice-of-law issues in accordance with established principles regarding the conflict of laws and consider:

  • place where the contract was made
  • place where the contract was negotiated
  • place where the contract is to be performed
  • location of the subject matter of the contract
  • domicile, residence, nationality, place of incorporation
  • place of business of the parties

International Maritime Disputes:

In maritime cases, courts decide whether to apply United States law or another maritime nation’s law  to maritime issues by looking at and evaluating relationship between the subject matter of the litigation and the various nations whose laws might apply to the matter. Generally, courts follow commonly accepted conflicts of law provisions, under which a court evaluates the relative importance of the following factors:

  • any choice of law provision contained in maritime contract (charter-party)
  • place where the contract was negotiated, issued, and signed
  • place of performance
  • location of the subject matter of the contract
  • domicile, residence, nationality, place of incorporation
  • place of business of the parties

Contractual Choice-of-Law Provisions

Contractual choice-of-law clauses are valid and can be enforced. Choice-of-law clauses can be helpful in maritime contract that may implicate different jurisdictions. Courts generally permit parties to maritime contract (charter-party) to select a choice of law. But, choice-of-law clauses are subject to certain considerations:

  1. court will apply the chosen law if the issue arises under the contract and could have been addressed in the contract
  2. court will apply the chosen law even if the issue could not have been addressed in the contract, unless
  • state whose law was chosen does not have any substantial relationship to the parties or the transaction and the parties did not have any other reasonable basis for the parties’ choice
  • application of the chosen law would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which would otherwise be the state of the applicable law

As long as the chosen state law is reasonable, court will enforce the choice. Court will reject the choice of law only if it is unreasonable. For example, choice of law where the law is significantly different and would frustrate a more relevant state’s law. Practically, most maritime contracts (charter-parties)include the choice of English law due to internationally respected body of commercial law.

Risks of a contractual choice of law clause:

Maritime contract (charter-party) with valid choice of law terms will typically be interpreted and enforced in accordance with relevant provisions of the chosen law. Provisions in the chosen law that require specific formalities in enforcing a contract, limiting remedies or imposing certain standards of proof could also be enforced through a choice of law clause. A maritime contract (charter-party) with a choice of English law to apply is likely to be held subject to English Maritime Law’s limitations. Maritime contract’s parties must understand the ramifications of a particular choice of law before signing on to a choice of law clause.

Factors to consider for a choice of law:

  1. Writing formalities
  2. Limitations on enforcement
  3. Standards of performance
  4. Standards of negligence
  5. Remedies available
  6. Right to pre-judgment interest
  7. Rate of pre-and post-judgment interest
  8. Standards of care
  9. Rights of contribution
  10. Contract rules of interpretation
  11. Standards for procedural motions