Fall 2014

O.W. Bunker's U.S. Units File for Bankruptcy ProtectionThe Wall Street Journal , November 13, 2014
The firm's  Bankruptcy and Reorganization practice is representing O.W. Bunker's U.S. units in their Chapter 11 bankruptcy. Similar articles have appeared in  Law360  and 

Cargo Ship's Months-Long Stay Is About to End, The Philadelphia Inquirer, November 12, 2014

Partner Alfred Kuffler comments on a matter involving the NIKOL H cargo ship that had been stuck in the Delaware River, in which he advised Orient Shipping, who ultimately bought the vessel to resolve claims against its owner.  


North American ECA Zones and Compliance, SKULD P&I, November 2014
Associate  Robert O'Connor contributed to an article for SKULD P&I on North American Emissions Control A rea regulations and compliance and authored a supplement on the topic that accompanied the piece.

Mealey's International Arbitration Report, September 2014
Partner  Timothy Semenoro and associate  Robert O'Connor co-wrote this piece discussing Falcon Carrier Shipping v. ST Shipping and Transport , which involved oil tanker vetting procedures and charter party contract "approvals clauses.

TradeWinds, September 12, 2014
Par tner  Eugene O'Connor comments on the court decision finding BP guilty of gross negligence with regard to the Deepwater Horizon oil spill.



In a long-awaited and long (73-page) decision, the Fifth Circuit ruled en banc that a seaman is not entitled to seek punitive damages under the Jones Act or under general maritime law, whether it is a claim for wrongful death or for personal injury.


Congress provided only for pecuniary damages in the Jones Act and in the Death on the High Seas Act. If it wanted to allow recovery of non-pecuniary damages, it could have done so, the Court said. In Miles v. Apex, the Supreme Court unanimously ruled that Jones Act seaman cannot recover non-pecuniary damages in a wrongful death action. Punitive damages were not available for a seaman alleging unseaworthiness under general maritime law. McBride v. Estis Well Service, LLC., (Fifth Cir., Sept. 25, 2014).



Although ocean cargo is often booked by an agent of the Shipper, the booking note, freight invoices and bills of lading are written evidence of the contract of carriage, and agents who book cargo should carefully review such documents to make sure they reflect correctly the bookings made by the agent. The printed terms of the bills of lading are especially important and forms should be reviewed before bookings. The forms can be found on carriers' websites. Terms of bills of lading are sometimes revised by the carrier.


In a case decided by the Southern District of New York this year, a shipper's agent was held personally liable to pay $232,984 in demurrage because consignees in Brazil failed to clear cargo on time and return four empty containers to the carrier.


The freight invoices and booking notes named the agent as the Shipper, but the four bills of lading did list the defendant as "Shipper" operating "as agent" for other unnamed parties. That did not help the agent because the carrier's bill of lading form, also available on its website, defined the cargo interest as the "Merchant," including "the Shipper, Consignee, holder of the Bill of Lading, the Receiver of the Goods and any person owning, entitled to or claiming the possession of the Goods and the Bill of Lading or anyone acting on behalf of this person." (emphasis added). It also provided that "demurrage per diem and detention charges" on containers would be paid by the "Merchant."


The court held that based upon the "clear contractual terms," owner was entitled to recover almost a greater of a million dollars in demurrage charges from the defendant's agent named as Shipper on the bill of Lading. Mediterranean Shipping Company USA, Inc. v. AA Cargo, Inc. (S.D.N.Y., June 23, 2014), 13-cv-1608 (KBF).



It is a well settled principle of maritime law that a claim for breach of a maritime contract creates a maritime lien that can be enforced by the injured party through an action in rem
against the vessel. Providing maritime necessaries, e.g., repairs to a vessel, and not getting paid for those services is one of the instances in which the injured party is entitled to such a remedy. It is also well settled that parties may contractually limit the rights that are generally afforded to them by law.

The U.S. Court of Appeals for the Second Circuit recently upheld the validity of a clause in a contract in which a subcontractor, who had been engaged to install a new atrium structure on board of a vessel, contractually waived its right to a maritime lien against the owner/charterer of the vessel - with whom it had no privity of contract - by entering into a contract with the general contractor that included a maritime lien waiver clause. The clause read in relevant part that "The parties agree that no lien or action in rem proceeding may attach or otherwise affect title to the Vessel for which the items are being utilized..." The Second Circuit affirmed the District Court (i.e., federal trial court) reasoning that the clause constitutes clear affirmative proof of an express written waiver on the face of the contract and, therefore, the subcontractor expressly agreed that no maritime lien could arise from the contract.


As these well settled principles can be reconciled, parties must be mindful that contractual "no lien" clauses are enforceable. See Triodetic Inc. v. Statue of Liberty IV, LLC, No. 13-4460-cv (2d Cir. Nov. 7, 2014).



A charter party is a maritime contract for the hire of a vessel. The party who hires a vessel out is usually the owner. The party who rents a vessel is the charterer. There are various kinds of charters, but the basic ones are the demise charter, often called a "bareboat" charter because the charterer lends the vessel, but provides his own master and crew, and controls the vessel's operation. The time charter simply hires the vessel for a period of time, but the vessel is operated by the owner and its crew. The voyage charterer hires the ship for one or more voyages, rather than a period of time. It all depends on the terms of the charter.


In a recent case in the Fifth Circuit Court of Appeals, a crewmember was injured when he was thrown from his seat due allegedly to the vessel's excessive speed. The seaman sued the time charterer, alleging that it was the "owner pro hac vice" and his Jones Act employer who were responsible for the negligent operator. But the Fifth Circuit  ruled that a non-demise charterer is not liable for claims of negligence of the crew or the unseaworthiness of the vessel.


The Appeals Court pointed out that Article 15 of the charter party unambiguously established that the contract was a non-demise time charter. The article, entitled "Charter Not a Demise," provided that nothing in the charter "is to be construed as a demise of the VESSEL to the CHARTERER, VESSEL OWNER shall at all times remain responsible for the navigation of the VESSEL, acts of pilots, tug vessels, crew and all other similar matters as if trading for its own accounts." It also provided that the "decision to proceed on a trip in the face of adverse or changing weather or sea conditions shall be the sole decision of the VESSEL OWNER or the designated master." Kenneth W. Barron v. BP America Production Company (Fifth Cir., Oct. 1, 2014).  



The right to arrest a vessel is a maritime weapon that does not exist in the case claims against a railroad or a trucker. It also may allow a vessel to obtain services or supplies in foreign parts where the owner may not be known to the supplier. It can rely on the credit of the vessel itself-the ability to be arrested if the supplies or services are not paid for.


Nevertheless, maritime law applying to seizures of vessels requires that damages for wrongful arrest be awarded only on a showing of "bad faith, malice or gross negligence." It also established that "advice of competent counsel honestly sought and acted upon in good faith is alone a complete defense to an action for malicious prosecution."


Negligence alone will not suffice to maintain an action for wrongful arrest; rather the vessel owner must show that the arrest arose from "malice, bad faith, or reckless disregard of the other party's legal rights.


The resolution of a wrongful arrest action under maritime law requires a sole determination: whether defendant honestly sought and acted reasonably upon the advice of counsel in good faith when it arrested the vessel. Defendant's reliance upon advice of "competent counsel" is the key to good faith. In a recent case where a vessel was mistakenly arrested in Brazil, the U.S. court cited the reliance on "competent counsel" and "competent Brazilian court" that caused the order of arrest. Industrial Maritime Carriers, LLC. V. Dantzler, Inc. (U.S.D.C./S.D. Fla., Oct. 15, 2014).


From L to R: Montgomery McCracken Maritime and Transportation Practice Chair John Levy, and Partners Vincent DeOrchis

Eugene O'Connor


Timothy Semenoro.
The Ninth Annual International
Maritime Law Seminar was held in London October 16 with more than 250 maritime industry representatives in attendance. The half-day seminar "Recent Developments in Maritime Law: A Multi-Jurisdictional Perspective" featured 15 speakers from 14 countries addressing developments in maritime law within their respective jurisdictions. Partner Vincent DeOrchis co-founded the seminar.
Partner Eugene O'Connor

Partner Eugene O'Connor presented "There's a New Sheriff in Town: The U.S. EPA Steps Up Enforcement of Sulphur Emissions Regulations." An article and PowerPoint from his presentation are available. 



In the wake of the global recession at the end of 2008 and beginning of 2009, companies sought security for potential claims. In the context of maritime claims, one favorable venue was New York, an international financial center and home to the Clearing House banks, which acted as an exchange for electronic U.S. dollar wire transfers. Unfortunately, due in part to the high volume of claims, in 2009, the U.S. Court of Appeals for the Second Circuit in Shipping Corp. of India v. Jaldhi Overseas PTE LTD held that U.S. dollar electronic fund transfers ("EFTs") that passed through New York banks were no longer subject to attachment pursuant to Rule B of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions of the Federal Rules of Civil Procedure ("Rule B").  


In Jaldhi, the Shipping Corporation of India sought and was granted an ex parte maritime attachment order pursuant to Rule B. By serving the order of attachment on various banks in New York, EFTs that originated in foreign banks, but momentarily passed through New York-based banks, were restrained. Having considered the various arguments of the parties and amicus briefs, the Second Circuit held that "because there is no governing federal law on the issue and New York law clearly prohibits attachment of EFTs, we conclude that EFTs being processed by an intermediary bank in New York are not subject to Rule B attachment"


As the attachment of EFTs was no longer possible pursuant to Rule B, parties sought alternatives. On such option presented itself in the form of the Court of Appeals of New York decision in Koehler v. Bank of Bermuda Ltd., which appeared to allow parties the ability to reach a debtors' assets that were held by a foreign bank. In Koehler, the Court reasoned that Article 52 of the New York Civil Practice Law and Rules allowed a New York court to order a bank, which was admittedly subject to the personal jurisdiction of the court, to deliver stock certificates held in its foreign bank branch to a judgment creditor in New York.


Pursuant to Koehler, parties attempted to restrain assets in foreign banks via New York branch office, but decisions from the New York State Supreme Court and the Court of Appeals of New York held to the contrary. In Gliklad v. Bank Hapoalim BM, the New York State Supreme Court (i.e., trial level court) held that parties could not reach the assets held in the foreign banks because they lacked jurisdiction. More importantly, the court found that under New York law, the "Separate Entity" rule protected foreign banks from the reach of New York courts. Under that rule, each branch office of a bank is to be regarded as a separate entity and, therefore, one bank branch office cannot be required to interfere with assets held in another branch office.


Likewise, in Motorola Credit Corp. v. Standard Chartered Bank, the New York State Court of Appeals of New York held that foreign banks were protected under the Separate Entity rule. However, the Court of Appeals also held that its reliance on the Separate Entity rule in Motorola did not expressly overturn Koehler because the separate entity rule was not raised in Koehler. The Court of Appeals explained that the Separate Entity rule did not apply in Koehler because neither bank branches nor assets held in bank accounts were involved.


Although Gliklad and Motorola did not explicitly overturn Koehler, the use of Koehler as a basis for seizing foreign assets has been clarified and significantly limited.


Under the Act to Prevent Pollution from Ships (APPS), 33 U.S.C. §§ 1901 et seq, the U.S. Coast Guard is authorized to board and inspect ships docked in U.S. ports to investigate potential violations of the International Convention for the Prevention of Pollution from Ships (MARPOL) as implemented by the APPS.

In the event a violation is suspected, the Coast Guard may order the U.S. Customs and Border Patrol Protection to withhold customs clearance to foreign-flagged vessels. If a violation has occurred, there can be both criminal and civil liability.Pursuant to 33 U.S.C. § 1908(e), the U.S. Coast Guard has broad authority and discretion to impose both financial and non-financial conditions for the release of a foreign-flagged vessel the agency has detained at a United States port due to suspected violations of federal and international environmental law. Courts, so far, have declined to review the measures and the conditions posed by the Coast Guard.


In the Watervale Marine Co. v. U.S. Department of Homeland Security [i], as conditions of the vessel's release following alleged APPS violations, the Coast Guard required of the shipowners that:
  • listed crewmembers remain within the jurisdiction pending the investigation;
  • wages, housing, and transportation costs, along with a per diem are paid for those crew members that remain in the jurisdiction;
  • the crew is encouraged to cooperate with the government's criminal investigation;
  • employment of the crew members that remain in the jurisdiction is maintained;
  • repatriation of crew members once they leave the United States is arranged;
  • the crew members' passports are held for safekeeping with the obligation to notify the government if any crew member requests return of his passport;
  • they stipulate to the authenticity of documents and items seized from the vessel ;
  • help is provided to the government in serving subpoenas on foreign crew members located outside of the United States;
  • objections to both in personam and in rem jurisdiction are waived, and
  • an appearance in federal district court is entered.

After the Coast Guard ordered Customs to withhold the vessels, the vessel interests executed the security agreements and posted bond as required by the Coast Guard. Once the Vessels had been released, and failing the administrative appeals against the Coast Guard's decision, the vessel interests commenced legal action in the U.S. District Court for the District of Columbia.


The vessel interests' demand for relief was grounded on the Coast Guard lack of statutory authority to require non-financial conditions prior to the release of the vessel. The vessel interests argued the wording of 33 U.S.C. § 1908(e) which states: "clearance may be granted upon the filing of a bond or other surety satisfactory to the Secretary" only allowed the Coast Guard to require the posting of a bond, but prevented her from demanding compliance with further conditions.


The District Court, however, observed that the statutory language allows, but does not mandate the Coast Guard to release the vessels, and that the posting of a bond by the shipowners is a condition necessary, but not sufficient to obtain release. Furthermore, the Court acknowledged that Congress gave "absolutely no guidance" as to how the agency should exercise her discretion and that therefore a Court would not have sufficient standards to perform a review. Combining those two factors led the Court to determine that the matter of whether, and at what conditions, vessels detained for APPS violations should be released is "committed to agency discretion by law" and therefore not subject to judicial review.

represents the that the most recent effort by ship owners to challenge the discretion of the Coast Guard with respect to alleged violations of APPS. What makes Watervale different from prior attempts is that the vessel interests were not contesting the legitimacy of the bond request, nor its entity.  Instead, the vessel interests had already submitted security for the financial portion, and only sought review of the non-financial conditions.To put Watervale in context, previously, in Bottiglieri Shipping v. U.S[ii]., the Coast Guard denied clearance for a foreign flag vessel to depart the Port of Mobile (AL) since there was reasonable cause to suspect an APPS violation. As a consequence, the vessel remained in Port pending investigation, with losses on the order of $15.000 a day in lost hire plus port charges.The vessel sought clearance through the posting of a bond or security as allowed by 33 U.S.C. § 1908(e). Despite lengthy negotiations, the Coast Guard only agreed to a marginal reduction of the original security demand and continued to disagree about the arrangements for the crew. As such, the vessel interests petitioned the United States District Court for the Southern District of Alabama to obtain judicial relief.

While the District Court found that the Coast Guard's refusal to further engage in negotiations constituted a "final agency action" as required by the APA in 5 U.S.C. § 704, the Court declined jurisdiction because "federal courts lack jurisdiction over administrative action where ... agency action is committed to agency discretion by law". In detail, the District Court found that where a statute gives no meaningful standard against which to judge the agency's exercise of discretion, a judicial review is not possible.


In particular, the District Court found that 33 U.S.C. § 1908 only states that "clearance may be granted upon the filing of bond or other surety satisfactory to the Secretary", without providing parameters to limit the "enormously broad" discretion of the Coast Guard. By recognizing that the Coast Guard enjoys "virtually unfettered latitude" in deciding whether to or not to grant clearance, and if so, what bond or surety would be considered satisfactory, the District Court declined jurisdiction.


In short, the language of APPS allows the Coast Guard broad authority and discretion to demand non-financial conditions in security agreements.

[i] Watervale Marine Co. v. United States Dep't of Homeland Sec., No. 12-CV-0105 (KBJ), 2014 WL 3563159 (D.D.C. July 18, 2014)

[ii] Giuseppe Bottiglieri Shipping Co. S.P.A. v. United States, 843 F. Supp. 2d 1241 (S.D. Ala. 2012)



The Florida State Third District Court of Appeal recently dismissed a passenger's negligence claims against Royal Caribbean, holding that the forum selection clause in the ticket contract provided for exclusive jurisdiction in the United States District Court for the Southern District of Florida. Royal Caribbean passenger Jeannette Clarke sued the cruise line in Florida State Circuit Court mere days before the contractual limitation period passed. According to the Florida State Appellate Court, Clarke's timely filing of the suit "acknowledged the ticket contract's provision relative to the application of the one-year limitation period" contained in the ticket contract. But Clarke ignored another key provision in the same contract providing "[a]ll disputes and matters whatsoever arising under, in connection with or incident to this agreement ... shall be litigated, if at all, in and before the United States District Court for the Southern District of Florida located in Miami-Dade County, Florida."


Since the Supreme Court's 1991 holding in Carnival Cruise Lines v. Shute that forum selection clauses are "prima facie valid," courts regularly uphold such clauses unless the contesting party can satisfy his or her burden of establishing non-enforcement. Indeed, in August of this year, a Florida court enforced a forum selection clause and dismissed the last of the Costa Concordia suits against Carnival. That court held American plaintiffs "had a meaningful opportunity to review and become acquainted with the forum selection clause in the passage ticket before embarkation on the Costa Concordia," and that their claims must be brought in Italy. See Scimone v. Carnival Corp., No. 2012-26072-CA-01 (Aug. 6, 2014 Fla. 11th Cir. Ct.).


Similarly, here, relying on the forum selection clause in its ticket contract, Royal Caribbean moved to dismiss Clarke's suit for improper venue. But the trial court denied the motion "finding there was no evidence Clarke received the ticket contract before she boarded the vessel." The Appellate Court disagreed, accepting Royal Caribbean's affidavit establishing that before Clarke could board the ship, she had "to check in and accept all of the terms and conditions of the ticket contract." In the first paragraph, the ticket contract advised passengers "in bold and capital letters" that the contract "contains important limitations on the rights of passengers," and "it is important that you carefully read all terms of this contract, paying particular attention to section 3 and sections 9 through 11." Both the forum selection clause and the one year limitation period fell within those provisions.


Whether Clarke "actually received and read the ticket contract" was irrelevant because Royal Caribbean "reasonably communicated" the "existence of important terms and conditions" to Clarke, including the forum selection clause, before Clarke boarded the ship. Nor did Clarke offer any evidence to satisfy her burden to establish non-enforcement.


The Court also rejected Clarke's argument that Royal Caribbean should have removed the case to federal court rather than file a motion to dismiss. Explaining that it had "enforced similar forum selection clauses and ... recognized dismissal as a proper mechanism to enforce a forum selection clause of a cruise ticket," the Court held "Royal Caribbean had no obligation to remove the case to federal court ." Royal Caribbean Cruises, LTD v. Clarke , No. 3D14-871 (Fla. 3d DCA Oct. 8, 2014).



In a recent insurance coverage action, Sompo Japan Insurance Company of America v. Norfolk Southern Railway Company, et al., the U.S. Court of Appeals for the Second Circuit considered the enforceability of an exoneration clause within a bill of lading, and the authority of a common carrier intermediary to bind cargo owners to the terms of a bill of lading issued by an ocean carrier.


In Sompo, a cargo auto parts was shipped from Japan to the United States. The manufacturers of the auto parts hired an intermediary, non-vessel owning common carrier ("NVOCC") to arrange for the transportation of the cargo. The intermediary issued a through bill of lading to the manufacturers, and hired an ocean carrier to provide ocean transport as well as arrange for inland transportation. The ocean carrier subsequently issued its own bills of lading to the intermediary, and subcontracted responsibility for the inland leg of the shipment to the defendant railroad companies.


The ocean carrier bills of lading contained an "Exoneration Clause," which limited liability for damage to the cargo to the "Carrier," and specifically excluded "Underlying Carriers" from liability. The same bill of lading also defined the term "Carrier" as "the party on whose behalf this bill is issued, as well as the time charterer and any substituted or Underlying Carrier[,]" and further defined the term "Underlying Carrier" as "any water, rail, motor, air or other carrier utilized by the Carrier for any parts of the transportation [of] the shipment covered by this Bill." The parties agreed that the defendant railroad companies were "Underlying Carriers" within the meaning of the ocean carrier bill of lading.


In deciding the case, the Second Circuit rejected the plaintiff insurance companies' argument that the clause was ambiguous. In doing so, the appellate court noted that the only reasonable interpretation of the Exoneration Clause was that the ocean carrier was the "Carrier" under the the bill of lading, and any company relied upon by the "Carrier" to facilitate the transportation could be liable to the cargo owners and those subrogated to the cargo owners' interests. In so holding, the appellate court cited the general principle that, in a situation of potential ambiguity, an interpretation that gives reasonable and effective meaning to all terms of a contract is preferable to one that leaves a portion meaningless.


The Second Circuit also considered the enforceability of the Exoneration Clause and found that the clause did not violate public policy by exonerating a common carrier or its agents from all liability for damages caused by their negligence. Rather, the clause functioned as an ordering mechanism by designating that the ocean carrier, and only the ocean carrier, was responsible to the cargo owner for losses caused by it or any other entity involved in the shipment. The clause did not relieve the railroad companies from being held liable to the ocean carrier for damage caused by their negligence.


Finally, the appellate court rejected the plaintiffs' argument that the intermediary carrier was not authorized to agree to the Exoneration Clause in the ocean carrier's bill of lading. In doing so, the court noted U.S. Supreme Court precedent establishing that, with regard to liability limitations for negligence resulting in damage, an intermediary may negotiate reliable and enforceable agreements with the carriers it engages. This is founded in both practical considerations - such as the notion that a contrary rule would frustrate carriers who may not know whether they are dealing with an intermediary or cargo owner, and thus wouldn't know whether their contractual liability limitations are enforceable - and the equitable consideration that cargo owners retain the ability to sue intermediary carriers for any gap in liability limitations between through bills of lading issued by the intermediary and subsequent carriers.


In the end, the Sompo decision adheres to longstanding principles of construction and does not relieve underlying carriers from the consequences of their negligence. However, shippers must be mindful that, when contracting with an ocean carrier or intermediary, they will not be able to assert direct claims against underlying carriers if the contracts of carriage contain an Exoneration Clause.


The firm is pleased to announce that it will continue its trainee program, which has afforded more than 110 foreign lawyers (and a few P&I Club claims handlers) an opportunity to observe firsthand the practices of maritime and transportation law in the United States. The program is designed to allow graduate law students or attorneys from outside of the United States to be involved in maritime and transportation cases, including, when possible, the attendance at court hearings, trials, arbitrations, depositions and settlement conferences, while receiving informal instruction on American law and procedure, as well as an opportunity to improve their English language skills.  


Interested candidates should send an email with the subject: "[Your Name] - MMWR Trainee Program" to Vincent DeOrchis or Kaspar Kielland. Applicants should include their résumé and indicate the time p eriod in which they are interested in participating in the three-month program.

For add itional information about the trainee program, please visit mmwr.com.

Montgomery McCracken's Maritime and Transportation practice serves all sectors of the maritime industry including ship owners, charterers, pilots, cargo owners, shipyards, terminals, commodities traders, non-vessel operators and non-vessel operating common carriers. The multifaceted practice includes cargo and products claims; bankruptcy and restructuring; corporate and finance matters; sustainable growth; and defense of criminal investigations, including corporate compliance matters.
For additional information, please contact any of the attorneys within the firm's  Maritime and Transportation  practice group.

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