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EXISTING CASELAW THAT HONORS U.S. CHOICE OF LAW CLAUSES IN INTERNATIONAL CONTRACTS IS LEFT UNDISTURBED BY SUPREME COURT

Authored by Attorney Mark T. Coberly, mcoberly@vanblacklaw.com; 757-446-8614

Since the 1970s, courts have generally recognized the choice of law and forum provisions contained in contracts between international parties.  In some contexts, however, a party will challenge a choice of law provision as unenforceable for reasons of fairness, or because to enforce the clause would conflict with existing law.  Recently, the issue has been raised in a number of cases in the context of admiralty law, where contracts between non-U.S. entities have specified U.S. law in their contracts, without any other apparent connection with the United States in the transactions.  In particular, companies that provide fuel oil to ships have learned that U.S. law pertaining to maritime liens is more favorable to contractors which supply fuel and other supplies and services to ships than the laws in most of the rest of the world. 

When litigation arising from these contracts is initiated in the U.S., often the foreign vessel owner challenges the validity of the U.S. choice of law clause.  The basis for the challenge can be wide ranging but typically includes that there are no U.S. contacts in the transactions and that the law of the countries where the parties reside, the transaction was made, and where the contract was performed differ from U.S. law.

Lower courts have generally upheld the contract clause, applying the choice of law and forums the parties had specified in their contracts.  And, where this issue of applying U.S. maritime lien law based on the choice of law clauses in foreign contracts has been presented at the appellate court level, three appellate courts also have held the choice of law in the contract should be followed - The Fourth Circuit, the Fifth Circuit, and the Ninth Circuit. 

The issue was taken to the Supreme Court of the United States last year when it was petitioned to review the ruling from the Fifth Circuit in World Fuel Services (Singapore) Ltd. v. Bulk Juliana, Ltd., 822 F.3d 766 (5th Cir. 2016).  Among other issues raised in the Petition for Certiorari to the Supreme Court, was whether the exercise of in rem jurisdiction premised on the existence of a maritime lien that only exists by virtue of a contractual choice of U.S. law, violates the axiom that jurisdiction that would not otherwise exist cannot be conferred by the parties' consent.

On January 9, 2017, the high court decided to request the position on the issue from the Solicitor General, who speaks for the United States government.  Bulk Juliana, et al. v. World Fuel Services, 580 U.S. 2 (2017).  The Solicitor General recommended the Supreme Court decline the case, and on June 26, 2017, an order was entered by the Court denying the petition. Bulk Juliana, et al. v. World Fuel Services, 582 U.S. 9 (2017).

This is the second time in recent years that the Supreme Court has denied a petition to hear a case with a challenge to a U.S. choice of law clause that benefited a maritime lien holder.  Previously the Court declined to review the similar case of Splendid Shipping Sendirian Berhad v. Trans-Tec Asia, 555 U.S. 1062 (2008). 

The message of these cases to parties to international transactions that incorporate U.S. law, including maritime lien law, is that those clauses are enforceable and that the Supreme Court is unlikely to change that interpretation anytime soon. 

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