Court to rule on maritime arbitration

November 29, 1994|By Lyle Denniston | Lyle Denniston,Washington Bureau of The Sun

WASHINGTON -- The Supreme Court stepped into a spreading maritime law conflict among lower federal courts yesterday, agreeing to settle the legality of contracts requiring that disputes over cargo loss or damage go to an arbitration panel in another country.

The court voted to hear a case involving $1 million-plus in damage to a ship's cargo of oranges bound from Morocco to a Massachusetts port.

The Panamanian owner of the cargo ship is seeking to take the dispute over the loss to a Japanese arbitration tribunal tied to the Japan Shipping Exchange, but the insurer of the damaged cargo wants the case handled in a U.S. court.

Under the contract for that particular shipment, any dispute was supposed to be put before the Tokyo Maritime Arbitration Commission. Lower courts ruled in the case that the arbitration clause may be enforced and that it is not illegal under U.S. maritime law.

Although courts throughout the country have split on that question, a U.S. District Court in Baltimore ruled three years ago that such arbitration clauses in maritime cargo contracts are valid.

Two federal laws will be under review by the Supreme Court in the Moroccan oranges case: the Carriage of Goods at Sea Act, dating from 1936, and the Federal Arbitration Act, dating from 1947. The courts that have ruled against foreign arbitration of cargo claims have done so under the 1936 law.

But the 1st U.S. Circuit Court of Appeals in Boston ruled in July that the Arbitration Act is the one that controls the dispute, and that act strongly favors arbitration of commercial disputes.

A Supreme Court ruling is expected by the summer.

In another case yesterday, the court voted to leave intact a federal appeals court ruling from May that allows law firms to be sued by investors for securities fraud if the firms give its clients misleading legal advice in an internal document.

A Chicago law firm, Arvey, Hodes, Costello & Burman, tried to challenge that decision in an appeal, but the Supreme Court turned it down without comment. That means that the securities fraud claim against the law firm will go back to a lower federal court for a trial.

Investors who sued the firm contended that it provided misleading tax advice when it put together a program for investing in government securities or government-insured mortgages.

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