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Second Circuit Court of Appeals Rules That The Phrase "To Be" In a Forum Selection Clause Is  Mandatory Language

In a recent unpublished decision, the Second Circuit ruled that language contained in a bill of lading providing: "Any disputes arising under the Bill of Lading to be decided in London according to English Law" was mandatory, requiring any legal proceedings to be brought in London. Macsteel International USA Corp. v. M/V LARCH ARROW, No. 09-0045-cv (2d Cir. Dec. 1, 2009) (Summary Order).

The plaintiff-appellant in Macsteel had filed its complaint in the Southern District of New York. The Defendants moved to dismiss pursuant to the forum selection clause in the bills of lading. The plaintiff argued that because the vessel owner's surety had issued a letter of undertaking ("LOU") providing that the guarantee would be governed by the law of the Netherlands, this indicated a waiver by the vessel's owner of the forum selection clause in the bill of lading. The district court rejected this argument and dismissed the complaint, finding that the language in the bills of lading was mandatory and that there had been no waiver of the forum selection clause. 

On appeal, the Second Circuit looked to its 2007 decision in Phillips v. Audio Active Ltd., 494 F.3d 378, 383-84 (2d Cir. 2007) and performed a four (4) step analysis to determine whether the forum selection clause required dismissal of the complaint. Specifically, the Court considered:

  1. whether the clause was reasonably communicated to the party resisting enforcement;
  2. whether the clause is mandatory or permissive;
  3. whether the claims and parties involved in the suit are subject to the forum selection clause; and
  4. whether the resisting party has made a sufficiently strong showing that enforcement would be unreasonable or unjust, or that the clause was invalid

Although Macsteel conceded that the clause was reasonably communicated and that the parties were subject to the forum selection clause, it nonetheless argued that the clause was permissive, not mandatory, because it lacked "mandatory venue language."  The Second Circuit disagreed. Relying on Phillips, the Court stated that the proper inquiry should be on the "mandatory force of the words" - i.e., whether the language requires that an action be venued in a specifically designated forum. Just as mandatory force was found to be in the phrase "are to be" in Phillips, the Macsteel Court concluded that the phrase "to be" in the Bill of Lading made the forum selection clause mandatory.

Read a copy of the Second Circuit's Summary Order

For more information concerning this decision, please do not hesitate to call on us at info@chaloslaw.com

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