Third Circuit Untangles Complicated Shipping Dispute

Malaysia Int’l Shipping Corp. v. Sinochem Int’l, Inc., 436 F.3d 349 (3d Cir. 2006).

Josh Clemons, Mississippi-Alabama Sea Grant Legal Program

In February the U.S. Court of Appeals for the Third Circuit issued a ruling in a dispute between a Malaysian shipping company and a Chinese manufacturer that involved the scope of the United States’ admiralty jurisdiction. The appeals court, using the location and connection analysis, held that admiralty jurisdiction was properly exercised in this case. However, the case was returned to the trial court because the existence of personal jurisdiction remained in question.

Background
In 2003 a Chinese company, Sinochem, contracted with an American company, Triorient, to buy steel coils. The contract between Sinochem and Triorient specified that Chinese law would be used to settle disputes.

Triorient chartered a vessel from Pan Ocean Shipping Co., Ltd., to transport the coils from the U.S. to China, and hired a separate company to load the coils onto the vessel. The coils were loaded, and a bill of lading was issued that listed Triorient as the shipper, Sinochem as the receiver, and Pan Ocean as the carrier. The bill of lading contained a condition that Hague Rules applied to it.

The bill of lading also incorporated by reference yet another document: a contract known as a “charter party” between Malaysia International Shipping Co. (MISC, the company that owned the vessel) and Pan Ocean. Pan Ocean said that disputes under the charter party were to be governed by New York law, with U.S. arbitration.

In May of 2003 Sinochem went to U.S. federal court in Pennsylvania to obtain discovery of “various aspects of the Vessel’s loading, the charter party, and the bill of lading for use in an ‘imminent foreign proceeding.’”1 A month later Sinochem filed a petition in an admiralty court in China, claiming that MISC had fraudulently backdated the bill of lading (which triggered payment from Sinochem to Triorient) and asking for the vessel to be seized. The court ordered the seizure. The vessel was released after MISC posted $9 million security.

MISC then sued Sinochem in U.S. federal court in Pennsylvania for a variety of alleged misrepresentations regarding the backdating of the bill of lading, the damages from which MISC sought to be reimbursed. (This is the case being appealed here.)

Sinochem returned to the Chinese admiralty court complaining of damage from the alleged backdating. MISC countered that the Chinese court lacked jurisdiction, arguing that the bill of lading and the charter party required disputes to be settled elsewhere. The admiralty court found that it did indeed have jurisdiction. The Chinese appeals court affirmed, ruling that Chinese jurisdiction was proper regardless of any actions taken in the courts of other sovereign nations.

Meanwhile, back in Pennsylvania, Sinochem moved for dismissal of MISC’s suit on the grounds that the court lacked personal and subject matter jurisdiction, as well as for forum non conveniens (a doctrine by which a court can dismiss an action over which it has jurisdiction because the convenience of the parties and witnesses would be better served by bringing the action in another court). The court determined that it had admiralty jurisdiction because the fact situation – the seizure of the vessel – had occurred on navigable waters (albeit in China) and there was sufficient connection to traditional maritime activity. Nonetheless, the court dismissed on forum non conveniens grounds. MISC appealed to the U.S. Court of Appeals for the Third Circuit.

Admiralty Jurisdiction
The appeals court first considered the lower court’s ruling that it had admiralty jurisdiction. Federal admiralty jurisdiction over a tort action is conditioned on two things: location, and connection with maritime activity.

“A court applying the location test must determine whether the tort occurred on navigable water or whether injury suffered on land was caused by a vessel on navigable water.”2 The alleged tortious act was Sinochem’s misrepresentation that MISC backdated the bill of lading, which, obviously, took place on land. However, the injury arising from the misrepresentation was the seizure of the vessel, which took place on navigable waters. The court followed the “impact analysis” favored in other circuits, whereby “a tort occurs in the place where the injury occurs.”3 Under this analysis the location condition was satisfied.

To satisfy the connection condition, a tortious act must have “the potential to disrupt maritime commerce” and “a substantial relationship to traditional maritime activity.”4 The court had no doubt that the vessel seizure disrupted maritime commerce; establishing that Sinochem’s alleged misrepresentation had the necessary “substantial relationship to traditional maritime activity” was slightly more difficult. By the court’s reasoning, when Sinochem petitioned the Chinese court for the seizure of the vessel the company was using “a well-established method of granting an admiralty court power to exercise authority over a ship,”5 so the “significant relationship” condition was met.

Personal Jurisdiction
The trial court dismissed the case on forum non conveniens grounds before determining whether personal jurisdiction existed. MISC argued on appeal that the lower court should have established both personal and subject matter jurisdiction before ruling on forum non conveniens.6

The appeals court agreed. A ruling on forum non conveniens depends, the court reasoned, on the existence of jurisdiction because the court could not decline to exercise its jurisdiction if it had none to begin with. To support its ruling, the court noted that the U.S. Supreme Court had suggested that a forum non conveniens ruling presupposed jurisdiction, and that other appeals courts had explicitly reached that conclusion.

Conclusion
The appeals court rejected Sinochem’s attempt to show that the trial court had adequately addressed personal jurisdiction, and remanded the case to the lower court for more inquiry on that matter. MISC’s claim against Sinochem for misrepresentation remains alive.

Endnotes
1. Malaysia Int’l Shipping Corp. v. Sinochem Int’l, Inc., 436 F.3d 349, 351 (3d Cir. 2006).
2. Id. at 354 (quoting Jerome B. Grubart, Inc. v. Great Lakes Dredge and Dock Co., 513 U.S. 527, 534 (1995)).
3. Id. at 355.
4. Id. at 356.
5. Id. at 357.
6. In this case the subject matter was admiralty, and admiralty jurisdiction had been established.

University of Mississippi