July 10, 2012

Seasteads Without Selection Clauses in Their Contracts

This blog post is part of an ongoing series (see part 1 and part 2) examining how a seastead might limit the risk of being sued in the court system of the United States. Robert Mongole is a Juris Doctor and Doctor of Civil Law candidate at the Louisiana State University Paul M. Hebert Law Center, conducting this investigation in conjunction with The Seasteading Institute. Robert’s full research paper on the subject can be viewed here.

The last post explored what would happen to seasteads if a contractual device limiting the geographic place and the court in which a seastead might be sued, or a selection clause, is in place. If there is no selection clause in place, the first step is to determine if the plaintiff is suing his employer or a third party. For claims against an employer or the vessel on which the seaman was employed, the next step is to determine what laws apply. If foreign law applies, and not American law, the court may dismiss the suit if there is another more convenient forum. To determine whether foreign or domestic law applies, a choice of law test is run, applying the factors from the Supreme Court decisions in Lauritzen v. Larsen and Hellenic Lines v. Rhoditis.

We receive eight factors from the above cases, commonly referred to as Lauritzen-Rhoditis factors. They are: the place of the wrongful act; the place of contract; the law of the flag; the allegiance of the defendant shipowner; the allegiance or domicile of the injured worker; the inaccessibility of the foreign forum; the law of the forum; and the base of operations.

Each of these factors is assigned a varying degree of weight. In Rhoditis, Justice Douglas, writing for the majority, observes that “the Lauritzen test is not a mechanical one … The significance of one or more factors must be considered in light of the national interest served by the assertion of Jones Act jurisdiction.” No single factor is entirely determinative in itself.

Generally, party allegiance is assigned an intermediate level of importance. The place of the wrongful act and place of contract carry little authoritative weight. The inaccessibility of a foreign forum is only significant if the alternative forum were to “necessitate delayed, prolonged, expensive and uncertain litigation” and otherwise carries little weight. The two factors that should be of gravest concern to seasteads are the allegiance of the defendant shipowner and the inaccessibility of the foreign forum.

The courts become weary of owners whose nationality does not match the ship’s flag. Lauritzen is silent on non-American shipowners flying flags from open registries, but seasteads owned by Americans flying a foreign flag should be concerned. Courts on occasion have ignored the law of the flag and forced American laws on American shipowners flying foreign flags. American ownership in a seastead can easily eliminate the benefits of flying a foreign flag if the court views it as a way of escaping the obligations of American law. While a court could view a seastead as attempting to escape American law, American courts have stressed that a ship carries the nationality of the state to which it is registered. In order to properly register a ship and authorize it to fly the state’s flag, there must be a genuine link between the state and the ship (i.e., the state must effectively exercise its jurisdiction and control in administrative, technical and social matters over ships flying its flag. See the United Nations Convention on Conditions for Registration of Ships and the 1958 Geneva Convention on the High Seas for more information). Courts have been hesitant to ignore the law of the flag and apply American law, but it has been done on occasion. For example, in the case of William Brooks v. Hess Oil Virgin Islands. In William Brooks, the court found no reason to conclude that an arbitrary number of American contacts would outweigh the “internal order and economy” provided by the law of the flag, Liberian law in the case at hand. Fortunately for seasteads, this is the more common conclusion American courts reach, demonstrating they are hesitant to ignore the law of the flag and apply American law.

Concerning the accessibility of foreign forums, the court will ask if the seaman will be disadvantaged in obtaining his remedy under foreign law in U.S. courts or the foreign court. To determine this, the Lauritzen court examined whether the foreign court has delayed, prolonged, expensive or uncertain litigation. The court also noted that in the case at hand, claims could be made through the Danish Consulate so the seaman did not have to leave New York. Seasteads owned by US citizens should examine the accessibility of a foreign nation before flying their flag. If the nation’s courts have delayed, prolonged, expensive or uncertain litigation, this may allow litigation in the United States, defeating the purpose of flying the foreign flag.

Seasteads should be able to alleviate any concerns raised by incorporating selection clauses into their contracts. Without a selection clause, seasteads run the risk of coming under scrutiny from American courts, as it is likely seasteads will fly flags from open registries while the owner(s) reside in different countries. Ultimately, a seastead should consistently have the law of the flag applied to it in court cases, but a selection clause in seastead contracts would further reduce the odds of ending up in an American court.