Opinion
No. 01 Civ. 2088 (RMB)(KNF).
October 5, 2005
REPORT AND RECOMMENDATION
I. INTRODUCTION
In this action, plaintiff Dun Shipping Ltd. ("Dun Shipping") has petitioned the Court for an order, pursuant to 9 U.S.C. § 4, compelling Amerada Hess Shipping Corporation ("Hess Shipping") and Hovensa L.L.C. ("Hovensa") (collectively "defendants") to arbitration. Defendants oppose the petition. In addition, the defendants seek an order, pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et seq., staying further action in the arbitration commenced by the plaintiff, as well as an order, pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, declaring that the plaintiff's claim against them, for a contribution to expenditures incurred in refloating the oil tanker M.T. Knock Dun ("Knock Dun") after it went aground off the island of Antigua, is not arbitrable.
ABC Corporation, one of the defendants named in the complaint, is not identified as a party to the defendants' petition.
On August 19, 2002, this Court issued a report recommending,inter alia, that the defendants' petition for an order staying further action in the arbitration commenced by the plaintiff be granted and that plaintiff's petition for an order compelling arbitration be denied. Plaintiff submitted objections to the report. Thereafter, by order dated October 28, 2002, your Honor granted plaintiff's application for limited discovery concerning the arbitrability of its claim against the defendants and, in addition, directed that the defendants be allowed limited discovery concerning the plaintiff's asserted right to enforce the relevant arbitration agreement. See Dun Shipping Ltd. v. Amerada Hess Shipping Corp., 234 F. Supp. 2d 291, 292-93 (S.D.N.Y. 2002). The matter was then referred to the undersigned to schedule such discovery and to issue a report and recommendation addressing the following questions: (1) whether the plaintiff "was or was not a party" to the contract of voyage charter entered into between defendant Hess Shipping and Knock Tankers, Ltd. ("Knock Tankers") and, "as a result, can or cannot enforce the Charter Party arbitration provisions;" and (2) whether defendant Hovensa had "actual knowledge of and acquiesced in the terms of the Charter Party and, therefore, perhaps should be bound by its arbitration provision." Id. at 295-96. The parties have completed discovery. Their respective petitions are addressed below.
II. BACKGROUND
On August 23, 2000, Hovensa entered into a contract to purchase 950,000 barrels of Kitina crude oil from Agip Petroli Sp.A. ("Agip") for shipment from the port of Djeno, Congo. Hovensa then advised Amerada Hess Corporation ("Amerada Hess") that transportation would be required for the shipment. Thereafter, a representative of Amerada Hess contacted Hess Shipping about chartering a vessel for this purpose. On September 8, 2000, Hess Shipping entered into a contract of voyage charter (the "Charter Party") with Knock Tankers whereby it chartered the Knock Dun for the purpose of transporting Hovensa's cargo from the Congo to St. Croix. Knock Tankers is a commercial management company. Both Dun Shipping and Knock Tankers are wholly owned subsidiaries of First Olsen Tankers, Ltd. ("First Olsen").
Hovensa, a Virgin Islands corporation owned by subsidiaries of Amerada Hess Corporation and Petroleos de Venezuela, S.A., purchases crude oil from worldwide sources, which it processes through its oil refinery at St. Croix. Hess Shipping is a transportation subsidiary of Amerada Hess Corporation and transports petroleum products for that corporation, its affiliates and other entities, including Hovensa. Dun Shipping is the registered owner of the Knock Dun.
On September 30, 2000, the Master of the Knock Dun, on behalf of Dun Shipping, issued a bill of lading ("Bill of Lading") to Hovensa acknowledging receipt on board of 989,668.8 barrels of Kitina crude oil to be delivered at the port of St. Croix. On October 13, 2000, the Knock Dun ran aground off the island of Antigua.
On March 12, 2001, a demand to arbitrate was served on counsel for the defendants; the demand indicates that it is made on behalf of the "owners of the Knock Dun," against both Hess Shipping and Hovensa. Also on March 12, 2001, Dun Shipping filed a complaint against the defendants claiming that, as a consequence of the grounding, it had made certain sacrifices and incurred certain expenses "of a General Average nature" in connection with refloating the Knock Dun, and that the defendants were bound to contribute to plaintiff a proper share of those expenses. The complaint seeks an order directing defendants to participate in arbitration or, in the alternative, a judgment against the defendants for payment of their proportionate share in the General Average.
General Average is the concept of sharing in a sacrifice or expenditure made to save a voyage from imminent peril. See Grant Gilmore Charles L. Black, Jr., The Law of Admiralty 245-46 (2d ed. 1975).
The Charter Party The Bill of Lading
On or about September 5, 2000, the Charles R. Weber Company ("Weber"), one of the tanker brokers involved in the negotiations for the subject charter, received from co-broker Fearnleys the original offer leading to the formation of the Charter Party. The offer states that it is for "Account Hess" and identifies the owners as First Olsen. The offer is for one of two ships: the Knock Dun or, "in owner's option," the M.T. Knock Allan ("Knock Allan"). The registered owner of the Knock Allan is Allan Shipping Co. Ltd. which, like Dun Shipping, is a subsidiary of First Olsen. The offer also gives the main terms of the Charter Party.
On or about September 8, 2000, Weber sent to Fearnleys and to Hess Shipping the broker's confirmation recap, confirming the Charter Party between Knock Tankers and Hess Shipping. The recap provides that the owner retained its option to substitute the Knock Allan for the Knock Dun. In addition, the recap provides,inter alia, descriptions of the two vessels, a description of the cargo, the names of the loading ports, the freight rate, the demurrage cost, the type of charter party form to be used ("Asbatankvoy"), and forty-one additional provisions, called "Hess Clauses," further specifying the terms of the agreement.
Based on the broker's confirmation and information from prior transactions, Thomas J. Bontemps ("Bontemps"), the Supervisor of Chartering and Claims for Hess Shipping, prepared for the company's internal reference a "Charter Party memo" summarizing the transaction. The Charter Party was then prepared by Weber on a standard Asbatankvoy form. The preamble to the document, which is dated September 8, 2000, identifies "Knock Tankers Ltd. as Managers to Owners," as the owner (the words "chartered owner" are crossed out) of the Knock Dun. The other party to the contract is Hess Shipping. Paragraph 24 of the Charter Party provides, in pertinent part:
Any and all differences and disputes of whatsoever nature arising out of this Charter shall be put to arbitration in the City of New York or in the City of London whichever place is specified in Part I of this charter pursuant to the law relating to arbitration there in force, before a board of three persons consisting of one arbitrator to be appointed by the Owner, one by the Charterer, and one by the two so chosen.
Attached to the Charter Party, in addition to the "Hess Clauses," are nine "special provisions." Special provision number 5 states: "York/Antwerp Rules 1990 are applicable hereunder and if required, General Average and arbitration take place in New York under U.S. Law." Special provision number 9 states: "Owners option to substitute with the 'Knock Allan' subject suppliers and receivers approval."
On September 30, 2000, the Bill of Lading was issued by the Master of the Knock Dun to Hovensa. The document states the following (with inserted, typewritten words indicated in capital letters):
Shipped in apparent good order and condition by Societe ELF CONGO on board of s.t./m.t. KNOCK DUN under flag LIBERIA now lying off DJENO where of the Master is ANTONY NIXON a quantity of crude oil in bulk as shown below to be delivered (in the like good order and condition) at the port of ST CROIX unto the order of AGIP TRADING B.V. in accordance with the conditions laid down in the ship's Charter party dated _______.
No information is given in the space provided for listing the date of the Charter Party. After describing the product consigned for shipment, the form provides the names of its signatories: the Knock Dun (Owner: Dun Shipping Ltd.) by the Master of the vessel, and Elf Congo, as Shipper, by its representative. The Bill of Lading contains no arbitration provision.
Recent Submissions
Following completion of discovery, the parties provided to the Court the following items: (1) memoranda of law in support of their respective petitions; (2) declarations of counsel; (3) transcripts of the depositions of Per-Oscar Lund ("Lund"), Director of Dun Shipping and Director and President of Knock Tankers, Roger Holden ("Holden"), Chartering Manager of Knock Tankers, Douglas V. Uhles ("Uhles"), Manager of Shipping Utilization at Hess Shipping, and Alexander Bober ("Bober"), Crude Logistics Coordinator of Amerada Hess; and (4) numerous exhibits. Based on a review of those submissions, together with the supporting documents and exhibits submitted previously, the Court makes the following additional findings of fact.
1. Dun Shipping and Knock Tankers
Knock Tankers is a commercial management company and is responsible for the commercial operation of all the vessels owned by First Olsen. In his deposition, Lund testified that, prior to 2000, the vessels comprising the pool of vessels operated by Knock Tankers were owned by a number of different companies. Thereafter, in 2000, First Olsen acquired ownership of Knock Tankers, as well as ownership of all the vessels in the pool operated by Knock Tankers. Thus, at the time Knock Tankers entered into the Charter Party with Hess Shipping, it had responsibility for the commercial operation of a pool of vessels all of which were owned by First Olsen. As noted above, Dun Shipping, the registered owner of the Knock Dun, also is a wholly owned subsidiary of First Olsen.
In or about 1995, Dun Shipping entered into a Suezmax Tanker Agreement ("Suezmax Agreement") with Knock Tankers, pursuant to which Knock Tankers was responsible for the commercial management of the Knock Dun, one of the vessels in the First Olsen fleet. In his declaration submitted in support of the plaintiff's petition, Lund states that Knock Tankers "is neither a charterer nor owner of the Knock Dun. . . . Indeed the [Suezmax Agreement] provides that Knock Tankers is to procure and enter into voyage charters as agent for the owner of the [Knock Dun] as a disclosed principal."
Article 2(a) of the Suezmax Agreement defines the objective of Knock Tankers as, among other things, "to procure and enter into voyage charters . . . as agent for disclosed principals, i.e., the owners of or the disponent owners of the [vessels operated by Knock Tankers], in such a manner that the [owners of the vessels] obtain the highest possible earnings."
Further, Article 9.2 of the Suezmax Agreement states that "[a]ny contract entered into by [Knock Tankers] as Agent for any of the [participating owners] under and in accordance with this Agreement shall be in the name and for the sole risk and responsibility of the [participating owner] in question."
Annexed to the Suezmax Agreement is a "Time Charter Party." With respect to this document, Article 8.1 of the Suezmax Agreement states, in pertinent part: "Solely for the purpose of identifying the expenses for [Knock Tanker's] account pursuant to this Article, it is understood that such expenses shall be determined as if [Knock Tankers] was Time Charterer of the [vessel] in question on the basis [of] such Time Charter Party as attached as Appendix C hereto."
Ordinarily, when there is a time charter party between a vessel owner and another entity, the latter is regarded as a "disponent owner." See Fairmont Shipping (H.K.), Ltd. v. Primary Indus., No. 86 Civ. 3668, 1987 WL 9433, at *2 n. 4 (S.D.N.Y. Apr. 7, 1987) ("A 'disponent owner' does not hold legal title to a vessel, but, for purposes of the charter party, acts as if he does."); Julian Cooke, et al., Voyage Charters 37 (1993) (A party who has time-chartered a vessel from her registered owner . . . may sub-charter her for a voyage and for purposes of the voyage charter will be considered the disponent owner."); Michael Wilford, et al., Time Charters 71 (4th ed. 1995) ("It is common practice in the shipping industry to describe a disponent owner in a sub-charter merely as 'owner.'").
In his deposition, Lund described a disponent owner as a company having, "through a commercial arrangement . . . the commercial risks and rewards related to that vessel contrary to a manager." Specifically, a disponent owner charters a vessel from the owner and then subcharters it to the market. As noted above, when such an arrangement obtains, customarily the owner and the disponent owner have entered into a time charter party.
A time charter party is a contract for the use of the carrying capacity of a particular vessel for a specified period of time,e.g., months or years. See Federal Judicial Center,Admiralty and Maritime Law 42 (2004). In this respect, a time charter party differs from a voyage charter party, which typically covers only one voyage. By contrast, during the time period fixed by a time charter party, there may be unlimited voyages. As with a voyage charter party, however, the vessel owner under a time charter party is responsible for the navigation and management of the vessel subject to conditions set out in the charter party. See id. Because a time charterer obtains only the carrying capacity of a vessel, it is not responsible for maintenance or repairs to the vessel. However, time charterers usually are responsible for the expense of operating the vessel.See id.; Thomas J. Schoenbaum, Admiralty and Maritime Law § 11-5 (4th ed. 2004) ("The [time] charterer bears the expenses connected with each voyage and pays hire to the carrier based upon the time the ship is under charter.").
In his deposition, Lund characterized the difference between a time charter and a voyage charter as follows:
If you have an open pool where the owners are participating and all the pool income is diverted or distributed according to pool points to the various owners where the pool manager only receives a management fee . . . then I would not call that a disponent owner type of arrangement. [However], if you go into an arrangement where you reestablish a Time Charter Party between the owner and the pool operator on a fixed rate which . . . may vary according to market fluctuations but . . . is [a] significant incentive . . . then they are more into a time [c]harter arrangement which will then be referred to as disponent owner of the vessel.
Lund testified that the purpose of the Time Charter Party attached to the Suezmax Agreement was not to establish a disponent owner/owner relationship between Knock Tankers and Dun Shipping but, rather, to distinguish two types of expenses: voyage-related and vessel-related. According to Lund, vessel-related expenses are the responsibility of the owner of a vessel, in this case, Dun Shipping. By contrast, voyage-related expenses, which Lund identified as "bunkers, port costs and agency fees, [and] so forth," are paid by Knock Tankers. However, Lund testified, such expenses are not actually Knock Tankers' responsibility; rather, they are paid by Knock Tankers on behalf of the vessel owner. Thus, Lund maintained, Knock Tankers has no voyage-related expenses of its own. Similarly, to the extent that Knock Tankers receives, for example, freight payments through a voyage charter party it has fixed, such payments are received solely on behalf of the owner of the assigned vessel.
A record of the transactions associated with the subject voyage appears in various financial documents submitted by the plaintiff. The documents show that, during the relevant period, in connection with its commercial management of the Knock Dun, Knock Tankers maintained an account at Den Norske Bank. A copy of a statement from the bank, describing activity for the period December 4, 2000 through December 21, 2000, indicates that the account is in the name of Knock Tankers. Additionally, the name of the vessel, Knock Dun, appears on the statement, beneath the account number. According to Lund, although the account was in the name of Knock Tankers, it was one of many accounts that Knock Tankers operated on behalf of the shipowners whose vessels it managed; each shipowner had such an account with Den Norske Bank and the accounts were identified by the name of the ship that appeared on the account statement.
The statement issued by Den Norske Bank shows that, on December 1, 2000, the account was credited $1,893,780.42. During his deposition, Lund testified that this figure represented the charter hire, or freight, that was paid by Hess Shipping, pursuant to the Charter Party, in connection with the voyage which is the subject of this dispute. The statement also shows that, on December 8, 2000, $1,000,000 was paid to Dun Shipping. Also, a credit advice issued by Den Norske Bank to Dun Shipping shows that, on December 15, 2000, an account in the name of Dun Shipping was credited $1,000,000, as per the order of Knock Tankers. According to Lund, the credit advice documented a transfer of funds, that is, the freight payment less expenses, from the account held by Knock Tankers to the account held by Dun Shipping.
In a voyage charter, compensation to the carrier for the transport of cargo, is called freight. See Schoenbaum supra, §§ 11-4, 11-11.
Additionally, a freight invoice was sent to Hess Shipping in connection with the instant matter. According to Lund, although the invoice contains no reference to Dun Shipping, it was issued on Dun Shipping's behalf. Lund maintained that this was evident from the fact that the account number on the invoice was the same as the account number on the statement prepared by Den Norske Bank in the name of Knock Tankers with reference to the vessel, Knock Dun. According to Lund, the reference to the Knock Dun was sufficient to identify the account as pertaining to transactions conducted on behalf of Dun Shipping. Furthermore, Lund testified, Knock Tankers' only source of income is a management fee which it receives for the performance of the services described in the Suezmax Agreement. Lund denied that Knock Tankers derived any income from freight payments or charter hire.
Lund also testified concerning certain documents that were provided to financial institutions which had agreed to finance the Knock Dun and other vessels through loans to be secured by an assignment of earnings of the vessels. Specifically, with respect to an acknowledgment and consent form dated April 27, 2000, and executed by a representative of Knock Tankers, Lund testified that, although the document referred to a charter party between Dun Shipping and Knock Tankers, "[t]here was no executed time Charter Party between Knock Tankers and the owner company in 2000."
Also included among the parties' exhibits is a copy of a "Questionnaire 88" form. According to Holden, a Questionnaire 88 is a "general description of the vessels." According to Lund, a Questionnaire 88 is commonly used to provide information to brokers in connection with the chartering of ships on the world market.
The Questionnaire 88 form at issue here, which provides a description of the Knock Dun, identifies Knock Tankers as the vessel's disponent owner and First Olsen as its owner. As noted, a disponent owner is a charterer of a vessel under a time charter party. Both Lund and Holden testified that the characterization of Knock Tankers as a disponent owner on the Questionnaire 88 form prepared about the Knock Dun was a mistake. According to Holden, the form should have identified Knock Tankers as the owner and there should have been no entry under the category "disponent owner." Similarly, Lund denied that Knock Tankers was a disponent owner of the Knock Dun. According to Lund, at the time Knock Tankers entered into the Charter Party with Hess Shipping, that was the only charter party in existence for the Knock Dun: "There was no 'head' charter party and certainly no charter party between Dun Shipping and Knock Tankers . . . or any other entity." Moreover, Lund maintained, in spite of the error on the Questionnaire 88 form supplied by the brokers in connection with the Knock Dun, a charterer looking at the form would be unlikely to conclude that Knock Tankers had the vessel under a disponent owner-type of chartering arrangement. However, in November 2000, after the grounding of the Knock Dun, an agreement memorializing a payment of freight by Hess Shipping to Knock Tankers, under the Charter Party, again identified Knock Tankers as the "disponent owner" of that vessel.
2. Hess Shipping and Hovensa
In 1998, Amerada Hess and Hovensa entered into a Services Agreement pursuant to which Amerada Hess agreed, among other things, to charter vessels for Hovensa in return for an annual fee. In August 2000, after Hovensa had purchased 950,000 barrels of crude oil from Agip, Bober, an employee of Amerada Hess, acting as an agent for Hovensa, contacted Hess Shipping about chartering a vessel for the transportation of the cargo. Hess Shipping then entered the spot tanker market and negotiated for the charter of the Knock Dun. Thereafter, Bober sought and obtained approval of the vessel from Agip. In his deposition, when asked whether, as a rule, Hess Shipping had to obtain his, that is, Hovensa's approval before fixing a vessel, Bober testified that "[Hess Shipping looks for] my approval only as far as being confirmed by the supplier on this cargo; I am a middleman." Uhles also addressed the question whether, or to what extent, Hess Shipping's actions are subject to Hovensa's control. In his affidavit dated October 1, 2002, Uhles stated that, beyond requesting the charter of a ship, and advising Hess Shipping of pertinent operational requirements, Hovensa had no control over the freight rate or the other terms that Hess Shipping negotiated in connection with a voyage charter. Additionally, in his deposition, Uhles testified that when Hovensa submitted a charter request to Hess Shipping, it did not specify a charter rate, or become involved in any way with the negotiations of the terms of the charter party, or have any authority to veto the charter rate fixed in a charter party.
Uhles also testified concerning the relationship between Amerada Hess and Hess Shipping. According to Uhles, Hess Shipping is responsible for chartering foreign flag ships, managing the operation of time charters and joint ventures, paying freight and negotiating demurrage settlements. By contrast, Amerada Hess, is responsible for, among other things, chartering United States flag ships. Uhles explained that Hess Shipping also operates tankers which it subcharters to third parties unrelated to Amerada Hess. According to Uhles, Hess Shipping's gross revenues from its chartering activities in 2000 were approximately $205 million and its net income in that year was approximately $18 million.
As noted earlier, after Hess Shipping received the brokers' confirmation recap confirming the Charter Party, Bontemps prepared a "Charter Party memo" summarizing the transaction for the company's internal reference. The memo provides, inter alia, the name of the vessel and the parties to the contract, and includes a special provision stating, in pertinent part: "Asbatankvoy . . . terms and conditions to apply, General Average/Arbitration New York." The memo is addressed to, among others, Uhles, Bober and Frederick. In his deposition, Uhles testified that Bontemps prepared the document under his supervision and that its purpose was to notify different groups, for example, "[a]ccounting, operations within your group [and] Hovensa," of a charter commitment and its terms.
Bober testified that he had received a copy of the Charter Party memo and that, among the persons to whom the document was addressed, the only one employed by Hovensa was Frederick. The following exchange then took place:
Q: When you received this charter party memo . . . were you aware that the vessel was being chartered on as Asbatankvoy?
[Bober]: It was of no concern to me.
Q: But you were aware of it?
[Bober]: I may have been. I don't know, it wasn't part of my operation.
Q: Were you aware that the vessel was chartered under a charter party which had an arbitration clause?
[Bober]: Of no interest to me.
Q: Were you aware of that?
[Bober]: I don't know if I read that clause. I only read what was pertinent to me.
In addition, with respect to the inclusion of an arbitration clause in the Charter Party, Uhles testified that Hess Shipping typically negotiated between thirty(30) and sixty(60) charter parties per year at Hovensa's request and that virtually all of them contained an arbitration provision.
On October 16, 2000, three days after the grounding of the Knock Dun, Uhles sent an E-mail to his supervisor at Hess Shipping, with copies provided to executive personnel at Amerada Hess and Hovensa, stating, in pertinent part:
The vessel KNOCK DUN was voyage chartered on an ASBATANAKVOY Charterparty Form by Amerada Hess Shipping Corp, on behalf of Hovensa to load a cargo of Kitina Crude for discharge at St. Croix. . . .
At approximately 1700 local time on Friday the 13th of October the Knock Dun grounded off Antigua. . . . The vessel was maneuvering off Antigua to board a technician at the time of grounding. . . .
The owners have declared General Average. According to the charterparty York Antwerp rules of 1974 as amended in 1990 will apply.
The plaintiff contends that Uhles' E-mail "represents the best evidence" that Hess Shipping entered into the Charter Party as an agent for Hovensa and understood that the Charter Party governed the General Average dispute. However, in his deposition, Uhles stated that he had written the E-mail to notify representatives of Hess Shipping and Hovensa of the grounding and the owner's General Average claim and to "put them all on notice that something happened because the corporation may have some responsibility." In addition, when asked whether the E-mail, given its inclusion of the phrase, "on behalf of Hovensa," reflected his understanding of the relationship between Hess Shipping and Hovensa, Uhles stated: "Not necessarily. I wrote it for people who are not legally astute . . . since [Hess Shipping] charters for different types of purposes. The wording was legally not [a] good choice in retrospect but I was describing a Hovensa cargo as opposed to an Amerada Hess cargo."
According to Uhles, the E-mail was sent to Joseph Gehegan, vice president of Hess Shipping's marine department, and was copied to Larry Orenstein, senior vice president of refining and marketing for Amerada Hess, John Steed, vice president of corporate insurance for Amerada Hess, Steve Villas, a vice president at Hovensa, Bober, Larry Kupfer, vice president of Hovensa supply, Kevin Beebe, a manager in marine insurance for Amerada Hess, Michael Herbein, an operations coordinator for Hess Shipping, and Bontemps.
In his 2002 affidavit, Uhles confirmed that "Hess Shipping entered the . . . Charter Party for its own account, not as agent for Hovensa and . . . Hovensa is the holder of the [Bill of Lading], not the charterer." He stated further, "[i]n my experience, this arrangement is standard practice for chartering affiliates in the oil industry and is consistent with the way Hess Shipping has always arranged for the transportation of cargoes, whether they belong to affiliates or unrelated corporations."
The testimony from Bober on the question of agency was inconclusive. When asked who was responsible for obtaining a vessel for the transportation of the cargo purchased from Agip, Bober stated: "Hovensa or one of its agents." When asked whether an agent had performed this function for Hovensa in this case, Bober replied, "Amerada Hess Shipping Corporation." However, when asked about the basis for his belief that Hess Shipping acted as an agent for Hovensa, Bober replied that he believed Hess Shipping had a services agreement with Hovensa, but that he had never seen such an agreement and did not know whether the agreement designated Hess Shipping as an agent of Hovensa or not:
Q: As you sit here now, do you know whether Amerada Hess Shipping Corporation chartered the Knock Dun as an agent or not?"
[Bober]: I do not.
The documentary evidence provided by the parties also speaks to the matter of the failure to incorporate the Charter Party into the Bill of Lading. According to Uhles, "if a ship owner, such as plaintiff, wanted to incorporate charter terms into the bill of lading contract, it would simply have instructed its Master to review and complete the bill of lading accordingly, before signing it on behalf of the ship owner and issuing it to the shipper of the cargo." Additionally, according to Uhles, "standard charter party provisions exist to appoint the charterer 'as agent' for its affiliated bill of lading holder, for the limited purpose of including bill of lading claims in arbitrations commenced under the charter party. . . . The parties did not seek to include such a clause in the Charter Party." (emphasis in original).
Similarly, when asked whether he recalled seeing a bill of lading on a ship carrying Hovensa cargo that did not incorporate the relevant charter party, Uhles noted that "[t]his one didn't incorporate." When asked whether, if Dun Shipping had wanted to incorporate the Charter Party terms into the Bill of Lading, it could have done so, Uhles stated: "The bill of lading is blank in accordance with the conditions laid down in the ship's party charter date and they left it blank." Uhles stated that he did not know why Dun Shipping had not incorporated the Charter Party into the Bill of Lading.
III. DISCUSSION
There is a strong presumption of arbitrability of legal disputes in motions to compel arbitration under the Federal Arbitration Act, 9 U.S.C. § 1 et seq. See JLM Indus., Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 171 (2d Cir. 2004) (citingMoses H. Cone Mem'l Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S. Ct. 927, 941). However, application of the presumption favoring arbitration is tempered by the fact that "arbitration is a matter of contract and therefore a party cannot be required to submit to arbitration any dispute which it has not agreed so to submit." Id. (quoting Vera v. Saks Co., 335 F.3d 109, 116 [2d Cir. 2003]) (internal quotation marks omitted);see also U.S. Titan, Inc. v. Guangzhou Zhen Hua Shipping, 241 F.3d 135, 146 (2d Cir. 2001) ("Notwithstanding the strong federal policy favoring arbitration as an alternative means of dispute resolution, courts must treat agreements to arbitrate like any other contract."). "Any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Dun Shipping Ltd., 234 F. Supp. 2d at 294 (quoting Moses H. Cone Mem'l Hospital, 460 U.S. at 24-25, 103 S. Ct. at 941).
Whether Dun Shipping Can Enforce the Charter Party's Arbitration Clause
On August 30, 2001, Dun Shipping moved for an order compelling Hess Shipping to New York arbitration. Following completion of discovery, Dun Shipping renewed its application for an order declaring, inter alia, that Dun Shipping is a party to the Charter Party. This is so, Dun Shipping contends, because Knock Tankers acted only as an agent when it signed the Charter Party with Hess Shipping. Therefore, Dun Shipping maintains, as a party to the Charter Party, it is entitled to compel the defendants to arbitrate any dispute arising out of that contract. Dun Shipping argues, alternatively, that even if it is not a party to the Charter Party, Hess Shipping, as a signatory to that contract, is estopped from avoiding arbitration, because the issues that would be resolved thereby are closely intertwined with the Charter Party's terms and conditions.
Defendants contend that Dun Shipping lacks the requisite standing to arbitrate against either Hovensa or Hess Shipping under the Charter Party because Dun Shipping is not a party to that agreement. Moreover, they contend, Dun Shipping may not compel arbitration pursuant to the Bill of Lading because that agreement does not contain an arbitration provision and does not incorporate the Charter Party. Furthermore, the defendants maintain, the parties' dealings in this matter "are so inconsistent with the concept of agency, that Plaintiff as the alleged principal is precluded from intervening in the Charter Party." Applicable Law
Courts apply common law principles of agency to maritime contracts and obligations arising under the Federal Arbitration Act. See Getty Oil Co. v. Norse Management Co. (PTE) Ltd., 711 F. Supp. 175, 176 (S.D.N.Y. 1989). Further, traditional principles of agency law may bind a nonsignatory party to an arbitration agreement. See Thomson-CSF, S.A. v. American Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir. 1995); Merrill Lynch Investment Managers v. Optibase, Ltd., 337 F.3d 125, 130 (2d Cir. 2003). Specifically, a nonsignatory to a charter party may be bound to that document's arbitration clause if, inter alia, the signatory to the charter party was acting in an agency capacity for the nonsignatory. See Continental U.K. Ltd. v. Anagel Confidence Compania Naviera, S.A. 658 F. Supp. 809, 813 (S.D.N.Y. 1987).
"Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act." Restatement (Second) of Agency ("Restatement") § 1. Agency is a legal concept which depends on the manifest conduct of the parties, not on their intentions or beliefs as to what they have done. See Restatement § 1, comment b.
The Second Circuit has explained that "[a]n express agency is created 'by written or spoken words or other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him so to act on the principal's account.' Whether such an agency is formed depends on the actual interaction between the putative principal and agent, not on any perception a third party may have of the relationship." Itel Containers Int'l Corp. v. Atlanttrafik Express Serv. Ltd., 909 F.2d 698, 702 (2d Cir. 1990) (quotingRestatement § 26) (citation omitted). By contrast, implied agency "depends not on the actual relationship between principal and agent but on the reasonable conclusion of a third party, derived from actions of the principal, that the person acting has authority to do so from the principal." Id. at 703.
In deciding whether a signatory to a contract was acting in an agency capacity for a nonsignatory, courts look first to the language of the contract(s). Generally, if a contract properly identifies the signatory as an agent and, moreover, discloses the identity of the principal, then the signatory will be found to have acted as an agent for the principal. Thus, inDillon Co., 2004 WL 1396180, at *4, the alleged agent for the owners of a vessel, a maritime corporation, entered into a charter party with the charterer of the vessel. The court found that the maritime corporation had signed the charter party agreement in its capacity as agent for the owners because: (i) on the first page of the charter party, the maritime corporation was identified as "Managing Agents to Owners;" (ii) the signature line of the charter party provided the name of the maritime corporation followed by the phrase, "as agents," above the signature of the corporation's president; and (iii) the maritime corporation signed as an agent for a disclosed principal because the identification of the principal as the owner of the vessel was sufficient to alert the opposing party to the principal's name, which was discoverable by consulting industry publications.
A principal is disclosed if "at the time of a transaction conducted by the agent, the other party thereto has notice that the agent is acting for a principal and of the principal's identity, the principal is disclosed." Dillon Co. LLC v. Foremost Maritime Corp., No. 02 Civ. 7803, 2004 WL 1396180, at *4 (S.D.N.Y. June 21, 2004) (quoting Hidden Brook Air, Inc. v. Thabet Aviation Int'l Inc., 241 F. Supp. 2d 246, 265 [S.D.N.Y. 2002]). A principal is partially disclosed if "the other party has notice that the agent is or may be acting for a principal but has no notice of the principal's identity." Restatement § 4. Further, "[i]f the other party has no notice that the agent is acting for a principal, the one for whom he acts is an undisclosed principal." Id.
Similarly, in Fireman's Fund McMgee Marine v. M/V Caroline, No. 02 Civ. 6188, 2004 WL 287663, at *3-4 (S.D.N.Y. Feb. 11, 2004), the court found that the marketing agent for the owner of a vessel was an agent for a disclosed principal because: (a) the charter party provided that the marketing agent was contracting "on behalf of Owners;" (b) the other signatory to the charter party (the owner of the cargo) was alerted that the owner of the vessel was someone other than the marketing agent; and c) the owner could be identified, even if the charter did not identify the owner, because the identities of the owners of ships is a matter of public record. Cf. O'Sullivan v. Hardy Machinery Corp., No. 91 Civ. 7375, 1993 WL 190342, at *3-4 (S.D.N.Y. June 2, 1993) (finding that the representative of a shipping company was acting as the company's agent because the bill of lading named the representative as "Agent" for the company, and the company was a disclosed principal). By contrast, in General Authority for Supply Commodities v. S.S. Capetan Costis I, 631 F. Supp. 1488, 1490 (S.D.N.Y. 1986), the court found that a charterer did not act as agent for a purchaser of cargo where there was no indication in the contract itself that the charterer had signed the charter party on behalf of the purchaser. The court noted that "[n]one of the usual language indicating an agency relationship is present." Id.
Where the language of a contract is ambiguous with respect to the identification of an entity as an agent for a principal, courts have looked to "extrinsic circumstances to shed light on its interpretation." Amoco Overseas Co. v. S.T. Avenger, 387 F. Supp. 589, 594 (S.D.N.Y. 1975). See also Midland Tar Distillers, Inc. v. M/T Lotos, 362 F. Supp. 1311, 1314 (S.D.N.Y. 1973) (finding that court was obligated to construe ambiguities of contract in order to "glean the intent of the parties from the words they used and the actions they performed in their conduct of the transaction"). Specifically, courts have looked to deposition testimony, the record of negotiations and the manifest conduct of the parties involved in order to determine whether an agreement existed between them whereby one would act as agent for the other. See, e.g., Kirno Hill Corp. v. Holt, 618 F.2d 982, 985 (2d Cir. 1980);Overseas Oil Transport Corp. v. Phibro Energy, No. 88 Civ. 1302, 1990 WL 130773, at *3-4 (S.D.N.Y. Sept. 7, 1990).
Additionally, where the language of a contract is ambiguous in the sense that more than one vessel is named in the contract, and the contract states that any of the named vessels might potentially be nominated to perform the voyage, courts have held that a shipowner was not a disclosed principal, or party to the contract, unless and until its vessel was actually nominated to perform the voyage. See Toxotis Compania Naviera, S.A. v. Shipalks Shipping A.G. Zug, Switzerland, No. 88 Civ. 7308, 1990 WL 63779, at *4-5 (S.D.N.Y. May 10, 1990) (finding that, where agreement named four ships that might potentially be nominated to carry out actual voyage, owner of the ship that was eventually nominated was not a principal to the agreement and could not be bound by its terms, including the arbitration clause of the incorporated charter party).
Furthermore, the Second Circuit has held that when a nonsignatory to a contract containing an arbitration clause seeks to compel arbitration with a signatory, the signatory may be estopped from avoiding the arbitration when "the issues the nonsignatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed." JLM Indus., 387 F.3d at 177 (quoting Choctaw Generation Ltd. P'ship v. Am. Home Assurance Co., 271 F.3d 403, 406 [2d Cir. 2001]);see also Astra Oil Co. v. Rover Navigation, Ltd., 344 F.3d 276, 277-279 (2d Cir. 2003). Application
The Second Circuit has distinguished between cases in which a signatory seeks to compel a nonsignatory to arbitrate and those in which the reverse circumstance obtains, i.e., anonsignatory seeks to bind a signatory. See Choctaw Generation, 271 F.3d at 406. Furthermore, the court has noted that, while a signatory may compel a nonsignatory to arbitrate under five general principles, including that of agency, only one of these principles, namely, estoppel, applies where, as here, a nonsignatory seeks to compel a signatory. See id. However, in Astra Oil Co., the court stated that it "express[ed] no view on whether these other theories would ever apply when a non-signatory seeks to compel a signatory to participate in arbitration." 344 F.3d 279, n. 2. Accordingly, in this case, the Court has proceeded on the assumption that Dun Shipping's invocation of a theory of agency (in addition to a theory of estoppel), in its effort to bind the defendants to the terms of the Charter Party, is not improper.
In the case at bar, the language of the contracts precludes the construction that Knock Tankers signed the Charter Party as Dun Shipping's agent. Moreover, based on a review of the parties' recent submissions, including affidavits, deposition testimony and supporting documents, the Court finds that the manifest conduct of Dun Shipping and Knock Tankers does not support the view that an agency relationship existed between them at the time of the subject voyage. However, the Court finds that defendant Hess Shipping is estopped from avoiding arbitration in this case because the issues Dun Shipping is seeking to resolve in arbitration are intertwined with the terms of the Charter Party.
1. Agency
Neither the Charter Party nor the Bill of Lading provides conclusive evidence that Dun Shipping entered into those agreements as a principal. Absent from the Charter Party is the word, "agent" or, alternatively, the phrase, "on behalf of owner," which courts have found to be reliable indicia of an agency relationship in admiralty cases. Instead, Knock Tankers is identified in the preamble to the Charter Party as "Managers to Owners" and on the signature line of that document as "Knock Tankers Ltd. as Managers to Owners." The Bill of Lading contains no reference to Knock Tankers. Moreover, as noted above, neither Lund nor Holden was able to explain why Knock Tankers was identified in the Charter Party as a "manager" rather than as an agent, if indeed it was acting in an agency capacity.
Furthermore, the Charter Party is ambiguous with respect to the identity of the owner. As noted above, both the original offer leading to the formation of the Charter Party and the broker's confirmation recap name two ships, the Knock Allan and the Knock Dun, either of which might be nominated to carry out the voyage. While the Charter Party itself names the Knock Dun as the assigned vessel, one of the special provisions annexed to the Charter Party provides that the "[o]wners" have the "option to substitute with the 'Knock Allan' subject to the suppliers and receivers approval."
Even assuming that the Knock Dun, which is explicitly named in the Charter Party, had been nominated to perform the voyage at the time the Charter Party was made, the special provisions annexed to that contract, allowing for the substitution of the Knock Allen, render the contract ambiguous with respect to the question of the identity of the "owner." Unlike cases in which the Charter Party names one vessel, and the owner can be identified by consulting the appropriate shipping index, here the owner cannot be ascertained with certainty merely by looking to the contract itself. Thus, the terms of the contract are not sufficient to alert the opposing party to the principal's name, which otherwise would be discoverable by consulting industry publications. See Toxotis Compania Naviera, 1990 WL 63779, at *5. Consequently, the language of the contract does not support, unequivocally, the conclusion that Knock Tankers acted as an agent for a disclosed principal.
Furthermore, a review of the parties' submissions, including affidavits, deposition testimony and supporting documents, suggests that, despite some evidence to the contrary, Knock Tankers entered into the Charter Party as a principal, not as an agent. The most persuasive evidence that Knock Tankers did function as an agent for Dun Shipping appears in the Suezmax Agreement. As discussed earlier, Article 2(a) of that document identifies Knock Tankers' main objective as that of entering into voyage charters and other agreements "as agent for disclosed principles." Similarly, Article 9.2 of the agreement stipulates that Knock Tankers shall enter into any contracts "as Agent" for a vessel owner and "in the name and for the sole risk and responsibility" of the owner. Thus, it would appear that Dun Shipping authorized Knock Tankers to act as its agent. See Itel Containers Int'l Corp., 909 F.2d at 702. Additionally, both Lund and Holden have asserted that Knock Tankers acted as agent for Dun Shipping, and have denied that it functioned as a disponent owner of the Knock Dun.
Nevertheless, the documentary evidence submitted by the parties casts doubt on the plaintiff's assertion. Thus, Knock Tankers is identified on the Questionnaire 88 form prepared in connection with the Knock Dun as a "disponent owner" of that vessel. Further, a time charter party, signed by representatives of Knock Tankers and Dun Shipping, is annexed to the Suezmax Agreement. Moreover, a document that was provided to certain institutions engaged in financing the Knock Dun makes reference to a "charter party" between Knock Tankers and Dun Shipping. Furthermore, an agreement, dated November 30, 2000, memorializing a payment of freight by Hess Shipping to Knock Tankers, and approved without objection by counsel to the plaintiff, identifies Knock Tankers as the "disponent owner" of the Knock Dun.
Additionally, as the defendants point out, the Charter Party is not consistent with the Suezmax Agreement. As noted above, the agreement directs Knock Tankers to enter into charter parties as an agent for disclosed principals. However, in this case, for the reasons discussed above, the language of the Charter Party does not support the conclusion that Dun Shipping is a disclosed principal. Moreover, contrary to the terms of the agreement, Knock Tankers did not enter into the Charter Party "in the name" of Dun Shipping, which is not mentioned anywhere in that document.
Furthermore, the financial documents submitted by the plaintiff reinforce the impression that Knock Tankers functioned as a disponent owner or time charterer at the time of the subject voyage. The documents show that in December 2000, Knock Tankers received payment representing the charter hire or freight that was due in connection with the subject voyage and, thereafter, transferred those funds, minus the expenses incurred during the voyage, to Dun Shipping. Such activity, as discussed earlier, is characteristic of a time charterer. Thus, "[t]he [time] charterer bears the expenses connected with each voyage and pays hire to the carrier based upon the time the ship is under charter." Schoenbaum, supra. Further, the type of expenses for which a time charterer is typically responsible includes, "bunkering," which, as noted above, was identified by Lund as one of the "voyage-related" expenses paid by Knock Tankers for the owners of the vessels it manages. See id. ("The costs are divided so that while the carrier pays fixed costs, the [time] charterer pays variable costs such as bunkering."). By contrast, a "voyage charterer usually is not liable for expenses such as bunkers (fuel)." Federal Judicial Center, supra. Further, Lund's testimony that Knock Tankers had no voyage-related expenses of its own, but merely paid such expenses on behalf of Dun Shipping, is not inconsistent with its having functioned as a time charterer or disponent owner at the time of the subject voyage.
Other characteristics of a time charterer may also apply to Knock Tankers, e.g., that of contracting for the use of a vessel for a period of time and unlimited voyages, rather than a single voyage. The Suezmax Agreement, which was in effect from 1995 until at least 2000, suggests by its terms that Knock Tankers, as commercial manager of the First Olsen fleet, was authorized to enter into multiple charters of the fleet's vessels during that period. Of course, the Charter Party at issue in this case, between Knock Tankers and Hess Shipping, is a voyage charter.
Finally, there is evidence that Knock Tankers' actions were not subject to Dun Shipping's control, as they would be if Knock Tankers were acting in an agency capacity. See Overseas Oil Transport Corp., 1990 WL 130773, at *3-4 (finding that an agency relationship existed where the charterer's actions were subject to the control of the corporate entity for which it negotiated hire of a vessel for transport of cargo); Restatement § 1, comment a ("[In a relation of agency] [t]he principal must in some manner indicate that the agent is to act for him, and the agent must act or agree to act on the principal's behalf and subject to this control."). On March 15, 2001, broker Fearnleys wrote to broker Weber stating that it was enclosing the original and a duplicate of the Charter Party "duly signed by us on Owners' behalf as per enclosed authority." The authority in question consisted of a message from Holden of Knock Tankers authorizing Fearnleys to sign. The message stated: "Herewith authorize you to sign above cp on Owners behalf," and was signed "RH/KTL." Furthermore, because the "owner" in this case is described as having the option to perform the voyage using either the Knock Dun or the Knock Allan, and since Knock Tankers was the only "owner" which could have exercised this option, it appears that Knock Tankers was subject neither to Dun Shipping's control nor to its approval of terms in the negotiation and formation of contracts. Thus, the requirement that the principal have the right to control the conduct of the agent with regard to matters entrusted to it is not satisfied in this case. See Overseas Oil Transport Corp., 1990 WL 130773, at *3-4 (citing Restatement § 14).
Thus, given the conflicting evidence in this case, even if, as plaintiff has asserted, Knock Tankers is not a disponent owner or time charterer of the Knock Dun, nevertheless, there is not sufficient evidence in the record before the Court from which it may conclude that Knock Tankers was acting as Dun Shipping's agent when it signed the Charter Party.
2. Estoppel Theory
Dun Shipping contends that the issues it seeks to arbitrate relate "entirely and directly" to the performance of the Charter Party and the defendants' obligations under that contract. In determining whether the issues Dun Shipping seeks to resolve in arbitration are "intertwined" with the Charter Party, the Court must review carefully "the relationship between the parties, the contracts they signed, and the issues that arose between them."Astra Oil Co., 344 F.3d at 279. A decision granting an application requiring a signatory to arbitrate his claims with a non-signatory "requires careful justification." In re Currency Conversion Fee Antitrust Litig., 361 F. Supp. 2d 237, 260-61 (S.D.N.Y. 2005) (citing Choctaw, 271 F.3d at 406). Furthermore, an "estoppel inquiry is fact-specific." JLM Indus., 387 F.3d at 178.
As a preliminary matter, it should be noted that the estoppel theory plaintiff has invoked is appropriately directed to Hess Shipping, a signatory to the Charter Party, but does not apply to Hovensa, a signatory only to the Bill of Lading. As for Dun Shipping's claims against Hess Shipping, after careful review of the evidence, the Court finds that estoppel is warranted in this case. First, there is evidence of a close corporate and operational relationship between Knock Tankers and Dun Shipping. Both are owned by the same parent company, First Olsen, and, as already noted, Knock Tankers was responsible for the management and operation of the Knock Dun. In that capacity Knock Tankers arranged charters, received payments and disbursed expenses for Dun Shipping, the vessel's owner.
Second, Dun Shipping's claims against Hess Shipping are bound up with the terms of the Charter Party. At issue in this litigation is whether the defendants are bound to contribute to Dun Shipping a share of the General Average expenses it incurred in connection with refloating the Knock Dun. As declared in the complaint, Dun Shipping seeks an order "directing defendants to nominate an arbitrator in accordance with the terms and condition of the charter party," or, in the alternative, a judgment against the defendants for "payment of their proportionate share in General Average." The Charter Party, besides providing pertinent information about the terms of the proposed voyage, includes a special provision concerning arbitration of a General Average claim, namely, that, "if required, General Average and arbitration take place in New York under U.S. law." Additionally, Uhles' October 2000 E-mail, which was written three days after the grounding of the Knock Dun and sent to representatives of Amerada Hess, Hess Shipping and Hovensa, refers to the owners' General Average claim and the Charter Party terms. Therefore, Hess Shipping is estopped from avoiding arbitration with Dun Shipping, even though the latter was not a signatory to the Charter Party.
However, the estoppel theory invoked here by the plaintiff does not apply to Hovensa, which is not a signatory to the Charter Party and, for the reasons discussed below, is not bound by the Charter Party's terms either through notice or agency. Moreover, Hovensa is not so closely intertwined with defendant Hess Shipping as to warrant application of the plaintiff's estoppel argument to it. Cf. Smith/Enron Cogeneration Ltd. v. Smith Cogeneration Int'l., Inc., 198 F.3d 88, 97 (2d Cir. 1999) (finding that respondent was estopped from avoiding arbitration with multiple corporate entities where the latter were interchangeable); Mecos, S.R.L. v. Georal Int'l, Ltd., No. 03 CV 6249, 2005 WL 2046024, at *3 (E.D.N.Y. Aug. 25, 2005) (finding that plaintiff was estopped from avoiding arbitration with multiple defendants who shared the same president and sole shareholder).
Whether Hovensa Is Bound to the Charter Party's Arbitration Clause
Dun Shipping contends that Hovensa is bound to the Charter Party's arbitration clause because it had actual or constructive notice that the Charter Party was the governing document in this matter and acquiesced in its terms. Moreover, plaintiff contends, Hess Shipping acted as Hovensa's agent when it signed the Charter Party; therefore, as a principal to that contract, Hovensa is subject to its terms.
The defendants deny that Bober, and, therefore, Hovensa, had knowledge of or acquiesced in the terms of the Charter Party. The defendants contend that the language which would establish an agency relationship between Hess Shipping and Hovensa, although suggested by an "internal notice" from Uhles, never appears in the Charter Party itself; therefore, the claimed agency is not proved. In any case, the defendants deny that such a relationship exists as a feature of the structure of the corporate complex of which they both are a part.
Applicable Law
"It is well established that a party may be bound by an arbitration agreement in a charter party even though it has not signed the charter party or been named in it." Associated Metals Minerals Corp. v. M/V Arktis Sky, No. 90 Civ. 4562, 1991 WL 51087, at *1 (S.D.N.Y. April 3, 1991). Where the terms of a charter party are expressly incorporated into a bill of lading, "nonsignatories of the charter party who are linked to that bill through general principles of contract law or agency law may be bound." Continental U.K., 658 F. Supp. at 813; see also Continental Ins. Co. v. Polish Steamship Co., 346 F.3d 281, 283 (2d Cir. 2003); Thomson-CSF, S.A., 64 F.3d at 776.
Generally, a charter party is expressly incorporated into a bill of lading when the bill of lading "specifically refers" to the charter party and incorporates the terms of the charter party in "unmistakable language." Import Export Steel Corp. v. Mississippi Valley Barge Line Co., 351 F.2d 503, 506 (2d Cir. 1965); see also Continental Ins. Co., 346 F.3d at 283. A bill of lading should be "carefully, if not restrictively construed" to determine whether it meets these conditions because it is considered unfair to bind a holder of a bill of lading to additional terms of which he has no knowledge. Import Export Steel Corp., 351 F.2d at 506. In most cases, a bill of lading will be found to incorporate a charter party effectively if the bill of lading identifies either the signatories to the charter party or the date or place of the making of the charter party.See Associated Metals Minerals Corp., 1991 WL 51087, at *2. Where the incorporation clause provides space for listing the name and date of the charter party and the space is left blank, courts usually have found against incorporation. See id.
When a bill of lading expressly incorporates a charter party, the holder of the bill of lading may be said to have actual or constructive knowledge of the charter party's terms. See MacSteel Int'l USA Corp. v. M/V Jag Rani, No. 02 Civ. 7436, 2003 WL 22241785, at *2 (S.D.N.Y. Sept. 30, 2003) ("Some courts have required that the party to the bill of lading also have actual or constructive knowledge of the incorporation, but that requirement is satisfied whenever the bill of lading incorporates a specific charter party 'in unmistakable language.'"); F.D. Import Export Corp. v. M/V Reefer Sun, 248 F. Supp. 2d 240, 248 (S.D.N.Y. 2002) ("A plaintiff has constructive notice of the terms of a charter party if the terms were properly incorporated into the bill of lading.").
Some courts have held that a bill of lading holder may receive actual or constructive notice of a charter party's terms, sufficient to bind that individual to the arbitration clause contained therein, even in the absence of proper incorporation of the terms of a charter party into a bill of lading, provided other factors warrant such a finding. See, e.g., Amoco Overseas Co., 387 F. Supp. at 593-94 (holding that, notwithstanding ambiguity in the bill of lading's reference to the charter party, bill of lading holder was "so intimately intertwined" with one of the charter party signatories that it could not be considered "a stranger to the charter party" between the signatory and defendant vessel); but see Associated Metals Minerals, 1991 WL 51087, at *3 (finding that, where bill of lading contained an ambiguous reference to a charter party but failed to name all the parties it was attempting to incorporate, or state the date or place of the charter party's making, bill of lading did not give sufficient information to its holder to find the right charter party).
However, where a bill of lading contains no reference to a charter party, courts have found that a nonsignatory's actual or constructive knowledge of the terms of a charter party did not imply an agreement to accept those terms. See Amoco Oil Co. v. M.T: Mary Ellen, 529 F. Supp. 227, 229-30 (S.D.N.Y. 1981) (finding that where the bill of lading contained no reference to charter party, the bill of lading holder's awareness of the charter party suggested "its nonincorporation was intentional");Cargill Incorporated v. Golden Chariot M/V, 31 F.3d 316, 318 (5th Cir. 1994) (finding that a third party purchaser's awareness of the arbitration clause in a charter party did not bind it to the contract). Application
In this case, it is uncontroverted that the Bill of Lading did not expressly incorporate the Charter Party or the arbitration provision contained in that document. Consequently, the issue before the Court is whether, in the absence of incorporation, there is sufficient evidence to establish that Hovensa had "actual knowledge of and acquiesced in the terms of the Charter Party and, therefore, perhaps should be bound by its arbitration provision." Dun Shipping Ltd., 234 F. Supp. 2d at 295-96. Based on a review of the evidence, including the parties' recent submissions, the Court finds that while Hovensa may have had actual or constructive knowledge of the Charter Party, it did not agree to be bound by its terms. Moreover, the Court finds that neither the language of the contracts nor the manifest conduct of the parties is sufficient to establish that Hess Shipping signed the Charter Party as an agent of Hovensa.
The Bill of Lading issued by the Master of the Knock Dun to Hovensa on September 30, 2000, provides neither the date of the making of the Charter Party nor the names of its signatories.See Associated Metals Minerals Corp., 1991 WL 51087, at *2.
1. Actual or Constructive Notice
The testimony of Bober, an employee of Amerada Hess who was acting as an agent for Hovensa in its dealings with Hess Shipping, indicates that he was aware, at least to some extent, that the Charter Party governing the voyage undertaken for the transport of Hovensa's cargo contained, among other terms, an arbitration provision. When asked about his knowledge of the Charter Party memo that was provided to him by Hess Shipping, Bober stated that he "may have been" aware of the arbitration clause mentioned in that document, but that it was "of no concern" to him because it was not "part of [his] operation." Further, Uhles testified that the purpose of the Charter Party memo was to notify different groups, including Hovensa, of a charter commitment and its terms. Moreover, Uhles also testified that, as a rule, Hess Shipping fixed between thirty (30) and sixty (60) vessels per year for the carriage of Hovensa cargos, and that all or most of those contracts contained an arbitration clause. Thus, it appears that Bober, and perhaps others at Hovensa, were aware of the Charter Party's terms. However, the evidence does not support plaintiff's contention that Hovensa accepted those terms.
Unlike cases in which a bill of lading contains at least an ambiguous reference to the relevant charter party, here, there was no reference whatsoever. Further, the documented history of the fixture of the Knock Dun does not show that the parties intended the terms of the Charter Party to be incorporated into the Bill of Lading. Moreover, there is no evidence that Hovensa was "so intimately intertwined" with Hess Shipping that it could not be considered a "stranger" to the Charter Party. Amoco Overseas Co., 387 F. Supp. at 593-94. Rather, according to Uhles, although Hess Shipping and Hovensa are part of the same corporate complex, they are separate companies and operate as such. Furthermore, while the plaintiff could have instructed the Master of the Knock Dun to incorporate the Charter Party's terms into the Bill of Lading, it did not do so, and plaintiff offers no evidence that it intended to effect the incorporation.
The plaintiff argues that Hovensa "clearly accepted" the terms of the Charter party because, through an arrangement with Hess Shipping, it ultimately paid the freight expense and other voyage-related costs, pursuant to the rates contained in the Charter Party. The Court finds this argument unpersuasive. As noted earlier in this writing, a freight invoice was sent to Hess Shipping in connection with the instant voyage; in November 2000, Hess Shipping and Knock Tankers signed an agreement memorializing payment of the freight. Thereafter, Hovensa reimbursed Hess Shipping for this and other expenses associated with the subject voyage. The transaction whereby Hess Shipping recovered its voyage-related costs from Hovensa occurred after the terms of the Charter Party had been negotiated. Furthermore, according to Uhles, Hovensa had no involvement in the negotiations, and no control over the fixing of those terms. Hence, it cannot reasonably be said that Hovensa, by complying with its agreement to reimburse Hess Shipping for voyage-related costs, "accepted" the terms of the Charter Party. Therefore, for the reasons set forth above, the Court finds that Hovensa's awareness of the Charter Party did not bind it to the arbitration clause contained in that agreement.
2. Agency
There is no indication in the Charter Party that Hess Shipping was acting as an agent for Hovensa when it signed that agreement. Neither in the preamble nor at the signature line of the document is Hess Shipping identified as an "agent" or as acting "on behalf of" a principal. Further, the original offer leading to the formation of the Charter Party states that it is for "Account Hess."
Plaintiff contends that Hess Shipping was acting as Hovensa's agent when it entered into the Charter Party because, pursuant to the Services Agreement, Amerada Hess was authorized to engage in vessel chartering for Hovensa and it performed this service through its subsidiary, Hess Shipping. Plaintiff is correct that the Services Agreement establishes that Hovensa authorized Amerada Hess to act as its agent. Indeed, the agency relationship between those two entities is expressly declared in various documents, for example, the specification sheet that was prepared in connection with Hovensa's purchase of crude oil from Agip. However, since the Services Agreement contains no provision concerning Hess Shipping, the Court must decide whether Hess Shipping's role as the transportation subsidiary of Amerada Hess rendered it an agent for Hovensa.
In Overseas Oil Transport Corp., 1990 WL 130773, at *3-4, the court found that an agency relationship existed between the charterer of a vessel and its affiliate, both of which were subsidiaries of a parent company. In that case, the signatories to the charter party were the charterer and the owner of the subject vessel. The affiliate, which had not signed the charter party, sought to compel the vessel owner to arbitration on the ground that it was entitled to enforce the charter party as an undisclosed principal. The vessel owner opposed the motion. The court found that the affiliate could enforce the charter party because the conduct of the charterer and the affiliate evidenced an understanding that: (a) the charterer's actions were subject to the affiliate's control; and (b) the charterer had consented to act as the affiliate's agent. See id.
In reaching its conclusion, the court noted that the charterer, which was the shipping arm of the parent company, customarily sought the affiliate's approval before confirming the charter of a vessel; since the charter agreement had no binding effect until it was confirmed, the requirement that the principal have the right to control the conduct of the agent was satisfied. The court also found that the charterer's "sole function" was to charter vessels on behalf of the parent company and its affiliates, and that there was evidence of a longstanding course of conduct between the two entities. See id.
In this case, Bober testified that, after Hess Shipping informed him of the specifications of the vessel it had procured for the transport of Hovensa's cargo, he sought and obtained approval of the vessel from Agip. When asked whether, as a rule, Hess Shipping had to obtain his approval before fixing a vessel, Bober testified that he functioned merely as a "middle man" conveying to Hess Shipping the approval of the supplier, Agip. Also, Uhles testified that, beyond requesting the charter of a ship, and advising Hess Shipping of pertinent operational requirements, Hovensa had no control over the freight rate or the other terms that Hess Shipping negotiated in connection with a voyage charter, and that Hovensa did not become involved in any way with the negotiations of the terms of the charter party.
Further, it does not appear that Hess Shipping's "sole function" during the relevant time period was to charter vessels for Amerada Hess and its affiliates. As noted above, according to Uhles, in 2000, Hess Shipping operated tankers which it subchartered to third parties unrelated to Amerada Hess. Hess Shipping's gross revenues from its various chartering activities in that year were approximately $205 million and its net income was approximately $18 million. Also, Uhles explained that Amerada Hess and Hess Shipping are separate entities; Hess Shipping is responsible for, among other things, chartering foreign flag ships, while Amerada Hess engages in chartering United States flag ships. Thus, unlike the corporate entities in Overseas Oil Transport Corp., the conduct of Hess Shipping and Hovensa does not appear to evidence an understanding that Hess Shipping's actions were subject to Hovensa's control or that Hess Shipping consented to act as Hovensa's agent.
Plaintiff also contends that Uhles' October 16, 2000 E-mail, which states, among other things, that the Knock Dun was chartered by Hess Shipping "on behalf of Hovensa," shows that Hess Shipping entered into the Charter Party as agent for Hovensa. As noted earlier, under the law of this circuit, when the phrase "on behalf of" appears in an admiralty contract it is taken to be a reliable indication of an agency relationship. In this case, however, the phrase occurred, not in the Charter Party or other contract between the parties to this litigation, but, rather, in an internal notice directed to, among others, insurance personnel at Amerada Hess, informing them of the grounding of the vessel and the pertinent terms of the Charter Party governing the voyage. Consequently, it is doubtful that the phrase can be taken to express the legal relationship between Hess Shipping and Hovensa, especially in light of the testimony of Uhles that the "wording was legally not [a] good choice in retrospect," and that the phrase was used as a way distinguishing "a Hovensa cargo as opposed to an Amerada Hess cargo." Bober's testimony concerning whether Hess Shipping was an agent for Hovensa is similarly inconclusive. As noted earlier, Bober, a crude logistics coordinator for Amerada Hess, stated both that he believed Hess Shipping was an agent of Hovensa and, in subsequent testimony, that he did not know this to be the case. Under the circumstances, the evidence is not sufficient to establish that Hess Shipping acted as an agent for Hovensa in this transaction.
For the reasons set forth above, the Court finds that Hovensa was not bound to the terms of the Charter Party under either a theory of actual or constructive notice or a theory of agency. Furthermore, as discussed earlier in this writing, the estoppel theory raised by the plaintiff, whereby Hess Shipping may be estopped from avoiding arbitration with Dun Shipping, does not apply to Hovensa. Accordingly, while the plaintiff is entitled to enforce the arbitration clause of the Charter Party against Hess Shipping, it may not do so against Hovensa.
Attorney Fees
In its reply memorandum of law submitted in support of the instant petition, plaintiff requests an award of attorney fees on the ground that Hess Shipping and Hovensa obstructed discovery in this matter improperly. The defendants oppose the application. The Court has reviewed the parties' submissions with respect to this request and has determined that an award of attorney fees is not warranted in this case. Accordingly, plaintiff's application for an award of attorney fees should be denied.
IV. RECOMMENDATION
For the reasons set forth above, it is recommended that: (a) the plaintiff's petition for an order compelling the defendants to arbitration be granted in part and denied in part: the petition should be granted with respect to Hess Shipping and denied with respect to Hovensa; (b) the defendants' petition, for an order staying further action in the arbitration commenced by the plaintiff and for an order declaring that the plaintiff's General Average claim is not arbitrable, be granted with respect to Hovensa and denied with respect to Hess Shipping; and (c) the plaintiff's application for attorney fees be denied.
V. FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from service of this Report to file written objections. See also Fed.R.Civ.P. 6. Such objections, and any responses to objections, shall be filed with the Clerk of Court, with courtesy copies delivered to the chambers of the Honorable Richard M. Berman, 40 Centre Street, Room 201, New York, NY, 10007, and to the chambers of the undersigned, 40 Centre Street, Room 540, New York, New York, 1007. Any requests for an extension of time for filing objections must be directed to Judge Berman. FAILURE TO FILE OBJECTIONS WITHIN TEN (10) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See Thomas v. Arn, 474 U.S. 140 (1985); IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993); Frank v. Reynoso, 968 F.2d 298, 300 (2d Cir. 1992); Wesolek v. Canadair Ltd., 838 F.2d 55, 57-59 (2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983).