Opinion
02 Civ. 7436 (JGK)
September 29, 2003
OPINION AND ORDER
In this admiralty action, plaintiff MacSteel International USA Corp. ("MacSteel USA") sues the vessel M/V Jag Rani and its registered owner, Great Eastern Shipping Co. ("Great Eastern"), for alleged damage to a shipment of steel coils carried aboard the M/V Jag Rani in the fall of 2001. Great Eastern moves to compel arbitration and to stay pursuant to 9 U.S.C. § 3, or, alternatively, to dismiss pursuant to 9 U.S.C. § 4.
I.
Great Eastern chartered the M/V Jag Rani to Metall Und Rohstoff Shipping RSA (Pty) Ltd. ("MUR") pursuant to a charter party dated September 18, 2001. (Affidavit of Jeremy J.O. Harwood dated Feb. 25, 2003 ("Harwood Aff.") ¶ 2 and Ex. 1.) The charter party contains an arbitration clause that provides:
All disputes or differences arising out of or under this, contract which cannot be amicably resolved shall be referred to arbitration in London.
(Id. 5 2 and Ex. 1, cl. 61.)
MacSteel International U.K. Ltd. ("MacSteel UK") contracted with MUR to ship a cargo of steel coils from Durban, South Africa to New Orleans. (Harwood Aff. ¶ 3 and Ex. 2.) MacSteel USA, the consignee of the cargo, now alleges that the steel coils were damaged in shipment. (Compl. ¶ 6 and Sched. A.)
A bill of lading dated October 31, 2001 was issued for the cargo on behalf of the master of the vessel, and it listed MacSteel UK as the shipper and MacSteel USA as the consignee. (Harwood Aff. ¶ 4 and Ex. 2.) The bill of lading is on a standard form called a "CONGENBILL," which, according to terms pre-printed on the form, is intended "to be used with charter-parties." (Id. at ¶ 5 and Ex. 2.) The reverse side of the bill of lading lists the "Conditions of Carriage," one of which states: "(1) All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated." (Id.) On the face of the bill of lading is a box with the form's pre-printed freight clause, which states: "Freight payable as per CHARTER-PARTY dated ___ ." (Id. Ex. 2.) In the blank space provided to insert the date of the charter party, the words "AS PER RELEVANT" were typed. (Id. ¶ 6 and Ex. 2.)
II.
The primary question raised by this motion is whether the terms of the bill of lading issued to MacSteel USA — specifically, the phrase "AS PER RELEVANT" — incorporate by reference the charter party dated September 18, 2001 between Great Eastern and MUR, including the charter party's arbitration provision.When a ship owner and a charterer enter into a charter party agreement, the charter party constitutes the contract of carriage between the parties, and the bill of lading serves merely as a receipt for the goods in a particular shipment. Continental Ins. Co. v. M/V "Ocean Jade", 269 F. Supp.2d 348, 351 (S.D.N.Y. 2003). By contrast, when the bill of lading is issued to a third-party consignee that is not a signatory to the underlying charter party, the bill of lading constitutes the contract of carriage. Id. Both a charter party and a bill of lading are interpreted using the ordinary principles of contract law. See Midland Tar Distillers. Inc. v. M/T Lotos, 362 F. Supp. 1311, 1313 (S.D.N.Y. 1973). Thus, it is well settled that "the terms of a charter party, including an arbitration clause, may, by appropriate reference, be incorporated into a bill of lading." Coastal States Trading. Inc. v. Zenith Navigation S.A., 446 F. Supp. 330, 338 (S.D.N.Y. 1977).
"Arbitration is a matter of contract; so a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." Merrill Lynch Inv. Managers v. Optibase, Ltd., 337 F.3d 125, 131 (2d Cir. 2003) (per curiam) (internal quotation marks and citation omitted). An agreement to arbitrate can be found when an arbitration agreement is incorporated by reference in an agreement to which the party sought to be compelled agreed. Thomson-CSF, S.A., v. Am. Arbitration Ass'n, 63 F.3d 773, 777 (2d Cir. 1995). Such an agreement to arbitrate need not be embodied in a single writing or document, and a charter party and a bill of lading may be read together, using the ordinary principles of contract law, to form the complete contract of carriage between the parties. See Son Shipping Co. v. DeFosse Tantghe, 199 F.2d 687, 688 (2d Cir. 1952); Midland Tar Distillers, 362 F. Supp. at 1313. The holder of a bill of lading may thus be bound by an arbitration agreement in a charter party, even though it has not signed the charter party or been named in it. Coastal States Trading, 446 F. Supp. at 338.
Without an express agreement to arbitrate, the Court of Appeals for the Second Circuit has recognized five theories upon which a court can find a non-signatory to be bound by an arbitration agreement: 1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercing/alter ego; and 5) estoppel. Optibase, 337 F.3d at 129. Only incorporation by reference has been raised in this case.
The holder of a bill of lading will be held to the terms of a charter party where the bill "specifically refers to a 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 (2d Cir. 1965); Son Shipping. 199 F.2d at 688. 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." See Benship Int'l, Inc. v. Bangladesh Agric. Dev. Corp., No. 90 Civ. 5851, 1991 WL 710, at *2 (S.D.N.Y. Jan. 3, 1991); Amoco Oil Co. v. M.T. Mary Ellen, 529 F. Supp. 227, 228 (S.D.N.Y. 1981). Inquiry into whether the holder of the bill of lading had actual or constructive knowledge of the incorporation of the charter party is more important when the bill of lading's language of incorporation is not specific or unmistakable enough to satisfy the requirements of Import Export Steel and Son Shipping. For example, in New York Marine Managers. Inc. v. M/V "Topor-1", No. 88 Civ. 3682, 1989 WL 4030 (S.D.N.Y. Jan. 18, 1989), Judge Mukasey concluded that the words "FREIGHT PREPAID" typed into the bill of lading's freight clause were not sufficiently specific or unmistakable for the bill of lading, by its own terms, to incorporate the applicable charter party.Id. at *5. Nonetheless, Judge Mukasey concluded that the holder of the bill of lading could be bound by the terms of the charter party if (1) the holder had actual knowledge of the incorporated charter party, or (2) "through a course of dealing, the term `FREIGHT PREPAID' inserted in the freight clause was understood to incorporate a specific and identifiable charter party." Id. Therefore, in determining whether a bill of lading incorporates a charter party, a court should first determine whether the bill of lading specifically refers to a charter party and incorporates its terms in unmistakable language. If the bill of lading lacks specific and unmistakable language of incorporation, the court should then determine whether the holder of the bill of lading nonetheless had actual or constructive knowledge of the incorporation of the charter party, such that the holder of the bill should be bound by the charter party's terms.
Requiring both a specific reference to a charter party and unmistakable language of incorporation is generally necessary "because, as a negotiable instrument, the bill of lading passes into the hands of those who have nothing to do with the charter party, and may not be bound to an agreement of whose terms they have no knowledge or even notice." Amoco Overseas Co. v. S.T. Avenger, 387 F. Supp. 589, 593 (S.D.N.Y. 1975); see also New York Marine Managers, 1989 WL 4030, at *5.
Courts have permitted more ambiguity in the bill of lading's reference to the charter party and in its incorporation clause when the party resisting a finding of incorporation was a signatory to the charter party referred to in the bill of lading. See State Trading Corp. of India. Ltd, v. Grunstad Shipping Corp. (Belgium) N.V., 582 F. Supp. 1523, 1525 (S.D.N.Y. 1984) (Weinfeld, J.) ("It is significant that it is a signatory to the charter party here that is seeking to avoid the incorporation clause on the ground that it is too ambiguous. Generally, the cases that have found an incorporation clause to be too vague to identify the applicable charter party have involved an owner's or charterer's attempt to enforce an arbitration clause in a charter party against a consignee of the bill of lading. . . . That rationale [behind requiring specificity in the bill of lading] loses its force when the party resisting arbitration was a signatory to a charter party and had agreed that all bills of lading issued thereunder would incorporate the terms of the charter party."); Cargill Ferrous Int'l v. Sea Phoenix M.V., 325 F.3d 695, 700 (5th Cir. 2003) (concluding that rule requiring specific reference to charter party in bill of lading's incorporation clause "does not . . . apply when the bills of lading remain in the hands of a party to the voyage charter"). With respect to assessing the specificity of a bill of lading's incorporation clause, this line of cases is inapplicable here, where the bill of lading was in the hands of a third-party consignee who was not a signatory to the charter party sought to be incorporated. Indeed, in this case, neither party to the of lading was a party to the charter party.
Determining whether a bill of lading "specifically refers" to a charter party and unmistakably incorporates its terms is a fact specific inquiry. Nevertheless, the inquiry is guided by some general rules that emerge from previous cases. Courts generally find that a bill of lading incorporates the charter party when the bill of lading refers to a charter party of a particular date or to the signatories to a charter party. See Thyssen, Inc. v. M/V Markos N, No. 97 Civ. 6181, 1999 WL 619634, at *3 (S.D.N.Y. Aug. 16, 1999), aff'd 310 F.3d 102 (2d Cir. 2002); Continental U.K. Ltd, v. Anagel Confidence Compania Naviera, 658 F. Supp. 809, 812-13 (S.D.N.Y. 1987); Lowry Co. v. S.S. Le Moyne D'Iberville, 253 F. Supp. 396, 398-99 (S.D.N.Y. 1966). In contrast, courts generally find that a charter party is not incorporated when the space provided in the bill of lading for the name and date of the charter party is left blank. See Fairmont Shipping (H.K.), Ltd, v. Primary Indus. Corp., No. 86 Civ. 3668, 1988 WL 7805, at *3 (S.D.N.Y. Jan. 25, 1988); Fed. Ins. Co. v. M.V. Audacia, No. 85 Civ. 2656, 1986 WL 574, at *2 (S.D.N.Y. Aug. 19, 1986); United States Barite Corp. v. M.V. Haris, 534 F. Supp. 328, 330 (S.D.N.Y. 1982); M.T. Mary Ellen. 529 F. Supp. at 228-29; Cia. Platamon de Navegacion, S.A. v. Empresa Colombiana de Petroleos, 478 F. Supp. 66, 67-68 (S.D.N.Y. 1979).
The situation presented by the bill of lading in this case does not fall into either of the well-defined categories that emerge from prior cases. The space provided for listing the name and date of the charter party was not left blank in MacSteel USA's bill of lading, because the words "AS PER RELEVANT" were inserted. But those words plainly did not provide the date or place of the making of the charter party or its signatories.
A similarly ambiguous situation, on facts very close to those presented here, was presented in Associated Metals Minerals Corp. v. M/V Arktis Sky, No. 90 Civ. 4562, 1991 WL 51087 (S.D.N.Y. Apr. 3, 1991). In that case, a consignee of steel coils brought an admiralty action against the ship's registered owner for damage to the cargo during shipment. The shipper had entered into a charter party with the registered owner that included an arbitration provision, and the owner thus moved to stay the consignee's action. As here, the shipper had issued to the consignee a bill of lading on the standard CONGENBILL form, the relevant provisions of which were almost identical to those at issue here. Id. at *2. On the face of the bill of lading, in the space provided following the pre-printed freight clause, "Freight payable as per CHARTER-PARTY dated ___" (where, in this case, the words "AS PER RELEVANT" were added), the shipper had typed "AS AGREED." Id. at *3. The court concluded that the CONGENBILL's standard pre-printed language that the form was "to be used with charter parties," along with the typed insertion, "AS AGREED," were insufficient to evince an unmistakable intent to incorporate a specific charter party. The court noted that "[a]11 these references . . . merely indicate that the defendants may have intended to incorporate a charter party. The references, though, do not provide sufficient information which would indicate to the holder of the Bill of Lading the specific charter party sought to be incorporated." Id. Moreover, the court observed that the general incorporation clauses in the bill of lading did not indicate that the charter party sought to be incorporated contained an arbitration clause, and the plaintiff categorically denied ever having received the charter party, thus making the holder's actual or constructive knowledge of incorporation less likely. See id.
Similarly, the bill of lading issued in this case does not reveal an unmistakable intent to incorporate a specific charter party. The freight clause, while not left blank, did not provide the date or place of the charter party or its signatories, information that courts have found sufficient to provide a specific reference to a charter party sought to be incorprated. The defendant nevertheless argues that the words "AS PER RELEVANT" do in fact make specific reference to the charter party between Great Eastern and MUR, because that charter party was the only one governing the M/V Jag Rani at the time of the shipment in question, and thus could be the only "relevant" charter party. The defendant essentially contends that the phrase "AS PER RELEVANT" should be read to say "AS PER [THE] RELEVANT [CHARTER PARTY]." Whatever the merit of this linguistic construction — because another reasonable interpretation of the phrase "AS PER RELEVANT" would be, in substance, "if relevant" — the reading urged by the defendant is no more specific or unmistakable an attempt at incorporation than the phrase "AS AGREED," which was found insufficient in Associated Metals. The words "AS PER RELEVANT" do not, "in unmistakable language," incorporate the terms of a specific charter party.
The defendant argues that the phrase "AS PER RELEVANT" put the plaintiff on notice that a "relevant" charter party existed and that the plaintiff should have inquired further to determine the terms of that charter party. The cases make clear, however, that for a bill of lading to incorporate a charter party by reference, the incorporation must be done with language that is specific and unmistakable enough to put the holder on actual or constructive notice of the incorporation. Inquiry notice is not sufficient.
The defendant relies heavily on Thyssen, Inc. v. M/V Markos N, No. 97 Civ. 6181, 1999 WL 619634 (S.D.N.Y. Aug. 16, 1999), aff'd 310 F.3d 102 (2d Cir. 2002), where the court granted the defendants' motion to stay in a case similar to this one. However, that case is plainly distinguishable. The court in Thyssen determined that the bill of lading explicitly incorporated the charter party, and its arbitration provision, because the bill of lading referred specifically to the date of the charter party being incorporated. As explained above, no such specific reference was made in the bill of lading in this case.
The bill of lading in this case fails to make a specific reference to a charter party, and it fails to incorporate a charter party in unmistakable language. Therefore, in order for the defendant to compel the plaintiff to arbitrate this claim, the defendant must show that the plaintiff had either actual or constructive notice of the incorporation of the charter party entered into by Great Eastern and MUR. In this sense, this case differs from Associatated Metals, because here the bill of lading did specifically refer to incorporating the charter party's arbitration provision, and the plaintiff has not categorically denied ever having received the charter party. This case is therefore more like New York Marine Managers, where Judge Mukasey concluded that the words "FREIGHT PREPAID" were alone insufficient to incorporate the terms of the charter party, but that further inquiry was appropriate to determine whether the holder of the bill of lading had actual or constructive knowledge of the incorporation ostensibly attempted on the face of the bill.
In the same way here, in order to determine whether there is a valid arbitration agreement in this case, it is necessary to go beyond the face of the bill of lading. Additional factual development is thus warranted on the issues of whether the plaintiff had actual knowledge of the incorporation of the charter party or whether the plaintiff, through course of dealing or some other means, had constructive knowledge that the words "AS PER RELEVANT" incorporated the charter party into the bill of lading. See Dun Shipping Ltd, v. Amerada Hess Shipping Corp., 234 F. Supp.2d 291, 296 (S.D.N.Y. 2002) (permitting limited discovery to help determine whether the holder of a bill of lading that did not expressly incorporate a charter party "had actual knowledge of and acquiesced in the terms of the Charter Party and, therefore, perhaps should be bound by its arbitration provision").
CONCLUSION
For the reasons explained above, the Court orders as follows:
1) The defendant's motion to compel arbitration and to dismiss or stay the proceedings is denied without prejudice.
2) Any and all discovery relating to MacSteel USA's actual or constructive notice of the incorporation of the charter party between Great Eastern and MUR shall be concluded within sixty days.
3) The defendant may renew its motion to compel arbitration and to dismiss or stay no later than December 15, 2003.