The owner of a citrus fruit company could proceed with a federal lawsuit over damaged goods despite a clause in a bill of lading that called for all disputes to be resolved by an arbitrator in London, a U.S. District Court judge has ruled.
The defendant vessel charterer argued that a 1995 U.S. Supreme Court case, Vimar Seguros y Reaseguros S.A. v. M/V Sky Reefer, required the complaint to be stayed or dismissed pursuant to the terms spelled out in the agreement.
But Judge Joseph L. Tauro disagreed on grounds that Sky Reefer, which originated out of Massachusetts, did not control because the Supreme Court matter involved a U.S. litigant and the case before him named only foreign parties.
As a result, Tauro found that Chapter Two of the Federal Arbitration Act controls, unlike Sky Reefer, which was decided under Chapter One.
“Plaintiff is … not bound by the arbitration clause contained in the charter party agreement because the bill of lading does not meet the requirement for an ‘agreement in writing’ under Chapter Two,” he said. “While Defendant … urges this court to follow the [Sky Reefer] line of cases, those are inapposite because they are interpreting Chapter One of the [FAA].”
The seven-page decision is Maroc Fruit Board S.A., et al. v. M/V Vinson, et al.
Law review article
The plaintiffs’ lawyer, Bradley F. Gandrup Jr. of Boston, said the case marks the first federal maritime decision to distinguish Sky Reefer by applying Chapter Two of the FAA, which incorporated the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards into United States law.
The FAA is broken into three chapters, he said, the first of which was enacted in 1925. The second chapter, implementing the New York Convention, was recognized in the U.S. in 1970. In Sky Reefer, the Supreme Court applied Chapter One of the FAA, Gandrup said.
“There are a number of cases in the 1st Circuit and elsewhere holding that international commercial agreements are governed by Chapter Two, and not by Chapter One, which is ultimately what Judge Tauro found,” the Pierce Atwood lawyer said.
Tauro stated in the decision that Chapter Two specifically applies to international commercial contracts and was adopted later in time than Chapter One, Gandrup added.
“In Chapter Two, there is a specific provision requiring that, to be enforceable, the agreement to arbitrate has to be an agreement in writing, which courts have interpreted in different ways,” he said.
The 2nd and 3rd circuits had all previously construed that provision to mean that an arbitration provision is enforceable only if it is contained in a writing signed by the parties or in an exchange of correspondence, he said.
“In Sky Reefer, there was an arbitration provision contained on the face of the bill of lading itself, but in our case there was not,” Gandrup said, noting that much of his argument came from a law review article written by Martin Davies, a prominent professor of admiralty law at Tulane University.
James B. Re of Sally & Fitch in Boston, who represented the defendants, said it is important for parties in admiralty litigation to know with certainty in what venue their disputes will be heard.
“Generally speaking, bills of lading are not signed by both parties, but frequently they incorporate arbitration provisions,” he said, “So it’s very problematic to insist that there has to be a single document in a maritime case signed by both parties to the arbitration agreement.”
He said Sky Reefer was valid Supreme Court precedent involving a similar fact pattern.
“We cite cases from the 1st Circuit in our filings that we say should control and that should lead to enforcement of the arbitration provision,” Re said. “We did not agree with the conclusion that the issue has never been addressed here.”
The plaintiff, Maroc Fruit Board, alleged that a 2010 fruit shipment transported from Morocco to New Bedford arrived in the United States in a moldy condition.
The plaintiff sought approximately $4 million in damages.
The transport agreement called for the fruit to be delivered in good condition and was made in accordance with the terms of the bill of lading signed by the plaintiff. The agreement contained an arbitration clause calling for “any disputes” to be arbitrated in London according to English law.
The plaintiff filed suit in 2010 in U.S. District Court in Boston against a co-defendant vessel and vessel owner.
The following year, Navimar was added as a defendant. Navimar was the voyage charterer for the vessel, but did not play a role in the operation of the ship.
Navimar moved to dismiss on grounds that the case must be stayed in order to allow for arbitration in London.
Tauro denied the motion, finding the validity of arbitration agreements between parties from foreign countries to be governed by Chapter Two of the FAA, which requires an arbitration clause to be part of an “agreement in writing.”
“An ‘agreement in writing’ is defined in Article II, §2 … as ‘an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams,’” he wrote.
Tauro found that the definition has been read differently by federal courts across the country.
“While the First Circuit has not yet addressed this matter, the Second Circuit … interpreted Article II, §2 to require ‘both an arbitral clause in a contract and an arbitration clause in a contract and an arbitration agreement to be signed by the parties or contained in an exchange of letters or telegrams,’” he said. “This is in stark contrast to the Fifth Circuit’s approach to the same problem, where it found that Article II, §2 requires only that an arbitration clause be contained in a contract or by an arbitration agreement signed by the parties.”
Tauro chose to adopt the 2nd Circuit’s reasoning.
“The bill of lading here, while it forms the contract between Plaintiff and Defendant, is more akin to a receipt than an agreement or an exchange of letters or telegrams,” he said. “As such, the bill of lading in this case was never signed by Plaintiff … and so fails to constitute an ‘agreement in writing’ under the Convention.”