Anchor v. Alianca

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DMC/S&T/29/01
Anchor Shipping Company v. Alianca Navegacao e Logistica Ltda

Arbitration Award of the Society of Maritime Arbitrators, New York: Lucienne Bulow as Sole Arbitrator: July 2001
SERVICE CONTRACT: SUBJECT TO NEW YORK LAW: BREACH: PROVEN DAMAGES RECOVERABLE: FREIGHT DIFFERENTIALS: LOST BUSINESS:

Summary
In this case, an NVOCC recovered substantial damages from an ocean carrier for breach of a Service Contract. The Service Contract was subject to the Shipping Act of 1984 as amended by the Ocean Shipping Reform Act (‘OSRA’) of 1998, and, by its terms, to the general law of contract of New York. . It was held that failure to file amendments to the Service Contract with the FMC did not render those amendments void. Where a service contract was breached, proven damages could be recovered. The Shipper’s right to recover damages was not dependent on the contract containing a clause providing for liquidated damages against the Carrier. 

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DMC Category Rating: Confirmed

Facts
Disputes arose under a Service Contract between Anchor Shipping, an NVOCC based in Miami, Florida and Alianca, a container liner operator engaged in trade between the USA and South America. The Service Contract was one of the first to be concluded after OSRA came into effect. It was effective from May 6, 1999 until May 6, 2000 and provided for Anchor to ship a minimum of 500 teus over the one-year period. The Contract covered five principal routes between US East Coast ports and the East Coast South America, Venezuela and Columbia. Alianca undertook to accommodate 5 teus per scheduled sailing. Any shipment in excess of this figure would be carried, subject to space availability, and if there were no space on that sailing, Alianca was to make space available on its next sailing. The Service Contract provided that it was to be governed by the Shipping Act of 1984, as amended, and regulations issued by the Federal Maritime Commission pursuant to the Act. To the extent that issues of construction related to matters of contract or other law, the contract provided for New York law to apply.

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The Claims
Anchor claimed that Alianca had breached the service contract by refusing to accept bookings under it and eventually cancelling it as regards all services other than the East Coast South America southbound route. The reason for the breach, according to Anchor, was that rates on the other services had started to rise dramatically about the time the Service Contract went into effect. Anchor also contended that Alianca’s continued refusal to honour bookings caused it to lose customers who would otherwise have generated profitable business for it. The heads of damages were:
a) damages related to refused bookings;
b) damages related to lost profits on 328 unshipped teus.
These claims totalled US$510,000.Anchor also claimed general damages for loss of business, together with punitive damages.

Alianca denied Anchor’s claims and advanced counter-claims amounting to US$105,000, including a claim for liquidated damages for Anchor’s failure to meet its minimum volume commitment.

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Interim Award
As a preliminary point, Alianca had argued that Anchor could not claim monetary damages as a remedy for any failure by Alianca to ship cargo, since the Service Contract did not include a liquidated damages clause in respect of claims against the Carrier. The arbitrator held, however, in an Interim Award, that parties to a Service Contract are entitled to proven monetary damages under New York general contract law, when a breach of contract has occurred.

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The Award
As a threshold issue, the arbitrator decided that two prior service contracts had been integrated within the Service Contract of May 6 1999, even though this variation to the Service Contract, contrary to the terms of the Shipping Act, had not been effected in writing and lodged with the FMC. The arbitrator found that there was a clear agreement between the parties to integrate the contracts and that it was Alianca’s responsibility under the Shipping Act to file the corresponding amendments with the FMC. It had not done so, but could not profit from this failure. "Failure to file cannot be used to deny an agreement by a party when it was within the power of that party to file or not to file" (Award p.14). The arbitrator noted that there was nothing in the Shipping Act which stated that failure to file a correction or amendment renders an agreement void. She referred to a previous ruling of the FMC in Vinmar Inc. v. China Ocean Shipping Co. That ruling explained that the Shipping Act does not state that a service contract only comes into existence upon its filing with the Commission and held that "there is no indication that the 1984 Shipping Act was intended to supersede contract law with respect to the formation of service contracts." In that case, failure to comply with the Shipping Act did not mean that there was not a valid contract.

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On the main issue, the Arbitrator found that Alianca had not acted in accordance with the "fundamental principle of contract law, especially as it pertains to common carriers," laid down in the case of William R. Adair v. Penn-Nordic Lines Inc., "that persons entering into contracts must act in good faith to seek to accomplish the purposes of the contract and not to do anything to hinder performance Alianca had - in breach of the Shipping Act sections 10(b)(3) and (10) - "delayed or never filed amendments with the FMC as a means of retaliating against Anchor for refusing to agree higher rates and to service route cancellations". The Arbitrator found that Alianca did not treat Anchor in accordance with the standards of behaviour delineated by the Shipping Act, as amended by the Ocean Shipping Reform Act of 1998, and that Alianca had treated Anchor unfairly in many instances.

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The arbitrator held accordingly that Alianca had breached the Service Contract in respect of all services other than the East Coast South America southbound and that, in consequence, Anchor were:

1 entitled to damages amounting to US$47,435 in the form of freight differentials for cargoes which should have been shipped under the Service Contract but which Anchor had to ship with other carriers since Alianca refused service;

2 entitled to lost profits on cargoes which it would have shipped, had there been no breach. Damages under this head were calculated at US$262,298, based on 293 containers out of the 500 referred to in the Service Contract.

Anchor’s claims for loss of customers and business was denied; so too was its claim for punitive damages. Whilst the arbitrator found some bad faith on the part of Alianca in its dealings with Anchor, she did not think Alianca’s "breach of contract rises to the high standards of fraud and tort ‘directed at the public generally’ which is deemed necessary for such an award under New York law." Anchor were also awarded their reasonable attorney’s fees, plus US$12,500 as compensation for the work of its president in preparing the case before counsel were engaged. The arbitrator’s fees were allocated 65% to Alianca, 35% to Anchor.

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With the exception of its claim for balances of freight, Alianca’s counterclaims were denied.

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