Astra Oil v. Rover Navigation

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DMC/SandT/03/38
Astra Oil Company, Inc. v. Rover Navigation, Ltd.
United States Court of Appeals for the Second Circuit: Jacobs and Sotomayor, Judges: No. 02-9388: 2003 U.S. App. LEXIS 19670 (2d Cir. September 2003) (not yet officially reported): 22 September 2003
Shipping: Charter party: Arbitration: When May A Non-Party Compel Arbitration?
Summary
In this case, the United States Court of Appeals for the Second Circuit reversed a decision from the District Court for the Southern District of New York in which it had denied appellant Astra Oil Company, Inc.’s ("Astra") petition to compel Rover Navigation, Ltd. ("Rover") to arbitrate Astra’s claims arising out of the late delivery by Rover of Astra’s cargo. Even though Astra was not a signatory to the charter party which contained the arbitration clause, the Second Circuit held that the petition should have been granted because Astra’s claims were premised on alleged breaches of duties under the charter, that is, that Rover breached warranties of speed and seaworthiness, and thus were inextricably intertwined with that agreement. Moreover, the Court held, the relationship between Astra and the actual signatory to the charter was sufficiently close, and Rover had treated Astra and the actual signatory sufficiently interchangeably, that Rover should be estopped from resisting arbitration.

DMC Category Rating: Developed

Case Note contributed by Monique Des Rosiers, attorney with the law firm Healy & Baillie LLP. Healy & Baillie are the International Contributors to the website for the USA.

Facts/Background
Under the charter party between Rover and AOT, (an affiliate of Astra, both companies being under the common ownership of Astra Oil Trading N.V.), Rover agreed to transport gasoil for AOT from Taiwan to the United States. The charter party contained an arbitration clause stipulating New York as the forum and providing that New York law would govern. Astra subsequently contracted with Sprague Energy Corporation to sell the gasoil at a price to be determined based on the time of delivery. The vessel suffered mechanical problems, however, and arrived well past any acceptable time for delivery. Rover issued a General Average Declaration to Astra and AOT and exercised its lien on the cargo. In turn, Astra issued Rover a claim notice for damages for late delivery and threatened maritime arrest to secure its claim. The parties exchanged security for the various claims. Astra then tendered a claim for damages it had sustained as a result of the late delivery, which Rover refused to pay. When Astra and AOT jointly demanded that Rover arbitrate this claim, Rover contested Astra’s standing to arbitrate.

Judgment
The Second Circuit concluded that the evidence "suggests both a close relationship among Astra, AOT and Rover, and that Rover treated Astra as if it were a signatory to the charter party." The Court analogized the situation to that in Smith/Enron Cogeneration Ltd. v. Smith Cogneneration Int’l, Inc., 198 F.3d 88 (2d Cir. 1999), wherein it was held that because the defendant had treated affiliated companies, only some of which were signatories to a contract with an arbitration clause, as a single entity in filing claims against them in another related lawsuit, and because the claims against the defendant in respect of which arbitration was sought were related to the agreement containing the arbitration clause, the defendant was estopped from resisting arbitration.

Moreover, the Court noted that Astra’s claims against Rover alleged breaches of duties owed under the charter party to make timely delivery, that is, the warranties of speed and seaworthiness, and did not allege breach of the independent sales contract. In sum, the Court concluded that the petition to compel arbitration should have been granted based on (1) the undisputed evidence of a close corporate and operational relationship between Astra and AOT; (2) the fact that Astra’s claims against Rover invoked duties arising under the charter party between Rover and AOT; and (3) the fact that Rover treated Astra as if it were a party to the charter party, by accepting direction from Astra during the voyage.

Comment
This decision makes clear that there are circumstances under which a non-signatory to a charter party can force a signatory to arbitrate the non-signatory’s claim, if the nonsignatory is closely related to another signatory and brings a claim which involves rights or duties arising under the charter party, and if the non-signatory has been treated as a signatory by the party against whom arbitration is sought.

 

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