Dreyfus v. Blystad
NEW YORK ARBITRATION CLAUSE: BROAD AND NARROW ARBITRATION CLAUSES: APPLICATION TO COLLATERAL AGREEMENTS: COLLATERAL AGREEMENT PROVIDING FOR ENGLISH JURISDICTION: PRESUMPTION OF ARBITRABILITY UNDER BROAD CLAUSE WHERE CLAIM 'IMPLICATES' ISSUES OF CONTRACT CONSTRUCTION
Background to the Case
Dreyfus accordingly entered into a tanker voyage charter with the defendants, Blystad, who were the disponent owners of the tanker Thorsfreddy. That charterparty provided for the transport of the soyabean oil from Brownsville, Texas and New Orleans, Louisiana, to one, or two, unspecified discharge ports in China. The preamble of the charter party stated that delivery was to be "as ordered on signing bills of lading to the port or ports of discharge," indicating that the tanker bills of lading would designate the discharge ports. The vessel was loaded in December 1996 and, following instructions from Lief, Dreyfus issued bills of lading on behalf of the vessel providing for discharge at Qingdao, China.
On January 13, 1997, in the midst of the voyage, Blystad advised Dreyfus that the vessel was scheduled to arrive in China in five days and that the original bills of lading had not arrived in Qingdao. Two days later, Lief, following the orders of Kaland, the ultimate purchaser, requested that Dreyfus change the discharge port to Qin Huang Dao, China. Dreyfus informed Blystad that it, as the seller, and Lief, as the receiver, would issue letters of indemnity covering both the change of discharge ports and the discharge of cargo without presentation of the original bills of lading. This was duly done on January 20.
The letters guaranteed that Dreyfus, and in turn Lief, would indemnify Blystad "in respect of any liability, loss or damage of whatsoever nature which you may sustain by reason of delivering the goods to China Ocean Shipping Agency, Qin Huang Dao," and requested delivery to that city without presentation of the original bills of lading. The letters also contained a choice of law and choice of forum clause, providing that "[t]his indemnity shall be construed in accordance with English Law and each and every person liable under this indemnity shall, at your request, submit to the jurisdiction of the High Court of Justice of England."
After the issuance of the letters of indemnity the vessel sailed on to Qin Huang Dao. Upon arrival, the soyabean oil was discharged and promptly seized by the Chinese Customs Bureau. The vessel was arrested by order of the Tianjin Maritime Court. The proffered reasons for the arrest were the delivery of cargo without production of the original bills of lading and the change in discharge ports from Qingdao to Qin Huang Dao. The vessel was detained at Qin Huang Dao until Thorsfreddy and Blystad paid security for its release three months later. The detention of the ship gave rise to damages in the amount of US$659,269, which the owners of the Thorsfreddy recovered from Blystad in New York arbitration in July 1999.
Meanwhile, in March 1997, Blystad had commenced proceedings in
London against Dreyfus and Lief under the letters of indemnity. A week later,
Blystad commenced arbitration proceedings against Dreyfus in New York, claiming
a similar indemnity, pursuant to an arbitration clause in the voyage charter
At the outset, the Second Circuit stated, to "determine whether a particular dispute falls within the scope of an agreement's arbitration clause, the Court should undertake a three-part inquiry." The inquiry was stated to be as follows:
The Court held that the District Court erred in not deciding
whether the charter's arbitration clause was "broad" or
"narrow." The Court stated that "making a distinction between
broad and narrow arbitration clauses is necessary and sound . . ." It then
held the charter's arbitration clause to be broad.
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