John P Vayda of Nourse & Bowles, for the Charterer
SHIPPING: LATE RE-DELIVERY UNDER TIME-CHARTERPARTY: CHAIN OF TIME-CHARTERPARTIES EACH INCLUDING SMA RULES PERMITTING CONSOLIDATION OF PROCEEDINGS: OWNER COMMENCES ARBITRATION AGAINST HEAD-CHARTERER: WHETHER OWNER ENTITLED TO BRING SUB-CHARTERERS INTO THOSE PROCEEDINGS WHEN NO PROCEEDINGS EXISTED UNDER EITHER SUB-CHARTER
In this majority award, New York arbitrators denied an application from the Owner to bring into arbitration proceedings commenced by it against the head-charterer, the two sub-charterers in circumstances where all three charterparties including the SMA Rules (which permit consolidation of proceedings in certain cases) but no "proceedings" were in existence under either of the sub-charters. The majority held that, to permit consolidation in these circumstances, would be equivalent to creating a right of ‘class action’ against all charterers in the chain.
DMC Category Rating: Confirmed
Case note contributed by Patrick V. Martin, counsel to the Society of Maritime Arbitrators.
The arbitration at hand involved a chain or string of three separate time charters in which the head owner asserted damages for loss when there was a late redelivery of the vessel under the head charter and presumably the two sub-charters. Not content with pressing the claim against the head charterer, the owner petitioned the arbitration panel for an order consolidating that dispute with an allegedly similar dispute under the two sub-charters. The purpose of the motion was to allow the owner to have discovery and claim damages against all three charterers whom, the owner alleged, ordered the vessel on a final voyage knowing that there would be an overlap in a rising market. At the end of this final voyage the vessel was redelivered under all three time charters.
Each of the three charters was on the NYPE form and provided in printed clause 17 for arbitration in New York. A separate clause in each charter incorporated the Rules of the Society of Maritime Arbitrators (the "SMA").
Part I, Section 2, of the SMA Rules states:
Pursuant to clause 17, the owner demanded arbitration from its time charterer and appointed an arbitrator. The charterer appointed its arbitrator and the two appointed a third thus completing the panel under the head charter. At this stage, the owner then made a motion to the panel for an order bringing in the other two sub-charterers. As stated above, the owner sought consolidation so that it could obtain discovery from the sub- charterers and also obtain a judgment against them.
The head time charterer strongly objected to the panel ordering consolidation. It argued that there was no dispute between it and its sub-charterer and consequently it had made no demand for arbitration. Therefore, consolidation, which was meant to facilitate dispute resolution, was in this instance being used to create disputes where none existed. The two sub-charterers were even more vehement in their opposition.
The first sub-charterer confirmed that there were no disputes between it and its owner (head charterer) and likewise none between it and its charterer. It asserted that it was not a party to the head charter and under the law there was no contractual privity with the head owner. The second sub-charterer argued that granting the owner’s motion would be unnecessarily disruptive of commercial practices and the owner had all the remedies it needed under the head charter. It further stated that it had no participation in the composition of the panel and therefore any order the panel may make ordering consolidation would necessarily be unenforceable.
The dissenting arbitrator stated that by agreeing to incorporating the SMA Rules in each charter, all the parties in the chain were obligated by contract to consolidate disputes involving common issues of law and fact. The charterers refusal to nominate arbitrators was a breach of contract and the panel should simply have entered a default judgment compelling the unwilling parties to arbitrate.
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