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ARGYLL SHIPPING CO. v. HANOVER INS. CO.

May 17, 1968

ARGYLL SHIPPING CO., Ltd., Plaintiff,
v.
The HANOVER INSURANCE COMPANY et al., Defendants


Metzner, District Judge.


The opinion of the court was delivered by: METZNER

METZNER, District Judge:

This is an action brought under the general admiralty jurisdiction of the United States to recover on behalf of a shipowner $24,413.97, the total amount of general average contributions allegedly owed by the defendants, seven Japanese insurance companies and the Hanover Insurance Company of New York.

 The three defendants upon whom service of process was successful in this district seek an order pursuant to Fed.R.Civ.P. 12(b) dismissing the complaint as time-barred for laches or, in the alternative, on the grounds of forum non conveniens.

 The proceeding arises from a voyage of the plaintiff's vessel S. S. Percy Jordan in November 1963 from ports in British Columbia to Japan. En route to the Far East, the vessel encountered heavy weather, causing her to run short of fuel as a result of which towage was required into Tokyo. Upon arrival in Japan, the plaintiff declared a general average to cover the additional expenses incurred and selected New York as the place of general average adjustment pursuant to provisions in its bills of lading. Before it would discharge the cargo in Japan, plaintiff required the execution of general average agreements on behalf of the cargo owners, shippers and consignees, together with the undertakings of the defendant underwriters to pay all general average contributions properly assessed after the completion of the general average adjustment.

 The general average adjustment was completed in New York on April 1, 1966 and a general average statement made out by the adjusters, calling for contributions on behalf of the cargo interests in the total amount of $24,413.97. Copies of the statement were mailed to the defendant underwriters on April 4, 1966. There followed a protracted series of communications among plaintiff, the adjuster, the underwriters and respective counsel, about which more will be said below. Suffice to note here that these discussions culminated in a letter dated August 28, 1967, in which the defendants stated their intention to resist payment of the contributions assessed. The instant suit was commenced on September 14, 1967.

 I. Laches

 In determining whether the plaintiff is guilty of laches, the admiralty court will as a rule look to an applicable state or foreign statute of limitations for analogy. The initial question presented, therefore, is the choice of the applicable statute of limitations.

 In support of their motion to dismiss, the defendants argue that the applicable statute of limitations is Article 78 of the Commercial Code of Japan, the place where the voyage terminated. This section provides:

 
"Claims arising from general average or from a collision between ships shall be extinguished by prescription upon the lapse of one year. 2. The period mentioned in the preceding paragraph shall be computed in the case of general average, from the time which its adjustment was completed."

 Since this suit was not commenced until seventeen months after completion of the adjustment, the limitations period would have run if, as defendants contend, the Japanese provision is the proper analogous statute. The plaintiff insists that the proper analogy is not to the Japanese Code, but to New York State law, more particularly the six-year statute of limitations governing contracts made or to be principally performed in New York. The basis for plaintiff's choice of law preference is its assertion that this suit is not one for general average contributions, but rather a contract action upon defendants' undertakings to pay general average contributions at the place of adjustment, New York City. If plaintiff is correct, then this suit was brought well within the six-year contracts limitations period. The determination of the proper characterization to be applied here cannot be done mechanically and without due regard for the true nature of the competing interests involved. See, e.g., Schiavone-Bonomo Corp. v. Buffalo Barge Towing Corp., 132 F.2d 766 (2d Cir. 1942).

 Undertakings are executed in an emergency in order to obtain release of the cargo. By his undertaking, the insurer merely steps into the shoes of the cargo consignee, agrees to pay his liability for general average contributions if and when it arises, and posts security for such payment. See Cia. Atlantica Pacifica, S.A. v. Humble Oil & Refining Co., 274 F. Supp. 884, 892 (D.Md.1967); Gilmore & Black, The Law of Admiralty 225 (1957). The courts have always referred to suits such as this as though they were suits directly to recover general average contributions. See Barnard v. Adams, 51 U.S. 270, 10 How. 270, 13 L. Ed. 417 (1850); Schade v. National Surety Corp., 186 F. Supp. 423 (S.D.N.Y.1960), aff'd, 288 F.2d 106 (2d Cir. 1961); The Southern Prince, 47 F. Supp. 470 (S.D.N.Y.1942); Compagnie Francaise de Navigation a Vapeur v. Bonnasse, 15 F.2d 202 (S.D.N.Y.1925). While it is true, as plaintiff contends, that none of these cases involved the limitations question presented here, they nevertheless illustrate the true nature of this kind of lawsuit. Furthermore, in Corrado Societa Anonima DiNavagazione v. L. Mundet Sons, Inc., 18 F. Supp. 37, 41 (E.D.Pa.1936), aff'd, 91 F.2d 726 (3d Cir.), cert. denied, 302 U.S. 751, 58 S. Ct. 271, 82 L. Ed. 581 (1937), it was recognized that a general average agreement and bond is merely "a substitute for the common-law lien for general average which the ship owner has upon the cargo" and that consequently, "the ship owner's rights under it should rise no higher than what they would be if he were asserting his lien." See also Cia. Atlantica Pacifica, S.A. v. Humble Oil & Refining Co., supra 274 F. Supp. at 894-896. Among these rights which should be unaffected by the undertakings is the shipowner's time in which to bring suit. The time in which to sue on a general average undertaking should be no longer than in a suit to recover general average contributions directly.

 The determination that this is a suit to recover general average contributions does not, however, lead us directly to the Japanese one-year statute as defendants suppose. It is not disputed that in general average suits the substantive law of the port of destination applies. The Southern Prince, supra ; Compagnie Francaise, supra ; Gilmore & Black, supra at 229. Nevertheless, merely because the instant cause of action is governed by Japanese substantive law does not mean that a federal admiralty court is automatically free to apply the Japanese statute of limitations.

 The proper method for the admiralty court to adopt in choosing the correct statute of limitations in an action arising under foreign substantive law is set forth in Bournias v. Atlantic Maritime Co., 220 F.2d 152 (2d Cir. 1955). The rule there propounded is that statutes of limitations are procedural and the law of the forum controls, except where they specifically limit a right created by statute. The general average contribution is not a statutory right, but rather a right created by general maritime law recognized by all principal maritime nations. Cia. Atlantica Pacifica, S.A. v. Humble Oil & Refining Co., supra 274 F. Supp. at 891; Gilmore & Black, supra at 220-221.

 Thus, under the Bournias rationale, we must look to the New York statute of limitations, including CPLR § 202, New York's "borrowing statute," as the guide to determining the question of laches. Whether the New York statute governing this suit is three years (CPLR § 214) or six years (CPLR § 213), under § 202 the shorter one-year Japanese statute would govern if the New York courts would say this action "accrued" in Japan. As in George v. Douglas Aircraft Co., 332 F.2d 73, 78 (2d Cir.), cert. denied, 379 U.S. 904, 85 S. Ct. 193, 13 L. Ed. 2d 177 (1964), I "perceive no obstacle" to predicting that the New York courts ...


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