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COMPANIA ESPANOLA DE PETROLEOS, S.A. v. NEREUS SHI

December 18, 1974

COMPANIA ESPANOLA DE PETROLEOS, S.A., Plaintiff,
v.
NEREUS SHIPPING, S.A., Defendant



The opinion of the court was delivered by: STEWART

MEMORANDUM

 STEWART, District Judge.

 Plaintiff Compania Espanola de Petroleos, S. A. ("Cepsa") brings this action for declaratory and injunctive relief against defendant Nereus Shipping, S.A. ("Nereus"). Plaintiff seeks an order from this court that it is not legally obligated to proceed to arbitration as demanded by defendant in a dispute arising out of a contract of affreightment ("contract") between the defendant and charterer Hidrocarburos Y Derivados, C.A. ("Hideca").

 Under the contract, Hideca agreed to ship 600,000 tons of crude oil and/or dirty petroleum products, 10 percent more or less at defendant's option, for a three-year period commencing December 24, 1971. While no dispute arose during the first two years of the contract, defendant alleges that Hideca defaulted in its performance of the contract during the third year. That dispute is the subject of separate arbitration proceedings by Hideca against defendant Nereus; there is apparently no contention that these arbitration proceedings were improperly brought and, in any event, they are not presently before us.

 What is before us is the issue of whether plaintiff Cepsa is obligated to arbitrate disputes arising from a Letter of Guaranty -- Addendum 2 to the contract -- signed by plaintiff Cepsa as a guarantor of Hideca. Under the guaranty, Cepsa agreed that "should Hideca default in payment or performance of its obligations under the Charter Party [contract of affreightment], we will perform the balance of the contract and assume the rights and obligations of Hideca on the same terms and conditions as contained in the Charter Party."

 The addendum continues:

 
Provided, however, that Compania Espanola de Petroleos, S.A. shall not be responsible for any payments or damages as a result of HIDECA's default, prior to receiving written notice from the Owner [Nereus] advising us that HIDECA is in default, and calling upon us to assume performance of the Charter Party.

 Believing that Hideca had defaulted in its performance of the contract of affreightment, Nereus notified Cepsa on July 24, 1974 that Hideca was in default and called upon Cepsa to perform the remainder of Hideca's obligations under the contract. There then followed an exchange of communications between plaintiff and defendant during which time Nereus contended that Cepsa was not fulfilling its obligations under the guaranty, and Cepsa countered that Nereus had improperly invoked the guaranty since Hideca was not actually in default.

 Following this exchange, defendant Nereus served plaintiff with a demand for arbitration on September 3, 1974, on the theory that Cepsa had agreed to be bound by the arbitration clause in the contract when it signed the letter of guaranty. The arbitration clause provides in relevant part that "any and all differences and disputes of whatsoever nature arising out of this Charter shall be put to arbitration in the City of New York. . . ." It further provides that:

 
If the other party shall not, by notice served upon an officer of the first moving party within twenty days of the service of such first notice, appoint its arbitrator to arbitrate the dispute or differences specified, then the first moving party shall have the right without further notice to appoint a second arbitrator, who shall be a disinterested person, with precisely the same force and effect as if said second arbitrator has been appointed by the other party.

 After Nereus named an initial arbitrator and Cepsa failed to name its own arbitrator, Nereus named a second arbitrator pursuant to the above clause. Those two arbitrators then appointed a third arbitrator in accordance with the arbitration clause of the contract.

 The arbitration proceedings were scheduled to begin November 21, 1974. On that date, plaintiff Cepsa filed this action and successfully sought a temporary restraining order from this court enjoining the commencement of the scheduled arbitration proceedings.

 Plaintiff now seeks an injunction to enjoin the defendant and the arbitrators from commencing the arbitration proceedings. Plaintiff also seeks a declaratory judgment that it is not subject to the arbitration clause in the contract between Nereus and Hideca; that, alternatively, such arbitration may proceed only after a finding that Hideca has actually defaulted in its contractual obligations with Nereus; and that the arbitration panel was improperly constituted, ...


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