The opinion of the court was delivered by: HAIGHT
MEMORANDUM OPINION AND ORDER
This petition to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1, 4, draws the parties into a second round of litigation preliminary to the resolution of commercial disputes by arbitrators. Arbitration agreements are intended to avoid litigation, not breed it. That salutary purpose is not always achieved.
The present petition is brought by Hidrocarburos y Derivados, C.A. ("Hideca") to compel alleged beneficial and corporate owners of vessels to participate in, and be bound by, a pending arbitration arising out of a maritime contract of affreightment ("COA"). To place the petition in context, the contract, disputes and prior litigation must be summarized.
The COA, dated at New York, N.Y. on January 21, 1971, called for the ocean carriage of approximately 600,000 tons of crude oil per year for three years. The designated parties were Nereus Shipping, S.A. "as agents for owners" of vessels to be nominated, and Hideca as "charterer". Hideca was obligated to furnish the cargoes which the vessels would carry, at freight rates specified in the COA.
By addendum to the COA, Hideca's performance was guaranteed by Compania Espanola de Petroleos, S.A. ("Cepsa").
The first vessel to perform under the COA, M/T ASIATIC, was nominated on October 26, 1971. In the words of the Second Circuit when the case reached that Court: "All went well until the Arab oil embargo in October, 1973, when the market rate for oil cargoes fell precipitously."
Nereus claims that by July 24, 1974, Hideca was in default in the payment of freight, demurrage and other charges under the COA totalling $1,236,845.67. During that month, amid barrages of charges and counter-charges, performance under the COA ceased, after seventeen liftings.
Nereus demanded arbitration with Hideca to recover the $1,236,845.67 allegedly owing in respect of voyages that had been performed under the COA. Nereus also demanded arbitration with Cepsa on its guaranty of Hideca's performance of the COA, this on the theory that Hideca had wrongfully ceased that performance. Hideca demanded arbitration with Nereus, claiming that Nereus had breached "the entire charter party"; had wrongfully withheld a vessel from Hideca; had improperly obtained an attachment order against Hideca; and had wrongfully invoked the Cepsa guaranty. Damages were claimed in an unstated amount.
After preliminary legal skirmishings which need not be recounted in detail,
this Court (Stewart, D.J.) held that Cepsa was bound as Hideca's guarantor to arbitrate Nereus' claim; and ordered that the Nereus/Hideca and Nereus/Cepsa arbitrations be consolidated, before a panel of five arbitrators.
On appeal the Second Circuit affirmed, although it modified Judge Stewart's direction as to the selection of the five arbitrators. Under the Court of Appeals' mandate, each of the three parties appointed an arbitrator, who were then to choose two additional arbitrators by unanimous action. Judge Medina concluded his opinion for the Court:
"We believe that it is important that each party have its own representative, a provision which also appears in the contract, and thus we agree with Judge Stewart's selection of a five-man panel. We feel this will best accommodate the newly ordered consolidation and the original contract provisions.
"It is our hope that the parties will now get down to business." 527 F.2d at 975-976.
We turn to the business which next engaged the parties' energies.
Following Nereus's unsuccessful petition for certiorari, a five-man panel of arbitrators was selected in accordance with the Court of Appeals' procedure. Four arbitrators are resident in New York; Cepsa's arbitrator resides in Geneva, Switzerland. Efforts were made to schedule hearings during January-March of this year, but the arbitrators and counsel could not agree on a mutually convenient date. Before hearings commenced, Hideca filed the present petition.
Hideca's petition was prompted by an exchange of letters between counsel. On November 15, 1976, during efforts to schedule the first hearings, counsel for Hideca wrote to counsel for Nereus as follows:
"In connection with the forthcoming hearings of the above-captioned arbitration matter, we wish to clarify certain matters relating to the parties who will be represented and be bound by the award ultimately made by the arbitration panel. It is our understanding that, in your capacity as counsel for Nereus Shipping, S.A., as Agent for Owners under the charter party dated January 21, 1971 with Hidrocarburos y Derivados, C.A. as Charterer, you will represent and participate in the arbitration proceedings on behalf of the following principals of Nereus Shipping, S.A."
The letter then lists an individual, Costas M. Lemos; C. M. Lemos & Co., Ltd.; Triton Shipping, Inc.; and 35 additional corporations. The letter concludes:
"If you will not be representing any of these persons in the arbitration and/or you have any objection to the inclusion of any of those persons or parties in the proceedings, please notify the undersigned on or before November 22, 1976 so that we may take appropriate and timely legal action to compel arbitration with said persons."
That letter received the following brisk response from counsel for Nereus, under date of November 22:
"We acknowledge receipt of your letter dated November 15, 1976. The only parties which will be represented and participate in the arbitration and be bound by such arbitration award will be the three parties listed in the above caption, which were the only parties to the Contract of Affreightment." (emphasis added).
Hideca's petition, filed on February 8, 1977, seeks to compel the individual and corporations referred to in counsel's letter of November 15, 1976 (Ex.B) to participate in, and be bound by, the consolidated arbitration.
Hideca's position, in essence, is that Lemos and the additional corporate respondents are the beneficial or record owners of the vessels for whom Nereus executed the COA "as Agents for owners"; and that, to avoid inconsistency of results and achieve finality, they should be made parties to the arbitration. Specifically, the theories underlying the petition are that Nereus acted as agent for the "Lemos fleet" of tankers, the vessels which were to perform the COA; that Costas M. Lemos is the "beneficial owner" and dominating influence over the corporate owners; that C. M. Lemos & Co., Ltd. and Triton Shipping, Inc. in effect acted as "owners" in respect of the vessels under the COA; and that the other corporate respondents are the registered owners of the vessels comprising the "Lemos fleet".
Hideca served its petition on Triton in New York, on the theory that this accomplished service over all additional respondents. Counsel for Nereus dispute this, and have filed papers in opposition on behalf of Nereus and Triton only. Without abandoning its contention that service over the other respondents had been obtained, Hideca undertook service of process upon them in England. The Lemos companies share offices at 92 Fenchurch Street in London. Hideca retained a solicitor of the Supreme Court of England and Wales to make personal service upon Lemos and all additional corporate respondents at that address. This was accomplished on March 16, 1977.
Hideca followed sanctioned procedures of service outside the state.
The original return date on Hideca's notice of motion to compel arbitration, which accompanied the petition, was February 18, 1977. In accordance with this Court's response to an ex parte inquiry, counsel for Hideca, by letter dated March 10, 1977, wrote to the Lemos respondents (individual and corporate) in London, advising that the return date of February 18 was no longer controlling; specifying March 28, 1977 as the date by which answering papers should be served; and advising the additional respondents that a failure to make timely response to the petition might result in default. Copies of this letter were sent to New York counsel for Nereus and Triton, and for Cepsa.
The additional respondents, individual and corporate, who were served in England in the manner described have made no response to the petition; nor have they contested the Court's jurisdiction in any manner. It is appropriate, in these circumstances, to note the default of these parties, which I hereby do.
The consequences of that default lie, in large measure, within the Court's discretion. In the case at bar, these defendants will not be heard to contest the Court's jurisdiction in personam. In addition, certain factual allegations in the petition will be considered binding upon these respondents, no effort having been made to controvert the allegations. However, Nereus and Triton filed timely papers in opposition to the petition, which attack its underlying merits. Those arguments will be considered as put forward on behalf of all respondents, and the Court's resolution of the questions posed by the present record will inure to the benefit or burden of all parties, as the case may be.
Against this background, we turn to the merits of the petition.
The respondents' first objection to the petition is that it is barred by laches. Respondents contend that, in the two and one-half year period between Hideca's demand for arbitration, in August 1974, and the present petition, "Hideca has never even suggested, much less contended, that the parties to the arbitration should be other than Nereus, Hideca and Cepsa."
Respondents point to the declaration of the Court of Appeals "that it is important that each party have its own representative",
and argue that the inclusion of thirty-eight additional parties in the arbitration, at this late date and without "each party [having] its own representative" on the arbitration panel "would be grossly prejudicial to such respondents."
There is no substance to respondents' argument based on the doctrine of laches.Laches is composed of two elements: unreasonable delay by a party, resulting in prejudice to its adversary. See, generally, Larios v. Victory Carriers, Inc., 316 F.2d 63 (2d Cir. 1963).
While there has been considerable delay since the disputes arose, most of the elapsed time was devoted to litigation of whether or not there should be a consolidated arbitration.It appears from the motion papers that Hideca proposed consolidation and Nereus resisted it, which Nereus had every right to do; but the resulting litigation and attendant delay, terminating only when the Supreme Court denied certiorari on June 14, 1976, can hardly be ascribed solely to Hideca.
I further find that Hideca raised the question of these additional respondents' participation in the arbitration in a timely manner. It was not until the Supreme Court denied certiorari, in June of 1976, that the parties concerned in the COA knew that a five-man arbitration panel would resolve disputes. By November, 1976, it appears that the five-man panel had been selected; the precise dates of appointment do not appear in the papers; the delay is not unreasonable, in view of the demands upon the time of distinguished arbitrators; and in any event there is nothing in the record to indicate that delay in completing the panel should be ascribed to any particular party. As we have seen, on November 15, 1976 counsel for Hideca asked counsel for Nereus, which had signed the COA as "Agent for owners", to confirm that at the arbitration hearings they would be representing not only Nereus, the agent, but its principals. Counsel for Nereus responded in the negative on November 22, and the present petition was filed less than two months later, before any arbitration hearings had been held.
Respondents stress that at no time during the prior litigation did Hideca argue that Nereus's principals should be made parties to the arbitration. This factor is also stressed in connection with respondents' argument, based upon the doctrine of the "law of the case".
I find no merit to this contention. During the prior litigation, the parties were focusing primarily on the question of consolidation vel non, and the composition of the panel if consolidation was ordered. But Hideca was at all times aware, as indeed Nereus must have been aware, that Nereus had signed the COA as "Agents for owners". The letter of Hideca's counsel of November 15, 1976 may fairly be regarded as an inquiry, on their part, into the authority of Nereus to claim and defend in the arbitration on behalf of their principals, the vessel owners, so that the owners would be bound by the result. That inquiry was entirely legitimate,
and in the circumstances I hold that it was timely made. In the light of the response of counsel for Nereus, explicitly raising the threat that the vessel owners would contend they were not bound, Hideca was bound to take some action, and it proceeded with reasonable dispatch.
I find, in sum, that Hideca was not guilty of unreasonable delay in petitioning for the present relief.
On the question of prejudice to Nereus, none is shown.No arbitration hearings had been held at the time of the petition, so the inclusion of additional parties, if directed, will do no violence to proceedings which were under way. If respondents' contention is that the addition of these parties would require the appointment of additional arbitrators, the short answer is that it would not. If the petition is granted, the arbitration panel will remain precisely as it is, with the arbitrator previously appointed on behalf of Nereus also acting as the arbitrator for the additional parties. Nothing in the Court of Appeals' prior decision requires a different result.
In these circumstances, I reject the defense based upon laches.
Much that has been said in respect of laches applies to respondents' defense based upon the ...