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February 22, 1982


The opinion of the court was delivered by: LUMBARD

In this case, two lawyers told the court that they had reached an agreement regarding an attachment proceeding, each one assuming that the other shared his understanding of the terms read into the record. This action for damages for breach of that alleged settlement agreement well illustrates the hazards of such assumptions.

On April 14, 1980, the plaintiff Mefer S.A.R.L. of Paris, France ("Mefer") sued defendant Naviagro Maritime Corp. ("Naviagro") to recover damages for breach of a charterparty. To secure that claim, it attached the defendant's vessel, the M/V Kostas Melas, while it was loading grain at Albany. Naviagro counterclaimed and moved to vacate the attachment. This action, brought as Naviagro's fifth counterclaim, alleges that Mefer breached an agreement reached in court to release the Kostas Melas from attachment in return for the deposit of stipulated security. By stipulation, all the other claims and counterclaims went to arbitration in London. Jurisdiction lies under 28 U.S.C. § 1333. The court finds that Mefer is bound by Naviagro's interpretation of the agreement for the release of the vessel and holds Mefer liable for damages for the breach of that agreement.

 At a three day bench trial commencing on November 10, 1981, the court heard testimony from five witnesses. For Mefer appeared its manager, Nemr Diab, and its attorney during the settlement negotiations, John Reilly. Naviagro presented Eduardo Gonzalez, its secretary, George Vatistas, the manager of the Kostas Melas at the times in question, and Charles Trowbridge, its attorney for the settlement talks.

 Mefer is a French corporation with its principal place of business in Paris, France. Its business is primarily brokerage in steel, metal, and fertilizers. Mefer frequently charters ocean-going vessels for transportation of such cargoes.

 Diab has been the manager and a shareholder of Mefer since its organization in 1978, when he moved to Paris. Until then, he worked for his father in Lebanon, where he was involved in chartering vessels for the family's scrap and fertilizer export business. A Lebanese citizen, Diab speaks ten languages.

 Naviagro, a Panamanian corporation, is the owner of the Kostas Melas. Gonzalez is a shareholder of Naviagro as well as its secretary. He is a citizen of Argentina and, at the times in question, was a resident of Washington, D.C. Gonzalez has a degree from the University of Argentina, and studied for two years at George Washington University.

 The Navlos Maritime Co. managed the Kostas Melas under a management contract with Naviagro. Vatistas was an officer of Navlos Maritime Co. and was responsible for the day to day operations of the vessel. A native of Greece, Vatistas lived in New York from 1971 to 1981, when he returned to Greece to start his own shipping business. He presently has no connection with Naviagro or the Kostas Melas.

 On September 19, 1979, Mefer chartered the Kostas Melas from Naviagro for the carriage of scrap from Buffalo to Alexandria, Egypt, with a second voyage at the charterer's option. The charter-party called for the charterer to pay the owner demurrage at the rate of $ 5,750.00 per day. At the conclusion of the first voyage, Naviagro claimed approximately $ 139,000 demurrage from Mefer, and Mefer claimed $ 209,000 demurrage from its receivers in Alexandria.

 Although both parties agreed that Mefer was entitled to the demurrage from the receivers, Mefer was unable to collect directly from the receivers due to the quirks of Egyptian law, which requires that all money paid for expenses for the vessel and all funds received on behalf of the vessel be paid to one of the quasi-governmental bodies that act as official agents for vessels. Here, the charterer had nominated an organization called Abu Simbel as the official agent for the vessel and could only collect the demurrage from this agent.

 However, as far as Abu Simbel was concerned, the demurrage belonged to the owner of the vessel, not the charterer. When the vessel completed discharging its cargo in Alexandria in mid-March, 1980, Mefer tried to collect from Abu Simbel the $ 209,000 demurrage that the receivers owed it, but Abu Simbel refused to pay until it received notice from the vessel's owner that the owner had no claim on the money.

 At that point, Mefer's representative in Alexandria, George Tannous, asked Vatistas to supply a letter to Abu Simbel stating that the owner had received the demurrage owed it and had no further claims. Vatistas refused to supply such a letter until Mefer paid to Naviagro the $ 139,000 demurrage that Naviagro claimed under the charterparty. On March 19, 1980, Naviagro notified Mefer by telex that it had given its bank a letter instructing Abu Simbel to release the demurrage money to Mefer, and added that this letter would be released to Mefer upon the full payment of the $ 139,000 owed Naviagro under the charterparty. Mefer did not accept this offer.

 Rather, Mefer responded, on March 25, 1980, by posting a letter of credit to Naviagro's account for $ 139,252.95 in the New England Merchants National Bank, payable upon the presentation of two documents: (1) a telex sent to Abu Simbel by Naviagro stating that the owner had received the full value of the demurrage in Alexandria and irrevocably instructing Abu Simbel to pay the demurrage to Chemimetal, the charterer's affiliate in Paris, and (2) a written or telex confirmation from Abu Simbel to Mefer that the moneys would be paid without deduction.

 Both Vatistas and Gonzalez told Mefer that the suggested conditions on the letter of credit were unacceptable, in particular the requirement that Naviagro supply a confirmation from Abu Simbel. Because he believed such a confirmation "would be, if not impossible, very, very hard to get(,)" Vatistas advised the owner not to agree to supply it. Gonzalez testified that he told the charterer that he would provide a telex to Abu Simbel instructing it to pay the demurrage to Mefer, but was unwilling to condition the release of the Kostas Melas on a confirmation from Abu Simbel that it would pay the $ 209,000 demurrage to Mefer without deduction. As Abu Simbel was an independent organization with which Naviagro had no contractual relations and over which it had no control, Gonzalez refused to promise to supply such a confirmation.

 Diab testified that he wanted to receive the confirmation from Abu Simbel before releasing the $ 139,000 to Naviagro because he feared that Abu Simbel would deduct funds from the demurrage to pay for expenses incurred by the ship for which the owners were accountable. As official agent for the Kostas Melas, Abu Simbel could "guarantee on behalf of the owner to advance money to the master, to advance money to the tugboat, to advance money for any claims that they have in Egypt," according to Diab. It could then deduct the funds advanced against the demurrage, which, in Abu Simbel's eyes, belonged to the owner.

 In the midst of these disputes over the demurrage, Naviagro refused to perform the second voyage called for under the charterparty. Mefer claimed that this refusal constituted a breach of the charterparty and demanded arbitration pursuant to the charterparty. On April 17, 1980, Mefer attached the Kostas Melas, which was then loading grain in Albany, to secure any recovery to be awarded by the London arbitrators on its damage claim of $ 500,000 (later amended to $ 600,000).

 On the next day, April 18, Naviagro retained Charles Trowbridge of the firm of Walker & Corsa to represent it in connection with the attachment of the Kostas Melas. After meeting with Gonzalez, Trowbridge contacted the counsel for Mefer, John Reilly of the firm of Haight, Gardner, Poor & Havens, to attempt to negotiate an agreement regarding the security and countersecurity that each side would post so that the vessel could be released without court intervention. As Reilly and Trowbridge were unable to agree on terms for the release of the vessel, Trowbridge arranged a hearing on a motion to vacate the attachment for the following Monday afternoon, April 21, at 2:00 p.m., in Syracuse before Judge Munson of the Northern District of New York.


 At the hearing on April 21, Judge Munson told the parties that he was tied up with a trial and that they should make further efforts to settle their dispute. The parties and their lawyers then repaired to the corridors of the courthouse, where, for the rest of the afternoon and again the next morning, they negotiated informally. Participating at various times were Diab, representing Mefer, Gonzalez and Vatistas, representing Naviagro, and Trowbridge and Reilly.

 The discussions on the afternoon of April 21 proved fruitless. The next morning, prior to the hearing on the motion to vacate the attachment, Trowbridge suggested to Reilly that Naviagro put up $ 300,000 security and that Mefer put up $ 200,000 countersecurity. Because Naviagro could not afford to bond the whole amount, Trowbridge proposed the following arrangement: Mefer would remove the $ 139,000 letter of credit then posted in the New England Merchants National Bank to the owner's account, but which the owner was unable to draw upon, and place it in an escrow account in London where it would be payable to the prevailing party in the arbitration proceeding. Each party could therefore count this $ 139,000 against the security or countersecurity they were required to post. In addition, Mefer would put a $ 61,000 letter of credit and Naviagro would put up a $ 161,000 letter of credit.

 After conferring with Diab, Reilly came back to Trowbridge and told him that this proposal was acceptable but Diab had two additional conditions. One was that Naviagro agree to an expeditious arbitration in London. The second condition, according to Trowbridge, was that "the defendant would have to give the plaintiff a letter required by the plaintiff to release demurrage moneys in Egypt that were owed by the receivers of the cargo."

 Trowbridge testified that he relayed this counteroffer to Gonzalez and Vatistas who said they would agree to expedite the arbitration, but were concerned about the requirement for a "letter." They explained to Trowbridge that Diab had been seeking not only a letter from them to Abu Simbel instructing Abu Simbel to release the demurrage to Chemimetal but also a confirmation from Abu Simbel that the money would be paid without deductions. They told Trowbridge that they couldn't agree to condition the release of the ship on a communication from Abu Simbel, over whom they had no control. Trowbridge then told them to go over to Diab and work it out with him.

 Next, Trowbridge recalled, Vatistas and Gonzalez "went over and spoke to Mr. Diab." Trowbridge did not participate in that discussion. Following their talk with Diab, Vatistas and Gonzalez returned to Trowbridge and told him, "Okay, it is all right. You can go ahead." Trowbridge did not recall whether they told him specifically that Diab had dropped the requirement of a confirmation from Abu Simbel; rather, "They told me that they had succeeded in their mission of resolving that issue." Trowbridge understood from what Vatistas and Gonzalez told him that Diab was no longer insisting on the ...

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