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Ministry of Supply v. Universe Tankships Inc.

decided: May 23, 1983.


Appeal by an intervenor in a suit in admirality for cargo damage in the District Court for the Southern District of New York from an order of Judge Owen dismissing its cross-claim against plaintiffs, agencies of the Government of Egypt, on the ground of sovereign immunity.

Friendly, Kearse and Winter, Circuit Judges.

Author: Friendly

FRIENDLY, Circuit Judge:

This appeal is from an order of Judge Owen in the District Court for the Southern District of New York dismissing, on grounds of sovereign immunity, the cross-claim of appellant Babanaft International Co., S.A. (Babanaft), which had been granted permissive intervention pursuant to F.R.Civ.P. 24(b), against the Ministry of Supply, Cairo, and General Authority for Supply Commodities, Cairo, (collectively referred to as the Ministry or the plaintiffs), in a suit for cargo damage brought by the Ministry against the ship M/S Ulysses, Universe Tankships, Inc., and Claybridge Shipping Co., S.A. Concededly the plaintiffs are an "agency or instrumentality" of Egypt and thus a "foreign state" within § 4(a), 28 U.S.C. § 1603(a) and (b) of the Foreign Sovereign Immunities Act of 1976 (FSIA or Act). We have characterized FSIA as "a new and vaguely-worded statute" whose draftsmen deliberately left decision of many difficult questions to the federal courts, Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300, 302-03 (2nd Cir. 1981), cert. denied, 454 U.S. 1148, 71 L. Ed. 2d 301, 102 S. Ct. 1012 (1982). While the opinion in Texas Trading and the three other opinions handed down with it, Gemini Shipping, Inc. v. Foreign Trade Org. for Chemicals & Foodstuffs, 647 F.2d 317 (2 Cir. 1981); Verlinden B.V. v. Central Bank of Nigeria, 647 F.2d 320 (2 Cir. 1981), cert. granted, 454 U.S. 1140, 102 S. Ct. 997, 71 L. Ed. 2d 291 (1982); Reale International, Inc. v. Federal Republic of Nigeria, 647 F.2d 330 (2 Cir. 1981), settled many such questions for this circuit, this case presents an issue with respect to the interpretation of FSIA not directly decided there.

The Ministry is engaged, inter alia, in carrying out in the United States a program for the purchase of grain and its transportation to Egypt under P.L. 480, 7 U.S.C. § 1691 et seq., similar to that carried out by an agency of the government of Syria as described in Gemini Shipping, supra, 647 F.2d at 318-20. Defendant Universe Tankships, Inc. (Universe), a Liberian corporation with an office in New York, is the owner of the Liberian flag motorship M/S Ulysses.

On March 14, 1979, Universe had entered into a time charter of the Ulysses to appellant Babanaft, a Panamanian corporation headquartered in Greece, for a period of 12 months from April 1, 1979, with an option to Babanaft to extend this for an additional nine months, at a fixed rate of $2.78 per deadweight ton per month to be paid to Universe at its New York office, plus an additional $600 per month to cover specified expenses, the cost of fuel, port charges, and many other items. Universe undertook to make and maintain the Ulysses tight, staunch, strong, in good order and condition and in every way fit for service. Babanaft, on April 4, 1979, entered into a charter with defendant Claybridge Shipping Co., S.A., another Panamanian corporation headquartered in Greece, for a voyage from Florida to a Mediterranean port or ports. The Ministry's complaint, filed July 11, 1980, alleged that Claybridge had then entered into a charter with the Ministry whereby Claybridge had agreed to transport a cargo of wheat from a port in the Gulf of Mexico to Alexandria or Port Said, Egypt; that pursuant to this some 48,000 metric tons of wheat were loaded on board the Ulysses on or about April 22, 1979, in good order and condition and bills of lading were issued to the Ministry therefor; but that, when the vessel arrived at Port Said, the cargo was delivered "short or otherwise damaged" to the extent of $2,200,000. Plaintiffs demanded arbitration.*fn1

Some six months later, on January 5, 1981, Babanaft moved, under F.R.Civ.P. 24(a) and (b), for leave to intervene as a plaintiff against Universe and the Ulysses. The complaint annexed to the motion alleged, in addition to the facts heretofore stated, that after the Ulysses had reached Port Said and had commenced discharge of her cargo, it was discovered that heavy metal rust scale identified as originating from the tops and sides of the cargo compartments of the Ulysses had become intermixed with the grain; that this caused the Egyptian consignees and port officials to halt the discharge until September 23, 1979, so that discharge was not completed until October 17, 1979, when the balance of the cargo was accepted by the Egyptian consignee; and that during the prolonged period of discharge Babanaft paid charter hire and incurred the cost of bunker fuel oil and related items and lost the use of the ship under the time charter. Babanaft estimated damages in the amount of $2,500,000; it also demanded arbitration.

After opposing affidavits had been filed on behalf of Universe, the Ulysses, and the plaintiffs, largely on the ground that Babanaft was already secured by bond on any claim that it had against Universe and the ship, counsel for Babanaft filed a reply affidavit. This alleged that it had now become apparent, as previously it had not been, that defendants did not concede responsibility for the condition of the Ulysses and the consequences alleged by the plaintiffs. Babanaft now anticipated that the defendant ship owner would assert a counterclaim to the effect that plaintiffs could have arranged to discharge the cargo without 81 days of delay (from July 5 to September 23, 1979) and thereby to minimize the loss. Babanaft therefore annexed to its reply affidavit an amended complaint which included, in addition to the claims against Universe and the Ulysses, a cross-claim against plaintiffs alleging that they had wrongfully halted the discharge at Port Said and thus wrongfully denied Babanaft its rightful use of the vessel under Babanaft's time charter with Universe. Babanaft now sought intervention both as a plaintiff against Universe and the Ulysses and as a cross-claimant against the plaintiffs. After plaintiffs submitted a rebuttal affidavit which raised, inter alia, a claim of sovereign immunity, the judge made an endorsement dated April 1, 1981, on Babanaft's motion for intervention:

Permissive intervention is granted. The action is stayed as to intervenor vis-a-vis Universe Tankships, Inc., and the M/S Ulysses pending arbitration. Plaintiffs shall raise by motion all matters presently asserted going to dismissal or other limitation as a matter of law.

Plaintiffs accepted the invitation by moving for an order dismissing the cross-claim upon the grounds of:

(a) lack of subject matter jurisdiction, pursuant to F.R.Civ.P. 12(b)(1), 28 U.S.C. § 1330(a), and 28 U.S.C. § 1604 (sovereign immunity) [and]

(b) failure to state a claim upon which relief can be granted, pursuant to F.R.Civ.P. 12(b)(6).

The Egyptian Ambassador submitted a letter invoking sovereign immunity on behalf of the plaintiffs with respect to Babanaft's cross-claim.

In an opinion and order filed December 14, 1982, the district judge recognized that "efficiency obviously would be served by trying all the issues arising out of this general nucleus of facts in one action rather than requiring Babanaft to bring an action in the courts of Egypt", as a subsequent development has made even plainer, see fn. 4. He went on to state, however, "sovereign immunity is a bar here absent Babanaft's assertion of a valid exception." The judge first considered the ...

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