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March 7, 1985


The opinion of the court was delivered by: CANNELLA



Plaintiff's motion for an order compelling the parties to proceed to arbitration in New York is granted. 9 U.S.C. §§ 4 ["Section 4"], 206 ["Section 206"].

 Plaintiff's and defendants' motions for a stay pending arbitration are granted. 9 U.S.C. § 3.

 Defendants' motion for an order compelling the parties to proceed to arbitration in Australia is denied. 9 U.S.C. §§ 4, 206.


 This action arises out of a contract ["Royalty Agreement"] between plaintiff and defendant Broken Hill Proprietary Co. ["BHP"], pursuant to which defendants are required to pay plaintiff royalties on hydrocarbons produced by BHP Petroleum Proprietary Ltd. ["BHP Petroleum"] in the offshore waters of Australia. Plaintiff brought this action in New York State Supreme Court. Plaintiff claims that an Australian excise tax and certain costs of production should not be deducted from the gross value of the hydrocarbons on which the royalty is calculated and requests a declaration as to computation, an accounting and damages of over $350 million. Defendants subsequently removed the action to this Court pursuant to 9 U.S.C. § 205, which permits removal to federal court of cases involving arbitration agreements covered by the Convention on the Recognition and Enforcement of Foreign Arbitrable Awards, 21 U.S.T. 2517, T.I.A.S. No. 6697, and 330 U.N.T.S. 38 ["Convention"], implemented by Chapter 2 of the Federal Arbitration Act, 9 U.S.C. § 201 et seq. ["Chapter 2"]. Jurisdiction is based upon 28 U.S.C. § 1331 and 9 U.S.C. § 203.

 Plaintiff is a Bermudian corporation, the sole function of which is to act as trustee for the royalty payments specified in the Royalty Agreement. Defendants are Australian corporations. BHP is a large multinational corporation with an agent in New York City.

 The Royalty Agreement expressly provides that all disputes arising as to "the construction meaning or effect of any clause . . . or as to the rights obligations or liabilities of the parties under any clause . . . shall be determined by arbitration." *fn1" Both parties acknowledge that the issue before the Court is governed by this arbitration clause. The only dispute concerns the location in which arbitration should take place. After this action was filed, defendant BHP Petroleum sent plaintiff a letter that purports to commence arbitration proceedings. The next day, BHP Petroleum also commenced an action against plaintiff in the Supreme Court of Victoria at Melbourne to enforce arbitration. That court has not yet taken any action.


 Defendants contend that arbitration proceedings should be held in Australia because it is the forum most closely connected to the dispute, most convenient to the parties, and the country whose law will effectively govern the dispute. Plaintiff argues that the Court has no authority to compel arbitration in Australia absent an express provision in the Agreement specifying Australia as the situs of arbitration.

 Defendants' arguments that Australia is the most convenient and appropriate forum are not without force. That country seems to be the locus of most witnesses; the principal representatives of all parties to have taken part in preliminary discussions concerning arbitration appear to be located, at least partially, in Australia; and the site of production of hydrocarbons is there. The only apparent contact that the litigation has with New York arises out of the conflicts of law clause in the Royalty Agreement, which specifies that New York law is to govern interpretation of the agreement unless "otherwise required by the law of the place where the said hydrocarbons are produced or as otherwise herein provided. *fn2"

 Defendants have not moved to dismiss under 28 U.S.C. § 1404 on grounds of forum non conveniens, however. The Court is unwilling to order such a drastic remedy sua sponte, particularly in light of the ongoing dispute concerning the Australian court's jurisdiction over plaintiff. The question before the Court, then, is whether the Court has authority to compel arbitration in Australia.

 The Federal Arbitration Act makes it clear that in domestic cases a federal district court may only compel arbitration in its own district. See 9 U.S.C. § 4; Couleur Int'l Ltd. v. Saint-Tropez West, 547 F. Supp. 176 (S.D.N.Y. 1982); Lawn v. Franklin, 328 F. Supp. 791, 793 (S.D.N.Y. 1971); see also Netherlands Curacao Co., N.V. v. Kenton Corp., 366 F. Supp. 744, 745-46 (S.D.N.Y. 1973) (same result, relying upon Section 4, although apparently an international case). But cf. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. DeCaro, 577 F. Supp. 616, 625 (W.D. Mo. 1983) (suggesting that under Section 4 the court has discretion to decide site of arbitration, but compelling parties to proceed in court's own district). Thus, if the contract specifies a locale for arbitration, the Court can merely stay the action, see Texaco, Inc. v. American Trading Transp. Co., 644 F.2d 1152, 1154 (5th Cir. 1981), or dismiss it, see Couleur Int'l, Ltd. v. Saint-Tropez West, supra.

 In an international dispute covered by Chapter 2 of the Federal Arbitration Act, the rules are broadened by the provisions of Section 206, which permits a court to "direct that arbitration be held in accordance with the agreement at any place therein provided for, whether that place is within or without the United States." 9 U.S.C. § 206. Thus, in implementing the Convention, Congress expanded the federal court authority to permit it flexibility in addressing international agreements. A letter from the Department of State, transmitting the draft legislation to the Speaker of the House, describes the nature of this new authority:


Section 106 [sic ] permits a court to direct that arbitration be held at the place provided for in the arbitration agreement. Since there may be circumstances in which it would be highly desirable to direct arbitration within the district in which the action is brought and inappropriate to direct arbitration abroad, Section 206 is permissive rather than mandatory.

 H.R. Rep. No. 1181, 91st Cong., 2d Sess., reprinted in 1970 U.S. Code Cong. & Ad. News 3601, 3604 (emphasis added). This letter suggest that when there is a locale specified in the agreement, a court may, if appropriate, direct arbitration to take place at that locale. Section 206 does not, however, expressly give or deny authority to direct arbitration to take place in a locale unspecified in the agreement between the parties, other than the district in which the court sits.

 Because Chapter 1 of the Arbitration Act is incorporated into Chapter 2 "to the extent that [Chapter 1] is not in conflict with [Chapter 2] or the Convention," 9 U.S.C. § 208, the inquiry must extend to Section 4. Section 4's requirement that a court direct arbitration in its own district conflicts with, and is therefore superseded by, Section 206 to the extent that the parties specify an arbitation site in the contract. However, neither section gives the Court discretion to select an unspecified site outside its district and Section 4 expressly precludes such discretion. Thus, on the face of the statute, Chapter 2 does not appear to contradict Section 4's requirement that arbitration be compelled in the court's district except when the contract specifies a location.

 The legislative history, also, gives no indication that Congress intended to expand Section 4 to the extent contemplated by defendants. The case law is equally sparse. In Soundview Shipping Ltd. v. Keys Development & Trading Pty. Ltd., 1984 A.M.C. 1346, 1350 (S.D.N.Y. 1983), the court was confronted with an arbitration agreement that specified Australia as the site of arbitration for all disputes about events that took place in Australia. The case was covered by Chapter 2, and the court ordered arbitration in Australia after determining that the events in dispute had taken place in Australia. Id. Defendants argue that, as in Soundview Shipping, this Court should construe the Arbitration Agreement to determine the arbitration situs intended by the parties. They suggest that an arbitration agreement, like a contract, requires the Court to face difficult issues of interpretation, which can be resolved by looking to the intent of the parties.

 Unlike the Soundview Shipping agreement, however, the Royalty Agreement makes no express provision as to locale. Moreover, no "implied" provision appears to have been intended. The evidence compels the conclusion that the parties intended to leave the issue open. The only direct evidence that has been submitted by defendants is an affidavit from Donald J. Nairn, the former Chief Legal Officer of BHP and a participant in the drafting of the Agreement. Mr. Nairn states that "it was not the parties' intention to suggest that the place of arbitration would be New York. Rather, the place of arbitration was left by the agreement for the parties or the arbitrator or arbitrators to decide or to be determined if necessary by a court applying appropriate legal standards." *fn3" Additionally, plaintiff has submitted an affidavit of Paul N. Temple, who apparently had some involvement with the original draft of the Agreement. Mr. Temple agrees that neither New York nor Australia was definitively settled as an arbitration site. *fn4" Thus the direct evidence points to the conclusion that the parties left the site to be determined at the time of arbitration.

 Circumstantial evidence suggests the same conclusion. Defendants point to the choice of law provision in the Agreement and argue that because it permits the contract to be governed by either New York or the "law of the place where the said hydrocarbons are produced," the parties similarly intended the place of arbitration to be either New York or Australia, depending upon where the events at issue took place. Such an inference is far too speculative for the Court to rely upon. What the choice of law clause indicates is that the parties came to an agreement concerning rules for determining choice of law, but did not do so with respect to the place of arbitration.

 The Court finds, therefore, that it only has discretion to compel arbitration in its own district or in a place specified in the contract. In this case, no place was specified explicitly or implicitly. As a result, the court can only order the parties to proceed to arbitration in this district.

 Defendants next argue that the Court should merely stay the action pending termination of the arbitration proceedings and litigation in Australia. The Court could start the action and not compel arbitration, particularly in light of the fact that all parties are now in agreement that the dispute must be sent to arbitration. See Couleur Int'l Ltd. v. Saint-Tropez West, supra, 547 F. Supp. at 178 (because contract designates California as place for arbitration, district court in New York may stay action, but may not compel arbitration). In this case, however, the place of arbitration is not designated in the contract and it is readily apparent that the parties are not in agreement as to the place to proceed. Thus, to stay the action would in all likelihood merely postpone the Court's resolution of the dispute.

 Accordingly, the Court grants plaintiff's motion to compel arbitration in New York and grants both parties' motions to stay the action pending the outcome of that arbitration. In light of the fact that Australia appears to be the most logical situs for arbitration, however, the Court will entertain a motion to reconsider its decision to compel arbitration in New York if the arbitrator or arbitrators, once selected, determine that the proceedings would best be conducted in Australia. In the meantime, the complaint is dismissed without prejudice with leave to reopen, if necessary, for reconsideration of the Court's order compelling arbitration in New York or to enforce arbitration.


 Plaintiff's motion for an order compelling arbitration in New York is granted. 9 U.S.C. §§ 4, 206.

 Plaintiff's and defendants' motions for a stay pending arbitration are granted. 9 U.S.C. § 3.

 Defendants' motion for an order compelling arbitration in Australia is denied. 9 U.S.C. §§ 4, 206.

 The Clerk of the Court is directed to prepare and enter Judgment dismissing the complaint.


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