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OIL BASINS LTD. v. BROKEN HILL PROPRIETARY CO.

March 7, 1985

OIL BASINS LIMITED, Plaintiff, against THE BROKEN HILL PROPRIETARY COMPANY LIMITED and BHP PETROLEUM PTY., LTD., Defendants


The opinion of the court was delivered by: CANNELLA

CANNELLA, D.J.:

MEMORANDUM AND ORDER

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.

 FACTS

 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.

 DISCUSSION

 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 ...


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