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Metallgesellschaft A.G. v. Constante

May 19, 1986


Appeal from an order and judgment of the United States District Court for the Eastern District of New York (Bramwell, J.) confirming an arbitration award for unpaid freight in the sum of $794,684.33 plus interest. Affirmed.

Author: Van Graafeiland

Before: FEINBERG, Chief Judge, VAN GRAAFEILAND and MESKILL, Circuit Judges.


Metallgesellschaft A.G. appeals from an order and judgment of the United States District Court for the Eastern District of New York (Bramwell, J.). The order confirmed an arbitration award in favor of appellee Yacimientos Petroliferos Fiscales in the amount of $794,684.33, plus interest, for maritime freight charges admittedly due and owing; the judgment was for the amount of the award. Appellant's principal contention on appeal is that the district court should not have confirmed the award because it did not resolve all the issues submitted to the arbitrators. For reasons that follow, we affirm.

On May 19, 1983, Metallgesellschaft and Yacimientos, the registered owner of the tanker CAPITAN CONSTANTE, entered into a charter party on the ASBATANKVOY form for the carriage by the vessel of 53,000 metric tons of fuel oil, plus or minus ten percent, from Argentine ports to New York. The Freight Clause in the charter party reads:

FREIGHT. Freight shall be at the rate stipulated in Part I and shall be computed on the intake quantity (except deadfreight as per Clause 3) as shown on the Inspector's Certificate of Inspection. Payment of freight shall be made by Charterer without discount upon delivery of cargo at destination, less any disbursements or advances made to the Master or Owner's agents at ports of loading and/or discharge and cost of insurance thereon. No deduction of freight shall be made for water and/or sediment contained in the cargo. The services of the Petroleum Inspector shall be arranged and paid for by the Charterer who shall furnish the Owner with a copy of the Inspector's Certificate.

Although it is undisputed that the CAPITAN CONSTANTE loaded 50,687.87 tons of fuel oil in Argentina and, upon completion of the voyage and delivery on July 15, 1983, invoiced Metallgesellschaft for freight based on this intake quantity, the invoice never has been paid. Instead, on the day before unloading was completed, Metallgesellschaft instituted an action in the Eastern District seeking damages for alleged short delivery and fuel contamination.

On December 22, 1983 Yacimientos served its answer, which contained a counterclaim for freight earned, demurrage, and dead freight, and reserved Yacimientos' right to arbitration in accordance with the provisions of the charter party. In July 1984 Yacimientos demanded arbitration. A panel was instituted in September, and a hearing was held on January 28, 1985. The panel, with one member dissenting, found that "there was no dispute as to the amount of freight which Yacimientos had earned and that, by clear and unambiguous language, the parties expressly dealt with the payment of freight in a special manner." Finding no reason to depart from the parties' undertaking, the arbitrators made a partial final award in Yacimientos' favor for the freight admittedly due and owing. The district court affirmed, holding that the demand for freight was a separate, independent claim, not subject to any offset, and, being wholly independent of other issues, could be finally disposed of separately. A brief survey of established maritime law convinces us that the district court was correct.

It is a rule of ancient vintage that, where freight is payable on delivery, it should be paid concurrently with the delivery of the goods. Carver, Carriage of Goods by Sea, 10th ed. 767. Moreover, once the goods have been carried to their destination and are ready to be delivered, the freight must be paid even though the goods are damaged or deteriorated. Id. at 769. "This undertaking in the charter is an independent obligation and is not discharged because of failure to deliver the cargo in good condition . . . ." Compagnia Di Navigazione Mauritius Rome v. Kulukundis, 182 F. Supp. 258, 263 (E.D.N.Y. 1959), aff'd on opinion below, 277 F.2d 161 (2d Cir. 1960). See 10 Williston on Contracts, 3d ed. § 1079 at 88.

Obviously, this rule is of substantial benefit to shipowners. As Professors Gilmore and Black point out in their authoritative work on admiralty, so-called "tramp" ships carry most of the bulk raw materials that move under charter, Gilmore & Black, The Law of Admiralty 197 (2d ed.), and many of these ships operate in a tight cash position and cannot afford to wait for payment of their freight charges. Id. at 210. For a more extensive discussion, see Greenstone Shipping Co. v. Transworld Oil, Ltd., 588 F. Supp. 574, 584 (D. Del. 1984).

Unfortunately, with the development of the statutory right to set-off or counterclaim which was unknown to the common law, 80 C.J.S. Set-off and Counterclaim § 4 at 9, the benefit of immediate payment came in danger of being lost. Under modern procedural rules, a charterer who is sued for freight may counterclaim in the same action for damages based on the shipowner's asserted wrongdoing. See Schwinger v. Raymond, 83 N.Y. 192, 197-98 (1880); Steamship Rutherglen Co. v. Howard Houlder & Partners, Inc., 203 F. 848, 850 (2d Cir. 1913); Williston, supra, § 1079 at 89.

As a result, the practice developed of incorporating a clause in charter parties which provides in words or substance that freight must be paid in cash "without discount" on delivery of the cargo. Such a provision may be found in clause 4 of the basic Uniform General Charter 1922 (code name Gencon), which Gilmore and Black include in the appendix of their book, pages 997 et seq. Referring to this clause, the authors say that it "gives the clarity of express and detailed stipulation to the rule that freight is due and payable on delivery." Gilmore & Black, supra, at 210.

The freight clause in the instant case, which provides that freight shall be computed on intake quantity and shall be payable without discount on delivery, may be found in many of the standard tanker voyage charter parties. See, e.g., Mobilvoy, Exxonvoy 1969, Essovoy 1969, and the C.F. Tank Vessels Charter Party, as summarized in Admiralty Law Institute: Symposium on Charter Parties, 49 Tul. L. Rev. 743, 758 (1975). The term "discount" used in this manner means set-off, recoupment, abatement, defalcation, or counterclaim. See Black's Law Dictionary, 552 (4th ed.); Michigan Yacht & Power Co. v. Busch, 143 F. 929, 936 (6th Cir. 1906); Ives v. Van Epps, 22 Wend. (New York) 155, 156 (1839); Ward v. Fellers, 3 Mich. 281, 290 (1854); Hatchett and Brother v. Gibson, 13 Ala. 587, 594 (1848). Accordingly, the clearly expressed intent of the parties herein was that Metallgesellschaft would pay its freight bill promptly upon delivery and would not be able to evade the prompt performance of this contractual obligation by asserting a claim in abatement or set-off.

If this action had remained in the district court rather than proceeding to arbitration, Yacimientos undoubtedly would have been entitled to summary judgment in its favor for the amount of the unpaid freight. See, e.g., Cargo & Tankship Management Corp. v. India Supply Mission, 336 F.2d 416, 418-20 (2d Cir. 1964), where we affirmed summary judgment for freight charges in the amount of $286,273.07 despite the charterer's claims of unseaworthiness and voluntary deviation. We held that, although the charterer's claims presented triable issues, they were "legally irrelevant" to the question of the owner's claim for freight. Id. at 419. In Greenstone Shipping Co. v. Transworld Oil, Ltd., supra, 588 F. Supp. 574, summary judgment in the amount of $1,294,031.10 was entered in favor of the shipowner despite the charterer's claims of cargo storage, contamination, and damage. The court relied on the well-established rule that a charterer's liability for freight is an independent obligation payable regardless of any claims a charterer may have for cargo damage or ...

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