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STENA LINE

March 14, 1991

STENA LINE (U.K.) LIMITED, PETITIONER,
v.
SEA CONTAINERS LTD. AND FERRY AND PORT HOLDINGS LIMITED, RESPONDENTS.



The opinion of the court was delivered by: Leisure, District Judge:

OPINION AND ORDER

This action concerns the scope of an arbitrable dispute arising from the sale of a business. Petitioner, Stena Line (U.K.) Limited ("Stena") seeks an order compelling arbitration concerning a dispute over a balance sheet dated March 31, 1990, on which a post-closing adjustment to the purchase price is to be based. Respondents Sea Containers Ltd. ("Sea Containers") and its wholly owned subsidiary Ferry and Port Holdings Limited ("Holdings") do not object to arbitration, but ask this Court to limit the scope of the arbitration.

BACKGROUND

In March 1990, Stena agreed to purchase from Sea Containers, through its subsidiary Holdings, a group of ferry businesses operating between England and the continent of Europe and between England and Ireland. Pursuant to the stock purchase agreement between the parties (the "Agreement"), there was to be a post-closing adjustment to the purchase price of $380 million.*fn1

The adjustment was to be determined using two balance sheets, each balance sheet to be prepared by the entity managing the business when the relevant financial data became available. Thus, the first balance sheet, dated December 31, 1989, was to be prepared by Holdings, and the second, dated March 31, 1990, was to be prepared by Stena.

Section 1.3(a) of the Agreement required that the December 31 balance sheet

  be prepared in conformity with the terms of this
  Agreement and present[] a true and fair view of
  the Ferry Business as of the date thereof. The
  December 31 Balance Sheet shall be prepared in
  accordance

  with the books and records of the Ferry Business
  [and] in conformity with United Kingdom generally
  accepted accounting principles [UKGAAP], applied
  on a consistent basis with prior periods."

Agreement at 11.

Section 1.3(c) of the Agreement imposed the same requirements on the March balance sheet, with the additional proviso that it "be prepared on a consistent basis with the policies set forth in the notes to the December 31 Balance Sheet." Id. at 16.

Section 1.4 of the Agreement provides for a "Post Closing Adjustment," which will adjust the sale price to account for changes in the business occurring during the period between the payment of initial consideration and the closing. This adjustment is to incorporate a calculation based in part on the "Losses," or decline in the figure designated as "net equity" from the December to the March balance sheet, with a cap of $20 million. See Agreement § 1.3(c), at 17. Thus, even if the difference were greater than $20 million, Stena's recovery would be based on the lower figure.

The party receiving each balance sheet was given 60 days after receipt to advise the opposing party in writing of the amounts and descriptions of any adjustments that the receiving party felt were necessary. Agreement at 12, 17. The Agreement provides for expedited arbitration of unresolved differences, in which they are to be submitted to an independent accountant of national standing in England.*fn2 Agreement § 1.3(d), at 18-19.

The closing was held on April 9, 1990. On April 5, 1990, Holdings delivered the December 31 balance sheet to Stena. Stena informed Holdings by telex of their belief that the December balance sheet was not prepared in accordance with the terms of the Agreement, but Stena did not dispute the matter formally at that time. Stena claims that this was because they had concluded that the operating losses for the quarter ending March 31 would easily exceed the $20 million cap, and that "if losses equaled or exceeded the $20 million cap, the December 31 balance sheet would have no economic impact on the parties." Petitioner's Memorandum of Law in Support of Its Motion to Compel Arbitration ("Pet. Mem.") at 5. Therefore, Stena decided not to go to the expense of auditing and arbitrating the matter.

However, Stena did state the following in its telex:

  The purpose of this letter is to advise you that
  we do not object to the net equity of December 31
  Balance Sheet solely for the purpose of
  determining losses. Notwithstanding the foregoing,
  we do not agree or in any way concede that the
  December 31 Balance Sheet was prepared in
  accordance with the terms of Stock Purchase
  Agreement and do not waive any rights ...

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