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MATTER OF HERLOFSON MANAGEMENT A/S

May 22, 1991

IN THE MATTER OF THE ARBITRATION BETWEEN HERLOFSON MANAGEMENT A/S, AS DISPONENT OWNER OF A VESSEL TO BE NAMED, PETITIONER, AND MINISTRY OF SUPPLY, KINGDOM OF JORDAN, RESPONDENT. IN THE MATTER OF THE ARBITRATION BETWEEN BELSTOVE MANAGEMENT A/S, AS DISPONENT OWNER OF THE M.V. BELOCEAN, PETITIONER, AND MINISTRY OF SUPPLY, KINGDOM OF JORDAN, RESPONDENT.


The opinion of the court was delivered by: Robert L. Carter, District Judge.

OPINION

Each of these two consolidated petitions seeks an order, pursuant to 9 U.S.C. § 4, compelling arbitration on an alleged voyage charter. Ward Marine, a broker, allegedly agreed to the two charters on behalf of the respondent. The case hinges on whether Ward Marine had authority (or failing that, apparent authority to do so. No written charter parties were ever signed, but petitioners allege that they and Ward concluded a fixture incorporating a pro forma charter party,*fn1 which includes the provision that "[a]ll disputes arising out of this contract shall be arbitrated at New York . . . and be subject to U.S. Law. . . ." See R.Ex. 6 & 7, clause 44.*fn2

FACTUAL BACKGROUND

All events relevant to this case took place in 1987. Most of the facts in this case can be gleaned from the telexes and other documents exchanged between the participants in the transaction.

Persons and Entities Involved

The Ministry of Supply of the Hashemite Kingdom of Jordan (the "Ministry"), respondent in these cases, was the alleged charterer of the vessel. The Minister of Supply, Rajai Muasher; the Undersecretary of the Tender Committee, Abdalah el Hawamdeh; and the Director of Trade, Suleiman Belbeisi, were involved in the transactions in this case.

Ward Marine ("Ward") of Washington, D.C., was in the business of representing foreign governments that needed to obtain shipping related to certain programs of the United States Agency for International Development ("USAID"). McD.Tr.5. Ward had entered into a non-exclusive agency agreement to charter ships for the Ministry. R.Ex.5. Donald Pressley, the President of Ward, and Karima McDaniel, a broker at Ward, represented Ward in the transactions.

World Bulkers Inc. ("World Bulkers") was a ship operator that had entered into a charter party with the Ministry through Ward to ship wheat from Texas to Jordan. World Bulkers defaulted on the charter party.

Petitioner Herlofson Management A/S ("Herlofson") of Oslo, Norway, is a ship owner that allegedly entered into a charter party with the Ministry through Ward to ship a portion of the wheat that World Bulkers was to have transported. Hudson Chartering, Inc. ("Hudson") of Yonkers, New York, represented by Bryan McNelis, was the ship broker through which Ward arranged the transaction with Herlofson. Sal Gambino of S.G. Trading ("S.G.") had put Ward in contact with Hudson . Joachim Grieg and Co. ("Grieg") of Oslo, Norway, was the agent for Herlofson with whom Hudson transacted business.

Petitioner Belstove Management A/S ("Belstove") of Oslo, Norway, as owner of the M.V. Belocean, allegedly entered into a charter party with the Ministry through Ward to ship another portion of the wheat that World Bulkers was to have transported. World Trade Shipping Corporation ("World Trade") of Oyster Bay, New York, was the ship broker through which Ward arranged the transaction with Belstove. World Trade had also served as broker for World Bulkers. Arne Fronsdal (also spelled Froensdahl in some of the papers filed in this case), a broker and president of World Trade, Fro.Tr. 12 represented World Trade in these transactions. F.H. Lorentzen & Sons ("Lorentzen") of Oslo, Norway, was the agent for Belstove with whom World Trade transacted business. Ward dealt directly with Lorentzen, bypassing World Trade, after May 23, 1987.

Thus, the lines of communication may be summarized by the following diagram, with the main lines of negotiation or agency relevant to this case indicated by double lines:

As already noted, Ward is the weak link in this chain: the dispute centers on Ward's authority to act on behalf of the Ministry with regard to the Belstove and Herlofson charters.

World Bulkers and Unicargo Charter Parties

The events leading to this litigation began on March 21, 1987, when the Ministry, under Belbeisi's supervision, published an invitation to submit bids to supply United States wheat to Jordan and to transport the wheat to a Jordanian port, in connection with a USAID program. R.Ex.4; see Bel.Tr. 35, 79-80. Under a non-exclusive shipping-agency agreement, R.Ex.5, that had been entered into between the Ministry and Ward on February 22, Ward was to assist the Ministry of Supply in obtaining ships to transport the wheat.

Ward received various bids offering to enter into charter parties to transport the wheat. Following negotiations, the Ministry approved the final drafts of charter parties with Unicargo Shipping Co. S.A. ("Unicargo"), R.Ex. 6, and World Bulkers Inc., R.Ex. 7, and authorized Ward to execute the contracts sometime in April. Bel.Tr. 55, Bel.Ex. A-9. Unicargo performed under its charter party. Bel.Tr. 61.

In mid-May, however, it became apparent to Ward and the Ministry that World Bulkers would not perform under its charter party. Bel.Tr. 61-62. The first shipment was to be loaded by May 25, McD.Tr. 22, and the supplier was pressing the Ministry to nominate a vessel by May 21. Bel.Tr. 119. The Ministry thus needed to find ships on short notice.

Negotiations for Replacement Ships

Ward proceeded to search on behalf of the Ministry for a replacement for World Bulkers. In a letter dated May 14, Belbeisi (of the Ministry) had instructed Pressley (of Ward) that the charter party should require, among other things, that the owner issue a 10 percent performance bond.

Ward conducted negotiations with Hudson by telex for the Herlofson charter. The negotiations culminated in a recap telex*fn3 sent by McNelis (of Hudson) to McDaniel (of Ward) on May 20 at 4:48 P.M.,*fn4 beginning as follows:

  HEREWITH RECAP OF FIXTURE AS PER AUTHORITY GIVEN
  BY BOTH PARTIES.
  SUBJECT SHIPPERS/REC[ei]V[e]RS APPROVAL BY LATEST
  1200 HRS [New York time] 5/21/87. . . .

McN.Ex 1H & 8 (msg. no. BJM691) (emphasis added). The telex states various terms, including the following freight payment term:

FR[ei]GHT PAYM[e]NT:

  CLS 66 OF SUBJECT CP [charter party] DELETE PARA B
  AND INSERT THE FOLLOWING: 95 PCT OF FRGHT TO BE
  PAID WITHIN 5 BANKING/WORKING DAYS UPON
  PRESENTATION OF [documentation]. THE 5 PERCENT
  BALANCE TO BE SETTLED TOGETHER WITH [demurrage or
  dispatch]. . . .

id. (emphasis added). The deleted Clause 66, Paragraph B, of the pro forma charter party had provided for a performance bond, which was one of the conditions set forth in Belbeisi's May 14 letter to Pressley. The telex concludes as follows:

  OTHERWISE ALL TERMS AND CONDITIONS AS PER
  CH[a]RT[erer']S PORFORMA [sic] CP WITH LOGICAL
  ALTERATIONS AS APPLICABLE. . . . THANK YOU FOR YOUR
  COOPERATION IN CONCLUDING THIS FIXTURE.

GOOD LUCK WITH THE SUBJECTS.

Id.*fn5

On or prior to May 20, McNelis had come to doubt Ward's authority to act on the Ministry's behalf, because of "rumors in the market" that Ward was acting without authority. See McD.Tr. 23, 45, Gam.Tr. 11-12. McDaniel assured McNelis that she was acting on full authority, including the authority to fix a charter without approval from the Ministry. See, e.g., McN.Tr. 128, 146-47, 181-82. McNelis believed this to be contrary to the usual practice, which requires the principal to approve all charters. See McN.Tr. 100-108, 138, Gam.Tr. 14.

It is somewhat more difficult to reconstruct the Belocean negotiations because a number of the relevant documents were destroyed in a fire at World Trade in October of 1988. Fro.Tr. 7, 85. Moreover, a substantial part of the negotiations took place over the telephone. Fro.Tr. 129. Fronsdal and McDaniel both testified at their depositions that a fixture was agreed upon that did not require the posting of a performance bond. See Fro.Tr. 129, 132-33, McD.Tr. 29.

The hand-printed recap letter dated May 20, which Fronsdal faxed to McDaniel, indicates Fronsdal's position that a fixture had been concluded ("CONFIRM OUR TODAY'S FIXTURE AS follows"). McD.Ex. 20. The letter names the "M/S `BEL OCEAN,'" and specifies a variety of terms. The letter makes no mention of a performance bond, but it contains a provision for freight payment that is substantially identical to the Herlofson charter, and which McDaniel contends was intended as an alternative to the performance bond: "95% FREIGHT PAYABLE INTO OWNERS' BANK PRIOR [to] RELEASE [of] B/LS [bills of lading], 5% ON SETTLEMENT [of] DEM[urrage]. . . ." It concludes by stating that the fixture is "SUBJECT C/P [charter party] PROFORMA DETAILS WHICH OWNERS WILL REVIEW IN THE A M. . . ." and asking Ward to "PLEASE FAX RECONFIRMATION." Fronsdal and McDaniel both testified that McDaniel accepted this fixture recap over the telephone on behalf of the Ministry, and that the fixture was not subject to the Ministry's approval. Fro.Tr. 132-33.

On May 20, at 2:45 A.M., during the course of negotiations, Pressley sent Belbeisi a telex, setting out the terms that had been negotiated. McD.Ex. 11 (msg. no. 1446). At 6:40 P.M. the same day, Pressley sent Minister ...


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