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PETITION OF TRANSROL NAVEGACAO S.A.

December 11, 1991

IN THE MATTER OF THE PETITION OF TRANSROL NAVEGACAO S.A., PETITIONER, AND REDIREKOMMANDITSELSKABER MERC SCANDIA XXIX, RESPONDENT, TO VACATE OR MODIFY AN AWARD OF ARBITRATORS, REDIREKOMMANDITSELSKABER MERC SCANDIA XXIX AND RIVER PLATE TRADING, SHIPPING AND SALVAGE CORP.


The opinion of the court was delivered by: Kimba M. Wood, District Judge.

MEMORANDUM OPINION AND ORDER

On October 14, 1991, this Court issued an Order denying Petitioner's petition to vacate the arbitrator's award and granting Respondent's petition to confirm the award. This opinion states the reasons for that Order.

BACKGROUND

The events leading to this case involve three parties:*fn1 Rederikommanditselskaber Merc Scandia XXIX ("Mercandia"), the Owner of the Mercandian Queen II, the ship in question; River Plate Trading Shipping and Salvage Corp. ("River Plate"), the Charterer of the ship; and Transrol Navegacao S.A. ("Transrol"), the Guarantor of the Charter agreement between Mercandia and River Plate. Mercandia is a Danish corporation; River Plate is a Liberian Corporation; and Transrol is a Brazilian Corporation. The Court has jurisdiction pursuant to the admiralty jurisdiction of this Court and 9 U.S.C. § 201-08, implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This litigation is between Mercandia and Transrol.

On June 8, 1984, Mercandia chartered the Mercandian Queen II to River Plate. The charter provided that all disputes would be resolved through arbitration in New York. On June 19, 1984, Transrol guaranteed to Mercandia the fulfillment of the charter. The Mercandian Queen grounded at Ilo, Peru on November 15, 1984 and was damaged. River Plate and Transrol denied liability for the damage. On May 13, 1985, an addendum was added to the charterparty, stating that in the event that there was no amicable resolution of rights or liabilities arising from the June 1984 grounding, those rights and liabilities would be determined in arbitration in New York. In May of 1986, Mercandia demanded arbitration. Both River Plate and Transrol initially agreed to attend the arbitration. Transrol's Verified Cross-Petition to Confirm Arbitration Award, Ex. 7. Transrol subsequently failed to produce adequate security preliminary to the arbitration, and decided not to attend. Mercandia then arrested a Transrol vessel in France to obtain security for its claim; the vessel was released in exchange for a $400,000 bank guarantee from Transrol.

The dispute then shifted to the French courts, where Transrol filed a petition to vacate the security acquired by Mercandia. The Court of Commerce of Salon de Provence found that because Transrol was the owner and controller of River Plate, because Mercandia had been dealing with Transrol in the negotiation of the charter, and because maritime corporate structures often conceal the real party's identity, it had no difficulty piercing the corporate veil in this case and holding Transrol liable to Mercandia as a principal. Judgment of August 27, 1986 (S.A. Transroll [sic] Navegacao v. La Societe Mercandia Rederiene) Court of Commerce of Salon de Provence (Respondent's Notice of Cross-Motion to Confirm the Arbitration Award and of Motion for Summary Judgment [hereinafter "Resp.'s Cross-Motion"], Ex. 10, translation, at 5). It thus denied the petition to vacate the seizure.

Mercandia recommenced arbitration in New York. Mr. Armand Pare, the attorney who had represented both River Plate and Transrol in negotiations preliminary to the first arbitration, attended the second arbitration in New York. In this round, however, he officially appeared as counsel for River Plate only; Transrol officially failed to appear at the New York arbitration. The arbitration Panel found that River Plate was liable for $432,401.55, and that Transrol was jointly liable for that amount. Certificate of Arbitration Award at 2, ¶ 5, Resp's Cross-Motion, Ex. 14. It found Transrol liable on the ground that:

  The record supports the finding made independently
  in a French lower court that Transrol was the real
  party in interest and an active participant in the
  creation, administration and multile extension of
  the Charter Party. Charterer's claim that the
  extensions were negotiated without Transrol's
  de facto knowledge and consent is not credible in
  view of Transrol's participation and apparent
  control of the vessel throughout the entire period
  of the charter.

Id. The arbitration panel found that Transrol was not rendered immune from the arbitrator's award merely by its refusal to appear officially at the arbitration.

Transrol now petitions this court to vacate the arbitrator's award against it. Mercandia, respondent before this court, opposes Transrol's petition and cross-petitions this court to confirm the arbitrator's award; Mercandia cross-moves in the alternative for summary judgment on Transrol's liability to Mercandia under the Charter and the guarantee. For the reasons stated below, the Court denies Transrol's petition and grants Mercandia's cross-petition. Mercandia's motion cross-motion for summary judgment need not be addressed.

DISCUSSION

There is a strong and "liberal" federal policy favoring arbitration agreements. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985), quoting Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983). Indeed, the centerpiece of the Arbitration Act renders agreements to arbitrate maritime transactions enforceable. 9 U.S.C. § 2. This policy is especially weighty in international maritime transactions, where the litigants face potential difficulties in finding an acceptable forum, the courts face equal difficulties in assessing applicable law, and arbitrators have developed special expertise. Congress has expressed its favor for arbitration in international maritime disputes by enacting 9 U.S.C. § 201-08, implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Transrol does not deny the federal court's policy in favor of arbitration, nor does it deny the existence of an arbitration clause in this case. Rather, it argues that; (i) Transrol was not a signator to the arbitration agreement and did not attend the arbitration; (ii) under Orion Shipping & Trading Co. v. Eastern States Petroleum Corp., 312 F.2d 299 (2d Cir.), cert. denied, Eastern States Petroleum Corp. v. Orion Shipping & Trading Co., 373 U.S. 949, 83 S.Ct. 1679, 10 L.Ed.2d 705 (1963), a court and not an arbitrator must decide whether ...


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