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UNION CARBIDE CORPORATION v. M/T "ENCOUNTER"

March 18, 2004.

UNION CARBIDE CORPORATION, Plaintiff, -against- M/T "ENCOUNTER," her engines, boilers, tackle, etc., CHEMBULK TRADING INC., and M.T.M. SHIP MANAGEMENT PRIVATE LTD., Defendants


The opinion of the court was delivered by: DOUGLAS EATON, Magistrate Judge

OPINION AND ORDER

In this ancient marine cargo case, plaintiff Union Carbide Corporation ("Carbide") moved for summary judgment in November 2000. Judge Swain denied summary judgment on April 7, 2003. The case was reassigned to me on June 27, and I held a bench trial on October 28 and 29, 2003. Post-trial briefs were served by Carbide on January 21, 2004, by defendants on February 24, and by Carbide in reply on March 2. This opinion constitutes my findings of fact and conclusions of law.

FINDINGS OF FACT

  1. I found the testimony of William J. Lohan and John 0. Beadle to be entirely credible. Both were retired employees of Carbide who were knowledgeable about the relevant 1995 events. In 1995, Carbide was manufacturing mono-ethylene glycol (MEG) in western Canada. Lohan's job at Carbide involved chartering vessels to transport MEG from Vancouver to the Far East, where customers used MEG to make polyester fibers. (Tr. 46-48.) Beadle was Carbide's international distribution quality manager for ethylene glycol. (Tr. 151.)

  2. As of July 7, 1994, Carbide and defendant Chembulk Trading Inc. entered into a Contract of Affreightment; Chembulk, as vessel owners, was to carry frequent multi-ton cargoes of "Ethylene Glycol Polyester Grade" (also known as fiber grade MEG) out of Port Vancouver. (Exh. 4.) The Contract provided that it could continue beyond one year, but only "if Chembulk can continue to meet the various requirements of [Carbide, including] product quality. . . ." (Id. p. 4.) The Contract noted: Page 2 "Charterers' product is extremely sensitive to contamination." (Id. p. 9.) One of the vessels nominated by Chembulk was the M/T ENCOUNTER, which was managed by M.T.M. Ship Management Private Ltd. ("M.T.M." or "MTMM"). (Def. 56.1 Response, Docket #20, ¶ 3.)

  3. Beadle trained M.T.M.'s ship captains in the proper methods to load and transport MEG. After polyester-grade MEG was loaded onto a ship, each tank had to be tested for various specifications, including an Ultraviolet ("UV") Transmittance of at least 80% at 220 nanometers. (Tr. 152-54, corroborated by Exh. 7.) Far Eastern manufacturers of polyester fibers would not accept a shipment of MEG unless, at the time of receipt, a new test showed that the UV Transmittance was at least 70%. (Tr. 166.) Beadle emphasized to M.T.M. that the UV Transmittance could easily deteriorate if, prior to loading, M.T.M. failed to clean the tanks carefully, removing all prior chemicals and also removing all cleaning agents. (Tr. 153.)

  4. On October 29 and 30, 1995, in Vancouver, 11,698 metric tons of MEG were loaded into 11 tanks in the hold of the ENCOUNTER. Each of the 11 tanks was then given various tests by Inchcape Testing Services, whose report is Exh. 40. The UV Transmittance at 220 nanometers ranged from 85.2% to 89.0% for the 11 tanks. The tank that led to this lawsuit was the largest tank, Tank 5C (or 5 Center), which was loaded with 1,688 tons; it tested at 88.6%. (All of my references to "tons" refer to metric tons.)

  5. All 11 tanks were listed, "with no segregation as to parcels," on each of ten bills of lading, which are Exh. 5. Three of the bills of lading were issued to Carbide; they covered a total of 3,700 tons, all to be unloaded in Hong Kong. Five of the bills of lading were issued to Mitsui and Co. (Canada) Ltd; they covered a total of 4,057 tons, all to be unloaded in Indonesia, mostly at the port of Merak. The two other bills of lading are of little relevance.

  6. The Mitsui group of corporations had various relationships with Carbide. Mitsui and Co. (Canada) Ltd. owned a one-third interest in one of Carbide's two plants in western Canada. (Tr. 97-98.) Mitsui & Co. (USA) Inc. was Carbide's distribution agent to sell wholesale quantities of MEG to customers in the Far East. (Tr. 102.) Carbide invoiced these shipments to Mitsui & Co. (USA) Inc. at prices upwards of $770 per ton. (Exh. 6.) Mitsui also owned one of four insurance companies that wrote policies covering Mitsui with respect to cargo shipments. (Tr. 110-11.) Page 3

  7. The ENCOUNTER unloaded the 3,700 tons in Hong Kong, all in good condition, even though approximately 810 of those tons came out of Tank 5C. The ENCOUNTER then unloaded more MEG at Keelung and Jakarta, none of it from Tank 5C. (Exhs. 48, 58.) Finally, it sailed to Merak, where it planned to discharge all of its remaining 4,065 tons, including the 879 tons that remained in Tank 5C. (Exh. 8, p. 441.) At Merak, Mitsui held four bills of lading for four different customers for a total of 3,071 tons, and a company called Tomen Corporation held one bill of lading for 1,000 tons for yet another customer. (Exh. 5.) At Merak, testing began on December 1, 1995. The UV testing at 220 nanometers showed that Tank 5C's contents scored in the range of 43% to 48%. This was woefully short of the 70% required by the customers (fiber manufacturers who were listed on the bills of lading). (Id., pp. 421, 428, 429; Exh. 97-G, p. 213.)

  8. Mitsui refused to take delivery of the 879 tons in Tank 5C. The liability of Chembulk and M.T.M. was obvious. Grasping at straws, the master of the ENCOUNTER, Capt. Tokic Tonci, issued a Letter of Protest dated December 7, 1995 to Prointal Terminal:
On behalf of my owner, the charterers and the master of M.T. "ENCOUNTER" hereby protest against to your decision to refused discharging of Tank 5 Ctr.
According [to] the analysis from Jakarta (Indonesian Fiber Corporation) our composite (2C 3C 5W 5C) have on-spec. result. ["5W" may be an abbreviation for 5 Wings; in context it clearly means Tanks 5P[ort] and 5S[tarboard]; see Exh. 8, p. 441.]
According [to] our experience we can discharge all tanks in same time and you [would] have in [a] shore tank [a] composite cargo with qlty on-spec. . . .
(Exh. 8, p. 436.)

  9. In short, the defendants were proposing an irrevocable gamble — blend the 879 defective tons with the 3,186 good tons, and hope that the resulting blend would have a UV Transmittance of at least 70%. This hope was based on a composite sample that had blended small samples from five huge tanks (2C 3C 5P 5S 5C). The defendants' proposal was irresponsible unless its insurance underwriters were willing to cover the risk that the blending would ruin the additional 3,186 tons. M.T.M. realized Page 4 this, and explicitly sought to learn whether its "underwriters will cover if a larger claim is made [as a result of blending]." (Exh. 97-I, p. 180.) I infer that the defendants' underwriters refused to cover such a risk. Certainly the defendants never offered to hold Carbide and Mitsui harmless. Accordingly, I find that the defendants' "blending" proposal was unreasonably risky.

  10. Carbide's Lohan consulted with Carbide's Beadle, who said he suspected that Tank 5C was contaminated with paraxylene. It is undisputed that paraxylene had been carried in Tank 5C on the ENCOUNTER'S last trip previous to October 29, 1995. (Exh. 40, 6th pg.) It seems clear that M.T.M. failed to clean Tank 5C properly after that previous trip. Beadle advised that blending would probably create a bigger problem and increase the number of customers who would be adversely affected. (Tr. 61.)

  11. At trial, Beadle explained in further detail why blending would have been foolishly risky. (a) Blending is a nonlinear calculation. (b) The guidelines of the International Organization for Standards prohibited blending of MEG. (c) Blending would irrevocably introduce the contaminant from the 879 tons into the 3,186 good tons. (d) To minimize the chance that blending would introduce additional contaminants, the blending would need to be done in a "perfect tank," being stainless ...


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