United States District Court, S.D. New York
October 3, 2005.
DAESHIN SHIPPING CO. LTD., Plaintiff,
MERIDIAN BULK CARRIERS, LTD., Defendant.
The opinion of the court was delivered by: NAOMI BUCHWALD, District Judge
MEMORANDUM AND ORDER
On August 12, 2005, Daeshin Shipping Co. ("plaintiff" or
"Daeshin") was granted an order of attachment pursuant to Rule B
of the Supplemental Rules for Certain Admiralty and Maritime
Claims of the Federal Rules of Civil Procedure. As a result of
this order, $1,894,778.89 belonging to Meridian Bulk Carriers
Ltd. ("defendant" or "Meridian") was restrained at The Bank of
New York and at American Express Bank.
The underlying claims of the parties are subject to arbitration
in London. However, a brief summary of the dispute is useful to
place the attachment issues in context. Plaintiff sub-chartered a
vessel, M/V WISDOM C, from STX PanOcean ("PanOcean"), which had
chartered the ship from the vessel owners. Plaintiff then
sub-chartered the ship to defendant. Defendant ultimately
sub-chartered the vessel to yet another party, Al Kahlejia. The
thrust of plaintiff's claim is that defendant breached the charter party by returning the vessel
prior to the time specified in the contract. Defendant has
counterclaimed that plaintiff breached the charter party because
the vessel was not delivered in the physical condition warranted
by the sub-charter agreement.
On September 15, 2005, defendant filed a motion to reduce the
amount of security attached by plaintiff and to obtain
counter-security from plaintiff. A hearing was held on September
26, 2005 and post-hearing submissions were received from both
I. Motion for Reduction in the Amount of Security
Under Rules E(4) (f) and E(6) of the Supplemental Rules for
Certain Admiralty and Maritime Claims, any person claiming an
interest in an attached property may challenge the attachment.
When security is taken and a motion made, security may be reduced
for "good cause shown" under Rule E(6). Defendant advances two
primary arguments to support its contention that the amount of
security should be reduced. First, defendant argues that
plaintiff's claim for lost profits is "grossly exaggerated."
Second, defendant argues that it should not be forced to post
security for claims related to vessel damage that might be asserted against plaintiff by either PanOcean or the
owners of the vessel.
When a motion is made challenging an attachment, the burden is
on the plaintiff "to show why the arrest or attachment should not
be vacated" under Rule E(4) (f). However, the plaintiff is not
required to "prove its damages with exactitude." Dongbu Express
Co. Ltd. v. Navios Corp., 944 F. Supp. 235, 237 (S.D.N.Y. 1996).
Plaintiff's estimate of its claim has been revised since the
filing of the Verified Complaint. In the Complaint, plaintiff
calculated a total claim of $1,952,445 in the following way:
$1,436,909 for combined "balance of charter hire" and "damages
resulting from wrongful repudiation of the charter"; $215,536 in
interest at 5% per year over 3 years; and $300,000 in estimated
legal and arbitral fees. See Verified Complaint. Plaintiff's
original estimate assumed a daily charter market rate of $8,000
for mitigation calculation purposes. Plaintiff's counsel has
since revised its estimate of the principal claim to include:
$543,150 in lost profits; $455,559.98 in unpaid hire; $350,000
for damage to vessel claims advanced by head owners and
PanOcean.*fn1 See Unger Aff., Ex. 3. The revised
calculation is based upon the claims PanOcean has asserted against Daeshin. Specifically, PanOcean utilized a daily
market rate of $13,000 instead of $8,000 to calculate its lost
profits and claims $350,000 for physical damage to the vessel.
The latter claim of $350,000 is now asserted against Meridian by
Daeshin as an indemnity claim.
A. Lost Profits Claim
Defendant argues that plaintiff has failed to introduce
sufficient support for the market rate used to calculate its lost
profit claim*fn2 and argues, without any legal support, that
we should deviate from general contract damage principles and
apply an alternative method for calculating damages. After
reviewing the evidence in the record, including post-argument
submissions, we believe that $13,000 is a reasonable, although
not exact, estimate of the prevailing market charter rate during
the period in question. We also decline to apply defendant's
proposed method for calculating damages.
Plaintiff now calculates its lost profit claim by subtracting
an estimated daily charter rate ($13,000), i.e. the recharter
mitigation rate, from the charter rate defendant was to pay
plaintiff ($23,650). The difference between the two rates
($10,650) multiplied by 51 (days) yields a total of $543,150. The use of a market rate of $13,000 instead of $8,000 reduces
plaintiff's original principal claim by $88,199. When the amount
of plaintiff's damage to vessel claims, estimated
legal/arbitration costs*fn3 and interest*fn4 is added
to the amount of lost profits and balance of hire claims, the
total is $1,851,016.36.*fn5 As plaintiff has succeeded in
attaching the amount of $1,894,778, but only provided sufficient
evidence to justify attaching $1,851,016.36, any funds in excess
of this amount must be released.
B. Physical Damage to Vessel Claim
Defendant also argues that plaintiff's revised principal claim
improperly includes $350,000 for damage to vessel claims that may
be asserted by PanOcean or the head owners against plaintiff. Defendant contends that this claim is speculative and
premature because neither PanOcean nor the head owners of the
vessels have initiated a lawsuit against the plaintiff. The
parties have also informed the Court that Points of Claim have
not yet been formally exchanged in the London
However, the record indicates that arbitrators have already
been appointed to resolve the disputes involving the head owners,
PanOcean, Daeshin and Meridian*fn7 and that correspondence
has been circulated among the various parties asserting specific
damage claims. In particular, defendant has submitted exhibits
including correspondence from head owners asserting claims
against PanOcean, as well as correspondence indicating that
PanOcean appears to be asserting claims against plaintiff, for
physical damages to the vessel in the amounts of $70,000
(replacement cost of slewing ring) and $280,000 (expenses at
repair yard including deviation). See Unger Aff. Ex.
3.*fn8 Thus, this case is distinguishable from Greenwich
Marine, Inc. v. S.S. ALEXANDRA, 339 F.2d 901 (2d Cir. 1965),
relied on by Meridian, because in that case there was little indication that the damage
claim would actually be passed through a chain of charter parties
and asserted against the plaintiff. After reviewing the record,
we find that it is not unduly speculative to assume that the
physical damage claims are being asserted down the chain of
charter parties and that plaintiff has a reasonable belief that
it faces potential liability totaling $350,000 for those damages.
Id. We therefore find it appropriate to include this claim in
the total amount that plaintiff is entitled to attach as
II. Motion for Counter-Security
Defendant also argues that it is entitled to counter-security
for the counterclaims it has asserted against plaintiff. We
agree. Rule E(7) of the Supplemental Rules for Certain Admiralty
and Maritime Claims states that a plaintiff "must give security"
for counterclaims arising out of the same transaction "unless the
court for cause shown, directs otherwise." While the District
Court clearly has discretion on this issue, see, e.g., Result
Shipping Co. Ltd. v. Ferruzzi Trading USA, Inc., 56 F.3d 394,
399-400 (2d Cir. 1995), we are mindful that this discretion
should be guided by two principles: (1) the purpose of this
provision is to place the parties on a equal footing as regards
security; and (2) the provision is not intended to impose costs that would prevent plaintiff from
bringing suit. See id. The counterclaims asserted by
defendant do not appear to be frivolous and they clearly arise
from the same transaction or occurrence as plaintiff's claims.
Moreover, plaintiff has not claimed that it is financially unable
to post counter-security or that posting the counter-security
would impair its ability to pursue its claim in arbitration.
While plaintiff has broadly asserted that defendant has not
adequately supported the amount of its counter-security,
plaintiff has not proffered any specific challenge to the amount
sought. Therefore, the defendant is entitled to counter-security
from the plaintiff in the amount of $873,884.43.*fn9
III. Request for Stay of London Arbitration Proceedings
Defendant has also requested that we enjoin plaintiff from
pursuing its claims in the London arbitration until such time as
it posts the counter-security. We have not found significant case
law to assist us in resolving this issue, but the language of
Rule E(7) (a) provides that "[p]roceedings on an original claim
must be stayed until this security is given unless the court directs otherwise." Clearly, staying Daeshin's arbitral
claims will provide an incentive to post counter-security
promptly so that the London arbitration that is in its earliest
stages can proceed.
For the foregoing reasons, we grant defendant's motion to
reduce the security to the extent that the amount of funds that
can be attached is limited to $1,851,016.36. Any amount
restrained in excess thereof, must be released. We also grant
defendant's application for counter-security in the amount of
$873,884.43 and enjoin the plaintiff from pursuing its claims
against defendant in the London arbitration until the
counter-security is posted.
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