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October 5, 2005.

In the Matter of Arbitration between DUN SHIPPING LTD., Plaintiff-Respondent, and AMERADA HESS SHIPPING CORPORATION, HOVENSA, L.L.C., and ABC CORPORATION, Defendants-Petitioners.

The opinion of the court was delivered by: KEVIN FOX, Magistrate Judge



In this action, plaintiff Dun Shipping Ltd. ("Dun Shipping") has petitioned the Court for an order, pursuant to 9 U.S.C. § 4, compelling Amerada Hess Shipping Corporation ("Hess Shipping") and Hovensa L.L.C. ("Hovensa") (collectively "defendants")*fn1 to arbitration. Defendants oppose the petition. In addition, the defendants seek an order, pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et seq., staying further action in the arbitration commenced by the plaintiff, as well as an order, pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, declaring that the plaintiff's claim against them, for a contribution to expenditures incurred in refloating the oil tanker M.T. Knock Dun ("Knock Dun") after it went aground off the island of Antigua, is not arbitrable.

  On August 19, 2002, this Court issued a report recommending, inter alia, that the defendants' petition for an order staying further action in the arbitration commenced by the plaintiff be granted and that plaintiff's petition for an order compelling arbitration be denied. Plaintiff submitted objections to the report. Thereafter, by order dated October 28, 2002, your Honor granted plaintiff's application for limited discovery concerning the arbitrability of its claim against the defendants and, in addition, directed that the defendants be allowed limited discovery concerning the plaintiff's asserted right to enforce the relevant arbitration agreement. See Dun Shipping Ltd. v. Amerada Hess Shipping Corp., 234 F. Supp. 2d 291, 292-93 (S.D.N.Y. 2002). The matter was then referred to the undersigned to schedule such discovery and to issue a report and recommendation addressing the following questions: (1) whether the plaintiff "was or was not a party" to the contract of voyage charter entered into between defendant Hess Shipping and Knock Tankers, Ltd. ("Knock Tankers") and, "as a result, can or cannot enforce the Charter Party arbitration provisions;" and (2) whether defendant Hovensa had "actual knowledge of and acquiesced in the terms of the Charter Party and, therefore, perhaps should be bound by its arbitration provision." Id. at 295-96. The parties have completed discovery. Their respective petitions are addressed below.


  On August 23, 2000, Hovensa entered into a contract to purchase 950,000 barrels of Kitina crude oil from Agip Petroli Sp.A. ("Agip") for shipment from the port of Djeno, Congo.*fn2 Hovensa then advised Amerada Hess Corporation ("Amerada Hess") that transportation would be required for the shipment. Thereafter, a representative of Amerada Hess contacted Hess Shipping about chartering a vessel for this purpose. On September 8, 2000, Hess Shipping entered into a contract of voyage charter (the "Charter Party") with Knock Tankers whereby it chartered the Knock Dun for the purpose of transporting Hovensa's cargo from the Congo to St. Croix. Knock Tankers is a commercial management company. Both Dun Shipping and Knock Tankers are wholly owned subsidiaries of First Olsen Tankers, Ltd. ("First Olsen").

  On September 30, 2000, the Master of the Knock Dun, on behalf of Dun Shipping, issued a bill of lading ("Bill of Lading") to Hovensa acknowledging receipt on board of 989,668.8 barrels of Kitina crude oil to be delivered at the port of St. Croix. On October 13, 2000, the Knock Dun ran aground off the island of Antigua.

  On March 12, 2001, a demand to arbitrate was served on counsel for the defendants; the demand indicates that it is made on behalf of the "owners of the Knock Dun," against both Hess Shipping and Hovensa. Also on March 12, 2001, Dun Shipping filed a complaint against the defendants claiming that, as a consequence of the grounding, it had made certain sacrifices and incurred certain expenses "of a General Average nature" in connection with refloating the Knock Dun, and that the defendants were bound to contribute to plaintiff a proper share of those expenses.*fn3 The complaint seeks an order directing defendants to participate in arbitration or, in the alternative, a judgment against the defendants for payment of their proportionate share in the General Average.

  The Charter Party & The Bill of Lading

  On or about September 5, 2000, the Charles R. Weber Company ("Weber"), one of the tanker brokers involved in the negotiations for the subject charter, received from co-broker Fearnleys the original offer leading to the formation of the Charter Party. The offer states that it is for "Account Hess" and identifies the owners as First Olsen. The offer is for one of two ships: the Knock Dun or, "in owner's option," the M.T. Knock Allan ("Knock Allan"). The registered owner of the Knock Allan is Allan Shipping Co. Ltd. which, like Dun Shipping, is a subsidiary of First Olsen. The offer also gives the main terms of the Charter Party.

  On or about September 8, 2000, Weber sent to Fearnleys and to Hess Shipping the broker's confirmation recap, confirming the Charter Party between Knock Tankers and Hess Shipping. The recap provides that the owner retained its option to substitute the Knock Allan for the Knock Dun. In addition, the recap provides, inter alia, descriptions of the two vessels, a description of the cargo, the names of the loading ports, the freight rate, the demurrage cost, the type of charter party form to be used ("Asbatankvoy"), and forty-one additional provisions, called "Hess Clauses," further specifying the terms of the agreement.

  Based on the broker's confirmation and information from prior transactions, Thomas J. Bontemps ("Bontemps"), the Supervisor of Chartering and Claims for Hess Shipping, prepared for the company's internal reference a "Charter Party memo" summarizing the transaction. The Charter Party was then prepared by Weber on a standard Asbatankvoy form. The preamble to the document, which is dated September 8, 2000, identifies "Knock Tankers Ltd. as Managers to Owners," as the owner (the words "chartered owner" are crossed out) of the Knock Dun. The other party to the contract is Hess Shipping. Paragraph 24 of the Charter Party provides, in pertinent part:
Any and all differences and disputes of whatsoever nature arising out of this Charter shall be put to arbitration in the City of New York or in the City of London whichever place is specified in Part I of this charter pursuant to the law relating to arbitration there in force, before a board of three persons consisting of one arbitrator to be appointed by the Owner, one by the Charterer, and one by the two so chosen.
Attached to the Charter Party, in addition to the "Hess Clauses," are nine "special provisions." Special provision number 5 states: "York/Antwerp Rules 1990 are applicable hereunder and if required, General Average and arbitration take place in New York under U.S. Law." Special provision number 9 states: "Owners option to substitute with the `Knock Allan' subject suppliers and receivers approval."

  On September 30, 2000, the Bill of Lading was issued by the Master of the Knock Dun to Hovensa. The document states the following (with inserted, typewritten words indicated in capital letters):

  Shipped in apparent good order and condition by Societe ELF CONGO on board of s.t./m.t. KNOCK DUN under flag LIBERIA now lying off DJENO where of the Master is ANTONY NIXON a quantity of crude oil in bulk as shown below to be delivered (in the like good order and condition) at the port of ST CROIX unto the order of AGIP TRADING B.V. in accordance with the conditions laid down in the ship's Charter party dated _______. No information is given in the space provided for listing the date of the Charter Party. After describing the product consigned for shipment, the form provides the names of its signatories: the Knock Dun (Owner: Dun Shipping Ltd.) by the Master of the vessel, and Elf Congo, as Shipper, by its representative. The Bill of Lading contains no arbitration provision.

  Recent Submissions

  Following completion of discovery, the parties provided to the Court the following items: (1) memoranda of law in support of their respective petitions; (2) declarations of counsel; (3) transcripts of the depositions of Per-Oscar Lund ("Lund"), Director of Dun Shipping and Director and President of Knock Tankers, Roger Holden ("Holden"), Chartering Manager of Knock Tankers, Douglas V. Uhles ("Uhles"), Manager of Shipping Utilization at Hess Shipping, and Alexander Bober ("Bober"), Crude Logistics Coordinator of Amerada Hess; and (4) numerous exhibits. Based on a review of those submissions, together with the supporting documents and exhibits submitted previously, the Court makes the following additional findings of fact.

  1. Dun Shipping and Knock Tankers

  Knock Tankers is a commercial management company and is responsible for the commercial operation of all the vessels owned by First Olsen. In his deposition, Lund testified that, prior to 2000, the vessels comprising the pool of vessels operated by Knock Tankers were owned by a number of different companies. Thereafter, in 2000, First Olsen acquired ownership of Knock Tankers, as well as ownership of all the vessels in the pool operated by Knock Tankers. Thus, at the time Knock Tankers entered into the Charter Party with Hess Shipping, it had responsibility for the commercial operation of a pool of vessels all of which were owned by First Olsen. As noted above, Dun Shipping, the registered owner of the Knock Dun, also is a wholly owned subsidiary of First Olsen.

  In or about 1995, Dun Shipping entered into a Suezmax Tanker Agreement ("Suezmax Agreement") with Knock Tankers, pursuant to which Knock Tankers was responsible for the commercial management of the Knock Dun, one of the vessels in the First Olsen fleet. In his declaration submitted in support of the plaintiff's petition, Lund states that Knock Tankers "is neither a charterer nor owner of the Knock Dun. . . . Indeed the [Suezmax Agreement] provides that Knock Tankers is to procure and enter into voyage charters as agent for the owner of the [Knock Dun] as a disclosed principal."

  Article 2(a) of the Suezmax Agreement defines the objective of Knock Tankers as, among other things, "to procure and enter into voyage charters . . . as agent for disclosed principals, i.e., the owners of or the disponent owners of the [vessels operated by Knock Tankers], in such a manner that the [owners of the vessels] obtain the highest possible earnings."

  Further, Article 9.2 of the Suezmax Agreement states that "[a]ny contract entered into by [Knock Tankers] as Agent for any of the [participating owners] under and in accordance with this Agreement shall be in the name and for the sole risk and responsibility of the [participating owner] in question."

  Annexed to the Suezmax Agreement is a "Time Charter Party." With respect to this document, Article 8.1 of the Suezmax Agreement states, in pertinent part: "Solely for the purpose of identifying the expenses for [Knock Tanker's] account pursuant to this Article, it is understood that such expenses shall be determined as if [Knock Tankers] was Time Charterer of the [vessel] in question on the basis [of] such Time Charter Party as attached as Appendix C hereto."

  Ordinarily, when there is a time charter party between a vessel owner and another entity, the latter is regarded as a "disponent owner." See Fairmont Shipping (H.K.), Ltd. v. Primary Indus., No. 86 Civ. 3668, 1987 WL 9433, at *2 n. 4 (S.D.N.Y. Apr. 7, 1987) ("A `disponent owner' does not hold legal title to a vessel, but, for purposes of the charter party, acts as if he does."); Julian Cooke, et al., Voyage Charters 37 (1993) (A party who has time-chartered a vessel from her registered owner . . . may sub-charter her for a voyage and for purposes of the voyage charter will be considered the disponent owner."); Michael Wilford, et al., Time Charters 71 (4th ed. 1995) ("It is common practice in the shipping industry to describe a disponent owner in a sub-charter merely as `owner.'").

  In his deposition, Lund described a disponent owner as a company having, "through a commercial arrangement . . . the commercial risks and rewards related to that vessel contrary to a manager." Specifically, a disponent owner charters a vessel from the owner and then subcharters it to the market. As noted above, when such an arrangement obtains, customarily the owner and the disponent owner have entered into a time charter party.

  A time charter party is a contract for the use of the carrying capacity of a particular vessel for a specified period of time, e.g., months or years. See Federal Judicial Center, Admiralty and Maritime Law 42 (2004). In this respect, a time charter party differs from a voyage charter party, which typically covers only one voyage. By contrast, during the time period fixed by a time charter party, there may be unlimited voyages. As with a voyage charter party, however, the vessel owner under a time charter party is responsible for the navigation and management of the vessel subject to conditions set out in the charter party. See id. Because a time charterer obtains only the carrying capacity of a vessel, it is not responsible for maintenance or repairs to the vessel. However, time charterers usually are responsible for the expense of operating the vessel. See id.; Thomas J. Schoenbaum, Admiralty and Maritime Law § 11-5 (4th ed. 2004) ("The [time] charterer bears the expenses connected with each voyage and pays hire to the carrier based upon the time the ship is under charter.").*fn4

  Lund testified that the purpose of the Time Charter Party attached to the Suezmax Agreement was not to establish a disponent owner/owner relationship between Knock Tankers and Dun Shipping but, rather, to distinguish two types of expenses: voyage-related and vessel-related. According to Lund, vessel-related expenses are the responsibility of the owner of a vessel, in this case, Dun Shipping. By contrast, voyage-related expenses, which Lund identified as "bunkers, port costs and agency fees, [and] so forth," are paid by Knock Tankers. However, Lund testified, such expenses are not actually Knock Tankers' responsibility; rather, they are paid by Knock Tankers on behalf of the vessel owner. Thus, Lund maintained, Knock Tankers has no voyage-related expenses of its own. Similarly, to the extent that Knock Tankers receives, for example, freight payments through a voyage charter party it has fixed, such payments are received solely on behalf of the owner of the assigned vessel. A record of the transactions associated with the subject voyage appears in various financial documents submitted by the plaintiff. The documents show that, during the relevant period, in connection with its commercial management of the Knock Dun, Knock Tankers maintained an account at Den Norske Bank. A copy of a statement from the bank, describing activity for the period December 4, 2000 through December 21, 2000, indicates that the account is in the name of Knock Tankers. Additionally, the name of the vessel, Knock Dun, appears on the statement, beneath the account number. According to Lund, although the account was in the name of Knock Tankers, it was one of many accounts that Knock Tankers operated on behalf of the shipowners whose vessels it managed; each shipowner had such an account with Den Norske Bank and the accounts were identified by the name of the ship that appeared on the account statement.

  The statement issued by Den Norske Bank shows that, on December 1, 2000, the account was credited $1,893,780.42. During his deposition, Lund testified that this figure represented the charter hire, or freight, that was paid by Hess Shipping, pursuant to the Charter Party, in connection with the voyage which is the subject of this dispute.*fn5 The statement also shows that, on December 8, 2000, $1,000,000 was paid to Dun Shipping. Also, a credit advice issued by Den Norske Bank to Dun Shipping shows that, on December 15, 2000, an account in the name of Dun Shipping was credited $1,000,000, as per the order of Knock Tankers. According to Lund, the credit advice documented a transfer of funds, that is, the freight payment less expenses, from the account held by Knock Tankers to the account held by Dun Shipping. Additionally, a freight invoice was sent to Hess Shipping in connection with the instant matter. According to Lund, although the invoice contains no reference to Dun Shipping, it was issued on Dun Shipping's behalf. Lund maintained that this was evident from the fact that the account number on the invoice was the same as the account number on the statement prepared by Den Norske Bank in the name of Knock Tankers with reference to the vessel, Knock Dun. According to Lund, the reference to the Knock Dun was sufficient to identify the account as pertaining to transactions conducted on behalf of Dun Shipping. Furthermore, Lund testified, Knock Tankers' only source of income is a management fee which it receives for the performance of the services described in the Suezmax Agreement. Lund denied that Knock Tankers derived any income from freight payments or charter hire.

  Lund also testified concerning certain documents that were provided to financial institutions which had agreed to finance the Knock Dun and other vessels through loans to be secured by an assignment of earnings of the vessels. Specifically, with respect to an acknowledgment and consent form dated April 27, 2000, and executed by a representative of Knock Tankers, Lund testified that, although the document referred to a charter party between Dun Shipping and Knock Tankers, "[t]here was no executed time Charter Party between Knock Tankers and the owner company in 2000."

  Also included among the parties' exhibits is a copy of a "Questionnaire 88" form. According to Holden, a Questionnaire 88 is a "general description of the vessels." According to Lund, a Questionnaire 88 is commonly used to provide information ...

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