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: In the Matter of the Arbitration :
:
: ----- between ----- :
:
: ALLIED BULK NAVIGATION LTD. :
: Disponent Owner of the Partial Final Award
: M/T SKYROS, :
:
: ---- and ---- :
:
: MMI INTERNATIONAL, INC., :
: Charterer, under
: a Charter Party dated June 7, 1990. :
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Before: Donald E. Zubrod, Chairman
Captain E. Rigos (Dissenting)
Jack Berg
Appearances: Freehill Hogan & Mahar
Attorneys for Disponent Owner
Eugene J. O'Connor, Esq.
Chalos & Brown, P.C.
Attorneys for Charterer
Peter Skoufalos, Esq.
INTRODUCTION
This arbitration is between ALLIED BULK NAVIGATION LTD. (hereinafter
"ABN" or "Owner"), as disponent owner of the bulk carrier M/V SKYROS
( hereinafter "Vessel" ), a Maltese flag bulk carrier of 32,280 MT
deadweight, and MMI INTERNATIONAL INC. (hereinafter "MMI" or "Charterer"),
as charterer under a Gencon charter party, dated June 7, 1990.
The charter party describes the cargo to be lifted as 25,000 long
tons of bulk steel scrap, 5% more or less in Owner's option, loading one
safe berth Tacoma, Washington, for discharge at one safe berth, one safe
port South Korea.
THE PROCEEDING
On October 19, 1990, MMI filed a complaint in the United States
District Court for the Northern District of California against the Vessel
in rem and ABN in personam asserting a maritime lien on the Vessel and a
claim against ABN for damages, alleging the cargo gear was unable to lift
the weights stipulated in the charter party.
A warrant of arrest and writ of maritime attachment were executed
five days later, resulting in the Vessel's seizure. ABN posted a $215,000
cash deposit to obtain the Vessel's release and, thereafter, filed a
counterclaim for damages said to have been incurred by ABN in South Korea.
The parties subsequently proceeded to arbitration in accordance with
Clause 47. The arbitration clause provided for the party appointed
arbitrators to be commercial men but required the third arbitrator to be
an admiralty attorney. The parties waived the latter requirement.There was
also agreement that the arbitration would be governed by the Rules of the
Society of Maritime Arbitrators, Inc.
Hearings were conducted on January 21 and 22, 1991. Subsequent to the
close of hearings, counsel exchanged main and reply post hearing briefs.
Final submissions were received by the panel on March 1, 1993.
FACTUAL BACKGROUND
The Vessel completed loading 27,429.6 long tons of loose, bulk
melting steel scrap at Tacoma and departed for Pusan, South Korea on
July 12, 1990. The sea voyage was without incident and the Vessel arrived
there on August 8.
The charter provided for the Vessel to be consigned to Charterer's
agent at the discharge port and MMI appointed Korea Western Shipping Co.
( hereinafter " KOWEST " ) to serve in that capacity. Owner engaged Heung
Shipping Company as its protecting agent at Pusan.
MMI was the cargo seller to Hanbo Steel and General
Construction Co., Ltd. (hereinafter "Hanbo" or "Receiver) who customarily
discharged its inbound cargoes alongside the Hanbo Pier. The Hanbo Pier
was occupied when the Vessel arrived at Pusan so it was ordered to
lighten at anchorage K-20 to an acceptable draft for later berthing when
the Hanbo Pier became available. Initially, the Master protested about
moving to the designated anchorage because he alleged it was unsafe, but
he agreed to shift there on August 10, to commence discharge into barges
using ship's gear.
Clause 20 describes the Vessel's cargo gear capacity as follows:
"3 cranes of 8 tons serving hatches 2 through 7
2 derricks at 8 tons serving number 1 hatch"
The stevedores bearded the Vessel at anchorage on August 10, and
promptly complained to the Master and Hanbo that the cargo gear had
"insufficient capacity and power for lifting" Subsequent surveys arranged
by the agent appeared to support the allegation.
The Master's Notice of Readiness ( NOR ) was rejected because of the
cargo gear problem and Charterer placed ABN on notice that it would be
held responsible for any and all extra expenses. All further attempts to
discharge at the anchorage were suspended.
A meeting was held in Pusan on the morning of August 20, attended by
KOWEST, Receiver's representatives, the stevedores, the Vessel's registered
owner and ABN's local agent. It was readily conceded that the cargo gear was
not functioning properly and that shore cranes would have to be utilized to
discharge sufficient cargo for the Vessel to berth at its intended pier. The
only facility which had shore cranes for discharge was Pier 7 (also known as
Berth73), and all concerned agreed they would have to be employed. There was
also sufficient draft for the Vessel to discharge her entire cargo there, if
desired. However, some agreement on cost, and apportionment of the cost would have
to be reached.
On August 20, ABN submitted the following unsolicited proposal, "without
prejudice":
1. All cargo to be discharged at Berth 73 using shore cranes.
2. Owners (ABN) to contribute with 50 percent but
maximum U.S. $30,000 toward any additional
stevedoring/transportation etc. cost incurred over and
above what the cost would be if Vessel discharged whole
cargo at K-20 with her own gear and the remaining portion
to be met by charterers/receivers.
3. Laytime from when Berth 73 becomes available to count
in accordance with the provisions of the C/P.
4. Time between Vessel's arrival at Pusan and the time
Berth 73 becomes available to count in half for laytime
purposes.
5. First of the two shiftings made so far to be for ABN's
account. Shifting from waiting anchorage to Berth 73 for
ABN's account. Any other shifting in accordance with the
C/P provisions.
6. Any stevedore cancellation expenses incurred so far for
Charterers'/Receivers' account.
The proposal was made following a previous MMI estimate which
concluded that the additional cost to discharge the entire cargo at
anchorage K-20 would amount to some U.S. $ 40,000 over and above the cost
to discharge the intended cargo at the Hanbo berth, utilizing ship's gear.
Charterer responded that same day from Vancouver:
"There is some difference between the report from Owner
and report from our Korea office about the situation, which
we should try to find the facts.
However, in order to solve the present matter at Pusan with
a spirit of goodwill and cooperation to minimize the possible
damages to the concerned parties, we agree with Owner's
proposal without prejudice
On August 24, Hanbo's Seoul office fared MMI advising that the Vessel
would arrive at Berth 73 the following day, that the additional expense for
shore crane discharge would be $2.50 per metric ton and that additional
transportation charges over and above the Hanbo Pier charges would amount
to $3.33. The total additional charges would amount to $5.83 per metric ton.
ABN advised MMI that same day that it had received similar information from
Hanbo and protested the substantial increase over earlier additional
discharge estimates.
MMI responded sympathetically, stating its belief that the amount was
simply an estimate, subject to verification, and that its branch office and
agent in Korea would closely monitor the situation.
On October 3, 1990, MMI advised ABN that its total claim resulting
from the Vessel's cargo gear problem amounted to $177,076. MMI was
withholding $27,879.42 of unpaid freight and stated it was willing to accept
a settlement of $100,000, less the $27,879.42 balance of freight. Absent
immediate payment, MMI stated it would arrest the Vessel upon her arrival
in California. MMI subsequently did so.
On December 26, 1990, Hanbo acknowledged it received a payment of
$135,846.12 from MMI to cover Hanbo's claim for additional expense of
discharging the SKYROS.
THE CLAIM
MMI claims an amended sum of $179,861.12, together with interest,
costs and attorneys' fees.
The threshold issue about which this controversy revolves is the
interpretation of MMI's "without prejudice" acceptance of ABN's August 20,
1990 settlement proposal and, more precisely, whether there was a settlement
arrangement agreed to by the parties.
ABN maintains a settlement was concluded, notwithstanding MMI's
insertion of "without prejudice". MMI argues otherwise.
At the inception of the proceeding, and prior to the submission of
documents and presentation of witness testimony, ABN's counsel distributed
a pre-hearing brief entitled "Memorandum of Disponent Owner Allied Bulk
Navigation Ltd. Regarding Enforceability of Settlement with MMI". The
memorandum concluded with the following statement:
"The extent of the extra discharging costs must be proved,
and the panel should adjust the next balances due to the
parties accordingly"
It was suggested that it would be expeditious for the arbitrators to
address, as a threshold issue, the question of whether the parties had
arrived at a settlement agreement in August 1990 which, among other things,
would have capped ABN's cargo gear damage exposure at $30,000. The thought
seemed worthwhile, however, ABN's counsel seemed not to pursue this
approach in his closing brief. To clarify the situation and make certain
there was no confusion about the scope of the issue we were to address,
the panel wrote counsel on May 18, 1993. That letter is attached as
Appendix A. ABN's counsel's response is attached as Appendix B. MMI's
counsel also responded, alleging ABN's counsel had not pursued its initial
suggestion of isolating the settlement agreement threshold question nor had
it addressed issues beyond the validity of the settlement agreement.
Therefore, MMI contends the panel should decide all of the issues in the
case and render a Final Award.
We have considered counsel's arguments on the point and we agree to
limit this Partial Final Award to the threshold issue of whether the
parties concluded a settlement agreement as ABN suggests. This specific
issue was fully briefed and is ripe for determination.
THE ARGUMENTS
ABN argues that a binding settlement agreement was concluded on
August 20, 1990, and reconfirmed on August 24 when MMI knew full well that
the cost of discharging at Berth 73 could exceed $162,000. ABN submits that
the "without prejudice" reservation wording appearing in its settlement
offer of August 20, and MMI's acceptance of the same date, was protective
in nature and intended to preclude statements made by either party during
the negotiations from being used against them in subsequent litigation or
arbitration. ABN argues that the term is often used to encourage frank and
open discussion during settlement negotiations without fear the comments
will be used against them if settlement talks fail.
ABN submits it believed a settlement had been reached in August until
it received MMI's letter of October 3, stating its Receivers claim was much
higher than originally estimated and that its management was unwilling to
accept a loss of that magnitude. MMI wrote again on October 5, stating:
" We are regretfully forced to repudiate our agreement of
August 20, 1990, which was made on a "without prejudice"
basis, because the total claim amount we are facing now is
much greater than it was originally represented by you"
ABN contends that it obtained approval of the head owner prior to
extending settlement terms to MMI, and that a $30,000 maximum contribution
was worked out whereby ABN would deduct that sum from the September 1, 1990
charter hire. ABN argues it would be prejudiced if the panel fails to find
a settlement agreement because ABN cannot reopen its settlement with the
head owner.
MMI submits that there is no longer a dispute regarding Charterer's
initial right to discharge cargo at the K-20 anchorage or that the cargo
gear was inadequate to satisfy the Clause 29 warranted lifting capacity.
MMI argues that both parties reserved their respective rights by
inserting the "without prejudice" language in their exchange of
correspondence subsequent to the Pusan meeting on August 20, and that
neither party intended the exchange to be a full and final resolution of
the dispute. MMI maintains that its "without prejudice" wording was
intended to be an express reservation of its right to seek damages for
actual discharge costs, and that no other meaning can be attributed to the
parties mutual use of the term.
MMI submits that at no time during or after the exchange, or even later
in October 1990, did ABN pay, or offer to pay the $30,000 which it purports
to be the upper limit of its liability. On the other hand, MMI argues it
acted consistently throughout with the understanding that it reserved its
right to seek damages based on actual discharge costs.
Finally, MMI contends that ABN has failed to demonstrate it would
suffer prejudice if the arbitrators held there was no valid settlement
agreement between the parties. The only prejudice offered by ABN is an
alleged settlement between itself and the head owner for which ABN was
to deduct $30,000 from time charter hire. MMI contends there is no evidence
of such a transaction and, in fact, MMI argues the head owner and ABN are
part of the same owning interests.
DISCUSSION AND DECISION
The panel majority, arbitrator Rigos disagreeing, concludes no
settlement agreement was ever arrived at between the parties at or after
the Pusan meeting on August 20. Capt. Rigos' dissenting opinion is
attached as Appendix C.
lt is ABN's principal position that MMI accepted the ABN settlement
proposal on August 20, when it was offered that day. Also, that it
reconfirmed its agreement on the settlement on August 24. In arguing this
point, ABN has conveniently downplayed an important element of the texts of
ABN's offer and MMI's conditional acceptance.
We should first state that in alleging the settlement as a defense,
ABN bears the burden of establishing all elements of such a defense. It is
not enough for ABN's evidence to infer or suggest the parties came to a
"without prejudice" understanding without precisely knowing just what MMI
had in mind on the reservation wording. It may well be that ABN believed it
had concluded a settlement agreement on August 20 or August 24, but clearly
MMI thought otherwise. We should closely examine that point.
At the heart of the parties' difference is the wording of the exchange
of proposals, each "without prejudice" language. ABN's counsel has capably
set forth the legal understanding of such phraseology and we have no quarrel
with what lawyers would understand the words to mean. However, the proposals
which the parties exchanged were drafted by commercial shipping people. ABN
may well have understood the context in which it conditioned its August 20
settlement offer, but MMI clearly had a somewhat different understanding of
its "without prejudice" acceptance. This is clearly evidenced by the
documents and testimony.
In summary, we do not believe the evidence supports ABN's position on
the settlement agreement. Indeed, we find that MMI intended to reserve its
rights on additional costs because it was impossible, if not impractical,
to make any meaningful determination of cost at the time. However inartful
the "without prejudice" wording was for the specifics of this case, we
conclude MMI never intended that the August exchanges would represent a
full and final settlement of the cargo gear problem. We conclude there was
no settlement agreement.
If ABN elects to pursue a substantive defense of MMI's claim, it must
advise the panel of its intent to do so and be prepared to follow through
on this within 30 days of the date of this award. Following receipt of such
presentation, MMI will be allowed 30 days within which to offer its rebuttal
case, if any.
The arbitration clause stipulates that the decision of the arbitrators,
or any two of them, shall be final and may be made a rule of the court.
Each party is to assume its own legal fees and costs and share the
expense of the hearing stenographic transcript. The panel's fee to-date
is set forth in attached Appendix D, which is deemed fully incorporated
herein. Payment is to be made in accordance with its terms. Liability for
full settlement of the fee is joint and several between the parties. Should
either party fail to pay all or any of its share, the other party shall
promptly pay same and, thereafter, have a right of recovery against the
defaulting party for the sum paid, plus interest at the rate of 6% per
annum from the date of payment to the date of reimbursement.
-----------------------------
Jack Berg
-----------------------------
Capt. E. Rigos
(Dissenting)
----------------------------
Donald E. Zubrod.
Chairman
New York, New York
August 9, 1993
APPENDIX C
MV Skyros/MMI
CP 06/07/90
DISSENTING OPINION
OF
CAPT. E. N. RIGOS
Based on the evidence presented to the panel, and with all respect to
the opinion of the other members, I disagree with their conclusion. I
am of the pinion that there was a binding agreement between the two
parties, ABN and MMI, involved in the arbitration.
On August 20,1990 the Owners of the vessel, ABN, proposed without
prejudice the following:
1.- All cargo to be discharged at Berth 73 using shore cranes ( and
vessels's derricks if this required.)
2.- Owners to contribute with 50 percent but maximum usd 30,000 towards
any additional stevedoring/transportation etc costs incurred over and
above what the cost would be if vessel discharged whole cargo at K-20
with her own gear and the remaining portion to be met by
charterers/receivers.
3.- Laytime from when berth 73 becomes available to count in accordance
with the provisions of the C/P.
4.- Time for the time between vessel's arrival at Pusan and the time
berth 73 becomes available to count in half for laytime purposes.
5.- First of the two shiftings made so far to be for owner's account.
Shifting from waiting anchorage to berth 73 for owners' account. Any
other shiftings in accordance with C/P provisions.
6.- Any stevedore cancellation expenses incurred so far for
charterers/receivers' account.
The same day August 20, 1990 the charterers reverted as follows:
" .... However, in order to solve the present matter at Busan with a
spirit of goodwill and cooperation to minimize the possible damage to
the concerned parties, we have agree with owner's proposal without
prejudice."
On August 24, 1990 the owners send a fax to Charterers advising them
that receivers claimed USD 162,476 as extra cost. In addition, and with
the same document, the owners requested charterers "... whether the
agreement made with Charterers is to be followed by Charterers or not."
Charterers reverted " ... Meantime, please refer to our previous fax of
August 20th, 1990 which will be followed by us."
On October 5, 1990 the Charterers of the vessel repudiated the agreement
by advising Owners as follows:
" We are regretfully forced to repudiate our agreement of August 20th, 1990
which was made on a "without prejudice" basis, because the total claim
amount we are facing now is much greater than it was originally represented
by you."
Although charterers, with their letter dated October 5, 1990, repudiated
the agreement because it was made "without prejudice" and because the
amount was greater than it was originally represented, I have noticed that
owners advised charterers for the increased amount on August 24, 1990 and
charterers accepted same. Charterers were aware of the fact that the amount
of the claim was $162,476.
With reference to "without prejudice" statement in their correspondence by
both parties, I am of the opinion that Charterers and Owners placed this
term in there communication in order to protect themselves in any unknown
claim over and above the amount of $162,476.
As a conclusion, I am of the view that there is a binding agreement and
the proposal of Owners dated August 20, 1990 was accepted by Charterers,
Therefore, this agreement is binding for both parties up to the amount
of $162,476.
New York, N.Y.
August 9 1993
Capt. E.N.Rigos
(Dissenting)
RETURN. to RIGOS home page