Atlantic Fruit Co. v. Red Cross Line

• Decision Date: 24 September 1921
• Citation: 276 F. 319
• Parties: ATLANTIC FRUIT CO. v. RED CROSS LINE.
• Court: U.S. District Court — Southern District of New York

276 F. 319

ATLANTIC FRUIT CO. v. RED CROSS LINE.

United States District Court, S.D. New York.

September 24, 1921

Hunt Hill & Betts, of New York City (John W. Crandall and E. S Rapallo, both of New York City, of counsel), for libelant.

Loomis Barrett & Jones, of New York City (Homer L. Loomis and Reginald B. Williams, both of New York City, of counsel), for respondent.

Julius Henry Cohen, of New York City, for Chamber of Commerce of State of New York, as amicus curiae.

MACK Circuit Judge.

The libelant, as chartered owner, seeks to recover $4,500 alleged to be due under a time charter party of the steamship Runa. The respondent alleges by way of answer that, through ignorance of the lack of dispatch in the prosecution of the voyage upon the part of the master, it has already overpaid the libelant more than $35,000 for charter hire and expenses. The respondent sets up as a further defense the refusal of the libelant to submit to arbitration. The charter party has the following provision:

'That should any dispute arise between owners and charterers, the matter in dispute shall be referred to three persons in New York, one to be appointed by each of the parties hereto, and the third by the two so chosen; their decision or that of two of them shall be final and for the purpose of enforcing any award, this agreement may be made a rule of court.'

Libelant files exceptions to this defense, alleging it to be irrelevant, insufficient, frivolous, and evasive. ^[1] There was a tendency in the early common law to regard arbitration agreements with extreme disfavor as being contrary to public policy and as ousting the courts of their legitimate jurisdiction. But there has been a marked shift of judicial opinion in favor of arbitration, and, quite apart from statute, it is now settled, under the modern common law of England, that the parties to a contract can agree that all differences between them shall be submitted to arbitration and that arbitration of the question of liability, as of the amount of damage, may be made a condition precedent to the suit. Scott v. Avery, 5 H.L.Cas. 811, 8 Exch. 487; Trainor v. Fire Assurance Co., 65 L.T.R. 825; Collins v. Locke, 4 A.C. 74; Spurrier v. La Clocke, 1902 A.C. 446; Gaw v. British Law Fire Insurance Co., 1908, 1 Ir.R. 245; Woodall v. Pearl Assurance Co., 1919, 1 K.B. 593. Under the Common Law Procedure Act of 1854 and the Arbitration Act of 1889 (52 and 53 Vict.c. 49), power is given to the courts in their discretion to stay proceedings even where the agreement for arbitration does not make arbitration a condition precedent. Theretofore the courts had treated a mere agreement to arbitrate as a collateral undertaking giving rise to an action for nominal damages for breach but not barring a proceeding at law. Equity might refuse to grant relief to one who had failed to carry out his agreement to arbitrate (Waters v. Taylor, 15 Ves.Jr. 10; Harcourt v. Ramsbottom, 1 Jac. & Walk. 505), but because of inherent difficulties as to enforcement, as well as doubts as to the public policy, the Chancellor was not prepared to decree specific performance. Williston, Contracts, Sec. 1421. After the decision in Scott v. Avery, supra, there was no need of resorting to equity to enforce the negative part of the covenant not to litigate before arbitration, because the remedy at law was adequate.

Viewing the question as one of principle rather than precedent, there is great weight in the following observation of Prof. Williston:

'Even the requirement of the form of a condition precedent as a requisite for denying relief by legal proceedings until arbitration has been had, savours of excessive technicality; for the nature of the provision necessarily indicates that the intention of the parties can be effectuated only by regarding the stipulation as a condition. A promise in a contract to give a bond for securing performance of other promises is held to create a condition precedent to liability on the other promises, because otherwise the stipulation would be ineffective. It is a condition implied in fact. Somewhat similar it may fairly be argued a provision for the arbitration of disputes under a contract can only be effective if the arbitration precedes litigation rather than follows it. ' Williston, Contracts, Sec. 1724.

While there are American authorities that follow the British precedents apart from the statutes (see Williston, Sec. 1721), there has been a tendency in some courts here, as there was even for a time in the lower courts in England, to follow the principles laid down, not by the House of Lords, but by the Exchequer Chamber in Scott v. Avery, supra, and to hold invalid and unenforceable agreements to arbitrate the question of liability itself as distinguished from the amount of the loss or damage. Meacham v. James. F. & C.R.R. Co., 211 N.Y. 346, 105 N.E. 653, Ann. Cas. 1915C, 851; Hamilton v. Home Insurance Co., 137 U.S. 370, 11 Sup.Ct. 133, 34 L.Ed. 708 (semble); Hamilton v. Liverpool Insurance Co., 136 U.S. 242, 10 Sup.Ct. 945, 34 L.Ed. 419 (semble); Asphalt Refining Co. v. Trinidad Lake Petroleum Co. (D.C.) 222 F. 1006; Aktieselskabet Korn-og Foderstof Kompagniet v. Rederiaktiebolaget Atlanten, 250 F. 935, 163 C.C.A. 185, Ann. Cas. 1918E, 491; (D.C.) 232 F. 403, affirmed on another point in 252 U.S. 313, 40 Sup.Ct.332, 64 L.Ed. 586; The Eros, 251 F. 45, 163 C.C.A. 295; (D.C.) 241 F. 186. In the Atlanten Case, the Court of Appeals, while holding that agreements of this kind were unenforceable and would not be given effect as conditions precedent to legal proceedings, did not deny that an action for nominal damages might be sustained for their breach, as was done in Munson v. Straits of Dover S.S. Co., 102 F. 926, 43 C.C.A. 57; (D.C.) 99 F. 787. See, also, Matter of Berkowitz, 230 N.Y. 261, 271, 130 N.E. 288.

I recognize the growing sentiment in the commercial world, which is principally concerned in these matters, that the law ought not to intervene and render arbitration agreements ineffective (see Cohen, Commercial Arbitration and the Law), and the duty of courts, especially in matters essentially of procedure, to free themselves from anachronistic rules and precedents which are opposed to principles and standards of modern jurisprudence. It is true, too, that admiralty is not bound by the strict rules of the common law (Toledo S.S. Co. v. Zenith Transp. Co., 184 F. 391, 106 C.C.A. 501), and not infrequently applies principles differing from those in other courts (The Max Morris, 137 U.S. 1, 11 Sup.Ct. 29, 34 L.Ed. 586; Belden v. Chase, 150 U.S. 674, 14 Sup.Ct. 264, 37 L.Ed. 1218; The China, 7 Wall, 53, 19 L.Ed. 67; The Barnstable, 181 U.S. 464, 21 Sup.Ct. 684, 45 L.Ed. 954). Arbitration clauses are found in virtually all the standard forms of charter parties and are particularly favored by shipping men as a means of avoiding litigation in distant countries before foreign tribunals. It is, moreover, important that in these matters American maritime law should accord with that of the other great maritime countries. Nor should it be overlooked that an unfortunate situation is created if arbitration agreements can be repudiated in American courts while American citizens can insist upon their enforcement in their favor as a bar to litigation abroad. While for these reasons, it would seem most desirable that, at least in admiralty, a covenant to arbitrate should operate as in the nature of an equitable defense, nevertheless, sitting in this circuit, I am constrained to follow the decisions in The Atlanten and The Eros, supra, unless, because of the New York Arbitration Act (Laws of 1920, c. 275), making arbitration agreements valid and enforceable and authorizing the staying of legal proceedings, the law to be applied in this court in admiralty has been changed.

It is undoubtedly true that within certain limitations, in the absence of congressional action, 'a state law may give a substantial right of such a character that * * * the right may be enforced in the proper federal tribunal whether it be a court of equity, of admiralty, or of common law. ' Ex parte McNiel, 13 Wall. 236, 20 L.Ed. 624. It is on this principle that state pilotage laws have been sustained. Ex parte McNeil, supra; Cooley v. Board of Port Wardens, 12 How. 299, 13 L.Ed. 996. It is on the same principle that the states have been permitted to create a lien on a vessel for repairs made and materials furnished in her home port, and such a lien may then be enforced in admiralty. The Planter (Peyroux v. Howard) 7 Pet. 324, 341, 8 L.Ed. 700, Fed. Cas. No. 11,207; The J. E. Rumbell, 148 U.S. 1, 13 Sup.Ct. 498, 37 L.Ed. 345. Similarly, by state statute, damages may be made recoverable for death caused by a collision upon the high seas, either in the state court (Steamboat Co. v. Chase, 16 Wall. 522, 21 L.Ed. 369; Knapp, Stout & Co. v. McCaffrey, 177 U.S. 638, 644, 20 Sup.Ct. 824, 44 L.Ed. 921), or in admiralty (The Hamilton, 207 U.S. 398, 28 Sup.Ct. 133, 52 L.Ed. 264; The Bourgogne, 210 U.S. 95, 138, 28 Sup.Ct. 664, 52 L.Ed. 973). On the other hand, state workmen's compensation statutes and statutes of fraud have been held inapplicable in admiralty (Knickerbocker Ice Co. v. Stewart, 253 U.S. 149, 40...