597 F.2d 314 (2nd Cir. 1979), 43, National American Corp. v. Federal Republic of Nigeria

Docket Nº:43, Docket 78-7160.
Citation:597 F.2d 314
Party Name:NATIONAL AMERICAN CORP., Appellant, v. FEDERAL REPUBLIC OF NIGERIA and Central Bank of Nigeria, Appellees.
Case Date:March 30, 1979
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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597 F.2d 314 (2nd Cir. 1979)



FEDERAL REPUBLIC OF NIGERIA and Central Bank of Nigeria, Appellees.

No. 43, Docket 78-7160.

United States Court of Appeals, Second Circuit

March 30, 1979

Argued Nov. 13, 1978.

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Norman Roy Grutman, Eaton, Van Winkle, Greenspoon & Grutman, New York City (Jewel H. Bjork and Jeffrey H. Daichman, New York City, of counsel), for appellant.

James G. Simms, Kissam, Halpin & Genovese, New York City (Leo T. Kissam and Laurence May, New York City, of counsel), for appellees.

Berthold H. Hoeniger, Bailey, Marshall, Hoeniger & Freitag, New York City, for amicus curiae Reale International, Inc.

Before OAKES and VAN GRAAFEILAND, Circuit Judges, and MISHLER, District Judge. [*]

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OAKES, Circuit Judge:

This contract action founded upon our diversity jurisdiction is one of the many law suits resulting from the almost incredible massive cement purchase program that appellee Federal Republic of Nigeria (Nigeria) mounted in the spring of 1975. Under this program, Nigeria contracted with sixty-eight international suppliers of which appellant, National American Corp. (NAC), is one, for the total purchase of over twenty million metric tons of cement to be unloaded within one year at the port of Lagos, a port capable of unloading only one million metric tons per year. To add lime to the mix, the contracts if the one involved here is a typical example involved a built-in bonanza for the suppliers: demurrage claims were payable at per diem per vessel rates with no restriction on the number of suppliers that might use and claim demurrage on a single vessel and with no minimum tonnage required for each vessel. As a result, when the inevitable port congestion delayed unloading, huge demurrage claims began piling up because numerous small ships carrying small tonnages for different suppliers waited in the harbor or outside the port, or, in the case of ships carrying cement sold under CIF (cost, insurance and freight) contracts, 1 simply rested at their home port somewhere in the world. Faced with a national economic disaster because the growing congestion in its only major port threatened the supply of vital consumer goods, Nigeria in August 1975 placed an embargo on all shipping into Lagos. Nigeria notified its suppliers that it would permit no vessels to enter the port except for those already under sail or those giving two months' advance notice of sailing and obtaining permission for departure. Moreover, Nigeria formed a negotiating committee to renegotiate the cement contracts and accompanying letters of credit. It is specifically NAC's contracts as renegotiated that are here in dispute. The United States District Court for the Southern District of New York, Gerard F. Goettel, Judge, held that these renegotiation contracts were valid; that they were not executory accords; that they bound the appellant, NAC; and that under the contracts, appellee had fully paid appellant. National American Corp. v. Federal Republic of Nigeria, 448 F.Supp. 622 (S.D.N.Y.1978). Appellant principally argues that the negotiated contracts were ineffective because there was no meeting of the minds, that if effective the renegotiated contracts were not novations but were executory accords, and that in any event NAC is entitled to additional payment because the court below erred in computing its damages. Appellees, in addition to arguing that Judge Goettel's rulings were correct, argue that NAC's original claims arise out of governmental and sovereign acts of Nigeria which are acts of state, thereby rendering the claims nonjusticiable. We affirm for the reasons set out below.


Assuming that the reader may obtain a certain familiarity with Judge Goettel's opinion below, we review the facts only in sufficient detail to elucidate the legal issues on appeal.

As stated, Nigeria's 1975 cement purchase program involved NAC, an American company with Spanish connections. On April 3, 1975, Nigeria entered into a contract with NAC for the purchase of 240,000 tons of Portland Cement at $60 per metric ton CIF Lagos, for a total purchase price of $14,400,000. The contract provided for demurrage payable by the consignee Nigeria at a rate not exceeding $3,500 per diem. The contract was to be governed by the laws of "New York City" and involved issuance through the state bank, appellee Central Bank of Nigeria (CBN), of an irrevocable letter of credit to its correspondent bank, Morgan Guaranty Trust Co. of New York (Morgan). CBN established in favor of NAC a letter of credit with a May 31, 1976, expiration date for $14,400,000, the full amount of the purchase price of the

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cement, and subsequently agreed to pay for demurrage expenses in excess of the credit amount. NAC assigned portions of the payments due to it under the contract to various corporations, principally two assignments totaling $11,640,000 to International Trade and Finance Espanola, S.A. (Intrafinsa), headed by one Agustine Arrau. Subsequently, after the renegotiation contracts, hereinafter called the agreements of discharge, Intrafinsa reassigned its rights in the letter of credit to NAC with NAC agreeing to pay the shipowner's claims for demurrage when NAC recovered damages. 2

Performance of the cement contract started in late July 1975 with the shipment of 500 tons of cement upon the vessel Cretan Life (which also carried 10,500 tons consigned by another one of Nigeria's numerous cement suppliers). Five additional vessels, including the Naimbana, Rio Doro, Cherryfield, Joboy, and Jotina, carried cement to Lagos for NAC. These were the "first six vessels"; and by September 10, 1975, Nigeria had completed payment of $2,257,800 for their combined cargoes of 37,630 tons. Six other ships, the Aristotle, Astrid, Ardenal, Sandrina, Euna, and Nicholaos H. (the "second six vessels"), were prepared for loading or were partially loaded when Nigeria imposed its embargo. At the time of the embargo CBN also instructed its correspondent Morgan to dishonor all demurrage claims, even those accruing on vessels that entered the harbor prior to the embargo, unless CBN had certified the documents for payment. Nigeria formalized this policy in a government decree issued December 19, 1975. 3

Of NAC's first six vessels, four were eventually unloaded in Lagos; but the Joboy and the Jotina departed without discharging their cargoes. Their owners exercised shipholder's liens and seized the cement. Nigeria would not grant the ships priority berthing, and demurrage was running without payment. 4 As to the second six vessels, although there was deposition testimony from Intrafinsa's Arrau that some of them were half loaded and in the process of being loaded when Nigeria imposed the embargo and that the shipowners sold to Saudi Arabia some of the cement under lien, his records were sufficiently inadequate that the court below found that neither NAC nor Intrafinsa had established any losses. 448 F.Supp. at 628.

In early January 1976, the Nigerian cement contracts negotiating committee invited NAC's president, Dr. Ilona Gero, to renegotiate the cement contract and letter of credit. Gero and Arrau prepared a document dated January 28, 1976, which was introduced in evidence as Exhibit 38, that set Intrafinsa's damages at $3,945,000; the amount allegedly represented the demurrage due on all twelve vessels calculated at $3,500 per day. Also in the document, NAC promised to "cause" Nigeria to accept delivery of an additional 28,370 tons of cement. Calculations supporting the demurrage claim appear as a schedule to the document, but the district court noted that this document mysteriously contains a column listing the "ETA" (estimated time of arrival) Lagos

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date for the first six vessels which had already arrived and an "ETA" date for the second six vessels which had never sailed. 448 F.Supp. at 629 n.8. Appellant also introduced in evidence as Exhibits 38B and 71 two other schedules with a similar format. Exhibit 38B calculated demurrage at a pro rata rate of thirty-five cents per ton per day; thus calculations under this schedule would effect a savings to Nigeria if the cargo amount was less than 10,000 tons, as most of the cargoes here involved were. This pro rata calculation yielded demurrage due of $2,784,140, but this particular exhibit also included a claim for $1,992,000 for "cargo not paid for" as of February 7, 1976 (33,200 tons at $60 a ton). 5 Exhibit 71, of which Exhibit 38B is apparently a carbon copy, gives a "TA" or time of arrival for the first six vessels, which are described as "vessels accepted by . . . Nigeria( )." The exhibit describes the second six vessels as "awaiting delivery of which cargo and demurrage still unpaid"; and in a column the entries of which should have indicated the date of the bill of lading (according to the format for the schedule of the first six vessels), the date is designated by a handwritten heading as "TA Lagos." 6 As the district judge pointed out, these schedules had an "Alice in Wonderland" character because it is impossible to calculate demurrage at Lagos on vessels that never sailed from their home ports. 448 F.Supp. at 630.

At the New York meeting late in January 1976, Gero and Arrau called in another holder of a Nigerian cement contract, Doris Delia, to act as their agent in the cement committee negotiations. Arrau promptly executed a written power of attorney authorizing Delia to negotiate terms paralleling the claims incorporated in Exhibit 38. Delia returned from Nigeria in the first week of February with two form agreements entitled "agreements of discharge," one with the Federal Ministry of Defense concerning the cement contract and one with CBN concerning the letter of credit. These documents provided for...

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