Oriental Commercial & Shipping v. ROSSEEL, NV

Decision Date19 December 1988
Docket NumberNo. 84 CIV. 7173 (PKL),84 CIV. 7689 (PKL).,84 CIV. 7173 (PKL)
PartiesORIENTAL COMMERCIAL AND SHIPPING CO., LTD., Oriental Commercial and Shipping Co. (U.K.), and Abdul Hamed Bokhari, Plaintiffs, v. ROSSEEL, N.V., Defendant.
CourtU.S. District Court — Southern District of New York

COPYRIGHT MATERIAL OMITTED

McLaughlin & Stern, Ballen and Ballen, New York City (S. David Harrison, of counsel), for plaintiffs.

Baker & McKenzie, New York City (Arthur W. Rovine, and Grant Hanessian, of counsel), for defendant.

OPINION AND ORDER

LEISURE, District Judge:

In this action, defendant Rosseel, N.V. (hereinafter "Rosseel") seeks to compel plaintiffs to arbitrate, pursuant to Article II(3) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards1 (hereinafter "the Convention"), under a contract for the sale of high sulfur fuel oil.

On August 14, 1984, Rosseel served a notice of its intention to arbitrate upon plaintiffs Oriental Commercial and Shipping Co. (U.K.) Ltd. (hereinafter "Oriental U.K.") and Oriental Commercial and Shipping Co., Ltd. (hereinafter "Oriental Saudi Arabia" or "Oriental S.A."). Although Oriental U.K. did not challenge said notice of arbitration, Oriental S.A. responded by filing an action to stay arbitration in the Supreme Court, New York County. Defendant Rosseel removed the state court proceeding to this Court on October 4, 1984. In a separate action, Rosseel then moved in this Court, pursuant to Article II(3) of the Convention, to compel arbitration and for the appointment of an arbitrator. The two actions were consolidated by stipulation of the parties.

On March 4, 1985, this Court ruled that it had jurisdiction under the Convention, that the arbitration clause in the contract was valid, and that this dispute is governed by the arbitration clause. The Court also found that at that time, there were insufficient facts before the Court to determine whether Oriental S.A. should be made a party to the arbitration proceeding.

On August 27, 1985, Rosseel served plaintiff Abdul Hamed Bokhari ("Bokhari") with an amended notice of intention to arbitrate, and on September 10, 1985, Bokhari was added as a plaintiff-respondent by stipulation of the parties.

From December 14 to December 16, 1987, a bench trial was held to determine whether Oriental S.A. and Bokhari should be made parties to the arbitration.

FINDINGS OF FACT
Rosseel, N.V. and Charles Rosseel

Charles Rosseel ("Mr. Rosseel") is managing director of Rosseel, N.V. ("Rosseel"), a Belgian corporation whose primary business is the trading and distribution of oil products in Belgium and surrounding European countries. From 1956 to 1965, Mr. Rosseel was an employee of a Belgian oil trading company, and he created Rosseel in 1965.

Rosseel purchases and trades oil obtained from local Belgian refineries — including refineries owned by major multinational oil corporations — and from refineries in Rotterdam, Germany, and France. Rosseel also imports oil products from oil producing countries in the Middle East and North Africa. In general, the oil product supply is obtained through both long and short term contracts, as well as by purchases on the "spot" market.

Mr. Rosseel possesses a Belgian oil trader's license. He has himself taught preparatory courses for individuals seeking to obtain the oil trader's license. He is also a member of several Belgian oil trade associations, including the Association of Oil Distributors of West Flanders, the Association of Oil Distributors, the National Association of Independent Oil Importers, and Inform Mazoot. Based on his education, experience, teaching, and association memberships, the Court found, without objection from plaintiffs' counsel, that Mr. Rosseel was qualified to testify as an expert with respect to the oil trading and distribution industry in Belgium. Despite Mr. Rosseel being a witness with an interest in the outcome of the litigation, the Court found his uncontradicted expert testimony concerning practices in the oil trading market to be wholly credible.

Practices in the oil trading market

Trading in the European oil market is arranged primarily by telephone. Successful traders are known in the market, and tend to work with a set of people with whom long term trading relationships have developed. Normally, numerous offers are made to traders in a given day. When a trader receives an offer, the trader will normally inquire as to the quantity of oil or oil product available, the quality of the product, the timing of delivery, and the payment conditions.

Offers are generally communicated to traders, however, through two different means. At times, the principal whose oil product will be sold will make the offer itself. When the principal makes the offer, the trader will know with whom he is dealing. The trader will normally know both the reputation of the entity and of the individual representing the entity. Very often, however, it is not the principal itself, but a broker, who communicates the offer. When the deal is proposed by a broker, the trader will normally not know the principal seller until agreement is reached to pursue the trade. The broker will not reveal the principal seller to prevent the purchaser from going directly to the principal and excluding the broker from the deal. On average, about one half of all trades are consummated through brokers, although that percentage decreases during periods when a shortage of particular products exists, and conversely increases when a overflow of particular products exists in the market.

In transactions involving brokers, the pre-existing relationship between the purchaser and the broker is especially significant. The purchaser must rely on the information provided by the broker, and must rely on the broker's assurances that the principal will in fact provide the quantity and quality of product on the terms agreed upon. Given the reliance parties in the industry must have on each other, the different parties seek to protect themselves and their knowledge of the players in the market. As a result, the number of players in the market tends to stay relatively small.

Whether transactions be initiated through a broker or directly with the principal, oil trading purchases are usually consummated at a fast pace, and in oral telephone communications. It is normally not the practice in such an environment for the purchaser to seek to verify the financial status of the principal company, even when that principal is known. It is also not a part of industry practice for a purchaser to request that a broker provide specific financial information concerning the principal.

When a contract is formally executed, and the broker reveals the identity of the principal seller, it may become apparent that the principal is a subsidiary or branch of some other entity. Mr. Rosseel credibly testified that such information normally is of little relevance because the general practice in the industry is that "if you make a contract with a certain subsidiary of a group or of a company, everyone considers the group, the whole — let's say the whole group. I can't find another word, being behind the deal." Tr. 42. Part of the reason for the insignificance attached to the particular corporate name on the contract is that players in the industry know that some groups of companies have certain products available, but for internal reasons — such as tax, organization, or distribution — "the confirmation of a deal is done by another office than the one that negotiated the deal. It is done so often that no oil trader is surprised to see a confirmation coming in on another name ... than the name of the office he has been dealing with." Tr. 50.

Oriental S.A. and Oriental U.K.

Abdul Hamed Bokhari established the Oriental Commercial Establishment in 1956. The main office of Oriental Commercial Establishment was located in Jeddah, Saudi Arabia, and a London office was opened in July 1982.

In July 1983, Oriental Commercial Establishment ceased operation. That month, Oriental S.A. was incorporated in Saudi Arabia. The main office of Oriental S.A. is located in Jeddah. Among other businesses, Oriental S.A. supplies bunkers to vessels, and provides agency services to vessels calling in Saudi Arabian ports. Bokhari is president of Oriental S.A. Shamin Ashraf is Vice President and General Manager of Oriental S.A. The 1500 shares of the company are privately held, with 735 shares held by Bokhari, and the remaining shares held by members of his family. Bokhari and his wife, Zainab A.R. Bokhari, are directors of Oriental S.A. Both are citizens of Saudi Arabia.

Oriental U.K. was incorporated according to the laws of England and Wales in September 1983. Its offices are located in England. Bokhari is Chairman and Managing Director of Oriental U.K. The 100 shares of Oriental U.K. are privately held. Bokhari holds 70 shares and his wife holds 30 shares, both are directors of Oriental U.K.

David H. Clements ("Clements") is Secretary of Oriental U.K., a position that he has held since late 1983. Prior to his employment at Oriental U.K., Clements was employed as a bunker broker by the British company Celtic Chartering. In that capacity, he acted as an agent for Bokhari and for Oriental S.A. Bokhari hired Clements to represent his interests directly at Oriental U.K.

At Oriental U.K., Clements had substantial responsibility in the period from September 1983 to September 1985. Though Bokhari and Clements were each signatories on Oriental U.K.'s bank accounts, Clements had authority to sign checks without notifying Bokhari or anyone else affiliated with Oriental S.A. Mrs. Clements, Clements' wife, worked as Oriental U.K.'s bookkeeper, and prepared account statements which were not reviewed by Oriental S.A. During 1984, Bokhari actually visited the Wembly office of Oriental U.K. only two or three times, and during these short visits, he normally would only make phone...

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