Aktieselskabet Korn-og Foderstof Kompagniet v. Rederiaktiebolaget Atlanten

• Decision Date: 10 April 1918
• Docket Number: 141.
• Citation: 250 F. 935
• Parties: AKTIESELSKABET KORN-OG FODERSTOF KOMPAGNIET v. REDERIAKTIEBOLAGET ATLANTEN.
• Court: U.S. Court of Appeals — Second Circuit

250 F. 935

AKTIESELSKABET KORN-OG FODERSTOF KOMPAGNIET v. REDERIAKTIEBOLAGET ATLANTEN.

No. 141.

United States Court of Appeals, Second Circuit.

April 10, 1918

Haight Sandford & Smith, of New York City (C. B. Smith, of New York City, of counsel), for appellant.

Burlingham Montgomery & Beecher, of New York City (R. H. Hupper, of New York City, of counsel), for appellee.

Before WARD, ROGERS, and HOUGH, Circuit Judges.

WARD Circuit Judge.

The libel, containing a clause of foreign attachment, alleged that the libelant, for brevity herein called the Kornog Company, a Danish corporation, chartered the steamer Atlanten of the respondent, for brevity called herein the Atlanten Company, a corporation of Sweden, to proceed to Key West for orders and load a full cargo of oil cake at Galveston, New Orleans, or Pensacola for a Danish port or ports. The charter party was executed at Copenhagen September 30, 1914. While the steamer was on her way to the United States, the respondent wrote from Helsingborg, Sweden, to the libelant at Copenhagen, Denmark, notifying the libelant that it canceled the charter, but was willing to carry on the same voyage at a much higher rate of freight, there having been a very considerable rise in the market. It stated at the same time that it was willing to pay damages, not exceeding the estimated amount of freight under clause 21 of the charter party, which necessarily included clause 24. The libelant replied that it would hold the respondent under the charter liable for all losses incurred by the breach. The claim was for $44,000.

The answer set up two clauses of the charter party in defense and averred its readiness to comply with them:

'21. If any dispute arises the same to be settled by two referees, one appointed by the captain and one by charterers or their agents, and if necessary, the arbitrators to appoint an umpire. The decision of the arbitrators or umpire, as the case may be, shall be final and any party attempting to revoke this submission to arbitration without leave of a court, shall be liable to pay to the other, or others, as liquidated damages, the estimated amount of chartered freight.

* * *

'24. Penalty for nonperformance of this agreement to be proven damages, not exceeding estimated amount of freight.' Upon libelant's exceptions to the answer on the ground that it set up nothing constituting a defense in law, Learned Hand, J., entered a decree in favor of the libelant for $39,016.30, the stipulated amount of its damages, with interest and costs.

The first question is whether the allegation in the answer, which must be taken to be true, that the agreement to arbitrate was valid and binding by the law of Denmark, where the charter was executed, as well as by the law of Sweden, where the steamer belonged, makes it enforceable here. This clause cannot be regarded as a condition precedent to the maintenance of a subsequent suit in the courts because it provides that the arbitrators shall 'settle'-- that is, dispose of-- the dispute. The case, therefore, does not fall within the decisions which hold that agreements, such as to ascertain the amount or extent of the claim by arbitration as a condition precedent to a suit in the courts, are valid because the question of liability is left to be determined by the courts. Hamilton v. Liverpool, L. & G. ins. Co., 136 U.S. 242, 10 Sup.Ct. 945, 34 L.Ed. 419. Under the law of the state of New York, clause 21 is clearly unenforceable because under the decisions of the Court of Appeals it would be held to affect the remedy only and to be contrary to public policy as ousting the courts of their jurisdiction. Meachem v. Railroad Co., 211 N.Y. 346, 105 N.E. 653, Ann. Cas. 1915C, 851; U.S. Refining Co. v. Trinidad Lake Co. (D.C.) 222 F. 1006. The question being one of general law, the decisions of the Court of Appeals of the state of New York are not binding upon the federal courts. It is, however, fair to assume from Hamilton v. Home Insurance Co., 137 U.S. 370, 11 Sup.Ct. 133, 34 L.Ed. 708, that an agreement like this, which leaves the disposition of the whole matter to arbitration is not a bar to an action in court, even if it may support an action for breach of the agreement. In such a case, when no arbitration has been actually begun and expenses incurred, only nominal damages could be recovered. Munson v. Straits of Dover S.S. Co. (D.C.) 99 F. 787.

We have next to inquire whether clause 24 is a limitation of liability or a penalty. Some such clause has been usual in charter parties from time immemorial and its history is admirably treated by Mr. Justice Bailhache in Wall v. Rederaktiebolaget Luggode, (1915) 3 K.B. 66. He shows that it has always been regarded as a penalty and that the addition, frequent for some years past, of the words 'to be proven damages,' not exceeding estimated amount of freight, do not make it a limitation. Such is the legal meaning of every penalty clause. His construction was expressly approved by the Court of Appeal-- (1916) 2 K.B. 826-- and by the House of Lords in Watts v. Mitsui & Co., Ltd., (1917) A.C. 227. In the Court of Appeal Swinfen Eady, L.J., said:

'There remains the third point. It is contended that, having regard to clause 13 of the charter party, the general damages recoverable are limited to . . .3,500, the estimated amount of freight. This clause is a little different from the clause which used formerly to be inserted in charter parties. The old form was 'Penalty for nonperformance

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