Diana Co. Maritima, SA of P. v. SUBFREIGHTS OF SS ADM. F.

• Decision Date: 28 February 1968
• Docket Number: No. 65 AD 1164.,65 AD 1164.
• Citation: 1968 AMC 2093,280 F. Supp. 607
• Parties: DIANA COMPANIA MARITIMA, S.A. OF PANAMA, Libelant, v. The SUBFREIGHTS OF the S.S. ADMIRALTY FLYER, Respondent.
• Court: U.S. District Court — Southern District of New York

280 F. Supp. 607

1968 AMC 2093

DIANA COMPANIA MARITIMA, S.A. OF PANAMA, Libelant, v. The SUBFREIGHTS OF the S.S. ADMIRALTY FLYER, Respondent.

No. 65 AD 1164.

United States District Court S. D. New York.

February 28, 1968.

COPYRIGHT MATERIAL OMITTED

Poles, Tublin, Patestides & Stratakis, New York City, for Diana Compania Maritima, S.A. of Panama, John G. Poles, Alvin L. Stern, Patrick V. Martin, New York City, of counsel.

Hahn, Hessen, Margolis & Ryan, New York City, for trustee in bankruptcy of Admiralty Lines, Ltd., Marks F. Paskes, Healy & Baillie, New York City, of counsel.

OPINION

HERLANDS, District Judge:

Petitioner, Diana Compania Maritima, S. A. of Panama hereinafter "Owner", owner of the S. S. Admiralty Flyer moves for (1) an order, pursuant to Section 9 of the Federal Arbitration Act, 9 U.S.C. § 9¹, confirming an arbitration award rendered between the Owner and Admiralty Lines, Ltd. hereinafter "Charterer", and (2) an order releasing the subfreights of the Admiralty Flyer presently held by the Clerk of the United States District Court for the Southern District of New York.² The trustee in bankruptcy of the Charterer hereinafter "Trustee" objects to the release of the subfreights but does not object to the confirmation of the arbitration award. For the reasons hereinafter set forth, the Owner's motions are granted in all respects.

In order to place this motion in proper context, the Court will fully explicate the sequence of events leading to this motion as well as all facts material to its disposition. Many of these facts are either undisputed or have been conclusively determined.³

On May 4, 1965, the Charterer entered into a time charter party⁴ with the Commercial Steamship Company, agents for the Owner of the Admiralty Flyer. The agreement provided that the Charterer would hire the vessel for a period of about 18 to 21 months, payment of hire to be made "monthly in advance". The vessel was presented to the Charterer on July 9, 1965, and proceeded on its voyage.

On November 9, 1965, the Charterer defaulted in payment of hire due on that date. At the time of default, the vessel was proceeding toward Capetown, South Africa, where an additional breach of the charter party occurred when the Charterer failed to supply fuel.

On November 23, 1965, the Owner sent a telegram to the Charterer, giving notice of withdrawal of the vessel. The telegram read:

"IN VIEW OF YOUR BREACH OF THE TIME CHARTER BY FAILURE TO PAY HIGHER (Sic) ON THE ADMIRALTY FLIER (Sic) AND YOUR FAILURE TO SUPPLY THE VESSEL WITH BUNKERS YOU ARE HEREBY NOTIFIED THAT THE VESSEL IS WITHDRAWN BECAUSE OF YOUR BREACH AND OWNER IS TAKING STEPS TO MITIGATE DAMAGES OWNER HOLDS YOU RESPONSIBLE FOR ALL DIRECT AND CONSEQUENTIAL DAMAGES RESULTING FROM YOUR BREACH." (Charterer's Rebuttal Affidavit, Exhibit A)

The notice of withdrawal was given pursuant to clause 5 of the charter party.⁵

On November 29, 1965, the Owner filed a libel against the freights and subfreights of the Admiralty Flyer and attached certain subfreights in the hands of 14 cargo consignees.

Upon the arrival of the Admiralty Flyer at the United States Gulf Ports on December 25, 1965, the Owner retained possession of the cargo.

Upon motion of certain of the cargo consignees, this Court, on December 30, 1965, ordered the consignees to pay the freight due into court. This "Interim Order No. 1" provided that, upon payment, the Owner would release the cargo from the "possessory lien". The Court indicated that the purpose of the order was

"* * * to serve as a method to substitute money deposits of freights due * * * for the asserted liens in order to facilitate the release of said cargo and subfreights from the liens asserted * * *"

In short, the order served as a practical method of releasing the cargoes and removing the consignees from a litigation in which they had neither an actual interest nor possible liability beyond the amount of the freights due.

Since the only persons legally interested in the fund being held by the Clerk of the Court were the Owner and the Charterer, this Court, on January 3, 1966, ordered the Owner and Charterer to proceed to arbitration in accordance with clause 17 of the charter party.⁶ The Court retained jurisdiction to enter a decree upon the award.

After three arbitration hearings had been held, an involuntary bankruptcy petition was filed against the Charterer on February 4, 1966. On March 15, 1966, the Charterer was adjudicated a bankrupt.

After the appointment of the Charterer's trustee in bankruptcy, a final arbitration hearing was held on May 10, 1967. The Trustee did not appear at this final hearing although prior written notice and a request to appear had been sent to the attorney for the Trustee. The "special admiralty counsel" to the attorney for the Trustee was also advised that he had 10 days to submit additional testimony; but he declined to do so.

The arbitration award, rendered on June 26, 1967, determined, inter alia, (1) that the Owner was entitled to withdraw the Admiralty Flyer; and (2) that the Owner sustained net damages of $40,605.95.

In opposition to the motion to release the subfreights to the Owner, the Trustee argues (1) that there is no maritime lien covering all the subfreights held by the Court; (2) that even if there is a valid maritime lien, transfer to the Owner of the funds held by the Court would run afoul of either Bankruptcy Act § 67(a), 11 U.S.C. § 107(a), or Bankruptcy Act § 60, 11 U.S.C. § 96; and (3) that an arbitration award rendered between the Owner and the Charterer cannot determine rights in rem in the subfreights held by the Court, and, therefore, cannot be adopted by an admiralty court as the basis of a judgment in rem.

I

A shipowner's lien on earned subfreights due to a charterer is not created by general maritime law. Inclusion of an express lien clause in the charter of the vessel earning the subfreights is necessary. Ocean Cargo Lines, Ltd. v. North Atlantic Marine Co., 227 F.Supp. 872 (S.D.N.Y.1964); In re North Atlantic and Gulf Steamship Co., 204 F.Supp. 899 (S.D.N.Y.1962), and cases cited therein, affirmed sub nom. Schilling v. A/S D/S Dannebrog, 320 F.2d 628 (2nd Cir. 1963); Gilmore and Black, Admiralty 517, n. 103 (1957).

If an express lien clause is included in the charter, the shipowner has a maritime lien on the subfreights from the moment the cargo is loaded on the vessel. Krauss Bros. Lumber Co. v. Dimon S. S. Corp., 290 U.S. 117, 121, 54 S.Ct. 105, 78 L.Ed. 216 (1933); The Saturnus, 250 F. 407, 412, 414 (2nd Cir. 1918), cert. denied sub nom. Midland Linseed Products Company v. The Steamship "Saturnus", 247 U.S. 521, 38 S.Ct. 583, 62 L.Ed. 1247 (1918); In re North Atlantic and Gulf Steamship Co., 204 F.Supp. at 904; In re Bauer Steamship Corporation, 167 F.Supp. 909, 910 (S.D. N.Y.1957).

In the instant case, the time charter contains a clause creating a lien on freights and subfreights. The clause provides:

"18. That the Owners shall have a lien upon all cargoes, and all subfreights for any amounts due under this charter * * *"

By this clause, the Charterer's lien against the consignees to secure the subfreights is made subject to the Owner's lien against cargoes and subfreights. In re North Atlantic and Gulf S. S. Co., supra; In re Bauer S. S. Corp., supra. Moreover, the Owner's lien was not relinquished by this Court's order directing payment of the subfreights into Court. The Trustee, however, argues that the maritime lien does not extend to all the funds held by this Court. It is his contention that the "present" language contained in the Owner's notice of withdrawal of November 23, 1965 and the resultant exercise of control over the Admiralty Flyer by the Owner show that withdrawal of the vessel took place on that date.

The effect of withdrawal of a vessel is to terminate the charter party. Ocean Cargo Lines, Ltd. v. North Atlantic Marine Co., 227 F.Supp. at 881. There is no dispute that the Admiralty Flyer was withdrawn; the only question is when was the withdrawal "effective". The significance of the date when the withdrawal became effective is that the amount of the Owner's lien is computed as of that date.

The notice of withdrawal herein clearly speaks in "present" terms. It states that "* * * you are hereby notified that the vessel is withdrawn * * * and owner is taking steps to mitigate damages." In addition, the arbitrators found:

"6. Owners in mitigation of damages, obtained additional cargo for the vessel at Walvis Bay, South Africa, for discharge at United States Gulf Ports and did pay all expenses incident to the loading carriage and discharge of said cargo including those which would properly have been the obligation of the Time Charterers."

It is this latter fact upon which the Trustee places chief reliance to support his assertion that the Charterer was deprived of control of the vessel on, or about, November 23, 1965, the date of the notice of withdrawal.

In the leading case of Luckenbach v. Pierson, 229 F. 130 (2nd Cir. 1915), the time charter provided that hire was to be paid semi-monthly in advance, with the shipowner having the "faculty of withdrawing the said steamer" upon default of such payment. Hire due on June 11, 1906 was already in arrears when the shipowner, on June 27, wrote the charterer that, if the arrears were not paid "* * * by four o'clock this afternoon, I will withdraw said steamer from your service * * *" (Emphasis added.) At that time, the vessel was being loaded in port. However, the shipowner did not withdraw the vessel on that date. Instead, the vessel sailed; and, on June 30th, the shipowner informed the charterer that the vessel would be withdrawn at the end of the trip.

The Court held that the vessel was not withdrawn on June 27, the date of the notice of withdrawal, because the shipowner allowed the vessel to "proceed on her voyage, a proceeding entirely inconsistent with a then withdrawal" (229 F. at 132). The...