Furness Withy (Chartering), Inc., Panama v. World Energy Systems Associates, Inc.

• Decision Date: 30 September 1985
• Docket Number: No. 84-7742,84-7742
• Citation: 772 F.2d 802
• Parties: FURNESS WITHY (CHARTERING), INC., PANAMA, Plaintiff-Appellant, v. WORLD ENERGY SYSTEMS ASSOCIATES, INC., Wesa, Inc., Defendants, Hemmert Shipping Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 802

772 F.2d 802

1986 A.M.C. 2171

FURNESS WITHY (CHARTERING), INC., PANAMA, Plaintiff-Appellant, v. WORLD ENERGY SYSTEMS ASSOCIATES, INC., Wesa, Inc., Defendants Hemmert Shipping Corporation, Defendant-Appellee.

No. 84-7742.

United States Court of Appeals Eleventh Circuit.

Sept. 30, 1985.

Robert B. Fougner, Mark Jaffe, New York City, for Furness Withy, etc.

Alex F. Lankford, III, Mobile, Ala., for World Energy & Wesa, Inc., Hemmert Shipping & Texas Chartering.

Appeal from the United States District Court for the Southern District of Alabama.

Before VANCE and HENDERSON, Circuit Judges, and DYER, Senior Circuit Judge.

HENDERSON, Circuit Judge:

This complicated admiralty case arises out of an unusual incident that occurred in Mobile, Alabama on August 10, 1981. On that day, an inexperienced seller of coal, who is not a party to this appeal, was under binding contract with two different companies to ship coal from Mobile to Taiwan. This appeal involves the determination of which of those two companies must sustain the loss growing out of the dual contracts.

On November 27, 1980, Dr. Paul Liu, a director of World Energy Systems Associates, Inc. (World Energy) contracted to supply 50,000 metric tons of coal to a Taiwanese company, Chia Hsin Cement Corp. (Chia Hsin). World Energy was to be compensated for the coal through a letter of credit negotiable at the Citizens & Southern Bank in Atlanta, Georgia. Before World Energy could receive the proceeds from the letter of credit, it was required to furnish to the bank various instruments including descriptions of the coal, bills of lading and a cargo manifest.

In May, 1981, World Energy formed a subsidiary corporation under Alabama law. The district court found that this subsidiary, WESA, Inc. (WESA) was the alter ego of World Energy. This finding is not challenged by either side. In May, 1981, World Energy assigned to WESA all of its interest in the Chia Hsin coal contract. This contract is the only asset ever owned by WESA.

In June, 1981, Dr. Liu began searching for a ship to transport the coal to Taiwan. On June 30, 1981, acting on behalf of WESA, he entered into a contract with the appellant, Furness Withy (Chartering) Inc. Panama (Furness Withy), a Panamanian corporation with its principal place of business in Hong Kong. The contract of affreightment (COA) called for two shipments of coal from the United States to Taiwan at a freight rate of $36.00 per metric ton. The first shipment was to be made no later than August, 1981. The COA provided that WESA could cancel the contract if Furness Withy failed to provide an adequate vessel ready to load the coal in Mobile, Alabama by 2400 hours on August 10, 1981.

In early July, 1981, Dr. Liu turned to the problem of acquiring the coal that he had contracted to sell to Chia Hsin. He signed a contract to buy 7,500 tons of coal from Moss Port, Inc., an Alabama coal producer. He also contracted with Warrior Tombigbee Transport Company, Inc. (Warrior Tombigbee) to barge the coal down to Mobile where the coal was to be loaded upon the ship provided by Furness Withy. Because WESA still had no assets, Dr. Liu agreed to sell this coal for $100,000.00 to Wilson Financial Corp. (Wilson) which gave WESA an option to repurchase it for $109,000.00 within 30 days of the contract date. On July 14, 1981, WESA and Wilson entered into a similar repurchase agreement for an additional 5,000 metric tons of coal.

On July 17, 1981, Furness Withy nominated the M/V CONTINENTAL CHARTERER (CONTINENTAL) as the ship to transport the coal to Taiwan. Furness Withy advised Dr. Liu that the CONTINENTAL's estimated date of arrival at Mobile was August 4, 1981. On July 22, 1981, WESA accepted the nomination.

In early August, 1981, it became apparent to all that the CONTINENTAL would not be able to load the coal until August 12, 1981 if it kept on its intended itinerary. Therefore, Furness Withy attempted to negotiate with Dr. Liu for a later cancellation date in exchange for a lower freight rate. Although Dr. Liu considered this proposal, the owners of the CONTINENTAL would not correspondingly reduce its rate to Furness Withy for the use of the ship. This refusal to lower the freight charges aborted any further effort by Furness Withy to extend the CONTINENTAL's shipping date.

On August 5, 1981, Dr. Liu learned that Furness Withy was looking for another vessel to transport the coal to Taiwan. Prior to this time, he had been negotiating with the appellees, Hemmert Shipping Corp. (HSC) and Texas Chartering, Inc. (TCI) to finance the repurchase of the coal from Wilson. Dr. Liu needed this loan because WESA had no assets or other sources of payment and Chia Hsin's letter of credit was not payable until the coal was loaded on the ship. HSC and TCI agreed to provide this financing if Dr. Liu and WESA would use one of their ships to transport the coal to Taiwan.

On August 6, 1981, WESA and HSC-TCI ¹ entered into an agreement whereby HSC-TCI agreed to advance WESA $500,000.00 (later $600,000.00) and charter another ship, the EDCO, to WESA at the rate of $31.50 a ton. WESA was required to pay interest on the loan at 2% above New York prime rate. WESA also agreed to give HSC-TCI the right to charter all the vessels WESA needed for a period of 60 months. And, WESA agreed to assign to HSC-TCI the proceeds from Chia Hsin's letter of credit as security for the loan. Dr. Liu also requested that the contract of affreightment with HSC-TCI be made subject to the valid cancellation of its COA with Furness Withy but HSC-TCI refused to accept this condition.

On the afternoon of August 6, 1981, after the new contract of affreightment with HSC-TCI was executed, the CONTINENTAL's itinerary was changed so that it could meet the August 10th deadline. This fact was communicated to Dr. Lui who, in turn, so advised an officer of HSC-TCI. Meanwhile, also on August 6, 1981, the Birmingham Trust National Bank began receiving transfers of money from HSC-TCI in trust to pay for various shipping expenses.

The next day, August 7, 1981, WESA gave HSC-TCI a power of attorney over the negotiation of the letter of credit and formally assigned over $600,000.00 of the proceeds of the letter of credit to HSC-TCI. These proceeds were to be used to reimburse HSC-TCI for the funds it advanced to purchase and transport the coal. Later, WESA assigned an additional $100,862.96 of the proceeds because of an additional loan from HSC-TCI to WESA.

The agreement between WESA and HSC-TCI contemplated that HSC-TCI would purchase all of the coal and provide for its transportation to Mobile. Consequently, HSC-TCI retained all of the documents of title and bills of lading required to negotiate Chia Hsin's letter of credit.

At 9:10 a.m. on August 10, 1981, the CONTINENTAL arrived in Mobile ready to load coal in accordance with the first shipping contract. At 9:55, WESA repudiated the Furness Withy COA by falsely claiming that the CONTINENTAL was not ready to take on the coal.

After this repudiation, Furness Withy immediately instituted attachment proceedings in the United States District Court for the Southern District of Alabama against the coal and in Atlanta against the letter of credit. Furness Withy also filed this action in the Southern District of Alabama against World Energy and WESA for fraud and breach of contract and against HSC-TCI for tortious interference with contractual relations. ² HSC-TCI responded with counterclaims and crossclaims against Furness Withy for wrongful attachment, conversion and tortious interference with business and property rights. ³ Pursuant to 9 U.S.C. Sec. 8, Furness Withy reserved its right to submit to arbitration its claims for breach of contract against WESA. After a bond of $210,000.00 was posted in the United States District Court for the Northern District of Georgia by WESA and HSC-TCI, that case was transferred to the district court in the Southern District of Alabama and consolidated with the first action.

On August 14, 1981, Dr. Liu and representatives of HSC-TCI met with Furness Withy in the federal district court in Mobile but Furness Withy did not attempt to serve them with process having already set the attachments in motion. On August 17, 1981, WESA attempted to cancel the EDCO contract of affreightment but HSC-TCI rejected the cancellation.

After hearings on August 14, 17, 18 and 19, 1981, motions by HSC-TCI to vacate Furness Withy's attachments were denied by Judge Virgil Pittman of the Southern District of Alabama. Judge Pittman also directed Furness Withy to post countersecurity in the amount of $800,000.00 to

abide by and answer the decree of the court in any final judgment, including appellate process, if any, rendered in favor of Hemmert Shipping Corporation ... on Hemmert's counterclaim, and any final judgment, including appellate process, if any, entered in favor of intervening plaintiffs Texas Chartering, Inc. and Hemmert International Corporation.... In the event Hemmert Shipping Corporation, Hemmert International Corporation, and Texas Chartering, Inc. do not prevail in their counter-claims, the aforesaid cash deposit will be released or the aforesaid bond cancelled as the case may be.

See Order of August 18, 1981 at 2. (Emphasis added).

On August 21, 1981, the parties reached a stipulation whereby Furness Withy agreed to release the attachments in exchange for adequate security to cover its claims against WESA. As the security, HSC-TCI assigned $600,000.00 from the proceeds of the letter of credit. Furness Withy's $800,000.00 bond was retained by the court. All of the parties reserved their rights to arbitrate and litigate their respective causes of action.

Once the attachments were dissolved, HSC-TCI proceeded to fulfill its contract with WESA and the coal was transported on the EDCO and the letter of credit was negotiated at the bank in Atlanta. Subsequently, Furness Withy prevailed against WESA in arbitration...