Michael v. SS THANASIS

• Decision Date: 02 March 1970
• Docket Number: Civ. No. 47530.
• Citation: 311 F. Supp. 170
• Parties: G. B. MICHAEL and Genossenschaft-kraftfutterwerk, a corporation, Plaintiffs, v. SS THANASIS, her engines, boilers, etc.; Thenamaris Corporation, a corporation; Doe Corporation, a corporation; Doe Company, a partnership; and John Doe, Defendants.
• Court: U.S. District Court — Northern District of California

311 F. Supp. 170

G. B. MICHAEL and Genossenschaft-kraftfutterwerk, a corporation, Plaintiffs, v. SS THANASIS, her engines, boilers, etc.; Thenamaris Corporation, a corporation; Doe Corporation, a corporation; Doe Company, a partnership; and John Doe, Defendants.

Civ. No. 47530.

United States District Court, N. D. California.

March 2, 1970.

COPYRIGHT MATERIAL OMITTED

George L. Waddell, Harvey I. Wittenberg, Dorr, Cooper & Hays, San Francisco, Cal., for plaintiffs.

D. Thomas McCune, Lillick, McHose, Wheat, Adams & Charles, San Francisco, Cal., for defendants.

GERALD S. LEVIN, District Judge.

This is a maritime cause of action within the meaning of Rule 9(h), Federal Rules of Civil Procedure, brought in rem and in personam for alleged damage to cargo. Jurisdiction is conferred upon this court by 28 U.S.C. § 1333.

The plaintiffs are German citizens and the named defendants are, respectively, a Liberian flag vessel and her owner, a Panamanian corporation. Plaintiffs claim to have been the owners of certain cargoes of copra intended for carriage from the Philippines to Germany which allegedly sustained damage by reason of fire while on board the THANASIS in the Philippines.

For the voyage in question, the THANASIS was under charter from her owner to Filipinas Compania de Navegacion, S.A. This charter party was executed in England and includes inter alia the following provisions:

Arbitration Clause. 40. If any dispute or difference should arise under this Charter, same to be referred to three (3) parties in the City of LONDON one to be appointed by each of the parties hereto, and the third by the two so chosen and their decision, or that of any two of them, shall be binding and final, and this agreement may, for enforcing, be made a rule of the Court.

U.S.A. Clause Paramount. 48. The carriage hereunder and all bills of lading issued shall be deemed subject to and to have incorporated the following clause. This Bill of Lading shall have effect subject to the provisions of the Carriage of Goods by Sea Act of the United States, approved April 16, 1936, which shall be deemed to be incorporated herein. * * *

Plaintiffs allege that they are the bona fide purchasers of certain bills of lading issued in conjunction with said charter party and concerning the shipment of copra alleged to have been damaged. These bills of lading are denominated MAN-6, MAN-7, and MAN-8. Each such bill is under the heading,

BILL OF LADING

(Loading under Charter Party)

and each such bill includes inter alia the following provisions:

Except as otherwise stated herein and in the Charter Party, this Contract shall be governed by the laws of the Flag of the Ship carrying the Goods.

This Bill of Lading shall have effect subject to the provisions of the Carriage of Goods by Sea Act of the United States which shall be deemed to be incorporated herein.

All terms, conditions and exceptions of Charter Party dated SEPTEMBER 8, 1966 shall considered sic as embodied in this Bill of Lading. In the event of any conflict between this Bill of Lading and the Charter Party, the latter shall control.

The complaint herein was filed on July 28, 1967. Admiralty process was issued against the THANASIS, and she was arrested and taken into custody by the United States Marshal. In order to obtain the release of the vessel the owners protection and indemnity underwriters authorized the issuance of a letter of undertaking agreeing to pay and satisfy any final decree of the court in an amount not exceeding $100,000.00 plus interest and costs, or any lesser amount settled between the parties without final decree being entered.

Defendants now seek to enforce the arbitration provision in the charter party with respect to settling the dispute arising from plaintiffs' claim of damage to the copra cargoes. Accordingly, defendants have moved this court to stay proceedings pending arbitration of the matter. Plaintiffs oppose this motion.

I. Incorporation by Reference

The initial questions raised by defendants' motion for a stay are first, whether the bills of lading effectively incorporated by reference the provisions of the charter party, including the arbitration clause, and second, if such incorporation were effective, did it also include implicit incorporation of the law governing the charter party in addition to the explicit incorporation of the terms of the charter party itself.

In construing the terms of the charter party and of the bills of lading, and both of them together, it is well established that the principles of construction applicable to ordinary commercial contracts apply here as well.¹ Thus a bill of lading will legally incorporate an arbitration provision of a charter party and be subject thereto when the charter party is clearly referred to in the bill of lading and this fact is or should be known to the holder of the bill. See Lowry & Co. v. S. S. Nadir, 223 F.Supp. 871 (S.D.N.Y. 1963); Poor on Charter Parties and Ocean Bills of Lading § 26, at 71, 73 (5th ed. 1968)² hereinafter cited as Poor.

In the leading case of Son Shipping Co. v. De Fosse & Tanghe, 199 F.2d 687, at 688 (2d Cir. 1952), the court said:

Where terms of the charter party are, as here, expressly incorporated into the bills of lading they are a part of the contract of carriage and are binding upon those making claim for damages for breach of that contract just as they would be if the dispute were between the charterer and the shipowner. Citing cases.

The court regards this as a correct statement of the law and to be applied in the case before the court. Here, there seems little doubt that the charter party was amply and clearly referred to in the bills of lading and that this fact was or should have been known to the plaintiffs. Not only did each bill of lading include the words, "Loading under Charter Party," at the top of the form, but each bill also made specific reference in its body to the fact that the bill was to be subject to and incorporate the terms of the charter party. The paper embodying each bill of lading was not so long or abstruse as to raise a reasonable doubt that plaintiffs were not aware of its terms, nor were the references to the incorporation of the charter party made inconspicuous by the use of small type or other such device. Indeed, the references to the charter party appearing in each bill of lading are among the most salient provisions of the bill to even the most cursory reader.

The court notes, too, that there has been no showing that the plaintiffs are unfamiliar with maritime procedures or other common commercial transactions. This fact alone would distinguish the present case from those instances where an unwitting and ingenuous individual is "hoodwinked" into signing a document the contents of which he is patently unfamiliar or unaware. This is not to say that the parties were necessarily in equal bargaining position or possessed of equal expertise in the matter of shipping procedures and maritime law, but only that it is reasonable under the circumstances here to assume that the plaintiffs were aware or should have been aware of the provisions in the bills of lading which they purchased.

Accordingly, we answer the first question raised above in the affirmative, and find that the charter party, including the provision for arbitration, was validly incorporated and became a part of the subject bills of lading and thereby bound both parties to arbitration consistent therewith if either or both so opted.

Deciding as we do, that the provision respecting arbitration was effectively incorporated into the bills of lading, we are still met with the second problem raised above: does incorporation include only those provisions explicitly described in the charter party, or does such incorporation extend as well to such implicit, but unexpressed factors, as the law governing the making of the charter party itself. Expressed more succinctly, the question is how much is incorporated in an incorporation by reference of a charter party into a bill of lading.

An examination of the relevant authority, the probable intent of the parties, and the practical considerations underlying the commercial transactions involved here lead us to the conclusion that the law governing the execution of the charter party is not to be deemed incorporated into the bills of lading, there being an absence of any specific provision in either the charter party or the bills of lading so providing. It follows, therefore, that the applicable law to be used in construing the arbitration provision of the charter party is that law governing the execution of the bills of lading rather than that governing the charter party.

Plaintiffs have argued strenuously that their claim is not one subject to arbitration and base their contention on the following syllogism:

(1) The provisions of a charter party are to be construed in accordance with the law of the place where the charter party is executed;

(2) The charter party herein was executed in England and is therefore to be construed according to English law;

(3) The claim made here for cargo damage is not one which would be arbitrable under English law;

(4) Therefore, since the bills of lading effectively incorporated the provisions of the charter party, the bills must be governed by English law, and consequently the claim for cargo damage must be entertained by the court rather than settled by arbitration.

Although we have no quarrel with premises (1)³ and (2)⁴, and without regard to the validity of premise (3) discussed later in this opinion, see pages 178-181, we are nonetheless of the opinion that the conclusion, (4), does not necessarily follow and that the arbitration provisions are not to be construed in accordance with English law.

While incorporation by reference is a common and often necessary commercial device,⁵ it is still to be judged in accordance with basic principles of contract interpretation and fairness to the...