National American Corp. v. Fed. Rep. of Nigeria

• Citation: 448 F. Supp. 622
• Decision Date: 27 March 1978
• Docket Number: No. 76 Civ. 2745 (GLG).,76 Civ. 2745 (GLG).
• Parties: NATIONAL AMERICAN CORPORATION, Plaintiff, v. FEDERAL REPUBLIC OF NIGERIA and Central Bank of Nigeria, Defendants.
• Court: U.S. District Court — Southern District of New York

448 F. Supp. 622

NATIONAL AMERICAN CORPORATION, Plaintiff, v. FEDERAL REPUBLIC OF NIGERIA and Central Bank of Nigeria, Defendants.

No. 76 Civ. 2745 (GLG).

United States District Court, S. D. New York.

March 27, 1978.

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Eaton, Van Winkle, Greenspoon & Grutman, New York City, for plaintiff, by Norman Roy Grutman, Jeffrey H. Daichman, Richard A. Rubin, New York City, of counsel.

Kissam, Halpin & Genovese, New York City, for defendants, by Leo T. Kissam, James G. Simms, Dennis J. Crossley, New York City, of counsel.

OPINION

GOETTEL, District Judge.

Introduction

In the spring of 1975, for reasons which never clearly emerged despite a trial lasting three weeks, defendant, Federal Republic of Nigeria ("Nigeria"), acting through its Permanent Ministry of Defense, mounted a massive cement purchase program. The quantity ordered in sixty-eight contracts from various internationally placed suppliers aggregated over twenty million metric tons. One suggested motive was that, in previous years, Nigeria's experience had been that only ten percent of cement ordered was delivered. There were also suggestions that Nigeria had knowingly embarked on what would become a most illfated endeavor to corner the world's cement supply. Whatever Nigeria's original purpose, it cannot be disputed that the astronomical quantities ordered far outstripped the unloading capacity of Nigeria's deep water ports, principally Lagos Apapa.

For their part, the cement suppliers, allegedly spurred by visions of huge demurrage¹ claims when the inevitable port congestion delayed unloading, sought to charter small tonnage vessels. (In addition, defendants contended that several suppliers would make partial shipments aboard the same vessel, with each submitting claims for the full demurrage determined at a fixed rate per diem.)

The confusion in the port of Lagos climaxed in the early fall of 1975, and there was some suggestion that the presence of hundreds of cement-carrying vessels began to seriously threaten the supply of vital consumer goods. In response, Nigeria placed an embargo on the port, refusing additional vessels permission to enter. As the influx of cement vessels ground to a halt, plaintiff, National American Corporation ("NAC"),² was one of many nominal suppliers caught up in a situation over which it had lost control. (As will appear subsequently, there are suggestions that NAC, an American company, was a mere front for certain Spanish interests, designed to satisfy Nigeria's desire to do business with solvent American companies.)

I. Facts

On April 3, 1975, Nigeria entered into a contract with NAC for the purchase of 240,000 tons of Portland cement at $60 per metric ton C.I.F. Lagos, for a total purchase price of $14,400,000. The contract provided for demurrage at a rate "not exceeding $ U.S. 3,500.00 per diem." Nigeria promised to issue, through its state bank, defendant, Central Bank of Nigeria ("CBN"), an irrevocable letter of credit. The contract further states that it is to be governed by the laws of "New York City."

On May 9, 1975, CBN informed its correspondent bank, Morgan Guaranty Trust Company of New York ("Morgan"), of the establishment of its irrevocable, transferable letter of credit in favor of NAC in the amount of $14,400,000. (Since this amount represented only the total purchase price of cement without regard to potential demurrage claims, subsequent correspondence between the banks was necessary to clarify that demurrage payments would be made beyond the face amount of the letter of credit.) Following CBN's instructions, Morgan advised NAC of the issuance of the letter of credit through NAC's bank, a branch of the Bank of America located in New York City, without adding its own confirmation. The credit, which repeated verbatim the material terms of the cement contract, ran until May 31, 1976 and was made subject to the Uniform Customs and Practice Documentary Credits (1962 Revision) Chamber of Commerce Brochure No. 222.³

On July 31, 1975, NAC, acting through its president and major shareholder, Dr. Ilona Gero, transferred $970,000 of the letter of credit (representing payment for 20,000 tons of cement at $48.50 per ton) using forms supplied by Morgan to a Spanish corporation, International Trade and Finance Espanola, S.A., ("Intrafinsa").⁴ Its principal officer and major shareholder, Augustin Arrau, plays a vital, if somewhat obscure role in the events which followed. This transfer was later increased by $10,670,000 on August 8, 1975, for a total of $11,640,000, representing the cost of NAC's entire cement commitment to Nigeria, including insurance and freight. This left an interest remaining to NAC in the letter of credit for cement of $2,760,000. (Part of this was also assigned to another Arrau company.) On the same day as the first transfer to it, Intrafinsa assigned all of its interest in the credit to its sister corporation, National Bank and Trust Co. of North America, Ltd. ("Natbank").⁵ After the problems giving rise to this action developed, NAC reacquired sole rights in the letter of credit by reassignment from Natbank on April 9, 1976 allegedly in return for NAC's relinquishing its rights to various commissions owed under other similar contracts given to other American suppliers. The reassignment was preceded by negotiations, beginning in January and February of 1976, in which NAC agreed to pay shipowners' claims for demurrage when recovery was obtained by NAC.

During February, 1976 (prior to the reassignment) Intrafinsa assigned the demurrage already due on one of the vessels, the Cherryfield, to Ince & Co. in London. Morgan and CBN were notified that Cherryfield's demurrage payments should be made directly to the assignees.

Performance of the cement contract got underway in late July, 1975, with the shipment of 500 tons of cement aboard the vessel Cretan Life, which also carried 10,500 tons consigned by another cement supplier, Interexporte. Thereafter, in the late summer and early fall of 1975, five additional vessels, the Naimbana, Rio Doro, Cherryfield, Joboy and Jotina (who, with the Cretan Life are collectively referred to as the "first six vessels") were loaded and arrived in Lagos. Payment for their combined cargoes of 37,630 tons was completed by September 10, 1975 by Morgan on the basis of documents presented to it, although the vessels had not yet been unloaded. NAC received a total of $233,300, an amount reflecting offsets by Morgan for the transfer to Intrafinsa and several assignments of proceeds.⁶ Six other ships, the Aristotle, Astrid, Ardenal, Sandrina, Euna and Nicklaus H ("the second six vessels") were either prepared for loading or partially loaded before their departure had to be aborted due to the Nigerian embargo. Their cargoes were purportedly sold elsewhere, but both NAC and Intrafinsa claim they did not benefit from these sales. On the other hand, they established no losses either, except, perhaps, for anticipated profits. With regard to the first six vessels, documents supporting demurrage claims were presented to Morgan in November, 1975 but payment at that time was refused on the instructions of CBN for reasons we will now discuss.

To backtrack a bit, by late August, 1975, the port congestion led Nigeria to notify its suppliers that no additional vessels would be permitted to enter the port, except those already under sail. (The "embargo" referred to earlier.) To enforce its new policy, Nigeria declared that henceforth all suppliers must give two months' advance notice of sailing and receive Nigerian permission for departure. In a series of cables in fall of 1975, CBN instructed Morgan to dishonor all demurrage claims, even those accruing on vessels entering prior to the embargo, unless CBN had certified the documents for payment. Documents were thereafter to be submitted directly to the Nigerian Ports Authority, rather than Morgan. (Since these instructions varied the terms of the irrevocable letter of credit, they may have amounted to an anticipatory repudiation of all, or a part, of the letter of credit.) Nigeria later formalized its policy of requiring advance notice of sailing in a government decree issued December 15, 1975.

As of this time, Nigeria was refusing to pay demurrage as it accrued and was unable to unload many of the vessels which lay at anchor in the harbor. Of NAC's first six vessels, the Naimbana was unloaded in November of 1975, and the Joboy and Jotina offered to forego accrued demurrage if they would be given priority berthing. This request was refused, and the vessels departed from Nigeria on January 24 and 25, 1976, respectively, without discharging their cargoes.⁷ In the early part of that month, Gero had received an invitation to meet with the newly formed Nigerian Cement Contracts Negotiating Committee to renegotiate the cement contract and the letter of credit. About three weeks later, Gero and Arrau met in New York to plan a course of action. The result was a document dated January 28, 1976 which apparently was intended to become a settlement between NAC and Intrafinsa supplanting the agreement of July 31, 1975. (Plaintiff's Exhibit 38.) The document sets Intrafinsa's damages at $3,945,000, which was said to represent the demurrage due on twelve vessels, calculated at $3,500 per day. NAC also promised to "cause" Nigeria to accept delivery of an additional 28,370 tons of cement. Calculations supporting the demurrage claim appear as a schedule to the document.⁸

At trial, copies of two schedules having a similar format (Plaintiff's Exhibits 38B and 71) were introduced into evidence. Both bear a striking resemblance to the schedule attached to Exhibit 38, with some significant changes. The first noteworthy change is that Exhibit 38B calculates demurrage at a pro rata rate based on tonnage. To explain, the rate of demurrage had become a source of irritation...