Dorval SC Tankers Inc. v SeaRiver Maritime, LLC, (The “GOLDEN AUSTRALIS”) – SMA No. 4465, 7 September 2023

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Dorval SC Tankers Inc. (“Owner”) and SeaRiver Maritime, LLC (“Charterer”) entered into a Contract of Affreightment (COA) for the transportation of bulk chemical products from Singapore to Australia aboard the MT GOLDEN AUSTRALIS.  Sampling at the discharge revealed water droplets and cloudiness in the cargo. SeaRiver Maritime withheld samples from the discharge from joint testing that was requested by the Owner to determine the cause of contamination. Dorval sought a preliminary award directing the SeaRiver to produce the retained samples for testing, along with fees and costs. SeaRiver argued to dismiss Dorval’s claims and petitioned for reimbursement of costs and attorneys’ fees.

The Owner and Charterer entered into a Contract of Affreightment (COA) that incorporated ExxonMobil VOY2012 and additional clauses for the transportation of bulk chemical products from Singapore to Australia. The load occurred on December 10, 2021, at ExxonMobil Jurong Terminal, Singapore, and AmSpec issued a load report on behalf of the Charterer.

The COA incorporated the following relevant clauses:  

17. CARGO MEASUREMENT

(d) An inspector may be employed by Charterer at its expense to verify quantities and qualities of cargo and residues on board Vessel at both loading and discharging port(s) and/or place(s)…

(e) All measurement, calculation and sampling procedures in this or any other Clause of this Charter shall be performed in accordance with the latest published Manual of Petroleum Measurement Standards issued by the American Petroleum Institute or similar standards issued by the American Society of Testing and Materials. 

24. INSPECTION

(a) OPERATIONS/INCIDENTS. Charterer’s representative(s) shall have the right at loading and/or discharging port(s) or place(s) to inspect Vessel and observe operations. Charterer’s representatives shall also have the right to attend on board the Vessel to ascertain the circumstances of any incident involving the Vessel which occurs during the period commencing after issuance of a valid Notice of Readiness for the first loading port until completion of discharge at the last discharging port. Owner shall instruct Master to give every assistance so as to enable said  any incident circumstances.

35. DISPUTE RESOLUTION

(a) Any and all differences and disputes of whatsoever nature arising out of this Charter shall be put to arbitration in the City of New York, pursuant to the laws relating to arbitration there in force, before a board of three persons, consisting of one arbitrator to be appointed by Owner, one by Charterer and one by the two so chosen. The decision of any two of the three on any point or points shall be final. Until such time as the arbitrators finally close the hearings either party shall have the right by written notice served on the Arbitrators and on the other party to specify further disputes or differences under this Charter for hearing and determination. The Arbitrators may grant any relief which they, or a majority of them, deem just and equitable and within the scope of the agreement of the parties, including, but not limited to, specific performance. Awards made in pursuance to this Clause may include costs, including a reasonable allowance for attorney’s fees, and judgment may be entered upon any award made hereunder in any Court having jurisdiction in the premises.

38. INTERPRETATION

The interpretation of this Charter and the rights and obligations of the parties thereto shall be governed by the Federal Maritime Law of the United States, and to the extent not applicable, the Law of the State of New York, without taking into consideration any conflict of law principles. The heading of Clauses and Paragraphs are for convenience of reference only and shall not affect the interpretation of this Charter. No modification, waiver or discharge of any term of this Charter shall be valid unless in writing and signed by the party to be charged therewith. Notwithstanding anything in this Charter to the contrary, this Charter shall not be interpreted or applied so as to require Owner or Charterer to do, or refrain from doing, anything which would constitute a violation of, or result in a loss of economic benefit under, United States laws and regulations. 

Retained Samples

The discharge at Port Botany revealed water droplets and cloudiness in the cargo, prompting a protest by QLSA, the receiver. The charterer requested the retention of all EHC 110 samples due to quality concerns. The QLSA issued a Notice of Contamination, attributing the issue to the shore tank in Singapore. In order to prevent vessel arrest, the Owner provided a Letter of Undertaking issued by the P&I Club as substitute security.

Joint testing of the receiver’s samples after loading in Sydney by Intertek on May 12, 2022, indicated clear and bright cargo with no water or particles. Discharge port samples were later tested on May 27, 2022, revealing varying amounts of water across different tanks. A dispute arose over testing parameters and sequence, with Charterer emphasizing appearance as the only relevant parameter.

The Owner requested joint testing of the Charterer’s retained samples to identify the contamination source. The Charterer proposed limited appearance testing and a sequence, emphasizing the ship composite sample’s relevance. The Owner insisted on broader testing parameters and rejected appearance-only testing. The Owner initiated arbitration on December 30, 2022, 

The Arguments

The Owner argued that its claim for joint testing of the withheld sample is arbitrable based on the broad language of Clause 35, encompassing “all differences and disputes of whatsoever nature” arising from the charter. They also referred to Clause 27(f) of the EMVOY, emphasizing the indemnity provision triggered by the demand for security and threat of arrest. Aside from requesting that the Charterer produce Retained Samples for joint testing as a part of discovery related to the pending indemnification claim, the Owner also contended that the dispute over the production of the Charterer’s Retained Samples is itself arbitrable, separate from the indemnity claim.

The Charterer asserted that the Owner’s claim lacks clarity and only amounted to seeking discovery for a potential defense against QLSA’s claims rather than being a substantiated claim against the Charterer, stating that the Owner’s request for additional testing does not fall within the scope of the COA or Voyage Charter, as Charterer did not breach any specific terms. The Charterer contended that an indemnity claim would have been premature and non-justiciable until QLSA obtains a judgment or payment from the Owner, arguing that Clause 27(f) only applies to situations where the charterer requests delivery without original bills of lading.

The Owner insisted that there is no limitation in the COA or Voyage Charter regarding which samples should be tested in a quality dispute. They also highlighted the importance of further testing to determine the quality of the cargo prior to loading.

The Charterer countered that the Owners’ declaration that supported the need for additional testing, is speculative and lacks a basis. They stated that the Owner had not demonstrated the necessity for additional testing and failed to prove the unreliability of the Intertek test results. Finally, the Charterer asserted that it had no obligation to undertake further testing as it believed it had already fulfilled its cooperation duties.

Decision

The Panel emphasized the fundamental principle that arbitration is a matter of contract and began by reviewing the broad language of Clause 35. They found that the Owner’s request for the sharing of the Retained Samples if characterized as a discovery request, cannot be granted because the claim does not yet exist.

As for the production of the retained samples as a stand-alone dispute, the Panel determined that the dispute over Charterer’s obligation to produce Retained Samples for joint testing falls within the scope of Clause 35 and was arbitrable. The Panel cited Collins & Aikman Prods. Co. v. Bldg. Sys., Inc 58 F.3d 16. 23 (2d Cir. 1995) which states that no questions in respect of the parties’ rights and obligations under the contract are beyond the scope of the arbitration agreement. They emphasized that withholding testing of Retained Samples was not reasonable and was inconsistent with the cooperation required in investigating the contamination cause.

The Panel concluded that the dispute over the production of Retained Samples for joint testing is arbitrable. The charterer was ordered to produce the Retained Samples for joint testing by the parties without restrictions within thirty days. Finally, each party was to bear its own attorneys’ fees, expenses, and costs incurred.