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Konkar Maritime Enterprises, S.A. v. Compagnie Belge D’Affretement

Issue Discussed: Security

Submitted by Rachel P. Raphael, Michael T. Carolan*

Date Promulgated: August 25, 1987


Konkar Maritime Enterprises, S.A. v. Compagnie Belge D’Affretement
, 668 F. Supp. 267 (S.D.N.Y. 1987)

Court: U.S. District Court for the Southern District of New York

Issues Decided: Whether an arbitration panel exceeded its authority by issuing an interim order requiring pre-hearing security, and whether the respondent’s failure to comply with the interim order led to arbitrator partiality sufficient to vacate the panel’s award.

In Konkar Maritime Enterprises, S.A. v. Compagnie Belge D’Affretement, the U.S. District Court for the Southern District of New York confirmed an arbitration panel’s decision to award petitioner, Konkar Maritime Enterprises (“Konkar”) the full amount in dispute plus interest and to assess 85% of the arbitration fees against respondent, Compagnie Belge D’Affretement (“Compagnie”).  The court concluded, in relevant part, that the panel acted within its authority when it ordered Compagnie to fund a joint escrow account in the full amount of the disputed claim and that the panel was entitled to consider Compagnie’s failure to comply with the interim order for pre-hearing security when assessing arbitration costs against the parties.

The Arbitration

When a charterer, Compagnie, withheld a portion of the charter hire from the ship owner, Konkar, for claimed “damages” and “deductions,” Konkar demanded arbitration.  Along with its preliminary statement of claim, Konkar filed a motion for an interim award of the withheld charter hire.  In response, the arbitration panel ordered Compagnie to deposit the amount in dispute “into an interest bearing escrow account for the benefit of the succesful [sic] party as determined in the Final Award.”  Compagnie failed to comply with the panel’s interim order.

Later, the arbitration panel’s final decision awarded Konkar the full amount of the withheld charter hire plus interest and assessed 85% of the arbitration fees against Compagnie.  Konkar sought to confirm the arbitration award and Compagnie filed a motion to vacate the award pursuant to §§ 10(b), 10(c), and 10(d) of the Federal Arbitration Act.

With respect to § 10(d), Compagnie argued that (1) the panel had exceeded its authority by ordering Compagnie to deposit funds in an escrow account, and (2) the panel failed to issue a “final and complete award.”  Regarding  § 10(c), Compagnie asserted that the Panel (1) failed to provide notice and an opportunity to be heard before ordering Compagnie to create an escrow account and before assessing 85% of the arbitration costs against Compagnie; (2) refused to hear the new claim Compagnie had asserted in its sur-reply; and (3) failed to require Konkar to produce certain documents in a timely fashion.  Finally, Compagnie maintained that the panel’s conduct exhibited evident partiality in violation of § 10(b).

The District Court Opinion

The District Court rejected Compagnie’s challenge to the panel’s interim order requiring Compagnie to fund a joint escrow account.  Recognizing arbitrators’ “broad discretion in fashioning remedies” and “grant[ing] equitable relief,” the court concluded “[a]s a matter of substance, the Panel’s escrow account order was within its authority.”  Contrary to Compagnie’s assertions, the court noted that “[t]he issue of security . . . was implicit in the submission of the main dispute to the Panel” and rather than being issued sua sponte, the panel issued its order for pre-hearing security in response to Konkar’s motion for an interim award.  The court similarly dismissed Compagnie’s argument that it had been deprived of notice and an opportunity to be heard before the panel issued the interim order.  According to the court, Compagnie received actual notice when Konkar filed its motion for an interim award but never responded to it, and it was not until eight months later that the panel issued its interim order.

The court also concluded that it was not improper for the panel to consider Compagnie’s failure to comply with the interim order when it assessed 85% of the arbitration fees against Compagnie.  As the court explained, arbitrators routinely assess the 100% of the costs against one party, and there was no indication that the arbitration panel was seeking to impose punitive damages on Compagnie.

Finally, the court dismissed Compagnie’s other arguments, finding that the panel’s refusal to consider certain exhibits and failure to require Konkar’s timely production of certain documents did not amount to “prejudicial misconduct.”  The court also concluded that Compagnie’s insistence that certain adverse rulings “‘can only be explained’ by the arbitrators’ ‘evident partiality’” was not enough to warrant vacatur of the panel’s award.

 

* Rachel P. Raphael and Michael T. Carolan are associate and partner, respectively, in the Insurance & Reinsurance group of Crowell & Moring LLP. They each represent cedents and reinsurers in disputes involving a broad spectrum of issues.