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January 1997
Vol. 8, No. 1
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Contents
Insurance and Re-insurance: The Perils of Re-domestication
by Michael J. Murphy
Many issues connected with the regulation and enforcement of claims by and against insurers, as well as claims of insolvency by insurers, turn on the corporate nationality (domestication) of the insurer. A recent tale of re-domestication discloses the many pitfalls involved.
In June 1995, Electric Mutual Liability Insurance Company ("EMLICO"), a subsidiary of General Electric Company ("GE"), re-domesticated itself from Massachusetts to Bermuda. Once in Bermuda, EMLICO promptly petitioned for liquidation. As a result, both GE and EMLICO now find themselves immersed in an international legal quagmire that promises to get worse before it gets better. Indeed, the potential end result could be that EMLICO will find itself without any jurisdiction of incorporation. If that were to occur, it could well lose its ability to pursue its rights of recovery against its reinsurance debtors.
EMLICO's Move From Massachusetts To Bermuda
For many years GE apparently used EMLICO to insure itself. EMLICO, in turn, reinsured its GE related risks with unaffiliated domestic and foreign reinsurers. In effect, GE looked through EMLICO to the security of reinsurers for coverage of the casualty risks which its operations generated. As of June 30, 1995 EMLICO reported a surplus of approximately $230 million. At approximately the same time, EMLICO petitioned the Massachusetts Division of Insurance for an Order to allow it to re-domesticate itself in Bermuda. On June 28, 1995, the Massachusetts Insurance Commission issued a Memorandum and Decision and Order allowing EMLICO's re-domestication in Bermuda. The effect of that Order was to terminate EMLICO's Massachusetts charter upon its transfer to Bermuda. Mass. Gen. Laws Ann. ch. 175, § 49A (West 1996).
With the consent of the Massachusetts Insurance Commission in hand, EMLICO, effective July 1, 1995, became a Bermuda Company. In order to do so, it had to apply for the consent of the Bermuda Minister of Finance "to be continued in Bermuda as an exempted company." Bermuda Companies Act 1981 § 132C(1). Pursuant to Bermuda law, that application had to have been accompanied by, among other things, financial statements for a period ending within twelve months of the date of the application (Id., § 132C(2)), so that the Minister of Finance could satisfy himself as to the company's solvency.
EMLICO's Liquidation In Bermuda
On October 20, 1995, approximately four months after its move to Bermuda, EMLICO petitioned the Bermuda Supreme Court for a voluntary Winding Up Order asserting that its liquidation was necessary since it had a negative net worth of approximately $500 million. Thus, in approximately four months its reported surplus had gone from $230 million in June 1995 to a negative $500 million in October 1995, a swing in excess of $700 million.
If EMLICO had remained a Massachusetts company and entered into liquidation in that State, its liquidation and run-off would have been in the hands and under the control of the State regulatory authorities. In sharp contrast is the liquidation process in Bermuda. Liquidation proceedings in Bermuda are largely creditor driven and controlled. It is the creditors, sometimes with the concurrence of the Company itself, who usually nominate and propose to the Court the individual who will be appointed Provisional Liquidator. A Provisional Liquidator usually presides over the liquidation (Bermuda Companies Act 1981, § 171(b)) until separate creditors' and shareholders' meetings are convened for the purpose of having a Permanent Liquidator selected. (Id. § 217). Typically, the individual who is the Provisional Liquidator ends up as the Permanent Liquidator.
Usually, representatives of the creditors are also elected by the creditor body to what is known as a Committee of Inspection (Id. §§ 181, 218). While a Committee of Inspection is in some ways similar to an American Bankruptcy Creditors Committee, in reality it is more akin to the Board of Directors of a Company in that it acts as a check and balance on the activities of the Liquidator. While the powers of a Liquidator under Bermuda law are broad (see, e.g., Id. §§ 226, 175), the Liquidator still needs the approval of the Committee of Inspection (or failing that, the Court), to enter into compromises and arrangements with creditors with respect to matured or contingent claims (Id. §§ 227, 175(1)(e)). It is the Liquidator who allows claims in the Liquidation. The Liquidator, therefore, with the sanction of the Committee of Inspection (or the Court), decides what the company's liabilities are, and the quantum of those liabilities. Moreover, with respect to contingent claims, the Liquidator has the power to agree to them and allow them as if mature at a discounted present day value.
In the case of EMLICO, for all practical purposes there is but one creditor, GE. In short, unlike what would have been the case had EMLICO been liquidated in Massachusetts, GE, because of the re-domestication, is in effect in a position to dominate the liquidation of its own subsidiary. As a practical matter, it had the power to name the Liquidator(s), as well as the members of the Committee of Inspection.
The Reaction Of EMLICO's Reinsurers
The liquidation claims allowance process is of vital interest to an insolvent insurer's reinsurers for it is the mechanism by which in large part the reinsurers' resulting liabilities to the Estate will be determined. Reinsurance claims may also be maximized by the manner in which claims losses are allocated to insurance policy years. The Liquidator also will decide upon the method of allocation. The claims allowance process may also affect the speed in which reinsurance claims materialize. An aggressive Bermudian Liquidator faced with large contingent claim exposure, either through a so-called Scheme of Arrangement or otherwise, will attempt to allow these contingent liabilities at a discounted value. The Liquidator will then make an immediate reinsurance claim based on that allowance rather than awaiting the actual claims development, which for long tail liabilities such as those which are asbestos-related could take years. Typically, under United States insurance insolvency laws, such compromises of contingent claim liabilities are not possible. Usually an American Liquidator would either wait out the claims development process or seek a bar order from the Court. Not surprisingly, therefore, when EMLICO's reinsurers learned of its re-domestication to Bermuda and its rather abrupt liquidation, they sat up and took notice. They found themselves in a situation where GE, the only EMLICO creditor, and therefore the ultimate beneficiary of any reinsurance recovery, in effect appointed the individuals who would have the power to determine the extent and speed of those reinsurance recoveries. Not surprisingly, they took to the Courts of both Massachusetts and Bermuda for relief.
In Massachusetts, EMLICO's reinsurers brought actions against the State's Division of Insurance seeking to have the Insurance Commission rescind its June 1995 Order which allowed EMLICO to withdraw from Massachusetts and to re-domesticate in Bermuda. The reaction of the Insurance Commission was to move to dismiss the actions in large part on the ground that the reinsurers, not being creditors of EMLICO, lacked standing to pursue them. The Insurance Commission also asserted that the re-domestication Order was not subject to judicial review under applicable Massachusetts law.
In the meantime what may turn out to be the proverbial smoking-gun surfaced. In March 1996, counsel for Allstate Insurance Company, one of EMLICO's reinsurers, received two documents in a plain brown envelope from an anonymous sender. One of the documents was a flow chart concerning the anticipated liquidation of EMLICO. The other was a memorandum of a law firm. The law firm memorandum, prepared some six months before the move to Bermuda, is reportedly concerned with the possible re-domestication and liquidation of EMLICO.
Allstate then sought to have the Massachusetts court review the two documents in camera and declare that they could be used in the action which, as noted above, seeks to have the re-domestication Order rescinded. EMLICO, through its Bermudian Provisional Liquidators, intervened in opposition and claimed that the two documents were subject to the attorney-client and lawyers' work product privileges. In an April 16, 1996 Memorandum of Decision and Order, the court rejected the Provisional Liquidators' contentions and found that "EMLICO has waived its privilege." That Order has been stayed pending appellate review. In view of the disclosure, however, the Massachusetts Insurance Commission withdrew its motion to dismiss the reinsurers' actions against it. On June 24, 1996, a hearing was held to determine if it should consider its June 1995 Redomestication Order. By letter dated July 2, 1996 the Commissioner of Insurance ruled that while "there are sufficient grounds to warrant inquiry as to whether deliberate misrepresentations were made to the Division [of Insurance] . . .," in an exercise of discretion the Commissioner would not reopen the redomestication proceeding at this time and would defer to the Bermuda court which, as discussed below, has agreed to consider the matter.
In the meantime, Kemper Reinsurance Company ("Kemper Re") has instituted proceedings in the Bermuda court to vacate EMLICO's corporate status in Bermuda. It alleged that EMLICO secured approval of its move to Bermuda by committing fraud on the regulatory authorities of both Massachusetts and Bermuda. Specifically Kemper Re alleged that EMLICO misrepresented that it was solvent and not about to enter liquidation when in fact it was substantially insolvent and fully intended to enter liquidation proceedings once it became a Bermuda Company.
The Risk Of EMLICO Becoming Stateless
It would be wrong to pre-judge the serious accusations that have been made concerning the re-domestication of EMLICO. Whether the authorities in Massachusetts and Bermuda have been intentionally deceived remains a matter to be considered by those authorities and the Courts. The issue, however, is not merely in which jurisdiction, Massachusetts or Bermuda, EMLICO is properly domiciled. Rather, the real danger facing the company is that it might ultimately find itself incorporated in neither.
Corporations, as legal entities, are creatures of their respective states or countries of incorporation. As a general rule, a corporation's right to seek redress in a court depends on it in fact being a valid corporate body in its purported jurisdiction of incorporation. If EMLICO is neither a Massachusetts nor a valid Bermudian corporation, its status as a corporate legal entity would appear to be non-existent. It will then undoubtedly be faced with very serious questions concerning its legal capacity to sue in the courts to enforce its rights, contractual and otherwise.
If the reinsurers' charges are valid, the entire re-domestication effort was motivated by a desire to maximize reinsurance recoveries. It would be ironic, indeed, if the end result of the effort turns out to be the elimination of EMLICO's ability to ever collect them.
The foregoing is an abridgement of Mr. Murphy's article that appeared in the July 10, 1996 edition of Mealy's Reinsurance Reports.
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Basic Requirements of the ISM Code
by John W. Wall
Cargo vessels must be certified under the International Management Code for the Safe Operation of Ships and for Pollution Prevention, also called the International Safety Management (ISM) Code, by the following dates:
July 1, 1998: Oil tankers, chemical tankers, gas carriers, bulk carriers, cargo high speed craft of 500 gross tonnage and upwards
July 1, 2002: Other cargo ships and mobile offshore drilling units of 500 gross tonnage and upwards
The Code requires owners and operators of vessels to develop, implement and maintain a Safety Management System (SMS) in compliance with standards set forth in the Code. In December, 1995, the International Maritime Organization (IMO), which promulgated the ISM Code, issued Guidelines on Implementation of the ISM Code by Administrations.
Under the Guidelines, flag state administrations have the responsibility for verifying compliance with the Code and for issuing two types of documents confirming compliance. These certificates are the Document of Compliance (DOC), issued to an owning or operating company, and the Safety Management Certificate (SMC), issued to each individual vessel. To qualify for a DOC, the company must produce objective evidence that an SMS has been effectively implemented. Specifically, the company must demonstrate that its SMS has been in operation for at least three months, and that an SMS has been in operation on at least one ship of each type operated by the Company for at least three months. To obtain an SMC on a vessel, it is necessary to demonstrate that the Company's SMS has been functioning effectively on board the vessel for at least three months.
Both DOCs and SMCs are valid for a period of five years. The DOC is subject to annual verification, and the SMC is subject to at least one intermediate verification, which should take place between the second and third years after issuance of the SMC. The company has the responsibility of requesting periodical verification, and the IMO's Guidelines provide that administrations should withdraw the certificates if the required periodical verifications are not requested. For international uniformity, standard forms for DOCs and SMCs have been issued by the IMO.
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The Consequences of Arbitrator Disability
by Jack A. Greenbaum
In arbitration practice, as in life, a subject to which thought is not commonly given until it is too late is: What happens in the event of incapacity?
The Federal Arbitration Act contains no provision for such a contingency. The Rules of New York's Society of Maritime Arbitrators, Inc. provide that a vacancy shall be filled by the appointment of a replacement by the party who appointed the disabled arbitrator, or by the party-appointed arbitrators in the case of a disabled third arbitrator, whereupon the arbitration shall resume on the existing record. The Society's Rules apply only if expressly agreed between the parties, either in the arbitration clause or during the course of an arbitration.
The United States Court of Appeals for the Second Circuit, which includes New York, has ruled that in the absence of a specific agreement to the contrary, a party is entitled to commence an arbitration anew upon the disability of that party's appointee. The Court of Appeals did not discuss the rationale, except to say that this has been the accepted general rule. M/T GLOBE GALAXY, 977 F. 2d 66 (2d Cir. 1992)
In Trade & Transport Inc. v. Natural Petroleum Charterers Inc., 931 F. 2d 191 (2d Cir. 1991), the Second Circuit acknowledged the general rule, but held that an interim partial final award on liability need not be redetermined upon the subsequent death of an arbitrator. Having decided the issue of liability submitted to them, the arbitrators were functus officio with respect to that issue; that is, their authority over the issue was ended. Therefore, the arbitration resumed from the point of the issuance of the partial final award.
One respected District Judge, Marvin Frankel, has written that the rationale for commencing an arbitration anew is that a party-appointed arbitrator is "an amalgam of judge and advocate," whose participation during interim deliberations may have an impact upon the result; the party-appointee's influence is not the same if he has not participated from the beginning of the case. M/V WORLD EXPLORER, 359 F. Supp. 898 (S.D.N.Y. 1973)
Notwithstanding this reasoning and the fact that the federal decisions each involved the death of party-appointed arbitrators, it is likely that the same rule would be applied upon the disability of a neutral third arbitrator, and, indeed, of an adversary's appointee.
In order to avoid the inconvenience and duplication of costs that might arise if an arbitration must be re-commenced, parties should consider agreeing to the S.M.A. Rules in their arbitration clause, or at least agreeing at the outset of an arbitration that the hearings may continue with a replacement in the event that any arbitrator may have to withdraw.
One of the risks in so agreeing is that the witnesses' credibility may be an issue, making it advisable that all of the arbitrators who will decide the case have the opportunity to see and hear all of the witnesses. But there is also a risk in adducing a witness' testimony a second time for the benefit of a new panel member, thereby giving an adversary a second chance to cross-examine. These are among the factors that must be balanced in determining whether to agree in advance to proceed on an existing record with a replacement arbitrator.
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Enforcement of Arbitration of Non-Maritime Claims Under the UN Arbitration
Convention
by Glen T. Oxton
The UN Arbitration Convention can be very useful, especially to claimants under non-maritime contracts, as a result of (A) its less demanding jurisdictional requirements and the court's power to direct arbitration to proceed outside the United States, and (B) the availability (at least in the Second Federal Circuit) of pre-arbitration injunctions and attachment procedures.
Federal courts are empowered to deal only with limited kinds of cases, such as admiralty matters, cases between parties of diverse citizenship, and so-called "federal question" cases. Contracts to purchase a vessel (a Memorandum of Agreement, or "MOA") and contracts to build a vessel are historically deemed non-maritime contracts under U.S. law. Consequently, they do not come within the admiralty jurisdiction of the federal courts. Hence, unless the parties' citizenship meets the requirements of diversity, there is no federal subject matter jurisdiction.
Diversity as a basis of jurisdiction can be quite limited. For example, there is no diversity jurisdiction between two non-U.S. corporations, even if one of them has its principal place of business within the United States. This rule was emphasized by the Second Circuit in International Shipping v. Hydra Offshore, Inc., 675 F. Supp. 146 (S.D.N.Y. 1987), aff'd 875 F. 2d 388 (2d Cir. 1989), cert. denied, 493 U.S. 1003 (sanctions awarded regarding a suit brought on an MOA between two Liberian corporations, alleging admiralty and diversity jurisdiction).
If the MOA contains an arbitration clause, the same jurisdictional problems apply with respect to the original Federal Arbitration Act (9 U.S.C. §§ 1-16, also referred to as Chapter I of the Act), because Chapter I expressly requires the existence of an independent basis of federal jurisdiction to vest the federal court with power to deal with an arbitration agreement. In addition, the power of federal courts to direct arbitration under Chapter I is limited to arbitrations to be held within the court's district. Thus, when the place of arbitration is to be outside the United States, a federal court will not issue an order compelling arbitration (although if the court has jurisdiction over the parties, it could stay a plenary action, and it might order arbitration to take place within its district, contrary to the parties' agreement).
These gaps are filled by the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 9 U.S.C. §§ 201-208, which was ratified by the U.S. in 1970. It was codified as Chapter II of the U.S. Federal Arbitration Act. About 100 countries are signatories to the Convention.
A. When the Convention Applies.
The Convention applies when there is a written arbitration agreement between parties in an international commercial relationship which calls for arbitration in the territory of a signatory country. Jones v. Sea Tow Services Freeport New York, Inc., 828 F. Supp. 1002 (E.D.N.Y. 1993), reversed on other grounds 30 F.3d 360 (2d Cir. 1994). "International" in this context excludes cases entirely between United States citizens. A "commercial relationship" includes both maritime and non-maritime contracts,
Unlike Chapter I of the Act, Chapter II provides that cases within the Convention, a treaty of the United States, are subject to "federal question" jurisdiction. Thus, no separate basis of subject matter jurisdiction is required. A petition to compel arbitration under the Convention may be made in the district in which the place agreed for arbitration is located or wherever the defendant may be found in the United States for purposes of service of process. Under the Convention, the federal courts may order the parties to proceed to arbitration at the location specified in their agreement, even if that location is outside the United States. For example, a petition could be filed in New York by a Panamanian claimant against a Liberian respondent whose principal place of business was in New York on an MOA containing a London arbitration clause. The court would have jurisdiction to compel the parties to arbitrate in London.
B. Pre-Arbitration Injunction and Attachment are Available.
The pre-arbitration provisional remedies of injunction and attachment appear to be available in federal court in a Convention case, at least in the Second Circuit. The Convention is silent on this issue, and it has been subject to a series of conflicting decisions.
The maritime remedies of arrest and foreign attachment are preserved in Section 8 of Chapter I of the Federal Arbitration Act. 9 U.S.C. § 8. The Act states that the provisions of Chapter I apply to Chapter II to the extent they do not conflict with Chapter II. 9 U.S.C. § 208. It is well established that Section 8 applies in Convention cases and that maritime remedies are available.
It has long been arguable as well that state law attachment remains available under the Convention for non-maritime claims. In a pre-Convention case, Murray Oil Products Co. v. Mitsui & Co., 146 F.2d 381 (2d Cir. 1944), the court held that pre-arbitration state law attachment was available in cases arising under Chapter I of the Federal Arbitration Act.
In 1974 after adoption of the Convention, however, the Third Circuit Court of Appeals in McCreary Tire and Rubber Company v. CEAT S.p.A., 501 F.2d 1032 (3d Cir. 1974), held that obtaining a state law attachment in a contract suit in state court was a violation of the plaintiff's agreement to arbitrate. The court pointed out that in Murray Oil, Judge Learned Hand relied on the proposition that arbitration is merely another method of trial to which state provisional remedies should equally apply; and that the first half of that proposition was rejected by the Supreme Court in determining that arbitration rights were substantive and not procedural for purposes of diversity. Bernhardt v. Polygraphic Company of America, Inc., 350 U.S. 198, 202, 76 S. Ct. 273, 100 L. Ed. 199 (1956). The Third Circuit also reasoned that the purpose of Section 205 of Chapter II, permitting removal of Convention cases from state to federal court, was to eliminate the vagaries of state law being applied to the Convention, including the vagaries of state attachment laws.
McCreary was followed in Metropolitan World Tanker Corp. v. P.N. Pertambangan Minjakdangas Bumi Nacional, 427 F. Supp. 2 (S.D.N.Y. 1975); but was rejected in Carolina Power & Light Co. v. Uranex, 451 F. Supp. 1044 (N.D. Cal. 1977), and in Compania de Navegacion y Financiera Bosnia S.A. v. National Unity Marine Salvage Corp., 457 F. Supp. 1013 (S.D.N.Y. 1978).
Four years later, New York State's highest court came down on the McCreary side in Cooper v. Ateliers de la Motobecane, 57 N.Y.2d 408, 456 N.Y.S.2d 728 (1982). The court construed the Convention as precluding state law pre-arbitration attachment, reasoning that provisional remedies were inconsistent with arbitration. It commented in dicta that it was open to dispute whether an attachment would be necessary in any arbitration. The court was closely divided and there was a strong dissent. The decision was criticized by some legal scholars.
In 1985, the New York Legislature amended New York's Civil Practice Law and Rules ("CPLR"), permitting attachments or injunctions in aid of arbitration where it appears that an eventual award would otherwise be ineffectual. CPLR § 7502(c).
In Borden, Inc. v. Meigi Milk Products Co., Ltd., 919 F.2d 822 (2d Cir. 1990), cert. denied, 500 U.S. 953 (1991), the U.S. Court of Appeals for the Second Circuit held that pre-arbitration injunctive relief was available in a non-maritime case subject to the Convention. The issue before the court concerned an injunction available under Rule 65 of the Federal Rules of Civil Procedure, but the court's decision broadly encompassed all the "usual provisional remedies," meaning injunction and attachment. While it could be argued that any comments about attachments in a case dealing with an injunction are mere dicta, there is no logical reason to treat the two differently, and the court's language is unambiguous. The court said:
In the instant case, far from trying to bypass arbitration [distinguishing McCreary], Borden sought to have the court compel arbitration. New York law specifically provides for provisional remedies in connection with an arbitrable controversy, N.Y. Civ. Prac. L. & R. (CPLR) § 7502(c) (McKinney Supp. 1990), and the equitable powers of federal courts include the authority to grant it. Murray Oil Products Co. v. Mitsui & Co., 146 F. 2d 381 (2 Cir. 1944). Entertaining an application for such a remedy, moreover, is not precluded by the Convention but rather is consistent with its provisions and its spirit. In Murray, we held that an arbitration clause "does not deprive the promisee of the usual provisional remedies. . . ." Id. at 384. We held that the desire for speedy decisions in arbitration "is entirely consistent with a desire to make as effective as possible recovery upon awards, after they have been made, which is what provisional remedies do." Id. 919 F.2d at 826.
The Borden case was conditionally dismissed on forum non conveniens grounds; however, the plaintiff was given leave to renew its injunction in New York if the Japanese courts failed to provide temporary relief within sixty days of a filing in Japan.
The Borden decision was relied on in Alvenus Shipping v. Delta Petroleum (U.S.A.) Ltd., 876 F. Supp. 482 (S.D.N.Y. 1994). Plaintiff sought an injunction under Rule 65 of the Federal Rules of Civil Procedure and/or a state court attachment. The court granted an injunction in aid of arbitration (which eliminated any need for an attachment). The court noted that because Cooper was a state court decision, it could not be a bar to the issuance of a federal law injunction in aid of arbitration. Moreover, the court also noted that Cooper conflicts with Borden and implied that Cooper was overruled by the amendment to the New York Arbitration Law, stating:
In permitting injunctions in aid of arbitration, CPLR § 7502 brings New York State in line with every signatory of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
876 F. Supp. at 488.
While Alvenus was a maritime case, and both Borden and Alvenus were cases dealing with federal law injunctions, clearly if the provisional remedy of an injunction is available in a Convention case, so must be the provisional remedy of attachment. Injunctions are not included in the preservation of the traditional maritime remedies under Section 8 of Chapter I of the Federal Arbitration Act. Instead, both injunctions and attachments must be seen as permissible under Chapter I of the Act according to Murray, and which, according to Borden, apply to Chapter II of the Act pursuant to its Section 208.
It is unclear whether the New York State courts will follow Borden or will feel bound by Cooper, which provides a compelling reason to file proceedings under the Convention in federal court.
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Cruise Ship Operators Can Exclude Liability For Emotional Injury
to Passengers by John
G. Ingram
The Coast Guard Authorization Act of 1996 was signed into law on October 19, 1996. The Congress added a new Subsection (g) to 46 U.S.C. 183 which provides that passenger carriers may insert a provision in their passage ticket relieving the vessel, crewmember, manager, agent, owner or operator of the vessel from negligent infliction of emotional distress, mental suffering or psychological injury so long as such provision or limitation does not limit such liability if the emotional distress, mental suffering or psychological injury was as a result of a physical injury to the claimant caused by negligence of operator, or as a result of the claimant having been at actual risk of physical injury and such risk was caused by the negligence or fault of the operator intentionally inflicted by the operator. The section goes on to further provide that the section is not intended to limit liability of a crewmember or the manager, agent, master, owner or operator of a vessel in a case involving sexual harassment, sexual assault or rape. When next redrafting passage contracts, passenger vessel owners should consider adding specific language to cover this additional limitation of liability.
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A Swift Resolution: New York Arbitration
The Firm recently represented a time charterer which exercised its option for an additional one year period, at what it believed had been the agreed rate of hire. The owner sought to impose a rate of hire nearly double the existing rate on the ground that the rate for the second year had not been set and was "to be agreed". The charterer had committed the vessel to a third party on fixed terms for the same period of one year plus a one-year option.
The dispute arose in mid September and was handled in our office by Simon Harter. After initial attempts to resolve the dispute were unavailing, the charterer demanded arbitration at the end of September and appointed the first arbitrator. The owner appointed a second arbitrator, and the two quickly selected a third and final member of the panel. Preparations were then made for expedited hearings in New York.
The parties submitted pre-hearing memoranda and exhibits. Hearings commenced on October 29 with opening statements and live testimony from three witnesses. The proceeding resumed the following day with the submission of final exhibits and closing arguments. The panel then proceeded immediately with its deliberations, and that afternoon orally rendered a unanimous decision upholding the exercise of the option, with a written award to follow.
As a result of this swift action on the part of the arbitrators, the matter was resolved in time for the November 1, 1996 commencement of the option year period, thereby averting what could have been substantial disruption and losses to both parties. This is a good example of how arbitration in New York can work to the advantage of everyone when arbitrators, attorneys and the parties work together to resolve a dispute.
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Vessel Finance
The Coast Guard Authorization Act of 1996 became law on October 19, 1996. The Act contained a large number of riders, including several changes intended to reduce the barriers to foreign investment in U.S. flag ships.
Mortgagees' Citizenship Requirement Eliminated. The requirement that the mortgagee of a U.S. Flag vessel be a citizen of the United States, which has been progressively eroded by regulations in the last few years, has now been eliminated entirely. (§ 1113(a)).
Foreign Leasing Company May Own Coastwise Vessel. If a vessel is under a demise charter having at least three years' duration, the vessel will be eligible for coastwise documentation even if the owner is not a U.S. citizen, if the charterer qualifies as a coastwise citizen and the owner is (or is an affiliate of) a company primarily engaged in leasing or other financing transactions. (§ 1113(d)).
Trust as Owner May Have Foreign Beneficiaries. A vessel may be documented with a registry endorsement in the ownership of a trust even though some of the beneficiaries are not citizens if the trust meets certain qualifications and the vessel is chartered to a citizen of the United States. For a trust to qualify, each of the trustees must be a citizen and not more than 25 percent of the aggregate power to control the actions of the trustee with respect to the vessel or remove the trustee without cause may be held by non-citizens. (§ 1136(a)).
Lender Liability and OPA
The EPA Rule which defined the actions that could be taken by a lender to protect its collateral without being deemed to have "participated in management" (and becoming liable for pollution), was added to CERCLA (or the "Superfund") by a statutory amendment contained in the Asset Conservation, Lender Liability and Deposit Insurance Protection Act of 1996, which became effective on September 30, 1996. The EPA Rule, which was discussed in Volume 5, No. 1 of Mainbrace in May, 1994, provides a helpful guideline for lender actions. It is hoped that the EPA Rule will be applied by analogy to the issue of lender liability under the Oil Pollution Act of 1990 ("OPA").
For further information regarding any of the above contact Glen Oxton or Robert Shaw of our office.
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The Third Bi-annual Nicholas J. Healy Lecture at New York University's School of Law was delivered on October 17, 1996, by the Honorable Charles S. Haight of the United States District Court for the Southern District of New York. Judge Haight spoke on "Babel Afloat: Some Reflections on Uniformity in Maritime Law."
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The Firm is pleased to announce that, effective January 1, 1997, Matthew A. Marion became a member of the Firm. Matt was born in New York, N.Y. on November 22, 1957 and is a graduate of Columbia University and Washington College of Law of American University.
He will be the resident partner at our Stamford office.
Matt is a member of the Bars of New York, Connecticut (pending), District of Columbia and Massachusetts. He is also a member of the Maritime Law Association of the United States, and is Chairman of the Ad Hoc Committee on OPA Concursus.
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Joseph E. Petersen started in August 1996. He received a B.S. from the University at Albany, State University of New York and a J.D. from Vanderbilt University School of Law.
Thomas H. Belknap, Jr. joined the firm in September 1996. He received a B.A. from Tufts University and a J.D. from Emory University School of Law.
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New York Office: 29 Broadway New York, NY 10006-3293 Telephone: (212) 943-3980 Telecopier: (212) 425-0131 |
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New Jersey Office: 374 Millburn Avenue P.O. Box 599 06902-6987 Millburn, NJ 07041-0599 Telephone:(201) 384-2556 Telecopier:(201) 384-1081 |
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