Opinion ID: 726085
Heading Depth: 2
Heading Rank: 2

Heading: West of England

Text: 19 Our decision not to create a right of direct action in admiralty does not dispose of this matter with regard to defendant West. Although we have found no grounds in American admiralty law for a rule setting aside the pay first provision of these contracts, it does not follow that plaintiffs have no rights of arbitration under the contract with West. The key differences are that States' contract with West contained both a choice of law clause and an arbitration clause, provisions not present in the contract with American. West, therefore, has both the right and the obligation to arbitrate disputes brought by parties claiming rights under the contract. In this case, plaintiffs claim the right to stand in States' shoes as beneficiaries of the indemnity contract and to recover for their injuries at sea. It is up to the arbitrator to decide the merits of the arbitral dispute, including the right of the plaintiffs to arbitration. It is up to the arbitrator, not this court, to determine the type of arbitration that the customs of the maritime industry allow. 20 We agree with the rule stated in Cheshire Place Associates v. West of England Ship Owners Mutual Insurance Association, 815 F.Supp. 593, 597 (E.D.N.Y.1993): When a plaintiff 'bases its right to sue on the contract itself, not upon a statute or some other basis outside the contract, the provision requiring arbitration as a condition precedent to recovery must be observed.'  Id. (quoting Wells Fargo Bank International Corp. v. London Steam-Ship Owners Mutual Ins. Assoc., 408 F.Supp. 626, 630 n. 10 (S.D.N.Y.1976)). Here, plaintiffs have no conceivable claim against West that does not derive from the contract between West and States. Even the District Court, with its willingness to fashion sweeping remedies, recognized this fact: both the right of direct action and the Liman-like plan ordered by the court are grounded in the contractual relationship between States and West. For that reason, the claim must be adjudicated according to the contract's provisions; in this case, it must be referred to an arbitrator in England and decided under British law in accordance with the choice of law provision in the contract. 21 Enforcing the arbitration clause in this case follows the strong policy of federal law favoring arbitration. Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983). The Federal Arbitration Act provides that written agreements to arbitrate controversies arising out of an existing contract 'shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for revocation of any contract.'  Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985) (quoting 9 U.S.C. § 2). The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 9 U.S.C. §§ 201-208, an amendment to the Federal Arbitration Act, requires enforcement of arbitration clauses in international contracts unless the clause is null and void. Although plaintiffs were not parties to the contract between States and West, if they are going to try to enforce it, they are subject to its terms and to the international law governing its terms. 22 Applying English Law, as the West rules would require, yields the same result. England's Third Party Act of 1930 provides a right of direct action for third parties against insurance companies where the insured is bankrupt. It does not, however, put a third party in any better position as against an insurer than that of the insured himself. Firma C-Trade SA v. Newcastle Protection and Indemnity Association (The Fanti); Socony Mobile Oil Co., Inc. v. West of England Shipowners Mutual Insurance Association (London) LTD (The Padre Island), 2 All E.R. 705 (1990). In a dispute with the insurer, therefore, the third party is no less bound by the arbitration clause than the insured would have been. Similarly, the insurer is bound to arbitrate with the third party just as it would be against the insured. 23 For these reasons, we order the action against West of England dismissed without prejudice, pending the outcome of arbitration in England. Although this court may have occasion to review the arbitral award later pursuant to the Convention, the arbitrator in London should consider this case in the first instance.