Opinion ID: 773520
Heading Depth: 3
Heading Rank: 3

Heading: Part of Blystad's Claim Is Directly Under the Charter

Text: 34 The next step in deciding whether Blystad's claim is arbitrable is to determine whether the claim arises directly under the charter party or is collateral to it. In its March 13, 1997 letter demanding arbitration, Blystad sought compensation for the damages it has suffered directly, and an indemnity for any and all liability it has or may suffer to third parties, as a result of Dreyfus' breach. The claim for direct damages is brought under the agreement, but the claim for indemnification under the letters of indemnity is collateral to the arbitration agreement. 35 In Blystad's submissions to the district court, it pointed to a number of provisions of the charter -- separate from the letters of indemnity -- under which it will seek relief before the arbitration panel. These include, inter alia: (1) Part I, clause D, governing discharge ports; (2) Part II, clauses 6(a)-(c), governing safe berths, shifting to other berths, liability for customs overtime and fees for shifting berths, and liability for costs upon a change of discharge ports; (3) Part II, clause 7, governing the pumping of cargo in and out of the vessel; (4) Part II, clause 12, governing expenses at loading and discharge ports; and (5) Part II, clause 24, providing for the charterer's obligation to indemnify the vessel owner for any liabilities resulting from signing bills of lading or other documents inconsistent with this Charter or from any irregularity in papers supplied by the Charterer or its agents, or from complying with any orders of the Charterer or its agents. Blystad has also asserted that it may make a claim before the arbitrators for an indemnity by operation of law, see, e.g., Nissho-Iwai Co. v. M/T Stolt Lion, 617 F.2d 907, 913-14 (2d Cir. 1980), based on the order to change discharge ports and to deliver the cargo without the original bills of lading. 36 Appellant raises two principal objections to these parts of Blystad's claim that are purportedly brought directly under the charter party. The first is the assertion that Dreyfus' alleged breach does not implicate the particular provisions of the agreement referenced by Blystad. This objection conflates the question of whether the dispute is within the scope of the arbitration clause with the potential merits of the claim. It is established that under a broad arbitration clause, a dispute under the contract must be arbitrated [w]hether 'arguable' or not, indeed even if it appears to the court to be frivolous. AT&T Techs., 475 U.S. 649-50; accord Coca-Cola Bottling Co. v. Soft Drink & Brewery Workers Union, Local 812, 39 F.3d 408, 410 (2d Cir. 1994). As the parties have contractually agreed that disputes brought directly under the charter should be arbitrated, it is not the task of a court to explore their merits. 37 The second objection to Blystad's claim under the charter provisions is Dreyfus' assertion that performance under the charter, as provided by the arbitration clause, was completed upon the original issuance of the bills of lading. Dreyfus insists that once the original bills of lading specified that delivery was to be to Qingdao, neither Blystad nor Dreyfus could unilaterally change the discharge port. Since the vessel could not be compelled to change discharge ports, any change in destination would have to be under a separate agreement -- here, the letters of indemnity -- and only this separate agreement would govern delivery to Qin Huang Dao, the newly designated port. 38 Dreyfus' argument does not follow logically. We see no reason to view performance, as provided in clause 31, so narrowly as to encompass only the agreement to proceed to Qingdao, when the obvious purpose of the agreement was to transport soyabean oil from a port in the United States to a port in China. The fact that neither party could unilaterally change the discharge port after the issuance of the bills of lading does not suggest that performance was completed at the point of issuance. Rather, performance under the charter continued until the eventual discharge of the cargo at Qin Huang Dao, notwithstanding the letters of indemnity. 39 Absent evidence that the parties intended the letters should supersede the charter party, both agreements were in effect at the conclusion of the voyage, with the former merely supplementing the latter. As Professor Corbin explained: 40 It happens very frequently that a party to a valid contract attempts, either as plaintiff or as defendant, to show that a new contract has been substituted, either as a total discharge or as a partial modification and discharge. The existence of such a new contract of substitution or modification must be established in the same way as is any other contract. No one will be held to have surrendered or modified any of his contract rights unless he is shown to have assented thereto in a manner that satisfies the requirements of a valid contract. 41 6 Arthur Linton Corbin, Corbin on Contracts § 1293 (1962) (emphasis added). 42 While the letters of indemnity may constitute a fully executed contract, there is no indication that they were intended to supplant the charter party, rather than simply provide added protection for Blystad in return for agreeing to the change in discharge ports. In fact, clause 6(c) of the charter specifically envisioned such a change, directing that any change be in writing, and mandating that the Charterer shall assume all cost incident to such change, including the value of the vessel's time if the voyage is prolonged thereby. Accordingly, since the charter remained in effect through the voyage to Qin Huang Dao, any claim under that agreement is subject to arbitration. 43 D. The Claim Under the Letters of Indemnity Is Within the Scope of the Arbitration Clause 44 Blystad's claim for indemnification under the letters of indemnity is not brought directly under the charter agreement, but is made under a collateral agreement. We have explained that for purposes of arbitration, a collateral agreement is a separate, side agreement, connected with the principal contract which contains the arbitration clause. Prudential Lines, 704 F.2d at 64. The letters were issued subsequent to the charter party and are not specifically incorporated or even referenced by that agreement. While clause 6(c) mandates that all changes in discharge ports be in writing, and provides for compensation for costs incident to this change, it does not explicitly provide for indemnification. Absent any reference by the charter party to the letters, or language indicating that the letters themselves incorporated the charter, these claims must be deemed collateral to the main agreement. See Fairmont Shipping (H.K.), Ltd. v. Primary Indus. Corp., No. 86 Civ. 3668, 1988 WL 7805, at  (S.D.N.Y. Jan. 25, 1988) (finding letters of indemnity collateral to charter party), aff'd, 940 F.2d 649 (2d Cir. 1991) (table). 45 Accordingly, under Collins, we test the presumption of arbitrability associated with a broad arbitration clause by asking whether claims under letters of indemnity -- as claims under a collateral agreement --implicate[] issues of contract construction or the parties' rights and obligations under it. Collins, 58 F.3d at 23. This test is more expansive than the one we apply for a narrow arbitration clause, in which the claim must on its face be brought under the terms of the agreement. Rochdale Vill., 605 F.2d at 1295. The letters of indemnity clearly implicate at least two clauses of the charter: clause 6(c), providing for a writing and payment of costs upon a change in discharge ports; and clause 24, providing for indemnification for compliance with the orders of the charterer. By implicating the rights of Blystad and the duties of Dreyfus under the charter party, the letters of indemnity are within the scope of the broad arbitration clause. 46