Opinion ID: 559879
Heading Depth: 2
Heading Rank: 1

Heading: The Substantive Dispute and the Commencement of Arbitration

Text: 4 The substantive dispute concerned the designation of dates for the fourth of the five scheduled voyages. In October 1981, pursuant to the terms of the contract, Trade designated certain dates within which it would tender the Vessel and NPC could load the cargo for the fourth voyage. NPC made no response, and Trade later amended its designation of dates for that voyage. NPC objected that the new dates were outside the range permitted by the contract and that Trade's designation was therefore a breach. NPC sent its cargo on another ship and the NIKOS KAZANTZAKIS eventually took mitigating steps. 5 The charter contract contained an arbitration clause, which provided, in part, as follows: 6 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 the Owner [Trade], one by the Charterer [NPC], and one by the two so chosen. The decision of any two of the three on any point or points shall be final.... 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. 7 Trade invoked this clause with respect to the dispute over the fourth voyage. It nominated Lloyd C. Nelson as its member of the proposed arbitration panel. NPC nominated Frank L. Crocker as its member of the panel. Nelson and Crocker chose Manfred W. Arnold to be the third member, and chairman, of the panel. 8 The first arbitration hearing was held on December 9, 1981. On that day, Trade commenced the present action against NPC in federal court for fraud and breach of contract, seeking both damages for the lost fourth voyage and demurrage accumulated from the first three voyages. Trade attached NPC assets to secure its claim of damages; NPC promptly moved to vacate the attachments. On December 17, the district court, in order to avoid interfering with the arbitration by making its own decision as to issues that the parties had committed to arbitration, suggested that the parties have the arbitration panel hold an immediate hearing on the contract claim. The parties agreed to do so.
9 At the arbitration hearing on December 18, the parties asked the arbitrators to make an immediate determination as to liability for cancellation of the fourth voyage, leaving for a later time the calculation of damages, if any, for that voyage and demurrage for the first three voyages. Counsel for Trade outlined Trade's understanding of the purpose of the hearing, stating as follows: 10 I don't think it is necessary to go so far as to physically render an award, because I think there are areas here that cannot in fact be determined today, dollars and cents damage amounts, but I think findings can be made with regard to the issue of liability, reserving for a future time or a future hearing the actual physical calculation of the dollars and cents amounts that might be involved. Counsel for NPC agreed: 11 There are two claims in this Arbitration. One claim is that the Charterer, NPCI, breached the Contract of Affreightment with respect to wrongful cancellation of the NIKOS KAZANTZAKIS for voyage number 4. That is a cancellation problem.... 12 The second issue is, is the Charterer, NPCI, responsible for demurrage.... 13 I am not in the position tonight to comment on demurrage. I don't think the Arbitrators need to sit on a Friday night to consider a claim for demurrage.... 14 .... 15 What I think the Arbitrators can do tonight is to deal with the root problem that led to this Arbitration going forward on the basis that it did. That is to say, they [Trade] have contended that the vessel was wrongfully cancelled.... 16 .... 17 The question of cancellation is a straightforward question. You can consider whether the vessel was tendered within the proper time or not, and you can decide that issue. 18 .... 19 The question to detain us in which I hope you can answer was the vessel rightfully cancelled? [sic ] And I am prepared to proceed on that basis. 20 The arbitration panel acceded to the parties' request. It proceeded immediately to hear evidence and argument, and rendered its decision on liability on that day (December 1981 Award), stating that it had agreed to render a partial final award immediately because counsel for both parties have so requested. 21 In the December 1981 Award, the panel unanimously found that NPC had fail[ed] to provide [Trade] with a fourth cargo under the contract, and it therefore found NPC liable for any damages flowing from the cancellation of the fourth voyage.
22 In 1982, NPC asked the panel to hear additional evidence on the liability question, arguing that Trade had presented false evidence at the December 18 hearing. In connection with this motion, the panel conducted two hearings. In an Interim Opinion dated August 10, 1983 (Interim Opinion), the panel unanimously denied the motion on both substantive and procedural grounds. The panel rejected NPC's contention that the December 1981 Award could be reconsidered as nonfinal: 23 At page 208 of the transcript, the panel stated that it would render a partial final award. The decision was final with respect to the liability with the determination of damages to be dealt with at a later date. To remove the element of finality, which [NPC is] suggesting, would strip the partial final award of any significance at all. 24 Interim Opinion at 5. Given the finality of the December 1981 Award, the panel stated that it was, with respect to that award, functus officio, i.e., without power to modify it. The Interim Opinion stated that [i]t is the panel's understanding that the state of the law is such that it does not permit a panel to review or modify a Partial Final Award which has the same finality and effect as a Final Award. Id. at 4 n.. The panel stated that it had acceded to NPC's request for a further hearing only because of the special circumstances, i.e., that 25 (1) both counsel represented to us that the Federal Court had requested the expedited hearing for the purpose of our making a finding of fact on a material issue; (2) a Partial Final Award was issued; (3) the Federal Court may have in its proceeding been guided or influenced by this Partial Final Award and (4) counsel for [NPC] alleged that the panel received false testimony and/or fraudulent evidence. 26 We believe that when an arbitration award is rendered as a final award or, as in this instance, a partial final award, the arbitrators become functus officio as to the issue upon which the Final or Partial Final Award was made. 27 Id. at 4. The panel also concluded that the award had not been based on fraudulent evidence. See id.
28 In August 1984, before further proceedings in the arbitration, Crocker died. In April 1985, NPC nominated Jack Berg as its new arbitrator to replace Crocker. In August 1985, it moved in the district court to compel Trade as well to nominate a new arbitrator; it contended that the two new arbitrators should, under the arbitration provision of the contract, appoint the third member of the new panel and proceed to rearbitrate the entire dispute from the beginning. 29 After a hearing, the district court, by order dated September 24, 1985 (September 1985 Order), denied NPC's motion insofar as it requested appointment of a new panel. Instead, relying on its powers under the Federal Arbitration Act, 9 U.S.C. Sec. 1 et seq. (1982) (Arbitration Act or Act), the court appointed NPC's nominee, Berg, as the replacement for Crocker on the original panel. Pointing to the provision in 9 U.S.C. Sec. 5 for judicial filling [of] a vacancy, the court reasoned that [t]he statutory authority to fill a vacancy must necessarily be construed to refer to a pending arbitration. September 1985 Order at 2. The court remanded the case to the reconstituted panel to proceed with all convenient speed to determine all questions involved in the submission of the parties, including the effect, if any, to be given to the hearing heretofore had, and the Partial Final Award heretofore rendered by the Arbitrators, and whether hearings of the arbitrators shall be limited to the issue of damages. Id. at 2-3. 30