Case of the Day: China National Chartering v. Pactrans Air & Sea

The case of the day is China National Chartering Corp. v. Pactrans Air & Sea Inc. (N.D. Ill. 2012). In 2006, Pactrans, a freight forwarder with its main offices in Illinois and branch offices in China, chartered the M/V Sanko Rally from China National to transport a cargo of gypsum board from China to Florida for Devon International Trading Inc. The charter party between Pactrans and China National had an arbitration clause providing for arbitration in Beijing. The gypsum board was damaged during transit, leading to litigation between China National and Pactrans about demurrage.

China National sued Pactrans first in the Southern District of New York seeking a prejudgment attachment of assets. While that claim was pending, China National also began an arbitration in Beijing before the China Maritime Arbitration Commission. The arbitration resulted in an award in favor of China National for more than $500,000, plus attorney’s fees and costs. Pactrans appealed the award to the Tianjin Maritime Court as provided for in China’s arbitration law. The Tianjin court affirmed the award. China National then sought recognition and enforcement of the award in the New York proceeding. The New York court confirmed the award and entered final judgment, and Pactrans appealed.

China National then sought to confirm the award in Chicago. The judge stayed the proceedings pending the outcome of Pactrans’s appeal of the New York decision. In 2011, the Second Circuit determined that the New York court had lacked personal jurisdiction over Pactrans, and on remand the New York judge accordingly dismissed the motion to confirm the award. This left the field clear for the judge in Chicago.

Pactrans raised various arguments on the validity of the arbitration agreement, all of which failed. It argued that it had not agreed to arbitrate the matters the award actually decided, but the charter party provided that “any dispute arising out of this Charter [Agreement] shall be referred to arbitration at the place indicated in box 25 [Beijing], subject to the procedures applicable there.” Pactrans argued that English rather than Chinese law should have governed the arbitration, but the charter party also provided that “The laws of the place indicated in box 25 shall govern this Charter.” It’s not necessarily the case that the law governing the substantive contract between the parties should also be the law of the arbitration, but certainly the default rule is that the arbitration itself is governed by the law of the place of the arbitration. Pactrans argued last that it had not agreed to the choice of arbitrator,which can be fatal under Chinese arbitration law, but in an email Pactrans’s counsel had “confirm[ed] agreement to arbitration of demurrage claims before CMAC.”

Pactrans also argued that it was unable to present its case, noting supposed errors in the admisison of evidence and lack of an opportunity to cross-examine witnesses. These arguments failed, too, as they do in all but the highly unusual case.

Last, Pactrans argued that confirmation of the award was contrary to public policy because the arbitral tribunal and China National were “both controlled by the Chinese Government.” But Pactrans failed to show that the outcome of the hearing was somehow influenced by the connection between China National and the arbitrators.

The judge was sufficiently unimpressed with Pactrans’s arguments that he awarded attorney’s fees to China National:

Pactrans has submitted baseless and unsubstantiated arguments to support [its] position. … The Court finds that an award of reasonable attorney’s fees is warranted based on Pactrans’s submission of baseless arguments which unnecessarily multiplied the proceedings.

About Ted Folkman

Ted Folkman is a shareholder with Murphy & King, a Boston law firm, where he has a complex business litigation practice. He is the author of International Judicial Assistance (MCLE 2012), a nuts-and-bolts guide to international judicial assistance issues, and of the chapter on service of process in the ABA's forthcoming treatise on International Aspects of US Litigation, and he is the publisher of Letters Blogatory, the Web's first blog devoted to international judicial assistance, which the ABA recognized as one of the best 100 legal blogs in 2012, 2014, and 2015.

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