TBS Middle East Carriers v. United Quarries

The case of the day is TBS Middle East Carriers v. United Quarries (S.D.N.Y. 2014). United Quarries charted vessels owned by TBS to carry crushed gabbro aggregate from Fujairah, in the UAE, to Mesaieed, Qatar. Under their contract, 134 shipments were completed. TBS charged United Quarries approximately $30.2 million for freight and $18.2 million for demurrage. There was no dispute about those charges. There was, however, a dispute about much smaller costs: $122,753 for “account reconciliation,” $25,696.78 for “reimbursement of shifting expenses,” $138,162.15 for additional war risk premiums, and $1.36 million for bunker escalations. United Quarries counterclaimed for $605,835.57, or 1.25% on the gross freight and demurrage earned by TBS.

In the arbitration, TBS argued that it had agreed to pay only a 0.65% commission on freight, and it offered an addendum to the parties’ contract to prove the point, though it was signed by neither party. United Quarries, for its part, sought to void the contract altogether on account of alleged misrepresentations during the negotiations by Bipin Gandhi, who allegedly misrepresented the key terms of the contract, knowing that Nairn Joseph Marachly, the United Quarries representative, “was not familiar with chartering vessels and was not fluent in the English language.” It’s pretty easy to predict the outcome. The arbitrators held that the agreement was not void and issued an award in TBS’s favor for approximately $1.12 million. They took the position that, as TBS argued, the commission on freight was only 0.65%, not 1.25% as United Quarries claimed.

TBS sought to confirm the award in New York. United Quarries opposed confirmation on grounds of manifest disregard of the law with regard to the freight commission issue. It argued that the tribunal was wrong to rely on the contract addendum offered by TBS, since it was unsigned.

The judge noted the “heavy burden” in manifest disregard cases: the doctrine applies only in “those exceedingly rare instances where some egregious impropriety on the part of the arbitrator is apparent.” United Quarries didn’t meet the standard. Indeed, its argument seems irrational to me. United Quarries’ position is that it was entitled to a 1.25% commission, not a 0.65% commission. The document mentioning the 0.65% commission was unsigned to be sure, but there was no document referencing a 1.25% commission, and no evidence to corroborate Marachly’s assertion that there had been an agreement in that amount. Accordingly, the judge confirmed the award. Easy case.

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