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Gene O’Connor and Tim Semenoro Obtain Specific Performance and Legal Fees in New York Arbitration

In a recent maritime arbitration conducted in New York, a panel of three arbitrators from the Society of Maritime Arbitrators granted unusual relief by ordering an owner who had breached a Contract of Affreightment (“COA”) to perform another voyage to complete its contracted performance in an arbitration entitled In the matter of Jim Walters Resources, Inc. (“charterer”) and Oldenddorff Carriers GmbH & co. (“owner”).

Charterer, represented by Gene O’Connor and Tim Semenoro, contended that owner had breached a COA dated October 25, 2002 calling for owner to lift a total of 450,000 m/t of coking coal (10% more or less at owner’s option) from Mobile, Alabama to charterer’s customer in Turkey during 2003.  By August of that year, owner had performed seven voyages and had carried about 352,897 tons.  At that point, it did not perform any further voyages.

Charterer demanded the arbitration, alleging that owner was in breach of the COA and contending that the motive for owner’s refusal to continue performance was the skyrocketing freight market which had made it prohibitively expensive for owner to perform, to the extent that by the last quarter of 2003, owner would have lost over $1 million if it had completed its performance under the COA. Charterer maintained that owner should  be held to its agreement and that the high cost of performance was not a valid excuse for the breach.

Owner contended that the reason that it did not complete performance was charterer’s failure to cooperate and have sufficient inventory of coal available for shipment.

Charterer claimed damages in excess of $1 million based on the difference between the freight rate in the COA and the freight rate at market, applied to the minimum balance (52,100 m/t) that owner was obliged to lift under the COA or, in the alternative, that owner be ordered to complete its performance by carrying the minimum balance of coal from Mobile to Turkey at the COA rate.

Owner counterclaimed for damages.

In a first Partial Final Award dated June 30, 2006, the arbitrators, (chairman David Martowski, A.J. Siciliano and Manfred Arnold) unanimously held that owner was in breach of the COA, finding that “it is difficult to imagine what more could be expected of [charterer] than was actually done” and further finding that owner has sought to delay performance “in the vain hope that the charter market would fall.”

Accordingly, the panel ruled that the appropriate remedy for charterer was to (1) order owner to perform another voyage and lift the minimum 52,100 m/t at the COA rate within laycan dates to be mutually agreed within 90 days; (2) that owner’s counterclaim be denied: (3) that owner pay charterer $82,500 towards its legal fees and costs; and (4) that owner pay approximately 72.5% of the arbitrators’ fees.  It should be noted that the arbitration was conducted under the SMA rules, which expressly empower the arbitrators to fashion equitable relief, including specific performance.

The matter did not end there.  Charterer and owner could not agree on laycan dates for the voyage ordered by the panel, as owner essentially continued to attempt to delay performance in the hope that the freight market would come down.  In a second Partial Final Award dated November 22, 2006, the arbitrators directed owner to nominate a suitable vessel to lift the minimum balance of coking coal, but now within laydays specified by charterer.  The panel also assessed all of its fees for this Second Partial Award against owner.

Subsequently, in lieu of specific performance, owner agreed to pay charterer $1.3 million, the difference between the freight it would have earned at the  COA rate and freight it would have paid at the market rate for a vessel to cover this final voyage ordered by the panel.