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In re Arbitration Under Voyage Charter of January 13

decided: October 2, 1968.


Lumbard, Chief Judge, and Smith and Anderson, Circuit Judges.

Author: Anderson

ANDERSON, Circuit Judge:

This is an action to compel arbitration of a claim for hull damage allegedly sustained by the SS Ionian Islander, a cargo ship. The affidavits before the district court reveal the following chronology of events.

In early 1961 the vessel was under voyage charter from the petitioner-appellant Trafalgar Shipping Co., Ltd. (Trafalgar), its owner, to the respondent-appellee International Milling Co. (International). By the charter, International agreed to carry a cargo of wheat from Vancouver, British Columbia, to ports in Venezuela and agreed to use only discharge berths of sufficient depth to accommodate the draft of the vessel so that it would be "always afloat." The charter provided that any dispute which might arise between the parties would be submitted to arbitration in New York.*fn1

On February 24, 1961 the vessel ran aground as it was entering a berth in the harbor of Puerto Cabello, Venezuela. From there it proceeded to the port of Maracaibo, Venezuela, where, between March 9 and 13, 1961, two bottom surveys were conducted on the vessel while it was afloat. Copies of the survey reports were forwarded to International. Although neither of these disclosed positive indications of damage, Trafalgar notified International by letter of March 17, 1961 that International would be held responsible for the incident.

During November, 1961, when the vessel was no longer under charter to International, it encountered in the Pacific several days of rough seas and gale force winds of a velocity sufficient to cause heavy weather damage. Trafalgar had the vessel dry-docked in the following month at Yokohama, Japan. Surveys below the waterline revealed shallow dents in the hull, and scrapes or streaks in the paint in the area of the keel. A portion of this damage was repaired. In July, 1963, the ship was again dry-docked at Yokohama, where new surveys were made. These confirmed the earlier damage reports and complete repairs were then effected.

In May, 1965, a Particular Average Statement was prepared at Trafalgar's request for the purpose of allocating the cost of repair between the two causes of the damage, and apportioning this among the hull underwriters of the vessel. The report attributed approximately $23,000 of damage to the grounding and $10,000 to the heavy weather incident. In November, 1965, Trafalgar notified International of its claim for reimbursement for the former amount. In April, 1966, International wrote to Trafalgar denying responsibility for the grounding and disclaiming liability. An effort was made to settle the dispute but it was unsuccessful.

In August, 1966, Trafalgar demanded that the dispute be submitted to arbitration; it gave notice of its selection of an arbitrator and requested International to appoint one in accordance with the arbitration agreement but International refused.

In May, 1967, Trafalgar brought this suit in the district court to compel arbitration, 9 U.S.C. § 4.*fn2 International defended the action on the ground that Trafalgar's right to arbitrate was barred by laches. In support of this it submitted affidavits which purported to show that Trafalgar's long delay in asserting its claim had left International powerless to defend itself before the arbitrators, owing to the death or disappearance of witnesses to the grounding, the loss of evidence to show the cause of the damage to the vessel, and other difficulties.

The dispute in the district court centered about whether the issue of laches, when advanced in connection with a matter which the parties have agreed to arbitrate, is for the court to decide, or for the arbitrators. Both parties read the decision of this court in Reconstruction Finance Corp. v. Harrisons & Crosfield, 204 F.2d 366, 37 A.L.R.2d 1117 (2 Cir.), cert. denied, 346 U.S. 854, 74 S. Ct. 69, 98 L. Ed. 368 (1953), as holding that the question must be decided by the court in connection with the motion to compel arbitration, but Trafalgar claimed that Reconstruction Finance was overruled by the Supreme Court in Prima Paint Corp. v. Flood & Conklin, 388 U.S. 395, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967), although only by implication, and that laches could therefore be decided only by the arbitrators.

Completely persuaded by its own argument, Trafalgar offered no explanation of its delay in seeking arbitration, and declined the opportunity to file affidavits countering those submitted by International. The district judge, however, rejected the argument based on Prima Paint, and, following the rule for which the parties agreed that Reconstruction Finance stood, found in favor of International and dismissed the action. We reverse, but for reasons different from those advanced by Trafalgar.

The district court understood this court's decision in Reconstruction Finance as holding that "laches in seeking arbitration is to be decided by the court, not by the arbitrators." Other district courts have similarly interpreted that case, e.g., In re Sociedad Armadora Aristomenis Panama, 244 F. Supp. 653 (S.D.N.Y.1965). But the judge who decided Reconstruction Finance in the district court, Application of Reconstruction Finance Corp., 106 F. Supp. 358 (S.D.N.Y.1952), Judge Weinfeld, has cited this court's decision for the proposition that questions of laches and limitations are for the arbitrators, rather than for the court, Lowry & Co. v. S.S. LeMoyne D'Iberville, 253 F. Supp. 396, 399 n. 13 (S.D.N.Y.1966), appeal dismissed, 372 F.2d 123 (2 Cir. 1967); and elsewhere it has been observed that the objective of the opinion was "to leave to the arbitrator the issue of delay in demanding arbitration," Note, 67 Harv.L.Rev. 510, 511 (1954).

This is the first time since Reconstruction Finance that we have been directly confronted with the question of whether laches is for the court or the arbitrators. Cf., World Brilliance Corp. v. Bethlehem Steel Co., 342 F.2d 362, 365 n. 1 (2 Cir. 1965). In answering it we consider the opinion in Reconstruction Finance, the purpose of the laches doctrine, and the objectives of the federal Arbitration Act, 9 U.S.C. §§ 1-13. In our view, all of these approaches lead to the conclusion that the issue of laches as it presents itself in this case is one for the arbitrators to decide.

The precise question in Reconstruction Finance was whether New York's six-year statute of limitations was a bar to the arbitration of a dispute which arose in 1942 concerning the obligation of one party to purchase insurance on the goods of another, because the demand for arbitration was not made until 1951. In the district court, Judge Weinfeld refused to pass on the issue, which he thought was for the arbitrators. Application of Reconstruction Finance Corp., supra, 106 F. Supp. at 361-362. On appeal Judge Frank, speaking for the majority, agreed, saying: "The effect of the limitations statute on the ...

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