WhatÆs a maritime dispute?
Alphamate, a German-based grain merchant, sought and obtained a maritime attachment in New Orleans on a shipment of corn loaded on the ship, Golden Star, that was docked in Louisiana and bound for a company called Green Valley for Animal Feed Libya (AFL) in Tripoli.
Alphamate was owed money by AFL, which failed to issue timely and satisfactory letters of credit as required by its contracts. As a result of AFL's failure to complete its purchases, Alphamate claimed about $8 million in damages, including $3 million in demurrage charges and $1 million in unpaid detention.
The corn seller, CHS Inc., and its European affiliate intervened and moved to vacate the attachment. They contended they owned the corn because under the contract between CHS and AFL, title transferred upon payment, and payment had not occurred.
The district court agreed with CHS on the merits and vacated the attachment. Alphamate appealed to the 5th Circuit.
In the appeal, CHS argued, and the appeals court agreed that the district court lacked maritime jurisdiction over the dispute between AFL and Alphamate (Alphamate Commodity Gmbh v. CHS Europe SA CHS Inc. 5th Cir. No. 09-30804. Nov. 29, 2010.).
The court said the 'contracts for sales of grain are not wholly maritime, nor are the demurrage and detention charges suffered by Alphamate severable from the alleged breaches of their sales contracts.' As a result the 5th Circuit said the district court did not have the power to issue a Rule B maritime attachment.
Alphamate had arbitrated its contractual disputes with AFL at the London-based Grain and Feed Trade Association and Alphamate's circuit appeal dwelled 'on whether title to the corn had passed to AFL under English law after it was loaded on the vessel.'
But first, the 5th Circuit said it had to decide whether it had jurisdiction in the dispute, and ruled it didn't.
It explained Alphamate's dispute with AFL arose from three contracts for the sale of grain. The contracts contemplated that Alphamate would ship the grain via sea transport and include the term 'CFR' (Cost and Freight), meaning Alphamate was responsible for arranging and paying for transport.
Alphamate contended 'the severable contractual undertaking of a buyer of a commodity to pay for the ship's demurrage is very much a maritime obligation.' But the appeals court said that statement had to be 'examined with care under principles of admiralty jurisdiction.'
Alphamate did not dispute the primary subject matter of the Alphamate-AFL contracts was the sale of grain and that sea transport was incidental to accomplishing that purpose.
The court quoted from Benedict on Admiralty, which it called a 'leading treatise: In order to be considered maritime, there must be a direct and substantial link between the contract and the operation of the ship, its navigation, or its management afloat, taking into account the needs of the shipping industry, for the very basis of the constitutional grant of admiralty jurisdiction was to ensure a national uniformity of approach to world shipping.'
The court said, 'a contrary rule would expand admiralty jurisdiction to include nearly every contract involving the sale of goods transported by ship.'
While Alphamate conceded the contracts are essentially for the sale of goods, it argued they were 'mixed' contracts containing both maritime and non-maritime elements.
But the 5th Circuit said mixed contracts may create maritime jurisdiction in only limited circumstances ' if the contract is primarily maritime and the non-maritime elements are incidental or if the maritime obligations are separable from non-maritime aspects and can be tried separately. Here the court found the demurrage charges were 'thoroughly intertwined with the non-maritime breach of contract claims,' and that therefore it could not exercise maritime jurisdiction over this aspect of the dispute.
Repair or modification?
A section of the Tariff Act of 1930 called the 'Vessel Repair Statute' states that Customs and Border Protection is to collect a 50 percent ad valorem duty on 'the expenses of repairs made in a foreign country upon a vessel documented under the laws of the United States to engage in the foreign or coasting trade ' '
In a recent decision, the U.S. Court of Appeals for the Federal Circuit agreed with the Court of International Trade that work done on a containership constituted modifications, not repairs, and upheld an order by the lower court to CBP to make a refund of $104,560.00 plus interest. (Horizon Lines v. United States, U.S. Federal Circuit. No. 10-1138. Dec. 6, 2010.)
Horizon had work done on its ship, the Horizon Hawaii, at a shipyard in Portugal. This included replacing the entry guides for containers in three cells on the ship, together with top portions of integrally connected cell guides with modified guides.
The modified guides incorporated new design features, including a more pronounced funnel shape, which makes it easier for a crane operator to lower containers into the guides.
The Court of International Trade found the new design feature substantially improved the speed and ease of container loading, reduced the susceptibility of the cell guide system to damage, reduced the need for voyage repairs, and improved the safety of cargo operations.
The court further found the modified guides replaced cell and entry guides that were in full proper working order when the ship arrived in Portugal.
The appeals court agreed Section 1466 'does not impose a duty upon alterations of ship design that constitute modifications rather than repairs,' citing the 1930 decision United States v. Admiral Oriental Line. That case involved a ship owner that successfully argued installation of swimming tanks on former troop ships could not be regarded as repairs. Admiral Oriental had said installation of the swimming tanks was made necessary in part by the change in routes of the ships through southern waters.
The appeals court said the Court of International Trade did err in concluding the condition of a replaced part is irrelevant to a determination of whether such a replacement constitutes a repair, but said in this particular case the issue was irrelevant because the court had found the old cell guides were in working order when the ship arrived in Portugal. So it affirmed the judgment of the Court of International Trade.