Chembulk Trading LLC v. Chemex Ltd

United States Court of Appeals
Fifth Circuit
F I L E D
REVISED JANUARY 19, 2005
IN THE UNITED STATES COURT OF APPEALS December 8, 2004
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
Clerk
____________________
No. 03-30598
____________________
CHEMBULK TRADING LLC
Plaintiff - Appellee
v.
CHEMEX LTD
Defendant
_________________________________________________________________
NOVOROSSIYSK SHIPPING COMPANY
Plaintiff - Appellant
v.
CHEMEX LTD, Etc
Defendant
________________________________________________________________
Appeal from the United States District Court
for the Eastern District of Louisiana
_________________________________________________________________
Before KING, Chief Judge, SMITH and EMILIO M. GARZA, Circuit
Judges.
KING, Chief Judge:
The district court granted Defendant-Appellee Chembulk’s
motion for summary judgment, and Plaintiff-Appellant Novorossiysk
appeals. For the following reasons, we REVERSE.
I. BACKGROUND
On May 30, 2001, Novorossiysk Shipping Co. (Novorossiysk)
entered into a time-charter party1 with Chemex Ltd. (Chemex) to
charter its ship, the M/V Tuapse, to Chemex. The time-charter
party granted Novorossiysk a lien on “all cargoes and all
freights for any amounts due under this charter.” On August 29,
2002, Chemex entered into a voyage-charter party2 with Westway
Trading Co. (Westway) to subcharter the M/V Tuapse to Westway.
In return, Westway was to pay Chemex freight, ten percent of
which was payable at the end of the voyage. In a separate
transaction on August 29, Chembulk Trading, Inc. (Chembulk)
voyage-chartered the M/V Chembulk Clipper to Chemex. Chemex
failed to pay both the full amount of hire and demurrage
($500,000) it owed Novorossiysk and the freight ($147,000.01) and
demurrage ($36,449.65) it owed Chembulk.
On October 1, 2002, Novorossiysk faxed a notice to Westway
stating that it was exercising its right to a lien on “all
1
A “time-charter” is a contract to hire a ship for a fixed
period of time under which the shipowner or charterer is
compensated with hire. The quantity of cargo carried is usually
irrelevant to the hire paid to the shipowner. Atl. Richfield Co.
v. Good Hope Refineries, Inc., 604 F.2d 865, 871 (5th Cir. 1979);
GRANT GILMORE & CHARLES L. BLACK, JR., THE LAW OF ADMIRALTY § 4-1 (2d ed.
1975) [hereinafter GILMORE & BLACK]. Generally, a charter party is
a contract for the use of a ship that belongs to another. GILMORE
& BLACK, § 4-1.
2
A “voyage charter” is a contract to hire a ship for a
specific voyage or voyages under which the shipowner or charterer
is compensated with freight. See Gulfgate Marine Transp. Co. v.
Dampskibsselskabet Svendborg, 10 F.3d 1190, 1192 n.3 (5th Cir.
1994); Atl. Richfield Co., 604 F.2d at 871. The amount of freight
paid is generally dependant on the amount of cargo actually loaded
onto the vessel. Id.; GILMORE & BLACK, § 4-9.
2
freight and sub-freights” pursuant to the Novorossiysk-Chemex
time-charter party. Novorossiysk requested that Westway remit
the remaining ten-percent balance of freight (the “Westway
Freight”), which Westway had not yet paid to Chemex, directly to
Novorossiysk. On October 2, 2002, Chembulk sought a Writ of
Maritime Attachment and Garnishment against the Westway Freight
pursuant to Rule B of the Supplemental Rules for Certain
Admiralty and Maritime Claims. On October 4, 2002, Novorossiysk
also sought a Writ of Maritime Attachment and Garnishment against
the Westway Freight.
Both the Chembulk and Novorossiysk attachment suits were
consolidated. Westway then filed a complaint for interpleader,
whereupon the district court consolidated all three suits. The
district court granted Westway leave to deposit $31,533.55 (the
full amount of the Westway Freight) into the court’s registry,
discharged it from the lawsuit, and relieved it of all claims
regarding that amount.
On January 21, 2003, Chembulk moved to stay the consolidated
proceedings pending arbitration of its claim against Chemex in
accordance with an arbitration clause in the Chembulk-Chemex
voyage charter. Novorossiysk opposed Chembulk’s motion and
cross-motioned for summary judgment, alleging that its lien-
claimant status gave it priority over Chembulk’s Rule B
attachment. In response, Chembulk also moved for summary
judgment, arguing that Novorossiysk did not have a maritime lien
3
but was merely a Rule B claimant whose claim was preempted by
Chembulk’s earlier Rule B attachment. Further, Chembulk argued
that even if Novorossiysk did have a lien, it could not assert
priority in an in personam Rule B attachment proceeding since
maritime liens can only be asserted in in rem proceedings.
Subsequently, the district court granted Novorossiysk leave to
amend its complaint to add an in rem claim to the Westway Freight
under Rule C of the Supplemental Rules for Certain Admiralty and
Maritime Claims.
On February 18, 2003, Chemex (and its managing agent,
Brookwater) relinquished all rights to the Westway Freight.
Based on that, the district court dismissed as moot Chembulk’s
motion to stay pending arbitration. Therefore, the sole issue
before the court was whether Novorossiysk or Chembulk was
entitled to the Westway Freight--i.e., whether Novorossiysk had a
maritime lien on the Westway Freight giving it priority over
Chembulk’s Rule B attachment. On March 31, 2003, the district
court initially denied both parties’ motions for summary judgment
so that Chembulk could respond to Novorossiysk’s in rem claim.
However, the parties asked the court to decide the motion on the
existing record.
On May 27, 2003, the district court granted Chembulk’s
motion for summary judgment. The district court found as a
matter of law that the Westway Freight was properly characterized
as “subfreights” rather than “freights” because it represented
4
the amount that “Westway (a third party payor/subcharterer of the
M/V TUAPSE) agreed to pay Chemex for the shipment of cargo.”
Chembulk Trading L.L.C. v. Chemex Ltd., 2003 A.M.C. 1441, 1445 (E.D.
La. 2003). Consequently, the district court concluded that the
Novorossiysk-Chemex time-charter party did not give Novorossiysk
a maritime lien over the Westway Freight because it provided a
lien on “all freights” and not “subfreights.” The district court
thus treated the case as that of two competing Rule B attachments
and, accordingly, held that Chembulk had priority since it was
the first to attach the Westway Freight.
On June 11, 2003, the district court stayed the disbursement
of the Westway Freight pending appeal. The issue before us on
appeal is whether the language in the Novorossiysk-Chemex time
charter provided Novorossiysk with a valid maritime lien over the
Westway Freight defeating Chembulk’s Rule B attachment.
II. DISCUSSION
A. Introduction
The district court’s holding would certainly encourage
precision in drafting charter parties. Indeed, had the charter
at hand specifically used the term “subfreights,” this whole
litigation could have been avoided. However, while the district
court’s reasoning seems logical, in the absence of any meaningful
evidence that the terms “freights” and “subfreights” are legally,
or by custom and usage, mutually exclusive, we are bound by
5
principles of contract interpretation under federal maritime law.
We therefore hold that the district court’s interpretation of the
“all freights” language in the Novorossiysk-Chemex time charter
was erroneous as a matter of law.
B. Standard of Review
We review the district court’s grant of summary judgment de
novo, applying the same standards used by the district court.
Vulcan Materials Co. v. City of Tehuacana, 369 F.3d 882, 886 (5th
Cir. 2004). Summary judgment is proper when there is no genuine
issue of material fact and the moving party is entitled to
judgment as a matter of law. FED. R. CIV. P. 56(c); Vulcan
Materials Co., 369 F.3d at 886.
We also review the district court’s legal conclusions de
novo. Triad Elec. & Controls, Inc. v. Power Sys. Eng’g, Inc.,
117 F.3d 180, 186 (5th Cir. 1997). The interpretation of an
unambiguous contract3 presents a question of law, and thus, it is
subject to our de novo review. Id. at 186; Exxon Corp. v.
Crosby-Mississippi Res., Ltd., 40 F.3d 1474, 1481 (5th Cir. 1995)
(per curiam). Therefore, we review the district court’s
interpretation of the “all freights” language in the
3
Chembulk asserts, and Novorossiysk does not dispute, that
the Novorossiysk-Chemex time charter is unambiguous. The fact that
Novorossiysk and Chembulk dispute the meaning of the term “all
freights” does not by itself make the charter ambiguous. See
Broad v. Rockwell Int’l Corp., 642 F.2d 929, 948, 955 (5th Cir.
1981) (en banc) (concluding that the district court correctly
interpreted an indenture as unambiguous even though the parties
disputed the construction of its terms).
6
Novorossiysk-Chemex time charter de novo.
C. Analysis
Under general principles of maritime law, claimants with
maritime liens are entitled to preference and priority over
attaching creditors. Triton Container Int’l, Ltd v. Baltic
Shipping Co., 1995 A.M.C. 2963, 2965-67 (E.D. La. 1995). As between
two Rule B attaching creditors, however, the first to attach has
priority. Id. at 2969. Therefore, as the district court noted,
if Novorossiysk has a valid maritime lien over the Westway
Freight, its claim takes priority over Chembulk’s Rule B
attachment. If Novorossiysk does not have a lien, then
Chembulk’s claim takes priority because Chembulk was the first
attaching creditor.
Shipowners, as a general rule, have a lien upon the cargo
owned by the charterer for compensation not yet paid. See Bird
of Paradise, 72 U.S. 545, 554 (1866); Arochem Corp. v. Wilomi,
Inc., 962 F.2d 496, 499 (5th Cir. 1992). Accordingly,
Novorossiysk would traditionally have a lien on any cargo owned
by Chemex for any hire or demurrage Chemex owed to Novorossiysk.
In contrast, when the cargo is not owned by the charterer, a
shipowner generally does not have a lien on the cargo. See
Finora Co., Inc v. Amitie Shipping, Ltd., 54 F.3d 209, 213 (4th
Cir. 1995). The charter between the shipowner and the charterer,
however, may provide for a lien on any freights owed by the cargo
7
owner to the charterer. Id. Indeed, “[t]wo general conditions
are necessary for a shipowner to maintain a lien against such a
third person. First, the shipowner must have a contractual right
to assert the lien; second, the shipowner must properly perfect
the lien.” Biehl & Co., Inc. v. Apollonia Holding, Inc., 693 F.
Supp. 457, 465 (E.D. La. 1988); accord Toro Shipping Corp. v.
Bacon-McMillan Veneer Mfg. Co., 364 F.2d 928, 930 (5th Cir.
1966). Novorossiysk states, and Chembulk does not dispute, that
Novorossiysk perfected whatever lien rights it had by faxing
notice of its lien to Westway on October 1, 2002.4 We therefore
turn to whether Novorossiysk had a contractual right to assert a
lien against the Westway Freight.
A shipowner’s contractual right to assert a lien against
freight owed by a third party arises by an express provision in
the charter party granting the shipowner a lien on such freight.
Marine Traders, Inc. v. Seasons Navigation Corp., 422 F.2d 804,
806 (2d Cir. 1970). The lien provision, as it appears in most
form charters, is usually phrased as: “the owners [meaning the
owners of the vessel] shall have a lien upon all cargoes and all
4
At oral argument, Chembulk asserted that it argued in its
brief that Novorossiysk did not meet the notice element. However,
in its brief, Chembulk only disputed the notice requirement as to
Novorossiysk’s lien-on-cargo argument, not Novorossiysk’s lien-on-
subfreights argument. Specifically, Chembulk argued in its brief
that the letter Novorossiysk sent to Westway did not give notice
because it did not assert a lien on cargo, but only on “freights”
and “subfreights.” Accordingly, the parties are not in dispute as
to the notice required to assert a lien on subfreight.
8
subfreight for charter money due under this charter." Am. Steel
Barge Co. v. Chesapeake & O. Coal Agency Co., 115 F. 669, 671
(1st Cir. 1902) (emphasis added) (alteration in original); see
also United States v. Freights, Etc., of S.S. Mount Shasta, 274
U.S. 466, 469 (1927); Toro Shipping Corp., 364 F.2d at 929;
Cornish Shipping Ltd. v. Int’l Nederlanden Bank N.V., 53 F.3d
499, 500 (2d Cir. 1995). On the other hand, the lien clause in
the Novorossiysk-Chemex time charter provides that “[o]wners
shall have a lien upon all cargoes and all freights for any
amounts due under this charter.” (emphasis added). The issue
before us is one of contractual interpretation--whether the term
“all freights” is sufficiently explicit to grant a contractual
right to assert a lien over freight owed by a third party (i.e.,
subfreight), specifically, the Westway Freight.
A basic principle of contract interpretation in admiralty
law is to interpret, to the extent possible, all the terms in a
contract without rendering any of them meaningless or
superfluous. Foster Wheeler Energy Corp. v. An Ning Jiang MV,
03-30038, 2004 WL 1905297, at *3 (5th Cir. Sept. 13, 2004);
Capozziello v. Brasileiro, 443 F.2d 1155, 1159 (2d Cir. 1971).
Freight is the compensation paid under a voyage charter for the
use of a ship to carry goods. Kimball, 70 U.S. at 44-45. Hence,
we could construe “all freights” to provide a lien on the
compensation Novorossiysk was being paid for chartering its ship
to Chemex. This interpretation, however, would basically give
9
Novorossiysk a lien on the compensation it was owed--effectively
securing the debt with the debt itself. Interpreting the term
“all freights” in this way, therefore, would render it
meaningless and superfluous because it is useless to assert a
security interest in the very debt owed.5 Unless there is no
alternative, a clause should not be interpreted such that it is
rendered meaningless. Capozziello, 443 F.2d at 1159.6
The alternative, and more viable interpretation, is that the
term “all freights” provides Novorossiysk with a lien on the
compensation Chemex was being paid to ship Westway’s goods--the
Westway Freight. This interpretation has the virtue of not
rendering the term “all freights” meaningless or superfluous and
5
Moreover, as discussed above, under the terms of the
Novorossiysk-Chemex time-charter party, Novorossiysk earned “hire,”
not “freight.” Thus, the term “all freights,” in the context of
this particular time charter, would not normally be construed to
refer to the compensation Novorossiysk was to receive thereunder.
6
Chembulk argues that the Novorossiysk-Chemex time charter
should be construed against Novorossiysk, and thus since
Novorossiysk did not include the term “subfreights,” it should not
have a lien on the Westway Freight. That argument, however, is
unavailing. A contract is construed against the drafting party
only when it is ambiguous. See Empire Fire & Marine Ins. Co. v.
Brantley Trucking, Inc., 220 F.3d 679, 681 (5th Cir. 2000). The
Novorossiysk-Chemex time charter, however, is not ambiguous because
its language as a whole is clear, explicit, and leads to no absurd
consequences, and as such it can be given only one reasonable
interpretation. See Mobil Exploration & Producing v. A-Z/Grant
Int'l Co., 1993 A.M.C. 1137 (E.D. La. 1992) (citing Nat’l Union Fire
Ins. Co. v. Circle, Inc., 915 F.2d 986, 989 (5th Cir. 1990) (per
curiam)). Therefore, we do not construe the time charter against
Novorossiysk.
10
is consistent with the definition of “freight.”7
Moreover, the definition of “subfreights” leads us to the
conclusion that the phrase “all freights” could properly include
“subfreights.” “Subfreights” has been defined in many different
ways, but essentially it is the compensation paid to someone
other than a shipowner for the carriage of goods or the hire of a
ship. Cornish Shipping Ltd., 53 F.3d at 500 n.1 (defining
“subfreights” as “amounts that third-party payors . . . contract
to pay directly to the charterer for the hire of the ship or the
transport of goods” (emphasis added)); Am. Steel Barge Co., 115
F. at 672 (“‘subfreights’ . . . embraces all freights which a
charterer stipulates to receive for the carriage of goods”
(emphasis added)); ERIC SULLIVAN, MARINE ENCYCLOPAEDIC DICTIONARY 413
(2d ed. 1988) [hereinafter SULLIVAN] (“[f]reight payable by the
sub-contractor, normally to the charterer” (emphasis added)).
Thus, the person paying the compensation (or subfreight) is not a
party to the shipowner-charterer transaction but is, rather, a
party to a subsequent transaction with the charterer.
Nevertheless, both freight and subfreight are the compensation
earned for the carriage of goods, and the only difference between
7
Chembulk argues that the clause is not meaningless
because it was included to secure a lien on cargo for freight.
However, the language in the time charter makes clear that the
clause attempts to provide a lien on “all cargoes and all freights
for any amounts due under this charter.” (emphasis added). Thus,
as this particular clause is structured and worded, it explicitly
provides a lien on all freights payable, not simply a lien on the
cargo for the freight owed.
11
the two is that freight is a more general term describing
compensation payable, whereas subfreight is compensation payable
to someone other than the shipowner. See Toro Shipping Corp.,
364 F.2d at 929; Am. Steel Barge Co., 115 F. at 672; Cornish
Shipping Ltd., 53 F.3d at 500 n.1; SULLIVAN, at 413.
We acknowledge that the term “subfreights” is commonly used
in charters to provide a lien over freights owed by a third party
(subfreight). See generally Freights, Etc., of S.S. Mount
Shasta, 274 U.S. at 469; Toro Shipping Corp., 364 F.2d at 929;
Cornish Shipping Ltd., 53 F.3d at 500 (analyzing charters
containing the term “subfreights”). We also recognize that many
courts use the term “subfreights” when referring to amounts owed
by a third party to a charterer. See Freights, Etc., of S.S.
Mount Shasta, 274 U.S. at 466; Toro Shipping Corp., 364 F.2d at
928; Cornish Shipping Ltd., 53 F.3d at 499. It does not follow,
however, that the term “subfreight” is, by custom and usage, the
only way to refer to compensation owed by a third party to a
charterer.
In addition to the charter at hand, there are other charters
which use the term “all freights” in their lien clauses. See 2C
BENEDICT ON ADMIRALTY 17-66.10, 17-80.15 (7th ed., rev. 1974)
(displaying the Gastime and Intertanktime 80 form time charters,
both of which provide a lien upon cargoes “and all freights for
any amounts due under this Charter”). Moreover, many courts, in
this circuit and others, have regularly used the terms “freight”
12
and “subfreight” interchangeably. Toro Shipping Corp., 364 F.2d
at 929 (“[t]he District Court found that [the third party] had
paid the full price of the cargo and freight”) (emphasis added));
see also Cornish Shipping Ltd., 53 F.3d at 502 (“the shipowner[]
gave notice to . . . the consignee[] that it was exercising its
lien before [the consignee] took the final steps necessary to
authorize payment of ‘freight’ charges to . . . the charterer[].”
(emphasis added)); Tarstar Shipping Co. v. Century Shipline,
Ltd., 597 F.2d 837, 838 (2d Cir. 1979) (“the charter party
provided ‘(t)hat the Owners shall have a lien upon all cargoes,
and all subfreights for any amounts due under this Charter . . .
.’ [The charterer] defaulted on the second hire payment . . . .
This event triggered [the shipowner’s] attempt to enforce its
contractual lien on the freights” (first and second alterations
in original) (emphasis added)); Union Industrielle Et Maritime v.
Nimpex Int’l, Inc., 459 F.2d 926, 930 (7th Cir. 1972) (“[p]ayment
by [sub-charterer] to [charterer] before the lien arose,
extinguished all claims by [shipowner] to any freights related to
this cargo.” (emphasis added)). Even the Supreme Court has used
the terms “freights” and “subfreights” interchangeably. Freights
of S.S. Mount Shasta, 274 U.S. at 470-71 (“[I]f it be conceded
that the Admiralty Court has jurisdiction to enforce a lien on
sub-freights by a proceeding in rem . . . we do not perceive how
the Court can be deprived of jurisdiction merely by an answer
denying that such freights are due.”). Therefore, we conclude
13
that the term “subfreights” has not become, by custom and usage,
the only way to refer to compensation payable by a third party to
a charterer.8
We therefore hold, as a matter of interpretation of the
Novorossiysk-Chemex time-charter party, that a lien on “all
freights” is sufficiently explicit to provide a lien on
subfreights. That interpretation of the charter party is
compelled by the fact that it provides the only way to give
meaning to the term “all freights” in the charter party.
Accordingly, Novorossiysk has a valid maritime lien over the
Westway Freight pursuant to the “all freights” language in the
Novorossiysk-Chemex time charter. Novorossiysk’s lien therefore
takes priority over Chembulk’s Rule B attachment.9
III. Conclusion
We therefore REVERSE the judgment of the district court
denying Novorossiysk’s motion for summary judgment and granting
Chembulk’s motion for summary judgment, and we REMAND for further
proceedings not inconsistent with this opinion.
8
The term “freight” has many meanings depending on the
context in which it is used: “[t]he word freight, when not used in
a sense to imply the burden or loading of the ship, or the cargo
which she has on board, is the hire agreed upon between the owner
or master for the carriage of goods from one port or place to
another.” Brittan v. Barnaby, 62 U.S. 527, 533 (1858).
9
Novorossiysk also argued on appeal that it had a lien on
the cargo for the Westway Freight pursuant to the “all cargoes”
language in the Novorossiysk-Chemex time charter. We do not
consider this argument, however, since we find in favor of
Novorossiysk based on the “all freights” language.
14
ENDRECORD
15
GARZA, Circuit Judge, dissenting:
The majority opinion holds that the term “all freights” must
be construed to include “subfreights” based on the “the
principles of contract interpretation under federal maritime
law.”
However, in doing so, the majority violates the basic “canon of
contractual interpretation that requires words and phrases in a
contract to be given their plain meanings.” Cleere Drilling Co.
v. Dominion Exploration & Production, Inc.351 F.3d 642 (5th Cir.
2003). There is no dispute that the terms freight and
subfreights have very specific and distinct meanings in the
context of admiralty contracts. Indeed, the majority
acknowledges this distinction finding that “the term
‘subfreights’ is commonly used in charters to provide a lien over
freights owed by a third-party.”
Nevertheless, the majority seeks to expand the definition,
and ultimately redefine, the term “all freights” so that the term
is not rendered superfluous. In the process, the majority is
rejecting established caselaw from other circuits spanning the
past century. See Cornish Shipping Ltd. v. Int'l Nederlanden
Bank N.V., 53 F.3d 499, 502 (2d Cir.1995) (citing Marine Traders,
Inc. v. Seasons Navigation Corp., 422 F.2d 804, 806 (2d Cir.1970)
(“To secure payments of freight due from a charterer of its ship,
a shipowner may create, by express provision in the charter
party, a lien on the subfreights earned by the vessel.”)
(emphasis added); and Am. Steel Barge Co. v. Chesapeake & O.
Coal Agency Co., 115 F. 669, 672 (1st Cir. 1902) (“it cannot
reasonably be questioned that ‘subfreights,’ which is an
expression in common use and easily understood, embraces all
freights which a charterer stipulates to receive for the carriage
of goods.”). The majority also ignores the fundamental rule of
contract interpretation that requires us to look to the intent of
the parties “at the time of entering into the contract regardless
of any events occurring afterward.” 17 AM JUR. 2D Contracts § 345
(2004). Here, the majority has determined that the term “all
freights” in fact refers to the freight promised under the
charter between Westway and Chemex. However, there is no
evidence in the record that the Westway charter existed or was
even contemplated of at the time Novorossiysk entered into its
charter with Chemex. Unless Novorossiysk had knowledge of this
future charter, I find it difficult to see how the majority’s
decision can be a “more viable interpretation” of the contract.
This is a case involving a simple contractual error for
which there is no judicial recourse. Novorossiysk was well
aware at the time it entered into the charter with Chemex of the
clear distinction between freights and subfreights. If it
wanted to exercise a lien over the freight promised by Westway,
Novorossiysk could (and arguably should) have expressly stated so
in its contract. For whatever reason, it chose not to avail
17
itself of this opportunity and, instead of taking responsibility
for its clear error, has sought savior through judicial
intervention. Indeed, it is disingenuous for Novorossiysk to
argue that the term “all freights” is broad enough to include
“subfreights” when it specifically stated in its notice to
Westway that it was exercising its right to a lien on “all
freight and sub-freights.” Clearly, if Novorossiysk truly
believed that the term “all freights” was broad enough to include
“subfreights”, it would not have felt compelled to specify in its
notice of its lien on the subfreight owed by Westway.
The majority agrees that the district court’s holding would
encourage “precision in drafting charter parties” but then
subsequently rejects this contention with its holding. I
believe, however, such diligence is not an unreasonable
expectation. To rule otherwise would encourage parties to draft
their contracts riddled with errors with the knowledge that the
court will step in and correct any problems that ensue as result
of sloppy drafting. Unfortunately, it is not the responsibility
of the courts to save parties from their mistakes and any
indication otherwise should be clearly avoided. Accordingly, I
respectfully DISSENT.
18