Opposition Brief — Triumph Tankers Ltd. v. Kerr-McGee Refining Corp.

we,

FILED

No. 90-

0. 90-1934 Uy 1 Z 199?

IN THE OFFICE OF THE CLERK

Supreme Court of the United States

OcToBER TERM, 1991

TRIUMPH TANKERS LTD.,

Petitioner,

VS.

KERR-McGEE REFINING CORPORATION,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

RESPONDENT'S BRIEF

IN OPPOSITION TO PETITION

JoHN P. VaypDa

Nourse & BOWLES

Counsel of Record for Respondent

One Exchange Plaza

At 55 Broadway

New York, New York 10006

Of Counsel: (212) 952-6200

Maria L. ALONSO

PETER T. JENSEN

Dated: July 17, 1991

QUESTIONS PRESENTED

May a Court conduct a de novo review and deny

confirmation of the arbitrators’ RICO award when it was

established that at least four racketeering acts occurred during

the span of the contract?

May arbitrators, appointed under an agreement to arbitrate

4 “[{aJny and all differences and disputes of whatsoever nature

ij arising out of” the contract, consider evidence beyond the

specific contract when deciding a RICO claim?

TABLE OF CONTENTS

QUES EIUe PRESENTED. .........cc00cccceecvescees. i

er 9 18 fee. s |, : + are iil

Il. TABLE OF AUTHORITIES ..................000 Vv

I. STATEMENT OF THE CASE .................00. l

IV. REASONS FOR DENYING THE WRIT ....... 3

A. THE FACTS FOUND BY THE

ARBITRATORS DO NOT PRESENT THE

ISSUES RAISED BY PETITIONER AND

INSTEAD SUPPORT THE EXISTENCE

OF A “PATTERN” NECESSARY TO

SATISFY RICO REQUIREMENTS ....... 3

B. THE SECOND CIRCUIT DECISION

REVIEWING THE SCOPE OF

ARBITRATORS’ POWER IS A PROPER

APPLICATION OF LEGITIMATE

POLICY GOALS TO THE GOVERNING

TT inncdcnnnchuntdonessecdsacceverseses 6

1. THE ARBITRATION AGREEMENT

IN QUESTION CREATES A BROAD

AGREEMENT TO ARBITRATE ....... 6

2. IT IS WELL-ESTABLISHED LAW

THAT ARBITRATORS MAY LOOK

BEYOND THE SPECIFIC

TRANSACTION GOVERNED BY AN

ARBITRATION AGREEMENT ........ 7

iv

Page

3. ARBITRATORS MUST HAVE

POWER TO LOOK BEYOND THE

SPECIFIC TRANSACTION

GOVERNED BY THE ARBITRATION

AGREEMENT TO HAVE EFFECTIVE

ARBITRATION OF RICO CLAIMS .. 8

4. PETITIONER DEMANDS A RADICAL

AND DISRUPTIVE DEPARTURE FROM

THIS COURT’S WELL-

ESTABLISHED POLICY

REGARDING THE REVIEW OF

ARBITRATION AWARDS ......---+-+- 9

C. THE QUESTIONS PETITIONER

- RAISES DO NOT MERIT REVIEW........ 10

CONCLUSION .........2-cscccceccccecccccccsscccccenones 11

Vv

TABLE OF AUTHORITIES

CASES Page

Andros Compania Maritima, S.A. v. Marc Rich &

Co., 579 F.2d 691 (2d Cir. 1978) ................. 10

H.J., Inc. v. Northwestern Bell Telephone Co., 492

ae IIE <iaddins tea uexanadaduassnesmcesecns 8

Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388

CP ST ITE ns désdinunventueceadavivaveccsecceves 8

Quijas v. Shearson/American Express, Inc., 490

Reh IIE Gantacs cc kuesikaurdicstivunide dices 10

Shearson/American Express, Inc. v. McMahon, 482

Re MD asic baile s vicendediccsnansitviedces sees ees 8,9

Trade & Transport, Inc. v. Valero Refining

Company, Inc., S.M.A. Award No. 2699

(LEXIS, Admrty Library, Usawds file) ........... 5

Uco Terminals, Inc. v. Apex Oil Co., 583 F.Supp.

ROTEL TID esesvicnsensencncsessserseses 4

United Steelworkers of America v. Enterprise Wheel

& Car Corp., 363 U.S. 593 (1960) ..........0.05. 10

United Steelworkers of America v. Warrior & Gulf -

Navigation Co., 363 U.S. 574 (1960)............. 7

Valero Refining, Inc. v. M/T LAUBERHORN, 813

we |) Re 5

vi

Wilko v. Swan, 346 U.S. 427 (1953), rev'd on other

grounds, Quijas v. Shearson/American Express,

ee Be a a, ern

STATUTES

Racketeering Influenced and Corrupt Organizations

Act, 18 U.S.C.§§ 1961-1968 (West ed. 1984)...

De RPGs I saptnikncscccsnncccctscsacscvevcsenenianve

Be Rs Be Pax vaste cnscdscndpagessnechavsetenvarecens

DD SEs Bis sda dccantinanntnnresiinesdessicaincess

Carriage of Goods by Sea Act, 46 U.S.C. §§ 1300-

I I iid cccvivcctvdvabecdcudecens

Page

No. 90-1934

IN THE

Supreme Court of the United States

OcToBER TERM, 1991

TRIUMPH TANKERS LTD.,

Petitioner,

vs.

KERR-McGEE REFINING CORPORATION,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

RESPONDENT'S BRIEF

IN OPPOSITION TO PETITION

Respondent, Kerr-McGee Refining Corp. (‘“Kerr-

McGee”)!, respectfully requests that this Court deny the

Petition for a Writ of Certiorari seeking to review the judgment

and opinion of the United States Court of Appeals for the

Second Circuit dated January 28, 1991.

1 Pursuant to Supreme Court Rule 29.1, Kerr-McGee states that its

corporate parent is Kerr-McGee Corporation and that it has no subsidiaries

other than wholly-owned subsidiaries.

$a RRLET ER hN

2

I. STATEMENT OF THE CASE

Respondent incorporates by reference the “Background”

section of the Second Circuit’s opinion in this case. Pet. App.

3a-5a. Respondent attaches hereto the Partial Final Award of

the arbitrators dated September 7, 1988, together with

Appendix A thereto, as well as Appendix B to the arbitrators’

Final Award dated March 28, 1990, both of which petitioner

omitted from the Appendix to the Petition for a Writ of

Certiorari. Resp. App. A-1 - A-10.

The Petition for a Writ of Certiorari is premised on two

factually inaccurate positions.

First, as emphasized in the opinion of the Second Circuit,

the full text of the arbitration agreement provides:

Any and all differences and disputes of whatsoever

nature arising out of this Charter shall be put io

arbitration ****

(Emphasis added as in the Second Circuit opinion)

Pet. App. 3a.

The arbitration agreement is therefore broader then petitioner’s

construction of “arising out of” suggests (at Petition, p.3).

~- Second, contrary to petitioner’s argument that the

arbitrators based their finding of a RICO pattern on a single

racketeering act on the voyage in question, the arbitration panel

established that petitioner Triumph Tankers Ltd. (“Triumph”)

committed at least four acts of racketeering predicates during

the voyage in question (see Point IV. A below).

Under these circumstances, this Court should not review

the Second Circuit’s decision which confirmed the arbitrators’

award.

3

II. REASONS FOR DENYING THE WRIT

Respondent respectfully submits ‘that the “special and

important reasons” which justify the granting of a Writ of

Certiorari (Sup.Ct.R. 10) are not present in this case.

The petitioner seeks to have the Court believe that damages

under the Racketeer Influenced and Corrupt Organizations Act,

18 U.S.C. §§1961-1968 (“RICO”), were improperly awarded

because:

(a) The arbitrators exceeded their powers since the

“pattern” of racketeering activities was based on

events which did not “arise out of” the charter

party; and

(b) Even if the arbitrators did not exceed their

powers, the arbitrators only found one

‘racketeering act’—the conversion of cargo.

Petitioner’s arguments are factually incorrect for the reasons set

forth below and do not warrant consideration by this Court.

A. THE FACTS FOUND BY THE ARBI-

TRATORS DO NOT PRESENT THE

ISSUES RAISED BY PETITIONER AND

INSTEAD SUPPORT THE EXISTENCE

OF A “PATTERN” NECESSARY TO

SATISFY RICO REQUIREMENTS

The arbitration panel did not indicate which of its findings

were relied upon for the award of treble damages under RICO.

However, petitioner’s contention that there was just one

“racketeering act” and that the arbitrators necessarily looked to

other vessels or voyages to establish a RICO “pattern” ignores

the arbitrators’ following findings which support the existence

of a “pattern” of racketeering activity within the single voyage

which was the subject of the dispute. Only two predicate acts

4

need be established within a ten-year period. 18 U.S.C.

§1961(5).

First, the panel found that the vessel in question, the M/T

TRIUMPH (the “Vessel’”’), had permanent concealed

modifications to its cargo tanks and cargo lines at the time of

the voyage (Resp. App. A-5 - A-6) which were created by

welding and/or plating over parts of the vessel. Pet. App. 26a.

The panel found that the purpose of these modifications was to

steal oil cargo. Pet. App. 27a. These modifications constitute a

scheme to obtain oil by means of fraudulent pretenses and is in

violation of 18 U.S.C. §2314. Second, the panel found that

petitioner stole a total of 7,497.4 barrels of Kerr-McGee’s oil

cargo in two separate thefts in violation of 18 U.S.C. §659.

Resp. App. A-5 - A-6. Third, the panel found that petitioner

knowingly transported Kerr-McGee’s stolen cargo in foreign

commerce and that the stolen cargo had a value in excess of

$5,000.00. Pet. App. 28a. This act is in violation of 18

U.S.C. §2314. Fourth, the panel found that the Vessel’s

officers possessed and concealed the theft of crude oil. This act

was accomplished through concealed modifications to the

Vessel’s tanks and pipe lines, by regularly altering the Vessel’s

log books (Pet. App. 26a-27a) and by giving false sworn

testimony (Pet. App. 21a-22a), all of which was in violation of

18 U.S.C. §2315.

The dissent to the arbitrators’ Final Award makes many

arguments why the award of RICO damages is improper.

However, the dissent should be given no weight whatever as

the dissenting arbitrator was personally interested in the

outcome. The dissenting arbitrator is the president of

Brokerage & Management Corp., the New York affiliate of the

Trade & Transport Group of companies. Uco Terminals, Inc.

v. Apex Oil Co., 583 F.Supp. 1213, 1214-1215 (S.D.N.Y.

1984). Trade & Transport Inc. was the owner of the tanker

LAUBERHORN. In a case similar to the one at Bar, Valero

Refining Company, Inc. sought RICO damages against Trade

5

& Transport for alleged theft of Valero’s oil cargo on board the

LAUBERHORN. The Fifth Circuit ordered Trade &

Transport and Valero to arbitrate those disputes in New York

in 1987. Valero Refining, Inc. v. M/T LAUBERHORN,

813 F.2d 60 (Sth Cir. 1987). The LAUBERHORN

arbitration was nearing conclusion at the very time that the

dissenting arbitrator and the Triumph majerity were

deliberating and writing the Triumph award. There can be little

doubt that the Triumph dissent was designed to influence the

outcome of th LAUBERHORN arbitration by making

arguments to be accepted by that panel or the courts. The

Triumph Decision and Final Award is dated March 28, 1990.

Pet. App. 20a. The dissent is dated March 26, 1990. Pet. App.

32a. The LAUBERHORN arbitration award, dated August

23, 1990, shows that its panel was keenly aware of the

Triumph matter as it cited the District Court’s July 10, 1990

Opinion and Order vacating the RICO award in this case. Trade

& Transport, Inc. v. Valero Refining Company, Inc., Award

No. 2699 at 42 (LEXIS, Admrty Library, Usawds file).

However, the LAUBERHORN arbitrators rejected the

Triumph dissent’s arguments unanimously finding that:

The master of the LAUBERHORN with the help

of his fellow officers and certain crew members, at

the behest of and with the encouragement of his

employer, Trade, deliberately and repeatedly

transferred cargo from the cargo tanks into the

bunker tanks, with the intention of using such oil as

fuel oil.

Trade & Transport at 23.

The LAUBERHORN aarbitrators then found Trade &

Transport liable for a violation of RICO.

Based on the facts set forth above, the arbitrators had

abundant evidence before them with which to find each of the

6

RICO elements within the voyage performed under the charter

in question and the dissent to the Decision and Final Award

should be given no weight whatever.

B. THE SECOND CIRCUIT DECISION RE-

VIEWING THE SCOPE OF ARBITRA-

TORS’ POWER IS A PROPER APPLICA-

TION OF LEGITIMATE POLICY GOALS

TO THE GOVERNING CONTRACT

1. THE ARBITRATION AGREEMENT IN

QUESTION CREATES A BROAD

AGREEMENT TO ARBITRATE

The Court should also not be misled by petitioner’s

arguments which seek an unduly restrictive interpretation of the

phrase “‘arising out of.” As emphasized by the Second Circuit,

the full text of the opening clause of the arbitration agreement

which defines the arbitrable issues provides:

Any and all differences and disputes of whatsoever

nature arising out of this Charter shall be put to

arbitration ****

(Emphasis added as in Second Circuit opinion).

Pet. App. 3a.

The Second Circuit noted that even though the broad arbitration

provision permits the panel to look at evidence beyond the

voyage in question, the arbitrators’ decision imposes liability

only on the petitioner for claims arising out of the voyage

subject to the charter:

The dispute here was directly based on a shortage in

the fuel oil delivered at the end of the single voyage

covered by Charter. It is true that Kerr-McGee

thereafter obtained evidence that the shortage was

7

intentional and part of a prior practice. This

evidence, however, did not alter the facts that the

dispute arose “out of” the Charter and the dasiapes

were inflicted during TRIUMPH’s performance

under it. Even though the arbitration panel looked at

other voyages, it did not determine the liability of a

person not party to the contract, .. . The award here

imposes liability only on Triumph, a party to the

Agreement to arbitrate.

Pet. App. 6a.

2.IT IS WELL-ESTABLISHED LAW

THAT ARBITRATORS MAY LOOK

BEYOND THE SPECIFIC TRANS-

ACTION GOVERNED BY THE ARBI-

TRATION AGREEMENT

There is nothing new or radical in arbitrators looking

beyond the specific transaction governed by the agreement to

arbitrate. Arbitrators, for example, regularly look to evidence

of industry custom and practice in connection with a dispute

arising out of a single contract. Custom and practice clearly

develop even before the existence of the disputed contract and

do not directly involve the parties to the contract. As this Court

stated in United Steelworkers of America v. Warrior & Gulf

Navigation Co., 363 U.S. 574, (1960) the:

... arbitrator’s source of law is not confined to the

express provisions of the contract, as the industrial

common law—the practices of the industry and the

shop—is equally a part of the collective bargaining

agreement although not expressed in it.

363 U.S. at 581-582.

This reasoning is sound since implicit in the parties’ choice of

arbitration as a method of dispute resolution is their desire for a

resolution which will reflect industry practices and standards.

Additionally, this Court has specifically recognized that the

nature of some types of claims requires arbitrators to look at

evidence beyond the immediate agreement to arbitrate. In Prima

Paint Corp. v. Flood & Conklin Mfg.. Co., 388 U.S. 395

(1967), for example, this Court held that arbitrators have the

power to determine a claim of fraud in the inducement of the

contract which contains the arbitration agreement.

Maritime arbitrators must necessarily look beyond the

transaction governed by the agreement on the many occasions

when they must decide the central issue under the Carriage of

Goods by Sea Act, 46 U.S.C. §1300-1315 (““COGSA”), that

is, whether due diligence has been exercised to make the vessel

seaworthy prior to the commencement of a voyage (46 U.S.C.

§ 1304). By definition, all evidence of due diligence arises prior

to the contract that contains the arbitration provision. If

arbitrators were unable to consider prior events, the maritime

arbitration process would be severely undermined.

3. ARBITRATORS MUST HAVE POWER

TO LOOK BEYOND THE SPECIFIC

TRANSACTION GOVERNED BY THE

ARBITRATION AGREEMENT TO

HAVE EFFECTIVE ARBITRATION

OF RICO CLAIMS

This Court has definitively held that RICO claims are

arbitrable. Shearson/American Express, Inc. v. McMahon, 482

U.S. 220, 242 (1987). The RICO statute requires that two

“racketeering acts” within ten years must be established. 18

U.S.C. §1961(5). The victim of those predicate acts, however,

need not be the plaintiff who claims injury from the pattern of

racketeering. See, e.g., H.J., Inc. v. Northwestern Bell

Telephone Co., 492 U.S. 229 (1989). To forbid arbitrators

from hearing evidence of predicate acts which were committed

outside the time span of the contract and to forbid them from

hearing evidence of predicate acts committed against others

9

who are not parties to the contract in arbitration would strip

arbitrators of their power to hear many RICO disputes. The

facilitation of arbitration which the Supreme Court hoped to

achieve through its ruling in McMahon, supra, would be lost.

In fact, the burdens on courts would increase as litigation

would constantly be required to determine what cases (or

indeed, what issues) were arbitrable. For these very reasons,

respondent, in the instant case, filed a precautionary Second

Amended Complaint to state RICO claims in the event that the

District Court’s Opinion and Order vacating the Decision and

Final Award is affirmed.

In sum, arbitrators must be free to look to events prior to

the transaction in question and there is nothing new or

remarkable in such a practice. Imposition of the restrictive

standard advocated by petitioner, however, would disembowel

the arbitral process.

4. PETITIONER DEMANDS A RADICAL

AND DISRUPTIVE DEPARTURE

FROM THIS COURT’S' WELL-

ESTABLISHED POLICY REGARDING

THE REVIEW OF ARBITRATION

AWARDS

This Court has established a clear policy which favors

contractually agreed upon arbitration and has recognized the

concomitant necessity of assuring the finality of arbitration

awards. Petitioner, however, asks this Court to hold that the

district courts should review the merits of arbitrators’ awards

and vacate an award which fails to state specific reasons for its

conclusion, even though those reasons are contained within the

award.

Presently, an award of arbitrators “may be made without

explanation of their reasons and without a complete record of

their proceedings.” Wilko v. Swan, 346 U.S. 427, 436

10

(1953), rev’d on other grounds, Quijas v. Shearson/American

Express, Inc., 490 U.S. 477 (1989). It is the arbitrators’

construction of the contract that was bargained for, not the

court’s. United Steelworkers of America v. Enterprise Wheel

& Car Corp., 363 U.S. 593, 596 (1960). Accordingly, the

Second Circuit has established that an arbitration award will

not be vacated when the arbitrator explains a decision “in terms

that offer even a barely colorable justification for the outcome

reached.” Andros Compania Maritima, S.A. v. Marc Rich &

Co., 579 F.2d 691, 704 (2d Cir. 1978). Not even petitioner

has suggested that there is any conflict among the circuits on

this rule.

If this Court were now to require courts to abandon the

present well-established standard of review noted above, that

decision would obviously be at odds with developed policy

which favors the autonomy of the arbitration process. It would

also require not only the Second Circuit, but courts across the

United States which have followed the Supreme Court’s

guidelines, to articulate new standards governing the review of

arbitration awards. Additionally, the district courts would be

required to submerge themselves in the merits of disputes that

parties have contracted to be heard by arbitrators. In sum, this

Court should not, as petitioner demands, make a radical and

disruptive departure from its well-established policy limiting

the review of arbitration awards.

C. THE QUESTIONS PETITIONER RAISES

DO NOT MERIT REVIEW

The Second Circuit opinion is well reasoned and is tailored

to allow the arbitration of RICO claims in conformity with

well-established policy which protects the autonomy of the

arbitration process. Petitioner advocates a rule of law which -

would call into question established arbitration practices such

as the consideration of industry practice and the narrow

standard governing judicial review of arbitration awards. The

11

rule of law proposed by petitioner would make the arbitration

of many RICO claims impossible and would cause an

undesirable realignment of the arbitration versus litigation

balance. Moreover, this is not the appropriate case for

consideration of the issues raised as the arbitrators’ awards

demonstrate sufficient facts to justify their confirmation.

CONCLUSION

For the foregoing reasons the Petition for a Writ of

Certiorari should be denied.

Respectfully Submitted,

JOHN P. VAYDA

Counsel of Record for Respondent

NOURSE & BOWLES

One Exchange Plaza

At 55 Broadway

New York, New York 10006

(212) 952-6200

MARIA L. ALONSO

PETER T. JENSEN

Of Counsel

APPENDIX

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ar Uukegaah

A-1

In the Matter of the Arbitration

between

Partial Fina!

Triumph Tankers Ltd., as

Owners of the TRIUMPH

and

Kerr McGee Refining Corp.,

as Charterers

Before: Alexis Nichols

Louis P. Sheinbaum, Esq.

Manfred W. Arnold, Chairman

Appearances: Burlingham Underwood & Lord

for and on behalf of Triumph Tankers Ltd.

by Joseph C. Smith, Esq., of Counsel

Nourse & Bowles

for and on behalf of Kerr McGee

Refining Corp.

by John P. Vayda, Esq., of Counsel

This dispute arises out of a voyage charter party (ASBA-

TANKVOY Form) dated March 5, 1984 between Triumph

Tankers Ltd. (hereinafter “Owners”) and Kerr McGee Refining

Corp. (hereinafter “Charterers”), under which the parties

agreed to arbitrate “(a)ny and all differences and disput s of

whatsoever nature arising out of this charter...” .

ii.

A-2

The printed ASBATANKVOY Form, Part II, provided:

Clause 10 - PUMPING IN AND OUT.

The cargo shall be pumped into the Vessel at the

expense, risk and peril of the Charterer, and shall be

pumped out of the Vessel at the expense of the

Vessel, but at the risk and peril of the Vessel only so

far as the Vessel’s permanent hose connections

where delivery of the cargo shall be taken by the

Charterer or its consignee. .. .

The contract covered a voyage from one safe port East

Coast United Kingdom to port(s) in the U.S. Atlantic or Guif

of Mexico range on the basis of a part cargo of minimum

70,000 tons.

The vessel loaded at the Nigg Oil Terminal 539,999 net

bbls. of Beatrice Crude with an API of 39.2. The quantity was

determined by shore flow meters and same was incorporated in

the Bill of Lading dated March 10, 1984 which showed Kerr

McGee Refining Corporation as the consignee at Corpus

Christi. Free water in the cargo tanks, after loading, was 1,947

bbls., for which Kerr McGee protested to shippers (Britoil) in

writing. Ship’s figures at the Nigg Terminal, as reflected by

the Chief Officer’s calculations, using vessel’s records, show a

cargo loaded of 545,033 net bbls. Vessel’s bunker tanks were

sounded by Charterers’ surveyors and showed 1,281.871 L/T

fuel upon arrival at the Nigg Terminal and 1,267.871 L/T at the

time of sailing.

Upon arrival at Corpus Christi, ullages were taken by E.

W. Saybolt (appointed by Charterers) and attended to by Hull

& Cargo Surveyors, Inc. (retained by Owners). Saybolt

calculated the cargo on board to be 538,250.09 gross bbls.

A-3

Pursuant to Saybolt’s report (before “corrected’’), the shore

tank gauging showed a receipt of 528,060.65 net bbls.! and

3,198 bbls. of free water.2 Again, Charterers’ surveyors

conducted a bunker survey which established 393.1 L/T fuel

upon arrival and 359.38 L/T upon completion of discharge.

With respect to the claims, it appears that initially

Charterers deducted $213,000 from freight to cover an alleged

short delivery of cargo. On or about May 11, 1984, Charterers

paid the withheld freight, with Owners now claiming for

interest on the delayed payment.

(Charterers’ original claim was for the short delivery of

4,835.91 bbls., which equated to $150,638.59.3 Subse-

quently, Charterers developed information,* according to

which vessel’s No. 3 centertank and its internals contained

certain modifications (by welding and/or plating over

apertures) which in fact created a retaining area or tank within

this particular tank. The report refers at page 9 to,

1 Charterers’ Exhibit 6, p. 3

2 Charterers’ Exhibit 6, p. 4

3 The 4,835.91-barre! amount was calculated by taking the barrels on

board based upon ship’s tanks ullages on loading, according to surveyors

appointed by owners, and surveyors appointed by charterers (Charterers’

Exhibits 2, p. 13 and 4, p. 7) of 545,033 barrels (which Owners say was

incorrectly calculated), less the 538,250.09 gross barrels on board on

arrival, as calculated by Saybolt, based upon ship tank ullages, less 1,947

barrels of water.

4 This data was obtained from a survey and photographs of the RIO (ex

TRIUMPH) (Charterers’ Exhibit 34) while being dismantled by the

breakers in China. The report, dated March 27, 1986, was prepared by

McLaren, Dick & Co. (Asia) Ltd. for the account of Clyde & Co. in an

unrelated matter.

a acaesncmmmarea naar tesserae nenane

A-4

. . . @ Spur line of smaller diameter which for the

most of its length ran inboard and parallel to the main

(cargo) line on the outboard side of the starboard

girder in the forward bay of No. 3 centre tank. At

the forward end the spur line was fitted with a (gate

type) suction valve and short bend which was

connected to a “tee” piece in the main line adjacent to

bulkhead No. 2/3. At the aft end the spur line turned

inboard, and passed through the side girder into the

starboard aft corner of the “enclosed area” where it

dropped down and terminated in a suction strum.

It is Charterers’ contention that they have at the least

established that vessel’s ullage readings were unreliable and,

therefore, should be disregarded in favor of shore readings.

Charterers have amended their claim to reflect the loss of

11,938.35 bbls. (based on net shore-to-shore readings) for

$371,879.60.

What appeared at first sight to be a fairly simple case of a

short delivery developed over the seven hearings into a

complex matter involving allegations of cargo stealing by this

vessel, as well as other vessels operated by the same

managers, perjury by the vessel’s Chief Engineer, alterations

to the Deck and Engine logs, etc.

Because of the alleged conversion of cargo, Charterers are

also now seeking treble damages (under the RICO® statute),

together with an award for interest, costs and reasonable

attorneys’ fees.

Owners deny Charterers’ allegations, both as to the cargo

shortage and the cargo conversion. Owners conceded that

5 Racketeer Influenced Corrupt Organizations Act

A-5

vessel’s ullages at the loading port were incorrect and they

agreed to be bound by the shore or Bill of Lading figures.

Owners similarly agree that the vessel, upon arrival at

Corpus Christi, had the quantity stated by the Charterers and

that the apparent in-transit loss represented the 3,198 bbls. of

free water, or 1,251 bbls. increase of free water during the

voyage. They attribute this increase to water settling out of

cargo.

Owners fv-thermore dispute that the cargo had a BS&W of

0.06%. They alleged that the cargo at Nigg Terminal was not

the same for which the Quality Certificate was issued showing

API of 39.2 as opposed to 38.4 determined at Corpus Christi.

As a result of this inconsistency, they asserted that the BS&W

of 0.06% was in doubt and would account for the increase of

free water during the voyage.

Finally, Owners dispute that the McLaren report at the

demolition yard in China had any probative value because

Owners were never invited to attend, and furthermore Owners

contend that the report itself is not authenticated.

Owners have accepted the loadport shore figure as the

controlling quantity on the grounds that vessel’s calculations

contained obvious errors.© The loadport vessel ullage figures

were about 5,000 bbls. greater than the shore (Bill of Lading)

quantity. With respect to the discharging port ullages, the panel

has decided to accept the shore figures for the calculation of

cargo delivered because of the imprecise cargo volume

determination in centertank No. 3. Put another way, it is

obvious that, given the above modifications to the No. 3

centertank of the TRIUMPH, the tank ullages cannot be relied

upon to determine how much cargo had been loaded on board

and/or delivered by the vessel. We base this decision on our

© Owners’ Main Brief, p. 5

A-6

conclusion that the modifications found in the No. 3 centertank

(in China during the scrapping operation) were existent on

board the TRIUMPH at the time of this voyage.

At this time, we do not make a determination as to whether

or not Owners were privy to the modification as a pre-existing

condition when (or after) they acquired the vessel, or whether

Owners in fact arranged for these structural changes. It is,

however, apparent that the existence of the retaining area in the

No. 3 centertank rendered vessel’s tank measurements

unreliable.

In view of the above conclusions, there is no need to deal

with the changes of the API or any other data relating to the

observed data with respect to cargo on board the vessel. Using

the shore figures for the loading and discharging ports, the

panel concludes that the vessel failed to deliver 7,497.41 net

bbls.” of Beatrice Crude Oil. The panel accepts the CIF value

of $31.158 as the proper measure of damages which resulted in

a loss to Charterer of $233,544.32. We also award interest at

the rate of 9.5% per annum from March 30, 1984 to the date of

this award.

Charterers have raised the issue of RICO as a basis for

their claim for treble damages. The panel has carefully

considered the arguments, particularly in view of the

Shearson/American Express v. McMahon decision,? where the

court found that RICO claims indeed are arbitrable; and Valero

7 Which is the difference between 539,999 net bbls. at the loadport as Bill

of Lading quantity (Owners’ Exhibit 3-a) and 532,501.59 net bbls. at the

discharging port (Charterers’ Exhibit 6 - Saybolt Shore Tank Gauging

Report dated March 30, 1984, “corrected” report to change water gauge and

barrels, also changing “net standard volume” ) .

8 Charterers’ Exhibit 9

9 107 S.Ct. 2332 (1987)

A-7

Refining Inc. v. M/T LAUBERHORN,!° where the Court of

Appeals for the Fifth Circuit found Valero’s RICO claim to be

arbitrable in a maritime setting.

Having concluded that the panel is empowered to and

should consider a RICO claim asserted in arbitration, additional

briefing on the statute and its application to this case, together

with the claim for punitive damages, should be made of the

parties before the panel decides the remaining issues/claims.

The panel defers its decision on Charterers’ claim for

attorneys’ fees and costs incurred until the final award.

Likewise, the panel reserves its right to deal with Owners’

interest claim for the late payment of freight in the final award.

The costs for the hearing transcripts are to be equally shared by

the parties.

The arbitrators’ fees, as set forth in Appendix A attached

hereto, are an integral part of this award and are the joint and

several obligation of both parties. Payment of the fees is to be

made pursuant to the directions contained in Appendix A.

10 813 F. 2d 60 (Sth Cir. 1987)

A-8

THE AWARD:

The panel directs Owners to pay to Charterers the sum of

$332,138.41, which we arrived at as follows:

1. Value of cargo short delivered ....... $233,544.32

2. Interest on Item 1. at 9.5% p.a.

for the period from March 30, 1984

to the date of this award .............. __98,594.09

$332,138.41

If this award has not been satisfied in full within 30 days

from the date of this award, interest at the rate of 10% per

annum shall resume on the principal amount and continue to

run until payment in full has been made or the award has been

reduced to judgment, whichever first occurs.

ls

Alexis Nichols

ls/

Louis P. Sheinbaum, Esq.

ls/

Manfred W. Arnold, Chairman

New York, New York

September 7, 1988

A-9

APPENDIX A

The panel’s fee for rendering this award is $31,200, or

$10,400 per arbitrator.

Each side is to pay each arbitrator the sum of $5,200. The

panel reserves its right to reallocate the fees in its final award.

The liability for the panel’s fees is joint and several.

(In the Matter of the Arbitration

between

Triumph Tankers Ltd., as Owners

of the TRIUMPH

and

Kerr McGee Refining Corp.,

as Charterers)

New York, New York

September 7, 1988

A-10

APPENDIX B

(TO FINAL AWARD WHICH IS AT

PETITIONER’S APPENDIX 20a et seq.)

The panel’s fee for rendering this award is $54,000, or

$17,000 each for Messrs. Sheinbaum and Arnold and $20,000

for Mr. Nichols.

Although the arbitrators’ fee is assessed in full against the

Owners, payment in the first instance is to be made in full by

the Charterers.

The arbitrators’ fee is the joint and several obligation of

both parties.

(In the Matter of the Arbitration

between

Triumph Tankers Ltd., as Owners

of the TRIUMPH

and

Kerr McGee Refining Corp.,

as Charterers)

New York, New York

March 28, 1990