Aqua Marine (AM) is a corporation on Nevis in the West Indies that supplies bunker fuel. It initiated arbitration against Garanti Finansal Kiralama (GFK), demanding to be paid for bunkers delivered to two vessels owned by GFK.
GFK did not dispute its ownership of the vessels, but said since it was not a party to any of AM’s bunker contracts it did not have to arbitrate.
AM had issued order confirmation contracts, in which it specified any dispute over any of the contracts were to be resolved by a panel of New York-based arbitrators under the rules of the Society of Maritime Arbitrators.
GFK wanted to avoid arbitration, so it asserted admiralty jurisdiction and sought a declaratory judgment that it was not bound to arbitrate because it was not a party to AM’s contract.
An entity called CMR Denizcilik Veticaret A.S. (CMR) signed as manager on behalf GFK. But GFK disputed that CMR was its “manager” or had been authorized to act as its agent. Instead, GFK claimed it had leased the two vessels to companies under bareboat charters and the charterers, in turn, may have hired CMR to manage the vessels.
If CMR acted in an agency capacity, it was likely to be agent for the charterers, GFK said. GFK said CMR was neither its agent nor did it act on GFK’s behalf.
For its part, AM argued GFK was bound by the contract as a matter of law. It said CMR had identified itself as GFK’s “manager” and produced other documents — a fuel contract, an inventory report from the Mauritius government, and insurance certificates for one of the ships that described CMR as manager and/or operator/charterer. AM argued the preponderance of the evidence suggested “CMR is GFK’s agent.”
The district court agreed and dismissed GFK’s complaint. The court cited the federal policy in favor of arbitration, and said GFK failed to meet its burden to show it was not bound by the contract.
GFK appealed. (Garanti Finansal Kiralama A.S. v. Aqua Marine and Trading Inc. No. 11-631. 2nd Circuit. Oct. 2.)
The 2nd Circuit said “both parties advanced a host of arguments about principles of arbitration and of maritime lease law,” but said none of the arguments were dispositive because GFK did not challenge the validity of the fuel contract’s arbitration provision itself.
GFK never denied CMR must arbitrate under the contracts but instead argued CMR could not bind GFK to the contracts.
So the 2nd Circuit said the case “stands or falls on agency principles. On the merits, the parties’ submissions to the district court do create a genuine issue of material fact regarding agency — as the district court recognized — and thus AM was not entitled to judgment as a matter of law.”
It vacated the district court’s summary judgment in AM’s favor and said most of the arguments put forth were “entirely beside the point.”
The 2nd Circuit said traditional agency principles apply and, under admiralty law, whether one party has authority to bind another to a maritime contract is a question of general maritime law.
An agent can have actual authority, meaning explicit permission from the principal to act on its behalf, or apparent authority, by which the agent can affect the principal’s legal relations with a third party if the third party believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s “manifestations.”
The 2nd Circuit said “generally, the existence of either actual or apparent authority is a question of fact and ‘agency’ an element of the plaintiff’s ‘case-in-chief,’ where the party with the burden of proof presents its evidence.”
In this case, GFK denied it was party to any contract with AM, and the 2nd Circuit agreed “strictly speaking, that is true — GFK and AM never had any contact at all.
“But AM asserts that CMR, with whom it did have a contract, was acting on GFK’s behalf. Thus, to defend against GFK’s claims and preserve its right to proceed in arbitration, AM must prove its affirmative defense — that CMR is GFK’s agent.”
“This is the rare case where agency is an affirmative defense,” the court said. AM had the burden to prove an agency relationship.
The court said “Nothing in the record unequivocally shows that CMR had actual authority to act for GFK” and it agreed leasing arrangements between GFK and the charterers, were “deeply ambiguous” and that there were three reasons they did not prove actual authority as a matter of law:
- There were agreements between GFK and the charterers, not CMR. AM faces the challenge of “proving double agency — that the charterers had authority to bind GFK to a contract with CMR, and that that contract, in turn, provided CMR authority to bind GFK to a contract with AM. AM has provided no evidence to that effect.”
- The court said even if it could assume CMR worked for the charterers, the agreements almost exclusively set forth the charterers’ relationship with the vessels, not with GFK.
- AM’s argument that because GFK, in the leasing agreement, allegedly “retained” a variety of rights, necessarily CMR was acting on GFK’s behalf, not on its own. The 2nd Circuit said there was no basis for making that “inferential leap.”
AM’s evidence consisted mostly of documents in which CMR held itself forth as “managers” for GFK, but the court said this evidence is “totally irrelevant.”
“Just as under the general common law… under maritime law, apparent authority cannot be evidenced by statements of an agent alone.”
To recover against a principal on an apparent authority theory, the court said it was crucial to prove the principal was responsible for the appearance of authority in the agent.
The district court should have drawn all inferences in GFK’s favor, and said its treatment of the case was “tantamount to a grant of summary judgment.”
The 2nd Circuit said while it appreciated the district court’s efforts to streamline the proceedings and resolve the case quickly, “there remain facts in dispute regarding the critical issue of CMR’s agency.”
The judgment of the district court was vacated and the case was remanded.
